Endocare, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
þ |
|
Preliminary Proxy Statement |
o |
|
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
o |
|
Definitive Proxy Statement |
o |
|
Definitive Additional Materials |
o |
|
Soliciting Material Pursuant to §240.14a-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):
þ |
|
No fee required. |
o |
|
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
|
(1) |
|
Title of each class of securities to which transaction applies: |
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Aggregate number of securities to which transaction applies: |
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was
determined): |
|
|
|
|
|
|
|
|
|
|
|
(4) |
|
Proposed maximum aggregate value of transaction: |
|
|
|
|
|
|
|
|
|
|
|
(5) |
|
Total fee paid: |
|
|
|
|
|
|
|
|
|
o |
|
Fee paid previously with preliminary materials. |
|
o |
|
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
filing. |
|
(1) |
|
Amount Previously Paid: |
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Form, Schedule or Registration Statement No.: |
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
Filing Party: |
|
|
|
|
|
|
|
|
|
|
|
(4) |
|
Date Filed: |
|
|
|
|
|
|
|
|
|
ENDOCARE,
INC.
201 Technology Drive
Irvine, California 92618
April 10,
2007
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 10, 2007 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.
Sincerely,
Craig T. Davenport
Chairman, Chief Executive Officer and President
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 10,
2007
Dear Stockholder of Endocare, Inc.:
NOTICE IS HEREBY GIVEN that the 2007 Annual Meeting of
Stockholders of Endocare, Inc., a Delaware corporation (the
Company), will be held on Thursday, May 10,
2007, 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:
1. To elect six (6) directors to the Board of
Directors to serve until the 2008 Annual Meeting of Stockholders
or until their successors are duly elected and qualified;
2. To authorize 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,
including any fraction within that range, at any time before
May 10, 2009;
3. To ratify the selection of Ernst & Young LLP as
the Companys independent auditor for the fiscal year
ending December 31, 2007; and
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 March 30, 2007 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.
By Order of the Board of Directors
Clint B. Davis
Senior Vice President, Legal Affairs,
General Counsel and Secretary
Irvine, California
April 10, 2007
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.
ENDOCARE,
INC.
201 Technology Drive
Irvine, California 92618
PROXY STATEMENT
FOR THE ANNUAL MEETING OF
STOCKHOLDERS
To Be Held On May 10,
2007
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
1
|
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
|
9
|
|
|
|
|
15
|
|
|
|
|
16
|
|
|
|
|
16
|
|
|
|
|
19
|
|
|
|
|
19
|
|
|
|
|
34
|
|
|
|
|
34
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
43
|
|
|
|
|
45
|
|
|
|
|
47
|
|
|
|
|
48
|
|
|
|
|
48
|
|
|
|
|
48
|
|
|
|
|
49
|
|
|
|
|
49
|
|
|
|
|
A-1
|
|
|
|
|
B-1
|
|
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 2007 Annual
Meeting of Stockholders (the Annual Meeting). The
Annual Meeting will be held on Thursday, May 10, 2007 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 10,
2007, 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 March 30, 2007, the record date for determining which
stockholders are entitled to vote at the Annual Meeting. On
February 28, 2007, there were 31,215,912 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 (authorization 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 (authorization of reverse stock
split).
Proxies
Our Board of Directors has selected Craig T. Davenport and Clint
B. Davis, 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 2008 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. The
authorized number of directors is currently six. 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 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. Information
regarding each directors beneficial ownership of our
common stock as of February 28, 2007 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:
|
|
|
|
|
presiding over all executive sessions of our independent
directors;
|
|
|
|
consulting with management as the principal representative of
the independent directors; and
|
2
|
|
|
|
|
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.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position with Endocare
|
|
John R. Daniels, M.D. *+
|
|
|
68
|
|
|
Director
|
Craig T. Davenport
|
|
|
54
|
|
|
Chairman, Chief Executive Officer
and President
|
David L. Goldsmith *
|
|
|
59
|
|
|
Director
|
Eric S. Kentor *+
|
|
|
48
|
|
|
Director
|
Terrence A. Noonan +
|
|
|
69
|
|
|
Lead Independent Director
|
Thomas R. Testman (1)
|
|
|
70
|
|
|
Director
|
Note: All ages are as of March 31, 2007.
|
|
|
|
|
Member of the Audit Committee. |
|
* |
|
Member of the Compensation Committee. |
|
+ |
|
Member of the Nominating and Corporate Governance Committee. |
|
(1) |
|
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 407. |
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-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. He served as a consultant to the
Company 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 and also as an advisor to venture capital
limited liability companies and partnerships. 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. He is also on the board of directors of a number of
privately-held companies. Mr. Goldsmith is a chartered
financial
3
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 also served as an original and permanent member
of MiniMeds Executive Management Committee. 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 & Emery, where he was elected partner.
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. Mr. Noonan received a B.S. from Miami University
and an E.M.B.A. from Case Western Reserve University.
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
member 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 or has served
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. Mr. Testman
has also served on numerous professional, civic and charitable
organization boards, including the Finance Council of the
American Hospital Association and the Advisory Council of the
California Hospital Commission. He has an M.B.A. from Trinity
University and is a certified public accountant (retired).
Corporate
Governance
Board
of Directors
During 2006, the Board of Directors held a total of 11 meetings,
in person or telephonically. In 2006, the Board of Directors had
three standing committees: an Audit Committee, a Compensation
Committee and a Nominating and Corporate Governance Committee.
During 2006 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 of
our directors attended our 2006 Annual Meeting of Stockholders
held on May 18, 2006.
The Board of Directors has determined that each director other
than Mr. Davenport is independent, as defined
in the NASDAQ listing standards.
4
Audit
Committee
The Audit Committee acts pursuant to a written charter, a copy
of which is available on our website www.endocare.com
under the menu item entitled On Endocare
Corporate Governance Documents. The Board of Directors has
established the Audit Committee to:
|
|
|
|
|
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
|
|
|
|
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 2006, the Audit Committee held a total
of 10 meetings, in person or telephonically. The Board of
Directors has determined that all members of the Audit Committee
are independent, as independence for audit committee
members is defined in the NASDAQ listing standards.
Compensation
Committee
Scope of
Compensation Committees Authority
As provided in its charter, our Compensation Committee is
appointed by the Board of Directors primarily to assist the
Board in discharging its responsibilities relating to
compensation of the Companys executive officers. The
Compensation Committee also oversees our director compensation
program, with input from our Nominating and Corporate Governance
Committee. A copy of the Compensation Committees charter
is available on our website www.endocare.com under the
menu item entitled On Endocare Corporate
Governance Documents.
As provided in its charter, the Compensation Committee:
|
|
|
|
|
Oversees the Companys overall compensation structure,
policies and programs, and assesses whether the Companys
compensation structure establishes appropriate incentives for
management and employees;
|
|
|
|
Annually reviews and approves the Companys corporate goals
and objectives relevant to CEO compensation, and, either as a
Committee or together with the other independent directors (as
directed by the Board), determines and approves the CEOs
compensation level based on this evaluation;
|
|
|
|
Annually reviews and approves the compensation of other
executive officers;
|
|
|
|
Approves and administers the Companys incentive
compensation plans and equity based-plans; and
|
|
|
|
Approves or recommends to the Board approval of any new equity
compensation plan or any material change to an existing plan.
|
The charter states that the Compensation Committee shall attempt
to ensure that the Companys compensation programs are
effective in attracting and retaining key employees, reinforce
business strategies and objectives for enhanced stockholder
value and are administered in a fair and equitable manner
consistent with established policies and guidelines.
Under the charter, the Compensation Committee may form and
delegate authority to subcommittees when appropriate. From
January 1, 2006 to date, the Compensation Committee has not
formed any subcommittees or otherwise delegated its authority,
although the CEO had the preexisting delegated authority to
grant stock options to employees who are not executive officers.
The Compensation Committee has since terminated this delegation,
as described in more detail below in the Compensation
Discussion & Analysis under Equity
Compensation.
For additional information regarding the scope of the
Compensation Committees authority and related matters,
please see the complete text of the charter available on our
website, as described above.
5
Compensation
Committee Meetings
The Compensation Committee holds regularly scheduled meetings
throughout the year and holds special meetings as necessary.
During 2006, the Compensation Committee held a total of 15
meetings, in person or telephonically. The chairman of the
Compensation Committee establishes the agenda for each meeting.
The Compensation Committee typically meets in executive session
at the end of each meeting. In addition to the meetings of the
Compensation Committee, the chairman of the Compensation
Committee communicates regularly with the other members of the
Compensation Committee and, as necessary, other independent
directors, regarding executive compensation matters.
Role of
Executive Officers in Determining or Recommending Executive or
Director Compensation
The Compensation Committee confers with the Companys CEO
and other executive officers in determining executive and
director compensation. The Compensation Committees charter
states that, as necessary or desirable, the Committees
chairman may invite any director, officer or employee of the
Company, or other persons whose advice and counsel are sought by
the Compensation Committee, to be present at meetings of the
Compensation Committee, consistent with the maintenance of
confidentiality of compensation discussions. The charter
provides that the CEO may not be present during voting or
deliberations regarding the CEOs performance or
compensation. At the Compensation Committees request, the
compensation consultant engaged by the Compensation Committee in
2006 met with members of the Companys management on
several occasions to obtain their input regarding the
Companys executive compensation programs and the
Companys overall strategy.
Role of
Compensation Consultant
The Compensation Committees charter provides that the
Committee is empowered, without the approval of the Board or
management, to engage and compensate outside legal,
compensation, accounting and other advisers, as it determines
necessary to carry out its duties. The charter further provides
that the Compensation Committee has the sole authority to retain
and terminate any consultant that it uses to assist in the
Compensation Committees evaluation of CEO or executive
compensation and has the sole authority to approve that
consultants fees and other retention terms.
From January 1, 2006 to the present, the Compensation
Committee has engaged one compensation consultant to advise the
Compensation Committee, AON Consulting, referred to below in
this proxy statement as AON.
On March 27, 2006, the Compensation Committee engaged AON
to advise the Compensation Committee regarding various
alternatives to enable the Company to conserve cash and provide
additional opportunities for equity ownership by permitting
participants in the Companys Management Incentive
Compensation Program (MICP) to elect to receive all or a portion
of their MICP incentive payments in the form of deferred stock
units (DSUs) instead of cash. At the same time, AON provided
advice regarding a similar program for non-employee directors,
pursuant to which non-employee directors may elect to receive
all or a portion of their retainers and meeting fees in the form
of DSUs instead of cash. These programs are described in more
detail below on pages 21 through 22 and 44.
On August 2, 2006, the Compensation Committee engaged AON
to advise the Compensation Committee regarding the
Companys executive compensation programs. Under its
engagement letter, AON was instructed to:
|
|
|
|
|
collect and review information regarding the Companys
current executive compensation programs;
|
|
|
|
conduct a comprehensive competitive market pay assessment for
the Companys executive officers, including the positions
of (i) CEO, (ii) President and Chief Operating
Officer, (iii) Senior Vice President, Finance and Chief
Financial Officer and (iv) Senior Vice President, Legal
Affairs and General Counsel;
|
6
|
|
|
|
|
compare and contrast pay for the Companys executive
officers with that of the competitive labor market at the 25th,
50th, and 75th percentiles, utilizing AONs
proprietary Radford Surveys database of medical device companies
and AONs eComp database of publicly traded companies as
primary data sources for this project (throughout the process
AON also provided data regarding the 65th percentile where
reasonably feasible);
|
|
|
|
develop a competitive peer group of companies for the analysis
around the Companys relevant sales size
and/or
market capitalization;
|
|
|
|
compare all major forms of compensation including salary, annual
incentives and long-term incentives, assessing the present value
of the long-term incentive portion by converting all grant forms
to cash equivalent values; and
|
|
|
|
review and comment on the Companys current compensation
programs and practices for executive officers.
|
In performing these services, the representative of AON assigned
to the Company participated in several meetings of the
Compensation Committee. In addition, at the Compensation
Committees request, the AON representative met with
members of the Companys management on several occasions to
obtain their input regarding the Companys executive
compensation programs and the Companys overall strategy.
Constitution
of Compensation Committee
The membership of the Compensation Committee has changed during
the past two years. From September 9, 2004 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. Dr. Strauss did not stand for reelection
in 2006 and therefore ceased to serve as a director of the
Company effective on May 18, 2006 (the date of the
Companys 2006 Annual Meeting of Stockholders). He was
replaced on the Compensation Committee by David L. Goldsmith,
effective May 18, 2006. From May 18, 2006 to the
present, the Compensation Committee has consisted of
Dr. Daniels and Messrs. Kentor and Goldsmith.
Compensation
Committee Interlocks, Insider Participation and
Independence
None of the members of the Compensation Committee
(Dr. Daniels and Messrs. Kentor and Goldsmith):
|
|
|
|
|
has ever been an officer or employee of the Company;
|
|
|
|
is or was a participant in a related party
transaction for purposes of Item 404 of
Regulation S-K
from January 1, 2006 to the present (see page 48 for a
description of our policy on related party transactions); or
|
|
|
|
is an executive officer of another entity, at which one of our
executive officers serves on the board of directors.
|
There are no Compensation Committee interlocks between the
Company and other entities involving the Companys
executive officers and directors. The Board of Directors has
determined that all members of the Compensation Committee are
independent, as defined in the NASDAQ listing
standards.
Nominating
and Corporate Governance Committee
The Board of Directors has established a Nominating and
Corporate Governance Committee. The Nominating and Corporate
Governance Committee:
|
|
|
|
|
monitors the size and composition of the Board of Directors;
|
|
|
|
assesses the performance and effectiveness of the Board of
Directors;
|
7
|
|
|
|
|
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
|
|
|
|
establishes, implements and monitors policies and procedures
regarding principles of corporate governance, conduct and ethics
for our directors, officers and employees.
|
Dr. Daniels and Messrs. Kentor and Noonan are members
of the Nominating and Corporate Governance Committee. During
2006, the Nominating and Corporate Governance Committee held a
total of five 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 www.endocare.com
under the menu item entitled On Endocare
Corporate Governance Documents.
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:
|
|
|
|
|
experience in business, finance or administration;
|
|
|
|
familiarity with our industry;
|
|
|
|
prominence and reputation; and
|
|
|
|
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. A copy of our
current Corporate Governance Guidelines is available on our
website www.endocare.com under the menu item entitled
On Endocare Corporate Governance
Documents.
Procedures
for Stockholders to Make Nominations
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:
|
|
|
|
|
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 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
|
8
|
|
|
|
|
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
|
|
|
|
|
|
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 Clint B. Davis, Senior Vice President, Legal Affairs, General
Counsel and 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.
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 current financial code of ethics
is available on our website www.endocare.com under the
menu item entitled On Endocare Corporate
Governance Documents. 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 www.endocare.com under the
menu item entitled On Endocare Corporate
Governance Documents 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.
PROPOSAL 2
AUTHORIZATION
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,
INCLUDING ANY FRACTION WITHIN THAT RANGE, AT ANY TIME BEFORE
MAY 10, 2009
General
At a Special Meeting of Stockholders held on May 18, 2006,
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
May 18, 2007.
9
As of the date of this proxy statement, the Board has not yet
effectuated 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, in order to:
|
|
|
|
|
extend the period of time in which the Board is authorized to
effectuate the amendment and reverse stock split until
May 10, 2009; and
|
|
|
|
modify the proposed amendment and reverse stock split so that
the exchange ratio can consist of fractions and not just whole
numbers, to provide the Board with additional flexibility in
determining the appropriate exchange ratio.
|
If our stockholders approve this Proposal 2, then the Board
will be authorized, 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,
including any fraction within that range, at any time before
May 10, 2009.
If 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 (including any fraction
within that range) that will be combined into one share of our
common stock, at any time before May 10, 2009. 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 A. By approving this amendment,
stockholders will approve an amendment to our Restated
Certificate of Incorporation pursuant to which any number of
outstanding shares between and including two and five (including
any fraction within that range) 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 would remain unchanged
at $0.001 per share as well. Currently, the Board does not
have any specific plans to issue additional shares of our common
stock following any reverse stock split. However, as previously
disclosed, the Company has entered into a financing arrangement
with Fusion Capital Fund II, LLC (Fusion
Capital) pursuant to which the Company may sell shares of
common stock to Fusion Capital from time to time.
10
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
$2.00 per share. As of March 15, 2007, the closing
price for our stock as reported on the OTCBB was $2.15 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 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.
11
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 before May 10, 2009,
as permitted under Section 242(c) of the Delaware General
Corporation Law. If the Board does not effectuate the reverse
stock split before May 10, 2009, stockholder approval again
would be required prior to implementing any reverse stock split.
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).
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 being
rounded 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
12
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.
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.
13
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 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 authorize the amendment to our Restated
Certificate of Incorporation. Abstentions and broker non-votes
will have the same effect as negative votes on this proposal.
14
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, 2007.
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, 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 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 2005 and 2006. 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.
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
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
|
|
$
|
918,615
|
|
|
$
|
1,416,552
|
|
Audit-Related Fees, including
review of documentation of internal controls over financial
reporting
|
|
|
|
|
|
$
|
56,000
|
|
Tax Fees, including tax compliance
and tax advice
|
|
|
|
|
|
$
|
31,751
|
|
All Other Fees
|
|
$
|
1,500
|
(1)
|
|
$
|
1,500
|
(1)
|
Totals
|
|
$
|
920,115
|
|
|
$
|
1,505,803
|
|
|
|
|
(1) |
|
Consists of subscription fee for use of EY Online, an online
accounting reference service provided by Ernst & Young
LLP. |
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.
15
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
February 28, 2007, 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 2006 Summary Compensation
Table included below in this proxy statement; and
|
|
|
|
all of our current directors and executive officers as a group.
|
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
February 28, 2007 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)
|
|
|
246,086
|
|
|
|
*
|
|
Craig T. Davenport(3)
|
|
|
1,049,085
|
|
|
|
3.3
|
%
|
David L. Goldsmith(4)
|
|
|
38,000
|
|
|
|
*
|
|
Eric S. Kentor(5)
|
|
|
57,000
|
|
|
|
*
|
|
Terrence A. Noonan(6)
|
|
|
60,000
|
|
|
|
*
|
|
Thomas R. Testman(7)
|
|
|
73,500
|
|
|
|
*
|
|
Michael R. Rodriguez(8)
|
|
|
195,834
|
|
|
|
*
|
|
Clint B. Davis(9)
|
|
|
78,125
|
|
|
|
*
|
|
All current directors and
executive officers as a group (8 persons)(10)
|
|
|
1,797,630
|
|
|
|
5.5
|
%
|
5% STOCKHOLDERS
|
|
|
|
|
|
|
|
|
State of Wisconsin Investment
Board(11)
|
|
|
2,900,500
|
|
|
|
9.3
|
%
|
P.O. Box 7842
|
|
|
|
|
|
|
|
|
Madison, Wisconsin 53707
|
|
|
|
|
|
|
|
|
Black River Asset Management LLC
and affiliates(12)
|
|
|
2,041,071
|
|
|
|
6.5
|
%
|
12700 Whitewater Drive
|
|
|
|
|
|
|
|
|
Minnetonka, Minnesota 55343
|
|
|
|
|
|
|
|
|
Midwood Capital Management LLC and
affiliates(13)
|
|
|
1,747,838
|
|
|
|
5.6
|
%
|
575 Boylston Street,
4th Floor
|
|
|
|
|
|
|
|
|
Boston, Massachusetts 02116
|
|
|
|
|
|
|
|
|
16
|
|
|
* |
|
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
February 28, 2007, 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 February 28, 2007, there were
31,215,912 shares of our common stock outstanding. |
|
(2) |
|
Includes (i) 108,303 outstanding shares and
(ii) 77,783 shares underlying currently exercisable
warrants, all held by Dr. Daniels and his wife AnnaMarie
Daniels, as trustees of the Daniels Family Trust UTA 1993.
Also includes 60,000 shares subject to options that are
exercisable within 60 days after February 28, 2007. In
addition to the shares shown in the table, as of
February 28, 2007 (i) Dr. Daniels held an
aggregate of 20,000 options that are not exercisable within
60 days after February 28, 2007, and (ii) the
Daniels Family Trust held an aggregate of 14,357.23 fully-vested
DSUs with respect to which shares will become issuable more than
60 days after February 28, 2007. |
|
(3) |
|
Includes 115,287 outstanding shares, 885,833 shares
subject to options that are exercisable within 60 days
after February 28, 2007 and 47,965 shares underlying
currently exercisable warrants. In addition to the shares shown
in the table, as of February 28, 2007 Mr. Davenport
held an aggregate of (i) 419,167 options that are not
exercisable within 60 days after February 28, 2007,
(ii) 800,000 unvested RSUs with respect to which shares
will become issuable more than 60 days after
February 28, 2007, and (iii) 19,244.55 fully-vested
DSUs with respect to which shares will become issuable more than
60 days after February 28, 2007. |
|
(4) |
|
Includes 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. Also includes 35,000 shares
subject to options that are exercisable within 60 days
after February 28, 2007. In addition to the shares shown in
the table, as of February 28, 2007 Mr. Goldsmith held
an aggregate of (i) 35,000 options that are not exercisable
within 60 days after February 28, 2007, and
(ii) 16,160.89 fully-vested DSUs with respect to which
shares will become issuable more than 60 days after
February 28, 2007. |
|
(5) |
|
Includes 50,000 shares subject to options that are
exercisable within 60 days after February 28, 2007. In
addition to the shares shown in the table, as of
February 28, 2007 Mr. Kentor held an aggregate of
(i) 20,000 options that are not exercisable within
60 days after February 28, 2007, and
(ii) 17,228.24 fully-vested DSUs with respect to which
shares will become issuable more than 60 days after
February 28, 2007. |
|
(6) |
|
Represents 60,000 shares subject to options that are
exercisable within 60 days after February 28, 2007. In
addition to the shares shown in the table, as of
February 28, 2007 Mr. Noonan held an aggregate of
(i) 20,000 options that are not exercisable within
60 days after February 28, 2007, and
(ii) 21,147.52 fully-vested DSUs with respect to which
shares will become issuable more than 60 days after
February 28, 2007. |
|
(7) |
|
Consists of (i) 8,500 outstanding shares held by the
Testman Trust and (ii) 65,000 shares subject to
options that are exercisable within 60 days after
February 28, 2007. In addition to the shares shown in the
table, as of February 28, 2007 Mr. Testman held an
aggregate of (i) 20,000 options that are not exercisable
within 60 days after February 28, 2007, and
(ii) 15,753.46 fully-vested DSUs with respect to which
shares will become issuable more than 60 days after
February 28, 2007. |
|
(8) |
|
Represents 195,834 shares subject to options that are
exercisable within 60 days after February 28, 2007. In
addition to the shares shown in the table, as of
February 28, 2007 Mr. Rodriguez held an aggregate of
(i) 129,166 options that are not exercisable within
60 days after February 28, 2007, (ii) 150,000
unvested RSUs with respect to which shares will become issuable
more than 60 days after February 28, 2007, and
(iii) 3,473.72 fully-vested DSUs with respect to which
shares will become issuable more than 60 days after
February 28, 2007. |
|
(9) |
|
Represents 78,125 shares subject to options that are
exercisable within 60 days after February 28, 2007. In
addition to the shares shown in the table, as of
February 28, 2007 Mr. Davis held an aggregate of |
17
|
|
|
|
|
(i) 171,875 options that are not exercisable within
60 days after February 28, 2007, (ii) 120,000
unvested RSUs with respect to which shares will become issuable
more than 60 days after February 28, 2007, and
(iii) 23,376.63 fully-vested DSUs with respect to which
shares will become issuable more than 60 days after
February 28, 2007. |
|
(10) |
|
Includes 1,555,540 shares subject to options and warrants
exercisable within 60 days after February 28, 2007. In
addition to the shares shown in the table, as of
February 28, 2007, our directors and executive officers
held an aggregate of (i) 835,208 options that are not
exercisable within 60 days after February 28, 2007,
(ii) 1,070,000 unvested RSUs with respect to which shares
will become issuable more than 60 days after
February 28, 2007, and (iii) 130,742.24 fully-vested
DSUs with respect to which shares will become issuable more than
60 days after February 28, 2007. |
|
(11) |
|
Pursuant to a Schedule 13G/A filed on February 12,
2006 with the SEC, the State of Wisconsin Investment Board
reported sole voting and dispositive power over
2,900,500 shares. |
|
(12) |
|
Pursuant to a Schedule 13G/A filed on February 14,
2007 with the SEC, Black River Asset Management LLC and
affiliates reported voting and dispositive power over
2,041,071 shares. The Schedule 13G/A indicates that:
(i) Black River Asset Management LLC has dispositive and
voting power over all 2,041,071 shares; and (ii) of
these shares, 1,603,871 shares are owned by Black River
Long/Short Fund Ltd. and the balance are owned by Black
River Long/Short Opportunity Fund LLC. |
|
(13) |
|
Based on information provided by Midwood Capital Management LLC.
Consists of (i) 695,496 shares held by Midwood Capital
Partners, L.P., (ii) 88,154 shares underlying
currently exercisable warrants held by Midwood Capital Partners,
L.P., (iii) 922,705 shares held by Midwood Capital
Partners QP, L.P. and (iv) 41,483 shares underlying
currently exercisable warrants held by Midwood Capital Partners
QP, L.P. Ross DeMont and David Cohen, as the managers of Midwood
Capital Management LLC, have dispositive and voting power over
the shares held by Midwood Capital Partners, L.P. and Midwood
Capital Partners QP, L.P. |
18
EXECUTIVE
OFFICERS
Our executive officers as of March 31, 2007 are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position with Endocare
|
|
Craig T. Davenport
|
|
|
54
|
|
|
Chairman, Chief Executive Officer
and President
|
Michael R. Rodriguez
|
|
|
39
|
|
|
Senior Vice President, Finance and
Chief Financial Officer
|
Clint B. Davis
|
|
|
34
|
|
|
Senior Vice President, Legal
Affairs, General Counsel and Secretary
|
Craig T. Davenport has served as our Chief Executive
Officer since December 2003. For additional information
regarding Mr. Davenport, see above under Directors
and Nominees.
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. While at Morrison & Foerster,
Mr. Davis served as outside counsel to Endocare since
January 2003 and represented a number of other life sciences and
technology companies in a wide variety of business transactions,
contractual arrangements and corporate governance matters. Prior
to his employment with Morrison & Foerster LLP,
Mr. Davis was a corporate attorney 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.
COMPENSATION
DISCUSSION & ANALYSIS
Principles
Underlying Our Executive Compensation Policies and
Decisions
The Companys overall executive compensation philosophy is
that executive compensation policy, practice and decisions
should be guided by four key principles:
|
|
|
|
|
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 equity compensation (in the form of
restricted stock units, stock options and deferred stock units,
as described below) 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 cash compensation and
equity compensation, the Company seeks to achieve both internal
parity and external competitiveness. For purposes of evaluating
external competitiveness, the Company
|
19
|
|
|
|
|
considers market data derived from medical device companies that
the Company considers its peers, as described below under
Benchmarking.
|
Objectives
of Our Compensation Programs
The primary objective of our compensation programs, including
our executive compensation program, is to attract, retain and
motivate highly qualified employees and directors who are
committed to growing the Companys business and increasing
stockholder value in a manner consistent with our five core
values:
|
|
|
|
|
Integrity. We manage our business in an
honest, ethical and principled manner;
|
|
|
|
Accountability. We take ownership for our
actions and behaviors;
|
|
|
|
Innovation. We encourage creative ideas that
advance our processes and technologies;
|
|
|
|
Respect. We are considerate of the needs and
opinions of others; and
|
|
|
|
Quality. We are uncompromising in our pursuit
of excellence.
|
In addition, through our equity compensation programs, we strive
to promote an ownership mentality among members of senior
management and directors and further align their interests with
the interests of our stockholders.
Items
that Our Compensation Programs Are Designed to Reward
Our compensation programs are designed to foster both teamwork
and individual contributions by rewarding both corporate and
individual performance. In assessing executive officers
contributions to the Company, the Compensation Committee
considers numerous factors. The most important factors are the
Companys financial performance and each executives
leadership contributions and commitment to our five core values.
The Compensation Committee also considers achievement relative
to specific performance objectives set by the Compensation
Committee, as described below.
Elements
of Our Executive Compensation Programs
Our executive compensation programs consist of three primary
elements, which are the same three elements that the Company
uses for other members of senior management:
|
|
|
|
|
Base salary;
|
|
|
|
Incentive awards under our annual Management Incentive
Compensation Program (MICP), which are paid in the form of cash,
unless an employee elects to receive all or a portion of his
award in the form of deferred stock units (DSUs) under our
Employee DSU Program; and
|
|
|
|
Equity compensation, which takes the form of restricted stock
units (RSUs) or stock options.
|
Each of these elements is intended to meet a different
objective, as described below under Alignment of Elements
of Executive Compensation with Overall Objectives. They
are combined to focus each of our executive officers and other
members of senior management on high levels of sustained
performance directed at key organizational objectives. A degree
of risk/reward potential has been built into our compensation
programs to motivate our executive officers and other members of
senior management to achieve superior results.
Each of these elements is explained in more detail below. In
addition to these three primary elements, our executive
compensation programs also include customary employee benefits
consisting of medical, dental, accidental death and disability,
long-term disability and group term life insurance plans.
Base
Salary
Base salary is the guaranteed element of each executive
officers annual cash compensation. Each of our executive
officers has an employment agreement pursuant to which he is
entitled to a certain amount of base
20
salary. This amount was determined based on our assessment of
the executive officers skill set and experience and the
market value of that skill set and experience, based on
competitive market data, at the time when the Company entered
into the respective employment agreement or amendment, as
applicable.
Each year, the Company considers whether to adjust the base
salaries of senior management, including the executive officers,
in order to reward individual performance, keep pace with cost
of living increases and respond to competitive considerations.
For additional information regarding base salary considerations
see below under Alignment of Elements of Executive
Compensation with Overall Objectives.
Annual
Management Incentive Compensation Program (MICP)
The annual Management Incentive Compensation Program (MICP) is a
variable cash incentive program designed to motivate
participants to achieve the Companys annual financial and
other performance objectives and to reward them for their
achievements when those objectives are met. All executive
officers, vice presidents and department directors are eligible
to be considered for participation in the MICP. The Compensation
Committee may permit other employees to participate. The
Compensation Committee specifically reviews and approves the
MICP performance objectives, achievement percentages and
ultimate payouts to the executive officers.
The Compensation Committee approves target incentives and
related performance objectives for each participant. Incentive
awards are calculated using a formula that includes the
participants salary, the participants target
incentive and an achievement percentage based on the performance
objectives that apply to the participant.
|
|
|
|
|
Target Incentives. Each participants
target incentive is a percentage of the participants
annual salary. This percentage is determined by the Compensation
Committee based on each participants position and related
responsibilities, except where a participants employment
agreement or offer letter specifies the percentage (in which
case the specified percentage is used). Additional
overachievement amounts in excess of these percentages may be
paid to reward achievement in excess of performance targets
under the MICP.
|
|
|
|
Performance Objectives. In the first quarter
of each year, we determine and finalize the performance
objectives that will apply to each participant for that year.
The Compensation Committee establishes and approves the
performance objectives that will apply to each participant who
is an executive officer. The performance objectives that will
apply to other participants are established and approved by the
applicable department head and Vice President, Human Resources,
in consultation with the CEO and other members of senior
management.
|
|
|
|
Achievement Percentage. In the first quarter
of each year, we determine and finalize each participants
achievement percentage under the MICP for the immediately
preceding year. The Compensation Committee reviews and approves
the achievement percentage of each participant who is an
executive officer. The achievement percentages of other
participants are reviewed and approved by the CFO and Vice
President, Human Resources, in consultation with the CEO and
other members of senior management.
|
|
|
|
Payment. After the achievement percentages are
finalized in the first quarter of the year, awards are paid to
the participants. Payment is made in the form of cash, unless a
participant elects to receive all or a portion of the
participants award in the form of DSUs under our Employee
DSU Program described below.
|
Employee
DSU Program
On May 18, 2006, our Board of Directors adopted the
Employee DSU Program. The purposes of the Employee DSU Program
are to: (i) enable us to conserve cash that otherwise would
be used to make MICP payments; and (ii) enable eligible
employees to obtain equity on a tax-deferred basis, with the
benefit of a possible additional premium percentage,
as described below. In addition, the Employee DSU Program
further aligns participants interests with those of our
stockholders.
21
Elections to participate in the Employee DSU Program are made on
an annual basis. A participating employee will receive a
percentage (minimum of 25% and maximum of 100%) of the
employees MICP award for the relevant year in the form of
DSUs. Participating employees will select the percentage at the
time of electing to participate in the Employee DSU Program for
the relevant MICP year. For 2006, the election deadline was
June 17, 2006. For 2007, the election deadline is
March 23, 2007. In each future year, our Compensation
Committee will determine the election deadline applicable to
such year.
Each DSU represents the right to receive one share of our common
stock in the future on the DSU payout date, subject
to vesting requirements, as described below.
Our Compensation Committee grants DSUs to participating
employees after the end of the applicable election period. Based
on the closing stock price on the date that the DSUs are
granted, each participating employee will be granted DSUs equal
in value to the portion of the employees MICP target
amount that the employee has elected to receive in the form of
DSUs, plus an additional premium percentage intended
to encourage participation in the Employee DSU Program. Our
Compensation Committee determines the premium percentage (if
any) annually.
For 2006, the premium percentage was 20%. For 2007, the
premium percentage is 20%. These percentages were used because
they represented the high end of a range suggested by AON as
reasonable based on analogous programs used by other companies.
We used the high end of the range to motivate eligible employees
to participate in the Employee DSU Program because participation
saves the Company cash and further aligns the interests of
participants with the interests of our stockholders.
All or a portion of the DSUs granted to a participating employee
vest based on the employees percentage achievement under
the MICP for the applicable year, as determined by the
Compensation Committee in the first quarter of the following
year. We may permit the employees share of any taxes
resulting from vesting to be paid by reducing the number of
vested DSUs.
Ultimately, each employees vested DSUs will be paid
out to the employee through the issuance to the employee
of a corresponding number of shares of our common stock. At the
time of making an annual election to participate in the Employee
DSU Program, the employee selects as the payout date
one of the following three options: (i) a predetermined
date at least two years after the applicable election deadline
(the date would be specified by the employee in the
employees election form); (ii) the termination of the
employees employment; or (iii) the earlier of
(i) or (ii); provided, however, that if the
termination of the employees employment occurs earlier
than two years after the applicable election deadline, then any
issuance of shares that would otherwise be triggered by such
termination will be deferred until the date that is two years
after the applicable election deadline. In any event, the
payout date would be accelerated in the case of a
change of control of the company or the employees death.
We may permit the employees share of any taxes resulting
from the share issuance to be paid by reducing the number of
shares issued.
A copy of the Employee DSU Program is attached as
Exhibit 10.1 to the Current Report on
Form 8-K
that we filed with the SEC on May 22, 2006.
Equity
Compensation
As noted above, one of the key principles underlying our
executive compensation policies and decisions is that executive
compensation components should align with stockholders
interests, to the extent reasonably practicable. We believe that
equity compensation such as stock options and RSUs help
accomplish this goal in a manner consistent with two other key
principles noted above, namely pay for performance and incentive
for creation of stockholder value.
Stock options give the employee the right to purchase a certain
number of shares of our common stock at a specific price,
referred to as the exercise price, for a period of time after
the stock options vest (the stock options usually expire on the
tenth anniversary of the grant date). The exercise price equals
the closing trading price of our common stock on the date on
which the stock options are granted. See below under
Timing of Equity Awards for information regarding
how we determine the timing of grants of stock options and other
equity awards.
22
RSUs give the employee the right to receive a certain number of
shares of our common stock in the future, when the RSUs vest.
Vesting can be based on continued employment
and/or
achievement of performance objectives. Unlike stock options,
there is no exercise price that the employee must pay in order
to receive the shares of stock.
The Company historically has used stock options as the primary
form of equity compensation. Stock options granted by the
Company generally have been structured to vest ratably based on
continued employment over a four-year period (25% on the first
anniversary of the commencement of employment, with the balance
vesting on a monthly basis over the remaining three years).
Typically, there were no performance objectives imposed as a
condition to the vesting of the options.
The Companys practice since February 2004 has been that
stock option grants to executive officers are approved by the
Board of Directors or Compensation Committee, while stock option
grants to employees who are not executive officers may be made
by the CEO, subject to an annual limit of 50,000 options per
employee (plus an additional 50,000 options in connection with
the commencement of employment) and an annual aggregate limit of
1,000,000 options. In July 2006, the Compensation Committee
added a requirement that grants pursuant to this delegation may
be made only on the first business day of the month. In February
2007, the Compensation Committee terminated this delegation
completely.
Beginning in 2007, we have decided that, under the
Companys current circumstances and given the
considerations described below, RSUs that vest in large part
based on performance are a better form of equity compensation
for executive officers and other members of senior management.
This decision was motivated by several considerations, including
our desire to reduce the number of shares and related dilution
associated with equity compensation awards as compared to stock
options and better align our practice with that of other
comparable companies. Utilizing full-value awards such as RSUs
requires a smaller number of shares because one full-value award
is viewed as more valuable than a stock option award because a
stock option award can only be exercised at a profit if the
trading price of the Companys stock exceeds the exercise
price of the stock option. A related consideration was a
perception among management and our directors that, given the
volatility of the Companys stock, stock options may not
always be the most effective way to motivate individuals from an
equity compensation perspective, particularly when the trading
price of the Companys stock falls below the exercise price
of the stock options. It is important that the Companys
equity compensation programs continue to motivate employees even
(or particularly) in periods in which the trading price of the
Companys stock declines. In addition to these
considerations, the Compensation Committee saw an opportunity to
utilize RSUs to motivate our executive officers and other
members of senior management to achieve specific performance
objectives, while avoiding the greater potential dilution and
stock-price sensitivity associated with stock options.
At the same time, the Compensation Committee decided that in
2007 the Company should continue to utilize stock options with
time-based vesting (rather than performance based-vesting) for
employees who are not part of the Companys senior
management, as well as the Companys non-employee
directors, consistent with what the Compensation Committee and
AON perceived to be the practice prevalent among other companies.
Alignment
of Elements of Executive Compensation with Overall
Objectives
We believe that the three primary elements of our executive
compensation programs align with our overall objectives of:
|
|
|
|
|
attracting, retaining and motivating highly qualified executives
who are committed to growing the Companys business and
increasing stockholder value in a manner consistent with our
five core values described above on page 20; and
|
|
|
|
promoting an ownership mentality among members of senior
management and further aligning their interests with the
interests of our stockholders.
|
In this regard, as noted above base salary is the guaranteed
element of each executive officers annual cash
compensation. Each of our executive officers has an employment
agreement pursuant to which he is
23
entitled to a certain amount of base salary. Each year, the
Company considers whether to adjust the base salaries of senior
management, including the executive officers, in order to reward
individual performance, keep pace with cost of living increases
and respond to competitive considerations. We believe that it is
essential that the Company continue to pay competitive base
salaries in order to achieve our objective of attracting,
retaining and motivating highly qualified executives. In
addition to the executives performance during the prior
period, relative competitive data is also taken into
consideration in decisions as to base salary.
Our annual MICP supports our objective of motivating our
executive officers and other members of senior management by
rewarding them for achieving specific annual performance
objectives. Participants in the MICP are encouraged to elect to
receive all or a portion of their MICP award in the form of DSUs
instead of cash to conserve the Companys capital resources
and further align their interests with the interests of our
stockholders.
Our equity compensation program aligns with both objectives
stated above by giving our executive officers and other members
of senior management greater potential ownership interests in
the Company through RSUs, most of which are structured so that
they will vest only if specific performance objectives are
achieved, as described below under Compensation Decisions
Relating to 2007.
Allocation
Among Different Elements of Compensation
Our Compensation Committee regularly reviews tally sheets that
show each element of the compensation of each of our executive
officers. At least annually, the Compensation Committee
reassesses each element of executive compensation on its own and
all of the elements in the aggregate. The Compensation Committee
also evaluates whether the allocation among different elements
of compensation is appropriate. In making this assessment, the
Compensation Committee is guided by the principles and
objectives described at the beginning of this Compensation
Discussion & Analysis, as well as the particular
circumstances of the Company and the respective executive
officer to the extent deemed relevant to the assessment. The
Compensation Committee uses the assistance of an independent
compensation consultant when the Compensation Committee deems it
appropriate.
Consideration
of Accounting and Tax Treatments
We consider the accounting and tax treatments of the various
elements of our executive and director compensation programs. In
particular, we consider the accounting impact of Statement of
Financial Accounting Standard (SFAS) No. 123R and the tax
impacts of Section 162(m) and Section 409A of the
Internal Revenue Code. In addition, the Compensation Committee
considers generally the tax impact of equity compensation on the
Company and participants in the Companys equity
compensation programs.
Our management assists the Compensation Committee in evaluating
the accounting treatment of alternative forms of equity
compensation under SFAS No. 123R. Effective
January 1, 2006, we adopted SFAS No. 123R using
the modified prospective transition method. Among other things,
SFAS No. 123R requires companies to recognize in the
financial statements the cost of employee services received in
exchange for awards of equity instruments based on the grant
date fair value of those awards. Under the modified prospective
method, we recognize compensation cost in the financial
statements beginning with the effective date based on the
requirements of SFAS No. 123R for all share-based
payments granted, modified or settled after January 1,
2006, and based on the requirements of SFAS No. 123
for all unvested awards granted prior to the effective date. For
additional information regarding SFAS No. 123R, see
Note 3 to the financial statements included in our Annual
Report on
Form 10-K
for the year ended December 31, 2006, which we filed with
the SEC on March 16, 2007.
In structuring our executive compensation programs, we consider
the impact of Sections 162(m) and 409A of the Internal
Revenue Code. Under Section 162(m), a limitation is placed
on tax deductions of any publicly-held corporation for
individual compensation to certain executives of the corporation
exceeding $1,000,000 in any taxable year, unless the
compensation is performance-based and under a
stockholder-approved plan. Currently, the Company does not
employ any individual with non-performance based compensation
paid in excess of the Section 162(m) tax deduction limit.
However, because the MICP has not
24
been approved by stockholders and equity grants may from time to
time be made outside of stockholder-approved plans, the Company
may in the future be prevented from deducting a portion of
compensation paid to one or more executives as a result of
Section 162(m).
Under Section 409A, if an executive is entitled to
nonqualified deferred compensation benefits that are subject to
Section 409A, and such benefits do not comply with
Section 409A, then the benefits are taxable in the first
year they are not subject to a substantial risk of forfeiture.
In such case, the affected employee is subject to regular
federal income tax, interest and an additional federal income
tax of 20% of the benefit includible in income.
Stock
Ownership Guidelines
We have not adopted any guidelines requiring directors or
executive officers to own a particular number of shares of the
Companys common stock. Our Corporate Governance Guidelines
state that all directors are encouraged to own stock in the
Company in an amount that is appropriate for them. All of our
directors and executive officers hold equity in the Company
through our equity compensation programs and we encourage
directors and executive officers to purchase shares of our
common stock when permitted under our blackout and insider
trading policies. In addition, our directors and executive
officers also are encouraged to participate in our DSU programs,
which are described on pages 21 through 22 and 44. Since
the adoption of the DSU programs, each of our independent
directors has elected to participate to the maximum extent
possible so that each independent director receives 100% of his
retainers and director fees in the form of DSUs instead of cash.
Since the adoption of the DSU programs, our executive officers
have participated as to the following percentages of their MICP
incentive awards: Mr. Davenport, 35% for 2006 and 50% for
2007; Mr. Rodriguez, 25% for 2006 and 25% for 2007; and
Mr. Davis, 100% for both 2006 and 2007.
Benchmarking
In conducting its competitive market pay assessment, AON
compared and contrasted pay for the Companys executive
officers with that of the competitive labor market at the 25th,
50th, and 75th percentiles, utilizing AONs
proprietary Radford Surveys database of medical device companies
and AONs eComp database of publicly traded companies as
primary data sources for this project. Where possible, AON also
provided data points for the 65th percentile, which is a
target that the Company has historically utilized, as described
below. As part of this process, AON developed a competitive peer
group of companies for the analysis around the Companys
relevant sales size
and/or
market capitalization. A complete list of the companies included
this peer group is attached to this proxy statement as
Appendix B.
As described in the Compensation Committee Report contained in
last years proxy statement, the Companys policy for
the past few years has been that the total cash compensation of
each executive officer should approximate the
65th percentile
of executive compensation or medical device companies considered
its peers. While the Compensation Committee continues to use the
65th percentile as one reference point in assessing the
appropriateness of current executive compensation levels and
considering possible adjustments, the Compensation Committee
looks beyond competitive data in its deliberations on
compensation for executive officers and places significant
weight on individual job performance, the Companys
specific circumstances and the overall reasonableness of
compensation in light of the principles and objectives discussed
above at the beginning of this Compensation
Discussion & Analysis. The Compensation Committee also
considers the fact that in some cases the Company competes for
executive talent with companies that are much larger.
Role of
Executive Officers in Compensation Process
The Compensation Committee confers with the Companys CEO
and other executive officers in determining executive and
director compensation. The Compensation Committees charter
states that, as necessary or desirable, the Committees
chairman may invite any director, officer or employee of the
Company, or other persons whose advice and counsel are sought by
the Compensation Committee, to be present at meetings of the
Compensation Committee, consistent with the maintenance of
confidentiality of compensation discussions. The charter
provides that the CEO may not be present during voting or
25
deliberations regarding the CEOs compensation. At the
Compensation Committees request, AON met with members of
the Companys management on several occasions to obtain
their input regarding the Companys executive compensation
programs and the Companys overall compensation strategy.
Timing of
Equity Awards
Given the recent announcements by numerous companies and the
SECs current focus on stock option plan administration, in
July 2006 our Audit Committee requested that management conduct
an internal review of our historical stock option practices, the
timing of stock option grants and related accounting and
documentation. Based on this review, management identified
several stock option grants made between 1997 and 2002 for which
the actual measurement dates appeared to differ from the
recorded grant dates. Management analyzed the potential
accounting impact, assuming that the measurement dates for these
option grants differ from the recorded grant dates, and
concluded that the financial impact did not necessitate
adjustment to or restatement of our previously-issued financial
reports. Management reported the results of its review to our
Audit Committee and Board of Directors at their regularly
scheduled meetings on July 26, 2006. Following these
meetings, we contacted the SEC and the DOJ and reported our
findings. On August 1, 2006, we met with the SEC staff to
discuss our findings and later received a subpoena from the SEC
requesting additional option-related information. We have
responded to this subpoena and will continue to fully cooperate
with the SEC and DOJ and with their ongoing investigations
related to certain former officers and former directors of the
Company.
Management subsequently identified certain stock option grants
made in 2003 for which the actual measurement dates may differ
from the recorded grant dates. However, similar to the grants
between 1997 and 2002 previously identified, management
concluded that the financial impact of the 2003 grants did not
necessitate adjustment to or restatement of our
previously-issued financial reports.
The Companys current practice is that all equity
compensation awards are made at or above the market price on the
date that the award is approved. In general, annual equity
compensation awards to continuing employees are approved by the
Compensation Committee at a meeting of the Compensation
Committee in the first quarter of the year, in conjunction with
the Compensation Committees annual review of the
Companys compensation programs. The Compensation Committee
may make awards at other times during the year when the
Compensation Committee decides that it is necessary or
advisable, usually for retention purposes or to reward
performance. Awards to new hires are typically made by the
Compensation Committee at the first meeting of the Compensation
Committee following the applicable hire date. The Compensation
Committee may approve equity awards by unanimous written
consent, but the Compensation Committees standard practice
is to approve equity awards at meetings of the Compensation
Committee. We do not have any specific program, plan or practice
to time the grant of equity awards in coordination with material
non-public information. However, the Compensation Committee does
not intend to grant equity awards in anticipation of the release
of material nonpublic information that is likely to result in
changes to the trading price of the Companys sock, such as
a significant positive or negative earnings announcement.
Similarly, the Company does not intend to time the release of
material nonpublic information based on equity award grant dates.
Executive
Compensation Decisions relating to 2006
2006
Executive Officer Base Salary Adjustments
In the first quarter of 2006, the Compensation Committee
conducted its annual review of executive compensation, including
executive officer base salaries. In conducting this review, the
Compensation Committee referred to, among other things, the
compensation analysis prepared in the Spring of 2005 by
Compensia, an independent compensation consultant engaged in
2005 by the Compensation Committee (then consisting of
Mr. Noonan and Dr. Strauss). The Compensation
Committee considered both internal parity and external
competitiveness in determining whether to adjust executive
officer base salaries.
The Compensation Committee ultimately decided not to make any
adjustment to Mr. Davenports base salary for 2006.
Mr. Davenports salary had been increased effective
March 1, 2005 from $312,000 to
26
$390,000 in connection with the amendment to
Mr. Davenports employment agreement that was approved
by the Compensation Committee (then consisting of
Mr. Noonan and Dr. Strauss) on April 27, 2005.
The Compensation Committee increased Mr. Nydams base
salary from $262,032 to $269,893, effective January 1,
2006. This 3% increase was consistent with the Companys
standard average 3% merit increase described above under
Alignment of Elements of Executive Compensation with
Overall Objectives.
The Compensation Committee increased Mr. Rodriguezs
base salary from $202,000 to $216,140, effective January 1,
2006. The Compensation Committee determined that this 7%
increase was appropriate based on Mr. Rodriguezs
performance and based on the market data in the Compensia report.
The Compensation Committee did not make any adjustment to
Mr. Davis base salary of $238,000.
Mr. Davis base salary had just been established and
approved by the Board of Directors as part of the employment
agreement into which the Company entered with Mr. Davis on
January 12, 2006 in connection with his hiring.
2006
MICP Terms Applicable to Executive Officers
On March 8, 2006, the Compensation Committee approved the
2006 MICP. A copy of the 2006 MICP is attached as
Exhibit 10.1 to the Current Report on
Form 8-K
that we filed with the SEC on March 14, 2006. See the table
below entitled Grants of Plan-Based Awards in 2006.
The maximum incentive payable under the 2006 MICP to the
executive officers was the percentage of annual base salary that
is specified in their respective employment agreements, as
follows: 85% for Mr. Davenport and 40% for each of
Messrs. Nydam, Rodriguez and Davis. Additional
overachievement amounts in excess of these percentages could be
paid to reward achievement in excess of performance targets
under the 2006 MICP Program. Mr. Nydam ceased to be
employed by the Company on September 22, 2006. As a result,
he became ineligible to participate in the 2006 MICP.
The Compensation Committee approved four performance objectives
applicable to Mr. Davenport under the 2006 MICP:
1. A corporate objective relating to growth in the number
of domestic cryoablation procedures in 2006 (weighted 30% of the
total);
2. A corporate objective relating to managing operating
expenses in 2006 (weighted 20% of the total);
3. A corporate objective relating to managing cash use in
2006 (weighted 30% of the total); and
4. An individual objective relating to the development of a
2007-2009
strategic plan for the Company (weighted 20% of the total).
The Compensation Committee approved six performance objectives
applicable to Mr. Rodriguez under the 2006 MICP:
1. A corporate objective relating to growth in the number
of domestic cryoablation procedures in 2006 the same
as Mr. Davenports first objective (weighted 10% of
the total);
2. A corporate objective relating to managing operating
expenses in 2006 the same as
Mr. Davenports second objective (weighted 15% of the
total);
3. A corporate objective relating to managing cash use in
2006 the same as Mr. Davenports third
objective (weighted 25% of the total);
4. An individual objective relating to managing the
accounting and finance departments achievement of monthly
close and quarterly forecast targets (weighted 5% of the total);
5. An individual objective relating to managing certain
categories of expenses (weighted 20% of the total); and
27
6. An individual objective relating to reducing outside
accounting and consulting expenses (weighted 20% of the total).
The Compensation Committee approved five performance objectives
applicable to Mr. Davis under the 2006 MICP:
1. A corporate objective relating to growth in the number
of domestic cryoablation procedures in 2006 the same
as the first objective used for Messrs. Davenport and
Rodriguez (weighted 20% of the total);
2. A corporate objective relating to managing operating
expenses in 2006 the same as the second objective
used for Messrs. Davenport and Rodriguez (weighted 15% of
the total);
3. A corporate objective relating to managing cash use in
2006 the same as the third objective used for
Messrs. Davenport and Rodriguez (weighted 15% of the total);
4. An individual objective relating to reducing outside
legal expenses (weighted 30% of the total); and
5. An individual objective relating to participation in
specific professional development activities designed to improve
Mr. Davis proficiencies in particular legal and
business areas aligned with the Companys business
(weighted 20% of the total).
Consistent with the Companys practice, the Compensation
Committee set challenging targets for each of the executive
officers so that 100% achievement would require superior
performance.
On February 21, 2007, our Compensation Committee determined
the overall achievement percentage for each executive officer
under the 2006 MICP, as follows:
|
|
|
|
|
Mr. Davenports overall achievement percentage was
37.50%, meaning that he earned a total incentive amount of
$124,313. If Mr. Davenport had achieved 100% of his
objectives, then he would have earned $331,500 (85% of his 2006
salary);
|
|
|
|
Mr. Rodriguezs overall achievement percentage was
36.26%, meaning that he earned a total incentive amount of
$31,263. If Mr. Rodriguez had achieved 100% of his
objectives, then he would have earned $86,220 (40% of his 2006
salary); and
|
|
|
|
Mr. Davis overall achievement percentage was 60.23%,
meaning that he earned a total incentive amount of $52,597. If
Mr. Davis had achieved 100% of his objectives, then he
would have earned $87,328 (40% of his 2006 salary).
|
Under our Employee DSU Program, each of the executive officers
elected in June 2006 to receive a percentage of his potential
2006 MICP award in the form of DSUs instead of cash, as follows:
Mr. Davenport, 35%; Mr. Rodriguez, 25%; and
Mr. Davis, 100%.
The Compensation Committee exercised its discretion with respect
to Mr. Davis achievement percentage and related
payout by excluding certain expenses relating to the
Companys mediation with KPMG for purposes of determining
the extent to which Mr. Davis achieved his 2006 MICP
objective relating to the reduction of outside legal expenses.
As a result of this exercise of discretion, Mr. Davis
aggregate achievement percentage under the 2006 MICP was 60.23%,
resulting in the vesting of 23,376.63 of the DSUs granted to
Mr. Davis in June 2006 under the Employee DSU Program. If
the Compensation Committee had not exercised its discretion,
then Mr. Davis aggregate achievement percentage under
the 2006 MICP would have been 31.13%, resulting in the vesting
of 12,082.26 DSUs. There was no cash impact on the Company
because, as noted above, Mr. Davis had elected in June 2006
to receive 100% of his award under the 2006 MICP in the form of
DSUs, instead of cash.
2006
Equity Compensation Awards to Executive Officers
The Compensation Committee reviewed tally sheets in the first
quarter of 2006 showing each executive officers
compensation, including total holdings of stock options. Based
on this review and the Compensation
28
Committees assessment of each executive officers
performance, the Compensation Committee recommended to the Board
of Directors and on February 23, 2006 the Board of
Directors approved the grant to Mr. Davenport of an
additional option to purchase 80,000 shares and the grant
to each of Messrs. Nydam and Rodriguez of an additional
option to purchase 50,000 shares. The exercise price of
these options was set at the closing price on February 23,
2006, which was $3.31.
The Compensation Committee did not recommend granting any
additional options to Mr. Davis because Mr. Davis had
just been hired and received an option to purchase
250,000 shares in connection with the commencement of his
employment. The exercise price of this option was set at the
closing price on January 17, 2006, the date of the
commencement of his employment, which was $3.30.
Executive
Compensation Decisions relating to 2007
2007
Executive Officer Base Salary Adjustments
In the first quarter of 2007, the Compensation Committee
conducted its annual review of executive compensation, including
executive officer base salaries. In conducting this review, the
Compensation Committee referred to, among other things, the
compensation analysis prepared in the Fall of 2006 by AON, an
independent compensation consultant engaged by the Compensation
Committee (the engagement of AON is described on pages 6
and 7 above). The Compensation Committee considered internal
parity and external competitiveness in determining whether to
adjust executive officer base salaries.
After consideration, the Compensation Committee determined that
the base salaries of Messrs. Davenport and Davis should not
be increased and that the base salary of Mr. Rodriguez
should be increased from $216,140 to $223,763, retroactive to
January 1, 2007.
2007
MICP Terms Applicable to Executive Officers
For 2007 the Compensation Committee decided to modify the MICP
generally as it applies to all participants, including executive
officers, by using only two performance objectives, each
weighted 50%. These two performance objectives include a revenue
target for 2007 and an adjusted EBITDA target for 2007.
Adjusted EBITDA consists of earnings before
interest, taxes, depreciation and amortization, excluding
SFAS No. 123R equity compensation expense. For
purposes only of the 2007 MICP, the adjusted EBITDA target also
excludes certain other categories of expenses, as well as any
expenses that the Board designates in the future as expenses
that should be excluded for purposes of the 2007 MICP.
Consistent with the Companys practice, the Compensation
Committee set challenging targets for these two performance
objectives so that 100% achievement would require superior
performance. In setting these targets, the Compensation
Committee considered the shift in the mix of the Companys
revenues from cryoablation procedure fees to sales of
cryoablation disposable products, which have a lower average
selling price but are typically more profitable. Unlike the 2006
MICP, the 2007 MICP caps the amount that may be earned through
overachievement by establishing a maximum achievement percentage
of 150% for each performance objective.
Under our Employee DSU Program, each of the executive officers
elected in March 2007 to receive a percentage of his potential
2007 MICP award in the form of DSUs instead of cash, as follows:
Mr. Davenport, 50%; Mr. Rodriguez, 25%; and
Mr. Davis, 100%.
2007
Equity Compensation Awards to Executive Officers
For the reasons described above under Equity
Compensation, the Compensation Committee decided for 2007
to grant RSUs to the Companys senior management, including
the executive officers, instead of granting stock options.
On February 21, 2007, the Compensation Committee approved
the Companys standard form of RSU agreement under the
Companys 2004 Stock Incentive Plan. RSUs give the
recipient the right to receive a certain number of shares of the
Companys common stock in the future when the RSUs vest.
Vesting can be based on continued employment
and/or
achievement of performance objectives. The standard form of RSU
agreement incorporates the default provisions under the 2004
Stock Incentive Plan, similar to the Companys
29
standard form of stock option agreement under that plan. These
default provisions include double-trigger vesting
acceleration in the case of a change in control of the Company,
such as a merger or acquisition. Double-trigger
vesting acceleration means that vesting acceleration is
triggered only if the employees employment terminates in
certain circumstances in connection with or following a change
in control of the Company.
On February 23, 2007, after considering the market data
provided by AON and the principles and objectives underlying the
Companys executive compensation programs, the Compensation
Committee approved the following grants of RSUs to the executive
officers:
|
|
|
|
|
Grant of RSUs to
Mr. Davenport. Mr. Davenport was
granted an aggregate of 800,000 RSUs. This grant is intended by
the Compensation Committee to cover a three-year period of
long-term incentive compensation for Mr. Davenport, and it
is not anticipated that he will be awarded additional long-term
equity compensation for any period prior to December 31,
2009. Of this award, 400,000 of the RSUs vest equally over three
years based on Mr. Davenports continued employment,
subject to the single-trigger change in control
provisions described below. The remaining 400,000 RSUs vest only
if the Company achieves specific profitability goals over the
2007-2009
period (the Profitability Goals) and
Mr. Davenport remains employed at the time such achievement
is determined by the Compensation Committee to have occurred,
subject to the single-trigger change in control
provisions described below. The Profitability Goals are measured
using adjusted EBITDA, which consists of earnings
before interest, taxes, depreciation and amortization, excluding
only equity compensation expense under SFAS No. 123R.
The form of RSU agreement used for Mr. Davenports RSU
grants is similar to the Companys standard form of RSU
agreement except that Mr. Davenports RSU agreements
contain single-trigger vesting acceleration.
Single-trigger vesting acceleration means that
vesting acceleration is triggered automatically by the
occurrence of a change in control of the Company (such as a
merger or acquisition involving a change in control);
|
|
|
|
Grant of RSUs to
Mr. Rodriguez. Mr. Rodriguez was
granted an aggregate of 150,000 RSUs, using the Companys
standard form of RSU agreement. This grant is intended by the
Compensation Committee to cover a three-year period of long-term
incentive compensation for Mr. Rodriquez relative to
performance incentive. It is not anticipated that
Mr. Rodriquez will be awarded additional long-term equity
compensation for performance purposes during such period,
although the Compensation Committee may consider additional
long-term equity compensation for retention purposes. Subject to
the double-trigger change in control provisions
contained in the standard form of RSU agreement, these RSUs vest
only if the Company achieves the Profitability Goals and
Mr. Rodriguez remains employed at the time such achievement
is determined by the Compensation Committee to have
occurred; and
|
|
|
|
Grant of RSUs to
Mr. Davis. Mr. Davis was granted an
aggregate of 120,000 RSUs, using the Companys standard
form of RSU agreement. This grant is intended by the
Compensation Committee to cover a three-year period of long-term
incentive compensation for Mr. Davis relative to
performance incentive. It is not anticipated that Mr. Davis
will be awarded additional long-term equity compensation for
performance purposes during such period, although the
Compensation Committee may consider additional long-term equity
compensation for retention purposes. Subject to the
double-trigger change in control provisions
contained in the standard form of RSU agreement, these RSUs vest
only if the Company achieves the Profitability Goals and
Mr. Davis remains employed at the time such achievement is
determined by the Compensation Committee to have occurred.
|
Retention
Agreements with Messrs. Rodriguez and Davis
In December 2006, we entered into retention agreements with
several key employees. Pursuant to each retention agreement, the
Company has agreed to make a retention payment to each employee,
subject to the employees continued employment by the
Company through the date on which the Company files its Annual
Report on
Form 10-K
for the year ending December 31, 2007 (the Retention
Date). If the employee ceases to be employed by the
Company for any reason on or before the Retention Date, then the
employee is no
30
longer eligible to receive the retention payment. The potential
retention payments amount to $812,500 in the aggregate. The
retention agreements provide that any retention payments will be
paid within 30 days of the Retention Date. In addition, the
retention agreements provide that if a change in control of the
Company occurs prior to the Retention Date and in connection
with or following such change in control there occurs prior to
the Retention Date either a termination of the employees
employment by the Company without cause or by the employee for
good reason (as defined in the retention agreements), then the
employee will remain entitled to receive the retention payment
within 30 days of the Retention Date.
Messrs. Rodriguez and Davis are among the employees with
whom the Company entered into retention agreements. Each of
Messrs. Rodriguez and Davis is entitled to receive a
retention payment of $100,000 if his employment with the Company
continues through the Retention Date or if the change of control
provision is triggered as described above.
Termination
and
Change-in-Control
Provisions Applicable to Executive Officers
Each of our executive officers is entitled under his employment
agreement to receive severance if his employment is terminated
in certain circumstances, as described below. In addition, the
stock options and RSUs held by each executive officer have
single-trigger or double-trigger vesting
acceleration in connection with a change in control, as
described below.
Single-trigger vesting acceleration means that
vesting acceleration is triggered automatically by the
occurrence of a change in control of the Company (such as a
merger or acquisition involving a change in control).
Double-trigger vesting acceleration means that
vesting acceleration is triggered only if the employees
employment terminates in certain circumstances in connection
with or following a change in control of the Company.
The default provision under the Companys 1995 Stock Plan
was single-trigger vesting acceleration. In adopting
a new equity compensation plan for the Company in 2004,
double-trigger vesting acceleration was selected as
the default provision for the Companys 2004 Stock
Incentive Plan. Therefore, unless specifically provided
otherwise in the relevant stock option agreements, stock options
granted under the 1995 Stock Plan have
single-trigger vesting acceleration and stock
options granted under the 2004 Stock incentive Plan have
double-trigger vesting acceleration. The 2004 Stock
Incentive Plans double-trigger provision
applies if the employees employment is terminated without
Cause within 12 months after the change in
control. For these purposes, the definition of Cause
is the same definition as is contained in the respective
employees employment agreement, if the employee has an
employment agreement. Otherwise the definition is based on the
employees: (i) performance of any act or failure to
perform any act in bad faith and to the detriment of the Company
or a related entity; (ii) dishonesty, intentional
misconduct or material breach of any agreement with the Company
or a related entity; or (iii) commission of a crime
involving dishonesty, breach of trust, or physical or emotional
harm to any person.
Termination
and
Change-in-Control
Provisions Applicable to Mr. Davenport
Under his employment agreement, as amended on April 28,
2005, if we terminate Mr. Davenports employment other
than for Cause or if Mr. Davenport terminates
his employment for Good Reason, 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
12-month
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. Mr. Davenport is 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 the severance amounts otherwise
payable under the employment agreement.
31
Under his employment agreement, the Companys termination
of Mr. Davenports employment shall be for
Cause if Mr. Davenport:
|
|
|
|
|
exhibits willful misconduct or dishonesty which materially and
adversely affects the business reputation of Mr. Davenport
or the Company;
|
|
|
|
is convicted of a felony;
|
|
|
|
acts (or fails to act) in the performance of his duties to the
Company in bad (good) faith and to the Companys detriment;
|
|
|
|
materially breaches his employment agreement or any other
agreement with the Company, which if curable, is not cured to
the Companys reasonable satisfaction within 30 days
of written notice thereof; or
|
|
|
|
engages in misconduct that is demonstrably and materially
injurious to the Company, including, without limitation, willful
and material failure to perform his duties as an officer or
employee of the Company or excessive absenteeism unrelated to
illness or vacation which if curable, is not cured to the
Companys reasonable satisfaction within 30 days of
written notice thereof.
|
Under his employment agreement, Mr. Davenports
termination of his employment shall be for Good
Reason if Mr. Davenport 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 of the Company;
|
|
|
|
within six months of the Companys material reduction of
Mr. Davenports level of responsibility; or
|
|
|
|
within six months of the Companys material reduction of
Mr. Davenports base salary, except for any salary
reduction that is generally applicable to the Companys
executives.
|
Upon the commencement of his employment, Mr. Davenport
received options to purchase an aggregate of
1,000,000 shares of our common stock. These options were
granted outside of any equity compensation plan. The terms of
the option agreements include single-trigger vesting
acceleration in the case of a change in control.
On April 28, 2005, in connection with an amendment to his
employment agreement, Mr. Davenport was granted an
additional option to purchase 225,000 shares of our common
stock. This option was granted under the Companys 2004
Stock Incentive Plan. This option is subject to
single-trigger vesting acceleration, consistent with
the options granted to Mr. Davenport upon commencement of
his employment.
On February 23, 2006, Mr. Davenport was granted an
additional option to purchase 80,000 shares of our common
stock. This option was granted under the Companys 2004
Stock Incentive Plan. This option is subject to
single-trigger vesting acceleration.
On February 23, 2007, Mr. Davenport was granted
800,000 RSUs. The RSUs were granted under the Companys
2004 Stock Incentive Plan. These RSUs are subject to
single-trigger vesting acceleration.
For further information regarding these termination and
change-in-control
provisions and quantitative examples of how these provisions
might apply under certain assumptions, see below under
Potential Payments Upon Termination Or Change In
Control beginning on page 38.
Termination
and
Change-in-Control
Provisions Applicable to Mr. Rodriguez
Under his employment agreement, if we terminate
Mr. Rodriguezs employment other than for
Cause or if Mr. Rodriguez terminates his
employment for Good Reason, then, during the
12-month
period immediately following the date of
Mr. Rodriguezs termination, 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.
32
Under his employment agreement, the Companys termination
of Mr. Rodriguezs employment shall be for
Cause if Mr. Rodriguez:
|
|
|
|
|
exhibits willful misconduct or dishonesty;
|
|
|
|
is convicted of a felony;
|
|
|
|
acts (or fails to act) in the performance of his duties to the
Company in bad (good) faith and to the Companys detriment;
|
|
|
|
materially breaches his employment agreement or any other
agreement; or
|
|
|
|
engages in misconduct that is demonstrably and materially
injurious to the Company, including, without limitation, willful
and material failure to perform his duties as an officer or
employee of the Company or excessive absenteeism unrelated to
illness or vacation.
|
Under his employment agreement, Mr. Rodriguezs
termination of his employment shall be for Good
Reason if Mr. Rodriguez terminates his employment:
|
|
|
|
|
within the
30-day
period immediately following the six-month anniversary of the
date of the occurrence of a change in control of the Company;
|
|
|
|
within six months of the Companys material reduction of
Mr. Rodriguezs level of responsibility; or
|
|
|
|
within six months of the Companys material reduction of
Mr. Rodriguezs base salary, except for any salary
reduction that is generally applicable to the Companys
executives.
|
Upon the commencement of his employment, Mr. Rodriguez
received options to purchase an aggregate of 275,000 shares
of our common stock. These options were granted under the
Companys 1995 Stock Plan. As described above, the default
provision under the 1995 Stock Plan is
single-trigger vesting acceleration. The option
agreement governing this option grant incorporates the
single-trigger default provision under the 1995
Stock Plan.
On February 23, 2006, Mr. Rodriguez was granted an
additional option to purchase 50,000 shares of our common
stock. This option was granted under the Companys 2004
Stock Incentive Plan. This option is subject to
single-trigger vesting acceleration, consistent with
the options granted to Mr. Rodriguez upon commencement of
his employment.
On February 23, 2007, Mr. Rodriguez was granted
150,000 RSUs. The RSUs were granted under the Companys
2004 Stock Incentive Plan and use the standard
double-trigger vesting acceleration under the 2004
Stock Incentive Plan.
As described above on page 30, in December 2006 we entered
into retention agreements with several members of senior
management. Under his retention agreement, Mr. Rodriguez is
entitled to receive $100,000 if both (i) a change in
control of the Company occurs prior to the applicable retention
date and (ii) in connection with or following such change
in control there occurs prior to the retention date either a
termination of Mr. Rodriguezs employment by the
Company without cause or by the employee for good reason.
For further information regarding these termination and
change-in-control
provisions and quantitative examples of how these provisions
might apply under certain assumptions, see below under
Potential Payments Upon Termination Or Change In
Control beginning on page 38.
Termination
and
Change-in-Control
Provisions Applicable to Mr. Davis
Mr. Davis employment agreement contains severance
provisions (including definitions of Cause and
Good Reason) that mirror those contained in
Mr. Rodriguezs employment agreement, as described
above.
Upon the commencement of his employment, Mr. Davis received
options to purchase an aggregate of 250,000 shares of our
common stock. These options were granted under the
Companys 2004 Stock Incentive
33
Plan. These options are subject to single-trigger
vesting acceleration, consistent with the options granted to
Messrs. Davenport and Rodriguez.
On February 23, 2007, Mr. Davis was granted 120,000
RSUs. The RSUs were granted under the Companys 2004 Stock
Incentive Plan and use the standard double-trigger
vesting acceleration under the 2004 Stock Incentive Plan.
As described above on page 30, in December 2006 we entered
into retention agreements with several members of senior
management. Under his retention agreement, Mr. Davis is
entitled to receive $100,000 if both (i) a change in
control of the Company occurs prior to the applicable retention
date and (ii) in connection with or following such change
in control there occurs prior to the retention date either a
termination of Mr. Davis employment by the Company
without cause or by the employee for good reason.
For further information regarding these termination and
change-in-control
provisions and quantitative examples of how these provisions
might apply under certain assumptions, see below under
Potential Payments Upon Termination Or Change In
Control beginning on page 38.
REPORT OF
COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Our Compensation Committee has reviewed and discussed with
management the Compensation Discussion & Analysis
(CD&A) included above in this proxy statement. Based on such
review and discussion, our Compensation Committee recommended to
our Board of Directors that the CD&A be included in this
proxy statement (and our Annual Report on
Form 10-K
through incorporation by reference to this proxy statement).
COMPENSATION COMMITTEE
Eric S. Kentor, Chairman
John R. Daniels, M.D.
David L. Goldsmith
2006
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
Compensation
|
|
|
All Other
|
|
|
|
|
Name and
|
|
Year
|
|
|
Salary ($)
|
|
|
Bonus ($) (1)
|
|
|
Stock Awards ($)
|
|
|
Awards ($)
|
|
|
Compensation ($)
|
|
|
Earnings ($)
|
|
|
Compensation ($)
|
|
|
Total ($)
|
|
Principal Position (a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
Craig T. Davenport,
CEO, President & Chairman
|
|
|
2006
|
|
|
$
|
390,000
|
|
|
|
None
|
|
|
$
|
7,217
|
(3)
|
|
$
|
1,146,673
|
(5)
|
|
$
|
116,886
|
(6)
|
|
|
None
|
|
|
$
|
18,565
|
(9)
|
|
$
|
1,679,341
|
|
Michael R. Rodriguez,
SVP, Finance & CFO
|
|
|
2006
|
|
|
$
|
215,551
|
|
|
|
None
|
|
|
$
|
1,370
|
(3)
|
|
$
|
119,675
|
(5)
|
|
$
|
30,296
|
(7)
|
|
|
None
|
|
|
$
|
11,109
|
(10)
|
|
$
|
378,001
|
|
Clint B. Davis,
SVP, Legal Affairs & General Counsel
|
|
|
2006
|
|
|
$
|
218,319
|
|
|
$
|
18,986
|
(2)
|
|
$
|
3,385
|
(3)
|
|
$
|
133,780
|
(5)
|
|
$
|
16,926
|
(8)
|
|
|
None
|
|
|
$
|
4,865
|
(11)
|
|
$
|
396,261
|
|
William J. Nydam,
Former President & COO
|
|
|
2006
|
|
|
$
|
213,899
|
(4)
|
|
|
None
|
(4)
|
|
|
None
|
|
|
$
|
352,582
|
(5)
|
|
|
None]
|
(3)
|
|
|
None
|
|
|
$
|
132,930
|
(12)
|
|
$
|
699,411
|
|
|
|
|
(1) |
|
Amounts earned in 2006 under our 2006 Management Incentive
Compensation Program (MICP) are reported under column (g),
Non-Equity Incentive Plan Compensation. |
|
(2) |
|
As described above under 2006 MICP Terms Applicable to
Executive Officers, the Compensation Committee exercised
its discretion to increase Mr. Davis 2006 MICP
achievement percentage from 31.13% to 60.23%. The amount
reported under column (d), Bonus, represents the expense
under SFAS No. 123R recognized by the Company for 2006
with respect to the portion of the DSUs that Mr. Davis
would not have earned in the absence of this exercise of
discretion. For a description of the assumptions made in |
34
|
|
|
|
|
the SFAS No. 123R valuation, see Note 3 to the
financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2006, which we filed with
the SEC on March 16, 2007. |
|
(3) |
|
Represents the aggregate expense under SFAS No. 123R
recognized by the Company for 2006 with respect to the 20%
premium percentage applicable to the DSU awards made
to the applicable executive officer under the Employee DSU
Program as a result of the executive officers election to
receive all or a portion of his incentive payment under the 2006
MICP in the form of DSUs instead of cash. As discussed above
under the Compensation Discussion & Analysis and below
under the table entitled Grants of Plan-Based Awards in
2006, only a percentage of the DSUs ultimately vested, as
follows: Mr. Davenport, 37.50%; Mr. Rodriguez, 36.26%;
and Mr. Davis, 60.23%. For a description of the assumptions
made in the SFAS No. 123R valuation, see Note 3
to the financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2006, which we filed with
the SEC on March 16, 2007. |
|
(4) |
|
Mr. Nydams employment was terminated effective
October 2, 2006. As a result, Mr. Nydam was not
eligible to receive any amount under our 2006 MICP.
Mr. Nydams severance for 2006 is included under
column (i), All Other Compensation. |
|
(5) |
|
Represents the aggregate expense under SFAS No. 123R
recognized by the Company for 2006 with respect to option awards
held by the applicable executive officer, disregarding estimated
forfeitures. The only forfeiture involving an executive officer
in 2006 was Mr. Nydams forfeiture of 300,000 unvested
stock options as a result of the termination of his employment.
For a description of the assumptions made in the
SFAS No. 123R valuation, see Note 3 to the
financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2006, which we filed with
the SEC on March 16, 2007. |
|
(6) |
|
Includes $80,803 in cash incentive compensation earned during
2006 under our 2006 MICP. Also includes $36,083 representing the
aggregate expense under SFAS No. 123R recognized by
the Company for 2006 as a result of Mr. Davenports
election to receive 35% of his incentive payment under our 2006
MICP in the form of DSUs under our Employee DSU Program. The 20%
premium percentage applicable to the DSUs is
included in this table under column (e), Stock Awards.
For a description of the assumptions made in the
SFAS No. 123R valuation, see Note 3 to the
financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2006, which we filed with
the SEC on March 16, 2007. |
|
(7) |
|
Includes $23,448 in cash incentive compensation earned during
2006 under our 2006 MICP. Also includes $6,848 representing the
aggregate expense under SFAS No. 123R recognized by
the Company for 2006 as a result of Mr. Rodriguezs
election to receive 25% of his incentive payment under our 2006
MICP in the form of DSUs under our Employee DSU Program. The 20%
premium percentage applicable to the DSUs is
included in this table under column (e), Stock
Awards. For a description of the assumptions made
in the SFAS No. 123R valuation, see Note 3 to the
financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2006, which we filed with
the SEC on March 16, 2007. |
|
(8) |
|
Represents the aggregate expense under SFAS No. 123R
recognized by the Company for 2006 as a result of
Mr. Davis election to receive 100% of his incentive
payment under our 2006 MICP in the form of DSUs under our
Employee DSU Program. The 20% premium percentage
applicable to the DSUs is included in this table under column
(e), Stock Awards. As described above in footnote (2), an
additional amount relating to the Compensation Committees
exercise of discretion is included in this table under column
(d), Bonus. For a description of the assumptions made in
the SFAS No. 123R valuation, see Note 3 to the
financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2006, which we filed with
the SEC on March 16, 2007. |
|
(9) |
|
Amount consists of (i) $11,628, representing the value of
our contributions on behalf of Mr. Davenport under our
medical, dental, accidental death and disability, long-term
disability and group term life insurance plans, and
(ii) $6,937 in accrued paid time off that we permitted
Mr. Davenport to cash out and donate to the families of
current or former employees in need, consistent with our policy
of permitting employees to cash out and donate accrued paid time
off in certain circumstances. |
|
(10) |
|
Represents the value of our contributions on behalf of
Mr. Rodriguez under our medical, dental, accidental death
and disability and group term life insurance plans. |
35
|
|
|
(11) |
|
Representing the value of our contributions on behalf of
Mr. Davis under our medical, dental, accidental death and
disability and group term life insurance plans. |
|
(12) |
|
Amount consists of (i) $14,000, representing an automobile
allowance, (ii) $11,508, representing the value of our
contributions on behalf of Mr. Nydam under our medical,
dental, accidental death and disability, long-term disability
and group term life insurance plans, (iii) $51,194 in
accrued paid time off that we paid to Mr. Nydam in
connection with the termination of his employment, and
(iv) $56,228 in severance that we paid to Mr. Nydam in
accordance with the terms of his employment agreement. With
respect to the severance paid to Mr. Nydam, see below under
Termination of Mr. Nydams Employment. |
The following table provides information about equity and
non-equity awards granted to the Named Executive Officers in
2006.
GRANTS OF
PLAN-BASED AWARDS IN 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
Option Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards:
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Non-Equity
|
|
|
Estimated Possible Payouts Under Equity
|
|
|
Number of
|
|
|
Securities
|
|
|
Exercise or
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
Incentive Plan Awards
|
|
|
Incentive Plan Awards
|
|
|
Shares of Stock
|
|
|
Underlying
|
|
|
Base Price
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
|
|
|
Maximum
|
|
|
or Units
|
|
|
Options
|
|
|
of Option
|
|
|
of Stock and
|
|
Name
|
|
Grant
|
|
|
Approval
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
Target (#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
Awards ($/Sh)
|
|
|
Option Awards
|
|
(a)
|
|
Date
|
|
|
Date
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
(k)
|
|
|
(l)
|
|
|
Craig T. Davenport
|
|
|
2/23/2006
|
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
(3)
|
|
$
|
3.31
|
|
|
$
|
178,768
|
|
Craig T. Davenport
|
|
|
3/8/2006
|
|
|
|
3/8/2006
|
|
|
|
|
|
|
$
|
331,500
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig T. Davenport
|
|
|
6/23/2006
|
|
|
|
6/20/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
52,483.88
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115,467
|
|
Michael R. Rodriguez
|
|
|
2/23/2006
|
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
(3)
|
|
$
|
3.31
|
|
|
$
|
111,730
|
|
Michael R. Rodriguez
|
|
|
3/8/2006
|
|
|
|
3/8/2006
|
|
|
|
|
|
|
$
|
86,220
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Rodriguez
|
|
|
6/23/2006
|
|
|
|
6/20/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
9,616.98
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,555
|
|
Clint B. Davis
|
|
|
1/17/2006
|
|
|
|
1/9/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
(3)
|
|
$
|
3.30
|
|
|
$
|
554,250
|
|
Clint B. Davis
|
|
|
3/8/2006
|
|
|
|
3/8/2006
|
|
|
|
|
|
|
$
|
87,328
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clint B. Davis
|
|
|
6/23/2006
|
|
|
|
6/20/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,812.27
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
87,327
|
|
William J. Nydam
|
|
|
3/8/2006
|
|
|
|
3/8/2006
|
|
|
|
|
|
|
$
|
107,957
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William J. Nydam
|
|
|
2/23/2006
|
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
(3)
|
|
$
|
3.31
|
|
|
$
|
111,730
|
|
|
|
|
(1) |
|
Represents the cash amount that Mr. Davenport could have
earned under the 2006 MICP if he had achieved 100% of the
performance objectives under the 2006 MICP and had elected to
receive 100% of his 2006 MICP payout in the form of cash. The
actual cash amount that Mr. Davenport earned under the 2006
MICP is $80,803, in addition to the 19,337.50 DSUs that he
earned under the Employee DSU Program based on 2006 performance,
as described below in footnote (2). |
|
(2) |
|
Represents the total number of DSUs granted to
Mr. Davenport, which he could have earned under our 2006
Employee DSU Program if he had achieved 100% of the performance
objectives under the 2006 MICP. This number is based on
Mr. Davenports election to receive 35% of his
aggregate payout under our 2006 MICP in the form of DSUs. The
actual number of DSUs that Mr. Davenport earned is
19,337.50. |
|
(3) |
|
Represent stock options granted under our 2004 Stock Incentive
Plan. In accordance with the Companys standard vesting for
stock options granted under this plan, each of these options
vests as to 25% of the shares on the first anniversary of the
grant date and 1/48th of the shares at the end of each
monthly anniversary of the grant date thereafter. |
|
(4) |
|
Represents the cash amount that Mr. Rodriguez could have
earned under the 2006 MICP if he had achieved 100% of the
performance objectives under the 2006 MICP and had elected to
receive 100% of his 2006 MICP payout in the form of cash. The
actual cash amount that Mr. Rodriguez earned is $23,448, in
addition to the 3,473.72 DSUs that he earned under the Employee
DSU Program based on 2006 performance, as described below in
footnote (5). |
|
(5) |
|
Represents the total number of DSUs granted to
Mr. Rodriguez, which he could have earned under our 2006
Employee DSU Program if he had achieved 100% of his performance
objectives under the 2006 MICP. This number is based on
Mr. Rodriguezs election to receive 25% of his
aggregate payout under our 2006 MICP in the form of DSUs. The
actual number of DSUs that Mr. Rodriguez earned is 3,473.72. |
36
|
|
|
(6) |
|
Represents the cash amount that Mr. Davis could have earned
under the 2006 MICP if he had achieved 100% of the performance
objectives under the 2006 MICP and had elected to receive 100%
of his 2006 MICP payout in the form of cash. Mr. Davis did
not actually earn any cash under the 2006 MICP because he
elected to receive 100% of his 2006 MICP payout in the form of
DSUs, as described below in footnote (7). |
|
(7) |
|
Represents the total number of DSUs granted to Mr. Davis,
which he could have earned under our 2006 Employee DSU Program
if he had achieved 100% of his performance objectives under the
2006 MICP. This number is based on Mr. Davis election
to receive 100% of his aggregate payout under our 2006 MICP in
the form of DSUs. The actual number of DSUs that Mr. Davis
earned is 23,376.63. |
|
(8) |
|
Represents the cash amount that Mr. Nydam could have earned
under the 2006 MICP if he had achieved 100% of the performance
objectives under the 2006 MICP and had elected to receive 100%
of his 2006 MICP payout in the form of cash. As described above
in the Summary Compensation Table, Mr. Nydam did not
actually receive any payment under our 2006 MICP because his
employment was terminated effective October 2, 2006. |
For more information regarding compensation and grants of
plan-based awards in fiscal year 2006, please refer to the text
above in the Compensation Discussion & Analysis under
the headings Allocation Among Different Elements of
Compensation and Executive Compensation Decisions
relating to 2006.
OUTSTANDING
EQUITY AWARDS AT 2006 FISCAL YEAR-END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Market Value
|
|
|
Equity Incentive
|
|
|
Plan Awards: Market
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Number
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
of Shares
|
|
|
Plan Awards: Number
|
|
|
or Payout Value of
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
of Securities
|
|
|
|
|
|
|
|
|
Units of
|
|
|
or Units
|
|
|
of Unearned Shares,
|
|
|
Unearned Shares,
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Underlying
|
|
|
Option
|
|
|
|
|
|
Stock that
|
|
|
of Stock
|
|
|
Units or Other
|
|
|
Units or Other
|
|
|
|
Options
|
|
|
Options
|
|
|
Unexercised
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
That Have
|
|
|
Rights That Have
|
|
|
Rights That Have
|
|
|
|
(#)
|
|
|
(#)
|
|
|
Unearned
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Not Vested
|
|
|
Not Vested
|
|
|
Not Vested
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Options (#)
|
|
|
($)
|
|
|
Date
|
|
|
(#) (2)
|
|
|
($) (2)
|
|
|
(#)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
Craig T. Davenport
|
|
|
675,000
|
|
|
|
225,000
|
(1)
|
|
|
|
|
|
$
|
4.27
|
|
|
|
12/15/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig T. Davenport
|
|
|
|
|
|
|
|
|
|
|
100,000
|
(2)
|
|
$
|
4.27
|
|
|
|
12/15/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig T. Davenport
|
|
|
93,750
|
|
|
|
131,250
|
(3)
|
|
|
|
|
|
$
|
3.45
|
|
|
|
4/28/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig T. Davenport
|
|
|
|
|
|
|
80,000
|
(4)
|
|
|
|
|
|
$
|
3.31
|
|
|
|
2/23/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Rodriguez
|
|
|
160,417
|
|
|
|
114,583
|
(5)
|
|
|
|
|
|
$
|
2.15
|
|
|
|
8/18/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Rodriguez
|
|
|
|
|
|
|
50,000
|
(6)
|
|
|
|
|
|
$
|
3.31
|
|
|
|
2/23/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clint B. Davis
|
|
|
|
|
|
|
250,000
|
(7)
|
|
|
|
|
|
$
|
3.30
|
|
|
|
1/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William J. Nydam
|
|
|
468,750
|
|
|
|
31,250
|
(8)
|
|
|
|
|
|
$
|
2.25
|
|
|
|
1/2/2008
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These stock options vest ratably on a monthly basis based on
continued employment through December 15, 2007. |
|
(2) |
|
These stock options vest upon the first to occur of the
attainment of a performance objective relating to the
Companys profitability or December 15, 2008. |
|
(3) |
|
These stock options vest ratably on a monthly basis based on
continued employment through April 28, 2009. |
|
(4) |
|
These stock options vested as to 25% of the shares on
February 23, 2007 and vest ratably on a monthly basis
thereafter based on continued employment through
February 23, 2010. |
|
(5) |
|
These stock options vest ratably on a monthly basis based on
continued employment through August 18, 2008. |
|
(6) |
|
These stock options vested as to 25% of the shares on
February 23, 2007 and vest ratably on a monthly basis
thereafter based on continued employment through
February 23, 2010. |
|
(7) |
|
These stock options vested as to 25% of the shares on
January 17, 2007 and vest ratably on a monthly basis
thereafter based on continued employment through
January 17, 2010. |
37
|
|
|
(8) |
|
These stock options vest ratably on a monthly basis and will
become fully vested on March 3, 2007. |
|
(9) |
|
Mr. Nydams employment was terminated effective
October 2, 2006. The post-termination exercise period of
the stock options included in this table extends until
January 2, 2008. |
POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The following section provides additional information regarding
the severance and vesting acceleration provisions applicable to
our executive officers, which are described above in the
Compensation Discussion & Analysis under
Termination and
Change-in-Control
Provisions Applicable to Executive Officers.
Termination
and Change-in-Control Provisions Applicable to
Mr. Davenport
Under his employment agreement, as amended on April 28,
2005, if we terminate Mr. Davenports employment other
than for Cause or if Mr. Davenport terminates
his employment for Good Reason, 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 cash
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
12-month
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. Mr. Davenport is 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 the severance amounts otherwise
payable under the employment agreement. See above on
page 32 for the definitions of Cause and
Good Reason applicable to Mr. Davenport.
Under his employment agreement, Mr. Davenports right
to receive these post-termination benefits is contingent on his
signing a general release of claims against the Company and his
compliance with his ongoing obligations to the Company,
including:
|
|
|
|
|
Mr. Davenport is required to perform any and all acts
requested by the Company to ensure the orderly and efficient
transition of his duties;
|
|
|
|
for a period of one year after the date of the termination of
his employment, Mr. Davenport is prohibited (for himself or
for any third party) from diverting or attempting to divert from
the Company any business, employee, consultant, customer, vendor
or service provider, through solicitation or otherwise, or
otherwise interfering with the Companys business or the
Companys relationships with its employees, consultants,
customers, vendors and service providers; and
|
|
|
|
Mr. Davenport is required to comply with his obligations
under any other agreements with the Company, including his
agreement relating to protection of the Companys
confidential information.
|
Upon the commencement of his employment, Mr. Davenport
received options to purchase an aggregate of
1,000,000 shares of our common stock. These options were
granted outside of any equity compensation plan. The terms of
the option agreements include single-trigger vesting
acceleration in the case of a change in control.
Single-trigger vesting acceleration means that
vesting acceleration is triggered automatically by the
occurrence of a change in control of the Company (such as a
merger or acquisition involving a change in control).
Double-trigger vesting acceleration means that
vesting acceleration is triggered only if the employees
employment terminates in certain circumstances in connection
with or following a change in control of the Company.
On April 28, 2005, in connection with an amendment to his
employment agreement, Mr. Davenport was granted an
additional option to purchase 225,000 shares of our common
stock. This option was granted under the Companys 2004
Stock Incentive Plan. This option is subject to
single-trigger vesting acceleration.
On February 23, 2006, Mr. Davenport was granted an
additional option to purchase 80,000 shares of our common
stock. This option was granted under the Companys 2004
Stock Incentive Plan. This option is subject to
single-trigger vesting acceleration.
38
On February 23, 2007, Mr. Davenport was granted
800,000 RSUs. The RSUs were granted under the Companys
2004 Stock Incentive Plan. These RSUs are subject to
single-trigger vesting acceleration.
The table below reflects the estimated amounts of payments and
other benefits Mr. Davenport would be entitled to receive
upon termination or change in control in each situation assuming
that the event occurred on December 29, 2006 and based on
our closing stock price as of that date of $1.77. Actual
payments made under Mr. Davenports employment
agreement at any future date would likely vary, depending in
part on the market price of our common stock. The table does not
reflect any compensation adjustments or awards made in 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments and
|
|
|
|
|
|
|
|
|
|
Benefits Upon
|
|
|
|
|
|
|
|
|
|
Termination by the
|
|
|
|
|
|
|
|
|
|
Company Without
|
|
|
|
|
|
|
|
|
|
Cause or by the
|
|
|
|
|
|
Payments and
|
|
|
|
Employee with Good
|
|
|
Change in Control
|
|
|
Benefits for Change
|
|
|
|
Reason (Other Than
|
|
|
Payments and
|
|
|
in Control followed
|
|
|
|
in Connection with
|
|
|
Benefits
|
|
|
by Termination
|
|
|
|
Change in Control)
|
|
|
(Single-Trigger)(1)
|
|
|
(Double-Trigger)(1)
|
|
|
Severance
|
|
$
|
390,000
|
(2)
|
|
|
None
|
|
|
$
|
390,000
|
(2)
|
Bonus
|
|
$
|
331,500
|
(2)
|
|
|
None
|
|
|
$
|
331,500
|
(2)
|
Early vesting of stock options
|
|
|
None
|
(3)
|
|
|
None
|
(3)
|
|
|
None
|
(3)
|
Benefits
|
|
$
|
12,000
|
(4)
|
|
|
None
|
|
|
$
|
12,000
|
(4)
|
Other
|
|
|
None
|
|
|
|
None
|
|
|
$
|
28,500
|
(5)
|
Totals
|
|
$
|
733,500
|
|
|
|
None
|
|
|
$
|
762,000
|
|
|
|
|
(1) |
|
See above on pages 31 through 32 for a description of the
single-trigger and double-trigger
provisions to which Mr. Davenport is subject. |
|
(2) |
|
Under his employment agreement, Mr. Davenport may elect to
receive the severance and bonus amounts paid in one lump sum
within five business days of the applicable termination of his
employment. |
|
(3) |
|
On December 29, 2006, the closing price of the
Companys common stock ($1.77) was lower than the exercise
price of any of Mr. Davenports stock options. |
|
(4) |
|
Estimated costs of continuing to provide Mr. Davenport with
the benefits made generally available to our employees for one
year. |
|
(5) |
|
Under his employment agreement, Mr. Davenport is entitled
to receive a minimum of $750,000 in severance and bonus in the
case of a double-trigger change in control
situation. The $28,500 reflected in the table, when added to the
$390,000 severance amount and $331,500 bonus amount reflected in
the table, totals $750,000. |
Termination
and
Change-in-Control
Provisions Applicable to Mr. Rodriguez
Under his employment agreement, if we terminate
Mr. Rodriguezs employment other than for
Cause or if Mr. Rodriguez terminates his
employment for Good Reason, then, during the
12-month
period immediately following the date of
Mr. Rodriguezs termination, 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. See above on page 33 for the definitions
of Cause and Good Reason applicable to
Mr. Rodriguez.
Under his employment agreement, Mr. Rodriguezs right
to receive these post-termination benefits is contingent on his
signing a general release of claims against the Company and his
compliance with his ongoing obligations to the Company,
including:
|
|
|
|
|
Mr. Rodriguez is required to perform any and all acts
requested by the Company to ensure the orderly and efficient
transition of his duties;
|
|
|
|
for a period of two years after the date of the termination of
his employment, Mr. Rodriguez is prohibited (for himself or
for any third party) from diverting or attempting to divert from
the Company any business, employee, consultant, customer, vendor
or service provider, through solicitation or
|
39
|
|
|
|
|
otherwise, or otherwise interfering with the Companys
business or the Companys relationships with its employees,
consultants, customers, vendors and service providers; and
|
|
|
|
|
|
Mr. Rodriguez is required to comply with his obligations
under any other agreements with the Company, including his
agreement relating to protection of the Companys
confidential information.
|
As described above on page 30, in December 2006 we entered
into retention agreements with several members of senior
management. Under his retention agreement, Mr. Rodriguez is
entitled to receive $100,000 if a change in control of the
Company occurs prior to the applicable retention date and in
connection with or following such change in control there occurs
prior to the retention date either a termination of
Mr. Rodriguezs employment by the Company without
cause or by the employee for good reason.
Upon the commencement of his employment, Mr. Rodriguez
received options to purchase an aggregate of 275,000 shares
of our common stock. These options were granted under the
Companys 1995 Stock Plan. As described above, the default
provision under the 1995 Stock Plan is
single-trigger vesting acceleration. The option
agreement governing this option grant incorporates the
single-trigger default provision under the 1995
Stock Plan.
On February 23, 2006, Mr. Rodriguez was granted an
additional option to purchase 50,000 shares of our common
stock. This option was granted under the Companys 2004
Stock Incentive Plan. This option is subject to
single-trigger vesting acceleration.
On February 23, 2007, Mr. Rodriguez was granted
150,000 RSUs. The RSUs were granted under the Companys
2004 Stock Incentive Plan and use the standard
double-trigger vesting acceleration under the 2004
Stock Incentive Plan.
The table below reflects the estimated amounts of payments and
other benefits Mr. Rodriguez would be entitled to receive
upon termination or change in control in each situation assuming
that the event occurred on December 29, 2006 and based on
our closing stock price as of that date of $1.77. Actual
payments made under Mr. Rodriguezs employment
agreement at any future date would likely vary, depending in
part on the market price of our common stock. The table does not
reflect any compensation adjustments or awards made in 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments and
|
|
|
|
|
|
|
|
|
|
Benefits Upon
|
|
|
|
|
|
|
|
|
|
Termination by the
|
|
|
|
|
|
|
|
|
|
Company Without
|
|
|
|
|
|
|
|
|
|
Cause or by the
|
|
|
|
|
|
Payments and
|
|
|
|
Employee with Good
|
|
|
Change in Control
|
|
|
Benefits for Change
|
|
|
|
Reason (Other Than
|
|
|
Payments and
|
|
|
in Control Followed
|
|
|
|
in Connection with
|
|
|
Benefits
|
|
|
by Termination
|
|
|
|
Change in Control)
|
|
|
(Single-Trigger)(1)
|
|
|
(Double-Trigger)(1)
|
|
|
Severance
|
|
$
|
216,140
|
(2)
|
|
|
None
|
|
|
$
|
216,140
|
(2)
|
Bonus
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Early vesting of stock options
|
|
|
None
|
(3)
|
|
|
None
|
(3)
|
|
|
None
|
(3)
|
Benefits
|
|
$
|
12,000
|
(4)
|
|
|
None
|
|
|
$
|
12,000
|
(4)
|
Retention agreement payment
|
|
|
None
|
|
|
|
None
|
|
|
$
|
100,000
|
(5)
|
Totals
|
|
$
|
228,140
|
|
|
|
None
|
|
|
$
|
328,140
|
|
|
|
|
(1) |
|
See above on pages 32 through 33 for a description of the
single-trigger and double-trigger
provisions to which Mr. Rodriguez is subject. |
|
(2) |
|
The severance is paid in the form of salary continuation during
the 12 months following termination. |
|
(3) |
|
On December 29, 2006, the closing price of the
Companys common stock ($1.77) was lower than the exercise
price of any of Mr. Rodriguezs stock options. |
|
(4) |
|
Estimated costs of continuing to provide Mr. Rodriguez with
the benefits generally made available to our employees for one
year. |
40
|
|
|
(5) |
|
See above on page 30 for a description of the retention
agreement between the Company and Mr. Rodriguez. |
Termination
and
Change-in-Control
Provisions Applicable to Mr. Davis
Mr. Davis employment agreement contains severance
provisions (including definitions of Cause and
Good Reason) that mirror those contained in
Mr. Rodriguezs employment agreement, as described
above.
Under his employment agreement, Mr. Daviss right to
receive post-termination benefits is contingent on his signing a
general release of claims against the Company and his ongoing
obligations to the Company, including:
|
|
|
|
|
Mr. Davis is required to perform any and all acts requested
by the Company to ensure the orderly and efficient transition of
his duties;
|
|
|
|
for a period of two years after the date of the termination of
his employment, Mr. Davis is prohibited (for himself or for
any third party) from diverting or attempting to divert from the
Company any business, employee, consultant, customer, vendor or
service provider, through solicitation or otherwise, or
otherwise interfering with the Companys business or the
Companys relationships with its employees, consultants,
customers, vendors and service providers; and
|
|
|
|
Mr. Davis is required to comply with his obligations under
any other agreements with the Company, including his agreement
relating to protection of the Companys confidential
information.
|
As described above on page 30, in December 2006 we entered
into retention agreements with several members of senior
management. Under his retention agreement, Mr. Davis is
entitled to receive $100,000 if a change in control of the
Company occurs prior to the applicable retention date and in
connection with or following such change in control there occurs
prior to the retention date either a termination of
Mr. Davis employment by the Company without cause or
by the employee for good reason.
Upon the commencement of his employment, Mr. Davis received
options to purchase an aggregate of 250,000 shares of our
common stock. These options were granted under the
Companys 2004 Stock Incentive Plan. This option is subject
to single-trigger vesting acceleration.
On February 23, 2007, Mr. Davis was granted 120,000
RSUs. The RSUs were granted under the Companys 2004 Stock
Incentive Plan and use the standard double-trigger
vesting acceleration under the 2004 Stock Incentive Plan.
The table below reflects the estimated amounts of payments and
other benefits Mr. Davis would be entitled to receive upon
termination or change in control in each situation assuming that
the event occurred on December 29, 2006 and based on our
closing stock price as of that date of $1.77. Actual payments
made under Mr. Daviss employment agreement at any
future date would likely vary, depending in part on the market
price of our common stock. The table does not reflect any
compensation adjustments or awards made in 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments and
|
|
|
|
|
|
|
|
|
|
Benefits Upon
|
|
|
|
|
|
|
|
|
|
Termination by the
|
|
|
|
|
|
|
|
|
|
Company without
|
|
|
|
|
|
|
|
|
|
Cause or by the
|
|
|
|
|
|
Payments and
|
|
|
|
Employee with Good
|
|
|
Change in Control
|
|
|
Benefits for Change
|
|
|
|
Reason (Other Than
|
|
|
Payments and
|
|
|
in Control Followed
|
|
|
|
in Connection with
|
|
|
Benefits
|
|
|
by Termination
|
|
|
|
Change in Control)
|
|
|
(Single-Trigger)(1)
|
|
|
(Double-Trigger)(1)
|
|
|
Severance
|
|
$
|
238,000
|
(2)
|
|
|
None
|
|
|
$
|
238,000
|
(2)
|
Bonus
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Early vesting of stock options
|
|
|
None
|
(3)
|
|
|
None
|
(3)
|
|
|
None
|
(3)
|
Benefits
|
|
$
|
5,000
|
(4)
|
|
|
None
|
|
|
$
|
5,000
|
(4)
|
Retention agreement payment
|
|
|
None
|
|
|
|
None
|
|
|
$
|
100,000
|
(5)
|
Totals
|
|
$
|
243,000
|
|
|
|
None
|
|
|
$
|
343,000
|
|
41
|
|
|
(1) |
|
See above on pages 33 through 34 for a description of the
single-trigger and double-trigger
provisions to which Mr. Davis is subject. |
|
(2) |
|
The severance is paid in the form of salary continuation during
the 12 months following termination. |
|
(3) |
|
On December 29, 2006, the closing price of the
Companys common stock ($1.77) was lower than the exercise
price of any of Mr. Davis stock options. |
|
(4) |
|
Estimated costs of continuing to provide Mr. Davis with the
benefits generally made available to our employees for one year. |
|
(5) |
|
See above on page 30 for a description of the retention
agreement between the Company and Mr. Davis. |
Termination
of Mr. Nydams Employment
Mr. Nydams employment was terminated effective
October 2, 2006. Pursuant to his employment agreement,
Mr. Nydam was entitled to receive, during the
12-month
period immediately following the effective date of the
termination of the employment agreement:
|
|
|
|
|
his base salary (total of $269,893);
|
|
|
|
the benefits made generally available by us to our employees
(estimated cost to the Company of approximately
$12,000); and
|
|
|
|
Mr. Nydams options to purchase 500,000 shares of
our common stock will continue to vest during such
12-month
period.
|
The exercise price of the options that continue to vest is
$2.25 per share. The closing price of our common stock on
December 29, 2006 (the last business day in 2006) was
$1.77. Therefore, the options were
out-of-the-money
on that date.
Under his employment agreement, Mr. Nydams right to
receive these post-termination benefits was contingent on his
signing a general release of claims against the Company and
remains contingent on his compliance with his ongoing
obligations to the Company, including:
|
|
|
|
|
Mr. Nydam is required to perform any and all acts requested
by the Company to ensure the orderly and efficient transition of
his duties;
|
|
|
|
for a period of two years after the date of the termination of
his employment, Mr. Nydam is prohibited (for himself or for
any third party) from diverting or attempting to divert from the
Company any business, employee, consultant, customer, vendor or
service provider, through solicitation or otherwise, or
otherwise interfering with the Companys business or the
Companys relationships with its employees, consultants,
customers, vendors and service providers; and
|
|
|
|
Mr. Nydam is required to comply with his obligations under
any other agreements with the Company, including his agreement
relating to protection of the Companys confidential
information.
|
42
DIRECTOR
COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
or Paid
|
|
|
Stock
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
Deferred
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
in Cash
|
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
|
|
|
Name
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Earnings
|
|
|
($)
|
|
|
($)
|
|
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
|
|
|
John R. Daniels, M.D.
|
|
$
|
21,000
|
|
|
$
|
25,770
|
(2)
|
|
$
|
42,215
|
(3)
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
88,985
|
|
|
|
|
|
Craig T. Davenport(1)
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
|
|
David L. Goldsmith
|
|
$
|
21,750
|
|
|
$
|
28,962
|
(2)
|
|
$
|
78,577
|
(3)
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
129,289
|
|
|
|
|
|
Eric S. Kentor
|
|
$
|
24,750
|
|
|
$
|
30,895
|
(2)
|
|
$
|
72,877
|
(3)
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
128,522
|
|
|
|
|
|
Terrence A. Noonan
|
|
$
|
33,500
|
|
|
$
|
37,939
|
(2)
|
|
$
|
40,708
|
(3)
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
112,147
|
|
|
|
|
|
Thomas R. Testman
|
|
$
|
26,000
|
|
|
$
|
28,231
|
(2)
|
|
$
|
40,708
|
(3)
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
94,939
|
|
|
|
|
|
Michael J. Strauss, M.D.(4)
|
|
$
|
21,000
|
|
|
|
None
|
|
|
$
|
40,708
|
(3)
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
61,708
|
|
|
|
|
|
|
|
|
(1) |
|
Mr. Davenport, our CEO, President and Chairman, receives no
separate compensation for serving as a director. |
|
(2) |
|
Represents the aggregate expense under SFAS No. 123R
recognized by the Company for 2006 with respect to DSUs held by
the applicable director. For a description of the assumptions
made in the SFAS No. 123R valuation, see Note 3
to the financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2006, which we filed with
the SEC on March 16, 2007. The SFAS No. 123R
grant date fair value of the DSUs granted to each non-employee
director for 2006 was: Dr. Daniels, $13,750 for the DSUs
granted on October 6, 2006 and $12,750 for the DSUs granted
on January 9, 2007 (this grant related to the fourth
quarter of 2006); Mr. Goldsmith, $14,875 for the DSUs
granted on October 6, 2006 and $14,875 for the DSUs granted
on January 9, 2007 (this grant related to the fourth
quarter of 2006); Mr. Kentor, $16,125 for the DSUs granted
on October 6, 2006 and $15,625 for the DSUs granted on
January 9, 2007 (this grant related to the fourth quarter
of 2006); Mr. Noonan, $20,000 for the DSUs granted on
October 6, 2006 and $19,000 for the DSUs granted on
January 9, 2007 (this grant related to the fourth quarter
of 2006); and Mr. Testman, $14,500 for the DSUs granted on
October 6, 2006 and $14,500 for the DSUs granted on
January 9, 2007 (this grant related to the fourth quarter
of 2006). |
|
(3) |
|
Represents the aggregate expense under SFAS No. 123R
recognized by the Company for 2006 with respect to options held
by the applicable director, disregarding estimated forfeitures.
For a description of the assumptions made in the
SFAS No. 123R valuation, see Note 3 to the
financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2006, which we filed with
the SEC on March 16, 2007. The SFAS No. 123R
grant date fair value of the stock options granted to each
non-employee director in 2006 was $40,846. Each of the option
grants was made on January 10, 2006 pursuant to our 2004
Non-Employee Director Option Program under our 2004 Stock
Incentive Plan. |
|
(4) |
|
Dr. Strauss ceased to serve as a director on May 18,
2006. |
Retainers
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. For the quarters ended September 30,
43
2006 and December 31, 2006 and the entire year ending
December 31, 2007, all of our non-employee directors have
elected to receive 100% of their retainers in the form of
deferred stock units (DSUs) rather than cash, pursuant to our
Non-Employee Director DSU Program described below.
Meeting
Fees
Each non-employee director also receives $1,000 for each in
person meeting of our board of directors or any committee
thereof that he attends and an additional payment of $500 for
each telephonic meeting of our 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. For the quarters ended
September 30, 2006 and December 31, 2006 and the
entire year ending December 31, 2007, all of our
non-employee directors have elected to receive 100% of their
meeting fees in the form of DSUs rather than cash, pursuant to
our Non-Employee Director DSU Program described below.
Non-Employee
Director DSU Program
On May 18, 2006, our Board of Directors adopted a
Non-Employee Director DSU Program. The purposes of the Program
are to: (i) enable us to conserve cash that otherwise would
be used to pay retainers and meeting fees to our non-employee
directors; and (ii) enable non-employee directors to obtain
equity on a tax-deferred basis. In addition, the Non-Employee
Director DSU Program further aligns participants interests
with those of our stockholders.
Elections to participate in the Program are made on an annual
basis. A participating director receives a percentage (minimum
of 25% and maximum of 100%) of the directors retainers and
meeting fees for the relevant year in the form of DSUs.
Participating directors will select the percentage at the time
of electing to participate in the Program for the relevant year.
For 2006, the election deadline was June 17, 2006.
Elections made for 2006 applied to retainers and meeting fees
earned in the final two quarters of 2006. The election deadline
applicable to future years is December 31 of the
immediately preceding year.
Each DSU represents the right to receive one share of our common
stock in the future on the DSU payout date, as
described below.
On the fifth trading day of each calendar quarter, each
participating director will be granted fully vested DSUs equal
in value to the amount of retainers and meeting fees earned for
the immediately preceding quarter, based on the closing stock
price on the date of grant.
Ultimately, each directors DSUs will be paid
out to the director through the issuance to the director
of a corresponding number of shares of our common stock. At the
time of making an annual election to participate in the Program,
the director selects as the payout date one of the
following three options: (i) a predetermined date at least
two years after the applicable election deadline (the date would
be specified by the director in the directors election
form); (ii) the termination of the directors service;
or (iii) the earlier of (i) or (ii); provided,
however, that if the termination of the directors service
occurs earlier than two years after the applicable election
deadline, then any issuance of shares that would otherwise be
triggered by such termination will be deferred until the date
that is two years after the applicable election deadline. In any
event, the payout date would be accelerated in the
case of a change of control of the company or the
directors death. The director may elect to have a portion
(up to 50%) of his DSUs settled in cash (rather than stock) to
enable the director to pay taxes resulting from the share
issuance.
For the quarters ended September 30, 2006 and
December 31, 2006 and the entire year ending
December 31, 2007, all of our non-employee directors have
elected to receive 100% of their retainers and meeting fees in
the form of DSUs rather than cash.
A copy of the Non-Employee Director DSU Program is attached as
Exhibit 10.2 to the Current Report on
Form 8-K
that we filed with the SEC on May 22, 2006.
44
Expense
Reimbursement
Directors are reimbursed for reasonable expenses incurred in
connection with serving as directors.
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 Annual Meeting of the
Stockholders held 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. 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 is attached as Exhibit 10.34 to
the annual report on
Form 10-K
that we filed with the SEC on March 16, 2005.
EQUITY
COMPENSATION PLAN INFORMATION
The following table provides information as of December 31,
2006 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, 2006, and the weighted average
exercise price of those options. No additional options may be
granted under those assumed plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
4,264,337
|
(1)
|
|
$
|
4.03
|
|
|
|
1,133,704
|
(4)
|
Equity Compensation Plans not
Approved by Security Holders
|
|
|
1,792,765
|
(2)
|
|
$
|
4.27
|
(3)
|
|
|
295,000
|
(5)
|
Total
|
|
|
6,057,102
|
|
|
$
|
4.10
|
(3)
|
|
|
1,428,704
|
|
|
|
|
(1) |
|
Consists of 1,494,504 shares to be issued upon the exercise
of options outstanding under the 1995 Stock Plan,
65,000 shares to be issued upon the exercise of options
outstanding under the 1995 Director Option Plan and
2,701,833 shares to be issued upon the exercise of options
outstanding under the 2004 Stock Incentive Plan. |
|
(2) |
|
Consists of 140,000 shares to be issued upon the exercise
of options outstanding under the 2002 Supplemental Stock Plan,
options to purchase 1,000,000 shares granted to
Mr. Davenport in December 2003, options to purchase
500,000 shares granted to Mr. Nydam in March 2003, an
aggregate of 112,739.52 (rounded to 112,740) deferred stock
units held by employees under our Employee Deferred Stock Unit
Program and an aggregate of 40,025.25 (rounded to 40,025)
deferred stock units held by non-employee directors under our
Non-Employee Director Deferred Stock Unit Program. |
|
(3) |
|
The deferred stock units referred to above in footnote
(2) are disregarded for purposes of calculating the
weighted average exercise price of outstanding options. |
45
|
|
|
(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 as of December 31, 2006. Our Board
of Directors terminated the 2002 Supplemental Stock Plan on
February 22, 2007. As a result, no additional options may
be granted under the 2002 Supplemental Stock Plan. |
The above 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, 2006, a total of
4,861 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 common
stock that could 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. 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 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. Our Board of Directors terminated the 2002
Supplemental Stock Plan on February 22, 2007. As a result,
no additional options may be granted under the 2002 Supplemental
Stock Plan, but options outstanding on the date of termination
of the 2002 Supplemental Stock Plan remain outstanding in
accordance with their terms.
Options
Granted to Messrs. Davenport and Nydam
The options that we granted in 2003 to Messrs. Davenport
and Nydam are described above under the Compensation
Discussion & Analysis.
Deferred
Stock Unit Programs
The Employee Deferred Stock Unit Program and the Non-Employee
Director Deferred Stock Unit Program are described above under
the Compensation Discussion & Analysis and under the
section entitled Director Compensation, respectively.
46
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
2006.
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,
2006 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, 2006, for filing
with the Securities and Exchange Commission.
AUDIT COMMITTEE
Thomas R. Testman, Chairman
David L. Goldsmith
Terrence A. Noonan
47
RELATED
PARTY TRANSACTIONS
We have no related party transactions to report.
We have adopted written related party transaction policies and
procedures. Under these policies and procedures, our Audit
Committee reviews the material facts of each interested
transaction that requires the Audit Committees
approval and either approves or disapproves of the entry into
the interested transaction.
Our policies and procedures define an interested
transaction as any transaction, arrangement or
relationship or series of similar transactions, arrangements or
relationships in which
|
|
|
|
|
the aggregate amount involved will or may be expected to exceed
$100,000 in any calendar year;
|
|
|
|
the Company is a participant; and
|
|
|
|
any related party (including an executive officer, director or
nominee for election as a director of the Company, a greater
than five percent beneficial owner of the Company or an
immediate family member of any of the foregoing) has or will
have a direct or indirect interest, other than solely as a
result of being a director or less than 10 percent
beneficial owner of another entity.
|
In determining whether to approve or ratify an interested
transaction our Audit Committee is required to take into
account, among other factors as it deems appropriate, whether
the interested transaction is on terms no less favorable than
terms generally available to an unaffiliated third party under
the same or similar circumstances and the extent of the related
partys interest in the transaction.
Under our policies and procedures, no director is permitted to
participate in any deliberation or approval of an interested
transaction for which he or she is a related party, except that
the director shall provide all material information concerning
the interested transaction to the Audit Committee and may
address questions from the Audit Committee.
Several types of interested transactions are considered
pre-approved under our policies and procedures,
including transactions that the SEC has determined are not
disclosable as related party transactions under Item 404(a)
of
Regulation S-K
(such as executive and director compensation).
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, 2006 through December 31, 2006,
all Section 16(a) filing requirements applicable to our
executive officers, directors and greater than 10% beneficial
owners were met in a timely manner, except for the Form 4
that was filed on February 28, 2006 (one day late) by
William J. Nydam, our former President and Chief Operating
Officer.
STOCKHOLDER
PROPOSALS FOR THE 2008 ANNUAL MEETING
Stockholder proposals that are intended to be presented at our
2008 Annual Meeting must be received no later than
December 12, 2007, 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 2008 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 February 25, 2008.
48
ANNUAL
REPORT
A copy of our Annual Report for the 2006 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,
2007. 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.
By Order of the Board of Directors
Clint B. Davis
Senior Vice President, Legal Affairs,
General Counsel and Secretary
Irvine, California
April 10, 2007
49
APPENDIX A
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:
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 ,
200 .
Michael R. Rodriguez
Senior Vice President, Finance
and Chief Financial Officer
|
|
|
* |
|
By approving this amendment, stockholders will approve the
combination of any 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, as well as any
fraction within the range of two to 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. |
A-1
APPENDIX B
COMPANIES
INCLUDED IN AON PEER GROUP
1. Abaxis Inc.
2. Abiomed Inc.
3. Adeza Biomedical Corp.
4. Advanced Neuromodulation Systems
Inc.
5. Allied Healthcare Products Inc.
6. Alphatec Holdings Inc.
7. Angiodynamics Inc.
8. Animas Corp.
9. Aspect Medical Systems Inc.
10. Atricure Inc.
11. ATS Medical Inc.
12. Bio-Logic Systems Corp.
13. Biolase Technology Inc.
14. Candela Corp.
15. Cantel Medical Corp.
16. Cardiac Science Corp.
17. Cardiac Science Inc.
18. Cardiodynamics International Corp.
19. Cas Medical Systems Inc.
20. Cholestech Corp.
21. Clinical Data Inc.
22. Compex Technologies Inc.
23. Criticare Systems Inc.
24. Cutera Inc.
25. Cyberonics Inc.
26. Del Global Technologies Corp.
27. Digirad Corp.
28. E-Z-Em
Inc.
29. Endocardial Solutions Inc.
30. Enpath Medical Inc.
31. Escalon Medical Corp.
32. Exactech Inc.
33. Fischer Imaging Corp.
34. Fonar Corp.
35. Foxhollow Technologies Inc.
36. I-Flow Corp.
37. Intralase Corp.
38. Iridex Corp.
39. Iris International Inc.
40. Kensey Nash Corp.
B-1
41. Kewaunee Scientific Corp.
42. Langer Inc.
43. Laserscope
44. Meridian Bioscience Inc.
45. Micro Therapeutics Inc.
46. Micrus Endovascular Corp.
47. Mts Medication Technologies
48. Natus Medical Inc.
49. Neurometrix Inc.
50. North American Scientific
51. Nuvasive Inc.
52. Orthovita Inc.
53. Osteotech Inc.
54. Palomar Med Technologies Inc.
55. Photomedex Inc.
56. Possis Medical Inc.
57. Quidel Corp.
58. Rita Medical Systems Inc.
59. Rockwell Medical Technologies
60. Schick Technologies Inc.
61. Sonic Innovations Inc.
62. Sonosite Inc.
63. Spectranetics Corp.
64. Surmodics Inc.
65. Synovis Life Tech Inc.
66. Theragenics Corp.
67. Tutogen Medical Inc.
68. Urologix Inc.
69. Visx Inc.
70. Vital Signs Inc.
71. Vnus Medical Technologies Inc.
72. Young Innovations Inc.
73. Zevex International Inc.
B-2
PROXY ENDOCARE, INC. PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS, MAY 10, 2007 THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Craig T. Davenport
and Clint B. Davis, 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 10, 2007, 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 10, 2007 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) |
? PLEASE DETACH PROXY CARD HERE AND RETURN IT IN THE ENVELOPE PROVIDED ? 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. 1. To elect six
(6) directors to the Board of Directors of FOR all nominees WITHHOLD AUTHORITY to vote for all
EXCEPTIONS the Company to serve until the 2008 Annual Meeting listed below nominees listed below of
Stockholders or until their successors are duly elected and qualified. 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.)
EXCEPTIONS ___2. To authorize the Board of Directors, in its discretion,
to amend the Companys Restated 4. In accordance with the discretion of the Proxyholders, to act
upon all Certificate of Incorporation to effectuate a reverse stock split of our common stock, at
an matters incident to the conduct of the Annual Meeting and upon any exchange ratio ranging from
one-to-two to one-to-five, including any fraction within that other matters as may properly come
before the Annual Meeting. range, at any time before May 10, 2009. FOR AGAINST ABSTAIN 3. To ratify
the selection of Ernst & Young LLP as the Companys independent auditor for the fiscal year ending
December 31, 2007. FOR AGAINST ABSTAIN Dated: ___, 2007 ___
Signature Before Returning it in the Enclosed Envelope You Must Detach This Portion of the Proxy
Card Please Detach Here ___Signature ? ___Title(s)
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. |