<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------------
<PAGE> 2
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
9162 Eton Avenue
Chatsworth, California 91311
May 7, 1997
Dear IRIS Stockholder:
1996 was a year of achievement, disappointment and change. We set a new
record for revenues for the seventh consecutive year but were unable to maintain
our six-year record of increasing profitability. Our sales increased
substantially due to the addition of exciting new products to our existing lines
and, more significantly, through several strategic acquisitions. However, we
were unable to maintain operational profitability due to the combined effect of
lower than planned sales in certain areas and elevated expenses. As a result,
our stock price which had reached a new high receded with other small cap high
tech stocks, in general, hastened by our news of an unexpectedly poor third
quarter. IRIS experienced significant changes in 1996, and understanding our
performance requires especially careful examination of our current business and
future plans. While I summarize some of these changes and plans below, I
encourage you to read the enclosed 1996 Annual Report on Form 10-K thoroughly
for a more detailed description.
Our achievements in 1996 were in the accomplishment of several key
strategic goals: the expansion of our urinalysis and StatSpin franchises; the
growth into other key in vitro diagnostic (IVD) markets; continued technical
achievements and expanded consumable products. I would like to describe each of
these achievements before addressing our financial performance.
Expansion of Urinalysis and StatSpin Lines. In last year's letter, I
described a new and exciting goal --enlarging our urinalysis franchise to reach
laboratories of all sizes with cost-effective, quality-improving products. Last
year, we took a significant step in this strategy by acquiring StatSpin
Technologies and the CenSlide product line. StatSpin manufactures and markets
special-purpose centrifuges and related supplies, and CenSlide is a proprietary
line of products for manual microscopic urinalysis. StatSpin brought us both new
products and important distribution channels for smaller laboratories and
physician offices. In order to take advantage of StatSpin's distribution
channels, we recently transferred the CenSlide and Biovation product lines to
StatSpin. You may recall that we acquired the Biovation product line for
measuring urine specific gravity in early 1995.
In its first year as an IRIS company, StatSpin's sales and earnings
increased significantly. StatSpin has sold more than 30,000 centrifuges
worldwide and expanded its product line in 1996 with two new centrifuges
developed in StatSpin's own laboratories -- the StatSpin Express primary blood
tube centrifuge and the CytoFuge 2 application specific centrifuge for the
preparation of slides for manual microscopic examination of cells in body
fluids. Introduced in December, the StatSpin Express is designed to command a
major share of what we expect to be a rapidly growing market for small
high-speed blood tube centrifuges distributed among the many workstations found
in clinical laboratories. CytoFuge 2, introduced about the same time, is
designed to compete in the marketplace with the market-leading Shandon CytoSpin
device. Our goal is to gain a share of this market which is expanding rapidly as
a result of a recent College of American Pathologists pronouncement which
requires body fluids to be examined in this way. Thus, StatSpin enters 1997 with
four significant new products in its line.
Not to be outdone, our Chatsworth-based team added to the top end of
our urinalysis line. We obtained FDA clearance in March 1996 for our newest
member of The Yellow IRIS family, the Model 900UDx urine pathology workstation,
the first completely walkaway urinalysis system. Since its commercial
introduction in the second quarter of 1996, we have sold nineteen of these fast
and accurate systems. We expect the Model 900UDx to set a new standard for both
quality of result and cost-effectiveness in the performance of a complete
routine urinalysis.
Finally, as a result of a favorable decision in our arbitration with
TOA Medical Electronics (TOA), our exclusive distribution rights in North
America to TOA's new Sysmex UF-100 urine sediment analyzer were upheld. The
panel also upheld our claim to royalties on sales of the UF-100 outside of our
distribution territory.
<PAGE> 3
With this dispute behind us, we look forward to more amicable relations with TOA
in the future. We have had cordial and productive discussions with TOA regarding
our introduction of the UF-100 under the IRIS/Sysmex joint label later this
year.
Expansion into Other IVD Markets. As part of our quest for IVD imaging
systems leadership, we acquired the PowerGene(TM) cytogenetics systems business
of Perceptive Scientific Instruments in July of 1996. PSI is a recognized leader
in the supply of hardware and software systems for the cytogenetics and
molecular genetics markets. Strategically focused on prenatal screening and
cancer testing applications, the innovative PowerGene(TM) software and related
computer-based instruments have captured over 35% of the worldwide cytogenetics
systems market, with an installed base of over 300 systems worldwide. PSI's
overseas operations in Chester, England also give IRIS an immediate
international presence.
PSI has a very active research and development program. Among its
current activities is the preclinical evaluation of a new system and software
designed to improve automated classification of chromosomes using a fluorescent
painting procedure called multiplexing fluorescent in-situ hybridization
(M-FISH) based on color-coding of chromosomes using DNA probes. PSI is
collaborating on this project with Professor David C. Ward of the Yale
University School of Medicine Genetics Department. This highly sophisticated new
development, targeted for release to the research market this year, is expected
to significantly enhance PowerGene system sales.
In an expansion into another IVD market, we obtained FDA clearance for
The White IRIS leukocyte differential analyzer in May 1996. The White IRIS is
our new imaging system for the automated capture and classification of normal
and abnormal white blood cells -- the first blood cell classifier ever cleared
by the FDA for the classification of abnormal white blood cells. This system has
since undergone additional refinements in preparation for its commercial launch
scheduled for later this year. We believe that it is vital that such a
revolutionary new advance in hematology as The White IRIS have as smooth an
introduction as possible. Therefore, we have placed it at Harbor-UCLA Medical
Center, again -- this time in a "shakedown" beta-site test mode -- to confirm
our performance expectations prior to commercial release. The White IRIS will
give us yet a third product line of IVD imaging systems.
Continued Technical Excellence. Obviously, we are pleased with our new
product developments. The FDA cleared the Model 900UDx in March 1996 and The
White IRIS just two months later. It is an extraordinary accomplishment for any
company to obtain FDA clearance for two major clinical laboratory instruments
within a few months of one another. It is even more remarkable for one the size
of IRIS. This is the result of the persistent efforts of the multi-disciplinary
teams that were involved in the development, preclinical evaluation and FDA
submission of these products. They are a group of dedicated, hard-working people
deserving of acknowledgment.
The new product development program with Poly U/A Systems, Inc., the
special purpose research and development entity organized by IRIS in 1995, is
also proceeding as scheduled. The two largest of its four projects are expected
to yield useful technology adaptable to the next generation of The Yellow IRIS.
Another project has been modified to take advantage of a more immediate
opportunity. As you know, IRIS has an option to purchase Poly U/A Systems until
November 1998.
Overall, we significantly expanded our patent portfolio in 1996 by the
acquisitions of StatSpin (7 patents), CenSlide (9 patents) and PSI (1 patent),
bringing the total number of our U.S. patents to 43. A number of other patent
applications are on file. I am pleased to report that during 1996 we
successfully defended a challenge to two of our earliest patents when
Intelligent Medical Imaging, Inc. agreed to settle the litigation and
acknowledge the validity of the patents.
Expansion of Consumable Products. Another of our strategic goals is to
expand the sales of consumable products among our large and growing installed
base of customers. One important example is our exclusive distribution of the
CHEMSTRIP/IRIStrip urine test strips for The Yellow IRIS. These strips,
manufactured for us by Boehringer Mannheim, are now used by more than 90% of the
installed base of these systems and have almost doubled our sales of consumable
products to these customers. Concurrently with the planned introduction of The
White IRIS leukocyte differential analyzer, we will begin to sell a patented
metachromatic cytoprobe and other consumable products for this system. The White
IRIS, in my opinion, has
-2-
<PAGE> 4
the potential to ultimately provide a recurring revenue stream as large or
larger than the one provided by The Yellow IRIS. Installations of The CytoFuge 2
and the CenSlide centrifuge also are expected to generate significant
consumables sales.
Now, our financial picture.
Financial Performance. Last year it was less than what we had hoped. Total
revenues did increase to $20.6 million for 1996 as a result of acquisitions and
product introductions. While this was up 43% from last year and well ahead of
our historical growth trend, 1996 earnings were severely impacted by expenses
related to the PSI acquisition and a number of expected and unexpected charges.
They include a one-time charge of $7.3 million for the acquisition of in-process
research and development from PSI, as well as $2.0 million of unusual charges,
primarily for the write-off of costs connected with the public offering we
decided not to pursue, litigation, other acquisitions and restructuring. Our
bottom-line was a net loss of $7.4 million, or $1.21 per share, for the year.
Excluding these acquisition and unusual charges, IRIS had a net loss of
approximately $1.5 million, or $0.25 per share. If interest charges and
amortization expenses from the PSI acquisition are also excluded, IRIS would
have lost $844,000, or $.14 per share.
Our loss was compounded by elevated expense levels in anticipation of
planned sales increases which did not materialize. When the reality of a
significant, unexpected sales shortfall in the third quarter also became
apparent, we responded immediately with cost reductions achieved primarily
through downsizing our workforce. This reached high levels of management,
including three Vice Presidents. At the same time, we restructured our
companies, restoring operational responsibilities for the PSI and StatSpin
business units to those individuals who helped grow these businesses. Also, I
reassumed operational control of our Chatsworth-based business. These steps were
taken to help restore operating profitability and ensure positive cash flow.
The street, as you know, reacted very harshly to all this news, toppling
our stock from its high of over $12 per share in June to below $4.00 per share
at the close of the year. It is difficult for me to understand how IRIS should
hold less promise at year end than it did at the beginning of 1996.
I can report, however, that our financial performance is improving. During
the fourth quarter of 1996, we realized our cost reduction goals and recorded
record sales in the IRIS urinalysis and StatSpin businesses. In addition,
excluding the unusual charges for the restructuring and recently completed
litigation matters, the Company had positive EBITDA (earnings before interest,
taxes, depreciation and amortization) for the fourth quarter of 1996. Coupled
with our first quarter 1997 results, for which we did achieve positive EBITDA,
the recent financial performance of the Company indicates that we should have
sufficient cash flow to support operations and service debt in 1997. We have
also managed to repay over $3.7 million or 41% of our bank debt since October. I
believe that these developments attest to our recovery in a very tangible way.
Management Additions. As you might expect, the administrative demands of
the financial side of our business have increased significantly with the
addition of StatSpin and PSI. To meet these demands, we appointed Mr. Martin S.
McDermut as Vice President and Chief Financial Officer in September. Marty
brings with him strong entrepreneurial and accounting experience, and I have
delegated most of my prior financial responsibilities to him. I am pleased to
have Marty aboard.
I am also pleased to welcome a number of other senior executives who joined
IRIS last year as a result of our recent acquisitions. Dr. Thomas F. Kelley, the
founder of StatSpin Technologies, is the Vice President and General Manager of
StatSpin. Dr. Kelley was also elected to the IRIS Board of Directors at last
year's annual meeting. Joining us from PSI are Mr. Anthony G. Landells, Dr.
Kenneth R. Castleman and Mr. Paul Douglas. Mr. Landells is the Vice President
and General Manager of PSI. Dr. Castleman is the Vice President of Research and
Development of PSI and a world-renowned expert in image processing. Mr. Douglas,
Vice President of Sales at PSI, has lengthy international experience in the
marketing and sale of digital imaging systems. Tony and Paul also bring years of
pertinent experience in the cytogenetics field. I should add that Ken is a
former consultant to IRIS. We welcome all of these people to the IRIS management
team.
Corporate Finance. A vote of confidence in the promise of our future, I
submit, came late in December of 1996 when IRIS completed a $3 million private
offering of preferred stock and warrants to the Thermo Amex Convertible Growth
Fund. The net proceeds from this offering were used to reduce the outstanding
balance
-3-
<PAGE> 5
of our bank loans and provide additional working capital. The Thermo Amex
Convertible Growth Fund is a private investment fund created by Thermo Electron
Corporation to invest in qualified American Stock Exchange listed companies. We
are pleased with this timely investment and the vote of confidence it implies in
the potential of IRIS.
Proxy Statement and Annual Meeting. This year's Proxy Statement contains
just two proposals. The first one is for the re-election of Mr. Steven M.
Besbeck for another three year term as an IRIS director. Mr. Besbeck has served
in this capacity since 1990, and we welcome his continued stewardship in this
role. The second proposal is for ratification of the reappointment of Coopers &
Lybrand L.L.P. as our independent auditors. IRIS has a long-established
relationship with this firm. Your management endorses and asks your support of
both proposals. We hope you agree with our recommendations. In any case, please
cast your vote. If you are a registered stockholder, complete and return your
Proxy Card promptly. If your shares are held in street name, please instruct
your broker on how to cast your vote and urge a prompt response. Your vote is
important to us.
As in past years, our Annual Meeting of Stockholders will be held at the
Chatsworth Hotel. The hotel is located at 9777 Topanga Canyon Boulevard,
Chatsworth, CA, approximately one mile north and one mile west of IRIS
headquarters facilities. The meeting is on Thursday, June 26, 1997 and will
begin at 4:00 pm local time. The Board of Directors and management of IRIS
invite your presence and welcome your participation at the meeting.
Finally, I'd like to point out that this letter represents my sincere and
honest views regarding the past year at IRIS and its future prospects. However,
many of my statements are forward-looking in nature and therefore inherently
subject to the vagaries of future events which I cannot predict. Again, I refer
you to the enclosed Annual Report for a better understanding of IRIS, especially
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Sincerely,
/s/ FRED H. DEINDOERFER
FRED H. DEINDOERFER
Chairman of the Board and President
THE ANNUAL MEETING IS ON JUNE 26, 1997. PLEASE RETURN YOUR PROXY IN TIME.
-4-
<PAGE> 6
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
9162 Eton Avenue
Chatsworth, California 91311
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 26, 1997
To the Stockholders of INTERNATIONAL REMOTE IMAGING SYSTEMS, INC:
The Annual Meeting of Stockholders of International Remote Imaging Systems,
Inc. will be held at the Chatsworth Hotel at 9777 Topanga Canyon Boulevard,
Chatsworth, California, on June 26, 1997 at 4:00 p.m. local time for the
following purposes:
1. To elect one Class 1 Director to hold office until the year 2000
annual meeting or until his successor is elected and qualified.
2. To ratify the selection of Coopers & Lybrand L.L.P. as independent
public accountants for the fiscal year ending December 31, 1997.
3. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on May 6, 1997 as
the record date for determination of stockholders entitled to notice of, and to
vote at, said meeting and any adjournments or postponements thereof.
All stockholders are cordially invited to attend the meeting in person. In
any event, please mark, date, sign and return the enclosed proxy. The related
proxy statement and annual letter to stockholders are attached to this notice.
By Order of the Board of Directors
/s/ FRED H. DEINDOERFER
FRED H. DEINDOERFER
Chairman of the Board and President
May 7, 1997
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING
OF STOCKHOLDERS, PLEASE MARK, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY
IN THE STAMPED RETURN ENVELOPE PROVIDED. YOUR PROMPT RETURN OF THE PROXY WILL
HELP AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION TO ASSURE A QUORUM AT
THE MEETING.
THE ANNUAL MEETING IS ON JUNE 26, 1997. PLEASE RETURN YOUR PROXY IN TIME.
<PAGE> 7
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
9162 Eton Avenue
Chatsworth, California 91311
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 26, 1997
GENERAL INFORMATION AND VOTING RIGHTS
This proxy statement (the Proxy Statement) and the enclosed proxy are
furnished in connection with the solicitation of proxies by the Board of
Directors of International Remote Imaging Systems, Inc., a Delaware corporation
(IRIS or the Company), for use at the Annual Meeting of Stockholders (the Annual
Meeting) to be held at the Chatsworth Hotel at 9777 Topanga Canyon Boulevard,
Chatsworth, California on Thursday, June 26, 1997 at 4:00 p.m. local time and
any adjournments or postponements thereof. Enclosed with this Proxy Statement is
a copy of the Company's Annual Report on Form 10-K (without exhibits) for the
fiscal year ended December 31, 1996. However, the Annual Report is not intended
be a part of this Proxy Statement or a solicitation of proxies. The Company
anticipates that the Proxy Statement and enclosed proxy will first be mailed or
given to its stockholders on or about May 7, 1997.
A proxy may be revoked by filing with the Secretary a written notice of
revocation or a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person. Attendance in person at the Annual Meeting
does not itself revoke an otherwise valid proxy; however, any stockholder who
attends such meeting may orally revoke his proxy at the Annual Meeting and vote
in person. All properly executed proxies received prior to or at the Annual
Meeting, and not revoked, will be voted at the Annual Meeting with the
instructions indicated on such proxies. If no instructions are indicated, such
proxies will be voted FOR the election of the nominee as the Class 1 Director
and FOR Proposal 2. In addition, the proxy holders will vote in their sole
discretion upon such other business as may properly come before the meeting and
any adjournments or postponements thereof.
The cost of this solicitation of proxies will be borne by the Company.
Directors, officers and regular employees of the Company may solicit proxies in
person, by telephone, by mail or by other means of communication, but such
persons will not be specially compensated for such services. The Company may
also reimburse brokers, banks, custodians, nominees and other fiduciaries for
their reasonable charges and expenses in forwarding proxy materials to
beneficial owners.
Only holders of record of the Company's common stock, $.01 par value per
share (Common Stock), at the close of business on May 6, 1997 will be entitled
to vote at the Annual Meeting on the proposals described in this Proxy
Statement. On that date, there were approximately 5,991,388 shares of Common
Stock outstanding. Each holder of record is entitled to one vote on all matters
to come before the meeting for each share of Common Stock held. The Company also
had 3,000 shares of Series A Convertible Preferred Stock outstanding on May 6,
1997. The Series A Convertible Preferred Stock is not entitled to vote on any
matter except as required by law or the Certificate of Designation for the
Series A Convertible Preferred Stock. Accordingly, the holders of Series A
Convertible Preferred Stock will not be entitled to vote on any of the proposals
listed in this Proxy Statement, but they may have the right to vote on other
matters which may properly come before the meeting and any adjournments or
postponements thereof.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding those
individuals serving as the directors and executive officers of the Company on
December 31, 1996:
<TABLE>
<CAPTION>
Name Age Position with the Company
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fred H. Deindoerfer 67 Chairman of the Board, President and Chief Executive Officer
John A. O'Malley 63 Director
Steven M. Besbeck 49 Director
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C> <C>
Thomas F. Kelley 64 Director, Vice President and General Manager of StatSpin
Martin S. McDermut 46 Vice President, Finance and Administration and Chief Financial Officer
Anthony G. Landells 43 Vice President and General Manager of PSI
</TABLE>
The Board of Directors is divided into three classes with the directors in
each class holding office for staggered terms of three years each or until their
successors have been duly elected and qualified. Executive officers serve at the
discretion of the Board of Directors. There are no familial relationships among
the directors and executive officers of the Company.
Fred H. Deindoerfer, a founder of the Company, was elected a director in
1980, became Chairman of the Board of Directors, President and Chief Executive
Officer later that year and has served continuously in these capacities since
then. In addition, he served as Chief Financial Officer from 1991 until August
1996. Prior to his employment with the Company, Dr. Deindoerfer served as
Executive Vice President of International Diagnostic Technology, an IVD company
which was acquired by Boehringer Ingelheim, and earlier as an international
group Vice President of American Hospital Supply Corporation after serving as
Vice President of such corporation's McGaw Laboratories Division. He holds a
B.S. from the University of Illinois, an M.S. from Columbia University and a
Ph.D. from the University of Pennsylvania, all in Chemical Engineering. Dr.
Deindoerfer also is President of Poly.
John A. O'Malley has served as a director since 1988. He is President of
Second Opinion, a consulting firm serving the healthcare diagnostic and
biotechnology industry and a member of the Office of the President of Litmus
Concepts, Inc., a developer of point-of-care diagnostic tests for the women's
healthcare market. Previously, he was worldwide director of chemical
manufacturing operations for the Milligen/Biosearch Division which Millipore
Corporation acquired from New Brunswick Scientific where Dr. O'Malley had been
its Vice President and General Manager. Previously, he was President of Primary
Diagnostic Systems and President of Smith Kline Instruments, both IVD companies.
Dr. O'Malley received his B.S. degree in Chemistry from Rutgers, the State
University of New Jersey, and his Ph.D. degree in Physical Chemistry from the
University of Pennsylvania. He also serves as Chairman of the Board of
Directors, Executive Vice President and General Manager of Poly.
Steven M. Besbeck has served as a director since 1990. He is President,
Chief Executive Officer and Chief Financial Officer of Creative Computer
Applications, Inc., a position he has held since 1983, as well as one of its
directors since 1980. Creative Computer Applications designs, develops, services
and markets laboratory, pharmacy and radiology information systems for clinical
laboratories. Prior to that, Mr. Besbeck was a director, President and Chief
Executive Officer of American Cytogenetics, Inc., a specialty clinical
laboratory, at various times over an eight-year period. Mr. Besbeck holds a B.S.
in Finance from California State University, Long Beach.
Thomas F. Kelley was appointed a director in March 1996 and elected to his
first three-year term in June. He is also a Vice President of the Company and
the General Manager of StatSpin. From 1982 to the time of its acquisition by the
Company, he was President and Chairman of the Board of StatSpin. Prior to
founding StatSpin, Dr. Kelley was employed by Instrumentation Laboratory, Inc.,
in roles of Director of Market Development and Director of Applied Research
among others. He has spoken at national and international conferences on
biotechnology and clinical laboratory instrumentation. Dr. Kelley received his
A.B. and M.A. degrees in Biology from Boston University in 1954 and 1955,
respectively, and his Ph.D. in Biochemistry from Brown University in 1959. He
also serves as a director of BioNostics, Inc., an Acton, Massachusetts-based
original equipment manufacturer and private-label manufacturer of reagents,
controls and calibrators.
Martin S. McDermut joined the Company as Vice President of Finance and
Administration and Chief Financial Officer in September 1996. Immediately prior
to this appointment, he was Chief Financial Officer of Edudata Corporation which
acquired Dental/Medical Diagnostic Systems in March of 1996. Dental/Medical
Diagnostic Systems develops, manufactures and markets intraoral dental cameras.
From June 1995 to April 1996, Mr. McDermut was Vice President and Chief
Financial Officer of All-Comm Media Corporation, and, prior to that, he held the
same roles at Pet Metro, Inc., an early stage retail chain. From 1975 to 1993,
he was with the accounting and consulting firm of Coopers & Lybrand L.L.P.,
beginning as a partner in 1988. From 1990 to 1993, Mr. McDermut practiced in the
firm's Los Angeles Entrepreneurial Advisory Services Group and was
-2-
<PAGE> 9
named its head in 1992. He is a Certified Public Accountant and holds an M.B.A.
in Finance and Accounting from the University of Chicago and a B.A. in Economics
from the University of Southern California.
Anthony G. Landells joined the Company in July 1996, upon the Company's
acquisition of PSI. He is currently an Vice President of the Company and the
General Manager of PSI. Previously, he was President of PSI and also Managing
Director and Chief Executive of PSI's United Kingdom subsidiary, roles he held
since joining PSI in 1992. A veteran in the field of digital imaging technology,
he was formerly Managing Director of Applied Imaging's UK-based international
operations, and earlier held senior management positions with Image Recognition
Systems and Joyce Loebl, both acquired by Applied Imaging. Mr. Landells earned a
B.S. in Electronic Engineering and an M.S. in Computer Systems and Applications
from the University of Sunderland in the United Kingdom.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, the Company's
directors and officers and its significant stockholders (defined by statute as
stockholders beneficially owning more than 10% of the Common Stock) are required
to file with the Securities and Exchange Commission and the Company reports of
ownership, and changes in ownership, of Common Stock. Based solely on a review
of the reports received by it, the Company believes that, during the year ended
December 31, 1996, all of its officers, directors and significant stockholders
complied with all applicable filing requirements under Section 16(a) except Mr.
Landells who filed an initial report late upon becoming an executive officer of
the Company and who reported late transactions involving grants of options to
purchase 30,000 and 20,000 shares of Common Stock, Mr. McDermut who reported
late one transaction involving the grant of an option to purchase 35,000 shares
of Common Stock and all executive officers and directors reported late one
transaction involving the repricing of certain stock options. See "Compensation
Committee Report on Executive Compensation--Compensation Elements--Stock Option
Plans."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of May 6, 1997 by (i) persons known to the Company
to beneficially own more than 5% of the outstanding Common Stock, (ii) directors
of the Company, (iii) the executive officers named below in the "Summary
Compensation Table" and (iv) all directors and executive officers of the Company
as a group. Unless otherwise indicated, the persons named below have sole voting
and investment power with respect to the number of shares set forth opposite
their names, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Number of Shares Percent
Name of Beneficial Owner (1) Beneficially Owned (2) of Class (3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fred H. Deindoerfer (4) 426,801 7.2
John A. O'Malley 29,100 *
Steven M. Besbeck 13,000 *
Thomas F. Kelley 102,889 1.7
Jeffrey Williams 28,644 *
Thermo Amex Convertible Growth Fund I, L.P. (5) 926,966 15.5
Digital Imaging Technologies, Inc. (6) 853,040 14.3
TOA Medical Electronics, Inc. (7) 331,852 5.6
Directors and Executive Officers as a Group (7 persons) 622,394 10.4
</TABLE>
- -----------------
* Less than 1%.
(1) Unless otherwise indicated, the mailing address of each person is c/o the
Company, 9162 Eton Avenue, Chatsworth, California 91311.
(2) Includes warrants and options exercisable on or within 60 days of March 31,
1997 held by directors and executive officers as follows: Dr. Deindoerfer
(101,333 shares), Dr. O'Malley (14,000 shares), Mr. Besbeck (10,000
shares), Mr. Kelley (3,333 shares), Mr. Landells (21,960 shares) and Mr.
Williams (23,333 shares).
(3) Based on 5,965,650 shares of stock outstanding as of March 31, 1997.
(4) Includes 57,840 shares owned by family members or trusts to which Dr.
Deindoerfer disclaims beneficial ownership shares.
(5) Consists of 3,000 shares of Series A Convertible Preferred Stock
convertible into 842,696 shares of Common Stock at March 31, 1997 and a
warrant to purchase 84,270 shares of Common Stock. The mailing address for
Thermo Amex Convertible Growth Fund I, L.P. is Suite 1B, 4 Lafayette Court,
Greenwich, Connecticut 06830. The fund shares voting and dispositive power
over these
-3-
<PAGE> 10
securities with Thermo Amex Finance, L.P., Thermo Amex Management Company,
Inc. and Thermo Electron Corporation. The information in the table and this
footnote are based on the Schedule 13D filed jointly by all four entities
on January 10, 1997.
(6) Consists entirely of a warrant to purchase 853,040 shares of Common Stock.
The mailing address for Digital Imaging Technologies, Inc. is 2950 North
West Loop, Suite 1050, Houston, Texas 77092. Digital Imaging Technologies,
Inc. shares voting and dispositive power over these securities with Edward
Randall, III. The information in the table and this footnote are based on
the Schedule 13D filed jointly by Digital Imaging Technologies, Inc. and
Edward Randall, III on August 8, 1996.
(7) The mailing address for TOA Medical Electronics, Inc. is 3-17, Kaikai-ku,
Kobe, Japan. The information in the table and this footnote are based on
the Schedule 13D filed by TOA Medical Electronics, Inc. on April 6, 1993.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation of the
Company's Chief Executive Officer and up to four of the other most highly
compensated individuals serving as executive officers at December 31, 1996 whose
total annual salary and bonus exceeded $100,000 for the fiscal year (the Named
Officers).
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------------------------------------
Other Annual Number of Shares All Other
Name and Principal Positions Year (1) Salary Bonus Compensation(2) Underlying Options Compensation
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fred H. Deindoerfer 1996 $167,000 $ --- $35,459 --- $1,500(3)
Chairman of the Board, President 1995 157,000 86,350 22,473 50,000 1,500(3)
and Chief Executive Officer 1994 150,000 78,700 21,600 40,000 1,500(3)
Jeffrey S. Williams (4) 1996 116,294 --- 20,248 70,000 16,875(5)
Former Chief Operating Officer
</TABLE>
- ---------------------------
(1) Years represent calendar years. Information is provided only for those
years in which the individual served as an executive officer.
(2) Represents the dollar value of the difference between the price paid for
Common Stock purchased under the Company's Key Employee Stock Purchase Plan
and the fair market value of such shares on the date of purchase. Does not
include the value of perquisites because the aggregate value of perquisites
did not exceed the lesser of $50,000 or 10% of the executive officer's
salary and bonus for the applicable year.
(3) Represents premiums paid by the Company for term life insurance for the
benefit of the executive officers in excess of amounts available under the
Company's group plan.
(4) Mr. Williams resigned from the Company prior to year end 1996.
(5) Represents continuation of base salary and other payments under Mr.
Williams' severance agreement. See "--Employment Agreements."
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock option
grants during 1996 to the Named Officers. No stock appreciation rights were
granted during the year.
<TABLE>
<CAPTION>
Individual Grants (1)
- -------------------------------------------------------------------------------------
% of Total Potential Realizable Value at Assumed
Options Granted Annual Percentage Rates of Stock Price
Number of Shares to Employees Appreciation Per Option Term (2)
-------------------------------------
Name Underlying Options in Fiscal Year Exercise Price Expiration Date 0% 5% 10%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fred H. Deindoerfer (3) -- -- $ -- -- $ --- $ --- $ ---
Jeffrey S. Williams 40,000 6.0% 5.63 3/17/06 39,600 206,131 461,623
</TABLE>
- ------------------------
(1) Options vest annually in equal installments during the three years
following the date of grant.
(2) Based on the assumption that the market price of the underlying shares of
Common Stock appreciate in value from the date of grant to the date of
expiration at the annualized rates indicated. These rates are hypothetical
rates mandated by the Securities and Exchange Commission, and the Company
does not make any representations regarding future appreciation in the
market price of the Common Stock.
(3) Consists solely of previously granted stock options which were repriced
during 1996. See "--Stock Option Repricing Table."
-4-
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION VALUES
The following table sets forth certain information regarding the exercise
of stock options during 1996 by the Named Officers and the final year-end value
of their unexercised options. None of the Named Officers exercised any stock
appreciation rights during 1996 or held any such rights at year end.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-The-Money
Options/SARs at Options/SARS at
Number of Fiscal Year End Fiscal Year End (1)
Shares Acquired Value
Name On Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fred H. Deindoerfer 40,000 $95,000 84,000/30,000 $76230/$27,300
Jeffrey S. Williams --- --- 10,000/60,000 ---
</TABLE>
(1) Based on the difference between the market price of a share of Common Stock
on December 31, 1996 and the exercise price of the options.
STOCK OPTION REPRICING TABLE
The following table sets forth certain information regarding the repricing
during the past ten calendar years of stock options previously granted to the
executive officers. See "Compensation Committee Report on Executive
Compensation--Compensation Elements--Stock Option Plans."
<TABLE>
<CAPTION>
Number
of Shares Market Price Length of Original
Underlying of Stock at Exercise Price Option Term
Options/SARs Time of at Time of New Remaining at Date
Repriced or Repricing or Repricing or Exercise of Repricing or
Name Date Amended Amendment Amendment Price Amendment
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fred H. Deindoerfer 12/29/96 24,000 $3.56 $4.00 $3.03 1.5 years
Chairman of the Board, President " 40,000 " 4.25 " 7.0 years
and Chief Executive Officer " 50,000 " 6.06 " 9.0 years
1/7/89 10,000(1) 2.35(1) 9.55(1) 2.35(1) 1.8 years
" 15,000(1) " 10.30(1) " 2.1 years
" 4,500(1) " 9.55(1) " 1.8 years
" 10,500(1) " 9.55(1) " 1.8 years
" 20,000(1) " 5.00(1) " 0.8 years
" 20,000(1) " 9.55(1) " 1.8 years
" 5,000(1) " 7.20(1) " 2.5 years
Thomas F. Kelley 12/29/96 10,000 3.56 5.63 3.03 9.5 years
Vice President and General " 10,000 " 8.29 " 9.5 years
Manager of StatSpin " 5,000 " 7.54 " 9.5 years
" 30,000 " 3.61 " 9.5 years
Martin S. McDermut 12/29/96 35,000 3.56 6.53 3.03 9.5 years
Vice President, Finance and
Administration and Chief Financial
Officer
Anthony G. Landells 12/29/96 30,000 3.56 7.54 3.03 9.5 years
Vice President and General " 20,000 " 3.61 " 10.0 years
Manager of PSI
</TABLE>
(1) Adjusted to reflect a 1 for 5 reverse stock split in July 1993.
-5-
<PAGE> 12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, which is composed
entirely of independent outside directors, is primarily responsible for
determining the annual salaries and other compensation of executive officers and
administering the Company's stock option and stock purchase plans. During 1996,
the Compensation Committee consisted of Dr. John A. O'Malley (Chairman) and Mr.
Steven M. Besbeck.
COMPENSATION PHILOSOPHY
The Compensation Committee believes the Company's future success depends in
large part on retaining and motivating its executive officers. As a result, the
Compensation Committee has adopted a general approach of compensating executives
with cash salaries commensurate with the experience and expertise of the
executive and competitive with median salaries paid to executives at comparable
companies. To reward executives for their contributions to the achievement of
Company-wide performance goals, incentive bonus awards are established at a
level designed to ensure that when such payouts are added to the executive's
base salary, the total compensation for above-average performance will exceed
the average compensation level at comparable companies. In addition, to align
its executives' compensation with the Company's business strategies, values and
management initiatives, both short and long term, executive officers are
provided with long-term performance incentives. It is the Company's policy to
encourage share ownership through the grant of stock option awards and stock
purchases under the Key Employee Stock Purchase Plan.
In addition to the specific factors described below, the Compensation
Committee compared the total annual compensation levels (including stock
options) of the Company's executive officers to the compensation levels of
executive officers at other publicly-traded and private companies. Information
regarding compensation levels at other companies was derived from a variety of
sources, including proxy statements, publications such as "The 1996 Report on
Executive Compensation" by Top Five Data Services, and compensation surveys
reported in business journals such as the "Medical Device & Diagnostic Industry
Magazine." Based on this information, the Compensation Committee believes that
the compensation levels of the Company's executive officers do not exceed the
median of their counterparts at comparable companies.
COMPENSATION ELEMENTS
The Company's compensation package for executive officers consists of a
base salary, performance-based bonuses and stock options. The executive officers
are also eligible to participate in most of the Company's employee benefit
plans.
Base Salaries. Base salaries are initially targeted at average levels of
comparable companies and then adjusted based on an assessment of individual
performance and contributions.
Management Incentive Bonus Plan. The Management Incentive Bonus Plan (MIBP)
has been established to reward participants for their contributions to the
achievement of Company-wide performance goals. All executive officers of the
Company (except the Chief Executive Officer) and certain other key employees
selected by the Compensation Committee participate in the MIBP. MIBP payouts are
established at a level designed to ensure that when such payouts are added to a
participant's base salary, the total compensation for above-average performance
will exceed the average compensation level at comparable companies. No awards
are made to MIBP participants unless the Company achieves a significant
improvement in operating income.
-6-
<PAGE> 13
Stock Option Plans. The Company has established stock option plans to
provide employees with an opportunity to share with the stockholders in the
long-term performance of the Company. The Compensation Committee generally
grants stock options on a periodic basis to all eligible employees. Grants are
also made to certain employees upon commencement of employment and,
occasionally, following a significant change in job responsibility, scope or
title or a particularly noteworthy achievement. Stock options generally have a
three-year vesting schedule and expire ten years from the date of grant. The
exercise price is generally 85% of the market value of a share of Common Stock
at the time of the grant.
The Compensation Committee has established general guidelines for
determining the size of periodic stock option grants based upon several factors,
including the salary and performance of the recipient and the market price of
the Common Stock at the time of grant. The size of the grants are targeted at
competitive levels.
In response to the decline in the market price of the Common Stock during
1996, the Compensation Committee reduced the exercise price of certain
outstanding stock options with a higher price to $3.03 per share of Common
Stock. The new exercise price represents 85% of the market price of the Common
Stock at the time of the repricing. The Compensation Committee felt that the
decline in the market price of the Common Stock had significantly diminished the
incentive value of the Company's outstanding stock options and that the
repricing was necessary to retain adequate levels of incentive and maintain
competitive compensation levels. In reaching its decision, the Compensation
Committee considered the fact that the executive officers would not receive cash
bonuses for 1996. See "Executive Compensation--Stock Option Repricing Table."
Employee Stock Purchase Program. The Company maintains a stock purchase
plan which permits selected key employees to purchase shares of Common Stock at
discount of 50% from the then current market price. Participating employees may
invest up to 15% of their annual salary and bonus and must hold the shares for
two years. If the employee resigns from the Company during the holding period,
the Company may repurchase the shares at the employee's original purchase price.
The Company's right to repurchase the shares during the holding period
automatically terminates under certain circumstances such as a sale of the
Company.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee believes that the bonus plan for the Chief
Executive Officer should be independent of the MIBP for other executive
officers. The bonus plan for the Chief Executive Officer is based on 1) the
achievement of preset goals for improving operating income, 2) the achievement
of preset goals for improving annually the market value of the Company and 3)
the achievement of extraordinary accomplishments (not directly affecting
operating earnings or stock value).
A percentage of the his salary is determined based on operating income.
Then, a factor equal to the ratio of the previous year's stock value to the
bonus year's stock value minus the ratio of the previous year's healthcare
segment stock value to the bonus year's healthcare segment stock value, as
calculated from the average of the last ten days of each year as reported in the
Advest Healthcare Review is applied to the percentage of the bonus attributable
to stock performance. This percentage may be positive or negative. Finally for
each significant event judged to be extraordinary by the Compensation Committee,
the cumulative percentage from operating income and stock performance
improvements is multiplied by a factor determined by the Compensation Committee.
Based on these criteria, the Compensation Committee fixed Dr. Deindoerfer's
base salary at $167,000 at the beginning of 1996 but did not award him any bonus
or stock options for 1996. However, the Compensation Committee did reprice the
stock options previously awarded to Dr. Deindoerfer. See "Executive
Compensation--Stock Option Repricing Table" and "--Compensation Elements--Stock
Option Plans."
COMPENSATION OF OTHER EXECUTIVE OFFICERS
The Compensation Committee establishes bonus amounts annually for the MIBP
based primarily on the achievement of preset goals for improving operating
income and secondarily on the achievement of certain other predefined
accomplishments consistent with important strategic goals the Board of Directors
may, from
-7-
<PAGE> 14
time to time, deem desirable. The Compensation Committee determines the
relationship between the bonus pool and 1) the projected operating income in the
Company's profit plan, and 2) the Committee's assessment of the management
challenge the profit plan provides relative to the business environment in which
it is to be accomplished. The maximum size of the bonus pool for a particular
year is limited the product of 1) the planned percentage improvement for the
year and 2) the actual operating income achieved.
Three factors are considered in determining individual bonuses. They
include 1) the individual's salary multiplied by his or her level of bonus
participation (100% for executive officers), 2) the individual's estimated
contribution to the improvement of operating income, and 3) the individual's
achievement of any other predefined performance goals assigned to the
individual. The Compensation Committee relies primarily upon the evaluations and
recommendations of the Chief Executive Officer.
Based on these criteria, the Compensation Committee did not award any cash
bonuses for 1996 to the other executive officers because of the failure to
achieve operating performance goals. The Compensation Committee did not award
stock options to executive officers for 1996, except in the case of new
executive officers who joined the Company during the year. However, the
Compensation Committee did reprice the stock options previously awarded to the
existing executive officers. See "Executive Compensation--Stock Option
Repricing" and "Compensation Elements--Stock Option Plans."
COMPENSATION COMMITTEE
Dr. John A. O'Malley (Chairman)
Mr. Steven M. Besbeck
COMPENSATION OF DIRECTORS
Non-employee directors receive a $13,500 per year retainer for normal,
routine services as a Board member. With the prior approval of the Chief
Executive Officer, additional consulting time is compensated at the rate of
$1,125 per day. During 1996, Dr. O'Malley and Mr. Besbeck were paid $13,500 each
for their services. Non-employee directors are also annually awarded stock
options for 5,000 shares of Common Stock.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held a total of eleven meetings during 1996. The
Board of Directors has two standing committees: an Audit Committee and a
Compensation Committee. There is not nominating committee or any other committee
performing those functions.
The Audit Committee, which currently consists of Dr. O'Malley and Mr.
Besbeck, held two meetings during 1996. The Audit Committee reviews the scope
and results of the year-end audit with management and the independent
accountants and recommends to the Board of Directors selection of independent
accountants for the coming year.
The Compensation Committee, which currently consists of Dr. O'Malley and
Mr. Besbeck, held eight meetings during 1996. The Compensation Committee is
primarily responsible for determining the annual salaries and other compensation
of executive officers and administering the Company's stock option and stock
purchase plans.
No director attended fewer than 75% of the meetings of the Board of
Directors and the committees upon which such director served during 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee has a relationship that would
constitute an interlocking relationship with executive officers or directors of
another entity.
-8-
<PAGE> 15
FIVE YEAR STOCK PRICE PERFORMANCE COMPARISON
The following graph and table compare the cumulative total return on the
Company's Common Stock with the cumulative total return (including reinvested
dividends) of the Standard & Poor's 500 Index (S&P 500), the Russell 2000 Index
(Russell 2000) and the Dow Jones Advanced Medical Devices Index for United
States Owned Companies (DJAMD) for the five years ending December 31, 1996,
assuming that the relative value of the Common Stock and each index was $100 on
December 31, 1991. Amounts below have been rounded to the nearest dollar.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
IRIS and Selected
Indices Calendar Year Ending December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IRIS 100.0 176.0 191.8 268.5 402.8 201.4
S&P 500 100.0 104.5 111.8 110.1 147.7 177.6
Russel 2000 100.0 116.4 136.2 131.8 166.4 190.9
DJAMD 100.0 86.0 67.5 85.3 139.2 157.9
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS WITH BOEHRINGER MANNHEIM
During 1994 and 1995, the Company entered into a series of contracts with
Boehringer Mannheim Corporation and its affiliates (Boehringer Mannheim), a
manufacturer of diagnostic products and a world leader in clinical chemistry,
for the development and distribution of two new products -- CHEMSTRIP/IRIStrip
urine test strips (disposable test strips used in the operation of The Yellow
IRIS) and the Model 900UDx urine pathology system (a fully-automated,
high-volume model of The Yellow IRIS). The contracts also contemplated the
possibility of a future joint venture in hematology. In connection with these
contracts, Boehringer Mannheim acquired 469,413 shares of Common Stock and a
warrant to purchase 250,000 shares of Common Stock.
Following a reassessment of its priorities in 1996, Boehringer Mannheim
decided not to pursue the joint venture in hematology with the Company and
agreed to several amendments to the contracts. Through the amendments,
Boehringer Mannheim strengthened its ties in the supply and distribution of
CHEMSTRIP/IRIStrip urine test strips while withdrawing from longer-term
commitments in the areas of hematology and urine
-9-
<PAGE> 16
microscopy. Among other things, Boehringer Mannheim agreed to reduce the price
of the CHEMSTRIP/IRIStrip urine test strips and supply certain raw materials
should the Company elect to manufacture its own urine test strips. Boehringer
Mannheim also granted the Company the non-exclusive right to distribute certain
other Boehringer Mannheim urinalysis products in the United States.
In return, the Company relieved Boehringer Mannheim of its purchase
commitment on the Model 900UDx and its obligation to supply certain technology
and components for the Model 900UDx. The Company will continue to manufacture
the Model 900UDx with Boehringer Mannheim providing certain components on an OEM
basis at cost. The Company retained exclusive marketing rights to the Model
900UDx in the United States and Taiwan and secured non-exclusive rights for the
rest of the world outside of Germany and Italy.
As compensation to the Company for potentially missed business
opportunities in hematology, Boehringer Mannheim allowed the Company to
repurchase the securities Boehringer Mannheim had acquired from the Company at
their original aggregate purchase price of $2.1 million, or $4.54 per share of
Common Stock, a substantial discount from the then current market price of $7.75
per share of Common Stock.
JOINT DEVELOPMENT PROJECT WITH POLY U/A SYSTEMS
The Company and Poly U/A Systems, Inc. (Poly), a Company-Sponsored research
and development entity, have an agreement to develop several new products to
enhance automated urinalysis using the Company's technology. Poly is funding all
of the research and development costs in excess of a $15,000 per month
commitment from the Company. Dr. Deindoerfer is the President or Poly, and Mr.
Benmaor is the Vice President, Secretary and Treasurer, but they do not receive
any additional compensation for their services to Poly. Dr. O'Malley is a
director and the Executive Vice President and General Manager of Poly and
received approximately $22,200 from Poly for services rendered in 1996. Some of
the Company's directors and officers own shares of the common stock of Poly as
follows: Dr. O'Malley (2,000 shares), Dr. Deindoerfer (2,000) shares, Dr. Kasdan
(2,000 shares), Mr. Kyle (500 shares), Mr. Bigliardi (2,000 shares), and Mr.
Benmaor (500 shares). Each of these individuals owns less than 1% of the total
number of outstanding shares of Poly, and collectively they beneficially own
3.5% of the total number of outstanding shares of Poly. The Company has an
option to acquire all of the common stock of Poly for an aggregate price
increasing on August 1, 1997 from $4.4 million to $5.1 million payable in cash
or shares of Common Stock of the Company.
AGREEMENTS WITH TOA MEDICAL ELECTRONICS
TOA Medical Electronics Co., Ltd. (TOA), a large stockholder, has a
perpetual, royalty-bearing license from the Company to market urine sediment
analyzers using technology developed by the Company before 1989. In 1990, TOA
introduced a urine sediment analyzer, the UA-1000, and in 1993 introduced an
improved model, the UA-2000. Royalty reports from TOA indicate that, as of
December 31, 1996, TOA has sold fewer than fifty systems, all in Japan. In 1996,
TOA introduced its new UF-100 urine cell analyzer. This instrument utilizes the
same flow cytometric laser scanning principles inherent in all modern hematology
instruments to determine the presence of abnormal sediment analytes in urine
samples which must then be examined manually using the traditional method.
Unlike The Yellow IRIS workstations, the UF-100 does not include urine chemistry
and specific gravity tests. Based on an existing agreement with TOA, the Company
has the exclusive right to distribute the UF-100 in North America and a right to
receive royalties on sales outside of North America. The Company and TOA are
presently engaged in discussions with the intent to commence sales of the UF-100
in the United States later this year.
- ------------------------------------------------------------------------------
PROPOSAL 1
ELECTION OF THE CLASS 1 DIRECTOR
The Board of Directors consists of four directors divided into three
classes -- Class 1 (Mr. Besbeck), Class 2 (Dr. O'Malley) and Class 3 (Dr.
Deindoerfer and Dr. Kelley) -- with the directors in each class holding office
for staggered terms of three years each or until their successors have been duly
elected and qualified.
-10-
<PAGE> 17
At last year's annual meeting, the stockholders re-elected Fred H. Deindoerfer
and Thomas F. Kelley as the Class 3 directors to hold office until 1999.
At the Annual Meeting this year or any adjournments or postponements
thereof, one Class 1 Director will be elected to serve until his successor is
duly elected and qualified. The nominee for election as the Class 1 Director is
Steven M. Besbeck. The Stockholders elected Mr. Besbeck as a Class 1 Director at
the 1994 annual meeting, and he is presently serving the Company in that
capacity. The Class 1 Director will serve until the year 2000 annual meeting or
until their successors are elected and qualified.
The accompanying proxy grants to the holder the power to vote the proxy for
substitute nominees in the event that Mr. Besbeck becomes unavailable to serve
as a Class 1 Director. Management presently has no knowledge that Mr. Besbeck
will refuse or be unable to serve as the Class 1 Director for their prescribed
term.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR MR. BESBECK.
Under Delaware law, directors are to be elected by a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Therefore, unless additional
persons are nominated, abstentions and broker non-votes will not have an adverse
effect on the election of Mr. Besbeck as a Class 1 Director.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors, upon a recommendation of its Audit Committee, has
selected the accounting firm of Coopers & Lybrand L.L.P. as independent auditors
of the Company for the fiscal year ending December 31, 1997, subject to
ratification of the stockholders at the meeting. Coopers & Lybrand L.L.P. has no
financial interest of any kind in the Company except the professional
relationship between auditor and client. A representative of Coopers & Lybrand
L.L.P. is expected to attend the meeting, will be afforded an opportunity to
make a statement if he or she desires to do so, and will be available to respond
to appropriate questions by stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION.
The affirmative vote of stockholders holding a majority of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the proposal is required for ratification of the proposal under Delaware law.
For this purpose, abstentions will increase the number of votes in favor of the
proposal required for approval and thus will have the effect of a vote against
the proposal. However, broker non-votes, like shares not represented at the
meeting, will neither be counted in favor of or against the proposal, nor
increase or decrease the number of votes required for approval, and thus will
have no effect on the outcome of the proposal.
- ------------------------------------------------------------------------------
OTHER PROPOSALS
The Company is not aware of any other business to be presented to the
meeting and does not intend to bring any other matters before the meeting.
However, if any other matters properly come before the meeting, the persons
named in the accompanying proxy are empowered, in the absence of contrary
instructions, to vote according to their best judgment.
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
If a stockholder wishes to present a proposal at the next annual meeting of
stockholders, such a proposal must be received by the Company at its principal
executive offices prior to January 7, 1998.
-11-
<PAGE> 18
ANNUAL REPORT
In lieu of an Annual Report to Stockholders, the Company is delivering with
this Proxy Statement a copy of its Annual Report on Form 10-K (without exhibits)
for the fiscal year ended December 31, 1996. However, it is not intended that
the Annual Report on Form 10-K be a part of this Proxy Statement or a
solicitation of proxies.
NOTE REGARDING INCORPORATION BY REFERENCE TO THIS PROXY STATEMENT
The Company routinely files with the Securities and Exchange Commission
various registration statements and reports which may incorporate by reference
part or all of this Proxy Statement. Those references are not intended to
incorporate any of the information in this Proxy Statement under the headings
"Compensation Committee Report on Executive Compensation" or "Five Year Stock
Price Performance Comparison" unless those headings are specifically referenced
by name in the registration statement or report.
By Order of the Board of Directors
/s/ FRED H. DEINDOERFER
FRED H. DEINDOERFER
Chairman of the Board and President
Chatsworth, California
May 7, 1997
PLEASE PROMPTLY VOTE, DATE, SIGN AND RETURN THE ENCLOSED PROXY, WHETHER OR NOT
YOU EXPECT TO ATTEND THE MEETING. A RETURN ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES. PROMPT
RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED. AT ANY TIME BEFORE
A VOTE YOU MAY REVOKE YOUR PROXY BY (1) A LATER PROXY OR A WRITTEN NOTICE OF
REVOCATION DELIVERED TO THE INSPECTOR OF ELECTIONS OR (2) ADVISING THE INSPECTOR
OF ELECTIONS AT THE MEETING THAT YOU ELECT TO VOTE IN PERSON. ATTENDANCE AT THE
MEETING WILL NOT IN AND OF ITSELF REVOKE A PROXY.
THE ANNUAL MEETING IS ON JUNE 26, 1997. PLEASE RETURN YOUR PROXY IN TIME.
-12-
<PAGE> 19
PROXY
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
9162 ELTON AVENUE
CHATSWORTH, CALIFORNIA 91311
ANNUAL MEETING OF STOCKHOLDERS
JUNE 26, 1997
The undersigned, revoking previous proxies, hereby appoint(s) Fred H.
Deindoerfer and Martin S. McDermut, or any of them, attorneys, with full power
of substitution, to vote all shares of common stock of International Remote
Imaging Systems, Inc. (the "Company") which the undersigned is (are) entitled to
vote at the Annual Meeting of Stockholders of the Company to be held at the
Chatsworth Hotel, 9777 Topanga Canyon Boulevard, Chatsworth, California, on
Thursday, June 26, 1997, at 4:00 p.m. and at any adjournments thereof. This
proxy shall be voted on the proposals described in the Proxy Statement as
specified below. Receipt of the Notice of Annual Meeting of Stockholders and the
accompanying Proxy Statement is hereby acknowledged.
1. To elect one Class 1 Director:
[ ] FOR Steven M. Besbeck [ ] WITHHOLD AUTHORITY to vote for the
nominee
2. To ratify the selection of Coopers & Lybrand L.L.P. as independent auditors
of the Company for 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS.
(Please date and sign on reverse side)
<PAGE> 20
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
This proxy will be voted as specified herein. If no specification is made,
it will be voted FOR all of the proposals. As to any other matters which may
properly come before the meeting or any adjournments thereof, the proxyholders
are authorized to vote in accordance with their best judgment.
-------------------------
Signature Date
-------------------------
Signature Date
NOTE: Please date and
sign exactly as your name
appears to the left. If
stock is registered in
the name of two or more
persons, each should
sign. Executors,
administrators, trustees,
guardians, attorneys, and
corporate officers should
show their full titles.
If a partnership, please
sign in the partnership
name by an authorized
partner.
PLEASE COMPLETE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE
IN TIME FOR THE MEETING ON JUNE 26, 1997.
