AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 2002
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
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ENDOCARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 33-0618093
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
201 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA 92618
(949) 450-5400
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
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JOHN V. CRACCHIOLO
CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER
ENDOCARE, INC.
201 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
(949) 450-5400
(Name and Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent for Service)
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COPY TO:
STEVEN G. ROWLES, ESQ.
BROBECK, PHLEGER & HARRISON LLP
12390 EL CAMINO REAL
SAN DIEGO, CALIFORNIA 92130
(858) 720-2500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the
following box and list the Securities Act of 1933, as amended, registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, as amended, check the following box and list
the Securities Act of 1933, as amended, registration statement number of the
earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED REGISTERED SHARE(2) PRICE(2) REGISTRATION FEE
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Common Stock, $0.001 par value(1).......... 1,833,540 $19.55 $35,845,707 $3,297.81
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(1) Each share of Common Stock is also paired with a stock purchase right under
the Registrant's Stockholder Rights Plan.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, and
based upon the average high and low prices of the Common Stock on May 8,
2002 as reported on the Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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The information contained in this preliminary prospectus is not complete and may
be changed. The selling stockholders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
(SUBJECT TO COMPLETION, DATED MAY 15, 2002)
PRELIMINARY PROSPECTUS
1,833,540 SHARES
ENDOCARE LOGO
COMMON STOCK
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This prospectus relates to the resale of up to 1,833,540 shares of our
common stock by certain of our current stockholders. This amount includes
1,620,530 shares of our common stock issued in connection with our acquisition
of Timm Medical Technologies, Inc. in March 2002 and 213,010 shares of our
common stock issued to U.S. Therapies, L.L.C. in a private placement transaction
in June 2001. We are registering our common stock for resale by these selling
stockholders. The prices at which such stockholders may sell the shares will be
determined by the prevailing market for the shares or in negotiated
transactions. We will not receive any proceeds from the sale of shares offered
under this prospectus.
Our common stock is traded on the Nasdaq National Market under the symbol
"ENDO." The last reported sales price of our common stock on May 14, 2002 was
$19.95 per share.
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THE SHARES OF OUR COMMON STOCK OFFERED OR SOLD UNDER THIS PROSPECTUS
INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS
PROSPECTUS TO READ ABOUT IMPORTANT FACTORS YOU SHOULD CONSIDER BEFORE BUYING THE
COMMON STOCK.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is , 2002.
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 2
FORWARD-LOOKING STATEMENTS.................................. 11
WHERE YOU CAN FIND MORE INFORMATION......................... 11
INFORMATION INCORPORATED BY REFERENCE....................... 12
SELLING STOCKHOLDERS........................................ 13
USE OF PROCEEDS............................................. 14
PLAN OF DISTRIBUTION........................................ 14
LEGAL MATTERS............................................... 15
EXPERTS..................................................... 15
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PROSPECTUS SUMMARY
This summary highlights some information from this prospectus, and it may
not contain all of the information that is important to you. It is qualified in
its entirety by the more detailed information and consolidated financial
statements, including the notes to the consolidated financial statements,
incorporated by reference in this prospectus. You should read the full text of,
and consider carefully the more specific details contained in or incorporated by
reference into this prospectus.
OUR BUSINESS
We are a medical device company focused on developing, manufacturing and
selling urological healthcare products with the potential to dramatically
improve men's health and quality of life. Our primary focus is on the diagnosis,
treatment and monitoring of the two most common diseases of the prostate,
prostate cancer and benign prostate hyperplasia, or BPH, which is a
non-cancerous enlargement of the innermost part of the prostate. Our FDA-cleared
Cryocare Surgical System occupies a leading position in the market for the
cryosurgical treatment of prostate cancer. We are currently developing a
urologic stent, the Horizon Prostatic Stent, designed to provide temporary and
immediate relief for BPH patients. Our strategy is to increase sales of our
current products through targeted sales and marketing efforts, to continue to
develop and obtain regulatory approval for our Horizon Prostatic Stent, and to
develop and acquire additional products in urology that leverage our existing
sales and marketing organization. Our executive offices are located at 201
Technology Drive, Irvine, California 92618, and our telephone number is (949)
450-5400.
Cryocare Surgical System(TM) and Horizon Prostatic Stent(TM) are trademarks
of ours or our wholly-owned subsidiary, Timm Medical Technologies, Inc. This
prospectus and the information incorporated by reference herein may also include
trademarks and trade names owned by other parties, and all other trademarks and
trade names mentioned in this prospectus and incorporated by reference herein
are the property of their respective owners.
RECENT DEVELOPMENTS
On March 25, 2002, we completed a merger with Timm Medical Technologies,
Inc. under which Timm Medical became our wholly-owned subsidiary, and which we
refer to in this prospectus as the "merger." In connection with the merger, all
outstanding shares of capital stock of Timm Medical were exchanged for an
aggregate of 1,620,530 shares of our common stock and approximately $11.0
million in cash. We expanded our urological product offerings through this
merger and now own or have acquired marketing rights to an additional product
used in the treatment of BPH, five products used in the diagnosis and treatment
of erectile dysfunction, six products used in the diagnosis and management of
urinary incontinence and one product used in the diagnosis of bladder cancer.
This merger also increased our sales and marketing organization from 26 to
approximately 80 people, including 55 field sales representatives.
THE OFFERING
This prospectus relates to the resale of up to 1,620,530 shares of our
common stock issued to the former stockholders of Timm Medical in connection
with the merger. This prospectus also relates to the resale of up to 213,010
shares of our common stock issued to U.S. Therapies, L.L.C. on June 30, 2001 in
a $2.84 million private placement transaction, to which we refer in this
prospectus as the "private placement." We are registering our common stock for
sale by these selling stockholders. The prices at which these stockholders may
sell the shares will be determined by the prevailing market for the shares or in
negotiated transactions. See "Selling Stockholders."
USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale of
the common stock pursuant to this prospectus. We will not receive any of the
proceeds from sales by the selling stockholders of the offered shares of common
stock.
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RISK FACTORS
An investment in our common stock is subject to many risks. You should
carefully consider the risks described below, together with all of the other
information included or incorporated by reference into this prospectus,
including the financial statements and the related notes, before you decide
whether to purchase shares of our common stock. Our business, operating results
and financial condition could be harmed by any of the following risks. The
trading price of our common stock could decline due to any of these risks, and
you could lose all or part of your investment.
WE HAVE A LIMITED OPERATING EXPERIENCE AND A HISTORY OF NET LOSSES, AND WE MAY
NOT MAINTAIN OR INCREASE PROFITABILITY.
Since our inception, we have engaged primarily in research and development
activities, and have minimal experience in manufacturing, marketing and selling
our Cryocare Surgical System in commercial quantities. In addition, we recently
closed our acquisition of Timm Medical in March 2002. As a result, we have a
short history in marketing and selling the products we acquired or have rights
to commercialize through our acquisition of Timm Medical. Although we recorded
net income of approximately $166,000 for the three months ended March 31, 2001,
we have incurred annual operating losses each year since our inception. For the
fiscal years ended December 31, 1999, 2000 and 2001, we had net operating losses
of approximately $9.3 million, $12.4 million and $5.9 million, respectively. As
of March 31, 2002, our accumulated deficit was approximately $37.9 million. It
is possible that we will not generate sufficient revenues from product sales to
maintain or increase our profitability. Even if we do achieve significant
revenues from our product sales, we expect to incur increased operating expenses
over the next several quarters, as we, among other things:
- expand our selling and marketing activities as we attempt to gain market
share for our Cryocare Surgical System and our other urology products;
- incur costs related to the integration of Timm Medical into our business;
- increase our research and development efforts to improve our existing
products and develop new products such as our development of the Horizon
Prostatic Stent; and
- perform clinical research and trials in an effort to obtain governmental
clearance and approval for the commercial sale of our Horizon Prostatic
Stent.
We will need to significantly increase the revenues we receive from sales
of our products as a result of these increased operating expenses. We may be
unable to do so, and therefore, we cannot be certain that we will be able to
sustain or increase profitability on a quarterly or annual basis.
WE RECENTLY ACQUIRED TIMM MEDICAL, AND FACE RISKS ASSOCIATED WITH INTEGRATING
THIS BUSINESS INTO OUR EXISTING BUSINESS OPERATIONS.
We closed the acquisition of Timm Medical in March 2002, and we are in the
process of integrating the operations, personnel and products of Timm Medical
into our business. The integration of Timm Medical's business involves numerous
risks and expenses, including, among others, difficulties and expenses incurred
in assimilating Timm Medical's operations, personnel and products, difficulties
in operating a new business and marketing new products, difficulties in training
sales personnel to effectively sell new products, the diversion of management's
attention from other business concerns and the potential loss of key employees
from both Timm Medical and Endocare. In addition, Timm Medical's business may
suffer as the attention of both its management and employees are diverted during
the integration process. If we do not successfully integrate and grow the
business we acquired from Timm Medical, our business will suffer.
WE EXPECT TO DERIVE A SIGNIFICANT PORTION OF OUR FUTURE REVENUES FROM OUR
CRYOCARE SURGICAL SYSTEM, WHICH COULD FAIL TO ACHIEVE MARKET ACCEPTANCE OR
GENERATE SIGNIFICANT REVENUE.
We introduced our Cryocare Surgical System to the market in July 1999. We
derived a significant portion all of our revenues in the fiscal year ended
December 31, 2001 and for the three-months ended March 31,
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2002 from sales of Cryocare Surgical Systems and related disposable supplies. We
expect that sales of Cryocare Surgical Systems and related disposable supplies
will constitute a significant portion of our sales for the foreseeable future.
Accordingly, our success is reliant on the acceptance by doctors and patients of
the Cryocare Surgical System as a preferred treatment for prostate cancer.
Cryosurgery has existed for many years, but has not been widely accepted
primarily due to concerns regarding safety and efficacy and widespread use of
alternative therapies. Because of a lack of precise monitoring, cryosurgical
procedures performed in the 1970s resulted in high cancer recurrence and
negative side effects, such as rectal fistula and incontinence, and gave
cryosurgical treatment a bad reputation. Now that ultrasound guidance and
temperature sensing are available for more precise monitoring in our Cryocare
Surgical System, we will need to overcome this reputation to obtain market
acceptance for our product. In addition, use of our Cryocare Surgical System
requires significant physician education and training. As a result, we may have
difficulty obtaining recommendations and endorsements of physicians and patients
for our Cryocare Surgical System. We may also have difficulty raising the brand
awareness necessary to generate interest in our Cryocare Surgical System. Any
adverse side effects, including impotence or incontinence, recurrence of cancer
or future reported adverse events or other unfavorable publicity involving
patient outcomes from the use of cryosurgery, whether from our products or the
products of our competitors, could adversely affect acceptance of cryosurgery.
In addition, emerging new technologies and procedures to treat cancer, prostate
enlargement and other prostate disorders may negatively affect the market
acceptance of cryosurgery. If our Cryocare Surgical System does not achieve
market acceptance, we will likely remain unprofitable.
IF WE ARE UNABLE TO CONTINUE TO DEVELOP INNOVATIVE PRODUCTS IN THE PROSTATE AND
OTHER UROLOGICAL MARKETS, OUR BUSINESS WILL SUFFER.
Our growth depends in large part on continued ability to successfully
develop and commercialize our current products under development and any new
products in the prostate and other urological markets. Several of our products
are in varying stages of development. Our Horizon Prostatic Stent is in clinical
trials and has not been approved for marketing in the United States. We also are
developing enhancements to our Cryocare Surgical System. We may experience
difficulties that could delay or prevent the successful development and
commercialization of our current products under development or any new products.
Our products in development may not prove safe and effective in clinical trials.
Clinical trials may identify significant technical or other obstacles that must
be overcome before obtaining necessary regulatory or reimbursement approvals. In
addition, our competitors may succeed in developing commercially viable products
that render our products obsolete or less attractive. Our failure to
successfully develop and commercialize new products will likely have a
significant negative effect on our financial prospects.
THERE IS UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT, WHICH IS CRITICAL TO
MARKET ACCEPTANCE OF OUR PRODUCTS.
In the United States, healthcare providers, such as hospitals and
physicians, that purchase our products generally rely on third party payors,
principally federal Medicare, state Medicaid and private health insurance plans,
to reimburse all or part of the cost of medical procedures involving our
products and on reimbursement for our products and procedures in which our
products are used. While some private health insurance companies pay for the
procedures in which our products are used in some areas of the United States,
private insurance reimbursement may not be adopted nationally or by additional
insurers and may be terminated by those private insurance companies currently
paying for procedures in which our products are used. If reimbursement levels
from Medicare, Medicaid, other governmental healthcare programs or private
insurers are not sufficient, physicians may choose not to recommend, and
patients may not choose, procedures utilizing our products.
Currently, reimbursement under Medicare for cryosurgical disposable
products used in outpatient procedures is provided under a "pass-through" system
in which Medicare pays the cost we charge the hospital for our products.
Pass-through reimbursement status only remains for a period of two to three
years, dependent upon the time period in which the Centers for Medicare and
Medicaid Services, or CMS, formerly the Healthcare Financing Administration, or
HCFA, obtains sufficient data to establish a cost. We obtained
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pass-through status for disposable products related to the Cryocare Surgical
System on April 1, 2001. Thus, pass-through status for those products will
terminate no later than April 1, 2004. After pass-through status terminates, the
cost of our disposable products will be incorporated into the hospital
outpatient prospective payment system and there will be no separate
reimbursement for our disposable products. For calendar years 2002 and 2003,
federal law caps the total cost of pass-through payments to 2.5% of expenditures
for hospital outpatient services for the year. The cap is set at 2.0% for
calendar year 2004 and each year thereafter.
This statutory limit on pass-through payments, first implemented by CMS for
calendar year 2002, will result in a pro rata reduction in pass-through payments
for calendar year 2002 of 63.6%. This means that payments to hospitals for our
disposable products used in outpatient procedures in calendar year 2002 will be
reduced by this percentage. It is possible that this pro rata reduction in
pass-through payments for eligible devices will increase beyond 63.6% beginning
in calendar year 2004, when the applicable percentage is reduced from 2.5% to
2.0%. These reductions in Medicare payment will likely affect our charges to
hospitals and resulting revenues.
We have no assurance that once pass-through status for our disposable
guidewires and cryoprobes for cryoblation ends and CMS sets an all inclusive
technical fee, total reimbursement will not be further reduced. Private health
care payors are also expected to incorporate the costs of our products into the
overall cost of the procedures in which they are used, meaning that there will
no longer be separate, additional reimbursement for our disposable products.
This too may affect our charges to hospitals and resulting revenues.
International market acceptance of our products may depend, in part, upon
the availability of reimbursement within prevailing healthcare payment systems.
Reimbursement and healthcare payment systems in international markets vary
significantly by country, and include both government sponsored healthcare and
private insurance. We may not obtain international reimbursement approvals in a
timely manner, if at all. Our failure to receive international reimbursement
approvals may negatively impact market acceptance of our products in the
international markets in which those approvals are sought.
Furthermore, significant attention is focused on reforming the healthcare
system in the United States and other countries. Any changes in Medicare,
Medicaid or third party medical expense reimbursement, which may arise from
healthcare reform, may have a material adverse effect on reimbursement for our
products or procedures in which our products are used and may reduce the price
we are able to charge for our products. In addition, changes to the healthcare
system may also affect the commercial acceptance of products we are currently
developing and products we may develop in the future. Potential approaches that
have been considered include controls on healthcare spending through limitations
on the growth of private purchasing groups and price controls. Several proposals
have been made in the United States Congress and various state legislatures
recently that, if adopted, would potentially reduce healthcare spending which
may result in a material adverse effect on our business.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.
We expect to continue to experience significant growth in the scope of our
operations and the number of our employees. (Nonetheless, we cannot and do not
promise you that we actually will experience any growth in the future.) We
recently experienced significant growth in our operations and number of
employees as a result of our acquisition of Timm Medical. This growth has placed
and will likely continue to place a significant strain on our management and
operations. Our ability to manage this growth will depend upon our ability to
attract, hire and retain skilled employees. Our success will also depend on the
ability of our officers and key employees to continue to implement and improve
our operational and other systems, to manage multiple, concurrent development
projects and to hire, train and manage our employees. Our future success is
heavily dependent upon growth and acceptance of new products. If we cannot scale
our business appropriately or otherwise adapt to anticipated growth and new
product introduction, our business, financial condition and results of
operations will be adversely affected.
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WE HAVE LIMITED SALES AND MARKETING EXPERIENCE WITH OUR CRYOCARE SURGICAL SYSTEM
AND ANY FAILURE TO SIGNIFICANTLY EXPAND SALES OF THIS PRODUCT WILL NEGATIVELY
IMPACT FUTURE REVENUE.
We currently handle a majority of the marketing, distribution and sales of
our Cryocare Surgical Systems. We have limited experience marketing and selling
our Cryocare Surgical System in commercial quantities or on a nationwide basis.
We will face significant challenges and risks in training, managing and
retaining our sales and marketing teams, including managing geographically
dispersed efforts and adequately training our people in the use and benefits of
our Cryocare Surgical System. We may not be able to hire significant additional
personnel to create increased demand for our Cryocare Surgical System. In
addition, we have distribution arrangements, some of which are exclusive, for
the sale of our Cryocare Surgical System both domestically and internationally
and are dependent upon the sales and marketing efforts of our third-party
distributors. These distributors may not commit the necessary resources to
effectively market and sell our Cryocare Surgical System. If we are unable to
expand our sales and marketing capabilities, we may not be able to effectively
commercialize our Cryocare Surgical System.
NEGATIVE ECONOMIC CONDITIONS IN THE UNITED STATES MAY NEGATIVELY IMPACT OUR
ABILITY TO ACHIEVE PROFITABILITY.
During 2001, the United States and other international markets experienced
a significant economic downturn. In addition, the United States and other
countries suffered significant acts of hostility and terror. Such acts may
increase or prolong such negative economic conditions. The economic downturn may
impact our ability to maintain or increase profitability by negatively affecting
growth in demand for our products. There can be no certainty as to the degree or
severity of the duration of this downturn.
IF OUR RELATIONSHIP WITH U.S.M.D., LTD. IS DISRUPTED, OUR REVENUES COULD BE
SIGNIFICANTLY REDUCED.
We have an exclusive distribution agreement with U.S.M.D., Ltd. For the
fiscal year ended December 31, 2001 and the three months ended March 31, 2002,
26% and 24% respectively, of our revenues were derived from sales made to
U.S.M.D., Ltd. As a result, our revenues are dependent in large part on
continued sales to this distributor. If sales to this distributor were to be
discontinued, our revenues could be materially and adversely affected.
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL.
In order to execute our business plan, we need to attract, retain and
motivate a significant number of highly qualified managerial, technical and
sales personnel. If we fail to attract and retain skilled scientific and
marketing personnel, our research and development and sales and marketing
efforts will be hindered. Our future success depends to a significant degree
upon the continued services of key management personnel, including Paul W.
Mikus, our Chief Executive Officer. None of these individuals is bound by an
employment agreement or covered by an insurance policy of which we are the
beneficiary. Competition for such personnel is intense, particularly in southern
California where we are located.
IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR COMPETITORS MAY TAKE
ADVANTAGE OF OUR IDEAS AND COMPETE DIRECTLY AGAINST US.
Our success will depend to a significant degree on our ability to secure
and protect intellectual proprietary rights and enforce patent and trademark
protections relating to our technology. From time to time, litigation may be
advisable to protect our intellectual property position. However, these legal
means afford only limited protection and may not adequately protect our rights
or permit us to gain or keep any competitive advantage. Any litigation in this
regard could be costly, and it is possible that we will not have sufficient
resources to fully pursue this litigation or to protect our other intellectual
property rights. It could result in the rejection or invalidation of our
existing and future patents. Any adverse outcome in litigation relating to the
validity of our patents, or any failure to pursue litigation or otherwise to
protect our patent position, could materially harm our business and financial
condition. Also, even if we prevail in litigation, the litigation would be
costly in terms of management distraction as well as in money. In addition,
confidentiality agreements with our employees, consultants, customers, and key
vendors may not prevent the unauthorized disclosure or use of our
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technology. It is possible that these agreements will be breached or that they
will not be enforceable in every instance, and that we will not have adequate
remedies for any such breach. Enforcement of these agreements may be costly and
time consuming. Furthermore, the laws of foreign countries may not protect our
intellectual property rights to the same extent as the laws of the United
States.
BECAUSE THE MEDICAL DEVICE INDUSTRY IS LITIGIOUS, WE MAY BE SUED FOR ALLEGEDLY
VIOLATING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
The medical technology industry has in the past been characterized by a
substantial amount of litigation and related administrative proceedings
regarding patents and intellectual property rights. In addition, major medical
device companies have used litigation against emerging growth companies as a
means of gaining a competitive advantage.
Should third parties file patent applications or be issued patents claiming
technology also claimed by us in pending applications, we may be required to
participate in interference proceedings in the U.S. Patent and Trademark Office
to determine the relative priorities of our inventions and the third parties'
inventions. We could also be required to participate in interference proceedings
involving our issued patents and pending applications of another entity. An
adverse outcome in an interference proceeding could require us to cease using
the technology or to license rights from prevailing third parties.
Third parties may claim we are using their patented inventions and may go
to court to stop us from engaging in our normal operations and activities. These
lawsuits are expensive to defend and conduct and would also consume and divert
the time and attention of our management. A court may decide that we are
infringing a third party's patents and may order us to cease the infringing
activity. The court could also order us to pay damages for the infringement.
These damages could be substantial and could harm our business, financial
condition and operating results.
If we are unable to obtain any necessary license following an adverse
determination in litigation or in interference or other administrative
proceedings, we would have to redesign our products to avoid infringing a third
party's patent and could temporarily or permanently have to discontinue
manufacturing and selling some of our products. If this were to occur, it would
negatively impact future sales.
IF WE REQUIRE FUTURE CAPITAL, WE MAY NOT BE ABLE TO SECURE ADDITIONAL FUNDING IN
ORDER TO EXPAND OUR OPERATIONS AND DEVELOP NEW PRODUCTS.
If we fail to maintain profitability, or if we undertake or accelerate
significant research and development projects for new products or pursue
corporate acquisitions, we may need additional outside financing. We may raise
these additional funds by selling our equity securities, incurring additional
debt or entering into collaborative arrangements. Any additional equity
financing may be dilutive to stockholders, and debt financing, if available, may
involve interest expense and restrictive covenants. Collaborative arrangements,
if necessary to raise additional funds, may require us to relinquish rights to
some of our technologies, products or marketing territories. Our failure to
raise capital when needed could harm our business.
WE HAVE LIMITED EXPERIENCE MANUFACTURING OUR PRODUCTS AND IF WE ARE UNABLE TO
MEET CUSTOMER DEMAND, WE MAY NOT BECOME PROFITABLE.
We use solely internal manufacturing capacity to manufacture our products.
We have limited experience in producing our products in commercial quantities.
We may encounter difficulties in scaling up production of new products,
including problems involving production yields, quality control and assurance,
component supply and shortages of qualified personnel. Our failure to overcome
these manufacturing problems could negatively impact our business and financial
condition.
Our success will depend in part upon our ability to manufacture our
products in compliance with the FDA's Quality System regulations and other
regulatory requirements in sufficient quantities and on a timely basis, while
maintaining product quality and acceptable manufacturing costs. We recently
moved our executive offices and manufacturing activities to a new facility in
Irvine, California. This new facility has not
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been inspected by the FDA or the California Department of Health Services. We
must obtain FDA approval prior to manufacturing products in our new facility.
Any failure or delay in obtaining the necessary approvals may cause us to be
unable to meet customer demand for our products. If we fail to increase
production volumes in a timely or cost-effective manner or to maintain
compliance with the FDA's Quality System regulations or other regulatory
requirements, once obtained, our business will suffer.
WE ARE DEPENDENT UPON A LIMITED NUMBER OF THIRD PARTY SUPPLIERS TO MANUFACTURE
OUR PRODUCTS AND THE LOSS OF ANY OF THESE SUPPLIERS COULD HARM OUR BUSINESS.
We depend upon a limited number of unaffiliated third-party suppliers for
components and materials used in the manufacture of our products and, as such,
our business would be seriously harmed if we were unable to develop and maintain
relationships with suppliers that allow us to obtain sufficient quantities and
quality materials and components on acceptable terms. If our principal suppliers
cease to supply the materials and components we need to manufacture our
products, the qualification of additional or replacement supplies could be a
lengthy process and there may not be adequate alternatives to meet our needs,
which will have a material adverse effect on our business. We may not be able to
obtain the necessary components and materials used in our products in the future
on a timely basis, if at all.
IF WE FAIL TO OBTAIN OR MAINTAIN NECESSARY REGULATORY CLEARANCES OR APPROVALS
FOR PRODUCTS, OR IF APPROVALS ARE DELAYED OR WITHDRAWN, WE WILL BE UNABLE TO
COMMERCIALLY DISTRIBUTE AND MARKET OUR PRODUCTS OR ANY PRODUCT MODIFICATIONS.
Government regulation has a significant impact on our business. Government
regulation in the United States and other countries is a significant factor
affecting the research and development, manufacture and marketing of our
products. In the United States, the FDA has broad authority under the Federal
Food, Drug and Cosmetic Act to regulate the distribution, manufacture and sale
of medical devices. Foreign sales of drugs and medical devices are subject to
foreign governmental regulation and restrictions, which vary from country to
country. The process of obtaining FDA and other required regulatory clearances
and approvals is lengthy and expensive. We may not be able to obtain or maintain
necessary approvals for clinical testing or for the manufacturing or marketing
of our products. Failure to comply with applicable regulatory approvals can,
among other things, result in fines, suspension or withdrawal of regulatory
approvals, product recalls, operating restrictions, and criminal prosecution. In
addition, governmental regulations may be established which could prevent,
delay, modify or rescind regulatory approval of our products. Any of these
actions by the FDA, or change in FDA regulations, may adversely impact our
business and financial condition.
Regulatory approvals, if granted, may include significant limitations on
the indicated uses for which our products may be marketed. In addition, to
obtain such approvals, the FDA and foreign regulatory authorities may impose
numerous other requirements on us. FDA enforcement policy prohibits the
marketing of approved medical devices for unapproved uses. In addition, product
approvals can be withdrawn for failure to comply with regulatory standards or
unforeseen problems following initial marketing. We may not be able to obtain or
maintain regulatory approvals for our products on a timely basis, or at all, and
delays in receipt of or failure to receive such approvals, the loss of
previously obtained approvals, or failure to comply with existing or future
regulatory requirements would have a significant negative effect on our
financial condition.
OUR PRODUCTS MAY BE SUBJECT TO PRODUCT RECALLS EVEN AFTER RECEIVING FDA
CLEARANCE OR APPROVAL, WHICH WOULD HARM OUR REPUTATION AND OUR BUSINESS.
The FDA and similar governmental authorities in other countries have the
authority to request and, in some cases, require the recall of our products in
the event of material deficiencies or defects in design or manufacture. A
governmental mandated or voluntary recall by us could occur as a result of
component failures, manufacturing errors or design defects. Any recall of
product would divert managerial and financial resources and harm our reputation
with customers and our business.
7
WE COULD BE NEGATIVELY IMPACTED BY FUTURE INTERPRETATION OR IMPLEMENTATION OF
FEDERAL AND STATE FRAUD AND ABUSE LAWS, INCLUDING ANTI-KICKBACK LAWS.
Federal anti-kickback laws and regulations prohibit the knowing and willful
offer, payment, solicitation and receipt of any form of remuneration in exchange
for the referral of an individual to a person for the furnishing or arranging
for the furnishing of any item or service for which payment may be made by
Medicare, Medicaid and other federal healthcare programs. Violations of federal
anti-kickback laws are punishable by monetary fines, civil and criminal
penalties and exclusion from participation in Medicare, Medicaid and other
federal healthcare programs. Several states have similar laws. While we believe
our operations are in material compliance with the applicable Medicare and
Medicaid fraud and abuse laws, including the anti-kickback laws, there is a risk
that the federal government might investigate our arrangements with physicians
and other third parties. Such investigations, regardless of their outcome, could
damage our reputation and adversely affect important business relationships that
we have with third parties, including physicians, hospitals and others. If our
arrangements with physicians and other third parties were found to be illegal,
we could be subject to civil and criminal penalties, including fines and
possible exclusion from participation in governmental payor programs.
Significant fines could cause liquidity problems and adversely affect our
results of operations. Exclusion from participation from government payor
programs would eliminate a major source of revenue and cripple our business.
WE COULD BE NEGATIVELY IMPACTED BY FUTURE INTERPRETATION OR IMPLEMENTATION OF
THE FEDERAL STARK LAW AND OTHER FEDERAL AND STATE ANTI-REFERRAL LAWS.
We are also subject to federal and state statutes and regulations banning
payments for referrals of patients and referrals by physicians to healthcare
providers with whom the physicians have a financial relationship. The federal
Stark law applies to Medicare and Medicaid and prohibits a physician from
referring patients for services to an entity with which the physician has a
financial relationship. A financial relationship includes both investment
interests in an entity and compensation arrangements with an entity. Many states
have similar or even broader laws prohibiting referrals by any licensed
healthcare provider. These state laws generally apply to services reimbursed by
both governmental and private payors. Violation of these federal and state laws
may result in prohibition of payment for services rendered, loss of licenses,
fines, criminal penalties and exclusion from governmental and private payor
programs, among other things. We have financial relationships with physicians
and physician-owned entities, which in turn have financial relationships with
hospitals and other providers of designated health services. Although we believe
that our financial relationships with physicians and physician-owned entities,
as well as the relationships between physician-owned entities that purchase or
lease our products and hospitals, are not in violation of applicable laws and
regulations, governmental authorities might take a contrary position. If our
financial relationships with physicians or physician-owned entities or the
relationships between those entities and hospitals were found to be illegal, we
and/or the affected physicians and hospitals could be subject to civil and
criminal penalties, including fines, exclusion from participation in government
and private payor programs and requirements to refund amounts previously
received from government and private payors. In addition, expansion of our
operations to new jurisdictions, or new interpretations of laws in our existing
jurisdictions, could require structural and organizational modifications of our
relationships with physicians, physician-owned entities and others to comply
with that jurisdiction's laws.
IF WE BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS, WE MAY BE REQUIRED TO PAY
DAMAGES THAT EXCEED OUR INSURANCE COVERAGE.
Our business exposes us to potential product liability claims that are
inherent in the testing, production, marketing and sale of medical devices.
While we believe that we are reasonably insured against these risks, we may not
be able to obtain insurance in amounts or scope sufficient to provide us with
adequate coverage against all potential liabilities. A product liability claim
in excess of our insurance coverage would have to be paid out of cash reserves
and would harm our reputation in the industry and our business.
8
WE ARE FACED WITH INTENSE COMPETITION AND RAPID TECHNOLOGICAL AND INDUSTRY
CHANGE, WHICH MAY MAKE IT MORE DIFFICULT FOR US TO ACHIEVE SIGNIFICANT MARKET
PENETRATION.
The medical device industry generally, and the urological disease treatment
market in particular, are characterized by rapid technological change, changing
customer needs, and frequent new product introductions. If our competitors'
existing products or new products are more effective than or considered superior
to our products, the commercial opportunity for our products will be reduced or
eliminated. We face intense competition from companies in the cryosurgical
marketplace as well as companies offering other treatment options, including
radical surgery, radiation therapy and hormone therapy. If we are successful in
penetrating the market for treatment of prostate cancer with our cryosurgical
treatment, other medical device companies may be attracted to the marketplace.
Many of our potential competitors are significantly larger than us and have
greater financial, technical, research, marketing, sales, distribution and other
resources than us. We believe there will be intense price competition for
products developed in our markets. Our competitors may develop or market
technologies and products, including drug-based treatments, that are more
effective or commercially attractive than any that we are developing or
marketing. Our competitors may obtain regulatory approval, and introduce and
commercialize products before we do. These developments could have a significant
negative effect on our financial condition. Even if we are able to compete
successfully, we may not be able to do so in a profitable manner.
FLUCTUATIONS IN OUR FUTURE OPERATING RESULTS MAY NEGATIVELY IMPACT THE MARKET
PRICE OF OUR COMMON STOCK.
Our operating results have fluctuated in the past and can be expected to
fluctuate from time to time in the future. Some of the factors that may cause
these fluctuations include:
- the impact of acquisitions;
- market acceptance of our existing products, as well as products in
development;
- the timing of regulatory approvals;
- the timing of payments received and the recognition of such payments as
revenue under collaborative arrangements and strategic alliances;
- our ability to manufacture products efficiently;
- the timing of our research and development expenditures; and
- the timing of customer orders.
If our operating results are below the expectations of securities analysts
or investors, the market price of our common stock may fall abruptly and
significantly.
IF WE SEEK TO ACQUIRE NEW AND COMPLEMENTARY BUSINESSES, PRODUCTS OR TECHNOLOGIES
INSTEAD OF DEVELOPING THEM OURSELVES, WE MAY BE UNABLE TO COMPLETE THESE
ACQUISITIONS OR TO SUCCESSFULLY INTEGRATE AN ACQUIRED BUSINESS OR TECHNOLOGY IN
A COST-EFFECTIVE AND NON-DISRUPTIVE MANNER.
As part of our strategy to expand our urology product offerings and
technologies, we may acquire one or more businesses or lines of business. In
June 1999, we consummated a business combination with Advanced Medical
Procedures, LLC, a regional mobile cryosurgery service company, and in March
2002, we closed the acquisition of Timm Medical Technologies, Inc. We cannot
assure you that we will be able to identify suitable acquisition opportunities
in the future. In addition, even if we do identify acquisition opportunities, we
may not be able to effectively integrate our business with any other business we
may acquire or merge with or effectively utilize the business acquired to
develop and market our products. We are not experienced in acquiring businesses
or managing facilities or operations in geographically distant areas. The
failure to successfully integrate an acquired company or acquired assets into
our operations may cause a drain on our financial and managerial resources, and
have a significant negative effect on our business and financial results. In
addition, our profitability may suffer because of acquisition-related costs,
amortization costs, restructuring or impairment of acquired goodwill and other
intangible assets. There is also a risk of loss of key employees,
9
customers and vendors of acquired businesses. Finally, in connection with any
future acquisitions, we may incur debt or issue equity securities as part or all
of the consideration for the acquired company's assets or capital stock. We may
be unable to obtain sufficient additional acquisition financing on favorable
terms or at all. In addition, any equity issuances will be dilutive to our
existing stockholders.
OUR STOCK PRICE MAY BE VOLATILE AND YOUR INVESTMENT COULD DECLINE IN VALUE.
Our stock price has in the past fluctuated and is likely to continue to
fluctuate significantly, making it difficult to resell shares when an investor
wants to at prices they find attractive. The market prices for securities of
emerging companies have historically been highly volatile. Future events
concerning us or our competitors could cause such volatility including:
- actual or anticipated variations in our operating results;
- developments regarding government and third party reimbursement;
- changes in government regulation;
- government investigation of us or our products;
- changes in reimbursement rates or methods affecting our products;
- developments concerning proprietary rights;
- litigation or public concern as to the safety of our products or our
competitor's products;
- technological innovations or new commercial products by us or our
competitors;
- investor perception of us and our industry; and
- general economic and market conditions including market uncertainty
related to the September 11, 2001 terrorist attacks and military action
resulting from the attacks.
In addition, the stock market is subject to price and volume fluctuations
that affect the market prices for companies in general, and
small-capitalization, high technology companies in particular, which are often
unrelated to the operating performance of these companies.
FUTURE SALES OF SHARES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR STOCK
PRICE.
Future sales of our common stock, including shares issued upon the exercise
of outstanding options and warrants or hedging or other derivative transactions
with respect to our stock, could have a significant negative effect on the
market price of our common stock. These sales also might make it more difficult
for us to sell equity securities or equity-related securities in the future at a
time and price that we would deem appropriate.
WE COULD BE DIFFICULT TO ACQUIRE DUE TO ANTI-TAKEOVER PROVISIONS IN OUR CHARTER,
OUR STOCKHOLDERS RIGHTS PLAN AND DELAWARE LAW.
Provisions of our certificate of incorporation and bylaws may have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of us. In
addition, in April 1999, our board of directors adopted a stockholder rights
plan in which preferred stock purchase rights were distributed as a dividend.
These provisions may make it more difficult for stockholders to take corporate
actions and may have the effect of delaying or preventing a change in control.
We are subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law. Subject to specified exceptions, this section provides
that a corporation may not engage in any business combination with any
interested stockholder during the three-year period following the time that such
stockholder becomes an interested stockholder. This provision could have the
effect of delaying or preventing a change of control of us. The foregoing
factors could limit the price that investors or an acquiror might be willing to
pay in the future for shares of our common stock.
10
FORWARD-LOOKING STATEMENTS
This prospectus may contain forward-looking statements that involve
substantial risks and uncertainties. In some cases you can identify these
statements by forward-looking words such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "should," "will," and "would" or similar
words. You should read statements that contain these words carefully because
they may discuss our future expectations, contain projections of our future
results of operations or of our financial position or state other
forward-looking information. We believe that it is important to communicate our
future expectations to our investors. However, there may be events in the future
that we are not able to accurately predict or control. The factors listed above
in the section captioned "Risk Factors," as well as any cautionary language in
this prospectus, provide examples of risks, uncertainties and events that may
cause our actual results to differ materially from any expectations we describe.
Actual results or outcomes may differ materially from those predicted in our
forward-looking statements due to the risks and uncertainties inherent in our
business, including:
- failure to successfully commercialize our products;
- failure to develop new products;
- competitive factors;
- general economic conditions;
- failure to achieve positive results in clinical trials;
- uncertainty regarding our patents and patent rights and costs of patent
litigation, including the material harm to us if there were an
unfavorable outcome of any such litigation;
- government regulation;
- government investigation;
- changes in reimbursement rates or methods; and
- technological change.
You should also consider carefully the statements under "Risk Factors"
beginning on page 2 and other sections of this prospectus and in the other
documents filed with the SEC, which address factors that could cause our actual
results to differ from those set forth in the forward-looking statements. You
should not place undue reliance on any forward-looking statements, which reflect
our management's view only as of the date of this prospectus. We will not update
any forward-looking statements to reflect events or circumstances that occur
after the date on which such statement is made.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from our Web site at http://www.endocare.com or at the SEC's Web site at
http://www.sec.gov.
11
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with the SEC, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
information we file later with the SEC will automatically update and supersede
this information. We incorporate by reference the documents listed below and any
future filings made by us with the SEC under Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended, until the sale of all of the
shares of common stock that are part of this offering. The documents we are
incorporating by reference are as follows:
(1) our annual report on Form 10-K for the fiscal year ended December
31, 2001 filed on March 29, 2002;
(2) Our quarterly report on Form 10-Q for the quarterly period ended
March 31, 2002 filed on May 15, 2002;
(3) our current reports on Form 8-K filed on March 5, 2002 and April
9, 2002;
(4) the description of our common stock contained in our registration
statement on Form 10-SB/A filed on January 5, 1996, including any
amendments or reports filed for the purpose of updating such descriptions;
and
(5) the description of our preferred stock purchase rights, contained
in our registration statement on Form 8-A filed on June 3, 1999, including
any amendments or reports filed for the purpose of updating such
descriptions.
Any statement contained in a document incorporated by reference will be
modified or superseded for all purposes to the extent that a statement contained
in this prospectus, or in any other document that is subsequently filed with the
SEC and incorporated by reference, modifies or is contrary to that previous
statement. Any statement so modified or superseded will not be deemed a part of
this prospectus except as so modified or superseded.
Upon written or oral request, we will provide without charge a copy of
these filings, and a copy of any and all of the information that has been or may
be incorporated by reference in this prospectus. Requests for these copies
should be directed to our Investor Relations Department, Endocare, Inc., 201
Technology Drive, Irvine, California 92618, telephone (949) 450-5400.
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT OR AMENDMENT. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. NO SELLING
STOCKHOLDER IS AUTHORIZED TO MAKE AN OFFER OF THESE SECURITIES IN ANY STATE
WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
12
SELLING STOCKHOLDERS
The following table sets forth the names of the selling stockholders and
the number of shares being registered for sale as of the date of this prospectus
and sets forth the number of shares of common stock known by us to be
beneficially owned by each of the selling stockholders. The following table
assumes that the selling stockholders will sell all of the shares being offered
for their account by this prospectus. However, we are unable to determine the
exact number of shares that actually will be sold. Gerald Timm is the president
and chief executive officer of Timm Medical and Joseph Hafermann previously held
the position of chief financial officer of Timm Medical. In connection with our
private placement transaction with U.S. Therapies, L.L.C. in June 2001, we
entered into an exclusive distributor agreement with U.S.M.D., Ltd., a
subsidiary of U.S. Therapies, L.L.C. Other than as stated above, the selling
stockholders have not had a material relationship with us within the past three
years other than as a result of their ownership of our securities. The shares
offered by this prospectus may be offered from time to time by the selling
stockholders. This information is based upon information provided by each
respective selling stockholder and public documents filed with the SEC, and is
not necessarily indicative of beneficial ownership for any other purpose. The
number of shares of common stock beneficially owned by each of the selling
stockholders is determined in accordance with the rules of the SEC. The term
"selling stockholders" includes the stockholders listed below and their
transferees, assignees, pledgees, donees or other successors. The percent of
beneficial ownership for each stockholder is based on 23,948,228 shares of
common stock outstanding as of May 6, 2002.
NUMBER OF PERCENT OF PERCENT OF
SHARES OF OUTSTANDING NUMBER OF OUTSTANDING
COMMON STOCK SHARES NUMBER OF SHARES SHARES
BENEFICIALLY BENEFICIALLY SHARES TO BE BENEFICIALLY BENEFICIALLY
OWNED OWNED SOLD PURSUANT OWNED OWNED
PRIOR TO PRIOR TO TO THIS AFTER THE AFTER THE
NAME OF SELLING STOCKHOLDER OFFERING OFFERING PROSPECTUS OFFERING(1) OFFERING(1)
--------------------------- ------------ ------------ ------------- ------------ ------------
FFC Partners I, L.P.(2).............. 1,386,186 5.8% 1,386,186 -- --
FFC Executive Partners I, L.P.(3).... 57,347 * 57,347 -- --
Gerald R. Mattys..................... 3,514 * 3,514 -- --
Gerald R. Mattys and Victoria L.
Mattys, JTWROS..................... 4,977 * 4,977 -- --
Joseph A. Hafermann.................. 3,730 * 3,730 -- --
D&W Ventures I, LLC.................. 7,489 * 7,489 -- --
Gerald W. Timm....................... 157,287 * 157,287 -- --
U.S. Therapies, L.L.C. .............. 213,010 * 213,010 -- --
---------------
* Less than one percent.
(1) Assumes that all shares being offered by the selling stockholders under this
prospectus are sold, and that the selling stockholders acquire no additional
shares of common stock before the completion of this offering.
(2) Pursuant to a Schedule 13G filed April 1, 2002, FFC Partners I, L.P.
reported sole voting power over 1,386,186 shares and sole dispositive power
over 1,331,204 shares. 54,982 shares are currently held in escrow and FFC
Partners I, L.P. currently has no dispositive power over such shares. Ferrer
Freeman & Company, LLC is a general partner of FFC Partners I, L.P. and may
be deemed to be the beneficial owner of the indicated shares.
(3) Pursuant to a Schedule 13G filed April 1, 2002, FFC Executive Partners I,
L.P. reported sole voting power over 57,347 shares and sole dispositive
power over 55,072 shares. 2,275 shares are currently held in escrow and FFC
Executive Partners I, L.P. currently has no dispositive power over such
shares. Ferrer Freeman & Company, LLC is a general partner of FFC Executive
Partners I, L.P. and may be deemed to be the beneficial owner of the
indicated shares.
13
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the common stock
by the selling stockholders. All proceeds will be received by the selling
stockholders.
PLAN OF DISTRIBUTION
We are registering all 1,833,540 shares on behalf of the selling
stockholders. All of the shares were issued by us in connection with our merger
with Timm Medical Technologies, Inc. and our private placement transaction with
U.S. Therapies, L.L.C. We will receive no proceeds from this offering. The
selling stockholders named in the table above or pledgees, donees, transferees
or other successors-in-interest selling shares received from the selling
stockholders as a gift, partnership distribution or other non-sale related
transfer after the date of this prospectus (collectively, the selling
stockholders) may sell the shares from time to time. The selling stockholders
will act independently of us in making decisions regarding the timing, manner
and size of each sale. The sales may be made on the Nasdaq National Market, in
the over-the-counter market, through put or call option transactions relating to
the shares, in negotiated transactions, or a combination of such methods of sale
or otherwise, at prices and on terms then prevailing or at prices related to the
then current market price. The selling stockholders may effect these
transactions by selling the shares to or through broker-dealers, or not. The
shares may be sold by one or more of, or a combination of, the following:
- a block trade in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as principal
to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by such
broker-dealer for its account under this prospectus;
- an exchange distribution in accordance with the rules of the respective
exchange;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- in privately negotiated transactions; and
- in any other lawful manner.
To the extent required, this prospectus may be amended or supplemented from
time to time to describe a specific plan of distribution. In effecting sales,
broker-dealers engaged by the selling stockholder may arrange for other
broker-dealers to participate in the resales.
The selling stockholders may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
these transactions, broker-dealers may engage in short sales of the shares in
the course of hedging the positions they assume with the selling stockholders.
The selling stockholders also may sell shares short and redeliver the shares to
close out such short positions. The selling stockholders may enter into options
or other transactions with broker-dealers that require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares covered by this prospectus. The selling stockholders also
may loan or pledge the shares to a broker-dealer. The broker-dealer may sell the
shares so loaned, or upon default the broker-dealer may sell the pledged shares
under this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholders.
Broker-dealers or agents may also receive compensation from the purchasers of
the shares for whom they act as agents or to whom they sell as principals, or
both. Compensation as to a particular broker-dealer might be in excess of
customary commissions and will be in amounts to be negotiated in connection with
the sale. Broker-dealers or agents and any other participating broker-dealers or
the selling stockholders may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act of 1933, as amended, in connection with
sales of the shares. Accordingly, any such commission, discount or concession
received by them and any profit on the resale of the shares purchased by them
may be deemed to be underwriting discounts or commissions under the Securities
Act. Because the selling stockholders may be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act, the selling
14
stockholders will be subject to the prospectus delivery requirements of the
Securities Act. In addition, any securities covered by this prospectus which
qualify for sale in compliance with Rule 144 promulgated under the Securities
Act may be sold under Rule 144 rather than under this prospectus. The selling
stockholders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their securities and that there is no underwriter or coordinating
broker acting in connection with the proposed sale of shares by the selling
stockholders.
The shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act of
1934, as amended, any person engaged in the distribution of the shares may not
simultaneously engage in market making activities with respect to our common
stock for a restricted period before the commencement of such distribution. In
addition, the selling stockholders will be subject to applicable provisions of
the Securities Exchange Act and the associated rules and regulations under the
Securities Exchange Act, including Regulation M, which provisions may limit the
timing of purchases and sales of shares of our common stock by the selling
stockholders.
We will make copies of this prospectus available to the selling
stockholders and have informed them of the need to deliver copies of this
prospectus to purchasers at or before the time of any sale of the shares.
Pursuant to registration rights agreements with the selling stockholders,
we will bear all costs, expenses and fees in connection with the registration of
the shares and have agreed to indemnify the selling stockholders against
specified liabilities arising in connection with this registration statement and
the related prospectus. The selling stockholders will bear all commissions,
discounts, broker fees or fees of similar securities industry professionals and
transfer taxes, if any, attributable to their respective sales of the shares.
The selling stockholders have agreed to indemnify us, our directors and officers
who sign the registration statement of which this prospectus is a part, and
control persons against specified liabilities in connection with the offering of
the shares, including liabilities arising under the Securities Act or other
federal or state law.
LEGAL MATTERS
The validity of the common stock offered in this prospectus will be passed
upon for us by Brobeck, Phleger & Harrison LLP, San Diego, California. As of the
date of this prospectus, attorneys of Brobeck, Phleger & Harrison LLP and family
members thereof beneficially owned an aggregate of approximately 87,000 shares
of our common stock.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the annual report on Form 10-K for year ended December 31, 2001
have been so incorporated in reliance on the report of KPMG LLP, independent
auditors, given on the authority of said firm as experts in auditing and
accounting.
15
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT
INFORMATION, YOU SHOULD NOT RELY ON IT. THIS PROSPECTUS SHOULD NOT BE CONSIDERED
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT
OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.
1,833,540 SHARES
ENDOCARE LOGO
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
May , 2002
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All costs and expenses incurred in connection with the issuance and
distribution of the securities being registered for sale will be paid by the
Registrant. The following is an itemized statement of these costs and expenses.
All amounts are estimates except the Securities and Exchange Commission
registration fee.
SEC registration fee........................................ $ 3,297.81
Printing and engraving...................................... $10,000.00
Legal fees and expenses..................................... $20,000.00
Accounting fees and expenses................................ $10,500.00
----------
Total.................................................. $43,797.81
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the DGCL) empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
other than an action by or in the right of such corporation, by reason of the
fact that such person is or was a director or officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. A Delaware
corporation may indemnify directors, officers, employees and others in an action
by or in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the person to be
indemnified has been adjudged to be liable to the corporation. Where a director
or officer is successful on the merits or otherwise in the defense of any action
referred to above or in defense of any claim, issue or matter therein, the
corporation must indemnify such director or officer against the expenses,
including attorneys' fees, which he or she actually and reasonably incurred in
connection therewith.
We have adopted provisions in our Restated Certificate of Incorporation
that limit, to the fullest extent permitted by the DGCL the liability of our
directors. Accordingly, Endocare's Restated Certificate of Incorporation
provides that directors of Endocare will not be personally liable for monetary
damages for breach of a director's fiduciary duty as a director, except for
liability: (i) for any breach of the director's duty of loyalty to Endocare or
our stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174 of
the DGCL; or (iv) for any transaction from which the director derived an
improper personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission,
although in some circumstances equitable relief may not be available as a
practical matter. The limitation may relieve the directors of monetary liability
to us for grossly negligent conduct, including conduct in situations involving
attempted takeovers. In addition, the Amended and Restated Bylaws of Endocare
require us to indemnify our directors and officers to the fullest extent
permitted by the laws of the State of Delaware, and allow us to purchase and
maintain insurance on any of our directors, officers, employees or agents. At
present, there is no pending litigation or proceeding involving any of our
directors or officers as to which indemnification is being sought nor are we
aware of any threatened litigation that may result in claims for indemnification
by our officers or directors.
We have entered into indemnification agreements (Exhibits 10.20 and 10.21
to our annual report on Form 10-K for the fiscal year ended December 31, 2001
(File No. 000-15063) filed with the Securities and
II-1
Exchange Commission on March 29, 2002) with each of our executive officers and
directors containing provisions that may require us, among other things, to
indemnify our executive officers and directors against liabilities that may
arise by reason of their status or service as executive officers or directors
(subject to certain limitations including, among other things, liabilities
arising from willful misconduct of a culpable nature) and to advance certain
expenses incurred as a result of any proceeding against them as to which they
could be indemnified.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1(1) Agreement and Plan of Reorganization, dated as of February
21, 2002, by and among Endocare, Inc., Timm Medical
Technologies, Inc., TMT Acquisition Corporation and certain
stockholders of Timm Medical Technologies, Inc. (the
"Merger"). Certain schedules and exhibits referenced in the
Merger Agreement have been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of any omitted schedule
and/or exhibit will be furnished supplementally to the
Securities and Exchange Commission upon request.
4.1 Registration Rights Agreement, dated as of June 27, 2001, by
and among Endocare, Inc. and U.S. Therapies, L.L.C.
4.2 Registration Rights Agreement, dated as of February 21,
2002, by and among Endocare, Inc. and the parties listed on
Schedule A thereto.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
23.1 Consent of KPMG LLP, Independent Auditors.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Power of Attorney (included on the Signature Page of this
registration statement).
---------------
(1) Incorporated by reference to identically numbered exhibit to the
Registrant's current report on Form 8-K dated February 21, 2002 and filed
with the Securities and Exchange Commission on March 5, 2002.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to that information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
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offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities, other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, Endocare, Inc., certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Irvine, State of California, on this
15th day of May, 2002.
ENDOCARE, INC.
By: /s/ PAUL W. MIKUS
------------------------------------
Paul W. Mikus
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitute and appoint, jointly and severally, Paul W.
Mikus and John V. Cracchiolo, or either of them, the undersigned's true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for the undersigned and in his name, place and stead, in any and
all capacities (including the undersigned's capacity as a director and/or
officer of Endocare, Inc.), to sign a Registration Statement on Form S-3 of
Endocare, Inc. to be filed under the Securities Act of 1933, as amended, for the
registration of the resale of 1,833,540 shares of Common Stock of Endocare, Inc.
by the selling stockholders named herein, and any and all amendments (including
post-effective amendments) to such Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
NAME TITLE DATE
---- ----- ----
/s/ PAUL W. MIKUS Chairman of the Board, President and May 15, 2002
------------------------------------------------ Chief Executive Officer (Principal
Paul W. Mikus Executive Officer)
/s/ JOHN V. CRACCHIOLO Chief Operating Officer, Chief May 15, 2002
------------------------------------------------ Financial Officer and Secretary
John V. Cracchiolo (Principal Financial Officer and
Principal Accounting Officer)
/s/ PETER F. BERNARDONI Director of the Company May 15, 2002
------------------------------------------------
Peter F. Bernardoni
/s/ ROBERT F. BYRNES Director of the Company May 15, 2002
------------------------------------------------
Robert F. Byrnes
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NAME TITLE DATE
---- ----- ----
/s/ BENJAMIN GERSON, M.D. Director of the Company May 15, 2002
------------------------------------------------
Benjamin Gerson, M.D.
/s/ MICHAEL J. STRAUSS, M.D. Director of the Company May 15, 2002
------------------------------------------------
Michael J. Strauss, M.D.
II-5
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1(1) Agreement and Plan of Reorganization, dated as of February
21, 2002, by and among Endocare, Inc., Timm Medical
Technologies, Inc., TMT Acquisition Corporation and certain
stockholders of Timm Medical Technologies, Inc. (the
"Merger"). Certain schedules and exhibits referenced in the
Merger Agreement have been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of any omitted schedule
and/or exhibit will be furnished supplementally to the
Securities and Exchange Commission upon request.
4.1 Registration Rights Agreement, dated as of June 27, 2001, by
and among Endocare, Inc. and U.S. Therapies, L.L.C.
4.2 Registration Rights Agreement, dated as of February 21,
2002, by and among Endocare, Inc. and the parties listed on
Schedule A thereto.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
23.1 Consent of KPMG LLP, Independent Auditors.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Power of Attorney (included on the Signature Page of this
registration statement).
---------------
(1) Incorporated by reference to identically numbered exhibit to the
Registrant's current report on Form 8-K dated February 21, 2002 and filed
with the Securities and Exchange Commission on March 5, 2002.