<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-27212
ENDOCARE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0618093
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
7 STUDEBAKER, IRVINE, CALIFORNIA 92618
(Address of principal executive office) (Zip Code)
(714) 595-4770
(Registrant's telephone number, including area code)
18 Technology Drive, Suite 134, Irvine, California 92618
(Former Address)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO
The number of shares of the Registrant's Common Stock, par value $.001 per
share, outstanding on August 12, 1997 was 8,240,124.
<PAGE> 2
ENDOCARE, INC.
FORM 10-Q, QUARTER ENDED June 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
----
Part I. Financial Information
<S> <C> <C>
Item 1 Financial Statements (unaudited)
Condensed Statements of Operations for the fiscal quarters
and six months ended June 30, 1996 and 1997 3
Condensed Balance Sheets at December 31, 1996
and June 30, 1997 4
Condensed Statements of Cash Flows for the six months
ended June 30, 1996 and 1997 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures About Market Risk None
Part II. Other Information
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 12
Item 3 Defaults Upon Senior Securities 12
Item 4 Submission of Matters to a Vote of Security Holders 12
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 13
Signature Page 14
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
ENDOCARE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Quarter Ended Six Months Ended
June 30 June 30, June 30, June 30,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 419,785 $ 229,165 $ 788,841 $ 888,000
Collaborative agreements -- 20,832 1,600 41,664
----------- ----------- ----------- -----------
Total revenues 419,785 249,997 790,441 929,664
Costs and expenses:
Cost of product sales 234,859 151,132 476,164 581,044
Research and development 230,006 423,345 363,656 713,790
Selling, general and administrative 349,478 732,646 597,885 1,428,710
Impairment loss on long-lived assets -- -- 324,878 --
----------- ----------- ----------- -----------
Total costs and expenses 814,343 1,307,123 1,762,583 2,723,544
----------- ----------- ----------- -----------
Loss before income taxes (394,558) (1,057,126) (972,142) (1,793,880)
Provision for income taxes -- 2,700 -- 5,400
----------- ----------- ----------- -----------
Net loss $ (394,558) $(1,059,826) $ (972,142) $(1,799,280)
=========== =========== =========== ===========
Net loss per share of common stock $ (0.07) $ (0.13) $ (0.17) $ (0.23)
=========== =========== =========== ===========
Weighted average shares and common
stock equivalents outstanding 5,632,921 8,195,853 5,626,991 7,817,451
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
ENDOCARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 476,854 $ 5,602,137
Accounts receivable, net 587,945 190,934
Inventories 396,725 956,372
Prepaid expenses and other current assets 41,398 129,919
----------- -----------
Total current assets 1,502,922 6,879,362
Property and equipment, net 178,788 331,232
Other assets 69,191 17,677
----------- -----------
Total assets $ 1,750,901 $ 7,228,271
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 668,761 $ 718,072
Accrued compensation 53,190 61,230
Other accrued liabilities 143,399 229,360
Deferred revenue 118,333 118,333
Customer deposits -- 15,147
----------- -----------
Total current liabilities 983,683 1,142,142
Deferred revenue 166,667 125,003
Convertible note payable 750,000 --
Shareholders' equity (deficiency):
Common stock, $.001 par value 5,645 8,196
Additional paid-in capital 1,376,354 9,283,658
Accumulated deficit (1,531,448) (3,330,728)
----------- -----------
Total shareholders' equity (deficiency) (149,449) 5,961,126
----------- -----------
Total liabilities and equity (deficiency) $ 1,750,901 $ 7,228,271
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
ENDOCARE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (972,142) $(1,799,280)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 16,260 49,105
Amortization of warrant value -- 38,713
Offering costs -- 62,869
Other -- 7,794
Impairment loss on long-lived assets 324,878 --
Changes in operating assets and liabilities:
Accounts receivable (12,951) 397,011
Inventories 73,205 (559,647)
Prepaid expenses and other current assets (14,144) (88,522)
Other Assets -- 51,514
Accounts payable 277,060 49,311
Accrued compensation 40,004 8,040
Other accrued liabilities 20,873 85,961
Deferred revenue -- (41,664)
Customer deposits 53 15,147
----------- -----------
Net cash used in operating activities (246,904) (1,723,648)
Cash flows from investing activities:
Purchases of property and equipment (20,207) (201,549)
Proceeds from sale of property and equipment 17,379 --
----------- -----------
Net cash provided (used) in investing activities (2,828) (201,549)
Cash flows from financing activities:
Issuance of common stock, Medstone Distribution 500,000 --
Issuance of common stock, other 29,895 7,050,480
----------- -----------
Net cash provided by financing activities 529,895 7,050,480
----------- -----------
Net increase in cash and cash equivalents 280,163 5,125,283
Cash and cash equivalents, beginning of period 1,941 476,854
----------- -----------
Cash and cash equivalents, end of period $ 282,104 $ 5,602,137
=========== ===========
Non-Cash Transactions:
Conversion of note payable to common stock -- $ 850,250
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
ENDOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Operations of the Company
ENDOcare, Inc. (the "Company" or "ENDOcare") designs, manufactures, and
markets medical devices to treat prostate diseases worldwide.
Since its formation in 1990, ENDOcare operated first as a research and
development department, then later as a division of Medstone
International, Inc. ("Medstone"). Effective January 1, 1996, ENDOcare
became a totally independent, publicly-owned corporation. At the
beginning of 1996, ENDOcare issued 5,616,528 shares of ENDOcare common
stock to Medstone in exchange for $500,000 cash and the accounts
receivable, inventory, and other net assets of the ENDOcare Division.
On February 6, 1996, Medstone distributed to existing Medstone
shareholders a stock dividend of one share of ENDOcare common stock for
each share of Medstone common stock outstanding on December 29, 1995.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared by
ENDOcare in accordance with Securities and Exchange Commission rules
and regulations. In the opinion of Company management, the unaudited
financial statements include all entries and adjustments necessary for
a fair presentation.
During its third quarter of 1996, the Company recognized a sale
relating to the shipment of product to an international distributor.
The total revenue recognized on this sale approximated $140,000. Due to
the lack of payment by the customer, the Company provided an allowance
for doubtful accounts for a substantial portion of the sale in the
fourth quarter of 1996. However, the Company became aware that the
product had been shipped from the Company's warehouse in error. As a
result, the Company has restated the results of operations for the
third quarter of 1996. Though revenues, cost of product sales and
selling, general and administrative expenses for the year ended
December 31, 1996 have been restated, there has been no net change to
the net loss for the year ended December 31, 1996. In addition, the
above restatement has been reflected in the Company's balance sheet at
December 31, 1996, primarily as a reduction of net accounts receivable
and certain current liabilities and an increase in inventories. The
accompanying balance sheet at December 31, 1996 reflects the impact of
the above-mentioned restatement.
These financial statements should be read in conjunction with the
audited financial statements and other information included in the
Company's Form 10-KA Amendment No. 3 for the year ended December 31,
1996. Financial results for this interim period are not necessarily
indicative of results to be expected for the full year 1997.
3. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
6
<PAGE> 7
4. Supplemental Financial Statement Data
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------- --------
(unaudited)
<S> <C> <C>
Inventories:
Raw materials $213,154 $604,124
Work in process 86,130 92,377
Finished goods 97,441 259,871
-------- --------
Total inventories $396,725 $956,372
======== ========
</TABLE>
5. Net Loss Per Share
Net loss per share is computed using the weighted average number of
actual shares of common stock outstanding for the periods presented.
Fully diluted earnings per share amounts are not presented because they
approximate primary earnings per share.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" (SFAS No. 128). This statement is effective for both interim and
annual periods ending after December 31, 1997, and replaces the
presentation of "primary" earnings per share with "basic" earnings per
share and the presentation of "fully diluted" earnings per share with
"diluted" earnings per share. Earlier application is not permitted.
When adopted, all previously reporting earnings per common share
amounts must be restated based on the provision of SFAS No. 128.
Management does not expect that the adoption of SFAS No. 128 will have
a material effect on the loss per share amounts of the Company
previously reported.
6. Convertible Loan Payable
On August 26, 1996, ENDOcare obtained a two-year $1,500,000 borrowing
facility from four partnerships (the "Partnerships") managed by
Technology Funding Inc., a venture capital firm. In connection with
entering into this loan, ENDOcare issued to the four Partnerships
10,000 shares of common stock as an origination fee and warrants to
purchase an aggregate of up to 150,000 shares of ENDOcare common stock.
The warrants are exercisable at any time between August 26, 1996 and
August 26, 2001, at an exercise price of $3.00 per share, subject to
adjustment.
At December 31, 1996, $750,000 was outstanding under this loan,
accruing interest at a rate of 16% per year.
On January 27, 1997, the Partnerships converted their $750,000
principal amount and accrued interest into 320,000 shares of ENDOcare
common stock at the conversion rate of $2.50 per share. Also, 12,000
additional shares of common stock were issued to the Partnerships as an
inducement to convert at that time. At ENDOcare's election, the
remaining $750,000 borrowing facility was cancelled on that same date.
7
<PAGE> 8
7. Private Placement of Common Stock
On January 27, 1997, ENDOcare sold 2,218,714 shares of common stock at
a price of $3.50 per share in a private placement, with Oppenheimer &
Co., Inc. ("Oppenheimer") acting as placement agent. After expenses,
the net contribution to the Company's capital was approximately
$7,050,000. Expenses deducted from the proceeds include a commission to
Oppenheimer of $543,585 and estimated legal, accounting, and other
professional expenses of $160,000 (final actual expenses may be
different). In addition, Oppenheimer received a warrant to purchase
177,497 shares of ENDOcare common stock for a period of five years at a
price of $4.20 per share. The warrants are exercisable at any time
between January 27, 1998 and January 27, 2002.
8
<PAGE> 9
ITEM 2.
ENDOCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the unaudited financial
statements and notes thereto included in Part I--Item 1, the audited financial
statements, and notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Annual Report on
Form 10-KA Amendment No. 3 for the fiscal year ended December 31, 1996.
General
Endocare designs, manufactures, and markets medical devices to treat diseases of
the prostate, including prostate cancer and prostate enlargement. ENDOcare began
marketing disposable surgical devices in 1993 with the introduction of the
Prolase laser catheter. In late 1995, ENDOcare began marketing two new
disposable product families, the Uroloop and Vaporbar electrosurgical cutting
elements, sales of which became the more significant portion of revenue in early
1996. In May 1996, the Company introduced its new CRYOcare cryosurgical system
for the treatment of prostate cancer. In November 1996, ENDOcare signed a
distribution agreement with Boston Scientific Corporation granting that company
exclusive world-wide marketing rights for CRYOcare systems for urological
applications.
ENDOcare currently is developing additional, innovative therapies for prostate
enlargement. The Company does not expect to be profitable in the immediate
future because of increased operating expenses from expanded research and
development efforts and support of clinical trials for products currently under
development.
Since its formation in 1990, ENDOcare operated first as a research and
development department, then later as a division of Medstone International, Inc.
Effective January 1, 1996, ENDOcare was spun out and began operating as an
independent corporation.
Results of Operations
Product revenue for the three months ended June 30, 1997 decreased 45% to
$229,000 compared to $420,000 in 1996. This decrease resulted from the decline
in revenue associated with the sale of surgical disposables. Included in the
quarter ended June 30, 1997 revenue is $100,000 of CRYOcare system sales to
Boston Scientific Corporation. The shipments are non-refundable discounted unit
sales targeted for demonstration purposes by Boston Scientific Corporation under
the distribution agreement. The corresponding period in 1996 included revenue
derived from surgical disposable and surgical system products.
Product revenue for the six months ended June 30, 1997 increased 13% to $888,000
compared to $789,000 in 1996. The increase was due to the first sales of
CRYOcare systems to Boston Scientific Corporation in the first quarter of 1997
partially offset by the decline in surgical disposable product revenue describe
above.
Revenue from collaborative agreements and related parties for the three months
ended June 30, 1997 increased to $21,000 from zero in 1996. The 1997 amount
represented the second quarter amortization of a lump-sum payment from Boston
Scientific Corporation based upon the distribution agreement entered into in
November 1996.
Revenue from collaborative agreements and related parties for the six months
ended June 30, 1997 increased to $42,000 compared to $1,600 in 1996. The
increase was due to two quarters amortization of the Boston Scientific
Corporation lump sum payment as described above. The 1996 amounts represented
engineering services provided by ENDOcare to its former parent, Medstone
International, none of which is continuing in 1997.
9
<PAGE> 10
Gross margins on product sales were 34% for the three months ended June 30,
1997, compared to 44% in 1996. The decline in gross margins resulted primarily
from the sale of discounted CRYOcare systems to Boston Scientific Corporation
during the three months ended June 30, 1997 compared to revenue derived from
higher margin disposable products and nondiscounted sales of surgical system
products in the same period in 1996.
Gross margins on product sales for the six months ended June 30, 1997 were 35%
compared to 40% in the same period of 1996. The decline is attributable to
product mix and discounted sales to Boston Scientific Corporation as described
above.
Research and development expense increased 84% to $423,000 for the three months
ended June 30, 1997 compared to $230,000 for the corresponding period in 1996.
The increase represented continued investment in the form of additional
personnel and related infrastructure to support the Horizon Stent, CRYOcare
and general product improvement development efforts.
Research and development expense for the six months ended June 30, 1997
increased 96% to $714,000 compared to $364,000 in the same period in 1996. The
increase is attributable to the reasons described above.
Selling, general and administrative expense increased 109% to $733,000 for the
three months ended June 30, 1997 compared to $350,000 for the corresponding
period in 1996. The 1997 amount included costs for additional sales, marketing
and administrative personnel, increased costs associated with the move to
ENDOcare's larger corporate and manufacturing facility, and increased
professional fees associated with legal matters and SEC filings.
Selling, general and administrative expense for the six months ended June 30,
1997 increased 139% to $1,429,000 compared to $598,000 in the same period in
1996. In addition to the reasons described above, selling, general and
administrative expense increased for the six months ended June 30, 1997 as
compared to the same period in 1996 due to first quarter 1997 professional
expenses and costs associated with the offering and sale of common stock in the
private placement, the annual meeting of stockholders, and the related reports
required of public companies. Additionally, 1997 expenses reflect one time
non-cash interest and warrant charges of $79,000 resulting from the conversion
of notes from the four partnerships managed by Technology Funding Inc. into
common stock. The increase in 1997 expenses was partially offset by interest
income of $140,000 earned on the proceeds from the private placement. The
reserve for bad debt for the six months ended June 30, 1997 was $172,000
compared to $16,000 for the corresponding period in 1996. This increase
generally resulted from the change in product mix of sales from inexpensive
disposable products in 1996 to costly capital equipment sales of CRYOcare
systems in 1997.
ENDOcare's net loss for quarter ended June 30, 1997 was $1,060,000, or 13 cents
per share on 8,196,000 weighted average shares outstanding compared to a net
loss of $395,000 or 7 cents per share on 5,633,000 weighted average shares
outstanding for the same period in 1996. Net loss for the six months ended June
30, 1997 was $1,799,000 or 23 cents per share on 7,817,451 weighted average
shares outstanding compared to a net loss of $972,000, or 17 cents per share on
5,627,000 weighted average shares outstanding for the same period in 1996. The
increase in net loss for the 1997 periods presented resulted from lower product
gross margins, higher selling, general and administrative costs, and higher
research and development expenses.
10
<PAGE> 11
Liquidity and Capital Resources
At June 30, 1997, ENDOcare's cash and cash equivalent balance was $5,602,000,
compared to $477,000 at December 31, 1996. Outstanding debt at June 30, 1997 was
zero, compared to $750,000 at December 31, 1996. This improvement in liquidity
and capital resources resulted from two financing transactions consummated on
January 27, 1997.
On that date, ENDOcare sold 2,218,714 shares of common stock at a price of $3.50
per share in a private placement, with Oppenheimer & Co., Inc. acting as
placement agent. After deducting commissions and other estimated expenses of the
sale, this offering added approximately $7,050,000 to ENDOcare's capital base.
Also on January 27, 1997, the four partnerships managed by Technology Funding
Inc. converted the outstanding principal amount of their $750,000 promissory
notes and $50,000 of accrued interest into common stock at the conversion rate
of $2.50 per share. To induce conversion at that time, ENDOcare issued to the
partnerships an additional 12,000 shares of stock, with a fair market value on
that date of approximately $50,000. These transactions converted the outstanding
debt into equity so that ENDOcare will not be required to re-pay principal or to
continue to incur interest expense.
Additional working capital has been used as ENDOcare's operations have increased
in 1997. Net accounts receivable decreased to $191,000 at June 30, 1997,
compared to $588,000 at December 31, 1996. Inventory increased to $956,000 at
June 30, 1997, compared to $397,000 at the beginning of the year. Additions to
property and equipment during the first six months of 1997 were approximately
$201,000. Accounts payable increased to $718,000 from $669,000 at December 31,
1996.
At June 30, 1997 ENDOcare's net working capital was $5,737,000 and the ratio of
current assets to current liabilities was 6 to 1.
With the January 1997 capital infusions, the Company believes that its existing
cash resources and anticipated cash flows from future operations will provide
sufficient resources to meet present and reasonably foreseeable working capital
requirements and other cash needs through the end of 1997. Insofar as the
Company may elect to undertake or accelerate significant research and
development projects for new products or may pursue corporate acquisitions, it
may require additional outside financing prior to such time.
The preceding forward-looking statements are subject to uncertainties in
economic conditions, regulatory issues, and other risk factors. Such factors may
cause actual future results to differ significantly from management's current
expectations.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 27, 1996, Cryomedical Sciences, Inc. ("CMS") filed
a complaint in the Circuit Court for Montgomery County,
Maryland against the Company and Dr. Chang, the Company's Vice
President of Research and Development and former employee of
CMS. The suit alleges that Dr. Chang breached his employment
contract with CMS, that the Company tortiously interfered with
the employment contract and the prospective business relations
of CMS, misappropriated trade secrets and confidential
information, competed unfairly with and conspired against CMS.
CMS is seeking injunctive relief and damages of at least
$10,000,000 and punitive damages of $20,000,000. On January
23, 1997, a temporary restraining order was issued by the
court against the Company and Dr. Chang for the limited
purpose of preventing disclosure of certain information at a
cryosurgery conference. The order expired by its terms on
February 3, 1997. In addition, by order dated July 22, 1997,
the court denied CMS' request for an injunction against the
Company. However, the court issued a preliminary injunction
against Dr. Chang that prohibits his employment with or
performance of services for the Company, or for any other
competitor of CMS engaged in the cryosurgery business in the
United States, Canada, Europe or Taiwan, until a trial on the
merits is held. The order also states that Dr. Chang is not
precluded from petitioning the court to modify the order to
allow him to work for the Company in a capacity not related to
the Company's cryosurgery products. The injunction was based
on language contained in an employment agreement between Dr.
Chang and CMS that prevents him from working for a CMS
competitor. No other injunction or other relief has been
granted to CMS. The Company denies all allegations of
wrongdoing in the complaint and intends to defend the lawsuit
vigorously. However, the costs of defending the lawsuit could
be material, and there can be no assurance that damages, which
could have a material adverse effect on the Company, will not
be assessed. The Company is not a party to any other legal
proceedings.
Item 2. Changes in Securities
Stock Options
During the period from April 1, 1997 through June 30, 1997,
the Company granted stock options to eight individuals
covering an aggregate of 62,500 shares of its common stock.
All such options were granted at fair market value, vest over
a four year period, and are exercisable over a ten year
period. No consideration was paid for any of such options.
Such grants were exempt from the registration requirement of
the Securities Act as not involving the sale of a security.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
12
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 1995 Stock Option Plan, as amended
Exhibit 10.2 1995 Director Option Plan, as amended
Exhibit 10.3 Employee Stock Purchase Plan, as amended
Exhibit 11 Calculation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K -- None
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENDOCARE, INC.
Date: August 13, 1997 By: /s/ Paul W. Mikus
Paul W. Mikus
Chief Executive Officer and President
(Duly Authorized Officer and Principal
Financial Officer)
14
<PAGE> 1
EXHIBIT 10.1
ENDOCARE, INC. 1995 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to:
(a) Attract and retain the best available personnel for positions of
substantial responsibility,
(b) Provide additional incentives to Employees and Consultants, and
(c) Promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Committee at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans under federal and state corporate and
securities laws and the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee appointed by the Board in accordance with
Section 4 of this Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means ENDOcare, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services and who is compensated for
such services. The term "Consultant" shall not include Directors who are paid
only a director's fee by the Company or who are not compensated by the Company
for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent,
<PAGE> 2
any Subsidiary, or any successor. A leave of absence approved by the Company
shall include sick leave, military leave, or any other personal leave approved
by an authorized representative of the Company. If reemployment upon expiration
of a leave of absence approved by the Company is not guaranteed by statute or
contract, on the ninety-first (91st) day of such leave any Incentive Stock
Option held by the Participant shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability as defined in Code
Section 22(e)(3).
(k) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or any Parent or Subsidiary of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is admitted to trading or listed on a national
securities exchange, Fair Market Value shall be the last reported sale price
regular way, or if no such reported sale takes place on that day, the average
of the last reported bid and ask prices regular way, in either case on the
principal national securities exchange on which the Common Stock is admitted
to trading or listed.
(ii) If not admitted to trading or listed on any national securities
exchange, Fair Market Value shall be the last sale price on that day of the
Common Stock reported on the Nasdaq National Market or the Nasdaq SmallCap
Market ("Nasdaq Stock Market") or, if no such reported sale takes place on
that day, the average of the closing bid and ask prices on that day.
(iii) If not included on the Nasdaq Stock Market, Fair Market Value shall
be the average of the closing bid and ask prices of the Common Stock on that
day reported by the Nasdaq electronic bulletin board, or any comparable
system on that day.
(iv) If the Common Stock is not included on the Nasdaq electronic
bulletin board or any comparable system, Fair Market Value shall be the
closing bid and ask prices on that day as furnished by any member of the
- 2 -
<PAGE> 3
National Association of Securities Dealers, Inc. selected from time to time
by the Company for that purpose.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(o) "NONSTATUTORY STOCK OPTION" means an Option that is not intended to
qualify as an Incentive Stock Option.
(p) "NOTICE OF GRANT" means a written notice evidencing certain terms and
conditions of an individual Option or Stock Purchase Right grant. The Notice of
Grant is part of the Option Agreement or Restricted Stock Purchase Agreement
(whichever is applicable).
(q) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of this Plan.
(t) "OPTIONED STOCK" means the Common Stock subject to an Option or Stock
Purchase Right.
(u) "OPTIONEE" means an Employee or Consultant who holds an outstanding
Option or Stock Purchase Right.
(v) "PARENT" means a "parent corporation," whether now or hereafter existing,
as defined in Section 424(e) of the Code.
(w) "PLAN" means this ENDOcare, Inc. 1995 Stock Plan.
(x) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant to a
grant of Stock Purchase Rights under Section 11 of this Plan.
(y) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement between
the Company and the Optionee evidencing the terms and restrictions applying to
Common Stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of this Plan.
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<PAGE> 4
(z) "RULE 16B-3" means Rule 16b-3 under the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(aa) "SECTION 16(B)" means Section 16(b) of the Exchange Act.
(ab) "SHARE" means a share of the Common Stock.
(ac) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock pursuant
to Section 11 of this Plan, as evidenced by a Restricted Stock Purchase
Agreement.
(ad) "SUBSIDIARY" means a "subsidiary corporation", whether now or hereafter
existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 of this Plan, the maximum
aggregate number that may be issued under the Plan is two million (2,000,000)
Shares. The Shares may be authorized but unissued, or reacquired Common Stock.
(b) If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan (unless
the Plan has terminated).
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3, the Plan
may be administered by different bodies with respect to (A) Directors,
Officers who are not Directors, and as to (B) Employees who are neither
Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS SUBJECT TO
SECTION 16(B). With respect to Option or Stock Purchase Right grants made to
Employees who are also Officers or Directors subject to Section 16(b) of the
Exchange Act, the Plan shall be administered by (A) the Board, if the Board
may administer the Plan under Rule 16b-3 or (B) a committee designated by the
Board to administer the Plan, which committee shall be constituted to comply
with the rules under Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. The Board may increase the size of the
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<PAGE> 5
Committee and appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however caused), and
remove all members of the Committee and thereafter directly administer the
Plan. Additionally, to the extent possible and advisable, the Committee shall
be composed of "outside directors" as that term is used in Section 162(m) of
the Code.
(iii) ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With respect to
Option or Stock Purchase Right grants made to Employees or Consultants who
are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board,
which committee shall be constituted to satisfy Applicable Laws. Once
appointed, such Committee shall serve in its designated capacity until
otherwise directed by the Board. The Board may increase the size of the
Committee and appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however caused), and
remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by Applicable Laws.
(b) POWERS OF THE COMMITTEE. Subject to the provisions of this Plan, and in
the case of a Committee, subject to the specific duties delegated by the Board
to such Committee, the Committee shall have the authority, in its discretion to:
(i) Determine the Fair Market Value of the Common Stock in accordance
with Section 2(m) of this Plan;
(ii) Select the Consultants and Employees to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) Determine whether and to what extent Options and Stock Purchase
Rights or any combination thereof, are granted hereunder;
(iv) Determine the number of shares of Common Stock to be covered by
each Option and Stock Purchase Right granted hereunder;
(v) Approve forms of agreement for use under the Plan;
(vi) Determine the terms and conditions, not inconsistent with the terms
of the Plan, of any award granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options or Stock Purchase Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
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<PAGE> 6
Purchase Right or the shares of Common Stock relating thereto, based in each
case on such factors as the Committee, in its sole discretion, shall
determine;
(vii) Construe and interpret the terms of the Plan and awards granted
pursuant to the Plan;
(viii) Prescribe, amend and rescind rules and procedures relating to the
Plan;
(ix) Modify or amend each Option or Stock Purchase Right (subject to
the limits of Section 16 of this Plan), including the discretionary authority
to extend the post-termination exercisability period of Options longer than
is otherwise provided for in the Plan;
(x) Authorize any person to execute on behalf of the Company the
Notice of Grant;
(xi) Determine the terms and restrictions applicable to Options and
Stock Purchase Rights and any Restricted Stock; and
(xii) Take all other actions deemed necessary or advisable for
administering the Plan.
(c) EFFECT OF COMMITTEE'S DECISION. The Committee's decisions, determinations
and interpretations shall be final and binding on all Optionees and any other
holders of Options or Stock Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. If otherwise eligible, an Employee or Consultant who has been
granted an Option or Stock Purchase Right may be granted additional Options or
Stock Purchase Rights.
6. LIMITATIONS.
(a) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds one
hundred thousand dollars ($100,000), such Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive
Stock Options shall be taken into account in the order in which they were
granted, and the Fair Market Value of the Shares shall be determined as of
the time the Option with respect to such Shares is granted.
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<PAGE> 7
(b) Neither the Plan nor any Option or Stock Purchase Right shall confer
upon an Optionee any right with respect to continuing the Optionee's
employment or consulting relationship with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such employment or consulting relationship at any time, with or
without cause.
(c) The following limitations shall apply to grants of Options and Stock
Purchase Rights to Participants:
(i) No Participant shall be granted in any fiscal year of the
Company (commencing in fiscal year 1996) Options and Stock Purchase
Rights to purchase more than one hundred thousand (100,000) Shares.
(ii) In connection with his or her initial employment by the Company
or a Parent or Subsidiary, a Participant may be granted Options and Stock
Purchase Rights to purchase up to an additional one hundred thousand
(100,000) Shares which shall not count against the limit set forth in
Subsection (i) immediately above.
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described
in Section 13 of this Plan.
(d) In the event that the date of grant of an Option is not a trading
day, the exercise price per Share shall be the Fair Market Value on the next
trading day immediately following the date of grant of the Option.
7. TERM OF PLAN. The Plan became effective on October 31, 1995. It shall
continue in effect for a term of ten (10) years (October 30, 2005) unless
terminated earlier under Section 16 of this Plan. If the number of shares that
can be issued under the Plan and/or the class of individuals eligible to receive
Incentive Stock Options is changed, stockholder approval must again be obtained.
8. TERM OF OPTION. The term of each Option shall be stated in the Notice of
Grant. However, in the case of an Incentive Stock Option, the term shall be ten
(10) years from the date of grant or such shorter term as may be provided in the
Notice of Grant. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary (determined using the
constructive ownership rules of Section 424(d) of the Code), the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Notice of Grant.
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<PAGE> 8
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Committee, subject to the following limits:
(i) In the case of an Incentive Stock Option granted to any
Employee other than an Employee described in Paragraph 9(a)(iii) below,
the per Share exercise price shall be no less than one hundred percent
(100%) of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option granted to an
Optionee other than as described in Paragraph 9(a)(iii) below, the per
Share exercise price shall be determined by the Committee, but in any
event shall not be less than eighty-five percent (85%) of the Fair Market
Value per Share on the date of grant.
(iii) In the case of either an Incentive Stock Option or a Non
Statutory Option, granted to any Optionee who, at the time the Option is
granted, owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than
one hundred ten percent (110%) of the Fair Market Value per Share on the
date of grant.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is granted,
the Committee shall fix the period within which the Option may be exercised
and shall determine any conditions which must be satisfied before the Option
may be exercised. In so doing, the Committee may specify that an Option may
not be exercised until the completion of a service period. Notwithstanding
anything herein to the contrary, all Options shall vest with respect to at
least 20% of the total number of Shares subject to the Option per year over a
period of not longer than five years from the date the Option is granted.
(c) FORM OF CONSIDERATION. The Committee shall determine the acceptable
form of consideration for exercising an Option, including the method of
payment. In the case of an Incentive Stock Option, the Committee shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist of:
(i) Cash;
(ii) Check;
(iii) Promissory note;
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<PAGE> 9
(iv) Other Shares which (A) have been owned by the Optionee for
more than six months on the date of surrender and (B) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised;
(v) Delivery of a properly executed exercise notice together with
such other documentation as the Committee and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the
Company of the sale or loan proceeds required to pay the exercise price;
(vi) A reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) Any combination of the foregoing methods of payment; or
(viii) Such other consideration and method of payment for the
issuance of Shares selected by the Board of Directors that is permissible
under Applicable Law.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Committee and set forth
in the Option Agreement.
(b) An Option may not be exercised for a fraction of a Share.
(c) An Option shall be deemed exercised when the Company receives (i)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of
any consideration and method of payment authorized by the Committee and
permitted by the Option Agreement and the Plan. Shares issued upon exercise
of an Option shall be issued in the name of the Optionee or, if requested by
the Optionee, in the name of the Optionee and his or her spouse. Until the
stock certificate evidencing such Shares is issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly after the Option is exercised.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued.
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<PAGE> 10
(d) Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(e) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Upon
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option, but only within such period of time as is specified in the
Notice of Grant, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Notice of Grant).
In the absence of a specified time in the Notice of Grant, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
In the case of an Incentive Stock Option, such period of time for exercise
shall not exceed three (3) months from the date of termination. If, on the
date of termination, the Optionee is not entitled to exercise the Optionee's
entire Option, the Shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not
exercise all of his or her Option within the time specified in the Option,
the Option shall terminate, and the remaining Shares covered by such Option
shall revert to the Plan.
(f) Notwithstanding the above, in the event of an Optionee's change in
status from Consultant to Employee or Employee to Consultant, an Optionee's
Continuous Status as an Employee or Consultant shall not automatically
terminate solely as a result of such change in status. However, in such
event, an Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option on the ninety-first (91st) day following such
change of status.
(g) DISABILITY OF OPTIONEE. In the event that an Optionee's Continuous
Status as an Employee or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option at any time within
twelve (12) months from the date of such termination, but only to the extent
that the Optionee was entitled to exercise it at the date of such termination
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant). If, at the date of termination, the Optionee
is not entitled to exercise his or her entire Option, the Shares covered by
the unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise the full amount of his or her
Option within the time specified in the Option, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquired the right
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<PAGE> 11
to exercise the Option by bequest or inheritance, but only to the extent
that the Optionee was entitled to exercise the Option at the date of death.
If, at the time of death, the Optionee was not entitled to exercise his or
her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest
or inheritance does not exercise the full amount of the Option within the
time specified in the Option, the Option shall terminate, and the remaining
Shares covered by such Option shall revert to the Plan.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone,
in addition to, or in tandem with other awards granted under the Plan and/or
cash awards made outside of the Plan. After the Committee determines that it
will offer a Stock Purchase Right under the Plan, it shall advise the
Optionee in writing, by means of a Notice of Grant, of the terms, conditions
and restrictions related to the offer, including the number of Shares that
the Optionee shall be entitled to purchase, the price to be paid, and the
time within which the Optionee must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Committee.
(b) REPURCHASE OPTION. Unless the Committee determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
Optionee's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
Optionee and may be paid by cancellation of any indebtedness of the Optionee
to the Company. The repurchase option shall lapse at the rate set forth in
the Restricted Stock Purchase Agreement.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Committee in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be
the same with respect to each Optionee.
(d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is exercised,
the Optionee shall have the rights equivalent to those of a stockholder, and
shall be a stockholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised.
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<PAGE> 12
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. An Option or
Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised during the lifetime of the Optionee
only by the Optionee.
13. ADJUSTMENTS
(a) In the event of any change in the capitalization of the Company
affecting its Common Stock (e.g., a stock split, reverse stock split, stock
dividend, recapitalization, combination, or reclassification), there shall be
an adjustment to:
(i) The number and/or kind of Shares covered by each outstanding
Option or Stock Purchase Right;
(ii) The aggregate number and/or kind of Shares may be granted under
this Plan; and
(iii) The exercise price per Share in respect of each outstanding
Option or Stock Purchase Right.
(b) The Committee may also make such adjustments in the event of a
spin-off or other distribution of Company assets to stockholders (other than
normal cash dividends).
14. EXTRAORDINARY EVENTS
(a) The Plan as well as each outstanding Option and Stock Purchase Right
shall terminate upon the occurrence of any of the following events
("Extraordinary Events"):
(i) The dissolution, liquidation, or sale of all (or substantially
all) of the assets of the Company;
(ii) Any reorganization, merger, or consolidation in which the
Company does not survive;
(iii) The acquisition by any person or group (as defined in Section
13d of the Exchange Act) of beneficial ownership of more than fifty
percent (50%) of the Company Stock; or
(iv) Any reorganization, merger, or consolidation in which the
Company does survive but the Shares outstanding immediately preceding the
transaction are converted by virtue of the transaction into other
property, whether in the form of securities, cash, or otherwise.
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<PAGE> 13
However, in no case will an Extraordinary Event be deemed to have
occurred as a result of a sale of stock to the Company or to a holding
company established by the Company.
(b) If an Extraordinary Event occurs, all Options shall become fully
exercisable and all limitations upon Restricted Stock shall terminate. Each
Participant shall have the right to exercise any unexpired Option(s) and/or
Stock Purchase Right prior to the Extraordinary Event, however, the
effectiveness of any such exercise shall be:
(i) Conditioned upon:
(A) The Extraordinary Event actually occurring; and
(B) The Committee's receipt of the notice of exercise within the
time period established by the Committee; and
(ii) Delayed until immediately prior to the Extraordinary Event.
15. DATE OF GRANT. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Committee makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Committee. The Notice of Grant shall be provided to
each Optionee within a reasonable time after the date of such grant.
16. AMENDMENT AND TERMINATION.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan, Option, or Stock Purchase Right shall
impair the rights of any Optionee, unless mutually agreed otherwise between
the Optionee and the Committee.
17. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the exercise
of an Option or Stock Purchase Right unless the exercise of such Option or
Stock Purchase Right and the issuance and delivery of such Shares shall
comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Exchange Act as well as the rules
and regulations promulgated thereunder, Applicable Laws, and the requirements
of any stock exchange or quotation
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<PAGE> 14
system upon which the Shares may then be listed or quoted, and shall be
further subject to the approval of counsel for the Company with respect to
such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
18. LIABILITY OF COMPANY.
(a) INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such
requisite authority shall not have been obtained.
(b) GRANTS EXCEEDING ALLOTTED SHARES. If the Optioned Stock covered by an
Option or Stock Purchase Right exceeds, as of the date of grant, the number
of Shares which may be issued under the Plan without additional stockholder
approval, such Option or Stock Purchase Right shall be void with respect to
such excess Optioned Stock, unless stockholder approval of an amendment
sufficiently increasing the number of Shares subject to the Plan is timely
obtained.
19. RESERVATION OF SHARES. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
20. FINANCIAL STATEMENTS. Each Optionee shall receive financial statements of
the Company at least annually.
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<PAGE> 1
EXHIBIT 10.2
ENDOCARE, INC. 1995 DIRECTOR OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1995 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined in this Plan) of the Company, to provide additional
incentives to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the Common Stock of the Company.
(d) "COMPANY" means ENDOcare, Inc., a Delaware corporation.
(e) "DIRECTOR" means a member of the Board.
(f) "EMPLOYEE" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a Director's fee by the Company shall not be
sufficient in and of itself to constitute "employment" by the Company.
(g) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(h) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is admitted to trading or listed on a
national securities exchange, Fair Market Value shall be the last
reported sale price regular way, or if no such reported sale takes
place on that day, the average of the last reported bid and ask
prices regular way, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading
or listed.
(ii) If not admitted to trading or listed on any national
securities exchange, Fair Market Value shall be the last sale price
on that day of the Common Stock reported on the Nasdaq National
Market or the Nasdaq SmallCap Market ("Nasdaq Stock Market") or, if
no such reported sale takes place on that day, the average of the
closing bid and ask prices on that day.
<PAGE> 2
(iii) If not listed on the Nasdaq Stock Market, Fair Market
Value shall be the average of the closing bid and ask prices of the
Common Stock on that day reported by the Nasdaq electronic bulletin
board, or any comparable system on that day.
(iv) If the Common Stock is not included on the Nasdaq
electronic bulletin board or any comparable system, Fair Market
Value shall be the closing bid and ask prices on that day as
furnished by any member of the National Association of Securities
Dealers, Inc. selected from time to time by the Company for that
purpose.
(i) "INSIDE DIRECTOR" means a Director who is an Employee.
(j) "OPTION" means a stock option granted pursuant to the Plan.
(k) "OPTIONED STOCK" means the Common Stock subject to an Option.
(l) "OPTIONEE" means a Director who holds an Option.
(m) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(n) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(o) "PLAN" means this 1995 Director Option Plan.
(p) "SHARE" means a share of the Common Stock.
(q) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
(r) "TRADING DAY" shall mean a day on which national stock exchanges
and the NASDAQ Stock Market are open for trading.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of this Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is one hundred fifty thousand (150,000) Shares of Common
Stock. The Shares may be authorized but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated).
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<PAGE> 3
4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN. All grants of
Options to Outside Directors under this Plan shall be automatic and
nondiscretionary and shall be made strictly in accordance with the following
provisions:
(a) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(b) Each Outside Director shall be automatically granted an Option
to purchase ten thousand (10,000) Shares (the "First Option") on the
date on which the later of the following events occurs: (i) the
effective date of this Plan, as determined in accordance with Section 7
of this Plan, or (ii) the date on which such person first becomes an
Outside Director, whether through election by the stockholders of the
Company or appointed by the Board to fill a vacancy. However, an Inside
Director who ceases to be an Inside Director but who remains a Director
shall not receive a First Option.
(c) Each Outside Director shall be automatically granted an Option
to purchase five thousand (5,000) Shares (a "Subsequent Option") on
January 1 of each year provided he or she is then an Outside Director
and if as of such date, he or she shall have served on the Board for at
least the preceding six (6) months.
(d) The terms of a First Option granted hereunder shall be as
follows:
(i) The term of the First Option shall be ten (10) years.
(ii) The First Option shall be exercisable while the Outside
Director remains a Director of the Company, and as set forth in
Sections 9 and 12 of this Plan.
(iii) The exercise price per Share shall be one hundred percent
(100%) of the Fair Market Value per Share on the date of grant of
the First Option; provided, however that the exercise price per
Share shall be one hundred ten percent (110%) of the Fair Market
Value per Share on the date of grant of the First Option if the
Optionee, at the time the First Option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or
Subsidiary. In the event that the date of grant of the First Option
is not a Trading Day, the exercise price per Share shall be the Fair
Market Value on the next Trading Day immediately following the date
of grant of the First Option.
(iv) The First Option shall be immediately exercisable.
(e) The terms of a Subsequent Option granted hereunder shall be as
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<PAGE> 4
follows:
(i) The term of the Subsequent Option shall be ten (10) years.
(ii) The Subsequent Option shall be exercisable while the
Outside Director remains a Director of the Company, and as set forth
in Sections 9 and 12 of this Plan.
(iii) The exercise price per Share shall be one hundred percent
(100%) of the Fair Market Value per Share on the date of grant of
the Subsequent Option; provided, however that the exercise price per
Share shall be one hundred ten percent (110%) of the Fair Market
Value per Share on the date of grant of the Subsequent Option if the
Optionee, at the time the Subsequent Option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or
Subsidiary. In the event that the date of grant of the Subsequent
Option is not a Trading Day, the exercise price per Share shall be
the Fair Market Value on the next Trading Day immediately following
the date of grant of the Subsequent Option.
(iv) Subject to Section 12 of this Plan, the Subsequent Option
shall become fully exercisable on the first anniversary of its date
of grant.
(f) In the event that any Option granted under the Plan would cause
the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the number of
Shares available under the Plan, then the remaining Shares available
for Option grants shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant
under the Plan through action of the Board or the stockholders to
increase the number of Shares which may be issued under the Plan or
through cancellation or expiration of Options previously granted
hereunder.
(g) If stockholder approval of this Plan, as amended and restated,
is obtained, all outstanding Options will be treated, effective as of
the date of such stockholder approval, as if they had been issued under
this Plan, as so amended and restated.
(h) Notwithstanding anything herein to the contrary, all Options
shall vest with respect to at least 20% of the total number of Shares
subject to the Option per year over a period of not longer than five
years from the date the Option is granted.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 of this Plan.
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<PAGE> 5
6. NO CREATION OF ADDITIONAL RIGHTS. The Plan shall not confer upon any
Optionee any right with respect to continuation of service as a Director or
nomination to serve as a Director, nor shall it interfere in any way with any
rights which the Director or the Company may have to terminate the Director's
relationship with the Company at any time.
7. TERM OF PLAN. The Plan became effective on October 31, 1995. It
shall continue in effect for a term of ten (10) (October 30, 2005) years unless
sooner terminated under Section 13 of this Plan.
8. FORM OF CONSIDERATION. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
consist of:
(i) Cash;
(ii) Check;
(iii) Other Shares which (A) have been owned by the Optionee for
more than six (6) months on the date of surrender, and (B) have a Fair
Market Value on the date of surrender equal to the aggregate exercise
price of the Shares as to which said Option shall be exercised;
(iv) Delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the
Company of the sale or loan proceeds required to pay the exercise
price;
(v) Any combination of the foregoing methods of payment; or
(vi) Such other consideration and method of payment for the
issuance of Shares selected by the Board of Directors that is
permissible under Applicable Law.
9. EXERCISE OF OPTION. Subject to Section 12 of this Plan, the
following rules shall apply regarding the exercise of Options.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
granted under this Plan shall be exercisable at such times as are set
forth in Section 4 of this Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment
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<PAGE> 6
may consist of any consideration and method of payment allowable
under Section 8 of this Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such
Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A certificate for the
number of Shares so acquired shall be issued to the Optionee as soon as
practicable after exercise of the Option. No adjustment shall be made
for a dividend or other right for which the record date is prior to the
date the stock certificate is issued.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. In the event an
Optionee's status as a Director terminates (other than upon the
Optionee's death or total and permanent disability (as defined in
Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such
termination and only to the extent that the Optionee was entitled to
exercise it on the date of such termination (but in no event later than
the expiration of its ten (10) year term). To the extent that the
Optionee was not entitled to exercise an Option on the date of such
termination, or to the extent that the Optionee does not exercise the
full amount of such Option (to the extent otherwise so entitled) within
the time specified in the Option, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event Optionee's status as a
Director terminates as a result of total and permanent disability (as
defined in Section 22(e)(3) of the Code), the Optionee may exercise his
or her Option, but only within twelve (12) months following the date of
such termination, and only to the extent that the Optionee was entitled
to exercise it on the date of such termination (but in no event later
than the expiration of its ten (10) year term). To the extent that the
Optionee was not entitled to exercise an Option on the date of
termination, or if he or she does not exercise the full amount of such
Option (to the extent otherwise so entitled) within the time specified
in the Option, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of an Optionee's death, the
Optionee's estate or a person who acquires the right to exercise the
Option by bequest or inheritance may exercise the Option, but only
within twelve (12) months following the date of death, and only to the
extent that the Optionee was entitled to exercise it on the date of
death (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an
Option on the date of death, or to the extent that the Optionee's
estate or a person who acquired the right to exercise such Option does
not exercise the full amount of such Option (to the extent otherwise so
entitled) within the time specified in the Option, the Option shall
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<PAGE> 7
terminate.
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS
(a) In the event of any change in the capitalization of the Company
affecting its Common Stock (e.g., a stock split, reverse stock split,
stock dividend, recapitalization, combination, or reclassification),
there shall be an adjustment to:
(i) The number and/or kind of Shares covered by each
outstanding Option;
(ii) The aggregate number and/or kind of Shares may be granted
under this Plan; and
(iii) The exercise price per Share in respect of each
outstanding Option.
(b) The Committee may also make such adjustments in the event of a
spin-off or other distribution of Company assets to stockholders (other
than normal cash dividends).
12. EXTRAORDINARY EVENTS
(a) The Plan and each outstanding Option shall terminate upon the
occurrence of any of the following events ("Extraordinary Events"):
(i) The dissolution, liquidation, or sale of all (or
substantially all) of the assets of the Company;
(ii) Any reorganization, merger, or consolidation in which the
Company does not survive;
(iii) The acquisition by any person or group (as defined in
Section 13d of the Exchange Act) of beneficial ownership of more
than fifty percent (50%) of the Company Stock; or
(iv) Any reorganization, merger, or consolidation in which the
Company does survive but the Shares outstanding immediately
preceding the transaction are converted by virtue of the transaction
into other property, whether in the form of securities, cash, or
otherwise.
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<PAGE> 8
However, in no case will an Extraordinary Event be deemed to have
occurred as a result of a sale of stock to the Company or to a holding
company established by the Company.
(b) If an Extraordinary Event occurs, all Options shall become fully
exercisable. Each Participant shall have the right to exercise any
unexpired Option(s) prior to the Extraordinary Event, however, the
effectiveness of any such exercise shall be:
(i) Conditioned upon:
(A) The Extraordinary Event actually occurring; and
(B) The Committee's receipt of the notice of exercise within
the time period established by the Committee; and
(ii) Delayed until immediately prior to the Extraordinary
Event.
13. AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend, or terminate the Plan, but no amendment, alteration, suspension, or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent.
14. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 of this Plan.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions
of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock
exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at
the time of any such exercise that the Shares are being purchased only
for investment and without any present intention to sell or distribute
such Shares, if, in the opinion of counsel for the Company, such a
representation is required by any of the previously mentioned relevant
provisions of law.
(c) Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's
counsel to be
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<PAGE> 9
necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to
issue or sell such Shares as to which such requisite authority shall
not have been obtained.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Committee shall approve.
18. FINANCIAL STATEMENTS. Each Optionee shall receive financial
statements of the Company at least annually.
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EXHIBIT 10.3
ENDOCARE, INC. EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the Employee Stock Purchase
Plan of Endocare, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated Payroll Deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Code. The provisions of the Plan, accordingly, shall be
construed so as to comply with the requirements of that section of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMMITTEE" shall mean the person or persons appointed by the
Board to administer the Plan.
(e) "COMPANY" shall mean Endocare, Inc. and any Designated Subsidiary
of the Company.
(f) "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries which have
been designated by the Board from time to time in its sole discretion
whose employees are eligible to participate in the Plan.
(g) "ELIGIBLE EMPLOYEE" shall mean any individual who is an employee
of the Company or a Designated Subsidiary for employment tax purposes
whose customary employment with the Company or a Designated Subsidiary
is at least twenty (20) hours per week and more than five (5) months in
any calendar year. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual
is on sick leave or other leave of absence approved by the Company or a
Designated Subsidiary. Where the period of leave exceeds ninety (90)
days and the individual's right to reemployment is not guaranteed
either by statute or by contract, the employment relationship will be
deemed to have terminated on the ninety-first (91st) day of such leave.
The term "Eligible Employee" shall not include any persons who are
designated as independent contractors by the Company or by a Designated
Subsidiary, notwithstanding any determination to the contrary by the
Internal Revenue Service.
(h) "ENROLLMENT DATE" shall mean the first day of each Offering
Period.
<PAGE> 2
(i) "EXERCISE DATE" shall mean the last day of each Offering Period.
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is admitted to trading or listed on a
national securities exchange, Fair Market Value shall be the last
reported sale price regular way, or if no such reported sale takes
place on that day, the average of the last reported bid and ask
prices regular way, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading
or listed.
(ii) If not admitted to trading or listed on any national
securities exchange, Fair Market Value shall be the last sale price
on that day of the Common Stock reported on the Nasdaq National
Market or the Nasdaq SmallCap Market ("Nasdaq Stock Market") or, if
no such reported sale takes place on that day, the average of the
closing bid and ask prices on that day.
(iii) If not listed on the Nasdaq Stock Market, Fair Market Value
shall be the average of the closing bid and ask prices of the Common
Stock on that day reported by the Nasdaq electronic bulletin board,
or any comparable system on that day.
(iv) If the Common Stock is not included in the Nasdaq
electronic bulletin board or any comparable system, Fair Market
Value shall be the closing bid and ask prices on that day as
furnished by any member of the National Association of Securities
Dealers, Inc. selected from time to time by the Company for that
purpose.
(k) "OFFERING PERIOD" shall mean a period of approximately six (6)
months, commencing on the first Trading Date occurring on or after
April 1 and terminating on the last Trading Day in the period ending
the following September 30, or commencing on the first Trading Day
occurring on or after October 1 and terminating on the last Trading Day
in the period ending the following March 31, during which an Option
granted pursuant to the Plan may be exercised. The duration of Offering
Periods may be changed pursuant to Section 4 of this Plan.
(l) "OPTION" shall mean the right granted to an Eligible Employee to
purchase stock under this Plan.
(m) "PARTICIPANT" shall mean an Eligible Employee who was granted an
Option under this Plan.
(n) "PAYROLL DEDUCTIONS" shall mean the contributions made by
Participants to the Plan by means of withholdings from their pay.
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<PAGE> 3
(o) "PLAN" shall mean this Endocare, Inc. Employee Stock Purchase
Plan.
(p) "PURCHASE PRICE" shall mean an amount equal to one hundred
percent (100%) of the Fair Market Value of a share of Common Stock on
the Enrollment Date or eighty-five percent (85%) of the Fair Market
Value of a share of Common Stock on the Exercise Date, whichever is
lower.
(q) "SUBSCRIPTION AGREEMENT" shall mean an agreement entered into by
a Participant to have payroll withholdings made to be used to purchase
Common Stock under the Plan.
(r) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or
a Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.
(s) "TRADING DAY" shall mean a day on which national stock exchanges
and the NASDAQ Stock Market are open for trading.
3. ELIGIBILITY.
(a) Any Eligible Employee shall be eligible to participate in the
Plan provided (i) he or she has been be employed by the Company or a
Designated Subsidiary for six (6) continuous months and (ii) is
employed on the relevant Enrollment Date.
(b) For purposes of the eligibility conditions set forth in Paragraph
(a) above, the Board of Directors may determine, in its sole
discretion, that the employees of any business acquired by the Company
("Acquired Business") may receive credit for their periods of service
with the Acquired Business prior to its acquisition by the Company,
which discretion need not be exercised in a uniform manner for all
acquisitions.
(c) Any provisions of the Plan to the contrary notwithstanding, no
Eligible Employee shall be granted an Option under the Plan to the
extent:
(i) Immediately after the grant, such Eligible Employee (or any
other person whose stock would be attributed to such Eligible
Employee pursuant to Section 424(d) of the Code) would own capital
stock of the Company and/or hold outstanding options to purchase such
stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the
Company or of any Subsidiary; or
(ii) His or her rights to purchase stock under all employee stock
purchase plans qualifying under Section 423 that are maintained by
the Company and its Subsidiaries to accrue at a rate which exceeds
twenty-five thousand
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<PAGE> 4
dollars $25,000) worth of stock (determined at the Fair Market
Value of the shares at the time such Option is granted) for each
calendar year in which such Option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after April 1 and October 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 18 of this Plan. The Board shall have the power to change the duration
of Offering Periods (including the commencement date thereof) with respect to
future offerings without stockholder approval.
5. PARTICIPATION.
(a) An Eligible Employee may become a Participant in the Plan by
completing a Subscription Agreement and filing it with the Company's
payroll office prior to the applicable Enrollment Date.
(b) Payroll Deductions for a Participant shall commence on the
first payroll period ending following the Enrollment Date and shall
end on the last payroll in the Offering Period to which such
authorization is applicable, unless sooner terminated by the
Participant as provided in Section 9 of this Plan.
6. PAYROLL DEDUCTIONS.
(a) At the time a Participant files his or her Subscription
Agreement, he or she shall elect to have Payroll Deductions made on
each pay day during the Offering Period in a fixed dollar amount per
payroll period, but in no event less than fifty dollars ($50) per
month.
(b) All Payroll Deductions made for a Participant shall be
credited to his or her account under the Plan. A Participant may not
make any additional payments into such account.
(c) A Participant may discontinue his or her participation in the
Plan as provided in Section 9 of this Plan, or may decrease the rate
of his or her Payroll Deductions during the Offering Period by
completing and filing with the Company a new Subscription Agreement
authorizing a change in Payroll Deduction rate. The Board may, in its
discretion, limit the number of contribution rate changes during any
Offering Period. The change in rate shall be effective with the first
payroll period ending following five (5) business days after the
Company's receipt of the new Subscription Agreement unless the
Company elects to process a given change in the Participant's
contribution rate more quickly. A Participant's Subscription
Agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 9 of this Plan.
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<PAGE> 5
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each
Eligible Employee participating in such Offering Period shall be granted an
Option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) the number of shares of the Company's Common Stock
determined by dividing such Eligible Employee's Payroll Deductions anticipated
to be accumulated prior to such Exercise Date by the applicable Purchase Price.
However, in no event shall an Eligible Employee be granted an Option to purchase
during an Offering Period more than the number of Shares determined by dividing
$12,500 by the Fair Market Value of a share of the Company's Common Stock on the
Enrollment Date. Exercise of the Option shall occur as provided in Section 8 of
this Plan, unless the Participant has withdrawn from the Plan pursuant to
Section 9 of this Plan. The Option shall expire on the last day of the Offering
Period.
8. EXERCISE OF OPTION. Unless a Participant withdraws as provided in
Section 9 of this Plan, his or her Option shall be exercised automatically on
the Exercise Date, and the maximum number of full shares subject to Option shall
be purchased for such Participant at the applicable Purchase Price with the
accumulated Payroll Deductions in his or her account. No fractional shares shall
be purchased; any Payroll Deductions accumulated in a Participant's account
which are not sufficient to purchase a full share shall be retained in the
Participant's account for use in the subsequent Offering Period, subject to
earlier withdrawal by the Participant as provided in Section 9 of this Plan.
Should the Fair Market Value of the Common Stock drop, the full number
of shares that can be purchased with the funds in the Participant's account will
be acquired, even if that is more than the number of shares contained in the
Participant's Option for that Offering Period. However, in no event may a
Participant purchase more than ten thousand (10,000) shares in a single Offering
Period.
9. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A Participant may withdraw all (but not less than all) of the
Payroll Deductions credited to his or her account and not yet used to
exercise his or her Option at any time by giving written notice to the
Company in the form prescribed by the Committee. All of the
Participant's Payroll Deductions credited to his or her account will be
paid to such Participant promptly after receipt of notice of withdrawal
and such Participant's Option for the Offering Period will be
automatically terminated, and no further Payroll Deductions for the
purchase of shares will be made during the Offering Period. If a
Participant withdraws from an Offering Period, Payroll Deductions will
not resume at the beginning of the succeeding Offering Period unless the
Participant delivers to the Company a new Subscription Agreement before
that date.
(b) Upon a Participant's ceasing to be an Eligible Employee for any
reason, he or she will be deemed to have elected to withdraw from the
Plan as of the date he or she ceases to be an Eligible Employee and the
Payroll Deductions credited to such
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<PAGE> 6
Participant's account during the Offering Period but not yet used to
exercise the Option will be returned to such Participant or, in the case
of his or her death, to the Participant's estate.
10. INTEREST. No interest shall accrue on the Payroll Deductions of a
Participant in the Plan.
11. STOCK.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be two
hundred fifty thousand (250,000) shares, subject to adjustment upon
changes in capitalization of the Company as provided in Section 16 of
this Plan. If, on a given Exercise Date, the number of shares with
respect to which Options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase.
(b) The Participant will have no interest or voting right in
shares covered by his or her Option until such Option has been
exercised.
(c) Shares acquired on behalf of a Participant will be held in a
book entry account maintained by the Company unless the Participant
specifically requests in writing the delivery of a stock certificate. If
so requested, as promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the
delivery to such Participant of a certificate representing the shares
purchased upon exercise of his or her Option.
(d) Shares to be delivered to a Participant under the Plan will
be registered in the name of the Participant or in the name of the
Participant and his or her spouse, as designated by the Participant.
12. ADMINISTRATION. The Plan shall be administered by the Committee. The
Committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Committee shall, to the full extent permitted by law,
be final and binding upon all parties.
13. TRANSFERABILITY. Neither the Payroll Deductions credited to a
Participant's account nor any rights with regard to an Option nor the right to
receive Common Stock under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way.
14. USE OF FUNDS. All Payroll Deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such Payroll Deductions.
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<PAGE> 7
15. REPORTS. Individual accounts will be maintained for each Participant
in the Plan. Statements of account will be given to Participants at least
annually, which statements will set forth the amounts of Payroll Deductions, the
Purchase Price, the number of shares purchased and the remaining cash balance,
if any.
16. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. A proportionate
adjustment shall be made by the Committee in the number, price, and kind of
shares subject to outstanding Options if the outstanding shares of Common Stock
are increased, decreased, or exchanged for different securities, through
reorganization, recapitalization, reclassification, stock split, stock dividend,
or other similar transaction not constituting an Extraordinary Event under
Section 17 of this Plan.
17. EXTRAORDINARY EVENTS.
(a) The Plan as well as each outstanding Option shall terminate upon the
occurrence of any of the following events ("Extraordinary Events"):
(i) The dissolution, liquidation, or sale of all (or
substantially all) of the assets of the Company;
(ii) Any reorganization, merger, or consolidation in which the
Company does not survive;
(iii) The acquisition by any person or group (as defined in
Section 13d of the Securities Exchange Act of 1934, as amended) of
beneficial ownership of more than fifty percent (50%) of the Company
Stock; or
(iv) Any reorganization, merger, or consolidation in which the
Company does survive but the shares of Company Stock outstanding
immediately preceding the transaction are converted by virtue of the
transaction into other property, whether in the form of securities,
cash, or otherwise.
However, in no case will an Extraordinary Event be deemed to have
occurred as a result of a sale of stock to the Company or to a holding
company established by the Company.
(b) All Options shall be automatically exercised immediately
preceding the Extraordinary Event. In such an event, the Fair Market
Value of the Common Stock on that date for purposes of Section 2(p) of
this Plan shall be deemed to be the consideration paid for the Common
Stock in the transaction.
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18. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. No such amendment or termination
can adversely affect Options previously granted without the consent of
the Participants, provided that an Offering Period may be terminated by
the Board of Directors on any Exercise Date (including by acceleration
of the Exercise Date).
(b) Notwithstanding anything in this Plan to the contrary, the Board
(or the Committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld
during an Offering Period, permit payroll withholding in excess of the
amount designated by a Participant in order to adjust for delays or
mistakes in the Company's processing of properly completed withholding
elections and unpaid leaves of absence, establish reasonable waiting and
adjustment periods and/or accounting and crediting procedures to ensure
that amounts applied toward the purchase of Common Stock for each
Participant properly correspond with amounts withheld from the
Participant's Compensation, and establish such other limitations or
procedures as the Board (or the Committee) determines in its sole
discretion advisable which are consistent with the Plan.
19. NOTICE OF DISQUALIFYING DISPOSITION. A Participant must notify the
Company if the Participant disposes of stock acquired pursuant to the Plan prior
to the expiration of the holding periods required to qualify for long-term
capital gains treatment on the sale.
20. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof. All notices or
other communications from the Company to a Participant under or in connection
with the Plan shall be deemed to have been received by the Participant three (3)
days after the date when it is deposited in the United States Mail with postage
prepaid, addressed to the Participant at his last address of record with the
Committee.
21. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an Option unless the exercise of such Option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
- 8 -
<PAGE> 9
22. INDEMNIFICATION.
(a) To the maximum extent permitted by law, the Company will
indemnify each member of the Board of Directors and of the Committee as
well as any other employee with duties under the Plan against
liabilities and expenses (including any amount paid in settlement or by
reason of a judgment) reasonably incurred by him or her in connection
with any claims against him or her by reason of the performance of his
or her duties under the Plan.
(b) This indemnity will not apply if the individual acted
fraudulently or in bad faith in the performance of his or her duties
relating to the Plan or fails to assist the Company in defending against
the claim.
(c) The Company will have the right to select counsel and to control
the prosecution or defense of the suit.
(d) The Company will not be required to indemnify a person for any
amount incurred through any settlement unless the Company consents in
writing to the settlement.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company within twelve (12) months of its adoption in
accordance with the rules under Code Section 423. The Plan shall continue in
effect for a term of ten (10) years unless sooner terminated under Section 18 of
this Plan. If the Plan is not approved by the Stockholders within that time
period, the Plan and all Options will terminate and all contributions will be
refunded to the Participants. The approval by the Stockholders must relate to:
(a) The class of individuals who may be Participants; and
(b) The aggregate number of shares to be granted under the Plan.
If either of those items are changed, the approval of the Stockholders must
again be obtained.
24. FINANCIAL STATEMENTS. Each Participant shall receive financial
statements of the Company at least annually.
- 9 -
<PAGE> 1
ENDOCARE, INC.
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Net loss $(1,059,826) $ (1,799,280)
============ ============
Weighted average number of common
shares outstanding during the period 8,195,853 7,817,451
========= ==========
Primary net loss per share $ (.13) $ (.23)
=========== ============
Fully diluted net loss per share $ (.13) $ (.23)
=========== ============
</TABLE>
The effect of potential exercise of common stock options and warrants
is not included in these calculations because such effect would be
anti-dilutive.
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,602,137
<SECURITIES> 0
<RECEIVABLES> 420,369
<ALLOWANCES> 229,435
<INVENTORY> 956,372
<CURRENT-ASSETS> 6,879,362
<PP&E> 649,341
<DEPRECIATION> 318,109
<TOTAL-ASSETS> 7,228,271
<CURRENT-LIABILITIES> 1,142,142
<BONDS> 0
0
0
<COMMON> 8,196
<OTHER-SE> 9,283,658
<TOTAL-LIABILITY-AND-EQUITY> 7,228,271
<SALES> 888,000
<TOTAL-REVENUES> 929,664
<CGS> 581,044
<TOTAL-COSTS> 581,044
<OTHER-EXPENSES> 2,142,501
<LOSS-PROVISION> 171,796
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,793,880)
<INCOME-TAX> 5,400
<INCOME-CONTINUING> (1,799,280)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,799,280)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
