DEBENTUREHOLDERS AGREEMENT

                           --------------------------



         THIS DEBENTUREHOLDERS AGREEMENT (this "Debentureholders Agreement") is

entered into as of December 20, 2002 by and among HALSEY DRUG CO., INC., a

corporation organized and existing under the laws of the State of New York

("Halsey" or the "Company"), and each of the holders of the Company's 5%

Convertible Senior Secured Debentures due March 31, 2006 listed on the signature

page hereto.



         WHEREAS, Halsey is a party to a certain Debenture and Warrant Purchase

Agreement dated as of March 10, 1998, as amended (the " 1998 Purchase

Agreement"), with the persons listed on the signature pages thereto and pursuant

to which the Company issued certain 5% Convertible Senior Secured Debentures due

March 3 1, 2006 (the " 1998 Debentures"); and



         WHEREAS, Halsey entered into a certain Debenture and Warrant Purchase

Agreement dated as of May 26, 1999, as amended (the "1999 Purchase Agreement"),

with the persons listed on the signature pages thereto and pursuant to which the

Company issued certain 5% Convertible Senior Secured Debentures due March 31,

2006 (the "1999 Debentures" and together with the 1998 Debentures, the "Existing

Debentures"); and



         WHEREAS, the Company has concurrently herewith entered into a certain

Debenture Purchase Agreement dated as of December 20, 2002 (the "2002 Purchase

Agreement"; capitalized terms used herein but not otherwise defined herein shall

have the meanings ascribed thereto in the 2002 Purchase Agreement) with Care

Capital Investments II, LP, Essex Woodlands Health Ventures V, L.P. and those

other persons listed on the signature pages thereto and pursuant to which the

Company proposes to issue certain 5% Convertible Senior Secured Debentures due

March 31, 2006 (the "2002 Debentures" and together with the Existing Debentures,

the "Debentures"); and



         WHEREAS, it is a condition to the completion of the transactions

contemplated pursuant to the 2002 Purchase Agreement that the Company shall have

executed this Debentureholders Agreement providing that the approval of the

holders of the Debentures shall be required as a condition to the Company's

completion of certain material transactions; and



         WHEREAS, the Company and the holders of the Debentures desire to enter

into this Agreement to provide for the approval rights of the holders of the

Debentures as hereinafter provided.



         NOW, THEREFORE, in consideration of the mutual covenants contained

herein and other good and valuable consideration, the receipt and sufficiency of

which are hereby acknowledged, the parties hereby agree as follows:



         1. Debentureholder Approval for Material Transactions.



               (a) Consent of Holders of 2002 Debentures. The Company hereby

          covenants and agrees, that so long as any of the 2002 Debentures

          remain outstanding, it will not, directly or indirectly, without the

          prior written consent of the holders of at least sixty-six and

          two-thirds percent (662,3%) in the aggregate principal amount of the

          2002





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         Debentures then outstanding, take, or permit to be taken, any of the

         following actions or complete, or permit to be taken, any of the

         following transactions:





                    (i) Any modification of the rights of the holders of the

               2002 Debentures;



                    (ii) Any issuance of securities, or the incurrence of

               indebtedness, by the Company or any Guarantor which rank senior

               or equal in right of payment to the 2002 Debentures;



                    (iii) Any declaration or payment of any dividends or

               distributions on, or redemptions of, any securities ranking

               junior in priority to the 2002 Debentures, other than dividends

               or distributions payable in the Company's capital stock or cash

               interest paid to individual investors in the Existing Debentures;



                    (iv) (A) A merger, reorganization, consolidation or other

               business combination involving the Company or any Guarantor, (B)

               a sale, transfer, lease, license or other disposition of all or

               substantially all of the assets of the Company or any Guarantor

               or (C) any other similar extraordinary transaction involving the

               Company or any Guarantor, in any single transaction or a series

               of related transactions (the "Extraordinary Transactions"), other

               than any such transaction where the cash, marketable securities

               and other liquid consideration received by the holders of the

               voting stock of the Company in such transaction is at least equal

               to four (4) times the then applicable conversion price of the

               2002 Debentures;



                    (v) The liquidation, dissolution, commencement of any

               bankruptcy or other proceeding of the type referred to in Section

               12.1(j) of the 2002 Purchase Agreement, recapitalization or

               reorganization of the Company (in each case whether or not they

               constitute transactions of the type referred to in Section

               1(a)(vi) below); and



                    (vi) Without limiting the generality of Section 1 (a)(iv)

               above, the consummation of a strategic alliance, Extraordinary

               Transaction, licensing arrangement or other corporate partnering

               arrangement involving the issuance by the Company or any

               Guarantor of in excess of ten million dollars ($10,000,000) in

               equity securities of the Company or any Guarantor.



               (b) Consent of Holders of Debentures. Without limiting in any way

          the approval rights granted to the holders of the 2002 Debentures in

          Section 1(a) above, the Company hereby covenants and agrees, that so

          long as any of the Debentures remain outstanding, it will not,

          directly or indirectly, without the prior written consent of the

          holders of at least sixty-six and two-thirds percent (662/3%) in the

          aggregate principal amount of the Debentures then outstanding, take,

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