Endocare, Inc.
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.___)
Filed by the Registrant
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Preliminary Proxy Statement |
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Definitive Proxy Statement |
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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)
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Date Filed:
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ENDOCARE, INC.
201 Technology Drive
Irvine, California 92618
May 12, 2005
Dear Stockholder of Endocare, Inc.:
You are cordially invited to attend the Annual Meeting of
Stockholders of Endocare, Inc. to be held on June 22, 2005
at 8:00 a.m. Pacific time at the Westin South Coast Plaza,
located at 686 Anton Boulevard, Costa Mesa, California 92626.
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 have an efficient meeting, please sign, date
and return the enclosed proxy promptly in the accompanying reply
envelope. If you decide to attend the Annual Meeting and wish to
change your proxy vote, you may do so automatically by voting in
person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
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Sincerely, |
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Craig T. Davenport |
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Chairman and Chief Executive Officer |
Irvine, California
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you
are requested to complete, sign and date the enclosed proxy 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 June 22, 2005
Dear Stockholder of Endocare, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders
of Endocare, Inc., a Delaware corporation, will be held on
June 22, 2005 at 8:00 a.m. Pacific time at the Westin
South Coast Plaza, located at 686 Anton Boulevard, Costa
Mesa, California 92626, for the following purposes:
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1. To elect seven (7) directors to our Board of
Directors to serve during the ensuing year or until their
successors are duly elected and qualified; |
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2. To ratify the selection of Ernst & Young LLP as
our independent auditors for the fiscal year ending
December 31, 2005; and |
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3. To transact any other business as may properly come
before the Annual Meeting or any postponements or adjournments
thereof. |
The foregoing items of business are more fully described in the
Proxy Statement accompanying this Notice. Only stockholders of
record at the close of business on April 29, 2005 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 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 because your shares are registered
in different names and addresses, each proxy should be signed,
dated and returned to assure that all your shares will be voted.
You may revoke your proxy at any time prior to the Annual
Meeting. If you attend the Annual Meeting and vote by ballot,
your proxy will be revoked automatically and only your vote at
the Annual Meeting will be counted. The prompt return of your
proxy will assist us in preparing for the Annual Meeting.
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By Order of the Board of Directors |
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Michael R. Rodriguez
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Senior Vice President, Finance, |
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Chief Financial Officer and Secretary |
Irvine, California
May 12, 2005
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF
SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT
CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
TABLE OF CONTENTS
ENDOCARE, INC.
201 Technology Drive
Irvine, California 92618
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
To Be Held On June 22, 2005
GENERAL
The enclosed proxy is solicited on behalf of the Board of
Directors of Endocare, Inc., a Delaware corporation, for use at
the Annual Meeting of Stockholders to be held on June 22,
2005 (the Annual Meeting). The Annual Meeting will
be held at 8:00 a.m. Pacific time at the Westin South Coast
Plaza, located at 686 Anton Boulevard, Costa Mesa,
California 92626. This Proxy Statement and accompanying proxy
were first mailed to stockholders on or about May 12, 2005,
to all stockholders entitled to vote at the Annual Meeting.
Voting
The specific proposals to be considered and acted upon at the
Annual Meeting are summarized in the accompanying Notice of
Annual Meeting of Stockholders and are described in more detail
in this Proxy Statement. Each stockholder is entitled to one
vote for each share of our common stock held by such stockholder
on April 29, 2005, the record date for determining which
stockholders are entitled to vote at the Annual Meeting. On
March 31, 2005, there were approximately 29,987,756 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.
All votes will be tabulated by the inspector of elections
appointed for the Annual Meeting, who will separately tabulate
affirmative and negative votes, abstentions and broker
non-votes. Abstentions and broker non-votes will be counted for
purposes of determining whether a quorum is present at the
Annual Meeting. A broker non-vote occurs when a
nominee holding shares for a beneficial holder does not have
discretionary voting power and does not receive voting
instructions from the beneficial owner. 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.
Stockholders may not cumulate votes in the election of
directors. All other matters to be acted upon by the
stockholders at the Annual Meeting will require the approval of
the holders of a majority of our outstanding common stock
present in person or represented by proxy and entitled to vote
at the Annual Meeting. With respect to such matters, abstentions
will have the effect of negative votes, and broker non-votes
will not be counted for purposes of determining whether any of
those proposals have been approved.
Proxies
Our Board of Directors has selected Craig T. Davenport and
William J. Nydam, and each of them, to serve as Proxyholders for
the Annual Meeting. If a stockholder properly signs and returns
the enclosed form of proxy, the Proxyholders will vote the
shares represented by such proxy at the Annual Meeting in
accordance with the instructions the stockholder writes on the
Proxy. If the Proxy does not specify how the shares are to be
voted, the Proxy will be voted FOR the election of each
of the directors nominated by the Board unless the authority to
vote for the election of such director is withheld and, if no
contrary
instructions are given, the Proxy will be voted FOR the
approval of Proposal 2 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 all 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 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 NO. 1
ELECTION OF DIRECTORS
General
The persons named below are nominees for director to serve until
the next annual meeting of stockholders or until their
successors have been duly elected and qualified. The Bylaws
provide that the authorized number of directors shall be
determined by resolution of the Board of Directors or the
stockholders, and shall be within the range of three to seven
directors. Effective upon the date of the Annual Meeting, the
authorized number of directors will be seven directors. The
Board of Directors has selected seven nominees, six of whom are
currently our directors. Nominee David L. Goldsmith is not
currently a director. Mr. Goldsmith has been approved as a
nominee by the Nominating and Corporate Governance Committee
following his recommendation by our chairman and chief executive
officer.
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 seven directors and, unless otherwise instructed, the
Proxyholders will vote such Proxies for the nominees named
below. The seven 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 are 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 present Board of Directors
to fill the vacancy.
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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 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
also is provided regarding Mr. Goldsmith, who is the only
nominee who is not currently a director. Information regarding
each nominees beneficial ownership of our common stock as
of March 31, 2005 is set forth below in 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. Noonan,
among other items:
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assists the Chairman in developing Board meeting agendas; |
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presides over Board meetings in the Chairmans absence; |
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presides over all executive sessions of our independent
directors; and |
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consults with management as the principal representative of the
independent directors. |
Interested parties may communicate directly with Mr. Noonan
by writing to Mr. Terrence A. Noonan, Lead Independent
Director, c/o Secretary, Endocare, Inc.,
201 Technology Drive, Irvine, California 92618.
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Name |
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Age | |
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Position with Endocare |
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John R. Daniels, M.D.+
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66 |
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Director |
Craig T. Davenport
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Chairman and Chief Executive Officer |
David L. Goldsmith
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Eric S. Kentor
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Director |
Terrence A. Noonan*+
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67 |
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Lead Independent Director |
Michael J. Strauss, M.D.*+
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Director |
Thomas R. Testman(1)
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68 |
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Director |
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Member of the Audit Committee. |
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Member of the Compensation Committee. |
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Member of the Nominating and Corporate Governance Committee. |
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Our board of directors has determined that Mr. Testman is
an audit committee financial expert, as defined in
Securities and Exchange Commission Regulation S-K
Item 401(h)(2). |
John R. Daniels, M.D. has served as a director since
January 2004. Dr. Daniels is former chief executive officer
and chairman at a number of medical technology companies, as
well as an accomplished clinician and past faculty member of the
Stanford University School of Medicine. From 1990 to the
present, Dr. Daniels has served as an associate professor
of medicine in the Division of Oncology at the University of
Southern California School of Medicine. Dr. Daniels is the
founder or co-founder of five start-up companies, including:
Collagen Corporation, which was acquired by Inamed, a
publicly-traded healthcare company; Target Therapeutics, today a
division of Boston Scientific Corporation, a publicly-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
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company that develops drug-coated medical devices and
drug-loaded surgical implants. Dr. Daniels holds a B.A.
from Stanford University and an M.D. from the Stanford
University School of Medicine.
Craig T. Davenport has served as our chief executive
officer since December 2003 and as our chairman since January
2004. He served as a consultant reporting to our board of
directors from August 2003 to December 2003. From 1994 to 2004,
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 is a board
member to several private medical device companies and a private
equity healthcare fund. Mr. Davenport holds a B.G.S. degree
from Ohio University with major emphasis in marketing and
management.
David L. Goldsmith is a nominee to the Board of
Directors, and is not currently a director. 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, including managing director of Robertson
Stephens Investment Management from 1998 to 1999. From 1978 to
1981, Mr. Goldsmith worked with BA Investment Management,
eventually becoming associate director of research.
Mr. Goldsmith currently serves on the board of directors
and audit committee 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 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. 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 MiniMedi, Inc., a
company engaged in the design, development, manufacture and
marketing of advanced systems for the treatment of diabetes.
Mr. Kentor served as an original and permanent member of
MiniMeds Executive Management Committee, which was charged
with overseeing the day-to-day operations of the company and
executing its corporate strategic plan. MiniMed, Inc. was
acquired by Medtronic, Inc. in 2001. From 1994 to 1995,
Mr. Kentor served as Vice President and Executive Counsel
of Health Net Health Plans. From 1987 to 1994, Mr. Kentor
practiced with the law firm McDermott, Will & Emory,
where he was elected partner. Mr. Kentor is on the board of
directors of MD Synergy, Inc., a privately held company.
Mr. Kentor holds a B.A. from the University of California,
Los Angeles and a J.D. from UCLA School of Law.
Terrence A. Noonan has served as a director since
September 2003 and currently serves as Lead Independent Director
and Chairman of the Nominating and Corporate Governance
Committee. From 1991 to 1999, Mr. Noonan was president and
chief operating officer of Furon Company, a New York Stock
Exchange-listed manufacturer of industrial and medical polymer
components. Mr. Noonan served as an executive vice
president of Furon from 1989 to 1991 and as a vice president of
Furon from 1987 to 1989. Prior to joining Furon in 1987,
Mr. Noonan served as a group vice president of Eaton
Corporation, a diversified global manufacturer of transportation
and electrical products. From 1999 to the present,
Mr. Noonan has been serving as a board member to several
companies. In addition to serving on our board, Mr. Noonan
currently serves on the boards of Highway Holdings, Ltd.,
Mattman Specialty Vehicles and The Smittybilt Group.
Mr. Noonan received a B.S. from Miami University and an
E.M.B.A. from Case Western Reserve University.
Michael J. Strauss, M.D., M.P.H. has served as a
director since February 1999 and currently serves as Chairman of
the Compensation Committee. Dr. Strauss is a health policy
and business consultant who works with medical technology and
service companies. From 2001 until January 2005 he served as
chief executive officer of Naviscan PET Systems, Inc., a
developer of compact, high-resolution positron emission
tomography (PET) devices. Dr. Strauss was a founder
and officer of Covance Health Economics and
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Outcomes Services, Inc., a healthcare consulting and service
firm, from 1988 through 1999. He serves on the board of
directors of Cyberonics, Inc. He obtained an A.B. from Harvard
College, M.D. from Duke University and M.P.H. from the
University of Washington School of Public Health.
Thomas R. Testman has served as a director since April
2003 and currently serves as Chairman of the Audit Committee.
Mr. Testman is a former managing partner of
Ernst & Young LLP where, during his tenure from 1962 to
1992, he served as managing partner of both Health Care Services
and Management Consulting Services for the West Coast and
national practices. He also served as an area managing partner
for the audit and tax practices. From 1993 to the present,
Mr. Testman has been serving as a board member to both
public and private companies. In addition to serving on our
board, Mr. Testman currently serves as a director and
chairman of the audit committee of Amylin Pharmaceuticals, Inc.
From 1996 to 2004, Mr. Testman served on the board of
directors of Specialty Laboratories, Inc., including serving as
chairman and as a member of the audit committee. He also serves
on the board of several private companies, including serving as
chairman of Covenant Care, Inc. and Pacific Health Corporation.
Mr. Testman previously was a director and chairman of the
audit committee of MiniMed Inc., and Mr. Testman also was
chairman of the special committee that oversaw MiniMeds
acquisition by Medtronic, Inc. He has an M.B.A. from Trinity
University and is a certified public accountant (retired).
Board Meetings and Committees
During 2004, the Board of Directors held seven meetings. In
2004, the Board of Directors had an Audit Committee, a
Compensation Committee and a Nominating and Corporate Governance
Committee. During 2004 each incumbent 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. Five of our directors attended our 2004 annual
meeting of stockholders.
The Audit Committee acts pursuant to a written charter, a copy
of which was attached as Appendix A to our proxy statement
for our annual meeting of stockholders in 2004. The Board of
Directors has established the Audit Committee to:
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provide assistance to the Board of Directors in fulfilling its
oversight responsibility to our stockholders and others relating
to: (i) the integrity of our financial statements;
(ii) our compliance with legal and regulatory requirements;
(iii) our independent auditors qualifications and
independence; and (iv) the performance of our internal
audit function and independent auditors; and |
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prepare the Audit Committee report that SEC proxy rules require
to be included in our annual proxy statement. |
Dr. Daniels and Messrs. Noonan and Testman are members
of the Audit Committee. During 2004, the Audit Committee held
ten meetings. The Board of Directors has determined that all
members of the Audit Committee are independent, as
defined in the Nasdaq listing standards.
The Board of Directors has established a Compensation Committee
consisting of Dr. Strauss and Mr. Noonan, neither of
whom are our employees. The Compensation Committee determines
the compensation of our executive officers and administers our
stock option plans. During 2004, the Compensation Committee held
three meetings. The Board of Directors has determined that all
members of the Compensation Committee are
independent, as defined in the Nasdaq listing
standards.
The Board of Directors has established a Nominating and
Corporate Governance Committee. The Nominating and Corporate
Governance Committee:
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monitors the size and composition of our Board of Directors; |
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assesses the performance and effectiveness of the Board of
Directors; |
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makes recommendations from time to time, or whenever it is
called upon to do so, regarding nominees for election to the
Board of Directors; and |
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establishes, implements and monitors policies and procedures
regarding principles of corporate governance, conduct and ethics
for our directors, officers and employees. |
Mr. Noonan and Drs. Daniels and Strauss are members of the
Nominating and Corporate Governance Committee. During 2004, the
Nominating and Corporate Governance Committee held one meeting.
The Board of Directors has determined that all members of the
Nominating and Corporate Governance Committee are
independent, as defined in the Nasdaq listing
standards. A copy of the current charter of the Nominating and
Corporate Governance Committee is available on our website at
www.endocare.com/investors/nominating charter.pdf
The Nominating and Corporate Governance Committee will consider
nominations submitted by our stockholders. The Nominating and
Corporate Governance Committee evaluates candidates proposed by
stockholders using the same criteria as for other candidates.
The charter of the Nominating and Corporate Governance Committee
provides that the following are among the qualifications to be
considered when evaluating and selecting candidates for the
Board of Directors:
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experience in business, finance or administration; |
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familiarity with our industry; |
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prominence and reputation; and |
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whether the individual has sufficient time available to devote
to the work of the Board of Directors and one or more of its
committees. |
In addition, our Corporate Governance Guidelines provide that
Board members will possess certain core competencies, some of
which may include broad experience in business, finance or
administration, familiarity with national and international
business matters, and familiarity with our industry. In addition
to having one or more of these core competencies, Board member
nominees are identified and considered on the basis of
knowledge, experience, integrity, diversity, leadership,
reputation and ability to understand our business.
The Bylaws set forth the procedures that stockholders must
follow in order to nominate persons for election as directors.
The Bylaws provide that such nominations must be made pursuant
to timely notice in writing to our Secretary, at 201 Technology
Drive, Irvine, California 92618. To be timely, a
stockholders notice must be delivered to or mailed and
received at such address by no later than the due date for
stockholder proposals that is specified in our proxy statement
released to stockholders in connection with the previous
years annual meeting of stockholders, which date shall be
not less than one hundred twenty (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 thirty (30) days from the date of the previous
years annual meeting, notice by the stockholder to be
timely must be so received a reasonable time before we begin to
print and mail our proxy materials.
According to the Bylaws, such stockholders notice must set
forth:
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as to each person, if any, whom the stockholder proposes to
nominate for election or reelection as a director: (A) the
name, age, business address and residence address of such
person, (B) the principal occupation or employment of such
person, (C) the class and number of our shares that are
beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each
nominee and any other person or persons (naming such person or
persons) pursuant to which the nominations are to be made by the
stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the |
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Securities Exchange Act of 1934 (including without limitation
such persons written consent to being named in the proxy
statement, if any, as a nominee and to serving as a director if
elected); and |
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as to such stockholder giving notice, the following information:
(A) the name and address, as they appear on our books, of
such stockholder, (B) the class and number of our shares
which are beneficially owned by such stockholder, and
(C) any material interest of such stockholder in the
election to our board of such nominee. |
Communications to the Board of Directors
The Board of Directors recommends that stockholders initiate any
communications with the Board in writing and send them in care
of our Secretary, at 201 Technology Drive, Irvine, California
92618. This centralized process will assist the Board in
reviewing and responding to stockholder communications in an
appropriate manner. The name of any specific intended Board
recipient should be noted in the communication. The Board has
instructed our Secretary to forward such correspondence only to
the intended recipients; however, the Board has also instructed
our Secretary, prior to forwarding any correspondence, to review
such correspondence and, in his or her discretion, not to
forward certain items if they are deemed of a commercial or
frivolous nature or otherwise inappropriate for the Boards
consideration. In such cases, some of that correspondence may be
forwarded elsewhere in the company for review and possible
response.
Director Compensation
Each of our non-employee directors receives an annual retainer
of $18,000 for his service as a director. The chairman of the
audit committee, the chairman of the compensation committee and
the chairman of the nominating and corporate governance
committee each receives an additional annual retainer of
$10,000. Each non-employee director also receives $1,000 for
each meeting of our board of directors or any committee thereof
that he attends in person and an additional payment of $500 for
each meeting of our board of directors or any committee thereof
that he attends telephonically. In addition, each non-employee
director participates in our 2004 Non-Employee Director Option
Program described below (the 2004 Director
Program). Directors are reimbursed for reasonable expenses
incurred in connection with serving as directors.
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. 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.
On January 10, 2005, each person then serving as a
non-employee director received the automatic 20,000 share
option grant described above. In addition, Mr. Kentor
received an initial 30,000 share option grant following his
appointment to the Board. All of the options granted to
non-employee directors were granted at an exercise price equal
to the fair market value of the common stock on the date the
options were granted.
In light of the Sarbanes-Oxley Act and related regulations, we
are currently considering revising our director compensation
policies. If we do so, the compensation paid to directors may be
increased.
7
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the
stockholders vote FOR each of the seven nominees listed
herein.
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT AUDITORS
We are asking the stockholders to ratify the Board of
Directors selection of Ernst & Young LLP as our
independent auditors for the fiscal year ending
December 31, 2005. 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 of Directors will reconsider its selection. Even if the
selection is ratified, the Board of Directors, in its
discretion, may direct the appointment of a different
independent auditing firm at any time during the fiscal year if
the Board of Directors feels that such a change would be in our
and our stockholders best interests.
Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting, and will have the opportunity to
make a statement if they desire to do so and will be available
to respond to appropriate questions. The affirmative vote of a
majority of our outstanding voting shares present or represented
by proxy and entitled to vote 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 our current independent
auditor, Ernst & Young LLP, during 2003 and 2004. In
accordance with its charter, our Audit Committee pre-approves
all audit and non-audit services provided by our independent
auditor to ensure that our independent auditor is not engaged to
perform the specific non-audit services proscribed by law or
regulation. Under its charter, our Audit Committee may delegate
pre-approval authority to a member of the Audit Committee, and
the decisions of any Audit Committee member to whom pre-approval
authority is delegated must be presented to the full audit
committee at its next-scheduled meeting. Our Audit Committee has
considered whether the provision of non-audit services is
compatible with maintaining the independence of our independent
auditor and has concluded that it is.
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2004 | |
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2003 | |
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| |
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| |
Audit Fees, including our annual audits, review of our quarterly
reports on Form 10-Q, audit of internal controls over
financial reporting, and filings with the SEC
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$ |
2,135,265 |
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|
$ |
1,915,745 |
|
Audit-Related Fees, including review of documentation of
internal controls over financial reporting
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$ |
362,775 |
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Tax Fees, including tax compliance and tax advice
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$ |
457,126 |
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$ |
21,831 |
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All Other Fees
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Totals
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$ |
2,955,166 |
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$ |
1,937,576 |
|
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.
Dismissal of KPMG
KPMG LLP (KMPG) previously served as our independent
auditor. Our Board of Directors, upon recommendation of the
Audit Committee, approved the dismissal of KPMG as our
independent auditor, effective March 7, 2003.
8
KPMGs report on our consolidated financial statements as
of and for the fiscal years ended December 31, 2000 and
2001 did not contain an adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles.
As we previously reported in a press release dated
December 12, 2002, KPMG notified the Audit Committee, by
letter dated December 11, 2002 (the KPMG
Letter), that KPMGs report dated February 19,
2002, except as to notes 1 and 15, which are dated as
of March 25, 2002, on our consolidated financial statements
as of December 31, 2001, and for the year then ended, had
been withdrawn and could no longer be relied upon. KPMG also
advised the Audit Committee that it believed that sufficient
evidence existed to conclude that our consolidated financial
statements for the quarters ended March 31, 2002 and
June 30, 2002 should not be relied upon. KPMG stated that
it was unable to rely on the representations of our senior
management and would continue to act as our independent auditor
only if those concerns were satisfactorily resolved. KPMG
subsequently notified us by letter dated September 16, 2003
that KPMGs report dated February 19, 2002, except as
to notes 1 and 15, which are dated as of
March 25, 2002, on our consolidated financial statements as
of December 31, 2000 and for the years ended
December 31, 2000 and 1999, could no longer be relied upon.
On March 14, 2003, we filed with the Securities and
Exchange Commission a report on Form 8-K, which was amended
on May 1, 2003 and May 16, 2003 (the
Form 8-K). The Form 8-K stated that KPMG
had concluded that it was unable to rely on the representations
of our management, based upon the totality of the circumstances
described below.
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KPMG expressed concern in the KPMG Letter that we had recorded
sales to customers of products that remained in
company-controlled facilities at the time of KPMGs
performance of its most recent review procedures. |
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KPMG expressed concern in the KPMG Letter that we had recorded
sales to customers of products that were shipped to
company-controlled facilities, and then not delivered to the
customers until a subsequent accounting period, remaining in
company-controlled facilities as of the close of the accounting
period in which the sales were recorded. |
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KPMG expressed concern in the KPMG Letter that we engaged in two
transactions to acquire assets from customers concurrent with
the sale by us of products to such customers, but that only the
sales to the customers were recorded in our accounting records
at the time of the sales, while the concurrent acquisitions of
products from the customer were recognized in a different
accounting period. |
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KPMG expressed concern in the KPMG Letter that all of the
revenue related to certain multiple-element sales was fully
recorded in a single accounting period, though certain of the
components were not delivered until a subsequent accounting
period. |
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KPMG expressed concern in the KPMG Letter that sales to one
customer ultimately were delivered to a warehouse secured and
paid for by one of our sales representatives, for which the
sales representative was reimbursed through his expense report,
and that the accounting records noted that the sale was
delivered to the customer location. |
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KMPG expressed concern in the KPMG Letter that notations on
supporting documentation for at least two expense transactions
could be interpreted to indicate that our senior management had
instructed subordinates to record the related transactions
outside of our normal policies and procedures, and potentially
not in accordance with generally accepted accounting principles. |
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KPMG expressed concern in the KPMG Letter that expenses
associated with certain products or services purchased by us
knowingly were not accrued in the proper accounting period. |
9
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KPMG expressed concern in the KPMG Letter that in two instances
we had recorded cash receipts from customers as a reduction of
accounts receivable near quarter end, where, at least in one
instance, management knew the underlying check had been rejected
by the bank for insufficient funds prior to the issuance of our
financial statements and the filing of our corresponding report
on Form 10-Q. |
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KPMG expressed concern in the KPMG Letter that there were cash
receipts from customers recorded as a reduction of accounts
receivable if the customer check was dated prior to the end of
the accounting period, even though physical receipt of the check
occurred after the end of the accounting period. |
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KPMG expressed concern in the KPMG Letter that one customer
concession had been granted by senior management some period of
time after the date of the original sale to facilitate payment
of an outstanding account receivable by the customer, and that
the concession was recorded in a period subsequent to when the
cash receipt was recorded, despite the apparent linkage between
the concession and the payment of cash by the customer. |
The Form 8-K indicated that the Audit Committee had
investigated the matters described above and expressed certain
views with respect to such matters, including that the Audit
Committee disagreed with KPMGs conclusion that it could
not rely on the representations made by our then-senior
management. The Form 8-K also stated that the Audit
Committee had discussed with KPMG the subject matter of the
disagreement, and that we had asked our new independent auditor,
Ernst & Young LLP, to consider the issues raised in the
KPMG letter in connection with its reaudit of our financial
statements for the fiscal years ended December 31, 2000 and
2001 and the audit for the fiscal year ended December 31,
2002. In addition, the Form 8-K stated that we had
authorized KPMG to respond fully to the inquiries of
Ernst & Young LLP concerning the matters described
above.
Our Audit Committee has since overseen an additional
investigation regarding the matters described above, and
discussed extensively with Ernst & Young LLP the
results of its reaudit of our financial statements for the
fiscal years ended December 31, 2000 and 2001 and audit for
the fiscal year ended December 31, 2002. In view of that
substantial additional work performed since the KPMG dismissal,
and the various adjustments to the previously audited financial
statements, the Audit Committee has reconsidered the views and
conclusions expressed in the Form 8-K. The views expressed
in this proxy statement are the only views on the subject that
the Audit Committee currently holds.
At the time of its dismissal, KPMG had expressed the conclusions
that the previously prepared financial statements did not
reflect either the facts or substance of certain transactions,
and that it was unable to rely on representations that our
then-senior management had confirmed to the best of its
knowledge and belief. The Audit Committee and KPMG discussed
KPMGs conclusion that KPMG was unable to rely on
representations of our then-senior management. However, after
its receipt of the KPMG Letter, the Audit Committee was unable
to discuss with KPMG the specific transactions described in the
KPMG Letter, because KPMG declined to resume any services on our
behalf unless and until KPMGs concerns regarding its
ability to rely on representations of our then-senior management
had been resolved to KPMGs satisfaction. Please note that
KPMG has provided to us the letter included in
Appendix A attached hereto, in which KPMG states,
among other things, that the preceding sentence is
inaccurate in that [KPMG] did, in fact, discuss with the Audit
Committee many of the specific transactions described in the
KPMG Letter when it was delivered to the Audit Committee on
December 11, 2002, and as well as on several occasions
prior to that date. [KPMG] also never expressed to the Audit
Committee [KPMGs] unwillingness to discuss the specific
transactions subsequent to that date.
In light of the totality of the information now available,
including the revised financial statements for 1999 and
subsequent periods, the Audit Committee now agrees with
KPMGs conclusion that the previously prepared financial
statements did not reflect either the facts or substance of
certain transactions. Therefore, under the circumstances, it
does not disagree with the conclusion that KPMG could not rely on
10
certain of the factual statements included in managements
representations, including those to the effect that the
financial statements conformed with generally accepted
accounting principles.
Other than as described above, there have been no
reportable events (as that term is used in
Item 304(a)(1)(v) of Regulation S-K) during our two
most recent fiscal years and the subsequent interim period prior
to KPMGs dismissal.
Statement from KPMG
As noted above, in response to the description included above
under Dismissal of KPMG, KPMG provided to us the
letter included in Appendix A attached hereto.
Appointment of Ernst & Young LLP
The Board of Directors, upon recommendation of the Audit
Committee, approved the appointment of Ernst & Young
LLP as our new independent auditor, effective April 1,
2003. During our two most recent fiscal years and the subsequent
interim period prior to the appointment of Ernst &
Young LLP, we did not consult with Ernst & Young LLP
regarding any of the matters set forth in Item 304(a)(2)(i)
or (ii) of Regulation S-K.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the
stockholders vote FOR the ratification of the selection
of Ernst & Young LLP to serve as our independent
auditor for the fiscal year ending December 31, 2005.
PROPOSAL NO. 3
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 our Board of Directors may recommend. By the
execution of the enclosed Proxy, you grant discretionary
authority to the Proxyholders with respect to such other matters.
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with
respect to the beneficial ownership of our common stock as of
March 31, 2005, unless otherwise noted, by:
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each stockholder known to us to own beneficially more than 5% of
our common stock; |
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each of our directors, nominees and executive officers; |
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each of our Named Executive Officers listed in the Summary
2004 Compensation Table included in this proxy
statement; and |
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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 investment power
relating to securities. Shares of common stock subject to
options or convertible securities currently exercisable or
exercisable within 60 days 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
investment power with respect to all shares of common stock
shown as beneficially owned by them. None of the directors,
nominees, executive officers or named
11
executed 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 201
Technology Drive, Irvine, California 92618.
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Amount and Nature | |
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of Beneficial | |
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Percentage | |
Name and Address |
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Ownership(1) | |
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of Total | |
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DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
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John R. Daniels, M.D.(2)
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194,115 |
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* |
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Craig T. Davenport(3)
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451,037 |
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1.5 |
% |
David L. Goldsmith(4)
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3,000 |
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* |
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Eric S. Kentor(5)
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* |
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Terrence A. Noonan(6)
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10,000 |
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* |
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Michael J. Strauss, M.D.(7)
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70,000 |
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* |
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Thomas R. Testman(8)
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25,000 |
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* |
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William J. Nydam(9)
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702,690 |
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2.3 |
% |
Michael R. Rodriguez(10)
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* |
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All current directors and executive officers as a group
(8 persons)(11)
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1,452,842 |
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4.7 |
% |
NAMED EXECUTIVE OFFICERS WHO NO LONGER ARE EXECUTIVE
OFFICERS
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Katherine Greenberg(12)
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153,139 |
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* |
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5% STOCKHOLDERS
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State of Wisconsin Investment Board(13)
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3,075,500 |
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10.3 |
% |
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P.O. Box 7842 |
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Madison, WI 53707 |
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Entities and individuals affiliated with WS Capital, L.L.C. and
WSV Management, L.L.C.(14)
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2,168,280 |
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7.1 |
% |
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300 Crescent Court, Suite 1111 |
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Dallas, TX 75201 |
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* |
Represents beneficial ownership of less than 1% of the
outstanding shares of our common stock. |
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(1) |
Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of
common stock relating to options or convertible securities
currently exercisable, or exercisable within 60 days of
March 31, 2005, are deemed outstanding for computing the
percentage of the person holding such securities but are not
deemed outstanding for computing the percentage of any other
person. As of March 31, 2005, there were
29,987,756 shares of our common stock outstanding. |
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(2) |
Includes (i) 108,303 outstanding shares and
(ii) 75,812 shares underlying currently exercisable
warrants held by Dr. Daniels and his wife AnnaMarie
Daniels, as trustees of the Daniels Family Trust UTA 1993.
Also includes 10,000 shares subject to options that are
exercisable within 60 days after March 31, 2005.
Dr. Daniels received an option to
purchase 20,000 shares of common stock granted on
January 10, 2005, of which no shares are exercisable within
60 days after March 31, 2005. |
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(3) |
Includes 337,500 shares subject to options that are
exercisable within 60 days after March 31, 2005 and
warrants to purchase 46,750 shares of common stock,
all of which are currently exercisable. |
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(4) |
Consists of 1,500 shares held by Mr. Goldsmith, as trustee
of the Leah Goldsmith Trust dated January 24, 1998,
750 shares held by Mr. Goldsmith, as trustee of the Aaron
Goldsmith Trust, dated January 24, 1998, and
750 shares held by Aaron Goldsmith,
Mr. Goldsmiths son. |
12
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(5) |
Mr. Kentor has served as a director since February 2005.
Mr. Kentor received an option to
purchase 30,000 shares of common stock granted on
February 23, 2005, of which no shares are exercisable
within 60 days after March 31, 2005. |
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(6) |
Represents 10,000 shares subject to options that are
exercisable within 60 days after March 31, 2005.
Mr. Noonan received an option to
purchase 20,000 shares of common stock granted on
January 10, 2005, of which no shares are exercisable within
60 days after March 31, 2005. |
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(7) |
Includes 55,000 shares subject to options that are
exercisable within 60 days after March 31, 2005.
Dr. Strauss received an option to
purchase 20,000 shares of common stock granted on
January 10, 2005, of which no shares are exercisable within
60 days after March 31, 2005. |
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(8) |
Represents 25,000 shares subject to options that are
exercisable within 60 days after March 31, 2005.
Mr. Testman received an option to
purchase 20,000 shares of common stock granted on
January 10, 2005, of which no shares are exercisable within
60 days after March 31, 2005. |
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(9) |
Includes 395,833 shares subject to options that are
exercisable within 60 days after March 31, 2005 and
warrants to purchase 126,352 shares of common stock,
all of which are currently exercisable. |
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(10) |
Mr. Rodriguez received options to
purchase 275,000 shares of common stock granted on
August 18, 2004, of which no shares are exercisable within
60 days after March 31, 2005. |
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(11) |
Includes 833,333 shares subject to options that are
exercisable within 60 days after March 31, 2005 and
warrants to purchase 248,914 shares of common stock,
all of which are currently exercisable. Beneficial ownership of
our common stock by Ms. Greenberg is not included in this
calculation as she is no longer an executive officer. |
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(12) |
Represents 153,139 shares subject to options that are
exercisable within 60 days after March 31, 2005. |
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(13) |
Pursuant to a Schedule 13G/A filed on February 8, 2005
with the SEC, the State of Wisconsin Investment Board reported
sole voting and dispositive power over 3,075,500 shares. |
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(14) |
Pursuant to a joint Schedule 13G filed on March 10,
2005 with the SEC: (i) WS Capital, L.L.C. reported that it
had sole voting and dispositive power over
1,720,909 shares; (ii) W.S. Capital Management,
L.P. reported that it had shared voting and dispositive power
over 1,720,909 shares; (iii) Walker Smith Capital,
L.P. reported that it had sole voting and dispositive power over
132,428 shares; (iv) Walker Smith Capital (Q.P.), L.P.
reported that it had sole voting and dispositive power over
625,821 shares; (v) Walker Smith International Fund,
Ltd. reported that it had sole voting and dispositive power over
962,660 shares; (vi) WSV Management, L.L.C. reported
that it had sole voting and dispositive power over
447,371 shares; (vii) WS Ventures Management, L.P.
reported that it had sole voting and dispositive power over
447,371 shares; (viii) WS Opportunity Fund (Q.P.),
L.P. reported that it had sole voting and dispositive power over
137,090 shares; (ix) WS Opportunity
Fund International, Ltd. reported that it had sole voting
and dispositive power over 182,840 shares; (x) Reid S.
Walker reported that he had sole voting and dispositive power
over 2,168,280 shares; (xi) G. Stacy Smith reported
that he had sole voting and dispositive power over
2,168,280 shares; and (xii) Patrick P. Walker reported
that he had sole voting and dispositive power over
447,371 shares. In addition to the shares noted in the
table above, the joint Schedule 13G filed on March 10,
2005 also indicates that: (i) BC Advisors, LLC had sole
voting and dispositive power over 908,107 shares;
(ii) SRB Management, L.P. had sole voting and
dispositive power over 908,107 shares; (iii) SRB
Greenway Capital, L.P. had sole voting and dispositive power
over 102,986 shares; (iv) SRB Greenway Capital (Q.P.),
L.P. had sole voting and dispositive power over
736,238 shares; (v) SRB Greenway Offshore Operating
Fund, L.P. had sole voting and dispositive power over
68,883 shares; and (vi) Steven R. Becker had sole
voting and dispositive power over 908,107 shares. Pursuant
to a letter agreement, Steven R. Becker may collaborate
with Reid S. Walker, G. Stacy Smith and
Patrick P. Walker on investment strategies from time to
time. |
13
EXECUTIVE OFFICERS
Our executive officers as of March 31, 2005 are as follows:
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Name |
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Age | |
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Position with Endocare |
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| |
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Craig T. Davenport
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52 |
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Chairman and Chief Executive Officer
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William J. Nydam
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55 |
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President and Chief Operating Officer
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Michael R. Rodriguez
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37 |
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Senior Vice President, Finance, Chief Financial Officer and
Secretary
|
Craig T. Davenport has served as our chief executive
officer since December 2003 and as our chairman since January
2004. For additional information regarding Mr. Davenport,
see above under Directors and Nominees.
William J. Nydam has served as president and chief
operating officer since March 2003. Mr. Nydam also
currently is a board member and the chairman of the audit
committee of Specialty Laboratories, Inc. Prior to joining us,
Mr. Nydam was president and chief executive officer of
Pulse Metric, Inc., a cardiovascular device company, from
September 2001 to December 2002. Mr. Nydam previously
served as senior vice president for Science Applications
International Corporation, an employee-owned research and
engineering firm, from September 1999 to August 2001. Prior to
that time, Mr. Nydam worked for Premier, Inc., a national
alliance of healthcare providers, where he served as executive
vice president from April 1996 to August 1999, chief operating
officer from May 1992 to March 1996 and senior vice president
and chief financial officer from January 1986 to April 1992.
Mr. Nydam holds a B.S. degree in accounting and an M.B.A.
from the University of California at Berkeley and he is a
certified public accountant.
Michael R. Rodriguez joined us in August 2004 as senior
vice president, finance, chief financial officer and secretary.
Since January 2004, Mr. Rodriguez has served as a
consultant to us, assisting us in working on a variety of
financial and operational projects and, more recently, assisting
with work regarding our compliance with Section 404 of the
Sarbanes-Oxley Act. In that capacity he reported directly to our
president and chief operating officer William J. Nydam.
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. degree in accounting from the
University of Southern California and an M.B.A. from Stanford
University and he is a certified public accountant.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table sets forth summary information regarding the
compensation earned by our chief executive officer and each of
our other most highly compensated executive officers employed by
us as of December 31, 2004 and whose salary and bonus for
the fiscal year ended December 31, 2004 was in excess of
$100,000 for their services rendered in all capacities to us.
This table also sets forth summary information for Katherine
Greenberg, our former senior vice president, chief financial
officer and secretary, who served as an executive officer for a
portion of 2004. No executive officers who would have otherwise
been included in this table on the basis of salary and bonus
earned for the fiscal 2004 year have been
14
excluded by reason of his or her termination of employment or
change in executive status during that year. The listed
individuals are hereinafter referred to as the Named
Executive Officers.
Summary 2004 Compensation Table
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Long-Term | |
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Compensation | |
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Annual Compensation | |
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Award Securities | |
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Other Annual | |
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Underlying | |
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All Other | |
Name and Principal Position |
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Year | |
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Salary | |
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Bonus(1) | |
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Compensation(2) | |
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Options/SARS(3) | |
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Compensation | |
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Craig T. Davenport(4)
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2004 |
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$ |
300,000 |
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$ |
102,375 |
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$ |
9,206 |
(9) |
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Chairman and Chief |
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2003 |
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$ |
12,500 |
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$ |
174,450 |
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900,000 |
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$ |
218,876 |
(8) |
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Executive Officer |
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William J. Nydam(5)
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2004 |
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$ |
252,000 |
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$ |
68,942 |
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$ |
14,146 |
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100,000 |
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$ |
10,353 |
(9) |
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President and Chief |
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2003 |
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$ |
202,769 |
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$ |
55,766 |
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$ |
10,946 |
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500,000 |
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$ |
7,094 |
(9) |
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Operating Officer |
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Michael R. Rodriguez(6)
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2004 |
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$ |
68,974 |
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$ |
20,200 |
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275,000 |
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$ |
174,184 |
(9),(10) |
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Senior Vice President, |
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2003 |
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Finance, Chief Financial Officer and Secretary |
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Katherine Greenberg(7)
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2004 |
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$ |
206,009 |
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$ |
5,750 |
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250,000 |
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$ |
4,996 |
(9) |
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Former Senior Vice President, |
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2003 |
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$ |
154,162 |
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$ |
61,423 |
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$ |
3,042 |
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250,000 |
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$ |
5,144 |
(9) |
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Finance, Chief Financial Officer |
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and Secretary |
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(1) |
Reflects bonuses earned during the fiscal year indicated,
regardless of when such bonuses were paid. |
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(2) |
This amount represents an automobile allowance. |
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(3) |
We do not grant Stock Appreciation Rights. |
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(4) |
Mr. Davenport joined us in December 2003 as our chief
executive officer and became our chairman in January 2004. |
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(5) |
Mr. Nydam joined us in March 2003 as our president and
chief operating officer. |
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(6) |
Mr. Rodriguez joined us in August 2004 as our senior vice
president, finance, chief financial officer and secretary. |
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(7) |
Ms. Greenberg joined us in March 2003 as our senior vice
president and chief financial officer and became our secretary
on June 2003. Ms. Greenberg resigned from these positions
in August 2004. |
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(8) |
Represents consulting payments that we made to
Mr. Davenport before he became our chief executive officer,
pursuant to the terms of a consulting agreement that we entered
into with Mr. Davenport in August 2003. |
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(9) |
The amounts include the value of our contributions on behalf of
each Named Executive Officer under our 401(k) plan, medical plan
and group term life insurance plan. These contributions were:
for Mr. Nydam, $7,094 in 2003 and $10,353 in 2004; for
Ms. Greenberg, $5,144 in 2003 and $4,996 in 2004; for
Mr. Rodriguez, $2,184 in 2004; and for Mr. Davenport,
$9,206 in 2004. In addition, each of the Named Executed Officers
was entitled to be reimbursed by us for dental and vision care,
but the amounts that we actually reimbursed during each year
were not material individually or in the aggregate. |
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(10) |
Includes $172,000 in consulting payments that were made to
Mr. Rodriguez before he became our senior vice president,
finance, chief financial officer and secretary in August 2004,
pursuant to the terms of a consulting agreement that we entered
into with Mr. Rodriguez in December 2003. |
15
Stock Option Grants
The following table sets forth information concerning each grant
of stock options made during 2004 to each of the Named Executive
Officers.
Option Grants in Last Fiscal Year
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Percent of | |
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Potential Realizable | |
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Total | |
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Value at Assumed Annual | |
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Number of | |
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Options | |
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Rates of Stock Price | |
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Shares | |
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Granted to | |
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Exercise | |
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Appreciation for Option | |
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Underlying | |
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Employees | |
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Price Per | |
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Terms ($)(4) | |
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Options | |
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in Fiscal | |
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Share | |
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Expiration | |
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Name |
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Granted(1) | |
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Year(2) | |
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($/Share)(3) | |
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Date | |
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5% | |
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10% | |
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Craig T. Davenport
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William J. Nydam
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Michael R. Rodriguez
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275,000 |
(1) |
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2.04 |
% |
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$ |
2.15 |
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8/18/2014 |
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$ |
371,834 |
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$ |
942,300 |
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Katherine Greenberg
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(1) |
All options become fully vested and exercisable (unless assumed
by the successor entity or its parent or otherwise in accordance
with the 2004 Stock Incentive Plan) upon (i) a dissolution,
liquidation or sale of substantially all our assets,
(ii) any reorganization, merger or consolidation in which
we do not survive or in which our shares outstanding prior to
the transaction are converted into other property or in which we
experience a change in control (iii) an acquisition of 50%
or more of our stock. Unless otherwise noted, prior to and in
the absence of such merger, sale or acquisition, 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. Each
option has a maximum term of 10 years measured from the
grant date, subject to earlier termination upon the
optionees cessation of service with us. The shares subject
to each option become exercisable only if vested. |
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(2) |
Percentages are based on an aggregate of 1,347,500 options
granted to our employees under our 1995 Stock Plan and 2004
Stock Incentive Plan during 2004. No options were granted to our
employees outside of these plans in 2004. |
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(3) |
The exercise price may be paid in cash, in shares of common
stock valued at fair market value on the exercise date or
through a broker-assisted cashless exercise procedure involving
a same-day sale of the purchased shares. |
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(4) |
The potential realizable value is calculated based on the term
of the option at its time of grant. It is calculated by assuming
that the stock price on the date of grant appreciates at the
indicated annual rate, compounded annually for the entire term
of the option. We do not provide assurance to any Named
Executive Officer or any other holder of our securities that the
actual stock price appreciation over the 10-year option term
will be at the assumed 5% and 10% levels or at any other defined
level. Unless the market price of the common stock does in fact
appreciate over the option term, no value will be realized from
the option grants made to the Named Executive Officers. |
16
Aggregate Option Exercises in 2004 and Option Values at
December 31, 2004
The following table sets forth certain information, with respect
to the Named Executive Officers, concerning the exercise of
options during our 2004 fiscal year and unexercised options held
by them at the end of that fiscal year. No stock appreciation
rights were exercised by the Named Executive Officers during
such fiscal year, and no stock appreciation rights were held by
them at the end of such fiscal year.
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
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Number of Shares | |
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Value of Unexercised | |
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Number of | |
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Underlying Unexercised | |
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In-the-Money Options as of | |
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Shares | |
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Options as of 31-Dec-04 | |
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December 31, 2003(1) | |
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Acquired on | |
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Value | |
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Name |
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Exercise | |
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Realized | |
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Exercisable | |
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Unexercisable | |
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Exercisable | |
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Unexercisable | |
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Craig T. Davenport
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243,750 |
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756,250 |
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William J. Nydam
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281,250 |
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468,750 |
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$ |
28,125 |
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$ |
46,875 |
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Michael R. Rodriguez
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275,000 |
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$ |
55,000 |
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Katherine Greenberg
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130,100 |
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119,900 |
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$ |
13,010 |
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$ |
11,990 |
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(1) |
Based on the market price of $2.35 per share, which was the
average of the high and low sales prices per share of common
stock as reflected on December 31, 2004. Our common stock
has not traded on the Nasdaq National Market since
December 11, 2002 and was subsequently delisted. As such,
the values listed above reflect the trading price of our
delisted shares and may or may not reflect the true value of our
common stock. |
Employment Contracts, Severance Agreements and Change of
Control Arrangements
In connection with option grants, we have entered into stock
option agreements with each employee holding one or more
outstanding options under the 1995 Stock Plan and 2004 Stock
Incentive Plan, including our Named Executive Officers. Options
issued under the 1995 Stock Plan and 2004 Stock Incentive Plan
may automatically vest on an accelerated basis in the event of
the following:
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a dissolution, liquidation or sale of substantially all our
assets; |
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any reorganization, merger or consolidation in which we are not
the surviving entity; or |
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an acquisition of 50% or more of our stock. |
We have not entered into employment or severance agreements with
any of the Named Executive Officers, except as described below.
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|
Employment Agreement with Mr. Davenport |
We have entered into an employment agreement with
Mr. Davenport, dated as of December 15, 2003. Under
his employment agreement, Mr. Davenports initial base
salary was $300,000 per year, and Mr. Davenport is
eligible to receive an annual bonus of up to 45% of his base
salary. In addition, the employment agreement provides for a
cash signing and relocation bonus of $174,450, payable on
December 15, 2003. The employment agreement also provides
that we will reimburse Mr. Davenport for interim housing
and other temporary living expenses, in an aggregate amount of
up to $36,000. Effective as of December 16, 2004,
Mr. Davenports annual base salary increased from
$300,000 to $312,000 pursuant to the terms of his employment
agreement, which provides for the review and adjustment of
Mr. Davenports base salary in accordance with our
procedures for adjusting salaries for senior executives.
Pursuant to his employment agreement, Mr. Davenport
received options to purchase 900,000 shares of our
common stock, at an exercise price per share equal to $4.27.
These options vested as to 25% of the shares on
December 15, 2003 and vest as to 1/48th of the shares
beginning on January 15, 2005 and at the end of each
monthly anniversary thereafter. The vesting will accelerate upon
the occurrence of a change in control. These options expire on
the tenth anniversary of Mr. Davenports employment.
17
Pursuant to his employment agreement, Mr. Davenport also
received additional options to purchase 100,000 shares
of our common stock, at an exercise price per share equal to
$4.27. These options vest upon the first to occur of the
attainment of performance objectives that have been mutually
agreed upon with Mr. Davenport or December 15, 2008.
The vesting will accelerate upon the occurrence of a change in
control. These options expire on the tenth anniversary of
Mr. Davenports employment.
Mr. Davenports employment agreement also provides
that, if we terminate Mr. Davenports employment other
than for cause (as defined in the employment
agreement) or if Mr. Davenport terminates his employment
for good reason (as defined in the employment
agreement), or if Mr. Davenport dies or becomes disabled as
a direct result of business-related activities, then, during the
severance period (i) we will continue to pay to
Mr. Davenport his base salary and annual bonus and make
available to Mr. Davenport the benefits made generally
available by us to our employees, and (ii) all of his
current options will continue to vest during the severance
period. Mr. Davenport, at his option, may elect to have the
cash severance described above paid in one lump sum payment
within five business days of the applicable termination of his
employment. If the date of Mr. Davenports termination
is on or before December 15, 2004, then the term
severance period means the period beginning on the
date of Mr. Davenports termination and ending on
December 15, 2005. If the date of Mr. Davenports
termination is after December 15, 2004, then the term
severance period means the twelve (12)-month period
immediately following the date of Mr. Davenports
termination.
Effective as of April 28, 2005, we entered into an
amendment to Mr. Davenports employment agreement
pursuant to which we (i) increased his annual base salary
to $390,000 per year effective March 1, 2005, (ii)
provided that he is eligible to receive an annual bonus of up to
85% of his base salary (iii) granted to Mr. Davenport
an additional non-qualified stock option to
purchase 225,000 shares of our common stock, and
(iv) provided that Mr. Davenport will be entitled to
receive a minimum aggregate amount of $750,000 in cash if he
terminates his employment at any time within the 180-day period
immediately following the six (6)-month anniversary of the date
of the occurrence of a change in control to the extent such
$750,000 payment exceeds amounts otherwise payable pursuant to
the formula contained in the employment agreement.
Prior to his employment with us, we paid to Mr. Davenport
$218,876 pursuant to a consulting agreement that we entered into
with Mr. Davenport in August 2003.
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Employment Agreement with Mr. Nydam |
We have entered into an employment agreement with
Mr. Nydam, dated as of March 3, 2003. Under his
employment agreement, Mr. Nydams initial base salary
was $240,000 per year, and Mr. Nydam is eligible to
receive an annual bonus of up to 40% of his base salary. In
addition, the employment agreement provides for a cash signing
bonus of $15,000, and a cash performance bonus of $10,000
promptly after we are in full compliance with our obligations as
a reporting company pursuant to the Securities Exchange Act of
1934, as amended. Mr. Nydams annual base salary
increased from $240,000 to $254,400 per year, effective as
of February 16, 2004, and from $254,400 to
$262,032 per year, effective February 23, 2005,
pursuant to the terms of his employment agreement, which
provides for the review and adjustment of Mr. Nydams
base salary in accordance with our procedures for adjusting
salaries for senior executives.
Pursuant to his employment agreement, Mr. Nydam received
options to purchase 500,000 shares of our common
stock, at an exercise price equal to the fair market value of
the common stock on the grant date. These options vest as to 25%
of the shares on the first anniversary of Mr. Nydams
employment and 1/48th of the shares at the end of each monthly
anniversary thereafter. The vesting will accelerate upon the
occurrence of a change in control. These options expire on the
tenth anniversary of Mr. Nydams employment.
Pursuant to his employment agreement, Mr. Nydam also
received additional options to purchase 250,000 shares
of our common stock, at an exercise price equal to the fair
market value of the common stock on the grant date. These
options vest upon the attainment of performance objectives that
have been mutually agreed upon by us and Mr. Nydam, or
5 years, whichever occurs first. The vesting will
18
accelerate upon the occurrence of a change in control. These
options expire on the tenth anniversary of Mr. Nydams
employment.
Mr. Nydams employment agreement also provides that,
if we terminate Mr. Nydams employment other than for
cause (as defined in the employment agreement) or if
Mr. Nydam terminates his employment for good
reason (as defined in the employment agreement), then,
during the 12-month period immediately following the date of
Mr. Nydams termination, (i) we will continue to
pay to Mr. Nydam his base salary and make available to
Mr. Nydam the benefits made generally available by us to
our employees, and (ii) his first group of options,
covering 500,000 shares of common stock, will continue to
vest for a one year period following such termination.
|
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|
Employment Agreement with Mr. Rodriguez |
We have entered into an employment agreement with
Mr. Rodriguez, dated as of August 11, 2004. Under his
employment agreement, Mr. Rodriguezs initial base
salary was $200,000 per year, and Mr. Rodriguez is
eligible to receive an annual bonus of up to 40% of his base
salary. In addition, we agreed to pay to Mr. Rodriguez a
$20,000 signing bonus within 30 days of the effective date
of his employment agreement. Effective as of February 23,
2005, Mr. Rodriguezs annual base salary increased
from $200,000 to $202,000 pursuant to the terms of his
employment agreement, which provides for the review and
adjustment of Mr. Rodriguezs base salary in
accordance with our procedures for adjusting salaries for senior
executives.
Pursuant to his employment agreement, Mr. Rodriguez
received options to purchase 275,000 shares of our
common stock, at an exercise price equal to the fair market
value of the common stock on the grant date. These options vest
as to 25% of the shares on the first anniversary of
Mr. Rodriguezs employment and 1/48th of the shares at
the end of each monthly anniversary thereafter. The vesting will
accelerate upon the occurrence of a change in control. These
options expire on the tenth anniversary of
Mr. Rodriguezs employment.
Mr. Rodriguezs employment agreement also provides
that, if we terminate Mr. Rodriguezs employment other
than for cause (as defined in the employment
agreement) or if Mr. Rodriguez terminates his employment
for good reason (as defined in the employment
agreement), then, during the period of time from the termination
date until the first anniversary of the termination day, we will
continue to pay to Mr. Rodriguez his base salary and make
available to Mr. Rodriguez the benefits made generally
available by us to our employees, to the extent permitted under
applicable law and the terms of the benefit plans.
Prior to his employment with us, we paid to Mr. Rodriguez
$172,000 pursuant to a consulting agreement that we entered into
with Mr. Rodriguez in December 2003.
|
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|
Employment Agreement with and Resignation of
Ms. Greenberg |
We previously entered into an employment agreement with
Ms. Greenberg, dated as of March 25, 2003 and amended
as of September 14, 2003. Under her employment agreement,
Ms. Greenbergs initial base salary was
$185,000 per year, and Ms. Greenberg was eligible to
receive an annual bonus of up to 40% of her base salary.
Pursuant to her employment agreement, Ms. Greenberg
received options to purchase 250,000 shares of our
common stock, at an exercise price equal to the fair market
value of the common stock on the grant date. These options vest
as to 25% of the shares on the first anniversary of
Ms. Greenbergs employment and 1/48th of the shares at
the end of each monthly anniversary thereafter. The vesting will
accelerate upon the occurrence of a change in control. These
options expire on the tenth anniversary of
Ms. Greenbergs employment.
Ms. Greenbergs employment agreement also provided
that, if we terminate Ms. Greenbergs employment other
than for cause (as defined in the employment
agreement) or if Ms. Greenberg terminates her employment
within six months of the occurrence of an event that constitutes
good reason
19
(as defined in the employment agreement), then, during the
12-month period immediately following the date of
Ms. Greenbergs termination, (i) we will continue
to pay to Ms. Greenberg her base salary and make available
to Ms. Greenberg the benefits made generally available by
us to our employees, and (ii) her options will continue to
vest for a one year period following such termination. In June
2004, we entered into a letter agreement with Ms. Greenberg
pursuant to which we agreed to toll until August 15, 2004
the six-month notice period applicable to termination for
good reason with respect to any facts or
circumstances that arose from December 2003 through February
2004.
Ms. Greenberg resigned as our Chief Financial Officer and
Senior Vice President, effective August 10, 2004. On
August 27, 2004, we executed a General Release of All
Claims with Ms. Greenberg, which is effective as of
August 10, 2004. Pursuant to the terms of the General
Release, we agreed to continue to pay Ms. Greenberg her
current base salary of $185,000 per year via semi-monthly
salary continuation payments for a period of 12 months
following her resignation. In addition, to the extent that
Ms. Greenberg elects to receive continuation of her health
benefits pursuant to COBRA during the 12 months following
her resignation, we have agreed to reimburse her for the monthly
cost of such benefits, up to the monthly amount we paid for such
benefits prior to her resignation. Finally, we have agreed to
permit Ms. Greenberg to continue to vest in all stock
options previously granted by us through July 31, 2005. In
consideration for these and other benefits included in the
General Release, Ms. Greenberg has provided us with a
general release of claims and has agreed to cooperate in helping
us with the transition of her successor.
Equity Compensation Plan Information
The following table provides information as of December 31,
2004 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, 2004, and the weighted average
exercise price of those options. No additional options may be
granted under those assumed plans.
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A | |
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B | |
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C | |
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| |
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| |
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| |
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Remaining Available for | |
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|
Number of Securities | |
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|
Future Issuance Under | |
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|
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) | |
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| |
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| |
|
| |
Equity Compensation Plans Approved by Security Holders(1)
|
|
|
2,786,811 |
(3) |
|
$ |
5.34 |
|
|
|
1,110,090 |
(4) |
Equity Compensation Plans not Approved by Security Holders(2)
|
|
|
2,568,333 |
|
|
$ |
4.03 |
|
|
|
251,667 |
(5) |
Total
|
|
|
5,355,144 |
|
|
$ |
4.72 |
|
|
|
1,361,757 |
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|
|
(1) |
Consists of the 1995 Stock Plan, 1995 Director Option Plan
and 2004 Stock Incentive Plan. |
|
(2) |
Consists of options to purchase 183,333 shares under the 2002
Supplemental Stock Plan, options to
purchase 1,000,000 shares granted to
Mr. Davenport in December 2003, options to
purchase 750,000 shares granted to Mr. Nydam in
March 2003, options to purchase 250,000 shares granted
to Ms. Greenberg in March 2003 and options to
purchase 385,000 shares granted in October 2003 to
John V. Cracchiolo, our former chief operating officer, chief
financial officer and secretary. |
|
(3) |
Consists of 1,937,811 shares to be issued upon the exercise
of options outstanding under the 1995 Stock Plan,
140,000 shares to be issued upon the exercise of options
outstanding under the 1995 Director Option Plan and
709,000 shares to be issued upon the exercise of options
outstanding under the 2004 Stock Incentive Plan. |
20
|
|
(4) |
Consists of shares available for future issuance under the 2004
Stock Incentive Plan. The number of shares of common stock
available for issuance under the 2004 Stock Incentive Plan
automatically increases on the first trading day of each
calendar year by an amount equal to 3% of the total number of
shares of common stock outstanding on the last trading day of
the immediately preceding calendar year, but in no event will
any such annual increase exceed 1,000,000 shares of common
stock. |
|
(5) |
Consists of shares available for future issuance under the 2002
Supplemental Stock Plan. |
|
(6) |
The table does not include information for equity compensation
plans assumed by us in connection with mergers and acquisitions
of the companies which originally established those plans. As of
December 31, 2004, a total of 6,538 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 may be issued upon the exercise of options under the
2002 Supplemental Stock Plan is 435,000 shares.
The 2002 Supplemental Stock Plan became effective on
June 25, 2002 and will continue in effect until
June 24, 2012, unless earlier terminated in accordance with
the terms of the Plan. The 2002 Supplemental Stock Plan
terminates automatically upon certain extraordinary events, such
as a sale of all or substantially all of our assets, a merger in
which we do not survive or the acquisition by any person or
group of beneficial ownership of more than 50% of our common
stock. If such an extraordinary event occurs, all options
granted under the 2002 Supplemental Stock Plan become fully
exercisable, and each optionee has the right to exercise any
unexpired options immediately prior to the occurrence of the
extraordinary event.
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Options Granted to Messrs. Davenport and Nydam and
Ms. Greenberg |
The options that we granted in 2003 to Messrs. Davenport
and Nydam and Ms. Greenberg are described above under
Employment Contracts, Severance Agreements and Change of
Control Arrangements.
|
|
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Options Granted to Mr. Cracchiolo |
Mr. Cracchiolos employment agreement provided that,
as of March 3, 2003, all of Mr. Cracchiolos
outstanding options to acquire shares of our common stock were
cancelled. In exchange for the cancellation of his options and
pursuant to the terms of Mr. Cracchiolos employment
agreement, on October 30, 2003 we granted to
Mr. Cracchiolo replacement options to acquire
385,000 shares of our common stock, at an exercise price of
$4.50 per share. The replacement options were fully vested
and exercisable upon grant.
Compensation Committee Interlocks and Insider
Participation
Our compensation committee consists of Dr. Strauss and
Mr. Noonan, neither of whom was at any time during fiscal
2004 or at any other time our officer or employee. There are no
compensation
21
committee interlocks between us and other entities involving our
executive officers and board members who serve as executive
officers or board members of such other entities.
The following reports of the Compensation Committee and the
Audit Committee, references to the independence of the Audit
Committee members, Audit Committee Charter and Stock Performance
Graph should not be considered to be part of this Proxy
Statement. Any current or future cross-references to this Proxy
Statement in filings with the Securities and Exchange Commission
under either the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, will not include
the reports or graph reproduced below or the Audit Committee
Charter.
Report of the Compensation Committee of the Board of
Directors
The Compensation Committee of the Board is comprised of
Dr. Strauss and Mr. Noonan, two non-employee
Directors, who administer our executive compensation programs
and policies. Dr. Strauss is the Chairman of the
Compensation Committee. Our 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 our business
strategies and long-range plans. The following is the
Compensation Committees report submitted to the Board
addressing the compensation of our executive officers for fiscal
2004.
Compensation Policy and Philosophy: Our executive
compensation policy is (i) designed to establish an
appropriate relationship between executive pay and our annual
performance, our long-term growth objectives and our 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 our stockholders. The
Compensation Committee attempts to achieve these goals by
integrating competitive annual base salaries and incentive
bonuses with stock options granted under our 2004 Stock
Incentive Plan. In support of this philosophy, a meaningful
portion of executive compensation is placed at-risk and linked
to our financial performance. The Compensation Committee
believes that cash compensation in the form of salary and
incentive bonuses provides our 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 managements stake in our long-term performance and
success. 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 of Directors for ensuring that our
executive officers are compensated in a manner that furthers our
business strategies and aligns their interests with those of our
stockholders.
Executive Compensation Components: As discussed below,
our executive compensation package is primarily comprised of
base salary, incentive bonus and stock options.
Base Salary and Incentive Bonuses: For fiscal year 2004,
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 incentive bonus
program is designed to reward executives for individual
performance and contributions to our success and overall growth
and progress. The amounts granted to executive officers under
the incentive bonus program are determined through consideration
of their respective responsibilities and positions in
conjunction with our net sales and progress in the achievement
of corporate milestones during the fiscal year. 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.
During 2004 stock options to purchase 275,000 shares
of Common Stock were granted to the Named Executive Officers and
stock options to purchase 1,072,500 shares were
granted to 25 other employees. The number of options that each
executive officer or employee was granted was based primarily on
the executives or employees ability to enhance our
long-term growth and profitability. The vesting provisions of
options granted under the 2004
22
Stock Plan are designed to encourage longevity of employment
with us and generally extend over a four-year period.
Chief Executive Officer Compensation: In December 2003 we
entered into an employment agreement with Mr. Davenport
pursuant to which he became our Chief Executive Officer. That
employment agreement set Mr. Davenports initial base
salary at $300,000 per year and provided him with a maximum
annual incentive bonus equal to forty-five percent (45%) of his
base salary.
Mr. Davenports compensation was not adjusted in our
normal review cycle in the first quarter of 2004 as he had been
relatively recently engaged as our full time Chief Executive
Officer. Effective December 16, 2004, we increased
Mr. Davenports annual base salary from $300,000 to
$312,000 pursuant to the terms of his employment agreement,
which provides for the review and adjustment of
Mr. Davenports base salary in accordance with our
procedures for adjusting salaries for senior executives. In
implementing such increase, we considered
Mr. Davenports excellent performance with respect to
challenges facing the Company, including, among other factors,
the ongoing SEC and DOJ investigations, the turnaround of the
business, and its progress toward positive cash flow. On
February 23, 2005 we approved a payment of a cash incentive
to Mr. Davenport of $102,375 under our 2004 Management
Incentive Compensation Program (the 2004 MICP
Program). The objectives used to determine cash incentive
payments for Mr. Davenport under the 2004 MICP Program
included financial performance, targets based on net revenue,
operating expenses and gross margins, as well as performance
targets based upon corporate compliance, financing, business
development and operational objectives. In addition to the
corporate objectives, Mr. Davenports individual
objectives were given consideration. The 2004 MICP Program as
originally adopted included ancillary and international revenue
targets to be achieved in 2004 along with targets based on
domestic revenues from our core business to arrive at a total
revenue target. Following discussion with management, we
exercised our discretion for this particular objective and
focused only on our core business for purposes of determining
whether the net revenue target under the 2004 MICP Program was
achieved. We felt that this core business performance and
revenue attainment were deserving of special consideration in
the exercise of our discretion.
Internal Revenue Code Section 162(m):
Section 162(m) of the Internal Revenue Code disallows a tax
deduction to publicly held companies for compensation paid to
certain of their executive officers, to the extent that
compensation exceeds $1.0 million per covered officer in
any fiscal year. The limitation applies only to compensation
that is not considered to be performance-based. The
non-performance based compensation paid in cash to our executive
officers for the 2003 fiscal year did not exceed the
$1.0 million limit per officer, and the Compensation
Committee does not anticipate that the non-performance based
compensation to be paid in cash to our executive officers for
fiscal 2004 will exceed that limit. The 1995 Stock Plan and 2004
Stock Incentive Plan have been structured so that any
compensation paid in connection with the exercise of options
granted under the plans will qualify as performance-based
compensation and therefore is not subject to the
$1.0 million limitation. However, compensation paid in
connection with the exercise of options granted under the 2002
Supplemental Stock Plan will not qualify as performance based
compensation and therefore is subject to the $1.0 million
limitation.
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COMPENSATION COMMITTEE |
|
|
Michael J. Strauss, M.D. |
|
Terrence A. Noonan |
23
Board Audit Committee Report on Independent Auditors
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
2004.
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 auditors are 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
auditors, Ernst & Young LLP, the written disclosures
and the letter describing all relationships between the auditors
and us 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 auditors any
relationships that may impact their objectivity and independence
and satisfied itself as to the auditors independence.
The Audit Committee discussed and reviewed with the independent
auditors 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,
2004 with management and the independent auditors.
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, 2004, for filing with the
Securities and Exchange Commission.
|
|
|
AUDIT COMMITTEE |
|
|
Thomas R. Testman |
|
John R. Daniels, M.D. |
|
Terrence A. Noonan |
24
STOCK PERFORMANCE GRAPH
The following graph compares the performance of our common stock
over the five preceding fiscal years to the weighted average
performance over the same period of the stock of companies
included in The Nasdaq Stock Market-U.S. Index and a
self-constructed peer group of companies selected by us. We
first included the self-constructed peer group in 2002 because
we were informed that 2001 would be the last year the JP Morgan
Hambrecht & Quist Healthcare-Excluding Biotechnology
Index would be available. The graph assumes $100 was invested at
the close of trading on December 31, 1999 in our common
stock and in each indices and that all dividends were
reinvested. The Nasdaq Stock Market-U.S. Index tracks the
aggregate price performance of equity securities of companies
traded on The Nasdaq National Market. The self-constructed per
group consists of: American Medical Systems Holdings, Inc.,
HealthTronics Surgical Services, Inc., Laserscope, North
American Scientific, Inc., Theragenics Corporation and Urologix,
Inc. The stockholder return shown on the graph below should not
be considered indicative of future stockholder returns, and we
will not make or endorse any predictions to future stockholder
returns.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ENDOCARE, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND A PEER GROUP
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Cumulative Total Return | |
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12/99 | |
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12/00 | |
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12/01 | |
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12/02 | |
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12/03 | |
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12/04 | |
| |
ENDOCARE, INC.
|
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100.00 |
|
|
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151.10 |
|
|
|
212.49 |
|
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|
40.77 |
|
|
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47.52 |
|
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29.63 |
|
NASDAQ STOCK MARKET (U.S.)
|
|
|
100.00 |
|
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60.30 |
|
|
|
45.49 |
|
|
|
26.40 |
|
|
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38.36 |
|
|
|
40.51 |
|
PEER GROUP
|
|
|
100.00 |
|
|
|
102.65 |
|
|
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143.42 |
|
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89.02 |
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131.21 |
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220.58 |
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* |
$100 invested on 12/31/99 in stock or index
including reinvestment of dividends. Fiscal year ending
December 31. |
25
RELATED PARTY TRANSACTIONS
As described above under Executive Compensation and Other
Information, we have entered into certain employment,
stock option and other agreements with Messrs. Davenport,
Nydam and Rodriguez and Ms. Greenberg.
As described in the Form 8-K that we filed on
March 16, 2005, in March 2005 we completed a private
placement financing for aggregate gross proceeds of
$15.6 million. Messrs. Davenport and Nydam made
personal investments in the transaction in the amounts of
$184,999.99 and $499,998.85, respectively. In addition,
Dr. Daniels invested $299,999.31 in the transaction.
We have entered into indemnification agreements with each of our
directors and executive officers, as well as with certain
employees and consultants. These indemnification agreements
provide that we hold harmless and indemnify each such director,
officer, employee and consultant to the fullest extent
authorized or permitted by law. In addition, these
indemnification agreements provide for payment of expenses
(including attorneys fees) actually and reasonably
incurred in connection with any threatened, pending or completed
proceeding to which the indemnified director, officer or
employee is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that he or
she is, was or at any time becomes a director, officer, employee
or agent of us, or is or was serving or at any time serves at
the request of us as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires our executive officers and directors, and 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, 2004 through December 31, 2004,
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 that Form 4s
reporting the automatic grant on January 2, 2004 of 5,000
options to each of our non-employee directors under our
1995 Director Option Plan were filed late on
January 20, 2004 by Peter F. Bernardoni, on
February 10, 2004 by Ronald A. Matricaria, Mr. Testman
and Dr. Strauss, and February 18, 2004 by Robert F.
Byrnes and Benjamin Gerson, M.D.
STOCKHOLDER PROPOSALS FOR THE 2006 ANNUAL MEETING
Stockholder proposals that are intended to be presented at our
2006 Annual Meeting must be received no later than
January 12, 2006, in order that they may be included in the
proxy statement and form of proxy relating to that meeting, and
must meet all the other requirements as specified in the Bylaws.
In addition, the proxy solicited by the Board of Directors for
the 2006 Annual Meeting will confer discretionary authority to
vote on any stockholder proposal presented at that meeting,
unless we receive notice of such proposal not later than
March 28, 2006.
ANNUAL REPORT
A copy of our Annual Report for the 2004 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.
26
FORM 10-K
We filed an Annual Report on Form 10-K with the
Securities and Exchange Commission on March 16, 2005. 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: Michael R. Rodriguez.
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By Order of the Board of Directors |
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Michael R. Rodriguez |
|
Senior Vice President, Finance, Chief Financial |
|
Officer and Secretary |
Irvine, California
May 12, 2005
27
APPENDIX A
LETTER FROM KPMG LLP
November 17, 2003
Securities and Exchange Commission
Washington DC 20549
Ladies and Gentlemen:
We were previously principal accountants for Endocare, Inc. (the
Registrant or the Company) and, under
the date of February 19, 2002, except as to notes 1
and 15, which are as of March 25, 2002, we reported on
the consolidated financial statements of Endocare, Inc. as of
December 31, 2001 and 2000 and for the years ended
December 31, 2001, 2000 and 1999. However, as reported by
the Company in a press release dated December 12, 2002, and
as disclosed in the Companys Form 8-K dated
March 14, 2003 and Form 8-K/ As dated
May 1, 2003 and May 15, 2003, we subsequently notified
the Registrant on December 11, 2002 that this report should
no longer be relied upon as it relates to the December 31,
2001 consolidated financial statements. On March 7, 2003,
our appointment as principal accountants was terminated.
Additionally, as disclosed in the Companys Form 8-K
dated September 19, 2003, we notified the Registrant on
September 16, 2003 that the above report as it relates to
the Companys consolidated financial statements as of
December 31, 2000, and for the years ended
December 31, 2000 and 1999, should no longer be relied on.
We have read the Registrants statements to be included in
its Proxy Statement on Schedule 14A to be dated on or about
November 18, 2003, and we agree with such statements,
except that we either are not in a position to agree or disagree
with certain statements, or we believe such statements are
incomplete, as set forth below:
DISMISSAL OF KPMG
We are not in a position to agree or disagree with the statement
that the Companys Board of Directors, upon recommendation
of the Audit Committee, approved our dismissal.
The description regarding the basis for our conclusion that we
were unable to rely on the representations of the Companys
management is incomplete. We were in the process of performing
our quarterly review under Statement on Auditing Standards
(SAS) No. 71, Interim Financial Information, on
the consolidated financial statements of the Company
as of and for the quarter ended September 30, 2002. On
October 29, 2002, we were informed that one of the
Companys Directors had been contacted on October 24,
2002 by Joseph A. Haferman, the acting Corporate Controller,
expressing concerns regarding the accounting for several
transactions and other matters. At that time, we also were
informed that on or about October 24, 2002, the
Companys Audit Committee had directed Brobeck, Phleger and
Harrison (Brobeck), the Companys outside legal
counsel, to perform an investigation of the matters raised. On
October 29, 2002, at the completion of this initial
investigation, the Audit Committee informed us that it was
satisfied with the results of the initial investigation.
However, as this initial investigation had not been performed by
individuals with forensic accounting experience, we recommended
that a more thorough investigation be performed by individuals
with forensic accounting experience. Between October 29,
2002 and December 4, 2002, Brobeck and Deloitte &
Touche LLP, at the request of the Audit Committee, performed
several subsequent investigations of the matters raised, as well
as other matters that were raised by the investigations. At the
conclusion of each of the subsequent investigations, the Audit
Committee informed us that it was satisfied with the results of
the investigations, and that no further investigation was
warranted. However, we believed that each of these subsequent
investigations confirmed certain of the initial concerns raised
by Mr. Haferman, as well as raising additional matters
warranting additional investigation. Accordingly, we advised the
Audit Committee that we believed that additional investigation
was still warranted.
In a letter to the Audit Committee dated December 11, 2002,
we notified the Audit Committee that in the course of attempting
to complete our SAS No. 71 review as of September 30,
2002, and for the
A-1
quarter then ended, as well as after considering the results of
the investigations discussed above, information came to our
attention that lead us to conclude that we were unable to rely
on the representations of management. We informed the Audit
Committee that it was apparent to us that management prepared
financial statements for the quarterly and annual periods in
2002 and 2001 based on information that did not reflect either
the facts or substance of certain transactions, the information
and representations provided to us did not reflect the actual
facts or substance of the transactions, and in several cases we
received inconsistent representations from management in
relation to the transactions. We provided to the Audit Committee
a summary of the various transactions, as described below. We
further informed the Audit Committee that no single transaction
or misrepresentation formed the basis for our conclusion, but
rather it was the pattern and totality of information, and the
weight of the evidence that had come into our possession. In
addition, we also indicated to the Audit Committee that we had
not concluded as to whether any specific transaction or
misrepresentation was fraudulent or willfully inappropriate.
Also, on December 11, 2002, we recommended to the Audit
Committee that a new senior management team should perform its
own review and investigation of the matters raised during the
various investigations noted above. As of the date of our
dismissal, the issues discussed in our letter to the Audit
Committee dated December 11, 2002 had not been resolved to
our satisfaction.
In addition, the description of the five specific matters under
the heading Revenue Recognition, the two specific
matters under the heading Expense Recognition, and
the three specific matters under the heading Accounts
Receivable (collectively the Specific Matters)
does not completely represent what we had communicated to the
Companys Audit Committee. The following is what we had
communicated in writing to the Audit Committee in the
December 11, 2002 letter described above, as it relates to
the Specific Matters:
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|
|
In the course of attempting to complete our SAS No. 71
review as of September 30, 2002, and for the quarter then
ended, as well as after considering the results of the
investigations noted above, information came to our attention
that has lead us to conclude that we are unable to rely on the
representations of management. It is apparent to us that
management prepared financial statements for the quarterly and
annual periods in 2002 and 2001 based on information that did
not reflect either the facts or substance of certain
transactions. In addition, the information and representations
provided to us did not reflect the actual facts or substance of
the transactions, and in several cases we received inconsistent
representations from management in relation to the transactions.
Such transactions during 2002 and 2001 include the following: |
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The Company recorded sales to customers that remained in
Company controlled facilities at the time of performing our most
recent review procedures. We believe that two of these sales
went directly to Company controlled facilities, while the third
was shipped to a third party hospital, but returned to a
Company-leased facility shortly thereafter. Accordingly, the
Company did not have evidence that delivery had occurred under
the sales transactions. When we previously inquired about the
status of the related unpaid receivables on several occasions,
senior management did not inform us that the goods were still in
the Companys possession. We believe that senior management
was aware that the goods were still in the Companys
possession, and it is not evident to us that management has
considered the applicability of Staff Accounting
Bulletin No. 101 to these transactions, particularly
the requirement of a fixed delivery schedule and written
direction by the customer. |
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The Company recorded sales to customers that were shipped to
Company controlled facilities, and then not delivered to the
customers until a subsequent accounting period, remaining in
Company controlled facilities as of the close of the accounting
period the sales were recorded. We believe that senior
management was aware of these arrangements, and it is not
evident to us that management has considered the applicability
of Staff Accounting Bulletin No. 101 to these transactions,
particularly the requirement of a fixed delivery schedule and
written direction by the customer. |
A-2
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There are notations on supporting documentation for at least
two expense transactions that could be interpreted that senior
management had instructed subordinates to record the related
transactions outside of the Companys normal policies and
procedures, and potentially not in accordance with generally
accepted accounting principles. |
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There are cash receipts from customers recorded as a
reduction of accounts receivable near quarter end, where the
underlying check was rejected by the bank for non-sufficient
funds prior to the issuance of the financial statements and
filing of the Form 10-Q. In each case, we were provided
documentation by the Company indicating that the related
receivable had been paid when, in fact, it had not. In addition,
the financial statements as of June 30, 2002 prepared by
management incorrectly reflected these accounts receivable as
paid. Senior management has acknowledged to us that they were
aware of at least the most significant of these non-sufficient
funds checks before the Form 10-Q for the second quarter of
2002 was filed. |
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There are cash receipts from customers recorded as a
reduction of accounts receivable if the customer check was dated
prior to the end of the accounting period, even though physical
receipt of the check occurred after the end of the accounting
period. We believe that senior management was aware of such
practice. In addition, the financial statements prepared by
management incorrectly reflect these accounts receivable as
paid. |
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We are aware of two transactions to acquire assets from
customers entered into concurrent to the sale by the Company of
products to such customers in the first quarter of 2002.
However, only the sales to the customers were recorded in the
accounting records at the time of the sale, while the concurrent
acquisition of product from the customer was recognized in a
different accounting period. We believe that senior management
was aware of such concurrent transactions. Further, it is not
apparent that management ever considered the applicability of
Accounting Principles Board Opinion No. 29 to these
transactions. |
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Invoices for products or services have not been accrued in
the proper accounting period, though there is evidence that
senior management was aware of the existence of certain of these
liabilities at the time the financial statements were prepared
and the related Form 10-Q was filed. |
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A customer concession was granted by senior management some
period of time after the date of the original sale to facilitate
payment of an outstanding account receivable by the customer.
This concession was characterized as a consulting
arrangement, and the related agreement was back-dated. We have
not seen any evidence consulting services were, or will be,
performed. Further, the concession was recorded in a period
subsequent to when the cash receipt was recorded, despite the
apparent linkage between the concession and the payment of cash
by the customer. |
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All of the revenue related to certain multiple-element sales
was fully recorded in a single accounting period, though certain
of the components were not delivered until a subsequent
accounting period. The financial statements prepared by
management incorrectly reflected the full amount of the sales in
the periods the initial elements were delivered. |
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Sales to one particular customer were ultimately delivered to
a warehouse secured and paid for by a Company sales
representative. The sales representative was then reimbursed for
the cost of the warehouse through his expense report. However,
the accounting records noted the sale was delivered to the
customer location. When we inquired about the status of the
related unpaid receivable on several occasions, senior
management did not inform us that the goods were still in the
Companys possession. We believe senior management was
aware of this arrangement, and it is not evident to us that
management has considered the applicability of Staff Accounting
Bulletin No. 101 to this transaction. |
A-3
Also, the description as to the basis for our conclusion to
withdraw our auditors report on the consolidated financial
statements of the Company as of December 31, 2000 and for
the years ended December 31, 2000 and 1999 is not complete.
By letter dated September 3, 2003, which we received on
September 4, we were notified by the successor auditor,
Ernst & Young LLP (Ernst & Young),
that during its audit of the consolidated financial statements
of the Company as of December 31, 2001 and 2002 and for the
years then ended, and their subsequent events procedures,
certain matters came to their attention that they believed would
have a material effect on the consolidated financial statements
of the Company as of December 31, 2000 and for the year
then ended, previously audited by us. Based on our review of the
information provided to us by Ernst & Young, it
appeared to us that management prepared financial statements for
the 2000 and 1999 annual periods that did not reflect either the
facts or substance of certain transactions. In addition, it
became apparent to us that certain information and
representations provided to us at the time of performing our
audit of the 2000 and 1999 annual financial statements did not
reflect the actual facts or substance of the transactions, and
we received inconsistent representations from management in
relation to certain transactions.
The statement that The Form 8-K indicated that the
Companys Audit Committee had investigated the matters
described above and expressed certain views with respect to such
matters is incomplete. The statement is incomplete in that
the referenced Form 8-K (and subsequent amendments)
expressed the Audit Committees conclusions about the
facts, substance or interpretations for many of the specific
transactions we had identified in our letter of
December 11, 2002.
We are not in a position to agree or disagree with the statement
that the Companys Audit Committee had investigated these
matters or with the statement that the Company had asked its new
independent auditor, Ernst & Young LLP, to consider the
issues raised in the KPMG Letter in connection with
its re-audit of the Companys financial statements for the
fiscal years 2000 and 2001, and the audit for the fiscal year
ended December 31, 2002. We are also not in a position to
agree or disagree with the statement that the Audit Committee
has overseen an additional investigation and discussed
extensively with Ernst &Young the results of its
reaudits of the Companys financial statements, that the
Audit Committee has reconsidered its views and conclusions
expressed in the Form 8-K or that the views expressed in
the proxy statement are the only views on the subject that the
Audit Committee currently holds.
We believe that the statement ...after its receipt of the
KPMG Letter, the Audit Committee was unable to discuss with KPMG
the specific transactions described in the KPMG Letter, because
KPMG declined to resume any services on behalf of the Company
unless and until KPMGs concerns regarding its ability to
rely on representations of the Companys then-senior
management had been resolved to KPMGs satisfaction
is inaccurate. This statement is inaccurate in that we did, in
fact, discuss with the Audit Committee many of the specific
transactions described in the KPMG Letter when it was delivered
to the Audit Committee on December 11, 2002, and as well as
on several occasions prior to that date. We also never expressed
to the Audit Committee our unwillingness to discuss the specific
transactions subsequent to that date.
We are also not in a position to agree or disagree with the
statement that the Audit Committee has not come to the
conclusion that there was any fraud or intentional wrongdoing
associated with the activities of the Companys management.
APPOINTMENT OF ERNST & YOUNG LLP
We are not in a position to agree or disagree with any of the
statements in this section.
RECOMMENDATION OF THE BOARD OF DIRECTORS
We are not in a position to agree or disagree with any of the
statements in this section.
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Very truly yours, |
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KPMG LLP |
A-4
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PROXY
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ENDOCARE, INC.
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PROXY |
FOR THE ANNUAL MEETING OF STOCKHOLDERS, JUNE 22, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Craig T. Davenport and William J. Nydam, and each of them, the
Proxy 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 Wednesday, June 22, 2005, 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 June 22, 2005 and the Proxy
Statement.
THIS PROXY CONFERS ON EACH PROXYHOLDER DISCRETIONARY AUTHORITY TO VOTE ON ANY MATTER AS TO WHICH A
CHOICE IS NOT SPECIFIED BY THE UNDERSIGNED. IF NO SPECIFICATION IS MADE, THIS PROXY, WHEN PROPERLY
EXECUTED, WILL BE VOTED IN FAVOR OF THE ELECTION OF THE NOMINATED DIRECTORS AND IN FAVOR OF THE
OTHER PROPOSALS, AND WILL BE VOTED BY THE PROXYHOLDER AT HIS OR HER DISCRETION AS TO ANY OTHER
MATTERS PROPERLY TRANSACTED AT THE ANNUAL MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
(Continued and to be signed on the Reverse Side)
6 PLEASE DETACH PROXY CARD HERE AND RETURN IT IN THE ENVELOPE PROVIDED 6
The Board of Directors recommends a vote FOR the directors listed below and a vote FOR each of
the listed proposals. This Proxy, when properly executed, will be voted as specified below.
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1.
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To elect seven (7) directors to the Board of Directors of
the Company to serve during the ensuing year or until
their successors are duly elected and qualified.
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FOR all nominees
listed below
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WITHHOLD AUTHORITY to vote for all
nominees listed below
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EXCEPTIONS |
Nominees: John R. Daniels, M.D., Craig T. Davenport, David L. Goldsmith, Eric S. Kentor, Terrence
A. Noonan, Michael J. Strauss, M.D. 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.) |
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2.
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To ratify the selection of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending December 31, 2005. |
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FOR
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AGAINST
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ABSTAIN |
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3.
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In accordance with the discretion of the Proxyholders, to act upon all matters incident to
the conduct of the Annual Meeting and upon other matters as may properly come before the Annual
Meeting. |
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Dated:
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,2005 |
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Signature
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Signature
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Title(s)
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Note: Please sign your name exactly as it
appears hereon. If signing as attorney,
executor, administrator, trustee or
guardian, please give full title as such,
and, if signing for a corporation, give your
title. When shares are in the names of more
than one person, each should sign. |
Please Detach Here You Must Detach This Portion of the Proxy Card Before Returning it in the Enclosed Envelope |