<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1998
REGISTRATION NO. 333-32987
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INFLUENCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5047 13-3798523
(STATE OR OTHER JURISDICTION (PRIMARY SIC CODE) (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
------------------------
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:
<TABLE>
<S> <C>
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
</TABLE>
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 AUGUST 21, 1998
PROSPECTUS
- --------------------------------------------------------------------------------
1,700,000 SHARES
[INFLUENCE LOGO]
COMMON STOCK
- --------------------------------------------------------------------------------
All of the 1,700,000 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 19 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) The Company 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)
IN-FLOW Ongoing U.S. IDE trial; PMA Path; CE Mark
[Diagram of In-Flow] (female) Launched in Europe and Asia approved March 1997
2Q97
IN-FLOW-M Preclinical PMA Path
(male)
SURGICAL PRODUCTS
IN-FAST Launched worldwide 4Q97 510(k) cleared April 1997;
[Diagrams of the Company's CE Mark approved August
surgical products] 1997
IN-TAC Launched worldwide 2Q97 510(k) cleared February
1997; CE Mark approved
August 1997
STRAIGHT-IN Worldwide launch expected 510(k) cleared October
4Q98 1997; CE Mark approved
March 1998
RAZ FASCIAL ANCHOR--STRESS Worldwide launch expected 510(k) for non-resorbable
INCONTINENCE 2H99 version submitted May
1998(2)
RAZ FASCIAL ANCHOR-- Worldwide launch expected 510(k) for non-resorbable
VAGINAL VAULT PROLAPSE 2H99 version submitted May
1998(2)
RAMUS MALE SLING Worldwide launch expected 501(k) submitted June 1998;
4Q98 CE Mark approved June 1998
DIAGNOSTIC/BIOFEEDBACK
IN-BIO Worldwide launch expected 510(k) submitted December
[Diagrams of In-Bio and In- 2H99 1997
Probe]
IN-PROBE Worldwide launch expected Exempt from 510(k)
4Q98 submission requirement
INFLU-ENT DIVISION
OTOLARYNGOLOGY PRODUCTS
REPOSE-TONGUE Launched worldwide IQ98 510(k) cleared August 1997;
[Diagrams of the Company's CE Mark approved March 1998
otolaryngological products]
REPOSE-HYOID Worldwide launch expected 510(k) submitted May 1998
1H99
INFLU-RAD DIVISION
CANCER RADIOTHERAPY
PRODUCTS
[Diagram of proposed TOMO-THERAPY Preclinical PMA or 510(k) Path
Tomotherapy device]
</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: Raz Fascial Anchor--Stress
Incontinence (resorbable version), Raz Fascial Anchor--Vaginal Vault
Prolapse (resorbable version), 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) For a discussion of the regulatory status of the resorbable and
non-resorbable versions, see 'Business-- Government Regulation.'
In-Tac(Registered) is a registered trademark of the Company.
Influence(Trademark), In-Fast(Trademark), Straight-In(Trademark),
In-Flow(Trademark), In-Probe(Trademark), In-Tele(Trademark), In-Bio(Trademark),
In-Flow-M(Trademark), In-Cuff(Trademark), Raz Fascial Anchor(Trademark),
Triangle(Trademark), Ramus Male Sling(Trademark), Cryo-ENT(Trademark),
Clip-In(Trademark), Cryo-Post(Trademark), In-Probe Angle Measurement(Trademark),
and Repose(Trademark) 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.'
<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 ten 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,
five products currently under 510(k) review by the FDA, and another ten products
in various stages of development. The Company signed a distribution agreement in
August 1998 with Indigo Medical, Incorporated ('Indigo'), a subsidiary of
Johnson & Johnson ('J&J'), pursuant to which Indigo will become the exclusive
distributor outside the United States of the Company's current and future
urology/gynecology product lines, subject to certain exceptions, 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 11 million women and 2
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 is also
developing surgical products intended for the treatment of male incontinence,
including the Ramus Male Sling surgical system.
3
<PAGE>
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 PMA approval 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 submit a PMA
application 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 significantly undiagnosed and, the Company believes,
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 submitted 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. In addition,
although current brachytherapy treatments usually involve direct interstitial
radiation therapy, such treatments are expensive to manufacture, may subject
health workers to radiation, and involve limited radiation dosages. 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 application 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') area using
direct sales people and independent sales representatives in the United States
and abroad. In Israel, the Company maintains 19 research and development
personnel and has an ISO 9001 and 9002 certified facility for developing and
manufacturing its product lines.
4
<PAGE>
On August 17, 1998, Indigo and the Company signed a distribution agreement
pursuant to which Indigo will become the Company's exclusive distributor outside
the United States of the Company's current and future products, subject to
certain exceptions, in the fields of urology and gynecology and its radiotherapy
product under development. In connection with this distribution agreement, the
Company and Johnson & Johnson Development Corporation ('JJDC'), a subsidiary of
J&J, entered into an investment agreement. The investment agreement provides, in
addition to the $1 million note entered into in May 1998, that JJDC invest an
additional $6 million in the Company. In exchange for the $6 million cash
investment and the outstanding $1 million note, the Company issued a $7 million
covertible note (the "J&J Note"). The J&J Note is 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 by May 1999, the J&J
Note will automatically convert into shares of Common Stock of the Company at a
price per share based on a valuation of all the Common Stock of the Company (on
a fully diluted basis) equal to $82 million.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered Hereby.......................................... 1,700,000 shares
Common Stock to be Outstanding after the Offering(1)................. 8,414,131 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) Includes as of the date hereof 583,333 shares of Common Stock issuable upon
conversion of the J&J Note upon completion of the Offering at the assumed
initial public offering price of $12.00 per share. Excludes as of the date
hereof (i) 1,181,066 shares issuable upon exercise of options outstanding
under the Company's 1995 and 1998 Stock Option Plans at a weighted average
exercise price of $5.60 per share, and (ii) 367,245 shares reserved for
future issuances of stock options.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------
1995 1996 1997 1997 1998
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................................... $ -- $ -- $ 1,114 $ 154 $ 1,873
Cost of goods sold.......................................... -- -- 2,765 768 1,293
------- ------- -------- ------- -------
Gross margin................................................ -- -- (1,651) (614) 580
------- ------- -------- ------- -------
Operating expenses:
Research and development.................................. 1,250 3,219 3,155 1,250 1,913
Sales and marketing....................................... -- 667 3,837 1,897 3,994
General and administrative................................ 459 1,769 2,073 669 1,469
------- ------- -------- ------- -------
Total operating expenses............................. 1,709 5,655 9,065 3,816 7,376
Operating loss.............................................. (1,709) (5,655) (10,716) (4,430) (6,796)
Interest income (expense), net.............................. 12 (118) (134) (405) 23
------- ------- -------- ------- -------
Net loss.................................................... $(1,697) $(5,773) $(10,850) $(4,835) $(6,773)
------- ------- -------- ------- -------
------- ------- -------- ------- -------
Basic and diluted net loss per share(1)..................... $ (0.34) $ (1.16) $ (2.10) $ (0.98) $ (1.29)
------- ------- -------- ------- -------
------- ------- -------- ------- -------
Shares used in computing basic and diluted net loss per
share(1).................................................. 4,977 4,983 5,173 4,939 5,248
------- ------- -------- ------- -------
------- ------- -------- ------- -------
PRO FORMA DATA:(1)
Pro forma basic and diluted net loss per share.............. $ (1.79) $ (1.09)
-------- -------
-------- -------
Shares used in computing pro forma basic and diluted net
loss per share............................................ 6,055 6,216
-------- -------
-------- -------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------------------
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
-------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....................... $ 1,022 $ 7,022 $ 25,394
Working capital......................................................... 1,207 7,207 25,579
Total assets............................................................ 4,788 10,788 29,160
Accumulated deficit..................................................... (25,393) (25,393) (25,393)
Stockholders' equity.................................................... 1,391 8,408 26,780
</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) Includes as of the date hereof the issuance of the J&J Note and 583,333
shares of Common Stock issuable upon conversion of the J&J Note at the
completion of the Offering at the assumed initial public offering price of
$12.00 per share.
(3) Adjusted to give effect to the sale of the shares of Common Stock offered by
the Company hereby, assuming an initial public offering price of $12.00 per
share, after deducting the underwriting discounts and commissions and
Offering expenses payable by the Company.
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 June 30, 1998 of $25.4
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
acceptance will be substantially dependent on educating the medical community as
to the distinctive
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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 166 patients treated to date with the In-Flow catheter in
the United States, approximately 63% 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
approval 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 submitted 510(k) Notifications for seven products: Raz Fascial
Anchor--Stress Incontinence (resorbable and non-resorbable versions), Raz Fascia
Anchor-Vaginal Vault Prolapse (resorbable and non-resorbable versions), In-Bio,
Ramus Male Sling, and Repose-Hyoid. The FDA responded to these 510(k)
submissions with written requests for additional information and clinical data
about the Raz Fascial Anchor--Stress Incontinence (resorbable and non-resorbable
versions), Raz Fascial Anchor--Vaginal Vault Prolaspe (resorbable and non-
resorbable versions), and the Repose-Hyoid. The FDA also requested additional
information (but not clinical data) about the
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In-Bio. Currently, the Company is in the process of providing the requested
information and/or discussing with the FDA the precise nature of the data that
will be required. The Company also intends to withdraw the previously submitted
510(k) Notifications for the Raz Fascial Anchors (resorbable versions) pending a
final agency determination regarding 510(k) clearance for the Raz Fascial
Anchors (non-resorbable versions). The Company will likely be required to
conduct further product testing, including possibly clinical testing. There can
be no assurance that the Company will resubmit withdrawn 510(k) submissions,
that the FDA will grant 510(k) clearance to these products in a timely fashion,
or at all, or that the FDA will not require these products to go through the PMA
approval process. See 'Business--Government Regulation.'
The In-Flow device is being studied in a clinical trial approved by the
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) Notification process. The Company believes that
In-Probe is currently exempt from the 510(k) Notification requirement, and it is
marketed in the United States on that basis. However, the Company expects that a
510(k) Notification will be required for a version of the In-Probe that 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 believes that the Tomotherapy device may be eligible for the
510(k) Notification process and intends to confer with the FDA regarding the
regulatory approval process. However, no assurance can be given that the FDA
will not require the Tomotherapy device to undergo the PMA approval process. Nor
can assurance be given that the FDA will not require clinical data for the
device, that the FDA will approve a clinical trial, or that a trial, if
completed, will generate data adequate to support 510(k) clearance or PMA
approval. There can be no assurance that 510(k) clearance or PMA approval can be
obtained for the Tomotherapy device in a timely fashion, or at all.
The In-Cuff is a 'preamendment' device eligible to undergo the 510(k)
Notification process with the addition of a preapproval inspection for QSReg.
compliance (a 'preamendment' class III device is one that was on the market
before May 28, 1976). However, the FDA issued a proposed rule in 1995 that would
require PMA approval for this type of device, even if a particular manufacturer
has already obtained 510(k) clearance for its product. If and when this rule is
finalized, the In-Cuff will be required to undergo PMA approval, even if 510(k)
clearance has already been obtained. There can be no assurance that the Company
will be able to prepare and file a PMA application within the required time
frame of 90 days after a rule calling for PMA applications is finalized.
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
existing products and products 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
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('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. See 'Business--Government Regulation.'
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.'
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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 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
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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; DEPENDENCE ON SINGLE INTERNATIONAL
DISTRIBUTOR FOR CERTAIN PRODUCTS. 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 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.
On August 17, 1998, the Company entered into a distribution agreement with
Indigo Medical, Inc. ('Indigo'), a subsidiary of Johnson & Johnson, pursuant to
which Indigo will have exclusive distribution rights to the Company's urological
and gynecological products, subject to certain exceptions, and current
radiotherapy product under development outside the United States. 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 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 may entail the risk of
interrupted communications with customers or potential customers. In addition,
in certain jurisdictions the Company may
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incur costs and liabilities in terminating existing distribution arrangements.
Under the distribution agreement, Indigo has the right to elect to distribute
In-Fast, Straight-In and related products by giving written notice to the
Company before October 1, 1999. Prior to such notice, the Company has retained
the right, and will continue, to distribute In-Fast, Straight-In and related
products outside the United States. Following the announcement of the Company's
proposed distribution agreement with Indigo, sales by distributors of the
In-Fast declined materially outside of the United States. There can be no
assurance that the level of sales or the rate of growth of sales of In-Fast and
related products outside the United States will be restored to the levels or
rates existing prior to the announcement of the Company's proposed distribution
agreement with Indigo. 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. In addition, the Company has agreed to indemnify certain
distributors from claims, suits, damages and costs resulting from claimed
infringement of any third-party patent by the Company.
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 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
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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 and its patent counsel
have conducted a review of the third party's relevant issued U.S. patents and
the Company is of the opinion in consultation with its patent counsel 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 in consultation with its 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 in consultation with
its patent counsel 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 in consultation with its patent counsel 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 in
consultation with its patent counsel 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 the Company is of
the opinion in consultation with its patent counsel 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
14
<PAGE>
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. The Company is of the opinion, in
consultation with its patent counsel, 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 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
15
<PAGE>
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 developers of medical technology which are 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.
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.
16
<PAGE>
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, the officers,
directors, and principal stockholders of the Company, as a group, will
beneficially own approximately 54.29% of the outstanding shares of Common Stock
(52.74% 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 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 completion of the Offering, the
Company will have a total of 8,414,131 shares of Common Stock outstanding
(8,669,131 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
17
<PAGE>
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), 6,130,798 of the restricted shares will become eligible for sale
after the Offering. However, 5,891,225 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
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. The Company has granted JJDC similar rights with respect to the 583,333
shares of Common Stock to be issued upon conversion of the J&J Note. 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 of Common Stock, 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.'
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
18
<PAGE>
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 of Common
Stock in the Offering will experience an immediate and substantial dilution of
approximately $8.82 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 of Common Stock. Such
investors will suffer additional dilution upon exercise of outstanding options.
See 'Dilution.'
ABSENCE OF DIVIDENDS. Influence has not declared or paid any cash
dividends on its shares of Common Stock and does not presently anticipate
declaring or paying any cash dividends on such shares of Common Stock 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.
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<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
of Common Stock 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, and after deducting underwriting discounts and commissions and estimated
Offering expenses payable by the Company.
The Company intends to use approximately $10.0 million of such net proceeds
for sales and marketing activities, and $5.0 million for additional research and
product development, including conducting clinical trials and obtaining
regulatory approvals and the remainder for working capital and capital
expenditures, primarily to develop the Company's manufacturing facility, 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.'
DIVIDEND POLICY
Influence has never declared or paid 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.'
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CAPITALIZATION
The following table sets forth as of June 30, 1998, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
to give effect to (1) 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, (2) the issuance and automatic
conversion of the J&J Note into 583,333 shares of Common Stock upon the closing
of the Offering, and (3) 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 (iii) the pro forma capitalization as adjusted to give effect to
the receipt of the estimated net proceeds from the sale of the shares of Common
Stock offered 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>
JUNE 30, 1998
-----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Note payable........................................................ $ 1,017,000 $ -- $ --
----------- ----------- -----------
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; 6,714,131
shares issued and outstanding pro forma and 8,414,131 shares
issued and outstanding as adjusted............................. 4,000 5,000 7,000
Additional paid-in capital........................................ 27,531,000 34,554,000 52,924,000
Deferred compensation............................................. (758,000) (758,000) (758,000)
Accumulated deficit............................................... (25,393,000) (25,393,000) (25,393,000)
----------- ----------- -----------
Total stockholders' equity................................... 1,391,000 8,408,000 26,780,000
----------- ----------- -----------
Total capitalization......................................... $ 2,408,000 $ 8,408,000 $26,780,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------
(1) Excludes as of June 30, 1998 (i) 1,181,066 shares issuable upon exercise of
options outstanding under the Company's 1995 and 1998 Stock Option Plans at
a weighted average exercise price of $5.60 per share, and (ii) 367,245
shares reserved for future issuances of stock options. See
'Management--Stock Option Plans.'
21
<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 June 30,
1998 was $8.4 million, or approximately $1.25 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 and 583,333 shares of Common
Stock issuable upon conversion of the J&J Note at the completion of the Offering
at the assumed offering price of $12.00 per share. After giving effect to the
sale of shares of Common Stock offered hereby at an assumed initial public
offering price of $12.00 per share and after deducting the underwriting
discounts and commissions and estimated Offering expenses, the consolidated pro
forma net tangible book value of the Company as of June 30, 1998 would have been
$26.8 million, or approximately $3.18 per share. This represents an immediate
increase in consolidated pro forma net tangible book value of approximately
$1.93 per share to existing shareholders and an immediate and substantial
dilution of approximately $8.82 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.......................................................... $ 1.25
Increase attributable to new investors..................................................... 1.93
---------
Pro forma net tangible book value after the Offering.......................................... 3.18
---------
Dilution to new investors..................................................................... $ 8.82
---------
---------
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 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 of Common Stock offered hereby at an assumed
initial public 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............................... 6,714,131 80% $38,403,000 65% $ 5.72
New investors....................................... 1,700,000 20% 20,400,000 35% 12.00
--------- ------- ----------- -------
Total............................................. 8,414,131 100% $58,803,000 100% $ 6.99
--------- ------- ----------- -------
--------- ------- ----------- -------
</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) the conversion of the J&J Note into Common Stock upon the closing of the
Offering, (iii) no exercise of the Underwriters' over-allotment option, (iv) 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 completion of the Offering
and (v) no exercise of any outstanding stock options. As of the date hereof,
there were outstanding options to purchase an aggregate of 1,181,066 shares of
Common Stock at a weighted average exercise price of $5.60 per share. To the
extent such outstanding options are exercised, there will be further dilution to
new investors. See 'Management--Stock Option Plans'.
22
<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 PricewaterhouseCoopers
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 June 30, 1998 and for the six months ended June 30, 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 SIX MONTHS ENDED
(NOVEMBER 9, 1994) YEAR ENDED DECEMBER 31, JUNE 30,
TO ------------------------------ ----------------------
DECEMBER 31, 1994 1995 1996 1997 1997 1998
------------------ ------- ------- -------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales............................ $ -- $ -- $ -- $ 1,114 $ 154 $ 1,873
Cost of goods sold................... -- -- -- 2,765 768 1,293
------ ------- ------- -------- --------- ---------
Gross margin......................... -- -- -- (1,651) (614) 580
------ ------- ------- -------- --------- ---------
Operating expenses:
Research and development........... 300 1,250 3,219 3,155 1,250 1,913
Sales and marketing................ -- -- 667 3,837 1,897 3,994
General and administrative......... -- 459 1,769 2,073 669 1,469
------ ------- ------- -------- --------- ---------
Total operating expenses........ 300 1,709 5,655 9,065 3,816 7,376
------ ------- ------- -------- --------- ---------
Operating loss....................... (300) (1,709) (5,655) (10,716) (4,430) (6,796)
Interest income...................... -- 12 236 604 368 69
Interest expense..................... -- -- (354) (738) (773) (46)
------ ------- ------- -------- --------- ---------
Net loss............................. $ (300) $(1,697) $(5,773) $(10,850) $ (4,835) $ (6,773)
------ ------- ------- -------- --------- ---------
------ ------- ------- -------- --------- ---------
Basic and diluted net loss per
share(1)........................... $ (0.34) $ (1.16) $ (2.10) $ (0.98) $ (1.29)
------- ------- -------- --------- ---------
------- ------- -------- --------- ---------
Shares used in computing basic and
diluted net loss per share(1)...... 4,977 4,983 5,173 4,939 5,248
------- ------- -------- --------- ---------
------- ------- -------- --------- ---------
PRO FORMA DATA:(1)
Pro forma basic and diluted net loss
per share.......................... $ (1.79) $ (1.09)
-------- ---------
-------- ---------
Shares used in computing pro forma
basic and diluted net loss per
share.............................. 6,055 6,216
-------- ---------
-------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- JUNE 30,
1994 1995 1996 1997 1998
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments............ $ -- $ 1,375 $16,849 $ 5,196 $ 1,022
Working capital.............................................. (296) 1,012 16,124 5,621 1,207
Total assets................................................. -- 1,627 17,957 8,721 4,788
Accumulated deficit.......................................... (300) (1,997) (7,770) (18,620) (25,393)
Stockholders' equity (deficit)............................... (296) 1,147 (3,336) 6,873 1,391
</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.
23
<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 June 30, 1998 of $25.4 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 and
the Ramus Male Sling. The Repose-Hyoid is expected to be launched in the first
half of 1999. 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 August 17, 1998, Indigo and the Company signed a distribution agreement
pursuant to which Indigo will become the Company's exclusive distributor outside
the United States of the Company's current and future products, subject to
certain exceptions, in the fields of urology and gynecology and its radiotherapy
product under development. In connection with the distribution agreement, the
Company and Johnson & Johnson Development Corporation ('JJDC'), a subsidiary of
J&J, entered into an investment agreement. The investment agreement provides, in
addition to the $1 million note entered into in May 1998, that JJDC invest an
additional $6 million in the Company. In exchange for the $6 million cash
investment and the outstanding $1 million note, the Company issued a $7 million
covertible note (the "J&J Note"). The J&J Note is 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.
RESULT OF OPERATIONS
Six Months Ended June 30, 1998, Compared to Six Months Ended June 30, 1997
Net Sales. Net sales increased $1.7 million from $154,000 for the six
months ended June 30, 1997 to $1.9 million for the six months ended June 30,
1998. Substantially all the Company's sales during 1997 related to In-Tac and
In-Flow, the majority of which were to customers outside the U.S., primarily in
Europe. Sales reflect increased unit sales of In-Tac, In-Flow, and the
introduction of the In-Fast, Repose and Sling products. For the
24
<PAGE>
six months ended June 30, 1998, 34% of total net sales were outside the United
States, of which 84% were to Europe. The Company anticipates that sales for the
second half of 1998 may experience an interruption in growth due to the
transition of distribution outside the United States to Indigo.
Cost of Goods Sold. Cost of goods sold includes direct labor, direct
material and overhead. Cost of goods sold increased $525,000, from $768,000 for
the six months ended June 30, 1997 to $1.3 million for the six months ended June
30, 1998 primarily because of increased sales volume. Gross margin turned
positive during the six months ended June 30, 1998 as a result of increased
manufacturing volume and absorption of fixed costs, improved manufacturing
processes and sales of higher margin products. The Company anticipates that
gross margins will increase as a percentage of net sales in the future 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 expense
increased $663,000, from $1.3 million for the six months ended June 30, 1997 to
$1.9 million for the six months ended June 30, 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 for this
product during 1999. Clinical costs were also incurred during 1998 for a study
for the ENT product. The Company expects to continue to incur significant
research and development and clinical costs during future periods.
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
$2.1 million from $1.9 million for the six months ended June 30, 1997 to $4.0
million for the six months ended June 30, 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 six months ended June 30, 1998
also includes $997,000 of noncash compensation expense relating to the granting
of compensatory stock options to employees and consultants. 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 expense increased $800,000, from $669,000 for the six months
ended June 30, 1997 to $1.5 million for the six months ended June 30, 1998. The
increase reflects the hiring of additional administrative personnel and
increased general and administrative expenditures to support the Company's
growing operations. The six months ended June 30, 1998 also includes $212,000 of
noncash compensation expense related to the granting of compensatory stock
options to employees.
Interest Income. Interest income reflects income from investments of cash
balances and marketable securities. The decrease in interest income is
attributable to lower cash and investment balances.
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 to customers outside the United States, primarily in
Europe. There were no sales for the year ended December 31, 1996.
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 expense 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.
25
<PAGE>
General and Administrative. General and administrative expense 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 includes $350,000 in costs related to a planned initial public offering
which was indefinitely postponed. The 1996 expenses includes $450,000 in 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 expense 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.
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. In August 1998, upon the consumation of a distribution
agreement with Indigo the Company entered into an investment agreement with
JJDC. The investment agreement provides, in addition to the $1 million note
entered into in May 1998, that JJDC invest an additional $6 million in the
Company. In exchange for the $6 million cash investment and the outstanding $1
million note, the Company issued a $7 million convertible note (the "J&J Note").
Cash used to fund operations since inception was approximately $21.6 million and
the Company's capital expenditures through June 30, 1998 have aggregated
approximately $1.6 million. At June 30, 1998, the Company had cash, cash
equivalents and short-term investments of approximately $1.0 million.
26
<PAGE>
From inception through June 30, 1998, the Company has an accumulated
deficit of $25.4 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.
In September 1995, the Company repurchased and retired 148,571 shares of
Common Stock from three founders of the Company 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.
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 six months ended June 30, 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 (1.4)%, 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 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
27
<PAGE>
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 ('Price Waterhouse') was engaged to be the
Company's independent accountants. Prior to engaging Price Waterhouse as
independent accountants, the Company did not consult with Price Waterhouse
regarding (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements or (ii) any matter that
was either the subject of a disagreement or a reportable event. In July 1998,
C&L and Price Waterhouse merged to become PricewaterhouseCoopers LLP.
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.
RECENT ACCOUNTING PRONOUNCEMENTS.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 131, 'Disclosures about Segments of an Enterprise and Related
Information' ("SFAS 131") SFAS 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 ending 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.
In June 1998, the FASB issued Statement No. 133, 'Accounting for Derivative
Instruments and Hedging Activities' ('SFAS 133'). SFAS 133 establishes
accounting and reporting standards for derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and the resulting designation. The Company will adopt SFAS 133 in the first
quarter of the fiscal year ending December 31, 2000 and does not expect such
adoption to have a material effect on its 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 ten 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, five products currently under 510(k) review by the FDA,
and another ten products in various stages of development. The Company recently
signed a distribution agreement with Indigo Medical, Incorporated ('Indigo'), a
subsidiary of Johnson & Johnson ('J&J'), pursuant to which Indigo will become
the exclusive distributor outside the United States of the Company's current and
future products, subject to certain exceptions, 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 distribution agreement with Indigo, a subsidiary of J&J,
pursuant to which Indigo will become the Company's exclusive distributor
outside the United States of the Company's current and future products,
subject to certain exceptions, 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 19
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 United States 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, 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
believed to be the primary pathology in approximately 30% of women with
incontinence.
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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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<PAGE>
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 and,
thereby, may achieve an acceptable clinical outcome, 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(Registered), 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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<PAGE>
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 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.
INFLUENCE DIVISION--UROLOGY/GYNECOLOGY
<TABLE>
<CAPTION>
PROPOSED REGULATORY PATH
PRODUCT/DESCRIPTION PRODUCT STATUS(1) OR STATUS(2)
- ------------------------------------------------------- ---------------------------- ----------------------------
<S> <C> <C>
CATHETERS FOR OVERFLOW AND STRESS INCONTINENCE:
IN-FLOW
A temporary intra-urethral valved catheter contain- Ongoing U.S. IDE trial; PMA path; CE Mark approved
ing an intraluminal pump assembly operated by a Launched in Europe and Asia March 1997
remote-controlled activator for women with atonic 2Q97
bladder (overflow incontinence).
IN-FLOW-M
A modified version of the In-Flow remote- Preclinical PMA path
controlled intra-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 Launched worldwide 4Q97; 510(k) cleared April 1997;
performing bladder neck fixation and sling procedure Loop screw launched 2Q98 CE Mark approved August 1997
surgery in women with stress incontinence. Screws
with a crimped suture loop also available.
</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. '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.'
33
<PAGE>
<TABLE>
<CAPTION>
PROPOSED REGULATORY PATH
PRODUCT/DESCRIPTION PRODUCT STATUS(1) OR STATUS(2)
- ------------------------------------------------------ ------------------------- ---------------------------
<S> <C> <C>
IN-TAC
A minimally invasive, reusable surgical system for Launched worldwide 2Q97 510(k) cleared February
performing bladder neck fixation and sling proce- 1997; CE Mark approved
dure surgery in women with stress incontinence. August 1997
TRIANGLE
A minimally invasive transvaginal sling system that First product launched 510(k) cleared September
attaches sling material to the posterior pubic bone worldwide 1Q98 1997; CE Mark approved for
and is used in conjunction with the Company's first product September
surgical products for stress incontinence. Available 1997
in two forms (gelatin coated and uncoated) of
synthetic and two sources of allograft material.
STRAIGHT-IN
A disposable surgical tool for open or laparoscopic Worldwide launch expected 510(k) cleared October
bladder neck fixation, sling procedures and vaginal 4Q98 1997; CE Mark approved
vault prolapse surgery. March 1998
RAZ FASCIAL ANCHOR FOR STRESS INCONTINENCE
A minimally invasive, disposable soft tissue to soft Worldwide launch expected 510(k) for non-resorbable
tissue anchor fixation system for correction of 2H99 version submitted May
stress incontinence. 1998(3)
RAZ FASCIAL ANCHOR FOR VAGINAL VAULT PROLAPSE
A minimally invasive, disposable soft tissue to soft Worldwide launch expected 510(k) for non-resorbable
tissue anchor fixation system for correction of vag- 2H99 version submitted May
inal vault prolapse. 1998(3)
CLIP-IN
A miniature metal clip for joining two sutures in- Worldwide launch expected 510(k) cleared July 1998
stead of tying a knot; available as a system for 4Q98
surgeries where space for a knot or space to tie a
knot is limited.
RAMUS MALE SLING
A minimally invasive, disposable surgical system for Worldwide launch expected 510(k) submitted June 1998;
performing sling procedures in men with stress 4Q98 CE Mark approved June 1998
incontinence.
CRYO-PROST(4)
Minimally invasive cryo-technology for ablation of Preclinical 510(k) path
prostatic tissue in patients with BPH.
IN-CUFF
A permanent, implantable, remote-controlled, arti- Preclinical PMA path
ficial dynamic sphincter.
</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. '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) For a discussion of the regulatory status of the resorbable and
non-resorbable versions, see 'Business--Government Regulation.'
(4) Under joint development with Galil Medical, Ltd., an affiliate of ESC
Medical Systems, Ltd. See: 'Business--BPH Surgical Product--Cryo-Prost' and
'Certain Transactions.'
34
<PAGE>
<TABLE>
<CAPTION>
PROPOSED REGULATORY PATH
PRODUCT/DESCRIPTION PRODUCT STATUS(1) OR STATUS(2)
- ------------------------------------------------------ ------------------------- ---------------------------
<S> <C> <C>
DIAGNOSTIC/BIOFEEDBACK PRODUCTS FOR STRESS,
URGE AND OVERFLOW INCONTINENCE:
IN-BIO
A wireless pelvic floor training and biofeedback Worldwide launch expected 510(k) submitted December
transmitter to measure intra-abdominal pressure and 2H99 1997
perineal muscle contractions.
IN-PROBE(3)
A urodynamics and cystometry system for uroflowmetry Worldwide launch expected Exempt from 510(k) Noti-
(urine flow, pattern and volume) and leak point 4Q98 fication requirements
pressure.
IN-TELE
A wireless disposable transmitter that is inserted Preclinical 510(k) path
into the bladder to transmit bladder pressure to a
belt-mounted receiver.
</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. '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) 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, 166 patients
had been enrolled in this U.S. trial, of which 131 have begun treatment with
In-Flow. Of the patients who have commenced treatment with In-Flow in this
trial, approximately 63% 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, of the 24 patients
who have completed the U.S. IDE study, 19 have elected to continue with the
device after completing the study. Additionally, 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.
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<PAGE>
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.
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.
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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 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.
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(Registered)
material, an uncoated polyester material and a human allograft material,
available from two sources, 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 (non-resorbable versions), which are
pending with the FDA. See 'Business--Government Regulation.'
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.
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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 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) Notification was submitted in December 1997 and the Company
expects to launch the product worldwide during the second half of 1999. See
'Business--Government Regulation.'
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. BPH
affects approximately twenty-seven million men ages 50-90. The prevalence of BPH
in 60 year old males is greater than 50%. By age 85, the prevalence is
approximately 90%. An estimated one in every four men in the United States will
be treated for BPH by age 80. 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 300,000 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.
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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, 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 may be associated with significant post-
operative pain and debilitation (difficulty eating and delayed return to work),
and may need to be repeated two 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.
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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
PRODUCT/DESCRIPTION PRODUCT STATUS(1) OR STATUS(2)
- ------------------------------------------------------ ------------------------- ---------------------------
<S> <C> <C>
REPOSE-TONGUE
A minimally invasive, disposable surgical system for Launched worldwide 1Q98 510(k) cleared August 1997;
performing tongue stabilization procedures to treat CE Mark approved March 1998
OSA and snoring
REPOSE-HYOID
A minimally invasive, disposable surgical system for Worldwide launch expected 510(k) submitted May 1998
performing hyoid suspension or distraction to treat 1H99
OSA and snoring
CRYO-ENT
Minimally invasive cryo-technology for ablation of Preclinical 510(k) path
tonsils and soft palate in patients with sleep ap-
nea 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 United
States.
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 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.
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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 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 200 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. See
'Business--Government Regulation.'
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.
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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.
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.
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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 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 by the Company, the Company
will issue up to 35,714 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 generated from any future 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
20 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
distribution agreement with Indigo, a subsidiary of J&J, pursuant to which
Indigo will become the Company's exclusive distributor outside of the United
States of its current and future urology and gynecology products. Indigo has the
right to elect to distribute In-Fast, Straight-In and related products by giving
written notice to the Company before October 1, 1999. Prior to such notice, the
Company has retained the right, and will continue, to distribute the In-Fast,
Straight-In and related products outside the United States.
Otolaryngology Products
The Company's Influ-ENT Division has four direct sales people in the United
States in addition to regional representatives. Outside the United States, the
Company utilizes a direct sales force in certain selected countries and
independent representatives in other regions for its otolaryngology products.
The existing staff in Germany who, prior to the Company's relationship with
Indigo, were formerly engaged primarily in urology/gynecology
44
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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 United States. The distribution
agreement between the Company and Indigo provides that Indigo will become the
Company's exclusive distributor outside the United States of the Company's
cancer treatment products currently 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
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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.
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 United States 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.'
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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 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. In
particular, the Company is pursuing a U.S. patent application having claims
covering a hyoid distraction procedure. Upon receipt of such patent, the Company
will pay to B. Tucker Woodson, M.D. a royalty of 2% of the income derived from
that technology. 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,
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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-In 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 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 and its patent counsel have conducted a review of the third
party's relevant issued U.S. patents and the Company is of the opinion in
consultation with its patent counsel 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 believes in consultation with its patent
counsel 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 in consultation with
its patent counsel 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
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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 and its patent counsel have conducted
research to determine the existence of U.S. equivalents to the Spanish and other
foreign patents and the Company believes in consultation with its patent counsel
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 in
consultation with its patent counsel 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 the Company is of the opinion in
consultation with its patent counsel 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. The Company is of the opinion in
consultation with its patent counsel 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-In 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. Under the Food, Drug and Cosmetic Act, as amended, and the
regulations promulgated thereunder (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.
Pursuant to 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. Class I devices are subject to
general controls (e.g., labeling, premarket notification and adherence to the
QSReg.) and class II devices are subject to 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 ('510(k) 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 (a 'preamendment' class III device is
one that was on the market before May 28, 1976). 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,
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financial condition and results of operations. In addition, modifications or
enhancements to the Company's products that are cleared through the 510(k)
Notification 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 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) Notification 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).
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. Even after approval of a PMA, a new PMA or PMA supplement is
required in the event of a modification to the device, its labeling or its
manufacturing process affecting the safety or effectiveness of the device.
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.
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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), Clip-In, 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 submitted 510(k) Notifications for seven products: (Raz
Fascial Anchor-Stress Incontinence (resorbable and non-resorbable versions), Raz
Fascial Anchor-Vaginal Vault Prolapse (resorbable and non-resorbable versions),
In-Bio, Ramus Male Sling, and Repose-Hyoid. In July 1998, the FDA issued written
requests for additional information and clinical data about the Raz Fascial
Anchor--Stress Incontinence (resorbable and non-resorbable versions) and Raz
Fascial Anchor--Vaginal Vault Prolapse (resorbable and non-resorbable versions).
The FDA indicated that the Company has not yet identified appropriate predicate
devices that could serve as the basis for a substantial equivalence decision,
and also that the Company must either conduct certain performance testing and
generate clinical data to address certain safety concerns or justify why such
testing is not necessary. In August 1998, the FDA issued written requests for
additional information and clinical data about the Repose-Hyoid. In March 1998,
the FDA issued written requests for additional information (but not clinical
data) about the In-Bio. Currently, the Company is in the process of providing
the requested information and/or discussing with the FDA the precise nature of
the data that will be required. The Company also intends to withdraw the
previously submitted 510(k) Notifications for the Raz Fascial Anchors
(resorbable versions) pending a final agency determination regarding 510(k)
clearance for the Raz Fascial Anchors (non-resorbable versions). The Company
will likely be required to conduct further product testing, including possibly
clinical testing. There can be no assurance that the Company will resubmit
withdrawn 510(k) submissions, that the FDA will grant 510(k) clearance to these
products in a timely fashion, or at all, or that the FDA will not require these
products to go through the PMA approval process.
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 Company believes that In-Probe is
currently exempt from the 510(k) Notification requirement, and it is marketed in
the United States on that basis. However, the Company expects that a 510(k)
Notification will be required for a version of the In-Probe that 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 believes that the Tomotherapy device may be eligible for the
510(k) Notification process and intends to pursue that possibility with the FDA.
However, no assurance can be given that the FDA will not require the Tomotherapy
device to undergo the PMA approval process. Nor can assurance be given that the
FDA will not require clinical data for the device, that the FDA will approve a
clinical trial, or that a trial, if completed, will generate data adequate to
support 510(k) clearance or PMA approval. There can be no assurance that 510(k)
clearance or 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
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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
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 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 ('off label') 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 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
52
<PAGE>
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 and otolaryngological disorders. In addition, the Company has begun
research and development for cancer treatment and 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 June
30, 1998, 19 employees of the Company in Israel were involved in research and
development. Through June 30, 1998, the Company has spent approximately $9.8
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., 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.'
53
<PAGE>
EMPLOYEES
As of June 30, 1998, the Company employed 116 individuals on a full-time
basis, approximately 69 of which were located at the Company's facility in
Israel. Thirty-three of the Company's employees were engaged in manufacturing
and quality control, 19 were engaged in research and development, 44 were
involved in sales and marketing and 20 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 an approximately 18,000 square foot facility
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.'
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
54
<PAGE>
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.
<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................................... 45 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
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.
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
56
<PAGE>
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 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
57
<PAGE>
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. The
members of the audit committee will be Dr. Eckhouse, Dr. Bick and Mr. Globerman.
Prior to the consummation of the Offering, the Board of Directors will
establish 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. The
members of the compensation committee will be Dr. Eckhouse, Mr. Pell and, upon
appointment as a director, Dr. Lerner.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information for the years ended December 31, 1996 and 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 $100,000 (collectively, the 'Named Executive Officers'):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------- ------------
OTHER ANNUAL SECURITIES
SALARY COMPENSATION UNDERLYING
NAME YEAR ($) BONUS($) ($) OPTIONS(#)
- -------------------------------------------------------- ------ -------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Peter A. Bick, M.D ..................................... 1997 156,250 50,000(1) 9,858 --
President and Chief Executive Officer(2) 1996 88,303 -- -- 235,238
Mordechay Beyar, M.D. .................................. 1997 150,000 -- 35,620 --
General Manager, IMT(3) 1996 150,000 -- 38,324 --
Oren Globerman ......................................... 1997 150,000 -- 35,620 --
General Manager, IMT(3) 1996 150,000 -- 38,324 --
</TABLE>
- ------------------------
(1) This bonus was paid in 1997 for services rendered to the Company from May
1996 through May 1997.
(2) Dr. Bick joined the Company in 1996. Dr. Bick's 1996 salary does not include
$30,000 paid to Dr. Bick in 1996 for consulting services to the Company
prior to becoming President and Chief Executive Officer. See
'Management--Employment Agreements' regarding the terms of Dr. Bick's
employment agreement, including the grant of options to him.
(3) Includes amounts paid to NMB Medical Applications Ltd. ('NMB') for the
services of Dr. Beyar and Mr. Globerman. See 'Management--Employment
Agreements' and 'Certain Transactions.'
GRANTS, EXERCISES AND HOLDINGS
Option Grants. No stock options were granted during the fiscal year ended
December 31, 1997 to the Named Executive Officers.
58
<PAGE>
Option Exercises and Holdings. The following table sets forth certain
information with respect to stock option exercises during the fiscal year ended
December 31, 1997 by the Named Executive Officers and the value of stock options
held by such individuals at the end of the year.
<TABLE>
<CAPTION>
OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
------------------------------------------------------------
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(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.
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 the date hereof, 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 $8.80 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.'
59
<PAGE>
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 801,640 shares of Common Stock for
issuance pursuant to the Company's stock option plan (the '1995 Stock Option
Plan'). As of the date hereof, the Company has granted to employees and to
certain individuals who provided valuable services to the Company options to
purchase an aggregate of 801,640 shares of Common Stock at a weighted average
exercise price of $3.83 per share under the 1995 Stock Option Plan. Of these,
options to purchase 43,329 shares have been exercised and options to purchase
555,677 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 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 and retired 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
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pays $2,500 per month to Jessco for consulting services. During 1996 and 1997,
the Company paid $22,500 and $30,000, respectively, 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 4.96% 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 August 17, 1998, Indigo and the Company signed a distribution agreement,
pursuant to which Indigo will become the Company's exclusive distributor outside
the United States of the Company's current and future products, subject to
certain exceptions, in the fields of urology and gynecology and its radiotherapy
product under development. In connection with the distribution agreement, the
Company and Johnson & Johnson Development Corporation ('JJDC'), a subsidiary of
J&J, entered into an investment agreement. The investment agreement provides, in
addition to the $1 million note entered into in May 1998, that JJDC invest an
additional $6 million in the Company. In exchange for the $6 million cash
investment and the outstanding $1 million note, the Company issued a $7 million
covertible note (the "J&J Note"). The J&J Note is automatically convertible into
Common Stock upon completion of the Offering at a conversion price equal to the
price of the Shares offered hereby. In the event the initial public offering of
the Company is not completed by May 1999, the J&J Note will automatically
convert into shares of Common Stock at a price per share based on a valuation of
all the Common Stock of the Company (on a fully diluted basis) equal to $82
million. Furthermore, if within five years of such conversion the Company
consummates an initial public offering at a valuation of less than $82 million,
the Company will issue additional capital stock to JJDC so that the effective
price per share of the conversion of the J&J Note would equal the price per
share of the capital stock in such initial public offering.
For a description of certain employment agreements, see 'Management--
Employment Agreements.'
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of Common Stock as of the date hereof, 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
SHARES BENEFICIALLY OWNED(1)
BENEFICIALLY --------------------------
OWNED PRIOR TO PRIOR TO AFTER
NAME OFFERING(1) OFFERING(%) OFFERING(%)
- ---------------------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C>
Oren Globerman(2)..................................................... 1,025,142 15.27 12.18
Mordechay Beyar, M.D.(3).............................................. 831,380 12.38 9.88
Lewis C. Pell(4)...................................................... 778,761 11.60 9.26
Katsumi Oneda(5)...................................................... 623,380 9.28 7.41
Johnson & Johnson Development Corporation(6).......................... 583,333 8.69 6.93
Medtronic Asset Management, Inc.(7)................................... 333,164 4.96 3.96
Peter A. Bick, M.D.(8)................................................ 207,778 3.01 2.42
Shimon Eckhouse, Ph.D................................................. 7,429 * *
All directors and executive officers as a group (9 persons)(9)........ 3,160,985 45.43 35.51
</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 6,714,131 Shares outstanding as of the date hereof (assuming (i)
the conversion of Series A Convertible Preferred Stock into Common Stock,
(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 583,333 shares of Common Stock issuable upon
conversion of the J & J Note upon completion of the Offering at the assumed
initial offering price of $12.00 per share) and 8,414,131 Shares outstanding
after completion of the Offering. Shares of Common Stock subject to the
options currently exercisable, or exercisable within 60 days after the date
hereof, 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,
(Footnotes continued on next page)
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(Footnotes continued from previous page)
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.
(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) Johnson & Johnson Development Corporation is a wholly owned subsidiary of
Johnson & Johnson. Includes 583,333 shares of Common Stock issuable upon
completion of the Offering at the assumed initial public offering price of
$12.00 per share.
(7) Medtronic Asset Management Inc. is a wholly owned subsidiary of Medtronic,
Inc., whose address is 7000 Central Avenue N.E., Minneapolis, Minnesota
55432.
(8) Including options to purchase 189,207 shares of Common Stock exercisable
within 60 days of the date hereof. Dr. Bick's address is care of the Company
at 71 Stevenson Street, Suite 1120, San Francisco, California 94105.
(9) Includes 244,362 options exercisable within 60 days of the date hereof held
by certain directors and executive officers.
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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 8,414,131 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
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publicly held Delaware corporation from engaging in a 'business combination'
(which includes mergers, asset-sales or other 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 is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have outstanding
8,414,131 shares of Common Stock (8,669,131 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.
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 84,141 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.
Upon completion of the Offering 2,856,253 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 3,262,166 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'). A further 12,379
shares held by existing stockholders will become eligible for sale at various
times over a period of less than one year. The 583,333 shares to be issued to
JJDC upon conversion of the J&J Note will become eligible for sale pursuant to
Rule 144 one year after the completion of the Offering. Upon expiration of the
lock-up agreements, an aggregate of 2,616,725 shares will become immediately
eligible for sale without restriction pursuant to Rule 144(k) or Rule 701
(described below), and approximately 3,274,500 additional shares will be
eligible for sale subject to the timing, volume, and manner of sale restrictions
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 5,891,225 shares of Common Stock, have agreed that they will not,
directly or indirectly, offer, sell, offer to sell, contract of sale, pledge,
grant of 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 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
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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.
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.'
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.
The Company has agreed, pursuant to the Investment Agreement with JJDC, to
prepare and file under the Securities Act a registration statement covering a
proposed offer and sale of JJDC's shares of Common Stock, upon the request of
JJDC at any time beginning six months following the completion of the Offering.
In addition, the Company has agreed to notify JJDC 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 employee benefit plans, and will offer to register JJDC's shares of
Common Stock.
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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.
68
<PAGE>
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.
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.
69
<PAGE>
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.
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.
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<PAGE>
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 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.
71
<PAGE>
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
72
<PAGE>
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 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:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- -------------------------------------------------------------------------------------- ---------
<S> <C>
Prudential Securities Incorporated....................................................
Vector Securities International, Inc..................................................
Fahnestock & Co. Inc..................................................................
---------
Total................................................................................. 1,700,000
=========
</TABLE>
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 an 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 industry in general, the management of
the Company and the market prices of securities for companies in businesses
similar to that of the Company.
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<PAGE>
In connection with the Offering, certain Underwriters and selling group
members (if any) 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.
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
PricewaterhouseCoopers 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 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.
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<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.]
76
<PAGE>
INFLUENCE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
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 August , 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, of stockholders' equity
(deficit) and of 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.'
PRICEWATERHOUSECOOPERS LLP
San Jose, California
June 23, 1998, except as to Note 10 which is as of August , 1998
F-2
<PAGE>
INFLUENCE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
--------------------------- JUNE 30, JUNE 30,
1996 1997 1998 (NOTE 2)
----------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $16,747,000 $ 2,737,000 $ 819,000
Short-term investments........................... 102,000 2,459,000 203,000
Accounts receivable, net of allowance for
doubtful accounts of $0 and $37,000 at
December 31, 1996 and 1997 and $66,000 at June
30, 1998 (unaudited).......................... -- 391,000 671,000
Inventories (Note 3)............................. 244,000 918,000 1,209,000
Other current assets (Note 3).................... 224,000 964,000 685,000
----------- ------------- -------------
Total current assets.......................... 17,317,000 7,469,000 3,587,000
Property and equipment (Note 3).................... 640,000 1,252,000 1,201,000
----------- ------------- -------------
$17,957,000 $ 8,721,000 $ 4,788,000
----------- ------------- -------------
----------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................. $ 680,000 $ 619,000 $ 704,000
Accrued expenses (Note 3)........................ 513,000 1,229,000 1,676,000
----------- ------------- -------------
Total current liabilities..................... 1,193,000 1,848,000 2,380,000
----------- ------------- -------------
Note payable (Note 4).............................. -- -- 1,017,000 $ --
----------- ------------- ------------- -------------
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 June 30, 1998 (unaudited); no
shares outstanding pro forma.................. 7,000 7,000 7,000 --
Common Stock, $0.001 par value; 23,809,524 shares
authorized; 4,902,525, 5,248,070 and 5,248,070
shares issued and outstanding at December 31,
1996 and 1997 and June 30, 1998 (unaudited),
respectively; 6,215,520 shares outstanding pro
forma......................................... 4,000 4,000 4,000 5,000
Additional paid-in capital....................... 4,706,000 25,619,000 27,531,000 28,554,000
Deferred compensation............................ (283,000) (137,000) (758,000) (758,000)
Accumulated deficit.............................. (7,770,000) (18,620,000) (25,393,000) (25,393,000)
----------- ------------- ------------- -------------
Total stockholders' equity (deficit).......... (3,336,000) 6,873,000 1,391,000 $ 2,408,000
----------- ------------- ------------- -------------
-------------
$17,957,000 $ 8,721,000 $ 4,788,000
----------- ------------- -------------
----------- ------------- -------------
</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, SIX MONTHS ENDED JUNE 30,
--------------------------------------------- ----------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... $ -- $ -- $ 1,114,000 $ 154,000 $ 1,873,000
Cost of goods sold................ -- -- 2,765,000 768,000 1,293,000
------------ ------------ ------------- ------------ ------------
Gross margin...................... -- -- (1,651,000) (614,000) 580,000
------------ ------------ ------------- ------------ ------------
Operating expenses:
Research and development........ 1,250,000 3,219,000 3,155,000 1,250,000 1,913,000
Sales and marketing............. -- 667,000 3,837,000 1,897,000 3,994,000
General and administrative...... 459,000 1,769,000 2,073,000 669,000 1,469,000
------------ ------------ ------------- ------------ ------------
Total operating expenses..... 1,709,000 5,655,000 9,065,000 3,816,000 7,376,000
------------ ------------ ------------- ------------ ------------
Operating loss.................... (1,709,000) (5,655,000) (10,716,000) (4,430,000) (6,796,000)
Interest income................... 12,000 236,000 604,000 368,000 69,000
Interest expense.................. -- (354,000) (738,000) (773,000) (46,000)
------------ ------------ ------------- ------------ ------------
Net loss.......................... $ (1,697,000) $ (5,773,000) $ (10,850,000) $ (4,835,000) $ (6,773,000)
------------ ------------ ------------- ------------ ------------
------------ ------------ ------------- ------------ ------------
Basic and diluted net loss per
share (Note 2).................. $ (0.34) $ (1.16) $ (2.10) $ (0.98) $ (1.29)
------------ ------------ ------------- ------------ ------------
------------ ------------ ------------- ------------ ------------
Shares used in computing basic and
diluted net loss per share (Note
2).............................. 4,977,427 4,982,821 5,172,656 4,939,059 5,248,093
------------ ------------ ------------- ------------ ------------
------------ ------------ ------------- ------------ ------------
Unaudited pro forma basic and
diluted net loss per share (Note
2).............................. $ (1.79) $ (1.09)
------------- ------------
------------- ------------
Shares used in computing unaudited
pro forma basic and diluted net
loss per share (Note 2)......... 6,055,418 6,215,577
------------- ------------
------------- ------------
</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 DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
------- ------ --------- ------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.......... -- $ -- 5,020,144 $4,000 $ -- $ -- $ (300,000) $ (296,000)
Sale of Series A Convertible Preferred
Stock for cash of $5.00 per share... 713,000 7,000 -- -- 3,558,000 -- -- 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 -- -- 176,000
Repurchase of Common Stock for cash of
$4.04 per share..................... -- -- (148,571) -- (600,000) -- -- (600,000)
Net loss.............................. -- -- -- -- -- -- (1,697,000) (1,697,000)
------- ------ --------- ------ ----------- ------------ ------------ -----------
Balance at December 31, 1995.......... 713,000 7,000 4,871,573 4,000 3,134,000 -- (1,997,000) 1,148,000
Issuance of compensatory stock options
to employees at exercise price of
$4.04 per share..................... -- -- -- -- 610,000 (610,000) -- --
Exercise of stock options............. -- -- 30,952 -- 125,000 -- -- 125,000
Issuance of stock options in
connection with services rendered at
fair values of $9.41 to $12.79 per
option.............................. -- -- -- -- 837,000 -- -- 837,000
Amortization of deferred
compensation........................ -- -- -- -- -- 327,000 -- 327,000
Net loss.............................. -- -- -- -- -- -- (5,773,000) (5,773,000)
------- ------ --------- ------ ----------- ------------ ------------ -----------
Balance at December 31, 1996.......... 713,000 7,000 4,902,525 4,000 4,706,000 (283,000) (7,770,000) (3,336,000)
Conversion of debenture to Common
Stock at $62.55 per share........... -- -- 333,164 -- 20,838,000 -- -- 20,838,000
Issuance of stock options in
connection with services rendered at
fair values of $2.14 per option..... -- -- -- -- 101,000 (101,000) -- --
Amortization of deferred
compensation........................ -- -- -- -- -- 171,000 -- 171,000
Exercise of stock options............. -- -- 12,381 -- 50,000 -- -- 50,000
Cancellation of compensatory stock
options............................. -- -- -- -- (76,000) 76,000 -- --
Net loss.............................. -- -- -- -- -- -- (10,850,000) (10,850,000)
------- ------ --------- ------ ----------- ------------ ------------ -----------
Balance at December 31, 1997.......... 713,000 7,000 5,248,070 4,000 25,619,000 (137,000) (18,620,000) 6,873,000
Issuance of compensatory stock options
to employees at exercise prices of
$0.01 to $4.50 per share
(unaudited)......................... -- -- -- -- 1,324,000 (1,324,000) -- --
Issuance of stock options in
connection with services rendered at
fair values of $4.42 to $8.79 per
option (unaudited).................. -- -- -- -- 588,000 (588,000) -- --
Amortization of deferred compensation
(unaudited)......................... -- -- -- -- -- 1,291,000 -- 1,291,000
Net loss (unaudited).................. -- -- -- -- -- -- (6,773,000) (6,773,000)
------- ------ --------- ------ ----------- ------------ ------------ -----------
Balance at June 30, 1998
(unaudited)......................... 713,000 $7,000 5,248,070 $4,000 $27,531,000 $ (758,000) $(25,393,000) $ 1,391,000
------- ------ --------- ------ ----------- ------------ ------------ -----------
------- ------ --------- ------ ----------- ------------ ------------ -----------
</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, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ---------------------------
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) $ (4,835,000) $(6,773,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation.......................... 10,000 58,000 166,000 63,000 125,000
Interest on convertible debenture..... -- 100,000 738,000 738,000 --
Amortization of deferred
compensation........................ -- 327,000 171,000 68,000 1,291,000
Stock compensation.................... 176,000 837,000 -- -- --
Changes in assets and liabilities:
Accounts receivable................. -- -- (391,000) -- (280,000)
Inventories......................... -- (244,000) (674,000) (378,000) (291,000)
Other current assets................ (116,000) (108,000) (740,000) (277,000) 279,000
Accounts payable.................... 82,000 301,000 (61,000) (204,000) 85,000
Accrued expenses.................... 100,000 413,000 716,000 256,000 464,000
----------- ------------ ------------ ------------ -----------
Net cash used in operating
activities..................... (1,445,000) (4,089,000) (10,925,000) (4,569,000) (5,100,000)
----------- ------------ ------------ ------------ -----------
Cash flows used in investing activities:
Purchases of short-term investments..... -- (103,000) (2,357,000) (5,192,000) --
Proceeds from the sale of short-term
investments........................... -- -- -- -- 2,256,000
Purchases of property and equipment..... (146,000) (561,000) (778,000) (327,000) (74,000)
----------- ------------ ------------ ------------ -----------
Net cash provided by (used in)
investing activities........... (146,000) (664,000) (3,135,000) (5,519,000) 2,182,000
----------- ------------ ------------ ------------ -----------
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 -- -- --
Proceeds from note payable.............. -- -- -- -- 1,000,000
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 -- 1,000,000
----------- ------------ ------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents............................. 1,375,000 15,372,000 (14,010,000) (10,088,000) (1,918,000)
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 $ 6,659,000 $ 819,000
----------- ------------ ------------ ------------ -----------
----------- ------------ ------------ ------------ -----------
Supplemental disclosure of noncash
financing activities:
Conversion of convertible debenture and
accrued interest into Common Stock.... $ -- $ -- $ 20,838,000 $ 20,838,000 $ --
Supplemental cash flow disclosure:
Interest paid........................... $ -- $ 79,000 $ -- $ 32,000 $ 15,000
</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 SIX MONTHS ENDED JUNE 30, 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. Also see
Note 10--Subsequent Events.
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 at June 30, 1998 and for the six month
periods ended June 30, 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 six months ended June 30, 1998 are not necessarily
indicative of the results for the entire year.
F-7
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Foreign Currency Translation
The Company's 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.
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 $(234,000) at December 31, 1996, 1997 and June 30, 1998, respectively. Net
monetary assets (liabilities) denominated in other currencies, primarily
Deutschemarks, were $24,000, $231,000 and $(44,000) at December 31, 1996, 1997
and June 30, 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 six months ended June 30, 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 and $427,000 at December 31, 1997 and June 30,1998, respectively.
Financial Instruments
The Company accounts for its short-term investments under Statement of
Financial Accounting Standards ("SFAS") 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,
---------------------- JUNE 30,
1996 1997 1998
-------- ---------- --------
<S> <C> <C> <C>
Bank deposits.................................................... $102,000 $ 204,000 $203,000
Corporate obligations and commercial paper....................... -- 2,255,000 --
-------- ---------- --------
$102,000 $2,459,000 $203,000
-------- ---------- --------
-------- ---------- --------
</TABLE>
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
F-8
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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
loss per share is computed using the weighted average number of common shares
outstanding during the period. Diluted net 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.
F-9
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Unaudited Pro Forma Stockholders' Equity
Upon completion of the Offering, all shares of Series A Convertible
Preferred Stock and the $1.0 million note payable is convertible into 967,450
shares of Common Stock. The pro forma effect of these conversions has been
reflected in unaudited pro forma stockholders' equity in the accompanying
unaudited consolidated balance sheet at June 30, 1998.
Unaudited Pro Forma Net Loss Per Share
The computation of the pro forma basic and diluted net loss per share
includes shares of Common Stock issuable upon the conversion of the Company's
Series A Convertible Preferred Stock and upon conversion of the note payable.
The computation, using the if-converted method, assumes that the conversions
occurred on the first day of each period presented.
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. The Company accounts for stock options issued to non-employees in
accordance with the provisions of SFAS 123.
Comprehensive Net Income (Loss)
Effective January 1, 1998, the Company adopted SFAS No. 130, 'Reporting
Comprehensive Income' ('SFAS 130'). SFAS 130 establishes standards for the
reporting of comprehensive income (loss) and its components in a full set of
general-purpose financial statements. Comprehensive income (loss) is comprised
of net income (loss) and other comprehensive earnings such as foreign currency
cumulative translation adjustments and 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 ('FASB') issued SFAS
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--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Derivative Instruments and Hedging
In June 1998, the FASB issued SFAS No. 133, 'Accounting for Derivative
Instruments and Hedging Activities' ('SFAS 133'). SFAS 133 establishes
accounting and reporting standards for derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and the resulting designation. The Company will adopt SFAS 133 in the first
quarter of the fiscal year ending December 31, 2000 and does not expect such
adoption to have a material effect on its consolidated financial statements.
NOTE 3--BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Inventories consist of the following:
Raw materials........................................................... $186,000 $ 582,000 $ 730,000
Work-in-process......................................................... 23,000 66,000 161,000
Finished goods.......................................................... 35,000 270,000 318,000
-------- ---------- ----------
$244,000 $ 918,000 $1,209,000
-------- ---------- ----------
-------- ---------- ----------
Other current assets consist of the following:
Prepaid expenses........................................................ $ 86,000 $ 445,000 $ 291,000
VAT refundable.......................................................... 38,000 120,000 69,000
Prepaid taxes........................................................... 52,000 72,000 36,000
Due from employees...................................................... 23,000 150,000 201,000
Deposits................................................................ 25,000 73,000 23,000
Other................................................................... -- 104,000 65,000
-------- ---------- ----------
$224,000 $ 964,000 $ 685,000
-------- ---------- ----------
-------- ---------- ----------
Property and equipment consist of the following:
Office furniture and equipment.......................................... $185,000 $ 468,000 $ 497,000
Machinery and equipment................................................. 395,000 803,000 819,000
Motor vehicles.......................................................... 105,000 122,000 150,000
Leasehold improvements.................................................. 22,000 92,000 93,000
-------- ---------- ----------
707,000 1,485,000 1,559,000
Less accumulated depreciation........................................... (67,000) (233,000) (358,000)
-------- ---------- ----------
$640,000 $1,252,000 $1,201,000
-------- ---------- ----------
-------- ---------- ----------
Accrued expenses consist of the following:
Accrued compensation and related payroll taxes.......................... $212,000 $ 409,000 $ 614,000
Professional fees....................................................... 247,000 446,000 368,000
Clinical fees........................................................... -- 99,000 390,000
Other................................................................... 54,000 275,000 304,000
-------- ---------- ----------
$513,000 $1,229,000 $1,676,000
-------- ---------- ----------
-------- ---------- ----------
</TABLE>
NOTE 4--CONVERTIBLE DEBT
In May 1998, the Company issued a $1.0 million note payable to Johnson &
Johnson Development Corporation ('JJDC'), a subsidiary of Johnson & Johnson, in
exchange for cash. The note payable, including
F-11
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 4--CONVERTIBLE DEBENTURE--(CONTINUED)
accrued interest thereon, will automatically convert into shares of Common Stock
at the earlier of a successful initial public offering of Common Stock by the
Company or one year. The $1.0 million note accrues interest at 10% per annum and
will convert at the initial public offering price upon completion of such
offering. In the event the initial public offering is not completed by May 1999,
the note payable and accrued interest thereon will automatically convert into
shares of Common Stock after one year from issuance at a per share price equal
to $82 million divided by the number of then outstanding shares of Common Stock
and equivalents, as defined in the note.
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 United States 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:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
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)
----------- -----------
$ -- $ --
----------- -----------
----------- -----------
</TABLE>
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--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 5--INCOME TAXES--(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 and retired 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. In June
1998, the Board cancelled all remaining shares available for future grant under
the 1995 Plan.
In June 1998, the Board authorized 790,000 shares of Common Stock for
issuance pursuant to the Company's 1998 Long-Term Incentive Plan (the '1998
Plan'). Under the 1998 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.
F-13
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 6--STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
A summary of activity under the 1995 and 1998 Plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
----------- --------
<S> <C> <C>
Outstanding as of December 31, 1994......................... --
Granted................................................... 200,277 $ 4.04
-----------
Outstanding as of December 31, 1995......................... 200,277 4.04
Granted................................................... 424,047 4.81
Exercised................................................. (30,952) 4.04
Canceled.................................................. (16,714) 4.04
-----------
Outstanding as of December 31, 1996......................... 576,658 4.61
Granted................................................... 300,387 13.60
Exercised................................................. (12,381) 4.04
Canceled.................................................. (74,286) 12.66
-----------
Outstanding as of December 31, 1997......................... 790,378 7.28
Granted................................................... 687,048 6.52
Canceled.................................................. 328,615 11.56
-----------
Outstanding as of June 30, 1998............................. 1,148,811 5.60
-----------
-----------
</TABLE>
At December 31, 1996 and 1997 and June 30, 1998, 323,070, 427,287, and
673,379 options with weighted average exercise prices of $5.05, $5.29 and $4.49,
respectively, were exercisable.
The following table summarizes information about stock options granted
under the 1995 and 1998 Plans for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- --------------------
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 $ 8.80 $ 4.42
Options granted below fair value..... 4.70 4.31 -- -- 3.21 6.62
</TABLE>
The following table summarizes information about stock options outstanding
and vested under the 1995 and 1998 Plans:
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------------------------
WEIGHTED
AVERAGE
REMAINING
NUMBER NUMBER CONTRACTUAL
EXERCISE PRICES OUTSTANDING EXERCISABLE LIFE
- ---------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 0.01.......................................................... 104,763 94,842 9.98 years
$4.04-$5.67..................................................... 632,499 449,700 8.22 years
$8.08-$8.80..................................................... 411,549 128,837 9.90 years
----------- -----------
1,148,811 673,379
----------- -----------
----------- -----------
</TABLE>
F-14
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 6--STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
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. During the six months ended June 30,
1998, the Company granted options to employees to purchase shares of Common
Stock at a weighted average exercise price of $3.39 per share, for which
deferred compensation of $1,324,000 was recorded. Total stock compensation
expense for the years ended December 31, 1995, 1996, 1997, and the six months
ended June 30, 1998, was $176,000, $1,164,000, $171,000, and $1,291,000,
respectively. Deferred compensation is amortized over the vesting period of the
related options.
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. During 1997, the Company issued stock options to
consultants to purchase 46,825 shares of Common Stock in exchange for services.
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%, and an expected life of three years. The Company recorded
$101,000 of deferred compensation in 1997, of which $53,000 was recognized as
compensation expense in 1997. For the six months ended June 30, 1998 the Company
issued stock options to consultants to purchase 75,190 shares of Common Stock in
exchange for services. Significant assumptions used in valuing these options
include: dividend yield of 0%; risk free interest rate of 5.45%; volatility of
50%; an expected life of five years. The Company recorded $588,000 of deferred
compensation and recognized $297,000 of compensation expense in connection with
these options for the six months ended June 30, 1998.
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>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net loss:
As reported................... $1,697,000 $5,773,000 $10,850,000 $4,835,000 $6,773,000
Pro forma..................... 1,697,000 6,077,000 11,151,000 5,123,000 7,906,000
Loss per share:
As reported................... (0.34) (1.16) (2.10) (0.98) (1.29)
Pro forma..................... (0.34) (1.22) (2.16) (1.04) (1.51)
</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 six months ended June 30, 1997 and 1998, respectively; and an
expected option term of three years for all periods presented.
F-15
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 6--STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
The Company has committed to grant in the future options to purchase
approximately 32,255 shares of Common Stock to employees and consultants. The
ultimate grant date, and associated measurement of potential compensation
expense, will occur once the specific number of shares and exercise prices are
determined.
Because the determination of fair value of all options granted after such
time as 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 $183,000 under the
employment agreements for the year ended December 31, 1997 and the six months
ended June 30, 1998, respectively. Included in accrued expenses at December 31,
1996 and 1997 and at June 30, 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 six months ended June 30, 1998,
respectively.
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., an affiliate 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.
F-16
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
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:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------------------------------------------
<S> <C>
1998........................................................ $ 401,000
1999........................................................ 352,000
2000........................................................ 325,000
2001........................................................ 325,000
2002 and beyond............................................. 209,000
----------
$1,612,000
----------
----------
</TABLE>
Rent expense totaled approximately $34,000, $66,000, $145,000, $37,000 and
$180,000 for the years ended December 31, 1995, 1996, 1997 and the six months
ended June 30, 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.
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 was granted a license to certain patented
technology, agreed 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 licensed technology. Upon completion of certain performance
milestones by the Company, the Company will issue up to 35,714 shares of its
Common Stock to TTI. In the event the Company realizes any revenues resulting
from future products developed pursuant to the TTI Agreement, the Company is
obligated to pay the greater of $200,000 or a royalty of 8% on such revenues
until the Company
F-17
<PAGE>
INFLUENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 8--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
has paid cumulative royalties of $2,000,000. Thereafter, the Company is
obligated to pay TTI a royalty of 5% on revenues resulting from future
products developed pursuant to the TTI 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
STATES ISRAEL GERMANY ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1995
Operating losses................ $ (353,000) $ (1,356,000) $ -- $ -- $ (1,709,000)
Total assets.................... 2,850,000 247,000 -- (1,470,000) 1,627,000
1996
Operating losses................ (654,000) (4,888,000) (113,000) -- (5,655,000)
Total assets.................... 21,644,000 1,347,000 120,000 (5,154,000) 17,957,000
1997
Net sales....................... -- 1,114,000 -- -- 1,114,000
Operating losses................ (26,000) (10,634,000) (21,000) (35,000) (10,716,000)
Total assets.................... 24,765,000 4,352,000 308,000 (20,704,000) 8,721,000
</TABLE>
For the year ended December 31, 1997, approximately 61% of the Company's
net sales were derived from exports to Europe. For the six months ended June 30,
1997 and 1998, approximately 100% and 29% of the Company's net sales were
derived from exports to Europe, respectively.
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
effective immediately prior to completion of the initial public offering. All
share and per share amounts in the accompanying consolidated financial
statements have been retroactively adjusted to reflect the reverse stock split.
On August 17, 1998, the Company signed a distribution agreement with Indigo
Medical, Incorporated ('Indigo'), a subsidiary of Johnson & Johnson, pursuant to
which Indigo will become the Company's exclusive distributor outside the United
States of the Company's current and future products in the fields of urology and
gynocology and its radiotherapy product under development. In connection with
this distribution agreement, the Company and Johnson & Johnson Development
Corporation ('JJDC'), a subsidiary of J&J, entered into an investment agreement.
The investment agreement provides, in addition to the $1 million note entered
into in June 1998, that JJDC invest an additional $6 million in the Company. In
exchange for the $6.0 million cash investment and the outstanding $1.0 million
note, the Company entered into a new $7.0 million convertible note (the 'J&J
Note'). The J&J Note is automatically convertible into shares of the Company's
Common Stock at the earlier of completing an initial public offering of Common
Stock or May 1999. The J&J Note accrues interest at 10% per annum and will
convert at the initial public offering price upon completion of such offering.
In the event the initial public offering is not completed by May 1999 the J&J
Note and accrued interest thereon will automatically convert into shares of
Common Stock at a per share price equal to $82 million divided by the number of
then outstanding shares of Common Stock and equivalents, as defined
F-18
<PAGE>
-------------------------------------------------------
-------------------------------------------------------
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 7
The Company...................................... 20
Use Of Proceeds.................................. 20
Dividend Policy.................................. 20
Capitalization................................... 21
Dilution......................................... 22
Selected Consolidated Financial Data............. 23
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations............ 24
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
</TABLE>
1,700,000 Shares
[INFLUENCE LOGO]
Common Stock
-----------------
PROSPECTUS
-----------------
PRUDENTIAL SECURITIES INCORPORATED
VECTOR SECURITIES INTERNATIONAL, INC.
FAHNESTOCK & 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'):
<TABLE>
<S> <C>
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
--------
--------
</TABLE>
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.
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
II-1
<PAGE>
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 1,224,395 shares
of Common Stock. In 1995, the Company granted options to purchase
an aggregate of 72,990 shares of Common Stock to employees outside
the United States, options to purchase 44,557 shares of Common
Stock to non-employees outside the United States, and options to
purchase 68,097 shares of Common Stock to three non-employees in
the United States. 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
292,188 shares of Common Stock to employees, of which three
resided in the United States, and options to purchase 27,240
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
719,303 shares of Common Stock, of which 201,455 were to 32
employees in the United States. In addition, in 1998 the Company
granted options to purchase an aggregate of 192,849 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
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
II-2
<PAGE>
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 '$1 Million 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, Incorporated
('Indigo'). On August 17, 1998, the Company entered into an
investment agreement with JJDC pursuant to which the Company
issued to JJDC a $7 million convertible note (the 'J&J Note'), in
exchange for JJDC's investment of an additional $6 million in the
Company and the contribution by JJDC of the $1 Million Note. The
J&J 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
10.11 Distribution Agreement dated August 17, 1998 among the Registrant, Influence Medical Technologies Ltd.
and Indigo Medical, Incorporated**
10.12 Investment Agreement dated August 17, 1998 between the Registrant and Johnson & Johnson Development
Corporation**
10.13 Agreement in Principle dated March 25, 1998 between Influence Medical Technologies, Ltd. and Galil
Medical Ltd. (English Translation)
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*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------------------
<S> <C>
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 PricewaterhouseCoopers 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
Schedule II--Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
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. 3
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in New York, New York on the 20th day of August 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 August 20, 1998
- ------------------------------------------ Director
Lewis C. Pell
* Vice Chairman of the Board of Directors and August 20, 1998
- ------------------------------------------ Director
Mordechay Beyar, M.D.
* Vice Chairman of the Board of Directors and August 20, 1998
- ------------------------------------------ Director
Oren Globerman
/s/ PETER A. BICK, M.D. President, Chief Executive Officer and August 20, 1998
- ------------------------------------------ Director (Principal Executive Officer)
Peter A. Bick, M.D.
Director
- ------------------------------------------
Shimon Eckhouse
* Chief Financial Officer, Vice President, August 20, 1998
- ------------------------------------------ Finance, and Treasurer (Principal Accounting
Howard Machek and Financial Officer)
*By: /s/ PETER A. BICK, M.D August 20, 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 10.1
Influence, Inc.
40 Ramland Road South
Suite 18
Orangeburg, N.Y. 10962
April 17, 1995
Dimotech Ltd.
c/o The Technion
Tel Aviv, Israel
Re: Stapler Patent Appl. No. 103737
Gentlemen:
The purpose of this letter is to confirm our understanding regarding the license
(the "License") by Dimotech Ltd. ("Dimotech") to INFLUENCE, Inc. or its assigns
("Influence") of all of the know-how, technology and intellectual property (the
"Technology") associated with the "stapler" described in, and including, Israel
patent number 103,737 (the "Patent"), in order to develop, manufacture and
market products utilizing the Technology, portions thereof or improvements
therefrom.
You represent that Dimotech owns, and has the unqualified right and power to
create, convey and grant the License to Influence of, all right, title and
interest in and to the Technology.
Effective from and after the date hereof, Dimotech hereby unconditionally and
irrevocably creates, conveys and grants the License to Influence of the
Technology. The License is exclusive to Influence, is worldwide, is freely
transferable by Influence and shall be for a period coterminous with the Patent.
For and in consideration of the License, Influence agrees to pay to Dimotech the
following sums:
(x) $400,000 U.S. (the "Initial Payment"), representing a
prepayment of accrued royalties for its affiliate's
utilization of the Technology prior to the date hereof,
subject to reduction for early payment as hereinafter
provided; and
(y) a royalty (the "Royalty") in the amount of 0.5% of the total
income of Influence after the date hereof derived from
direct or indirect (e.g. third party, subsidiary, affiliate)
exploitation of the Patent.
The Initial Payment shall be payable as follows:
<PAGE>
(a) $50,000 upon the execution of this letter by Dimotech; and
(b) $350,000 within 6 months after the execution of this letter
by Dimotech. Within 30 days after execution of this letter
by Dimotech, Influence and Dimotech will discuss whether
there are mutually acceptable terms for the earlier payment
of this (or a discounted) sum.
The Royalty shall be payable, if at all, in respect of a fiscal year, within 165
days after the end of such fiscal year of Influence, based upon the audited
financial statements of Influence for such fiscal year, which shall include a
calculation of the Royalty payment for such fiscal year.
In addition to the Initial Payment and the Royalty, Influence agrees to pay to
Dimotech, together with the Initial Payment, a sum of up to $2000 (subject to
reasonable verification) to reimburse Dimotech and the Technion for expenses
incurred to date in connection with the filing of the Patent. Dimotech agrees,
for itself and the Technion, to cooperate with Influence in all reasonable
respects regarding the issuance of the Patent and the process attendant to such
issuance. Influence agrees to pay the expenses to be incurred after the date
hereof (by Influence, or by Dimotech or the Technion in connection with
cooperating with Influence) in connection with the issuance of the Patent or the
process attendant thereto. Influence agrees to pursue reasonably the issuance of
the Patent.
If the foregoing correctly reflects your understanding of our agreement
respecting the License, the Technology, the Initial Payment and the Royalty,
please indicate your agreement to the same by signing below where indicated and
returning a signed copy of this letter to Influence.
Sincerely, Acknowledged and Agreed:
Dimotech Ltd.
/s/ Andrew M. Smith By: /s/ Yehuda Dvir
- ------------------- ---------------
Andrew M. Smith Yehuda Dvir
President General Manager
Dated: July 24, 1995
Dimotech Ltd
<PAGE>
Influence, Inc.
40 Ramland Road South
Suite 18
Orangeburg, N.Y. 10962
Tel. 914-365-3356/Fax. 914-365-3402
E-Mail: 102553,3544 @CompuServe.Com
Dimotech Ltd.
c/o The Technion
Tel Aviv, Israel
Re: Stapler Technology
- -----------------------
Gentlemen:
Reference is made to our license agreement dated April 17, 1995, regarding the
referenced technology (the "License"). The purpose of this letter is to clarify
the term of the License. It being our joint intention that the term of the
License should be coterminous with patents issued and which may be issued (in
Israel or elsewhere) on the technology, we ask you to sign below where
indicated, confirming that this is the case, and that the License is clarified
to this effect.
Sincerely, Acknowledged and Agreed:
Dimotech Ltd.
/s/ Andrew M. Smith
- -------------------
Andrew M. Smith By: /s/ Ami Lowenstein /s/ Shuli Schenkler
Vice President - Operations ------------------ -------------------
Name: A. Lowenstein S. Schenkler
------------- ------------
Title: General Manager Financial Manager
--------------- -----------------
Dated: 3-3-96
------
<PAGE>
DIMOTECH Ltd.
at the TECHNION
A Holding Company for Start-Up Industries
Influence Inc.
40 Ramland Road South
Suite 18
Orangeburg
New York 10962
USA
June 13, 1995
Dear Sirs,
Dimotech, Ltd. agrees not to [and will not permit others to] commercialize, use,
or otherwise implement the Auxiliary Intra-Urethral Magnetic Valve for Persons
Suffering from Urinary Incontinence - Israeli Patent No. 089297/US Patent No.
5,004,454, other than according to the written instructions of Dr. Mordechai
Beyar. At your request, and expense, Dimotech will authorize you to take all
reasonable and appropriate action to enforce the subject patent, and will
cooperate with you in all reasonable respects regarding such enforcement.
Yours sincerely,
Yehuda Dvir
General Manager
<PAGE>
EXHIBIT 10.8
INFLUENCE, INC.
1998 LONG-TERM INCENTIVE PLAN
1. Definitions. In this Plan, except where the context otherwise indicates,
the following definitions shall apply:
1.1. "Agreement" means a written agreement implementing an Award.
1.2. "Award" means a grant of an Option or Right or an award of
Restricted Stock or Incentive Shares.
1.3. "Board" means the Board of Directors of the Company.
1.4. "Code" means the Internal Revenue Code of 1986, as amended.
1.5. "Committee" means a committee or subcommittee of the Board
appointed by the Board to administer this Plan and programs hereunder. The
Committee may, in its discretion, appoint a subcommittee to administer the
Plan with respect to specific Awards hereunder.
1.6. "Common Stock" means the common stock, par value $.001 per share,
of the Company.
1.7. "Company" means Influence, Inc.
1.8. "Date of Exercise" means the date on which the Company receives
notice of the exercise of an Option in accordance with the terms of Section
8.1.
1.9. "Date of Grant" means the date on which an Option or Right is
granted or Restricted Stock or Incentive Shares are awarded under this
Plan.
1.10. "Director" means a member of the Board of Directors of the
Company or any Subsidiary.
1.11. "Employee" means any person determined by the Committee to be an
employee of the Company or a Subsidiary, including an Employee Director,
consultant or any person who has been hired to be an employee of the
Company or a Subsidiary.
1.12. "Employee Director" means a Director who is also an Employee.
1.13. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.14. "Fair Market Value" means an amount equal to the last sale price
for a Share on the Nasdaq National Market as reported by such source as the
Committee may select, or, if such price quotations of the Common Stock are
not then reported, then the fair market value of
<PAGE>
a Share as determined by the Committee pursuant to a reasonable method
adopted in good faith for such purpose.
1.15. "Grantee" means an Employee or Director to whom Restricted Stock
has been awarded pursuant to Section 9 or Incentive Shares have been
awarded pursuant to Section 10.
1.16. "Incentive Shares" means an award providing for the contingent
grant of Shares pursuant to the provisions of Section 10.
1.17. "Incentive Stock Option" means an Option granted under this Plan
that the Company designates as an incentive stock option under Section 422
of the Code in the Agreement granting the Option.
1.18. "Nonstatutory Stock Option" means an Option granted under this
Plan that is not an Incentive Stock Option.
1.19. "Option" means an option to purchase Shares granted under this
Plan in accordance with the terms of Section 6.
1.20. "Option Period" means the period during which an Option may be
exercised.
1.21. "Option Price" means the price per Share at which an Option may
be exercised. Subject to the terms of the Plan, the Option Price shall be
determined by the Committee; provided, however, that in no event shall the
Option Price be less than the greater of 25% of the Fair Market Value as of
the Date of Grant or the par value of the Common Stock.
1.22. "Optionee" means a Director, Employee, or Employee Director to
whom an Option or Right has been granted.
1.23. "Performance Goals" means performance goals established by the
Committee which may be based on earnings or earnings growth, sales, return
on assets, equity or investment, regulatory compliance, satisfactory
internal or external audits, improvement of financial ratings, achievement
of balance sheet or income statement objectives, or any other objective
goals established by the Committee, and may be absolute in their terms or
measured against or in relationship to other companies comparably,
similarly or otherwise situated. Such performance standards may be
particular to an employee or the department, branch, Subsidiary or other
division in which he or she works, or may be based on the performance of
the Company generally, and may cover such period as may be specified by the
Committee.
1.24. "Plan" means the Influence, Inc. 1998 Long-Term Incentive Plan,
as amended from time to time.
1.25. "Related Option" means the Option in connection with which, or
by amendment to which, a specified Right is granted.
-2-
<PAGE>
1.26. "Related Right" means the Right granted in connection with, or
by amendment to, a specified Option.
1.27. "Restricted Stock" means Shares awarded under the Plan pursuant
to the provisions of Section 9.
1.28. "Right" means a stock appreciation right granted under the Plan
in accordance with the terms of Section 7.
1.29. "Right Period" means the period during which a Right may be
exercised.
1.30. "Share" means a share of Common Stock.
1.31. "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.
1.32. "Ten-Percent Stockholder" means an Optionee who (applying the
rules of Section 424(d) of the Code) owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or a
Subsidiary.
2. Purpose. This Plan is intended to assist the Company and its
Subsidiaries in attracting and retaining Directors, Employees and Employee
Directors of outstanding ability and to promote the identification of their
interests with those of the stockholders of the Company.
3. Administration. The Committee shall administer this Plan and shall have
plenary authority, in its discretion, to award Options, Rights, Restricted Stock
and Incentive Shares to Directors, Employees and Employee Directors, subject to
the provisions of this Plan. The Committee shall have plenary authority and
discretion, subject to the provisions of this Plan, to determine the Directors,
Employees or Employee Directors to whom Options or Rights shall be granted and
to whom Restricted Stock or Incentive Shares shall be awarded, the terms (which
terms need not be identical) of all Awards to Directors, Employees and Employee
Directors, including without limitation the Option Price of Options, the time or
times at which Awards are made, the number of Shares covered by Awards, whether
an Option shall be an Incentive Stock Option or a Nonstatutory Stock Option, any
exceptions to non-transferability, any Performance Goals applicable to Awards,
any provisions relating to vesting, any circumstances in which the Options would
terminate, the period during which Options and Rights may be exercised, and the
period during which Restricted Stock shall be subject to restrictions. In making
these determinations, the Committee may take into account the nature of the
services rendered or to be rendered by the Award recipients, their present and
potential contributions to the success of the Company and its Subsidiaries, and
such other factors as the Committee in its discretion shall deem relevant.
Subject to the provisions of this Plan, the Committee shall have plenary
authority to interpret this Plan, prescribe, amend and rescind rules and
regulations relating to it, and make all other determinations deemed necessary
or advisable for the administration of this Plan. The determinations of the
Committee on the matters referred to in this Section 3 shall be binding and
final. Notwithstanding the provisions of this Section 3, the Chief Executive
Officer of the Company shall have the power to administer this Plan and have the
full authority
-3-
<PAGE>
of the Committee hereunder with respect to Awards to Employees who are not
subject to the requirements of Section 16(a) of the Exchange Act.
4. Eligibility. Options, Rights, Restricted Stock and Incentive Shares may
be granted or awarded only to Employees and Directors, provided, however, that
Directors, other than Employee Directors, may not be granted Incentive Stock
Options. A Director, Employee or Employee Director who has been granted an
Option or Right or awarded Restricted Stock or Incentive Shares may be granted
additional Options and Rights or awarded additional shares of Restricted Stock
or Incentive Shares.
5. Stock Subject to Plan.
5.1. Subject to adjustment as provided in Section 11, the maximum
number of Shares that may be issued under this Plan is 790,000 Shares.
5.2. If an Option or Right expires or terminates for any reason (other
than termination by virtue of the exercise of a Related Option or Related
Right, as the case may be) without having been fully exercised, if Shares
of Restricted Stock are forfeited or if Shares covered by an Incentive
Share Award are not issued or are forfeited, the unissued or forfeited
Shares which had been subject to the Award shall become available for the
grant of additional Awards.
5.3. Upon exercise of a Right (regardless of whether the Right is
settled in cash or Shares), the number of Shares with respect to which the
Right is exercised shall be charged against the number of Shares issuable
under the Plan and shall not become available for the grant of other
Awards.
-4-
<PAGE>
6. Options.
6.1. Options granted under this Plan to Employees shall be either
Incentive Stock Options or Nonstatutory Stock Options, as designated by the
Committee. Each Option granted under this Plan shall be clearly identified
either as a Nonstatutory Stock Option or an Incentive Stock Option and
shall be evidenced by an Agreement that specifies the terms and conditions
of the grant. Options shall be subject to the terms and conditions set
forth in this Section 6 and such other terms and conditions not
inconsistent with this Plan as the Committee may specify.
6.2. 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 (five years in the case of an
Incentive Stock Option granted to a Ten-Percent Stockholder) from its Date
of Grant.
6.3. The Committee, in its discretion, may provide in an Agreement for
the right of the Optionee to surrender to the Company an Option (or a
portion thereof) that has become exercisable and to receive upon such
surrender, without any payment to the Company (other than required tax
withholding amounts) that number of Shares (equal to the highest whole
number of Shares) having an aggregate fair market value as of the date of
surrender equal to that number of Shares subject to the Option (or portion
thereof) being surrendered multiplied by an amount equal to the excess of
(i) the Fair Market Value on the date of surrender over (ii) the Option
Price, plus an amount of cash equal to the fair market value of any
fractional Share to which the Optionee would be entitled but for the
parenthetical above relating to whole number of Shares. Any such surrender
shall be treated as the exercise of the Option (or portion thereof).
7. Rights.
7.1. Rights granted under the Plan shall be evidenced by an Agreement
specifying the terms and conditions of the grant.
7.2. A Right may be granted under the Plan:
(a) in connection with, and at the same time as, the grant of an
Option under the Plan;
(b) by amendment of an outstanding Option granted under the Plan;
or
(c) independently of any Option granted under the Plan.
7.3. A Right granted under Section 7.2(a) or Section 7.2(b) of this
Plan is a Related Right. A Related Right may, in the Committee's
discretion, apply to all or any portion of the Shares subject to the
Related Option.
7.4. A Right may be exercised in whole or in part as provided in the
applicable Agreement, and, subject to the terms of the Agreement, entitles
an Optionee to receive, without payment to the Company (but subject to
required tax withholding), either cash or that number
-5-
<PAGE>
of Shares (equal to the highest whole number of Shares), or a combination
thereof, in an amount or having a fair market value determined as of the
Date of Exercise not to exceed the number of Shares subject to the portion
of the Right exercised multiplied by an amount equal to the excess of (i)
the Fair Market Value on the Date of Exercise of the Right over (ii) either
(A) the Fair Market Value on the Date of Grant of the Right if it is not a
Related Right, or (B) the Option Price as provided in the Related Option if
the Right is a Related Right.
7.5. The Right Period shall be determined by the Committee and
specifically set forth in the Agreement, subject to the following
conditions:
(a) a Right will expire no later than the earlier of (1) ten
years from the Date of Grant, or (2) in the case of a Related Right,
the expiration of the Related Option;
(b) a Right may be exercised only when the Fair Market Value on
the Date of Exercise exceeds either (1) the Fair Market Value on the
Date of Grant of the Right if it is not a Related Right, or (2) the
Option Price of the Related Option if the Right is a Related Right;
and
(c) a Right that is a Related Right to an Incentive Stock Option
may be exercised only when and to the extent the Related Option is
exercisable.
7.6. The exercise, in whole or in part, of a Related Right shall cause
a reduction in the number of Shares subject to the Related Option equal to
the number of Shares with respect to which the Related Right is exercised.
Similarly, the exercise, in whole or in part, of a Related Option shall
cause a reduction in the number of Shares subject to the Related Right
equal to the number of Shares with respect to which the Related Option is
exercised.
8. Exercise of Options and Rights.
8.1. An Option or Right may, subject to the terms of the applicable
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, in the case of an Option, by
(a) a full payment for the Shares with respect to which the Option is
exercised or (b) irrevocable instructions to a broker to deliver promptly
to the Company cash equal to the exercise price of the option. To the
extent provided in the applicable Option Agreement, payment may be made in
whole or in part by delivery (including constructive delivery) of Shares
valued at Fair Market Value on the Date of Exercise or by delivery of a
promissory note as provided in Section 8.2 hereof.
8.2. To the extent provided in an Agreement and permitted by
applicable law, the Committee may accept as partial payment of the Option
Price a promissory note executed by the Optionee evidencing his or her
obligation to make future cash payment thereof. Promissory notes made
pursuant to this Section 8.2 shall be payable upon such terms as may be
determined by the Committee, shall be secured by a pledge of the Shares
received upon exercise of the Option, or other securities the Committee may
deem to be acceptable for such purposes, and shall bear interest at a rate
fixed by the Committee.
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<PAGE>
8.3. Options and Rights made under this Plan shall not be transferable
except by will, the laws of descent and distribution, or as provided by the
Committee in an Agreement.
9. Restricted Stock Awards.
9.1. Restricted Stock awards under this Plan shall consist of Shares
that are restricted against transfer, subject to forfeiture, and subject to
such other terms and conditions as may be determined by the Committee. Such
terms and conditions may provide, in the discretion of the Committee, for
the lapse of forfeiture and transfer restrictions to be contingent upon the
achievement of one or more specified Performance Goals.
9.2. Restricted Stock awards under this Plan shall be evidenced by
Agreements specifying the terms and conditions of the Award. Each Agreement
evidencing an Award of Restricted Stock shall contain the following:
(a) prohibitions against the sale, assignment, transfer,
exchange, pledge, hypothecation, or other encumbrance of (i) the
Shares awarded as Restricted Stock under this Plan, (ii) the right to
vote the Shares, and (iii) 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 the other rights of
a stockholder including without limitation the right to receive
dividends and the right to vote the Shares;
(b) 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. 1998 Long-Term Incentive
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 this Plan and the Agreement, a copy of each
of which is on file in the office of the Secretary of
Influence, Inc."; and
(c) the terms and conditions upon which any restrictions
applicable to Shares of Restricted Stock shall lapse and new
certificates free of the foregoing legend shall be issued to the
Grantee or his or her legal representative.
9.3. The Committee may include in any Agreement awarding Restricted
Stock 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.
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<PAGE>
10. Incentive Share Awards. Incentive Shares awarded under this Plan shall
be evidenced by an Agreement specifying the terms and conditions of such Award.
Incentive Share Awards shall provide for the issuance of Shares to a Grantee at
such times and subject to such terms and conditions as the Committee shall deem
appropriate, including without limitation terms that condition the issuance of
Shares upon the achievement of Performance Goals.
11. Capital Adjustments. In the event of any change in the outstanding
Common Stock by reason of any stock dividend, split-up, recapitalization,
reclassification, combination or exchange of shares, merger, consolidation or
liquidation and the like, the Committee may, in its discretion, provide for a
substitution for or adjustment in (i) the number and class of Shares subject to
outstanding Options, Rights and Awards of Restricted Stock or Incentive Shares,
(ii) the Option Price of Options and the base price upon which payments under
Rights that are not Related Rights are determined, and (iii) the aggregate
number and class of Shares for which Awards thereafter may be made under this
Plan.
12. Termination or Amendment. The Board may amend, alter or terminate this
Plan in any respect at any time; provided, however, that, after this Plan has
been approved by the stockholders of the Company, no amendment, alteration or
termination of this Plan shall be made by the Board without approval of (i) the
Company's stockholders to the extent stockholder approval of the amendment is
required by applicable law or regulations or the requirements of the principal
exchange or interdealer quotation system on which the Common Stock is listed or
quoted, and (ii) each affected Optionee and Grantee if such amendment,
alteration or termination would adversely affect his or her rights or
obligations under any Award made prior to the date of such amendment, alteration
or termination.
13. Modification, Extension, Renewal, Substitution.
13.1. Subject to the terms and conditions of this Plan, the Committee
may modify, extend or renew outstanding Options and Rights, or accept the
surrender of outstanding Options and Rights granted under this Plan or options
and stock appreciation rights granted under any other plan of the Company or a
Subsidiary (to the extent not theretofore exercised), and authorize the granting
of new Options and Rights pursuant to this Plan in substitution therefor. Any
substituted Options or Rights may specify a lower exercise price than the
surrendered options and stock appreciation rights, a longer term than the
surrendered options and stock appreciation rights, or have any other provisions
that are authorized by this Plan. Subject to the terms and conditions of this
Plan, the Committee may modify the terms of any outstanding Awards of Restricted
Stock or Incentive Shares. Notwithstanding the foregoing, however, no
modification of an Award shall, without the consent of the Optionee or Grantee,
alter or impair any of the Optionee's or Grantee's rights or obligations under
such Award.
13.2. Anything contained herein to the contrary notwithstanding,
Options and Rights, Restricted Stock and Incentive Shares may, at the discretion
of the Committee, be granted under this Plan in substitution for options to
purchase shares of capital stock of another corporation which is merged into,
consolidated with, or all or a substantial portion of the property or stock of
which is acquired by, the Company or one of its Subsidiaries. The terms and
conditions of the substitute Options, Rights, Restricted Stock and Incentive
Shares so
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<PAGE>
granted may vary from the terms and conditions set forth in this Plan to such
extent as the Committee may deem appropriate in order to conform, in whole or
part, to the provisions of the Awards in substitution for which they are
granted.
14. Effectiveness of this Plan. This Plan and any amendments hereto
requiring stockholder approval pursuant to Section 12 are subject to approval by
vote of the stockholders of the Company at the next annual or special meeting of
stockholders following adoption by the Board. Subject to such stockholder
approval, this Plan and any amendments hereto are effective on the date on which
they are adopted by the Board, except as otherwise specified by the Board.
Options, Rights, Restricted Stock and Incentive Shares may be granted or awarded
prior to stockholder approval of this Plan and the date on which any such
Option, Right, Restricted Stock or Incentive Share is granted or awarded shall
be the Date of Grant for all purposes, provided that (i) no such Option, Right,
Restricted Stock or Incentive Shares may be exercised, vest or be paid prior to
such stockholder approval, and (ii) any such Award shall be void ab initio if
such stockholder approval is not obtained.
15. Withholding. The Company's obligation to deliver Shares or pay any
amount pursuant to the terms of any Award hereunder shall be subject to
satisfaction of applicable federal, state and local tax withholding
requirements. To the extent provided in the applicable Agreement and in
accordance with rules prescribed by the Committee, an Optionee or Grantee may
satisfy any such withholding tax obligation by any of the following means or by
a combination of such means: (i) tendering a cash payment, (ii) authorizing the
Company to withhold Shares otherwise issuable to the Optionee or Grantee, or
(iii) delivering to the Company already-owned and unencumbered Shares.
16. Term of this Plan. Unless sooner terminated by the Board pursuant to
Section 11, this Plan shall terminate on June 30, 2008, and no Awards may be
made after such date. The termination of this Plan shall not affect the validity
of any Award outstanding on the date of termination.
17. 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 all
reasonable expenses, including attorneys' 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 this
Plan or any Option, Right, Restricted Stock or Incentive Shares 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 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.
18. General Provisions.
18.1. The establishment of this Plan shall not confer upon any
Director, Employee or Employee Director any legal or equitable right against the
Company, any Subsidiary or the Committee, except as expressly provided in this
Plan.
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<PAGE>
18.2. This Plan does not constitute inducement or consideration for
the employment of any Employee or the service of any Director or Employee
Director, nor is it a contract between the Company or any Subsidiary and
any Director, Employee or Employee Director. Participation in this Plan
shall not give a Director, Employee or Employee Director any right to be
retained in the service of the Company or any Subsidiary.
18.3. 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 Subsidiaries 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 plans or to impose any requirement
of stockholder approval upon the same.
18.4. The interests of any Director, Employee or Employee Director
under this Plan are not subject to the claims of creditors and may not, in
any way, be assigned, alienated or encumbered except as provided in an
Agreement.
18.5. This Plan shall be governed, construed and administered in
accordance with the laws of the State of Delaware.
18.6. The Committee may require each person acquiring Shares pursuant
to Awards hereunder to represent to and agree with the Company in writing
that such person is acquiring the Shares without a view to distribution
thereof. The certificates for such Shares may include any legend that the
Committee deems appropriate to reflect any restrictions on transfer. All
certificates for Shares issued pursuant to this Plan shall be subject to
such stock transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the
Common Stock is then listed or interdealer quotation system upon which the
Common Stock is then quoted, and any applicable federal or state securities
laws. The Committee may place a legend or legends on any such certificates
to make appropriate reference to such restrictions.
18.7. The Company shall not be required to issue any certificate or
certificates for Shares with respect to Awards under this Plan, or record
any person as a holder of record of such Shares, without obtaining, to the
complete satisfaction of the Committee, the approval of all regulatory
bodies deemed necessary by the Committee, and without complying to the
Board's or Committee's complete satisfaction, with all rules and
regulations, under federal, state or local law deemed applicable by the
Committee.
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<PAGE>
INFLUENCE, INC.
1998 LONG-TERM INCENTIVE PLAN
FORM OF INCENTIVE STOCK OPTION AGREEMENT
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
(a) "Agreement" means this Incentive Stock Option Agreement.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "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.
(e) "Common Stock" means the common stock, par value $0.001 per share,
of the Corporation.
(f) "Corporation" means Influence, Inc.
(g) "Covered Shares" means the Shares subject to the Option set forth
as the "Covered Shares" on Exhibit A to this Agreement.
(h) "Date of Exercise" means the date on which the Corporation
receives notice of the exercise, in whole or in part, of the Option
pursuant to Section 5(a) hereof.
(i) "Date of Expiration" means the date on which the Option shall
expire, which shall be the earliest of the following dates:
(I) The date the Optionee's Employment is terminated by the
Corporation or any Subsidiary for Good Cause;
(II) The date which is one year after the termination of the
Optionee's Employment by reason of death or disability (as
defined in Section 22(e)(3) of the Code);
(III) The date which is ninety (90) days after the Optionee's
Employment is terminated for any reason other than
enumerated in (I) or (II) above; or
(IV) The date which is ten (10) years after the Date of Grant.
<PAGE>
(j) "Date of Grant" means the date set forth as the "Date of Grant" on
Exhibit A to this Agreement.
(k) "Employment" means the Optionee's employment with the Corporation
and its Subsidiaries.
(l) "Good Cause" means a termination based on an Optionee's (i)
willful misconduct or gross negligence in the performance or intentional
nonperformance (continuing for ten (10) days after receipt of written
notice of need to cure) of any of the Optionee's material duties and
responsibilities for the Corporation or any Subsidiary; (2) willful
dishonesty, fraud, alcohol or illegal drug abuse, or misconduct with
respect to the business or affairs of the Corporation or any Subsidiary,
which materially and adversely affects the operations, prospects or
reputation of the Corporation or any Subsidiary; or (3) conviction of a
felony or other crime involving moral turpitude.
(m) "Fair Market Value" means the amount equal to the closing sales
price for a Share, on the date such fair market value is to be determined
(or if there is no sale of Shares on such date, the closing sales price on
the nearest trading date preceding such date), in the principal trading
market for the Shares as reported by such source as the Committee may
select, or, if such price quotations of the Common Stock are not then
reported, then the fair market value of a Share as determined by the
Committee pursuant to a reasonable method adopted in good faith for such
purpose.
(n) "Option" means the incentive stock option granted to the Optionee
in Section 2 of this Agreement.
(o) "Option Price" means the dollar amount per Share set forth as the
"Option Price" on Exhibit A to this Agreement.
(p) "Optionee" means the person identified as the "Optionee" on
Exhibit A to this Agreement.
(q) "Plan" means the Influence, Inc. 1998 Long-Term Incentive Plan.
(r) "Share" means a share of Common Stock.
(s) "Subsidiary" means a corporation at least 50% of the total
combined voting power of all classes of stock of which is owned by the
Corporation, either directly or through one or more other Subsidiaries.
(t) "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.
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<PAGE>
2. Grant of Option. Pursuant to the Plan and subject to the terms of this
Agreement, the Corporation hereby grants to the Optionee or his successors the
Option to purchase from the Corporation that number of Shares equal to the
Covered Shares, exercisable at the Option Price.
3. Terms of the Option.
(a) Type of Option. The Option is intended to be an incentive stock
option within the meaning of Section 422 of the Code.
(b) 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.
(c) Nontransferability. The Option is not transferable by the Optionee
other than by will or the laws of descent and distribution, and is exercisable,
during the Optionee's lifetime, only by the Optionee or, in the event of the
Optionee's legal disability, by the Optionee's legal representative.
(d) Termination of Employment or Service. During the period commencing
on termination of employment or service and terminating on the Date of
Expiration, the Option may be exercised with respect to the number of the
Covered Shares (in full shares), to the extent that the Option has not been
previously exercised with respect to such Covered Shares, as to which the Option
was exercisable on the last day of employment or service as determined in
accordance with Paragraph 3(b). On the last day of employment or service, all of
the Covered Shares with respect to which the Option has not become exercisable
shall no longer be subject to the Option.
(e) Payment of the Option Price. The Optionee, upon exercise, in whole
or in part, of the Option, may pay the Option Price in cash, by delivering duly
endorsed certificates representing Shares having a fair market value on the Date
of Exercise aggregating not more than the portion of the Option Price being paid
by delivery of such shares, or in a combination of cash and Shares.
Notwithstanding the preceding sentence, no Shares may be used to pay any portion
of the Option Price unless those Shares, if acquired pursuant to the exercise of
an option granted under any stock option plan maintained by the Company, shall
have been held by the Optionee for a period of not less than six months prior to
the Date of Exercise.
4. Capital Adjustments. The number of Covered Shares and the Option Price
shall be subject to automatic adjustment to reflect such events as stock
dividends, stock splits, adoption of stock rights plans, recapitalizations,
mergers, consolidations or reorganizations of or by the Corporation.
5. Exercise.
(a) Notice. The Option shall be exercised, in whole or in part, by the
delivery to the Corporation 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
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<PAGE>
the Option being exercised as provided in Section 3(e) of this Agreement, and
(ii) any amounts required to be withheld pursuant to applicable 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
with respect to which the Option is exercised.
6. Restriction on Exercise and Upon Shares of Common Stock Issued Upon
Exercise. Notwithstanding any other provision of this Agreement, the Optionee
agrees, for himself and his successors, that the Option may not be exercised at
any time that the Corporation does not have in effect a registration statement
under the Securities Act of 1933, as amended, relating to the offer of Common
Stock to the Optionee under the Plan, unless the Corporation agrees to permit
such exercise. The Optionee further agrees, for himself or herself and his or
her successors, that, upon the issuance of any Shares upon the exercise of the
Option, he or she will, upon the request of the Corporation, agree in writing
that he or she is acquiring such shares for investment only and not with a view
to resale, and that he or she will not sell, pledge or otherwise dispose of such
shares so issued unless and until (i) the Corporation 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; (ii) the staff of the Securities and Exchange
Commission has issued a "no-action" letter with respect to such disposition; or
(iii) such registration or notification as is, in the opinion of counsel for the
Corporation, required for the lawful disposition of such shares has been filed
by the Corporation and has become effective; provided, however, that the
Corporation is not obligated hereby to file any such registration or
notification. The Optionee further agrees that the Corporation 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 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 Section 4 hereof, 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.
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
Corporation 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 Corporation 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.
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<PAGE>
[Remainder of page left intentionally blank; signatures appear on following
page.]
5
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
signed on its behalf effective as of the Date of Grant.
ATTEST: INFLUENCE, INC.:
- -------------------------- -------------------------------
By: By:
Title: Title:
Accepted and agreed to as of the Date of Grant:
- ---------------------------------
Optionee
6
<PAGE>
EXHIBIT A
OPTION NO.
OPTIONEE:
DATE OF GRANT:
OPTION PRICE:
COVERED SHARES:
Vesting Schedule:
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<PAGE>
EXHIBIT B
EXERCISE OF OPTION
Board of Directors
Influence, Inc.
71 Stevenson Street, Suite 1120
San Francisco, CA 94105
Gentlemen:
The undersigned, the Optionee under the Incentive Stock Option Agreement
identified as Option No. ______, granted pursuant to the Influence, Inc. 1998
Long-Term Incentive Plan, 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 makes payment of
$_________ in the form of [cash, Common Stock, cash plus Common Stock]. [Please
complete.]
Dated: _______________ __________________________
(Signature of Optionee)
Date received by Influence, Inc.: _______________
Received by: ____________________________________
[Note: Shares of Common Stock being delivered in payment of all or any part of
the exercise price must be represented by certificates registered in the name of
the Optionee and duly endorsed by the Optionee and by each and every other
co-owner in whose name the shares may also be registered.]
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<PAGE>
TECHNOLOGY DEVELOPMENT AND LICENSE AGREEMENT
This Technology Development and License Agreement ("Agreement"), effective
as of March 16, 1998, is entered into by and among TomoTherapeutics, Inc., a
Delaware corporation having a place of business at 3033 Science Park Road, San
Diego, California ("TTI"), The Titan Corporation, a Delaware corporation having
a place of business at 3033 Science Park Road, San Diego California ("Titan"),
and Influence, Inc., a Delaware corporation having a place of business at 71
Stevenson Street, Suite 1120, San Francisco, California ("Influence").
RECITALS
A. TTI is a majority-owned subsidiary of Titan and is the owner of certain
Technology (defined herein) and equipment relating to its patented Interstitial
X-Ray Needle.
B. Influence is a company engaged in the development, manufacture and
marketing of medical devices.
C. Influence desires to purchase from TTI, and TTI desires to sell to
Influence, certain specified tangible assets of TTI pursuant to the terms set
forth herein.
D. Influence also desires to license the Technology from TTI and work
initially with TTI, and subsequently on its own, to develop and market products
based on the Technology pursuant to the terms set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, of the mutual agreements
hereinafter contained and of other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Confidential Information" shall mean any and all information related
to a party that such party treats as confidential and any information relating
to third parties that such party has an obligation to treat as confidential,
which is disclosed by such party to the other party in the course of performing
the duties and obligations of this Agreement, whether such information is in
oral, written, graphic or electronic form; provided that (a) such information is
in writing or other tangible form and is clearly marked as "proprietary" or
"confidential" when disclosed to the receiving party; or (b) if such information
is not in tangible form, such information (i) is identified as "proprietary" or
"confidential" when disclosed and (ii) is summarized in a writing which is
marked "proprietary" or "confidential" and is delivered to the receiving party
within thirty (30) days after the date of disclosure. Confidential Information
shall not include any information, data or material which: (a) the disclosing
party expressly agrees in writing is free of any non-disclosure obligations; (b)
at the time of disclosure to the receiving party was known to the receiving
party and free of any non-disclosure obligations; (c) is independently developed
by the receiving party; (d) is lawfully received by the receiving party, free of
any non-disclosure obligations, from a third party having the right to so
furnish such Confidential Information; or (e) is or becomes generally available
to the public without any breach of this Agreement or unauthorized disclosure of
such Confidential Information by the receiving party.
<PAGE>
1.2 "Intellectual Property Rights" shall mean any and all (by whatever name
or term known or designated) tangible and intangible and now known or hereafter
existing (a) rights associated with works of authorship throughout the universe,
including but not limited to exclusive exploitation rights, copyrights, Moral
Rights (as defined below), and mask-works, (b) trademark and trade name rights,
service marks and similar rights, (c) trade secret rights, (d) patents, designs,
algorithms and other industrial property rights (of every kind and nature
throughout the universe and however designated) (including logos, "rental"
rights, and rights to remuneration), whether arising by operation of law, by
contract, license or otherwise, and (f) all registrations, applications,
renewals, extensions, continuations, combinations, divisions or reissues thereof
now or hereafter in force (including any rights in any of the foregoing).
1.3 "Moral Rights" shall mean any right to (a) divulge the Works (as
defined below) to the public, (b) retract the Works from the public; (c) claim
authorship or ownership of the Works, (d) object to any distortion, mutilation
or other modification of the Works, or (e) any and all similar rights, existing
under judicial or statutory law or any country or jurisdiction in the world, or
under any treaty regardless of whether or not such right is called or generally
referred to as a moral right.
1.4 "Operating Prototype" shall mean the prototype system set forth in
Exhibit 1 attached hereto.
1.5 "Revenues" shall mean the total of gross amounts invoiced or charged
purchasers or licensees for all products and services incorporating or relating
to the Technology or any portion thereof including, without limitation, all
accessory and disposable items sold in connection with the products or services
incorporating or relating to the Technology.
1.6 "Specifications" shall mean those specifications pertaining to the
Operating Prototype set forth in Exhibit 1 attached hereto.
1.7 "Tangible Assets" shall mean those assets of TTI set forth in Exhibit 2
attached hereto.
1.8 "Technology" shall mean all general and specific knowledge, experience
and information developed by or on behalf of TTI to which TTI has acquired an
interest relating to the development of a Therapeutic device which generates
bremsstrahlung x-rays by emitting electrons in a columnar beam which strike a
target within an evacuated chamber, including, without limitation, the
Interstitial X-Ray needle, U.S. Patent No. 5,165,093, including any an all
modifications, continuations in part or divisionals, and all of the design,
drawings and other documentation related thereto. Technology also includes the
Operating Prototype and any parts, components and subsystems thereof.
1.9 "Therapeutic" shall mean the treatment of various medical diseases or
conditions where the objective of that treatment is to effect a cure or
improvement of such medical disease or condition.
1.10 "Works" shall mean the Technology and any notes drawings, designs,
procedures, discoveries and inventions created pursuant to this Agreement.
ARTICLE 2
SALE AND PURCHASE OF THE TANGIBLE ASSETS
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<PAGE>
2.1 Tangible Assets. Upon completion of the first milestone set forth in
Section 5.2 herein and upon receipt by TTI of fifteen thousand (15,000) shares
of Influence common stock, as defined in Sections 5.1 herein, Titan and TTI
hereby agrees to sell, assign, convey, set over, grant and deliver to Influence,
and Influence agrees to purchase from Titan and TTI, all of Titan and TTI's
rights, title and interest in and to the Tangible Assets.
2.2 Disclaimer of Warranties and Liability.
a. The parties agree that all of the Tangible Assets being sold hereunder
are being sold without recourse to TTI and on an "As Is" basis. TTI disclaims
all warranties with respect to the Tangible Assets, whether written or oral,
express or implied including, without limitation, any warranties of
merchantability, fitness for a particular purpose and any warranties of
interference and non-infringement. Notwithstanding the above language, TTI and
Titan warrant that no claims of interference and/or infringement of trademark,
patent or trade secret have been made to date and that TTI and Titan are not
aware of any such potential claims.
b. TTI shall not be liable for damages or claims of damages relating
directly or indirectly to or arising out of or resulting from anything made
available hereunder or the use thereof nor be liable to Influence from
consequential damages under any circumstances. TTI shall have no responsibility
for the ability of Influence to use any information provided by TTI or Titan,
the quality or performance of the product produced therefrom by Influence, or
the claims of third parties arising from the use of such products or
information. Influence agrees to assume all financial and service obligations
for products manufactured and sold or licensed by it hereunder and to indemnify,
defend and hold harmless TTI against all liability or responsibility to
Influence or to others for any failure in production, design, operation, or
otherwise of products manufactured and sold or licenses by Influence. TTI does
not warrant and shall not be responsible for any design specification, drawing
or other data or information furnished by it to Influence so long as such is
furnished in good faith to the best of TTI's knowledge and ability. TTI does not
warrant that the exploitation of the Technology, the use of the Operating
Prototype or the manufacture, sale or use of any of product produced therefrom
will not infringe or interfere with trademarks, patents or trade secrets owned
by others in this United States or elsewhere. Notwithstanding the above
language, TTI and Titan warrant that no claims of interference and infringement
of trademark, patent or trade secret have been made against Titan and/or TTI to
date with respect to the Technology and that TTI and Titan are not aware of any
such potential claims.
2.3 Bill of Sale. Upon the completion of the purchase and sale of the
Tangible Assets pursuant to Section 2.1 above, TTI shall deliver to Influence a
Bill of Sale in the form attached hereto as Exhibit 2.3.
2.4 Sales Tax. Any sales, transfer, use and other tax payable as a result
of the transfer by TTI to Influence of the Tangible Assets shall be the
responsibility of and shall be paid by Influence. Any sales, transfer, income,
use and other tax due as a result of Influence's sale, transfer or use of the
Tangible Assets or other action taken by Influence after the completion of the
purchase and sale of the Tangible Assets shall in each case be the
responsibility of and shall be paid by Influence.
ARTICLE 3
DEVELOPMENT OF OPERATING PROTOTYPE
3
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3.1 Development. TTI agrees to provide reasonable assistance to Influence
in the completion of the Operating Prototype. Titan agrees to make Dr. Bruce
Miller, a current employee of Titan, available to participate, on a limited
basis and at such times as may be reasonably requested by Influence, in the
product development work as it specifically relates to beam transport physics in
the Operating Prototype. Dr. Miller's work for Influence will be compensated by
Influence as set forth in Section 3.2 below and in accordance with the terms of
a separate consulting agreement between Influence and Titan.
3.2 Development Costs and Expenses. Influence agrees to assume
responsibility for all costs and expenses incurred subsequent to and including
February 10, 1998, whether incurred by TTI, Titan, or Influence, associated with
the development of the Operating Prototype. With the exception of the "Kraus
Expense", the amounts listed below are estimated costs to complete the
development of the Operating Prototype. However, Influence will not be
responsible for any costs and expenses associated with the development of the
Operating Prototype which exceed these estimated amounts unless prior written
approval is obtained from Influence, which approval shall not be unreasonably
withheld.
4
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
February March April May June July August
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Not to Not to Not to
Kraus exceed exceed exceed
Expense $10,000 $10,000 $10,000
- ---------------------------------------------------------------------------------------------------------------------
Misc.
Supplies, $1,000 $1,000 $3,500 $1,000
parts
- ---------------------------------------------------------------------------------------------------------------------
John
Smith @ $2,000 $2,000 $6,000 $4,000 $400.00 $400
$400/day
- ---------------------------------------------------------------------------------------------------------------------
Bruce
Miller $2,000.00 $2,000 $5,000 $1,000 $1,000 $1,000
@
$1,000/day
- ---------------------------------------------------------------------------------------------------------------------
Can
Machining $5,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
In addition, Influence agrees to assume, without limitation, responsibility
for all costs and expenses incurred subsequent to and including February 10,
1998 associated with regulatory submissions to the U.S. Food and Drug
Administration relating to the Operating Prototype. Any of the assumed costs and
expenses listed above and incurred by TTI or Titan will be reimbursed by
Influence within fifteen (15) days of receipt of an invoice from TTI or Titan.
3.3 Taxes. Influence will be responsible for payment of all taxes (other
than taxes based on Titan's and TTI's respective incomes), fees, duties and
charges, including the collection or withholding thereof, and any related
penalties and interest, incurred subsequent to February 10, 1998 and arising
from payment of the development costs and expenses listed in Section 3.2 above,
or the development of the Operating Prototype under this Agreement.
ARTICLE 4
LICENSE
4.1 Grant of License.
a. TTI hereby grants to Influence, subject to the terms of this Agreement,
an exclusive, transferable worldwide right and license to use the Technology for
the express purpose of incorporating the Technology into products and selling or
licensing or leasing or marketing such products anywhere in the world for
Therapeutic applications. This license shall be irrevocable except in the event
this Agreement is terminated pursuant to sections 5.3, 5.6 or 10.1.
b. Influence acknowledges and agrees that a significant portion of Titan's
business involves the use of accelerators and electron beam devices which
generate x-rays in a variety of applications that exist now or in the future
and, except for the application set forth in Section 4.1.a. that is specifically
licensed hereunder, this License in no way limits Titan's ability to continue to
conduct its business using such accelerators and related devices which are in
existence now or in the future.
4.2 Ownership of the Technology.
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a. Influence, Titan and TTI acknowledge and agree that until such time as
TTI assigns the Technology to Influence, in accordance with Section 5.5, TTI
shall retain all right, title and interest in and to the Technology, any updates
to or enhancements, modifications or revisions of the Technology and any
Intellectual Property Rights associated with the foregoing. Influence and Titan
acknowledge and agree that they shall not obtain or retain any rights to the
Technology except as may be granted under this Agreement.
b. Assignment. Until such time as TTI assigns the Technology to Influence
in accordance with Section 5.5, Influence and Titan hereby irrevocably transfer
and assign to TTI any and all right, title and interest each may have in or with
respect to the Technology, and any notes, drawings, designs, procedures,
discoveries and inventions created pursuant to this Agreement (collectively, the
"Works"), including, but not limited to, any and all Intellectual Property
Rights, whether in the United States or abroad.
c. Moral Rights. Until such time as TTI assigns the Technology to Influence
in accordance with Section 5.5, Influence and Titan hereby irrevocably transfer
and assign to TTI any and all Moral Rights each may have in or with respect to
the Works.
d. Waiver; License; Cooperation. To the extent Influence or Titan cannot
transfer or assign the rights discussed in subsections 4.2.b. and 4.2.c. above,
Influence and Titan each hereby waives and agrees never to assert such rights
against TTI or any of TTI's licensees. If Influence or Titan has any right to
the Works that cannot be assigned or transferred to TTI or waived by Influence
or Titan, respectively, Influence and Titan each unconditionally and irrevocably
grants to TTI, during the term of such rights, an exclusive, irrevocable,
perpetual, worldwide, fully paid and royalty-free license, with rights to
sublicense throughout multiple levels of sublicensees, to reproduce, create
derivative works of, distribute, publicly perform and publicly display by all
means now known or later developed such rights. In addition, Influence and Titan
each agree to obtain such assignment, waiver, covenant not to assert such
rights, or license from any subsidiary, subcontractor, or employee who creates,
either in whole or part, the Works. Influence and Titan each agree to cooperate
with TTI in the procurement and maintenance of TTI's rights in the Works,
including litigation of applicable patents, copyrights and other proceedings,
and to sign all papers and execute all documents which TTI may deem necessary
and desirable for vesting TTI with such rights throughout the world. In the
event that TTI is unable for any reason whatsoever to secure a signature on
behalf of Influence or TTI to any document it believes is reasonably required in
order to apply for or execute any patent, copyright or other application with
respect to the Works, Influence and Titan each hereby irrevocably designates and
appoints TTI and its duly authorized officers and agents as Influence's and
Titan's respective agents and attorneys-in-fact to act for and in their
respective behalves and instead of each of them, to execute and file any such
application and to do all other lawfully permitted acts to further the
prosecution and issuance of patents, copyrights or other rights therein with the
same legal force and effect as if executed by Influence or Titan, respectively.
4.3 Use of Names and Trademarks. Nothing in this Agreement confers upon
either party any right to use in advertising, publicity or other promotional
activities any name, trade name, trademark or other designation of either party
by the other.
ARTICLE 5
ISSUANCE OF STOCK AND ROYALTIES
5.1 Issuance of Stock.
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a. Upon the terms and subject to the conditions herein, Influence shall
issue, transfer, assign, convey, set over and deliver to TTI, and TTI shall
acquire from Influence, upon the incremental completion of the milestones set
forth in Section 5.2 below, forty-five thousand (45,000) shares, subject to
adjustment in accordance with Section 5.2, of Influence common stock, par value
$.001 per share, free and clear of any and all liens, pledges, beneficial
interests of others charges and security interests. Furthermore, TTI shall be
permitted to certain registration rights with respect to the common stock of
Influence, as more fully set out in Exhibit 5.1 attached hereto.
b. TTI understands and agrees that, until such time as the Influence common
stock that it is acquiring becomes registered, it is characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from Influence in a transaction not involving a public offering
and that under the federal securities laws and applicable regulations such
securities may be resold without registration under the Securities Act only in
certain limited circumstances. In this connection, TTI represents that it is
familiar with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the federal securities laws. It is further
understood that the certificates evidencing Influence common stock transferred
to TTI may bear the following legend:
"This security has not been registered under the Securities
Act of 1933, and may not be sold or transferred unless such
sale or transfer is in accordance with the registration
requirements of the Securities Act of 1933, as at the time
amended, or in conformity with the limitations of Rule 144 or
similar rule as then in effect under such Act, or unless some
other exemption from the registration requirements of such Act
is available with respect thereto."
5.2 Milestones. Influence will issue Influence common stock, par value
$.001 per share, to TTI in accordance with the following schedule and upon the
completion of the following terms and conditions:
First: Upon TTI's completion and delivery to Influence of the Operating
Prototype, Influence shall issue fifteen thousand (15,000) shares
of Influence common stock to TTI. Completion of the Operating
Prototype is defined as meeting the Specifications listed in
Exhibit 1 attached hereto.
The parties agree that the anticipated value of the stock for
Influence's initial public offering ("IPO") is between $10.00 and
$13.00 per share. If, however, the price per share of Influence
common stock (the "Offering Price") at the close of business on
the date of Influence's IPO, or, if not an IPO, through the first
private equity financing after the date of this Agreement, is
greater than $13.00 per share, Influence will issue to TTI an
amount of shares equivalent to $195,000.00 (15,000 shares x
$13.00/share) worth of shares at that Offering Price.
Alternatively, if the Offering Price per share of Influence
common stock at the close of business on the date of Influence's
IPO, or, if not an IPO, through the first private equity
financing after the date of this Agreement,
7
<PAGE>
is less than $10.00 per share, Influence will issue to TTI an
amount of shares equivalent to $150,000.00 (15,000 x $10.00 per
share) worth of Shares at that Offering Price.
Second: Upon regulatory submission by Influence to the U.S. Food and Drug
Administration ("FDA") of a 510K, Influence shall issue twenty
thousand (20,000) shares of Influence common stock to TTI.
The parties agree that the anticipated value of the stock for
Influence's initial public offering ("IPO") is between $10.00 and
$13.00 per share. If, however, the price per share of Influence
common stock (the "Offering Price") at the close of business on
the date of Influence's IPO, or, if not an IPO, through the first
private equity financing after the date of this Agreement, is
greater than $13.00 per share, Influence will issue to TTI an
amount of shares equivalent to $260,000.00 (20,000 shares x
$13.00/share) worth of shares at that Offering Price.
Alternatively, if the Offering Price per share of Influence
common stock at the close of business on the date of Influence's
IPO, or, if not an IPO, through the first private equity
financing after the date of this Agreement, is less than $10.00
per share, Influence will issue to TTI an amount of shares
equivalent to $200,000.00 (20,000 x $10.00 per share) worth of
Shares at that Offering Price.
Third: Upon a secondary submission by Influence to FDA of a 510K or
other regulatory submission, Influence shall issue ten thousand
(10,000) shares of Influence common stock to TTI.
The parties agree that the anticipated value of the stock for
Influence's initial public offering ("IPO") is between $10.00 and
$13.00 per share. If, however, the price per share of Influence
common stock (the "Offering Price") at the close of business on
the date of Influence's IPO, or, if not an IPO, through the first
private equity financing after the date of this Agreement, is
greater than $13.00 per share, Influence will issue to TTI an
amount of shares equivalent to $130,000.00 (10,000 shares x
$13.00/share) worth of shares at that Offering Price.
Alternatively, if the Offering Price per share of Influence
common stock at the close of business on the date of Influence's
IPO, or, if not an IPO, through the first private equity
financing after the date of this Agreement, is less than $10.00
per share, Influence will issue to TTI an amount of shares
equivalent to $100,000.00 (10,000 x $10.00 per share) worth of
Shares at that Offering Price.
5.3 Termination and Effect.
a. The parties understand and agree that notwithstanding any language
contained in this Agreement to the contrary, and with the exception of Sections
3.1 and 3.2 herein, this Agreement, and all of the terms and conditions stated
herein, shall have no force and effect, and can be terminated by either party,
unless and until the first milestone contained in
8
<PAGE>
Section 5.2 is achieved and the Operating Prototype is completed and delivered
to Influence. Influence shall nonetheless be responsible for all development
costs and expenses accrued pursuant to Section 3.2 herein.
b. Should either party elect to terminate this Agreement, for any reason,
Influence shall cease any manufacture or sale or license of any products, if
any, which incorporate or are based on the Technology and shall return
immediately to TTI and Titan the Operating Prototype and any and all samples,
specifications, data sheets, drawings, designs, photographs, or other electronic
records or writings in any language and any other documents or materials
furnished by TTI or Titan to Influence or otherwise obtained from TTI or Titan
under this Agreement or as a result of any relationships, situations or
opportunities created by this Agreement, including any and all translations,
copies or reproduction thereof and any and all similar materials in any way, in
whole or in part, based thereon, generated thereby, derived therefrom or
relating thereto, as well as any and all similar materials which in any way
contain, reflect or relate to any and all Confidential Information obtained by
Influence as a result of this Agreement or any relationships, situations or
opportunities created thereby and any and translations, copies and reproductions
of such materials.
c. Should Influence fail to achieve the second milestone contained in
Section 5.2 above within eighteen (18) months of delivery of the Operating
Prototype, or the third milestone within either (i) twelve (12) months of
completion of the second milestone, if the second regulatory submission is a
510k, or (ii) eighteen months of completion of the second milestone, if the
second submission is of another form, TTI, in its sole discretion, shall have
the option of terminating this Agreement after providing Influence with written
notice of TTI's intent to terminate the agreement and a thirty (30) day period
in which to remedy the failure. If Influence fails to remedy the condition
within 30 days and TTI elects to terminate the Agreement, all rights granted to
Influence under this Agreement shall terminate and immediately revert to, and
vest in, TTI, and absolutely no interest whatsoever in any of such rights, in
whole or in part, shall thereafter remain in Influence or any of its
subcontractors, sublicensees, agents, employees or shareholders, or any person
or entity in any way affiliated with or related to Influence. Furthermore,
should TTI elect to terminate this Agreement, Influence shall cease any
manufacture or sale or license of any products which incorporate or are based on
the Technology and shall return immediately to TTI and Titan the Operating
Prototype and any and all samples, specifications, data sheets, drawings,
designs, photographs, or other electronic records or writings in any language
and any other documents or materials furnished by TTI or Titan to Influence or
otherwise obtained from TTI or Titan under this Agreement or as a result of any
relationships, situations or opportunities created by this Agreement, including
any and all translations, copies or reproduction thereof and any and all similar
materials in any way, in whole or in part, based thereon, generated thereby,
derived therefrom or relating thereto, as well as any and all similar materials
which in any way contain, reflect or relate to any and all Confidential
Information obtained by Influence as a result of this Agreement or any
relationships, situations or opportunities created thereby and any and
translations, copies and reproductions of such materials.
5.4 Royalties.
a. Influence shall pay to TTI, on the dates provided in Section 5.4.c.
below, for each calendar quarter ending after the first anniversary of the date
of execution of this Agreement, royalties equal to: (i) eight percent (8%) of
Revenues until the sum of all royalties paid or payable by Influence to TTI
under this Agreement equals two million dollars
9
<PAGE>
($2,000,000); and (ii) thereafter, five percent (5%) of Revenues for as long as
this Agreement remains in full force and effect and is not terminated for any
reason.
b. Influence shall pay to TTI, commencing after the first anniversary of
the date of this License, minimum royalty payments as follows. Such minimum
royalty payments will be credited against Revenue-based royalties payable under
Section 5.4.a. hereof.
Years Minimum Royalty Amount (U.S. Dollars)
----- -------------------------------------
1998 $0
1999 $0
2000 $50,000
2001 $50,000
2002 $50,000
2003 $50,000
If the minimum royalty amount payable to TTI in any given year exceeds the
Revenue-based royalty for that year, the amount by which the minimum royalty
payment exceeds such Revenue-based royalty may be applied to the amount payable
to TTI in any subsequent year in which the Revenue-based royalty exceeds the
minimum royalty.
c. Influence shall, on or before, the last day of February, May, August and
November of each year in which royalties are payable hereunder, furnish to TTI a
statement certified by the Chief Financial Officer of Influence, of Influence's
Revenues during the preceding calendar quarter in sufficient detail to permit
the computation of the royalty due to TTI, and shall accompany such statement
with payment of the amount of royalty due by a company check payable to TTI. On
or before the 30th day of April of each year, Influence shall furnish to TTI a
comparable statement, certified by a nationally recognized firm of public
accountants satisfactory to TTI, of Influence's Revenues for the calendar year
ending on the preceding December 31 and shall accompany such statement by
payment of an amount equal to the excess, if any, of the amount of royalty shown
to be due on such statement over the aggregate amount of the four quarterly
payments made in respect of such calendar year pursuant to this Article 5. If,
however, the aggregate amount of such payments shall be in excess of the amount
of royalty shown to be due on such statement, Influence shall be entitled at its
own option to either (i) take appropriate credit for such overpayment against
royalties thereafter accruing; or (ii) receive from TTI or Titan a cash refund
for the amount of overpayment. The first such annual statement shall be due on
April 30, 2000.
d. Products incorporating the Technology for which royalties are payable to
TTI hereunder shall be deemed to have been sold when invoiced by Influence, or
if not invoiced, when paid for by customers of Influence. Products shall be
deemed to have been licensed or leased upon execution of a license or lease
agreement by Influence and a third party.
e. If products are returned or allowances made thereon after the royalty
thereon shall have been paid, Influence shall be entitled at its own option to
either (i) take appropriate credit for such overpayment against royalties
thereafter accruing; or (ii) receive from TTI or Titan a cash refund for the
amount of overpayment.
5.5 Assignment of the Technology. Upon the earlier of (i) completion of
Influence's payment of all of the minimum royalties set forth in Section 5.4.b.,
through the year 2003, or (ii) payment by Influence to TTI of the total amount
of $1,000,000 at any time prior to 2003, TTI
10
<PAGE>
will, subject to Sections 5.3, 5.6 and 10.1, irrevocably assign to Influence all
of TTI's rights, title and interest in and to (i) the Technology and (ii) any
updates to or enhancements, modifications or revisions thereto. This assignment
shall not affect the royalty payment requirements required under this Agreement,
which shall be an ongoing obligation of Influence notwithstanding such
assignment.
5.6 Failure to Pay Royalties. Should Influence fail to make one or more of
the royalty payments to TTI as set forth in Section 5.4 above, TTI or Influence
shall have the option of terminating this Agreement after providing the other
party with thirty (30) day prior written notice of intent to terminate this
Agreement. Should TTI elect to terminate this Agreement due to failure of
Influence to make one or more of the royalty payments, Influence shall be
afforded this thirty (30) day period in which to remedy the failure. If
Influence fails to remedy the failure within 30 days, TTI may elect to terminate
the Agreement. Should either party elect to terminate the Agreement, all rights
granted to Influence under this Agreement shall terminate and immediately revert
to, and vest in, TTI, and absolutely no interest whatsoever in any of such
rights, in whole or in part, shall thereafter remain in Influence or any of its
subcontractors, sublicensees, agents, employees or shareholders, or any person
or entity in any way affiliated with or related to Influence. Furthermore,
should either party elect to terminate this Agreement, Influence shall cease any
manufacture or sale or license of any products which incorporate or are based on
the Technology and shall return immediately to TTI and Titan the Operating
Prototype and any and all samples, specifications, data sheets, drawings,
designs, photographs, or other electronic records or writings in any language
and any other documents or materials furnished by TTI or Titan to Influence or
otherwise obtained from TTI or Titan under this Agreement or as a result of any
relationships, situations or opportunities created by this Agreement, including
any and all translations, copies or reproduction thereof and any and all similar
materials in any way, in whole or in part, based thereon, generated thereby,
derived therefrom or relating thereto, as well as any and all similar materials
which in any way contain, reflect or relate to any and all TTI Confidential
Information obtained by Influence as a result of this Agreement or any
relationships, situations or opportunities created thereby and any and
translations, copies and reproductions of such materials. Both Influence and TTI
agree that should either party elect to terminate this Agreement, Influence is
under no contractual obligation to make further royalty payments, including the
minimum royalty payments specified in Section 5.4 (b).
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF INFLUENCE
6.1 Influence represents and warrants to Titan that as of the date of this
Agreement:
a. Organization and Qualification Influence is a corporation duly
organized, validly existing and in good standing in its jurisdiction of
incorporation, with full corporate power and authority to carry on its business
as it is now conducted and to own or lease its assets. Influence is licensed or
qualified to transact business and is in good standing as a foreign corporation
in each jurisdiction in which, because of its business conducted there or the
nature of its properties there, it is required to be so licensed or qualified
and in which the failure to be so licensed or qualified would have a material
adverse effect on its current business, assets, properties, condition (financial
or otherwise) or results of operation.
b. Capital Stock and Ownership. Each of the certificates representing the
Influence common stock transferred to TTI pursuant to the terms of this
Agreement will be in good, legal and sufficient form. Upon issuance of the
Influence common stock in accordance with the terms of this Agreement, (i) the
stock will be duly and validly authorized and fully paid
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and nonassessable, and (ii) TTI will own good and valid title in and to the
stock and clear of all liens, charges, taxes, encumbrances, equities and claims
of any nature whatsoever.
c. Authority; No Breach. Influence has all requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby has
been duly authorized by all necessary corporate action on the part of Influence.
No stockholder approvals on the part of Influence are necessary for the
execution, delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Influence and is the legal, valid and binding obligation of
Influence, enforceable against Influence in accordance with its terms, except as
enforceability may be subject to or limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws relating to or
affecting the rights of creditors generally. Neither the execution and delivery
of this Agreement by Influence nor the performance of this Agreement by
Influence or the consummation of the transactions contemplated hereby will: (i)
conflict with, result in a breach of or constitute a default under (A) the
certificate of incorporation or bylaws (or other similar charter or governing
documents) of Influence or (B) any law, regulation, judgment, decree, court or
administrative order or process, or any contract, lease, or other agreement or
commitment or any indebtedness, lease, encumbrance, license, franchise, permit,
authorization or concession to which Influence is a party or by which Influence
is subject or bound; or (ii) result in the creation of, or give any party the
right to create, any lien, charge, encumbrance or security interest upon the
Influence common stock transferred to TTI pursuant to this Agreement or the
property and assets of Influence.
d. Compliance with Law. Influence is in compliance in all material respects
with all statutes, rules, regulations, ordinances, codes, orders, licenses,
franchises, permits, authorizations, and concessions, as such apply to
Influence, and no consent, approval or authorization of, or declaration, filing
and registration with, any governmental or regulatory authorities, or any other
person or entity, is required to be made or obtained by Influence in connection
with the execution, delivery, and performance of this Agreement or the
consummation of the transactions contemplated hereby.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF TTI
7.1 Representations and Warranties of TTI. TTI represents and warrants to
Influence that as of the date of this Agreement:
a. TTI is duly organized and validly existing as a corporation under the
laws of the State of Delaware. Titan has full corporate right, power, capacity
and authority to execute and deliver this Agreement to Influence and to
consummate the transactions contemplated hereby.
b. This Agreement has been duly executed and delivered by TTI and is a
valid and binding obligation of TTI, enforceable against TTI in accordance with
its terms, except as enforceability may be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement moratorium or other similar laws
relating to or affecting the rights of creditors generally. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by TTI have been duly authorized by all requisite corporate action, do
not violate, conflict with, or constitute a default under, its Certificate of
Incorporation,
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bylaws, or the terms and provisions of any material agreement, license, trust,
indenture or other instrument or restriction to which TTI is a party or by which
it is bound or any order, award, judgment or decree to which TTI is a party or
by which it is bound.
c. TTI is acquiring the shares of Influence common stock solely for its own
account and with no intention of distributing or reselling the shares or any
part thereof or interest therein, in any transaction which would be in violation
of the securities laws of the United States of America or any state thereof
without prejudice, however, to TTI's right at all times to sell or otherwise
dispose of all or any part of the shares either under a registration statement
or under an exemption from such registration available under the Securities Act
of 1933 and subject, nevertheless, to the disposition of TTI's property being at
all times within TTI's control.
ARTICLE 8
COVENANT NOT TO COMPETE
8.1 Covenant Not to Compete. TTI agrees that, so long as this Agreement is
in effect, but in any event not longer than two (2) years after assignment of
the Technology pursuant to Section 5.5, it will not engage or participate
anywhere in the world, in the ownership, operation, management or control of, or
own stock or other proprietary interest in, any business, regardless of its
legal form, which competes with the Technology, unless TTI shall have obtained
the prior written consent thereto by Influence; provided, however, that TTI
shall be free without any such consent to make reasonable investments in any
company which is publicly owned so long as its ownership of securities of such
company does not exceed five percent (5%) of the outstanding amount of any class
of any such securities.
ARTICLE 9
CONFIDENTIALITY
9.1 Confidential Information. Notwithstanding anything in this Agreement to
the contrary, Influence, TTI and Titan acknowledge and agree that upon execution
of this Agreement, the Technology, Specifications and Operating Prototype are
all TTI's Confidential Information.
9.2 Non-disclosure and Non-use. Each party receiving Confidential
Information shall treat such information as strictly confidential, and shall use
the same care to prevent disclosure of such information as such party uses with
respect to its own confidential and proprietary information, which shall not be
less than the care a reasonable person would use under similar circumstances. In
any event, each party receiving Confidential Information shall: (a) disclose
such Confidential Information to (i) only those authorized employees whose
duties justify their need to know such information and who have been clearly
informed of their obligation to maintain the confidential and/or proprietary
status of such Confidential Information or (ii) only those third parties
required for the performance of the receiving party's obligations under this
Agreement pursuant to a written confidentiality agreement as least as extensive
as the confidentiality provisions of this Agreement; and (b) use such
Confidential Information only for the purposes set forth in this Agreement. The
parties' obligations with respect to Confidential Information shall survive
expiration or termination of the Agreement and remain in effect indefinitely,
until one of the exceptions in Section 9.1(a), 9.1(c) or 9.1(d) applies at which
time confidentiality will only be waived as to that item or instance.
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9.3 Certain Exceptions. The obligations set forth in this Article 9
(Confidentiality) shall not apply to any Confidential Information which must be
disclosed pursuant to applicable federal, state or local law, regulation, court
order, or other legal process, provided the receiving party has given the
disclosing party prior written notice of such required disclosure and, to the
extent reasonably possible, has given the disclosing party an opportunity to
contest such required disclosure at the disclosing party's expense.
9.4 Confidential Nature of Agreement. Neither party will disclose any terms
of this Agreement to anyone other than its attorneys, accountants and other
professional advisors except (a) as required by law, including the Securities
Exchange Act of 1934, as amended, or (b) pursuant to a mutually agreeable press
release.
ARTICLE 10
GENERAL PROVISIONS
10.1 Term and Termination. Either party shall have the right to terminate
this Agreement in the event that the other party fails to comply with any of the
material provisions of this Agreement, and such condition is not remedied within
thirty (30) days after written notice thereof has been given by the
non-breaching party or pursuant to Sections 5.3 and 5.6. The effects of
termination shall be as set forth in Sections 5.3 and 5.6. Upon termination for
any reason, Influence shall not be required to make any royalty payments set
forth in Section 5.4, including minimum royalty payments, subsequent to the date
of such termination; provided, however, Influence shall remain liable for the
payment to TTI of any royalty payments, including minimum royalty payments,
which are payable up to such date of termination.
10.2 Expenses. Influence and TTI and Titan will each be liable for its own
costs and expenses incurred by each of them, respectively, in connection with
the negotiation, preparation and execution of this Agreement.
10.3 Amendment. This Agreement may not be modified, amended, altered or
supplemented except by a written agreement executed by TTI , Titan and
Influence.
10.4 Entire Agreement. This Agreement, including the Exhibits hereto, the
instruments and other documents delivered pursuant to this Agreement and the
License Agreement contain all of the agreements, covenants, terms, conditions
and representations and warranties agreed upon by the parties relating to the
subject matter of this Agreement and supersede all prior and contemporaneous
agreements, negotiations, correspondence, undertakings, representations,
warranties and communications of any kind of or between the parties and their
representatives, whether oral or written, respecting such subject matter,
relating to Influence and supplied to TTI prior to the date hereof.
10.5 Waivers. Waiver by any party of any breach of or failure to comply
with any provision of this Agreement by the other party shall not be construed
as, or constitute, a continuing waiver of such provision (unless such waiver
expressly so states) or a waiver of any breach of or failure to comply with, any
other provision of this Agreement. No waiver of any such breach or failure or of
any term or condition of this Agreement shall be effective unless in a
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written notice signed by the waiving party and delivered, in the manner required
for notices generally, to each affected party.
10.6 Notices. Any notice or communication to Influence or TTI is duly given
if in writing and delivered in person, by telecopier, confirmed by first class
mail or overnight air courier guaranteeing next day delivery to the address set
forth below:
If to Influence:
Influence, Inc.
71 Stevenson Street, #120
San Francisco, CA 94105
Attn: President and CEO
If to TTI:
TomoTherapeutics, Inc.
3033 Science Park Road
San Diego, California 92121
Attention: Secretary
If to Titan:
The Titan Corporation
3033 Science Park Road
San Diego, California 92121
Attention: Secretary
10.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same document
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, other than the conflict of
laws rules thereof.
10.9 Binding Effect; Assignment. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the parties hereto and their
respective legal representatives, successors and permitted assigns. Except as
expressly set forth herein, nothing expressed or referred to in this Agreement
shall be construed to give any person other than the parties to this Agreement
or their respective legal representatives, successors and permitted assigns, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein. No party hereto may assign this Agreement nor
any of its rights hereunder, nor delegate any of its obligations hereunder,
without the prior written consent of the other parties. Any purported assignment
in violation of this Section 10.9 shall be void.
10.10 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
hereof and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction,
and any such provision, to the extent
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invalid or unenforceable, shall be replaced by a valid and enforceable provision
which comes closest to the intention of the parties underlying such invalid or
unenforceable provision.
10.11 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
10.12 Arbitration. Except as otherwise provided herein, if any controversy,
dispute or claim arises between the parties under this Agreement, such dispute
or claim shall be settled by final and binding arbitration in accordance with
the Rules of the American Arbitration Association. The parties agree that the
decision of the arbitrator shall be binding upon themselves, their successors
and assigns, and to the extent permitted by law, hereby waive appeal from such
decision. Such decision shall be expressed in writing, including the reasons for
such decision, in reasonable detail. All arbitration proceedings shall take
place in San Diego, California.
10.13 Bulk Transfers Law. Influence hereby waives compliance with the
provisions of any Bulk Transfers Law of any jurisdiction in connection with the
transfer of the Tangible Assets to Influence. TTI warrants and agrees to pay and
discharge when due any claims which are asserted against TTI solely by reason of
non-compliance with the provisions of any such Bulk Transfers Law.
10.14 Right of First Refusal by Stephen M. Fry, Ph.D. Influence understands
that in accordance with Titan's agreement with Stephen M. Fry (Fry), a minority
shareholder and former director of TTI, Fry has the right to match the terms of
any offer by a third party for the purchase of TTI or any of its assets for less
than one million dollars ($1,000,000). Upon receipt of a copy of the final
version of this Agreement, Fry has five (5) days in which to either match the
terms of such third party offer or reject his right of first refusal.
Accordingly, Influence understands and agrees that this Agreement is subject to
such refusal by Dr. Fry within the five (5) day period.
10.15 Assignment of MIT License. Titan will use its best reasonable efforts
to effect the assignment of its patent license agreement with Massachusetts
Institute of Technology (MIT), dated February 23, 1996. Influence acknowledges
and agrees that such assignment is dependent upon the written consent of MIT,
over which Titan ultimately has no control.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
TOMOTHERAPEUTICS, INC.
[Signature Block]
THE TITAN CORPORATION
[Signature Block]
INFLUENCE, INC.
[Signature Block]
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LIST OF EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
1 Prototype Definition/Specifications
2 Tangible Assets
3 Bill of Sale
4 Registration Rights Agreement
<PAGE>
EXHIBIT 1
[Exhibit 1 Contains a Diagram and Technical Description of the Prototype]
<PAGE>
EXHIBIT 2
[Exhibit 2 Contains a List of Tangible Assets and their Technical Descriptions]
<PAGE>
EXHIBIT 3
BILL OF SALE
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Tomo Therapeutics, Inc., a Delaware corporation ("Seller"),
does hereby grant, bargain, transfer, sell, assign and convey to Influence,
Inc., a Delaware corporation ("Buyer") all right, title and interest in and to
the Tangible Assets as such term is defined in the Technology Development and
License Agreement dated as of March 16, 1998 by and between Seller and Buyer
(the "Agreement"). Buyer hereby acknowledges that Seller is making no
representation or warranty with respect to the assets being conveyed hereby
except as specifically set forth in the Agreement. Seller for itself, its
successors and assigns hereby convenants and agrees that, at any time and form
time to time forthwith upon the written request of Buyer, Seller will do,
execute, acknowledge and deliver or cause to be done, executed, acknowledged and
delivered, each and all of such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required by Buyer in
order to assign, transfer, set over, convey, assure and confirm unto and vest in
Buyer, its successors and assigns, title to the assets sold, conveyed,
transferred and delivered by this Bill of Sale.
Seller hereby irrevocably designates, makes, constitutes and appoints
Buyer, its successors or assigns, the true and lawful attorney (and
agent-in-fact) of Seller with full power of substitution, for the benefit and at
the expense of Buyer, and, except as may be limited by or otherwise provided for
in the Agreement, to institute and prosecute all proceedings which Buyer may
deem proper in order to collect, assert or enforce any claim, right or title of
any kind in or to any of the Assets, to defend or compromise any and all
actions, suits or proceedings in respect of any of the Assets, and to do all
such acts and things in relation thereto as Buyer shall deem advisable. Seller
acknowledges that the foregoing powers are coupled with an interest and shall be
irrevocable by Seller in any manner or for any reason. Buyer shall be entitled
to retain for its own account any amounts collected pursuant to the foregoing
powers, including any amounts payable as interest in respect thereto.
This Bill of Sale is being executed and delivered by Seller pursuant to the
terms of the Agreement. Executed at San Diego, California, this 6th day of
March, 1998.
TomoTherapeutics, Inc.
By: /s/ Cheryl L. Barr
---------------------------
Name: Cheryl L. Barr
Its: Assistant Secretary
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO )
On March 16, 1998, before me, Ann I. Miller personally appeared Cheryl L.
Barr, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the peson
<PAGE>
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that s/he executed the same in his authorized capacity(ites), and that by
his/her signature on the instrument the person, or the entity upon behalf of
which the person(s) acted, executed and instrument.
WITNESS, my hand and official seal.
<PAGE>
EXHIBIT 4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
the 16th day of March, 1998, by and among INFLUENCE, INC., a Delaware
corporation (the "Company") and TOMOTHERAPEUTICS, INC., a Delaware Corporation
("TTI").
RECITALS
WHEREAS, the Company and TTI have entered into a Technology Development and
License Agreement of even date herewith (the "Development Agreement");
WHEREAS, the Company will issue up to forty-five thousand (45,000) shares
of its Common Stock to TTI pursuant to the Development Agreement; and
WHEREAS, as a condition of entering into the Development Agreement, TTI has
requested that the Company extend to it registration rights as set forth below.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement and in the
Development Agreement, the parties mutually agree as follows:
1. GENERAL.
1.1 Definitions As used in this Agreement the following terms shall have
the following respective meanings:
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"Holder" means any person owning of record Registrable Securities that have
not been sold to the public or any assignee of record of such Registrable
Securities in accordance with Section 2.10 hereof.
"Initial Offering" means the Company's first firm commitment underwritten
public offering of its Common Stock registered under the Securities Act.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
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"Registrable Securities" means (a) Common Stock of the Company issued or to
TTI pursuant to the Development Agreement; and (b) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such above-described
securities. Notwithstanding the foregoing, Registrable Securities shall not
include any securities sold by a person to the public either pursuant to a
registration statement or Rule 144 or sold in a private transaction in which the
transferor's rights under Section 2 of this Agreement are not assigned.
"Registrable Securities then outstanding" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable or convertible
securities.
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with Sections 2.1 and 2.2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements of a single special
counsel for the Holders, blue sky fees and expenses and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be paid in any
event by the Company).
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale.
2. REGISTRATION.
2.1 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities who are parties to this Agreement, in writing at least
fifteen (15) days prior to the filing of any registration statement under the
Securities Act for purposes of a public offering of securities of the Company
(including, but not limited to, registration statements relating to any
secondary offerings of securities of the Company, but excluding registration
statements relating to an initial public offering or to employee benefit plans
or with respect to corporate reorganizations or other transactions under Rule
145 of the Securities Act) and will afford each such Holder an opportunity to
include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within five (5) business days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(a) Underwriting. If the registration statement under which the Company
gives notice under this Section 2.1 is for an underwritten offering, the Company
shall so advise
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the Holders of Registrable Securities. In such event, the right of any such
Holder to be included in a registration pursuant to this Section 2.1 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company.
(b) Right to Terminate Registration. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section 2.1
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
2.2 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders of Registrable Securities who are parties to this Agreement a
written request or requests that the Company effect a registration on Form S-3
(or any successor to Form S-3) or any similar short-form registration statement
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.2:
(i) if Form S-3 (or any successor or similar form) is not available
for such offering by the Holders, or
(ii) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders.
(d) The Company shall be obligated to effect no more than two (2) such
registrations, and the Company shall not be obligated to effect more than one
(1) such registration in any twelve month period.
2.3 Expenses of Registration. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.1 or Section 2.2 herein shall
be borne by the Company. All Selling Expenses incurred in connection with any
registrations hereunder shall be borne by the holders of the securities so
registered pro rata on the basis of the number of shares so registered.
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2.4 Obligations of the Company. Whenever required by this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use all reasonable efforts to cause such
registration statement to become effective, and, in the case of a registration
pursuant to Section 2.2 herein, keep such registration statement effective for
up to one hundred twenty (120) days or, if earlier, until the Holder or Holders
have completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such number of copies of a prospectus, including
a preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of a majority of the Holders participating in
the registration, on the date that such Registrable Securities are delivered to
the underwriters for sale, if such securities are being sold through
underwriters, or, if such securities are not being sold through underwriters, on
the date that the registration statement with respect to such securities becomes
effective, (i) an opinion, dated as of such date, of the counsel representing
the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated as of
such date, from the independent certified public accountants of the Company, in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting registration,
addressed to the underwriters, if any, and if permitted by applicable accounting
standards, to the Holders requesting registration of Registrable Securities.
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2.5 Underwriting Requirements. In connection with any offering involving an
underwriting of shares of the Company's capital stock, the Company shall not be
required to include any of the Holders' securities in such underwriting unless
they accept the terms of the underwriting as agreed upon between the Company and
the underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by shareholders to be included in such offering exceeds the amount of
securities to be sold other than by the Company that the underwriters determine
in their sole discretion is compatible with the success of the offering, then
the Company shall be required to include in the offering only that number of
such securities, including Registrable Securities, which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
selling shareholders according to the total amount of securities entitled to be
included therein owned by each selling shareholder or in such other proportions
as shall mutually be agreed to by such selling shareholders).
2.6 Termination of Registration Rights. All registration rights granted
under this Section 2 shall terminate and be of no further force and effect five
(5) years after the date of the Company's Initial Offering.
2.7 Delay of Registration; Furnishing Information.
(a) No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) The selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
2.8 Indemnification. In the event any Registrable Securities are included
in a registration statement under Sections 2.1 or 2.2:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder who is a party to this Agreement, the partners, officers,
directors and legal counsel of each such Holder, any underwriter (as defined in
the Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each such
Holder, partner, officer, director, legal counsel, underwriter or controlling
<PAGE>
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided however, that the indemnity agreement contained in this Section
2.8(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company, which consent shall not be unreasonably withheld, nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder, partner,
officer, director, legal counsel, underwriter or controlling person of such
Holder.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration qualifications or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers, and legal counsel and
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such Holder, or
partner, director, officer or controlling person of such other Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such director,
officer, legal counsel, controlling person, underwriter or other Holder, or
partner, officer, director, legal counsel or controlling person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 2.8(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 2.8
exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section 2.8
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 2.8, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 2.8, but the omission so to deliver written notice to the
indemnifying party will not
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relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 2.8.
(d) If the indemnification provided for in this Section 2.8 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the Violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by a court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, that in no event shall any contribution by a Holder hereunder exceed
the net proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this Section 2.8 shall
survive completion of any offering of Registrable Securities in a registration
statement and the termination of this agreement. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
2.9 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 2 may be assigned by a
Holder to a transferee or assignee of Registrable Securities which (a) is a
subsidiary, parent, general partner, limited partner or retired partner of a
Holder, or (b) is a Holder's family member or trust for the benefit of an
individual Holder; provided, however, (i) the transferor shall, within ten (10)
days after such transfer, furnish to the Company written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned and (ii) such transferee shall agree
to be subject to all of the terms and conditions set forth in this Agreement.
2.10 Amendment of Registration Rights. Any provision of this Section 2 may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least sixty-six and
two-thirds percent (66-2/3%) of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this Section 2.9 shall be
binding upon each Holder and the Company. By acceptance of any benefits under
this Section 2, Holders of Registrable Securities hereby agree to be bound by
the provisions hereunder.
2.11 Limitation on Subsequent Registration Rights. After the date of this
Agreement, the Company shall not, without the prior written consent of the
Holders of sixty-six and two-thirds percent (66-2/3%) of the Registrable
Securities then outstanding, enter into any agreement with any holder or
prospective holder of any securities of the Company that would grant such holder
registration rights senior to those granted to the Holders hereunder.
<PAGE>
2.12 Rule 144 Reporting. With a view to making available to the Holders the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and other documents
required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, furnish to such
Holder forthwith upon request: a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 of the Securities
Act, and of the Exchange Act (at any time after it has become subject to such
reporting requirements); a copy of the most recent annual or quarterly report of
the Company; and such other reports and documents as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
2.13 Lock-up. Each Holder who is a party to this Agreement hereby agrees
that it will not, without written consent of the Company, directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation any short sale), pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act
of 1934, as amended, or enter into any other hedging transactions with respect
to, or otherwise dispose of any shares of Common Stock, currently or hereafter
owned either of record or beneficially (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) by such Holder, or publicly announce such
Holder's intention to do any of the foregoing, for a period commencing on the
date the Company shall file any registration statement and continuing to a date
ninety (90) days after the date of the final prospectus filed as part of such
registration statement. Such Holder also agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent and registrar
against the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
3. MISCELLANEOUS.
3.1 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
3.2 Survival. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
3.3 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto
and shall inure to the benefit of and be
<PAGE>
enforceable by each person who shall be a holder of Registrable Securities from
time to time; provided, however, that prior to the receipt by the Company of
adequate written notice of the transfer of any Registrable Securities specifying
the full name and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the absolute owner
and holder of such shares for all purposes, including the payment of dividends
or any redemption price.
3.4 Entire Agreement. This Agreement, the Development Agreement and the
other documents delivered pursuant thereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein.
3.5 Severability. In case any provision of the Agreement shall be invalid,
illegal, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
3.6 Amendment and Waiver.
(a) Except as otherwise expressly provided, this Agreement may be amended
or modified only upon the written consent of the Company and the holders of at
least two-thirds (66 2/3%) of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of the Company
and the rights of the Holders under this Agreement may be waived only with the
written consent of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the Registrable Securities.
3.7 Delays or Omissions. It is agreed that no delay or omission to exercise
any right, power, or remedy accruing to any Holder, upon any breach, default or
noncompliance of the Company under this Agreement shall impair any such right,
power, or remedy, nor shall it be construed to be a waiver of any such breach,
default or noncompliance, or any acquiescence therein, or of any similar breach,
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent, or approval of any kind or character on any Holder's
part of any breach, default or noncompliance under the Agreement or any waiver
on such Holder's part of any provisions or conditions of this Agreement must be
in writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement, by law, or otherwise
afforded to Holders, shall be cumulative and not alternative.
3.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature pages hereof or at
such other address as such party may designate by ten (10) days advance written
notice to the other parties hereto.
3.9 Attorneys' Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such
<PAGE>
prevailing party under or with respect to this Agreement, including without
limitation, such reasonable fees and expenses of attorneys and accountants,
which shall include, without limitation, all fees, costs and expenses of
appeals.
3.10 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
3.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this REGISTRATION
RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INFLUENCE, INC. TOMOTHERAPEUTICS, INC.
By: /s/ Peter Bick By: /s/
Title: President and CEO Title: President and CEO
Address: 71 Stevenson Street, Suite 1120 Address: 3033 Science Park Road
San Fransisco, CA 94105 San Diego, CA 92121
Fax: (619) 552-9759
<PAGE>
EXHIBIT 10.13
Agreement in Principle for Collaboration
Between Galil Medical Ltd. and Influence Medical Technologies Ltd.
Prepared and Signed on 25 March 1998
Background.
Galil Medical Ltd. is involved in the development of technology and systems used
in the performance of cryosurgery treatments in different clinical areas.
Influence Medical Technologies Ltd. is involved in the development of medical
products in the fields of urology and ear-nose-throat, and in the performance of
clinical trials on animal and human subjects.
Influence and Galil Medical are interested in collaborating in the development
and sale of equipment and a method for the treatment of the BPH problem, and for
the treatment of OSA and of enlarged tonsils, by means of cryosurgery and of
"cryo" both alternated and not alternated with heating (hyperthermia).
Subject of Collaboration.
Treatment of patients suffering from the above-mentioned pathologies by
cryogenic and hyperthermic means. The collaboration will include the areas of
the development of the technology and the products, clinical trials and the
obtaining of approvals for sale, development of production ability, production,
marketing and sales.
Non-Competition.
The companies will not compete in the areas in which they will collaborate.
Organization - Stage One.
During this stage, clinical trials will be performed on animal and human
subjects. A probe will be developed which is light and flexible along its entire
length except for the end that is inserted into the body. This end will be of a
small diameter and it will be possible by means of it to cool and heat rapidly.
In addition, a probe will be developed which is short and inflexible for ENT
use. The companies will carry out all the activities necessary in order to
obtain CE Mark for the product.
The companies will examine the possible methods of operation to bring about the
joint venture between them at this stage, such as: the establishment of a
company, a joint venture, etc. Accounting and tax considerations, among others,
will be taken into account.
<PAGE>
Investments.
Influence:
Lead and perform clinical trials on animal and human subjects until CE Mark
approval is obtained, not including obtaining FDA approval.
Galil Medical:
Provision of the equipment necessary for the performance of clinical trials.
Development of a probe which is suitable for the procedure (a probe which is
light and flexible along its full length except for the end that is inserted
into the body. This end will be of a small diameter and it will be possible by
means of it to cool and heat rapidly. In addition, a probe of a small diameter
will be developed which is short and inflexible for ENT use. The probe will
include a device for heating in order to mold the ball and for heating in order
to prevent damage to mucous membrane.).
Authorizations of safety and electromagnetic suitability required in order to
obtain CE Mark.
Other operational costs will be divided equally between the companies. The
companies will divide between themselves the cost of registering and maintaining
the joint patents.
Organization - Stage Two.
During this stage, clinical trials and any additional activity necessary for
obtaining of FDA approval will be performed. A marketing and distribution system
will be established and the possibility will be examined of additional
developments including additional systems of applications, etc.
The form of organization, the required investment costs, the location of
operation, etc., will be agreed upon between the parties at a later time.
Location of Operation.
If and when a company or another framework is set up for production activity,
its location will be connected to Galil Medical, on the condition that the cost
of establishment will be competitive.
Production of Materials.
Production of materials will be performed at Galil Medical at a cost competitive
with market prices.
2
<PAGE>
Marketing.
To be agreed upon between the parties at a later time.
Ownership.
The above-mentioned projects will be owned jointly and in equal portions by
Influence and Galil Medical.
Signed:
Influence Medical Technologies Ltd. Galil Medical Ltd.
/s/ Motti Beyar /s/ Shaike Shatzberger
- ----------------------------------- -----------------------------------
Dr. Motti Beyar, Vice Chairman Shaike Shatzberger, General Manager
3
<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 August __, 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
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Consolidated Financial Data."
- ------------------------------
PricewaterhouseCoopers LLP
San Jose, California
August __, 1998
<PAGE>
EXHIBIT 23.3
August 17, 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. 3 to Form S-1 of Influence, Inc.
Very truly yours,
/s/ Levisohn, Lerner, Berger & Langsam
--------------------------------------
Levinsohn, Lerner, Berger & Langsam
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF INFLUENCE, INC. FOR THE QUARTER ENDED
June 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 DEC-31-1997
<CASH> 819 2,737
<SECURITIES> 203 2,459
<RECEIVABLES> 737 428
<ALLOWANCES> 66 37
<INVENTORY> 1,209 918
<CURRENT-ASSETS> 3,587 7,469
<PP&E> 1,559 1,485
<DEPRECIATION> 358 233
<TOTAL-ASSETS> 4,788 8,721
<CURRENT-LIABILITIES> 2,380 1,848
<BONDS> 0 0
0 0
7 7
<COMMON> 4 4
<OTHER-SE> 1,380 6,862
<TOTAL-LIABILITY-AND-EQUITY> 4,788 8,721
<SALES> 1,873 1,114
<TOTAL-REVENUES> 1,873 1,114
<CGS> 1,293 2,765
<TOTAL-COSTS> 7,376 9,065
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 738
<INCOME-PRETAX> (6,773) (10,850)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,773) (10,850)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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<NET-INCOME> (6,773) (10,850)
<EPS-PRIMARY> (1.29) (2.10)
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