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Exhibit 10.2
FORM OF
COMPANY GENERAL SECURITY AGREEMENT
THIS COMPANY GENERAL SECURITY AGREEMENT ("Company Security
Agreement") is made and entered into as of March 10, 1998, by and between HALSEY
DRUG CO., INC., a New York corporation (the "Debtor"), with its principal place
of business at 1827 Pacific Street, Brooklyn, New York 11233, and GALEN PARTNERS
III, L.P., a Delaware limited partnership (" Galen"), with its principal place
of business at 610 Fifth Avenue, 5th Floor, New York, New York 10020, acting in
its capacity as agent for the Purchasers (in such capacity, the "Agent").
W I T N E S S E T H
WHEREAS, Galen, certain other purchasers (together with Galen,
the "Purchasers") and the Debtor have entered into a Debenture and Warrant
Purchase Agreement dated as of the date hereof (as the same may be amended,
modified, supplemented or restated from time to time, the "Purchase Agreement";
terms which are capitalized herein and not otherwise defined shall have the
meanings ascribed to them in the Purchase Agreement); and
WHEREAS, the Purchasers have required, as a condition precedent
to the effectiveness of the Purchase Agreement, that the Debtor (i) grant to the
Agent, for the ratable benefit of the Purchasers, a security interest in and to
the Collateral (as defined in Section II below) and (ii) execute and deliver
this Company Security Agreement in order to secure the payment and performance
by the Debtor of the obligations owing by the Debtor to the Purchasers under the
Purchase Agreement and the agreements, documents and instruments delivered by
the Debtor pursuant thereto or in connection therewith (collectively, the
"Obligations").
NOW, THEREFORE, in consideration of the premises and in order to
induce the Purchasers to enter into and perform the Purchase Agreement, the
Debtor hereby agrees as follows:
SECTION I. CREATION OF SECURITY INTEREST.
The Debtor hereby pledges, assigns and grants to the Agent a
continuing perfected lien on and security interest in all of the Debtor's right,
title and interest in and to the Collateral (as defined in Section II below) in
order to secure the payment and performance of all Obligations owing by the
Debtor.
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SECTION II. COLLATERAL.
For purposes of this Company Security Agreement, the term
"Collateral" shall mean all of the kinds and types of property described in
subsections A. through E. hereof, whether now owned or hereafter at any time
arising, acquired or created by the Debtor and wherever located, and includes
all replacements, additions, accessions, substitutions, repairs, proceeds and
products relating thereto or therefrom, and all documents, ledger sheets and
files of the Debtor relating thereto. "Proceeds" hereunder include (i) whatever
is now or hereafter received by the Debtor upon the sale, exchange, collection
or other disposition of any item of Collateral, whether such proceeds constitute
inventory, accounts, accounts receivable, general intangibles, instruments,
securities (including, without limitation, United States of America Treasury
Bills), credits, claims, demands, documents, letters of credit and letter of
credit proceeds, chattel paper, documents of title, certificates of title,
certificates of deposit, warehouse receipts, bills of lading, leases, deposit
accounts, money, tax refund claims, contract rights, goods or equipment and (ii)
any such items which are now or hereafter acquired by the Debtor with any
proceeds of Collateral hereunder:
A. Accounts. All of the Debtor's accounts, whether now existing
or existing in the future, including without limitation (i) all accounts
receivable (whether or not specifically listed on schedules furnished to the
Agent), including, without limitation, all accounts created by or arising from
all of the Debtor's sales of goods or rendition of services made under any of
Debtor's trade names, or through any of its divisions, (ii) all unpaid seller's
rights (including rescission, replevin, reclamation and stoppage in transit)
relating to the foregoing or arising therefrom, (iii) all rights to any goods
represented by any of the foregoing, including returned or repossessed goods,
(iv) all reserves and credit balances held by the Debtor with respect to any
such accounts receivable or account debtors and (v) all guarantees or collateral
for any of the foregoing (all of the foregoing property and similar property
being hereinafter referred to as "Accounts");
B. Inventory. All of the Debtor's inventory, including without
limitation (i) all raw materials, work in process, parts, components,
assemblies, supplies and materials used or consumed in the Debtor's businesses,
wherever located and whether in the possession of the Debtor or any other Person
(for the purposes of this Company Security Agreement, the term "Person" means
any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, institution, entity,
party or government (including any division, agency or department thereof), and
its successors, heirs and assigns); (ii) all goods, wares and merchandise,
finished or unfinished, held for sale or lease or leased or furnished or to be
furnished under contracts of service, wherever located and whether in the
possession of the Debtor or any other Person or entity; and (iii) all goods
returned to or repossessed by the Debtor (all of the foregoing property being
hereinafter referred to as "Inventory");
C. Equipment. All of the equipment owned or leased by the Debtor,
including, without limitation, machinery, equipment, office equipment and
supplies, computers and related equipment, furniture, furnishings, tools,
tooling, jigs, dies, fixtures, manufacturing implements, fork lifts, trucks,
trailers, motor vehicles, and other equipment (all of the foregoing property
being hereinafter referred to as "Equipment");
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D. Intangibles. All of the Debtor's general intangibles,
instruments, securities (including, without limitation, United States of America
Treasury Bills), credits, claims, demands, documents, letters of credit and
letter of credit proceeds, chattel paper, documents of title, certificates of
title, certificates of deposit, warehouse receipts, bills of lading, leases
which are permitted to be assigned or pledged, deposit accounts, money, tax
refund claims, contract rights which are permitted to be assigned or pledged
(all of the foregoing property being hereinafter referred to as "Intangibles");
and
E. Intellectual Property. All of the Debtor's intellectual
property, including, without limitation, New Drug Applications, Investigatory
New Drug Applications, Abbreviated New Drug Applications, Alternative New Drug
Applications, registrations and quotas as issued by the Drug Enforcement
Administration and/or the Attorney General of the United States pursuant to the
Controlled Substances Act, certifications, permits and approvals of federal and
state governmental agencies, patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade names, technical
knowledge and processes, formal or informal licensing arrangements which are
permitted to be assigned or pledged, blueprints, technical specifications,
computer software, copyrights, copyright applications and other trade secrets,
and all embodiments thereof, and rights thereto, including, without limitation,
all of the Debtor' rights to use the patents, trademarks, copyrights, service
marks, or other property of the aforesaid nature of other Persons now or
hereafter licensed to the Debtor, together with the goodwill of the business
symbolized by or connected with the Debtor's trademarks, copyrights, service
marks, licenses and the other rights included in this section II(E).
SECTION III. THE DEBTOR'S REPRESENTATIONS AND WARRANTIES.
A. Places of Business. The Debtor has no other place of business,
or warehouses in which it leases space, other than those set forth on Section
IIIA of Schedule A, a copy of which is attached hereto and made a part hereof
("Schedule A").
B. Location of Collateral. Except for the movement of Collateral
from time to time from one place of business or warehouse listed on Section IIIA
of Schedule A, to another place of business or warehouse listed on Section IIIA
of such Schedule A, the Collateral is located at the Debtor's chief executive
office or other places of business or warehouses listed on such Section IIIA of
Schedule A, and not at any other location.
C. Restrictions on Collateral Disposition. None of the Collateral
is subject to contractual obligations that may restrict or inhibit the Agent's
rights or ability to sell or dispose of the Collateral or any part thereof after
the occurrence of an Event of Default.
D. Status of Accounts. Each Account is based on an actual and
bona fide rendition of services to customers, made by the Debtor in the ordinary
course of its business; the Accounts created are its exclusive property and are
not and shall not be subject to any lien, consignment arrangement, encumbrance,
security interest or financing statement whatsoever, except as otherwise
provided in Section IIID of Schedule A, and to the best knowledge of the Debtor,
the Debtor's customers have accepted the services, and owe and are obligated to
pay
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the full amounts stated in the invoices according to their terms, without any
dispute, offset, defense or counterclaim.
SECTION IV. COVENANTS OF THE DEBTOR.
A. Defend Against Claims. The Debtor will defend the Collateral
against all claims and demands of all persons at any time claiming the same or
any interest therein unless both the Agent and the Debtor determine that the
claim or demand is not material and that, consequently, such defense would not
be consistent with good business judgment. The Debtor will not permit any lien
notices with respect to the Collateral or any portion thereof to exist or be on
file in any public office except for those in favor of the Agent and those
permitted under the terms of the Purchase Agreement.
B. Change in Collateral Location. The Debtor will not (i) change
its corporate name, (ii) change the location of its chief executive office or
establish any place of business other than those specified in Section IIIA of
Schedule A, or (iii) move or permit movement of the Collateral from the
locations specified therein except from one such location to another such
location, unless in each case the Debtor shall have given the Agent at least
thirty (30) days prior written notice thereof, and shall have, in advance,
executed and caused to be filed and/or delivered to the Agent any financing
statements or other documents required by the Agent to perfect the security
interest of the Agent in the Collateral in accordance with Section IVC hereof,
all in form and substance satisfactory to the Agent.
C. Additional Financing Statements. Promptly upon the reasonable
request of the Agent, the Debtor will execute and deliver or use its reasonable
efforts to procure any document, give any notices, execute and file any
financing statements, mortgages or other documents, all in form and substance
satisfactory to the Agent, mark any chattel paper, deliver any chattel paper or
instruments to the Agent and take any other actions that are necessary or, in
the opinion of the Agent, desirable to perfect or continue the perfection and
the first priority of the Agent's security interest in the Collateral, to
protect the Collateral against the rights, claims, or interests of third
persons, or to effect the purposes of this Company Security Agreement. The
Debtor will pay the costs incurred in connection with any of the foregoing.
D. Additional Liens; Transfers. Without the prior written consent
of the Agent, the Debtor will not, in any way, hypothecate or create or permit
to exist any lien, security interest, charge or encumbrance on or other interest
in the Collateral, other than those permitted under the terms of the Purchase
Agreement, and Debtor will not sell, transfer, assign, pledge, collaterally
assign, exchange or otherwise dispose of the Collateral, other than the sale of
Inventory in the ordinary course of business and the sale of obsolete or worn
out Equipment. Notwithstanding the foregoing, if the proceeds of any such sale
consist of notes, instruments, documents of title, letters of credit or chattel
paper, such proceeds shall be promptly delivered to the Agent to be held as
Collateral hereunder. If the Collateral, or any part thereof, is sold,
transferred, assigned, exchanged, or otherwise disposed of in violation of these
provisions, the security interest of the Agent shall continue in such Collateral
or part thereof notwithstanding such sale, transfer, assignment, exchange or
other disposition, and the Debtor will hold the
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proceeds thereof for the benefit of the Agent, and promptly transfer such
proceeds to the Agent in kind.
E. Contractual Obligations. The Debtor will not enter into any
contractual obligations which may restrict or inhibit the Agent's rights or
ability to sell or otherwise dispose of the Collateral or any part thereof after
the occurrence or during the continuance of an Event of Default.
F. Agent's Right to Protect Collateral. Upon the occurrence or
continuance of an Event of Default, the Agent shall have the right at any time
to make any payments and do any other acts the Agent may deem necessary to
protect the security interests of the Purchasers in the Collateral, including,
without limitation, the rights to pay, purchase, contest or compromise any
encumbrance, charge or lien which, in the reasonable judgment of the Agent,
appears to be prior to or superior to the security interests granted hereunder,
and appear in and defend any action or proceeding purporting to affect its
security interests in, and/or the value of, the Collateral. The Debtor hereby
agrees to reimburse the Agent for all payments made and expenses incurred under
this Company Security Agreement including reasonable fees, expenses and
disbursements of attorneys and paralegals acting for the Agent, including any of
the foregoing payments under, or acts taken to protect its security interests
in, the Collateral, which amounts shall be secured under this Company Security
Agreement, and agrees it shall be bound by any payment made or act taken by the
Agent hereunder absent the Agent's gross negligence or willful misconduct. The
Agent shall have no obligation to make any of the foregoing payments or perform
any of the foregoing acts.
G. Further Obligations With Respect to Accounts. In furtherance
of the continuing assignment and security interest in the Accounts of the Debtor
granted pursuant to this Company Security Agreement, upon the creation of
Accounts, upon the Agent's request, the Debtor will execute and deliver to the
Agent in such form and manner as the Agent may require, solely for its
convenience in maintaining records of Collateral, such confirmatory schedules of
Accounts, and other appropriate reports designating, identifying and describing
the Accounts as the Agent may reasonably require. In addition, upon the Agent's
request, the Debtor shall provide the Agent with copies of agreements with, or
purchase orders from, the customers of the Debtor and copies of invoices to
customers, proof of shipment or delivery and such other documentation and
information relating to said Accounts and other Collateral as the Agent may
reasonably require. Furthermore, upon Agent's request, the Debtor shall deliver
to the Agent any documents or certificates of title issued with respect to any
property included in the Collateral, and any promissory notes, letters of credit
or instruments related to or otherwise in connection with any property included
in the Collateral, which in any such case came into the possession of the
Debtor, or shall cause the issuer thereof to deliver any of the same directly to
the Agent, in each case with any necessary endorsements in favor of the Agent.
Failure to provide the Agent with any of the foregoing shall in no way affect,
diminish, modify or otherwise limit the security interests granted herein. The
Debtor hereby authorizes the Agent to regard the Debtor's printed name or rubber
stamp signature on assignment schedules or invoices as the equivalent of a
manual signature by the Debtor's authorized officers or agents.
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H. Insurance. The Debtor agrees to maintain public liability
insurance, third party property damage insurance and replacement value insurance
on the Collateral under such policies of insurance, with such insurance
companies, in such amounts and covering such risks as are at all times
satisfactory to the Agent in its commercially reasonable judgment. All policies
covering the Collateral are to name the Agent as an additional insured and the
loss payee in case of loss, and are to contain such other provisions as the
Agent may reasonably require to fully protect the Agent's interest in the
Collateral and to any payments to be made under such policies.
I. Taxes. The Debtor agrees to pay, when due, all taxes lawfully
levied or assessed against the Debtor or any of the Collateral before any
penalty or interest accrues thereon; provided, however, that, unless such taxes
have become a Federal tax or Employment Retirement Security Income Act lien on
any of the assets of the Debtor, no such tax need be paid if the same is being
contested, in good faith, by appropriate proceedings promptly instituted and
diligently conducted and if an adequate reserve or other appropriate provision
shall have been made therefor as required in order to be in conformity with
generally accepted accounting principles and procedures in effect in the United
States of America.
J. Compliance with Laws. The Debtor agrees to comply in all
material respects with all requirements of law applicable to the Collateral or
any part thereof, or to the operation of its business or its assets generally,
unless the Debtor contests any such requirements of law in a reasonable manner
and in good faith. The Debtor agrees to maintain in full force and effect, its
respective licenses and permits granted by any governmental authority as may be
necessary or advisable for the Debtor to conduct its business in all material
respects.
K. Maintenance of Property. The Debtor agrees to keep all
property useful and necessary to its business in good working order and
condition (ordinary wear and tear excepted) and not to commit or suffer any
waste with respect to any of their properties.
L. Environmental and Other Matters. The Debtor will conduct its
business so as to comply in all material respects with all environmental, land
use, occupational, safety or health laws, regulations, directions, ordinances,
criteria and guidelines in all jurisdictions in which it is or may at any time
be doing business, except to the extent that the Debtor is contesting, in good
faith by appropriate legal, administrative or other proceedings, any such law,
regulation, direction, ordinance, criteria, guideline, or interpretation thereof
or application thereof; provided, further, that the Debtor shall comply with the
order of any court or other governmental authority relating to such laws unless
the Debtor shall currently be prosecuting an appeal, proceedings for review or
administrative proceedings and shall have secured a stay of enforcement or
execution or other arrangement postponing enforcement or execution pending such
appeal, proceedings for review or administrative proceedings.
M. Further Assurances. The Debtor shall take all such further
actions and execute all such further documents and instruments (including, but
not limited to, collateral assignments of Intellectual Property and Intangibles
or any portion thereof) as the Agent may at any time reasonably determine in its
sole discretion to be necessary or desirable to further carry out and consummate
the transactions contemplated by the Purchase Agreement and the
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documentation relating thereto, including this Company Security Agreement, and
to perfect or protect the liens (and the priority status thereof) of the Agent
in the Collateral.
SECTION V. REMEDIES.
A. Obtaining the Collateral Upon Default. If any Event of Default
shall have occurred and be continuing, then and in every such case, subject to
any mandatory requirements of applicable law then in effect, the Agent, in
addition to any rights now or hereafter existing under applicable law, shall
have all rights as a secured creditor under the Uniform Commercial Code in all
relevant jurisdictions and may:
(a) personally, or by agents or attorneys, immediately
retake possession of the Collateral or any part thereof, from the
Debtor or any other Person who then has possession of any part
thereof, with or without notice or process of law, and for that
purpose may enter upon the Debtor's premises where any of the
Collateral is located and remove the same and use in connection
with such removal any and all services, supplies, aids and other
facilities of the Debtor;
(b) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without limitation, the
Accounts) constituting the Collateral to make any payment required
by the terms of such instrument or agreement directly to the
Agent;
(c) withdraw all monies, securities and instruments held
pursuant to any pledge arrangement for application to the
Obligations;
(d) sell, assign or otherwise liquidate, or direct the
Debtor to sell, assign or otherwise liquidate, any or all of the
Collateral or any part thereof, and take possession of the
proceeds of any such sale or liquidation;
(e) take possession of the Collateral or any part thereof,
by directing the Debtor in writing to deliver the same to the
Agent at any place or places designated by the Agent, in which
event the Debtor shall at its own expense:
a. forthwith cause the same to be moved to the place
or places so designated by the Agent and there delivered to
the Agent,
b. store and keep any Collateral so delivered to the
Agent at such place or places pending further action by the
Agent as provided in Section VB, and
c. while the Collateral shall be so stored and kept,
provide such guards and maintenance services as shall be
necessary to protect the same and to preserve and maintain
the Collateral in good condition;
it being understood that the Debtor's obligation to so deliver the
Collateral is of the essence of this Company Security Agreement
and that, accordingly, upon application
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to a court of equity having jurisdiction, the Agent shall be
entitled to a decree requiring specific performance by the Debtor
of said obligation.
B. Disposition of the Collateral. Any collateral repossessed by
the Agent under or pursuant to Section VA and any other Collateral whether or
not so repossessed by the Agent, may be sold, assigned, leased or otherwise
disposed of under one or more contracts or as an entirety, and without the
necessity of gathering at the place of sale the property to be sold, and in
general in such manner, at such time or times, at such place or places and on
such terms as the Agent may, in compliance with any mandatory requirements of
applicable law, determine to be commercially reasonable. Any of the Collateral
may be sold, leased or otherwise disposed of, in the condition in which the same
existed when taken by the Agent or after any overhaul or repair which the Agent
shall determine to be commercially reasonable. Any such disposition which shall
be a private sale or other private proceedings permitted by such requirements
shall be made upon not less than ten (10) days' written notice to the Debtor
specifying the time at which such disposition is to be made and the intended
sale price or other consideration therefor, and shall be subject, for the ten
(10) days after the giving of such notice, to the right of the Debtor or any
nominee of the Debtor to acquire the Collateral involved at a price or for such
other consideration at least equal to the intended sale price or other
consideration so specified. Any such disposition which shall be a public sale
permitted by such requirements shall be made upon not less than ten (10) days'
written notice to the Debtor specifying the time and place of such sale and, in
the absence of applicable requirements of law, shall be by public auction (which
may, at the option of the Agent, be subject to reserve), after publication of
notice of such auction not less than ten (10) days prior thereto in two (2)
newspapers in general circulation in the City of New York, as the Agent may
determine. To the extent permitted by any such requirement of law, the Agent may
bid for and become the purchaser of the Collateral or any item thereof, offered
for sale in accordance with this Section without accountability to the Debtor
(except to the extent of surplus money received). If, under mandatory
requirements of applicable law, the Agent shall be required to make disposition
of the Collateral within a period of time which does not permit the giving of
notice to the Debtor as hereinabove specified, the Agent need give the Debtor
only such notice of disposition as shall be reasonably practicable in view of
such mandatory requirements of applicable law.
C. Power of Attorney. The Debtor hereby irrevocably authorizes
and appoints the Agent, or any Person or agent the Agent may designate, as the
Debtor's attorney-in-fact, at the Debtor's cost and expense, to exercise all of
the following powers upon and at any time after the occurrence and during the
continuance of an Event of Default, which powers, being coupled with an
interest, shall be irrevocable until all of the Obligations owing by the Debtor
shall have been paid and satisfied in full:
(a) accelerate or extend the time of payment, compromise,
issue credits, bring suit or administer and otherwise collect
Accounts or proceeds of any Collateral;
(b) receive, open and dispose of all mail addressed to the
Debtor and notify postal authorities to change the address for
delivery thereof to such address as the Agent may designate;
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(c) give customers indebted on Accounts notice of the
Agent's interest therein, and/or to instruct such customers to
make payment directly to the Agent for the Debtor's account;
(d) convey any item of Collateral to any purchaser
thereof;
(e) give any notices or record any liens under Section IVC
hereof; and
(f) make any payments or take any acts under Section IVF
hereof.
The Agent's authority under this section VC shall include, without limitation,
the authority to execute and give receipt for any certificate of ownership or
any document, transfer title to any item of Collateral, sign the Debtor's name
on all financing statements or any other documents deemed necessary or
appropriate to preserve, protect or perfect the security interest in the
Collateral and to file the same, prepare, file and sign the Debtor's name on any
notice of lien, assignment or satisfaction of lien or similar document in
connection with any Account and prepare, file and sign Debtor's name on a proof
of claim in bankruptcy or similar document against any customer of the Debtor,
and to take any other actions arising from or incident to the rights, powers and
remedies granted to the Agent in this Company Security Agreement. This power of
attorney is coupled with an interest and is irrevocable by the Debtor.
D. Waiver of Claims. Except as otherwise provided in this Company
Security Agreement, the Debtor HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE AGENT'S
TAKING POSSESSION OF OR DISPOSING OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT
LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES AND ANY SUCH RIGHT WHICH THE DEBTOR WOULD OTHERWISE HAVE UNDER THE
CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and the Debtor
hereby further waives, to the extent permitted by law:
(a) all damages occasioned by such taking of possession
except any damages which are the direct result of the Agent's
gross negligence or willful misconduct;
(b) all other requirements as to the time, place and terms
of sale or other requirements with respect to the enforcement of
the Agent's rights hereunder, except as expressly provided
herein; and
(c) all rights of redemption, appraisement, valuation,
stay, extension or moratorium now or hereafter in force under any
applicable law in order to prevent or delay the enforcement of
this Company Security Agreement or the absolute sale of the
Collateral or any portion thereof, and the Debtor, for itself and
all who may claim under it, insofar as it or they now or
hereafter lawfully may, hereby waives the benefit of all such
laws.
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Any sale of, or the grant of options to purchase, or any other realization upon
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the Debtor therein and thereto, and shall
be a perpetual bar both at law and in equity against the Debtor and against any
and all persons claiming or attempting to claim the Collateral so sold, optioned
or realized upon, or any part thereof, from, through and under the Debtor.
E. Remedies Cumulative. Each and every right, power and remedy
hereby specifically given to the Agent shall be in addition to every other
right, power and remedy specifically given under this Company Security
Agreement, under the Purchase Agreement or under other documentation relating
thereto or now or hereafter existing at law or in equity, or by statute, and
each and every right, power and remedy whether specifically herein given or
otherwise existing may be exercised from time to time or simultaneously and as
often and in such order as may be deemed expedient by the Agent. All such
rights, powers and remedies shall be cumulative and the exercise or the
beginning of exercise of one shall not be deemed a waiver of the right to
exercise of any other or others. No delay or omission of the Agent in the
exercise of any such right, power or remedy and no renewal or extension of any
of the Obligations shall impair any such right, power or remedy or shall be
construed to be a waiver of any default or Event of Default or any acquiescence
therein.
SECTION VI. MISCELLANEOUS PROVISIONS.
A. Notices. All notices, approvals, consents or other
communications required or desired to be given hereunder shall be delivered in
person, by facsimile transmission followed promptly by first class mail or by
overnight mail, and delivered if to the Debtor, then to the attention of Mr.
Michael Reicher, c/o Halsey Drug Co., Inc., 1827 Pacific Street, Brooklyn, New
York 11233, fax no. (718) 467-4261, with a copy to John P. Reilly, Esq., c/o St.
John & Wayne, 2 Penn Plaza East, Newark, New Jersey 07105, fax no. (973)
491-3407, and if to the Agent, then to the attention of Mr. Srini Conjeevaram
c/o Galen Associates, Rockefeller Center, 610 Fifth Avenue, 5th Floor, New York,
New York 10020, fax no. (212) 218-4999, with a copy to George N. Abrahams, Esq.
c/o Wolf, Block, Schorr and Solis-Cohen LLP, 250 Park Avenue, New York, New York
10177, fax no. (212) 986-0604.
B. Headings. The headings in this Company Security Agreement are
for purposes of reference only and shall not affect the meaning or construction
of any provision of this Company Security Agreement.
C. Severability. The provisions of this Company Security
Agreement are severable, and if any clause or provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect, in that jurisdiction only, such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Company Security Agreement in any jurisdiction.
D. Amendments, Waivers and Consents. Any amendment or waiver of
any provision of this Company Security Agreement and any consent to any
departure by the Debtor from any provision of this Company Security Agreement
shall be effective only if made or given in writing signed by the Agent.
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E. Interpretation of Agreement. Time is of the essence in each
provision of this Company Security Agreement of which time is an element. All
terms not defined herein shall have the meaning set forth in the applicable
Uniform Commercial Code. Acceptance of or acquiescence in a course of
performance rendered under this Company Security Agreement shall not be relevant
in determining the meaning of this Company Security Agreement even though the
accepting or acquiescing party had knowledge of the nature of the performance
and opportunity for objection.
F. Continuing Security Interest. This Company Security Agreement
shall create a continuing security interest in the Collateral and shall (i)
remain in full force and effect until indefeasible payment in full of the
Obligations owing by the Debtor, (ii) be binding upon the Debtor, and its
successors and assigns and (iii) inure to the benefit of the Agent and its
successors and assigns.
G. Reinstatement. To the extent permitted by law, this Company
Security Agreement shall continue to be effective or be reinstated if at any
time any amount received by the Agent in respect of the Obligations owing by the
Debtor is rescinded or must otherwise be restored or returned by the Agent upon
the occurrence or during the pendency of any Event of Default, all as though
such payments had not been made.
H. Survival of Provisions. All representations, warranties and
covenants of the Debtor contained herein shall survive the execution and
delivery of this Company Security Agreement, and shall terminate only upon the
full and final indefeasible payment and performance by the Debtor of the
Obligations secured hereby.
I. Setoff. The Agent shall have all rights of setoff available at
law or in equity.
J. Power of Attorney. In addition to the powers granted to the
Agent under Section VC, the Debtor hereby irrevocably authorizes and appoints
the Agent, or any Person or agent the Agent may designate, as the Debtor's
attorney-in-fact, at the Debtor's cost and expense, to exercise all of the
following powers, which being coupled with an interest, shall be irrevocable
until all of the Obligations shall have been indefeasibly paid and satisfied in
full:
(a) after the occurrence of an Event of Default, to
receive, take, endorse, sign, assign and deliver, all in the name
of the Agent or the Debtor, any and all checks, notes, drafts,
and other documents or instruments relating to the Collateral;
and
(b) to request, at any time from customers indebted on
Accounts, verification of information concerning the Accounts and
the amounts owing thereon.
K. Indemnification; Authority of the Agent. Neither the Agent nor
any director, officer, employee, attorney or agent of the Agent shall be liable
to the Debtor for any action taken or omitted to be taken by it or them
hereunder, except for its or their own gross negligence or willful misconduct,
nor shall the Agent be responsible for the validity, effectiveness or
sufficiency of this Company Security Agreement or of any document or security
furnished pursuant hereto. The Agent and its directors, officers, employees,
attorneys and
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agents shall be entitled to rely on any communication, instrument or document
reasonably believed by it or them to be genuine and correct and to have been
signed or sent by the proper person or persons. The Debtor agrees to indemnify
and hold harmless the Agent and any other person from and against any and all
costs, expenses (including reasonable fees, expenses and disbursements of
attorneys and paralegals (including, without duplication, reasonable charges of
inside counsel)), claims or liability incurred by the Agent or such person
hereunder, unless such claim or liability shall be due to willful misconduct or
gross negligence on the part of the Agent or such person.
L. Release; Termination of Agreement. Subject to the provisions
of Section VIG hereof, this Company Security Agreement shall terminate upon full
and final indefeasible payment and performance of all the Obligations owing by
the Debtor. At such time, the Agent shall, at the request of the Debtor,
reassign and redeliver to the Debtor all of the Collateral hereunder which has
not been sold, disposed of, retained or applied by the Agent in accordance with
the terms hereof. Such reassignment and redelivery shall be without warranty by
or recourse to the Agent, except as to the absence of any prior assignments by
the Agent of its interest in the Collateral, and shall be at the expense of the
Debtor.
M. Counterparts. This Company Security Agreement may be executed
in one or more counterparts, each of which shall be deemed an original but all
of which shall together constitute one and the same agreement.
N. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
THIS COMPANY SECURITY AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION
WITH THIS COMPANY SECURITY AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY
OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE
CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK.
O. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE DEBTOR
AND THE AGENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, AND THE
COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT THE
AGENT SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE DEBTOR OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED
BY THE AGENT IN GOOD FAITH TO ENABLE THE AGENT TO REALIZE ON SUCH PROPERTY, OR
TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE AGENT. THE DEBTOR
AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR
CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY THE AGENT. THE DEBTOR WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT HAS
COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
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P. SERVICE OF PROCESS. THE DEBTOR HEREBY IRREVOCABLY AGREES THAT
SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
COMPANY SECURITY AGREEMENT MAY BE EFFECTED BY
MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE
DEBTOR AT ITS ADDRESS SET FORTH IN SECTION VIA HEREOF.
Q. JURY TRIAL. THE DEBTOR AND THE AGENT EACH HEREBY WAIVE ANY
RIGHT TO A TRIAL BY JURY.
R. LIMITATION OF LIABILITY. THE AGENT SHALL NOT HAVE ANY
LIABILITY TO THE DEBTOR (WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR
LOSSES SUFFERED BY THE DEBTOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY
RELATED TO THE TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS COMPANY
SECURITY AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION
THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OR
COURT ORDER BINDING ON THE AGENT, THAT THE LOSSES WERE THE RESULT OF ACTS OR
OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
S. Delays; Partial Exercise of Remedies. No delay or omission of
the Agent to exercise any right or remedy hereunder, whether before or after the
happening of any Event of Default, shall impair any such right or shall operate
as a waiver thereof or as a waiver of any such Event of Default. No single or
partial exercise by the Agent of any right or remedy shall preclude any other or
further exercise thereof, or preclude any other right or remedy.
IN WITNESS WHEREOF, the Debtor has caused this Company Security
Agreement to be duly executed and delivered as of the day and year first above
written.
HALSEY DRUG CO., INC.
By: Michael Reicher
--------------------------
Name: Michael Reicher
Title: Chief Executive Officer
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By its acceptance hereof, as of the day and year first above
written, the Agent agrees to be bound by the provisions hereof applicable to it.
GALEN PARTNERS III, L.P.
By: Claudius, L.L.C.,
General Partner
By: Bruce F. Wesson
---------------------
Name: Bruce F. Wesson
Title: Managing Member
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SCHEDULE A
IIIA. Locations of Collateral
-----------------------
1. 1827 Pacific Street, Brooklyn, New York
IIID. Liens
-----
1. Lien in favor of The Chase Manhattan Bank, as
agent for The Chase Manhattan Bank, The Bank of
New York and Israel Discount Bank pursuant to
the existing Credit Agreement with such banks
dated December 1, 1992, as amended.
2. Schedule 10.4 of the Schedule of Exceptions to
the Purchase Agreement is incorporated herein by
reference.
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