PRELIMINARY PROXY STATEMENT
AMENDMENT NO. 2
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JULY 11, 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.
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(Name of Registrant as Specified in its Charter)
COMMITTEE TO REVITALIZE ENDOCARE
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(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 JULY 11, 2003
SUBJECT TO COMPLETION
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THE COMMITTEE TO REVITALIZE ENDOCARE
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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 any 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
July 14, 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.
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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: L-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.
- Tumbling Stock Price. Endocare's common stock price has lost nearly
64% of its value in the last year alone, declining from $11.75 on
July 9, 2002 to $4.30 on July 8, 2003.
- 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. In addition, Endocare has
announced its intention to re-audit its 2000 financial statements.
Therefore, Endocare's most current audited financial statements are
from fiscal year 1999.
- 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.
- 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.
- Stock Delisted. Endocare's stock has been delisted from the NASDAQ.
- SEC & Department of Justice Investigations. Endocare is being
investigated by the SEC and the United States Department of Justice
("DOJ").
- Stockholders Suing. Endocare's Board and senior management have been
sued by Endocare's own stockholders in a class action lawsuit.
- 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.
- Further Delays. On June 25, 2003, Endocare announced that it will
further delay the release of Q1 2003 and all annual and quarterly
financial statements for 2002, 2001 and, potentially, 2000, and that
Endocare has expanded the scope of its internal review of its
financial statements.
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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. Where we note that Endocare first disclosed a
particular event on a specified date, this indicates that a thorough review of
Endocare's public announcements, web site and SEC filings found the first
disclosure of the relevant event on the specified date. Where we note that
Endocare has failed to disclose a particular event, this indicates that a
thorough review of Endocare's public announcements, web site and SEC filings
found no disclosure of the relevant event. 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. As described below, certain facts which we considered relevant could
be discovered only upon a very careful review of Endocare's public disclosures.
For example, in some cases facts that we considered relevant were not described
or even identified in the text of Endocare press releases and could only be
discovered by reading the text of accompanying exhibits.
DATE EVENT
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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 In a press release, Endocare projects Q3 2002 results and announces plans to release the full
results on October 30, 2002.
After a diligent search of Endocare's press releases and SEC filings, we have concluded that the
October 24, 2002 press release 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 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.
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 In a press release, 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 In a press release, 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.
In a press release, Endocare discloses that it and certain of its officers and directors were
named in a securities law class action lawsuit.
Endocare identified the nature of the claims in the lawsuit as "violations of federal securities
laws."
November 20, 2002 In a press release, 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."
December 12, 2002 In a press release, 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. Endocare
further states that since Endocare's delay of the release of its Q3 2002 results, the Audit
Committee "has continued to engage in a detailed review process of the Company's financial
results."
According to an Endocare press release dated January 15, 2003, NASDAQ suspends trading in Endocare
stock on December 12, 2003.
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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" according to Endocare's Current Report on
Form 8-K and press release.
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, according to
Endocare's Current Report on Form 8-K and press release.
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 discloses these investigations on April 1, 2003, in both an April 1, 2003 press release
and Current Report on Form 8-K.
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, according to Cracchiolo's Employment Agreement, dated March 3, 2003 and
Endocare's press release, dated March 12, 2003.
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:
- a base salary of $220,000 per year;
- the opportunity to negotiate salary increases after six months;
- eligibility to receive an annualized cash bonus at a level equal to $88,000;
- the opportunity to negotiate bonus increases after six months;
- 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;
- 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;
- 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:
- 200% of his base salary and maximum 2002 bonus eligibility ($616,000); and
- $50,000 relocation payment plus payment for his taxes on the $50,000 payment.
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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.
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 later discloses the appointment on March 12, 2003 in Endocare's press release.
March 7, 2003 Endocare dismisses KPMG, according to Endocare's March 14, 2003 Current Report on Form 8-K
March 11, 2003 Endocare announces in a press release 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 that it had been investigating possible fraud or intentional
wrongdoing by management in a review that began on or about October 24, 2002.
March 12, 2003 Endocare announces in a press release 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:
- an initial salary of $240,000;
- an annual bonus of 40% of his salary;
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- a cash signing bonus of $15,000;
- a cash performance bonus of $10,000 after Endocare is in full compliance with its
obligations under the Securities Exchange Act of 1934;
- 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
- 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:
- an initial salary of $185,000;
- an annual bonus of 40% of her salary;
- 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
- 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 By a Current Report on Form 8-K and a press release, 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 historical or projected cash burn rate.
Endocare's management makes, among others, the following disclosures:
- Endocare's new CFO admits 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).
- 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
8
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."
- 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."
- 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."
- Chairman Mikus states that Endocare expects to release financial statements "in the June
time frame".
April 7, 2003 In a press release, 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.
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. in a press release.
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:
- 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."
- 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.
9
- 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."
- 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."
- "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 investigation. Accordingly, we
advised the Audit Committee that we believed that additional investigation was still
warranted."
- 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."
- KPMG's review of Endocare's records indicated that Endocare recorded certain sales of
products, which products were actually shipped to Endocare-controlled facilities.
- 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.
- 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.
- 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 by press release 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 by press release certain domestic operational metrics for the past two years,
some of which will remain approximations until the completion of an audit.
10
June 25, 2003 Endocare announces in a press release that it will "further delay" the release of current
financial statements and that it now intends to re-audit 2000 financial statements.
During the April 2nd Call, Endocare had stated its intention to release re-audited 2001 financial
statements and to cure its failure to file most of its 2002 financial statements no later than
June. Endocare's announcement of the delay and that it would now re-audit 2000 results came just
five days before the end of June.
11
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:
- Endocare has not filed a financial statement in nearly
eleven months;
- 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;
- Endocare has been delisted from the NASDAQ;
- Endocare's stock has lost nearly 64% of its value in the
past year;
- Endocare is being investigated by the SEC and DOJ;
- Endocare, its Chairman of the Board and another senior
officer have been sued by its stockholders for alleged
securities law violations;
- According to Endocare's management, Endocare has spent
56% of its cash in 15 months;
- KMPG has identified ten specific transactions some or
all of which may have been inaccurately recorded on
Endocare's financial statements.
- Endocare has further delayed release of 2003, 2002, 2001
and, potentially, 2000, financial statements.
Four of Endocare's current six 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.
Endocare's Board has also retained the individual who served
simultaneously as the Company's Chief Financial Officer and Chief
Operating Officer, granting 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
12
Board and the management of 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 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:
- 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.
- 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.
- 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.
- 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.
- 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
13
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 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
14
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 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. Endocare later asserted that it terminated
Hafermann's employment for "misconduct which was demonstrably and
materially injurious to the Company." Endocare has never elaborated
on the factual basis for Endocare's belief that Hafermann injured
the Company. Further, 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.
15
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 current information about the Company's
operations and finances has been hampered by the Company's failure to keep
current its quarterly and annual reports under the Exchange Act of 1934. If and
when Endocare files its missing quarterly and annual reports with the SEC, the
information contained therein may cause us to alter the course of action
described below. 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:
- Kurt Landgraf Chairman of the Board
- David Eller Chief Executive Officer
- William A. Barry Chief Financial Officer
- 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:
- 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;
- Implementation of an effective system of disclosure controls
and procedures; and
- 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.
16
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:
- Conduct a review of Endocare's procedures-based business model
to determine feasibility, profitability and complementary
sales and products opportunities;
- Establish improved criteria for Endocare's mergers,
acquisitions, divestitures and strategic alliances;
- Analyze and optimize potential markets in Europe and Asia;
- Review opportunities for outsourcing processes to reduce or
contain Endocare products costs and prices; and
- 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:
- 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;
- Focus resources on Endocare's strengths in the product
development and manufacture and clinical aspects of
cryosurgery; and
- 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:
- 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;
- Development of systems to obtain and analyze feedback from
proctors, physicians, application specialists and sales teams;
- Improvement of educational and training guidelines based on
collected analysis of feedback from medical community; and
- 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.
17
4. SALES AND MARKETING.
a) Enhance Endocare's brand image through:
- 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;
- Review and redesign of current marketing strategies; and
- 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:
- Establishment of programs to encourage academic research,
including data collection, on cryosurgical procedures;
- Provision of marketing, research and educational support for
Endocare prostate sites in US and Europe;
- Provision of support for focus groups, user conferences and
professional cryosurgical organizations; and
- 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.
18
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.
19
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 to 54,583 *
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.
20
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
21
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
22
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 Partner Solana Capital Partners, Inc., a California
corporation, is a privately funded venture capital firm that provides
investments to information-technology, manufacturing/distribution and
medical-device manufacturing companies. Solana Capital Partners, based in
Solana Beach, California, was
23
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 $50,000 fine from the National Association of
Securities Dealers related to his refusal to disclose the identity of
clients on whose behalf he was trading securities.
Solana Capital Partners has and intends to provide all of the financing
for this proxy statement and for any future efforts by the participants in
any later filed proxy materials.
24
COMPENSATION OF NOMINEES
The following table shows the compensation paid or accrued by Endocare to
each of the Nominees of the Committee to Revitalize Endocare for services
rendered to Endocare in all capacities during 2000, 2001 and 2002. None of the
Nominees received grants of stock options or other equity-based compensation
during any of 2000, 2001 or 2002.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------- ------------------------- -------
RESTRICTED SECURITIES
SALARY OTHER ANNUAL STOCK UNDERLYING LTIP
NAME AND PRINCIPAL COMPENSATION BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS ALL OTHER
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
------------------ ---- --------- -------- ----------- -------- --------- ------- --------
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
25
POTENTIAL COSTS 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:
- we are unsuccessful in voiding Cracchiolo's Employment
Agreement, and
- 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:
- 200% of Cracchiolo's base salary and maximum 2002 bonus
eligibility, in cash, which amounts to $616,000;
26
- "relocation" compensation, in cash, of $50,000;
- 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
- 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.
27
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.
Further, Solana does not intend to make a formal request for options and the
nominees do not intend to consider or act upon any such request unless and
until our nominees are elected as directors of Endocare. Neither Solana or the
nominees believe they will have access to sufficient information regarding the
Company to either formulate or consider a proposal to grant Solana options
before our nominees are elected as directors. 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.
28
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. On June 26, 2003 the
Court held a hearing to resolve disputes concerning the inspection
and ordered Endocare to produce most of the disputed categories of
documents for inspection. The parties have also entered into a
confidentiality agreement which designates the purposes for which
certain categories of proprietary and confidential documents may be
used.
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
29
the Company, including but not limited to joint ventures, loan or option
arrangements, puts or calls, 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.
30
If our Nominees are elected to the Board of Endocare, our Nominees intend
to appoint the following people to the following offices:
- Kurt Landgraf Chairman of the Board
- David Eller Chief Executive Officer
- William A. Barry Chief Financial Officer
- 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
31
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 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.
b) John Queen, one of our Nominees, is the father of Christopher Queen,
an employee of Solana Capital Partners.
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(1)
------------------- --------------------- -------------------
4/14/03 Buy 1,000
32
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(1)
------------------- --------------------- -------------------
4/16/03 Buy 1,000
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(1)
------------------- --------------------- -------------------
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.
33
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.
34
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.
35
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.
36
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 --(9) --
Operating 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.
37
(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) 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.
38
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.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME AND ADDRESS OWNERSHIP(1) OF TOTAL(2)
---------------- ------------ -----------
5% STOCKHOLDERS
FFC Partners and affiliated entities(3) 1,443,533 5.95%
10 Glenville Street
Greenwich, CT 06831
Kern Capital Management, LLC(4) 2,493,800 10.3%
114 West 47th Street
New York, NY 10036
SAFECO Corporation and affiliated entities(5) 2,196,645 9.0%
4333 Brooklyn Ave, NE
Seattle, WA 98185
State of Wisconsin Investment Board (6)
P. O. Box 7842
Madison, WI 53707 2,625,000 10.8%
----------
* 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 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.
(4) 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.
39
(5) Pursuant to a joint Schedule 13G filed on February 13, 2003 with the SEC:
(i) SAFECO common stock Trust reported that it had shared 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.
(6) Pursuant to its most recent Schedule 13G/A filed on February 12, 2003 with
the SEC, the most the State of Wisconsin Investment Board reported that it
had shared voting and dispositive power over 2,625,000 shares.
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: July _____, 2003 Douglas Chinn, M.D.
40
PROXY CARD
2003 ANNUAL MEETING OF STOCKHOLDERS OF ENDOCARE, INC.
THIS PROXY IS SOLICITED BY THE COMMITTEE TO REVITALIZE ENDOCARE AND THE OTHER
PARTICIPANTS IDENTIFIED IN THE PROXY STATEMENT FURNISHED HEREWITH ("CRE")
The undersigned stockholder of Endocare, Inc. (the "Company") hereby
appoints Douglas Chinn, M.D. and David Eller and each of them, each with full
power of substitution, to vote all shares of common stock, par value $0.001 per
share, of the Company that the undersigned is entitled to vote as if personally
present at the Annual Meeting of Stockholders of the Company (the "Annual
Meeting") to be held Tuesday, September 30, 2003 at ________ a.m. at
________________________________, and at any adjournment, postponement or
continuation of the Annual Meeting. The undersigned hereby revokes any previous
proxies with respect to the matters covered by this proxy and acknowledges
receipt of the Proxy Statement furnished herewith.
1. ELECTION OF DIRECTORS.
CRE RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES LISTED BELOW:
(Please mark each matter with an "X" in the appropriate box)
FOR WITHHOLD
01-Kurt Landgraf [ ] [ ]
FOR WITHHOLD
02-David Eller [ ] [ ]
FOR WITHHOLD
03-William A. Barry [ ] [ ]
FOR WITHHOLD
04-Douglas Chinn, M.D. [ ] [ ]
FOR WITHHOLD
05-Joseph D'Angelo [ ] [ ]
FOR WITHHOLD
06-Robert P. Fry, M.D., J.D. [ ] [ ]
FOR WITHHOLD
06-John R. Queen [ ] [ ]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER MARKED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. ON MATTERS FOR WHICH YOU DO NOT SPECIFY A CHOICE,
THIS PROXY WILL BE DEEMED TO BE A DIRECTION TO VOTE IN ACCORDANCE WITH THE
RECOMMENDATION OF CRE.
PLEASE DATE AND SIGN THIS PROXY
EXACTLY AS YOUR NAME APPEARS HEREON
(Dated)
_____________________________________________________
(Signature)
_____________________________________________________
(Title)
_____________________________________________________
(Signature if held jointly)
_____________________________________________________
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney-in-fact, executor,
administrator, trustee, guardian, corporate officer
or partner, please give full title as such. If
stockholder is a corporation, please sign full
corporate name by the President or other authorized
officer. If stockholder is a partnership, please sign
full partnership name by an authorized partner or
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE
ENCLOSED ENVELOPE
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