PRELIMINARY PROXY STATEMENT
AMENDMENT NO. 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JUNE 16, 2003
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ ] Filed by a Party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
ENDOCARE, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
COMMITTEE TO REVITALIZE ENDOCARE
--------------------------------------------------------------------------------
(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(l)(I) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] 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:
2) Form, Schedule or Registration Statement No.:
6) Filing Party:
7) Date Filed:
PRELIMINARY PROXY MATERIALS DATED JUNE 16, 2003
SUBJECT TO COMPLETION
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THE COMMITTEE TO REVITALIZE ENDOCARE
----------
Dear Endocare Stockholder:
We are sending the enclosed proxy statement to you as a holder of
common stock, $0.001 par value per share, of Endocare, Inc. ("Endocare" or the
"Company"), a Delaware corporation, in connection with our solicitation of your
proxy for use at the 2003 Annual Meeting of the Stockholders of Endocare
scheduled for _______a.m., local time, on September 30, 2003, at
___________________ and at any adjournments or postponements thereof.
We are the Committee to Revitalize Endocare. Our committee includes
William A. Barry, Douglas O. Chinn, M.D. ("Dr. Chinn" or "Douglas Chinn, M.D."),
Joseph L. D'Angelo, David Eller, Robert P. Fry, M.D., J.D., Kurt Landgraf, John
R. Queen and Solana Capital Partners, Inc., a California corporation ("Solana"
or "Solana Capital Partners").
As described at length in the enclosed Proxy Statement, we believe that
new leadership is required to effectively address the numerous problems
currently facing Endocare. In our view, the move toward new leadership should
begin with the election of a new Board of Directors. In order to achieve this
first step, we are soliciting your proxy to vote at the 2003 Annual Meeting of
the Stockholders of Endocare for the election of our nominees, William A. Barry,
Douglas Chinn, M.D., Joseph D'Angelo, David Eller, Robert P. Fry, M.D., J.D.,
Kurt Landgraf and John R. Queen (collectively, the "Nominees"), as directors of
Endocare for a term continuing until the 2004 Annual Meeting of Stockholders.
The business experience of our Nominees is detailed under the heading
"Biographical Information of our Nominees and Other Participants" beginning on
page 22 of the Proxy Statement enclosed herewith.
In the materials accompanying this letter, you will find a Proxy
Statement relating to the election of our Nominees as directors of Endocare and
a GOLD proxy card. The Proxy Statement includes general information concerning
Endocare, a discussion of the reasons we believe the election of a new Board of
Directors is necessary, and information concerning our Nominees for election as
Endocare directors.
WE URGE YOU TO SIGN, DATE AND RETURN THE ENCLOSED GOLD PROXY CARD IN
FAVOR OF THE ELECTION OF OUR NOMINEES DESCRIBED IN THIS PROXY STATEMENT IN THE
ENCLOSED ENVELOPE.
If you have questions, please call:
MACKENZIE PARTNERS, INC.
105 MADISON AVENUE
NEW YORK, NEW YORK 10016
(800) 322-2885
See "Voting Procedures" on page 35.
Sincerely,
/s/ DOUGLAS CHINN, M.D.
--------------------------------------
The Committee to Revitalize Endocare
June _____, 2003
PROXY STATEMENT
OF THE COMMITTEE TO REVITALIZE ENDOCARE
FOR THE ANNUAL MEETING OF THE STOCKHOLDERS OF ENDOCARE
TO BE HELD SEPTEMBER 30, 2003
THE ENCLOSED PROXY IS SOLICITED BY THE COMMITTEE TO REVITALIZE ENDOCARE
FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS OF ENDOCARE, INC. to be held at
_____ local time on September 30, 2003 at __________________________________.
Shares of Endocare's common stock, par value $0.001 per share, represented by a
properly executed proxy in the accompanying form will be voted at the annual
meeting FOR the nominees for election as directors of Endocare named by the
Committee to Revitalize Endocare and identified in this Proxy Statement (the
"Nominees").
The proxy may be revoked at any time before its exercise by sending
written notice of revocation to MacKenzie Partners, Inc., 105 Madison Ave., New
York, NY 10016, by signing and delivering a subsequently dated proxy card or by
attending the annual meeting in person and giving notice of revocation to the
Inspector of Election. This Proxy Statement and the accompanying [NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS AND] proxy card are being mailed to stockholders
beginning on or about ____________, 2003.
August 4, 2003 is the record date for the determination of stockholders
entitled to notice of, and to vote at, the 2003 Annual Meeting of the
Stockholders. On that date, there were outstanding and entitled to vote
__________________ shares of Endocare common stock, which is Endocare's only
class of voting securities. Each stockholder is entitled to one vote for each
share of Endocare common stock held of record.
1
IMPORTANT
In order for the annual meeting to properly elect directors, at least a
majority of the total number of shares of Endocare's issued and outstanding
common stock must be represented in person or by proxy at the meeting. The
election of the Committee's Nominees requires the affirmative vote of a
plurality of the shares of Endocare common stock represented at the annual
meeting. Please review this document and the enclosed materials carefully. YOUR
VOTE IS VERY IMPORTANT, no matter how many shares you own. The Committee urges
you to sign, date and return the enclosed GOLD proxy card to vote FOR the
election of our Nominees described in this proxy statement.
If you have previously signed and returned a [BLUE] proxy card to
Endocare, you have every right to change your vote. ONLY YOUR LATEST DATED PROXY
CARD WILL COUNT. You may revoke your vote made on any [BLUE] proxy card already
sent to Endocare by signing, dating and mailing the enclosed GOLD proxy card in
the postage-paid envelope provided. Unless contrary instructions are indicated
on the enclosed GOLD proxy card, all shares of stock represented by valid GOLD
proxy cards (which have not been revoked as described below) will be voted FOR
the election of our Nominees and will not be voted on any other matter that may
come before the 2003 Annual Meeting of the Stockholders of Endocare, including
matters set forth in Endocare's proxy statement.
Any proxy may be revoked at any time prior to the 2003 Annual Meeting
of the Stockholders by delivering a written notice of revocation or a later
dated proxy for the 2003 Annual Meeting of the Stockholders to MacKenzie
Partners, or by voting in person at the 2003 Annual Meeting of the Stockholders.
If your shares are registered in your own name, please sign, date and
mail the enclosed GOLD proxy card to MacKenzie Partners, Inc. ("MacKenzie"), in
the postage-paid envelope provided with this Proxy Statement. If your shares are
held in the name of a brokerage firm, bank nominee or other institution, only it
can sign a GOLD proxy card with respect to your shares, but only after receiving
your specific instructions. Accordingly, to ensure that your shares are voted,
you should contact the person responsible for your account and give instructions
for a GOLD proxy card to be issued representing your shares.
After signing the enclosed GOLD proxy card, do not sign or return the
[BLUE] proxy card unless you intend to change your vote, because only your
latest dated proxy card will be counted.
If you have any questions about giving your proxy or require
assistance, please call
MACKENZIE PARTNERS, INC.
105 MADISON AVE.
NEW YORK, NY 10016
CALL TOLL-FREE: 1-800-322-2885
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REASONS FOR OUR SOLICITATION
INEFFECTIVE REPRESENTATION
After reviewing the available information, our Committee concluded that
Endocare's Board of Directors has been ineffective in representing the
interests of Endocare's stockholders. Therefore, we are soliciting proxies to
replace the Board with our Nominees, who we believe will be more effective.
Endocare's performance has, in our opinion, been disastrous. Set forth below is
a summary of the negative conditions that have occurred, and some of which
continue to develop, during the tenure of the current Board of Directors.
o Tumbling Stock Price. Endocare's common stock price has lost
nearly 65% of its value in the last year alone, declining from
$14.27 on June 12, 2002 to $5.00 on June 12, 2003.
o No Current Audited Financial Statements. Endocare's former
auditor, KPMG LLP ("KPMG"), has withdrawn its audit report for
Endocare's 2001 financial statements. Further, Endocare has
not filed its Annual Report on Form 10-K for year ended
December 31, 2002 with the Securities and Exchange Commission
("SEC") and has stated publicly that its re-stated 2001
financial statements and its 2002 financial statements have
not yet been completed. Therefore, Endocare's most current
audited financial statements are from fiscal year 2000.
o No Recent Financial Statements. A diligent search of
Endocare's filings with the SEC, its website and generally
available news releases concerning Endocare indicates that
Endocare has not publicly released financial statements for
any period after the June 30, 2002 financial statements
included in its Quarterly Report on Form 10-Q filed with the
SEC on August 14, 2002.
o 2002 Financial Information Unreliable. KPMG has also advised
Endocare's Audit Committee that it believed that sufficient
information exists to conclude that Endocare's consolidated
financial statements for the quarters ended March 31, 2002 and
June 30, 2002 should not be relied upon.
o Stock Delisted. Endocare's stock has been delisted from the
NASDAQ.
o SEC & Department of Justice Investigations. Endocare is being
investigated by the SEC and the United States Department of
Justice ("DOJ").
o Stockholders Suing. Endocare's Board and senior management
have been sued by Endocare's own stockholders in a class
action lawsuit.
o 56% of Cash Gone in 15 Months. Endocare's consolidated balance
sheet as of December 31, 2001 (included in its Annual Report
on Form 10-K filed with the SEC on March 29, 2002) showed cash
and cash equivalents of $83,238,915. During Endocare's April
2, 2003 Company Update Conference Call (the "April 2nd Call"),
Katherine Greenberg, the Company's CFO, stated that Endocare's
current total liquidity was approximately $36 million. These
figures indicate that Endocare has consumed approximately $47
million in cash (over 56% of total liquidity) in the last 15
months.
3
THE FACTS
In order to assist you in understanding why we believe Endocare's
Board of Directors should be replaced, we have set forth a chronology of the
facts most relevant to our decision. While most of this information was derived
from publicly available sources, Endocare has not presented this information in
a format that we believe allows stockholders to use it as a tool to properly
assess the performance of Endocare's Board of Directors and management.
Further, as described below, certain facts which we considered relevant could
be discovered only upon a very carefully review of Endocare's public
disclosures.
DATE EVENT
---- -----
July 2001 John Cracchiolo ("John Cracchiolo" or "Cracchiolo") joins Endocare
as Chief Financial Officer, Chief Operating Officer and Secretary.
March 29, 2002 Endocare files its Annual Report on Form 10-K and reports
approximately $83,238,915 in cash and cash equivalents as of
December 31, 2001.
April 30, 2002 In Endocare's proxy materials for the June 11, 2002 Annual Meeting of
Stockholders, Endocare claims that the Audit Committee members have the
specific responsibility to "ensure that management has the proper review
system in place to ensure that [the] Corporation's financial statements,
reports and other financial information disseminated to governmental
organizations, and the public satisfy legal requirements."
August 14, 2002 Endocare files its Quarterly Report on Form 10-Q for the period ended June
30, 2002.
This is the last time Endocare filed any periodic report containing its
financial statements.
October 24, 2002 Endocare projects Q3 2002 results and announces plans to release the full
results on October 30, 2002.
This is the last time Endocare provided guidance on its projected
financial performance.
October 24, 2002 Endocare's then-current Acting Controller, Joseph A. Hafermann ("Joseph
Hafermann" or "Hafermann"), reports to a director his concerns "regarding
the accounting for several transactions and other matters," according to
KPMG's letter to the SEC attached to Endocare's Current Report on Form
8-K, dated March 14, 2003 ("KPMG's First SEC Letter").
Endocare has never disclosed or commented on KPMG's claim
contained in KPMG's First SEC Letter that the internal investigation
and concerns regarding Endocare's financial statements were first
raised by Hafermann. The only disclosure Endocare has made about
Hafermann in its public filings and press releases is its December 19, 2002
Current Report on Form 8-K and press release announcing that it had
fired Hafermann, because Endocare had determined that he "had engaged in
misconduct which was demonstrably and materially injurious to the Company."
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October 24, 2002 Endocare's Audit Committee directs Brobeck, Phleger & Harrison ("Brobeck"),
the Company's former outside legal counsel, to investigate the accounting
concerns, according to KPMG's First SEC Letter.
Endocare does not disclose the extent of this investigation until Endocare
announces in its March 11, 2003 press release that the investigation was
completed.
October 29, 2002 KPMG is informed that Hafermann contacted an Endocare director regarding
Hafermann's concerns about the Company's financial statements and that
Brobeck is facilitating an investigation of those financial statements,
according to KPMG's First SEC Letter.
October 29, 2002 Endocare's Audit Committee engages Deloitte & Touche ("Deloitte") to
investigate Hafermann's concerns about Endocare's financial statements,
according to KPMG's First SEC Letter.
October 30, 2002 Endocare postpones release of Q3 2002 results until Endocare "completes
the review process of the quarter's financial results". Endocare does not
explain why the review is not yet completed by Endocare's own deadline
imposed in its October 24, 2002 press release.
November 14, 2002 Endocare delays the filing of its Quarterly Report on Form 10-Q for the
period ended September 30, 2002, but does not explain why its financial
review process is not complete.
Endocare discloses that it and certain of its officers and directors were
named in a securities law class action lawsuit.
Endocare has never identified the nature of claims in the lawsuit.
November 20, 2002 Endocare discloses NASDAQ notification of potential delisting.
December 11, 2002 According to KPMG's First SEC Letter, KPMG notifies the Audit Committee
that, based on their SAS No. 71 review and the investigations by Deloitte
and Brobeck, "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 that did not reflect either the facts or the substance
of certain transactions, the information and representations provided to
[KPMG] 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 evidence that had come into [KPMG's] possession."
5
December 12, 2002 Endocare announces KPMG's withdrawal of its audit report for 2001
financials because, according to KPMG's First SEC Letter, those
financials and the Q1 and Q2 2002 financials cannot be relied on and KPMG
does not have confidence in management's representations.
NASDAQ halts trading in Endocare stock.
Endocare does not announce the trading halt until over one month later on
January 15, 2003.
December 19, 2002 Endocare announces that it has terminated Joseph Hafermann, its "Vice
President of Finance," for cause because "the Company [determined] that
Mr. Hafermann had engaged in misconduct which was demonstrably and
materially injurious to the Company."
Endocare has never publicly disclosed Hafermann's "misconduct" or the
injuries which allegedly resulted from such misconduct. Endocare has also
never publicly commented on KPMG's stated understanding that Hafermann's
expression of concerns about the Company's financial statements to an
Endocare director triggered the Audit Committee's internal review of
Endocare's financial statements.
January 15, 2003 Endocare announces that its stock has been delisted from the NASDAQ. Endocare
also announces for the first time that NASDAQ halted trading in its stock on
December 12, 2002.
January 23, 2003 As early as January 23, 2003, the DOJ and United States Postal Inspectors
were contacting former employees in writing in connection with their
investigations of the sales and business practices of Endocare to determine
if they violated any federal laws in reporting their sales figures and
quarterly earnings during 2001 and 2002.
Endocare does not disclose these investigations until April 1, 2003.
March 3, 2003 John Cracchiolo, Endocare's Chief Operating Officer and Chief Financial
Officer in charge of operations, preparation of financial statements, and
financial controls from July 2001 through February 2003, is appointed
President of a new business division and enters into a new Employment
Agreement with Endocare.
Some of the terms of Cracchiolo's Employment Agreement, dated as of March 3,
2003, which is attached as an exhibit to the Current Report on Form 8-K,
filed with the SEC on April 9, 2003, include:
o a base salary of $220,000 per year;
o the opportunity to negotiate salary increases after six months;
o eligibility to receive an annualized cash bonus at a level equal to
$88,000;
o the opportunity to negotiate bonus increases after six months;
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o all of Cracchiolo's previous options, many of which had a strike
price of $13.75 per share, will be replaced with options for the same
number of shares as his previous options, but which are immediately
vested and exercisable upon issuance. These replacement options will
be granted between the sixth month and the eighth month of his
Employment Agreement and have an exercise price equal to the fair
market value of Endocare's common stock on the grant date;
o any acquisition of, or any merger with, Endocare must be conditioned
on the acquirer's agreement to grant options to Cracchiolo to
purchase stock of the acquirer or provide Cracchiolo with
participation in an equivalent cash incentive program;
o if Cracchiolo is terminated by the Company without cause (which does
not include inadequate or incompetent performance or any events known
to Endocare prior to March 3, 2003) or if he quits during the thirty
days after the six month "Mandatory Access Period" at the beginning
of his new Employment Agreement (or longer if the Mandatory Access
Period is extended) Cracchiolo gets:
o 200% of his base salary and maximum 2002 bonus eligibility
($616,000); and
o $50,000 relocation payment plus payment for his taxes on the
$50,000 payment.
See "Certain Potential Future Payments by Endocare Related to
Employment Agreements" - John Cracchiolo's Employment Agreement" at
page 27 for a more complete description of Cracchiolo's potential
rights to severance.
Endocare did not disclose the terms of this agreement until April 9, 2003.
March 3, 2003 We learn of the appointment of William Nydam ("William Nydam" or "Nydam")
as Endocare's President through Nydam's informal email broadcast of his
new position.
Endocare does not disclose the appointment until March 12, 2003.
March 7, 2003 Endocare dismisses KPMG.
March 10, 2003 Douglas Chinn, M.D., a stockholder of Endocare, sends a letter to
Endocare's Board stating his concerns with Endocare's Board and
management.
Although Dr. Chinn refers to government investigations in his March 10, 2003
letter, Endocare makes no disclosure about the investigations or about Dr.
Chinn's letter.
7
March 11, 2003 Endocare announces that "an independent review and investigation of its
accounts and accounting practices has been completed and the Audit
Committee and its advisors have determined that there is no indication of
fraud or intentional wrong-doing by management."
This is Endocare's first disclosure about the extent of the internal
investigation, even though according to KPMG's First SEC Letter and KPMG's
Second SEC Letter (defined below), the review began on or around October 24,
2002 and ended on or around December 4, 2002.
March 12, 2003 Endocare announces appointment of William Nydam as President and
Katherine Greenberg ("Katherine Greenberg" or "Greenberg") as Chief
Financial Officer and states that "[Chairman and Chief Executive Officer]
Mikus plans to focus on the strategic direction of the company in the
continuing role of Chairman of the Board of Directors and will vacate the
title of Chief Executive Officer, a position that will remain open until
a later date."
Endocare announces appointment of John Cracchiolo as President of Endocare's
Interventional Urology business group.
Later, on April 9, 2003, Endocare would claim in its Form 8-K that Cracchiolo
was President of Endocare's "Interventional Radiology Business Group". In
Cracchiolo's Employment Agreement attached to the Form 8-K, Endocare would
claim that Cracchiolo was President of Endocare's "Radiology Division."
March 14, 2003 Endocare files Current Report on Form 8-K disclosing the March 7, 2003
dismissal of KPMG and attaching KPMG's First SEC Letter. The March 14, 2003
Current Report on Form 8-K is Endocare's first public disclosure that KPMG
does not agree with Endocare's description of the disagreement between KPMG
and Endocare.
Endocare does not name a replacement auditor until April 1, 2003.
KPMG's First SEC Letter is included as an attachment to Endocare's 8-K.
March 27, 2003 Endocare files a Current Report on Form 8-K reporting the appointment of
Nydam and Greenberg and attaching their Employment Agreements as exhibits.
Nydam is now identified as President and Chief Operating Officer.
Some of the terms of Nydam's Employment Agreement, dated as of March 3, 2003,
include:
o an initial salary of $240,000;
o an annual bonus of 40% of his salary;
o a cash signing bonus of $15,000;
o a cash performance bonus of $10,000 after Endocare is in
8
full compliance with its obligations under the Securities Exchange Act
of 1934;
o two options to purchase an aggregate of 750,000 shares of stock
at fair market value on the day of the grant ($2.25 per share);
and
o if Nydam is terminated without "Cause" or he terminates his employment
for "Good Reason," then Endocare must pay his salary for 12 months, and
one of his options for 500,000 shares will vest immediately.
See "Certain Potential Future Payments by Endocare Related to Employment
Agreements - William Nydam's Employment Agreement" on page 28 for a more
complete description of Nydam's potential rights to severance.
Some of the terms of Greenberg's Employment Agreement, dated as of March 25,
2003, include:
o an initial salary of $185,000;
o an annual bonus of 40% of her salary;
o options to purchase an aggregate of 250,000 shares of stock at fair
market value on the day of the grant ($2.65 per share); and
o if Greenberg is terminated without "Cause" or she terminates her
employment for "Good Reason," then Endocare must pay her salary for 12
months.
See "Certain Potential Future Payments by Endocare Related to Employment
Agreements - Katherine Greenberg's Employment Agreement" on page 28 for a
more complete description of Greenberg's potential rights to severance.
April 1, 2003 Endocare announces appointment of Ernst & Young as Endocare's auditor. The
chairman of Endocare's Audit Committee says: "The Board of Directors and
management currently project filing the new [financial] reports in June, 2003
..."
Endocare announces for the first time that the SEC and DOJ are investigating
Endocare.
April 2, 2003 Endocare's Current Report on Form 8-K discloses the "SEC and Department
of Justice are conducting ongoing investigations into the Company's
accounting practices in connection with its 2001 and 2002 financial
statements."
April 2, 2003 Endocare management conducts a webcast conference call (the "April 2nd
Call") "to provide a company update to shareholders."
Endocare's officers on the April 2nd call state that they are unable to
presently discuss Endocare's financial results, guidance on expected
operational or financial performance, general financial or operational metrics
or its
9
historical or projected cash burn rate.
Endocare's management makes, among others, the following disclosures:
o Endocare's new CFO admitted that Endocare has, as of March 31, 2003,
approximately $36 million in cash and cash equivalents (down from more
than $83 million as of December 31, 2001).
o Chairman Paul Mikus admits that a significant portion of Endocare's
cash had been spent on legal fees and accountants. Chairman Mikus says
"you also have to be mindful of the fact that over the past six months
we've had, you know, I'd say significant expenses associated with the
process that we've been through...so, you know, the internal review
process and the legal fees, all of those were, you know, significant
issues for us."
o When asked why Endocare's management was not in a position to comment
on the Company's monthly cash burn rate given that the Audit Committee
had just completed a review of its financials, Endocare's CFO states
that the "focus wasn't on overall financial results. It was on specific
transactions."
o When asked about Endocare's cash burn rate, Endocare's CFO says: "I'm
not sure we're in a position to talk about that at this point...we'll
be able to give you more specific details ... as soon as the Ernst &
Young numbers are final...we're going to make sure that those numbers
are going to stick."
April 7, 2003 Endocare announces the sale of its prosthesis unit for $2 million to American
Medical Systems, Inc.
Dr. Chinn sends a demand to Endocare to inspect Endocare's books and records,
in accordance with his rights as a stockholder under Section 220 of the
Delaware General Corporation Law.
April 9, 2003 Endocare files Current Report on Form 8-K containing Cracchiolo's
Employment Agreement.
Endocare's release of Cracchiolo's Employment Agreement is over one month
after the effective date of the Employment Agreement and thirteen days after
Endocare released Nydam's and Greenberg's new Employment Agreements, even
though Cracchiolo's Employment Agreement has the same effective date as
Nydam's Employment Agreement and Greenberg's Employment Agreement was
released only two days after its own effective date.
10
April 15, 2003 Endocare announces the sale of its cardiac-related product manufacturing
operations and the licensing of its related intellectual property to CryoCath
Technologies, Inc.
Dr. Chinn files a lawsuit in Delaware Chancery Court to enforce his rights as
a stockholder of Endocare to inspect the Company's books and records.
May 1, 2003 Endocare files an amended Current Report on Form 8-K discussing the ten major
concerns of KPMG, Endocare's former auditor, about Endocare's revenue
recognition, expense recognition and reductions to accounts receivable.
May 6, 2003 Endocare files a Current Report on Form 8-K disclosing the appointment of
Thomas R. Testman to the Board.
May 16, 2003 Endocare files an amended Current Report on Form 8-K discussing the
concerns of KPMG about Endocare's revenue recognition, expense
recognition and reductions of accounts receivable.
KPMG's second letter to the SEC ("KPMG's Second SEC Letter") describing its
disagreements with Endocare is attached as an exhibit to this amended 8-K.
In KPMG's Second SEC Letter, KPMG states the following:
o On October 24, 2002, one of Endocare's directors was approached by
Joseph Hafermann, the acting corporate controller, "expressing
concerns regarding the accounting for several transactions and other
matters."
o In response to these concerns, Endocare's Audit Committee asked
Brobeck, its outside legal counsel, to perform an initial
investigation into the matters raised by Joseph Hafermann.
o On October 29, 2002, the Audit Committee informed KPMG that the
investigation had been concluded and "[Endocare's Audit Committee] was
satisfied with the results of the initial investigation. However, as
this initial investigation had not been performed by [forensic
accountants], [KPMG] recommended that a more thorough investigation be
performed."
o Between October 29, 2002 and December 4, 2002, Brobeck and Deloitte
performed subsequent investigations "of the matters raised, as well as
other matters that were raised by the investigations."
o "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. Hafermann, as
well as raising additional matters warranting additional
11
investigation. Accordingly, we advised the Audit Committee that we
believed that additional investigation was still warranted."
o Subsequently, on December 11, 2002, "[KPMG] 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."
o KPMG's review of Endocare's records indicated that Endocare recorded
certain sales of products, which products were actually shipped to
Endocare-controlled facilities.
o KPMG's review of Endocare's records indicated that Endocare recorded
payments from customers when, in fact, the checks from such customers
had been rejected for insufficient funds.
o KPMG's review of Endocare's records indicated that Endocare entered into
a transaction in which it agreed to sell products to a customer in a
series of transactions over a number of accounting periods;
Subsequently, Endocare booked all of the series of transactions in one
accounting period, even though all of the sales had not been completed.
o KPMG's review of Endocare's records indicated that sales to one customer
were ultimately delivered to a warehouse secured and paid for by an Endocare
sales representative, who was then reimbursed for the cost of the warehouse
by Endocare. However, Endocare's records indicated that the sale was delivered
to the customer and not the warehouse.
May 27, 2003 Endocare announces that Endocare's 2003 Annual Meeting of Stockholders will
be held on September 30, 2003. Endocare held its last Annual Meeting of
Stockholders on June 11, 2002.
May 28, 2003 Endocare announces certain domestic operational metrics for the past two
years, some of which will remain approximations until the completion of an
audit.
12
THE REASONS WHY WE BELIEVE YOU SHOULD REPLACE ENDOCARE'S BOARD
We ask that you consider whether you are satisfied with the Board's job
performance. We are seeking to replace Endocare's Board of Directors because we
consider their job performance to be inadequate.
We have lost confidence in the ability of the Board and executive
management to fix Endocare's problems and to regain credibility with the public
markets.
Please consider again where Endocare is today:
o Endocare has not filed a financial statement in nearly eleven months;
o Endocare's former auditor has stated that, in its opinion, the 2001 and
2002 financial statements should not be relied upon, and that it was
unable to rely on representations made by management;
o Endocare has been delisted from the NASDAQ;
o Endocare's stock has lost nearly 65% of its value in a year;
o Endocare is being investigated by the SEC and DOJ;
o Endocare, its Chairman of the Board and another senior officer have
been sued by its stockholders for alleged securities law violations;
o According to Endocare's management, Endocare has spent 56% of its cash
in 15 months;
o KMPG has identified ten specific transactions some or all of which may
have been inaccurately recorded on Endocare's financial statements.
All of Endocare's current directors have been in office since at least
1999. As such, it seems reasonable to believe that the problems which now face
Endocare and are depressing its value developed during their tenure. While we
understand that some problems can occur despite diligent oversight, we do not
believe that an effective Board of Directors would have allowed the
overwhelming problems that Endocare now faces. It is our opinion that
Endocare's Board failed not only by allowing the problems to develop but also
by failing to adequately respond once the problem was discovered. Some of the
reasons for our belief that Endocare's Board should be replaced are discussed
below.
1. OPERATIONS AND FINANCES. In July 2001, the Endocare Board appointed the
same individual to serve simultaneously as Chief Financial Officer and
Chief Operating Officer. As experienced company managers, we believe it
is critical to maintain separate spheres of influence between the
people who are credited with generating revenues and the people who are
responsible for reporting revenues.
2. RETENTION OF COMPANY LEADERS. We believe that it is appropriate to hold
directors and management accountable for meeting their
responsibilities. We also believe that when a company experiences
severe problems, such as those currently facing Endocare, it is
appropriate to hold the people in charge of the company accountable for
those problems through termination of their position of responsibility.
However, from our review of Endocare's press releases and Current
Reports on Form 8-K, since October 24, 2002, it appears to us that not
one person on Endocare's Board of Directors or senior management team
has been removed from employment with or leadership of the Company.
Instead, Endocare's Board has retained its Chairman of the Board. It
also appears to us as if Endocare's Board promoted the individual who
served simultaneously as its Chief Financial Officer and Chief
Operating Officer, rewarding him a continuation of his old salary,
re-pricing his options, granting him substantial rights to severance
and appointing him to a new position managing a division of Endocare.
a) The Chairman. Endocare's Chairman and Chief Executive Officer
since 1995, Paul Mikus, had primary supervisory responsibility
for the Company. On March 12, 2003, Endocare announced that
Mikus was no longer Chief Executive Officer, but would remain
Chairman. We believe Mikus's position as Chairman enables him
to continue to have primary supervisory responsibility for the
Company. In our opinion, as Chairman, Mikus also remains in a
position to dictate the agenda of the Board and the management
the Company's officers and employees. We believe that the
Board's retention of Mikus as Chairman sends a message to the
public markets that Endocare's leaders who
13
supervised the Company during its decline will continue their
leadership. We disagree with the message that leadership at
Endocare should be "business as usual."
b) Chief Financial Officer and Chief Operating Officer. In March
2003, the Endocare Board appointed Cracchiolo, Endocare's
former CFO and COO, to be President of a newly-created
interventional radiology division.
As part of his new position, Endocare's Board granted
Cracchiolo the following terms in his March 3, 2003 Employment
Agreement:
o Salary. Endocare's Board agreed to pay Cracchiolo a
base salary equal to $220,000 per year, which we
believe is similar to his salary as CFO and COO, and
granted to him the right to negotiate salary
increases on or after September 4, 2003.
o Bonus. Endocare's Board agreed Cracchiolo is eligible
to receive a bonus at an annualized level equal to
$88,000 and granted to him the right to negotiate
bonus increases on or after September 4, 2003.
o Re-priced Options. Endocare's Board re-priced all of
Cracchiolo's options, which we believe may have the
effect of taking advantage of the drop in Endocare's
stock price. In addition, Endocare's Board agreed to
condition any future merger or sale of all or
substantially all of its assets or stock to a third
party on the acquirer's agreement to grant Cracchiolo
options to purchase stock of the acquirer or
participate in an equivalent cash incentive plan.
o Severance - 200% and Relocation Payment. Endocare's
Board agreed to pay Cracchiolo severance of 200% of
his base salary and 2002 maximum bonus eligibility,
which is $616,000, plus a $50,000 relocation payment
and a gross-up for his taxes (at the highest marginal
rate) on that relocation payment, if Endocare
terminates Cracchiolo without "Cause." We estimate
Cracchiolo's possible cash severance payments to be
$681,000.
Endocare's Board specifically agreed that if Endocare
terminates Cracchiolo's employment because of any
material events occurring prior to March 3, 2003
which Endocare knew about or investigated or
reviewed, he is entitled to receive his severance.
Also, if Endocare fires Cracchiolo only for
inadequate or incompetent performance at any time,
Cracchiolo will be entitled to his severance.
o Cracchiolo Can Quit and Still Get His Severance.
Cracchiolo's Employment Agreement states that if
Cracchiolo quits during the thirty-day period after
the "Mandatory Access Period," he will be entitled to
his severance. The "Mandatory Access Period" is the
first six months of his Employment Agreement or a
longer period if Endocare and Cracchiolo agree to
extend the term of the Mandatory Access Period.
We believe that stockholders should be troubled by an action of the
Board of Directors approving an employment agreement which does not
permit the halting of severance if an officer's employment is
terminated for inadequate or incompetent performance. Further, we
believe that the nature of Cracchiolo's Employment Agreement sends a
negative message to stockholders about the Endocare Board's focus on
preserving value for stockholders.
3. THE AUDIT COMMITTEE.
a) Initial Investigation. According to KPMG's Second SEC Letter,
after Joseph Hafermann, Endocare's acting controller, reported
his concerns about financial reporting irregularities, the
Audit Committee first conducted a five-day investigation using
its lawyers, and not independent accountants, at the
conclusion of which it claimed to be "satisfied" that no
further investigation was warranted. Later, at KPMG's
insistence that the investigations were not complete without
forensic accountants, the Audit Committee hired Deloitte to
conduct subsequent investigations. According to KPMG, after
each subsequent investigation, the Audit Committee claimed to
be "satisfied" in spite of the fact that KPMG concluded that
these subsequent investigations actually confirmed Hafermann's
concerns or
14
raised others.
b) Accounting Treatment. Endocare has filed three Current Reports
on Form 8-K discussing the concerns about the financial
statements and its disagreements with KPMG. In its discussions
in its May 16, 2003 amended Form 8-K of each of the
potentially inaccurately reported transactions, Endocare
repeatedly claims in its defense that "the Audit Committee
concluded that it was unaware of any evidence of fraud or
intentional wrongdoing." It seems to us from reviewing these
filings that Endocare's Board is attempting to argue that
inappropriate financial reporting is less egregious if it was
not the product of fraud or intentional misconduct. In our
view, whether inaccuracies in the financial statements are
produced through fraud or misapplication of accounting
principles, the result is the same: inaccurate reporting of a
company's financial statements, which leads to the disclosure
of incorrect information to the markets. We view the Board's
decision to defend its inability to release financial
statements on a timely basis and to resolve disputes with
their original auditors with claims that they have no evidence
of fraud as an attempt to avoid matters of accountability.
4. OPTIONS GRANTED AT LOW PRICES. The Board hired William Nydam and
Katherine Greenberg as officers, but provided them with options for
Endocare stock at current fair market values as of the date of the
grant, which take advantage of the plummeted stock price. This exercise
price (a) of $2.25 per share for Nydam; and (b) of $2.65 for Greenberg,
reflects market reaction to the absence of any current public
information about Endocare. We believe that it would have been more
appropriate to price these options at staggered current market prices,
so that these individuals were not given an opportunity to benefit from
Endocare's old problems.
5. ENDOCARE'S CASH. We are troubled by Endocare's consumption of 56% of
its cash as of March 31, 2003 since the end of 2001.
At December 31, 2001, Endocare had approximately $83,000,000 in cash
and cash equivalents. At March 31, 2003, Endocare had approximately
$36,000,000 in cash and cash equivalents, which is a depletion of
$47,000,000 in only fifteen (15) months. In addition, on the April 2nd
Call, Endocare's management disclosed that since December 31, 2001 cash
has been spent on significant capital investments and on legal and
accounting fees, in addition to funding operations. If in the future
Endocare has additional financing requirements to fund capital
investments and continues to consume cash at the same or even a lesser
rate, Endocare may need to raise funds. We are concerned that Endocare
could encounter difficulties in future fund raising efforts due to
reduced public confidence caused by its immediate problems, the
delisting of its stock, lack of current financial statements, the
withdrawal by KPMG of its audit report for Endocare's 2001 financial
statements and KPMG's view regarding the unreliability of management
representations.
6. DISCLOSURE. We firmly believe that in an era of frequent scandals
involving public companies, directors and officers must, and are
expected to, do more than merely comply with the SEC's bare
requirements. Directors and officers of public companies must take
actions to demonstrate their candor, integrity and good faith
dedication to the stockholders. The conduct of the Board and officers
of Endocare was especially critical to the Company's integrity where
the accuracy of the financial statements had been severely questioned.
In our view, Endocare's Board did not sufficiently communicate with the
public markets to preserve its integrity.
a) Review of Financial Statements. For instance, we believe that
Endocare was less than forthcoming about the extent of its
internal investigations for the period between October 24,
2002 and March 11, 2003. According to KPMG's Second SEC
Letter, Endocare's Board learned of Hafermann's concerns about
the Company's financial statements as early as October 24,
2002. In its press releases and disclosure documents, from
October 30, 2002 through March 11, 2003, Endocare merely
stated that it was conducting a "review" of its financial
statements. Endocare did not explain to the stockholders or
the markets that it had conducted an "independent review and
investigation of its accounts and accounting practices" by its
Audit Committee, attorneys and forensic accountants until
March 11, 2003. In the nearly five months between the
discovery of the concerns and the March 11th revelation,
Endocare was approached by their auditors with concurring
concerns about Endocare's accounting practices; was delisted
by the NASDAQ; was served with lawsuits by its stockholders;
and was investigated by the SEC and DOJ. Yet the only
disclosures
15
from Endocare about these problems was that it was completing
"the review process of [its] financial results." By not being
more forthright with the markets about the depth of Endocare's
problems and the measures being taken to fully understand
these problems, we believe that Endocare's Board and
management diminished Endocare's credibility.
b) Trading Halt. In addition, on December 12, 2002, the NASDAQ
National Market halted trading in Endocare's stock. Yet,
Endocare did not disclose the trading halt until January 15,
2003.
c) Hafermann. Further, we believe Endocare has provided
inadequate disclosures about Joseph Hafermann's role in the
Company. According to KPMG's First SEC Letter and KPMG's
Second SEC Letter, Hafermann was the individual who first
raised concerns about Endocare's accounting practices and set
the wheels in motion for the investigations. In contrast,
Endocare has asserted that it terminated Hafermann's
employment for "misconduct which was demonstrably and
materially injurious to the Company." Yet Endocare has never
elaborated on the factual basis for Endocare's belief that
Hafermann injured the Company. Further complicating matters,
according to KPMG's Second SEC Letter, KPMG explained to
Endocare that each of the initial investigations into
Endocare's accounting practices had "confirmed certain of the
initial concerns raised by Mr. Hafermann, as well as raising
additional matters warranting additional investigations." By
not providing the stockholders and the public markets with
information about Hafermann's alleged transgressions against
the Company and by not providing some counter-explanation to
KPMG's claims that Hafermann's concerns were substantiated by
further investigations, we are left to guess on the different,
possible explanations as to why Endocare determined to fire
Hafermann.
In our view, if Endocare's Board and management had been more
forthcoming with the public markets and if they had given the
appearance of a company committed to integrity and
forthrightness, then once Endocare's problems are resolved, it
would have taken less effort, less time and fewer
demonstrations of integrity to regain the trust of the
stockholders and the public markets.
In conclusion, we strongly disagree with many of the Board's decisions.
We question the wisdom of entrusting the Company to the individuals who
failed to keep Endocare current in its financial disclosures and free
from government investigations and debilitating disagreements with its
auditors. We doubt the judgment of a Board which rewards the officers
who presided over the breakdown in the Company's relationship with its
auditors and the emergence of questions about the Company's accounting
practices. We worry about Endocare's ability to raise additional funds
at an affordable cost, if at all. We are dismayed that in the midst of
so many problems at Endocare, its Board of Directors has not been more
forthcoming to demonstrate its commitment to openness and integrity and
to ameliorate an accompanying and foreseeable decline in public
confidence.
We are committing to openness and integrity. Because Endocare's Board
and officers did not demonstrate their commitment to openness and
integrity, we believe Endocare's Board must be removed, so that a new
set of directors and officers can regain the confidence of the markets
and the stockholders.
16
OUR PLAN FOR THE NEW DIRECTORS AND OFFICERS OF ENDOCARE
Based upon what we believe to be chronic missteps, we lack confidence
in the ability of Endocare's current management and Board of Directors to
maximize stockholder value. WE BELIEVE IT IS TIME FOR CHANGE AT ENDOCARE.
Based on our examination of Endocare's public documents, after our
Nominees are elected as directors of Endocare, we intend to take the actions
listed below. The actions identified below reflect our current intentions based
solely on the information that we know at this time. Similar to all of
Endocare's stockholders, our access to the Company's current information about
operations and finances is hampered by the Company's failure to keep its public
disclosures current. If and when Endocare files more current reports with the
SEC, the course of action described below may be substantially revised. Where
possible, we have identified the steps to be taken to achieve the goals set
forth in our plan. Due in part to our inability to acquire accurate and timely
data concerning Endocare, there can be no assurance, however, that, if we have
the ability to control Endocare's operations, we will be able to successfully
accomplish all or any of the following actions.
If elected, we intend to do the following:
1. APPOINT NEW EXECUTIVE OFFICERS.
a) Appoint the following individuals to the following positions:
o Kurt Landgraf Chairman of the Board
o David Eller Chief Executive Officer
o William A. Barry Chief Financial Officer
o Douglas Chinn, M.D. Chief Medical Officer
2. CORPORATE GOVERNANCE REFORM.
a) Enhance the role of the independent members of Endocare's
Board by ensuring that the independent directors meet
periodically in private executive sessions.
b) Ensure that the independent audit committee pre-approves
non-audit related services, receives accounting complaints,
understands Endocare's risk profile, reviews Endocare's
periodic reports, and conducts or authorizes investigations
into any matters within the scope of the audit committee's
responsibilities.
c) Improve Endocare's accounting methods, financial controls and
financial statement disclosures through:
o Requiring the audit committee to review Endocare's
critical accounting policies, significant estimates
in judgment made in connection with financial
statements and any significant changes to the United
States Generally Accepted Accounting Principles;
o Implementation of an effective system of disclosure
controls and procedures; and
o Ensuring that the audit committee reviews and
monitors Endocare's internal controls, including
understanding Endocare's internal control system,
reviewing the internal control system with management
and the outside auditors and reviewing all statements
made as part of the disclosures and certifications
set forth in periodic reports.
d) Assess and improve Endocare's corporate culture by
collaboratively developing a code of ethics to guide
Endocare's directors, officers and employees. The code of
ethics will provide standards of conduct for Endocare's
directors, officers and employees and will penalize failure to
comply with the code.
17
e) Establish and maintain an active Strategic Planning Committee
of the Board of Directors to perform comprehensive strategic
reviews of opportunities to maximize stockholder value. The
Strategic Planning Committee will, under the Board's
supervision, seek to do all of the following:
o Conduct a review of Endocare's procedures-based
business model to determine feasibility,
profitability and complementary sales and products
opportunities;
o Establish improved criteria for Endocare's mergers,
acquisitions, divestitures and strategic alliances;
o Analyze and optimize potential markets in Europe and
Asia;
o Review opportunities for outsourcing processes to
reduce or contain Endocare products costs and prices;
and
o Explore use of third-party sources of financing to
fund physician and clinic possession of cryosurgical
equipment.
f) Review and revise Endocare's management compensation packages
to ensure comparability with companies in Endocare's peer
group. This review will focus on each component of
compensation offered to Endocare's management. In addition, we
will also implement a system of internal training, incentive
programs and performance review procedures.
3. BUSINESS STRATEGY AND MANAGEMENT OF OPERATIONS.
a) Focus on Endocare's core competency, which we believe is
cryosurgery, through:
o Development of a plan to pursue multi-disciplinary
approach to cryosurgery in order to introduce
malignant and non-malignant applications to the
broader medical community, including applications in
general surgery, oncology, cardiology, gynecology,
neurosurgery and endocrinology;
o Focus resources on Endocare's strengths in the
product development and manufacture and clinical
aspects of cryosurgery; and
o Creation of broad-based Centers of Excellence
dedicated to general cryosurgical procedures and
applications.
b) Increase representation on Endocare's Scientific Advisory
Board to include additional cryosurgeons and representatives
from the fields of oncology, radiology and general surgery.
c) Improve physician support for procedures, physician training,
technology and updates to products, by:
o Collaboration with physicians and patient advocates
to ensure current, effective and accurate data is
collected and analyzed to encourage the publication
of studies on cryosurgical procedures and to enhance
Endocare's public profile in the medical community;
o Development of systems to obtain and analyze feedback
from proctors, physicians, application specialists
and sales teams;
o Improvement of educational and training guidelines
based on collected analysis of feedback from medical
community; and
o Improvement of testing and development to enhance
efficacy and safety of technology prior to
introduction.
d) Reduce general and administrative expenses by conducting a
line-by-line review of opportunities to cut costs and reduce
overhead.
4. SALES AND MARKETING.
a) Enhance Endocare's brand image through:
18
o Preparation of advertising strategies to demonstrate
to broader medical community the efficacy of
Endocare's cryosurgical procedures with emphases on
historical performance and availability of supporting
data;
o Review and redesign of current marketing strategies;
and
o Coordination of marketing messages among advertising
and sales functions.
b) Solidify and strengthen relationships with physicians (i) who
utilize cryosurgery and Endocare applications; and (ii) who
are involved in medical fields where cryosurgical applications
are being developed and accepted, through:
o Establishment of programs to encourage academic
research, including data collection, on cryosurgical
procedures;
o Provision of marketing, research and educational
support for Endocare prostate sites in US and Europe;
o Provision of support for focus groups, user
conferences and professional cryosurgical
organizations; and
o Recruitment of physicians to serve on Endocare's
Scientific Advisory Board.
c) Encourage comments and participation from key Endocare
customers and health care leaders on improvements for and
expansion of Endocare's business practices.
d) Significantly expand the role of Endocare's Scientific
Advisory Board in the marketing of Endocare's products, by
accessing the reach of our medical advisors to promote the
benefits of Endocare's products and technologies in additional
medical fields.
e) Amplify the role of patient advocate groups in Endocare's
operations to generate market demand for Endocare's
technologies and applications and ensure better patient care.
f) Provide enhanced support to sales agents and distributors, by
holding regular meetings with agents and distributors and by
developing sales and marketing plans with consultation from
sales agents and distributors.
19
ELECTION OF DIRECTORS
We are soliciting your proxy for the election of the Nominees of the
Committee to Revitalize Endocare as directors of the Company to serve until the
2004 Annual Meeting of Stockholders and until their successors are duly elected
and qualified.
In accordance with Endocare's Restated Certificate of Incorporation and
By-laws and the Delaware General Corporation Law, Endocare's Board is to consist
of not less than three and not more than seven directors, the exact number to be
specified by the Board. Based on information contained in reports filed by the
Company with the SEC, seven directors currently serve on the Endocare Board.
Our Nominees, if elected, will constitute all of the members of the
Board. If the Nominees of the Committee to Revitalize Endocare are elected and
take office as directors, they intend to discharge their duties as directors of
the Company in compliance with all applicable legal requirements, including the
general fiduciary obligations imposed upon corporate directors.
Each of our Nominees has consented to be included in this Proxy
Statement and to serve as a director until the expiration of his or her
respective term and until such Nominee's successor has been elected and
qualified or until the earlier resignation or removal of such Nominee. We have
no reason to believe that any of our Nominees named above will be disqualified
or unable or unwilling to serve if elected. However, if any of the Nominees are
unable to serve or for good cause will not serve, proxies may be voted for
another person nominated by the Committee to Revitalize Endocare to fill the
vacancy.
The Nominees of the Committee to Revitalize Endocare understand that,
if elected as directors of Endocare, each of them will have an obligation under
Delaware law to discharge his or her duties as a director in good faith,
consistent with his or her fiduciary duties to Endocare and its stockholders.
THE PARTICIPANTS
The following persons and entities constitute our "participants" (as
defined in Instruction 3 to Item 4 of Rule 14a-10l promulgated under the
Securities Exchange Act of 1934) in this proxy solicitation: Kurt Landgraf,
David Eller, William A. Barry, Douglas Chinn, M.D., Robert Paul Fry, M.D., J.D.,
John R. Queen, Joseph L. D'Angelo and Solana Capital Partners.
Information relating to the beneficial ownership of common stock of
Endocare by the participants in this solicitation and certain other information
relating to the participants is set forth below. Other than Douglas Chinn, M.D.,
none of the participants in this solicitation are party to any commercial
dealings with Endocare or its subsidiaries required to be discussed pursuant to
Schedule 14A promulgated under the Securities Exchange Act of 1934, which
governs the disclosure contained in this proxy statement.
20
PARTICIPANTS' OWNERSHIP OF ENDOCARE STOCK
The following table shows, as of May 31, 2003, the number and
percentage of shares of Endocare common stock owned by each participant in the
Committee to Revitalize Endocare, individually, and by all participants in the
Committee to Revitalize Endocare as a group.
NUMBER OF SHARES
NAME AND BUSINESS ADDRESS BENEFICIALLY OWNED PERCENT OF CLASS
------------------------- ------------------ ----------------
Kurt Landgraf 0 *
4690 Province Line Road
Princeton, NJ 08540
David Eller 1,000 *
2401 Fountain View, #416
Houston, TX 77057
William A. Barry 0 *
37, Greenway, Letchworth,
Herts. SG6 3UG, England
Douglas Chinn, M.D. 50,083(1) *
65 N. First Avenue Suite 102
Arcadia, CA 91006
Robert P. Fry, M.D., J.D. 0 *
22109 East Costilla Drive,
Aurora, CO 80016
John R. Queen 2,500(2) *
17660 La Bajada
Rancho Santa Fe, CA 92067
Joseph L. D'Angelo 0 *
1335 Oakwood Drive
Arcadia, CA 91006
Solana Capital Partners 1,000 *
990 Highland Drive, Suite 314
Solana Beach, CA 92075
All Participants in the Committee 54,583 *
to Revitalize Endocare, as a Group
(six individuals and one entity)
----------
* Less than 1%.
(1) Does not include 3,020 shares of Endocare common stock owned by Dr.
Chinn's spouse and children, of which Dr. Chinn disclaims beneficial
ownership.
(2) Represents 2,500 shares of Endocare common stock owned by John Queen,
as co-trustee of the John R. and Patricia Queen Trust.
21
BIOGRAPHICAL INFORMATION OF OUR NOMINEES AND OTHER PARTICIPANTS
The information below sets forth the name, age (as of May 31, 2003),
principal occupation and directorships of each of the participants in the
Committee to Revitalize Endocare. The participants have been categorized into
two groups: (1) our Nominees and (2) other participant.
1. OUR NOMINEES.
Kurt Landgraf. Mr. Landgraf, 56, has served as President and Chief
Executive Officer of Educational Testing Service ("ETS"), a major
not-for-profit administrator of testing and testing services, since
August 2000.
He 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. Before
joining ETS, Mr. Landgraf served as Chairman and Chief Executive
Officer of DuPont Pharmaceuticals Company (a subsidiary of the DuPont
Company) from January 2000 to May 2000; Executive Vice President and
Chief Operating Officer of E.I. DuPont De Nemours from April 1998 to
August 2000; Chief Financial Officer from December 1996 to October
1997; President and Chief Executive Officer of The DuPont Merck
Pharmaceuticals Company from December 1993 to December 1996; and
Executive Vice President of DuPont's worldwide pharmaceuticals business
from January 1991 to December 1993. During his tenure at The DuPont
Companies, Mr. Landgraf also served as Chairman of the Boards of DuPont
Europe (1997-2000), DuPont Pharmaceuticals (1998-2000), and DuPont
Merck Pharmaceuticals (1996-1998).
From July 1980 to January 1991, Mr. Landgraf served as Director of E.I.
DuPont De Nemours' Pharmaceuticals and Imaging Agents Division, where
he had profit/loss responsibility for DuPont's $600 million
pharmaceuticals and imaging agents business; and Director of Business
Development and International Marketing for the Pharmaceuticals
Division, where he held profit/loss responsibility for all
pharmaceuticals operations outside the U.S., primarily in Canada,
Western Europe and Japan. Mr. Landgraf also served previously as
Manager of Marketing Analysis and Planning and Corporate Staff
Corporate Economist for The Upjohn Company, among other positions.
Mr. Landgraf has served as a member of the Boards of Directors of Ikon
Office Solutions since 2000, aaiPharma, Inc. since 2001 and NDCHealth
Corporation since 2001. In addition to his substantial business
experience, Mr. Landgraf has lectured in academic settings in
economics, labor-relations management and marketing.
Mr. Landgraf earned a Bachelor of Science degree from Wagner College, a
Masters of Arts degree in Economics from Pennsylvania State University,
a Masters in Education degree from Rutgers University, a Masters in
Science degree 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.
We intend to nominate Mr. Landgraf to serve as a director and to elect
him as Chairman of the Board.
David Eller. Mr. Eller, 65, has served as President of Eller Holding
Company, a private investment firm concentrating on investing in oil
and gas exploration companies, since 1999. Previously, Mr. Eller served
as President of DuPont Pharmaceuticals Company - Europe, and its six
European operating subsidiaries, as well as serving as a strategic
advisor to the Chief Operating Officer and to the Chairman and Chief
Executive Officer of Europe, Africa and Asia for The DuPont Company
from 1996 to 2001. At DuPont, Mr. Eller managed and coordinated
strategic implementations that increased shareholder value by three
times over its book value.
In addition to his experience with DuPont, Mr. Eller has over 25 years
of senior management and executive level experience with substantial
expertise and experience in life sciences, biosciences, and
pharmaceuticals, as well as oil and gas exploration and production
companies. Mr. Eller has served as Chairman, a director
22
and Chief Executive Officer of both the North American Energy
Corporation from 1993 to 1999 and Granada BioSciences, Inc. from 1986
to 1992.
Mr. Eller has extensive leadership experience in civic, educational and
philanthropic organizations. He has served the Texas A&M University
System as Chairman of the Board of Regents from 1985 to 1989,
Chancellor and Chief Executive Officer from 1986 to 1987, Regent from
1983 to 1985 and Chairman Emeritus from 1989 to the present. Mr. Eller
was also director of the Baylor College of Medicine from 1984 to 1992,
and on the boards of the Foundation for Biomedical Research from 1985
to 1998, Texas Chamber of Commerce from 1984 to 1990 and Herman
Hospital from 1989 to 1992.
Mr. Eller earned a Bachelor of Science degree in Engineering from Texas
A&M University. He also completed the Advanced Management Program at
the Harvard Business School and the Corporate Governance Program at the
Graduate School of Business at Stanford University. In addition, Mr.
Eller served as an officer of the United States Army.
We intend to nominate Mr. Eller to serve as a director and to appoint
him to serve as Chief Executive Officer.
William A. Barry. Mr. Barry, 59, has served as a consultant to
Bristol-Myers Squibb since October 2001 in connection with its $7.2
billion acquisition of DuPont Pharmaceuticals Company.
Prior to his service as a consultant, Mr. Barry worked with DuPont and
other companies for over 40 years, in finance, operations, audit and
management positions.
In 2001 Mr. Barry served as Vice President of Finance and Managing
Director of the European Headquarters of DuPont Pharmaceuticals Company
(a subsidiary of the DuPont Company). From 1991 to 2000, Mr. Barry
served as Vice President of Finance for DuPont Pharmaceuticals-Europe
(two of these years in the U.S.) and either President or Chairman of
the Board of the six DuPont Pharmaceuticals subsidiaries across Europe.
From 1999 to 2000, he concurrently served as General Manager for DuPont
Pharmaceuticals' Medical Imaging Business in Europe.
In addition, from 1984 to 1991, Mr. Barry served as Treasurer and
Financial Manager of DuPont (France) with a concentration on mergers
and acquisitions. Mr. Barry also served as Treasurer for DuPont (UK)
from 1980 to 1984. From 1973 to 1980, he served as Audit Manager for
Southern Europe for DuPont based in the UK and in Switzerland. Mr.
Barry also served on the Board of Governors of the British School of
Paris (France) for 12 years.
We intend to nominate Mr. Barry to serve as a director and to appoint
him as Chief Financial Officer.
Douglas Chinn, M.D. Dr. Chinn, 52, has been an urologist in private
practice and a medical researcher for over 20 years. In addition, he
has been performing cryosurgery since 1993.
From 1996 through 2002, Dr. Chinn served as a consultant and leading
proctor to Endocare. As a consultant to Endocare, he provided advice
and expertise in product development, Medicare reimbursement, and
employee and physician training programs. Dr. Chinn performed the first
basic science and laboratory investigations (in conjunction with other
investigators) that validated the technique, efficacy and safety of the
Endocare CryoCare unit for the clinical setting. As the chief proctor
for Endocare, he has proctored over 200 cases in prostate and renal
cryosurgery. He continues to license his patented technology on
temperature monitoring and cryosurgery to Endocare. Further, he has
given presentations on Endocare's technology to insurance companies and
investment fund managers.
Dr. Chinn has served as a member of the Executive Committee, Chairman
of the Standardization Committee and Program Chairman for the Society
of Urologic Cryosurgeons from 1995 to 1996. Dr. Chinn is also a member
of the American Urological Association, American College of
Cryosurgery, and California
23
Urological Association where he serves on the Committee on Legislation.
He is a Fellow with the International College of Surgeons where he
serves as Vice President of the United States Section.
Dr. Chinn is co-author of several publications on cryosurgery, and has
trained physicians in the United States and world-wide. He received his
Bachelor of Science and Medical Doctorate degrees from the University
of Southern California.
We intend to nominate Dr. Chinn to serve as a director and to appoint
him as Chief Medical Officer.
Joseph L. D'Angelo. Mr. D'Angelo, 66, has served as the Chief Financial
Officer of Glesener Pharmacy, Inc. since 1988 when he joined as a full
partner and Registered Pharmacist. Glesener Pharmacy incorporated in
1995 and is currently one of the largest independent pharmacies in
California with annual revenue in excess of $10 million. Since 1995,
Mr. D'Angelo has served as Chief Financial Officer and Vice President.
He also previously served as Secretary Treasurer.
Since 1971, Mr. D'Angelo has founded ten state-licensed board and care
facilities providing assisted living services and housing. In 1979, he
co-founded a chain of nine photography retail establishments, 45 Minute
Photolabs, Inc., which he sold in 1989. In addition to his experience
in pharmaceutical and medical equipment sales, Mr. D'Angelo has
substantial expertise and experience in the management and operations
of residential care facilities and as a research chemist. Mr. D'Angelo
earned a Bachelor of Science degree from the Philadelphia College of
Pharmacy and Science.
We intend to nominate Mr. D'Angelo to serve as a director.
Robert Paul Fry, M.D., JD. Dr. Fry, 79, practiced nine years as an
anesthesiologist and another 20 years as a medical malpractice and
product liability attorney. From 1983 to 1992 Dr. Fry served as a
Medical and Legal Consultant with the Robert P. Fry Professional
Corporation. From 1967 to 1983 he acted as Senior Partner with the law
firm of Butler, Jefferson & Fry. From 1955 to 1965 Dr. Fry was a Staff
Anesthesiologist at Methodist Hospital in Arcadia, CA. Dr. Fry has been
a private investor for the past five years.
Dr. Fry earned 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.
We intend to nominate Dr. Fry to serve as a director.
John R. Queen. Mr. Queen, 64, has over 35 years of management
experience in the securities industry, principally with Merrill Lynch,
Pierce, Fenner & Smith ("Merrill Lynch"). Mr. Queen served as District
Director and Senior Vice President of Merrill Lynch for Southern
California from 1991 to 2002. Mr. Queen previously served as Merrill
Lynch's Senior Vice President and Director for Northern California from
1990 to 1997. Currently, Mr. Queen, who retired from Merrill Lynch, is
a private investor and a member of several civic boards.
Mr. Queen was a founder of the Long Beach Grand Prix and served on its
Board of Directors for 25 years. Mr. Queen was recently elected
Chairman of the San Diego Symphony Orchestra.
Mr. Queen earned a Bachelor of Science degree in Economics from St.
Mary's College of California. He also served in the United States Navy.
We intend to nominate Mr. Queen to serve as a director.
2. OTHER PARTICIPANT.
Solana Capital Partners. Solana Capital Partners, Inc., a California
corporation, is a privately funded venture capital firm that provides
investments to information-technology, manufacturing/distribution and
24
medical-device manufacturing companies. Solana Capital Partners, based
in Solana Beach, California, was formed in 1999 to invest in
sustainable companies with long-term potential for success. Solana
Capital Partners focuses on companies requiring investments that may
not meet the minimums of many venture capital firms, generally in
investments up to $2 million for second-stage and later-stage companies
seeking to finance targeted expansion efforts. A principal officer and
stockholder of Solana Capital Partners is currently disputing a 1996
censure and $50,000 fine from the National Association of Securities
Dealers related to his refusal to disclose the identity of clients on
whose behalf he was trading securities.
Solana Capital Partners has and intends to provide all of the financing
for this proxy statement and for any future efforts by the participants
in any later filed proxy materials.
25
COMPENSATION OF NOMINEES
The following table shows the compensation paid or accrued by Endocare
to each of the Nominees of the Committee to Revitalize Endocare for services
rendered to Endocare in all capacities during 2000, 2001 and 2002. None of the
Nominees received grants of stock options or other equity-based compensation
during any of 2000, 2001 or 2002.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
---------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------------------ -------
------------------------------------------------- RESTRICTED SECURITIES
SALARY OTHER ANNUAL STOCK UNDERLYING LTIP
COMPENSATION BONUS COMPENSATION AWARD(s) OPTIONS/SARS PAYOUTS ALL OTHER
NAME YEAR ($) ($) ($) ($) (#) ($) ($)
------------------ ---- ------------- ----------- ------------ ---------- ------------ ------- ---------
Kurt Landgraf 2002 None None None None None None None
2001 None None None None None None None
2000 None None None None None None None
David Eller 2002 None None None None None None None
2001 None None None None None None None
2000 None None None None None None None
William A. Barry 2002 None None None None None None None
2001 None None None None None None None
2000 None None None None None None None
Douglas Chinn, M.D. 2002 None None 157,943.65(1) None None None None
2001 None None 154,239.45(1) None None None None
2000 None None 177,657.22(1) None None None None
Robert Paul Fry, M.D., J.D. 2002 None None None None None None None
2001 None None None None None None None
2000 None None None None None None None
John R. Queen 2002 None None None None None None None
2001 None None None None None None None
2000 None None None None None None None
Joseph D'Angelo 2002 None None None None None None None
2001 None None None None None None None
2000 None None None None None None None
----------
(1) Amounts reflected represent aggregate compensation paid or accrued by
Endocare to Dr. Chinn under both a Consulting Agreement, dated January
17, 2000, and a License Agreement, dated February 14, 1997. Set forth
below is the amount paid or accrued under each of these agreements,
individually.
YEAR CONSULTING AGREEMENT LICENSE AGREEMENT
---- -------------------- -----------------
2002 $ 150,000.00 $ 7,943.65
2001 $ 150,000.00 $ 4,239.45
2000 $ 163,819.47 $ 13,837.75
26
POTENTIAL COST IF OUR SOLICITATION IS SUCCESSFUL
CERTAIN POTENTIAL FUTURE PAYMENTS BY ENDOCARE RELATED TO EMPLOYMENT AGREEMENTS
Our Nominees intend to appoint Kurt Landgraf as Chairman of the Board,
David Eller as Chief Executive Officer, William Barry as Chief Financial
Officer, and Douglas Chinn, M.D. as Chief Medical Officer of Endocare.
Appointment of these four individuals as officers of Endocare may require
Endocare to comply with certain severance provisions of three Employment
Agreements entered into by Endocare.
1. JOHN CRACCHIOLO'S EMPLOYMENT AGREEMENT. If our nominees are elected to
the Endocare Board, we intend to conduct a review of Cracchiolo's
Employment Agreement and his position at Endocare to determine whether
it is in the best interests of Endocare to take actions to cause
Cracchiolo's Employment Agreement to be voided or canceled. If we do
determine that it would be in the best interests of Endocare to attempt
to void or cancel Cracchiolo's Employment Agreement, we cannot assure
you that we would be successful in our efforts.
a) Under Cracchiolo's Employment Agreement, Endocare may have to
pay to Cracchiolo the severance payments listed below IF:
o we are unsuccessful in voiding Cracchiolo's
Employment Agreement, and
o Cracchiolo's employment is terminated (A) by Endocare
without "Cause"; (B) by Cracchiolo for "Good Reason";
or (C) by Cracchiolo at Cracchiolo's discretion
during the 30-day period following the "Mandatory
Access Period"; or (D) because of the death or
disability of Cracchiolo.
"Cause" under Cracchiolo's Employment Agreement means
(A) the willful misappropriation of Endocare funds or
property; (B) conviction in a court of law of, or
entering a plea of guilty or no contest to, any
felony; or (C) commission in bad faith of any act
that materially injures or could reasonably be
expected to materially injure the reputation,
business or business relationships of Endocare.
Cracchiolo's Employment Agreement also specifically
states that "Cause" does not include (Y) any
termination which occurs thirty (30) days after
Endocare learns of an event which would otherwise
constitute "Cause"; or (Z) any events that transpired
prior to March 3, 2003, except for events of which
Endocare was aware and which Endocare has previously
reviewed or investigated.
"Good Reason" under Cracchiolo's Employment Agreement
means Cracchiolo's voluntary resignation within
thirty (30) days of learning of any of the following:
(A) the material diminution or change of position,
duties, responsibilities, authority, or the
assignment of duties materially inconsistent with
Cracchiolo's prior position; (B) the material
reduction in Cracchiolo's compensation or benefits;
(C) the relocation of Cracchiolo's principal business
location to an area outside of a thirty (30)-mile
radius of its current location; or (D) the failure of
any successor entity to assume in writing any
obligations arising out of any agreement between the
Company and Cracchiolo upon the entity becoming a
successor, including the obligations arising under
Cracchiolo's Employment Agreement. Also, the
Company's hiring of a new Chief Operating Officer or
Chief Financial Officer shall not be considered "Good
Reason."
"Mandatory Access Period" under Cracchiolo's
Employment Agreement means the first six (6) months
of Cracchiolo's Employment Agreement (period ending
September 3, 2003) or longer if Cracchiolo and
Endocare mutually elect to continue the Mandatory
Access Period for an additional period of time up to
March 3, 2006.
b) Under the terms of Cracchiolo's Employment Agreement,
Cracchiolo's potential severance payments include ALL of the
following:
o 200% of Cracchiolo's base salary and maximum 2002
bonus eligibility, in cash, which amounts to
$616,000;
27
o "relocation" compensation, in cash, of $50,000;
o an amount of cash equal to Cracchiolo's tax liability
for his $50,000 "relocation" compensation at the
highest marginal tax rate, which amounts to
approximately $15,000; and
o for a period of 24 months, participation in all
company fringe benefit plans OR an amount of cash
equal to the costs of substantially equivalent
insurance for Cracchiolo and any spouse or dependents
covered as of March 3, 2003.
2. WILLIAM NYDAM'S EMPLOYMENT AGREEMENT. Pursuant to an Employment
Agreement, dated March 3, 2003, William Nydam serves as Endocare's
President and Chief Operating Officer. Our Nominees do not have any
present intention to appoint any other individual to serve as President
or Chief Operating Officer. However, we do intend to conduct a review
of the performance of all of Endocare's senior management to determine
the prudence of retaining all or any member of Endocare's management
team. In addition, our Nominees intend to review the circumstances
surrounding the hiring of Nydam and Greenberg to determine the prudence
and feasibility of attempting to void either or both of Nydam's or
Greenberg's Employment Agreements (more fully described in Section 3
below).
Under Nydam's Employment Agreement, Endocare may have to pay to Nydam
severance payments equal to Nydam's base salary ($240,000) and continue
his health insurance for one year, if Nydam is terminated (A) by
Endocare without "Cause"; or (B) by Nydam for "Good Reason."
"Cause" under Nydam's Employment Agreement means (A) willful misconduct
or dishonesty; (B) conviction of a felony; (C) acts (or fails to act)
in bad faith and to the detriment of Endocare; (D) materially breaches
his Employment Agreement or any other agreement with the Company; (E)
engages in misconduct that is demonstrably and materially injurious to
the Company, including, without limitation, willful and material
failure to perform his duties as an officer or employee of Endocare or
excessive absenteeism unrelated to illness or vacation.
"Good Reason" under Nydam's Employment Agreement means Nydam's
resignation (A) within the one hundred and eighty (180)-day period
immediately following the six (6)-month anniversary of the date of the
occurrence of a Change in Control (as defined below); (B) within six
(6) months of the Company's material reduction of Nydam's level of
responsibility; or (C) within six (6) months of the Company's material
reduction of the base salary, except for any salary reduction that is
generally applicable to the Company's executives.
"Change in Control" under Nydam's Employment Agreement shall mean any
of the following transactions: (A) a merger or consolidation in which
the Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the state in which the Company
is incorporated; (B) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; (C) any reverse merger
in which the Company is the surviving entity but in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities are transferred to a
person or persons different from those who held such securities
immediately prior to such merger; or (D) the acquisition in a single or
series of related transactions by any person or related group of
persons (other than by the Company or by a Company-sponsored employee
benefit plan) of beneficial ownership (within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934, as amended) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities.
3. KATHERINE GREENBERG'S EMPLOYMENT AGREEMENT. Pursuant to an Employment
Agreement, dated March 25, 2003, Katherine Greenberg serves as
Endocare's Chief Financial Officer. Our Nominees intend to appoint
William A. Barry to serve as Endocare's Chief Financial Officer, but
they do not have any present intention to terminate Katherine
Greenberg's employment with Endocare. However, our Nominees do intend
to conduct a review of the performance of all of Endocare's senior
management to determine the prudence of retaining all or any member of
Endocare's management team. In addition, our Nominees intend to review
the circumstances surrounding the hiring of Nydam and Greenberg to
determine the prudence and feasibility of attempting to void either or
both of Nydam's or Greenberg's Employment Agreements.
28
Under Greenberg's Employment Agreement, Endocare may have to pay to
Greenberg severance payments equal to Greenberg's base salary
($185,000) and continue her health insurance for one year if Greenberg
is terminated (A) by Endocare without "Cause"; or (B) by Greenberg for
"Good Reason".
"Cause" under Greenberg's Employment Agreement means (A) willful
misconduct or dishonesty; (B) conviction of a felony; (C) acts (or
fails to act) in bad faith and to the detriment of Endocare; (D)
materially breaches her Employment Agreement or any other agreement
with the Company; (E) engages in misconduct that is demonstrably and
materially injurious to the Company, including, without limitation,
willful and material failure to perform her duties as an officer or
employee of Endocare or excessive absenteeism unrelated to illness or
vacation.
"Good Reason" under Greenberg's Employment Agreement means Greenberg's
resignation (A) within the thirty (30)-day period immediately following
the six (6)-month anniversary of the date of the occurrence of a Change
in Control (as defined below); (B) within six (6) months of the
Company's material reduction of Greenberg's level of responsibility; or
(C) within six (6) months of the Company's material reduction of the
base salary, except for any salary reduction that is generally
applicable to the Company's executives.
"Change in Control" under Greenberg's Employment Agreement shall mean
any of the following transactions: (A) a merger or consolidation in
which the Company is not the surviving entity, except for a transaction
the principal purpose of which is to change the state in which the
Company is incorporated; (B) the sale, transfer or other disposition of
all or substantially all of the assets of the Company; (C) any reverse
merger in which the Company is the surviving entity but in which
securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such
securities immediately prior to such merger; or (D) the acquisition in
a single or series of related transactions by any person or related
group of persons (other than by the Company or by a Company-sponsored
employee benefit plan) of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities.
REIMBURSEMENTS PAYABLE TO PARTICIPANTS FOR EXPENSES RELATED TO THIS PROXY
CONTEST
The entire expense of our proxy solicitation is being borne by Solana
Capital Partners. In the event that our Nominees are elected to the Endocare
Board, Solana will seek reimbursement of such expenses from Endocare. Our
Nominees do not intend to submit such reimbursement to a vote of Endocare's
stockholders. Costs related to the solicitation of proxies are expected to be
between $750,000 and $1,000,000.
Douglas Chinn has advanced $200,000 to Solana Venture Group Fund, L.P.
under the terms of an Engagement Agreement and a Confidentiality Agreement,
dated March 5, 2003, but rescinded by the parties on March 27, 2003.
Contemporaneous with rescinding the Engagement Agreement and the Confidentiality
Agreement, Solana and Dr. Chinn entered into an Option of Money Pay-Back or
Assignment of Limited Partnership Units Agreement dated March 27, 2003. This
agreement is currently in effect and provides that Dr. Chinn has the option of
being repaid the $200,000 previously advanced to Solana in either (a) cash
payable one year from the date on which Solana received its last advance from
Dr. Chinn or (b) 1.3333 limited partnership units of Solana Venture Group Fund,
L.P (the "LP Units"). Some or all of the money Dr. Chinn paid to Solana Venture
Group Fund, L.P. will be used by Solana to pay expenses in connection with this
proxy solicitation. However, Dr. Chinn will not be responsible for any other
payments in connection with this proxy solicitation.
In addition, in the event that our Nominees are elected to the Endocare
Board, Solana intends to seek options to purchase shares of Endocare's common
stock. However, there is no agreement or understanding among any of the members
of the Committee to Revitalize Endocare to grant Solana any options to purchase
shares of Endocare's common stock or any other compensation of any kind. Joseph
D'Angelo and John Queen, two of our Nominees and the fathers of two employees of
Solana, will each refrain from participation in the deliberations or voting on
any matters related to reimbursement or compensation of Solana.
29
CERTAIN INFORMATION CONCERNING THE PARTICIPANTS
1. Except for the legal action described in the next paragraph, no Nominee
of the Committee to Revitalize Endocare is involved in any material
pending legal proceedings with respect to the Company.
a) 220 Lawsuit. On April 7, 2003, Douglas Chinn, M.D. presented
Endocare with a demand to inspect materials identifying
Endocare's stockholders ("Stocklist Materials") and certain of
Endocare's books and records ("Books and Records") pursuant to
Section 220 of the Delaware General Corporation Law. Because
Endocare failed to respond to Dr. Chinn's demand, on April 15,
2003, Dr. Chinn filed a lawsuit against Endocare in the
Delaware Court of Chancery to enforce his April 7, 2003
demand. On May 6, 2003, the Court of Chancery entered an order
requiring the production of the Stocklist Materials. A trial
was held on June 9, 2003 for the Court to determine whether
Dr. Chinn should be given access to the Books and Records. At
the conclusion of the June 9, 2003 trial, the Court ruled in
Dr. Chinn's favor, stating that it had "no question in [its]
mind whatsoever" that Dr. Chinn had demonstrated a proper
purpose for the request he made to inspect Endocare's Books
and Records. The Court directed the parties to attempt to work
out arrangements for conducting the inspection and has
scheduled a hearing for June 26, 2003 to resolve any remaining
issues relating to the inspection.
2. Except for the Consulting Agreements discussed in the following
paragraphs, there is no arrangement or understanding between any
Nominee of the Committee to Revitalize Endocare and any other person
pursuant to which he was or is to be selected as a Nominee or director.
a) Consulting Agreements. Solana Capital Partners entered into a
Consulting Agreement, dated as of March 4, 2003, with David
Eller and William Barry. Under the March 4, 2003 Consulting
Agreement, Messrs. Eller and Barry provided consulting
services including assistance in assessing Endocare's current
management team, operations and business potential. This
Consulting Agreement contained a term of one (1) month and
terminated as of April 4, 2003. Under this Consulting
Agreement, Messrs. Eller and Barry each received $10,000 for
their consulting services. In addition, Messrs. Eller and
Barry received reimbursement for their reasonable
out-of-pocket expenses incurred in their performance under
this Consulting Agreement. This Consulting Agreement also
permitted the use of Messrs. Eller's and Barry's names as
potential Nominees for election as directors and officers of
Endocare, in the event that the participants to this Schedule
14A endeavored to nominate candidates for election as
directors of Endocare, subject to the execution of agreements
between Endocare and Messrs. Barry and Eller containing
mutually acceptable terms.
In addition, on May 16, 2003, Solana and Messrs. Eller and
Barry entered into a new Consulting Agreement, effective as of
April 5, 2003, on substantially similar terms as the March 4,
2003 Consulting Agreement, except that the April 5, 2003
Consulting Agreement shall remain in effect until terminated
by either Solana or Messrs. Eller or Barry upon three days
prior written notice. In addition, the April 5, 2003
Consulting Agreement provides for compensation of $20,000 per
calendar month to be paid to each of Messrs. Eller and Barry,
and to provide for payment to each of Messrs. Eller and Barry
of a success fee equal to 100% of all amounts paid as
compensation to Messrs. Eller and Barry under this Consulting
Agreement in the event the Committee to Revitalize Endocare
elects a majority of its Nominees to the Endocare Board of
Directors.
Solana engaged an outside executive recruiter to identify
David Eller as a candidate for Chief Executive Officer of
Endocare.
3. None of the Nominees of the Committee to Revitalize Endocare currently
holds any position or office with the Company or has ever served
previously as a director of the Company.
4. Other than the option, warrant and engagement agreement,
confidentiality agreement and option agreement described in paragraphs
4(a-c) below, none of the participants or their associates has been,
within the past year, a party to any contract, arrangement or
understanding with any person with respect to any securities of the
Company, including but not limited to joint ventures, loan or option
arrangements, puts or calls,
30
guarantees against loss or guarantees of profits, division of losses or
profits, or the giving or withholding of proxies.
a) 1999 Option. On January 27, 1999, Endocare issued to Dr. Chinn
an option to purchase 25,000 shares of Endocare common stock
at an exercise price of $3.00 per share pursuant to the terms
of a Stock Option Agreement, dated January 27, 1999, between
Endocare and Dr. Chinn. This non-statutory stock option
commenced vesting on January 27, 1999; twenty-five percent
(25%) of the shares subject to this option vested twelve (12)
months after January 27, 1999 and 1/48th of the shares vested
each month thereafter until all of the shares subject to this
option were vested. Dr. Chinn exercised 21,875 shares under
this option and as of the date hereof holds 14,583 shares
issued pursuant to this option. By its terms, this option
terminated on March 1, 2003, which was sixty (60) days after
the termination of Dr. Chinn's consulting relationship with
Endocare.
b) 2000 Warrant. On January 3, 2000, Endocare issued to Dr. Chinn
a warrant to purchase 20,000 shares of Endocare common stock
at an exercise price of $9.00 per share pursuant to a warrant
agreement between Endocare and Dr. Chinn. This warrant became
exercisable with respect to 5,000 shares as of each of January
3, 2001, January 3, 2002 and January 3, 2003 and will be
exercisable with respect to 5000 shares as of January 3, 2004.
Dr. Chinn exercised 15,000 shares under this warrant and as of
the date hereof holds 5,000 shares issued pursuant to this
warrant. This warrant will expire by its terms on January 3,
2005. In addition, this warrant will terminate on the date on
which the License Agreement, dated February 14, 1997 between
Endocare and Dr. Chinn is terminated, and only the number of
shares available prior to the termination of that License
Agreement will remain exercisable after such termination date
until the ultimate expiration of this warrant on January 3,
2005.
c) Engagement Agreement, Confidentiality Agreement and Option
Agreement. Solana, General Partner of Solana Venture Group,
L.P., and Dr. Chinn entered into an engagement agreement dated
March 5, 2003. Solana and Dr. Chinn also entered into a
confidentiality agreement on the same date. Both agreements
were rescinded by the parties on March 27, 2003.
Pursuant to the engagement and confidentiality agreements, Dr.
Chinn engaged Solana to assist him in the attempted contest to
replace the Board of Directors of Endocare. These agreements
provided for the advancement of expenses incurred in the
effort to replace Endocare's Board of Directors as well as the
distribution of the reimbursement of expenses, if any, granted
by Endocare following a successful contest to replace the
Board of Directors of Endocare. Prior to the termination of
these agreements on March 27, 2003, Dr. Chinn had advanced a
total of $200,000 to Solana.
Concurrent with rescinding the engagement and confidentiality
agreements described above, Solana and Dr. Chinn entered into
an Option of Money Pay-Back or Assignment of Limited
Partnership Units Agreement dated March 27, 2003. This
agreement is currently in effect and provides that Dr. Chinn
has the option of being repaid the $200,000 previously
advanced to Solana in either (a) cash payable one year from
the date on which Solana received its last advance from Dr.
Chinn or (b) 1.3333 limited partnership units of Solana
Venture Group Fund, L.P (the "LP Units"). This Agreement also
grants Dr. Chinn a right of first refusal for the purchase of
16.5% of Endocare shares or options received by Solana Venture
Group, L.P, if any. Some or all the money Dr. Chinn paid to
Solana Venture Group Fund, L.P. will be used by Solana to pay
expenses in connection with this proxy solicitation. However,
Dr. Chinn will not be responsible for any other payments in
connection with this proxy solicitation.
5. Except as set forth below, none of the participants and none of their
associates has any arrangement or understanding with any person with
respect to (i) any future employment with the Company or its affiliates
or (ii) any future transactions to which the Company or any of its
affiliates may be a party.
If our Nominees are elected to the Board of Endocare, our Nominees
intend to appoint the following people to the following offices:
o Kurt Landgraf Chairman of the Board
31
o David Eller Chief Executive Officer
o William A. Barry Chief Financial Officer
o Douglas Chinn, M.D. Chief Medical Officer
We do not have any agreement with any of these individuals listed
above, or with any other member of our Committee to Revitalize
Endocare, with respect to the terms or their employment or compensation
as officers of Endocare.
6. Other than the option and warrant described in paragraphs 4(a) and (b)
above and as set forth below in paragraphs 6(a-c), since the beginning
of the Company's last fiscal year, none of the Nominees of the
Committee to Revitalize Endocare or any member of their immediate
families had any material interest in any transaction, or has any
material interest in a proposed transaction, to which the Company or
any subsidiary of the Company was or is to be a party.
a) Dr. Chinn's Consulting Agreement. Endocare entered into a
Consulting Agreement, dated as of January 17, 2000, with Dr.
Chinn and Mahlon Chinn, M.D. (collectively, the
"Consultants"). Under this Consulting Agreement, the
Consultants were engaged to assist Endocare in its product
development for Endocare's Cryocare System and related
technology.
At Dr. Chinn's request, this Consulting Agreement was mutually
terminated as of December 31. 2002, in accordance with a
letter dated December 20, 2002 from Endocare to the
Consultants. Dr. Chinn's request to terminate his consulting
relationship with Endocare was made as a result of Dr. Chinn's
dissatisfaction with Endocare's management. Under this
Consulting Agreement the Consultants agreed, at all times
during the term of this Consulting Agreement and thereafter,
to keep in confidence all confidential information received
from Endocare and to not directly or indirectly use or exploit
any such confidential information other than in the course of
performing the Consultants' duties under this Consulting
Agreement. The Consultants further agreed to use their best
efforts to ensure that such confidential information, and any
records or documents containing such information, are not
exposed to theft, embezzlement or unauthorized reproduction or
disclosure. Dr. Chinn believes that his participation in the
events surrounding this proxy statement and the preparation or
filing of this proxy statement do not abrogate his
confidentiality obligations under this Consulting Agreement.
Under this and previous consulting agreements, Endocare has
paid Dr. Chinn an aggregate amount of $581,069.91 since 1996.
b) Dr. Chinn's License Agreement. Dr. Chinn entered into a
License Agreement, dated as of February 14, 1997, pursuant to
which Dr. Chinn granted to Endocare a license to certain of
Dr. Chinn's proprietary technology and information. This
License Agreement is currently in full force and effect. Dr.
Chinn believes that his participation in the events
surrounding this proxy statement and the preparation or filing
of this proxy statement do not abrogate the provisions related
to confidentiality contained in his License Agreement.
Pursuant to this License Agreement, Endocare has paid to Dr.
Chinn an aggregate amount of $77,987.45 and issued to Dr.
Chinn a warrant to purchase 25,000 shares of common stock of
Endocare at $4.375 per share. This warrant expired February
14, 2002. In addition, in 2000, Endocare issued to Dr. Chinn a
warrant to purchase 20,000 shares of common stock of Endocare
at $9.00 per share, which warrant terminates upon termination
of the License Agreement. Under the terms of the License
Agreement, Dr. Chinn is entitled to royalties on Endocare's
sales of certain of its products.
Dr. Chinn received his last royalty payment under his License
Agreement over one year ago, on May 12, 2002. Dr. Chinn has
not received any current information on Endocare's sales of
its products, but has received anecdotal evidence that
Endocare continues to complete sales of the products which
give rise to Dr. Chinn's right to receive royalty payments
under his License Agreement. In addition, Dr. Chinn has
reviewed Endocare's May 28, 2003 press release disclosing
preliminary metrics for performance of prostate cryoablation
procedures during 2002 and believes that the figures contained
therein support his belief that Endocare may be past due on
amounts owing to him under his License Agreement. Accordingly,
Dr. Chinn believes that Endocare may be
32
past due on royalty payments under his License Agreement, but
is unsure of the amount of such past due royalty payments, if
any.
c) Other Information. Dr. Chinn's father, James Chinn, M.D., as
trustee of the James Chinn Trust Dated September 6, 1984, is
currently in discussions with Endocare over claims by Endocare
that the James Chinn Trust Dated September 6, 1984 owes
Endocare certain amounts as payment for cryosurgical
equipment. Although Douglas Chinn, M.D. is a potential future
beneficiary of the James Chinn Trust Dated September 6, 1984,
Douglas Chinn, M.D. has no involvement in these discussions
between James Chinn, M.D. and Endocare. Douglas Chinn, M.D.
believes that the actions represented by this proxy statement
are wholly separate and apart from discussions between James
Chinn, M.D. and Endocare.
7. None of the Nominees of the Committee to Revitalize Endocare or any
member of their immediate families has been indebted to the Company or
any of its subsidiaries at any time since the beginning of the
Company's last fiscal year. Except for amounts paid by Endocare to Dr.
Chinn under his Consulting Agreement and License Agreement discussed in
paragraphs 6(a) and (b) above, no Nominee has received any compensation
from the Company.
8. Except as set forth below in paragraphs 8(a-b), no family relationships
exist among the Nominees or between any Company director or executive
officer and any of the Nominees.
a) Joseph D'Angelo, one of our participants, is the father of
Luke D'Angelo, the Secretary and Managing Director of Solana
Capital Partners, Inc.
b) John Queen, one of our Nominees, is the father of Christopher
Queen, an employee of Solana Capital Partners, Inc.
9. The following is a summary of all transactions in Company common stock
by our participants over the last two years.
a) Douglas Chinn, M.D. Transactions during the last two years in
the Company's common stock by Dr. Chinn:
Date Of Transaction Nature Of Transaction Number Of Shares(1)
------------------- --------------------- ----------------
10/23/01 Sell 8,455
10/24/01 Buy(2) 10,000
10/24/01 Sell 10,000
10/24/01 Sell 500
2/21/02 Buy 5,000
10/22/02 Buy 14,583
----------
(1) Does not include 3,020 shares of Endocare common stock owned
beneficially by Dr. Chinn's spouse and children, of which Dr. Chinn
disclaims beneficial ownership.
(2) Acquired on margin.
b) Solana Capital Partners Transactions during the last two years
in the Company's common stock by Solana Capital Partners.
Date Of Transaction Nature Of Transaction Number Of Shares
------------------- --------------------- ----------------
4/14/03 Buy 1,000
c) David Eller. Transactions during the last two years in the
Company's common stock by Mr. Eller.
Date Of Transaction Nature Of Transaction Number Of Shares
------------------- --------------------- ----------------
4/16/03 Buy 1,000
33
d) John Queen. Transactions during the last two years in the
Company's common stock by John Queen.
Date Of Transaction Nature Of Transaction Number Of Shares
------------------- --------------------- ----------------
5/9/03 Buy 2,500(1)
----------
(1) Represents 2,500 shares of Endocare common stock owned by John Queen, as
co-trustee of the John R. and Patricia Queen Trust.
34
WE STRONGLY RECOMMEND THAT YOU VOTE "FOR"
THE ELECTION OF OUR NOMINEES
VOTING PROCEDURES
THE GOLD PROXY CARD
In order to ensure that your vote is represented at the 2003 Annual
Meeting of the Stockholders, we urge you to sign and date the enclosed GOLD
proxy card and return it to MacKenzie Partners, in the enclosed postage paid
envelope TODAY. Execution of the GOLD proxy card will not affect your right to
attend the 2003 Annual Meeting of the Stockholders scheduled for September 30,
2003 and to vote in person.
You are eligible to execute a GOLD proxy card only if you owned the
common stock on the Record Date. Endocare's Board has set August 4, 2003 as the
Record Date for determining those stockholders who will be entitled to notice of
and to vote at the 2003 Annual Meeting of the Stockholders. You will retain the
right to execute a proxy card in connection with this proxy solicitation even if
you sell your shares after the Record Date. Accordingly, it is important that
you vote the shares held by you on the Record Date, or grant a proxy to vote
such shares on the GOLD proxy card, even if you sell such shares after the
Record Date.
On the Record Date, there were outstanding and entitled to vote
__________ shares of Endocare common stock, which is Endocare's only class of
voting securities. Stockholders will have one vote for each share of common
stock they own with respect to all matters to be considered at the 2003 Annual
Meeting of the Stockholders.
If you have previously signed and returned a [BLUE] proxy card to
Endocare, you have every right to change your vote. Only your latest dated card
will count. You may revoke your vote made on any [BLUE] proxy card already sent
to Endocare by signing, dating and mailing the enclosed GOLD proxy card in the
postage-paid envelope provided. Unless contrary instructions are indicated on
the enclosed GOLD proxy card, all shares of stock represented by valid GOLD
proxy cards received pursuant to this solicitation (which have not been revoked
as described above) will be voted FOR the election of our Nominees and will not
be voted on any other matter that may come before the 2003 Annual Meeting of the
Stockholders of Endocare, including matters set forth in Endocare's proxy
statement.
If your shares are registered in your own name, please sign, date and
mail the enclosed GOLD proxy card to MacKenzie, in the postage-paid envelope
provided with this Proxy Statement. If your shares are held in the name of a
brokerage firm, bank nominee or other institution, only it can sign a GOLD proxy
card with respect to your shares and only after receiving your specific
instructions. Accordingly, please sign, date and mail the enclosed GOLD proxy
card in the postage-paid envelope provided, and to ensure that your shares are
voted, you should also contact the person responsible for your account and give
instructions for a GOLD proxy card to be issued representing your shares.
Any proxy may be revoked at any time prior to the 2003 Annual Meeting
of the Stockholders by delivering a written notice of revocation or a later
dated proxy for the 2003 Annual Meeting of the Stockholders to MacKenzie
Partners, or by voting in person at the 2003 Annual Meeting of the Stockholders.
WE STRONGLY RECOMMEND THAT YOU VOTE "FOR" THE ELECTION OF OUR NOMINEES
VOTE REQUIRED
Based on currently available public information of Endocare, a quorum
will exist at the 2003 Annual Meeting of the Stockholders if holders of not less
than a majority of the shares of Endocare common stock outstanding and entitled
to vote at the 2003 Annual Meeting of the Stockholders are present in person or
by proxy. Endocare's Amended and Restated By-laws require that in order to be
elected, nominees for director must receive the affirmative vote of a plurality
of those shares voted.
35
METHOD OF COUNTING VOTES
The holders of not less than a majority of the number of shares of
Endocare common stock outstanding and entitled to vote at the 2003 Annual
Meeting of the Stockholders must be represented in person or by proxy in order
to constitute a quorum for the transaction of business. Abstentions and broker
non-votes will be included for purposes of determining whether a quorum exists.
Broker non-votes occur when brokers do not receive voting instructions from
their customers on non-routine matters and consequently have no discretion to
vote on those matters. If your Endocare shares are held in the name of a
brokerage firm, bank nominee or other institution, you should contact the person
responsible for your account and give instructions for a proxy card to be issued
so that your shares will be represented at the 2003 Annual Meeting of the
Stockholders.
36
ADDITIONAL INFORMATION
The principal executive offices of Endocare, Inc. are located at 201
Technology Drive, Irvine, California 92618. Except as otherwise noted herein,
the information concerning Endocare has been taken from or is based upon
documents and records on file with the SEC and other publicly available
information. Although we do not have any knowledge that would indicate that any
statement contained herein based upon such documents and records is untrue,
there can be no assurance that any information contained in Endocare's publicly
available documents and records were accurate on the date when made.
The principal executive offices of the Committee to Revitalize Endocare
are at 990 Highland Drive, Suite 314, Solana Beach, California 92075.
PROXY SOLICITATION; EXPENSES
Executed proxies may be solicited in person, by mail, personal
delivery, commercial delivery service, electronic mail, facsimile,
advertisement, telephone or telegraph. Solicitation may be made by our Nominees
or our agents and affiliates, none of whom will receive additional compensation
for such solicitation. Proxies will be solicited from individuals, brokers,
banks, bank nominees and other institutional holders. We have requested or will
request banks, brokerage houses and other custodians, nominees and fiduciaries
to forward all solicitation materials to the beneficial owners of the shares
they hold of record. We will reimburse these record holders for their reasonable
out-of-pocket expenses.
In addition, the Committee to Revitalize Endocare has retained
MacKenzie Partners to solicit proxies on our behalf in connection with the 2003
Annual Meeting of the Stockholders. MacKenzie Partners will employ approximately
10 people in its efforts. We have agreed to reimburse MacKenzie Partners for its
reasonable expenses and to pay to MacKenzie Partners a fee up to $100,000.
The entire expense of our proxy solicitation is being borne by Solana
Capital Partners.
Douglas Chinn has advanced $200,000 to Solana Venture Group Fund, L.P.
under the terms of an Engagement Agreement and a Confidentiality Agreement,
dated March 5, 2003, but rescinded by the parties on March 27, 2003.
Contemporaneous with rescinding the Engagement Agreement and the Confidentiality
Agreement, Solana and Dr. Chinn entered into an Option of Money Pay-Back or
Assignment of Limited Partnership Units Agreement dated March 27, 2003. This
agreement is currently in effect and provides that Dr. Chinn has the option of
being repaid the $200,000 previously advanced to Solana in either (a) cash
payable one year from the date on which Solana received its last advance from
Dr. Chinn or (b) 1.3333 limited partnership units of Solana Venture Group Fund,
L.P (the "LP Units"). Some or all of the money Dr. Chinn paid to Solana Venture
Group Fund, L.P. will be used by Solana to pay expenses in connection with this
proxy solicitation. However, Dr. Chinn will not be responsible for any other
payments in connection with this proxy solicitation.
In the event that our Nominees are elected to the Endocare Board,
Solana Capital Partners will seek reimbursement of such expenses from Endocare
and our Nominees do not intend to submit such reimbursement to a vote of
stockholders. In addition, in the event that our Nominees are elected to the
Endocare Board, Solana intends to seek options to purchase shares of Endocare's
common stock. However, there is no agreement or understanding among any of the
members of the Committee to Revitalize Endocare to grant Solana any options to
purchase shares of Endocare's common stock or any other compensation of any
kind. Joseph D'Angelo and John Queen, two of our Nominees and the fathers of
employees of Solana, will each refrain from participation in the deliberations
or voting on any matters related to reimbursement or compensation of Solana.
In addition to the engagement of MacKenzie Partners described above,
costs related to the solicitation of proxies include expenditures for printing,
postage, legal and related expenses and are expected to be approximately
$650,000 to 900,000. Total payment of costs to date in furtherance of our proxy
solicitation is approximately $85,000.
37
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT OF ENDOCARE
The following table presents, except as otherwise described herein, as
of June 13, 2003, the common stock beneficially owned by (i) each current
director; (ii) each Named Officer (as defined therein) of the Company; and (iii)
all current executive officers, directors and nominees for director of the
Company as a group.
The information in the table is based on information contained in
Endocare's press release attached to Endocare's Current Report on Form 8-K filed
with the SEC on June 13, 2003. This proxy statement is Endocare's most recent
public filing containing the relevant information and we have found no public
filings that change or update this information. Although the table accurately
reflects the information set forth in Endocare's June 13, 2003 press release and
Current Report on Form 8-K, we cannot be certain that either Endocare or its
named stockholders have reported changes to this information in a timely or
accurate manner.
Unless otherwise indicated, each of the named stockholders possesses
sole voting and investment power with respect to the shares beneficially owned.
Shares covered by stock options are included in the footnotes below.
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 sixty (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. Except as otherwise noted below, the address of each
person or entity listed on the table is Endocare, Inc., 201 Technology Drive,
Irvine, California 92618.
NUMBER OF SHARES
NAME POSITION BENEFICIALLY OWNED(1) PERCENTAGE OF TOTAL(1)
------------------------ ----------------------------- --------------------- ----------------------
Paul W. Mikus Chairman of the Board 790,000(2) 3.3%
Peter F. Bernardoni Director 628,707(3) 2.6%
Robert F. Byrnes Director 296,613(4) 1.2%
Benjamin Gerson, M.D. Director 40,000(5) *
Ronald A. Matricaria Director 10,000(6) *
Michael J. Strauss, M.D. Director 60,000(7) *
Thomas R. Testman Director --(8) --
William J. Nydam President and Chief Operating --(9) --
Officer
John V. Cracchiolo President, Interventional 161,542(10) *
Radiology and Secretary
Jay J. Eum Chief Technology Officer 203,751(11) *
Katherine Greenberg Senior Vice President and --(12) *
Chief Financial Officer
Kevin M. Quilty Senior Vice President, Sales 126,666(13) *
and Marketing
TOTAL 2,317,279(14) 9.5%
----------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Endocare's common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC 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 May
15, 2003, are deemed outstanding for computing the percentage of the
person holding such securities but are not deemed outstanding for
computing
38
the percentage of any other person. As of May 15, 2003, there were
24,302,454 shares of common stock outstanding.
(2) Includes 615,000 shares subject to options that are exercisable within
60 days after May 15, 2003.
(3) Includes 588,707 shares held by Technology Funding Partners III, L.P.,
Technology Funding Venture Partners IV, an Aggressive Growth Fund, L.P.
and Technology Funding Venture Partners V, an Aggressive Growth Fund,
L.P. (collectively, the "Funds") and 30,000 shares subject to options
that are exercisable within 60 days after May 15, 2003. Mr. Bernardoni
is an officer of Technology Funding, Inc. and a partner of Technology
Funding, Ltd., each a general partner of the Funds. Mr. Bernardoni has
sole voting and shared investment power with respect to all shares
owned by the Funds, and therefore may be deemed to be beneficial owner
of such shares.
(4) Includes 10,000 shares subject to options that are exercisable within
60 days after May 15, 2003.
(5) Includes 30,000 shares subject to options that are exercisable within
60 days after May 15, 2003.
(6) Represents 10,000 shares subject to options that are exercisable within
60 days after May 15, 2003.
(7) Includes 45,000 shares subject to options that are exercisable within
60 days after May 15, 2003.
(9) Mr. Nydam joined Endocare as President and Chief Operating Officer in
March 2003. Mr. Nydam received options to purchase 750,000 shares of
common stock on March 3, 2003, of which no shares are exercisable
within 60 days after May 15, 2003.
(10) Includes 161,542 shares subject to options that are exercisable within
60 days after May 15, 2003.
(11) Represents 203,751 shares subject to options that are exercisable
within 60 days after May 15, 2003.
(12) Ms. Greenberg joined Endocare as Chief Financial Officer in March 2003.
Ms. Greenberg received an option to purchase 250,000 shares of common
stock on March 3, 2003, of which no shares are exercisable within 60
days after May 15, 2003.
(13) Represents 126,666 shares subject to options that are exercisable
within 60 days after May 15, 2003.
(14) Includes 1,231,959 shares subject to options that are exercisable
within 60 days after May 15, 2003.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS OF ENDOCARE
The following table presents, except as otherwise described herein, as
of May 31, 2003, the only stockholders known by the Committee to Revitalize
Endocare to beneficially own more than 5% of the outstanding common stock.
The information in the table is based on the most recent public filings
made by Endocare's stockholders. Although the table accurately reflects the
information set forth in these public filings. We cannot be certain that these
stockholders have reported changes to their beneficial ownership in a timely or
accurate manner.
39
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME AND ADDRESS OWNERSHIP(1) OF TOTAL(2)
---------------------------------------------- ------------ -----------
5% STOCKHOLDERS
Kern Capital Management, LLC(3) 2,493,800 10.3%
114 West 47th Street
New York, NY 10036
Entities affiliated with SAFECO Corporation(4) 2,196,645 9.0%
4333 Brooklyn Ave, NE
Seattle, WA 98185
Entities affiliated with FFC Partners(5) 1,443,533 5.95%
10 Glenville Street
Grenwich, CT 06831
----------
* Represents beneficial ownership of less than 1% of the outstanding shares of
the Company's common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC 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 May
15, 2003, 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 May 15, 2003, there
were 24,302,454 shares of common stock outstanding.
(2) As of May 15, 2003, there were 24,302,454 shares of common stock of
Endocare outstanding. This outstanding share number is based on
information contained in Endocare's Form 10-Q for the fiscal quarter
ended June 30, 2002, filed with the SEC on August 14, 2002. This Form
10-Q is Endocare's most recent public filing containing its outstanding
share number and we have found no public filings that change or update
this information. Although this number accurately reflects the
information set forth in Endocare's Form 10-Q, we cannot be certain
that Endocare has reported changes to this information in a timely or
accurate manner.
(3) Pursuant to a Schedule 13G filed on March 10, 2003 with the SEC, Kern
Capital Management, LLC reported sole voting power and sole dispositive
power over 2,493,800 shares and disclaimed any beneficial ownership
over the securities of the Company held by Robert E. Kern and David G.
Kern, the principal and controlling members of Kern Capital Management,
LLC.
(4) Pursuant to a joint Schedule 13G filed on February 13, 2003 with the
SEC: (i) SAFECO common stock Trust reported that it had shares voting
and dispositive power over 1,279,825 shares; (ii) SAFECO Asset
Management Company reported that it had shares voting and dispositive
power over 1,924,545 shares and disclaimed any beneficial ownership
over 1,913,645 of the shares reported on the joint Schedule 13G which
were beneficially owned by registered reporting companies for which
SAFECO Asset Management Company serves as an advisor; and (iii) SAFECO
Corporation reported shared voting and dispositive power over 2,196,645
shares and disclaimed 2,185,745 shares.
(5) Pursuant to a Schedule 13G filed on April 1, 2002 with the SEC: (i) FFC
Partners I, L.P. reported sole voting power over 1,386,186 shares and
sole dispositive power over 1,331,204 shares (FFC Partners I, L.P. has
no dispositive power over 54,982 shares held in escrow); (ii) FFC
Executive Partners I, L.P. reported sole voting power over 57,347
shares and sole dispositive power over 55,072 shares (FFC Executive
Partners I, L.P. has no dispositive power over 2,275 shares held in
escrow); and (iii) Ferrer Freeman & Company, LLC reported shared voting
power over 1,443,533 shares and shared dispositive poser over 1,386,276
shares.
40
STOCKHOLDERS' PROPOSALS IN ENDOCARE PROXY STATEMENT
If a stockholder desires to have a proposal formally considered at the
2004 Annual Meeting of the Stockholders, and included in the Proxy Statement for
that meeting, the proposal must be mailed to the Corporate Secretary, Endocare,
Inc., 201 Technology Drive, Irvine, California 92618, and must be received by
the Secretary on or before _______________, 2004. Endocare will consider only
proposals meeting the requirements of the applicable SEC rules.
WE URGE YOU TO SIGN, DATE AND RETURN THE GOLD PROXY CARD IN FAVOR OF THE
ELECTION OF OUR NOMINEES DESCRIBED IN THIS PROXY STATEMENT.
Sincerely,
/s/ DOUGLAS CHINN, M.D.
-----------------------------------------
The Committee to Revitalize Endocare
Dated: June _____, 2003 Douglas Chinn, M.D.
41
PROXY CARD
ENDOCARE, INC.
PROXY SOLICITED ON BEHALF OF COMMITTEE TO REVITALIZE ENDOCARE AND THE
OTHER PARTICIPANTS IDENTIFIED IN THE PROXY STATEMENT FURNISHED HEREWITH ("CRE")
FOR THE 2003 ANNUAL MEETING OF THE STOCKHOLDERS, SEPTEMBER 30, 2003, AT
________A.M.
The undersigned stockholder of Endocare, Inc. ("Endocare") hereby
appoints Douglas Chinn, M.D. and David Eller and each of them, as attorneys and
proxies, each with power of substitution and revocation, to represent the
undersigned at the Annual Meeting of the Stockholders of Endocare, Inc. to be
held at ______________ on September 30, 2003, at ____ a.m, local time, and at
any adjournment or postponement thereof, with authority to vote all shares held
or owned by the undersigned in accordance with the directions indicated herein.
Receipt of the Proxy Statement furnished herewith is hereby
acknowledged.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. ON MATTERS FOR WHICH YOU DO NOT SPECIFY A
CHOICE, YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATION OF CRE. YOU MAY APPROVE OR VOTE
SEPARATELY ON ANY OR ALL OF THE PROPOSALS.
(continued and to be signed on the reverse side)
42
CRE RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED BELOW.
ELECTION OF DIRECTORS
FOR all nominees listed on the right WITHHOLD AUTHORITY to vote for all NOMINEES:
(except as marked to the contrary). nominees listed to the right. Kurt Landgraf
David Eller
( ) ( ) William A. Barry
Douglas Chinn, M.D.
Joseph D'Angelo
Robert P. Fry, M.D., J.D.
John R. Queen
(Instructions: To withhold
authority to vote for any
individual nominee, write that
nominee's name in the space
provided below.)
--------------------------
* * * *
Dated:
-----------------------------------------------------
Signature:
-----------------------------------------------------
Signature if held jointly:
-----------------------------------------------------
Title:
-----------------------------------------------------
INSTRUCTIONS. Please sign exactly as name appears hereon. When shares
are held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
The signer hereby revokes all proxies heretofore given by the signer to vote at
the 2003 Annual Meeting of the Stockholders of Endocare, Inc. and any
adjournment or postponement thereof.
43