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CONTINUING UNCONDITIONAL SECURED GUARANTY
BY
CENCI POWDER PRODUCTS, INC.
WHEREAS, HALSEY DRUG CO., INC., a New York corporation (the
"Borrower"), entered into a Debenture and Warrant Purchase Agreement dated as of
March 10, 1998 (as amended through the date hereof, the "Purchase Agreement";
terms used herein and not otherwise defined shall have the meanings given to
them in the Purchase Agreement) with the Purchasers listed on Exhibit A thereto
(each a "Lender" and collectively, the "Lenders");
WHEREAS, pursuant to the Purchase Agreement, the Lenders have
made financial accommodations to the Borrower in accordance with the terms of
the Purchase Agreement;
WHEREAS, Cenci Powder Products, Inc. (the "Guarantor") will
continue to receive certain benefits from the accommodations hereinabove
described and is therefore willing to guaranty the prompt payment and
performance of the obligations of the Borrower, on the terms set forth in this
Continuing Unconditional Secured Guaranty ("Guaranty");
WHEREAS, pursuant to the Purchase Agreement, the Lenders have
required that the Guarantor execute and deliver this Guaranty to the Lenders as
a condition to the effectiveness of the Purchase Agreement; and
WHEREAS, the extension of credit by the Lenders to the Borrower
is necessary and desirable to the conduct and operation of the business of the
Borrower and will inure to the financial benefit of the Guarantor.
NOW, THEREFORE, for value received and in consideration of any
loan, advance, or financial accommodation of any kind whatsoever heretofore, now
or hereafter made, given or granted to the Borrower by the Lenders (including,
without limitation, the loans evidenced by the Debenture as made by the Lenders
to the Borrower pursuant to, the Purchase Agreement), the Guarantor
unconditionally guarantees (i) the full and prompt payment and performance when
due, whether at maturity or earlier, by reason of acceleration or otherwise, and
at all times thereafter, of all liabilities of the Borrower to the Lenders and
(ii) the prompt, full and faithful discharge by the Borrower of each and every
term, condition, agreement, representation and warranty now or hereafter made by
the Borrower to the Lenders under the Purchase Agreement or any document or
instrument delivered by the Borrower to the Purchasers in connection therewith
or pursuant thereto (which, together with the liabilities described in clause
(i) hereof, are collectively referred to herein as the "Borrower's
Liabilities"). The Guarantor further agrees to pay all reasonable out-of-pocket
costs and expenses, including, without limitation, all court costs and
reasonable attorneys' and paralegals' fees paid or incurred by the Lenders, in
endeavoring to collect all or any part of the Borrower's Liabilities from, or in
prosecuting any action against the Guarantor or any other guarantor of all or
any part of the Borrower's Liabilities. All amounts payable by the Guarantor
under this Guaranty shall be payable pursuant to the terms of the Purchase
Agreement upon demand by the Lenders holding a majority in outstanding principal
amount of the Debentures.
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Notwithstanding any provision of this Guaranty to the contrary,
it is intended that this Guaranty, and any liens and security interests granted
by the Guarantor to secure this Guaranty, not constitute a Fraudulent Conveyance
(as defined below). Consequently, the Guarantor agrees that if this Guaranty, or
any liens or security interests securing this Guaranty, would, but for the
application of this sentence, constitute a Fraudulent Conveyance, this Guaranty
and each such lien and security interest shall be valid and enforceable only to
the maximum extent that would not cause this Guaranty or such lien or security
interest to constitute a Fraudulent Conveyance, and this Guaranty shall
automatically be deemed to have been amended accordingly at all relevant times.
For purposes hereof, "Fraudulent Conveyance" means a fraudulent conveyance under
Section 548 of the "Bankruptcy Code" (as hereinafter defined) or a fraudulent
conveyance or fraudulent transfer under the provisions of any applicable
fraudulent conveyance or fraudulent transfer law or similar law of any state,
nation or other governmental unit, as in effect from time to time.
The Guarantor hereby agrees that, except as hereinafter
provided, and to the extent permitted by applicable law, its obligations under
this Guaranty shall be unconditional, irrespective of (i) the validity or
enforceability of the Borrower's Liabilities or any part thereof, or of any
promissory note or other document evidencing all or any part of the Borrower's
Liabilities, (ii) the absence of any attempt to collect the Borrower's
Liabilities from the Borrower or any other guarantor or other action to enforce
the same, (iii) the waiver or consent by any Lender or Lenders with respect to
any provision of any instrument evidencing the Borrower's Liabilities, or any
part thereof, or any other agreement heretofore, now or hereafter executed by
the Borrower and delivered to the Lender or Lenders, (iv) failure by any Lender
to take any steps to perfect and maintain its security interest in, or to
preserve its rights to, any security or collateral for the Borrower's
Liabilities, (v) the institution of any proceeding under Chapter 11 of Title 11
of the United States Code (11 U.S.C. Section 101 et seq.), as amended (the
"Bankruptcy Code"), or any similar proceeding, by or against the Borrower, or
any Lender's election in any such proceeding of the application of Section
1111(b)(2) of the Bankruptcy Code, (vi) any borrowing or grant of a security
interest by the Borrower as debtor-in-possession, under Section 364 of the
Bankruptcy Code, (vii) the disallowance, under Section 502 of the Bankruptcy
Code, of all or any portion of the Lenders' claim(s) for repayment of the
Borrower's Liabilities, or (viii) any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor.
The Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of receivership or
bankruptcy of the Borrower, protest or notice with respect to the Borrower's
Liabilities and all demands whatsoever, and covenants that this Guaranty will
not be discharged, except by complete performance of the obligations and
liabilities contained herein. Upon the occurrence and during the continuance of
an Event of Default under the Purchase Agreement, Lenders holding a majority in
outstanding principal amount of the Debentures may, at their sole election,
proceed directly and at once, without notice, against the Guarantor to collect
and recover the full amount or any portion of the Borrower's Liabilities,
without first proceeding against any other person, firm, or corporation, or
against any security or collateral for the Borrower's Liabilities.
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The Lenders are hereby authorized, without notice or demand and
without affecting the liability of the Guarantor hereunder, at any time and from
time to time to (i) renew, extend, accelerate or otherwise change the time for
payment of, or other terms relating to the Borrower's Liabilities or otherwise
modify, amend or change the terms of any debenture, note or other agreement,
document or instrument now or hereafter executed by the Borrower and delivered
to the Lenders; (ii) accept partial payments on the Borrower's Liabilities;
(iii) take and hold security or collateral for the payment of the Borrower's
Liabilities guaranteed hereby, or for the payment of this Guaranty, or for the
payment of any other guaranties of the Borrower's Liabilities or other
liabilities of the Borrower, and exchange, enforce, waive and release any such
security or collateral; (iv) apply such security or collateral and direct the
order or manner of sale thereof as in their sole discretion they may determine;
and (v) settle, release, compromise, collect or otherwise liquidate the
Borrower's Liabilities and any security or collateral therefor in any manner,
without affecting or impairing the obligations of the Guarantor hereunder. The
holders of the majority of the outstanding principal of the Debentures shall
have the exclusive right to determine the time and manner of application of any
payments or credits, whether received from the Borrower or any other source, and
such determination shall be binding on the Guarantor. All such payments and
credits may be applied, reversed and reapplied, in whole or in part, to any of
the Borrower's Liabilities as the Lenders shall determine in their sole
discretion without affecting the validity or enforceability of this Guaranty
(unless otherwise required pursuant to the Purchase Agreement).
The Guarantor hereby confirms and reaffirms the granting by the
Guarantor to Galen Partners III, L.P., as agent for the Lenders (the "Agent"),
of a perfected lien on and security interest in all of the Collateral described
in Section II of the Guarantors General Security Agreement dated as of the date
hereof between the Guarantor, certain other persons and the Agent as collateral
security for all liabilities of the Guarantor, including without limitation all
liabilities, obligations and indebtedness owing by the Guarantor to the Lenders
arising under or relating to this Guaranty. In addition, at any time after
maturity of the Borrower's Liabilities by reason of acceleration or otherwise,
any Lender may, in its sole discretion, without notice to the Guarantor and
regardless of the acceptance of any security or collateral for the payment
hereof, appropriate and apply toward the payment of the Borrower's Liabilities
(i) any indebtedness due or to become due from such Lender to the Guarantor, and
(ii) any moneys, credits or other property belonging to the Guarantor, at any
time held by or coming into the possession of such Lender whether for deposit or
otherwise.
The Guarantor hereby assumes responsibility for keeping itself
informed of the financial condition of the Borrower, and any and all endorsers
and/or other guarantors of any instrument or document evidencing all or any part
of the Borrower's Liabilities and of all other circumstances bearing upon the
risk of nonpayment of the Borrower's Liabilities or any part thereof that
diligent inquiry would reveal and the Guarantor hereby agrees that the Lenders
shall not have any duty to advise the Guarantor of information known to any of
them regarding such condition or any such circumstances or to undertake any
investigation not a part of their respective regular business routines. If any
Lender, in its sole discretion, undertakes at any time or from time to time to
provide any such information to any the Guarantor, such Lender shall not be
under any obligation to update any such information or to provide any such
information to the Guarantor on any subsequent occasion.
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The Guarantor consents and agrees that the Lenders shall not be
under any obligation to marshall any assets in favor of the Guarantor or against
or in payment of any or all of the Borrower's Liabilities. The Guarantor further
agrees that, to the extent that the Borrower makes a payment or payments to the
Lenders or the Lenders receive any proceeds of collateral, which payment or
payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to the
Borrower, its estate, trustee, receiver or any other party, including, without
limitation, the Guarantor, under any bankruptcy law or state or federal
statutory or common law, then to the extent of such payment or repayment,the
Borrower's Liabilities or the part thereof which has been paid, reduced or
satisfied by such amount, and the Guarantor's obligations hereunder with respect
to such portion of the Borrower's Liabilities, shall be reinstated and continued
in full force and effect as of the date such initial payment, reduction or
satisfaction occurred.
Until payment in full of all of the Borrower's Liabilities, the
Guarantor hereby waives any and all claims (including without limitation any
claim for reimbursement, contribution or subrogation) of the Guarantor against
the Borrower, any endorser or any other guarantor of all or any part of the
Borrower's Liabilities, or against any of the Borrower's properties, arising by
reason of any payment by the Guarantor to the Lenders pursuant to the provisions
hereof.
Each Lender may, to the extent and in the manner set forth in
the Purchase Agreement, sell or assign the Borrower's Liabilities or any part
thereof, or grant participations therein, and in any such event each and every
permitted assignee or holder of, or participant in, all or any of the Borrower's
Liabilities shall have the right to enforce this Guaranty, by suit or otherwise
for the benefit of such assignee, holder, or participant, as fully as if herein
by name specifically given such right.
The Guarantor hereby represents and warrants that: (a) it is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation; (b) it is duly authorized and empowered to
execute and deliver this Continuing Unconditional Secured Guaranty; (c) all
corporate action on the part of the Guarantor requisite for the due execution
and delivery of this Continuing Unconditional Secured Guaranty and the due
granting and creation of the security interests referred to herein has been duly
and effectively taken and (d) the Guarantor's chief executive office is located
at 1420 "E" Street, Fresno, California 93706.
This Guaranty shall be binding upon the Guarantor and upon the
successors (including without limitation, any receiver, trustee or debtor in
possession of or for the Guarantor) of the Guarantor and shall inure to the
benefit of the Lenders and their respective successors and permitted assigns.
This Guaranty shall continue in full force and effect, and the
Lenders shall be entitled to make loans and advances and extend financial
accommodations to the Borrower on the faith hereof, until such time as all of
the Borrower's Liabilities have been paid in full and discharged and the
Purchase Agreement has been terminated and the Debentures cancelled.
Wherever possible each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Guaranty
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shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Guaranty.
THIS GUARANTY SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL
LAWS OF THE STATE OF NEW YORK.
The Guarantor irrevocably agrees that, subject to the sole and
absolute election of the Lenders, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER
OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS GUARANTY SHALL BE
LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF NEW YORK, STATE OF NEW YORK.
THE GUARANTOR HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL,
STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE and waives the
defense of "forum non conveniens." The Guarantor waives personal service of any
and all process, and consents that all such service of process may be made by
certified mail, return receipt requested, directed to the Guarantor at the
address indicated in the Agent's records; and service so made shall be complete
five (5) days after the same has been deposited in the U.S. mails as aforesaid.
THE GUARANTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BROUGHT AGAINST THE GUARANTOR BY THE LENDER IN
ACCORDANCE WITH THIS PARAGRAPH.
THE GUARANTOR HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by
the undersigned as of this 10th day of March, 1998.
CENCI POWDER PRODUCTS, INC.
By: /s/ Michael Reicher
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Name: Michael Reicher
Title: Chief Executive Officer
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