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Exhibit 10.1
HALSEY DRUG CO., INC.
$20,800,000
5% CONVERTIBLE SENIOR SECURED DEBENTURE
DUE MARCH 15, 2003
WARRANTS TO PURCHASE
SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE
HALSEY DRUG CO., INC.
DEBENTURE AND WARRANT PURCHASE AGREEMENT
DATED AS OF MARCH 10, 1998
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March 10, 1998
To the Purchaser(s) Set Forth on Exhibit A hereto:
HALSEY DRUG CO., INC., a New York corporation (the "Company"), agrees
with you as follows:
ARTICLE I
AUTHORIZATION OF THE SECURITIES; ADJUSTMENT OF CONVERSION
PRICE AND WARRANT PRICES
1.1. Authorization of Securities. The Company represents that it has
taken all corporate action necessary to authorize the issuance and sale of (a)
its 5% Convertible Senior Secured Debentures due March 15, 2003 in the aggregate
principal amount of $20,800,000 (the "Debentures"), (b) warrants to purchase an
aggregate of 2,101,010 shares of Common Stock, par value $.01 per share ("Common
Stock"), of the Company initially at a price of $2.375 per share (the "$2.375
Warrants") and (c) warrants to purchase an aggregate of 2,101,010 shares of
Common Stock initially at a price of $1.50 per share (the "$1.50 Warrants" and
together with the $2.375 Warrants, the "Warrants"). The Debentures and the
Warrants (collectively, the "Securities") are to be sold pursuant to this
Agreement to you (each of you is sometimes referred to herein as a "Purchaser").
Interest on the Debentures is payable at the rate of 5% per annum, as more
particularly specified in the form of Debenture attached hereto as Exhibit B.
Each Debenture is convertible in whole or in part from time to time into a
number of shares of Common Stock initially at the rate of one share of Common
Stock for each $1.50 in principal amount of the Debenture to be converted. For
purposes of this Agreement, the term "Shares" shall mean the shares of Common
Stock which may be issued upon conversion of all or a portion of the principal
amount of the Debentures and the shares of Common Stock that may be issued from
time to time pursuant to the exercise of the Warrants. The term "Shares" does
not include any other shares of Common Stock or other capital stock of the
Company.
1.2. Adjustment of Conversion Price and Warrant Prices.
(a) The prices at which Shares may be acquired upon conversion
of the Debentures and exercise of the Warrants (the "Conversion Price" and the
"Warrant Prices", respectively) are subject to adjustment as set forth therein.
In addition, the initial Conversion Price and Warrant Prices shall each be
subject to a downward adjustment as provided in Section 1.2(b).
(b) The Company shall prepare and cause Grant Thornton LLP to
review a schedule of liabilities of the Company and its subsidiaries as of
February 28, 1998. The Company shall deliver to the Purchasers such schedule
accompanied by the report of Grant Thornton LLP on its review thereof not later
than March 10, 1998 (the "Reviewed Liability
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Schedule"). If the total liabilities set forth in the Reviewed Liability
Schedule exceeds $27,640,000, then, to the extent the total liabilities set
forth on the Reviewed Liability Schedule exceeds $27,140,000 (which is the total
estimated liabilities of the Company and its subsidiaries as of February 28,
1998 as set forth on a schedule of estimated liabilities delivered to the
Purchasers by the Company prior to the date hereof), each of the initial
Conversion Price and the initial Warrant Prices shall be reduced by an amount
equal to the quotient obtained by dividing such excess by 13,597,423 (which is
the number of shares of Common Stock of the Company outstanding as of February
28, 1998). For example, if the total liabilities of the Company and its
subsidiaries as set forth in the Reviewed Liability Schedule is $29,140,000,
then the initial Conversion Price and initial Warrant Prices shall each be
reduced by $.147 ($2,000,000 divided by 13,597,423) and after such reductions
will be $1.353, $1.353 and $2.228, respectively.
ARTICLE II
SALE AND PURCHASE OF THE SECURITIES; SECURITY DOCUMENTS
2.1. Sale and Purchase of the Securities. Subject to the terms and
conditions hereof and in reliance on the representations and warranties
contained herein, or made pursuant hereto, the Company will issue and sell to
each Purchaser and/or such Purchaser's designees, and each Purchaser will
purchase from the Company, on the Closing Date specified in Article 3, the
Securities for the purchase prices set forth opposite such Purchaser's name on
Exhibit A.
2.2. Company Security Documents. All of the obligations of the Company
under the Debentures shall be secured by the following:
(a) A lien on all the personal property and assets of the Company now
existing or hereinafter acquired granted pursuant to a Company General Security
Agreement dated of even date herewith between the Company and Galen Partners
III, L.P. ("Galen"), as agent for the Purchasers (the "Company General Security
Agreement"), which, except for Permitted Liens (as hereinafter defined), shall
be a first lien.
(b) Collateral assignments of all leases, contracts, patents,
copyrights, trademarks and service marks of the Company (collectively, the
"Company Collateral Assignments").
2.3. Guaranties. All of the obligations of the Company under the
Debentures shall be guaranteed pursuant to Continuing Unconditional Secured
Guaranties (each, a "Guaranty" and collectively, the "Guaranties") by each of
the following subsidiaries of the Company (each, a "Guarantor"):
(a) Houba, Inc. ("Houba");
(b) Halsey Pharmaceuticals, Inc.;
(c) Indiana Fine Chemicals Corporation;
(d) Cenci Powder Products, Inc. ("CPP"); and
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(e) H.R. Cenci Laboratories, Inc. ("HR Cenci")
2.4. Guarantor Security Documents. All of the obligations of the
Guarantors under the Guaranties shall be secured by the following:
(a) A lien on all of the personal property and assets of the
respective Guarantors now existing or hereinafter acquired, granted pursuant to
a Guarantors General Security Agreement dated of even date herewith between the
Guarantors and Galen, as agent for the Purchasers (the "Guarantors Security
Agreement"), which, except for Permitted Liens, shall be a first lien.
(b) Collateral assignments of all leases, contracts, patents,
copyrights, trademarks and service marks of the Guarantors (collectively,
"Guarantor Collateral Assignments").
(c) A first mortgage granted by Houba on real property owned
by Houba located at 16235 State Road 17, Culver, Indiana (the "Culver
Mortgage").
(d) A first mortgage granted by CPP and HR Cenci on real
property owned by HR Cenci located at 152 North Broadway, Fresno, California
(the "Fresno Mortgage" and together with the Culver Mortgage, the "Mortgages").
ARTICLE III
CLOSING
The closing of the purchase and sale of the Securities (the
"Closing") will take place at the offices of Wolf, Block, Schorr and Solis-Cohen
LLP, 250 Park Avenue, New York, New York 10177 simultaneously with the execution
of this Agreement, or such other place, time and date as shall be mutually
agreed to by the Company and the Purchaser. Such time and date is herein called
the "Closing Date."
On the Closing Date there will be delivered to each Purchaser
(a) a Debenture dated the Closing Date, in the principal amount set forth
opposite the name of such Purchaser in Exhibit A, (b) a warrant certificate or
certificates substantially in the form of Exhibit C registered in such
Purchaser's name representing the right to purchase for $2.375 per Share the
number of Shares set forth opposite the name of such Purchaser on Exhibit A and
(c) a warrant certificate or certificates substantially in the form of Exhibit D
representing the right to purchase for $1.50 per Share the number of Shares set
forth opposite the name of such Purchaser on Exhibit A. The number of Shares
which may be purchased upon exercise of the Warrants is subject to adjustment as
provided therein. The foregoing Securities shall be delivered by the Company,
against delivery by each Purchaser to the Company of an unendorsed certified or
official bank check payable to the order of the Company drawn upon or issued by
a bank which is a member of the New York Clearinghouse for banks (or wire
transfer) for the amount set forth opposite the name of such Purchaser on
Exhibit A.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to you as follows:
4.1. Organization and Existence, etc. Except as set forth in Section
4.1 of the Schedule of Exceptions attached hereto as Exhibit E (the "Schedule of
Exceptions") or in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as amended, or the Company's Quarterly Report in Form
10-Q for the quarter ended September 30, 1997 (collectively, the "Selected
Reports"), the Company is a corporation duly organized and validly existing and
in good standing under the laws of its jurisdiction of incorporation, and has
all requisite corporate power and authority to carry on its business as now
conducted and proposed to be conducted; the Company has all requisite corporate
power and authority to enter into this Agreement, to issue the Securities as
contemplated herein and to carry out and perform its obligations under the terms
and conditions of this Agreement. Except as set forth in Section 4.1 of the
Schedule of Exceptions, the Company does not own or lease any property or engage
in any activity in any jurisdiction which might require qualification to do
business as a foreign corporation in such jurisdiction and where the failure to
so qualify would have a material adverse effect on the financial condition of
the Company and its Subsidiaries, taken as a whole, or subject the Company to a
material liability. To the extent the Company has not qualified to do business
in such jurisdictions, it will prepare and file such necessary applications or
documents to be filed with the appropriate authorities in such jurisdictions to
obtain such qualifications within 60 days. The Company has furnished you with
true, correct and complete copies of its Certificate of Incorporation, By-Laws
and all amendments thereto to date.
4.2. Subsidiaries and Affiliates. Section 4.2 of the Schedule of
Exceptions sets forth the name, jurisdiction of incorporation and authorized and
outstanding capitalization of each entity in which the Company owns securities
having a majority of the voting power in the election of directors or persons
serving equivalent functions (each, a "Subsidiary"). Except as set forth in
Section 4.2 of the Schedule of Exceptions, the Company has, and upon the Closing
will have, no Subsidiaries and does not, and upon the Closing will not, own of
record or beneficially any capital stock or equity interest or investment in any
corporation, association or business entity. Except as set forth in Section 4.2
of the Schedule of Exceptions or in the Selected Reports, each Subsidiary is a
corporation duly organized and validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to carry on its business as now conducted and proposed to be
conducted. Except as set forth in Section 4.2 of the Schedule of Exceptions, no
Subsidiary owns or leases
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any property or engages in any activity in any jurisdiction which might require
such Subsidiary to qualify to do business as a foreign corporation in such
jurisdiction and where the failure to so qualify would have a material adverse
effect on the financial condition of the Company and its Subsidiaries, taken as
a whole, or subject such Subsidiary to a material liability. To the extent any
Subsidiary has not qualified to do business in such jurisdictions, it will
prepare and file such necessary applications or documents to be filed with the
appropriate authorities in such jurisdictions to obtain such qualifications
within 60 days.
4.3. Capitalization.
(a) As of the date hereof, the Company's authorized capital stock
consists of 20,000,000 shares of Common Stock, par value $.01 per share, of
which 13,597,423 shares are outstanding and 4,672,868 of which are reserved for
issuance for the purposes set forth in Section 4.3 of the Schedule of
Exceptions, 2,179,312 of which have been reserved for issuance upon conversion
of the Debentures and none of which have been reserved for issuance upon
exercise of the Warrants. As of the date hereof, the Company holds 449,603
shares of Common Stock in its treasury which shares may be reissued.
(b) All the issued and outstanding shares of capital stock of the
Company shall, as of the Closing, (i) have been duly authorized and validly
issued, (ii) be fully paid and nonassessable and (iii) have been offered,
issued, sold and delivered by the Company in compliance with applicable Federal
and state securities laws. Other than as set forth in Section 4.3(a), Section
4.3 of the Schedule of Exceptions or the Selected Reports, there are no
outstanding preemptive, conversion or other rights, options, warrants, calls,
agreements or commitments granted or issued by or binding upon the Company, for
the purchase or acquisition of any shares of its capital stock or securities
convertible into or exercisable or exchangeable for capital stock.
4.4. Authorization. All corporate action on the part of the Company and
the directors and stockholders of the Company necessary for the authorization,
execution, delivery and performance by the Company of this Agreement and the
transactions contemplated herein, and for the authorization, issuance and
delivery of the Securities, has been taken or will have been taken prior to the
Closing.
4.5. Binding Obligations; No Material Adverse Contracts, etc. This
Agreement is a valid and binding obligation of the Company enforceable in
accordance with its terms. Except as set forth in Section 4.5 of the Schedule of
Exceptions, the execution, delivery and performance by the Company of this
Agreement and compliance herewith 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 under, any provision of state or Federal law to which the Company is
subject, the Certificate of Incorporation, as amended, or the By-Laws, as
amended, 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, or except for liens on the assets of
the Company created in favor of the Purchasers, result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company
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pursuant to any such term. Except as set forth in Section 4.5 of the Schedule of
Exceptions or the Selected Reports, no stockholder of the Company has or will
have any preemptive rights or rights of first refusal by reason of the issuance
of the Securities or Shares issuable upon conversion or exercise of the
Securities.
4.6. Compliance with Instruments, etc. Except as set forth in Section
4.6 of the Schedule of Exceptions or the Selected Reports, neither the Company
nor any Subsidiary is (a) in default past any grace, notice or cure period under
any indenture, agreement or instrument to which it is a party or by which it is
bound, (b) in violation of its Certificate of Incorporation, By-Laws or of any
applicable law, (c) in default with respect to any order, writ, injunction or
decree of any court, administrative agency or arbitrator, or (d) in default
under any order, license, regulation or demand of any government agency, which
default or violation would materially and adversely affect the business,
properties or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole.
4.7. Litigation. Except as set forth in Section 4.7 of the Schedule of
Exceptions or the Selected Reports, there is no action, suit or proceeding
pending, or, to the knowledge of the Company, threatened, against the Company or
any Subsidiary before any court, administrative agency or arbitrator or any
action, suit or proceeding pending, or, to the knowledge of the Company,
threatened, which challenges the validity of any action taken or to be taken
pursuant to or in connection with this Agreement or the issuance of the
Securities.
4.8. Financial Information; SEC Documents.
(a) The Company has furnished to the Purchasers the
consolidated financial statements of the Company and its Subsidiaries, including
consolidated balance sheets as of December 31, 1995 and 1996 and consolidated
statements of operations, changes in cash flows and stockholders' equity,
covering the three years ended December 31, 1996, all of which statements have
been certified by Grant Thornton LLP, certified public accountants, and all of
which statements are included or incorporated by reference in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 filed with the
Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Such financial statements
fairly present the condition of the Company and its Subsidiaries as of the dates
thereof and the results of the operations of the Company and its Subsidiaries
for such periods.
(b) The Company has also furnished to the Purchasers the
unaudited consolidated balance sheet of the Company and its subsidiaries as of
September 30, 1997, and the related unaudited consolidated statements of
operations, consolidated statements of cash flow and consolidated statements of
stockholders' equity for the three months and nine months ended September 30,
1996 and September 30, 1997, set forth in the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997, as filed with the
Commission. Such financial statements fairly present, in conformity with
generally accepted accounting principles ("GAAP") applied on a basis consistent
with the financial statements referred to in paragraph (a) of this Section, the
consolidated financial position of the Company and its
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Subsidiaries as of such date and their consolidated results of operations for
such periods (subject to normal year-end adjustments). Since September 30, 1997,
the Company has not had net losses (as calculated in conformity with GAAP
applied on a basis consistent with the financial statements referred to in
paragraph (a) of this Section) of more than $5,000,000.
(c) None of the documents filed by the Company with the Commission
since December 31, 1995 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 is no fact known to the Company
which the Company has not disclosed to the Purchasers prior to or as of the date
of this Agreement which materially and adversely affects, or in the future is
likely to materially and adversely affect, the business, properties, condition
(financial or otherwise) or business prospects of the Company and its
Subsidiaries, taken as a whole.
4.9. Offering. Subject in part to the truth and accuracy of the
Purchasers' representations and the compliance by each Purchaser with its
covenants set forth in this Agreement and any subscription agreement executed
and delivered by the Purchasers, the offer, sale and issuance of the Securities
as contemplated by this Agreement are not subject to the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Company, or anyone acting on its behalf, will not take any action
hereafter that would cause such registration requirements to be applicable.
4.10. Permits; Governmental and Other Approvals.
(a) Other than as set forth in Section 4.10 of the Schedule of
Exceptions or the Selected Reports, each of the Company and its Subsidiaries
possesses such franchises, licenses, permits and other authority as are
necessary for the conduct of its business as now being conducted and proposed to
be conducted (except where the failure to possess such franchises, licenses,
permits or other authority would not materially and adversely affect the
business, properties or condition (financial or otherwise) of the Company and
its Subsidiaries taken as a whole) and the Company and its Subsidiaries are not
in default under any of such franchises, licenses, permits or other authority.
Other than as set forth in Section 4.10 of the Schedule of Exceptions or the
Selected Reports, no approval, consent, authorization or other order of, and no
designation, filing, registration, qualification or recording with, any
governmental authority or any other person or entity is required in connection
with the Company's valid execution, delivery and performance of this Agreement
or the offer, issuance and sale of the Securities by the Company to the
Purchasers or the consummation of any other transaction contemplated on the part
of the Company hereby.
(b) Without limiting the generality of the representations and
warranties made in Section 4.10(a), the Company represents and warrants that (i)
it and its Subsidiaries are in compliance in all material respects with all
applicable provisions of the Federal Food, Drug, and Cosmetic Act (the "FDC
Act"), (ii) its products and those of its Subsidiaries are not adulterated or
misbranded and are in lawful distribution, and (iii) it and its Subsidiaries are
in compliance with the following specific requirements: the Company and its
Subsidiaries have
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registered all facilities with the United States Food and Drug Administration
(the "FDA"); the Company and its Subsidiaries have listed all drug products with
the FDA; each drug product marketed by the Company or any Subsidiary is the
subject of an application approved by the FDA; all marketed drug products comply
with any conditions of approval and the terms of the application submitted to
the FDA; all drug products are manufactured in compliance with the FDA's good
manufacturing practice regulations; all products are labeled and promoted in
accordance with the terms of the marketing application and the provisions of the
FDC Act; all adverse events that were required to be reported to the FDA have
been reported to the FDA in a timely manner; each of the Company and its
Subsidiaries is in compliance in all material respects with the terms of the
consent agreement entered into by the Company with the United States Attorney
for the Eastern District of New York on behalf of the FDA on June 29, 1993; to
the Company's knowledge, neither the Company nor any Subsidiary is employing or
utilizing the services of any individual who has been debarred under the FDC
Act; all stability studies required to be performed for products distributed by
the Company or a Subsidiary have been completed or are ongoing in accordance
with the applicable FDA requirements; any products exported by the Company or a
Subsidiary have been exported in compliance with the FDC Act; and each of the
Company and its Subsidiaries is in compliance in all material respects with the
provisions of the Prescription Drug Marketing Act, to the extent applicable.
(c) Without limiting the generability of the representations and
warranties made in Section 4.10(a), the Company also represents and warrants
that it and its Subsidiaries are in compliance in all material respects with all
applicable provisions of the Controlled Substances Act (the "CSA") and that the
Company and its Subsidiaries are in compliance with the following specific
requirements: the Company and its Subsidiaries are registered with the Drug
Enforcement Administration (the "DEA") at each facility where controlled
substances are exported, imported, manufactured or distributed; all controlled
substances are stored and handled pursuant to DEA security requirements; all
records and inventories of receipt and distributions of controlled substances
are maintained in the manner and form as required by DEA regulations; all
reports, including, but not limited to, ARCOS, manufacturing quotas, production
quotas, and disposals, have been submitted to DEA in a timely manner; all
adverse events, including thefts or significant losses of controlled substances,
have been reported to DEA in a timely manner; to the Company's knowledge,
neither the Company nor any Subsidiary is employing any individual, with access
to controlled substances, who has previously been convicted of a felony
involving controlled substances; and any imports or exports of controlled
substances have been conducted in compliance with the CSA and DEA regulations.
4.11. Sales Representatives, Customers and Key Employees. Other than as
set forth in Section 4.11 of the Schedule of Exceptions or the Selected Reports,
to the knowledge of the Company, no independent sales representatives, customers
or key employees or group of key employees of the Company or its Subsidiaries
has any intention to terminate his, her or its relationship with the Company or
such Subsidiary on or after the Closing or in the case of employees, leave, as
of the Closing, the employ of the Company on and after the Closing. Other than
as set forth in Section 4.11 of the Schedule of Exceptions or the Selected
Reports or as contemplated by this Agreement, all personnel are employed on an
"at will" basis and may be terminated upon notice of not more than 30 days.
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4.12. Copyrights, Trademarks and Patents. (a) Section 4.12 of the
Schedule of Exceptions sets forth a list of all of the Company's and any
Subsidiary's patents, patent applications, trademarks, copyrights, trademark
registrations and applications therefor, patent, trademark or trade name
licenses, contracts with employees or others relating in whole or in part to
disclosure, assignment or patenting of any inventions, discoveries,
improvements, processes, formulae or other know-how, and all patent, trademark
or trade names or copyright licenses which are in force (referred to
collectively as "Intellectual Property Rights"). The Intellectual Property
Rights are, to the best of the Company's knowledge and belief, fully valid and
are in full force and effect.
(b) The Company or a Subsidiary owns outright all of the
Intellectual Property Rights listed on Section 4.12 of the Schedule of
Exceptions attached hereto free and clear of all liens and encumbrances and pays
no royalty to anyone under or with respect to any of them.
(c) Neither the Company nor any Subsidiary has licensed anyone
to use any of such Intellectual Property Rights and has no knowledge of the
infringing use by the Company or any Subsidiary of any intellectual property
rights.
(d) The Company has no knowledge, nor has it received any
notice (i) of any conflict with the asserted rights of others with respect to
any Intellectual Property Rights used in, or useful to, the operation of the
business conducted by the Company and its Subsidiaries or with respect to any
license under which the Company or a Subsidiary is licensor or licensee; or (ii)
that the Intellectual Property Rights infringe upon the rights of any third
party.
4.13. Inventory. All inventory of the Company consists of a quality and
quantity usable and salable in the ordinary course of business, except for
obsolete items and items of below-standard quality, all of which have been or
will be written off or written down to net realizable value on the unaudited
consolidated balance sheet of the Company and its Subsidiaries as of September
30, 1997. The quantities of each type of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable and
warranted in the present circumstances of the Company.
4.14. Registration Rights. Except as provided for in this Agreement or
as set forth in Section 4.14 of the Schedule of Exceptions or in the Selected
Reports, neither the Company nor any Subsidiary is under any obligation to
register any of its currently outstanding securities or any of its securities
which may hereafter be issued.
4.15. No Discrimination. Neither the Company nor any Subsidiary in any
manner or form discriminates, fosters discrimination or permits discrimination
against any person belonging to any minority race or believing in any minority
creed or religion.
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4.16. Environmental Matters.
(a) Each of the Company and its Subsidiaries has obtained all
environmental, health and safety permits necessary or required for the operation
of its business (except where the failure to possess such franchises, licenses,
permits or other authority would not materially and adversely affect the
business, properties or condition (financial or otherwise) of the Company and
its Subsidiaries taken as a whole), and all such permits are in full force and
effect and each of the Company and its Subsidiaries is in compliance in all
material respects with all terms and conditions of such permits.
(b) Except as set forth in Section 4.16 of the Schedule of
Exceptions or the Selected Reports, there is no proceeding pending or, to the
best knowledge of the Company, threatened, which may result in the denial,
rescission, termination, modification or suspension of any environmental or
heath or safety permits necessary for the operation of the business of the
Company and its Subsidiaries.
(c) Except as set forth in Section 4.16 of the Schedule of
Exceptions or the Selected Reports, during the occupancy by the Company or any
Subsidiary of any real property leased by the Company or such Subsidiary, and to
the best knowledge of the Company, no other person or entity, has caused or
permitted materials to be generated, released, stored, treated, recycled,
disposed of on, under or at such parcels, which materials, if known to be
present, would require clean up, removal or other remedial or responsive action
under any environmental laws. To the best knowledge of the Company, there are no
underground storage tanks and no polychlorinated biphenyls ("PCB's"), PCB
contaminated oil or asbestos on any property leased by the Company or any
Subsidiary.
(d) Except as set forth in Section 4.16 of the Schedule of
Exceptions or the Selected Reports, neither the Company nor any Subsidiary is
subject to any judgment, decree, order or citation related to or arising out of
environmental laws, or has received notice that it has been named or listed as a
potentially responsible party by any person or governmental body or agency in
any matter arising under environmental laws.
(e) To the best of knowledge of the Company, each of the
Company and its Subsidiaries has disposed of all waste in full compliance with
all environmental laws.
4.17. Taxes. Except as set forth in Section 4.17 of the Schedule of
Exceptions or the Selected Reports, the Company and each of its Subsidiaries
have filed all necessary income, franchise and other material tax returns,
domestic and foreign and have paid all taxes shown as due thereunder, and the
Company has no knowledge of any tax deficiency which might be assessed against
the Company or any of the Subsidiaries which, if so assessed, would have a
material adverse effect on the business, properties, assets, net worth,
condition (financial or other), or results of operations of the Company and its
Subsidiaries taken as a whole.
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4.18. Employee Benefit Plans and Similar Arrangements.
(a) Section 4.18 of the Schedule of Exceptions lists all employee
benefit plans and collective bargaining, labor and employment agreements or
other similar arrangements in effect to which the Company, its Subsidiaries, and
any of its ERISA Affiliates are a party or by which the Company, its
Subsidiaries, and any of its ERISA Affiliates are bound, legally or otherwise,
including, without limitation, any profit-sharing, deferred compensation, bonus,
stock option, stock purchase, pension, retainer, consulting, retirement,
severance, welfare or incentive plan, agreement or arrangement; any plan,
agreement or arrangement providing for fringe benefits or perquisites to
employees, officers, directors or agents, including but not limited to benefits
relating to employer-supplied automobiles, clubs, medical, dental,
hospitalization, life insurance and other types of insurance, retiree medical,
retiree life insurance and any other type of benefits for retired and terminated
employees; any employment agreement; or any other "employee benefit plan"
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended through the date of this Agreement ("ERISA")) (herein
referred to individually as "Plan" and collectively as "Plans"). For purposes of
this Agreement, "ERISA Affiliate" means (i) any corporation which at any time on
or before the Closing Date is or was a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the Internal Revenue Code
of 1986, as amended (the "Code")) as the Company, its Subsidiaries, or any ERISA
Affiliate; (ii) any partnership, trade or business (whether or not incorporated)
which at any time on or before the Closing Date is or was under common control
(within meaning of Section 414(c) of the Code) with the Company, its
Subsidiaries, or any ERISA Affiliate; and (iii) any entity which at any time on
or before the Closing Date is or was a member of the same affiliated service
group (within the meaning of Section 414(m) of the Code) as the Company, its
Subsidiaries or any ERISA Affiliate, or any corporation described in clause (i)
or any partnership, trade or business described in clause (ii) of this
paragraph.
(b) True and complete copies of the following documents with respect to
any Plan of the Company, its Subsidiaries, and each ERISA Affiliate, as
applicable, have been delivered to the Purchaser: (i) the most recent Plan
document and trust agreement (including any amendments thereto and prior plan
documents, if amended with the last two years), (ii) the last two Form 5500
filings and schedules thereto, (iii) the most recent Internal Revenue Service
("IRS") determination letter, (iv) all summary plan descriptions, (v) a written
description of each material non-written Plan, (vi) each written communication
to employees intended to describe a Plan or any benefit provided by such Plan,
(vii) the most recent actuarial report, and (viii) all correspondence with the
IRS, the Department of Labor and the Pension Benefit Guaranty Corporation
concerning any controversy. Each report described in clause (vii) accurately
reflects the funding status of the Plan to which it relates and subsequent to
the date of such report there has been no adverse change in the funding status
or financial condition of such Plan.
(c) Each Plan is and has been maintained in compliance in all material
respects with applicable law, including but not limited to ERISA, and the Code
and with any applicable collective bargaining agreements or other contractual
obligations.
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(d) Except as shown on Section 4.18 of the Schedule of Exceptions, with
respect to any Plan that is subject to Section 412 of the Code ("412 Plan"),
there has been no failure to make any contribution or pay any amount due as
required by Section 412 of the Code, Section 302 of ERISA or the terms of any
such Plan, and no funding waiver has been requested or received from the IRS.
The assets of the Company, its Subsidiaries, or and ERISA Affiliates are not
now, nor will they after the passage of time be, subject to any lien imposed
under Code Section 412(n) by reason of a failure of the Company, any Subsidiary,
or any ERISA Affiliate to make timely installments or other payments required
under Code Section 412.
(e) Except as shown on Section 4.18 of the Schedule of Exceptions or in
the Selected Reports, no Plan subject to Title IV of ERISA has any "Unfunded
Pension Liability." For purpose of this Agreement, Unfunded Pension Liability
means, as of any determination date, the amount, if any, by which the present
value of all benefit liabilities (as that term is defined in Section 4001(a)(16)
of ERISA) of a plan subject to Title IV of ERISA exceeds the fair market value
of all assets of such plan, all determined using the actuarial assumptions that
would be used by the PBGC in the event of a termination of the plan on such
determination date.
(f) Except as shown on Section 4.18 of the Schedule of Exceptions, to
the best knowledge of the Company, its Subsidiaries, and ERISA Affiliates, there
are no pending or threatened claims, actions or lawsuits, other than routine
claims for benefits in the ordinary course, asserted or instituted against (i)
any Plan or its assets, (ii) any ERISA Affiliate with respect to any 412 Plan,
or (iii) any fiduciary with respect to any Plan for which the Company, its
Subsidiaries, or any ERISA Affiliate may be directly or indirectly liable,
through indemnification obligations or otherwise.
(g) Neither the Company, any Subsidiary, nor any ERISA Affiliate has
incurred and or reasonably expects to incur (i) any withdrawal liabilities as
defined in Section 4201 of ERISA ("Withdrawal Liability") and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in Withdrawal Liabilities, or any liability under Section 4063, 4064, or
4243, or (ii) any outstanding liability under Title IV of ERISA with respect to
any 412 Plan.
(h) Except as shown on Section 4.18 of the Schedule of Exceptions,
within the last five years, neither the Company, any Subsidiary, nor any ERISA
Affiliate has transferred any assets or liabilities of a 412 Plan subject to
Title IV of ERISA which had, at the date of such transfer, an Unfunded Pension
Liability or has engaged in a transaction which may reasonably be subject to
Section 4212(c) or Section 4069 of ERISA.
(i) Neither the Company, any Subsidiary, nor any ERISA Affiliate has
engaged, directly or indirectly, in a non-exempt prohibited transaction (as
defined in Section 4975 of the Code or Section 406 of ERISA) in connection with
any Plan.
(j) Except as shown on Section 4.18 of the Schedule of Exceptions,
neither the Company, any Subsidiary, nor any ERISA Affiliate has any unfunded
liability with respect to any non-tax qualified deferred compensation plan.
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(k) Neither the Purchaser nor its affiliates will have (i) an
obligation to make contribution(s) to any multiemployer plan (as defined in
Section 3(37) of ERISA), or (ii) any Withdrawal Liability (whether imposed and
not yet paid or calculated assuming a complete or partial withdrawal of the
Company, any Subsidiary, or any ERISA Affiliate as of such date not yet imposed)
which it would not have had it not entered into the transactions described in
this Agreement.
(l) Except as shown on Section 4.18 of the Schedule of Exceptions,
during the last two years there have been no amendments to any Plan, no written
interpretation or announcement (whether or not written) by the Company, any
Subsidiary, or any ERISA Affiliate relating to any Plan, there have been and are
no negotiations, demands, or proposals which are pending that concern any Plan,
nor has any Plan been established, which resulted in or could result in a
material increase in (i) the accrued or promised benefits of any employees of
the Company, or any Subsidiary, or any ERISA Affiliate and (ii) any material
increase in the level of expense incurred in respect thereof.
(m) There has been no "Reportable Event" with respect to any 412 Plan
subject to Title IV of ERISA within the last five years.
(n) Neither the Company, any Subsidiary, nor any ERISA Affiliate
sponsors, maintains or has obligations, direct, contingent or otherwise, with
respect to any Plan that is subject to the laws of any country other than the
United States.
(o) No ERISA Affiliate maintains an employee stock ownership plan or
other plan holding securities of the Company, any Subsidiary, or any ERISA
Affiliate.
(p) Each Plan that provides welfare benefits has been operated in
compliance with all requirements of Sections 601 through 608 of ERISA and either
(i) Section 162(i)(2) and (k) of the Code and regulations thereunder (prior to
1989) or (ii) Section 4980B of the Code and regulations thereunder after 1988,
relating to the continuation of coverage under certain circumstances in which
coverage would otherwise cease. Neither the Company, any Subsidiary, nor any
ERISA Affiliate has contributed to a nonconforming group health plan (as defined
under Code Section 5000(c) and no ERISA Affiliate has incurred a tax under
Section 5000(a) of the Code which could become a liability of the Company, any
Subsidiary, or any ERISA Affiliate. Except as shown on Section 4.18 of the
Schedule of Exceptions or in the Selected Reports, the Company, any Subsidiary,
or any ERISA Affiliate does not and has not maintained, sponsored or provided
post-retirement medical benefits, post-retirement death benefits or other
post-retirement welfare benefits to its current employees or former employees
except as required by Section 4980B of the Code and at the sole expense of the
participant or the beneficiary of the participant. The Company has complied in
all respects with all requirements of the Health Insurance Portability and
Accountability Act of 1996 with respect to each Plan that provides welfare
benefits.
(q) Except as shown on Section 4.18 of the Schedule of Exceptions, the
Company, its Subsidiaries, and its ERISA Affiliates has funded or will fund each
Plan in
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accordance with the terms of such Plan through the Closing Date, including the
payment of applicable premiums on any insurance contract funding a Plan, for
coverage provided through the Closing Date.
(r) No Plan has been amended since the date of its most recent IRS
determination letter which would materially increase its cost and no Plan has
been amended in a manner that would require security to be provided in
accordance with Section 401(a)(29) of the Code.
(s) Each Plan that is intended to be a tax qualified Plan under Section
401(a) of the Code ("Tax Qualified Plan") has been determined by the IRS to
qualify under Section 401 of the Code, and the trusts created thereunder have
been determined to be exempt from tax under the provisions of Section 501 of the
Code, and to the best knowledge of the Company, its Subsidiaries, and its ERISA
Affiliates nothing has occurred, including the adoption of or failure to adopt
any Plan amendment, which would adversely affect its qualification or tax-exempt
status.
(t) Except as disclosed on Section 4.18 of the Schedule of Exceptions,
no employee or former employee of the Company, any Subsidiary, or any ERISA
Affiliate will become entitled to any bonus, retirement, severance, job security
or similar benefit, or any enhancement to any such benefit (including
acceleration of vesting or exercise of an incentive award) as a result of the
transactions contemplated under this Agreement and no agreement (whether oral or
written) of the employer, with respect to a current or former employee, provides
for the payment of any amounts which would fail to be deductible for federal
income tax purposes by reason of Section 280G of the Code.
4.19. Disclosure. The information heretofore provided and to be
provided pursuant to this Agreement, including the Schedules of Exceptions and
the Exhibits hereto, and each of the agreements, documents, certificates and
writings previously delivered to the Purchasers 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 required to be stated herein or therein or
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. To the knowledge of the Company, there is no fact which
materially adversely affects the business, prospects or condition (financial or
otherwise) of the Company which has not been set forth herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers severally represents and warrants to the Company
that it is acquiring the Securities for investment for its own account and is
not acquiring any of the Securities with the view to, or for resale in
connection with, any distribution thereof. Each Purchaser understands that none
of the Securities have been registered under the Securities Act.
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If the Purchaser should in the future decide to dispose of any Securities it is
understood that the Purchaser may do so only in compliance with the Securities
Act.
ARTICLE VI
CONDITIONS TO CLOSING OF THE PURCHASERS
The obligation of each Purchaser to purchase the Securities at the
Closing is subject to the fulfillment to such Purchaser's satisfaction on or
prior to the Closing Date of each of the following conditions, any of which may
be waived by such Purchaser:
6.1. Representations and Warranties Correct. The representations and
warranties in Article 4 hereof shall be true and correct in all material
respects when made, and shall be true and correct in all material respects on
the Closing Date with the same force and effect as if they had been made on and
as of the Closing Date.
6.2. Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with by the Company in
all material respects.
6.3. Compliance Certificate. The Company shall have delivered to the
Purchaser a certificate of the Company's President, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 6.1 and
6.2 of this Agreement and other matters as the Purchaser shall reasonably
request.
6.4. No Impediments. Neither the Company nor any Purchaser shall be
subject to any order, decree or injunction of a court or administrative agency
of competent jurisdiction which would impose any material limitation on the
ability of such Purchaser to exercise full rights of ownership of the
Securities.
6.5. Waivers and Amendments of Rights of First Refusal. The Company
shall have obtained from each person other than a Purchaser who has any
currently effective right of first refusal with respect to the Securities, a
written waiver of such right in form and substance satisfactory to the
Purchasers. In addition, (a) each person (other than a holder of the Company's
10% Convertible Subordinated Debentures due August 6, 2001 (the "Prior
Debentures")) who holds any other right of first refusal or preemptive right,
shall have irrevocably waived and released such rights and (b) each holder of a
Prior Debenture ("Old Holder") shall have agreed to amend such Old Holder's
right so that such rights shall be governed by Section 16.1(b) of this
Agreement.
6.6. Other Agreements and Documents. The Company shall have issued to
such Purchaser all of the Securities (including the Debenture, the $2.375
Warrants and the $1.50 Warrants) and the Company or each of its Subsidiaries
(other than any Subsidiary which has no material assets and is inactive) shall
have executed and delivered the following agreements and documents:
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(a) The Company Security Agreement in the form of Exhibit F attached
hereto;
(b) The Guaranties in the form of Exhibit G attached hereto;
(c) The Guarantors Security Agreement in the form of Exhibit H attached
hereto;
(d) Financing Statements on Form UCC-1 with respect to all personal
property and assets of the Company and each Guarantor;
(e) A certified copy of the Certificate of Incorporation of the Company
and each Guarantor and all amendments thereto;
(f) A copy of the By-Laws of the Company and each Guarantor as amended
to date, certified as being true by a principal officer of the Company;
(g) A Certificate of Good Standing and Tax Status from the state of
incorporation of the Company and each Guarantor and from every state in which
any of them is qualified to do business; and
(h) The Mortgages.
6.7. Consents. The Company shall have obtained all necessary consents
or waivers, if any, from all parties to any other material agreements to which
the Company is a party or by which it is bound immediately prior to the Closing
in order that the transactions contemplated hereby may be consummated and the
business of the Company may be conducted by the Company after the Closing
without adversely affecting the Company.
6.8. Legal Investment. At the time of the Closing, the purchase of the
Securities to be purchased by each Purchaser hereunder shall be legally
permitted by all laws and regulations to which the Purchasers and the Company
are subject.
6.9. Due Diligence Investigation. No fact shall have been discovered,
whether or not reflected in the Schedule of Exceptions, which in a Purchaser's
determination would make the consummation of the transactions contemplated by
this Agreement not in such Purchaser's best interests.
6.10. Proceedings and Other Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
shall have been taken and the Purchasers shall have received such other
documents, in form and substance reasonably satisfactory to the Purchasers and
their counsel, as to such other matters incident to the transaction contemplated
hereby as the Purchasers may reasonably request.
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6.11. Opinion of Counsel. The Purchasers shall have received the
opinion of St. John & Wayne, L.L.C., counsel to the Company, dated the Closing
Date, substantially in the form of Exhibit I attached hereto.
6.12. Election of Directors. Two designees of the Purchasers shall have
been elected as directors of the Company and shall have taken office.
6.13. Employment Agreements. Michael Reicher and Peter Clemens shall
have entered into Employment Agreements with the Company substantially in the
form of Exhibits J and K, respectively.
6.14. Proxies. The persons set forth on Exhibit L-1 shall have
delivered to a person designated by Galen an irrevocable proxy in the form of
Exhibit L-2.
6.15. Deferred Conditions. To the extent set forth on Exhibit M, the
Purchasers waive compliance by the Company on or prior to the Closing Date of
those, but only those, conditions of the Purchase Agreement set forth on Exhibit
M (the "Deferred Conditions"); provided, however, that if the Company does not
comply with all Deferred Conditions prior to April 10, 1998, then an Event of
Default (as hereinafter defined) shall be deemed to occur as of 5:00 p.m. on
April 10, 1998 and the occurrence of such Event of Default shall not be subject
to the giving of any notice to the Company or an opportunity to cure.
ARTICLE VII
CONDITIONS TO CLOSING OF THE COMPANY
The Company's obligation to sell the Securities at the Closing is
subject to the fulfillment to its satisfaction on or prior to the Closing Date
of each of the following conditions:
7.1. Representations. The representations made by each Purchaser
pursuant to Article 5 hereof shall be true and correct when made and shall be
true and correct on the Closing Date.
7.2. Legal Investment. At the time of the Closing, the purchase of the
Securities shall be legally permitted by all laws and regulations to which the
Purchasers and the Company are subject.
7.3. Payment of Purchase Price. The Company shall have received payment
in full of the purchase price for the Securities.
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ARTICLE VIII
PREPAYMENT; CHANGE OF CONTROL
PURCHASE OFFER; CONVERSION RIGHTS
8.1. No Optional Prepayments. The Company may not at any time, without
the prior written consent of the holders of all outstanding Debentures, prepay
any Debenture, in whole or in part.
8.2. Change of Control.
(a) Upon the occurrence of a Change of Control (as hereinafter
defined), the Company shall make an offer to all holders of Debentures to
purchase (a "Change of Control Offer") all outstanding Debentures and will
purchase, on a day not more than thirty (30) days after the occurrence of the
Change of Control (such purchase date being the "Change of Control Purchase
Date"), all Debentures properly tendered pursuant to such offer to purchase for
a cash price (the "Change of Control Purchase Price") equal to the applicable
percentage of the outstanding principal amount of the Debentures in the table
set forth below, plus accrued and unpaid interest, if any, to the Change of
Control Purchase Date. The applicable percentages are as follows:
Purchase Price as a Percentage of
If Change of Control Occurs During the Outstanding Principal of Debenture
Twelve Month Period Commencing on to be Purchased
Closing Date 150%
First Anniversary of Closing Date 140%
Second Anniversary of Closing Date 130%
Third Anniversary of Closing Date 120%
Fourth Anniversary of Closing Date 110%
(b) In order to effect a Change of Control Offer, the Company shall
within ten (10) days after the occurrence of the Change of Control mail to each
holder of a Debenture a copy of the Change of Control Offer. The Change of
Control Offer shall remain open from the time of mailing for at least fifteen
(15) calendar days. The notice, which shall govern the terms of the Change of
Control Offer, shall include such disclosures as are required by law and shall
state:
(i) the date of such Change of Control and, briefly, the
events causing such Change of Control;
(ii) that the Change of Control Offer is being made pursuant
to this Section 8.2 and that all Debentures tendered in the Change of Control
Offer will be accepted for payment;
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(iii) the Change of Control Purchase Price for each Debenture,
the Change of Control Purchase Date, the date on which the Change of Control
Offer expires, that if the holder desires to accept the Change of Control Offer,
the Debenture held by such holder must be surrendered to the Company or any
designated paying agent prior to 5:00 p.m. on the Change of Control Purchase
Date, and the name and address of any such paying agent, if any;
(iv) that any Debenture not tendered for payment will continue
to accrue interest in accordance with the terms thereof;
(v) that, unless the Company shall default in the payment of
the Change of Control Purchase Price, any Debenture accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after the
Change of Control Purchase Date;
(vi) that holders will be entitled to withdraw their election
if the Company or paying agent receives, not later than 5:00 p.m. on the day
preceding the Change of Control Purchase Date a telex or facsimile transmission
(confirmed by overnight delivery of the original thereof) or letter setting
forth the name of the holder, the principal amount of Debentures the holder
delivered for purchase, and a statement that such holder is withdrawing its
election to have such Debentures purchased;
(vii) that holders whose Debentures are purchased only in part
will be issued Debentures equal in principal amount to the unpurchased portion
of the Debentures surrendered; and
(viii) any other instructions that holders must follow in
order to tender their Debentures and the procedures for withdrawing a election
to accept a Change on Control Offer.
(c) On the Change of Control Purchase Date, the Company shall (i)
accept for payment Debentures or portions thereof tendered pursuant to the
Change of Control Offer and (ii) deposit with the paying agent, if any, money in
United States dollars, in immediately available funds, sufficient to pay the
Change of Control Purchase Price of all Debentures or portions thereof so
tendered and accepted. The Company shall, or cause any paying agent to, promptly
disburse or deliver to the holders of Debentures so accepted payment in an
amount equal to such Change of Control Purchase Price, and mail or deliver to
such holders a new Debenture equal in principal amount to any unpurchased
portion of each Debenture surrendered.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act, and any other securities laws
or regulations, in connection with the repurchase of Debentures pursuant to a
Change of Control Offer. To the extent that the provision of any securities laws
or regulations conflict with the provisions of this Section 8.2, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 8.2 by virtue
thereof.
(e) For purposes of this Agreement, the term "Change of Control" means
the occurrence of any of the following: (i) the consummation of any transaction
the result of which
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is that any person or group (as such term is used in Section 13(d)(3) of the
Exchange Act), other than Galen or any affiliate thereof or any group comprised
of any of the foregoing, owns, directly or indirectly, 51% of the Common Equity
(as hereinafter defined) of the Company, (ii) the Company consolidates with, or
merges with or into, another person (other than a direct or indirect
wholly-owned Subsidiary) or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of the Company's assets or the
assets of the Company and its Subsidiaries taken as a whole to any person, or
any person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which the outstanding Voting Stock (as
hereinafter defined) of the Company, as the case may be, is converted into or
changed for cash, securities or other property, other than any such transaction
where the outstanding Voting Stock of the Company, as the case may be, is
converted into or exchanged for Voting Stock of the surviving or transferee
corporation and the beneficial owners of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the Voting Stock of the surviving or transferee corporation
immediately after such transaction, (iii) the Company, either individually or in
conjunction with one or more Subsidiaries sells, assigns, conveys, transfers,
leases or otherwise disposes of, or the Subsidiaries sell, assign, convey,
transfer, lease or otherwise dispose of, all or substantially all of the
properties and assets of the Company and its Subsidiaries, taken as a whole
(either in one transaction or a series of related transactions), including
capital stock of the Subsidiaries, to any person (other than the Company or a
wholly owned Subsidiary of the Company), or (iv) during any two (2) year period
commencing subsequent to the date of this Agreement, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved by
a vote of two-thirds of the directors then still in office) who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved cease for any reason to constitute a
majority of the Board of Directors then in office; provided, however, that a
person shall not be deemed to have ceased being a director for such purpose if
such person shall have resigned or died or if the involuntary removal of such
person was made at the direction of persons holding a majority in principal
amount of the outstanding Debentures. For purposes of this Section 8.2(e), (i)
the term "Common Equity" of the Company means all capital stock of the Company
that is generally entitled to vote on the election of Directors and (ii) the
term "Voting Stock" of the Company mean securities of any class of capital stock
of the Company entitling the holders thereof to vote in the election of members
of the board of directors of the Company.
ARTICLE IX
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees, so long as any Securities
remain outstanding, as follows:
9.1. Maintenance of Corporate Existence, Properties and Leases; Taxes;
Insurance.
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(a) The Company shall and shall cause each of its Subsidiaries to,
maintain in full force and effect its corporate existence, rights and franchises
and all material terms of licenses and other rights to use licenses, trademarks,
trade names, service marks, copyrights, patents or processes owned or possessed
by it and necessary to the conduct of its business.
(b) The Company shall and shall cause its Subsidiaries to, keep each of
its properties necessary to the conduct of its business in good repair, working
order and condition, reasonable wear and tear excepted, and from time to time
make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company shall and shall cause its Subsidiaries to
at all times comply with each material provision of all leases to which it is a
party or under which it occupies property.
(c) The Company shall and shall cause each of its Subsidiaries to,
promptly pay and discharge, or cause to be paid and discharged when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, assets, property or business of the Company
and its Subsidiaries, and all claims or indebtedness (including, without
limitation, claims or demands of workmen, materialmen, vendors, suppliers,
mechanics, carriers, warehousemen and landlords) which, if unpaid might become a
lien upon the assets or property of the Company or Subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall be contested timely and in good faith by appropriate
proceedings, if the Company or Subsidiary shall have set aside on its books
adequate reserves with respect thereto, and the failure to pay shall not be
prejudicial in any material respect to the holders of the Securities, and
provided, further, that the Company or Subsidiary will pay or cause to be paid
any such tax, assessment, charge or levy forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security therefor.
The Company shall and shall cause its Subsidiaries to pay or cause to be paid
all other indebtedness incident to the operations of the Company or its
Subsidiaries.
(d) The Company shall and shall cause each of its Subsidiaries to, keep
its assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by theft, fire, explosion and other
risks customarily insured against by companies in the line of business of the
Company or its Subsidiaries, in amounts sufficient to prevent the Company or its
Subsidiaries from becoming a co-insurer of the property insured; and the Company
shall and shall cause its Subsidiaries to maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated or as may be required by law, including,
without limitation, general liability, fire and business interruption insurance,
and product liability insurance as may be required pursuant to any license
agreement to which the Company or its Subsidiaries is a party or by which it is
bound.
9.2. Basic Financial Information. The Company shall furnish the
following reports to each Purchaser (or any transferee of any Securities), so
long as the Purchaser is a holder of any Securities:
(a) within sixty (60) days (for each of March and April 1998),
forty-five (45) days (for each of the next 12 months thereafter) and thirty (30)
days (for each month thereafter)
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after the end of each of the twelve (12) monthly accounting periods in each
fiscal year (or when furnished to the Company's Board of Directors, if earlier),
unaudited consolidated statements of income and retained earnings and cash flows
of the Company and its Subsidiaries for each monthly period and for the period
from the beginning of such fiscal year to the end of such monthly period,
together with consolidated balance sheets of the Company and its Subsidiaries as
at the end of each monthly period, setting forth in each case comparisons to
budget (with respect to the provision of the financial information to be
provided herein commencing January 1999 and thereafter) and to corresponding
periods in the preceding fiscal year, which statements will be prepared in
accordance with generally accepted accounting principles, consistently applied;
(b) within ninety (90) days after the end of each fiscal year,
consolidated statements of income and retained earnings and cash flows of the
Company and its Subsidiaries for the period from the beginning of each fiscal
year to the end of such fiscal year, and consolidated balance sheets as at the
end of such fiscal year, setting forth in each case in comparative form
corresponding figures for the preceding fiscal year, which statements will be
prepared in accordance with generally accepted accounting principles,
consistently applied (except as approved by the accounting firm examining such
statements and disclosed by the Company), and will be accompanied by:
(i) an unqualified report of the Company's independent
certified public accounting firm; for purposes of this Section, a report on the
consolidated financial statements of the Company and its Subsidiaries as of
December 31, 1997 and for the year then ended disclosing a "going concern"
qualification, but no other qualification, shall be considered "unqualified, but
a report covering any period ending subsequent to December 31, 1997 disclosing a
"going concern" paragraph shall not be considered "unqualified";
(ii) a report from such accounting firm, addressed to the
Purchasers, stating that in making the audit necessary to express their opinion
on such financial statements, nothing has come to their attention which would
lead them to believe that the Company is not in compliance with all the
financial covenants contained in, or an event of default has occurred with
respect to, any material agreements to which the Company or its Subsidiaries is
a party or by which it is bound, including, without limitation, this Agreement
(an "Event of Noncompliance") or, if such accountants have reason to believe
that any Event of Noncompliance has occurred, a letter specifying the nature
thereof; and
(iii) the management letter of such accounting firm;
(c) within forty-five (45) days after the end of each quarterly
accounting period in each fiscal year, a certificate of the Chief Financial
Officer of the Company stating that the Company is in compliance with the terms
of this Agreement and any other material contract or commitment to which the
Company or any of its Subsidiaries is a party or by which any of them is bound,
or if the Company or any of its Subsidiaries is not in compliance, specifying
the nature and period of noncompliance, and what actions the Company or such
Subsidiary has taken and/or proposes to take with respect thereto.
Notwithstanding the foregoing, the certificate delivered at the end of each
fiscal year of the Company shall be signed by both the Chief Executive Officer
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and the Chief Financial Officer of the Company and shall be delivered within
ninety (90) days after the end of the fiscal year;
(d) promptly upon receipt thereof, any additional reports or other
detailed information concerning significant aspects of the operations and
condition, financial or otherwise, of the Company and its Subsidiaries, given to
the Company by its independent accountants;
(e) at least thirty (30) days prior to the end of each fiscal year
(commencing with November 30, 1998 for the fiscal year commencing on January 1,
1999), a detailed annual operating budget and business plan for the Company and
its Subsidiaries for the succeeding twelve-month period. Such budgets shall be
prepared on a monthly basis, displaying consolidated statements of anticipated
income and retained earnings, consolidated statements of anticipated cash flow
and projected consolidated balance sheets, setting forth in each case the
assumptions (which assumptions and projections shall represent and be based upon
the good faith judgment in respect thereof of the chief executive officer of the
Company) behind the projections contained in such financial statements, and
which budgets shall have been approved by the Board of Directors of the Company
(including a majority of the directors designated by the Purchasers in
accordance with Section 9.8(a) of this Agreement) prior to the beginning of each
twelve-month period for which such budget shall have been prepared and, promptly
upon preparation thereof, any other budgets that the Company may prepare and any
revisions of such annual or other budgets;
(f) within ten (10) days after transmission or receipt thereof, copies
of all financial statements, proxy statements and reports which the Company
sends to its stockholders or directors, and copies of all registration
statements and all regular, special or periodic reports which it or any of its
officers or directors files with the Commission, the American Stock Exchange
(the "AMEX") or with any other securities exchange on which any of the
securities of the Company are then listed or proposed to be listed, copies of
all press releases and other statements made generally available by the Company
to the public concerning material developments in the business of the Company
and its Subsidiaries and copies of material communications sent to or received
from stockholders, directors or committees of the Board of Directors of the
Company or any of its Subsidiaries and copies of all material communications
sent to and received from any lender to the Company; and
(g) with reasonable promptness such other information and financial
data concerning the Company as any person entitled to receive materials under
this Section 9.2 may reasonably request.
9.3. Notice of Adverse Change. The Company shall promptly give notice
to all holders of any Securities (but in any event within seven (7) days) after
becoming aware of the existence of any condition or event which constitutes, or
the occurrence of, any of the following:
(a) any Event of Noncompliance;
(b) any other Event of Default;
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(c) the institution or threatening of institution of an action, suit or
proceeding against the Company or any Subsidiary before any court,
administrative agency or arbitrator, including, without limitation, any action
of a foreign government or instrumentality, which, if adversely decided, could
materially adversely affect the business, prospects, properties, financial
condition or results of operations of the Company and its Subsidiaries, taken as
a whole whether or not arising in the ordinary course of business; or
(d) any information relating to the Company or any Subsidiary which
could reasonably be expected to materially and adversely affect the assets,
property, business or condition (financial or otherwise) of the Company or its
ability to perform the terms of this Agreement. Any notice given under this
Section 9 shall specify the nature and period of existence of the condition,
event, information, development or circumstance, the anticipated effect thereof
and what actions the Company has taken and/or proposes to take with respect
thereto.
9.4. Compliance With Agreements; Compliance With Laws. The Company
shall comply and cause its Subsidiaries to comply, with the terms and conditions
of all material agreements, commitments or instruments to which the Company or
any of its Subsidiaries is a party or by which it or they may be bound. The
Company shall and shall cause each of its Subsidiaries to duly comply in all
material respects with any material laws, ordinances, rules and regulations of
any foreign, Federal, state or local government or any agency thereof, or any
writ, order or decree, and conform to all valid requirements of governmental
authorities relating to the conduct of their respective businesses, properties
or assets, including, but not limited to, the requirements of the FDA Act, the
Prescription Drug Marketing Act, the CSA, the Employee Retirement Income
Security Act of 1978, the Environmental Protection Act, the Occupational Safety
and Health Act, the Foreign Corrupt Practices Act and the rules and regulations
of each of the agencies administering such acts.
9.5. Protection of Licenses, etc. The Company shall and shall cause its
Subsidiaries to, maintain, defend and protect to the best of their ability
licenses and sublicenses (and to the extent the Company or a Subsidiary is a
licensee or sublicensee under any license or sublicense, as permitted by the
license or sublicense agreement), trademarks, trade names, service marks,
patents and applications therefor and other proprietary information owned or
used by it or them and shall keep duplicate copies of any licenses, trademarks,
service marks or patents owned or used by it, if any, at a secure place selected
by the Company.
9.6. Accounts and Records; Inspections.
(a) The Company shall keep true records and books of account in which
full, true and correct entries will be made of all dealings or transactions in
relation to the business and affairs of the Company and its Subsidiaries in
accordance with generally accepted accounting principles applied on a consistent
basis.
(b) The Company shall permit each holder of any Securities or any of
such holder's officers, employees or representatives during regular business
hours of the Company, upon reasonable notice and as often as such holder may
reasonably request, to visit and inspect the offices and properties of the
Company and its Subsidiaries and (i) to make extracts or copies
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of the books, accounts and records of the Company or its Subsidiaries, and (ii)
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries, with the Company's (or Subsidiary's) directors and officers, its
independent public accountants, consultants and attorneys.
(c) Nothing contained in this Section 9.6 shall be construed to limit
any rights which a holder of any Securities (a "Holder") may have with respect
to the books and records of the Company and its Subsidiaries, to inspect its
properties or to discuss its affairs, finances and accounts.
9.7. Independent Accountants. The Company will retain a firm of
independent certified public accountants approved by a majority of the directors
designated by the Purchasers pursuant to Section 9.8 of this Agreement (an
"Approved Accounting Firm") to audit the Company's financial statements at the
end of each fiscal year. In the event the services of the Approved Accounting
Firm or any firm of independent public accountants hereafter employed by the
Company are terminated, the Company will promptly thereafter request the firm of
independent public accountants whose services are terminated to deliver to any
Holders a letter of such firm setting forth its understanding as to the reasons
for the termination of their services and whether there were, during the two
most recent fiscal years or such shorter period during which said firm had been
retained by the Company any disagreements between them and the Company on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. In its notice, the Company shall state whether the
change of accountants was recommended or approved by the Board of Directors or
any committee thereof. In the event of such termination, the Company will
promptly thereafter engage another Approved Accounting Firm.
9.8. Board Members and Meetings.
(a) The Company agrees to hold meetings of its Board of Directors at
least four (4) times a year, at no more than three-month intervals. So long as
the Purchasers own any Securities, the Purchasers shall have the right to
designate for nomination two persons to be members of the Company's Board of
Directors and the Company shall cause such designees to be elected on the
Closing Date. The Purchasers shall have the right to designate an additional
person to be a member of the Board of Directors commencing with the first Annual
Meeting of Stockholders of the Company to be held after the Closing Date and, so
long as the Purchasers own any Securities, at each annual meeting of
Stockholders held thereafter, the Purchaser shall have the right to nominate
three designees to be members of the Board of Directors. The Purchasers shall
also have the right at all times so long as the Purchasers own any Securities to
designate one additional person to attend all meetings of the Board of Directors
or committees thereof as an observer.
(b) If at any time the Board of Directors designates a committee or
committees to act on behalf of the Board, at least one of the directors
designated by the Purchasers shall be a member of such committee or committees.
(c) The following matters require the approval of a majority of the
directors designated by the Purchasers: (i) approval of budgets; (ii) the
issuance by the Company of any
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capital stock at a price below the current market price of such stock; (iii) any
amendment of the Certificate of Incorporation or By-Laws of the Company; (iv)
any action to be taken by the Company which would result in a Change of Control;
and (v) the selection of an Approved Accounting Firm;
9.9. Maintenance of Office. The Company will maintain its principal
office at the address of the Company set forth in Section 17.5 of this Agreement
where notices, presentments and demands in respect of this Agreement and any of
the Securities may be made upon the Company, until such time as the Company
shall notify the holders of the Securities in writing, at least thirty (30) days
prior thereto, of any change of location of such office.
9.10. Use of Proceeds. The Company shall use all the proceeds received
from the sale of the Securities pursuant to this Agreement for the purposes set
forth in Section 9.10 of the Schedule of Exceptions.
9.11. Key Man Life Insurance. Within 90 days after the Closing Date,
the Company shall obtain a five year (or longer) "key man" insurance policy on
the life of Michael Reicher, naming the Company as beneficiary. Such policy
shall be issued by an insurance company licensed to do business in New York and
having a rating from Best's not less than "A". The policy shall provide that
duplicate copies of premium notices shall be delivered to each Purchaser
simultaneously with delivery to the Company. The Company covenants that it will
not cancel any key man life insurance policy referred to herein without the
prior written consent of the holders of a majority of the outstanding principal
amount of the Debentures. The Company will pay the premiums on the insurance
policy referred to in this Section 9.11 at least ten (10) days prior to the due
date thereof and, simultaneously with such payment, will deliver proof of
payment to the Purchasers.
9.12. Payment of Debentures. The Company shall pay the principal of and
interest on the Debentures in the time, the manner and the form provided
therein.
9.13. Reporting Requirements. The Company shall comply with its
reporting and filing obligations pursuant to Section 13 or 15(d) of the Exchange
Act. The Company shall provide copies of such reports, including, without
limitation, reports on Form 10-K, 10-Q, 8-K and Schedule 14A promulgated under
the Exchange Act, or substantially the same information required to be contained
in any successor form, to each holder of Securities promptly upon filing with
the Commission.
9.14. Authorization of Shares of Common Stock for Issuance Upon
Conversion of Debentures and Exercise of Warrants and Voting Rights for
Debenture Holders. The Company will present to its shareholders for
consideration at the next annual meeting of the Company's shareholders, to occur
on or prior to June 30, 1998, a proposal to amend the Company's Certificate of
Incorporation to (a) increase the number of authorized shares of the Company's
common stock available for issuance from 20,000,000 to 40,000,000 shares in
order to provide for a sufficient number of authorized shares to be available
and reserved for issuance upon conversion of the Debentures and exercise of the
Warrants and (b) provide that holders of Debentures shall have the right to vote
as part of a single class with all holders of Common Stock
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of the Company on all matters to be voted on by such stockholders with such
Holder having such number of votes as shall equal the number of votes they would
have had such Holders converted the entire outstanding principal amount of the
Debentures into Shares immediately prior to the record date relating to such
vote. Upon receipt of approval from the Company's shareholders to increase the
Company's authorized shares from 20,000,000 to 40,000,000 shares, the Company
will at all times cause there to be reserved for issuance a sufficient number of
Shares upon conversion of the Debentures and exercise of the Warrants.
9.15. Listing of Common Stock. As promptly as practicable after the
Closing Date, the Company shall file the appropriate applications for listing on
the AMEX of the maximum number of Shares available under the Company's
authorized shares which are not otherwise reserved for issuance pursuant to
outstanding options, warrants and other convertible securities. As promptly as
practicable following receipt of shareholder approval of the amendment to the
Company's Certificate of Incorporation contemplated in Section 9.14 hereof, the
Company shall file the appropriate applications for listing with the AMEX the
Shares not covered by the listing application filed by the Company in accordance
with the preceding sentence. The Company shall use its best efforts and work
diligently to accomplish such listings as promptly as practicable after the
Closing Date.
9.16. HSR Act Filing. The Purchasers acknowledge and agree that until
the filing, if required, of all Pre-Merger Notifications and reports
("Notifications") pursuant to the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), with respect to the issuance of the
Securities and the expiration or termination of all applicable waiting periods
thereunder, a Certificate of Amendment to the Certificate of Incorporation of
the Company providing for voting rights for the Holders will not be filed. The
Company agrees to file all Notifications, if any, required to be filed by it
under the HSR within sixty (60) days after the date hereof.
9.17. Further Assurances. From time to time the Company shall execute
and deliver to the Purchasers and the Purchasers shall execute and deliver to
the Company such other instruments, certificates, agreements and documents and
take such other action and do all other things as may be reasonably requested by
the other party in order to implement or effectuate the terms and provisions of
this Agreement and any of the Securities.
ARTICLE X
NEGATIVE COVENANTS
The Company hereby covenants and agrees, so long as any Purchaser owns
any Debentures, it will not (and not allow any of its Subsidiaries to), directly
or indirectly, without the prior written consent of the holders of at least a
majority in aggregate principal amount of the Debentures then outstanding, as
follows:
10.1. Payment of Dividends; Stock Purchase. Declare or pay any cash
dividends on, or make any distribution to the holders of, any shares of capital
stock of the Company, other than dividends or distributions payable in such
capital stock, or purchase, redeem or otherwise
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acquire or retire for value any shares of capital stock of the Company or
warrants or rights to acquire such capital stock.
10.2. Stay, Extension and Usury Laws. At any time insist upon, plead,
or in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereinafter in
force, which may affect the covenants or the performance of the Debentures, the
Company hereby expressly waiving all benefit or advantage of any such law, or by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Holders but will suffer and permit the execution of every
such power as though no such law had been enacted.
10.3. Reclassification. Effect any reclassification, combination or
reverse stock split of the common stock of the Company.
10.4. Liens. Except as otherwise provided in this Agreement, create,
incur, assume or permit to exist any mortgage, pledge, lien, security interest
or encumbrance on any part of its properties or assets, or on any interest it
may have therein, now owned or hereafter acquired, nor acquire or agree to
acquire property or assets under any conditional sale agreement or title
retention contract, except that the foregoing restrictions shall not apply to:
(a) liens for taxes, assessments and other governmental charges, if
payment thereof shall not at the time be required to be made, and provided such
reserve as shall be required by generally accepted accounting principles
consistently applied shall have been made therefor;
(b) liens of workmen, materialmen, vendors, suppliers, mechanics,
carriers, warehouseman and landlords or other like liens, incurred in the
ordinary course of business for sums not then due or being contested in good
faith, if an adverse decision in which contest would not materially affect the
business of the Company;
(c) liens securing indebtedness of the Company or any Subsidiaries
which (i) is permitted under Section 10.5(h) or (ii) is in an aggregate
principal amount not exceeding $500,000 and which liens are subordinate to liens
on the same assets held by the Holders;
(d) statutory liens of landlords, statutory liens of banks and rights
of set-off, and other liens imposed by law, in each case incurred in the
ordinary course of business (i) for amounts not yet overdue or (ii) for amounts
that are overdue and that are being contested in good faith by appropriate
proceedings, so long as such reserves or other appropriate provisions, if any,
as shall be required by generally accepted accounting principles shall have been
made for any such contested amounts;
(e) liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts, trade
contracts, performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
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(f) any attachment or judgment lien not constituting an Event of
Default;
(g) easements, rights-of-way, restrictions, encroachments, and other
minor defects or irregularities in title, in each case which do not and will not
interfere in any material respect with the ordinary conduct of the business of
the Company or any of its Subsidiaries;
(h) any (i) interest or title of a lessor or sublessor under any lease,
(ii) restriction or encumbrance that the interest or title of such lessor or
sublessor may be subject to, or (iii) subordination of the interest of the
lessee or sublessee under such lease to any restriction or encumbrance referred
to in the preceding clause (ii), so long as the holder of such restriction or
encumbrance agrees to recognize the rights of such lessee or sublessee under
such lease;
(i) liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(j) any zoning or similar law or right reserved to or vested in any
governmental office or agency to control or regulate the use of any real
property;
(k) liens securing obligations (other than obligations representing
debt for borrowed money) under operating, reciprocal easement or similar
agreements entered into in the ordinary course of business of the Company and
its Subsidiaries;
(l) the liens listed in Section 10.4 of the Schedule of Exceptions
("Permitted Liens"); and
(m) the replacement, extension or renewal of any lien permitted by this
Section 10.4 upon or in the same property theretofore subject or the
replacement, extension or renewal (without increase in the amount or change in
any direct or contingent obligor) of the indebtedness secured thereby.
10.5. Indebtedness. Create, incur, assume, suffer, permit to exist, or
guarantee, directly or indirectly, any indebtedness, excluding, however, from
the operation of the covenant:
(a) any indebtedness or the incurring, creating or assumption
of any indebtedness secured by liens permitted by the provisions of Section 10.4
(c) above;
(b) the endorsement of instruments for the purpose of deposit
or collection in the ordinary course of business;
(c) indebtedness which may, from time to time be incurred or
guaranteed by the Company which in the aggregate principal amount does not
exceed $500,000 and is subordinate to the indebtedness under this Agreement;
(d) indebtedness existing on the date hereof and described in
Section 10.5 of the Schedule of Exceptions;
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(e) indebtedness relating to contingent obligations of the
Company and its Subsidiaries under guaranties in the ordinary course of business
of the obligations of suppliers, customers, and licensees of the Company and its
Subsidiaries;
(f) indebtedness relating to loans from the Company to its
Subsidiaries;
(g) indebtedness relating to capital leases in an amount not
to exceed $500,000;
(h) indebtedness relating to a working capital line of credit
in an amount not to exceed $5,000,000;
(i) accounts or notes payable arising out of the purchase of
merchandise or services in the ordinary course of business; or
(j) indebtedness (if any) expressly permitted by, and in
accordance with, the terms and conditions of this Agreement.
For purposes hereof, the term "indebtedness" shall mean and include (A)
all items which would be included on the liability side of a balance sheet of
the Company (or a Subsidiary) as of the date on which indebtedness is to be
determined, excluding capital stock, surplus, capital and earned surplus
reserves, which, in effect, were appropriations of surplus or offsets to asset
values (other than reserves in respect of obligations, the amount, applicability
or validity of which is, at such date, being contested by such corporation),
deferred credits of amounts representing capitalization of leases; (B) the full
amount of all indebtedness of others guaranteed or endorsed (otherwise than for
the purpose of collection) by the Company (or Subsidiary) for which the Company
(or Subsidiary) is obligated, contingently or otherwise, to purchase or
otherwise acquire, or for the payment or purchase of which the Company (or
Subsidiary) has agreed, contingently or otherwise, to advance or supply funds,
or with respect to which the Company (or Subsidiary) is contingently liable,
including, without limitation, indebtedness for borrowed money and indebtedness
guaranteed or supported indirectly by the Company (or Subsidiary) through an
agreement, contingent or otherwise (1) to purchase the indebtedness, or (2) to
purchase, sell, transport or lease (as lessee or lessor) property, or to
purchase or sell services at prices or in amounts designed to enable the debtor
to make payment of the indebtedness or to assure the owner of the indebtedness
against loss, or (3) to supply funds to or in any other manner invest in the
debtor; and (C) indebtedness secured by any mortgage, pledge, security interest
or lien whether or not the indebtedness secured thereby shall have been assumed;
provided, however, that such term shall not mean and include any indebtedness
(x) in respect to which monies sufficient to pay and discharge the same in full
shall have been deposited with a depositary, agency or trustee in trust for the
payment thereof, or (y) as to which the Company (or Subsidiary) is in good faith
contesting, provided that an adequate reserve therefor has been set up on the
books of the Company (or Subsidiary).
10.6. Merger, Consolidation, etc. Merge or consolidate with any person
(except that the Company may merge with any wholly-owned Subsidiary so long as
the Company is the
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surviving corporation in such merger), or sell, transfer, lease or otherwise
dispose of 10% or more of its consolidated assets (as shown on the most recent
financial statements of the Company or the Subsidiary, as the case may be) in
any single transaction or series of related transactions (other than the sale of
inventory in the ordinary course of business), or liquidate, dissolve,
recapitalize or reorganize in any form of transaction, or acquire all or
substantially all of the capital stock or assets of another business or entity.
10.7. Amendment of Charter Documents. Except as contemplated by this
Agreement, make any amendment to the Certificate of Incorporation as heretofore
amended, or By-Laws, as heretofore amended, of the Company or the Certificate of
Incorporation or By-Laws of any of its Subsidiaries.
10.8. Loans and Advances. Except for loans and advances outstanding as
of the Closing Date and set forth in Section 10.8 of the Schedule of Exceptions,
directly or indirectly, make any advance or loan to, or guarantee any obligation
of, any person, firm or entity, except for (i) loans to employees of the Company
not in excess of $25,000 to any one employee or $100,000 in the aggregate where
such loan(s) are necessary under exigent circumstances of such employee(s) as
determined by the Board of Directors, or (ii) intercompany loans or advances and
those provided for in this Agreement.
10.9. Intercompany Transfers; Transactions With Affiliates; Diversion
of Corporate Opportunities.
(a) Make any intercompany transfers of monies or other assets in any
single transaction or series of transactions, except as otherwise permitted in
this Agreement.
(b) Engage in any transaction with any of the officers, directors,
employees or affiliates of the Company or of its Subsidiaries, except on terms
no less favorable to the Company or the Subsidiary as could be obtained at Arm's
Length (as hereinafter defined).
(c) Divert (or permit anyone to divert) any business or opportunity of
the Company or Subsidiary to any other corporate or business entity.
10.10. Personal Expenses. Except as set forth in Section 10.10 of the
Schedule of Exceptions, permit any person to charge to the Company (or any of
its Subsidiaries) any expense not directly related to the business of the
Company (or Subsidiary), including, without limitation, expenses for country and
health club membership fees and expenses, and personal travel and entertainment
expenses, or reimburse such person for any such expense.
10.11. Other Business. Enter into or engage, directly or indirectly, in
any business other than the business currently conducted or proposed to be
conducted as contemplated by this Agreement by the Company or any Subsidiary.
10.12. Investments. Make any investments in, or purchase any stock,
option, warrant, or other security or evidence of indebtedness of, any person or
entity (exclusive of any Subsidiary), other than obligations of the United
States Government or certificates of deposit or
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other instruments maturing within one year from the date of purchase from
financial institutions with capital in excess of $100 million.
10.13. Benefit Plans. Except as contemplated by this Agreement: (a)
enter into any agreement to provide for or otherwise establish any written or
unwritten employee benefit plan, program or other arrangement of any kind,
covering current or former employees of the Company or its Subsidiaries except
for (i) any such plan, program or arrangement expressly permitted under an
agreement listed in Section 10.13 of the Schedule of Exceptions, and (ii) any
such plan, program or arrangement which a company similar to the Company in size
and financial condition, and which is engaged in a business substantially
similar to the business of the Company and its Subsidiaries, would establish or
implement for the benefit of its employees in the ordinary course of business;
provided, however, that no such plan, program or arrangement may be established
or implemented if such action would have a material affect on the terms of
employment of the employees of the Company or its Subsidiaries, or (b) provide
for or agree to any material increase in any benefit provided to current or
former employees of the Company or its Subsidiaries over that which is provided
to such individuals pursuant to a plan or arrangement disclosed in Section 4.18
of the Schedule of Exceptions to this Agreement as of the Closing Date. For
purpose of this Section, a "material increase" shall not include any cost of
living increase or similar regular increase agreed to pursuant to the Collective
Bargaining Agreement between Halsey Drug Co., Inc. and the Drug, Chemical,
Cosmetic, Plastics and Affiliated Industries Warehouse Employees Local 815,
International Brotherhood of Teamsters.
10.14. Capital Expenditures. Other than for a capital expenditure
contained in any budget approved by the Board of Directors, including a majority
of the directors designated by the Purchasers, or capital expenditures not
contained in any such budget, but which do not exceed $100,000 in the aggregate
during any fiscal year of the Company, make or commit to make any capital
expenditures.
10.15. Arm's Length Transactions. Enter into any transaction, contract
or commitment or take any action other than at Arm's Length. For purposes hereof
the term "Arm's Length" means a transaction or negotiation in which each party
is completely independent of the other, seeks to obtain terms which are most
favorable to it and has no economic or other interest in making concessions to
the other party.
ARTICLE XI
REGISTRATION RIGHTS
11.1. Restrictive Legend. Each certificate representing (i) any
Debenture, (ii) the Warrants or (iii) any Shares or other securities issued in
respect of the Debentures, Warrants or Shares, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event or upon the
exercise of the Warrants or conversion of the Debentures, shall be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
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"THIS [NAME OF SECURITY] [AND THE COMMON STOCK ISSUABLE UPON [CONVERSION]
[EXERCISE] HEREOF] HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, NOR 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 [NAME OF SECURITY]
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH [NAME OF SECURITY] [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.
11.2. Certain Definitions. As used in this Article 11, the following
terms shall have the following respective meanings:
"Holders" shall mean the Purchasers or any person to whom a Purchaser
or transferee of a Purchaser has assigned any Debenture, Warrants or Shares.
"Initiating Holders" shall mean any persons who in the aggregate are
Holders of at least a majority of the Shares.
"Registrable Securities" shall mean any Shares issued upon exercise of
the Warrants, conversion of any Debenture or in respect of the Shares issued
upon exercise of the Warrants or conversion of any Debenture upon any stock
split, stock dividend, recapitalization or similar event.
"Requesting Stockholders' shall mean holders of securities of the
Company entitled to have securities included in any registration pursuant to
Section 11.3 and who shall request such inclusion.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Sections 11.3 and 11.4 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements of one counsel for all the selling Holders for a "due diligence"
examination of the Company, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company, which shall be paid in any event by the Company),
exclusive of Selling Expenses.
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"Restricted Securities" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 11.1 hereof.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder, except as otherwise provided herein.
11.3. Requested Registration.
(a) Requests for Registration. The Initiating Holders may request
registration under the Securities Act of all or part of their Registrable
Securities. Within ten (10) days after receipt of any such request, the Company
will give written notice of such requested registration to all other Holders of
Registrable Securities and any other stockholder having registration rights
which entitle it to participate in such registration. The Company will include
in such registration all Registrable Securities with respect to which it has
received written requests for inclusion therein within fifteen (15) days after
receipt of the Company's notice. The Company shall cause its management to
cooperate fully and to use its best efforts to support the registration of the
Registrable Securities and the sale of the Registrable Securities pursuant to
such registration as promptly as is practicable. Such cooperation shall include,
but not be limited to, management's attendance and reasonable presentations in
respect of the Company at road shows with respect to the offering of Registrable
Securities. The registration requested under this Section 11.3(a) is referred to
herein as a "Demand Registration."
(b) Number of Registrations. The Holders of Registrable Securities will
be entitled to request one (1) Demand Registration for which the Company will
pay all Registration Expenses. A registration will not count as a Demand
Registration until it has become effective; provided, however, that whether or
not it becomes effective the Company will pay all Registration Expenses in
connection with any registration so initiated.
(c) Priority on Demand Registrations. If a Demand Registration is an
underwritten offering, and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities requested to
be included exceeds the number which can be sold in such offering, the Company
will include in such registration such number of Shares, which in the opinion of
such underwriters, may be sold, allocated among the Holders electing to
participate pro rata in accordance with the amounts of securities requested to
be so included by the respective Holders. The Company will not include in any
Demand Registration any securities which are not Registrable Securities without
the written consent of the Holders of a majority of the Registrable Securities
requesting such registration. Any persons other than Holders of Registrable
Securities who participate in a Demand Registration which is not at the
Company's expense must pay their share of the Registration Expenses. A
registration shall not count as a Demand Registration if some or all of the
Shares which any Holder desires to include therein are not included due to the
determination of the managing underwriters referred to in the first sentence of
this Section 11.3(c).
(d) Restrictions on Demand Registrations. The Company will not be
obligated to effect any Demand Registration within six (6) months after the
effective date of a previous
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registration in which the Holders of Registrable Securities were given piggyback
rights pursuant to Section 11.4 other than a registration of Registrable
Securities intended to be offered on a continuous or delayed basis under Rule
415 or any successor rule under the Securities Act (a "Shelf Registration").
11.4. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any
of its securities under the Securities Act (other than pursuant to a Demand
Registration or pursuant to a registration on Forms S-4 or S-8 or any successors
to such forms) and the registration form to be used may be used for the
registration and contemplated disposition of Registrable Securities (a
"Piggyback Registration"), the Company will give prompt written notice to all
Holders of Registrable Securities of its intention to effect such a
registration. The Company will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within thirty (30) days after the receipt of the Company's
notice.
(b) Piggyback Expenses. The Registration Expenses of the Holders of
Registrable Securities will be paid by the Company.
(c) Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities and securities of the Company with respect to
which similar registration rights have heretofore been granted and requested to
be included in such registration, pro rata in accordance with the amounts of
Registrable Securities and such securities requested to be so included by the
respective Holders and holders of such securities of the Company; and (iii)
third, any other securities requested to be included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering, the Company
will include in such registration (i) first, the securities requested to be
included therein by the holders requesting such registration, (ii) second, the
Registrable Securities and securities of the Company with respect to which
similar registration rights have heretofore been granted and requested to be
included in such registration, pro rata in accordance with the amounts of
Registrable Securities and such securities requested to be so included by the
respective Holders and holders of such securities of the Company, and (iii)
third, other securities requested to be included in such registration.
(e) Other Restrictions. The Company hereby agrees that if it has
previously filed a registration statement with respect to Registrable Securities
pursuant to Section 11.3 or pursuant
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to this Section 11.4, and if such previous registration has not been withdrawn
or abandoned, the Company will not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any other similar form for employee benefit plans),
whether on its own behalf or at the request of any holder or holders of such
securities, until a period of at least six (6) months has elapsed from the
effective date of such previous registration or, if sooner, until all
Registrable Securities included in such previous registration have been sold.
11.5. Holdback Agreements.
(a) Each Holder of Registrable Securities which is a party to this
Agreement agrees not to effect any public sale or distribution of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven (7) days prior to and the
90-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration) or, if sooner, until all Registrable Securities
included within such registration have been sold.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven (7) days prior
to and the 90-day period beginning on the effective date of any underwritten
Demand Registration or any underwritten Piggyback Registration (except as part
of such underwritten registration or pursuant to registrations on Form S-8 or
any other similar form for employee benefit plans) or, if sooner, until all
Registrable Securities included within such registration have been sold, and
(ii) to use its reasonable best efforts to cause each holder of its equity
securities, or any securities convertible into or exchangeable or exercisable
for such securities, purchased from the Company at any time after the date of
this Agreement (other than in a registered public offering) to agree not to
effect any public sale or distribution of any such securities during such period
(except as part of such underwritten registration, if otherwise permitted) or,
if sooner, until all Registrable Securities included within such registration
have been sold.
11.6. Registration Procedures. Whenever the Holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Article 11, the Company will use its reasonable best efforts to effect
the registration and the sale of such Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
will as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities, which registration statement will state
that the Holders of Registrable Securities covered thereby may sell such
Registrable Securities either under such registration statement or, at any
Holder's proper request, pursuant to Rule 144 (or any similar rule then in
effect), and use its best efforts to cause such registration statement to become
effective (provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will furnish to the counsel
selected by the Holders of a
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majority of the Registrable Securities covered by such registration statement
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period set forth in Section 11.6(j) hereof and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subsection, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits to state any fact necessary to make the statements therein not
misleading, and, at the request of any such seller, the Company will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as the Holders of a
majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, using its best efforts to
effect a stock split or a combination of shares);
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(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such seller, underwriter, attorney, accountant or agent in connection
with such registration statement; and
(j) keep each registration statement effective until the earlier to
occur of (i) the Holder or Holders have completed the distribution described in
the registration statement relating thereto (including a Shelf Registration) and
(ii) two years.
11.7. Expenses of Registration. All Registration Expenses incurred in
connection with a registration, qualification or compliance pursuant to this
Article 11 shall be borne by the Company, and all Selling Expenses shall be
borne by the Holders and the Requesting Stockholders of the securities so
registered pro rata on the basis of the number of their shares so registered;
provided, however, that the Company shall not be required to pay any
Registration Expenses if, as a result of the withdrawal of a request for
registration by Initiating Holders, the registration statement does not become
effective, in which case the Holders and Requesting Stockholders requesting
registration shall bear such Registration Expenses pro rata on the basis of the
number of their shares so included in the registration request, and, further,
that such registration shall not be counted as a Demand Registration pursuant to
Section 11.3.
11.8. Indemnification.
(a) The Company will indemnify each Holder, each Holder's officers,
directors and partners, and each person controlling such Holder, with respect to
which registration, qualification or compliance of such Holder's securities has
been effected pursuant to this Article 11, and each underwriter, if any, and
each person who controls any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any registration statement, prospectus, offering circular or other document
(including any related registration statement notification or the like) incident
to any such registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse each such Holder, each Holder's officers,
directors and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, provided, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or action arises out of or is based on any untrue
statement or omission of material fact based upon written information furnished
to the Company by such Holder or underwriter and stated to be specifically for
use therein.
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(b) Each Holder and Requesting Stockholder will, if Registrable
Securities held by it are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of the Company's directors and officers and each underwriter, if
any, of the Company's securities covered by such registration statement, each
person who controls the Company or such underwriter within the meaning of the
Securities Act and the rules and regulations thereunder, each other Holder and
Requesting Stockholder and each of their officers, directors and partners, and
each person controlling such Holder or Requesting Stockholder, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, its officers and
directors, each underwriter, each person controlling the Company or such
underwriter, each other Holder and Requesting Stockholders, their officers,
directors, partners and control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder or
Requesting Stockholder and stated to be specifically for use therein; provided,
however, that the obligations of each Holder and Requesting Stockholders
hereunder shall be limited to an amount equal to the proceeds to each such
Holder or Requesting Stockholder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 11.8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld and for such purpose approval is hereby given for Wolf,
Block, Schorr and Solis-Cohen LLP ("Wolf, Block") to be such counsel), and the
Indemnified Party may participate in such defense at such party's expense, and
provided, further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Article 11 unless such failure has had a material adverse effect on
such claim. The parties to this Agreement reserve any rights to claim under this
Agreement for damages actually incurred by reason of any failure of the
Indemnified Party to give prompt notice of a claim. To the extent counsel for
the Indemnifying Party shall in such counsel's reasonable judgment, have a
conflict in representing an Indemnified Party in conjunction with the
Indemnifying Party or other Indemnified Parties, such Indemnified Party shall be
entitled to separate counsel at the expense of the Indemnifying Party subject to
the approval of such counsel by the Indemnified Party (whose approval shall not
be unreasonably withheld and for such purpose approval is hereby given for Wolf,
Block to be such counsel). No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of
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any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and any litigation resulting therefrom.
11.9. Information by Holders. Each Holder of Registrable Securities,
and each Requesting Stockholder holding securities included in any registration,
shall furnish to the Company such information regarding such Holder or
Requesting Stockholder and the distribution proposed by such Holder or
Requesting Stockholder as the Company may reasonably request in writing and as
shall be reasonably required in connection with any registration, qualification
or compliance referred to in this Article 11.
11.10. Limitations on Registration of Issues of Securities. From and
after the date of this Agreement, the Company shall not enter into any agreement
with any holder or prospective holder of any securities of the Company giving
such holder or prospective holder the right to require the Company to register
any securities of the Company equal to or more favorable than the rights granted
under this Article 11. Any right given by the Company to any holder or
prospective holder of the Company's securities in connection with the
registration of securities shall be conditioned such that it shall be consistent
with the provisions of this Article 11 and with the rights of the Holders
provided in this Agreement and such holder or prospective holder agrees to be
bound by the terms of this Article 11.
11.11. Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to:
(a) make and keep public information available as those terms are
understood and defined and interpreted in and under Rule 144 under the
Securities Act, at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act filed by the
Company for an offering of its securities to anyone other than its employees;
(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Securities Exchange Act at any time after it has become subject to such
reporting requirements; and
(c) so long as the Purchaser owns any Restricted Securities, furnish to
the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to anyone other
than its employees), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as the Purchaser may reasonably request in availing itself of
any rule or regulation of the Commission allowing the Purchaser to sell any such
securities without registration.
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11.12. Participation in Underwritten Registrations. No person may
participate in any underwritten registration hereunder unless such person (i)
agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (ii) completes and executes all reasonable questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
11.13. Selection of Underwriters. If any Demand Registration is an
underwritten offering, the Holders of a majority of the Registrable Securities
included in such registration have the right to select the investment banker(s)
and manager(s) to administer the offering, subject to the approval of the
Company (which approval will not be unreasonably withheld). If any registration
other than a Demand Registration is an underwritten offering, the Company will
have the right to select the investment banker(s) and manager(s) to administer
the offering, subject to the approval of the Holders of a majority of the
Registrable Securities included in such registration (which approval will not be
unreasonably withheld).
11.14. Termination of Registration Rights. The rights of Holders to
request a Demand Registration or participate in a Piggyback Registration shall
expire on March 10, 2007.
ARTICLE XII
EVENTS OF DEFAULTS
12.1. Events of Default. If any of the following events (herein called
an "Event of Default") shall occur and be continuing:
(a) if the Company shall default in the payment of (i) any part of the
principal of any Debenture, when the same shall become due and payable, whether
at maturity or at a date fixed for prepayment or by acceleration or otherwise;
or (ii) the interest on any Debenture; when the same shall become due and
payable; and in each case such default shall have continued without cure for ten
(10) days after written notice (a "Default Notice") is given to the Company of
such default;
(b) If the Company shall default in the performance of any of the
covenants contained in Articles 9 or 10 and such default shall have continued
without cure for fifteen (15) days after a Default Notice is given to the
Company with respect to such covenant by any Holder or Holders of the Debentures
(the Company to give forthwith to all other Holders of the Debentures at the
time outstanding written notice of the receipt of such Default Notice,
specifying the default referred to therein);
(c) If the Company shall default in the performance of any other
material agreement or covenant contained in this Agreement and such default
shall not have been remedied to the satisfaction of the Holder or Holders of at
least a majority in aggregate principal amount of the Debentures then
outstanding, within thirty-five (35) days after a Default Notice shall have been
given to the Company (the Company to give forthwith to all other Holders of
Debentures at the time outstanding written notice of the receipt of such Default
Notice, specifying the default referred to therein);
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(d) If any representation or warranty made in this Agreement or in or
any certificate delivered pursuant hereto shall prove to have been incorrect in
any material respect when made;
(e) If any default shall occur under any indenture, mortgage,
agreement, instrument or commitment evidencing or under which there is at the
time outstanding any indebtedness of the Company or a Subsidiary, in excess of
$100,000, or which results in such indebtedness, in an aggregate amount (with
other defaulted indebtedness) in excess of $250,000 becoming due and payable
prior to its due date and if such indenture or instrument so requires, the
holder or holders thereof (or a trustee on their behalf) shall have declared
such indebtedness due and payable;
(f) If any of the Company or its Subsidiaries shall default in the
observance or performance of any term or provision of an agreement to which it
is a party or by which it is bound which default will have a material adverse
effect on the Company and its Subsidiaries, taken as a whole, and such default
is not waived or cured within the applicable grace period;
(g) If a final judgment which, either alone or together with other
outstanding final judgments against the Company and its Subsidiaries, exceeds an
aggregate of $250,000 shall be rendered against the Company or any Subsidiary
and such judgment shall have continued undischarged or unstayed for thirty-five
(35) days after entry thereof;
(h) If the Company or any Subsidiary shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay its debts;
or if the Company or any Subsidiary shall suffer a receiver or trustee for it or
substantially all of its assets to be appointed, and, if appointed without its
consent, not to be discharged or stayed within ninety (90) days; or if the
Company or any Subsidiary shall suffer proceedings under any law relating to
bankruptcy, insolvency or the reorganization or relief of debtors to be
instituted by or against it, and, if contested by it, not to be dismissed or
stayed within ninety (90) days; or if the Company or any Subsidiary shall suffer
any writ of attachment or execution or any similar process to be issued or
levied against it or any significant part of its property which is not released,
stayed, bonded or vacated within ninety (90) days after its issue or levy; or if
the Company or any Subsidiary takes corporate action in furtherance of any of
the aforesaid purposes or conditions;
(i) Prior to July 1, 1998, the directors or the shareholders of the
Company do not approve an amendment to the Certificate of Incorporation of the
Company to (a) increase the number of authorized shares of Common Stock from
20,000,000 to [40,000,000] and (b) give the holders of Debentures voting rights
as set forth in Section 9.14 of this Agreement; or
(j) If three designees of the Purchasers are not elected as directors
of the Company prior to July 1, 1998.
12.2. Remedies.
(a) Upon the occurrence of an Event of Default, any Holder or Holders
of a majority in aggregate principal amount of the Debentures at the time
outstanding may at any time (unless all defaults shall theretofore have been
remedied) at its or their option, by written notice
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or notices to the Company (i) declare all the Debentures to be due and payable,
whereupon the same shall forthwith mature and become due and payable, together
with interest accrued thereon, without presentment, demand, protest or notice,
all of which are hereby waived; and (ii) declare any other amounts payable to
the Purchasers under this Agreement or as contemplated hereby due and payable.
(b) Notwithstanding anything contained in Section 12.2(a), in the event
that at any time after the principal of the Debentures shall so become due and
payable and prior to the date of maturity stated in the Debentures all arrears
of principal of and interest on the Debentures (with interest at the rate
specified in the Debentures on any overdue principal and, to the extent legally
enforceable, on any interest overdue) shall be paid by or for the account of the
Company, then the holder or holders of at least a majority in aggregate
principal amount of the Debentures then outstanding, by written notice or
notices to the Company, may (but shall not be obligated to) waive such Event of
Default and its consequences and rescind or annul such declaration, but no such
waiver shall extend to or affect any subsequent Event of Default or impair any
right resulting therefrom. If any holder of a Debentures shall give any notice
or take any other action with respect to a claimed default, the Company,
forthwith upon receipt of such notice or obtaining knowledge of such other
action will give written notice thereof to all other holders of the Debentures
then outstanding, describing such notice or other action and the nature of the
claimed default.
12.3. Enforcement. In case any one or more Events of Default shall
occur and be continuing, the Holder of a Debenture then outstanding may proceed
to protect and enforce the rights of such Holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or in such Debenture or for an injunction against
a violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law. Each Holder agrees that it will
give written notice to the other Holders prior to instituting any such action.
In case of a default in the payment of any principal of or interest on any
Debenture, the Company will pay to the Holder thereof such further amount as
shall be sufficient to cover the cost and the expenses of collection, including,
without limitation, reasonable attorney's fees, expenses and disbursements. No
course of dealing and no delay on the part of any Holder of any Debenture in
exercising any rights shall operate as a waiver thereof or otherwise prejudice
such Holder's rights. No right conferred hereby or by any Debenture upon any
Holder thereof shall be exclusive of any other right referred to herein or
therein or now available at law in equity, by statute or otherwise.
ARTICLE XIII
AMENDMENT AND WAIVER
This Agreement may not be amended, discharged or terminated (or any
provision hereof waived) without the written consent of the Company and the
Purchasers. Provided that such written consent of the Company and the Purchasers
is given:
(a) Holders of at least a majority in aggregate principal amount of the
Debentures then outstanding may by written instrument amend or waive any term or
condition
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of this Agreement relating to the rights or obligations of Holders of
Debentures, which amendment or waiver operates for the benefit of such Holders,
except that no such amendment or waiver shall (i) change the fixed maturity of
any Debentures, the rate or the time of mandatory prepayment of principal
thereof or payment of interest thereon, the principal amount thereof, without
the consent of the holder of the Debentures so affected, (ii) change the
aforesaid percentage of Debentures, the Holders of which are required to consent
to any such amendment or waiver, without the consent of the holders of all the
Debentures then outstanding or (iii) change the percentage of the amount of the
Debentures, the Holders of which may declare the Debentures to be due and
payable under Article 12.
The Company and each Holder of a Debenture then or thereafter
outstanding shall be bound by any amendment or waiver effected in accordance
with the provisions of this Article 13, whether or not such Debenture shall have
been marked to indicate such modification, but any Debenture issued thereafter
shall bear a notation as to any such modification. Promptly after obtaining the
written consent of the holders herein provided, the Company shall transmit a
copy of such modification to all of the holders of the Debentures then
outstanding.
(b) Holders of at least a majority of the Shares then outstanding may
by written instrument amend or waive any term or condition of this Agreement
relating to the rights or obligations of holders of Shares, which amendment or
waiver operates for the benefit of such holders but in no event shall the
obligation of any holder of Shares hereunder be increased, except upon the
written consent of such holder of Shares.
The Company and each holder of a Share then or thereafter outstanding
shall be bound by any amendment or waiver effected in accordance with the
provisions of this Article 13, whether or not such Share shall have been marked
to indicate such modification, but any Share issued thereafter shall bear a
notation as to any such modification. Promptly after obtaining the written
consent of the holders herein provided, the Company shall transmit a copy of
such modification to all of the holders of the Shares then outstanding.
ARTICLE XIV
EXCHANGE AND REPLACEMENT OF DEBENTURES
14.1. Subject to Section 15.2, at any time at the request of any Holder
of one or more of the Debentures to the Company at its office provided under
Section 9.9, the Company at its expense (except for any transfer tax or any
other tax arising out of the exchange) will issue in exchange therefor new
Debentures, in such denomination or denominations ($100,000 or any larger
multiple of $100,000, plus one Debenture in a lesser denomination, if required)
as such Holder may request, in aggregate principal amount equal to the unpaid
principal amount of the Debenture or Debentures surrendered and substantially in
the form thereof, dated as of the date to which interest has been paid on the
Debenture or Debentures surrendered (or, if no interest has yet been so paid
thereon, then dated the date of the Debenture or Debentures so surrendered) and
payable to such person or persons or order as may be designated by such Holder.
14.2. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Debenture and, in the case of any such
loss, theft, or destruction,
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upon delivery of a bond of indemnity satisfactory to the Company (provided that
if the holder is a Purchaser or a financial institution, its own agreement will
be satisfactory), or in the case of any such mutilation, upon surrender and
cancellation of such Debenture, the Company will issue a new Debenture of like
tenor as if the lost, stolen, destroyed or mutilated Debenture were then
surrendered for exchange in lieu of such lost, stolen, destroyed or mutilated
Debenture.
ARTICLE XV
TRANSFER OF AND PAYMENT OF DEBENTURES
15.1. Notification of Proposed Sale.
(a) Subject to Section 15.1(b), each holder of a Debenture by
acceptance thereof agrees that it will give the Company ten (10) days written
notice prior to selling or otherwise disposing of such Debenture. No such sale
or other disposition shall be made unless (i) the holder shall have supplied to
the Company an opinion of counsel for the holder reasonably acceptable to the
Company to the effect that no registration under the Securities Act is required
with respect to such sale or other disposition, or (ii) an appropriate
registration statement with respect to such sale or other disposition shall have
been filed by the Company and declared effective by the Commission.
(b) If the Holder of a Debenture has obtained an opinion of counsel
reasonably acceptable to the Company to the effect that the sale of its
Debenture may be made without registration under the Securities Act pursuant to
compliance with Rule 144 (or any successor rule under the Securities Act), the
holder need not provide the Company with the notice required in Section 15.1(a).
15.2. Payment. So long as a Purchaser shall be the holder of any
Debenture, the Company will make payments of principal and interest to such
Purchaser no later than 11 a.m. Eastern Time on the date when such payment is
due. Payments shall be made by delivery to such Purchaser at such Purchaser's
address furnished to the Company in accordance with this Agreement of a
certified or official bank check drawn upon or issued by a bank which is a
member of the New York Clearinghouse for banks or by wire transfer to such
Purchaser's (or such Purchaser's nominee's) account at any bank or trust company
in the United States of America. Each Purchaser further agrees that, before a
Debenture is assigned or transferred, such Purchaser will make or cause to be
made a notation thereon of principal payments previously made thereof and of the
date to which interest thereon has been paid and will notify the Company of the
name and address of the transferee of such Debenture if such name and address
are known to the Purchaser.
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ARTICLE XVI
RIGHT OF FIRST REFUSAL; ADDITIONAL INVESTMENT
16.1 Right of First Refusal. Each Holder of the Debentures, Holder of
Shares (provided any Debentures remain outstanding and the Shares received upon
conversion have not been sold, transferred or otherwise disposed of)(the "Common
Holder") and Old Holders shall be entitled to the following right of first
refusal:
(a) Except in the case of Excluded Securities (as hereinafter
defined), the Company shall not issue, sell or exchange, agree to issue, sell or
exchange, or reserve or set aside for issuance, sale or exchange (i) any shares
of Common Stock, (ii) any other equity security of the Company, (iii) any debt
security of the Company which by its terms is convertible into or exchangeable
for, with or without consideration, any equity security of the Company, (iv) any
security of the Company that is a combination of debt and equity or (v) any
option, warrant or other right to subscribe for, purchase or otherwise acquire
any equity security or any such debt security of the Company (collectively, the
"Equity Securities"), unless in each case, the Company shall have first offered
to sell to the Holders of Debentures, the Common Holders and the Old Holders,
the Equity Securities, at a price and on such other terms as shall have been
specified by the Company in writing delivered to each of the Holders of
Debentures, the Common Holders and the Old Holders (the "Offer"), which Offer by
its terms shall remain open and irrevocable for a period of thirty (30) days
from the date it is delivered by the Company to the Holders of Debentures, the
Common Holders and the Old Holders; provided, however, that such issuance, sale
or exchange of equity securities shall result in gross proceeds to the Company
(whether at the time of issuance or upon conversion, exercise, or exchange
thereof) of an amount in excess of $200,000 (the "Minimum Offering Threshold").
For purposes of computing the Minimum Offering Threshold, any offering,
issuance, sale or exchange of Equity Securities during any rolling 12-month
period shall be aggregated.
(b) Each of the Holders of Debentures, the Common Holders
(provided the Debentures remain outstanding and the Shares received upon
conversion has not been sold, transferred or otherwise disposed of) and the Old
Holders shall have the right to purchase up to its pro rata share of the Equity
Securities. The "pro rata share" of each Holder of Debentures, Common Holder and
Old Holder shall be that amount of the Equity Securities multiplied by a
fraction, the numerator of which is the sum of (i) of Shares underlying the
Debenture held by such person if such person is the Holder of a Debenture, (ii)
the number of Shares of Common Stock issued to such Common Holder upon
conversion of a Debenture if such person is a Common Holder and (iii) the number
of shares of Common Stock underlying the Prior Debenture held by such person if
such person is an Old Holder, and the denominator of which is the sum of (x) the
total number of shares of Common Stock underlying the Debentures issued pursuant
to this Agreement and (y) the total number of shares of Common Stock into which
the Prior Debentures are convertible on the date of this Agreement.
(c) Notice of the intention of each Holder of a Debenture,
Common Holder or Old Holder to accept, in whole or in part, an offer shall be
evidenced by a writing signed by such person, as the case may be, and delivered
to the Company prior to the end of the 30-day period commencing with the date of
such Offer (or, if later, within 10 days after the
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giving of any written notice of a material change in such Offer), setting forth
such portion (specifying number of shares, principal amount or the like) of the
Equity Securities as such person elects to purchase (the "Notice of
Acceptance").
(d) In the event that all of the Holders of Debentures, Common
Holders and Old Holders do not elect to purchase all of the Equity Securities,
the persons which have provided notice of their intention to exercise the
refusal rights as provided in subparagraph (c) above shall have the right to
purchase, on a pro rata basis, any unsubscribed portion of the Equity Securities
during a period of 10 days following the 30-day period provided in subparagraph
(c) above. Following such additional 10-day period, in the event the Holders of
the Debentures, the Common Holders and the Old Holders have not elected to
purchase all of the Equity Securities, the Company shall have 90 days from the
expiration of the foregoing 40-day period to sell all or any part of such Equity
Securities as to which a Notice of Acceptance has not been given by any of such
persons (the "Refused Securities") to any other person or persons, but only upon
terms and conditions in all material respects, including without limitation,
unit price and interest rates (but excluding payment of legal fees of counsel of
the purchaser), which are no more favorable, in the aggregate, to such other
person or persons or less favorable to the Company than those set forth in the
Offer. Upon the closing of the sale to such other person or persons of all the
Refused Securities, which shall include payment of the purchase price to the
Company in accordance with the terms of the Offer, if the Holders of Debentures,
the Common Holders and/or Old Holders have timely submitted a Notice of
Acceptance, it and/or they shall purchase from the Company, and the Company
shall sell to such persons, as the case may be, the Equity Securities in respect
of which a Notice of Acceptance was delivered to the Company, at the terms
specified in the Offer. The purchase by the Holders, Common Holders and/or Old
Holders of any Equity Securities is subject in all cases to the preparation,
execution and delivery by the Company such persons of a purchase agreement and
other customary documentation relating to such Equity Securities as is
satisfactory in form and substance to such persons and each of their respective
counsel.
(e) In each case, any Equity Securities not purchased by the
Holders of Debentures, the Common Holders, the Old Holders or by a person or
persons in accordance with Section 16.1(d) hereof may not be sold or otherwise
disposed of until they are again offered to such persons under the procedures
specified in Section 16.1(a), (c) and (d) hereof.
(f) The rights of the Holders of Debentures, the Common
Holders and the Old Holders under this Section 16.1 shall not apply to the
following securities (the "Excluded Securities"):
(i) Common Stock or options to purchase such
Common Sock, issued to officers, employees
or directors of, or consultants to, the
Company, pursuant to any agreement, plan or
arrangement approved by the Board of
Directors of the Company;
(ii) Common Stock issued as a stock dividend or
upon any stock split or other subdivision or
combination of shares of Common Stock;
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(iii) Common Stock issued upon conversion of the
Debentures or exercise of the Warrants; and
(iv) any securities issued for consideration
other than cash pursuant to a merger,
consolidation, acquisition or similar
business combination.
(g) Notwithstanding anything to the contrary contained herein,
a Holder of a Debenture or a Common Holder (other than an initial Purchaser)
shall not be considered as such for purposes of this Section 16.1 only, unless
such person then holds Debentures with an outstanding principal amount of at
least $200,000 or Shares issued upon conversion of at least $200,000 in
principal of Debentures or a combination of Debentures and Shares such that the
outstanding principal of the Debentures held by such person plus the amount of
principal of Debentures converted into Shares held by such person equals or
exceeds $200,000.
16.2 Additional Investment. Notwithstanding anything to the contrary
contained in Section 16.1, prior to the expiration of 18 months after the date
of this Agreement, the Purchasers (on a pro rata basis) only shall have the
right to purchase additional Securities on the same terms and conditions as set
forth herein for an aggregate purchase price of $5,000,000. Purchasers holding a
majority in principal amount of the outstanding Debentures may elect to make
such purchase by giving written notice of such election to the Company. The Old
Holders shall not have any right to participate in such purchase of additional
Securities unless (and then only to the extent that) they are Purchasers.
ARTICLE XVII
MISCELLANEOUS
17.1. 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.
17.2. Survival. Except as specifically provided herein, the
representations, warranties, covenants and agreements made herein shall survive
(a) any investigation made by the Purchasers and (b) the Closing.
17.3. Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding upon
and enforceable by and against, the successors, assigns, heirs, executors and
administrators of the parties hereto; provided, however, that the Company may
not assign its rights hereunder.
17.4. Entire Agreement. This Agreement (including the Exhibits hereto)
and the other documents delivered pursuant hereto and simultaneously herewith
constitute the full and entire understanding and agreement between the parties
with regard to the subject matter hereof and thereof.
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17.5. Notices, etc. All notices, demands or other communications given
hereunder shall be in writing and shall be sufficiently given if 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, addressed as follows:
(a) if to the Company:
Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
Attention: Mr. Michael Reicher
Chief Executive Officer
(b) if to a Purchaser, to the address set forth
on Exhibit A 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. Copies of any
notice, demand or communication given to (x) the Company, shall 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 and (y)
any Purchaser, shall be delivered to Wolf, Block, Schorr and Solis-Cohen LLP,
250 Park Avenue, New York, New York, 10177, Attn.: George Abrahams, Esq., or
such other address as may be directed.
17.6. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Securities upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder 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; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of 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 holder, shall be
cumulative and not alternative.
17.7. Rights; Severability. Unless otherwise expressly provided herein,
each Purchaser's rights hereunder are several rights, not rights 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.
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17.8. Agent's Fees.
(a) The Company hereby (i) represents and warrants that except for HKS
Company, Inc. which is being compensated in full by the issuance of Securities
as set forth in Exhibit A, the Company has not retained a finder or broker in
connection with the transactions contemplated by this Agreement and (ii) agrees
to indemnify and to hold the Purchasers harmless of and from any liability for
commission or compensation in the nature of an agent's fee to any broker, person
or firm, and the costs and expenses of defending against such liability or
asserted liability, including, without limitation, reasonable attorney's fees,
arising from any act by the Company or any of the Company's employees or
representatives; provided, however, that the Company will have the right to
defend against such liability by representative(s) of its own choosing, which
representative(s) shall be approved by the Holders of a majority in aggregate
principal amount of the Debentures and the Holders of a majority of the Shares
(which approval shall not be unreasonably withheld or delayed), and provided,
further, that the Company will not settle or compromise any claim or lawsuit
without prior written notice to the Purchasers of the terms and provisions
thereof. In the event that the Company shall fail to undertake the defense
within ten (10) days of any notice of such claim, the Purchasers shall have the
right to undertake the defense, compromise or settlement of such claim upon
written notice to the Company by holders of a majority in principal amount of
the Debentures and the holders of a majority of the Shares and the Company will
be responsible for and shall pay all costs and expenses of defending such
liability or asserted liability and any amounts paid in settlement.
(b) Each Purchaser (i) severally represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated by
this Agreement and (ii) hereby severally agrees to indemnify and to hold the
Company harmless from any liability for any commission or compensation in the
nature of an agent's or finder's fee to any broker or other person or firm (and
the costs, including reasonable legal fees, and expenses of defending against
such liability or asserted liability) for which such Purchaser, or any of its
employees or representatives, are responsible.
17.9. Expenses. The Company shall bear its own expenses and legal fees
incurred on its behalf with respect to the negotiation, execution and
consummation of the transactions contemplated by this Agreement, and the Company
will reimburse the Purchasers for all of the reasonable expenses incurred by the
Purchasers and their affiliates with respect to the negotiation, execution and
consummation of the transactions contemplated by this Agreement and the
transactions contemplated hereby and due diligence conducted in connection
therewith, including the fees and disbursements of counsel and auditors for the
Purchasers; provided, however, that the amount of such reimbursement shall not
exceed $100,000. Such reimbursement shall be paid on the Closing Date.
17.10. Litigation. The parties each hereby waive trial by jury in any
action or proceeding of any kind or nature in any court in which an action may
be commenced arising out of this Agreement or by reason of any other cause or
dispute whatsoever between them. The parties hereto agree that the State and
Federal Courts which sit in the State of New York and the County of New York
shall have exclusive jurisdiction to hear and determine any claims or disputes
between the Company and such holders, pertaining directly or indirectly to this
Agreement or to any matter arising therefrom. The parties each expressly submit
and consent in
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advance to such jurisdiction in any action or proceeding commenced in such
courts provided that such consent shall not be deemed to be a waiver of personal
service of the summons and complaint, or other process or papers issued therein.
The choice of forum set forth in this Section 17.10 shall not be deemed to
preclude the enforcement of any judgment obtained in such forum or the taking of
any action under this Agreement to enforce same in any appropriate jurisdiction.
The parties each waive any objection based upon forum non conveniens and any
objection to venue of any action instituted hereunder.
17.11. 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.
17.12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
If the Purchaser is in agreement with the foregoing the Purchaser shall
sign where indicated below and thereupon this letter shall become a binding
agreement between such Purchaser and the Company.
Very truly yours,
HALSEY DRUG CO., INC.
By: /s/ Michael Reicher
-----------------------------
Michael Reicher
Chief Executive Officer
AGREED:
GALEN PARTNERS III, L.P.
By: Claudius, L.L.C., General Partner
By: /s/ Bruce F. Wesson
-----------------------------
Name: Bruce F. Wesson
Title: Managing Member
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GALEN PARTNERS INTERNATIONAL III, L.P.
By: Claudius, L.L.C., General Partner
By: /s/ Bruce F. Wesson
-----------------------------
Name: Bruce F. Wesson
Title: Managing Member
GALEN EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc.
By: /s/ Bruce F. Wesson
-----------------------------
Name: Bruce F. Wesson
Title: Managing Member
[ADDITIONAL PURCHASERS]
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EXHIBIT A
Principal Amount of $1.50 $2.375
Name and Address of Purchaser Debenture Purchased Warrants Warrants Purchase Price
- ----------------------------- ------------------- -------- -------- --------------
Galen Partners III, L.P. $15,423,195 1,557,789 1,557,789 $15,423,195
610 Fifth Avenue, 5th Floor
New York, New York 10020
Galen Partners International III, L.P. $ 1,709,167 172,643 172,643 $ 1,709,167
611 Fifth Avenue, 5th Floor
New York, New York 10020
Galen Employee Fund III, L.P. $ 67,638 6,832 6,832 $ 67,638
610 Fifth Avenue, 5th Floor
New York, New York 10020
Michael Reicher $ 300,000 30,303 30,303 $ 300,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
Peter Clemens $ 100,000 10,101 10,101 $ 100,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
Stefanie Heitmeyer $ 20,000 2,020 2,020 $ 20,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
Dan Hill $ 10,000 1,010 1,010 $ 10,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
Alan Smith $ 10,000 1,010 1,010 $ 10,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
Dennis Adams $ 1,170,000 118,182 118,182 $ 1,170,000
120 Kynlyn Road
Radnor, Pennsylvania 19087
Patrick Coyne $ 50,000 5,051 5,051 $ 50,000
477 Margo Lane
Berwyn, Pennsylvania 19312
Michael Weisbrot and Susan Weisbrot $ 300,000 30,303 30,303 $ 300,000
1136 Rock Creek Road
Gladwyne, Pennsylvania 19035
Greg Wood $ 100,000 10,101 10,101 $ 100,000
1263 East Calaveras Street
Altadena, California 91001
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Principal Amount of $1.50 $2.375
Name and Address of Purchaser Debenture Purchased Warrants Warrants Purchase Price
- ----------------------------- ------------------- -------- -------- --------------
Hement K. Shah and Varsha H. Shah $ 950,000 95,960 95,960 $ 950,000
29 Christy Drive
Warren, New Jersey 07059
Varsha H. Shah as Custodian for $ 20,000 2,020 2,020 $ 20,000
Suneet H. Shah
29 Christy Drive
Warren, New Jersey 07059
Varsha H. Shah as Custodian for $ 20,000 2,020 2,020 $ 20,000
Sachin H. Shah
29 Christy Drive
Warren, New Jersey 07059
Bernard Selz $ 400,000 40,404 40,404 $ 400,000
121 East 73rd Street
New York, New York 10021
Ilene Rainisch $ 25,000 2,525 2,525 $ 25,000
315 Devon Place
Morganville, New Jersey 07751
Michael Rainisch $ 25,000 2,525 2,525 $ 25,000
48 Radford Street
Staten Island, New York 10314
Ken Gimbel $ 100,000 10,101 10,101 $ 100,000
876 Kimball Road
Highland Park, Illinois 60035
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\ Page 52A
COUNTERPART SIGNATURE PAGE TO DEBENTURE AND WARRANT
PURCHASE AGREEMENT
Additional Purchasers Mailing Address
--------------------- ---------------
/s/ Bernard Seiz c/o Furman Selz
- -------------------------- 230 Park Avenue
Bernard Seiz New York, New York 10069
Pershing - Division of DLJ
for Benefit of Kenneth Gimbel
IRA Account
By: /s/ Kenneth Gimbel Pershing - Division of DLJ
----------------------- 14 Floor
Name: Kenneth Gimbel One Pershing Plaza
Title: Jersey City, New Jersey 07399
57
/s/ Hemant K. Shah
- --------------------------------
Hemant K. Shah
/s/ Varsha H. Shah
- --------------------------------
Varsha H. Shah, as
Custodian for Sachin Shah
/s/ Varsha H. Shah
- -------------------------------- c/o HKS & Company, Inc.
Varsha H. Shah, as 29 Christy Drive
Custodian for Sumeet H. Shah Warren, New Jersey 07059
58
/s/ Ilene Rainisch
- --------------------------------
Ilene Rainisch
/s/ Michael Rainisch
- -------------------------------- c/o Al Rainisch
Michael Rainisch Weiss, Peck & Greer
One New York Plaza
New York, New York 10004
/s/ Dennis Adams
- -------------------------------- c/o Delaware Investment Advisors
Dennis Adams One Commerce Square
Philadelphia, Pennsylvania 19103
/s/ Patrick Coyne
- -------------------------------- c/o Dennis Adams
Patrick Coyne Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
/s/ Michael Weisbrot
- -------------------------------- c/o Dennis Adams
Michael Weisbrot Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
/s/ Susan Weisbrot
- -------------------------------- c/o Dennis Adams
Susan Weisbrot Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
/s/ Greg Wood
- -------------------------------- c/o DR International
Greg Wood 7474 North Figueron Street
Los Angeles, California 90041
59
- -----------------------------------
Ilene Rainisch
- ----------------------------------- c/o Al Rainisch
Michael Rainisch Weiss, Peck & Greer
One New York Plaza
New York, New York 10004
- ----------------------------------- c/o Delaware Investment Advisors
Dennis Adams One Commerce Square
Philadelphia, Pennsylvania 19103
- ----------------------------------- c/o Dennis Adams
Patrick Coyne Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
- ----------------------------------- c/o Dennis Adams
Sarah Cerato Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
- ----------------------------------- c/o Dennis Adams
Michael Weisbrot Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
- ----------------------------------- c/o Dennis Adams
Susan Weisbrot Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
- ----------------------------------- c/o DR International
Greg Wood 7474 North Figueron Street
Los Angeles, California 90041
/s/ Alan Jerrard Smith
- ----------------------------------- 21 Bedlow Avenue
Alan Jerrard Smith Newport, RI 02840
60
- -----------------------------------
Ilene Rainisch
- ----------------------------------- c/o Al Rainisch
Michael Rainisch Weiss, Peck & Greer
One New York Plaza
New York, New York 10004
- ----------------------------------- c/o Delaware Investment Advisors
Dennis Adams One Commerce Square
Philadelphia, Pennsylvania 19103
- ----------------------------------- c/o Dennis Adams
Patrick Coyne Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
- ----------------------------------- c/o Dennis Adams
Sarah Cerato Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
- ----------------------------------- c/o Dennis Adams
Michael Weisbrot Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
- ----------------------------------- c/o Dennis Adams
Susan Weisbrot Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
- ----------------------------------- c/o DR International
Greg Wood 7474 North Figueron Street
Los Angeles, California 90041
/s/ Michael R. Reicher
- ----------------------------------- c/o Halsey Daug Co., Inc.
Michael R. Reicher 1827 Pacific Shore
Brooklyn, NY 11233
61
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COUNTERPART SIGNATURE PAGE TO DEBENTURE AND WARRANT
PURCHASE AGREEMENT
Additional Purchasers Mailing Address
--------------------- ---------------
c/o Furman Selz
- -------------------------- 230 Park Avenue
Bernard Selz New York, New York 10069
- -------------------------- 2 East 70th Street
Katherine M. Bristor New York, New York 10021
Pershing - Division of DLJ
for Benefit of Kenneth Gimbel
IRA Account
By: Pershing - Division of DLJ
----------------------- 14 Floor
Name: One Pershing Plaza
Title: Jersey City, New Jersey 07399
Attn: Sean Hester
- -------------------------- c/o Bea Associates
John B. Hurford One Citicorp Center
153 East 53rd Street
New York, New York 10022
Harbour Investments Limited
By:
----------------------- c/o Strong Capital Management
Name: 100 Heritage Reserve
Title: Menomonee Falls, Wisconsin 53051
/s/ Daniel W. Hill
- -------------------------- 6725 Lynch Ave
Daniel W. Hill Riverbank, CA 95367
62
- --------------------------
Ilene Rainisch
- -------------------------- c/o Al Rainisch
Michael Rainisch Weiss, Peck & Greer
One New York Plaza
New York, New York 10004
- -------------------------- c/o Delaware Investment Advisors
Dennis Adams One Commerce Square
Philadelphia, Pennsylvania 19103
- -------------------------- c/o Dennis Adams
Patrick Coyne Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
- -------------------------- c/o Dennis Adams
Sarah Cerato Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
- -------------------------- c/o Dennis Adams
Michael Weisbrot Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
- -------------------------- c/o Dennis Adams
Susan Weisbrot Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
- -------------------------- c/o DR International
Greg Wood 7474 North Figueron Street
Los Angeles, California 90041
/s/ Peter A. Clemens
- -------------------------- c/o Halsey Drug Co., Inc.
Peter A. Clemens 1827 Pacific Street
Brooklyn, NY 01233
63
Page 52A
COUNTERPART SIGNATURE PAGE TO DEBENTURE AND WARRANT
PURCHASE AGREEMENT
Additional Purchasers Mailing Address
- ------------------------------------ c/o Furman Selz
Bernard Selz 230 Park Avenue
New York, New York 10069
- ------------------------------------ 2 East 70th Street
Katherine M. Bristor New York, New York 10021
Pershing - Division of DLJ
for Benefit of Kenneth Gimbel
IRA Account
By: Pershing - Division of DLJ
--------------------------------- 14 Floor
Name: One Pershing Plaza
Title: Jersey City, New Jersey 07399
Attn: Sean Hester
- ------------------------------------ c/o Bea Associates
John B. Hurford One Citicorp Center
153 East 53rd Street
New York, New York 10022
Harbour Investments Limited
By: c/o Strong Capital Management
--------------------------------- 100 Heritage Reserve
Name: Menomonee Falls, Wisconsin 53051
Title:
By: /s/ Stephanie K. Heitmeyer 17759 St. Rt. 66
--------------------------------- Ft. Jennings, OH 45844
Stephanie K. Heitmeyer