Contract

by Acura Pharmaceuticals
December 27th, 2002
                                                                    EXHIBIT 10.7

                           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 31, 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 __, 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, LLC, Essex Woodlands Health Ventures Fund V 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 (66 2/3%) in
the aggregate principal amount of the 2002 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 (66 2/3%) in the aggregate principal amount of the Debentures
then

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outstanding, take, or permit to be taken, any of the following actions or
complete, or permit to be completed, any of the following transactions:

                      (i)      Any amendment to the Company's Certificate of
                  Incorporation;

                      (ii)     Any declaration or payment of any dividends or
                  distributions on, or redemptions of, the Company's capital
                  stock, other than dividends or distributions payable in the
                  Company's capital stock or cash interest paid to individual
                  investors in the 2002 Debentures, the 1999 Debentures and the
                  1998 Debentures;

                      (iii)    An Extraordinary Transaction; provided,
                  however, that (I) for purposes of calculating the consent of
                  at least sixty-six and two-thirds percent (66 2/3%) in the
                  aggregate principal amount of the Debentures where the cash,
                  marketable securities and other liquid consideration received
                  by the holders of the voting stock of the Company in such
                  Extraordinary Transaction is at least equal to four (4) times
                  the then applicable conversion price of (a) the 2002
                  Debentures, the 2002 Debentures shall be excluded, (b) the
                  1999 Debentures, the 1999 Debentures shall be excluded, and
                  (c) the 1998 Debentures, the 1998 Debentures shall be
                  excluded; and (II) no prior approval or consent of the holders
                  of the Debentures shall be required for any Extraordinary
                  Transaction where the cash, marketable securities and other
                  liquid consideration received by the holders of the voting
                  stock of the Company in such Extraordinary Transaction is at
                  least equal to four (4) times the then highest applicable
                  conversion price of the Debentures;

                      (iv)     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(b)(vii) below);

                      (v)      Except as otherwise waived, any issuance of the
                  Company's securities which rank senior or equal in right of
                  payment to the Existing Debentures;

                      (vi)     Any increase in the number of members comprising
                  the Company's Board of Directors above eleven (11); and

                      (vii)    Without limiting the generality of Section
                  1(b)(iii) above, the consummation of a strategic alliance,
                  Extraordinary Transaction, licensing arrangement or other
                  corporate partnering arrangement involving the issuance by the
                  Company of in excess of ten million dollars ($10,000,000) in
                  equity securities of the Company or any Guarantor.

                  2.       AMENDMENT AND WAIVER. Except as otherwise provided
herein, no modification, amendment or waiver of any provision of this
Debentureholders Agreement shall be effective against the Company or the holders
of the Debentures unless such modification, amendment or waiver is approved in
writing by the Company and the holders of not less than fifty-one percent (51%)
of the aggregate principal amount of the Debentures then outstanding; provided
that notwithstanding the foregoing, (a) the prior written consent of each holder
of the 2002 Debentures will be required to amend any payment terms of the 2002
Debentures, (b) the prior

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written consent of the holders of at least sixty-six and two-thirds percent
(66 2/3%) in the aggregate principal amount of the 2002 Debentures will be
required to modify, amend or waive any provision of Sections 1(a), 2(a), 2(b)
and 3 of this Debentureholders Agreement and (c) the prior written consent of
the holders of at least sixty-six and two-thirds percent (66 2/3%) in the
aggregate principal amount of the Debentures then outstanding will be required
to modify, amend or waive any provision of Section 1(b) of this Debentureholders
Agreement. The failure of any party to enforce any of the provisions of this
Debentureholders Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of such party thereafter to enforce
each and every provision of this Debentureholders Agreement in accordance with
its terms.

                  3.       TERMINATION. This Debentureholders Agreement shall
terminate on the earliest to occur of (a) mutual written agreement of the
parties hereto and (b) the conversion of Debentures into the Company's Common
Stock, or repayment of the Debentures with accrued and unpaid interest, or
combination of the foregoing, such that the aggregate outstanding principal
amount of the Debentures then outstanding is less than five million dollars
($5,000,000).

                  4.       SEVERABILITY. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Debentureholders Agreement is
held to be invalid, illegal or unenforceable in any respect under any applicable
law or rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or any other jurisdiction, but this
Debentureholders Agreement shall be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision had never
been contained herein.

                  5.       ENTIRE AGREEMENT. Except as otherwise expressly set
forth herein, this document, the 2002 Purchase Agreement, the 1998 Purchase
Agreement, as amended pursuant to the Amendment to Debenture and Warrant
Purchase Agreement dated of even date, and the 1999 Purchase Agreement, as
amended pursuant to the Amendment to Debenture and Warrant Purchase Agreement
dated of even date embody the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.

                  6.       SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Debentureholders Agreement shall bind and inure to the benefit of
and be enforceable by the Company and its successors and assigns, and the
holders of the Debentures and any subsequent holders of the Debentures and the
respective successors and assigns of each of them, so long as they hold the
Debentures.

                  7.       COUNTERPARTS. This Debentureholders Agreement may be
executed in separate counterparts each of which shall be an original and all of
which taken together shall constitute one and the same agreement.

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                  8.       NOTICES. All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this
Debentureholders Agreement will be in writing and will be deemed to have been
given when delivered personally, mailed by certified or registered mail, return
receipt requested and postage prepaid, or sent via a nationally recognized
overnight courier, or sent via facsimile to the recipient accompanied by a
certified or registered mailing. Such notices, demands or other communications
will be sent to the address indicated below:

                  To the Company:

                           Halsey Drug Co., Inc.
                           695 N. Perryville Road
                           Rockford, Illinois 61107
                           Attn: President
                           Fax: 815-399-9710

                  If to the holders of the Debentures:

                           To the address provided
                           on the signature pages to
                           the 1998 Purchase Agreement,
                           1999 Purchase Agreement and
                           2002 Purchase Agreement

or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
such notice, demand or communication shall be deemed to have been given (a) on
the date of delivery, if delivered personally, (a) on the date of facsimile
transmission, receipt confirmed, (c) one business day after delivery to a
nationally recognized overnight courier service, if marked for next day delivery
or (d) five business days after the date of mailing, if mailed.

                  9.       GOVERNING LAW. This Debentureholders Agreement shall
be governed by, and construed in accordance with, the laws of the State of New
York wherein the terms of this Debentureholder Agreement were negotiated,
excluding to the greatest extent permitted by law any rule of law that would
cause the application of the laws of any jurisdiction other than the State of
New York.

                  10.      JURISDICTION. (a) Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or United States Federal
court sitting in New York City, and any appellate court from any thereof, in any
action or proceeding arising our of or relating to this Debentureholders
Agreement to which it is a party, or for recognition or enforcement of any
judgment, and each of the parties hereto irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in any such New York State court or, to the fullest extent permitted
by law, in such United States Federal court. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the right that any party may
otherwise have to bring any

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action or proceeding relating to this Debentureholders Agreement in the courts
of any other jurisdiction.

                  (b)      Each of the parties hereto irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or in relation to this
Debentureholders Agreement to which it is a party in any such New York State or
United States Federal court sitting in New York City. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.

                  11.      WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS DEBENTUREHOLDERS AGREEMENT OR THE ACTIONS OF ANY PARTY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

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IN WITNESS WHEREOF, the parties hereto have executed this Debentureholders
Agreement as of the date first above written.

                                               Halsey Drug Co., Inc.

                                               By:___________________________

                                               Name:_________________________

                                               Title:________________________

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                              2002 DEBENTUREHOLDERS

GALEN PARTNERS III, L.P. GALEN PARTNERS INTERNATIONAL, III, L.P. By: Claudius, L.L.C., General Partner By: Claudius, L.L.C., General Partner 610 Fifth Avenue, 5th Fl. 610 Fifth Avenue, 5th Floor New York, New York 10019 New York, New York 10020 ______________________________________ ___________________________________ By: Srini Conjeevaram By: Srini Conjeevaram Its: General Partner Its: General Partner GALEN EMPLOYEE FUND III, L.P. ESSEX WOODLANDS HEALTH By: Wesson Enterprises, Inc. VENTURES V, L.P. 610 Fifth Avenue, 5th Floor By: Essex Woodlands Health Ventures V, L.L.C., New York, New York 10020 its General Partner 190 South LaSalle Street, Suite 2800 Chicago, IL 60603 ______________________________________ ___________________________________ By: Bruce F. Wesson By: Immanuel Thangaraj Its: General Partner Its: Managing Director CARE CAPITAL INVESTMENTS II, LP BERNARD SELZ By: Care Capital II, LLC, General Partner c/o Furman Selz 47 Hulfish Street, Suite 310 230 Park Avenue Princeton, NJ 08542 New York, New York 10069 ______________________________________ ___________________________________ By: David R. Ramsay Its: Authorized Signatory MICHAEL WEISBROT SUSAN WEISBROT 1136 Rock Creek Road 1136 Rock Creek Road Gladwyne, Pennsylvania 19035 Gladwyne, Pennsylvania 19035 ______________________________________ ___________________________________
8 GREG WOOD ROGER GRIGGS c/o D.R. International c/o Tom Jennings 7474 No. Figueroa Street 7300 Turfway Road Los Angeles, California 90041 Suite 300 Florence, KY 41042 ______________________________________ ___________________________________ GEORGE E. BOUDREAU 222 Elbow Lane Haverford, PA 19041 ______________________________________
9 EXISTING DEBENTUREHOLDERS ORACLE STRATEGIC PARTNERS, L.P. GALEN PARTNERS III, L.P. By: Oracle Strategic Capital L.L.C., By: Claudius, L.L.C., General Partner General Partner 610 Fifth Avenue, 5th Fl. 200 Greenwich Avenue New York, New York 10019 3rd Floor Greenwich, CT 06830 ______________________________________ ___________________________________ By: Joel Liffmann By: Srini Conjeevaram Its: Authorized Agent Its: General Partner GALEN EMPLOYEE FUND III, L.P. GALEN PARTNERS INTERNATIONAL, III, L.P. By: Wesson Enterprises, Inc. By: Claudius, L.L.C., General Partner 610 Fifth Avenue, 5th Floor 610 Fifth Avenue, 5th Floor New York, New York 10020 New York, New York 10020 ______________________________________ ___________________________________ By: Bruce F. Wesson By: Srini Conjeevaram Its: General Partner Its: General Partner ALAN SMITH PATRICK COYNE 21 Bedlow Avenue 800 Merion Square Road Newport, Rhode Island 02840 Gladwyne, PA 19035 ______________________________________ ___________________________________ MICHAEL WEISBROT SUSAN WEISBROT 1136 Rock Creek Road 1136 Rock Creek Road Gladwyne, Pennsylvania 19035 Gladwyne, Pennsylvania 19035 ______________________________________ ___________________________________ GREG WOOD DENNIS ADAMS c/o D.R. International 120 Kynlyn Road 7474 No. Figueroa Street Radnor, Pennsylvania 19312 Los Angeles, California 90041 ______________________________________ ___________________________________
10 BERNARD SELZ ROBERT W. BAIRD & CO., INC., TTEE c/o Furman Selz FBO Michael K. Reicher IRA 230 Park Avenue c/o Halsey Drug Co., Inc. New York, New York 10069 695 North Perryville Rd. Crimson Building #2 Rockford, Ill. 61107 ______________________________________ ___________________________________ By: Michael K. Reicher Its: Trustee MICHAEL REICHER PETER CLEMENS c/o Halsey Drug Co., Inc. c/o Halsey Drug Co., Inc. 695 North Perryville Rd. 695 North Perryville Rd. Crimson Building #2 Crimson Building #2 Rockford, Ill. 61107 Rockford, Ill. 61107 ______________________________________ ___________________________________ CONNIE REICHER TRUST STEPHANIE HEITMEYER c/o Halsey Drug Co., Inc. 17759 Road, Route 66 695 North Perryville Rd. Ft. Jennings, Ohio 45844 Crimson Building #2 Rockford, Ill. 61107 ______________________________________ ___________________________________ By: Connie Reicher Its: Trustee VARSHA H. SHAH HEMANT K. SHAH 29 Christy Drive 29 Christy Drive Warren, New Jersey 07059 Warren, New Jersey 07059 ______________________________________ ___________________________________ VARSHA H. SHAH AS CUSTODIAN VARSHA H. SHAH AS CUSTODIAN FOR SACHIN H. SHAH FOR SUMEET H. SHAH 29 Christy Drive 29 Christy Drive Warren, New Jersey 07059 Warren, New Jersey 07059 ______________________________________ ___________________________________ By: Varshah H. Shah By: Varshah H. Shah Its: Custodian Its: Custodian
11 MICHAEL RAINISCH ILENE RAINISCH c/o Alvin Rainisch c/o Alvin Rainisch 31 Congressional Road 31 Congressional Road Jackson, New Jersey 08527 Jackson, New Jersey 08527 ______________________________________ ___________________________________ KENNETH GIMBEL, IRA ACCOUNT KENNETH GIMBEL FBO KENNETH GIMBEL 2455 Montgomery Avenue 2455 Montgomery Avenue Highland Park, Ill. 60035 Highland Park, Ill. 60035 ______________________________________ ___________________________________ By:___________________________________ Its: Trustee JESSICA K. CLEMENS JAKE P. CLEMENS c/o Halsey Drug Co., Inc. c/o Halsey Drug Co., Inc. 695 North Perryville Rd. 695 North Perryville Rd. Crimson Building #2 Crimson Building #2 Rockford, Ill. 61107 Rockford, Ill. 61107 ______________________________________ ___________________________________ BROOKE EMILY REICHER ALEC JOHN REICHER c/o Halsey Drug Co., Inc. c/o Halsey Drug Co., Inc. 695 North Perryville Rd. 695 North Perryville Rd. Crimson Building #2 Crimson Building #2 Rockford, Ill. 61107 Rockford, Ill. 61107 ______________________________________ ___________________________________ COURTNEY PAIGE REICHER DEANA REICHER c/o Halsey Drug Co., Inc. c/o Halsey Drug Co., Inc. 695 North Perryville Rd. 695 North Perryville Rd. Crimson Building #2 Crimson Building #2 Rockford, Ill. 61107 Rockford, Ill. 61107 ______________________________________ ___________________________________
12 MICHAEL K. REICHER II TODD ALLEN REICHER c/o Halsey Drug Co., Inc. c/o Halsey Drug Co., Inc. 695 North Perryville Rd. 695 North Perryville Rd. Crimson Building #2 Crimson Building #2 Rockford, Ill. 61107 Rockford, Ill. 61107 ______________________________________ ___________________________________
13 ROBERT W. BAIRD & CO., INC., TTEE ROBERT W. BAIRD & CO., INC., TTEE FBO Michael Reicher IRA FBO Connie Reicher IRA c/o Halsey Drug Co., Inc. c/o Halsey Drug Co., Inc. 695 North Perryville Rd. 695 North Perryville Rd. Crimson Building #2 Crimson Building #2 Rockford, Illinois 61107 Rockford, Illinois 61107 ______________________________________ ___________________________________ By: Robert W. Baird By: Robert W. Baird Its: Trustee Its: Trustee MICHAEL REICHER TRUST c/o Halsey Drug Co., Inc. 695 North Perryville Rd. Crimson Building #2 Rockford, Illinois 61107 ______________________________________ By: Michael K. Reicher Its: Trustee
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