<PAGE> 1
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(e) or sec. 240.14a-12
(ENDOCARE, INC.)
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
(ENDOCARE, INC.)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the filing fee is calculated
and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
ENDOCARE, INC.
7 STUDEBAKER
IRVINE, CALIFORNIA 92618
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 27, 1997
------------------------
TO THE STOCKHOLDERS OF ENDOCARE, INC.:
The 1997 Annual Meeting of Stockholders (the "1997 Annual Meeting") of
ENDOcare, Inc. (the "Company" or "ENDOcare") will be held at 11:00 a.m., Pacific
Time, on Thursday, March 27, 1997 at 7 Studebaker, Irvine, California 92618, for
the following purposes:
1. To elect three Directors of the Company to serve during the ensuing
year and until their successors are elected and qualified.
2. To approve an amendment and restatement of the 1995 Stock Plan
which principal changes are to increase the number of shares reserved for
issuance thereunder and to comply with Section 162(m) of the Internal
Revenue Code (which imposes a $1 million compensation deduction
limitation).
3. To approve an amendment and restatement of the 1995 Director Option
Plan which principal changes are to increase the number of shares reserved
for issuance upon exercise of options granted thereunder and to change the
vesting of options granted thereunder.
4. To approve the adoption of the Employee Stock Purchase Plan.
5. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997.
6. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only the stockholders of record at the close
of business on March 3, 1997 will be entitled to notice of and to vote at the
1997 Annual Meeting or any adjournment or postponement thereof.
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1996 is being mailed with this Notice but is not to be
considered part of the proxy soliciting material.
By Order of the Board of Directors
CHRISTINE CONCEPCION
Secretary
March 6, 1997
Irvine, California
YOU ARE URGED TO VOTE UPON THE MATTERS PRESENTED AND TO SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IT IS IMPORTANT FOR
YOU TO BE REPRESENTED AT THE MEETING. PROXIES ARE REVOCABLE AT ANY TIME AND THE
EXECUTION OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE
PRESENT AT THE MEETING.
------------------------
REQUESTS FOR ADDITIONAL COPIES OF PROXY MATERIALS SHOULD BE ADDRESSED TO
CHRISTINE CONCEPCION, CORPORATE SECRETARY, AT THE OFFICES OF THE COMPANY, 7
STUDEBAKER, IRVINE, CALIFORNIA 92618.
<PAGE> 3
ENDOCARE, INC.
7 STUDEBAKER
IRVINE, CALIFORNIA 92618
------------------------
PROXY STATEMENT
1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 27, 1997
------------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of ENDOcare, Inc., a Delaware
corporation (the "Company"), for use at the 1997 Annual Meeting of Stockholders
(the "1997 Annual Meeting") to be held on Thursday, March 27, 1997 at 11:00
a.m., Pacific Time at 7 Studebaker, Irvine, California 92618, and any
adjournment or postponement thereof. This Proxy Statement and the form of proxy
to be utilized at the 1997 Annual Meeting were mailed or delivered to the
stockholders of the Company on or about March 6, 1997.
MATTERS TO BE CONSIDERED
The 1997 Annual Meeting has been called to (1) elect three Directors of the
Company to serve during the ensuing year and until their successors are elected
and qualified, (2) approve an amendment and restatement of the 1995 Stock Plan
which principal changes are to increase the number of shares reserved for
issuance thereunder and to comply with Section 162(m) of the Internal Revenue
Code, (3) approve an amendment and restatement of the 1995 Director Option Plan
which principal changes are to increase the number of shares reserved for
issuance upon the exercise of options granted thereunder and to change the
vesting of options granted thereunder, (4) approve the adoption of the Employee
Stock Purchase Plan, (5) ratify the appointment of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending December 31, 1997
("fiscal 1997") and (6) transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
RECORD DATE AND VOTING
The Board has fixed the close of business on March 3, 1997 as the record
date (the "Record Date") for the determination of stockholders entitled to vote
at the 1997 Annual Meeting and any adjournment or postponement thereof. As of
the Record Date, there were outstanding 8,195,853 shares of the Company's common
stock (the "Common Stock").
QUORUM AND VOTING REQUIREMENTS
The holders of record of a majority of the outstanding shares of Common
Stock will constitute a quorum for the transaction of business at the 1997
Annual Meeting. As to all matters, each stockholder is entitled to one vote for
each share of Common Stock held. Abstentions and broker non-votes are counted
for purposes of determining the presence or absence of a quorum for the
transaction of business. The Director nominees who receive the greatest number
of votes at the 1997 Annual Meeting will be elected to the Board of the Company.
Stockholders are not entitled to cumulate votes. Votes against a candidate and
votes withheld have no legal effect. In matters other than the election of
Directors, abstentions are counted as votes against in tabulations of the votes
cast on proposals presented to stockholders, whereas broker non-votes are not
counted for purposes of determining whether a proposal has been approved.
All proxies which are properly completed, signed and returned prior to the
1997 Annual Meeting will be voted. Any proxy given by a stockholder may be
revoked at any time before it is exercised, by filing with the Secretary of the
Company an instrument revoking it, by delivering a duly executed proxy bearing a
later date or by the stockholder attending the 1997 Annual Meeting and
expressing a desire to vote his or her shares in person.
1
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of ENDOcare common stock owned as of February 1, 1997 by (i) the
holders of more than 5% of the ENDOcare common stock, (ii) each director of the
Company, (iii) each of ENDOcare's Named Executive Officers, and (iv) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
TITLE OF NAME AND ADDRESS OF BENEFICIAL
CLASS OF BENEFICIAL OWNER(1) OWNERSHIP(2) PERCENT OF CLASS
- ------------- ----------------------------------------------- ----------------- ----------------
<S> <C> <C> <C>
Common Stock The Kaufman Fund 1,066,000 13.0%
140 E. 45th Street
New York, NY 10017
Peter F. Bernardoni(3) 634,500 7.7%
Technology Funding
2000 Alameda de las Pulgas
San Mateo, CA 94402
Paul W. Mikus(6) 166,667(4) 2.0%
David J. Battles(6) 44,416(5) *
Ralph L. Quigley(6) -- *
Kevin Marinelli 2,500(4) *
113 Cottage Lane
Aliso Viejo, CA 92656
All executive officers and directors as a group 848,083 9.9%
(5 persons)
</TABLE>
- ---------------
* Less than 1%.
(1) All such shares were held of record with sole voting and investment power,
subject to applicable community property laws, by the named individual
and/or by his wife, except as indicated in the following footnotes.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally includes
voting or investment power with respect to securities. Shares of common
stock relating to options currently exercisable or exercisable within 60
days of February 1, 1997, are deemed outstanding for computing the
percentage of the person holding such securities but are not deemed
outstanding for computing the percentage of any other person. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares shown as beneficially owned by
them.
(3) Includes 632,000 shares held by Technology Funding Partners III, L.P.,
Technology Funding Venture Partners IV, an Aggressive Growth Fund, L.P.,
Technology Funding Venture Partners V, an Aggressive Growth Fund, L.P., and
Technology Funding Medical Partners I, L.P. (collectively, the "Funds"). Mr.
Bernardoni is an officer of Technology Funding Inc., and a partner of
Technology Funding Ltd., each a general partner of the Funds. Mr. Bernardoni
has sole voting and shared investment power with respect to all shares owned
by the Funds, and therefore may be deemed to be beneficial owner of such
shares. Also includes 2,500 shares issuable with respect to exercise of
options.
(4) Represents shares issuable with respect to the exercise of options.
(5) Represents 35,416 shares issuable with respect to the exercise of options.
(6) The address of such persons is 18 Technology Drive, Suite 134, Irvine,
California 92618.
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<PAGE> 5
PROPOSAL 1 -- ELECTION OF DIRECTORS
Three Directors are to be elected at the 1997 Annual Meeting to serve until
the next Annual Meeting of Stockholders and until their respective successors
have been elected and qualified. In the absence of instructions to the contrary,
proxies covering shares of Common Stock will be voted in favor of the election
of the persons listed below. In the event that any nominee for election as
Director should become unavailable to serve, it is intended that votes will be
cast, pursuant to the enclosed proxy, for such substitute nominee as may be
nominated by the Company. Management has no present knowledge that any of the
persons named will be unavailable to serve.
No arrangement or understanding exists between any nominee and any other
person or persons pursuant to which any nominee was or is to be selected as a
Director or nominee. None of the nominees has any family relationship to any
other nominee or to any executive officer of the Company.
INFORMATION CONCERNING INCUMBENT DIRECTORS AND NOMINEES TO BOARD OF DIRECTORS.
Information is set forth below concerning the incumbent Directors, all of
whom are also nominees for election as Directors, and the year in which each
incumbent Director was first elected as a Director of the Company. Each nominee
has furnished the information as to his or her beneficial ownership of Common
Stock as of February 1, 1997 and, if not employed by the Company, the nominee's
principal occupation. Each nominee has consented to being named in this Proxy
Statement as a nominee for Director and has agreed to serve as a Director if
elected. Ages are shown as of February 12, 1997.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
----------------------- --- ---------------------------------------------- --------
<S> <C> <C> <C>
Paul W. Mikus.......... 31 President, Chief Executive Officer, Chief 1995
Financial Officer, Treasurer, Chairman of the
Board and Director
Peter F. Bernardoni+*.. 37 Director 1995
Kevin Marinelli+*...... 32 Director 1995
</TABLE>
- ---------------
* Member of the Compensation Committee.
+ Member of the Audit Committee.
Paul W. Mikus has served as Chief Executive Officer, Chairman and Director
since November 1995. Prior to that time, he was President of ENDOcare as a
division of Medstone from June 1995. Prior to becoming President of ENDOcare, he
managed worldwide sales and marketing for Prosurg, Inc. From July 1989 to
September 1994 he worked for Medstone as manager of engineering where he was a
co-founder of ENDOcare. Mr. Mikus holds a BS degree in Electrical Engineering.
Peter F. Bernardoni has served as a Director since November 1995. Mr.
Bernardoni has been a vice president of Technology Funding Inc. since 1991 and a
partner in Technology Funding Ltd. since 1994. He serves on the board of
directors of Urogen, Corp. He has an MS in Mechanical Engineering from Stanford
University.
Kevin Marinelli has served as a Director since November 1995. From 1991 to
present Mr. Marinelli has been the Chief Financial Officer of BKM, a
privately-held office furnishings and services company. He is a Certified
Management Accountant and has a BS in Accountancy.
COMMITTEES
The standing committees of the Board are the Audit Committee (the "Audit
Committee") and the Compensation Committee (the "Compensation Committee"). The
Audit Committee, which presently consists of Messrs. Marinelli and Bernardoni,
did not meet during the fiscal year ended December 31, 1996 ("fiscal 1996"). The
Compensation Committee, which presently consists of Messrs. Marinelli and
Bernardoni, met two times during fiscal 1996.
3
<PAGE> 6
The Board of Directors established the Audit Committee on October 31, 1995
to: (i) make recommendations concerning the engagement of independent public
accountants; (ii) review with the independent public accountants the plans for,
and scope of, the audit procedures to be utilized and results of the audit;
(iii) approve the professional services provided by the independent public
accountants; (iv) review the independence of the independent public accountants;
and (v) review the adequacy and effectiveness of the Company's internal
accounting controls.
The Board of Directors established the Compensation Committee on October
31, 1995, which presently consists of Mr. Peter F. Bernardoni and Mr. Kevin
Marinelli, neither of whom are employees of the Company. The Compensation
Committee determines the compensation of the Company's executive officers and
administers the 1995 Stock Plan and the 1995 Director Option Plan.
MEETINGS AND REMUNERATION
During fiscal 1996, the Board held nine meetings and took various actions
by written consent. Each incumbent Director attended at least 75% of the
aggregate of (i) the total number of meetings held by the Board during fiscal
1996 and (ii) the total number of meetings held by all committees of the Board
during that period within which he was a Director or member of such committee of
the Board.
Each Director is elected to hold office until the next annual meeting of
stockholders and until his respective successor is elected and qualified. The
Company does not compensate its directors for their services as such. However,
directors are reimbursed for their out of pocket expenses in attending Board
meetings, and each of the Company's non-employee directors participates in the
1995 Director Option Plan.
In 1995, ENDOcare adopted the ENDOcare, Inc. 1995 Director Option Plan (the
"Director Plan") covering 100,000 shares of Common Stock. The Director Plan
provides that each non-employee director (each, an "Outside Director") is
automatically granted an option to purchase 10,000 shares of Common Stock upon
his or her initial election or appointment as an Outside Director. Subsequently,
each Outside Director who has served for at least six months will be granted an
additional option to purchase 5,000 shares of Common Stock on January 1 of each
year so long as he or she remains an Outside Director.
EXECUTIVE OFFICERS, COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
Set forth in the table below are the names, ages (as of February 12, 1997)
and current offices held by all executive officers of the Company.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
NAME AGE POSITION WITH THE COMPANY SINCE
---------------------- --- ------------------------------------------- -----------------
<S> <C> <C> <C>
Paul W. Mikus......... 31 President, Chief Executive Officer, Chief 1995
Financial Officer, Treasurer, Chairman of
the Board and Director
David J. Battles...... 39 Vice President, Sales 1996
Ralph L. Quigley...... 53 Vice President, Operations 1996
</TABLE>
Executive officers of the Company are elected by and serve at the
discretion of the Board. None of the executive officers has any family
relationship to any nominee for Director or to any other executive officer of
the Company. Set forth below is a brief description of the business experience
for the previous five years of all executive officers except Mr. Mikus. See
"Information Concerning Incumbent Directors and Nominees to Board of Directors."
David J. Battles has served as Vice President, Sales for ENDOcare since
January 1996. Prior to that, from January 1995 to January 1996, he managed an
independent medical sales and distribution company, Aslan International. From
1993 to January 1995 he was the Managing Director of International Sales for
Medstone and ENDOcare. From 1990 to 1992 he worked as the Sales Manager, Asia
Pacific for Marquest Medical Products. Previously, he held a variety of sales
and management positions at Abbott Laboratories and Coast Medical Corporation.
He has a BS degree in Business Management from California Polytechnic State
University.
4
<PAGE> 7
Ralph L. Quigley has served as Vice President, Operations since May 1996.
Prior to joining ENDOcare, Mr. Quigley served as Director and Division General
Manager at Everett-Charles Test Equipment Company from 1982 to 1988. From 1991
to 1993, Mr. Quigley was Vice President, Operations at L.H. Research, Inc., a
power supply manufacturer, where he was responsible for both domestic and
international operations with facilities in Malaysia and the Dominican Republic.
From 1993 to 1996, Mr. Quigley served as Director of Operations for Workstation
Technologies, a digital video equipment manufacturer.
COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Chief Executive Officer and the other most highly compensated
executive officers with total compensation in excess of $100,000 other than the
Chief Executive Officer (the "Named Executive Officers") for their services to
the Company for the year ended December 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND COMPEN- OPTIONS/ COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) SAR'S(#)(1) SATION($)
- ------------------------------------- ----- --------- -------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Paul W. Mikus........................ 1996 97,500 -- -- -- 4,818(2)
Chairman, President, Chief Executive
Officer, Chief Financial Officer and
Treasurer
David J. Battles..................... 1996 52,083 -- -- 100,000 43,185(3)
Vice President, Sales
Ralph L. Quigley..................... 1996 51,795 -- -- 75,000 370(4)
Vice President, Operations
</TABLE>
- ---------------
(1) The Company does not grant Stock Appreciation Rights.
(2) Represents $130 of group term life insurance payments and $4,688 of
commissions on sale of a CRYOcare System.
(3) Represents $55 of group term life insurance payments and $43,130 of
commissions.
(4) Represents group term life insurance payments.
STOCK OPTIONS
The following table sets forth information concerning each grant of stock
options made during 1996 to each of the Named Executive Officer.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
---------------------------------------------------- RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SHARES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED(2) IN PERIOD PER SHARE DATE 5% 10%
- ------------------------------ ---------- ------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Paul W. Mikus................. -- -- -- -- -- --
David J. Battles.............. 100,000 19.0% $ 0.18 02/08/06 $ 11,340 $ 28,620
Ralph L. Quigley.............. 75,000 14.3% $ 3.63 04/17/06 $171,518 $432,878
</TABLE>
- ---------------
(1) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option.
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<PAGE> 8
(2) All options become exercisable upon the merger of the Company with or into
another corporation or the sale of substantially all of the Company's
assets.
(3) The options vest over a four-year period with 25% on February 9, 1997 and
the remaining 75% exercisable in equal monthly installments thereafter over
the next three years.
(4) The options vest over a four-year period with 25% on April 18, 1997 and the
remaining 75% exercisable in equal monthly installments thereafter over the
next three years.
The following table sets forth the number and value as of December 31, 1996
of shares underlying unexercised options held by each of the Named Executive
Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AS OF IN THE MONEY OPTIONS AS OF
DECEMBER 31, 1996 DECEMBER 31, 1996(1)($)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Paul W. Mikus(2)........................... 125,000 375,000 $ 415,000 $ 1,245,000
David J. Battles(3)........................ 6,250 118,750 $ 20,750 $ 394,250
Ralph L. Quigley(4)........................ -- 75,000 -- 0
</TABLE>
- ---------------
(1) Based on the fair market value (computed using the average bid and ask
prices quoted on the NASDAQ Electronic Bulletin Board as of December 31,
1996, ($3.50 per share)) less the exercise price payable upon exercise of
such options.
(2) The options vest over a four-year period with 25% on December 1, 1996 and
the remaining 75% exercisable in equal monthly installments thereafter over
the next three years.
(3) 100,000 options vest as set forth above, with the remaining 25,000 options
vesting over a four-year period with 25% on December 1, 1996 and the
remaining 75% exercisable in equal monthly installments thereafter over the
next three years.
(4) All of Mr. Quigley's options were out of the money at December 31, 1996. The
exercise price of his 75,000 options was greater than the fair market value
of the Company's common stock (as calculated in footnote (1) above) at
December 31, 1996.
1995 STOCK PLAN
On November 1, 1995, ENDOcare adopted the ENDOcare, Inc. 1995 Stock Plan
(the "1995 Stock Plan"), a stock incentive plan covering 1,500,000 shares of
common stock of ENDOcare which may be awarded in order to attract and retain
qualified personnel. The Compensation Committee of the Board of Directors
administers the 1995 Stock Plan. Any employee or other person providing services
to the Company is eligible to receive awards under the 1995 Stock Plan. Awards
available under the 1995 Stock Plan include common stock purchase options and
restricted common stock. See "Proposal 2 -- Amendment of 1995 Stock Plan."
INDEMNIFICATION AND EXCULPATION ARRANGEMENTS
The Restated Certificate of Incorporation of ENDOcare limits the liability
of directors to ENDOcare or its stockholders to the fullest extent permitted by
the Delaware General Corporation Law (the "DGCL"). Accordingly, pursuant to the
provisions of the DGCL presently in effect, directors of ENDOcare will not be
personally liable for monetary damages for breach of a director's fiduciary duty
as a director, except for liability: (i) for any breach of the director's duty
of loyalty to the Company or its shareholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from which
the director derived an improper personal
6
<PAGE> 9
benefit. In addition, the bylaws of ENDOcare require ENDOcare to indemnify its
directors and officers to the fullest extent permitted by the laws of the State
of Delaware.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee, which was established on October 31,
1995, consists of Messrs. Bernardoni and Marinelli, neither of whom was at any
time during fiscal 1996 or at any other time an officer or employee of the
Company. There are no compensation committee interlocks between the Company and
other entities involving the Company's executive officers and Board members who
serve as executive officers or Board members of such other entities.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board is comprised of Messrs. Bernardoni
and Marinelli, two non-employee directors, that administer the Company's
executive compensation programs and policies. The Company's executive
compensation programs are designed to attract, motivate and retain the executive
talent needed to maximize stockholder value in a competitive environment. The
programs are intended to support the goal of increasing stockholder value while
facilitating the business strategies and long-range plans of the Company.
The following is the Compensation Committee's report submitted to the Board
addressing the compensation of the Company's executive officers for fiscal 1996.
COMPENSATION POLICY AND PHILOSOPHY
The Company's executive compensation policy is (i) designed to establish an
appropriate relationship between executive pay and the Company's annual
performance, its long-term growth objectives and its ability to attract and
retain qualified executive officers; and (ii) based on the belief that the
interests of the executives should be closely aligned with the Company's
stockholders. The Compensation Committee attempts to achieve these goals by
integrating competitive annual base salaries with financial performance of the
stock options through the 1995 Stock Plan. In support of this philosophy, a
meaningful portion of many executive's compensation is placed at-risk and linked
to the financial performance of the Company. The Compensation Committee believes
that cash compensation in the form of salary provides Company executives with
short-term rewards for success in operations, and that long-term compensation
through the award of stock options encourages growth in management stock
ownership which leads to expansion of management's stake in the long-term
performance and success of the Company. The Compensation Committee considers all
elements of compensation and the compensation policy when determining individual
components of pay. The Compensation Committee is responsible to the Board for
ensuring that its executive officers are highly qualified and that they are
compensated in a manner that furthers the Company's business strategies and
which aligns their interests with those of the stockholders.
EXECUTIVE COMPENSATION COMPONENTS
As discussed below, the Company's executive compensation package is
primarily comprised of base salary and stock options. However, for certain
executives responsible for sales, such executives are entitled to receive
commission payments based on sales of various products for the Company.
Base Salary. For fiscal 1996, the Compensation Committee approved the base
salaries of the executive officers based on salaries paid to executive officers
with comparable responsibilities employed by companies with comparable
businesses. The Compensation Committee reviews executive officer salaries
annually and exercises its judgment based on all the factors described above.
Stock Options. Stock options encourage and reward effective management
which results in long-term corporate financial success, as measured by stock
price appreciation. Stock options covering 175,000 shares were granted to the
executive officers of the Company and stock options covering 351,000 shares were
granted
7
<PAGE> 10
to 12 other employees of the Company during 1996 under the Company's 1995 Stock
Plan. The number of options that each executive officer or employee was granted
was based primarily on the executive's or employee's ability to influence the
Company's long-term growth and profitability. The Compensation Committee
believes that option grants afford a desirable long-term compensation method
because they closely ally the interests of management with stockholder value and
that grants of stock options are the best way to motivate executive officers to
improve long-term stock market performance. The vesting provisions of options
granted under the 1995 Stock Plan are designed to encourage longevity of
employment with the Company and generally extend over a four-year period.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee believes that Paul W. Mikus, the Company's Chief
Executive Officer, provides valuable services to the Company and his
compensation should therefore be competitive with that paid to executives at
comparable companies. Mr. Mikus was granted stock options covering 500,000
shares in 1995 and no additional options were granted to Mr. Mikus in 1996. Mr.
Mikus' annual base salary for fiscal 1996 was $97,500. The factors which the
Compensation Committee considered in setting his annual base salary were his
individual performance while he was President of the Company when it was a
division of Medstone and pay practices of peer companies relating to executives
of similar responsibility.
INTERNAL REVENUE CODE SECTION 162(M)
Under Section 162 of the Internal Revenue Code of 1986, as amended (the
"Code"), the amount of compensation paid to certain executives that is
deductible with respect to the Company's corporate taxes is limited to
$1,000,000 annually. It is the current policy of the Compensation Committee to
maximize, to the extent reasonably possible, the Company's ability to obtain a
corporate tax deduction for compensation paid to executive officers of the
Company to the extent consistent with the best interests of the Company and its
stockholders.
COMPENSATION COMMITTEE
Peter F. Bernardoni
Kevin Marinelli
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COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total returns for the
Company, the NASDAQ Stock Market -- U.S. Index and the Hambrecht & Quist
Healthcare-Excluding Biotechnology Index for the period during which the
Company's Common Stock has been registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The comparison assumes
$100 invested on February 20, 1996 in the Common Stock with the reinvestment of
all dividends, if any. Total stockholder returns for the prior period is not an
indication of future returns.
COMPARISON OF 10 MONTH CUMULATIVE TOTAL RETURN*
AMONG ENDOCARE, INC., NASDAQ STOCK MARKET -- U.S. INDEX
AND THE HAMBRECHT & QUIST HEALTHCARE-EXCLUDING BIOTECHNOLOGY INDEX
<TABLE>
<CAPTION>
HAMBRECHT & QUIST
HEALTHCARE
MEASUREMENT PERIOD NASDAQ STOCK EXCLUDING
(FISCAL YEAR COVERED) ENDOCARE MARKET - US BIOTECHNOLOGY
--------------------- -------- ------------ ----------------
<S> <C> <C> <C>
2/20/96 100 100 100
12/31/96 950 120 107
</TABLE>
- -------------------
* Assumes $100 invested on February 20, 1996 in stock or index.
Total return assumes reinvestment of dividends.
Fiscal year ending December 31, 1996.
CERTAIN TRANSACTIONS
RELATIONSHIP BETWEEN ENDOCARE AND MEDSTONE AFTER THE DISTRIBUTION
Prior to 1996, ENDOcare had operated as a division of Medstone
International. ENDOcare, Inc. was incorporated as a wholly-owned subsidiary in
1994. Through 1995, the Company relied upon Medstone for financial support and
administrative assistance. Since completion of the Distribution at the beginning
of 1996, ENDOcare has operated independently from Medstone.
Prior to the Distribution, ENDOcare and Medstone entered into a
Distribution Agreement, a Research and Development Services Agreement, an
Administrative Services Agreement and a Contribution Agreement. The full text of
these agreements has been filed as exhibits to the Registration Statement at the
time of the Distribution.
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<PAGE> 12
During 1996 ENDOcare and Medstone exchanged few services. During the first
quarter, Medstone billed ENDOcare approximately $3,000 for administrative
services, and ENDOcare billed Medstone approximately $3,000 for engineering and
administrative services. Throughout 1996, ENDOcare provided health insurance to
its employees through continuation of Medstone's policy. Effective January 1,
1997, ENDOcare is providing its own, independent health insurance.
RELATIONSHIP BETWEEN ENDOCARE AND TECHNOLOGY FUNDING
Peter F. Bernardoni has served on ENDOcare's Board of Directors since
November 1995. He also is a partner of Technology Funding Ltd. and an officer of
Technology Funding Inc., a venture capital group. In August 1996 ENDOcare
obtained a two year $1,500,000 borrowing facility from four partnerships managed
by Technology Funding Inc. The outstanding principal balance of $750,000 was
convertible and, at the option of the holders, was converted on January 27, 1997
into 300,000 shares of ENDOcare common stock at a conversion price of $2.50 per
share. Interest on the loan had accrued at a rate of 16% per year, and all
$50,000 was converted into 20,000 shares on that same date at the same $2.50 per
share. Also on January 27, 1997, the four partnerships managed by Technology
Funding Inc. received an additional 12,000 shares ($50,250 total market value)
to induce conversion at that time. At ENDOcare's election, the remaining
borrowing facility was cancelled on that same date. In connection with the loan,
on August 26, 1996, the partnerships also received warrants for the purchase of
up to 150,000 shares of ENDOcare common stock at any time on or before August
26, 2001, at a price of $3.00 per share, and the partnerships received an
origination fee of 10,000 shares of common stock on that same date.
PROPOSAL 2 -- AMENDMENT OF 1995 STOCK PLAN
At the 1997 Annual Meeting, the stockholders will be asked to approve an
amendment and restatement of the Company's 1995 Stock Plan (the "1995 Stock
Plan"). Such approval will require the affirmative vote of a majority of the
voting power of all outstanding shares of the Common Stock present or
represented and entitled to vote at the 1997 Annual Meeting. On February 28,
1997, the Board adopted the 1995 Stock Plan. The principal changes are to (1)
increase the number of shares of Common Stock available for issuance from
1,500,000 to 2,000,000, (2) comply with Section 162(m) of the Code (imposing a
$1,000,000 compensation deduction limitation), and (3) comply with the latest
version of Rule 16b-3 under the Exchange Act ("Rule 16b-3").
The 1995 Stock Plan is summarized below, but this description is subject to
and is qualified in its entirety by the full text of the 1995 Stock Plan, which
is attached as Appendix 1 to this Proxy Statement.
SUMMARY OF THE 1995 STOCK PLAN
The purposes of the 1995 Stock Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentives to employees and consultants, and to promote the success
of the Company's business.
Under the 1995 Stock Plan, employees and consultants (collectively referred
to as "Participants") providing services to the Company or to its subsidiaries
may be granted options (each, an "Option") to purchase shares of Common Stock of
the Company. Participants may also be granted rights to purchase shares of
Common Stock that are subject to repurchase rights on behalf of the Company
("Restricted Stock Purchase Rights"). The 1995 Stock Plan permits the granting
of both Options that qualify for treatment as incentive stock options under
Section 422 of the Code ("Incentive Stock Options"), and/or Options that do not
qualify as Incentive Stock Options ("Nonstatutory Stock Options"). Incentive
Stock Options may only be granted to employees of the Company.
The maximum number of shares that can be issued to any Participant under
the 1995 Stock Plan in any fiscal year is 100,000 shares; provided, however,
that a Participant may be granted an additional 100,000 shares in connection
with such Participant's initial employment. In the event of certain changes in
the Company's capitalization or structure, an appropriate adjustment shall be
made in the number, kind or
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<PAGE> 13
exercise price of shares as to which Options and Restricted Stock Purchase
Rights may thereafter be granted and as to the number of shares covered by
unexercised outstanding Options and Restricted Stock Purchase Rights.
The 1995 Stock Plan is administered by a committee appointed by the Board
of Directors ("Committee"). To the extent possible and advisable, the members of
the Committee will qualify both as (1) "outside directors" under Section 162(m)
of the Code and as (2) "non-employee directors" under Rule 16-3 with respect to
grants to individuals subject to those statutory provisions.
The Committee has the authority, in its discretion, (1) to select the
persons to whom Options and Restricted Stock Purchase Rights may be granted and
the amount of such grants, (2) to determine the terms and conditions of any such
grants, (3) to construe and interpret the terms of the 1995 Stock Plan and the
grants under the 1995 Stock Plan, (4) to prescribe, amend and rescind rules and
procedures relating to the 1995 Stock Plan, (5) to modify or amend each Option
or Restricted Stock Purchase Right, including the authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the 1995 Stock Plan, and (6) to make all other determinations
deemed necessary or advisable for administering the 1995 Stock Plan.
All interpretations of the 1995 Stock Plan by the Committee, and all of its
actions hereunder, are binding and conclusive on all persons for all purposes,
to the maximum extent permitted by law.
The purchase price of shares of Common Stock subject to each Option which
is intended to qualify as an Incentive Stock Option shall be equal to or greater
than the fair market value of such shares (110% of fair market value in the case
of a holder of more than 10% of the Common Stock) on the date of grant of such
Incentive Stock Option. The purchase price of any Option which does not qualify
as an Incentive Stock Option shall be determined by the Committee, but shall not
be less than 85% of the fair market value of the Common Stock on the date of the
grant. The fair market value of such shares for this purpose is the closing
price of the Common Stock on the date of grant.
Options vest as provided in the stock option agreement between the
individual and the Company. In the case of certain events (e.g., the sale of the
Company), the Options will automatically fully vest.
Options granted under the 1995 Stock Plan may be exercised, to the extent
vested, by the Participant by payment of the full purchase price therefor in
cash, by check, or by surrender of outstanding shares of the Common Stock.
Options and Restricted Stock Purchase Agreements are not transferable during the
Participant's lifetime, and may be transferred in the event of death only by
will or the laws of descent and distribution.
Each Option shall terminate no later than 10 years (5 years in the case of
an Incentive Stock Option issued to a holder of more than 10% of the Common
Stock) from the date the Option is granted.
The 1995 Stock Plan was adopted by the Board of Directors on October 31,
1995. Unless earlier terminated by the Board, the 1995 Stock Plan shall
terminate on October 30, 2005. The Board may at any time amend the 1995 Stock
Plan. However, no amendment or modification may be adopted without approval of
the holder of an Option or Restricted Stock Purchase Agreement that would
diminish the Participant's rights under the Option or Restricted Stock Purchase
Agreement.
FEDERAL INCOME TAX CONSEQUENCES
Based on current provisions of the Code and the existing regulations
thereunder, the anticipated federal income tax consequences with respect to
Options and Restricted Stock Purchase Rights granted under the 1995 Stock Plan
are as described below. However, Participants should consult with their own tax
advisors with respect to the tax consequences (both state and federal) of
participation in the 1995 Stock Plan.
The 1995 Stock Plan is not a tax-qualified retirement plan under Code
Section 401(a) nor is it subject to the Employee Retirement Income Security Act
of 1974 ("ERISA").
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<PAGE> 14
Incentive Stock Options. No taxable income is recognized by a Participant
upon the grant or exercise of the Incentive Stock Option. Correspondingly, the
Company is not entitled to an income tax deduction as the result of the grant or
exercise of an Incentive Stock Option.
Any gain or loss resulting from the sale of shares of Common Stock acquired
upon exercise of an Incentive Stock Option will be long-term capital gain or
loss if the sale is made after the later of:
1. Two years from the date of its grant; or
2. One year from the date of its exercise ("Exercise Date").
If the Common Stock is sold prior to the expiration of the holding periods
("Disqualifying Disposition"), the Participant will generally recognize ordinary
income in the year of the sale in an amount equal to the difference between the
exercise price of the option (the "Option Price") and the fair market value of
the shares of Common Stock on the Exercise Date. The Company will be entitled to
an income tax deduction equal to the amount taxable to the Participant. Any
excess gain recognized by the Participant upon the Disqualifying Disposition
will be taxable as a capital gain, either as long-term or shortterm depending
upon whether the shares of Common Stock have been held for more than one year
prior to the Disqualifying Disposition.
The amount by which the Fair Market Value (determined on the Exercise Date)
of the shares of Common Stock purchased upon the exercise of an Incentive Stock
Option exceeds the Option Price constitutes an item of tax preference that may
be subject to alternative minimum tax in the year that the Incentive Stock
Option is exercised, depending on the facts and circumstances.
Nonstatutory Stock Options. No taxable income will be recognized by the
Participant and the Company will not be entitled to a deduction at the time of
the grant of a Nonstatutory Stock Option. Upon the exercise of a Nonstatutory
Stock Option, the Participant will recognize ordinary income and the Company
will be entitled to an income tax deduction in the amount by which the fair
market value of the shares of Common Stock issued to the Participant at the time
of the exercise exceeds the Option Price. This income constitutes "wages" with
respect to which the Company is required to deduct and withhold federal income
tax.
Upon the subsequent disposition of shares of Common Stock acquired upon the
exercise of a Nonstatutory Stock Option, the Participant will recognize capital
gain or loss in an amount equal to the difference between the proceeds received
upon disposition and the fair market value of the shares on the Exercise Date.
If the shares have been held for more than one year at the time of the
disposition, the capital gain or loss will be long-term.
Restricted Stock. A Participant receiving restricted stock generally will
recognize ordinary income in the amount of the fair market value of the
restricted stock when it is no longer subject to forfeiture ("Vesting Date")
over the amount the Participant paid for it. The Company is entitled to deduct
the amount taxable to the Participant. With respect to the sale of the shares,
the holding period for determining whether the Participant has long-term or
short-term capital gain or loss generally begins on the Vesting Date and the tax
basis for the shares will generally be the fair market value of the shares on
the Vesting Date.
However, a Participant may make an election under Section 83(b) of the Code
("Section 83(b) Election") within 30 days of the grant of the Restricted Stock
to recognize taxable ordinary income on the date of grant equal to the excess of
the fair market value of the shares of Restricted Stock (determined without
regard to the restrictions) over the amount paid by the Participant. If the
Participant makes a Section 83(b) Election, his or her holding period commences
on the date of grant, and his or her tax basis is the fair market value of
shares on the date of the grant. The Company will be entitled to deduct the
amount taxable to the Participant. However, if the shares are forfeited, the
Participant will not be entitled to a deduction, refund, or loss for the amount
previously included in income by reason of the Section 83(b) Election.
If the amendment and restatement of the 1995 Stock Plan is not approved by
stockholders, no future grants will be made to employees who are subject to Code
Section 162(m) and the 1995 Stock Plan will remain in effect as though no
amendments had been made to such plan.
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<PAGE> 15
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE 1995 STOCK PLAN.
PROPOSAL 3 -- AMENDMENT OF 1995 DIRECTOR OPTION PLAN
At the 1997 Annual Meeting, the stockholders will be asked to approve an
amendment and restatement of the Company's 1995 Director Option Plan (the
"Director Plan"). Such approval will require the affirmative vote of a majority
of the voting power of all outstanding shares of the Common Stock present or
represented and entitled to vote at the 1997 Annual Meeting. On February 28,
1997, the Board adopted the Director Plan, subject to stockholder approval. The
principal changes are to (1) increase the number of shares of Common Stock
available for issuance from 100,000 to 150,000 and (2) change the vesting of
options granted thereunder.
The Director Plan is summarized below, but this description is subject to
and is qualified in its entirety by the full text of the Director Plan, which is
attached as Appendix 2 to this Proxy Statement.
SUMMARY OF THE DIRECTOR PLAN
The purposes of the Director Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentives to Outside Directors (i.e., directors who are not
employees of the Company) and to encourage their continued service on the Board.
Under the Director Plan, grants may only be made to Outside Directors. No
person will have any discretion regarding the grants to Outside Directors, which
shall be made on the following terms:
1. Upon commencement of service as an Outside Director, the individual
will receive an option ("Option") to purchase 10,000 shares, which Option
is fully vested and exercisable upon the date of grant.
2. Provided that the individual has served on the Board for at least
six months as of that date, the individual shall receive another Option to
purchase 5,000 shares of Common Stock of the Company on each January 1,
which Option becomes fully vested and exercisable on the first anniversary
of the date of its grant.
3. The exercise price of each Option is equal to the fair market value
of the Common Stock on the date of the grant. If the stock markets are not
open on that date, the fair market value will be determined as on the next
day on which the markets are open. The fair market value of the stock will
be its closing price on the day in question.
4. The term of all Options shall be for ten years.
5. Options will automatically become fully vested upon the occurrence
of certain events (e.g., the sale of the Company).
6. The Options will not qualify as incentive stock options under Code
Section 422.
The maximum number of shares that can be issued under the Director Plan is
150,000. In the event of certain changes in the Company's capitalization or
structure, an appropriate adjustment shall be made in the number, kind or
exercise price of shares as to which Options may thereafter be granted and as to
the outstanding Options.
Options granted under the Director Plan may be exercised, to the extent
vested, by the Outside Director by payment of the full purchase price therefor
in cash, by check, or by surrender of outstanding shares of the Common Stock.
Options are not transferable during the Outside Director's lifetime, and may be
transferred in the event of death only by will or the laws of descent and
distribution.
The Director Plan was adopted by the Board on October 31, 1995. Unless
earlier terminated by the Board, the Director Plan shall terminate on October
30, 2005. The Board may at any time amend the Director
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<PAGE> 16
Plan. However, no amendment or modification may be adopted without approval of
the holder of an Option issued under the Director Plan that would diminish the
rights under the Option.
FEDERAL INCOME TAX CONSEQUENCES
Based on current provisions of the Code and the existing regulations
thereunder, the anticipated federal income tax consequences with respect to
Options issued under the Director Plan are as described below. However, Outside
Directors should consult with their own tax advisors with respect to the tax
consequences (both state and federal) of participation in the Director Plan.
The Director Plan is not a tax-qualified retirement plan under Code Section
401(a) nor is it subject to ERISA.
No taxable income will be recognized by the Outside Director and the
Company will not be entitled to a deduction at the time of the grant of an
Option. Upon the exercise of an Option, the Outside Director generally will
recognize ordinary income, and the Company will be entitled to an income tax
deduction, in the amount by which the fair market value of the shares of Common
Stock issued to the Outside Director at the time of the exercise exceeds the
exercise price.
Upon the subsequent disposition of shares of Common Stock acquired upon the
exercise of a Nonstatutory Stock Option, the Outside Director will recognize
capital gain or loss in an amount equal to the difference between the proceeds
received upon disposition and the fair market value of the shares on the date
the Option was exercised. If the shares have been held for more than one year at
the time of the disposition, the capital gain or loss will be long-term.
If the amendment and restatement of the Director Plan is not approved by
stockholders, then the Director Plan and all outstanding Options will remain in
effect as though no amendments had been made to such plan. If the amendment and
restatement of the Director Plan is approved, all outstanding options will be
treated as if they had been issued under the Director Plan as so amended and
restated, and all future grants will conform to the Director Plan as so amended
and restated.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE DIRECTOR PLAN.
PROPOSAL 4 -- ADOPTION OF THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN
At the 1997 Annual Meeting, the stockholders will be asked to approve the
adoption of the Company's Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan"). Such approval will require the affirmative vote of a majority
of the voting power of all outstanding shares of the Common Stock present or
represented and entitled to vote at the 1997 Annual Meeting. On February 28,
1997, the Board adopted the Employee Stock Purchase Plan, subject to stockholder
approval. The Employee Stock Purchase Plan is briefly summarized below, but this
description is subject to and qualified in its entirety by the full text of the
Employee Stock Purchase Plan, which is attached as Appendix 3 to this Proxy
Statement.
The Employee Stock Purchase Plan is intended to qualify under Code Section
423. The effective date of the Employee Stock Purchase Plan is February 28,
1997, and it will terminate ten years thereafter. The purpose of the Employee
Stock Plan is to provide employees of the Company with an opportunity to
purchase Common Stock from the Company at a discount through accumulated payroll
deductions, without being subject to tax until they sell the stock, and without
having to pay any brokerage commissions with respect to the purchases.
Employees of the Company's subsidiaries are also eligible to participate in
the Employee Stock Purchase Plan. However, employees who directly or indirectly
own five percent (5%) or more of the combined voting power or value of all
classes of stock of the Company or of a subsidiary may not participate in the
Employee Stock Purchase Plan. Moreover, employees must complete six (6) months
of continuous service for the Company to become eligible to participate in the
Employee Stock Purchase Plan.
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<PAGE> 17
Employees will be granted the right to purchase Common Stock ("Option") at
the end of a fixed period ("Offering Period"). employees can commence
participation only on the first day of an Offering Period. There are two
Offering Periods each year. The first one commences on the first day on which
the Company's stock is traded ("Trading Day") occurring on or after April 1 and
ends on the last Trading Day in September. The second Offering Period commences
on the first Trading Day occurring on or after October 1 and ends on the last
Trading Day in March.
Employees may not sell or otherwise transfer their Options.
Prior to the beginning of the Offering Period, employees may elect to
contribute amounts to the Employee Stock Purchase Plan to purchase Common Stock
by means of payroll withholding in equal amounts over the entire Offering
Period. Employees must designate a fixed dollar amount (not a percentage of
compensation) which can be decreased but not increased during the Offering
Period. The maximum amount of Common Stock an employee can purchase under the
Employee Stock Purchase Plan during a calendar year is $25,000. The minimum
amount an employee can contribute for a month is fifty dollars ($50).
The amount to be paid for the Common Stock under the Employee Stock
Purchase Plan is the lesser of (a) one hundred percent (100%) of the Fair Market
Value of the Common Stock on the first Trading Day of the Offering Period, or
(b) eighty-five percent (85%) of the Fair Market Value of the Common Stock on
the last Trading Day of the Offering Period. The Fair Market Value of the Stock
is its closing price.
An employee may elect to terminate his or her contributions to the Employee
Stock Purchase Plan at any time prior to the last day of the Offering Period by
notifying the Company in writing. An employee's participation in the Employee
Stock Purchase Plan will automatically terminate upon ceasing to be an eligible
employee. Upon the termination of his or her contributions to the Employee Stock
Purchase Plan, all amounts held in the employee's account is refunded to the
employee. No interest accrues on employee contributions to the Employee Stock
Purchase Plan.
The maximum number of shares of Common Stock that can be purchased under
the Employee Stock Purchase Plan is 250,000, subject to adjustment in certain
circumstances. The maximum number of shares that an employee can purchase in a
single Offering Period is ten thousand (10,000). The Common Stock issuable under
the Employee Stock Purchase Plan may be previously unissued shares or may have
been reacquired by the Company in the open market.
If the outstanding shares of Common Stock of the Company are increased,
decreased or exchanged for different securities through a reorganization,
recapitalization, reclassification or other similar transaction, a proportionate
adjustment will be made in the number, price and kind of shares subject to
outstanding Options.
The Board may at any time amend or terminate the Employee Stock Purchase
Plan, except as to outstanding Options. However, any amendment that changes the
class of employees who may be participants or the aggregate number of shares
that can be granted under the Employee Stock Purchase Plan must be approved by
the stockholders of the Company.
Upon the sale, liquidation, merger, etc. of the Company, all outstanding
options shall be automatically exercised immediately before such event.
FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO THE EMPLOYEE STOCK PURCHASE PLAN
The following discussion of the principal federal income tax considerations
is based upon the statutes and regulations existing at the date of this
document, both of which are subject to modification at any time. Employees
should consult with their own tax advisors with respect to the tax consequences
(both state and federal) of the exercise of Options and the sale of Common Stock
acquired upon the exercise of Options, as those tax consequences relate to their
own particular circumstances.
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<PAGE> 18
Grant and Exercise
The Employee Stock Purchase Plan is intended to qualify as an "Employee
Stock Purchase Plan" within the meaning of Code Section 423. The Employee Stock
Purchase Plan is not a tax-qualified retirement plan under Code Section 401(a)
nor is it subject to ERISA.
As an Employee Stock Purchase Plan, employees will not recognize any income
either at the time of the grant of the Options or the time of the issuance of
the shares of Common Stock upon the exercise of the Options. Correspondingly,
the Company will not be entitled to a federal income tax deduction as the result
of the grant or the exercise of Options.
Taxation of Proceeds
Upon the subsequent sale or other disposition of Common Stock acquired upon
the exercise of an Option, an employee will generally recognize long-term
capital gain or loss if such sale is made after the later of (1) two years from
the first day of the Offering Period or (2) one year from the last day of the
Offering Period.
If the employee sells or otherwise disposes of Common Stock prior to the
expiration of the one- and two-year holding periods, the employee will generally
recognize ordinary income in the year of sale or other disposition in an amount
equal to the excess of (1) the fair market value of the share on the last day of
the Offering Period over (2) the exercise price of the Option.
In the case of a premature disposition that triggers ordinary income,
Company will be entitled to a deduction equal to the amount of ordinary income
taxable to the employee. Accordingly, the employee is required to notify Company
in the event of such a premature disposition.
If the Employee Stock Purchase Plan is not approved by stockholders, it
will terminate and no stock can be purchased under it.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE ADOPTION OF THE EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL 5 -- RATIFICATION OF THE APPOINTMENT OF
KPMG PEAT MARWICK LLP AS INDEPENDENT ACCOUNTANTS
The Board has selected KPMG Peat Marwick LLP as independent public
accountants to audit the financial statements of the Company for fiscal 1997.
KPMG Peat Marwick LLP served as the Company's independent public accountants for
fiscal 1996. A member of that firm is expected to be present at the 1997 Annual
Meeting, will have an opportunity to make a statement if so desired, and will be
available to respond to appropriate questions. If the stockholders do not ratify
the selection of KPMG Peat Marwick LLP, if it should decline to act or otherwise
become incapable of acting, or if its employment is discontinued, the Audit
Committee will appoint independent public accountants for fiscal 1997. Proxies
solicited by the Board will be voted in favor of ratification unless
stockholders specify otherwise.
Ernst & Young LLP was previously the principal accountants for the Company.
On April 29, 1996, the Company terminated the appointment of Ernst & Young LLP
and engaged KPMG Peat Marwick LLP as the Company's principal accounting firm.
Such change was approved by the Company's Board of Directors. There was no
disagreement with Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which,
if not resolved to that firm's satisfaction, would have caused it to make
reference to the subject matter of the disagreement(s) in connection with its
report on the Company's financial statements. Ernst & Young LLP's report on the
balance sheets as of December 31, 1995 and 1994 and related statements of
operations and cash flows for each of the two years in the period ended December
31, 1995 did not contain an adverse opinion or a disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope, or accounting
principles. A copy of the letter to the Securities and Exchange Commission from
Ernst & Young LLP, stating that such firm agrees with the statements made by the
Company in this paragraph, was attached to the Company's Current Report on Form
8-K which was filed with the Securities and Exchange Commission on April 29,
1996.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR 1997.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
directors and certain of its officers, and persons who own more than 10% of a
registered class of the Company's equity securities (collectively, "Insiders"),
to file reports of ownership and changes in ownership with the Commission.
Insiders are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5's were
required for those persons, the Company believes that (i) each of the directors
and executive officers identified in Item 10 above and Ralph Brady and
Jacqueline Hibbs (each a former executive officer of the Company) failed to file
a Form 3, (ii) Mr. Battles failed to report a grant of an option on a Form 4,
(iii) Ms. Hibbs failed to report one acquisition on a Form 4 (although Ms. Hibbs
disclaims beneficial ownership of such shares), and (iv) Mr. Bernardoni did not
file a Form 4 for two acquisitions and one sale of ENDOcare's common stock and
for one acquisition of warrants (although Mr. Bernardoni disclaims beneficial
ownership of such shares). Each of the aforementioned individuals has filed a
Form 5 within the required time period to reflect such late filings.
OTHER BUSINESS
The Company is not aware of any other business to be presented at the 1997
Annual Meeting. All shares represented by Company proxies will be voted in favor
of the proposals of the Company described herein unless otherwise indicated on
the form of proxy. If any other matters properly come before the meeting,
Company proxy holders will vote thereon according to their best judgment.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder who wishes to present a proposal for action at the 1997
Annual Meeting and who wishes to have it set forth in the corresponding proxy
statement and identified in the corresponding form of proxy prepared by
management must notify the Company no later than November 5, 1997 in such form
as required under the rules and regulations promulgated by the Commission.
ANNUAL REPORTS
A copy of the 1996 Annual Report to Stockholders (which includes the
Company's Annual Report on Form 10-K, as amended) is being mailed to each
stockholder of record together with this Proxy Statement. The Company has also
filed with the Commission its Annual Report on Form 10-K, and Amendment No. 1
thereto, for the fiscal year ended December 31, 1996. This Report contains
information concerning the Company and its operations. A COPY OF THIS REPORT
WILL BE FURNISHED TO STOCKHOLDERS WITHOUT CHARGE UPON REQUEST IN WRITING TO
CHRISTINE CONCEPCION AT 7 STUDEBAKER, IRVINE, CALIFORNIA 92618. Such reports are
not a part of the Company's soliciting material.
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PROXIES AND SOLICITATION
Proxies for the 1997 Annual Meeting are being solicited by mail directly
and through brokerage and banking institutions. The Company will pay all
expenses in connection with the solicitation of proxies. In addition to the use
of mails, proxies may be solicited by Directors, officers and regular employees
of the Company personally or by telephone. The Company will reimburse banks,
brokers custodians, nominees and fiduciaries for any reasonable expenses in
forwarding proxy materials to beneficial owners.
All stockholders are urged to complete, sign and promptly return the
enclosed proxy card.
By Order of the Board of Directors
CHRISTINE CONCEPCION
Secretary
Irvine, California
March 6, 1997
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APPENDIX-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, 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.
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(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
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.
(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.
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(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 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;
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(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 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.
(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
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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.
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:
(A) Granted to an Employee 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, 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; and
(B) Granted to any Employee other than an Employee described in
Paragraph (A) immediately above, 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, 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.
(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.
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(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;
(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 receive (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.
(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
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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 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.
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(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.
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.
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.
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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 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.
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APPENDIX-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.
(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.
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(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).
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. 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
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. 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
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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.
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.
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 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.
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<PAGE> 33
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 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;
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(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.
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 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.
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APPENDIX-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.
(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.
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(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.
(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.
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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 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
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Participant's Subscription Agreement shall remain in effect for successive
Offering Periods unless terminated as provided in Section 9 of this Plan.
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 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.
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<PAGE> 39
(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.
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.
A3-5
<PAGE> 40
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.
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.
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<PAGE> 41
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.
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<PAGE> 42
APPENDIX-4
FORM OF PROXY
PROXY
ENDOCARE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Paul W. Mikus and Christine Concepcion, and each
of them, proxies with full power of substitution, to vote all shares of Common
Stock of ENDOcare, Inc. (the "Company") held of record by the undersigned as of
March 3, 1997, the record date with respect to this solicitation, at the Annual
Meeting of Stockholders of the Company to be held at 7 Studebaker, Irvine,
California 92618, beginning at 11:00 a.m., Pacific Time, on Thursday, March 27,
1997, and at any adjournments thereof, upon the following matters:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR all nominees listed below (except [ ] WITHHOLD AUTHORITY
as noted below) to vote for all nominees listed below
</TABLE>
(Instructions: To withhold authority to vote for any nominee, line through or
otherwise strike out the nominee's name below.)
Paul W. Mikus Peter F. Bernardoni Kevin Marinelli
2. APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S 1995 STOCK PLAN
WHICH PRINCIPAL CHANGES ARE TO AUTHORIZE AND RESERVE FOR ISSUANCE THEREUNDER
AN ADDITIONAL 500,000 SHARES OF COMMON STOCK AND TO PUT SUCH PLAN INTO
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE, AS DESCRIBED IN
THE PROXY STATEMENT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S 1995 DIRECTOR
OPTION PLAN WHICH PRINCIPAL CHANGES ARE TO AUTHORIZE AND RESERVE FOR ISSUANCE
UPON EXERCISE OF OPTIONS GRANTED THEREUNDER AN ADDITIONAL 50,000 SHARES OF
COMMON STOCK AND TO CHANGE THE VESTING OF OPTIONS GRANTED THEREUNDER, AS
DESCRIBED IN THE PROXY STATEMENT.
4. ADOPTION OF THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. OTHER MATTERS
In their discretion, Paul W. Mikus and Christine Concepcion are authorized
to vote upon such other business as may properly come before the meeting.
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<PAGE> 43
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
THE NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 AND 5 ABOVE. IF ANY
NOMINEE DECLINES OR IS UNABLE TO SERVE AS A DIRECTOR, THEN THE PERSONS NAMED AS
PROXIES SHALL HAVE FULL DISCRETION TO VOTE FOR ANY OTHER PERSON DESIGNATED BY
THE BOARD OF DIRECTORS.
Dated , 1997
------------------------
--------------------------------------
(Signature)
--------------------------------------
(Signature)
Please sign exactly as your name
appears hereon. Joint owners should
each sign. When signing as attorney,
executor, administrator, trustee,
guardian or corporate officer, please
give full title as such.
The signer hereby revokes all proxies
heretofore given by the signor to vote
at said meeting or any adjournments
thereof.
A4-2
