<PAGE>
As filed with the Securities and Exchange Commission on June 23, 1998
Registration No. 333-32987
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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INFLUENCE, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 5047 13-3798523
(State or other jurisdiction (Primary SIC Code) (I.R.S. Employer
of incorporation or Identification No.)
organization)
71 Stevenson Street, Suite 1120
San Francisco, California 94105
(415) 546-7700
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
PETER A. BICK, M.D.
President and Chief Executive Officer
Influence, Inc.
71 Stevenson Street, Suite 1120
San Francisco, California 94105
(415) 546-7700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
-------
Copies to:
PAUL I. RACHLIN, ESQ. JONATHAN M. MOULTON, ESQ.
Arnold & Porter Testa, Hurwitz & Thibeault, LLP
399 Park Avenue High Street Tower
New York, New York 10022 125 High Street
(212) 715-1000 Boston, Massachusetts 02110
(617) 248-7000
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
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 (the "Securities Act"), check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act 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, check the following box and list the Securities
Act 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. |_|
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 which 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.
================================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED JUNE 23, 1998
PROSPECTUS
- --------------------------------------------------------------------------------
1,700,000 Shares
[INFLUENCE LOGO]
Common Stock
- --------------------------------------------------------------------------------
All of the 1,700,000 shares (the "Shares") of common stock, par value $.001 per
share (the "Common Stock"), offered hereby are being offered by Influence, Inc.
("Influence" or the "Company").
Prior to the offering (the "Offering"), there has been no public market for
the Common Stock. It is currently anticipated that the initial public offering
price will be between $11.00 and $13.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock included for
quotation in The Nasdaq Stock Market's National Market (the "Nasdaq National
Market") under the symbol "INFL."
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors" on pages 7 to 18 for a discussion of certain material factors that
should be considered in connection with an investment in the Common Stock
offered hereby.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company(2)
- -------------------------------------------------- ---------------------- -------------------------- -----------------------
<S> <C> <C> <C>
Per Share................................. $ $ $
- -------------------------------------------------- ---------------------- -------------------------- -----------------------
Total (3)................................. $ $ $
- -------------------------------------------------- ---------------------- -------------------------- =======================
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act").
(2) Before deducting expenses payable by the Company, estimated to be $600,000.
(3) Influence has granted the several Underwriters a 30-day over-allotment
option to purchase up to 255,000 additional shares of Common Stock on the
same terms and conditions as set forth above. If all such additional shares
are purchased by the Underwriters, the total Price to Public will be
$_________, the total Underwriting Discounts and Commissions will be
$_________, and the total Proceeds to Company will be $_________ . See
"Underwriting."
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters, subject to
delivery by the Company and acceptance by the Underwriters, to prior sale and
to withdrawal, cancellation or modification of the offer without notice.
Delivery of the shares of Common Stock to the Underwriters is expected to be
made through the facilities of The Depository Trust Company, New York, New
York, on or about _________________, 1998.
Prudential Securities Incorporated
Vector Securities International, Inc.
Fahnestock & Co. Inc.
, 1998.
<PAGE>
SELECTED INFLUENCE PRODUCTS AND PRODUCTS UNDER DEVELOPMENT(1)
<TABLE>
<CAPTION>
Proposed Regulatory
Division/Product Category Product Status Path or Status
- ------------------------- -------------- -------------------
<S> <C> <C> <C>
INFLUENCE DIVISION
Urology/Gynecology Products
Catheters (remote controlled)
[Diagram of In-Flow] In-Flow Ongoing U.S. IDE trial; PMA Path; CE Mark
(female) Launched in Europe and Asia 2Q97 approved March 1997
In-Flow-M Preclinical PMA Path
(male)
Surgical Products
[Diagrams of the Company's surgical In-Fast Launched worldwide 4Q97 510(k) cleared April
products] 1997; CE Mark approved
August 1997
In-Tac Launched worldwide 2Q97 510(k) cleared February
1997; CE Mark approved
August 1997
Straight-In Worldwide launch expected 2H98 510(k) cleared October
1997; CE Mark approved
March 1998
Raz Fascial Worldwide launch expected 4Q98 510(k) submitted May
Anchor -Stress 1998 (non-resorbable)/
Incontinence(2) June 1998 (resorbable)
Raz Fascial Worldwide launch expected 4Q98 510(k) submitted May
Anchor - 1998 (non-resorbable)/
Vaginal Vault June 1998 (resorbable)
Prolapse(2)
Ramus Worldwide launch expected 4Q98 501(k) submitted June
Male Sling 1998; CE Mark approved
June 1998
</TABLE>
- ----------------
(1) Additional surgical products: Clip-In, Looped Screw, Triangle Gelatin Sling,
Triangle Uncoated Sling and Triangle Allographic Sling. Additional products
under development by the Company include: In-Cuff, In-Tele and In-Probe
Angle Measurement. Additional products under development by the Company and
its joint venture partner include: Cryo-Prost and Cryo-ENT.
(2) Resorbable and non-resorbable versions.
<PAGE>
<TABLE>
<CAPTION>
Proposed Regulatory
Division/Product Category Product Status Path or Status
- ------------------------- -------------- -------------------
<S> <C> <C> <C>
INFLUENCE DIVISION
(Urology/Gynecology Products cont.)
Diagnostic/Biofeedback
[Diagrams of In-Bio and In-Probe] In-Bio Worldwide launch expected 2H98 510(k) submitted
December 1997
In-Probe Worldwide launch expected 2H98 Exempt from 510(k)
submission requirement
INFLU-ENT DIVISION
Otolaryngology Products
[Diagrams of the Company's Repose-Tongue Launched worldwide 1Q98 510(k) cleared August
otolaryngological products] 1997; CE Mark approved
March 1998
Repose-Hyoid Worldwide launch expected 4Q98 510(k) submitted May 1998
INFLU-RAD DIVISION
Cancer Radiotherapy Products
[Diagram of proposed Tomotherapy Tomo-therapy Preclinical PMA or 510(k) Path
device]
</TABLE>
In-Tac(R) is a registered trademark of the Company. Influence(TM),
In-Fast(TM), Straight-In(TM), In-Flow(TM), In-Probe(TM), In-Tele(TM),
In-Bio(TM), In-Flow-M(TM), In-Cuff(TM), Raz Fascial Anchor(TM), Triangle(TM),
Ramus Male Sling(TM), Cryo-ENT(TM), Clip-In(TM), Cryo-Post(TM), In-Probe Angle
Measurement(TM), and Repose(TM) are trademarks and trade names of the Company.
Any other trademark or trade name appearing in this Prospectus is the property
of the holder of such trademark or trade name.
<PAGE>
[Influence logo; graphical and textual depiction of
products and products under development.]
Most of the Company's products are currently under development. Many
of the Company's products under development, and certain products not
currently sold in the United States, discussed herein have not been approved
or cleared by the FDA, and there can be no assurance that such products will
receive such approval or clearance on a timely basis, or at all. See "Risk
Factors -- No Assurance of Regulatory Approvals; Potential Delays."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SHARES, INCLUDING
PURCHASES OF THE SHARES TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE SHARES
TO COVER SOME OR ALL OF A SHORT POSITION IN THE SHARES MAINTAINED BY THE
UNDERWRITER AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Except as otherwise indicated,
references to "Influence" or the "Company" are to Influence, Inc. together
with its wholly owned subsidiaries. Except as set forth in the Consolidated
Financial Statements or as otherwise indicated, all information in this
Prospectus assumes (i) the conversion of all outstanding shares of Series A
Convertible Preferred Stock into Common Stock, which will become effective
prior to the closing of the Offering, (ii) a 1-for-1.26 reverse stock split of
the shares of the Company's Common Stock, which will be effective immediately
prior to the closing of the Offering and (iii) the Underwriters'
over-allotment option will not be exercised. See "Description of Capital
Stock" and "Underwriting."
The Company
Influence is a medical device manufacturer engaged in the design,
development and commercialization of minimally invasive, cost-effective
products, and is organized into three divisions: urology/gynecology (Influence
Division), otolaryngology (Influ-ENT Division), and cancer radiotherapy
(Influ-RAD Division). The Company's products and products under development
include remote-controlled intra-urethral valved catheter systems, surgical
tools and equipment for performing minimally invasive surgery, diagnostic
tools, and an interstitial radiotherapy system for the treatment of cancerous
tumors. The Company has nine products that have received regulatory or 510(k)
clearance from the U.S. Food and Drug Administration (the "FDA") for sale in
the United States, eight products currently under 510(k) review by the FDA,
and another eight products in various stages of development. The Company
recently signed a letter of intent with Indigo Medical, Inc. ("Indigo"), a
subsidiary of Johnson & Johnson ("J&J"), subject to negotiation of definitive
agreements, pursuant to which Indigo would become the exclusive distributor
outside the United States of the Company's current and future
urology/gynecology product lines and the Company's radiotherapy product under
development.
Influence Division - Urology/Gynecology
The Company's incontinence product development strategy is based on
the belief that current urinary incontinence diagnostic tools and treatment
options have significant limitations. The Company has developed or is
developing a broad range of products to provide an integrated solution for the
diagnosis and treatment of urinary incontinence in women and men. The Company
believes that its products, if successfully introduced and adopted, will
result in significant improvements and cost savings in incontinence
management. Incontinence is a significant medical problem afflicting an
estimated 10 million women and 3 million men in the United States alone, with
associated costs in excess of $16 billion annually, including over $5 billion
related to patients in nursing homes. Incontinence is caused by or associated
with a wide range of factors, including childbirth, menopause, aging, surgery,
obesity, drugs and neurological damage. Persons suffering from urinary
incontinence may experience a variety of physical and psychological problems
including urinary tract infections, rashes, pressure sores, embarrassment,
decreased sexual activity, depression and loss of productive activity.
The Company's first two marketed products in the field of
incontinence, In-Tac and In-Fast, are both designed to enable minimally
invasive, incisionless bladder neck surgery for the treatment of certain types
of urinary incontinence in women. Bladder neck surgeries are performed
primarily to relieve severe incontinence that is caused by either prolapse
(descent) of the urethra and bladder neck or by certain bladder sphincter
abnormalities. Of the estimated five million or more women in the United
States who suffer from stress incontinence (involuntary loss of urine during
physical activity), in 1996 only approximately 183,000 patients elected to
undergo bladder neck surgery, which uses methods that typically require
abdominal or vaginal incisions and general anesthesia. The Company believes
more incontinent women may opt for surgery using the In-Tac and In-Fast
procedures, which require no abdominal or vaginal incisions, introduce less
trauma to the patient, shorten the post-operative recovery period, reduce the
need for hospital admissions and can be performed using local anesthesia. In
addition, the Company has developed the Straight-In surgical system and is
seeking FDA clearance for the Raz Fascial Anchor line of products, which can
be used for both open and laparoscopic surgical procedures for bladder neck
surgery as well as for repair of vaginal vault prolapse, a condition which may
follow childbirth or hysterectomy. The Company
3
<PAGE>
is also developing surgical products intended for the treatment of male
incontinence, including the Ramus Male Sling surgical system.
The Company believes that its In-Flow product, a remote-controlled
catheter that actively pumps urine out of a patient's bladder, represents a
significant breakthrough in the treatment of overflow incontinence. Overflow
incontinence is associated with atonic bladder, a condition in which a person
is unable to empty his or her own bladder. Currently, these patients use
either an indwelling catheter, which involves the use of a urine collection
bag attached to the patient's leg, or intermittent self-catheterization, which
involves the insertion of a tube-like catheter to drain the urine in the
bladder, typically four to six times daily. In-Flow includes a disposable
catheter that is inserted into a woman's urethra and replaced approximately
once per month. To urinate, the patient holds a battery-powered remote control
device near the lower abdomen and presses a switch which activates a pump in
the catheter, utilizing the Company's proprietary magnetic energy transfer
technology, to draw urine from the bladder until the bladder is completely
emptied. The FDA has determined that approval of the In-Flow device will
require a PMA submission in the United States. The Company has an
Investigational Device Exemption ("IDE") for this device and a clinical IDE
study is currently underway. The Company expects to file a PMA for In-Flow in
the first half of 1999. The Company has received marketing clearance in Europe
and Canada for In-Flow. In addition, the Company is developing In-Flow-M, a
male version of In-Flow. The Company is also evaluating the market opportunity
for the use of its catheter products in patients with stress incontinence and
for patients in nursing homes.
Influ-ENT Division - Otolaryngology
The Influ-ENT Division is currently marketing the Repose-Tongue
surgical system for the minimally invasive treatment of obstructive sleep
apnea ("OSA") and snoring. This product leverages technology developed for the
Company's In-Fast device. OSA is a largely undiagnosed and poorly treated
breathing disorder caused by upper airway obstruction during sleep, and is
frequently associated with a prolapse of the tongue base. Current methods to
treat OSA have low patient compliance (such as the use of a face mask) or
involve highly invasive and painful surgery, resulting in many patients
electing to remain untreated. The Repose-Tongue surgical system, which may be
used in conjunction with other OSA treatments, provides support to the back of
the tongue and reduces the likelihood of obstruction caused by backward
displacement of the tongue during sleep. The National Center on Sleep
Disorders Research reported in 1995 that approximately 18 million people in
the United States are affected by OSA, and that OSA may be associated with
impotence, heart disease, stroke, debilitating daytime drowsiness, automobile
accidents and an increased mortality rate. The Company believes that only a
small percentage of those persons afflicted by OSA are aware that they suffer
from this condition. The Company recently filed a 510(k) Notification for
another minimally invasive surgical approach to the treatment of OSA, the
Repose-Hyoid surgical system for hyoid bone suspension.
Influ-RAD Division - Cancer Radiotherapy
The Influ-RAD Division is developing an interstitial radiotherapy
system called Tomotherapy, which directs radiation through a needle inserted
directly into the center of a solid cancerous tumor. Current radiation therapy
for cancers commonly involves the use of large devices that beam radiation
from outside the patient's body, attempting to target cancerous tumor cells
growing inside the patient. Such existing systems present a challenge in that
healthy tissues external to the tumor are also irradiated and may suffer
damage, which is undesirable and may limit the dose of radiation administered.
The Company's Tomotherapy device under development is designed to disperse
x-ray radiation energy from the inside out, through a needle inserted directly
inside the cancerous growth, thereby reducing radiation damage to healthy
tissue external to the tumor. The Company intends to investigate the use of
its Tomotherapy system initially for cancers of the prostate, bladder and
breast and in the area of intra-operative radiation treatment. It is uncertain
whether this device will require a PMA submission or a 510(k) Notification.
--------------------
The Company has developed a direct channel of dedicated sales people
in the United States in the urology/gynecology field. The Company recently
started a second channel of distribution in the ear, nose and throat ("ENT")
4
<PAGE>
area using direct sales people and is seeking to enlist independent sales
representatives. In Israel, the Company maintains 18 research and development
personnel and has an ISO 9001 and 9002 certified facility for developing and
manufacturing its product lines.
On May 1, 1998, Indigo and the Company signed a letter of intent,
subject to negotiation of definitive agreements, pursuant to which Indigo would
become the Company's exclusive distributor outside the United States of the
Company's current and future products in the fields of urology and gynecology
and its radiotherapy product under development. In connection with this letter
of intent, Johnson & Johnson Development Corporation ("JJDC"), a subsidiary of
J&J, advanced $1 million to the Company. Upon execution of a definitive
distribution agreement, JJDC would advance an additional $6 million to the
Company and would contribute the initial $1 million advance to the Company in
exchange for a $7 million convertible note (the "J&J Note") to be issued by the
Company to JJDC. The J&J Note would be automatically convertible into Common
Stock upon completion of this Offering at a conversion price equal to the
initial public offering price of the Shares offered hereby. In the event the
initial public offering of the Company is not completed within one year of the
advance of $7 million to the Company, then JJDC shall acquire shares of Common
Stock of the Company in exchange for such advance at a price per share based on
a valuation of all the Common Stock of the Company (on a fully diluted basis)
equal to $75 million.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock offered hereby................................. 1,700,000 Shares
Common Stock to be outstanding after the Offering (1)....... 7,830,798 Shares
Use of Proceeds............................................. For expansion of sales and marketing
activities; research, product development,
clinical trials and obtaining regulatory
approvals; capital expenditures; and
working capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol...................... INFL
</TABLE>
- --------------------
(1) Excludes as of June 22, 1998 (i) 1,181,048 shares issuable upon exercise of
options outstanding under the Company's 1995 and 1998 Stock Option Plans at
a weighted average exercise price of $5.95 per share, and (ii) 367,245
shares reserved for future issuances of stock options, in each case as of
the date of this Prospectus. See "Management--Stock Option Plans."
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
-------------------------------------- -----------------------
1995 1996 1997 1997 1998
--------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net sales................................... $ -- $ -- $ 1,114 $ 30 $ 714
Cost of goods sold.......................... -- -- 2,765 384 658
--------- --------- ---------- ---------- ---------
Gross margin................................ -- -- (1,651) (354) 56
--------- --------- ---------- ---------- ---------
Operating expenses:
Research and development................. 1,250 3,219 3,155 575 940
Sales and marketing...................... -- 667 3,837 649 1,157
General and administrative............... 459 1,769 2,073 381 840
--------- --------- ---------- ---------- ---------
Total operating expenses........... 1,709 5,655 9,065 1,605 2,937
Operating loss.............................. (1,709) (5,655) (10,716) (1,959) (2,881)
Interest income (expense), net.............. 12 (118) (134) (223) 21
--------- --------- ---------- ---------- ---------
Net loss.................................... $ (1,697) $ (5,773) $ (10,850) $ (2,182) $ (2,860)
--------- --------- ---------- ---------- ---------
--------- --------- ---------- ---------- ---------
Basic and diluted net loss per share(1)..... $ (0.34) $ (1.16) $ (2.10) $ (0.45) $ (0.54)
--------- --------- ---------- ---------- ---------
--------- --------- ---------- ---------- ---------
Shares used in computing basic and diluted
net loss per share(1).................... 4,977 4,983 5,173 4,903 5,248
--------- --------- ---------- ---------- ---------
--------- --------- ---------- ---------- ---------
Pro Forma Data:(1)
Pro forma basic and diluted net loss per
share....................................... $ (1.79) $ (0.47)
--------- ---------
--------- ---------
Shares used in computing pro forma basic
and diluted net loss per share........... 6,055 6,131
--------- ---------
--------- ---------
<CAPTION>
March 31, 1998
Actual As Adjusted
(2)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments.................................. $ 2,555 $ 20,927
Working capital.................................................................... 2,907 21,279
Total assets....................................................................... 6,146 24,518
Accumulated deficit................................................................ (21,480) (21,480)
Stockholders' equity............................................................... 4,130 22,502
</TABLE>
(1) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of basic and diluted net loss per share data and
pro forma basic and diluted net loss per share.
(2) Adjusted to give effect to the sale of the Shares offered by the Company
hereby, assuming an initial public offering price of $12.00 per share,
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information set forth in this
Prospectus, in connection with an investment in the shares of Common Stock
offered hereby.
When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend" and similar
expressions are intended to identify forward-looking statements regarding
events, conditions and financial trends that may affect the Company's future
plans of operations, business strategy, results of operations and financial
position. Prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks
and uncertainties and that actual results may differ materially from those
included within the forward-looking statements as a result of various factors.
Factors that could cause or contribute to such differences include, but are
not limited to, those described below, under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this Prospectus.
Limited Operating History; History of Losses Expected to Continue.
The Company has a limited operating history upon which evaluation of its
prospects can be made. Since inception, the Company has derived minimal
revenues from product sales, and has an accumulated deficit through March 31,
1998 of $21.5 million, mainly related to expenses incurred in connection with
research and development, seeking regulatory clearances and approvals, and
initial sales and marketing activities. The Company expects its operating
losses to increase in the near future and there can be no assurance that the
Company will be profitable in the future. In addition, the Company expects
that its operating results could fluctuate significantly from quarter to
quarter. Moreover, the Company anticipates that a significant portion of its
future revenue will be derived from two key products, the In-Flow catheter and
the Repose surgical system. Failure to achieve PMA approval (in the case of
In-Flow) and market acceptance of either of these products would have a
material adverse effect on the Company's business, financial condition and
results of operations. Potential investors should be aware of the problems,
delays, expenses and difficulties encountered by an enterprise in the
Company's stage of development, any of which independently or in combination
could cause such losses or quarterly fluctuations in operating results, and
many of which may be beyond the Company's control. These include the
completion of development of the Company's products, progress and costs of
clinical trials, the timing and costs of various U.S. and foreign regulatory
filings, the timing and receipt or denial of various U.S. and foreign
governmental clearances or approvals, the costs involved in preparing, filing,
presenting, maintaining and enforcing patent claims, the timing and costs of
product introduction, the timing and extent to which the Company's products
gain market acceptance, production capacity constraints, the costs of
developing marketing and distribution capabilities, the timing of orders, the
availability of third-party reimbursement at acceptable levels and the
technological advances of competitors. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
Early Stage of Product Commercialization; Risks Relating to Products
under Development. The products currently being marketed by the Company are in
early stages of commercialization. The number of patients treated with the
Company's products currently being sold is small. In addition, many of the
Company's products are still under development. Such products will require
further significant research, development, testing and regulatory approvals or
clearances prior to commercialization. The Company has only performed a
limited number of preclinical or clinical studies on certain of its products
under development. Accordingly, there can be no assurance that further
experience or pilot or clinical studies will not demonstrate some deficiency
in the design or efficacy of these products that the Company would be unable
to overcome. No assurance can be given that any of the Company's products or
products under development will prove to be safe and efficacious, receive or
retain requisite regulatory clearances or approvals, demonstrate substantial
therapeutic benefit, be commercialized on a timely basis, if at all,
experience no design or manufacturing problems or be accepted by the
marketplace. The failure of the Company to achieve any one or more of these
objectives could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Influence
Division," " Business-- Influ-ENT Division" and "Business-- Influ-RAD
Division."
Uncertainty of Market Acceptance of the Company's Products. The
Company's future growth and profitability will depend, in large part, on
market acceptance of the Company's products and products under development,
assuming products currently under development receive regulatory clearance or
approval. This
7
<PAGE>
acceptance will be substantially dependent on educating the medical community as
to the distinctive characteristics, perceived benefits and clinical efficacy of
the products and products under development versus competitive products, and the
need to train certain physicians in the proper application of the Company's
products. The Company believes that recommendations by urologists,
gynecologists, urogynecologists, otolaryngologists, radiation oncologists and,
possibly, interventional radiologists will be essential for market acceptance of
the Company's products and products under development, and there can be no
assurance that any such recommendations will be obtained. In addition, physician
utilization will be dependent on the perceived utility demonstrated through the
Company's clinical trials and no assurance can be given that additional data
will not be required, which would delay or preclude market acceptance.
Furthermore, certain of the Company's products are often used in conjunction
with other manufacturers' products and procedures and there can be no assurance
that the benefits or efficacy of the Company's products can be separated from
those of other manufacturers' products or procedures. New or modified
reimbursement codes may be needed for certain of the Company's products, and the
inability of the Company to obtain such codes in a timely manner, if at all,
could affect market acceptance of such products. Furthermore, there can be no
assurance that the Company's products will be accepted by patients. For example,
of the approximately 155 patients treated to date with the In-Flow catheter in
the United States, approximately 57% of patients discontinued use, in most
cases, within one week of starting treatment, due to discomfort or previously
undetected symptoms of urge incontinence, for which use of In-Flow is not
indicated. In addition, there can be no assurance that patients will not develop
adverse health effects while using the Company's products. Any such adverse
health effects, or the perception that such products could cause any such
adverse health effects, would have a material adverse effect on market
acceptance of such products. Finally, the Company has not yet determined final
pricing of certain of its approved products or any of its proposed products, and
the Company's pricing policies could adversely impact market acceptance of such
products as compared to competing products and treatments. Any of the foregoing
factors, or other factors, could limit or detract from market acceptance of the
products and products under development. Insufficient market acceptance of any
of the Company's products could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Influence Division - Urology/Gynecology," "Business-Influ-ENT Division -
Otolaryngology," "Business -- Influ-RAD Division - Cancer Radiotherapy" and
"Business -- Marketing and Sales."
No Assurance of Regulatory Approvals; Potential Delays. The medical
devices to be marketed and manufactured by the Company are subject to
extensive regulation by the FDA and, in some instances, by foreign and state
governments. In the United States, the FDA regulates the clinical testing,
manufacture, labeling, sale, distribution and promotion of medical devices
pursuant to the Federal Food, Drug, and Cosmetic Act, as amended, and the
regulations promulgated thereunder (the "FDC Act"). Noncompliance with
applicable requirements can result in, among other things, fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or
premarket approval for devices, withdrawal of marketing approvals or
clearances and criminal prosecution. Before a new device can be commercially
introduced to the market, the manufacturer must obtain FDA marketing clearance
through a 510(k) premarket notification (a "510(k) Notification") or marketing
approval through a premarket application ("PMA"). A 510(k) Notification
generally requires supporting data, which may include clinical data. The
process of obtaining a PMA is much more costly, lengthy and uncertain than
clearance of a 510(k) Notification.
When clinical data are required, there can be no assurance that any
clinical study proposed by the Company will be approved by the FDA, will be
completed, or, if completed, will provide data and information that will
support clearance or approval. There can be no assurance that 510(k) clearance
or PMA approval will ever be obtained or retained. Moreover, regulatory
clearances or approvals, if granted, may include significant limitations on
the indicated uses for which a product may be legally marketed in the United
States. Certain material modifications or changes in the intended use of
cleared or approved products may also require clearance or approval from the
FDA.
The Company has 510(k) Notifications pending for eight products (Raz
Fascial Anchor-Stress Incontinence (resorbable and non-resorbable), Raz
Fascial Anchor Vaginal Vault (resorbable and non-resorbable), In-Bio, Clip-In,
Ramus Male Sling, and Repose-Hyoid). The Raz Fascial Anchor 510(k)
Notifications were submitted without clinical data. No assurance can be given
that FDA will not require clinical data for either or both of these
submissions before 510(k) clearance will be granted. No assurance can be given
that any of these products will receive FDA clearance in a timely manner, or
at all.
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The In-Flow device is being studied in a clinical trial approved by
FDA. There can be no assurance that the trial will generate data sufficient to
support PMA approval or that the In-Flow device will receive PMA approval in a
timely manner, or at all. Failure to obtain PMA approval for the In-Flow
device could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has made modifications to some of its cleared devices,
which the Company believes do not require the submission of new 510(k)
Notifications. There can be no assurance, however, that the FDA would agree
with any of the Company's determinations not to submit a new 510(k)
Notifications for any of these changes or would not require the Company to
submit a new 510(k) Notification for any of the changes made to the device. If
the FDA requires the Company to submit a new 510(k) Notification for any
device modification, the Company may be prohibited from marketing the modified
device until the 510(k) Notification is cleared by the FDA.
The regulatory approval process often takes a number of years and
requires the expenditure of substantial resources. There can be no assurance
that products and products under development that may be developed by the
Company will be able to satisfy the current or future requirements and
regulations of the FDA or comparable foreign agencies. There can be no
assurance that the Company's products and products under development will not
experience unanticipated delays in receiving FDA clearance or approval or that
such products will ever obtain the regulatory clearance or approval required
for marketing. In addition, there can be no assurance that government
regulations applicable to the Company's products or the interpretation of
those regulations will not change, and thereby prevent the Company from
temporarily or permanently marketing some or all of its products. Any such
unanticipated delays or lack of approval could have a material adverse effect
on the Company's business, financial condition and results of operations.
Any devices manufactured or distributed by the Company pursuant to
FDA clearances or approvals are subject to pervasive and continuing regulation
by the FDA and certain state agencies. Manufacturers of medical devices for
marketing in the United States are required to adhere to the FDA's quality
system regulation ("QSReg."), which imposes certain procedural and
documentation requirements with respect to device design, development,
manufacturing and quality assurance activities. Manufacturers must also comply
with Medical Device Reporting ("MDR") requirements that a manufacturer report
to the FDA any incident in which its product may have caused or contributed to
a death or serious injury, or in which its product malfunctioned and, if the
malfunction were to recur, it would be likely to cause or contribute to death
or serious injury. Labeling and promotional activities are subject to scrutiny
by the FDA and, in certain circumstances, by the Federal Trade Commission.
Current FDA enforcement policy prohibits the marketing of approved medical
devices for unapproved uses.
The Company is subject to inspection by the FDA for compliance with
the QSReg., MDR requirements, and other applicable regulations. To date, the
Company's facilities have not been inspected by the FDA. Although the
Company's facilities and manufacturing procedures are designed to comply with
QSReg. requirements, there can be no assurance that the FDA would find them in
compliance.
Changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will not
be required to incur significant costs to comply with laws and regulations in
the future or that laws or regulations will not have a material adverse effect
upon the Company's business, financial condition or results of operations.
International sales are subject to foreign government regulation, the
requirements of which vary substantially from country to country. The time
required to obtain approval in a foreign country may be longer or shorter than
that required for FDA clearance or approval, and the requirements may differ.
The Company also has sought the CE Mark for its products under development.
The CE Mark is recognized by countries that are members of the European Union
and the European Free Trade Association and, is required to be affixed to all
medical devices sold in the European Union. No assurance can be given that the
Company will obtain additional CE Mark approvals for any of its products and
products under development or satisfy ISO 9001 or 9002 standards for
additional products, or that any product which the Company may develop or
intend to commercialize will obtain the CE Mark, or will be able to obtain any
other required international regulatory clearance or approval on a timely
basis, or at all.
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Limited Manufacturing Experience; Risks Associated with Manufacturing
Delays. The Company has limited experience in manufacturing commercial
quantities of its products. The Company has not manufactured any of its
products in quantities that will be necessary for the achievement of
significant product sales or profitability. In order to successfully
commercialize its products or proposed products, the Company will have to
increase the number of units it can produce, reduce per-unit manufacturing
costs and achieve or maintain the extremely high quality standards required
for such products. In order to manufacture in commercial quantities on the
foregoing basis, the Company will be required either to enhance significantly
its existing capabilities and equipment and recruit and retain a sufficient
number of skilled manufacturing personnel, or to enter into arrangements with
third parties to manufacture its products and products under development.
Prior to commencing manufacturing of any products for commercial use in the
United States, the Company's facility will be required to comply with QSReg.
requirements. There can be no assurance that the Company will be able to
establish manufacturing capability, successfully make the transition to
commercial manufacturing or manufacture its products cost-effectively, or at
all, or that the Company will satisfy QSReg. requirements. Failure to do so
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has experienced, and may experience in the future, a
shortage of certain product components due to production capacity constraints
and design adjustments. There can be no assurance that the transition to
commercial-scale production will occur without further delay or that the
Company will not experience problems in the conversion to production in larger
quantities. Further design adjustments of existing or proposed products would
increase manufacturing costs and could further delay commercial introduction
of such products, which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company currently obtains one type of sling material from a single supplier
and does not maintain an extensive inventory of this material. Although such
material may be obtainable from other suppliers, an interruption in supply
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing."
Intense Competition and Risks Associated with Rapid Technological
Change. The Company is engaged in rapidly evolving and highly competitive
fields. Competition from medical device manufacturers, pharmaceutical
companies and other competitors is intense and is expected to increase. Many
of these companies have substantially greater capital resources, research and
development staffs, facilities and experience in obtaining regulatory
clearances or approvals as well as in the manufacturing, marketing and
distribution of products than the Company. Academic institutions, hospitals,
governmental agencies and other public and private research organizations also
conduct research and seek patent protection and may develop competing products
or technologies on their own or through joint ventures. In addition, recently
developed technologies or technologies that may be developed in the future
are, or may be, the basis for competitive products. The Company's products
could be rendered obsolete or uneconomical by technological advances by one or
more of the Company's competitors or by other therapies such as drugs to treat
conditions addressed by the Company's products. The Company's business,
financial condition and results of operations will depend upon whether the
Company can compete effectively with other developers of such medical devices
and therapies.
In addition, many of the Company's competitors have greater
experience than the Company in conducting preclinical and clinical trials and
obtaining FDA and other regulatory approvals or clearances. Accordingly, the
Company's competitors may succeed in obtaining FDA or other regulatory
approvals or clearances for products more rapidly than the Company. Companies
that complete clinical trials, obtain required regulatory agency clearances or
approvals and commence commercial sale of their products before their
competitors may achieve a significant competitive advantage, including certain
patent and marketing exclusivity rights that would delay and/or bar the
Company's ability to market certain products. There can be no assurance that
products resulting from the Company's research and development efforts will be
able to compete successfully with competitors' existing products or products
under development or that they will obtain regulatory clearance or approval in
the United States or elsewhere. See "Business -- Competition."
Uncertainty Relating to Third-Party Reimbursement. In the United
States, hospitals, physicians and other health care providers that purchase
medical devices generally rely on third-party payors, such as private health
insurance plans, health maintenance organizations, preferred provider
organizations, as well as government-sponsored programs, such as Medicare and
Medicaid, to reimburse all or part of the costs associated with the treatment
of patients. Medicare and many other third-party payors do not reimburse for
procedures deemed "experimental." However, effective November 1, 1995,
Medicare began allowing local carriers the discretion to
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cover certain devices with an approved IDE during clinical trials. The Company
has received an approved IDE for In-Flow. It is uncertain whether Medicare,
Medicaid or private payors will cover In-Flow and, if so, at what price. The
failure of payors to cover early use of a procedure deters usage, delaying
acceptance even longer. Furthermore, there can be no assurance, even for
products that are cleared or approved by the FDA for new clinical applications,
that any coverage and reimbursement will be available for such procedures. A key
component in the reimbursement decision by the United States Health Care
Financing Administration ("HCFA"), which administers Medicare, as well as state
Medicaid agencies and most private insurers, is the assignment of a Current
Procedural Terminology ("CPT") code which is used in the submission of claims to
insurers for reimbursement of medical services. CPT codes are assigned,
maintained and revised by the CPT editorial board administered by the American
Medical Association. The Company believes that surgical procedures using the
In-Tac and In-Fast devices, the Company's first two products cleared by the FDA,
are covered under existing CPT codes for bladder neck surgery. The Company
believes that surgical procedures using the Repose surgical systems are covered
under existing CPT codes for tongue and hyoid suspension procedures. There can
be no assurance that such reimbursement will continue and, if so, at what level.
The Company intends to petition the CPT editorial board for new or modified
codes for procedures using its products for which reimbursement is not available
or not adequate under current codes. In addition, the Company may have to
petition HCFA for supply codes for some of the Company's products. There can be
no assurance that the Company will succeed in securing or maintaining
recognition by the CPT editorial board or HCFA of specific codes for its
products and products under development and for services associated with such
products, or that the Company will obtain such codes in a timely manner. Failure
to secure or retain recognition by the CPT editorial board or HCFA, or any delay
by state, Medicare or Medicaid agencies or private insurers in recognizing these
CPT codes, could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, third-party payors
are routinely limiting reimbursement coverage for medical devices and in many
instances are exerting significant pressure on medical suppliers to lower their
prices. The Company could also be adversely affected by changes in reimbursement
policies of government or private health care payors, particularly to the extent
that any such changes affect reimbursement for therapeutic or diagnostic
procedures in which the Company's products are used. For example, effective
January 1, 1999, HCFA will reimburse hospital outpatient departments for
services and supplies based on a prospective payment system, which means that
outpatient departments will be paid a predetermined flat fee for a procedure
regardless of the actual cost of a supply or device associated with a procedure.
Hospital inpatient procedures currently are reimbursed under such a system.
Failure by physicians, hospitals and other users of the Company's products to
obtain sufficient reimbursement from health care payors for procedures in which
the Company's products are used, or adverse changes in government and private
third-party payors' policies toward reimbursement for such procedures, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Market acceptance of the Company's products in international markets
may be dependent in part upon the availability of reimbursement within
prevailing health care payment systems. Reimbursement and health care payment
systems in international markets vary significantly by country, and include
both government-sponsored and private health care insurance. Although the
Company will seek international reimbursement approvals, obtaining such
approvals can require 12 to 18 months or longer and there can be no assurance
that any such approvals will be obtained in a timely manner, if at all. In
addition, certain countries may require additional clinical trials to be
conducted which can be costly and time consuming and could delay or prevent
the Company from obtaining reimbursement. Failure to receive additional
international reimbursement approvals could have a material adverse effect on
market acceptance of the Company's products in the international markets in
which the Company is seeking approvals and could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business -- Third-Party Reimbursement."
Limited Marketing and Sales Capability; Potential Dependence on
Single International Distributor. The Company has limited experience marketing
and selling its products. The Company has begun to establish a marketing and
sales organization but has to date not hired an executive responsible for
coordinating worldwide marketing and sales. Such function is currently
performed by the President and Chief Executive Officer, together with two
regional vice presidents of marketing and a national sales director for each
of the Influence and Influ-ENT divisions. Establishing marketing and sales
capability sufficient to support sales in commercial quantities will require
significant resources, and there can be no assurance that the Company will be
able to recruit and retain qualified marketing personnel, direct sales
personnel or contract sales representatives or that future sales efforts of
the Company will be successful. Furthermore, due to the innovative nature of
the Company's products and products under development and limited market
awareness, the Company anticipates that the marketing and sales process
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may be lengthy, entailing the education of physicians in the proper use and
advantages of the Company's products and products under development.
With respect to the products and products under development to treat
OSA and snoring, the Company is in the process of evaluating whether to use
distributors or to develop its own direct sales force for its ENT products. If
the Company decides to market and sell its ENT products on its own, it will
have to develop its own marketing and sales capability, through the use of a
dedicated sales force and independent representatives. Alternatively, the
Company may elect to enter into distributorship agreements in the United
States and abroad. While the Company is committed to establishing effective
distribution channels for its products, there can be no assurance that the
Company will be successful in doing so. The failure to establish and maintain
effective distribution channels for the Company's products, or to retain
qualified sales personnel to support commercial sales of the Company's
products, would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has entered into a letter of intent with Indigo Medical,
Inc. ("Indigo"), a subsidiary of Johnson & Johnson, subject to negotiation of
definitive agreements, pursuant to which Indigo would have exclusive
distribution rights to the Company's urological and gynecological products and
current radiotherapy product under development outside the United States. The
Company cannot predict what effect the failure of the Company to enter into a
definitive agreement may have on its business, financial condition and results
of operations. If completed, the Company will have limited control over the
resources that Indigo will devote to this distribution arrangement. To date,
no revenues have been generated by this arrangement, and there can be no
assurance that this arrangement, if consummated, will be successful. Further,
Johnson & Johnson's subsidiaries, including Indigo, market products which may
be competitive with the Company's products. The transition involved in
changing international distributors upon consummation of a definitive
distribution agreement with Indigo may entail the risk of interrupted
communications with customers or potential customers. In addition, in certain
jurisdictions the Company may incur costs and liabilities in terminating
existing distribution arrangements. See "Business -- Marketing and Sales."
Dependence on Patents, Licenses and Proprietary Technology; Risk of
Infringement Claims: The Company is dependent upon its proprietary technology
and seeks to protect such technology through a combination of patents and
confidentiality agreements. The Company has an exclusive worldwide license to
certain technology related to its In-Tac surgical system. Two issued U.S.
patents cover certain technology related to the In-Tac system, including the
inserter device and a method for transvaginal bladder neck suspension surgery
using an anchor and suture inserted into the pubic bone. The Company has an
issued U.S. patent and U.S. pending patent applications with claims covering
various other aspects of the In-Tac, In-Fast, Straight-In and Repose systems
and employed methods such as the anchors and screws with suture, the
inserters, and the method of treating OSA. A foreign patent has also been
issued for aspects of the In-Tac device and additional foreign patent
protection is still being sought for other aspects of the In-Tac device as
well as for In-Fast, Straight-In and the Repose systems. The Company has one
issued U.S. patent covering certain aspects of the technology related to the
Company's catheter products. Foreign patents are also being sought with
respect to such technology. Additional U.S. and foreign patent applications
are pending on certain additional aspects of the technology. The Company is
pursuing additional U.S. and corresponding foreign patent applications seeking
coverage of its proprietary technology for various other products and has
licenses to patents related to other products. The Company is a licensee to
three U.S. patents related to the Clip-ln system and is a licensee to one U.S.
patent on its Tomotherapy device.
There can be no assurance that any patents will issue from any
pending or future patent applications, that any claims obtained will provide
adequate protection for the Company's products, or that such issued patents
will be enforceable. In addition, methods of treating humans are generally not
patentable outside of the United States, nor are claims directed to such
methods currently enforceable within the United States against medical
practitioners or related health care entities if the patents were issued after
September 30, 1996.
No assurance can be given that the technologies used by the Company
do not infringe upon the proprietary rights of others. The Company could incur
substantial costs in seeking enforcement of its patents against infringement
or unauthorized use by others and in defending itself against patent
infringement claims by others.
The medical device industry has been characterized by extensive
litigation over patents and other intellectual property rights, and companies
in the industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not in
the future become involved in patent infringement claims and litigation,
interference proceedings commenced in the U.S. Patent and Trademark
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Office ("USPTO") by an examiner or a third party to determine the priority of
inventions, reexamination proceedings in the United States or opposition or
nullity proceedings in a foreign country. The defense and prosecution of
intellectual property suits, interference proceedings, reexamination
proceedings, foreign opposition and nullity proceedings and related legal and
administrative proceedings are both costly and time consuming. Litigation may be
necessary to enforce or defend patents issued or licensed to the Company, to
protect the Company's patents, licensed patents and trade secrets or know-how or
to determine the enforceability, scope, validity and infringement of the
proprietary rights of others. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States.
Any litigation, interference, reexamination, opposition or nullity
proceedings involving the Company will result in substantial expense to the
Company and significant diversion of effort by the Company's technical and
management personnel. An adverse determination in litigation, interference,
reexamination, opposition or nullity proceedings to which the Company may
become a party could subject the Company to significant liabilities to third
parties or require the Company to seek licenses from third parties which may
not be available on reasonable terms, if at all. Although patent and
intellectual property disputes in the medical device area have often been
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling
its products, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has been notified by a third party that it had filed a
Patent Cooperation Treaty ("PCT") patent application directed to the methods
of and an apparatus for treating urinary incontinence by bladder neck
suspension through the use of an anchor and suture inserted into bone and a
procedure using an anchor with or without sutures. The Company subsequently
became aware of U.S. patents issued to such third party. While the Company's
patent counsel has conducted a review of the third party's relevant issued
U.S. patents and is of the opinion that neither the Company's In-Tac, In-Fast
or Straight-In devices nor their use infringes any valid claim of the issued
patents, there can be no assurance that a court would not find the Company's
products to infringe any issued patent or prevent or limit the sale of the
Company's products or require the Company to procure a license, if available.
There can also be no assurance that additional U.S. patents will not issue
having claims which are valid and infringed by the Company's products.
One of the third party's U.S. patents in question contains method
claims related to a medical activity and such claims issued after September
30, 1996. In accordance with a change in U.S. patent law which became
effective on September 30, 1996, such claims are currently unenforceable
against medical practitioners or related health care entities. These patents,
however, may be enforceable against manufactures of devices used in the
medical activities. To date, however, there has been no judicial decision
interpreting the issue of whether this statutory immunity to medical
practitioners and related health care entities extends to manufacturers of
products which do not otherwise infringe on apparatus claims, and there can be
no assurance that the patent's method claims are not enforceable or will not
become enforceable retroactively by act of Congress or judicial decision.
While the Company's patent counsel believes that the Company's products do not
infringe the third party's apparatus and article of manufacture claims, there
can be no assurance that a court would not find the Company's products to
infringe any issued patent, or prevent or limit the sale of the Company's
products or require the Company to procure a license, if available. There can
also be no assurance that U.S. or other patents will not issue in the future
in the name of this particular third party or another party having claims
which would constrain the Company's ability to manufacture and sell its
products or prevent customers of the Company from practicing the method of
bladder neck suspension contemplated by use of the Company's In-Tac, In-Fast
or Straight-In surgical systems or any similar products in the future.
Another entity has brought to the Company's attention the existence
of a Spanish patent having related foreign country equivalents and concerning
a staple inserter useful for a bladder neck suspension procedure. The Company
and its patent counsel have conducted an investigation of the likely scope of
this third party's patents in Europe. While the Company believes that no
patent infringement liability exists based upon the Company's sales and
distribution in Europe of its In-Tac, In-Fast or Straight-In surgical systems
and related anchors and screws, there can be no assurance that a court would
not find the Company's products to infringe any issued patent or prevent or
limit the sale of the Company's products or require the Company to procure a
license, if available. The Company has conducted research to determine the
existence of U.S. equivalents to the Spanish and other foreign patents and
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believes that none have yet issued. However, there can be no assurance that a
U.S. patent will not issue in the future having claims which cover the
Company's products.
The Company is also aware of a number of U.S. patents of third
parties related to intra-urethral valved catheters for the treatment of
incontinence. The Company's patent counsel has reviewed the patents. The
Company believes that its proposed catheter products will not infringe any
valid claims of those patents. A third party has asserted that the Company's
In-Flow intra-urethral valved catheter product infringes the claims of an
issued U.S. patent. The Company's patent counsel has reviewed the patent,
related documents and the prior art and is of the opinion that no valid claim
is infringed. There can be no assurances, however, that a suit for patent
infringement will not be filed by any patent owners or licensees in the
future, that the Company will prevail in defense of any suit charging patent
infringement, or that the Company will not be required to take a license under
unfavorable terms or be enjoined from manufacturing and selling its
intra-urethral valved catheter incontinence device or other products.
The Company reviewed several U.S. patents of another third party
related to screw anchors with suture. These patents potentially relate to the
Company's In-Fast, Straight-In and Repose systems. Based on the advice of
patent counsel, the Company is of the opinion that the Company's products do
not infringe on the patent rights of this third party. There can be no
assurance, however, that a suit for patent infringement will not be filed by
any patent owners or licensees in the future, that the Company will prevail in
defense of any suit charging patent infringement, or that the Company will not
be required to take a license under unfavorable terms or be enjoined from
manufacturing and selling its In-Fast, Straight-ln and Repose or other
products.
In March 1998, the Company entered into a Technology Development and
License Agreement with The Titan Corporation ("Titan") and TomoTherapeutics,
Inc. ("TTI"), a subsidiary of Titan (the "TTI Agreement"). Under the terms of
the TTI Agreement, the Company agreed to license certain patented technology
and to purchase certain tangible assets from TTI and to work initially with
TTI, and subsequently on its own, to develop and market products based on the
technology. Under the terms of the TTI Agreement, the Company has agreed to
pay to TTI royalties based on revenues from products based on such technology.
In the event certain performance milestones are not achieved by the Company or
the Company fails to make one or more royalty payments to TTI, TTI may have
the right to terminate the TTI Agreement, in which case all rights granted to
the Company would terminate and revert to TTI. There can be no assurance that
the Company will achieve any of the milestones specified in the TTI Agreement.
The failure of the Company to retain the rights and benefits granted to it
under the TTI Agreement could have a material adverse effect on the Company's
business, financial condition and results of operations.
Risk Associated with Ability To Manage Expanding Operations. In order
to achieve its business objectives, the Company must continue its transition
from a company primarily involved in research and development to a company
which develops, manufactures, markets, and supports multiple products and
services for multiple markets. These changes have placed, and are expected to
continue to place, a significant strain on the Company's limited managerial,
administrative and operational resources. The Company only recently has begun
the process of developing the management and operational capabilities and
financial and accounting systems and controls necessary for this transition.
The ability of the Company to achieve its business objectives will depend in
large part on its ability to build or subcontract efficient manufacturing
operations, to develop its operational and sales and marketing capabilities
and its financial and management information systems, to develop the
management skills of its managers and supervisors, and to train, motivate and
manage both its existing employees and the additional employees that will be
required if the Company is to achieve its business objectives. There can be no
assurance that the Company will succeed in developing all or any of these
capabilities, and any failure to do so would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management."
Dependence on Key Personnel. The Company's future success will likely
depend to a significant extent on its executive officers and key employees,
including Dr. Peter Bick, Dr. Mordechay Beyar, Oren Globerman, Ze'ev Sohn, and
other technical, managerial and marketing personnel. The loss of the services
of any of these individuals could have a material adverse effect on the
Company's business, financial condition and results of operations. Dr. Bick
has entered into an employment agreement with Influence. Each of Dr. Beyar and
Mr. Globerman has entered into an agreement with the Company pursuant to which
each will devote such time to the Company as is necessary for the management
of the business and affairs of the Company and which include covenants not to
compete with the Company in the markets for the Company's products and
products under development. To date, Dr. Beyar and Mr. Globerman each have
devoted in excess of forty hours per week, on
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average, to the Company, although they engage in other activities and have
financial interests and employment positions outside of the Company. The Company
does not have, and is not contemplating securing, key man life insurance on any
of its executive officers or other key personnel. There can be no assurance that
any of these individuals or any other key employee will not voluntarily
terminate his or her employment with or service to the Company. The Company
believes that its future success will also depend significantly on its ability
to attract, motivate and retain additional highly skilled technical, managerial
and marketing personnel. Competition for qualified personnel is intense,
especially in Israel, where the Company's main manufacturing, research and
development facility is located, and there can be no assurance that the Company
will be successful in attracting, assimilating and retaining the personnel
required to grow and operate profitably. See "Risk Factors -- Potential
Conflicts of Interests," "Business -- Employees" and "Management."
Potential Conflicts of Interest. Certain key employees of the Company
also are affiliated with other companies. Oren Globerman, a founder, principal
stockholder and Vice Chairman of Influence and a General Manager of
Influence's Israeli subsidiary, Influence Medical Technologies Ltd. ("IMT"),
is also a Co-General Manager of InStent Israel, Ltd. ("InStent"), a subsidiary
of Medtronic, Inc., a medical device manufacturer. Dr. Mordechay Beyar, a
founder, principal stockholder and Vice Chairman of Influence and a General
Manager of IMT, is a Co-General Manager of InStent. In addition, Mr. Globerman
and Dr. Beyar also control and supervise another developer of medical
technology which is not involved in incontinence, otolaryngology or related
fields. The pursuit of these other business interests could distract them from
pursuing opportunities on behalf of the Company and could lead to potential
conflicts of interest related to corporate opportunities. The Company intends
to have all transactions in which directors are interested parties referred to
the Audit Committee of the Board of Directors. There can be no assurance,
however, that all conflicts of interest will be resolved in the Company's
favor. See "Principal Stockholders" and "Certain Transactions."
Product Liability Exposure. Medical product companies face an
inherent business risk of financial exposure to product liability claims in
the event that the use of their products results in personal injury. The
Company's products are and will be designed with numerous safety features, but
it is possible that patients' health could be adversely affected by use of the
Company's products or that death or serious injury could occur. Further, in
the event that any of the Company's products prove to be defective, the
Company may be required to recall and redesign such products. Market clearance
or approval of the Company's products by the FDA will not shield the Company
from product liability exposure. Although the Company has not experienced any
material losses to date due to product liability claims, there can be no
assurance that it will not experience such losses in the future. The Company
maintains liability insurance. However, there can be no assurance that such
coverage will continue to be available on terms acceptable to the Company or
that such coverage will be adequate for liabilities actually incurred, and the
Company anticipates that it will review such coverage from time to time. In
the event the Company is found liable for damages in excess of the limits of
its insurance coverage, or if any claim or product recall results in
significant adverse publicity against the Company, the Company's business,
financial condition and results of operations could be materially and
adversely affected. See "Business --Product Liability and Warranties."
Uncertainty of Future Capital Requirements. The Company's capital
requirements will depend on numerous factors. These include the completion of
development of the Company's products, progress and costs of clinical trials,
the timing and costs of various U.S. and foreign regulatory filings, the
timing and receipt or denial of various U.S. and foreign governmental
approvals or clearances, the costs involved in preparing, filing, presenting,
maintaining and enforcing patent claims, the timing and extent to which the
Company's products gain market acceptance, the timing and costs of product
introduction, the costs of maintaining and developing marketing and
distribution capabilities, and the technological advances of competitors. The
timing and amount of such capital requirements cannot accurately be predicted.
Consequently, there can be no assurance that the Company will not require
additional funding or that such additional funding, if needed, will be
available on terms attractive to the Company, or at all. Any additional equity
financing may be dilutive to stockholders, and debt financing, if available,
may involve restrictive covenants. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
Principal Subsidiary's Location in Israel. The Company's product
development and production facility is located in the State of Israel, and the
Company is directly affected by the political, economic and military
conditions to which that country is subject. Accordingly, any major
hostilities involving Israel or the interruption or curtailment of trade
between Israel and its present trading partners could have a material adverse
effect on the Company's business, financial condition and results of
operations.
15
<PAGE>
Since the establishment of the State of Israel in 1948, a state of
hostility has existed, varying in degree and intensity, between Israel and the
Arab countries. In addition, Israel and companies doing business with Israel
have been the subject of an economic boycott initiated by Arab countries since
Israel's establishment. Although Israel has entered into certain agreements
with Egypt, Jordan and the Palestinian National Authority, and certain aspects
of the Arab boycott have been relaxed, no prediction can be made as to whether
a full resolution of these problems will be achieved or as to the nature of
any such resolution.
Many of the Company's officers and employees in Israel are currently
obligated to perform annual reserve duty in the Israel Defense Forces and are
subject to being called for active military duty at any time. The Company has
operated effectively under these requirements to date. No prediction can be
made as to the effect on the Company of any expansion of these obligations.
The Company's manufacturing facility in Israel has been granted
Approved Enterprise status and will receive certain tax benefits under Israeli
law, subject to compliance with the conditions of such grant. If such income
tax benefits are terminated or reduced substantially, there could be a
material adverse effect on the Company's business, financial condition and
results of operations. See "Israeli Taxation and Investment Programs."
Risks Associated with International Operations. The Company expects
that revenues from customers outside the United States will account for a
substantial portion of its revenues for the foreseeable future. International
sales are subject to a number of risks, including the following: agreements
may be difficult to enforce and receivables difficult to collect through a
foreign country's legal system; foreign customers may have longer payment
cycles; foreign countries could impose additional withholding taxes or
otherwise tax the Company's foreign income, impose tariffs or adopt other
restrictions on foreign trade; fluctuations in exchange rates could affect
product demand; and intellectual property in foreign countries may be more
difficult to protect. Further, regional or national economic conditions, such
as the recent weakness in Asian markets, may adversely affect the Company's
business, financial condition and results of operations. There can be no
assurance that these factors will not have a material adverse effect on the
Company's future international sales and, consequently, on the Company's
business, financial condition and results of operations. In addition,
fluctuations in exchange rates may render the Company's products less
competitive relative to local product offerings, or could result in foreign
exchange losses, depending upon the currency in which the Company sells its
products. To date, the Company has not engaged in exchange rate hedging
activities to minimize the risks of such fluctuations. The Company may seek to
implement hedging techniques in the future with respect to its foreign
currency transactions. There can be no assurance, however, that the Company
will be successful in such hedging activities, or that such hedging activities
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
Impact of Inflation and Currency Fluctuations. A portion of the
Company's expenses are incurred and are expected to be incurred in New Israeli
Shekels ("NIS") while most of the Company's sales are and will be in U.S.
dollars and other currencies. To the extent that the rate of inflation in
Israel exceeds the rate of devaluation of the NIS in relation to such other
currencies or if the timing of such devaluation lags behind inflation in
Israel, there will be an adverse effect on the Company's results of
operations. In the past several years, the inflation rate in Israel has
generally exceeded the rate of devaluation of the NIS against the U.S. dollar.
Further, regional or national economic conditions, such as the recent weakness
in Asian markets, may adversely affect the Company's business, financial
condition and results of operations. The Company may enter into currency
hedging transactions to decrease the risk of financial exposure from
fluctuations in the exchange rate of the dollar or other currencies against
the NIS; however, no assurance can be given that such measures will adequately
protect the Company from material adverse effects arising from the impact of
inflation in Israel or fluctuations in the value of the NIS. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Israeli Taxation and Investment Programs."
Concentration of Ownership. Upon completion of the Offering, and
assuming no exercise of the Underwriters' over-allotment option, the officers,
directors, and principal stockholders of the Company, as a group, will
beneficially own approximately 50.99% of the outstanding shares of Common
Stock (49.43% if the Underwriters over-allotment option is exercised in full.)
As a result, until there is a substantial decrease in the percentage of the
outstanding shares of Common Stock held by such principal stockholders, such
principal stockholders, should they choose to act in concert, will be in a
position to control the Company, elect all the members of the Board of
Directors, approve all other matters requiring shareholder approval, generally
direct the
16
<PAGE>
affairs of the Company and prevent a change in control of the Company. See
"Management" and "Principal Stockholders."
Shares Eligible for Future Sale. Upon the closing of the Offering,
the Company will have a total of 7,830,798 shares of Common Stock outstanding
(8,085,798 shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, the 1,700,000 shares of Common Stock offered hereby
(1,955,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradable without restriction or registration under the
Securities Act by persons other than "affiliates" of the Company, as defined
under the Securities Act. The remaining shares of Common Stock outstanding
will be "restricted securities" as that term is defined by Rule 144 as
promulgated under the Securities Act.
Under Rule 144 (and subject to the conditions thereof, including
volume limitations), all of the restricted shares will become eligible for
sale after the Offering. However, 5,820,905 of such restricted shares are also
subject to lock-up restrictions as described below. The Company, its officers
and directors and certain beneficial owners of the Company's Common Stock and
holders of options to purchase Common Stock have agreed that they will not,
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, directly or indirectly, offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase or otherwise sell
or dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other sale or disposition) of any
shares of Common Stock or any other securities convertible into, or
exercisable or exchangeable for, shares of Common Stock or other similar
securities of the Company, currently beneficially owned or hereafter acquired
by such holders, for a period of 180 days following the date of this
Prospectus. After such 180-day period, this restriction will expire and all
the restricted shares will become eligible for sale, subject to the
limitations under Rule 144. Prudential Securities Incorporated may, in its
sole discretion, at any time and without prior notice, release all or any
portion of the shares subject to such lock-up agreements.
Prior to the Offering, there has been no public market for the Common
Stock and no predictions can be made of the effect, if any, that the sale or
availability for sale of additional shares of Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts
of such shares in the public market, or the perception that such sales could
occur, could materially adversely affect the market price of the Common Stock
and could impair the Company's future ability to raise capital through an
offering of its equity securities.
In addition, the Company has granted certain registration rights to
Medtronic, Inc. ("Medtronic") which require the Company, upon the request of
Medtronic, at any time beginning six months following the completion of the
Offering, to prepare and file under the Securities Act a registration
statement covering a proposed offer and sale of Medtronic's 333,164 shares of
Common Stock. See "Shares Eligible for Future Sale."
Absence of Prior Market for Shares; Possible Volatility of Stock
Price. Prior to the Offering, there has been no public trading market for the
Shares, and there can be no assurance that an active trading market will
develop or be sustained after the Offering. The stock market has from time to
time experienced extreme price and volume fluctuations which often have been
unrelated to the operating performance of particular companies. Moreover,
especially with the current uncertainty about health care policy,
reimbursement and coverage in the United States, there has recently been
significant volatility in the market price and trading volume of securities of
medical device and other health care companies unrelated to the performance of
such companies. Announcements of technological or medical innovations or new
commercial products by the Company or its competitors, developments or
disputes concerning intellectual property rights, changes in governmental
regulation or the status of the Company's regulatory clearances approvals or
applications, changes in earnings, changes in health care policies and
practices, economic and other external factors, political, economic and other
developments in the State of Israel, fluctuations in financial results of the
Company, which may be particularly pronounced during the introduction of new
products, and comments by financial analysts may have a significant impact on
the market price and marketability of the Shares. Fluctuations or decreases in
the trading price of the Shares may adversely affect the liquidity of the
trading market for the Shares and, in the event that the Company seeks to
raise capital through future equity financing, the Company's ability to raise
such equity capital. The initial public offering price of the Shares in the
Offering will be determined by negotiations among the Company and the
Representatives (as defined herein) of the Underwriters based on several
factors and may not be indicative of prices that will prevail in the open
market. See "Risk Factors -- Limited Operating History; History of Losses
Expected to Continue" and "Underwriting."
17
<PAGE>
Year 2000. Certain computer software that identifies dates by the
last two digits of the year (rather than using the full four digits) may
malfunction with respect to dates on or after January 1, 2000. The Company
depends on its computer systems and the computer systems of third parties to
conduct and manage the Company's business. The failure of the Company's
systems or the systems of its vendors and customers to be Year 2000 ready may
have a material adverse effect on the Company's business, results of
operations and financial position.
The Company has not yet assessed its exposure to the Year 2000 issue
as it relates to third parties and the Company has not yet initiated efforts
to assess which internal systems are Year 2000 ready. The Company plans to
contact suppliers, customers and other third parties to assess the Year 2000
readiness of third party systems that may affect the Company. The Company
believes that costs to upgrade its internal systems to be Year 2000 ready will
not be material to the financial position or results of operations of the
Company.
Immediate and Substantial Dilution. Purchasers of the Shares in the
Offering will experience an immediate and substantial dilution of
approximately $9.13 per share (based upon an assumed initial public offering
price of $12.00 per share.) The pro forma net tangible book value of the
Shares outstanding subsequent to the Offering will be substantially less than
the per share initial public offering price of the Shares. Such investors will
suffer additional dilution upon exercise of outstanding options. See
"Dilution."
Absence of Dividends. Influence has not paid or declared any cash
dividends on its Shares and does not presently anticipate declaring or paying
any cash dividends on such Shares in the foreseeable future. Since the
Company's Israeli subsidiary will generate most of the operating revenues of
the Company, Influence will be dependent upon the dividend distributions it
receives from its Israeli subsidiary as a source for any payment of cash
dividends to Influence shareholders. The Company's Israeli subsidiary may pay
cash dividends in any fiscal year only out of "profits," as determined for
Israeli statutory purposes. In addition, dividends paid by the Company's
Israeli subsidiary will be subject to Israeli withholding tax. As a result,
the ability of Influence to pay dividends to stockholders may be limited.
Moreover, the Company's manufacturing facility in Israel has been deemed an
"Approved Enterprise" and will receive certain benefits under Israeli law. The
payment of dividends by the Company's Israeli subsidiary out of the income
derived from revenues from the Approved Enterprise until two years after the
first year in which such subsidiary has taxable income would subject the
Company to certain Israeli taxes to which it would not otherwise be subject.
The Company's ability to pay dividends may thus be further limited. See
"Dividend Policy" and "Israeli Taxation and Investment Programs."
Service of Process and Enforcement of Judgments. Influence's
principal subsidiary is incorporated in Israel, certain of its officers and
directors are non-residents of the United States, and a substantial portion of
the assets of such persons and the Company are located outside the United
States. It may be difficult for investors to (i) effect service of process
against certain of the Company's officers and directors who reside outside the
United States, or (ii) enforce, in United States courts, judgments against
such officers and directors who may be deemed to be underwriters, which are
obtained in such courts predicated upon the civil liability provisions of the
United States federal securities laws. In addition, the Company understands
that there is doubt as to whether the courts of Israel would enforce, in
original actions brought in such courts, civil liabilities against the Company
or such persons predicated solely upon the federal securities laws of the
United States. The Company understands that Israeli courts may enforce a
foreign (including United States) final executory judgment for liquidated
damages in a civil suit, obtained after due trial before a court of competent
jurisdiction (as determined under Israeli law), provided that (i) the courts
of such jurisdiction would enforce similar Israeli judgments, (ii) due service
of process with respect to the Israeli enforcement action has been effected
upon the party against whom the foreign judgment is to be enforced, (iii) such
judgment or its enforceability is not contrary to the law, public policy,
security or sovereignty of the State of Israel, (iv) such judgment was not
obtained by fraud and does not conflict with any other such judgment in the
same matter between the same parties, and (v) an action between the same
parties with regard to the same subject matter was not pending in any court or
tribunal in Israel at the time the original lawsuit was instituted in the
foreign court. Foreign judgments enforced by Israeli courts will generally be
payable in Israeli currency. Under current Israeli regulations, such a
judgment may also be paid in foreign currency, or the judgment creditor may
convert the Israeli currency into foreign currency and transfer out of Israel
proceeds of a foreign judgment enforced in Israel. Judgment creditors bear the
risk of unfavorable exchange rates.
18
<PAGE>
THE COMPANY
Influence, Inc. was incorporated in Delaware on November 9, 1994, and
Influence Medical Technologies, Ltd. ("IMT"), its Israeli subsidiary, was
formed on November 22, 1994. Influence Medical Technologies GmbH, a German
subsidiary of IMT, was organized on November 7, 1996. The Company's U.S.
corporate headquarters are located at 71 Stevenson Street, Suite 1120, San
Francisco, California 94105; the telephone number is (415) 546-7700. The
Company's research and development facilities, Israeli headquarters and
manufacturing facilities are located in Hertzliya, Israel.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Shares offered hereby are estimated to be approximately $18.4 million
(approximately $21.2 million if the Underwriters' over-allotment option is
exercised in full) assuming an initial public offering price of $12.00 per
Share (the midpoint of the estimated initial public offering price range), and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company.
The Company intends to use approximately $11.0 million of such net
proceeds for sales and marketing activities, and $6.0 million for additional
research and product development, including conducting clinical trials and
obtaining regulatory approvals, approximately $1.0 million for capital
expenditures, primarily to develop the Company's manufacturing facility and
the remainder for working capital and general corporate purposes. The Company
may also use a portion of such net proceeds to finance potential acquisitions
of businesses, products or technology. As of the date of this Prospectus, the
Company has no current plans or commitments regarding any such acquisitions,
and no acquisitions are currently under negotiation. Pending use of the
proceeds from the Offering as described above, the Company intends to invest
the proceeds primarily in United States government obligations or other
investment-grade, interest-bearing investments.
The Company believes that the net proceeds of the Offering, together
with its existing capital resources and interest income, will be sufficient to
fund its operating expenses and capital requirements as currently planned
through at least 1999. There can be no assurance, however, that such funds
will be sufficient to fund its operating expenses and capital requirements
during such period. The Company's actual cash requirements may vary materially
from those now planned and will depend upon numerous factors. These factors
include the completion of development of the Company's products, progress and
costs of clinical trials, the timing and costs of various U.S. and foreign
regulatory filings, the timing and receipt or denial of various U.S. and
foreign governmental approvals and clearances, the costs involved in
preparing, filing, presenting, maintaining and enforcing patent claims, the
timing and extent to which the Company's products gain market acceptance, the
timing and costs of product introduction, the costs of maintaining and
developing marketing and distribution capabilities and the technological
advances of competitors. See "Risk Factors--Uncertainty of Future Capital
Requirements."
19
<PAGE>
DIVIDEND POLICY
Influence has never paid or declared cash dividends and does not
presently intend to declare or pay cash dividends in the foreseeable future.
Influence intends to retain its earnings to finance the development of its
business. Any future dividend policy will be determined by Influence's Board
of Directors (the "Board") based upon conditions then existing, including the
Company's earnings, financial condition, tax position and capital requirements
as well as such economic and other conditions as the Board may deem relevant.
Since the Company's Israeli subsidiary will generate most of the operating
revenues of the Company, Influence will be dependent upon the dividend
distributions it receives from its Israeli subsidiary as a source for any
payment of cash dividends to Influence shareholders. The Company's Israeli
subsidiary may pay cash dividends in any fiscal year only out of "profits," as
determined for Israeli statutory purposes. In addition, dividends paid by the
Company's Israeli subsidiary will be subject to Israeli withholding tax. As a
result, the ability of Influence to pay dividends to its stockholders may be
limited. Moreover, the Company's manufacturing facility in Israel has been
deemed an Approved Enterprise and will receive certain benefits under Israeli
law. The payment of dividends by the Company's Israeli subsidiary out of the
income derived from the Approved Enterprise would subject the Company to
certain Israeli taxes to which it would not otherwise be subject. The
Company's ability to pay dividends may thus be further limited. See "Israeli
Taxation and Investment Programs."
CAPITALIZATION
The following table sets forth as of March 31, 1998, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company to give effect to the automatic conversion of each outstanding share
of the Company's Series A Convertible Preferred Stock into 1.24 shares of
Common Stock immediately prior to the closing of the Offering, (iii) a
1-for-1.26 reverse stock split of the shares of the Company's Common Stock
effective immediately prior to the closing of the Offering and (iv) the pro
forma capitalization as adjusted to give effect to the receipt of the
estimated net proceeds from the sale of the Shares offered by the Company
hereby, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company. This table should be read
in conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------------
Actual Pro Forma As Adjusted
-------------- -------------- ----------------
<S> <C> <C> <C>
Stockholders' equity(1):
Series A Convertible Preferred Stock, $0.01 par value;
750,000 shares authorized; 713,000 shares issued and
outstanding actual; none outstanding pro forma and
as adjusted....................................... $ 7,000 $ -- $ --
Common Stock, $0.001 par value; 23,809,524 shares
authorized; 5,248,070 shares issued and outstanding
actual; 6,130,798 shares issued and outstanding pro
forma and 7,830,798 shares issued and outstanding
as adjusted....................................... 4,000 5,000 7,000
Additional paid-in capital............................ 25,921,000 25,927,000 44,297,000
Deferred compensation................................. (322,000) (322,000) (322,000)
Accumulated deficit................................... (21,480,000) (21,480,000) (21,480,000)
-------------- -------------- --------------
Total stockholders' equity............ 4,130,000 4,130,000 22,502,000
-------------- -------------- --------------
Total capitalization.................. $ 4,130,000 $ 4,130,000 $ 22,502,000
============== ============== ==============
</TABLE>
(1) Excludes as of June 22, 1998 (i) 1,181,048 shares issuable upon exercise of
options outstanding under the Company's 1995 and 1998 Stock Option Plans at
a weighted average exercise price of $5.95 per share, and (ii) 367,245
shares reserved for future issuances of stock options. See
"Management--Stock Option Plans."
20
<PAGE>
DILUTION
Purchasers of the Common Stock offered hereby will experience an
immediate and substantial dilution in the consolidated pro forma net tangible
book value of the Common Stock from the estimated initial public offering
price. The consolidated pro forma net tangible book value of the Company as of
March 31, 1998 was $4.1 million, or approximately $0.67 per share.
"Consolidated pro forma net tangible book value per share" represents the
amount of (i) total consolidated tangible assets, less total consolidated
liabilities, divided by (ii) the number of shares outstanding on such date,
including the conversion of all shares of Series A Convertible Preferred
Stock. After giving effect to the sale of shares of Common Stock offered
hereby at an estimated initial public offering price of $12.00 per share, the
consolidated pro forma net tangible book value of the Company as of March 31,
1998 would have been $22.5 million, or approximately $2.87 per share. This
represents an immediate increase in consolidated pro forma net tangible book
value of approximately $2.20 per share to existing shareholders and an
immediate and substantial dilution of approximately $9.13 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................ $ 12.00
Pro forma net tangible book value.............................. $ 0.67
Increase attributable to new investors......................... 2.20
----
Pro forma net tangible book value after the Offering............. 2.87
----
Dilution to new investors........................................ $ 9.13
====
</TABLE>
The following table summarizes on a pro forma basis as of March 31,
1998, the number of shares purchased from the Company, the total cash
consideration paid and the average price per share paid by existing
stockholders and to be paid by purchasers of the Shares offered hereby at an
assumed initial offering price of $12.00, before deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------------- --------------------------- Average Price
Number Percent Amount Percent Per Share
--------- ------- --------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 6,130,798 78% $ 23,982,000 54% $ 3.91
New investors................ 1,700,000 22% 20,400,000 46% 12.00
--------- ---- --------------- ----
Total................... 7,830,798 100% $ 44,382,000 100% 5.67
========= ==== =============== ====
</TABLE>
The foregoing tables assume (i) the conversion of all shares of
Series A Convertible Preferred Stock into Common Stock prior to closing of the
Offering, (ii) no exercise of the Underwriters' over-allotment option, (iii) a
1-for-1.26 reverse stock split of the shares of the Company's Common Stock,
which will become effective immediately prior to the closing of the Offering
and (iv) no exercise of any outstanding stock options. At June 22, 1998, there
were outstanding options to purchase an aggregate of 1,181,048 shares of
Common Stock at a weighted average exercise price of $5.95 per share. To the
extent such outstanding options are exercised, there will be further dilution
to new investors. See "Management--Stock Option Plans".
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31,
1996 and 1997 and for the years ended December 31, 1995, 1996 and 1997 have
been derived from the Consolidated Financial Statements of the Company as set
forth elsewhere in this Prospectus that have been audited by Price Waterhouse
LLP, independent accountants. The selected consolidated financial data as of
December 31, 1994 and 1995 and for the period from inception (November 9,
1994) through December 31, 1994 are derived from audited consolidated
financial statements not included in this prospectus. The selected
consolidated financial data as of March 31, 1998 and for the three months
ended March 31, 1997 and 1998 have been derived from unaudited consolidated
financial statements of the Company as set forth elsewhere in this Prospectus,
which, in management's opinion, reflects all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the results
for such periods. The financial data set forth below should be read in
conjunction with the Consolidated Financial Statements, related Notes and
other financial information contained in this Prospectus.
<TABLE>
<CAPTION>
Period From
Inception Three Months Ended
(November 9, 1994) Year Ended December 31, March 31,
to --------------------------------- -----------------------
December 31, 1994 1995 1996 1997 1997 1998
Consolidated Statement of ----------------- ------ ------ ------ ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Operations Data:
Net sales...................... $ -- $ -- $ -- $ 1,114 $ 30 $ 714
Cost of goods sold............. -- -- -- 2,765 384 658
-------- ------- -------- --------- --------- ----------
Gross margin................... -- -- -- (1,651) (354) 56
-------- ------- -------- --------- --------- ----------
Operating expenses:
Research and development.... 300 1,250 3,219 3,155 575 940
Sales and marketing......... -- -- 667 3,837 649 1,157
General and administrative.. -- 459 1,769 2,073 381 840
-------- ------- -------- -------- -------- ---------
Total operating expenses.. 300 1,709 5,655 9,065 1,605 2,937
-------- ------- -------- -------- -------- ---------
Operating loss................. (300) (1,709) (5,655) (10,716) (1,959) (2,881)
Interest income................ -- 12 236 604 183 21
Interest expense............... -- -- (354) (738) (406) --
Net loss....................... $ (300) $(1,697) $(5,773) $(10,850) $ (2,182) $ (2,860)
========= ======= ======== ========= ========= ==========
Basic and diluted net loss $ (0.34) $ (1.16) $ (2.10) $ (0.45) $ (0.54)
per share (1)............... ======== ======== ========= ========= ==========
Shares used in computing basic 4,977 4,983 5,173 4,903 5,248
and diluted net loss per ======= ======== ======== ======== =========
share (1)...................
Pro forma data: (1)
Pro forma basic and diluted
net loss per share $ (1.79) $ (0.47)
========= ==========
Shares used in computing pro
prorma basic and diluted
net loss per share.......... 6,055 6,131
========= =========
<CAPTION>
December 31,
------------------------------------------------------ March 31,
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term $ -- $ 1,375 $ 16,849 $ 5,196 $ 2,555
investments............................
Working capital........................... (296) 1,012 16,124 5,621 2,907
Total assets.............................. -- 1,627 17,957 8,721 6,146
Accumulated deficit....................... (300) (1,997) (7,770) (18,620) (21,480)
Stockholders' equity (deficit)............ (296) 1,147 (3,336) 6,873 4,130
</TABLE>
(1) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of basic and diluted net loss per share data and
pro forma basic and diluted net loss per share.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains certain forward-looking statements
that reflect the Company's plans, estimates and beliefs. The Company's actual
results could differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below and elsewhere in this Prospectus, particularly in "Risk
Factors." The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto which appear elsewhere
in this Prospectus.
Overview
The Company is a medical device manufacturer primarily engaged in the
design, development and commercialization of minimally invasive,
cost-effective products, and is organized into three divisions:
urology/gynecology, otolaryngology, and cancer radiotherapy. The Company's
products and products under development include remote-controlled
intra-urethral valved catheter systems, proprietary surgical tools and
equipment for performing minimally invasive surgery, diagnostic tools, and an
interstitial radiotherapy system for the treatment of cancerous tumors.
Since inception, the Company has derived minimal revenues from
product sales, and had an accumulated deficit through March 31, 1998 of $21.5
million, mainly arising from research and development expenditures, product
launch costs and sales and marketing expenses. Influence expects to continue
to incur significant and increasing operating losses through at least 1999 as
the Company continues to complete product development, conduct clinical trials
and seek regulatory approvals for its products. In addition, the Company
anticipates incurring significant expenses for marketing and sales efforts in
contemplation of future product introductions and market development, and
increasing administrative expenses to support the growth of the Company.
In 1997, the Company commenced manufacturing activities and initial
sales and for its In-Tac and In-Fast surgical systems and for In-Flow. In-Tac
and In-Fast received FDA clearance for marketing in the United States in 1997,
and distribution of both products has commenced in the United States and
certain European countries. Distribution of In-Flow has commenced in Europe,
but has not received FDA clearance for marketing in the United States. The
Company does not anticipate FDA approval of In-Flow for commercialization in
the United States before 2000. In 1998, the Company commenced distribution of
the Repose-Tongue surgical system in the United States and certain European
countries. Through the first half of 1997 the Company was in the development
stage. Many of the Company's products are still under development. Several
products are expected to be launched in 1998, including the FDA-cleared
Straight-In surgical system, the Ramus Male Sling, and the Repose-Hyoid. The
Company's other proposed products will require significant additional research,
development, testing and regulatory clearances or approvals prior to
commercialization. There can be no assurance that any of the Company's proposed
products will receive requisite regulatory approvals or clearances, demonstrate
substantial therapeutic benefit, be commercialized on a timely basis or be
accepted by the marketplace. See Note 9 of Notes to Consolidated Financial
Statements for financial information by geographic area.
On May 1, 1998, Indigo and the Company signed a letter of intent,
subject to negotiation of definitive agreements, pursuant to which Indigo
would become the Company's exclusive distributor outside the United States of
the Company's current and future products in the fields of urology and
gynecology and its radiotherapy product under development. In connection with
the letter of intent, Johnson & Johnson Development Corporation ("JJDC"), a
subsidiary of J&J, advanced $1 million to the Company. Upon execution of a
definitive distribution agreement, JJDC would advance an additional $6 million
to the Company. In exchange for these advances, the Company would issue to
JJDC a $7 million convertible note (the "J&J Note"). The J&J Note would be
automatically convertible into Common Stock upon completion of the Offering at
a conversion price equal to the initial public offering price of the Shares
offered hereby.
23
<PAGE>
Result of Operations
Three Months Ended March 31, 1998, Compared to Three Months Ended March 31, 1997
Net Sales. Net sales increased $684,000, from $30,000 for the three
months ended March 31, 1997 to $714,000 for the three months ended March 31,
1998. The Company recorded its first revenues in 1997 from initial sales of
In-Tac, In-Fast and In-Flow to markets outside the United States. The 1998
sales reflect increases in sales activity for the In-Tac, In-Fast and In-Flow,
the introduction of the Repose product and the Company's market expansion to
new geographic regions. In 1998, 42% of net sales were outside the United
States.
Cost of Goods Sold. Cost of goods sold includes direct labor, direct
material and overhead. Cost of goods sold increased $274,000, from $384,000
for the three months ended March 31, 1997 to $658,000 for the three months
ended March 31, 1998 primarily because of increased volume and unit sales.
Gross margin turned positive during the three months ended March 31, 1998 as a
result of increased manufacturing volume and absorption of fixed costs,
improved manufacturing processes and increased sales of higher margin
products. The Company anticipates that gross margins will increase as a
percentage of net sales as the volume of products manufactured increases.
Research and Development. Research and development expense includes
salaries, expenses for outside services, supplies, human clinical trial costs
and amortization of capital equipment. Research and development expenses
increased $365,000, from $575,000 for the three months ended March 31, 1997 to
$940,000 for the three months ended March 31, 1998. The increase was due
primarily to U.S. clinical costs. An IDE approved clinical trial for the
In-Flow product is in progress and the Company expects to make a PMA
submission during 1999. Clinical costs were also incurred for a study for the
ENT product. The Company expects to continue to incur significant research and
development and clinical costs.
Sales and Marketing. Sales and marketing expense includes salaries,
commissions, expenses for outside services related to marketing programs,
marketing materials and travel expenses. Sales and marketing expenses
increased $508,000, from $649,000 for the three months ended March 31, 1997 to
$1.2 million for the three months ended March 31, 1998. The increase was due
primarily to the hiring of additional sales and marketing personnel and
increased sales and marketing programs during the period. The Company expects
that selling and marketing expenses will increase during future periods.
General and Administrative. General and administrative expense
includes compensation, benefits and expenses for outside services. General and
administrative expenses increased $459,000, from $381,000 for the three months
ended March 31, 1997 to $840,000 for the three months ended March 31, 1998.
The increase reflects the hiring of additional administrative personnel and
increased general and administrative expenditures to support the growing
operations. The three months ended March 31, 1998 also includes $117,000 of
noncash compensation expense related to the granting of compensatory stock
options.
Interest Income. Interest income reflects income from investments of
cash balances and marketable securities. Interest income decreased $162,000
from $183,000 for the three months ended March 31, 1997 to $21,000 for the
three months ended March 31, 1998. The decrease in interest income reflects
the substantial draw down of cash during the past year.
Interest Expense. Interest expense is primarily composed of interest on
a convertible debenture with Medtronic, Inc. ("Medtronic"). The decrease in
interest expense is attributable to the conversion of the convertible debenture
in June 1997.
Year Ended December 31, 1997, Compared to the Year Ended December 31, 1996
Net Sales. Net sales of $1.1 million for the year ended December 31,
1997, were attributable to the product sales of In-Tac, In-Flow and In-Fast.
In 1997, 61% of net sales were outside the United States. There were no sales
for the year ended December 31, 1996.
24
<PAGE>
Cost of Goods Sold. Cost of goods sold was $2.8 million for the year
ended December 31, 1997 due to the high costs associated with start-up
manufacturing and manufacturing small product volumes. There were no sales or
related cost of goods sold for the year ended December 31, 1996.
Research and Development. Research and development activity and
expenses associated with product development and related manufacturing processes
were fairly consistent for 1997 and 1996. The 1997 costs reflect increased
regulatory activity in the United States associated with human clinical
trials. Research and development expenses in 1996 include $653,000 of noncash
compensation expense resulting from grants of stock options to consultants.
Sales and Marketing. Sales and marketing expenses increased $3.2
million, from $667,000 for the year ended December 31, 1996 to $3.8 million
for the year ended December 31, 1997. The increase reflects the hiring of
additional sales personnel and increased marketing activities. The expense in
1996 was attributable to initial marketing activities, the hiring of the first
direct sales personnel and $184,000 of noncash compensation expense resulting
from grants of stock options to potential distributors outside the United
States.
General and Administrative. General and administrative expenses
increased $305,000, from $1.8 million for the year ended December 31, 1996 to
$2.1 million for the year ended December 31, 1997. The increase was
attributable primarily to hiring additional personnel, office relocation and
support of increased operational activity. The expenses in 1996 were
attributable primarily to hiring executive officers, establishing an office in
San Francisco and $327,000 of noncash compensation expense from grants of
stock options to employees. The 1997 expenses included costs related to a
planned initial public offering which was indefinitely postponed. The 1996
expenses included costs related to a planned initial public offering which was
withdrawn.
Interest Income. Interest income increased $368,000, from $236,000 for
the year ended December 31, 1996 to $604,000 for the year ended December 31,
1997 primarily as a result of higher cash balances attributed to cash proceeds
from the Medtronic convertible debenture.
Interest Expense. Interest expense increased $384,000, from $354,000,
for the year ended December 31, 1996 to $738,000 for the year ended December 31,
1997. Both periods reflect interest expense from loan balances outstanding
during the year.
Year Ended December 31, 1996, Compared to the Year Ended December 31, 1995
Research and Development. Research and development expense increased
from $1.3 million for the year ended December 31, 1995, to $3.2 million, for
the year ended December 31, 1996. The increase was due to higher product
development activity primarily for In-Tac, In-Fast and In-Flow, increased
regulatory activity both in the United States and Europe, and expenses
associated with the development of manufacturing processes. Also included in
1996 was $653,000 of noncash compensation expense resulting from grants of
stock options to consultants.
Sales and Marketing. Sales and marketing expenses increased from
zero for the year ended December 31, 1995 to $667,000, for the year ended
December 31, 1996. The expense in 1996 was attributable to initial marketing
activities for In-Tac and In-Flow and the hiring of the first direct sales
personnel in the United States and Europe. Also included in 1996 was $184,000
of noncash compensation expense resulting from the grants of stock options to
potential distributors.
General and Administrative. General and administrative expense
increased from $459,000 for the year ended December 31, 1995 to $1.8 million
for the year ended December 31, 1996. The increase was attributable primarily
to hiring executive officers, establishing an office in San Francisco, and
expenses of approximately $450,000 relating to preparations for an initial
public offering in 1996. Also included in 1996 was $327,000 of noncash
compensation expense resulting from grants of stock options to employees.
Interest Income. Interest income increased $224,000, from $12,000 for
the year ended December 31, 1995 to $236,000 for the year ended December 31,
1996, because of high cash balances attributed to cash proceeds from the
Medtronic convertible debenture.
Interest Expense. Interest expense increased to $354,000 for the year
ended December 31, 1996 because of higher loan balances.
25
<PAGE>
Liquidity and Capital Resources
The Company has financed its operations to date principally through a
private placement of the Company's Series A Convertible Preferred Stock, the
issuance of shareholder promissory notes, and a convertible debenture issued
to Medtronic. During 1995, the Company raised approximately $3.6 million
through the issuance of Series A Convertible Preferred Stock. During 1996, a
shareholder of the Company loaned the Company an aggregate of $3.0 million. In
December 1996, the Company repaid such debt plus interest thereon. In December
1996, the Company received $20 million from Medtronic in exchange for a
convertible debenture bearing interest at the prime rate, which subsequently
automatically converted into 333,164 shares of Common Stock of the Company. In
May 1998, JJDC advanced $1.0 million to the Company in connection with the
execution of a letter of intent, subject to negotiation of definitive
agreements relating to the proposed exclusive distribution of certain of the
Company's products outside the United States. Cash used to fund operations
since inception was approximately $19.1 million and the Company's capital
expenditures through March 31, 1998 have aggregated approximately $1.5
million. At March 31, 1998, the Company had cash, cash equivalents and
short-term investments of approximately $2.6 million.
From inception through March 31, 1998, the Company has an accumulated
deficit of $21.5 million. The Company expects to continue to incur significant
additional losses and expects cumulative losses to increase significantly as
the Company continues to expand its research and development, clinical trials
and marketing efforts. The Company anticipates that the proceeds of the
Offering and interest thereon, together with existing cash, cash equivalents
and short-term investments, will be sufficient to fund its operations,
including increased working capital expenditures, through 1999.
In June 1998, the Company entered into a $6 million revolving line of
credit agreement (the "Line of Credit") with a bank. Amounts drawn under the
Line of Credit are guaranteed by a shareholder, who is also a member of the
Board of Directors. Advances under the Line of Credit bear interest at 1%
above the London Interbank Offer Rate ("LIBOR"). The Line of Credit expires on
June 30, 1999.
Future liquidity and capital requirements of the Company will depend
upon a number of factors. These include the completion of development of the
Company's products, progress and costs of clinical trials, the timing and
costs of various U.S. and foreign regulatory filings, the timing and receipt
or denial of various U.S. and foreign governmental approvals or clearances,
the costs involved in preparing, filing, presenting, maintaining and enforcing
patent claims, the timing and extent to which the Company's products gain
market acceptance, the timing and costs of products introduction, the costs of
developing marketing and distribution capabilities, and the technological
advances of competitors. The Company has a remaining commitment to invest
approximately $0.5 million by the end of December 1998 in equipment and
facility improvements at the Company's new manufacturing facility in Israel in
connection with the maintenance of IMT's Approved Enterprise status. The
Company may be required to seek additional funds through debt or equity
financing, arrangements with corporate partners or from other sources.
Issuance of additional equity securities could result in substantial dilution
in ownership and control to the then existing shareholders. There can be no
assurance that any such funds will be available on terms acceptable to the
Company, or at all.
Impact of Inflation and Currency Fluctuations
Although the U.S. dollar is the Company's functional currency, a
significant portion of the Company's employment related expenses is incurred
in New Israeli Shekels ("NIS"). The dollar cost of the Company's operations in
Israel is influenced by the extent to which any increase in the rate of
inflation in Israel is not offset (or is offset on a lagging basis) by a
devaluation of the New Israeli Shekel ("NIS") in relation to the dollar. The
Company's dollar costs will increase if this "gap" widens and the devaluation
rate fails to keep pace with the rate of inflation in Israel, and, conversely,
the Company may benefit if the rate at which Israeli currency devalues against
the dollar exceeds the rate of inflation in Israel. For the years ended
December 31, 1995, 1996 and 1997, and the three months ended March 31, 1998,
the annual inflation rate in Israel as adjusted for devaluation of the Israeli
currency in relation to the dollar (calculated by dividing the annual
inflation rate in Israel by the annual rate of the devaluation of Israeli
currency against the dollar) was 4.1%, 6.7%, (1.7)% and (1.6)%, respectively.
As a result, the Company experienced increases in the dollar costs of
operations in Israel in 1995 and 1996 and a decrease in the dollar cost of
operations in Israel in 1997. The increase in the dollar cost of the Company's
operations in Israel relates primarily to the cost of salaries in Israel,
which are paid, and constitute a substantial portion of the Company's
expenses in NIS. These expenses constituted approximately 18%, 15% and 16% of
the total expenses of
26
<PAGE>
the Company for 1995, 1996 and 1997, respectively. There can be no assurance
that the Company will not be materially adversely affected if inflation in
Israel exceeds the devaluation of the NIS against the dollar or if the timing of
such devaluation lags behind increases in inflation in Israel.
In addition, the Company receives a portion of its European net sales
in European currencies, principally Deutschemarks ("DM"). Expenses in DM and
other European currencies are substantially higher than revenues. There can be
no assurance that the Company will not be materially adversely affected by
fluctuations in the exchange rate of the dollar against the DM.
Income and Other Taxes
The Company anticipates that most of its future revenues and profits,
if any, will be earned by the Company's Israeli subsidiary, IMT, which holds
most of the rights to utilize commercially the Company's core technologies. As
of December 31, 1997, IMT had net operating loss carryforwards and other
future tax deductions for Israeli tax purposes of approximately $13 million
and $2.7 million, respectively. See "Israeli Taxation and Investment Programs"
and Note 5 of Notes to Consolidated Financial Statements appearing elsewhere
in this Prospectus. IMT has received "Approved Enterprise" status under the
Law for Encouragement of Capital Investments, 1959 for its current Israeli
facility. Undistributed income derived from the Company's Approved Enterprise
will be tax exempt for a maximum of two years after IMT has taxable income,
and will be subject to a reduced tax rate for a maximum of eight additional
years (depending on the level of foreign investment). The Company anticipates
that a significant portion of the Company's taxable income, if any, over the
next several years will be tax exempt or subject to reduced tax rates in
Israel. License fees paid by IMT to the U.S. parent company will be subject to
a 15% Israeli withholding tax. See "Israeli Taxation and Investment Programs
- -- Law for the Encouragement of Capital Investments, 1959." The Company
expects, however, that it will pay taxes in the United States based on
interest income, intercompany service fees and commissions paid by IMT to
Influence. Accordingly, Influence will be subject to U.S. corporate income
taxes on a portion of its income. Moreover, the taxing authorities of foreign
countries and the United States may allocate items of income and expense of
the Company and its subsidiaries in a manner that could result in an increased
overall effective tax rate on the Company's pre-tax profits. See "United
States Federal Income Taxation." In addition, the Company expects to pay taxes
in Germany on profits earned by IMT's wholly owned German subsidiary.
Change in Independent Accountants
The Company changed independent public accountants in February 1997
at the recommendation and with the approval of the Board of Directors of the
Company. Prior to February 1997, Coopers & Lybrand L.L.P. ("C&L") had been the
Company's independent accountants. In the period from November 1994 through
January 1997 C&L issued no audit report that was qualified or modified as to
uncertainty, audit scope or accounting principles, nor any adverse opinions or
disclaimers of opinion on any of the Company's financial statements. During
the Company's two most recent fiscal years and any subsequent interim period
preceding the dismissal there were no disagreements with the former accountant
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement(s) if not
resolved to the satisfaction of the former accountant, would have caused it to
make a reference to the subject matters of the disagreement(s) in connection
with its report. In February 1997, Price Waterhouse LLP was engaged to be the
Company's independent accountants.
Year 2000 Readiness
Certain computer software that identifies dates by the last two
digits of the year (rather than using the full four digits) may malfunction
with respect to dates on or after January 1, 2000. The Company depends on its
computer systems and the computer systems of third parties to conduct and
manage the Company's business. The failure of the Company's systems or the
systems of its vendors and customers to be Year 2000 ready may have a material
adverse effect on the Company's business, results of operations and financial
position.
The Company has not yet assessed its exposure to the Year 2000 issue
as it relates to third parties and the Company has not yet initiated efforts
to assess which internal systems are Year 2000 ready. The Company plans to
contact suppliers, customers and other third parties to assess the Year 2000
readiness of third party systems that may affect the Company. The Company
believes that costs to upgrade its internal systems to be Year 2000 ready will
not be material to the financial position or results of operations of the
Company.
27
<PAGE>
Recent Accounting Pronouncements.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131 "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes new standards for reporting information about
operating segments in interim and annual financial statements. SFAS No. 131
will be effective for the Company's consolidated financial statements for the
year ended December 31, 1998 and for interim and annual periods thereafter.
The Company is currently evaluating the impact, if any, this statement will
have on disclosures in the consolidated financial statements.
28
<PAGE>
BUSINESS
The Company has a limited operating history and many of its products
are currently under development. Therefore, the following discussion
necessarily contains certain forward-looking statements which reflect the
Company's plans, estimates and beliefs. The Company's actual results could
differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include those
discussed below and elsewhere in this Prospectus, particularly in "Risk
Factors."
General
Influence is a medical device manufacturer engaged in the design,
development and commercialization of minimally invasive, cost-effective
products, and is organized into three divisions: urology/gynecology (Influence
Division), otolaryngology (Influ-ENT Division), and cancer radiotherapy
(Influ-RAD Division). The Company's products and products under development
include remote-controlled intra-urethral valved catheter systems, proprietary
surgical tools and equipment for performing minimally invasive surgery,
diagnostic tools, and an interstitial radiotherapy system for the treatment of
cancerous tumors. The Company has nine products that have received regulatory
or 510(k) clearance from the U.S. Food and Drug Administration (the "FDA") for
sale in the United States, eight products currently under 510(k) review by the
FDA, and another eight products in various stages of development. The Company
recently signed a letter of intent, subject to negotiation of definitive
agreements, with Indigo Medical, Inc. ("Indigo"), a subsidiary of Johnson &
Johnson ("J&J"), pursuant to which Indigo would become the exclusive
distributor outside the U.S. of the Company's current and future products in
the fields of urology and gynecology, and its radiotherapy product under
development.
Business Strategy
The Company's business strategy is to continue to develop and
commercialize a broad portfolio of innovative, minimally invasive,
cost-effective medical products. The key elements of this business strategy
include:
o Serve large markets not adequately met by existing technologies.
The Company's products address three markets for which the
Company believes current therapeutic and diagnostic devices are
inadequate: urology/gynecology, otolaryngology and cancer. Each
of these markets is significant in size. Incontinence afflicts an
estimated 13 million patients in the United States alone, with
associated costs in excess of $16 billion annually. OSA is also a
sizable market, affecting approximately 18 million people in the
United States. Additionally, the American Cancer Society
estimates that collectively 419,200 new cases of breast, prostate
and bladder cancer will be diagnosed in 1998.
o Provide an integrated solution for the diagnosis and treatment of
incontinence. The Company plans to offer physicians, patients and
payors a comprehensive set of therapeutic and diagnostic devices
for men and women that provide an integrated solution for the
cost-effective management of incontinence. As set forth on the
diagram on the inside back cover of this Prospectus, the Company
expects to offer devices that diagnose the form or forms of
incontinence from which the patient suffers, and treat the
condition in an effective, minimally invasive manner. All of
these products are designed to reduce long-term health care costs
by improving diagnosis, convenience of therapy and quality of
life.
o Develop a strong U.S. distribution network. The Company has
developed a direct channel of salespeople in the United States in
the urology/gynecology field and has recently started a second
channel of distribution in the ENT area using direct sales people
and independent representatives. The Company expects that
marketing efforts initially will be focused on prominent
physicians and will also include conference participation, direct
advertising and training seminars to increase awareness of the
Company's products. The Company may also implement general media
campaigns intended to raise the awareness of incontinence,
snoring and OSA in the general population to encourage patients
to approach their physicians to ask about minimally invasive
solutions for these conditions.
o Optimize distribution relationships with strategic partners. The
Company has signed a letter of intent with Indigo, a subsidiary
of J&J, subject to negotiation of definitive agreements, pursuant
to which Indigo would become the Company's exclusive distributor
outside the United States of the Company's current and future
products in the fields of urology and gynecology and its
radiotherapy device under
29
<PAGE>
development. The Company plans to distribute its ENT products
through specialized otolaryngology distributors worldwide or to
develop its own direct sales force in selected countries.
o Achieve technological leadership. The Company is committed to
advanced research and engineering, as evidenced by its portfolio
of novel products. Through continued investment in research and
engineering, the Company intends to use innovation as its path to
establish a leadership position in targeted markets. In Israel,
the Company maintains 18 research and development personnel and
has an ISO 9001 and 9002 certified facility for developing and
manufacturing its product lines.
o Leverage core technologies. The Company will continue to seek to
expand the application of its core technologies in minimally
invasive surgery to new fields and new products. For example, the
Company's Repose products for the treatment of sleep apnea are a
direct outgrowth of the Company's surgical products in the field
of urology.
Influence Division - Urology/Gynecology
Overview
The Company's product development strategy is based on the belief
that current urinary incontinence diagnostic tools and urinary incontinence
and vaginal vault prolapse treatment options have significant limitations. The
Company is developing a range of products to provide an integrated solution
for the diagnosis and treatment of urinary incontinence in women and men. The
Company believes that its products, if successfully introduced and adopted,
should result in significant cost savings in the management of incontinence.
Urinary incontinence, the involuntary leakage of urine, is a
significant health problem afflicting approximately ten million women and
three million men in the United States. The U.S. Department of Health and
Human Services Agency for Health Care Policy and Research ("AHCPR") estimated
that 50% of the 1.5 million nursing home residents suffer from incontinence
and that incontinence is one of the major causes of institutionalization of
the elderly. AHCPR estimated in 1996 that costs associated with the management
and treatment of urinary incontinence in the U.S. exceed $16 billion annually,
including over $5 billion related to patients in nursing homes. Incontinence
may be caused by a wide range of factors, including childbirth, menopause,
surgery, obesity, drugs and neurological damage. Persons suffering from
urinary incontinence experience a variety of physical and psychological
problems including urinary tract infections, rashes, pressure sores,
embarrassment, decreased sexual activity, depression and loss of productive
activity.
Types and Causes of Incontinence and Vaginal Vault Prolapse
There are four main types of urinary incontinence, as defined in the
Clinical Practice Guideline issued by the AHCPR. Each type of incontinence may
be caused by multiple underlying pathologies, and patients may experience more
than one type of incontinence, often making effective diagnosis and treatment
difficult.
Stress incontinence. Stress incontinence is the involuntary loss of
urine during physical activities that increase abdominal pressure, such as
exercise, laughing, coughing and sneezing. In women, stress incontinence is
commonly caused by hypermobility of the bladder neck and the urethra, a kind
of prolapse (descent) of the urethra and bladder neck during exertion.
Urethral hypermobility is generally caused by childbirth, obesity, menopause,
hysterectomy or chronic coughing. Stress incontinence may also result from
intrinsic sphincter deficiency, which is dysfunction of the muscles of the
bladder sphincter. Intrinsic sphincter deficiency can result from previous
pelvic surgery, such as bladder neck suspension procedures, pelvic or urethral
trauma, radiation therapy, or a lower spinal cord disorder. Stress
incontinence is the primary pathology in approximately 50% or more of women
with incontinence. In men, stress incontinence may also be caused by sphincter
damage from prostate or urethral surgery or from pelvic or urethral trauma.
Urge incontinence. Urge incontinence results from an abrupt and
uncontrollable desire to void. It is caused by involuntary contractions
(spasms) of the bladder wall muscle that may be the result of a stroke or
neurological disorders such as multiple sclerosis. In men, benign prostatic
hyperplasia ("BPH") can cause such bladder wall muscle instability. Urge
incontinence is the primary pathology in approximately 30% of women with
incontinence.
30
<PAGE>
Mixed incontinence. Mixed incontinence involves a combination of urge
and stress incontinence. Many frail or elderly patients have mixed
incontinence that can be exacerbated by impairments of physical or cognitive
functioning. A significant number of women who suffer from incontinence are
diagnosed as having mixed incontinence.
Overflow incontinence. Overflow incontinence is the involuntary loss
of urine resulting from an overdistended bladder, frequently associated with
an underactive (atonic) bladder wall muscle, which leads to the bladder
becoming filled with urine, without a corresponding desire to void. At a
certain point, too much urine collects in the bladder to be contained and the
urine overflows through the urethra. Underlying conditions that may cause
overflow incontinence include chronic urethral obstruction that impairs
detrusor activity, use of certain medications, fecal impaction, pelvic
surgery, or neurologic conditions such as diabetic neuropathy or low spinal
cord injury. Patients with multiple sclerosis often develop overflow
incontinence due to the use of certain medications. Patients with overflow
incontinence often have recurrent urinary tract infections due to urine that
remains in the bladder after voiding, leaving a stagnant pool of urine prone
to infection. Overflow incontinence is the primary cause of incontinence in
approximately 10% of patients with incontinence.
Vaginal Vault Prolapse. Vault prolapse of the vagina is a condition
wherein the top of the vagina prolapses (descends) and which may be associated
with stress incontinence in women. Vault prolapse may be a side effect of
vaginal delivery and hysterectomy, particularly vaginal hysterectomy procedures.
Approximately 703,650 hysterectomies and 241,420 vaginal hysterectomies were
performed in 1996 in the United States.
Current Treatments and Diagnostics for Incontinence and Treatments of Vaginal
Vault Prolapse
Treatments for Incontinence
Physicians currently treat incontinence with a variety of techniques
and therapies that correspond with the type and severity of incontinence
diagnosed. The discussion below describes the principal treatment options
available, including certain products of which the Company is aware that are
under development or are not yet available for commercial sale in the United
States.
Diapers and absorbent pads. Adult diapers and pads, which capture
urine upon leakage, function similarly to baby diapers, and are used for all
types of incontinence. While these products have improved over the past
several years, drawbacks include the lack of control over urine flow, bulky
size, rashes and related discomfort. These may lead to embarrassment about
appearance and odor, perceived social stigma, and a significant compromise in
freedom of lifestyle. The Company believes that many patients choose absorbent
products to manage incontinence due to the convenience and privacy of
purchasing these products without seeing a physician. The Company estimates
that a typical urinary incontinence sufferer in the United States who
regularly uses adult diapers and incontinence pads spends approximately $1,200
to $1,500 per year on these products and that U.S. retail sales of adult
diapers and absorbent pads exceeded $2 billion in 1993. The cost of diapers
typically are not reimbursable by third party payors.
Behavioral therapy. Behavioral therapy and related techniques, which
are used to treat both stress and urge incontinence in women, include bladder
habit training, pelvic muscle exercises, biofeedback and pelvic floor muscle
electrical stimulation. Pelvic muscle training exercises are generally
designed to improve pelvic muscle strength in patients with stress
incontinence. Biofeedback treatments, which are designed to improve the
success of pelvic muscle training exercises, often involve numerous training
sessions with vaginal probes, usually in a physician's office. A 1996 survey
conducted by The National Association for Continence of its members revealed
that 50% of respondents with incontinence practice pelvic muscle training
exercises. A 1992 AHCPR publication estimated that 75% of patients performing
pelvic muscle training exercises improved, while only 12% of such patients
were cured.
Vaginal inserts. Inserts or pessaries are devices used to treat
stress incontinence in women. These devices are roughly the size and shape of
contraceptive diaphragms and are used to achieve continence by obstructing the
bladder neck and urethra by applying pressure through the neighboring vaginal
cavity or by elevating the bladder neck and urethra to a preprolapsed
position. While often helpful, these devices are not curative. Potential side
effects from the use of these devices include infection, vaginal discharge and
tissue erosion. These devices require daily removal and cleaning.
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Catheters, clamps and urethral plugs. Patients with overflow and
stress incontinence may also be treated with simple devices that either
obstruct or allow controlled flow of urine from the body. Female patients with
overflow incontinence may use a permanent catheter or a single-use catheter to
self-catheterize when voiding is desired, typically four to six times per day.
Women with stress incontinence may be treated with single-use intra-urethral
plugs or externally applied adhesive patches, both of which are intended to
stop the flow of urine. Male patients experiencing overflow incontinence may
be treated with an indwelling Foley catheter or condom catheter with an
external urine collection bag, or a penile clamp device. These products enable
the continuous or intermittent flow of urine. The Company believes these
products may be inconvenient for certain patients to use, and may cause
irritation, tissue erosion and recurrent urinary tract infections.
Pharmaceuticals. In general, drugs available for the treatment of
urinary incontinence act on the nerve receptors associated with the bladder
neurotransmitter system, and are used to treat urge incontinence in men and
women. Although drugs can alleviate the symptoms of urge incontinence, they
are not curative. Additionally, drugs may cause potential adverse
cardiovascular side effects, dizziness, weakness, and urinary retention.
Injectable materials. Women experiencing stress incontinence caused
by intrinsic sphincter deficiency may be treated with injectable bulking
agents, including Teflon(R), collagen and other materials, which are inserted
through a needle into the area around the urethra to create a mild
obstruction. These procedures often require repeat injections, making this
treatment expensive and time consuming.
Surgery. Surgery is commonly used to treat women whose primary
pathology is stress incontinence. In the surgical procedure known as a bladder
neck suspension, the physician elevates and stabilizes the urethra and the
bladder neck in order to restore continence by preventing urethral and bladder
neck prolapse (descent) during exertion. This repositioning is accomplished by
elevating the bladder neck and urethra together with periurethral tissue to
their original position. If intrinsic sphincter deficiency is present, a
surgical procedure known as a sling operation can be performed, in which a
sling is made across the urethra and bladder neck. Both types of surgery are
complicated procedures in which the outcome depends on a number of factors,
including the severity of pathology and the surgeon's skill. Current surgical
procedures, of which the "gold standards" are the Burch and sling procedures,
require substantial vaginal or abdominal incisions, and normally require a
hospital stay and a period of several weeks until full recovery. Of the
estimated five million or more women in the United States who suffer from
stress incontinence, in 1996 only approximately 183,000 patients elected to
undergo bladder neck surgery, which uses methods that typically require
abdominal or vaginal incisions and general anesthesia.
Men with stress incontinence may be treated with a surgically
implantable device, which applies pressure around the urethra and closes its
lumen to restore continence. The implanted device contains a fluid filled
reservoir in the abdomen and a manually activated pump located in the scrotum
to release periurethral pressure and permit urination. The Company believes
that this device is used relatively infrequently primarily because of its
inconvenience, significant complication rate, and pain associated with misuse.
Diagnostics for Incontinence
Incontinence is usually evaluated by gynecologists, urologists or
urogynecologists. Accurate diagnosis of the type of incontinence is essential
as different types of incontinence indicate different treatment options. The
basic tools and techniques used by physicians for diagnosing incontinence
include patient questionnaires, urodynamic evaluations (cystometry), leak
point pressure tests and "Q-tip" tests.
Cystometry is the urodynamic evaluation of bladder function in men
and women performed in a physician's office. Office-based cystometrograms are
currently performed using machines which the Company estimates cost between
$10,000 and $80,000. As part of these evaluations, a catheter is passed
through the urethra into the bladder, and water is pumped into the bladder.
One sensor at the end of the catheter measures bladder pressure and a second
sensor in the rectum or vagina measures intra-abdominal pressure. Relying on
these sensors, the physician attempts to measure the patient's daily range of
bladder pressure and behavior, including an indication of bladder contractions
(indicating the presence of urge incontinence), the patient's feeling of
fullness, a measurement of maximum bladder capacity and uroflowmetry (urine
flow pattern and volume). The physician also attempts to visually determine
leak point pressure, the point at which urine leaks out of the urethra. Leak
point pressure provides a measure of the integrity of the urethral
musculature.
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The "Q-tip" test commonly is used to diagnose stress incontinence in
women caused by urethral hypermobility, and to distinguish this condition from
incontinence caused by intrinsic sphincter deficiency. In this test, the
physician inserts a cotton swab into the urethra of a female patient and
visually assesses the degree of movement of the swab while the patient coughs
or bears down. A greater change in angle is equated with urethral
hypermobility, for which bladder neck suspension surgery may be the preferred
treatment. Little or no movement, together with low leak point pressure, is
equated with intrinsic sphincter deficiency, for which bladder neck suspension
surgery is not recommended.
The Company believes that the currently available diagnostic tools
and techniques either rely on expensive machinery, which are not generally
available in many health care facilities, or are inaccurate, and may lead to
frequent misdiagnoses of stress and urge incontinence. A significant potential
consequence of the misdiagnosis of incontinence is the performance of
inappropriate surgery. The Company is developing several devices for improving
diagnosis of incontinence.
Treatments for Vaginal Vault Prolapse
Vault prolapse surgery is currently performed by urologists and
gynecologists in a major operation involving extensive open pelvic dissection
whereby the vault of the vagina is sutured to the sacrospinus ligament or to
the sacrum at the rear of the pelvic cavity. Approximately 22,172 vaginal
vault surgeries were performed in the United States during 1996.
Urology/Gynecology Products
The following table summarizes the Company's urology and gynecology
products and products under development.
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Influence Division - Urology/Gynecology
---------------------------------------
<TABLE>
<CAPTION>
Proposed
Regulatory Path or
Product/Description Product Status(1) Status(2)
- ------------------------------------------------------------------------------ ------------------------ -----------------------
<S> <C> <C>
Catheters for Overflow and Stress Incontinence:
- -----------------------------------------------
In-Flow
A temporary intra-urethral valved catheter containing an Ongoing U.S. IDE trial; PMA path; CE Mark
intraluminal pump assembly operated by a Launched in approved March 1997
remote-controlled activator for women with atonic Europe and Asia 2Q97
bladder (overflow incontinence).
In-Flow-M
A modified version of the In-Flow remote-controlled intra- Preclinical PMA path
urethral catheter for men with atonic bladder (overflow
incontinence).
Surgical Products for Stress Incontinence and Vaginal Vault Prolapse:
- --------------------------------------------------------------------
In-Fast
A minimally invasive, disposable surgical system for performing Launched worldwide 510(k) cleared April
bladder neck fixation and sling procedure surgery in women with 4Q97; Loop screw 1997; CE Mark
stress incontinence. Screws with a crimped suture loop also launched 2Q98 approved August 1997
available.
In-Tac
A minimally invasive, reusable surgical system for performing Launched worldwide 510(k) cleared February
bladder neck fixation and sling procedure surgery in women with 2Q97 1997; CE Mark
stress incontinence. approved August 1997
Triangle
A minimally invasive transvaginal sling system that attaches First product launched 510(k) cleared
sling material to the posterior pubic bone and is used in worldwide 1Q98 September 1997; CE
conjunction with the Company's surgical products for stress Mark approved for first
incontinence. Available in two forms (gelatin coated and product September
uncoated)of synthetic and one allograft material. 1997
Straight-In
A disposable surgical tool for open or laparoscopic bladder neck Worldwide lauch 510(k) cleared October
fixation, sling procedures and vaginal vault prolapse surgery. expected 2H98 1997; CE Mark
approved March 1998
Raz Fascial Anchor for Stress Incontinence
A minimally invasive, disposable soft tissue to soft tissue anchor Worldwide lauch 510(k)submitted May
fixation system for correction of stress incontinence; available expected 4Q98 1998 (non-resorbable)/
with resorbable and non-resorbable anchors. June 1998 (resorbable)
Raz Fascial Anchor for Vaginal Vault Prolapse
A minimally invasive, disposable soft tissue to soft tissue anchor Worldwide launch 510(k) submitted May
fixation system for correction of vaginal vault prolapse; available expected 4Q98 1998 (non-resorbable)/
with resorbable and non-resorbable anchors. June 1998 (resorbable)
Clip-In
A miniature metal clip for joining two sutures instead of tying a Worldwide launch 510(k) submitted May
knot; available as a system for surgeries where space for a knot expected 4Q98 1998
or space to tie a knot is limited.
Ramus Male Sling
A minimally invasive, disposable surgical system for performing Worldwide launch 510(k) submitted June
sling procedures in men with stress incontinence. expected 4Q98 1998; CE Mark
approved June 1998
Cryo-Prost (3)
Minimally invasive cryo-technology for ablation of prostatic Preclinical 510(k) path
tissue in patients with BPH.
----------------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Proposed
Regulatory Path or
Product/Description Product Status(1) Status(2)
- ------------------------------------------------------------------------------ ------------------------ -----------------------
<S> <C> <C>
In-Cuff
A permanent, implantable, remote-controlled, artificial dynamic Preclinical PMA path
sphincter.
Diagnostic/Biofeedback Products for Stress, Urge and Overflow Incontinence:
- --------------------------------------------------------------------------
In-Bio
A wireless pelvic floor training and biofeedback transmitter to Worldwide launch 510(k) submitted
measure intra-abdominal pressure and perineal muccle expected 2H98 December 1997
contractions.
In-Probe(4)
A urodynamics and cystometry system for uroflowmetry (urine Worldwide launch Exempt from 510(k)
flow, pattern and volume) and leak point pressure. expected 2H98 Notification
requirements
In-Tele
A wireless disposable transmitter that is inserted into the bladder Preclinical 510(k) path
to transmit bladder pressure to a belt-mounted receiver.
</TABLE>
---------------------------------
(1) "Ongoing international pilot trial" means such product is currently
undergoing uncontrolled clinical trials in Europe and Israel.
"Preclinical" means the Company is in the process of refining
product development and design prior to initiation of any clinical
trials.
(2) "510(k) path" indicates those products which the Company believes
will require a 510(k) clearance from the FDA prior to marketing in
the U.S. "PMA path" indicates those products which the Company
believes will require a PMA approval prior to marketing in the U.S.
See "Business -- Government Regulation."
(3) Under joint development with Galil Medical, Ltd., an affiliate of
ESC Medical Systems, Ltd. See: "Business--BPH Surgical
Product--Cryo-Prost" and "Certain Transactions."
(4) In-Probe Angle Measurement is a supplementary product to record the
degree or presence of urethral hypermobility and requires a 510(k)
Notification.
Most of the Company's products are currently under development.
Many of the Company's products under development, and certain products
not currently sold in the United States, discussed herein have not been
approved or cleared by the FDA, and there can be no assurance that such
products will receive such approval or clearance on a timely basis, or at
all. See "Risk Factors -- No Assurance of Regulatory Approvals; Potential
Delays."
Catheter Devices
Intended Benefits of Catheter Devices
The Company is developing its remote controlled catheter devices due
to the significant limitation of currently available therapeutic alternatives.
The intended benefits of the Influence catheter products include:
o Restoration of quality of life. The In-Flow device allows a
patient with atonic bladder to forego the use of a permanent
indwelling catheter attached to a urine collection bag or having
to self catheterize typically four to six times a day.
o Convenient and easy to use. The operation of the In-Flow
catheter is easy to use, as well as being easy for healthcare
providers, patients or their partners to replace, as is required
on a monthly basis.
o Potential for fewer infections. By emptying the bladder
completely, the Company believes there may be fewer infections
of the urinary system compared to the existing treatments for
atonic bladder.
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<PAGE>
Description of Catheter Products
In-Flow. In-Flow, for women with overflow incontinence caused by
atonic bladder, is a temporary intra-urethral valved catheter containing an
intraluminal pump assembly which functions as a remote-controlled artificial
sphincter and urine pump providing complete and controllable continence and
normalized urine flow. To urinate, the patient holds a battery-powered remote
control device near the lower abdomen and presses a switch which activates a
pump in the catheter. The device utilizes the Company's proprietary magnetic
energy transfer technology to draw urine from the bladder until the bladder is
completely emptied. When urine flow has completely stopped, the patient
releases the switch to stop the pump, and thereby reestablishes continence
between urinations. The In-Flow catheter is designed to be inserted initially
by a health care professional into the urethra without anesthesia in an
atraumatic, non-surgical outpatient procedure and can be easily and
atraumatically removed. The Company expects that after the initial insertion
many patients or their partners will be able to insert the catheter without
the assistance of a healthcare professional. In-Flow is designed to protect
the patient from overdistension of the bladder, overflow incontinence and
post-voiding residual urine complications, including recurrent urinary tract
infection. The Company is not currently aware of any other products under
development that can conveniently and quickly empty an atonic bladder, while
restoring continence between urinations.
Approximately 210 patients are currently being treated with In-Flow
outside the United States, with the longest follow-up being 34 months. In the
United States, an IDE was approved in February 1997 for a clinical trial on
250 patients in 15 sites. The study commenced in June 1997. To date, 155
patients had been enrolled in this U.S. trial, of which 114 have begun
treatment with In-Flow. Of the patients who have commenced treatment with
In-Flow in this trial, 57% removed themselves or were removed from the trial.
Based on experience with In-Flow to date, the Company estimates that patient
selection, discomfort or leakage may, therefore, limit the total potential
market penetration of this product. However, the Company believes that a
focused patient support effort may expand this potential market, particularly
because symptoms of discomfort appear to dissipate after one week, during
which the patient appears to acclimate to the catheter. For example, in two
series of patients treated with In-Flow (38 in Germany and 30 in Israel), once
patients had spent one week on the In-Flow product, approximately 80-90% of
remaining patients have continued using In-Flow regularly. Those patients who
remained on treatment have reported being dry, and enjoying a significant
improvement in their quality of life. In a series of 27 patients treated in
Australia during the last year, where extensive patient support has been
available, approximately 85% of the 27 patients have continued to use In-Flow.
Due to the small number of patients in the Australian trial, it may be premature
to draw any conclusions regarding patient acceptance of the In-Flow. In
addition, because some patients in early trials were given prophylactic
antibiotics, the urinary tract infection ("UTI") rate of patients at
approximately one to two UTIs per patient year of In-Flow treatment may be lower
than could be expected without use of prophylactic antibiotics. There can be no
assurance that the continuation or infection rates reported in any of the
Company's trials or patient series will be indicative of future results.
The Company is also evaluating the market opportunity for an
application of In-Flow in women with stress incontinence for whom surgery is
not an option and for patients in nursing homes.
In-Flow-M. The Company is developing a modified version of In-Flow
for use in men with atonic bladder. The internal structure of the device is
similar to that of the female product. Externally, the catheter will have a
different shape for temporary placement and retention between the bulbar
urethra and the bladder neck. In-Flow-M is being designed to be inserted under
topical anesthesia. The Company intends to conduct clinical trials in late
1998 to finalize the design of this product. The Company is also evaluating
the market opportunity for an application of In-Flow-M in men with stress
incontinence or acute post-surgical urinary retention.
Minimally Invasive Surgical Systems
Intended Benefits of Influence Minimally Invasive Surgical Systems
Intended benefits of the Company's minimally invasive surgical
systems include:
o No abdominal or vaginal incision or scar. Procedures using
Influence's surgical systems may be performed without any
incisions, while current surgeries often leave patients with
abdominal scars and may involve major pelvic surgical
dissection.
36
<PAGE>
o Local, spinal or general anesthesia. As these procedures are
minimally invasive, local anesthesia is an option for some of
the procedures, offering flexibility to the physician and the
patient.
o Easy to learn procedures. These procedures may be taught by
operating room trained sales representatives and physicians may
become proficient after one to three procedures. The average
operation time may also be short, at approximately 30 minutes
for the bladder neck surgery systems.
o Rapid recovery, cost effective and shortened patient discharge
period. Most of the patients undergoing the Company's bladder
neck surgeries have been discharged within 24 hours and without
the suprapubic catheter often used following traditional
surgeries, making these procedures potentially highly cost
effective solutions.
o Efficacy comparable to current surgical methods. With respect
to the bladder neck surgical systems, the Company's procedures,
with a success rate of approximately 85%, have to date shown an
efficacy comparable to traditional invasive Burch and sling
procedures, currently recognized as the "gold standards" of
incontinence surgery.
Description of Minimally Invasive Surgical Systems
In-Tac and In-Fast Surgical Systems. The Company has designed
proprietary specialized surgical systems enabling physicians to perform
minimally invasive bladder neck fixation and sling surgeries for women with
urinary stress incontinence. The Company has developed two variations of these
surgical systems, In-Tac and In-Fast, to address physician preferences and
different techniques, as well as to account for country-specific preferences.
With the In-Tac system, the physician uses a reusable mechanical insertion
device with nitinol bone anchors, whereas the In-Fast system uses a
disposable, plastic, battery-operated inserter with titanium, self-tapping
bone screws.
The Company's surgical systems performed with In-Tac and In-Fast
incorporate proprietary bone anchors/screws and insertion devices to enable
incisionless, minimally invasive transvaginal bladder neck fixation and sling
procedures. In the fixation procedure, the physician affixes prolapsed
periurethral tissue to the pubic bone by means of bone anchors/screws threaded
with sutures, in order to return the urethra and bladder neck to their
original, retropubic, preprolapsed positions, and to prevent urethral
hypermobility when the patient's intra-abdominal pressure increases through
exertion. In the sling procedure, the bone anchors/screws and sutures are used
to secure a piece of graft or synthetic material beneath the bladder neck,
which acts as a strut or support. This sling material prevents prolapse of the
bladder neck and urethra when the patient's intra-abdominal pressure increases
through exertion, while providing support to bladder sphincter muscles which
are damaged in patients with intrinsic sphincter deficiency. Both the fixation
and sling procedures are performed transvaginally by a physician utilizing
either of the Company's proprietary insertion devices (reusable or disposable)
which inserts the bone anchors/screws threaded with sutures through the
anterior vaginal wall and into the posterior wall of the pubic bone.
To date, approximately 2,000 patients (1,200 in the United States)
have undergone treatment with the In-Tac or In-Fast surgical systems, with the
longest follow-up being 30 months. Results reveal a success rate of
approximately 85%, as defined by continence, and there have been no reported
cases of adverse experiences of bleeding or osteomyelitis (bone infection).
The Company believes that the success rate reported to date compares favorably
with the results reported in the scientific literature for traditional, more
invasive surgical procedures performed by urologists and gynecologists. Most
patients were catheterized with a Foley catheter after an In-Tac or In-Fast
procedure and suprapubic catheterization was not needed. The Foley catheter was
removed an average of one to three days after the procedure.
Straight-In Surgical System. The Straight-In surgical system
comprises the same titanium bone screws used with In-Fast and the Company's
proprietary, disposable, battery-operated, linear-shaped insertion device.
Straight-In is intended for use in open or laparoscopic surgical procedures
which involve incisions for bladder neck fixation and bladder neck sling
procedures, as well as for the transvaginal sacral fixation of vaginal vault
prolapse, a condition often associated with stress incontinence, in which the
vagina has lost is anatomical position and support, commonly as a result of
childbirth or vaginal hysterectomy procedures.
Ramus Male Sling System. The Company is developing a male sling
system for the treatment of stress incontinence. The Ramus Male Sling surgical
system comprises the same titanium bone screws used with In-Fast
37
<PAGE>
and Straight-In. The Ramus Male Sling inserter is similar to the Company's
proprietary, disposable, battery-operated, linear-shaped insertion device, the
Straight-In, but has a shorter rotating arm. The Ramus Male Sling procedure
involves placing four bone screws into the inferior pubic ramus of the pelvis,
two on each side of the midline. These bone screws are used to tie in place,
beneath the perineal skin, a sling which provides support for the urethra,
thereby effecting a minimally invasive procedure for treating males with
stress incontinence. A 510(k) Notification for the Ramus Male Sling system was
submitted in June 1998 and an ongoing international pilot trial is underway.
Clip-In. The Clip-In is a steel clip being developed by the Company
that can be used in place of tying knots in pelvic surgical procedures where
space is limited such as during laparoscopic procedures. The Company believes
that being able to quickly attach a clip during laparoscopic surgery may save
a surgeon considerable time. In addition, the miniature Clip-in leaves a small
stub rather than a bulky knot after two sutures have been joined, which the
Company believes may be an advantage in places where a large knot can be a
source of erosion, discomfort, or granuloma formation. A 510(k) Notification
for the Clip-In was submitted in May 1998.
Additional Surgical Products. The Company has developed or is
developing a number of products to complement its minimally invasive surgical
products. Three types of the Triangle Sling material, a gelatin coated
Dacron(R) material, an uncoated polyester material and a human allographic
material, are currently being marketed by the Company. A titanium loop screw
being developed by the Company for use in the In-Fast and Straight-In surgical
systems can be threaded with any type of suture, thereby enabling the surgeon
to use a suture material of his or her own choice for these procedures. The
Company is also developing a line of resorbable and non-resorbable, T-shaped
Raz Fascial Anchors, for use in bladder neck surgery and for vaginal vault
prolapse procedures. The Raz Fascial Anchors used with a linear inserter are
designed to be inserted directly from the top of a prolapsed vagina into the
sacrospinus ligament at the rear of the pelvis in a minimally invasive
procedure for vaginal vault prolapse, obviating the need for extensive pelvic
dissections. The Raz Fascial Anchors used with a curved inserter are designed
to provide a transvaginal anchor into the rectus fascia, a ligamentous
structure near the top of the pubic bone, thereby enabling a bladder neck
surgical repair of incontinence without the need for abdominal incisions and
without the necessity to use any bone anchors. The Company has submitted
510(k) Notifications for the Raz Fascial Anchors, which are pending with the
FDA.
Diagnostic and Other Products
Intended Benefits of Influence's Diagnostic and Biofeedback Products
and Products Under Development
Intended benefits of the Company's diagnostic and other products
include:
o More accurate diagnoses. The Company believes that its In-Probe
product offers the only quantitative Q-Tip test available,
thereby potentially enabling more accurate diagnoses, and may
therefore prevent unnecessary surgeries.
o Cost effective and accessible. With low price points compared
to other systems, these products are accessible to a broader
range of urologists, gynecologists, and medical offices.
o User friendly. The Company's In-Probe and In-Bio products are
simple to operate, operate wirelessly and permit home based
treatment. In-Bio is also user friendly due to its convenience
and comfort.
o Portable. The Company's products are small and portable, in
contrast to large urodynamic diagnostic equipment and
office-based biofeedback systems.
Description of Diagnostic and Other Products.
In-Probe. In-Probe, which is comprised of a disposable catheter and
an attached monitor, is a portable, low-cost cystometry and uroflowmetry
system combined with sensors which permit quantitative measurement of urethral
hypermobility and bladder leak point pressure. In-Probe is designed to provide
a more accurate and quantitative diagnosis of urethral hypermobility than the
diagnosis achievable using current procedures, such as the Q-tip test. The
Company intends to market In-Probe as an effective, inexpensive, portable
diagnostic tool. In-Probe is exempt from 510(k) Notification requirements as a
urodynamics system and requires a 510(k) Notification for the angle
38
<PAGE>
measurement supplement. The Company expects to launch the urodynamics system
worldwide during the second half of 1998.
In-Tele. In-Tele is a small wireless disposable transmitter which is
inserted into the bladder of a male or female patient. The patient carries a
reusable, belt mounted receiver, which records bladder pressure activity for
eight to 24 hours, enabling more accurate diagnosis of urge incontinence or
other bladder abnormalities than current, in-office diagnostic techniques. By
detecting urge incontinence in patients for whom bladder neck surgery is
likely to fail, In-Tele has the potential to reduce the incidence of
unnecessary surgeries. In-Tele is expected to follow the 510(k) path and its
status is preclinical.
In-Bio. In-Bio is a wireless pelvic floor training and biofeedback
device that is inserted into the vagina to measure intra-abdominal pressure
and contractions of perineal muscles. These measurements, which are wirelessly
transmitted to a small, portable monitor worn on the patient's belt, are
intended to help a patient learn to contract pelvic floor musculature without
increasing abdominal pressure. Unlike other biofeedback devices, In-Bio is
wireless, allowing the patient to train while doing other activities. In-Bio
is designed to provide immediate and continuous feedback to the patient,
rather than relying on a physician's observations during brief and infrequent
office visits. In-Bio may reduce the number of patients referred for surgery
by increasing the acceptance, practice and success of pelvic floor training
exercises. A 510(k) was submitted in December 1997 and the Company expects to
launch the product worldwide during the second half of 1998.
BPH Surgical Product -- Cryo-Prost
Benign prostatic hyperplasia ("BPH") is a condition in which the
prostate gland at the base of the penis swells, causing an obstruction to
urine flow. Fourteen million men in the United States have some symptoms of
BPH, which increases in incidence with age. The most common symptom is
frequent urination caused by incomplete emptying of the bladder due to partial
obstruction of the bladder neck by the swollen prostate gland. Drug therapy is
the most common form of treatment, with two million men taking drugs for this
in the United States. However, these prostate-shrinking compounds are only
moderately effective and demonstrate a high drop-out rate, leaving a surgical
solution the only other option available to these patients. Surgical
procedures include the transurethral resection of the prostate ("TURP"), which
uses electrocautery probes inserted via the urethra to remove prostatic
tissue, of which approximately 200,000 procedures are conducted each year.
Complications such as retrograde ejaculation and impotence have led to the
development of additional technologies to debulk prostatic tissue leaving the
urethra less traumatized. Such technologies involve the use of transurethral
probes, which utilize laser, microwave, cryotherapy or radio frequency
ablation energy sources. These technologies frequently involve the purchase of
expensive capital equipment and their comparative advantages and disadvantages
are still being determined, with no single technology having taken a dominant
market position.
The Company's BPH product under development uses alternate
cryotherapy and heating cycles that the Company believes will shorten
procedure time by accelerating prostatic tissue destruction while
simultaneously causing hemostatis, and thereby differentiate the Company's
product from existing ablation technologies.
The Company and Galil Medical Ltd. ("Galil"), an affiliate of ESC
Medical Systems, Ltd. ("ESC"), have entered into an agreement in principle to
jointly develop and own the technology related to this product under
development. The Company expects to file a 510(k) Notification for this
product, which is in a preclinical stage of development.
Influ-ENT Division - Otolaryngology
Overview
The following discussion of obstructive sleep apnea ("OSA") and
snoring is provided as a background to the Company's Repose and Cryo-ENT
product lines. OSA is a disorder characterized by the repeated cessation of
breathing during sleep due to obstruction of the upper airway, which is
frequently associated with prolapse of the tongue base. It is associated with
impotence, heart disease, strokes, debilitating daytime drowsiness, automobile
accidents and an increased mortality rate. The prevalence of OSA is difficult
to assess because many people with OSA are unaware of the existence of their
condition. The National Center on Sleep Disorders Research reported in 1995
that approximately 18 million people in the United States are affected by OSA.
The incidence of snoring,
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which may be confused with and should be differentiated from OSA, is seen in
approximately 24% of men and 14% of women.
Current Methods to Treat OSA and Snoring
Current treatments for OSA and snoring begin with certain lifestyle
changes such as dieting and the avoidance of alcohol, which have low patient
compliance. Current non-surgical treatments for OSA, which include requiring a
patient to wear a face mask, are similarly affected by poor compliance.
Current surgical methods to treat OSA are highly invasive and painful,
resulting in many patients electing to remain untreated. Certain of these
treatments involve reducing tissue mass in the soft palate and/or tonsils. A
description of current methods to treat OSA and snoring is provided below.
Continuous Positive Airways Pressure ("CPAP"). This treatment
involves a patient sleeping with a mask over the nose, or nose and mouth,
connected to a compressor that blows a constant minimal positive air pressure
inwards in an effort to maintain airway patency. Lack of patient compliance
limits the effectiveness of this treatment.
Uvulopalatopharyngoplasty ("UPPP"). UPPP is an invasive open surgical
procedure to widen the anatomy at the back of the mouth by cutting out
extraneous tissues. The procedure is often associated with significant
post-operative pain and other complications and has a failure rate of
approximately 50%.
Mandibular Advancement, Hyoid Advancement or Midglossectomy. These
procedures are designed to relieve airway obstruction through forward
displacement of the muscles of the tongue attached to the mandible or hyoid
bone, or excision of tongue musculature. These procedures are highly invasive
and require a prolonged post-surgical recovery period. Furthermore, mandibular
advancement changes facial physiognomy.
Laser Uvulopalatoplasty ("LAUP") and Radio Frequency ("RF")
Uvulopalatoplasty. LAUP is a laser procedure for removing tissues at the back
of the mouth, thereby widening the air passages. LAUP is a treatment designed
to stop snoring but has also been used to treat patients with OSA. In patients
with OSA treated with LAUP, the symptoms of snoring may be relieved without
resolving the airway obstruction, leaving a patient with the dangerous
condition of a silent OSA syndrome. The procedure also is associated with
significant post-operative pain and debilitation (difficulty eating and
delayed return to work), and may need to be repeated two to five or more times
in order to show a therapeutic effect. More recently, uvulopalatoplasty
procedures have been performed using RF energy to ablate the soft palate and
cause submucosal soft tissue volume reduction in patients with habitual
snoring. The efficacy of these RF energy procedures in OSA is unproven and not
FDA cleared.
Tracheostomy. The ultimate treatment of sleep apnea, which has a 100%
efficacy rate, is tracheostomy, in which the throat is bypassed entirely by a
permanent hole being made in the trachea at the base of the neck. The trauma
involved in this albeit lifesaving procedure, together with difficulties in
speech and frequent lung infections, have relegated tracheostomy as a
procedure of last resort for the intractable OSA patient.
Otolaryngology Products
The following table summarizes certain of the Company's otolaryngology
products.
Influ-ENT--Obstructive Sleep Apnea and Snoring Therapeutic Devices
------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Regulatory Path or
Product/Description Product Status(1) Status(2)
- ------------------------------------------------------------------------------ ----------------------- ------------------------
<S> <C> <C>
Repose-Tongue
A minimally invasive, disposable surgical system for performing Launched worldwide 510(k) cleared August
tongue stabilization procedures to treat OSA and snoring 1Q98 1997; CE Mark
approved March 1998
Repose-Hyoid
A minimally invasive, disposable surgical system for performing Worldwide launch 510(k) submitted May
</TABLE>
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<TABLE>
<S> <C> <C>
hyoid suspension or distraction to treat OSA and snoring expected 4Q98 1998
Cryo-ENT
Minimally invasive cryo-technology for ablation of tonsils and Preclinical 510(k) path
soft palate in patients with sleep apnea and for patients with
recurrent tonsillitis.
</TABLE>
---------------------------------------------
(1) "Preclinical" means the Company is in the process of refining
product development and design prior to initiation of any clinical
trials.
(2) "510(k) path" indicates those products which the Company believes
will require a 510(k) clearance from the FDA prior to marketing in
the U.S.
Most of the Company's products are currently under development. Many
of the Company's products under development discussed herein have not
been approved or cleared by the FDA, and there can be no assurance that
such proposed products will receive such approval or clearance on a
timely basis, or at all. See "Risk Factors -- No Assurance of Regulatory
Approvals; Potential Delays."
Influ-ENT is the otolaryngology division of Influence. The Company
is currently developing surgical systems for the treatment of OSA.
Intended Benefits of Influ-ENT OSA Surgical Systems
o Minimally invasive. The Repose-Tongue procedure, requiring no
incisions, and the Repose Hyoid procedure, requiring small (1
cm) incisions, make these surgical treatments significantly
less invasive than alternative surgical procedures for OSA.
o Easy to learn procedures. These procedures may be taught by
operating room trained sales representatives and physicians may
become proficient after performing one to three procedures. The
average operation time may also be short, taking approximately
15 to 30 minutes.
o Rapid recovery and low post-operative morbidity. Patients are
routinely discharged the day following these procedures with
minor analgesics and may eat and drink normally shortly
thereafter. In contrast, traditional surgical procedures
generally are highly debilitating, involving longer hospital
stays. Laser treatments for OSA are associated with being less
invasive than traditional surgeries, but cause significant
post-operative pain and delayed return to a normal diet.
o Single treatment. The Repose procedures are intended to be a
one-time procedure. In contrast, treatments for OSA involving
lasers may require two to five or more repeat treatments
separated by weeks of recovery.
o Cost effective. Compared to lifelong CPAP therapy, major
surgery, or repeated laser procedures, the Company believes
that Repose is a highly cost effective solution for OSA.
o Addresses the cause of OSA. Tongue-based collapse contributes
to the pathology in 50% to 70% of patients with OSA.
Alternative procedures focused on the palate may address a
symptom of snoring, without necessarily treating the condition.
Description of Repose Devices and Procedures
Repose-Tongue Procedure. The Repose is a minimally invasive surgical
system for surgery to the tongue for the treatment of OSA and snoring. The
Company is seeking to establish Repose as a therapy for patients with OSA and
snoring to be used either alone or in combination with other treatments. The
Repose device is similar to the In-Fast device in that it involves the use of
a titanium self-tapping screw which is inserted into the mandible at the floor
of the mouth using a disposable, battery-operated, U-shaped inserter. Using a
proprietary suture passer to loop a suture through the tongue base, and
attaching this suture to the mandibular bone screw, the Repose procedure
effectuates a suspension of the tongue base so that it is less likely to
prolapse and obstruct the throat during sleep. In reducing the likelihood of
airway collapse during sleep, this procedure thereby reduces the degree of OSA
and
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snoring experienced by a patient. Because the procedure is performed through a
small insertion hole, no incisions are necessary, thereby facilitating rapid
recovery.
To date, the Company's products have been used in over 100
Repose-Tongue procedures in patients of all ages, the youngest being four
years of age, since launching the product in the United States during the
first quarter of 1998. The procedure is simple to perform, with surgeries
often taking approximately 15 to 30 minutes. Post-operative morbidity to date
has been minimal, with most patients being able to eat a day or two after the
surgery. Preliminary clinical impressions of efficacy and objective sleep
study data in a small number of patients have been positive and the Company is
conducting a clinical trial that involves post surgical sleep studies in six
surgical centers in the United States. There can be no assurance that the
success rate reported in the small number of patients to date will be
indicative of future results.
Repose-Hyoid Procedures. The Repose-Hyoid procedures (which include
either a classic suspension or a distraction suspension technique) use
instruments that are identical to the instruments used in the Repose-Tongue
procedure. These hyoid procedures effect a suspension of the tongue
musculature to the mandible by linking a titanium screw in the mandible,
inserted from beneath the chin, to the hyoid bone. The hyoid bone is itself an
insertion point for tongue musculature, so the result of these procedures is
to make it less likely for the tongue to fall backwards during sleep. Hyoid
suspensions have been performed with scalpels and needles for several years,
but the invasiveness of these older procedures has prevented their
popularization. The Repose-Hyoid procedures are technically simple to perform
and involve two or three one-centimeter incisions in the neck and chin.
Minimal post operative morbidity has been seen in the relatively
small number of Repose-Hyoid procedures performed to date. The efficacy of the
procedure is being studied in a clinical trial that involves post procedure
sleep studies, but it should be noted that the procedure less invasively
mirrors the established procedure of Hyoid suspension that already has its own
established record of efficacy and an existing Current Procedural Terminology
("CPT") code, which is used in the submission of claims to insurers for
reimbursement of medical services. See "Risk Factors - Uncertainty Relating to
Third Party Reimbursement." A 510(k) Notification was submitted in May 1998.
Physicians may elect to use either the Repose-Tongue procedure or the
Repose Hyoid procedures to treat OSA and snoring depending on the
circumstances of the patient and physician preferences. In addition,
physicians may frequently elect to perform either or both Repose procedures in
conjunction with other procedures such as UPPP, while a patient is under
general anesthesia, making it difficult in such cases to establish the
efficacy of the Repose procedures.
Cryo-ENT Procedure
The Cryo-ENT procedure for tonsil ablation uses the same technology
used in the Cryo-Prost procedure described above, and has the same advantages
of accelerated tissue ablation with hemostasis, which may be particularly
important in the highly vascularized tonsil. In addition, by avoiding thermal
damage along the shaft of the probe, Cryo-ENT surgeries may be less painful
than alternative procedures. Tonsil reduction is indicated not only for
recurrent tonsillitis, but also for cases of OSA where tonsil enlargement is a
factor in reducing airway patency. Cryo-ENT may also have an application in
soft palate ablation in patients with snoring. This technology is presently at
a preclinical stage of development. The Company and Galil have entered into an
agreement in principle to jointly develop and own the technology related to
this product under development.
Influ-RAD Division - Cancer Radiotherapy
Overview
Cancer is the second most common cause of death in the United States.
Where possible, surgical excision followed by chemotherapy and or radiotherapy
are the standard of care, depending on the stage of advancement and type of
tumor. According to the American Cancer Society, in 1998 in the United States
there will be approximately 180,300 new cases of breast cancer and 43,900
deaths from breast cancer, 184,500 new cases of prostate cancer and 39,200
deaths from prostate cancer, and 54,400 new cases of bladder cancer and 12,500
deaths from bladder cancer.
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If radiotherapy treatment is indicated, there are essentially two
types of radiation available, external beam radiation and focused internal
radiation, or brachytherapy. External beam radiation usually involves a
patient visiting a hospital for a course of radiation treatments administered
by a radiation oncologist in a dedicated radiation suite. External beam
radiotherapy equipment normally cost $500,000 to $2 million and constitute a
major capital equipment expenditure for a hospital. Besides being expensive,
external beam radiation treatment requires irradiation of healthy
non-cancerous tissues at the same time the external beam is directed towards
cancerous tissues. Skin ulceration and bone marrow suppression are examples of
dose limiting side effects of external beam radiation.
Brachytherapy targeted radiation is less prone to concomitant
peripheral tissue damage. Brachytherapy takes various forms. Injections of
radioactive seeds directly inside a tumor are commonly administered for the
treatment of some cancers. Injections of radioactive iodine are used to treat
cancer of the thyroid gland. Brain cancers have also been treated with
interstitial x-ray radiation delivered through a needle inserted directly into
a brain tumor. The drawback of injections of seeds or drugs is that such
preparations are expensive to manufacture and difficult to handle in that they
decay over time and may expose health workers to radiation unless handled
carefully. As a result, such preparations require a radioactive substance
handling license and are normally only administered within a hospital, where
proper disposal of unused materials can be assured. Current devices, which
direct interstitial x-ray radiation through needles for brain tumors, are
limited in the dose of radiation that can be administered and require large
diameter needles. Another application of radiotherapy is in the relatively new
area of intra-operative radiotherapy treatment, where radiotherapy is
administered during surgery, for example, into the opened abdomen. If external
beam radiation is used for intra-operative radiotherapy, this results in the
interruption of surgical procedures and the transfer of a patient from the
operating room to the radiotherapy suite with an open wound, unless a hospital
has gone to the considerable expense of purchasing radiotherapy equipment for
operating room usage.
Cancer Radiotherapy Products
Influ-RAD is the cancer division of Influence. The Company is
currently developing the Tomotherapy device for interstitial radiation
treatment of solid tumors.
Intended Benefits of Cancer Products
Intended benefits of the Company's cancer treatment products under
development include:
o Potential for high dose, targeted radiotherapy. By targeting
radiation directly inside a cancerous tumor, the Company
believes this product under development may cause less
peripheral tissue damage than conventional external beam
radiotherapy systems, permitting higher concentrations of
x-rays to be used.
o Cost effective. Designed to be smaller and less expensive than
external beam radiotherapy systems, the Company believes this
product under development may offer significant cost savings.
o Safer operation for operator of equipment. Designed to emit
less extraneous radiation when in operation and no
radioactivity when not in operation, the Company believes this
product may be less dangerous to use than conventional external
beam systems and radioactive seed products.
o Reduced environmental risk. In contrast to brachytherapy
products utilizing radioactive seeds, which if disposed of
improperly may pose environmental hazards, the proposed
Tomotherapy device, which only produces radiation when
connected to a power source, presents no environmental disposal
problem.
Description of Influ-RAD Device
The Tomotherapy device is a small bore needle connected to a vacuum
sealed ceramic head unit, which in turn is connected to a high voltage x-ray
generator. X-rays are produced when the unit is plugged in, similar to a
conventional x-ray imaging device used in dentist offices. When the unit is
turned off, there is no radioactivity, so a special radioactivity handling
license is not required to operate such a unit. The intention of the
Tomotherapy program is to disperse x-rays at the tip of the needle when it is
inserted into the middle of a solid tumor and thereby
43
<PAGE>
irradiate cancers from the inside outward. The Company believes that its
Tomotherapy device patents differentiate Influ-RAD's technology from other
interstitial x-ray devices in development in permitting a higher dose of
x-rays to be generated at the needle tip, and for narrower bore needles to be
used. Furthermore, Influ-RAD's patent portfolio describes the Tomotherapy
device being used with cooling and heating cycles of the needle tip that the
Company believes may be important in treating certain solid tumors. Initially,
the Company intends to study the use of the Tomotherapy device in cancers of
the prostate, bladder and breast as well as for intra-operative radiotherapy.
The Company believes that the Tomotherapy device may ultimately be useful as a
stand-alone as well as an adjuvant therapy for solid cancerous tumors. The
Tomotherapy device is currently in a preclinical stage of development.
In March 1998, the Company entered into a Technology Development and
License Agreement with The Titan Corporation ("Titan") and TomoTherapeutics,
Inc. ("TTI"), a subsidiary of Titan (the "TTI Agreement"). Under the terms of
the TTI Agreement, the Company agreed to license certain patented technology
and to purchase certain tangible assets from TTI and to work initially with
TTI, and subsequently on its own, to develop and market products based on the
technology. Upon completion of certain performance milestones, the Company
will issue up to 45,000 shares of Common Stock to TTI.
Under the terms of the TTI Agreement, the Company has agreed to pay
to TTI royalties based on revenues from products based on such technology. In
the event certain performance milestones are not achieved by the Company or
the Company fails to make one or more royalty payments to TTI, TTI may have
the right to terminate the TTI Agreement, in which case all rights granted to
the Company would terminate and revert to TTI. There can be no assurance that
the Company will achieve any of the milestones specified in the TTI Agreement.
The failure of the Company to retain the rights and benefits granted to it
under the TTI Agreement could have a material adverse effect on the Company's
business, financial condition and results of operations.
Marketing and Sales
Urology/Gynecology Products
In the United States, the Company has established a direct sales
force of 17 field-based salespersons and nine in-house support staff to market
and distribute its products to gynecologists, urologists and urogynecologists.
Marketing efforts have initially been focused on prominent physicians and have
included conference participation, direct advertising and training seminars to
increase awareness of the Company's products. The Company may also implement a
general media campaign intended to raise the awareness of incontinence in the
general population so that they may approach their physicians to ask about
minimally invasive solutions for these conditions. The Company is also seeking
alliances with various patient groups, including incontinence groups and
various support and women's health organizations. The Company recently signed
a letter of intent, subject to negotiation of definitive agreements, pursuant
to which Indigo, a subsidiary of J&J, would become the Company's exclusive
distributor outside of the United States of its current and future urology,
gynecology and urogynecology products.
Otolaryngology Products
The Company's Influ-ENT Division has three direct sales people in the
United States and an internal support staff of two, and is pursuing
independent regional representatives. Outside the United States, the Company
is in the process of evaluating whether to use distributors or to develop its
own direct sales force in selected countries for its otolaryngology products.
If the distribution arrangement with J&J is finalized, the existing staff in
Germany who were formerly engaged primarily in urology/gynecology sales will
be refocused on building this distribution channel in ENT. ENT sales efforts
are being directed at otolaryngologists, maxillofacial surgeons, sleep
physiologists and dentists.
The Company may also implement general media campaigns intended to
raise the awareness of snoring and OSA in the general population to encourage
patients to approach their physicians to ask about minimally invasive
solutions for these conditions.
Cancer Radiotherapy Products
Initial distribution targets are to be in the area of prostate and
bladder cancer treatment, which will be distributed through the Company's
direct urology/gynecology distribution channel in the U.S. The letter of
intent
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between the Company and Indigo contemplates the negotiation of definitive
agreements pursuant to which Indigo would become the Company's exclusive
distributor outside the United States of the Company's cancer treatment
products under development.
As the Company develops the Tomotherapy device in the area of breast
cancer treatment, it will determine whether to develop a dedicated sales
division for calling upon radiation oncologists, and or interventional
radiologists, depending on which specialists undertake the brachytherapy
initiative for treating breast cancer.
In addition to the channels of distribution described above, the
Company will also distribute the Tomotherapy product line through a national
accounts sales force, which is being developed from within the current
national U.S. sales staff, to call upon radiation oncologists and possibly
interventional radiologists and their hospital capital equipment purchasing
counterparts for all applications of the brachytherapy device, particularly
intra-operative radiotherapy.
The Company has limited experience marketing and selling its
products. Establishing marketing and sales capability sufficient to support
sales in commercial quantities will require significant resources, and there
can be no assurance that the Company will be able to recruit and retain
qualified marketing personnel, direct sales personnel or contract sales
representatives or that future sales efforts of the Company will be
successful. See "Risk Factors -- Limited Marketing and Sales Capability;
Potential Dependence on Single International Distributor."
Third-Party Reimbursement
In the United States, the Company's products generally will be
purchased or prescribed by physician groups, hospitals and suppliers. The
Company's success will be significantly dependent on its ability to obtain
satisfactory reimbursement for its products and for services associated with
such products from third-party payors, including private insurance companies,
health maintenance organizations, preferred provider organizations, other
managed care providers, Medicare and Medicaid.
The Health Care Finance Administration ("HCFA") administers the
Medicare program and determines whether to provide coverage for a particular
medical product, procedure or other service and determine a reimbursement
level. The Company intends to make application to HCFA for coverage and
payment of its products and associated medical services. Private insurance
companies often follow HCFA's decisions regarding reimbursement. Under the
Medicaid program, states generally reimburse for approved procedures on a
fee-schedule basis.
A key component in the reimbursement decision by HCFA, state Medicaid
agencies and most private insurers is the assignment of a Current Procedural
Terminology ("CPT") code which is used in the submission of claims to insurers
for reimbursement of medical services. CPT codes are assigned, maintained and
revised by the CPT editorial board administered by the American Medical
Association. The Company believes that surgical procedures using the In-Tac
and In-Fast surgical systems, the Company's first two products cleared by the
FDA, are covered under existing CPT codes for bladder neck surgery. The
Company believes that surgical procedures using the Repose device for tongue
and hyoid procedures are covered under existing CPT codes for tongue and hyoid
suspension procedures. The Company intends to petition the CPT editorial board
for codes for its other products, as needed. There can be no assurance that
the Company will succeed in securing or maintaining recognition by the CPT
editorial board of specific codes for medical services associated with its
approved products and products under development. In addition, HCFA assigns
other codes to supplies. The Company will petition HCFA for new supply codes
where necessary. There can be no assurance that the Company will succeed in
obtaining these supply codes or that any products will be covered by existing
supply codes.
Medicare and many other third-party payors do not reimburse for
procedures deemed "experimental." See "Business -- Government Regulation."
However, effective November 1, 1995, Medicare began allowing local carriers
the discretion to cover certain devices with an approved IDE during clinical
trials. The Company has received an approved IDE for In-Flow. It is uncertain
at this time whether Medicare carriers will cover In-Flow and, if so, at what
price. Furthermore, there can be no assurance, even if the Company's future
products are cleared or approved by the FDA for new clinical applications,
that any coverage and reimbursement will be available for such procedures.
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The Company's strategy for obtaining reimbursement in the United
States is to obtain appropriate reimbursement codes and perform outcome
studies in conjunction with clinical trials to establish the efficacy and cost
effectiveness of its products compared to competing diagnostic and therapeutic
products. The Company intends to use this health economics data when
approaching health care payors to obtain coverage and reimbursement
authorization.
The Company currently has minimal experience in obtaining
reimbursement for its products in the United States or other countries. In
addition, third-party payors are routinely limiting reimbursement coverage for
medical devices and in many instances are exerting significant pressure on
medical suppliers to lower their prices. The Company could also be adversely
affected by changes in reimbursement policies of government or private health
care payors, particularly to the extent that any such changes affect
reimbursement for therapeutic or diagnostic procedures in which the Company's
products are used. For example, effective January 1, 1999, HCFA will reimburse
hospital outpatient departments for services and supplies based on a
prospective payment system, which means that outpatient departments will be
paid a flat fee for a procedure regardless of the cost of a supply or device
associated with a procedure. Hospital inpatient procedures currently are
reimbursed under such a system. Failure by physicians, hospitals and other
users of the Company's products to obtain sufficient reimbursement from health
care payors for procedures in which the Company's products are used, or
adverse changes in government and private third-party payors' policies toward
reimbursement for such procedures, could have a material adverse effect on the
Company's business, financial condition and results of operations.
There is widespread concern that health care reform proposals and
related market initiatives in the U.S. may lead third-party payors to decline
or further limit reimbursement. The extent to which third-party payors may
determine that the use of the Company's products will save costs or will at
least be cost effective is highly uncertain, and it is possible that they will
limit coverage and reimbursement for products developed by the Company.
Because of uncertainties regarding the possible federal and state health care
reform measures that could be proposed and initiatives to reduce costs by
private payors, the Company cannot predict whether reimbursement for the
Company's products will be affected or, if affected, the extent of any effect.
Third-party payors may also decline to reimburse for procedures, supplies or
services determined to be not "medically necessary" or "reasonable."
Market acceptance of the Company's products in international markets
may be dependent in part upon the availability of reimbursement within
prevailing health care payment systems. Reimbursement and healthcare payment
systems in international markets vary significantly by country, and include
both government-sponsored and private health care insurance. Although the
Company and its distributors will seek international reimbursement approvals,
obtaining such approvals can require 12 to 18 months or longer and there can
be no assurance that any such approvals will be obtained in a timely manner,
if at all. In addition, certain countries may require additional clinical
trials to be conducted, which can be costly and time consuming and could delay
or prevent reimbursement. Failure to receive additional international
reimbursement approvals could have a material adverse effect on market
acceptance of the Company's products in the international markets in which the
Company and its partner is seeking approvals and could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Uncertainty Relating to Third Party
Reimbursement."
Manufacturing
The Company currently intends to manufacture substantially all of its
products at its facility in Israel, which enables the Company to benefit from
certain Israeli tax advantages. Most components of the Company's products are
manufactured by subcontractors in Israel, Germany, the United States and other
locations. The Company's employees at the facility in Israel currently
assemble components, perform quality assurance and control and package the
products. Currently, assembled products are sterilized by a subcontractor and
also by the Company's own sterilization chamber located in its facility in
Israel. Beginning in the fourth quarter of 1997, certain components, which had
been individually manufactured by machine shops in Israel and elsewhere, were
produced by subcontractors using automated injection molding. The Company has
limited experience in manufacturing commercial quantities of its products and
products under development. It currently has a facility capable of limited
manufacturing of its products and products under development for use in
clinical trials and production of products currently being marketed in
commercial quantities. The Company had a product backlog in the first half of
1997 with respect to the In-Tac inserter due to production capacity
constraints. There can be no assurance that the Company can successfully
manufacture commercial quantities of all products currently under development.
In order to successfully commercialize its products and products under
development, the Company will have to increase the
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number of units it can produce, reduce per-unit manufacturing costs and achieve
the extremely high quality standards required for such products. In order to
manufacture in commercial quantities on the foregoing basis, the Company will be
required either to enhance significantly its existing capabilities and equipment
and recruit and retain a sufficient number of skilled manufacturing personnel,
or to enter into arrangements with third parties to manufacture its products and
products under development. The Company has implemented a Quality System based
on the requirements of the QSReg., ISO 9001, ISO 9002 and EN-46001. The Quality
System is presently certified for ISO 9001 and EN-46001. To date, the following
products are CE Marked for distribution in Europe: In-Tac, In-Fast, Repose,
Triangle Sling, Straight-In and Ramus Male Sling. To date, the Company's
facility has not been inspected by the FDA for compliance with the QSReg. There
can be no assurance that the Company will be able to establish manufacturing
capability, successfully undergo inspection by the FDA, successfully make the
transition to commercial manufacturing or manufacture its products
cost-effectively, or at all. Failure to do so could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Facilities."
The principal materials, but not all materials, used in the Company's
products are currently available from several sources. The Company may, in the
future, seek to enter into supply agreements with certain suppliers if it
considers this to be a cost-effective means of assuring the availability of
essential materials. Any interruption in the supply of raw materials currently
used by the Company could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk Factors --
Limited Manufacturing Experience; Risks Associated with Manufacturing Delays,"
and "Risk Factors--Risks Associated with Ability to Manage Expanding
Operations."
Patents, Licenses and Proprietary Technology
The Company's success will depend in part on its ability to obtain
and maintain patent protection for its products, to preserve its trade secrets
and to operate without infringing the proprietary rights of third parties. The
Company's strategy regarding the protection of its proprietary rights and
innovations is to seek patents on those aspects of its technology that it
believes are patentable and to protect as trade secrets other confidential and
proprietary information.
The Company has an exclusive worldwide license to certain technology
related to its In-Tac surgical system. Two issued U.S. patents cover certain
technology related to the In-Tac system, including the inserter device and a
method for transvaginal bladder neck suspension surgery using an anchor and
suture inserted into the pubic bone. In consideration for the license, the
Company will pay to the owner thereof a royalty of 0.5% of the income derived
from that technology. The Company has an issued U.S. patent and U.S. pending
patent applications with claims covering various other aspects of the In-Tac,
In-Fast, Straight-In and Repose systems and employed methods such as the
anchors and screws with suture, the inserters, and the method of treating OSA.
A foreign patent also has been issued for aspects of the In-Tac device and
additional foreign patent protection is still being sought for other aspects
of the In-Tac device as well as for In-Fast, Straight-In and the Repose
systems. The Company has one issued U.S. patent covering certain aspects of
the technology related to the Company's catheter products. Foreign patents are
also being sought with respect to such technology. Additional U.S. and foreign
patent applications are pending on certain additional aspects of the
technology. The Company is pursuing additional U.S. and corresponding foreign
patent applications seeking coverage of its proprietary technology for various
other products and has licenses to patents related to other products. The
Company is a licensee to three U.S. patents related to the Clip-ln system and
is a licensee to one U.S. patent on its Tomotherapy device.
There can be no assurance that any patents will issue from any
pending or future patent applications, that any claims obtained will provide
adequate protection for the Company's products, or that such issued patents
will be enforceable. In addition, methods of treating humans are generally not
patentable outside of the United States, nor are claims directed to such
methods currently enforceable within the United States against medical
practitioners or related health care entities if the patents were issued after
September 30, 1996.
Some of the technology used in, and that may be important to the
Company's products is not covered by any patent or patent application of the
Company. The Company seeks to maintain the confidentiality of its proprietary
technology by requiring employees who work with proprietary information to
sign confidentiality agreements and by limiting access by parties outside the
Company to such confidential information. There can be no assurance, however,
that these measures will prevent the unauthorized disclosure or use of this
information, or that
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others will not be able to independently develop such information. Moreover, as
is the case with the Company's patent rights, the enforcement by the Company of
its trade secret rights can be lengthy and costly, with no guarantee of success.
To date, no lawsuits have been filed against the Company alleging
that its technology or products infringe intellectual property rights of
others. However, there can be no assurance that such lawsuits will not be
brought against the Company in the future or that any such claims will not be
successful. The Company has been notified by a third party that it has filed a
PCT patent application directed to methods of and an apparatus for treating
urinary incontinence by bladder neck suspension through the use of an anchor
and suture inserted into bone and a procedure using an anchor with or without
sutures. The Company subsequently became aware of a U.S. patent issued to such
third party. While the Company's patent counsel has conducted a review of the
third party's relevant issued U.S. patents and is of the opinion that neither
the Company's In-Tac, In-Fast or Straight-In device nor their use infringes
any valid claim of the issued patents. there can be no assurance that a court
would not find the Company's products to infringe any issued patent or prevent
or limit the sale of the Company's products or require the Company to procure
a license, if available. There can also be no assurance that additional U.S.
patents will not issue having claims which are valid and infringed by the
Company's products. One of the third party's U.S. patents in question contains
method claims related to a medical activity and such claims issued after
September 30, 1996. In accordance with a change in U.S. patent law which
became effective on September 30, 1996, such claims are currently
unenforceable against medical practitioners or related health care entities.
These patents, however, may be enforceable against manufactures of devices
used in the medical activities. To date, however, there has been no judicial
decision interpreting the issue of whether this statutory immunity to medical
practitioners and related health care entities extends to manufacturers of
products which do not otherwise infringe on apparatus claims, and there can be
no assurance that the patent's method claims are not enforceable or will not
become enforceable retroactively by act of Congress or judicial decision.
While the Company's patent counsel believes that the Company's products do not
infringe the third party's apparatus and article of manufacture claims, there
can be no assurance that a court would not find the Company's products to
infringe any issued patent, or prevent or limit the sale of the Company's
products or require the Company to procure a license, if available. There can
also be no assurance that U.S. or other patents will not issue in the future
in the name of this particular third party or another party having claims
which would constrain the Company's ability to manufacture and sell its
products or prevent customers of the Company from practicing the method of
bladder neck suspension contemplated by use of the Company's In-Tac, In-Fast
or Straight-In surgical systems or any similar products in the future.
Another entity has brought to the Company's attention the existence
of a Spanish patent having related foreign country equivalents and concerning
a staple inserter useful for a bladder neck suspension procedure. The Company
and its patent counsel have conducted an investigation of the likely scope of
this third party's patents in Europe. While the Company believes that no
patent infringement liability exists based upon the Company's sales and
distribution in Europe of its In-Tac, In-Fast or Straight-In surgical systems
and related anchors and screws, there can be no assurance that a court would
not find the Company's products to infringe any issued patent or prevent or
limit the sale of the Company's products or require the Company to procure a
license, if available. The Company has conducted research to determine the
existence of U.S. equivalents to the Spanish and other foreign patents and
believes that none have yet issued. However, there can be no assurance that a
U.S. patent will not issue in the future having claims which cover the
Company's products.
The Company is also aware of a number of U.S. patents of third
parties related to intra-urethral valved catheters for the treatment of
incontinence. The Company's patent counsel has reviewed the patents. The
Company believes that its proposed catheter products will not infringe any
valid claims of those patents. A third party has asserted that the Company's
In-Flow intra-urethral valved catheter product infringes the claims of an
issued U.S. patent. The Company's patent counsel has reviewed the patent,
related documents and the prior art and is of the opinion that no valid claim
is infringed. There can be no assurances, however, that a suit for patent
infringement will not be filed by any patent owners or licensees in the
future, that the Company will prevail in defense of any suit charging patent
infringement, or that the Company will not be required to take a license under
unfavorable terms or be enjoined from manufacturing and selling its
intra-urethral valved catheter incontinence device or other products.
The Company reviewed several U.S. patents of another third party
related to screw anchors with suture. These patents potentially relate to the
Company's In-Fast, Straight-In and Repose systems. Based on the advice of
patent counsel, the Company is of the opinion that the Company's products do
not infringe on the patent rights of this third party. There can be no
assurance, however, that a suit for patent infringement will not be filed by
any
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patent owners or licensees in the future, that the Company will prevail in
defense of any suit charging patent infringement, or that the Company will not
be required to take a license under unfavorable terms or be enjoined from
manufacturing and selling its In-Fast, Straight-ln and Repose or other products.
Government Regulation
The medical devices to be marketed and manufactured by the Company
are subject to extensive regulation by the FDA and, in some instances, by
foreign governments. Pursuant to the FDC Act, the FDA regulates the clinical
testing, manufacture, labeling, distribution and promotion of medical devices.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing approvals
or clearances and criminal prosecution.
Under the Food, Drug and Cosmetic Act, as amended, and the
regulations promulgated thereunder (the "FDC Act"), medical devices are
classified into one of three classes (i.e., class I, II, or III) based on the
controls deemed necessary to reasonably ensure their safety and effectiveness.
Safety and effectiveness can reasonably be assured for class I devices through
general controls (e.g., labeling, premarket notification and adherence to the
QSReg.) and for class II devices through the use of general and special
controls (e.g., performance standards, post market surveillance, patient
registries, and FDA guidelines). Generally, class III devices are those which
must receive premarket approval by the FDA to ensure their safety and
effectiveness (e.g., life-sustaining, life-supporting and implantable devices,
or new devices which have been found not to be substantially equivalent to
legally marketed devices).
Before a new device can be commercially introduced to the market, the
manufacturer generally must obtain FDA marketing clearance through a 510(k)
premarket notification or marketing approval through a premarket application
("PMA"). Clearance of a 510(k) Notification will be granted if the submitted
information and data establish that the proposed device is "substantially
equivalent" to a "predicate device," i.e. a legally marketed class I or class
II medical device, or a "preamendment" class III medical device for which the
FDA has not called for PMAs. The FDA recently has been requiring a more
rigorous demonstration of substantial equivalence than in the past. The FDA
sometimes requires the submission of clinical data in order to make a
substantial equivalence determination. It generally takes from four to 12
months from submission to obtain 510(k) premarket clearance, but may take
longer. The FDA may determine that the proposed device is not substantially
equivalent, or that additional data are needed before a substantial
equivalence determination can be made. A "not substantially equivalent"
determination, or a request for additional data, could delay the market
introduction of new products that fall into this category and could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, modifications or enhancements to the
Company's products that are cleared through the 510(k) process that could
significantly affect safety or effectiveness of the device or that constitute
a major change in the intended use of the device will require the submission
of new 510(k) Notifications.
A PMA application must be filed if a proposed device is not
substantially equivalent to a legally marketed class I or class II device, or
if it is a preamendment class III device for which the FDA has called for
PMAs. A "preamendment" class III device is one that was on the market before
May 28, 1976. A device that is substantially equivalent to a preamendment
class III device can be brought to market through the 510(k) process (with the
additional step of passing a preapproval inspection by the FDA for compliance
with the QSReg.) until the FDA either calls for the submission of PMA
applications or downclassifies the device to class I or II. Manufacturers of
preamendment class III devices that the FDA retains in class III must submit
PMA applications 90 days after the publication of a final regulation calling
for PMAs, even if the device has already received 510(k) premarket clearance.
On the other hand, if the FDA downclassifies a preamendment class III device
to class I or II, a PMA application is not required and such devices may
continue to be marketed via the 510(k) process.
A PMA application must be supported by valid scientific evidence
which typically includes extensive data, including human clinical trial data
to demonstrate the safety and effectiveness of the device. The PMA application
must also contain the results of all relevant bench tests, laboratory and
animal studies, a complete description of the device and its components, and a
detailed description of the methods, facilities and controls used to
manufacture the device. In addition the submission must include the proposed
labeling, advertising literature, and training methods (if required).
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Upon receipt of a PMA application, the FDA makes a threshold
determination as to whether the application is sufficiently complete to permit
a substantive review. Once the submission is accepted for filing, the FDA
begins an in-depth review of the PMA. An FDA review of a PMA application
generally takes one to two years from the date the PMA application is accepted
for filing, but may take significantly longer. The review time is often
significantly extended by the FDA asking for more information or clarification
of information already provided in the submission. During the review period,
an advisory committee, typically a panel of clinicians, will likely be
convened to review and evaluate the application and provide recommendations to
the FDA as to whether the device should be approved. The FDA typically accords
great weight to, but is not bound by, the recommendations of the advisory
panel. Toward the end of the PMA review process, the FDA generally will
conduct an inspection of the manufacturer's facilities to ensure that the
facilities are in compliance with QSReg. requirements.
If the FDA's evaluations of both the PMA application and the
manufacturing facilities are favorable, the FDA will either issue an approval
letter or an approvable letter, which usually contains a number of conditions
that must be met in order to secure final approval of the PMA. The FDA may
also determine that additional clinical trials are necessary, in which case
PMA approval may be significantly delayed while additional clinical trials are
conducted. The PMA process can be expensive, uncertain and lengthy and a
number of devices for which FDA approval has been sought by other companies
have never been approved for marketing.
If human clinical trials of a device are required in connection with
either a 510(k) Notification or a PMA, and the device presents a "significant
risk," the sponsor of the trial (usually the manufacturer or the distributor
of the device) is required to file an investigational device exemption ("IDE")
application prior to commencing human clinical trials. The IDE application
must be supported by data, typically including the result of animal and
laboratory testing. If the IDE application is reviewed and approved by the FDA
and one or more appropriate Institutional Review Boards ("IRBs"), human
clinical trials may begin at a specific number of investigational sites with a
specific number of patients, as approved by the FDA. If the device presents a
"nonsignificant risk" to the patient, a sponsor may begin the clinical trial
after obtaining approval for the study by one or more appropriate IRBs without
prior approval by the FDA. Sponsors of clinical trials are permitted to sell
those devices distributed in the course of the study provided such
compensation does not exceed recovery of the costs of manufacture, research,
development and handling. An IDE supplement must be submitted to and approved
by the FDA before a sponsor or an investigator may make a change to the
investigational plan that may effect the scientific soundness or the rights,
safety or welfare of human subjects.
The Company has the following FDA clearances or exemptions: In-Tac,
In-Fast, Straight-In, Triangle Sling (gelatin coated), Triangle Sling
(uncoated), Triangle Sling (allographic), In-Probe, and Repose-Tongue. The
Company has made modifications to some of its cleared devices, which the
Company believes do not require the submission of new 510(k) Notifications.
There can be no assurance, however, that the FDA would agree with any of the
Company's determinations not to submit a new 510(k) Notification for any of
these changes or would not require the Company to submit a new 510(k)
Notification for any of the changes made to the device. If the FDA requires
the Company to submit a new 510(k) Notification for any device modification,
the Company may be prohibited from marketing the modified device until the
510(k) Notification is cleared by the FDA.
The Company has 510(k) Notifications pending for eight products: (Raz
Fascial Anchor-Stress Incontinence (resorbable and non-resorbable), Raz
Fascial Anchor-Vaginal Vault (resorbable and non-resorbable), In-Bio, Clip-In,
Ramus Male Sling, and Repose-Hyoid. The Raz Fascial Anchor 510(k)
Notifications were submitted without clinical data. No assurance can be given
that FDA will not require clinical data for either or both of these
submissions before 510(k) clearance will be granted. No assurance can be given
that any of these products will receive FDA clearance in a timely manner, or
at all.
The In-Flow device is being studied in a clinical trial approved by
FDA. There can be no assurance that the trial will generate data sufficient to
support PMA approval or that the In-Flow device will receive PMA approval in a
timely manner, or at all. Failure to obtain PMA approval for the In-Flow
device could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company anticipates that the Cryo-Prost, In-Tele and Cryo-ENT
devices will be eligible for the 510(k) process. The In-Probe is currently
exempt from the 510(k) Notification requirement and is marketed in the United
States. However, the Company expects that a 510(k) Notification will be
required for a version of the In-Probe that
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would include an Angle Measurement supplement that the Company is developing.
There can be no assurance, however, that the FDA will not require any of these
devices to undergo the PMA approval process.
The Company is currently evaluating whether to file is a 510(k)
Notification or seek PMA approval for the Tomotherapy device. If a 510(k)
Notification is submitted, no assurance can be given that the FDA will not
require clinical data or that the FDA will not require a PMA submission. No
assurance can be given that the device will be developed for clinical trial,
that FDA will approve such a trial, or that the results of such a trial, if
any, will support PMA approval. There can be no assurance that PMA approval
can be obtained for the Tomotherapy device in a timely fashion, or at all.
In an April 1994 document setting forth FDA's strategy for addressing
preamendment class III devices, FDA indicated that preamendment class III
implanted mechanical/hydraulic urinary continence devices, a category that
includes the In-Cuff device, were among fifteen "high priority" devices that
presented an unreasonably high risk to public health because significant
issues of safety and/or effectiveness were not being resolved or, to the
agency's knowledge, had little probability of being resolved. FDA indicated
that these devices were not considered candidates for downclassification and
were very likely to be required to submit PMAs.
In February 1995, FDA issued a proposed regulation that would retain
these devices in Class III and require that they undergo the PMA process.
Until a final regulation is published, the In-Cuff is eligible for the 510(k)
process, with the addition of a preapproval inspection for QSReg. compliance.
If such clearance is obtained before FDA issues a final regulation requiring
PMA approval for this type of device, the Company will be required to have a
PMA accepted for filing within 90 days after publication of a final regulation
calling for PMA applications. There can be no assurance that the Company would
be able to have a PMA application accepted for filing within the required time
frame or that any data or information submitted in a PMA application would be
adequate to support approval of the device. The Company believes, based on the
FDA's announced position as to certain other devices, that upon timely filing
of a PMA the FDA would permit continued commercial distribution of the In-Cuff
during the time necessary to review the PMA. There can be no assurance,
however, that FDA would do so, nor can any assurance be given that the FDA
would approve a PMA for the In-Cuff.
Any devices manufactured or distributed by the Company pursuant to
FDA clearances or approvals are subject to pervasive and continuing regulation
by the FDA and certain state agencies. Manufacturers of medical devices for
marketing in the United States are required to adhere to the FDA's QSReg.,
which impose certain procedural and documentation requirements with respect to
device design, development, manufacturing, and quality assurance activities.
Manufacturers must also comply with Medical Device Reporting ("MDR")
requirements that a firm report to the FDA any incident in which its product
may have caused or contributed to a death or serious injury, or in which its
product malfunctioned and, if the malfunction were to recur, it would be
likely to cause or contribute to death or serious injury. Labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission. Current FDA enforcement policy
prohibits the marketing of approved medical devices for unapproved uses.
The Company is subject to inspection by the FDA for compliance with
the QSReg., MDR requirements, and other applicable regulations. To date, the
Company's facility has not been inspected by the FDA. Although the Company's
facilities and manufacturing procedures are designed to comply with QSReg.
requirements, there can be no assurance that the FDA would find them in
compliance with all relevant aspects of the QSReg.
The Company and its products are also subject to a variety of state
laws and regulations in those states or localities where its products are or
will be marketed. Any applicable state or local regulations may hinder the
Company's ability to market its products in those states or localities.
Manufacturers are also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations now or in the future or that such laws or regulations will not
have a material adverse effect upon the Company's ability to do business.
The Company and its products may also be subject to other Federal,
state, local or foreign regulations relating to health and safety,
environmental matters, quality assurance and the like. The Company's
compliance with laws that regulate the discharge of materials into the
environment or otherwise relate to the protection of the
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environment does not have a material effect on the ongoing operations of the
Company. The Company has not made any material expenditures for environmental
control facilities, nor does it anticipate any such expenditures for the
remainder of 1997.
Changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will not
be required to incur significant costs to comply with laws and regulations in
the future or that laws or regulations will not have a material adverse effect
upon the Company's business, financial condition or results of operations.
International sales are subject to foreign government regulation, the
requirements of which vary substantially from country to country. The time
required to obtain approval by a foreign country may be longer or shorter than
that required for the FDA approval, and the requirements may differ.
The Company has implemented a Quality System based on the
requirements of the QSReg., ISO 9001 and EN-46001. The Quality System is
presently certified for ISO 9001 and EN-46001. The Company currently has the
following products CE Marked: In-Tac, In-Fast, Straight-In, In-Flow, Triangle
Sling, Ramus Male Sling and Repose. The European Union requires that medical
devices receive a CE Mark by mid-1998 in order to commercially market and sell
medical products in the countries of the European Economic Area. While the
Company intends to satisfy the requisite policies and procedures that will
permit it to maintain ISO 9001 and obtain CE Mark certification for future
products, there is no assurance that it will be successful in meeting such
certification requirements. See "Risk Factors--No Assurance of Regulatory
Approvals; Potential Delays."
Research and Development
The primary activity of the Company to date has been the research and
development of technology for the diagnosis and treatment of
urology/gynecology pathology, otolaryngological disorders, and cancer
treatments. In addition, the Company has identified other potential
applications for its core proprietary technologies. The Company believes that
its future success will depend in large part upon its ability to enhance its
proposed products and to develop new products. Accordingly, the Company
intends to devote significant funds and efforts to research and development.
The Company conducts all of its research and development activities in Israel.
As of March 31, 1998, 16 employees of the Company in Israel were involved in
research and development. To March 31, 1998, the Company has spent
approximately $8.9 million on research and development. See "Risk Factors --
Intense Competition and Risks Associated with Rapid Technological Change,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business --Competition."
Competition
The Company is engaged in rapidly evolving and highly competitive
fields. The Company believes that the primary competitive factors include the
level of physician and consumer awareness and acceptance of available
treatment methods, consistency of product quality and delivery, price,
technical capability and the training of health care professionals and
consumers in the use of available treatment methods. The Company's ability to
compete in this industry will also be affected by its product development
capabilities and innovation, its ability to obtain required regulatory
clearances and approvals, its ability to protect the proprietary technology
included in its products, its manufacturing and marketing capabilities and its
ability to attract and retain skilled employees. Current major competitors who
compete in the incontinence market include Kimberly-Clark Corp., Procter &
Gamble Co., Johnson & Johnson, C.R. Bard Inc., Kendall Co., Mentor Corp. and
Baxter Technologies, Inc. Current major competitors who compete in the market
for surgical or implantable products for incontinence include Boston
Scientific Corporation, American Medical Systems, Inc., C.R. Bard, Inc.,
Advanced UroScience, Inc., UroSurge, Mentor Corp. and Johnson & Johnson. The
Company is aware that Rochester Medical Corp., UroQuest Medical Corporation,
Imagyn Medical, Inc., UroMed Corp. and HK Medical Technologies Inc. have
developed or are developing intra-urethral devices for the treatment of
incontinence. The Company is aware that Dantec Medical, Inc. manufactures
competing diagnostic devices. Companies competing in the BPH field include
Merck & Co., Inc. and Abbott Laboratories in the drug area and Indigo,
VidaMed, Inc., United States Surgical Corp., Urologix, Inc., Edap Technomed
International, SA and Endocare, Inc. Companies with devices available or under
development to treat OSA or snoring include Healthdyne Technologies Inc.,
Mallinckrodt, Inc., ArthroCare Corp., Xomed Inc.,
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Respironics, Inc., ResMed, Inc., Coherent, Inc. and Laser Industries Ltd. and
Somnus Medical Technologies, Inc. Companies with devices available or under
development in the brachytherapy field include Theragenics Corp., UroMed Corp.,
Nucletron Corp., Theratron, Imagyn Medical, Inc. and Photoelectron Corp.
Companies with external beam products include Varian Associates Inc., Siemens
AG, Siemens Medical Corp., Siemens Medical Oncology Care Systems, Phillips
Medical Systems North America Co., General Electric Co., Mitsubishi Corp.,
Elekta and Toshiba Corporation.
Many of the Company's competitors and potential competitors have
significantly greater financial, manufacturing, marketing, distribution and
technical resources and experience than the Company. It is possible that other
large health care and consumer products companies may enter markets targeted
by the Company. Furthermore, academic institutions, governmental agencies and
other public and private research organizations will continue to conduct
research, seek patent protection and establish arrangements for
commercializing products. Such products may compete directly with any products
which may be offered by the Company. Finally, competitors in the medical
device industry have in the past and may in the future employ litigation to
gain a competitive advantage. See "Risk Factors--Dependence on Patents,
Licenses and Proprietary Technology; Risk of Infringement Claims" and "Risk
Factors--Intense Competition and Risks Associated with Rapid Technological
Change."
Employees
As of March 31, 1998, the Company employed 106 individuals on a
full-time basis, approximately 60 of which were located at the Company's
facility in Israel. Twenty-seven of the Company's employees were engaged in
manufacturing and quality control, 16 were engaged in research and
development, 42 were involved in sales and marketing and 21 were engaged in
general and administrative activities. The Company believes that it has been
highly successful in attracting experienced and capable personnel. However,
there can be no assurance that the Company will continue to do so. See "Risk
Factors--Dependence on Key Personnel."
The Company is not a party to any collective bargaining agreements.
However, the Company's Israeli operations are subject to various Israeli labor
laws and labor practices, and to administrative orders extending certain
provisions of collective bargaining agreements between the Histadrut (Israel's
General Federation of Labor) and the Coordinating Bureau of Economic
Organizations (the Israeli federation of employers' organizations) to all
private sector employees. For example, mandatory cost of living adjustments,
which compensate Israeli employees for a portion of the increase in the
Israeli consumer price index, are determined on a nationwide basis. Israeli
law also requires the payment of severance benefits upon the termination or
death of an employee, and, in certain circumstances, upon the retirement of an
employee. In order to meet these requirements, the Company contributes on an
ongoing basis towards "managers' insurance" funds that combine pension,
insurance and, if applicable, severance pay benefits. These contributions are
expected to cover a significant portion of the Company's obligations, but
certain additional sums may be payable by law. In addition, Israeli employers
and employees are required to pay specified percentages of wages to the
National Insurance Institute, which is similar to the United States Social
Security Administration. Other provisions of Israeli law or regulation govern
matters such as the length of the workday, minimum wages, other terms of
employment and restrictions on discrimination. See "Risk Factors--Principal
Subsidiary's Location in Israel."
Facilities
The Company maintains its principal executive office in a 3,100
square foot facility in San Francisco, California, pursuant to a lease
expiring in June 1999. The Company currently leases approximately 18,000
square feet in Hertzliya, Israel. The Company believes that this facility will
provide adequate space for the manufacture and assembly of commercial
quantities of its products. The Israeli facility is dedicated to research and
development, manufacturing and administration. The FDA regulates facilities
that manufacture medical devices intended for sale in the United States.
Although the Company's facilities and manufacturing procedures are designed to
comply with QSReg. requirements, there can be no assurance that the FDA would
find them in compliance with all relevant aspects of the QSRegs. During the
investigational device trial phase, the Company is exempt from these formal
requirements. The Company's facility in Hertzliya has received ISO 9001 and
ISO 9002 certification. See "Risk Factors--No Assurance of Regulatory
Approvals; Potential Delays," "Risk Factors--Limited Manufacturing
Experience; Risks Associated with Manufacturing Delays," "Risk Factors--
Principal Subsidiary's Location in Israel," "Business--Manufacturing" and
"Business--Government Regulation."
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Product Liability and Warranties
The testing, marketing and sale of medical devices entail a risk of
product liability claims by consumers and others. The Company maintains
product liability insurance with an aggregate coverage limit of $10 million.
The Company expects to review the adequacy of such coverage from time to time.
There can be no assurance that the Company will be able to secure or maintain
product liability insurance in such amounts that management believes to be
reasonably sufficient to cover foreseeable product liability claims.
Furthermore, market clearance or approval of the Company's products by the FDA
will not shield the Company from product liability exposure. See "Risk Factors
- --Product Liability Exposure."
Legal Proceedings
The Company is not a party to any material legal proceedings, nor is
the property of the Company the subject of any such proceedings.
Scientific Advisory Committee
The Company has established a Scientific Advisory Committee for
urology/gynecology products consisting of experts in the field of urology or
gynecology which will review clinical studies and recommend product
development strategies. Certain members of the Scientific Advisory Committee
listed below have received options to purchase shares of Common Stock in
connection with previous services to the Company. Members of the Scientific
Advisory Committee annually may be granted options to purchase shares of
Common Stock. In addition, members will be reimbursed for their out-of-pocket
expenses and will be paid consulting fees for each meeting of the Scientific
Advisory Committee they attend.
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
David Barrett, M.D......................... Professor of Urology, Mayo Graduate School of Medicine; Chairman,
Department of Urology, Mayo Clinic, Rochester, Minnesota
Jerry Blaivas, M.D......................... Clinical Professor of Urology, Cornell University Medical School
Richard Bump, M.D.......................... Associate Professor and Chief, Gynecologic Specialties, Duke University
Shlomo Raz, M.D............................ Professor of Urology, University of California at Los Angeles Medical
Center
Stewart Stanton, M.B.B.S................... Director of the Urology/Gynecology Unit and Co-Director of the Pelvic
Floor Reconstruction Centre at St. George's Hospital in London, England
Alan Wein, M.D............................. Professor and Chair of the Urology Department, University of
Pennsylvania Medical School; Chief of Urology, Hospital of the
University of Pennsylvania
</TABLE>
In addition, the Company has developed an informal network of
preceptors in both the urology/gynecology field and the otolaryngology field
consisting of experts who teach procedures, review clinical studies and
recommend product development strategies. Certain members of these networks
listed below have received options to purchase shares of Common Stock in
connection with previous services to the Company. Members may be granted
options to purchase shares of Common Stock. In addition, members may be
reimbursed for their out-of-pocket expenses and will be paid consulting fees
for each meeting they attend at the request of the Company.
54
<PAGE>
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Brian Feagins, M.D......................... Urology Specialists and Associates, Presbyterian Hospital, Dallas, Texas
Gary Leach, M.D............................ Director of Tower Urology Institute For Continence
Los Angeles, California
Robert Kovac, M.D.......................... President, Society of Pelvic Reconstructive Surgery
Professor, Department of OB/GYN
Wright State University, Ohio
Yosef P. Krespi, M.D....................... Director, Department of Otolaryngology, St. Luke's-Roosevelt Hospital
Center, New York
Tucker Woodson, M.D........................ Associate Professor, Medical College of Wisconsin, Department of
Otolaryngology - Head and Neck Surgery
Milwaukee, Wisconsin
Richard Hawke, M.D......................... Professor of Otolaryngology, University of Toronto
Toronto, Canada
Mark Cohen, M.D............................ Clinical Professor of Urology, New York University Medical Center, New
York
</TABLE>
55
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
The directors and executive officers of Influence and IMT, the
Company's Israeli subsidiary, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Peter A. Bick, M.D..................... 44 Chief Executive Officer, President and Director
Mordechay Beyar, M.D................... 41 General Manager of IMT and Vice Chairman of the Board of
Directors
Oren Globerman......................... 38 General Manager of IMT and Vice Chairman of the Board of
Directors
Howard Machek.......................... 34 Vice President, Finance, Chief Financial Officer and Treasurer
Nir Cohen.............................. 35 Vice President, Operations of IMT
Ze'ev Sohn, Ph.D....................... 37 Vice President, Research of IMT
Michael Arad........................... 51 Vice President, Manufacturing of IMT
Lewis C. Pell.......................... 55 Chairman of the Board of Directors
Shimon Eckhouse, Ph.D.................. 53 Director
Richard A. Lerner, M.D................. 59 Director Nominee
</TABLE>
Dr. Bick has been Chief Executive Officer and President of Influence
since May 1996, and a director since July 1996. From June 1994 to February 1996,
he was a partner at Sequoia Capital, a venture capital firm. From January 1993
to June 1994, Dr. Bick was a partner at Burr, Egan, Deleage & Co., a venture
capital firm. Previously, Dr. Bick was President of Quintiles, Inc., a U.S.
subsidiary of Quintiles Transnational Ltd., a contract research, sales and
manufacturing organization, which he joined in 1990. Dr. Bick is a physician and
Board Certified psychiatrist who completed his training at Harvard Medical
School. He holds an M.B., B.S. from the Royal Free Hospital School of Medicine
at the University of London and an M.B.A. from Columbia University.
Dr. Beyar is a founder of Influence and has served as a director since
its inception in November 1994. Dr. Beyar also serves as a General Manager of
IMT, the Company's Israeli subsidiary. In addition to his work for the Company,
from 1994 to the present, Dr. Beyar has served part-time as a practicing
urologist at B'nai Zion Hospital in Haifa, Israel. He holds numerous patents in
the field of medical devices. Dr. Beyar was a founder of InStent Inc.
("InStent"), a developer of medical stents, and served as a director of InStent
Inc. from its founding in 1991 until its acquisition by Medtronic, Inc. From
1991 to the present, Dr. Beyar has also served as a Co-General Manager of the
Israeli subsidiary of InStent. Dr. Beyar received an M.D. from Tel Aviv
University Medical School.
Mr. Globerman is a founder of Influence and has served as a director
since its inception in November 1994. Mr. Globerman also serves as a General
Manager of IMT. He holds numerous patents in the field of medical devices. Mr.
Globerman was a founder of InStent and served as a director of InStent from its
founding in April 1991 until the acquisition of InStent by Medtronic, Inc. From
1991 to the present, he has also served as the Co-General Manager for the
Israeli subsidiary of InStent Mr. Globerman holds a B.Sc. in Engineering from
Tel Aviv University.
Mr. Machek has been Chief Financial Officer of Influence since
October 1997 and Vice President, Finance and Treasurer since May 1998. From
1991 to 1997, Mr. Machek was Senior Financial Accountant at Bio-Rad
Laboratories, a life science research product, clinical diagnostic and
analytical instruments company and was previously a senior auditor at KPMG
Peat Marwick. He received a B.S. in Business Administration from California
State University at Hayward and is a Certified Public Accountant in the State
of California.
Mr. Cohen has been Vice President, Operations of IMT since January
1997. From January 1992 to January 1997, he was employed by Orbotech, Inc., an
Israeli printing technology company, most recently as Customer
56
<PAGE>
Support Manager in charge of operations in the Central United States. Mr. Cohen
holds a B.Sc. in Electrical Engineering from the Technion-Israel Institute of
Technology and an M.B.A. from Tel-Aviv University.
Dr. Sohn has been Vice President, Research of IMT since January 1995.
From December 1993 to December 1994, Dr. Sohn was a research and development
engineer for Orbotech, Ltd., an Israeli printing technology company. From
January 1991 to December 1993, Dr. Sohn was an engineer at Israel Aircraft
Industries, an aerospace manufacturer. Dr. Sohn holds a Ph.D. in mechanical
engineering from Columbia University.
Mr. Arad has been Vice President, Manufacturing of IMT since March
1995. From 1988 to 1995, Mr. Arad was Chief Engineer and Manager of Quality
Assurance at Dan Sprinklers, Ltd., an Israeli agricultural technology company,
and previously was a Group Leader in the Research and Development Department of
BMY, Inc., a subsidiary of Harsco Corp., a defense products manufacturer. Mr.
Arad holds a B.Sc. in Mechanical Engineering from the Technion-Israel Institute
of Technology.
Mr. Pell is a founder of Influence and has served as Chairman of the
Board since its inception in November 1994. Mr. Pell co-founded Biosense, Inc.
in 1994, and served as Chairman of the Board until Biosense, Inc. was acquired
by Johnson & Johnson in October 1997. In 1991, Mr. Pell co-founded InStent, and
served as its Chairman until InStent was acquired by Medtronic, Inc. in June
1996. Mr. Pell was a director of Heart Technology Inc., an interventional
cardiology medical device company, from its inception in April 1989 until it was
acquired by Boston Scientific Corp. in December 1995. Since May 1992, Mr. Pell
has served as Vice Chairman and a director of Vision Sciences Inc., a publicly
held medical device company. Mr. Pell is a founder or co-founder of a number of
other privately held medical device and biotechnology companies.
Dr. Eckhouse has been a director of Influence since July 1996. Since
April 1992, Dr. Eckhouse has served as Chief Executive Officer and a Director of
ESC Medical Systems Ltd., an Israeli company which develops and manufactures
medical equipment ("ESC") and since January 1997 Dr. Eckhouse has served as
Chairman of the Board of Directors of ESC. From 1986 to 1991, he was the manager
of the advanced product development department of Maxwell Laboratories Inc., Dr.
Eckhouse holds a Ph.D. in physics from the University of California at Irvine.
Dr. Lerner is currently the President of The Scripps Institute, a
state-of-the-art research facility in La Jolla, California. Dr. Lerner served as
Chairman of the Department of Molecular Biology of The Scripps Research
Institute from 1982-1986 prior to assuming its presidency. He received a B.S.
from Northwestern University and an M.D. from Stanford University. It is
anticipated that Dr. Lerner will be elected as a director on or prior to the
completion of the Offering.
Set forth below are certain of the Company's additional key employees:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Todd P. Mayo........................... 33 Vice President, Marketing, U.S.
William A. Perry....................... 34 Vice President, Sales and Marketing, Europe
Ric E. Cote............................ 31 National Sales Director, U.S. Urology/Gynecology
Michael J. Pola........................ 34 National Sales Director, U.S. ENT
</TABLE>
Mr. Mayo has been Vice President of Marketing for Influence, Inc., a
medical device company since December 1997 and a marketing director since July
1997. He joined the company in January 1997 and was initially responsible for
sales and marketing of the Pacific Rim region. Mr. Mayo has ten years of sales
and marketing experience, most recently with the Microvasive division of Boston
Scientific, Inc., a medical device company. Mr. Mayo has a B.S. from Arizona
State University.
Mr. Perry has been Vice President, Sales and Marketing, Europe of
Influence since November 1997. He joined Influence in October 1996 as Director,
Marketing and Sales for Europe. From August 1994 to October 1996, Mr. Perry
worked as Director for Europe for Indigo Medical, Inc. ("Indigo"), a urology
company specializing in innovating BPH treatments and a subsidiary of Johnson &
Johnson. From June 1992 to August 1994, Mr. Perry
57
<PAGE>
held the position of Regional Manager in Europe for Coherent Medical Inc., Mr.
Perry has a B.S. in International Relations from Georgetown University and an
M.I.M. in International Marketing from the American Graduate School of
International Management--Thunderbird.
Mr. Cote joined Influence in October of 1996. He held positions as
Western U.S. Sales Manager and National Sales Director before being promoted to
Director in December 1997. He has over eight years experience in the urology
market, having previously held positions at OMS/Uroheath as Regional Sale
Manager, Business Operations Manager-China and Director of Managed Care. Prior
to joining Influence, he worked as Sales & Marketing manager for Indigo. Mr.
Cote holds a B.S. degree from California State University-Sacramento.
Mr. Pola has been National Sales Director, U.S. ENT since February
1998. From 1997 to 1998 Mr. Pola was VP of Sales and Marketing for ComView
Corporation, a private manufacturer of cardiac imaging equipment. From 1995 to
1997 he was Western Regional Sales Manager for Pentax Precision Instrument
Corporation, a manufacturer of video and fiberoptic endoscopes. Mr. Pola has
also worked as an independent manufacturers representative for such companies as
Medtronic Inc., InStent and Medovations Inc. from 1991 to 1997. Mr. Pola holds a
B.S. degree in Marketing from Santa Clara University.
Compensation of Directors
Directors currently receive no cash fees for services provided in that
capacity but may be reimbursed for out-of-pocket expenses they incur in
connection with their attendance at meetings of the Board of Directors.
Committees of the Board
Prior to the consummation of the Offering, the Board of Directors will
establish an audit committee to review the internal accounting procedures of the
Company, review the services provided by the Company's outside accountants and
to oversee transactions in which directors may be interested parties, as well as
a compensation committee to make recommendations concerning the salaries and
incentive compensation of employees of the Company, and to administer the 1998
Long-Term Incentive Plan and the 1995 Stock Option Plan.
Executive Compensation
Summary Compensation Table. The following table sets forth certain
information for the year ended December 31, 1997 with respect to the annual and
long-term compensation of the Company's Chief Executive Officer and each
executive officer whose annual salary and bonus exceeded $100,000 (collectively,
the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------------
Name Year Salary($) Bonus($) Other Annual
Compensation ($)
- ------------------------------------------------- ------ ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Peter A. Bick, M.D........................... 1997 156,250 50,000(1) 9,858
President and Chief Executive Officer
Mordechay Beyar, M.D......................... 1997 150,000 -- 35,620
General Manager, IMT(2)
Oren Globerman............................... 1997 150,000 -- 35,620
General Manager, IMT(2)
</TABLE>
(1) This bonus was paid in 1997 for services rendered to the Company from May
1996 through May 1997.
(2) Includes amounts paid to NMB Medical Applications Ltd. ("NMB") for the
services of Dr. Beyar and Mr. Globerman. See "Management--Employment
Agreements" and "Certain Transactions."
58
<PAGE>
Grants, Exercises and Holdings
Option Grants. No stock options were granted during the fiscal year
ended December 31, 1997 to the Named Executive Officers.
Option Exercises and Holdings. The following table sets forth certain
information with respect to stock option exercises during the fiscal year
ended December 31, 1997 by the Named Executive Officers and the value of stock
options held by such individuals at the end of the year.
<TABLE>
<CAPTION>
Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
December 31, 1997(#) December 31, 1997($)(1)
---------------------------------- ----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Peter A. Bick, M.D........ 130,000 86,667 1,034,800 689,869
Mordechay Beyar, M.D...... -- -- -- --
Oren Globerman............ -- -- -- --
</TABLE>
- ---------
(1) Based on a value of $12.00 per share, the midpoint of the range of
the estimated initial public offering price, less the per share exercise
price of $4.04, multiplied by the number of shares underlying the
unexercised options.
Employment Agreements
Under the terms of an employment agreement dated May 31, 1996 between
the Company and Dr. Bick, Dr. Bick receives a salary of $150,000 per annum,
plus a performance bonus to be determined by the Board of Directors. In
addition, Dr. Bick was granted options to purchase 235,239 shares of Common
Stock at an exercise price of $4.04 per share, 105,238 of which vested
immediately, 43,333 of which vested on May 31, 1997, 43,333 of which vested on
May 31, 1998 and the remainder of which vests on May 31, 1999. The Company and
Dr. Bick have agreed to an amendment to his employment agreement, effective as
of January 15, 1998, pursuant to which the term of Dr. Bick's employment
agreement would be extended until January 15, 2001. Pursuant to this
amendment, the Company granted Dr. Bick additional stock options for 63,493
shares exercisable at $4.04 per share (the exercise price of the original
grant of stock options to Dr. Bick), of which 15,874 vested on January 15,
1998, and of which 47,619 vest in equal installments on each January 15, 1999,
2000 and 2001, respectively. In addition the Company agreed that Dr. Bick's
base salary would be increased to $200,000 per year following the completion
of the Offering. If Dr. Bick is terminated without cause, his salary and
health benefits will be paid for six months and the next succeeding vesting
date of his stock options will be accelerated to the date of termination. Upon
a change in control of the Company, any stock options not yet vested will,
under certain circumstances, immediately vest.
Each of Mr. Globerman and Dr. Beyar entered into agreements with the
Company in August 1996 pursuant to which each receives an annual salary of
$150,000 and devotes such time to the Company as is necessary for the management
of the business and affairs of the Company. Such salary is in lieu of any
further payments to NMB, a research and development company controlled by Mr.
Globerman and Dr. Beyar, which had been made at the rate of $7,000 per month
prior to July 1, 1996. At the subsequent request of Dr. Beyar and Mr. Globerman,
the Company has fulfilled its obligations under these agreements by continuing
to pay NMB the amounts due Dr. Beyar and Mr. Globerman under such agreements.
59
<PAGE>
Stock Option Plans
1998 Long-Term Incentive Plan
The Company has reserved a total of 790,000 shares of Common Stock
for issuance pursuant to the Company's long-term incentive plan (the "1998
Long-Term Incentive Plan"). As of June 22, 1998, the Company has granted to
employees and to certain individuals who provided valuable services to the
Company options to purchase an aggregate of 422,755 shares of Common Stock at
a weighted average exercise price of $10.13 per share under the 1998 Long-Term
Incentive Plan, of which none have been exercised and 99,360 are exercisable
immediately. The remaining options are exercisable from 1998 through 2002 or
upon achievement of certain milestones. See "Shares Eligible for Future Sale."
The 1998 Long-Term Incentive Plan will be administered by the
Compensation Committee of the Board of Directors. Subject to the provisions of
the 1998 Long-Term Incentive Plan, the Compensation Committee has the
authority to select the optionees or stock recipients and determine the terms
of the options or restricted stock granted, including: (i) the number of
shares, (ii) option exercise terms, (iii) the exercise or purchase price, (iv)
the duration of the option and (v) the time, manner and form of payment for
restricted stock and upon exercise of an option. An option is not transferable
by the optionholder except by will or by the laws of descent and distribution,
or, in the case of nonqualified options only, pursuant to a valid domestic
relations order.
1995 Stock Option Plan
The Company has reserved a total of 801,622 shares of Common Stock
for issuance pursuant to the Company's stock option plan (the "1995 Stock
Option Plan"). As of June 22, 1998, the Company has granted to employees and
to certain individuals who provided valuable services to the Company options
to purchase an aggregate of 801,622 shares of Common Stock at a weighted
average exercise price of $3.84 per share under the 1995 Stock Option Plan. Of
these, options to purchase 43,329 shares have been exercised and options to
purchase 695,251 shares are exercisable immediately. The remaining options are
exercisable from 1998 through 2001 or upon achievement of certain milestones.
See "Shares Eligible for Future Sale."
The 1995 Stock Option Plan will be administered by the Compensation
Committee of the Board of Directors. Subject to the provisions of the 1995
Stock Option Plan, the Compensation Committee has the authority to select the
optionees or stock recipients and determine the terms of the options or
restricted stock granted, including: (i) the number of shares, (ii) option
exercise terms, (iii) the exercise or purchase price, (iv) the duration of the
option and (v) the time, manner and form of payment for restricted stock and
upon exercise of an option. An option is not transferable by the optionholder
except by will or by the laws of descent and distribution, or, in the case of
nonqualified options only, pursuant to a valid domestic relations order.
CERTAIN TRANSACTIONS
In connection with the founding of the Company, NMB, a company
controlled by Oren Globerman and Dr. Mordechay Beyar, founders, directors and
principal stockholders of the Company, transferred certain of the Company's
core technology to the Company in exchange for $300,000. In March 1995, the
Company paid NMB $26,500 to reimburse NMB for development expenditures related
to additional technology transferred to the Company. During 1995, the Company
purchased equipment from NMB for $25,000. From March 1995 until June 30, 1996,
Influence paid NMB a consulting fee of $7,000 per month principally for the
services of Dr. Beyar and Mr. Globerman, who received no direct compensation
from the Company. The Company believes that such transactions were on terms no
less favorable to the Company than those obtainable from a third party. Dr.
Beyar and Mr. Globerman each entered into agreements with the Company in
August 1996 pursuant to which each was to receive an annual salary of
$150,000. At the subsequent request of Dr. Beyar and Mr. Globerman, the
Company has fulfilled its obligations under these agreements by continuing to
pay NMB the amounts due Dr. Beyar and Mr. Globerman under such agreements.
During 1995, the Company sold an aggregate of 713,000 shares of
Series A Convertible Preferred Stock to investors at a purchase price of $5.00
per share. Each share of Series A Convertible Preferred Stock is convertible
into 1.24 shares of Common Stock and has a liquidation value of $5.00 per
share. In September 1996, the Company
60
<PAGE>
received stockholder approval of an amendment to the Series A
Convertible Preferred Stock to provide for the automatic conversion of the
Series A Convertible Preferred Stock prior to completion of a public offering.
On September 20, 1995, the Company repurchased 49,524 shares of
Common Stock at a price of $4.04 per share from each of Mordechay Beyar, Oren
Globerman and Ze'ev Sohn, executive officers of the Company. The Company
believes that such transactions were on terms no less favorable to the Company
than those obtainable from a third party.
Mr. Lewis C. Pell, the Chairman of the Board of Directors of
Influence, made loans to Influence on June 10, August 14, and November 7,
1996, in the aggregate amount of $3 million. All outstanding principal and
interest were repaid to Mr. Pell on December 18, 1996. In April 1996, the
Company entered into an agreement with Jessco Medical Supply Company
("Jessco"), a company owned by Mr. Pell, pursuant to which the Company pays
$2,500 per month to Jessco for consulting services. During 1996, the Company
paid $22,500 to Jessco for such services. The Company believes that such
transactions were on terms no less favorable to the Company than those
obtainable from a third party.
Medtronic became a shareholder of the Company in connection with an
agreement, dated November 10, 1996 (the "Medtronic Agreement") between
Medtronic, the Company and substantially all of the stockholders of the
Company. Under the terms of the Medtronic Agreement, Medtronic received, in
December 1996, an option to acquire substantially all of the shares of common
and preferred stock of the Company for approximately $180 million, or for
approximately $28 per share on a fully diluted basis. Pursuant to the
Medtronic Agreement, Medtronic invested $20 million in the Company and
received a convertible debenture of the Company (the "Debenture"). Medtronic's
option to acquire the Company expired unexercised on June 10, 1997. Pursuant
to the terms of the Debenture, all outstanding principal and accrued interest
on June 10, 1997, which amounted to $20,837,808, automatically converted into
Common Stock at a conversion price of $62.55 per share, which resulted in the
issuance to Medtronic of 333,164 shares, or approximately 5.43% of the
outstanding Common Stock of the Company prior to the completion of the
Offering.
The Company has agreed pursuant to the Debenture to prepare and file
under the Securities Act of 1933 (the "Securities Act") a registration
statement covering the offer and sale of Medtronic's shares of Common Stock,
upon the request of Medtronic at any time six months following the completion
of the Offering. In addition, the Company has agreed to include Medtronic's
shares in any registration statement (other than the registration statement of
which this Prospectus is a part) filed by the Company under the Securities
Act. See "Shares Eligible for Future Sale."
In March, 1998, the Company entered into an agreement in principle
with Galil Medical Ltd. ("Galil"), an affiliate of ESC Medical Systems, Ltd.
("ESC"), to jointly develop and own technology for cryo-surgery. Pursuant to
this agreement in principle, the Company and Galil will form a joint venture
to commercialize the technology. The Company will be responsible for clinical
trials required to obtain CE Mark approval for any proposed products using
such technology, and Galil will provide necessary equipment for clinical
trials. Additional terms of the joint venture, including those related to
responsibility for FDA approval and sales and marketing, will be determined by
the parties at a later date. Dr. Shimon Eckhouse, a director of the Company,
is the Chief Executive Officer, Chairman of the Board of Directors and a
Director of ESC.
On May 1, 1998, Indigo and the Company signed a letter of intent,
subject to negotiation of definitive agreements, pursuant to which Indigo
would become the Company's exclusive distributor outside the United States of
the Company's current and future products in the fields of urology and
gynecology and its radiotherapy product under development. In connection with
the letter of intent, Johnson & Johnson Development Corporation ("JJDC"), a
subsidiary of J&J, advanced $1 million to the Company in exchange for a
convertible note (the "$1 Million Note"). Upon execution of a definitive
distribution agreement, JJDC would advance an additional $6 million to the
Company, and would contribute the initial $1 Million Note to the Company. In
exchange, the Company would issue to JJDC a $7 million convertible note (the
"J&J Note"). The J&J Note would be automatically convertible into Common Stock
upon completion of the Offering at a conversion price equal to the price of
the Shares offered hereby.
For a description of certain employment agreements, see "Management--
Employment Agreements."
61
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of Common Stock as of June 22, 1998, and as adjusted to
reflect the sale by the Company of the Common Stock being offered hereby, by:
(i) each person who is known by the Company to be the beneficial owner of more
than 5% of Influence's outstanding shares of Common Stock; (ii) each of the
Company's Named Executive Officers; (iii) each of the Company's directors; and
(iv) all directors and executive officers of the Company as a group. Except
where otherwise indicated by footnote, and subject to community property laws,
where applicable, the Company believes, based on information furnished by such
owners, that the beneficial owners of the shares of Common Stock listed below
have sole investment and voting power with respect to such shares.
<TABLE>
<CAPTION>
Percent of Shares
Beneficially Owned (1)
Shares -----------------------------
Beneficially
Owned Prior to Prior to After
Name Offering(1) Offering(%) Offering(%)
- ---------------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C>
Oren Globerman(2)............................................... 1,025,142 16.72 13.09
Mordechay Beyar, M.D.(3)........................................ 831,380 13.56 10.62
Lewis C. Pell(4)................................................ 778,761 12.70 9.94
Katsumi Oneda(5)................................................ 623,380 10.17 7.96
Medtronic Asset Management, Inc.(6)............................. 333,164 5.43 4.25
Peter A. Bick, M.D.(7).......................................... 207,778 3.29 2.59
Shimon Eckhouse, Ph.D........................................... 7,429 * *
All directors and executive officers as a group (9 persons)(8).. 3,160,985 49.58 39.14
</TABLE>
- ------------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting
and investment power with respect to securities. Applicable percentage
ownership is based on 6,130,798 Shares outstanding as of June 22, 1998
(assuming (i) the conversion of Series A Convertible Preferred Stock
into Common Stock and (ii) a 1-for-1.26 reverse stock split of the
shares of the Company's Common Stock, which will be effective
immediately prior to the closing of the Offering) and 7,830,798 Shares
outstanding after completion of the Offering. Shares of Common Stock
subject to the options currently exercisable, or exercisable within 60
days after June 22, 1998, are deemed outstanding for computing the
percentage of beneficial ownership of the person holding such options,
but are not deemed outstanding for computing the percentage ownership of
any other person.
(2) Mr. Globerman owns all of such shares through Globerman Engineering
Ltd., a company organized under the laws of the State of Israel, of
which Mr. Globerman and his brother are the sole shareholders. Does not
include 123,809 shares of Common Stock owned by Benjamin Globerman, Mr.
Globerman's brother, and 12,380 shares of Common Stock owned by Arie
Spectorovsky, Mr. Globerman's cousin, beneficial ownership of all such
shares being disclaimed by Mr. Globerman. Mr. Globerman's address is
care of Influence Medical Technologies, Ltd., 12 Hasadnaot, Hertzliya
46728, Israel.
(3) Dr. Beyar owns all of such shares through UroTek Ltd., a company
organized under the laws of the State of Israel, of which Dr. Beyar and
his wife are the sole shareholders. Does not include 247,619 shares of
Common Stock beneficially owned by Raphael Beyar, Dr. Beyar's brother,
12,380 shares of Common Stock owned by Foster Padway, Dr. Beyar's
brother-in-law, and 12,380 shares of Common Stock owned by Meyer Bachar,
Dr. Beyar's cousin, beneficial ownership of all such shares being
disclaimed by Dr. Beyar. Dr. Beyar's address is care of Influence
Medical Technologies, Ltd., 12 Hasadnaot, Hertzliya 46728, Israel.
(4) Includes 123,809 shares of Common Stock held by Phyllis L. Pell, Mr.
Pell's wife as custodian for Candice Pell, their daughter. Does not
include 6,190 shares of Common Stock held by Aron Pell, Mr. Pell's
brother, 12,380 shares of Common Stock held by Norman Pell, Mr. Pell's
father and 123,809 shares of Common Stock held by Jessica H. Pell, Mr.
Pell's daughter. Beneficial ownership of all such shares is disclaimed
by Lewis C. Pell. Mr. Pell's address is 40 Ramland Road South, Suite 18,
Orangeburg, New York 10962.
62
<PAGE>
(5) Does not include 123,809 Shares held by Hidetoshi Oneda and 123,809 Shares
held by Nami Oneda, Mr. Oneda's son and daughter, respectively. Mr.
Oneda's address is 40 Ramland Road South, Suite 18, Orangeburg, New York
10962.
(6) Medtronic Asset Management Inc. is a wholly owned subsidiary of Medtronic,
Inc., whose address is 7000 Central Avenue N.E., Minneapolis, Minnesota
55432.
(7) Including options to purchase 189,207 shares of Common Stock exercisable
within 60 days of June 30, 1998. Dr. Bick's address is care of the Company
at 71 Stevenson Street, Suite 1120, San Francisco, California 94105.
(8) Includes 244,362 options exercisable within 60 days after June 22, 1998
held by certain directors and executive officers.
63
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of Influence consists of 23,809,524
shares of Common Stock and 850,000 shares of preferred stock, $0.01 par value
per share (the "Preferred Stock"). Upon consummation of the Offering, there
will be outstanding an aggregate of 7,830,798 shares of Common Stock.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Amended and
Restated Certificate of Incorporation, as amended (the "Certificate"), which
is included as an exhibit to the Registration Statement, and by the provisions
of applicable law.
Common Stock
Holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders. Voting rights are not cumulative, with
the result that holders of more than 50% of the shares of Common Stock are
able to elect all of the Directors. Holders of Common Stock are entitled to
receive dividends, when, as and if declared by the Board of Directors in its
discretion out of funds legally available therefor. See "Dividend Policy." The
holders of Common Stock are entitled to receive on a pro rata basis all assets
remaining for distribution to stockholders, subject to the rights of any
Preferred Stock outstanding, upon liquidation or dissolution of the Company.
The Common Stock does not have preemptive or other subscription rights, any
conversion rights or any redemption or sinking fund provisions. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be when sold, validly issued, fully paid and nonassessable.
Preferred Stock
Upon the closing of the Offering, the Board of Directors will have
the authority to issue 100,000 shares of Preferred Stock in one or more series
and to fix the relative rights, preferences, privileges, qualifications,
limitations and restrictions thereof, including dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences and the number of shares constituting any
series or the designation of such series, any or all of which may be more
favorable then the rights of the Common Stock, without further vote or action
by the stockholders. The Board of Directors could, without the approval of the
stockholders, issue Preferred Stock having voting or conversion rights that
could adversely affect the voting power of the holders of Common Stock and
reduce the likelihood that such holders will receive dividend payments and
payments upon liquidation. Such issuance could have the effect of decreasing
the market price of the Common Stock. The issuance of Preferred Stock could be
used, under certain circumstances, to render more difficult or discourage a
hostile takeover of the Company. The Company has no present plans to issue any
shares of Preferred Stock.
Limitation of Liability
The Certificate and the Company's By-laws contain provisions which
stipulate that a director will not be personally liable for monetary damages
to the Company or its shareholders which result from breaches of a director's
fiduciary duty other than liability for breaches of the duty of loyalty, acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, violations under Section 174 of the Delaware General
Corporation Law or for any transaction from which the director derived
improper personal benefit. Further, the Certificate provides generally for
indemnification of the directors and officers of the Company to the fullest
extent permitted under Delaware law, and permits indemnification for all other
persons whom the Company is permitted to indemnify. Management believes that
such provisions are necessary to attract and retain qualified directors and
officers.
Anti-takeover Effects of Provisions of the Company's Certificates and Bylaws
In addition to the directors' ability to issue shares of Preferred
Stock in one or more series, certain provisions of Delaware law are commonly
considered to have an anti-takeover effect. The Company is subject to the
provisions of Section 203 of the Delaware General Corporation Law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" (which includes mergers, asset-sales or other
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transactions resulting in financial benefit to the stockholder) with an
"interested stockholder" (a stockholder who has acquired more than 15% but
less than 85% of the outstanding voting shares of a corporation which is
subject to the statute) for a period of three years subsequent to the date on
which the stockholder became an "interested stockholder." The prohibition does
not apply if (1) prior to the completion of the three year period, the
corporation's Board of Directors approved the transaction through which the
stockholder became an "interested stockholder" or (2) the "business
combination" is approved by the corporation's Board of Directors and is
authorized by a vote of at least two-thirds of the outstanding stock of the
corporation not owned by the "interested stockholder."
A Delaware corporation may "opt out" of the Anti-Takeover Law with an
express provision either in its original certificate of incorporation or in
its certificate of incorporation or by-laws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
The Company is a Delaware corporation that is subject to the Anti-Takeover Law
and has not "opted out" of its provisions.
The foregoing provisions of Delaware law and the Company's
Certificate and Bylaws could have the effect of discouraging others from
attempting hostile takeovers of the Company and, as a consequence, they may
also inhibit temporary fluctuations in the market price of the Common Stock
that might result from actual or rumored hostile takeover attempts. Such
provisions may also have the effect of preventing changes in the management of
the Company. It is possible that such provisions could make it more difficult
to accomplish transactions which might result in a premium over the market
price of the Common Stock or which stockholders may otherwise deem to be in
their best interests.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock will be
American Stock Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale
of shares or the availability of shares for sale will have on the market price
of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock in the public market could adversely
affect prevailing market prices and the ability of the Company to raise equity
capital in the future. See "Underwriting."
Upon the closing of the Offering, the Company will have outstanding
an aggregate of 7,830,798 shares of Common Stock (8,085,798 if the
Underwriters' over-allotment option is exercised in full). Of these shares,
the 1,700,000 shares sold in the Offering (1,955,000 if the Underwriters'
over-allotment option is exercised in full) will be freely tradable without
restriction or further registration under the Securities Act, except for any
shares purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act (whose sales would be subject to certain
limitations and restrictions described below). The remaining 6,130,798 shares
of Common Stock held by existing stockholders (the "Restricted Shares") were
issued and sold by the Company in reliance on exemptions from the registration
requirements of the Securities Act.
Upon completion of the Offering 2,232,873 shares, including shares
subject to the lock-up restrictions described below, will become eligible for
immediate sale pursuant to Rule 144(k) and, beginning 90 days after
commencement of the Offering, an additional 3,884,149 shares, including shares
subject to the lock-up restrictions described below, will become eligible for
sale pursuant to Rule 144 or Rule 701 under the Securities Act ("Rule 701").
13,776 remaining shares held by existing stockholders will become eligible for
sale at various times over a period of less than one year. Upon expiration of
the lock-up agreements, an aggregate of 1,923,970 shares will become
immediately eligible for sale without restriction pursuant to Rule 144(k) or
Rule 701 (described below), and approximately 3,883,159 additional shares will
be eligible for sale subject to the timing, volume, and manner of sale
restrictions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated) who has beneficially owned shares for at
least one year (including the holding period of any prior owner except an
affiliate) is entitled to sell in "broker's transactions" or to market makers,
within any three-month period commencing 90 days after the date of this
Prospectus, a number of shares that does not exceed the greater of (i) 1.0% of
the number of shares of Common Stock then outstanding (approximately 78,308
shares immediately after this Offering) or (ii) generally, the average weekly
trading volume in the Common Stock during the four calendar weeks preceding
the required filing of a Form 144 with respect to such sale. Sales under Rule
144 are generally subject to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been
an affiliate of the Company at any time during the 90 days preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without having to comply with the
manner of sale, public information, volume limitation or notice filing
provisions of Rule 144.
The Company, its officers and directors, and certain beneficial
owners of the Company's Common Stock, owning upon the closing of the Offering,
in the aggregate 5,820,905 shares of Common Stock, have agreed that they will
not, directly or indirectly, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or announce
any offer, sale, offer of sale, contract to sell, pledge, grant any option to
purchase or other sale or disposition) of any shares of Common Stock or other
capital stock of the Company or any other securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock, or other capital
stock of the Company, for a period of 180 days from the date of this
Prospectus, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters. As a result of these contractual
restrictions, notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144 and 144(k), shares subject to lock-up agreements will
not be salable until the agreements expire. Upon the expiration of these
lock-up agreements, all of the Restricted Shares will become eligible for
sale, subject in some cases to the limitations of Rule 144. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
notice, release all or any portion of the securities subject to such lock-up
agreements.
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits Affiliates and
non-Affiliates to sell their Rule 701
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shares without having to comply with Rule 144's holding period restrictions, in
each case commencing 90 days after the date of this Prospectus. In addition,
non-Affiliates may sell Rule 701 shares without complying with the public
information, volume and notice provision of Rule 144. The Company intends to
file a registration statement on Form S-8 under the Securities Act no sooner
than 180 days after the date of this Prospectus covering the 1,548,293 shares
subject to outstanding options or reserved for issuance under the Company's
stock option plans. Accordingly, shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to affiliates,
be available for sale in the open market, except to the extent that such shares
are subject to vesting restrictions with the Company or the contractual
restrictions described above. Following the date 180 days after the date of this
Prospectus, an aggregate of approximately 825,876 shares will be issuable upon
the exercise of currently outstanding options. Such shares will be freely
tradable in the public market upon exercise, pursuant to such registration
statement on Form S-8.
The Company has agreed pursuant to the Debenture issued to Medtronic
to prepare and file under the Securities Act a registration statement covering
a proposed offer and sale of Medtronic's shares of Common Stock, upon the
request of Medtronic at any time beginning six months following the completion
of the Offering. In addition, the Company has agreed to include Medtronic's
shares in any registration statement (other than the registration statement of
which this Prospectus is a part) filed by the Company under the Securities
Act.
The Company has agreed pursuant to the Registration Rights Agreement,
dated as of March 16, 1998, by and between the Company and TTI (the
"Registration Rights Agreement"), to notify the holders of Common Stock who
are parties to the Registration Rights Agreement prior to the filing of any
registration statement under the Securities Act for the purposes of a public
offering of the securities of the Company, but excluding registration
statements relating to an initial public offering or to employee benefit
plans, and will offer each such holder to register the Common Stock held by
such holder.
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ISRAELI TAXATION AND INVESTMENT PROGRAMS
The following is a summary of the current tax structure applicable to
companies in Israel, with special reference to its effect on the Company, and
certain Israeli Government programs benefiting the Company. The following also
contains a discussion of certain Israeli tax consequences to persons
purchasing the Shares offered hereby. To the extent that the discussion is
based on new tax legislation which has not been subject to judicial or
administrative interpretation, there can be no assurance that the views
expressed in the discussion will be accepted by the taxing authorities in
question. In addition, reductions have been proposed in certain Government
benefit programs discussed herein, and there can be no assurance that such
benefits will continue at their current levels, or at all. The discussion
should not be construed as legal or professional tax advice and is not
exhaustive of all possible tax considerations.
General Israeli Corporate Tax Structure
Income of the Company's wholly-owned Israeli subsidiary, IMT, will be
subject to Israeli tax. The corporate tax rate in Israel is 36%. Nevertheless,
the effective tax rate payable by a company which derives income from an
"Approved Enterprise" may be considerably less. IMT's Israeli manufacturing
facility was granted Approved Enterprise status. See "--Law for the
Encouragement of Capital Investments, 1959" below.
Law For The Encouragement of Capital Investments, 1959
General
The Law for the Encouragement of Capital Investments, 1959 (the
"Investment Law") provides that capital investments in a production facility
(or other eligible assets) may, upon application to the Israel Investment
Center, be designated as an Approved Enterprise. Each certificate of approval
for an Approved Enterprise relates to a specific investment program in the
Approved Enterprise, delineated both by the financial scope of the investment
and by the physical characteristics of the facility or the asset. The tax
benefits derived from any such certificate of approval relate only to taxable
profits attributable to the specific Approved Enterprise. An Approved
Enterprise is entitled to certain benefits, including Israeli Government cash
grants and tax benefits. The Company's manufacturing facility in Israel was
granted Approved Enterprise status in December 1996. IMT has requested that
certain research and development and manufacturing equipment, which was
acquired before the Approved Enterprise status was granted, be neutralized for
determining IMT's taxable income. Management expects to receive such approval
upon completion of the investment program.
Tax Benefits
Taxable income derived from an Approved Enterprise is subject to a
reduced corporate tax rate of 25%. Such income is eligible for further
reductions in tax rates depending on the percentage of the foreign investment
in the company's share capital (conferring rights to profits, voting and
appointment of directors) and of its combined share and loan capital which is
owned by non-Israeli residents. The tax rate is 20% if the foreign investment
is 49% or more but less than 74%, 15% if the foreign investment is 74% or more
but less than 90%; and 10% if the foreign investment is 90% or more. These tax
benefits are granted for a limited period until the earlier of (i) seven years
(or 10 years for companies which are at least 25% foreign owned) from the
first year in which the Approved Enterprise has taxable income, (ii) 12 years
from commencement of production, and (iii) 14 years from the date of approval
of the Approved Enterprise status. For companies, such as the Company's
Israeli subsidiary, whose foreign shareholding exceeds 25%, Approved
Enterprise status creates entitlement to reduced tax rates for a period not to
exceed 10 tax years rather than the maximum seven tax years applicable to
companies without foreign investment. There can be no assurance, however, that
the provisions of the law will not change.
A company that received Approved Enterprise status after April 1,
1986 may elect to receive grants under the Investment Law or, in lieu of such
grants, to participate in an alternative benefits program (the "Alternative
Benefits Program"), under which the undistributed income from the Approved
Enterprise is fully exempt from Corporate Tax for a defined period of time.
The period of tax exemption ranges between two and ten years, depending upon
the location within Israel of the Approved Enterprise and the type of the
Approved Enterprise. On expiration of the exemption period, the Approved
Enterprise would be eligible for beneficial tax rates under the Investment Law
for the remainder, if any, of the otherwise applicable benefits period.
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The Company's manufacturing facility was granted Approved Enterprise
status under the Investment Law, and the Company has elected the Alternative
Benefits Program with regard to such approvals. Subject to compliance with
applicable requirements, income derived from the Company's Approved Enterprise
facility will be tax exempt for a maximum of two years after the Company first
has taxable income, and will be subject to a reduced tax rate for a maximum of
eight additional years (depending upon the level of foreign investment). The
grant of Approved Enterprise status is subject to certain conditions,
including achievement of a budgeted capital investment program and export
outside of Israel of a majority of the Company's products manufactured in the
facility. If the Company fails to meet such conditions, the Company may lose
its Approved Enterprise status and would be subject to income tax at the
regular 36% rate. The failure of the Company to maintain its Approved
Enterprise status could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk Factors --
Principal Subsidiary's Location in Israel."
A company that has elected to participate in the Alternative Benefits
Program and that subsequently pays a dividend out of the income derived from
the Approved Enterprise during the tax exemption period will be subject to
corporate tax in respect of the amount distributed (including the tax thereon)
at the rate that would have been applicable had the company not elected the
Alternative Benefits Program. The dividend recipient is taxed at the reduced
rate of 15% applicable to dividends from Approved Enterprises if the dividend
is distributed within 12 years after the tax exemption period. In the case of
a company with over 25% foreign shareholding (as defined by law), the 12-year
limitation on reduced withholding tax on dividends does not apply. This tax
may be withheld by the company at source, regardless of whether the dividend
is converted into foreign currency. See "Risk Factors --Absence of Dividends"
and "--Capital Gain and Income Taxes Applicable to Non-Israeli Shareholders."
If only a part of a company's taxable income is derived from an
Approved Enterprise or if a company operates under more than one approval, its
effective corporate tax rate is a weighted combination of the various
applicable rates.
Other Benefits
An Approved Enterprise is also entitled to other incentives from the
Israeli Government, whether or not the Alternative Benefits Program is
elected. These include accelerated depreciation on property and equipment,
generally ranging from 200% (in respect of equipment) to 400% (in respect of
buildings) of the ordinary depreciation rates (and not special depreciation
rates, see "Law of Encouragement of Industry (Taxes), 1969") during the first
five tax years of the operation of these assets, subject to a ceiling of 20%
per year with respect to depreciation on buildings.
The benefits available to an Approved Enterprise are conditional upon
the fulfillment of certain conditions stipulated in the Investment Law and its
regulations and the criteria set forth in the certificate of approval,
including meeting certain export requirements. In the event that these
conditions are violated, in whole or in part, the Company's Israeli subsidiary
would be required to refund the amount of benefits, with the addition of the
Israeli CPI linkage differences and interest.
Law For The Encouragement of Industry (Taxes), 1969
Under the Law for the Encouragement of Industry (Taxes), 1969 (the
"Industry Encouragement Law"), a company qualifies as an "Industrial Company"
if it is resident in Israel and at least 90% of its income in a given tax year
(exclusive of income from certain specified sources) is derived from
Industrial Enterprises owned by that company. An "Industrial Enterprise" is
defined as an enterprise whose principal activity in a particular tax year is
industrial manufacturing.
Pursuant to the Industry Encouragement Law, an Industrial Company is
entitled, among other things, to deduct the purchase price of patents or
certain other intangible property rights (other than goodwill) over a period
of eight years beginning with the year in which such rights were first used.
Under certain income tax regulations, special depreciation rates have
been determined for machinery, equipment and buildings used by an Industrial
Enterprise. These rates differ based on factors including the date of
commencement of operation and the number of work shifts. An Industrial Company
owning an Approved Enterprise may choose between the above depreciation rates
and the depreciation rates available to Approved Enterprises.
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Qualification as an Industrial Company under the Industry
Encouragement Law is not conditioned upon the receipt of prior approval from
any Israeli Government authority. Although the Company believes that it
qualifies as an Industrial Company, no assurance can be given that the
Company's Israeli subsidiary actually so qualifies or will in the future be
able to avail itself of any benefits available to companies so qualifying.
Taxation Under Inflationary Conditions
The Income Tax (Inflationary Adjustments) Law, 1985 (the
"Inflationary Adjustments Law") attempts to overcome some of the problems
presented to a traditional tax system by an economy experiencing rapid
inflation, which was the case in Israel at the time the law was enacted.
Generally, the Inflationary Adjustments Law provides significant tax
deductions or additions and adjustments to depreciation methods and tax loss
carryforwards to compensate for loss of value resulting from an inflationary
economy. The Company's Israeli subsidiary's taxable income is determined under
this law.
The Israeli Income Tax Ordinance and the Inflationary Adjustments Law
allow "Foreign-Invested Companies," which maintain their accounts in U.S.
dollars in compliance with regulations published by the Israeli Minister of
Finance, to base their tax returns on the operating results as reflected in
the dollar financial statements or to adjust their tax returns based on
exchange rate changes rather than changes in the Israeli CPI (in lieu of the
principles set forth by the Inflationary Adjustments Law). For these purposes,
a Foreign Invested Company is a company, like the Company's subsidiary, more
than 25% of the share capital of which (in terms of rights to profits, voting
and appointment of directors) and of the combined share and loan capital of
which is held by persons who are not residents of Israel. From inception, the
Company's Israeli subsidiary has measured its results for tax purposes on the
basis of the changes in the NIS/U.S. dollar exchange rate.
Tax Benefits and Government Support For Research and Development
Under the Law for the Encouragement of Industrial Research and
Development, 1984 (the "Research Law") research and development programs
approved by a research committee are eligible for grants or loans upon meeting
certain criteria against payment of royalties from the sale of the product
developed in accordance with the program. Regulations promulgated under the
Research Law generally provide for the payment of royalties to the Office of
the Chief Scientist ("OCS") ranging from 3% to 5% on sales of products
developed as a result of a research project so funded until 100% of the
dollar-linked grant is repaid. The Research Law requires that the manufacture
of any product developed as a result of research and development funded by the
Israeli Government take place in Israel. Under the regulations, if the Chief
Scientist permits the manufacture of any such product outside of Israel, the
royalty rate increases substantially, to approximately 33% or higher. In
addition, the total amount to be repaid to the OCS is adjusted to 120%, 150%
or 300% of the grant if the manufacturing volume that is performed in Israel
is more than 50%, between 10% and 50% or less than 10%, respectively. The
Research Law also provides that know-how from the research and development
which is used to produce the project may not be transferred to third parties
without the approval of a research committee. Such approval is not required
for the export of any products resulting from such research or development.
Israeli tax law allows, under certain conditions, a tax deduction in
the year incurred for expenditures (including depreciation on capital
expenditures) on scientific research and development, if the expenditures are
approved by the relevant Israeli Government Ministry (determined by the field
of research) and the research and development is for the promotion of the
enterprise and is carried out by or on behalf of the company seeking such
deduction. Expenditures not so approved are deductible over a three-year
period. However, expenditures made out of proceeds made available to the
Company through Government grants are not deductible, according to Israeli
Supreme Court decisions.
The Israeli authorities have indicated that the government may reduce
or abolish OCS grants in the future. The Company has never applied for any
grants from the Office of the Chief Scientist, nor has the Company applied for
accelerated depreciation of any research and development expenditures.
Capital Gain and Income Taxes Applicable To Non-Israeli Shareholders
Israeli law generally imposes a capital gains tax on the sale of
securities and any other capital asset. The basic tax rate applicable to
corporations is 36%. The maximum tax rate for individuals is 50%. These rates
are
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subject to the provisions of any applicable bilateral double taxation treaty.
The Convention between the Government of the State of Israel and the Government
of the United States of America With Respect to Taxes on Income (the "Treaty")
governs double taxation between the United States and Israel.
Under the Treaty, dividends of an Israeli company derived from the
income of an Approved Enterprise will be subject to a 15% dividend withholding
tax. The Treaty further provides that a 12.5% Israeli dividend withholding tax
would apply to dividends paid to a U.S. corporation owning 10% or more of an
Israeli company's voting stock for, in general, the current tax year and the
preceding tax year of the Israeli company. The lower 12.5% rate applies only
on dividends from income not derived from an Approved Enterprise in the
applicable period and does not apply if the Company has certain amounts of
passive income.
Pursuant to the Treaty, the sale, exchange or disposition of shares
of an Israeli corporation by a person who qualifies as a resident of the
United States within the meaning of the Treaty and who is entitled to claim
the benefits afforded to such residents under the Treaty ("Treaty U.S.
Resident") will not be subject to the Israeli capital gains tax unless such
Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or
more of the voting power of such company during any part of the 12-month
period preceding such sale, exchange or disposition. However, under the
Treaty, such Treaty U.S. Resident would be permitted to claim a credit for
such taxes against the U.S. income tax imposed on any gain from such sale,
exchange or disposition, subject to the limitations applicable to foreign tax
credits. In addition, the Treaty restricts taxation in Israel to the sale,
exchange or other disposition of stock directly held in an Israeli
corporation. Therefore, a sale, exchange or disposition of shares of Common
Stock sold in the Offering by a Treaty U.S. Resident should not be subject to
tax in Israel.
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UNITED STATES FEDERAL INCOME TAXATION
The following general discussion sets forth certain United States
federal income tax consequences applicable to the Company and its shareholders
depending on the status of either the Company or IMT as a Personal Holding
Company, Foreign Personal Holding Company, Controlled Foreign Corporation and
Passive Foreign Investment Company. The discussion should not be construed as
legal or professional advice and is not exhaustive of all possible tax
considerations that may be relevant to a decision whether to invest in the
Shares. The precise tax consequences of an investment in the Shares will vary
depending on an investor's particular position. In particular, taxes may be
imposed on certain investors in the Shares by jurisdictions other than the
United States and Israel (including states and localities of the United
States), and certain investors may be subject to special taxes in connection
with their investment in the Shares (including United States federal
alternative minimum taxes).
The summary of United States income tax laws set out below is based
on the Internal Revenue Code of 1986, as amended, Treasury regulations,
judicial decisions, published positions of the Internal Revenue Service and
the Treaty as of the date hereof and is subject to any changes occurring after
that date. Prospective investors are urged to consult with their own tax
advisors before making an investment in the Shares.
In General
The Company will be subject to United States federal income tax at
rates applicable to regular corporations (currently ranging up to 35%). If the
Company receives distributions from IMT, the Company will be entitled, subject
to certain limitations, to a credit for Israeli taxes imposed on the Company
and withheld with respect to such distributions, and may also be entitled in
certain circumstances to a credit for Israeli income taxes paid by IMT. In
certain circumstances, the combined Israeli and United States tax burden on
the Company may exceed the maximum United States tax rates described above.
Personal Holding Company
If more than 50% of the Company's stock is owned directly, indirectly
or by application of certain attribution rules, by five or fewer individuals
(including certain tax-exempt organizations, certain trusts, and citizens or
residents of the United States or another country) at any time during the last
half of the Company's taxable year, and at least 60% of the Company's adjusted
ordinary gross income for the taxable year is personal holding company income,
the Company will be subject to United States personal holding company tax, in
addition to its regular income tax, at a current rate of 39.6% on its
undistributed personal holding company income for the taxable year.
For this purpose, the "personal holding company income" of a
corporation is the portion of the corporation's adjusted ordinary gross income
that consists of certain types of passive income, including certain dividends,
interest, annuities, rents and royalties (even if the rents and royalties are
derived from the active conduct of a trade or business). The "undistributed
personal holding company income" of a corporation is based on its net taxable
income (which excludes, for example, income exempt from regular federal income
tax), adjusted to reflect (among other things) deductions for federal income
taxes and dividends to shareholders paid by the Company.
The Company believes that it is currently a personal holding company.
It is unclear, however, whether the Company will be a personal holding company
after the Offering and no assurance can be given that it will not be.
Foreign Personal Holding Company
A foreign corporation (such as IMT) is treated as a foreign personal
holding company (a "FPHC") if more than 50% of its stock is owned directly,
indirectly (such as through the Company) or by application of certain
attribution rules, by five or fewer individuals who are United States citizens
or residents and at least 60% (50%, in certain circumstances) of its gross
income is foreign personal holding company income. Each direct United States
stockholder of a FPHC (including the Company, if IMT is a FPHC) is generally
required to include in its income as a dividend an amount equal to its pro
rata share of the FPHC's undistributed foreign personal holding company income
for the year. This amount is subject to United States income tax (without any
credit for foreign taxes paid for the FPHC) and, if the stockholder is a
personal holding company, personal holding company tax. If a corporation
ceases to satisfy the FPHC stock ownership test on a date prior to the end of
a taxable year due to changes in its
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stock ownership, its direct United States stockholders are required to include
only a proportion of its undistributed foreign personal holding company income
for the year, based on the period prior to such date.
For this purpose, a corporation's "foreign personal holding company
income" and "undistributed foreign personal holding company income" are, with
certain exceptions, generally determined in the same manner as the
corporation's personal holding company income and undistributed personal
holding company income, respectively, except that such amounts are not limited
to United States source income.
Based on the current ownership of the Company, the Company is not
presently a FPHC and does not expect to become a FPHC after the Offering.
Controlled Foreign Corporation
IMT is a controlled foreign corporation (a "CFC") for United States
federal income tax purposes and it is anticipated that IMT will continue to be
a CFC in the foreseeable future. As a result, the Company will be required to
include in its income its pro rata share of IMT's subpart F income, and may
also be required to include in its income certain additional amounts if IMT
has investments in United States property. For this purpose "subpart F income"
includes certain income derived from transactions with related parties and
certain types of passive income such as dividends, interest, rents, royalties,
and annuities, but does not include, among other things, rents and royalties
derived from transactions with unrelated parties in the active conduct of a
trade or business.
The Company does not currently expect that IMT will have any material
amount of subpart F income or any material investments in United States
property. However, no assurance can be given in this regard.
73
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom
Prudential Securities Incorporated, Vector Securities International, Inc. and
Fahnestock & Co. Inc are acting as representatives (the "Representatives"),
have severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company the number of shares of
Common Stock set forth opposite their respective names:
Number
Underwriter of Shares
- ----------- -----------
Prudential Securities Incorporated................................
Vector Securities International, Inc..............................
Fahnestock & Co. Inc..............................................
Total.............................................................
---------
1,700,000
=========
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby if any are
purchased.
The Underwriters, through their Representatives, have advised the
Company that they propose to offer the shares of Common Stock initially at the
public offering price set forth on the cover page of this Prospectus; that the
Underwriters may allow to selected dealers a concession of $__________ per
share; and that such dealers may reallow a concession of $_________ per share
to certain other dealers. After the offering, the initial public offering
price and the concessions may be changed by the Representatives.
The Company has granted to the Underwriters over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
255,000 additional shares of Common Stock at the initial public offering
price, less underwriting discounts and commissions, as set forth on the cover
page of this Prospectus. The Underwriters may exercise such option solely for
the purpose of covering over-allotments incurred in the sale of the shares of
Common Stock offered hereby. To the extent such option to purchase is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the
preceding table bears to 1,700,000.
The Company has agreed to indemnify the several Underwriters and
contribute to any losses arising out of certain liabilities, including
liabilities under the Securities Act.
The Representatives have informed the Company that the Underwriters
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Company, its executive officers and directors and certain
Stockholders, have agreed that they will not, for a period of 180 days
subsequent to the date of this Prospectus, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or securities substantially similar
thereto, or any securities convertible into or exercisable or exchangeable
for, any shares of Common Stock or securities substantially similar thereto of
the Company without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, except that such agreements do
not prevent the Company from granting additional options under the Stock
Option Plan. Further, certain holders of outstanding vested stock options are
subject to 180 day lock-up agreements with the Company and/or Prudential
Securities Incorporated. Prudential Securities Incorporated may, in its sole
discretion, at any time and without notice, release all or any portion of the
securities subject to such lock-up agreements.
Prior to the Offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price will be
determined through negotiations between the Company and Representatives. Among
the factors to be considered in making such determination will be the
prevailing market conditions, the Company's financial and operating history
and condition, its prospects and the prospects for its
74
<PAGE>
industry in general, the management of the Company and the market prices of
securities for companies in businesses similar to that of the Company.
In connection with the Offering, certain Underwriters (if any) and
selling group members and their respective affiliates may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, pursuant to which such
persons may bid for or purchase Common Stock for the purpose of stabilizing
its market price. The Underwriters also may create a short position for the
account of the Underwriters by selling more Common Stock in connection with
the Offering than they are committed to purchase from the Company, and in such
case may purchase Common Stock in the open market following the closing of the
Offering to cover all or a portion of such short position. The Underwriters
may also cover all or a portion of such short position, up to 255,000 shares
of Common Stock, by exercising the Underwriters' over-allotment option
referred to above. In addition, Prudential Securities Incorporated, on behalf
of the Underwriters, may impose "penalty bids" under contractual arrangements
with the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of the other Underwriters, the
selling concession with respect to Common Stock that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
The Company has applied to have the Common Stock listed on the Nasdaq
National Market under the symbol "INFL."
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Arnold & Porter, New York, New York, and for the Underwriters by
Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The Consolidated Financial Statements as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
Certain of the statements in this Prospectus under the captions "Risk
Factors --Dependence upon Patents, Licenses and Proprietary Technology; Risk
of Infringement Claims" and "Business --Patents, Licenses and Proprietary
Rights" have been reviewed and approved by Levisohn, Lerner, Berger & Langsam,
New York, New York, patent counsel to the Company, as experts on such matters,
and are included herein in reliance upon that review and approval. Andrew S.
Langsam, a member of Levisohn, Lerner, Berger & Langsam, owns 1,800 shares of
Series A Convertible Preferred Stock which will, immediately prior to the
completion of the Offering, convert into 2,228 shares of Common Stock.
AVAILABLE INFORMATION
Influence has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the Shares being offered hereby. This Prospectus, which
constitutes part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules filed therewith. For further information with respect to Influence
and the Shares being offered, reference is hereby made to such Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus regarding the contents of any agreement are not
necessarily complete, and in each instance reference is made to the copy of
such agreement filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. As a result of
the Offering, Influence will become subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith will be required to file periodic reports and other
information with the Commission, subject to certain exceptions described
below. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
75
<PAGE>
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the Regional
Offices of the Commission: Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can also be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. In addition, application has been made to have the Shares listed
for quotation on the Nasdaq National Market and, if accepted for quotation,
the Registration Statement, including exhibits thereto, and reports and other
information concerning Influence may be inspected and copied at the offices of
the National Association of Securities Dealers, Inc., 9513 Key West Avenue,
Rockville, Maryland 20850.
76
<PAGE>
[This page contains a flowchart that outlines the steps a physician
would take in diagnosing and treating female incontinence. The flowchart also
depicts which steps might incorporate the Company's proposed diagnostic and
treatment products, including: In-Probe, In-Tele, In-Bio, In-Tac, In-Fast, Raz
Fascial Anchors, Straight-In and In-Flow systems and devices.]
77
<PAGE>
INFLUENCE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants................................ F-2
Consolidated Balance Sheet....................................... F-3
Consolidated Statement of Operations............................. F-4
Consolidated Statement of Stockholders' Equity (Deficit)......... F-5
Consolidated Statement of Cash Flows............................. F-7
Notes to Consolidated Financial Statements....................... F-8
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Influence, Inc.
The reverse stock split described in Note 10 to the consolidated
financial statements has not been consummated at June 23, 1998. When it has
been consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet
and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows present fairly,
in all material respects, the financial position of Influence,
Inc. and its subsidiaries at December 31, 1996 and 1997, and
the results of their operations and their cash flows for the
three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
These financial statements are the responsibility of the
Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above."
PRICE WATERHOUSE LLP
San Jose, California
June 23, 1998, except as to Note 10 which is as of July __, 1998
F-2
<PAGE>
INFLUENCE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity at
December 31, March 31,
------------------------------- March 31, 1998
1996 1997 1998 (Note 2)
--------------- --------------- ---------------- ----------------
ASSETS (Unaudited) (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 16,747,000 $ 2,737,000 $ 1,097,000
Short-term investments 102,000 2,459,000 1,458,000
Accounts receivable, net of allowance for doubtful
accounts of $0 and $37,000 at December 31, 1996 and 1997
and $47,000 at March 31, 1998 (unaudited) - 391,000 507,000
Inventories (Note 3) 244,000 918,000 1,037,000
Other current assets (Note 3) 224,000 964,000 824,000
--------------- --------------- ----------------
Total current assets 17,317,000 7,469,000 4,923,000
Property and equipment (Note 3) 640,000 1,252,000 1,223,000
--------------- --------------- ----------------
$ 17,957,000 $ 8,721,000 $ 6,146,000
--------------- --------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 680,000 $ 619,000 $ 459,000
Accrued expenses (Note 3) 513,000 1,229,000 1,557,000
--------------- --------------- ----------------
Total current liabilities 1,193,000 1,848,000 2,016,000
--------------- --------------- ----------------
Convertible debenture (Note 4) 20,100,000 - -
--------------- --------------- ----------------
Commitments and contingencies (Note 8)
Stockholders' equity (deficit):
Series A Convertible Preferred Stock, $0.01 par
value; 750,000 shares authorized; 713,000 shares issued
and outstanding at December 31, 1996, 1997 and
March 31, 1998 (unaudited);
no shares outstanding pro forma 7,000 7,000 7,000 $ -
Common Stock, $0.001 par value;
23,809,524 shares authorized;
4,902,526, 5,248,070 and 5,248,070
shares issued and outstanding at
December 31,1996 and 1997 and March 31, 1998 (unaudited),
respectively; 6,130,798 shares outstanding pro forma 4,000 4,000 4,000 5,000
Additional paid-in capital 4,706,000 25,619,000 25,921,000 25,927,000
Deferred compensation (283,000) (137,000) (322,000) (322,000)
Accumulated deficit (7,770,000) (18,620,000) (21,480,000) (21,480,000)
--------------- --------------- ---------------- ----------------
Total stockholders' equity (deficit) (3,336,000) 6,873,000 4,130,000 $ 4,130,000
--------------- --------------- ---------------- ----------------
$ 17,957,000 $ 8,721,000 $ 6,146,000
--------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
INFLUENCE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
--------------------------------------------------------- --------------------------------------
1995 1996 1997 1997 1998
------------------ ----------------- ----------------- ------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ - $ - $ 1,114,000 $ 30,000 $ 714,000
Cost of goods sold - - 2,765,000 384,000 658,000
------------------ ----------------- ----------------- ------------------ ------------------
Gross margin - - (1,651,000) (354,000) 56,000
------------------ ----------------- ----------------- ------------------ ------------------
Operating expenses:
Research and development 1,250,000 3,219,000 3,155,000 575,000 940,000
Sales and marketing - 667,000 3,837,000 649,000 1,157,000
General and administrative 459,000 1,769,000 2,073,000 381,000 840,000
------------------ ----------------- ----------------- ------------------ ------------------
Total operating expenses 1,709,000 5,655,000 9,065,000 1,605,000 2,937,000
------------------ ----------------- ----------------- ------------------ ------------------
Operating loss (1,709,000) (5,655,000) (10,716,000) (1,959,000) (2,881,000)
Interest income 12,000 236,000 604,000 183,000 21,000
Interest (expense) - (354,000) (738,000) (406,000) -
------------------ ----------------- ----------------- ------------------ ------------------
Net loss $ (1,697,000) $ (5,773,000) $ (10,850,000) $ (2,182,000) $ (2,860,000)
------------------ ----------------- ----------------- ------------------ ------------------
Basic and diluted
net loss per share (Note 2) $ (0.34) (1.16) (2.10) (0.45) (0.54)
------------------ ----------------- ----------------- ------------------ ------------------
Shares used in computing
basic and diluted
net loss per share (Note 2) 4,977,427 4,982,821 5,172,656 4,902,548 5,248,093
------------------ ----------------- ----------------- ------------------ ------------------
Unaudited pro forma basic and
diluted net loss per share (Note 2) $ (1.79) $ (0.47)
----------------- ------------------
Shares used in computing
unaudited pro forma basic
and diluted net loss per share (Note 2) 6,055,418 6,130,855
----------------- ------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
INFLUENCE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A
Convertible
Preferred Stock Common Stock Additional
---------------------------- --------------------------- Paid-in
Shares Amount Shares Amount Capital
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 - $ 5,020,144 $ 4,000 $
Sale of Series A Convertible
Preferred Stock for cash
of $5.00 per share 713,000 7,000 - - 3,558,000
Issuance of stock options in
connection with services
rendered at fair values of
$1.42 to $1.55 per option - - - - 176,000
Repurchase of Common
Stock for cash of $4.04 per
share - - (148,571) - (600,000)
Net loss - - - - -
------------- ------------- ------------ ------------ -------------
Balance at December 31, 1995 713,000 7,000 4,871,573 4,000 3,134,000
Issuance of compensatory stock
options to employees at
exercise price of $4.04
per share - - - - 610,000
Exercise of stock options - - 30,952 - 125,000
Issuance of stock options in
connection with services
rendered at fair values of
$9.41 to $12.79 per option - - - - 837,000
Amortization of deferred
compensation - - - - -
Net loss - - - - -
------------- ------------- ------------ ------------ -------------
Balance at December 31, 1996 713,000 7,000 4,902,525 4,000 4,706,000
Conversion of debenture to
Common Stock at $62.55
per share - - 333,164 - 20,838,000
Issuance of stock options in
connection with services
rendered at fair values of
$2.14 per option - - 101,000
Amortization of deferred
compensation - - - - -
Exercise of stock options - - 12,381 - 50,000
Cancellation of compensatory
stock options - - - - (76,000)
Net loss - - - - -
------------- ------------- ------------ ------------ -------------
Balance at December 31, 1997 713,000 7,000 5,248,070 4,000 25,619,000
Issuance of compensatory
stock options to an employee at
an exercise price of $4.04
per share (unaudited) - - - - 302,000
Amortization of deferred
compensation (unaudited) - - - - -
Net loss (unaudited) - - - - -
------------- ------------- ------------ ------------ -------------
Balance at March 31, 1998
(unaudited) 713,000 $ 7,000 5,248,070 $ 4,000 $ 25,921,000
------------- ------------- ------------ ------------ -------------
<CAPTION>
Deferred Accumulated
Compensation Deficit Total
------------ -------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1994 $ - $ (300,000) (296,000)
Sale of Series A Convertible
Preferred Stock for cash
of $5.00 per share - - 3,565,000
Issuance of stock options in
connection with services
rendered at fair values of
$1.42 to $1.55 per option - - 176,000
Repurchase of common
stock for cash of $4.04 per
share - - (600,000)
Net loss - (1,697,000) (1,697,000)
----------- -------------- -------------
Balance at December 31, 1995 - (1,997,000) 1,148,000
Issuance of compensatory stock
options to employees at
exercise price of $4.04
per share (610,000) - -
Exercise of stock options - - 125,000
Issuance of stock options in
connection with services
rendered at fair values of
$9.41 to $12.79 per option - - 837,000
Amortization of deferred
compensation 327,000 - 327,000
Net loss - (5,773,000) (5,773,000)
----------- -------------- -------------
Balance at December 31, 1996 (283,000) (7,770,000) (3,336,000)
Conversion of debenture to
common stock at $62.55
per share - - 20,838,000
Issuance of stock options in
connection with services
rendered at fair values of
$2.14 per option (101,000) - -
Amortization of deferred
compensation 171,000 - 171,000
Exercise of stock options - - 50,000
Cancellation of compensatory
stock options 76,000 - -
Net loss - (10,850,000) (10,850,000)
----------- -------------- -------------
Balance at December 31, 1997 (137,000) (18,620,000) 6,873,000
Issuance of compensatory
stock options to an employee at
an exercise price of $4.04
per share (unaudited) (302,000) - -
Amortization of deferred
compensation (unaudited) 117,000 - 117,000
Net loss (unaudited) - (2,860,000) (2,860,000)
----------- -------------- -------------
Balance at March 31, 1998
(unaudited) $ (322,000) $ (21,480,000) $ 4,130,000
----------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
INFLUENCE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
--------------------------------------------------- --------------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows used in operating activities:
Net loss $ (1,697,000) $ (5,773,000) $ (10,850,000) $ (2,182,000) $ (2,860,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 10,000 58,000 166,000 32,000 61,000
Interest on convertible debenture - 100,000 738,000 406,000 -
Amortization of deferred
compensation - 327,000 171,000 34,000 117,000
Stock compensation 176,000 837,000 - - -
Changes in assets and liabilities:
Accounts receivable - - (391,000) (103,000) (116,000)
Inventories - (244,000) (674,000) (46,000) (119,000)
Other current assets (116,000) (108,000) (740,000) (21,000) 140,000
Accounts payable 82,000 301,000 (61,000) (278,000) (160,000)
Accrued expenses 100,000 413,000 716,000 95,000 328,000
--------------- --------------- --------------- --------------- ---------------
Net cash used in
operating activities (1,445,000) (4,089,000) (10,925,000) (2,063,000) (2,609,000)
--------------- --------------- --------------- --------------- ---------------
Cash flows used in investing activities:
Purchases of short-term investments - (103,000) (2,357,000) - -
Proceeds from the sale of short-term
investments - - - 26,000 1,001,000
Purchases of property and equipment (146,000) (561,000) (778,000) (215,000) (32,000)
--------------- --------------- --------------- --------------- ---------------
Net cash provided by (used in)
investing activities (146,000) (664,000) (3,135,000) (189,000) 969,000
--------------- --------------- --------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from note receivable 1,000 - - - -
Proceeds from issuance of Series A
Convertible Preferred Stock 3,565,000 - - - -
Repurchase of Common Stock (600,000) - - - -
Proceeds from exercise of stock options - 125,000 50,000 - -
Proceeds from notes payable to
stockholder - 3,000,000 - - -
Repayment of principal on notes
payable to stockholder - (3,000,000) - - -
Proceeds from convertible debenture - 20,000,000 - - -
--------------- --------------- --------------- --------------- ---------------
Net cash provided by financing .
activities 2,966,000 20,125,000 50,000 - -
--------------- --------------- --------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents 1,375,000 15,372,000 (14,010,000) (2,252,000) (1,640,000)
Cash and cash equivalents at beginning
of period - 1,375,000 16,747,000 16,747,000 2,737,000
--------------- --------------- --------------- --------------- ---------------
Cash and cash equivalents at end of period $ 1,375,000 $ 16,747,000 $ 2,737,000 $ 14,495,000 $ 1,097,000
--------------- --------------- --------------- --------------- ---------------
Supplemental disclosure of noncash
financing activities:
Conversion of convertible debenture
and accrued interest into Common
Stock $ - $ - $ 20,838,000 $ - $ -
Supplemental cash flow disclosure:
Interest paid $ - $ 79,000 $ - $ - $ -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1997 and 1998 is unaudited.)
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS:
Influence, Inc., was incorporated in Delaware on November 9, 1994. Its
wholly owned subsidiary, Influence Medical Technologies, Ltd. ("IMT"), an
Israeli Corporation, was incorporated on November 22, 1994 and commenced
operations on January 1, 1995. On November 7, 1996, IMT incorporated a
wholly-owned subsidiary, Influence Medical Technologies GmbH, in Germany.
Influence, Inc. and its wholly-owned subsidiaries (the "Company") is a medical
device manufacturer engaged in the design, development and commercialization
of minimally invasive products in the areas of urology/gynecology,
otolaryngology, and cancer radiotherapy. The Company's products and products
under development include remote-controlled intraurethral valved catheter
systems, surgical tools and equipment for performing minimally invasive
surgery, diagnostic tools, and an interstitial radiotherapy system for
the treatment of cancerous tumors.
Need for Future Capital and Initial Public Offering
The Company has sustained net losses and negative cash flows from
operations since inception and expects these conditions to continue for the
foreseeable future. As shown in the accompanying consolidated financial
statements at December 31, 1997, the Company has an accumulated deficit of
$18,620,000. The continuation of the Company's operations is dependent upon
obtaining additional financing through public or private equity or debt
financing, collaborative or other arrangements with corporate sources or other
sources of financing to fund operations and fully implement its business plan.
On June 22, 1998, the Company entered into a $6.0 million revolving
line of credit agreement (the "Agreement") with a bank. Amounts drawn under the
Agreement are guaranteed by a shareholder, who is also a member of the Board of
Directors, Advances under the Agreement bear interest at one percent above the
London Interbank Offer Rate. The Agreement expires on June 19, 1999.
In June 1998, the Board of Directors authorized the Company to proceed
with an initial public offering of Common Stock (the "Offering").
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of
Influence, Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Interim Financial Information
Interim financial information for the three month periods ended March 31,
1997 and 1998 included herein is unaudited; however, in the opinion of
management, the interim financial information includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the results for the interim periods presented. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results for the entire year.
Foreign Currency Translation
The Company and its subsidiaries consider their functional currency to
be the U.S. dollar. All of the Company's financing activity is in U.S.
dollars. Further, substantially all of the Company's revenues and purchases of
materials and components are also denominated in U.S. dollars. Accordingly,
the primary economic environment in which the Company operates is the U.S.
dollar.
F-7
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1997 and 1998 is unaudited.)
(Continued)
Monetary assets and liabilities denominated in currencies other than U.S.
dollars are remeasured using the exchange rates in effect at each balance sheet
date, while nonmonetary items are remeasured at historical rates. Net monetary
assets (liabilities) denominated in New Israeli Shekels were $(89,000), $215,000
and $(151,000) at December 31, 1996, 1997 and March 31, 1998, respectively.
Net monetary assets denominated in other currencies, primarily Deutschmarks,
were $24,000, $231,000 and $197,000 at December 31, 1996, 1997 and March 31,
1998, respectively.
The Company has not engaged in hedging activities to minimize the risk of
fluctuations in exchange rates. Remeasurement adjustments and foreign currency
transaction gains or losses are recognized in the consolidated statement of
operations. Such amounts were not material for the years ended December 31,
1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998.
Cash and Cash Equivalents
The Company considers all highly liquid investments which have an
original maturity of three months or less to be cash equivalents. The carrying
amount reported in the consolidated balance sheet for cash and cash
equivalents approximates its fair value. Cash equivalents include time
deposits of $16,002,000 at December 31, 1996, commercial paper and corporate
obligations of $1,739,000 at December 31, 1997 and $275,000 at March 31, 1998.
Financial Instruments
The Company accounts for its short-term investments under Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). SFAS 115 establishes standards for
financial accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investment in debt
securities. Each investment is classified into one of three categories:
held-to-maturity, available-for-sale or trading.
The Company's short-term investments consist of bank deposits,
commercial paper and corporate obligations. All of the Company's investment
securities are classified as available-for-sale and are stated at fair market
value which approximates cost. The Company did not have any material realized
or unrealized gains or losses on its investments in any period presented. Short
term investments consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
-------------------------------
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Bank deposits $ 102,000 $ 204,000 $ 206,000
Corporate obligations and commercial paper - 2,255,000 1,252,000
-------------- -------------- --------------
$ 102,000 $ 2,459,000 $ 1,458,000
-------------- -------------- --------------
</TABLE>
F-8
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1997 and 1998 is unaudited.)
(Continued)
Concentration of Risks
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, short-term investments and accounts receivable. Cash equivalents
and short-term investments are placed in high credit quality instruments and
their composition and maturities are regularly monitored by management. The
Company deposits most of its cash with a single financial institution.
Substantially all of the Company's cash equivalents and short-term investments
are managed by a single investment manager. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral. The Company maintains an allowance for doubtful accounts receivable
based upon the expected collectibility of accounts receivable.
The Company's product development and production facility is located in
the State of Israel, and the Company is directly affected by the political,
economic and military conditions to which that country is subject. Accordingly,
any major hostilities involving Israel or the interruption or curtailment of
trade between Israel and its present trading partners could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company is required to purchase a certain component used with one of
its products from a sole supplier. Although there is currently only one
manufacturer of this component, management believes that other suppliers could
provide a similar component at comparable terms. However, the loss of this
supplier could delay the shipment of one of the Company's products and have a
material adverse effect on the Company's results of operations.
Inventories
Inventories are stated at the lower of cost, determined using the
moving average method, or market.
Property and Equipment
Office furniture and equipment, machinery and equipment, motor vehicles
and leasehold improvements are stated at cost, less accumulated depreciation.
Property and equipment are depreciated on a straight-line basis over their
estimated useful lives or over the life of the lease, whichever is shorter.
Useful lives range from three to seventeen years for office furniture and
equipment and seven to fourteen years for machinery and equipment. Motor
vehicles have a useful life of seven years.
Revenue Recognition
Revenues are recognized as products are shipped. Allowances for
estimated returns are provided upon shipment.
Research and Development
Research and development costs and costs associated with patents are
expensed as incurred.
Basic and Diluted Net Loss Per Share
The Company adopted SFAS No. 128 "Earnings per Share", during the year
ended December 31, 1997 and retroactively restated all prior periods. Basic
net earnings (loss) per share is computed using the weighted average number of
common shares outstanding during the period. Diluted net earnings (loss) per
share is computed using the weighted average number of common and potential
common shares outstanding during the period. Potential common shares consist
of the incremental common shares issuable upon the exercise of stock options
(using the treasury stock method) and upon the conversion of the convertible
debenture and Series A Convertible Preferred Stock (using the if-converted
method). Potential common shares have been excluded from the computation of
diluted net (loss) per share as their effect is anti-dilutive.
Unaudited Pro Forma Stockholders' Equity
Upon completion of the Offering, all shares of Series A Convertible
Preferred Stock outstanding will automatically convert into 882,762 shares
of Common Stock. The pro forma effect of this conversion has been reflected in
unaudited pro forma stockholders' equity in the accompanying unaudited balance
sheet at March 31, 1998.
F-9
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1997 and 1998 is unaudited.)
(Continued)
Unaudited Pro Forma Net (Loss) Per Share
Pro forma net (loss) per share for the year ended December 31, 1997 and
for the three months ended March 31, 1998 includes Common Stock issuable upon
the conversion of the Company's Series A Convertible Preferred Stock using the
if-converted method.
Income Taxes
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires that the Company recognize deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the consolidated financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined on the
basis of the difference between the income tax basis of assets and liabilities
and their respective financial reporting amounts at enacted tax rates in
effect for the periods in which the differences are expected to reverse.
Stock-Based Compensation
The Company has adopted the pro forma disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). As permitted, the Company continues to
recognize stock-based compensation under the intrinsic value method of
accounting as prescribed by Accounting Principles Board Opinion No. 25. The
pro forma effects of applying SFAS 123 are shown in Note 6 to the consolidated
financial statements.
Comprehensive Net Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes standards for the reporting of comprehensive income and
its components in a full set of general-purpose financial statements.
Comprehensive income is comprised of net income and other comprehensive
earnings such as unrealized gains or losses on available-for-sale short term
investments. The Company's unrealized gains and losses on available-for-sale
short-term investments have been insignificant for all periods presented.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information" ("SFAS 131"). SFAS 131 revises the
information required regarding the reporting of operating segments. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company will adopt SFAS 131
beginning in 1998 and does not expect such adoption to have a material effect
on the consolidated financial statements.
F-10
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1997 and 1998 is unaudited.)
(Continued)
NOTE 3 - BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------
1996 1997 1998
--------------- ---------------- ----------------
<S> <C> <C> <C>
Inventories consist of the following:
Raw materials $ 186,000 $ 582,000 $ 621,000
Work-in-process 23,000 66,000 61,000
Finished goods 35,000 270,000 355,000
--------------- ---------------- ----------------
$ 244,000 $ 918,000 $ 1,037,000
--------------- ---------------- ----------------
Other current assets consist of the following:
Prepaid expenses $ 86,000 $ 445,000 $ 384,000
VAT refundable 38,000 120,000 71,000
Prepaid taxes 52,000 72,000 58,000
Due from employees 23,000 150,000 180,000
Deposits 25,000 73,000 75,000
Other - 104,000 56,000
--------------- ---------------- ----------------
$ 224,000 $ 964,000 $ 824,000
--------------- ---------------- ----------------
Property and equipment consist of the following:
Office furniture and equipment $ 185,000 $ 468,000 $ 493,000
Machinery and equipment 395,000 803,000 810,000
Motor vehicles 105,000 122,000 122,000
Leasehold improvements 22,000 92,000 92,000
--------------- ---------------- ----------------
707,000 1,485,000 1,517,000
Less accumulated depreciation (67,000) (233,000) (294,000)
--------------- ---------------- ----------------
$ 640,000 $ 1,252,000 $ 1,223,000
--------------- ---------------- ----------------
Accrued expenses consist of the following:
Accrued compensation and related payroll taxes $ 212,000 $ 409,000 $ 501,000
Professional fees 247,000 446,000 415,000
Clinical fees - 99,000 390,000
Other 54,000 275,000 251,000
--------------- ---------------- ----------------
$ 513,000 $ 1,229,000 $ 1,557,000
--------------- ---------------- ----------------
</TABLE>
F-11
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1997 and 1998 is unaudited.)
(Continued)
NOTE 4 - CONVERTIBLE DEBENTURE:
In November 1996, the Company entered into an agreement with Medtronic,
Inc. ("Medtronic") which granted Medtronic the option to purchase the Company
on or before June 10, 1997 at a purchase price of $180 million (the
"Agreement"). In December 1996, in connection with the Agreement, the Company
issued a one-year convertible debenture to Medtronic in exchange for cash of
$20 million. The convertible debenture accrued interest at the prime rate
which at December 31, 1996 was 8.25%. Accrued interest on the convertible
debenture totaled $100,000 at December 31, 1996. Upon termination of the
purchase option, the convertible debenture and accrued interest thereon
automatically converted into shares of the Company's Common Stock at a per share
price equal to $400 million divided by the number of then outstanding Common
Stock and equivalents as defined in the Agreement. The convertible debenture,
plus accrued interest of $838,000, was converted into $333,164 shares of Common
Stock at a conversion price, in excess of fair value, of $62.55 per share on
June 10, 1997. At December 31, 1996, the Company estimated that the fair value
of the convertible debenture approximated cost based on the proximity of its
issuance to year end.
NOTE 5 - INCOME TAXES:
No provision for income taxes has been recorded as the Company has
incurred net operating losses since inception. The Company's Israeli
manufacturing facility has received "Approved Enterprise" status under Israeli
tax law. As such, undistributed income derived from the Company's manufacturing
facility in Israel, subject to compliance with applicable requirements by
December 30, 1998, will be tax exempt for a maximum of two years after IMT has
taxable income, and will be subject to a reduced income tax rate for a maximum
of eight additional years (depending upon the level of foreign investment). In
the event that IMT were to pay a dividend to the Company in the U.S. during any
tax exempt period, however, the amount of the dividend would be subject to the
Israeli corporate income tax from which it was exempt, plus a 15% withholding
tax. Further, license fees remitted to the Company in the United States will
also be subject to a 15% withholding tax.
Deferred tax assets are comprised of the following:
December 31,
----------------------------------
1996 1997
---------------- ----------------
Net operating loss carryforwards $ 618,000 $ 1,484,000
Expenses not currently deductible 410,000 470,000
---------------- ----------------
1,028,000 1,954,000
Valuation allowance (1,028,000) (1,954,000)
---------------- ----------------
$ ---- $ ----
---------------- ----------------
As of December 31, 1997, the Company has net operating loss carryforwards
and other future tax deductions for Israeli tax purposes of $13,000,000 and
$2,700,000, which management believes will be utilized to offset future taxable
income. At December 31, 1997, the Company also has a net operating loss
carryforward for U.S. income tax purposes of $459,000 which will expire in 2009
through 2012. Under the Tax Reform Act of 1986, the amount of and benefit from
U.S. net operating losses may be subject to an annual limitation as a result of
a change in ownership. The net operating loss carryforward relating to the
Company's wholly-owned subsidiary in Germany was not significant.
F-12
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1997 and 1998 is unaudited.)
(Continued)
Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability
of the U.S and Israeli deferred tax assets such that a full valuation allowance
is warranted. These factors include the Company's history of losses, recent
increases in expense levels and the uncertainty regarding market acceptance of
the Company's products. The Company will continue to assess realizability of its
deferred tax assets in future periods.
NOTE 6 - STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock
Holders of the Company's Common Stock are entitled to one vote per
share. The Company's Board of Directors (the "Board") is elected by a majority
vote of the shares of Common Stock voting thereon and any action to be taken
by stockholders requires a majority vote of the shares of Common Stock voting
thereon. In September 1995, the Company repurchased 148,571 shares of Common
Stock from three founders for $600,000 in cash. The repurchase price was based
on the estimated fair value of the shares on the repurchase date as determined
by the Board of Directors.
In August 1997, the Board approved a Common Stock split effected in the
form of a dividend of 0.56 shares for every share of outstanding Common Stock,
together with a corresponding adjustment to outstanding stock options and to
the conversion ratio of the Series A Convertible Preferred Stock. All share
and per share data in the accompanying consolidated financial statements have
been adjusted retroactively to give effect to the stock dividend.
Series A Convertible Preferred Stock
At December 31, 1997, the Company had authorized 850,000 shares of
preferred stock, 750,000 of which have been designated as Series A Convertible
Preferred Stock. The holders of the Series A Convertible Preferred Stock have
no voting rights but their shares are convertible at any time at the option of
the holder on a 1-for-1.24 basis into Common Stock. Each share of Series A
Convertible Preferred Stock is automatically converted into 1.24 shares of
Common Stock prior to the closing of an initial public offering. Upon the
dissolution or liquidation of the Company, the holders of the Series A
Convertible Preferred Stock are entitled to receive $5.00 per share before any
payments are made to the holders of any other shares of stock. Any remaining
amount available after this payment will be distributed to holders of all
outstanding shares equally.
Dividends, when and as declared by the Board, shall be payable to the
holders of the Common and Series A Convertible Preferred Stock in amounts
consistent with the conversion ratio in effect on the dividend date.
Stock Option Plan
During 1995 and 1996, the Board authorized 693,651 shares of Common
Stock to be reserved for issuance to employees, directors and consultants
under the Influence, Inc. 1995 Stock Option Plan (the "1995 Plan"). Under the
1995 Plan, options are granted at prices determined by the Board of Directors,
vest over various periods generally not exceeding four years, and terminate
ten years from the date of grant. In January and August 1997, the Board
authorized an additional 495,238 shares of Common Stock to be added to the
1995 Plan. At March 31, 1998, there were 291,408 shares available for future
grant under the 1995 Plan. In June 1998, the Board cancelled all remaining
shares available for grant under the 1995 Plan.
Under the 1995 Plan, the Company issued fully vested options to
consultants to purchase 118,857 and 86,667 shares of Common Stock during 1995
and 1996, respectively, in exchange for services. These options were valued
using the minimum value method with the following assumptions: dividend yield
of 0%; risk free interest rate of 5.86% to 6.89%; and an expected option term
of three years. The Company recognized consulting expense associated with
these options of $176,000 and $837,000 for the years ended December 31, 1995
and 1996, respectively.
F-13
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1997 and 1998 is unaudited.)
(Continued)
A summary of activity under the 1995 Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise
Outstanding Price
-------------------------------
<S> <C> <C>
Outstanding as of December 31, 1994 -
Granted 200,262 $ 4.04
--------------
Outstanding as of December 31, 1995 200,262 4.04
Granted 424,048 4.80
Exercised (30,952) 4.04
Canceled (16,714) 4.04
--------------
Outstanding as of December 31, 1996 576,644 4.60
Granted 300,362 13.61
Exercised (12,381) 4.04
Canceled (74,286) 12.66
--------------
Outstanding as of December 31, 1997 790,339 7.27
Granted 63,492 4.04
--------------
Outstanding as of March 31, 1998 853,831 7.03
--------------
</TABLE>
At December 31, 1996 and 1997 and March 31, 1998, 323,070, 427,287, and
544,730 options with weighted average exercise prices of $5.05, $5.29 and
$6.25, respectively, were exercisable.
The following table summarizes information about stock options granted
under the 1995 Plan for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
-----------------------------------------------------
1996 1997 1998
------------------------- ------------------------- --------------------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Exercise Fair Exercise Fair Exercise Fair
Price Value Price Value Price Value
------------ ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Options granted at
fair value $ 4.04 $ 0.58 $ 13.67 $ 3.18 $ - $ -
Options granted
below fair value 4.70 4.31 - - 4.04 5.42
</TABLE>
F-14
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1997 and 1998 is unaudited.)
(Continued)
The following table summarizes information about stock options
outstanding and vested under the 1995 Plan:
<TABLE>
<CAPTION>
March 31, 1998
------------------------------------------------
Weighted
Average
Remaining
Number Number Contractual
Exercise Prices Outstanding Exercisable Life
- ------------------ -------------- --------------- ---------------
<S> <C> <C> <C>
$4.04 512,611 364,975 8.01 years
8.09 80,476 80,476 8.59 years
12.60 260,744 99,279 9.6 years
-------------- ---------------
853,831 544,730
-------------- ---------------
</TABLE>
Deferred compensation is recorded when the exercise price of an option
is less than the deemed fair value of the underlying Common Stock on the date
of grant. From inception through March 31, 1995, all stock options were
granted at exercise prices which equaled the then estimated fair value of the
underlying Common Stock as determined by the Board of Directors. During 1996,
the Company granted options to employees to purchase 290,829 shares of Common
Stock at a weighted average exercise price of $4.04 per share, for which
deferred compensation of $610,000 was recorded. Deferred compensation is
amortized over the vesting period of the related options.
During 1997, the Company issued stock options to consultants to
purchase 46,825 shares of Common Stock valued at $12.60 per share, in exchange
for services to be provided. These options vest over three years. Significant
assumptions used in valuing these options include: volatility of 50%, dividend
yield of 0%, risk free interest rate of 6.2%, an expected life of three years
and an estimated fair value of the underlying Common Stock of $12.60 per
share. The Company recorded $101,000 of deferred compensation in 1997, of
which $69,000 was recognized as compensation expense in 1997. These options
are subject to variable plan accounting and, accordingly, additional
compensation expense will be recorded in the future.
During the three months ended March 31, 1998, the Company granted an
option to an employee to purchase 63,492 shares of Common Stock at $4.04 per
share, for which deferred compensation of $302,000 was recorded. Total stock
compensation expense for the years ended December 31, 1995, 1996 and 1997, and
the three months ended March 31, 1998, was $176,000, $1,164,000 and $171,000,
and $117,000, respectively.
F-15
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1997 and 1998 is unaudited.)
(Continued)
The Company accounts for stock options granted to employees in
accordance with the provisions of Accounting Principles Board Opinion No. 25.
Had compensation expense for options granted to employees under the 1995 Plan
been determined based upon the estimated grant date fair value pursuant to SFAS
123, the Company's net loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
---------------------------------------------------- ---------------------------------
1995 1996 1997 1997 1998
---------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net loss:
As reported $ 1,697,000 $ 5,773,000 $ 10,850,000 $ 2,182,000 $ 2,860,000
Pro forma 1,697,000 6,077,000 11,151,000 2,221,000 3,042,000
Loss per share:
As reported $ (0.34) $ (1.16) $ (2.10) $ (0.45) $ (0.54)
Pro forma (0.34) (1.22) (2.16) (0.45) (0.58)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the minimum value method with the following assumptions: dividend yield
of 0% for all periods presented; risk-free annual interest rates of 5.21% to
6.89%, 5.21% to 6.42%, 5.21% to 6.42%, 6.01% to 6.56%, and 5.73% for the years
ended December 31, 1995, 1996, 1997 and the three months ended March 31, 1997
and 1998, respectively; and an expected option term of three years for all
periods presented.
Because the determination of the fair value of all options granted if
the Company becomes a public entity will include an expected volatility factor
in addition to the factors described in the preceding paragraph, the above
results may not be representative of future periods.
NOTE 7 - RELATED PARTY TRANSACTIONS:
During 1994 and 1995, the Company acquired certain technologies for use
in its research and development programs from NMB Medical Applications Ltd.
("NMB"), an affiliate of the Company by way of common ownership. As
consideration for the technology, the Company paid $300,000 in 1994 and
$27,000 in 1995 and expensed both amounts as the technology had no alternative
future use.
Under the terms of a management agreement, in principle, which
commenced in March 1995, the Company is obligated to pay a minimum management
fee of $7,000 per month to NMB in lieu of compensation to two of the
Company's founders. The Company incurred management fees in connection with
this agreement totaling $70,000 and $224,000 for the years ended December 31,
1995 and 1996, respectively. As of July 1, 1996, required payments under the
formal management agreement have ceased and the two founders entered into
employment agreements pursuant to which each was to receive an annual salary
of $150,000 and certain other fringe benefits. Subsequently, at the founders
requests, payments have continued to NMB to fulfill the Company's obligation
under such employment agreements. The Company incurred fees totaling $371,000
and $95,000 under the employment agreements for the year ended December 31,
1997 and the three months ended March 31, 1998, respectively. Included in
accrued expenses at December 31, 1996 and 1997 and at March 31, 1998 were
management fees payable totaling approximately $144,000, $46,000, and $33,000,
respectively.
In April 1996, the Company entered into an agreement with Jessco
Medical Supply ("Jessco"), under which the Company pays $2,500 per month for
consulting services. One of the Company's Board members is the owner of
Jessco. The Company paid $23,000, $30,000 and $0, to Jessco for consulting
services for the years ended December 31, 1996 and 1997 and the three months
ended March 31, 1998, respectively.
F-16
<PAGE>
Between June 10, 1996 and November 7, 1996, the Company borrowed $3
million from a stockholder in exchange for promissory notes which bore
interest at the Applicable Federal Rate as defined by the Internal Revenue
Code. On December 18, 1996, the Company repaid the notes, plus accrued
interest of $59,000.
Two founders of the Company are also General Managers of InStent
Israel, Ltd., ("InStent"), a subsidiary of Medtronic. Medtronic is a principle
stockholder of the Company. There have been no material related party
transactions between InStent and the Company.
In March, 1998 the Company reached an agreement in principle with Galil
Medical Ltd. a wholly-owned subsidiary of ESC Medical Systems, Ltd ("ESC"),
under which the companies have agreed to form a joint venture to develop
technology and product in the cryo-surgery field. Material terms, including
commitments under the agreement are subject to final negotiation. One of the
Company's Board members is the Chief Executive Officer and Chairman of the Board
of ESC.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
The Company occupies most of its facilities under long-term operating
leases. Certain leases contain escalation provisions and renewal options.
Future minimum rental payments under noncancelable operating leases at
December 31, 1997 are as follows:
Year Ending
December 31,
------------
1998 $ 401,000
1999 352,000
2000 325,000
2001 325,000
2002 and beyond 209,000
---------------
$ 1,612,000
---------------
Rent expense totaled approximately $34,000, $66,000, $145,000,
$16,000 and $90,000 for the years ended December 31, 1995, 1996,
1997 and the three months ended March 31, 1997 and 1998, respectively.
In 1995, the Company entered into an exclusive worldwide license
agreement with Dimotech Ltd. ("Dimotech") to develop, manufacture and market
products utilizing certain Dimotech technology. The term of the license
agreement runs through the expiration date for the underlying patent, which is
2012. As consideration for the license, the Company agreed to prepay $50,000
of royalties upon the execution of the agreement and $300,000 payable upon the
earlier of December 31, 1996 or the completion of an initial public offering
of the Company's Common Stock. Royalties of 0.5% of total income derived from
the direct or indirect use of the patent are payable to Dimotech under the
agreement. During the year ended December 31, 1995, the Company recognized
expense of $350,000 related to this agreement as research and development as
management determined that the technology had no future alternative use.
During the years ended December 31, 1996 and 1997, the Company did not recognize
any expense related to this agreement.
The Company has entered into an employment agreement with one of its
officers which expires in May 1999. The agreement provides for a minimum
annual salary level of $150,000, as well as for incentive bonuses which are
payable upon attainment of certain performance criteria established from time
to time by the Board of Directors.
Israeli labor laws and agreements require IMT to make severance payments
to employees in certain circumstances. Severance accruals are recorded in the
consolidated balance sheet and funded by the purchase of managers' insurance
policies with insurance companies and by deposits made with a recognized
severance fund. The severance liability was $84,000 and $193,000 at December 31,
1996 and 1997, respectively. The corresponding amounts funded were $45,000 and
$116,000 at December 31, 1996 and 1997, respectively. The Company recognized
$66,000, $84,000 and $122,000 of expense in connection with the severence
liability for the years ended December 31, 1995, 1996 and 1997
respectively.
F-17
<PAGE>
The Company is subject to various legal proceedings and patent
infringement and other matters which arise in the ordinary course of business.
In the opinion of management, the amount of any ultimate liability with
respect to these matters will not materially affect the results of operations
or financial position of the Company.
In March 1998, the Company entered into a Technology Development and
License Agreement with The Titan Corporation ("Titan") and TomoTherapeutics,
Inc. ("TTI"), a subsidiary of Titan (the "TTI Agreement"). Under the terms of
the TTI Agreement, the Company agreed to license certain patented technology and
to purchase certain tangible assets from TTI and to work initially with TTI, and
subsequently on its own, to develop and market products based on the technology.
Upon completion of certain performance milestones, the Company will issue up to
35,714 shares of Common Stock to TTI. In the event the Company realizes any
revenues from technology developed under this license agreement, the Company is
obligated to pay the greater of $200,000 or 8% of revenues recognized under the
agreement until the Company has paid royalties of $2,000,000. Subsequently,
the Company will pay TTI 5% of revenues recognized under the agreement.
NOTE 9 - GEOGRAPHIC AREA INFORMATION:
The Company operates in one industry segment: the development and
commercialization of disease management systems. Operating losses are determined
by deducting from net revenues the related costs and operating expenses
attributable to each geographic region. Research and development costs are
reflected in the geographic region in which the activity was performed. The
following table presents a summary of operations by geographic region.
<TABLE>
<CAPTION>
United Israel and
States Germany Eliminations Consolidated
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1995
Operating losses $ (341,000) $ (1,356,000) $ - $ (1,697,000)
Total assets 2,850,000 247,000 (1,470,000) 1,627,000
1996
Operating losses $ (1,998,000) $ (3,775,000) $ - $ (5,773,000)
Total assets 21,644,000 1,499,000 (5,186,000) 17,957,000
1997
Net sales $ - $ 1,114,000 $ - $ 1,114,000
Operating losses (183,000) (10,667,000) - 10,850,000)
Total assets 24,765,000 4,535,000 (20,579,000) 8,721,000
</TABLE>
NOTE 10 - SUBSEQUENT EVENTS
In June 1998, in connection with the Offering, the Board of Directors
approved a 1.0 for 1.26 reverse stock split of the Company's Common Stock. All
share and per share amounts in the accompanying consolidated financial
statements have been retroactively adjusted to reflect the reverse stock split.
In June 1998, the Board authorized, subject to shareholder approval,
790,000 shares of Common Stock for issuance pursuant to the Company's 1998
Long-Term Incentive Plan (the "1998 Plan"). As of June 23, 1998 the Company has
granted to employees and consultants options to purchase an aggregate of 422,755
shares of Common Stock under the 1998 Plan of a weighted average exercise price
of $10.13 per share.
F-18
<PAGE>
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- --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any of the
Underwriters. This Prospectus does not constitute an offer to sell or the
solicitation of any offer to buy any security other than the shares of Common
Stock offered by this Prospectus, nor does it constitute an offer to sell or the
solicitation of any offer to buy the shares of Common Stock by anyone in any
jurisdiction in which such offer or solicitation is not authorized or to any
person to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
Until , 1998, all dealers effecting transactions in the
Common Stock, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
TABLE OF CONTENTS
Page
----
Prospectus Summary...............................3
Risk Factors.....................................7
The Company.....................................19
Use Of Proceeds.................................19
Dividend Policy.................................20
Capitalization..................................20
Dilution........................................21
Selected Consolidated Financial Data............22
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations.............23
Business........................................29
Management......................................56
Certain Transactions............................60
Principal Stockholders..........................62
Description Of Capital Stock....................64
Shares Eligible For Future Sale.................66
Israeli Taxation And Investment Programs........68
United States Federal Income Taxation...........72
Underwriting....................................74
Legal Matters...................................75
Experts.........................................75
Available Information...........................75
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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1,700,000 Shares
[INFLUENCE LOGO]
Common Stock
----------
PROSPECTUS
----------
Prudential Securities Incorporated
Vector Securities International, Inc.
Fahenstock & Co. Inc.
, 1998
------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance
and distribution of the securities being registered under the Registration
Statement, other than underwriting discounts and commissions, are estimated in
the following table. All of the amounts shown are estimates, except for the
SEC registration fee and the NASD filing fee, and all of such expenses will be
borne by Influence, Inc. ("Influence"):
Securities and Exchange Commission registration fee.............. $11,326
NASD filing fee.................................................. 4,238
Nasdaq Stock Market Listing Application fee...................... 17,500
Printing and engraving expenses.................................. 100,000
Legal fees and expenses.......................................... 200,000
Accounting fees and expenses..................................... 125,000
Blue sky fees and expenses (including counsel fees).............. 15,000
Transfer agent and registrar fees................................ 2,000
Miscellaneous expenses........................................... 124,936
--------
Total.......................................... $600,000
========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Influence, Inc., a Delaware corporation (the "Company"), is empowered
by Section 145 of the Delaware General Corporation Law (the "Delaware Act"),
subject to the procedures and limitations stated therein, to indemnify certain
parties. The Company's By-laws provide that the directors and officers shall
be indemnified and held harmless to the fullest extent of applicable law.
Section 145 of the Delaware Act provides in part that a corporation shall have
the power 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 (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding if he acted in good faith
and in a manner he 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 conduct was unlawful.
Similar indemnity is authorized for such persons against expenses (including
attorneys' fees) actually and reasonably incurred in defense or settlement of
any threatened, pending or completed action or suit by or in the right of the
corporation, if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and
provided further that (unless a court of competent jurisdiction otherwise
provides) such person shall not have been adjudged liable to the corporation.
Any such indemnification may be made only as authorized in each specific case
upon a determination by the stockholders or disinterested directors that
indemnification is proper because the indemnitee has met the applicable
standard of conduct. Where an officer or a director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually or reasonably incurred. Section 145 provides further that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
II-1
<PAGE>
Article Tenth of the Company's Second Restated Certificate of
Incorporation, as amended (the "Certificate") provides that the Company shall
indemnify any and all persons whom it has the power to indemnify under Section
145 of the Delaware Act to the fullest extent permitted under such section,
and such indemnity shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Article Ninth of the Company's Certificate eliminates the personal
liability of the Company's directors to the fullest extent permitted under
Section 102(b)(7) of the Delaware Act, as amended. Such section permits a
company's certificate of incorporation to eliminate or limit the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director: (i) for
any breach of the director's duty of loyalty to the corporation or its
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 Delaware Act (which addresses director liability for unlawful payment
of a dividend or unlawful stock purchase or redemption) or (iv) for any
transaction from which the director derived an improper personal benefit.
The Company intends to apply for a directors' and officers' insurance
policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Described below are sales of unregistered securities by the
registrant within the past three years:
(1) On December 14, 1994, the Company issued 5,020,144 shares of
Common Stock in consideration of the par value of such shares
to the founders of the Company.
(2) From March 1995 through November 1995, 713,000 shares of
Series A Preferred Stock were sold to 48 accredited investors
at a price of $5.00 per share.
(3) Pursuant to the Company's stock option plans, the Company
has granted to employees and to a limited number of outside
consultants options to purchase an aggregate of 1,224,377
shares of Common Stock. In 1995, the Company granted options
to purchase an aggregate of 72,986 shares of Common Stock,
to employees outside the United States and options to
purchase 112,667 shares of Common Stock, of which 44,572
were to non-employees outside the United States and 68,095
were granted to three non-employees in the U.S. Such
non-employees included two physicians who assisted in the
design of one of the Company's products under development
and a bookkeeper.
In 1996, the Company granted options to purchase an
aggregate of 292,191 shares of Common Stock to employees, of
which three resided in the United States, and options to
purchase 38,381 shares of Common Stock to non-employees
outside the United States who assisted the Company through
their services. In 1998, the Company granted to employees
options to purchase an aggregate of 655,803 shares of Common
Stock, of which 201,452 were to 32 employees in the United
States. In addition, in 1998 the Company granted options to
purchase an aggregate of 192,847 shares of Common Stock to
non-employees, of which an aggregate of 133,179 were to nine
persons in the United States. Four of such persons were
physicians involved in either in clinical trials of the
Company's products or who served on the Company's Scientific
Advisory Committee. Three of the nine are consultants
working on the development of the Company's cancer therapy
product under development. Two additional persons were
outside regulatory consultants.
(4) Medtronic, Inc. ("Medtronic") became a stockholder of the
Company in connection with an agreement, dated December 10,
1996 (the "Medtronic Agreement") between Medtronic, the
Company, and substantially all of the stockholders of the
Company. Under the terms of the Medtronic Agreement,
Medtronic received in December 1996 an option to acquire all
the shares of Common and Preferred stock in the Company for
approximately $180 million, or for
II-2
<PAGE>
approximately $28 per share on a fully diluted basis. In
consideration of this option, Medtronic invested $20 million
in the Company in exchange for a convertible debenture of the
Company (the "Debenture"). Medtronic's option to acquire the
Company expired unexercised on June 10, 1997. Pursuant to the
terms of the Debenture, all outstanding principal and accrued
interest on June 10, 1997, which amounted to $20,837,808,
automatically converted into common stock at a conversion
price of $62.55 per share, which resulted in the issuance to
Medtronic of 333,164 shares, or approximately 5.43% of the
outstanding Common Stock of the Company prior to the
completion of the Offering.
(5) On May 1, 1998, the Company issued a convertible promissory
note (the "Note") in the principal amount of $1,000,000 to
Johnson & Johnson Development Corporation ("JJDC") in
connection with a letter of intent (the "Letter of Intent")
among the Registrant, JJDC and its affiliate Indigo Medical,
Inc. ("Indigo"). Pursuant to the Letter of Intent, which is
subject to the negotiation of definitive agreements, Indigo
is to become the exclusive distributor outside the United
States of certain of the Registrant's products. The Note is
convertible into Common Stock of the Registrant at the
initial public offering price.
The sales of securities referenced in paragraphs (1), (2), (4) and
(5) were either sold to persons outside the United States or were deemed to be
exempt from registration under the Securities Act of 1933 in reliance on
Section 4(2) thereof. The securities referenced in paragraph (3) were either
granted to persons outside the United States or were deemed to be exempt from
registration under the Securities Act of 1933 in reliance on Rule 701
promulgated under Section 3(b) thereof, as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under Rule 701. The
recipients of securities in each such transaction represented their intention
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates and instruments issued in such transactions.
All recipients had adequate access, though their relationships with the
Company, to information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement**
3.1 Certificate of Incorporation of the Registrant*
3.2 Bylaws of the Registrant*
4.1 Specimen Certificate for Shares**
5.1 Opinion of Arnold & Porter, U.S. Counsel to the Registrant**
10.1 Letter Agreements between Dimotech Ltd. and the Registrant**
10.2 Employment Agreement dated May 31, 1996 between Peter A. Bick,
M.D., and the Registrant*
10.3 [Reserved]
10.4 Agreement between Oren Globerman and the Registrant*
10.5 Agreement between Dr. Mordechay Beyar and Registrant*
10.6 1995 Stock Option Plan of the Registrant, together with a
form of agreement pursuant thereto
10.7 Lease for Hertzliya, Israel facility (English Translation)
10.8 1998 Long-Term Incentive Plan of the Registrant, together with a
form of agreement pursuant thereto**
10.9 Debenture dated December 10, 1996 issued by the Registrant to
Medtronic, Inc.*
10.10 Technology Development and License Agreement dated as of March
16, 1998 among the Registrant, TomoTherapeutics, Inc. and the
Titan Corporation**
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.11 Letter of Intent dated as of May 1, 1998 among the Registrant,
Indigo Medical, Inc. and Johnson & Johnson Development
Corporation**
10.12 Promissory Note dated as of May 1, 1998 issued by the Registrant to
Johnson & Johnson Development Corporation**
10.13 Agreement in Principle dated March 25, 1998 between Influence
Medical Technologies, Ltd. and Galil Medical Ltd.**
10.14 Letter agreement dated as of January 15, 1998 between the
Registrant and Peter A. Bick, M.D., amending Dr. Bick's Employment
Agreement**
16.1 Letter regarding Change in Certifying Accountant
21.1 Subsidiaries of the Registrant*
23.1 Consent of Arnold & Porter, U.S. Counsel to the Registrant
(contained in Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP, independent accountants
23.3 Consent of Levisohn, Lerner, Berger & Langsam, Patent Counsel to
the Registrant
24.1 Powers of Attorney*
27.1 Financial Data Schedule
</TABLE>
- ---------
* Previously filed.
** To be filed by amendment.
(b) Schedules
All schedules are omitted because they are not required, are not
applicable or the information is included in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
Certificates of Shares in such denominations and registered in such names as
required by the Underwriters to permit prompt delivery of Shares to each
purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") 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 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 and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective; and
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form S-1 and has duly caused
this Amendment No. 1 to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in New York, New York on the
22nd day of June 1998.
INFLUENCE, INC.
By: /s/ Peter A. Bick, M.D
---------------------------------
Name: Peter A. Bick, M.D
Title: President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board of Directors and June 22, 1998
Director
- ---------------------------------------
Lewis C. Pell
* Vice Chairman of the Board of Directors and June 22, 1998
Director
- ---------------------------------------
Mordechay Beyar, M.D.
* Vice Chairman of the Board of Directors and June 22, 1998
Director
- ---------------------------------------
Oren Globerman
/s/ Peter A. Bick, M.D. President, Chief Executive Officer and June 22, 1998
- --------------------------------------- Director (Principal Executive Officer)
Peter A. Bick, M.D.
- --------------------------------------- Director June 22, 1998
Shimon Eckhouse
/s/ Howard Machek Chief Financial Officer, Vice President, June 22, 1998
- --------------------------------------- Finance, and Treasurer (Principal Accounting
Howard Machek and Financial Officer)
*By: /s/ Peter A. Bick, M.D June 22, 1998
---------------------------------
(Attorney-in-fact)
</TABLE>
II-5
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1995 1996 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
Balance at beginning of period $ -- $ -- $ --
Additions charged to statement of operations -- -- 37,000
Deductions from reserves -- -- --
---------------- ----------------- ----------------
Balance at end of period $ -- $ -- $37,000
================ ================= ================
</TABLE>
<PAGE>
EXHIBIT 10.6
INFLUENCE, INC.
1995 Stock Option Plan
1. Definitions
In this Plan, except; where the context otherwise indicates, the
following definitions apply:
(a) "Agreement" means the written agreement implementing a grant
of an Option or an award of Restricted Stock.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the committee of the Board meeting the
standards of Rule 16b-3(c)(2)(i) of the Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
similar successor rule, appointed by the Board to administer this Plan. Unless
otherwise determined by the Board, the Compensation Committee of the Board or
the Board as a whole shall be the Committee.
(e) "Common Stock" means the common stock, par value $0.001 per
share, of the Company.
(f) "Company" means Influence, Inc., a Delaware corporation.
(g) "Date of Exercise" means the date on which the Company
receives notice pursuant to Section 7(a) of the exercise of an Option.
(h) "Date of Grant" means the date on which an Option is granted
or an award of Restricted Stock is authorized by the action of the Committee
or such later date as may be specified in the grant or authorization.
<PAGE>
(i) "Director" means any person who is a director of the Company
or any Subsidiary.
(j) "Director-employee" means an Employee who is also a Director
of the Company.
(k) "Employee" means any person determined by the Committee to be
an employee of the Company or any Subsidiary, including individuals who
perform substantial services for or on behalf of the Company or any
Subsidiary.
(l) "Fair Market Value" of a Share means the fair market value of
a Share as determined by the Committee pursuant to a reasonable method adopted
in good faith for such purpose. If the Common Stock shall become listed for
quotation on the NASDAQ National Market or Small Cap Market, then the fair
Market Value shall be equal to the closing price for a share of Common Stock
as reported by such source as the Committee may select.
(m) "Grantee" means a Director or an Employee to whom Restricted
Stock has been awarded.
(n) "Option" means an option to purchase Shares granted under
this Plan in accordance with the terms of Article 6.
(o) "Optionee" means a Director or an Employee to whom an Option
has been granted.
(p) "Option Period" means the period during which an Option may
be exercised.
(q) "Option Price" means the price per Share at which an Option
may be exercised. The Option Price shall be determined by the Committee.
(r) "Plan" means the Influence, Inc. 1995 Stock Option Plan.
(s) "Restricted Stock" means Shares awarded pursuant to the
provisions of Article 9.
<PAGE>
(t) "Share" means a share of Common Stock.
(u) "Subsidiary" means a corporation at least 50% of the total
combined voting power of all classes of stock of which is owned by the
Company, either directly or through one or more other Subsidiaries.
2. Purpose
This Plan is intended to aid in attracting qualified employees
and in maintaining and developing strong management and employee loyalty
through encouraging the ownership of Common Stock by selected Directors and
Employees and through stimulating their efforts by giving suitable
recognition, in addition to other remuneration, to the ability and industry
which, contribute materially to the success of the Company's business
interests, and to provide an incentive to the continued service of such
Directors and Employees.
3. Administration
This Plan shall be administered by the Committee. In addition to
any other powers granted to the Committee, it shall have the following powers,
subject to the express provisions of the Plan:
(a) to determine in its discretion the Directors,
Director-employees and Employees to whom Options shall be granted and to whom
Restricted Stock shall be awarded, the number of Shares to be subject to each
Option or Restricted Stock award, and the terms upon which Options may be
acquired and exercised and the terms and conditions of Restricted Stock
awards, subject to the express terms of this Plan;
(b) to determine all other terms and provisions of each
Agreement, which need not be identical;
(c) without limiting the foregoing, to provide in its discretion
in an Agreement:
<PAGE>
(i) for an agreement by the Optionee or Grantee to
render services to the Company or a Subsidiary upon such terms
and conditions as may be specified in the Agreement, provided
that the Committee shall not have the power to commit the Company
or any Subsidiary to employ or otherwise retain any Option or
Grantee;
(ii) for restrictions on the transfer, sale or other
disposition of Shares issued to the Optionee upon the exercise of
an Option or for other restrictions permitted by Article 9 with
respect to Restricted Stock;
(iii) for an agreement by the Optionee or Grantee to
resell to the Company, under specified conditions, Shares issued
upon the exercise of an Option or awarded as Restricted Stock;
and
(iv) for the payment of the Option Price upon the
exercise of an Option granted to an Employee otherwise than in
cash, including without limitation by delivery of Shares (other
than Restricted Stock) valued at Fair Market Value on the Date of
Exercise of the Option, or a combination of cash and Shares, or
for the payment of part of the Option Price with a promissory
note in accordance with the terms of Section 7(b);
(d) to construe and interpret the Agreements and the Plan;
(e) to require, whether or not provided for in the pertinent
Agreement, of any person exercising an Option or acquiring Restricted Stock,
at the time of such exercise or acquisition, the making of any representations
or agreements which the Committee may deem necessary or advisable in order to
comply with the securities laws of the United States or of any state;
(f) to provide for satisfaction of an Optionee's or Grantee's tax
liabilities arising in connection with the Plan through, without limitation,
retention by the Company of Shares otherwise issuable on the exercise of an
Option
<PAGE>
or pursuant to an award of Restricted Stock or through delivery of Shares to
the Company by the Optionee or Grantee under such terms and conditions as the
Committee deems appropriate; and
(g) to make all other determinations and take all other actions
necessary or advisable for the administration of the Plan.
Any determination or actions made or taken by the Committee
pursuant to this Article 3 shall be binding and final.
5. Stock Subject to the Plan
(a) There is hereby reserved for issuance upon the exercise of
Options or for awards of Restricted Stock an aggregate of up to 421,750
Shares.
(b) If an Option expires or terminates for any reason without
having been fully exercised, or if Shares of Restricted Stock are forfeited,
the unpurchased Shares which had been subject to the Option at the time of its
expiration or termination, or the forfeited Shares of Restricted Stock, shall
become available for the grant of other Options or for the award of additional
Restricted Stock, provided that in the case of forfeited Shares of Restricted
Stock, no dividends have been received by the Grantee with respect to such
Shares prior to forfeiture.
6. Options
(a) The Committee is hereby authorized to grant Stock Options to
Director-employees and Employees.
(b) The Option Period shall be determined by the Committee and
specifically set forth in the Agreement, provided, however, that an Option
shall not be exercisable after ten years from the Date of Grant.
(c) All other terms of Options granted under this Plan shall be
determined by the Committee in its sole discretion.
<PAGE>
7. Exercise
(a) An Option may, subject to the provisions of the Agreement
under which it was granted, be exercised in whole or in part by the delivery
to the Company of written notice of the exercise, in such form as the
Committee may prescribe, accompanied by full payment for the Shares with
respect to which the Option is exercised, unless and to the extent that the
Committee agreed in the Agreement in which an Option was granted to accept a
promissory note as provided in Section 7(b) hereof.
(b) To the extent permitted by applicable law, the Committee may
agree in the Agreement in which an Option is granted to an Employee to accept
as partial payment for the Shares a promissory note of the Optionee evidencing
his obligation to make future cash payment thereof; provided, however, that in
no event may the Committee accept a promissory note for an amount in excess of
the difference between the aggregate Option Price and the par value of the
Shares. Promissory notes made pursuant to this Section 7(b) shall be payable
as determined by the Committee, shall be secured by a pledge of the Shares and
shall bear interest at a rate fixed by the Committee.
8. Nontransferability
Options granted or awarded under the Plan shall not be
transferable otherwise than (a) by will or the laws of descent and
distribution, or (b) pursuant to a qualified domestic relations order as
defined in Section 414(p) of the Code, and, an Option may be exercised during
the Optionee's lifetime only by the Optionee or, in the event of the
Optionee's legal disability, by his legal representative.
9. Restricted Stock Awards
(a) The Committee is hereby authorized to award Shares of
Restricted Stock to Director-employees and Employees.
<PAGE>
(b) Restricted Stock awards under the Plan shall consist of
Shares that are restricted against transfer, subject to forfeiture, and
subject to such other terms and conditions intended to further the purposes of
the Plan as may be determined by the Committee.
(c) Restricted Stock awards shall be evidenced by Agreements
containing provisions setting forth the terms and conditions governing such
awards. Each such Agreement shall contain the following:
(i) prohibitions against the sale, assignment, transfer,
exchange, pledge, hypothecation, or other encumbrance of (A) the
Shares awarded as Restricted Stock under the Plan, (B) the right
to vote the Shares, and (C) the right to receive dividends
thereon in each case during the restriction period applicable to
the Shares; provided, however, that the Grantee shall have all
other rights of a shareholder including, but not limited to, the
right to receive dividends and the right to vote the Shares;
(ii) such other terms, conditions and restrictions as
the Committee in its discretion may choose to apply to the Shares
(including, without limitation, provisions creating additional
substantial risks of forfeiture);
(iii) a requirement that each certificate representing
Shares of Restricted Stock shall be deposited with the Company,
or its designee, and shall bear the following legend:
"This certificate and the shares of stock represented
hereby are subject to the terms and conditions (including the
risks of forfeiture and restrictions against transfer) contained
in the Influence, Inc. Stock Option Plan and an Agreement entered
into between the registered owner and Influence, Inc. Release
from such terms and conditions shall be made only in accordance
with the provisions of the Plan and the Agreement, a copy of
<PAGE>
each of which is on file in the office of the Secretary of
Influence, Inc."
(iv) the applicable period or periods of any terms,
conditions or restrictions applicable to the Restricted Stock,
provided, however, that the Committee in its discretion may
accelerate the expiration of the applicable restriction period
with respect to any part or all of the Shares awarded to a
Grantee; and
(v) the terms and conditions upon which any restrictions
upon Shares of Restricted Stock awarded under the Plan shall
lapse and new certificates free of the foregoing legend shall be
issued to the Grantee or his legal representative.
(d) The Committee may include in an Agreement, a requirement that
in the event of a Grantee's termination of employment for any reason prior to
the lapse of restrictions, all Shares of Restricted Stock shall be forfeited
by the Grantee to the Company without payment of any consideration by the
Company, and neither the Grantee nor any successors, heirs, assigns or
personal representatives of the Grantee shall thereafter have any further
rights or interest in the Shares or certificates.
10. Capital Adjustments
The number and class of Shares subject to each outstanding Option
or award of Restricted Stock, the Option Price and the aggregate number and
class of Shares for which grants or awards thereafter may be made shall be
subject to such adjustment, if any, as the Committee in its sole discretion
deems appropriate to reflect such events as stock dividends, stock splits,
recapitalizations, mergers, consolidations or reorganizations of or by the
Company.
11. Termination
The Board shall have the power to terminate the Plan and to amend
it in any respect, provided that after the Plan has been approved by the
stockholders of the Company, the Board may not, without the approval of the
stockholders
<PAGE>
of the Company if such approval is then required by applicable law or in order
for the Plan to continue to satisfy the requirements of Rule 16b-3 under the
Exchange Act, amend the Plan so as to increase materially the number of Shares
that may be issued under the Plan (except as provided in Article 10), to
modify materially the requirements as to eligibility for participation in the
Plan or to increase materially the benefits accruing to participants under the
Plan. No termination or amendment of the Plan shall, without his consent,
adversely affect the rights or obligations of the holder of any Option or
Restricted Stock granted or awarded under the Plan.
12. Modification, Extension and Renewal of
Options
Subject to the terms and conditions and within the limitations of
the Plan, the Committee may modify, extend or renew outstanding Options, or
accept the surrender of outstanding options and rights (to the extent not
theretofore exercised) granted under the Plan or under any other stock option
plan of the Company and authorize the granting of new Options pursuant to the
Plan in substitution therefor (to the extent not theretofore exercised), and
the substituted Options may specify a lower exercise price than the
surrendered options, a longer term than the surrendered options or have any
provisions that are authorized by the Plan. Subject to the terms and
conditions and within the limitations of the Plan, the Committee may modify
the terms of any outstanding Agreement providing for an award of Restricted
Stock. Notwithstanding the foregoing, however, no modification of an Option
granted under the Plan, of an award of Restricted Stock, shall, without the
consent of the Optionee or Grantee, alter or impair any of the Optionee's or
Grantee's rights or obligations.
13. Effectiveness of the Plan
The Plan and any amendments requiring shareholder approval
pursuant to Article 11 are subject to approval by vote of the shareholders of
the Company within 12 months
<PAGE>
after their adoption by the Board. Subject to that approval, the Plan and any
amendments are effective on the date on which they are adopted by the Board.
Options and Restricted Stock may be granted or awarded prior to shareholder
approval of the Plan or amendments, but each such Option or Restricted Stock
grant or award shall be subject to the approval of the Plan or amendments by
the shareholders. Except as otherwise required to satisfy the requirements of
Rule 16b-3 under the Exchange Act, the date on which any Options or Restricted
Stock granted or awarded prior to shareholder approval of the Plan or
amendment are granted or awarded shall be the Date of Grant for all purposes
as if the Option or Restricted Stock had not been subject to approval. No
Option granted may be exercised prior to such shareholder approval, and any
award of Restricted Stock is subject to forfeiture if such shareholder
approval is not obtained.
14. Term of the Plan
Unless sooner terminated by the Board pursuant to Article 11, the
Plan shall terminate on December 31, 2006, and no Options or Restricted Stock
may be granted or awarded after termination. The termination shall not affect
the validity of any Options or Restricted Stock outstanding on the date of
termination.
15. Indemnification of Committee
In addition to such other rights of indemnification as they may
have as Directors or as members of the Committee, the members of the Committee
shall be indemnified by the Company against, the reasonable expenses including
attorney's fees, actually and reasonably incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Options or
Restricted Stock granted or awarded hereunder, and against all amounts
reasonably paid by them in settlement thereof or paid by them in satisfaction
of a judgment in any such action, suit or
<PAGE>
proceeding, if such members acted in good faith and in a manner which they
believed to be in, and not opposed to, the best interests of the Company.
16. General Provisions
(a) The establishment of the Plan shall not confer upon any
Director or Employee any legal or equitable right against the Company, any
Subsidiary or the Committee, except as expressly provided in the Plan.
(b) Neither this Plan nor the grant or award of Options or
Restricted Stock hereunder shall constitute or be evidence of any
understanding, express or implied, on the part of the Company or any of its
Subsidiaries to employ any Director or Employee for any period. Participation
in the Plan shall not give any Director or Employee any right to be retained
in the service or employ of the Company or any Subsidiary. The Company and its
Subsidiaries retain the right to hire and discharge any Employee at any time,
with or without cause, as if the Plan had never been adopted.
(c) The Company and its Subsidiaries may assume options,
warrants, or rights to purchase stock issued or granted by other corporations
whose stock or assets shall be acquired by the Company or its Subsidiaries, or
which shall be merged into or consolidated with the Company. Neither the
adoption of this Plan, nor its submission to the stockholders, shall be taken
to impose any limitations on the powers of the Company or its affiliates to
issue, grant, or assume options, warrants, rights, or restricted stock,
otherwise than under this Plan, or to adopt other stock option or restricted
stock plan or to impose any requirement of shareholder approval upon the sale.
(d) The interests of any Director or Employee under the Plan are
not subject to the claims of creditors and may not, in any way, be assigned,
alienated or encumbered except as provided in Article 8.
(e) The Plan shall be governed, construed and administered in
accordance with the laws of the State of New York.
<PAGE>
INFLUENCE, INC.
1995 STOCK OPTION PLAN
* * *
STOCK OPTION AGREEMENT
1. Definitions. In this Agreement, except where the context
otherwise indicates, the following definitions apply:
(a) "Agreement" means this Stock Option Agreement.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Committee" means the committee charged, pursuant to
the provisions of the Plan, with the administration of the Plan. Unless
otherwise determined by the Board, the Compensation Committee of the Board
shall be the Committee.
(d) "Common Stock" means the common stock, par value
$0.001 per share, of the Company.
(e) "Company" means Influence, Inc., a Delaware
corporation.
(f) "Covered Shares" means the shares of Common Stock
subject to the Option set forth as the "Covered Shares" on page 1 of this
Agreement.
(g) "Date of Exercise" means the date on which the Company
receives notice pursuant to Paragraph 5(a) of the exercise, in whole or in
part, of the Option.
<PAGE>
(h) "Date of Expiration" means the date on which the
Option shall expire, which shall be the earliest of the following times:
(i) upon termination of the Optionee's employment
with the Company or a Subsidiary for any reason except retirement, death or
disability;
(ii) three months after termination of the
Optionee's employment with the Company or a Subsidiary by reason of retirement;
(iii) one year after termination of the Optionee's
employment with the Company or a Subsidiary by reason of death or disability;
or
(iv) ten years after the Date of Grant.
(i) "Date of Grant" means the date set forth as the "Date
of Grant" on Exhibit A to this Agreement.
(j) "Fair Market Value" of a share of Common Stock means
the fair market value of such share as determined by the Committee pursuant to
a reasonable method adopted in good faith for such purpose. If the Common
Stock shall become listed for quotation on the NASDAQ National Market or Small
Cap Market, then the fair Market Value shall be equal to the closing price for
a share of Common Stock as reported by such source as the Committee may
select.
(k) "Option" means the stock option granted to the
Optionee in Paragraph 2 of this Agreement.
(l) "Option Price" means the dollar amount per share of
Common Stock set forth as the "Option Price" on Exhibit A to this Agreement.
(m) "Optionee" means the person identified as the
"Optionee" on Exhibit A to this Agreement.
(n) "Plan" means the Influence, Inc. 1995 Stock Option
Plan, as amended.
<PAGE>
(o) "Subsidiary" means a corporation at least fifty
percent of the total combined voting power of all classes of stock of which is
owned by the Company, either directly or through one or more other
Subsidiaries.
(p) "Vesting Schedule" means the Vesting Schedule set
forth on Exhibit A to this Agreement, which sets forth the cumulative maximum
percentage of Covered Shares with respect to which the option may be exercised
after the date set forth opposite such percentage.
2. Grant of Option. Pursuant to the Plan and subject to the terms
of this Agreement, the Company hereby grants to the Optionee or his successors
the Option to purchase from the Company that number of shares of Common Stock
equal to the Covered Shares, exercisable at the Option Price.
3. Terms of the Option.
(a) Option Period. During the period commencing on the
Date of Grant and terminating on the Date of Expiration, the Option may be
exercised with respect to all or a portion of the Covered Shares (in full
shares) to the extent that the Option has not been previously exercised with
respect to such Covered Shares subject to the Vesting Schedule.
Notwithstanding the Vesting Schedule, the Option may be exercised
in full upon the Optionee's termination of employment with the Company or a
Subsidiary due to the Optionee's death, retirement or disability during the
period commencing on the Date of Grant and ending on the Date of Expiration,
except that in the case of retirement, the Option may not be exercised prior
to six months following the Date of Grant.
(b) Nontransferability. The Option is not transferable by
the Optionee other than by will or by the laws of descent and distribution,
and is exercisable, during the Optionee's lifetime, only by
<PAGE>
the Optionee or, in the event of the Optionee's legal disability, by the
Optionee's legal representative.
(c) Payment of the Option Price. The Optionee, upon
exercise, in whole or in part, of the Option, may pay the Option Price at the
Optionee's election either (i) by cash or check payable to the order of the
Company, or (ii) on a net issuance basis ("Net Issuance") as determined below.
If the Optionee elects the Net Issuance method, the Company will issue Common
Stock in accordance with the following formula:
X - Y(A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to
the Optionee.
Y = the number of shares of Common Stock requested to
be exercised under this Option.
A = the Fair Market Value of one (1) share of Common Stock.
B = the Option Price.
4. Capital Adjustments. The number of Covered Shares and the
Option Price shall be subject to such adjustment, if any, as the Committee in
its sole discretion deems appropriate to reflect such events as stock
dividends, stock splits, recapitalizations, mergers, consolidations or
reorganizations of or by the Company.
5. Exercise.
(a) Notice. The Option shall be exercised, in whole or in
part, by the delivery to the Company of written notice of such exercise, in
such form as the Committee may from time to time prescribe, accompanied by (i)
full payment of the Option Price with respect to that portion of the Option
being exercised as provided in Paragraph 3(c) of this Agreement and (ii) any
amounts required to be withheld pursuant to applicable
<PAGE>
income tax laws in connection with such exercise. Until the Committee notifies
the Optionee to the contrary, the form attached to this Agreement as Exhibit B
shall be used to exercise the Option.
(b) Effect. The exercise, in whole or in part, of the
Option shall cause a reduction in the number of Covered Shares equal to the
number of shares of Common Stock with respect to which the Option is
exercised.
6. Restriction on Exercise and Upon Shares of Common Stock Issued
Upon Exercise. The Optionee agrees, for himself and his successors, that, upon
the issuance of any shares of Common Stock upon the exercise of the Option, he
will, upon the request of the Company, agree in writing that he is acquiring
such shares for investment only and not with a view to resale, and that he
will not sell, pledge or otherwise dispose of such shares so issued unless and
until (a) the Company is furnished with an opinion of counsel to the effect
that registration of such shares pursuant to the Securities Act of 1933, as
amended, is not required by that Act and the rules and regulations thereunder;
(b) the staff of the Securities and Exchange Commission has issued a
"no-action" letter with respect to such disposition; or (c) such registration
or notification as is, in the opinion of counsel for the Company, required for
the lawful disposition of such shares has been filed by the Company and has
become effective; provided, however, that the Company is not obligated hereby
to file any such registration or notification. The Optionee further agrees
that the Company may place a legend embodying such restriction on the
certificates evidencing such shares.
7. Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to any shares of Common Stock subject to the Option
until and unless a certificate or certificates representing such shares are
issued to the Optionee pursuant to this Agreement. Except as provided in
Paragraph 4, no adjustment shall be made for dividends or other rights for
which the record date is prior to the issuance of such certificate or
certificates.
<PAGE>
8. Employment. Neither the granting of the Option evidenced by
this Agreement nor any term or provision of this Agreement shall constitute or
be evidence of any understanding, express or implied, on the part of the
Company or any of its Subsidiaries to employ the Optionee for any period.
Whenever reference is made in this Agreement to the employment of the
Optionee, it means employment (including service as a director) by the Company
or a Subsidiary.
9. Subject to the Plan. The Option evidenced by this Agreement
and the exercise thereof are subject to the terms and conditions of the Plan,
which are incorporated herein by reference and made a part hereof, but the
terms of the Plan shall not be considered an enlargement of any benefits under
this Agreement. In addition, the Option is subject to any rules and
regulations promulgated by the Committee.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
signed on its behalf effective as of the Date of Grant.
INFLUENCE, INC.
By:_____________________________________
Accepted and agreed to as of the Date of Grant.
________________________________________
Optionee
Name:
<PAGE>
-1-
"EXHIBIT A"
OPTION NO:
OPTIONEE:
DATE OF GRANT:
OPTION PRICE:
COVERED SHARES:
Vesting Schedule: Up to ____% of Covered Shares on Date of Grant
Up to ____% of Covered Shares on ________, 1996
Up to ____% of Covered Shares on ________, 1997
Up to ____% of Covered Shares on ________, 1998
Up to ____% of Covered Shares on ________, 1999
Up to ____% of Covered Shares on ________, 2000
<PAGE>
"EXHIBIT B"
EXERCISE OF OPTION
Board of Directors
Influence, Inc.
601 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
The undersigned, the Optionee under the Stock Option Agreement
identified as Option No. ________, granted pursuant to the Influence, Inc.
1995 Stock Option Plan, as amended, hereby irrevocably elects to exercise the
Option granted in the Agreement to purchase _______ shares of Common Stock of
Influence, Inc., par value $0.001 per share, and herewith (check one):
___ elects to exercise such purchase rights on a Net Issuance
basis; or
___ makes payment of $_______ therefor,
and requests that the certificates for such shares be issued in the name of,
and delivered to _______________, whose address is ___________________________.
Dated: _____________ __________________________________________________
(Signature of Optionee)
Date Received by Influence, Inc.: ________
Received by: ________________________________________________________
<PAGE>
Exhibit 10.7
LEASE CONTRACT
Unprotected
Made and entered in at Tel Aviv on :
Between: 1. Oil and Energy Infrastructures, Ltd. Public Company 52-002729-3
2. Fuel Products Line, Ltd., Private Company 51-023448-7
Whose address for the purpose of this agreement is Rehov
Tvuot Ha-aretz 3, Shikun Dan, Tel Aviv (Jointly and
severally hereinafter called "the Lessor")
Of the First Part:
And: Influence Medical Technologies, Ltd.
Private Company 51-205328-1
Rehov Abba Hillel 14, Ramat Gan
(Hereinafter called "the Lessee")
Of the Second Part:
Whereas: The Lessor has the right of occupation and the right to be registered
as the owner of the building situated in Rehov Ha-Sadnaot in Herzliya known as
"Beyt Yosef Hermelin" (hereinafter called "the building") constructed on plot
92, Block 6592 (henceforth: "the plot");
And whereas: the building is in the final stages of construction
And whereas: the Lessee wishes to take on hire from the Lessor, and the Lessor
agrees to lease to the Lessee approximately 1603 meters in total extent
(including the Lessee's share in the public areas) , on the upper office floor
of the building (level 10.89+) and two rooms approximately 62 meters in total
extent (including the Lessee's share in the public areas) on the roof as
depicted on the plan attached to the agreement as Annex A (hereinafter called
"the plan"), (hereinafter called "the Premises") in an unencumbered lease, to
which the Tenants Protection Laws [Consolidated Version] 1972 (hereinafter
called "the Law") shall not apply, nor shall apply to the Premises, nor shall
the Lessee become a protected tenant in accordance with the law and/or any
judgment and/or any other legislation likely to confer upon him such a status,
all subject to the provisions of this agreement.
Now therefore it is agreed and stipulated between the Parties as follows:
1
<PAGE>
1. Preamble
The preamble to this agreement, together with the facts and declarations
contained herein constitute an integral part of the body of this agreement.
2. Non-applicability of the Tenants Protection Law
The Parties declare that they are aware that:
A. the Premises are situated in a new building which is in the course of
completion, and the Lessee has been notified that he is the first tenant in
the Premises.
B. The Premises are let free of any person or property .
C. No key money has been paid or shall be paid by the Lessee to the Lessor,
only the rental as specified in this agreement, and that the sums to be
invested by him as provided for in this agreement shall not be considered in
any manner or form as key money.
D. In light of the facts and details stated above, the aforementioned Tenants
Protection Law and/or other legislation likely to confer upon the Lessee the
status of a protected tenant, shall not apply.
3. The Lease and Purpose
The Lessor hereby lets to the Lessee, and the Lessee hereby takes on hire from
the Lessor the Premises upon the conditions prescribed in this agreement.
4. The Lessor lets the Premises to the Lessee only, and only for the purpose,
designation and use as hereinafter defined in this paragraph:
A. The Premises are leased for the purpose of industrial showrooms,
laboratories, offices and toilets accompanying the use thereof as required
and/or permitted by virtue of law for the Lessee's business and for the
purposes of the management of the offices of the Lessee, whose business is in
the field of medical engineering. The Lessee shall not be permitted to use the
Premises for any other purpose except for the aforementioned purposes
(hereinafter called "The purpose of the lease").
B. The Lessee undertakes to maintain, operate and manage his offices on the
Premises at such level and in such manner as are appropriate to the standard
of the building and to the Lessor's satisfaction.
The Lessee undertakes to take heed of the instructions and directives of the
Lessor and/or the management company in all matters connected with areas of
the building other than the Premises and shall act in accordance with such
instructions and directives as given to him.
2
<PAGE>
C. Any other use of the Premises, in whole or in part, with whatever
frequency, shall be considered as a departure from and/or change in the
purpose of the lease and as a fundamental breach of the agreement.
D. The Lessee declares that he is aware of the Work Implementation Program
(Local Project Outline Number HR/1825, which gives authorization for the upper
office floor for the building (floor 10.89+) and for additional changes in the
authorized plans concerning the plot and the building, which has been
approved, and that a permit for building the floor has been granted by the
local committee for building and planning.
E. The Lessee undertakes to obtain and shall be solely responsible for
obtaining any license or permit which may be necessary for conducting his
offices on the Premises, inasmuch as they may be required.
F. The Lessee is aware and agrees that he shall not be entitled to use any
part of the building other than the Premises for any purpose whatsoever except
use for the purposes of access to the Premises and use for the purposes of
access to garbage removal areas; the use of the roof for the installation of
filter devices and air conditioning of the sterile room, as shall be approved
by the installation engineer; for loading and offloading and the use of the
parking which shall be available in accordance with the provisions of
paragraph 16 hereunder.
G. In order to eliminate any doubt, it is hereby declared and agreed that the
Lessor, other tenants, the management company or their representatives shall
have the right of way and free access to the public areas and to the roof at
any and for any purpose.
5. Prohibition against the transfer of rights
A. The Lessee undertakes not to hand over, nor to lease, nor to transfer, nor
to assign the Premises, in whole or in part, by whatever means, or any part of
it, nor to transfer, in any manner whatsoever, his rights in the Premises or
any part thereof for the entire period of the lease or part thereof, nor to
allow anyone other than himself to use the Premises or a part thereof in any
manner whatsoever nor to entitle any other person to participate in the
occupation of the Premises or in the use thereof or to derive any benefit
therefrom, whether for consideration or otherwise.
The Lessee undertakes not to encumber this agreement or the rights deriving
therefrom in any way whatsoever, for the benefit of any other person, entity
or body whatsoever.
Notwithstanding the foregoing, the Lessee shall be permitted, with effect from
15 August 1999 and thereafter, to sublet a part of the Premises in accordance
with the conditions specified in Annexes D and D-1 of this contract
constituting an integral part thereof. Subletting shall not release and shall
not derogate from the Lessor's obligations towards the Lessee in accordance
with this contract, and any breach by the sub-lessee of any of
3
<PAGE>
the provisions of this lease shall be considered, for all intents and
purposes, as a breach by the Lessee towards the Lessor.
B. Should the Lessee be a corporation, then any transfer of shares or rights
in the corporation, or any change therein which may result in control of the
corporation not remaining in the hands of its shareholders and/or the present
shareholders, as presently comprised as at the date of signature of this
agreement, then proof shall be required of the ability of the new controlling
shareholders to fulfill the conditions of payment and the securities in
accordance with this agreement. An absence of the aforementioned proof shall
constitute a breach of this agreement by the Lessee and shall give the Lessor
the right to cancel this agreement and to obtain all the reliefs to which he
is entitled in accordance with this agreement or according to law by reason of
the breach.
"Control" for the purposes of this paragraph means holding at least 51% of
the capital in all classes of shares of the corporation as well as the right
to appoint the majority of its directors.
The prohibition set forth in this sub-paragraph shall not apply as to the
transfer of control to the company Medtronic, which is traded on the New York
Stock Exchange in the United States, nor to the transfer of control to any
company controlled by Medtronic nor to the transfer of control to any other
American company is traded on the U.S. Stock Exchange and whose annual
turnover is not less than one billion United States dollars.
C. Any act of commission or omission in conflict with the obligations of the
Lessee as detailed in paragraphs 5 (A) and (B) above, shall be considered to
be the commission of a fundamental breach of the agreement.
6. Suitability of the Premises
The Lessee declares that he has seen and examined the plot, the building and
the Premises and has found them suitable and appropriate for his needs and
uses within the bounds of the purpose of the lease, and hereby renounces any
claim due to an absence of suitability, or any claim connected with the
quality of the Premises and/or the extent of the enjoyment which he wishes to
derive therefrom, subject to the aforementioned paragraph 4 (D) of this
agreement.
7. Delivery of the Premises
A. The Lessor undertakes that it shall be possible, with effect from 15 May
1997, to carry out the work which is detailed in the specification Annex E
attached to this agreement and which constitutes an integral part thereof.
Should the Lessee apply to make alterations and/or to make any other
renovations to the Premises, he undertakes to submit, in advance, for approval
by the Lessor, any plans for carrying out the aforesaid alterations and/or
renovations. Implementation of the alterations and/or renovations to the
Premises shall require the prior written approval of
4
<PAGE>
the Lessor, and shall be effected in coordination with the Lessor and/or the
management company representing it.
As to the work detailed in the specifications, Annex E of this agreement,
the provisions of Annex F of this agreement, attached to this agreement as an
integral part thereof, shall apply.
B. The Lessee declares that he is aware of and agrees that the Lessor shall be
entitled to effect changes to the building plans, at his sole discretion, and
without any need for the Lessee's approval, changes in the building plans
including the construction of additions and additional floors to the building
at any time, as well as after the date of delivery, to make in the building or
any part thereof or in the plot any use of and/or any changes in the existing
use and/or change in designation and any construction work, any changes and
development, at his absolute discretion, without restriction and or need to
obtain the consent of the Lessee thereto provided that the Lessee's rights, in
accordance with this agreement, shall not be adversely affected.
C. The Lessee declares that he is aware that completion of the building
construction, completion of the interior finishes, within the other areas of
the building, and work on development of the plot, shall continue beyond the
date fixed for handing over the Premises to the Lessee, and he shall have no
claims and/or demands and/or action against the Lessor by reason thereof.
The Lessor undertakes to ensure that in the aforementioned construction work
every effort shall be made to cause the least possible inconvenience and
disturbance to the Lessee.
D. At the time of handing over possession of the Premises by the Lessor, the
parties shall prepare a minute of such delivery, which shall be signed by the
representatives of both parties. The Lessee shall be precluded from making any
claims, of any kind, in connection with the Premises or with respect to any
defects which may have been discovered therein, beyond any claim relating to
those defects as specified in the minute of delivery, other than latent
defects.
E. Should additional areas in the building become available to the Lessor for
letting, the Lessee shall be given preference in the letting of such aforesaid
areas.
Should the Lessee be interested in leasing the aforementioned areas, the
parties shall conduct negotiations during a period of 30 days. Should they
fail to reach agreement within the aforesaid 30 day period, the Lessor shall
be entitled to let such areas to another Lessee.
8. The Lease period and Work for Adequacy of Premises
5
<PAGE>
A. (1) The Premises shall be leased to the Lessee for a period of five years
commencing (subject to the aforesaid in Annex F) on 15 August 1997 and shall
terminate on 14 August 2002 (hereinafter called "The Lease period").
(2) If the Lessor delays delivery of the Premises so that the Lessee is unable
to operate therein for his purposes after 15 August 1997, the Lessor shall pay
the Lessee compensation at the level of one month, in accordance relative to
the delay:
a delay of one day = 1/30th of the monthly rental.
(3) In order to eliminate any doubt, a delay of up to two weeks in delivery
shall not be considered as a delay for the purpose of the compensation
referred to in the aforementioned sub-paragraph (2).
(4) It is emphasized that the conditions for payment of compensation as
aforesaid in sub-paragraphs (2) and (3) shall be realised provided that,
commencing on the date of submission of all the plans of the work required to
be carried out for the adequacy of the building (15 April 1997), no changes
shall have been be made by the Lessee. If changes are submitted (in accordance
with paragraph 7A above) by the Lessee, not being in conflict with paragraph 5
(b) of Annex F, the Lessor shall not be obliged to pay compensation to the
Lessee, for the additional time period taken as a result of the requested
change. The defining of time tables with respect to the delay and to the
compensation for deviation therefrom for such purpose, shall be done by Shay
Arad and Rafi Regev, and their decision shall bind the parties without the
right of objection.
(5) In order to eliminate any doubt, a change in the appointed time for the
commencement of the period of the lease as provided for in Annex F, shall not
affect the date designated for the termination of the lease, that is, 14
August 2002, and the lease shall terminate (subject to the option hereinafter
set out), in any event, upon that date.
(6) The Lessee has the option to extend the lease period for an additional
period of four years and eleven months, that is, commencing on 15 August 2002
and terminating on 14 June 2007, provided that he shall have given notice
thereof in writing to the Lessor at least six months prior to the expiration
of the original lease period. Should the option be exercised, all the
provisions of this agreement shall likewise apply with respect to the extended
lease period, and the extended lease period shall be regarded, for all intents
and purposes, as being a part of the lease period.
B. The Lessee shall be entitled to install a "clean room" on the Premises
in accordance with the plans to be submitted and to be approved in advance and
in writing by the Lessor's engineer (hereinafter called " adequacy works). The
Lessor's engineer shall be authorized to approve the adequacy works, in whole
or in part, and to require that the Lessee make changes to such work, at his
discretion.
C. Before commencement of the adequacy works, the Lessee shall submit full and
detailed plans to the Lessor for carrying out the adequacy works, including
specifying the
6
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equipment and the facilities which the Lessee intends to introduce onto the
Premises. Without derogating from the generality of the foregoing, the plans
shall include architectural plans, electricity plans, air-conditioning and
evaporation plans, plumbing and piping plans, plans for the ceilings, plans
for the kitchen, etc., (including the indication of electrical outlets, the
installation of telephones, stationing of computer communications, etc.) All
the plans to be prepared by the Lessee, shall be so prepared at his expense
and for his account, and the Lessee shall bear the expenses and fees of the
various consultants, such as air-conditioning consultants, electricity
consultants, and the contractors who execute the work.
D. The aforementioned plans shall be subject to the approval of the Lessor, as
specified hereunder, upon the written approval of the plans. The Lessee
undertakes to repair and/or to change the said plans in accordance with the
Lessor's directives.
It is hereby recorded that no plans whatsoever shall be approved if they
should harm the construction and/or the appearance of the building and its
systems or cause any change therein or which may not suit the building and
accepted technical specifications; or if they should be unlawful, as well as
being contrary to standards, such as, for example, safety standards or fire
safety standards; or if they should require changes in building permits or if
should they change the outward appearance of the building; or if they should
limit the activities of other tenants in the building and/or the Lessor and/or
the management company.
In order to eliminate any doubt, it is hereby recorded that approval of the
plans by the Lessor and the professional consultants is for the purpose of
carrying out the adequacy works, and does not constitute approval of
suitability for building construction standards or the licensing requirements
of the local authority.
E. The Lessee undertakes to carry out the adequacy works in accordance with
the plans which shall be approved by the Lessor.
F. The Lessee undertakes to carry out the adequacy works during regular work
hours, to be meticulous as to the cleanliness of the Premises, the building
and its environs, and the Lessee also undertakes not to cause any nuisance or
damage to the Premises, to the building and/or to the other occupiers of the
building and/or to the Lessor and/or to the management company and/or to any
third party whatsoever.
The adequacy works shall be carried out in coordination with and in accordance
with the directives of the supervisor employed on behalf of the Lessor or the
management company. The Lessee shall appoint a representative on his behalf
for the purpose of carrying out the work and shall notify the Lessor in
writing as to the identity of such representative prior to the commencement of
the adequacy works.
Rental
A. Rental shall be paid to the Lessor during the lease period as follows:
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(1) The rental shall be calculated on the basis of NIS 79, 575 per month
(hereinafter "the basic rental").
The rental is based on $15 per square metre, for an area of 62 square meters
in total extent on the roof and for 1475 square metres for the upper office
floor area and based on $10 per square metre for the area of 128 square meters
comprising the open area on the upper office floor, indicated in Annex A by
the letter A.
(2) In addition to the above rental, the Lessee shall make a payment to the
Lessor for management services which the company itself has decided to carry
out instead of a management company. These services, guarding, security,
insurance coverage, intelligence and guarding the parking facility, shall be
shared proportionately among all tenants in the building.
These payments shall be available for inspection by the Lessee, but in any
event, the Lessor's decision shall be binding as regards to the above
services.
(3) The basic rental payments shall be linked to the consumer price index as
published by the Central Bureau of Statistics and which is based on the index
for the month of November, 1996 as published on 15 December 1996, that is, 142
points (hereinafter called the basic index), which shall vary in proportion to
the rate of the known rise in the index at the time any payment is made,
proportionally to the basic index.
"The Consumer Price Index" and/or "The Index: - the index of prices known as
"The Consumer Price Index", which includes fruits and vegetables, and which is
published by the Central Bureau of Statistics and Economic Research and
includes the said index even in the event of its being published by any other
official body or institution, including any official index which may replace
it, should it be based upon the same data, whether or not it is based upon the
existing index.
Should it be replaced by another index, and should the Bureau, or the body or
the institution as aforesaid, not set the relative proportion between it and
the index which it replaces, or should no other index be published, the
relative proportion between the other index and the replaced index shall be
determined in consultation with economic experts who shall be determined by an
agreement between the Lessor and the Lessee.
B. The rentals shall be paid (subject to the provisions of Annex F) for the
period from the commencement of the lease and thereafter throughout the lease
period, in quarterly amounts on the first day of the commencement of each
quarter (January, April, July, October) as follows:
(1) As at the date of signature of the agreement, the Lessee shall pay the
first three months rental.
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(2) On the first day of the month at the commencement of the next quarter
following, being after commencement of the period for the payment of rental,
the Lessee shall make payment of the rent due for such quarter.
(3) On the first of the month at the commencement of each quarter, with effect
from the next quarter following after the quarter mentioned in sub-paragraph
(2) above - for each quarter in advance.
C. In order to eliminate any doubt, the Lessee shall be obliged to make a
payment of the rental in accordance with the aforesaid sub-paragraph B above,
even if the Lessee should not appear and/or refuses to appear in order to
accept the Premises as at the date of delivery tendered by the Lessor, or at
any later date.
D. The Lessee shall pay the Lessor the Value Added Tax. at the rate thereof at
the time of effecting the payment, against receipt of a tax invoice, at the
time of effecting any such payment of rental, in addition to the lease
payments specified above.
E. Should there be any delay in the payment for more than five days on the
part of the Lessee for any sum whatsoever which he is liable to pay to the
Lessor in accordance with this agreement, the Lessee shall pay the Lessor for
the payment in arrears determined as at the date upon which the payment was
due by the Lessee (hereinafter called "the date of the debt"), the maximum
arrears interest (hereinafter called "maximum arrears interest") whichever is
the higher of either:
Interest and excessive interest, at the customary rate charged by Bank Leumi
of Israel, Ltd. for excess withdrawals from regular current accounts - or -
differentials linked to the index as defined in paragraph 9 (A) above, to
which is added further linked interest at the rate of 0.75% per month or part
thereof, on the sum in arrears to which it is linked.
The maximum arrears interest shall be calculated for the period commencing
from the date of the debt until the day of actual payment. Should the delay in
payment have related to an amount due by the Lessor to a third party,
including the management company as defined in paragraph 12 (A) hereunder, and
which the Lessee was obliged to pay to such third party, the maximum arrears
interest for such period shall be calculated from the date upon which the
Lessor paid the sum in arrears to such third party, until the date of
reimbursement by the Lessee. Should the Lessor have made payment to such third
party, including the management company, the maximum arrears interest
resulting from a delay in payment by the Lessee, shall be calculated as
aforesaid as a part of the amount for which the Lessee is obliged to reimburse
the Lessor.
The Lessee shall pay Value Added Tax as required by law upon all payments
which is payable by the Lessee to the Lessor. A tax invoice shall be submitted
by the Lessor after discharge thereof.
F. The payment of interest in accordance with paragraph E above shall not
detract from the Lessor's right to any other relief as set out in this
agreement or as prescribed by law
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and shall not be interpreted as a waiver, on the part of the Lessor, any such
other relief as aforementioned.
G. A delay of more than ten days in effecting any payment whatsoever, in whole
or in part, on account of rental, from the date of a warning in writing
furnished by the Lessor to the Lessee, constitutes a fundamental breach of
this agreement by the Lessee.
H. It is agreed between the parties that should permission be granted to any
person so designated for the division of the open area marked with the letter
A in Annex A attached, used for the purpose of leasing, the rental payments
and management fees shall be revised with effect from such date in accordance
with the payment distribution schedule per square metre of the total extent of
the main office area on that floor, and the same basic payment per square
metre shall apply with respect to the office area on that floor.
I. After five years from the commencement of the lease period and should the
Lessee have exercised the option to extend the lease period as mentioned in
paragraph 8 A above, the parties shall conduct negotiations regarding the
basis for lease payments. With respect to the remainder of the lease period,
should the parties not reach agreement among them within 30 days, the
negotiations shall take place with the assistance of an appraiser, on behalf
of each of the parties, and should such two appraisers fail to reach agreement
among themselves within 30 days, they shall appoint a third appraiser who
shall decide what shall constitute the basis for rental for the period beyond
the first five year period of the lease.
For as long as the rentals shall not have been determined as aforesaid, the
rental as prescribed in this lease contract shall continue to apply.
10. Taxes and payments
A. The Lessee shall be liable for the payment of taxes, fees, payments and
expenses connected with the Premises and the use therefor during the entire
lease period, payable by the Lessee immediately upon demands, these being:
(1) The cost of installation of electric meters, electricity consumption
charges according to meters measuring electricity consumption on the Premises,
as well as electricity consumption charges for the heating and cooling system
on the Premises.
(2) General municipal rates, water charges and signs tax to the city of
Herzliya relating to the Premises, with effect from the commencement of the
lease period.
(3) Charges and telephone account to the Bezeq Company for the Lessee's
telephone lines, and water and gas usage charges.
(4) Payments to the management company, as shall be determined from time to
time by the management company, or payments to any person and/or entity - as
determined by it -
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providing maintenance services for the building until the commencement by the
management company of its activities, or in the absence of a management
company, with effect from the commencement of the lease period, all in
accordance with the overall extent of the Premises, and in accordance with the
provisions of paragraph 12 E hereunder.
The Lessee shall directly bear responsibility for all the aforesaid payments
whether such payments are determined by the Lessor, to the and/or to the
management company and/or to any other person, applicable any portion of the
Premises, its systems and all the shared facilities of the building.
(5) Half of the costs of stamping this agreement.
(6) Any compulsory payment due and which may become due according to law by an
occupier of the property as a lessee and/or with respect to the conduct of a
business on the Premises and/or to the operation of a business on the
Premises.
Even after expiration of the lease period, the Lessee shall be considered as
the person responsible for the payments specified in the above paragraphs, if
the liability for such charges arose as a consequence of use and/or
consumption in the course of the lease period, and the payment and/or charge
was demanded and/or received subsequent to the expiration of the lease period
by the Lessor.
B. It is hereby agreed that if at the commencement of the lease period or in
the course of the lease period no separate water or electricity meters have
been installed on the Premises, the Lessee shall pay to the Lessor for supply
pro rata to the overall amount payable by the Lessor, according to the
proportionate share to be determined by the Lessor's accountant.
C. The Lessor shall be liable for the payment of taxes and compulsory payments
applicable to property owners.
D. In order to eliminate any doubt, it is hereby determined that the Lessee
shall be registered with the Municipality and with the Electric Company and
wherever else this may be done as the occupier of the Premises and shall
ensure that the charges made by the aforementioned bodies are debited directly
to his name, and he shall contact Bezeq directly for the purpose of obtaining
Bezeq's services, for as long as these are desired by him.
E. The Lessee undertakes to deliver to the Lessor from time to time,
immediately upon his demand, all the accounts and receipts for all the
payments for which he is liable, as specified in this paragraph and in this
agreement.
11. Maintenance of the Premises
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A. The Lessee undertakes to maintain the Premises in good and proper
condition, to refrain from causing damage or deterioration thereto or to any
one of its facilities, to repair at his expense any damage that might be
caused to the Premises by him and/or by his invitees and/or by his clients
and/or by his employees and/or by any third party and/or by anyone on behalf
of the Lessee and/or likely to use the Premises, other than for reasonable
wear.
For the purpose of carrying out repairs, the Lessee shall in the first
instance be required to apply to the management company (or to whomsoever is
dealing with the maintenance of the building), and obtain a quotation; but
should a quotation be obtained which is cheaper that that received by the
management company, but at a similar level of expertise and quality of
performance, or should the company refuse to carry out the repairs, the Lessee
shall be entitled to make use of the services of such other parties.
B. The Lessee undertakes not to carry out and/or to permit to be carried out
any internal and/or external alterations to the Premises and not to make any
addition and not to demolish any part of the Premises and/or any of the
facilities, without obtaining the Lessor's prior written consent. The Lessor
shall be entitled, at his absolute and sole discretion, to refuse to give his
consent to the aforementioned without being required to give reasons or to
justify his refusal; the Lessor shall be entitled to prevent at any time the
performance of any act as aforesaid which are contrary to the provisions of
this agreement, and to remove and to demolish any alterations or addition
which have become permanently attached to the building, and which have been
carried out contrary to the provisions of this paragraph, and at the Lessee's
expense. All the additions, repairs and alterations which may be carried out,
whether in accordance with the provisions of the agreement or whether in
breach of the agreement, shall belong to the Lessor if he so desires, without
his being obliged to pay for them.
C. The Lessee undertakes to allow the Lessor and/or his representatives and/or
the representative of the management company to enter the Premises, by prior
arrangement with the Lessee, during regular business hours and at reasonable
times, in order to inspect the condition of the Premises and also in order to
carry out repairs and maintenance work on the Premises and/or on other parts
of the building. Upon performance of the aforementioned work, the Lessor shall
do his utmost to ensure the least possible damage and/or inconvenience to the
Lessee, if indeed any such is caused.
However, it is hereby agreed that the Lessor and/or his proxy and/or the
management company and/or its proxy shall be entitled to enter the Premises
other than during ordinary business hours in situations of emergency or by
prior arrangement with the Lessee.
During the last six months of the lease period, the Lessor shall be entitled
to show the Premises to new tenants, and the Lessee undertakes to allow the
Lessor to do so, during the Lessee's ordinary hours of operation.
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D. The Lessee undertakes to fulfill and carry out the provisions of any law,
any regulation, order or by-law relating to the Premises or its maintenance or
usage, or not to carry out, or permit to be carried out on the Premises and/or
in connection therewith, any thing which might constitute a nuisance or
inconvenience or cause damage or inconvenience to the Lessor or to the
building or to other occupiers of the building, or to the public using it, and
the Lessee shall be entirely responsible for the consequences of his breach of
this obligation.
E. The Lessee undertakes to keep the Premises and its immediate environs
meticulously clean and to and to equate to the Premises the same good and
aesthetic appearance applicable to the standard and character of the building,
and to maintain it in this condition during the entire lease period, and to
conduct the business exclusively within the confines of the Premises, and not
to cause [illegible]... to any person situated therein or visiting the
building, and to assume responsibility towards government and municipal
institutions and authorities and/or the Lessor and/or the management company
for the payment of all lawful fines and/or compensation as a result of the
non-fulfillment of the provisions of this paragraph.
F. The Lessee undertakes to compensate and indemnify the Lessor, immediately
upon demand, for any damage or expense occasioned to the Lessor as a result of
any action brought against the Lessor, whether criminal or civil, necessary
for his defence again such aforesaid action, provided that such aforesaid
action results from the non-fulfillment or from a breach of the Lessee's
obligation in accordance with the agreement. The Lessor, for his part,
undertakes to furnish the Lessee with any demand and/or claim which may be
filed against him, immediately upon receipt thereof, and to enable the Lessee
to defend, jointly with him, the any such aforementioned claim.
G. The Lessee shall not be entitled to erect any signs whatsoever on the
Premises without the prior written approval of the Lessor and of the
management company.
The signs on the building and the signs on the Premises, whether on the
outside walls, or which extend beyond the area of the building, or whether
they are signs situated within the Premises but which face outward, their
location, shape and nature shall be solely determined by the Lessor at his
absolute discretion, for the purpose of preserving the appearance and unique
character of the building. The Lessor shall be entitled to require the Lessee
to install the aforesaid signs at his expense and in accordance with the
Lessor's directives, or to have the signs installed by the Lessor and to
oblige the Lessee to bear the expenses connected with the manufacture and
installation thereof.
The Lessee undertakes that insofar that such signs exceed the limitations
hereinbefore set forth, or any whatsoever, shall not be erected by him on the
facade of the Premises nor in the elevator lobby, including elevator lobbies
on floors or on any outside wall of the Premises or any other exterior part of
the building and/or the Premises.
H. It is hereby agreed that the Lessor shall not permit any advertising signs
to be erected on the exterior walls of the building.
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I. It is hereby agreed that the Lessor shall not permit the conduct of any
restaurants in the building. The Lessor shall be entitled to permit the
conduct of a snackbar in the building in order to serve the tenants of the
building.
J. Any breach of paragraph A and B of this paragraph shall constitute a
fundamental breach of this agreement.
12. The Management Company
A. The Lessee shall sign a management contract with the company immediately on
its being requested to do so. The management contract shall be in the form
attached to this agreement as Annex G, or in a similar form, covering any
alterations and amendments which shall be agreed upon between the Lessor and
the management company to be chosen by the company which shall provide
management service.
The foregoing shall not derogate from the Lessee's obligation to make all the
payments pertaining to the stipulations contained in this lease contract, as
arranged and on the due dates thereof, irrespective of whether or not a
management contract has been signed.
B. The Lessee undertakes to fulfill punctually all the obligations of the
occupier as indicated in the management contract to be signed with the
company.
Any breach of the provisions of the management contract by the Lessee shall
constitute a breach by him of the provisions of this lease agreement.
C. It is hereby recorded that any breach of the management contract by the
management company, for any reason whatsoever, shall not be any ground
whatsoever for any claim by the Lessee against the Lessor. No claim of any
kind which the Lessee may have against the management company shall be a
ground for the Lessee to make a claim against the Lessor.
D. The Lessee shall not be entitled to set off due by him to the Lessor
against amounts, if any, due to him in accordance with the management
contract.
E. Maintenance fees and/or management fees payable by the Lessee shall be
based upon the payment for 1 square metre overall multiplied by the rental
area overall. The rate of maintenance fees and/or management fees for the
Premises and the manner and dates on which they are to be paid shall be
similar to that which is payable by the Lessor for his office area in the
building, save with respect to the area indicated in Annex A (and subject to
the stipulations contained in the aforementioned paragraph 9 H) on which the
maintenance and/or management fees payable is the sum of $1 for each square
metre overall, and subject to the right to determine a differential rate with
respect to certain services, should there be justification therefor.
13. Insurance
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A. Without derogating from the liability of the Lessee or whosoever lawfully
acting on his behalf and/or in accordance with the stipulations contained in
this contract, prior to taking possession of the Premises, and/or before the
date of commencement of any work whatsoever has commenced to be carried out on
the Premises by the Lessee and/or his representative, and/or on whosoever on
his behalf, whichever shall be the earlier, the Lessee undertakes to arrange
for and to effect "construction works insurance" at his expense and/or at the
expense of others who represent him (as hereinafter specified in this
paragraph) in connection with all work carried out by him and/or his
representative for the operation of the Premises and/or their representative
and/or on his behalf on the Premises, and for all expenditure relating to the
Premises, including equipment, systems, and machines which may service the
Lessee's business, and also for all repairs, improvements, alterations, and
additions which shall be carried out on the Premises.
B. The construction works insurance shall be arranged so that the
policyholders shall be the Lessee, his representative, contractors or
sub-contractors, the Lessor and the management company, and shall continue
until the work has been fully completed, together with an addition period of
maintenance of 12 months. The cost of the construction works insurance shall
due by the Lessor until the time of delivery, and be subject to meeting the
specifications, as aforesaid in Annex E, and the aforesaid insurance shall be
due by the Lessee, at the level of application of the aforesaid insurance,
with effect from the date of delivery.
The construction works insurance shall include the following:
1. Section one:
All risk insurance, which covers at full value, all work which is carried out
by the Lessee and all repairs, renovations, improvements, alterations and
additions which may be carried out by the Lessee in the Premises. This section
shall include a subrogation waiver clause with respect to all lessees and
occupiers of Beyt Yosef Hermelin in Herzliyah, and whose insurance policies
contain a corresponding clause regarding a subrogation waiver on the part of
the tenant, resulting from any damage caused by them, provided that the
aforesaid provisions concerning the waiver of the right of subrogation shall
not apply with respect to any person causing damage with malicious intent.
This section shall expressly include an extension to property with respect to
which work is being carried out and/or to adjacent property with a limit of
liability of not less than $50,000 (fifty thousand United States dollars) per
occurrence.
In order to eliminate any doubt, it is expressly indicated that this extension
shall not derogate from the insurer's obligation to compensate the individual
policyholders in accordance with third party liability insurance as
hereinafter set forth in paragraph 2, on account of liability for damage
caused to property on which work is being carried out or to adjacent property
as aforesaid.
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2. Section 2
Third party liability insurance concerning liability resulting from work
subject to a limit of liability of not less than the sum of $500,000 (five
hundred thousand American dollars) per occurrence, whereunder the insurance
does not include any limitation as to liability resulting from fire,
explosion, panic, lifting equipment, unloading and loading, defective sanitary
installations, poisoning, harmful material in food or beverages, shaking or
weakening of a support, adjacent property, property on which work is being
carried out, strikes and shut-downs and also claims made by the National
Insurance Institute. This section shall include a cross liability clause under
which the insurance is calculated as if it had been arranged separately for
each of the insureds individually. It should also be expressly noted, in order
to eliminate any doubt, that the Lessor's property and/or that of the
management company shall be considered as third party property as far as
concerns this section.
3. Section 3
Employers' Liability Insurance as regards liability for employees carrying out
work at the maximum standard liability limit customary in Israel at the time
the insurance is arranged. This section shall not include any limitation as to
work done at heights or depths, work hours, contractors, sub-contractors and
their employees, and also with respect to juveniles, provided that they appear
on the Lessee's schedule of payments
The construction work insurance shall include the express condition that it
shall prevail over any insurance arranged by the Lessor and/or the management
company, and that the insurers waive any demand or claim as to insurance
coverage participation by the Lessor and/or the management company, and the
insurance shall not be reduced or cancelled, unless the insurer shall have
given not less than 30 days prior notice thereof by registered mail.
C. (1) Without the necessity for any demand or request on the part of the
Lessor, and not later than the date of delivery of occupation of the Premises
or with effect from the date on which any work whatsoever is commenced to be
carried out on the Premises (whichever shall be the earlier), the Lessee
undertakes to furnish to the Lessor a certificate confirming that the
construction work insurance has been arranged in accordance with the following
wording - "confirmation of cover having been issued for construction work",
attached to this agreement and is marked in Annex C-1 and which has been duly
signed by the insurer. The Lessee declares that he is aware that delivery of
the "confirmation of cover having been issued for construction work" as
aforesaid is both a suspensive condition and a condition precedent for
carrying out work on the Premises and/or transfer of possession of the
Premises.
2) Without derogating from the Lessee's legal liability and/or the provisions
of this contract, from the time the Lessee opens his business on the Premises
or from the time any goods whatsoever are introduced onto the Premises (other
than goods covered by the construction work insurance in accordance with
Paragraph 2 above), whichever shall be
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the earlier, the Lessee undertakes, for the whole lease period (including any
extension of the lease period ), to arrange and to effect, at his expense, the
insurance cover as specified hereunder (hereinafter called "insurance coverage
for the Premises"), with a duly authorised insurance company.
D. Insurance of the contents of the Premises
Equipment servicing the Premises, in the possession of the Lessee or in his
charge, which is on the Premises and/or outside the Premises within the area
of the building structure, and any alterations, improvements, renovations or
additions to the Premises which are carried out or may be carried out by the
Lessee and/or by his representative and/or on their behalf, - as well as
furniture, equipment, facilities and stock of every sort and kind, all the
abovementioned at their full installed value, against loss or damage as a
result of fire, smoke, lightening, explosion, earthquake, riots, strikes,
willful damage, storm, windstorm, flood, water damage, impact from a vehicle,
impact from an aircraft, and burglary (henceforth: "extended fire risk")
The Lessee undertakes to revise the insured values from time to time so that
they always reflect the full installed value of the assets insured by him,
including additions and improvements.
Notwithstanding the foregoing, it is hereby agreed that the Lessee shall be
entitled to refrain from arranging for the insurance of the contents of the
Premises. However, in any event, the Lessee alone shall be liable for damage
to the contents of the Premises, and the Lessee hereby releases the Lessor
from any liability and/or any future claim.
E. Consequential loss insurance for loss which may be caused to the Lessee
and/or to his representative as a consequence of damage to the structure of
the Premises and/or to the contents and/or to Beit Yosef Hermelin together
with its installations, as a result of extended fire risk, in an appropriate
amount of insurance cover for a reasonable period of indemnity, not being less
than 12 months.
Notwithstanding the foregoing it is hereby agreed that the Lessee shall not be
obliged to arrange for Consequential Loss Insurance as aforesaid. However, the
exemption which is hereinafter mentioned in sub-paragraph J shall apply should
such aforesaid insurance be arranged.
F. The insurance cover stipulated in the foregoing paragraphs D and E shall
contain an express condition to the effect that the insurer waives any right
of subrogation in relation to the Lessor, the management company and those
representing them, as well as in relation to other lessees and/or occupiers of
the structure whose insurance coverage contains a correspondent clause
regarding waiver of subrogation in relation to Lessee, and provided that the
foregoing with respect to the waiver of the right of subrogation shall have no
application in favour of any person causing such damage out of malicious
intent.
G. Third Party Liability Insurance for any injury or damage which might be
caused to the person or property of any person and/or legal entity, and
without derogating from the
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generality of the foregoing, this shall include injury or harm to the Lessor,
to the management company, to their employees, to the other lessees and
tenants of the building and to the guests of the aforesaid building, with a
liability limit of not less than the sum of $500,000 (five hundred thousand
United States dollars) per occurrence. This insurance shall not be subject to
any restriction as to liability resulting from fire, explosion, panic;
lifting, unloading and loading equipment; defective sanitary installations,
poisoning, harmful substances in food or beverages, a strike or shut-down, or
claims made by the National Insurance Institute.
The name of the insured party of the insurance coverage shall be extended to
include the Lessor and the management company by reason of their liability for
bodily injury which might occur on the Premises, which shall be subject to the
cross liability clause, under which the insurance shall be calculated as if it
had been arranged separately for each one of the individual policy holders.
The aforesaid provisions concerning tenants and other occupiers of Beit Yosef
Hermelin, shall be subject to the remaining lessees and occupiers having
exercised their rights in accordance with their policies.
H. Employers' liability insurance for the liability of the Lessee or of his
representative liability towards all those employed by them and on their
behalf, within the maximum standard liability limit which is customary in
Israel, at the time of arranging the insurance and/or renewal thereof.
This insurance shall not include any restriction as to work at a height or a
depth, work hours, contractors, sub-contractors and their employees - to the
extent that they are included in the Lessee's schedule of payments, baits and
poisons, and as regards the employment of juveniles. The insurance shall be
extended to indemnify the Lessor and/or the management company should they be
considered as employers of employees of the Lessee, or any one of them.
The Lessee's insurance shall include an express condition whereunder such
conditions take precedence over any insurance arranged by the Lessor and/or
the management company, and the insurer waives any claim and/or demand
concerning insurance coverages of the Lessor and/or the management company.
Likewise, the insurer undertakes that the policies covering the insurance of
the Premises shall not be reduced nor cancelled, unless not less than 45 days
prior written notice thereof is given by the insurer and sent by registered
mail to the Lessor.
1) The Lessee declares that he shall not bring any claim and/or demand and/or
action against the Lessor and/or the management company and/or other lessees
and/or occupiers of Beyt Yosef Hermelin on account of damage against which the
Lessee may be entitled to that the Lessee shall be entitled to be indemnified
(or for which he would be entitled to be indemnified but for the indemnity for
if it were not for the excess under his insurance policy), in accordance with
the insurance policies arranged in accordance with paragraphs A to I above.
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2) In the entire insurance coverage mentioned in paragraphs A to I, it shall
be indicated that the term "Lessor" shall include the shareholders of the
Lessor, as well as their subsidiary companies.
11. Without the necessary to make any demand on the part of the Lessor, the
Lessee undertakes to provide for the Lessor, within 14 days of the date of
opening the Lessee's business on the Premises, or prior to the date on which
he introduces any property onto the premises (except for property covered by
the work insured according to paragraphs B and C above), whichever shall be
the earlier, a certificate confirming that he has arranged insurance of the
Premises in accordance with the wording: "certificate of confirmation of the
insurance of the Premises" attached to this agreement and marked as Insurance
Annex 2C, and duly signed by the Insurer.
The Lessee declares that he is aware that the furnishing of the "certificate
of confirmation of the insurance of the Premises as stipulated, is a
suspensive condition and condition precedent to the commencement of the
Lessee's business and/or the introduction of any property onto the Premises
(except for property covered by the work insured in accordance with paragraphs
B and C above), and the Lessor shall be entitled to prevent the Lessee from
opening his business on the Premises and/or from introducing property as
stipulated, in the event that the aforementioned certificate of confirmation
shall not have been timeously provided.
12. In order to eliminate any doubt, it is recorded that non-production of
confirmation of insurance certificates timeously, as stipulated in the
foregoing paragraph, shall not derogate from the Lessee's obligations in
accordance with this contract, as well as not derogating from the generality
of all foregoing obligations to make payments due by the Lessee, and the
Lessee undertakes to fulfill his obligation in accordance with this contract,
even if he is prevented from carrying out work and/or obtaining occupation of
the Premises and/or introducing property onto the Premises and/or opening his
business on the Premises, due to the failure to furnish the certificates of
confirmation certificates timeously.
13. The Lessee undertakes to fulfill the terms of the insurance policies --
for work for setting up and insuring the Premises, to pay the premiums in full
and on time, and to take care to ascertain that the insurance policies of the
Premises are renewed from time to time as needed, and that they be valid for
the whole period of lease.
14. Immediately after the termination date of the term of insurance on the
Premises, the Lessee undertakes to deposit with the Lessor a certificate that
he has arranged the insurance as stipulated in paragraph 11 above - for the
purpose of renewing the validity of the policies for a further year. The
Lessee undertakes to deposit the certificate as to his having arranged the
renewal of the insurance on the dates specified for every insurance year for
the whole term of the lease.
15. The Lessor is entitled to examine the certificates of confirmation of the
insurance as furnished by the Lessee as aforesaid, and the Lessee undertakes
to carry out any
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alteration or amendment demanded in order that the certificates shall accord
with the Lessee's obligations. The Lessee declares and undertakes that the
Lessor's right of review over the insurance confirmation certificates and his
right to order amendment of the insurance policies as stipulated above and
likewise the Lessor's intervention in whatever may be connected with the
arrangements by the Lessee of the various policies, does not impose on the
Lessor or on his representative any obligation or responsibility in regard to
the insurance confirmation certificates and in regard to insurance policies as
aforesaid, their nature, scope, and validity, or in regard to the absence
thereof, nor derogate from any obligation imposed on the Lessee in accordance
with to this agreement.
16. The Lessee shall be entitled to take out additional/supplementary
insurance policies other than those detailed in this agreement, at his
discretion.
17. In addition to and without derogating from any of the provisions of this
agreement, in all the stages of performance of the contract, the Lessee
undertakes to fulfill all demands and instructions of the National Insurance
Law and all orders, regulations and the like that may be instituted in
accordance with the abovementioned law, and especially, but without derogating
from the generality of the foregoing. in such a manner that all his employees
and representatives, including those that may be employed casually or
temporarily, shall at all times and during the whole period of this contract
be entitled to all the rights under the abovementioned law.
18. Without derogating from the Lessor's liability in accordance with this
contract and under any law, the Lessor himself undertakes to take out and
maintain throughout the whole period of lease the following kinds of insurance
coverage as detailed below (hereinafter called "insurance coverage of Beyt
Yosef Hermelin"), with a duly authorized insurance company.
19. Insurance of the structure of Beyt Yosef Hermelin in Herzliyyah together
with its outbuildings, explicitly without any change, improvement, renovation,
or addition to the Premises that may have been made and/or shall be made by
the Lessee and/or on his behalf, by way of protection against loss or damage
due to fire, smoke, lightning, explosion, earthquake, disturbances, strikes,
malicious damage, storm, tempest, flood, water damage, damage by vehicles
(impact), damage by aircraft and break in. The insurance shall include an
explicit condition whereunder the insurer renounces any right of subrogation
concerning the Lessee and the licensee on his behalf for the operation of the
Premises and all the workers on their behalf, provided that waiver of the
right of subrogation shall not apply in favour of a person who has caused
damage maliciously.
20. Third Party Liability Insurance with respect to the liability of the
Lessor and the management company and the Lessee by reason of any harm or
damage which may be caused to the person and/or property of any person and/or
entity in the structure, within a liability limit of not less than $1,000,000
(one million US dollars). This insurance shall not be subject to any
limitation as to indebtedness resulting from fire, explosion, panic, lifting
equipment, loading and unloading equipment, defective sanitary installations,
poisoning, any harmful substances in food or drink, strike or shutdown, as
well as claims
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for reimbursement for the payment of damages on the part of the National
Insurance Institute. The insurance shall be subject to a cross liability
clause under which it shall be considered to have been arranged as if had been
effected separately for each of the insureds individually. This insurance
shall be extended to include the Lessee as an additional insured party for his
liability for all harm and/or damage that may be caused to the person and/or
property of every person and/or entity in the public areas of Beyt Yosef
Hermelin (in order to eliminate any doubt, the public areas as aforesaid, do
not include, inter alia, leased areas).
21. Employers Liability Insurance for the Lessor and the management company,
towards their employees and/or whomever is employed in the structure, within
the normal, maximum limits of liability accepted in Israel on the date of
taking out the insurance policy and/or the renewal thereof. This insurance
shall not include any limitation as to work at a height or a depth, working
hours, contractors, sub-contractors and their employees.
22. Insurance for loss of rental and management fees at their full value, by
reason of damage caused to the Premises or due to the destruction of the
Premises as a result of the risks mentioned in Paragraph 11, for a 12-month
period of indemnification. The insurance as aforesaid shall include an express
condition whereunder the insurer waives in favour of the Lessee any right of
the Lessee or any of his representatives, provided that any matter connected
with waiver of the right of subrogation shall not apply in favour of a person
who has maliciously caused damage.
23. 1) Upon the written request of the Lessee, the Lessor shall produce to him
a certificate of confirmation from his insurers as to the insurance for Beyt
Yosef Hermelin having been effected by him.
2) The Lessor declares that he shall have no claims or demands against the
Lessee by reason of any damage covered in full by the insurance company.
24. The Lessor declares that he shall bring no claim and/or action against the
Lessee and/or on account of damage for which the Lessor is entitled to
indemnified, or for which he would have been entitled to be indemnified but
for the excess specified in the policy in accordance with the insurance that
was taken out, as stipulated above, and he hereby releases the Lessee from any
liability for the damage as aforesaid.
25. The Lessee undertakes to pay to the Lessor a proportional share of the
insurance costs for the purpose of insuring Beyt Yosef Hermelin within 30 days
from the date demanded by the Lessor. The Lessee's pro rata share of the
insurance costs are as follows:
1) The insurance mentioned in Paragraphs 19, 20, and 21, in accordance with
the relation between the area of the Premises and the total area of Beyt Yosef
Hermelin.
2) The insurance mentioned in Paragraph 22.
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In accordance with the relation between the annual rental and management fees
paid by the Lessee and the total annual rental and total management fees paid
by all Lessees in Beyt Yosef Hermelin.
All the above shall be in accordance with insurance tariffs under the
insurance policies for Beyt Yosef Hermelin which shall be available for
inspection by the Lessee at the offices of the Lessor and/or the management
company.
3) The maximum sum to be borne by the Lessee with respect to his pro rate
share in the insurance referred to in paragraphs 1 and 2 above, shall not
amount to more than NIS ------- per annum (linked to the index from the date
of signature the agreement), for every square metre of the Premises, subject
to the insurance rates as applicable from time to time.
26. The Lessor shall be entitled, at his absolute discretion, to extend the
scope of the said coverage and/or to add coverage and/or insurance not
mentioned above and in such event the insurance costs to be recovered from the
Lessee, as specified in paragraph 25 above for the purpose of insurance to be
arranged by the Lessor, shall be altered accordingly.
14. Liability of the Lessee and Release of the Lessor from Liability
A. The Lessee shall be liable for all damage to property and/or person on the
Premises, of any kind or sort, and/or to the contents and/or the property of
the Lessee and/or the building and/or its occupiers and/or to those visiting
the Premises and/or to any third party and/or his employees and/or to any
person who is entering or leaving the Premises, and which results from or is
connected in any way with his use of the Premises and/or to any activity of
the Lessee and/or to an act of commission or omission of the Lessee or of any
representative of his -- other than for damage to the Premises as a result of
normal wear.
The Lessor shall not bear any liability by reason of loss or damage or any
monetary expenditure that may be caused in connection with the liability of
the Lessee in accordance with this agreement, and the Lessee undertakes to
indemnify the Lessor for any expenditure or compensation which the Lessor may
demand that he pay and which results from loss or damage in the scope of
liability of the Lessee in accordance with this agreement.
B. Neither the Lessor nor any for or on his behalf, shall be liable in any way
for any harm or damage which may be caused to the Lessee or his property or
any injury to person and/or loss and/or damage of any kind to property that
may be caused to the Lessee and/or his workers and/or employees and/or his
agents and/or his customers and/or his visitors and/or any other person who
may be found on the Premises or on any other area occupied by the Lessee by
permission of the Lessor, and the Lessee assumes total responsibility for any
damage of such a nature and undertakes to compensate and indemnify the Lessor
immediately upon receipt of such demand for monetary damages that the Lessor
might be obliged to pay or be required to pay as a result of damage of such a
nature and for any expenditure in connection with any damage as above stated,
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unless such damage was caused as a result of a negligent act on the part of
the Lessor or his workers.
C. The Lessor and/or his workers and/or his representatives or those acting on
his behalf, shall not be liable in any form for any damage of any kind which
may be caused to the Lessee as a result of entry of the Lessor or his
representatives upon the Premises as may be required for any of the purposes
mentioned in this agreement, unless the damage was caused as a result of
negligence on the part of the Lessor or his workers.
15. Vacating
A. Upon expiration of the lease period or should the lease terminate prior to
the expiration of the lease period, the Lessee undertakes to deliver to the
Lessor and/or his proxy, the Premises, which shall be absolutely free of any
person or object, and in the same good and proper condition as when it was
received, except for reasonable wear, with all the systems working in a proper
and normal manner.
The Lessor shall have the right to demand from the Lessee that the alterations
and/or additions permanently attaching to the Premises, all or some of them,
as shall have been effected to the Premises by the Lessee in addition to the
provisions of Annex E, whether with permission or without permission, shall be
removed or remain as they were and shall become the property of the Lessor as
the Lessor may choose, without the Lessor being obliged to pay any
compensation therefor.
B. Vacating the Premises on due date and as provided for in paragraph (A)
above, constitutes a fundamental condition of the agreement, and its breach
constitutes a fundamental breach of the agreement.
C. Should the Lessee fail to vacate the Premises as stipulated in this
agreement, at the expiration of the lease period or upon its termination prior
to the period thereof by reason of the circumstances stipulated in this
agreement (hereinafter called "Vacating Date"), then without derogating from
any alternative and/or additional relief available to the Lessor, the Lessee
shall pay the Lessor, within 7 days from the date demanded by the Lessor, for
every day with effect from the due Vacation Date until the actual date of
vacating, a sum consisting of double the amount of the per diem rental
together with value added tax according to law, linked under the linkage
provisions contained in paragraph 9, without the Lessor having to prove damage
and/or loss of anticipated profits by reason of the failure of the Lessee to
vacate on due date, and this sum shall be a pre-estimate by the parties at the
time of signature of this agreement of the appropriate compensation determined
by the parties for any delay in the vacating of the Premises on due date, in
addition to rentals and other monetary obligations due by the Lessee in
accordance with this agreement.
D. Payment of the estimated use charge and/or monetary damages as hereinbefore
provided, shall not release the Lessee from his obligation to vacate the
Premises.
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E. Should this agreement is cancelled prior to the lease period as a result of
a breach by the Lessee of the agreement, the Lessee shall not be entitled to
the return of any such rental for any period for which he did not have the
use, and he shall be obliged to pay rental until the end of the lease period
subject to the deduction of rental., if any, for any period up to the
expiration of the lease period by any other lessee who may have been found for
the Premises following cancellation of the agreement.
The Lessor shall take such steps to find another lessee for the Premises as
shall be accepted and in good faith and within the framework of his duty to
mitigate his damage.
F. With effect from the 60th day prior to the Vacating Date, an inspection
shall be made of the Premises by an engineer on behalf of the Lessor, who
shall draw up a schedule of any repairs and work which the Lessee shall be
obliged to carry out in accordance with the provisions of this agreement,
including repairs to damage and deterioration and work for restoration to its
prior condition. The engineer on behalf of the Lessor shall also determine the
cost of the repairs.
The Lessee undertakes to carry out all repairs and work in accordance with the
schedule of repairs and work drawn up by the engineer on behalf of the Lessor
and to obtain confirmation from the Lessor's engineer that the repairs have
been carried out to his satisfaction, no later than the Vacating Date for
redelivery to the Lessor. Should the Lessee have failed to carry out the
repairs, or any part thereof by the Vacating Date, the Lessor shall be
entitled to carry out such repairs himself at the expense of the Lessee, and
to debit the Lessee with the cost of carrying out the repairs and for all
expenses involved in carrying them out, as well as rental and compensation
(including the agreed compensation) due by reason of the failure to vacate the
Premises on due date by reason period required to carry out such repairs,
should such repairs or any part of them, are carried out by the Lessee after
the Vacating Date.
In order to eliminate any doubt, the Lessee shall not be released from his
obligations to effect repairs to the Premises and to maintain and to return
the premises in good and proper condition as stipulated in this agreement,
whether the Lessor and/or the engineer in his behalf has carried out the
inspection as stipulated at the beginning of this paragraph, or whether
neither one nor the other has made an inspection as aforesaid, and nothing
contained in the schedule of repairs shall be construed as a waiver of the
requirement to repair any defects not included in such schedule.
Without derogating from the foregoing, the Lessee shall be required to
demolish the "clean room" installed by him on the Premises, together with all
its installations, by no later that the Vacating Date of the Premises, and
with all its systems, and this no later than the date of vacation of the
Premises, and to restore the same to the condition that it was in when he
obtained possession of the Premises.
Upon restoration of possession of the Premises by the Lessee to the Lessor,
the parties shall prepare a minute of such redelivery which shall be signed by
the representatives of both parties.
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The Lessor shall be precluded from making any claim of any kind or sort with
respect to the Premises or the failure to restore to their former condition,
or with respect to defects which may be found beyond those detailed in the
minute of such redelivery, other than latent flaws or defects.
Without derogating from the Lessee's obligation to carry out the repairs and
work as detailed in this sub-paragraph, should the Lessee raise objections
with respect to the findings of the engineer on behalf of the Lessor as to the
schedule of repairs and work, such dispute shall be referred to an arbitrator
who shall be nominated by the chairman of the Institute of Engineers who shall
decide the matter of the division of costs between the Lessor and the Lessee
with respect to the abovementioned repairs and work to be carried out by the
Lessee.
G. Without derogating from any right and/or relief conferred upon the Lessor
in accordance with this agreement and/or according to law, should the Lessee
not vacate the Premises by the date that he is required to do so, the Lessor
shall be entitled, after giving seven-days warning in advance in writing to
the Lessee, to enter the Premises, to take possession of thereof, to change
the locks and prevent the Lessee and those acting on his behalf from entering
the Premises, and he shall be authorised to remove therefrom all goods
belonging to the Lessee to such place as the Lessor may deem suitable, and all
the expenses and/or payments and/or damage caused as a result of the
aforementioned removal shall be due by the Lessee alone.
16. The Parking Facility
A. The Lessor undertakes to procure that the Lessor or the entity operating
the Lessor's parking facility in the building at the time (hereinafter called
"The Parking Facility"), shall place at the disposal of the Lessee, with
effect from the date of commencement of the lease in accordance with this
agreement, 30 (thirty) parking bays as demarcated on the diagram of parking
bays attached to this agreement as Annex B, attached.
B. For each such parking place, the Lessee shall pay a monthly rental fee in
an amount of NIS 234.90, totalling the sum of NIS 8,829 per month together
with VAT as required by law. The rental for the parking bays shall be linked
to the consumer price index in the same manner as the rental for the Premises,
and shall be paid in the same manner and the same provisions shall apply to
them for all intents and purposes.
C. 1) In order to eliminate any doubt, the Lessee shall be subject to the
instructions and/or directives of the Lessor and/or the entity operating the
parking facility at any time in all matters relating to arrangements for
entry, parking, exit, security, operation, times of operation, and the
arrangement of the parking facility.
2) The Lessor shall ensure that the Lessee's vehicles shall be able to leave
the parking facility on work days even after closure, until midnight.
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3) Should the Lessee request to use the parking facility beyond the hours of
operation, he shall be provided with this service in return for meeting the
costs involved in the provision of such a service.
17. Surety Guarantees
A. At the time of signature of this agreement, the Lessee shall deposit with
Attorney Dr Yoav Ben-Dror of the offices of S. Horovitz and Associates, as
trustees for the Lessor, a sum equal in new Israeli shekels to the base rental
for three months, together with linkage differentials to the index as
stipulated in paragraph 9 A (2) above until the date of effecting the deposit,
plus VAT as security for the payment of rental and/or any debt and/or other
indebtedness of the Lessee in accordance with to this agreement. At the time
of effecting the seventh payment on account of rental, the Lessee shall
deposit with Attorney Dr Yoav Ben-Dror and upon the same conditions, an
additional sum in an amount in new Israeli shekels equal to the basic rental
for three months together with linkage differentials as stipulated above in
paragraph 9 A (2), until the date of effecting the additional deposit
mentioned above, plus VAT, as security for the payment of rental and/or any
debt and/or other indebtedness of the Lessee according to this agreement.
The above sum shall be deposited as hereinbefore provided for a period of 90
days after expiration of the lease period.
Should for any reason it no long be possible for Attorney Ben-Dror to continue
to hold the deposit, then, without any further agreement, the balance of the
deposit shall be transferred, in the same condition in which it had been at
such time, and upon the same terms, to such other partner in the law office of
S. Horovitz and Associates as Attorney Ben-Dror shall inform the Lessor.
The monies so deposited shall be invested by the trustee only in liquid
investments in accordance with instructions given to it from time to time by
the Lessee. The trustee shall, at the Lessor's request, keep him informed with
respect of the balance of the monies on deposit. In any event the balance
shall not fall below a sum equal to the rental for six months, linked to the
basic index, plus VAT.
The trustee shall be obliged to transfer to the Lessor any sum that he may
require from time to time from the monies on deposit, provided that a letter
from the General Manager of the Lessor is attached to such request, stating
that the Lessee has breached the lease contract and that the sum required is
due to the Lessor by reason of such breach.
The trustee shall be obliged to transfer the sum required by the Lessor as
stipulated, no later than three business days after receipt of the request and
he shall have no discretion in the matter and shall not be entitled to delay
making the payment for any reason.
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Attorney Ben-Dror shall confirm in writing at the time of signature of this
agreement that the deposit has been furnished to him and that he shall act in
regard to it in accordance with the provisions of this paragraph. The text of
the aforementioned letter shall be attached as Annex H of this contract.
B. The role of the trustee in accordance with this contract shall not preclude
him from representing the Lessee in any matter related to this lease contract,
including the matter of the deposit, after the transfer thereof to the Lessor
as hereinbefore stipulated.
18. Remedies for Violations
A. Without derogating for the remaining provisions of this paragraph and from
specific remedies provided for in this contract and in addition to the
foregoing, to the provisions of the Contracts Law 1970 (Remedies for Breach of
a Contract) shall apply to the breach of this agreement.
B. Should the Lessor cancel the agreement on the basis of his rights as
specified in this agreement, the Lessee shall not be entitled to receive
payment or any compensation from the Lessor relating to his expenditure and/or
on account of any payments that he may have made or paid to the Lessor and/or
for damages of any kind caused or which might be caused to him as a result of
vacating the Premises in accordance with this agreement, and these sums shall
be forfeited by the Lessor as compensation, without prejudice to his right to
demand full compensation from the Lessee for all damages, expenses, losses,
and loss of profit as may have been caused to him.
C. Should the Lessee not redeliver the Premises in proper condition apart for
reasonable wear and/or not repair whatever is required to be repaired on the
Premises and/or fail to redeliver the Premises to the Lessor at the end of the
lease period in proper condition as stipulated in the agreement and/or should
any damage be caused to the Premises during the lease period which shall not
have been repaired by the Lessee:
then in addition to any other right that the Lessor may have in such a case in
accordance with the provisions of this agreement and/or according to any law,
the Lessor shall be entitled to carry out any repairs and/or to take whatever
action he may deem appropriate in his view in order to repair the damage
and/or to restore same to their prior condition (that is, to the condition
specified in Annex A of this agreement), at the Lessee's expense.
D. The Lessor shall be entitled to cancel this agreement and the lease rights
according to the agreement, if an order of insolvency, receivership, or
liquidation, is made against the Lessee or for the appointment of a
liquidator, receiver, or manager or trustee in insolvency, whether temporary
or permanent, or if an order is made attaching the Lessee's assets -- in whole
or in part -- and the judgment or order aforesaid shall not have been set
aside within 60 (sixty) days from the date of grant of the order of judgment.
E. Should this agreement have been breach by other by the breach of a
fundamental breach which has not been remedied within 14 days from the receipt
of a written warning
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with regard thereto from the Lessor which furnishes details of the alleged
breach, the Lessor shall be empowered to cancel the agreement by notice in
writing thereof to the Lessor in addition to any other remedy in accordance
with this agreement or according to any law.
Should this agreement have been breached by the Lessee in a fundamental
manner, the Lessor shall be empowered to cancel same by notice in writing,
after a prior written warning in which the Lessee shall be given a further
seven days within which to remedy the breach, in addition to any other remedy
available to the Lessor in accordance with this agreement or according to any
law.
19. An Absence or a Refraining from Taking Action -- and Changes and Additions
to the Agreement
A. The absence of or refraining from the taking of any action and/or from the
exercise any right and/or allowing any extension shall not be considered and
shall not be interpreted as an implied waiver and/or as implied agreement
and/or as a novation and/or as grounds for an impediment and/or estoppel by
reason of conduct or in any another way in the reciprocal relationships
between Lessor and Lessee.
B. The conditions set forth in the agreement reflect the matters agreed and
stipulated between the parties. The parties shall not be bound by any
promises, publications, declarations, representations, agreements, influences,
and commitments, oral or written, which are not included in the agreement and
which had been made, if any all, prior to signature.
C. Any alteration and/or addition to this agreement shall be made explicitly
and in writing and shall be signed by the parties and in the absence thereof
shall have no binding effect on the parties.
D. This agreement, together with the annexes thereto, cancels any previous
agreement between the parties, and no validity shall attach to any agreement
and/or representation, if at all, and which is not included in this agreement
together with the annexes thereto.
20. Payment by One Party In the Other Party's Stead
Any sum paid by one party to this agreement, which in accordance with this
agreement was due for payment by the other party, shall be returned to the
party so paying immediately upon its demand, together with linkage to the
consumer price index as defined in paragraph 9 A (2) above, the basic Index in
such case being the last Index known on the day of payment by the payer, up
until the date of actual reimbursement, in accordance with the Index that
shall be known on the day of the actual reimbursement.
21. Transfer of Rights by the Lessor
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The Lessor and/or any of the individual Lessors shall be entitled to transfer
and/or encumber his rights to the Premises, wholly or in part, and/or his
rights in accordance with this agreement, wholly or in part, to another person
and/or to transfer and/or encumber his rights to receive payments in
accordance with this agreement, and the Lessee shall cooperate in any such
transfer of rights as aforesaid, and shall sign any document which in the
opinion of the Lessor's attorneys is required for that purpose, provided that
the rights of the Lessee in accordance with this agreement shall not be
adversely affected.
22. Differences of Opinion
Differences of opinion between the parties shall be brought before the general
managers of the parties who shall endeavour to resolve the matter by mutual
agreement.
23. Stamping Expenses
Each party shall bear half of the expenses of stamping this agreement.
24. Annexes
All annexes to this agreement shall constitute an integral part thereof
25. Interpretation
The headings of the Paragraphs of this agreement are for the purpose of
convenience only and do not constitute a part of this agreement.
26. Setoff
A. The Lessee shall not be entitled to set off rental or management fees
against any sum --for any reason-- whether such sum is a liquidated amount or
otherwise. Nothing herein shall be construed as derogation from the right of
the Lessee to take action against the Lessor by reason thereof. This shall
apply other than to setoff with respect to the Lessee's payments to the Lessor
for the purpose of financing the construction as indicated in Annex 6 -
Paragraph 6.
Similarly, the Lessee waives any right to a lien on the Premises or to
rentals, for as long as the abovementioned right shall persist, without
derogating from his right to take action against the Lessor on those same
grounds.
B. The Lessor shall not entitled to set off against the compensation
determined in Paragraph 4D above, to the extent that the Lessee is entitled
thereto, as a result of any delay in the delivery by the Lessor of the
Premises to the Lessee, any sum for any reason whatsoever, whether the sum is
a liquidated amount or otherwise, without prejudice to the Lessor's right to
sue the Lessee on such grounds.
29
<PAGE>
27. Jurisdiction
The parties hereby agree that the courts in Tel Aviv-Jaffa have the sole
jurisdictional competence in all matters resulting from this agreement.
28. Addresses and Notices
The addresses of the parties for the purposes of this agreement are as they
appear at the heading of the agreement. Either party changing its address
shall give notice thereof in writing as to its new address in Israel to the
other party and such address shall thereafter serve from as its address for
purposes of the agreement. With effect the commencement of the lease period,
the address of the Lessee shall be at the Premises.
B. Any notice sent by one party to the other in accordance with the agreement
shall be sent by registered mail or by facsimile, or shall be delivered by
hand with a copy to the attorney of the parties, Dr Yoav Ben-Dror, of the
Offices of S. Horovitz and Associates (attorneys of the Lessee) and Attorney
David Shuaka of the Offices of Dan Cohen, Shpigelman, and Associates
(attorneys of the Lessor), or to whomever may replace them and any such notice
shall be considered to have been delivered three days after the time of
handing in at the post office and/or immediately upon delivery by hand, or by
facsimile in such manner as can be substantiated, as the case may be.
29. Denial of Representation by the Lessee
Nothing contained in this agreement and/or in the conduct of the parties by
virtue of this agreement shall be interpreted as authorizing the Lessee to
appear in the name of the Lessor or on his behalf, or as granting to the
Lessee the status of representative of the Lessor in any matter, and the
Lessee shall have no authority or status as aforesaid.
In witness whereof the parties have signed:
INFLUENCE MEDICAL TECHNOLOGIES, INC. TASHTIYOT NEFT V'ENERGIYAH
ABBA HILLEL 14, RAMAT GAN 52-22
LESSEE LESSOR
Certification of the Lessee's signature
I the undersigned, Dr Yoav Ben-Dror, Esq., of 31 Street, Tel Aviv, hereby
certify that the this lease agreement has been signed by the authorised
representatives of the Lessee and their signature, together with the company's
seal, shall be binding on the Lessee for all intents and purposes relating to
this lease agreement and lease.
30
<PAGE>
Dr Yoav Ben-Dror, Esq.
S. Horovitz and Associates, Attorneys
Tel Aviv
May 1, 1997
Attorney's signature date
31
<PAGE>
Certification of the Lessor's signature
I the undersigned, David Shuaka, Esq., of 105 HaHashmona'im Street, Tel Aviv,
hereby certify that the authorized persons in behalf of the Lessor have signed
the lease agreement and that their signature with the stamp of the company is
binding on the Lessor for all purposes and matters related to this lease
agreement and the leasing.
David Shuaka, Esq.
HaHashmona'im 103
Tel Aviv 67133
May 22, 1997
Attorney's signature date
32
<PAGE>
Exhibit 16.1
June 18, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by Influence, Inc. (the "Company") (copy
attached), which we understand will be filed as part of Amendment No. 1 to the
Company's registration statement on Form S-1 (File No. 333-32987) with the
Securities and Exchange Commission, pursuant to Item 304 of Regulation S-K. We
agree with the statements concerning our Firm.
Very truly yours,
/s/ Coopers & Lybrand L.L.P.
--------------------------------
Coopers & Lybrand L.L.P.
<PAGE>
Change in Accountant
The Company changed independent public accountants in February 1997
at the recommendation and with the approval of the Board of Directors of the
Company. Prior to February 1997, Coopers & Lybrand L.L.P. ("C&L") had been the
Company's independent accountants. In the period from November 1994 through
January 1997, C&L issued no audit report which was qualified or modified as to
uncertainty, audit scope or accounting principles, nor any adverse opinions or
disclaimers of opinion on any of the Company's financial statements. During the
Company's two most recent fiscal years and any subsequent interim period
preceding the dismissal there were no disagreements with the former accountant
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement(s) if not
resolved to the satisfaction of the former accountant, would have caused it to
make a reference to the subject matters of the disagreement(s) in connection
with its report. In February 1997, Price Waterhouse LLP was engaged to be the
Company's independent accountants.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 23, 1998 except as
to Note 10 which is as of July ___, 1998, relating to the consolidated financial
statements of Influence, Inc., which appears in such Prospectus. We also consent
to the application of such report to the Financial Statement Schedule for the
three years ended December 31, 1997 listed under Item 16(b) of this Registration
Statement when such schedule is read in conjunction with the financial
statements referred to in our report. We also consent to the references to us
under the headings "Experts" and "Selected Consolidated Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Data."
- ---------------------------
PRICE WATERHOUSE L.L.P.
San Jose, California
July __, 1998
<PAGE>
EXHIBIT 23.3
June 10, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We hereby consent to the inclusion of this firm under the section
"Experts" in Amendment No. 1 to Form S-1 of Influence, Inc.
Very truly yours,
/s/ Levisohn, Lerner, Berger & Langsam
--------------------------------------
Levisohn, Lerner, Berger & Langsam
