UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 24, 2000
ENDOCARE, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 0-27212 33-0618093
(State of incorporation (Commission File (I.R.S. Employer I.D. No.)
or organization) Number)
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7 STUDEBAKER, IRVINE, CALIFORNIA 92618
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code (949) 595-4770
NONE
(Former name or former address, if changed since last report)
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Item 5. OTHER EVENTS.
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Sale of Convertible Debentures
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On May 5, 2000 Endocare, Inc., a Delaware corporation (the "Company")
received $8,000,000 from the sale of its 7% Convertible Debentures due May 4,
2003 (the "Debentures") to Brown Simpson Partners I, Ltd., a Fund managed by New
York - based Brown Simpson Asset Management, LLC (the "Purchaser"). Affiliates
of the same investor originally purchased an aggregate of $8,000,000 of
convertible debentures from the Company on June 7, 1999 and July 29, 1999 (as
reported in the Company's current reports on Form 8-K filed June 14, 1999 and
August 6, 1999, respectively). Under the 1999 financing arrangement, the
Purchaser had the option to purchase the additional $8,000,000 in aggregate
principal amount of Debentures. The Debentures were sold pursuant to Securities
Purchase Agreements dated June 7, 1999 and July 29, 1999 among the Company and
affiliates of the Purchaser. The Debentures and the Company's press release
first announcing the sale of the Debentures are included as exhibits to this
report. The Debentures were sold pursuant to an exemption from registration
under the Securities Act of 1933, as amended (the "Securities Act") by virtue of
Rule 506 of Regulation D under the Securities Act.
The following is a summary of the principal terms of the Debentures. This
summary does not purport to explain all of the material terms of the Debentures,
which are filed as exhibits to this report, or the related Securities Purchase
Agreement or Registration Rights Agreement, which were previously filed as
exhibits to the Company's current reports on Form 8-K referenced above. ONE
SHOULD READ THE DEBENTURES, THE SECURITIES PURCHASE AGREEMENT AND THE
REGISTRATION RIGHTS AGREEMENT FOR A MORE DETAILED UNDERSTANDING OF THEIR TERMS.
The $8,000,000 principal amount of the Debentures must be repaid in full in
cash on May 4, 2003, but may be converted into the Company's Common Stock in
whole or in part at the Purchasers' option at any time, subject to certain
restrictions, on or prior to May 4, 2003 at a conversion price of $6.75 per
share. The $6.75 per share conversion price is subject to adjustment for stock
splits, stock dividends and the like. The conversion price associated with
$5,000,000 of the Debentures is also subject to anti-dilution adjustments, which
provide that in the event the Company issues or sells its Common Stock or
securities convertible into Common Stock at a price less than the conversion
price of the Debentures, the conversion price of the Debentures will be adjusted
to such lower price. Certain securities are exempted from this anti-dilution
feature and will not cause an adjustment to the conversion price. Exempted
securities generally include shares issued pursuant to a stock option plan
approved by the Company's Board of Directors, a limited number of shares issued
to banks that provide senior debt financing, an issuance of stock pursuant to
warrants outstanding as of the date the Debentures were sold.
The Debentures bear interest at 7.00% per annum. Interest is payable
annually in cash, or at the Company's option, in Common Stock at a price per
share based on recent bid prices prior to the date interest is paid, and certain
other conditions are met.
As part of the Debenture financing and under the Registration Rights
Agreement among the Company and the Purchaser, the Company filed a Form S-3
Registration Statement with the Securities and Exchange Commission to register
the resale under the Securities Act of the Common Stock issuable upon the
conversion of the $8,000,000 of Debentures sold and interest on the Debentures
which may be paid in stock.
Certain events will trigger an event of default under the Debentures. An
event of default gives the Purchaser the right to accelerate all indebtedness
under the Debentures and declare it due immediately. Upon an event of default,
interest thereafter accrues at 20.00% per annum and a default premium is added
to the principal amount of the Debentures. The premium is the greater of 20.00%
of the principal amount, or higher, based on recent trading prices of the
Company's Common Stock. The amount due upon an event of default (including
principal, interest and all premiums and penalties) must be paid in cash, or, at
the Purchaser's option in an equivalent value of shares of Common Stock of the
Company, calculated based on the average bid price per share of the Common Stock
for a certain number of days prior to the acceleration of the indebtedness by
the Purchasers.
Circumstances which trigger an event of default include, without
limitation, the material breach of a representation or warranty by the Company,
the failure of the Company to perform covenants in its agreements with the
Purchasers, the failure of the Company to keep a registration statement for the
resale of the Common Stock issuable under the Debentures effective, and certain
changes of control of the Company if the average bid price of the Company's
Common Stock listed for quotation is not above $8.00 per share within a certain
number of days of the announcement of the change of control or the consummation
of the change of control. A change of control includes without limitation (i)
the failure of Paul W. Mikus to continue to be the Company's Chief Executive
Officer, unless replaced in a certain period of time, (ii) certain changes in
the composition of the Company's Board of Directors without the approval of
existing directors and (iii) a sale of all or substantially all of the Company's
assets or a change of ownership of 50% or more of the voting stock of the
Company (including by stock purchase, merger or similar transaction).
Senior Debt Financing
-----------------------
In July 1999, the Company entered into a Loan and Security Agreement with
Transamerica Business Credit Corporation ("TBCC") which provided for a revolving
credit line in the amount of $2,000,000 plus up to an additional $1,000,000
based on eligible accounts receivable of the Company. On April 24, 2000, the
Company and TBCC executed an Amendment to Loan Agreement which increased the
revolving portion of the credit line from $2,000,000 to $4,000,000 in addition
to the $1,000,000 based on eligible accounts receivable of the Company (the
"Loan"). The Loan matures and all amounts must be repaid on July 31, 2001. The
Loan bears interest at the highest prime or equivalent rate announced by certain
designated banks, plus a 2% or 3.5% premium. The Loan is secured by a first
priority lien on all of the assets of the Company, except for intellectual
property of the Company. The Loan contains covenants restricting certain
activities of the Company. The covenants and the representations and warranties
made by the Company, if breached, give TBCC the right to accelerate the debt.
The Loan is fully guaranteed by Advanced Medical Procedures, Inc. ("AMP"),
a subsidiary of the Company. This guarantee is secured by a lien on all of the
assets of AMP. The AMP loan documents contain covenants and representations and
warranties which, if breached, allow TBCC to accelerate the Company's Loan.
In connection with the Amendment to the Loan Agreement, the Company issued
a warrant to an affiliate of TBCC to purchase 10,390 shares of common stock of
the Company, at a price of $15.40 per share, subject to adjustments in certain
circumstances (the "Warrant"). The Warrant expires on April 24, 2005. The
Warrant was issued pursuant to an exemption from registration under the
Securities Act by virtue of Rule 506 of Regulation D under the Securities Act.
The above is a summary of the principal terms of the Amendment to Loan
Agreement and does not purport to explain all of the material terms of the
document. ONE SHOULD READ THE AMENDMENT TO LOAN AGREEMENT WHICH IS FILED AS AN
EXHIBIT TO THIS REPORT, AND THE ORIGINAL LOAN DOCUMENTS FILED WITH THE COMPANY'S
CURRENT REPORT ON FORM 8-K ON AUGUST 6, 1999, FOR A MORE DETAILED UNDERSTANDING
OF THE TERMS OF THE LINE OF CREDIT.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
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EXHIBIT NO. DESCRIPTION
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4.1 Debenture for $3 million dated May 4, 2000 between the Company and
Brown Simpson Partners I, Ltd.
4.2 Debenture for $5 million dated May 4, 2000 between the Company and
Brown Simpson Strategic Partners I, Ltd.
10.1 Amendment to Loan Agreement dated April 24, 2000 between the
Company and TBCC
99.1 Press Release dated May 10, 2000
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: May 11, 2000
ENDOCARE, INC.
By: /s/ Paul W. Mikus
Paul W. Mikus
Chief Executive Officer and President
(Duly Authorized Officer )
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EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
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4.1 Debenture for $3 million dated May 4, 2000 between the Company and
Brown Simpson Partners I, Ltd.
4.2 Debenture for $5 million dated May 4, 2000 between the Company and
Brown Simpson Strategic Partners I, Ltd.
10.1 Amendment to Loan Agreement dated April 24, 2000 between the
Company and TBCC
99.1 Press Release dated May 10, 2000
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7% CONVERTIBLE DEBENTURES
THE DEBENTURE REPRESENTED HEREBY HAS NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
PAYMENTS ON ACCOUNT OF THE INDEBTEDNESS EVIDENCED BY THIS DEBENTURE AND THE
EXERCISE OF REMEDIES HEREUNDER ARE SUBORDINATED TO SENIOR INDEBTEDNESS AS
PROVIDED HEREIN.
No. 2 $ 3,000,000
ENDOCARE, INC.
7% CONVERTIBLE DEBENTURES DUE MAY 4, 2003
Endocare Inc., a Delaware corporation (the "Company"), for value received
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hereby promises to pay to Brown Simpson Partners I, Ltd. or its registered
assigns ("Holder") the principal sum of Three Million Dollars at the Company's
------
office or agency for said purpose in New York, New York on May 4, 2003 in such
coin or currency (or, as provided herein, at the Holder's option in Common
Stock) of the United States of America as at the time of payment shall be legal
tender for the payment of public and private debts at the last address of the
Holder (as defined herein) last appearing on the Register (as defined herein).
This Debenture is one of a duly authorized issue of 7% Convertible
Debentures, due May 4, 2003 of the Company (the "Debenture") referred to in the
---------
Securities Purchase Agreement (the "Purchase Agreement"), dated as of July 29,
------------------
1999, by and among the Company and the Purchasers listed on Schedule I thereto,
and issued in connection with the Second Closing thereunder. The Debentures are
subject to the terms and conditions of the Purchase Agreement. The Company
agrees to issue from time to time replacement Debentures in the form hereof to
facilitate any transfers and assignments. In addition, after delivery of an
indemnity in form and substance reasonably satisfactory to the Company, the
Company also agrees to issue replacement Debentures for securities which have
been lost, stolen, mutilated or destroyed.
The Company shall keep at its principal office a register (the "Register")
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in which shall be entered the names and addresses of the registered holders of
the Debentures and particulars of the respective Debentures held by them and of
all transfers of such Debentures. References to the "Holder" or "Holders" shall
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mean the Person listed in the Register as the payee of any Debenture unless the
payee shall have presented such Debenture to the Company for transfer and the
transferee shall have been entered in the Register as a subsequent holder, in
which case the term shall mean such subsequent holder. The ownership of the
Debentures shall be proven by the Register, absent manifest error. For the
purpose of paying interest and principal on the Debentures, the Company shall be
entitled to rely on the names and addresses in the Register.
No provision of this Debenture shall alter or impair the obligations of the
Company, which are absolute and unconditional, to pay the principal of and
interest on this Debenture at the place, times, rate, and in the currency,
herein prescribed.
The principal of this Debenture shall bear interest at the rate of seven
(7%) per annum (the "Interest Rate"). The interest shall accrue daily from the
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most recent Interest Payment Date to which interest has been paid on this
Debenture, or if no interest has been paid on this Debenture from the date
hereof until payment in full of the principal amount has been made. Interest is
payable in cash or an equivalent value of the Company's Common Stock calculated
based upon the Average Price (as defined herein), at the Company's option,
subject to certain conditions contained herein, annually on January 1 of each
year (an "Interest Payment Date"), commencing on January 1, 2001, to the Holder
---------------------
hereof until the principal amount is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will be paid or delivered to the Holder of the Debenture at the
close of business on the Record Date for the interest payable on such Interest
Payment Date. The "Record Date" for any interest payment is the close of
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business on December 15, whether or not a Business Day, immediately preceding
the Interest Payment Date on which such Interest is payable.
Any amounts that have become due and payable hereunder and remain unpaid by
the Company shall accrue interest thereafter until payment in full of such
amount at the rate of twenty percent (20%) (the "Default Rate") per annum and
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shall be payable upon demand by the Holder.
Interest, whether at the Interest Rate or the Default Rate, will be
computed on the basis of a fraction, the denominator of which is 365 (or 366 for
any leap year) and the numerator of which is the actual number of days elapsed
from the date such interest begins to accrue, in the case of the Interest Rate,
or becomes due and payable, in the case of the Default Rate.
Each of the Interest Rate and the Default Rate (if otherwise applicable
under the terms hereof) shall be effective both before and after any judgment
may be rendered in a court of competent jurisdiction, provided, however, that if
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either the Interest Rate or Default Rate is deemed to be in excess of the amount
permitted to be charged by the Company under applicable laws, the Holder shall
be entitled to collect an Interest Rate or Default Rate, as the case may be,
only at the highest rate permitted by law, and any interest collected by the
Holder in excess of such lawful amount shall be deemed a payment in reduction of
the principal amount then outstanding under this Debenture and shall be so
applied.
The principal of, and any interest paid in cash on, this Debenture are
payable in coin or currency of the United States of America as at the time of
payment is legal tender for payment of public or private debts, at the last
address of the Holder last appearing on the Register, except that interest due
on the principal amount, if any (but not interest overdue for more than five (5)
days), may, at the Company's option be paid in shares of Common Stock calculated
based upon the Average Price (as defined herein) on the date such interest was
due. It shall be assumed that the Company shall elect to make all payments of
interest in Common Stock, unless the Company shall have given written notice to
each Holder not less than one (1) calendar month prior to the applicable
Interest Payment Date of its intention to pay such interest in cash.
Notwithstanding anything to the contrary contained herein, the Company may not
issue shares of Common Stock in payment of the interest on principal if: (i)
the number of shares of Common Stock at the time authorized, unissued and
unreserved for all other purposes is insufficient to pay interest hereunder in
shares of Common Stock or there is an insufficient number of authorized shares
of Common Stock reserved (pursuant to Section 3.6(b) of the Purchase Agreement)
for issue for full conversion of all of the Debentures issued pursuant to the
Purchase Agreement; (ii) such shares are not either registered for resale
pursuant to the Registration Statement (as defined in the Registration Rights
Agreement (as defined herein)) or freely transferable pursuant to Rule 144
promulgated under the Act, as determined by counsel to the Company pursuant to a
written opinion letter addressed and in form and substance acceptable to the
Holder and the transfer agent for such shares, subject to receipt, if necessary
for such opinion, from the Holder of a representation from such Holder that it
is not an Affiliate (as defined herein) of the Company; (iii) such shares are
not listed or quoted on the Nasdaq (as defined herein) or a Subsequent Market
(as defined herein); (iv) the issuance of such shares would result in the
recipient thereof beneficially owning more than 9.99% of the issued and
outstanding shares of Common Stock as determined in accordance with Section 4.7
hereof; (v) an Event of Default has occurred and is continuing or an event that,
with the passage of time or giving of notice or both would constitute an Event
of Default, has occurred and is continuing; or (vi) the Company has issued the
Issuable Maximum (as defined herein) upon conversion of or pursuant to the
Debentures issued pursuant to the Purchase Agreement and the Shareholder
Approval has not been obtained.
The Holder may from time to time convert the principal amount of this
Debenture, or any portion thereof, with any accrued but unpaid interest, into
Common Stock, as more particularly set forth in Section 4.2.
ARTICLE I
DEFINITIONS
1.1 CERTAIN TERMS DEFINEDThe following terms for all purposes of this
----------------------
Debenture shall have the respective meanings specified below. All accounting
terms used herein and not expressly defined shall have the meanings given to
them in accordance with generally accepted accounting principles (as defined
herein). Capitalized terms not otherwise defined herein shall have the meanings
assigned to them in the Purchase Agreement. The terms defined in this Section
1.1 include the plural as well as the singular.
"Acceleration Notice" has the meaning set forth in Section 3.1.
--------------------
"Affiliate" of any Person means any other Person directly or indirectly
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controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Appraiser" shall mean a nationally recognized or major regional investment
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banking firm or firm of independent certified public accountants of recognized
standing.
"Authorization Date" has the meaning set forth in Section 4.9.
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"Average Price" on any date means (x) the sum of the Per Share Market Value
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for the ten (10) Trading Days immediately preceding such date minus (y) the
highest and lowest Per Share Market Value during the ten (10) Trading Days
immediately preceding such date, divided by (z) eight (8).
"Board of Directors" means either the Board of Directors of the Company or
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any committee of such Board duly authorized to act hereunder.
"Business Day" means any day except a Saturday, Sunday or other day on
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which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Stock" means, with respect to any Person, any and all shares,
--------------
interests, participations or other equivalents (however designated) of such
Person's capital stock whether now outstanding or issued after the Original
Issue Date, including, without limitation, all Common Stock and all Preferred
Stock.
"Change of Control" means the occurrence of any of (i) an acquisition after
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the date hereof by an individual or legal entity or "group" (as described in
Section 13(d)(3) of the Exchange Act) of in excess of 50% of the voting
securities of the Company, (ii) a replacement of more than one-half of the
members of the Company's Board of Directors which is not approved by a majority
of those individuals who are members of the Board of Directors on the date
hereof, or their duly elected successors who are directors immediately prior to
such transaction, in one or a series of related transactions, (iii) the merger
of the Company with or into another entity, unless following such transaction,
the Holders of the Company's securities continue to hold at least 51% of such
securities following such transaction, (iv) the consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, (v) Mr. Paul W. Mikus ceasing to serve as the Chief Executive
Officer, President or Chairman of the Board of the Company due to his death or
disability or termination for cause, unless he is replaced by the Board within
one hundred and twenty days (120) of his termination of service and (vi) Mr.
Paul W. Mikus ceasing to serve as the Chief Executive Officer, President or
Chairman of the Board of the Company due to his voluntary resignation, unless he
is replaced by the Board within ninety days (90) by a successor reasonably
acceptable to the Holders of a majority of a then-outstanding principal amount
of the Debentures.
"Closing Date" has the meaning set forth in the Purchaser Agreement
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"Common Stock" means the common stock, par value $0.001 per share, of the
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Company, or the common stock of any successor to the Company following a Change
in Control in which the Company's Common Stock is converted into the Common
Stock of the successor corporation.
"Company" has the meaning set forth in the first paragraph hereof.
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"Conversion Date" has the meaning set forth in Section 4.4(a).
----------------
"Conversion Default" has the meaning set forth in Section 4.9.
-------------------
"Conversion Default Payments" has the meaning set forth in Section 4.9.
-----------------------------
"Conversion Notice" has the meaning set forth in Section 6.1.
------------------
"Conversion Notice Date" has the meaning set forth in Section 6.3.
------------------------
"Conversion Price" has the meaning set forth in Section 4.2(a).
-----------------
"Conversion Trigger Price" has the meaning set forth in Section 6.1.
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"Debt" of any Person means, at any date, without duplication, (i) all
----
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person in respect of letters of credit or bankers'
acceptance or other similar instruments (or reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred
purchase price of property or services, (v) all obligations of such Person as
lessee under capitalized leases, (vi) all Debt of others secured by a Lien on
any asset of such Person, whether or not such Debt is assumed by such Person,
provided that for purposes of determining the amount of any Debt of the type
described in this clause, if recourse with respect to such Debt is limited to
such asset, the amount of such Debt shall be limited to the fair market value of
such asset, (vii) all Debt of others guaranteed by such Person, and (viii) all
redeemable stock valued at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends.
"Debenture" or "Debentures" has the meaning set forth in the second
--------- ----------
paragraph hereof.
-
"Debenture Shares" means the shares of Common Stock underlying the
-----------------
Debentures or shares issued upon conversion of the Debentures.
--
"Default Rate" has the meaning set forth in the sixth paragraph hereof.
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"Determination Date" has the meaning set forth in Section 4.6.
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"DTC" means the Depositary Trust Corporation.
---
"Event of Default" has the meaning set forth in Section 3.1.
------------------
"Excess Amount" has the meaning set forth in Section 4.9.
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"Excess Principal" has the meaning set forth in Section 4.6.
-----------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
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"FAST" has the meaning set forth in Section 4.4(c).
----
"GAAP" or "generally accepted accounting principles" means generally
---- -------------------------------------------
accepted accounting principles in the United States, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession.
"Holder", "Holder of Debentures", "Debentureholder" or other similar terms
------ -------------------- ---------------
means the registered holder of any Debenture.
---------
"Incurrence" means the incurrence, creation, assumption or in any other
----------
manner becoming liable with respect to, or the extension of the maturity of or
becoming responsible for the payment of, any Debt. "Incur" shall have a
-----
comparable meaning.
"Interest Payment Date" has the meaning set forth in the fifth paragraph
-----------------------
hereof.
"Interest Rate" has the meaning set forth in the fifth paragraph hereof.
--------------
"Issuable Maximum" has the meaning set forth in Section 4.6.
-----------------
"Mandatory Prepayment Amount" for any Debenture means the greater of (i)
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the sum of (x) 120% of the principal amount of the Debenture to be prepaid and
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(y) all other amounts, costs, interest, expenses and liquidated damages due in
respect of such principal amount and (ii) the sum of (x) at the option of the
Holder, either (I) the principal amount of the Debenture to be repaid, plus all
---------
accrued and unpaid interest thereon, divided by the Conversion Price on the date
the Mandatory Prepayment Amount is demanded or otherwise due, multiplied by the
Per Share Market Value on the date the Mandatory Prepayment Amount is demanded
or otherwise due or (II) the principal amount of the Debenture to be prepaid,
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plus all accrued and unpaid interest thereon, divided by the lower of either the
Conversion Price or the Average Price on the Trading Day immediately prior to
the date the Mandatory Prepayment Amount is paid in full, multiplied by the Per
Share Market Value on the Trading Day immediately prior to the date the
Mandatory Prepayment Amount is paid in full, and (y) all other amounts, costs,
interest, expenses and liquidated damages due in respect of such principal
amount.
"Maturity Date" means the date on which the principal of a Debenture
-------------- ---------
becomes due and payable as herein provided, whether on the Stated Maturity Date
or pursuant to acceleration upon an Event of Default.
"Nasdaq" means the Nasdaq SmallCap Market.
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"Notice of Conversion" has the meaning set forth in Section 4.2.
----------------------
"Optional Conversion" has the meaning set forth in Section 6.1.
--------------------
"Optional Conversion Date" has the meaning set forth in Section 6.3.
--------------------------
"Original Issue Date" of any Debenture (or portion thereof) means the
---------------------
earlier of (i) the date of such Debenture and (ii) the date of any Debenture (or
portion thereof) for which such security was issued (directly or indirectly) on
registration of transfer, exchange or substitution.
"Payment Blockage Notice" has the meaning set forth in Section 7.2(b).
-------------------------
"Per Share Market Value" means (i) on any particular Trading Day the
-------------------------
closing bid price per share of the Common Stock on such date (as reported by
Bloomberg Information Services, Inc., or any successor reporting service) on
Nasdaq or, if the Common Stock is not then quoted on Nasdaq, any Subsequent
Market on which the Common Stock is then listed or if there is no such price on
such date, then the closing bid price on such exchange or quotation system on
the date nearest preceding such date (excluding bids posted by the Company, a
Holder or an Affiliate of any such person) or (ii) if the Common Stock is not
listed then on Nasdaq or any Subsequent Market, the closing bid price for a
share of Common Stock in the over-the-counter market, as reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date (excluding bids posted by a Holder or an Affiliate of a Holder), or
(iii) if the Common Stock is not then publicly traded the fair market value of a
share of Common Stock as determined by an Appraiser selected in good faith by
the holder of this Debenture; provided, however, that the Company, after receipt
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of the determination by such Appraiser, shall have the right to select in good
faith an additional Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Appraiser; and provided,
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further that all determinations of the Per Share Market Value shall be
- -------
appropriately adjusted for any stock dividends, stock splits or other similar
- -------
transactions during such period.
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"Person" means an individual, a corporation, a partnership, an association,
------
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
----------------
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the date of this Debenture, and includes, without limitation, all classes and
series of preferred or preference stock.
"Property" of any Person means all types of real, personal, tangible,
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intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person under generally accepted
accounting principles.
"Purchase Agreement" means that Securities Purchase Agreement dated as of
-------------------
July 29, 1999 by and among the Company and the Purchasers.
"Purchase Price" means, with respect to any Debenture, the purchase price
---------------
paid to the Company upon issuance of such Debenture.
"Purchasers" has the meaning ascribed thereto in the Purchase Agreement.
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"Record Date" has the meaning set forth in the fifth paragraph hereof.
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"Register" has the meaning set forth in the third paragraph hereof.
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"Registration Rights Agreement" means that Registration Rights Agreement
-------------------------------
dated as of July 29, 1999 by and among the Company and the Purchasers.
"Reserved Amount" has the meaning set forth in Section 4.9.
----------------
"Reverse Stock Split" has the meaning set forth in Section 4.5(a).
---------------------
"Senior Indebtedness" shall have the meaning set forth in Section 7.1.
--------------------
"Shareholder Approval" has the meaning set forth in Section 4.6.
---------------------
"Stated Maturity Date" means May 4, 2003.
----------------------
"Stock Option Plan" means any contract, plan or agreement which has been
-------------------
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer, director or
consultant.
"Subsidiary" means, with respect to any Person, any corporation or other
----------
entity of which a majority of the Capital Stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned or controlled by such Person. A Person shall not be deemed to
directly or indirectly own a majority of the Capital Stock of another Person
solely because of ownership of an unexercised warrant to acquire Capital Stock
of such other Person if the warrant does not provide for voting control of the
warrant shares prior to its exercise.
"Subsequent Market" means the New York Stock Exchange, American Stock
------------------
Exchange, Nasdaq National Market, London Stock Exchange or Tokyo Stock Exchange.
"Trading Day" means (a) a day on which the Common Stock is traded on Nasdaq
-----------
or, if the Common Stock is not then designated on Nasdaq, on such Subsequent
Market on which the Common Stock is then listed or quoted or (b) if the Common
Stock is not listed on Nasdaq or a Subsequent Market, a day on which the Common
Stock is traded in the over-the-counter Market, as reported by the OTC Bulletin
Board, or (c) if the Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions or reporting prices) provided, however that in
any event that the Common Stock is not listed or quoted as set forth in (a),
(b), or (c) hereof, then a Trading Day shall mean any Business Day.
ARTICLE II
PAYMENT; THE SECURITIES
2.1 PAYMENT OF PRINCIPAL AND INTEREST. The Company covenants and
--------------------------------------
agrees that it will duly and punctually pay or cause to be paid the principal,
plus all accrued interest thereon, with respect to each of the Debentures at the
place or places, at the respective times and in the manner provided in the
Debentures.
2.2 MUTILATED, DEFACED, DESTROYED, LOST AND STOLEN DEBENTURES. In case
---------------------------------------------------------
any temporary or definitive Debenture shall become mutilated, defaced or be
apparently destroyed, lost or stolen, the Company shall execute and deliver a
new Debenture, bearing a number not contemporaneously outstanding, in exchange
and substitution for the mutilated or defaced Debenture. In every case the
applicant for a substitute Debenture shall furnish to the Company such security
or indemnity as it may reasonably require to indemnify and defend and to save it
harmless and, in every case of destruction, loss or theft evidence to the
Company's satisfaction of the apparent destruction, loss or theft of such
Debenture and of the ownership thereof.
Upon the issuance of any substitute Debenture, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses connected therewith.
In case any Debenture which has matured or is about to mature, or has been
called for conversion in full, or is being surrendered for conversion in full
shall become mutilated or defaced or be apparently destroyed, lost or stolen,
the Company may, instead of issuing a substitute Debenture, with the holder's
consent, pay or authorize the payment or conversion of the same (without
surrender thereof except in the case of a mutilated or defaced Debenture), if
the applicant for such payment shall furnish to the Company such security or
indemnity as it may reasonably require to save it harmless from all risks,
however remote, and, in every case of apparent destruction, loss or theft, the
applicant shall also furnish to the Company evidence to the Company's reasonable
satisfaction of the apparent destruction, loss or theft of such Debenture and of
the ownership thereof.
Every substitute Debenture issued pursuant to the provisions of this
Section by virtue of the fact that any Debenture is apparently destroyed, lost
or stolen shall constitute an additional contractual obligation of the Company,
whether or not the apparently destroyed, lost or stolen Debenture shall be at
any time enforceable by anyone and shall be entitled to all the benefits of (but
shall be subject to all the limitations of rights set forth in) this Debenture
equally and proportionately with any and all other Debentures duly authenticated
and delivered hereunder. All Debentures shall be held and owned upon the express
condition that, to the extent permitted by law, the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of mutilated,
defaced, or apparently destroyed, lost or stolen Debentures and shall preclude
any and all other rights or remedies notwithstanding any law or statute existing
or hereafter enacted to the contrary with respect to the replacement or payment
of negotiable instruments or other securities without their surrender.
2.3 CANCELLATION OF DEBENTURES; DESTRUCTION THEREOF All Debentures
---------------------------------------------------
surrendered for payment, conversion, registration of transfer or exchange shall
be delivered to the Company for cancellation, and no Debentures shall be issued
in lieu thereof except as expressly permitted by any of the provisions of this
Debenture. The Company shall destroy canceled Debentures held by it and deliver
a certificate of destruction to the Holder, unless otherwise required. If the
Company shall acquire any of the Debentures, such acquisition alone shall not
operate as a redemption or satisfaction of the indebtedness represented by such
Debentures unless and until such indebtedness is satisfied.
ARTICLE III
DEFAULTS
3.1 EVENT OF DEFAULT DEFINED; ACCELERATION OF MATURITY; WAIVER OF
-------------------------------------------------------------------
DEFAULT. In case one or more of the following events ("Events of Default")
-- -----------------
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing:
a. default in the payment in cash (or in Common Stock, as permitted
herein) of all or any part of the principal of and the entire accrued interest
on any of the Debentures as and when the same shall become due and payable
either at maturity, upon any conversion, by declaration or otherwise; or
b. failure on the part of the Company to duly observe or perform any
other of the covenants or agreements on the part of the Company (or the making
by the Company of any announcement, statement or threat that it does not intend
to honor the obligations described in this paragraph) contained in this
Debenture (including the failure to issue Common Stock upon conversion of this
Debenture in accordance with the terms hereof) or the Purchase Agreement or the
Registration Rights Agreement for a period of ten (10) Business Days (other than
with respect to an announcement, statement or threat) in the case of a failure
due to circumstances within the Company's control, or thirty (30) Business Days
in the case of a failure due to circumstances not within the Company's control,
after the earlier of (x) the date on which any officer of the Company shall have
obtained actual knowledge of such failure (or such announcement, statement or
threat) or (y) the date on which written notice thereof has been given to the
Company by the Holder; or
c. there shall have occurred with respect to any particular issue of
Debt of the Company and/or one or more Subsidiaries having an outstanding
principal amount of $1,000,000 or more, whether such Debt now exists or shall
hereafter be created, an event of default which has entitled the holder thereof
to declare such Debt to be due and payable in full prior to its stated maturity,
and the holder of such Debt has declared such Debt due and payable in full; or
d. a judgment or order (not covered by insurance) for the payment of
money shall be rendered against the Company or any Subsidiary of the Company in
excess of $1,000,000 in the aggregate for all such judgments or orders against
all such Persons (treating any deductibles, self insurance or retention as not
so covered) that shall not be discharged, and all such judgments and orders
remain outstanding and there shall be any period of thirty (30) consecutive days
following entry of the judgment or order in excess of $1,000,000 or the judgment
or order which causes the aggregate amount described above to exceed $1,000,000
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
e. a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Company or any of its subsidiaries in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or any of
its Subsidiaries or for any substantial part of the property of the Company or
any of its Subsidiaries or ordering the winding up or liquidation of the affairs
of the Company or any of its Subsidiaries, and such decree or order shall remain
unstayed and in effect for a period of sixty (60) consecutive days; or
f. the Company or any of its Subsidiaries shall commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of the Company or any of its Subsidiaries or for any
substantial part of the property of the Company or any of its Subsidiaries, or
the Company or any of its Subsidiaries shall make any general assignment for the
benefit of creditors; or
g. any representation, warranty, certification or statement made by the
Company in the Purchase Agreement or in any certificate, financial statement or
other document delivered pursuant to the Purchase Agreement shall prove to have
been incorrect in any material respect when made; or
h. the Common Stock shall be delisted from Nasdaq or shall be suspended
from trading on Nasdaq without resuming trading and/or being relisted thereon or
on a Subsequent Market or having such suspension lifted, as the case may be,
within five (5) Business Days (twenty (20) Business Days if the Company is in
good faith contesting such delisting or suspension); or
i. a Registration Statement (as defined in the Registration Rights
Agreement) for the Debenture Shares shall not have been declared by the
Securities and Exchange Commission on or prior to the 30th day after the
Effectiveness Date (as defined in the Registration Rights Agreement) or after
its initial effectiveness and prior to the expiration of the Company's
obligation to keep the Registration Statement effective as required under the
Registration Rights Agreement, such Registration Statement lapses in effect or
sales of all of the Registrable Securities (as defined in the Registration
Rights Agreement) otherwise cannot be made thereunder (whether by reason of the
Company's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement or otherwise) for more than
fifteen (15) consecutive days or thirty (30) days in any twelve (12) month
period; or
j. a Change of Control shall occur unless the Average Price of the
Company's Common Stock immediately (i) prior to the Change of Control if the
event leading to the Change of Control or the intent to consummate the Change of
Control was previously announced publicly, or (ii) after the tenth (10th)
Trading Day following the Change of Control if the event leading to the Change
of Control or intent to consummate a Change of Control was not previously
announced publicly, was at least $8.00 per share (which shall be adjusted
proportionately to the extent the Conversion Price is adjusted hereunder),
provided however that the Holders have been able to sell their shares of Common
Stock in the market under an effective Registration Statement for the
immediately preceding thirty (30) days and will be able to sell such shares in
the market for fifteen (15) days after the Change of Control; or
k. an Event of Default has occurred and is continuing under any of the
other Debentures issued pursuant to the Purchase Agreement; or
l. Failure on the part of the Company to comply with its obligations to
close the Second Closing (as defined in the Purchase Agreement) when requested
by the Holders.
then, in each and every such case (other than an Event of Default specified
in Section 3.1(e) or 3.1(f) hereof), unless the principal shall have already
become due and payable, by notice in writing to the Company (the "Acceleration
------------
Notice"), the Holders of at least a majority of the then outstanding principal
-----
amount of the Debentures may declare the entire principal of and the entire
accrued interest on the Debentures owned by such Holders to be due and payable
immediately, and upon any such declaration the same shall become immediately due
and payable. If an Event of Default specified in Section 3.1(e) or 3.1(f)
occurs, the principal of and any accrued interest on the Debentures (and the
aggregate amounts described below) shall become and be immediately due and
payable without any declaration or other act on the part of any Debenture
Holder. In the event that the Company shall not have promptly, but in any event
within ten (10) Business Days upon receipt of an Acceleration Notice, paid the
Holder the amount specified below, the Conversion Price shall automatically be
adjusted to equal the average Per Share Market Value of the Common Stock during
the preceding thirty (30) consecutive Trading Days immediately preceding the
date of the Acceleration Notice; provided, that such Per Share Market Value is
--------
lower than the Conversion Price.
The aggregate amount payable upon an Event of Default described in Section
3.1(a), (e), (f) and (i) shall be equal to the sum of (i) the Mandatory
Prepayment Amount plus (ii) at the option of the Holder, the Mandatory
Prepayment Amount for the principal amount of the Debentures (the "Converted
---------
Debentures") that would then be held by such Holder had the principal amount of
-------
Debentures converted into Debenture Shares that are then held by the Holder not
been so converted; provided, that the Holder shall not be entitled to a
--------
Mandatory Prepayment Amount with respect to Converted Debentures if both the
following have occurred: (i) prior to the occurrence of an Event of Default, the
Debenture Shares into which the Converted Debentures were converted had been
held by the Holder for more than thirty (30) days and (ii) prior to the
occurrence of the Event of Default and after receipt by the Holder of the
Debenture Shares that are held by the Holder at the time of the occurrence of
the Event of Default, the Registration Statement with respect to such Debenture
Shares had been continuously effective, and the Common Stock has been quoted on
Nasdaq, for more than thirty (30) days.
The aggregate principal amount payable on each Event of Default other than
as described in Section 3.1(a), (e), (f) and (i) shall be equal to the sum of
(i) the Mandatory Prepayment Amount plus (ii) at the option of the Holder, the
Mandatory Prepayment Amount for the Converted Debentures that would then be held
by such Holder had the principal amount of Debentures converted into Debenture
Shares (as defined herein) that are then held by the Holder not been so
converted; provided, that the Holder shall not be entitled to a Mandatory
--------
Prepayment Amount with respect to Converted Debentures if prior to the
occurrence of an Event of Default, the Debenture Shares into which the Converted
Debentures were converted had been held by the Holder for more than three (3)
Trading Days.
For purposes of this Section 3.1, the principal amount of the Debentures is
outstanding until such date as the Holder shall have been issued Debenture
Shares upon a conversion (or attempted conversion) thereof. Interest shall
accrue on the Mandatory Prepayment Amount hereunder from the day after such
amount is due (being the date of an Event of Default) through the date of
payment in full thereof at the rate of 20.0% per annum. Payment of the
Mandatory Prepayment Amount pursuant to this Section 3.1 shall be in addition to
any other amounts that may be due to the Holder pursuant to this Debenture.
Within five (5) Business Days of receipt by the Holder of payments of amounts
due to the Holder, (i) the Holder shall return the Debentures to the Company and
(ii) in the event the Mandatory Prepayment Amount relates to the Converted
Debentures, the Holder shall return the Debenture Shares into which such
Converted Debentures were converted. In the event of the occurrence of an Event
of Default, the Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Any demand for payment may be rescinded and annulled by a
Holder at any time prior to payment hereunder. If a majority of the Holders
rescind and annul any such demand, then the remaining Holders shall be deemed to
rescind and annul any such demand. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.
Upon delivery of any Acceleration Notice to the Company, the Company shall
provide a copy of such notice to the other Holders, if any, within five (5)
Business Days of the Company's receipt thereof. Failure to deliver such notice
shall not affect the validity of the notice delivered by the Holders in
accordance with the provisions referred to above.
3.2 POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER OF
-------------------------------------------------------------------
DEFAULT. No right or remedy herein conferred upon or reserved to the Holders is
----
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of the Holders to exercise any right or power accruing
upon any Event of Default occurring and continuing as aforesaid shall impair any
such right or power or shall be construed to be a waiver of any such Event of
Default or an acquiescence therein; and every power and remedy given by the
Debentures or by law may be exercised from time to time, and as often as shall
be deemed expedient, by the Holders.
ARTICLE IV
EXCHANGE; CONVERSION
4.1 RIGHT OF DEBENTUREHOLDERS TO EXCHANGE DEBENTURES Subject to and
----------------------------------------------------
upon compliance with the provisions of this Section, this Debenture is
exchangeable for an equal principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration of transfer or exchange.
4.2 RIGHT OF DEBENTUREHOLDERS TO CONVERT DEBENTURES INTO COMMON STOCK.
------------------------------------------------------------------
a. Conversion Price. Subject to and upon compliance with the
-----------------
provisions of this Section 4.2, the principal amount of this Debenture, or any
portion thereof which is $1,000 or a multiple thereof may, at any time and at or
before the close of business on the Maturity Date be converted into duly
authorized, validly issued, fully-paid and nonassessable shares of Common Stock
at $675 per share subject to adjustment under the provisions of this Article IV
(the "Conversion Price").
-----------------
b. Notice of Conversion. If an adjustment in the Conversion Price and,
--------------------
if applicable, a change in the securities or other property issuable upon
conversion has taken place hereunder, then the conversion described in Section
4.2(a) shall be at the applicable Conversion Price and in such securities or
other property as so adjusted. The Purchaser desiring to make a conversion
shall deliver to the Company during usual business hours of the Company's
office, or, at the Purchaser's option, to the transfer agent of the Company
during usual business hours of the transfer agent, a written notice of election
to convert, as provided in the form attached hereto as Exhibit A (a "Notice of
--------- ---------
Conversion"), accompanied, if required, by the Debenture or Debentures,
---------
representing at least the principal amount to be converted.
-------
4.3 ADJUSTMENT FOR DIVIDENDS; INTEREST PAYMENT AFTER CONVERSION. No
---------------------------------------------------------------
payment or adjustment will be made for dividends on any Common Stock except as
provided herein. On conversion of a Debenture, that portion of interest accrued
and unpaid attributable to the period from the Original Issue Date to the
Conversion Date with respect to the converted Debenture shall not be canceled,
extinguished or forfeited, but rather shall be paid in full to the Holder
thereof by the payment of an amount of shares of Common Stock valued at the
Average Price equal thereto; provided, however, that the Company may pay such
-------- -------
amount in cash if it provides the Holder with not less than ten (10) days prior
written notice of such intention. If the Holder converts more than one Debenture
at the same time, the number of shares of Common Stock issuable upon the
conversion shall be based on the total principal amount of the Debentures
converted.
4.4 ISSUANCE OF SHARES UPON CONVERSION.
--------------------------------------
a. As promptly as practicable, but in any event no later than two (2)
Trading Days after delivery of a Notice of Conversion and, if required, the
surrender, as herein provided, of any Debenture or Debentures for conversion,
the Company shall deliver or cause to be delivered to the Holder of the
Debenture or Debentures delivering such Notice of Conversion, or such Holder's
designee, a certificate or certificates representing the number of duly
authorized, validly issued, fully-paid and nonassessable shares of Common Stock,
into which such Debenture or Debentures may be converted in accordance with the
provisions of this Article IV. Such conversion shall be deemed to have been
made at the time and on the date the Notice of Conversion is delivered to the
Company, as long as, if required, the Debenture or Debentures being converted
are promptly delivered to the Company and the rights of the Holder of such
Debenture or Debentures as a Holder (subject to the Company's satisfaction of
its obligations hereunder with respect to such conversion) shall cease at such
time with respect to the Converted Debentures, the Person or Persons entitled to
receive the shares of Common Stock, upon conversion of such Debenture or
Debentures, shall be treated for all purposes as having become the record holder
or holders of such shares of Common Stock at such time, and such conversion
shall be at the Conversion Price in effect at such time (the "Conversion Date").
---------------
Subject to paragraph 4.4(b), if any Debenture is converted in part only, upon
such conversion the Company shall execute and deliver to the Holder thereof, as
requested by such Holder, a new Debenture or Debentures of authorized
denominations in aggregate principal amount equal to the unconverted portion of
such Debenture. Without in any way limiting the Holder's right to pursue other
remedies, including actual damages and/or equitable relief, the parties hereto
agree that if the Company fails to deliver the shares of Common Stock required
to be issued upon the conversion of such Debenture or Debentures under this
Section 4.4 within the two (2) Trading Day period referred above, the Company
shall pay to the Holder upon demand an amount of cash (at the Holder's option)
equal to: (i) the commissions, discounts and similar expenses charged to the
Holder in purchasing a number of shares of Common Stock no greater than the
number of shares of Common Stock required to be issued upon the conversion of
the Debenture or Debentures, or (ii) the product of (w) the number of shares of
Common Stock required to be issued upon the conversion of the Debenture or
Debentures, (x) the Per Share Market Value of such shares on the Conversion
Date, (y) the number of days after such two (2) day period that such shares are
not delivered to the Holder, and (z) 0.005.
b. Notwithstanding anything to the contrary set forth herein, upon
conversion of a Debenture in accordance with the terms thereof, the Holder shall
not be required to physically surrender the Debenture to the Company unless the
entire unpaid principal amount of the Debenture is so converted. The Holder and
the Company shall maintain records showing the principal amount already
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of the Debenture upon each such conversion. In the event of
any dispute or discrepancy, such records of the Company shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any portion of the Debenture is converted, the Holder may not transfer the
Debenture unless the Holder first physically surrenders the Debenture to the
Company, whereupon the Company shall promptly issue and deliver upon the order
of the Holder a new Debenture of like tenor, registered as the Holder (upon
payment by the Holder of any applicable transfer taxes) may request,
representing in the aggregate the remaining unpaid principal amount of the
Debenture. The Holder and any assignee, by acceptance of the Debenture,
acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of a Debenture, the unpaid and unconverted
principal amount of such Debenture represented by such Debenture may be less
than the amount stated on the face thereof.
c. In lieu of delivering physical certificates representing the
Debenture Shares, provided the shares of Common Stock issuable upon conversion
of a Debenture may be sold pursuant to Rule 144(k) under the Act or under an
effective Registration Statement and the Company's transfer agent is
participating in the Depositary Trust Company Fast Automated Securities Transfer
("FAST") program, upon request of the Holder and in compliance with the
----
provisions of Sections 4.1, 4.2 and 4.4, the Company shall use its best efforts
----
to cause its transfer agent to electronically transmit the shares of Common
Stock issuable upon conversion of the Debenture to the Holder by crediting the
account of the Holder's Prime Broker with DTC through its Deposit Withdrawal
Agent Commission system. The time period for delivery described in the
immediately preceding paragraph shall apply to the electronic transmittals
described herein.
d. In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 4.4(a), including for purposes hereof, any shares of Common Stock to
be issued on the Conversion Date on account of accrued but unpaid interest
hereunder, by the second (2nd) Trading Day after the Conversion Date, and if
after such second (2nd) Trading Day the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the Debenture Shares which the Holder was entitled to receive
upon such conversion (a "Buy-In"), then the Company shall (A) pay in cash to the
------
Holder (in addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Common Stock so purchased exceeds (y) the product
of (1) the aggregate number of shares of Common Stock that such Holder was
entitled to receive from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either return the Debentures for
which such conversion was not honored or deliver to such Holder the number of
shares of Common Stock that would have been issued had the Company timely
complied with its conversion and delivery obligations under Section 4.4(a). For
example, if the Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of Debentures
with respect to which the market price of the Debenture Shares on the date of
conversion totaled $10,000, under clause (A) of the immediately preceding
sentence the Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In.
4.5 ADJUSTMENT OF CONVERSION PRICE In addition to any adjustment to the
------------------------------
Conversion Price provided elsewhere in this Debenture, the Conversion Price in
effect at any time shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
a. Common Stock Dividends; Common Stock Splits; Reverse Common Stock
--------------------------------------------------------------------
Splits If the Company, at any time while this Debenture is outstanding, (a)
----
shall pay a stock dividend on its Common Stock, (b) subdivide outstanding shares
--
of Common Stock into a larger number of shares, (c) combine outstanding shares
of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of Capital Stock of the
Company, the Conversion Price shall be multiplied by a fraction the numerator of
which shall be the number of shares of Common Stock (excluding treasury shares,
if any) outstanding before such event and the denominator of which shall be the
number of shares of Common Stock outstanding after such event. Any adjustment
made pursuant to this paragraph 4.5(a) shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
Notwithstanding the foregoing, if the Company shall combine outstanding shares
of Common Stock into a smaller number of shares (a "Reverse Stock Split") at any
-------------------
time prior to the Maturity Date, then the Conversion Price in effect immediately
prior to such reverse stock split shall not be adjusted and shall remain in
effect after giving effect to such reverse stock split.
b. Rights; Warrants. If the Company, at any time while this Debenture
-----------------
is outstanding, shall issue rights or warrants to all of the holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Conversion Price, the Conversion Price shall be
multiplied by a fraction, the denominator of which shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and the numerator of which
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at the Conversion Price. Such adjustment shall
be made whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of shareholders entitled
to receive such rights or warrants.
c. Other Distributions on Stock. If the Company, at any time while
-------------------------------
this Debenture is outstanding, shall distribute to all of the holders of Common
Stock evidence of its indebtedness or assets or rights or warrants to subscribe
for or purchase any security (excluding those referred to in Sections 4.5(a) and
(b) above), then in each such case the Conversion Price at which the Debenture
shall thereafter be exercisable shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction, the denominator of which shall be the Per Share Market Value of Common
Stock determined as of the record date mentioned above, and the numerator of
which shall be such Per Share Market Value of the Common Stock on such record
date less the then fair market value at such record date of the portion of such
assets or evidence of indebtedness so distributed applicable to one outstanding
share of Common Stock as determined by the Board of Directors in good faith;
provided, however, that in the event of a distribution exceeding thirty percent
----- -------
(30%) of the net assets of the Company, such fair market value shall be
determined by an Appraiser selected in good faith by the Holder; and provided,
--------
further, that the Company, after receipt of the determination by such Appraiser
------
shall have the right to select an additional Appraiser meeting the same
qualifications, in good faith, in which case the fair market value shall be
equal to the average of the determinations by each such Appraiser. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
d. Other Events In case of (A) any reclassification of the Common Stock
------------
into other securities of the Company or (B) any compulsory share exchange
pursuant to which the Common Stock is converted into other securities, cash or
property (each of (A) or (B), an "Extraordinary Event"), the Holder shall have
-------------------
the right thereafter to convert the Debenture for shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such Extraordinary Event, and the Holder shall be
entitled upon such event to receive such amount of securities, cash or property
as the shares of the Common Stock of the Company into which the Debenture could
have been converted immediately prior to such Extraordinary Event (without
taking into account any limitations or restrictions on the convertibility of the
Debentures) would have been entitled. In the case of an Extraordinary Event,
the terms of any such Extraordinary Event shall include such terms so as to
continue to give to the Holder the right to receive the securities, cash or
property set forth in this Section 4.5(d) upon any conversion following such
Extraordinary Event. This provision shall similarly apply to successive
Extraordinary Events.
e. INTENTIONALLY OMITTED.
f. Rounding All calculations under this Section 4.5 shall be made to
--------
the nearest cent or the nearest l/l00th of a share, as the case may be.
g. Notice of Adjustment. The Company shall give the Holder written
----------------------
notice of the occurrence of any of the events specified in Sections 4.5(a), (b),
(c) or (d) as soon as practicable, but in no even later than three (3) Business
Days after such event, provided further, that if such notice contains material
non-public information, the Company shall (i) publicly disclose such information
prior to or concurrently with the giving of such notice or (ii) only disclose
such information to the extent that the Holder shall not be in possession of
material non-public information. Such notice shall contain at least: (A) a
description of the event, (B) the adjusted Conversion Price with a reference to
the applicable paragraph in Section 4.5 hereof and (C) the date on which the
adjusted Conversion Price is effective.
4.6 NASDAQ LIMITATION. If on any date (the "Determination Date") (a)
------------------ ------------------
the Common Stock is listed for trading on Nasdaq, (b) the Conversion Price then
in effect is such that the aggregate number of shares of Common Stock that would
then be issuable upon conversion in full of the then outstanding principal
amount of the Debentures as if all such Debentures were converted on such
Determination Date (without regard to any limitations on conversions) and as
payment of interest thereon, as would equal or exceed 20% of the number of
shares of the Common Stock outstanding immediately prior to the "Closing Date"
------------
(the "Issuable Maximum"), and (c) the Company shall not have previously obtained
----------------
the vote of the shareholders of the Company (the "Shareholder Approval"), if
--------------------
any, as may be required by the applicable rules and regulations of Nasdaq (or
any successor entity) to approve the issuance of shares of Common Stock in
excess of the Issuable Maximum in a private placement whereby shares of Common
Stock are deemed to have been issued at a price that is less than the greater of
book value or fair market value of the Common Stock, then with respect to the
aggregate principal amount of the Debentures then held by the Holders for which
a conversion in accordance with the Conversion Price would result in an issuance
of shares of Common Stock in excess of such Holder's pro rata allocation (as
described below) of the Issuable Maximum (the "Excess Principal") the Company
----------------
may elect to prepay cash to the Holders in an amount equal to the Mandatory
Prepayment Amount. Any such election by the Company must be made in writing to
the Holders within two (2) Trading Days after the first such Determination Date
and the payment of such Mandatory Prepayment Amount applicable to such
prepayment must be made in full to the Holders with ten (10) Business Days after
the date such notice is delivered. If the Company does not deliver timely a
notice of its election to prepay under this Section or shall, if it shall have
delivered such a notice, fail to pay the prepayment amount hereunder within ten
(10) Business Days thereafter, then each Holder shall have the option by written
notice to the Company, to, if applicable, declare any such notice given by the
Company, if given, to be null and void and require the Company to either: (i)
use its best efforts to obtain the Shareholder Approval applicable to such
issuance as soon as is possible, but in any event not later than the 60th day
after such request unless the Company has previously used its best efforts to,
but has failed to, obtain such approval (provided, that if the Company shall
fail to obtain the Shareholder Approval during such 60-day period, the Holder
may demand the cash payment set forth in Section 4.6(ii) herein) or (ii) pay
cash to such Holder, within five (5) Business Days of such Holder's notice, in
an amount equal to the Mandatory Prepayment Amount for such Holder's portion of
the Excess Principal. The payment of the Mandatory Prepayment Amount to each
Holder pursuant to this Section shall be determined on a pro rata basis upon the
principal amount of the Debentures held by such Holder on the Determination Date
which is in excess of the pro rata allocation of the Issuable Maximum. If the
Company fails to pay the Mandatory Prepayment Amount in full pursuant to this
Section within five (5) Business Days after the date payable, the Company will
pay interest thereon at a rate of 20% per annum to the converting Holder,
accruing interest daily from the date of conversion until such amount, plus all
such interest thereon, if any, is paid in full. Until the Company has received
the Shareholder Approval no Holder of the Debentures shall be issued, upon
conversion of Debentures, shares of Common Stock in an amount greater than such
Holder's allocated portion of the Issuable Maximum pursuant to Section 4.15.
4.7 RESTRICTION ON CONVERSION BY EITHER THE HOLDER OR THE COMPANY.
------------------------------------------------------------------
Notwithstanding anything herein to the contrary, in no event shall any Holder or
the Company have the right or be required to convert any or all of the aggregate
principal amount and interest accrued thereon of this Debenture if as a result
of such conversion the aggregate number of shares of Common Stock beneficially
owned by such Holder and its Affiliates would exceed 9.99% of the outstanding
shares of the Common Stock following such conversion. For purposes of this
Section 4.7, beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. The provisions of
this Section 4.7 may be waived by a Holder as to itself (and solely as to
itself) upon not less than 65 days prior written notice to the Company, and the
provisions of this Section 4.7 shall continue to apply until such 65th day (or
later, if stated in the notice of waiver).
4.8 OFFICER'S CERTIFICATE. Whenever the number of shares purchasable
----------------------
upon conversion shall be adjusted as required by the provisions of Section 4.5,
the Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted number of shares determined as herein
provided, setting forth in reasonable detail the facts requiring such adjustment
and the manner of computing such adjustment. Each such officer's certificate
shall be signed by the chairman, president or chief financial officer of the
Company. Each such officer's certificate shall be made available at all
reasonable times for inspection by any holder of the Debentures and the Company
shall, forthwith after each such adjustment, deliver a copy of such certificate
to the each of the Holders.
4.9 RESERVATION OF SHARES. The Company covenants that it will at all
-----------------------
times reserve and keep available out of its authorized shares of Common Stock,
free from preemptive rights, solely for the purpose of issue upon conversion of
the Debentures as herein provided, such number of shares of the Common Stock as
shall then be issuable upon the conversion of all outstanding Debentures into
Common Stock in accordance with Section 3.6(b) of the Purchase Agreement (the
"Reserved Amount"). The Company covenants that all shares of the Common Stock
---------------
issued upon conversion of the Debenture which shall be so issuable shall, when
issued, be duly and validly issued and fully paid and non-assessable.
If, at any time a Holder of this Debenture submits a Notice of
Conversion, and the Company does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article IV (a "Conversion Default"), the Company shall
------------------
issue to the Holder all of the shares of Common Stock which are then available
to effect such conversion. The portion of this Debenture which the Holder
included in its Conversion Notice and which exceeds the amount which is then
convertible into available shares of Common Stock (the "Excess Amount") shall,
-------------
notwithstanding anything to the contrary contained herein, not be convertible
into Common Stock in accordance with the terms hereof until (and at the Holder's
option at any time after) the date additional shares of Common Stock are
authorized by the Company to permit such conversion at which time the Conversion
Price in respect thereof shall be the lesser of (i) the Per Share Market Value
on the Conversion Default Date (as defined below) and (ii) the Per Share Market
Value on the Conversion Date thereafter elected by the Holder in respect
thereof. In addition, the Company shall pay to the Holder payments ("Conversion
----------
Default Payments") for a Conversion Default in the amount of (x) the sum of (1)
- -----------------
the then outstanding principal amount of this Debenture plus (2) accrued and
unpaid interest on the unpaid principal amount of this Debenture through the
Authorization Date (as defined below) plus (3) Default Interest, if any, on the
amounts referred to in clauses (1) and/or (2), multiplied by (y) .24, multiplied
by (z) (N/365), where N equals the number of days from the day the holder
submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date") to the date (the "Authorization Date") that the
------------------ ------------------
Company authorizes a sufficient number of shares of Common Stock to effect
conversion of the full outstanding principal balance of this Debenture. The
Company shall use its best efforts to authorize a sufficient number of shares of
Common Stock as soon as practicable following the earlier of (i) such time that
the Holder notifies the Company or that the Company otherwise becomes aware that
there are or likely will be insufficient authorized and unissued shares to allow
full conversion thereof and (ii) a Conversion Default. The Company shall send
notice to the Holder of the authorization of additional shares of Common Stock,
the Authorization Date and the amount of Holder's accrued Conversion Default
Payments. The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time as there
are sufficient authorized shares of Common Stock following the Authorization
Date) at the applicable Conversion Price, at the Holder's option, as follows:
(a) In the event Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth (5th) Business Day of the month
following the month in which it has accrued; and
(b) In the event Holder elects to take such payment in Common Stock,
the Holder may convert such payment amount into Common Stock at the lesser of
the Conversion Price (as in effect at the time of conversion) and the Per Share
Market Value (on the fifth day of the month referred to below) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article IV (so long as there is then a
sufficient number of authorized shares of Common Stock).
The Holder's election shall be made in writing to the Company at any time
prior to 8:00 p.m., New York City Time, on the third day of the month following
the month in which Conversion Default payments have accrued. If no election is
made, the Holder shall be deemed to have elected to receive cash. Nothing
herein shall limit the Holder's right to pursue actual damages (to the extent in
excess of the conversion Default Payments) for the Company's failure to maintain
a sufficient number of authorized shares of Common Stock, and each Holder shall
have the right to pursue all remedies available at law or in equity (including
degree of specific performance and/or injunctive relief).
4.10 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS The Company covenants
--------------------------------------------
that if any shares of Common Stock required to be reserved for purposes of
conversion of Debentures hereunder require registration with or approval of any
governmental authority under any Federal or state law, or any national
securities exchange, before such shares may be issued upon conversion, the
Company will use its best efforts to cause such shares to be duly registered or
approved, as the case may be.
4.11 FRACTIONAL SHARES Upon a conversion hereunder, the Company shall
------------------
not be required to issue stock certificates representing fractions of shares of
the Common Stock, but may if otherwise permitted, make a cash payment in respect
of any final fraction of a share based on the Per Share Market Value at such
time. If the Company elects not, or is unable, to make such a cash payment, the
holder shall be entitled to receive, in lieu of the final fraction of a share,
one whole share of Common Stock.
4.12 PAYMENT OF TAX UPON ISSUE OR TRANSFER The issuance of certificates
-------------------------------------
for shares of the Common Stock on conversion of the Debentures shall be made
without charge to the Holders thereof for any documentary stamp or similar taxes
that may be payable in respect of the issue or delivery of such certificate,
provided that the Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the Holder of such
Debentures so converted and the Company shall not be required to issue or
deliver such certificates unless or until the Person or Persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
4.13 NOTICES. Any notice or other communication required or permitted
-------
to be given hereunder shall be in writing and shall be deemed to have been
received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if received by
8:00 p.m. EST where such notice is to be received), or the first Business Day
following such delivery (if received after 8:00 p.m. EST where such notice is to
be received) or (b) on the second Business Day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications are (i) if to the Company to Endocare, Inc., 7 Studebaker,
Irvine, California 92618, Attention: Paul W. Mikus, fax no. (949) 597-0607, with
copies to Brobeck, Phleger & Harrison LLP, 38 Technology Drive, Irvine,
California 92618, Attention: Richard A. Fink, fax no. (949) 790-6301, and (ii)
if to any Holder to the address set forth on Schedule II to the Purchase
Agreement with copies to Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison
Avenue, New York, New York 10022, Attention: James Kaye, fax no. (212) 872-1002,
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.14 ALLOCATIONS OF ISSUABLE MAXIMUM AND RESERVED AMOUNT The Issuable
-----------------------------------------------------
Maximum and Reserved Amount shall be allocated pro rata among the Holders based
on the principal amount of Debentures issued to each Holder. Each increase to
the Issuable Maximum and Reserved Amount shall be allocated pro rata among the
Holders based on the principal amount of Debentures held by each Holder at the
time of the increase in the Issuable Maximum or Reserved Amount. In the event a
Holder shall sell or otherwise transfer any of such Holder's Debentures, each
transferee shall be allocated a pro rata portion of such transferor's Issuable
Maximum and Reserved Amount. Any portion of the Issuable Maximum or Reserved
Amount which remains allocated to any person or entity which does not hold any
Debentures shall be allocated to the remaining Holders, pro rata, based on the
principal amount of such Debentures then held by such Holders.
ARTICLE V
CONSOLIDATION, MERGER OR SALE OF COMPANY
5.1 CONSOLIDATION, MERGER OR SALE ONLY ON CERTAIN TERMS. The Company
-----------------------------------------------------
shall not consolidate with or merge into any other Person or convey, transfer or
lease its properties and assets substantially as an entirety to any Person, and
the Company shall not permit any Person to consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless:
a. in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, the Person formed by such consolidation or into which
the Company is merged or the Person which acquires by conveyance or transfer, or
which leases, the properties and assets of the Company substantially as an
entirety shall be a corporation, partnership or trust whose Common Stock is
traded or the Nasdaq or a Subsequent Market, and shall expressly assume, by a
Debenture supplemental hereto, executed and delivered to the Holders, in form
satisfactory to the Holders of a majority of the then outstanding principal
amount of the Debentures, the due and punctual payment of the principal of and
interest on all the Debentures and the performance or observance of every
covenant of this Debenture on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance with
Section 5.3; and
b. immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or a Subsidiary as a
result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default shall have
happened and be continuing.
5.2 SUCCESSOR SUBSTITUTED. Upon any consolidation of the Company with,
---------------------
or merger of the Company into, any other Person or any conveyance, transfer or
lease of the properties and assets of the Company substantially as an entirety
in accordance with Section 5.1, the successor person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Debenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Debenture.
5.3 CONVERSION RIGHTS. In case of any consolidation of the Company
------------------
with, or merger of the Company into, any other Person, any merger of another
Person into the Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company) or any sale or transfer of all or substantially all
of the assets of the Company, the Person formed by such consolidation or
resulting from such merger or which acquires such assets, as the case may be,
shall in the supplemental Debenture provided pursuant to Section 5.1(a) provide
that the Holder of each Debenture then outstanding shall have the right
thereafter, during the period such Debenture shall be convertible as specified
in Article IV, to convert such Debenture only into the kind and amount of
securities, cash or other assets receivable upon such consolidation, merger,
sale or transfer by a holder of the number of shares of Common Stock of the
Company into which such Debenture might have been converted immediately prior to
such consolidation, merger, sale or transfer, with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which such sale or transfer was made, as the case may be ("Constituent
-----------
Person"), or an Affiliate of a Constituent Person. The supplemental indenture
---
also shall provide that if in connection with such consolidation, merger, sale
or transfer, each holder of Common Stock is entitled to elect to receive either
securities, cash or other assets receivable upon such consolidation, merger,
sale or transfer, the Company or the surviving or transferee corporation shall
provide each holder of securities with the right to elect to receive the
securities, cash or other assets into which the Debentures held by such Holder
shall be convertible after completion of such consolidation, merger, sale or
transfer on the same terms and subject to the same conditions applicable to
holders of Common Stock (including, without limitation, notice of the right to
elect, limitations on the period in which such election shall be made and the
effect of failing to exercise the election). Such supplemental Debenture shall
provide for adjustments which, for events subsequent to the effective date of
such supplemental Debenture, shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Article. The above provisions of this
Section shall similarly apply to successive consolidations, mergers, sales or
transfers.
ARTICLE VI
INTENTIONALLY OMITTED.
<PAGE>
ARTICLE VII
SUBORDINATION OF DEBENTURES
7.1 DEBENTURES SUBORDINATE TO SENIOR INDEBTEDNESS. The Company
-------------------------------------------------
covenants and agrees, and each Holder of a Debenture, by his acceptance thereof,
likewise covenants and agrees, that, to the extent and in the manner hereinafter
set forth in this Article, the payment of the principal of (and premium, if any)
and interest on each and all of the Debentures are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
Senior Indebtedness. "Senior Indebtedness" shall mean any indebtedness,
--------------------
liabilities and other obligations of the Company (whether as primary obligor or
as guarantor) to any Person (each a "Senior Lender"), now existing or incurred
-------------
hereafter, with respect to any working capital, revolving credit or other line
of credit facility, any term loan facility, or any other extension of credit by
a bank, insurance company or financial institution engaged in the business of
lending money (whether or not secured), including reimbursement obligations
under letters of credit (or local guaranties, as applicable) and obligations in
respect of bankers' acceptances, interest rate protection agreements and
currency exchange and purchase agreements, and any other indebtedness or other
obligations of the Company for borrowed money evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced incurred
in connection with the acquisition of property, assets or businesses and secured
thereby. Senior Indebtedness shall include renewals, refundings, refinancings
or other extensions of the foregoing. The terms "indebtedness," "liabilities"
and "obligations" are used herein in their most comprehensive sense and include
any and all advances, debts, obligations and liabilities, now existing or
hereafter arising, whether voluntary or involuntary and whether due or not due,
absolute or contingent, liquidated or unliquidated, determined or undetermined.
Notwithstanding the foregoing, Senior Indebtedness shall not include
indebtedness of the Company to the Holder or its Affiliates (including, without
limitation, debentures issued by the Company to Brown Simpson Strategic Growth
Fund, Ltd. and Brown Simpson Strategic Growth Fund, L.P.).
7.2 NO PAYMENT ON DEBENTURES IN CERTAIN CIRCUMSTANCES.
-------------------------------------------------------
a. No payment or distribution of cash or property (other than Common
Stock of the Company or other securities of the Company that are subordinated to
Senior Indebtedness to at least the same extent as the Debentures) of the
Company will be made on account of principal of or interest on the Debentures,
or to defease or acquire any of the Debentures, or on account of the conversion
provisions of the Debentures and no action shall be taken (judicial or
otherwise) to collect any such payment or distribution (i) upon the maturity of
any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and
until all Senior Indebtedness shall first be paid in full in cash, or such
payment duly made in a manner satisfactory to the holders of such Senior
Indebtedness or (ii) in the event that the Company defaults in the payment of
any principal of, premium, if any, or interest on or any other amounts payable
on or due in connection with any Senior Indebtedness when it becomes due and
payable, whether at maturity or at a date fixed for prepayment or by declaration
or otherwise, unless and until such default has been waived in writing by the
holders of the Senior Indebtedness. Payments on the Debentures may and shall be
resumed in the case of a payment default only upon the date on which such
default is waived in writing by the holders of the Senior Indebtedness or their
agent.
b. If any default other than a default contemplated by Section
----- ----
7.2(a)(ii) above shall have occurred and be continuing that would permit the
holders of the Senior Indebtedness to accelerate the maturity of Senior
Indebtedness, upon written notice (a "Payment Blockage Notice") of the default
-----------------------
given to the Company and the Holders by the holders of, or an agent, trustee or
other representative for, such Senior Indebtedness, then, unless and until such
default has been waived in writing, no payment or distribution of cash or
property (other than Common Stock of the Company or other securities of the
Company that are subordinated to Senior Indebtedness to at least the same extent
as the Debentures) shall be made by the Company with respect to the principal of
or interest on the Debentures or on account of conversion of the Debentures or
to acquire or repurchase any of the Debentures for cash or property other than
Common Stock of the Company, and no action shall be taken (judicial or
otherwise) to collect any such payment or distribution. If such Senior
Indebtedness is not declared due and payable within 180 days after written
notice of the event of default is given, promptly after the end of the 180-day
period the Company will pay all sums due in respect of the Debentures and not
paid during the 180-day period. During any 360-day consecutive period, only one
such period during which payment with respect to the Debentures may not be made
as the result of a Payment Blockage Notice may commence and the duration of such
period may not exceed 180 days. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Holders
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been waived for a period of not less than 90 days.
c. If any payment or distribution of assets of the Company is received
by any Holder in respect of the Debentures at a time when that payment or
distribution should not have been made because of paragraph (a) or (b) of this
Section 7.2, and provided that prior to the Company's disbursement of such
distribution or payment, the Holders shall have received a written notice from
the Company or from an agent or representative for one or more holders of Senior
Indebtedness, such payment or distribution will be received and held and will be
paid over to the holders of Senior Indebtedness (pro rata as to each of such
holders on the basis of the respective amounts of Senior Indebtedness held by
them) until all such Senior Indebtedness has been paid in full, after giving
effect to any concurrent payment or distribution or provision therefor to the
holders of such Senior Indebtedness.
7.3 DEBENTURES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS
-------------------------------------------------------------------
ON DISSOLUTION, LIQUIDATION OR REORGANIZATION Upon any distribution of assets of
- ---------------------------------------------
the Company upon any dissolution, winding up, liquidation or reorganization of
the Company (whether in bankruptcy, insolvency, receivership or similar
proceedings relating to the Company or its property or upon an assignment for
the benefit of creditors or any marshalling of the Company's assets or
liabilities or otherwise):
a. the holders of all Senior Indebtedness will first be entitled to
receive payment in full of the principal of and interest due on Senior
Indebtedness (including interest accruing after the commencement of a bankruptcy
or insolvency) at the rate specified in the applicable Senior Indebtedness
documents and including, without limitation, in respect of premiums, indemnities
or otherwise, before the Holders are entitled to receive any payment or
distribution on account of the principal of or interest on the Debentures;
b. any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (except that Holders may
receive securities that are subordinated at least to the same extent as the
Debentures to Senior Indebtedness and any securities issued in exchange for
Senior Indebtedness), to which Holders would be entitled except for the
provisions of this Section 7.3 will be paid by the liquidating trustee or agent
or other persons legally empowered to make such a payment or distribution
directly to the holders of Senior Indebtedness (pro rata to such holders on the
basis of the respective amounts of Senior Indebtedness held by such holders) or
their representatives to the extent necessary to make or provide for payment in
full in cash of all Senior Indebtedness remaining unpaid, after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness or provision for that payment or distribution; and
c. if, notwithstanding the foregoing, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities (except that Holders may receive securities that are subordinated at
least to the same extent as the Debentures to Senior Indebtedness and any
securities issued in exchange for Senior indebtedness) is received by the
Holders on account of the principal of or interest on the Debentures before all
Senior Indebtedness is paid in full, such payment or distribution will be
received and held in trust for and will be forthwith paid over to the holders of
the Senior Indebtedness remaining unpaid or unprovided for or their
representatives for application (in the cash of cash) to, or as collateral (in
the case of non-cash property or securities) for the payment of such Senior
Indebtedness until all such Senior Indebtedness has been paid in full, after
giving effect to any concurrent payment or distribution or provision therefor to
the holders of such Senior Indebtedness.
The Company will give prompt written notice to the Holders of any
dissolution, winding up, liquidation or reorganization of it or any assignment
for the benefit of its creditors.
7.4 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. Subject
---------------------------------------------------------
to the payment in full of all Senior Indebtedness, the Holders shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of cash, property or securities of the Company
applicable to the Senior Indebtedness until all amounts owing on the Debentures
shall be paid in full; and, for the purposes of such subrogation:
a. no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders would be
entitled except for the provisions of this Article VII and no payment pursuant
to the provisions of this Article VII to the holders of Senior Indebtedness by
the Holders shall, as between the Company, its creditors (other than holders of
Senior Indebtedness) and the Holders, be deemed to be a payment by the Company
to or on account of the Senior Indebtedness; and
b. no payment or distributions of cash, property or securities to or
for the benefit of the Holders pursuant to the subrogation provision of this
Article VII, which would otherwise have been paid to the holders of Senior
Indebtedness, shall be deemed to be a payment by the Company to or for the
account of the Debentures.
7.5 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions of
-----------------------------------------------
this Article are and are intended solely for the purpose of defining the
relative rights of the Holders on the one hand and the holders of Senior
Indebtedness on the other hand. Nothing contained in this Article or elsewhere
in this Debenture or in the Debentures is intended to or shall (a) impair, as
among the Company, its creditors other than holders of Senior Indebtedness and
the Holders of the Debentures, the obligation of the Company, which is absolute
and unconditional to pay to the Holders of the Debentures the principal of (any
premium, if any) and interest on the Debentures as and when the same shall
become due and payable in accordance with their terms; or (b) affect the
relative rights against the Company of the Holders of the Debentures and
creditors of the Company other than the holders of Senior Indebtedness; or (c)
prevent the Holder of any Debenture from exercising all remedies otherwise
permitted by applicable law upon default under this Debentures, subject to the
rights, if any, under this Article VII of the holders of Senior Indebtedness to
receive cash, property and securities otherwise payable or deliverable to the
Holder upon the exercise of any such remedy.
7.6 RIGHT TO FILE PROOF OF CLAIM. In the event of any dissolution,
--------------------------------
winding up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency, receivership, reorganization or similar proceedings or upon any
assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of the Company, with respect to the
filing of a claim for the unpaid balance of any Holder's Debentures in the form
required in those proceedings, if the Holder does not file a proper claim or
proof of debt in the form required in such proceeding at least thirty (30) days
before the expiration of the time to file such claim or claims, then the holders
of Senior Indebtedness and their agents, trustees, or other representatives are
hereby authorized to have the right to file, and are hereby authorized to file,
an appropriate claim for and on behalf of each such Holder.
7.7 NO WAIVER OF SUBORDINATION PROVISIONS No right of any present or
----------------------------------------
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Debenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Holders of the Debentures, without incurring
responsibility to the Holders of the Debentures and without impairing or
releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Debentures to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person.
7.8 NOTICE TO HOLDERS. The Company shall give prompt written notice to
-----------------
the Holders of any fact known to the Company which would prohibit the making of
any payment to or by the Holders in respect of the Debentures. Notwithstanding
the provisions of this Article or any other provision of this Debenture, the
Holders shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to the Holders in respect of the
Debentures, unless and until the Holders shall have received written notice
thereof from the Company or a holder of Senior Indebtedness; and, prior to the
receipt of any such written notice, the Holders shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
-------- -------
Holders shall not have received the notice provided for in this Section at least
two Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose (including, without limitation, the payment of
the principal of, and premium, if any, or interest on any Debenture), then,
anything herein contained to the contrary notwithstanding, the Holders shall
have full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within two Business Days
prior to such date.
The Holders shall be entitled to rely on the delivery to them of a written
notice by a Person representing himself to be a holder of Senior Indebtedness
(or a representative thereof) to establish that such notice has been given by a
holder of Senior Indebtedness (or representative thereof). In the event that
the Holders determines in good faith that further evidence is required with
respect to the right of any Person as a holder of Senior Indebtedness (or a
representative thereof) to participate in any payment or distribution pursuant
to this Article, the Holders may request such Person to furnish evidence to the
reasonable satisfaction of the Holders as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
Holders may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
7.9 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.
------------------------------------------------------------------
Upon the payment or distribution of assets of the Company referred to in this
Article, the Holders of the Debentures shall be entitled to rely upon any order
or decree entered by any court of competent jurisdiction in which such
proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of the creditors, agent
or other Person making such payment or distribution, delivered to the Holders of
Debentures, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article VII.
7.10 NO ADVERSE MODIFICATION TO DEBENTURE. Neither the Holders nor the
------------------------------------
Company shall enter into any modification of the Debentures which is in any way
adverse to the holders of the Senior Indebtedness.
7.11 NOTICE TO HOLDERS OF SENIOR INDEBTEDNESS. The Company will
---------------------------------------------
furnish to the holders of Senior Indebtedness at the time Senior Indebtedness is
initially incurred, when there is a change in the Holders thereof, or at any
time upon request therefor, a true and correct copy of the then most current
register setting forth the names and addresses of the Holders as of such date.
7.12 SUBORDINATION AGREEMENT. The Holder by its acceptance hereof
------------------------
agrees to execute and deliver to any Senior Lender such subordination agreement
as may be reasonably requested by such Senior Lender, which may deviate in
certain minor respects from the subordination provisions contained herein but
which is commercially reasonable and customary, and to execute, acknowledge,
deliver, file, notarize and register all such further agreements, instruments,
certificates, documents and assurances, and perform such acts as such Senior
Lender shall deem necessary or appropriate to effectuate the purposes of the
subordination provisions contained herein.
ARTICLE VIII
MISCELLANEOUS
8.1 MODIFICATION OF DEBENTURES. This Debenture may be modified without
---------------------------
prior notice to any Holder upon the written consent of the Company and the
Holders of more than 75% of the principal amount of the Debentures then
outstanding. The Holders of more than 75% of the principal amount of the
Debentures then outstanding may waive compliance by the Company with any
provision of this Debenture without prior notice to any Holder. However, without
the consent of each Holder affected, an amendment, supplement or waiver may not
(1) reduce the amount of Debentures whose Holders must consent to an amendment,
supplement or waiver, (2) reduce the principal amount of or extend the fixed
maturity of any Debenture or (3) make any Debenture payable in money or property
other than as stated in the Debentures.
8.2 MISCELLANEOUS. This Debenture shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Except as specifically provided
herein, the parties hereto, including all guarantors or endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Debenture, and assent to extensions of the time of payment, or forbearance or
other indulgence without notice. The Holder of this Debenture by acceptance of
this Debenture agrees to be bound by the provisions of this Debenture which are
expressly binding on such Holder.
8.3 RANK AND SUBORDINATION. Except as expressly provided herein, no
------------------------
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, interest and
liquidated damages (if any) on, this Debenture at the time, place, and rate, and
in the coin or currency (or, as provided herein, in Common Stock), herein
prescribedThis Debenture is a direct obligation of the Company and ranks
subordinate to all Senior Indebtedness. Except as otherwise provided herein,
the Company may not voluntarily prepay the outstanding principal amount of the
Debenture.
8.4 DEBENTURES OWNED BY COMPANY DEEMED NOT OUTSTANDINGIn determining
----------------------------------------------------
whether the Holders of the requisite aggregate principal amount of Debentures
have concurred in any direction, consent or waiver under this Debenture,
Debentures which are owned by the Company or any other obligor on the Debentures
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any other obligor on the
Debentures shall be disregarded and deemed not to be outstanding for the purpose
of any such determination; provided that any Debentures owned by the Purchasers
shall be deemed outstanding for purposes of making such a determination.
Debentures so owned which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Company the
pledgee's right so to act with respect to such Debentures and that the pledgee
is not the Company or any other obligor upon the securities or any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any other obligor on the Debentures.
8.5 NOTICE TO DEBENTUREHOLDERS PRIOR TO TAKING CERTAIN TYPES OF ACTION.
------------------------------------------------------------------
In case:
a. the Company shall authorize the issuance, at any time from and after
the Original Issue Date, to all holders of any class or series of its Capital
Stock, of rights or warrants to subscribe for or purchase shares of its capital
stock or of any other right;
b. the Company shall authorize, at any time from and after the Original
Issue Date, the distribution to all holders of any class or series of its
Capital Stock, of evidences of its indebtedness or assets;
c. the Company shall declare a dividend (or other distribution) on its
Common Stock or the Company shall declare a special nonrecurring dividend on or
a redemption of its Common Stock;
d. of any subdivision, combination or reclassification of any class or
series of Capital Stock of the Company at any time from and after the Original
Issue Date or of any consolidation or merger to which the Company is a party and
for which approval by the shareholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or
e. of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; then the Company shall cause to be mailed to the Holders of
this Debenture, at their last addresses as they shall appear upon the
registration books of the Company, at such time as the Company so notifies its
stockholders, a notice stating (i) the date as of which the holders of record of
such class or series of Capital Stock are to be entitled to receive any such
rights, warrants or distribution are to be determined, or (ii) the date on which
any such subdivision, combination, reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation, winding up or other action is expected
to become effective, and the date as of which it is expected that holders of
record of such class or series of Capital Stock record shall be entitled to
exchange their stock for securities or other property, if any, deliverable upon
such subdivision, combination, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation, winding up or other action.
The failure to give the notice required by this Section 8.5 or any defect
therein shall not affect the legality or validity of any distribution, right,
warrant, subdivision, combination, reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation, winding up or other action, or the
vote upon any of the foregoing.
8.6 EFFECT OF HEADINGS. The Section headings herein are for convenience
------------------
only and shall not affect the construction hereof.
8.7 NO RIGHTS AS STOCKHOLDER. This Debenture shall not entitle the
---------------------------
Holder to any rights as a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other distributions
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
8.8 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
---------------------------------
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this instrument
to be duly executed as of May 4, 2000.
ENDOCARE, INC.
By: /s/ Paul W. Mikus
--------------------
Name: Paul W. Mikus
Title: Chief Executive Officr
BROWN SIMPSON PARTNERS I, LTD.
By: /s/
----------------------
Name:
Title:
<PAGE>
EXHIBIT A
ENDOCARE, INC.
CONVERSION NOTICE
Reference is made to the Debenture issued by Endocare, Inc. (the "Debenture").
----------
In accordance with and pursuant to the Debenture, the undersigned hereby
irrevocably elects to convert the principal amount of the Debenture, indicated
below into shares of Common Stock, par value $.001 per share (the "Common
------
Stock"), of the Company, by tendering the Debenture specified below as of the
date specified below.
Date of
Conversion:________________________________________________________________
Aggregate Principal Amount to be
converted:____________________________________________
Debenture No(s). of Debenture to be
converted:___________________________________________
Please confirm the following information:
Conversion
Price:__________________________________________________________________
Number of shares of Common Stock to be
issued:________________________________________
Please issue the Common Stock into which the Debenture is being converted and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:
Issue
to:_________________________________________________________________________
Facsimile Number:
______________________________________________________________
Authorization:
By:_________________________________________________________________
Title:____________________________________
Dated:___________________________________
Account Number (if electronic book entry
transfer):______________________________________
Transaction Code Number (if electronic book entry
transfer):_______________________________
7% CONVERTIBLE DEBENTURES
THE DEBENTURE REPRESENTED HEREBY HAS NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
PAYMENTS ON ACCOUNT OF THE INDEBTEDNESS EVIDENCED BY THIS DEBENTURE AND THE
EXERCISE OF REMEDIES HEREUNDER ARE SUBORDINATED TO SENIOR INDEBTEDNESS AS
PROVIDED HEREIN.
No. 1 $ 5,000,000
ENDOCARE, INC.
7% CONVERTIBLE DEBENTURES DUE MAY 4, 2003
Endocare Inc., a Delaware corporation (the "Company"), for value received
-------
hereby promises to pay to Brown Simpson Partners I, Ltd. or its registered
assigns ("Holder") the principal sum of Five Million Dollars at the Company's
------
office or agency for said purpose in New York, New York on May 4, 2003 in such
coin or currency (or, as provided herein, at the Holder's option in Common
Stock) of the United States of America as at the time of payment shall be legal
tender for the payment of public and private debts at the last address of the
Holder (as defined herein) last appearing on the Register (as defined herein).
This Debenture is one of a duly authorized issue of 7% Convertible
Debentures, due May 4, 2003 of the Company (the "Debenture") referred to in the
---------
Securities Purchase Agreement (the "Purchase Agreement"), dated as of June 7,
------------------
1999, by and among the Company and the Purchasers listed on Schedule I thereto,
and issued in connection with the Second Closing thereunder. The Debentures are
subject to the terms and conditions of the Purchase Agreement. The Company
agrees to issue from time to time replacement Debentures in the form hereof to
facilitate any transfers and assignments. In addition, after delivery of an
indemnity in form and substance reasonably satisfactory to the Company, the
Company also agrees to issue replacement Debentures for securities which have
been lost, stolen, mutilated or destroyed.
The Company shall keep at its principal office a register (the "Register")
--------
in which shall be entered the names and addresses of the registered holders of
the Debentures and particulars of the respective Debentures held by them and of
all transfers of such Debentures. References to the "Holder" or "Holders" shall
------ -------
mean the Person listed in the Register as the payee of any Debenture unless the
payee shall have presented such Debenture to the Company for transfer and the
transferee shall have been entered in the Register as a subsequent holder, in
which case the term shall mean such subsequent holder. The ownership of the
Debentures shall be proven by the Register, absent manifest error. For the
purpose of paying interest and principal on the Debentures, the Company shall be
entitled to rely on the names and addresses in the Register.
No provision of this Debenture shall alter or impair the obligations of the
Company, which are absolute and unconditional, to pay the principal of and
interest on this Debenture at the place, times, rate, and in the currency,
herein prescribed.
The principal of this Debenture shall bear interest at the rate of seven
(7%) per annum (the "Interest Rate"). The interest shall accrue daily from the
-------------
most recent Interest Payment Date to which interest has been paid on this
Debenture, or if no interest has been paid on this Debenture from the date
hereof until payment in full of the principal amount has been made. Interest is
payable in cash or an equivalent value of the Company's Common Stock calculated
based upon the Average Price (as defined herein), at the Company's option,
subject to certain conditions contained herein, annually on January 1 of each
year (an "Interest Payment Date"), commencing on January 1, 2001, to the Holder
---------------------
hereof until the principal amount is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will be paid or delivered to the Holder of the Debenture at the
close of business on the Record Date for the interest payable on such Interest
Payment Date. The "Record Date" for any interest payment is the close of
------------
business on December 15, whether or not a Business Day, immediately preceding
the Interest Payment Date on which such Interest is payable.
Any amounts that have become due and payable hereunder and remain unpaid by
the Company shall accrue interest thereafter until payment in full of such
amount at the rate of twenty percent (20%) (the "Default Rate") per annum and
------------
shall be payable upon demand by the Holder.
Interest, whether at the Interest Rate or the Default Rate, will be
computed on the basis of a fraction, the denominator of which is 365 (or 366 for
any leap year) and the numerator of which is the actual number of days elapsed
from the date such interest begins to accrue, in the case of the Interest Rate,
or becomes due and payable, in the case of the Default Rate.
Each of the Interest Rate and the Default Rate (if otherwise applicable
under the terms hereof) shall be effective both before and after any judgment
may be rendered in a court of competent jurisdiction, provided, however, that if
-------- -------
either the Interest Rate or Default Rate is deemed to be in excess of the amount
permitted to be charged by the Company under applicable laws, the Holder shall
be entitled to collect an Interest Rate or Default Rate, as the case may be,
only at the highest rate permitted by law, and any interest collected by the
Holder in excess of such lawful amount shall be deemed a payment in reduction of
the principal amount then outstanding under this Debenture and shall be so
applied.
The principal of, and any interest paid in cash on, this Debenture are
payable in coin or currency of the United States of America as at the time of
payment is legal tender for payment of public or private debts, at the last
address of the Holder last appearing on the Register, except that interest due
on the principal amount, if any (but not interest overdue for more than five (5)
days), may, at the Company's option be paid in shares of Common Stock calculated
based upon the Average Price (as defined herein) on the date such interest was
due. It shall be assumed that the Company shall elect to make all payments of
interest in Common Stock, unless the Company shall have given written notice to
each Holder not less than one (1) calendar month prior to the applicable
Interest Payment Date of its intention to pay such interest in cash.
Notwithstanding anything to the contrary contained herein, the Company may not
issue shares of Common Stock in payment of the interest on principal if: (i)
the number of shares of Common Stock at the time authorized, unissued and
unreserved for all other purposes is insufficient to pay interest hereunder in
shares of Common Stock or there is an insufficient number of authorized shares
of Common Stock reserved (pursuant to Section 3.6(b) of the Purchase Agreement)
for issue for full conversion of all of the Debentures issued pursuant to the
Purchase Agreement; (ii) such shares are not either registered for resale
pursuant to the Registration Statement (as defined in the Registration Rights
Agreement (as defined herein)) or freely transferable pursuant to Rule 144
promulgated under the Act, as determined by counsel to the Company pursuant to a
written opinion letter addressed and in form and substance acceptable to the
Holder and the transfer agent for such shares, subject to receipt, if necessary
for such opinion, from the Holder of a representation from such Holder that it
is not an Affiliate (as defined herein) of the Company; (iii) such shares are
not listed or quoted on the Nasdaq (as defined herein) or a Subsequent Market
(as defined herein); (iv) the issuance of such shares would result in the
recipient thereof beneficially owning more than 9.99% of the issued and
outstanding shares of Common Stock as determined in accordance with Section 4.8
hereof; (v) an Event of Default has occurred and is continuing or an event that,
with the passage of time or giving of notice or both would constitute an Event
of Default, has occurred and is continuing; or (vi) the Company has issued the
Issuable Maximum (as defined herein) upon conversion of or pursuant to the
Debentures issued pursuant to the Purchase Agreement and the Shareholder
Approval has not been obtained.
The Holder may from time to time convert the principal amount of this
Debenture, or any portion thereof, with any accrued but unpaid interest, into
Common Stock, as more particularly set forth in Section 4.2.
ARTICLE I
DEFINITIONS
1.1 CERTAIN TERMS DEFINED The following terms for all purposes of this
----------------------
Debenture shall have the respective meanings specified below. All accounting
terms used herein and not expressly defined shall have the meanings given to
them in accordance with generally accepted accounting principles (as defined
herein). Capitalized terms not otherwise defined herein shall have the meanings
assigned to them in the Purchase Agreement. The terms defined in this Section
1.1 include the plural as well as the singular.
"Acceleration Notice" has the meaning set forth in Section 3.1.
--------------------
"Affiliate" of any Person means any other Person directly or indirectly
---------
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Appraiser" shall mean a nationally recognized or major regional investment
---------
banking firm or firm of independent certified public accountants of recognized
standing.
"Authorization Date" has the meaning set forth in Section 4.9.
-------------------
"Average Price" on any date means (x) the sum of the Per Share Market Value
-------------
for the ten (10) Trading Days immediately preceding such date minus (y) the
highest and lowest Per Share Market Value during the ten (10) Trading Days
immediately preceding such date, divided by (z) eight (8).
"Board of Directors" means either the Board of Directors of the Company or
-------------------
any committee of such Board duly authorized to act hereunder.
"Business Day" means any day except a Saturday, Sunday or other day on
-------------
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Stock" means, with respect to any Person, any and all shares,
--------------
interests, participations or other equivalents (however designated) of such
Person's capital stock whether now outstanding or issued after the Original
Issue Date, including, without limitation, all Common Stock and all Preferred
Stock.
"Change of Control" means the occurrence of any of (i) an acquisition after
-----------------
the date hereof by an individual or legal entity or "group" (as described in
Section 13(d)(3) of the Exchange Act) of in excess of 50% of the voting
securities of the Company, (ii) a replacement of more than one-half of the
members of the Company's Board of Directors which is not approved by a majority
of those individuals who are members of the Board of Directors on the date
hereof, or their duly elected successors who are directors immediately prior to
such transaction, in one or a series of related transactions, (iii) the merger
of the Company with or into another entity, unless following such transaction,
the Holders of the Company's securities continue to hold at least 51% of such
securities following such transaction, (iv) the consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, (v) Mr. Paul W. Mikus ceasing to serve as the Chief Executive
Officer, President or Chairman of the Board of the Company due to his death or
disability or termination for cause, unless he is replaced by the Board within
one hundred and twenty days (120) of his termination of service and (vi) Mr.
Paul W. Mikus ceasing to serve as the Chief Executive Officer, President or
Chairman of the Board of the Company due to his voluntary resignation, unless he
is replaced by the Board within ninety days (90) by a successor reasonably
acceptable to the Holders of a majority of a then-outstanding principal amount
of the Debentures.
"Closing Date" has the meaning set forth in the Purchaser Agreement
-------------
"Common Stock" means the common stock, par value $0.001 per share, of the
-------------
Company, or the common stock of any successor to the Company following a Change
in Control in which the Company's Common Stock is converted into the Common
Stock of the successor corporation.
"Company" has the meaning set forth in the first paragraph hereof.
-------
"Convertible Securities" has the meaning set forth in Section
-----------------------
4.5(e)(i)(A).
-----
"Conversion Date" has the meaning set forth in Section 4.4(a).
----------------
"Conversion Default" has the meaning set forth in Section 4.9.
-------------------
"Conversion Default Payments" has the meaning set forth in Section 4.9.
-----------------------------
"Conversion Notice" has the meaning set forth in Section 6.1.
------------------
"Conversion Notice Date" has the meaning set forth in Section 6.3.
------------------------
"Conversion Price" has the meaning set forth in Section 4.2(a).
-----------------
"Conversion Trigger Price" has the meaning set forth in Section 6.1.
--------------------------
"Debt" of any Person means, at any date, without duplication, (i) all
----
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person in respect of letters of credit or bankers'
acceptance or other similar instruments (or reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred
purchase price of property or services, (v) all obligations of such Person as
lessee under capitalized leases, (vi) all Debt of others secured by a Lien on
any asset of such Person, whether or not such Debt is assumed by such Person,
provided that for purposes of determining the amount of any Debt of the type
described in this clause, if recourse with respect to such Debt is limited to
such asset, the amount of such Debt shall be limited to the fair market value of
such asset, (vii) all Debt of others guaranteed by such Person, and (viii) all
redeemable stock valued at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends.
"Debenture" or "Debentures" has the meaning set forth in the second
--------- ----------
paragraph hereof.
-
"Debenture Shares" means the shares of Common Stock underlying the
-----------------
Debentures or shares issued upon conversion of the Debentures.
--
"Default Rate" has the meaning set forth in the sixth paragraph hereof.
-------------
"Determination Date" has the meaning set forth in Section 4.6.
-------------------
"DTC" means the Depositary Trust Corporation.
---
"Event of Default" has the meaning set forth in Section 3.1.
------------------
"Excess Amount" has the meaning set forth in Section 4.9.
--------------
"Excess Principal" has the meaning set forth in Section 4.6.
-----------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
-------------
"FAST" has the meaning set forth in Section 4.4(c).
----
"GAAP" or "generally accepted accounting principles" means generally
---- -------------------------------------------
accepted accounting principles in the United States, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession.
"Holder", "Holder of Debentures", "Debentureholder" or other similar terms
------ -------------------- ---------------
means the registered holder of any Debenture.
---------
"Incurrence" means the incurrence, creation, assumption or in any other
----------
manner becoming liable with respect to, or the extension of the maturity of or
becoming responsible for the payment of, any Debt. "Incur" shall have a
-----
comparable meaning.
"Interest Payment Date" has the meaning set forth in the fifth paragraph
-----------------------
hereof.
"Interest Rate" has the meaning set forth in the fifth paragraph hereof.
--------------
"Issuable Maximum" has the meaning set forth in Section 4.6.
-----------------
"Mandatory Prepayment Amount" for any Debenture means the greater of (i)
----------------------------- ---------
the sum of (x) 120% of the principal amount of the Debenture to be prepaid and
---------
(y) all other amounts, costs, interest, expenses and liquidated damages due in
respect of such principal amount and (ii) the sum of (x) at the option of the
Holder, either (I) the principal amount of the Debenture to be repaid, plus all
---------
accrued and unpaid interest thereon, divided by the Conversion Price on the date
the Mandatory Prepayment Amount is demanded or otherwise due, multiplied by the
Per Share Market Value on the date the Mandatory Prepayment Amount is demanded
or otherwise due or (II) the principal amount of the Debenture to be prepaid,
---------
plus all accrued and unpaid interest thereon, divided by the lower of either the
Conversion Price or the Average Price on the Trading Day immediately prior to
the date the Mandatory Prepayment Amount is paid in full, multiplied by the Per
Share Market Value on the Trading Day immediately prior to the date the
Mandatory Prepayment Amount is paid in full, and (y) all other amounts, costs,
interest, expenses and liquidated damages due in respect of such principal
amount.
"Maturity Date" means the date on which the principal of a Debenture
-------------- ---------
becomes due and payable as herein provided, whether on the Stated Maturity Date
or pursuant to acceleration upon an Event of Default.
"Nasdaq" means the Nasdaq SmallCap Market.
------
"Notice of Conversion" has the meaning set forth in Section 4.2.
----------------------
"Optional Conversion" has the meaning set forth in Section 6.1.
--------------------
"Optional Conversion Date" has the meaning set forth in Section 6.3.
--------------------------
"Options" has the meaning set forth in Section 4.5(e)(i)(A).
-------
"Original Issue Date" of any Debenture (or portion thereof) means the
---------------------
earlier of (i) the date of such Debenture and (ii) the date of any Debenture (or
portion thereof) for which such security was issued (directly or indirectly) on
registration of transfer, exchange or substitution.
"Payment Blockage Notice" has the meaning set forth in Section 7.2(b).
-------------------------
"Per Share Market Value" means (i) on any particular Trading Day the
-------------------------
closing bid price per share of the Common Stock on such date (as reported by
Bloomberg Information Services, Inc., or any successor reporting service) on
Nasdaq or, if the Common Stock is not then quoted on Nasdaq, any Subsequent
Market on which the Common Stock is then listed or if there is no such price on
such date, then the closing bid price on such exchange or quotation system on
the date nearest preceding such date (excluding bids posted by the Company, a
Holder or an Affiliate of any such person) or (ii) if the Common Stock is not
listed then on Nasdaq or any Subsequent Market, the closing bid price for a
share of Common Stock in the over-the-counter market, as reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date (excluding bids posted by a Holder or an Affiliate of a Holder), or
(iii) if the Common Stock is not then publicly traded the fair market value of a
share of Common Stock as determined by an Appraiser selected in good faith by
the holder of this Debenture; provided, however, that the Company, after receipt
-------- -------
of the determination by such Appraiser, shall have the right to select in good
faith an additional Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Appraiser; and provided,
--------
further that all determinations of the Per Share Market Value shall be
- -------
appropriately adjusted for any stock dividends, stock splits or other similar
- -------
transactions during such period.
- --
"Person" means an individual, a corporation, a partnership, an association,
------
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
----------------
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the date of this Debenture, and includes, without limitation, all classes and
series of preferred or preference stock.
"Property" of any Person means all types of real, personal, tangible,
--------
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person under generally accepted
accounting principles.
"Purchase Agreement" means that Securities Purchase Agreement dated as of
-------------------
June 7, 1999 by and among the Company and the Purchasers.
"Purchase Price" means, with respect to any Debenture, the purchase price
---------------
paid to the Company upon issuance of such Debenture.
"Purchasers" has the meaning ascribed thereto in the Purchase Agreement.
----------
"Record Date" has the meaning set forth in the fifth paragraph hereof.
------------
"Record Date" has the meaning set forth in the fifth paragraph hereof.
------------
"Registration Rights Agreement" means that Registration Rights Agreement
-------------------------------
dated as of June 7, 1999 by and among the Company and the Purchasers.
"Registration Rights Agreement" means that Registration Rights Agreement
-------------------------------
dated as of June 7, 1999 by and among the Company and the Purchasers.
"Reverse Stock Split" has the meaning set forth in Section 4.5(a).
---------------------
"Senior Indebtedness" shall have the meaning set forth in Section 7.1.
--------------------
"Senior Indebtedness" shall have the meaning set forth in Section 7.1.
--------------------
"Stated Maturity Date" means May 4, 2003.
----------------------
"Stock Option Plan" means any contract, plan or agreement which has been
-------------------
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer, director or
consultant.
"Subsidiary" means, with respect to any Person, any corporation or other
----------
entity of which a majority of the Capital Stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned or controlled by such Person. A Person shall not be deemed to
directly or indirectly own a majority of the Capital Stock of another Person
solely because of ownership of an unexercised warrant to acquire Capital Stock
of such other Person if the warrant does not provide for voting control of the
warrant shares prior to its exercise.
"Subsequent Market" means the New York Stock Exchange, American Stock
------------------
Exchange, Nasdaq National Market, London Stock Exchange or Tokyo Stock Exchange.
"Trading Day" means (a) a day on which the Common Stock is traded on Nasdaq
-----------
or, if the Common Stock is not then designated on Nasdaq, on such Subsequent
Market on which the Common Stock is then listed or quoted or (b) if the Common
Stock is not listed on Nasdaq or a Subsequent Market, a day on which the Common
Stock is traded in the over-the-counter Market, as reported by the OTC Bulletin
Board, or (c) if the Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions or reporting prices) provided, however that in
any event that the Common Stock is not listed or quoted as set forth in (a),
(b), or (c) hereof, then a Trading Day shall mean any Business Day.
"Valuation Event" has the meaning set forth in Section 4.5(e)(i)(C)(I).
----------------
ARTICLE II
PAYMENT; THE SECURITIES
2.1 PAYMENT OF PRINCIPAL AND INTEREST. The Company covenants and
--------------------------------------
agrees that it will duly and punctually pay or cause to be paid the principal,
plus all accrued interest thereon, with respect to each of the Debentures at the
place or places, at the respective times and in the manner provided in the
Debentures.
2.2 MUTILATED, DEFACED, DESTROYED, LOST AND STOLEN DEBENTURESIn case
-----------------------------------------------------------
any temporary or definitive Debenture shall become mutilated, defaced or be
apparently destroyed, lost or stolen, the Company shall execute and deliver a
new Debenture, bearing a number not contemporaneously outstanding, in exchange
and substitution for the mutilated or defaced Debenture. In every case the
applicant for a substitute Debenture shall furnish to the Company such security
or indemnity as it may reasonably require to indemnify and defend and to save it
harmless and, in every case of destruction, loss or theft evidence to the
Company's satisfaction of the apparent destruction, loss or theft of such
Debenture and of the ownership thereof.
Upon the issuance of any substitute Debenture, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses connected therewith.
In case any Debenture which has matured or is about to mature, or has been
called for conversion in full, or is being surrendered for conversion in full
shall become mutilated or defaced or be apparently destroyed, lost or stolen,
the Company may, instead of issuing a substitute Debenture, with the holder's
consent, pay or authorize the payment or conversion of the same (without
surrender thereof except in the case of a mutilated or defaced Debenture), if
the applicant for such payment shall furnish to the Company such security or
indemnity as it may reasonably require to save it harmless from all risks,
however remote, and, in every case of apparent destruction, loss or theft, the
applicant shall also furnish to the Company evidence to the Company's reasonable
satisfaction of the apparent destruction, loss or theft of such Debenture and of
the ownership thereof.
Every substitute Debenture issued pursuant to the provisions of this
Section by virtue of the fact that any Debenture is apparently destroyed, lost
or stolen shall constitute an additional contractual obligation of the Company,
whether or not the apparently destroyed, lost or stolen Debenture shall be at
any time enforceable by anyone and shall be entitled to all the benefits of (but
shall be subject to all the limitations of rights set forth in) this Debenture
equally and proportionately with any and all other Debentures duly authenticated
and delivered hereunder. All Debentures shall be held and owned upon the express
condition that, to the extent permitted by law, the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of mutilated,
defaced, or apparently destroyed, lost or stolen Debentures and shall preclude
any and all other rights or remedies notwithstanding any law or statute existing
or hereafter enacted to the contrary with respect to the replacement or payment
of negotiable instruments or other securities without their surrender.
2.3 CANCELLATION OF DEBENTURES; DESTRUCTION THEREOF. All Debentures
--------------------------------------------------
surrendered for payment, conversion, registration of transfer or exchange shall
be delivered to the Company for cancellation, and no Debentures shall be issued
in lieu thereof except as expressly permitted by any of the provisions of this
Debenture. The Company shall destroy canceled Debentures held by it and deliver
a certificate of destruction to the Holder, unless otherwise required. If the
Company shall acquire any of the Debentures, such acquisition alone shall not
operate as a redemption or satisfaction of the indebtedness represented by such
Debentures unless and until such indebtedness is satisfied.
ARTICLE III
DEFAULTS
3.1 EVENT OF DEFAULT DEFINED; ACCELERATION OF MATURITY; WAIVER OF
-------------------------------------------------------------------
DEFAULT. In case one or more of the following events ("Events of Default")
-- -----------------
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing:
a. default in the payment in cash (or in Common Stock, as permitted
herein) of all or any part of the principal of and the entire accrued interest
on any of the Debentures as and when the same shall become due and payable
either at maturity, upon any conversion, by declaration or otherwise; or
b. failure on the part of the Company to duly observe or perform any
other of the covenants or agreements on the part of the Company (or the making
by the Company of any announcement, statement or threat that it does not intend
to honor the obligations described in this paragraph) contained in this
Debenture (including the failure to issue Common Stock upon conversion of this
Debenture in accordance with the terms hereof) or the Purchase Agreement or the
Registration Rights Agreement for a period of ten (10) Business Days (other than
with respect to an announcement, statement or threat) in the case of a failure
due to circumstances within the Company's control, or thirty (30) Business Days
in the case of a failure due to circumstances not within the Company's control,
after the earlier of (x) the date on which any officer of the Company shall have
obtained actual knowledge of such failure (or such announcement, statement or
threat) or (y) the date on which written notice thereof has been given to the
Company by the Holder; or
c. there shall have occurred with respect to any particular issue of
Debt of the Company and/or one or more Subsidiaries having an outstanding
principal amount of $1,000,000 or more, whether such Debt now exists or shall
hereafter be created, an event of default which has entitled the holder thereof
to declare such Debt to be due and payable in full prior to its stated maturity,
and the holder of such Debt has declared such Debt due and payable in full; or
d. a judgment or order (not covered by insurance) for the payment of
money shall be rendered against the Company or any Subsidiary of the Company in
excess of $1,000,000 in the aggregate for all such judgments or orders against
all such Persons (treating any deductibles, self insurance or retention as not
so covered) that shall not be discharged, and all such judgments and orders
remain outstanding and there shall be any period of thirty (30) consecutive days
following entry of the judgment or order in excess of $1,000,000 or the judgment
or order which causes the aggregate amount described above to exceed $1,000,000
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
e. a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Company or any of its subsidiaries in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or any of
its Subsidiaries or for any substantial part of the property of the Company or
any of its Subsidiaries or ordering the winding up or liquidation of the affairs
of the Company or any of its Subsidiaries, and such decree or order shall remain
unstayed and in effect for a period of sixty (60) consecutive days; or
f. the Company or any of its Subsidiaries shall commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of the Company or any of its Subsidiaries or for any
substantial part of the property of the Company or any of its Subsidiaries, or
the Company or any of its Subsidiaries shall make any general assignment for the
benefit of creditors; or
g. any representation, warranty, certification or statement made by the
Company in the Purchase Agreement or in any certificate, financial statement or
other document delivered pursuant to the Purchase Agreement shall prove to have
been incorrect in any material respect when made; or
h. the Common Stock shall be delisted from Nasdaq or shall be suspended
from trading on Nasdaq without resuming trading and/or being relisted thereon or
on a Subsequent Market or having such suspension lifted, as the case may be,
within five (5) Business Days (twenty (20) Business Days if the Company is in
good faith contesting such delisting or suspension); or
i. a Registration Statement (as defined in the Registration Rights
Agreement) for the Debenture Shares shall not have been declared by the
Securities and Exchange Commission on or prior to the 30th day after the
Effectiveness Date (as defined in the Registration Rights Agreement) or after
its initial effectiveness and prior to the expiration of the Company's
obligation to keep the Registration Statement effective as required under the
Registration Rights Agreement, such Registration Statement lapses in effect or
sales of all of the Registrable Securities (as defined in the Registration
Rights Agreement) otherwise cannot be made thereunder (whether by reason of the
Company's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement or otherwise) for more than
fifteen (15) consecutive days or thirty (30) days in any twelve (12) month
period; or
j. a Change of Control shall occur unless the Average Price of the
Company's Common Stock immediately (i) prior to the Change of Control if the
event leading to the Change of Control or the intent to consummate the Change of
Control was previously announced publicly, or (ii) after the tenth (10th)
Trading Day following the Change of Control if the event leading to the Change
of Control or intent to consummate a Change of Control was not previously
announced publicly, was at least $8.00 per share (which shall be adjusted
proportionately to the extent the Conversion Price is adjusted hereunder),
provided however that the Holders have been able to sell their shares of Common
Stock in the market under an effective Registration Statement for the
immediately preceding thirty (30) days and will be able to sell such shares in
the market for fifteen (15) days after the Change of Control; or
k. an Event of Default has occurred and is continuing under any of the
other Debentures issued pursuant to the Purchase Agreement; or
l. Failure on the part of the Company to comply with its obligations to
close the Second Closing (as defined in the Purchase Agreement) when requested
by the Holders.
then, in each and every such case (other than an Event of Default specified
in Section 3.1(e) or 3.1(f) hereof), unless the principal shall have already
become due and payable, by notice in writing to the Company (the "Acceleration
------------
Notice"), the Holders of at least a majority of the then outstanding principal
-----
amount of the Debentures may declare the entire principal of and the entire
accrued interest on the Debentures owned by such Holders to be due and payable
immediately, and upon any such declaration the same shall become immediately due
and payable. If an Event of Default specified in Section 3.1(e) or 3.1(f)
occurs, the principal of and any accrued interest on the Debentures (and the
aggregate amounts described below) shall become and be immediately due and
payable without any declaration or other act on the part of any Debenture
Holder. In the event that the Company shall not have promptly, but in any event
within ten (10) Business Days upon receipt of an Acceleration Notice, paid the
Holder the amount specified below, the Conversion Price shall automatically be
adjusted to equal the average Per Share Market Value of the Common Stock during
the preceding thirty (30) consecutive Trading Days immediately preceding the
date of the Acceleration Notice; provided, that such Per Share Market Value is
--------
lower than the Conversion Price.
The aggregate amount payable upon an Event of Default described in Section
3.1(a), (e), (f) and (i) shall be equal to the sum of (i) the Mandatory
Prepayment Amount plus (ii) at the option of the Holder, the Mandatory
Prepayment Amount for the principal amount of the Debentures (the "Converted
---------
Debentures") that would then be held by such Holder had the principal amount of
-------
Debentures converted into Debenture Shares that are then held by the Holder not
been so converted; provided, that the Holder shall not be entitled to a
--------
Mandatory Prepayment Amount with respect to Converted Debentures if both the
following have occurred: (i) prior to the occurrence of an Event of Default, the
Debenture Shares into which the Converted Debentures were converted had been
held by the Holder for more than thirty (30) days and (ii) prior to the
occurrence of the Event of Default and after receipt by the Holder of the
Debenture Shares that are held by the Holder at the time of the occurrence of
the Event of Default, the Registration Statement with respect to such Debenture
Shares had been continuously effective, and the Common Stock has been quoted on
Nasdaq, for more than thirty (30) days.
The aggregate principal amount payable on each Event of Default other than
as described in Section 3.1(a), (e), (f) and (i) shall be equal to the sum of
(i) the Mandatory Prepayment Amount plus (ii) at the option of the Holder, the
Mandatory Prepayment Amount for the Converted Debentures that would then be held
by such Holder had the principal amount of Debentures converted into Debenture
Shares (as defined herein) that are then held by the Holder not been so
converted; provided, that the Holder shall not be entitled to a Mandatory
--------
Prepayment Amount with respect to Converted Debentures if prior to the
occurrence of an Event of Default, the Debenture Shares into which the Converted
Debentures were converted had been held by the Holder for more than three (3)
Trading Days.
For purposes of this Section 3.1, the principal amount of the Debentures is
outstanding until such date as the Holder shall have been issued Debenture
Shares upon a conversion (or attempted conversion) thereof. Interest shall
accrue on the Mandatory Prepayment Amount hereunder from the day after such
amount is due (being the date of an Event of Default) through the date of
payment in full thereof at the rate of 20.0% per annum. Payment of the
Mandatory Prepayment Amount pursuant to this Section 3.1 shall be in addition to
any other amounts that may be due to the Holder pursuant to this Debenture.
Within five (5) Business Days of receipt by the Holder of payments of amounts
due to the Holder, (i) the Holder shall return the Debentures to the Company and
(ii) in the event the Mandatory Prepayment Amount relates to the Converted
Debentures, the Holder shall return the Debenture Shares into which such
Converted Debentures were converted. In the event of the occurrence of an Event
of Default, the Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Any demand for payment may be rescinded and annulled by a
Holder at any time prior to payment hereunder. If a majority of the Holders
rescind and annul any such demand, then the remaining Holders shall be deemed to
rescind and annul any such demand. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.
Upon delivery of any Acceleration Notice to the Company, the Company shall
provide a copy of such notice to the other Holders, if any, within five (5)
Business Days of the Company's receipt thereof. Failure to deliver such notice
shall not affect the validity of the notice delivered by the Holders in
accordance with the provisions referred to above.
3.2 POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER OF
-------------------------------------------------------------------
DEFAULT No right or remedy herein conferred upon or reserved to the Holders is
----
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of the Holders to exercise any right or power accruing
upon any Event of Default occurring and continuing as aforesaid shall impair any
such right or power or shall be construed to be a waiver of any such Event of
Default or an acquiescence therein; and every power and remedy given by the
Debentures or by law may be exercised from time to time, and as often as shall
be deemed expedient, by the Holders.
ARTICLE IV
EXCHANGE; CONVERSION
4.1 RIGHT OF DEBENTUREHOLDERS TO EXCHANGE DEBENTURES Subject to and
----------------------------------------------------
upon compliance with the provisions of this Section, this Debenture is
exchangeable for an equal principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration of transfer or exchange.
4.2 RIGHT OF DEBENTUREHOLDERS TO CONVERT DEBENTURES INTO COMMON STOCK.
------------------------------------------------------------------
a. Conversion Price. Subject to and upon compliance with the
-----------------
provisions of this Section 4.2, the principal amount of this Debenture, or any
portion thereof which is $1,000 or a multiple thereof may, at any time and at or
before the close of business on the Maturity Date be converted into duly
authorized, validly issued, fully-paid and nonassessable shares of Common Stock
at $6.75 per share subject to adjustment under the provisions of this Article IV
(the "Conversion Price").
-----------------
b. Notice of Conversion. If an adjustment in the Conversion Price and,
--------------------
if applicable, a change in the securities or other property issuable upon
conversion has taken place hereunder, then the conversion described in Section
4.2(a) shall be at the applicable Conversion Price and in such securities or
other property as so adjusted. The Purchaser desiring to make a conversion
shall deliver to the Company during usual business hours of the Company's
office, or, at the Purchaser's option, to the transfer agent of the Company
during usual business hours of the transfer agent, a written notice of election
to convert, as provided in the form attached hereto as Exhibit A (a "Notice of
--------- ---------
Conversion"), accompanied, if required, by the Debenture or Debentures,
---------
representing at least the principal amount to be converted.
-------
4.3 ADJUSTMENT FOR DIVIDENDS; INTEREST PAYMENT AFTER CONVERSION No
----------------------------------------------------------------
payment or adjustment will be made for dividends on any Common Stock except as
provided herein. On conversion of a Debenture, that portion of interest accrued
and unpaid attributable to the period from the Original Issue Date to the
Conversion Date with respect to the converted Debenture shall not be canceled,
extinguished or forfeited, but rather shall be paid in full to the Holder
thereof by the payment of an amount of shares of Common Stock valued at the
Average Price equal thereto; provided, however, that the Company may pay such
-------- -------
amount in cash if it provides the Holder with not less than ten (10) days prior
written notice of such intention. If the Holder converts more than one Debenture
at the same time, the number of shares of Common Stock issuable upon the
conversion shall be based on the total principal amount of the Debentures
converted.
4.4 ISSUANCE OF SHARES UPON CONVERSION.
--------------------------------------
a. As promptly as practicable, but in any event no later than two (2)
Trading Days after delivery of a Notice of Conversion and, if required, the
surrender, as herein provided, of any Debenture or Debentures for conversion,
the Company shall deliver or cause to be delivered to the Holder of the
Debenture or Debentures delivering such Notice of Conversion, or such Holder's
designee, a certificate or certificates representing the number of duly
authorized, validly issued, fully-paid and nonassessable shares of Common Stock,
into which such Debenture or Debentures may be converted in accordance with the
provisions of this Article IV. Such conversion shall be deemed to have been
made at the time and on the date the Notice of Conversion is delivered to the
Company, as long as, if required, the Debenture or Debentures being converted
are promptly delivered to the Company and the rights of the Holder of such
Debenture or Debentures as a Holder (subject to the Company's satisfaction of
its obligations hereunder with respect to such conversion) shall cease at such
time with respect to the Converted Debentures, the Person or Persons entitled to
receive the shares of Common Stock, upon conversion of such Debenture or
Debentures, shall be treated for all purposes as having become the record holder
or holders of such shares of Common Stock at such time, and such conversion
shall be at the Conversion Price in effect at such time (the "Conversion Date").
---------------
Subject to paragraph 4.4(b), if any Debenture is converted in part only, upon
such conversion the Company shall execute and deliver to the Holder thereof, as
requested by such Holder, a new Debenture or Debentures of authorized
denominations in aggregate principal amount equal to the unconverted portion of
such Debenture. Without in any way limiting the Holder's right to pursue other
remedies, including actual damages and/or equitable relief, the parties hereto
agree that if the Company fails to deliver the shares of Common Stock required
to be issued upon the conversion of such Debenture or Debentures under this
Section 4.4 within the two (2) Trading Day period referred above, the Company
shall pay to the Holder upon demand an amount of cash (at the Holder's option)
equal to: (i) the commissions, discounts and similar expenses charged to the
Holder in purchasing a number of shares of Common Stock no greater than the
number of shares of Common Stock required to be issued upon the conversion of
the Debenture or Debentures, or (ii) the product of (w) the number of shares of
Common Stock required to be issued upon the conversion of the Debenture or
Debentures, (x) the Per Share Market Value of such shares on the Conversion
Date, (y) the number of days after such two (2) day period that such shares are
not delivered to the Holder, and (z) 0.005.
b. Notwithstanding anything to the contrary set forth herein, upon
conversion of a Debenture in accordance with the terms thereof, the Holder shall
not be required to physically surrender the Debenture to the Company unless the
entire unpaid principal amount of the Debenture is so converted. The Holder and
the Company shall maintain records showing the principal amount already
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of the Debenture upon each such conversion. In the event of
any dispute or discrepancy, such records of the Company shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any portion of the Debenture is converted, the Holder may not transfer the
Debenture unless the Holder first physically surrenders the Debenture to the
Company, whereupon the Company shall promptly issue and deliver upon the order
of the Holder a new Debenture of like tenor, registered as the Holder (upon
payment by the Holder of any applicable transfer taxes) may request,
representing in the aggregate the remaining unpaid principal amount of the
Debenture. The Holder and any assignee, by acceptance of the Debenture,
acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of a Debenture, the unpaid and unconverted
principal amount of such Debenture represented by such Debenture may be less
than the amount stated on the face thereof.
c. In lieu of delivering physical certificates representing the
Debenture Shares, provided the shares of Common Stock issuable upon conversion
of a Debenture may be sold pursuant to Rule 144(k) under the Act or under an
effective Registration Statement and the Company's transfer agent is
participating in the Depositary Trust Company Fast Automated Securities Transfer
("FAST") program, upon request of the Holder and in compliance with the
----
provisions of Sections 4.1, 4.2 and 4.4, the Company shall use its best efforts
----
to cause its transfer agent to electronically transmit the shares of Common
Stock issuable upon conversion of the Debenture to the Holder by crediting the
account of the Holder's Prime Broker with DTC through its Deposit Withdrawal
Agent Commission system. The time period for delivery described in the
immediately preceding paragraph shall apply to the electronic transmittals
described herein.
d. In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 4.4(a), including for purposes hereof, any shares of Common Stock to
be issued on the Conversion Date on account of accrued but unpaid interest
hereunder, by the second (2nd) Trading Day after the Conversion Date, and if
after such second (2nd) Trading Day the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the Debenture Shares which the Holder was entitled to receive
upon such conversion (a "Buy-In"), then the Company shall (A) pay in cash to the
------
Holder (in addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Common Stock so purchased exceeds (y) the product
of (1) the aggregate number of shares of Common Stock that such Holder was
entitled to receive from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either return the Debentures for
which such conversion was not honored or deliver to such Holder the number of
shares of Common Stock that would have been issued had the Company timely
complied with its conversion and delivery obligations under Section 4.4(a). For
example, if the Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of Debentures
with respect to which the market price of the Debenture Shares on the date of
conversion totaled $10,000, under clause (A) of the immediately preceding
sentence the Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In.
4.5 ADJUSTMENT OF CONVERSION PRICE In addition to any adjustment to the
------------------------------
Conversion Price provided elsewhere in this Debenture, the Conversion Price in
effect at any time shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
a. Common Stock Dividends; Common Stock Splits; Reverse Common Stock
--------------------------------------------------------------------
Splits If the Company, at any time while this Debenture is outstanding, (a)
----
shall pay a stock dividend on its Common Stock, (b) subdivide outstanding shares
--
of Common Stock into a larger number of shares, (c) combine outstanding shares
of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of Capital Stock of the
Company, the Conversion Price shall be multiplied by a fraction the numerator of
which shall be the number of shares of Common Stock (excluding treasury shares,
if any) outstanding before such event and the denominator of which shall be the
number of shares of Common Stock outstanding after such event. Any adjustment
made pursuant to this paragraph 4.5(a) shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
Notwithstanding the foregoing, if the Company shall combine outstanding shares
of Common Stock into a smaller number of shares (a "Reverse Stock Split") at any
-------------------
time prior to the Maturity Date, then the Conversion Price in effect immediately
prior to such reverse stock split shall not be adjusted and shall remain in
effect after giving effect to such reverse stock split.
b. Rights; Warrants If the Company, at any time while this Debenture is
----------------
outstanding, shall issue rights or warrants to all of the holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Conversion Price, the Conversion Price shall be
multiplied by a fraction, the denominator of which shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and the numerator of which
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at the Conversion Price. Such adjustment shall
be made whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of shareholders entitled
to receive such rights or warrants.
c. Other Distributions on Stock. If the Company, at any time while
-------------------------------
this Debenture is outstanding, shall distribute to all of the holders of Common
Stock evidence of its indebtedness or assets or rights or warrants to subscribe
for or purchase any security (excluding those referred to in Sections 4.5(a) and
(b) above), then in each such case the Conversion Price at which the Debenture
shall thereafter be exercisable shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction, the denominator of which shall be the Per Share Market Value of Common
Stock determined as of the record date mentioned above, and the numerator of
which shall be such Per Share Market Value of the Common Stock on such record
date less the then fair market value at such record date of the portion of such
assets or evidence of indebtedness so distributed applicable to one outstanding
share of Common Stock as determined by the Board of Directors in good faith;
provided, however, that in the event of a distribution exceeding thirty percent
----- -------
(30%) of the net assets of the Company, such fair market value shall be
determined by an Appraiser selected in good faith by the Holder; and provided,
--------
further, that the Company, after receipt of the determination by such Appraiser
------
shall have the right to select an additional Appraiser meeting the same
qualifications, in good faith, in which case the fair market value shall be
equal to the average of the determinations by each such Appraiser. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
d. Other Events. In case of (A) any reclassification of the Common
-------------
Stock into other securities of the Company or (B) any compulsory share exchange
pursuant to which the Common Stock is converted into other securities, cash or
property (each of (A) or (B), an "Extraordinary Event"), the Holder shall have
-------------------
the right thereafter to convert the Debenture for shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such Extraordinary Event, and the Holder shall be
entitled upon such event to receive such amount of securities, cash or property
as the shares of the Common Stock of the Company into which the Debenture could
have been converted immediately prior to such Extraordinary Event (without
taking into account any limitations or restrictions on the convertibility of the
Debentures) would have been entitled. In the case of an Extraordinary Event,
the terms of any such Extraordinary Event shall include such terms so as to
continue to give to the Holder the right to receive the securities, cash or
property set forth in this Section 4.5(d) upon any conversion following such
Extraordinary Event. This provision shall similarly apply to successive
Extraordinary Events.
e. Adjustment to Conversion Price for Dilutive Issuances. If the
-----------------------------------------------------------
Company, at any time while this Debenture is outstanding, takes any of the
actions described in this Section 4.5(e), then, in order to prevent dilution of
the rights granted under this Debenture, at any time prior to the Maturity Date,
the Conversion Price will be subject to adjustment from time to time as provided
in this Section 4.5(e).
(i) Adjustment of Conversion Price upon Issuance of Common Stock If at
-------------------------------------------------------------
any time while this Debenture is outstanding the Company issues or sells, or is
deemed to have issued or sold, any shares of Common Stock for a consideration
per share less than the Conversion Price in effect immediately prior to such
issuance or sale, then immediately after such issuance or sale the Conversion
Price then in effect shall be reduced to an amount equal to the consideration
per share of Common Stock in such issuance or sale. For the purpose of
determining the adjusted Conversion Price under this Section 4.5(e), the
following shall be applicable:
(A) Issuance of Options. If at any time while this Debenture is
---------------------
outstanding the Company in any manner grants any rights or options to subscribe
for or to purchase Common Stock or any stock or other securities convertible
into or exchangeable for Common Stock (such rights or options, "Options," and
-------
such convertible or exchangeable stock or securities, "Convertible Securities")
----------------------
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities is
less than the Conversion Price in effect immediately prior to such grant or
issuance, then the Conversion Price then in effect shall be reduced to the price
per share for which Common Stock is issuable upon the exercise of such Options
or upon the conversion or exchange of such Convertible Securities. No
adjustment of the Conversion Price shall be made upon the actual issuance of
such Common Stock upon conversion or exchange of such Options.
(B) Change in Option Price or Rate of Conversion. If there is a change
--------------------------------------------
at any time in (i) the exercise price provided for in any Options, (ii) the
additional consideration, if any, payable upon the issue, conversion or exchange
of any Convertible Securities or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock, other than a
change which results from events set for in Sections 4.5(a), (b) and (c) which
also cause a relative change in the Conversion Price, then immediately after
such change in option price or rate of conversion the Conversion Price in effect
at the time of such change shall be readjusted to the Conversion Price which
would have been in effect had such Options or Convertible Securities had such
changed exercise price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.
(C) Effect on Conversion Price of Certain Events. For purposes of
-------------------------------------------------
determining the adjusted Conversion Price under this Section 4.5(e)(i), the
following shall be applicable:
(I) Calculation of Consideration Received. If any Common Stock, Options or
- --- --------------------------------------
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. In case any Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company will be
the fair value of such consideration, except where such consideration consists
of publicly traded securities, in which case the amount of consideration
received by the Company will be the average of the Per Share Market Values of
such security for the five (5) consecutive Trading Days immediately preceding
the date of receipt. In case any Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with any
merger in which the Company is the surviving entity the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined jointly by
the Company and the Holders of Debentures representing a majority of the
aggregate principal amount of Debentures then outstanding. If such parties are
unable to reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the "Valuation Event"), the fair value of such
----------------
consideration will be determined within forty eight (48) hours of the tenth
(10th) day following the Valuation Event by an Appraiser selected in good faith
by the Company and agreed upon by the Holders of Debentures representing a
majority of the aggregate principal amount of Debentures then outstanding. The
determination of such Appraiser shall be binding upon all parties absent
manifest error.
(I)
(II) Treasury Shares. The number of shares of Common Stock outstanding at
- ---- ----------------
any given time does not include shares owned or held by or for the account of
the Company, and the disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(I) Record Date. If the Company establishes a record of the holders of
- --- ------------
Common Stock for the purpose of entitling them (1) to receive a dividend or
- ---
other distribution payable in Common Stock, Options or in Convertible Securities
- ---
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(D) Certain Events If any event occurs of the type contemplated by the
---------------
provisions of Section 4.5(e) (subject to the exceptions stated therein) but not
expressly provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the Holder, or
assigns, of this Debenture; provided, however, that no such adjustment will
increase the Conversion Price as otherwise determined pursuant to this Section
4.5(e).
Notwithstanding anything to the contrary contained in this Section 4.5(e)
no adjustment shall be made to the Conversion Price in connection with the
issuance, sale or grant of any of the following securities, whether or not at a
price that is less than the Conversion Price:
(i) shares of Common Stock issuable upon the exercise of any options or
warrants outstanding on the date hereof and listed in Schedule 2.1(c) of the
Purchase Agreement;
(ii) shares of Common Stock or options to acquire Common Stock issued
or deemed to have been issued by the Company in connection with a Stock Option
Plan;
(iii) shares of Common Stock underlying the Debentures or shares issued
upon the conversion of the Debentures;
(iv) up to 520,000 shares of Common Stock or securities convertible
into or exchangeable for Common Stock, in any twelve (12) month period, granted
in normal course of business activities to underwriters, placement agents,
service providers or business advisors, provided however, that such issuance,
sale or grant is not at a price below four dollars ($4.00) per share of Common
Stock; and
(v) shares of Common Stock or securities convertible into or
exchangeable for Common Stock issued to Senior Lenders (as hereinafter defined)
in consideration for the issuance of Senior Indebtedness (as hereinafter
defined), so long as the Common Stock or securities represent no more than eight
percent (8%) in value of the Senior Indebtedness incurred in connection with the
issuance of such securities; provided that the amount of Senior Indebtedness
shall only include the actual amount that the Company may draw or incur on the
closing date for such Senior Indebtedness. For example, if the Company takes
out a twenty million dollar ($20,000,000) line of credit for which it can only
draw ten million dollars ($10,000,000) at the closing of the Senior
Indebtedness, then the Common Stock and securities convertible into or
exchangeable for Common Stock can only have a value based on a Per Share Market
Value of eight hundred thousand dollars ($800,000).
f. Rounding All calculations under this Section 4.5 shall be made to
--------
the nearest cent or the nearest l/l00th of a share, as the case may be.
g. Notice of Adjustment The Company shall give the Holder written
----------------------
notice of the occurrence of any of the events specified in Sections 4.5(a), (b),
(c), (d) or (e) as soon as practicable, but in no even later than three (3)
Business Days after such event, provided further, that if such notice contains
material non-public information, the Company shall (i) publicly disclose such
information prior to or concurrently with the giving of such notice or (ii) only
disclose such information to the extent that the Holder shall not be in
possession of material non-public information. Such notice shall contain at
least: (A) a description of the event, (B) the adjusted Conversion Price with a
reference to the applicable paragraph in Section 4.5 hereof and (C) the date on
which the adjusted Conversion Price is effective.
4.6 NASDAQ LIMITATION. If on any date (the "Determination Date") (a)
------------------ ------------------
the Common Stock is listed for trading on Nasdaq, (b) the Conversion Price then
in effect is such that the aggregate number of shares of Common Stock that would
then be issuable upon conversion in full of the then outstanding principal
amount of the Debentures as if all such Debentures were converted on such
Determination Date (without regard to any limitations on conversions) and as
payment of interest thereon, as would equal or exceed 20% of the number of
shares of the Common Stock outstanding immediately prior to the "Closing Date"
------------
(the "Issuable Maximum"), and (c) the Company shall not have previously obtained
----------------
the vote of the shareholders of the Company (the "Shareholder Approval"), if
--------------------
any, as may be required by the applicable rules and regulations of Nasdaq (or
any successor entity) to approve the issuance of shares of Common Stock in
excess of the Issuable Maximum in a private placement whereby shares of Common
Stock are deemed to have been issued at a price that is less than the greater of
book value or fair market value of the Common Stock, then with respect to the
aggregate principal amount of the Debentures then held by the Holders for which
a conversion in accordance with the Conversion Price would result in an issuance
of shares of Common Stock in excess of such Holder's pro rata allocation (as
described below) of the Issuable Maximum (the "Excess Principal") the Company
----------------
may elect to prepay cash to the Holders in an amount equal to the Mandatory
Prepayment Amount. Any such election by the Company must be made in writing to
the Holders within two (2) Trading Days after the first such Determination Date
and the payment of such Mandatory Prepayment Amount applicable to such
prepayment must be made in full to the Holders with ten (10) Business Days after
the date such notice is delivered. If the Company does not deliver timely a
notice of its election to prepay under this Section or shall, if it shall have
delivered such a notice, fail to pay the prepayment amount hereunder within ten
(10) Business Days thereafter, then each Holder shall have the option by written
notice to the Company, to, if applicable, declare any such notice given by the
Company, if given, to be null and void and require the Company to either: (i)
use its best efforts to obtain the Shareholder Approval applicable to such
issuance as soon as is possible, but in any event not later than the 60th day
after such request unless the Company has previously used its best efforts to,
but has failed to, obtain such approval (provided, that if the Company shall
fail to obtain the Shareholder Approval during such 60-day period, the Holder
may demand the cash payment set forth in Section 4.6(ii) herein) or (ii) pay
cash to such Holder, within five (5) Business Days of such Holder's notice, in
an amount equal to the Mandatory Prepayment Amount for such Holder's portion of
the Excess Principal. The payment of the Mandatory Prepayment Amount to each
Holder pursuant to this Section shall be determined on a pro rata basis upon the
principal amount of the Debentures held by such Holder on the Determination Date
which is in excess of the pro rata allocation of the Issuable Maximum. If the
Company fails to pay the Mandatory Prepayment Amount in full pursuant to this
Section within five (5) Business Days after the date payable, the Company will
pay interest thereon at a rate of 20% per annum to the converting Holder,
accruing interest daily from the date of conversion until such amount, plus all
such interest thereon, if any, is paid in full. Until the Company has received
the Shareholder Approval no Holder of the Debentures shall be issued, upon
conversion of Debentures, shares of Common Stock in an amount greater than such
Holder's allocated portion of the Issuable Maximum pursuant to Section 4.15.
4.7 RESTRICTION ON CONVERSION BY EITHER THE HOLDER OR THE
-------------------------------------------------------------
COMPANY Notwithstanding anything herein to the contrary, in no event shall any
Holder or the Company have the right or be required to convert any or all of the
aggregate principal amount and interest accrued thereon of this Debenture if as
a result of such conversion the aggregate number of shares of Common Stock
beneficially owned by such Holder and its Affiliates would exceed 9.99% of the
outstanding shares of the Common Stock following such conversion. For purposes
of this Section 4.7, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. The
provisions of this Section 4.7 may be waived by a Holder as to itself (and
solely as to itself) upon not less than 65 days prior written notice to the
Company, and the provisions of this Section 4.7 shall continue to apply until
such 65th day (or later, if stated in the notice of waiver).
4.8 OFFICER'S CERTIFICATE. Whenever the number of shares purchasable
----------------------
upon conversion shall be adjusted as required by the provisions of Section 4.5,
the Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted number of shares determined as herein
provided, setting forth in reasonable detail the facts requiring such adjustment
and the manner of computing such adjustment. Each such officer's certificate
shall be signed by the chairman, president or chief financial officer of the
Company. Each such officer's certificate shall be made available at all
reasonable times for inspection by any holder of the Debentures and the Company
shall, forthwith after each such adjustment, deliver a copy of such certificate
to the each of the Holders.
4.9 RESERVATION OF SHARES The Company covenants that it will at all
-----------------------
times reserve and keep available out of its authorized shares of Common Stock,
free from preemptive rights, solely for the purpose of issue upon conversion of
the Debentures as herein provided, such number of shares of the Common Stock as
shall then be issuable upon the conversion of all outstanding Debentures into
Common Stock in accordance with Section 3.6(b) of the Purchase Agreement (the
"Reserved Amount"). The Company covenants that all shares of the Common Stock
---------------
issued upon conversion of the Debenture which shall be so issuable shall, when
issued, be duly and validly issued and fully paid and non-assessable.
If, at any time a Holder of this Debenture submits a Notice of
Conversion, and the Company does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article IV (a "Conversion Default"), the Company shall
------------------
issue to the Holder all of the shares of Common Stock which are then available
to effect such conversion. The portion of this Debenture which the Holder
included in its Conversion Notice and which exceeds the amount which is then
convertible into available shares of Common Stock (the "Excess Amount") shall,
-------------
notwithstanding anything to the contrary contained herein, not be convertible
into Common Stock in accordance with the terms hereof until (and at the Holder's
option at any time after) the date additional shares of Common Stock are
authorized by the Company to permit such conversion at which time the Conversion
Price in respect thereof shall be the lesser of (i) the Per Share Market Value
on the Conversion Default Date (as defined below) and (ii) the Per Share Market
Value on the Conversion Date thereafter elected by the Holder in respect
thereof. In addition, the Company shall pay to the Holder payments ("Conversion
----------
Default Payments") for a Conversion Default in the amount of (x) the sum of (1)
- -----------------
the then outstanding principal amount of this Debenture plus (2) accrued and
unpaid interest on the unpaid principal amount of this Debenture through the
Authorization Date (as defined below) plus (3) Default Interest, if any, on the
amounts referred to in clauses (1) and/or (2), multiplied by (y) .24, multiplied
by (z) (N/365), where N equals the number of days from the day the holder
submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date") to the date (the "Authorization Date") that the
------------------ ------------------
Company authorizes a sufficient number of shares of Common Stock to effect
conversion of the full outstanding principal balance of this Debenture. The
Company shall use its best efforts to authorize a sufficient number of shares of
Common Stock as soon as practicable following the earlier of (i) such time that
the Holder notifies the Company or that the Company otherwise becomes aware that
there are or likely will be insufficient authorized and unissued shares to allow
full conversion thereof and (ii) a Conversion Default. The Company shall send
notice to the Holder of the authorization of additional shares of Common Stock,
the Authorization Date and the amount of Holder's accrued Conversion Default
Payments. The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time as there
are sufficient authorized shares of Common Stock following the Authorization
Date) at the applicable Conversion Price, at the Holder's option, as follows:
(a) In the event Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth (5th) Business Day of the month
following the month in which it has accrued; and
(b) In the event Holder elects to take such payment in Common Stock,
the Holder may convert such payment amount into Common Stock at the lesser of
the Conversion Price (as in effect at the time of conversion) and the Per Share
Market Value (on the fifth day of the month referred to below) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article IV (so long as there is then a
sufficient number of authorized shares of Common Stock).
The Holder's election shall be made in writing to the Company at any time
prior to 8:00 p.m., New York City Time, on the third day of the month following
the month in which Conversion Default payments have accrued. If no election is
made, the Holder shall be deemed to have elected to receive cash. Nothing
herein shall limit the Holder's right to pursue actual damages (to the extent in
excess of the conversion Default Payments) for the Company's failure to maintain
a sufficient number of authorized shares of Common Stock, and each Holder shall
have the right to pursue all remedies available at law or in equity (including
degree of specific performance and/or injunctive relief).
4.10 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. The Company covenants
-------------------------------------------
that if any shares of Common Stock required to be reserved for purposes of
conversion of Debentures hereunder require registration with or approval of any
governmental authority under any Federal or state law, or any national
securities exchange, before such shares may be issued upon conversion, the
Company will use its best efforts to cause such shares to be duly registered or
approved, as the case may be.
4.11 FRACTIONAL SHARES. Upon a conversion hereunder, the Company shall
-----------------
not be required to issue stock certificates representing fractions of shares of
the Common Stock, but may if otherwise permitted, make a cash payment in respect
of any final fraction of a share based on the Per Share Market Value at such
time. If the Company elects not, or is unable, to make such a cash payment, the
holder shall be entitled to receive, in lieu of the final fraction of a share,
one whole share of Common Stock.
4.12 PAYMENT OF TAX UPON ISSUE OR TRANSFER. The issuance of
-------------------------------------------
certificates for shares of the Common Stock on conversion of the Debentures
shall be made without charge to the Holders thereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate upon conversion in a name other than that of the Holder
of such Debentures so converted and the Company shall not be required to issue
or deliver such certificates unless or until the Person or Persons requesting
the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has been
paid.
4.13 NOTICES. Any notice or other communication required or permitted
-------
to be given hereunder shall be in writing and shall be deemed to have been
received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if received by
8:00 p.m. EST where such notice is to be received), or the first Business Day
following such delivery (if received after 8:00 p.m. EST where such notice is to
be received) or (b) on the second Business Day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications are (i) if to the Company to Endocare, Inc., 7 Studebaker,
Irvine, California 92618, Attention: Paul W. Mikus, fax no. (949) 597-0607, with
copies to Brobeck, Phleger & Harrison LLP, 38 Technology Drive, Irvine,
California 92618, Attention: Richard A. Fink, fax no. (949) 790-6301, and (ii)
if to any Holder to the address set forth on Schedule II to the Purchase
Agreement with copies to Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison
Avenue, New York, New York 10022, Attention: James Kaye, fax no. (212) 872-1002,
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.14 ALLOCATIONS OF ISSUABLE MAXIMUM AND RESERVED AMOUNT. The Issuable
---------------------------------------------------
Maximum and Reserved Amount shall be allocated pro rata among the Holders based
on the principal amount of Debentures issued to each Holder. Each increase to
the Issuable Maximum and Reserved Amount shall be allocated pro rata among the
Holders based on the principal amount of Debentures held by each Holder at the
time of the increase in the Issuable Maximum or Reserved Amount. In the event a
Holder shall sell or otherwise transfer any of such Holder's Debentures, each
transferee shall be allocated a pro rata portion of such transferor's Issuable
Maximum and Reserved Amount. Any portion of the Issuable Maximum or Reserved
Amount which remains allocated to any person or entity which does not hold any
Debentures shall be allocated to the remaining Holders, pro rata, based on the
principal amount of such Debentures then held by such Holders.
ARTICLE V
CONSOLIDATION, MERGER OR SALE OF COMPANY
5.1 CONSOLIDATION, MERGER OR SALE ONLY ON CERTAIN TERMS The Company
-------------------------------------------------------
shall not consolidate with or merge into any other Person or convey, transfer or
lease its properties and assets substantially as an entirety to any Person, and
the Company shall not permit any Person to consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless:
a. in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, the Person formed by such consolidation or into which
the Company is merged or the Person which acquires by conveyance or transfer, or
which leases, the properties and assets of the Company substantially as an
entirety shall be a corporation, partnership or trust whose Common Stock is
traded or the Nasdaq or a Subsequent Market, and shall expressly assume, by a
Debenture supplemental hereto, executed and delivered to the Holders, in form
satisfactory to the Holders of a majority of the then outstanding principal
amount of the Debentures, the due and punctual payment of the principal of and
interest on all the Debentures and the performance or observance of every
covenant of this Debenture on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance with
Section 5.3; and
b. immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or a Subsidiary as a
result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default shall have
happened and be continuing.
5.2 SUCCESSOR SUBSTITUTED Upon any consolidation of the Company with,
----------------------
or merger of the Company into, any other Person or any conveyance, transfer or
lease of the properties and assets of the Company substantially as an entirety
in accordance with Section 5.1, the successor person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Debenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Debenture.
5.3 CONVERSION RIGHTS. In case of any consolidation of the Company
------------------
with, or merger of the Company into, any other Person, any merger of another
Person into the Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company) or any sale or transfer of all or substantially all
of the assets of the Company, the Person formed by such consolidation or
resulting from such merger or which acquires such assets, as the case may be,
shall in the supplemental Debenture provided pursuant to Section 5.1(a) provide
that the Holder of each Debenture then outstanding shall have the right
thereafter, during the period such Debenture shall be convertible as specified
in Article IV, to convert such Debenture only into the kind and amount of
securities, cash or other assets receivable upon such consolidation, merger,
sale or transfer by a holder of the number of shares of Common Stock of the
Company into which such Debenture might have been converted immediately prior to
such consolidation, merger, sale or transfer, with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which such sale or transfer was made, as the case may be ("Constituent
-----------
Person"), or an Affiliate of a Constituent Person. The supplemental indenture
---
also shall provide that if in connection with such consolidation, merger, sale
or transfer, each holder of Common Stock is entitled to elect to receive either
securities, cash or other assets receivable upon such consolidation, merger,
sale or transfer, the Company or the surviving or transferee corporation shall
provide each holder of securities with the right to elect to receive the
securities, cash or other assets into which the Debentures held by such Holder
shall be convertible after completion of such consolidation, merger, sale or
transfer on the same terms and subject to the same conditions applicable to
holders of Common Stock (including, without limitation, notice of the right to
elect, limitations on the period in which such election shall be made and the
effect of failing to exercise the election). Such supplemental Debenture shall
provide for adjustments which, for events subsequent to the effective date of
such supplemental Debenture, shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Article. The above provisions of this
Section shall similarly apply to successive consolidations, mergers, sales or
transfers.
ARTICLE VI
INTENTIONALLY OMITTED.
ARTICLE VII
SUBORDINATION OF DEBENTURES
7.1 DEBENTURES SUBORDINATE TO SENIOR INDEBTEDNESS. The Company
-------------------------------------------------
covenants and agrees, and each Holder of a Debenture, by his acceptance thereof,
likewise covenants and agrees, that, to the extent and in the manner hereinafter
set forth in this Article, the payment of the principal of (and premium, if any)
and interest on each and all of the Debentures are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
Senior Indebtedness. "Senior Indebtedness" shall mean any indebtedness,
--------------------
liabilities and other obligations of the Company (whether as primary obligor or
as guarantor) to any Person (each a "Senior Lender"), now existing or incurred
-------------
hereafter, with respect to any working capital, revolving credit or other line
of credit facility, any term loan facility, or any other extension of credit by
a bank, insurance company or financial institution engaged in the business of
lending money (whether or not secured), including reimbursement obligations
under letters of credit (or local guaranties, as applicable) and obligations in
respect of bankers' acceptances, interest rate protection agreements and
currency exchange and purchase agreements, and any other indebtedness or other
obligations of the Company for borrowed money evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced incurred
in connection with the acquisition of property, assets or businesses and secured
thereby. Senior Indebtedness shall include renewals, refundings, refinancings
or other extensions of the foregoing. The terms "indebtedness," "liabilities"
and "obligations" are used herein in their most comprehensive sense and include
any and all advances, debts, obligations and liabilities, now existing or
hereafter arising, whether voluntary or involuntary and whether due or not due,
absolute or contingent, liquidated or unliquidated, determined or undetermined.
Notwithstanding the foregoing, Senior Indebtedness shall not include
indebtedness of the Company to the Holder or its Affiliates (including, without
limitation, debentures issued by the Company to Brown Simpson Strategic Growth
Fund, Ltd. and Brown Simpson Strategic Growth Fund, L.P.).
7.2 NO PAYMENT ON DEBENTURES IN CERTAIN CIRCUMSTANCES.
-------------------------------------------------------
a. No payment or distribution of cash or property (other than Common
Stock of the Company or other securities of the Company that are subordinated to
Senior Indebtedness to at least the same extent as the Debentures) of the
Company will be made on account of principal of or interest on the Debentures,
or to defease or acquire any of the Debentures, or on account of the conversion
provisions of the Debentures and no action shall be taken (judicial or
otherwise) to collect any such payment or distribution (i) upon the maturity of
any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and
until all Senior Indebtedness shall first be paid in full in cash, or such
payment duly made in a manner satisfactory to the holders of such Senior
Indebtedness or (ii) in the event that the Company defaults in the payment of
any principal of, premium, if any, or interest on or any other amounts payable
on or due in connection with any Senior Indebtedness when it becomes due and
payable, whether at maturity or at a date fixed for prepayment or by declaration
or otherwise, unless and until such default has been waived in writing by the
holders of the Senior Indebtedness. Payments on the Debentures may and shall be
resumed in the case of a payment default only upon the date on which such
default is waived in writing by the holders of the Senior Indebtedness or their
agent.
b. If any default other than a default contemplated by Section
----- ----
7.2(a)(ii) above shall have occurred and be continuing that would permit the
holders of the Senior Indebtedness to accelerate the maturity of Senior
Indebtedness, upon written notice (a "Payment Blockage Notice") of the default
-----------------------
given to the Company and the Holders by the holders of, or an agent, trustee or
other representative for, such Senior Indebtedness, then, unless and until such
default has been waived in writing, no payment or distribution of cash or
property (other than Common Stock of the Company or other securities of the
Company that are subordinated to Senior Indebtedness to at least the same extent
as the Debentures) shall be made by the Company with respect to the principal of
or interest on the Debentures or on account of conversion of the Debentures or
to acquire or repurchase any of the Debentures for cash or property other than
Common Stock of the Company, and no action shall be taken (judicial or
otherwise) to collect any such payment or distribution. If such Senior
Indebtedness is not declared due and payable within 180 days after written
notice of the event of default is given, promptly after the end of the 180-day
period the Company will pay all sums due in respect of the Debentures and not
paid during the 180-day period. During any 360-day consecutive period, only one
such period during which payment with respect to the Debentures may not be made
as the result of a Payment Blockage Notice may commence and the duration of such
period may not exceed 180 days. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Holders
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been waived for a period of not less than 90 days.
c. If any payment or distribution of assets of the Company is received
by any Holder in respect of the Debentures at a time when that payment or
distribution should not have been made because of paragraph (a) or (b) of this
Section 7.2, and provided that prior to the Company's disbursement of such
distribution or payment, the Holders shall have received a written notice from
the Company or from an agent or representative for one or more holders of Senior
Indebtedness, such payment or distribution will be received and held and will be
paid over to the holders of Senior Indebtedness (pro rata as to each of such
holders on the basis of the respective amounts of Senior Indebtedness held by
them) until all such Senior Indebtedness has been paid in full, after giving
effect to any concurrent payment or distribution or provision therefor to the
holders of such Senior Indebtedness.
7.3 DEBENTURES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS
-------------------------------------------------------------------
ON DISSOLUTION, LIQUIDATION OR REORGANIZATION Upon any distribution of assets of
- ---------------------------------------------
the Company upon any dissolution, winding up, liquidation or reorganization of
the Company (whether in bankruptcy, insolvency, receivership or similar
proceedings relating to the Company or its property or upon an assignment for
the benefit of creditors or any marshalling of the Company's assets or
liabilities or otherwise):
a. the holders of all Senior Indebtedness will first be entitled to
receive payment in full of the principal of and interest due on Senior
Indebtedness (including interest accruing after the commencement of a bankruptcy
or insolvency) at the rate specified in the applicable Senior Indebtedness
documents and including, without limitation, in respect of premiums, indemnities
or otherwise, before the Holders are entitled to receive any payment or
distribution on account of the principal of or interest on the Debentures;
b. any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (except that Holders may
receive securities that are subordinated at least to the same extent as the
Debentures to Senior Indebtedness and any securities issued in exchange for
Senior Indebtedness), to which Holders would be entitled except for the
provisions of this Section 7.3 will be paid by the liquidating trustee or agent
or other persons legally empowered to make such a payment or distribution
directly to the holders of Senior Indebtedness (pro rata to such holders on the
basis of the respective amounts of Senior Indebtedness held by such holders) or
their representatives to the extent necessary to make or provide for payment in
full in cash of all Senior Indebtedness remaining unpaid, after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness or provision for that payment or distribution; and
c. if, notwithstanding the foregoing, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities (except that Holders may receive securities that are subordinated at
least to the same extent as the Debentures to Senior Indebtedness and any
securities issued in exchange for Senior indebtedness) is received by the
Holders on account of the principal of or interest on the Debentures before all
Senior Indebtedness is paid in full, such payment or distribution will be
received and held in trust for and will be forthwith paid over to the holders of
the Senior Indebtedness remaining unpaid or unprovided for or their
representatives for application (in the cash of cash) to, or as collateral (in
the case of non-cash property or securities) for the payment of such Senior
Indebtedness until all such Senior Indebtedness has been paid in full, after
giving effect to any concurrent payment or distribution or provision therefor to
the holders of such Senior Indebtedness.
The Company will give prompt written notice to the Holders of any
dissolution, winding up, liquidation or reorganization of it or any assignment
for the benefit of its creditors.
7.4 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS Subject to
--------------------------------------------------------
the payment in full of all Senior Indebtedness, the Holders shall be subrogated
to the rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company applicable to the
Senior Indebtedness until all amounts owing on the Debentures shall be paid in
full; and, for the purposes of such subrogation:
a. no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders would be
entitled except for the provisions of this Article VII and no payment pursuant
to the provisions of this Article VII to the holders of Senior Indebtedness by
the Holders shall, as between the Company, its creditors (other than holders of
Senior Indebtedness) and the Holders, be deemed to be a payment by the Company
to or on account of the Senior Indebtedness; and
b. no payment or distributions of cash, property or securities to or
for the benefit of the Holders pursuant to the subrogation provision of this
Article VII, which would otherwise have been paid to the holders of Senior
Indebtedness, shall be deemed to be a payment by the Company to or for the
account of the Debentures.
7.5 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions of
-----------------------------------------------
this Article are and are intended solely for the purpose of defining the
relative rights of the Holders on the one hand and the holders of Senior
Indebtedness on the other hand. Nothing contained in this Article or elsewhere
in this Debenture or in the Debentures is intended to or shall (a) impair, as
among the Company, its creditors other than holders of Senior Indebtedness and
the Holders of the Debentures, the obligation of the Company, which is absolute
and unconditional to pay to the Holders of the Debentures the principal of (any
premium, if any) and interest on the Debentures as and when the same shall
become due and payable in accordance with their terms; or (b) affect the
relative rights against the Company of the Holders of the Debentures and
creditors of the Company other than the holders of Senior Indebtedness; or (c)
prevent the Holder of any Debenture from exercising all remedies otherwise
permitted by applicable law upon default under this Debentures, subject to the
rights, if any, under this Article VII of the holders of Senior Indebtedness to
receive cash, property and securities otherwise payable or deliverable to the
Holder upon the exercise of any such remedy.
7.6 RIGHT TO FILE PROOF OF CLAIM. In the event of any dissolution,
--------------------------------
winding up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency, receivership, reorganization or similar proceedings or upon any
assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of the Company, with respect to the
filing of a claim for the unpaid balance of any Holder's Debentures in the form
required in those proceedings, if the Holder does not file a proper claim or
proof of debt in the form required in such proceeding at least thirty (30) days
before the expiration of the time to file such claim or claims, then the holders
of Senior Indebtedness and their agents, trustees, or other representatives are
hereby authorized to have the right to file, and are hereby authorized to file,
an appropriate claim for and on behalf of each such Holder.
7.7 NO WAIVER OF SUBORDINATION PROVISIONS. No right of any present or
--------------------------------------
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Debenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Holders of the Debentures, without incurring
responsibility to the Holders of the Debentures and without impairing or
releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Debentures to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person.
7.8 NOTICE TO HOLDERS. The Company shall give prompt written notice to
-----------------
the Holders of any fact known to the Company which would prohibit the making of
any payment to or by the Holders in respect of the Debentures. Notwithstanding
the provisions of this Article or any other provision of this Debenture, the
Holders shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to the Holders in respect of the
Debentures, unless and until the Holders shall have received written notice
thereof from the Company or a holder of Senior Indebtedness; and, prior to the
receipt of any such written notice, the Holders shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
-------- -------
Holders shall not have received the notice provided for in this Section at least
two Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose (including, without limitation, the payment of
the principal of, and premium, if any, or interest on any Debenture), then,
anything herein contained to the contrary notwithstanding, the Holders shall
have full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within two Business Days
prior to such date.
The Holders shall be entitled to rely on the delivery to them of a written
notice by a Person representing himself to be a holder of Senior Indebtedness
(or a representative thereof) to establish that such notice has been given by a
holder of Senior Indebtedness (or representative thereof). In the event that
the Holders determines in good faith that further evidence is required with
respect to the right of any Person as a holder of Senior Indebtedness (or a
representative thereof) to participate in any payment or distribution pursuant
to this Article, the Holders may request such Person to furnish evidence to the
reasonable satisfaction of the Holders as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
Holders may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
7.9 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.
------------------------------------------------------------------
Upon the payment or distribution of assets of the Company referred to in this
Article, the Holders of the Debentures shall be entitled to rely upon any order
or decree entered by any court of competent jurisdiction in which such
proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of the creditors, agent
or other Person making such payment or distribution, delivered to the Holders of
Debentures, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article VII.
7.10 NO ADVERSE MODIFICATION TO DEBENTURE. Neither the Holders nor the
------------------------------------
Company shall enter into any modification of the Debentures which is in any way
adverse to the holders of the Senior Indebtedness.
7.11 NOTICE TO HOLDERS OF SENIOR INDEBTEDNESS. The Company will
---------------------------------------------
furnish to the holders of Senior Indebtedness at the time Senior Indebtedness is
initially incurred, when there is a change in the Holders thereof, or at any
time upon request therefor, a true and correct copy of the then most current
register setting forth the names and addresses of the Holders as of such date.
7.12 SUBORDINATION AGREEMENT. The Holder by its acceptance hereof
------------------------
agrees to execute and deliver to any Senior Lender such subordination agreement
as may be reasonably requested by such Senior Lender, which may deviate in
certain minor respects from the subordination provisions contained herein but
which is commercially reasonable and customary, and to execute, acknowledge,
deliver, file, notarize and register all such further agreements, instruments,
certificates, documents and assurances, and perform such acts as such Senior
Lender shall deem necessary or appropriate to effectuate the purposes of the
subordination provisions contained herein.
ARTICLE VIII
MISCELLANEOUS
8.1 MODIFICATION OF DEBENTURES. This Debenture may be modified without
---------------------------
prior notice to any Holder upon the written consent of the Company and the
Holders of more than 75% of the principal amount of the Debentures then
outstanding. The Holders of more than 75% of the principal amount of the
Debentures then outstanding may waive compliance by the Company with any
provision of this Debenture without prior notice to any Holder. However, without
the consent of each Holder affected, an amendment, supplement or waiver may not
(1) reduce the amount of Debentures whose Holders must consent to an amendment,
supplement or waiver, (2) reduce the principal amount of or extend the fixed
maturity of any Debenture or (3) make any Debenture payable in money or property
other than as stated in the Debentures.
8.2 MISCELLANEOUS. This Debenture shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Except as specifically provided
herein, the parties hereto, including all guarantors or endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Debenture, and assent to extensions of the time of payment, or forbearance or
other indulgence without notice. The Holder of this Debenture by acceptance of
this Debenture agrees to be bound by the provisions of this Debenture which are
expressly binding on such Holder.
8.3 RANK AND SUBORDINATION. Except as expressly provided herein, no
------------------------
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, interest and
liquidated damages (if any) on, this Debenture at the time, place, and rate, and
in the coin or currency (or, as provided herein, in Common Stock), herein
prescribed. This Debenture is a direct obligation of the Company and ranks
subordinate to all Senior Indebtedness. Except as otherwise provided herein,
the Company may not voluntarily prepay the outstanding principal amount of the
Debenture.
8.4 DEBENTURES OWNED BY COMPANY DEEMED NOT OUTSTANDING. In determining
---------------------------------------------------
whether the Holders of the requisite aggregate principal amount of Debentures
have concurred in any direction, consent or waiver under this Debenture,
Debentures which are owned by the Company or any other obligor on the Debentures
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any other obligor on the
Debentures shall be disregarded and deemed not to be outstanding for the purpose
of any such determination; provided that any Debentures owned by the Purchasers
shall be deemed outstanding for purposes of making such a determination.
Debentures so owned which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Company the
pledgee's right so to act with respect to such Debentures and that the pledgee
is not the Company or any other obligor upon the securities or any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any other obligor on the Debentures.
8.5 NOTICE TO DEBENTUREHOLDERS PRIOR TO TAKING CERTAIN TYPES OF ACTION.
------------------------------------------------------------------
In case:
a. the Company shall authorize the issuance, at any time from and after
the Original Issue Date, to all holders of any class or series of its Capital
Stock, of rights or warrants to subscribe for or purchase shares of its capital
stock or of any other right;
b. the Company shall authorize, at any time from and after the Original
Issue Date, the distribution to all holders of any class or series of its
Capital Stock, of evidences of its indebtedness or assets;
c. the Company shall declare a dividend (or other distribution) on its
Common Stock or the Company shall declare a special nonrecurring dividend on or
a redemption of its Common Stock;
d. of any subdivision, combination or reclassification of any class or
series of Capital Stock of the Company at any time from and after the Original
Issue Date or of any consolidation or merger to which the Company is a party and
for which approval by the shareholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or
e. of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; then the Company shall cause to be mailed to the Holders of
this Debenture, at their last addresses as they shall appear upon the
registration books of the Company, at such time as the Company so notifies its
stockholders, a notice stating (i) the date as of which the holders of record of
such class or series of Capital Stock are to be entitled to receive any such
rights, warrants or distribution are to be determined, or (ii) the date on which
any such subdivision, combination, reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation, winding up or other action is expected
to become effective, and the date as of which it is expected that holders of
record of such class or series of Capital Stock record shall be entitled to
exchange their stock for securities or other property, if any, deliverable upon
such subdivision, combination, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation, winding up or other action.
The failure to give the notice required by this Section 8.5 or any defect
therein shall not affect the legality or validity of any distribution, right,
warrant, subdivision, combination, reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation, winding up or other action, or the
vote upon any of the foregoing.
8.6 EFFECT OF HEADINGS. The Section headings herein are for convenience
------------------
only and shall not affect the construction hereof.
8.7 NO RIGHTS AS STOCKHOLDER. This Debenture shall not entitle the
---------------------------
Holder to any rights as a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other distributions
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
8.8 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
---------------------------------
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this instrument
to be duly executed as of May 4, 2000.
ENDOCARE, INC.
By: /s/ Paul W. Mikus
--------------------
Name: Paul W. Mikus
Title: Chief Executive Officr
BROWN SIMPSON PARTNERS I, LTD.
By: /s/
----------------------
Name:
Title:
<PAGE>
EXHIBIT A
ENDOCARE, INC.
CONVERSION NOTICE
Reference is made to the Debenture issued by Endocare, Inc. (the "Debenture").
----------
In accordance with and pursuant to the Debenture, the undersigned hereby
irrevocably elects to convert the principal amount of the Debenture, indicated
below into shares of Common Stock, par value $.001 per share (the "Common
------
Stock"), of the Company, by tendering the Debenture specified below as of the
date specified below.
Date of
Conversion:________________________________________________________________
Aggregate Principal Amount to be
converted:____________________________________________
Debenture no(s). of Debenture to be
converted:___________________________________________
Please confirm the following information:
Conversion
Price:__________________________________________________________________
Number of shares of Common Stock to be
issued:________________________________________
Please issue the Common Stock into which the Debenture is being converted and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:
Issue
to:_________________________________________________________________________
Facsimile Number:
______________________________________________________________
Authorization:
By:_________________________________________________________________
Title:____________________________________
Dated:___________________________________
Account Number (if electronic book entry
transfer):______________________________________
Transaction Code Number (if electronic book entry
transfer):_______________________________
TBCC
AMENDMENT TO LOAN AGREEMENT
BORROWER: ENDOCARE, INC.
ADDRESS: 7 STUDEBAKER
IRVINE, CALIFORNIA 92618
DATE: APRIL 24, 2000
THIS AMENDMENT TO LOAN AGREEMENT (the "Amendment") is entered into as of
the above date between TRANSAMERICA BUSINESS CREDIT CORPORATION ("TBCC") and the
borrower named above ("Borrower") with respect to the Loan and Security
Agreement between TBCC and Borrower dated July 29, 1999 (as amended from time to
time, the "Loan Agreement"). (This Amendment, the Loan Agreement, the Schedule
to the Loan Agreement (the "Schedule"), and all other documents, instruments and
agreements between TBCC and the Borrower are referred to herein collectively as
the "Loan Documents"). Capitalized terms used but not defined in this
Amendment, shall have the meanings set forth in the Loan Agreement. The parties
hereto desire to amend the Loan Agreement as set forth herein, effective as of
the date hereof.
1. MODIFIED CREDIT LIMIT. The section of the Schedule to Loan
Agreement entitled "1. Credit Limit (Section 1.1)" is hereby amended in its
entirety to read as follows:
"1. CREDIT LIMIT (Section 1.1):
An amount (the "Credit Limit") not to exceed the lesser of:
$5,000,000 at any one time outstanding; or the sum of (a) and (b) below:
(a) Loans (the "Formula Loans") in an amount not to exceed 80% of the amount
of Borrower's Eligible Receivables (as defined in Section 9.1(n) above); plus
(b) Loans (the "Non-Formula Loans") in an amount equal to $4,000,000.
Loans made to the Borrower will first be Formula Loans to the extent Formula
Loans are available to Borrower (based on the most recent Borrowing Base
Certificate provided by Borrower to TBCC under the Streamlined Facility
Agreement of even date), and next Non-Formula Loans to the extent available to
Borrower."
2. INTEREST. The section of the Schedule to Loan Agreement entitled
"2. INTEREST (Section 2.1)" is hereby amended in its entirety to read as
follows:.
"2. INTEREST. (Section 2.1): The interest rate in effect throughout each
calendar month during the term of this Agreement shall be the highest "Base
Rate" in effect during such month, plus
(a) In the case of Formula Loans, 2% per annum, and
(b) In the case of Non-Formula Loans, 3.5% per annum;
provided that the interest charged for each month shall be a minimum of $10,000,
regardless of the amount of the Obligations outstanding. Interest shall be
calculated on the basis of a 360-day year for the actual number of days elapsed.
"Base Rate" shall mean the highest prime, base or equivalent rate of interest
----------
announced from time to time by Citibank, N.A., First National Bank of Chicago
-
and Bank of America, N.A. (which may not be the lowest rate of interest charged
-
by such bank)."
3. REVISED TERMINATION FEE. That portion of section 3 of the Schedule
to Loan Agreement regarding Fees relating to the Termination Fee (Section
1.6(b)) is hereby amended to read as follows:
"Termination Fee (Section 1.6(b)): An amount equal to $10,000 multiplied by
----------------
each month (or portion thereof) from the effective date of termination to the
--
Maturity Date, provided that the Termination Fee shall not exceed $90,000. The
-
Termination Fee shall be payable on the date of termination."
4. NEW WARRANTS. Concurrently herewith, and as one of the conditions
precedent to the effectiveness hereof, Borrower shall execute and deliver to
TBCC (or an affiliate of TBCC as TBCC shall identify), additional warrants to
purchase 10,390 shares of common stock of the Borrower at an initial per share
exercise price of $15.40.
5. FEE. In consideration of TBCC entering into this Agreement,
Borrower has paid TBCC a fee in the amount of $20,000, which shall be
non-refundable and in addition to all interest and other fees payable to TBCC
under the Loan Documents.
6. GENERAL PROVISIONS. This Agreement, the Loan Agreement, and the
other Loan Documents set forth in full all of the representations and agreements
of the parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and under-standings between the parties
with respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement and the other Loan Documents
shall continue in full force and effect and the same are hereby ratified and
confirmed. This Agreement may be executed in any number of counterparts, which
when taken together shall constitute one and the same agreement.
Borrower: TBCC:
ENDOCARE, INC. TRANSAMERICA BUSINESS CREDIT
CORP
By: By: /s/ Paul W. Mikus By: /S/
---------------------- --------------------
Title: Chief Executive Office Title:
By: /s/ William R. Hughes
----------------------
Title: Sr. Vice President and
Chief Financial Officer
<PAGE>
GUARANTOR CONSENT
The undersigned guarantor acknowledges that its consent to the foregoing
Amendment is not required, but the undersigned nevertheless does hereby consent
to the foregoing Amendment and to the documents and agreements referred to
therein and to all future modifications and amendments thereto, and any
termination thereof, and to any and all other present and future documents and
agreements between or among the fore-going parties. Nothing herein shall in any
way limit any of the terms or provisions of the Continuing Guaranty of the
undersigned, all of which are hereby ratified and affirmed. Nothing herein shall
imply any obligation on the part of any party to obtain the consent of the
undersigned to any future transaction, whether or not similar to the foregoing.
Advanced Medical Procedures, Inc.
By: /s/ William R. Hughes
----------------------
Title: Sr. Vice President and
Chief Financial Officer
(ENDOCARE LETTERHEAD)
FOR RELEASE MAY 10, 2000, 7:30 AM EDT
- --------------------------------------------
FOR INVESTORS/FINANCIAL MEDIA: FOR ADDITIONAL INFORMATION:
- ------------------------------- -----------------------------
Matt Clawson Paul Mikus
Allen & Caron, Inc. President and CEO
949/474-4300 Endocare, Inc.
[email protected] 949/595-4770
www.allencaron.com www.endocare.com
ENDOCARE RAISES $8 MILLION IN CONVERTIBLE DEBENTURE FINANCING AND INCREASES
CREDIT LINE BY $2 MILLION
Irvine, Calif.-May 10, 2000- Endocare, Inc. (Nasdaq:ENDO), a leading
developer of FDA-approved cryosurgical technologies for the treatment of cancer,
announced today that Brown Simpson Partners I, Ltd., an institutional investor,
invested an additional $8 million in the Company through the purchase of 7%
convertible debentures due May 2003. Brown Simpson originally purchased $8
million of convertible debentures in 1999. On May 4, 2000, Brown Simpson
exercised an option under the 1999 financing arrangement to purchase an
additional $8 million of convertible debentures. The debentures are convertible
into shares of Endocare's common stock at $6.75 per share at any time at the
investor's option, subject to certain antidilution provisions. The conversion
price, which was established at the time of the original sale of debentures in
1999, was more than 30% above the Endocare stock price at that time. The
Company also announced that $5 million of the original $8 million in convertible
debentures sold to the investor in 1999 was converted into common stock at a
price of $5.125 per share under the terms of the original arrangement.
"We are thrilled with the continued fundamental success of Endocare," said
Mitchell D. Kaye, a Managing Principal at Brown Simpson Asset Management, LLC.
"The Company has executed on each milestone that it has put forth to the
street."
Under a separate transaction, the Company increased its credit facility with
Transamerica Technology Finance, a division of Transamerica Business Credit
Corp, a unit of Transamerica Corp., from $3 million to $5 million.
ABOUT ENDOCARE
Endocare, Inc.-www.endocare.com-is a medical device company that develops,
manufactures and markets cryosurgical and stent technologies for applications in
oncology and urology. The company has initially concentrated on developing
devices for the treatment of the two most common diseases of the prostate,
prostate cancer and benign prostate hyperplasia. The company is also developing
cryosurgical technologies for treating tumors in other organs, including the
kidney, breast and liver.
MORE-MORE-MORE
ENDOCARE RAISES $8 MILLION IN CONVERTIBLE DEBENTURE FINANCING
Page 2-2-2
ABOUT TRANSAMERICA TECHNOLOGY FINANCE
Transamerica Technology Finance provides equipment, senior and bridge term
loans and working capital facilities to venture and intermediate stage
technology and life science companies.
This release contains forward-looking statements. These statements are subject
to risk and uncertainties including, but not limited to, those discussed in the
Company's most recent Annual Report on Form 10-K and Form S-3, filed with the
Securities and Exchange Commission. Such risk factors include, but are not
limited to, limited operating history of the Company with a history of losses;
fluctuations in the Company's order levels; uncertainty regarding market
acceptance of the Company's new products; uncertainty of product development and
the associated risks related to clinical trials; the rapid pace of technological
change in the Company's industry; the Company's limited sales, marketing and
manufacturing experience; and the ability to convince health care professionals
and third party payers of the medical and economic benefits of the Company's
products. The actual results that the Company achieves may differ materially
from any forward looking statements due to such risks and uncertainties.
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