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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[ ] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[X] Soliciting Material Pursuant to Section 240.14a-12
ENDOCARE, INC.
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(Name of Registrant as Specified In Its Charter)
DOUGLAS O. CHINN, M.D.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
not applicable
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2) Aggregate number of securities to which transaction applies:
not applicable
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
not applicable
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4) Proposed maximum aggregate value of transaction:
not applicable
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5) Total fee paid:
not applicable
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
not applicable
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
Douglas O. Chinn, M.D. is filing materials contained in this Schedule
14A with the Securities and Exchange Commission in connection with a possible
solicitation of proxies in support of the election of Chinn's nominee to the
Board of Directors of Endocare, Inc. (the "Company") at the 2003 annual meeting
of the stockholders of the Company or any other meeting of stockholders held in
lieu thereof, and any adjournments, postponements, reschedulings or
continuations thereof (the "Meeting"). Chinn and the other participants
identified below in the possible proxy solicitation have not made a
determination at this time whether or not to proceed with a proxy solicitation.
Item 1: On April 7, 2003, Chinn issued the following press release
announcing that it sent letters to the Company's directors requesting that they
resign from the Company's Board of Directors in favor of a slate of nominees
identified by Chinn.
Contact:
MacKenzie Partners, Inc.
Larry Dennedy
(212) 929-5239
-or-
Charlie Koons
(212) 929-5708
FOR IMMEDIATE RELEASE
---------------------
Endocare, Inc. Shareholder Calls on Entire Board of Directors to Immediately
Step Down and Appoint New Board.
Criticizes Board's failure to take actions necessary to resolve Endocare's
significant accounting and operational problems.
ARCADIA, CALIFORNIA - APRIL 7, 2003 - Douglas O. Chinn, M.D. today announced
that he has sent a letter to the Board of Directors of Endocare (OTC:ENDO)
calling for the immediate resignation and replacement of the entire Board of the
company. In his letter, Dr. Chinn, a longtime shareholder of the company and a
licensee to the company of certain essential intellectual property said, "It has
become apparent to me that the Board is ineffective in resolving Endocare's
significant accounting and operational problems."
Dr. Chinn added, "Endocare's inability to resolve its accounting issues
has resulted in Endocare being delisted from the NASDAQ National Market.
Currently, Endocare stock is traded over the counter, with a severely limited
trading market. Worse, the stock price has declined from a high in October, 2001
of $23.94 per share to a current $2.80 per share. In spite of the loss of
shareholder value, Endocare's Board has not articulated a plan to remedy the
financial reporting and credibility issues raised by Endocare's auditor, KPMG."
The letter also cites: the company's failure to file financial
statements, serious concerns about the lack of disclosure about the recently
conducted internal investigations of Endocare's financials, failure to
adequately disclose concerns expressed by KPMG, Endocare's former auditor, when
KPMG withdrew its audit report, and the subsequent termination of KPMG. In
addition, the letter cites: the investigation by the SEC and the Department of
Justice into the accounting and business practices of Endocare, the class action
litigation against the Board of Directors and management's inability to explain
publicly the company's operating costs and burn rate in its April 2nd conference
call.
Dr. Chinn has named seven individuals to replace the current Board,
including himself, with substantial expertise in healthcare, finance and
accounting, financial controls, sales and marketing, management and business
growth.
-more-
ENDOCARE SHAREHOLDER RELEASE (CON'T)
THE TEXT OF DR. CHINN'S LETTER FOLLOWS:
DOUGLAS O. CHINN M.D.
65 N. FIRST AVE., SUITE 102
ARCADIA, CA 91006
April 7, 2003
Board of Directors of Endocare, Inc.
c/o Endocare, Inc.
201 Technology Drive,
Irvine, California 92618
Dear Gentlemen:
On March 10, 2003, Lawrence R. Samuels, my legal counsel, sent you a
letter on my behalf detailing my disappointment with your performance as
directors and requesting your resignations from the Board of Directors (the
"Board") of Endocare, Inc. ("Endocare"). Mr. Samuels has not, however, received
your response to his March 10, 2003 letter. Without a response to his letter and
with little, if any, public disclosure by Endocare about its financial and
operational condition, I had hoped that the April 2, 2003 "Company Update
Conference Call" (the "April 2 Call") would serve as a vehicle for more
information about Endocare's current position; unfortunately little substantive
information was provided.
It has become apparent to me that the Board is ineffective in resolving
Endocare's significant accounting and operational problems. Furthermore, based
on the April 2 Call, it is apparent to me that Endocare's management is also
ineffective at articulating a specific plan to resolve Endocare's current
problems and to restore confidence in Endocare.
More importantly, because Endocare has released only cryptic and
sporadic disclosures about the status of its accounting and auditor issues, and
virtually no information about its financial condition, neither the public
markets nor I am able to assess the current or potential future value of
Endocare stock with any confidence. I have come to suspect that your failure to
respond to my March 10, 2003 letter to you raising my concerns about Endocare
reflects indifference to the plight of stockholders.
As such, I hereby demand that the Board take the actions necessary to
replace Endocare's current directors with the slate of directors identified
herein. Endocare's problems, your inability to address those problems and the
reasons behind my demand for your resignation are detailed below.
FAILURE TO FILE FINANCIAL STATEMENTS. Endocare has not issued financial
statements since July 24, 2002. Worse, KPMG LLP ("KPMG"), Endocare's former
auditor, has publicly announced that in its view the 2001 and 2002 financial
statements should not be relied upon. In addition, on the April 2 Call,
Endocare's management did not deny that the 2001 and 2002 financial statements
are unreliable. Endocare's management further refused to discuss Endocare's
financial performance until Ernst & Young provides a new audit report. The net
effect of these failings is that the most recent accurate and reliable financial
statements are over two years old, which is inadequate to provide me or any
other investor with a current picture of Endocare's health or sustainability.
THE INTERNAL INVESTIGATION. According to KPMG's letter to the SEC dated
March 14, 2003 (the "KPMG's SEC Filing"), on October 24, 2002, Joseph Hafermann,
your former acting controller, contacted one or more of you to express concerns
regarding "accounting for several transactions and other matters" and your Audit
Committee instructed Brobeck, Phleger & Harrison ("Brobeck"), Endocare's outside
legal counsel, to conduct an investigation of the matters raised by Mr.
Hafermann. In addition, according to KPMG's SEC Filing, on or about October 29,
2002, Endocare's Audit Committee engaged Deloitte & Touche LLP ("Deloitte") to
investigate the matters raised by Mr. Hafermann. However, Endocare's public
disclosures have been so slipshod that Endocare had never itself disclosed that
it had engaged Deloitte until the April 2 Call or that the investigations
resulted in any way from Mr. Hafermann's expressed concerns, or the results of
the investigation. In fact, the only recent public statement made by Endocare
about Mr. Hafermann was that Endocare fired him for cause.
AUDITOR MORASS. On November 20, 2002, Endocare announced that KPMG had
withdrawn its audit report for the 2001 financials and had asserted that the Q1
and Q2 financials should not be relied upon. According to KPMG's SEC Filing, on
December 11, 2002, KPMG notified the Audit Committee that, based on their SAS
No. 71 review and the investigations by Deloitte "information came to [KPMG's]
attention that led [KPMG] to conclude that [they] were unable to rely on the
representations of management...that it was apparent to [KPMG] that management
prepared financial statements for the quarterly and annual periods in 2002 and
2001 based on information and representations provided to [KPMG] [that] did not
reflect the actual facts or substance of the transactions, and in several cases
[KPMG] received inconsistent representations from management in relation to the
transactions....[KPMG] further informed the Audit Committee that no single
transaction or misrepresentation formed
the basis for [KPMG's] conclusion, but rather it was the totality of information
and weight of the issues that came into [KPMG's] possession."
The allegations raised by KPMG were sufficiently severe to be of
material interest to me as an Endocare stockholder, however Endocare has never
disclosed the details of KPMG's concerns; most of the information discussed in
the preceding paragraph has only been publicly released by KPMG.
Finally, on March 17, 2003, Endocare announced that it had terminated
KPMG, without giving any explanation as to the reasons for such termination. In
addition, Endocare did not announce the engagement of Ernst & Young as
Endocare's new auditors until April 1, 2003.
DELISTING AND LIQUIDITY. Endocare's inability to resolve its accounting
issues has resulted in Endocare being delisted from the NASDAQ National Market.
Currently, Endocare stock is traded over the counter, with a severely limited
trading market. Worse, the stock price has declined from a high in October, 2001
of $23.94 per share to a current $2.80 per share. Yet, Endocare's ability to
bring itself back into compliance with NASDAQ rules appears to be no more
concrete than its amorphous plan to produce financials by the June time frame.
FEDERAL INVESTIGATIONS. The SEC and the Justice Department have each
launched investigations into the accounting and business practices of Endocare.
It is my understanding that Endocare became aware of one or both of these
investigations at least as early as January, 2003, yet Endocare did not make any
disclosure about these investigations until April 1, 2003. Endocare's leisurely
disclosure about these investigations demonstrates a severe lack of openness to
Endocare stockholders and further calls into question the Board's performance of
its duties.
CLASS ACTION LAWSUITS. Endocare's Board and its two senior officers
were also named as defendants in a series of securities class action lawsuits.
The complaints charge the defendants with issuing false and misleading
statements concerning Endocare's business and financial condition. These suits
could, in addition to the foregoing difficulties, expose Endocare to significant
liability and detract from its financial and human resources.
MANAGEMENT. On the April 2 Call, Endocare's management stated that it
would not have audited financials to the markets until, at best, June and that
it was currently unable to provide the markets with guidance on its financial
position and liquidity. In addition, Endocare's management admitted that it was
unable to answer questions concerning its current expenses from operations. In
response to questions about Endocare's "burn rate", Endocare's management
refused to provide specifics and in my
estimation did not demonstrate that they had a clear view of Endocare's burn
rate. It is difficult for me to fathom how management could make well-informed
decisions about the operation of Endocare without a clear, current and sober
understanding of where Endocare's cash is going and how much cash is being spent
for operations.
In addition, although Endocare has two new members of senior
management, Endocare still retains the same directors and the same Chairman of
the Board who supervised the decline of Endocare; in my view, clearly, status
quo leadership is not in the best interests of stockholders.
A DRASTIC CHANGE IS NEEDED. Endocare's misfortunes have exceeded the
ordinary effects of a bad economy or a tough marketplace. These misfortunes are
the direct result of the failure of the Board to carry out their duties.
Endocare's problems appear to be deepening and beyond the resolution of its
current Board or management. In addition, Endocare's problems are not nearly as
disappointing as the Board's failures to remedy them. I believe that Endocare,
its stockholders, employees and customers deserve a change of each member of
Endocare's Board, because only such a wholesale change will enable Endocare to
solve its legal, financial, operational and public relations problems.
Based on the foregoing, I hereby demand that all of the members of
Endocare's Board resign. I further demand that you replace Endocare's Board with
my slate of directors to lead and operate Endocare.
My slate of directors includes six business leaders with substantial
expertise in healthcare, finance and accounting, financial controls, sales and
marketing, management and business growth. All of them are committed to
improving Endocare's financial reporting, bringing Endocare back into compliance
with all disclosure requirements, and restoring fiscal discipline and
accountability to Endocare. All of them are willing to serve and to give their
best efforts for reformation of Endocare and enhancement of stockholder value.
Below are the names and brief biographies of my slate of directors.
KURT LANDGRAF. Mr. Landgraf currently serves as President and Chief
Executive Officer of Educational Testing Service. Mr. Landgraf formerly served
as Chairman and Chief Executive Officer of Dupont Pharmaceuticals Company (a
subsidiary of the DuPont Company), Executive Vice President and Chief Operating
Officer and Chief Financial Officer of E.I. Dupont De Nemours, President and
Chief Executive Officer of The Dupont Merck Pharmaceuticals Company, and
Manager, Marketing Analysis and Planning of The Upjohn Company, among other
positions. Mr. Landgraf has extensive experience in finance, accounting,
marketing and management of all aspects of
medical, pharmaceutical and educational companies, both in for-profit and
not-for-profit companies. In addition, Mr. Landgraf has lectured in academic
settings in economics, labor-relations management and marketing. Mr. Landgraf
earned a Bachelor of Science from Wagner College, a Masters of Arts in Economics
from Pennsylvania State University, a Masters in Education from Rutgers
University, a Masters in Science from Western Michigan University and completed
the Advanced Management Program at Harvard Business School. Mr. Landgraf was an
officer in the United States Navy and member of the United States Naval Reserve.
Mr. Landgraf would serve as a non-management director and Chairman of the Board
of Directors of Endocare.
DAVID ELLER. Mr. Eller formerly served as President of DuPont
Pharmaceuticals Company - Europe, and its six European operating subsidiaries.
He also served as a strategic advisor to the Chief Operating Officer of The
DuPont Company and to the Chairman and Chief Executive Officer of Europe, Africa
and Asia for The DuPont Company. He is currently President of Eller Holding
Company. In addition, Mr. Eller has over 25 years of senior management and
executive level experience with substantial expertise and experience in life
sciences, biosciences, and pharmaceutical, as well as oil and gas exploration
and production companies. Mr. Eller has served as Chairman of the Board of
Regents of the Texas A&M University System, holding the position of Chancellor,
as well. Mr. Eller has also served as a director of the Baylor College of
Medicine. He earned a Bachelor of Science degree in Engineering from Texas A&M
University, attended the Graduate School of Business at Stanford University and
completed the Advanced Management Program at the Harvard Business School. In
addition, Mr. Eller served as an officer of the United States Army.
WILLIAM A. BARRY. Mr. Barry formerly served as Vice President of
Finance and Managing Director of the European Headquarters of DuPont
Pharmaceuticals Company (a subsidiary of the DuPont Company) retiring in January
2002. He currently serves as a Consultant to Bristol-Myers Squibb which acquired
DuPont Pharmaceuticals Company in October 2001 in a $7.2B transaction. Mr.
Barry's career with DuPont spanned over 30 years with substantial experience in
finance, operations, audit and management for chemicals, pharmaceuticals and
medical imaging companies.
DOUGLAS O. CHINN, M.D. Dr. Chinn is a urologist in private practice and
has been performing cryosurgery since 1993. From 1996 through 2002, he served as
a consultant and leading proctor to Endocare. He continues to license his
patented technology on temperature monitoring and cryosurgery to Endocare and
has developed or assisted in the development of Endocare products and training
materials. Dr. Chinn has extensive experience in product development and
education in cryosurgery. He is co-author on several publications on
cryosurgery, and has trained physicians in the United States and world-wide. His
B.S. and M.D. degrees are from the University of Southern California.
JOSEPH L. D'ANGELO. Mr. D'Angelo is the current Chief Financial Officer
of Glesener Pharmacy, Inc., the founder of ten state licensed Board and Care
facilities and a chain of photography retail establishments. In addition, Mr.
D'Angelo has substantial expertise and experience in management and operations
of residential care facilities and was a research chemist. Mr. D'Angelo earned a
Bachelor of Science degree from the Philadelphia College of Pharmacy and
Science.
ROBERT PAUL FRY, M.D., JD. Dr. Fry practiced nine years as an
anesthesiologist and another 20 years as a medical malpractice and product
liability attorney. Dr. Fry earned an undergraduate degree from Georgetown
University, his Medical Degree from Temple University, and his law degree from
the University of Southern California. In addition, Dr. Fry served as a Captain
in the United States Air Force.
JOHN R. QUEEN. Mr. Queen retired after 35 years in the securities
industry of which 34 were spent with Merrill Lynch, Pierce, Fenner & Smith. He
has substantial experience in the management and development of businesses.
Prior to retiring, he served as District Director and Senior Vice President of
Merrill Lynch's Retail District which encompassed most of Southern California.
Mr. Queen also helped found and served on the Board of the Long Beach Grand Prix
for 25 years. Mr. Queen serves on the board of several philanthropic
organizations and is Chairman elect of the San Diego Symphony Orchestra. He
earned a BS in Economics from St. Mary's College of California. Mr. Queen also
served in the United States Navy.
CONCLUSION. As stated above, it is my position that the current Board
will remain ineffective in addressing issues critical to Endocare's future.
Further it is likely that the very act of naming a new Board of Directors will
reduce the burdens Endocare must overcome in order to return to a path of
success. For these reasons, I believe that replacing the current Board is a
critical step in addressing and resolving Endocare's current situation.
If you accept my proposal to replace the current Board with the slate
of directors I have provided to you, I and the above-mentioned individuals will
work with the existing directors to effect an orderly and professional
transition of authority and will discuss with you issues relating to
indemnification and a coordinated defense of the pending litigation. Following
the transition, the new Board of Directors will seek to address Endocare's
problems as described above and operate the business in a manner which will
maximize stockholder value and the business and properties of Endocare. Finally,
when such action is permitted, I intend to seek a vote of confidence from
Endocare's stockholders for the election of the new slate of directors.
I would appreciate it if you would contact David Eller (713-952-9400)
or my attorney, Lawrence R. Samuels (312-750-8693) within seven (7) days of the
date of this
letter to discuss our next steps. If you do not accept my proposal,
it is my intention to consider my other options and take whatever action I
believe to be appropriate.
I look forward to hearing from you and working together to improve the
condition of Endocare.
Sincerely,
/s/ Douglas O. Chinn, M.D.
Douglas O. Chinn, M.D.
cc: Lawrence R. Samuels
Douglas O. Chinn, M.D. is a urologist in private practice and has been
performing cryosurgery since 1993. From 1996 through 2002, he served as a
consultant and a leading proctor to Endocare. He continues to license his
patented technology on temperature monitoring and cryosurgery to Endocare. Dr.
Chinn is also a stockholder of Endocare.
Dr. Chinn has filed Soliciting Material with the Securities and Exchange
Commission pursuant to Rule 14a-12 which includes participant information. Such
Soliciting Material is available at no charge on the SEC's web sit at
HTTP://WWW.SEC.GOV.
###
SUPPLEMENTAL INFORMATION
In addition to this filing, Douglas O. Chinn, M.D. will file any
additional soliciting material under Rule 14a-12 which is used in connection
with the possible solicitation of proxies. Chinn will also file with the SEC any
proxy materials used to solicit votes for the election of his nominees as
directors of the Company at the Meeting.
Chinn strongly advises all stockholders of the Company to read the
proxy statement when it is available because it will contain important
information. Such proxy statement will be available at no charge on the SEC's
web site at http://www.sec.gov. In addition, the participants in any
solicitation will provide copies of the proxy statement without charge upon
request. Requests for copies should be directed to the participants' proxy
solicitor at its toll-free number: (800) 322-2885.
The participants in the potential proxy solicitation are Douglas O.
Chinn, M.D., Kurt Landgraf, David Eller, William A. Barry, Joseph L. D'Angelo,
Robert R. Frye, M.D., J.D., John R. Queen and Solana Capital Partners, Inc. (a
California corporation).
Chinn is the beneficial owner of 19,583 shares of Common Stock of the
Company. None of the other potential participants in the potential proxy
solicitation own shares of the Company's Common Stock.
------------------------------
Contact:
MacKenzie Partners, Inc.
(800) 322-2885