<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
International Remote Imaging Systems, Inc.
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<PAGE> 2
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
9162 ETON AVENUE
CHATSWORTH, CALIFORNIA 91311
April 14, 2000
Dear IRIS Stockholder:
In this, my first proxy message to you, I want to acknowledge and praise
Dr. Fred Deindoerfer, founder of IRIS, for the excellent leadership he provided
over the past twenty years. IRIS would not be what it is today without his
vision, dedication, hard work and long hours, and knowledge of this business. We
are the only company entering the "big ticket" instrumentation end of this
business since 1980 which survived and become operationally profitable. Under
Dr. Deindoerfer's stewardship, IRIS addressed the primary forces affecting
healthcare delivery over the past twenty years. As a result, we are the
recognized leader in automated urinalysis. Fred, all of us at IRIS wish you many
years of continued happiness and success in your retirement.
In last year's message Dr. Deindoerfer told you that 1998 was the most
challenging, and perhaps most difficult, year in this decade. Well, I must tell
you that 1999, while improved in many respects, was equally challenging and set
the stage for some very difficult decisions that were made to ensure that IRIS
began the 21st century in a stronger position.
OFFICE OF THE CHIEF EXECUTIVE (CEO). Through August 1999, the transition
period after Dr. Deindoerfer announced his decision to retire, he, Mr. Roland
Jang, and I shared equally in key operational and strategic decisions as members
of the Office of the CEO. In September of this year, at the request of Dr.
Deindoerfer and Mr. Jang, the Board appointed me Chief Executive Officer and
President of IRIS, and dissolved the Office of the CEO. Dr. Deindoerfer
continued to contribute to IRIS as its Chairman until his retirement on December
31, after which I became Chairman. Mr. Jang has continued as a consultant to the
company. Over the years, whenever IRIS needed his assistance, Roland has always
been available. Thank you, Roland, for your many contributions to date, and for
those to come.
IRIS GOALS. In an earlier and lengthier message to IRIS employees, I listed
the following goals:
- IRIS must be recognized as a 21st century company
- IRIS must balance its obligations to customers, employees and
shareholders
- IRIS must operate profitably while growing revenues at a respectable
rate.
I am pleased that we made much progress in 1999 toward accomplishing these
goals, as you will see in the following paragraphs.
PSI, A DISCONTINUED OPERATION. In November 1999, I reported that the
Genetic Analysis Segment of our business (PSI) had not met original
expectations. In addition to producing negative cash flow, PSI continued to face
a generally weakened market. In 1999, we wrote off $6.6 million of intangible
assets acquired with the purchase of PSI. In total, PSI incurred after tax
losses of $5.2 million in 1999 and $1.1 million in 1998. Clearly this was a
major factor in the Company's overall net losses of $6.3 million in 1999 and
$400,000 in 1998.
In March of this year, we entered into a Letter of Intent to sell
Perceptive Scientific Instruments (PSI). In light of our plans to sell PSI, we
are treating this business as a discontinued operation for accounting purposes.
Although that sale remains subject to many conditions, the remaining financial
information in this message will reflect only the continuing operations of our
business, the Urinalysis and Small Laboratory Devices segments.
PERFORMANCE OF CONTINUING OPERATIONS. During 1999, revenues from our
continuing operations increased nearly twenty percent over those of a year
earlier.
<PAGE> 3
Operating income before interest, taxes, and certain other expenses, was
$390,000 down from $2.2 million of a year earlier. However, this year included
unusual charges of $4.2 million compared to just $193,000 in 1998. Excluding
these unusual charges, operating income for 1999 would have been $4.5 million
compared to $2.4 million in 1998, a 90% improvement. However, as a result of the
unusual charges, IRIS recorded a loss from continuing operations of $1,088,000,
compared to income of $667,000 a year earlier.
While net income was adversely affected by these unusual charges, these
write-offs reflect that we addressed most of our more pressing operational and
strategic issues. However, while we have continued to make significant
investments in product oriented technology, our expenditures have declined over
the past three years, $2.5 million in 1997 to $2.2 million in 1998 to $1.4
million in 1999. I anticipate that we will have to reverse this trend in the
future.
We have begun the mandated process to restore stockholder value by renewing
revenue and earnings growth. We have initiated new revenue generating programs,
cost saving and cash management measures, and have reduced the debt, interest,
and amortization burden. We have rigorously defined and put in place new product
programs.
SEGMENT PERFORMANCE OF CONTINUING OPERATIONS. Below is a summary of 1999
results for our continuing operating segments:
SEGMENT AND CONSOLIDATED PERFORMANCE FOR CALENDAR YEAR 1999
<TABLE>
<CAPTION>
BEFORE TAX
SEGMENT NET REVENUES SEGMENT PROFIT
------- ------------ --------------
<S> <C> <C>
Urinalysis........................................ $20,428,084 $ 3,676,900
Small laboratory devices.......................... 5,297,385 1,414,313
Unallocated corporate expenses.................... -- (5,648,235)
----------- -----------
Consolidated...................................... $25,725,469 $ (557,022)
=========== ===========
</TABLE>
Although the rest of this letter will highlight some of our progress and
expectations, given the complexity of various financial and operational
developments during 1999, and the many risks we face, I encourage you to
carefully review our accompanying 1999 Annual Report on Form 10-K.
URINALYSIS BUSINESS SEGMENT. Worldwide, we enjoyed nearly a 30% increase in
equipment sales in 1999 compared to the previous year. This includes 19 units
sold outside the United States compared to 10 units in the prior year. In
addition, the Model 500, considered to be a workhorse in many laboratories,
showed renewed strength in the domestic market with the sale of 20 units
compared to 12 units in the prior year. Our customer base continues to
demonstrate support for our proprietary imaging technology. When their systems
approach the end of their useful life, many of our customers upgrade to either
the Model 500 or Model 900Udx, our flagship products.
Our Model 900UDx urine pathology system is the most sophisticated
urinalysis product in the market today, setting new standards for
quality-of-result and cost-effectiveness. Through 1999, we have sold sixty-five
systems worldwide. Trailing revenues from its supplies and service are
substantial and increasing. Our new 900UDx customers include the Mayo Clinics in
Rochester, MN, Jacksonville, FL and Boston, MA. In addition, Long Beach
Memorial, Florida Hospital, Provident Hospital in Southfield, MI and City of
Elmhurst in New York have been added to our growing list of 900UDx customers.
In promising R&D news, we have successfully adapted and enhanced automatic
recognition technology developed with the collaboration of three California
Institute of Technology scientists, Professor Yaser Abu-Mostafa and his
students, Drs. Joseph Sill and Xubo Song. Included in the next version of our
Model 900UDx series, the Model 939UDx, and retrofittable into existing systems,
it can allow most microscopic results to be automatically released without
further operator review. At the same time, it retains images for review when
human interpretation is required. This improvement can reduce the labor
operating cost of our top-of-the-line systems by 50% or more, making them even
more productive. We have submitted a 510(k) notification for its clearance,
which currently is under review by the FDA.
2
<PAGE> 4
IRIS concluded its second full year of distribution of the IRIS/Sysmex
UF-100 urine cell analyzer in the U.S. under an exclusive agreement with its
manufacturer, Sysmex Corporation. We expected its sales to grow, primarily among
reference laboratories wanting to minimize visual microscopy. However, only
seven units are now installed and operational. In September 1998, Sysmex started
procedures to end the exclusive nature of our distribution rights, claiming
inadequate performance. We denied these allegations. Sysmex now claims that it
has the right to appoint additional distributors and has announced that its U.S.
subsidiary will distribute the UF-100 in North America. We dispute that Sysmex
has this right and may take legal action.
Sales of the Company's urinalysis system products outside the United States
increased by $1 million in 1999, a 78% increase over the previous year, led by
significant placements in Turkey and Israel. Over 40 IRIS instruments have now
been placed in these two countries alone. The Company's distributors are now
active in the United Kingdom, Benelux, Scandinavia, Switzerland, Saudi Arabia,
Kuwait, Egypt, South Africa, and Brazil. In Europe, parts of Asia, and
Australia, downward cost pressure due to ongoing healthcare reform is rapidly
shifting clinical diagnostic testing from small to very large laboratories. In
Latin America, the Middle East, and China, a growing and more affluent middle
class has spurred demand for lab procedures, leading to dynamic growth of
commercial and contract lab services. These changes create an ongoing
opportunity for high-capacity systems which automate frequently-ordered tests
such as urinalysis. Within the first half of 2000, sales efforts will also begin
in Italy, Greece, eastern Europe, Russia, Argentina, China, Taiwan, Hong Kong,
Australia/New Zealand, and Malaysia/Singapore. As a result, we are excited about
the opportunities for continued growth in international sales in 2000.
SMALL LABORATORY DEVICES BUSINESS SEGMENT. In 1999, StatSpin sales
increased 16% over the prior year. Most of this growth was due to accelerated
placement of new centrifuges by our primary veterinary distributor. Over 1300
instruments were placed in the domestic veterinary market alone. As a result,
this year we anticipate a substantial increase in the sale of the Company's
sample collection and processing devices used in conjunction with these
instruments. Growth in sales of instruments and supplies to both physicians'
office and hospital markets worldwide was moderate.
International sales for StatSpin increased 22%, primarily due to sales of
our Censlide products in Turkey. Based on our belief in the potential for
continued growth internationally, we plan to apply more resources to this
effort.
R&D successfully developed two new compact centrifuges for veterinary
applications; a new high speed centrifuge for the hospital market, and an
improved system for CLIA-waived microhematocrit testing in physician offices,
clinics and alternate care environments. These products will be introduced this
year.
PATENTS AND ROYALTIES. By the end of 1999, our intellectual property
portfolio includes forty-four U.S. patents, of which twenty four patents relate
to our Automated Intelligent Microscopy technology. Our proprietary technology
was the basis for $310,587 of royalties received during 1999. We received
royalties of $224,310 from Sysmex from worldwide sales (excluding North America)
of the UF-100 urine cell analyzer based on a license of pre-1989 know-how and
technology granted to them during an earlier collaboration between our
companies. Sysmex also has a non-exclusive license to use three of our patents
for industrial applications in the Japanese market, yielding additional
royalties of $86,277 to IRIS.
CORPORATE FINANCE. Cash flow management and adequate debt service are
crucial for IRIS. During 1999 we maintained positive cash flow and reduced our
debt by another $1.8 million.
Our loan facility with Foothill Capital Corporation, a division of Wells
Fargo, provides a combined credit limit of $7 million comprised of a term loan
of $3.6 million and a revolving line of credit of up to $4.0 million. We have
considerably reduced the term loan, and judiciously used the line of credit for
working capital. At the end of 1999, we owed $1.7 million on the term loan and
were using $665,000 of the line of credit.
POLY U/A SYSTEMS. In 1998, IRIS and Poly U/A Systems, Inc. concluded a
research and development program to develop several new urinalysis products
using IRIS technology. As you were told in last year's proxy, we decided not to
exercise our option to acquire Poly U/A Systems for $5.1 million. Instead, in
1999, IRIS made a tender offer, primarily to avoid litigation, to acquire it at
a lesser price. A super majority of Poly
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<PAGE> 5
UA stockholders accepted the tender offer. As a result, IRIS acquired 77% of the
Poly UA common stock in exchange for a package of securities described in detail
in the 10K.
DITI ARBITRATION. In 1997, we filed a demand for arbitration against
Digital Imaging Technologies, Inc. (DITI) alleging material breaches of
representations, warranties and covenants in the 1996 PSI purchase agreement. As
part of the process, we reduced the exercise price of DITI's warrant to purchase
875,000 shares of common stock from $8.00 to $3.56 per share. In October 1999
the arbitration was concluded under the auspices of the American Arbitration
Association, resulting in a disappointing award to IRIS of $132,000. The
arbitration panel found that while certain representations, warranties and
covenants in the purchase agreement for the transaction had been breached by
DITI, for the most part, these did not result in damage to IRIS.
THE WHITE IRIS. As a result of refocusing IRIS on its core business,
urinalysis, we decided to write off the assets related to the White IRIS
leukocyte differential analyzer because it is not relevant to our near term
plans.
THERMO AMEX. In 1997, the Thermo Amex Convertible Growth Fund invested
$3,000,000 in IRIS. As part of this investment, Thermo Amex had the right to
convert its 3,000 shares of IRIS's Series A Convertible Preferred Stock into
2,000,000 shares of IRIS common stock. In October 1999, Thermo Amex exercised
this right to convert.
PROXY STATEMENT AND ANNUAL MEETING. This year's Proxy Statement contains
three proposals. We endorse and ask your support for all of them. The first one
is for Dr. Nadeau's and Mr. Besbeck's re-election for renewed three-year terms
as IRIS directors. Dr. Nadeau joined our Board in 1999.
An integral part of the Company's compensation program for officers and key
employees is the Stock Option Plan. Since there are very few shares of stock
remaining in the 1998 Stock Option Plan, we are asking you to approve an
increase in the Plan of 600,000 shares.
The third proposal is to ratify reappointment of PricewaterhouseCoopers LLP
(formerly Coopers & Lybrand LLP) as our independent auditors.
The Annual Meeting of Stockholders will be held at the Chatsworth Hotel,
located at 9777 Topanga Canyon Boulevard, Chatsworth, CA, about one mile north
and one mile west of our facilities. The meeting is Friday, May 19, 2000,
beginning 3:00 p.m. local time. The Board of Directors and management of IRIS
invite and welcome your participation.
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 2000.
Sincerely,
/s/ John A. O'Malley
John A. O'Malley
Chairman of the Board,
President and Chief Executive Officer
THE ANNUAL MEETING IS ON MAY 19, 2000. PLEASE RETURN YOUR PROXY IN TIME.
4
<PAGE> 6
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
9162 ETON AVENUE
CHATSWORTH, CALIFORNIA 91311
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 2000
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, located at 9777 Topanga Canyon
Boulevard, Chatsworth California, on May 19, 2000 at 3:00 p.m. local time for
the following purposes:
1. To elect two Class 1 Directors to hold office until the year 2003 annual
meeting or until their successors are elected and qualified;
2. To approve an increase the number of shares of common stock available
for grant under the 1998 Stock Option Plan from 600,000 to 1,200,000;
3. To ratify the selection of PricewaterhouseCoopers LLP as independent
public accountants for the fiscal year ending December 31, 2000; 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 3, 2000, 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/ John A. O'Malley
John A. O'Malley
Chairman of the Board, President
and Chief Executive Officer
April 14, 2000
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 MAY 19, 2000. 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 MAY 19, 2000
------------------------
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, located at 9777 Topanga Canyon
Boulevard, Chatsworth California, on Friday, May 19, 2000, at 3:00 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, 1999. 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 April 17, 2000.
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 nominees as the Class 1 Directors
and FOR Proposals 2, 3 and 4. 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 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 connection with the distribution of
proxy materials.
Only holders of record of the Company's common stock at the close of
business on April 3, 2000 will be entitled to vote at the Annual Meeting on the
proposals described in this Proxy Statement. On that date, there were 9,409,291
shares of common stock outstanding. Each holder of record is entitled to one
vote for each share of common stock held on all matters to come before the
meeting.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding those
individuals currently serving as the directors and executive officers of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
John A. O'Malley............. 66 Chairman of the Board, Chief Executive Officer and
President
Steven M. Besbeck............ 52 Director
Thomas F. Kelley............. 67 Director
Richard G. Nadeau............ 64 Director
Achille M. Bigliardi......... 57 Vice President and General Manager of Chatsworth Operations
Anthony G. Landells.......... 46 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
<PAGE> 8
officers serve at the discretion of the Board of Directors. There are no
familial relationships among the directors and executive officers of the
Company.
John A. O'Malley has served as a director since 1988 and became President
and Chief Executive Officer in the third quarter of 1999 and Chairman of the
Board of Directors in January 2000. He also is the sole director and President
of Poly U/A Systems, Inc., a subsidiary of IRIS. From November, 1998 to August,
1999, he served IRIS as a member of the Office of the Chief Executive. Before
that he was President of Second Opinion, a consulting firm serving the
healthcare diagnostic and biotechnology industry. Simultaneously he shared the
presidency, in addition to being a director and Chief Operating Officer, of
Litmus Concepts, Inc. (LCI), a developer of point-of-care diagnostic tests for
the women's healthcare market. Dr. O'Malley remains a director of LCI. He is
also a director of Cytometrics, Inc., a privately held development-stage company
developing non-invasive, point-of-care, diagnostic instrument systems and a
director of Vital Sounds, Inc., a privately held development-stage company
developing a unique sensitive stethoscope. Prior to establishing Second Opinion,
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 of the Biosearch division. Previously, he was President of Primary
Diagnostic Systems and President of Smith Kline Instruments, both in vitro
diagnostic ("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.
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 Chief Executive Officer of Imagepath Systems, Inc. an IVD imaging
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.
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 and private-label manufacturer of
reagents, controls and calibrators.
Richard G. Nadeau was appointed a director in January 1999 when the Board
was enlarged from four to five members. He is Chairman and Chief Executive
Officer of Cytometrics, Inc., a privately-held development-stage company
developing non-invasive, point-of-care, diagnostic instrument systems, which he
co-founded in 1992. Previously, Dr. Nadeau held senior positions with various
IVD equipment companies, including President and Chief Executive Officer of EM
Diagnostic Systems, Inc., Senior Vice President and Chief Technical Officer of
Technicon Instrument Corporation, President of the Diagnostics Division (North
America) of Technicon Instrument Corporation, President of Ortho Diagnostics,
Inc., a subsidiary of Johnson & Johnson, Inc., and Worldwide Marketing Manager
for the Automatic Clinical Analysis Division of E.I. DuPont de Nemours & Co. He
currently serves on the Board of Directors for the Health Industry Manufacturers
Association and has served as an advisor and consultant to the Food and Drug
Administration, Centers for Disease Control, the World Health Organization and
the National Bureau of Standards. Dr. Nadeau is a former President of the
National Committee for Clinical Laboratory Standards and former Board Member of
the European Committee for Clinical Laboratory Standards. He earned his B.S. in
Pre-Med and M.S. in Biochemistry at the University of New Hampshire and his
Ph.D. in Biochemistry at West Virginia University.
2
<PAGE> 9
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 was President and co-founder of Aktis Corporation, a
development-stage IVD company, 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 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, 1999, all of its officers, directors and significant stockholders
complied with all applicable filing requirements under Section 16(a), except for
Roland Jang, who filed one late report relating to a purchase of common stock,
and Anthony Landells, who filed one late report relating to an option grant.
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<PAGE> 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of common stock as of March 15, 2000 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)(8).......................... 535,401 5.6
John A. O'Malley(8)................................ 405,448 4.2
Steven M. Besbeck.................................. 48,218 *
Thomas F. Kelley................................... 126,556 1.3
Richard G. Nadeau.................................. 43,354 *
Martin S. McDermut................................. 56,600 *
Achille M. Bigliardi(8)............................ 241,608 2.5
Anthony G. Landells................................ 109,753 1.2
Thermo Amex Convertible Growth Fund I, L.P.(6)..... 2,084,270 22.0
Digital Imaging Technologies, Inc.(7).............. 853,040 8.3
Directors and Executive Officers as a Group (8
persons)......................................... 1,566,938 15.4
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the mailing address of each person is c/o the
Company, 9162 Eton Avenue, Chatsworth, California 91311.
(2) Includes warrants and options exercisable on or within 60 days of March 15,
2000 held by directors and executive officers as follows: Dr. Deindoerfer
(140,920 shares), Dr. O'Malley (258,930 shares), Mr. Besbeck (44,930
shares), Dr. Kelley (75,000 shares), Dr. Nadeau (26,600), Mr. McDermut
(56,600 shares), Mr. Bigliardi (85,008 shares) and Mr. Landells (78,560
shares).
(3) Based on 9,395,920 shares of stock outstanding as of March 15, 2000.
(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 March 15, 2000 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) 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) Does not include 2,000 shares of Series B callable preferred stock held by
each of these individuals. As of March 15, 2000, 2,000 shares of the Series
B callable preferred stock could have been converted by the Company into
2,135 shares of common stock.
4
<PAGE> 11
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, 1999,
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>
John A. O'Malley.......... 1999(5) $218,866 $60,000 $ 42,787(6) 273,000 $ 864(9)
Chairman of the Board,
President and Chief
Executive Officer
Martin S. McDermut........ 1999 152,485 26,000 0 10,500 2,389(10)
Vice President, Finance 1998 162,964 0 0 20,000 2,706(10)
and Administration, 1997 132,268 20,000 0 15,000 2,632(10)
Secretary and Chief
Financial Officer
Achille M. Bigliardi...... 1999 187,805 50,000 28,650(7) 50,000 2,464(11)
Vice President and 1998 195,998 0 30,231(7) 27,600 3,219(11)
General Manager of 1997 109,448 30,451 25,715(7) 30,000 2,384(11)
Chatsworth Operations
Anthony G. Landells....... 1999 126,237 15,181 0 6,000 17,673(12)
Vice President and 1998 129,401 44,045 27,352(8) 0 18,116(12)
General Manager of PSI 1997 128,353 51,341 25,239(8) 10,000 16,390(12)
Fred H. Deindoerfer(4).... 1999 227,046 0 0 21,000 864(9)
Founding Chairman 1998 222,792 0 21,808(8) 24,000 905(9)
(Retired) 1997 233,861 0 28,215(8) 50,000 905(9)
</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 Employee Stock Purchase Plan and the fair market value of such
shares on the date of purchase ("ESPP benefits") and (b) 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) Dr. Deindoerfer was President and Chief Executive Officer until his
retirement in the third quarter of 1999. Dr. Deindoerfer also retired from
the Board of Directors in the first quarter of 2000 and was bestowed the
honorary title of Founding Chairman (Retired).
(5) John O'Malley became Chairman of the Board of the Company in the first
quarter of 2000 and became President and Chief Executive Officer of the
Company in the third quarter of 1999.
(6) Consists of $37,500 in ESPP benefits and $5,287 in automobile allowances
for 1999.
(7) Consists of $28,650, $27,781 and $21,515 in ESPP benefits and $0, $2,450
and $4,200 in automobile allowances for 1999, 1998 and 1997, respectively.
(8) Consists entirely of ESPP benefits.
(9) Consists entirely of payments for life insurance premiums.
(10) Consists of $864, $1,076 and $1,046 for life insurance premiums and $1,525,
$1,630 and $1,586 in 401(k) matching contributions for 1999, 1998 and 1997,
respectively.
(11) Consists of $864, $1,160 and $980 for life insurance premiums and $1,600,
$2,059 and $1,404 in 401(k) matching contributions for 1999, 1998 and 1997,
respectively.
(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.
5
<PAGE> 12
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock option
grants during 1999 to the Named Officers. No stock appreciation rights were
granted during the year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
- ------------------------------------------------------------------------------------ POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL PERCENTAGE RATES
NUMBER OF OPTIONS OF STOCK PRICE APPRECIATION PER
SHARES GRANTED TO OPTION TERM(2)
UNDERLYING EMPLOYEES EXERCISE EXPIRATION ---------------------------------
NAME OPTIONS IN FISCAL YEAR PRICE DATE 0% 5% 10%
---- ---------- -------------- -------- ---------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
John A. O'Malley............ 3,000 0.6 $0.88 02/20/04 $ 0 $ 729 $ 1,612
10,000(3) 1.8 1.25 06/11/09 0 7,861 19,922
10,000(3) 1.8 1.00 07/23/09 0 6,289 15,937
250,000(4) 46.0 1.06 08/01/09 0 166,657 422,342
Martin S. McDermut.......... 10,500 1.9 1.25 06/11/09 0 8,254 20,918
Achille M. Bigliardi........ 10,000 1.8 0.88 02/20/04 0 2,431 5,372
15,000 2.8 1.25 06/11/09 0 11,792 29,883
25,000(5) 4.6 0.88 10/29/09 0 13,836 35,062
Anthony G. Landells......... 6,000 1.1 1.25 06/11/09 0 4,717 11,953
Fred H. Deindoerfer......... 21,000 3.9 1.25 06/11/09 0 16,508 41,836
</TABLE>
- ---------------
(1) Options vest annually in equal installments during the three years following
the date of grant, unless described otherwise herein.
(2) Based on the assumption that the market price of the underlying shares of
common stock appreciate in value from the date of grant to the date of
expiration at the annualized rates indicated. These rates are hypothetical
rates mandated by the Securities and Exchange Commission, and the Company
does not make any representations regarding future appreciation in the
market price of the common stock.
(3) Options vested immediately upon grant.
(4) Includes options to purchase 125,000 shares of common stock which were
granted subject to stockholder approval of an increase in the number of
shares available for grant under the 1998 Stock Option Plan discussed under
Proposal 2 herein. Includes (i) options to purchase 125,000 shares which
vest monthly in equal installments during the twelve months following the
date of grant and (ii) options to purchase 125,000 shares which vest monthly
in equal installments during the 29 months following the date of grant.
(5) Includes options to purchase 25,000 shares of common stock which were
granted subject to stockholder approval of an increase in the number of
shares available for grant under the 1998 Stock Option Plan discussed under
Proposal 2 herein.
6
<PAGE> 13
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 1999 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 1999 or held any such rights at year end.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
NUMBER OF FISCAL YEAR END FISCAL YEAR END(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
John A. O'Malley.............. 0 0 164,607/189,393 0/0
Martin S. McDermut............ 0 0 51,500/ 29,000 0/0
Achille M. Bigliardi.......... 0 0 75,708/ 78,692 0/0
Anthony G. Landells........... 0 0 56,600/ 9,400 0/0
Fred H. Deindoerfer........... 0 0 130,920/ 54,080 0/0
</TABLE>
- ---------------
(1) Based on the difference between the market price of a share of common stock
on December 31, 1999 and the exercise price of the options.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of 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. From January 1, 1999 until September 11 1999, the Compensation
Committee consisted of Dr. John A. O'Malley (Chairman) and Mr. Steven M.
Besbeck. On September 11, 1999, after being appointed Chief Executive Officer
and President of the Company, Dr. O'Malley resigned from the Compensation
Committee. From September 11, 1999 through December 31, 1999, the Compensation
Committee consisted of Dr. Richard G. Nadeau (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 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, a review of the Hay report on Executive
Compensation, the "Executive Compensation In 1998" report by The Conference
Board, publications such as "The 1998 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.
7
<PAGE> 14
COMPENSATION ELEMENTS
The Company's compensation package for executive officers consists of a
base salary, performance-based cash bonuses and stock options. The executive
officers are also eligible to participate in most of the Company's employee
benefit plans.
Base Salaries. Base salaries are initially targeted at average levels of
comparable companies and then adjusted based on an assessment of individual
performance and contributions.
Management Incentive Bonus Plan. The Company has a Management Incentive
Bonus Plan (MIBP) to reward participants with cash bonuses for their
contributions to the achievement of Company-wide performance goals. All
executive officers of the Company 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. Awards can
only be made to MIBP participants when their division of the Company, or the
Company as a whole, exceeds planned operating income goals.
Stock Option Plans. The Company uses 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 that permits all employees to purchase shares of Common Stock at a discount
of 50% from the then current market price. 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 or is terminated for cause 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 automatically
terminates under certain circumstances such as a sale of the Company.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
During 1999, Dr. Deindoerfer retired and Dr. O'Malley was appointed Chief
Executive Officer and President. Prior to his retirement, Dr. Deindoerfer
received a 3% cost of living adjustment in his base salary and a stock option
grant of 21,000 shares. Dr. Deindoerfer continues to serve the Company as a
special consultant and has been bestowed the honorary title of Founding Chairman
(Retired). The Compensation Committee gave Dr. O'Malley a $60,000 cash bonus for
1999 based on (1) exceeding present goals for operating income, (2) improvement
of the market value of the Company and (3) the achievement of extraordinary
accomplishments (not directly affecting operating earnings or stock value).
COMPENSATION OF OTHER EXECUTIVE OFFICERS
The Compensation Committee established a formula early in the year for the
amount to be allocated to the MIBP based primarily on exceeding preset goals for
operating income. In determining the formula, the Compensation Committee
considered (1) the potential size of the bonus pool relative to the goal for
operating income in the Board-approved profit plan and (2) the challenge
presented by the profit plan in the current business environment. The
Compensation Committee considered three factors in determining individual cash
bonus awards for 1999: (a) the individual's salary multiplied by his or her
level of bonus participation (100% for executive officers), (b) the individual's
estimated contribution to the improvement of operating income
8
<PAGE> 15
and (c) the individual's achievement of any other predefined performance goals
assigned to the individual. The Compensation Committee relied primarily upon the
evaluations and recommendations of the Unit Heads and the Chief Executive
Officer.
Based on these factors, Mr. Bigliardi and Mr. McDermut were awarded cash
bonuses of $50,000 and $26,000 respectively for 1999 under the MIBP and, in
addition, were awarded stock options of 50,000 and 10,500 shares respectively.
See "Executive Compensation -- Summary Compensation Table" and "Executive
Compensation -- Option Grants in Last Fiscal Year Table."
COMPENSATION COMMITTEE
Dr. Richard G. Nadeau (Chairman)
Mr. Steven M. Besbeck
COMPENSATION OF DIRECTORS
In 1999, the Company raised the annual cash retainer received by
non-employee directors to $24,000 per year from $13,500 per year for normal,
routine services as a Board member. Additional consulting time is compensated at
the rate of $2,000 per day. During 1999, Mr. Besbeck, Dr. Kelley and Dr. Nadeau
were paid $21,000, $12,000 and $39,375, respectively, for their services as
directors. The Company also awarded each of these non-employee directors stock
options for 23,000, 20,000 and 40,000 shares of common stock in 1999,
respectively. Dr. Kelley also serves as a part-time consultant on StatSpin
matters and was paid $37,602 for these services in 1999.
OFFICE OF THE CHIEF EXECUTIVE
During 1998, the Company enlarged the Office of the Chief Executive to
three members. Dr. John A. O'Malley and Mr. Roland Jang, both long time advisers
to the Company, joined Dr. Fred H. Deindoerfer in the Office of the Chief
Executive on a part-time basis. During 1999, Dr. Deindoerfer retired and Dr.
O'Malley was appointed Chief Executive Officer and President. The Office of the
Chief Executive was subsequently dissolved. Mr. Jang was paid $119,814 for his
services as a member of the Office of the Chief Executive during 1999. The
compensation paid to Dr. Deindoerfer and Dr. O'Malley for services to the Office
of Chief Executive is included with their overall compensation reported in the
other sections of this Proxy Statement.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held a total of 12 meetings during 1999. The Board
of Directors has two standing committees: an Audit Committee and a Compensation
Committee. There is no nominating committee or any other committee performing
those functions.
The Audit Committee, which currently consists of Mr. Besbeck and Dr.
Kelley, held one meeting during 1999. 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. Nadeau and Mr.
Besbeck, held 7 meetings during 1999. 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 1999.
9
<PAGE> 16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. O'Malley was a stockholder, director and officer of Poly UA Systems,
Inc., a Company-sponsored research and development entity. See "Certain
Relationships and Related Transactions -- Joint Development Project with Poly UA
Systems." Dr. Nadeau is Chairman and Chief Executive Officer of Cytometrics,
Inc., a privately-held development-stage company, and Dr. O'Malley is a director
of Cytometrics and serves on its Compensation and Audit Committees. See
"Directors and Executive Officers."
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 Nasdaq Medical
Devices, Instruments and Supplies, Manufacturers and Distributors Stocks and the
Standard & Poor's Health Care for the five years ending December 31, 1999,
assuming that the relative value of the Common Stock and each index was $100 on
December 31, 1994. Amounts below have been rounded to the nearest dollar.
<TABLE>
<CAPTION>
IRIS S&P 500 NMDISMDS S&P HEALTHCARE
---- ------- -------- --------------
<S> <C> <C> <C> <C>
1994 100 100 100 100
1995 150 138 150 158
1996 75 169 140 191
1997 64 225 160 274
1998 15 290 180 40
1999 15 350 220 36
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TENDER FOR SHARES OF POLY U/A SYSTEMS
In 1995, the Company entered into a project with Poly U/A Systems, Inc. for
development of several new products to enhance automated urinalysis.
Subsequently, certain disputes arose with the shareholders of Poly U/A Systems.
In 1999, the Company made a tender offer to acquire all of the outstanding
shares of Poly/UA Systems for a package of Company securities with an estimated
value of up to $1.5 million. The Company ultimately purchased approximately 79%
of the outstanding shares of Poly/UA. In exchange for the shares of Poly U/A
Systems and a release of claims, the Company issued a total of 612,000 shares of
its common stock, 204,000 shares of a new Series B Callable Preferred Stock and
Series G Warrants to purchase an additional 612,000 shares of common stock. As a
result, Poly U/A Systems became a majority-owned subsidiary of the Company. The
Company also filed a Form S-3 Registration Statement to permit public
10
<PAGE> 17
resales of the shares of common stock issued to the Poly UA stockholders as well
as any shares of common stock subsequently issued to them upon conversion of the
Series B Callable Preferred Stock and exercise of the Series G Warrants.
Dr. O'Malley was the Executive Vice President, General Manager and a
director of Poly U/A Systems. He received $19,425 from Poly U/A Systems for
services rendered in 1999. The following directors and executive officers of the
Company were stockholders of Poly U/A Systems and tendered their shares of Poly
U/A Systems to the Company in the tender offer:
<TABLE>
<CAPTION>
SHARES TENDERED COMPANY SECURITIES RECEIVED
--------------- -------------------------------------------
POLY U/A SERIES B SERIES G
NAME COMMON STOCK COMMON STOCK PREFERRED STOCK WARRANTS
---- --------------- ------------ --------------- --------
<S> <C> <C> <C> <C>
Dr. O'Malley.......................... 2,000 6,000 2,000 6,000
Dr. Deindoerfer....................... 2,000 6,000 2,000 6,000
Mr. Bigliardi......................... 2,000 6,000 2,000 6,000
</TABLE>
These individuals collectively owned less than 3% of the outstanding shares
of Poly U/A Systems and individually owned less than 1% of the outstanding
shares of Poly U/A Systems.
INTEREST PAYMENTS TO DIGITAL IMAGING TECHNOLOGIES
In July 1996, the Company acquired PSI from Digital Imaging Technologies,
Inc. ("DITI"). The Company paid a portion of the purchase price by issuing to
DITI a $7.0 million Senior Subordinated Note and a warrant to purchase 875,000
shares of common stock. The note bears interest at the rate of 8.5%, and the
Company paid $595,000 of interest to DITI during 1999. Principal is not due
until maturity on July 31, 2001. In 1997, the Company filed a demand for
arbitration against DITI alleging material breaches of representations,
warranties and covenants in the 1996 PSI purchase agreement. As part of the
process, the Company reduced the exercise price of DITI's warrant to purchase
875,000 shares of common stock from $8.00 to $3.56 per share. In October 1999
the arbitration was concluded under the auspices of the American Arbitration
Association, resulting in a disappointing award to IRIS of $132,000.
PROPOSAL 1
ELECTION OF THE CLASS 1 DIRECTORS
The Board of Directors currently consists of four directors divided into
three classes -- Class 1 (Mr. Besbeck and Dr. Nadeau), Class 2 (Dr. O'Malley)
and Class 3 (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 Dr. Deindoerfer and Dr. Kelley as the Class 3 directors to hold
office until 2002. Dr. Deindoerfer, the Company's founding Chairman and
long-time Chief Executive Officer, retired from the Board of Directors in
January 2000. Dr. Deindoerfer continues to serve the Company as a special
consultant and has been bestowed the honorary title of Founding Chairman
(Retired).
At the Annual Meeting this year or any adjournments or postponements
thereof, the Class 1 Directors will be elected to serve until their successor
are duly elected and qualified. The nominees for election as the Class 1
Directors are Mr. Steven Besbeck and Dr. Richard G. Nadeau. The Stockholders
elected Mr. Besbeck as a Class 1 Director at the 1997 annual meeting and Dr.
Nadeau was appointed by the Board of Directors to fill a vacancy in the Board in
1999, and they are presently serving the Company in that capacity. The Class 1
Directors will serve until the year 2003 annual meeting or until their
successors are elected and qualified.
The accompanying proxy grants to the holder the power to vote the proxy for
substitute nominees in the event that Mr. Besbeck or Dr. Nadeau becomes
unavailable to serve as a Class 1 Director. Management presently has no
knowledge that either Mr. Besbeck or Dr. Nadeau will refuse or be unable to
serve as a Class 1 Director for the prescribed term.
11
<PAGE> 18
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES.
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 AMENDMENT TO 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 shareholder 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. Rather than adopting a new stock option plan at
the present time, the Company proposes to increase the number of shares of
Common Stock available for grant under the 1998 Stock Option Plan from 600,000
shares to 1,200,000 shares, an increase of 600,000 shares. The Board of
Directors adopted such an amendment to the 1998 Stock Option Plan subject to
stockholder approval. The following is a summary of the material features of the
plan, as amended. The summary is qualified in its entirety by reference to the
full text of the amended plan which is attached as Exhibit A to this Proxy
Statement.
SUMMARY DESCRIPTION OF THE AMENDMENT AND THE PLAN
Proposed Amendment. The Company proposes to amend the plan to increase the
number of shares of common stock available for grant under the plan from 600,000
shares to 1,200,000 shares (the "Amendment").
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 definitions
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.
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.
12
<PAGE> 19
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.
13
<PAGE> 20
AMENDED PLAN BENEFITS
The following table sets forth certain information regarding benefits to be
received by certain officers and directors of the Company under the 1998 Stock
Option Plan subject to approval of the amendment to the 1998 Stock Option Plan:
<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDERLYING EXERCISE PRICE EXPIRATION DATE
NAME OPTIONS (IF KNOWN) (IF KNOWN)
---- ----------------- -------------- ---------------
<S> <C> <C> <C>
John A. O'Malley...................... 125,000(1) 1.06 08/01/09
Achille M. Bigliardi.................. 25,000(1) 0.88 10/29/09
Nonemployee Directors (3 persons)..... 30,000(2) (3) (4)
</TABLE>
- ---------------
(1) Such options were granted subject to stockholder approval of an increase in
the number of shares available for grant under the 1998 Stock Option Plan.
(2) Such shares will be granted pursuant to the company's director compensation
policies on the date of the Annual Meeting.
(3) The exercise price for such shares will be the closing price of the
Company's common stock on the date of the Annual Meeting.
(4) It is expected that the expiration date will be 10 years from the date of
grant.
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 AMENDMENT 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 PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending December 31, 2000, subject to
ratification of the stockholders at the meeting. PricewaterhouseCoopers LLP has
no financial interest of any kind in the Company except the professional
relationship between auditor and client. A representative of
PricewaterhouseCoopers LLP 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,
14
<PAGE> 21
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 21, 2000.
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, 1999. 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/ John A. O'Malley
John A. O'Malley
Chairman of the Board, President
and Chief Executive Officer
Chatsworth, California
April 14, 2000
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 MAY 19, 2000. PLEASE RETURN YOUR PROXY IN TIME.
15
<PAGE> 22
EXHIBIT A
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC
1998 STOCK OPTION PLAN, AS AMENDED
1. PURPOSES OF THE PLAN. The purposes of this 1998 Stock Option Plan are:
- to attract and retain the best available personnel for positions of
substantial responsibility,
- to provide additional incentive to Employees, Directors and Consultants,
and
- 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.
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<PAGE> 23
(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.
A-2
<PAGE> 24
(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 One Million Two Hundred Thousand (1,200,000) 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
A-3
<PAGE> 25
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;
(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 of Shares
subject to an Optionee's incentive stock options (whether granted by the
Company, any Parent or Subsidiary) which 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
A-4
<PAGE> 26
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.
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;
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<PAGE> 27
(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.
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
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<PAGE> 28
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.
(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.
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<PAGE> 29
(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.
15. AMENDMENT AND TERMINATION OF PLAN.
(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.
(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.
16. 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
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<PAGE> 30
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.
17. 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.
18. 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.
19. 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).
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<PAGE> 31
[IRIS LOGO]
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
9162 Eton Avenue
Chatsworth, CA 91311
(818) 709-1244
<PAGE> 32
PROXY INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
9162 ETON AVENUE
CHATSWORTH, CALIFORNIA 91311
ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 2000
The undersigned, revoking previous proxies, hereby appoint(s) John A.
O'Malley and Donald E. Horacek, 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 Friday, May 19,
2000, at 3:00 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.
<TABLE>
<S> <C>
1. To elect two Class 1 Directors.
[ ] FOR Steven M. Besbeck and Richard G. Nadeau [ ] WITHHOLD AUTHORITY to vote for any of the
(except as withheld in the space provided below): nominees.
INSTRUCTIONS: To withhold authority to vote for either of the nominees, write the name of the nominee on the
following line:
- ------------------------------------------------------------------------------------------------------------------
2. To approve an increase the number of shares of common stock available for grant under the 1998 Stock Option
Plan from 600,000 to 1,200,000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the selection of PricewaterhouseCoopers LLP as independent auditors of the Company for 2000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS.
<PAGE> 33
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 MAY 19, 2000
