<PAGE> 1
SCHEDULE 14A
(Rule 14a - 101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 240.14a-11(c) or Rule 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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
ENDOCARE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 1999
TO THE STOCKHOLDERS OF ENDOCARE, INC.:
The 1999 Annual Meeting of Stockholders (the "1999 Annual Meeting") of
Endocare, Inc. (the "Company" or "Endocare") will be held at 11:00 a.m., Pacific
Time, on Tuesday, June 15, 1999 at 7 Studebaker, Irvine, California 92618, for
the following purposes:
1. To elect six Directors of the Company to serve during the
ensuing year and until their successors are elected and
qualified.
2. To ratify the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending December 31,
1999.
3. To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only the stockholders of record at the close
of business on April 27, 1999 will be entitled to notice of and to vote at the
1999 Annual Meeting or any adjournment or postponement thereof.
A copy of the Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1998 is being mailed with this Notice but is not to be
considered part of the proxy soliciting material.
By Order of the Board of Directors
/s/ Paul W. Mikus
PAUL W. MIKUS
Chairman, President and Chief Executive Officer
April 30, 1999
Irvine, California
YOU ARE URGED TO VOTE UPON THE MATTERS PRESENTED AND TO SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IT IS IMPORTANT FOR
YOU TO BE REPRESENTED AT THE MEETING. PROXIES ARE REVOCABLE AT ANY TIME AND THE
EXECUTION OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE
PRESENT AT THE MEETING.
REQUESTS FOR ADDITIONAL COPIES OF PROXY MATERIALS SHOULD BE ADDRESSED
TO WILLIAM R. HUGHES, CORPORATE SECRETARY, AT THE OFFICES OF THE COMPANY, 7
STUDEBAKER, IRVINE, CALIFORNIA 92618.
<PAGE> 3
ENDOCARE, INC.
-------
PROXY STATEMENT
-------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors (the "Board") of Endocare, Inc., a Delaware
corporation (the "Company"), for use at the 1999 Annual Meeting of Stockholders
(the "1999 Annual Meeting") to be held on Tuesday, June 15, 1999 at 11:00 a.m.,
Pacific Time, at 7 Studebaker, Irvine, California 92618, and any adjournment or
postponement thereof. This Proxy Statement and the form of proxy to be utilized
at the 1999 Annual Meeting were mailed or delivered to the stockholders of the
Company on or about May 10, 1999.
RECORD DATE AND VOTING
The Board has fixed the close of business on April 27, 1999 as the
record date (the "Record Date") for the determination of stockholders entitled
to vote at the 1999 Annual Meeting and any adjournment or postponement thereof.
As of the Record Date, there were outstanding 10,477,290 shares of the Company's
common stock (the "Common Stock").
QUORUM AND VOTING REQUIREMENTS
The holders of record of a majority of the outstanding shares of Common
Stock will constitute a quorum for the transaction of business at the 1999
Annual Meeting. As to all matters, each stockholder is entitled to one vote for
each share of Common Stock held. Abstentions and broker non-votes are counted
for purposes of determining the presence or absence of a quorum for the
transaction of business. The Director nominees who receive the greatest number
of votes at the 1999 Annual Meeting will be elected to the Board of the Company.
Stockholders are not entitled to cumulate votes. Votes against a candidate and
votes withheld have no legal effect. In matters other than the election of
Directors, abstentions are counted as negative votes in tabulations of the votes
cast on proposals presented to stockholders, whereas broker non-votes are not
counted for purposes of determining whether a proposal has been approved.
VOTING ELECTRONICALLY VIA THE INTERNET OR TELEPHONE
If your shares are registered in the name of a bank or brokerage firm,
you may be eligible to vote your shares electronically over the Internet or by
telephone. A large number of banks and brokerage firms are participating in the
ADP Investor Communication Services online program. This program provides
eligible stockholders who receive a paper copy of the Annual Report and Proxy
Statement the opportunity to vote via the Internet or by telephone. If your bank
or brokerage firm is participating in ADP's program, your voting form will
provide instructions. If your voting form does not reference Internet or
telephone information, please complete and return the paper Proxy in the
self-addressed postage paid envelope provided.
<PAGE> 4
PROXIES
If the enclosed form of proxy is properly signed and returned, the
shares represented thereby will be voted at the Annual Meeting in accordance
with the instructions specified thereon. If the proxy does not specify how the
shares represented thereby are to be voted, the proxy will be voted FOR the
election of the director proposed 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 Proposal 2 described in the
accompanying Notice and Proxy Statement. You may revoke or change your Proxy at
any time before the Annual Meeting by filing with the Secretary of the Company
at the Company's principal executive offices 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.
PROPOSAL 1 - ELECTION OF DIRECTORS
Six Directors are to be elected at the 1999 Annual Meeting to serve
until the next Annual Meeting of Stockholders and until their respective
successors have been elected and qualified. In the absence of instructions to
the contrary, proxies covering shares of Common Stock will be voted in favor of
the election of the persons listed below. In the event that any nominee for
election as Director should become unavailable to serve, it is intended that
votes will be cast, pursuant to the enclosed proxy, for such substitute nominee
as may be nominated by the Board. Management has no present knowledge that any
of the persons named will be unavailable to serve.
No arrangement or understanding exists between any nominee and any
other person or persons pursuant to which any nominee was or is to be selected
as a Director or nominee. None of the nominees has any family relationship to
any other nominee or to any executive officer of the Company.
INFORMATION CONCERNING INCUMBENT DIRECTORS AND NOMINEES TO BOARD OF DIRECTORS
Information is set forth below concerning the incumbent Directors, all
of whom are also nominees for election as Directors, and the year in which each
incumbent Director was first elected as a Director of the Company. Each nominee
has furnished the information as to his or her beneficial ownership of Common
Stock as of March 31, 1999 and, if not employed by the Company, the nominee's
principal occupation. Each nominee has consented to being named in this Proxy
Statement as a nominee for Director and has agreed to serve as a Director if
elected. Ages are shown as of March 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE
---- --- ------------------------- --------------
<S> <C> <C> <C>
Paul W. Mikus 33 President, Chief Executive Officer, 1995
Chairman of the Board of Directors
Peter F. Bernardoni+* 39 Director 1995
Robert F. Byrnes+* 54 Director 1997
Benjamin Gerson, M.D.+* 51 Director 1997
Alan L. Kaganov, Sc.D. 60 Director 1999
Michael J. Strauss, M.D. 45 Director 1999
</TABLE>
- -------------------
* Member of the Compensation Committee.
+ Member of the Audit Committee.
Paul W. Mikus has served as Chief Executive Officer, Chairman and
Director since November, 1995. Prior to that time, he was President of Endocare
as a division of Medstone from June, 1995. Prior to becoming President of
Endocare, he managed worldwide sales and marketing for Prosurg, Inc. From July,
1989 to September, 1994, he worked for Medstone as Manager of Engineering where
he was a co-founder of Endocare. Mr. Mikus holds a BS degree in Electrical
Engineering.
2
<PAGE> 5
Peter F. Bernardoni has served as a Director since November, 1995. Mr.
Bernardoni has been a Vice President of Technology Funding Inc. since 1991 and a
partner in Technology Funding Ltd. since 1994. He serves on the Board of
Directors of Urogen Corporation, PEP, Avalon Imaging, Inc., Reflection
Technology and NAIAD. He has an MS in Mechanical Engineering from Stanford
University.
Robert F. Byrnes joined Endocare's Board of Directors in August, 1997.
Previously Mr. Byrnes served in a number of top-level management positions in
the health care industry including Chairman and Chief Executive Officer of Tokos
Medical and President and Chief Executive Officer of Matria Healthcare, Inc. Mr.
Byrnes has a Business Science degree in Pharmacy from Ferris State University
and a Masters of Business Administration from Loyola University. He serves on
the Board of Directors of Tandem Medical, Advolife, PDA and Biomens.
Benjamin Gerson, M.D. joined Endocare's Board of Directors in August,
1997. Dr. Gerson is a Professor of Pathology and Laboratory Medicine and
Professor of Pharmacology and Experimental Therapeutics at Boston University
School of Medicine. Dr. Gerson was previously a panel member of the U.S. Food
and Drug Administration (FDA) and had served as Chairman of the Clinical
Chemistry and Clinical Toxicology Devices Panel, Center for Devices and
Radiological Health. He obtained his M.D. from Thomas Jefferson University.
Alan L. Kaganov, Sc.D. was appointed Director in January, 1999. Dr.
Kaganov has been a venture partner at U.S. Venture Partners since July, 1996.
Dr. Kaganov previously led Business Development and Strategic Planning at Boston
Scientific Corporation from 1993 to 1996. Prior to his role at BSC, he served as
President and CEO of EP Technologies and Vice President of Technology and
Business Development at Baxter International. Dr. Kaganov holds an Sc.D.
(Doctorate of Science) in Biomedical Engineering from Columbia University and a
Masters of Business Administration degree from New York University. Dr. Kaganov
also serves on the Board of Directors of Eclipse Surgical Technologies, Inc.
Michael J. Strauss, M.D., M.P.H. was appointed Director in February,
1999. He is co-founder and Executive Vice President of Covance Health Economics
and Outcomes Services, Inc. since 1988. Prior to that time, Dr. Strauss served
as Senior Associate and Principal of Lewin and Associates. He obtained his M.D.
at Duke University Medical School and an M.P.H. from University of Washington
School of Public Health. Dr. Strauss also serves on the Board of Directors of
Cyberonics, Inc.
BOARD COMMITTEES
The Board of Directors established the Audit Committee to: (i) make
recommendations concerning the engagement of independent public accountants;
(ii) review with the independent public accountants the plans for, and scope of,
the audit procedures to be utilized and results of the audit; (iii) approve the
professional services provided by the independent public accountants; (iv)
review the independence of the independent public accountants; and (v) review
the adequacy and effectiveness of the Company's internal accounting controls.
Mr. Peter F. Bernardoni, Mr. Robert F. Byrnes and Dr. Benjamin Gerson are the
members of the Audit Committee. The Committee held two meetings in 1998.
The Board of Directors established the Compensation Committee which
consists of Mr. Peter F. Bernardoni, Mr. Robert F. Byrnes and Dr. Benjamin
Gerson, none of whom are employees of the Company. The Compensation Committee
determines the compensation of the Company's executive officers and administers
the 1995 Stock Plan and the 1995 Director Option Plan (the "Director Plan"). The
Committee held two meetings in 1998.
MEETINGS AND REMUNERATION
During fiscal 1998, the Board held 9 meetings and took various actions by
written consent. Each incumbent Director attended at least 75% of the aggregate
of: (i) the total number of meetings held by the Board during fiscal 1998 and;
(ii) the total number of meetings held by all committees of the Board during
that period within which he was a Director or member of such committee of the
Board.
3
<PAGE> 6
Each Director is elected to hold office until the next annual meeting
of stockholders and until his respective successor is elected and qualified. The
Company does not compensate its directors for their services as such. However,
Directors are reimbursed for their out-of-pocket expenses in attending Board
meetings, and each of the Company's non-employee Directors participates in the
Director Plan. In addition, non-employee Directors, Messrs. Byrnes and Kaganov,
perform certain consulting services for the Company apart from their services on
the Board of the Company. Their consulting services and the compensation they
receive for them are described in this Proxy Statement under the Section
entitled "Certain Transactions".
Under the automatic option grant program in effect under the Company's
1995 Director Option Plan (the "Director Plan"), each individual who was serving
as a non-employee Board member (each, an "Outside Director") prior to June 4,
1998, was automatically granted an option to purchase 10,000 fully vested shares
of Common Stock upon his or her initial election or appointment as an Outside
Director. On June 4, 1998, at the 1998 annual meeting of stockholders, the
Company's stockholders approved an amendment to the Director Plan increasing the
automatic option grant made to an Outside Director upon his or her initial
appointment or election to the Board to a 20,000 share option grant which
becomes exercisable in two equal annual installments over the Director's first
two years of Board service. In addition, under the Director Plan, after such
Director's initial appointment, he or she receives an automatic option grant
each January 1 to acquire 5,000 shares of Common Stock, provided that he or she
has served on the Board for at least six months prior to that January 1. The
5,000 share annual option grants become fully vested and exercisable on the
first anniversary of the grant date, provided the Outside Director continues in
Board service through such date.
During 1998, and in 1999 through the date of this Proxy Statement,
Outside Director Mr. Bernardoni, received the automatic 5,000 share option grant
described above on January 1, 1998 and January 1, 1999. During 1999, and through
the date of this Proxy Statement, Outside Directors Messrs. Byrnes and Gerson
received the automatic 5,000 share option grant described above on January 1,
1999. In addition, upon their respective appointment to the Board in January,
1999 and February 1999, Outside Directors, Dr. Alan Kaganov and Dr. Michael
Strauss each received the automatic 20,000 share option grant described above at
their initial appointment to the Board. All of the options granted to Outside
Directors were granted at an exercise price equal to the fair market value of
the Common Stock on the date the options were granted.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF EACH NOMINEE LISTED ABOVE.
PROPOSAL 2 -- RATIFICATION OF THE APPOINTMENT OF
KPMG LLP AS INDEPENDENT ACCOUNTANTS
The Board has selected KPMG LLP as independent public accountants to
audit the financial statements of the Company for fiscal 1999. KPMG LLP served
as the Company's independent public accountants for fiscal 1998. A member of
that firm is expected to be present at the 1999 Annual Meeting, will have an
opportunity to make a statement if so desired, and will be available to respond
to appropriate questions. If the stockholders do not ratify the selection of
KPMG LLP, if it should decline to act or otherwise become incapable of acting,
or if its employment is discontinued, the Audit Committee will appoint
independent public accountants for fiscal 1999. Proxies solicited by the Board
will be voted in favor of ratification unless stockholders specify otherwise.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR 1999.
4
<PAGE> 7
OTHER BUSINESS
The Company is not aware of any other business to be presented at the
1999 Annual Meeting. All shares represented by Company proxies will be voted in
favor of the proposals of the Company described herein unless otherwise
indicated on the form of proxy. If any other matters properly come before the
meeting, Company proxy holders will vote thereon according to their best
judgment.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the
beneficial ownership of Endocare Common Stock owned as of April 27, 1999 by: (i)
the holders of more than 5% of the Endocare Common Stock known to the Company;
(ii) each Director of the Company; (iii) each of Endocare's Named Executive
Officers (identified in the Summary Compensation Table herein), and; (iv) all
Directors and Executive Officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL
TITLE OF CLASS OF BENEFICIAL OWNER(1) OWNERSHIP(2) PERCENT OF CLASS
-------------- ----------------------- ----------------- ----------------
<S> <C> <C> <C>
Common Stock The Kaufmann Fund, Inc. 2,499,300 23.9%
140 E. 45th Street
New York, NY 10017
Peter F. Bernardoni(3) 644,857 6.1%
Technology Funding Inc.
2000 Alameda de las Pulgas
San Mateo, CA 94403
Pequot Capital Management, Inc.(4) 857,143 8.2%
500 Nyala Farm Rd.
Westport, CT 06880
Paul W. Mikus(5) 465,019(6) 4.2%
Vincent C. Cutarelli(5) 65,481(7) *
Thomas G. Frinzi(5) 45,946(8) *
William R. Hughes(5) 69,488(9) *
Ralph L. Quigley(5) 68,238(10) *
Robert F. Byrnes 126,200(11) 1.2%
3753 Howard Hughes Dr.
Suite 200
Las Vegas, NV 89109
Benjamin Gerson, M.D. 10,000(12) *
70 Walnut Street
Wellesley, MA 02181
Alan L. Kaganov, Sc.D. 25,000(13) *
2180 Sand Hill Rd.
Menlo Park, CA 94025
Michael J. Strauss, M.D. 15,000 *
1100 New York Ave. NW
Washington, DC 20005-3934
All Executive Officers and Directors
as a group (10 persons) 1,535,229 13.6%
</TABLE>
5
<PAGE> 8
- ----------------------
* Less than 1%.
(1) All such shares were held of record with sole voting and investment power,
subject to applicable community property laws, by the named individual
and/or by his wife, except as indicated in the following footnotes.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally
includes voting or investment power with respect to securities. Shares of
common stock relating to options currently exercisable or exercisable
within 60 days of April 27, 1999, 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.
(3) Includes 644,857 shares held by Technology Funding Partners III, L.P.,
Technology Funding Venture Partners IV, an Aggressive Growth Fund, L.P.,
Technology Funding Venture Partners V, an Aggressive Growth Fund, L.P., and
Technology Funding Medical Partners I, L.P. (collectively, the "Funds").
Mr. Bernardoni is an officer of Technology Funding Inc., and a partner of
Technology Funding Ltd., each a general partner of the Funds. Mr.
Bernardoni has sole voting and shared investment power with respect to all
shares owned by the Funds, and therefore may be deemed to be beneficial
owner of such shares. Also includes 20,000 shares issuable with respect to
exercise of options.
(4) Includes 857,143 shares held by Pequot Private Equity Fund, L.P. and Pequot
Offshore Private Equity Fund, Inc. (collectively, the "Pequot Funds").
Pequot Capital Management, Inc. has sole voting and share investment power
with respect to all shares owned by the Pequot Funds, and therefore may be
deemed to be beneficial owner of such shares.
(5) The address of such persons is 7 Studebaker, Irvine, California 92618.
(6) Includes 455,208 shares subject to options that are exercisable within 60
days after April 27, 1999.
(7) Includes 60,521 shares subject to options that are exercisable within 60
days after April 27, 1999.
(8) Includes 40,625 shares subject to options that are exercisable within 60
days after April 27, 1999.
(9) Includes 64,167 shares subject to options that are exercisable within 60
days after April 27, 1999.
(10) Includes 62,917 shares subject to options that are exercisable within 60
days after April 27, 1999.
(11) Includes 72,000 shares subject to options that are exercisable within 60
days after April 27, 1999.
(12) Represents 10,000 shares subject to options that are exercisable within 60
days after April 27, 1999.
(13) Includes 25,000 shares subject to options that are exercisable within 60
days after April 27, 1999.
6
<PAGE> 9
EXECUTIVE OFFICERS, COMPENSATION AND OTHER INFORMATION
The Executive Officers of the Company and their ages as of April 27,
1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul W. Mikus 33 President, Chief Executive Officer, Chairman of the Board
of Directors
Vincent C. Cutarelli 49 Senior Vice President, Regulatory Affairs/Quality Assurance
Thomas G. Frinzi 43 Senior Vice President, Sales & Marketing
William R. Hughes 42 Senior Vice President and Chief Financial Officer
Jay J. Eum 35 Vice President, Research & Development
Ralph L. Quigley 55 Vice President, Operations
</TABLE>
Paul W. Mikus has served as Chief Executive Officer, Chairman and
Director since November, 1995. Prior to that time, he was President of Endocare
as a division of Medstone from June, 1995. Prior to becoming President of
Endocare, he managed worldwide sales and marketing for Prosurg, Inc. From July,
1989 to September, 1994, he worked for Medstone as Manager of Engineering where
he was a co-founder of Endocare. Mr. Mikus holds a BS degree in Electrical
Engineering.
Vincent C. Cutarelli, RAC, has served as Vice President, Regulatory
Affairs/Quality Assurance since September, 1996. He has over 25 years experience
in regulatory affairs, quality assurance, GMP/ISO compliance and documentation
control in the medical device industry. Most recently, he has served as the
Director, Regulatory Affairs at both Allergan Optical and Baxter Healthcare.
After obtaining his Bachelors degree in Chemistry and Biology from Clark
University, he went on to become an ASQC Certified Quality Engineer and
Regulatory Affairs Certified (RAC).
Thomas G. Frinzi, with over eighteen years experience in sales &
marketing, joined Endocare in May, 1998. Prior to Endocare, Mr. Frinzi held
various executive positions including U.S. Division Vice President for Chiron
Vision Corporation from April, 1995 to February, 1998. Prior to working at
Chiron Vision Corporation, he was Vice President, Sales & Marketing for Iolab, a
division of Johnson & Johnson, from March, 1993 to April, 1995. Mr. Frinzi
obtained his BS degree in Social Science from the University of Tampa.
William R. Hughes joined Endocare in July, 1997 as Senior Vice
President and Chief Financial Officer. With 18 years experience in public
accounting and industry, Mr. Hughes previously served as Controller and Chief
Accounting Officer for FileNet Corporation and was a partner in the accounting
firm of KPMG Peat Marwick. He obtained a BS degree in Economics from California
State University, San Luis Obispo and has been a Certified Public Accountant
since 1981.
Jay J. Eum has served as Director of Research & Development from July,
1997 to January, 1999 and is currently Vice President of Research & Development.
In 1996, he began working for Endocare as a Senior Engineer in the research &
development department. Mr. Eum previously served as Senior Engineer for Cardiac
Science from October, 1994 to February, 1996. Prior to that time, he served as
Senior Software Engineer for Medstone International from September, 1991 to
October, 1994. He has a BS degree in Electrical Engineering from California
State University, Fullerton.
Ralph L. Quigley has served as Vice President, Operations since May,
1996. Prior to joining Endocare, Mr. Quigley served as Director and Division
General Manager at Everett-Charles Test Equipment Company from 1982 to 1988.
From 1991 to 1993, Mr. Quigley was Vice President, Operations at L.H. Research,
Inc., a power supply manufacturer, where he was responsible for both domestic
and international operations. From 1993 to 1996, Mr. Quigley served as Director
of Operations for Workstation Technologies, a digital video equipment
manufacturer.
7
<PAGE> 10
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation
earned by the Chief Executive Officer and the four (4) other most highly
compensated Executive Officers whose salaries and bonus for the year ended
December 31, 1998 was in excess of $100,000 (the "Named Executive Officers") for
their services to the Company for the years ended December 31, 1996, 1997 and
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------------- Securities
Other Underlying
Name and Annual Options/ All Other
Principal Position Year Salary($) Bonus($)(1) Compensation($) SARs(#)(2) Compensation($)(5)
- ------------------ ---- --------- ----------- --------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Paul W. Mikus 1998 150,000 75,000 -- 200,000 4,062
Chairman, 1997 132,500 42,000 -- -- 464(3)
President, CEO 1996 97,500 25,000 -- -- 4,813(4)
Vincent Cutarelli(6) 1998 105,000 45,000 -- 130,000 3,620
Senior V.P., 1997 100,000 17,500 -- -- 324(3)
RA/QA 1996 -- -- -- 70,000 130(3)
Thomas G. Frinzi(7) 1998 107,917 44,791 -- 250,000 274
Senior V.P., 1997 -- -- -- -- --
Sales & Marketing 1996 -- -- -- -- --
William R. Hughes(8) 1998 140,000 70,000 -- 110,000 5,432
Senior V.P., 1997 59,134 29,250 -- 140,000 151(3)
Chief Financial 1996 -- -- -- -- --
Officer
Ralph L. Quigley 1998 100,000 31,500 -- 75,000 3,683
V.P., Operations 1997 87,500 16,625 -- -- 394(3)
1996 51,975 2,250 -- 75,000 370(3)
</TABLE>
- ----------------
(1) Annual bonus amounts are earned and accrued for the fiscal year in which
reported, but are paid after the close of that fiscal year.
(2) The Company does not grant Stock Appreciation Rights.
(3) Represents group term life insurance payments.
(4) Represents $130 of group term life insurance payments and $4,683 of
commissions on sale of a Cryocare System.
(5) The 1998 totals in the column reflect the value of the Company
contributions to each named executive under the Endocare, Inc. 401K Plan
and group term life insurance. These amounts for the 1998 fiscal year were
as follows: Paul W. Mikus: $3,792 and $270, Vincent Cutarelli: $3,063 and
$557, Thomas G. Frinzi: $0 and $274, William R. Hughes: $4,963 and $469,
Ralph L. Quigley: $2,333 and $1,350.
(6) Mr. Cutarelli joined the Company in September, 1996 and became an Executive
Officer of the Company in 1997.
(7) Mr. Frinzi joined the Company and was first appointed an Executive Officer
in May, 1998.
(8) Mr. Hughes joined the Company and was first appointed an Executive Officer
in July, 1997.
8
<PAGE> 11
STOCK OPTIONS
The following table sets forth information concerning each grant of
stock options made during 1998 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------
Potential Realizable Value
Number of Percent of at Assumed Annual Rates
Shares Total Options of Stock Price Appreciation
Underlying Granted to Exercise for Option Term(1)
Options Employees Price Per Expiration ---------------------------
Name Granted(2) in Period Share Date 5% 10%
- ---- ---------- ------------- --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Paul W. Mikus 50,000 4.2% $ 3.00 01/16/08 94,334 239,061
150,000 12.5% $ 2.75 07/02/08 259,419 657,419
Vincent C. Cutarelli 35,000 2.9% $ 3.00 01/16/08 66,034 167,343
95,000 7.9% $ 2.75 07/02/08 164,000 416,365
Thomas G. Frinzi 150,000 12.5% $ 3.38 05/07/08 318,850 808,027
100,000 8.3% $ 2.75 07/02/08 172,946 438,279
William R. Hughes 110,000 9.2% $ 2.75 07/02/08 190,240 482,107
Ralph L. Quigley 10,000 0.8% $ 3.00 01/16/08 18,867 47,812
65,000 5.4% $ 2.75 07/02/08 112,415 284,881
</TABLE>
- ----------------
(1) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate, compounded annually for the entire term of the option.
(2) All options become exercisable upon the merger of the Company with or into
another corporation or the sale of substantially all of the Company's
assets. The options vest over a four-year period, with 25% to vest on the
one year anniversary date, and the remaining 75% to vest in equal monthly
installments thereafter over the following three years.
The following table sets forth the number and value as of December 31,
1998 of shares underlying unexercised options held by each of the Named
Executive Officers. No options were exercised during the 1998 fiscal year by any
of the Named Executive Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
as of December 31, 1998 as of December 31, 1998(1)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Paul W. Mikus(2) 375,000 325,000 $682,500 $227,500
Vincent Cutarelli(3) 39,375 160,625 -- --
Thomas G. Frinzi(3) -- 250,000 -- --
William R. Hughes(3) 46,667 203,333 -- --
Ralph L. Quigley(3) 50,000 100,000 -- --
</TABLE>
9
<PAGE> 12
- ---------------------
(1) Based on the fair market value, computed using the average bid and ask
prices quoted on the NASDAQ SmallCap Market as of December 31, 1998 ($2.00
per share), less the exercise price payable upon exercise of such options.
(2) Includes 200,000 unexercisable options which are "out of the money" at
December 31, 1998, (i.e. the exercise price of these options was greater
than the fair market value of the Company's Common Stock (as calculated in
footnote (1) above ) at December 31, 1998).
(3) All of Mr. Cutarelli's, Mr. Frinzi's, Mr. Hughes' and Mr. Quigley's options
were out of the money at December 31, 1998.
INDEMNIFICATION AND EXCULPATION ARRANGEMENTS
The Restated Certificate of Incorporation of Endocare limits the
liability of Directors to Endocare or its stockholders to the fullest extent
permitted by the Delaware General Corporation Law (the "DGCL"). Accordingly,
pursuant to the provisions of the DGCL presently in effect, Directors of
Endocare will not be personally liable for monetary damages for breach of a
Director's fiduciary duty as a Director, except for liability: (i) for any
breach of the Director's duty of loyalty to the Company or its shareholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) under Section 174 of the DGCL;
or (iv) for any transaction from which the Director derived an improper personal
benefit. In addition, the bylaws of Endocare require Endocare to indemnify its
Directors and Officers to the fullest extent permitted by the laws of the State
of Delaware.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Messrs. Bernardoni,
Byrnes and Gerson, none of whom were at any time during fiscal 1998 or at any
other time an Officer or employee of the Company. Mr. Byrnes does, however,
serve as a consultant to the Company, and receives compensation for such
services, as discussed under Section entitled "Certain Transactions" herein.
There are no Compensation Committee interlocks between the Company and other
entities involving the Company's Executive Officers and Board members who serve
as Executive Officers or Board members of such other entities.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board is comprised of Messrs.
Bernardoni, Byrnes and Gerson, three non-employee Directors, that administer the
Company's executive compensation programs and policies. The Company's executive
compensation programs are designed to attract, motivate and retain the executive
talent needed to maximize stockholder value in a competitive environment. The
programs are intended to support the goal of increasing stockholder value while
facilitating the business strategies and long-range plans of the Company. The
following is the Compensation Committee's report submitted to the Board
addressing the compensation of the Company's Executive Officers for fiscal 1998.
COMPENSATION POLICY AND PHILOSOPHY
The Company's executive compensation policy is (i) designed to
establish an appropriate relationship between executive pay and the Company's
annual performance, its long-term growth objectives and its ability to attract
and retain qualified Executive Officers; and (ii) based on the belief that the
interests of the executives should be closely aligned with the Company's
stockholders. The Compensation Committee attempts to achieve these goals by
integrating competitive annual base salaries and incentive bonuses with
financial performance of the stock options through the 1995 Stock Plan. In
support of this philosophy, a meaningful portion of many executive's
compensation is placed at-risk and linked to the financial performance of the
Company. The Compensation Committee believes that cash compensation in the form
of salary and incentive bonus provides Company executives with short-term
rewards for success in operations, and that long-term compensation through the
award of stock options encourages growth in management stock ownership which
leads to expansion of management's stake in the long-term performance and
success of the Company. The Compensation Committee considers all elements of
compensation and the compensation policy when determining individual components
of pay. The Compensation Committee is responsible to the Board for ensuring that
its Executive Officers are highly qualified and that they are compensated in a
manner that furthers the Company's business strategies and which aligns their
interests with those of the stockholders.
10
<PAGE> 13
EXECUTIVE COMPENSATION COMPONENTS
As discussed below, the Company's executive compensation package is
primarily comprised of base salary and stock options.
BASE SALARY AND ANNUAL INCENTIVES. For fiscal 1998, the Compensation
Committee approved the base salaries of the Executive Officers based on salaries
paid to Executive Officers with comparable responsibilities employed by
companies with comparable businesses. The Executive Officer bonus program is
designed to reward executives for individual performance and contributions to
the success of and overall growth and progress of the Company. The Compensation
Committee reviews Executive Officer salaries and bonus programs annually and
exercises its judgment based on all the factors described above.
STOCK OPTIONS. Stock options encourage and reward effective management
which results in long-term corporate financial success, as measured by stock
price appreciation. Stock options covering 765,000 shares were granted to the
Executive Officers of the Company and stock options covering 433,000 shares were
granted to 17 other employees of the Company during 1998 under the Company's
1995 Stock Plan. The number of options that each Executive Officer or employee
was granted was based primarily on the executive's or employee's ability to
enhance the Company's long-term growth and profitability. The Compensation
Committee believes that option grants afford a desirable long-term compensation
method because they closely ally the interests of management with stockholder
value and that grants of stock options are the best way to motivate Executive
Officers to improve long-term stock market performance. The vesting provisions
of options granted under the 1995 Stock Plan are designed to encourage longevity
of employment with the Company and generally extend over a four-year period.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee believes that Paul W. Mikus, the Company's
Chief Executive Officer, provides valuable services to the Company and his
compensation should therefore be competitive with that paid to executives at
comparable companies. Mr. Mikus was granted stock options covering 200,000
shares in 1998. His annual base salary for fiscal 1998 was $150,000. In
addition, Mr. Mikus received an annual incentive bonus of $75,000 which was paid
subsequent to year-end. The factors which the Compensation Committee considered
in setting his annual base salary and incentive bonus were his individual
performance while he is President of the Company and pay practices of peer
companies relating to executives of similar responsibility.
INTERNAL REVENUE CODE SECTION 162(m)
Under Section 162 of the Internal Revenue Code of 1986, as amended (the
"Code"), the amount of compensation paid to certain executives that is
deductible with respect to the Company's corporate taxes is limited to
$1,000,000 annually. It is the current policy of the Compensation Committee to
maximize, to the extent reasonably possible, the Company's ability to obtain a
corporate tax deduction for compensation paid to Executive Officers of the
Company to the extent consistent with the best interests of the Company and its
stockholders.
COMPENSATION COMMITTEE
Peter F. Bernardoni
Robert F. Byrnes
Benjamin Gerson, M.D.
11
<PAGE> 14
COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total returns for
the Company, the NASDAQ Stock Market -- U.S. Index and the Hambrecht & Quist
Healthcare-Excluding Biotechnology Index for the period during which the
Company's Common Stock has been registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The comparison assumes
$100 invested on February 20, 1996 in the Common Stock with the reinvestment of
all dividends, if any. Total stockholder returns for the prior period is not an
indication of future returns.
[PERFORMANCE GRAPH]
Endocare Inc (ENDO)
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------
2/20/96 12/96 12/97 12/98
------- ----- ----- -----
<S> <C> <C> <C> <C>
ENDOCARE, INC. 100 950 933 525
NASDAQ STOCK MARKET (U.S.) 100 120 147 207
HAMBRECHT & QUIST HEALTHCARE-EXCLUDING BIOTECHNOLOGY 100 107 127 154
</TABLE>
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings made under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Graph nor the Compensation Committee Report is to be incorporated by
reference into any such prior filings, nor shall such graph or report be
incorporated by reference into any future filings made by the Company under
those statutes.
12
<PAGE> 15
CERTAIN TRANSACTIONS
RELATIONSHIP BETWEEN ENDOCARE AND MEDSTONE AFTER THE DISTRIBUTION
Prior to 1996, Endocare had operated as a division of Medstone
International. Endocare, Inc. was incorporated as a wholly-owned subsidiary in
1994. Through 1995, the Company relied upon Medstone for financial support and
administrative assistance. Since completion of the Distribution at the beginning
of 1996, Endocare has operated independently from Medstone.
Prior to the Distribution, Endocare and Medstone entered into a
Distribution Agreement, a Research and Development Services Agreement, an
Administrative Services Agreement and a Contribution Agreement. The full text of
these agreements has been filed as exhibits to the Registration Statement at the
time of the Distribution.
During 1996, Endocare and Medstone exchanged few services. During the
first quarter, Medstone billed Endocare approximately $3,000 for administrative
services, and Endocare billed Medstone approximately $3,000 for engineering and
administrative services. Throughout 1996, Endocare provided health insurance to
its employees through continuation of Medstone's policy. No related party
transactions occurred between Endocare and Medstone in 1997 and 1998.
RELATIONSHIP BETWEEN ENDOCARE AND TECHNOLOGY FUNDING
Peter F. Bernardoni has served on Endocare's Board of Directors since
November, 1995. He also is a partner of Technology Funding Ltd. and an officer
of Technology Funding Inc., a venture capital group. In August, 1996 Endocare
obtained a two year $1,500,000 borrowing facility from four partnerships managed
by Technology Funding Inc. The outstanding principal balance of $750,000 was
convertible and, at the option of the holders, was converted on January 27, 1997
into 300,000 shares of Endocare Common Stock at a conversion price of $2.50 per
share. Interest on the loan had accrued at a rate of 16% per year, and all
$50,000 was converted into 20,000 shares on that same date at the same $2.50 per
share. Also on January 27, 1997, the four partnerships managed by Technology
Funding Inc. received an additional 12,000 shares ($50,250 total market value)
to induce conversion at that time. At Endocare's election, the remaining
borrowing facility was cancelled on that same date. In connection with the loan,
on August 26, 1996, the partnerships also received warrants for the purchase of
up to 150,000 shares of Endocare Common Stock at any time on or before August
26, 2001, at a price of $3.00 per share, and the partnerships received an
origination fee of 10,000 shares of Common Stock on that same date. On April 16,
1998 and April 24, 1998, investment funds managed by Technology Funding Inc.
acquired an aggregate for such two purchase dates combined of 142,857 shares of
newly issued Common Stock of Endocare for $3.50 a share.
RELATIONSHIP BETWEEN ENDOCARE AND AMP
As of December 31, 1998, the Company had advanced $171,412 to Advanced
Medical Procedures LLC ("AMP"). The advances bear interest at prime plus 1% and
are repayable beginning September 30, 2000 in equal monthly installments of
principal and interest over a twelve month period. The advances are secured by
the assets of AMP and Robert F. Byrnes, a shareholder in AMP and a member of
Endocare's Board of Directors. AMP is a cryosurgical service provider.
TRANSACTIONS WITH MANAGEMENT AND DIRECTORS
As of December 31, 1998, the Company had loans and related accrued
interest due from various Officers totaling $104,228. The loans accrue interest
at 5.41% and all interest and principal are payable August 25, 2000.
On August 4, 1998, Messrs. Bernardoni , Byrnes and Gerson were each
granted an option for 10,000 shares of the Company's Common Stock as a
discretionary grant under the Company's 1995 Stock Plan. In addition, Mr. Byrnes
was granted an option for 50,000 shares of Common Stock for rendering consulting
services. With the exception of the options granted to Mr. Byrnes for consulting
services, which vested immediately, the balance of the options vest in one year.
All of the options have an exercise price of $2.13 per share, the fair market
value per share of Common Stock on the grant date.
13
<PAGE> 16
On January 6, 1999, Messrs. Kaganov and Byrnes were granted options for
70,000 and 50,000 shares, respectively, of the Company's Common Stock under the
Company's 1995 Stock Plan. The options were granted as consideration for
services to be provided in fiscal 1999 under various consulting agreements. Such
options generally vest over a period of time up to one year or upon the
completion of a specific consulting project. All of the options have an exercise
price of $2.03 per share, the fair market value per share of Common Stock on the
grant date.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act ("Section 16(a)") requires the
Company's Directors and certain of its Officers, and persons who own more than
10% of a registered class of the Company's equity securities (collectively,
"Insiders"), to file reports of ownership and changes in ownership with the
Commission. Insiders are required by Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based upon the copies
of Section 16(a), reports which the Company received from such persons or
written representations from them regarding their transactions in the Company's
Common Stock, the Company believes that all reporting requirements under
Section 16(a) were met for 1998 for the Company's Directors, Officers and
10% or more beneficial owners.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any stockholder who wishes to present a proposal for action at the 2000
Annual Meeting and who wishes to have it set forth in the corresponding proxy
statement and identified in the corresponding form of proxy prepared by
management for such meeting must notify the Company no later than December 31,
1999 in such form as required under the rules and regulations promulgated by the
Commission.
ANNUAL REPORTS
A copy of the 1998 Annual Report to Stockholders is being mailed to
each stockholder of record together with this Proxy Statement. The Company has
also filed with the Commission its Annual Report on Form 10-K (the "Report") for
the fiscal year ended December 31, 1998. This Report contains information
concerning the Company and its operations. A COPY OF THIS REPORT WILL BE
FURNISHED TO STOCKHOLDERS WITHOUT CHARGE UPON REQUEST IN WRITING TO WILLIAM R.
HUGHES AT 7 STUDEBAKER, IRVINE, CALIFORNIA 92618. Such reports are not a part of
the Company's soliciting material.
PROXIES AND SOLICITATION
Proxies for the 1999 Annual Meeting are being solicited by mail
directly and through brokerage and banking institutions. The Company will pay
all expenses in connection with the solicitation of proxies. In addition to the
use of mails, proxies may be solicited by Directors, Officers and regular
employees of the Company personally or by telephone. The Company will reimburse
banks, brokers custodians, nominees and fiduciaries for any reasonable expenses
in forwarding proxy materials to beneficial owners.
All stockholders are urged to complete, sign and promptly return the
enclosed proxy card.
By Order of the Board of Directors
/s/ William R. Hughes
WILLIAM R. HUGHES
Secretary
Irvine, California
April 30, 1999
14
<PAGE> 17
PROXY
ENDOCARE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Paul W. Mikus and William R. Hughes, and each of
them, proxies with full power of substitution, to vote all shares of Common
Stock of Endocare, Inc. (the "Company") held of record by the undersigned as of
April 27, 1999, the record date with respect to this solicitation, of the Annual
Meeting of Stockholders of the Company to be held at 7 Studebaker, Irvine,
California 92618, beginning at 11:00 a.m., Pacific Time, on Tuesday, June 15,
1999, and at any adjournments thereof, upon the following matters:
The Board of Directors Recommends a vote FOR the following proposals:
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below (except as noted below) [ ] WITHHOLD
AUTHORITY to vote for all nominees listed below
(Instructions: To withhold authority to vote for any nominee, line through or
otherwise strike out the nominee's name below.)
Paul W. Mikus Peter F. Bernardoni Robert F. Byrnes Benjamin Gerson, M.D.
Alan L. Kaganov, Sc.D. Michael J. Strauss, M.D.
<PAGE> 18
2. RATIFICATION OF THE SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS FOR THE
COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. OTHER MATTERS
In their discretion, Paul W. Mikus and William R. Hughes are authorized to
vote upon such other business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
THE NOMINEES NAMED IN PROPOSAL 1 AND PROPOSAL 2 ABOVE. IF ANY NOMINEE DECLINES
OR IS UNABLE TO SERVE AS A DIRECTOR, THEN THE PERSONS NAMED AS PROXIES SHALL
HAVE FULL DISCRETION TO VOTE FOR ANY OTHER PERSON DESIGNATED BY THE BOARD OF
DIRECTORS.
Dated: , 1999
-------------------------
(Signature)
-------------------------
(Signature)
Please sign exactly as
your name appears herein.
Joint owners should each
sign. When signing as
attorney, executor,
administrator, trustee,
guardian or corporate
officer, please give full
title as such.
The signees hereby
revokes all proxies
heretofore given by the
signor to vote at said
meeting or any
adjournments thereof.
