<PAGE>   1
                               WARRANT TO PURCHASE
                     COMMON STOCK, PAR VALUE $.01 PER SHARE

                                       OF

                              HALSEY DRUG CO., INC.


THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR UNDER
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 WARRANT REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH WARRANT
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.

            This certifies that, for value received, ORACLE STRATEGIC PARTNERS,
L.P., or registered assigns ("Warrantholder"), is entitled to purchase from
HALSEY DRUG CO., INC. (the "Company"), subject to the provisions of this
Warrant, at any time during the Exercise Period (as hereinafter defined) 505,050
shares of the Company's Common Stock, par value $.01 per share ("Warrant
Shares"). The purchase price payable upon the exercise of this Warrant shall be
$1.404 per Warrant Share. The purchase price and the number of Warrant Shares
which the Warrantholder is entitled to purchase are subject to adjustment upon
the occurrence of the contingencies set forth in this Warrant, and as adjusted
from time to time, such purchase price is hereinafter referred to as the
"Warrant Price."

            For purposes of this Warrant, the term "Exercise Period" means the
period commencing on the date of issuance of this Warrant and ending on the
seventh anniversary of such date.

            This Warrant is subject to the following terms and conditions:

            1.    Exercise of Warrant.

                  (a) Subject to the terms of Section 1(e) hereof, this Warrant
may be exercised in whole or in part but not for a fractional share. Upon
delivery of this Warrant at the offices of the Company or at such other address
as the Company may designate by notice in writing to the registered holder
hereof with the Subscription Form annexed hereto duly executed, accompanied by
payment of the Warrant Price for the number of Warrant Shares purchased (in
<PAGE>   2
cash, by certified, cashier's or other check acceptable to the Company, by
Common Stock or other securities of the Company having a Market Value (as
hereinafter defined) equal to the aggregate Warrant Price for the Warrant Shares
to be purchased, or any combination of the foregoing), the registered holder of
this Warrant shall be entitled to receive a certificate or certificates for the
Warrant Shares so purchased. Such certificate or certificates shall be promptly
delivered to the Warrantholder. Upon any partial exercise of this Warrant, the
Company shall execute and deliver a new Warrant of like tenor for the balance of
the Warrant Shares purchasable hereunder.

                  (b) In lieu of exercising this Warrant pursuant to Section
1(a), the holder may elect to receive shares of Common Stock equal to the value
of this Warrant determined in the manner described below (or any portion thereof
remaining unexercised) upon delivery of this Warrant at the offices of the
Company or at such other address as the Company may designate by notice in
writing to the registered holder hereof with the Notice of Cashless Exercise
Form annexed hereto duly executed. In such event the Company shall issue to the
holder a number of shares of the Company's Common Stock computed using the
following formula:

                                   X = Y (A-B)
                                       -------
                                          A

Where X = the number of shares of Common Stock to be issued to the holder.

       Y  =  the number of shares of Common Stock purchasable under this
             Warrant (at the date of such calculation).

       A  =  the Market Value of the Company's Common Stock on the business day
             immediately preceding the day on which the Notice of Cashless
             Exercise is received by the Company.

       B  =  Warrant Price (as adjusted to the date of such calculation).

                  (c) The Warrant Shares deliverable hereunder shall, upon
issuance, be fully paid and non-assessable and the Company agrees that at all
times during the term of this Warrant it shall cause to be reserved for issuance
such number of shares of its Common Stock as shall be required for issuance and
delivery upon exercise of this Warrant.

                  (d) For purposes of Section 1(b) of this Warrant, the Market
Value of a share of Common Stock on any date shall be equal to (A) the closing
sale price per share as published by a national securities exchange on which
shares of Common Stock are traded (an "Exchange") on such date or, if there is
no sale of Common Stock on such date, the average of the bid and asked prices on
such Exchange at the close of trading on such date or, (B) if shares of Common
Stock are not listed on an Exchange on such date, the closing price per share as
published on the National Association of Securities Dealers Automatic Quotation
System ("NASDAQ") National Market System if the shares are quoted on such system
on such date, or (C) the average of the bid and asked prices in the
over-the-counter market at the close of trading on
<PAGE>   3
such date if the shares are not traded on an Exchange or listed on the NASDAQ
National Market System, or (D) if the security is not traded on an Exchange or
in the over-the-counter market, the fair market value of a share of Common Stock
on such date as determined in good faith by the Board of Directors. If the
holder disagrees with the determination of the Market Value of any securities of
the Common Stock determined by the Board of Directors under Section 1(d)(i)(D)
the Market Value shall be determined by an independent appraiser acceptable to
the Company and the holder. If they cannot agree on such an appraiser, then each
of the Company and the holder shall select an independent appraiser, such two
appraisers shall select a third independent appraiser and Market Value shall be
the median of the appraisals made by such appraisers). If there is one
appraiser, the cost of the appraisal shall be shared equally between the Company
and the holder. If there are three appraisers, each of the Company and the
holder shall pay for its own appraiser and shall share equally the cost of the
third appraiser.

                  (e) Notwithstanding anything to the contrary contained herein,
and in accordance with Section 713 of the American Stock Exchange Company Guide,
in no event shall this Warrant to be exercisable for, and the Company shall have
no obligation to issue, an amount exceeding 68,704 shares of the Company's
Common Stock until such time the Company's shareholders shall have approved the
issuance of shares in an amount exceeding 19.9% of the Company's outstanding
Common Stock (determined as of the date hereof) at a price less than the current
fair market value of the Common Stock upon the conversion of the Debentures and
the exercise of the Warrants ("Shareholder Approval"). Immediately upon receipt
of Shareholder Approval, this Warrant shall be exercisable in whole or in part
in accordance with the provisions of Section 1 hereof. In accordance with the
provisions of Section 9.12 of the Purchase Agreement, the Company covenants to
seek Shareholder Approval as provided herein in this Section 1(e).

            2. Transfer or Assignment of Warrant.

                  (a) Any assignment or transfer of this Warrant shall be made
by surrender of this Warrant at the offices of the Company or at such other
address as the Company may designate in writing to the registered holder hereof
with the Assignment Form annexed hereto duly executed and accompanied by payment
of any requisite transfer taxes, and the Company shall, without charge, execute
and deliver a new Warrant of like tenor in the name of the assignee for the
portion so assigned in case of only a partial assignment, with a new Warrant of
like tenor to the assignor for the balance of the Warrant Shares purchasable.

                  (b) Prior to any assignment or transfer of this Warrant, the
holder thereof shall deliver an opinion of counsel to the Company to the effect
that the proposed transfer may be effected without registration under the
Securities Act of 1933, as amended (the "Securities Act"). Each Warrant issued
upon or in connection with such transfer shall bear the restrictive legend set
forth on the front of this Warrant unless, in the opinion of the Company's
counsel, such legend is no longer required to insure compliance with the
Securities Act.

            3. Adjustments to Warrant Price and Warrant Shares -- Anti-Dilution
Provisions. In order to prevent dilution of the exercise right granted
hereunder, the Warrant Price shall be subject to adjustment from time to time in
accordance with this Section 3. Upon each adjustment of the Warrant Price
pursuant to this Section 3, the holder shall thereafter be entitled
<PAGE>   4
to acquire upon exercise of this Warrant, at the Applicable Warrant Price (as
hereinafter defined), the number of shares of Common Stock obtainable by
multiplying the Warrant Price in effect immediately prior to such adjustment by
the number of shares of Common Stock acquirable immediately prior to such
adjustment and dividing the product thereof by the Applicable Warrant Price
resulting from such adjustment.

            The Warrant Price in effect at the time of the exercise of this
Warrant shall be subject to adjustment from time to time as follows:

            (a) In the event that the Company shall at any time: (i) declare or
pay to the holders of the Common Stock a dividend payable in any kind of shares
of capital stock of the Company; or (ii) change or divide or otherwise
reclassify its Common Stock into the same or a different number of shares with
or without par value, or in shares of any class or classes; or (iii) transfer
its property as an entirety or substantially as an entirety to any other company
or entity; or (iv) make any distribution of its assets to holders of its Common
Stock as a liquidation or partial liquidation dividend or by way of return of
capital; then, upon the subsequent exercise of this Warrant, the holder thereof
shall receive, in addition to or in substitution for the shares of Common Stock
to which it would otherwise be entitled upon such exercise, such additional
shares of stock or scrip of the Company, or such reclassified shares of stock of
the Company, or such shares of the securities or property of the company
resulting from transfer, or such assets of the Company, which it would have been
entitled to receive had it exercised these rights prior to the happening of any
of the foregoing events. If, at any time during the Exercise Period, the number
of outstanding shares of Common Stock is (i) increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split up of shares of
Common Stock, or (ii) decreased by a combination of shares of Common Stock,
then, simultaneously with the occurrence of such event, the Warrant Price shall
be adjusted automatically to a new amount equal to the product of (A) the
Warrant Price in effect on such record date and (B) the quotient obtained by
dividing (x) the number of shares of Common Stock outstanding on such record
date (without giving effect to the events referred to in the foregoing clauses
(i) or (ii)) by (y) the number of shares of Common Stock which would be
outstanding immediately after the event referred to in the foregoing clauses (i)
or (ii).

            (b) If at any time after the date of issuance hereof the Company
shall grant or issue any shares of Common Stock, or grant or issue any rights or
options for the purchase of, or stock or other securities convertible into,
Common Stock (such convertible stock or securities being herein collectively
referred to as "Convertible Securities") other than:

            (i) shares issued in a transaction described in subsection 3(c); or

            (ii) shares issued, subdivided or combined in transactions described
in subsection 3(a) if and to the extent that the number of shares of Common
Stock receivable upon exercise of this Warrant shall have been previously
adjusted pursuant to subsection 3(a) as a result of such issuance, subdivision
or combination of such securities;

for a consideration per share which is less than the Fair Market Value (as
hereinafter defined) of the Common Stock, then the Warrant Price in effect
immediately prior to such issuance or sale (the "Applicable Warrant Price")
shall, and thereafter upon each issuance or sale for a
<PAGE>   5
consideration per share which is less than the Fair Market Value of the Common
Stock, the Applicable Warrant Price shall, simultaneously with such issuance or
sale, be adjusted, so that such Applicable Warrant Price shall equal a price
determined by multiplying the Applicable Warrant Price by a fraction, the
numerator of which shall be:

            (A) the sum of (x) the total number of shares of Common Stock
            outstanding when the Applicable Warrant Price became effective, plus
            (y) the number of shares of Common Stock which the aggregate
            consideration received, as determined in accordance with subsection
            3(d) for the issuance or sale of such additional Common Stock or
            Convertible Securities deemed to be an issuance of Common Stock as
            provided in subsection 3(e), would purchase (including any
            consideration received by the Company upon the issuance of any
            shares of Common Stock since the date the Applicable Warrant Price
            became effective not previously included in any computation
            resulting in an adjustment pursuant to this subsection 3(b)) at the
            Fair Market Value of the Common Stock; and the denominator of which
            shall be

            (B) the total number of shares of Common Stock outstanding (or
            deemed to be outstanding as provided in subsection 3(e) hereof)
            immediately after the issuance or sale of such additional shares.

            For purposes of this Section 3, "Fair Market Value" shall mean the
average of the closing price of the Common Stock for each of the twenty (20)
consecutive trading days prior to such issuance or sale on an Exchange or if
shares of Common Stock are not listed on an Exchange during such period, the
closing price per share as reported by NASDAQ National Market System if the
shares are quoted on such system during such period, or the average of the bid
and asked prices of the Common Stock in the over-the-counter market at the close
of trading during such period if the shares are not traded on an Exchange or
listed on the NASDAQ National Market System, or if the Common Stock is not
traded on an Exchange or in the over-the-counter market, the fair market value
of a share of Common Stock during such period as determined in good faith by the
Board of Directors.

If, however, the Applicable Warrant Price thus obtained would result in the
issuance of a lesser number of shares upon conversion than would be issued at
the initial Warrant Price, the Applicable Warrant Price shall be such initial
Warrant Price.

            Upon each adjustment of the Warrant Price pursuant to this
subsection 3(b), the total number of shares of Common Stock for which this
Warrant shall be exercisable shall be such number of shares (calculated to the
nearest tenth) purchasable at the Applicable Warrant Price multiplied by a
fraction, the numerator of which shall be the Warrant Price in effect
immediately prior to such adjustment and the denominator of which shall be the
exercise price in effect immediately after such adjustment.

            (c) Anything in this Section 3 to the contrary notwithstanding, no
adjustment in the Warrant Price shall be made in connection with:
<PAGE>   6
            (i) the grant, issuance or exercise of any Convertible Securities
            pursuant to the Company's qualified or non-qualified Employee Stock
            Option Plans or any other bona fide employee benefit plan or
            incentive arrangement, adopted or approved by the Company's Board of
            Directors or approved by the Company's shareholders, as may be
            amended from time to time, or under any other bona fide employee
            benefit plan hereafter adopted by the Company's Board of Directors;
            or

            (ii) the grant, issuance or exercise of any Convertible Securities
            in connection with the hire or retention of any officer, director or
            key employee of the Company, provided such grant is approved by the
            Company's Board of Directors; or

            (iii) the issuance of any shares of Common Stock pursuant to the
            grant or exercise of Convertible Securities outstanding as of the
            date hereof (exclusive of any subsequent amendments thereto).

            (d) For the purpose of subsection 3(b), the following provisions
shall also be applied:

            (i) In case of the issuance or sale of additional shares of Common
            Stock for cash, the consideration received by the Company therefor
            shall be deemed to be the amount of cash received by the Company for
            such shares, before deducting therefrom any commissions,
            compensation or other expenses paid or incurred by the Company for
            any underwriting of, or otherwise in connection with, the issuance
            or sale of such shares.

            (ii) In the case of the issuance of Convertible Securities, the
            consideration received by the Company therefor shall be deemed to be
            the amount of cash, if any, received by the Company for the issuance
            of such rights or options, plus the minimum amounts of cash and fair
            value of other consideration, if any, payable to the Company upon
            the exercise of such rights or options or payable to the Company
            upon conversion of such Convertible Securities.

            (iii) In the case of the issuance of shares of Common Stock or
            Convertible Securities for a consideration in whole or in part,
            other than cash, the consideration other than cash shall be deemed
            to be the fair market value thereof as reasonably determined in good
            faith by the Board of Directors of the Company (irrespective of
            accounting treatment thereof); provided, however, that if such
            consideration consists of the cancellation of debt issued by the
            Company, the consideration shall be deemed to be the amount the
            Company received upon issuance of such debt (gross proceeds) plus
            accrued interest and, in the case of original issue discount or zero
            coupon indebtedness, accrued value to the date of such cancellation,
            but not including any premium or discount at which the debt may then
            be trading or which might otherwise be appropriate for such class of
            debt.

            (iv) In case of the issuance of additional shares of Common Stock
            upon the conversion or exchange of any obligations (other than
            Convertible Securities), the amount of the consideration received by
            the Company for such Common Stock
<PAGE>   7
            shall be deemed to be the consideration received by the Company for
            such obligations or shares so converted or exchanged, before
            deducting from such consideration so received by the Company any
            expenses or commissions or compensation incurred or paid by the
            Company for any underwriting of, or otherwise in connection with,
            the issuance or sale of such obligations or shares, plus any
            consideration received by the Company in connection with such
            conversion or exchange other than a payment in adjustment of
            interest and dividends. If obligations or shares of the same class
            or series of a class as the obligations or shares so converted or
            exchanged have been originally issued for different amounts of
            consideration, then the amount of consideration received by the
            Company upon the original issuance of each of the obligations or
            shares so converted or exchange shall be deemed to be the average
            amount of the consideration received by the Company upon the
            original issuance of all such obligations or shares. The amount of
            consideration received by the Company upon the original issuance of
            the obligations or shares so converted or exchanged and the amount
            of the consideration, if any, other than such obligations or shares,
            received by the Company upon such conversion or exchange shall be
            determined in the same manner as provided in paragraphs (i) and (ii)
            above with respect to the consideration received by the Company in
            case of the issuance of additional shares of Common Stock or
            Convertible Securities.

            (v) In the case of the issuance of additional shares of Common Stock
            as a dividend, the aggregate number of shares of Common Stock issued
            in payment of such dividend shall be deemed to have been issued at
            the close of business on the record date fixed for the determination
            of stockholders entitled to such dividend and shall be deemed to
            have been issued without consideration; provided, however, that if
            the Company, after fixing such record date, shall legally abandon
            its plan to so issue Common Stock as a dividend, no adjustment of
            the Applicable Conversion Price shall be required by reason of the
            fixing of such record date.

            (e) For purposes of the adjustment provided for in subsection 3(b)
above, if at any time the Company shall issue any Convertible Securities, the
Company shall be deemed to have issued at the time of the issuance of such
Convertible Securities the maximum number of shares of Common Stock issuable
upon conversion of the total amount of such Convertible Securities.

            (f) On the expiration, cancellation or redemption of any Convertible
Securities, the Warrant Price then in effect hereunder shall forthwith be
readjusted to such Warrant Price as would have been obtained (a) had the
adjustments made upon the issuance or sale of such expired, canceled or redeemed
Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered upon the
exercise or conversion of such Convertible Securities (and the total
consideration received therefor) and (b) had all subsequent adjustments been
made on only the basis of the Warrant Price as readjusted under this subsection
3(f) for all transactions (which would have affected such adjusted Warrant
Price) made after the issuance or sale of such Convertible Securities.

            (g) Anything in this Section 3 to the contrary notwithstanding, no
adjustment in the Warrant Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in such Warrant Price; provided,
however, that any adjustments which by
<PAGE>   8
reason of this subsection 3(g) are not required to be made shall be carried
forward and taken into account in making subsequent adjustments. All
calculations under this Section 3 shall be made to the nearest cent.

            (h) If, at any time while this Warrant is outstanding, the Company
shall pay any dividend payable in cash or in Common Stock, shall offer to the
holders of its Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, shall enter into an agreement to merge
or consolidate with another corporation, shall propose any capital
reorganization or reclassification of the capital stock of the Company,
including any subdivision or combination of its outstanding shares of Common
Stock or there shall be contemplated a voluntary or involuntary dissolution,
liquidation or winding up of the Company, the Company shall cause notice thereof
to be mailed to the registered holder of this Warrant at its address appearing
on the registration books of the Company, at least thirty (30) days prior to the
record date as of which holders of Common Stock shall participate in such
dividend, distribution or subscription or other rights or at least thirty (30)
days prior to the effective date of the merger, consolidation, reorganization,
reclassification or dissolution. Upon any adjustment of any Warrant Price, then
and in each such case the Company shall promptly deliver a notice to the
registered holder of this Warrant, which notice shall state the Warrant Price
resulting from such adjustment, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.

            (i) If the Company is a party to a merger or other transaction which
reclassifies or changes its outstanding Common Stock, upon consummation of such
transaction this Warrant shall automatically become exercisable for the kind and
amount of securities, cash or other assets which the holder of this Warrant
would have owned immediately after such transaction if the holder had converted
this Warrant at the Warrant Price in effect immediately before the effective
date of the transaction. Concurrently with the consummation of such transaction,
the person obligated to issue securities or deliver cash or other assets upon
exercise of this Warrant shall execute and deliver to the holder a supplemental
Warrant so providing and further providing for adjustments which shall be as
nearly equivalent as may be practical to the adjustments provided in this
Section 3. The successor company shall mail to the holder a notice describing
the supplemental Warrant.

            If securities deliverable upon exercise of this Warrant, as provided
above, are themselves convertible into or exercisable for the securities of an
affiliate of a corporation formed, surviving or otherwise affected by the merger
or other transaction, that issuer shall join in the supplemental Warrant which
shall so provide. If this subsection 3(i) applies, subsection 3(a) does not
apply.

            4. Charges, Taxes and Expenses. The issuance of certificates for
Warrant Shares upon any exercise of this Warrant shall be made without charge to
the holder of this Warrant for any tax or other expense in respect to the
issuance of such certificates, all of which taxes and expenses shall be paid by
the Company, and such certificates shall be issued only in the name of the
holder of this Warrant.

            5. Miscellaneous.

                  (a) The terms of this Warrant shall be binding upon and shall
inure to the benefit of any successors or assigns of the Company and of the
holder or holders hereof and
<PAGE>   9
of the shares of Common Stock issued or issuable upon the exercise hereof.

                  (b) No holder of this Warrant, as such, shall be entitled to
vote or receive dividends or be deemed to be a stockholder of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder of this Warrant, as such, any rights of a stockholder of the
Company or any right to vote, give or withhold consent to any corporate action,
receive notice of meetings, receive dividends or subscription rights, or
otherwise.

                  (c) Receipt of this Warrant by the holder hereof shall
constitute acceptance of an agreement to the foregoing terms and conditions.

                  (d) The Warrant and the performance of the parties hereunder
shall be construed and interpreted in accordance with the laws of the State of
New York without giving effect to its conflict of laws rules wherein it was
negotiated and executed and the parties hereunder consent and 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 with respect to all controversies and
disputes arising hereunder.

                  (e) This Warrant is subject to certain provisions contained in
the Debenture and Warrant Purchase Agreement dated May 26, 1999 among the
Company and various other parties, (including, without limitation, the
registration rights provisions of Article XI thereof) copies of which are on
file with the Secretary of the Company. Shares issued upon exercise of this
Warrant shall contain a legend substantially to the same effect as the legend
set forth on the first page of this Warrant.





            IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer and its corporate seal to be affixed hereto.

Dated as of May 26, 1999

                                    HALSEY DRUG CO., INC.



                                    BY:
                                          ---------------------
                                          Name: Michael Reicher
                                          Title: President
<PAGE>   10
                                SUBSCRIPTION FORM


                    (TO BE EXECUTED BY THE REGISTERED HOLDER
                     IF HE DESIRES TO EXERCISE THE WARRANT)


      TO:   HALSEY DRUG CO., INC.


            The undersigned hereby exercises the right to purchase _________
shares of Common Stock, par value $.01 per share, covered by the attached
Warrant in accordance with the terms and conditions thereof, and herewith makes
payment of the Warrant Price for such shares in full.



                                    SIGNATURE



                                     ADDRESS







DATED:_____________
<PAGE>   11
                   NOTICE OF EXERCISE OF COMMON STOCK WARRANT
             PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS


<TABLE>
<CAPTION>
                                                       [ Date ]
----------------------------------------------------------------------------
<S>                                <C>                                   <C>
                                   Aggregate Price of                 $
Halsey Drug Co., Inc.
a New York corporation             of Warrant
695 N. Perryville Road             Aggregate Price
                                   Being
Rockford, Illinois 61107           Exercised:                         $
Attention:______________

                                   Warrant Price
                                   (per share):                       $

                                   Market Value
                                   (per share):                       $

                                   Number of Shares
                                   of Common Stock
                                   under this
                                   Warrant:

                                   Number of Shares
                                   of Common Stock
                                   to be Issued
                                   Under this
                                   Notice:
</TABLE>


                                CASHLESS EXERCISE


Gentlemen:


            The undersigned, the registered holder of the Warrant to Purchase
Common Stock delivered herewith ("Warrant"), hereby irrevocably exercises such
Warrant for, and purchases thereunder, shares of the Common Stock of HALSEY DRUG
CO., INC., a New York corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as hereinafter defined) to be
applied toward the purchase of Common Stock pursuant to this Notice of Exercise
is $     , thereby leaving a remainder Aggregate Price (if any) equal to $    .
Such exercise shall be pursuant to the net issue exercise provisions of
Section 1(b) of the Warrant; therefore, the holder makes no payment with this
Notice of Exercise. The number of shares to be issued pursuant to this exercise
shall be determined by reference to the formula in Section 1(b) of the Warrant
which requires the use of the Market Value (as defined in Section 1(d) of the
Warrant) of the Company's Common Stock on the business day immediately
preceding the day on which this Notice is received by the Company. To the
extent the foregoing exercise is for less than the full Aggregate Price of the
Warrant, the remainder of the Warrant representing a number
<PAGE>   12
of Shares equal to the quotient obtained by dividing the remainder of the
Aggregate Price by the Warrant Price (and otherwise of like form, tenor and
effect) may be exercised under Section 1(a) of the Warrant. For purposes of this
Notice the term "Aggregate Price" means the product obtained by multiplying the
number of shares of Common Stock for which the Warrant is exercisable times the
Warrant Price.




                                    SIGNATURE



                                    Date:___________________
                                    Address
<PAGE>   13
                                   ASSIGNMENT


                    (TO BE EXECUTED BY THE REGISTERED HOLDER
                     IF HE DESIRES TO TRANSFER THE WARRANT)


            FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto the right to purchase shares of Common Stock of HALSEY DRUG CO.,
INC., evidenced by the within Warrant, and does hereby irrevocably constitute
and appoint ____________ Attorney to transfer the said Warrant on the books of
the Company, with full power of substitution.


                                    Signature




                                     Address



Dated:___________________


In the Presence of:


_________________________