Endocare, Inc.
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
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Preliminary Proxy Statement |
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Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to Rule 14a-12 |
ENDOCARE, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
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ENDOCARE, INC.
201 Technology Drive
Irvine, California 92618
April 21, 2006
Dear Stockholder of Endocare, Inc.:
You are cordially invited to attend the Annual Meeting of
Stockholders of Endocare, Inc. to be held on Thursday,
May 18, 2006 at 8:00 a.m. Pacific time at our
principal executive offices, located at 201 Technology
Drive, Irvine, California 92618.
We have provided details of the business to be conducted at the
Annual Meeting in the attached Notice of Annual Meeting of
Stockholders and Proxy Statement.
In order for us to obtain a quorum and have an efficient
meeting, please sign, date and return the enclosed proxy card
promptly in the accompanying reply envelope. If you decide to
attend the Annual Meeting and wish to change your proxy vote,
you may do so automatically by voting in person at the Annual
Meeting.
We look forward to seeing you at the Annual Meeting.
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Sincerely, |
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Craig T. Davenport |
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Chairman and Chief Executive Officer |
Irvine, California
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you
are requested to complete, sign and date the enclosed proxy card
as promptly as possible and return it in the enclosed envelope.
You do not need to add postage if mailed in the United States.
Voting instructions are included with your proxy card.
ENDOCARE, INC.
201 Technology Drive
Irvine, California 92618
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 2006
Dear Stockholder of Endocare, Inc.:
NOTICE IS HEREBY GIVEN that the 2006 Annual Meeting of
Stockholders of Endocare, Inc., a Delaware corporation (the
Company), will be held on Thursday, May 18,
2006, at 8:00 a.m. Pacific time at the Companys
principal executive offices, located at 201 Technology Drive,
Irvine, California 92618, for the following purposes:
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1. To elect six (6) directors to the Board of
Directors to serve until the 2007 Annual Meeting of Stockholders
or until their successors are duly elected and qualified; |
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2. To reauthorize the Board of Directors, in its
discretion, to amend the Companys Restated Certificate of
Incorporation to effectuate a reverse stock split of our common
stock, at an exchange ratio ranging from
one-to-two to
one-to-five; |
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3. To ratify the selection of Ernst & Young LLP as
the Companys independent auditor for the fiscal year
ending December 31, 2006; and |
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4. To transact any other business as may properly come
before the Annual Meeting or any postponements or adjournments
thereof. |
The foregoing items of business are more fully described in the
Proxy Statement accompanying this Notice. Only stockholders of
record at the close of business on April 20, 2006 will be
entitled to vote at the Annual Meeting. Our stock transfer books
will remain open between the record date and the date of the
Annual Meeting. A list of stockholders entitled to vote at the
Annual Meeting will be available for inspection at our principal
executive offices.
All stockholders are cordially invited to attend the Annual
Meeting in person. Whether or not you plan to attend the
Annual Meeting in person, please sign, date and return the
enclosed proxy card in the reply envelope provided. Voting
instructions are included with your proxy card. Should you
receive more than one proxy card because your shares are
registered in different names and addresses, each proxy card
should be signed, dated and returned to assure that all your
shares will be voted. You may revoke your proxy card
at any time prior to the Annual Meeting by following
the instructions in the Proxy Statement. If you attend
the Annual Meeting and vote by ballot, your proxy card will
be revoked automatically and only your vote at the Annual
Meeting will be counted. The prompt return of your proxy card
will assist us in preparing for the Annual Meeting.
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By Order of the Board of Directors |
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Clint B. Davis
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Senior Vice President, Legal Affairs, |
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General Counsel and Secretary |
Irvine, California
April 21, 2006
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF
SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT
CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
TABLE OF CONTENTS
ENDOCARE, INC.
201 Technology Drive
Irvine, California 92618
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 18, 2006
GENERAL
The enclosed proxy is solicited on behalf of the Board of
Directors of Endocare, Inc., a Delaware corporation (the
Company), for use at the Companys 2006 Annual
Meeting of Stockholders (the Annual Meeting). The
Annual Meeting will be held on Thursday, May 18, 2006 at
8:00 a.m. Pacific time at the Companys principal
executive offices, located at 201 Technology Drive, Irvine,
California 92618. This Proxy Statement and accompanying proxy
were first mailed to stockholders on or about April 21,
2006, to all stockholders entitled to vote at the Annual Meeting.
Voting
The specific proposals to be considered and acted upon at the
Annual Meeting are summarized in the accompanying Notice of
Annual Meeting of Stockholders and are described in more detail
in this Proxy Statement. Each stockholder is entitled to one
vote for each share of our common stock held by such stockholder
on April 20, 2006, the record date for determining which
stockholders are entitled to vote at the Annual Meeting. On
March 31, 2006, there were 30,147,894 issued and
outstanding shares of common stock. Our Amended and Restated
Bylaws (the Bylaws) provide that a majority of the
shares entitled to vote, represented in person or by proxy, will
constitute a quorum for transaction of business at the Annual
Meeting.
With regard to the election of directors, votes may be cast in
favor of, or withheld from, each nominee. The directors,
however, will be elected by plurality vote, and votes that are
withheld will be excluded entirely from the vote and will have
no effect. Proposal 2 (reauthorization of reverse stock
split) requires the approval of the holders of a majority of our
outstanding shares of common stock, voting either in person or
by proxy. Proposal 3 (ratification of independent auditor)
will require the approval of the holders of a majority of our
outstanding common stock present in person or represented by
proxy at the Annual Meeting.
Votes will be counted by the inspector of election appointed for
the meeting, who will separately count For,
Against and Abstain votes, as well as
broker non-votes. Broker non-votes occur when a
nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have
discretionary voting power with respect to that proposal and has
not received instructions with respect to that proposal from the
beneficial owner (despite voting on at least one other proposal
for which the nominee does have discretionary authority or for
which it has received instructions). Abstentions will be counted
towards the vote total for each proposal, and will have the same
effect as Against votes. Broker non-votes will not
be counted for purposes of determining whether any of the
proposals are approved and will have the same effect as
Against votes on any proposal that must be approved
by the holders of a majority of our outstanding shares of common
stock, such as Proposal 2 (reauthorization of reverse stock
split).
Proxies
Our Board of Directors has selected Craig T. Davenport and
William J. Nydam, and each of them, to serve as Proxyholders for
the Annual Meeting. If a stockholder properly signs and returns
the enclosed form of proxy, the Proxyholders will vote the
shares represented by such proxy at the Annual Meeting in
accordance with the instructions the stockholder writes on the
proxy. If the proxy does not specify how the shares are to be
voted, the proxy will be voted FOR the election of each
of the directors nominated by the Board unless the authority to
vote for the election of such director is withheld and, if no
contrary instructions are given, the proxy will be voted FOR
the approval of Proposals 2 and 3 described in the
accompanying Notice of Annual Meeting of Stockholders and this
Proxy Statement. In addition, the shares represented by the
proxy will be voted in accordance with the discretion of the
Proxyholders on any other matters that properly come before the
Annual Meeting.
You may revoke or change your proxy at any time before the
Annual Meeting by mailing our Secretary at our principal
executive offices located at 201 Technology Drive, Irvine,
California 92618, a notice of revocation or another signed proxy
with a later date. You may also revoke your proxy by attending
the Annual Meeting and voting in person.
We do not know of other matters to be presented for
consideration at the Annual Meeting. However, if any other
matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed form of proxy to
vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other
matters is granted by the execution of the enclosed proxy.
Solicitation
We will bear the entire cost of soliciting proxies, including
the preparation, assembly, printing and mailing of this Proxy
Statement, the proxy and any additional solicitation material
furnished to stockholders. Copies of solicitation material will
be furnished to brokerage firms, banks, nominees, custodians and
fiduciaries holding shares in their names that are beneficially
owned by others so that they may forward this solicitation
material to such beneficial owners. In addition, we may
reimburse such persons for their costs of forwarding the
solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by
solicitation by telephone or other means by our directors,
officers, employees or agents. No additional compensation will
be paid to our directors, officers or employees for any such
services.
PROPOSALS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL 1
ELECTION OF DIRECTORS
General
The persons named below are nominees for director to serve until
the 2007 Annual Meeting of Stockholders or until their
successors are duly elected and qualified. The Bylaws provide
that the authorized number of directors shall be determined by
resolution of the Board of Directors or the stockholders, and
shall be within the range of three to seven directors. Effective
upon the date of the Annual Meeting, the authorized number of
directors will be six directors. The Board of Directors has
selected six nominees, all of whom are currently our directors.
Each person nominated for election has agreed to serve if
elected. Unless otherwise instructed, the Proxyholders will vote
the proxies received by them for the nominees named below. The
proxies received by the Proxyholders cannot be voted for more
than six directors and, unless otherwise instructed, the
Proxyholders will vote such proxies for the nominees named
below. The six candidates receiving the highest number of
affirmative votes of the shares of our common stock entitled to
vote at the Annual
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Meeting will be elected our directors. As of the date of this
Proxy Statement, neither the Board of Directors nor management
is aware of any nominee who is unable to or will decline to
serve as a director if elected. In the event the nominees are
unable or decline to serve as directors at the time of the
Annual Meeting, the proxies will be voted for any nominees who
may be designated by the current Board of Directors to fill the
vacancy.
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 of
our principal executive officers.
Directors and Nominees
Information is set forth below concerning the current members of
our Board of Directors. All of these directors have been
nominated for reelection to our Board of Directors, except for
Michael J. Strauss, M.D., who has decided not to stand for
reelection at the Annual Meeting. Information regarding each
directors beneficial ownership of our common stock as of
March 31, 2006 is set forth below under Principal
Stockholders. 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.
Mr. Noonan currently is serving as our Lead Independent
Director. As the Lead Independent Director,
Mr. Noonans principal duties include:
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presiding over all executive sessions of our independent
directors; |
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consulting with management as the principal representative of
the independent directors; and |
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presiding over Board meetings in the Chairmans absence. |
Interested parties may communicate directly with Mr. Noonan
by writing to Mr. Terrence A. Noonan, Lead Independent
Director, c/o Secretary, Endocare, Inc., 201 Technology
Drive, Irvine, California 92618.
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Name |
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Age | |
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Position with Endocare |
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John R. Daniels, M.D. *+
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Director |
Craig T. Davenport
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Chairman and Chief Executive Officer |
David L. Goldsmith
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58 |
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Director |
Eric S. Kentor *
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47 |
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Director |
Terrence A. Noonan +
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68 |
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Lead Independent Director |
Michael J. Strauss, M.D. *+
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Director |
Thomas R. Testman (1)
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69 |
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Director |
Note: All ages are as of March 31, 2006.
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Member of the Audit Committee. |
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Member of the Compensation Committee. |
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Member of the Nominating and Corporate Governance Committee. |
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Our Board of Directors has determined that Mr. Testman is
an audit committee financial expert, as defined in
Securities and Exchange Commission
Regulation S-K
Item 401(h)(2). |
John R. Daniels, M.D. has served as a director since
January 2004. Dr. Daniels is former chief executive officer
and chairman at a number of medical technology companies, as
well as an accomplished clinician and past faculty member of the
Stanford University School of Medicine. From 1990 to the
present, Dr. Daniels has served as an associate professor
of medicine in the Division of Oncology at the University of
Southern California School of Medicine. Dr. Daniels is the
founder or co-founder of five
start-up companies,
including: Collagen Corporation, which was acquired by Inamed, a
publicly-traded healthcare company; Target Therapeutics, today a
division of Boston Scientific Corporation, a publicly-
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traded medical device company; and Balance Pharmaceuticals, a
company founded in 1992 to develop and market a drug to moderate
hormone levels in pre-menopausal women. Dr. Daniels is
currently a director and Chairman of Balance Pharmaceuticals.
From 1997 until 2002, Dr. Daniels was Chairman of Cohesion
Technologies, a publicly-traded spin-off from Collagen
Corporation, which developed sealing technologies for surgery.
In 2003 Cohesion Technologies was acquired by Angiotech
Pharmaceuticals, a publicly-traded company that develops
drug-coated medical devices and drug-loaded surgical implants.
Dr. Daniels holds a B.A. from Stanford University and an
M.D. from the Stanford University School of Medicine.
Craig T. Davenport has served as our Chief Executive
Officer since December 2003 and as our Chairman since January
2004. He served as a consultant reporting to our Board of
Directors from August 2003 to December 2003. From 1994 to 2003,
he was Chief Executive Officer and Managing Partner of The D.W.
Group, a private healthcare advisory and investment company.
From 1985 to 1993 Mr. Davenport was President and Chief
Operating Officer of Tokos Medical Corporation, a
publicly-traded medical device manufacturer and provider of
perinatal nursing services for women. He began his healthcare
career at American Hospital Supply Corporation in 1974 and in
1982 was named President of American Physician Service and
Supply. Mr. Davenport has served on the boards of numerous
healthcare companies over the past 20 years. He currently
serves as a board member to two privately-held medical device
companies and as an advisor to a venture capital partnership.
Mr. Davenport holds a B.G.S. from Ohio University with
major emphasis in marketing and management.
David L. Goldsmith has served as a director since June
2005. A private investor and business consultant since 2004,
Mr. Goldsmith previously served as Managing Director of RS
Investment Management, an investment management firm, from 1999
to 2003. From 1981 to 1999, Mr. Goldsmith held a variety of
investment management and research positions at Robertson
Stephens and Company. From 1978 to 1981, Mr. Goldsmith
worked with BA Investment Management, eventually becoming
Associate Director of Research. Mr. Goldsmith currently
serves as Chairman of the Board of Directors of Apria Healthcare
Group, Inc., where he also serves as a member of the Audit
Committee and Compliance Committee. He is also on the board of
directors of a number of privately-held companies.
Mr. Goldsmith is a chartered financial analyst, and holds a
B.A. from Occidental College and an M.B.A. from Columbia
University Graduate School of Business.
Eric S. Kentor has served as a director since February
2005 and currently serves as Chairman of the Compensation
Committee. From 2002 to the present, he has been an independent
business consultant, primarily to health care technology
companies. From 1995 to 2001, he was Senior Vice President,
General Counsel and Corporate Secretary of MiniMed, Inc., a
company engaged in the design, development, manufacture and
marketing of advanced systems for the treatment of diabetes.
Mr. Kentor served as an original and permanent member of
MiniMeds Executive Management Committee, which was charged
with overseeing the
day-to-day operations
of the company and executing its corporate strategic plan.
MiniMed, Inc. was acquired by Medtronic, Inc. in 2001. From 1994
to 1995, Mr. Kentor served as Vice President and Executive
Counsel of Health Net Health Plans. From 1987 to 1994,
Mr. Kentor practiced with the law firm McDermott,
Will & Emory, where he was elected partner.
Mr. Kentor is on the Board of Directors of MD Synergy,
Inc., a privately-held company. Mr. Kentor holds a B.A.
from the University of California, Los Angeles and a J.D. from
UCLA School of Law.
Terrence A. Noonan has served as a director since
September 2003 and currently serves as our Lead Independent
Director and Chairman of the Nominating and Corporate Governance
Committee. From 1991 to 1999, Mr. Noonan was President and
Chief Operating Officer of Furon Company, a New York Stock
Exchange-listed manufacturer of industrial and medical polymer
components. Mr. Noonan served as an Executive Vice
President of Furon from 1989 to 1991 and as a Vice President of
Furon from 1987 to 1989. Prior to joining Furon in 1987,
Mr. Noonan served as a Group Vice President of Eaton
Corporation, a diversified global manufacturer of transportation
and electrical products. From 1999 to the present,
Mr. Noonan has been serving as a board member to several
companies. In addition to serving on our board, Mr. Noonan
currently serves on the board of Mattman Specialty Vehicles,
Inc. Mr. Noonan received a B.S. from Miami University and
an E.M.B.A. from Case Western Reserve University.
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Michael J. Strauss, M.D. has served as a director
since February 1999. Dr. Strauss is a health policy and
business consultant who works with medical technology and
service companies. From 2001 until January 2005 he served as
Chief Executive Officer of Naviscan PET Systems, Inc., a
developer of compact, high-resolution positron emission
tomography (PET) devices. Dr. Strauss was a founder
and officer of Covance Health Economics and Outcomes Services,
Inc., a healthcare consulting and service firm, from 1988
through 1999. He serves on the Board of Directors of Cyberonics,
Inc. and Vision Care Ophthalmic Technologies. He holds an A.B.
from Harvard College, M.D. from Duke University and M.P.H.
from the University of Washington School of Public Health.
Thomas R. Testman has served as a director since April
2003 and currently serves as Chairman of the Audit Committee.
Mr. Testman is a former Managing Partner of
Ernst & Young LLP where, during his tenure from 1962 to
1992, he served as Managing Partner of both Health Care Services
and Management Consulting Services for the West Coast and
national practices. He also served as an area Managing Partner
for the audit and tax practices. From 1993 to the present,
Mr. Testman has been serving as a board member to both
public and private companies. In addition to serving on our
board, Mr. Testman currently serves as a director and
Chairman of the Audit Committee of Amylin Pharmaceuticals, Inc.
From 1996 to 2004, Mr. Testman served as a director of
Specialty Laboratories, Inc., including serving as Chairman and
as a member of the Audit Committee. He also serves on the board
of several privately-held companies, including serving as
Chairman of Covenant Care, Inc. and Pacific Health Corporation.
Mr. Testman previously was a director and Chairman of the
Audit Committee of MiniMed Inc., and Mr. Testman also was
Chairman of the Special Committee that oversaw MiniMeds
acquisition by Medtronic, Inc. He has an M.B.A. from Trinity
University and is a certified public accountant (retired).
Board Meetings and Committees
During 2005, the Board of Directors held nine meetings in person
or telephonically. In 2005, the Board of Directors had an Audit
Committee, a Compensation Committee and a Nominating and
Corporate Governance Committee. During 2005 each director
attended or participated in at least 75% of the aggregate of:
(i) the total number of meetings of the Board of Directors
(during the period for which such director served as a
director); and (ii) the total number of meetings held by
all committees of the Board of Directors on which such director
served (during the period for which such director served on such
committees). Board members are encouraged to attend our annual
meetings of stockholders. All seven of our directors attended
our 2005 Annual Meeting of Stockholders held on June 22,
2005.
The Audit Committee acts pursuant to a written charter, a copy
of which is attached as Appendix A to this Proxy
Statement. The Board of Directors has established the Audit
Committee to:
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provide assistance to the Board of Directors in fulfilling its
oversight responsibility to our stockholders and others relating
to: (i) the integrity of our financial statements;
(ii) our compliance with legal and regulatory requirements;
(iii) our independent auditors qualifications and
independence; and (iv) the performance of our internal
audit function and independent auditor; and |
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prepare the Audit Committee report that SEC proxy rules require
to be included in our annual proxy statement. |
Messrs. Goldsmith, Noonan and Testman are members of the
Audit Committee. During 2005, the Audit Committee held eight
meetings in person or telephonically. The Board of Directors has
determined that all members of the Audit Committee are
independent, as defined in the NASDAQ listing
standards.
The Board of Directors has established a Compensation Committee
consisting of Drs. Daniels and Strauss and Mr. Kentor,
none of whom is an employee of the Company. The Compensation
Committee determines the compensation of our executive officers
and administers our equity compensation plans. During 2005, the
Compensation Committee held five meetings in person or
telephonically. The Board of
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Directors has determined that all members of the Compensation
Committee are independent, as defined in the NASDAQ
listing standards.
The Board of Directors has established a Nominating and
Corporate Governance Committee. The Nominating and Corporate
Governance Committee:
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monitors the size and composition of the Board of Directors; |
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assesses the performance and effectiveness of the Board of
Directors; |
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makes recommendations from time to time, or whenever it is
called upon to do so, regarding nominees for election to the
Board of Directors; and |
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establishes, implements and monitors policies and procedures
regarding principles of corporate governance, conduct and ethics
for our directors, officers and employees. |
Drs. Daniels and Strauss and Mr. Noonan are members of
the Nominating and Corporate Governance Committee. During 2005,
the Nominating and Corporate Governance Committee held two
meetings in person or telephonically. The Board of Directors has
determined that all members of the Nominating and Corporate
Governance Committee are independent, as defined in
the NASDAQ listing standards. A copy of the current charter of
the Nominating and Corporate Governance Committee is available
on our website at
www.endocare.com/investors/nominating charter.pdf.
The Nominating and Corporate Governance Committee will consider
nominations submitted by our stockholders. The Nominating and
Corporate Governance Committee evaluates candidates proposed by
stockholders using the same criteria as for other candidates.
The charter of the Nominating and Corporate Governance Committee
provides that the following are among the qualifications to be
considered when evaluating and selecting candidates for the
Board of Directors:
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experience in business, finance or administration; |
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familiarity with our industry; |
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prominence and reputation; and |
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whether the individual has sufficient time available to devote
to the work of the Board of Directors and one or more of its
committees. |
In addition, our Corporate Governance Guidelines provide that
Board members will possess certain core competencies, some of
which may include broad experience in business, finance or
administration, familiarity with national and international
business matters and familiarity with our industry. In addition
to having one or more of these core competencies, Board member
nominees are identified and considered on the basis of
knowledge, experience, integrity, diversity, leadership,
reputation and ability to understand our business.
The Bylaws set forth the procedures that stockholders must
follow in order to nominate persons for election as directors.
The Bylaws provide that such nominations must be made pursuant
to timely notice in writing to our Secretary, at 201 Technology
Drive, Irvine, California 92618. To be timely, a
stockholders notice must be delivered to or mailed and
received at such address by no later than the due date for
stockholder proposals that is specified in our proxy statement
released to stockholders in connection with the previous
years annual meeting of stockholders, which date shall be
not less than 120 calendar days in advance of the date of such
proxy statement; provided, however, that in the event that no
annual meeting was held in the previous year or the date of the
annual meeting has been changed by more than 30 days from
the date of the previous years annual meeting, notice by
the stockholder to be timely must be so received a reasonable
time before we begin to print and mail our proxy materials.
According to the Bylaws, such stockholders notice must set
forth:
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as to each person, if any, whom the stockholder proposes to
nominate for election or reelection as a director: (A) the
name, age, business address and residence address of such
person, (B) the |
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principal occupation or employment of such person, (C) the
class and number of our shares that are beneficially owned by
such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant
to which the nominations are to be made by the stockholder, and
(E) any other information relating to such person that is
required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange
Act of 1934 (including without limitation such persons
written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); and |
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as to such stockholder giving notice, the following information:
(A) the name and address, as they appear on our books, of
such stockholder, (B) the class and number of our shares
which are beneficially owned by such stockholder, and
(C) any material interest of such stockholder in the
election to the Board of Directors of such nominee. |
Communications to the Board of Directors
The Board of Directors recommends that stockholders initiate any
communications with the Board in writing and send them in care
of our Secretary, at 201 Technology Drive, Irvine, California
92618. This centralized process will assist the Board in
reviewing and responding to stockholder communications in an
appropriate manner. The name of any specific intended Board
recipient should be noted in the communication. The Board has
instructed our Secretary to forward such correspondence only to
the intended recipients; however, the Board has also instructed
our Secretary, prior to forwarding any correspondence, to review
such correspondence and, in his or her discretion, not to
forward certain items if they are deemed of a commercial or
frivolous nature or otherwise inappropriate for the Boards
consideration. In such cases, some of that correspondence may be
forwarded elsewhere in the Company for review and possible
response.
Director Compensation
Each of our non-employee directors receives an annual retainer
of $25,000 for his service as a director. The Lead Independent
Director receives an additional annual retainer of $15,000, the
Chairman of the Audit Committee receives an additional annual
retainer of $12,500, the Chairman of the Compensation Committee
receives an additional annual retainer of $7,500, the Chairman
of the Nominating and Corporate Governance Committee receives an
additional annual retainer of $7,500 and each member of the
Audit Committee receives an additional annual retainer of
$2,500. The additional annual retainers are cumulative for any
director who serves in multiple capacities for which such
director is entitled to more than one additional annual retainer
(for example, because the Lead Independent Director also serves
as Chairman of the Nominating and Corporate Governance Committee
and currently is a member of the Audit Committee, he is entitled
to receive an aggregate annual retainer of $50,000, equal to the
base annual retainer of $25,000 plus an aggregate additional
annual retainer of $25,000). All annual retainers are paid
quarterly in arrears.
Each non-employee director also receives $1,000 for each in
person meeting of the Board of Directors or any committee
thereof that he attends and an additional payment of $500 for
each telephonic meeting of the Board of Directors or any
committee thereof in which he participates. The meeting fees
apply to meetings of the Board, the Boards three standing
committees (i.e., Audit Committee, Compensation Committee
and Nominating and Corporate Governance Committee) and any
special committees established by the Board.
7
Directors are reimbursed for reasonable expenses incurred in
connection with serving as directors.
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2004 Non-Employee Director Option Program |
Each non-employee director also participates in our 2004
Non-Employee Director Option Program (the
2004 Director Program). The 2004 Director
Program was adopted by our Board of Directors in July 2004 as
part of our 2004 Stock Incentive Plan, and became effective upon
approval by our stockholders at the 2004 Annual Meeting of
Stockholders held on September 10, 2004. The
2004 Director Program is subject to the terms and
conditions of the 2004 Stock Incentive Plan. Under the
2004 Director Program, non-employee directors receive a
stock option grant of 20,000 shares on January 10 of each
year beginning in 2005 (or the first trading day thereafter if
January 10 is not a trading day). In addition, each
non-employee director first elected or appointed to the Board
after stockholder approval of the 2004 Stock Incentive Plan
receives a stock option grant of 30,000 shares on the first
trading day after such non-employee director is first elected or
appointed to the Board. All of the options granted to
non-employee directors under the 2004 Director Program are
granted at an exercise price equal to the fair market value of
the common stock on the date the options are granted. The Board
has the discretion to amend the 2004 Director Program and
increase or decrease the number of stock options granted to
non-employee directors on an annual or other basis. A copy of
the 2004 Director Program was attached as
Exhibit 10.34 to the Annual Report on
Form 10-K that we
filed on March 16, 2005.
On January 10, 2005, each person then serving as a
non-employee director received the automatic 20,000 share
option grant described above. In addition, Messrs. Kentor
and Goldsmith each received an initial 30,000 share option
grant following his election to the Board. All of the options
granted to non-employee directors were granted at an exercise
price equal to the fair market value of the common stock on the
date the options were granted.
Financial Code of Ethics
We have adopted a financial code of ethics that applies to all
of our employees. This financial code of ethics constitutes a
code of ethics, as defined in SEC
Regulation S-K
Item 406(b). A copy of our financial code of ethics is
available on our website at
www.endocare.com/investors/financial code of ethics.pdf.
If we make any amendments to our financial code of ethics, other
than technical, administrative or other non-substantive
amendments, or grant any waivers, including implicit waivers,
from a provision of our financial code of ethics to our
principal executive officer, principal financial officer,
principal accounting officer or controller, or persons
performing similar functions, then we will disclose the nature
of the amendment or waiver, its effective date and to whom it
applies on our website at www.endocare.com/investors/ or
in a report on
Form 8-K filed
with the SEC.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the
stockholders vote FOR each of the six nominees identified
above.
8
PROPOSAL 2
REAUTHORIZATION OF THE BOARD OF DIRECTORS, IN ITS DISCRETION,
TO AMEND THE COMPANYS RESTATED CERTIFICATE OF
INCORPORATION TO EFFECTUATE A REVERSE STOCK SPLIT OF OUR COMMON
STOCK, AT AN EXCHANGE RATIO RANGING FROM ONE-TO-TWO TO
ONE-TO-FIVE
General
At a Special Meeting of Stockholders held on August 30,
2005, our stockholders voted (with the approval of more than 70%
of our outstanding shares) to authorize our Board of Directors,
in its discretion, to amend our Restated Certificate of
Incorporation to effectuate a reverse stock split of all
outstanding shares of our common stock at an exchange ratio
ranging from one-to-two
to one-to-five at any
time before the first anniversary of the Special Meeting
(August 30, 2006).
As of the date of this Proxy Statement, the Board has not yet
effectuated the amendment and reverse stock split. In order to
extend the period of time in which the Board is authorized to
effectuate the amendment and reverse stock split, the Board has
recommended that this Proposal 2 be presented to our
stockholders for approval at the Annual Meeting. If our
stockholders approve this Proposal 2, then the Board will
be authorized, in its discretion, to effectuate the amendment
and reverse stock split at any time before the first anniversary
of the Annual Meeting (May 18, 2007).
In this Proposal 2 is approved, then the Board of Directors
will have the sole discretion pursuant to Section 242(c) of
the Delaware General Corporation Law to elect, as it determines
to be in the best interests of Endocare and its stockholders,
whether or not to effectuate the amendment and reverse stock
split, and if so, the number of shares of our common stock
between and including two and five that will be combined into
one share of our common stock, at any time before the first
anniversary of the Annual Meeting (May 18, 2007). The Board
believes that stockholder approval of an amendment granting the
Board this discretion, rather than approval of a specified
exchange ratio, provides the Board with the flexibility to react
to then-current market conditions and, therefore, is in the best
interests of Endocare and its stockholders.
The text of the form of the proposed amendment to our Restated
Certificate of Incorporation is attached to this proxy statement
as Appendix B. By approving this amendment,
stockholders will approve an amendment to our Restated
Certificate of Incorporation pursuant to which any whole number
of outstanding shares between and including two and five would
be combined into one share of our common stock and authorize the
Board to file such amendment as determined by the Board in the
manner described herein. The Board may also elect not to
effectuate any reverse split.
If approved by the stockholders, and following such approval,
the Board determines that effectuating a reverse stock split is
in the best interests of Endocare and its stockholders, the
reverse stock split will become effective upon filing such
amendment with the Secretary of State of the State of Delaware.
The amendment filed thereby will contain the number of shares
selected by the Board within the limits set forth in this
proposal to be combined into one share of our common stock.
If the Board elects to effectuate a reverse stock split
following stockholder approval, the number of issued and
outstanding shares of common stock would be reduced in
accordance with an exchange ratio determined by the Board within
the limits set forth in this proposal. Except for adjustments
that may result from the treatment of fractional shares as
described below, each stockholder will hold the same percentage
of our outstanding common stock immediately following the
reverse stock split as such stockholder held immediately prior
to the reverse stock split. Currently, Endocare is authorized to
issue up to a total of 51,000,000 shares of capital stock,
consisting of 1,000,000 shares of preferred stock and
50,000,000 shares of common stock. The amendment would not
change the number of total authorized shares of our capital
stock. Thus, immediately following the reverse stock split, the
total number of authorized shares of capital stock would remain
at 51,000,000, consisting of 1,000,000 shares of preferred
stock and 50,000,000 shares of common stock. The par value
of our common stock and preferred stock
9
would remain unchanged at $0.001 per share as well.
Currently, the Board does not have any plans to issue additional
shares of our common stock following the reverse stock split.
Reasons for the Possible Reverse Stock Split
We believe that a reverse stock split may be necessary for us to
achieve the relisting of our stock on a national exchange or
market. Our stock is currently quoted on the
Over-the-Counter
Bulletin Board, or OTCBB. Alternative markets such as the
OTCBB are generally considered to be less efficient and not as
widely followed as national exchanges or markets such as those
operated by NASDAQ or the American Stock Exchange. In addition,
certain mutual funds and other institutional investors are
prohibited by their bylaws from investing in companies that
trade on alternative markets such as the OTCBB.
In order for us to list our stock on a market operated by NASDAQ
or the American Stock Exchange, we must satisfy certain listing
standards, some of which require a minimum bid price. For
example, certain listing standards of the NASDAQ Capital Market
would require that our stock have a minimum bid price of at
least $4.00 per share and certain listing standards of the
NASDAQ Global Market would require that our stock have a minimum
bid price of at least $5.00 per share. In addition, certain
listing standards of the American Stock Exchange would require
that our stock have a minimum bid price of at least
$3.00 per share. As of April 17, 2006, the closing
price for our stock as reported on the OTCBB was $3.37 per
share. Of course, we cannot predict whether this share price
will be maintained or increased in the future.
In many instances historically the markets have reacted
negatively to the effectuation of a reverse stock split. Our
stock may be negatively affected if our Board decides to proceed
with a reverse stock split. However, we believe that our
circumstances and rationale for the reverse stock split
differentiate us from many other companies that have effectuated
reverse stock splits. Among other things, we would be
effectuating a reverse stock split to qualify our stock for
relisting, whereas many other companies have effectuated reverse
stock splits to avoid delisting in the face of dire financial or
operational circumstances.
We expect that a reverse stock split of our common stock would
increase the market price of our common stock so that we would
be better able to satisfy the minimum bid price listing
standards of a national market or exchange like the NASDAQ
Capital Market, NASDAQ Global Market or the American Stock
Exchange. However, the effect of a reverse split upon the market
price of our common stock cannot be predicted with any
certainty. It is possible that the per share price of our common
stock after the reverse split will not rise in proportion to the
reduction in the number of shares of our common stock
outstanding resulting from the reverse stock split, and there
can be no assurance that the market price per post-reverse split
share will either exceed or remain in excess of the minimum bid
price for a sustained period of time. The market price of our
common stock may be based also on other factors that may be
unrelated to the number of shares outstanding, including our
future performance. Notwithstanding the foregoing, we believe
that the proposed reverse stock split, when implemented within
the proposed exchange ratio range, is likely to result in the
market price of our common stock rising to the level necessary
to satisfy the minimum bid price requirement for relisting on a
national exchange or market.
We also believe that the increased market price of our common
stock expected as a result of implementing a reverse stock split
may improve the marketability of our common stock and encourage
interest and trading in our common stock. Because of the trading
volatility often associated with low-priced stocks, many
brokerage houses and institutional investors have internal
policies and practices that either prohibit them from investing
in low-priced stocks or tend to discourage individual brokers
from recommending low-priced stocks to their customers. Some of
those policies and practices may function to make the processing
of trades in low-priced stocks economically unattractive to
brokers. Additionally, because brokers commissions on
low-priced stocks generally represent a higher percentage of the
stock price than commissions on higher-priced stocks, the
current average price per share of our common stock can result
in individual stockholders paying transaction costs representing
a higher percentage of their total share value than would be the
case if the share price were substantially higher. On the other
hand, the liquidity of our common stock may be adversely
affected by the proposed reverse stock split given the
10
reduced number of shares that would be outstanding after the
reverse stock split. We are hopeful, however, that the
anticipated higher market price would reduce, to some extent,
the negative effects on the liquidity and marketability of the
common stock inherent in some of the policies and practices of
institutional investors and brokerage houses described above.
We are hopeful that the price of our stock will increase over
time as a result of positive developments in our business and
our operating performance. Nevertheless, if the price of our
stock does not increase significantly in the short term, a
reverse stock split may be necessary or desirable to achieve the
relisting of our stock.
Board Discretion to Implement the Reverse Stock Split
If the reverse stock split is approved by our stockholders, it
will be effectuated, if at all, only upon a determination by the
Board that a reverse stock split (with an exchange ratio
determined by the Board as described above) is in the best
interests of Endocare and its stockholders. The determination by
the Board as to whether the reverse split will be effected, if
at all, will be based upon various factors, including our
ability to satisfy applicable listing requirements, existing and
expected marketability and liquidity of our common stock,
prevailing market conditions and the likely effect on the market
price of our common stock. If the Board determines to effectuate
the reverse stock split, the Board will consider various factors
in selecting the specific exchange ratio, including the overall
market conditions at the time and the recent trading history of
our common stock.
Notwithstanding approval of the reverse stock split by the
stockholders, the Board may, in its sole discretion, abandon the
proposed amendment and determine prior to the effectiveness of
any filing with the Secretary of State of the State of Delaware
not to effect the reverse stock split prior to the one-year
anniversary of the Annual Meeting (May 18, 2007), as
permitted under Section 242(c) of the Delaware General
Corporation Law. If the Board does not effectuate the reverse
stock split prior to the first anniversary of the Annual Meeting
(May 18, 2007), stockholder approval again would be
required prior to implementing any reverse stock split.
Ability to Effectuate Reverse Stock Split Based on Prior
Approval
As discussed above, at a Special Meeting of Stockholders held on
August 30, 2005, our stockholders voted (with the approval
of more than 70% of our outstanding shares) to authorize our
Board of Directors, in its discretion, to effectuate the
amendment and reverse stock split at any time before the first
anniversary of the Special Meeting (August 30, 2006).
Therefore, even if our stockholders do not vote to approve the
amendment and reverse stock split at the Annual Meeting, the
Board still would retain the authority to effectuate the
amendment and reverse stock split prior to August 30, 2006
pursuant to the prior approval of our stockholders.
Effects of the Reverse Stock Split
After the effective date of the proposed reverse stock split,
each stockholder will own a reduced number of shares of our
common stock. However, the proposed reverse stock split will
affect all of our stockholders uniformly and will not affect any
stockholders percentage ownership interest, except to the
extent that the reverse stock split results in any of our
stockholders owning a fractional share as described below.
Proportionate voting rights and other rights and preferences of
the holders of our common stock will not be affected by the
proposed reverse stock split (other than as a result of the
payment of cash in lieu of fractional shares). For example, a
holder of 2% of the voting power of the outstanding shares of
common stock immediately prior to the reverse stock split would
continue to hold 2% of the voting power of the outstanding
shares of common stock immediately after the reverse stock
split. The number of stockholders of record will not be affected
by the proposed reverse stock split (except to the extent that
any stockholder holds only a fractional share interest and
receives cash for such interest after the proposed reverse stock
split).
11
Although the proposed reverse stock split will not affect the
rights of stockholders or any stockholders proportionate
equity interest in Endocare, subject to the treatment of
fractional shares, the number of authorized shares of common
stock and preferred stock will not be reduced. This will
increase significantly the ability of the Board to issue
authorized and unissued shares without further stockholder
action. The issuance in the future of such additional authorized
shares may have the effect of diluting the earnings per share
and book value per share, as well as the stock ownership and
voting rights, of the currently outstanding shares of common
stock. The effective increase in the number of authorized but
unissued shares of common stock may be construed as having an
anti-takeover effect by permitting the issuance of shares to
purchasers who might oppose a hostile takeover bid or oppose any
efforts to amend or repeal certain provisions of our Restated
Certificate of Incorporation or Bylaws.
The proposed reverse stock split will reduce the number of
shares of common stock available for issuance upon exercise of
our outstanding stock options in proportion to the exchange
ratio of the reverse stock split and will effect a proportionate
increase in the exercise price of such outstanding stock
options. In connection with the proposed reverse stock split,
the number of shares of common stock issuable upon exercise or
conversion of outstanding stock options will be rounded to the
nearest whole share and no cash payment will be made in respect
of such rounding. The proposed reverse stock split would have a
similar effect upon our outstanding warrants and stock purchase
rights under our stockholder rights plan. However, any
fractional shares that would result from exercises of our
outstanding warrants would be paid in cash, instead of rounding
to the nearest whole share.
If the proposed reverse stock split is implemented, it will
increase the number of stockholders of Endocare who own
odd lots of less than 100 shares of our common
stock and decrease the number of stockholders who own
whole lots of 100 shares or more of our common
stock. Brokerage commissions and other costs of transactions in
odd lots are generally higher than the costs of transactions of
whole lots or a greater number of shares. In addition, certain
listing standards of exchanges or markets like those operated by
NASDAQ or the American Stock Exchange may require that we have a
certain minimum number of holders of whole lots.
Our common stock is currently registered under
Section 12(g) of the Securities Exchange Act of 1934, as
amended, and we are subject to the periodic reporting and other
requirements of the Securities Exchange Act. The proposed
reverse stock split will not affect the registration of the
common stock under the Securities Exchange Act.
Effective Date
The proposed reverse stock split would become effective as of
5:00 p.m., Eastern time on the date of filing of a
Certificate of Amendment to our Restated Certificate of
Incorporation with the office of the Secretary of State of the
State of Delaware. Except as explained below with respect to
fractional shares, on the effective date, shares of common stock
issued and outstanding immediately prior thereto will be
combined and converted, automatically and without any action on
the part of the stockholders, into new shares of common stock in
accordance with the reverse stock split ratio determined by the
Board within the limits set forth in this proposal.
Payment for Fractional Shares
No fractional shares of common stock will be issued as a result
of the proposed reverse stock split. Instead, stockholders who
otherwise would be entitled to receive fractional shares, upon
surrender to the exchange agent of such certificates
representing such fractional shares, will be entitled to receive
cash in an amount equal to the product obtained by multiplying
(i) the fair market value of our common stock as determined
by the Board on the effective date by (ii) the number of
shares of our common stock held by such stockholder that would
otherwise have been exchanged for such fractional share interest.
12
Exchange of Stock Certificates
As soon as practicable after the effective date, stockholders
will be notified that the reverse split has been effected. Our
transfer agent will act as exchange agent for purposes of
implementing the exchange of stock certificates. We refer to
such person as the exchange agent. Holders of
pre-reverse split shares will be asked to surrender to the
exchange agent certificates representing pre-reverse split
shares in exchange for certificates representing post-reverse
split shares in accordance with the procedures to be set forth
in a letter of transmittal to be sent by us. No new certificates
will be issued to a stockholder until such stockholder has
surrendered such stockholders outstanding certificate(s)
together with the properly completed and executed letter of
transmittal to the exchange agent. Stockholders should not
destroy any stock certificate and should not submit any
certificates until requested to do so.
Accounting Consequences
The par value per share of our common stock would remain
unchanged at $0.001 per share after the reverse stock
split. As a result, on the effective date of the reverse split,
the stated capital on our balance sheet attributable to the
common stock will be reduced proportionally, based on the
exchange ratio of the reverse stock split, from its present
amount, and the additional paid-in capital account shall be
credited with the amount by which the stated capital is reduced.
The per share common stock net income or loss and net book value
will be increased because there will be fewer shares of our
common stock outstanding. We do not anticipate that any other
accounting consequences would arise as a result of the reverse
stock split.
No Appraisal Rights
Under the Delaware General Corporation Law, our stockholders are
not entitled to appraisal rights with respect to our proposed
amendment to our Restated Certificate of Incorporation to
effectuate the reverse stock split, and we will not
independently provide our stockholders with any such rights.
Material Federal U.S. Income Tax Consequences of the
Reverse Stock Split
The following is a summary of certain U.S. federal income
tax considerations of the proposed reverse stock split. It
addresses only U.S. Stockholders (as defined herein) who
hold the pre-reverse split shares and post-reverse split shares
as capital assets. This summary is based upon the Internal
Revenue Code of 1986, as amended (the Code),
Treasury Regulations, judicial authorities, published positions
of the Internal Revenue Service (the IRS) and other
applicable authorities, all as in effect on the date hereof and
all of which are subject to change or differing interpretations
(possibly with retroactive effect). It does not address tax
considerations under state, local, foreign and other laws.
As used herein, the term U.S. Stockholder means
(i) an individual who is a citizen or resident of the
United States, (ii) a corporation or other entity treated
as a corporation created or organized in or under (or treated
for U.S. federal income tax purposes as created or
organized in or under) the laws of the United States or any
state thereof or the District of Columbia, (iii) an estate
subject to U.S. federal income taxation without regard to
the source of its income, and (iv) a trust if (a) a
U.S. court is able to exercise primary supervision over the
trusts administration and one or more
U.S. fiduciaries have the authority to control all of the
trusts substantial decisions, or (b) the trust has in
effect a valid election to be treated as a United States person
within the meaning of the U.S. Treasury Regulations. The
discussion does not address the U.S. federal income tax
considerations that affect the treatment of an entity that is a
partnership for U.S. federal income tax purposes and that
holds the pre-reverse split shares and post-reverse split
shares, or the partners of such partnership. Such partnerships
and their partners should consult their own tax advisors. The
discussion does not purport to be complete and does not address
stockholders subject to special rules, such as stockholders that
are not U.S. Stockholders, or that are financial
institutions, tax-exempt organizations, insurance companies,
dealers in securities, mutual funds, stockholders who hold the
pre-reverse split shares as part of a straddle, hedge or
conversion transaction or other risk reduction strategy,
stockholders who hold the pre-reverse split shares as qualified
small business
13
stock within the meaning of Section 1202 of the Code,
stockholders who are subject to the alternative minimum tax
provisions of the Code and stockholders who acquired their
pre-reverse split shares pursuant to the exercise of employee
stock options or otherwise as compensation. Furthermore, we have
not obtained a ruling from the IRS or an opinion of legal or tax
counsel with respect to the consequences of the reverse stock
split. ACCORDINGLY, ALL STOCKHOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS AS TO THE SPECIFIC FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES TO THEM OF THE REVERSE STOCK SPLIT.
The reverse stock split is intended to constitute a
reorganization within the meaning of Section 368 of the
Code. Assuming the reverse split qualifies as a reorganization,
a U.S. Stockholder generally will not recognize gain or
loss on the reverse stock split, except (as discussed below) to
the extent of cash, if any, received in lieu of a fractional
share interest in the post-reverse split shares. The aggregate
tax basis of the post-reverse split shares received will be
equal to the aggregate tax basis of the pre-reverse split shares
exchanged therefor (excluding any portion of the holders
basis allocated to fractional shares), and the holding period of
the post-reverse split shares received will include the holding
period of the pre-reverse split shares exchanged.
A holder of the pre-reverse split shares who receives cash in
lieu of a fractional share interest in the post-reverse split
shares will generally recognize gain or loss equal to the
difference between the portion of the tax basis of the
pre-reverse split shares allocated to the fractional share
interest and the cash received. Such gain or loss will be a
capital gain or loss and will be short term if the pre-reverse
split shares were held for one year or less and long term if
held more than one year. It is assumed for this purpose that
cash will be paid in lieu of fractional shares only as a
mechanical rounding off of fractions resulting from the exchange
rather than separately bargained-for consideration. It is also
assumed that the reverse split is not being undertaken to
increase any stockholders proportionate ownership of the
Company.
No gain or loss will be recognized by the Company as a result of
the reverse stock split.
Required Vote
The affirmative vote of the holders of a majority of the
outstanding shares of our common stock, voting in person or by
proxy, is required to reauthorize the amendment to our Restated
Certificate of Incorporation. Abstentions and broker non-votes
will have the same effect as negative votes on this proposal.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the
stockholders vote FOR this Proposal 2.
PROPOSAL 3
RATIFICATION OF INDEPENDENT AUDITOR
We are asking the stockholders to ratify the Boards
selection of Ernst & Young LLP as our independent
auditor for the fiscal year ending December 31, 2006.
Neither Ernst & Young LLP nor any of its members has
any relationship with us or any of our affiliates, except in the
firms capacity as our independent auditor.
In the event the stockholders fail to ratify the selection, the
Board may reconsider its selection. Even if the selection is
ratified, the Board, in its discretion, may direct the
appointment of a different independent auditor at any time
during the fiscal year if the Board feels that such a change
would be in our and our stockholders best interests.
Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting, and will have the opportunity to
make a statement if they desire to do so and will be available
to respond to appropriate questions. The affirmative vote of the
holders of a majority of the outstanding shares of
14
common stock present or represented by proxy at the Annual
Meeting is required to ratify the selection of Ernst &
Young LLP.
Fee Information
The following table shows the fees paid or accrued by us for the
audit and other services provided by Ernst & Young LLP
during 2004 and 2005. In accordance with its charter, our Audit
Committee pre-approves all audit and non-audit services provided
by our independent auditor to ensure that our independent
auditor is not engaged to perform the specific non-audit
services proscribed by law or regulation. Under its charter, our
Audit Committee may delegate pre-approval authority to a member
of the Audit Committee, and the decisions of any Audit Committee
member to whom pre-approval authority is delegated must be
presented to the full audit committee at its next-scheduled
meeting. Our Audit Committee has considered whether the
provision of non-audit services is compatible with maintaining
the independence of our independent auditor and has concluded
that it is.
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2005 | |
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2004 | |
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Audit Fees, including our annual audits, review of our quarterly
reports on Form 10-Q, audit of internal controls over
financial reporting and filings with the SEC
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$ |
1,416,552 |
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$ |
2,078,119 |
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Audit-Related Fees, including review of documentation of
internal controls over financial reporting
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$ |
56,000 |
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$ |
362,775 |
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Tax Fees, including tax compliance and tax advice
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$ |
31,751 |
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$ |
457,126 |
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All Other Fees
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|
|
|
Totals
|
|
$ |
1,504,303 |
|
|
$ |
2,898,020 |
|
None of the services related to audit-related fees, tax fees and
all other fees described above were approved by our Audit
Committee pursuant to the waiver of pre-approval provisions set
forth in the applicable rules of the SEC.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the
stockholders vote FOR this Proposal 3.
PROPOSAL 4
OTHER MATTERS
We know of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters
properly come before the Annual Meeting, it is the intention of
the Proxyholders to vote the shares of common stock represented
by proxies as the Board may recommend. By the execution of the
enclosed proxy, you grant discretionary authority to the
Proxyholders with respect to such other matters.
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with
respect to the beneficial ownership of our common stock as of
March 31, 2006, unless otherwise noted, by:
|
|
|
|
|
each stockholder known to us to own beneficially more than 5% of
our common stock; |
|
|
|
|
each of our directors, including the six nominees for reelection; |
|
|
|
|
each of our executive officers, including each of the Named
Executive Officers listed in the Summary 2005 Compensation
Table included below in this Proxy Statement; and |
|
|
|
all of our current directors and executive officers as a group. |
15
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or dispositive power
relating to securities. Shares of common stock subject to
options, warrants or convertible securities currently
exercisable or exercisable within 60 days of March 31,
2006 are deemed to be outstanding for computing the percentage
of the person holding such securities and the percentage
ownership of any group of which the holder is a member, but are
not deemed outstanding for computing the percentage of any other
person. Except as indicated by footnote, and subject to the
community property laws where applicable, the persons or
entities named in the table have sole voting and dispositive
power with respect to all shares of common stock shown as
beneficially owned by them. None of the directors, nominees or
executive officers listed below owns any shares of common stock
of record but not beneficially. Except as otherwise noted below,
the address of each person or entity listed on the table is
c/o Endocare, Inc., 201 Technology Drive, Irvine,
California 92618.
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature | |
|
|
|
|
of Beneficial | |
|
Percentage | |
Name and Address |
|
Ownership(1) | |
|
of Total | |
|
|
| |
|
| |
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
|
|
|
|
|
|
|
|
|
John R. Daniels, M.D.(2)
|
|
|
224,115 |
|
|
|
* |
|
Craig T. Davenport(3)
|
|
|
718,225 |
|
|
|
2.3 |
% |
David L. Goldsmith(4)
|
|
|
3,000 |
|
|
|
* |
|
Eric S. Kentor(5)
|
|
|
15,000 |
|
|
|
* |
|
Terrence A. Noonan(6)
|
|
|
40,000 |
|
|
|
* |
|
Michael J. Strauss, M.D.(7)
|
|
|
90,000 |
|
|
|
* |
|
Thomas R. Testman(8)
|
|
|
45,000 |
|
|
|
* |
|
William J. Nydam(9)
|
|
|
890,190 |
|
|
|
2.9 |
% |
Michael R. Rodriguez(10)
|
|
|
120,313 |
|
|
|
* |
|
Clint B. Davis(11)
|
|
|
|
|
|
|
|
|
All current directors and executive officers as a group
(10 persons)(12)
|
|
|
2,145,843 |
|
|
|
6.7 |
% |
5% STOCKHOLDERS
|
|
|
|
|
|
|
|
|
State of Wisconsin Investment Board(13)
|
|
|
3,075,500 |
|
|
|
10.2 |
% |
|
P.O. Box 7842 |
|
|
|
|
|
|
|
|
|
Madison, Wisconsin 53707 |
|
|
|
|
|
|
|
|
SC Fundamental LLC and affiliates(14)
|
|
|
1,800,000 |
|
|
|
6.0 |
% |
|
747 Third Avenue, 27th Floor |
|
|
|
|
|
|
|
|
|
New York, New York 10017 |
|
|
|
|
|
|
|
|
|
|
|
|
* |
Represents beneficial ownership of less than 1% of the
outstanding shares of our common stock. |
|
|
|
|
(1) |
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or dispositive power
with respect to securities. Shares of common stock relating to
options, warrants or convertible securities currently
exercisable, or exercisable within 60 days of
March 31, 2006, 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. As of March 31, 2006, there were
30,147,894 shares of our common stock outstanding. |
|
|
(2) |
Includes (i) 108,303 outstanding shares and
(ii) 75,812 shares underlying currently exercisable
warrants held by Dr. Daniels and his wife AnnaMarie
Daniels, as trustees of the Daniels Family Trust UTA 1993. Also
includes 40,000 shares subject to options that are
exercisable within 60 days after March 31, 2006. |
|
|
(3) |
Includes 604,688 shares subject to options that are
exercisable within 60 days after March 31, 2006 and
46,750 shares underlying currently exercisable warrants. |
|
|
(4) |
Consists of 1,500 shares held by David L. Goldsmith, as
trustee of the Leah Goldsmith Trust dated January 24, 1998,
750 shares held by David L. Goldsmith, as trustee of the
Aaron Goldsmith Trust, dated January 24, 1998, and
750 shares held by Aaron Goldsmith,
Mr. Goldsmiths son. |
16
|
|
|
|
(5) |
Represents 15,000 shares subject to options that are
exercisable within 60 days after March 31, 2006. |
|
|
(6) |
Represents 40,000 shares subject to options that are
exercisable within 60 days after March 31, 2006. |
|
|
(7) |
Includes 75,000 shares subject to options that are
exercisable within 60 days after March 31, 2006. |
|
|
(8) |
Represents 45,000 shares subject to options that are
exercisable within 60 days after March 31, 2006. |
|
|
(9) |
Includes 583,333 shares subject to options that are
exercisable within 60 days after March 31, 2006 and
126,352 shares underlying currently exercisable warrants. |
|
|
(10) |
Represents 120,313 shares subject to options that are
exercisable within 60 days after March 31, 2006. |
|
(11) |
Mr. Davis received options to
purchase 250,000 shares of common stock granted on
January 17, 2006, of which no shares are exercisable within
60 days after March 31, 2006. |
|
(12) |
Includes 1,772,248 shares subject to options and warrants
exercisable within 60 days after March 31, 2006. |
|
(13) |
Pursuant to a Schedule 13G/ A filed on February 15,
2006 with the SEC, the State of Wisconsin Investment Board
reported sole voting and dispositive power over
3,075,500 shares. |
|
(14) |
Pursuant to a Schedule 13G/A filed on February 14,
2006 with the SEC, SC Fundamental LLC and affiliates
reported voting and dispositive power over
1,800,000 shares. The Schedule 13G/A indicates that:
(i) SC Fundamental Value Fund, L.P. has sole voting and
dispositive power with respect to 983,250 shares;
(ii) SC Fundamental LLC has shared voting and dispositive
power with respect to 983,250 shares; (iii) SC
Fundamental Value BVI, Ltd. has sole voting and dispositive
power with respect to 741,750 shares;
(iv) SC-BVI
Partners has shared voting and dispositive power with respect to
741,750 shares;
(v) PMC-BVI, Inc.
has shared voting and dispositive power with respect to
741,750 shares; (vi) SC Fundamental BVI, Inc. has
shared voting and dispositive power with respect to
741,750 shares; (vii) Peter M. Collery has shared
voting and dispositive power with respect to
1,800,000 shares; (viii) Neil H. Koffler has shared
voting and dispositive power with respect to
1,725,000 shares; (ix) John T. Bird has shared voting
and dispositive power with respect to 1,725,000 shares; and
(x) SC Fundamental LLC Employee Savings and Profit
Sharing Plan has shared voting and dispositive power over
75,000 shares. |
17
EXECUTIVE OFFICERS
Our executive officers as of March 31, 2006 are as follows:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position with Endocare |
|
|
| |
|
|
Craig T. Davenport
|
|
|
53 |
|
|
Chairman and Chief Executive Officer
|
William J. Nydam
|
|
|
56 |
|
|
President and Chief Operating Officer
|
Michael R. Rodriguez
|
|
|
38 |
|
|
Senior Vice President, Finance and Chief Financial Officer
|
Clint B. Davis
|
|
|
33 |
|
|
Senior Vice President, Legal Affairs, General Counsel and
Secretary
|
Craig T. Davenport has served as our Chief Executive
Officer since December 2003 and as our Chairman since
January 2004. For additional information regarding
Mr. Davenport, see above under Directors and
Nominees.
William J. Nydam has served as our President and Chief
Operating Officer since March 2003. Mr. Nydam also
currently is a board member and the Chairman of the Audit
Committees of iVOW, Inc. and Crdentia Corp., both of which are
publicly-traded. Prior to joining us, Mr. Nydam was
President and Chief Executive Officer of Pulse Metric, Inc., a
cardiovascular device company, from September 2001 to
December 2002. Mr. Nydam previously served as Senior Vice
President for Science Applications International Corporation, an
employee-owned research and engineering firm, from
September 1999 to August 2001. Prior to that time,
Mr. Nydam worked for Premier, Inc., a national alliance of
healthcare providers, where he served as Executive Vice
President from April 1996 to August 1999, Chief
Operating Officer from May 1992 to March 1996 and
Senior Vice President and Chief Financial Officer from
January 1986 to April 1992. Mr. Nydam holds a
B.S. in accounting and an M.B.A. from the University of
California at Berkeley. Mr. Nydam is a certified public
accountant.
Michael R. Rodriguez has served as our Senior Vice
President, Finance and Chief Financial Officer since
August 2004. From January 2004 until August 2004,
Mr. Rodriguez served as a consultant to us, providing
assistance on a variety of financial and operational projects
and compliance with Section 404 of the Sarbanes-Oxley Act.
Prior to joining us as a consultant, Mr. Rodriguez served
as Executive Vice President and Chief Financial Officer of
Directfit, Inc., a provider of information technology staffing
services, from June 2000 to November 2003. From
September 1997 to June 2000, Mr. Rodriguez held a
variety of positions, including Senior Vice President and Chief
Financial Officer, with Tickets.com, Inc., a publicly-traded
Internet-based provider of entertainment ticketing services and
software. From June 1995 to September 1997,
Mr. Rodriguez was Corporate Controller and Director of
Finance at EDiX Corporation, a medical informatics company.
Mr. Rodriguez began his career at Arthur Andersen LLP and
was with that firm from 1989 to 1993. Mr. Rodriguez holds a
B.S. in accounting from the University of Southern California
and an M.B.A. from Stanford University. Mr. Rodriguez is a
certified public accountant.
Clint B. Davis joined us in January 2006 as Senior
Vice President, Legal Affairs, General Counsel and Secretary.
From August 2000 to January 2006, Mr. Davis was a
corporate attorney with the San Diego office of
Morrison & Foerster LLP, our outside corporate counsel.
Prior to his employment with Morrison & Foerster LLP,
Mr. Davis worked with law firms in Boston and Los Angeles.
Mr. Davis holds a B.A. from Rice University and a J.D. from
Harvard Law School.
18
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table sets forth summary information regarding the
compensation earned by our Chief Executive Officer and each of
our other most highly compensated executive officers employed by
us as of December 31, 2005 and whose salary and bonus for
the fiscal year ended December 31, 2005 was in excess of
$100,000 for their services rendered in all capacities to us. No
executive officers who would have otherwise been included in
this table on the basis of salary and bonus earned for the
fiscal 2005 year have been excluded by reason of his or her
termination of employment or change in executive status during
that year. The listed individuals are hereinafter referred to as
the Named Executive Officers.
Summary 2005 Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term | |
|
|
|
|
|
|
|
|
Compensation | |
|
|
|
|
|
|
Annual Compensation | |
|
| |
|
|
|
|
|
|
| |
|
Securities | |
|
|
|
|
|
|
|
|
Other Annual | |
|
Underlying | |
|
All Other | |
Name and Principal Position |
|
Year | |
|
Salary | |
|
Bonus(1) | |
|
Compensation | |
|
Options/SARS(2) | |
|
Compensation | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Craig T. Davenport(3)
|
|
|
2005 |
|
|
$ |
373,750 |
|
|
$ |
254,230 |
|
|
|
|
|
|
|
225,000 |
|
|
$ |
10,486 |
(7) |
|
Chairman and Chief Executive |
|
|
2004 |
|
|
$ |
300,000 |
|
|
$ |
102,375 |
|
|
|
|
|
|
|
|
|
|
$ |
9,206 |
(7) |
|
Officer |
|
|
2003 |
|
|
$ |
12,500 |
|
|
$ |
174,450 |
|
|
|
|
|
|
|
1,000,000 |
|
|
$ |
218,876 |
(8) |
William J. Nydam(4)
|
|
|
2005 |
|
|
$ |
261,714 |
|
|
$ |
82,649 |
|
|
$ |
15,375 |
(6) |
|
|
|
|
|
$ |
10,486 |
(7) |
|
President and Chief Operating |
|
|
2004 |
|
|
$ |
252,000 |
|
|
$ |
68,942 |
|
|
$ |
14,146 |
(6) |
|
|
|
|
|
$ |
10,353 |
(7) |
|
Officer |
|
|
2003 |
|
|
$ |
202,769 |
|
|
$ |
55,766 |
|
|
$ |
10,946 |
(6) |
|
|
750,000 |
|
|
$ |
7,094 |
(7) |
Michael R. Rodriguez(5)
|
|
|
2005 |
|
|
$ |
201,917 |
|
|
$ |
56,787 |
|
|
|
|
|
|
|
|
|
|
$ |
6,794 |
(7) |
|
Senior Vice President, Finance |
|
|
2004 |
|
|
$ |
68,974 |
|
|
$ |
20,200 |
|
|
|
|
|
|
|
275,000 |
|
|
$ |
174,184 |
(7),(9) |
|
and Chief Financial Officer |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Reflects bonuses earned during the fiscal year indicated,
regardless of when such bonuses were paid. |
|
(2) |
We do not grant Stock Appreciation Rights. |
|
(3) |
Mr. Davenport joined us in December 2003 as our Chief
Executive Officer and became our Chairman in January 2004. |
|
(4) |
Mr. Nydam joined us in March 2003 as our President and
Chief Operating Officer. |
|
(5) |
Mr. Rodriguez joined us in August 2004 as our Senior
Vice President, Finance and Chief Financial Officer. |
|
(6) |
This amount represents an automobile allowance. |
|
(7) |
The amounts include the value of our contributions on behalf of
each Named Executive Officer under our medical, dental,
accidental death and disability, long-term disability and group
term life insurance plans. These contributions were: for
Mr. Davenport, $9,206 in 2004 and $10,486 in 2005; for
Mr. Nydam, $7,094 in 2003, $10,353 in 2004 and $10,486 in
2005; and for Mr. Rodriguez, $2,184 in 2004 and $6,794 in
2005. |
|
(8) |
Represents consulting payments that we made to
Mr. Davenport before he became our Chief Executive Officer,
pursuant to the terms of a consulting agreement that we entered
into with Mr. Davenport in August 2003. |
|
(9) |
Includes $172,000 in consulting payments that were made to
Mr. Rodriguez before he became our Senior Vice President,
Finance and Chief Financial Officer in August 2004,
pursuant to the terms of a consulting agreement that we entered
into with Mr. Rodriguez in December 2003. |
19
Stock Option Grants
The following table sets forth information concerning each grant
of stock options made during 2005 to each of the Named Executive
Officers.
Option Grants in Last Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of | |
|
|
|
|
|
Potential Realizable | |
|
|
|
|
Total | |
|
|
|
|
|
Value at Assumed Annual | |
|
|
Number of | |
|
Options | |
|
|
|
|
|
Rates of Stock Price | |
|
|
Shares | |
|
Granted to | |
|
Exercise | |
|
|
|
Appreciation For Option | |
|
|
Underlying | |
|
Employees | |
|
Price Per | |
|
|
|
Terms ($)(4) | |
|
|
Options | |
|
in Fiscal | |
|
Share | |
|
Expiration | |
|
| |
Name |
|
Granted(1) | |
|
Year(2) | |
|
($/Share)(3) | |
|
Date | |
|
5% | |
|
10% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Craig T. Davenport
|
|
|
225,000 |
(1) |
|
|
16.0 |
% |
|
$ |
3.45 |
|
|
|
4/28/2015 |
|
|
$ |
1,264,429 |
|
|
$ |
2,013,393 |
|
William J. Nydam
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Rodriguez
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The options become fully vested and exercisable upon a change of
control. Prior to and in the absence of such change of control,
the options vest over a four-year period in 48 equal monthly
installments. The options expire on the tenth anniversary of the
grant date, subject to earlier termination upon the
optionees cessation of service with us. The shares subject
to the options become exercisable only if vested. |
|
(2) |
Percentages are based on an aggregate of 1,409,250 options
granted to our employees during 2005, which includes the grant
to Mr. Davenport. |
|
(3) |
The exercise price may be paid in cash, in shares of common
stock valued at fair market value on the exercise date or
through a broker-assisted cashless exercise procedure involving
a same-day sale of the purchased shares. |
|
(4) |
The potential realizable value is calculated based on the term
of the option at its time of grant. 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. We do not provide assurance to any Named
Executive Officer or any other holder of our securities that the
actual stock price appreciation over the
10-year option term
will be at the assumed 5% and 10% levels or at any other defined
level. Unless the market price of the common stock does in fact
appreciate over the option term, no value will be realized from
the option grants made to the Named Executive Officers. |
Aggregate Option Exercises in 2005 and Option Values at
December 31, 2005
The following table sets forth certain information, with respect
to the Named Executive Officers, concerning the exercise of
options during our 2005 fiscal year and unexercised options held
by them at the end of that fiscal year. No stock appreciation
rights were exercised by the Named Executive Officers during
such fiscal year, and no stock appreciation rights were held by
them at the end of such fiscal year.
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares | |
|
Value of Unexercised | |
|
|
Number of | |
|
|
|
Underlying Unexercised | |
|
In-the-Money Options as of | |
|
|
Shares | |
|
|
|
Options as of 31-Dec-05 | |
|
December 31, 2005(1) | |
|
|
Acquired on | |
|
Value | |
|
| |
|
| |
Name |
|
Exercise | |
|
Realized | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Craig T. Davenport
|
|
|
|
|
|
|
|
|
|
|
487,500 |
|
|
|
737,500 |
|
|
|
|
|
|
|
|
|
William J. Nydam
|
|
|
|
|
|
|
|
|
|
|
468,750 |
|
|
|
281,250 |
|
|
$ |
222,656 |
|
|
$ |
133,594 |
|
Michael R. Rodriguez
|
|
|
|
|
|
|
|
|
|
|
91,667 |
|
|
|
183,333 |
|
|
$ |
52,709 |
|
|
$ |
105,416 |
|
|
|
(1) |
Based on the market price of $2.725 per share, which was
the average of the high and low bid prices per share of common
stock as reflected on December 30, 2005 (the last trading
day in 2005). Our |
20
|
|
|
common stock has not traded on the NASDAQ National Market since
December 11, 2002 and was subsequently delisted. As such,
the values listed above reflect the trading price of our
delisted shares and may or may not reflect the true value of our
common stock. |
Employment Contracts, Severance Agreements and Change of
Control Arrangements
|
|
|
Employment Agreement with Mr. Davenport |
We have entered into an employment agreement with
Mr. Davenport, dated as of December 15, 2003. Under
his employment agreement, Mr. Davenports initial base
salary was $300,000 per year, and Mr. Davenport was
originally eligible to receive an annual bonus of up to 45% of
his base salary. In addition, the employment agreement provided
for a cash signing and relocation bonus of $174,450. The
employment agreement also provided that we will reimburse
Mr. Davenport for interim housing and other temporary
living expenses, in an aggregate amount of up to $36,000.
Mr. Davenports annual base salary was increased from
$300,000 to $312,000 effective December 16, 2004 and
subsequently was increased to $390,000 pursuant to the
employment agreement amendment described below.
Pursuant to his employment agreement, Mr. Davenport
received options to purchase 900,000 shares of our common
stock, at an exercise price per share equal to $4.27. These
options vested as to 25% of the shares on December 15, 2003
and vest as to 1/48th of the shares beginning on
January 15, 2005 and at the end of each monthly anniversary
thereafter. The vesting will accelerate upon the occurrence of a
change in control. These options expire on the tenth anniversary
of Mr. Davenports employment.
Pursuant to his employment agreement, Mr. Davenport also
received additional options to purchase 100,000 shares
of our common stock, at an exercise price per share equal to
$4.27. These options vest upon the first to occur of the
attainment of performance objectives that have been mutually
agreed upon with Mr. Davenport or December 15, 2008.
The vesting will accelerate upon the occurrence of a change in
control. These options expire on the tenth anniversary of
Mr. Davenports employment.
Mr. Davenports employment agreement also provides
that, if we terminate Mr. Davenports employment other
than for cause (as defined in the employment
agreement) or if Mr. Davenport terminates his employment
for good reason (as defined in the employment
agreement), or if Mr. Davenport dies or becomes disabled as
a direct result of business-related activities, then, during the
12-month period
immediately following the date of Mr. Davenports
termination (i) we will continue to pay to
Mr. Davenport his base salary and annual bonus and make
available to Mr. Davenport the benefits made generally
available by us to our employees, and (ii) all of his
current options will continue to vest during the severance
period. Mr. Davenport, at his option, may elect to have the
cash severance described above paid in one lump sum payment
within five business days of the applicable termination of his
employment.
Effective as of April 28, 2005, we entered into an
amendment to Mr. Davenports employment agreement
pursuant to which we (i) increased his annual base salary
to $390,000 effective March 1, 2005, (ii) provided
that he is eligible to receive an annual bonus of up to 85% of
his base salary, (iii) granted to Mr. Davenport an
additional stock option to purchase 225,000 shares of
our common stock, and (iv) provided that Mr. Davenport
will be entitled to receive a minimum aggregate amount of
$750,000 in cash if he terminates his employment at any time
within the 180-day
period immediately following the six-month anniversary of the
date of the occurrence of a change in control, to the extent
such $750,000 payment exceeds amounts otherwise payable pursuant
to the formula contained in the employment agreement.
On February 23, 2006, we granted to Mr. Davenport an
additional option to purchase 80,000 shares of our
common stock, at an exercise price equal to the fair market
value of the common stock on the grant date. This option vests
as to 25% of the shares on February 23, 2007 and
1/48th of the shares at the end of each monthly anniversary
thereafter. The vesting will accelerate upon the occurrence of a
change in control. This option expires on the tenth anniversary
of the grant date.
21
Prior to his employment with us, we paid to Mr. Davenport
$218,876 pursuant to a consulting agreement that we entered into
with Mr. Davenport in August 2003.
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|
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Employment Agreement with Mr. Nydam |
We have entered into an employment agreement with
Mr. Nydam, dated as of March 3, 2003. Under his
employment agreement, Mr. Nydams initial base salary
was $240,000 per year, and Mr. Nydam is eligible to
receive an annual bonus of up to 40% of his base salary. In
addition, the employment agreement provided for a cash signing
bonus of $15,000, and a cash performance bonus of $10,000
promptly after we achieved full compliance with our obligations
as a reporting company pursuant to the Securities Exchange Act
of 1934, as amended. On February 16, 2004,
Mr. Nydams annual base salary was increased from
$240,000 to $254,400 (effective January 1, 2004). On
February 23, 2005, Mr. Nydams annual base salary
was increased from $254,400 to $262,032 (effective
January 1, 2005). On March 8, 2006,
Mr. Nydams annual base salary was increased from
$262,032 to $269,893 (effective January 1, 2006).
Pursuant to his employment agreement, Mr. Nydam received
options to purchase 500,000 shares of our common
stock, at an exercise price equal to the fair market value of
the common stock on the grant date. These options vest as to 25%
of the shares on the first anniversary of Mr. Nydams
employment and 1/48th of the shares at the end of each
monthly anniversary thereafter. The vesting will accelerate upon
the occurrence of a change in control. These options expire on
the tenth anniversary of Mr. Nydams employment.
Pursuant to his employment agreement, Mr. Nydam also
received additional options to purchase 250,000 shares
of our common stock, at an exercise price equal to the fair
market value of the common stock on the grant date. These
options vest upon the attainment of performance objectives that
have been mutually agreed upon by us and Mr. Nydam, or five
years, whichever occurs first. The vesting will accelerate upon
the occurrence of a change in control. These options expire on
the tenth anniversary of Mr. Nydams employment.
Mr. Nydams employment agreement also provides that,
if we terminate Mr. Nydams employment other than for
cause (as defined in the employment agreement) or if
Mr. Nydam terminates his employment for good
reason (as defined in the employment agreement), then,
during the 12-month
period immediately following the date of Mr. Nydams
termination, (i) we will continue to pay to Mr. Nydam
his base salary and make available to Mr. Nydam the
benefits made generally available by us to our employees, and
(ii) his first two groups of options, covering
750,000 shares of common stock, will continue to vest for a
one-year period following such termination.
On February 23, 2006, we granted to Mr. Nydam an
additional option to purchase 50,000 shares of our
common stock, at an exercise price equal to the fair market
value of the common stock on the grant date. This option vests
as to 25% of the shares on February 23, 2007 and
1/48th of the shares at the end of each monthly anniversary
thereafter. The vesting will accelerate upon the occurrence of a
change in control. This option expires on the tenth anniversary
of the grant date.
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Employment Agreement with Mr. Rodriguez |
We have entered into an employment agreement with
Mr. Rodriguez, dated as of August 11, 2004. Under his
employment agreement, Mr. Rodriguezs initial base
salary was $200,000 per year, and Mr. Rodriguez is
eligible to receive an annual bonus of up to 40% of his base
salary. In addition, we agreed to pay to Mr. Rodriguez a
$20,000 signing bonus within 30 days of the effective date
of his employment agreement. On February 23, 2005,
Mr. Rodriguezs annual base salary was increased from
$200,000 to $202,000 (effective January 1, 2005), and on
February 23, 2006, Mr. Rodriguez annual base
salary was increased from $202,000 to $216,140 (effective
January 1, 2006).
Pursuant to his employment agreement, Mr. Rodriguez
received options to purchase 275,000 shares of our
common stock, at an exercise price equal to the fair market
value of the common stock on the grant date. These options vest
as to 25% of the shares on the first anniversary of
Mr. Rodriguezs employment
22
and 1/48th of the shares at the end of each monthly
anniversary thereafter. The vesting will accelerate upon the
occurrence of a change in control. These options expire on the
tenth anniversary of Mr. Rodriguezs employment.
Mr. Rodriguezs employment agreement also provides
that, if we terminate Mr. Rodriguezs employment other
than for cause (as defined in the employment
agreement) or if Mr. Rodriguez terminates his employment
for good reason (as defined in the employment
agreement), then, during the period of time from the termination
date until the first anniversary of the termination date, we
will continue to pay to Mr. Rodriguez his base salary and
make available to Mr. Rodriguez the benefits made generally
available by us to our employees, to the extent permitted under
applicable law and the terms of the benefit plans.
On February 23, 2006, we granted to Mr. Rodriguez an
additional option to purchase 50,000 shares of our
common stock, at an exercise price equal to the fair market
value of the common stock on the grant date. This option vests
as to 25% of the shares on February 23, 2007 and
1/48th of the shares at the end of each monthly anniversary
thereafter. The vesting will accelerate upon the occurrence of a
change in control. This option expires on the tenth anniversary
of the grant date.
Prior to his employment with us, we paid to Mr. Rodriguez
$172,000 pursuant to a consulting agreement that we entered into
with Mr. Rodriguez in December 2003.
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Employment Agreement with Mr. Davis |
We have entered into an employment agreement with
Mr. Davis, dated as of January 17, 2006. Under his
employment agreement, Mr. Davis initial base salary
is $238,000 per year, and Mr. Davis is eligible to
receive an annual bonus of up to 40% of his base salary. In
addition, we agreed to reimburse Mr. Davis for reasonable
moving expenses, in an amount of up to $5,000, and for the
amount of any home selling price commission, in an amount of up
to 5% of the selling price, subject to certain additional
limitations.
Pursuant to his employment agreement, Mr. Davis received
options to purchase 250,000 shares of our common
stock, at an exercise price equal to the fair market value of
the common stock on the grant date. These options vest as to 25%
of the shares on the first anniversary of Mr. Davis
employment and 1/48th of the shares at the end of each
monthly anniversary thereafter. The vesting will accelerate upon
the occurrence of a change in control. These options expire on
the tenth anniversary of Mr. Davis employment.
Mr. Davis employment agreement also provides that, if
we terminate Mr. Davis employment other than for
cause (as defined in the employment agreement) or if
Mr. Davis terminates his employment for good
reason (as defined in the employment agreement), then,
during the period of time from the termination date until the
first anniversary of the termination date, we will continue to
pay to Mr. Davis his base salary and make available to
Mr. Davis the benefits made generally available by us to
our employees, to the extent permitted under applicable law and
the terms of the benefit plans.
23
Equity Compensation Plan Information
The following table provides information as of December 31,
2005 with respect to the shares of our common stock that may be
issued under our existing equity compensation plans. The table
does not include information with respect to shares subject to
outstanding options granted under equity compensation plans
assumed by us in connection with mergers and acquisitions of the
companies which originally granted those options.
Footnote (6) to the table sets forth the total number of
shares of our common stock issuable upon the exercise of those
assumed options as of December 31, 2005, and the weighted
average exercise price of those options. No additional options
may be granted under those assumed plans.
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|
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|
|
|
|
|
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|
|
|
|
|
|
A | |
|
B | |
|
C | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
Remaining Available for | |
|
|
Number of Securities | |
|
|
|
Future Issuance Under | |
|
|
to be Issued Upon | |
|
Weighted Average | |
|
Equity Compensation Plans | |
|
|
Exercise of | |
|
Exercise Price of | |
|
(Excluding Securities | |
Plan Category |
|
Outstanding Options | |
|
Outstanding Options | |
|
Reflected in Column A) | |
|
|
| |
|
| |
|
| |
Equity Compensation Plans Approved by Security Holders(1)
|
|
|
3,725,725 |
(3) |
|
$ |
4.37 |
|
|
|
260,274 |
(4) |
Equity Compensation Plans not Approved by Security Holders(2)
|
|
|
1,890,000 |
(2) |
|
$ |
4.00 |
|
|
|
295,000 |
(5) |
Total
|
|
|
5,615,725 |
|
|
$ |
4.25 |
|
|
|
555,274 |
(4) |
|
|
(1) |
Consists of the 1995 Stock Plan, 1995 Director Option Plan
and 2004 Stock Incentive Plan. |
|
(2) |
Consists of the 2002 Supplemental Stock Plan, options to
purchase 1,000,000 shares granted to
Mr. Davenport in December 2003 and options to
purchase 750,000 shares granted to Mr. Nydam in
March 2003. |
|
(3) |
Consists of 1,645,725 shares to be issued upon the exercise
of options outstanding under the 1995 Stock Plan,
110,000 shares to be issued upon the exercise of options
outstanding under the 1995 Director Option Plan and
1,970,000 shares to be issued upon the exercise of options
outstanding under the 2004 Stock Incentive Plan. |
|
(4) |
Consists of shares available for future issuance under the 2004
Stock Incentive Plan. The number of shares of common stock
available for issuance under the 2004 Stock Incentive Plan
automatically increases on the first trading day of each
calendar year by an amount equal to 3% of the total number of
shares of common stock outstanding on the last trading day of
the immediately preceding calendar year, but in no event will
any such annual increase exceed 1,000,000 shares of common
stock. |
|
(5) |
Consists of shares available for future issuance under the 2002
Supplemental Stock Plan. |
|
(6) |
The table does not include information for equity compensation
plans assumed by us in connection with mergers and acquisitions
of the companies which originally established those plans. As of
December 31, 2005, a total of 5,515 shares of our
common stock were issuable upon exercise of outstanding options
under those assumed plans. The weighted average exercise price
of those outstanding options is $7.25 per share. No
additional options may be granted under those assumed plans. |
Equity Compensation Plans Not Approved by Security Holders
|
|
|
2002 Supplemental Stock Plan |
Under our 2002 Supplemental Stock Plan, employees, consultants
and outside directors may be granted options to purchase shares
of our common stock. All options granted under the 2002
Supplemental Stock Plan are nonstatutory stock options,
i.e., options that do not qualify for treatment as
incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended. The exercise price of each
option granted under the 2002 Supplemental Stock Plan must be at
least 85% of the fair market value per share of our common stock
on the date of grant. The maximum aggregate number of shares of
our
24
common stock that may be issued upon the exercise of options
under the 2002 Supplemental Stock Plan is 435,000 shares.
The 2002 Supplemental Stock Plan became effective on
June 25, 2002 and will continue in effect until
June 24, 2012, unless earlier terminated in accordance with
the terms of the Plan. The 2002 Supplemental Stock Plan
terminates automatically upon certain extraordinary events, such
as a sale of all or substantially all of our assets, a merger in
which we do not survive or the acquisition by any person or
group of beneficial ownership of more than 50% of our common
stock. If such an extraordinary event occurs, all options
granted under the 2002 Supplemental Stock Plan become fully
exercisable, and each optionee has the right to exercise any
unexpired options immediately prior to the occurrence of the
extraordinary event.
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Options Granted to Messrs. Davenport and Nydam |
The options that we granted in 2003 to Messrs. Davenport
and Nydam are described above under Employment Contracts,
Severance Agreements and Change of Control Arrangements.
Compensation Committee Interlocks and Insider
Participation
Our compensation committee consists of Drs. Daniels and
Strauss and Mr. Kentor, none of whom was at any time during
fiscal 2005 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 our executive officers
and directors who serve as executive officers or directors of
such other entities. As discussed below under Related
Party Transactions, Dr. Daniels participated as an
investor in our March 2005 private placement financing.
The following reports of the Compensation Committee and the
Audit Committee, Audit Committee Charter and Stock Performance
Graph should not be considered to be part of this Proxy
Statement. Any current or future cross-references to this Proxy
Statement in filings with the Securities and Exchange Commission
under either the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, will not include
the reports or graph reproduced below or the Audit Committee
Charter.
Compensation Committee Report on 2005 Executive
Compensation
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|
|
Purposes of Compensation Committee |
The Compensation Committees Charter provides that the
Compensation Committee is appointed by the Board to:
(i) assist the Board in discharging its responsibilities
relating to compensation of the Companys executive
officers; and (ii) produce an annual report on executive
compensation for inclusion in the Companys proxy
statement, in accordance with applicable rules and regulations.
This report covers the compensation of the Companys
executive officers for the year ended December 31, 2005,
including incentive payments made in the first quarter of 2006
under our 2005 Management Incentive Compensation Program
(2005 MICP) based on 2005 performance. The
Company deemed three individuals to be executive officers in
2005: Craig T. Davenport, the Companys Chairman and Chief
Executive Officer; William J. Nydam, the Companys
President and Chief Operating Officer; and Michael R. Rodriguez,
the Companys Senior Vice President, Finance and Chief
Financial Officer.
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|
Constitution of Compensation Committee During 2005 |
The membership of the Compensation Committee changed during
2005. Until June 22, 2005 (the date of the Companys
2005 Annual Meeting of Stockholders), the Compensation Committee
consisted of Terrence A. Noonan and Michael J.
Strauss, M.D. On and after June 22, 2005, the
Compensation Committee consisted of John R. Daniels, M.D.,
Eric S. Kentor and Michael J. Strauss, M.D.
25
|
|
|
Overall Executive Compensation Philosophy |
The Companys overall executive compensation philosophy is
that executive compensation policy, practice and decisions
should be guided by four key principles:
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Pay for Performance. A significant portion of the total
annual compensation of each executive officer should be based on
the Companys performance and the contribution to that
performance made by such executive officer; |
|
|
|
Incentive for Creation of Stockholder Value. In addition
to our annual cash incentive programs, we grant stock options to
provide an incentive and opportunity for our executive officers
to participate in the creation of stockholder value through
stock price appreciation; |
|
|
|
Alignment with Stockholders Interests. Executive
compensation components should align with stockholders
interests, to the extent reasonably practicable; and |
|
|
|
Internal Parity and External Competitiveness. In setting
and changing each executive officers total annual
compensation and stock option incentives, the Company seeks to
achieve both internal parity and external competitiveness. The
Companys policy is that the total cash compensation of
each executive officer should approximate the
65th percentile of executive compensation of medical device
companies considered its peers. |
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Primary Components of 2005 Executive Compensation |
In 2005, the primary components of each executive officers
compensation were base salary, an annual cash incentive award
tied to 2005 performance under the 2005 MICP and stock options.
Base Salary. As described below, on April 27, 2005,
the Compensation Committee (consisting of Mr. Noonan and
Dr. Strauss) increased Mr. Davenports base
salary and target incentive award in order to cause
Mr. Davenports total cash compensation to approximate
the 65th percentile of peer group companies, consistent
with the Companys policy described above. On
February 23, 2005, the Compensation Committee approved a 3%
base salary increase for Mr. Nydam (from $254,400 to
$262,032) and a 1% base salary increase for Mr. Rodriguez
(from $200,000 to $202,000). Each year, the Company considers
merit increases of an average of 3% to the base salaries of
senior management, including the executive officers, in order to
reward individual performance and keep pace with cost of living
increases. Mr. Rodriguezs base salary increase was
smaller than 3% because the increase was pro rated to
reflect that Mr. Rodriguezs employment did not
commence until August 2004.
Annual Cash Incentive Awards Under 2005 MICP. On
February 23, 2005, the Compensation Committee (consisting
of Mr. Noonan and Dr. Strauss) approved the 2005 MICP,
including the performance objectives that would be assessed in
the first quarter of 2006 to determine the amount payable to
each executive officer under the 2005 MICP. These
objectives included, among others, performance targets based on
growth in procedures, Timm Medical performance, reduction in
operating expenses and the amount of fourth quarter 2005
adjusted EBITDA loss. For these purposes, the 2005 MICP
defined adjusted EBITDA as EBITDA (earnings before interest,
taxes, depreciation and amortization) less stock option
compensation expenses, impairment charges, losses on disposal of
assets/subsidiaries and other non-cash, non-recurring charges.
On March 8, 2006, the Compensation Committee (consisting of
Drs. Daniels and Strauss and Mr. Kentor) approved the
payment of incentive amounts to the executive officers, based on
the performance objectives actually achieved in 2005 under the
2005 MICP. The amount paid to each executive officer under
the 2005 MICP was less than the target amount for such
executive officer, because no executive officer achieved 100% of
his performance objectives. The executive officers requested
that the Compensation Committee exercise its discretion to waive
or modify one of the performance objectives that was not
achieved in 2005. After consideration, the Compensation
Committee declined to exercise its discretion with respect to
such performance objective.
26
Stock Option Awards. During 2005, the only stock option
grant to an executive officer was the grant to
Mr. Davenport of options to
purchase 225,000 shares of common stock, which is
described below. Stock options to purchase an aggregate of
1,184,250 shares were granted in 2005 to 84 employees who
were not executive officers.
The vesting provisions of stock options are designed to
encourage longevity of employment and generally extend over a
four-year period. A portion of the option grants in 2005 to
employees who were not executive officers was made by
Mr. Davenport pursuant to delegated authority under the
2004 Stock Incentive Plan.
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|
|
2005 Chief Executive Officer Compensation |
The Compensation Committees Charter provides that the
Compensation Committee will annually review and approve the
Companys corporate goals and objectives relevant to the
Chief Executive Officers compensation, evaluate the Chief
Executive Officers performance in light of such goals and
objectives and, either as a committee or together with the other
independent directors (as directed by the Board), determine and
approve the Chief Executive Officers compensation level
based on this evaluation. The Charter provides that, in
determining the long-term incentive component of the Chief
Executive Officers compensation, the Compensation
Committee will consider the Companys performance and
relative stockholder return, the value of similar incentive
awards to chief executive officers at comparable companies, the
awards given to the Companys Chief Executive Officer in
past years and internal parity (i.e., the Chief
Executive Officers compensation relative to the
compensation paid to the Companys other executive
officers).
In December 2003 we entered into an employment agreement
with Mr. Davenport pursuant to which he became our Chief
Executive Officer. The employment agreement set
Mr. Davenports initial annual base salary at
$300,000 per year and provided him a target annual
incentive amount equal to 45% of his base salary. Effective
December 16, 2004, Mr. Davenports annual base
salary was increased from $300,000 to $312,000 pursuant to the
terms of his employment agreement, which provides for the review
and adjustment of Mr. Davenports base salary in
accordance with the Companys procedures for adjusting
salaries for executive officers.
On February 23, 2005, the Compensation Committee
(consisting of Mr. Noonan and Dr. Strauss) determined
the performance objectives that would apply to
Mr. Davenport under the 2005 MICP.
Mr. Davenports performance objectives included
targets based on growth in procedures, Timm Medical performance,
reduction in operating expenses and the amount of fourth quarter
2005 adjusted EBITDA loss. In addition, one of
Mr. Davenports performance objectives required
various actions relating to personnel development, systems
development, process improvements and the enhancement of
corporate culture, including the formation and leadership of a
cross-departmental committee tasked with developing a corporate
mission statement and organizational core values.
From January 2005 until April 2005, the Compensation
Committee (consisting of Mr. Noonan and Dr. Strauss)
conducted a review of the Companys executive compensation
practices. Among other things, the Compensation Committee
reviewed Mr. Davenports compensation package to
determine whether Mr. Davenports total cash
compensation approximated the 65th percentile of peer group
companies, consistent with the Companys policy described
above, and whether Mr. Davenport should be awarded
additional stock options in order to achieve internal parity and
external competitiveness.
To assist in this review, the Compensation Committee selected
and engaged Compensia, a company specializing in matters related
to executive compensation, to provide the Compensation Committee
independent insights on executive compensation matters, both
generally and within the Companys industry.
Based on this review, on April 27, 2005, the Compensation
Committee (consisting of Mr. Noonan and Dr. Strauss)
approved an amendment to Mr. Davenports employment
agreement. The amendment increased Mr. Davenports
annual base salary from $312,000 to $390,000 and increased his
target annual
27
incentive amount under the 2005 MICP (and subsequent annual
incentive programs) from 45% of the base salary to 85% of the
base salary. In addition, the Compensation Committee awarded
Mr. Davenport additional options to purchase
225,000 shares of the Companys common stock. The
amendment also entitles Mr. Davenport to receive a minimum
aggregate amount of $750,000 in severance if he terminates his
employment within the
180-day period
following the six-month anniversary of a change in control.
The Compensation Committee believed that these changes to
Mr. Davenports compensation package furthered the
goal of internal parity and external competitiveness and made a
more significant portion of Mr. Davenports total
compensation tied to performance, consistent with the principle
of pay for performance described above. In addition, the
additional option grant provided a further incentive and
opportunity for Mr. Davenport to participate in the
creation of stockholder value.
As described above, on March 8, 2006, the Compensation
Committee (consisting of Drs. Daniels and Strauss and
Mr. Kentor) approved the payment of incentive amounts to
Mr. Davenport and the other executive officers under the
2005 MICP, based on the performance objectives actually
achieved in 2005 under the 2005 MICP. Based on his level of
achievement under the 2005 MICP, Mr. Davenport
received a payment of $254,230 (approximately 68% of his base
salary earned in 2005). Mr. Davenport would have received
$317,688 (85% of his base salary earned in 2005) if he had
achieved 100% of his performance objectives under the
2005 MICP.
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Internal Revenue Code Section 162(m) |
Section 162(m) of the Internal Revenue Code disallows a tax
deduction to publicly-traded companies for compensation paid to
certain of their executive officers, to the extent that
compensation exceeds $1.0 million per covered officer in
any fiscal year. The limitation applies only to compensation
that is not considered to be performance-based. The
non-performance based compensation to our executive officers for
2005 did not exceed the $1.0 million limit per officer. The
2004 Stock Incentive Plan has been structured so that any
compensation paid in connection with the exercise of options
granted under the 2004 Stock Incentive Plan will qualify as
performance-based compensation and therefore is not subject to
the $1.0 million limitation.
|
|
|
COMPENSATION COMMITTEE |
|
|
Eric S. Kentor, Chairman |
|
John R. Daniels, M.D. |
|
Michael J. Strauss, M.D. |
28
Audit Committee Report
The following is the report delivered by the Audit Committee
of our Board of Directors with respect to the principal factors
considered by such Committee in its oversight of our accounting,
auditing and financial reporting practices for fiscal year
2005.
In accordance with its written charter adopted by the Board of
Directors, the Audit Committee of the Board assists the Board in
fulfilling its responsibility for oversight of the quality and
integrity of our accounting, auditing and financial reporting
practices. Our independent auditor is responsible for expressing
an opinion on the conformity of those audited financial
statements with generally accepted accounting principals.
In discharging its oversight responsibility as to the audit
process, the Audit Committee has received from the independent
auditor, Ernst & Young LLP, the written disclosures and
the letter describing all relationships between the auditor and
the Company that might bear on the auditors independence,
consistent with Independence Standards Board Standard
No. 1, Independence Discussions with Audit
Committees, and has discussed with the auditor any
relationships that may impact the auditors objectivity and
independence and satisfied itself as to the auditors
independence.
The Audit Committee discussed and reviewed with the independent
auditor all communications required by generally accepted
auditing standards, including those described in Statement on
Auditing Standards No. 61, as amended, Communication
with Audit Committees.
The Audit Committee reviewed and discussed our audited financial
statements as of and for the fiscal year ended December 31,
2005 with management and the independent auditor.
Based on the above, the Audit Committee recommended to the Board
of Directors that our audited financial statements be included
in our Annual Report on
Form 10-K for the
fiscal year ended December 31, 2005, for filing with the
Securities and Exchange Commission.
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|
|
AUDIT COMMITTEE |
|
|
Thomas R. Testman, Chairman |
|
David L. Goldsmith |
|
Terrence A. Noonan |
29
STOCK PERFORMANCE GRAPH
The following graph compares the performance of our common stock
over the five preceding fiscal years to the weighted average
performance over the same period of the stock of companies
included in The NASDAQ Stock Market-U.S. Index and a
self-constructed peer group of companies selected by us. We
first included the self-constructed peer group in 2002 because
we were informed that 2001 would be the last year the JP Morgan
Hambrecht & Quist Healthcare-Excluding Biotechnology
Index would be available. The graph assumes $100 was invested at
the close of trading on December 31, 2000 in our common
stock and in each of the indices and that all dividends were
reinvested. The NASDAQ Stock Market-U.S. Index tracks the
aggregate price performance of equity securities of companies
traded on The NASDAQ National Market (now known as The NASDAQ
Global Market). The self-constructed peer group consists of:
American Medical Systems Holdings, Inc., HealthTronics, Inc.,
Laserscope, North American Scientific, Inc., Theragenics
Corporation and Urologix, Inc. The stockholder return shown on
the graph below should not be considered indicative of future
stockholder returns, and we do not make or endorse any
predictions of future stockholder returns.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ENDOCARE, INC., THE NASDAQ STOCK MARKET (U.S.)
INDEX,
AND A PEER GROUP
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Cumulative Total Return | |
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12/00 |
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12/01 |
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12/02 |
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12/03 |
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12/04 |
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12/05 |
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ENDOCARE, INC.
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100.00 |
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140.63 |
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26.98 |
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31.45 |
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19.61 |
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21.49 |
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NASDAQ STOCK MARKET (U.S.)
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100.00 |
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79.08 |
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55.95 |
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83.35 |
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90.64 |
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92.73 |
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PEER GROUP
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100.00 |
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139.72 |
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86.72 |
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127.83 |
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214.89 |
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160.63 |
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* |
$100 invested on 12/31/00 in stock or index
including reinvestment of dividends. Fiscal year ending
December 31. |
30
RELATED PARTY TRANSACTIONS
As described in the
Form 8-K that we
filed on March 16, 2005, in March 2005 we completed a
private placement financing for aggregate gross proceeds of
$15.6 million. Messrs. Davenport and Nydam made
personal investments in the transaction in the amounts of
$184,999.99 and $499,998.85, respectively. In addition,
Dr. Daniels invested $299,999.31 in the transaction.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires our executive officers and directors, and generally
persons who own more than 10% of a registered class of our
equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission, or SEC.
Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish us with copies of all
Section 16(a) reports they file. Based solely upon the
copies of Section 16(a) reports which we received from such
persons or written representations from them regarding their
transactions in our common stock, we believe that, during the
period from January 1, 2005 through December 31, 2005,
all Section 16(a) filing requirements applicable to our
executive officers, directors and greater than 10% beneficial
owners were met in a timely manner.
STOCKHOLDER PROPOSALS FOR THE 2007 ANNUAL MEETING
Stockholder proposals that are intended to be presented at our
2007 Annual Meeting must be received no later than
December 22, 2006, in order that they may be included in
the proxy statement and form of proxy relating to that meeting,
and must meet all the other requirements as specified in the
Bylaws. In addition, the proxy solicited by the Board of
Directors for the 2007 Annual Meeting will confer discretionary
authority to vote on any stockholder proposal presented at that
meeting, unless we receive notice of such proposal not later
than March 7, 2007.
ANNUAL REPORT
A copy of our Annual Report for the 2005 fiscal year has been
mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual
Meeting. The Annual Report is not incorporated into this Proxy
Statement and is not considered proxy solicitation material.
FORM 10-K
We filed an Annual Report on
Form 10-K with the
Securities and Exchange Commission on March 16, 2006. We
will mail without charge to stockholders, upon written request,
a copy of the
Form 10-K,
including the financial statements, schedule and list of
exhibits. Requests should be sent to Endocare, Inc., 201
Technology Drive, Irvine, California, 92618, Attn: Secretary.
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By Order of the Board of Directors |
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Clint B. Davis |
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Senior Vice President, Legal Affairs, |
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General Counsel and Secretary |
Irvine, California
April 21, 2006
31
APPENDIX A
ENDOCARE, INC.
Amended and Restated Audit Committee Charter
(As Adopted by the Board of Directors on November 10,
2005)
Purpose
The Audit Committee (the Committee) is appointed by
the Board of Directors (the Board) of Endocare, Inc.
(the Company) to (a) provide assistance to the
Board in fulfilling its oversight responsibility to the
shareholders and others relating to: (i) the integrity of
the Companys financial statements; (ii) the
Companys compliance with legal and regulatory
requirements; (iii) the independent auditors
qualifications and independence; and (iv) and the
performance of the Companys internal audit function and
independent auditors, and (b) prepare the Committee report
that Securities and Exchange Commission (SEC) proxy
rules require to be included in the Companys annual proxy
statement. While the Committee has the duties and
responsibilities set forth in this Charter, it is not the duty
or responsibility of the Committee to plan or conduct audits or
to determine that the Companys financial statements are
complete and accurate and are in accordance with generally
accepted accounting principles. Those tasks are the
responsibility of the Companys management and the
independent auditor. The Board and the Committee represent the
Companys stockholders. Accordingly, the independent
auditor is ultimately accountable to the Board and the Committee.
The Committee shall retain and compensate such outside legal,
accounting, or other advisors, as it considers necessary in
discharging its oversight role.
In fulfilling its purpose, it is the responsibility of the
Committee to maintain free and open communications between the
Committee, independent auditors, the internal auditors, and
management of the Company, and to determine that all parties are
aware of their responsibilities.
Membership
The Committee shall consist of at least three members, as
determined annually by the Board. The Board shall designate one
member as chairperson or delegate the authority to designate a
chairperson to the Committee. The members of the Committee shall
meet the independence and expertise requirements of each
exchange on which the Companys securities are traded,
Rule 10A-3 of the Securities Exchange Act of 1934, and the
other rules and regulations of the SEC. Each member of the
Committee shall be financially literate, or become financially
literate within a reasonable period of time, and at least one
member shall be an audit committee financial expert,
as defined by SEC rules.
Members shall not serve on more than three public company audit
committees simultaneously.
The Committee shall meet at least quarterly. The Committee shall
meet separately and periodically with management, the personnel
responsible for the internal audit function, and the independent
auditor. The Committee shall report regularly to the Board with
respect to its activities. The Committee will maintain written
minutes of its meetings, which minutes will be filed with the
books and records of the Company.
Duties and Responsibilities
The Committee, in carrying out its responsibilities, believes
its policies and procedures should remain flexible, in order to
best react to changing conditions and circumstances. The
Committee will take appropriate actions to set the overall
corporate tone for quality financial reporting,
sound business risk practices, and ethical behavior. The
following shall be the principal duties and responsibilities of
the Committee. These are set forth as a guide with the
understanding that the Committee may supplement them as
appropriate.
A-1
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The Committee shall be directly responsible for the appointment,
compensation, retention, and oversight of the work of the
independent auditors (including resolution of disagreements
between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit
report or performing other audit, review, or attest services for
the Company, and the independent auditors must report directly
to the Committee. |
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At least annually, the Committee shall obtain and review a
report by the independent auditors describing: (i) the
firms internal quality control procedure; (ii) any
material issues raised by the most recent internal quality
control review, or peer review, of the firm or by any inquiry or
investigation by governmental or professional authorities,
within the preceding five years, respecting one or more
independent audits carried out by the firm, and any steps taken
to deal with any such issues; and (iii) all relationships
between the independent auditors and the Company (to assess the
auditors independence). |
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After reviewing the foregoing report and the independent
auditors work throughout the year, the Committee shall
evaluate the auditors qualifications, performance and
independence. Such evaluation should include the review and
evaluation of the lead partner of the independent auditors and
take into account the opinions of management and the
Companys personnel responsible for the internal audit
function. |
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The Committee shall determine that the independent audit firm
has a process in place to address the rotation of the lead audit
partner and other audit partners serving the account as required
under the SEC independence rules. |
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The Committee shall pre-approve all audit and non-audit services
provided by the independent auditors and shall not engage the
independent auditors to perform non-audit services proscribed by
law or regulation. The Committee may delegate pre-approval
authority to a member of the Committee. The decisions of any
Committee member to whom pre-approval authority is delegated
must be presented to the full Committee at its next scheduled
meeting. |
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The Committee shall discuss with internal audit and the
independent auditors the overall scope and plans for their
respective audits, including the adequacy of staffing and budget
or compensation. |
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The Committee shall regularly review with the independent
auditors any audit problems or difficulties encountered during
the course of the audit work, including any restrictions on the
scope of the independent auditors activities or access to
requested information, and managements response. The
Committee should review any accounting adjustments that were
noted or proposed by the auditors but were passed
(as immaterial or otherwise); any communications between the
audit team and the audit firms national office respecting
auditing or accounting issues presented by the engagement; and
any management, internal control, or
significant deficiencies letter issued, or proposed
to be issued, by the independent auditors to the Company. |
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The Committee shall review and discuss the quarterly financial
statements with management and the independent auditors prior to
the filling of the Companys Quarterly Report on
Form 10-Q. Also,
the Committee shall discuss the results of the quarterly review
and any other matters required to be communicated to the
Committee by the independent auditors under generally accepted
auditing standards. |
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The Committee shall review and discuss the annual audited
financial statements with management and the independent
auditors prior to the filling of the Companys Annual
Report on
Form 10-K. The
Committees review of the financial statements shall
include: (i) major issues regarding accounting principles
and financial statement presentations, including any significant
changes in the Companys selection or application of
accounting principles, and major issues as to the adequacy of
the Companys internal controls and any specific remedial
actions adopted in light of significant control deficiencies;
(ii) discussions with management and the independent
auditors regarding significant financial reporting issues and
judgments made in connection with the preparation of the
financial statements and the reasonableness of those judgments;
(iii) consideration of the effect of |
A-2
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regulatory accounting initiatives, as well as off-balance sheet
structures on the financial statements; (iv) consideration
of the judgment of both management and the independent auditors
about the quality, not just the acceptability, of accounting
principles; and (v) the clarity of the disclosures in the
financial statements. Also, the Committee shall discuss the
results of the annual audit and any other matters required to be
communicated to the Committee by the independent auditors under
professional standards. |
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The Committee shall receive and review a report from the
independent auditors, prior to the filling of the Companys
Annual Report on
Form 10-K, on all
critical accounting policies and practices of the Company; all
material alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management, including the ramifications of the
use of such alternative treatments and disclosures and the
treatment preferred by the independent auditor; and other
material written communications between the independent auditors
and management. |
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The Committee shall review and approve all related party
transactions. |
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The Committee shall review and discuss earnings press releases,
as well as the Companys policies regarding financial
information and earnings guidance provided to analysts and
rating agencies. |
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The Committee shall review managements assessment of the
effectiveness of internal control over financial reporting as of
the end of the most recent fiscal year and the independent
auditors report on managements assessment in
compliance with Section 404 of the Sarbanes-Oxley Act. |
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The Committee shall discuss with management, internal audit, and
the independent auditors the adequacy and effectiveness of
internal control over financial reporting, including any
significant deficiencies or material weakness identified by
management of the Company in connection with its required
certifications under Sections 302 and 404 of the
Sarbanes-Oxley Act. In addition, the Committee shall discuss
with management, internal audit, and the independent auditors
any significant changes in internal control over financial
reporting that are disclosed, or considered for disclosure, in
the Companys periodic filings with the SEC. |
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The Committee shall review the Companys compliance systems
with respect to legal and regulatory requirements and review the
Companys code of conduct and programs to monitor
compliance with such programs. The Committee shall receive
corporate attorneys reports of evidence of a material
violation of securities laws or breaches of fiduciary duty. |
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The Committee shall discuss the Companys policies with
respect to risk assessment and risk management, including the
risk of fraud. The Committee also shall discuss the
Companys major financial risk exposures and the steps
management has taken to monitor and control such exposures. |
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The Committee shall establish procedures for the receipt,
retention, and treatment of complaints received by the Company
regarding accounting, internal accounting controls, or auditing
materials, and the confidential, anonymous submission by
employees of the Company of concerns regarding questionable
accounting or audit matters. |
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The Committee shall set clear hiring policies for employees or
former employees of the independent auditors that meet SEC rules
and regulations and applicable stock exchange listing standards. |
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The Committee shall determine the appropriate funding needed by
the Committee for the payment of: (1) compensation to the
independent audit firm engaged for the purpose of preparing or
issuing an audit report or performing other audit, review, or
attest services for the Company; (2) compensation to any
advisers employed by the Committee; and (3) ordinary
administrative expenses of the Committee that are necessary or
appropriate in carrying out its duties. |
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The Committee shall perform an evaluation of its performance at
least annually to determine whether it is functioning
effectively. |
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The Committee shall review and reassess the charter at least
annually and obtain the approval of the Board with respect to
any proposed charter amendments. |
A-3
APPENDIX B
CERTIFICATE OF AMENDMENT
OF RESTATED CERTIFICATE OF INCORPORATION
OF ENDOCARE, INC.
The undersigned, Michael R. Rodriguez, hereby certifies that:
1. He is the Senior Vice President, Finance and Chief
Financial Officer of Endocare, Inc., a Delaware corporation (the
Corporation), the original Certificate of
Incorporation of which was filed with the Secretary of State of
the State of Delaware on May 10, 1994. The Corporation
filed a Restated Certificate of Incorporation on
December 6, 1995, a Certificate of Designation on
September 1, 1999 and a Certificate of Amendment of
Restated Certificate of Incorporation on September 25, 2000.
2. The first paragraph of Article IV of the
Corporations Restated Certificate of Incorporation is
hereby amended and restated to read in its entirety as follows:
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The total number of shares of stock which the Corporation
shall have the authority to issue is 51,000,000 shares,
consisting of 50,000,000 shares of Common Stock having a
par value of $0.001 per share (Common Stock)
and 1,000,000 shares of Preferred Stock having a par value
of $0.001 per share (Preferred Stock).
Effective as of 5:00 p.m., Eastern time, on the date that
this Certificate of Amendment is filed with the Secretary of
State of the State of Delaware, each outstanding [*] shares
of Common Stock shall be combined and converted into one share
of Common Stock, par value $0.001 per share. No fractional
shares shall be issued and, in lieu thereof, any holder of less
than one share of Common Stock shall be entitled to receive cash
for such holders fractional share based upon the fair
market value of the Common Stock as of the date that this
Certificate of Amendment is filed with the Secretary of State of
the State of Delaware, as such fair market value is determined
by the Corporations Board of Directors. Whether or not the
reverse stock split provided above would result in fractional
shares for a holder of record shall be determined on the basis
of the total number of shares of Common Stock held by such
holder of record at the time that the reverse stock split
occurs. |
The second paragraph of Article IV of the
Corporations Restated Certificate of Incorporation is not
amended by this Certificate of Amendment.
3. This Certificate of Amendment has been duly adopted by
the Board of Directors and stockholders of the Corporation in
accordance with Sections 242 and 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate of Amendment of Restated Certificate of
Incorporation on this day
of ,
2006.
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Michael R. Rodriguez |
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Senior Vice President, Finance |
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and Chief Financial Officer |
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By approving this amendment, stockholders will approve the
combination of any whole number of shares of Common Stock
between and including two and five into one share of Common
Stock, i.e., each of the following combination ratios:
one for two, one for three, one for four and one for five. The
Certificate of Amendment filed with the Secretary of State of
the State of Delaware will include the specific number
determined by the Board of Directors to be in the best interests
of the Corporation and its stockholders. |
B-1
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PROXY
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ENDOCARE, INC.
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PROXY |
FOR THE ANNUAL MEETING OF STOCKHOLDERS, MAY 18, 2006
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Craig T. Davenport and William J. Nydam, and each of them, the
Proxyholder of the undersigned, with full power of substitution, to vote all shares of stock which
the undersigned is entitled to vote, either on his or her own behalf or on the behalf of any entity
or entities, at the Annual Meeting of Stockholders of Endocare, Inc., a Delaware corporation (the
Company), to be held on Thursday, May 18, 2006, or at any postponements or adjournments thereof,
as specified below with the same force and effect as the undersigned might or could do if
personally present thereat. The undersigned revokes all previous Proxies and acknowledges receipt
of the Notice of the Annual Meeting of Stockholders to be held on May 18, 2006 and the Proxy
Statement.
THIS PROXY CONFERS ON EACH PROXYHOLDER DISCRETIONARY AUTHORITY TO VOTE ON ANY MATTER AS TO WHICH A
CHOICE IS NOT SPECIFIED BY THE UNDERSIGNED. IF NO SPECIFICATION IS MADE, THIS PROXY, WHEN PROPERLY
EXECUTED, WILL BE VOTED IN FAVOR OF THE ELECTION OF THE NOMINATED DIRECTORS AND IN FAVOR OF THE
OTHER PROPOSALS, AND WILL BE VOTED BY THE PROXYHOLDER AT HIS OR HER DISCRETION AS TO ANY OTHER
MATTERS PROPERLY TRANSACTED AT THE ANNUAL MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
(Continued and to be signed on the Reverse Side)
6 PLEASE DETACH PROXY CARD HERE AND RETURN IT IN THE ENVELOPE PROVIDED 6
The Board of Directors recommends a vote FOR the directors listed below and a vote FOR each of the listed proposals. This Proxy, when properly executed, will be voted as specified below.
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1.
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To elect six (6) directors to the Board of Directors of
the Company to serve until the 2007 Annual Meeting
of Stockholders or until their successors are duly
elected and qualified.
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FOR all nominees
listed below
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WITHHOLD AUTHORITY to vote for all
nominees listed below
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EXCEPTIONS |
Nominees: John R. Daniels, M.D., Craig T. Davenport, David L. Goldsmith, Eric S. Kentor, Terrence A. Noonan and Thomas R. Testman.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark the Exceptions box and write the name(s)
of such nominee(s) on the space provided below.)
2. |
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To reauthorize the Board of Directors, in its discretion, to amend the Companys Restated
Certificate of Incorporation to effectuate a reverse stock split of our common stock, at an
exchange ratio ranging from one-to-two to one-to-five. |
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o FOR
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o AGAINST
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o ABSTAIN |
3. |
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To ratify the selection of Ernst & Young LLP as the Companys independent auditor for the
fiscal year ending December 31, 2006. |
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o FOR
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o AGAINST
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o ABSTAIN |
4. |
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In accordance with the discretion of the Proxyholders, to act upon all matters incident to the
conduct of the Annual Meeting and upon any other matters as may properly come before the Annual
Meeting. |
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Dated:
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, 2006 |
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Signature |
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Signature |
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Title(s) |
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Note: Please sign your name exactly as it appears hereon. If signing as attorney, executor,
administrator, trustee or guardian, please give full title as such, and, if signing for a
corporation, give your title. When shares are in the names of more than one person, each should sign. |