<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 [X]
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 4, 1998
Dear IRIS Stockholder:
1997 was an especially challenging year for us, and one in which we
achieved critical goals in coming back from the difficulties we encountered at
the end of 1996. In 1997, IRIS returned to positive cash flow and operational
breakeven in the first quarter, bottom-line breakeven in the second quarter and
profitability in the third quarter. Absent certain year end adjustments
described below, the fourth quarter was even better.
PERFORMANCE. Our revenues rose to record levels for the eighth
consecutive year with a 33 percent increase to $27.5 million from $20.6 million
in 1996. Although IRIS recorded a modest loss for the year after interest and
taxes, each of our three business divisions would actually have operated
at a profit in 1997 without the burden of intangibles amortization (a non-cash
charge), interest expense and certain unusual expenses.
Our reported 1997 net loss of $503,000 included unusual charges
totaling $1.3 million, consisting of a write-off of deferred private placement
expenses of $481,000, legal expenses of $152,000 relating to completed patent
litigation and a pending arbitration, and a non-cash charge of $705,000 for
writing off goodwill for the digital refractometer business we acquired early in
1995. Comparable charges in 1996 totaled $2.0 million.
These charges reduced our operating income in 1997 to $283,893,
compared to an operating loss of $10.4 million in the prior year (1996 included
charges of $7.3 million for acquisition of in-process research and development).
Excluding unusual charges and acquisition of in-process research and
development, our operating income would have been $1.6 million in the current
year, compared with a loss of $1.1 million in the prior year.
Significantly, another key indicator of our progress, our cash flow
(defined as earnings before interest, taxes, depreciation and amortization or
"EBITDA") rose to a record $4.1 million compared with a negative $0.8 million in
1996. Combined with the proceeds from a $3 million investment by the Thermo Amex
Convertible Growth Fund and $783,000 received from warrant exercises, our cash
flow not only covered our operating needs, but enabled us to reduce our bank
debt to $3.8 million from its peak of $9.1 million in late 1996.
To better understand the impact and intricacies of the various
financial and operational developments that occurred during 1997, I suggest that
you spend time to carefully review the accompanying Form 10-K which was filed
with the Securities & Exchange Commission. I'll use the rest of this letter to
highlight just some of our progress and expectations.
CHATSWORTH ACCOMPLISHMENTS. I have been very gratified by the market
acceptance of the Model 900UDx urine pathology system, the high end of The
Yellow IRIS line and the most sophisticated urinalysis product in the market
today. The market reaction to this product has kept our traditional urinalysis
business growing.
During the year, the Model 900UDx was purchased by a number of major
metropolitan hospitals and other institutions with particularly high volumes of
urine testing. Among customers who have purchased the Model 900UDx are such
notable names as Beth Israel and Columbia Presbyterian Medical Centers in New
York City, Cedars Sinai Medical Center in Los Angeles, University of Illinois
Medical Center in Chicago, Walter Reed Army Medical Center in Washington,
University of Texas Medical Branch in Galveston, University of North Carolina
Hospitals in Chapel Hill, University of Wisconsin Hospital and Clinics in
Madison, Parkland Hospital in Dallas, Jewish Hospital in Cincinnati, and the
Duluth and Mayo Clinics.
Long time users of earlier models of The Yellow IRIS also are now
upgrading to the Model 900UDx, a system which I believe is becoming the new
standard for quality-of-result and cost-effectiveness. I expect sales of the
Model 900UDx to increase revenues from the sales of consumables and services as
these workstations go on-line.
In 1997, IRIS received Food and Drug Administration clearance to
promote claims that The Yellow IRIS family of urinalysis workstations detect
significantly more microscopic abnormalities than the urine test strip screening
alternative used by some laboratories. A matched-pair comparison on more than
18,000 urine specimens collected from 118 laboratories validated our position
that our urinalysis workstations uncover many specimens with abnormal numbers of
blood cells and bacteria which are missed by reagent strip testing.
Adding to our growing urinalysis product line last year, IRIS began
exclusive North American distribution of the new IRIS/Sysmex UF-100 urine cell
analyzer. Based on the same particle counting principles used in blood cell
counting, the UF-100 has been favorably received in the few trade shows in which
it has been exhibited thus far.
<PAGE> 3
Meanwhile, we continued refining The White IRIS and planning its
commercial launch. Although our efforts were temporarily delayed by other
priorities such as the UF-100, we are now in discussions with two prestigious
medical institutions to serve as testimonial sites for The White IRIS. Our
immediate goal is to install the first two commercial systems at these
institutions. By doing so, we hope to develop the customer references which are
a key initial step toward commercial success of any new major instrument in the
laboratory medicine business.
PSI AND POWERGENE. In its first full year as an IRIS business, PSI
and its PowerGene product line benefited from an intensified research and new
product development effort. The results were increased and broadened revenue
growth as well as new product applications last year. The PowerGene line is now
sold in 39 countries.
We are particularly proud of a $1.25 million multi-system contract
awarded to PSI for the Genzyme Genetics cytogenetics laboratory in Santa Fe, NM.
We believe that this contract to automate the world's largest cytogenetics
laboratory is the largest such order ever in cytogenetic automation. PowerGene
is now the system of choice for such major cytogenetic reference testing
laboratories as Genzyme, Quest Diagnostics, Laboratory Corporation of America
and SmithKline Beecham Clinical Laboratories, as well as the Mayo Clinic.
Toward the end of the year, PSI commercially launched its new
PowerGene M-FISH system, which was developed in collaboration with Professors
David Ward and Patricia Bray-Ward of Yale University. This new fully integrated
24-color karyotyping system takes advantage of recent advances in multicolor
genetic analysis methods, first described by Professor Ward and his coworkers,
Drs. Speicher and Ballard. Since its introduction last October, we have received
a number of orders for this system.
PSI also delivered the first prototype automated rare event finder to
the NASA Johnson Space Center. This is an advanced computer-controlled
microscope system that will be used to measure the effects of radiation
encountered by astronauts during space flights. This system is expected to
provide the technological foundation for new PowerGene products useful in the
assessment of genetic damage from various environmental exposures as well as in
detecting cancer cells in small numbers in blood.
Last, but not least, PSI was awarded three Small Business Innovative
Research grants in 1997. Two were from the National Institute of Child Health
and Human Development to improve karyotyping through the use of advanced
computer-aided methods for color and banding pattern interpretation. This
research will be carried out in collaboration with geneticists at Baylor College
of Medicine, the University of Colorado School of Medicine and the M.D. Anderson
Cancer Institute.
PSI's other grant is from the National Cancer Institute to determine
the feasibility of a new mathematical basis for improving chromosome analysis
for use in the prognosis and treatment of cancer. We are doing this work in
collaboration with scientists at Rice University. In addition to the general
benefits of these projects, we look to them to lay important groundwork for
future commercial product enhancements.
NEW STATSPIN PRODUCTS. Our StatSpin operation introduced three new or
enhanced products to the market in 1997. StatSpin's new Express, a truly compact
and quiet point-of-use centrifuge, can spin standard blood collection tubes in
just two minutes to produce plasma or serum with quality equal to that produced
in 10 minutes or more by larger, more expensive centrifuges.
StatSpin also introduced an enhanced version of its cytocentrifuge,
called the CytoFuge 2, which prepares high quality slides of cytology specimens
for microscopic observation at lower cost than competitive products. The College
of American Pathologists recently recommended cytocentrifuge preparations for
body fluid microscopy. The CytoFuge 2's low-cost solution to these needs should
offer a real competitive advantage for us in the body fluids cytology market.
Finally, StatSpin introduced a redesigned and improved CenSlide
system in 1997. You may recall that we purchased the CenSlide system in 1996. It
is designed to standardize manually performed, routine urine microscopy, while
significantly reducing the number of steps and time required to process and
review a specimen. The improved CenSlide 2000 is targeted at laboratories unable
or unwilling to justify the investment necessary for one of The Yellow IRIS
family of urinalysis workstations or the IRIS/Sysmex UF-100.
IRIS PATENTS AND ROYALTIES. The commercial success of IRIS depends,
in part, on our ability to protect and maintain the proprietary character of our
technology. Our patent portfolio continued to grow in 1997, with the award of
three more patents.
One new patent is for speeding-up the simple gravitational separation
of red and white blood cells, using narrow elongated tubes. The method is so
simple that it may find other useful laboratory applications. This is the
seventh IRIS patent related to various technologies used in The White IRIS. The
new method, an invention of John
<PAGE> 4
Pelmulder, IRIS Director of Engineering, manipulates the blood-containing tube
in a way that facilitates more rapid separation of settled red blood cells from
white cell-rich plasma.
Another new patent covers a method of ensuring the focus of
microscopic particles in specimens as they flow through our slideless
microscope. This is a critical technology for the high-speed image capture in
the Model 900UDx urine pathology system as well as The White IRIS leukocyte
differential analyzer.
Our third new patent is for a new and more rapid method of tracing
the boundaries of cells and other microscopic particles by our IVD imaging
systems. It covers improvements upon earlier IRIS high-speed image capturing
technology, increasing, by as much as fourfold, the rate at which images can be
captured. It also extends the period of patent coverage of this important core
of our automated intelligent microscopy (AIM) technology.
In other developments, IRIS granted TOA Medical Electronics, based in
Kobe, Japan, a non-exclusive license to use three IRIS patents for industrial
applications in the Japanese market. The patents deal with several aspects of
slideless microscopy and electronic image composition. TOA paid a $300,000
consideration and will pay royalties of five percent on all sales of systems,
supplies and spare parts, with minimum royalties of $50,000 guaranteed for the
three years commencing July 1, 1998. The last of the patents expires in 2004.
The license is limited to industrial applications in Japan, and to Japanese
customers in their international operations.
IRIS now holds twenty patents related to its AIM technology. The
validity of two of the patents included in the industrial license to TOA was
acknowledged in the settlement of patent litigation between IRIS and Intelligent
Medical Imaging. The settlement grants a non-exclusive, restricted license to
IMI for practice of these claims in slide-based microscopic examination of dried
specimens other than urine. IMI will pay a four percent royalty based on any
U.S. sales of its Micro 21 white blood cell analyzer made through a distributor.
Dade Behring also licensed from StatSpin a patent for our plasma
preparation rotor and centrifuge design which Dade Behring is adapting for use
in a new product they are developing. StatSpin received a $65,000 initial
license fee and could receive additional royalties in the future.
MANAGEMENT CHANGES. The demands of the quality and compliance aspects
of our business have increased significantly with the addition of StatSpin and
PSI. To help meet these demands, in July, Christine C. Small was appointed Vice
President of Quality and Compliance with corporate-wide responsibilities. Chris
brings with her a twenty-five year record of quality assurance management
experience in previous industry roles. In this newly created IRIS position, she
reports directly to me. Chris joined StatSpin Technologies in 1994 as Manager of
Quality Assurance and was promoted to Corporate Director of Quality Assurance in
1996.
In August, Achille (Kelly) M. Bigliardi was promoted to Corporate
Vice President and General Manager of the IRIS Chatsworth-based operations. He
previously was our Vice President of Sales and Service for Chatsworth products.
He has been delegated all of Chatsworth operational responsibilities and he also
reports to me. Kelly's resume appears along with several others in the Proxy
Statement. He assumes a vital role in generating future business for IRIS in
urinalysis and hematology system applications.
In February 1998, Dr. Thomas F. Kelley, the founder of StatSpin and
its leader since its incorporation in 1984, retired as Corporate Vice President
and General Manager of StatSpin. Tom will continue as a Director until his term
expires. To help fill the void created by Tom's departure, Francis W. Lau has
been promoted to Operations Manager of StatSpin. Francis knows StatSpin well
from his nine-year role as its financial and administrative chief, during which
he has earned the respect and loyal support of StatSpin's management team.
FINANCIAL ACTIVITIES. Our financial picture has continued to
strengthen.
Late in 1997, IRIS obtained $783,000 from the exercise of warrants
issued as part of the units sold in its 1995 Poly U/A Systems offering, as well
as warrants connected with the IRIS acquisition of StatSpin Technologies in
March 1996. The funds collected in the exchange were used to augment working
capital and further reduce our bank loans. And in March of 1988, Roche
Diagnostics (the successor to Boehringer Mannheim) agreed to extended terms on
the payment of $1.0 million still owed them for the IRIS stock we repurchased in
1996.
IRIS is presently restructuring the bank debt we took on to fund the
purchase of the PowerGene cytogenetic analyzer business. After paying down our
bank debt by almost six million dollars from a high of $9.1 million in late
1996, we have a commitment for a new three year, $7.0 million credit line with
Foothill Capital Corporation.
PROXY STATEMENT AND ANNUAL MEETING. This year's Proxy Statement
contains three proposals. Your management endorses and asks your support
for all three proposals. The first one is for the re-election of Dr. John A.
O'Malley for another three-year term as an IRIS director. Dr. O'Malley has
served in this capacity since 1988, and I greatly value his continued
stewardship in this role.
<PAGE> 5
The second proposal seeks approval of a new stock option plan. With
the acquisition of StatSpin and PSI, our management and scientific teams have
enlarged considerably. Options already granted to these new IRIS employees have
exhausted our existing plans. As you know, stock options provide an important
incentive in our overall key employee compensation program.
The third 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.
As in past years, the 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 11, 1998 and will
begin at 4:00 p.m. local time. The Board of Directors and the management of IRIS
invite and welcome your participation at the meeting.
Once again, please realize that this annual message represents my
sincere and honest reflection on the past year at IRIS and some assessments of
our future prospects. Of course, many of the statements are forward-looking in
nature and as a result are inherently subject to the vagaries of future events
which, as you know, are often unpredictable. Again, I refer you to the more
detailed 10-K for a fuller discussion of the opportunities, challenges and risks
that confront us in 1998.
Sincerely,
/s/ Fred H. Deindoerfer
Fred H. Deindoerfer
Chairman of the Board, President and CEO
THE ANNUAL MEETING IS ON JUNE 11, 1998. PLEASE RETURN YOUR PROXY IN TIME.
<PAGE> 6
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
9162 Eton Avenue
Chatsworth, California 91311
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 11, 1998
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 11, 1998 at 4:00 p.m. local time for
the following purposes:
1. To elect one Class 2 Director to hold office until the year 2001
annual meeting or until his successor is elected and qualified;
2. To approve the adoption of the 1998 Stock Option Plan;
3. To ratify the selection of Coopers & Lybrand L.L.P. as independent
public accountants for the fiscal year ending December 31, 1998; and
4. 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 April 15,
1998 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 4, 1998
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 11, 1998. 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 11, 1998
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 11, 1998 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, 1997. 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 4, 1998.
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 2 Director
and FOR Proposals 2 and 3. 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 April 15, 1998 will be
entitled to vote at the Annual Meeting on the proposals described in this Proxy
Statement. On that date, there were 6,284,862 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 April
15, 1998. 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, 1997:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fred H. Deindoerfer 68 Chairman of the Board, President and Chief Executive Officer
John A. O'Malley 64 Director
Steven M. Besbeck 50 Director
Thomas F. Kelley 65 Director
Martin S. McDermut 47 Vice President, Finance and Administration, Secretary and Chief Financial Officer
Achille M. Bigliardi 55 Vice President and General Manager of Chatsworth Operations
Anthony G. Landells 44 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.
1
<PAGE> 8
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, a M.S.
from Columbia University and a Ph.D. from the University of Pennsylvania, all in
Chemical Engineering.
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 U/A Systems,
Inc.
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 of that year. Until February 1, 1998, he
was also a Vice President of the Company and the General Manager of StatSpin.
Dr. Kelley is currently CEO of Imagepath Systems, Inc., a systems integrator.
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 B.A. 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, Secretary 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 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.
Achille M. Bigliardi joined the Company in 1991 as Western Regional
Sales Manager and was promoted to Director of Sales in 1993, to Vice President
of Sales and Service in 1994 and to General Manager of Chatsworth Operations in
1997. During his tenure as Vice President, sales and technical service
efficiency in dollar revenue has reached nearly double the industry average.
From 1982 until joining IRIS, Mr. Bigliardi gained valuable in vitro diagnostics
experience in several roles. He served as Executive Vice President and General
Manager of Sclavo, Inc., a European-based multinational medical diagnostics
company, and President and co-founder of Aktis Corporation prior to its
acquisition by Sclavo. He also served as Vice President and Director of
Marketing of SSI, Inc. and before then as Director of Sales of International
Diagnostic Technology, both medical diagnostics companies. Mr. Bigliardi earned
his B.S. and M.S. in Electrical Engineering from the University of Michigan.
Anthony G. Landells joined the Company in July 1996, upon the
Company's acquisition of PSI. He is currently a Vice President of the Company
and the General Manager of PSI. Previously, he was President of PSI.
Mr. Landells also is 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
2
<PAGE> 9
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, 1997, all of its officers, directors and significant
stockholders complied with all applicable filing requirements under Section
16(a) except the following: Dr. Deindoerfer filed three reports late for a
purchase, a gift and a stock option grant; Dr. O'Malley filed two reports late
for a purchase and a stock option grant; Mr. Besbeck filed one report late for a
stock option grant; Mr. Bigliardi filed two reports late for stock option
grants; Mr. Landells filed two reports late for a purchase and a stock option
grant; Mr. Horacek filed late his initial report upon joining the Company and
two others for stock option grants.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of April 15, 1998 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)(4) of Class (3)(4)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fred H. Deindoerfer (5) 476,981 7.5
John A. O'Malley 40,153 *
Steven M. Besbeck 35,288 *
Thomas F. Kelley 58,006 *
Martin S. McDermut 16,500 *
Achille M. Bigliardi 89,644 1.4
Anthony G. Landells 53,324 *
Thermo Amex Convertible Growth Fund I, L.P. (6) 969,225 13.4
Digital Imaging Technologies, Inc. (7) 853,040 12.0
TOA Medical Electronics, Inc. (8) 331,852 5.3
Directors and Executive Officers as a Group (7 persons) 769,896 11.7
</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 April
15, 1998 held by directors and executive officers as follows: Dr.
Deindoerfer (101,000 shares), Dr. O'Malley (23,000 shares), Mr. Besbeck
(19,000 shares), Dr. Kelley (21,450 shares), Mr. McDermut (16,500 shares),
Mr. Bigliardi (55,444 shares) and Mr. Landells (38,460 shares).
(3) Based on 6,284,862 shares of stock outstanding as of April 15, 1998.
(4) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to the Common Stock. Shares of Common
Stock issuable upon exercise of warrants and options exercisable on
or within 60 days of April 15, 1998 are deemed outstanding for purposes
of computing the number and percentage of shares owned by the person
holding such warrants or options but are not deemed outstanding for
computing the percentage held by any other person.
(5) Includes 57,840 shares owned by family members or trusts to which Dr.
Deindoerfer disclaims beneficial ownership shares.
(6) Consists of 3,000 shares of Series A Convertible Preferred Stock
convertible into 884,955 shares of Common Stock at April 15, 1998
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 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.
(7) 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.
(8) 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.
3
<PAGE> 10
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, 1997 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(3)
<S> <C> <C> <C> <C> <C> <C>
Fred H. Deindoerfer 1997 169,569 0(4) 75,452(5) 50,000 905(6)
Chairman of the Board, President 1996 167,000 400 77,745(5) 0 1,329(6)
and Chief Executive Officer 1995 157,423 88,080 44,946(5) 50,000 1,368(6)
Martin S. McDermut 1997 121,121 0(4) 11,067(7) 15,000 2,632(8)
Vice President, Finance and 1996 41,538 6,717 0 35,000 360(6)
Administration, Secretary and
Chief Financial Officer
Achille M. Bigliardi 1997 109,063 0(4) 48,666(9) 30,000 2,384(10)
Vice President and General Manager 1996 100,000 325 68,698(9) 13,400 2,253(10)
of Chatsworth Operations 1995 96,192 40,475 43,232(9) 12,000 611(10)
Anthony G. Landells 1997 123,416 0(4) 25,239(11) 10,000 16,390(12)
Vice President and General Manager 1996 49,910 39,289 7,813(11) 50,000 4,991(12)
of PSI
</TABLE>
- ----------
(1) Years represent calendar years. Information is provided only for those
years in which the individual served as an executive officer.
(2) Other Annual Compensation consists of (a) 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 ("KESP benefits"), (b) Common Stock
and cash payments in lieu of accrued vacation and compensation time
("vacation pay"), (c) sales commissions and (d) automobile allowances. It
does not include the value of perquisites because the aggregate value of
perquisites did not exceed the lesser of $50,000 or 10% of any executive
officer's salary and bonus for the applicable years.
(3) All Other Compensation consists of (a) premiums paid for term life
insurance for the benefit of executive officers ("life insurance
premiums") and (b) matching contributions to the Company's 401(k) plan for
the benefit of executive officers ("401(k) matching contributions").
(4) 1997 bonuses have not yet been determined and will be included in the
proxy statement for next year's annual meeting.
(5) Consists of $47,237, $41,281 and $22,473 in vacation pay and $28,215,
$36,464 and $22,473 in KESP benefits for 1997, 1996 and 1995,
respectively.
(6) Consists entirely of payments for life insurance premiums.
(7) Consists entirely of vacation pay.
(8) Consists of $1,046 for life insurance premiums and $1,586 in 401(k)
matching contributions.
(9) Consists of $0, $16,346 and $4,615 in vacation pay, $21,515, $27,305 and
$23,190 in KESP benefits, $22,951, $20,847 and $11,227 in sales
commissions and $4,200, $4,200 and $4,200 in automobile allowances for
1997, 1996 and 1995, respectively.
(10) Consists of $980, $891 and $611 for life insurance premiums and $1,404,
$1,362 and $0 in 401(k) matching contributions for 1997, 1996 and 1995,
respectively.
(11) Consists entirely of KESP benefits.
(12) Consists entirely of contributions for the benefit of the executive
officer to a defined contribution pension plan maintained for the
Company's United Kingdom employees.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock
option grants during 1997 to the Named Officers. No stock appreciation rights
were granted during the year.
<TABLE>
<CAPTION>
Individual Grants(1)
------------------------------------------------------------------- Potential Realizable Value at Assumed
% of Total Annual Percentage Rates of Stock Price
Options Granted Appreciation Per Option Term (2)
Number of Shares to Employees --------------------------------------
Name Underlying Options in Fiscal Year Exercise Price Expiration Date 0% 5% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fred H. Deindoerfer 50,000 19.4% 3.38 12/28/07 $ 0 $106,283 $ 269,342
Martin S. McDermut 15,000 5.8% 3.72 1/12/07 9,900 51,218 114,609
Achille M. Bigliardi 15,000 5.8% 3.94 8/16/07 0 37,168 94,190
15,000 5.8% 3.38 12/28/07 0 31,885 80,803
Anthony G. Landells 10,000 3.9% 3.38 12/28/07 0 21,257 53,868
</TABLE>
4
<PAGE> 11
(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.
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 1997 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 1997 or held any such rights at year end.
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised
Unexercised Options/SARs at Fiscal In-The-Money Options/SARS at
Year End Fiscal Year End (1)
Number of
Shares Acquired Value
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fred H. Deindoerfer 0 0 97,000/67,000 $33,950/$5,950
Martin S. McDermut 0 0 11,550/38,450 $ 4,043/$8,208
Achille M. Bigliardi 0 0 46,342/43,058 $16,220/$4,570
Anthony G. Landells 0 0 16,500/43,500 $5,775/$11,725
</TABLE>
(1) Based on the difference between the market price of a share of Common
Stock on December 31, 1997 and the exercise price of the options.
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 1997,
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 1997 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.
5
<PAGE> 12
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.
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 100% 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.
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 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.
The Compensation Committee is currently reviewing these criteria and
has not yet determined Dr. Deindoerfer's 1997 bonus or 1998 base salary.
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 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
6
<PAGE> 13
performance goals assigned to the individual. The Compensation Committee relies
primarily upon the evaluations and recommendations of the Chief Executive
Officer.
The Compensation Committee reviewed these criteria and awarded
increases in 1998 base salaries of 2% to 8% based on each individual's
performance. The Compensation Committee has not yet determined 1997 bonuses
for the executive officers.
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 1997, Dr. O'Malley and Mr. Besbeck were paid $14,250
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 10 meetings during 1997.
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 Mr. Besbeck and Dr.
O'Malley, held 2 meetings during 1997. 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 8 meetings during 1997. 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 1997.
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.
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,
1997, assuming that the relative value of the Common Stock and each index was
$100 on December 31, 1992. Amounts below have been rounded to the nearest
dollar.
7
<PAGE> 14
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
IRIS and Selected
Indices
Calendar Year Ending December 31,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
IRIS 100.0 109.1 152.7 229.0 114.5 98.2
S&P 500 100.0 107.2 105.4 141.4 170.0 222.7
Russell 2000 100.0 117.0 113.3 143.0 164.1 197.7
DJAMD 100.0 78.5 99.1 161.8 183.6 270.5
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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. 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 1997. 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), and Mr. Bigliardi (2,000 shares). Each of these individuals owns
less than 1% of the total number of outstanding shares of Poly, and collectively
they beneficially own 3% 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 of $5.1 million payable in cash or shares of Common Stock of the
Company.
In 1995, the Company issued its Series D Warrants in connection with
Poly's initial fundraising. During 1997, the Company offered to reduce the
exercise price of the Series D Warrants from $6.50 to $4.00 per share for
holders exercising their warrants during a one-week period. The holders that
accepted the offer and exercised their Series D Warrants during that period also
received a new Series F Warrant exercisable until March 29, 2000 at an exercise
price of $4.00 per share of Common Stock. The Company received proceeds of
approximately $783,000 through the exercise of Series D Warrants and issued
Series F Warrants to purchase an aggregate of 205,633 shares of Common Stock.
Certain directors and officers exercised their Series D Warrants and
participated in the offer as follows: Dr. Deindoerfer (4,000 shares exercised)
and Dr. O'Malley (4,000 shares exercised).
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 the fourth
quarter of 1997, the Company began marketing TOA's new UF-100 urine cell
analyzer in the United States. The UF-100, developed in Japan by TOA, utilizes
flow cytometric laser scanning principles to screen large volumes of urine
specimens for the presence of abnormal sediment compositions. The Company is the
exclusive distributor for the UF-100 in North America and receives royalty
payments from TOA on sales of the UF-100 outside of North America.
8
<PAGE> 15
PROPOSAL 1
ELECTION OF THE CLASS 2 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. At last year's annual meeting, the stockholders
re-elected Mr. Besbeck as the Class 1 director to hold office until 2000.
At the Annual Meeting this year or any adjournments or postponements
thereof, one Class 2 Director will be elected to serve until his successor is
duly elected and qualified. The nominee for election as the Class 2 Director is
Dr. John A. O'Malley. The Stockholders elected Dr. O'Malley as a Class 2
Director at the 1995 annual meeting, and he is presently serving the Company in
that capacity. The Class 2 Director will serve until the year 2001 annual
meeting or until his successor is elected and qualified.
The accompanying proxy grants to the holder the power to vote the
proxy for substitute nominees in the event that Dr. O'Malley becomes unavailable
to serve as a Class 2 Director. Management presently has no knowledge that Dr.
O'Malley will refuse or be unable to serve as the Class 2 Director for the
prescribed term.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR DR. O'MALLEY.
Directors are elected by a "plurality" of the shares voted.
"Plurality" means that the nominees with the largest number of votes are
elected, up to the maximum number of directors to be chosen. Stockholders can
either vote "for" the nominees or withhold authority to vote for any one or all
of the nominees. However, shares that are withheld will have no effect on the
outcome of the election. Shares held by brokers or other nominees for a
beneficial owner and not voted (broker non-votes) also will not have any effect
on the outcome of the election of directors.
PROPOSAL 2
APPROVAL OF THE 1998 STOCK OPTION PLAN
The Company believes that officers and other key employees should
have a significant stake in the Company's stock price performance under programs
which link compensation to stockholder return. As a result, stock option grants
are an integral part of the Company's compensation program. The Company
currently has less than 10,000 shares of Common Stock remaining under its
existing stock option plans for future grants. Therefore, the Board of Directors
adopted the 1998 Stock Option Plan on March 22, 1998. The Company is requesting
stockholder approval of the adoption of the new plan.
DESCRIPTION OF THE PLAN
The following is a summary of the material features of the 1998
Stock Option Plan (the "Plan"). The summary is qualified in its entirety by
reference to the full text of the Plan which is attached as Appendix A to this
Proxy Statement.
Shares Available Under the Plan. The Plan authorizes the issuance of
a maximum of 600,000 shares of Common Stock upon the exercise of stock options
granted under the Plan.
Types of Awards. The Company may award two types of options under
the Plan: (i) options intended to qualify as "incentive stock options" under
Section 422A of the Internal Revenue Code and (ii) nonstatutory stock options
which are not intended to qualify for any special treatment under the Internal
Revenue Code. The Plan does not permit the award of "phantom stock," "stock
appreciation rights" or other similar awards.
Administration. The Board of Directors may administer the Plan, or
they may delegate authority for administering the Plan to the Compensation
Committee. If the Board delegates authority to the Compensation Committee, the
Plan restricts membership on the Compensation Committee to directors that meet
the defintions of both "non-employee directors" (as defined in the rules adopted
by the Securities and Exchange Commission under Section 16 of the Securities
Exchange Act of 1934) and "outside directors" (as defined in the regulations
adopted by the Internal Revenue Service under Section 162(m) of the Internal
Revenue Code). The Board may also delegate authority for Plan administration to
other committees of the Board for the limited purpose of granting and
administering stock options to persons other than directors and executive
officers. The plan administrators have the authority to (i) select the
recipients of awards, (ii) fix the terms of all awards, (iii) construe,
interpret and prescribe rules for the Plan and (iv) make all other
determinations necessary or advisable for the administration of the Plan.
9
<PAGE> 16
Eligibility and Participation. All directors, officers, key
employees and consultants of the Company and its subsidiaries are eligible for
selection to participate in the Plan. There are approximately 100 individuals
currently eligible to participate in the Plan. Under the applicable tax rules,
the plan administrators may only grant incentive stock options to employees of
the Company and its subsidiaries.
Duration of Options. The plan administrators have discretion to
select the duration of each option, but the Internal Revenue Code restricts the
maximum duration of incentive stock options to 10 years.
Duration and Amendment of the Plan. The Plan became effective upon
its adoption by the Board on March 22, 1998 and, assuming stockholder approval,
will continue in effect for 10 years unless terminated earlier in accordance
with the terms of the Plan.
Exercise Price. The plan administrators determine the exercise price
of each option. The exercise price of a nonstatutory stock option may be more or
less than the fair market value of a share of Common Stock on the date of grant.
The minimum exercise price for an incentive stock option is 100% of the fair
market value of a share of Common Stock on the date of grant. The plan
administrators determine the acceptable form of consideration for payment of the
exercise price, and the form of payment may include cash, a promissory note and
shares of Common Stock valued at their fair market value on the date of
surrender. The plan administrators may also permit "cashless exercises."
Other Terms. Options granted under the Plan are only exercisable by
the original recipient and are not transferable, except by will or the laws of
descent and distribution. Options vest in such installments as the plan
administrators determine.
Special Terms Applicable to Large Stockholders. In addition to the
other restrictions contained in the Plan, the Plan requires that incentive stock
options granted to persons possessing more than 10% of the total combined voting
power of all classes of stock of the Company (i) have an exercise price of not
less than 110% of the fair market value of a share of Common Stock on the date
of grant and (ii) expire not later than five years from the date of grant.
FEDERAL INCOME TAX CONSEQUENCES
Nonstatutory Stock Options. Under current federal income tax law,
the grant of a nonstatutory stock option has no tax effect on the Company or the
option holder. If the shares received on exercise of an option are not subject
to restrictions on transfer or risk of forfeiture imposed by the Committee, the
exercise of a nonstatutory stock option will result in ordinary income to the
option holder equal to the excess of the fair market value of the shares at the
time of exercise over the option price. The amount taxed to the option holder as
ordinary income is treated as earned income. The option holder's tax basis in
the shares will be equal to the aggregate exercise price paid by the option
holder plus the amount of taxable income recognized upon the exercise of the
option. Upon any subsequent disposition of the shares, any further gain or loss
recognized by the option holder will be treated as capital gain or loss and will
be long-term capital gain or loss if the shares are held for more than one year
after exercise. The Company will normally be allowed, at the time of recognition
of ordinary income by the option holder upon exercise, to take a deduction for
federal income tax purposes in an amount equal to such recognized income.
Incentive Stock Options. The federal income tax consequences
associated with incentive stock options are generally more favorable to the
optionee and less favorable to the employer than those associated with
nonstatutory stock options. Under current federal income tax law, the grant of
an incentive stock option does not result in income to the optionee or in a
deduction for the Company at the time of the grant. The exercise of an incentive
stock option will not result in income for the option holder if the option
holder (i) does not dispose of the shares within two years after the date of
grant nor within one year after exercise and (ii) is an employee of the Company
or any of its affiliates from the date of grant until three months before the
exercise date. If these requirements are met, the basis of the shares upon later
disposition would be the option price. Any gain will be taxed to the option
holder as long-term capital gain and the Company will not be entitled to a
deduction. The excess of the market value on the exercise date over the option
price is an item of tax preference, potentially subject to the alternative
minimum tax. If the option holder disposes of the shares prior to the expiration
of either of the holding periods described above, the option holder would have
compensation taxable as ordinary income, and the Company would be entitled to a
deduction equal to the lesser of the fair market value of the shares on the
exercise date minus the option price or the amount realized on disposition minus
the option price. If the price realized in any such premature sale of the share
exceeds the fair market value of the shares on the exercise date, the excess
will be treated as long-term or short-term capital gain depending on the option
holder's holding period for the shares.
10
<PAGE> 17
PLAN BENEFITS
The Compensation Committee has granted options to purchase
approximately 10,000 shares which are subject to stockholder approval of the
new Plan. None of those grants were made to Named Officers.
VOTE REQUIRED
Proposal 2 requires the affirmative vote of a majority of the votes
cast on the proposal. Stockholders may vote "for" or "against" the proposal, or
they may abstain from voting on the proposal. Abstentions (as well as broker
non-votes) will not have any effect on the outcome of the proposal. The Company
believes that stockholder approval at the meeting will satisfy the stockholder
approval requirement of the Section 162 (m) of the Internal Revenue Code.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 1998 STOCK OPTION
PLAN.
PROPOSAL 3
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,
1998, 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.
Proposal 3 requires the affirmative vote of a majority of the votes
cast on the proposal. Stockholders may vote "for" or "against" the proposal, or
they may abstain from voting on the proposal. Abstentions (as well as broker
non-votes) will not have any 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 December 31, 1998.
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, 1997. 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 4, 1998
11
<PAGE> 18
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 11, 1998. PLEASE RETURN YOUR PROXY IN TIME.
12
<PAGE> 19
APPENDIX A
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC
1998 Stock Option Plan
1. PURPOSES OF THE PLAN. The purposes of this 1998 Stock Option Plan
are:
o to attract and retain the best available personnel for positions
of substantial responsibility,
o to provide additional incentive to Employees, Directors and
Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans under state corporate and securities laws
and the Code.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the common stock, $.01 par value, of the
Company.
(g) "COMPANY" means International Remote Imaging Systems, Inc.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship is not interrupted or terminated by the
Company, any Parent or Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Board, including sick leave, military leave, or any
other personal leave; provided, however, that for purposes of Incentive Stock
Options, any such leave may not exceed ninety (90) days, unless reemployment
upon the expiration of such leave is guaranteed by contract (including certain
Company policies) or statute; or (ii) transfers between locations of the Company
or between the Company, its Parent, its Subsidiaries or its successor.
(j) "DIRECTOR" means a member of the Board.
(k) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person, including Officers and Directors
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
13
<PAGE> 20
(n) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation,
the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market
Value of a Share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales are reported) as quoted
on such system or exchange (or the exchange with the greatest volume
of trading in Common Stock) on the last market trading day prior to
the day of determination, as reported in the Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or is regularly
quoted by recognized securities dealers but selling prices are not
reported, the Fair Market Value of a Share of Common Stock shall be
the mean between the high bid and low asked prices for the Common
Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street journal or such other
source as the Administrator deems reliable;
(iii) In the absence of any established market for the
Common Stock, the Fair Market Value shall be determined in good faith
by the Administrator.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "NOTICE OF GRANT" means a written notice evidencing certain terms
and conditions of an individual Option grant. The Notice of Grant is part of the
Option Agreement.
(r) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(u) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(v) "OPTIONED STOCK" means the Common Stock subject to an Option.
(w) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(x) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "PLAN" means this 1997 Stock Option Plan.
(z) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(aa) "SECTION 162(m)" means Section 162(m) of the Code and the
regulations thereunder, as amended.
(bb) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(cc) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
14
<PAGE> 21
(dd) "TERMINATION EVENT" means (i) any use or disclosure by an
Optionee of confidential information or trade secrets of the Company or any
Parent or Subsidiary in violation of any confidentiality or nondisclosure
agreement by which the Optionee is bound, or (ii) the termination of Optionee's
Continuous Status as an Employee or Consultant for cause as defined pursuant to
applicable law, as a result of a breach of Optionee's employment or consulting
agreement, as a result of theft, fraud or embezzlement, or as a result of any
disclosure or use of confidential information or trade secrets described in part
(i) of this paragraph.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned under the
Plan is Six Hundred Thousand (600,000) Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock. However, should the Company reacquire
Shares which were issued pursuant to the exercise of an Option, such Shares
shall not become available for future grant under the Plan.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated).
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect
to Directors, Officers who are not Directors, and Employees who are
neither Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS
SUBJECT TO SECTION 16(b). With respect to Option grants made to
Directors or to Employees who are also Officers or Directors subject
to Section 16(b) of the Exchange Act, the Plan shall be administered
by (A) the Board, if the Board may administer the Plan in compliance
with the requirements for grants under the Plan to be exempt
acquisitions under Rule 16b-3, or (B) a committee designated by the
Board to administer the Plan, which committee shall consist of
"Non-Employee Directors" within the meaning of Rule 16b-3. Once
appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause) and substitute new
members, fill vacancies (however caused), and remove all members of
the Committee and thereafter directly administer the Plan, all to the
extent permitted by the requirements for grants under the Plan to be
exempt acquisitions under Rule 16b-3.
(iii) ADMINISTRATION WITH RESPECT TO COVERED EMPLOYEES
SUBJECT TO SECTION 162(M) OF THE CODE. With respect to Option grants
made to Employees who are also "covered employees" within the meaning
of Section 162(m) of the Code and the regulations thereunder, as
amended, the Plan shall be administered by a committee designated by
the Board to administer the Plan, which committee shall be
constituted to satisfy the requirements applicable to Options
intended to qualify as "performance-based compensation" under Section
162(m). Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time
to time the Board may increase the size of the Committee and appoint
additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove
all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the rules applicable to Options
intended to qualify as "performance-based compensation" under Section
162(m).
(iv) ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With
respect to Option grants made to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the
Board, which committee shall be constituted to satisfy Applicable
Laws. Once appointed, such Committee shall serve in its designated
capacity until otherwise directed by the Board. The Board may
increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members,
fill vacancies (however caused), and remove all members of the
Committee and thereafter directly administer the Plan, all to the
extent permitted by Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
15
<PAGE> 22
(ii) to select the Directors, Consultants and Employees to whom
Options may be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms
and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or
the shares of Common Stock relating thereto based in each case on such
factors as the Administrator, in its sole discretion, shall determine;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(viii) to construe and interpret the terms of the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(x) to modify or amend each Option (subject to Section 14(c) of
the Plan);
(xi) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to determine the terms and restrictions applicable to
Options; and
(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. ELIGIBILITY. Nonstatutory Options may be granted to Directors,
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, an Employee or Consultant who has been granted
an Option may be granted additional Options.
6. LIMITATIONS.
(a) Each Option shall be designated in the Notice of Grant as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value:
(i) of Shares subject to an Optionee's incentive stock options
granted by the Company, any Parent or Subsidiary, which (ii) become
exercisable for the first time during any calendar year (under all plans
of the Company or any Parent or Subsidiary) exceeds $100,000, such
excess Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 6(a), incentive stock options shall be taken
into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the time of grant.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
(c) No Officer shall be granted in any fiscal year of the Company
Options to purchase more than Three Hundred Thousand (300,000) Shares. The
foregoing limitation set forth in this Section 6(c) is intended to satisfy the
requirements applicable to Options intended to qualify as "performance-based
compensation" (within the meaning of Section 162(m)). In the event the
Administrator determines that such limitation is not required to qualify Options
as performance-based compensation, the Administrator may modify or eliminate
such limitation.
16
<PAGE> 23
7. TERM OF THE PLAN. The Plan shall become effective upon its adoption
by the Board and shall continue in effect for a term of ten (10) years unless
terminated earlier under Section 14 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the Notice
of Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The price per share exercise price for the Share
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market
Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined in the discretion of the Committee,
and may be more or less than the Fair Market Value per Share on the date
of grant.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) a promissory note made by the Optionee in favor of the
Company;
(iii) if permitted by the Administrator, in its sole discretion,
other Shares which (A) in the case of Shares acquired upon exercise of
an option, have been owned by the Optionee for more than six months on
the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(iv) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the Optionee's
broker, if applicable, shall require to effect an exercise of the Option
and delivery to the Company of the sale or loan proceeds required to pay
the exercise price;
(v) any combination of the foregoing methods of payment; or
(vi) such other consideration and method of payment for the
issuance of Shares to the extent permitted by the Administrator and
Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
17
<PAGE> 24
An Option shall be deemed exercised when the Company receives: (1)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, (ii) full payment for the Shares with
respect to which the Option is exercised and (iii) all representations,
indemnifications and documents reasonably requested by the Administrator. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the stock certificate evidencing such Shares is issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. Subject to Section 12, the Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) ACCELERATED TERMINATION OF OPTION TERM. Notwithstanding anything
to the contrary contained in the Plan, an Optionee's Options under the Plan
shall terminate and cease to be exercisable immediately upon the occurrence of a
Termination Event with respect to such Optionee.
(c) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the
event that an Optionee's Continuous Status as an Employee or Consultant
terminates (other than upon the Optionee's death or Disability or as a result of
a Termination Event), the Optionee may exercise his or her Option, but only
within such period of time as is determined by the Administrator, and only to
the extent that the Optionee was entitled to exercise it at the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). In the case of an Incentive Stock
Option, the Administrator shall determine such period of time (in no event to
exceed ninety (90) days from the date of termination) when the Option is
granted. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(d) DISABILITY OF OPTIONEE. In the event that an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by unexercisable portion
of the Option shall immediately revert to the Plan. If, after death, the
Optionee's estate or a person who acquires the right to exercise the Option by
bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
11. NON-TRANSFERABILITY OF OPTIONS.
(a) NO TRANSFER. An Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee.
(b) DESIGNATION OF BENEFICIARY. An Optionee may file a written
designation of a beneficiary who is to receive any Options that remain
unexercised in the event of the Optionee's death. If an Optionee is married and
the designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective. Such designation of beneficiary may be
changed by the Optionee at any time by written notice, subject to the above
spousal consent conditions.
18
<PAGE> 25
(c) EFFECT OF NO DESIGNATION. In the event of the death of the
Optionee and in the absence of a beneficiary validly designated under the Plan
who is living at the time of such Optionee's death, the Company shall deliver
such options to the executor or administrator of the estate of the Optionee, or
if no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such options to the spouse
or to any one or more dependents or relatives of the participant, or if no
spouse, dependent or relative is known to the Company, then to such other person
as the Company may designate.
12. WITHHOLDING TAXES. Upon (i) the disposition by an Optionee of shares
of Common Stock acquired pursuant to the exercise of an Incentive Stock Option
within two years of the granting of such Incentive Stock Option or within one
year after exercise of such Incentive Stock Option, or (ii) the exercise of a
Nonstatutory Stock Option, the Company shall have the right to require such
Optionee to pay the Company the amount of any taxes which the Company may be
required to withhold with respect to such shares of Common Stock.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, if the outstanding shares of Common Stock are
increased, decreased, changed into or exchanged for a different number or kind
of shares of securities of the Company through reorganization, recapitalization,
reclassification, stock combination, stock dividend, stock split, reverse stock
split or other similar transaction, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of shares as to which Options may
be granted under this Plan. A corresponding adjustment changing the number or
kind of shares allocated to unexercised Options which have been granted prior to
any such change, shall likewise be made. Any such adjustment in the outstanding
Options shall be made without change in the aggregate purchase price applicable
to the unexercised portion of the Options but with a corresponding adjustment in
the price for each share or other unit of any security covered by the Option.
Such adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option had not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Administrator may, in the exercise of
its sole discretion in such instances, declare that any Option shall terminate
as of a date fixed by the Administrator and give each Optionee the right to
exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company or a similar event that the Administrator determines, in its
discretion, would materially alter the structure of the Company or its
ownership, the Administrator, upon 30 days prior written notice to the Option
holders, may, in its discretion, do one or more of the following: (i) shorten
the period during which Options are exercisable (provided they remain
exercisable for at least 30 days after the date the notice is given); (ii)
accelerate any vesting schedule to which an Option is subject; (iii) arrange to
have the surviving or successor entity grant replacement options with
appropriate adjustments in the number and kind of securities and option prices;
or (iv) cancel Options upon payment to the Optionees in cash, with respect to
each Option to the extent then exercisable (including any Options as to which
the exercise has been accelerated as contemplated in clause (ii) above), of an
amount equal to the excess of the Fair Market Value of the number of Shares as
to which the Option is then exercisable (at the effective time of the merger,
reorganization, sale of other event) over the aggregate exercise price with
respect to such Shares. The Administrator may also provide for one or more of
the foregoing alternatives in any particular Option Agreement.
14. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator;
provided, however, the date of grant of an Option shall be, for all purposes, no
earlier than the date on which the Optionee commences employment with the
Company. Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter
or suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of the Plan and any amendment if and to the extent necessary under
Applicable Law or the rules of any exchange or quotation system on which the
Common Stock is then listed or quoted. The Company may voluntarily obtain
shareholder approval of the Plan and any amendment if and to the extent the
Board determines such approval is desirable, including, without limitation, to
qualify for special treatment of option grants under Rule 16b-3 of the Exchange
Act, Section 422 of the Code or Section 162(m) of the Code.
19
<PAGE> 26
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of an Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
the requirements of any stock exchange or quotation system upon which the Shares
may then be listed or quoted, and any other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery, and shall
be further subject to the approval of counsel for the Company with respect to
such compliance. Any securities delivered under the Plan shall be subject to
such restrictions, and the person acquiring such securities shall, if requested
by the Company, provide such assurances and representations to the Company as
the Company may deem necessary or desirable to assure compliance with all
applicable legal requirements. To the extent permitted by Applicable Law, the
Plan and options granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
(b) INVESTMENT REPRESENTATION. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell, transfer or
distribute such Shares.
16. LIABILITY OF COMPANY.
(a) INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) GRANTS EXCEEDING ALLOTTED SHARES. If the Optioned Stock covered
by an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 14(b) of the Plan.
(c) RIGHTS OF PARTICIPANTS AND BENEFICIARIES. The Company shall pay
all amounts payable hereunder only to the Optionee or beneficiaries entitled
thereto pursuant to the Plan. The Company shall not be liable for the debts,
contracts or engagements of any Optionee or his or her beneficiaries, and rights
to Shares or cash payments under the Plan may not be taken in execution by
attachment or garnishment, or by any other legal or equitable proceeding while
in the hands of the Company.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. GOVERNING LAW. The Plan shall be governed by, and construed in
accordance with the laws of the State of Delaware (without giving effect to
conflicts of law principles).
20
<PAGE> 27
PROXY
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
9162 ETON AVENUE
CHATSWORTH, CALIFORNIA 91311
ANNUAL MEETING OF STOCKHOLDERS
JUNE 11, 1998
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 11, 1998, 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 2 Director.
___ FOR John A. O'Malley ___ WITHHOLD AUTHORITY to
vote for the nominee
2. To approve the adoption of the 1998 Stock Option Plan.
___ FOR ___ AGAINST ___ ABSTAIN
3. To ratify the selection of Coopers & Lybrand L.L.P. as independent
auditors of the Company for 1998.
___ FOR ___ AGAINST ___ ABSTAIN
The Board of Directors Recommends a Vote FOR each of the Proposals.
<PAGE> 28
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 11, 1998
