<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY , 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTEGRATED SURGICAL SYSTEMS, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3841 68-0232575
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification No.)
of incorporation or Classification Code
organization) Number)
</TABLE>
829 West Stadium Lane
Sacramento, California 95834
Telephone: (916) 646-3487
Telecopier: (916) 646-4075
(Address and telephone number of principal executive offices)
------------------------
DR. RAMESH C. TRIVEDI
CHIEF EXECUTIVE OFFICER AND PRESIDENT
INTEGRATED SURGICAL SYSTEMS, INC.
829 West Stadium Lane
Sacramento, California 95834
Telephone: (916) 646-3487
Telecopier: (916) 646-4075
(Name, address and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JACK BECKER, ESQ. CHARLES P. GREENMAN, ESQ.
SNOW BECKER KRAUSS P.C. TIMOTHY I. KAHLER, ESQ.
605 Third Avenue Parker Chapin Flattau & Klimpl, LLP
New York, New York 10158-0125 1211 Avenue of the Americas
Telephone: (212) 687-3860 New York, New York 10036
Telecopier: (212) 949-7052 Telephone: (212) 704-6000
Telecopier: (212) 704-6288
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value....... 1,725,000(2) $6.00 $10,350,000 $3,568.97
- -----------------------------------------------------------------------------------------------
Warrants to purchase shares of
Common Stock..................... 1,725,000(3) $0.10 $172,500 $59.48
- -----------------------------------------------------------------------------------------------
Common Stock issuable upon exercise
of Warrants...................... 1,725,000(4) $7.00 $12,075,000 4,163.79
- -----------------------------------------------------------------------------------------------
Underwriter's Warrants to purchase
shares of Common Stock........... 150,000 $0.000033 $5 (5)
- -----------------------------------------------------------------------------------------------
Underwriter's Warrants to purchase
Warrants......................... 150,000 $0.000033 $5 (5)
- -----------------------------------------------------------------------------------------------
Common Stock issuable upon exercise
of Underwriter's Warrants........ 150,000(4) $9.90 $1,485,000 $ 512.07
- -----------------------------------------------------------------------------------------------
Warrants issuable upon exercise of
Underwriter's Warrants........... 150,000 $0.165 $24,750 $8.53
- -----------------------------------------------------------------------------------------------
Common Stock issuable upon exercise
of Warrants underlying
Underwriter's Warrants........... 150,000(4) $7.00 $1,050,000 362.07
- -----------------------------------------------------------------------------------------------
Total Registration Fee...... $8,674.91
=========
===============================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933.
(2) Includes 225,000 shares of Common Stock which may be purchased by the
Underwriter to cover over-allotments, if any.
(3) Includes 225,000 Warrants which may be purchased by the Underwriter to cover
over-allotments, if any.
(4) Pursuant to Rule 416, there are also being registered such indeterminate
number of additional shares as may become issuable pursuant to the
anti-dilution provisions of the Warrants, the Underwriter's Warrants and the
Warrants issuable upon exercise of the Underwriter's Warrants.
(5) Pursuant to Rule 457(g) promulgated under the Securities Act of 1933, no
filing fee is required.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 3
INTEGRATED SURGICAL SYSTEMS, INC.
CROSS REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS 1 THROUGH 23, PART I OF FORM SB-2
<TABLE>
<CAPTION>
ITEM AND HEADING LOCATION IN PROSPECTUS
----------------------------------------- -----------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement Outside Front Cover Page
and
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside
Cover Pages of Prospectus Back Cover Pages of Prospectus;
Description of Securities - Reports to
Stockholders
3. Summary Information, Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Underwriting
9. Legal Proceedings Business -- Litigation
10. Directors, Executive Officers Management
Promoters and/Control Persons
11. Security Ownership of Certain Security Ownership of Certain
Beneficial Owners and Management Beneficial Owners and Management
12. Description of the Securities Description of the Securities
13. Interest of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on Management -- Indemnification of Officers
Indemnification for Securities Act and Directors and Limitation on
Liabilities Directors' Liability
15. Organization Within Last Five Years Not Applicable
16. Description of Business Prospectus Summary; Business
17. Management's Discussion and Analysis Management's Discussion and Analysis of
or Plan of Operation Financial Condition and Results of
Operations
18. Description of Property Business -- Facilities
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Equity and Related Description of Securities
Stockholder Matters
21. Executive Compensation Management
22. Financial Statements Consolidated Financial Statements
23. Changes in and Disagreements with Not Applicable
Accountants on Accounting and
Financial Disclosure
</TABLE>
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED JULY , 1996
INTEGRATED SURGICAL SYSTEMS, INC.
1,500,000 SHARES OF COMMON STOCK AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to an offering (the "Offering") by Integrated
Surgical Systems, Inc. (the "Company") of 1,500,000 shares of common stock, par
value $.01 per share (the "Common Stock"), and 1,500,000 redeemable Common Stock
purchase warrants (the "Warrants"). The shares of Common Stock and the Warrants
offered hereby may be purchased separately and the Warrants will be transferable
separately after issuance. The Common Stock is being offered at $6.00 per share
and the Warrants at $.10 per Warrant.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at an exercise price of $7.00 per share, subject to adjustment
in certain events, at any time commencing 12 months after the date the
Registration Statement of which this Prospectus forms a part is declared
effective by the Securities and Exchange Commission (the "Effective Date") and
expiring on the fifth anniversary of the Effective Date. The Warrants are
subject to redemption by the Company at $.10 per Warrant at any time commencing
12 months after the Effective Date, (or earlier with the prior written consent
of Rickel & Associates, Inc. (the "Underwriter"), on not less than 30 days prior
written notice to the holders of the Warrants, provided the average of the
closing bid quotations of the Common Stock has been at least 150% of the then
current exercise price of the Warrants (initially, $10.50 per share) for a
period of 20 consecutive trading days ending on the third day prior to the date
on which the Company gives notice of redemption. The Warrants will be
exercisable until the close of business on the day immediately preceding the
date fixed for redemption. See "Description of Securities -- Warrants." The
Company has applied for quotation of the Common Stock and the Warrants on The
NASDAQ SmallCap Market under the trading symbols "RDOC" and "RDOCW,"
respectively. The Company also has applied for listing of the Common Stock and
the Warrants on The Boston and Pacific Stock Exchanges.
Prior to the Offering, there has been no public market for the Common Stock
or the Warrants, and there can be no assurance that any such market for the
Common Stock or the Warrants will develop after the closing of the Offering or
that, if developed, it will be sustained. The offering price of the Common Stock
and the Warrants and the initial exercise price and other terms of the Warrants
were established by negotiation between the Company and the Underwriter and do
not necessarily bear any direct relationship to the Company's assets, earnings,
book value per share or other generally accepted criteria of value.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE
INVESTMENT SHOULD INVEST. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING
AN INVESTMENT IN THE COMPANY AND IMMEDIATE SUBSTANTIAL DILUTION,
SEE "RISK FACTORS" COMMENCING ON PAGE 10 AND "DILUTION" ON PAGE
22.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------
Per Share............................. $6.00 $.57 $5.43
- --------------------------------------------------------------------------------------------------
Per Warrant........................... $.10 $.0095 $.0905
- --------------------------------------------------------------------------------------------------
Total(3).............................. $9,150,000 $869,250 $8,280,750
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(footnotes appear on page 2)
------------------------
RICKEL & ASSOCIATES, INC.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 5
[INSERT PICTURES]
The ROBODOC(R) Surgical Assistant System. Pictured on the left is the
ORTHODOC(R) Pre-surgical Planning Workstation. The computer controlled surgical
robot is seen on the right.
ROBODOC has been used safely on over 425 patients worldwide for total hip
replacement.
(Actual operating room photo)
------------------------
ROBODOC(R) and ORTHODOC(R) are registered trademarks of Integrated Surgical
Systems, Inc.
All other trademarks appearing in this Prospectus are the property of their
respective holders.
<PAGE> 6
- ---------------
(1) Does not include additional compensation to the Underwriter consisting
of (i) a non-accountable expense allowance equal to 2.75% of the gross
proceeds of the Offering, of which $50,000 has been paid by the Company
to date, (ii) warrants (the "Underwriter's Warrants") entitling the
Underwriter to purchase up to 150,000 shares of Common Stock and
150,000 Warrants, (iii) a financial consulting agreement with the
Underwriter for 12 months from the closing of the Offering at an annual
fee of $35,000, all of which is payable at the closing of the Offering.
The Company has agreed to pay the Underwriter, under certain
circumstances, a warrant solicitation fee of 5% of the exercise price
for each Warrant exercised. The Company has also agreed to indemnify
the Underwriter against certain civil liabilities, including those
arising under the Securities Act. See "Underwriting."
(2) After deducting discounts and commissions payable to the Underwriter,
but before payment of the Underwriter's non-accountable expense
allowance ($251,625, or $289,369 if the Underwriter's Over-Allotment
Option is exercised in full), the consulting fee ($35,000) and the
other expenses of the Offering (estimated at $513,375) payable by the
Company. See "Underwriting."
(3) The Company has granted the Underwriter an option, exercisable for a
period of 45 days after the closing of the Offering, to purchase up to
an additional 15% of the Common Stock and/or Warrants, upon the same
terms and conditions solely for the purpose of covering
over-allotments, if any (the "Underwriter's Over-Allotment Option"). If
the Underwriter's Over-Allotment Option is exercised in full, the Total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $10,522,500, $999,638 and $9,522,862, respectively. See
"Underwriting."
The Common Stock and Warrants are being offered by the Underwriter on a
firm commitment basis, subject to prior sale, when, as and if delivered to the
Underwriter and subject to certain conditions. Subject to the provisions of the
underwriting agreement between the Underwriter and the Company, the Underwriter
reserves the right to withdraw, cancel or modify the Offering and to reject any
order in whole or in part. It is expected that delivery of certificates will be
made against payment therefor at the office of the Underwriter, 875 Third
Avenue, New York, New York 10022, on or about , 1996.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND THE WARRANTS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
3
<PAGE> 7
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAD BEEN NO CHANGE IN AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN
JURISDICTIONS IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 5
Risk Factors.......................... 10
Use of Proceeds....................... 20
Capitalization........................ 21
Dilution.............................. 22
Dividend Policy....................... 23
Selected Financial Information........ 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Glossary.............................. 29
Business.............................. 30
Management............................ 42
Certain Transactions.................. 48
Security Ownership of Certain
Beneficial Owners and Management.... 50
Description of Securities............. 52
Underwriting.......................... 57
Legal Matters......................... 58
Experts............................... 59
Additional Information................ 59
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1996, (25 DAYS AFTER THE EFFECTIVE DATE) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
On the Effective Date, the Company will become subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and,
in accordance therewith, will file reports, proxy and information statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy and information statements and other
information can be inspected and copied at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices: New York Regional Office,
Suite 1300, 7 World Trade Center, New York, New York 10048, and Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
copies of such material may also be obtained from the Public Reference Section
of the Commission at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically. The Company
intends to furnish its stockholders with annual reports containing audited
financial statements and such other reports as the Company deems appropriate or
as may be required by law.
4
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, financial statements and the notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated or the context otherwise requires,
all share and per share data and information in this Prospectus relating to the
number of shares of Common Stock outstanding give effect to a one-for-five
reverse stock split with respect to the Company's capital stock effected on
December 20, 1995, and a one-for-1.519647 reverse stock split with respect to
the Common Stock to be effected prior to the Effective Date, and assumes that
the Underwriter's Over-Allotment Option is not exercised. See the "Glossary"
appearing at page 29 of this Prospectus for the definitions of certain technical
terms used herein.
THE COMPANY
Integrated Surgical Systems, Inc. (the "Company") develops, manufactures,
markets and services image-directed, computer-controlled robotic products for
surgical applications. The Company's principal product is the ROBODOC(R)
Surgical Assistant System (the "ROBODOC System"), consisting of a
computer-controlled surgical robot and the Company's ORTHODOC(R) Presurgical
Planner (the "ORTHODOC"). The ROBODOC System has been used for primary total hip
replacement ("THR") surgery on over 425 patients worldwide. The Company believes
its "active" robotic system is the only available system that can accurately
perform key segments of surgical procedures with precise tolerances generally
not attainable by traditional manual surgical techniques. The ROBODOC System
also allows the surgeon to prepare a preoperative plan specifically designed to
the characteristics of the individual patient's anatomy. The technology for the
ROBODOC System was initially developed at the University of California, Davis,
in collaboration with International Business Machines Corporation ("IBM"). Upon
completion of the Offering, IBM will retain rights to acquire approximately 27%
of the outstanding Common Stock on a fully diluted basis.
The ORTHODOC is a computer workstation that utilizes the Company's
proprietary software for preoperative surgical planning. The ORTHODOC is
included as part of the ROBODOC System and may be marketed separately by the
Company. The ORTHODOC converts computerized tomography ("CT") scan data of a
patient's femur (i.e., thigh bone) into three-dimensional images, and through a
graphical user interface allows the surgeon to examine the bone more thoroughly
and to select the optimal implant for the patient using a built-in library of
available implants. A tape of the planned surgical procedure, developed by the
ORTHODOC, guides the surgical robot arm of the ROBODOC System to accurately mill
a cavity in the bone, thus allowing the surgeon to properly orient and align the
implant. Published scientific data demonstrate that as a result of the precise
milling of a cavity, the ROBODOC System achieves over 95% bone-to-implant
contact, as compared to an average of 20% bone-to-implant contact when surgery
is performed manually.
THR surgery involves the insertion of an implant or metal prosthesis into a
cavity created in the patient's femur. Precise fit and correct alignment of the
implant within the femoral cavity are important for the long-term success of THR
surgery. In conventional THR surgery, a bone cavity is cut in the shape of the
implant manually with metal tools, and the surgical plan, including the
selection of the size and shape of the implant, is generally formulated based
upon patient data obtained from two-dimensional x-ray images of the patient's
femur. Based upon clinical experience to date at sites collecting applicable
data for THR surgeries performed with the ROBODOC System, patients have become
weight-bearing in a shorter period, intraoperative fractures have been
dramatically reduced (no intraoperative fractures have resulted from THR
surgeries performed with the ROBODOC system to date) and the Company believes
fewer hip revision surgeries (implant replacements) may be necessary, as
compared to primary THR surgery performed manually.
The Company will seek to establish itself as a leading provider of
innovative image-directed, computer-controlled robotic technologies worldwide,
initially for orthopaedic applications and subsequently for non-orthopaedic
applications. The Company's business strategy is to concentrate its marketing
and sales efforts on selling the ROBODOC System throughout Europe over the next
three years. The Company will thereby
5
<PAGE> 9
attempt to establish an installed customer base in Europe and other foreign
markets through the sale of its ROBODOC System, and offer its customers separate
software packages for each new orthopaedic application developed by the Company.
Consequently, the Company's customers would be able to use the ROBODOC System as
the platform for performing a variety of orthopaedic surgical procedures without
incurring significant additional hardware costs. The Company also plans to
further exploit its image-directed robotics technology by incorporating
additional imaging modalities for presurgical planning, including ultrasound
(which is less expensive than CT) and magnetic resonance imaging (which unlike
CT does not involve the risk of radiation). The Company also intends to develop
an active robotic system capable of performing non-orthopaedic surgical
procedures.
The Company has commenced marketing the ROBODOC System in Western Europe,
through direct marketing and arrangements with implant manufacturers. The
Company has been notified by Technische Ubermachtungs Verein ("TUV"), a testing
body in Germany, that the ROBODOC System has met the requirements of the
European Directives, thus allowing the Company to use the European Conforming
Mark (the "CE Mark") and distribute the ROBODOC System throughout the European
Community. During the six months ended June 30, 1996, the Company realized
revenues of approximately $1,064,000 from the initial commercial sales of the
ROBODOC System (including related consumables) in Europe, and at June 30, 1996,
the Company had signed purchase orders for ROBODOC Systems of approximately
$1,300,000.
The Company is developing a software package, in collaboration with IBM and
Johns Hopkins University, for surgery to replace loose or otherwise failed hip
implants (the "hip revision application") using the ROBODOC System. The Company
plans to commence clinical trials of the hip revision application in Europe
before the end of 1996. Upon completion of the clinical trials, the Company
intends to offer software for the hip revision application to its customers. The
development of the hip revision application is being funded in part by a grant
from the National Institute for Standards and Technology (Advanced Technology
Program) of the United States Department of Commerce.
Neither the ROBODOC System nor the ORTHODOC can be marketed in the United
States until clearance or approval is obtained from the U.S. Food and Drug
Administration ("FDA"). The Company intends to file a pre-market approval
application ("PMA") with the FDA in the second quarter of 1997 for approval to
market the ROBODOC System in the United States. The Company does not expect to
commence marketing the ROBODOC System in the United States before 1999, subject
to prior FDA approval. The Company filed a 510(k) pre-market notification for
the ORTHODOC as a stand-alone device in February 1996, and subject to prior FDA
clearance, expects to commence marketing the ORTHODOC in the United States
before the end of 1996.
The Company was incorporated under the laws of the State of Delaware on
October 1, 1990. The Company's offices are located at 829 West Stadium Lane,
Sacramento, California 95834, and its telephone number is (916) 646-3487.
6
<PAGE> 10
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.......................... 1,500,000 shares of Common Stock and
1,500,000 Warrants. Each Warrant entitles
the holder thereof to purchase one share of
Common Stock at an exercise price of $7.00
per share, subject to adjustment in certain
events. The Common Stock and the Warrants
are separately tradeable and transferable.
See "Description of Securities" and
"Underwriting."
Offering Price.............................. $6.00 per share of Common Stock and $.10 per
Warrant
Common Stock Outstanding:
Prior to the Offering(1).................. 1,279,177 shares of Common Stock
After the Offering(1)(2).................... 2,779,177 shares of Common Stock
Warrants Outstanding after
the Offering(3)........................... 1,500,000 Warrants
Terms of Warrants:
Exercise price............................ $7.00 per share, subject to adjustment in
certain events. See "Description of
Securities -- Warrants."
Exercise period........................... Any time during the period commencing
, 1997 [12 months after the
Effective Date] and ending
, 2001 [five years after the Effective
Date].
Redemption................................ Redeemable by the Company at a price of $.10
per Warrant upon not less than 30 days prior
written notice to the holders of the
Warrants at any time commencing
, 1997 [12 months after the
Effective Date] (or earlier with the prior
written consent of the Underwriter), and
prior to their expiration, provided that the
average of the closing bid quotations of the
Common Stock on The Nasdaq SmallCap Market
(or if not quoted thereon, the average of
the closing sale prices of the Common Stock
on the principal securities exchange,
including the Nasdaq National Market, on
which the Common Stock is then traded) has
been at least 150% of the then current
exercise price of the Warrants (initially,
$10.50 per share) for a period of 20
consecutive trading days ending on the third
day prior to the date on which the Company
gives notice of redemption. See "Description
of Securities -- Warrants."
Use of Proceeds............................. The net proceeds of this Offering,
aggregating approximately $7,480,750, will
be used (i) for product development, (ii)
for sales and marketing, and (iii) for
working capital and general corporate
purposes. See "Use of Proceeds."
</TABLE>
7
<PAGE> 11
<TABLE>
<S> <C>
Risk Factors................................ The securities offered hereby involve a high
degree of risk and immediate substantial
dilution to new investors. Only investors
who can bear the risk of their entire
investment should invest. See "Risk Factors"
and "Dilution."
Proposed Nasdaq SmallCap
Market Symbols............................ Common Stock -- RDOC; Warrants -- RDOCW
Boston and Pacific Stock Exchange Listing... Application has been made to list the Common
Stock and Warrants on the Boston and Pacific
Stock Exchanges. There can be no assurance
that such applications will be approved or
that trading, if commenced, will continue.
</TABLE>
- ---------------
(1) Gives effect to the automatic conversion of the outstanding shares of Series
D Preferred Stock into 1,012,381 shares upon consummation of the sale of the
shares of Common Stock and Warrants offered hereby (the "Closing"). Does not
include (i) 2,783,654 shares of Common Stock issuable upon exercise of
outstanding warrants, including (x) shares issuable upon exercise of
outstanding warrants to purchase Series D Preferred Stock (the "Series D
Warrants"), at an exercise price of $.02 per share, which will become
exercisable for 2,024,762 shares of Common Stock following the automatic
conversion of the Series D Preferred Stock at the Closing, (y) warrants to
purchase 569,537 shares, at an exercise price of $0.76 per share,
exercisable until August 28, 1996, and (z) warrants to purchase 189,355
shares, at exercise prices ranging from $0.02 to $0.08 per share, and (ii)
913,478 shares of Common Stock issuable upon exercise of outstanding options
granted pursuant to the Company's stock option plans, at exercise prices
ranging from $0.08 to $8.05 per share. See "Management -- Stock Option
Plan," "Certain Transactions" and "Description of Securities -- Warrants."
(2) Does not include (i) 1,500,000 shares reserved for issuance upon exercise of
the Warrants, (ii) 450,000 shares of Common Stock reserved for issuance upon
exercise of the Underwriter's Over-Allotment Option, and (iii) 300,000
shares reserved for issuance upon exercise of the Underwriter's Warrants and
the Warrants included therein. See "Description of Securities -- Warrants"
and "Underwriting -- Underwriter's Warrants."
(3) Does not include (i) 225,000 Warrants reserved for issuance upon exercise of
the Underwriter's Over-Allotment Option, (ii) 150,000 Warrants reserved for
issuance upon exercise of the Underwriter's Warrants, and (iii) outstanding
warrants to purchase 2,783,654 shares of Common Stock, including the Series
D Warrants which will become exercisable for Common Stock following the
automatic conversion of the Series D Preferred Stock into Common Stock at
the Closing. See "Underwriting -- Underwriter's Warrants."
8
<PAGE> 12
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
The summary financial information set forth below is derived from and
should be read in conjunction with the Company's consolidated financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE
30,
------------------------ ------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales................................... $289,047 $174,521 $76,289 $1,064,206
Gross profit................................ 85,191 104,342 46,142 605,723
Operating loss.............................. (4,608,396) (3,925,730) (1,960,123) (1,505,700)
Net loss.................................... (4,840,385) (4,053,528) (1,970,292) (1,491,118)
Net loss applicable to common shares........ (5,796,959) (4,989,853) (2,448,579) (1,491,118)
Net loss per common and common share
equivalent................................ ($1.39) ($1.20) ($0.59) ($0.34)
Shares used in per share calculations(1).... 4,162,576 4,169,220 4,163,404 4,362,783
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------
PRO FORMA
AS
ACTUAL ADJUSTED(2)
------------ ------------
<S> <C> <C>
Working capital............................... $1,735,668 $9,216,418
Total assets.................................. 2,847,953 10,328,703
Accumulated deficit........................... (17,143,100) (17,143,100)
Stockholders' equity.......................... 2,022,903 9,503,653
</TABLE>
- ---------------
(1) See Note 2 of notes to consolidated financial statements for an explanation
of the determination of the number of shares used in computing net loss per
share.
(2) Gives effect to (i) the automatic conversion of the outstanding shares of
Series D Preferred Stock into 1,012,381 shares at the Closing, and (ii) the
issuance and sale of 1,500,000 shares of Common Stock and 1,500,000 Warrants
offered hereby and the application of the estimated net proceeds from the
sale thereof. Does not include (i) 2,783,654 shares of Common Stock issuable
upon exercise of outstanding warrants, including (x) shares issuable upon
exercise of the Series D Warrants, at an exercise price of $.02 per share,
which will become exercisable for 2,024,762 shares of Common Stock following
the automatic conversion of the Series D Preferred Stock at the Closing, (y)
warrants to purchase 569,537 shares, at an exercise price of $0.76 per
share, exercisable until August 28, 1996, and (z) warrants to purchase
189,355 shares, at exercise prices ranging from $0.02 to $0.08 per share,
(ii) 892,413 shares of Common Stock issuable upon exercise of outstanding
options granted pursuant to the Company's stock option plans, at exercise
prices ranging from $0.08 to $8.05 per share, (iii) the Underwriter's Over-
Allotment Option, (iv) the Warrants and the Warrants included therein and
(v) the Underwriter's Warrants and the Warrants included therein. See "Use
of Proceeds."
9
<PAGE> 13
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk, including, but not limited to, the risk factors described below. Each
prospective investor should carefully consider the following risk factors before
making an investment decision.
1. HISTORY OF LOSSES; ACCUMULATED DEFICIT; ANTICIPATED FUTURE
LOSSES. Since its inception, the Company has incurred losses. The Company
incurred a net loss of approximately $4,054,000 (on net sales of approximately
$175,000) for its fiscal year ended December 31, 1995 and a net loss of
approximately $4,840,000 (on net sales of approximately $289,000) for its fiscal
year ended December 31, 1994. In addition, the Company incurred a net loss of
approximately $1,491,000 (on net sales of approximately $1,064,000) for the six
months ended June 30, 1996, as compared to a net loss of approximately
$1,970,000 (on net sales of approximately $76,000), for the six months ended
June 30, 1995. At June 30, 1996, the Company's accumulated deficit was
approximately $17,143,000 as a result of continuing losses. The Company expects
to continue to incur operating losses until such time, if ever, as it derives
significant revenues from the sale of its products. The Company's ability to
operate profitably depends upon market acceptance of the ROBODOC System, the
development of an effective sales and marketing organization, and the
development of new products and improvements to existing products. There can be
no assurance that the Company will obtain FDA approval to market the ROBODOC
System in the United States or that the ROBODOC System will achieve market
acceptance in the United States, Europe and other foreign markets to generate
sufficient revenues to become profitable.
2. LIMITED OPERATING HISTORY. Although the Company commenced operations
in October 1990, its operations have consisted primarily of the development and
clinical testing of the ORTHODOC and the ROBODOC System, the organization of its
manufacturing facility, the hiring of key personnel and the formulation of a
plan for marketing the ROBODOC System in Europe. Although the Company has
commenced marketing the ROBODOC System in Europe, it has engaged only in
clinical testing of the ROBODOC System in the United States, and the Company's
ability to market its products in the United States is dependent upon FDA
approval. See "Risk Factors -- Government Regulation." Accordingly, the Company
must be evaluated in light of the uncertainties, delays, difficulties and
expenses commonly experienced by companies in the early operating stage, which
generally include unanticipated problems and additional costs relating to the
development and testing of products, regulatory compliance, commencement of
production, marketing and product introduction, and competition. Many of these
factors may be beyond the Company's control, including but not limited to,
unanticipated results of product tests requiring modification in product design,
changes in applicable government regulations or the interpretation thereof,
market acceptance of the Company's products and development of competing
products by others. In addition, the Company's future performance also will be
subject to other factors beyond the Company's control, including general
economic conditions and conditions in the healthcare industry or targeted
commercial markets.
3. INDEPENDENT AUDITORS' "GOING CONCERN" EXPLANATORY PARAGRAPH. The
Company's independent auditors have included an explanatory paragraph in their
report on the Company's financial statements for the year ended December 31,
1995, which indicates there is substantial doubt about the Company's ability to
continue as a going concern due to the Company's need to generate cash from
operations and obtain additional financing. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Report of
Independent Auditors on the Company's Consolidated Financial Statements"
appearing at page F-2 of this Prospectus.
4. LENGTHY SALES CYCLE. Since the purchase of a ROBODOC System represents
a significant capital expenditure for a customer, the placement of orders may be
delayed due to customers' internal procedures to approve large capital
expenditures. The Company anticipates that the period between initial contact of
a customer for the ROBODOC System and submission of a purchase order by that
customer could be as long as 9 to 12 months. Furthermore, the current lead time
required by the supplier of the robot is four (4) months after receipt of the
order. Although the Company generally intends to require a deposit upon receipt
of an order for the ROBODOC System, the Company may be required to expend
significant cash resources to fund its operations until the balance of the
purchase price is paid. Accordingly, a significant portion of the sales
10
<PAGE> 14
price of a ROBODOC System may not be recognized until a fiscal quarter
subsequent to the fiscal quarter in which the Company incurred marketing and
sales expenses associated with that order. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Consolidated
Financial Statements."
5. CHALLENGES OF GROWTH. The Company intends to use a portion of the net
proceeds of this Offering to hire and retain sales and marketing, research and
development and technical personnel to increase and support sales of ROBODOC
Systems and to develop additional surgical applications for the ROBODOC System.
See "Use of Proceeds." The anticipated growth of the Company will likely result
in new and increased responsibilities for management personnel and place
significant strain upon the Company's management, operating and financial
systems and resources. To accommodate such growth and compete effectively, the
Company must continue to implement and improve its operational, financial and
management procedures and controls, as well as management information systems,
procedures and controls, and to expand, train, motivate and manage its
personnel. There can be no assurance that the Company's personnel, systems,
procedures and controls will be adequate to support the Company's future
operations. Any failure to implement and improve the Company's operational,
financial and management systems, procedures or controls, or to expand, train,
motivate or manage employees could materially and adversely affect the Company's
business, financial condition and results of operations. See "Risk
Factors -- Dependence on Key Personnel," "Business -- Employees" and
"Management -- Directors, Executive Officers and Key Employees."
6. GOVERNMENT REGULATION. The Company's products are subject to continued
and pervasive regulation by the FDA and foreign and state regulatory
authorities. Pursuant to the Federal Food, Drug, and Cosmetic Act, as amended,
and regulations thereunder, the FDA regulates the clinical testing, manufacture,
labeling, sale, distribution and promotion of medical devices in the United
States. Noncompliance with applicable requirements can result in, among other
things, fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, failure of the government to grant
premarket clearance or premarket approval for devices, withdrawal of marketing
clearances or approvals, and criminal prosecution. The FDA also has the
authority to request recall, repair, replacement or refund of the cost of any
device manufactured or distributed by the Company. Failure to comply with
regulatory requirements, including any future changes to such requirements,
could have a material adverse effect on the Company's business, financial
condition and results of operation. See "Business -- Government Regulation."
Before a new device can be introduced into the U.S. market, the
manufacturer must obtain FDA permission to market through either the 510(k)
pre-market notification process or the costlier, lengthier and less certain
pre-market approval ("PMA") application process. The Company intends to file a
PMA in the second quarter of 1997 for approval to market the ROBODOC System in
the United States. There can be no assurance that the FDA will not require the
Company to obtain additional clinical data to supplement the data available from
the Company's current study or require a new clinical study, either of which
would result in substantial additional delay and costs. Regardless of whether
the FDA requires additional clinical data, there can be no assurance that the
Company will submit a PMA application or receive FDA approval for the ROBODOC
System in a timely fashion, if at all. New surgical applications for the ROBODOC
System generally will require FDA approval of a PMA supplement or, possibly, a
new PMA. The Company is also likely to require additional FDA approvals,
supported by additional clinical data, before incorporating new imaging
modalities such as ultrasound and MRI or other new technologies in the ROBODOC
System.
In February 1996, the Company filed a 510(k) notification for the ORTHODOC
as a stand-alone device and is preparing a response to correspondence from the
FDA in which the FDA stated that it could not determine the ORTHODOC's
substantial equivalence to legally marketed predicate devices without certain
additional information. There can be no assurance that the FDA will consider the
Company's response adequate or that the ORTHODOC will receive 510(k) clearance
in a timely fashion, or at all.
There can be no assurance that any of the Company's current or future
products will obtain required FDA approvals on a timely basis, or at all, or
that the Company will have the necessary resources to obtain such approvals. If
any of the Company's products are not approved for use in the United States, the
Company will be limited to marketing them in foreign countries. Furthermore,
approvals that have been or may be
11
<PAGE> 15
granted are subject to continual review, and later discovery if previously
unknown problems may result in product labeling restrictions or withdrawal of
the product from the market.
Assuming the Company obtains the necessary FDA approvals and clearances for
its products, in order to maintain such approvals and clearances the Company
will be required, among other things to register its establishment and list its
devices with the FDA and with certain state agencies, maintain extensive
records, report any adverse experiences on the use of its products and submit to
periodic inspections by the FDA and certain state agencies. The FDC Act also
requires devices to be manufactured in accordance with good manufacturing
practices ("GMP") regulations, which impose certain procedural and documentation
requirements upon the Company with respect to manufacturing and quality
assurance activities. The FDA has proposed changes to the GMP regulations that,
if finalized, would likely increase the cost of complying with GMP requirements.
The introduction of the Company's products in foreign markets will also
subject the Company to foreign regulatory clearances, which may be unpredictable
and uncertain, and which may impose additional substantive costs and burdens.
The Company has been notified by TUV that the ROBODOC System has met the
requirements of the European Directors, thus allowing the Company to use the CE
Mark and distribute the ROBODOC System throughout the European Community.
Outside the European Community, international sales of medical devices are
subject to the regulatory requirements of each country. The regulatory review
process varies from country to country. In addition, many countries (including
countries within the European Community) also impose product standards,
packaging requirements, labeling requirements and import restrictions on
devices. No assurance can be given that any additional necessary approvals or
clearances for the Company's products will be granted on a timely basis, or at
all.
Delays in the receipt of, or failure to receive, FDA approvals or
clearances, or the loss of any previously received approvals or clearances, or,
limitations on intended use imposed as a condition of such approvals or
clearances, would have a material adverse effect on the business, financial
condition and results of operations of the Company. See "Business -- Government
Regulation."
7. DEPENDENCE ON PRINCIPAL PRODUCT. The Company expects to derive most of
its revenues from sales of ROBODOC Systems. Accordingly, the Company's potential
future success and financial performance will depend almost entirely on its
ability to successfully market its ROBODOC Systems. If the Company is unable to
obtain the requisite regulatory approvals or to achieve commercial acceptance of
its ROBODOC System, the Company's business, financial condition and results of
operations will be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
8. UNCERTAINTY OF MARKET ACCEPTANCE. The Company's ability to
successfully commercialize its ROBODOC System will require substantial marketing
efforts and the expenditure of significant funds to inform potential customers,
including hospitals and physicians, of its distinctive characteristics and the
advantages of using the ROBODOC System instead of traditional orthopaedic
surgical tools and procedures. Since the ROBODOC System employs innovative
technology, rather than being an improvement of existing technology, and
represents a substantial capital expenditure, the Company expects to encounter
resistance to change, which it must overcome to successfully market its
products. Failure of the ROBODOC System to achieve significant market acceptance
would materially and adversely affect the Company's business, financial
condition and results of operations.
9. COMPETITION. There are companies in the medical products industry
capable of developing and marketing computer-controlled robotic systems for
surgical applications, many of whom have significantly greater financial,
technical, manufacturing, marketing and distribution resources than the Company,
and have established reputations in the medical devices industry. Furthermore,
there can be no assurance that IBM or the University of California, which
developed the technology for the Company's active surgical robot and hold
patents relating thereto, will not enter the market or license the technology to
other companies. There can be no assurance that future competition will not have
a material adverse effect on the Company's business. The principal competition
for the ROBODOC System is manual surgery performed by orthopaedic surgeons,
using surgical power tools and manual devices. The cost of the ROBODOC System
represents a significant capital
12
<PAGE> 16
expenditure for a customer and accordingly may discourage purchases by certain
customers. See "Business -- Competition."
10. UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY
TECHNOLOGY. The Company's ability to compete successfully may depend, in part,
on its ability to obtain and protect patents, protect trade secrets and operate
without infringing the proprietary rights of others. The Company's policy is to
seek to protect its proprietary position by, among other methods, filing U.S.
and foreign patent applications relating to its technology, inventions and
improvements that are important to the development of its business. The Company
has filed two patent applications, and is preparing for filing additional patent
applications covering various aspects of its technology. In addition, IBM has
agreed not to assert infringement claims against the Company with respect to an
IBM patent relating to robotic medical technology, to the extent such technology
is used in the Company's products. Significant portions of the ROBODOC System
and ORTHODOC software are protected by copyrights. IBM has granted the Company a
royalty-free license for the underlying software code for the ROBODOC System.
There can be no assurance that pending or future patent applications will
mature into issued patents, or that the Company will continue to develop its own
patentable technologies. Further, there can be no assurance that any patents
that may be issued in the future will effectively protect the Company's
technology or provide a competitive advantage for the Company's products or will
not be challenged, invalidated, or circumvented in the future. In addition,
there can be no assurance that competitors, many of which have substantially
more resources than the Company and have made substantial investments in
competing technologies, will not obtain patents that will prevent, limit or
interfere with the Company's ability to make, use or sell its products either in
the United States or internationally.
Patent applications in the United States are maintained in secrecy until
patents issue, and patent applications in foreign countries are maintained in
secrecy for a period after filing. Publication of discoveries in the scientific
or patent literature tends to lag behind actual discoveries and the filing of
related patent applications. Patents issued and patent applications filed
relating to medical devices are numerous and there can be no assurance that
current and potential competitors and other third parties have not filed or in
the future will not file applications for, or have not received or in the future
will not receive, patents or obtain additional proprietary rights relating to
products or processes used or proposed to be used by the Company.
The Company's patent counsel has not undertaken any infringement study to
determine if the Company's products and pending patent applications infringe on
other existing patents. The medical device industry has been characterized by
substantial competition and litigation regarding patent and other proprietary
rights. The Company intends to vigorously protect and defend its patents and
other proprietary rights relating to its proprietary technology. Litigation
alleging infringement claims against the Company (with or without merit), or
instituted by the Company to enforce patents and to protect trade secrets or
know-how owned by the Company or to determine the enforceability, scope and
validity of the proprietary rights of others, is costly and time consuming. If
any relevant claims of third-party patents are upheld as valid and enforceable
in any litigation or administrative proceedings, the Company could be prevented
from practicing the subject matter claimed in such patents, or would be required
to obtain licenses from the patent owners of each patent, or to redesign its
products or processes to avoid infringement. There can be no assurance that such
licenses would be available or, if available, would be available on terms
acceptable to the Company or that the Company would be successful in any attempt
to redesign its products or processes to avoid infringement. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing and
selling its products, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
Legislation is pending in Congress that may limit the ability of medical
device manufacturers in the future to obtain patents on surgical and medical
procedures that are not performed by, or as part of, devices or compositions
which are themselves patentable. While the Company cannot predict whether the
legislation will be enacted, or precisely what limitations will result from the
law if enacted, any limitation or reduction in the patentability of medical and
surgical methods and procedures could have a material adverse effect on the
Company's ability to protect its proprietary methods and procedures.
13
<PAGE> 17
Although the Company requires each of its employees, consultants, and
advisors to execute confidentiality and assignment of inventions and proprietary
information agreements in connection with their employment, consulting or
advisory relationships with the Company, there can be no assurance that these
agreements will provide effective protection for the Company's proprietary
information in the event of unauthorized use or disclosure of such information.
Furthermore, no assurance can be given that competitors will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's proprietary technology, or that the
Company can meaningfully protect its rights in unpatented proprietary
technology. See " Business -- Patents and Proprietary Rights."
11. PRODUCT LIABILITY. The manufacture and sale of medical products
exposes the Company to the risk of significant damages from product liability
claims. The Company maintains product liability insurance in amounts that it
believes are adequate to protect against foreseeable risks. In addition, in
connection with the sale of ROBODOC Systems, the Company enters into
indemnification agreements with its customers pursuant to which the customers
indemnify the Company against any claims against it arising from improper use of
the ROBODOC System. However, there can be no assurance that the coverage limits
of the Company's insurance policies will be adequate, that the Company will
continue to be able to procure and maintain such insurance coverage, that such
insurance can be maintained at acceptable costs, or that customers will be able
to satisfy indemnification claims. Although the Company has not experienced any
product liability claims to date, a successful claim brought against the Company
in excess of its insurance coverage could have a materially adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Product Liability."
12. LIMITED MANUFACTURING EXPERIENCE. The Company's success will depend
in part on its ability to manufacture its products in a timely, cost-effective
manner and in compliance with GMPs, and manufacturing requirements of other
countries, including the International Standards Organization ("ISO") 9000
standards and other regulatory requirements. The manufacture of the Company's
products is a complex operation involving a number of separate processes and
components. The Company's manufacturing activities to date have consisted
primarily of manufacturing limited quantities of systems for use in clinical
trials and a limited number of systems for commercial sale. The Company does not
have experience in manufacturing its products in the commercial quantities that
might be required. Furthermore, as a condition to receipt for PMA approval, the
Company's facilities, procedures and practices will be subject to pre-approval
and ongoing GMP inspections by FDA.
Manufacturers often encounter difficulties in scaling up manufacturing of
new products, including problems involving product yields, quality control and
assurance, component and service availability, adequacy of control policies and
procedures, lack of qualified personnel, compliance with FDA regulations, and
the need for further FDA approval of new manufacturing processes and facilities.
There can be no assurance that manufacturing yields, costs or quality will not
be adversely affected as the Company seeks to increase production, and any such
adverse effect could materially and adversely affect the Company's business,
financial condition and results of operations. See "Business -- Manufacturing."
13. DEPENDENCE ON SUPPLIER FOR ROBOT. Although the Company has multiple
sources for most of the components, parts and assemblies used in the ROBODOC
System, the Company is dependent on Sankyo Seiki of Japan for the robot.
Alternatives to the robot are commercially available with appropriate hardware
or engineering effort. If the Company were no longer able to obtain the robot
from its supplier, there can be no assurance that the delays resulting from the
required hardware or engineering effort to adapt alternative components would
not have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing."
14. RELIANCE ON FOREIGN SALES. From inception through June 30, 1996,
substantially all of the Company's sales (other than clinical sales in the
United States pursuant to an exemption in the rules and regulations of the FDA
for investigational devices) have been to customers in Germany. The Company
believes that until such time, if ever, as it receives approval from the FDA to
market the ROBODOC System in the United States, substantially all of its sales
will be derived from customers in foreign markets. Foreign sales are subject to
certain risks, including economic or political instability, shipping delays,
fluctuations in
14
<PAGE> 18
foreign currency exchange rates, changes in regulatory requirements, custom
duties and export quotas and other trade restrictions, any of which could have a
material adverse effect on the Company's business. To date, payment for all
ROBODOC Systems in Europe has been fixed in U.S. Dollars, and the Company
expects that in the future, payment for all of its products in foreign countries
will continue to be in U.S. Dollars. However, there can be no assurance that in
the future the customers will be willing to make payment to the Company for its
products in fixed U.S. Dollars. If the U.S. Dollar strengthens substantially
against the foreign currency of a country in which the Company sells its
products, the cost of purchasing the Company's products in U.S. Dollars would
increase and may inhibit purchases of the Company's products by customers in
that country. The Company is unable to predict the nature of future changes in
foreign markets or the effect, if any, they might have on the Company. See
"Business -- Sales and Marketing."
15. UNCERTAINTY CONCERNING THIRD PARTY REIMBURSEMENT. The Company expects
that its ability to successfully commercialize its products will depend
significantly on the availability of reimbursement for surgical procedures using
the Company's products from third-party payors such as governmental programs,
private insurance and private health plans. Reimbursement is a significant
factor considered by hospitals in determining whether to acquire new equipment.
Notwithstanding FDA approval, if granted, third-party payors may deny
reimbursement if the payor determines that a therapeutic medical device is
unnecessary, inappropriate, not cost-effective or experimental or is used for a
nonapproved indication. Cost control measures adopted by third-party payors in
recent years have had and may continue to have a significant effect performed
with the ROBODOC System or as to the levels of reimbursement. There also can be
no assurance that levels of reimbursement, if any, will not be decreased in the
future, or that future legislation, regulation, or reimbursement policies of
third-party payors will not otherwise adversely affect the demand for the
Company's products or its ability to sell its products on a profitable basis.
Fundamental reforms in the healthcare industry in the United States and Europe
that could affect the availability of third-party reimbursement continue to be
proposed, and the Company cannot predict the timing or effect of any such
proposal. If third-party payor coverage or reimbursement is unavailable or
inadequate, the Company's business, financial condition and results of
operations could be materially and adversely affected.
16. DEPENDENCE ON KEY PERSONNEL. The Company's business and marketing
plan was formulated by, and is to be implemented under the direction of, Dr.
Ramesh C. Trivedi, the Chief Executive Officer and President of the Company. The
Company does not have key-man insurance on the life of Dr. Trivedi. The
Company's growth and future success also will depend in large part on the
continued contributions of its key technical and senior management personnel, as
well as its ability to attract, motivate and retain highly qualified personnel
generally and, in particular, trained and experienced professionals capable of
developing, selling and installing the ROBODOC System and training surgeons in
its use. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in hiring, motivating or retaining
such qualified personnel. The loss of the services of Dr. Trivedi or other
senior management or key technical personnel, or the inability to hire or retain
qualified personnel, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management" and
"Business -- Sales and Marketing."
17. CONTROL OF THE COMPANY; OWNERSHIP OF SHARES BY CURRENT MANAGEMENT AND
PRINCIPAL SECURITY HOLDERS. Upon completion of this Offering, the current
executive officers, directors and other significant securityholders of the
Company will continue to own or have rights to acquire a majority of the
outstanding shares of Common Stock on a fully diluted basis. Although these
securityholders may or may not agree on any particular matter that is the
subject of a vote of the stockholders, these security holders may be effectively
able to control the decision on such a matter, including the election of
directors, if they were to agree. See "Security Ownership of Certain Beneficial
Owners and Management."
18. NEED FOR ADDITIONAL FINANCING. Although the Company anticipates that
the net proceeds of the Offering, together with cash flow from operations, will
be sufficient to finance its operations for the 12 months following the date of
this Prospectus, there can be no assurance that the Company will not require
additional financing at an earlier date. This will depend upon the Company's
ability to generate sufficient sales of ROBODOC Systems in Europe and other
foreign markets, and the timing of required expenditures. If the Company is
required to obtain financing in the future, there can be no assurance that such
financing will be
15
<PAGE> 19
available on terms acceptable to the Company, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
19. ABSENCE OF DIVIDENDS. Since inception, the Company has not paid any
dividends on its Common Stock and it does not anticipate paying such dividends
in the foreseeable future. The Company intends to retain earnings, if any, to
finance its operations. See "Dividend Policy."
20. DILUTION. Purchasers of Common Stock in this Offering will suffer
immediate dilution of $2.61 per share (or approximately 43.5%) in the net
tangible book value of their investment from the initial public offering price
of $6.00 per share of Common Stock. See "Dilution."
21. NO ASSURANCE OF PUBLIC MARKET; DETERMINATION OF PUBLIC OFFERING PRICE;
POSSIBLE VOLATILITY OF MARKET PRICE FOR THE COMMON STOCK AND WARRANTS. Prior to
the Offering, there has been no public trading market for the Common Stock or
the Warrants. Consequently, the initial public offering price of the Common
Stock and the Warrants and the exercise price and other terms of the Warrants
were determined through negotiations between the Company and the Underwriter and
bear no relationship whatsoever to the Company's assets, book value per share,
results of operations or other generally accepted criteria of value. The
offering price of the Common Stock and the Warrants, as well as the exercise
price of the Warrants, should not be construed as indicative of their value.
There can be no assurance that an active trading market for the Common Stock or
Warrants will develop after the Offering or that, if developed, it will be
sustained. As a result, purchasers of the Common Stock and Warrants will be
exposed to a risk of a decline in the market prices of the Common Stock and
Warrants after the Offering. The market prices of the Common Stock and Warrants
following this Offering may be highly volatile as has been the case with the
securities of many emerging companies. The Company's operating results and
various factors affecting the medical devices industry generally may
significantly impact the market price of the Company's securities. In addition,
the stock market generally, and the securities of technology companies in
particular, have experienced a high level of price and volume volatility, and
market prices for the securities of many companies have experienced wide price
fluctuations not necessarily related to the operating performance of such
companies. There can be no assurance that the market price of the Common Stock
and the Warrants will not experience significant fluctuations or decline below
the initial public offering price.
22. UNDERWRITER'S INFLUENCE ON THE MARKET; POSSIBLE LIMITATIONS ON MARKET
MAKING ACTIVITIES. A significant number of the securities offered hereby may be
sold to customers of the Underwriters. Such customers subsequently may engage in
transactions for the sale or purchase of such securities through or with the
Underwriter. The Underwriter has indicated that it intends to act as a
market-maker and otherwise effect transactions in the securities offered hereby.
To the extent the Underwriter acts as a market-maker in the Common Stock or
Warrants, it may exert a dominating influence in the markets for those
securities. The prices and liquidity of the Common Stock and Warrants may be
significantly affected to the extent, if any, that the Underwriter participates
in such markets. Furthermore, the Underwriter may discontinue such activities at
any time or from time to time. The Underwriter also has the right to act as the
Company's exclusive agent, for a period of five years, in connection with any
future solicitation of holders of Warrants to exercise its Warrants. Unless
granted an exemption by the Commission from Rule 10-6 under the Exchange Act,
the Underwriter and any other soliciting broker-dealers will be prohibited from
engaging in any market making activities or solicited brokerage activities with
regard to the Company's securities for a period of up to nine business days
prior to the solicitation of the exercise of any Warrants until the later of the
termination of such solicitation activity or the termination of any right the
Underwriter may have to receive a fee for the solicitation of the Warrants. As a
result, the Underwriter and such soliciting broker-dealers may be unable to
continue to make a market for the Company's securities during certain periods
while the Warrants are exercisable. Such a limitation, while in effect, could
impair the liquidity and market price of the Company's securities. See
"Underwriting."
23. POSSIBLE DELISTING. Application has been made to The Nasdaq Stock
Market for inclusion of the Common Stock and Warrants on The Nasdaq SmallCap
Market. In addition, application has been made to the Pacific Stock Exchange
("PSE") and the Boston Stock Exchange ("BSE") to list the Common Stock and
Warrants on those exchanges. There can be no assurance that the Common Stock and
Warrants will
16
<PAGE> 20
qualify for quotation on The Nasdaq SmallCap Market, or for listing on the PSE
or BSE. Furthermore, assuming that the Common Stock and Warrants are approved
for quotation on The Nasdaq SmallCap Market and listing on the PSE and BSE,
there can be no assurance that the Company will be able to satisfy specified
financial tests and market related criteria required for continued quotation on
The Nasdaq SmallCap Market or listing on the PSE and BSE following the Offering.
If the Company is unable to satisfy The Nasdaq SmallCap Market, PSE and BSE
maintenance criteria in the future, its Common Stock and Warrants may be
delisted from trading on The Nasdaq SmallCap Market, PSE and BSE, and if
delisted, trading, if any, would thereafter be conducted in the over-the-counter
market in the so-called "pink sheets" or the "Electronic Bulletin Board" of the
National Association of Securities Dealers, Inc. ("NASD"), and, consequently, an
investor could find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities.
24. RISK OF LOW-PRICED SECURITIES. The regulations of the Securities and
Exchange Commission promulgated under the Exchange Act require additional
disclosure relating to the market for penny stocks in connection with trades in
any stock defined as a penny stock. Commission regulations generally define a
penny stock to be an equity security that has a market price of less than $5.00
per share, subject to certain exceptions. Unless an exception is available,
those regulations require the delivery, prior to any transaction involving a
penny stock, of a disclosure schedule explaining the penny stock market and the
risks associated therewith and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions). In addition, the broker-
dealer must provide the customer with current bid and offer quotations for the
penny stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. Moreover, broker-dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. If the Company's securities become subject to the regulations
applicable to penny stocks, the market liquidity for the Company's securities
could be severely affected. In such an event, the regulations on penny stocks
could limit the ability of broker-dealers to sell the Company's securities and
thus the ability of purchasers of the Company's securities to sell their
securities in the secondary market.
25. SHARES ELIGIBLE FOR FUTURE SALE. No assurance can be given as to the
effect, if any, that future sales of Common Stock, or the availability of shares
of Common Stock for future sales, will have on the market price of the Common
Stock from time to time. Sales of substantial amounts of Common Stock (including
shares issued upon the exercise of warrants or stock options), or the
possibility of such sales, could adversely affect the market price of the Common
Stock and also impair the Company's ability to raise capital through an offering
of its equity securities in the future. Upon completion of this Offering, the
Company will have 2,779,177 shares of Common Stock outstanding, of which only
the 1,500,000 shares of Common Stock offered hereby will be transferable without
restriction under the Securities Act of 1933 (the "Securities Act"). The
remaining 1,279,177 shares, issued in private transactions, will be "restricted
securities" (as that term is defined in Rule 144 promulgated under the
Securities Act) which may be publicly sold only if registered under the
Securities Act or if sold in accordance with an applicable exemption from
registration, such as Rule 144. In general, under Rule 144 as currently in
effect, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
securities for at least two years, is entitled to sell (together with any person
with whom such individual is required to aggregate sales), within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class or, if the Common Stock
is quoted on Nasdaq or a national securities exchange, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the Company for at least three months and who has
beneficially owned restricted securities for at least three years is entitled to
sell such restricted securities under Rule 144 without regard to any of the
limitations described above. Officers, directors and the other existing
securityholders of the Company, owning or having rights to acquire in the
aggregate 4,976,309 shares of Common Stock constituting restricted securities,
have entered into agreements with the Underwriter not to sell or otherwise
dispose of any shares of Common Stock (other than shares purchased in open
market transactions) for a period of 18 months following the Effective Date (the
"Lock-Up Agreements"), without the prior written consent of the
17
<PAGE> 21
Underwriter. In addition, securityholders of the Company owning or having rights
to acquire in the aggregate 4,154,804 shares of Common Stock granted certain
registration rights with respect to those shares, agreed that they will not
exercise such registration rights for a period of 18 months following the
Effective Date. See "Description of Securities -- Shares Eligible for Future
Sale," "Description of Securities -- Registration Rights," "Certain
Transactions" and "Underwriting." Following expiration of the term of the
Lock-Up Agreements, 1,279,177 shares will become eligible for resale pursuant to
Rule 144 commencing in the second quarter of 1998, subject to the volume
limitations and compliance with the other provisions of Rule 144. Furthermore,
the holders of the Underwriter's Warrants (including the securities issuable
upon exercise thereof) have demand and piggyback registration rights with
respect to the shares of Common Stock and Warrants issuable upon exercise of the
Underwriter's Warrants.
26. EFFECT OF ISSUANCE OF COMMON STOCK UPON EXERCISE OF WARRANTS AND
OPTIONS; POSSIBLE ISSUANCE OF ADDITIONAL OPTIONS. Immediately after the
Offering, assuming the Underwriter's Over-Allotment Option is not exercised and
warrants to purchase 569,537 shares, at an exercise price of $0.76 per share,
are not exercised prior to their expiration on August 28, 1996, the Company will
have an aggregate of approximately 7,126,992 shares of Common Stock authorized
but unissued and not reserved for specific purposes and an additional 5,093,831
shares of Common Stock unissued but reserved for issuance pursuant to (i) the
Company's stock option plan, (ii) outstanding warrants, (iii) exercise of the
Warrants and (iv) exercise of the Underwriter's Warrants and the Warrants
included therein. All of such shares may be issued without any action or
approval by the Company's stockholders. Although there are no present plans,
agreements, commitments or undertakings with respect to the issuance of
additional shares or securities convertible into any such shares by the Company,
any shares issued would further dilute the percentage ownership of the Company
held by the public stockholders. The Company has agreed with the Underwriters
that, except for the issuances disclosed in or contemplated by this Prospectus,
it will not issue any securities, including but not limited to any shares of
Common Stock for a period of 24 months following the Effective Date, without the
prior written consent of the Underwriter. See "Underwriting."
The exercise of warrants or options and the sale of the underlying shares
of Common Stock (or even the potential of such exercise or sale) may have a
depressive effect on the market price of the Company's securities. Moreover, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of outstanding warrants and options
can be expected to exercise them, to the extent they are able, at a time when
the Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the warrants and
options. See "Management -- Stock Option Plan," "Description of Securities" and
"Underwriting."
27. POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK. The Company's
certificate of incorporation, as amended as of the Effective Date, will
authorize the issuance of 1,000,000 shares of "blank check" preferred stock,
with designations, rights and preferences determined from time to time by its
Board of Directors. Accordingly, the Company's Board of Directors is empowered,
without further stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Common Stock. In the event of
issuance, the preferred stock could be used, under certain circumstances, as a
method of discouraging, delaying or preventing a change in control of the
Company. The Company has no current plans to issue any shares of preferred
stock. However, there can be no assurance that preferred stock will not be
issued at some time in the future. The Company has agreed with the Underwriter
that it will not issue any shares of preferred stock, or any options, warrants
or other rights to purchase shares of preferred stock, for a period of 24 months
following the Effective Date, without the prior written consent of the
Underwriter. See "Description of Securities -- Preferred Stock."
28. ADVERSE EFFECT OF REDEMPTION OF WARRANTS. Under certain conditions,
the Warrants may be redeemed by the Company, prior to their expiration, at a
redemption price of $.10 per Warrant, upon not less than 30 days prior written
notice to the holders of such Warrants. Redemption of the Warrants could force
the holders to exercise the Warrants and pay the exercise price at a time when
it may be disadvantageous for the holders to do so, to sell the Warrants at then
current market price when they might otherwise wish to hold the
18
<PAGE> 22
Warrants or to accept the redemption price, which is likely to be substantially
less than the market value of the Warrants at the time of redemption. See
"Description of Securities -- Warrants."
29. NEED FOR FUTURE REGISTRATION OF WARRANTS; STATE BLUE SKY REGISTRATION;
EXERCISE OF WARRANTS. The Warrants will trade separately upon the completion of
the Offering. Although the Warrants will not knowingly be sold to purchasers in
jurisdictions in which the Warrants are not registered or otherwise qualified
for sale, purchasers may buy Warrants in the after-market or may move to
jurisdictions in which the Warrants and the Common Stock underlying the Warrants
are not so registered or qualified. In this event, the Company would be unable
to issue Common Stock to those persons desiring to exercise their Warrants
unless and until the Warrants and the underlying Common Stock are qualified for
sale in jurisdictions in which such purchasers reside, or an exemption from such
qualification exists in such jurisdictions. There can be no assurance that the
Company will be able to effect any required qualification.
The Warrants will not be exercisable unless the Company maintains a current
Registration Statement on file with the Commission through post-effective
amendments to the Registration Statement containing this Prospectus. Although
the Company has agreed to file appropriate post-effective amendments to the
Registration Statement containing this Prospectus and to maintain a current
Prospectus with respect to the Warrants, there can be no assurance that the
Company will file post-effective amendments necessary to maintain a current
Prospectus or that the Warrants will continue to be so registered. See
"Description of Securities -- Warrants."
19
<PAGE> 23
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
and Warrants offered hereby, after deducting underwriting discounts and other
expenses of the Offering, are estimated to be $7,480,750 ($8,685,117 if the
Underwriter's Over-Allotment Option is exercised in full). The Company expects
to use the net proceeds of the Offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT PERCENT
---------- -----
<S> <C> <C>
Product development(1)............................................ $3,700,000 49%
Sales and marketing(2)............................................ 3,500,000 47%
Working capital and general corporate purposes.................... 280,750 4%
---------- -----
Total........................................................ $7,480,750 100%
========= =====
</TABLE>
- ---------------
(1) Includes development of software packages for revision and total knee
replacement surgeries, as well as other orthopedic surgical
applications, expansion of the implant libraries for the Company's
products and development of multiple imaging modalities for use with
the ROBODOC System.
(2) Represents costs associated with marketing and sales activities with
respect to the Company's products, principally in Europe, including
advertising and promotional activities, as well as participation in
trade shows. Also includes costs associated with hiring, training and
maintaining sales, marketing and service personnel.
Additional proceeds from the exercise of the Underwriter's Over-Allotment
Option and the Warrants will be added to the Company's working capital and be
available for general corporate purposes. Pending application, the Company will
invest the net proceeds of this Offering in United States government securities
and investment-grade commercial paper.
The Company has not determined the specific allocation of the net proceeds
among the various uses described above. Specific allocations of such net
proceeds will ultimately depend on the development of the Company's products and
the related technology, the adaptation of its products to additional surgical
applications and commercial acceptance of its products. The Company anticipates,
based on currently proposed plans and assumptions relating to its operations,
that the net proceeds of this Offering will be sufficient to satisfy the
Company's anticipated cash requirements for at least 12 months following the
consummation of this Offering.
20
<PAGE> 24
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1996, and (ii) such capitalization on a pro forma basis after giving
effect to the automatic conversion of the outstanding Series D Preferred Stock
at the Closing, and as adjusted to give effect to the sale of 1,500,000 shares
of Common Stock and 1,500,000 Warrants offered hereby, and the application of
the estimated net proceeds thereof. The information set forth below should be
read in conjunction with the consolidated financial statements and notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------
PRO FORMA
AS
ACTUAL(1)(2) ADJUSTED(1)(3)
------------ ----------
<S> <C> <C>
Stockholders' equity:
Preferred stock, $0.01 par value, no shares authorized,
issued or outstanding; 1,000,000 shares authorized, no
shares issued or outstanding, pro forma as adjusted....... $ -- $ --
Convertible preferred stock, $0.01 par value, 5,750,000
shares authorized; 1,012,381 shares issued and
outstanding; no shares authorized, issued or outstanding,
pro forma as adjusted; liquidation preference value of
$1,000,000................................................ 10,124 --
Common stock, $0.01 par value, 15,000,000 shares authorized;
266,796 shares issued and outstanding; 2,779,177 shares
issued and outstanding, pro forma as adjusted............. 2,668 27,792
Additional paid-in capital..................................... 19,635,336 27,101,086
Deferred stock compensation.................................... (482,384) (482,384)
Accumulated translation adjustment............................. 259 259
Accumulated deficit............................................ (17,143,100) (17,143,100)
-------- --------
Total stockholders' equity..................................... 2,022,903 9,503,653
-------- --------
Total capitalization...................................... $ 2,022,903 $9,503,653
======== ========
</TABLE>
- ---------------
(1) Does not include (i) 2,783,654 shares of Common Stock issuable upon exercise
of outstanding warrants, including (x) shares issuable upon exercise of the
Series D Warrants, at an exercise price of $.02 per share, which will become
exercisable for 2,024,762 of Common Stock following the automatic conversion
of the Series D Preferred Stock at the Closing, (y) warrants to purchase
569,537 shares, at an exercise price of $0.76 per share, exercisable until
August 28, 1996, and (z) warrants to purchase 189,355 shares, at exercise
prices ranging from $0.02 to $0.08 per share, and (ii) 892,413 shares of
Common Stock issuable upon exercise of outstanding options granted pursuant
to the Company's stock option plans, at exercise prices ranging from $0.08
to $8.05 per share. See "Management -- Stock Option Plan," "Certain
Transactions" and "Description of Securities -- Warrants."
(2) Does not include 1,012,381 shares of Common Stock issuable upon conversion
of the Series D Preferred Stock.
(3) Gives effect to the automatic conversion of the outstanding shares of Series
D Preferred Stock into 1,012,381 shares of Common Stock upon the
consummation of the sale of the shares of Common Stock and Warrants offered
hereby. Does not include (i) 1,500,000 shares of Common Stock reserved for
issuance upon the exercise of the Warrants, (ii) 450,000 shares of Common
Stock reserved for issuance upon exercise of the Underwriter's
Over-Allotment Option, including the Warrants included therein, and (iii)
300,000 shares of Common Stock reserved for issuance upon the exercise of
the Underwriter's Warrants and the Warrants included therein.
21
<PAGE> 25
DILUTION
The net tangible book value of the Company as of June 30, 1996, was
$1,937,903 or approximately $1.51 share of Common Stock, assuming conversion of
the outstanding shares of Series D Preferred Stock into Common Stock. The net
tangible book value of the Company is the tangible assets (total assets less
deferred financing and offering costs) less total liabilities. Dilution per
share represents the difference between the amount paid per share of Common
Stock by purchasers in the Offering, attributing no value to the Warrants, and
the pro forma net tangible book value per share after the Offering.
After giving effect to the sale by the Company of the 1,500,000 shares of
Common Stock and 1,500,000 Warrants offered hereby, the pro forma net tangible
book value of the Company as of June 30, 1996, would have been $9,418,653 or
$3.39 per share. This represents an increase in net tangible book value per
share of $1.88 to the Company's existing stockholders and an immediate dilution
of $2.61 per share (or 43.5% of the offering price) to new stockholders
purchasing shares of Common Stock in the Offering. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Public offering price per share.................................. $6.00
Net tangible book value before Offering.......................... $1.51
Increase attributable to new investors........................... 1.88
-----
Pro forma net tangible book value after Offering................. 3.39
-----
Dilution to new investors........................................ $2.61
=====
</TABLE>
The above table assumes the conversion of the outstanding shares of the
Series D Preferred Stock into Common Stock, but no exercise of outstanding stock
options or warrants. As of June 30, 1996, there were outstanding options to
purchase an aggregate of 892,413 shares of Common Stock having exercise prices
from $0.08 per share to $8.05 per share and outstanding warrants to purchase an
aggregate of 2,783,654 shares of Common Stock having exercise prices from $0.02
per share to $0.76 per share. To the extent that stock options or warrants are
exercised at prices below the public offering price per share, there will be
further dilution to new investors. See "Risk Factors," "Certain Transactions,"
"Description of Securities" and "Underwriting."
The information in the foregoing table summarizes the number and
percentages of shares of Common Stock, including Series D Preferred Stock which
will convert into Common Stock, purchased from the Company through the date of
this Prospectus, the amount and percentage of cash consideration paid and the
average price per share paid to the Company by existing stockholders and by new
investors pursuant to the Offering:
<TABLE>
<CAPTION>
AVERAGE
PRICE
TOTAL CONSIDERATION PER
SHARES PURCHASED PAID SHARE
------------------- --------------------- ------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.................. 1,279,177 46.0% $13,019,556 59.1% $10.18
New Investors.......................... 1,500,000 54.0% 9,000,000 40.9% 6.00
------ ----------- ------
2,779,177 100.0% $22,019,556 100.0%
====== =========== ======
</TABLE>
The information in the foregoing table gives effect to the conversion of
the outstanding shares of Series D Preferred Stock, but it excludes 892,413
shares of Common Stock issuable upon the exercise of outstanding options,
2,783,654 shares of Common Stock issuable upon exercise of outstanding warrants,
1,500,000 shares of Common Stock reserved for issuance upon exercise of the
Warrants, 450,000 shares of Common Stock reserved for issuance upon exercise of
the Underwriter's Over-Allotment Option and the Warrants included therein, and
300,000 shares of Common Stock reserved for issuance pursuant to the
Underwriter's Warrants and the Warrants included therein. See "Capitalization"
and "Underwriting."
22
<PAGE> 26
DIVIDEND POLICY
The payment of dividends by the Company is within the discretion of its
Board of Directors and depends in part upon the Company's earnings, capital
requirements and financial condition. Since its inception, the Company has not
paid any dividends on its Common Stock and does not anticipate paying such
dividends in the foreseeable future. The Company intends to retain earnings, if
any, to finance its operations.
23
<PAGE> 27
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information regarding the
results of operations and financial position of the Company for the periods and
at the dates indicated. The financial statements of the Company as of December
31, 1995 and for the years ended December 31, 1994 and 1995 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report included
elsewhere in this Prospectus, which includes an explanatory paragraph which
indicates there is substantial doubt about the Company's ability to continue as
a going concern due to the Company's need to generate cash from operations and
obtain additional financing. The selected financial information as of June 30,
1996 and for the six months ended June 30, 1995 and 1996 are derived from the
unaudited interim consolidated financial statements of the Company set forth
elsewhere in this Prospectus and include, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for the
fair presentation of its results of operations for such period. The results of
operations for the six months ended June 30, 1996, are not necessarily
indicative of the results to be expected for the full year. This data should be
read in conjunction with the Company's consolidated financial statements
including the notes thereto, the Company's unaudited interim consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------ ------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales................................ $ 289,047 $ 174,521 $ 76,289 $1,064,206
Cost of sales............................ 203,856 70,179 30,147 458,483
------- ------- -------
85,191 104,342 46,142 605,723
Operating expenses:
Selling, general and administrative.... 1,973,816 1,668,947 932,629 887,283
Research and development .............. 2,719,771 2,361,125 1,073,636 977,616
Stock compensation..................... -- -- -- 246,524
------- ------- -------
4,693,587 4,030,072 2,006,265 2,111,423
Other income (expense):
Interest income........................ 74,956 107,306 76,757 38,723
Interest expense....................... (281,650) (287,792) (147,590) --
Other.................................. (14,508) 55,801 63,906 (20,958)
------- ------- -------
Loss before provision for income taxes... (4,829,598) (4,050,415) (1,967,050) (1,487,935)
Provision for income taxes............... 10,787 3,113 3,242 3,183
------- ------- -------
Net loss................................. (4,840,385) (4,053,528) (1,970,292) (1,491,118)
Preferred stock dividends................ (956,574) (936,325) (478,287) --
------- ------- -------
Net loss applicable to common
stockholders........................... $(5,796,959) $(4,989,853) $(2,448,579) $(1,491,118)
======= ======= =======
Net loss per common and common share
equivalent............................. $ (1.39) $ (1.20) $ (0.59) $ (0.34)
======= ======= =======
Shares used in per share calculations
(1).................................... 4,162,576 4,169,220 4,163,404 4,362,783
======= ======= =======
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Working capital................................................. $ 1,827,408 $ 1,735,668
Total assets.................................................... 3,727,129 2,847,953
Accumulated deficit............................................. (15,651,982) (17,143,100)
Stockholders' equity............................................ 2,272,518 2,022,903
</TABLE>
- ---------------
(1) See Note 2 of notes to consolidated financial statements for an
explanation of the determination of the number of shares used in
computing net loss per share.
24
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the consolidated financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.
From its inception in October 1990, the Company has been primarily engaged
in the development and clinical evaluation of the ROBODOC System. Net sales are
derived from the sale of ROBODOC Systems and related consumables. Prior to 1996,
sales of the ROBODOC System were limited to sales for clinical evaluation. In
the first quarter of 1996, the Company was notified by TUV, a testing body in
Germany, that the ROBODOC System had met the requirements of the European
Directives, thus allowing the Company to use the CE Mark and to distribute the
ROBODOC System throughout the European Community. The Company sold its first
commercial ROBODOC System to a clinic in Germany in March 1996. The Company
intends to use a significant portion of the net proceeds of this Offering for
marketing and sales in Europe. See "Use of Proceeds."
In the United States, the Company's products are subject to regulation by
the FDA. The Company intends to file an application for pre-market approval with
the FDA in the second quarter of 1997 for approval to market the ROBODOC System
in the United States. See "Risk Factors -- Government Regulation" and
"Business -- Government Regulation."
Until the commercial introduction of the ROBODOC System in the first
quarter of 1996, the Company operated as a development stage enterprise, and
incurred a net loss for each period since its inception. The Company intends to
develop additional surgical applications for the ROBODOC System and to
significantly increase its technical staff. The Company also plans to increase
spending on sales and marketing. See "Use of Proceeds." The Company expects
operating losses to continue until sales of its products increase significantly.
See "Risk Factors -- History of Losses; Accumulated Deficit; Anticipated Future
Losses."
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net Sales. Net sales for the six months ended June 30, 1996 (the "1996
interim period"), increased by approximately $988,000, as compared to the six
months ended June 30, 1995 (the "1995 interim period"), as a result of
commercial sales of the ROBODOC System to customers in Germany. Prior to 1996,
sales of the ROBODOC System were limited to heavily discounted clinical
evaluation systems. No clinical evaluation systems were sold during the 1995
interim period. Sales of consumables during the 1996 interim period
(approximately $42,000, or 4% of net sales) decreased by approximately $34,000,
or 45%, as compared to the 1995 interim period when sales of consumables
accounted for all net revenues, primarily due to the completion of U.S. clinical
trials in February 1996.
Cost of Sales. Cost of sales for the 1996 interim period (approximately
$458,000), increased significantly as compared to the 1995 interim period
(approximately $30,000), as a result of the first commercial sales of the
ROBODOC System. Cost of sales as a percentage of net sales increased to 43% for
the 1996 interim period, as compared to 40% for the 1995 interim period due to a
lower gross margin percentage realized on the sale of the first commercial
ROBODOC Systems, as compared to the gross margin percentage realized on sales of
consumables, in the 1995 interim period.
Selling, General and Administrative. Selling, general and administrative
expenses for the 1996 interim period (approximately $887,000) decreased by
approximately $46,000, or 5%, as compared to the 1995 interim period
(approximately $933,000), due to a reduction in staff in February 1995. The cost
savings associated with the staff reductions have been partially offset by the
Company's participation in trade shows in Germany during the 1996 interim
period.
25
<PAGE> 29
Research and Development. Research and development expenses for the 1996
interim period (approximately $978,000) decreased by approximately $96,000, or
approximately 9%, as compared to the 1995 interim period (approximately
$1,074,000), due to staff reductions in regulatory and quality control in
February 1995. In addition, the completion of U.S. clinical trials in February
1996 resulted in a decrease in costs associated with the sponsorship of the
trials. These decreases were partially offset by an increase in consulting and
outside service costs during the 1996 interim period.
Stock Compensation. During the 1996 interim period, the Company recorded
deferred stock compensation of approximately $729,000 relating to stock options
granted during the interim period with exercise prices less than the estimated
fair value of the Company's Common Stock, as determined by an independent
valuation analysis, on the date of grant. The deferred stock compensation is
being amortized into expense over the vesting period of the stock options, which
generally ranges from 3 to 5 years. Deferred compensation relating to stock
options which vested immediately was expensed on the date of grant. Compensation
expense of $246,526 was recorded during the 1996 interim period relating to
these stock options, and the remaining $482,384 will be amortized into expense
in future periods.
Interest Income. Interest income for the 1996 interim period
(approximately $39,000) decreased by approximately $38,000, or 50%, as compared
to the 1995 interim period, primarily due to higher average cash balances during
the 1995 interim period.
Interest Expense. The Company had no interest expense for the 1996 interim
period, as compared to the 1995 interim period (approximately $148,000),
primarily as a result of the conversion in December 1995 of a $3,000,000
convertible note payable, bearing interest at 9.25% per annum, into a warrant to
purchase Common Stock.
Other Income and Expense. Other expense for the 1996 interim period was
approximately $21,000, as compared to other income for the 1995 interim period
of approximately $64,000. The primary reason for the difference is the
strengthening of the Dutch Guilder against the U.S. dollar during the 1995
interim period, as compared to a weakening of the Dutch Guilder against the U.S.
dollar in the 1996 interim period. This resulted in currency transaction gains
and losses on the U.S. currency obligations of the Company's wholly owned
subsidiary in The Netherlands, Integrated Surgical Systems BV.
Net Loss. The net loss for the 1996 interim period (approximately
$1,491,000) decreased by approximately $479,000, or approximately 24%, as
compared to the net loss for the 1995 interim period (approximately $1,970,000),
primarily due to the gross margin realized on the increased net sales. This
increase was partially offset by an increase in operating expenses, principally
due to stock compensation expense.
Preferred Stock Dividends. The Company accumulated preferred stock
dividends of approximately 8% on the outstanding shares of Series B and Series C
Preferred Stock for the 1995 interim period. These cumulative dividends,
together with the Series B and Series C Preferred Stock, were converted into
Common Stock in December 1995. The Series D Preferred Stock outstanding at June
30, 1996 does not provide for cumulative dividends.
FISCAL YEAR ENDED DECEMBER 31, 1995 AND 1994
Net Sales. Net sales for the fiscal year ended December 31, 1995 ("Fiscal
1995") decreased by approximately $114,000, as compared to the fiscal year ended
December 31, 1994 ("Fiscal 1994"). During Fiscal 1995, all net sales were
derived from consumables. During Fiscal 1994, the Company recognized the sale of
one clinical evaluation system for approximately $242,000, with the remaining
net sales in Fiscal 1994 related to consumables. Sales of consumables increased
significantly in Fiscal 1995 due to the operation of a clinical system in
Germany for all of Fiscal 1995. Revenue was not recognized for the installation
of the ROBODOC System in Germany in 1994 because the ROBODOC System was
temporarily placed at the site for purposes of clinical evaluation until the
Company received notification from TUV, a testing body in Germany, that the
ROBODOC System met the requirements of the European Directives, thus allowing
the Company to use the CE Mark and distribute the ROBODOC System throughout the
European Community.
26
<PAGE> 30
Cost of Sales. Cost of sales for Fiscal 1995 (approximately $70,000)
decreased by approximately $134,000, or 66%, as compared to Fiscal 1994
(approximately $204,000). Cost of sales as a percentage of net sales decreased
from 71% in Fiscal 1994 to 40% in Fiscal 1995 since net sales in Fiscal 1995
consisted entirely of consumables, which generate a higher gross margin
percentage than sales of clinical evaluation systems.
Selling, General and Administrative. Selling, general and administrative
expenses for Fiscal 1995 (approximately $1,669,000), decreased by approximately
$305,000, or 15%, as compared to Fiscal 1994 (approximately $1,974,000),
primarily due to staff reductions in February 1995. This decrease was partially
offset by increased consulting fees associated with a consultant involved with
marketing and general business strategy.
Research and Development. Research and development expenses for Fiscal
1995 (approximately $2,361,000) decreased by approximately $359,000, or 13%, as
compared to Fiscal 1994 (approximately $2,720,000), primarily due to staff
reductions in February 1995. This decrease was partially offset by the cost of a
comparative histology study at Auburn University, which commenced in the fourth
quarter of 1995.
Interest Income. Interest income for Fiscal 1995 (approximately $107,000)
increased by approximately $32,000, or 43%, as compared to Fiscal 1994
(approximately $75,000), due to an improvement in money market conditions
resulting in an improved return on the Company's investments during Fiscal 1995.
The Company had an investment in an intermediate term bond fund in Fiscal 1994
which had a negative return due to rising interest rates.
Interest Expense. Interest expense for Fiscal 1995 (approximately
$288,000) increased slightly as compared to Fiscal 1994 (approximately
$282,000). Interest expense for both periods was primarily associated with a
$3,000,000 convertible note, bearing interest at 9.25% per annum. The principal
amount of this note, together with interest that had accrued from the date of
issuance, was converted in December 1995 into a warrant to purchase Common
Stock.
Other Income and Expense. Other income for Fiscal 1995 was approximately
$56,000, as compared to other expense for Fiscal 1994 of approximately $15,000.
The primary reason for the difference is the strengthening of the Dutch Guilder
against the U.S. Dollar during Fiscal 1995, as compared to a weakening of the
Dutch Guilder against the U.S. Dollar in Fiscal 1994. This resulted in currency
transaction gains and losses on the U.S. currency obligations of the Company's
wholly owned subsidiary in The Netherlands, Integrated Surgical Systems BV.
Provision for Income Taxes. As a result of the issuance of the Company's
Series D Preferred Stock in connection with the recapitalization of the Company
in December 1995, a change of ownership (as defined in Section 382 of the
Internal Revenue Code of 1986, as amended) occurred. As a result of this change,
the Company's federal and state net operating loss carryforwards generated
through December 31, 1995 (approximately $13,500,000 and $4,500,000,
respectively) will be subject to a total annual limitation in the amount of
approximately $400,000. Except for the amounts described below, the Company
expects that the carryforward amounts will not be utilized prior to the
expiration of the carryforward periods. As a consequence of the limitation, the
Company has at December 31, 1995 a net operating loss carryover of approximately
$6,000,000 for federal income tax purposes which expires between 2005 and 2009,
and a net operating loss carryforward of approximately $2,000,000 for state
income tax purposes which expires between 1997 and 1999. See Note 7 of notes to
consolidated financial statements.
Net Loss. The net loss for Fiscal 1995 (approximately $4,054,000)
decreased by approximately $786,000, or 16%, as compared to Fiscal 1994
(approximately $4,840,000), primarily due to improved gross margins, reduced
operating expenses, resulting principally from staff reductions, improved
returns on invested cash and an increase in other income due to a strengthening
of the Dutch Guilder against the U.S. Dollar.
Preferred Stock Dividends. The Company accumulated preferred stock
dividends on the Series B and Series C Preferred Stock at 8% per annum
throughout Fiscal 1994 and until December 1995, when these cumulative dividends,
together with the Series B and Series C Preferred Stock, were converted into
Common Stock. The Series D Preferred Stock outstanding at June 30, 1996 does not
provide for cumulative dividends.
27
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's expenses have exceeded net sales. Operations
have been funded primarily from the issuance of debt and the sale of equity
securities aggregating approximately $17.7 million. In addition, the Company was
the beneficiary of proceeds from a $3 million key-man life insurance policy in
1993 upon the death of one of its executives.
The Company used cash from operating activities of $170,000, $3,508,000,
$1,805,000 and $1,750,000 in Fiscal 1994, Fiscal 1995 and the 1995 and 1996
interim periods, respectively. Net cash used for operations in each of these
periods resulted primarily from the net loss. Cash used for operations in Fiscal
1994 reflected a transfer of cash from short term investments, a deposit
received relating to the initial commercial system, decreases in accounts
receivable and inventory and an increase in accrued retrofit costs for the
systems used in the United States clinical trials. Cash used for operations in
Fiscal 1995 reflected a decrease in inventory, an increase in other liabilities
and payments made under a severance agreement with a former executive officer.
Cash used for operations in the 1995 interim period reflected an increase in
accounts payable and payments made to a former executive officer. Cash used for
operations in the 1996 interim period reflected a payment made on a note payable
held by a supplier and a decrease in a customer deposit relating to the delivery
of a commercial system.
The Company's investing activities have consisted primarily of expenditures
for property and equipment which totaled $476,000, $121,000, $63,000 and $41,000
in Fiscal 1994, Fiscal 1995, and the 1995 and 1996 interim periods,
respectively. Included in Fiscal 1994 and Fiscal 1995 is a ROBODOC System owned
by the Company and placed in a clinic in Germany for clinical evaluation. This
system was sold to the clinic during the 1996 interim period.
Cash provided by financing activities from inception through June 30, 1996
is comprised of the net cash proceeds from the sale of a convertible note in the
principal amount of $3,000,000, the sale of convertible preferred stock and
warrants for $14,676,000, and the sale of Common Stock for $9,000. As part of
the recapitalization of the Company in December 1995, the entire $3,000,000
principal amount of the convertible note, together with accrued interest thereon
of approximately $1,224,000, was converted into a warrant to purchase Common
Stock. A total of $11,734,000 of preferred stock was converted into Common Stock
in December 1995.
The Company expects to incur additional operating losses and cash
requirements at least through 1997. These losses will be as a result of
expenditures related to product development projects and the establishment of
marketing, sales, service and training organizations. The timing and amounts of
these expenditures will depend on many factors, some of which are beyond the
Company's control, such as the requirements for and time required to obtain FDA
authorization to market the ROBODOC System, the progress of the Company's
product development projects and market acceptance of the Company's products.
The Company expects that the net proceeds of this Offering, together with cash
flow from operations, will be sufficient to finance its operations for the 12
months following the date of this Prospectus.
The Company's independent auditors have included an explanatory paragraph
in their report on the Company's financial statements for the year ended
December 31, 1995, which indicates there is substantial doubt about the
Company's ability to continue as a going concern due to the Company's need to
generate cash from operations and obtain additional financing. See "Report of
Independent Auditors" on the Company's consolidated financial statements
appearing at page F-2 of this Prospectus.
28
<PAGE> 32
GLOSSARY
The following glossary is intended to provide the reader with an
explanation of certain terms used in this Prospectus.
ACTIVE ROBOT A robot that is capable of moving by itself. In the
context of robotic surgery, active robot refers to
a robot that performs a segment of a surgical
procedure under the supervision of a surgeon.
CONSUMABLES Disposable items consumed each time a surgery is
performed including sterile drapes, bone screws,
cutters and control pendants.
CT SCAN Computerized tomography scan, which produces
multiple x-ray "slices" taken close together, which
when reconstructed by a computer provide an
accurate three dimensional picture of a patient's
anatomy.
FIXATOR Device which holds the leg bone still and attaches
it to the robot base.
IMPLANT Usually inert metal "hardware" left in the body to
repair injuries or replace joints.
IMPLANT LIBRARY Visual three dimensional renderings of all the
sizes and shapes of implants available for use on
the system.
MRI Magnetic resonance imaging, a method of collecting
images of the body using radio waves, but without
radiation.
ORTHOPAEDICS The branch of surgery concerned with the skeletal
system.
OSTEOTOMY An angular cut in a bone usually removing a wedge.
PASSIVE ROBOT A passive robot requires the application of
external forces to cause motion. In the context of
robotic surgery, a passive robot is used only as an
aiming or holding device.
PROSTHESIS An artificial substitute for a body part, including
joints.
29
<PAGE> 33
BUSINESS
The Company develops, manufactures, markets and services image-directed,
computer-controlled robotic products for surgical applications. The Company's
principal product is the ROBODOC(R) Surgical Assistant System, consisting of a
computer-controlled surgical robot and the Company's ORTHODOC(R) Presurgical
Planner. The ROBODOC System has been used for primary total hip replacement
surgery on over 425 patients worldwide. The Company believes its "active"
robotic system is the only available system that can accurately perform key
segments of surgical procedures with precise tolerances generally not attainable
by traditional manual surgical techniques. The ROBODOC System also allows the
surgeon to prepare a preoperative plan customized to the characteristics of the
individual patient's anatomy. The technology for the ROBODOC System was
initially developed at the University of California, Davis, in collaboration
with IBM.
The ORTHODOC is a computer workstation which utilizes the Company's
proprietary software for preoperative surgical planning. The ORTHODOC is
included as part of the ROBODOC System or may be marketed separately by the
Company. The ORTHODOC converts CT scan data of a patient's femur into
three-dimensional images, and through a graphical user interface allows the
surgeon to examine the bone more thoroughly and to select the optimal implant
for the patient using a built-in library of available implants. A tape of the
planned surgical procedure, developed by the ORTHODOC, guides the surgical robot
arm of the ROBODOC System to accurately mill a cavity in the bone, thus allowing
the surgeon to properly orient and align the implant. Published scientific data
demonstrate that as a result of the precise milling of a cavity, the ROBODOC
System achieves over 95% bone-to-implant contact, as compared to an average of
20% bone-to-implant contact when surgery is performed manually.
THR surgery involves the insertion of an implant into a cavity created in
the patient's femur. Precise fit and correct alignment of the implant within the
femoral cavity are important for the long-term success of THR surgery. In
conventional THR surgery, a bone cavity is cut in the shape of the implant
manually with metal tools, and the surgical plan, including the selection of the
size and shape of the implant, is generally formulated based upon patient data
obtained from two-dimensional x-ray images of the patient's femur. Based upon
clinical experience to date at sites collecting applicable data for THR
surgeries performed with the ROBODOC System, the patients have become
weight-bearing in a shorter period, intraoperative fractures have been
dramatically reduced (no intraoperative fractures have resulted from THR
surgeries performed with the ROBODOC System to date) and the Company believes
that fewer hip revision surgeries (implant replacements) may be necessary, as
compared to primary THR surgery performed manually.
In the past, a majority of THR implants have been held in place with
acrylic cement, which fills the spaces between the implant and the bone, thereby
anchoring the implant to the femoral cavity ("cemented implants"). During the
1980s, implants that did not require cement ("cementless implants") were
developed with materials designed to stimulate bone in-growth. The selection of
a cemented or cementless implant generally is based upon a patient's bone
condition and structure, age and activity level. Typically, cemented implants
are used for older, less active patients. Furthermore, all implants require
replacement within five to 20 years of the first operation. The software package
developed by the Company in collaboration with IBM and Johns Hopkins University
eliminates the distortion of the x-ray images of the patient's femur used in
planning hip revision surgery caused by the metal in the existing implant.
Consequently, the surgeon would have a clearer view of the remaining bone in
planning hip revision surgery and thereby be better able to remove fragmented
cement without removing any of the remaining thin thigh bone.
THE MARKET
According to an industry study, in 1995 the worldwide orthopaedic market
(which includes power surgical instruments, prosthetic devices, fixation devices
and bone growth stimulants) was approximately $6.8 billion, including
approximately $3.9 billion in the United States (constituting approximately 57%
of the worldwide market) and approximately $1.8 billion in Europe (constituting
approximately 27% of the worldwide market). In 1995, over 600,000 hip implants
were sold worldwide, of which 280,000 were sold in the United States. Similarly
in 1995, over 400,000 knee implants were sold worldwide, of which 289,000 were
sold in the United States. The growth in hip and knee surgeries is expected to
be in the range of 4% to 7% per
30
<PAGE> 34
annum over the next several years. This anticipated growth is based upon the
growth in the number of people reaching an age (60 and over) where orthopaedic
surgeries are more prevalent, and also on an increasingly active population.
Finally, an earlier generation of implanted protheses have reached an age where
replacement is increasingly necessary, thus resulting in an increased demand for
hip and knee revision surgeries.
According to the American Academy of Orthopaedic Surgeons, there are
approximately 15,000 orthopaedic surgeons in the United States and there are
over 5,000 hospitals performing orthopaedic surgeries that have, or have access
to, CT scanners. Of these, approximately 1,000 hospitals perform over 150
orthopaedic surgeries (hip and knee) per year. There are approximately 800
hospitals in Germany that have a CT scanner and perform the vast majority of the
orthopaedic surgeries. Since the procedure for performing THR surgery using the
ROBODOC System requires a CT scan of patient prior to surgery, these are the
primary centers that would consider purchasing the ROBODOC System. According to
industry sources, there are an additional 1,000 hospitals in the rest of Europe
that perform a significant number of orthopaedic and trauma surgeries. Thus, a
total of 1,800 hospitals in Europe are likely to consider acquiring the ROBODOC
System.
STRATEGY
The Company will seek to establish itself as a leading provider of
innovative image-directed, computer-controlled robotic technologies worldwide,
initially for orthopaedic applications and subsequently for non-orthopaedic
applications. The Company's business strategy is to concentrate its marketing
and sales efforts on selling the ROBODOC System throughout Europe over the next
three years. The Company will thereby attempt to establish an installed customer
base in Europe and other foreign markets through the sale of its ROBODOC System,
and offer its customers separate software packages for each new orthopaedic
application developed by the Company. Consequently, the Company's customers
would be able to use the ROBODOC System as the platform for performing a variety
of orthopaedic surgical procedures without incurring significant additional
hardware costs. The Company also plans to further exploit its image-directed
robotics technology by incorporating additional imaging modalities for
presurgical planning, including ultrasound (which is less expensive than CT) and
magnetic resonance imaging (which unlike CT does not involve the risk of
radiation). The Company also intends to develop an active robotic system capable
of performing non-orthopaedic surgical procedures.
PRODUCTS
The Company's products are:
-- ROBODOC SYSTEM
The ROBODOC System, which consists of a computer-controlled, five-axis
surgical robot and the Company's ORTHODOC Presurgical Planner, is an active
robotic system that can accurately perform key segments of surgical procedures
with precise tolerances generally not attainable by traditional surgical
techniques. The ROBODOC System allows the surgeon to prepare a preoperative plan
customized to the characteristics of the individual patient's anatomy and
generates a tape instructing the computer-controlled robot to implement the
surgical plan. The ROBODOC System includes a display console for screen prompts
and surgical plan simulation, a control cabinet for computers and other
electronic components, and proprietary applications and robot control software.
The surgeon communicates with the robot via a sterile controller. Attendant
supplies include custom surgical drapes, specially designed cutters, a
leg-holding device (fixator) and a bone motion-detecting apparatus.
The sales price of the ROBODOC System is currently $635,000 and includes
full warranty, service, installation, training and some consumables. The service
contract is renewable annually for 10% of the original purchase price and
entitles the customer to upgrades and limited consumables.
31
<PAGE> 35
-- ORTHODOC
The ORTHODOC is a Pentium(R)-based computer workstation which utilizes the
Company's proprietary software for preoperative surgical planning. The ORTHODOC
500, an integral part of the ROBODOC System, may be sold separately as a
surgical planner. The ORTHODOC 500 converts CT scan data of a patient's femur
into three dimensional models of the femur on a high-resolution monitor, and
through a graphical user interface the surgeon can examine the bone more
thoroughly, select the optimal implant for the patient using a built-in library
of available implants and select the position of the implant in the femur prior
to surgery. The ORTHODOC 100, which will be sold only on a stand-alone basis,
converts digitized x-rays of a patient's femur into pseudo three-dimensional
images for planning surgery.
POTENTIAL ORTHOPAEDIC APPLICATIONS OF ROBODOC SYSTEM
The Company intends to offer ROBODOC System customers separate software
packages for each new orthopaedic application developed by the Company.
Consequently, the Company's customers would be able to use the ROBODOC System as
the platform to perform a variety of orthopaedic surgical procedures without
incurring significant additional hardware costs. The Company plans to develop
software packages for the following orthopaedic surgical procedures for use with
the ROBODOC System:
Hip Revision. Hip revision surgery generally is required to replace loose
or otherwise failed implants. Most implants require replacement in five to 20
years after the first operation. Hip revision surgery generally is difficult,
time consuming and complex. The metal in the existing implant distorts x-ray
images used for planning the surgery, obstructing the view of the remaining bone
and, if a cemented implant is to be replaced, the location of the fragmented
cement. The removal of the fragmented cement without removing any of the
remaining thin bone structure is a major challenge for the surgeon.
The Company is developing a software package for hip revision surgery using
the ROBODOC System, in collaboration with IBM and Johns Hopkins University. The
development of the hip revision application is being funded in part by a grant
from the National Institute for Standards and Technology (Advanced Technology
Program) of the United States Department of Commerce. See "Business - Research
and Development." The first phase of the hip revision project relates to the
development and implementation of software to create a clearer image of the
remaining bone and fragmented cement in preparing the surgical plan. The second
phase of the project involves its validation in a clinical setting. The Company
believes that its hip revision software will improve surgical planning and
enable the five-axis robot to remove cement more precisely than if the hip
revision procedure were performed manually. The Company plans to conduct
clinical trials of the hip revision application in Europe before the end of
1996. Upon completion of the clinical trials, the Company intends to offer
software packages for the hip revision application to its customers.
Total Knee Replacement. The Company plans to develop a software package
for total knee replacement ("TKR") surgery using the ROBODOC System. The ROBODOC
System will select the optimal implant for the patient and make accurate cuts in
the bone, thus allowing the surgeon to properly orient and align the implant.
The Company believes that TKR surgery performed with the ROBODOC System will
result in a precise and accurate fit for implants that are properly sized and
placed, regardless of bone quality. Furthermore, the Company believes that
implant longevity and the prognosis for restored biomechanics will be
significantly improved as a result of TKR surgery performed with the ROBODOC
System.
Vertebral Pedicle Screws. Pedicle screws are used to fuse vertebrae in
need of repair due to trauma or herniated disc disease. The procedure involves
the placement of screws straight down the center of an irregular section of a
fragile bone only twice the diameter of the screw itself. Precise placement of a
screw affects the outcome of the surgery. Misplacement of a screw can result in
failure of the repair, trauma to the adjacent spinal cord, or rupture of nearby
blood sinuses which can hemorrhage severely. The Company believes this surgical
procedure can be performed more safely and effectively by the ROBODOC System as
compared to surgery performed manually since the computer-controlled robot is
better able to precisely orient its tool in a manner compatible with what is
required for screw placement. Further development work is required to refine and
validate this application for clinical use.
32
<PAGE> 36
Acetabulum Replacement and Revision. The Company plans to complement the
THR femoral replacement application with acetabular cup planning and bone
preparation for hip socket replacement surgery. Currently, surgeons estimate the
size of the cup-shaped cavity in hip socket surgery using x-rays, which are
subject to distortion. Working in a narrow space with a limited view, the
surgeon ultimately selects the final cup size through trial and error. Due to
the limitations of available surgical tools, the surgeon is obliged to use a
hemispheric reamer and cup, although the human acetabulum (hip socket) is an
irregular shape. The Company believes that the software for this application
would enable the computer-controlled robot to prepare an accurate bed for the
implant, based on its specifications, and could prepare an irregularly shaped
socket for a custom or anatomically-shaped acetabular component. The
three-dimensional capability of the ORTHODOC would better enable it to determine
and display the irregular shape of the acetabulum and instruct the robot to
prepare the proper socket. This procedure potentially could solve the problem of
leg-length discrepancies which often originate at the acetabulum.
Osteotomies. Osteotomies are precise cuts in bone intended to reshape or
realign abnormal or deformed structures. The Company's engineers have generated
a detailed work plan to adapt the ROBODOC System for use in performing long-bone
osteotomies on femurs and tibias (i.e., the shin bone). Using the views of the
bone created by the ORTHODOC from CT scan data, the surgeon will make trial
cuts, remove bone and manipulate the remaining fragments, and experiment with
the appropriate placement of plates and screws. The surgeon's final plan will be
saved on a tape which will instruct the robot where to make saw cuts. The
computer-controlled, five-axis robot will then orient itself in space by using
topographical features of the operative bone. A fixator will secure the bone to
the robot. The computer-controlled robot will then pre-place screw holes to
facilitate the final realignment and make the actual cuts.
SALES AND MARKETING
Neither the ROBODOC System nor the ORTHODOC can be marketed in the United
States until clearance or approval is obtained from the FDA.
The Company has commenced marketing the ROBODOC System, and plans to market
the ORTHODOC, to orthopaedic and trauma surgeons and hospitals in Western
Europe, through direct sales and arrangements with implant manufacturers.
Presentations to potential customers focus on the clinical benefits obtained by
patients, potential financial and marketing benefits obtained by hospitals and
surgeons. The Company promotes its products in Europe through presentations at
trade shows and advertisements in professional journals, technical and clinical
publications, as well as through direct mail campaigns. A significant portion of
the net proceeds of this Offering will be used for marketing and sales
activities with respect to Company's products, principally in Europe, and to
establish a sales and marketing staff. See "Use of Proceeds." To date, the
Company's direct sales efforts have been primarily in Germany. Over 315 THR
surgeries have been performed with the ROBODOC System at The
Berufsgenossenschaftliche Unfallklinik ("BGU") clinic in Frankfurt, Germany
since August 1994. As result of a significant increase in the number of THR
surgeries performed at the clinic with the ROBODOC System, the BGU clinic
purchased a second ROBODOC System in the second quarter 1996.
To accelerate sales and reduce the lengthy sales cycle, the Company offers
lease financing for the ROBODOC System through arrangements with two major
multinational leasing companies. Based upon lease financing proposals offered to
customers in Germany by these leasing companies, the monthly lease payment for a
five-year lease for the ROBODOC System would be equivalent to the average price
of one THR surgery.
The Company intends to commence marketing the ORTHODOC to hospitals,
orthopaedic surgeons and implant manufacturers in the United States, upon
receipt of clearance from the FDA. See "Risk Factors -- Government Regulation"
and "Business -- Government Regulation."
MANUFACTURING
The Company assembles, builds and tests products at its manufacturing
facility in Sacramento, California. The current facility can support the
assembly of at least two ROBODOC Systems per month. The Company's manufacturing
facilities are subject to periodic inspection by the FDA for compliance with
Good
33
<PAGE> 37
Manufacturing Procedures ("GMP"). In addition, the Company's products are
required to satisfy European manufacturing standards for sale in Europe. The
Company believes that it is in compliance with GMP and expects to obtain
ISO-9000 certification required for sales of its products in Europe by the end
of 1996. See "Risk Factors -- Government Regulation" and "Business -- Government
Regulation."
The ROBODOC System is built to order. The ROBODOC System consists of two
modules -- the robot base and the control cabinet, that are connected through
four interface cables. The robot and associated electronic control modules are
manufactured by Sankyo Seiki of Japan, the Company's sole supplier, which
currently requires four months lead time. The other components of the ROBODOC
System are ordered as needed. The Company performs a series of tests on the
robot to verify proper functioning. Ancillary items required to perform a
robotic hip procedure, including devices for fixing the hip and attaching it to
the robot, numerous probes, and cutter bearing sleeves, are assembled and tested
separately.
Consumables, including sterile drapes, bone screws, cutters and pendants,
are manufactured by outside vendors according to the Company's specifications.
The Company purchases these items in quantity and distributes them on a per
order basis. Order management, inventory control, and timely shipment to
customers are primary manufacturing functions. Incoming inspection is critical
to insure specifications are consistently met. The Company also coordinates
packaging and sterilization on certain items. Fully approved and inspected
vendors are employed to insure compliance with sterility requirements.
The ORTHODOC consists of a pentium-based computer workstation and
associated peripherals, and includes the Company's proprietary software. The
Company purchases and then tests the computer as a complete package. A computer
board is added to interface to CT/x-ray scanner input modules and, if required,
the ROBODOC System's tape output drive. The hard drive is reformatted to accept
the operating system, and appropriate ORTHODOC software is installed. The unit
is built configured for 110 or 220 AC volt operation.
RESEARCH AND DEVELOPMENT
Since its inception, the Company's research and development activities have
focused on the development of innovative image-directed computer-controlled
robotic products for surgical applications and operating software for these
products. The Company incurred research and development expenses of
approximately $2,361,000 and $2,720,000 in connection with the development of
the ROBODOC System and the ORTHODOC for the years ended December 31, 1995 and
December 31, 1994, respectively.
The Company is developing a software package for hip revision surgery, in
collaboration with IBM and Johns Hopkins University, funded in part by a grant
from the National Institute for Standards and Technology (Advanced Technology
Program) of the United States Department of Commerce ("NIST"). Hip revision
surgery generally is difficult, time consuming and complex. The metal in the
existing implant distorts x-ray images used for planning the surgery,
obstructing the remaining bone, and if a cemented implant is to be replaced, the
location of the fragmented cement. The removal of the fragmented cement without
removing any of the remaining thin bone structure is a major challenge for the
surgeon. The first phase of the hip revision project relates to the development
and implementation of software to create a clearer image of the remaining bone
and fragmented cement in preparing the surgical plan. The second phase of the
project involves its validation in a clinical setting. The Company believes that
its hip revision software will improve surgical planning for hip revision
surgery and would enable the five-axis robot to remove cement more precisely
than if the hip revision procedure was performed manually.
Under the terms of the NIST grant, the Company, IBM and Johns Hopkins
University are entitled to reimbursement for 49% of the expenses incurred in
connection with the project for a period of three years. The maximum amount of
expenses subject to reimbursement under the grant is approximately $4,000,000,
so that not more than approximately $1,960,000 in expenses may be reimbursed in
the aggregate to the Company, IBM and Johns Hopkins University under the grant.
The Company has incurred research and development expenses of approximately
$350,100 in connection with the hip revision project through June 30, 1996. As
of June 30, 1996, the Company had received $112,508 and IBM had received
$107,340 of a total of $219,848 distributed under the grant. A portion of the
net proceeds of this Offering will be used for the development of
34
<PAGE> 38
the hip revision application. See "Use of Proceeds" and "Business--Potential
Orthopaedic Applications of ROBODOC System." The Company expects to commence
clinical trials for the hip revision application in Europe before the end of
1996.
The Company is expanding the library of implants used at clinical sites to
include multiple implant lines, revision stems, and custom-made prostheses. The
Company has also commenced preliminary work with respect to the application of
the base technology for total knee replacement surgery.
As of July 1, 1996, the Company's engineering staff was comprised of 13
engineers (including two Ph.D.s) in a variety of specialities.
SCIENTIFIC ADVISORY BOARD
The Company has established relationships with the outside scientific
advisors listed below. These scientific and medical experts provide strategic
advice to the Company regarding its research and development programs, new
technological advances and medical requirements. It is anticipated that meetings
of the Company's scientific advisors will be held quarterly.
RUSSELL TAYLOR, PH.D., has been a professor of Computer Science at Johns
Hopkins University since 1995. From 1976 through 1995, Dr. Taylor was a manager
of various departments at the Research Division of IBM. Dr. Taylor is Editor
Emeritus of the International Journal of Robotics Research and the Journal of
Image Guided Surgery and Medical Image Analysis. Dr. Taylor received a Ph.D. in
Computer Science from Stanford University in 1976.
RONALD KIKINIS, M.D. has been the Director of the Surgical Planning
Laboratory of the Department of Radiology, Brigham & Women's Hospital and
Harvard Medical School since 1989 and has been an Adjunct Assistant Professor of
Biomedical Engineering at Boston University since 1992. From 1986 to 1988, Dr.
Kikinis was a research fellow at the ETH in Zurich and a resident at the
University Hospital in Zurich. He received his M.D. from the University of
Zurich, Switzerland in 1982.
KENNETH ALAN KRACKOW, M.D., an orthopaedic surgeon specializing in total
knee replacement, has been a professor of Orthopaedics at the State Unversity of
New York at Buffalo and head of the Department of Orthopaedic Surgery at Buffalo
General Hospital since 1992. From 1990 through 1992, he was a Professor of
Orthopaedic Surgery at Johns Hopkins University. Dr. Krackow received an M.D.
from Duke University in 1971.
MED RAINER KOTZ, M.D., an orthopaedic surgeon specializing in total hip
replacement and limb salvage, is the Department Head at Vorstand Der University
Klinik F. Orthopadie in Vienna, Austria. He is President elect of the European
Federation of Orthopaedist and Traumatologists.
COMPETITION
The Company's ROBODOC System represents a significant technological
advancement with respect to the manner in which THR surgery is performed. The
Company's image-directed, computer-controlled robotic technology is intended to
complement, rather than replace surgeons in performing THR and other orthopaedic
surgeries. Although there are companies which market technologically advanced
surgical tools used by surgeons in performing orthopaedic surgeries, including
passive robot systems that direct the surgeon in planning and performing
surgical procedures, (e.g., aiming and holding devices), the Company believes
that the ROBODOC System is the only active robotic system that performs a key
segment of THR surgery (i.e., milling a bone cavity) under the supervision of a
surgeon. There are companies in the medical products industry capable of
developing and marketing computer-controlled robotic systems for surgical
applications, many of whom have significantly greater financial, technical,
manufacturing, marketing and distribution resources than the Company, and have
established reputations in the medical devices industry. There can be no
assurance that future competition will not have a material adverse effect on the
Company's business. The principal competition for the ROBODOC System is manual
surgery performed by orthopaedic surgeons, using surgical power tools and manual
devices. The cost of the ROBODOC System represents a significant capital
expenditure for a customer, and accordingly may discourage purchases by certain
customers. The Company
35
<PAGE> 39
intends to offer its customers separate software packages for each new
orthopaedic application developed by the Company. Consequently, the Company's
customers would be able to use the ROBODOC System as the platform to perform a
variety of orthopaedic surgical procedures without incurring significant
additional hardware costs.
WARRANTY AND SERVICE
The Company offers a full warranty, covering parts and labor, for the first
year following the purchase of its products, which warranty coverage can be
extended on an annual basis by purchasing a maintenance agreement at a price of
10% of the original purchase price of the product.
Generally, minor problems have been diagnosed through modem and fixed on
site by users. The Company has developed a service program using a high volume
clinical site as a model. The Company plans to provide 24-hour turn around time
for any site. The Company has recruited a service person in Europe through an
arrangement with a third party to service its customer base.
The Company plans to continue training its customers with its in-house
technical staff. Following the completion of this Offering, the Company
anticipates hiring a staff of technicians to train customers.
PATENTS AND PROPRIETARY RIGHTS
The Company relies on a combination of patent, trade secret, copyright and
trademark laws and contractual restrictions to establish and protect proprietary
rights in its products and to maintain its competitive position.
The Company has filed two patent applications, and is preparing for filing
additional patent applications covering various aspects of its technology. In
addition, IBM has agreed not to assert infringement claims against the Company
with respect to an IBM patent relating to robotic medical technology, to the
extent such technology is used in the Company's products. Furthermore,
significant portions of the ORTHODOC and ROBODOC System software are protected
by copyrights. IBM has granted the Company a royalty-free license for the
underlying software code for the ROBODOC System. In addition, the Company has
registered the marks ROBODOC and ORTHODOC.
The Company's ability to compete successfully may depend, in part, on its
ability to obtain and protect patents, protect trade secrets and operate without
infringing the proprietary rights of others. However, there can be no assurance
that pending or future patent applications will mature into issued patents, or
that the Company will continue to develop its own patentable technologies.
Further, there can be no assurance that any patents that may be issued in the
future will effectively protect the Company's technology or provide a
competitive advantage for the Company's products or will not be challenged,
invalidated, or circumvented in the future. In addition, there can be no
assurance that competitors, many of which have substantially more resources than
the Company and have made substantial investments in competing technologies,
will not obtain patents that will prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the United States or
internationally.
Patent applications in the United States are maintained in secrecy until
patents issue, and patent applications in foreign countries are maintained in
secrecy for a period after filing. Publication of discoveries in the scientific
or patent literature tends to lag behind actual discoveries and the filing of
related patent applications. Patents issued and patent applications filed
relating to medical devices are numerous and there can be no assurance that
current and potential competitors and other third parties have not filed or in
the future will not file applications for, or have not received or in the future
will not receive, patents or obtain additional proprietary rights relating to
products or processes used or proposed to be used by the Company.
The Company's patent counsel has not undertaken any infringement study to
determine if the Company's products and pending patent applications infringe on
other existing patents. The medical device industry has been characterized by
substantial competition and litigation regarding patent and other proprietary
rights. The Company intends to vigorously protect and defend its patents and
other proprietary rights relating to its proprietary technology. Litigation
alleging infringement claims against the Company (with or without merit),
36
<PAGE> 40
or instituted by the Company to enforce patents issued to the Company or to
protect trade secrets or know-how owned by the Company or to determine the
enforceability, scope and validity of the proprietary rights of others, is
costly and time consuming. If any relevant claims of third-party patents are
upheld as valid and enforceable in any litigation or administrative proceedings,
the Company could be prevented from practicing the subject matter claimed in
such patents, or would be required to obtain licenses from the patent owners of
each patent, or to redesign its products or processes to avoid infringement.
There can be no assurance that such licenses would be available or, if
available, would be available on terms acceptable to the Company or that the
Company would be successful in any attempt to redesign its products or processes
to avoid infringement. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
the Company from manufacturing and selling its products, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Legislation is pending in Congress that may limit the ability of medical
device manufacturers in the future to obtain patents on surgical and medical
procedures that are not performed by, or as part of, devices or compositions
which are themselves patentable. While the Company cannot predict whether the
legislation will be enacted, or precisely what limitations will result from the
law if enacted, any limitation or reduction in the patentability of medical and
surgical methods and procedures could have a material adverse effect on the
Company's ability to protect its proprietary methods and procedures.
The Company requires each of its employees, consultants, and advisors to
execute confidentiality and assignment of inventions and proprietary information
agreements in connection with their employment, consulting or advisory
relationships with the Company. These agreements generally provide that all
inventions, ideas and improvements made or conceived by the individual arising
out of his relationship with the Company will be the exclusive property of the
Company. This information is required to be kept confidential and not disclosed
to third parties, except with the consent of the Company or under certain
circumstances. However, there can be no assurance that these agreements will
provide effective protection for the Company's proprietary information in the
event of unauthorized use or disclosure of such information, or that the Company
will have adequate remedies in the event of such breach. Furthermore, no
assurance can be given that competitors will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's proprietary technology, or that the Company can
meaningfully protect its rights in unpatented proprietary technology.
GOVERNMENT REGULATION
The medical devices to be marketed and manufactured by the Company are
subject to extensive regulation by the FDA and, in some instances, by foreign
and state governments. Pursuant to the Federal Food, Drug, and Cosmetic Act of
1976, as amended, and the regulations promulgated thereunder (the "FDC Act"),
the FDA regulates the clinical testing, manufacture, labeling, distribution, and
promotion of medical devices. Noncompliance with applicable requirements can
result in, among other things, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, failure of the
government to grant pre-market clearance or pre-market approval for devices,
withdrawal of marketing clearances or approvals, and criminal prosecution. The
FDA also has the authority to request repair, replacement or refund of the cost
of any device manufactured or distributed by the Company.
In the United States, medical devices are classified into one of three
classes (Class I, II or III), on the basis of the controls deemed necessary by
FDA to reasonably assure their safety and effectiveness. Under FDA regulations,
Class I devices are subject to general controls (e.g., labeling, pre-market
notification and adherence to good manufacturing practices ("GMPs")) and Class
II devices are subject to general and special controls (e.g., performance
standards, postmarket surveillance, patient registries, and FDA guidelines).
Generally, Class III devices are those which must receive pre-market approval by
the FDA to ensure their safety and effectiveness (e.g., life-sustaining,
life-supporting and implantable devices, or new devices which are not
substantially equivalent to legally marketed devices).
Before a new device can be introduced into the market, the manufacturer
must generally obtain FDA permission to market through either a 510(k)
notification or a pre-market approval ("PMA") application. A
37
<PAGE> 41
510(k) clearance will be granted if the submitted information establishes that
the proposed device is "substantially equivalent" to a legally marketed Class I
or II medical device, or to a Class III medical device for which the FDA has not
called for PMAs. The FDA has recently been requiring a more vigorous
demonstration of substantial equivalence than in the past, including in some
cases requiring clinical data. It generally takes from four to twelve months
from the date of submission to obtain a 510(k) clearance, but it may take
longer. The FDA may determine that a proposed device is not substantially
equivalent to a legally marketed device, or that additional information is
needed before a substantial equivalence determination can be made. A "not
substantially equivalent" determination, or a request for additional
information, could delay the market introduction of a new product that falls
into this category and could have a material adverse effect on the Company's
business, financial condition and results of operations. For any of the
Company's products that are cleared through the 510(k) process, modifications or
enhancements that could significantly affect the safety or efficacy of the
device or that constitute a major change to the intended use of the device will
require new 510(k) submissions.
A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed Class I or Class II device, or if it is a
pre-amendment Class III device for which FDA has called for PMAs. A PMA
application must be supported by valid scientific evidence, which typically
includes extensive data, including human clinical trial data to demonstrate the
safety and effectiveness of the device. The PMA application must also contain
the results of all relevant bench tests, laboratory and animal studies, a
complete description of the device and its components, and a detailed
description of the methods, facilities and controls used to manufacture the
device. In addition, the submission must include the proposed labeling,
advertising literature and any required training materials.
Upon receipt of a PMA application, the FDA makes a threshold determination
as to whether the application is sufficiently complete to permit a substantive
review. If the FDA determines that the PMA application is sufficiently complete
to permit a substantive review, the FDA will accept the application for filing.
Once the submission is accepted for filing, the FDA begins an in-depth review of
the PMA. An FDA review of a PMA application generally takes one to two years
from the date the PMA application is accepted for filing, but may take
significantly longer. The review time is often significantly extended by the FDA
asking for more information or clarification of information already provided in
the submission. During the review period, an advisory committee, typically a
panel of clinicians, will likely be convened to review and evaluate the
application and provide recommendations as to whether the device should be
approved. The FDA is not bound by the recommendations of the advisory panel.
Toward the end of the PMA review process, the FDA generally will conduct an
inspection of the manufacturer's facilities to ensure that the facilities are in
compliance with applicable GMP requirements.
If the FDA's evaluations of both the PMA application and the manufacturing
facilities are favorable, FDA will either issue an approval letter or an
approvable letter, which usually contains a number of conditions which must be
met in order to secure final approval of the PMA. When and if those conditions
have been fulfilled to the satisfaction of FDA, the agency will issue a PMA
approval letter, authorizing commercial marketing of the device for certain
indications. If the FDA's evaluation of the PMA application or manufacturing
facilities are not favorable, the FDA will deny approval of the PMA application
or issue a "non-approvable letter." The FDA may also determine that additional
clinical trials are necessary, in which case PMA approval may be delayed for
years while additional clinical trials are conducted and submitted in an
amendment to the PMA. The PMA process can be expensive, uncertain and lengthy
and a number of devices for which FDA approval has been sought by other
companies have never been approved for marketing.
Modifications to a device that is the subject of an approved PMA, its
labeling, or manufacturing process may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the submission of
the same type of information required for an initial PMA, except that the
supplement is generally limited to that information needed to support the
proposed change from the product covered by the original PMA.
There can be no assurance that the Company will be able to obtain necessary
regulatory approvals for current products or products under development on a
timely basis, or at all, or that the Company will have the
38
<PAGE> 42
necessary resources to obtain such approval. Delays in receipt of or failure to
receive such approvals, the loss of previously received approvals, or failure to
comply with existing or future regulatory requirements would have a material
adverse effect on the Company's business, financial condition and results of
operation.
If human clinical trials of a device are required in connection with either
a 510(k) notification or a PMA application, and the device presents a
"significant risk," the sponsor of the trial (usually the manufacturer or the
distributor of the device) is required to file an investigational device ("IDE")
application prior to commencing human clinical trials. The IDE application must
be supported by data, typically including the results of animal and laboratory
testing. If the IDE application is reviewed and approved by the FDA and one or
more appropriate Institutional Review Boards ("IRBs"), human clinical trials may
begin at a specific number of investigational sites with a specific number of
patients, as approved by the FDA. If the device presents a "nonsignificant risk"
to the patient, a sponsor may begin the clinical trial after obtaining approval
for the study by one or more appropriate IRBs, without the need for FDA
approval. Sponsors of clinical trials are permitted to sell those devices
distributed in the course of the study provided such compensation does not
exceed recovery of the costs of manufacture, research, development and handling.
An IDE supplement must be submitted to and approved by FDA before a sponsor or
an investigator may make a change to the investigational plan that may affect
its scientific soundness or the rights, safety or welfare of human subjects.
Any products manufactured or distributed by the Company pursuant to the FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including recordkeeping requirements and reporting of adverse
experiences with the use of the device. Device manufacturers are required to
register their establishments and list their devices with the FDA and with
certain state agencies and are subject to periodic inspections by the FDA and
certain state agencies. The FDC Act requires devices to be manufactured in
accordance with GMP regulations, which impose certain procedural and
documentation requirements upon the Company with respect to manufacturing and
quality assurance activities. The FDA has proposed changes to the GMP
regulations which, if finalized, would likely increase the cost of complying
with GMP requirements.
The Company intends to file a pre-market approval application ("PMA") with
the FDA in the second quarter of 1997 for approval to market the ROBODOC System
in the United States. To date, the Company has conducted a clinical trial in the
United States at three centers with 129 patients enrolled, consisting of 68
patients receiving treatment with the ROBODOC System and 61 control patients not
receiving such treatment. The Company is no longer enrolling patients in this
clinical trial but continues to follow patients who have received treatment.
Although the Company believes that the existing patient base is sufficient to
support a PMA application, there can be no assurance that the FDA will not
require enrollment of more patients in the current study or require a new
clinical study. If the FDA requires the Company to obtain additional clinical
data by enrolling more patients or beginning another study, there would be a
substantial delay in submitting a PMA application and a substantial increase in
the cost. Regardless of whether the FDA requires additional clinical data, there
can be no assurance that the Company will submit a PMA application or receive
FDA approval for the ROBODOC System in a timely fashion, if at all.
After receipt of PMA approval, if any, the Company expects that the FDA
would consider new surgical applications for the ROBODOC System to be new
indications for use, which generally would require FDA approval of a PMA
supplement or, possibly, a new PMA. The FDA is also likely to require additional
approvals before the agency will permit the Company to incorporate new imaging
modalities (such as ultrasound and MRI) or other new technologies in the ROBODOC
System. The FDA likely will require that such additional approvals be supported
by clinical data.
In February 1996, the Company filed a 510(k) submission for the ORTHODOC as
a stand-alone device. The Company is in the process of formulating a response to
correspondence from the FDA in which the agency stated that it could not
determine the ORTHODOC's substantial equivalence to legally marketed predicate
devices without certain additional information. There can be no assurance that
FDA will consider the Company's response adequate or that the ORTHODOC will
receive 510(k) clearance in a timely fashion, or at all.
39
<PAGE> 43
Labeling and promotion activities are subject to scrutiny by FDA and in
certain instances, by the Federal Trade Commission. Current FDA enforcement
policy prohibits marketing approved medical devices for unapproved uses. The
Company and its products are also subject to a variety of state laws and
regulations in those states or localities where its products are or will be
marketed. Any applicable state or local regulations may hinder the Company's
ability to market its products in those states or localities. Manufacturers are
also subject to numerous federal, state and local laws relating to such matters
as safe working conditions, manufacturing practices, environmental protection,
fire hazard control and disposal of hazardous or potentially hazardous
substances. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations now or in the
future or that such laws or regulations will not have a material adverse effect
upon the Company's business, financial condition or results of operations.
Exports of products that have market clearance from FDA do not require FDA
export approval. However, some foreign countries require manufacturers to
provide an FDA certificate for products for export ("CPE") which requires the
device manufacturer to certify to the FDA that the product has been granted
pre-market clearance in the United States and that the manufacturing facilities
appeared to be in compliance with GMPs at the time of the last GMP inspection.
The FDA generally will not issue a CPE if significant outstanding GMP violations
exist.
Exports of products subject to the 510(k) notification requirements, but
not yet cleared to market, are permitted without FDA export approval provided
certain requirements are met. Unapproved products subject to the PMA
requirements must receive prior FDA export approval unless they are approved for
use by any member country of the European Community and certain other countries,
including Australia, Canada, Israel, Japan, New Zealand, Switzerland, South
Africa, in which case they can be exported to any country without prior FDA
approval. To obtain FDA export approval, when it is required, certain
requirements must be met and information must be provided to the FDA, including
documentation demonstrating that the product is approved for import into the
country to which it is to be exported and, in some instances, safety data from
animal or human studies. There can be no assurance that the Company will receive
FDA export approval when such approval is necessary, or that countries to which
the devices are to be exported will approve the devices for import. Failure of
the Company to obtain CPEs, meet FDA's export requirements, or obtain FDA export
approval when required to do so, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The introduction of the Company's products in foreign markets will also
subject the Company to foreign regulatory clearances which may impose additional
substantive costs and burdens. International sales of medical devices are
subject to the regulatory requirements of each country. The regulatory review
process varies from country to country. Many countries also impose product
standards, packaging requirements, labeling requirements and import restrictions
on devices. In addition, each country has its own tariff regulations, duties and
tax requirements. The approval by the FDA and foreign government authorities is
unpredictable and uncertain, and no assurance can be given that the necessary
approvals or clearances for the Company's products will be granted on a timely
basis or at all. Delays in receipt of, or a failure to receive, such approvals
or clearances, or the loss of any previously received approvals or clearances,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has designed its products to meet international electro-medical
standards and has received certification by TUV, a testing body in Germany, as a
notified body for having met the essential requirements of the European
Directives. TUV certification allows the system to be marketed in the European
Community under the CE mark. In addition, the Company had pursued import
authorization from most of the countries of the European Community and the
European Economic Area. The system is already registered for distribution in
Italy, France, The Netherlands and Germany, and the Company has started the
registration process in Spain.
The Company's products are subject to continued and pervasive regulation by
the FDA and foreign and state regulatory authorities. Changes in existing
requirements or adoption of new requirements or policies could adversely affect
the ability of the Company to comply with regulatory requirements. Failure to
comply with regulatory requirements could have a material adverse effect on the
Company's business, financial
40
<PAGE> 44
condition and results of operations. There can be no assurance that the Company
will not be required to incur significant costs to comply with laws and
regulations in the future or that the failure to comply with such laws or
regulations will not have a material adverse effect upon the Company's business,
financial condition or results of operations.
PRODUCT LIABILITY
The manufacture and sale of medical products exposes the Company to the
risk of significant damages from product liability claims. The Company maintains
product liability insurance against product liability claims in the amount of $5
million per occurrence and $5 million in the aggregate. In addition, in
connection with the sale of ROBODOC Systems, the Company enters into
indemnification agreements with its customers pursuant to which the customers
indemnify the Company against any claims against it arising from improper use of
the ROBODOC System. There can be no assurance, however, that the coverage limits
of the Company's insurance policies will be adequate, that the Company will
continue to be able to procure and maintain such insurance coverage, that such
insurance can be maintained at acceptable costs, or that customers will be able
to satisfy indemnification claims. Although the Company has not experienced any
product liability claims to date, a successful claim brought against the Company
in excess of its insurance coverage could have a materially adverse effect on
the Company's business, financial condition, and results of operations.
FACILITIES
The Company's executive offices and production facility, comprising a total
of approximately 15,000 square feet of space, are located in Sacramento,
California. The Company occupies its manufacturing facility premises pursuant to
a lease that expires in 1998 and occupies its office facilities on a
month-to-month tenancy. The total rent expense for these premises is
approximately $12,300 per month. The lease for the Company's manufacturing
facility provides for escalation of rent at the rate of 5% per annum. See Note 8
of notes to consolidated financial statements. The Company is considering
alternative lease arrangements, and believes that alternative space is available
on reasonable terms. While the Company believes that its existing facilities are
adequate for its present operations, it anticipates that within the next two
years it will be required to relocate to a larger facility of from 20,000 to
25,000 square feet to accommodate future growth in manufacturing and research
and development.
EMPLOYEES
As of July 1, 1996, the Company had 24 full time employees, including 13 in
research and development, three in manufacturing, four in regulatory affairs and
quality assurance, and four in administration. The Company also has two
part-time employees. None of the Company's employees is covered by a collective
bargaining agreement. The Company believes its relationship with its employees
is satisfactory.
LITIGATION
The Company is not a party to any legal proceedings.
41
<PAGE> 45
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Ramesh C. Trivedi(1)............. 56 President and Chief Executive Officer and a Director
James C. McGroddy(1)............. 59 Chairman of the Board
Wendy Shelton-Paul............... 44 Vice President of Medical Affairs and a Director
Michael J. Tomczak............... 41 Vice President and Chief Financial Officer
Peter Kazanzides................. 35 Director of Robotics and Software
Brent D. Mittelstadt............. 37 Director of Biomedical Applications
Robert von Osdel................. 51 Director of Regulatory Affairs and Quality Assurance
Stewart Heald.................... 59 Manager of Manufacturing
John N. Kapoor(1)................ 52 Director
Paul A.H. Pankow................. 66 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee of the Board of Directors.
RAMESH C. TRIVEDI, PH.D., has been President, Chief Executive Officer and a
Director of the Company since November 1995, and served as a consultant to the
Company from February 1995 until November 1995. Dr. Trivedi has over 25 years
experience in the healthcare field. Dr. Trivedi founded California Biomedical
Consultants in 1987, an international consulting firm. From 1985 to 1986, Dr.
Trivedi was the President and Chief Executive Officer of DigiRad Corporation, a
medical imaging company. He was the director of business development of Syva
Company and the General Manager of Synaco, Inc., divisions of Syntex
Corporation, from 1978 to 1984. From 1972 to 1978, Dr. Trivedi was the head of
the product management group at the Worthington division of Millipore, and the
head of the chemistry group of the Diagnostic Division of Pfizer, Inc. from 1971
to 1972. Dr. Trivedi received a Ph.D. in Chemical Engineering from Lehigh
University in 1970 and an MBA from Pepperdine University in 1981.
JAMES C. MCGRODDY, PH.D., has been Chairman of the Board of Directors of
the Company since November 1995. He has been employed by IBM since 1965, and
since January 1, 1996 has served as Senior Vice President and Special Advisor to
the Chairman of IBM. From May 1989 to December 31, 1995, Dr. McGroddy was Senior
Vice President of Research of IBM with responsibility for approximately 2,500
technical professionals in IBM's seven research laboratories around the world.
He is a member of IBM's Worldwide Management Council. Dr. McGroddy has been
involved in the development of the Company since its inception in October 1990,
initially as an advisor and since November 1995 as a Director. Dr. McGroddy
received a Ph.D. in physics from the University of Maryland in 1965. Mr.
McGroddy was appointed to the Board of Directors as the designee of IBM pursuant
to a Stockholders' Agreement. See "Certain Transactions -- Initial Transactions
with IBM."
WENDY SHELTON-PAUL, DVM, has been a Director of the Company since February
1993. Dr. Shelton-Paul served as a consultant to the Company from February 1993
to January 1994, when she joined the Company as its Vice President of Medical
Affairs. From February 1995 through November 1995, she served as Acting Chief
Executive Officer of the Company. Until 1993, Dr. Shelton-Paul owned and
operated a private veterinary practice. Dr. Shelton-Paul received a DVM from the
University of California School of Veterinary Medicine in 1981.
MICHAEL J. TOMCZAK has been Vice President and Chief Financial Officer of
the Company since October 1991. From September 1988 to October 1991, Mr. Tomczak
served as a Senior Manager of Ernst & Young LLP, directing its Entrepreneurial
Services Group in the Sacramento office. From September 1985 to September 1988,
Mr. Tomczak served as Vice President of Finance for Valley Industries, a leading
manufacturer of automotive products. Mr. Tomczak became a certified public
accountant in Michigan in 1981 and in California in 1989. He received a B.A.
from Western Michigan University in 1979.
42
<PAGE> 46
PETER KAZANZIDES, PH.D., a co-founder of the Company, has been an employee
of the Company since November 1990 and Director of Robotics and Software of the
Company since December 1995. He received Sc.B., Sc.M., and Ph.D. degrees in
electrical engineering from Brown University in 1983, 1985, and 1988,
respectively. His dissertation focused on force control and multiprocessor
systems for robotics. He performed post-doctoral research in surgical robotics
in March 1989 at the IBM T.J. Watson Research Center.
BRENT D. MITTELSTADT, a co-founder of the Company, has been an employee of
the Company since November 1990 and Director of Surgical Applications of the
Company since December 1995. He began research in surgical robotics in 1986 as
an IBM research fellow at the IBM T.J. Watson Research Center and is responsible
for much of the early development of CT guided robotic systems for total hip
replacement surgery. Mr. Mittelstadt received a B.S. in Biology from the
University of Arizona in 1984.
ROBERT VAN OSDEL, R.A.C., has been Director of Regulatory Affairs and
Quality Assurance of the Company since April 1993. He has been involved in the
medical regulatory field since 1968. From March 1990 to April 1993, Mr. van
Osdel was Vice President Regulatory Affairs and Quality Assurance of Imagyn
Medical, Inc., a developer and manufacturer of OB/GYN devices. Mr. van Osdel has
been responsible for establishing quality assurance programs, clinical studies
and regulatory strategies for several new ventures with emerging technologies.
Mr. van Osdel received a Regulatory Affairs Certificate from the Regulatory
Affairs Professional Society in July 1991 and a B.S. in Zoology from California
State University at Long Beach.
STEWART HEALD has been Manager of Manufacturing of the Company since June
1996. Mr. Heald has over thirty years experience in manufacturing products. From
September 1993 to June 1996, Mr. Heald served as Operations Manager at Advanced
Power Systems. From October 1986 to August 1993, Mr. Heald served as Shop
Operation Manager at Resonex, a manufacturer of magnetic resonance imaging
systems. Mr. Heald received a B.S. in Industrial Management from California
State University of San Francisco in 1962.
JOHN N. KAPOOR, PH.D., has been a Director of the Company since December
1995. Dr. Kapoor founded EJ Financial Enterprises, Inc., a healthcare consulting
and investment company, in March 1990, of which he is currently President. Dr.
Kapoor is presently Chairman of Option Care, Inc., a public outpatient and home
infusion healthcare company. Dr. Kapoor also is the Chairman of Unimed
Pharmaceuticals, Inc., a specialty pharmaceutical company; Akorn, Inc., a
manufacturer and distributor of ophthalmic products, of which Dr. Kapoor also is
the Chief Executive Officer; and NeoPharm, Inc., a cancer drug research and
development company. Dr. Kapoor received a Ph.D. in medicinal chemistry from
State University of New York in 1970.
PAUL A.H. PANKOW has been a Director of the Company since May 1995. Since
March, 1995, Mr. Pankow has been President of PAP Consulting, a business and
technical consulting firm. From September 1959 to February 1995, Mr. Pankow held
various senior management positions with 3M Corporation, most recently as a Vice
President, and as Chief Executive Officer of the Imaging Systems Division. He
currently serves as chairman of the Optoelectronic Industry Development
Association and is a member of several other industry boards. Mr. Pankow
received a B.S. in mechanical engineering and business administration from the
University of Minnesota in 1956.
All directors hold office until the annual meeting of stockholders of the
Company following their election or until their successors are duly elected and
qualified. Officers are appointed by the Board of Directors and serve at its
discretion.
43
<PAGE> 47
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each other executive officer
of the Company whose salary and bonus for the year ended December 31, 1995
exceeded $100,000 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
---------------------------------- COMPENSATION
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS
- ------------------------------------------- ----- -------- ------------ --------------
<S> <C> <C> <C> <C>
Ramesh C. Trivedi.......................... 1995 $ 34,014(1) -- 0(2)
Chief Executive Officer and President
Wendy Shelton-Paul......................... 1995 $120,000(3) -- 13,161(4)
Vice President of Medical Affairs
Michael J. Tomczak......................... 1995 $104,000(5) -- 8,555(4)
Vice President and Chief Financial
Officer
</TABLE>
- ---------------
(1) Includes compensation award to, earned by or paid to Dr. Trivedi as Chief
Executive Officer and President of the Company from November 15, 1995, when
he assumed these offices through the end of the year. Does not include fees
of $256,175 for services rendered to the Company from February 1995 until
November 15, 1995.
(2) Although Dr. Trivedi received no options during fiscal 1995, he was granted
options to purchase 308,552 shares of Common Stock, at an exercise price of
$.08 per share, on February 16, 1996.
(3) Dr. Shelton-Paul served as acting Chief Executive Officer of the Company
from February 1995 through November 15, 1995, and has been Vice President of
Medical Affairs of the Company since January 1994. Dr. Shelton-Paul receives
a salary of $120,000 per annum.
(4) The options covering these shares of Common Stock were repriced on February
16, 1996. See the table captioned "Repricing of Options" under
"Management -- Stock Options."
(5) Mr. Tomczak receives a salary of $112,000 per annum.
EMPLOYMENT AGREEMENTS
On December 8, 1995, the Company entered into an employment agreement with
Dr. Ramesh C. Trivedi, the Company's Chief Executive Officer and President. The
agreement is for no specified term and provides for the at-will employment of
Dr. Trivedi. Pursuant to the employment agreement, Dr. Trivedi is to receive an
annual salary of $264,000 ($22,000 per month), plus out-of-pocket expenses. Dr.
Trivedi's employment agreement provides for the grant of options to purchase
308,552 shares of the Company's Common Stock, at an exercise price of $0.08 per
share, which were granted in February 1996. Upon termination by the Company,
other than for cause (as defined in the employment agreement), Dr. Trivedi is
entitled to receive his monthly salary for a period of nine months following the
date of termination and consulting fees (at his then prevailing rate) for three
months of consulting services to be rendered during the twelve months following
such termination.
None of the other Named Executive Officers has an employment agreement with
the Company.
44
<PAGE> 48
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1991 Stock Option Plan (which was terminated in
December 1995) to Dr. Shelton-Paul and Mr. Tomczak during the fiscal year ended
December 31, 1995. See "Management -- Stock Option Plan" and Note 6 to notes to
consolidated financial statements.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED FISCAL YEAR SHARE DATE
- ------------------------------------------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Dr. Ramesh C. Trivedi................. --(1) -- -- --
Dr. Wendy Shelton-Paul................ 13,161(2) 41.3% $ 5.01 4/30/05
Michael J. Tomczak.................... 8,555(2) 26.9% $ 5.01 4/30/05
</TABLE>
- ---------------
(1) Although Dr. Trivedi received no options during fiscal 1995, he was granted
options to purchase 308,552 shares of Common Stock, at an exercise price of
$.08 per share, on February 16, 1996 pursuant to the Company's 1995 Stock
Option Plan.
The following table summarizes for each of the Named Executive Officers the
total number of unexercised options, if any, held at December 31, 1995, and the
aggregate dollar value of in-the-money, unexercised options, held at December
31, 1995, in each case, after giving effect to the replacement in February 1996
of previously held options. The value of the unexercised, in-the-money options
at December 31, 1995, is the difference between their exercise or base price and
the value of the underlying Common Stock on December 31, 1995, at an assumed
price of $6.00 per share.
AGGREGATED OPTION EXERCISES -- JANUARY 1, 1995 -
DECEMBER 31, 1995 AND DECEMBER 31, 1995 OPTION VALUES
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SHARES ACQUIRED NUMBER OF SECURITIES VALUE OF UNEXERCISED
UPON EXERCISE OF UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS OPTION/SARS AT OPTION/SARS AT
DURING FISCAL 1995(1) DECEMBER 31, 1995(1) DECEMBER 31, 1995(1)
VALUE
NAME NUMBER REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Dr. Ramesh C. Trivedi................ -- -- -- -- -- --
Dr. Wendy Shelton-Paul............... -- -- 5,265 7,846 -- --
Michael J. Tomczak................... -- -- 9,933 3,319 -- --
</TABLE>
- ---------------
(1) Gives effect to the cancellation of options granted pursuant to the
Company's 1991 Stock Option Plan and the granting of replacement options in
February 1996 pursuant to the Company's 1995 Stock Option Plan. See
"Management -- Stock Option Plan" and "Certain Transactions."
REPRICING OF OPTIONS/SARS
<TABLE>
<CAPTION>
MARKET EXERCISE LENGTH OF
NUMBER OF PRICE OF PRICE OF ORIGINAL
SECURITIES STOCK AT STOCK AT OPTION TERM
UNDERLYING TIME OF TIME OF REMAINING
REPRICE/ OPTIONS/SARS REPRICING REPRICING NEW AT DATE OF
REGRANT REPRICED OR OR OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
- ---------------------------- --------- ----------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Wendy Shelton-Paul.......... 2/16/96 65,805 $.912 $5.01 $.08 9.25 years
Michael J. Tomczak.......... 2/16/96 42,774 $.912 $5.01 $.08 9.25 years
Michael J. Tomczak.......... 2/16/96 6,581 $.912 $8.05 $.08 8 years
Michael J. Tomczak.......... 2/16/96 12,957 $.912 $8.05 $.08 6.5 years
Michael J. Tomczak.......... 2/16/96 3,948 $.912 $3.42 $.08 6 years
</TABLE>
The Compensation Committee of the Board of Directors approved the
replacement of these options to Dr. Shelton-Paul and Mr. Tomczak, and options to
other employees of the Company, at an exercise price of $.08 per share, having
concluded that the principal purpose of the Company's stock option program
(i.e., to
45
<PAGE> 49
provide an equity incentive to employees to remain in the employment of the
Company and to work diligently in its best interests) would not be achieved for
those employees holding options exercisable above the market price of the Common
Stock. In connection with the granting of these replacement options
participating option holders agreed not to exercise any option for a period of
six months from the date of such regrant.
STOCK OPTION PLAN
On December 13, 1995, the Board of Directors adopted, and stockholders
approved, the 1995 Stock Option Plan (the "Plan"). The Plan is to be
administered by the Board of Directors or a committee thereof. The Plan is
currently administered by the Compensation Committee of the Board of Directors.
Pursuant to the Plan, as initially adopted, stock purchase rights and/or options
to acquire an aggregate of 1,059,019 shares of Common Stock may be granted to
directors, employees (including officers) and consultants of the Company ("Plan
participants").
As of June 30, 1996, there were outstanding options to purchase an
aggregate of 871,648 shares granted pursuant to the Plan and options to purchase
an aggregate of 20,765 shares granted pursuant to the Company's 1991 Stock
Option Plan, which was terminated in December 1995. At June 30, 1996, options to
purchase an aggregate 187,301 shares of Common Stock were available for grant
under the Plan. No stock purchase rights have been granted pursuant to the Plan.
See Note 6 to notes to Consolidated Financial Statements.
The Plan authorizes the issuance of incentive stock options ("ISOs"), as
defined in Section 422A of the Internal Revenue Code of 1986, non-qualified
stock options ("NQSOs", and together with ISOs, "options") and stock purchase
rights ("SPRs"). Consultants and directors who are not also employees of the
Company are eligible for grants of only NQSOs and/or SPRs. The exercise price of
each ISO may not be less than 100% of the fair market value of the Common Stock
at the time of grant, except that in the case of a grant to an employee who owns
10% or more of the outstanding stock of the Company or a subsidiary or parent of
the Company (a "10% Stockholder"), the exercise price may not be less than 110%
of the fair market value on the date of grant. The aggregate fair market value
of the shares covered by ISOs granted under the Plan that become exercisable by
a Plan participant for the first time in any calendar year is subject to a
$100,000 limitation. The exercise price of each NQSO is determined by the Board,
or committee thereof, in its discretion, provided that the exercise price of a
NQSO is not less than 85% of the fair market value of the Common Stock on the
date of grant. The Board, or Committee thereof, shall determine the term of the
Options and SPRs; provided, however, that in no event may an Option have a term
of more than ten (10) years (no more than five (5) years with respect to ISOs
granted to a 10% Stockholder). Any Option which is granted shall be vested and
exercisable at such time as determined by the Board, or committee thereof, but
in no event at a rate less than 20% per year. A recipient of an SPR must
exercise such right within the period, not to exceed thirty (30) days from the
date of grant, determined by the Board, or committee thereof. The Board, or
committee thereof, may reserve to the Company upon the grant of an SPR, an
option to repurchase upon a plan participant's termination of employment, any
stock acquired upon his exercise of the SPR at the SPR exercise price. Any such
repurchase option shall lapse at a rate of not less than 20% per year commencing
on the date of the plan participant's purchase. Options and SPRs granted under
the Plan are not transferable, other than by will or by the laws of descent and
distribution. No stock options or SPRs may be granted under the Plan after
December 12, 2005.
Subject to the provisions of the Plan, the Board, or committee thereof, has
the authority to determine the individuals to whom the stock options or SPRs are
to be granted, the number of shares to be covered by each option or SPR, the
exercise price, the type of option, the exercise period, the restrictions, if
any, on the exercise of the option or SPR, the terms for the payment of the
exercise price and other terms and conditions. Payments by holders of options or
SPRs upon exercise of an option may be made (as determined by the Board or a
committee thereof) in cash or such other form of payment as may be permitted
under the Plan, including without limitation, by promissory note or by delivery
of shares of Common Stock.
In February 1996, the Compensation Committee of the Board of Directors
authorized the grant of options to purchase an aggregate of 236,363 shares of
Common Stock, at an exercise price of $0.08 per share, to certain officers,
directors and employees of the Company pursuant to the Company's 1995 Stock
Option
46
<PAGE> 50
Plan, including options to purchase 65,805 shares granted to Dr. Wendy
Shelton-Paul, Vice President of Medical Affairs of the Company, and options to
purchase 66,260 shares granted to Michael J. Tomczak, Vice President and Chief
Financial Officer of the Company. These options were issued in replacement of
options previously granted pursuant to the Company's 1991 Stock Option Plan,
with exercise prices ranging from $3.42 to $8.05 per share, surrendered for
cancellation.
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND LIMITATION ON DIRECTORS' LIABILITY
Article VI of the Company's by-laws provides that a director or officer
shall be indemnified against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement (provided such settlement is approved in
advance by the Company) in connection with certain actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation--a "derivative action") if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. A similar standard of care is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
an action, except that no person who has been adjudged to be liable to the
Company shall be entitled to indemnification unless a court determines that
despite such adjudication of liability, but in view of all of the circumstances
of the case, the person seeking indemnification is fairly and reasonably
entitled to the indemnified for such expenses as the court deems proper.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Article 11 of the Company's certificate of incorporation eliminates the
personal liability of the Company's directors to the Company or its stockholders
for monetary damages for breach of their fiduciary duties as a director to the
fullest extent provided by Delaware law. Section 102(b)(7) of the Delaware
General Corporation Law ("DGCL") provides for the elimination of such personal
liability, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which
the director derived any improper personal benefit.
47
<PAGE> 51
CERTAIN TRANSACTIONS
TRANSACTIONS WITH FOUNDERS
In connection with the formation of the Company, the Company sold 37,855
shares, 20,384 shares, 5,298 shares and 2,271 shares to Howard A. Paul, William
Bargar, Brent Mittelstadt and Peter Kazanzides (collectively the "Founders"),
respectively, for a purchase price of $0.08 per share. Mr. Paul served as the
Chief Executive Officer and President of the Company from inception until his
death in February 1993. Messrs. Kazanzides and Mittelstadt are key employees of
the Company, and Mr. Bargar serves as a consultant to the Company. See
"Management."
INITIAL TRANSACTIONS WITH IBM
In connection with the formation of the Company and pursuant to a Loan and
Warrant Purchase Agreement dated as of February 6, 1991 (the "IBM Loan
Agreement"), the Company granted IBM a warrant to purchase 65,805 shares of
Common Stock, at an exercise price of $0.08 per share, originally exercisable
until February 6, 1998. The expiration date of the warrant was extended until
December 31, 2000 in connection with the recapitalization of the Company in
December 1995, described below. In addition, pursuant to the IBM Loan Agreement,
during 1991 the Company borrowed an aggregate of $3,000,000 from IBM in
consideration for the Company's 9.25% Convertible Subordinated Loan Note in the
principal amount of $3,000,000 (the "IBM Note"). The IBM Note was convertible
into shares of Series A Preferred Stock at a conversion price of $34.19 per
share.
In connection with the IBM loan transaction, the Company entered into a
Stockholders' Agreement with the Founders and IBM dated February 6, 1991 (the
"Stockholders' Agreement"). Pursuant to the Stockholders' Agreement, IBM has the
right to nominate a member of the Board of Directors of the Company (and the
stockholders agreed to vote their shares for such nominee) and to have a
non-voting observer attend meetings of the Board of Directors. In addition, the
Stockholders' Agreement grants IBM a right of first refusal with respect to
proposed transfers of Founder's shares to a "Competitor" (as defined). The
Stockholders' Agreement also restricts transfers of Founder's shares other than
to the Company, IBM or to a third party approved by IBM in writing. The
foregoing restriction will terminate on February 6, 1998, or earlier upon
consummation of (i) an initial underwritten firm commitment public offering of
the Common Stock resulting in gross proceeds of at least $15 million, or (ii)
the acquisition of the Company, whether by merger, acquisition of all or
substantially all of its assets, or acquisition of substantially all of its
voting securities.
Pursuant to a License Agreement, dated February 6, 1991, IBM granted the
Company a non-exclusive, worldwide royalty-free license to the underlying
software code for the ROBODOC System.
SERIES B PREFERRED STOCK FINANCING
Pursuant to a Stock Purchase Agreement dated as of April 10, 1992, Sutter
Health and The John N. Kapoor Trust (the "Kapoor Trust") each purchased 29,679
shares of the Company's Series B Preferred Stock, or a total of 59,358 shares,
for a purchase price of $4,000,370 ($67.39 per share). The Series B Preferred
Stock was convertible into shares of Common Stock at a conversion price of
$67.39 per share.
SERIES C PREFERRED STOCK FINANCING
Pursuant to a Stock Purchase Agreement dated as of November 13, 1992,
Sutter Health and Keystone Financial Corporation ("Keystone") purchased 87,243
and 12,464 shares, respectively, for a total of 99,707 shares, of the Company's
Series C Preferred Stock, for a purchase price of $7,000,002 and $1,000,000,
respectively ($80.24 per share). The Series C Preferred Stock was convertible
into shares of Common Stock at a conversion price of $80.24 per share.
DECEMBER 1995 RECAPITALIZATION
Pursuant to a Series D Preferred Stock and Warrant Purchase Agreement (the
"1995 Stock Purchase Agreement") dated as of December 21, 1995, the Company
effected the recapitalization described below.
The Company effected a one-for-five reverse stock split of its capital
stock, and all outstanding shares of Series B and Series C Preferred Stock were
converted into shares of Common Stock. Upon conversion of the Series B Preferred
Stock, the Company issued 29,679 shares of Common Stock to each of Sutter Health
and
48
<PAGE> 52
the Kapoor Trust, or a total of 59,358 shares. In addition, the Company issued
8,717 shares of Common Stock to each of Sutter Health and the Kapoor Trust, or a
total of 17,434 shares, in exchange for the cancellation of all accumulated
dividends on the Series B Preferred Stock. Upon conversion of the Series C
Preferred Stock, the Company issued 87,243 shares of Common Stock to Sutter
Health and 12,464 shares of Common Stock to Keystone, or a total of 99,707
shares. In addition, the Company issued 18,999 shares of Common Stock to Sutter
Health and 3,086 shares of Common Stock to Keystone, or a total of 22,085
shares, in exchange for the cancellation of all accumulated dividends on the
Series C Preferred Stock.
As part of the recapitalization, IBM received a warrant to purchase 123,550
shares of Common Stock, at an exercise price of $0.02 per share, which expires
on December 31, 2005, in exchange for the cancellation of the IBM Note in the
principal amount of $3,000,000 and accrued interest thereon of $1,224,373. In
addition, the expiration date of the warrant issued to IBM in connection with
the formation of the Company was extended until December 31, 2000.
Pursuant to the 1995 Stock Purchase Agreement, EJ Financial Investments V,
L.P. ("EJ Financial") purchased 674,921 shares of Series D Preferred Stock for
an aggregate purchase price of $666,667 ($0.99 per share), and IBM purchased a
warrant to purchase 1,349,842 shares of Series D Preferred Stock, exercisable at
any time prior to December 31, 2005, at an exercise price of $0.02 per share,
for an aggregate purchase price of $1,333,333 ($0.99 per warrant). In addition,
EJ received an option to purchase an additional 337,460 shares of Series D
Preferred Stock, on the same terms it purchased the Series D Preferred Stock and
IBM received an option to purchase warrants to purchase an additional 674,920
shares of Series D Preferred Stock, on the same terms it purchased the Series D
Warrants (the options granted to EJ Financial and IBM being hereinafter referred
to collectively as the "Standby Options"). On February 19, 1996, each of EJ
Financial and IBM exercised its Standby Option, as required by the terms
thereof, since the Company was unable to obtain alternative financing on
substantially the same terms as the Standby Options prior to the expiration
thereof.
As part of the recapitalization of the Company, Sutter Health, Sutter
Health Venture Partners and Keystone received warrants to purchase 380,584
shares, 11,585 shares and 42,158 shares, of Common Stock, respectively, at an
exercise price of $0.76 per share, in consideration for their consent to the
terms of the recapitalization, including the sale of the Series D Preferred
Stock. Sutter Health, Sutter Health Venture Partners and Keystone received
additional warrants to purchase 118,478 shares, 3,607 shares and 13,125 shares,
respectively, of Common Stock, at an exercise price of $0.76 per share, in
connection with the exercise by EJ Financial and IBM of the Standby Options.
These warrants will become exercisable for a period of 30 days following notice
of the scheduled closing date of this Offering, which notice must be given not
less than 30 days prior to such scheduled closing date, and may not be exercised
thereafter.
In connection with the recapitalization of the Company, the Company granted
stockholders who did not purchase Series D Preferred Stock or warrants to
purchase Series D Preferred Stock rights to purchase Series D Preferred Stock on
the same terms and conditions as those shares purchased under the 1995 Stock
Purchase Agreement, which rights expired unexercised on March 5, 1996.
REGRANT OF LOWER-EXERCISE PRICE OPTIONS TO REPLACE PRIOR GRANTS
In February 1996, the Compensation Committee of the Board of Directors
authorized the grant of options to purchase an aggregate of 236,363 shares of
Common Stock, at an exercise price of $0.08 per share, to certain officers,
directors, and employees of the Company pursuant to the Company's 1995 Stock
Option Plan, including options to purchase 65,805 shares granted to Dr. Wendy
Shelton-Paul, Vice President of Medical Affairs of the Company, and options to
purchase 66,260 shares granted to Michael J. Tomczak, Vice President and Chief
Financial Officer of the Company. These options were issued in replacement of
options previously granted pursuant to the Company's 1991 Stock Option Plan,
with exercise prices ranging from $3.42 to $8.05 per share, surrendered for
cancellation. See the table captioned "Repricing of Options" under
"Management -- Stock Options."
49
<PAGE> 53
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock immediately prior to and
after the Offering by (i) each stockholder known by the Company to be a
beneficial owner of more than five percent of the outstanding Common Stock, (ii)
each director of the Company and each executive officer listed in the
Compensation Table under the caption "Management -- Summary Compensation Table"
and (iii) all directors and officers as a group. The information set forth in
the table gives effect to the automatic conversion of the outstanding shares of
Series D Preferred Stock into 1,012,381 shares of Common Stock upon consummation
of the sale of 1,500,000 shares of Common Stock and 1,500,000 Warrants in the
Offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT AND COMMON STOCK
NATURE BENEFICIALLY OWNED(1)
OF -----------------------------
BENEFICIAL BEFORE AFTER
NAME OWNERSHIP(1) OFFERING(2) OFFERING(3)
- ----------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
International Business Machines Corporation.... 2,214,117(5) 63.39%(6) 44.34%
Old Orchard Road
Armonk, NY 10504
EJ Financial Investments V, L.P................ 1,012,381(7) 79.14% 36.43%
225 East Deer Path Road
Suite 250
Lake Forest, IL 60045
Sutter Health and Sutter Health Venture
Partners, L.P................................ 658,891(8) 36.74%(9) 20.01%
One Capitol Mall
Sacramento, CA 95814
Keystone Financial Corporation................. 70,832(10) 5.31%(11) 2.50%
5230 Centre Avenue
Pittsburgh, PA 15329
Ramesh Trivedi(4).............................. 124,793(12) 8.89%(13) 4.30%
John N. Kapoor................................. 1,012,381(14) 79.14% 36.43%
James J. McGroddy.............................. -- -- --
Paul A.H. Pankow............................... -- -- --
Wendy Shelton-Paul(4).......................... 69,661(15) 5.31%(16) 2.48%
Mike Tomczak(4)................................ 56,291(17) 4.22%(18) 1.99%
All directors and officers as a group (4
persons)..................................... 1,263,126(19) 84.66%(20) 42.22%
</TABLE>
- ---------------
(1) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated, subject to community property
laws, where applicable. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named above on
July 1, 1996, any security which such person or group of persons has the
right to acquire within 60 days after such date is deemed to be outstanding
for the purpose of computing the percentage ownership for such person or
persons, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
(2) Except as otherwise stated, calculated on the basis of 1,279,177 shares of
Common Stock issued and outstanding.
(3) Gives effect to the issuance of the Shares in the Offering.
(4) Address is c/o the Company, 829 West Stadium Lane, Sacramento, California
95834.
(5) Includes warrants to purchase 2,024,762 shares of Common Stock at an
exercise price of $0.02 per share exercisable until December 31, 2005,
warrants to purchase 65,805 shares of Common Stock at an
50
<PAGE> 54
exercise price of $0.08 per share exercisable until December 31, 2000, and
warrants to purchase 123,550 shares of Common Stock at an exercise price of
$0.02 per share exercisable until December 31, 2005, all of which warrants
are presently exercisable.
(6) Calculated on the basis of 3,493,294 shares of Common Stock issued and
outstanding.
(7) Represents shares of Common Stock issuable upon the automatic conversion of
the Series D Preferred Stock at the closing of this Offering.
(8) Includes 140,364 shares of Common Stock owned by Sutter Health and 499,062
shares issuable upon exercise of warrants exercisable by Sutter Health
until August 28, 1996, at an exercise price of $0.76 per share, 4,273
shares of Common Stock beneficially owned by Sutter Health Venture Partners
I, L.P. ("Sutter Partners"), an affiliate of Sutter Health, and 15,192
shares of Common Stock issuable upon the exercise by Sutter Partners of
warrants exercisable until August 28, 1996, at an exercise of $0.76 per
share.
(9) Calculated on the basis of 1,793,431 shares of Common Stock issued and
outstanding.
(10) Includes warrants to purchase 55,283 shares of Common Stock exercisable
until August 28, 1996, at an exercise price of $0.76.
(11) Calculated on the basis of 1,334,460 shares of Common Stock issued and
outstanding.
(12) Represents shares issuable upon the exercise of exercisable options within
60 days, at an exercise price of $0.08 per share.
(13) Calculated on the basis of 1,403,970 shares of Common Stock issued and
outstanding.
(14) Represents shares of Common Stock owned by EJ Financial Investments V,
L.P., a limited partnership of which Mr. Kapoor is the managing general
partner. Mr. Kapoor disclaims beneficial ownership of such shares.
(15) Includes 31,806 shares issuable upon exercise of stock options exercisable
within 60 days.
(16) Calculated based upon 1,310,983 shares of Common Stock issued and
outstanding.
(17) Represents shares issuable upon exercise of stock options exercisable
within 60 days.
(18) Calculated based upon 1,335,468 shares of Common Stock issued and
outstanding.
(19) Includes 212,890 shares of Common Stock issuable upon exercise of options
exercisable within 60 days.
(20) Calculated based upon 1,492,067 shares of Common Stock issued and
outstanding.
51
<PAGE> 55
DESCRIPTION OF SECURITIES
On the Effective Date, the authorized capital stock of the Company will
consist of 15,000,000 shares of Common Stock, $0.01 par value per share,
5,750,000 shares of Series D Preferred Stock, $0.01 par value per share, and
1,000,000 shares of "blank check" Preferred Stock, par value $0.01 per share. On
the Effective Date, 266,796 shares of Common Stock will be issued and
outstanding and 1,012,381 shares of Series D Preferred Stock will be issued and
outstanding. All of the issued outstanding shares of Series D Preferred Stock
will be automatically converted into shares of Common Stock at the Closing of
this Offering.
The following are brief descriptions of the securities offered hereby and
other securities of the Company. The rights of the holders of shares of the
Company's capital stock are established by the Company's certificate of
incorporation, as amended, the Company's by-laws and Delaware law. The following
statements do not purport to be complete or give full effect to statutory or
common law, and are subject in all respects to the applicable provisions of the
certificate of incorporation, by-laws and state law.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share, to receive
dividends when, as and if declared by the Board of Directors and to share
ratably in the assets of the Company legally available for distribution to
holders of Common Stock in the event of the liquidation, dissolution or winding
up of the Company. Holders of the Common Stock do not have subscription,
redemption, conversion or preemptive rights.
Each share of Common Stock is entitled to one vote on any matter submitted
to the holders, except that holders are entitled to cumulate their votes in the
election of Directors. In other words, a stockholder may give one nominee a
number of votes equal to the number of Directors to be elected, multiplied by
the number of votes to which the stockholder's shares are normally entitled, or
he may distribute his votes among as many candidates as he sees fit. The
candidates receiving the highest number of votes shall be elected. If a
stockholder gives notice at the meeting prior to the voting, of such
stockholder's intention to cumulate his votes, all stockholders may cumulate
their votes for candidates in nomination. On all other matters which may
properly come before the meeting, each share has one vote. The Board is
empowered to fill any vacancies on the board created by the resignation of
Directors. Except as otherwise required by the DGCL, all stockholder action
(other than the election of the Directors, who are elected by a plurality vote)
is subject to approval by a majority of the shares of Common Stock present at a
stockholders' meeting at which a quorum (a majority of the issued and
outstanding shares of the Common Stock) is present in person or by proxy, or by
written consent pursuant to Delaware law.
All shares of Common Stock outstanding are fully paid and non-assessable,
and the shares of Common Stock offered hereby and shares of Common Stock
issuable upon exercise of the Warrants, when issued upon payment of the purchase
price set forth on the cover page of this Prospectus or payment of the exercise
price specified in the Warrants, as the case may be, will be fully paid and
non-assessable.
The Board of Directors is authorized to issue additional shares of Common
Stock within the limits authorized by the Company's certificate of
incorporation, as amended, without further stockholder action. The Company has
agreed with the Underwriter that it will not issue any securities, including but
not limited to shares of Common Stock, for a period of 24 months following the
Effective Date, except as disclosed in or contemplated by this Prospectus,
without the prior written consent of the Underwriter.
WARRANTS
The Warrants offered hereby will be issued in registered form under a
Warrant Agreement (the "Warrant Agreement") between the Company and ,
as Warrant Agent (the "Warrant Agent"). The following summary of the provisions
of the Warrants is qualified in its entirety by reference to the Warrant
Agreement, a copy of which is filed as an exhibit to the registration statement
of which this Prospectus forms a part.
Each Warrant will be separately transferable and will entitle the
registered holder thereof to purchase one share of Common Stock at $7.00 per
share (subject to adjustment as described below) for a period of four
52
<PAGE> 56
years commencing , 1997 [12 months after the Effective Date] and
ending , 2001 (five years after the Effective Date). The exercise
price and the number of shares of Common Stock issuable upon the exercise of
each Warrant are subject to adjustment in the event of a stock split, stock
dividend, recapitalization, merger, consolidation or certain other events. A
holder of Warrants may exercise such Warrants by surrendering the certificate
evidencing such Warrants to the Warrant Agent, together with the form of
election to purchase on the reverse side of such certificate attached thereto
properly completed and executed and the payment of the exercise price and any
transfer tax. If less than all of the Warrants evidenced by a Warrant
certificate are exercised, a new certificate will be issued for the remaining
number of Warrants.
The Company has authorized and reserved for issuance a number of shares of
Common Stock sufficient to provide for the exercise of the Warrants. When
issued, each share of Common Stock will be fully paid and nonassessable. Holders
of Warrants will not have any voting or other rights as stockholders of the
Company unless and until Warrants are exercised and shares issued pursuant
thereto.
The Warrants may be redeemed by the Company, at a price of $.10 per
Warrant, upon not less than 30 days prior written notice at any time commencing
twelve months after the Effective Date (or earlier with the prior written
consent of the Underwriter), provided the closing bid quotation of the Common
Stock as reported on The Nasdaq SmallCap Market (or if the Common Stock is not
quoted thereon, the closing sale price of the Common Stock on the Nasdaq
National Market or other principal securities exchange upon which the Common
Stock is then quoted or listed, or such other reporting system that provides
closing sale prices for the Common Stock), has been at least 150% of the then
exercise price of the Warrants (initially, $10.50 per share), for a period of
twenty (20) consecutive trading days ending on the third day prior to the date
upon which the notice of redemption is given. The Warrants will be exercisable
until the close of business on the day immediately preceding the date fixed for
the redemption of the Warrants in the notice of redemption.
Commencing one year after the Effective Date and until the expiration of
the exercise period of the Warrants, the Company will pay the Underwriter a fee
of 5% of the exercise price of each Warrant exercised, provided (i) the market
price of the Common Stock on the date the Warrant was exercised was greater than
the Warrant exercise price on that date, (ii) the exercise price of the Warrant
was solicited by a member of the NASD, (iii) the Warrant was not held in a
discretionary account, (iv) the disclosure of compensation arrangements was made
both at the time of the Offering and at the time of exercise of the Warrant, (v)
the solicitation of the exercise of the Warrant was not a violation of Rule
10b-6 under the Exchange Act and (vi) the Underwriter is designated in writing
as the soliciting NASD member. Unless granted an exemption from Rule 10b-6 under
the Exchange Act by the Commission, the Underwriter and any other soliciting
broker/dealers will be prohibited from engaging in any market making activities
or solicited brokerage activities with regard to the Company's securities during
the periods prescribed by exemption (xi) to Rule 10b-6 before the solicitation
of the exercise of any Warrant until the later of the termination of such
solicitation activity or the termination of any right the Underwriter and any
other soliciting broker/dealer may have to receive a fee for the solicitation of
the exercise of the Warrants.
For a holder of a Warrant to exercise the Warrant, there must be a current
registration statement on file with the Securities and Exchange Commission and
various state securities commissions. The Company will be required to file
post-effective amendments to the registration statement when events require such
amendments and to take appropriate action under state securities laws. While it
is the Company's intention to file post-effective amendments when necessary and
to take appropriate action under state securities laws, there can be no
assurance that the Company will file all post-effective amendments required to
maintain the effectiveness of the registration statement or that the Company
will take all appropriate action under state securities laws. If the
registration statement is not kept current for any reason, the Warrants will not
be exercisable, and holders thereof may be deprived of value.
53
<PAGE> 57
OPTIONS AND WARRANTS
Options. On the Effective Date, there will be outstanding options to
purchase an aggregate of 913,478 shares of Common Stock, at exercise prices
ranging from $0.08 to $8.05, which expire at various dates from February 4, 2002
to July 8, 2006. See "Management -- Stock Option Plan."
Warrants. On the Effective Date, there will be outstanding warrants to
purchase an aggregate of 2,214,117 shares of Common Stock, including the Series
D Warrants, at exercise prices ranging from $0.02 to $0.76, which expire at
various dates through December 31, 2005, but not including warrants to purchase
569,537 shares of Common Stock, at an exercise price of $0.76 per share,
exercisable until August 28, 1996.
PREFERRED STOCK
At the Closing of this Offering, all of the Company's outstanding Series D
Preferred Stock will be automatically converted into 1,012,381 shares of Common
Stock.
On the Effective Date, the Company will be authorized to issue up to
1,000,000 shares of Preferred Stock (in addition to the Series D Preferred
Stock) with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without further stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights that could decrease
the amount of earnings and assets available for distribution to holders of
Common Stock or adversely affect the voting power or other rights of the holders
of the Company's Common Stock. In the event of issuance, the Preferred Stock
could be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of the Company. The Company has no
present intention to issue any shares of its Preferred Stock, and following the
Closing, no shares of Preferred Stock will be outstanding. The Company has
agreed with the Underwriter that it will not issue any shares of Preferred
Stock, or any options, warrants or rights to purchase Preferred Stock, for a
period of 24 months after the Effective Date, without the prior written consent
of the Underwriter.
STATUTORY PROVISIONS AFFECTING STOCKHOLDERS
Following the consummation of this Offering, the Company will be subject to
Section 203 of the Delaware General Corporation Law, the State of Delaware's
"business combination" statute. In general, such statute prohibits a publicly
held Delaware corporation from engaging in various "business combination"
transactions with any "interested stockholder" for a period of three years after
the date of the transaction in which the person became an "interested
stockholder," unless (i) the transaction in which the interested stockholder
obtained such status or the "business combination" is approved by the Board of
Directors prior to the date the interested stockholder obtained such status;
(ii) upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by (a) persons who are directors and
officers and (b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or (iii) on or subsequent to
such date the "business combination" is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the "interested stockholder." A "business combination" includes mergers, asset
sales and other transactions resulting in financial benefit to a stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
voting stock. The statute could prohibit or delay mergers or other takeover or
change in control attempts with respect to the Company and, accordingly, may
discourage attempts to acquire the Company.
REGISTRATION RIGHTS
Pursuant to a Registration Rights Agreement dated as of December 21, 1995
entered into in connection with the 1995 Stock Purchase Agreement and the
recapitalization of the Company effected thereby, the
54
<PAGE> 58
Company granted certain registration rights to IBM, the Kapoor Trust, EJ
Financial, Sutter Health Venture Partners I, L.P., and Keystone (collectively,
the "Rights Holders"), with respect to shares of Common Stock issued or issuable
to the Rights Holders in certain financing transactions, including shares
issuable upon exercise of warrants or the conversion of the Series D Preferred
Stock (collectively, "Registrable Shares").
If the Company proposes to register any of its securities under the
Securities Act (other than in connection with an employee benefit plan or
pursuant to a merger, exchange offer or other acquisition transaction requiring
registration under the Securities Act), whether for its own account or for the
account of another holder of Company securities, the Rights Holders are entitled
to include Registrable Shares owned by them in any such registration. If any
such registration is an underwritten registration, the Company is required to
include that portion of the Registrable Shares that each Rights Holder proposes
to sell representing an aggregate of 25% of the offering (or in the case of an
initial public offering, an aggregate of 15% of such offering) before inclusion
of other shares. If, after taking into account shares offered by the Company and
other holders of registration rights, the Underwriter determines that additional
Registrable Shares can be sold, the balance of the Registrable Shares will be
included pro rata in the registration.
At any time after the earlier of (i) December 31, 1996 or (ii) six months
after the effective date of the first registration statement for a public
offering of securities of the Company, Rights Holders holding at least 35% of
the aggregate Registrable Shares and securities convertible into Registrable
Shares also have the right to require the Company to prepare and file on two
occasions a registration statement with respect to the Registrable Shares.
However, the Company is not required to effect a registration (x) with respect
to less than 35% of the aggregate Registrable Shares and shares convertible into
Registrable Shares, unless the aggregate offering price (net of underwriting
discounts and commissions), would exceed $7,500,000 or (y) if the Company
delivers an opinion reasonably acceptable to counsel for the Rights Holders that
the Registrable Shares may be sold without registration under Rule 144 under the
Securities Act without any limitation with respect to offerees or the size of
the transaction. The Registered Holders have agreed not to exercise their
registration rights for a period of 18 months following the Effective Date.
In addition, the Company has granted the holders of the Underwriter's
Warrants (including the securities issuable upon exercise thereof) certain
registration rights with respect to the shares of Common Stock and Warrants
issuable upon the exercise thereof. The Underwriter has agreed not to exercise
such registration rights for a period of 18 months following the Effective Date,
or until such earlier date as the Company gives holders of the Warrants written
notice of the redemption of the Warrants. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 2,779,177 shares of
Common Stock outstanding, of which only the 1,500,000 shares of Common Stock
offered hereby will be transferable without restriction under the Securities
Act. The remaining 1,279,177 shares, issued in private transactions, will be
"restricted securities" (as that term is defined in Rule 144 promulgated under
the Securities Act) which may be publicly sold only if registered under the
Securities Act or if sold in accordance with an applicable exemption from
registration, such as Rule 144. In general, under Rule 144 as currently in
effect, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
securities for at least two years, is entitled to sell (together with any person
with whom such individual is required to aggregate sales), within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class, or, if the Common
Stock is quoted on Nasdaq or a national securities exchange, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the Company for at least three months, and who has
beneficially owned restricted securities for at least three years is entitled to
sell such restricted securities under Rule 144 without regard to any of the
limitations described above. Officers, directors and the other existing
securityholders of the Company owning or having rights to acquire in the
aggregate 4,976,309 shares of Common Stock constituting restricted securities,
have entered into agreements with the Underwriter not to sell or otherwise
dispose of any shares of Common Stock (other than shares purchased in open
market transactions) for a period of 18 months following the Effective Date,
without the prior written consent of the Underwriter. Following expiration of
the term of the Lock-Up Agreements,
55
<PAGE> 59
1,279,177 shares subject to the Lock-Up Agreements will become eligible for
resale pursuant to Rule 144 commencing in the second quarter of 1998, subject to
the volume limitations and compliance with the other provisions of Rule 144. In
addition securityholders of the Company owning or having rights to acquire in
the aggregate 4,154,804 shares of Common Stock granted certain registration
rights with respect to those shares have agreed that they will not exercise such
registration rights for a period of 18 months following the Effective Date. See
"Description of Securities -- Registration Rights." and Certain Transactions."
As a result of this Offering, an additional 1,500,000 shares of Common
Stock (1,725,000 if the Over-Allotment Option is fully exercised) will be
subject to issuance pursuant to the exercise of the Warrants offered hereby.
As of July 1, 1996, there were 22 record holders of the Common Stock.
DIVIDEND POLICY
Since its inception, the Company has not paid any dividends on its Common
Stock and it does not anticipate paying such dividends in the foreseeable
future. The Company intends to retain earnings, if any, to finance its
operations.
REPORTS TO STOCKHOLDERS
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
certified public accountants after the end of each fiscal year, and will make
available such other periodic reports as the Company may deem to be appropriate
or as may be required by law. The Company's fiscal year end is December 31. The
Company has filed a Registration Statement on Form 8-A with the Commission to
register under, and be subject to the reporting requirements of, the Exchange
Act.
TRANSFER AGENT AND WARRANT AGENT
The Company has engaged , to act as Transfer
Agent for the Company's Common Stock and Warrant Agent for the Warrants.
56
<PAGE> 60
UNDERWRITING
The Company has agreed to sell, and the Underwriter has agreed to purchase
from the Company, 1,500,000 shares of Common Stock and 1,500,000 Warrants,
subject to the terms and conditions set forth in the underwriting agreement
between the Company and the Underwriting (the "Underwriting Agreement"). The
Underwriter is committed to purchase and pay for all shares if any shares or
warrants are purchased.
The Underwriter has advised the Company that it proposes initially to offer
the 1,500,000 shares of Common Stock and 1,500,000 Warrants to the public at the
initial public offering prices set forth on the cover page of this Prospectus
and that it may allow to selected dealers who are members of the NASD
concessions not in excess of $ per share of Common Stock and
$ per Warrant, of which not more than $ per share of Common
Stock and $ per Warrant may be re-allowed to certain other dealers.
The Underwriting Agreement provides further that the Underwriter will
receive a non-accountable expense allowance of 2.75% of the gross proceeds of
the Offering, of which $50,000 has been paid by the Company to date. The Company
also has agreed to pay all expenses in connection with qualifying the shares of
Common Stock and the Warrants offered hereby for sale under the laws of such
states as the Underwriter may designate, including expenses of counsel retained
for such purpose by the Underwriter.
Pursuant to the Underwriter's Over-Allotment Option, which is exercisable
for a period of 45 days after the closing of the Offering, the Underwriter may
purchase up to 15% of the total number of shares of Common Stock and Warrants
offered hereby, solely to cover over-allotments.
The Company has agreed to sell to the Underwriter, for nominal
consideration, the Underwriter's Warrants to purchase 150,000 shares of Common
Stock and 150,000 Warrants. The Underwriter's Warrants will be non-exercisable
for one year after the date of this Prospectus. Thereafter, for a period of four
years, the Underwriter's Warrants will be exercisable at an amount 165% above
the offering price of the Common Stock and Warrants sold in this offering. The
Underwriter's Warrants are not transferable for a period of one year after the
date of this Prospectus, except to officers of the Underwriter, members of the
selling group and their officers and partners. The Company also has granted
certain demand and "piggyback" registration rights to the holders of the
Underwriter's Warrants.
For the life of the Underwriter's Warrants, the holders thereof are given,
at nominal cost, the opportunity to profit from a rise in the market price of
the Common Stock with a resulting dilution in the interest of other
stockholders. Further, such holders may be expected to exercise the
Underwriter's Warrants at a time when the Company would in all likelihood be
able to obtain equity capital on terms more favorable than those provided in the
Underwriter's Warrants.
The Company has agreed, for a period of 24 months after the Effective Date,
not to issue any shares of Common Stock, preferred stock or any warrants,
options or other rights to purchase Common Stock or preferred stock without the
prior written consent of the Underwriter. Notwithstanding the foregoing, the
Company may issue shares of Common Stock upon exercise of any warrants or
convertible securities outstanding on the date hereof or to be outstanding upon
closing of the Offering as described herein. Subject to certain exceptions, all
of the Company's existing securityholders have agreed not to sell or otherwise
dispose of any shares of Common Stock for a period of up to 18 months following
the Effective Date, without the prior written consent of the Underwriter. See
"Shares Eligible for Future Sale."
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against liabilities in connection with the
Offering, including liabilities under the Securities Act.
The Company has agreed that upon closing of the Offering it will, for a
period of not less than three years, engage a designee of the Underwriter as
advisor to the Board. In addition and in lieu of the Underwriter's right to
designate an advisor, the Company has agreed, if requested by the Underwriter,
during such three year period, to nominate and use its best efforts to cause the
election of a designee of the Underwriter as a director of the Company. The
Underwriter has not yet designated any such person.
57
<PAGE> 61
The Underwriter intends to act as a market maker for the Common Stock and
the Warrants after the closing of the Offering.
Commencing one year after the date of this Prospectus and until the
expiration of the exercise period of the Warrants, the Company will pay the
Underwriter a fee of 5% of the exercise price of each Warrant exercised,
provided (i) the market price of the Common Stock on the date the Warrant was
exercised was greater than the Warrant exercise price on that date, (ii) the
exercise price of the Warrant was solicited by a member of the NASD, (iii) the
Warrant was not held in a discretionary account, (iv) the disclosure of
compensation arrangements was made both at the time of the Offering and at the
time of exercise of the Warrant, (v) the solicitation of the exercise of the
Warrant was not a violation of Rule 10b-6 under the Exchange Act and (vi) the
Underwriter is designated in writing as the soliciting NASD member. Unless
granted an exemption from Rule 10b-6 under the Exchange Act by the Commission,
the Underwriter and any other soliciting broker/dealers will be prohibited from
engaging in any market making activities or solicited brokerage activities with
regard to the Company's securities during the periods prescribed by exemption
(xi) to Rule 10b-6 before the solicitation of the exercise of any Warrant until
the later of the termination of such solicitation activity or the termination of
any right the Underwriter and any other soliciting broker/dealer may have to
receive a fee for the solicitation of the exercise of the Warrants.
The Company has agreed to retain the Underwriter as a consultant at an
annual fee of $35,000 for a 12-month period commencing on the closing of the
Offering. The entire fee ($35,000) is payable at the closing of the Offering.
Pursuant to this agreement, the Underwriter will be obligated to provide general
financial advisory services to the Company on an as-needed basis with respect to
possible future financing or acquisitions by the Company and related matters.
The agreement does not require the Underwriter to provide any minimum number of
hours of consulting services to the Company.
The initial public offering price of the shares of Common Stock and the
Warrants offered hereby and the initial exercise price and the other terms of
the Warrants have been determined by negotiation between the Company and the
Underwriter and do not necessarily bear any direct relationship to the Company's
assets, earnings, book value per share or other generally accepted criteria of
value. Factors considered in determining the offering price of the shares of
Common Stock and Warrants and the exercise price of the Warrants included the
business in which the Company is engaged, the Company's financial condition, an
assessment of the Company's management, the general condition of the securities
markets and the demand for similar securities of comparable companies.
The Underwriter or members of the selling group may, at their option,
charge a customary ticket charge to purchasers in the Offering.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Snow Becker Krauss P.C., 605 Third Avenue, New York, New York
10158-0125. Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas,
New York, New York 10036 has acted as counsel to the Underwriter in connection
with this Offering.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995
and for each of the two years in the period ended December 31, 1995, appearing
in this Prospectus and Registration Statement, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of said firm as experts in accounting and auditing.
58
<PAGE> 62
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act with respect to the
securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits thereto as permitted by
the Rules and Regulations of the Commission. For further information with
respect to the Company and such securities, reference is made to the
Registration Statement and to the exhibits filed therewith. Statements contained
in this Prospectus as to the contents of any contracts or other documents
referred to herein are not necessarily complete and where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions of such exhibit to which reference
is made for a full statement of the provisions thereof. The Registration
Statement, including exhibits filed therewith, may be inspected, without charge,
at the principal office of the Commission located at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at 500 West Madison Street, Suite 1400 Chicago, Illinois 60661-2511. Copies of
all or any part of the Registration Statement (including the exhibits thereto)
also may be obtained from the Public Reference Section of the Commission at the
Commission's principal office in Washington, D.C., at the Commission's
prescribed rates. Electronic registration statements made through the Electronic
Data Gathering Analysis and Retrieval system are publicly available through the
Commission's web site at http://www.sec.gov.
59
<PAGE> 63
INTEGRATED SURGICAL SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Consolidated Balance Sheets at December 31, 1995 (audited)
and June 30, 1996 (unaudited)........................................................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1994 and 1995 (audited) and the six months ended
June 30, 1995 and 1996 (unaudited)................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994 and 1995 (audited) and the six months ended
June 30, 1996 (unaudited)............................................................ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994 and 1995 (audited) and the six months ended
June 30, 1995 and 1996 (unaudited)................................................... F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Integrated Surgical Systems, Inc.
We have audited the accompanying consolidated balance sheet of Integrated
Surgical Systems, Inc. as of December 31, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1994 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Integrated
Surgical Systems, Inc. at December 31, 1995, and the consolidated results of its
operations and its cash flows for the years ended December 31, 1994 and 1995 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Integrated Surgical Systems, Inc. will continue as a going concern. As more
fully described in Note 1, the Company has incurred recurring operating losses.
This condition raises substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to this matter are also
described in Note 1. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
Sacramento, California
January 29, 1996
F-2
<PAGE> 65
INTEGRATED SURGICAL SYSTEMS, INC.,
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, JUNE 30, EQUITY
1995 1996 JUNE 30, 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 2,339,823 $ 1,549,309
Accounts receivable................................ 50,807 153,790
Inventory.......................................... 746,972 713,987
Other current assets............................... 144,417 143,632
------------ ------------
Total current assets................................. 3,282,019 2,560,718
Net property and equipment........................... 430,851 273,193
Other assets......................................... 14,259 14,042
------------ ------------
$ 3,727,129 $ 2,847,953
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable....................................... $ 274,498 $ 67,037
Accounts payable................................... 209,405 166,316
Accrued payroll and related expenses............... 39,600 59,252
Customer deposits.................................. 469,991 --
Accrued product retrofit costs..................... 160,000 150,348
Other current liabilities.......................... 301,117 382,097
------------ ------------
Total current liabilities............................ 1,454,611 825,050
Commitments and contingencies (Notes 1 and 8)
Stockholders' equity:
Convertible preferred stock, $0.01 par value,
5,750,000 shares authorized; 674,921 and
1,012,381 shares issued and outstanding at
December 31, 1995 and June 30, 1996,
respectively (no shares pro forma); liquidation
preference value of $666,667 at December 31,
1995 ($1,000,000 at June 30, 1996).............. 6,749 10,124 $ --
Common stock, $0.01 par value, 15,000,000 shares
authorized; 266,726 and 266,796 shares issued
and outstanding at December 31, 1995 and June
30, 1996, respectively (1,279,177 shares pro
forma).......................................... 2,667 2,668 12,792
Additional paid-in capital......................... 17,909,787 19,635,336 19,635,336
Deferred stock compensation........................ -- (482,384) (482,384)
Accumulated translation adjustment................. 5,297 259 259
Accumulated deficit................................ (15,651,982) (17,143,100) (17,143,100)
------------ ------------ ------------
Total stockholders' equity........................... 2,272,518 2,022,903 $ 2,022,903
============
------------ ------------
$ 3,727,129 $ 2,847,953
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 66
INTEGRATED SURGICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................. $ 289,047 $ 174,521 $ 76,289 $ 1,064,206
Cost of sales......................... 203,856 70,179 30,147 458,483
----------- ----------- ----------- -----------
85,191 104,342 46,142 605,723
Operating expenses:
Selling, general and
administrative................... 1,973,816 1,668,947 932,629 887,283
Research and development............ 2,719,771 2,361,125 1,073,636 977,616
Stock compensation.................. -- -- -- 246,524
----------- ----------- ----------- -----------
4,693,587 4,030,072 2,006,265 2,111,423
Other income (expense):
Interest income..................... 74,956 107,306 76,757 38,723
Interest expense.................... (281,650) (287,792) (147,590) --
Other............................... (14,508) 55,801 63,906 (20,958)
----------- ----------- ----------- -----------
Loss before provision for income
taxes............................... (4,829,598) (4,050,415) (1,967,050) (1,487,935)
Provision for income taxes............ 10,787 3,113 3,242 3,183
----------- ----------- ----------- -----------
Net loss.............................. (4,840,385) (4,053,528) (1,970,292) (1,491,118)
Preferred stock dividends............. (956,574) (936,325) (478,287) --
----------- ----------- ----------- -----------
Net loss applicable to common
stockholders........................ $(5,796,959) $(4,989,853) $(2,448,579) $(1,491,118)
=========== =========== =========== ===========
Net loss per common and common share
equivalent.......................... $ (1.39) $ (1.20) $ (0.59) $ (0.34)
=========== =========== =========== ===========
Shares used in per share
calculations........................ 4,162,576 4,169,220 4,163,404 4,362,783
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 67
INTEGRATED SURGICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL ACCUMULATED
------------------- ---------------- PAID-IN DEFERRED STOCK TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION ADJUSTMENT
--------- ------- ------- ------ ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993................. 159,065 $ 1,591 65,872 $ 659 $11,736,972 $ -- $ --
Sale of common stock....................... -- -- 1,512 15 11,349 -- --
Net loss................................... -- -- -- -- -- -- --
Translation adjustment..................... -- -- -- -- -- -- 1,754
------- ------- ------- ------- ----------- --------- -------
Balance at December 31, 1994................. 159,065 1,591 67,384 674 11,748,321 -- 1,754
Sale of common stock....................... -- -- 758 7 2,586 -- --
Conversion of note payable into a warrant
to purchase common stock................. -- -- -- -- 4,224,373 -- --
Conversion of Series B and Series C
preferred stock into common stock........ (159,065) (1,591) 159,065 1,591 -- -- --
Conversion of accumulated dividends
preferred stock into common stock........ -- -- 39,519 395 (395) -- --
Sale of Series D convertible preferred
stock and a warrant to purchase Series D
preferred stock.......................... 674,921 6,749 -- -- 1,934,902 -- --
Net loss................................... -- -- -- -- -- -- --
Translation adjustment..................... -- -- -- -- -- -- 3,543
------- ------- ------- ------- ----------- --------- -------
Balance at December 31, 1995................. 674,921 6,749 266,726 2,667 17,909,787 -- 5,297
Sale of common stock (unaudited)........... -- -- 70 1 16 -- --
Sale of Series D convertible preferred
stock and a warrant to purchase Series D
preferred stock (unaudited).............. 337,460 3,375 -- -- 996,625 -- --
Deferred stock compensation (unaudited).... -- -- -- -- 728,908 (728,908) --
Stock compensation expense (unaudited)..... -- -- -- -- -- 246,524 --
Net loss (unaudited)....................... -- -- -- -- -- -- --
Translation adjustment (unaudited)......... -- -- -- -- -- -- (5,038)
------- ------- ------- ------- ----------- --------- -------
Balance at June 30, 1996 (unaudited)......... 1,012,381 $10,124 266,796 $2,668 $19,635,336 $ (482,384) $ 259
======= ======= ======= ======= =========== ========= =======
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
Balance at December 31, 1993................. $ (6,758,069) $ 4,981,153
Sale of common stock....................... -- 11,364
Net loss................................... (4,840,385) (4,840,385)
Translation adjustment..................... -- 1,754
------------ ----------
Balance at December 31, 1994................. (11,598,454) 153,886
Sale of common stock....................... -- 2,593
Conversion of note payable into a warrant
to purchase common stock................. -- 4,224,373
Conversion of Series B and Series C
preferred stock into common stock........ -- --
Conversion of accumulated dividends
preferred stock into common stock........ -- --
Sale of Series D convertible preferred
stock and a warrant to purchase Series D
preferred stock.......................... -- 1,941,651
Net loss................................... (4,053,528) (4,053,528)
Translation adjustment..................... -- 3,543
------------ ----------
Balance at December 31, 1995................. (15,651,982) 2,272,518
Sale of common stock (unaudited)........... -- 17
Sale of Series D convertible preferred
stock and a warrant to purchase Series D
preferred stock (unaudited).............. -- 1,000,000
Deferred stock compensation (unaudited).... -- --
Stock compensation expense (unaudited)..... -- 246,524
Net loss (unaudited)....................... (1,491,118) (1,491,118)
Translation adjustment (unaudited)......... -- (5,038)
------------ ----------
Balance at June 30, 1996 (unaudited)......... $(17,143,100) $ 2,022,903
============ ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 68
INTEGRATED SURGICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................ $(4,840,385) $(4,053,528) $(1,970,292) $(1,491,118)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on short-term investments.............. 37,402 -- -- --
Issuance of common stock for non-cash
items..................................... 9,540 -- -- --
Depreciation................................ 261,056 288,344 141,945 134,412
Stock compensation.......................... -- -- -- 246,524
Changes in operating assets and liabilities:
Short-term investments.................... 2,985,437 -- -- --
Accounts receivable....................... 202,641 (30,326) (5,523) (102,983)
Inventory................................. 184,277 137,625 (22,063) 96,985
Other current assets...................... (96,747) 850 (28,893) 785
Note payable.............................. -- 20,701 28,392 (207,461)
Accounts payable.......................... 15,717 (42,058) 101,458 (43,089)
Accrued payroll and related expenses...... 113,296 (222,896) (123,206) 19,652
Customer deposits......................... 471,874 (1,883) (1,879) (469,991)
Accrued product retrofit costs............ 274,680 (114,680) (73,236) (9,652)
Accrued interest.......................... 277,500 286,645 138,756 --
Other current liabilities................. (68,460) 219,344 6,256 80,980
Translation adjustment.................... 1,754 3,543 3,557 (5,038)
----------- ----------- ----------- -----------
Net cash used in operating activities........... (170,418) (3,508,319) (1,804,728) (1,749,994)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.............. (476,071) (121,008) (62,607) (40,754)
Decrease (increase) in other assets............. (4,234) 1,035 97 217
----------- ----------- ----------- -----------
Net cash used in investing activities........... (480,305) (119,973) (62,510) (40,537)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from convertible preferred stock....... -- 1,941,651 -- 1,000,000
Proceeds from common stock...................... 1,824 2,593 2,588 17
----------- ----------- ----------- -----------
Net cash provided by financing activities....... 1,824 1,944,244 2,588 1,000,017
----------- ----------- ----------- -----------
Net decrease in cash and cash equivalents....... (648,899) (1,684,048) (1,864,650) (790,514)
Cash and cash equivalents at beginning of
period........................................ 4,672,770 4,023,871 4,023,871 2,339,823
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period...... $ 4,023,871 $ 2,339,823 $ 2,159,221 $ 1,549,309
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 69
INTEGRATED SURGICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION WITH RESPECT TO JUNE 30, 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND FINANCING REQUIREMENTS
Integrated Surgical Systems, Inc. was incorporated on October 1, 1990 as a
Delaware corporation and was a development stage enterprise through the year
ended December 31, 1995. The Company develops, manufactures, markets and
services image-directed, robotic products for surgical applications. The
Company's principal product is the ROBODOC(R) Surgical Assistant System
("ROBODOC System"), a computer-controlled surgical robot, and the Company's
ORTHODOC(R) Presurgical Planner, consisting of a computer workstation that
utilizes the Company's proprietary software for pre-operative surgical planning.
The first application for the ROBODOC System has been directed at cementless
primary total hip replacement surgery.
On June 1, 1994, the Company acquired all shares of Gasfabriek Thijssen
Holding BV (later renamed Integrated Surgical Systems BV), a non-operating
Netherlands corporation, for approximately $4,000. The acquisition was accounted
for as a purchase. Integrated Surgical Systems BV purchases and licenses
products and technology from Integrated Surgical Systems, Inc. for distribution
in Europe and other markets.
The Company has not yet generated significant revenue and has funded its
operations primarily through the issuance of debt and sale of equity.
Accordingly, the Company's ability to accomplish its business strategy and to
ultimately achieve profitable operations is dependent upon its ability to raise
additional financing. The Company's management is exploring several funding
options and expects to raise additional capital during 1996 (Note 10).
Ultimately, however, the Company will need to achieve profitable operations in
order to continue as a going concern. The Company incurred a net loss of
$4,053,528 for the year ended December 31, 1995 and a net loss of $1,491,118 for
the six months ended June 30, 1996. The Company has an accumulated deficit of
$15,651,982 and $17,143,100 as of December 31, 1995 and June 30, 1996,
respectively.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of Integrated Surgical
Systems BV are measured using the subsidiary's local currency (Guilders). The
subsidiary's balance sheet accounts are translated at the current year-end
exchange rate and statement of operations amounts are translated at the average
exchange rate for the period. Translation adjustments are recorded as a separate
component of stockholders' equity. Foreign currency transaction gains and losses
were not material during the years ended December 31, 1994 and 1995 and the six
months ended June 30, 1995 and 1996.
F-7
<PAGE> 70
INTEGRATED SURGICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
REVENUE RECOGNITION
Revenues from sales without significant Company obligations beyond delivery
are recognized upon delivery of the products. Revenues pursuant to agreements
which include significant Company obligations beyond delivery are deferred until
the Company's remaining obligations are insignificant. Revenues are recognized
net of any deferrals for estimated future liabilities under contractual product
warranty provisions. Estimated future product retrofit costs for ROBODOC Systems
sold for clinical trials have been accrued in the accompanying financial
statements. Future retrofit costs are those expected to be required to update
ROBODOC Systems to the equivalent level of performance expected to be approved
by the Food and Drug Administration ("FDA").
CONCENTRATION OF CREDIT RISK
The Company sells its products to companies in the healthcare industry and
performs periodic credit evaluations of its customers and generally does not
require collateral. The Company believes that adequate provision for
uncollectible accounts receivable has been made in the accompanying financial
statements. The Company maintains substantially all of its cash at four
financial institutions.
FINANCIAL STATEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents
consist primarily of certificates of deposits, banker's acceptances and U.S.
Government securities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over estimated useful lives of 3 to 5 years, or the
lease term, whichever is shorter.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments" ("SFAS No. 107"). The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.
Active markets for the Company's other financial instruments that are subject to
the fair value disclosure requirements of SFAS No. 107, which consist of
privately-issued notes payable, do not exist and there are no quoted market
prices for these notes. Accordingly, it is not practicable to estimate the fair
values of such financial instruments because of the limited information
available to the Company and because of the significance of the cost to obtain
independent appraisals for this purpose.
F-8
<PAGE> 71
INTEGRATED SURGICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INVENTORY
Inventory is recorded at the lower of cost (first-in, first-out method) or
market and consists of materials and supplies used in the manufacture of the
ROBODOC System.
Inventory consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
Raw materials............................................... $381,756 $ 445,177
Work-in process............................................. 306,828 202,956
Finished goods.............................................. 58,388 65,854
-------- --------
$746,972 $ 713,987
======== ========
</TABLE>
INCOME TAXES
The liability method is used to account for income taxes. Under this
method, deferred income tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
scheduled to be in effect when the differences are expected to reverse.
NET LOSS PER SHARE
Except as noted below, net loss per share is based on the weighted average
number of shares of common stock outstanding during the period. Common stock
issuable upon the conversion of convertible preferred stock and note payable and
upon the exercise of common stock warrants and stock options have been excluded
from the computation because their inclusion would be anti-dilutive. Pursuant to
the Securities and Exchange Commission Staff Accounting Bulletins, common and
common equivalent shares issued by the Company at prices below the initial
public offering price during the 12 month period prior to the offering have been
included in the calculation as if they were outstanding for all periods
presented (using the treasury stock method at an assumed initial public offering
price of $6.00 per share). As described in Note 6, common stock was issued on
December 21, 1995 in connection with the conversion of preferred stock and
accumulated dividends. Net loss per share for the year ended December 31, 1995
would have been ($0.94) per share had the conversion occurred on January 1,
1995.
SIGNIFICANT CUSTOMERS AND FOREIGN SALES
During the year ended December 31, 1994, the Company recognized 87% of its
revenues from one customer. During the year ended December 31, 1995, the Company
recognized 95% of its revenues from one customer. Foreign sales were
approximately $27,000 and $165,000 for the years ended December 31, 1994 and
December 31, 1995, respectively. During the six months ended June 30, 1995 and
1996, the Company recognized 92% and 53% of its revenues from one customer,
respectively. Foreign sales for the six months ended June 30, 1995 and 1996 were
$72,073 and $1,064,066, respectively.
RECLASSIFICATIONS
Certain amounts reported in prior years financial statements have been
reclassified to conform with the 1995 and 1996 presentation.
F-9
<PAGE> 72
INTEGRATED SURGICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
ROBODOC System equipment................................... $ 552,660 $ 338,303
Other equipment............................................ 738,215 778,183
Furniture and fixtures..................................... 40,040 40,040
Leasehold improvements..................................... 80,866 86,816
---------- ----------
1,411,781 1,243,342
Less accumulated depreciation.............................. (980,930) (970,149)
---------- ----------
$ 430,851 $ 273,193
========== ==========
</TABLE>
4. REVERSE STOCK SPLIT
On December 20, 1995, as part of a recapitalization and preferred stock
sale described in Note 6, the stockholders authorized a one-for-five reverse
split of all capital stock. All references in the accompanying financial
statements to the number of capital shares and per-share amounts have been
retroactively restated to reflect the reverse stock split (Note 10).
5. NOTES PAYABLE
During 1994, the Company issued a $237,184 short-term note payable to a
vendor in exchange for inventory. Additional inventory purchases of $20,701 were
added to the outstanding balance during 1995. Simple interest on the note
payable accrues at 7% per annum. As partial payment for the interest obligation,
the Company issued 659 shares of its common stock to the vendor during the year
ended December 31, 1994, with an estimated fair value of $8.05 per share. The
outstanding principal balance of the note and the remaining interest obligation
which was due on September 30, 1995 was not paid and, as a result, the note
payable is in default. The Company is currently negotiating with the vendor to
extend the terms of the note payable; however, there is no assurance that such
negotiations will be successful or that the vendor will not pursue legal action
against the Company. The Company does not believe the outcome of the matter will
have a material adverse impact on its financial position or results of
operations. As of June 30, 1996, the unpaid balance of the note payable was
$67,037. The Company intends to pay the remaining balance in September 1996.
A long-term note payable was entered into between the Company and a large
corporation, a representative of which is a member of the Company's Board of
Directors. Simple interest on the note payable accrued at 9.25% per annum. On
December 20, 1995, the long-term note payable and accrued interest totaling
$4,224,373 was converted into a warrant to purchase 123,550 shares of the
Company's common stock at $0.02 per share which is currently exercisable and
expires on December 31, 2005.
In conjunction with the note agreement, the Company also entered into a
License Agreement with this corporation whereby the corporation granted the
Company the rights to the technology underlying the ROBODOC System at the time
of the Company's incorporation. In consideration for this License Agreement, the
Company issued to the corporation a warrant to purchase 65,805 shares of the
Company's common stock at a price of $0.08 per share. This warrant expires on
December 31, 2000 and has not been exercised as of June 30, 1996.
F-10
<PAGE> 73
INTEGRATED SURGICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCKHOLDERS' EQUITY
COMMON STOCK
As of December 31, 1995 the Company has reserved a total of 5,682,878
shares of common stock pursuant to outstanding warrants, options and convertible
preferred stock.
CONVERTIBLE PREFERRED STOCK
On December 20, 1995, all outstanding shares of Series B and Series C
preferred stock were converted into 59,358 and 99,707 shares of common stock,
respectively. Also on that date, all accumulated and unpaid dividends on Series
B and Series C were converted into 17,434 and 22,085 shares of the Company's
common stock, respectively.
The Company entered into a Series D preferred stock and warrant agreement
during 1995. Under the terms of this agreement, the Company received $2 million
in proceeds at the first closing which occurred on December 21, 1995, and
granted an option to purchase additional Series D stock and a warrant to
purchase Series D Stock as described below. At the first closing, the Company
sold 674,921 shares of Series D preferred stock for $0.99 per share. It also
sold for $1,333,333 a warrant to purchase 1,349,842 shares of Series D at $0.02
per share. The warrant expires on December 31, 2005 and has not been exercised
as of June 30, 1996. The purchasers received an option to purchase an additional
337,460 shares of Series D preferred stock and a warrant to purchase an
additional 674,920 shares of Series D preferred stock, all with the same terms
as in the first closing.
On February 19, 1996, the option holder exercised the option and the
Company sold 337,460 shares of Series D preferred stock for $0.99 per share. The
Company also sold a warrant for $666,667 to purchase 674,920 shares of Series D
at $0.02 per share.
Series B and Series C preferred stockholders who did not purchase Series D
stock were issued warrants to purchase an aggregate of 434,327 shares of the
Company's common stock at a price of $0.76 per share in consideration for their
consent to the terms of the recapitalization and Series D stock sale. The
Company granted another warrant to purchase an additional 135,210 shares of
common stock at $0.76 per share in conjunction with the second closing of the
Series D preferred stock described above. These warrants may be exercised only
under certain conditions including the closing of a registered public offering
in which the Company would have a pre-money market valuation of at least
$10,000,000 (Note 10), the sale of the Company for consideration at least equal
to $10,000,000, or in certain circumstances when the Company s valuation exceeds
$10,000,000. These warrants expire on the earlier of 30 days after a notice of a
proposed exercise event or December 31, 2005.
As part of the Series D offering, the Company offered to all stockholders
who did not purchase Series D stock or the Series D warrant ("non-participating
stockholder(s)") the right to purchase Series D stock with the same terms and
conditions as the December 1995 offering. The Company has reserved 733,723
shares of Series D stock for this offering. Each non-participating stockholder
will be allowed to purchase a number of shares based upon current ownership in
relation to other non-participating stockholders. This offer expired in March
1996.
The holders of Series D convertible preferred stock have the following per
share liquidation preferences and conversion rates:
<TABLE>
<S> <C>
Liquidation preference............................................... $0.99
Conversion rate...................................................... 0.99
</TABLE>
F-11
<PAGE> 74
INTEGRATED SURGICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCKHOLDERS' EQUITY -- (CONTINUED)
CONVERTIBLE PREFERRED STOCK -- (CONTINUED)
The holders of convertible preferred stock have participating rights to
receive dividends when and as declared on the shares of common stock by the
Board of Directors. No dividends have been declared as of June 30, 1996.
Each share of the convertible preferred stock is convertible into common
stock at the conversion rate described above divided by the "Conversion Price"
subject to certain anti-dilution adjustments. At December 31, 1995 and June 30,
1996, the Conversion Price was $0.99 per share for Series D, making each share
of convertible preferred stock convertible into common stock on a one-for-one
basis. Automatic conversion of shares will occur in the event of a firm
underwritten public offering resulting in aggregate gross cash proceeds to the
Company of at least $7,500,000 (Note 10).
Holders of the Company's convertible preferred stock vote as if their
shares have been converted to common stock. In addition, preferred shares are
subject to certain transfer restrictions and are entitled to certain
registration rights.
Whenever the Company proposes to issue, deliver, or sell certain "Voting
Securities," the holder of the warrant resulting from the conversion of the
long-term note payable (Note 5) has the right of first offer to purchase such
Voting Securities. Subsequently, the holders of convertible preferred stock are
entitled to purchase an amount of such Voting Securities which would result in
the preferred stockholder retaining its percentage interest in the total voting
power of the Company in effect prior to such issuance. These shares may be
purchased at a price per share equal to the selling price of the Voting
Securities. The anti-dilution rights granted to the holders of convertible
preferred stock terminate in the event the stockholder holds less than 329,024
shares of convertible preferred stock.
STOCK OPTION PLANS
The Company established a stock option plan in 1991 (the "1991 Plan") and
on December 13, 1995, it established a new stock option plan (the "1995 Plan").
Certain employees of the Company will surrender their options under the 1991
Plan in return for new and additional options granted under the 1995 Plan.
Officers, employees, directors and consultants to the Company may participate in
the Plans. Options granted under the Plans may be incentive stock options or
non-statutory stock options. 1,079,784 shares of the Company's common stock have
been reserved for issuance under the Plans. Options granted generally have a
term of five years from the date of the grant. The exercise price of incentive
stock options granted under the Plans may not be less than 100% of the fair
market value of the Company's common stock on the date of the grant. The
exercise price of non-statutory stock options granted under the Plans may not be
less than 85% of the fair market value of the Company's common stock on the date
of the grant. For a person who, at the time of the grant, owns stock
representing 10% of the voting power of all classes of Company stock, the
exercise price of the incentive stock options or the non-statutory stock options
granted under the Plans may not be less than 110% of the fair market value of
the common stock on the date of the grant.
F-12
<PAGE> 75
INTEGRATED SURGICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCKHOLDERS' EQUITY -- (CONTINUED)
STOCK OPTION PLANS -- (CONTINUED)
The following summarizes activity under the Plans for the years ended
December 31, 1994 and 1995 and the six months ended June 30, 1996:
<TABLE>
<S> <C>
Outstanding at December 31, 1993........................................... 45,241
Granted............................................................... 11,114
Canceled.............................................................. (4,394)
Exercised (at $3.42 and $8.05 per share).............................. (326)
-------
Outstanding at December 31, 1994........................................... 51,635
Granted............................................................... 31,850
Canceled.............................................................. (9,192)
Exercised (at $3.42 per share)........................................ (758)
-------
Outstanding at December 31, 1995 (at $3.42 to $8.05 per share)............. 73,535
Granted (unaudited)................................................... 875,927
Canceled (unaudited).................................................. (56,979)
Exercised (at $0.24 per share) (unaudited)............................ (70)
-------
Outstanding at June 30, 1996 (at $0.08 to $8.05 per share) (unaudited)..... 892,413
=======
</TABLE>
Of the options outstanding at December 31, 1995, options to purchase 45,228
shares of common stock were immediately exercisable at prices ranging from $3.42
to $8.05 per share. Of the options outstanding at June 30, 1996, options to
purchase 310,721 shares of common stock were immediately exercisable at prices
ranging from $0.08 to $8.05 per share. A total of 1,006,249 and 187,301 shares
were still available for grant under the Plan at December 31, 1995 and June 30,
1996, respectively.
During the six months ended June 30, 1996, the Company recorded deferred
stock compensation of $728,908 relating to stock options granted during the
period with exercise prices less than the estimated fair value of the Company's
common stock, as determined by an independent valuation analysis, on the date of
grant. The deferred stock compensation is being amortized into expense over the
vesting period of the stock options which generally range from 3 to 5 years.
Deferred compensation relating to stock options which vested immediately was
expensed on the date of grant. Compensation expense of $246,524 was recorded
during the six months ended June 30, 1996 relating to these stock options, and
the remaining $482,384 will be amortized into expense in future periods.
7. INCOME TAXES
The income tax provisions for the years ended December 31, 1994 and 1995
and the six months ended June 30, 1995 and 1996 are comprised of currently
payable state franchise taxes and currently payable foreign income taxes.
F-13
<PAGE> 76
INTEGRATED SURGICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES -- (CONTINUED)
Deferred taxes result from temporary differences in the recognition of
certain revenue and expense items for income tax and financial reporting
purposes. The significant components of the Company's deferred taxes as of
December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryover............................ $ 4,759,000 $ 2,200,000
Research and development credit......................... 404,000 --
Capitalized research and development.................... 566,000 16,000
Accrued product retrofit costs.......................... 88,000 95,000
Inventory............................................... -- 97,000
Other................................................... 178,000 104,000
----------- -----------
5,995,000 2,512,000
Less: Valuation allowance............................... (5,995,000) (2,512,000)
----------- -----------
Net deferred taxes........................................ $ -- $ --
=========== ===========
</TABLE>
The principal reasons for the difference between the effective income tax
rate and the federal statutory income tax rate are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995
----------- -----------
<S> <C> <C>
Federal benefit expected at statutory rates........... $(1,642,063) $(1,377,000)
Net operating loss with no current benefit............ 1,642,063 1,377,000
State franchise taxes................................. 4,532 3,046
Foreign income taxes.................................. 6,255 67
----------- -----------
$ 10,787 $ 3,113
=========== ===========
</TABLE>
In connection with the Company's Series D preferred stock sale (Note 6) a
change of ownership (as defined in Section 382 of the Internal Revenue Code of
1986, as amended) occurred. As a result of this change, the Company's federal
and state net operating loss carryforwards generated through December 21, 1995
(approximately $13,500,000 and $4,500,000, respectively) will be subject to a
total annual limitation in the amount of approximately $400,000. Except for the
amounts described below, the Company expects that the carryforward amounts will
not be utilized prior to the expiration of the carryforward periods.
As a consequence of the limitation, the Company has at December 31, 1995 a
net operating loss carryover of approximately $6,000,000 for federal income tax
purposes which expires between 2005 and 2009, and net operating loss
carryforward of approximately $2,000,000 for state income tax purposes which
expires between 1997 and 1999.
The Company paid $10,787 and $5,280 for income and franchise taxes during
the years ended December 31, 1994 and 1995, respectively.
8. COMMITMENTS
The Company leases its facilities under two non-cancelable operating
leases. One of the leases has an escalation clause of 5% per annum and has a
term of approximately five years. The Company has the right to terminate the
lease at the end of the third year. The fee associated with this cancellation
privilege is 50% of the unamortized portion of the total tenant improvements
(which is expected to be approximately $32,000). The
F-14
<PAGE> 77
INTEGRATED SURGICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS -- (CONTINUED)
Company's other facility does not have an escalation clause and has a term of
approximately 3 years. Future payments under non-cancelable facility operating
leases are approximately as follows:
<TABLE>
<S> <C>
1996.............................................................. $114,000
1997.............................................................. 86,000
1998.............................................................. 44,000
</TABLE>
Aggregate rental expense under these leases amounted to $136,880 and
$135,980 during the years ended December 31, 1994 and 1995, respectively.
Future minimum payments under non-cancelable equipment operating leases are
approximately $10,000 per year through the year ended December 31, 2000. Rental
expense for these non-cancelable leases during the years ended December 31, 1994
and 1995 was approximately $11,000 and $14,000, respectively.
9. NIST GRANT
During 1994, the Company received notification it was awarded a $1,960,000
National Institute of Science and Technology ("NIST") grant from the U.S.
Department of Commerce. The grant will be shared by the Company and two
strategic partners to fund approximately 49% of a $4 million joint development
project to adapt the ROBODOC System for use in hip revision surgery. The
development project and related NIST Grant began in 1995. The Company received
$19,409 in proceeds under this grant during the year ended December 31, 1995 and
$93,099 during the six months ended June 30, 1996.
10. SUBSEQUENT EVENTS
On July 8, 1996, the Board of Directors approved, subject to stockholder
approval, a one-for-1.519647 reverse split of the Company's common stock. The
reverse stock split is expected to become effective prior to the closing of the
Company's proposed initial public offering. All references in the accompanying
financial statements to the number of capital shares and per-share amounts have
been retroactively restated to reflect the reverse split.
If the Company's initial public offering is consummated and results in
aggregate gross cash proceeds to the Company of at least $7,500,000, all of the
Series D convertible preferred stock outstanding as of the closing date will
automatically be converted into an aggregate of approximately 1,012,381 shares
of common stock, based on the shares of Series D outstanding at June 30, 1996.
Unaudited pro forma stockholders' equity at June 30, 1996, as adjusted for the
conversion of preferred stock, is disclosed on the consolidated balance sheets.
F-15
<PAGE> 78
[LOGO]
RIGHT:
Computed Tomography image of a patient's femur who has previously undergone hip
replacement surgery. Note how the metal implant causes a starburst effect,
making the bone, implant and cement borders difficult to define.
LEFT:
ORTHODOC's software reduces scatter of the image of the thighbone and the
implant contained therein, allowing the surgeon to visualize the bone, the
cement, and the implant clearly. The surgery can now be planned in 3-D and
frequent complications can be avoided.
<PAGE> 79
[LOGO]
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the Registrant's by-laws provides that a director or officer
shall be indemnified against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement (provided such settlement is approved in
advance by the Registrant) in connection with certain actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation--a "derivative action") if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. A similar standard of care is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
an action, except that no person who has been adjudged to be liable to the
Registrant shall be entitled to indemnification unless a court determines that
despite such adjudication of liability but in view of all of the circumstances
of the case, the person seeking indemnification is fairly and reasonably
entitled to be indemnified for such expenses as the court deems proper.
Article 6.5 of the Registrant's by-laws further provides that directors and
officers are entitled to be paid by the Registrant the expenses incurred in
defending the proceedings specified above in advance of their final disposition,
provided that such payment will only be made upon delivery to the Registrant by
the indemnified party of an undertaking to repay all amounts so advanced if it
is ultimately determined that the person receiving such payments is not entitled
to be indemnified.
Article 6.4 of the Registrant's by-laws provides that a person indemnified
under Article VI of the by-laws may contest any determination that a director,
officer, employee or agent has not met the applicable standard of conduct set
forth in the by-laws by petitioning a court of competent jurisdiction.
Article 6.6 of the Registrant's by-laws provides that the right to
indemnification and the payment of expenses incurred in defending a proceeding
in advance of its final disposition conferred in the Article will not be
exclusive of any other right which any person may have or acquire under the
by-laws, or any statute or agreement, or otherwise.
Finally, Article 6.7 of the Registrant's by-laws provides that the
Registrant may maintain insurance, at its expense, to reimburse itself and
directors and officers of the Registrant and of its direct and indirect
subsidiaries against any expense, liability or loss, whether or not the
Registrant would have the power to indemnify such persons against such expense,
liability or loss under the provisions of Article VI of the by-laws. The
Registrant has applied for such insurance, and expects to have such insurance in
effect on the date this Registration Statement is declared effective by the
Securities and Exchange Commission.
Article 11 of the Registrant's certificate of incorporation eliminates the
personal liability of the Registrant's directors to the Registrant or its
stockholders for monetary damages for breach of their fiduciary duties as a
director to the fullest extent provided by Delaware law. Section 102(b)(7) of
the DGCL provides for the elimination off such personal liability, except for
liability (i) for any breach of the director's duty of loyalty to the Registrant
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived any improper personal benefit.
Reference is made to Section of the Underwriting Agreement between the
Registrant and Rickel & Associates, Inc. (the "Underwriter"), filed as Exhibit
1.1 to this Registration Statement, which provides for indemnification by the
Underwriter of the Registrant and the directors and officers of the Registrant
under certain limited circumstances.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing
II-1
<PAGE> 81
provisions, the Registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) which will be paid by the Registrant in connection
with the issuance and distribution of the securities being registered hereby.
With the exception of the SEC registration fee and the NASD filing fee, all
amounts indicated are estimates.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 8,674.91
NASD filing fee............................................. 3,015.72
NASDAQ filing fee........................................... 10,000.00
Underwriter's expense allowance............................. 251,625.00
Underwriter's consulting fee................................ 35,000.00
Directors' and Officers' liability insurance................ 180,000.00
Printing expenses (other than stock certificates)........... 80,000.00
Printing and engraving of stock and warrant certificates.... 3,000.00
Legal fees and expenses (other than blue sky)............... 100,000.00
Accounting fees and expenses................................ 70,000.00
Blue sky fees and expenses (including legal and filing
fees)..................................................... 50,000.00
Transfer Agent and Warrant Agent fees and expenses.......... 3,500.00
Miscellaneous............................................... 5,184.37
--------
Total............................................. $800,000.00
========
</TABLE>
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES
During the past three years, the Registrant has sold securities to a
limited number of persons, as described below. Except as indicated, there were
no underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith. The purchasers of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
certificates for the securities issued in such transactions. All purchasers of
securities in each such transaction had adequate access to information about the
Registrant.
1. On December 21, 1995, as part of a recapitalization, the Registrant
issued 29,679 shares of Common Stock to each of Sutter Health and the
John N. Kapoor Trust (the "Kapoor Trust") upon conversion of the
Series B Preferred Stock. The issuance of these shares was exempt from
registration under Section 3(a)(9) of the Securities Act.
2. On December 21, 1995, as part of a recapitalization, the Registrant
issued 8,717 shares of Common Stock to each of Sutter Health and the
Kapoor Trust in consideration for the cancellation of all accumulated
dividends on the Series B Preferred Stock. The issuance of these
shares was exempt from registration under Section 4(2) of the
Securities Act.
3. On December 21, 1995, as part of a recapitalization, the Registrant
issued 87,243 shares of Common Stock to Sutter Health and 12,464
shares of Common Stock to Keystone Financial Corporation ("Keystone")
upon conversion of the Series C Preferred Stock. The issuance of these
shares was exempt from registration under Section 3(a)(9) of the
Securities Act.
4. On December 21, 1995, as part of a recapitalization, the Registrant
issued 18,999 shares of Common Stock to Sutter Health and 3,086 shares
of Common Stock to Keystone in consideration for the cancellation of
all accumulated dividends on the Series C Preferred Stock. The
issuance of these shares was exempt from registration under Section
4(2) of the Securities Act.
II-2
<PAGE> 82
5. On December 21, 1995, as part of a recapitalization, the Registrant
issued a warrant to purchase 123,550 shares of Common Stock, at an
exercise price of $.02 per share, to International Business Machines
Corporation ("IBM") in exchange for the cancellation of the Company's
promissory note in the principal amount of $3,000,000 and accrued
interest thereon. The issuance of this warrant was exempt from
registration under Section 4(2) and 4(6) of the Securities Act.
6. On December 21, 1995, as part of a recapitalization, the Registrant
issued 674,921 shares of Series D Preferred Stock to EJ Financial
Investments V, L.P. ("EJ Financial") for an aggregate purchase price
of $666,667 ($.99 per share). In addition, EJ Financial received an
option to purchase an additional 337,400 shares of Series D Preferred
Stock on the same terms and conditions as it purchased the Series D
Preferred Stock, which option was exercised on February 19, 1996. The
issuance of these securities was exempt from registration under
Section 4(2) and 4(6) of the Securities Act.
7. On December 21, 1995, as part of a recapitalization, the Registrant
issued a warrant to purchase 1,349,842 shares of Series D Preferred
Stock (the "Series D Warrants") to IBM, at an exercise price of $.02
per share, for an aggregate purchase price of $1,333,333 ($.99 per
warrant). In addition, IBM received an option to purchase Series D
Warrants to purchase an additional 674,920 shares of Series D
Preferred Stock on the same terms and conditions as it purchased the
Series D Warrants, which option was exercised on February 19, 1996.
The issuance of these securities was exempt from registration under
Section 4(2) and 4(6) of the Securities Act.
8. On December 21, 1995, as part of a recapitalization, the Registrant
issued warrants to purchase 380,584 shares, 11,585 shares and 42,158
shares of Common Stock to Sutter Health, Sutter Health Venture
Partners L.P. and Keystone, respectively, at an exercise price of $.76
per share, in consideration for their consent to the terms of the
recapitalization. The issuance of these warrants was exempt from
registration under Section 4(2) and 4(6) of the Securities Act.
9. On December 21, 1995, as part of a recapitalization, the Registrant
issued warrants to purchase 118,478 shares, 3,607 shares and 13,125
shares of Common Stock to Sutter Health, Sutter Health Venture Partners
L.P. and Keystone, respectively, at an exercise price of $.76 per
share, in connection with the exercise of certain options by EJ
Financial and IBM. The issuance of these warrants was exempt from
registration under Section 4(2) and 4(6) of the Securities Act.
10. From July 24, 1993 through December 31, 1994, the Registrant granted
options to purchase an aggregate of 11,114 shares of Common Stock to
employees of the Registrant pursuant to the Registrant's employee
stock option plans, at an exercise price of $8.05 per share. The grant
of these options was exempt from registration under Section 4(2) of
the Securities Act.
11. From January 1, 1995 through December 31, 1995, the Registrant granted
options to purchase an aggregate of 31,850 shares of Common Stock to
employees of the Registrant pursuant to the Registrant's employee
stock option plans, at an exercise price of $5.01 per share. The grant
of these options was exempt from registration under Section 4(2) of
the Securities Act.
12. From January 1, 1996 through July 30, 1996, the Registrant granted
options to purchase an aggregate of 875,927 shares of Common Stock to
employees of the Registrant pursuant to the Registrant's employee
stock option plans, at an exercise price of $0.08 per share. The grant
of these options was exempt from registration under Section 4(2) of
the Securities Act.
ITEM 27. EXHIBITS
<TABLE>
<S> <C>
1.1 -- Form of Underwriting Agreement.
3.1 -- Form of Certificate of Incorporation of the Company, as amended.
3.2 -- By-laws of the Company.
4.1 -- Form of Underwriter's Warrants.
4.2 -- Form of Public Warrant Agreement.
* 4.3 -- Specimen Common Stock Certificate.
</TABLE>
II-3
<PAGE> 83
<TABLE>
<S> <C>
4.4 -- Specimen Warrant Certificate (included as Exhibit A to Exhibit 4.2 herein).
4.5 -- Form of Series D Preferred Stock Certificate.
4.6 -- Form of Consulting Agreement between the Company and Rickel & Associates,
Inc.
4.7 -- Common Stock Purchase Warrant issued by the Company to International
Business Machines Corporation ("IBM"), dated February 6, 1991, as amended
(included as Exhibit J to Exhibit 10.5 herein).
* 4.8 -- Stockholders' Agreement between the Founders of the Company and IBM, dated
February 6, 1991, as amended.
4.9 -- Common Stock Purchase Warrant issued by the Company to IBM, dated December
21, 1995 (included as Exhibit I to Exhibit 10.5 herein).
4.10 -- Series D Preferred Stock Purchase Warrant issued by the Company to IBM,
dated December 21, 1995 (included as Exhibit H to Exhibit 10.5 herein).
4.11 -- Warrant issued by the Company to Sutter Health, Sutter Health Venture
Partners ("Sutter Health VP") and Keystone Financial Corporation
("Keystone"), dated December 21, 1995 (included as Exhibits K, L and M,
respectively, to Exhibit 10.5 herein).
4.12 -- Registration Rights Agreement among the Company, IBM, John N. Kapoor Trust
("Kapoor"), EJ Financial Investments V, L.P. ("EJ Financial"), Keystone,
Sutter Health and Sutter Health VP, dated as of December 21, 1995 (included
as Exhibit G to Exhibit 10.5 herein).
4.13 -- 1995 Stock Option Plan, as amended.
4.14 -- Series D Preferred Stock Purchase Warrant issued by the Company to IBM,
dated February 29, 1996.
*5.1 -- Opinion of Snow Becker Krauss P.C.
*10.1 -- Loan and Warrant Purchase Agreement between the Company and IBM, dated as
of February 6, 1991.
10.2 -- License Agreement between the Company and IBM, dated February 6, 1991.
*10.3 -- Series B Preferred Stock Purchase Agreement among the Company, Sutter
Health and The John N. Kapoor Trust, dated as of April 10, 1992.
*10.4 -- Series C Preferred Stock Purchase Agreement among the Company, Sutter
Health and Keystone, dated as of November 13, 1992, as amended December 13,
1995.
10.5 -- Series D Preferred Stock and Warrant Purchase Agreement among the Company,
IBM and EJ Financial, dated December 21, 1995.
10.6 -- Investors Agreement among the Company, IBM, Wendy Shelton-Paul Trust,
William Bargar, Brent Mittelstadt, Peter Kazanzides, Kapoor, Sutter Health,
Sutter Health VP and EJ Financial, dated as of December 21, 1995 (included
as Exhibit F to Exhibit 10.5 herein).
10.7 -- Employment Agreement between the Company and Ramesh Trivedi, dated December
8, 1995.
11.1 -- Statement of Computation of earnings per share.
21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of Snow Becker Krauss P.C. (to be included in Exhibit 5.1 to this
Registration Statement).
23.2 -- Consent of Ernst & Young LLP, independent auditors, is included in Part II
of this Registration Statement.
24.1 -- Power of Attorney (included on the signature page of this Registration
Statement).
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
(A) RULE 415 OFFERING
The undersigned small business issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act.
II-4
<PAGE> 84
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information set forth in the registrant statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement relating
to the securities offered, and the offering of such securities at
that time to be the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(D) EQUITY OFFERINGS BY NON-REPORTING SMALL BUSINESS ISSUERS
The undersigned small business issuer hereby undertakes that it will
provide the Underwriters at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to
each purchaser.
(E) REQUEST FOR ACCELERATION OF EFFECTIVE DATE
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer
of the expenses incurred or paid by a director, officer, or
controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(F) RULE 430A OFFERING
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the small business issuer under Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declared it
effective.
(2) For determining any liability under the Securities Act, treat each
post-effect amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
II-5
<PAGE> 85
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENT FOR FILING ON FORM SB-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF SACRAMENTO IN THE STATE OF CALIFORNIA ON JULY 30,
1996.
INTEGRATED SURGICAL SYSTEMS, INC.
<TABLE>
<S> <C>
By: /s/ RAMESH C. TRIVEDI By: /s/ MICHAEL J. TOMCZAK
Ramesh Trivedi Michael J. Tomczak
Chief Executive Officer and Chief Financial Officer
President (Principal Financial and
(Principal Executive Officer) Accounting Officer)
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, THAT EACH INDIVIDUAL WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS RAMESH TRIVEDI AND MICHAEL J. TOMCZAK,
ACTING SINGLY, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER
OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITATES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME
AND ALL EXHIBITS THERETO, AND ALL DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING SAID ATTORNEY-IN-FACT AND AGENT,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE AND NECESSARY TO BE DONE IN ABOUT THE PREMISES, AS FULL TO ALL INTENTS
AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEY-IN-FACT AND AGENT, OR HIS SUBSTITUTE OR SUBSTITUTES, MAY
LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON JULY 30,
1996, IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ Chief Executive Officer, President, and
RAMESH C. TRIVEDI Director (Principal Executive Officer)
- ---------------------------------------------
Ranesh Trivedi
/s/ Vice President and Chief Financial Officer
MICHAEL J. TOMCZAK (Principal Financial and Accounting
- --------------------------------------------- Officer)
Michael J. Tomczak
/s/ Chairman of the Board of Directors
JAMES C. MCGRODDY
- ---------------------------------------------
James C. McGroddy
/s/ Director
WENDY SHELTON-PAUL
- ---------------------------------------------
Wendy Shelton-Paul
/s/ Director
JOHN N.KAPOOR
- ---------------------------------------------
John N. Kapoor
/s/ Director
PAUL A.H. PANKOW
- ---------------------------------------------
Paul A.H. Pankow
</TABLE>
II-6
<PAGE> 86
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGED
- --------- --------------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement. ...........................................
3.1 -- Form of Certificate of Incorporation of the Company, as amended. ..........
3.2 -- By-laws of the Company. ...................................................
4.1 -- Form of Underwriter's Warrants. ...........................................
4.2 -- Form of Public Warrant Agreement. .........................................
* 4.3 -- Specimen Common Stock Certificate. ........................................
4.4 -- Specimen Warrant Certificate (included as Exhibit A to Exhibit 4.2
herein). ..................................................................
4.5 -- Form of Series D Preferred Stock Certificate. .............................
4.6 -- Form of Consulting Agreement between the Company and Rickel & Associates,
Inc. ......................................................................
4.7 -- Common Stock Purchase Warrant issued by the Company to International
Business Machines Corporation ("IBM"), dated February 6, 1991, as amended
(included as Exhibit J to Exhibit 10.5 herein). ...........................
* 4.8 -- Stockholders' Agreement between the Founders of the Company and IBM, dated
February 6, 1991, as amended. .............................................
4.9 -- Common Stock Purchase Warrant issued by the Company to IBM, dated December
21, 1995 (included as Exhibit I to Exhibit 10.5 herein). ..................
4.10-- Series D Preferred Stock Purchase Warrant issued by the Company to IBM,
dated December 21, 1995 (included as Exhibit H to Exhibit 10.5 herein). ...
4.11-- Warrant issued by the Company to Sutter Health, Sutter Health Venture
Partners ("Sutter Health VP") and Keystone Financial Corporation
("Keystone"), dated December 21, 1995 (included as Exhibits K, L and M,
respectively, to Exhibit 10.5 herein). ....................................
4.12-- Registration Rights Agreement among the Company, IBM, John N. Kapoor Trust
("Kapoor"), EJ Financial Investments V, L.P. ("EJ Financial"), Keystone,
Sutter Health and Sutter Health VP, dated as of December 21, 1995 (included
as Exhibit G to Exhibit 10.5 herein). .....................................
4.13-- 1995 Stock Option Plan, as amended. .......................................
4.14-- Series D Preferred Stock Purchase Warrant issued by the Company to IBM,
dated February 29, 1996. ..................................................
*5.1 -- Opinion of Snow Becker Krauss P.C. ........................................
*10.1 -- Loan and Warrant Purchase Agreement between the Company and IBM, dated as
of February 6, 1991. ......................................................
10.2 -- License Agreement between the Company and IBM, dated February 6, 1991. ....
*10.3 -- Series B Preferred Stock Purchase Agreement among the Company, Sutter
Health and The John N. Kapoor Trust, dated as of April 10, 1992. ..........
*10.4 -- Series C Preferred Stock Purchase Agreement among the Company, Sutter
Health and Keystone, dated as of November 13, 1992, as amended December 13,
1995. .....................................................................
10.5 -- Series D Preferred Stock and Warrant Purchase Agreement among the Company,
IBM and EJ Financial, dated December 21, 1995. ............................
10.6 -- Investors Agreement among the Company, IBM, Wendy Shelton-Paul Trust,
William Bargar, Brent Mittelstadt, Peter Kazanzides, Kapoor, Sutter Health,
Sutter Health VP and EJ Financial, dated as of December 21, 1995 (included
as Exhibit F to Exhibit 10.5 herein). .....................................
10.7 -- Employment Agreement between the Company and Ramesh Trivedi, dated December
8, 1995. ..................................................................
11.1 -- Statement of Computation of earnings per share. ...........................
21.1 -- Subsidiaries of the Company. ..............................................
*23.1 -- Consent of Snow Becker Krauss P.C. (to be included in Exhibit 5.1 to this
Registration Statement). ..................................................
23.2 -- Consent of Ernst & Young LLP, independent auditors, is included in Part II
of this Registration Statement. ...........................................
24.1 -- Power of Attorney (included on the signature page of this Registration
Statement). ...............................................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
INTEGRATED SURGICAL SYSTEMS, INC.
1,500,000 Shares of Common Stock
and
1,500,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
_______ __, 1996
Rickel & Associates, Inc.
875 Third Avenue
New York, New York 10022
Gentlemen:
Integrated Surgical Systems, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with Rickel & Associates, Inc. ("you"
or the "Underwriter") as set forth below.
The Company proposes to issue and sell to the Underwriter an
aggregate of (i) 1,500,000 shares (the "Firm Shares") of the Company's common
stock, par value $.01 per share (the "Common Stock") and (ii) 1,500,000
redeemable warrants to purchase Common Stock (the "Firm Warrants"). The Company
also proposes to grant to the Underwriter an option to purchase (i) up to an
additional 225,000 shares of Common Stock and (ii) up to an additional 225,000
redeemable warrants to purchase Common Stock, as provided in section 2(c) of
this agreement. Any and all shares of Common Stock to be purchased by the
Underwriter pursuant to such option are referred to herein as the "Option
Shares," and the Firm Shares and any Option Shares are collectively referred to
herein as the "Shares." Any and all redeemable warrants to purchase Common Stock
to be purchased by the Underwriter pursuant to such option are referred to
herein as the "Option Warrants," and the Firm Warrants and any Option Warrants
are collectively referred to herein as the "Warrants." Any shares of Common
Stock issuable upon the exercise of any Warrants are referred to herein as
"Warrant Shares." The Firm Shares and the Firm Warrants are collectively
referred to herein as the "Firm Securities"; the Option Shares and the Option
Warrants are collectively referred to herein as the "Option Securities;" and the
Firm Securities, the Option Securities and the Warrant Shares are collectively
referred to herein as the "Securities."
<PAGE> 2
Pursuant to an agreement to be entered into among the Company,
the Underwriter and [name of warrant and transfer agent] (first anniversary of
the "Warrant Agreement"), each Warrant will be exercisable during the period
commencing on the first anniversary of the effective date of the Registration
Statement (as hereinafter defined) (the "Effective Date") and expiring on the
fifth anniversary thereof, subject to prior redemption by the Company (as
described below), at an initial exercise price (subject to adjustment as set
forth in the Warrant Agreement) equal to $7.00 per share. The Warrants will be
redeemable at a price of $.10 per Warrant, commencing on the first anniversary
of the Effective Date and prior to their expiration, upon not less than 30 days
prior written notice to the holders of the Warrants, provided the average
closing bid quotations of Common Stock as reported on The Nasdaq Stock Market if
traded thereon, or if not traded thereon, the average closing sale price if
listed on a national or regional securities exchange (or other reporting system
that provides last sales prices), shall have been at least 150% of the then
current Warrant exercise price (initially $10.50 per share, subject to
adjustment), for a period of 20 consecutive trading days ending on the third day
prior to the date on which the Company gives notice of redemption, subject to
the right of the holder to exercise such Warrants prior to redemption.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form SB-2 (File No.
333-_____) with respect to the Securities and the Underwriter's Warrant
Securities (as hereinafter defined), including a prospectus subject to
completion, has been filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933 (the "Act"), and
one or more amendments to that registration statement may have been so filed.
Copies of such registration statement and of each amendment heretofore filed by
the Company with the Commission have been delivered to you. After the execution
of this agreement, the Company will file with the Commission either (i) if the
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, a prospectus in the form most recently
included in that registration statement (or, if an amendment thereto shall have
been filed, in such amendment), with such changes or insertions as are required
by Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by the Underwriter prior to the execution of this
agreement, or (ii) if that registration statement, as it may have been amended,
has not been declared by the Commission to be effective under the Act, an
amendment to that registration statement, including a form of prospectus, a copy
of which amendment has been furnished to and approved by the Underwriter prior
to the execution of this agreement. As used in this agreement, the term
"Registration Statement" means that registration statement, as amended at the
time it was or is declared effective, and any amendment thereto that was or is
thereafter declared effective, including all financial schedules and exhibits
thereto and any information omitted therefrom pursuant to Rule 430A under the
Act and included in the Prospectus (as hereinafter defined); the term
-2-
<PAGE> 3
"Preliminary Prospectus" means each prospectus subject to completion filed with
that registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement at the
time it was or is declared effective); and the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b) under the Act
or, if no prospectus is so filed pursuant to Rule 424(b), the prospectus
included in the Registration Statement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
those copies for the purposes permitted by the Act.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When each Preliminary
Prospectus and each amendment and each supplement thereto was filed with the
Commission it (i) contained all statements required to be stated therein, in
accordance with, and complied with the requirements of, the Act and the rules
and regulations of the Commission thereunder and (ii) did not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. When the Registration Statement was or is
declared effective, it (i) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus and each amendment or
supplement thereto is filed with the Commission pursuant to Rule 424(b) (or, if
the Prospectus or such amendment or supplement is not required so to be filed,
when the Registration Statement containing such Prospectus or amendment or
supplement thereto was or is declared effective) and on the Firm Closing Date
and any Option Closing Date (as each such term is hereinafter defined), the
Prospectus, as amended or supplemented at any such time, (i) contained or will
contain all statements required to be stated therein in accordance with, and
complied or will comply with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by the Underwriter specifically for use
therein.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the state of
Delaware and is duly qualified or authorized to transact business as a foreign
corporation and is in good standing in each jurisdiction where the ownership or
leasing of its property or the conduct of its business requires such
qualification or authorization.
-3-
<PAGE> 4
(d) The Company has full corporate power and authority to
own or lease its property and conduct its business as now being conducted and as
proposed to be conducted as described in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(e) The Company does not own, directly or indirectly, any
capital stock of any corporation, any interest in any partnership or limited
liability company or any other equity interest or participation in any other
person.
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. There are no
outstanding options, warrants or other rights granted by the Company to purchase
shares of its Common Stock or other securities, other than as described in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The Shares and the Warrant Shares have been duly
authorized, and the Warrant Shares have been duly reserved for issuance, by all
necessary corporate action on the part of the Company and, when the Shares are
issued and delivered to and paid for by the Underwriter pursuant to this
agreement and the Warrants Shares are issued and delivered to and paid for by
the holders of Warrants upon exercise of the Warrants in accordance with the
terms thereof, the Shares and the Warrant Shares will be validly issued, fully
paid, nonassessable and free of preemptive rights and will conform to the
description thereof in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). No holder of outstanding
securities of the Company is entitled as such to any preemptive or other right
to subscribe for any of the Securities, and no person is entitled to have
securities registered by the Company under the Registration Statement or
otherwise under the Act other than as described in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(g) The capital stock of the Company conforms to the
description thereof contained in the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(h) Since the inception of the Company on October 1, 1990
all issuances of securities of the Company were effected pursuant to valid
private offerings exempt from registration pursuant to section 4(2) of the Act.
Since the inception of the Company, no compensation was paid to or on behalf of
any member of the National Association of Securities Dealers, Inc. ("NASD"), or
any affiliate or employee thereof, in connection with any such private offering,
except as previously disclosed in writing to the Underwriter.
-4-
<PAGE> 5
(i) The financial statements of the Company included in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the financial
position of the Company as of the dates indicated and the results of operations
of the Company for the periods specified. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied. The financial data set forth under the caption "Summary
Financial Information" in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present, on the basis
stated in the Prospectus (or such Preliminary Prospectus), the information
included therein.
(j) Ernst & Young, LLP who have audited certain financial
statements of the Company and delivered their report with respect to the
financial statements included in the Registration Statement and the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), are independent auditors with respect to the Company as required by
the Act and the applicable rules and regulations thereunder.
(k) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus (and, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), (i) except as
otherwise contemplated therein, there has been no material adverse change in the
business, operations, condition (financial or otherwise), earnings or prospects
of the Company, whether or not arising in the ordinary course of business, (ii)
except as otherwise stated therein, there have been no transactions entered into
by the Company and no commitments made by the Company that, individually or in
the aggregate, are material with respect to the Company, (iii) there has not
been any change in the capital stock or indebtedness of the Company, and (iv)
there has been no dividend or distribution of any kind declared, paid or made by
the Company in respect of any class of its capital stock.
(l) The Company has full corporate power and authority to
enter into and perform its obligations under this agreement and the
Underwriter's Warrant Agreement (as hereinafter defined). The execution and
delivery of this agreement and the Underwriter's Warrant Agreement have been
duly authorized by all necessary corporate action on the part of the Company and
this agreement and the Underwriter's Warrant Agreement have each been duly
executed and delivered by the Company and each is a valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and other similar laws
affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law), and except as rights to indemnity and contribution under this agreement
may be limited by applicable law. The issuance, offering and sale by the Company
to the Underwriter of the Securities pursuant to this agreement or the
Underwriter's Securities pursuant to the Underwriter's Warrant
-5-
<PAGE> 6
Agreement, the compliance by the Company with the provisions of this agreement
and the Underwriter's Warrant Agreement, and the consummation of the other
transactions contemplated in this agreement and the Underwriter's Warrant
Agreement do not (i) require the consent, approval, authorization, registration
or qualification of or with any court or governmental or regulatory authority,
except such as have been obtained, such as may be required under state
securities or blue sky laws and, if the registration statement filed with
respect to the Securities (as amended) is not effective under the Act as of the
time of execution hereof, such as may be required (and shall be obtained as
provided in this agreement) under the Act, or (ii) conflict with or result in a
breach or violation of, or constitute a default under, any contract, indenture,
mortgage, deed of trust, loan agreement, note, lease or other agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any of its property is bound or subject, or the
certificate of incorporation or by-laws of the Company or any Subsidiary, or any
statute or any rule, regulation, judgment, decree, or order of any court or
other governmental or regulatory authority or any arbitrator applicable to the
Company or any Subsidiary.
(m) No legal or governmental proceedings are pending to
which the Company or any Subsidiary is a party or to which the property of the
Company is subject and no such proceedings have been threatened against the
Company or with respect to any of its property, except such as are described in
the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). No contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described therein (and, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus) or
filed as required.
(n) The Company is not in (i) violation of its
certificate of incorporation or by-laws, (ii) violation in any material respect
of any law, statute, regulation, ordinance, rule, order, judgment or decree of
any court or any governmental or regulatory authority applicable to the Company,
or (iii) default in any material respect in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease or other
agreement or instrument to which the Company is a party or by which it or any of
its property may be bound or subject.
(o) The Company currently owns or possesses adequate
rights to use all intellectual property, including all U.S. and foreign patents,
trademarks, service marks, trade names, copyrights, inventions, know-how, trade
secrets, proprietary technologies, processes and substances, or applications or
licenses therefor, that are described in the Prospectus (and if the Prospectus
is not in existence, the most recent Preliminary Prospectus), and any other
rights or interests in items of intellectual property as are necessary for the
conduct of the business now conducted or proposed to be conducted by it as
described in the Prospectus (or, such Preliminary Prospectus); and, except as
-6-
<PAGE> 7
disclosed in the Prospectus (and such Preliminary Prospectus), the Company is
not aware of the granting of any patent rights to, or the filing of applications
therefor by, others, nor is the Company aware of, nor has the Company received
notice of, infringement of or conflict with asserted rights of others with
respect to any of the foregoing. All such intellectual property rights and
interests are (i) valid and enforceable and (ii) to the best knowledge of the
Company, not being infringed by any third parties.
(p) The Company possesses adequate licenses, orders,
authorizations, approvals, certificates or permits issued by the appropriate
federal, state or foreign regulatory agencies or bodies necessary to conduct its
business as described in the Registration Statement and the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus),
and, except as disclosed in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), there are no pending or, to
the best knowledge of the Company, threatened, proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit.
(q) The Company has good and marketable title to all of
the properties and assets reflected in the Company's financial statements or as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), subject
to no lien, mortgage, pledge, charge or encumbrance of any kind, except those
reflected in such financial statements or as described in the Registration
Statement and the Prospectus (and such Preliminary Prospectus). The Company
occupies its leased properties under valid and enforceable leases conforming to
the description thereof set forth in the Registration Statement and the
Prospectus (and such Preliminary Prospectus).
(r) The Company is not subject to registration as an
"investment company" under the Investment Company Act of 1940.
(s) The Company has obtained and delivered to the
Underwriter the agreements (the "Lock-up Agreements") with respect to all
outstanding shares of Common Stock or preferred stock to the effect that, among
other things, each such person (i) will not, commencing on the Effective Date
and continuing for periods of 18 months thereafter, directly or
indirectly, sell, offer or contract to sell or grant any option to purchase,
transfer, assign or pledge, or otherwise encumber, or dispose of any shares of
Common Stock or preferred stock or any securities convertible into or
exercisable for Common Stock or preferred stock now or hereafter owned by such
person without the prior written consent of the Underwriter, and (ii) will
comply with any additional restriction or condition on the disposition of such
Common Stock or preferred stock which may be required to qualify the offering of
the Securities in any state in accordance with the blue sky or securities laws
of such state.
-7-
<PAGE> 8
(t) No labor dispute with the employees of the Company
exists, is threatened or, to the best of the Company's knowledge, is imminent
that could result in a material adverse change in the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(u) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which it is engaged; the Company
has not been refused any insurance coverage sought or applied for; and the
Company has no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at a
cost that would not materially and adversely affect the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Underwriter's Warrants will conform to the
description thereof in the Registration Statement and in the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus) and,
when sold to and paid for by the Underwriter in accordance with the
Underwriter's Warrant Agreement, will have been duly authorized and validly
issued and will constitute valid and binding obligations of the Company entitled
to the benefits of the Underwriter's Warrant Agreement. The Underwriter's
Warrant Shares (as hereinafter defined) and the Underwriter's Warrant Warrant
Shares (as hereinafter defined) have been duly authorized and reserved for
issuance upon exercise of the Underwriter's Warrants and the Underwriter's
Warrant Warrants (as hereinafter defined), respectively, by all necessary
corporate action on the part of the Company and, when issued and delivered and
paid for upon such exercise in accordance with the terms of the Underwriter's
Warrant Agreement and the Underwriter's Warrant Warrants, respectively, will be
validly issued, fully paid, nonassessable and free of preemptive rights and will
conform to the description thereof in the Prospectus (and, if the Prospectus is
not in existence, the most recent Preliminary Prospectus).
(w) No person has acted as a finder in connection with,
or is entitled to any commission, fee or other compensation or payment for
services as a finder for or for originating, or introducing the parties to, the
transactions contemplated herein and the Company will indemnify the Underwriter
with respect to any claim for finder's fees in connection herewith. Except as
set forth in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), the
Company has no management or financial consulting agreement with anyone. No
promoter, officer, director or stockholder of the Company is, directly or
indirectly, affiliated or
-8-
<PAGE> 9
associated with an NASD member, no securities of the Company have been acquired
by an NASD member except as has been previously disclosed in writing to the
Underwriter.
2. Purchase, Sale and Delivery of the Securities and the Warrant
Securities.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the
Underwriter, and the Underwriter agrees to purchase from the Company, the Firm
Shares at a purchase price of $5.43 per share and the Firm Warrants at a
purchase price of $.0905 per warrant.
(b) Certificates in definitive form for the Firm
Securities that the Underwriter has agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Underwriter requests upon notice to the Company at least 48 hours prior to the
Firm Closing Date, shall be delivered by or on behalf of the Company to the
Underwriter, against payment by or on behalf of the Underwriter of the purchase
prices therefor by certified or official bank check or checks drawn upon or by a
New York Clearing House bank and payable in next-day funds to the order of the
Company. Such delivery of and payment for the Firm Securities shall be made at
the offices of Counsel for the Underwriter, 1211 Avenue of the Americas, New
York, New York (the "Underwriter's Office") at 9:30 A.M., New York time, on ____
__, 1996, or at such other place, time or date as the Underwriter and the
Company may agree upon, such time and date of delivery against payment being
herein referred to as the "Firm Closing Date." The Company will make such
certificates for the Firm Securities available for checking and packaging by
the Underwriter, at the Underwriter's option, at the offices in New York, New
York of the Company's transfer agent and registrar or Counsel for the
Underwriter's Office at least 24 hours prior to the Firm Closing Date.
(c) For the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Securities as contemplated
by the Prospectus, the Company hereby grants to the Underwriter an option to
purchase any or all of the Option Securities. The purchase price to be paid for
any of the Option Securities shall be the same price per share or warrant as the
price per share or warrant for the Firm Securities set forth above in paragraph
(a) of this section 2. The option granted hereby may be exercised as to all or
any part of the Option Securities from time to time within 45 calendar days
after the Firm Closing Date. The Underwriter shall not be under any obligation
to purchase any of the Option Securities prior to the exercise of such option.
The Underwriter may from time to time exercise the option granted hereby by
giving notice in writing or by telephone (confirmed in writing) to the Company
setting forth the aggregate number of Option Securities as to which the
Underwriter is then exercising the option and the date and time for delivery of
and payment for such Option Securities. Any such date of delivery shall be
determined by the Underwriter but shall not be earlier than two business days or
later than
-9-
<PAGE> 10
three business days after such exercise of the option and, in any event, shall
not be earlier than the Firm Closing Date. The time and date set forth in such
notice, or such other time on such other date as the Underwriter and the Company
may agree upon, is herein called the "Option Closing Date" with respect to such
Option Securities. Upon exercise of the option as provided herein, the Company
shall become obligated to sell to the Underwriter, and, subject to the terms and
conditions herein set forth, the Underwriter shall become obligated to purchase
from the Company, the Option Securities as to which the Underwriter is then
exercising its option. If the option is exercised as to all or any portion of
the Option Securities, certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
paragraph (b) of this section 2, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (c), to refer to such Option Securities and Option Closing Date,
respectively.
(d) On the Firm Closing Date, the Company will further
issue and sell to the Underwriter or, at the direction of the Underwriter, to
bona fide officers of the Underwriter, for an aggregate purchase price of
$10.00, warrants to purchase Common Stock and redeemable warrants to purchase
Common Stock (the "Underwriter's Warrants") entitling the holders thereof to
purchase an aggregate of 150,000 shares of Common Stock and 150,000 redeemable
warrants to purchase Common Stock for a period of four years, such period to
commence on the first anniversary of the Effective Date. The Underwriter's
Warrants shall be exercisable at a price equal to 165% of the initial public
offering price per share and warrant, respectively and shall contain terms and
provisions more fully described herein below and as set forth more particularly
in the warrant agreement relating to the Underwriter's Warrants to be executed
by the Company on the Effective Date (the "Underwriter's Warrant Agreement"),
including, but not limited to, (i) customary anti-dilution provisions in the
event of stock dividends, split mergers, sales of all or substantially all of
the Company's assets, sales of stock below then prevailing market or exercise
prices and other events, and (ii) prohibitions of mergers, consolidations or
other reorganizations of or by the Company or the taking by the Company of other
action during the five-year period following the Effective Date unless adequate
provision is made to preserve, in substance, the rights and powers incidental to
the Underwriter's Warrants. As provided in the Underwriter's Warrant Agreement,
the Underwriter may designate that the Underwriter's Warrants be issued in
varying amounts directly to bona fide officers of the Underwriter. As further
provided, no sale, transfer, assignment, pledge or hypothecation of the
Underwriter's Warrants shall be made for a period of 12 months from the
Effective Date, except (i) by operation of law or reorganization of the Company,
or (ii) to the Underwriter and bona fide partners, directors and officers of the
Underwriter and selling group members. The shares of Common Stock issuable upon
exercise of the Underwriter's Warrants are referred to herein as the
"Underwriter's Warrant Shares"; the warrants issuable upon exercise of the
Underwriter's Warrants are referred to herein as the "Underwriter's Warrant
Warrants"; the shares of Common Stock issuable upon exercise of the
Underwriter's Warrant Warrants are referred to herein as the "Underwriter's
Warrant Warrant Shares"; and the Underwriter's
-10-
<PAGE> 11
Warrant Shares, the Underwriter's Warrant Warrants and the Underwriter's Warrant
Warrant Shares are collectively referred to herein as the "Underwriter's
Securities."
3. Offering by the Underwriter. The Underwriter proposes to offer
the Firm Shares for sale to the public upon the terms set forth in the
Prospectus.
4. Covenants of the Company. The Company covenants and agrees
with the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
agreement, to become effective as promptly as possible. If required, the Company
will file the Prospectus and any amendment or supplement thereto with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act. During any time when a prospectus relating to the Securities is
required to be delivered under the Act, the Company (i) will comply with all
requirements imposed upon it by the Act and the rules and regulations of the
Commission thereunder to the extent necessary to permit the continuance of sales
of or dealings in the Securities in accordance with the provisions hereof and of
the Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission any prospectus or amendment referred to in the first sentence of
section 1(a) hereof, any amendment or supplement to such prospectus or any
amendment to the Registration Statement as to which the Underwriter shall not
previously have been advised and furnished with a copy for a reasonable period
of time prior to the proposed filing and as to which filing the Underwriter
shall not have given its consent. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the Commission,
promptly upon request by the Underwriter or counsel to the Underwriter, any
amendments to the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Shares by the Underwriter, and will use its best efforts to
cause any such amendment to the Registration Statement to be declared effective
by the Commission as promptly as possible. The Company will advise the
Underwriter, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Underwriter of each such
filing or effectiveness.
(b) The Company will advise the Underwriter, promptly
after receiving notice or obtaining knowledge thereof, of (i) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
(ii) the suspension of the qualification of any Securities for offering or sale
in any jurisdiction, (iii) the institution, threat or contemplation of any
proceeding for any such purpose or (iv) any request made by the Commission for
amending the Registration Statement, for amending or supplementing the
Prospectus or for additional
-11-
<PAGE> 12
information. The Company will use its best efforts to prevent the issuance of
any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(c) The Company will, in cooperation with counsel to the
Underwriter, arrange for the qualification of the Securities for offering and
sale under the blue sky or securities laws of such jurisdictions as the
Underwriter may designate and will continue such qualifications in effect for as
long as may be necessary to complete the distribution of the Securities.
(d) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs as a
result of which the Prospectus, as then amended or supplemented, would include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any other
reason it is necessary at any time to amend or supplement the Prospectus to
comply with the Act or the rules or regulations of the Commission thereunder,
the Company will promptly notify the Underwriter thereof and, subject to section
4(a) hereof, will prepare and file with the Commission, at the Company's
expense, an amendment to the Registration Statement or an amendment or
supplement to the Prospectus that corrects such statement or omission or effects
such compliance.
(e) So long as any warrants are outstanding, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Underwriter and any
dealer as many copies of each such Prospectus as the Underwriter or dealer may
reasonably request. The Company shall not call for redemption of the Warrants
unless a registration statement covering the securities underlying the Warrants
has been declared effective by the Commission and remains current at least until
the date fixed for redemption. In addition, for so long as any Warrant is
outstanding, the Company will promptly notify the Underwriter of any material
change in the business, financial condition or prospects of the Company. So long
as any of the Warrants remain outstanding, the Company will timely deliver and
supply to its Warrant agent sufficient copies of the Company's current
Prospectus, as will enable such Warrant agent to deliver a copy of such
Prospectus to any Warrant or other holder where such Prospectus delivery is by
law required to be made.
(f) The Company will, without charge, provide to the
Underwriter and to counsel for the Underwriter (i) as many signed copies of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) as the Underwriter
may reasonably request, (ii) as many
-12-
<PAGE> 13
conformed copies of such registration statement and each amendment thereto (in
each case without exhibits thereto) as the Underwriter may reasonably request
and (iii) so long as a prospectus relating to the Securities is required to be
delivered under the Act, as many copies of each Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto as the Underwriter may
reasonably request. The Company will timely file, and will provide or cause to
be provided to the Underwriter and counsel to the Underwriter a copy of the
report on Form SR required to be filed by the Company pursuant to Rule 463 under
the Act.
(g) The Company, as soon as practicable, will make
generally available to its security holders and to the Underwriter an earnings
statement of the Company that satisfies the provisions of section 11(a) of the
Act and Rule 158 thereunder.
(h) The Company will reserve and keep available for
issuance that maximum number of its authorized but unissued shares of Common
Stock which are issuable upon exercise of the Warrants and issuable upon
exercise of the Underwriter's Warrants (including the underlying securities)
outstanding from time to time.
(i) The Company will apply the net proceeds from the sale
of the Securities as set forth under "Use of Proceeds" in the Prospectus.
(j) The Company will not, without the prior written
consent of the Underwriter, directly or indirectly offer, agree to sell, sell,
grant any option to purchase or otherwise dispose (or announce any offer,
agreement to sell, sale, grant of any option to purchase or other disposition)
of any shares of Common Stock, preferred stock or any securities convertible
into, or exchangeable or exercisable for, shares of Common Stock or preferred
stock for a period of 24 months after the Effective Date, except (i) the Shares
and Warrants issued pursuant to this agreement, (ii) the Warrant Shares issuable
upon exercise of the Warrants, (iii) the Underwriter's Warrant, (iv) the
Underwriter's Warrant Shares and Underwriter's Warrant Warrants issuable upon
the exercise of the Underwriter's Warrants, (v) the Underwriter's Warrant
Warrant Shares issuable upon exercise of the Underwriter's Warrant Warrants, and
(vi) up to a maximum of ________ shares of Common Stock issuable upon the
exercise of options granted under the Company's Stock Option Plan.
(k) Prior to the Closing Date or the Option Closing Date
(if any), the Company will not, directly or indirectly, without your prior
written consent, which shall not be unreasonably withheld or delayed, issue any
press release or other public announcement or hold any press conference with
respect to the Company or its activities with respect to the Offering (other
than trade releases issued in the ordinary course of the Company's business
consistent with past practices with respect to the Company's operations).
-13-
<PAGE> 14
(l) If, at the time that the Registration Statement
becomes effective, any information shall have been omitted therefrom in reliance
upon Rule 430A under the Act, then immediately following the execution of this
agreement, the Company will prepare, and file or transmit for filing with the
Commission in accordance with Rule 430A and Rule 424(b) under the Act, copies of
the Prospectus including the information omitted in reliance on Rule 430A, or,
if required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted.
(m) The Company will cause the Securities to be included
in The Nasdaq Small Cap Market, the Boston and Pacific Stock Exchanges on the
Effective Date and to maintain such listings thereafter. The Company will file
with Nasdaq Small Cap Market, the Boston and Pacific Stock Exchanges all
documents and notices that are required by _______ of companies with securities
that are traded on the Nasdaq Small Cap Market, the Boston and Pacific Stock
Exchanges.
(n) During the period of five years from the Firm Closing
Date, the Company will, as promptly as possible, (i) not to exceed 90 days,
after each annual fiscal period render and distribute reports to its
stockholders which will include audited statements of its operations and changes
of financial position during such period and its audited balance sheet as of the
end of such period, as to which statements the Company's independent certified
public accountants shall have rendered an opinion and (ii) not to exceed 45
days, after each of the first three quarterly fiscal periods render and
distribute reports to its stockholders which will include unaudited statements
of its operations and changes in financial position during such period and
year-to-date period and its unaudited balance sheet as of the end of such
period.
(o) During a period of three years commencing with the
Firm Closing Date, the Company will furnish to the Underwriter, at the Company's
expense, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission.
(p) The Company has appointed _________________________
_____________ as transfer agent for the Common Stock and warrant agent for the
Warrants, subject to the Closing. The Company will not change or terminate such
appointment for a period of three years from the Firm Closing Date without first
obtaining the written consent of the Underwriter. For a period of three years
after the Effective Date, the Company shall cause the transfer agent and warrant
agent to deliver promptly to the Underwriter a duplicate copy of the daily
transfer sheets relating to trading of the Securities. The Company shall also
provide to the Underwriter, promptly upon its request, up to four times in any
calendar year, copies of DTC or equivalent transfer sheets.
(q) During the period of 180 days after the date of this
agreement, the Company will not at any time, directly or indirectly, take any
action designed to or that
-14-
<PAGE> 15
will constitute, or that might reasonably be expected to cause or result in, the
stabilization of the price of the Common Stock to facilitate the sale or resale
of any of the Shares.
(r) The Company will not take any action to facilitate
the sale of any shares of Common Stock pursuant to Rule 144 under the Act if any
such sale would violate any of the terms of the Lock-up Agreements.
(s) Prior to the 90th day after the Firm Closing Date,
the Company will provide the Underwriter and its designees with four bound
volumes of the transaction documents relating to the Registration Statement and
the closing(s) hereunder, in form and substance reasonably satisfactory to the
Underwriter.
(t) The Company shall consult with the Underwriter prior
to the distribution to third parties of any financial information news releases
or other publicity regarding the Company, its business, or any terms of this
offering and the Underwriter will consult with the Company prior to the issuance
of any research report or recommendation concerning the Company's securities.
Copies of all documents that the Company or its public relations firm intend to
distribute will be provided to the Underwriter for review prior to such
distribution.
(u) The Company and the Underwriter will advise each
other immediately in writing as to any investigation, proceeding, order, event
or other circumstance, or any threat thereof, by or relating to the Commission
or any other governmental authority, that could impair or prevent this offering.
Except as required by law or as otherwise mutually agreed in writing, neither
the Company nor the Underwriter will acquiesce in such circumstances and each
will actively defend any proceedings or orders in that connection.
(v) The Company will, for a period of no less than three
years commencing immediately after the Effective Date, engage a designee by the
Underwriter as advisor (the "Advisor") to the Company's Board of Directors, who
shall attend meetings of the Board, receive all notices and other correspondence
and communications sent by the Company to its Board of Directors and receive
compensation equal to that of other non-officer directors; provided, that in
lieu of the Underwriter's right to designate an Advisor, the Underwriter shall
have the right during such three-year period, in its sole discretion, to
designate one person for election as a director of the Company and the Company
will utilize its best efforts to obtain the election of such person who shall be
entitled to receive the same compensation, expense reimbursements and other
benefits as set forth above. In addition, such Advisor shall be entitled to
receive reimbursement for all costs incurred in attending such meetings
including, but not limited to, food, lodging and transportation. The Company,
during said three-year period, shall schedule no less than four formal meetings
(at least one of which shall be "in person" and the others may be held
telephonically) of its Board of Directors in each such year at which meetings
such Advisor shall be permitted to
-15-
<PAGE> 16
attend (in person, for each meeting held "in person") as set forth herein; said
meetings shall be held quarterly each year and advance notice of such meetings
identical to the notice given to directors shall be given to the Advisor. The
Company and its principal stockholders shall, during such three year period,
give the Underwriter timely prior written notice of any proposed acquisitions,
mergers, reorganizations or other similar transactions. The Company shall
indemnify and hold the Underwriter and such Advisor or director harmless against
any and all claims, actions, damages, costs and expenses, and judgments arising
solely out of the attendance and participation of such Advisor or director at
any such meeting described herein, and, if the Company maintains a liability
insurance policy affording coverage for the acts of its officers and directors,
it shall, if possible, include such Advisor or director as an insured under such
policy.
(w) The Company shall first submit to the Underwriter
certificates representing the Securities for approval prior to printing, and
shall, as promptly as possible, after filing the Registration Statement with the
Commission, obtain CUSIP numbers for the Securities.
(x) The Company shall engage the Underwriter's counsel to
provide the Underwriter, at the closing of any sale of Securities hereunder and
quarterly thereafter, with an opinion, setting forth those states in which the
Common Stock and Warrants may be traded in non-issuer transactions under the
blue sky or securities laws of the 50 states. The Company shall pay such counsel
a one-time fee of $7,500 for such opinions at the closing of the sale of the
Firm Securities
(y) The Company will prepare and file a registration
statement with the Commission pursuant to section 12(g) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and will use its best efforts
to have such registration statement declared effective by the Commission on an
accelerated basis on the day after the Effective Date. For this purpose the
Company shall prepare and file with the Commission a General Form of
Registration of Securities (Form 8-A or Form 10).
(z) For so long as the Securities are registered under
the 1934 Act, the Company will hold an annual meeting of stockholders for the
election of directors within 180 days after the end of each of the Company's
fiscal years and within 150 days after the end of each of the Company's fiscal
years will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by Rule 14a-3 under
the 1934 Act and shall be included in an annual report pursuant to the
requirements of such Rule.
(aa) [Prior to the Effective Date, the Company shall
enter into an employment contract (acceptable to the Underwriter) with such key
officers as may be selected by the Underwriter on terms and conditions
reasonably satisfactory to the
-16-
<PAGE> 17
Underwriter and intends to obtain key-person life insurance in the minimum
amount of $_________ on each such person on such terms and conditions as are
reasonably satisfactory to the Underwriter, assuming such coverage is available
on commercially reasonable terms.]
(bb) [Ramesh Trivedi, Ph.D. shall be President and
Chief Executive Officer of the Company on the Closing Dates.]
5. Expenses.
(a) The Company shall pay all costs and expenses incident
to the performance of its obligations under this agreement, whether or not the
transactions contemplated hereby are consummated or this agreement is terminated
pursuant to section 10 hereof, including all costs and expenses incident to (i)
the preparation, printing and filing or other production of documents with
respect to the transactions, including any costs of printing the registration
statement originally filed with respect to the Securities and any amendment
thereto, any Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto, this agreement, the selected dealer agreement and the other
agreements and documents governing the underwriting arrangements and any blue
sky memoranda, (ii) all reasonable and necessary arrangements relating to the
delivery to the Underwriter of copies of the foregoing documents, (iii) the fees
and disbursements of the counsel, the accountants and any other experts or
advisors retained by the Company, (iv) the preparation, issuance and delivery to
the Underwriter of any certificates evidencing the Securities, including
transfer agent's, warrant agent's and registrar's fees or any transfer or other
taxes payable thereon, (v) the qualification of the Securities under state blue
sky or securities laws, including filing fees and fees and disbursements of
counsel for the Underwriter relating thereto (such counsel fees not to exceed
$35,000, $15,000 of which shall be due and payable upon the commencement of blue
sky filing, together with the related filing fees) and any fees and
disbursements of local counsel, if any, retained for such purpose, (vi) the
filing fees of the Commission and the NASD relating to the Securities, (vii) the
inclusion of the Securities on the Nasdaq Small Cap Market, Boston and Pacific
Stock Exchange and in the Standard and Poor's Corporation Descriptions Manual,
(viii) any "road shows" or other meetings with prospective investors in the
Securities, including transportation, accommodation, meal, conference room,
audio-visual presentation and similar expenses of the Underwriter or its
representatives or designees (other than as shall have been specifically
approved by the Underwriter to be paid for by the Underwriter) and (ix) the
placing of "tombstone advertisements" in publications selected by the
Underwriter and the manufacture of prospectus memorabilia. In addition to the
foregoing, the Company shall reimburse the Underwriter for its expenses on the
basis of a non-accountable expense allowance in the amount of 2.75% of the
gross offering proceeds to be received by the Company, $50,000 of which has
been paid by the Company to the Underwriter. The Underwriter hereby
acknowledges receipt of such $50,000, which shall be credited against the
non-accountable expense allowance to be paid by the Company. The unpaid portion
of the
-17-
<PAGE> 18
expense allowance, based on the gross proceeds from the sale of the Firm
Securities, shall be deducted from the funds to be paid by the Underwriter in
payment for the Firm Securities, pursuant to section 2 of this agreement, on the
Firm Closing Date. To the extent any Option Securities are sold, any remaining
non-accountable expense allowance based on the gross proceeds from the sale of
the Option Securities shall be deducted from the funds to be paid by the
Underwriter in payment for the Option Securities, pursuant to section 2 of this
agreement, on the Option Closing Date. The Company warrants, represents and
agrees that all such payments and reimbursements will be promptly and fully
made.
(b) Notwithstanding any other provision of this
agreement, if the offering of the Securities contemplated hereby is terminated
for any reason, the Company agrees that, in addition to the Company paying its
own expenses as described in subparagraph (a) above, (i) the Company shall
reimburse the Underwriter only for its actual accountable out-of-pocket expenses
(in addition to blue sky legal fees and expenses referred to in subparagraph (a)
above), and (ii) the Underwriter shall be entitled to retain the non-accountable
expense allowance paid by the Company pursuant to subparagraph (a) above;
provided, however, that the amount retained pursuant to this clause (ii) shall
not exceed the Underwriter's expenses on an accountable basis to the date of
such cancellation and that all unaccounted for amounts shall be refunded to the
Company. Such expenses shall include, but are not to be limited to, fees for the
services and time of counsel for the Underwriter to the extent not covered by
clause (i) above, plus any additional expenses and fees, including, but not
limited to, travel expenses, postage expenses, "ticket" charge, duplication
expenses, long-distance telephone expenses, and other expenses incurred by the
Underwriter in connection with the proposed offering.
6. Warrant Solicitation Fee. The Company agrees to pay the
Underwriter a fee of five percent (5%) of the aggregate exercise price of the
Warrants if (i) the market price of the Common stock is greater than the
exercise price of the Warrants on the date of exercise; (ii) the exercise of the
Warrants is solicited by a member of the NASD; (iii) the Warrants are not held
in a discretionary account; (iv) the disclosure of compensation arrangements is
made both at the time of this offering and at the time of the exercise of the
Warrant; and (v) the solicitation of the Warrant exercise is not in violation of
Rule 10b-6 under the 1934 Act. The Company agrees not to solicit the exercise of
any Warrant other than through the Underwriter and will not authorize any other
dealer to engage in such solicitation without the prior written consent of the
Underwriter which will not be unreasonably withheld. The Warrant solicitation
fee will not be paid in a non-solicited transaction. Any request for exercise
will be presumed to be unsolicited unless the customer states in writing that
the transaction was solicited and designates in writing the broker/dealer to
receive compensation for the exercise. No Warrant solicitation by the
Underwriter will occur for a period of 12 months after the Effective Date.
7. Conditions of the Underwriter' Obligations. The obligations of
the Underwriter to purchase and pay for the Firm Shares shall be subject, in the
Underwriter's
-18-
<PAGE> 19
sole discretion, to the accuracy of the representations and warranties of the
Company contained herein as of the date hereof and as of the Firm Closing Date
as if made on and as of the Firm Closing Date, to the accuracy of the statements
of the Company's officers made pursuant to the provisions hereof, to the
performance by the Company of its covenants and agreements hereunder and to the
following additional conditions:
(a) If the registration statement, as heretofore amended,
has not been declared effective as of the time of execution hereof, the
registration statement, as heretofore amended or as amended by an amendment
thereto to be filed prior to the Firm Closing Date, shall have been declared
effective not later than 11 A.M., New York time, on the date on which the
amendment to such registration statement containing information regarding the
initial public offering price of the Shares has been filed with the Commission,
or such later time and date as shall have been consented to by the Underwriter;
if required, the Prospectus and any amendment or supplement thereto shall have
been filed with the Commission in the manner and within the time period required
by Rule 424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Underwriter, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Underwriter shall have received an opinions,
dated the Firm Closing Date, of Snow Becker & Krauss P.C., counsel to
the Company, to the effect that:
(1) the Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
state of its incorporation and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of each other
jurisdiction in which its ownership or leasing of any properties or the conduct
of its business requires such qualification;
(2) the Company and each Subsidiary has full
corporate power and authority to own or lease its property and conduct its
business as now being conducted and as proposed to be conducted, in each case as
described in the Registration Statement and the Prospectus, and the Company has
full corporate power and authority to enter into this agreement and the
Underwriter's Warrant Agreement and to carry out all the terms and provisions
hereof and thereof to be carried out by it;
(3) there are no outstanding options, warrants
or other rights granted by the Company to purchase shares of its Common Stock,
preferred stock or other securities other than as described in the Prospectus;
the Shares have been duly authorized and the Warrant Shares, the Underwriter's
Warrant Shares and the Underwriter's Warrant
-19-
<PAGE> 20
Warrant Shares have been duly reserved for issuance by all necessary corporate
action on the part of the Company and, when issued and delivered to and paid for
by the Underwriter pursuant to this agreement, as to the Shares, the holders of
the Warrants pursuant to the terms thereof, as to the Warrant Shares, the
Underwriter pursuant to the Underwriter's Warrant, as to the Underwriter's
Warrant Shares, pursuant to the Underwriter's Warrant Warrants, as to the
Underwriter's Warrant Warrant Shares, will be validly issued, fully paid,
nonassessable and free of preemptive rights and will conform to the description
thereof in the Prospectus; no holder of outstanding securities of the Company is
entitled as such to any preemptive or other right to subscribe for any of the
Shares, the Warrant Shares, the Underwriter's Warrant Shares or the
Underwriter's Warrant Warrant Shares; and no person is entitled to have
securities registered by the Company under the Registration Statement or
otherwise under the Act other than as described in the Prospectus;
(4) the Shares have been approved for inclusion
in the Nasdaq SmallCap Market, Boston and Pacific Stock Exchanges;
(5) the execution and delivery of this agreement
and the Underwriter's Warrant Agreement have been duly authorized by all
necessary corporate action on the part of the Company and this agreement and the
Underwriter's Warrant Agreement have been duly executed and delivered by the
Company, and each is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and other similar laws affecting creditors' rights generally and to
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law) and except as rights to indemnity and
contribution under this agreement and the Underwriter's Warrant Agreement may be
limited by applicable law;
(6) the Underwriter's Warrants conform to the
description thereof in the Registration Statement and in the Prospectus and are
duly authorized and validly issued and constitute valid and binding obligations
of the Company entitled to the benefits of the Underwriter's Warrant Agreement;
(7) the statements set forth under the heading
"Description of Capital Stock" in the Prospectus, insofar as those statements
purport to summarize the terms of the capital stock and warrants of the Company,
provide a fair summary of such terms; the statements in the Prospectus, insofar
as those statements constitute matters of law or legal conclusions, or summaries
of the contracts and agreements referred to therein, constitute a fair summary
of those matters, legal conclusions, contracts and agreements and include all
material terms thereof, as applicable;
(8) none of (A) the execution and delivery of
this agreement and the Underwriter's Warrant Agreement, (B) the issuance,
offering and sale by the
-20-
<PAGE> 21
Company to the Underwriter of the Securities pursuant to this agreement and the
Underwriter's Warrant Securities pursuant to the Underwriter's Warrant
Agreement, nor (C) the compliance by the Company with the other provisions of
this agreement and the Underwriter's Warrant Agreement and the consummation of
the transactions contemplated hereby and thereby, (1) requires the consent,
approval, authorization, registration or qualification of or with any court or
governmental authority, except such as have been obtained and such as may be
required under state blue sky or securities laws, or (2) conflicts with or
results in a breach or violation of, or constitutes a default under, any
contract, indenture, mortgage, deed of trust, loan agreement, note, lease or
other agreement or instrument to which the Company or any Subsidiary is a party
or by which the Company or any Subsidiary or any of its property is bound or
subject, of which such counsel is aware after reasonable inquiry, or the
certificate of incorporation or by-laws of the Company or any Subsidiary, or any
material statute or any judgment, decree, order, rule or regulation of any court
or other governmental or regulatory authority applicable to the Company or any
Subsidiary;
(9) to the best of such counsel's knowledge, (A)
no legal or governmental proceedings are pending to which the Company or any
Subsidiary is a party or to which the property of the Company or any Subsidiary
is subject and (B) no contract or other document is required to be described in
the Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as required;
(10) the Company and each Subsidiary possesses
adequate licenses, orders, authorizations, approvals, certificates or permits
issued by the appropriate federal, state or foreign regulatory agencies or
bodies necessary to conduct its business as described in the Registration
Statement and the Prospectus, and, to the best of such counsel's knowledge after
due inquiry, there are no pending or threatened proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit, except as disclosed in the Registration Statement and the
Prospectus.
(11) the Registration Statement is effective
under the Act; any required filing of the Prospectus pursuant to Rule 424(b) has
been made in the manner and within the time period required by Rule 424(b); and
no stop order suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best knowledge of such counsel, are
contemplated by the Commission;
(12) the registration statement originally filed
with respect to the Shares and each amendment thereto and the Prospectus (in
each case, other than the financial statements and schedules and other financial
and statistical information contained therein, as to which such counsel need
express no opinion) comply as to form in all material
-21-
<PAGE> 22
respects with the applicable requirements of the Act and the rules and
regulations of the Commission thereunder; and
(13) the Company is not subject to registration
as an "investment company" under the Investment Company Act of 1940.
[Also patent, regulatory or other special counsel opinions]
Such counsel shall also state that such counsel has participated
in the preparation of the Registration Statement and the Prospectus and that
nothing has come to such counsel's attention that has caused them to believe
that the Registration Statement, at the time it became effective (including the
information deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or as of the Firm Closing Date, contained an
untrue statement of material fact or omitted to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials, copies of which
certificates will be provided to the Underwriter, and, as to matters of the laws
of certain jurisdictions, on the opinions of other counsel to the Company, which
opinions shall also be delivered to the Underwriter, in form and substance
acceptable to the Underwriter, if such other counsel expressly authorize such
reliance and counsel to the Company expressly states in their opinion that such
counsel's and the Underwriter's reliance upon such opinion is justified.
References to the Registration Statement and the Prospectus in
this paragraph (b) shall include any amendment or supplement thereto at the date
of such opinion.
(c) The Underwriter shall have received from Ernst &
Young LLP a letter dated the Effective Date and a letter dated the Firm
Closing Date, in form and substance satisfactory to the Underwriter, to the
effect that (i) they are independent auditors with respect to the Company within
the meaning of the Act and the applicable rules and regulations thereunder; (ii)
in their opinion, the financial statements audited by them and included in the
Registration Statement and the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act and the related
published rules and regulations thereunder; (iii) based upon procedures set
forth in detail in such letter, nothing has come to their attention which causes
them to believe that (A) the unaudited financial statements as of June 30, 1996
included in the Registration Statement was not determined on a basis
substantially consistent with that used in determining the corresponding amounts
in the audited financial statements as of December 31, 1995 included in the
Registration Statement or
-22-
<PAGE> 23
(B) at a specified date not more than five days prior to the date of this
agreement, there has been any change in the capital stock of the Company, any
increase in the long-term debt of the Company, a decrease in net sales as
compared with the amounts shown in the June 30, 1996 balance sheet included in
the Registration Statement or, as of the date of the most recent financial
statements made available by the Company there has been any change in the
capital stock of the Company, any increase in the long-term debt of the Company
or any decrease in net sales, working capital or net assets as compared with the
amounts shown in the June 30, 1996 balance sheet included in the Registration
Statement or, during the period from June 30, 1996 through the date of the most
recent financial statement made available by the Company, there were any
decreases, as compared with the corresponding period in the preceding year, in
revenues, or any increase in net loss of the Company, except in all instances
for changes, increases or decreases which the Registration Statement and the
Prospectus disclose have occurred or may occur; and (iv) in addition to the
audit referred to in their opinion and the limited procedures referred to in
clause (iii) above, they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information (including the Summary of Consolidated Financial
Information and Selected Financial Information) which are included in the
Registration Statement and Prospectus and which are specified by the
Underwriter, and have found such amounts, percentages and financial information
to be in agreement with the relevant accounting, financial and other records of
the Company identified in such letter. References to the Registration Statement
and the Prospectus in this paragraph (c) with respect to the letter referred to
above shall include any amendment or supplement thereto at the date of such
letter.
(d) The representations and warranties of the Company
contained in this agreement shall be true and correct as if made on and as of
the Firm Closing Date; the Registration Statement shall not include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading, and the Prospectus, as amended or
supplemented as of the Firm Closing Date, shall not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; and the Company shall have performed all covenants and
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Firm Closing Date.
(e) No stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or
contemplated by the Commission.
(f) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall not have been any material adverse change, or any development involving a
prospective material adverse change, in the business, operations, condition
(financial or otherwise), earnings or prospects of the Company, except in each
case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto).
-23-
<PAGE> 24
(g) The Underwriter shall have received a certificate,
dated the Firm Closing Date, of the Chief Executive Officer and the Secretary of
the Company to the effect set forth in subparagraphs (d) through (f) above.
(h) The Common Stock shall be qualified in such
jurisdictions as the Underwriter may reasonably request pursuant to section
4(c), and each such qualification shall be in effect and not subject to any stop
order or other proceeding on the Firm Closing Date.
(i) The Company shall have executed and delivered to the
Underwriter the Underwriter's Warrant Agreement and a certificate or
certificates evidencing the Underwriter's Warrants, in each case in a form
acceptable to the Underwriter.
(j) On or before the Firm Closing Date, the Underwriter
and counsel for the Underwriter shall have received such further certificates,
documents, letters or other information as they may have reasonably requested
from the Company.
All opinions, certificates, letters and documents delivered
pursuant to this agreement will comply with the provisions hereof only if they
are reasonably satisfactory in all material respects to the Underwriter and
counsel for the Underwriter. The Company shall furnish to the Underwriter such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Underwriter and counsel for the Underwriter shall reasonably
request.
The respective obligations of the Underwriter to purchase and pay
for any Option Securities shall be subject, in its discretion, to each of the
foregoing conditions to purchase the Firm Securities, except that all references
to the Firm Securities and the Firm Closing Date shall be deemed to refer to
such Option Securities and the related Option Closing Date, respectively.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls any Underwriter within the
meaning of section 15 of the Act or section 20 of the 1934 Act against any
losses, claims, damages, amounts paid in settlement or liabilities, joint or
several, to which such Underwriter or such controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(1) any breach of any representation or warranty
of the Company contained in section 1 of this agreement,
-24-
<PAGE> 25
(2) any untrue statement or alleged untrue
statement of any material fact contained in (A) the Registration Statement
originally filed with respect to the Securities or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
or (B) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to qualify the
Securities under the Blue Sky or securities laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"), or
(3) the omission or alleged omission to state in
such Registration Statement or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse, as incurred, the Underwriter and
such controlling person for any legal or other expenses reasonably incurred by
the Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
loss, claim, damage, liability, action, investigation, litigation or proceeding;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or any Application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter specifically for use therein. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have. The Company will not, without the prior written consent of the
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any Underwriter or any
person who controls any Underwriter within the meaning of section 15 of the Act
or section 20 of the 1934 Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(b) Each Underwriter will indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of section 15 of the Act or section 20 of the Exchange Act against, any losses,
claims, damages or liabilities to which the Company or any such director,
officer or controlling person may become subject under the Act or otherwise, but
only insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application, or (ii) the omission
or the alleged omission to state
-25-
<PAGE> 26
therein a material fact required to be stated in the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application, or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by Underwriter specifically for use
therein; and, subject to the limitation set forth immediately preceding this
clause, will reimburse, as incurred, any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or any action in respect thereof. This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under
this section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this section 7, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this section 7. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this section 7 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
-26-
<PAGE> 27
(d) In circumstances in which the indemnity agreement
provided for in the preceding paragraphs of this section 7 is unavailable or
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by the Company on
the one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and commissions
received by the Underwriter. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriter, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and the other
equitable considerations appropriate in the circumstances. The Company and the
Underwriter agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no Underwriter shall
be obligated to make contributions hereunder that in the aggregate exceed the
total public offering price of the Shares purchased by such Underwriter under
this agreement, less the aggregate amount of any damages that such Underwriter
has otherwise been required to pay in respect of the same or any substantially
similar claim, and no person guilty of fraudulent misrepresentation (within the
meaning of section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. For purposes of
this paragraph (d), each person, if any, who controls an Underwriter within the
meaning of section 15 of the Act or section 20 of the 1934 Act shall have the
same rights to contribution as the Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement and
each person, if any, who controls the Company within the meaning of section 15
of the Act or section 20 of the 1934 Act, shall have the same rights to
contribution as the Company.
9. Survival. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, any of
its officers or directors and the Underwriter set forth in this agreement or
made by or on behalf of them, respectively, pursuant to this agreement shall
remain in full force and effect, regardless of (i)
-27-
<PAGE> 28
any investigation made by or on behalf of the Company, any of its officers or
directors, any Underwriter or any controlling person referred to in section 7
hereof and (ii) delivery of and payment for the Securities. The respective
agreements, covenants, indemnities and other statements set forth in sections 5
and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this agreement.
10. Termination.
(a) This agreement may be terminated with respect to the
Firm Securities or any Option Shares in the sole discretion of the Underwriter
by notice to the Company given prior to the Firm Closing Date or the related
Option Closing Date, respectively, in the event that the Company shall have
failed, refused or been unable to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder at or prior
thereto or if at or prior to the Firm Closing Date or such Option Closing Date,
respectively,
(1) the Company sustains a loss by reason of
explosion, fire, flood, accident or other calamity, which, in the opinion of the
Underwriter, substantially affects the value of the properties of the Company or
which materially interferes with the operation of the business of the Company
regardless of whether such loss shall have been insured; there shall have been
any material adverse change, or any development involving a prospective material
adverse change (including, without limitation, a change in management or control
of the Company), in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(2) any action, suit or proceeding shall be
threatened, instituted or pending, at law or in equity, against the Company, by
any person or by any federal, state, foreign or other governmental or regulatory
commission, board or agency wherein any unfavorable result or decision could
materially adversely affect the business, operations, condition (financial or
otherwise), earnings or prospects of the Company;
(3) trading in the Common Stock or Warrants
shall have been suspended by the Commission or the NASD, or trading in
securities generally on the New York Stock Exchange shall have been suspended or
minimum or maximum prices shall have been established on either such exchange or
quotation system;
(4) a banking moratorium shall have been
declared by New York or United States authorities; or
(5) there shall have been (A) an outbreak of
hostilities between the United States and any foreign power (or, in the case of
any ongoing hostilities, a material escalation thereof), (B) an outbreak of any
other insurrection or armed conflict
-28-
<PAGE> 29
involving the United States or (C) any other calamity or crisis or material
change in financial, political or economic conditions, having an effect on the
financial markets that, in any case referred to in this clause (5), in the sole
judgment of the Underwriter makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Securities as contemplated by
the Registration Statement; or
(6) the Company's counsel or independent public
accountants are unable to deliver any opinion, report or certificate relating to
this offering which is qualified in any material respect (other than, in the
case of this accountant's audit report, qualification with respect to the
viability of the Company as a going concern).
(b) Termination of this agreement pursuant to this
section 10 shall be without liability of any party to any other party except as
provided in section 5(b) and section 8 hereof.
11. Information Supplied by the Underwriter. The statements set
forth in the last paragraph on the front cover page and in the third paragraph
under the heading "Underwriting" in any Preliminary Prospectus or the Prospectus
(to the extent such statements relate to the Underwriter) constitute the only
information furnished by the Underwriter to the Company for the purposes of
sections 1(b) and 8(b) hereof. The Underwriter confirms that such statements (to
such extent) are correct.
12. Notices. All notice hereunder to or upon either party hereto
shall be deemed to have been duly given for all purposes if in writing and (i)
delivered in person or by messenger or an overnight courier service against
receipt, or (ii) send by certified or registered mail, postage paid, return
receipt requested, or (iii) sent by telegram, facsimile, telex or similar means,
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:
To the Company at: 829 West Stadium Lane
Sacramento, California 95834
Attn: Dr. Ramesh C. Trivedi
Fax: (916) 646-4075
To the Underwriter: 875 Third Avenue
New York, New York 10022
Attn: Corporate Finance Department
Fax: (212) 754-9646
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving of any such notice shall be, in the case of clause (i), the
date of the receipt; in the case of clause (ii), five business days after such
notice or demand is sent; and, in the case of clause (iii), the business day
next following the date such notice is sent.
-29-
<PAGE> 30
13. Amendment. Except as otherwise provided herein, no amendment
of this agreement shall be valid or effective, unless in writing and signed by
or on behalf of the parties hereto.
14. Waiver. No course of dealing or omission or delay on the part
of either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
15. Applicable Law. This agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of New York
without regard to principles of choice of law or conflict of laws.
16. Jurisdiction. Each of the parties hereto hereby irrevocably
consents and submits to the exclusive jurisdiction of the Supreme Court of the
State of New York and the United States District Court for the Southern District
of New York in connection with any suit, action or other proceeding arising out
of or relating to this agreement or the transactions contemplated hereby, waives
any objection to venue in the County of New York, State of New York, or such
District and agrees that service of any summons, complaint, notice or other
process relating to such suit, action or other proceeding may be effected in the
manner provided by clause (ii) of Section 12.
17. Remedies. In the event of any actual or prospective breach or
default by either party hereto, the other party shall be entitled to equitable
relief, including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
18. Attorneys' Fees. The prevailing party in any suit, action or
other proceeding arising out of or relating to this agreement or the
transactions contemplated hereby, shall be entitled to recover its costs and
reasonable attorneys' fees.
19. Severability. The provisions hereof are severable and in the
event that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
-30-
<PAGE> 31
20. Counterparts. This agreement may be executed in counterparts,
each of which shall be deemed an original and which together shall constitute
one and the same agreement.
21. Successors. This agreement shall inure to the benefit of and
be binding upon the Underwriter, the Company and their respective successors and
assigns. Nothing expressed or mentioned in this agreement is intended or shall
be construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this agreement, or any provisions herein contained,
this agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company contained in
section 8 of this agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of section 15 of the Act
or section 20 of the Exchange Act and (ii) the indemnities of the Underwriter
contained in section 8 of this agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of section 15 of the Act or section 20 of the Exchange Act. No
purchaser of Securities from the Underwriter shall be deemed a successor because
of such purchase.
22. Titles and Captions. The titles and captions of the articles
and sections of this agreement are for convenience of reference only and do not
in any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
23. Grammatical Conventions. Whenever the context so requires,
each pronoun or verb used herein shall be construed in the singular or the
plural sense and each capitalized term defined herein and each pronoun used
herein shall be construed in the masculine, feminine or neuter sense.
24. References. The terms "herein," "hereto," "hereof," "hereby,"
and "hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
25. Entire Agreement. This Agreement embodies the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes any prior agreement, commitment or arrangement relating thereto.
-31-
<PAGE> 32
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company and the
Underwriter.
Very truly yours,
INTEGRATED SURGICAL SYSTEMS, INC.
By:_____________________________________
Name: Ramesh Trivedi
Title: President and Chief
Executive Officer
The foregoing agreement is hereby confirmed and accepted as of the date first
above written.
RICKEL & ASSOCIATES, INC.
By:___________________________
Name: Gregg Smith
Title: Managing Director
-32-
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
INTEGRATED SURGICAL SYSTEMS, INC.
The undersigned, Ramesh Trivedi, being the President of Integrated
Surgical Systems, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies that:
1. The name of the corporation is Integrated Surgical Systems, Inc.
(the "Corporation").
2. The Restated Certificate of Incorporation of the Corporation is
hereby amended by deleting Article 4 in its entirety and by substituting the
following new Article 4:
"4. The total number of shares of capital stock that the Corporation
shall have authority to issue is 21,750,000 shares, of which: 15,000,000 shares
shall be common stock, $0.01 par value per share (the "Common Stock"); 5,750,000
shares shall be Series D Preferred Stock, $0.01 par value per share (the "Series
D Preferred Stock"); and 1,000,000 shall be Preferred Stock, $0.01 par value per
share (the "Preferred Stock").
Upon the effective date of a registration statement filed with
the Securities and Exchange Commission by the Corporation, in connection with an
offering with gross proceeds of no less than $7,000,000, each currently
outstanding share of Common Stock shall be split and converted into 0.658048
shares of Common Stock (the "Reverse Split"). No fractional shares shall be
issued in connection with the Reverse Split, and the number of shares issuable
to each stockholder upon the Reverse Split shall be determined by rounding
upward to the next whole share on a certificate-by-certificate basis.
The relative rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes of shares of capital stock or
holders thereof are as set forth below:
Common Stock:
The Common Stock shall have such rights and privileges as are
set forth in the By-laws of the Corporation.
Series D Preferred Stock:
Section 1. Ranking. The Series D Preferred shall rank, subject to the
rights of any other series of preferred stock which may from time to time come
into existence pursuant to the terms hereof, prior to any other equity
securities of the Corporation, including the Common Stock, upon liquidation,
dissolution or winding-up.
<PAGE> 2
Section 2. Dividends.
The holders of Series D Preferred Stock shall be entitled to
receive a dividend (the "Participating Dividend" for such series) payable in
cash on the payment date for each cash dividend declared on the shares of Common
Stock in an amount per share of Series D Preferred Stock of such series equal to
the number of shares (or fraction thereof) of Common Stock into which each share
of Series D Preferred Stock on such series is then convertible times the cash
dividend to be paid on each full share of Common Stock.
Following the filing of this Restated Certificate of Incorporation,
the right to dividends on shares of the Common Stock and Series D Preferred
Stock shall not be cumulative, and no right shall accrue to holders of Common
Stock or Series D Preferred Stock by reason of the fact that dividends on said
shares are not declared in any prior period.
Section 3. Liquidation. The shares of Series D Preferred Stock
shall rank prior to the shares of Common Stock and any other class or series of
capital stock of the Corporation ranking junior to the Series D Preferred Stock
upon liquidation, dissolution or winding-up, so that in the event of any
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary, the holders of shares of Series D Preferred Stock shall be entitled
to receive out of the assets of the Corporation available for distribution to
its stockholders, whether from capital, surplus or earnings, before any
distribution is made to holders of shares of Common Stock or any other such
junior stock, an amount per share equal to $0.65 for each outstanding share of
Series D Preferred Stock (the "Original Series D Issue Price") plus an amount
equal to all accrued and unpaid dividends on each share of Series D Preferred
Stock (such sum being referred to as the liquidation preference of the Series D
Preferred Stock). After payment has been made to the holders of the Series D
Preferred Stock of the full amount to which they shall be entitled, the
remaining assets of the Corporation shall be distributed ratably to the holders
of any capital stock of the Corporation ranking junior to the Series D Preferred
Stock.
If the assets and funds of the Corporation distributable among the
holders of shares of Series D Preferred Stock shall be insufficient to permit
the payment in full to such holders of the respective liquidation preferences
payable to such holders, in the event of any liquidation, dissolution or winding
up of the Corporation, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed among such holders
ratably in proportion to the aggregate liquidation preferences of the shares of
Series D Preferred Stock held by such holders.
For purposes of this Section 3, an Acquisition (as defined below)
shall be treated as a liquidation, dissolution or winding-up of the Corporation.
For purposes of this section "Acquisition" shall mean any consolidation, merger
or other reorganization of the Corporation; any sale, exchange or other
disposition (whether in one transaction or a series of related transactions) of
all, or any substantial part, of the assets of the Corporation and its
subsidiaries taken as a whole; or any other transaction or series of related
transactions which would result in the holders of the Voting Securities
immediately prior thereto continuing to beneficially own less than a majority of
the Total Voting
-2-
<PAGE> 3
Power (as defined in Section 4(d)(iii)) of the Corporation, successor or
acquiring corporation immediately thereafter.
Section 4. Voting.
(a) Except as otherwise required by law and as set forth herein, the
holders of shares of Series D Preferred Stock issued and outstanding shall have
no right to vote their shares of Series D Preferred Stock.
(b) The holders of shares of Series D Preferred Stock shall have the
right to vote, together with the holders of all the outstanding shares of Common
Stock and not by classes (except as otherwise provided in this Section 4 or by
applicable law), on all matters on which holders of shares of Common Stock have
the right to vote. Each holder of shares of Series D Preferred Stock shall have
the right, for the shares of Series D Preferred Stock held by such holder on the
applicable record date, to cast that number of votes on each such matter equal
to the number of shares of Common Stock into which such shares of Series D
Preferred Stock could be converted as of such record date, with any fractions
rounded down to the next full vote, multiplied by the number of votes per share
which the holders of shares of Common Stock then have with respect to such
matter.
(c) Whenever holders of shares of Series D Preferred or Common Stock
are required or permitted to take any action by vote, such action may be taken
without a meeting by written consent, setting forth the action so taken and
signed by the holders of shares of Series D Preferred or Common Stock, as the
case may be, having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all such shares
entitled to vote thereon were present and voted.
(d) The consent of holders of at least a majority of the outstanding
shares of Series D Preferred Stock, voting separately as a class, shall be
required before the Corporation shall (or shall permit any of its subsidiaries
to):
(i) either directly or indirectly or through merger,
consolidation or other reorganization with any other person, amend, alter or
repeal any of the provisions hereof so as to affect adversely the powers,
preferences or relative, participating, optional or other special rights of the
Series D Preferred Stock;
(ii) adopt any amendment to the Corporation's Restated
Certificate of Incorporation to change the Corporation's authorized capital; or
(iii) enter into any Control Transaction (as defined below) with
any person.
"Control Transaction" shall mean any consolidation, merger
or other reorganization of the Corporation; any sale, lease, exchange or other
disposition (whether in one transaction or a series of related transactions) of
all, or any substantial part, of the assets of the
-3-
<PAGE> 4
Corporation and its subsidiaries taken as a whole; or any other transaction or
series of related transactions which would result in the holders of the Voting
Securities immediately prior thereto continuing to beneficially own less than
fifty percent (50%) of the Total Voting Power of the Corporation, successor or
acquiring corporation immediately thereafter.
"Total Voting Power of the Corporation" shall mean the
total number of votes that may be cast in the election of directors of the
Corporation at any meeting of stockholders of the Corporation if all Voting
Securities (assuming full conversion, exchange or exercise of all securities
(including rights, warrants and options) convertible into, exchangeable for or
exercisable for any securities of the Corporation entitled to vote generally in
the election of directors of the Corporation) were present and voted at such
meeting, other than votes that may be cast only by one class or series of stock
(other than Common Stock) or upon the happening of a contingency.
"Voting Securities" shall mean the shares of Common Stock
and any other securities of the Corporation entitled to vote generally in the
election of directors of the Corporation, and any other securities (including
rights, warrants and options) convertible into, exchangeable for or exercisable
for, any of the foregoing (whether or not presently convertible, exchangeable or
exercisable).
(e) In addition to voting together with the holders of Voting
Securities for the election of other directors of the Corporation, the holders
of record of the Series D Preferred Stock, voting separately as a class (the
"Series D Group"), to the exclusion of the holders of Common Stock and any other
series of preferred stock then outstanding, shall, at any annual meeting of
stockholders for the election of directors (and at each subsequent annual
meeting of stockholders), vote for the election of two directors (each a "Series
D Director") of the Corporation. In the election of the Series D Directors, the
holders of Series D Preferred Stock shall be entitled to cast one vote per share
of Series D Preferred Stock they hold. Any director who shall have been elected
pursuant to this Section 4(e) may be removed at any time by, and removed without
cause only by, the affirmative vote of the holders of the Series D Preferred
Stock of the group that had elected such director who are entitled to cast a
majority of the votes entitled to be cast for the election of any such director
at a special meeting of such holders called for that purpose, and any vacancy
thereby created may be filled only by the vote of such holders of the Series D
Preferred Stock of such group. The holder of each share of Series D Preferred
Stock shall be entitled to notice of any stockholders' meeting in accordance
with the Bylaws of the Corporation and shall vote with the holders of the Common
Stock upon the election of the remaining directors authorized by the Bylaws of
the Corporation. The Corporation shall take any action from time to time as
shall be necessary to amend the Bylaws of the Corporation to provide for a
change in the authorized number of members of the Board as may be required to
give effect to this Section 4(e).
Section 5. Conversion.
(a) General. On the terms and subject to the conditions of this
Section 5, the holder of a share of Series D Preferred Stock shall have the
right, at its option, at any time (subject to the next sentence and to Section
5(i)) to convert such share into that number of shares of Common Stock
-4-
<PAGE> 5
(calculated as to each conversion to the nearest 1/100th of a share) obtained by
dividing the Original Series D Issue Price (as defined in Section 3) by the
Conversion Price for such series (as defined in Section 5(d)) and by surrender
of such share pursuant to Section 5(b) (the shares of Common Stock issuable upon
such conversion being called "Conversion Shares").
(b) Conversion Procedures. In order to exercise the conversion
privilege, the holder of any shares of Series D Preferred Stock to be converted
shall surrender the certificate representing such shares at the principal office
of the Corporation, with a written notice stating that such holder elects to
convert all or a specified whole number of such shares pursuant to this Section
5 and specifying the name or names in which such holder wishes the certificate
or certificates for Conversion Shares to be issued. In the case of any mandatory
conversion pursuant to Section 5(i), on or after the date of the occurrence of
the event set forth in Section 5(i) (and within 10 days after receipt of written
notice, if any, from the Corporation of the occurrence of such event), each
holder of shares of Series D Preferred Stock shall surrender the certificate
representing such shares at the principal office of the Corporation, together
with a written notice specifying the name or names in which such holder wishes
the certificate or certificates for Conversion Shares to be issued. Unless the
Conversion Shares are to be issued in the same name as the name in which such
shares of Series D Preferred Stock are registered, the certificate representing
the shares surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
or its duly authorized attorney. As promptly as practicable after such surrender
of a certificate for shares of Series D Preferred Stock, and in any event within
five business days (as defined below) thereafter, the Corporation shall issue
and deliver at such office to such holder, or on such holder's written order,
(i) a certificate or certificates for the applicable number of full Conversion
Shares, (ii) if less than the full number of shares of Series D Preferred Stock
evidenced by the surrendered certificate is being converted, a new certificate,
of like tenor, for the number of shares of Series D Preferred Stock evidenced by
such surrendered certificate less the number of shares being converted and (iii)
the cash payment in settlement of any fractional Conversion Share provided for
in Section 5(c).
Upon conversion of any shares of Series D Preferred Stock, the
holder thereof shall be entitled to receive an amount equal to all declared and
unpaid dividends on such shares prior to such conversion. The payment for such
declared and unpaid dividends on a mandatory conversion under Section 5(i) shall
be paid in cash or Common Stock at the election of the Corporation. For purposes
of the payment of the declared and unpaid dividend in Common Stock, the fair
market value of the Common Stock shall be deemed to be the issuance price of the
Common Stock in the public offering which triggers the mandatory conversion
under Section 5(i).
A "business day" is a day other than a Saturday, Sunday or other day
on which banks in the State of New York or the State of California are
authorized to be closed.
In the case of the exercise of the conversion privilege, each
conversion shall be deemed to have been effected as of the close of business on
the date on which the certificate for shares of Series D Preferred Stock is
surrendered and such notice is received by the Corporation as aforesaid, and the
person or persons in whose name or names any certificate or certificates for
-5-
<PAGE> 6
Conversion Shares are issuable shall be deemed to have become the holder or
holders of such Conversion Shares at such time on such date and such conversion
shall be at the applicable Conversion Price in effect at such time on such date,
unless the stock transfer books of the Corporation are closed on that date, in
which event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next day on which such stock
transfer books are open (provided that if such books shall remain closed for
five days, such fifth day shall be the date any such person shall become such a
holder), but such conversion shall be at the applicable Conversion Price in
effect on the date on which such certificate was surrendered and such notice was
received. In the case of any mandatory conversion pursuant to Section 5(i), on
the date of the occurrence of the event set forth in Section 5(i), each holder
of shares of Series D Preferred Stock shall be deemed to be a holder of record
of the Common Stock issuable upon such conversion, notwithstanding that the
certificates representing such shares of Series D Preferred Stock shall not have
been surrendered at the office of the Corporation, that notice from the
Corporation shall not have been received by any holder of shares of Series D
Preferred Stock or that the certificates evidencing such shares of Common Stock
shall not then be actually delivered to such person. Upon delivery, all
Conversion Shares shall be duly authorized, validly issued, fully paid,
nonassessable, free of all liens and charges and not subject to any preemptive
or subscription rights.
(c) Settlement of Fractional Conversion Shares. No fractional
Conversion Shares or scrip representing fractions of Conversion Shares shall be
issued upon conversion of shares of Series D Preferred Stock. Instead of any
fractional Conversion Share otherwise deliverable, the Corporation shall pay to
the holder of the converted shares an amount in cash equal to the current market
price (as defined below) of such fractional Conversion Share on the date of
conversion. If more than one share is surrendered for conversion at one time by
the same holder, the number of full Conversion Shares shall be computed on the
basis of the aggregate number of shares so surrendered. The "current market
price" per share of Common Stock on any day is the average of the daily market
prices for the 30 consecutive trading days immediately prior to the day in
question. The "daily market price" of a share of Common Stock is the price of a
share of Common Stock on the relevant day, determined on the basis of the last
reported sale price, regular way, of the Common Stock as reported on the
composite tape, or similar reporting system, for issues listed or admitted to
trading on the New York Stock Exchange (or if the Common Stock is not then
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which the Common Stock is then listed or
admitted to trading) or on the Nasdaq National Market or, if there is no such
reported sale on the day in question, on the basis of the average of the closing
bid and asked quotations as so reported or, if the Common Stock is not then
listed or admitted to trading on any national securities exchange or on the
Nasdaq National Market on the basis of the average of the high bid and low asked
quotations on the day in question in the over-the-counter market as reported by
the National Association of Securities Dealers' Automated Quotation System, or,
if not so quoted, as reported by National Quotation Bureau, Incorporated, or a
similar organization. If the current market price is not determinable as
aforesaid, it shall be determined in good faith by the Board and evidence of
such determination shall be filed with the minutes of the Corporation. A
"trading day" is a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading
-6-
<PAGE> 7
is open for the transaction of business or, if the Common Stock is not then
listed or admitted to trading on any national securities exchange, any day other
than Saturday, Sunday or a federal holiday.
(d) Conversion Price. "Series D Conversion Price" shall mean $0.65
as adjusted pursuant to this Section 5(d). "Conversion Price" shall generally
mean the Series D Conversion Price. The Series D Conversion Price (and the kind
and amount of consideration receivable by holders of shares of Series D
Preferred Stock upon conversion) shall be adjusted from time to time as follows:
(i) If, after the date of the Corporation's Series D Preferred
Stock and Warrant Purchase Agreement with respect to the Series D Conversion
Price (such date being referred to as the "Conversion Reference Date" for such
series), the Corporation (A) pays a dividend or makes a distribution on the
Common Stock in shares of Common Stock, (B) subdivides or combines its
outstanding shares of Common Stock into a greater or smaller number of shares or
(C) issues by reclassification of the Common Stock any shares of capital stock
of the Corporation, then the Series D Conversion Price in effect immediately
prior to such action shall be adjusted so that the holder of any share of Series
D Preferred Stock thereafter surrendered for conversion shall be entitled to
receive, at the time of such conversion, the number of shares of Common Stock or
other capital stock of the Corporation that it would have owned or been entitled
to receive immediately following such action had such share been converted
immediately prior to such action or the record date therefor, whichever is
earlier. Such adjustment shall become effective immediately after the record
date, in the case of a dividend or distribution, or immediately after the
effective date, in the case of a subdivision, combination or reclassification.
(ii) If the Corporation issues any Additional Shares as defined
below for a consideration per share less than the Conversion Price for a series
of preferred stock in effect immediately prior to such issuance, then the
Conversion Price for such series shall be adjusted by multiplying such
Conversion Price in effect immediately prior to such issuance by a fraction (I)
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such Additional Shares plus the number of
shares of Common Stock that the aggregate consideration for such Additional
Shares would purchase at a consideration per share equal to such Conversion
Price and (II) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Shares
plus the number of Additional Shares so issued. Such adjustment shall become
effective immediately after the issuance of such Additional Shares. For purposes
of this Section 5, the issuance of any Additional Shares or other securities,
warrants, options or rights includes any sale and any reissuance or resale.
"Additional Shares" shall mean any shares of Common Stock
of the Corporation issued by the Corporation, excluding:
(A) any shares of Common Stock issued upon the exercise
of the Warrant issued by the Corporation on February 6, 1991, for the purchase
of 500,000 shares of Common Stock (prior to the split-up effected herein), as
amended on the First Closing Date, as defined in the Corporation's Series D
Preferred Stock and Warrant Purchase Agreement;
-7-
<PAGE> 8
(B) any shares of Common Stock issued upon the
exercise of the warrants issued by the Corporation on the First Closing Date to
purchase an aggregate of 846,845 shares of Common Stock (as such number of
shares may be increased on the Second Closing Date pursuant to the terms of such
warrants), as those terms are defined in the Corporation's Series D Preferred
Stock and Warrant Purchase Agreement;
(C) any shares of Common Stock issued upon
conversion of the Series D Preferred Stock issuable upon the exercise of any
warrant to purchase shares of Series D Preferred Stock issued by the Corporation
on the First Closing Date or the Second Closing Date, as those terms are defined
in the Corporation's Series D Preferred Stock and Warrant Purchase Agreement;
(D) any shares of Common Stock issued upon the
conversion of the Series D Preferred Stock;
(E) up to 1,640,762 shares of Common Stock issuable
(x) to any officer, employee, consultant or director of the Corporation pursuant
to any arrangement or plan, including any incentive stock plan, adopted by the
Board of Directors of the Corporation or (y) pursuant to the conversion of
Rights or Convertible Securities (as defined in Section 5(d)(iii)) issuable to
lending or leasing institutions; and
(E) up to 4,000 shares of Common Stock issuable at
fair market value to vendors of goods or services to the Corporation in payment
for such goods and services.
(iii) If, after the Series D Preferred Conversion
Reference Date, the Corporation issues any warrants, options or other rights
entitling the holders thereof to subscribe for or purchase either any Additional
Shares or evidences of debt, shares of capital stock or other securities that
are convertible into or exchangeable for, with or without payment of additional
consideration, Additional Shares (such warrants, options or other rights being
called "Rights" and such convertible or exchangeable evidences of debt, shares
of capital stock or other securities being called "Convertible Securities"), and
the consideration per share for which Additional Shares may at any time
thereafter be issuable pursuant to such Rights or Convertible Securities (when
added to the consideration per share of Common Stock, if any, received for such
Rights), is less than the Conversion Price for the Series D Preferred Stock, the
Series D Preferred Conversion Price shall be adjusted as provided in Section
5(d)(ii) on the basis that (A) the maximum number of Additional Shares issuable
pursuant to all such Rights or necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued and (B) the
aggregate consideration (plus the consideration, if any, received for such
Rights) for such maximum number of Additional Shares shall be deemed to be the
consideration received and receivable by the Corporation for the issuance of
such Additional Shares pursuant to such Rights or Convertible Securities.
(iv) If, after the Series D Preferred Conversion
Reference Date, the Corporation issues Convertible Securities and the
consideration per share for which Additional Shares may at any time thereafter
be issuable pursuant to such Convertible Securities is less than the
-8-
<PAGE> 9
Conversion Price for such series, such Conversion Price shall be adjusted as
provided in Section 5(d)(ii) on the basis that (A) the maximum number of
Additional Shares necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and (B) the aggregate
consideration for such maximum number of Additional Shares shall be deemed to be
the consideration received and receivable by the Corporation for the issuance of
such Additional Shares pursuant to such Convertible Securities. No adjustment of
a Conversion Price shall be made under this Section 5(d)(iv) upon the issuance
of any Convertible Securities issued pursuant to the exercise of any Rights, to
the extent that such adjustment was previously made upon the issuance of such
Rights pursuant to Section 5(d)(iii).
(v) For purposes of Sections 5(d)(iii) and 5(d)(iv), the
relevant Series D Conversion Price shall be the applicable Conversion Price in
effect immediately prior to the earlier of (A) the record date for the holders
of Common Stock entitled to receive the Rights or Convertible Securities and (B)
the initial issuance of the Rights or Convertible Securities, and the adjustment
provided for in either such Section shall become effective immediately after the
earlier of the times specified in clauses (A) and (B).
(vi) No adjustment of any Conversion Price shall be made
under Section 5(d)(ii) upon the issuance of any Additional Shares pursuant to
the exercise of any Rights or of any conversion or exchange rights pursuant to
any Convertible Securities, if such adjustment was previously made in connection
with the issuance of such Rights or Convertible Securities (or in connection
with the issuance of any Rights therefor) pursuant to Section 5(d)(iii) or
5(d)(iv).
(vii) If any Rights (or any portions thereof) that gave
rise to an adjustment pursuant to Section 5(d)(iii) or any conversion or
exchange rights pursuant to any Convertible Securities that gave rise to an
adjustment pursuant to Section 5(d)(iii) or 5(d)(iv) expire or terminate without
the exercise thereof and/or if by reason of the provisions of such Rights or
Convertible Securities there has been any increase, with the passage of time or
otherwise, in the consideration payable upon the exercise thereof, then the
Series D Conversion Price shall be readjusted (but to no greater extent than
originally adjusted) on the basis of (A) eliminating from the computation
Additional Shares corresponding to such expired or terminated Rights or
conversion or exchange rights, (B) treating the Additional Shares, if any,
actually issued or issuable pursuant to the previous exercise of such Rights or
conversion or exchange rights as having been issued for the consideration
actually received and receivable therefor and (C) treating any such Rights or
conversion or exchange rights that remain outstanding as being subject to
exercise on the basis of the consideration payable upon the exercise or
conversion thereof as is in effect at such time; provided, however, that any
consideration actually received by the Corporation in connection with the
issuance of such Rights or Convertible Securities shall form part of the
readjustment computation even though such Rights or conversion or exchange
rights expired without being exercised. The Series D Conversion Price shall be
adjusted as provided in Section 5(d)(ii) and any applicable provisions of
Section 5(d)(iii) or 5(d)(iv) as a result of any increase in the number of
Additional Shares issuable, or any decrease in the consideration payable upon
any issuance of Additional Shares, pursuant to any antidilution provisions of
any Rights or Convertible Securities.
-9-
<PAGE> 10
(viii) (A) If any Additional Shares, Convertible
Securities or Rights are issued for cash, the consideration received therefor
shall be deemed to be the amount of cash received.
(B) If any Additional Shares, Convertible
Securities or Rights are offered by the Corporation for subscription, the
consideration received therefor shall be deemed to be the subscription price.
(C) If any Additional Shares, Convertible
Securities or Rights are sold to underwriters or dealers for public offering
without a subscription offering, the consideration received therefor shall be
deemed to be the public offering price.
(D) In any case covered by Section 5(d)(viii) (A),
(B) or (C), in determining the amount of any consideration received by the
Corporation in whole or in part other than in cash, the amount of such
consideration shall be deemed to be the fair market value of such consideration
as determined in good faith by the Board of Directors of the Corporation, and
evidence of such determination shall be filed with the minutes of the
Corporation. If Additional Shares are issued as part of a unit with Rights, the
consideration received for the Rights shall be deemed to be the portion of the
consideration received for such unit determined in good faith at the time of
issuance by the Board of directors of the Corporation, and evidence of such
determination shall be filed with the minutes of the Corporation. If the Board
does not make any such determination, the consideration received for the Rights
shall be deemed to be zero. In either event, the consideration received for the
Additional Shares shall be deemed to be the consideration received for such unit
less the consideration deemed to have been received for the Rights.
(E) In any case covered by Section 5(d)(viii) (A),
(B), (C) or (D), in determining the amount of consideration received by the
Corporation, (I) any amounts received or receivable for accrued interest or
accrued dividends shall be excluded and (II) any compensation, underwriting
commissions or concessions or expenses paid or incurred in connection therewith
shall not be deducted.
(F) In any case covered by Section 5(d)(viii) (A),
(B), (C) or (D), there shall be added to the consideration received by the
Corporation at the time of issuance or sale (I) the minimum aggregate amount of
additional consideration payable to the Corporation upon the exercise of Rights
that relate to Convertible Securities and (II) the minimum aggregate amount of
consideration payable upon the conversion or exchange thereof.
(G) If any Additional Shares, Convertible
Securities or Rights are issued in connection with any merger, consolidation or
other reorganization in which the Corporation is the surviving corporation, the
amount of consideration received therefor shall be deemed to be the fair market
value, as determined in good faith by the Board of Directors of the Corporation,
of such portion of the assets and business of the non-surviving person or
persons as the Board of Directors of the Corporation determines in good faith to
be attributable to such Additional Shares, Convertible
-10-
<PAGE> 11
Securities or Rights, and evidence of such determination shall be filed with the
minutes of the Corporation.
(ix) If the corporation effects any merger, consolidation
or other reorganization to which the Corporation is a party (other than a merger
or consolidation in which the Corporation is the surviving corporation), any
sale or conveyance to another person of all or substantially all the assets of
the Corporation or any statutory exchange of securities with another person
(including any exchange effected in connection with a merger of a third person
into the Corporation), the holder of each share of Series D Preferred Stock then
outstanding shall have the right thereafter to convert such share into the kind
and amount of consideration receivable pursuant to such transaction by a holder
of the number of shares of Common Stock into which such share of Series D
Preferred Stock might have been converted immediately prior to such transaction,
assuming such holder of Common Stock failed to exercise its rights of election,
if any, as to the kind or amount of consideration receivable upon such
transaction (provided that if the kind or amount of consideration receivable
pursuant to such transaction is not the same for each share of Common Stock in
respect of which such rights of election shall not have been exercised
("non-electing share"), then, for purposes of this Section 5(d)(ix), the kind
and amount of consideration receivable pursuant to such transaction for each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). Thereafter, the holders of
shares of Series D Preferred Stock shall be entitled to appropriate adjustments
with respect to their conversion rights to the end that the provisions set forth
in this Section 5 shall correspondingly be made applicable, as nearly as may
reasonably be, to any consideration thereafter deliverable on conversion of
shares of Series D Preferred Stock. Notwithstanding the foregoing, this Section
5(d)(ix) shall not apply, with regard to any series, to an event which is
treated as a liquidation, dissolution or winding-up of the Corporation with
respect to such series pursuant to Section 3.
(x) If a purchase, tender or exchange offer is made to
the holders of outstanding shares of Common Stock and, upon the consummation of
such offer, the person having made such offer (together with its affiliates)
beneficially owns 50% or more of the outstanding shares of Common Stock, the
Corporation shall not effect any merger, consolidation or other reorganization
with or sale, lease or other disposition of material assets or issuance of
securities to the person having made such offer or any affiliate of such person,
unless prior to the consummation thereof each holder of shares of Series D
Preferred shall have been given a reasonable opportunity to elect to receive,
upon conversion of the shares of Series D Preferred Stock then held by such
holder (in lieu of the kind and amount of consideration otherwise receivable
upon conversion pursuant to this Section 5(d)), the consideration that would
have been received pursuant to such offer by a holder of that number of shares
of the Common Stock into which one share of Series D Preferred Stock might then
be converted if all such shares had been tendered and accepted pursuant to such
offer.
(xi) If the Corporation distributes generally to holders
of its outstanding shares of Common Stock or any other securities entitled
generally to participate in the earnings or assets of the Corporation ("Common
Equity") evidences of its debt, securities or other assets (excluding any cash
dividends and excluding any dividends or distributions payable in Rights or
-11-
<PAGE> 12
Convertible Securities for which adjustment is otherwise made pursuant to this
Section 5(d)), each Conversion Price shall be adjusted by multiplying such
Conversion Price in effect immediately prior to the record date for such
dividend or distribution by a fraction of which (X) the numerator shall be the
current market price per share of the Common Equity (determined, if the Common
Equity is not Common Stock, in the same way that the current market price for
Common Stock is determined) on such record date less the then fair market value,
as determined in good faith by the Board of Directors of the Corporation, of the
portion of the evidences of debt, securities or other assets so distributed or
applicable to the holder of one share of Common Equity and (Y) the denominator
shall be such current market price per share of the Common Equity, and evidence
of such determination shall be filed with the minutes of the Corporation. Such
adjustment shall become effective immediately after the record date for such
dividend or distribution.
(xii) If a state of facts not specifically controlled by
the provisions of this Section 5(d) occurs or is proposed that would result in
the conversion provisions of the Series D Preferred Stock not being fairly
protected in accordance with the essential intent and principles of such
provisions, the Board of Directors of the Corporation shall make an adjustment
in the application of such provisions, in accordance with such essential intent
and principles, so as to protect such conversion provisions, and evidence of the
determination by the Board of Directors of the Corporation of such adjustment
shall be filed with the minutes of the Corporation.
(xiii) No adjustment in the Series D Conversion Price
shall be required to be made unless it would require an increase or decrease of
at least one cent, but any adjustments not made because of this Section
5(d)(xiii) shall be carried forward and taken into account in any subsequent
adjustment otherwise required. All calculations under this Section 5(d) shall be
made to the nearest cent or to the nearest 1/100th of a share, as the case may
be. All adjustments with respect to a transaction or event shall apply to
subsequent such transactions and events. Anything in this Section 5(d) to the
contrary notwithstanding, the Board of directors of the Corporation shall be
entitled to make such irrevocable reduction in the Series D Conversion Price, in
addition to the adjustments required by this Section 5(d), as in its discretion
it shall determine to be advisable in order to avoid or diminish any income
deemed to be received for Federal income tax purposes by any holder of shares of
Common Stock, Series D Preferred Stock resulting from any event or occurrence
giving rise to an adjustment pursuant to this Section 5(d) or from any similar
event or occurrence, and evidence of the determination by the Board of Directors
of the Corporation of such adjustment shall be filed with the minutes of the
Corporation.
(xiv) Whenever the Series D Conversion Price is adjusted
pursuant to this Section 5(d), (A) the Corporation shall promptly file with the
minutes of the Corporation a certificate of a firm of nationally recognized
independent public accountants or of its chief accounting officer setting forth
the Series D Conversion Price (and any change in the kind or amount of
consideration to be received by holders of shares of Series D Preferred Stock
upon conversion) after such adjustment and setting forth a brief statement of
the facts requiring such adjustment and the manner of computing the same and (B)
a notice stating that the Series D Conversion Price has been adjusted, stating
the effective date of such adjustment and enclosing the certificate referred to
in Section 5(d)(xiv)(A)
-12-
<PAGE> 13
above shall forthwith be mailed by the Corporation to the holders of shares of
Series D Preferred Stock at their addresses as shown on the stock books of the
Corporation.
(xv) If as a result of any adjustment pursuant to this Section
5(d), the holder of any share of Series D Preferred Stock surrendered for
conversion becomes entitled to receive any consideration other than Common
Stock, then (A) the Series D Conversion Price with respect to such other
consideration shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
Common Stock contained in this Section 5(d) and (B) in case such consideration
shall consist of shares of Common Stock and some other kind of consideration or
of two or more kinds of consideration, the Board of Directors of the Corporation
shall determine in good faith the fair allocation of the adjusted Series D
Conversion Price between or among such types of consideration, and evidence of
such determination shall be filed with the minutes of the Corporation.
(e) Specified Events. For purposes of this Section 5(e), a
"Specified Event" occurs if (i) the Corporation takes any action that would
require any adjustment in the Series D Conversion Price pursuant to Section
5(d)(xi), (ii) the Corporation authorizes the granting to the holders of the
Common Stock of any Rights or of any other rights, (iii) there is any capital
stock reorganization or reclassification of the Common Stock (other than a
subdivision or combination of the outstanding Common Stock and other than a
change in the par value of the Common Stock), or any merger, consolidation or
other reorganization to which the Corporation is a party, or any statutory
exchange of securities with another person and for which approval of any
stockholders of the Corporation is required, or any sale or transfer of all or
substantially all the assets of the Corporation or (iv) there is a voluntary
liquidation, dissolution or winding up of the Corporation. If a Specified Event
occurs, the Corporation shall cause to be filed with the minutes of the
Corporation, and shall cause to be mailed to the holders of shares of the Series
D Preferred Stock, as the case may be, at their addresses as shown on the stock
books of the Corporation, at least 10 days prior to the applicable date
specified below, a notice stating (A) the date on which a record is to be taken
for the purpose of any distribution or Rights relating to such Specified Event
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such distribution or Rights are to be
determined, or (B) the date on which the reorganization, reclassification,
consolidation, merger, statutory exchange, sale, transfer, dissolution,
liquidation or winding-up relating to such Specified Event is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such Specified Event.
(f) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available, free from preemptive and subscription rights,
out of its authorized but unissued shares of Common Stock, for the purpose of
effecting conversions of the Series D Preferred Stock, the full number of shares
of Common Stock deliverable upon the conversion of all outstanding shares of
Series D Preferred Stock not theretofore converted. For this purpose, the number
of shares of Common Stock deliverable upon the conversion of all outstanding
shares of Series D Preferred Stock shall be computed as if at the time of
computation all such outstanding shares were held by a single holder.
-13-
<PAGE> 14
(g) Listing. The Corporation shall use its best efforts to list any
securities required to be delivered upon conversion of the Series D Preferred
Stock prior to such delivery upon each securities exchange, if any, upon which
such securities are listed at the time of such delivery. Prior to the delivery
of any such securities, the Corporation shall use its best efforts to comply
with all laws and regulations thereunder requiring the registration of such
securities with, or any approval of or consent to the delivery thereof by, any
governmental authority.
(h) Taxes. The Corporation shall pay all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
securities on conversion of the Series D Preferred Stock; provided, however,
that (i) the Corporation shall not be required to pay any tax payable in respect
of any transfer involved in the issue or delivery of securities in a name other
than that of the holder of the shares of Series D Preferred Stock to be
converted and (ii) no such issue or delivery shall be made unless and until such
holder has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been paid
or provided for.
(i) Mandatory Conversion. All issued and outstanding shares of
Series D Preferred Stock shall be deemed to have been converted into, and shall
(without any action of the holder thereof) become, that number of fully paid and
nonassessable shares of Common Stock into which such shares of Series D
Preferred Stock are then convertible in accordance with the provisions of this
Section 5 immediately upon the consummation of the Corporation's sale of Common
Stock in a bona fide public offering on an underwritten firm commitment basis
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission pursuant to the Securities Act of 1933, which
public offering results in aggregate gross cash proceeds to the Corporation of
at least $7,500,000 at a sale price per share of Common Stock (as adjusted for
combinations, stock dividends, subdivisions or split-ups) of at least $3.25.
Section 6. Status of Shares. Upon any conversion or any redemption,
repurchase or other acquisition by the Corporation of shares of Series D
Preferred Stock, the shares of Series D Preferred Stock so converted, redeemed,
repurchased or acquired shall be retired and cancelled and shall not be
available for reissuance.
Section 7. Definitions and Construction. As used in this Article 4, (a)
"herein," "hereof," "hereunder" and other like words mean or refer to this
Article 4; (b) "outstanding," when used with reference to shares of stock, means
issued shares, excluding shares held by the Corporation or a subsidiary; (c)
"person" means any corporation, partnership, trust, organization, association or
other entity or individual; (d) "affiliate" of any person means any other person
controlling, controlled by or under common control with such person; (e)
headings are for convenience of reference only and shall not define, limit or
affect any of the provisions hereof; and (f) references to Sections are to
Sections of this Article Four.
Section 8. Residual Rights. All rights accruing to the outstanding
shares of the Corporation not expressly provided for or to the contrary herein
shall be vested in the Common Stock.
-14-
<PAGE> 15
Preferred Stock:
The Preferred Stock may be issued in one or more series, from
time to time, with each such series to have such designation, powers,
preferences, and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions
providing for the issue of such series adopted by the Board of
Directors of the Corporation, subject to the limitations prescribed by
law and in accordance with the provisions hereof, the Board of
Directors being hereby expressly vested with authority to adopt any
such resolution or resolutions. The authority of the Board of Directors
with respect to each such series shall include, but not be limited to,
the determination or fixing of the following:
(i) The distinctive designation and number of shares comprising
such series, which number may (except where otherwise provided by the
Board of Directors in creating such series) be increased or decreased
(but not below the number of shares then outstanding) from time to time
by like action of the Board of Directors;
(ii) The dividend rate of such series, the conditions and time
upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or
classes of stock or series thereof, or any other series of the same
class, and whether such dividends shall be cumulative or
non-cumulative;
(iii) The conditions upon which the shares of such series shall
be subject to redemption by the Corporation and the times, prices and
other terms and provisions upon which the shares of the series may be
redeemed;
(iv) Whether or not the shares of the series shall be subject to
the operation of a retirement or sinking fund to be applied to the
purchase or redemption of such shares and, if such retirement or
sinking fund be established, the annual amount thereof and the terms
and provisions relative to the operation thereof;
(v) Whether or not the shares of the series shall be convertible
into or exchangeable for shares of any other class or classes, with or
without par value, or of any other series of the same class, and, if
provision is made for conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such conversion or
exchange;
(vi) Whether or not the shares of the series shall have voting
rights, in addition to the voting rights provided by law, and, if so,
the terms of such voting rights;
-15-
<PAGE> 16
(vii) The rights of the shares of the series in the event of
voluntary or involuntary liquidation, dissolution, or upon the
distribution of assets of the Corporation;
(viii) Any other powers, preferences and relative participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, of the shares of such series, as the Board of
Directors may deem advisable and as shall not be inconsistent with the
provisions of this Certificate of Incorporation.
The holders of shares of the Preferred Stock of each series
shall be entitled to receive, when and as declared by the Board of
Directors, out of funds legally available for the payment of dividends,
dividends (if any) at the rates fixed by the Board of Directors for
such series, and no more, before any cash dividends shall be declared
and paid, or set apart for payment, on the Common Stock with respect to
the same dividend period.
The holders of shares of the Preferred Stock of each series
shall be entitled upon liquidation or dissolution or upon the
distribution of the assets of the Corporation to such preferences as
provided in the resolution or resolutions creating such series of
Preferred Stock, and no more, before any distribution of the assets of
the Corporation shall be made to the holders of shares of the Common
Stock. Whenever the holders of shares of the Preferred Stock shall have
been paid the full amounts to which they shall be entitled, the holders
of shares of the Common Stock shall be entitled to share ratably in all
remaining assets of the Corporation.
3. This amendment to the Restated Certificate of Incorporation of the
Corporation (the "Amendment") has been duly adopted at a meeting of the Board of
Directors of the Corporation in accordance with the provisions of Sections 242
and 245 of the General Corporation Law of the State of Delaware and by the
holders of a majority of each class of outstanding stock entitled to vote
thereon as a class by written consent given in accordance with Section 228 of
the General Corporation Law of the State of Delaware. Written notice pursuant to
Section 228 has been given to those stockholders of the Corporation who have not
consented in writing to this action.
4. The effective date of the Amendment herein certified shall be the
effective date of a registration statement filed with the Securities and
Exchange Commission by the Corporation, in connection with an offering of gross
proceeds of no less than $7,000,000.
-16-
<PAGE> 17
IN WITNESS WHEREOF, I have hereunto set my hands and caused the
Amendment to be executed on behalf of the Corporation this day of
, 1996.
INTEGRATED SURGICAL SYSTEMS, INC.
By:
-----------------------------
Ramesh Trivedi
President
-17-
<PAGE> 18
RESTATED CERTIFICATE OF INCORPORATION
OF
INTEGRATED SURGICAL SYSTEMS, INC.
Integrated Surgical Systems, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
that:
1. The name of the Corporation is Integrated Surgical Systems, Inc. The
Corporation was originally incorporated under the same name, and the original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on October 1, 1990.
2. This Certificate restates and amends the provisions of the
Corporation's Certificate of Incorporation to read as set forth in Exhibit A
attached to this Certificate.
3. This restatement and amendment of the Corporation's Certificate of
Incorporation has been duly adopted by the Corporation's Board of Directors in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware, and by the holders of each class of outstanding stock entitled to
vote thereon as a class by written consent given in accordance with Section 228
of the General Corporation Law of the State of Delaware. Written notice pursuant
to Section 228 has been given to those stockholders of the Corporation who have
not consented in writing to this action.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Restatement of Certificate of Incorporation to be signed by Ramesh Trivedi, its
President, this 20th day of December, 1995.
INTEGRATED SURGICAL SYSTEMS, INC.
By: /s/ Ramesh Trivedi
-------------------------------
Ramesh Trivedi, President
<PAGE> 19
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
INTEGRATED SURGICAL SYSTEMS, INC.
1. The name of this corporation is Integrated Surgical Systems, Inc.
(the "Corporation").
2. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Zip Code 19801. The name of its registered
agent at such address is The Corporation Trust Company.
3. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
4. The Corporation is authorized to issue two classes of capital stock:
Preferred Stock, $0.01 par value per share, and Common Stock, $0.01 par value
per share. The total number of shares of Preferred Stock which the Corporation
shall have the authority to issue is 5,750,000 of which 5,750,000 shares shall
be designated Series D Preferred Stock ("Series D Preferred"). The total number
of shares of Common Stock which the Corporation shall have the authority to
issue is 15,000,000. The Series D Preferred is herein collectively referred to
as the "Preferred Stock."
Upon the filing of this Restated Certificate of Incorporation with the
Delaware Secretary of State, each currently outstanding share of Common Stock,
Series B Preferred Stock and Series C Preferred Stock shall be split up and
converted into 0.20 shares of Common Stock, and the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock shall be
eliminated from the authorized capital stock of the corporation. No shares of
Series A Preferred Stock have ever been issued or outstanding. Also upon the
filing of this Restated Certificate of Incorporation, each $8.87 of accrued
dividends with respect to the Series B Preferred Stock shall be converted into
0.20 shares of Common Stock and each $10.56 of accrued dividends with respect to
the Series C Preferred Stock shall be converted into 0.20 shares of Common
Stock. No fractional shares shall be issued in connection with such reverse
stock split and conversion and the number of shares issuable to each stockholder
shall be determined by rounding upward to the next whole share on a
certificate-by-certificate basis.
The relative rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes of shares of capital stock or holders
thereof are as set forth below.
Section 1. Ranking. The Series D Preferred shall rank, subject to the
rights of any other series of Preferred Stock which may from time to time come
into existence pursuant to the terms hereof, prior to any other equity
securities of the Corporation, including the Common Stock, upon liquidation,
dissolution or winding-up.
<PAGE> 20
Section 2. Dividends.
The holders of Series D Preferred shall be entitled to
receive a dividend (the "Participating Dividend" for such series) payable in
cash on the payment date for each cash dividend declared on the shares of Common
Stock in an amount per share of Preferred Stock of such series equal to
the number of shares (or fraction thereof) of Common Stock into which each share
of Preferred Stock on such series is then convertible times the cash
dividend to be paid on each full share of Common Stock.
Following the filing of this Restated Certificate of Incorporation,
the right to dividends on shares of the Common Stock and Preferred
Stock shall not be cumulative, and no right shall accrue to holders of Common
Stock or Series D Preferred Stock by reason of the fact that dividends on said
shares are not declared in any prior period.
Section 3. Liquidation. The shares of Series D Preferred shall rank
prior to the shares of Common Stock and any other class or series of capital
stock of the Corporation ranking junior to the Series D Preferred Stock upon
liquidation, dissolution or winding-up, so that in the event of any liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
the holders of shares of Series D Preferred shall be entitled to receive out of
the assets of the Corporation available for distribution to its stockholders,
whether from capital, surplus or earnings, before any distribution is made to
holders of shares of Common Stock or any other such junior stock, an amount per
share equal to $0.65 for each outstanding share of Series D Preferred (the
"Original Series D Issue Price") plus an amount equal to all accrued and unpaid
dividends on each share of Series D Preferred (such sum being referred to as the
liquidation preference of the Series D Preferred). After payment has been made
to the holders of the Series D Preferred of the full amount to which they shall
be entitled, the remaining assets of the Corporation shall be distributed
ratably to the holders of any capital stock of the Corporation ranking junior to
the Series D Preferred.
If the assets and funds of the Corporation distributable among the
holders of shares of Series D Preferred shall be insufficient to permit
the payment in full to such holders of the respective liquidation preferences
payable to such holders, in the event of any liquidation, dissolution or winding
up of the Corporation, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed among such holders
ratably in proportion to the aggregate liquidation preferences of the shares of
Preferred Stock held by such holders.
For purposes of this Section 3, an Acquisition (as defined below)
shall be treated as a liquidation, dissolution or winding-up of the Corporation.
For purposes of this section "Acquisition" shall mean any consolidation, merger
or other reorganization of the Corporation; any sale, exchange or other
disposition (whether in one transaction or a series of related transactions) of
all, or any substantial part, of the assets of the Corporation and its
subsidiaries taken as a whole; or any other transaction or series of related
transactions which would result in the holders of the Voting Securities
immediately prior thereto continuing to beneficially own less than a majority of
the Total Voting
-2-
<PAGE> 21
Power (as defined in Section 4(d)(iii)) of the Corporation, successor or
acquiring corporation immediately thereafter.
Section 4. Voting.
(a) Except as otherwise required by law and as set forth herein, the
holders of shares of Series D Preferred issued and outstanding shall have
no right to vote their shares of Series D Preferred.
(b) The holders of shares of Series D Preferred shall have the
right to vote, together with the holders of all the outstanding shares of Common
Stock and not by classes (except as otherwise provided in this Section 4 or by
applicable law), on all matters on which holders of shares of Common Stock have
the right to vote. Each holder of shares of Series D Preferred shall have
the right, for the shares of Series D Preferred held by such holder on the
applicable record date, to cast that number of votes on each such matter equal
to the number of shares of Common Stock into which such shares of Series D
Preferred could be converted as of such record date, with any fractions
rounded down to the next full vote, multiplied by the number of votes per share
which the holders of shares of Common Stock then have with respect to such
matter.
(c) Whenever holders of shares of Series D Preferred or Common Stock
are required or permitted to take any action by vote, such action may be taken
without a meeting by written consent, setting forth the action so taken and
signed by the holders of shares of Series D Preferred or Common Stock, as the
case may be, having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all such shares
entitled to vote thereon were present and voted.
(d) The consent of holders of at least a majority of the outstanding
shares of Series D Preferred, voting separately as a class, shall be
required before the Corporation shall (or shall permit any of its subsidiaries
to):
(i) either directly or indirectly or through merger,
consolidation or other reorganization with any other person, amend, alter or
repeal any of the provisions hereof so as to affect adversely the powers,
preferences or relative, participating, optional or other special rights of the
Series D Preferred;
(ii) adopt any amendment to the Corporation's Restated
Certificate of Incorporation to change the Corporation's authorized capital; or
(iii) enter into any Control Transaction (as defined below) with
any person.
"Control Transaction" shall mean any consolidation, merger
or other reorganization of the Corporation; any sale, lease, exchange or other
disposition (whether in one transaction or a series of related transactions) of
all, or any substantial part, of the assets of the
-3-
<PAGE> 22
Corporation and its subsidiaries taken as a whole; or any other transaction or
series of related transactions which would result in the holders of the Voting
Securities immediately prior thereto continuing to beneficially own less than
fifty percent (50%) of the Total Voting Power of the Corporation, successor or
acquiring corporation immediately thereafter.
"Total Voting Power of the Corporation" shall mean the
total number of votes that may be cast in the election of directors of the
Corporation at any meeting of stockholders of the Corporation if all Voting
Securities (assuming full conversion, exchange or exercise of all securities
(including rights, warrants and options) convertible into, exchangeable for or
exercisable for any securities of the Corporation entitled to vote generally in
the election of directors of the Corporation) were present and voted at such
meeting, other than votes that may be cast only by one class or series of stock
(other than Common Stock) or upon the happening of a contingency.
"Voting Securities" shall mean the shares of Common Stock
and any other securities of the Corporation entitled to vote generally in the
election of directors of the Corporation, and any other securities (including
rights, warrants and options) convertible into, exchangeable for or exercisable
for, any of the foregoing (whether or not presently convertible, exchangeable or
exercisable).
(e) In addition to voting together with the holders of Voting
Securities for the election of other directors of the Corporation, the holders
of record of the Series D Preferred, voting separately as a class (the "Series D
Group"), to the exclusion of the holders of Common Stock and any other series of
Preferred Stock then outstanding, shall, at any annual meeting of stockholders
for the election of directors (and at each subsequent annual meeting of
stockholders), vote for the election of two directors (each a "Series D
Director") of the Corporation. In the election of the Series D Directors, the
holders of Series D Preferred shall be entitled to cast one vote per share of
Series D Preferred they hold. Any director who shall have been elected pursuant
to this Section 4(e) may be removed at any time by, and removed without cause
only by, the affirmative vote of the holders of the Preferred Stock of the group
that had elected such director who are entitled to cast a majority of the votes
entitled to be cast for the election of any such director at a special meeting
of such holders called for that purpose, and any vacancy thereby created may be
filled only by the vote of such holders of the Preferred Stock of such group.
The holder of each share of Preferred Stock shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation and shall
vote with the holders of the Common Stock upon the election of the remaining
directors authorized by the Bylaws of the Corporation. The Corporation shall
take any action from time to time as shall be necessary to amend the Bylaws of
the Corporation to provide for a change in the authorized number of members of
the Board as may be required to give effect to this Section 4(e).
Section 5. Conversion.
(a) General. On the terms and subject to the conditions of this
Section 5, the holder of a share of Series D Preferred shall have the
right, at its option, at any time (subject to the next sentence and to Section
5(i)) to convert such share into that number of shares of Common Stock
-4-
<PAGE> 23
(calculated as to each conversion to the nearest 1/100th of a share) obtained by
dividing the Original Series D Issue Price (as defined in Section 3) by the
Conversion Price for such series (as defined in Section 5(d)) and by surrender
of such share pursuant to Section 5(b) (the shares of Common Stock issuable upon
such conversion being called "Conversion Shares").
(b) Conversion Procedures. In order to exercise the conversion
privilege, the holder of any shares of Series D Preferred to be converted
shall surrender the certificate representing such shares at the principal office
of the Corporation, with a written notice stating that such holder elects to
convert all or a specified whole number of such shares pursuant to this Section
5 and specifying the name or names in which such holder wishes the certificate
or certificates for Conversion Shares to be issued. In the case of any mandatory
conversion pursuant to Section 5(i), on or after the date of the occurrence of
the event set forth in Section 5(i) (and within 10 days after receipt of written
notice, if any, from the Corporation of the occurrence of such event), each
holder of shares of Series D Preferred shall surrender the certificate
representing such shares at the principal office of the Corporation, together
with a written notice specifying the name or names in which such holder wishes
the certificate or certificates for Conversion Shares to be issued. Unless the
Conversion Shares are to be issued in the same name as the name in which such
shares of Series D Preferred are registered, the certificate representing
the shares surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
or its duly authorized attorney. As promptly as practicable after such surrender
of a certificate for shares of Series D Preferred, and in any event within
five business days (as defined below) thereafter, the Corporation shall issue
and deliver at such office to such holder, or on such holder's written order,
(i) a certificate or certificates for the applicable number of full Conversion
Shares, (ii) if less than the full number of shares of Series D Preferred
evidenced by the surrendered certificate is being converted, a new certificate,
of like tenor, for the number of shares of Series D Preferred evidenced by
such surrendered certificate less the number of shares being converted and (iii)
the cash payment in settlement of any fractional Conversion Share provided for
in Section 5(c).
Upon conversion of any shares of Series D Preferred, the
holder thereof shall be entitled to receive an amount equal to all declared and
unpaid dividends on such shares prior to such conversion. The payment for such
declared and unpaid dividends on a mandatory conversion under Section 5(i) shall
be paid in cash or Common Stock at the election of the Corporation. For purposes
of the payment of the declared and unpaid dividend in Common Stock, the fair
market value of the Common Stock shall be deemed to be the issuance price of the
Common Stock in the public offering which triggers the mandatory conversion
under Section 5(i).
A "business day" is a day other than a Saturday, Sunday or other day
on which banks in the State of New York or the State of California are
authorized to be closed.
In the case of the exercise of the conversion privilege, each
conversion shall be deemed to have been effected as of the close of business on
the date on which the certificate for shares of Series D Preferred is
surrendered and such notice is received by the Corporation as aforesaid, and the
person or persons in whose name or names any certificate or certificates for
-5-
<PAGE> 24
Conversion Shares are issuable shall be deemed to have become the holder or
holders of such Conversion Shares at such time on such date and such conversion
shall be at the applicable Conversion Price in effect at such time on such date,
unless the stock transfer books of the Corporation are closed on that date, in
which event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next day on which such stock
transfer books are open (provided that if such books shall remain closed for
five days, such fifth day shall be the date any such person shall become such a
holder), but such conversion shall be at the applicable Conversion Price in
effect on the date on which such certificate was surrendered and such notice was
received. In the case of any mandatory conversion pursuant to Section 5(i), on
the date of the occurrence of the event set forth in Section 5(i), each holder
of shares of Series D Preferred shall be deemed to be a holder of record
of the Common Stock issuable upon such conversion, notwithstanding that the
certificates representing such shares of Series D Preferred shall not have
been surrendered at the office of the Corporation, that notice from the
Corporation shall not have been received by any holder of shares of Series D
Preferred or that the certificates evidencing such shares of Common Stock
shall not then be actually delivered to such person. Upon delivery, all
Conversion Shares shall be duly authorized, validly issued, fully paid,
nonassessable, free of all liens and charges and not subject to any preemptive
or subscription rights.
(c) Settlement of Fractional Conversion Shares. No fractional
Conversion Shares or scrip representing fractions of Conversion Shares shall be
issued upon conversion of shares of Series D Preferred. Instead of any
fractional Conversion Share otherwise deliverable, the Corporation shall pay to
the holder of the converted shares an amount in cash equal to the current market
price (as defined below) of such fractional Conversion Share on the date of
conversion. If more than one share is surrendered for conversion at one time by
the same holder, the number of full Conversion Shares shall be computed on the
basis of the aggregate number of shares so surrendered. The "current market
price" per share of Common Stock on any day is the average of the daily market
prices for the 30 consecutive trading days immediately prior to the day in
question. The "daily market price" of a share of Common Stock is the price of a
share of Common Stock on the relevant day, determined on the basis of the last
reported sale price, regular way, of the Common Stock as reported on the
composite tape, or similar reporting system, for issues listed or admitted to
trading on the New York Stock Exchange (or if the Common Stock is not then
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which the Common Stock is then listed or
admitted to trading) or on the Nasdaq National Market or, if there is no such
reported sale on the day in question, on the basis of the average of the closing
bid and asked quotations as so reported or, if the Common Stock is not then
listed or admitted to trading on any national securities exchange or on the
Nasdaq National Market on the basis of the average of the high bid and low asked
quotations on the day in question in the over-the-counter market as reported by
the National Association of Securities Dealers' Automated Quotation System, or,
if not so quoted, as reported by National Quotation Bureau, Incorporated, or a
similar organization. If the current market price is not determinable as
aforesaid, it shall be determined in good faith by the Board and evidence of
such determination shall be filed with the minutes of the Corporation. A
"trading day" is a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading
-6-
<PAGE> 25
is open for the transaction of business or, if the Common Stock is not then
listed or admitted to trading on any national securities exchange, any day other
than Saturday, Sunday or a federal holiday.
(d) Conversion Price. "Series D Conversion Price" shall mean $0.65
as adjusted pursuant to this Section 5(d). "Conversion Price" shall generally
mean the Series D Conversion Price. The Series D Conversion Price (and the kind
and amount of consideration receivable by holders of shares of Series D
Preferred upon conversion) shall be adjusted from time to time as follows:
(i) If, after the date of the Corporation's Series D Preferred
Stock and Warrant Purchase Agreement with respect to the Series D Conversion
Price (such date being referred to as the "Conversion Reference Date" for such
series), the Corporation (A) pays a dividend or makes a distribution on the
Common Stock in shares of Common Stock, (B) subdivides or combines its
outstanding shares of Common Stock into a greater or smaller number of shares or
(C) issues by reclassification of the Common Stock any shares of capital stock
of the Corporation, then the Series D Conversion Price in effect immediately
prior to such action shall be adjusted so that the holder of any share of Series
D Preferred thereafter surrendered for conversion shall be entitled to
receive, at the time of such conversion, the number of shares of Common Stock or
other capital stock of the Corporation that it would have owned or been entitled
to receive immediately following such action had such share been converted
immediately prior to such action or the record date therefor, whichever is
earlier. Such adjustment shall become effective immediately after the record
date, in the case of a dividend or distribution, or immediately after the
effective date, in the case of a subdivision, combination or reclassification.
(ii) If the Corporation issues any Additional Shares as defined
below for a consideration per share less than the Conversion Price for a series
of Preferred Stock in effect immediately prior to such issuance, then the
Conversion Price for such series shall be adjusted by multiplying such
Conversion Price in effect immediately prior to such issuance by a fraction (I)
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such Additional Shares plus the number of
shares of Common Stock that the aggregate consideration for such Additional
Shares would purchase at a consideration per share equal to such Conversion
Price and (II) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Shares
plus the number of Additional Shares so issued. Such adjustment shall become
effective immediately after the issuance of such Additional Shares. For purposes
of this Section 5, the issuance of any Additional Shares or other securities,
warrants, options or rights includes any sale and any reissuance or resale.
"Additional Shares" shall mean any shares of Common Stock
of the Corporation issued by the Corporation, excluding:
(A) any shares of Common Stock issued upon the exercise
of the Warrant issued by the Corporation on February 6, 1991, for the purchase
of 500,000 shares of Common Stock (prior to the split-up effected herein), as
amended on the First Closing Date, as defined in the Corporation's Series D
Preferred Stock and Warrant Purchase Agreement;
-7-
<PAGE> 26
(B) any shares of Common Stock issued upon the
exercise of the warrants issued by the Corporation on the First Closing Date to
purchase an aggregate of 846,845 shares of Common Stock (as such number of
shares may be increased on the Second Closing Date pursuant to the terms of such
warrants), as those terms are defined in the Corporation's Series D Preferred
Stock and Warrant Purchase Agreement;
(C) any shares of Common Stock issued upon
conversion of the Series D Preferred issuable upon the exercise of any
warrant to purchase shares of Series D Preferred issued by the Corporation
on the First Closing Date or the Second Closing Date, as those terms are defined
in the Corporation's Series D Preferred Stock and Warrant Purchase Agreement;
(D) any shares of Common Stock issued upon the
conversion of the Series D Preferred;
(E) up to 1,640,762 shares of Common Stock issuable
(x) to any officer, employee, consultant or director of the Corporation pursuant
to any arrangement or plan, including any incentive stock plan, adopted by the
Board of Directors of the Corporation or (y) pursuant to the conversion of
Rights or Convertible Securities (as defined in Section 5(d)(iii)) issuable to
lending or leasing institutions; and
(E) up to 4,000 shares of Common Stock issuable at
fair market value to vendors of goods or services to the Corporation in payment
for such goods and services.
(iii) If, after the Series D Preferred Conversion
Reference Date, the Corporation issues any warrants, options or other rights
entitling the holders thereof to subscribe for or purchase either any Additional
Shares or evidences of debt, shares of capital stock or other securities that
are convertible into or exchangeable for, with or without payment of additional
consideration, Additional Shares (such warrants, options or other rights being
called "Rights" and such convertible or exchangeable evidences of debt, shares
of capital stock or other securities being called "Convertible Securities"), and
the consideration per share for which Additional Shares may at any time
thereafter be issuable pursuant to such Rights or Convertible Securities (when
added to the consideration per share of Common Stock, if any, received for such
Rights), is less than the Conversion Price for the Series D Preferred, the
Series D Preferred Conversion Price shall be adjusted as provided in Section
5(d)(ii) on the basis that (A) the maximum number of Additional Shares issuable
pursuant to all such Rights or necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued and (B) the
aggregate consideration (plus the consideration, if any, received for such
Rights) for such maximum number of Additional Shares shall be deemed to be the
consideration received and receivable by the Corporation for the issuance of
such Additional Shares pursuant to such Rights or Convertible Securities.
(iv) If, after the Series D Preferred Conversion
Reference Date, the Corporation issues Convertible Securities and the
consideration per share for which Additional Shares may at any time thereafter
be issuable pursuant to such Convertible Securities is less than the
-8-
<PAGE> 27
Conversion Price for such series, such Conversion Price shall be adjusted as
provided in Section 5(d)(ii) on the basis that (A) the maximum number of
Additional Shares necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and (B) the aggregate
consideration for such maximum number of Additional Shares shall be deemed to be
the consideration received and receivable by the Corporation for the issuance of
such Additional Shares pursuant to such Convertible Securities. No adjustment of
a Conversion Price shall be made under this Section 5(d)(iv) upon the issuance
of any Convertible Securities issued pursuant to the exercise of any Rights, to
the extent that such adjustment was previously made upon the issuance of such
Rights pursuant to Section 5(d)(iii).
(v) For purposes of Sections 5(d)(iii) and 5(d)(iv), the
relevant Series D Conversion Price shall be the applicable Conversion Price in
effect immediately prior to the earlier of (A) the record date for the holders
of Common Stock entitled to receive the Rights or Convertible Securities and (B)
the initial issuance of the Rights or Convertible Securities, and the adjustment
provided for in either such Section shall become effective immediately after the
earlier of the times specified in clauses (A) and (B).
(vi) No adjustment of any Conversion Price shall be made
under Section 5(d)(ii) upon the issuance of any Additional Shares pursuant to
the exercise of any Rights or of any conversion or exchange rights pursuant to
any Convertible Securities, if such adjustment was previously made in connection
with the issuance of such Rights or Convertible Securities (or in connection
with the issuance of any Rights therefor) pursuant to Section 5(d)(iii) or
5(d)(iv).
(vii) If any Rights (or any portions thereof) that gave
rise to an adjustment pursuant to Section 5(d)(iii) or any conversion or
exchange rights pursuant to any Convertible Securities that gave rise to an
adjustment pursuant to Section 5(d)(iii) or 5(d)(iv) expire or terminate without
the exercise thereof and/or if by reason of the provisions of such Rights or
Convertible Securities there has been any increase, with the passage of time or
otherwise, in the consideration payable upon the exercise thereof, then the
Series D Conversion Price shall be readjusted (but to no greater extent than
originally adjusted) on the basis of (A) eliminating from the computation
Additional Shares corresponding to such expired or terminated Rights or
conversion or exchange rights, (B) treating the Additional Shares, if any,
actually issued or issuable pursuant to the previous exercise of such Rights or
conversion or exchange rights as having been issued for the consideration
actually received and receivable therefor and (C) treating any such Rights or
conversion or exchange rights that remain outstanding as being subject to
exercise on the basis of the consideration payable upon the exercise or
conversion thereof as is in effect at such time; provided, however, that any
consideration actually received by the Corporation in connection with the
issuance of such Rights or Convertible Securities shall form part of the
readjustment computation even though such Rights or conversion or exchange
rights expired without being exercised. The Series D Conversion Price shall be
adjusted as provided in Section 5(d)(ii) and any applicable provisions of
Section 5(d)(iii) or 5(d)(iv) as a result of any increase in the number of
Additional Shares issuable, or any decrease in the consideration payable upon
any issuance of Additional Shares, pursuant to any antidilution provisions of
any Rights or Convertible Securities.
-9-
<PAGE> 28
(viii) (A) If any Additional Shares, Convertible
Securities or Rights are issued for cash, the consideration received therefor
shall be deemed to be the amount of cash received.
(B) If any Additional Shares, Convertible
Securities or Rights are offered by the Corporation for subscription, the
consideration received therefor shall be deemed to be the subscription price.
(C) If any Additional Shares, Convertible
Securities or Rights are sold to underwriters or dealers for public offering
without a subscription offering, the consideration received therefor shall be
deemed to be the public offering price.
(D) In any case covered by Section 5(d)(viii) (A),
(B) or (C), in determining the amount of any consideration received by the
Corporation in whole or in part other than in cash, the amount of such
consideration shall be deemed to be the fair market value of such consideration
as determined in good faith by the Board of Directors of the Corporation, and
evidence of such determination shall be filed with the minutes of the
Corporation. If Additional Shares are issued as part of a unit with Rights, the
consideration received for the Rights shall be deemed to be the portion of the
consideration received for such unit determined in good faith at the time of
issuance by the Board of directors of the Corporation, and evidence of such
determination shall be filed with the minutes of the Corporation. If the Board
does not make any such determination, the consideration received for the Rights
shall be deemed to be zero. In either event, the consideration received for the
Additional Shares shall be deemed to be the consideration received for such unit
less the consideration deemed to have been received for the Rights.
(E) In any case covered by Section 5(d)(viii) (A),
(B), (C) or (D), in determining the amount of consideration received by the
Corporation, (I) any amounts received or receivable for accrued interest or
accrued dividends shall be excluded and (II) any compensation, underwriting
commissions or concessions or expenses paid or incurred in connection therewith
shall not be deducted.
(F) In any case covered by Section 5(d)(viii) (A),
(B), (C) or (D), there shall be added to the consideration received by the
Corporation at the time of issuance or sale (I) the minimum aggregate amount of
additional consideration payable to the Corporation upon the exercise of Rights
that relate to Convertible Securities and (II) the minimum aggregate amount of
consideration payable upon the conversion or exchange thereof.
(G) If any Additional Shares, Convertible
Securities or Rights are issued in connection with any merger, consolidation or
other reorganization in which the Corporation is the surviving corporation, the
amount of consideration received therefor shall be deemed to be the fair market
value, as determined in good faith by the Board of Directors of the Corporation,
of such portion of the assets and business of the non-surviving person or
persons as the Board of Directors of the Corporation determines in good faith to
be attributable to such Additional Shares, Convertible
-10-
<PAGE> 29
Securities or Rights, and evidence of such determination shall be filed with the
minutes of the Corporation.
(ix) If the corporation effects any merger, consolidation
or other reorganization to which the Corporation is a party (other than a merger
or consolidation in which the Corporation is the surviving corporation), any
sale or conveyance to another person of all or substantially all the assets of
the Corporation or any statutory exchange of securities with another person
(including any exchange effected in connection with a merger of a third person
into the Corporation), the holder of each share of Series D Preferred then
outstanding shall have the right thereafter to convert such share into the kind
and amount of consideration receivable pursuant to such transaction by a holder
of the number of shares of Common Stock into which such share of Series D
Preferred might have been converted immediately prior to such transaction,
assuming such holder of Common Stock failed to exercise its rights of election,
if any, as to the kind or amount of consideration receivable upon such
transaction (provided that if the kind or amount of consideration receivable
pursuant to such transaction is not the same for each share of Common Stock in
respect of which such rights of election shall not have been exercised
("non-electing share"), then, for purposes of this Section 5(d)(ix), the kind
and amount of consideration receivable pursuant to such transaction for each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). Thereafter, the holders of
shares of Series D Preferred shall be entitled to appropriate adjustments
with respect to their conversion rights to the end that the provisions set forth
in this Section 5 shall correspondingly be made applicable, as nearly as may
reasonably be, to any consideration thereafter deliverable on conversion of
shares of Series D Preferred. Notwithstanding the foregoing, this Section
5(d)(ix) shall not apply, with regard to any series, to an event which is
treated as a liquidation, dissolution or winding-up of the Corporation with
respect to such series pursuant to Section 3.
(x) If a purchase, tender or exchange offer is made to
the holders of outstanding shares of Common Stock and, upon the consummation of
such offer, the person having made such offer (together with its affiliates)
beneficially owns 50% or more of the outstanding shares of Common Stock, the
Corporation shall not effect any merger, consolidation or other reorganization
with or sale, lease or other disposition of material assets or issuance of
securities to the person having made such offer or any affiliate of such person,
unless prior to the consummation thereof each holder of shares of Series D
Preferred shall have been given a reasonable opportunity to elect to receive,
upon conversion of the shares of Series D Preferred then held by such
holder (in lieu of the kind and amount of consideration otherwise receivable
upon conversion pursuant to this Section 5(d)), the consideration that would
have been received pursuant to such offer by a holder of that number of shares
of the Common Stock into which one share of Series D Preferred might then
be converted if all such shares had been tendered and accepted pursuant to such
offer.
(xi) If the Corporation distributes generally to holders
of its outstanding shares of Common Stock or any other securities entitled
generally to participate in the earnings or assets of the Corporation ("Common
Equity") evidences of its debt, securities or other assets (excluding any cash
dividends and excluding any dividends or distributions payable in Rights or
-11-
<PAGE> 30
Convertible Securities for which adjustment is otherwise made pursuant to this
Section 5(d)), each Conversion Price shall be adjusted by multiplying such
Conversion Price in effect immediately prior to the record date for such
dividend or distribution by a fraction of which (X) the numerator shall be the
current market price per share of the Common Equity (determined, if the Common
Equity is not Common Stock, in the same way that the current market price for
Common Stock is determined) on such record date less the then fair market value,
as determined in good faith by the Board of Directors of the Corporation, of the
portion of the evidences of debt, securities or other assets so distributed or
applicable to the holder of one share of Common Equity and (Y) the denominator
shall be such current market price per share of the Common Equity, and evidence
of such determination shall be filed with the minutes of the Corporation. Such
adjustment shall become effective immediately after the record date for such
dividend or distribution.
(xii) If a state of facts not specifically controlled by
the provisions of this Section 5(d) occurs or is proposed that would result in
the conversion provisions of the Series D Preferred Stock not being fairly
protected in accordance with the essential intent and principles of such
provisions, the Board of Directors of the Corporation shall make an adjustment
in the application of such provisions, in accordance with such essential intent
and principles, so as to protect such conversion provisions, and evidence of the
determination by the Board of Directors of the Corporation of such adjustment
shall be filed with the minutes of the Corporation.
(xiii) No adjustment in the Series D Conversion Price
shall be required to be made unless it would require an increase or decrease of
at least one cent, but any adjustments not made because of this Section
5(d)(xiii) shall be carried forward and taken into account in any subsequent
adjustment otherwise required. All calculations under this Section 5(d) shall be
made to the nearest cent or to the nearest 1/100th of a share, as the case may
be. All adjustments with respect to a transaction or event shall apply to
subsequent such transactions and events. Anything in this Section 5(d) to the
contrary notwithstanding, the Board of directors of the Corporation shall be
entitled to make such irrevocable reduction in the Series D Conversion Price, in
addition to the adjustments required by this Section 5(d), as in its discretion
it shall determine to be advisable in order to avoid or diminish any income
deemed to be received for Federal income tax purposes by any holder of shares of
Common Stock, Series D Preferred resulting from any event or occurrence
giving rise to an adjustment pursuant to this Section 5(d) or from any similar
event or occurrence, and evidence of the determination by the Board of Directors
of the Corporation of such adjustment shall be filed with the minutes of the
Corporation.
(xiv) Whenever the Series D Conversion Price is adjusted
pursuant to this Section 5(d), (A) the Corporation shall promptly file with the
minutes of the Corporation a certificate of a firm of nationally recognized
independent public accountants or of its chief accounting officer setting forth
the Series D Conversion Price (and any change in the kind or amount of
consideration to be received by holders of shares of Series D Preferred
upon conversion) after such adjustment and setting forth a brief statement of
the facts requiring such adjustment and the manner of computing the same and (B)
a notice stating that the Series D Conversion Price has been adjusted, stating
the effective date of such adjustment and enclosing the certificate referred to
in Section 5(d)(xiv)(A)
-12-
<PAGE> 31
above shall forthwith be mailed by the Corporation to the holders of shares of
Series D Preferred at their addresses as shown on the stock books of the
Corporation.
(xv) If as a result of any adjustment pursuant to this Section
5(d), the holder of any share of Series D Preferred surrendered for
conversion becomes entitled to receive any consideration other than Common
Stock, then (A) the Series D Conversion Price with respect to such other
consideration shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
Common Stock contained in this Section 5(d) and (B) in case such consideration
shall consist of shares of Common Stock and some other kind of consideration or
of two or more kinds of consideration, the Board of Directors of the Corporation
shall determine in good faith the fair allocation of the adjusted Series D
Conversion Price between or among such types of consideration, and evidence of
such determination shall be filed with the minutes of the Corporation.
(e) Specified Events. For purposes of this Section 5(e), a
"Specified Event" occurs if (i) the Corporation takes any action that would
require any adjustment in the Series D Conversion Price pursuant to Section
5(d)(xi), (ii) the Corporation authorizes the granting to the holders of the
Common Stock of any Rights or of any other rights, (iii) there is any capital
stock reorganization or reclassification of the Common Stock (other than a
subdivision or combination of the outstanding Common Stock and other than a
change in the par value of the Common Stock), or any merger, consolidation or
other reorganization to which the Corporation is a party, or any statutory
exchange of securities with another person and for which approval of any
stockholders of the Corporation is required, or any sale or transfer of all or
substantially all the assets of the Corporation or (iv) there is a voluntary
liquidation, dissolution or winding up of the Corporation. If a Specified Event
occurs, the Corporation shall cause to be filed with the minutes of the
Corporation, and shall cause to be mailed to the holders of shares of the Series
D Preferred, as the case may be, at their addresses as shown on the stock
books of the Corporation, at least 10 days prior to the applicable date
specified below, a notice stating (A) the date on which a record is to be taken
for the purpose of any distribution or Rights relating to such Specified Event
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such distribution or Rights are to be
determined, or (B) the date on which the reorganization, reclassification,
consolidation, merger, statutory exchange, sale, transfer, dissolution,
liquidation or winding-up relating to such Specified Event is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such Specified Event.
(f) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available, free from preemptive and subscription rights,
out of its authorized but unissued shares of Common Stock, for the purpose of
effecting conversions of the Series D Preferred, the full number of shares
of Common Stock deliverable upon the conversion of all outstanding shares of
Series D Preferred not theretofore converted. For this purpose, the number
of shares of Common Stock deliverable upon the conversion of all outstanding
shares of Series D Preferred shall be computed as if at the time of
computation all such outstanding shares were held by a single holder.
-13-
<PAGE> 32
(g) Listing. The Corporation shall use its best efforts to list any
securities required to be delivered upon conversion of the Series D Preferred
prior to such delivery upon each securities exchange, if any, upon which
such securities are listed at the time of such delivery. Prior to the delivery
of any such securities, the Corporation shall use its best efforts to comply
with all laws and regulations thereunder requiring the registration of such
securities with, or any approval of or consent to the delivery thereof by, any
governmental authority.
(h) Taxes. The Corporation shall pay all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
securities on conversion of the Series D Preferred; provided, however, that (i)
the Corporation shall not be required to pay any tax payable in respect of any
transfer involved in the issue or delivery of securities in a name other than
that of the holder of the shares of Series D Preferred to be converted and (ii)
no such issue or delivery shall be made unless and until such holder has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid or provided for.
(i) Mandatory Conversion. All issued and outstanding shares of
Series D Preferred shall be deemed to have been converted into, and shall
(without any action of the holder thereof) become, that number of fully paid and
nonassessable shares of Common Stock into which such shares of Series D
Preferred are then convertible in accordance with the provisions of this
Section 5 immediately upon the consummation of the Corporation's sale of Common
Stock in a bona fide public offering on an underwritten firm commitment basis
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission pursuant to the Securities Act of 1933, which
public offering results in aggregate gross cash proceeds to the Corporation of
at least $7,500,000 at a sale price per share of Common Stock (as adjusted for
combinations, stock dividends, subdivisions or split-ups) of at least $3.25.
Section 6. Status of Shares. Upon any conversion or any redemption,
repurchase or other acquisition by the Corporation of shares of Series D
Preferred, the shares of Series D Preferred so converted, redeemed, repurchased
or acquired shall be retired and cancelled and shall not be available for
reissuance.
Section 7. Definitions and Construction. As used in this Article 4, (a)
"herein," "hereof," "hereunder" and other like words mean or refer to this
Article 4; (b) "outstanding," when used with reference to shares of stock, means
issued shares, excluding shares held by the Corporation or a subsidiary; (c)
"person" means any corporation, partnership, trust, organization, association or
other entity or individual; (d) "affiliate" of any person means any other person
controlling, controlled by or under common control with such person; (e)
headings are for convenience of reference only and shall not define, limit or
affect any of the provisions hereof; and (f) references to Sections are to
Sections of this Article Four.
Section 8. Residual Rights. All rights accruing to the outstanding
shares of the Corporation not expressly provided for or to the contrary herein
shall be vested in the Common Stock.
-14-
<PAGE> 33
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
7. The number of directors which will constitute the whole Board of
Directors of the Corporation shall be as specified in the Bylaws of the
Corporation.
8. The election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
9. At the election of directors of the Corporation, each holder of
stock or of any class or classes or of a series or series thereof shall be
entitled to as many votes as shall equal the number of votes which (except for
such provision as to cumulative voting) he would be entitled to cast for the
election of directors with respect to his shares of stock multiplied by the
number of directors to be elected by him, and he may cast all of such votes for
a single director or may distribute them among the number to be voted for, or
for any two or more of them as he may see fit.
10. Meeting of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
11. To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article, nor the adoption of any
provision of this Restated Certificate of Incorporation inconsistent with this
Article, shall eliminate or reduce the effect of this Article in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
12. Advance notice of new business and stockholder nomination for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
13. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
-15-
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
INTEGRATED SURGICAL SYSTEMS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES....................................... 1
1.1 REGISTERED OFFICE...................................... 1
1.2 OTHER OFFICES.......................................... 1
ARTICLE II - MEETINGS OF STOCKHOLDERS............................... 1
2.1 PLACE OF MEETINGS...................................... 1
2.2 ANNUAL MEETING......................................... 1
2.3 SPECIAL MEETING........................................ 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS....................... 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........... 2
2.6 QUORUM................................................. 3
2.7 ADJOURNED MEETING; NOTICE.............................. 3
2.8 CONDUCT OF BUSINESS.................................... 3
2.9 VOTING................................................. 3
2.10 WAIVER OF NOTICE....................................... 4
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT
A MEETING............................................ 4
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING;
GIVING CONSENTS...................................... 5
2.13 PROXIES................................................ 6
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE.................. 6
ARTICLE III - DIRECTORS............................................. 7
3.1 POWERS................................................. 7
3.2 NUMBER OF DIRECTORS.................................... 7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE
OF DIRECTORS......................................... 7
3.4 RESIGNATION AND VACANCIES.............................. 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE............... 8
3.6 REGULAR MEETINGS....................................... 9
3.7 SPECIAL MEETINGS; NOTICE............................... 9
3.8 QUORUM................................................. 9
3.9 WAIVER OF NOTICE....................................... 10
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING...... 10
3.11 FEES AND COMPENSATION OF DIRECTORS..................... 10
3.12 APPROVAL OF LOANS TO OFFICERS.......................... 10
3.13 REMOVAL OF DIRECTORS................................... 11
ARTICLE IV - COMMITTEES............................................. 11
4.1 COMMITTEES OF DIRECTORS................................ 11
4.2 COMMITTEE MINUTES...................................... 12
4.3 MEETINGS AND ACTION OF COMMITTEES...................... 12
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE V - OFFICERS........................................................ 13
5.1 OFFICERS.................................................... 13
5.2 APPOINTMENT OF OFFICERS..................................... 13
5.3 SUBORDINATE OFFICERS........................................ 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS......................... 13
5.5 VACANCIES IN OFFICES........................................ 14
5.6 CHAIRMAN OF THE BOARD....................................... 14
5.7 PRESIDENT................................................... 14
5.8 VICE PRESIDENTS............................................. 14
5.9 SECRETARY................................................... 15
5.10 CHIEF FINANCIAL OFFICER..................................... 15
5.11 ASSISTANT SECRETARY......................................... 16
5.12 ASSISTANT TREASURER......................................... 16
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.............. 16
5.14 AUTHORITY AND DUTIES OF OFFICERS............................ 16
ARTICLE VI - INDEMNITY...................................................... 17
6.1 THIRD PARTY ACTIONS......................................... 17
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION............... 17
6.3 SUCCESSFUL DEFENSE.......................................... 18
6.4 DETERMINATION OF CONDUCT.................................... 18
6.5 PAYMENT OF EXPENSES IN ADVANCE.............................. 19
6.6 INDEMNITY NOT EXCLUSIVE..................................... 19
6.7 INSURANCE INDEMNIFICATION................................... 19
6.8 THE CORPORATION............................................. 19
6.9 EMPLOYEE BENEFIT PLANS...................................... 20
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT
OF EXPENSES............................................... 20
ARTICLE VII - RECORDS AND REPORTS........................................... 20
7.1 MAINTENANCE AND INSPECTION OF RECORDS....................... 20
7.2 INSPECTION BY DIRECTORS..................................... 21
7.3 ANNUAL STATEMENT TO STOCKHOLDERS............................ 21
ARTICLE VIII - GENERAL MATTERS.............................................. 22
8.1 CHECKS...................................................... 22
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS............ 22
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES...................... 22
8.4 SPECIAL DESIGNATION ON CERTIFICATES......................... 23
8.5 LOST CERTIFICATES........................................... 23
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
Page
----
8.6 CONSTRUCTION; DEFINITIONS................................... 24
8.7 DIVIDENDS................................................... 24
8.8 FISCAL YEAR................................................. 24
8.9 SEAL........................................................ 24
8.10 TRANSFER OF STOCK........................................... 24
8.11 STOCK TRANSFER AGREEMENTS................................... 25
8.12 REGISTERED STOCKHOLDERS..................................... 25
ARTICLE IX - AMENDMENTS..................................................... 25
-iii-
<PAGE> 5
BYLAWS
OF
INTEGRATED SURGICAL SYSTEMS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation the annual meeting of shareholders shall be held on the second
Monday of May of each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding business day. At the meeting, directors shall be elected and any
other proper business may be transacted.
<PAGE> 6
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or
by one or more stockholders holding shares in the aggregate entitled to cast
not less than ten percent of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be delivered personally or sent by registered mail or by telegraphic
or other facsimile transmission to the chairman of the board, the president or
the secretary of the corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled
to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this
Article II, that a meeting will be held at the time requested by the person or
persons calling the meeting, not less than ten (10) nor more than sixty (60)
days after the receipt of the request. Nothing contained in this paragraph of
this Section 2.3 shall be construed as limiting, fixing, or affecting the time
when a meeting of stockholders called by action of the board of directors may
be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.5 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the Secretary or an Assistant Secretary or of the transfer agent
of the corporation that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
-2-
<PAGE> 7
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the Chairman of the meeting or
(ii) the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.12 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.9, or as may
be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
-3-
<PAGE> 8
At a stockholders' meeting at which directors are to be elected, each
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such stockholder
normally is entitled to cast) if the candidates' names have been properly
placed in nomination (in accordance with these bylaws) prior to commencement of
the voting and the stockholder requesting cumulative voting or any other
stockholder voting at the meeting in person or by proxy has given notice prior
to commencement of the voting of the stockholder's intention to cumulate votes.
If cumulative voting is properly requested, each holder of stock, or of any
class or classes or of a series or series thereof, who elects to cumulate votes
shall be entitled to as many votes as equals the number of votes which (absent
this provision as to cumulative voting) he would be entitled to cast for the
election of directors with respect to his shares of stock multiplied by the
number of directors to be elected by him, and he may cast all of such votes for
a single director or may distribute them among the number to be voted for, or
for any two or more of them, as he may see fit.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation of
these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or
these bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
-4-
<PAGE> 9
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the
General Corporation Law of Delaware if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such
section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without
a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
-5-
<PAGE> 10
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed
by the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting,
or, if not so specified, at the place where the meeting is to be held. The
list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. Such list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
-6-
<PAGE> 11
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 NUMBER OF DIRECTORS
The Board of Directors shall consist of five (5) persons until changed
by a proper amendment of this Section 3.2.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a qualified vacancy, shall hold office until his successor is elected and
qualified or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
attention of the Secretary of the corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in this section in the filling of other
vacancies.
-7-
<PAGE> 12
Unless otherwise provided in the certificate of incorporation or
these bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, than any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation or these
bylaws, or may apply to the Court of Chancery for a decree summarily ordering
an election as provided in Section 211 of the General Corporation Law of
Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as
aforesaid, which election shall be governed by the provisions of Section 211 of
the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the board of directors, or any committee designated by
the board of directors, may participate in
-8-
<PAGE> 13
a meeting of the board of directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight
(48) hours before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has
reason to believe will promptly communicate it to the director. The notice need
not specify the purpose or the place of the meeting, if the meeting is to be
held at the principal executive office of the corporation.
3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which
there is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
-9-
<PAGE> 14
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of
the board of directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these bylaws, the board of directors shall have the authority to fix the
compensation of directors.
3.12 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained
-10-
<PAGE> 15
shall be deemed to deny, limit or restrict the powers of guaranty or
warranty of the corporation at common law or under any statute.
3.13 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that, so long as shareholders of the corporation are entitled to cumulative
voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire board of
directors.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in
-11-
<PAGE> 16
Section 151(a) of the General Corporation Law of Delaware, fix the designations
and any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), (ii) adopt an
agreement of merger or consolidation under Sections 251 or 252 of the General
Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease
or exchange of all or substantially all of the corporation's property and
assets, (iv) recommend to the stockholders a dissolution of the corporation or
a revocation of a dissolution, or (v) amend the bylaws of the corporation;
and, unless the board resolution establishing the committee, the bylaws or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section
253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws,
Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular
meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting),
with such changes in the context of those bylaws as are necessary to substitute
the committee and its members for the board of directors and its members;
provided, however, that the time of regular meetings of committees may be
determined either by resolution of the board of directors or by resolution of
the committee, that special meetings of committees may also be called by
resolution of the board of directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may
adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
-12-
<PAGE> 17
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant vice presidents, one or more assistant secretaries, one
or more assistant treasurers, and any such other officers as may be appointed
in accordance with the provisions of Section 5.3 of these bylaws. Any number of
offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall be appointed by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to
appoint, such other officers and agents as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if
-13-
<PAGE> 18
any, of the corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and
shall, subject to the control of the board of directors, have general
supervision, direction, and control of the business and the officers of the
corporation. He shall preside at all meetings of the stockholders and, in the
absence or nonexistence of a chairman of the board, at all meetings of the
board of directors. He shall have the general powers and duties of management
usually vested in the office of president of a corporation and shall have such
other powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform
all the duties of the president and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the board of directors,
these bylaws, the president or the chairman of the board.
-14-
<PAGE> 19
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names
of all stockholders and their addresses, the number and classes of shares held
by each, the number and date of certificates evidencing such shares, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law
or by these bylaws. He shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. He shall disburse
the funds of the corporation as may be ordered by the board of directors, shall
render to the president and directors, whenever they request it, an account of
all his transactions as chief financial officer and of the financial condition
of the corporation, and shall have other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
-15-
<PAGE> 20
The chief financial officer shall be the treasurer of the corporation.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as may be
prescribed by the board of directors or these bylaws.
5.12 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the chief financial officer or in the event of his or
her inability or refusal to act, perform the duties and exercise the powers of
the chief financial officer and shall perform such other duties and have such
other powers as may be prescribed by the board of directors or these bylaws.
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a
vice president, is authorized to vote, represent, and exercise on behalf of
this corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this corporation. The
authority granted herein may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly
executed by such person having the authority.
5.14 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from
time to time by the board of directors or the stockholders.
<PAGE> 21
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (if such settlement is approved
in advance by the corporation, which approval shall not be unreasonably
withheld) actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
and amounts paid in settlement (if such settlement is approved in advance by
the corporation, which approval shall not be unreasonably withheld) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall
-17-
<PAGE> 22
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Delaware Court of Chancery or such other court shall deem proper.
Notwithstanding any other provision of this Article VI, no person shall be
indemnified hereunder for any expenses or amounts paid in settlement with
respect to any action to recover short-swing profits under Section 16(b) of the
Securities Exchange Act of 1934, as amended.
6.3 SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that the indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 6.1 and 6.2. Such
determination shall be made (1) by the board of Directors or the Executive
Committee by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (2) or if such quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders. Notwithstanding the foregoing, a director, officer, employee or
agent of the Corporation shall be entitled to contest any determination that
the director, officer, employee or agent has not met the applicable standard of
conduct set forth in Sections 6.1 and 6.2 by petitioning a court of competent
jurisdiction.
-18-
<PAGE> 23
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding, by an individual who may be entitled to indemnification pursuant to
Section 6.1 or 6.2, shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of the director, officer, employee or agent to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided by or granted
pursuant to the other sections of this Article VI shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under and subject to the
provisions of this Article VI (including, without limitation the provisions of
Section 6.4) with respect to the resulting
-19-
<PAGE> 24
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner be
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive officer or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
-20-
<PAGE> 25
purpose reasonably related to such person's interest as a stockholder. In
every instance where any attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent so
to act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10 days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether
a director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and
records, the stock ledger, and the stock list and to make copies or extracts
therefrom. The Court may, in its discretion, prescribe any limitations or
conditions with reference to the inspection, or award such other and further
relief as the Court may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
-21-
<PAGE> 26
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders
for payment of money, notes or other evidences of indebtedness that are issued
in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the corporation by the chairman or
vice-chairman of the board of directors, or the president or vice-president,
and by the chief financial officer or an assistant treasurer, or the secretary
or an assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
-22-
<PAGE> 27
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation
shall declare a dividend upon partly paid shares of the same class, but only
upon the basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, than the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the
designations, the preferences, and the relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnity it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
-23-
<PAGE> 28
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in (i) the General Corporation Law of Delaware or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
-24-
<PAGE> 29
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The bylaws of the corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the corporation may, in
its certificate of incorporation, confer the power to adopt, amend or repeal
bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
-25-
<PAGE> 30
CERTIFICATE OF ADOPTION OF BYLAWS
OF
INTEGRATED SURGICAL SYSTEMS, INC.
Adoption by Incorporator
The undersigned person appointed in the Certificate of Incorporation to
act as the Incorporator of Integrated Surgical Systems, Inc. hereby adopts the
foregoing Bylaws, comprising twenty-five (25) pages, as the Bylaws of the
corporation.
Executed this 3rd day of October, 1990.
/s/ Howard A. Paul
---------------------------------------
Howard A. Paul, Incorporator
Certificate by Secretary of Adoption by Incorporator
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of Integrated Surgical Systems, Inc. and that
the foregoing Bylaws, comprising twenty-five (25) pages, were adopted as the
Bylaws of the corporation on October 3, 1990, by the person appointed in the
Certificate of Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 3rd day of October, 1990.
/s/ J. Casey McGlynn
---------------------------------------
J. Casey McGlynn, Secretary
-26-
<PAGE> 31
CERTIFICATE OF AMENDMENT OF BYLAWS
OF
INTEGRATED SURGICAL SYSTEMS, INC.
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of Integrated Surgical Systems, Inc. and that
the foregoing Bylaws, comprising twenty-five (25) pages, were amended on
January 30, 1991, by the written consent of the stockholders of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 30th day of January, 1991.
/s/ J. Casey McGlynn
---------------------------------------
J. Casey McGlynn, Secretary
-26-
<PAGE> 1
Exhibit 4.1
NO SALE OR TRANSFER OF THIS WARRANT OR THE SECURITIES
UNDERLYING THIS WARRANT MAY BE MADE UNTIL THE EFFECTIVENESS OF
A REGISTRATION STATEMENT OR OF A POST-EFFECTIVE AMENDMENT
THERETO UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), COVERING
THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT, OR
UNTIL THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY TO THE EFFECT THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT. TRANSFER
OF THIS WARRANT IS RESTRICTED UNDER PARAGRAPH 2 BELOW.
UNDERWRITER'S WARRANT TO PURCHASE
COMMON STOCK AND REDEEMABLE WARRANTS
INTEGRATED SURGICAL SYSTEMS, INC.
(A DELAWARE CORPORATION)
Dated: _______ ___, 1996
THIS CERTIFIES THAT, for value received, Rickel & Associates,
Inc. (the "Underwriter") or its registered assigns ( the Underwriter and any
such registered assign, a "Holder") is the owner of warrants (the "Underwriter's
Warrant") to purchase from Integrated Surgical Systems, Inc., a Delaware
corporation (the "Company"), during the period and at the prices hereinafter
specified, up to 150,000 shares of the Company's common stock, par value $.01
per
<PAGE> 2
share (the "Common Stock"), and up to 150,000 redeemable common stock purchase
warrants (the "Warrants" and, together with the Common Stock, the "Securities").
This Underwriter's Warrant is issued pursuant to an
Underwriting Agreement dated _______ ___, 1996 between the Company and the
Underwriter in connection with a public offering through the Underwriter (the
"Public Offering") of (i) 1,500,000 shares of Common Stock and 1,500,000
warrants, and (ii) pursuant to this Underwriter's over-allotment option (the
"Over-allotment Option") , an additional 225,000 shares of Common Stock and
225,000 warrants (collectively, the warrants to purchase such _________ shares
and the warrants issuable upon exercisable upon exercise of this Warrant are
called the "Warrants"). The Warrants will be issued pursuant to, and subject to
the terms and conditions set forth in, an agreement between the Company, the
Underwriter and American Stock Transfer & Trust Company (the "Warrant
Agreement").
1. Exercise of the Underwriter's Warrant.
(a) The rights represented by this Underwriter's Warrant shall
be exercisable at the prices and during the period specified below, upon the
terms and subject to the conditions as set forth herein:
(i) During the period from _______ ___, 1996 to
_______ ___, 1997, inclusive, the Holder shall have no right to purchase any
Securities hereunder.
(ii) Between _______ ___, 1997 and _______ ___, 2001,
inclusive, the Holder shall have the option to purchase 150,000 shares of
Common Stock and 150,000 Warrants hereunder at a price of $9.90 per share and
$.165 per Warrant, respectively, the purchase price of the Common Stock and
the Warrants being 165% of the public offering
2
<PAGE> 3
prices for the Securities set forth in the Prospectus forming a part of the
registration statement on Form SB-2 (File No. 333-____) of the Company, as
amended (the "Registration Statement").
(iii) After _______ ___, 2001, the Holder shall have
no right to purchase any Securities hereunder and this Underwriter's Warrant
shall expire effective at 5:00 p.m., New York time on such date.
(b) The rights represented by this Underwriter's Warrant may
be exercised at any time within the period above specified, in whole or in part,
by (i) the surrender of this Underwriter's Warrant (with the purchase form at
the end hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price then in
effect for the number of shares of Common Stock and Warrants specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of Paragraph 5 and subparagraphs (b), (c)
and (d) of Paragraph 6 hereof. This Underwriter's Warrant shall be deemed to
have been exercised, in whole or in part to the extent specified, immediately
prior to the close of business on the date this Underwriter's Warrant is
surrendered and payment is made in accordance with the foregoing provisions of
this Paragraph 1, and the person or persons in whose name or names the
certificates for the Securities shall be issuable upon such exercise shall
become the holder or holders of record of such Common Stock and Warrants at that
time and date. The Common Stock and Warrants so purchased shall be delivered to
the Holder within a reasonable time, not
3
<PAGE> 4
exceeding ten business days, after the rights represented by this Underwriter's
Warrant shall have been so exercised.
2. Restrictions on Transfer. This Underwriter's Warrant shall
not be sold, transferred, assigned, pledged or hypothecated for a period of one
year commencing on _______ ___, 1996, except that it may be transferred to
successors of the Holder, and may be assigned in whole or in part to any person
who is an officer of the Underwriter or a partner, officer of any other member
of the selling group during such period. Any such assignment shall be effected
by the Holder by (i) completing and executing the transfer form at the end
hereof and (ii) surrendering this Underwriter's Warrant with such duly completed
and executed transfer form for cancellation, accompanied by funds sufficient to
pay any transfer tax, at the office or agency of the Company referred to in
Paragraph 1 hereof, accompanied by a certificate (signed by a duly authorized
representative of the Holder) , stating that each transferee is a permitted
transferee under this Paragraph 2; whereupon the Company shall issue, in the
name or names specified by the Holder, a new Underwriter's Warrant or
Underwriter's Warrants of like tenor and representing in the aggregate rights to
purchase the same number of Securities as are then purchasable hereunder. The
Holder acknowledges that this Underwriter's Warrant may not be offered or sold
except pursuant to an effective registration statement under the Act or an
opinion of counsel satisfactory to the Company that an exemption from
registration under the Act is available.
3. Covenants of the Company.
(a) The Company covenants and agrees that all Common Stock
issuable upon the exercise of this Underwriter's Warrant will, upon issuance
thereof and payment therefor in accordance with the terms hereof, and all Common
Stock issuable upon exercise of the Warrants
4
<PAGE> 5
underlying this Underwriter's Warrant will, upon the issuance thereof and
payment therefor in accordance with the terms of the Warrant Agreement, be duly
and validly issued, fully paid and nonassessable and no personal liability will
attach to the Holder thereof by reason of being such a Holder, other than as set
forth herein.
(b) The Company covenants and agrees that during the period
within which this Underwriter's Warrant may be exercised, the Company will at
all times have authorized and reserved a sufficient number of shares of Common
Stock to provide for the exercise of this Underwriter's Warrant and the Warrants
included therein.
(c) The Company covenants and agrees that for so long as the
Securities shall be outstanding (unless the Securities shall no longer be
registered under Paragraph 12(b) or 12(g) of the Securities Exchange Act of
1934) the Company shall use its best efforts to cause all shares of Common Stock
issuable upon the exercise of the Underwriter's Warrant and the Warrants
included therein, to be included on the Nasdaq Stock Market or listed on a
national securities exchange.
4. No Rights as Stockholder. This Underwriter's Warrant shall
not entitle the Holder to any voting rights or other rights as a stockholder of
the Company, either at law or in equity, and the rights of the Holder are
limited to those expressed in this Underwriter's Warrant and are not enforceable
against the Company except to the extent set forth herein.
5. Registration Rights.
(a) During the period of four years from _______ ___, 1997,
the Company shall advise the Holder, whether the Holder holds this Underwriter's
Warrant or has exercised this Underwriter's Warrant and holds Common Stock and
Warrants, or Common Stock underlying the
5
<PAGE> 6
Warrants (the "Warrant Shares") , by written notice at least 30 days prior to
the filing of any post-effective amendment to the Registration Statement or of
any new registration statement or post-effective amendment thereto under the
Act, covering any securities of the Company, for its own account or for the
account of others, and upon the request of the Holder made during such four-year
period, include in any such post-effective amendment or registration statement
such information as may be required to permit a public offering of any of the
Common Stock or Warrants issuable hereunder, and/or the Warrant Shares (the
"Registrable Securities"); provided, that this Paragraph 5(a) shall not apply to
any registration statement filed pursuant to Paragraph 5 (b) hereof or to
registrations of shares in connection with an employee benefit plan or a merger,
consolidation or other comparable acquisition or solely for registration of
non-convertible debt or preferred equity securities of the Company; and
provided, further, that, notwithstanding the foregoing, the Holder shall have no
right to include any Registrable Securities in any new registration statement or
post-effective amendment thereto unless as of the effective date thereof the
Registration Statement (as it may hereafter be amended or supplemented) or any
new registration statement under which the Registrable Securities are registered
shall have ceased to be effective or the prospectus contained in such
Registration Statement shall have ceased to be current. The Company shall supply
prospectuses in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states in which the Common Stock and
Warrants are offered and sold in the Public Offering as such Holder reasonably
designates, furnish indemnification in the manner provided in Paragraph 6
hereof, and do any and all other acts and things which may be necessary to
enable such Holder to consummate the public sale of the
6
<PAGE> 7
Registrable Securities; provided, that, without limiting the foregoing, the
Company shall not be obligated to execute or file any general consent to service
of process or to qualify as a foreign corporation to do business under the laws
of any such jurisdiction. The Holder shall furnish information reasonably
requested by the Company in accordance with such post-effective amendments or
registration statements, including its intentions with respect thereto, and
shall furnish indemnification as set forth in Paragraph 6. The Company shall
continue to advise the Holders of the Registrable Securities of its intention to
file a registration statement or amendment pursuant to this Paragraph 5(a) until
the earliest of (i) _______ ___, 2001; or (ii) such time as all of the
Registrable Securities have been registered and sold under the Act; or (iii)
such time as all of the Registrable Securities have been otherwise transferred,
new certificates for them not bearing a legend restricting further transfer
shall have been delivered by the Company and subsequent public distribution of
them shall not require registration or qualification of them under the Act; or
(iv) such time as in the opinion of legal counsel for the Company, the
Registrable Securities may be offered and sold by the holders thereof without
being registered under the Act and such securities, upon receipt by the
purchasers thereof pursuant to such sale, will not constitute "restricted
securities" as such term is defined in Rule 144 under the Act.
(b) If any 51% holder (as defined below) shall give notice to
the Company at any time during the four-year period beginning one year from
_______ ___, 1996 to the effect that such Holder desires to register under the
Act any Registrable Securities, under such circumstances that a public
distribution (within the meaning of the Act) of any such Registrable Securities
will be involved (and the Registration Statement or any new registration
statement under which such Registrable Securities are registered shall have
ceased to be effective or the
7
<PAGE> 8
Prospectus contained therein shall have ceased to be current) , then the Company
will as promptly as practicable after receipt of such notice, but not later than
30 days after receipt of such notice, at the Company's option, file a post
effective amendment to the current Registration Statement or a new registration
statement pursuant to the Act to the end that the Registrable Securities may be
publicly sold under the Act as promptly as practicable thereafter and the
Company will use its best efforts to cause such registration to become and
remain effective as provided herein (including the taking of such steps as are
reasonably necessary to obtain the removal of any stop order); provided, that
such 51% holder shall furnish the Company with appropriate information in
connection therewith as the Company may reasonably request; and provided,
further, that the Company shall not be required to file such a post-effective
amendment or registration statement pursuant to this Paragraph 5(b) on more than
two occasions; and provided, further, that the registration rights of the 51%
holder under this Paragraph 5(b) shall be subject to the "piggyback"
registration rights of other holders of securities of the Company to include
such securities in any registration statement or post-effective amendment filed
pursuant to this Paragraph 5(b). The Company will maintain such registration
statement or post-effective amendment current under the Act for a period of at
least nine months from the effective date thereof. The Company shall supply
prospectuses in order to facilitate the public sale of the Registrable
Securities, use its best efforts to register and qualify any of the Registrable
Securities for sale in such states in which the Common Stock and Warrants are
offered and sold in the Public Offering as such holder reasonably designates and
furnish indemnification in the manner provided in Paragraph 6 hereof, provided
that, without limiting the foregoing, the Company shall not be obligated to
execute or
8
<PAGE> 9
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(c) The Holder may, in accordance with Paragraphs 5(a) or (b),
at his or its option, and subject to the limitations set forth in Paragraph 1(a)
hereof, request the registration of any of the Registrable Securities in a
filing made by the Company prior to the acquisition of the Securities upon
exercise of this Underwriter's Warrant. The Holder may thereafter exercise this
Underwriter's Warrant at any time or from time to time subsequent to the
effectiveness under the Act of the registration statement which relates to the
Common Stock underlying the Underwriter's Warrants and Warrants included
therein.
(d) The term "51% holder," as used in this Paragraph 5, shall
include any owner or combination of owners of Underwriter's Warrants or
Registrable Securities if the aggregate number of shares of Common Stock and
Warrant Shares included in and underlying the Underwriter's Warrants and
Registrable Securities held of record by it or them, would constitute a majority
of the aggregate of such shares of Common Stock and Warrant Shares underlying
the Underwriter's Warrant and Registrable Securities as of the date of the
initial issuance of the Underwriter's Warrant.
(e) The following provisions of this Paragraph 5 shall also be
applicable:
(i) Within ten (10) days after receiving any notice
pursuant to Paragraph 5(b), the Company shall give notice to the other Holders
of Underwriter's Warrants or Registrable Securities, advising that the Company
is proceeding with such post-effective amendment or registration and offering to
include therein the Registrable Securities of such other Holders, provided that
they shall furnish the Company with all information in connection
9
<PAGE> 10
therewith as shall be necessary or appropriate and as the Company shall
reasonably request in writing. Following the effective date of such
post-effective amendment or registration statement, the Company shall, upon the
request of any Holder of Registrable Securities, forthwith supply such number of
prospectuses meeting the requirements of the Act, as shall be reasonably
requested by such Holder. The Company shall use its best efforts to qualify the
Registrable Securities for sale in such states in which the Common Stock and
Warrants are offered and sold in the Public Offering as the 51% holder shall
reasonably designate at such times as the registration statement is effective
under the Act; provided, that, without limiting the foregoing, the Company shall
not be obligated to execute or file any general consent to service of process or
to qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
(ii) The Company shall bear the entire cost and
expense of any registration of securities initiated by it under Paragraph 5(a)
hereof notwithstanding that the Registrable Securities subject to this
Underwriter's Warrant may be included in any such registration. The Company
shall also comply with the one request for registration made by the 51% holder
pursuant to Paragraph 5(b) hereof at the Company's own expense and without
charge to any holder of the Registrable Securities, but the expenses of
registration pursuant to the second request, if any, for registration pursuant
to Paragraph 5(b) shall be borne by the Company and the Holders of Registrable
Securities included therein in proportion to the aggregate offering prices of
the securities being offered by the Company included therein and the aggregate
offering price of the Registrable Securities included therein. Notwithstanding
the foregoing, any Holder whose Registrable Securities are included in any such
registration statement pursuant to this Paragraph 5 shall, however, bear the
fees of any counsel retained by him and any transfer taxes or
10
<PAGE> 11
underwriting discounts or commissions applicable to the Registrable Securities
sold by him pursuant thereto and, in the case of a registration pursuant to
Paragraph 5(a) hereof, any additional registration or "blue sky" or state
securities fees attributable to the registration or qualification of such
Holder's Registrable Securities.
(iii) If the underwriter or managing underwriter in
any underwritten offering made pursuant to Paragraph 5(a) hereof shall advise
the Company that it declines to include a portion or all of the Registrable
Securities requested by the Holders to be included in the registration
statement, then distribution of all or a specified portion of the Registrable
Securities shall be excluded from such registration statement (in case of an
exclusion as to a portion of such Registrable Securities, such portion to be
allocated among such Holders in proportion to the respective numbers of
Registrable Securities requested to be registered by each such Holder). In such
event the Company shall give the Holder prompt notice of the number of
Registrable Securities excluded. Further, in such event the Company shall,
commencing six months after the completion of such underwritten offering, file
and use its best efforts to have declared effective, at its sole expense
(subject to the last sentence of Paragraph 5(a)(ii)), a registration statement
relating to such excluded securities.
(iv) Notwithstanding anything to the contrary
contained herein, the Company shall have the right at any time after it shall
have given written notice pursuant to Paragraph 5(a) or 5(b) (irrespective of
whether a written request for inclusion of any Registrable Securities shall have
been made) to elect not to file or to delay any such proposed registration
statement or post effective amendment thereto, or to withdraw the same after the
filing but prior to the effective date thereof. In addition, the Company may
delay the filing of any registration
11
<PAGE> 12
statement or post effective amendment requested pursuant to Paragraph 5(b)
hereof by not more than 120 days if the Company, prior to the time it would
otherwise have been required to file such registration statement or
post-effective amendment thereto, determines in good faith that the filing of
the registration statement would require the disclosure of non-public material
information that, in its judgment, would be detrimental to the Company if so
disclosed or would otherwise adversely affect a financing, acquisition,
disposition, merger or other material transaction.
(v) If a registration pursuant to Paragraph 5(a)
hereof involves an underwritten offering, the Company shall have the right to
select the investment banker or investment bankers and manager or managers that
will serve as underwriters with respect to the underwritten offering. No Holder
of Registrable Securities may participate in any underwritten offering under
this Agreement unless such Holder completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwritten offering, in each case, in the
form and upon terms reasonably acceptable to the Company and the underwriters.
The requested registration pursuant to Paragraph 5 (b) hereof shall not involve
an underwritten offering unless the Company shall first give its written
approval of each underwriter that participates in the offering, such approval
not to be unreasonably withheld.
6. Indemnification.
(a) Whenever pursuant to Paragraph 5, a registration statement
relating to any Registrable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
Registrable Securities covered by such registration statement, amendment or
supplement (such holder hereinafter referred to as the
12
<PAGE> 13
"Distributing Holder"), each person, if any, who controls (within the meaning of
the Act) the Distributing Holder, and each officer, employee, partner or agent
of the Distributing Holder, if the Distributing Holder is a broker or dealer,
and each underwriter (within the meaning of the Act) of such securities and each
person, if any, who controls (within the meaning of the Act) any such
underwriter and each officer, employee, agent or partner of such underwriter
against any losses, claims, damages or liabilities, joint or several, to which
the Distributing Holder, any such underwriter or any other person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which such statements were made, not
misleading; and will reimburse the Distributing Holder and each such underwriter
or such other person for any legal or other expenses reasonably incurred by the
Distributing Holder, or underwriter or such other person, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case (i) to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, such preliminary
prospectus, such final prospectus or such amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder, any other Distributing Holder or any such underwriter for use in the
preparation thereof, or (ii) such losses,
13
<PAGE> 14
claims, damages or liabilities arise out of or are based upon any actual or
alleged untrue statement or omission made in or from any preliminary prospectus,
but corrected in the final prospectus, as amended or supplemented.
(b) Whenever pursuant to Paragraph 5 a registration statement
relating to the Registrable Securities is filed under the Act, or is amended or
supplemented, the Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed such
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in any such registration statement or
any preliminary prospectus or final prospectus constituting a part thereof, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, such preliminary prospectus, such final prospectus or
such amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
14
<PAGE> 15
(c) Promptly after receipt by an indemnified party under this
Paragraph 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 6.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Paragraph 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
7. Adjustments of Warrant Price and Number of Shares of Common
Stock.
(a) Computation of Adjusted Price. Except as hereinafter
provided, in case the Company shall, at any time after the date of closing of
the sale of securities pursuant to the Public Offering (the "Closing Date"),
issue or sell any shares of Common Stock (other than the issuances or sales
referred to in Paragraph 7(f) hereof), including shares held in the Company's
treasury and shares of Common Stock issued upon the exercise of any options,
rights or warrants to subscribe
15
<PAGE> 16
for shares of Common Stock (other than the issuances or sales of Common Stock
pursuant to rights to subscribe for such Common Stock distributed pursuant to
Paragraph 7(j) hereof) and shares of Common Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Common Stock, for a
consideration per share less than both the "Market Price" (as defined in
Paragraph 7 (a)(vi) hereof) per share of Common Stock on the trading day
immediately preceding such issuance or sale and the Underwriter's Warrant Price
(as defined below) in effect immediately prior to such issuance or sale, or
without consideration, then forthwith upon such issuance or sale, the
Underwriter's Warrant Price in respect of the Common Stock issuable upon
exercise of this Underwriter's Warrant (but not the exercise price of the
Warrants issuable upon exercise of this Underwriter's Warrant, which shall be
adjusted only in accordance with the Warrant Agreement) shall (until another
such issuance or sale) be reduced to the price (calculated to the nearest full
cent) determined by multiplying the Underwriter's Warrant Price in effect
immediately prior to such issuance or sale by a fraction, the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the Underwriter's
Warrant Price immediately prior to such issuance or sale plus (2) the
consideration received by the Company upon such issuance or sale, and the
denominator of which shall be the product of (x) the total number of shares of
Common Stock outstanding immediately after such issuance or sale, multiplied by
(y) the Underwriter's Warrant Price immediately prior to such issuance or sale;
provided, however, that in no event shall the Underwriter's Warrant Price be
adjusted pursuant to this computation to an amount in excess of the
Underwriter's Warrant Price in effect immediately prior to such computation,
except in the case of a combination of outstanding shares of Common Stock, as
provided by Paragraph 7(c)
16
<PAGE> 17
hereof. For the purposes of this Paragraph 7, the term "Underwriter's Warrant
Price" shall mean the exercise price per share of Common Stock issuable upon
exercise of the Underwriter's Warrant (initially $7.00 per share), as adjusted
from time to time pursuant to the provisions of this Paragraph 7.
For the purposes of any computation to be made in accordance
with this Paragraph 7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of
Common Stock for a consideration part or all of which shall be cash, the amount
of the cash consideration therefor shall be deemed to be the amount of cash
received by the Company for such shares (or, if shares of Common Stock are
offered by the Company for subscription, the subscription price, or, if such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the public offering price) before deducting therefrom
any compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than
as a dividend or other distribution on any stock of the Company) of shares of
Common Stock for a consideration part or all of which shall be other than cash,
the amount of the consideration therefor other than cash shall be deemed to be
the value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of stockholders
17
<PAGE> 18
entitled to receive such dividend or other distribution and shall be deemed to
have been issued without consideration.
(iv) The reclassification of securities of the
Company other than shares of Common Stock into securities including shares of
Common Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the close of
business on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such shares
of Common Stock shall be determined as provided in subparagraph (ii) of this
Paragraph 7(a).
(v) The number of shares of Common Stock at any one
time outstanding shall include the aggregate number of shares issued or issuable
upon the exercise of options, rights or warrants and upon the conversion or
exchange of convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any
date shall be deemed to be the average of the last reported sale price, or, in
case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or as reported in the Nasdaq Stock
Market, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on the Nasdaq Stock Market, the closing
bid quotation as furnished by the National Association of Securities Dealers,
Inc. through Nasdaq or a similar organization if Nasdaq is no longer reporting
such information, or if the Common Stock is not quoted on Nasdaq, as determined
in good faith by resolution of the Board of Directors of the Company, based on
the best information available
18
<PAGE> 19
to it for the day immediately preceding such issuance or sale, the day of such
issuance or sale and the day immediately after such issuance or sale. If the
Common Stock is listed or admitted to trading on a national securities exchange
and also quoted on the Nasdaq Stock Market, the Market Price shall be determined
as hereinabove provided by reference to the prices reported in the Nasdaq Stock
Market; provided that if the Common Stock is listed or admitted to trading on
the New York Stock Exchange, the Market Price shall be determined as hereinabove
provided by reference to the prices reported by such exchange.
(b) Options, Rights, Warrants and Convertible and Exchangeable
Securities. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed pursuant to Paragraph 7(j) hereof, if the
Company shall at any time after the Closing Date issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, in each case other
than the issuances or sales referred to in Paragraph 7(f) hereof, (i) for a
consideration per share less than the lesser of (a) the Underwriter's Warrant
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or (b) the Market
Price on the trading day immediately preceding such issuance, or (ii) without
consideration, the Underwriter's Warrant Price in effect immediately prior to
the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of
Paragraph 7(a) hereof, provided that:
(i) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable under all the outstanding options, rights or
warrants shall be deemed to
19
<PAGE> 20
be issued and outstanding at the time all the outstanding options, rights or
warrants were issued, and for a consideration equal to the minimum purchase
price per share provided for in the options, rights or warrants at the time of
issuance, plus the consideration (determined in the same manner as consideration
received on the issue or sale of shares in accordance with the terms of
Paragraph 7(a) hereof), if any, received by the Company for the options, rights
or warrants, and if no minimum purchase price is provided in the options, rights
or warrants, then the minimum purchase price shall be equal to zero; provided,
however, that upon the expiration or other termination of the options, rights or
warrants, if any thereof shall not have been exercised, the number of shares of
Common Stock deemed to be issued and outstanding pursuant to this subparagraph
(b) (and for the purposes of subparagraph (v) of Paragraph 7(a) hereof) shall be
reduced by such number of shares as to which options, warrants and/or rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Warrant Price then in
effect shall forthwith be readjusted and thereafter be the price which it would
have been had adjustment been made on the basis of the issuance only of shares
actually issued or issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not have expired or terminated
unexercised.
(ii) The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of Paragraph 7 (a) hereof)
received by the Company for such securities, plus the minimum consideration, if
any,
20
<PAGE> 21
receivable by the Company upon the conversion or exchange thereof; provided,
however, that upon the expiration or other termination of the right to convert
or exchange such convertible or exchangeable securities (whether by reason of
redemption or otherwise), the number of shares deemed to be issued and
outstanding pursuant to this subparagraph (ii) (and for the purpose of
subparagraph (v) of Paragraph 7(a) hereof) shall be reduced by such number of
shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding, and the Warrant Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised. No adjustment will be made pursuant to
this subparagraph (ii) upon the issuance by the Company of any convertible or
exchangeable securities pursuant to the exercise of any option, right or warrant
exercisable therefor, to the extent that adjustments in respect of such options,
rights or warrants were previously made pursuant to the provisions of
subparagraph (i) of this subparagraph 7(b).
(iii) If any change shall occur in the price per
share provided for in any of the options, rights or warrants referred to in
subparagraph (i) of this Paragraph 7 (b) , or in the price per share at which
the securities referred to in subparagraph (ii) of this Paragraph 7 (b) are
convertible or exchangeable, or if any such options, rights or warrants are
exercised at a price greater than the minimum purchase price provided for in
such options, rights or warrants, or any such securities are converted or
exercised for more than the minimum consideration receivable by the Company upon
such conversion or exchange, the options, rights or warrants or conversion or
21
<PAGE> 22
exchange rights, as the case may be, shall be deemed to have expired or
terminated on the date when such price change became effective in respect of
shares not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at the new
price with respect of the number of shares issuable upon the exercise of such
options, rights or warrants or the conversion or exchange of such convertible or
exchangeable securities; provided, however, that no adjustment shall be made
pursuant to this subparagraph (iii) with respect to any change in the price per
share provided for in any of the options, rights or warrants referred to in
subparagraph (i) of this Paragraph 7, or in the price per share at which the
securities referred to in subparagraph (ii) of this Paragraph 7(b) are
convertible or exchangeable, which change results from the application of the
anti-dilution provisions thereof in connection with an event for which, subject
to subparagraph (iv) of Paragraph 7(f), an adjustment to the Warrant Price and
the number of securities issuable upon exercise of the Warrants will be required
to be made pursuant to this Paragraph 7 and the Warrant Agreement, respectively.
(c) Subdivision and Combination. In case the Company shall at
any time after the Closing Date subdivide or combine the outstanding shares of
Common Stock, the Warrant Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
(d) Adjustment in Number of Shares. Upon each adjustment of
the Warrant Price pursuant to the provisions of this Paragraph 7, the number of
shares of Common Stock (but not the number of Warrants, which are subject to
adjustment as set forth in the Warrant Agreement) issuable upon the exercise of
the Underwriter's Warrant shall be adjusted to the
22
<PAGE> 23
nearest full whole number by multiplying a number equal to the Underwriter's
Warrant Price in effect immediately prior to such adjustment by the number of
shares of Common Stock issuable upon exercise of the Underwriter's Warrant
immediately prior to such adjustment and dividing the product so obtained by the
adjusted Underwriter's Warrant Price.
(e) Reclassification, Consolidation, Merger, etc. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding shares of Common Stock, except a
change as a result of a subdivision or combination of such shares or a change in
par value, as aforesaid), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the Holder shall
thereafter have the right to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holder were the owner of the
shares of Common Stock underlying the Underwriter's Warrant immediately prior to
any such events (but not the shares of Common Stock issuable upon exercise of
any Warrants underlying the Underwriter's Warrant) at a price equal to the
product of (x) the number of shares issuable upon exercise of the Underwriter's
Warrant (but not the shares of Common Stock issuable upon exercise of any
Warrants underlying the Underwriter's Warrant) and (y) the Warrant Price in
effect immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Holder had exercised the
Underwriter's Warrant.
23
<PAGE> 24
(f) No Adjustment of Warrant Price in Certain Cases.
Notwithstanding anything herein to the contrary, no adjustment of the Warrant
Price shall be made:
(i) Upon the issuance or sale of the Underwriter's
Warrant, the shares of Common Stock or Warrants issuable upon the exercise of
the Underwriter's Warrant or the shares of Common Stock issuable upon exercise
of the Warrants underlying the Underwriter's Warrant; or
(ii) Upon the issuance or sale of (A) the shares of
Common Stock or Warrants issued by the Company in the Public Offering (including
pursuant to the Over-allotment Option) or other shares of Common Stock or
warrants issued by the Company upon consummation of the Public Offering, or (B)
the shares of Common Stock (or other securities) issuable upon exercise of
Warrants; or
(iii) Upon (i) the issuance of options pursuant to
the Company's incentive stock option plan in effect on the date hereof or as
hereafter amended in accordance with the terms thereof or any other employee or
executive stock option plan approved by stockholders of the Company or the sale
by the Company of any shares of Common Stock pursuant to the exercise of any
such options, or (ii) the sale by the Company of any shares of Common Stock
pursuant to the exercise of any options or warrants issued and outstanding on
the date of closing of the sale of Common Stock and Warrants pursuant to the
Public Offering or (iii) the issuance or sale by the Company of any shares of
Common Stock pursuant to the Company's restricted stock plan in effect on the
date hereof; or
(iv) If the amount of said adjustment shall be less
than two cents (2 (cents)) per share of Common Stock.
24
<PAGE> 25
(g) Adjustment of Warrants Underlying Underwriter 's Warrant.
With respect to the Warrants underlying the Underwriter's Warrant, the exercise
price of such Warrants and the number of shares of Common Stock purchasable
pursuant to such Warrants shall be automatically adjusted in accordance with the
applicable provisions of the Warrant Agreement, upon the occurrence, at any time
after the date hereof, of any of the events described in the Warrant Agreement
requiring such adjustment, with the same force and effect as if such Warrants
had been issued as of this date, whether or not such Warrants shall have been
exercised (or are exercisable) at the time of the occurrence of such event and
whether or not such Warrants shall be issued and outstanding at the time of the
occurrence of such event. Thereafter, such Warrants shall be exercisable at such
Warrant's adjusted exercise price for such adjusted number of shares of Common
Stock or other securities, properties or rights as provided for in the Warrant
Agreement.
(h) Redemption of Underwriter's Warrant. Notwithstanding
anything to the contrary contained in this Agreement or elsewhere, the
Underwriters Warrant cannot be redeemed by the Company under any circumstances.
(i) Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time after
the Closing Date and prior to the exercise and expiration of the Underwriter's
Warrant declare a dividend (other than a dividend consisting solely of shares of
Common Stock or a cash dividend or distribution payable out of current or
retained earnings) or otherwise distribute to the holders of Common Stock any
monies, assets, property, rights, evidences of indebtedness, securities (other
than such a cash dividend or distribution or dividend consisting solely of
shares of Common Stock), whether issued by the Company or by another person or
entity, or any other thing of value, the Holders of the
25
<PAGE> 26
unexercised Underwriter's Warrant shall thereafter be entitled, in addition to
the shares of Common Stock or other securities receivable upon the exercise
thereof, to receive, upon the exercise of such Underwriter's Warrant, the same
monies, property, assets, rights, evidences of indebtedness, securities or any
other thing of value that they would have been entitled to receive at the time
of such dividend or distribution as if the Holders were the owners of the shares
of Common Stock underlying the Underwriter's Warrant (but not the shares of
Common Stock issuable upon exercise of any Warrants underlying the Underwriter's
Warrant). At the time of any such dividend or distribution, the Company shall
make appropriate reserves to ensure the timely performance of the provisions of
this Paragraph 7(i).
(j) Subscription Rights for Shares of Common Stock or Other
Securities. In case the Company or an affiliate of the Company shall at any time
after the date hereof and prior to the exercise of the Underwriter's Warrant in
full issue any rights to subscribe for shares of Common Stock or any other
securities of the Company or of such affiliate to all the holders of Common
Stock, the Holders of the unexercised Underwriter's Warrant shall be entitled,
in addition to the shares of Common Stock or other securities receivable upon
the exercise of the Underwriter's Warrant, to receive such rights at the time
such rights are distributed to the other stockholders of the Company but only to
the extent of the number of shares of Common Stock, if any, for which the
Underwriter's Warrant remains exercisable other than shares of Common Stock
issuable upon exercise of the Warrants underlying Underwriter's Warrant.
(k) Notice in Event of Dissolution. In case of the
dissolution, liquidation or winding-up of the Company, all rights under the
Underwriter's Warrant shall terminate on a date fixed by the Company, such date
to be no earlier than ten (10) days prior to the effectiveness of
26
<PAGE> 27
such dissolution, liquidation or winding-up and not later than five (5) days
prior to such effectiveness. Notice of such termination of purchase rights shall
be given to the registered Holders of the Underwriter's Warrant, as the same
shall appear on the books and records of the Company, by registered mail at
least thirty (30) days prior to such termination date.
(l) Computations. The Company may retain a firm of independent
public accountants (who may be any such firm regularly employed by the Company)
to make any computation required under this Paragraph, and any certificate
setting forth such computation signed by such firm shall be conclusive evidence
of the correctness of any computation made under this Paragraph 7.
8. Fractional Shares.
(a) The Company shall not be required to issue fractions of
shares of Common Stock or fractional Warrants on the exercise of this
Underwriter's Warrant; provided, however, that if the Holder exercises the
Underwriter's Warrant in full, any fractional shares of Common Stock shall be
eliminated by rounding any fraction up to the nearest whole number of shares of
Common Stock.
(b) The Holder of this Underwriter's Warrant, by acceptance
hereof, expressly waives his right to receive any fractional share of Common
Stock or fractional Warrant upon exercise of this Underwriter's Warrant.
9. Redemption of Warrants Underlying the Underwriter's
Warrant. The Warrants underlying the Underwriter's Warrant are redeemable by the
Company at a redemption price of $.10 per Warrant, in whole or in part,
commencing on the first anniversary of the date hereof (or earlier with the
consent of the underwriter) and prior to their expiration upon not
27
<PAGE> 28
less than thirty (30) days' prior written notice to the holders of the Warrants;
provided, that the average closing bid quotation of the Common Stock as reported
on The Nasdaq Stock Market, if traded thereon, or if not traded thereon, the
average closing sale price if listed on a national securities exchange (or other
reporting system that provides last sales prices), has been at least 150% of
the then current Exercise Price for a period of 20 consecutive trading days
ending on the third day prior to the date on which the Company gives notice of
redemption. Any redemption in part shall be made pro rata to all Warrant
holders. The redemption notice shall be mailed to the holders of the Warrants at
their respective addresses appearing in the Warrant register. Holders of the
Warrants will have exercise rights until the close of business on the day
immediately preceding the date fixed for redemption (at which time this
Underwriter's Warrant shall no longer be exercisable for Warrants).
10. Miscellaneous.
(a) This Underwriter's Warrant shall be governed by and in
accordance with the laws of the State of New York without regard to the
conflicts of law principles thereof.
(b) All notices, requests, consents and other communications
hereunder shall be made in writing and shall be deemed to have been duly made
when delivered, or mailed by registered or certified mail, return receipt
requested: (i) if to a Holder, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, 829 West Stadium Lane,
Sacramento, California 95834.
(c) The Company and the Underwriter may from time to time
supplement or amend this Underwriter's Warrant without the approval of any other
Holders in order to cure any ambiguity, to correct or supplement any provision
contained herein which may be defective or inconsistent with any provisions
herein, or to make any other provisions in regard to matters or
28
<PAGE> 29
questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem not to
materially adversely affect the interest of the Holders.
(d) All the covenants and provisions of this Underwriter's
Warrant by or for the benefit of the Company and the Holders shall bind and
inure to the benefit of their respective successors and assigns hereunder.
(e) Nothing in this Underwriter's Warrant shall be construed
to give to any person or corporation other than the Company and the Underwriter
and any other registered Holder or Holders, any legal or equitable right, and
this Underwriter's Warrant shall be for the sole and exclusive benefit of the
Company and the Underwriter and any other Holder or Holders.
(f) This Underwriter's Warrant may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, the Company has caused this Underwriter's
Warrant to be signed by its duly authorized officer and to be dated _______
___, 1996.
INTEGRATED SURGICAL SYSTEMS, INC.
By: /s/ Dr. Ramesh Trivedi
---------------------------------
Name: Dr. Ramesh Trivedi
--------------------------
Title: President and Chief
Executive Officer
--------------------------
29
<PAGE> 30
PURCHASE FORM
(To be signed only upon exercise of the Underwriter's Warrant)
The undersigned, the Holder of the foregoing Underwriter's
Warrant, hereby irrevocably elects to exercise the purchase rights represented
by such Underwriter's Warrant for, and to purchase thereunder, _______ shares of
Common Stock and/or _______ Warrants of Integrated Surgical Systems Inc. and
herewith makes payment of $_______________ therefor, and requests that the
certificates for Common Stock and/or Warrants be issued in the name(s) of, and
delivered to ______________________________________________ whose addresses is
(are) ______________________________________________________ and whose social
security or taxpayer identification number(s) is (are)
_________________________.
Dated: ______________________
____________________________
____________________________
Address
____________________________
Telephone
- ---------------------------
- - Signature must conform in all respects to name of registered Holder.
<PAGE> 31
TRANSFER FORM
(To be signed only upon transfer of the Underwriter's Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto __________________________ the right to purchase shares of Common
Stock and/or Warrants of Integrated Surgical Systems, Inc. represented by the
foregoing Underwriter's Warrant to the extent of ______________________________
shares of Common Stock and/or ___________ Warrants, and appoints
__________________________, attorney to transfer such rights on the books of
Integrated Surgical Systems, Inc., with full power of substitution in the
premises.
Dated: _________________________
____________________________
(name of holder)
____________________________
Address
____________________________
In the presence of:
____________________________
____________________________
<PAGE> 1
EXHIBIT 4.2
INTEGRATED SURGICAL SYSTEMS, INC.
a Delaware corporation,
RICKEL & ASSOCIATES, INC.
and
[NAME OF WARRANT AND TRANSFER AGENT]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. Appointment of Warrant Agent........................................ 1
2. Form of Warrant..................................................... 2
3. Countersignature and Registration................................... 3
4. Transfers and Exchanges............................................. 4
5. Exercise of Warrants; Payment of Warrant Solicitation Fee........... 5
6. Payment of Taxes.................................................... 9
7. Mutilated or Missing Warrants....................................... 9
8. Reservation of Common Stock......................................... 9
9. Adjustments of Warrant Price and Number of Securities............... 11
10. Fractional Interests................................................ 21
11. Notices to Warrantholders........................................... 22
12. Disposition of Proceeds on Exercise of Warrants..................... 24
13. Redemption of Warrants.............................................. 24
14. Merger or Consolidation or Change of Name of Warrant Agent.......... 25
15. Duties of Warrant Agent............................................. 25
16. Change of Warrant Agent............................................. 28
17. Identity of Transfer Agent.......................................... 29
18. Notices............................................................. 30
19. Supplements and Amendments.......................................... 31
20. New York Contract................................................... 31
21. Benefits of this Agreement.......................................... 32
22. Successors.......................................................... 32
</TABLE>
i
<PAGE> 3
WARRANT AGREEMENT, dated as of _______ ___, 1996, among INTEGRATED
SURGICAL SYSTEMS, INC., a Delaware corporation (the "Company"), RICKEL &
ASSOCIATES, INC. ("Rickel"), and [NAME OF WARRANT AND TRANSFER AGENT], as
warrant agent (the "Warrant Agent").
The Company proposes to issue and sell through an initial public
offering (the "IPO") underwritten by Rickel (the "Underwriter"), an aggregate of
up to 1,500,000 shares of common stock, par value $.01 per share (the "Common
Stock"), and 1,500,000 redeemable Common Stock purchase warrants and, pursuant
to the Underwriter's overallotment option (the "Overallotment Option"), up to an
additional 225,000 shares of Common Stock and 225,000 Warrants;
Each Warrant will entitle the holder to purchase one share of Common
Stock;
In connection with the IPO the Company proposes to sell to the
Underwriter warrants (the "Underwriter's Warrant") to purchase up to 150,000
shares of Common Stock and up to 150,000 warrants (the "Underlying Warrants" and
together with the redeemable Common Stock purchase warrants offered to the
public in the IPO, the "Warrants");
The Company desires the Warrant Agent to act on behalf of the Company,
and the Warrant Agent is willing so to act, in connection with the issuance,
registration, transfer, exchange and exercise of the Warrants;
THEREFORE, the parties hereto agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as Warrant Agent for the Company in accordance with the
instructions
<PAGE> 4
hereinafter set forth in this Agreement, and the Warrant Agent hereby accepts
such appointment.
Upon the execution of this Agreement, certificates representing
1,500,000 Warrants to purchase up to an aggregate of 1,500,000 shares of Common
Stock (subject to modification and adjustment as provided in Section 9 hereof)
shall be executed by the Company and delivered to the Warrant Agent.
Upon the exercise of the Overallotment Option, certificates
representing up to 225,000 Warrants to purchase up to an aggregate of 225,000
shares of Common Stock (subject to modification and adjustment as provided in
Section 9 hereof) shall be executed by the Company and delivered to the Warrant
Agent.
Upon exercise of the Underwriter's Warrant as provided therein,
certificates representing up to 150,000 Warrants to purchase up to an aggregate
of 150,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 9 hereof) shall be executed by the Company and delivered to
the Warrant Agent.
Section 2. Form of Warrant. The text of the Warrants and the form of
election to purchase Common Stock to be printed on the reverse thereof shall be
substantially as set forth in Exhibit A attached hereto (the provisions of which
are hereby incorporated herein). All of the certificates for the Warrants may
have such letters, numbers or other marks of identification or designation and
such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the
2
<PAGE> 5
Warrants may be listed, or to conform to usage. Each Warrant shall initially
entitle the registered holder thereof to purchase one share of Common Stock at a
purchase price of seven dollars ($7.00) (as adjusted as hereinafter provided,
the "Warrant Price"), at any time during the period (the "Exercise Period")
commencing on _______ __, 1997, the first anniversary of the date of the
Company's prospectus (the "Prospectus") pursuant to which the Warrants are being
sold in the IPO) and expiring at 5:00 p.m. New York time, on _______ __, 2001
(the fifth anniversary of the date of the Prospectus). The Warrant Price and the
number of shares of Common Stock issuable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrants shall be executed on behalf of the Company by the manual
or facsimile signature of the present or any future President or Vice President
of the Company, and attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company.
Warrants shall be dated as of the date of issuance by the Warrant Agent
either upon initial issuance or upon transfer or exchange.
In the event the aforesaid expiration date of the Warrants falls on a
day that is not a business day, then the Warrants shall expire at 5:00 p.m. New
York time on the next succeeding business day. For purposes hereof, the term
"business day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in New York City, New York, are authorized or
obligated by law to be closed.
Section 3. Countersignature and Registration. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the
3
<PAGE> 6
respective holders thereof. The Warrants shall be countersigned manually or by
facsimile by the Warrant Agent (or by any successor to the Warrant Agent then
acting as warrant agent under this Agreement) and shall not be valid for any
purpose unless so countersigned. The Warrants may, however, be so countersigned
by the Warrant Agent (or by its successor as Warrant Agent) and be delivered by
the Warrant Agent, notwithstanding that the persons whose manual or facsimile
signatures appear thereon as proper officers of the Company shall have ceased to
be such officers at the time of such countersignature or delivery.
Section 4. Transfers and Exchanges. The Warrant Agent shall transfer,
from time to time, any outstanding Warrants upon the books to be maintained by
the Warrant Agent for that purpose, upon surrender thereof for transfer properly
endorsed or accompanied by appropriate instructions for transfer. Upon any such
transfer, a new Warrant shall be issued to the transferee and the surrendered
Warrant shall be cancelled by the Warrant Agent. Warrants so cancelled shall be
delivered by the Warrant Agent to the Company from time to time upon request.
Warrants may be exchanged at the option of the holder thereof, when surrendered
at the office of the Warrant Agent, for another Warrant, or other Warrants of
different denominations of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock. No certificates for
Warrants shall be issued except for (i) Warrants initially issued hereunder in
accordance with Section 1 hereof, (ii) Warrants issued upon any transfer or
exchange of Warrants, (iii) Warrants issued in replacement of lost, stolen,
destroyed or mutilated certificates for Warrants pursuant to Section 7 hereof,
and (iv) at the option of the Board of Directors of the Company, Warrants in
such form as may be approved by its Board of Directors, to reflect any
adjustment or change in the Warrant Price
4
<PAGE> 7
or the number of shares of Common Stock purchasable upon exercise of the
Warrants made pursuant to Section 9 hereof.
Section 5. Exercise of Warrants; Payment of Warrant Solicitation Fee.
Subject to the provisions of this Agreement, each registered holder of Warrants
shall have the right, at any time during the Exercise Period, to exercise such
Warrants and purchase the number of fully paid and non-assessable shares of
Common Stock specified in such Warrants upon presentation and surrender of such
Warrants to the Company at the corporate office of the Warrant Agent, with the
exercise form on the reverse thereof duly executed, and upon payment to the
Company of the Warrant Price, determined in accordance with the provisions of
Sections 2, 9 and 10 of this Agreement, for the number of shares of Common Stock
in respect of which such Warrants are then exercised. Payment of such Warrant
Price shall be made in cash or by certified or bank check payable to the
Company. Subject to Section 6 hereof, upon such surrender of Warrants and
payment of the Warrant Price, the Warrant Agent on behalf of the Company shall
cause to be issued and delivered with all reasonable dispatch to or upon the
written order of the registered holder of such Warrants and in such name or
names as such registered holder may designate, a certificate or certificates for
the number of full shares of Common Stock so purchased upon the exercise of such
Warrants. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of record of such shares of Common Stock immediately prior to the close
of business on the date of the surrender of such Warrants and payment of the
Warrant Price as aforesaid. The rights of purchase represented by the Warrants
shall be exercisable during the Exercise Period, at the election of the
registered holders thereof, either as an entirety or from
5
<PAGE> 8
time to time for a portion of the shares specified therein and, in the event
that any Warrant is exercised in respect of less than all of the shares of
Common Stock specified therein at any time prior to the date of expiration of
the Warrants, a new Warrant or Warrants will be issued to the registered holder
for the remaining number of shares of Common Stock specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Section and of Section 3 of this Agreement and the Company, whenever
requested by the Warrant Agent, will supply the Warrant Agent with Warrants duly
executed on behalf of the Company for such purpose. Upon the exercise of any one
or more Warrants, the Warrant Agent shall promptly notify the Company in writing
of such fact and of the number of securities delivered upon such exercise and,
subject to the provisions below, shall cause all payments of an amount, in cash
or by check made payable to the order of the Company, equal to the aggregate
Warrant Price for such Warrants, less any amounts payable to the Underwriter, as
provided below, to be deposited promptly in the Company's bank account. The
Company and Warrant Agent shall determine, in their sole and absolute
discretion, whether a Warrant certificate has been properly completed for
exercise by the registered holder thereof.
Anything in the foregoing to the contrary notwithstanding, no Warrant
will be exercisable and the Company shall not be obligated to deliver any
securities pursuant to the exercise of any warrant unless at the time of
exercise the Company has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the securities issuable upon exercise of such Warrant and such
registration statement shall have been declared and shall remain effective and
shall be current,
6
<PAGE> 9
and such shares have been registered or qualified or be exempt under the
securities laws of the state or other jurisdiction of residence of the holder of
such Warrant and the exercise of such Warrant in any such state or other
jurisdiction shall not otherwise be unlawful. During the Exercise Period, the
Company shall use its best efforts to have a current registration statement on
file with the Securities and Exchange Commission covering the issuance of Common
Stock underlying the Warrants so as to permit the Company to deliver to each
person exercising a Warrant a prospectus meeting the requirements of Section
10(a)(3) of the Act and otherwise complying therewith, and will deliver such
prospectus to each such person. During the Exercise Period, the Company shall
also use its best efforts to effect appropriate qualifications of the Common
Stock underlying the Warrants under the laws and regulations of the states and
other jurisdictions in which the Common Stock and Warrants are sold by the
Underwriter in the IPO in order to comply with applicable laws in connection
with the exercise of the Warrants.
(a) If at the time of exercise of any Warrant (i) the market
price of the Common Stock is equal to or greater than the then exercise price of
the Warrant, (ii) the exercise of the Warrant is solicited by the Underwriter at
such time as it is a member of the National Association of Securities Dealers,
Inc. ("NASD"), (iii) the Warrant is not held in a discretionary account, (iv)
disclosure of the compensation arrangement is made in documents provided to the
holders of the Warrants, and (v) the solicitation of the exercise of the Warrant
is not in violation of Rule 10b-6 (as such rule or any successor rule may be in
effect as of such time of exercise) promulgated under the Securities Exchange
Act of 1934, as amended, then the Underwriter shall be entitled to receive from
the Company following exercise of each of the
7
<PAGE> 10
Warrants so exercised a fee of five percent (5%) of the aggregate exercise price
of the Warrants so exercised (the "Exercise Fee") The procedures for payment of
the Exercise Fee are set forth in Section 5(b) below.
(b) (i) Within five (5) days after the last day of each month
commencing with _______ ___, 1996, the Warrant Agent will notify the Underwriter
of each Warrant certificate which has been properly completed for exercise by
holders of Warrants during the last month. The Warrant Agent will provide the
Underwriter with such information, in connection with the exercise of each
Warrant, as the Underwriter shall reasonably request.
(ii) The Company hereby authorizes and instructs the
Warrant Agent to deliver to the Underwriter the Exercise Fee, if payable, in
respect of each exercise of Warrants, promptly after receipt by the Warrant
Agent from the Company of a check payable to the order of the Underwriter in the
amount of such Exercise Fee. In the event that an Exercise Fee is paid to the
Underwriter with respect to a Warrant which the Company or the Warrant Agent
determines is not properly completed for exercise or in respect of which the
Underwriter is not entitled to an Exercise Fee, the Underwriter will return such
Exercise Fee to the Warrant Agent which shall forthwith return such fee to the
Company.
The Underwriter and the Company may at any time during business hours
examine the records of the Warrant Agent, including its ledger of original
Warrant certificates returned to the Warrant Agent upon exercise of Warrants.
Notwithstanding any provision to the contrary, the provisions of paragraph 5(a)
and 5(b) may not be modified, amended or deleted without the prior written
consent of the Underwriter.
8
<PAGE> 11
Section 6. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Common Stock issuable upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance or delivery of any certificates for shares of Common Stock in a name
other than that of the registered holder of Warrants in respect of which such
shares are issued, and in such case neither the Company nor the Warrant Agent
shall be required to issue or deliver any certificate for shares of Common Stock
or any Warrant until the person requesting the same has paid to the Company the
amount of such tax or has established to the Company's satisfaction that such
tax has been paid or that no such tax is required to be paid.
Section 7. Mutilated or Missing Warrants. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company may, in its
discretion, issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence satisfactory to the Company and the Warrant Agent of
such loss, theft or destruction and, in case of a lost, stolen or destroyed
Warrant, indemnity, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such reasonable charges as the Company or the Warrant Agent may prescribe.
Section 8. Reservation of Common Stock. There have been reserved, and
the Company shall at all times keep reserved, out of its authorized shares of
Common Stock, a
9
<PAGE> 12
number of shares of Common Stock sufficient to provide for the exercise of the
rights of purchase represented by the Warrants, and the transfer agent for the
shares of Common Stock and every subsequent transfer agent for any shares of
Common Stock issuable upon the exercise of any of the aforesaid rights of
purchase are irrevocably authorized and directed at all times to reserve such
number of authorized shares of Common Stock as shall be required for such
purpose. The Company agrees that all shares of Common Stock issued upon exercise
of the Warrants shall be, at the time of delivery of the certificates for such
shares against payment of the Warrant Price therefor, validly issued, fully paid
and nonassessable and listed on any national securities exchange or included in
any interdealer automated quotation system upon or in which the other shares of
outstanding Common Stock are then listed or included. The Company will keep a
copy of this Agreement on file with the transfer agent for the shares of Common
Stock (which may be the Warrant Agent) and with every subsequent transfer agent
for any shares of Common Stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Warrant Agent is irrevocably
authorized to requisition from time to time from such transfer agent stock
certificates required to honor outstanding Warrants. The Company will supply
such transfer agent with duly executed stock certificates for that purpose. All
Warrants surrendered in the exercise of the rights thereby evidenced shall be
cancelled by the Warrant Agent and shall thereafter be delivered to the Company,
and such cancelled Warrants shall constitute sufficient evidence of the number
of shares of Common Stock which have been issued upon the exercise of such
Warrants. Promptly after the date of expiration of the Warrants, the Warrant
Agent shall certify to the Company the total aggregate
10
<PAGE> 13
amount of Warrants then outstanding, and thereafter no shares of Common Stock
shall be subject to reservation in respect of such Warrants which shall have
expired.
Section 9. Adjustments of Warrant Price and Number of Securities.
(a) Computation of Adjusted Price. Except as hereinafter
provided, in case the Company shall, at any time after the date of closing of
the sale of securities pursuant to the IPO (the "Closing Date"), issue or sell
any shares of Common Stock (other than the issuances or sales referred to in
Section 9(f) hereof), including shares held in the Company's treasury and
shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Common Stock (other than the issuances or
sales of Common Stock pursuant to rights to subscribe for such Common Stock
distributed pursuant to Section 9(h) hereof) and shares of Common Stock issued
upon the direct or indirect conversion or exchange of securities for shares of
Common Stock, for a consideration per share less than both the "Market Price"
(as defined in Section 9(a)(vi) hereof) per share of Common Stock on the trading
day immediately preceding such issuance or sale and the Warrant Price in effect
immediately prior to such issuance or sale, or without consideration, then
forthwith upon such issuance or sale, the Warrant Price shall (until another
such issuance or sale) be reduced to the price (calculated to the nearest full
cent) determined by multiplying the Warrant Price in effect immediately prior to
such issuance or sale by a fraction, the numerator of which shall be the sum of
(1) the number of shares of Common Stock outstanding immediately prior to such
issuance or sale multiplied by the Warrant Price immediately prior to such
issuance or sale plus (2) the consideration received by the Company upon such
issuance or sale, and the denominator of which shall be the product of (x) the
total number of shares of Common Stock outstanding
11
<PAGE> 14
immediately after such issuance or sale, multiplied by (y) the Warrant Price
immediately prior to such issuance or sale; provided, however, that in no event
shall the Warrant Price be adjusted pursuant to this computation to an amount in
excess of the Warrant Price in effect immediately prior to such computation,
except in the case of a combination of outstanding shares of Common Stock, as
provided by Section 9(c) hereof.
For the purposes of any computation to be made in accordance with this
Section 9(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of
Common Stock for a consideration part or all of which shall be cash, the amount
of the cash consideration therefor shall be deemed to be the amount of cash
received by the Company for such shares (or, if shares of Common Stock are
offered by the Company for subscription, the subscription price, or, if such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the public offering price) before deducting therefrom
any compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than
as a dividend or other distribution on any stock of the Company) of shares of
Common Stock for a consideration part or all of which shall be other than cash,
the amount of the consideration therefor other than cash shall be deemed to be
the value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately
12
<PAGE> 15
after the opening of business on the day following the record date for the
determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the
Company other than shares of Common Stock into securities including shares of
Common Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the close of
business on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such shares
of Common Stock shall be determined as provided in subsection (ii) of this
Section 9(a).
(v) The number of shares of Common Stock at any one
time outstanding shall include the aggregate number of shares issued or issuable
upon the exercise of options, warrants or rights and upon the conversion or
exchange of convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any
date shall be deemed to be the average of the last reported sale price, or, in
case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or as reported in the Nasdaq Stock
Market, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on the Nasdaq Stock Market, the closing
bid quotation as furnished by the National Association of Securities Dealers,
Inc. through Nasdaq or a similar organization if Nasdaq is no longer reporting
such information, or if the Common Stock is not quoted on Nasdaq, as
13
<PAGE> 16
determined in good faith by resolution of the Board of Directors of the Company,
based on the best information available to it for the day immediately preceding
such issuance or sale, the day of such issuance or sale and the day immediately
after such issuance or sale. If the Common Stock is listed or admitted to
trading on a national securities exchange and also quoted on the Nasdaq Stock
Market, the Market Price shall be determined as hereinabove provided by
reference to the prices reported in the Nasdaq Stock Market; provided that if
the Common Stock is listed or admitted to trading on the New York Stock
Exchange, the Market Price shall be determined as hereinabove provided by
reference to the prices reported by such exchange.
(b) Options, Rights, Warrants and Convertible and Exchangeable
Securities. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed pursuant to Section 9(h) hereof, if the
Company shall at any time after the Closing Date issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, in each case other
than the issuances or sales referred to in section 9(f) hereof, (i) for a
consideration per share less than the lesser of (a) the Warrant Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, or (b) the Market Price on the trading
day immediately preceding such issuance, or (ii) without consideration, the
Warrant Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, as the case
may be, shall be reduced to a price determined by making a computation in
accordance with the provisions of Section 9(a) hereof; provided that:
14
<PAGE> 17
(i) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable under all the outstanding options, rights or
warrants shall be deemed to be issued and outstanding at the time all the
outstanding options, rights or warrants were issued, and for a consideration
equal to the minimum purchase price per share provided for in the options,
rights or warrants at the time of issuance, plus the consideration (determined
in the same manner as consideration received on the issue or sale of shares in
accordance with the terms of Section 9(a)), if any, received by the Company for
the options, rights or warrants, and if no minimum purchase price is provided in
the options, rights or warrants, then the minimum purchase price shall be equal
to zero; provided, however, that upon the expiration or other termination of the
options, rights or warrants, if any thereof shall not have been exercised, the
number of shares of Common Stock deemed to be issued and outstanding pursuant to
this subsection (b) (and for the purposes of subsection (v) of Section 9(a)
hereof) shall be reduced by such number of shares as to which options, warrants
or rights shall have expired or terminated unexercised, and such number of
shares shall no longer be deemed to be issued and outstanding, and the Warrant
Price then in effect shall forthwith be readjusted and thereafter be the price
which it would have been had adjustment been made on the basis of the issuance
only of shares actually issued or issuable upon the exercise of those options,
rights or warrants as to which the exercise rights shall not have expired or
terminated unexercised.
(ii) The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration
15
<PAGE> 18
received on the issue or sale of shares of Common Stock in accordance with the
terms of Section 9(a)) received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the conversion or
exchange thereof; provided, however, that upon the expiration or other
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
deemed to be issued and outstanding pursuant to this subsection (ii) (and for
the purpose of subsection (v) of Section 9(a) hereof) shall be reduced by such
number of shares as to which the conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding, and the Warrant Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised. No adjustment will be made pursuant to
this subsection (ii) upon the issuance by the Company of any convertible or
exchangeable securities pursuant to the exercise of any option, right or warrant
exercisable therefor, to the extent that adjustments in respect of such options,
rights or warrants were previously made pursuant to the provisions of subsection
(i) of this subsection 9(b).
(iii) If any change shall occur in the price per
share provided for in any of the options, rights or warrants referred to in
subsection (i) of this Section 9(b), or in the price per share at which the
securities referred to in subsection (ii) of this Section 9(b) are convertible
or exchangeable, or if any such options, rights or warrants are exercised at a
price
16
<PAGE> 19
greater than the minimum purchase price provided for in such options, rights or
warrants, or any such securities are converted or exercised for more than the
minimum consideration receivable by the Company upon such conversion or
exchange, the options, rights or warrants or conversion or exchange rights, as
the case may be, shall be deemed to have expired or terminated on the date when
such price change became effective in respect of shares not theretofore issued
pursuant to the exercise or conversion or exchange thereof, and the Company
shall be deemed to have issued upon such date new options, rights or warrants or
convertible or exchangeable securities at the new price in respect of the number
of shares issuable upon the exercise of such options, rights or warrants or the
conversion or exchange of such convertible or exchangeable securities; provided,
however, that no adjustment shall be made pursuant to this subsection (iii) with
respect to any change in the price per share provided for in any of the options,
rights or warrants referred to in subsection (b)(i) of this Section 9(b), or
in the price per share at which the securities referred to in subsection (b)(ii)
of this Section 9(b) are convertible or exchangeable, which change results from
the application of the anti-dilution provisions thereof in connection with an
event for which, subject to subsection (iv) of this Section 9(f), an adjustment
to the Warrant Price and the number of securities issuable upon exercise of the
Warrants will be required to be made pursuant to this Section 9.
(c) Subdivision and Combination. In case the Company shall at
any time after the Closing Date subdivide or combine the outstanding shares of
Common Stock, the Warrant Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
17
<PAGE> 20
(d) Adjustment in Number of Shares. Upon each adjustment of
the Warrant Price pursuant to the provisions of this Section 9, the number of
shares of Common Stock issuable upon the exercise of the Warrants shall be
adjusted to the nearest full whole number by multiplying a number equal to the
Warrant Price in effect immediately prior to such adjustment by the number of
shares of Common Stock issuable upon exercise of the Warrants immediately prior
to such adjustment and dividing the product so obtained by the adjusted Warrant
Price.
(e) Reclassification, Consolidation, Merger, etc. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding shares of Common Stock, except a
change as a result of a subdivision or combination of such shares or a change in
par value, as aforesaid), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the Holder shall
thereafter have the right to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holder were the owner of the
shares of Common Stock underlying the Warrants immediately prior to any such
events at a price equal to the product of (x) the number of shares issuable upon
exercise of the Warrants and (y) the Warrant Price in effect immediately prior
to the record date for such
18
<PAGE> 21
reclassification, change, consolidation, merger, sale or conveyance as if such
Holder had exercised the Warrant.
(f) No Adjustment of Warrant Price in Certain Cases.
Notwithstanding anything herein to the contrary, no adjustment of the Warrant
Price shall be made:
(i) Upon the issuance or sale of the Underwriter's
Warrant, the shares of Common Stock or Warrants issuable upon the exercise of
the Underwriter's Warrant or the shares of Common Stock issuable upon exercise
of the Warrants underlying the Underwriter's Warrant; or
(ii) Upon the issuance or sale of (A) the shares of
Common Stock or Warrants issued by the Company in the IPO (including pursuant to
the Over-allotment Option) or other shares of Common Stock or warrants issued by
the Company upon consummation of the IPO or, (B) the shares of Common Stock (or
other securities) issuable upon exercise of Warrants; or
(iii) Upon (i) the issuance of options pursuant to
the Company's incentive stock option plan in effect on the date hereof or as
hereafter amended in accordance with the terms thereof or any other employee or
executive stock option plan approved by stockholders of the Company or the sale
by the Company of any shares of Common Stock pursuant to the exercise of any
such options, or (ii) the sale by the Company of any shares of Common Stock
pursuant to the exercise of any options or warrants issued and outstanding on
the date of closing of the sale of Common Stock and Warrants pursuant to the IPO
or (iii) the issuance or sale by the Company of any shares of Common Stock
pursuant to the Company's restricted stock plan in effect on the date hereof; or
19
<PAGE> 22
(iv) If the amount of said adjustment shall be less
than two cents (2 cents) per share of Common Stock.
(g) Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time after
the Closing Date and prior to the exercise or expiration of all Warrants declare
a dividend (other than a dividend consisting solely of shares of Common Stock or
a cash dividend or distribution payable out of current or retained earnings) or
otherwise distribute to the holders of Common Stock any monies, assets,
property, rights, evidences of indebtedness, securities (other than such a cash
dividend or distribution or dividend consisting solely of shares of Common
Stock), whether issued by the Company or by another person or entity, or any
other thing of value, the Holders of the unexercised Warrants shall thereafter
be entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same monies, property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such dividend or distribution as if the Holders were the
owners of the shares of Common Stock underlying such Warrants. At the time of
any such dividend or distribution, the Company shall make appropriate reserves
to ensure the timely performance of the provisions of this Section 9(g).
(h) Subscription Rights for Shares of Common Stock or Other
Securities. In case the Company or an affiliate of the Company shall at anytime
after the date hereof and prior to the exercise of all the Warrants issue any
rights to subscribe for shares of Common Stock or any other securities of the
Company or of such affiliate to all the holders of Common Stock, the Holders of
the unexercised Warrants shall be entitled, in addition to the shares of
20
<PAGE> 23
Common Stock or other securities receivable upon the exercise of the Warrants,
to receive such rights at the time such rights are distributed to the other
stockholders of the Company but only to the extent of the number of shares of
Common Stock, if any, for which the Warrants remain exercisable.
(i) Notice in Event of Dissolution. In case of the
dissolution, liquidation or winding-up of the Company, all rights under the
Warrants shall terminate on a date fixed by the Company, such date to be no
earlier than ten (10) days prior to the effectiveness of such dissolution,
liquidation or winding-up and not later than five (5) days prior to such
effectiveness. Notice of such termination of purchase rights shall be given to
each registered holder of the Warrants, as the same shall appear on the books of
the Company maintained by the Warrant Agent, by registered mail at least thirty
(30) days prior to such termination date.
(j) Computations. The Company may retain a firm of independent
public accountants (who may be any such firm regularly employed by the Company)
to make any computation required under this Section 9, and any certificate
setting forth such computation signed by such firm shall be conclusive evidence
of the correctness of any computation made under this Section 9.
Section 10. Fractional Interests. The Warrants may only be exercised to
purchase full shares of Common Stock and the Company shall not be required to
issue fractions of shares of Common Stock on the exercise of Warrants. However,
if a Warrantholder exercises all Warrants then owned of record by him and such
exercise would result in the issuance of a fractional share, the Company will
pay to such Warrantholder, in lieu of the issuance of any
21
<PAGE> 24
fractional share otherwise issuable, an amount of cash based on the Market Price
on the last trading day prior to the exercise date.
Section 11. Notices to Warrantholders.
(a) Upon any adjustment of the Warrant Price and the number of
shares of Common Stock issuable upon exercise of a Warrant, then and in each
such case, the Company shall give written notice thereof to the Warrant Agent,
which notice shall state the Warrant Price resulting from such adjustment and
the increase or decrease, if any, in the number of shares purchasable at such
price upon the exercise of a Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. The
Company shall also mail such notice to the holders of the Warrants at their
respective addresses appearing in the Warrant register. Failure to give or mail
such notice, or any defect therein, shall not affect the validity of the
adjustments.
(b) In case at any time after the Closing Date:
(i) the Company shall pay dividends payable in stock
upon its Common Stock or make any distribution (other than regular cash
dividends) to the holders of Common Stock; or
(ii) the Company shall offer for subscription pro
rata to all of the holders of Common Stock any additional shares of stock of any
class or other rights; or
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of substantially all of its assets to another
corporation; or
22
<PAGE> 25
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; then in any one or more
of such cases, the Company shall give written notice to the Warrant Agent and
the holders of the Warrants in the manner set forth in Section 11(a) of the date
on which (A) a record shall be taken for such dividend, distribution or
subscription rights, or (B) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up shall take
place, as the case may be. Such notice shall also specify the date as of which
the holders of Common Stock of record shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or windingup, as the case may be. Such notice shall be given at
least ten (10) days prior to the action in question and not less than ten (10)
days prior to the record date in respect thereof. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of any of the
matters set forth in this Section 11(b).
(c) The Company shall cause copies of all financial statements
and reports, proxy statements and other documents that are sent to its
stockholders to be sent by first-class mail, postage prepaid, on the date of
mailing to such stockholders, to each registered holder of Warrants at his
address appearing in the Warrant register as of the record date for the
determination of the stockholders entitled to such documents.
23
<PAGE> 26
Section 12. Disposition of Proceeds on Exercise of Warrants.
(a) The Warrant Agent shall promptly forward to the Company
all monies received by the Warrant Agent for the purchase of shares of Common
Stock through the exercise of these Warrants.
(b) The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of Warrants during normal business hours.
Section 13. Redemption of Warrants. The Warrants are redeemable by the
Company commencing on the first anniversary the date of the Prospectus, in whole
or in part, on not less than thirty (30) days' prior written notice at a
redemption price of $0.10 per Warrant (or earlier with the prior consent of
Rickel), provided the average closing bid quotation of the Common Stock as
reported on the Nasdaq Stock Market, if traded thereon, or if not traded
thereon, the average closing sale price if listed on a national securities
exchange (or other reporting system that provides last sale prices), has been at
least 150% of the then current Exercise Price of the Warrants, for a period of
20 consecutive trading days ending on the third day prior to the date on which
the Company gives notice of redemption. Any redemption in part shall be made pro
rata to all Warrant holders. The redemption notice shall be mailed to the
holders of the Warrants at their respective addresses appearing in the Warrant
register. Any such notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given in accordance with this Agreement
whether or not the registered holder receives such notice. No failure to mail
such notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for such redemption except as to a registered holder
of a Warrant (i) to whom notice was not mailed or (ii) whose notice was
defective. An affidavit of the
24
<PAGE> 27
Warrant Agent or the Secretary or Assistant Secretary of the Company that notice
of redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. Holders of the Warrants will have exercise
rights until the close of business on the day immediately preceding the date
fixed for redemption.
Section 14. Merger or Consolidation or Change of Name of Warrant Agent.
Any corporation or company which may succeed to the corporate trust business of
the Warrant Agent by any merger or consolidation or otherwise shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto; provided,
that such corporation would be eligible for appointment as a successor Warrant
Agent under the provisions of Section 16 of this Agreement. In case at the time
such successor to the Warrant Agent shall succeed to the agency created by this
Agreement any of the Warrants shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned. In all such cases such Warrants shall
have the full force provided in the Warrants and in this Agreement.
Section 15. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
25
<PAGE> 28
(a) The statements of fact and recitals contained herein and
in the Warrants shall be taken as statements of the Company, and the Warrant
Agent assumes no responsibility for the correctness of any of the same except as
such describe the Warrant Agent or action taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution of the
Warrants except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants in this Agreement or in the
Warrants to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant for any action
taken in reliance on any notice, resolution, waiver, consent, order, certificate
or other instrument believed by it to be genuine and to have been signed, sent
or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges incurred by the Warrant Agent in the
execution of this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including
26
<PAGE> 29
judgments, costs and reasonable counsel fees, for anything done or omitted by
the Warrant Agent in the execution of this Agreement except as a result of the
Warrant Agent's negligence, willful misconduct or bad faith.
(f) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other action
likely to involve expenses unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without any such security or
indemnity. All rights of action under this Agreement or under any of the
Warrants may be enforced by the Warrant Agent without the possession of any of
the Warrants or the production thereof at any trial or other proceeding. Any
such action, suit or proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent, and any recovery of judgment shall be for the
ratable benefit of the registered holders of the Warrants, as their respective
rights and interests may appear.
(g) The Warrant Agent and any stockholder, director, officer,
partner or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not the Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
27
<PAGE> 30
(h) The Warrant Agent shall act hereunder solely as agent and
its duties shall be determined solely by the provisions hereof.
(i) The Warrant Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys, agents or employees, and the Warrant Agent shall
not be answerable or accountable for any such attorneys, agents or employees or
for any loss to the Company resulting from such neglect or misconduct, provided
reasonable care had been exercised in the selection and continued employment
thereof.
(j) Any request, direction, election, order or demand of the
Company shall be sufficiently evidenced by an instrument signed in the name of
the Company by its President or a Vice President or its Secretary or an
Assistant Secretary or its Treasurer or an Assistant Treasurer (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Warrant Agent by a
copy thereof certified by the Secretary or an Assistant Secretary of the
Company.
Section 16. Change of Warrant Agent. The Warrant Agent may resign and
be discharged from its duties under this Agreement by giving to the Company
notice in writing, and to the holders of the Warrants notice by mailing such
notice to the holders at their respective addresses appearing on the Warrant
register, of such resignation, specifying a date when such resignation shall
take effect. The Warrant Agent may be removed by like notice to the Warrant
Agent from the Company and the like mailing of notice to the holders of the
Warrants. If the Warrant Agent shall resign or be removed or shall otherwise
become incapable of action, the Company shall appoint a successor to the Warrant
Agent. If the Company shall
28
<PAGE> 31
fail to make such appointment within a period of thirty (30) days after such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or after the Company
has received such notice from a registered holder of a Warrant (who shall, with
such notice, submit his Warrant for inspection by the Company), then the
registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Any
successor Warrant Agent, whether appointed by the Company or by such a court,
shall be a bank or trust company, in good standing, incorporated under New York
or federal law. After appointment, the successor Warrant Agent shall be vested
with the same powers, rights, duties and responsibility as if it had been
originally named as Warrant Agent without further act or deed and the former
Warrant Agent shall deliver and transfer to the successor Warrant Agent all
canceled Warrants, records and property at the time held by it hereunder, and
execute and deliver any further assurance or conveyance necessary for this
purpose. Failure to file or mail any notice provided for in this Section,
however, or any defect therein, shall not affect the validity of the resignation
or removal of the Warrant Agent or the appointment of the successor Warrant
Agent, as the case may be.
Section 17. Identity of Transfer Agent. Forthwith upon the appointment
of any transfer agent (other than [Name of Warrant and Transfer Agent]) for the
shares of Common Stock or of any subsequent transfer agent for the shares of
Common Stock, the Company will file with the Warrant Agent a statement setting
forth the name and address of such transfer agent.
29
<PAGE> 32
Section 18. Notices. Any notice pursuant to this Agreement to be given
by the Warrant Agent or the registered holder of any Warrant to the Company,
shall be sufficiently given if sent by first-class mail, postage prepaid,
addressed (until another is filed in writing by the Company with the Warrant
Agent) as follows:
Integrated Surgical Systems, Inc.
829 West Stadium Lane
Sacramento, California 95834
Attention: Chief Executive Officer and President
and a copy thereof to:
Snow Becker Krauss, P.C.
605 Third Avenue
New York, New York 10158-0125
Attention: Jack Becker, Esq.
Any notice pursuant to this Agreement to be given by the Company or the
registered holder of any Warrant to the Warrant Agent shall be sufficiently
given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
[Address]
Attention: [officer]
Any notice pursuant to this Agreement to be given by the Warrant Agent
or the Company to the Underwriter shall be sufficiently given if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Warrant Agent) as follows:
30
<PAGE> 33
Rickel & Associates, Inc.
875 Third Avenue
New York, New York 10022
Attention: Gregg Smith
and a copy thereof to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Timothy I. Kahler, Esq.
Section 19. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement in order to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
materially adversely affect the interest of the holders of Warrants; and in
addition the Company and the Warrant Agent may modify, supplement or alter this
Agreement with the consent in writing of the registered holders of the Warrants
representing not less than a majority of the Warrants then outstanding.
Section 20. New York Contract. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and shall be construed in accordance with the laws of New York without
regard to the conflicts of law principles thereof.
31
<PAGE> 34
Section 21. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the registered
holders of the Warrants.
Section 22. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.
INTEGRATED SURGICAL SYSTEMS, INC.
By: ________________________________
Dr. Ramesh C. Trivedi
Chief Executive Officer and President
RICKEL & ASSOCIATES, INC.
By: ________________________________
[NAME OF WARRANT & TRANSFER AGENT]
By: ________________________________
32
<PAGE> 35
No. W_______________________ VOID AFTER_____________, 2001
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
INTEGRATED SURGICAL SYSTEMS, INC.
CUSIP [ ]
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, par value $.01
per share (the "Common Stock"), of Integrated Surgical Systems, Inc., a
__________ corporation (the "Company"), at any time from ______________, 1997
(the "Initial Warrant Exercise Date") , and prior to the Expiration Date (as
hereinafter defined) upon the presentation and surrender of this Warrant
Certificate with the Exercise Form on the reverse hereof duly executed, at the
corporate office of [Name of Warrant & Transfer Agent], _______
________________________________, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $____, subject to adjustment (the
"Exercise Price"), in lawful money of the United States of America in cash or by
certified or bank check made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement, dated as of _______________, 1996 (the "Warrant
Agreement"), among the Company, Rickel & Associates, Inc. ("Rickel") and the
Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
A-1
<PAGE> 36
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares will be issued. In the case of the
exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 2001 [the date which is the fifth anniversary of the Initial Warrant
Exercise Date]; provided, that if such date is not a business day, it shall mean
5:00 p.m., New York City time, on the next following business day. For purposes
hereof, the term "business day" shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in New York City, New York, are
authorized or obligated by law to be closed.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Warrants represented hereby unless at the time of
exercise the Company has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the securities issuable upon exercise of the Warrants represented
hereby and such registration statement has been declared and shall remain
effective and shall be current, and such securities have been registered or
qualified or be exempt under the securities laws of the state or other
jurisdiction of residence of the Registered Holder and the exercise of the
Warrants represented hereby in any such state or other jurisdiction shall not
otherwise be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon the presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder, as such, shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $0.10 per
Warrant, at any time commencing ________________, 1997 [the first anniversary of
the date of the Prospectus] (or earlier with the consent of Rickel), provided
that the average closing bid quotation of the
A-2
<PAGE> 37
Common Stock as reported on The Nasdaq Stock Market, if traded thereon, or is
not traded thereon, the average closing sale price if listed on national
exchange (or other reporting system that provides last sale prices), shall have
for a period of 20 consecutive days on which such market is open for trading
ending on the third day prior to the date on which the Company gives the Notice
of Redemption (as defined below) equaled or exceeded 150% of the then current
Exercise Price. Notice of redemption (the "Notice of Redemption") shall be given
by the Company no less than thirty days before the date fixed for redemption,
all as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no right with respect to this
Warrant except to receive the $0.10 per Warrant upon surrender of this
Certificate.
Under certain circumstances described in the Warrant Agreement, Rickel
shall be entitled to receive as a solicitation fee an aggregate of five percent
(5%) of the Exercise Price of the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of law principles thereof.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated _________ ___, 1996
SEAL INTEGRATED SURGICAL SYSTEMS, INC.
By: ____________________________________
President
By: ____________________________________
Secretary
COUNTERSIGNED:
[NAME OF WARRANT AND TRANSFER AGENT],
as Warrant Agent
By: __________________________________________________
Authorized Officer
A-3
<PAGE> 38
EXERCISE FORM
To Be Executed by the Registered Holder
in order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
_________ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
__________________________
__________________________
__________________________
(please print or type name and address)
and be delivered to
__________________________
__________________________
__________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. If the exercise of this Warrant was solicited by Rickel &
Associates, Inc., please check the following box. / /
2. The exercise of this warrant was solicited by
________________________________________________________________
A-4
<PAGE> 39
3. If the exercise of this Warrant was not solicited, please check
the following box. / /
Dated: X
---------------------------------- ----------------------------------
----------------------------------
----------------------------------
Address
----------------------------------
Social Security or Taxpayer
Identification Number
----------------------------------
Signature Guaranteed
A-5
<PAGE> 40
ASSIGNMENT
To be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ____________________________, hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
__________________________
__________________________
__________________________
(please print or type name and address)
_______________________ of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints ________________________________
as its/his/her attorney-in-fact to transfer this Warrant Certificate on the
books of the Company, with full power of substitution in the premises.
Dated: ______________________ x_______________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR OTHER
ENTITY WHICH IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM.
A-6
<PAGE> 1
EXHIBIT 4.5
Number D-1 INTEGRATED SURGICAL SYSTEMS, INC. _________ Shares
A Delaware Corporation Series D Preferred Stock
Common Stock __________ Shares Series D Preferred Stock _________ Shares
THIS CERTIFIES THAT _______________________________ is the record
holder of ______________________________________________________ shares of the
Series D Preferred Stock of INTEGRATED SURGICAL SYSTEMS, INC. transferable only
on the share register of the corporation, in person or by duly authorized
attorney, upon surrender of this certificate properly endorsed or assigned.
This certificate and the shares represented hereby are issued and shall
be held subject to all the provisions of the Restated Certificate of
Incorporation and the Bylaws of the corporation and any amendments thereto, to
all of which the holder of this certificate, by acceptance hereof, assents. The
shares represented by this certificate are subject to the legends affixed to the
back of this certificate.
The shares represented by this certificate are convertible into shares
of Common Stock at any time at the election of the holder thereof and shall be
automatically converted into shares of Common Stock upon the occurrence of
certain events as set forth in the Restated Certificate of Incorporation of the
corporation.
A statement of all of the rights, preferences, privileges and
restrictions granted to or imposed upon the respective classes and/or series of
shares of stock of the corporation and upon the holders thereof may be obtained
by any stockholder upon request and without charge, at the principal office of
the corporation, and the corporation will furnish any stockholder, upon request
and without charge, a copy of such statement.
WITNESS the Seal of the corporation and the signatures of its duly
authorized officers this 21st day of December, 1995.
_________________________________ _________________________________
Secretary President
<PAGE> 2
FOR VALUE RECEIVED _____________________ HEREBY SELL, ASSIGN, AND TRANSFER UNTO
_____________________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE
_______________________________ AND APPOINT __________, ATTORNEY TO TRANSFER THE
SAID SHARES OF STOCK ON THE STOCK REGISTER OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ________________, 19__
IN PRESENCE OF ______________________ _____________________
(Witness) (Shareholder)
_____________________
(Shareholder)
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF AN
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED AS OF NOVEMBER 13, 1992, AND
OF AN INVESTORS AGREEMENT DATED AS OF DECEMBER 21, 1995 EACH BY AND AMONG
INTERNATIONAL BUSINESS MACHINES CORPORATION, INTEGRATED SURGICAL SYSTEMS, INC.
(THE "COMPANY"), AND CERTAIN OF THE COMPANY'S STOCKHOLDERS AND MAY NOT BE SOLD
OR TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH. A COPY OF SUCH AGREEMENT IS ON
FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY, AND THE COMPANY WILL
FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS CERTIFICATE UPON WRITTEN
REQUEST AND WITHOUT CHARGE.
<PAGE> 1
EXHIBIT 4.6
RICKEL & ASSOCIATES, INC.
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
------------------------------------
CONSULTING AGREEMENT
-------------------------------------
________ __, 1996
Integrated Surgical Systems, Inc.
829 West Stadium Lane
Sacramento, California 95834
Attn: Dr. Ramesh C. Trivedi
President and Chief Executive Officer
Gentlemen:
This is to confirm our agreement whereby Integrated Surgical Systems,
Inc. (the "Company") has requested Rickel & Associates, Inc. (the "Consultant")
to render services to it and the Consultant has agreed to render such services
on the terms and conditions set forth herein:
1. Agreement Regarding Services. (a) The Company shall retain the
Consultant as management and financial consultant to the Company for a fee equal
to $35,000 per year. The entire fee shall be payable at the closing of the
Company's initial public offering of securities.
(b) In the event that any acquisition of and/or merger with other
companies or joint ventures or other contracts or arrangements with any third
parties including, without limitation, the sale of the business, assets or stock
of the Company or any of its subsidiaries or affiliates or any significant
portion thereof or the purchase of the business, assets or stock of a third
party (collectively, a "Transaction"), occur which result from or are caused by,
and occur within eighteen (18) months of, introductions made by the Consultant
during the term of this Agreement, the Company shall pay the Consultant as
follows:
<TABLE>
<CAPTION>
Legal Consideration Fee
- ------------------- ---
<C> <C>
$-0- to $1,000,000 5% of Legal Consideration
$1,000,001 to $2,000,000 4% of Legal Consideration
</TABLE>
<PAGE> 2
<TABLE>
<C> <C>
$2,000,001 to $3,000,000 3% of Legal Consideration
$3,000,001 to $4,000,000 2% of Legal Consideration
Over $4,000,000 1% of Legal Consideration
</TABLE>
All introductions to the Company by the Consultant shall be made only
through one or more of the Company's executive officers. If the Company believes
that an introduction made to it by the Consultant is not subject to the terms of
this Agreement, then it shall, within ten (10) business days after such
introduction, give written notice thereof to the Consultant.
The phrase "Legal Consideration" for the purpose of this Agreement,
shall mean the total value of the securities (valued as determined in the
applicable agreement governing the terms of the Transaction or, if not so
valued, at market on the day of closing, or if there is no public market, valued
as set forth herein for other property), cash and assets and property or other
benefits exchanged by the Company or received by the Company or its shareholders
as consideration as a result of or arising out of the Transaction, irrespective
of the period of payment or terms (all valued at fair market present value as
agreed or, if not, by an independent appraiser).
(c) All fees payable under this Section 1 are due and payable to the
Consultant, in cash or by certified check, at the closing or closings of any
Transaction; provided, that if the Legal Consideration on any Transaction is
other than all cash, the payment to the Consultant shall be, at the option of
the Company, either the cash equivalent or such other consideration
proportionate with the types of Legal Consideration paid on such Transaction. No
fees shall be payable under this Section 1 or otherwise if, for any reason, the
Transaction is not consummated.
2. Term of Agreement. This agreement shall be for a term of one (1)
year from the date hereof.
3. Expenses. The Consultant shall bear all costs and expenses incurred
by the Consultant directly in connection with the introduction or attempted
introduction(s) made by the Consultant in connection with any acquisition,
merger or joint venture or other contracts or arrangements with any third
parties and otherwise in connection with the performance of its services
hereunder, unless otherwise agreed to by the Company.
4. Use of Name and Reports. Use of the Consultant's name in annual
reports or any other reports of the Company or press releases issued by the
Company shall require the prior written approval of Consultant.
5. Status as Independent Contractor. The Consultant shall perform its
services as an independent contractor and not as an employee of the Company or
affiliate thereof. It is expressly understood and agreed to by the parties that
the Consultant, and any individual
-2-
<PAGE> 3
or entity that the Consultant shall employ in order to perform its services
hereunder, shall have no authority to act for, represent or bind the Company or
any affiliate thereof in any manner, except as may be expressly agreed to by the
Company in writing from time to time.
6. Entire Agreement. This agreement constitutes the entire
understanding between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral or written, with
respect thereto. This agreement may not be modified or terminated orally or in
any manner other than by an agreement in writing signed by the parties hereto.
7. Notices. Any notices required or permitted to be given hereunder
shall be in writing and shall be deemed given when mailed by certified mail or
private courier service, return receipt requested, addressed to each party at
its respective address set forth above, or such other address as may be given by
either party in a notice given pursuant to this Section 7.
8. Successors and Assigns. This agreement may not be assigned by either
party without the written consent of the other. This agreement shall be binding
upon and shall inure to the benefit of the parties hereto and, except where
prohibited, to their successors and assigns.
9. Non-Exclusivity. Nothing herein shall be deemed to restrict or
prohibit the engagement by the Company of other consultants providing the same
or similar services or the payment by the Company of fees to such parties.
10. Applicable Law. This agreement shall be construed and enforced in
accordance with the laws of the state of New York applicable to agreements made
and to be performed entirely in New York.
If the foregoing correctly sets forth the understanding between the
Consultant and the Company with respect to the foregoing, please so indicate
your agreement by signing in the place provided below, at which time this
agreement shall become a binding contract.
RICKEL & ASSOCIATES, INC.
By:_______________________________
Name: Gregg Smith
Title: Managing Director
-3-
<PAGE> 4
AGREED AND ACCEPTED:
INTEGRATED SURGICAL SYSTEMS, INC.
By:__________________________________
Name: Ramesh C. Trivedi
Title: President and Chief Executive Officer
-4-
<PAGE> 1
EXHIBIT 4.13
INTEGRATED SURGICAL SYSTEMS, INC.
1995 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries 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 of an Option and subject to the applicable provisions of Section 422 of
the Code and the regulations promulgated thereunder. Stock Purchase Rights may
also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Integrated Surgical Systems, Inc., a Delaware
corporation.
(g) "Consultant" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not. If the Company registers any class of any
equity security pursuant to the Exchange Act, the term Consultant shall
thereafter not include Directors who are not compensated for their services or
are paid only a Director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or Consultant
shall not be considered interrupted in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor. A leave of
<PAGE> 2
absence approved by the Company shall include sick leave, military leave, or any
other personal leave approved by an authorized representative of the Company.
For purposes of Incentive Stock Options, no such leave may exceed 90 days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract, including Company policies. If reemployment upon expiration of a leave
of absence approved by the Company is not so guaranteed, on the 91st day of such
leave any Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
(i) "Director" means a member of the Board of Directors of the
Company.
(j) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "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 Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
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; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "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.
(p) "Option" means a stock option granted pursuant to the Plan.
-2-
<PAGE> 3
(q) "Optioned Stock" means the Common Stock subject to an Option or
a Stock Purchase Right.
(r) "Optionee" means an Employee or Consultant who receives an
Option or Stock Purchase Right.
(s) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(t) "Plan" means this 1995 Stock Plan.
(u) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(v) "Section 16(b)" means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
(w) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(x) "Stock Purchase Right" means a right to purchase Common Stock
pursuant to Section 11 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be subject to
option and sold under the Plan is 1,640,890 Shares. The Shares may be authorized
but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right 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). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, and the original purchaser of such Shares did
not receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
-3-
<PAGE> 4
4. Administration of the Plan.
(a) Initial Plan Procedure. Prior to the date, if any, upon which
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a Committee appointed by the Board.
(b) Plan Procedure After the Date, if any, upon Which the Company
becomes Subject to the Exchange Act.
(i) Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
Directors, Officers and Employees who are neither Directors nor Officers.
(ii) Administration With Respect to Directors and Officers.
With respect to grants of Options and Stock Purchase Rights to Employees who are
also Officers or Directors of the Company, the Plan shall be administered by (A)
the Board if the Board may administer the Plan in compliance with the rules
under Rule 16b-3 promulgated under the Exchange Act or any successor thereto
("Rule 16b-3") relating to the disinterested administration of employee benefit
plans under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted to comply with the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made. 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 thereof, remove members (with or without cause) and
appoint new members in substitution therefor, 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 under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made.
(iii) Administration With Respect to Other Employees and
Consultants. With respect to grants of Options and Stock Purchase Rights 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 in such a manner as to satisfy
the legal requirements relating to the administration of incentive stock option
plans, if any, of applicable corporate and securities laws, of the Code, and of
any applicable stock exchange (the "Applicable Laws"). 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 thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
-4-
<PAGE> 5
(c) Powers of the Administrator. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, 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(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of Shares to be covered by each
such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award
granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) 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 has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options or Stock Purchase
Rights.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if otherwise eligible, be granted additional Options
or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such
-5-
<PAGE> 6
designation, to the extent that the aggregate Fair Market Value of the Shares
with respect to which Incentive Stock Options are exercisable for the first time
by the Optionee during any calendar year (under all plans of the Company and any
Parent or Subsidiary) exceeds $100,000, such Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted. The
Fair Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuation of his or her
employment or consulting relationship with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than 75% of the
Shares reserved for issuance under the Plan.
(ii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12.
(iii) If an Option or Stock Purchase Right is cancelled in the
same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 12), the cancelled Option or
Stock Purchase Right shall be counted against the limit set forth in subsection
(i) above. For this purpose, if the exercise price of an Option or Stock
Purchase Right is reduced, such reduction will be treated as a cancellation of
the Option or Stock Purchase Right and the grant of a new Option or Stock
Purchase Right.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company, as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the 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 Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
-6-
<PAGE> 7
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of
such Option, 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.
(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
(A) granted to a person who, at the time of grant of such
Option, 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 the grant.
(B) granted to any other person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) 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 (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
a 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, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
-7-
<PAGE> 8
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan, but in no case at a rate of less than 20% per year over five (5)
years from the date the Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) hereof. Until
the issuance (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote, receive dividends or any other rights
as a stockholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment shall 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 12 hereof.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be 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) Termination of Employment or Consulting Relationship. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant (but not in the event of an Optionee's change of status from Employee
to Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, the Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration
-8-
<PAGE> 9
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. If such disability is not a "disability" as such term is defined in
Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such
Incentive Stock Option shall automatically cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option on the day three months and one day following such termination. To the
extent that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) 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 on 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 the unexercisable portion of the
Option shall immediately revert to the Plan. If, after the Optionee's 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.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. Options
and Stock Purchase Rights 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.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed thirty (30) days from the date
upon which the Administrator makes the determination to grant the Stock
-9-
<PAGE> 10
Purchase Right. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator. Shares purchased
pursuant to the grant of a Stock Purchase Right shall be referred to herein as
"Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than 20% per year
over five years from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a stockholder
and shall be a stockholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
-10-
<PAGE> 11
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not been previously exercised, the Option or Stock Purchase Right shall
terminate immediately prior to the consummation of such proposed action.
(c) Merger. In the event of a merger of the Company with or into
another corporation, each outstanding Option or Stock Purchase Right may be
assumed or an equivalent option or right may be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. If, in such
event, an Option or Stock Purchase Right is not assumed or substituted, the
Option or Stock Purchase Right shall terminate as of the date of the closing of
the merger. For the purposes of this paragraph, the Option or Stock Purchase
Right shall be considered assumed if, following the merger, the Option or Stock
Purchase Right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger, the consideration (whether stock, cash, or other securities or
property) received in the merger by holders of Common Stock for each Share held
on the effective date of the transaction (and if the holders are offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares). If such consideration received in the
merger is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger.
13. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain stockholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted, and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or
-11-
<PAGE> 12
terminated, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto 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, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right 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 or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
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.
17. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Administrator shall approve from time to
time.
18. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
19. Information to Optionees and Purchasers. The Company shall provide
to each Optionee and to each individual who acquires Shares pursuant to the
Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and, in
the case of an individual who acquires Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial statements.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
-12-
<PAGE> 1
EXHIBIT 4.14
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THAT ACT. THIS WARRANT IS
SUBJECT TO THE PROVISIONS OF A SERIES D PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT DATED AS OF DECEMBER 21, 1995, BETWEEN INTEGRATED SURGICAL SYSTEMS,
INC., INTERNATIONAL BUSINESS MACHINES CORPORATION AND CERTAIN OF THE
STOCKHOLDERS OF THE COMPANY, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY.
WARRANT
FOR THE PURCHASE OF SERIES D PREFERRED STOCK
PAR VALUE $0.01 PER SHARE
OF
INTEGRATED SURGICAL SYSTEMS, INC.
VOID AFTER DECEMBER 31, 2005
THIS CERTIFIES THAT, for $666,666.00 received by the Company,
INTERNATIONAL BUSINESS MACHINES CORPORATION ("IBM") or assigns (the "Holder") is
entitled to purchase from INTEGRATED SURGICAL SYSTEMS, INC., a Delaware
corporation (the "Company"), at the price of $0.01 per share (such price as from
time to time adjusted as hereinafter provided, the "Warrant Price"), and in
accordance with the terms and conditions set forth hereinafter and in the Series
D Preferred Stock and Warrant Purchase Agreement dated December 21, 1995,
between the Company, and the Investors listed therein (the "Series D
Agreement"), at any time on or before December 31, 2005, up to 1,025,640 shares
(subject to adjustment as hereinafter provided) of Series D Preferred Stock, par
value $0.01 per share, of Company, and to receive a certificate or certificates
for the shares of Series D Preferred Stock so purchased, upon presentation and
surrender of this Warrant, at the office of the Company, which is at 829 West
Stadium Lane, Sacramento, California 95834 as of the date hereof, together with
the Warrant Price of the shares so purchased.
<PAGE> 2
1. Reservation of Shares. The Company shall reserve and keep available
out of its authorized but unissued Series D Preferred Stock for issuance upon
the exercise of this Warrant, free from preemptive rights, such number of shares
of Series D Preferred Stock for which this Warrant shall from time to time be
exercisable. All shares which may be issued upon the exercise of this Warrant
will, upon issuance, be fully paid and nonassessable and be free from all taxes,
liens and charges in respect of the issuance thereof. The Company further
covenants and agrees that if any shares of Series D Preferred Stock to be
reserved for the purpose of the issuance of shares upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any Federal or State law before such shares may be validly issued or
delivered upon exercise of this Warrant, then the Company will in good faith and
as expeditiously as possible endeavor to secure such registration or approval,
as the case may be, and the right to exercise this Warrant shall be extended
until 10 Business Days (as defined below) after the completion of any such
registration or approval. "Business Day" shall mean any day (other than a day
which is a Saturday, Sunday or legal holiday in the State of New York or
California) on which banks are open for business in New York, New York, and San
Francisco, California.
2. Term. The purchase rights represented by this Warrant are
exercisable at the option of the Holder in whole at any time, or in part from
time to time (but not as to a fractional share of Series D Preferred Stock), on
or before December 31, 2005. In case of the purchase upon exercise of this
Warrant of a number of shares of Series D Preferred Stock less than the total
number of shares of Series D Preferred Stock then issuable upon exercise of this
Warrant, the Company shall cancel this Warrant upon surrender hereof and shall
execute and deliver a new Warrant of like tenor and date for the balance of the
shares issuable upon the exercise hereof (except any remaining fractional
share).
3. Conversion Price Adjustments. The rate at which the Series D
Preferred Stock is convertible into shares of Common Stock of the Company
(initially one-for-one) is subject to adjustment as set forth in Article 4,
Section 5 of the Company's Restated Certificate of Incorporation. Any adjustment
to the conversion rate of the Series D Preferred Stock of the Company effected
prior to any exercise or conversion of this Warrant shall apply to any shares of
Series D Preferred Stock thereafter issued pursuant to the terms hereof.
4. Merger, Consolidation or Sale of Assets. If any consolidation or
merger of the Company with another corporation, or any statutory exchange of
securities with another person, or the sale of all or substantially all of its
assets to another corporation, shall be effected, then, as a condition of such
consolidation, merger, exchange or sale, lawful and adequate provision shall be
made whereby the Holder shall thereafter have the right to purchase and receive,
upon the basis and upon the terms and conditions specified in this Warrant and
in lieu of the shares of the Series D Preferred Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding shares of
such Series D Preferred Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such consolidation, merger, exchange or sale not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the Holder to the end that the provisions
hereof (including without limitation
-2-
<PAGE> 3
provisions for adjustment for the Warrant Price and of the number of shares
purchasable upon the exercise of this Warrant) shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall not effect
any such consolidation, merger, exchange or sale, unless prior to or
simultaneously with the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation, merger or exchange or the
corporation purchasing such assets shall assume by written instrument executed
and delivered to the Holder at the address of the holder appearing in the books
of the Company, the obligation to deliver to the Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the Holder
may be entitled to purchase.
5. Notice of Certain Events. In case at any time:
(a) the Company shall declare or pay any dividend or make any
distribution to the holders of its Series D Preferred Stock;
(b) the Company shall offer for subscription pro rata to the holders of
its Series D Preferred Stock any additional shares of stock of any
class or other rights;
(c) there shall be any capital reorganization or reclassification of
the capital stock of the Company or consolidation or merger of the
Company with, or any statutory exchange of the Company's securities
with the securities of, or sale of all or substantially all of its
assets to, another corporation; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, addressed to the Holder at the address of
the Holder as shown on the books of the Company, of the date on which (i) the
books of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights, or (ii) such reorganization,
reclassification, consolidation, merger, exchange, sale, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Series D Preferred Stock
of record shall participate in said dividend, distribution or subscription
rights, or shall be entitled to exchange their Series D Preferred Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, exchange, sale, dissolution,
liquidation or winding up, as the case may be. Such written notice shall be
given not less than 20 days prior to the record date or the date on which the
transfer books of the Company are closed in respect thereto in the case of an
action specified in clause (i) and at least 20 days prior to the action in
question in the case of an action specified in clause (ii).
6. No Impairment. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company but will at
-3-
<PAGE> 4
all times in good faith assist in the carrying out of all the provisions of
Sections 3 through 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder.
7. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company whatsoever, except
the rights expressed herein or in the Series D Agreement, and no dividend or
interest shall be payable or accrue in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until and unless, and
except to the extent that, this Warrant shall be exercised.
8. Warrant Unregistered. Neither this Warrant nor any of the shares to
be issued upon the exercise hereof have been registered under the Securities Act
of 1933, and nothing herein contained shall be deemed to require the Company so
to register this Warrant. This Warrant is issued subject to the conditions, and
the Holder agrees with the Company,
(a) that this Warrant has been acquired for the purpose of investment
and not with a view to or for sale in connection with any distribution
thereof, subject to the disposition of the Holder's property being at
all times within its control; and
(b) that the Company has the right to demand and receive from the
Holder, prior to the purchase of any shares pursuant hereto, assurances
satisfactory to it that such shares are being purchased for the purpose
of investment and not with a view to or for sale in connection with any
distribution thereof, subject to the disposition of the Holder's
property being at all times within its control.
9. Exchangeability. This Warrant is exchangeable, upon the surrender
hereof by the Holder at said office of the Company, for new Warrants of like
tenor and date representing in the aggregate the right to purchase the number of
shares of Series D Preferred Stock which may be purchased hereunder, each of
such new Warrants to represent the right to purchase such number of shares as
shall be designated by the Holder at the time of such surrender.
10. Transferability. This Warrant shall be transferable in whole or in
part to one or more transferees.
11. Payment of Purchase Price. The Warrant Price for the shares of
Series D Preferred Stock issuable upon the exercise hereof shall be paid be
certified check.
12. Stock Certificates. The issuance of stock certificates upon the
exercise of this Warrant shall be made without charge to the Holder for any tax
(other than taxes attributable to any difference between the fair market value
and the exercise price of this Warrant on the date of the exercise of this
Warrant) in respect of the issue thereof. The Holder shall for all purposes be
deemed to have become the holder of record of the shares issued upon the
exercise of this Warrant on the date on which the Warrant was surrendered and
payment of the Warrant Price was made, irrespective of the date of delivery of
the certificate for such shares, except that, if the date of such surrender and
-4-
<PAGE> 5
payment is a date when the stock transfer books of the Company are closed, the
Holder shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open
(provided that if such books shall remain closed for five days, the close of
business on such fifth day shall be the time the Holder shall be deemed to have
become the holder of such shares.)
13. Lost, Stolen, Mutilated or Destroyed Warrant. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, mutilation
or destruction of this Warrant and, in case of loss, theft or destruction, upon
the agreement of the Holder to indemnify the Company or, in the case of
mutilation, upon surrender and cancellation of this Warrant, the Company shall
issue a new Warrant of like denomination and tenor as the Warrant so lost,
stolen, mutilated or destroyed. Any such new Warrant shall constitute an
original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
14. Applicable Law. This Warrant shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflicts of law principles of such State.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its proper officers thereunto duly authorized and the Company's corporate
seal to be hereunto affixed this 29th day of February, 1996.
INTEGRATED SURGICAL SYSTEMS, INC.
by
____________________________________
Name:
Title:
-5-
<PAGE> 1
EXHIBIT 10.2
LICENSE AGREEMENT
BETWEEN
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND
INTEGRATED SURGICAL SYSTEMS, INC.
February 6, 1991
<PAGE> 2
THIS LICENSE AGREEMENT shall be deemed to have been entered into on the
sixth day of February, 1991, ("Effective Date"), by and between Integrated
Surgical Systems, Inc. ("ISS"), a company organized under the laws of Delaware,
with its principal offices at Sacramento, California, and International
Business Machines Corporation ("IBM"), a New York corporation with its
principal offices at Armonk, New York.
WHEREAS, ISS desires to obtain from IBM certain nonexclusive rights and
licenses necessary to develop and market a robotic surgery software application;
NOW THEREFORE, in consideration of these premises and of the mutual
representations, warranties and covenants set forth herein, IBM and ISS hereby
agree as follows:
Article I
1. Definitions
1.1 "Active Robot Orthopedic Robotic Surgery" shall mean Active Robot
Robotic Surgery in which the Manipulator moves while it performs the drilling,
milling or cutting of bone to (i) correct or prevent skeletal deformities or
fractures, or (ii) implant a prothesis, or (iii) correct or prevent other joint
diseases.
1.2 "AML/X" shall mean a general purpose high level programming
language designed for use in manufacturing and computer aided design
applications, as presented by employees of IBM in the Proceedings of the Fall
Joint Computer Conference, November 2-6, 1986, held in Dallas, Texas.
1.3 "AML/2" shall mean an abbreviation for "A Manufacturing
Language/2," which is an IBM version of AML/X extended with specialized
functions for motion control.
1.4 "IBM AML Software" shall mean any IBM Product Offering which
contains the AML/X Interpreter, but which may or may not contain other elements
of the IBM AML/2 Software, such as features specially designed for the support
and control of Robot Systems.
1.5 "AML/2 Software" shall mean two IBM Product Offerings based upon
AML/2 which are Generally Available on the Effective Date of this Agreement,
and Maintenance Modifications and enhancements thereto, if any, which are
developed by IBM's Manufacturing Systems Products organization in Boca Raton,
Florida and which are made Generally Available by IBM to its Manufacturing
Systems Integrator distribution channel. The AML/2 Software provides the
following functions for controlling IBM Robot Systems:
(A) "AML/2 Manufacturing Control System" or "MCS" shall mean a single
Page 1 February 6, 1991
<PAGE> 3
licensed program consisting of six distinct and severable program elements
compiled to execute on the IBM Robot Controller and which are described below:
(1) The "AML/X Interpreter" shall mean a portion of AML/2 MCS
written in the "C" programming language which defines the language
characteristics and which interprets and executes applications written in AML/2.
(2) The "AML/2 Extensions" shall mean a portion of AML/2 MCS
written in the "C" programming language which provides the robotic specific
language interface to the AML/X Interpreter.
(3) The "Motion Control System" shall mean a portion of AML/2
MCS written in the "C" and "assembler" programming languages which controls
Manipulator motion and digital inputs and outputs, and further, which defines a
set of unique related extensions to the AML/X language.
(4) The "Runtime Environment" shall mean a portion of AML/2 MCS
written in the AML/2 programming language which defines the user and operator
interfaces to the IBM Robotic System.
(5) The "Direct Control Software" shall mean a portion of
AML/2 MCS consisting of microcode which is downloaded from the memory storage
of a host Robot Controller at power-on and which executes on an IBM Robot
Control Adapter card.
(6) The "Communication Device Drivers" shall mean a portion
of AML/2 MCS consisting of DOS Operating System device drivers which define
and support the programming interface to IBM asynchronous adapters used within
the IBM Robot Controller.
(B) "AML/2 Application Development Environment" and "AML/2 ADE"
shall mean a single licensed program consisting of a set of application
development tools which are useful in developing and debugging an application
program which executes under IBM's AML/2 Manufacturing Control System program.
1.6 "ISS AML/2 Software" shall mean a Deriviative Work of IBM's AML/2
Software developed by or for ISS in the exercise of the rights and licenses
granted at Article II ("Licenses").
1.7 "Contract Manager" shall mean an employee of each party designated
to act as the liaison between IBM and ISS and to receive all notices and
communications related to this Agreement which are sent between the parties.
Either party may, upon written notice to the other, select a successor or
designee for its Contract Manager.
1.8 "Derivative Work" shall mean a work which is based upon
preexisting Software or supporting Documentation, such as a revision,
modification, translation,
Page 2
<PAGE> 4
1.17 "Micro Computer" shall mean data processing machines utilizing
Intel Corporation's 80286, 80386SX, 80386 and 80486 microprocessors. The term
shall also include compatible follow-on data processing machines containing
enhanced versions of such Intel microprocessors.
1.18 "Object Code" shall mean Software in a machine executable format.
1.19 "Product Offering" shall mean Software products based on the
AML/2 Software or ISS AML/2 Software, including supporting Documentation, which
are made Generally Available by either party to its End Users and Distributors.
1.20 "Annual Royalty Amount" shall mean the sum of all Royalty Fees
accruing during a Royalty Annum.
1.21 "Robodoc Software" shall mean Software delivered to ISS under
Section 3.1 of the Robodoc/Orthodoc License Agreement between IBM and ISS
(executed) concurrently herewith) written in the "C", "assembler," and "AML/2"
programming languages and which directs a Manipulator to automatically cut a
cavity in a bone to precisely fit a selected prosthetic implant. In addition,
"Robodoc Software" shall mean Derivative Works made by or for ISS to the
foregoing Software.
1.22 "Robot Controller" shall mean a Micro Computer capable of
controlling the actions of a Manipulator.
1.23 "Robot Control Adapter" shall mean an electronic card designed
to operate within a Micro Computer and which functions to control a motion or
robot device through a Servo Power Module and which inputs position feedback
and which outputs drive signals.
1.24 "Robot System" shall mean a complete and useful combination of
the following Components:
(A) a Robot Controller,
(B) a Servo Power Module,
(C) a Manipulator,
(D) AML/2 Software, and
(E) Robodoc Software
1.25 "Royalty Fee" shall mean a sum payable to IBM on account of each
copy of the IBM AML/2 Manufacturing Control System, or a Derivative Work
thereof, which is shipped to ISS to End Users or Distributors. The methodology
for calculating Royalty Fees is set forth at Article IV "Royalty Fees"). Royalty
Fees shall be aggregated upon the expiration of each Royalty Annum and shall be
paid as Annual Royalty Amounts to IBM in U.S. dollars within thirty (30) days
from the end of each Royalty Annum.
February 6, 1991
Page 4
<PAGE> 5
1.26 "Royalty Annum" shall mean a twelve (12) month period, after
which: (1) all copies of the AML/2 Manufacturing Control System and Derivative
Works thereof which have been distributed to End Users and Distributors shall
be tabulated, (2) the appropriate Royalty Fees shall be computed, and (3), a
Annual Royalty Amount shall be payable to IBM. The Royalty Annum shall begin on
the first day of January of each year and shall end on the last day of December.
1.27 "Servo Power Module" shall mean an electronic device required for
the operation of a Robot System which interfaces a Robot Controller to a
Manipulator.
1.28 "Software" shall mean any instructions and associated data capable
of being executed, compiled or interpreted by a data processing machine,
whether or not such instructions and associated data are in Object Code or
Source Code form.
1.29 "Source Code" shall mean a human readable format of Software that
cannot be executed by a data processing machine but from which Object Code (i)
can be produced by compilation, and/or assembly, or (ii) can be invoked by
interpretation.
1.30 "Subsidiary" shall mean a corporation, company or other entity,
which meets either of the following criteria:
(A) More than fifty percent (50%) of the outstanding shares or
securities of such corporation, company or other entity (representing the right
to vote for the election of directors or other managing authority) are, now or
hereafter, owned or controlled, directly or indirectly, by a party hereto, but
such corporation, company or other entity shall be deemed to be a Subsidiary
only so long as such ownership or control exists; or,
(B) Such corporation, company or other entity does not have
outstanding shares or securities, as may be the case in a partnership, joint
venture or unincorporated association, but more than fifty percent (50%) of the
ownership interest representing the right to make the decisions for such
corporation, company or other entity is now or hereafter, owned or controlled,
directly or indirectly, by a party hereto, but such corporation, company or
other entity shall be deemed to be a Subsidiary only so long as such ownership
or control exists.
1.31 "Orthopedic Robotic Surgery" shall mean: (A) Active Robot
Orthopedic Robotic Surgery, or (B) Active Robot Robotic Surgery involving the
drilling, milling, or cutting of bone to (i) correct or prevent skeletal
deformities or fractures, or (ii) implant a prosthesis, or (iii) correct or
prevent other joint diseases where the automatically movable electromechanical
Manipulator may not itself be performing the drilling, milling, or cutting of
bone.
1.32 "Active Robot Robotic Surgery" shall mean surgery in which an
automatically movable electromechanical Manipulator performs at least one step
in a surgical procedure.
Page 5 February 6, 1991
<PAGE> 6
1.33 "Medical Field" shall mean the research, diagnosis or treatment of
diseases and other bodily maladies.
Article II
2. Licenses
2.1 Upon the Effective Date of this Agreement, IBM hereby grants to ISS
a nonexclusive, worldwide, royalty-free license under IBM copyrights to use,
execute, reproduce, display, and prepare (or have prepared as a work for hire
for ISS) Derivative Works based upon, copies of the AML/2 Manufacturing Control
System and AML/2 Application Development Environment for internal development
purposes only; provided however that any Derivative Works made by or for ISS to
the foregoing Software shall be exclusively adapted to execute on a Micro
Computer under the DOS Operating System; and further provided that such
Derivative Works shall be primarily designed for the control of Manipulators
used with the Robodoc Software in Orthopedic Robotic Surgery for purposes
permitted in Section 2.2, as modified by Section 2.12.
2.2 Subject to the provisions of Article IV ("Royalty Fees"), IBM
hereby grants to ISS a non-exclusive, worldwide license under IBM copyrights to
use, execute, reproduce, display, prepare (or have prepared as a work for hire
for ISS) Derivative Works based upon, and distribute to End Users and
Distributors in its own name, copies of the AML/2 Manufacturing Control System,
and Derivative Works made by or for ISS to the foregoing; provided however,
that: (A) such copies shall be only written and compiled to execute on a Micro
Computer under the DOS Operating System, and (B) such copies shall be licensed
solely for the control of Manipulators used with Robodoc Software, and (C) such
copies shall not be licensed to perform tasks other than Orthopedic Robotic
Surgery, and (D) any such copies distributed by or for ISS shall be in Object
Code form only, except for the Runtime Environment, which may be distributed in
Source Code form.
2.3 Notwithstanding the copyright licenses granted to ISS at Sections
2.1, 2.2, and 2.4, ISS shall have no right under this Agreement to make
Derivative Works of the AML/X Interpreter, the Direct Control Software, the
Communication Device Drivers or the AML/2 Application Development Environment,
nor shall ISS receive Source Code for such portions of the AML Software, until
the occurrence of the events described at Section 3.5 of Article III ("Source
Code"); upon ISS' receipt of such Source Code, ISS shall be licensed to create
Derivative Works of such Software under the terms of Section 2.1 or 2.2, as
applicable.
2.4 IBM hereby grants to ISS a non-exclusive, worldwide, fully paid-up
license under IBM copyrights to use, execute, reproduce, display, prepare (or
have prepared as a work for hire for ISS) Derivative Works based upon, and sell
or otherwise transfer copies of, distribute in its own name and have
distributed in ISS' own name, the IBM
Page 6 February 6, 1991
<PAGE> 7
Documentation; provided however, such IBM Documentation shall be solely used in
support of activity undertaken by ISS under this Agreement; and further
provided, that ISS shall remove all references to IBM contained in such
material, except for a copyright notice, which shall be made in accordance with
Section 2.7, and except for general references to other IBM products and
services.
2.5 Nothing in this Agreement shall in any way limit or restrict IBM's
ability to develop and market versions of the IBM AML Software, including
versions that are similar to, or competitive with, the AML/2 Software developed
by ISS in the exercise of its rights under this Article II.
2.6 "Invention" shall mean any idea, design, concept, technique,
invention, discovery or improvement, whether or not patentable, conceived or
first actually reduced to practice by ISS, alone or jointly with IBM or another
party, prior to the expiration of five (5) years from the Effective Date of
this Agreement. An Invention made jointly by ISS and IBM is referred to as a
"Joint Invention."
(A) Each patent for an Invention other than a Joint Invention,
shall be the property of ISS subject to a license described in Paragraph (E)
below, which ISS hereby grants to IBM under any such patent protection obtained
therefor. ISS shall promptly make a complete written disclosure to IBM of each
invention it brings to the attention of its patent attorney for patent
consideration specifically pointing out the features or concepts which it
believes to be new or different.
(B) ISS shall notify IBM promptly as to each country in which
it elects to seek protection by obtaining patent rights, at its expense, and
shall promptly provide IBM with a copy of each application so filed. Upon
written request, ISS will advise IBM of the status of any such application.
(C) Title to all patents issued on Joint Inventions shall be
joint, all expenses incurred in obtaining and maintaining such patents, except
as provided hereinafter, shall be equally shared and each party shall have the
unrestricted right to license third parties thereunder without accounting. In
the event that one party elects not to seek or maintain patent protection for
any Joint Invention, in any particular country or not to share equally in the
expenses thereof with the other party, the other party shall have the right to
seek or maintain such protection at its expense in such country and maintenance
thereof even though title to any patent issuing therefrom shall be joint.
(D) Each party shall give the other party all reasonable
assistance in obtaining patent protection on a Joint Invention and in preparing
and prosecuting any patent application on a Joint Invention filed by the other
party, and shall cause to be executed assignments and all other instruments and
documents as the other party may consider necessary or appropriate to carry out
the intent of this Section 2.6.
(E) All licenses granted to IBM under this Section 2.6 shall
be worldwide, non-exclusive, non-transferable, and fully paid-up, and shall
include the right to make,
Page 7 February 6, 1991
<PAGE> 8
have made, use, have used, lease, sell or otherwise transfer any apparatus, and
to practice and have practiced any method. All such licenses shall include the
right of IBM to grant sublicenses to its Subsidiaries, such sublicenses to
include the right of the sublicensed Subsidiaries to correspondingly sublicense
other Subsidiaries. However, each such sublicense shall terminate automatically
in the event the sublicensee ceases to be a Subsidiary of IBM.
(F) Other than provided in this Section 2.6, nothing contained
in this Agreement shall be deemed to grant either directly or by implication,
estoppel, or otherwise, any license under any patents or patent applications
arising out of any other inventions of either party.
2.7 ISS agrees that any copies it makes of IBM copyrighted materials
which are licensed to ISS under this Article II, including the AML/2 Software
and IBM Documentation, shall contain an appropriate copyright notice in the form
specified below:
(c) Copyright 19___ International Business Machines Corporation
ISS shall review the form and placement of such notice with IBM prior to ISS'
publication of such licensed materials. At the request and direction of IBM,
ISS shall modify such notice in order to protect IBM's underlying copyright
interest in the licensed materials.
2.8 ISS hereby grants to IBM a nonexclusive, worldwide, paid-up
license under ISS copyrights to use, execute, reproduce, display, prepare or
have prepared Derivative Works based upon, license and have licensed,
distribute in its own name and have distributed, copies of Derivative Works of
the AML/2 Manufacturing Control System and the AML/2 Application Development
Environment, and Documentation related thereto, made by or for ISS Derivative
Works in Product Offerings which are designed and marketed specifically for
the Medical Field. Any ISS Derivative Works of these programs created after
the fifth anniversary of the Effective Date will not be subject to this
license to IBM.
2.9 The licenses granted to each party at Sections 2.1, 2.2, 2.4 and
2.8 ("Copyright Licenses") shall commence upon the Effective Date of this
Agreement and shall terminate upon the expiration of the underlying copyright
interest in such works; provided however, if a party terminates this Agreement
pursuant to the terms of Sections 6.8 or Section 6.9, the Copyright Licenses
granted to the other party shall also terminate. Notwithstanding the foregoing,
copies of any AML/2 Product Offering which have been shipped to End Users or
Distributor prior to the effective date of such a termination, and for which
the applicable Royalty Fees, if any, have been paid to the other party, shall
survive such termination.
2.10 ISS agrees to distribute copies of the AML/2 Manufacturing Control
System, and Derivative Works thereof, pursuant to a license agreement having
terms at least
February 6, 1991
Page 8
<PAGE> 9
commensurate with the terms of the Section entitled "License" of the IBM Program
License Agreement (a copy of which is set forth at Attachment B). In addition,
such ISS license agreement shall contain other terms sufficient to meet ISS'
obligations under this Agreement, including but not limited to, the terms of
Section 2.2, Section 3.5 and Section 6.11 hereof. ISS agrees to submit such
license agreement to IBM for its review and approval prior to ISS delivering
the ISS AML/2 Software to its customers.
2.11 Nothing contained in this Agreement shall be deemed to grant,
either directly or by implication, estoppel or otherwise, any license under any
trademarks or trade names of either party.
2.12 Provision (C) of Section 2.2 shall expire two (2) years from the
Effective Date of this Agreement. All other provisions of Section 2.2 shall
remain in full force and effect. Prior to such expiration, ISS may propose to
develop Derivative Works of the AML/2 Manufacturing Control System and
Documentation for uses other than Orthopedic Robotic Surgery. IBM may accept or
reject such proposal solely at IBM's discretion, and IBM's decision shall be
final during this time period. When provision (C) of Section 2.2 expires, the
license granted ISS in Section 2.2 will expand from the field of Orthopedic
Robotics Surgery to the entire Medical Field.
Article III
3. Source Code
3.1 IBM shall convey to ISS a copy of the Source Code for the Runtime
Environment, the AML/2 Extensions and the Motion Control System, such conveyance
to be made upon the later of: (A) the Effective Date of this Agreement, or (B)
such date as ISS provides written notice to IBM of its desire to receive such
materials; IBM shall not furnish ISS with Source Code for the AML/X Interpreter,
the Direct Control Software, the Communication Device Drivers or the Application
Development Environment, except in accordance with the terms of Section 3.5
below.
3.2 ISS agrees to deliver to IBM copies of Source Code, Object Code,
and Documentation for ISS Derivative Works of AML/2 Manufacturing Control System
within thirty (30) days of its receipt of a written request from IBM. IBM will
treat the Source Code of ISS Derivative Works of AML/2 Manufacturing Control
System as the confidential information of ISS pursuant to the terms of Article
V ("Confidential Information").
3.3 All Software and Documentation, including Source Code materials,
which are provided by each party to the other under this Agreement shall be
furnished "AS-IS," without warranty of any kind.
February 6, 1991
Page 9
<PAGE> 10
Royalty Period Royalty Period Royalty Amount
Beginning Ending Due
January 1 December 31 February 1
4.3 Maintenance Modifications made to the AML/2 Manufacturing Control
System may be offered by ISS to existing End Users of the ISS AML/2 Software at
no additional charge or royalty obligation to IBM.
4.4 Royalty Fees shall accrue as copies of the AML/2 Manufacturing
Control System, or copies of Derivative Works made thereto, are shipped by ISS
to End Users or Distributors.
4.5 No Royalty Fees shall be owed to IBM on account of the use of the
IBM AML/2 Software, and Derivative Works thereof, for demonstration purposes,
where the Software is used for a short duration and is not put into productive
use.
4.6 No Royalty Fees shall be owed to IBM for ISS' use of the IBM
Documentation.
4.7 ISS shall keep retain accurate records of its shipments of the ISS
AML/2 Software for audit purposes for the current year and for the immediately
preceding two years. One time each calendar year, and upon the written request
of IBM, ISS shall provide access to such accounting records and to other records
reasonably related to ISS' obligations under this Agreement to an independent
accounting organization selected and compensated by IBM. Such audit shall be
conducted during normal business hours.
Article V
5. Information
5.1 IBM and ISS agree that Source Code exchanged by the parties under
the terms of this Agreement, shall be considered as the "confidential
information" of the party owning such Source Code, except for Source Code
modules which are part of the Runtime Environment and which are made Generally
Available by IBM to its End Users. In addition, the contents of all drafts of
this Agreement, including the final, executed copy, shall be considered as the
confidential information of IBM. All other information exchanged between the
parties shall be considered "nonconfidential."
5.2 The receiving party agrees to use the same care and discretion to
avoid disclosure, publication, or dissemination of the confidential information
of the disclosing party, outside of those of its or its Subsidiaries' employees
who have a need to know for purposes of this Agreement, as the receiving party
employs with similar information of its own which it does not desire to publish,
disclose, or disseminate.
Page 11 February 6, 1991
<PAGE> 11
of employees within the receiving party and its Subsidiaries.
5.6 Disclosure of confidential information received by a party pursuant
to this Agreement shall not breach the obligations set forth in this Article V,
provided that such disclosure: (A) is made in response to a valid order of a
court or other governmental body of the United States or any political
subdivision thereof, or (B) is otherwise required by law, or (C) is necessary
to establish such party's rights under this Agreement; provided however, that
such party shall first have given notice to the party owning such confidential
information and provided that party an opportunity to review the information to
be disclosed; and provided further, that the party disclosing confidential
information under this Section 5.6 shall exercise its reasonable best efforts
to obtain a protective order which shall, to the maximum extent possible under
the circumstances, limit the number of recipients, scope and use of
confidential information subject to such a disclosure.
5.7 Notwithstanding any other provisions of this Agreement, the
obligations specified in Section 5.2 shall not apply to any confidential
information that is released for public disclosure, without obligation of
confidentiality, by the party owning such confidential information.
5.8 Confidential information received by a party under this Agreement
may be disclosed to third parties for purposes related to this Agreement;
provided however, that the party owning such confidential information shall
have given its prior written consent to such disclosure, which consent shall
not be unreasonably withheld; and further provided, that such third party shall
have agreed in writing to hold and secure such confidential information under
terms at least commensurate with the provisions of this Article V, including
the right of IBM to directly enforce the terms of such Agreement. If ISS needs
to disclose IBM Source Code to any third party, including an ISS customer in an
escrow transaction solely for maintenance purposes, IBM shall have the right to
require in such disclosure agreement additional terms protecting IBM and IBM's
property rights in such ISS disclosure agreement prior to IBM giving its
written consent to the disclosure, which provisions shall include an IBM right
to directly enforce such agreement.
Article VI
6. General Provisions
6.1 Each party shall cooperate with the other party as is reasonably
necessary to comply with all applicable United States, state and local laws,
regulations and ordinances, including, but not limited to, the regulations of
the United States Department of Commerce relating to the export from the United
States of technical data. Both parties agree that they shall comply with all
applicable U.S. regulations relating to export of IBM technical data from the
United States.
6.2 Neither party shall, directly or indirectly, sell, transfer, or
assign, in whole or
Page 13 February 6, 1991
<PAGE> 12
in part, this Agreement without the express prior written consent of the other
party. Any such assignment, sale or transfer shall be void.
6.3 Neither this Agreement nor any activities hereunder will impair
any right of either party to market directly or indirectly products or services
similar to or competitive with those offered by the other party.
6.4 All notices, requests, consents and other communications under
this Agreement shall be in writing. All such written notices shall be mailed by
registered or certified mail, postage paid, to the Contract Managers at their
respective addresses as set forth below, subject to the right of either party to
change its address by written notice. All Source Code to be delivered under
this Agreement shall be delivered to the Contract Managers at their respective
addresses as set forth below.
For ISS:
Integrated Surgical Systems, Inc.
829 West Stadium Lane
Sacramento, California 95834
Attention: President
For IBM:
Mr. David Klein
IBM Corporation
P.O. Box 1328
Boca Raton, Florida 33132
cc: Office of Site Counsel
IBM Corporation
P.O. Box 1328
Boca Raton, Florida 33132
6.5 This Agreement embodies the entire Agreement and understanding
between the parties, and supersedes all prior agreements, written and oral,
related to the subject matter hereof. No amendment or modification hereof will
be valid or binding upon the parties, unless made in writing and signed by
duly authorized representatives of both parties.
6.6 No forbearance on the part of ISS or IBM in enforcing their rights
under any term of this Agreement, nor any renewal, extension or rearrangement
of any payment or obligation by either party hereunder, shall constitute a
waiver of any other term of this Agreement or a forfeiture of any other right.
6.7 This Agreement shall be governed in all respects by the laws of
the State of New York as they apply to contacts executed and fully performed
in New York.
Page 14 February 6, 1991
<PAGE> 13
6.8 At any time during the term of this Agreement, if either party
shall believe that the other party has substantially breached any material
representation, warranty, covenant or obligation contained herein, such party
shall promptly so inform the other party in writing, specifying the nature of
such breach, and such other party shall have a reasonable opportunity to
correct the breach. However, the failure of a party to provide such notice of
breach shall not release the party in default of its obligations hereunder. In
the event that such breach is not corrected within a reasonable period of time,
not to exceed forty-five (45) days, the party not in default may, at its sole
election, terminate this Agreement.
6.9 Notwithstanding any other provision of this Article, this
Agreement may be immediately terminated if either party is unable to meet its
obligations under this Agreement, at the sole election of the party not in
breach, if the other party's failure to perform arises out of any of the
following circumstances:
(A) a receiver is appointed for either party or its property;
(B) if either party becomes insolvent or unable to pay its debts as
they mature, or ceases to pay its debts as they mature in the ordinary course
of business, or makes an assignment for the benefit of its creditors;
(C) any proceedings are commenced by or for either party under any
bankruptcy, insolvency or debtor's relief law;
(D) any proceedings are commenced against either party under any
bankruptcy, insolvency or debtor's relief law and such proceedings shall not be
vacated or be set aside within sixty (60) days after the date of commencement
thereof;
(E) either party is liquidated or dissolved;
(F) if either party engages in a pattern of using the other party's
name commercially such that the other party's reputation is objectively
injured, or the reputation of the other party's product offerings are
objectively injured.
6.10 The furnishing of information, programs, or other material under
this Agreement shall not constitute a representation, warranty, assurance,
guarantee, or other inducement by either party that the use of such
information, programs, or other material is free from infringement of any
patent or copyright.
6.11 ISS agrees to indemnify IBM and its directors, officers, employees
and agents (each such person being called an "Indemnitee") against, and to hold
each Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related expenses, including reasonable counsel fees and expenses, incurred
by or asserted against any Indemnitee arising out of, in any way connected
with, or as a result of (i) the execution or delivery of this Agreement or any
agreement or instrument contemplated hereby, the
February 6, 1991
Page 15
<PAGE> 14
performance by the parties hereto of their respective obligations hereunder or
the consummation of other transactions contemplated hereby, (ii) any act or
alleged failure to take appropriate action by any employee, consultant, or
agent of ISS in connection with, or any product liability claim arising out of,
the conduct of the business of ISS, (iii) the use of AML/2 Software, IBM
Documentation, or other materials licensed or furnished to ISS under this
Agreement, or (iv) any claim, litigation, investigation or proceeding relating
to any of the foregoing, whether or not any indemnitee is a party thereto;
provided that such indemnity shall not, as to any Indemnitee, be available to
the extent such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and non-appealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee. To the extent permitted by law, ISS shall enter into
agreements with each licensee of Robodoc Software, Orthodoc Software, Research
Modified Motion Control Software, or Derivative Works thereof sufficient to
limit ISS' and ISS' component supplies (including IBM) liability to the maximum
extent possible with that customer, and at least equivalent to protective
limitations that are customary practice within the medical industry. IBM shall
retain its own counsel and defend itself, subject to being reimbursed by ISS
for reasonable attorneys' fees and expenses pursuant to this Section 6.11. IBM
agrees to give ISS written notice of any claim, demand, action, suit,
proceeding or discovery of fact upon which IBM intends to base a claim for
indemnification under this Article. ISS shall have the right to participate
jointly with IBM in IBM's defense of any claims for indemnification. The
parties agree to cooperate in any defense or settlement and to give each other
full access to all information relevant thereto. Notwithstanding the foregoing,
nothing in this Section 6.11 shall create any ISS obligation to indemnify IBM
to the extent such obligation to indemnify would have resulted from a defect in
IBM's title to the AML Software.
6.12 In order to meet ISS' obligations set forth at Section 6.11 above
and elsewhere in this Agreement, beginning on the date on which ISS makes a
Product Offering Generally Available based on the AML/2 Software and
Documentation, and continuing for so long as the ISS AML/2 Software and related
Documentation are distributed to End Users by or for ISS, ISS agrees to
maintain a valid insurance policy with a financially sound and reputable
insurance company naming IBM as an additional named insured party in the amount
of five million dollars ($5,000,000). ISS agrees to obtain IBM's written
approval prior to adding other parties under such insurance policy.
6.13 ISS UNDERSTANDS AND AGREES THAT IBM MAKES NO REPRESENTATIONS,
EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT
NOT LIMITED TO ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, AND ASSUMES NO RESPONSIBILITIES WHATEVER WITH RESPECT TO
THE USE, SALE, OR OTHER DISPOSITION OF PRODUCTS INCORPORATING SOFTWARE LICENSED
UNDER THIS AGREEMENT.
6.14 Except as required by law, ISS shall not make any public
statements regarding the AML/2 licensing transaction contemplated herein,
other than an expressly agreed to by IBM in writing. In addition, ISS shall
consider all drafts and executed
February 6, 1991
Page 16
<PAGE> 15
copies of this Agreement, and the contents thereof, as the confidential
information of IBM and shall treat such materials in accordance with Article V
("Information").
IN WITNESS OF THE FOREGOING, the parties have caused their authorized officials
to sign in the spaces provided below:
Integrated Surgical International Business
Systems, Inc. Machines Corporation
X X
----------------------------------------- -----------------------------
By By
---------------------------------------- ----------------------------
Title Title
------------------------------------- -------------------------
Date Date
-------------------------------------- --------------------------
Page 17 February 6, 1991
<PAGE> 16
ATTACHMENT A
IBM Documentation
1. IBM 7575 and 7576 Manufacturing Systems Hardware Library Site Preparation,
Installation, and Specifications, Part number 70X8867.
2. IBM 7575 and 7576 Manufacturing Systems Hardware Library Operator's Guide,
Part number 70X8903
3. IBM 7575 and 7576 Manufacturing Systems Hardware Library Maintenance
Information, Part number 70X8904
4. IBM 7575 and 7576 Manufacturing Systems Software Library AML/2 Language
Reference, Part number 67X1369
5. IBM 7575 and 7576 Manufacturing Systems Software Library AML/2
Manufacturing Control System User's Guide, Part number 67X1370
6. IBM 7575 and 7576 Manufacturing Systems Software Library AML/2 Application
Development Environment User's Guide, Part number 67X1371
7. IBM 7575 and 7576 Manufacturing Systems Software Library AML/2 Application
Simulator User's Guide, Part number 67X1372
Page 18 February 6, 1991
<PAGE> 17
ISS payment of royalty fees to IBM, as described in the License Agreement
between IBM and ISS, shall be sent to the following address:
Application Solutions Balance Sheet Manager
c/o IBM Corp.
472 Wheelers Farm Rd.
Milford, Connecticut 06460
/s/ W. G. Burger 2/7/91
- -----------------------
<PAGE> 1
EXHIBIT 10.5
================================================================================
INTEGRATED SURGICAL SYSTEMS, INC.
SERIES D PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
December 21, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Recapitalization of the Company; Purchase and Sale of Stock and Warrants..................... 1
1.1 Authorization..................................................................... 1
1.2 Recapitalization of the Company................................................... 1
1.3 Sale of Series D Shares and Series D Warrants at the First Closing................ 2
1.4 Option and Call to Purchase Additional Series D Shares and Series D Warrants...... 2
2. Closing Date; Delivery; Rights Offering...................................................... 3
2.1 First Closing..................................................................... 3
2.2 Second Closing.................................................................... 3
2.3 Offer to Nonparticipating Stockholders............................................ 3
3. Representations and Warranties of the Company................................................ 4
3.1 Organization, Good Standing and Qualification..................................... 4
3.2 Capitalization.................................................................... 4
3.3 Subsidiaries...................................................................... 5
3.4 Authorization..................................................................... 5
3.5 Shares, Series D Warrants, Series D Warrant Shares and Conversion Stock........... 5
3.6 Governmental Consents............................................................. 6
3.7 Litigation........................................................................ 6
3.8 Proprietary Information Agreements................................................ 6
3.9 Patents and Trademarks............................................................ 6
3.10 Compliance with Other Instruments................................................. 7
3.11 Agreements; Action................................................................ 7
3.12 Disclosure........................................................................ 8
3.13 Registration Rights............................................................... 8
3.14 Corporate Documents............................................................... 8
3.15 Title to Property and Assets...................................................... 8
3.16 Employee Benefit Plans............................................................ 9
3.17 Tax Returns, Payments and Elections............................................... 9
3.18 Financial Statements.............................................................. 9
3.19 Changes........................................................................... 9
3.20 Environmental and Safety Laws..................................................... 9
3.21 Minute Books...................................................................... 10
3.22 Insurance......................................................................... 10
3.23 Effect of Transaction............................................................. 10
3.24 Finder's Fee...................................................................... 10
4. Representations and Warranties of the Investors.............................................. 10
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
4.1 Due Organization and Authorization................................ 10
4.2 Purchase Entirely for Own Account................................. 10
4.3 Disclosure of Information......................................... 11
4.4 Investment Experience............................................. 11
4.5 Restricted Securities............................................. 11
4.6 Further Limitations on Disposition................................ 11
4.7 Legends........................................................... 12
4.8 Finder's Fee...................................................... 12
5. Conditions of Investors' Obligations at First Closing........................ 12
5.1 Representations and Warranties.................................... 12
5.2 Performance....................................................... 12
5.3 Compliance Certificate............................................ 12
5.4 Proceedings and Documents......................................... 12
5.5 Cancellation of IBM Note and Interest; Amendment of Warrant....... 13
5.6 Cancellation of Accumulated Dividends............................. 13
5.7 Opinion of Company Counsel........................................ 13
5.8 Investors Agreement............................................... 13
5.9 Registration Rights Agreement..................................... 13
5.10 Restated Certificate of Incorporation............................. 13
5.11 Stock Certificates................................................ 13
5.12 Board of Directors................................................ 13
5.13 Ramesh Trivedi Involvement........................................ 13
6. Conditions of the Company's Obligations at First Closing..................... 13
6.1 Representations and Warranties.................................... 14
6.2 Cancellation of IBM Note and Interest............................. 14
6.3 Cancellation of Accumulated Dividends............................. 14
6.4 Payment of Purchase Price......................................... 14
6.5 Restated Certificate of Incorporation. .......................... 14
6.6 Investors Agreement............................................... 14
7. Condition of Investors' Obligations at Second Closing........................ 14
7.1 Representations and Warranties.................................... 14
7.2 Performance....................................................... 14
7.3 Compliance Certificate............................................ 14
7.4 No Alternative Investor........................................... 15
7.5 Option Plan....................................................... 15
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
8. Conditions of the Company's Obligations at Second Closing....... 15
8.1 Representations and Warranties....................... 15
8.2 Payment of Purchase Price............................ 15
9. Covenants of the Company........................................ 15
9.1 Delivery of Financial Statements..................... 15
9.2 Inspection........................................... 16
9.3 Restrictive Agreements Prohibited.................... 16
9.4 Proprietary Information Agreements................... 16
9.5 Transactions with Affiliates......................... 16
9.6 Purchase Rights...................................... 17
9.7 Termination of Covenants............................. 17
10. Termination and Amendment of Prior Agreements................... 18
11. Miscellaneous................................................... 18
11.1 Survival of Warranties............................... 18
11.2 Successors and Assigns............................... 18
11.3 Governing Law........................................ 18
11.4 Counterparts......................................... 19
11.5 Titles and Subtitles................................. 19
11.6 Notices.............................................. 19
11.7 Payment of Fees and Expenses......................... 19
11.8 Finder's Fee......................................... 19
11.9 Amendments and Waivers............................... 19
11.10 Severability......................................... 19
11.11 Aggregation of Stock................................. 20
11.12 Stock Splits......................................... 20
</TABLE>
-iii-
<PAGE> 5
TABLE OF CONTENTS
(continued)
EXHIBITS
A Schedule of Investors
B Restated Certificate of Incorporation
C Schedule of Exceptions
D Employment, Confidential Information and Invention Assignment
Agreement
E Opinion of Company Counsel
F Investors Agreement
G Registration Rights Agreement
H Form of Series D Warrant
I Warrant for Purchase of Common Stock (IBM 1995 Common Warrant)
J Warrant for Purchase of Common Stock, as amended (IBM 1991 Common
Warrant)
K Warrant Agreement to Purchase Common Stock (Sutter Health Warrant)
L Warrant Agreement to Purchase Common Stock (Sutter VP Warrant)
M Warrant Agreement to Purchase Common Stock (Keystone Warrant)
-iv-
<PAGE> 6
INTEGRATED SURGICAL SYSTEMS, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the
"Agreement") is made as of the 21st day of December 1995, by and between
Integrated Surgical Systems, Inc., a Delaware corporation located at 829 West
Stadium Lane, Sacramento, California 95834 (the "Company"), and the investors
listed on the signature pages hereof, each of which is herein referred to as an
"Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Recapitalization of the Company; Purchase and Sale of Stock and
Warrants.
1.1 Authorization. Before the First Closing (as defined below), the
Company shall adopt and file with the Secretary of State of Delaware the
Restated Certificate of Incorporation in the form attached hereto as Exhibit B.
The shares of Series D Preferred Stock sold to certain of the Investors pursuant
to this Agreement are hereinafter referred to as the "Shares." The Warrants to
Purchase Shares of Series D Preferred Stock, in the form attached hereto as
Exhibit H, sold to certain of the Investors pursuant to this Agreement are
hereinafter referred to as the "Series D Warrants." The shares of Series D
Preferred Stock issuable upon the conversion of the Series D Warrants are
hereinafter referred to as the "Series D Warrant Shares." The total amount of
Common Stock and other securities issuable upon conversion of the Shares and the
Series D Warrant Shares is hereinafter referred to as the "Conversion Stock."
The Shares, the Series D Warrants, the Series D Warrant Shares and the
Conversion Stock are hereinafter collectively referred to as the "Securities."
1.2 Recapitalization of the Company. Before and upon the First
Closing (as defined below), the Company will complete a recapitalization (the
"Recapitalization") consisting of the following:
(a) a reverse 1-for-5 stock split of all outstanding capital
stock of the Company and the conversion of all outstanding Series B and Series C
Preferred Stock into Common Stock, to be effected upon the filing of the
Restated Certificate of Incorporation in the form attached hereto as Exhibit B;
(b) the issuance, before the First Closing, to International
Business Machines Corporation ("IBM") of a warrant in the form attached hereto
as Exhibit I exercisable for 187,752 shares of Common Stock at $0.01 per share
(the "IBM 1995 Common Warrant"), in exchange for the cancellation of the
outstanding principal amount of and accrued interest on the Convertible
Subordinated Loan Note dated February 6, 1991, issued to IBM;
(c) the issuance, upon the First Closing, to IBM of the Warrant
for the Purchase of Common Stock dated February 6, 1991, as amended in the form
attached hereto as
<PAGE> 7
Exhibit J (the "IBM 1991 Common Warrant"), amended to extend its term to
December 31, 2000 and to adjust the number of shares of Common Stock subject
thereto;
(d) the issuance, upon the First Closing, to the holders of the
Company's Series B Preferred Stock and Series C Preferred Stock of an aggregate
of 60,054 shares of Common Stock in exchange for the cancellation of all
accumulated dividends on the Series B Preferred Stock and Series C Preferred
Stock;
(e) the issuance, upon the First Closing, to Sutter Health, a
California nonprofit public benefit corporation, ("Sutter Health") of a warrant
in the form attached hereto as Exhibit K exercisable for 578,353 shares of
Common Stock at $0.50 per share (the "Sutter Health Warrant");
(f) the issuance, upon the First Closing, to Sutter Health
Venture Partners I, L.P. ("Sutter VP") of a warrant in the form attached hereto
as Exhibit L exercisable for 17,605 shares of Common Stock at $0.50 per share
(the "Sutter VP Warrant"); and
(g) the issuance, upon the First Closing, to Keystone Financial
Corporation, a Pennsylvania Not-For-Profit Corporation ("Keystone") of a warrant
in the form attached hereto as Exhibit M exercisable for 64,065 shares of Common
Stock at $0.50 per share (the "Keystone Warrant").
1.3 Sale of Series D Shares and Series D Warrants at the First
Closing. Subject to the terms and conditions of this Agreement, each Investor
agrees, severally, to purchase at the First Closing (as defined below) and the
Company agrees to sell and issue to each Investor at the First Closing, that
number of shares of the Company's Series D Preferred Stock or that number of
Series D Warrants, as the case may be, set forth opposite each Investor's name
in the column entitled "First Closing" at the purchase prices set forth in
Exhibit A attached hereto.
1.4 Option and Call to Purchase Additional Series D Shares and
Series D Warrants. Subject to the terms and conditions hereof, at any time from
the First Closing Date through the Mandatory Option Exercise Date (as defined
below) each Investor will have the option to purchase from the Company no fewer
than the number of Series D Shares or Series D Warrants, as the case may be, set
forth opposite such Investor's name in the column entitled "Second Closing" at
the purchase prices set forth in Exhibit A attached hereto and the Company shall
have a call option on the terms set forth below (the "Series D Option"). An
Investor may exercise such option by delivering written notice (the "Exercise
Notice") to the Company, which notice shall specify the number of shares to be
purchased and the date and time at which such purchase and sale will occur (the
"Second Closing Date"), which Second Closing Date shall be the tenth day
following the date of the Exercise Notice. Unless the context otherwise
requires, the term "Closing" shall apply to each of the First Closing and the
Second Closing.
-2-
<PAGE> 8
Each Investor must exercise its Series D Option, if such Series D
Option has not yet been exercised, on or before February 19, 1996 (the
"Mandatory Option Exercise Date"), unless the Company shall have received prior
to February 19, 1996, from an investor or investors other than the Investors the
aggregate amount of $1,000,000 in exchange for the issuance by the Company to
such investor or investors of Series D Shares or Series D Warrants on terms at
least as advantageous to the Company as the terms set forth in this Agreement.
An Investor may assign its Series D Option only if (a) the Company has
consented to the assignment, (b) the assignee is an "Accredited Investor" as
defined in Regulation D under the Securities Act of 1933, as amended, and (c)
the assignee executes a counterpart of this Agreement, the Investors Agreement
and the Registration Rights Agreement.
2. Closing Date; Delivery; Rights Offering.
2.1 First Closing. The closing of the initial purchase and sale of
1,025,641 shares of the Shares and 2,051,282 of the Series D Warrants shall take
place at such time and place as the Company and the Investors pursuant hereto
mutually agree upon (which time and place are designated as the "First
Closing"). At the First Closing the Company shall deliver to each Investor
certificate(s) representing the Shares or warrants representing the Series D
Warrants which such Investor is purchasing against delivery to the Company by
such Investor of a check or wire transfer in the amount of the purchase price
therefor payable to the Company's order.
2.2 Second Closing. The closing of the purchase and sale of the
Shares and Series D Warrants pursuant to the Series D Option shall take place at
such place as the Company and the Investors pursuant hereto mutually agree upon,
at 10:00 A.M. on the Second Closing Date specified in the Exercise Notice for
each such exercise. At the Second Closing the Company shall deliver to each
Investor certificate(s) representing the Shares or warrants representing the
Series D Warrants which such Investor is purchasing pursuant to the Series D
Option against delivery to the Company by such Investor of a check or wire
transfer in the amount of the purchase price therefor payable to the Company's
order.
2.3 Offer to Nonparticipating Stockholders. Within 30 days after the
First Closing, the Company will offer to all stockholders of the Company that
did not purchase shares of Series D Preferred Stock or Series D Warrants
pursuant to this Agreement (the "Nonparticipating Stockholders") the opportunity
to purchase shares of Series D Preferred Stock (the "Rights Offering"). Up to an
aggregate of 1,115,000 shares of Series D Preferred Stock may be sold in
accordance with the Rights Offering. Each Nonparticipating Stockholder will have
45 days from receipt of notice of the Rights Offering to elect whether or not to
participate in the Rights Offering, and the sale of the shares of Series D
Preferred Stock to the Nonparticipating Investors pursuant to this paragraph 2.3
will be completed not later than 90 days after the First Closing. The maximum
number of shares of Series D Preferred Stock which any Nonparticipating
Stockholder may purchase in the Rights Offering shall be that number of shares
of Series D Preferred Stock which bears the same relation to 1,115,000 that the
number of Voting Securities (as defined in Section 9.6(c) below)
-3-
<PAGE> 9
held by such Nonparticipating Stockholder bears to the total number of Voting
Securities held by all Nonparticipating Stockholders. All such sales of Series D
Preferred Stock to Nonparticipating Investors shall be made on the terms and
conditions set forth in this Agreement. Any shares of Series D Preferred Stock
sold pursuant to this paragraph 2.3 shall be deemed to be "Series D Preferred
Stock" for all purposes under this Agreement and shall be deemed to be "Shares"
sold pursuant to this Agreement, and any purchasers thereof shall be deemed to
be "Investors" for all purposes under this Agreement. Should any such sales be
made, the Company shall prepare and distribute to the Investors a revised
Exhibit A to this Agreement reflecting such sales.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that, as of the date of this Agreement,
except as set forth on the Schedule of Exceptions attached hereto as Exhibit C,
which exceptions shall be deemed to be representations and warranties as if made
hereunder, as follows:
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on its business or
properties.
3.2 Capitalization. As of and immediately following the First
Closing, the authorized capital of the Company consists of:
(a) 5,750,000 shares of Preferred Stock, $0.01 par value (the
"Preferred Stock"), of which all 5,750,000 shares have been designated Series D
Preferred Stock. Immediately prior to the First Closing, no shares of Series D
Preferred Stock will be outstanding. Up to an aggregate of 5,730,383 shares and
warrants to purchase shares of Series D Preferred Stock will be sold pursuant to
this Agreement (as part of the First Closing, Second Closing and Rights
Offering). The rights, preferences, privileges and restrictions of the Shares
will be as stated in the Company's Restated Certificate of Incorporation
attached hereto as Exhibit B.
(b) 15,000,000 shares of Common Stock, $0.01 par value (the
"Common Stock"). As of and immediately following the First Closing, 405,313
shares of Common Stock will be outstanding.
(c) a warrant to purchase up to 187,752 shares of Common Stock
at an exercise price of $0.01 per share;
(d) a warrant to purchase up to 100,000 shares of Common Stock
at an exercise price of $.05 per share;
-4-
<PAGE> 10
(e) warrants to purchase up to 660,024 shares of Common Stock at
an exercise price of $0.50 per share;
(f) Outstanding options to purchase up to 111,450 shares of
Common Stock (the "Options") pursuant to the Company's 1991 Incentive Stock
Option Plan (the "1991 Plan"), and 66,814 shares of Common Stock reserved for
future option grants under the 1991 Plan.
(g) Except for (i) the conversion privileges of the Preferred
Stock (ii) the rights set forth in the Investors Agreement attached hereto as
Exhibit F and in the Amended and Restated Stockholders Agreement dated November
13, 1992, (the "November 1992 Stockholders Agreement") and (iii) as set forth in
the Schedule of Exceptions, there are no other outstanding options, warrants,
rights (including conversion or preemptive rights) or agreements for the
purchase or acquisition from the Company of any shares of its capital stock.
3.3 Subsidiaries. Except for Integrated Surgical Systems B.V., a
corporation organized under the laws of the Netherlands and a wholly-owned
subsidiary of the Company, the Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity.
3.4 Authorization. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance (or reservation for
issuance) and delivery of the Shares and Series D Warrants being sold hereunder
and the Conversion Stock has been taken or will be taken prior to the Closing,
and this Agreement constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its terms.
3.5 Shares, Series D Warrants, Series D Warrant Shares and
Conversion Stock.
(a) The Shares and Series D Warrants, when issued, sold and
delivered in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully paid and nonassessable and, based
in part upon the representations of the Investors in this Agreement, will be
issued in compliance with all applicable federal and state securities laws. The
Conversion Stock has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Certificate of
Incorporation, shall be duly and validly issued, fully paid and nonassessable,
and issued in compliance with all applicable securities laws, as presently in
effect, of the United States and each of the states whose securities laws govern
the issuance of any of the Shares or Series D Warrants hereunder. Neither the
issuance, initial sale or delivery of the Shares or Series D Warrants by the
Company nor the Conversion Stock is subject to any preemptive right of
stockholders of the Company which has not been waived.
(b) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable and were issued in
compliance with all applicable
-5-
<PAGE> 11
federal and state securities laws. The shares of Series D Preferred Stock when
issued, upon exercise and in accordance with the terms of the Series D Warrant,
shall be duly and validly authorized and issued, fully paid and nonassessable,
and shall have been issued in compliance with applicable federal and state
securities laws. The Common Stock issuable upon conversion of the Series D
Preferred Stock has been duly and validly reserved for issuance, and upon
issuance in accordance with the terms of the Restated Certificate of
Incorporation shall be duly and validly issued, fully paid and nonassessable,
and issued in compliance with all applicable securities laws, as presently in
effect, of the United States and each of the states whose securities laws govern
the issuance of such Common Stock.
3.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except qualification (or taking
such action as may be necessary to secure an exemption from qualification, if
available) of the offer and sale of the Shares and the Series D Warrants (and
the Conversion Stock) under the California Corporate Securities law of 1968, as
amended, and other Blue Sky laws, which filings and qualifications, if required,
will be accomplished in a timely manner.
3.7 Litigation. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company which
questions the validity of this Agreement or the right of the Company to enter
into it, to perform this Agreement or to consummate the transactions
contemplated hereby, or which might result, either individually or in the
aggregate, in any material adverse changes in the assets, condition, affairs or
prospects of the Company, financially or otherwise, or any change in the current
equity ownership of the Company, nor is the Company aware that there is any
basis for the foregoing. The foregoing includes, without limitation, actions
pending or threatened (or any basis therefor known to the Company) involving the
prior employment of any of the Company's employees, their use in connection with
the Company's business of any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.8 Proprietary Information Agreements. Each officer and key
employee of the Company has executed a Proprietary Information Agreement in the
form attached hereto as Exhibit D, and no exceptions have been taken by any such
officer or employee to the terms of such agreement. The Company, after
reasonable investigation, is not aware that any of its employees are in
violation thereof, and the Company will use its best efforts to prevent any such
violation.
3.9 Patents and Trademarks. The Company has sufficient title and
ownership of, or has the right to use without payment to any other person, all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes necessary for its
-6-
<PAGE> 12
business as now conducted and as proposed to be conducted without any conflict
with or infringement of the rights of others. The Company has not granted any
options, licenses, or agreements of any kind relating to the foregoing, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor the delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees is
now obligated. The Company does not believe it is or will be necessary to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment by the Company.
3.10 Compliance with Other Instruments.
(a) The Company is not in violation or default in any material
respect of any provisions of its Certificate of Incorporation, as amended, or
Bylaws or of any material instrument, judgment, order, writ, decree or contract
to which it is a party or by which it is bound or, to its knowledge, of any
provision of federal or state statute, rule or regulation applicable to the
Company. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any material right granted under any license, distribution or other agreement.
3.11 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby, there
are no agreements, understandings or proposed transactions between the Company
and any of its officers, directors, affiliates, or any affiliate thereof. For
purposes of the foregoing, an "affiliate" shall include, but not be limited to,
those persons and entities who fall within the definition of "Affiliate"
contained in Section 9.5.
-7-
<PAGE> 13
(b) There are no agreements, understandings, instruments,
contracts or proposed transactions to which the Company is a party or by which
it is bound which involve (i) obligations of, or payments to the Company in
excess of $25,000, or (ii) the license of any patent, copyright, trade secret or
other proprietary right to or from the Company.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $25,000 or in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than in the ordinary course of
business.
(d) The Company has not engaged in the past twelve (12) months
in any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company, or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of liquidation, dissolution or winding up of the Company.
(e) Except for the November 1992 Stockholders Agreement and the
Investors Agreement, the Company is not a party to or aware of any voting trust
or agreement, stockholders agreement, pledge agreement, buy-sell agreement or
first refusal or preemptive rights agreement relating to securities of Company.
3.12 Disclosure. The Company has fully provided each Investor with
all the information which such Investor has requested for deciding whether to
purchase the Shares and all information which the Company believes is reasonably
necessary to enable such Investor to make such decision. Neither this Agreement
nor any other statements or certificates made or delivered in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
3.13 Registration Rights. As of and immediately following the First
Closing, the registration rights provided in the Registration Rights Agreement
attached hereto as Exhibit G will be the only such rights outstanding.
3.14 Corporate Documents. As of the Closing, the Restated
Certificate of Incorporation will be in the form attached hereto as Exhibit B.
The Bylaws of the Company are in the form previously provided to the Investors.
3.15 Title to Property and Assets. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which
-8-
<PAGE> 14
arise in the ordinary course of business and do not materially impair the
Company's ownership or use of such property or assets. With respect to the
property and assets it leases, the Company is in compliance with such leases
and, to its knowledge, holds a valid leasehold interest free of any liens,
claims or encumbrances.
3.16 Employee Benefit Plans. Other than the 401(k) Profit Sharing
Plan, Company does not have any other Employee Benefit Plan as defined in the
Employee Retirement Income Security Act of 1974.
3.17 Tax Returns, Payments and Elections. The Company has filed all
tax returns and reports as required by law. As of their respective filing dates,
these returns and reports are true and correct in all material respects. The
Company has paid all taxes and other assessments due, except those contested by
it in good faith which are listed in the Schedule of Exceptions. The Company has
not elected pursuant to the Internal Revenue Code of 1986, as amended (the
"Code"), to be treated as a Subchapter S corporation or a collapsible
corporation pursuant to Section 341(f) or Section 1362(a) of the Code, nor has
it made any other elections pursuant to the Code (other than elections which
relate solely to methods of accounting, depreciation or amortization) which
would have a material effect on the Company, its financial condition, its
business as presently conducted or proposed to be conducted or any of its
properties or material assets.
3.18 Financial Statements. The Company has delivered to the
Investors its unaudited financial statements for the month ended October 31,
1995 (the "Financial Statements"). The Financial Statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the periods indicated and with each other. The
Financial Statements fairly present the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein.
Except as set forth in the Financial Statements, the Company has no material
liabilities, contingent or otherwise, other than: (a) liabilities incurred in
the ordinary course of business subsequent to October 31, 1995; and (b)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under GAAP to be reflected in the Financial Statements
which, in both cases, individually or in the aggregate, are not material to the
financial condition or operating results of the Company. Except as disclosed in
the Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation. The Company maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP.
3.19 Changes. To the Company's knowledge, since October 31, 1995,
there has not been any event of any type that has materially and adversely
affected the business, properties, or financial condition of the Company.
3.20 Environmental and Safety Laws. To its knowledge, the Company is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
-9-
<PAGE> 15
3.21 Minute Books. The copies of the minute book of the Company made
available to counsel to the Investors contain minutes of all meetings of
directors and stockholders and all actions by written consent without a meeting
by the directors and stockholders since the date of incorporation and reflect
all actions by the directors (and any committee of directors) and stockholders
with respect to all transactions referred to in such minutes accurately in all
material respects.
3.22 Insurance. The Schedule of Exceptions sets forth a complete and
accurate list and description, including, but not limited to, annual premiums
and the deductibles, of all policies of fire, liability, product liability,
workmen's compensation, health and other forms of insurance presently in effect
with respect to the Company's business. All such policies are valid, outstanding
and enforceable policies and provide insurance coverage for the properties,
assets and operations of the Company, of the kinds, in the amounts and against
the risks (a) required to comply with laws and (b) customarily maintained by
organizations similarly situated. The Company has not been refused any insurance
with respect to any aspect of the operations of its business nor has its
coverage been limited by any insurance carrier to which it has applied for
insurance or with which it has carried insurance. No notice of cancellation or
termination has been received with respect to any such policy. The activities
and operations of the Company have been conducted in a manner so as to conform
in all material respects to all applicable provisions of such insurance
policies.
3.23 Effect of Transaction. No creditor, supplier, employee, client
or other customer or other person having a material business relationship with
the Company has informed the Company that such person intends to change the
relationship because of the transactions contemplated by this Agreement.
3.24 Finder's Fee. The Company and its officers, directors or
representatives have not incurred any liabilities for any commission or
compensation in the nature of a finder's fee.
4. Representations and Warranties of the Investors. Each Investor
hereby represents and warrants (with respect to itself) that:
4.1 Due Organization and Authorization. Each Investor has all
requisite power and authority to enter into this Agreement and the Investors
Agreement and to consummate the transactions contemplated hereby and thereby.
The execution and delivery by each Investor of this Agreement and the Investors
Agreement and the consummation by each Investor of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action pursuant to
applicable law, and this Agreement and the Investors Agreement each constitutes
the valid and legally binding obligation of each Investor, enforceable in
accordance with its terms.
4.2 Purchase Entirely for Own Account. This Agreement is made with
each Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms that the Shares or Series D Warrants, as the case may be, will be
acquired for investment for such Investor's own account, not as a nominee or
-10-
<PAGE> 16
agent, and not with a view to the resale or distribution of any part thereof,
and that such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, each Investor further represents that such Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Securities, except as provided in the preceding sentence.
Each Investor represents that it has full power and authority to enter into this
Agreement.
4.3 Disclosure of Information. Each Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Shares. Each Investor further represents that it has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Shares. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 3 of this Agreement or the right of the Investors to rely thereon.
4.4 Investment Experience. Each Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, and bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Shares or
the Series D Warrants. If other than an individual, the Investor also represents
it has not been organized for the purpose of acquiring the Shares or the Series
D Warrants.
4.5 Restricted Securities. Each Investor understands that the Shares
or Series D Warrants it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act of 1933, as amended (the "Act")
only in certain limited circumstances. In this connection, each Investor
represents that it is familiar with Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
4.6 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, each Investor further agrees not to make
any disposition of all or any portion of the Shares or Series D Warrants (or the
Conversion Stock) unless and until:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) Such Investor shall have notified the Company of the
proposed disposition and if requested by the Company, such Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
-11-
<PAGE> 17
4.7 Legends. It is understood that the certificates evidencing the
Shares and Series D Warrants (and the Conversion Stock) may bear one or all of
the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH ACT."
(b) Any legend required by the laws of any applicable state and
by the Investors Agreement.
4.8 Finder's Fee. The Investors and its officers, partners,
employees or representatives have not incurred any liabilities for any
commission or compensation in the nature of a finder's fee.
5. Conditions of Investors' Obligations at First Closing. The
obligations of each Investor under Section 1.3 of this Agreement are subject to
the fulfillment on or before the First Closing of each of the following
conditions, the waiver of which shall not be effective against any Investor that
does not consent in writing thereto:
5.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 3 shall be true on and as of the
First Closing with the same effect as though such representations and warranties
had been made on and as of the date of such First Closing.
5.2 Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the First Closing.
5.3 Compliance Certificate. The President of the Company shall
deliver to each Investor at the First Closing a certificate dated as of the
First Closing date certifying as to the fulfillment of the conditions specified
in Sections 5.1 and 5.2.
5.4 Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the First Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to each Investor and counsel to any of the Investors, and they shall
have received all such counterpart originals and certified or other copies of
such documents as they may reasonably request.
-12-
<PAGE> 18
5.5 Cancellation of IBM Note and Interest; Amendment of Warrant.
Before the First Closing, IBM shall have agreed to the cancellation of the IBM
Note and all accrued interest with respect to the IBM Note, and the IBM Note and
all such accrued interest shall have been cancelled, in exchange for the IBM
1995 Common Warrant, and the Company shall have agreed to amend the IBM 1991
Common Warrant, all as described in Section 1.2 hereof.
5.6 Cancellation of Accumulated Dividends. All accumulated dividends
with respect to the Series B and Series C Preferred Stock shall have been
cancelled in exchange for shares of Common Stock, as described in Section 1.2
hereof.
5.7 Opinion of Company Counsel. Each Investor shall have received
from Wilson, Sonsini, Goodrich & Rosati, counsel for the Company, an opinion,
dated as of the First Closing, in the form attached hereto as Exhibit E.
5.8 Investors Agreement. The Investors Agreement in the form
attached hereto as Exhibit F shall have been executed and delivered by all of
the parties thereto.
5.9 Registration Rights Agreement. The Company, IBM and the holders
of 50% of the Registrable Securities (as defined therein) shall have executed
and delivered the Registration Rights Agreement attached hereto as Exhibit G.
5.10 Restated Certificate of Incorporation. The Restated Certificate
of Incorporation attached hereto as Exhibit B shall have been accepted for
filing by the Delaware Secretary of State.
5.11 Stock Certificates. The Company shall have delivered to the
Investors the certificates and warrants referred to Section 2.1.
5.12 Board of Directors. As of the date of the First Closing, the
Company's Board of Directors shall consist of John Kapoor (or another designee
of E.J. Financial), James McGroddy, Paul Pankow, Wendy Shelton-Paul and Ramesh
Trivedi. Subject to the provisions of Section 6.7 of the Integrated Surgical
Systems, Inc. Series C Preferred Stock Purchase Agreement dated November 13,
1992 (the "Series C Agreement"), Keystone Financial Group shall have the right
to designate one individual who shall have Board observer rights as provided in
the Series C Agreement and who shall be furnished the same materials as provided
to members of the Company's Board of Directors.
5.13 Ramesh Trivedi Involvement. The Company and Ramesh Trivedi
shall have entered into a final agreement, the form of which shall have been
approved by the Investors, concerning Mr. Trivedi's employment by the Company.
6. Conditions of the Company's Obligations at First Closing. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the First
-13-
<PAGE> 19
Closing of each of the following conditions, the waiver of which shall not be
effective unless consented to in writing by the Company:
6.1 Representations and Warranties. The representations and
warranties of each Investor contained in Section 4 shall be true on and as of
the First Closing with the same effect as though such representations and
warranties had been made on and as of the First Closing.
6.2 Cancellation of IBM Note and Interest. Before the First Closing,
IBM shall have agreed to the cancellation of the IBM Note and all accrued
interest with respect to the IBM Note, and the IBM Note and all such accrued
interest shall have been cancelled, in exchange for the IBM 1995 Common Warrant,
all as described in Section 1.2 hereof.
6.3 Cancellation of Accumulated Dividends. All accumulated dividends
with respect to the Series B and Series C Preferred Stock shall have been
cancelled in exchange for shares of Common Stock, as described in Section 1.2
hereof.
6.4 Payment of Purchase Price. All of the Investors shall have
delivered the purchase price provided for in Section 2.1.
6.5 Restated Certificate of Incorporation. The Restated Certificate
of Incorporation attached hereto as Exhibit B shall have been accepted for
filing by the Delaware Secretary of State.
6.6 Investors Agreement. The Investors Agreement in the form
attached hereto as Exhibit F shall have been executed and delivered by all of
the parties thereto.
7. Condition of Investors' Obligations at Second Closing. The
obligations of each Investor under Section 1.4 of this Agreement are subject to
the fulfillment on or before the Second Closing of the following conditions, the
waiver of which shall not be effective against any Investor that does not
consent in writing thereto:
7.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 3 shall be true on and as of the
Second Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Second Closing.
7.2 Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Second Closing.
7.3 Compliance Certificate. The President of the Company shall
deliver to each Investor at the Second Closing a certificate dated as of the
Second Closing date certifying as to the fulfillment of the conditions specified
in Sections 7.1 and 7.2.
-14-
<PAGE> 20
7.4 No Alternative Investor. The Company shall not have received
prior to February 19, 1996, from an investor or investors other than the
Investors the aggregate amount of $1,000,000 in exchange for the issuance by the
Company to such investor or investors of Series D Shares or Series D Warrants on
terms at least as advantageous to the Company as the terms set forth in this
Agreement.
7.5 Option Plan. The Company's 1995 Stock Plan shall have been
approved by the Board of Directors and the stockholders of the Company, the
Company's 1991 Incentive Stock Option Plan shall have been terminated, and all
holders of vested options thereunder shall have agreed to cancel their vested
options in exchange for new options under the Company's 1995 Stock Plan.
8. Conditions of the Company's Obligations at Second Closing. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Second Closing of each of the following
conditions, the waiver of which shall not be effective unless consented to in
writing by the Company:
8.1 Representations and Warranties. The representations and
warranties of each Investor contained in Section 4 shall be true on and as of
the Second Closing with the same effect as though such representations and
warranties had been made on and as of the Second Closing.
8.2 Payment of Purchase Price. All of the Investors shall have
delivered the purchase price provided for in Section 2.2.
9. Covenants of the Company.
9.1 Delivery of Financial Statements. The Company shall deliver to
each Investor that holds, together with its affiliates, an aggregate of 500,000
shares of the Securities:
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, a capitalization chart
setting forth the principal stockholders of the Company, and a balance sheet and
statements of operations and cash flow for such fiscal year. Such year-end
financial reports shall be in reasonable detail, prepared in accordance with
generally accepted accounting principles ("GAAP"), and audited and certified by
independent public accountants of nationally recognized standing selected by the
Company.
(b) within thirty (30) days after the end of each month, and
until a public offering of Common Stock of the Company, an unaudited statement
of operations and balance sheet for and as of the end of such month, in
reasonable detail and prepared in accordance with GAAP, subject to year end
audit adjustments and the absence of footnotes;
(c) within forty-five (45) days prior to the end of each fiscal
year, a budget and business plan for the next fiscal year, prepared on a monthly
basis, including a balance
-15-
<PAGE> 21
sheet and statement of operations for such months and, as soon as prepared, any
other budgets or revised budgets prepared by the Company;
(d) with respect to the financial statements called for in
subsection (b) of this Section 9.1, an instrument executed by the Chief
Financial Officer, President or Chairman of the Company and certifying that such
Financial Statements were prepared in accordance with GAAP consistently applied
with prior practice for earlier periods and fairly present the financial
condition of the Company and its results of operation for the period specified,
subject to year-end audit adjustments and the absence of footnotes;
(e) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as each Investor may
from time to time request, provided, however, that the Company shall not be
obligated to provide information which it deems in good faith to be proprietary.
9.2 Inspection. The Company shall permit each Investor which holds,
together with its affiliates, an aggregate of 500,000 shares of the Securities,
to visit and inspect the Company's properties, to examine its books of account
and records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by the Investor; pro
vided, however, that the Company shall not be obligated pursuant to this Section
9.2 to provide access to any information which it reasonably considers to be a
trade secret or similar confidential information.
9.3 Restrictive Agreements Prohibited. Neither the Company nor any of
its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of this Agreement.
9.4 Proprietary Information Agreements. The Company shall use its best
efforts to obtain, and shall cause its subsidiaries, if any, to use their best
efforts to obtain, a Proprietary Information Agreement in substantially the form
of Exhibit D from all future officers, key employees and other employees who
will have access to confidential information of the Company or any of its
subsidiaries, upon their employment by the Company or any of its subsidiaries.
9.5 Transactions with Affiliates. Except for transactions contemplated
by this Agreement or as otherwise approved by a majority of directors, neither
the Company nor any of its subsidiaries shall enter into any transaction with
any director, officer, employee or holder of more than 5% of the outstanding
capital stock of any class of the Company or any of its subsidiaries, member of
the family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or member of the family of any such person,
either alone or together with other persons affiliated with the Company, is a
director, officer, trustee, partner or holder of more than 5% of the outstanding
capital stock thereof (collectively, "Affiliates"), except for transactions on
customary terms negotiated on an arms-length basis or related to such person's
employment.
-16-
<PAGE> 22
9.6 Purchase Rights.
(a) Whenever the Company proposes to issue, deliver or sell any
Voting Securities (as defined below), other than (i) shares of Common Stock (or
options therefor) to employees, consultants and directors of the Company, (ii)
securities issuable upon exercise or conversion of outstanding securities, or
(iii) securities issued in connection with any stock split, stock dividend or
recapitalization of the Company as a result of which an Investor's percentage
interest in the Total Voting Power of the Company (as defined below) would be
reduced, the Company shall give each Investor written notice at least sixty (60)
days prior to such issuance and shall offer to sell to each Investor and, if
such offer is accepted in writing by an Investor within sixty (60) days of
receipt by the Investor of such offer, shall sell to the Investor, at a purchase
price per share equal to the sale price of such Voting Securities, up to and
including that amount of such Voting Securities which, if purchased by an
Investor, would result in the Investor retaining its percentage interest in the
Total Voting Power of the Company in effect prior to such issuance, of Voting
Securities. For the purpose of the preceding sentence, if the sale price at
which the Company proposes to issue, deliver or sell any Voting Securities is to
be paid with consideration other than cash, then the purchase price at which the
Investor may acquire such Voting Securities shall be equal in value but payable
entirely in cash. The closing of any purchase and sale of Voting Securities
pursuant to this Section 9.6 shall take place on such date, within thirty (30)
days after acceptance by the Investor of an offer by the Company, as shall be
specified by the Investor in such acceptance.
(b) The term "Total Voting Power of the Company" shall mean the
total number of votes which may be cast in the election of directors of the
Company at any meeting of stockholders of the Company if all Voting Securities
assuming full conversion, exchange or exercise of all securities (including
rights, warrants, options, convertible notes and other convertible securities)
convertible into, exchangeable for or exercisable for any securities of the
Company entitled to vote generally in the election of directors of the Company
who are present and voted at such meeting, other than votes that may be cast
only by one class or series of stock (other than Common Stock) or upon the
happening of a contingency.
(c) The term "Voting Securities" shall mean the shares of Common
Stock and other securities of the Company entitled to vote generally in the
election of directors of the Company, and any other securities (including
rights, warrants, options, convertible notes and other convertible securities)
convertible into, exchangeable for or exercisable for any Common Stock or other
securities referred to above (whether or not presently convertible, exchangeable
or exercisable).
(d) The rights granted under this Section 9.6 are not
transferable and shall terminate with respect to each Investor when such
Investor holds less than 500,000 shares of the Securities.
9.7 Termination of Covenants. The covenants set forth in this
Section 9 shall terminate and be of no further force or effect when (a) (i) the
sale of securities pursuant to a registration statement filed by the Company
under the Act in connection with a firm commitment
-17-
<PAGE> 23
underwritten offering of its securities to the general public is consummated and
(ii) such offering results in the automatic conversion of the Shares pursuant to
the Restated Certificate of Incorporation or (b) when the Company first becomes
subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the
Securities Exchange Act of 1934, whichever event shall first occur.
10. Termination and Amendment of Prior Agreements.
(a) The covenants set forth in Section 7.16, Section 7.17,
Article IX and Article X of the IBM Loan Agreement are hereby terminated.
Section 11.02 of the IBM Loan Agreement is hereby amended to delete the
references contained therein to Section 10.03, 10.04, 10.05, 10.06 or 10.07 of
the IBM Loan Agreement. The foregoing amendments to the IBM Loan Agreement shall
be effective upon execution of this Agreement by the Company and IBM.
(b) The IBM Note is terminated effective immediately prior to
the execution of this Agreement by the Company and IBM. Such termination shall
operate as a waiver of any condition or restriction on such termination and
results from the payment in full of all outstanding principal and interest
accrued thereon.
(c) The IBM 1991 Common Warrant is hereby amended to provide
that the purchase rights represented by such Common Warrant are exercisable on
or before December 31, 2000. The foregoing amendment to the Common Warrant shall
be effective upon execution of this Agreement by the Company and IBM.
11. Miscellaneous.
11.1 Survival of Warranties. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
11.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
11.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
-18-
<PAGE> 24
11.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
11.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party in Exhibit A or, in the case of the Company, on the
first page of this Agreement, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
11.7 Payment of Fees and Expenses. The Company and the Investors
shall each bear their own legal and other expenses incurred with respect to this
transaction.
11.8 Finder's Fee. Each Investor agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Investor or any of its
officers, partners, employees, or representatives is responsible. The Company
agrees to indemnify and hold harmless each Investor from any liability for any
commission or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
11.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
at least a majority of the Shares or Conversion Stock outstanding. Any amendment
or waiver effected in accordance with this Section 11.9 shall be binding upon
each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities are convertible),
each future holder of all such securities, and the Company; provided, however,
that no condition set forth in Section 5 or Section 7 hereof may be waived with
respect to any Investor that does not consent thereto.
11.10 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
-19-
<PAGE> 25
11.11 Aggregation of Stock. All Shares or Series D Warrants held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
11.12 Stock Splits. All references to numbers of shares in this
Agreement shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
11.13 Ambiguities. The provisions of this Agreement shall be
interpreted without regard to the drafting source and as if both parties drafted
this Agreement in a reasonable manner to effect the purpose of the parties.
-20-
<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock and Warrant Purchase Agreement as of the date first above
written.
INTEGRATED SURGICAL SYSTEMS, INC.
By: _______________________________
Title: ____________________________
<PAGE> 27
INTERNATIONAL BUSINESS MACHINES
CORPORATION
By: _______________________________
Title: ____________________________
<PAGE> 28
EJ FINANCIAL INVESTMENTS V, L.P.
By: _______________________________
Title: ____________________________
<PAGE> 29
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
First Closing Second Closing(1)
---------------------- ---------------------
Series D Series D
Shares or Purchase Shares or Purchase
Name and Address Warrants Price Warrants Price
- ---------------------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
International Business Machines 2,051,282 $1,333,333.30 1,025,640 $666,666.00
Corporation (warrants) (warrants)
IBM Research Division
T.J. Watson Research Center
Yorktown Heights, NY 10598
Attn: Daniel P. McCurdy
EJ Financial Investments V, L.P. 1,025,641 $ 666,666.65 512,820 $333,333.00
c/o EJ Financial Enterprises, Inc. (shares) (shares)
225 East Deerpath
Suite 250
Lake Forest, IL 60045
Attn: Robert May
TOTAL 3,076,923 $1,999,999.95 1,538,460 $999,999.00
</TABLE>
- ----------------------
(1) Assumes that the Second Closing involves $999,999.00 aggregate principal
amount of investment at $0.65 per Series D Share or Series D Warrant.
<PAGE> 30
EXHIBIT B
RESTATED CERTIFICATE OF INCORPORATION
OF
INTEGRATED SURGICAL SYSTEMS, INC.
Integrated Surgical Systems, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
that:
1. The name of the Corporation is Integrated Surgical Systems, Inc. The
Corporation was originally incorporated under the same name, and the original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on October 1, 1990.
2. This Certificate restates and amends the provisions of the
Corporation's Certificate of Incorporation to read as set forth in Exhibit A
attached to this Certificate.
3. This restatement and amendment of the Corporation's Certificate of
Incorporation has been duly adopted by the Corporation's Board of Directors in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware, and by the holders of each class of outstanding stock entitled to
vote thereon as a class by written consent given in accordance with Section 228
of the General Corporation Law of the State of Delaware. Written notice pursuant
to Section 228 has been given to those stockholders of the Corporation who have
not consented in writing to this action.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Restatement of Certificate of Incorporation to be signed by Ramesh Trivedi, its
President, this 20th day of December, 1995.
INTEGRATED SURGICAL SYSTEMS, INC.
By: _____________________________
Ramesh Trivedi, President
<PAGE> 31
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
INTEGRATED SURGICAL SYSTEMS, INC.
1. The name of this corporation is Integrated Surgical Systems, Inc.
(the "Corporation").
2. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Zip Code 19801. The name of its registered
agent at such address is The Corporation Trust Company.
3. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
4. The Corporation is authorized to issue two classes of capital stock:
Preferred Stock, $0.01 par value per share, and Common Stock, $0.01 par value
per share. The total number of shares of Preferred Stock which the Corporation
shall have the authority to issue is 5,750,000 of which 5,750,000 shares shall
be designated Series D Preferred Stock ("Series D Preferred"). The total number
of shares of Common Stock which the Corporation shall have the authority to
issue is 15,000,000. The Series D Preferred is herein collectively referred to
as the "Preferred Stock."
Upon the filing of this Restated Certificate of Incorporation with the
Delaware Secretary of State, each currently outstanding share of Common Stock,
Series B Preferred Stock and Series C Preferred Stock shall be split up and
converted into 0.20 shares of Common Stock, and the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock shall be
eliminated from the authorized capital stock of the corporation. No shares of
Series A Preferred Stock have ever been issued or outstanding. Also upon the
filing of this Restated Certificate of Incorporation, each $8.87 of accrued
dividends with respect to the Series B Preferred Stock shall be converted into
0.20 shares of Common Stock and each $10.56 of accrued dividends with respect to
the Series C Preferred Stock shall be converted into 0.20 shares of Common
Stock. No fractional shares shall be issued in connection with such reverse
stock split and conversion and the number of shares issuable to each stockholder
shall be determined by rounding upward to the next whole share on a
certificate-by-certificate basis.
The relative rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes of shares of capital stock or holders
thereof are as set forth below.
Section 1. Ranking. The Series D Preferred shall rank, subject to the
rights of any other series of Preferred Stock which may from time to time come
into existence pursuant to the terms hereof, prior to any other equity
securities of the Corporation, including the Common Stock, upon liquidation,
dissolution or winding-up.
<PAGE> 32
Section 2. Dividends.
The holders of Series D Preferred shall be entitled to
receive a dividend (the "Participating Dividend" for such series) payable in
cash on the payment date for each cash dividend declared on the shares of Common
Stock in an amount per share of Preferred Stock of such series equal to
the number of shares (or fraction thereof) of Common Stock into which each share
of Preferred Stock on such series is then convertible times the cash
dividend to be paid on each full share of Common Stock.
Following the filing of this Restated Certificate of Incorporation,
the right to dividends on shares of the Common Stock and Preferred
Stock shall not be cumulative, and no right shall accrue to holders of Common
Stock or Series D Preferred Stock by reason of the fact that dividends on said
shares are not declared in any prior period.
Section 3. Liquidation. The shares of Series D Preferred shall rank
prior to the shares of Common Stock and any other class or series of capital
stock of the Corporation ranking junior to the Series D Preferred Stock upon
liquidation, dissolution or winding-up, so that in the event of any liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
the holders of shares of Series D Preferred shall be entitled to receive out of
the assets of the Corporation available for distribution to its stockholders,
whether from capital, surplus or earnings, before any distribution is made to
holders of shares of Common Stock or any other such junior stock, an amount per
share equal to $0.65 for each outstanding share of Series D Preferred (the
"Original Series D Issue Price") plus an amount equal to all accrued and unpaid
dividends on each share of Series D Preferred (such sum being referred to as the
liquidation preference of the Series D Preferred). After payment has been made
to the holders of the Series D Preferred of the full amount to which they shall
be entitled, the remaining assets of the Corporation shall be distributed
ratably to the holders of any capital stock of the Corporation ranking junior to
the Series D Preferred.
If the assets and funds of the Corporation distributable among the
holders of shares of Series D Preferred shall be insufficient to permit
the payment in full to such holders of the respective liquidation preferences
payable to such holders, in the event of any liquidation, dissolution or winding
up of the Corporation, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed among such holders
ratably in proportion to the aggregate liquidation preferences of the shares of
Preferred Stock held by such holders.
For purposes of this Section 3, an Acquisition (as defined below)
shall be treated as a liquidation, dissolution or winding-up of the Corporation.
For purposes of this section "Acquisition" shall mean any consolidation, merger
or other reorganization of the Corporation; any sale, exchange or other
disposition (whether in one transaction or a series of related transactions) of
all, or any substantial part, of the assets of the Corporation and its
subsidiaries taken as a whole; or any other transaction or series of related
transactions which would result in the holders of the Voting Securities
immediately prior thereto continuing to beneficially own less than a majority of
the Total Voting
-2-
<PAGE> 33
Power (as defined in Section 4(d)(iii)) of the Corporation, successor or
acquiring corporation immediately thereafter.
Section 4. Voting.
(a) Except as otherwise required by law and as set forth herein, the
holders of shares of Series D Preferred issued and outstanding shall have
no right to vote their shares of Series D Preferred.
(b) The holders of shares of Series D Preferred shall have the
right to vote, together with the holders of all the outstanding shares of Common
Stock and not by classes (except as otherwise provided in this Section 4 or by
applicable law), on all matters on which holders of shares of Common Stock have
the right to vote. Each holder of shares of Series D Preferred shall have
the right, for the shares of Series D Preferred held by such holder on the
applicable record date, to cast that number of votes on each such matter equal
to the number of shares of Common Stock into which such shares of Series D
Preferred could be converted as of such record date, with any fractions
rounded down to the next full vote, multiplied by the number of votes per share
which the holders of shares of Common Stock then have with respect to such
matter.
(c) Whenever holders of shares of Series D Preferred or Common Stock
are required or permitted to take any action by vote, such action may be taken
without a meeting by written consent, setting forth the action so taken and
signed by the holders of shares of Series D Preferred or Common Stock, as the
case may be, having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all such shares
entitled to vote thereon were present and voted.
(d) The consent of holders of at least a majority of the outstanding
shares of Series D Preferred, voting separately as a class, shall be
required before the Corporation shall (or shall permit any of its subsidiaries
to):
(i) either directly or indirectly or through merger,
consolidation or other reorganization with any other person, amend, alter or
repeal any of the provisions hereof so as to affect adversely the powers,
preferences or relative, participating, optional or other special rights of the
Series D Preferred;
(ii) adopt any amendment to the Corporation's Restated
Certificate of Incorporation to change the Corporation's authorized capital; or
(iii) enter into any Control Transaction (as defined below) with
any person.
"Control Transaction" shall mean any consolidation, merger
or other reorganization of the Corporation; any sale, lease, exchange or other
disposition (whether in one transaction or a series of related transactions) of
all, or any substantial part, of the assets of the
-3-
<PAGE> 34
Corporation and its subsidiaries taken as a whole; or any other transaction or
series of related transactions which would result in the holders of the Voting
Securities immediately prior thereto continuing to beneficially own less than
fifty percent (50%) of the Total Voting Power of the Corporation, successor or
acquiring corporation immediately thereafter.
"Total Voting Power of the Corporation" shall mean the
total number of votes that may be cast in the election of directors of the
Corporation at any meeting of stockholders of the Corporation if all Voting
Securities (assuming full conversion, exchange or exercise of all securities
(including rights, warrants and options) convertible into, exchangeable for or
exercisable for any securities of the Corporation entitled to vote generally in
the election of directors of the Corporation) were present and voted at such
meeting, other than votes that may be cast only by one class or series of stock
(other than Common Stock) or upon the happening of a contingency.
"Voting Securities" shall mean the shares of Common Stock
and any other securities of the Corporation entitled to vote generally in the
election of directors of the Corporation, and any other securities (including
rights, warrants and options) convertible into, exchangeable for or exercisable
for, any of the foregoing (whether or not presently convertible, exchangeable or
exercisable).
(e) In addition to voting together with the holders of Voting
Securities for the election of other directors of the Corporation, the holders
of record of the Series D Preferred, voting separately as a class (the "Series D
Group"), to the exclusion of the holders of Common Stock and any other series of
Preferred Stock then outstanding, shall, at any annual meeting of stockholders
for the election of directors (and at each subsequent annual meeting of
stockholders), vote for the election of two directors (each a "Series D
Director") of the Corporation. In the election of the Series D Directors, the
holders of Series D Preferred shall be entitled to cast one vote per share of
Series D Preferred they hold. Any director who shall have been elected pursuant
to this Section 4(e) may be removed at any time by, and removed without cause
only by, the affirmative vote of the holders of the Preferred Stock of the group
that had elected such director who are entitled to cast a majority of the votes
entitled to be cast for the election of any such director at a special meeting
of such holders called for that purpose, and any vacancy thereby created may be
filled only by the vote of such holders of the Preferred Stock of such group.
The holder of each share of Preferred Stock shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation and shall
vote with the holders of the Common Stock upon the election of the remaining
directors authorized by the Bylaws of the Corporation. The Corporation shall
take any action from time to time as shall be necessary to amend the Bylaws of
the Corporation to provide for a change in the authorized number of members of
the Board as may be required to give effect to this Section 4(e).
Section 5. Conversion.
(a) General. On the terms and subject to the conditions of this
Section 5, the holder of a share of Series D Preferred shall have the
right, at its option, at any time (subject to the next sentence and to Section
5(i)) to convert such share into that number of shares of Common Stock
-4-
<PAGE> 35
(calculated as to each conversion to the nearest 1/100th of a share) obtained by
dividing the Original Series D Issue Price (as defined in Section 3) by the
Conversion Price for such series (as defined in Section 5(d)) and by surrender
of such share pursuant to Section 5(b) (the shares of Common Stock issuable upon
such conversion being called "Conversion Shares").
(b) Conversion Procedures. In order to exercise the conversion
privilege, the holder of any shares of Series D Preferred to be converted
shall surrender the certificate representing such shares at the principal office
of the Corporation, with a written notice stating that such holder elects to
convert all or a specified whole number of such shares pursuant to this Section
5 and specifying the name or names in which such holder wishes the certificate
or certificates for Conversion Shares to be issued. In the case of any mandatory
conversion pursuant to Section 5(i), on or after the date of the occurrence of
the event set forth in Section 5(i) (and within 10 days after receipt of written
notice, if any, from the Corporation of the occurrence of such event), each
holder of shares of Series D Preferred shall surrender the certificate
representing such shares at the principal office of the Corporation, together
with a written notice specifying the name or names in which such holder wishes
the certificate or certificates for Conversion Shares to be issued. Unless the
Conversion Shares are to be issued in the same name as the name in which such
shares of Series D Preferred are registered, the certificate representing
the shares surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
or its duly authorized attorney. As promptly as practicable after such surrender
of a certificate for shares of Series D Preferred, and in any event within
five business days (as defined below) thereafter, the Corporation shall issue
and deliver at such office to such holder, or on such holder's written order,
(i) a certificate or certificates for the applicable number of full Conversion
Shares, (ii) if less than the full number of shares of Series D Preferred
evidenced by the surrendered certificate is being converted, a new certificate,
of like tenor, for the number of shares of Series D Preferred evidenced by
such surrendered certificate less the number of shares being converted and (iii)
the cash payment in settlement of any fractional Conversion Share provided for
in Section 5(c).
Upon conversion of any shares of Series D Preferred, the
holder thereof shall be entitled to receive an amount equal to all declared and
unpaid dividends on such shares prior to such conversion. The payment for such
declared and unpaid dividends on a mandatory conversion under Section 5(i) shall
be paid in cash or Common Stock at the election of the Corporation. For purposes
of the payment of the declared and unpaid dividend in Common Stock, the fair
market value of the Common Stock shall be deemed to be the issuance price of the
Common Stock in the public offering which triggers the mandatory conversion
under Section 5(i).
A "business day" is a day other than a Saturday, Sunday or other day
on which banks in the State of New York or the State of California are
authorized to be closed.
In the case of the exercise of the conversion privilege, each
conversion shall be deemed to have been effected as of the close of business on
the date on which the certificate for shares of Series D Preferred is
surrendered and such notice is received by the Corporation as aforesaid, and the
person or persons in whose name or names any certificate or certificates for
-5-
<PAGE> 36
Conversion Shares are issuable shall be deemed to have become the holder or
holders of such Conversion Shares at such time on such date and such conversion
shall be at the applicable Conversion Price in effect at such time on such date,
unless the stock transfer books of the Corporation are closed on that date, in
which event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next day on which such stock
transfer books are open (provided that if such books shall remain closed for
five days, such fifth day shall be the date any such person shall become such a
holder), but such conversion shall be at the applicable Conversion Price in
effect on the date on which such certificate was surrendered and such notice was
received. In the case of any mandatory conversion pursuant to Section 5(i), on
the date of the occurrence of the event set forth in Section 5(i), each holder
of shares of Series D Preferred shall be deemed to be a holder of record
of the Common Stock issuable upon such conversion, notwithstanding that the
certificates representing such shares of Series D Preferred shall not have
been surrendered at the office of the Corporation, that notice from the
Corporation shall not have been received by any holder of shares of Series D
Preferred or that the certificates evidencing such shares of Common Stock
shall not then be actually delivered to such person. Upon delivery, all
Conversion Shares shall be duly authorized, validly issued, fully paid,
nonassessable, free of all liens and charges and not subject to any preemptive
or subscription rights.
(c) Settlement of Fractional Conversion Shares. No fractional
Conversion Shares or scrip representing fractions of Conversion Shares shall be
issued upon conversion of shares of Series D Preferred. Instead of any
fractional Conversion Share otherwise deliverable, the Corporation shall pay to
the holder of the converted shares an amount in cash equal to the current market
price (as defined below) of such fractional Conversion Share on the date of
conversion. If more than one share is surrendered for conversion at one time by
the same holder, the number of full Conversion Shares shall be computed on the
basis of the aggregate number of shares so surrendered. The "current market
price" per share of Common Stock on any day is the average of the daily market
prices for the 30 consecutive trading days immediately prior to the day in
question. The "daily market price" of a share of Common Stock is the price of a
share of Common Stock on the relevant day, determined on the basis of the last
reported sale price, regular way, of the Common Stock as reported on the
composite tape, or similar reporting system, for issues listed or admitted to
trading on the New York Stock Exchange (or if the Common Stock is not then
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange on which the Common Stock is then listed or
admitted to trading) or on the Nasdaq National Market or, if there is no such
reported sale on the day in question, on the basis of the average of the closing
bid and asked quotations as so reported or, if the Common Stock is not then
listed or admitted to trading on any national securities exchange or on the
Nasdaq National Market on the basis of the average of the high bid and low asked
quotations on the day in question in the over-the-counter market as reported by
the National Association of Securities Dealers' Automated Quotation System, or,
if not so quoted, as reported by National Quotation Bureau, Incorporated, or a
similar organization. If the current market price is not determinable as
aforesaid, it shall be determined in good faith by the Board and evidence of
such determination shall be filed with the minutes of the Corporation. A
"trading day" is a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading
-6-
<PAGE> 37
is open for the transaction of business or, if the Common Stock is not then
listed or admitted to trading on any national securities exchange, any day other
than Saturday, Sunday or a federal holiday.
(d) Conversion Price. "Series D Conversion Price" shall mean $0.65
as adjusted pursuant to this Section 5(d). "Conversion Price" shall generally
mean the Series D Conversion Price. The Series D Conversion Price (and the kind
and amount of consideration receivable by holders of shares of Series D
Preferred upon conversion) shall be adjusted from time to time as follows:
(i) If, after the date of the Corporation's Series D Preferred
Stock and Warrant Purchase Agreement with respect to the Series D Conversion
Price (such date being referred to as the "Conversion Reference Date" for such
series), the Corporation (A) pays a dividend or makes a distribution on the
Common Stock in shares of Common Stock, (B) subdivides or combines its
outstanding shares of Common Stock into a greater or smaller number of shares or
(C) issues by reclassification of the Common Stock any shares of capital stock
of the Corporation, then the Series D Conversion Price in effect immediately
prior to such action shall be adjusted so that the holder of any share of Series
D Preferred thereafter surrendered for conversion shall be entitled to
receive, at the time of such conversion, the number of shares of Common Stock or
other capital stock of the Corporation that it would have owned or been entitled
to receive immediately following such action had such share been converted
immediately prior to such action or the record date therefor, whichever is
earlier. Such adjustment shall become effective immediately after the record
date, in the case of a dividend or distribution, or immediately after the
effective date, in the case of a subdivision, combination or reclassification.
(ii) If the Corporation issues any Additional Shares as defined
below for a consideration per share less than the Conversion Price for a series
of Preferred Stock in effect immediately prior to such issuance, then the
Conversion Price for such series shall be adjusted by multiplying such
Conversion Price in effect immediately prior to such issuance by a fraction (I)
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such Additional Shares plus the number of
shares of Common Stock that the aggregate consideration for such Additional
Shares would purchase at a consideration per share equal to such Conversion
Price and (II) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Shares
plus the number of Additional Shares so issued. Such adjustment shall become
effective immediately after the issuance of such Additional Shares. For purposes
of this Section 5, the issuance of any Additional Shares or other securities,
warrants, options or rights includes any sale and any reissuance or resale.
"Additional Shares" shall mean any shares of Common Stock
of the Corporation issued by the Corporation, excluding:
(A) any shares of Common Stock issued upon the exercise
of the Warrant issued by the Corporation on February 6, 1991, for the purchase
of 500,000 shares of Common Stock (prior to the split-up effected herein), as
amended on the First Closing Date, as defined in the Corporation's Series D
Preferred Stock and Warrant Purchase Agreement;
-7-
<PAGE> 38
(B) any shares of Common Stock issued upon the
exercise of the warrants issued by the Corporation on the First Closing Date to
purchase an aggregate of 846,845 shares of Common Stock (as such number of
shares may be increased on the Second Closing Date pursuant to the terms of such
warrants), as those terms are defined in the Corporation's Series D Preferred
Stock and Warrant Purchase Agreement;
(C) any shares of Common Stock issued upon
conversion of the Series D Preferred issuable upon the exercise of any
warrant to purchase shares of Series D Preferred issued by the Corporation
on the First Closing Date or the Second Closing Date, as those terms are defined
in the Corporation's Series D Preferred Stock and Warrant Purchase Agreement;
(D) any shares of Common Stock issued upon the
conversion of the Series D Preferred;
(E) up to 1,640,762 shares of Common Stock issuable
(x) to any officer, employee, consultant or director of the Corporation pursuant
to any arrangement or plan, including any incentive stock plan, adopted by the
Board of Directors of the Corporation or (y) pursuant to the conversion of
Rights or Convertible Securities (as defined in Section 5(d)(iii)) issuable to
lending or leasing institutions; and
(E) up to 4,000 shares of Common Stock issuable at
fair market value to vendors of goods or services to the Corporation in payment
for such goods and services.
(iii) If, after the Series D Preferred Conversion
Reference Date, the Corporation issues any warrants, options or other rights
entitling the holders thereof to subscribe for or purchase either any Additional
Shares or evidences of debt, shares of capital stock or other securities that
are convertible into or exchangeable for, with or without payment of additional
consideration, Additional Shares (such warrants, options or other rights being
called "Rights" and such convertible or exchangeable evidences of debt, shares
of capital stock or other securities being called "Convertible Securities"), and
the consideration per share for which Additional Shares may at any time
thereafter be issuable pursuant to such Rights or Convertible Securities (when
added to the consideration per share of Common Stock, if any, received for such
Rights), is less than the Conversion Price for the Series D Preferred, the
Series D Preferred Conversion Price shall be adjusted as provided in Section
5(d)(ii) on the basis that (A) the maximum number of Additional Shares issuable
pursuant to all such Rights or necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued and (B) the
aggregate consideration (plus the consideration, if any, received for such
Rights) for such maximum number of Additional Shares shall be deemed to be the
consideration received and receivable by the Corporation for the issuance of
such Additional Shares pursuant to such Rights or Convertible Securities.
(iv) If, after the Series D Preferred Conversion
Reference Date, the Corporation issues Convertible Securities and the
consideration per share for which Additional Shares may at any time thereafter
be issuable pursuant to such Convertible Securities is less than the
-8-
<PAGE> 39
Conversion Price for such series, such Conversion Price shall be adjusted as
provided in Section 5(d)(ii) on the basis that (A) the maximum number of
Additional Shares necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and (B) the aggregate
consideration for such maximum number of Additional Shares shall be deemed to be
the consideration received and receivable by the Corporation for the issuance of
such Additional Shares pursuant to such Convertible Securities. No adjustment of
a Conversion Price shall be made under this Section 5(d)(iv) upon the issuance
of any Convertible Securities issued pursuant to the exercise of any Rights, to
the extent that such adjustment was previously made upon the issuance of such
Rights pursuant to Section 5(d)(iii).
(v) For purposes of Sections 5(d)(iii) and 5(d)(iv), the
relevant Series D Conversion Price shall be the applicable Conversion Price in
effect immediately prior to the earlier of (A) the record date for the holders
of Common Stock entitled to receive the Rights or Convertible Securities and (B)
the initial issuance of the Rights or Convertible Securities, and the adjustment
provided for in either such Section shall become effective immediately after the
earlier of the times specified in clauses (A) and (B).
(vi) No adjustment of any Conversion Price shall be made
under Section 5(d)(ii) upon the issuance of any Additional Shares pursuant to
the exercise of any Rights or of any conversion or exchange rights pursuant to
any Convertible Securities, if such adjustment was previously made in connection
with the issuance of such Rights or Convertible Securities (or in connection
with the issuance of any Rights therefor) pursuant to Section 5(d)(iii) or
5(d)(iv).
(vii) If any Rights (or any portions thereof) that gave
rise to an adjustment pursuant to Section 5(d)(iii) or any conversion or
exchange rights pursuant to any Convertible Securities that gave rise to an
adjustment pursuant to Section 5(d)(iii) or 5(d)(iv) expire or terminate without
the exercise thereof and/or if by reason of the provisions of such Rights or
Convertible Securities there has been any increase, with the passage of time or
otherwise, in the consideration payable upon the exercise thereof, then the
Series D Conversion Price shall be readjusted (but to no greater extent than
originally adjusted) on the basis of (A) eliminating from the computation
Additional Shares corresponding to such expired or terminated Rights or
conversion or exchange rights, (B) treating the Additional Shares, if any,
actually issued or issuable pursuant to the previous exercise of such Rights or
conversion or exchange rights as having been issued for the consideration
actually received and receivable therefor and (C) treating any such Rights or
conversion or exchange rights that remain outstanding as being subject to
exercise on the basis of the consideration payable upon the exercise or
conversion thereof as is in effect at such time; provided, however, that any
consideration actually received by the Corporation in connection with the
issuance of such Rights or Convertible Securities shall form part of the
readjustment computation even though such Rights or conversion or exchange
rights expired without being exercised. The Series D Conversion Price shall be
adjusted as provided in Section 5(d)(ii) and any applicable provisions of
Section 5(d)(iii) or 5(d)(iv) as a result of any increase in the number of
Additional Shares issuable, or any decrease in the consideration payable upon
any issuance of Additional Shares, pursuant to any antidilution provisions of
any Rights or Convertible Securities.
-9-
<PAGE> 40
(viii) (A) If any Additional Shares, Convertible
Securities or Rights are issued for cash, the consideration received therefor
shall be deemed to be the amount of cash received.
(B) If any Additional Shares, Convertible
Securities or Rights are offered by the Corporation for subscription, the
consideration received therefor shall be deemed to be the subscription price.
(C) If any Additional Shares, Convertible
Securities or Rights are sold to underwriters or dealers for public offering
without a subscription offering, the consideration received therefor shall be
deemed to be the public offering price.
(D) In any case covered by Section 5(d)(viii) (A),
(B) or (C), in determining the amount of any consideration received by the
Corporation in whole or in part other than in cash, the amount of such
consideration shall be deemed to be the fair market value of such consideration
as determined in good faith by the Board of Directors of the Corporation, and
evidence of such determination shall be filed with the minutes of the
Corporation. If Additional Shares are issued as part of a unit with Rights, the
consideration received for the Rights shall be deemed to be the portion of the
consideration received for such unit determined in good faith at the time of
issuance by the Board of directors of the Corporation, and evidence of such
determination shall be filed with the minutes of the Corporation. If the Board
does not make any such determination, the consideration received for the Rights
shall be deemed to be zero. In either event, the consideration received for the
Additional Shares shall be deemed to be the consideration received for such unit
less the consideration deemed to have been received for the Rights.
(E) In any case covered by Section 5(d)(viii) (A),
(B), (C) or (D), in determining the amount of consideration received by the
Corporation, (I) any amounts received or receivable for accrued interest or
accrued dividends shall be excluded and (II) any compensation, underwriting
commissions or concessions or expenses paid or incurred in connection therewith
shall not be deducted.
(F) In any case covered by Section 5(d)(viii) (A),
(B), (C) or (D), there shall be added to the consideration received by the
Corporation at the time of issuance or sale (I) the minimum aggregate amount of
additional consideration payable to the Corporation upon the exercise of Rights
that relate to Convertible Securities and (II) the minimum aggregate amount of
consideration payable upon the conversion or exchange thereof.
(G) If any Additional Shares, Convertible
Securities or Rights are issued in connection with any merger, consolidation or
other reorganization in which the Corporation is the surviving corporation, the
amount of consideration received therefor shall be deemed to be the fair market
value, as determined in good faith by the Board of Directors of the Corporation,
of such portion of the assets and business of the non-surviving person or
persons as the Board of Directors of the Corporation determines in good faith to
be attributable to such Additional Shares, Convertible
-10-
<PAGE> 41
Securities or Rights, and evidence of such determination shall be filed with the
minutes of the Corporation.
(ix) If the corporation effects any merger, consolidation
or other reorganization to which the Corporation is a party (other than a merger
or consolidation in which the Corporation is the surviving corporation), any
sale or conveyance to another person of all or substantially all the assets of
the Corporation or any statutory exchange of securities with another person
(including any exchange effected in connection with a merger of a third person
into the Corporation), the holder of each share of Series D Preferred then
outstanding shall have the right thereafter to convert such share into the kind
and amount of consideration receivable pursuant to such transaction by a holder
of the number of shares of Common Stock into which such share of Series D
Preferred might have been converted immediately prior to such transaction,
assuming such holder of Common Stock failed to exercise its rights of election,
if any, as to the kind or amount of consideration receivable upon such
transaction (provided that if the kind or amount of consideration receivable
pursuant to such transaction is not the same for each share of Common Stock in
respect of which such rights of election shall not have been exercised
("non-electing share"), then, for purposes of this Section 5(d)(ix), the kind
and amount of consideration receivable pursuant to such transaction for each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). Thereafter, the holders of
shares of Series D Preferred shall be entitled to appropriate adjustments
with respect to their conversion rights to the end that the provisions set forth
in this Section 5 shall correspondingly be made applicable, as nearly as may
reasonably be, to any consideration thereafter deliverable on conversion of
shares of Series D Preferred. Notwithstanding the foregoing, this Section
5(d)(ix) shall not apply, with regard to any series, to an event which is
treated as a liquidation, dissolution or winding-up of the Corporation with
respect to such series pursuant to Section 3.
(x) If a purchase, tender or exchange offer is made to
the holders of outstanding shares of Common Stock and, upon the consummation of
such offer, the person having made such offer (together with its affiliates)
beneficially owns 50% or more of the outstanding shares of Common Stock, the
Corporation shall not effect any merger, consolidation or other reorganization
with or sale, lease or other disposition of material assets or issuance of
securities to the person having made such offer or any affiliate of such person,
unless prior to the consummation thereof each holder of shares of Series D
Preferred shall have been given a reasonable opportunity to elect to receive,
upon conversion of the shares of Series D Preferred then held by such
holder (in lieu of the kind and amount of consideration otherwise receivable
upon conversion pursuant to this Section 5(d)), the consideration that would
have been received pursuant to such offer by a holder of that number of shares
of the Common Stock into which one share of Series D Preferred might then
be converted if all such shares had been tendered and accepted pursuant to such
offer.
(xi) If the Corporation distributes generally to holders
of its outstanding shares of Common Stock or any other securities entitled
generally to participate in the earnings or assets of the Corporation ("Common
Equity") evidences of its debt, securities or other assets (excluding any cash
dividends and excluding any dividends or distributions payable in Rights or
-11-
<PAGE> 42
Convertible Securities for which adjustment is otherwise made pursuant to this
Section 5(d)), each Conversion Price shall be adjusted by multiplying such
Conversion Price in effect immediately prior to the record date for such
dividend or distribution by a fraction of which (X) the numerator shall be the
current market price per share of the Common Equity (determined, if the Common
Equity is not Common Stock, in the same way that the current market price for
Common Stock is determined) on such record date less the then fair market value,
as determined in good faith by the Board of Directors of the Corporation, of the
portion of the evidences of debt, securities or other assets so distributed or
applicable to the holder of one share of Common Equity and (Y) the denominator
shall be such current market price per share of the Common Equity, and evidence
of such determination shall be filed with the minutes of the Corporation. Such
adjustment shall become effective immediately after the record date for such
dividend or distribution.
(xii) If a state of facts not specifically controlled by
the provisions of this Section 5(d) occurs or is proposed that would result in
the conversion provisions of the Series D Preferred Stock not being fairly
protected in accordance with the essential intent and principles of such
provisions, the Board of Directors of the Corporation shall make an adjustment
in the application of such provisions, in accordance with such essential intent
and principles, so as to protect such conversion provisions, and evidence of the
determination by the Board of Directors of the Corporation of such adjustment
shall be filed with the minutes of the Corporation.
(xiii) No adjustment in the Series D Conversion Price
shall be required to be made unless it would require an increase or decrease of
at least one cent, but any adjustments not made because of this Section
5(d)(xiii) shall be carried forward and taken into account in any subsequent
adjustment otherwise required. All calculations under this Section 5(d) shall be
made to the nearest cent or to the nearest 1/100th of a share, as the case may
be. All adjustments with respect to a transaction or event shall apply to
subsequent such transactions and events. Anything in this Section 5(d) to the
contrary notwithstanding, the Board of directors of the Corporation shall be
entitled to make such irrevocable reduction in the Series D Conversion Price, in
addition to the adjustments required by this Section 5(d), as in its discretion
it shall determine to be advisable in order to avoid or diminish any income
deemed to be received for Federal income tax purposes by any holder of shares of
Common Stock, Series D Preferred resulting from any event or occurrence
giving rise to an adjustment pursuant to this Section 5(d) or from any similar
event or occurrence, and evidence of the determination by the Board of Directors
of the Corporation of such adjustment shall be filed with the minutes of the
Corporation.
(xiv) Whenever the Series D Conversion Price is adjusted
pursuant to this Section 5(d), (A) the Corporation shall promptly file with the
minutes of the Corporation a certificate of a firm of nationally recognized
independent public accountants or of its chief accounting officer setting forth
the Series D Conversion Price (and any change in the kind or amount of
consideration to be received by holders of shares of Series D Preferred
upon conversion) after such adjustment and setting forth a brief statement of
the facts requiring such adjustment and the manner of computing the same and (B)
a notice stating that the Series D Conversion Price has been adjusted, stating
the effective date of such adjustment and enclosing the certificate referred to
in Section 5(d)(xiv)(A)
-12-
<PAGE> 43
above shall forthwith be mailed by the Corporation to the holders of shares of
Series D Preferred at their addresses as shown on the stock books of the
Corporation.
(xv) If as a result of any adjustment pursuant to this Section
5(d), the holder of any share of Series D Preferred surrendered for
conversion becomes entitled to receive any consideration other than Common
Stock, then (A) the Series D Conversion Price with respect to such other
consideration shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
Common Stock contained in this Section 5(d) and (B) in case such consideration
shall consist of shares of Common Stock and some other kind of consideration or
of two or more kinds of consideration, the Board of Directors of the Corporation
shall determine in good faith the fair allocation of the adjusted Series D
Conversion Price between or among such types of consideration, and evidence of
such determination shall be filed with the minutes of the Corporation.
(e) Specified Events. For purposes of this Section 5(e), a
"Specified Event" occurs if (i) the Corporation takes any action that would
require any adjustment in the Series D Conversion Price pursuant to Section
5(d)(xi), (ii) the Corporation authorizes the granting to the holders of the
Common Stock of any Rights or of any other rights, (iii) there is any capital
stock reorganization or reclassification of the Common Stock (other than a
subdivision or combination of the outstanding Common Stock and other than a
change in the par value of the Common Stock), or any merger, consolidation or
other reorganization to which the Corporation is a party, or any statutory
exchange of securities with another person and for which approval of any
stockholders of the Corporation is required, or any sale or transfer of all or
substantially all the assets of the Corporation or (iv) there is a voluntary
liquidation, dissolution or winding up of the Corporation. If a Specified Event
occurs, the Corporation shall cause to be filed with the minutes of the
Corporation, and shall cause to be mailed to the holders of shares of the Series
D Preferred, as the case may be, at their addresses as shown on the stock
books of the Corporation, at least 10 days prior to the applicable date
specified below, a notice stating (A) the date on which a record is to be taken
for the purpose of any distribution or Rights relating to such Specified Event
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such distribution or Rights are to be
determined, or (B) the date on which the reorganization, reclassification,
consolidation, merger, statutory exchange, sale, transfer, dissolution,
liquidation or winding-up relating to such Specified Event is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such Specified Event.
(f) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available, free from preemptive and subscription rights,
out of its authorized but unissued shares of Common Stock, for the purpose of
effecting conversions of the Series D Preferred, the full number of shares
of Common Stock deliverable upon the conversion of all outstanding shares of
Series D Preferred not theretofore converted. For this purpose, the number
of shares of Common Stock deliverable upon the conversion of all outstanding
shares of Series D Preferred shall be computed as if at the time of
computation all such outstanding shares were held by a single holder.
-13-
<PAGE> 44
(g) Listing. The Corporation shall use its best efforts to list any
securities required to be delivered upon conversion of the Series D Preferred
prior to such delivery upon each securities exchange, if any, upon which
such securities are listed at the time of such delivery. Prior to the delivery
of any such securities, the Corporation shall use its best efforts to comply
with all laws and regulations thereunder requiring the registration of such
securities with, or any approval of or consent to the delivery thereof by, any
governmental authority.
(h) Taxes. The Corporation shall pay all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
securities on conversion of the Series D Preferred; provided, however, that (i)
the Corporation shall not be required to pay any tax payable in respect of any
transfer involved in the issue or delivery of securities in a name other than
that of the holder of the shares of Series D Preferred to be converted and (ii)
no such issue or delivery shall be made unless and until such holder has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid or provided for.
(i) Mandatory Conversion. All issued and outstanding shares of
Series D Preferred shall be deemed to have been converted into, and shall
(without any action of the holder thereof) become, that number of fully paid and
nonassessable shares of Common Stock into which such shares of Series D
Preferred are then convertible in accordance with the provisions of this
Section 5 immediately upon the consummation of the Corporation's sale of Common
Stock in a bona fide public offering on an underwritten firm commitment basis
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission pursuant to the Securities Act of 1933, which
public offering results in aggregate gross cash proceeds to the Corporation of
at least $7,500,000 at a sale price per share of Common Stock (as adjusted for
combinations, stock dividends, subdivisions or split-ups) of at least $3.25.
Section 6. Status of Shares. Upon any conversion or any redemption,
repurchase or other acquisition by the Corporation of shares of Series D
Preferred, the shares of Series D Preferred so converted, redeemed, repurchased
or acquired shall be retired and cancelled and shall not be available for
reissuance.
Section 7. Definitions and Construction. As used in this Article 4, (a)
"herein," "hereof," "hereunder" and other like words mean or refer to this
Article 4; (b) "outstanding," when used with reference to shares of stock, means
issued shares, excluding shares held by the Corporation or a subsidiary; (c)
"person" means any corporation, partnership, trust, organization, association or
other entity or individual; (d) "affiliate" of any person means any other person
controlling, controlled by or under common control with such person; (e)
headings are for convenience of reference only and shall not define, limit or
affect any of the provisions hereof; and (f) references to Sections are to
Sections of this Article Four.
Section 8. Residual Rights. All rights accruing to the outstanding
shares of the Corporation not expressly provided for or to the contrary herein
shall be vested in the Common Stock.
-14-
<PAGE> 45
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
7. The number of directors which will constitute the whole Board of
Directors of the Corporation shall be as specified in the Bylaws of the
Corporation.
8. The election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
9. At the election of directors of the Corporation, each holder of
stock or of any class or classes or of a series or series thereof shall be
entitled to as many votes as shall equal the number of votes which (except for
such provision as to cumulative voting) he would be entitled to cast for the
election of directors with respect to his shares of stock multiplied by the
number of directors to be elected by him, and he may cast all of such votes for
a single director or may distribute them among the number to be voted for, or
for any two or more of them as he may see fit.
10. Meeting of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
11. To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article, nor the adoption of any
provision of this Restated Certificate of Incorporation inconsistent with this
Article, shall eliminate or reduce the effect of this Article in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
12. Advance notice of new business and stockholder nomination for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
13. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
-15-
<PAGE> 46
EXHIBIT C
SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions, dated as of December 21, 1995 is made and
given pursuant to Section 3 of the Integrated Surgical Systems, Inc. Series D
Preferred Stock and Warrant Purchase Agreement dated as of December 21, 1995
(the "Agreement"). The section numbers in this Schedule of Exceptions
correspond to the section numbers in the Agreement; however, any information
disclosed under any section number should be deemed to be disclosed and
incorporated into any other section number under the Agreement where such
disclosure would be appropriate. Any terms defined in the Agreement shall have
the same meaning when used in this Schedule of Exceptions as when used in the
Agreement unless the context otherwise requires.
3.2 Capitalization.
(f) Following the First Closing, the Company intends to
obtain the approval of the Board of Directors of the termination of its Amended
1991 Incentive Stock Option Plan. The Company intends to obtain the approval of
the Board of Directors and the stockholders of a 1995 Stock Plan and the
reservation of 1,640,890 shares of Common Stock for issuance thereunder.
Following approval of the 1995 Stock Plan, the Company intends to obtain the
agreement of all holders of vested options under the Amended 1991 Incentive
Stock Option Plan to the cancellation of such vested options in exchange for
new options under the 1995 Stock Plan.
(g) (ii) The Loan and Warrant Purchase Agreement dated
February 6, 1991 between IBM and the Company ("IBM Loan Agreement"), as amended
by the Agreement, grants IBM rights to purchase its pro rata portion of voting
securities issued by the Company. The Series B Preferred Stock Purchase
Agreement dated April 10, 1992 (together with the Exhibits thereto, the "Series
B Purchase Agreement") between the Company and the investors parties thereto
(the "Series B Investors") grants to the Series B Investors rights to purchase
their pro rata portion of voting securities issued by the Company. The Series C
Preferred Stock Purchase Agreement dated November 13, 1992 (together with the
Exhibits thereto, the "Series C Purchase Agreement") between the Company and
the investors parties thereto (the "Series C Investors") grants to the Series C
Investors rights to purchase their pro rata portion of voting securities issued
by the Company.
3.9 Patents and Trademarks.
The Company entered into a Robodoc/Orthodoc License Agreement
dated February 4, 1991 granting the Company certain non-exclusive and partially
exclusive rights and licenses necessary to develop and market robtic surgery
software and pre-surgical planning software ("IBM License Agreement Number 1").
<PAGE> 47
The Company entered into a License Agreement dated February 6,
1991 with IBM and obtained certain non-exclusive rights and licenses necessary
to develop and market a robotic surgery software application ("IBM License
Agreement Number 2").
3.10 Compliance with Other Instruments.
(a) As of the date hereof, the Company is consummating the
issuance to IBM of a warrant for the purchase of shares of Common Stock in
exchange for the forgiveness and cancellation by IBM of the outstanding
principal amount of and accrued interest on the IBM Note.
The Company is currently in default with respect to and
under the terms of the Sankyo Note (as defined below).
3.11 Agreements; Action.
(a) The Company has entered into the following agreements
with IBM; IBM Loan Agreement, IBM License Agreement No. 1 and IBM License
Agreement No. 2. In addition, IBM has provided various services without charge
to the Company and has sold equipment to the Company under standard remarketer
and/or developer discount programs.
The Company has entered into the following agreements
with Sutter Health, a California nonprofit public benefit corporation: Series B
Purchase Agreement and Series C Purchase Agreement.
The Company has entered into the following agreements
with Wendy Shelton-Paul, a member of the Company's Board of Directors and the
Company's former acting Chief Executive Officer: Option Agreement dated April
5, 1995; Proprietary Information and Noncompetition Agreement dated December
29, 1993.
The Company has entered into the following agreements
with Michael Tomczak, its Vice President and Chief Financial Officer: Option
Agreements dated February 4, 1992, February 2, 1993, January 4, 1994 and April
25, 1995; Proprietary Information and Noncompetition Agreement dated October
25, 1991.
The Company has entered into the following agreements
with Ramesh Trivedi, its President and Chief Executive Officer and, effective
upon the First Closing, a member of the Company's Board of Directors:
employment agreement dated December 8, 1995, and Proprietary Information and
Noncompetition Agreement dated December 8, 1995. In addition, the Company has
made a commitment to grant to Mr. Trivedi options to purchase Common Stock
representing six percent of the Company, calculated as of immediately following
the Second Closing. Such options shall be granted under the Company's 1995
Stock Plan, upon the adoption of such plan.
The Company has entered into an Agreement with the
Berufsgenossenschaftliche Unfallklinik (BGU) dated May 3, 1994 (the "BGU
Agreement"). The
-2-
<PAGE> 48
BGU Agreement provides for the purchase by BGU of a TUV-certified ROBODOC
Surgical Assistant System. Under the terms of the BGU Agreement, the Company
has installed at BGU a system that is not TUV-certified, pending the
installation of a TUV-certified system. BGU has paid the Company $400,000 plus
VAT of $69,993 as a deposit on the TUV-certified system. At BGU's sole
discretion, BGU may void the BGU Agreement and return the non-TUV-certified
system, entitling it to a $469,993 refund from the Company (the "Right of
Return"). If the TUV-certified system is delivered to BGU prior to BGU's
exercising the Right of Return, BGU will no longer have a right to the $469,993
refund from the Company.
(b) As of October 25, 1995, the Company has the following
agreements and accounts payable, all incurred in the ordinary course of
business, involving in excess of $25,000;
The Company has a real property lease dated December 3,
1990, as amended, covering its office space located at 829 West Stadium Lane,
Sacramento, California. Total monthly rent is approximately $5,260. The current
lease expires in June 1996.
The Company has a real property lease dated March 4,
1993, as amended, covering its office and manufacturing space located at 830
West Stadium Lane, Sacramento, California. Total monthly rent is approximately
$6,731. The current lease expires in June 1998. The Lease Agreement has a
provision which allows the Company to terminate its lease in June 1996 for a
fee of approximately $34,000.
The Company has previously described certain license
agreements with IBM.
(c) The Company has borrowed a total of $3,000,000 from IBM
under the IBM Note. In addition, as of November 30, 1995, there is approximately
$1,208,717 of accrued interest owing on the IBM Note. As of the date hereof,
the Company is consummating the issuance to IBM of a warrant for the purchase
of shares of Common Stock in exchange for the forgiveness and cancellation by
IBM of the outstanding principal amount of and accrued interest on the IBM Note.
The Company has issued a Promissory Note in the
principal amount of approximately $258,000 to Sankyo Seiki America (the
"Sankyo Note"). Such principal amount and accrued and unpaid interest with
respect to the Sankyo Note as of November 30, 1995, in the amount of $15,126,
was due and payable on September 30, 1995.
(e) See Exception to Section 3.2(g)(ii).
-3-
<PAGE> 49
3.22 Insurance.
<TABLE>
<CAPTION>
TOTAL
CARRIER TYPE OF INSURANCE DEDUCTIBLE COVERAGE PREMIUM
- -------------- ------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Chubb COMMERCIAL PACKAGE
Blanket Business Personal Property $1,000 $1,600,000 $7,625/yr.
Blanket Computer Equipment 1,000 400,000
Extra Expense - Loc. 1 & 2 1,000 50,000 ea.
General Liability 1,000 1,000,000
Employee Benefits 1,000 1,000,000
Non Owned and Hired Auto Liab. 1,000 1,000,000
Chubb Foreign Property at any Location 1,000 200,000 2,500/yr.
Chubb DOMESTIC AND FOREIGN TRANSIT
Domestic Transit 1,000 200,000
Domestic Exhibition/Trade Shows 1,000 200,000
Foreign Transit 1,000 200,000
National Union Products Liability 25,000 4,000,000 50,636/yr.
(occur.)
125,000
(agg.)
Chubb Umbrella Liability (excludes products) N/A 4,000,000 4,500/yr.
California Workers Compensation N/A 1,000,000 9,308/yr.
Casualty
FHP Take Care Medical 10 copay HMO 4,400/mo.
Fortis Dental 50 50-100% 1,150/mo.
Fortis Employee Life Insurance N/A 80,000/emp. 250/mo.
Fortis Long-term Disability N/A 60% of pay 330/mo.
</TABLE>
3.23 Effect of Transaction.
As part of the Recapitalization described in Section 1.2 of the
Agreement, the Company will issue to IBM the IBM 1995 Common Warrant in
exchange for the cancellation of the outstanding principal amount of and all
interest accrued on the IBM Note.
-4-
<PAGE> 50
EXHIBIT D
INTEGRATED SURGICAL SYSTEMS, INC.
EMPLOYMENT, CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
As a condition of my employment with Integrated Surgical Systems, Inc.,
its subsidiaries, affiliates, successors or assigns (together the "Company"),
and in consideration of my employment with the Company and my receipt of the
compensation now and hereafter paid to me by Company, I agree to the following:
1. At-Will Employment. I UNDERSTAND AND ACKNOWLEDGE THAT MY
EMPLOYMENT WITH THE COMPANY IS FOR AN UNSPECIFIED DURATION AND CONSTITUTES
"AT-WILL" EMPLOYMENT. I ACKNOWLEDGE THAT THIS EMPLOYMENT RELATIONSHIP MAY BE
TERMINATED AT ANY TIME, WITH OR WITHOUT GOOD CAUSE OR FOR ANY OR NO CAUSE, AT
THE OPTION EITHER OF THE COMPANY OR MYSELF, WITH OR WITHOUT NOTICE.
2. Confidential Information.
(a) Company Information. I agree at all times during the
term of my employment and thereafter, to hold in strictest confidence, and not
to use, except for the benefit of the Company, or to disclose to any person,
firm or corporation without written authorization of the Board of Directors of
the Company, any Confidential Information of the Company. I understand that
"Confidential Information" means any Company proprietary information, technical
data, trade secrets or know-how, including, but not limited to, research,
product plans, products, services, customer lists and customers (including, but
not limited to, customers of the Company on whom I called or with whom I became
acquainted during the term of my employment), markets, software, developments,
inventions, processes, formulas, technology, designs, drawings, engineering,
hardware configuration information, marketing, finances or other business
information disclosed to me by the Company either directly or indirectly in
writing, orally or by drawings or observation of parts or equipment. I further
understand that Confidential Information does not include any of the foregoing
items which has become publicly known and made generally available through no
wrongful act of mine or of others who were under confidentiality obligations as
to the item or items involved.
(b) Former Employer Information. I agree that I will not,
during my employment with the Company, improperly use or disclose any
proprietary information or trade secrets of any former or concurrent employer
or other person or entity and that I will not bring onto the premises of the
Company any unpublished document or proprietary information belonging to any
such employer, person or entity unless consented to in writing by such
employer, person or entity.
(c) Third Party Information. I recognize that the Company
has received and in the future will receive from third parties their
confidential or proprietary information subject to a duty on the Company's part
to maintain the confidentiality of such information and to use it only for
certain limited purposes. I agree to hold all such confidential or proprietary
information in the strictest confidence and not to disclose it to any person,
firm or corporation or to use it except as necessary in carrying out my work
for the Company consistent with the Company's agreement with such third party.
<PAGE> 51
3. Inventions.
(a) Inventions Retained and Licensed. I have attached
hereto, as Exhibit A, a list describing all inventions, original works of
authorship, developments, improvements, and trade secrets which were made by me
prior to my employment with the Company (collectively referred to as "Prior
Inventions"), which belong to me, which relate to the Company's proposed
business, products or research and development, and which are not assigned to
the Company hereunder; or, if no such list is attached, I represent that there
are no such Prior Inventions. If in the course of my employment with the
Company, I incorporate into a Company product, process or machine a Prior
Invention owned by me or in which I have an interest, the Company is hereby
granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual,
worldwide license to make, have made, modify, use and sell such Prior Invention
as part of or in connection with such product, process or machine.
(b) Assignment of Inventions. I agree that I will promptly
make full written disclosure to the Company, will hold in trust for the sole
right and benefit of the Company, and hereby assign to the Company, or its
designee, all my right, title, and interest in and to any and all inventions,
original works of authorship, developments, concepts, improvements or trade
secrets, whether or not patentable or registrable under copyright or similar
laws, which I may solely or jointly conceive or develop or reduce to practice,
or cause to be conceived or developed or reduced to practice, during the period
of time I am in the employ of the Company (collectively referred to as
"Inventions"), except as provided in Section 3(f) below. I further acknowledge
that all original works of authorship which are made by me (solely or jointly
with others) within the scope of and during the period of my employment with
the Company and which are protectible by copyright are "works made for hire,"
as that term is defined in the United States Copyright Act.
(c) Inventions Assigned to the United States. I agree to
assign to the United States government all my right, title, and interest in and
to any and all Inventions whenever such full title is required to be in the
United States by a contract between the Company and the United States or any of
its agencies.
(d) Maintenance of Records. I agree to keep and maintain
adequate and current written records of all Inventions made by me (solely or
jointly with others) during the term of my employment with the Company. The
records will be in the form of notes, sketches, drawings, and any other format
that may be specified by the Company. The records will be available to and
remain the sole property of the Company at all times.
(e) Patent and Copyright Registrations. I agree to assist
the Company, or its designee, at the Company's expense, in every proper way to
secure the Company's rights in the Inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications,
specifications, oaths, assignments and all other instruments which the Company
shall deem necessary in order to apply for and obtain such rights and in order
to assign and convey to the Company, its successors, assigns, and nominees the
sole and exclusive rights, title and interest in and to such Inventions, and
any copyrights, patents, mask work rights or other intellectual property rights
relating thereto. I further agree that my obligation to execute or cause to be
executed, when it is in my power to do so, any such instrument or papers shall
continue after the termination of this Agreement. If the Company is unable
because of my mental or physical incapacity or for any other reason to secure
my signature to apply for or to pursue any application for
-2-
<PAGE> 52
any United States or foreign patents or copyright registrations covering
Inventions or original works of authorship assigned to the Company as above,
then I hereby irrevocably designate and appoint the Company and its duly
authorized officers and agents as my agent and attorney in fact, to act for and
in my behalf and stead to execute and file any such applications and to do all
other lawfully permitted acts to further the prosecution and issuance of
letters patent or copyright registrations thereon with the same legal force and
effect as if executed by me.
(f) Exception to Assignments. I understand that the
provisions of this Agreement requiring assignment of Inventions to the Company
do not apply to any invention which qualifies fully under the provisions of
California Labor Code Section 2870 (attached hereto as Exhibit B). I will
advise the Company promptly in writing of any inventions that I believe meet
the criteria in California Labor Code Section 2870 and not otherwise disclosed
on Exhibit A.
4. Conflicting Employment. I agree that, during the term of my
employment with the Company, I will not engage in any other employment,
occupation, consulting or other business activity directly related to the
business in which the Company is now involved or becomes involved during the
term of my employment, nor will I engage in any other activities that conflict
with my obligations to the Company.
5. Returning Company Documents. I agree that, at the time of
leaving the employ of the Company, I will deliver to the Company (and will not
keep in my possession, recreate or deliver to anyone else) any and all devices,
records, data, notes, reports, proposals, lists, correspondence,
specifications, drawings blueprints, sketches, materials, equipment, other
documents or property, or reproductions of any aforementioned items developed
by me pursuant to my employment with the Company or otherwise belonging to the
Company, its successors or assigns. In the event of the termination of my
employment, I agree to sign and deliver the "Termination Certification"
attached hereto as Exhibit C.
6. Notification of New Employer. In the event that I leave the
employ of the Company, I hereby grant consent to notification by the Company to
my new employer about my rights and obligations under this Agreement.
7. Solicitation of Employees. I agree that for a period of twelve
(12) months immediately following the termination of my relationship with the
Company for any reason, whether with or without cause, I shall not either
directly or indirectly solicit, induce, recruit or encourage any of the
Company's employees to leave their employment, or take away such employees, or
attempt to solicit, induce, recruit, encourage or take away employees of the
Company, either for myself or for any other person or entity.
8. Conflict of Interest Guidelines. I agree to diligently adhere
to the Conflict of Interest Guidelines attached as Exhibit D hereto.
9. Representations. I agree to execute any proper oath or verify
any proper document required to carry out the terms of this Agreement. I
represent that my performance of all the terms of this Agreement will not
breach any agreement to keep in confidence proprietary information acquired by
me in confidence or in trust prior to my employment by the Company. I have not
entered into, and I agree I will not enter into, any oral or written agreement
in conflict herewith.
-3-
<PAGE> 53
10. Arbitration and Equitable Relief.
(a) Arbitration. EXCEPT AS PROVIDED IN SECTION 10(b) BELOW,
I AGREE THAT ANY DISPUTE OR CONTROVERSY ARISING OUT OF, RELATING TO, OR
CONCERNING ANY INTERPRETATION, CONSTRUCTION, PERFORMANCE OR BREACH OF THIS
AGREEMENT, SHALL BE SETTLED BY ARBITRATION TO BE HELD IN SACRAMENTO COUNTY,
CALIFORNIA, IN ACCORDANCE WITH THE RULES THEN IN EFFECT OF THE AMERICAN
ARBITRATION ASSOCIATION. THE ARBITRATOR MAY GRANT INJUNCTIONS OR OTHER RELIEF
IN SUCH DISPUTE OR CONTROVERSY. THE DECISION OF THE ARBITRATOR SHALL BE FINAL,
CONCLUSIVE AND BINDING ON THE PARTIES TO THE ARBITRATION. JUDGMENT MAY BE
ENTERED ON THE ARBITRATOR'S DECISION IN ANY COURT HAVING JURISDICTION. THE
COMPANY AND I SHALL EACH PAY ONE-HALF OF THE COSTS AND EXPENSES OF SUCH
ARBITRATION, AND EACH OF US SHALL SEPARATELY PAY OUR COUNSEL FEES AND EXPENSES.
THE ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A
JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL
ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP (EXCEPT AS PROVIDED IN SECTION
10(b) BELOW), INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
i. ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE
COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR
INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR
PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
ii. ANY AND ALL CLAIMS FOR VIOLATION OF ANY
FEDERAL, STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII
OF THE CIVIL RIGHTS OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT
OF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND
HOUSING ACT, AND LABOR CODE SECTION 201, et seq.;
iii. ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
(b) Equitable Remedies. I AGREE THAT IT WOULD BE IMPOSSIBLE
OR INADEQUATE TO MEASURE AND CALCULATE THE COMPANY'S DAMAGES FROM ANY BREACH OF
THE COVENANTS SET FORTH IN SECTIONS 2, 3 AND 5 HEREIN. ACCORDINGLY, I AGREE
THAT IF I BREACH ANY OF SUCH SECTIONS, THE COMPANY WILL HAVE AVAILABLE, IN
ADDITION TO ANY OTHER RIGHT OR REMEDY AVAILABLE, THE RIGHT TO OBTAIN AN
INJUNCTION FROM A COURT OF COMPETENT JURISDICTION RESTRAINING SUCH BREACH OR
THREATENED BREACH AND TO SPECIFIC PERFORMANCE OF ANY SUCH PROVISION OF THIS
AGREEMENT. I FURTHER AGREE THAT NO BOND OR OTHER SECURITY SHALL BE REQUIRED IN
OBTAINING SUCH EQUITABLE RELIEF AND I HEREBY CONSENT TO THE ISSUANCE OF SUCH
INJUNCTION AND TO THE ORDERING OF SPECIFIC PERFORMANCE.
-4-
<PAGE> 54
(c) Consideration. I UNDERSTAND THAT EACH PARTY'S PROMISE
TO RESOLVE CLAIMS BY ARBITRATION IN ACCORDANCE WITH THE PROVISIONS OF THIS
AGREEMENT, RATHER THAN THROUGH THE COURTS, IS CONSIDERATION FOR OTHER PARTY'S
LIKE PROMISE. I FURTHER UNDERSTAND THAT I AM OFFERED EMPLOYMENT IN
CONSIDERATION OF MY PROMISE TO ARBITRATE CLAIMS.
11. General Provisions.
(a) Governing Law; Consent to Personal Jurisdiction. This
Agreement will be governed by the laws of the State of California. I hereby
expressly consent to the personal jurisdiction of the state and federal courts
located in California for any lawsuit filed there against me by the Company
arising from or relating to this Agreement.
(b) Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the Company and me relating to the subject
matter herein and merges all prior discussions between us. No modification of
or amendment to this Agreement, nor any waiver of any rights under this
agreement, will be effective unless in writing signed by the party to be
charged. Any subsequent change or changes in my duties, salary or compensation
will not affect the validity or scope of this Agreement.
(c) Severability. If one or more of the provisions in this
Agreement are deemed void by law, then the remaining provisions will continue
in full force and effect.
(d) Successors and Assigns. This Agreement will be binding
upon my heirs, executors, administrators and other legal representatives and
will be for the benefit of the Company, its successors, and its assigns.
Date:
-----------------------------
--------------------------------------
Signature
--------------------------------------
Name of Employee (typed or printed)
- ----------------------------------
Witness
-5-
<PAGE> 55
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
<TABLE>
<CAPTION>
Identifying Number
Title Date or Brief Description
- --------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
No inventions or improvements
- -----
Additional Sheets Attached
- -----
Signature of Employee:
-----------------------
Print Name of Employee:
---------------------
Date:
-------------------
<PAGE> 56
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS;
ASSIGNMENT OF RIGHTS
"(a) Any provisions in an employment agreement which provides that
an employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to
practice of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports
to require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
<PAGE> 57
EXHIBIT C
INTEGRATED SURGICAL SYSTEMS, INC.
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I
failed to return, any devices, records, data, notes, reports, proposals, lists
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to Integrated Surgical Systems, Inc., its subsidiaries,
affiliates, successors or assigns (together, the "Company").
I further certify that I have complied with all the terms of the
Company's Employment Confidential Information and Invention Assignment
Agreement signed by me, including the reporting of any inventions and original
works of authorship (as defined therein), conceived or made by me (solely or
jointly with others) covered by that agreement.
I further agree that, in compliance with the Employment, Confidential
Information and Invention Assignment Agreement, I will preserve as confidential
all trade secrets, confidential knowledge, data or other proprietary
information relating to products, processes, know-how, designs, formulas,
developmental or experimental work, computer programs, data bases, other
original works of authorship, customer lists, business plans, financial
information or other subject matter pertaining to any business of the Company
or any of its employees, clients, consultants, or licensees.
I further agree that for twelve (12) months from this date, I will not
hire any employees of the Company and I will not solicit, induce, recruit or
encourage any of the Company's employees to leave their employment.
Date:
-----------------
-----------------------------------
(Employee's Signature)
-----------------------------------
(Type/Print Employee's Name)
<PAGE> 58
EXHIBIT D
INTEGRATED SURGICAL SYSTEMS, INC.
CONFLICT OF INTEREST GUIDELINES
It is the policy of Integrated Surgical Systems, Inc. to conduct its
affairs in strict compliance with the letter and spirit of the law and to
adhere to the highest principles of business ethics. Accordingly, all officers,
employees and independent contractors must avoid activities which are in
conflict, or give the appearance of being in conflict, with these principles
and with the interests of the Company. The following are potentially
compromising situations which must be avoided. Any exceptions must be reported
to the President and written approval for continuation must be obtained.
1. Revealing confidential information to outsiders or misusing
confidential information. Unauthorized divulging of information is a violation
of this policy whether or not for personal gain and whether or not harm to the
Company is intended. (The Employment, Confidential Information and Invention
Assignment Agreement elaborates on this principle and is a binding agreement.)
2. Accepting or offering substantial gifts, excessive
entertainment, favors or payments which may be deemed to constitute undue
influence or otherwise be improper or embarrassing to the Company.
3. Participating in civic or professional organizations that might
involve divulging confidential information of the Company.
4. Initiating or approving personnel actions affecting reward or
punishment of employees or applicants where there is a family relationship or
is or appears to be a personal or social involvement.
5. Initiating or approving any form of personal or social
harassment of employees.
6. Investing or holding outside directorship in suppliers,
customers, or competing companies, including financial speculations, where such
investment or directorship might influence in any manner a decision or course
of action of the Company.
7. Borrowing from or lending to employees, customers or suppliers.
8. Acquiring real estate of interest to the Company.
9. Improperly using or disclosing to the Company any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity with whom obligations of confidentiality exist.
10. Unlawfully discussing prices, costs, customers, sales or
markets with competing companies or their employees.
11. Making any unlawful agreement with distributors with respect to
prices.
<PAGE> 59
12. Improperly using or authorizing the use of any inventions which
are the subject of patent claims of any other person or entity.
13. Engaging in any conduct which is not in the best interest of
the Company.
Each officer, employee and independent contractor must take every
necessary action to ensure compliance with these guidelines and to bring
problem areas to the attention of higher management for review. Violations of
this conflict of interest policy may result in discharge without warning.
-2-
<PAGE> 60
EXHIBIT E
December 21, 1995
To the Investors Listed in
Exhibit A to the Integrated
Surgical Systems, Inc.
Series D Preferred Stock and Warrant
Purchase Agreement Dated as of December 21, 1995
Sutter Health, a California nonprofit
public benefit corporation ("Sutter Health")
Sutter Health Venture Partners I, L.P.,
a California limited partnership ("Sutter Ventures")
Keystone Financial Corporation, a
Pennsylvania Not-For-Profit Corporation ("Keystone")
Ladies and Gentlemen:
Reference is made to the Series D Preferred Stock and Warrant Purchase
Agreement, dated as of December 21, 1995, complete with all listed exhibits
thereto (the "Agreement"), by and among Integrated Surgical Systems, Inc., a
Delaware corporation (the "Company"), and the persons and entities listed in
Exhibit A to the Agreement (the "Investors"), which provides for the issuance by
the Company to the Investors of shares of Series D Preferred Stock of the
Company (the "Shares") and warrants to purchase shares of Series D Preferred
Stock of the Company ("Series D warrants"), and for the issuance by the Company
to Sutter Health, Sutter Ventures and Keystone (together, the "Warrantholders")
of rights to purchase shares of the Company's Common Stock (the "Series C
(Investor Common Warrants"). This opinion is rendered to the Investors pursuant
to Section 5.7 of the Agreement and to the Warrantholders pursuant to Section 14
of each of the Warrant Agreements of even date herewith between the Company and
each of Sutter Health, Sutter Ventures and Keystone (together, the "Warrant
Agreements"). All terms used herein have the meanings defined for them in the
Agreement and the Warrant Agreements unless otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Agreement and the Warrant Agreements and the issuance of the
Shares and Series D Warrants and Series C Investor Common Warrants. As such
counsel, we have made such legal and factual examinations and inquiries as we
have deemed advisable or necessary for the purpose of rendering this opinion.
In addition, we have examined originals or copies of such corporate records of
the Company, certificates of public officials and such other documents which we
consider necessary or advisable for the purpose of rendering this opinion. In
such examination we have assumed the
<PAGE> 61
genuineness of all signatures on original documents, the authenticity and
completeness of all documents submitted to us as originals, the conformity to
original documents of all copies submitted to us and the due execution and
delivery of all documents (except as to due execution and delivery by the
Company) where due execution and delivery are a prerequisite to the
effectiveness thereof.
As used in this opinion, the expression "to our knowledge," "known to
us" or similar language with reference to matters of fact means that, after an
examination of documents made available to us by the Company, and after
inquiries of officers of the Company, but without any further independent
factual investigation, we find no reason to believe that the opinions expressed
herein are factually incorrect. Further, the expression "to our knowledge",
"known to us" or similar language with reference to matters of fact refers to
the current actual knowledge of the attorneys of this firm who have worked on
matters for the Company. Except to the extent expressly set forth herein or as
we otherwise believe to be necessary to our opinion, we have not undertaken any
independent investigation to determine the existence or absence of any fact,
and no inference as to our knowledge of the existence or absence of any fact
should be drawn from our representation of the Company or the rendering of the
opinion set forth below.
For purposes of this opinion, we are assuming that the Investors and
the Warrantholders have all requisite power and authority, and have taken any
and all necessary corporate or partnership action, to execute and deliver the
Agreement and the Warrant Agreements, respectively, and we are assuming that
the representations and warranties made by the Investors in the Agreement and
pursuant thereto and by the Warrantholders in the Warrant Agreements and
pursuant thereto are true and correct. We are also assuming that the Investors
are purchasing the Shares and the Series D Warrants for value, in good faith and
without notice of any adverse claims within the meaning of the California
Uniform Commercial Code. We are also assuming that, upon the exercise of the
Warrants, the Warrantholders will be purchasing the shares of Common Stock to
which the Warrants apply for the exercise price set forth in the Warrants, in
good faith and without notice of any adverse claims within the meaning of the
California Uniform Commercial Code.
The opinions hereinafter expressed are subject to the following
qualifications:
(a) We express no opinion as to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other similar federal or
state laws affecting the rights of creditors;
(b) We express no opinion as to the effect of rules of law
governing specific performance, injunctive relief or other equitable remedies
(regardless of whether any such remedy is considered in a proceeding at law or
in equity);
(c) We express no opinion as to compliance with the
anti-fraud provisions of applicable securities laws;
(d) We express no opinion as to the enforceability of the
indemnification provisions of Sections 4,5,6,7 or 8 of the Registration Rights
Agreement to the extent the
-2-
<PAGE> 62
provisions thereof may be subject to limitations of public policy and the
effect of applicable statutes and judicial decisions;
(e) We are members of the Bar of the State of California
and, except as set forth in paragraph 7 below with respect to the securities
laws of other states, we express no opinion as to any matter relating to the
laws of any jurisdiction other than the federal laws of the United States of
America, the laws of the State of California and with respect to paragraphs 1,
2 and 4 only, the General Corporation Law of the State of Delaware. To the
extent this opinion addresses applicable securities laws of states other than
the State of California, we have not retained nor relied on the opinion of
counsel admitted to the bar of such states, but rather have relied on
compilations of the securities laws of such states contained in reporting
services presently available to us.
(f) We express no opinion as to compliance with Federal and
State laws, rules and regulations relating to the manufacture, sale or use of
medical devices.
(g) We express no opinion as the enforceability of the
Investors Agreement or the November 1992 Stockholders Agreement or Section 4 of
the Proprietary Information and Noncompetition Agreement attached to the
Agreement as Exhibit D.
(h) We express no opinion as to the organization, standing,
qualification or capitalization of Integrated Surgical Systems B.V., the
Company's subsidiary.
(i) We express no opinion as to that certain letter
agreement dated December 13, 1995, by and among Sutter Health, a California
nonprofit public benefit corporation, the Company, International Business
Machines Corporation and EJ Financial Investments V, L.P.
(j) The issuance of the Series C Investor Common Warrant to
Keystone is subject to the execution by Keystone of the Warrant Agreement
between the Company and Keystone, which Warrant Agreement contains certain
representations of and transfer restrictions pertaining to Keystone. As of the
date hereof, the Warrant Agreement between the Company and Keystone has not
been executed by Keystone.
Based upon and subject to the foregoing, and except as set forth in the
Schedule of Exceptions to the Agreement, we are of the opinion that:
1. The Company is a corporation duly organized and validly
existing under, and by virtue of, the laws of the State of Delaware and is in
good standing under such laws. The Company has the requisite corporate power to
own and operate its properties and assets, and to carry on its business as
presently conducted. The Company is qualified to do business as a foreign
corporation in California. The Company is not qualified to do business as a
foreign corporation in any other jurisdiction and such qualification is not
presently required, except to the extent that the failure to so qualify would
not have a material adverse affect on the Company.
-3-
<PAGE> 63
2. The Company has all requisite legal and corporate power to
execute and deliver the Agreement, the Investors Agreement, the Registration
Rights Agreement and the Warrant Agreements, to sell and issue the Shares and
the Series D Warrants under the Agreement, to issue the shares of Series D
Preferred Stock upon exercise of the Series D Warrants (the "Warrant Shares")
and the Common Stock issuable upon conversion of the Shares and of the Warrant
Shares and to issue the shares of Common Stock upon exercise of the Series C
Investor Common Warrants and to carry out and perform its obligations under
the terms of the Agreement, the Registration Rights Agreement, the Restated
Certificate of Incorporation and the Warrant Agreements.
3. The authorized capital stock of the Company consists of
15,000,000 shares of Common Stock, 405,313 shares of which are issued and
outstanding as of and immediately following the First Closing, and 5,750,000
shares of Preferred Stock, 5,750,000 of which are designated Series D Preferred
Stock, none of which was issued and outstanding immediately prior to the First
Closing. All such issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable and free of
any preemptive or similar rights contained in the Restated Certificate of
Incorporation or Bylaws of the Company or, to our knowledge, in any agreement to
which the Company is a party, except as specifically provided in the Investors
Agreement or the November 1992 Stockholders Agreement or as set forth in the
Schedule of Exceptions. The Series D Preferred Stock issuable upon exercise of
the Series D Warrants has been duly and validly reserved, and when issued in
accordance with the terms of the Series D Warrants will be validly issued, fully
paid and nonassessable. The Common Stock issuable upon conversion of the Shares
and of the Warrant Shares has been duly and validly reserved, and when issued in
accordance with the Company's Restated Certificate of Incorporation will be
validly issued, fully paid and nonassessable. The Common Stock issuable upon
exercise of the Series C Investor Common Warrants has been duly and validly
reserved, and when issued in accordance with the terms of the Series C Investor
Common Warrants will be validly issued, fully paid and nonassessable. The Shares
and Series D Warrants issued under the Agreement are validly issued, fully paid
and nonassessable and free of any liens, encumbrances and preemptive or similar
rights contained in the Restated Certificate of Incorporation or Bylaws of the
Company, or, to our knowledge, in any agreement to which the Company is a party,
except as specifically provided in the Agreement, the Investors Agreement and
the November 1992 Stockholders Agreement and as set forth in the Schedule of
Exceptions; provided, however, that the Series D Warrants and the Shares and
Warrant Shares (and the Common Stock issuable upon conversion thereof) may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth in the Agreement. To our knowledge, except for rights described in
the Agreement, the Schedule of Exceptions, the Restated Certificate of
Incorporation and the Warrant Agreements, there are no other options, warrants,
conversion privileges or other rights presently outstanding to purchase or
otherwise acquire any authorized but unissued shares of capital stock or other
securities of the Company, or any other agreements to issue any such securities
or rights. The issuance of the Series D Warrants and the Shares as contemplated
under the Agreement and the issuance of the Warrant Shares issuable upon
exercise of the Series D Warrants and the issuance of the shares of Common Stock
issuable upon conversion of the Shares and the Warrant Shares and the issuance
of the Series C Investor Common Warrants as contemplated under the Warrant
Agreements and the issuance of the shares of Common Stock issuable upon exercise
of
-4-
<PAGE> 64
the Series C Investor Common Warrants will not result in any adjustment under
the antidilution provisions set forth in the Restated Certificate of
Incorporation or with regard to any of the outstanding securities referred to
in this paragraph 3 which adjustment has not been waived.
4. All corporate action on the part of the Company, its directors,
stockholders and noteholder necessary for (a) the authorization, execution and
delivery of the Agreement, Investors Agreement, Registration Rights Agreement
and Warrant Agreements, (b) the execution and filing of the Restated Certificate
of Incorporation by the Company, (c) the authorization, sale (except with
respect to the Series C Investor Common Warrants), issuance and delivery of the
Series D Warrants (and the Warrant Shares issuable upon exercise thereof) and
the Shares (and the Common Stock issuable upon conversion of the Shares and the
Warrant Shares) and the Series C Investor Common Warrants (and the shares of
Common Stock issuable upon exercise thereof) and (d) the performance of the
Company's obligations under the Agreement, the Registration Rights Agreement
and the Warrant Agreements have been taken. The Agreement, the Registration
Rights Agreement and the Warrant Agreements have been duly and validly executed
and delivered by the Company and constitute valid and binding obligations of
the Company, enforceable against the Company in accordance with their terms.
5. The execution, delivery and performance of and compliance with
the terms of the Agreement and the Registration Rights Agreement, and the
issuance of the Series D Warrants (and the Warrant Shares issuable upon
exercise thereof) and the Shares (and the Common Stock issuable upon
conversion of the Shares and the Warrant Shares) do not violate any provision
of (a) the Restated Certificate of Incorporation or Bylaws, (b) any judgment,
order decree, statute, law, ordinance or regulation applicable to the Company
or any of its properties or assets, or (c) to our knowledge, any loan or credit
agreement, note, bond, mortgage, indenture, deed of trust, license, lease,
contract, commitment, agreement, understanding or arrangement to which the
Company is a party or by which the Company or any of its properties or assets
is bound.
6. To our knowledge, there are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court
or governmental agency (nor, to our knowledge, has the Company received any
written threat thereof), which, either in any case or in the aggregate, are
likely to result in any material adverse change in the business or financial
condition of the Company or any of its properties, or in any material
impairment of the right or ability of the Company to carry on its business as
now conducted, or which questions the validity of the Agreement or any action
taken or to be taken by the Company in connection therewith.
7. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the
Company is required in connection with the valid execution and delivery of the
Agreement, Investors Agreement, Registration Rights Agreement, or the offer,
sale or issuance of the Series D Warrants (and the Warrant Shares issuable upon
exercise thereof) and the Shares (and the Common Stock issuable upon
conversion of the Shares and the Warrant Shares) or the consummation of any
other transaction contemplated by the Agreement and the Registration Rights
Agreement, except (a) filing of the Restated Certificate of Incorporation in
the Office of the
-5-
<PAGE> 65
Secretary of State of the State of Delaware, and (b) qualification (or taking
such action as may be necessary to secure an exemption from qualification, if
available) under the California Corporate Securities Law and other applicable
blue sky laws (but excluding jurisdiction outside of the United States) of the
offer and sale of the Series D Warrants (and the Warrant Shares issuable upon
exercise thereof) and the Shares (and the Common Stock issuable upon conversion
of the Shares and the Warrant Shares) and the modification of rights of
stockholders contemplated by the Agreement. The filing referred to in clause
(a) above has been accomplished and is effective. Our opinion herein is
otherwise subject to the timely and proper completion of all filings and other
actions contemplated herein where such filings and actions are to be undertaken
on or after the date hereof.
8. Subject to the accuracy of the Investors' representations in
Section 4 of the Agreement and their responses (if any) to the Company's
inquiries, we are of the opinion that the offer, sale and issuance of the
Shares and the Series D Warrants in conformity with the terms of the Agreement
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act of 1933, as amended.
9. To our knowledge, other than the rights granted under the
Registration Rights Agreement, there are no outstanding rights which permits
the holder hereof to cause the Company to file a registration statement under
the Securities Act or which permit the holder thereof to include securities of
the Company in a registration statement filed by the Company under the
Securities Act, and there are no outstanding agreements or other commitments
which otherwise relate to the registration of any securities of the Company
under the Securities Act.
This opinion is furnished to the Investors solely for their benefit in
connection with the purchase of the Shares and the Series D Warrants, and to
the Warrantholders solely for their benefit in connection with the issuance of
the Series C Investor Common Warrants, and may not be relied upon by any other
person or for any other purpose without our prior written consent.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
J. Casey McGlynn
-6-
<PAGE> 66
EXHIBIT F
INVESTORS AGREEMENT
This INVESTORS AGREEMENT is entered into as of December 21, 1995, by
and among INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation
("IBM"), the investors in the Company listed on Schedule F-1 hereto as Founders
(the "Founders"), the investors in the Company listed on Schedule F-1 hereto as
Series B Investors (the "Series B Investors"), the investors in the Company
listed on Schedule F-1 hereto as Contracting Series C Investors (the
"Contracting Series C Investors"), the investors in the Company listed on
Schedule F-1 hereto as Series D Investors (the "Series D Investors") and
Integrated Surgical Systems, Inc., a Delaware corporation (the "Company").
IBM previously entered into a loan and warrant purchase agreement dated
February 6, 1991 (the "Loan and Warrant Agreement") with the Company pursuant to
which IBM (i) granted a loan to the Company in an amount of up to $3,000,000 and
received a Convertible Subordinated Loan Note (the "Loan Note") convertible into
shares of Series A Preferred Stock, $0.01 par value, of the Company, which is
convertible into Common Stock, $0.01 par value ("Common Stock"), of the Company,
and (ii) acquired a warrant (the "IBM 1991 Common Warrant") for the purchase of
up to 500,000 shares of Common Stock. In connection with the Loan and Warrant
Agreement, IBM, the Founders and the Company entered into a Stockholders
Agreement dated February 6, 1991 (the "February 1991 Stockholders Agreement").
The Series B Investors consummated their purchase of securities of the
Company in accordance with a stock purchase agreement dated as of April 10, 1992
(the "Series B Purchase Agreement"), pursuant to which the Series B Investors
purchased an aggregate of 451,000 shares of Series B Preferred Stock, $0.01 par
value ("Series B Preferred Stock"), of the Company, which is convertible into
Common Stock, for an aggregate purchase price of $4,000,370. In connection with
the Series B Purchase Agreement, IBM, the Founders, the Series B Investors and
the Company entered into an Amended and Restated Stockholders Agreement dated
April 22, 1992 (the "April 1992 Stockholders Agreement"), which amended the
February 1991 Stockholders Agreement.
The Contracting Series C Investors and Keystone Financial Corporation,
a Pennsylvania Not-For-Profit Corporation ("Keystone") consummated their
purchase of securities of the Company in accordance with a stock purchase
agreement dated as of November 13, 1992 (the "Series C Purchase Agreement"),
pursuant to which the Contracting Series C Investors and Keystone purchased an
aggregate of 757,576 shares of Series C Preferred Stock, $0.01 par value
("Series C Preferred Stock"), of the Company, which is convertible into Common
Stock, for an aggregate purchase price of $8,000,002.56. In connection with the
Series C Purchase Agreement, IBM, the Founders, the Series B Investors, the
Contracting Series C Investors and Keystone and the Company entered into an
Amended and Restated Stockholders Agreement dated November 13, 1992 (the
"November 1992 Stockholders Agreement"), which amended the April 1992
Stockholders Agreement.
Pursuant to and upon the filing of the Company's Restated Certificate
of Incorporation with the Delaware Secretary of State, which filing occurred on
December 20, 1995, each share of Common Stock, Series B Preferred Stock and
Series C Preferred Stock outstanding prior to the filing
<PAGE> 67
of such Restated Certificate was split up and converted into 0.20 shares of
Common Stock, and the Series A Preferred Stock, the Series B Preferred Stock and
the Series C Preferred Stock were eliminated from the authorized capital stock
of the corporation. Also pursuant to and upon the filing of such Restated
Certificate of Incorporation, each $8.87 of accrued dividends with respect to
the Series B Preferred Stock was converted into 0.20 shares of Common Stock and
each $10.56 of accrued dividends with respect to the Series C Preferred Stock
was converted into 0.20 shares of Common Stock.
As of the date hereof, the Series D Investors are consummating their
purchase of shares of Series D Preferred Stock and warrants to purchase shares
of Series D Preferred Stock of the Company in accordance with a stock and
warrant purchase agreement (the "Series D Purchase Agreement"), pursuant to
which the Series D Investors have agreed to purchase an aggregate of 1,025,641
shares of Series D Preferred Stock, $0.01 par value ("Series D Shares") of the
Company, which is convertible into Common Stock, and warrants to purchase an
aggregate of 2,051,282 shares of Series D Preferred Stock (the "Series D
Warrants"), for an aggregate purchase price of $1,999,999.95. Pursuant to the
Series D Purchase Agreement, the Series D Investors may, and upon the occurrence
of certain events, must purchase an additional 512,820 shares of Series D
Preferred Stock and additional 1,025,640 Series D Warrants for an aggregate
purchase price of $999,999.00.
As of the date hereof, the Company is consummating the issuance to the
Series B Investors and the Contracting Series C Investors and Keystone of an
aggregate of 60,054 shares of Common Stock in exchange for the cancellation and
forgiveness by the Series B Investors and the Contracting Series C Investors and
Keystone of all accumulated and unpaid dividends on the Series B Preferred Stock
and the Series C Preferred Stock. As of the date hereof, the Company is
consummating the amendment of the IBM 1991 Common Warrant, to adjust the number
of shares of Common Stock subject to such warrant and to extend such warrant's
term to December 31, 2000. As of the date hereof, the Company is consummating
the issuance to IBM of a warrant for the purchase of 187,752 shares of Common
Stock (the "IBM 1995 Common Warrant") in exchange for the forgiveness and
cancellation by IBM of the outstanding principal amount of and accrued interest
on the Loan Note. As of the date hereof, the Company is consummating the
issuance of warrants for the purchase of an aggregate of 660,024 shares of
Common Stock to the Contracting Series C Investors and Keystone (the "Series C
Investor Common Warrants").
In connection with the Series D Purchase Agreement, IBM, the Founders,
the Series B Investors, the Contracting Series C Investors, the Series D
Investors and the Company desire to enter into this Investors Agreement. The
November 1992 Stockholders Agreement shall remain in effect following the date
hereof.
Accordingly, the parties hereby agree as follows:
1. Certain Definitions. As used herein, the following terms shall have the
following meanings:
"Actual Voting Power of the Company" shall mean the total number of
votes that may be cast in the election of directors of the Company at any
meeting of stockholders of the Company, assuming
-2-
<PAGE> 68
all shares of Common Stock and other securities of the Company entitled to vote
generally in the election of directors of the Company were present and voted at
such meeting, other than votes that may be cast only by one class or series of
stock (other than Common Stock) or upon the happening of a contingency. In
determining the percentage of Actual Voting Power of the Company represented by
Voting Securities beneficially owned by any Person, any such securities not
outstanding which are subject to any rights of conversion (including rights
represented by the Series D Preferred Stock) or subject to any options, warrants
or rights (including the IBM 1991 Common Warrant, the IBM 1995 Common Warrant,
the Series D Warrants and the Series C Investor Common Warrants) shall be deemed
to be outstanding for the purpose of computing the percentage of the Actual
Voting Power of the Company represented by Voting Securities beneficially owned
by such Person but shall not be deemed to be outstanding for the purpose of
computing the percentage of the Actual Voting Power of the Company represented
by Voting Securities beneficially owned by any other Person.
"Affiliate" shall mean, as to any Person, any other Person which
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with the specified Person. "Series B
Affiliate" shall mean any of the following that is not a Competitor: (i) either
Series B Investor, (ii) John Kapoor, any entity controlled by John Kapoor and
beneficially owned by John Kapoor or members of his immediate family, or a trust
established by John Kapoor for the benefit of his immediate family with John
Kapoor, Editha Kapoor, an entity controlled by John Kapoor or Editha Kapoor, or
a financial institution as trustee (each a "Kapoor Affiliate"), (iii) (A) any
nonprofit corporation controlled by Sutter Health and whose sole corporate
member is either Sutter Health or another nonprofit corporation whose sole
corporate member is Sutter Health; (B) a corporation whose majority of
outstanding shares of stock are beneficially owned directly or indirectly by
Sutter Health; or (C) a partnership whose sole general partner is Sutter Health
or a Sutter Health affiliate described in clause (A) or (B). "Series C
Affiliate" shall mean any of the following that is not a Competitor: (i) any
Contracting Series C Investor; and (ii) Sutter Health and its affiliates as
stated in (iii) of the definition of Series B Affiliate above. "Series D
Affiliate" shall mean any of the following that is not a Competitor: (i) any
Series D Investor; and (ii) John Kapoor and his affiliates as stated in subpart
(ii) of the definition of Series B Affiliate above.
A Person shall be deemed the "beneficial owner" of, and shall be deemed
to "beneficially own", any securities (a) which such Person or any of its
Affiliates is deemed to "beneficially own" within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934 or (b) which such Person or any of its
Affiliates has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding or upon the exercise of any right of conversion or
exchange, warrant, option or otherwise.
"Competitor" shall mean any Person which has for the most recent fiscal
year of such Person, together with its Affiliates, (i) gross revenues in excess
of $l billion from the development, manufacture, sale, leasing and servicing of
information processing hardware or (ii) gross revenues in excess of $200 million
from the development, reproduction, licensing, leasing and sale of computer
software and information processing related services.
-3-
<PAGE> 69
As used in this Agreement, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise).
"Person" shall mean any individual, firm, corporation, partnership,
trust, joint venture or other entity, and shall include any successor (by merger
or otherwise) of such entity.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"Selling Party" shall mean the Company, any Founder (or any stockholder
group of which any Founder is a party), any Series B Investor, any Contracting
Series C Investor and any Series D Investor or any Significant Stockholder who
may become a party to this Agreement which proposes to sell, assign, pledge or
otherwise transfer any Voting Securities.
"Series B Affiliate" and "Series C Affiliate" and "Series D Affiliate"
shall have the meanings provided under "Affiliate."
"Significant Stockholders" shall mean all Persons (other than IBM and
its subsidiaries) who are or become beneficial owners of Voting Securities
representing 5% or more of the Actual Voting Power of the Company.
"Voting Securities" shall mean the shares of Common Stock and any other
securities of the Company entitled to vote generally in the election of
directors of the Company, and any other securities (including rights, warrants
and options) convertible into, exchangeable for or exercisable for any Common
Stock or other securities referred to above (whether or not presently
convertible, exchangeable or exercisable).
2. Restrictions on Transfers; First Offer Rights on Sale of Voting
Securities by a Selling Party.
(a) Subject to Section 2(f), so long as IBM beneficially owns Voting
Securities representing at least 25% of the Actual Voting Power of the Company,
no Selling Party shall issue, sell, assign, pledge or otherwise dispose of
(collectively, "sell") its beneficial interest in any Voting Securities of the
Company to a Competitor without the prior written consent of IBM.
(b) Subject to Section 2(f), if at any time a Selling Party desires
to sell its beneficial interest in any Voting Securities (the "Offered
Securities") the following provisions shall apply:
(i) the Selling Party shall first submit a written offer to sell
(the "Offer") the Offered Securities to IBM at a price per share in cash
specified by the Selling Party (the "Specified Price"), which offer shall
include a representation that the Selling Party intends to sell the
-4-
<PAGE> 70
Offered Securities in a bona fide arm's-length sales transaction at such price.
Within 30 days after receipt of the Offer, and if no notice of acceptance or
rejection is given to the Selling Party within such 30-day period, IBM shall be
deemed to have rejected the Offer.
(ii) If the Offer is rejected or deemed rejected, the Selling
Party may, subject to the restrictions set forth in Sections 2(a) and 5, if
applicable, sell the Offered Securities to any Person or group at a price per
share that is not less than the Specified Price (and which does not include any
other terms, including financing terms, more favorable than those contained in
the Offer) at any time during the six-month period following the date of such
rejection. Any Offered Securities not sold within such six-month period shall
again be subject to the requirements of first offer to IBM pursuant to this
Section. Prior to making any sale or other disposition of the Offered
Securities, the Selling Party shall comply with Section 2(e) of this Agreement.
(iii) If IBM accepts the Offer in writing, it shall purchase and
the Selling Party shall sell to IBM all the Offered Securities at the Specified
Price per share no later than 30 days after receipt of such acceptance. At the
closing, the Selling Party shall deliver to IBM a certificate(s) representing
the Offered Securities, duly endorsed for transfer or accompanied by duly
executed stock powers for transfer to IBM and free and clear of all liens,
against payment to the Selling Party of the purchase price therefor by certified
check or wire transfer.
(c) If a Selling Party inquires of IBM about a proposed sale to a
party that may be a Competitor, IBM shall indicate in writing to such Selling
Party whether it deems such party to be a Competitor and such determination
shall be binding upon IBM for purposes of the proposed sale.
(d) If any transfer or attempted transfer of Offered Securities is
made contrary to the provisions of this Section 2, IBM shall have the right, in
addition to any other legal or equitable remedies which it may have, to enforce
its rights hereunder by an action for specific performance. The Company, the
Founders, the Series B Investors, the Contracting Series C Investors, the Series
D Investors and any other Significant Stockholders recognize the rights set
forth herein as unique, violations of which cannot be remedied by an award of
monetary damage.
(e) Each Selling Party shall deliver to IBM, prior to making any
sale of its beneficial interest in Voting Securities to any Person not a party
to this Agreement (unless such Person, after giving effect to such transaction,
would own Voting Securities representing less than 5% of the Actual Voting Power
of the Company) an appropriate document in which such Person agrees that it
shall be bound by, and that its beneficial ownership of any Voting Securities
shall be subject to, all the terms and conditions provided in this Agreement.
(f) This Section 2 shall not apply to any sale (i) pursuant to a
registration statement declared effective under the Securities Act of 1933 (so
long as the distribution pursuant to such registration statement represents a
bona fide offering to the public), (ii) through a broker (so long as such sale
is through an ordinary "broker's transaction" as such term is defined in Rule
144 under the Securities Act of 1933) when the Selling Party does not know the
identity of the purchaser and does not direct the purchase, (iii) by the Company
to the Series B Investors in accordance with
-5-
<PAGE> 71
the preemptive rights set forth in Section 6.7 of the Series B Purchase
Agreement, (iv) by the Company to the Contracting Series C Investors or Keystone
in accordance with the preemptive rights set forth in Section 6.6 of the Series
C Purchase Agreement, (v) by the Company to the Series D Investors in accordance
with the preemptive rights set forth in Section 9.6 of the Series D Purchase
Agreement or (vi) except for Section 2(e), by a Series B Investor to a Series B
Affiliate or by a Contracting Series C Investor to a Series C Affiliate or by a
Series D Investor to a Series D Affiliate.
(g) Compliance with the provisions of Section 2 of the November 1992
Stockholders Agreement by any party to this Agreement shall constitute
compliance with the provisions of this Section 2.
3. Directors; Observer; Voting.
(a) So long as IBM beneficially owns Voting Securities representing
at least 15% of the Actual Voting Power of the Company, IBM shall be entitled to
(i) nominate, at any time, one individual to be a voting director of the Company
(the "IBM Director") and (ii) have a nonvoting observer who shall be entitled to
attend all Board meetings, and the Company agrees to cause the IBM Director to
be proposed for election by its stockholders. So long as John Kapoor or any
Kapoor Affiliate (collectively, "Kapoor") beneficially owns Voting Securities
representing at least 15% of the Actual Voting Power of the Company, Kapoor
shall be entitled to (i) nominate, at any time, one individual to be a voting
director of the Company (the "Kapoor Director") and (ii) have a nonvoting
observer who shall be entitled to attend all Board meetings, and the Company
agrees to cause the Kapoor Director to be proposed for election by its
stockholders The IBM Director and the Kapoor Director shall be the two directors
to be elected by the holders of the Series D Preferred Stock in accordance with
Article 4, Section 4(e) of the Company's Restated Certificate of Incorporation.
The Company acknowledges and agrees that such directors and/or observers will be
under an obligation to IBM or Kapoor, as the case may be, not to disclose to any
person outside of IBM or Kapoor, as the case may be, or use in other than the
business of IBM or Kapoor, as the case may be, any confidential information or
material relating to the business of IBM or its subsidiaries or Kapoor, as the
case may be; and, therefore, the Company acknowledges that there shall be no
obligation on the part of such director or observer to disclose any such
information or material to the Company, even if such disclosure would be of
interest or value to the Company.
(b) Each of the Series D Investors who may become a party to this
Agreement agrees to vote its Voting Securities so as to elect the individuals
nominated by IBM and Kapoor to be a director. The Company agrees to vote the
Voting Securities for which the Company's management or Board of Directors holds
proxies granting them voting discretion, or is otherwise entitled to vote, in
favor of, and to use its best efforts in all other respects to cause, the
election of the individuals nominated by IBM and Kapoor. In the event that a
vacancy is created on the Board of Directors of the Company at any time by the
death, disability, resignation or removal (with or without cause) of any such
individual nominated by IBM or Kapoor, each of the Series D Investors who may
become a party to this Agreement shall vote such Person's Voting Securities so
as to elect an individual nominated by IBM or Kapoor, as the case may be, to
fill such vacancy and serve as a director.
-6-
<PAGE> 72
(c) For so long as IBM has the right to nominate a director, IBM
shall have the right to receive reasonable prior notice of (with such notice to
be sent to the address provided in Section 10 below if IBM shall have not
designated a specific individual), and have its director, nominee or observer,
as the case may be, attend, all meetings of the Board of Directors of the
Company or any committee thereof and the Company will promptly deliver to IBM
copies of all minutes and other records of action by, and all written
information furnished to, the Board or such committee. For so long as Kapoor has
the right to nominate a director, Kapoor shall have the right to receive
reasonable prior notice of (with such notice to be sent to the address provided
in Section 10 below if Kapoor shall have not designated a specific individual),
and have its director, nominee or observer, as the case may be, attend, all
meetings of the Board of Directors of the Company or any committee thereof and
the Company will promptly deliver to Kapoor copies of all minutes and other
records of action by, and all written information furnished to, the Board or
such committee.
(d) If IBM or Kapoor gives notice to any Series D Investor that IBM
or Kapoor, as the case may be, desires to remove a director nominated by IBM or
Kapoor, as the case may be, each of the Series D Investors agrees to vote its
Voting Securities so as to remove such director if a vote of holders of such
securities shall be required to remove the director, and the Company agrees to
take any action necessary to facilitate such removal.
(e) For so long as Section 8.05 of the Loan and Warrant Agreement
shall be in effect, each of the Founders, Series B Investors, Contracting Series
C Investors, Series D Investors and other Significant Stockholders who may
become party to this Agreement agrees to vote its Voting Securities in such a
manner as to cause the Company to comply with such Section. Section 8.05 of the
Loan and Warrant Agreement is set forth in its entirety as follows:
SECTION 8.05. Mergers, Consolidations, Sales of Assets and
Acquisitions. The Company shall not (i) merge into or consolidate
with any other Person, or permit any other Person to merge into or
consolidate with it, (ii) dissolve or liquidate, (iii) enter into
any transaction or series of related transactions which would result
in a Change of Control, or (iv) sell, transfer, license, lease or
otherwise dispose of (in one transaction or in a series of
transactions) more than 5% of its assets (whether now owned or
hereafter acquired) except in the ordinary course of business or
purchase, lease or otherwise acquire (in one transaction or in a
series of transactions) all or any substantial part of the assets of
any other Person.
(f) If any Founder, Series B Investor, Contracting Series C
Investor, Series D Investor or other Significant Stockholder fails or refuses to
vote its Voting Securities as required by this Section 3, IBM and Kapoor shall
have an irrevocable proxy pursuant to the provisions of Section 212 of the
Delaware General Corporation Code, coupled with an interest, so as to vote those
securities in accordance with this Section 3, and each Founder, Series B
Investor, Contracting Series C Investor, Series D Investor and other Significant
Stockholder hereby grants to IBM and Kapoor such irrevocable proxy.
-7-
<PAGE> 73
(g) The right of IBM contained in this Section 3 to nominate one
individual to be a voting director of the Company shall apply only in the event
IBM is not entitled to elect a director pursuant to the Restated Certificate of
Incorporation of the Company by reason of being the holder of Series D Preferred
Stock.
(h) Without the consent of the holders of a majority of the
outstanding shares of Series D Preferred Stock, the Founders and any other
Significant Stockholders that may become a party to this agreement shall not,
subject to the following sentence, vote to elect any director that would result
in the Company's Board of Directors having a majority of non-independent
directors within the meaning of Schedule D, Part III, section (6), paragraph (c)
to the By-Laws of the National Association of Securities Dealers, Inc. The
voting restriction set forth in this Section 3(h) shall not apply to the
election of the directors nominated by IBM and Kapoor pursuant to Section 3(a)
hereof or pursuant to the Company's Restated Certificate of Incorporation.
(i) IBM hereby waives its right to compliance by any of the
Contracting Series C Investors with the provisions of Sections 4(b) and 4(d) of
the November 1992 Stockholders Agreement.
4. Preemptive Rights; Antidilution Rights. Each of IBM, the Founders,
Series B Investors and Contracting Series C Investors hereby waives, with
respect to the transactions contemplated by this Agreement, the Loan and
Warrant Agreement, the Series B Purchase Agreement, the Series C Purchase
Agreement and the Series D Purchase Agreement, including the issuance of the
Series C Investor Common Warrants, any preemptive, antidilution or other rights
held by such Founder, Series B Investor or Contracting Series C Investor
granting the holder of any securities the right to acquire any additional shares
or other securities upon the issuance of securities by the Company. IBM hereby
waives, with respect to the transactions contemplated by this Agreement, the
Loan and Warrant Agreement, the Series B Purchase Agreement, the Series C
Purchase Agreement and the Series D Purchase Agreement, its preemptive rights
under Section 7.15 of the Loan and Warrant Agreement, its first offer rights
under Section 2 of the November 1992 Stockholders Agreement and Section 2 of
this Agreement, any antidilution rights under Paragraph 1(b) of the Loan Note
and Paragraph 4 of the Common Warrant, and its notice rights under Paragraph 8
of the Common Warrant.
The preemptive rights set forth in Section 6.7 of the Series B Purchase
Agreement and in Section 6.6 of the Series C Purchase Agreement shall remain in
effect following the date hereof. For purposes of such rights, (i) the term
"Investor" as used in such sections shall include Sutter Health Venture Partners
I, L.P. (without regard to the limitation in Section 6.6(d) of the Series C
Purchase Agreement) and (ii) the term "Voting Securities" shall include the
Series C Investor Common Warrants.
5. Restriction on Transfer of Founders Shares.
(a) In addition to the restrictions set forth in Section 2, the
Founders shall not sell, assign, pledge or otherwise transfer their beneficial
interest in any of the shares of Common Stock
-8-
<PAGE> 74
acquired by them at or prior to the date hereof or any Voting Securities
hereafter received by the Founders in respect of such shares, whether by stock
split, dividend, reclassification or otherwise (such shares listed on Schedule
F-2 hereto and such other Voting Securities as may hereafter be received in
respect thereof, herein referred to as the "Founders Shares"), unless (i) such
shares, if not purchased by IBM in accordance with the provisions of Section 2,
are offered to the Series B Investors, Contracting Series C Investors and
Keystone substantially in accordance with the same procedure as set forth in
Section 2 (as required by the November 1992 Stockholders Agreement or
otherwise), or (ii) if IBM, the Series B Investors, the Contracting Series C
Investors and Keystone have rejected the offer to purchase such shares, such
shares are offered to the Series D Investors substantially in accordance with
the same procedure as set forth in Section 2, or (iii) if IBM, the Series B
Investors, the Contracting Series C Investors, Keystone and the Series D
Investors have rejected the offer to purchase such shares, such shares are
transferred to the Company or to a third party with IBM's prior written
approval, or (iv) the Company shall have sold its Common Stock in a bona fide
public offering on an underwritten firm commitment basis pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission resulting in $7,500,000 aggregate gross proceeds to the
Company (a "Qualified Initial Public Offering"), or (v) the Company shall have
been acquired by another entity (whether by merger, acquisition of substantially
all the Company's assets, or acquisition of substantially all the Voting
Securities of the Company), or (vi) the proposed transfer of Founders Shares
shall occur on or after February 6, 1998. The restriction on transfer set forth
above shall be in addition to any other applicable restrictions that may be
contained in other agreements between the Founders and the Company.
(b) If any Founder dies, or becomes disabled, or ceases to be
employed by the Company for any reason (or, in the case of Dr. William Bargar,
if the consulting agreement between Dr. William Bargar and the Company is
terminated for any reason), any Founders Shares then held by such Founder that
have theretofore become vested shall be put into a trust (to be established by
the Company and such Founder or his heirs) to be held for the benefit of such
Founder or his heirs. Founders Shares held in such trust will be voted in the
same proportion as other stockholders vote their shares of stock. Any such trust
shall be terminated upon the first to occur of (i) a Qualified Initial Public
Offering, (ii) the acquisition of the Company by another entity (whether by
merger, acquisition of substantially all the Company's assets, or acquisition of
substantially all the Voting Securities of the Company), or (iii) February 6,
1998.
6. Co-Sale Rights.
(a) If a holder or holders (the "Selling Holders") of Voting Securities
propose to sell, in one or more related transactions, Voting Securities
representing a majority of the Voting Securities of the Company, then such
Selling Holders shall notify Sutter Health, a California nonprofit public
benefit corporation ("Sutter Health"), and Sutter Health Venture Partners I,
L.P. ("SHVP") of the proposed sale at least 45 days prior to the closing of the
sale.
(b) Each of Sutter Health and SHVP shall have the right, exercisable
upon written notice to the Selling Holders within 15 days after receipt of the
Selling Holder's notice pursuant to Section 6(a), to request that shares of
Common Stock (including any shares of Common Stock
-9-
<PAGE> 75
issuable upon exercise of the Series C Investor Common Warrants) held by Sutter
Health and SHVP be included in the Selling Holder's proposed sale of Voting
Securities pursuant to the specified terms and conditions of such proposed sale.
(c) The Selling Holders shall make reasonable efforts to include in the
proposed sale the shares referenced in Section 6(b) held by Sutter Health and
SHVP which Sutter Health and SHVP have requested to be included in the sale.
7. Legend on Certificates for Voting Securities. Each certificate
representing Voting Securities beneficially owned by any Founder, Series B
Investor, Contracting Series C Investor, Series D Investor, IBM or any
Significant Stockholder shall bear the following legend until such time as the
Voting Securities represented thereby are no longer subject to this Agreement:
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF AN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED AS
OF NOVEMBER 13, 1992, AND OF AN INVESTORS AGREEMENT DATED AS OF
DECEMBER 21, 1995, EACH BY AND AMONG INTERNATIONAL BUSINESS MACHINES
CORPORATION, INTEGRATED SURGICAL SYSTEMS, INC. (THE "COMPANY"), AND
CERTAIN OF THE COMPANY'S STOCKHOLDERS AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH. A COPY OF SUCH AGREEMENTS
ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY, AND THE
COMPANY WILL FURNISH A COPY OF SUCH AGREEMENTS TO THE HOLDER OF THIS
CERTIFICATE UPON WRITTEN REQUEST AND WITHOUT CHARGE.
The Company agrees not to register the transfer of any certificate
containing such a legend without receiving a certificate from the transferring
party stating that such party has complied with the transfer provisions of this
Agreement.
8. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of each of the Founders, Series B Investors, Contracting
Series C Investors, Series D Investors, Significant Stockholders who may become
a party hereto, and IBM and their successors, heirs and legatees and permitted
assigns. Except as expressly set forth herein, none of the Founders may assign
this Agreement without the prior written consent of IBM, and any such purported
assignment shall be void. Subject to the provisions of this Section 8, IBM may
assign all or any part of its rights and obligations hereunder to an Affiliate
of IBM. A Person to whom all or a part of IBM's rights are assigned shall become
a party to this Agreement, entitled to all the rights and benefits hereunder
that are so assigned. Each Series B Investor, Contracting Series C Investor and
Series D Investor may assign all or any part of its rights and obligations
hereunder to its Series B Affiliate, Series C Affiliate or Series D Affiliate,
respectively, who shall become a party to this Agreement entitled to all the
rights and benefits hereunder that are so assigned.
-10-
<PAGE> 76
9. Amendments. No amendment to this Agreement shall be effective
unless it shall be in writing and signed by the Company and the holders of a
majority of the Voting Securities held by IBM, the Founders, the Series B
Investors, the Contracting Series C Investors and the Series D Investors.
Furthermore, if such amendment would adversely affect the rights of Sutter
Health but would not so affect the rights of the other holders of Voting
Securities, then no amendment to this Agreement shall be effective unless it
shall be both approved as provided in the preceding sentence and approved in
writing and signed by Sutter Health. Sutter Health's signature on this Agreement
shall not be deemed a waiver by Sutter Health of any right which Sutter Health
may have under applicable law in the event of and with respect to any breach by
any other holder of Voting Securities of any fiduciary duty owed by such other
holder or holders to Sutter Health.
10. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered by hand or overnight courier
service or five days after being mailed by registered or certified mail (return
receipt requested), postage prepaid, to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
(i) if to IBM,
International Business Machines Corporation
IBM Research Division
T.J. Watson Research Center
Yorktown Heights, New York 10598
Attention: Daniel P. McCurdy
(ii) if to the Company,
Integrated Surgical Systems, Inc.
829 West Stadium Lane
Sacramento, California 95834
Attention: Ramesh Trivedi
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: J. Casey McGlynn
(iii) if to the Series B Investors, Contracting Series C Investors,
or Series D Investors,
Sutter Health, a California nonprofit public benefit corporation
One Capitol Mall
Sacramento, California 95814
Attention: David Cox
-11-
<PAGE> 77
Sutter Health Venture Partners I, L.P.
c/o Sutter Ventures, Ltd., as general partner
One Capitol Mall
Sacramento, California 95814
Attention: David Cox
EJ Financial Investments V, L.P.
John N. Kapoor Trust
c/o EJ Financial Enterprises, Inc.
225 East Deerpath Road, Suite 250
Lake Forest, Illinois 60045
Attention: Robert May
(iv) if to any Founder or Significant Stockholder, to his address
as provided in the books of the Company.
11. Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
13. Entire Agreement. If compliance with any provision of this
Agreement by any of the parties hereto would preclude compliance with any
provision of the November 1992 Stockholders Agreement, the parties hereto agree
that such conflict between this Agreement and the November 1992 Stockholders
Agreement shall be resolved in favor of compliance with the relevant provision
of the November 1992 Stockholder Agreement. Except as otherwise provided herein
with respect to the November 1992 Stockholders Agreement, this Agreement
contains the entire agreement and understanding between the parties with respect
to the subject matter hereof and supersedes all prior agreements and
understandings, written or oral, among the parties with respect to the subject
matter hereof.
14. Severability. If any provision of this Agreement or the application
of any such provision to any person or circumstance shall be held invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other
provision hereof.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such state, without regard
to the conflict of law principles of such state.
-12-
<PAGE> 78
16. Kapoor Trust Transfer. Notwithstanding anything to the contrary set
forth herein, John N. Kapoor Trust dated 9/20/89 shall be entitled to assign any
of its rights and benefits hereunder to a person or persons or entity or
entities related to or affiliated with John Kapoor or John N. Kapoor Trust dated
9/20/89 or EJ Financial Investments V, L.P. (the "Transferees") in connection
with any transfer of shares of the Company's capital stock to the Transferees,
and upon any such transfer, each Transferee shall be considered a Kapoor
Affiliate and shall be entitled to and shall have all of the rights and benefits
hereunder, and shall be subject to all obligations hereunder, with respect to
the shares transferred to it, as if it were an original Series B Investor or
Series D Investor hereunder.
-13-
<PAGE> 79
IN WITNESS WHEREOF, the parties have caused this Investors Agreement to
be duly executed as of the date first written above.
INTEGRATED SURGICAL SYSTEMS, INC.
By: ____________________________
Title: ____________________________
INTERNATIONAL BUSINESS MACHINES
CORPORATION
By: ____________________________
Title: ____________________________
JOHN N. KAPOOR TRUST DATED 9/20/89
(or the entity or entities set forth
below which is affiliated with John N.
Kapoor Trust dated 9/20/89)
Name: ____________________________
By: ____________________________
Title: ____________________________
<PAGE> 80
SUTTER HEALTH, A CALIFORNIA
NONPROFIT PUBLIC BENEFIT
CORPORATION
By: ____________________________
Title: ____________________________
SUTTER HEALTH VENTURE PARTNERS I,
L.P., A CALIFORNIA LIMITED
PARTNERSHIP
By: Sutter Ventures, Ltd., as general partner
By: ____________________________
Title: ____________________________
------------------------------
Wendy Shelton-Paul
------------------------------
William Bargar
------------------------------
Brent Mittelstadt
------------------------------
Peter Kazanzides
<PAGE> 81
EJ FINANCIAL INVESTMENTS V, L.P.
By: _______________________
Title: _______________________
<PAGE> 82
________________________
Kamala Vati Mehra
________________________
Jagdish Lal Mehra
________________________
Banarsi Das Mehra
________________________
Rani Devi Aneja
________________________
Gopal Mehra
<PAGE> 83
SCHEDULE F-1
Founders
Wendy Shelton-Paul Trust
William Bargar
Brent Mittelstadt
Peter Kazanzides
Series B Investors
John N. Kapoor Trust dated 9/20/89 (or affiliate(s))
Sutter Health, a California nonprofit public benefit corporation
Contracting Series C Investors
Sutter Health, a California nonprofit public benefit corporation Sutter Health
Venture Partners I, L.P., a California limited partnership
Series D Investors
International Business Machines Corporation
EJ Financial Investments V, L.P.
<PAGE> 84
SCHEDULE F-2
HOLDERS OF FOUNDERS SHARES
(as of December 21, 1995)
<TABLE>
<CAPTION>
Name No. of Shares*
- ------------------------ --------------
<S> <C>
Wendy Shelton-Paul Trust 57,525
William Bargar 30,975
Brent Mittelstadt 8,050
Peter Kazanzides 3,450
</TABLE>
- -----------------------
* Numbers exclude options and give effect to the one-for-five reverse stock
split effected December 20, 1995.
<PAGE> 85
EXHIBIT G
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of December 21, 1995, by and among Integrated Surgical Systems, Inc. a Delaware
corporation (the "Company") and the entities listed on the signature pages
hereto (the "Holders"). The holders of Registration Rights and the amount of
Registrable Securities held by each such individual or entity as of the date of
this Agreement are listed on Schedule G-1 attached hereto.
This Agreement amends and restates (i) the Registration Rights
Agreement dated November 13, 1992 (the "November 1992 Agreement") and (ii) the
provisions of Article X of the Loan and Warrant Purchase Agreement dated as of
February 6, 1991, between the Company and IBM (the Loan Agreement") (together,
the "Old Agreements"). Such amendment and restatement of the Old Agreements is
effective upon the execution of this Agreement by the Company, IBM and holders
of more than fifty percent (50%) of the Registrable Securities, as such term is
defined under the November 1992 Agreement. As of the date of this Agreement, the
registration rights provided in this Agreement are the only registration rights
outstanding with respect to the Company's outstanding securities.
Pursuant to the terms of the Series D Preferred Stock and Warrant
Purchase Agreement of even date herewith (the "Series D Agreement"), the Series
D Investors may, and upon the occurrence of certain events, must purchase an
additional 512,820 shares of Series D Preferred Stock and an additional
1,025,640 Series D Warrants for an aggregate purchase price of $999,999.00 (the
"Second Closing Shares and Warrants"). Pursuant to the terms of the Warrants to
Purchase Common Stock of even date herewith issued to Sutter Health, a
California nonprofit public benefit corporation, to Sutter Health Venture
Partners I, L.P., and to Keystone Financial Corporation, a Pennsylvania Not-For-
Profit Corporation, the Company must issue to the holders of such warrants
additional warrants to purchase an aggregate of approximately 205,469 shares of
Common Stock (the "Second Closing Common Warrants"). Upon the sale of the Second
Closing Shares and Warrants and the issuance of the Second Closing Common
Warrants and the closing of the Rights Offering (as defined and described in the
Agreement), the Company shall amend Schedule G-1 to reflect the additional
Registrable Securities.
1. Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute with the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
<PAGE> 86
"Holders" shall mean the entities set forth on Schedule G-1 who hold
Registrable Securities or securities convertible into Registrable Securities and
any person holding such securities to whom the rights under this Agreement have
been transferred pursuant to Section 13 hereof.
"Initiating Holders" shall mean any Holder or Holders who in the
aggregate hold at least thirty-five percent (35%) of the aggregate of the
Registrable Securities and securities convertible into Registrable Securities.
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation System.
"Registrable Securities" shall mean (a) any shares of Common Stock
issued upon exercise of the Warrant for the Purchase of Common Stock dated
February 6, 1991, as amended on December 21, 1995, issued to International
Business Machines Corporation ("IBM"), (b) any shares of Common Stock issued
upon exercise of the Warrant for the Purchase of Common Stock, of even date
herewith, issued to IBM, (c) any shares of Common Stock issued upon exercise of
the Warrant to Purchase Common Stock, of even date herewith, issued to Sutter
Health, a California nonprofit public benefit corporation, (d) any shares of
Common Stock issued upon exercise of the Warrant to Purchase Common Stock, of
even date herewith, issued to Sutter Health Venture Partners I, L.P., (e) any
shares of Common Stock issued upon exercise of the Warrant to Purchase Common
Stock, of even date herewith, issued to Keystone Financial Corporation, a
Pennsylvania Non-Profit Corporation, (f) any shares of Common Stock issued
pursuant to the Recapitalization effected by the Restated Certificate of
Incorporation filed with the Secretary of State of the State of Delaware on
December 20, 1995, to the former holders of shares of Series B Preferred Stock
which were issued pursuant to the Series B Preferred Stock Purchase Agreement
dated as of April 10, 1992, (g) any shares of Common Stock issued issued
pursuant to the Recapitalization effected by the Restated Certificate of
Incorporation filed with the Secretary of State of the State of Delaware on
December 20, 1995, to the former holders of shares of Series C Preferred Stock
which were issued pursuant to the Series C Preferred Stock Purchase Agreement
dated as of November 13, 1992, (h) any shares of Common Stock issued in exchange
for the cancellation and forgiveness of all accumulated dividends on the Series
B Preferred Stock and the Series C Preferred Stock, (i) any shares of Common
Stock issued upon conversion of the shares of Series D Preferred Stock issued
pursuant to the Series D Preferred Stock and Warrant Purchase Agreement dated as
of December 21, 1995 (the "Series D Purchase Agreement"), (j) any shares of
Common Stock issued upon conversion of the shares of Series D Preferred Stock
issued upon exercise of the Warrant for the Purchase of Series D Preferred Stock
dated December 21, 1995, issued pursuant to the Series D Purchase Agreement, and
(k) any securities issued or issuable with respect to any such Common Stock by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise.
-2-
<PAGE> 87
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute with the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
2. Demand Registration.
2.1 Registration upon Demand by Initiating Holders. An Initiating
Holder or Initiating Holders may make a written request that the Company effect
a registration with respect to shares of Registrable Securities at any time
after the earlier of (i) December 31, 1996 or (ii) six (6) months after the
effective date of the first registration statement for a public offering of
securities of the Company (other than in connection with the registration of
securities issuable pursuant to an employee stock option, stock purchase or
similar plan or pursuant to a merger, exchange offer or a transaction of the
type specified in Rule 145(a) under the Securities Act). Within ten (10) days of
the receipt of notice from the Initiating Holder or Initiating Holders, the
Company will give written notice of such request to all other Holders and shall
use its best efforts to effect a registration under the Securities Act and to
include therein the Registrable Securities specified in the initial request from
the Initiating Holder or Initiating Holders and the Registrable Securities of
the Holders specified in written requests received by the Company within twenty
(20) days after the date of written notice from the Company; provided, however,
that (a) the Company shall be obligated to effect a total of no more than three
registration under this Section 2.1; (b) a registration hereunder shall not
count as such (i) until it has become effective, except that if, after it has
become effective, the offering of Registrable Securities pursuant to such
registration is interfered with by any stop order, injunction or other order or
requirement of the Commission or any other governmental authority, such
registration shall be deemed not to have been effected unless such stop order,
injunction or other order or requirement shall subsequently have been vacated or
otherwise removed; (c) the Company shall not be obligated to effect a
registration of a number of shares representing less than thirty-five percent
(35%) of the total number of shares of the Registrable Securities including
securities convertible into Registrable Securities (or a lesser percentage if
the anticipated aggregate offering price, net of underwriting discounts and
commissions, would exceed $7,500,000); and (d) the Company shall not be required
to effect a registration if counsel for the Company shall deliver an opinion
reasonably acceptable to counsel for the Holders that, pursuant to Rule 144
under the Securities Act or otherwise, the Holders can sell the Registrable
Securities without registration under the Securities Act and without any
limitation with respect to offerees or the size of the transaction.
2.2 Inclusion of Other Shares.
(a) If a registration is initiated by Initiating Holder or
Initiating Holders, and the Company (or any other stockholder of the Company
with registration rights other than a Holder) then wishes to offer any of its
securities in connection with the registration, no such securities may be
offered by the Company or any other stockholder unless the managing underwriters
advise the Holders in writing that in their opinion (a) the number of securities
requested to be included in the registration does not exceed the number which
can be sold in the offering and (b) the price for Registrable Securities will
not be adversely affected.
-3-
<PAGE> 88
(b) If a registration is initiated by a Holder or Holders of
Registrable Securities and the managing underwriters of a proposed underwritten
offering advise the Company in writing that in their opinion, the number of
securities requested to be included in the registration by the Holders exceeds
the number which can be sold in the offering, then no securities may be offered
by the Company or any other stockholder who is not a Holder, and the Holders
shall all be entitled to have their securities included in the registration
statement in proportion to the aggregate number of the Company's securities
having registration rights under this Agreement that each such person holds or
is entitled to receive by conversion or exercise of securities of the Company
held by such person (such proportion being such person's "Relative
Participation");
(c) Upon receipt of the written demand of the Holders, the
Company shall expeditiously effect the registration under the Securities Act of
the Registrable Securities and use its best efforts to have such registration
become and remain effective as provided in Section 10. The Holders shall have
the right to select the underwriters for a registration under this Section 2,
subject to the approval of such selection by the Company (which approval by the
Company shall not be unreasonably withheld).
3. Piggyback Registrations.
3.1 Notice. If the Company proposes to register any of its
securities under the Securities Act for sale for cash (otherwise than in
connection with the registration of securities issuable pursuant to an employee
stock option, stock purchase or similar plan or pursuant to a merger, exchange
offer or a transaction of the type specified in Rule 145(a) under the Securities
Act), the Company shall give each Holder notice of such proposed registration at
least 30 days prior to the filing of a registration statement. At the written
request of each Holder delivered to the Company within 25 days after the receipt
of the notice from the Company, which request shall state the number of
Registrable Securities that each Holder wishes to sell or distribute publicly
under the registration statement proposed to be filed by the Company, the
Company shall use its best efforts to register under the Securities Act such
Registrable Securities, and to cause such registration (a "Piggyback
Registration") to become and remain effective as provided in Section 10.
3.2 Primary Registration. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriters thereof advise the Company in writing that in their opinion the
number of securities requested to be included in the registration exceeds the
number which can be sold in the offering, the Company shall include in the
registration:
(i) first, that portion of the Registrable Securities that each
Holder proposes to sell representing an aggregate of twenty-five
percent (25%) of such offering (or in the case of an initial public
offering, an aggregate of fifteen percent (15%) of such offering);
(ii) second, the securities the Company proposes to sell; and
-4-
<PAGE> 89
(iii) third, the remaining Registrable Securities the
Registrable Securities each Holder proposes to sell and the
securities each other holder of the Company's securities who has
registration rights and has exercised such rights proposes to sell
in proportion to the number of shares each proposes to sell pursuant
to this clause (iii).
3.3 Secondary Registration. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of the Company's
securities who have demand registration rights and the managing underwriters
thereof advise the Company in writing that in their opinion the number of
securities requested to be included in the registration exceeds the number which
can be sold in the offering, the Company shall include in the registration:
(i) first, that portion of the Registrable Securities that
each Holder proposes to sell representing an aggregate of
twenty-five percent (25%) of such offering (or in the case of an
initial public offering, an aggregate of fifteen percent (15%) of
such offering);
(ii) second, the securities of the holders of the Company's
securities who have exercised their demand registration rights;
(iii) third, the securities that the Company proposes to sell,
if the Company subsequently elects to participate in the offering;
and
(iv) fourth, the remaining Registrable Securities of
Registrable Securities each Holder proposes to sell and the
securities each other holder of the Company's securities who has
registration rights and has exercised such rights proposes to sell
in proportion to the number of shares each proposes to sell pursuant
to this clause (iv).
4. Indemnification by the Company. In the event of any registration of
any Registrable Securities under the Securities Act, the Company shall, and
hereby does, indemnify and hold harmless each Holder and its directors and
officers, if any, each other entity which participates as an underwriter in the
offering or sale of such Registrable Securities and each other person or entity,
if any, which controls each Holder or any such underwriter within the meaning of
Section 15 of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which each Holder or any such director or
officer or underwriter or controlling person or entity may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which the Registrable Securities were registered under the Securities Act,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in which
they were made not misleading, and the Company shall reimburse each Holder and
each such director, officer, underwriter and controlling person or entity for
any legal or any other expenses reasonably
-5-
<PAGE> 90
incurred by them in connection with investigating or defending any such loss,
claim, liability, action or proceeding; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information about each Holder as a
stockholder of the Company furnished to the Company through an instrument duly
executed by or on behalf of each Holder specifically stating that it is for use
in the preparation thereof; and provided further, however, that the Company
shall not be liable to any person or entity which participates as an underwriter
in the offering or sale of Registrable Securities or any other person or entity,
if any, who controls such underwriter within the meaning of the Securities Act,
in any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of such entity's
failure to send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the entity asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such person or entity if
such statement or omission was corrected in such final prospectus. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of each Holder or any such director, officer or controlling
person or entity and shall survive the transfer of the Registrable Securities by
each Holder.
5. Indemnification by the Holders. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to Section 2 or 3, that the Company shall have received an
undertaking satisfactory to it from each Holder to indemnify and hold harmless
(in the same manner and to the same extent as set forth in Section 4) the
Company, each director of the Company, each officer of the Company signing such
registration statement and each other Person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act with respect to any
untrue statement or alleged untrue statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein or any amendment or supplement thereto,
if such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
about each Holder as a stockholder of the Company furnished to the Company
through an instrument duly executed by each Holder specifically stating that it
is for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement. Such
indemnity shall remain in full force and effect, regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
Person and shall survive the transfer by the seller of the securities of the
Company being registered.
6. Notices of Claims. etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in Section 4 or 5, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give notice to the
latter of the commencement of such action; provided, however, that the failure
of any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its
-6-
<PAGE> 91
obligations under Section 4 or 5, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist or the indemnified party may have defenses not
available to the indemnifying party in respect of such claim, the indemnifying
party shall be entitled to participate in and to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent. No indemnifying party
shall, without the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
7. Other Indemnification. Indemnification similar to that specified in
this Agreement (with appropriate modifications) shall be given by the Company
and each Holder with respect to any required registration or other qualification
of Registrable Securities under any Federal or state law or regulation of any
governmental authority other than the Securities Act.
8. Indemnification Payments. The indemnification required by this
Agreement shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
9. Adjustments Affecting Registrable Securities. The Company shall not
effect or permit to occur any combination, subdivision or other recapitalization
of any of its securities (a) which would materially adversely affect the ability
of the Holder to include its Registrable Securities, or which would reduce the
number of Registrable Securities each Holder would otherwise be entitled to
include pursuant to this Agreement, in any registration of securities of the
Company contemplated by this Agreement or (b) which would materially adversely
affect the marketability of such Registrable Securities under any such
registration.
10. Registration Covenants of the Company. In the event that any
Registrable Securities of the Holders are to be registered pursuant to Section 2
or 3, the Company covenants and agrees that it shall use its best efforts to
effect the registration and cooperate in the sale of the Registrable Securities
to be registered and shall as expeditiously as possible:
(a) (i) prepare and file with the Commission a registration
statement with respect to the Registrable Securities (as well as any
necessary amendments or supplements thereto) (a "Registration
Statement") and (ii) use its best efforts to cause the Registration
Statement to become effective;
-7-
<PAGE> 92
(b) prior to the filing described above in Section 10(a),
furnish to the Holders copies of drafts of the Registration Statement
and any amendments or supplements thereto and any prospectus forming a
part thereof, which documents shall be subject to the review of counsel
for the Holders (but not approval of such counsel except with respect to
any statement in the Registration Statement which relates to the
Holders);
(c) notify the Holders promptly after the Company shall receive
notice thereof, of the time when the Registration Statement becomes
effective or when any amendment or supplement or any prospectus forming
a part of the Registration Statement has been filed;
(d) notify the Holders promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or
prospectus or for additional information;
(e) (i) advise the Holders after the Company shall receive
notice or otherwise obtain knowledge of the issuance of any order by the
Commission suspending the effectiveness of the Registration Statement or
amendment thereto or of the initiation or threatening of any proceeding
for that purpose and (ii) promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal promptly if a
stop order should be issued;
(f) (i) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus forming a
part thereof as may be necessary to keep the Registration Statement
effective for the lesser of (A) a period of time necessary to permit the
Holders to dispose of all of their Registrable Securities and (B) the
maximum period of time permitted by law to keep effective a registration
statement without filing an amendment containing new audited financial
statements and (ii) comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities covered by
the Registration Statement during such period in accordance with the
intended methods of disposition by the Holders set forth in the
Registration Statement;
(g) furnish to the Holders such number of copies of the
Registration Statement, each amendment and supplement thereto, the
prospectus included in the Registration Statement (including each
preliminary prospectus) and such other documents as the Holders may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by the Holders;
(h) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions as determined by the underwriters after consultation with
the Company and the Holders and do any and all other acts and things
which may be reasonably necessary or advisable to enable the Holders to
consummate the disposition in such jurisdictions of the Registrable
Securities (provided that
-8-
<PAGE> 93
the Company shall not be required to (i) qualify generally to do
business in any jurisdiction in which it would not otherwise be required
to qualify but for this Section 10(h), (ii) subject itself to taxation
in any such jurisdiction or (iii) consent to general service of process
in any such jurisdiction);
(i) notify the Holders, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the Registration Statement
would contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and, prepare a supplement or
amendment to the Registration Statement so that the Registration
Statement shall not, to the Company's knowledge, contain an untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading;
(j) if the Common Stock is not then listed on a securities
exchange, and if the NASD is reasonably likely to permit the reporting
of the Common Stock on NASDAQ, use its best efforts to facilitate the
reporting of the Common Stock on NASDAQ;
(k) provide a transfer agent and registrar, which may be a
single entity, for all the Registrable Securities not later than the
effective date of the Registration Statement;
(l) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other
action, if any, as the Holders or the underwriters shall reasonably
request in order to expedite or facilitate the disposition of the
Registrable Securities;
(m) (i) make available for inspection by the Holders, any
underwriter participating in any disposition pursuant to the
Registration Statement and any attorney, accountant or other agent
retained by the Holders or any such underwriter all financial and other
records, pertinent corporate documents and properties of the Company and
(ii) cause the Company's officers, directors and employees to supply all
information reasonably requested by the Holders or any such underwriter,
attorney, accountant or agent in connection with the Registration
Statement;
(n) use its best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved
by such other Governmental Authorities as may be necessary to enable the
Holders to consummate the disposition of such Registrable Securities;
and
(o) obtain a comfort letter from the Company's independent
public accountants in customary form and covering such matters of the
type customarily covered by comfort letters as the Holders may
reasonably request.
-9-
<PAGE> 94
11. Expenses.
(a) The Company shall pay, on behalf of the Holders of
Registrable Securities, all of the expenses in connection with three (3)
Demand Registrations and any Piggyback Registration pursuant to Section
2 or 3 hereof, including all registration, filing and NASD fees, all
fees and expenses of complying with securities or blue sky laws, all
word processing, duplicating and printing expenses, all messenger and
delivery expenses, the fees and disbursements of counsel for the Company
and of its independent public accountants (including the expenses of
comfort letters required by or incident to such performance and
compliance), the reasonable fees, not to exceed $25,000, and
disbursements of one counsel retained by the Holders of Registrable
Securities exercising their Registration Rights, and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding any underwriting discounts and commissions and
transfer taxes, if any.
(b) In any registration, the Holders shall pay for their own
underwriting discounts and commissions and transfer taxes (pro rata if
several entities exercise their Registration Rights simultaneously).
(c) If any expenses are to be paid by the Holders, each selling
Holder shall bear its proportionate share, based on the number of
securities sold.
12. Form S-3 Registration. In case the Company shall receive from any
Holder of Registrable Securities a written request or requests that the Company
effect a registration on Form S-3 (or any successor form of abbreviated
registration statement) and any related qualification or compliance with respect
to all or a part of the Registrable Securities owned by such Holder, the Company
will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holder joining in such request as are
specified in a written request given within 15 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
be obligated to effect any such registration, qualification or compliance,
pursuant to this Section 12: (i) if the Company has already effected two
registrations on Form S-3 pursuant to this Section 12 or one in the preceding
12-month period; (ii) if Form S-3 is not available for such offering by the
Holders requesting registration pursuant to this Section 12; (iii) if the
Holders requesting registration pursuant to this Section 12, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public (net of any underwriters' discounts
or commissions) of less than $1,000,000; (iv) if the Company shall furnish to
-10-
<PAGE> 95
the Holders requesting registration pursuant to this Section 12 a certificate
signed by the President of the Company stating that in the good faith judgement
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its stockholders for such Form S-3 registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 Registration Statement for a period of not more than 90
days after receipt of the request of the Holder(s) under this Section 12;
provided, however, that the Company shall not utilize this right more than once
in any twelve (12) month period; or (v) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders requesting registration pursuant to this Section 12. All expenses
incurred in connection with a registration requested pursuant to this Section
12, including (without limitation) all registration, filing, qualification,
printer's and accounting fees, reasonable fees and disbursements of counsel for
the Holder(s) and counsel for the Company and any underwriters' discounts or
commissions associated with Registrable Securities shall be borne pro rata by
the Holder(s) participating in the Form S-3 Registration. Registrations effected
pursuant to this Section 12 shall not be counted as demands for registration or
registrations effected pursuant to Sections 2 or 3, respectively.
13. Assignment of Registration Rights. The Registration Rights under
this Agreement may be assigned by a Holder of Registrable Securities to anyone
who acquires at least 500,000 shares of the Registrable Securities (other than
pursuant to Rule 144 or a Demand Registration or a Piggyback Registration or a
Form S-3 Registration effected pursuant to this Agreement); provided, however,
that no assignment shall increase the Company's obligations to effect
registrations or pay expenses thereof.
14. No Preferential Registration Rights. Notwithstanding any other
provision of this Agreement, if the Company grants registration rights to any
other person or entity on terms which are preferential to the terms in this
Agreement, then the Holders shall be entitled to registration rights with such
preferential terms.
15. Rule 144. After the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, but only for so long as
the Company is so subject, the Company shall take all actions reasonably
necessary to enable the Holders to sell the Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Commission, including filing on a timely basis all reports required to be filed
by the Exchange Act. Upon the request of a Holder, the Company shall deliver to
such Holder a written statement as to whether it has complied with such
requirements.
-11-
<PAGE> 96
16. Miscellaneous Provisions.
16.1 Notices. All notices and other communications required or
permitted hereunder shall be in writing and, except as otherwise noted herein,
shall be deemed effectively given upon personal delivery, delivery by nationally
recognized courier or upon deposit with the United States Post Office, (by first
class mail, postage prepaid) addressed: (a) if to the Company, at 829 West
Stadium Lane, Sacramento, CA 95834 (or at such other address as the Company
shall have furnished to the Holders in writing) attention of President and (b)
if to a Holder, at the latest address of such person shown on the Company's
records.
16.2 Descriptive Headings. The descriptive headings herein have been
inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provisions hereof.
16.3 Governing Law. This Agreement shall be governed by and
interpreted under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California.
16.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument, but only one of which
need be produced.
16.5 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
16.6 Successors and Assigns. Except as otherwise expressly provided
in this Agreement, this Agreement shall benefit and bind the successors,
assigns, heirs, executors and administrators of the parties to this Agreement.
16.7 Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter of this Agreement.
16.8 Separability; Severability. Unless expressly provided in this
Agreement, the rights of each Holder under this Agreement are several rights,
not rights jointly held with any other Holder. Any invalidity, illegality or
limitation on the enforceability of this Agreement with respect to any Holder
shall not affect the validity, legality or enforceability of this Agreement with
respect to the other Holders. If any provision of this Agreement is judicially
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be affected or impaired.
-12-
<PAGE> 97
16.9 Stock Splits. All references to numbers of shares in this
Agreement shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
16.10 Termination. The rights granted under this Agreement shall
terminate on the seventh anniversary of the closing date of the initial
underwritten public offering of the Company's securities pursuant to a
registration statement declared effective under the Securities Act.
16.11 Waivers and Amendments. With the written consent of IBM and
the recordholders of more than fifty percent (50%) of the Registrable Securities
held by Holders other than IBM (determined assuming conversion or exercise of
all instruments convertible into or exercisable for Registrable Securities), the
obligations of the Company and the rights of the Holders under this Agreement
may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely), and with the same consent the Company, when authorized by
resolution of its Board of Directors may enter into a supplementary agreement
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement. With the written consent of
IBM and the recordholders of more than fifty percent (50%) of the Registrable
Securities subject to this Agreement held by Holders other than IBM (determined
assuming conversion or exercise of all instruments convertible into or
exercisable for such Registrable Securities), the obligations of the Company and
the rights of the Holders under this Agreement may be waived and this Agreement
may be amended; provided that no such waiver or amendment shall (i) reduce such
percentage or (ii) increase any obligations of the Holders under this Agreement
without the consent of all Holders. This Agreement may be amended and its
provisions waived only by a signed statement in writing.
Furthermore, if such amendment or waiver would adversely affect the
rights of Sutter Health, a California nonprofit public benefit corporation
("Sutter Health"), but would not so affect the rights of Holders of Registrable
Securities held by Holders other than Sutter Health, then no such amendment or
waiver of this Agreement shall be effective unless such amendment or waiver
shall be both approved as provided in the preceding paragraph and approved in
writing and signed by Sutter Health. Sutter Health's signature on this Agreement
shall not be deemed a waiver by Sutter Health of any right which Sutter Health
may have under applicable law in the event of and with respect to any breach by
any other Holder of Registrable Securities of any fiduciary duty owed by such
other Holder or Holders to Sutter Health.
-13-
<PAGE> 98
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
INTEGRATED SURGICAL SYSTEMS, INC.
By:______________________________
Title:___________________________
<PAGE> 99
EJ FINANCIAL INVESTMENTS V, L.P.
By:_____________________________
Title:__________________________
JOHN N. KAPOOR TRUST DATED 9/20/89
(or the entity or entities set forth below which is
affiliated with John N. Kapoor Trust dated 9/20/89)
Name:___________________________
By:_____________________________
Title:__________________________
INTEGRATED SURGICAL SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT
<PAGE> 100
SUTTER HEALTH, A CALIFORNIA NONPROFIT
PUBLIC BENEFIT CORPORATION
By:_________________________
Title:______________________
SUTTER HEALTH VENTURE PARTNERS I, L.P.
By: Sutter Ventures, Ltd., as general partner
By:_________________________
Title:______________________
INTEGRATED SURGICAL SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT
<PAGE> 101
KEYSTONE FINANCIAL CORPORATION, A
PENNSYLVANIA NOT-FOR-PROFIT CORPORATION
By:_________________________
Title:______________________
INTEGRATED SURGICAL SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT
<PAGE> 102
INTERNATIONAL BUSINESS
MACHINES CORPORATION
By:_________________________
Title:______________________
INTEGRATED SURGICAL SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT
<PAGE> 103
SCHEDULE G-1
HOLDERS OF REGISTRABLE SECURITIES OR
SECURITIES CONVERTIBLE INTO OR
EXERCISABLE FOR REGISTRABLE SECURITIES
<TABLE>
<CAPTION>
Common Common Series D Series D
Shares Warrants Shares(1) Warrants(1)
------ -------- --------- -----------
<S> <C> <C> <C> <C>
International Business -- 287,752 -- 2,051,282
Machines Corporation
John N. Kapoor Trust 58,347 -- -- --
(or affiliate(s))
EJ Financial Investments -- -- 1,025,641 --
V, L.P.
Keystone Financial 23,628 64,065 -- --
Corporation, a
Pennsylvania Not-
For-Profit Corporation
Sutter Health, a 213,303 578,353 -- --
California nonprofit
public benefit
corporation
Sutter Health Venture 6,493 17,605 -- --
Partners I, L.P.
</TABLE>
- -----------------------
(1) Does not include the additional 512,820 shares of Series D Preferred
Stock or warrants to purchase 1,025,640 shares of Series D Preferred
Stock which the Series D Investors may, and upon the occurrence of
certain events, must purchase pursuant to the terms of the Series D
Preferred Stock and Warrant Purchase Agreement of even date herewith.
Does not include the additional warrants to purchase an aggregate of
approximately 205,469 shares of Common Stock, which warrants are
issuable to the Keystone Financial Corporation, Sutter Health and
Sutter Health Venture Partners I upon the occurrence of certain events.
See page 1 of the Registration Rights Agreement to which this Schedule
is attached. See also each of the three Warrant Agreements attached as
Exhibits K, L and M to the Series D Preferred Stock and Warrant
Purchase Agreement dated December 21, 1995.
<PAGE> 104
SCHEDULE G-1
HOLDERS OF REGISTRABLE SECURITIES OR
SECURITIES CONVERTIBLE INTO OR
EXERCISABLE FOR REGISTRABLE SECURITIES
(as amended March 7, 1996)
<TABLE>
<CAPTION>
Common Common Series D Series D
Shares Warrants Shares Warrants
------ -------- -------- --------
<S> <C> <C> <C> <C>
International Business -- 287,752 -- 3,076,922
Machines Corporation
John N. Kapoor Trust 58,347 -- -- --
(or affiliate(s))
EJ Financial Investments -- -- 1,538,461 --
V, L.P.
Keystone Financial 23,628 84,010 -- --
Corporation, a
Pennsylvania Not-
For-Profit Corporation
Sutter Health, a 213,303 758,397 -- --
California nonprofit
public benefit
corporation
Sutter Health Venture 6,493 23,086 -- --
Partners I, L.P.
</TABLE>
<PAGE> 105
EXHIBIT H
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THAT ACT. THIS WARRANT IS
SUBJECT TO THE PROVISIONS OF A SERIES D PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT DATED AS OF DECEMBER 21, 1995, BETWEEN INTEGRATED SURGICAL SYSTEMS,
INC., INTERNATIONAL BUSINESS MACHINES CORPORATION AND CERTAIN OF THE
STOCKHOLDERS OF THE COMPANY, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY.
WARRANT
FOR THE PURCHASE OF SERIES D PREFERRED STOCK
PAR VALUE $0.01 PER SHARE
OF
INTEGRATED SURGICAL SYSTEMS, INC.
VOID AFTER DECEMBER 31, 2005
THIS CERTIFIES THAT, for $1,333,333.30 received by the Company,
INTERNATIONAL BUSINESS MACHINES CORPORATION ("IBM") or assigns (the "Holder") is
entitled to purchase from INTEGRATED SURGICAL SYSTEMS, INC., a Delaware
corporation (the "Company"), at the price of $0.01 per share (such price as from
time to time adjusted as hereinafter provided, the "Warrant Price"), and in
accordance with the terms and conditions set forth hereinafter and in the Series
D Preferred Stock and Warrant Purchase Agreement dated December 21, 1995,
between the Company, and the Investors listed therein (the "Series D
Agreement"), at any time on or before December 31, 2005, up to 2,051,282 shares
(subject to adjustment as hereinafter provided) of Series D Preferred Stock, par
value $0.01 per share, of Company, and to receive a certificate or certificates
for the shares of Series D Preferred Stock so purchased, upon presentation and
surrender of this Warrant, at the office of the Company, which is at 829 West
Stadium Lane, Sacramento, California 95834 as of the date hereof, together with
the Warrant Price of the shares so purchased.
<PAGE> 106
1. Reservation of Shares. The Company shall reserve and keep available
out of its authorized but unissued Series D Preferred Stock for issuance upon
the exercise of this Warrant, free from preemptive rights, such number of shares
of Series D Preferred Stock for which this Warrant shall from time to time be
exercisable. All shares which may be issued upon the exercise of this Warrant
will, upon issuance, be fully paid and nonassessable and be free from all taxes,
liens and charges in respect of the issuance thereof. The Company further
covenants and agrees that if any shares of Series D Preferred Stock to be
reserved for the purpose of the issuance of shares upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any Federal or State law before such shares may be validly issued or
delivered upon exercise of this Warrant, then the Company will in good faith and
as expeditiously as possible endeavor to secure such registration or approval,
as the case may be, and the right to exercise this Warrant shall be extended
until 10 Business Days (as defined below) after the completion of any such
registration or approval. "Business Day" shall mean any day (other than a day
which is a Saturday, Sunday or legal holiday in the State of New York or
California) on which banks are open for business in New York, New York, and San
Francisco, California.
2. Term. The purchase rights represented by this Warrant are
exercisable at the option of the Holder in whole at any time, or in part from
time to time (but not as to a fractional share of Series D Preferred Stock), on
or before December 31, 2005. In case of the purchase upon exercise of this
Warrant of a number of shares of Series D Preferred Stock less than the total
number of shares of Series D Preferred Stock then issuable upon exercise of this
Warrant, the Company shall cancel this Warrant upon surrender hereof and shall
execute and deliver a new Warrant of like tenor and date for the balance of the
shares issuable upon the exercise hereof (except any remaining fractional
share).
3. Conversion Price Adjustments. The rate at which the Series D
Preferred Stock is convertible into shares of Common Stock of the Company
(initially one-for-one) is subject to adjustment as set forth in Article 4,
Section 5 of the Company's Restated Certificate of Incorporation. Any adjustment
to the conversion rate of the Series D Preferred Stock of the Company effected
prior to any exercise or conversion of this Warrant shall apply to any shares of
Series D Preferred Stock thereafter issued pursuant to the terms hereof.
4. Merger, Consolidation or Sale of Assets. If any consolidation or
merger of the Company with another corporation, or any statutory exchange of
securities with another person, or the sale of all or substantially all of its
assets to another corporation, shall be effected, then, as a condition of such
consolidation, merger, exchange or sale, lawful and adequate provision shall be
made whereby the Holder shall thereafter have the right to purchase and receive,
upon the basis and upon the terms and conditions specified in this Warrant and
in lieu of the shares of the Series D Preferred Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding shares of
such Series D Preferred Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such consolidation, merger, exchange or sale not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the Holder to the end that the provisions
hereof (including without limitation
-2-
<PAGE> 107
provisions for adjustment for the Warrant Price and of the number of shares
purchasable upon the exercise of this Warrant) shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall not effect
any such consolidation, merger, exchange or sale, unless prior to or
simultaneously with the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation, merger or exchange or the
corporation purchasing such assets shall assume by written instrument executed
and delivered to the Holder at the address of the holder appearing in the books
of the Company, the obligation to deliver to the Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the Holder
may be entitled to purchase.
5. Notice of Certain Events. In case at any time:
(a) the Company shall declare or pay any dividend or make any
distribution to the holders of its Series D Preferred Stock;
(b) the Company shall offer for subscription pro rata to the holders of
its Series D Preferred Stock any additional shares of stock of any
class or other rights;
(c) there shall be any capital reorganization or reclassification of
the capital stock of the Company or consolidation or merger of the
Company with, or any statutory exchange of the Company's securities
with the securities of, or sale of all or substantially all of its
assets to, another corporation; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, addressed to the Holder at the address of
the Holder as shown on the books of the Company, of the date on which (i) the
books of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights, or (ii) such reorganization,
reclassification, consolidation, merger, exchange, sale, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Series D Preferred Stock
of record shall participate in said dividend, distribution or subscription
rights, or shall be entitled to exchange their Series D Preferred Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, exchange, sale, dissolution,
liquidation or winding up, as the case may be. Such written notice shall be
given not less than 20 days prior to the record date or the date on which the
transfer books of the Company are closed in respect thereto in the case of an
action specified in clause (i) and at least 20 days prior to the action in
question in the case of an action specified in clause (ii).
6. No Impairment. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company but will at
-3-
<PAGE> 108
all times in good faith assist in the carrying out of all the provisions of
Sections 3 through 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder.
7. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company whatsoever, except
the rights expressed herein or in the Series D Agreement, and no dividend or
interest shall be payable or accrue in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until and unless, and
except to the extent that, this Warrant shall be exercised.
8. Warrant Unregistered. Neither this Warrant nor any of the shares to
be issued upon the exercise hereof have been registered under the Securities Act
of 1933, and nothing herein contained shall be deemed to require the Company so
to register this Warrant. This Warrant is issued subject to the conditions, and
the Holder agrees with the Company,
(a) that this Warrant has been acquired for the purpose of investment
and not with a view to or for sale in connection with any distribution
thereof, subject to the disposition of the Holder's property being at
all times within its control; and
(b) that the Company has the right to demand and receive from the
Holder, prior to the purchase of any shares pursuant hereto, assurances
satisfactory to it that such shares are being purchased for the purpose
of investment and not with a view to or for sale in connection with any
distribution thereof, subject to the disposition of the Holder's
property being at all times within its control.
9. Exchangeability. This Warrant is exchangeable, upon the surrender
hereof by the Holder at said office of the Company, for new Warrants of like
tenor and date representing in the aggregate the right to purchase the number of
shares of Series D Preferred Stock which may be purchased hereunder, each of
such new Warrants to represent the right to purchase such number of shares as
shall be designated by the Holder at the time of such surrender.
10. Transferability. This Warrant shall be transferable in whole or in
part to one or more transferees.
11. Payment of Purchase Price. The Warrant Price for the shares of
Series D Preferred Stock issuable upon the exercise hereof shall be paid be
certified check.
12. Stock Certificates. The issuance of stock certificates upon the
exercise of this Warrant shall be made without charge to the Holder for any tax
(other than taxes attributable to any difference between the fair market value
and the exercise price of this Warrant on the date of the exercise of this
Warrant) in respect of the issue thereof. The Holder shall for all purposes be
deemed to have become the holder of record of the shares issued upon the
exercise of this Warrant on the date on which the Warrant was surrendered and
payment of the Warrant Price was made, irrespective of the date of delivery of
the certificate for such shares, except that, if the date of such surrender and
-4-
<PAGE> 109
payment is a date when the stock transfer books of the Company are closed, the
Holder shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open
(provided that if such books shall remain closed for five days, the close of
business on such fifth day shall be the time the Holder shall be deemed to have
become the holder of such shares.)
13. Lost, Stolen, Mutilated or Destroyed Warrant. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, mutilation
or destruction of this Warrant and, in case of loss, theft or destruction, upon
the agreement of the Holder to indemnify the Company or, in the case of
mutilation, upon surrender and cancellation of this Warrant, the Company shall
issue a new Warrant of like denomination and tenor as the Warrant so lost,
stolen, mutilated or destroyed. Any such new Warrant shall constitute an
original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
14. Applicable Law. This Warrant shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflicts of law principles of such State.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its proper officers thereunto duly authorized and the Company's corporate
seal to be hereunto affixed this 21st day of December, 1995.
INTEGRATED SURGICAL SYSTEMS, INC.
by
___________________________________
Name:
Title:
-5-
<PAGE> 110
EXHIBIT I
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THAT ACT. THIS WARRANT IS
SUBJECT TO THE PROVISIONS OF A SERIES D PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT DATED AS OF DECEMBER 21, 1995, BETWEEN INTEGRATED SURGICAL SYSTEMS,
INC., AND INTERNATIONAL BUSINESS MACHINES CORPORATION, COPIES OF WHICH ARE ON
FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
WARRANT
FOR THE PURCHASE OF COMMON STOCK
PAR VALUE $0.01 PER SHARE
OF
INTEGRATED SURGICAL SYSTEMS, INC.
VOID AFTER DECEMBER 31, 2005
THIS CERTIFIES THAT, for value received, INTERNATIONAL BUSINESS
MACHINES CORPORATION ("IBM") or assigns (the "Holder") is entitled to purchase
from INTEGRATED SURGICAL SYSTEMS, INC., a Delaware corporation (the "Company"),
at the price of $0.01 per share (such price as from time to time adjusted as
hereinafter provided, the "Warrant Price"), and in accordance with the terms and
conditions hereinafter set forth, at any time on or before December 31, 2005, up
to 187,752 shares (subject to adjustment as hereinafter provided) of Common
Stock, par value $0.01 per share, of Company, and to receive a certificate or
certificates for the shares of Common Stock so purchased, upon presentation and
surrender of this Warrant, at the office of the Company, which is a 829 West
Stadium Lane, Sacramento, California 95834 as of the date hereof, together with
the Warrant Price of the shares so purchased.
1. Reservation of Shares. The Company shall reserve and keep available
out of its authorized but unissued Common Stock for issuance upon the exercise
of this Warrant, free from
<PAGE> 111
preemptive rights, such number of shares of Common Stock for which this Warrant
shall from time to time be exercisable. All shares which may be issued upon the
exercise of this Warrant will, upon issuance, be fully paid and nonassessable
and be free from all taxes, liens and charges in respect of the issuance
thereof. The Company further covenants and agrees that if any shares of Common
Stock to be reserved for the purpose of the issuance of shares upon the exercise
of this Warrant require registration with or approval of any governmental
authority under any Federal or State law before such shares may be validly
issued or delivered upon exercise of this Warrant, then the Company will in good
faith and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be, and the right to exercise this Warrant shall be
extended until 10 Business Days (as defined below) after the completion of any
such registration or approval. If and so long as any Common Stock issuable upon
the exercise of this Warrant is listed on any national securities exchange, the
Company will, if permitted by the rules of such exchange, list and keep listed
on such exchange, upon official notice of issuance, all shares of Common Stock
issuable upon exercise of this Warrant. "Business Day" shall mean any day (other
than a day which is a Saturday, Sunday or legal holiday in the State of New York
or California) on which banks are open for business in New York, New York, and
San Francisco, California, and, if the Common Stock is then so listed, on which
such national securities exchange is open for trading.
2. Term. The purchase rights represented by this Warrant are
exercisable at the option of the Holder in whole at any time, or in part from
time to time (but not as to a fractional share of Common Stock), on or before
December 31, 2005. In case of the purchase upon exercise of this Warrant of a
number of shares of Common stock less than the total number of shares of Common
Stock then issuable upon exercise of this Warrant, the Company shall cancel this
Warrant upon surrender hereof and shall execute and deliver a new Warrant of
like tenor and date for the balance of the shares issuable upon the exercise
hereof (except any remaining fractional share).
3. Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price, as provided in Section 4, the Holder shall thereafter be entitled to
purchase, at the Warrant Price resulting form such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting form such
adjustment.
4. Adjustment of Warrant Price upon Stock Dividends, Stock Splits and
Combinations. In case the Company shall at any time make a distribution on the
Common Stock or subdivide its outstanding shares of Common Stock into a greater
number of shares, the Warrant Price in effect immediately prior to such
subdivision shall be proportionally reduced and, conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of share, the Warrant Price in effect immediately prior to such
combination shall be proportionately increased.
5. Merger, Consolidation or Sale of Assets. If any consolidation or
merger of the Company with another corporation, or any statutory exchange of
securities with another person, or the sale of all or substantially all of its
assets to another corporation, shall be effected, then, as a
-2-
<PAGE> 112
condition of such consolidation, merger, exchange or sale, lawful and adequate
provision shall be made whereby the Holder shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such consolidation, merger, exchange or sale not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the Holder to the end that the provisions
hereof (including without limitation provisions for adjustment for the Warrant
Price and of the number of shares purchasable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise hereof.
The Company shall not effect any such consolidation, merger, exchange or sale,
unless prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting form such consolidation,
merger or exchange or the corporation purchasing such assets shall assume by
written instrument executed and delivered to the Holder at the address of the
holder appearing in the books of the Company, the obligation to deliver to the
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to purchase.
6. Notice of Adjustment of Warrant Price. Upon any adjustment of the
Warrant Price, then and in each such case the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the Holder at the
address of the Holder as shown on the books of the Company, which notice shall
state the Warrant Price resulting form such adjustment an the increase or
decrease, if any, int he number of shares purchasable at the Warrant Price upon
the exercise of this Warrant, setting forth in reasonable detail the method of
calculation is based.
7. Computation of Adjustments. Anything herein to the contrary
notwithstanding, upon each computation of an adjustment in the Warrant Price or
the number of shares which may be subscribed for and purchased upon exercise of
this Warrant, the Warrant Price shall be compute to the nearest one-tenth of a
cent (i.e., fractions of less than one twentieth of a cent shall be disregarded
and fractions of one twentieth of a cent, or more, shall be treated as being
one-tenth of a one cent) and the number of shares which may be subscribed for
and purchased upon exercise of this Warrant, shall be calculated to the nearest
share (i.e., fractions of less than half of a share shall be disregarded and
fractions of half of a share, or more, shall be treated as being one share).
8. Notice of Certain Events. In case at any time:
(a) the Company shall declare or pay any dividend or make any
distribution to the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the holders of
its Common Stock any additional shares of stock of any class or other
rights;
-3-
<PAGE> 113
(c) there shall be any capital reorganization or reclassification of
the capital stock of the Company or consolidation or merger of the
Company with, or any statutory exchange of the Company's securities
with the securities of, or sale of all or substantially all of its
assets to, another corporation; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, addressed to the Holder at the address of
the Holder as shown on the books of the Company, of the date on which (i) the
books of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights, or (ii) such reorganization,
reclassification, consolidation, merger, exchange, sale, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of records
shall participate in said dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, exchange, sale, dissolution, liquidation or winding up, as the case may
be. Such written notice shall be given not less than 20 days prior to the record
date or the date on which the transfer books of the Company are closed in
respect thereto in the case of an action specified in clause (i) and at least 20
days prior to the action in question in the case of an action specified in
clause (ii).
9. Definition of Common Stock. As used herein, "Common Stock" shall
mean the Common Stock, par value $0.01 per share, of the Company as authorized
on the date hereof, and also any capital stock of any class of the Company
hereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends or in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
purchasable pursuant to this Warrant shall be the shares designated as Common
Stock, par value $0.01 per share, of the Company on the date hereof, or shares
of any class or classes resulting from the reclassification or reclassifications
of the Common Stock which are not limited to any such fixed sum or percentage
and are not subject to redemption by the Company and in case at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
10. No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company but will at all
times in good faith assist in the carrying out of all the provisions of Sections
3 through 9 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder.
-4-
<PAGE> 114
11. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company whatsoever, except
the rights expressed herein or in the Loan and Warrant Purchase Agreement dated
as of February 6, 1991 (the "Loan and Warrant Agreement"), between the Company
and IBM, and no dividend or interest shall be payable or accrue in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until and unless, and except to the extent that, this Warrant shall be
exercised.
12. Warrant Unregistered. Neither this Warrant nor any of the shares to
be issued upon the exercise hereof have been registered under the Securities Act
of 1933, and nothing herein contained shall be deemed to require the Company so
to register this Warrant. This Warrant is issued subject to the conditions, and
the Holder agrees with the Company,
(a) that this Warrant has been acquired for the purpose of investment
and not with a view to or for sale in connection with any distribution
thereof, subject to the disposition of the Holder's property being at
all times within its control; and
(b) that the Company has the right to demand and receive from the
Holder, prior to the purchase of any shares pursuant hereto, assurances
satisfactory to it that such shares are being purchased for the purpose
of investment and not with a view to or for sale in connection with any
distribution thereof, subject to the disposition of the Holder's
property being at all times within its control.
13. Exchangeability. This Warrant is exchangeable, upon the surrender
hereof by the Holder at said office of the Company, for new Warrants of like
tenor and date representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the Holder at the time of such surrender.
14. Transferability. This Warrant shall be transferable in whole or in
part to one or more transferees.
15. Payment of Purchase Price. The Warrant Price for the shares of
Common Stock issuable upon the exercise hereof shall be paid be certified check.
16. Stock Certificates. The issue of stock certificates upon the
exercise of this Warrant shall be made without charge to the Holder for any tax
(other than taxes attributable to any difference between the fair market value
and the exercise price of this Warrant on the date of the exercise of this
Warrant) in respect of the issue thereof. The Holder shall for all purposes be
deemed to have become the holder of record of the shares issued upon the
exercise of this Warrant on the date on which the Warrant was surrendered and
payment of the Warrant Price was made, irrespective of the date of delivery of
the certificate for such shares, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are closed, the
Holder shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open
(provided that if such books shall remain closed for five
-5-
<PAGE> 115
days, the close of business on such fifth day shall be the time the Holder shall
be deemed to have become the holder of such shares.)
17. Lost, Stolen, Mutilated or Destroyed Warrant. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, mutilation
or destruction of this Warrant and, in case of loss, theft or destruction, upon
the agreement of the Holder to indemnify the Company or, in the case of
mutilation, upon surrender and cancellation of this Warrant, the Company shall
issue a new Warrant of like denomination and tenor as the Warrant so lost,
stolen, mutilated or destroyed. Any such new Warrant shall constitute an
original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
18. Applicable Law. This Warrant shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflicts of law principles of such State.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its proper officers thereunto duly authorized and the Company's corporate
seal to be hereunto affixed this 21st day of December, 1995.
INTEGRATED SURGICAL SYSTEMS, INC.,
by
_____________________________________
Name:
Title:
-6-
<PAGE> 116
EXHIBIT J
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE
OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THAT ACT. THIS WARRANT IS
SUBJECT TO THE PROVISIONS OF A LOAN AND WARRANT PURCHASE AGREEMENT DATED AS OF
FEBRUARY 6, 1991, BETWEEN INTEGRATED SURGICAL SYSTEMS, INC., AND INTERNATIONAL
BUSINESS MACHINES CORPORATION, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY.
AMENDED WARRANT
FOR THE PURCHASE OF COMMON STOCK
PAR VALUE $0.01 PER SHARE
OF
INTEGRATED SURGICAL SYSTEMS, INC.
VOID AFTER DECEMBER 31, 2000
THIS CERTIFIES THAT, for value received, INTERNATIONAL BUSINESS
MACHINES CORPORATION ("IBM") or assigns (the "Holder") is entitled to purchase
from INTEGRATED SURGICAL SYSTEMS, INC., a Delaware corporation (the "Company"),
at the price of $0.05 per share (such price as from time to time adjusted as
hereinafter provided, the "Warrant Price"), and in accordance with the terms and
conditions hereinafter set forth, at any time on or before December 31, 2000, up
to 100,000 shares (subject to adjustment as hereinafter provided) of Common
Stock, par value $0.01 per share, of Company, and to receive a certificate or
certificates for the shares of Common Stock so purchased, upon presentation and
surrender of this Warrant, at the office of the Company, which is a 829 West
Stadium Lane, Sacramento, California 95834 as of the date hereof, together with
the Warrant Price of the shares so purchased.
This Warrant amends and restates in its entirety the Warrant for the
Purchase of 500,000 shares of Common Stock dated February 6, 1991, which was
issued by the Company to IBM.
<PAGE> 117
1. Reservation of Shares. The Company shall reserve and keep available
out of its authorized but unissued Common Stock for issuance upon the exercise
of this Warrant, free from preemptive rights, such number of shares of Common
Stock for which this Warrant shall from time to time be exercisable. All shares
which may be issued upon the exercise of this Warrant will, upon issuance, be
fully paid and nonassessable and be free from all taxes, liens and charges in
respect of the issuance thereof. The Company further covenants and agrees that
if any shares of Common Stock to be reserved for the purpose of the issuance of
shares upon the exercise of this Warrant require registration with or approval
of any governmental authority under any Federal or State law before such shares
may be validly issued or delivered upon exercise of this Warrant, then the
Company will in good faith and as expeditiously as possible endeavor to secure
such registration or approval, as the case may be, and the right to exercise
this Warrant shall be extended until 10 Business Days (as defined below) after
the completion of any such registration or approval. If and so long as any
Common Stock issuable upon the exercise of this Warrant is listed on any
national securities exchange, the Company will, if permitted by the rules of
such exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of Common Stock issuable upon exercise of this Warrant.
"Business Day" shall mean any day (other than a day which is a Saturday, Sunday
or legal holiday in the State of New York or California) on which banks are open
for business in New York, New York, and San Francisco, California, and, if the
Common Stock is then so listed, on which such national securities exchange is
open for trading.
2. Term. The purchase rights represented by this Warrant are
exercisable at the option of the Holder in whole at any time, or in part from
time to time (but not as to a fractional share of Common Stock), on or before
December 31, 2000. In case of the purchase upon exercise of this Warrant of a
number of shares of Common stock less than the total number of shares of Common
Stock then issuable upon exercise of this Warrant, the Company shall cancel this
Warrant upon surrender hereof and shall execute and deliver a new Warrant of
like tenor and date for the balance of the shares issuable upon the exercise
hereof (except any remaining fractional share).
3. Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price, as provided in Section 4, the Holder shall thereafter be entitled to
purchase, at the Warrant Price resulting form such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting form such
adjustment.
4. Adjustment of Warrant Price upon Stock Dividends, Stock Splits and
Combinations. In case the Company shall at any time make a distribution on the
Common Stock or subdivide its outstanding shares of Common Stock into a greater
number of shares, the Warrant Price in effect immediately prior to such
subdivision shall be proportionally reduced and, conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of share, the Warrant Price in effect immediately prior to such
combination shall be proportionately increased.
-2-
<PAGE> 118
5. Merger, Consolidation or Sale of Assets. If any consolidation or
merger of the Company with another corporation, or any statutory exchange of
securities with another person, or the sale of all or substantially all of its
assets to another corporation, shall be effected, then, as a condition of such
consolidation, merger, exchange or sale, lawful and adequate provision shall be
made whereby the Holder shall thereafter have the right to purchase and receive,
upon the basis and upon the terms and conditions specified in this Warrant and
in lieu of the shares of the Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby
had such consolidation, merger, exchange or sale not taken place, and in any
such case appropriate provision shall be made with respect to the rights and
interests of the Holder to the end that the provisions hereof (including without
limitation provisions for adjustment for the Warrant Price and of the number of
shares purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. The Company shall not
effect any such consolidation, merger, exchange or sale, unless prior to or
simultaneously with the consummation thereof the successor corporation (if other
than the Company) resulting form such consolidation, merger or exchange or the
corporation purchasing such assets shall assume by written instrument executed
and delivered to the Holder at the address of the holder appearing in the books
of the Company, the obligation to deliver to the Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the Holder
may be entitled to purchase.
6. Notice of Adjustment of Warrant Price. Upon any adjustment of the
Warrant Price, then and in each such case the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the Holder at the
address of the Holder as shown on the books of the Company, which notice shall
state the Warrant Price resulting form such adjustment an the increase or
decrease, if any, int he number of shares purchasable at the Warrant Price upon
the exercise of this Warrant, setting forth in reasonable detail the method of
calculation is based.
7. Computation of Adjustments. Anything herein to the contrary
notwithstanding, upon each computation of an adjustment in the Warrant Price or
the number of shares which may be subscribed for and purchased upon exercise of
this Warrant, the Warrant Price shall be compute to the nearest one-tenth of a
cent (i.e., fractions of less than one twentieth of a cent shall be disregarded
and fractions of one twentieth of a cent, or more, shall be treated as being
one-tenth of a one cent) and the number of shares which may be subscribed for
and purchased upon exercise of this Warrant, shall be calculated to the nearest
share (i.e., fractions of less than half of a share shall be disregarded and
fractions of half of a share, or more, shall be treated as being one share).
8. Notice of Certain Events. In case at any time:
(a) the Company shall declare or pay any dividend or make any
distribution to the holders of its Common Stock;
-3-
<PAGE> 119
(b) the Company shall offer for subscription pro rata to the holders of
its Common Stock any additional shares of stock of any class or other
rights;
(c) there shall be any capital reorganization or reclassification of
the capital stock of the Company or consolidation or merger of the
Company with, or any statutory exchange of the Company's securities
with the securities of, or sale of all or substantially all of its
assets to, another corporation; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, addressed to the Holder at the address of
the Holder as shown on the books of the Company, of the date on which (i) the
books of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights, or (ii) such reorganization,
reclassification, consolidation, merger, exchange, sale, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of records
shall participate in said dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, exchange, sale, dissolution, liquidation or winding up, as the case may
be. Such written notice shall be given not less than 20 days prior to the record
date or the date on which the transfer books of the Company are closed in
respect thereto in the case of an action specified in clause (i) and at least 20
days prior to the action in question in the case of an action specified in
clause (ii).
9. Definition of Common Stock. As used herein, "Common Stock" shall
mean the Common Stock, par value $0.01 per share, of the Company as authorized
on the date hereof, and also any capital stock of any class of the Company
hereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends or in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
purchasable pursuant to this Warrant shall be the shares designated as Common
Stock, par value $0.01 per share, of the Company on the date hereof, or shares
of any class or classes resulting from the reclassification or reclassifications
of the Common Stock which are not limited to any such fixed sum or percentage
and are not subject to redemption by the Company and in case at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
10. No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company but will at all
times in good faith assist in the carrying out of all the provisions of Sections
3 through 9 and in the
-4-
<PAGE> 120
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder.
11. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company whatsoever, except
the rights expressed herein or in the Loan and Warrant Purchase Agreement dated
as of February 6, 1991 (the "Loan and Warrant Agreement"), between the Company
and IBM, and no dividend or interest shall be payable or accrue in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until and unless, and except to the extent that, this Warrant shall be
exercised.
12. Warrant Unregistered. Neither this Warrant nor any of the shares to
be issued upon the exercise hereof have been registered under the Securities Act
of 1933, and nothing herein contained shall be deemed to require the Company so
to register this Warrant. This Warrant is issued subject to the conditions, and
the Holder agrees with the Company,
(a) that this Warrant has been acquired for the purpose of investment
and not with a view to or for sale in connection with any distribution
thereof, subject to the disposition of the Holder's property being at
all times within its control; and
(b) that the Company has the right to demand and receive from the
Holder, prior to the purchase of any shares pursuant hereto, assurances
satisfactory to it that such shares are being purchased for the purpose
of investment and not with a view to or for sale in connection with any
distribution thereof, subject to the disposition of the Holder's
property being at all times within its control.
13. Exchangeability. This Warrant is exchangeable, upon the surrender
hereof by the Holder at said office of the Company, for new Warrants of like
tenor and date representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the Holder at the time of such surrender.
14. Transferability. This Warrant shall be transferable in whole or in
part to one or more transferees.
15. Payment of Purchase Price. The Warrant Price for the shares of
Common Stock issuable upon the exercise hereof shall be paid be certified check.
16. Stock Certificates. The issue of stock certificates upon the
exercise of this Warrant shall be made without charge to the Holder for any tax
(other than taxes attributable to any difference between the fair market value
and the exercise price of this Warrant on the date of the exercise of this
Warrant) in respect of the issue thereof. The Holder shall for all purposes be
deemed to have become the holder of record of the shares issued upon the
exercise of this Warrant on the date on which the Warrant was surrendered and
payment of the Warrant Price was made, irrespective of the date of delivery of
the certificate for such shares, except that, if the date of such surrender and
-5-
<PAGE> 121
payment is a date when the stock transfer books of the Company are closed, the
Holder shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open
(provided that if such books shall remain closed for five days, the close of
business on such fifth day shall be the time the Holder shall be deemed to have
become the holder of such shares.)
17. Lost, Stolen, Mutilated or Destroyed Warrant. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, mutilation
or destruction of this Warrant and, in case of loss, theft or destruction, upon
the agreement of the Holder to indemnify the Company or, in the case of
mutilation, upon surrender and cancellation of this Warrant, the Company shall
issue a new Warrant of like denomination and tenor as the Warrant so lost,
stolen, mutilated or destroyed. Any such new Warrant shall constitute an
original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
18. Applicable Law. This Warrant shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflicts of law principles of such State.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its proper officers thereunto duly authorized and the Company's corporate
seal to be hereunto affixed this 21st day of December, 1995.
INTEGRATED SURGICAL SYSTEMS, INC.,
by
__________________________________
Name:
Title:
-6-
<PAGE> 122
EXHIBIT K
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE
TRANSFER IS IN ACCORDANCE WITH RULE 144 OR SIMILAR RULE OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
WARRANT AGREEMENT
To Purchase Shares of Common Stock of
INTEGRATED SURGICAL SYSTEMS, INC.
Dated as of December 21, 1995 (the "Effective Date")
WHEREAS, Integrated Surgical Systems, Inc., a Delaware corporation (the
"Company") proposes to effect a series of transactions resulting in the
recapitalization of the Company (the "Recapitalization"); and
WHEREAS, in connection with the Recapitalization, the Company wishes to
grant to Sutter Health, a California nonprofit public benefit corporation (the
"Warrantholder"), the right to purchase shares of the Company's Common Stock
(the "Warrants");
NOW, THEREFORE, in consideration of the Warrantholder giving its
consent to the Recapitalization and in consideration of the mutual covenants and
agreements contained herein, the Company and the Warrantholder agree as follows:
1. Grant of the Right to Purchase Common Stock. The Company hereby
grants to the Warrantholder, and the Warrantholder is entitled, upon the terms
and subject to the conditions hereinafter set forth, prior to December 31, 2005,
to subscribe for and purchase from the Company, 578,353 shares of the Company's
Common Stock (the "Shares"). The Company represents and warrants to the
Warrantholder that the Shares constitute 9.70% of the Company's fully-diluted
shares of Common Stock (or Common Stock equivalents) after giving effect to the
Recapitalization (as defined in the Integrated Surgical Systems Series D
Preferred Stock and Warrant Purchase Agreement dated December 21, 1995). The
purchase price (the "Exercise Price") of one share of Common Stock under the
Warrants shall be $0.50. Simultaneously with the date that is the later of the
Second Closing and the closing of the Rights Offering (as those terms are
defined in the Series D Preferred Stock and Warrant Purchase Agreement of even
date herewith by and between the Company and certain Investors), the Company and
the Warrantholder shall enter into a second Warrant Agreement containing
substantially the same terms and conditions as this Warrant
<PAGE> 123
Agreement, pursuant to which the Company shall grant to the Warrantholder the
right and the Warrantholder shall be entitled to subscribe for and purchase from
the Company, that number of shares of the Company's Common Stock (the
"Additional Warrants") which, when added to the number of Shares covered by this
Warrant Agreement, shall equal 9.70% of the number of fully-diluted shares of
the Company's Common Stock (or Common Stock equivalents), calculated as of the
later of the Second Closing and the closing of the Rights Offering. The purchase
price per share of the shares covered by the Additional Warrants shall be $0.50.
The Warrants and the Additional Warrants shall be referred to collectively
herein as the "Warrants"; the Shares and the shares of Common Stock covered by
the Additional Warrants shall be referred to collectively herein as the
"Shares."
2. Title to Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant Agreement and all rights hereunder
are transferable, in whole or in part, at the office or agency of the Company,
by the Warrantholder in person or by duly authorized attorney, upon surrender of
this Warrant Agreement together with the Assignment Form annexed hereto properly
endorsed.
3. Exercise of Warrants. The purchase rights represented by the
Warrants are exercisable by the Warrantholder, in whole or in part, upon the
occurrence of one of the events described in this Section 2 at any time before
the close of business on December 31, 2005, by the surrender of this Warrant
Agreement and the Notice of Exercise form annexed hereto duly executed at the
office of the Company in Sacramento, California (or such other office or agency
of the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company), and
upon payment of the purchase price of the shares thereby purchased (by cash or
by check or bank draft payable to the order of the Company); whereupon the
Warrantholder shall be entitled to receive a certificate for the number of
shares of Common Stock so purchased.
The Warrants shall become exercisable simultaneously with and for a
period of thirty days after the notice of the proposed occurrence of one of the
following events:
A. The closing of a registered public offering of the Company's
Common Stock in which, based on the public offering price, net
of underwriting discounts and commissions, the Company would
have a pre-money market valuation of at least $10 million
("IPO").
B. The closing of a sale of shares or warrants by a stockholder
or stockholders and/or warrantholder or warrantholders (other
than Sutter Health, a California nonprofit public benefit
corporation or Sutter Health Venture Partners I, L.P.) of the
Company in a single transaction in which both (i) the value of
the aggregate consideration received by such selling
stockholder or stockholders and/or warrantholder or
warrantholders is at least equal to $1 million and (ii) the
sale price per share (whether an actual share or a share
subject to a
-2-
<PAGE> 124
warrant) multiplied by the Company's outstanding equity
securities results in a market valuation of the Company of at
least $10 million ("Share Sale").
C. The closing of a sale by the Company of all or some of the
assets of the Company in which the value of the consideration
received by the Company is at least equal to $10 million
("Asset Sale").
D. The submission of an appraisal of the Company, undertaken only
under the circumstances described in the paragraph below, at a
value of at least $10 million ("Appraisal").
The Warrantholder shall be entitled, upon receipt of notice of
a Share Sale or Asset Sale that would result in a market
valuation of less than $10 million but greater than $5
million, to have an appraisal of the Company conducted, at the
Warrantholder's expense, by an appraiser reasonably acceptable
to the Company. If such appraisal results in a valuation of
the Company of at least $10 million, the Warrantholder shall
be entitled to exercise the Warrant pursuant to the terms of
this Section 2. Other than as set forth in this Section 3.D.,
the Warrantholder shall not have any right to exercise the
Warrants based on an appraisal.
This Warrant shall expire, if not previously exercised, upon an IPO,
Share Sale, Asset Sale or 30 days after an Appraisal. If no IPO, Share Sale,
Asset Sale or Appraisal has occurred before January 1, 2005, then the Warrant
shall become exercisable on January 1, 2005 and shall remain exercisable until
the earlier to occur of (a) an IPO, Share Sale, Asset Sale or Appraisal and (b)
December 31, 2005.
The Company shall notify the Warrantholder in writing at least thirty
days in advance of the scheduled closing of an IPO, Share Sale or Asset Sale
which would result in a market valuation of at least $5 million, and if the
Company fails to deliver such written notice, then notwithstanding anything to
the contrary contained in this Warrant Agreement, the Warrants shall not expire
until the Company complies with such notice provisions and the Warrantholder has
a reasonable opportunity thereafter to exercise the Warrants. If such closing
does not take place, the Company shall promptly notify the Warrantholder that
such proposed IPO, Share Sale or Asset Sale has been terminated, and the
Warrantholder shall rescind any exercise of its Warrants promptly after such
notice of termination of the proposed IPO, Share Sale or Asset Sale if the
exercise of the Warrants occurred after the Company notified the Warrantholder
that the IPO, Share Sale or Asset Sale was proposed or if the exercise was
otherwise precipitated by such proposed IPO, Share Sale or Asset Sale. In the
event of such rescission, the Warrants shall continue to be exercisable on the
same terms and conditions contained herein and the Company shall return the
purchase price to the Warrantholder.
-3-
<PAGE> 125
4. Issuance of Shares; No Fractional Shares or Scrip. The Company
covenants that all Shares issued upon the exercise of the Warrants shall, upon
exercise of the Warrants, be fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue). The
Company further covenants and agrees that if any shares of Common Stock to be
reserved for the purpose of the issuance of Shares upon the exercise of the
Warrants require registration with or approval of any governmental authority
under any Federal or State law before such Shares may be validly issued or
delivered upon exercise of the Warrants, then the Company will in good faith and
as expeditiously as possible endeavor to secure such registration or approval,
as the case may be, and the right to exercise the Warrants shall be extended
until 10 days after the completion of any such registration or approval. If and
so long as any Common Stock issuable upon the exercise of the Warrants is listed
on any national securities exchange (or automated dealer system), the Company
will, if permitted by the rules of such exchange (or system), list and keep
listed on such exchange, upon official notice of issuance, all shares of Common
Stock issuable upon exercise of the Warrants. The Company agrees that, if at the
time of the surrender of this Warrant Agreement and exercise of the Warrants,
the Warrantholder shall be entitled to exercise such Warrants, the Shares so
issued shall be deemed to be issued to the Warrantholder as the record owner of
such Shares as of the close of business on the date on which the Warrants shall
have been exercised. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of the Warrants. With respect to any
fraction of a share called for upon the exercise of the Warrants, an amount
equal to such fraction multiplied by the then current Exercise Price shall be
paid in cash to the Warrantholder.
5. Charges, Taxes and Expenses. Issuance of certificates for Shares
upon the exercise of the Warrants shall be made without charge to the
Warrantholder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Warrantholder or in such name or names as may be directed by the
Warrantholder; provided, however, that in the event certificates for Shares are
to be issued in a name other than the name of the Warrantholder, this Warrant
Agreement when surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the Warrantholder; and provided further,
that upon any transfer involved in the issuance or delivery of any certificates
for Shares, the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
6. No Rights as Stockholders. This Warrant Agreement does not entitle
the Warrantholder to any additional voting rights or other rights as a
stockholder of the Company prior to the exercise of the Warrants.
7. Exchange and Registry of Warrant. This Warrant Agreement is
exchangeable, upon the surrender hereof by the registered holder at the
above-mentioned office or agency of the Company, for a new Warrant Agreement of
like tenor and dated as of such exchange.
-4-
<PAGE> 126
The Company shall maintain at the above-mentioned office or agency a
registry showing the name and address of the registered holder of this Warrant
Agreement. This Warrant Agreement may be surrendered for exchange, transfer or
exercise, in accordance with its terms, at such office or agency of the Company,
and the Company shall be entitled to rely in all respects, prior to written
notice to the contrary, upon such registry.
8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant Agreement, and in case of loss, theft
or destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant Agreement, if mutilated, the
Company will make and deliver a new Warrant Agreement of like tenor and dated as
of such cancellation, in lieu of this Warrant Agreement.
9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
10. Adjustment Rights.
(a) Reclassification, etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities to which purchase rights under this Warrant Agreement
exist into the same or a different number of securities of any class or classes,
this Warrant Agreement shall thereafter be to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to the purchase rights under this Warrant
Agreement immediately prior to such subdivision, combination, reclassification
or other change. If shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the
Exercise Price under this Warrant Agreement shall be proportionately reduced in
case of subdivision of shares or proportionately increased in the case of
combination of shares, in both cases by the ratio which the total number of
shares of Common Stock to be outstanding immediately after such event bears to
the total number of shares of Common Stock outstanding immediately prior to such
event.
(b) Cash Distributions. No adjustment on account of cash dividends
will be made to the Exercise Price under this Warrant Agreement.
(c) Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the exercise of any purchase rights under this Warrant Agreement. The
Company further covenants that its issuance of this Warrant Agreement shall
constitute full authority to its officers who are charged with the duty of
-5-
<PAGE> 127
executing stock certificates to execute and issue the necessary certificates for
shares of the Company's Common Stock upon the exercise of the purchase rights
under this Warrant Agreement.
(d) Exercise Price Adjustments. The Exercise Price of the Warrants
is subject to adjustment on the same terms and conditions as those set forth in
Article 4, Section 5(d) of the Company's Restated Certificate of Incorporation
as accepted by the Delaware Secretary of State on December 20, 1995, a copy of
which is attached hereto as Exhibit A (the "Current Certificate of
Incorporation") with respect to the conversion of the Company's Preferred Stock
into Common Stock. For purposes of applying the provisions of such Article 4,
Section 5(d) to the adjustment of the Exercise Price of the Warrants, any
reference in such Article 4, Section 5(d) to the conversion or the Conversion
Price of any series of the Company's Preferred Stock shall refer to the exercise
and the Exercise Price, respectively, of the Warrants, and all Conversion Price
adjustment provisions of such Article 4, Section 5(d) shall be applied to the
initial Exercise Price of the Warrants of $0.50. If the Company's Current
Certificate of Incorporation is later amended to reduce or eliminate the right
of holders of Preferred Stock to adjustment upon the events set forth in Article
4, Section 5 of the Current Certificate of Incorporation, the exercise price of
the Warrants shall remain subject to adjustment as provided in the Current
Certificate of Incorporation. If the Company's Current Certificate of
Incorporation is later amended to increase the right of the holders of Preferred
Stock to adjustment upon any event, the exercise price of the Warrants shall be
entitled to adjustment on such better terms. At no time shall the exercise price
of the Warrants be subject to adjustment on terms less favorable than those set
forth in the Current Certificate of Incorporation.
11. Restrictions on Transferability of Securities.
(a) Restrictions on Transferability. This Warrant Agreement and the
Shares issuable upon exercise of the Warrants (collectively the "Securities")
shall not be sold, assigned, transferred or pledged except upon the conditions
specified in this Section 11, which conditions are intended to ensure compliance
with the provisions of the Securities Act of 1933, as amended (the "Securities
Act"). Each holder of any of the Securities will cause any proposed purchaser,
assignee, transferee, or pledgee of the Securities held by such holder to agree
to take and hold such Securities subject to the provisions and upon the
conditions specified in this Section 11.
(b) Restrictive Legend. Each certificate representing the
Securities and any other securities issued in respect of the Securities pursuant
to Section 10 shall (unless otherwise permitted by the provisions of Section
11(c) below) be stamped or otherwise imprinted with a legend in the following
form (in addition to any legend required under applicable state securities
laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION UNLESS THE TRANSFER IS IN ACCORDANCE WITH RULE 144 OR
SIMILAR RULE OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT
-6-
<PAGE> 128
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
Each holder of Securities and each subsequent transferee
(hereinafter collectively referred to as a "Holder") consents to the Company
making a notation on its records and giving instructions to any transfer agent
of the Securities in order to implement the restrictions on transfer established
in this Section 11.
(c) Notice of Proposed Transfers. Each Holder of a certificate
representing the Securities, by acceptance thereof, agrees to comply in all
respects with the provisions of this Section 11(c). Prior to any proposed sale,
assignment, transfer or pledge of any Securities (other than (i) a transfer not
involving a change in beneficial ownership, (ii) in transactions involving the
distribution without consideration of Securities by a Holder to any of its
partners, or retired partners, or to the estate of any of its partners or
retired partners, (iii) a transfer to an affiliated fund, partner ship or
company, which is not a competitor of the Company, subject to compliance with
applicable securities laws or (iv) transfers in compliance with Rule 144, so
long as the Company is furnished with satisfactory evidence of compliance with
such Rule), unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the Holder thereof shall give
written notice to the Company of such Holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such Holder's expense, by either
(i) an opinion of counsel (who shall, and whose opinion shall be, addressed to
the Company and reasonably satisfactory to the Company) to the effect that the
proposed transfer of the Securities may be effected without registration under
the Securities Act or (ii) a "no action" letter from the Securities and Exchange
Commission (the "Commission") to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the Holder of
such Securities shall be entitled to transfer such Securities in accordance with
the terms of the notice delivered by such Holder to the Company. Each
certificate evidencing the Securities transferred as above provided shall bear,
except if such transfer is made pursuant to Rule 144, the appropriate
restrictive legend set forth in Section 11(b) above, except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for such Holder and in the opinion of counsel for the Company such legend is not
required in order to establish compliance with any provision of the Securities
Act.
(d) Removal of Restrictions on Transfer of Securities. Any legend
referred to in Section 11(b) hereof stamped on a certificate evidencing the
Securities and the stock transfer instructions and record notations with respect
to the Securities shall be removed and the Company shall issue a certificate
without such legend to the Holder of the Securities if the Securities are
registered under the Securities Act, or if such Holder provides the Company with
an opinion of counsel (which may be counsel for the Company) reasonably
satisfactory to the Company to the effect that a public sale or transfer of such
security may be made without registration under the Securities Act or such
Holder provides the Company with reasonable assurances, which may, at the option
of the Company, include an opinion of counsel (which may be counsel for the
Company)
-7-
<PAGE> 129
reasonably satisfactory to the Company, that such security can be sold pursuant
to paragraph (k) of Rule 144 (or any successor provision) under the Securities
Act.
12. Investment Representations of the Warrantholder. With respect to
the acquisition of any of the Securities, the Warrantholder hereby represents
and warrants to the Company as follows:
(a) Experience. The Warrantholder is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, and bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Securities. If other than an
individual, the Warrantholder also represents it has not been organized for the
purpose of acquiring the Securities.
(b) Investment. The Warrantholder is acquiring the Securities for
investment for its own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, and that the Warrantholder
has no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Warrantholder further
represents that the Warrantholder does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Securities. The Warrantholder understands that the Securities have not been, and
will not be, registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Warrantholder's representations as
expressed herein.
(c) Rule 144. The Warrantholder understands that the Securities are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "Act") only in certain limited circumstances. In this
connection, the Warrantholder represents that it is familiar with Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
(d) No Public Market. The Warrantholder understands that no public
market now exists for any of the securities issued by the Company and that the
Company has made no assurances that a public market will ever exist for the
Securities.
(e) Access to Data. The Warrantholder has had an opportunity to
discuss the Company's business, management and financial affairs with the
Company's management and has also had an opportunity to ask questions of the
Company's officers, which questions were answered to its satisfaction.
13. Notice of Record Date. If at any time prior to the exercise of the
Warrants in full the Company takes a record of the holders of Common Stock for
the purpose of determining the holders
-8-
<PAGE> 130
thereof who are entitled to receive any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, the
Company will give to the Warrantholder at least thirty (15) days prior to the
date specified therein, written notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
14. Opinion of Counsel. Counsel to the Company shall deliver to the
Warrantholder as of the date hereof an opinion, satisfactory to counsel to the
Warrantholder, to the effect that (i) the Warrant Agreement and the Warrants
have been authorized by all necessary corporate action, (ii) the Warrant
Agreement and the Warrants have been duly executed and delivered and constitute
legally binding agreements of the Company, enforceable in accordance with their
terms, subject to customary exceptions, (iii) the Company has reserved out of
its authorized and unissued shares of Common Stock a number of shares sufficient
to provide for the exercise of the rights of purchase represented by the
Warrants, and (iv) the shares when issued upon exercise of the Warrants in
accordance with the terms of the Warrant Agreement, and against payment of the
consideration set forth herein, will be validly issued, fully paid and
non-assessable.
15. Miscellaneous.
(a) Issue Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respect as if it had been issued and
delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company. This Warrant Agreement
shall constitute a contract under the laws of the State of California and for
all purposes shall be construed in accordance with and governed by the laws of
said state.
(b) Waivers and Amendments. With the written consent of the Company
and the Warrantholder, the obligations of the Company and the right of the
Warrantholder may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
of indefinitely), and with the same consent the Company and the Warrantholder
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Warrant Agreement.
(c) Notices. All notices and other communications required or
permitted to be given under this Warrant Agreement shall be in writing and shall
be deemed effectively given upon personal delivery, delivery by nationally
recognized courier or upon deposit with the United States Post Office (by first
class mail, postage prepaid) addressed as follows: (i) if to the Company,
Integrated Surgical Systems, Inc., 829 West Stadium Lane, Sacramento, California
95834, and (ii) if to the Warrantholder, the address as provided in the books of
the Company.
(d) Survival and Assumption. The provisions of Section 11 hereof
shall survive the exercise of the Warrants and shall remain in effect until such
time as the Warrantholder no longer holds Securities. Subject to the provisions
of Section 3 hereof, in the event of a merger of the
-9-
<PAGE> 131
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, or the sale or exchange of substantially all of the
shares of the Company for shares of another corporation, the Warrants shall
survive such merger or sale or exchange and shall be expressly assumed by the
successor corporation or, at the option of the Warrantholder, by the parent or
subsidiary of such successor corporation; provided, however, that if the
Warrants are not to be so assumed by such proposed successor or parent or
subsidiary, then the Company shall not effect such merger or sale or exchange.
-10-
<PAGE> 132
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by their officers thereunto duly authorized as of the
Effective Date.
INTEGRATED SURGICAL SYSTEMS, INC.
A DELAWARE CORPORATION
By: __________________________
Title: __________________________
SUTTER HEALTH, A CALIFORNIA
NONPROFIT PUBLIC BENEFIT CORPORATION
By: _____________________________
Title: _____________________________
<PAGE> 133
NOTICE OF EXERCISE
To: INTEGRATED SURGICAL SYSTEMS, INC.
(1) The undersigned hereby elects to purchase _______________ shares of
Common Stock of Integrated Surgical Systems, Inc. pursuant to the terms of the
attached Warrant Agreement, and tenders herewith payment of the purchase price
in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate of certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
_____________________________
(Name)
_____________________________
(Address)
(3) The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares.
_________________________ ____________________________
(Date) (Signature)
<PAGE> 134
ASSIGNMENT FORM
(To assign the foregoing Warrant Agreement, execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby assigned to
__________________________________________________
(Please Print)
whose address is
__________________________________________________
(Please Print)
__________________________________________________
Dated: ______________, ____.
Holder's Signature: ____________________
Holder's Address: ______________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or enlargement
or any change whatever. Officers of corporations and those acting in a fiduciary
or other representative capacity should file proper evidence of authority to
assign the foregoing Warrant Agreement.
<PAGE> 135
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE
TRANSFER IS IN ACCORDANCE WITH RULE 144 OR SIMILAR RULE OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
WARRANT AGREEMENT
To Purchase Shares of Common Stock of
INTEGRATED SURGICAL SYSTEMS, INC.
Dated as of March 7, 1996 (the "Effective Date")
WHEREAS, Integrated Surgical Systems, Inc., a Delaware corporation (the
"Company") and Sutter Health, a California nonprofit public benefit corporation
(the "Warrantholder"), have entered into that certain Warrant Agreement dated as
of December 21, 1995 (the "December 21 Warrant Agreement"), pursuant to which
the Company has agreed to grant to the Warrantholder, upon the date that is the
later of the Second Closing and the closing of the Rights Offering (as those
terms are defined in the Series D Preferred Stock and Warrant Purchase Agreement
of even date herewith by and between the Company and certain Investors),
warrants to purchase shares of the Company's Common Stock (the "Additional
Warrants"), in addition to those warrants (the "Warrants") to purchase shares of
the Company's Common Stock (the "Shares") which were granted to the
Warrantholder on December 21, 1995, pursuant to the December 21 Warrant
Agreement; and
WHEREAS, the date of the Second Closing was February 29, 1996, and the
date of the closing of the Rights Offering is the date hereof;
NOW, THEREFORE, in consideration of the Warrantholder giving its
consent to the Recapitalization (as that term is defined in the December 21
Warrant Agreement) and in consideration of the mutual covenants and agreements
contained herein, the Company and the Warrantholder agree as follows:
1. Grant of the Right to Purchase Common Stock. The Company hereby
grants to the Warrantholder, and the Warrantholder is entitled, upon the terms
and subject to the conditions hereinafter set forth, prior to December 31, 2005,
to subscribe for and purchase from the Company, 180,044 shares of the Company's
Common Stock (the "Additional Shares"). The Company represents and warrants to
the Warrantholder that the Shares and the Additional Shares together constitute
9.70% of the number of fully-diluted shares of the Company's Common Stock (or
Common
<PAGE> 136
Stock equivalents), calculated as of the later of the Second Closing and the
closing of the Rights Offering. The purchase price (the "Exercise Price") of one
share of Common Stock under the Additional Warrants shall be $0.50. The Warrants
and the Additional Warrants shall be referred to collectively herein as the
"Warrants"; the Shares and the Additional Shares shall be referred to
collectively herein as the "Shares."
2. Title to Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant Agreement and all rights hereunder
are transferable, in whole or in part, at the office or agency of the Company,
by the Warrantholder in person or by duly authorized attorney, upon surrender of
this Warrant Agreement together with the Assignment Form annexed hereto properly
endorsed.
3. Exercise of Warrants. The purchase rights represented by the
Warrants are exercisable by the Warrantholder, in whole or in part, upon the
occurrence of one of the events described in this Section 2 at any time before
the close of business on December 31, 2005, by the surrender of this Warrant
Agreement and the Notice of Exercise form annexed hereto duly executed at the
office of the Company in Sacramento, California (or such other office or agency
of the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company), and
upon payment of the purchase price of the shares thereby purchased (by cash or
by check or bank draft payable to the order of the Company); whereupon the
Warrantholder shall be entitled to receive a certificate for the number of
shares of Common Stock so purchased.
The Warrants shall become exercisable simultaneously with and for a
period of thirty days after the notice of the proposed occurrence of one of the
following events:
A. The closing of a registered public offering of the Company's
Common Stock in which, based on the public offering price, net
of underwriting discounts and commissions, the Company would
have a pre-money market valuation of at least $10 million
("IPO").
B. The closing of a sale of shares or warrants by a stockholder
or stockholders and/or warrantholder or warrantholders (other
than Sutter Health, a California nonprofit public benefit
corporation or Sutter Health Venture Partners I, L.P.) of the
Company in a single transaction in which both (i) the value of
the aggregate consideration received by such selling
stockholder or stockholders and/or warrantholder or
warrantholders is at least equal to $1 million and (ii) the
sale price per share (whether an actual share or a share
subject to a warrant) multiplied by the Company's outstanding
equity securities results in a market valuation of the Company
of at least $10 million ("Share Sale").
-2-
<PAGE> 137
C. The closing of a sale by the Company of all or some of the
assets of the Company in which the value of the consideration
received by the Company is at least equal to $10 million
("Asset Sale").
D. The submission of an appraisal of the Company, undertaken only
under the circumstances described in the paragraph below, at a
value of at least $10 million ("Appraisal").
The Warrantholder shall be entitled, upon receipt of notice of
a Share Sale or Asset Sale that would result in a market
valuation of less than $10 million but greater than $5
million, to have an appraisal of the Company conducted, at the
Warrantholder's expense, by an appraiser reasonably acceptable
to the Company. If such appraisal results in a valuation of
the Company of at least $10 million, the Warrantholder shall
be entitled to exercise the Warrant pursuant to the terms of
this Section 2. Other than as set forth in this Section 3.D.,
the Warrantholder shall not have any right to exercise the
Warrants based on an appraisal.
This Warrant shall expire, if not previously exercised, upon an IPO,
Share Sale, Asset Sale or 30 days after an Appraisal. If no IPO, Share Sale,
Asset Sale or Appraisal has occurred before January 1, 2005, then the Warrant
shall become exercisable on January 1, 2005 and shall remain exercisable until
the earlier to occur of (a) an IPO, Share Sale, Asset Sale or Appraisal and (b)
December 31, 2005.
The Company shall notify the Warrantholder in writing at least thirty
days in advance of the scheduled closing of an IPO, Share Sale or Asset Sale
which would result in a market valuation of at least $5 million, and if the
Company fails to deliver such written notice, then notwithstanding anything to
the contrary contained in this Warrant Agreement, the Warrants shall not expire
until the Company complies with such notice provisions and the Warrantholder has
a reasonable opportunity thereafter to exercise the Warrants. If such closing
does not take place, the Company shall promptly notify the Warrantholder that
such proposed IPO, Share Sale or Asset Sale has been terminated, and the
Warrantholder shall rescind any exercise of its Warrants promptly after such
notice of termination of the proposed IPO, Share Sale or Asset Sale if the
exercise of the Warrants occurred after the Company notified the Warrantholder
that the IPO, Share Sale or Asset Sale was proposed or if the exercise was
otherwise precipitated by such proposed IPO, Share Sale or Asset Sale. In the
event of such rescission, the Warrants shall continue to be exercisable on the
same terms and conditions contained herein and the Company shall return the
purchase price to the Warrantholder.
4. Issuance of Shares; No Fractional Shares or Scrip. The Company
covenants that all Shares issued upon the exercise of the Warrants shall, upon
exercise of the Warrants, be fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue). The
Company further
-3-
<PAGE> 138
covenants and agrees that if any shares of Common Stock to be reserved for the
purpose of the issuance of Shares upon the exercise of the Warrants require
registration with or approval of any governmental authority under any Federal or
State law before such Shares may be validly issued or delivered upon exercise of
the Warrants, then the Company will in good faith and as expeditiously as
possible endeavor to secure such registration or approval, as the case may be,
and the right to exercise the Warrants shall be extended until 10 days after the
completion of any such registration or approval. If and so long as any Common
Stock issuable upon the exercise of the Warrants is listed on any national
securities exchange (or automated dealer system), the Company will, if permitted
by the rules of such exchange (or system), list and keep listed on such
exchange, upon official notice of issuance, all shares of Common Stock issuable
upon exercise of the Warrants. The Company agrees that, if at the time of the
surrender of this Warrant Agreement and exercise of the Warrants, the
Warrantholder shall be entitled to exercise such Warrants, the Shares so issued
shall be deemed to be issued to the Warrantholder as the record owner of such
Shares as of the close of business on the date on which the Warrants shall have
been exercised. No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of the Warrants. With respect to any fraction
of a share called for upon the exercise of the Warrants, an amount equal to such
fraction multiplied by the then current Exercise Price shall be paid in cash to
the Warrantholder.
5. Charges, Taxes and Expenses. Issuance of certificates for Shares
upon the exercise of the Warrants shall be made without charge to the
Warrantholder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Warrantholder or in such name or names as may be directed by the
Warrantholder; provided, however, that in the event certificates for Shares are
to be issued in a name other than the name of the Warrantholder, this Warrant
Agreement when surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the Warrantholder; and provided further,
that upon any transfer involved in the issuance or delivery of any certificates
for Shares, the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
6. No Rights as Stockholders. This Warrant Agreement does not entitle
the Warrantholder to any additional voting rights or other rights as a
stockholder of the Company prior to the exercise of the Warrants.
7. Exchange and Registry of Warrant. This Warrant Agreement is
exchangeable, upon the surrender hereof by the registered holder at the
above-mentioned office or agency of the Company, for a new Warrant Agreement of
like tenor and dated as of such exchange.
The Company shall maintain at the above-mentioned office or agency a
registry showing the name and address of the registered holder of this Warrant
Agreement. This Warrant Agreement may be surrendered for exchange, transfer or
exercise, in accordance with its terms, at such office or agency of the Company,
and the Company shall be entitled to rely in all respects, prior to written
notice to the contrary, upon such registry.
-4-
<PAGE> 139
8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant Agreement, and in case of loss, theft
or destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant Agreement, if mutilated, the
Company will make and deliver a new Warrant Agreement of like tenor and dated as
of such cancellation, in lieu of this Warrant Agreement.
9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
10. Adjustment Rights.
(a) Reclassification, etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities to which purchase rights under this Warrant Agreement
exist into the same or a different number of securities of any class or classes,
this Warrant Agreement shall thereafter be to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to the purchase rights under this Warrant
Agreement immediately prior to such subdivision, combination, reclassification
or other change. If shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the
Exercise Price under this Warrant Agreement shall be proportionately reduced in
case of subdivision of shares or proportionately increased in the case of
combination of shares, in both cases by the ratio which the total number of
shares of Common Stock to be outstanding immediately after such event bears to
the total number of shares of Common Stock outstanding immediately prior to such
event.
(b) Cash Distributions. No adjustment on account of cash dividends
will be made to the Exercise Price under this Warrant Agreement.
(c) Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the exercise of any purchase rights under this Warrant Agreement. The
Company further covenants that its issuance of this Warrant Agreement shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of the Company's Common Stock upon the exercise of the purchase rights
under this Warrant Agreement.
(d) Exercise Price Adjustments. The Exercise Price of the Warrants
is subject to adjustment on the same terms and conditions as those set forth in
Article 4, Section 5(d) of the Company's Restated Certificate of Incorporation
as accepted by the Delaware Secretary of State on December 20, 1995, a copy of
which is attached as Exhibit A to the December 21 Warrant
-5-
<PAGE> 140
Agreement (the "Current Certificate of Incorporation") with respect to the
conversion of the Company's Preferred Stock into Common Stock. For purposes of
applying the provisions of such Article 4, Section 5(d) to the adjustment of the
Exercise Price of the Warrants, any reference in such Article 4, Section 5(d) to
the conversion or the Conversion Price of any series of the Company's Preferred
Stock shall refer to the exercise and the Exercise Price, respectively, of the
Warrants, and all Conversion Price adjustment provisions of such Article 4,
Section 5(d) shall be applied to the initial Exercise Price of the Warrants of
$0.50. If the Company's Current Certificate of Incorporation is later amended to
reduce or eliminate the right of holders of Preferred Stock to adjustment upon
the events set forth in Article 4, Section 5 of the Current Certificate of
Incorporation, the exercise price of the Warrants shall remain subject to
adjustment as provided in the Current Certificate of Incorporation. If the
Company's Current Certificate of Incorporation is later amended to increase the
right of the holders of Preferred Stock to adjustment upon any event, the
exercise price of the Warrants shall be entitled to adjustment on such better
terms. At no time shall the exercise price of the Warrants be subject to
adjustment on terms less favorable than those set forth in the Current
Certificate of Incorporation.
11. Restrictions on Transferability of Securities.
(a) Restrictions on Transferability. This Warrant Agreement and the
Shares issuable upon exercise of the Warrants (collectively the "Securities")
shall not be sold, assigned, transferred or pledged except upon the conditions
specified in this Section 11, which conditions are intended to ensure compliance
with the provisions of the Securities Act of 1933, as amended (the "Securities
Act"). Each holder of any of the Securities will cause any proposed purchaser,
assignee, transferee, or pledgee of the Securities held by such holder to agree
to take and hold such Securities subject to the provisions and upon the
conditions specified in this Section 11.
(b) Restrictive Legend. Each certificate representing the
Securities and any other securities issued in respect of the Securities pursuant
to Section 10 shall (unless otherwise permitted by the provisions of Section
11(c) below) be stamped or otherwise imprinted with a legend in the following
form (in addition to any legend required under applicable state securities
laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION UNLESS THE TRANSFER IS IN ACCORDANCE WITH RULE 144 OR
SIMILAR RULE OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT.
Each holder of Securities and each subsequent transferee
(hereinafter collectively referred to as a "Holder") consents to the Company
making a notation on its records and giving
-6-
<PAGE> 141
instructions to any transfer agent of the Securities in order to implement the
restrictions on transfer established in this Section 11.
(c) Notice of Proposed Transfers. Each Holder of a certificate
representing the Securities, by acceptance thereof, agrees to comply in all
respects with the provisions of this Section 11(c). Prior to any proposed sale,
assignment, transfer or pledge of any Securities (other than (i) a transfer not
involving a change in beneficial ownership, (ii) in transactions involving the
distribution without consideration of Securities by a Holder to any of its
partners, or retired partners, or to the estate of any of its partners or
retired partners, (iii) a transfer to an affiliated fund, partner ship or
company, which is not a competitor of the Company, subject to compliance with
applicable securities laws or (iv) transfers in compliance with Rule 144, so
long as the Company is furnished with satisfactory evidence of compliance with
such Rule), unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the Holder thereof shall give
written notice to the Company of such Holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such Holder's expense, by either
(i) an opinion of counsel (who shall, and whose opinion shall be, addressed to
the Company and reasonably satisfactory to the Company) to the effect that the
proposed transfer of the Securities may be effected without registration under
the Securities Act or (ii) a "no action" letter from the Securities and Exchange
Commission (the "Commission") to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the Holder of
such Securities shall be entitled to transfer such Securities in accordance with
the terms of the notice delivered by such Holder to the Company. Each
certificate evidencing the Securities transferred as above provided shall bear,
except if such transfer is made pursuant to Rule 144, the appropriate
restrictive legend set forth in Section 11(b) above, except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for such Holder and in the opinion of counsel for the Company such legend is not
required in order to establish compliance with any provision of the Securities
Act.
(d) Removal of Restrictions on Transfer of Securities. Any legend
referred to in Section 11(b) hereof stamped on a certificate evidencing the
Securities and the stock transfer instructions and record notations with respect
to the Securities shall be removed and the Company shall issue a certificate
without such legend to the Holder of the Securities if the Securities are
registered under the Securities Act, or if such Holder provides the Company with
an opinion of counsel (which may be counsel for the Company) reasonably
satisfactory to the Company to the effect that a public sale or transfer of such
security may be made without registration under the Securities Act or such
Holder provides the Company with reasonable assurances, which may, at the option
of the Company, include an opinion of counsel (which may be counsel for the
Company) reasonably satisfactory to the Company, that such security can be sold
pursuant to paragraph (k) of Rule 144 (or any successor provision) under the
Securities Act.
12. Investment Representations of the Warrantholder. With respect to
the acquisition of any of the Securities, the Warrantholder hereby represents
and warrants to the Company as follows:
-7-
<PAGE> 142
(a) Experience. The Warrantholder is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, and bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Securities. If other than an
individual, the Warrantholder also represents it has not been organized for the
purpose of acquiring the Securities.
(b) Investment. The Warrantholder is acquiring the Securities for
investment for its own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, and that the Warrantholder
has no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Warrantholder further
represents that the Warrantholder does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Securities. The Warrantholder understands that the Securities have not been, and
will not be, registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Warrantholder's representations as
expressed herein.
(c) Rule 144. The Warrantholder understands that the Securities are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "Act") only in certain limited circumstances. In this
connection, the Warrantholder represents that it is familiar with Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
(d) No Public Market. The Warrantholder understands that no public
market now exists for any of the securities issued by the Company and that the
Company has made no assurances that a public market will ever exist for the
Securities.
(e) Access to Data. The Warrantholder has had an opportunity to
discuss the Company's business, management and financial affairs with the
Company's management and has also had an opportunity to ask questions of the
Company's officers, which questions were answered to its satisfaction.
13. Notice of Record Date. If at any time prior to the exercise of the
Warrants in full the Company takes a record of the holders of Common Stock for
the purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Company will give to the
Warrantholder at least thirty (15) days prior to the date specified therein,
written notice specifying the date on which any such record is to be taken for
the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
-8-
<PAGE> 143
14. Miscellaneous.
(a) Issue Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respect as if it had been issued and
delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company. This Warrant Agreement
shall constitute a contract under the laws of the State of California and for
all purposes shall be construed in accordance with and governed by the laws of
said state.
(b) Waivers and Amendments. With the written consent of the Company
and the Warrantholder, the obligations of the Company and the right of the
Warrantholder may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
of indefinitely), and with the same consent the Company and the Warrantholder
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Warrant Agreement.
(c) Notices. All notices and other communications required or
permitted to be given under this Warrant Agreement shall be in writing and shall
be deemed effectively given upon personal delivery, delivery by nationally
recognized courier or upon deposit with the United States Post Office (by first
class mail, postage prepaid) addressed as follows: (i) if to the Company,
Integrated Surgical Systems, Inc., 829 West Stadium Lane, Sacramento, California
95834, and (ii) if to the Warrantholder, the address as provided in the books of
the Company.
(d) Survival and Assumption. The provisions of Section 11 hereof
shall survive the exercise of the Warrants and shall remain in effect until such
time as the Warrantholder no longer holds Securities. Subject to the provisions
of Section 3 hereof, 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 the sale or exchange of substantially all of the shares of the
Company for shares of another corporation, the Warrants shall survive such
merger or sale or exchange and shall be expressly assumed by the successor
corporation or, at the option of the Warrantholder, by the parent or subsidiary
of such successor corporation; provided, however, that if the Warrants are not
to be so assumed by such proposed successor or parent or subsidiary, then the
Company shall not effect such merger or sale or exchange.
-9-
<PAGE> 144
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by their officers thereunto duly authorized as of the
Effective Date.
INTEGRATED SURGICAL SYSTEMS, INC.
A DELAWARE CORPORATION
By: ___________________________
Title: ___________________________
SUTTER HEALTH, A CALIFORNIA
NONPROFIT PUBLIC BENEFIT CORPORATION
By: _____________________________
Title: _____________________________
<PAGE> 145
NOTICE OF EXERCISE
To: INTEGRATED SURGICAL SYSTEMS, INC.
(1) The undersigned hereby elects to purchase _______________ shares of
Common Stock of Integrated Surgical Systems, Inc. pursuant to the terms of the
attached Warrant Agreement, and tenders herewith payment of the purchase price
in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate of certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
_____________________________
(Name)
_____________________________
(Address)
(3) The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares.
__________________________ _______________________________
(Date) (Signature)
<PAGE> 146
ASSIGNMENT FORM
(To assign the foregoing Warrant Agreement, execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby assigned to
__________________________________________________
(Please Print)
whose address is
__________________________________________________
(Please Print)
__________________________________________________
Dated: ______________, ____.
Holder's Signature: ____________________
Holder's Address: ______________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or enlargement
or any change whatever. Officers of corporations and those acting in a fiduciary
or other representative capacity should file proper evidence of authority to
assign the foregoing Warrant Agreement.
<PAGE> 147
EXHIBIT L
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE
TRANSFER IS IN ACCORDANCE WITH RULE 144 OR SIMILAR RULE OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
WARRANT AGREEMENT
To Purchase Shares of Common Stock of
INTEGRATED SURGICAL SYSTEMS, INC.
Dated as of December 21, 1995 (the "Effective Date")
WHEREAS, Integrated Surgical Systems, Inc., a Delaware corporation (the
"Company") proposes to effect a series of transactions resulting in the
recapitalization of the Company (the "Recapitalization"); and
WHEREAS, in connection with the Recapitalization, the Company wishes to
grant to Sutter Health Venture Partners I, L.P. (the "Warrantholder"), the
right to purchase shares of the Company's Common Stock (the "Warrants").
NOW, THEREFORE, in consideration of the Warrantholder giving its
consent to the Recapitalization and in consideration of the mutual covenants
and agreements contained herein, the Company and the Warrantholder agree as
follows:
1. Grant of the Right to Purchase Common Stock. The Company hereby
grants to the Warrantholder, and the Warrantholder is entitled, upon the terms
and subject to the conditions hereinafter set forth, prior to December 31,
2005, to subscribe for and purchase from the Company, 17,605 shares of the
Company's Common Stock (the "Shares"). The Company represents and warrants to
the Warrantholder that the Shares constitute 0.30% of the Company's
fully-diluted shares of Common Stock (or Common Stock equivalents) after giving
effect to the Recapitalization (as defined in the Integrated Surgical Systems
Series D Preferred Stock and Warrant Purchase Agreement dated December 21,
1995). The purchase price (the "Exercise Price") of one share of Common Stock
under the Warrants shall be $0.50. Simultaneously with the date that is the
later of the Second Closing and the closing of the Rights Offering (as those
terms are defined in the Series D Preferred Stock and Warrant Purchase
Agreement of even date herewith by and between the Company and certain
Investors), the Company and the Warrantholder shall enter into a second Warrant
Agreement containing substantially the same terms and conditions as this
Warrant
<PAGE> 148
Agreement, pursuant to which the Company shall grant to the Warrantholder the
right and the Warrantholder shall be entitled to subscribe for and purchase from
the Company, that number of shares of the Company's Common Stock (the
"Additional Warrants") which, when added to the number of Shares covered by
this Warrant Agreement, shall equal 0.30% of the number of fully-diluted shares
of the Company's Common Stock (or Common Stock equivalents), calculated as of
the later of the Second Closing and the closing of the Rights Offering. The
purchase price per share of the shares covered by the Additional Warrants shall
be $0.50. The Warrants and the Additional Warrants shall be referred to
collectively herein as the "Warrants"; the Shares and the shares of Common
Stock covered by the Additional Warrants shall be referred to collectively
herein as the "Shares."
2. Title to Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant Agreement and all rights
hereunder are transferable, in whole or in part, at the office or agency of the
Company, by the Warrantholder in person or by duly authorized attorney, upon
surrender of this Warrant Agreement together with the Assignment Form annexed
hereto properly endorsed.
3. Exercise of Warrants. The purchase rights represented by the
Warrants are exercisable by the Warrantholder, in whole or in part, upon the
occurrence of one of the events described in this Section 2 at any time before
the close of business on December 31, 2005, by the surrender of this Warrant
Agreement and the Notice of Exercise from annexed hereto duly executed at the
office of the Company in Sacramento, California (or such other office or agency
of the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company), and
upon payment of the purchase price of the shares thereby purchased (by cash or
by check or bank draft payable to the order of the Company); whereupon the
Warrantholder shall be entitled to receive a certificate for the number of
shares of Common Stock so purchased.
The Warrants shall become exercisable simultaneously with and for a
period of thirty days after the notice of the proposed occurrence of one of the
following events:
A. The closing of a registered public offering of the
Company's Common Stock in which, based on the public
offering price, net of underwriting discounts and
commissions, the Company would have a pre-money market
valuation of at least $10 million ("IPO").
B. The closing of a sale of shares or warrants by a
stockholder or stockholders and/or warrantholder or
warrantholders (other than Sutter Health, a California
nonprofit public benefit corporation or Sutter Health
Venture Partners I, L.P.) of the Company in a single
transaction in which both (i) the value of the aggregate
consideration received by such selling stockholder or
stockholders and/or warrantholder or warrantholders is
at least equal to $1 million and (ii) the sale price per
share (whether an actual share or a share subject to a
-2-
<PAGE> 149
warrant) multiplied by the Company's outstanding equity
securities results in a market valuation of the Company
of at least $10 million ("Share Sale").
C. The closing of a sale by the Company of all or some of
the assets of the Company in which the value of the
consideration received by the Company is at least equal
to $10 million ("Asset Sale").
D. The submission of an appraisal of the Company,
undertaken only under the circumstances described in the
paragraph below, at a value of at least $10 million
("Appraisal").
The Warrantholder shall be entitled, upon receipt of
notice of a Share Sale or Asset Sale that would result
in a market valuation of less than $10 million but
greater than $5 million, to have an appraisal of the
Company conducted at the Warrantholder's expense, by an
appraiser reasonably acceptable to the Company. If such
appraisal results in a valuation of the Company of at
least $10 million, the Warrantholder shall be entitled
to exercise the Warrant pursuant to the terms of this
Section 2. Other than as set forth in this Section 3.D,
the Warrantholder shall not have any right to exercise
the Warrants based on an appraisal.
This Warrant shall expire, if not previously exercised, upon an IPO,
Share Sale, Asset Sale or 30 days after an Appraisal. If no IPO, Share Sale,
Asset Sale or Appraisal has occurred before January 1, 2005, then the Warrant
shall become exercisable on January 1, 2005 and shall remain exercisable until
the earlier to occur of (a) an IPO, Share Sale, Asset Sale or Appraisal and (b)
December 31, 2005.
The Company shall notify the Warrantholder in writing at least thirty
days in advance of the scheduled closing of an IPO, Share Sale or Asset Sale
which would result in a market valuation of at least $5 million, and if the
Company fails to deliver such written notice, then notwithstanding anything to
the contrary contained in this Warrant Agreement, the Warrants shall not expire
until the Company complies with such notice provisions and the Warrantholder
has a reasonable opportunity thereafter to exercise the Warrants. If such
closing does not take place, the Company shall promptly notify the
Warrantholder that such proposed IPO, Share Sale or Asset Sale has been
terminated, and the Warrantholder shall rescind any exercise of its Warrants
promptly after such notice of termination of the proposed IPO, Share Sale or
Asset Sale if the exercise of the Warrants occurred after the Company notified
the Warrantholder that the IPO, Share Sale or Asset Sale was proposed or if the
exercise was otherwise precipitated by such proposed IPO, Share Sale or Asset
Sale. In the event of such rescission, the Warrants shall continue to be
exercisable on the same terms and conditions contained herein and the Company
shall return the purchase price to the Warrantholder.
-3-
<PAGE> 150
4. Issuance of Shares; No Fractional Shares or Scrip. The Company
covenants that all Shares issued upon the exercise of the Warrants shall, upon
exercise of the Warrants, be fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue). The
Company further covenants and agrees that if any shares of Common Stock to be
reserved for the purpose of the issuance of Shares upon the exercise of the
Warrants require registration with or approval of any governmental authority
under any Federal or State law before such Shares may be validly issued or
delivered upon exercise of the Warrants, then the Company will in good faith and
as expeditiously as possible endeavor to secure such registration or approval,
as the case may be, and the right to exercise the Warrants shall be extended
until 10 days after the completion of any such registration or approval. If and
so long as any Common Stock issuable upon the exercise of the Warrants is listed
on any national securities exchange (or automated dealer system), the Company
will, if permitted by the rules of such exchange, list and keep listed on such
exchange (or system), upon official notice of issuance, all shares of Common
Stock issuable upon exercise of the Warrants. The Company agrees that, if at the
time of the surrender of this Warrant Agreement and exercise of the Warrants,
the Warrantholder shall be entitled to exercise such Warrants, the Share so
issued shall be deemed to be issued to the Warrantholder as the record owner of
such Shares as of the close of business on the date on which the Warrants shall
have been exercised. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of the Warrants. With respect to any
fraction of a share called for upon the exercise of the Warrants, an amount
equal to such fraction multiplied by the then current Exercise Price shall be
paid in cash to the Warrantholder.
5. Charges, Taxes and Expenses. Issuance of certificates for
Shares upon the exercise of the Warrants shall be made without charge to the
Warrantholder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Warrantholder or in such name or names as may be directed by the
Warrantholder, provided, however, that in the event certificates for Shares are
to be issued in a name other than the name of the Warrantholder, this Warrant
Agreement when surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the Warrantholder; and provided further,
that upon any transfer involved in the issuance or delivery of any certificates
for Shares, the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
6. No Rights as Stockholders. This Warrant Agreement does not
entitle the Warrantholder to any additional voting rights or other rights as a
stockholder of the Company prior to the exercise of the Warrants.
7. Exchange and Registry of Warrant. This Warrant Agreement is
exchangeable, upon the surrender hereof by the registered holder at the
above-mentioned office or agency of the Company, for a new Warrant Agreement of
like tenor and dated as of such exchange
-4-
<PAGE> 151
The Company shall maintain at the above-mentioned office or agency a
registry showing the name and address of the registered holder of this Warrant
Agreement. This Warrant Agreement may be surrendered for exchange, transfer or
exercise, in accordance with its terms, at such office or agency of the
Company, and the Company shall be entitled to rely in all respects prior to
written notice to the contrary, upon such registry.
8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant Agreement, and in case of loss,
theft or destruction, of indemnity or security reasonably satsifactory to it
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant Agreement, if
mutilated the Company will make and deliver a New Warrant Agreement of like
tenor, dated as of such cancellation, in lieu of this Warrant Agreement.
9. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any aciton or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
10. Adjustments Rights
(a) Reclassification, etc. If the Company at any time
shall, by subdivision, combination or reclassification of securities or
otherwise, change any of the securities to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of
any class or classes, this Warrant Agreement shall thereafter be to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities which were subject to the purchase
rights under this Warrant Agreement immediately prior to such subdivision,
combination, reclassification or other change. If shares of the Company's
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, the Exercise Price under this Warrant Agreement shall
be proportionately reduced in case of subdivision of shares or proportionately
increased in the case of combination of shares, in both cases by the ratio
which the total number of shares of Common Stock to be outstanding immediately
after such event bears to the total number of shares of Common Stock
outstanding immediately prior to such event.
(b) Cash Distributions. No adjustment on account of cash
dividends will be made to the Exercise Price under this Warrant Agreement.
(c) Authorized Shares. The Company covenants that during
the period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of any purchase rights under this Warrant
Agreement. The Company further covenants that its issuance of this Warrant
Agreement shall constitute full authority to its officers who are charged with
the duty of
-5-
<PAGE> 152
executing stock certificates to execute and issue the necessary certificates
for shares of the Company's Common Stock upon the exercise of the purchase
rights under this Warrant Agreement.
(d) Exercise Price Adjustments. The Exercise Price of the Warrants
is subject to adjustment on the same terms and conditions as set forth in
Article 4, Section 5(d) of the Company's Restated Certificate of Incorporation
as accepted by the Delaware Secretary of State on December 20, 1995, a copy of
which is attached hereto as Exhibit A (the "Current Certificate of
Incorporation") with respect to the conversion of the Company's Preferred Stock
into Common Stock. For purposes of applying the provisions of such Article 4,
Section 5(d) to the adjustment of the Exercise Price of the Warrants, any
reference in such Article 4, Section 5(d) to the conversion or the Conversion
Price of any series of the Company's Preferred Stock shall refer to the
exercise and the Exercise Price, respectively, of the Warrants, and all
Conversion Price adjustment provisions of such Article 4, Section 5(d) shall be
applied to the initial Exercise Price of the Warrants of $0.50. If the
Company's Current Certificate of Incorporation is later amended to reduce or
eliminate the right of holders of Preferred Stock to adjustment upon the events
set forth in Article 4, Section 5 of the Current Certificate of Incorporation,
the exercise price of the Warrants shall remain subject to adjustment as
provided in the Current Certificate of Incorporation. If the Company's Current
Certificate of Incorporation is later amended to increase the right of the
holders of Preferred Stock to adjustment upon any event, the exercise price of
the Warrants shall be entitled to adjustment on such better terms. At no time
shall the exercise price of the Warrants be subject to adjustment on terms less
favorable than those set forth in the Current Certificate of Incorporation.
11. Restrictions on Transferability of Securities
(a) Restrictions on Transferability. This Warrant Agreement
and the Shares issuable upon exercise of the Warrants (collectively the
"Securities") shall not be sold, assigned, transferred or pledged except upon
the conditions specified in this Section 11, which conditions are intended to
ensure compliance with the provisions of the Securities Act of 1933, as amended
(the "Securities Act"). Each holder of any of the Securities will cause any
proposed purchaser, assignee, transferee, or pledgee of the Securities held by
such holder to agree to take and hold such Securities subject to the provisions
and upon the conditions specified in this Section 11.
(b) Restrictive Legend. Each certificate representing the
Securities and any other securities issued in respect of the Securities
pursuant to Section 10 shall (unless otherwise permitted by the provisions of
Section 11(c) below) be stamped or otherwise imprinted with a legend in the
following form (in addition to any legend required under applicable state
securities laws).
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION UNLESS THE TRANSFER IS IN ACCORDANCE WITH RULE 144 OR
SIMILAR RULE OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT
-6-
<PAGE> 153
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT
Each holder of Securities and each subsequent transferee
(hereinafter collectively referred to as a "Holder") consents to the Company
making a notation on its records and giving instructions to any transfer agent
of the Securities in order to implement the restrictions on transfer
established in this Section 11.
(c) Notice of Proposed Transfers. Each Holder of a
certificate representing the Securities, by acceptance thereof, agrees to comply
in all respects with the provisions of this Section 11(c). Prior to any
proposed sale, assignment, transfer or pledge of any Securities (other than (i)
a transfer not involving a change in beneficial ownership, (ii) in transactions
involving the distribution without consideration of Securities by a Holder to
any of its partners, or retired partners, or to the estate of any of its
partners or retired partners, (iii) a transfer to an affiliated fund,
partnership or company, which is not a competitor of the Company, subject to
compliance with applicable securities laws or (iv) transfers in compliance with
Rule 144, so long as the Company is furnished with satisfactory evidence of
compliance with such Rule), unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the Holder thereof
shall give written notice to the Company of such Holder's intention to effect
such transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge
in sufficient detail, and shall be accompanied, at such Holder's expense, by
either (i) an opinion of counsel (who shall, and whose opinion shall be,
addressed to the Company and reasonably satisfactory to the Company) to the
effect that the proposed transfer of the Securities may be effected without
registration under the Securities Act or (ii) a "no action" letter from the
Securities and Exchange Commission (the "Commission") to the effect that the
transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the Holder of such Securities shall be entitled to transfer
such Securities in accordance with the terms of the notice delivered by such
Holder to the Company. Each certificate evidencing the Securities transferred
as above provided shall bear, except if such transfer is made pursuant to Rule
144, the appropriate restrictive legend set forth in Section 11(b) above,
except that such certificate shall not bear such restrictive legend if in the
opinion of counsel for such Holder and in the opinion of counsel for the
Company such legend is not required in order to establish compliance with any
provision of the Securities Act.
(d) Removal of Restrictions on Transfer of Securities. Any
legend referred to in Section 11(b) hereof stamped on a certificate evidencing
the Securities and the stock transfer instructions and record notations with
respect to the Securities shall be removed and the Company shall issue a
certificate without such legend to the Holder of the Securities if the
Securities are registered under the Securities Act, or if such Holder provides
the Company with an opinion of counsel (which may be counsel for the Company)
reasonably satisfactory to the Company to the effect that a public sale or
transfer of such security may be made without registration under the Securities
Act or such Holder provides the Company with reasonable assurances, which may,
at the option of the Company, include an opinion of counsel (which may be
counsel for the Company)
-7-
<PAGE> 154
reasonably satisfactory to the Company, that such security can be sold pursuant
to paragraph (k) of Rule 144 (or any successor provision) under the Securities
Act.
12. Investment Representations of the Warrantholder. With respect
to the acquisition of any of the Securities, the Warrantholder hereby
represents and warrants to the Company as follows:
(a) Experience. The Warrantholder is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, and bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.
If other than an individual, the Warrantholder also represents it has not been
organized for the purpose of acquiring the Securities.
(b) Investment. The Warrantholder is acquiring the
Securities for investment for its own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Warrantholder has no present intention of selling, granting any participation
in, or otherwise distributing the same. By executing this Agreement, each
Warrantholder further represents that the Warrantholder does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Securities. The Warrantholder understands that the
Securities have not been, and will not be, registered under the Securities
Act by reason of a specific exemption from the registration provisions of the
Securities Act, the availability of which depends upon, among other things,
the bona fide nature of the investment intent and the accuracy of the
Warrantholder's representations as expressed herein.
(c) Rule 144. The Warrantholder understands that the
Securities are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Act") only in certain limited
circumstances. In this connection, the Warrantholder represents that it is
familiar with Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
(d) No Public Market. The Warrantholder understands that no
public market now exists for any of the securities issued by the Company and
that the Company has made no assurances that a public market will ever exist
for the Securities.
(e) Access to Data. The Warrantholder has had an
opportunity to discuss the Company's business, management and financial
affairs with the Company's management and has also has an opportunity to ask
questions of the Company's officers, which questions were answered to its
satisfaction.
13. Notice of Record Date. If at any time prior to the exercise of
the Warrants in full the Company takes a record of the holders of Common Stock
for the purpose of determining the holders
-8-
<PAGE> 155
thereof who are entitled to receive any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company will give to the Warrantholder at least thirty (15) days prior to
the date specified therein, written notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
14. Opinion of Counsel. Counsel to the Company shall deliver to the
Warrantholder as of the date hereof an opinion, satisfactory to counsel to the
Warrantholder, to the effect that (i) the Warrant Agreement and the Warrants
have been authorized by all necessary corporate action, (ii) the Warrant
Agreement and the Warrants have been duly executed and delivered and constitute
legally binding agreements of the Company, enforceable in accordance with their
terms, subject to customary exceptions, (iii) the Company has reserved out of
its authorized and unissued shares of Common Stock a number of shares
sufficient to provide for the exercise of the rights of purchase represented by
the Warrants, and (iv) the shares when issued upon exercise of the Warrants in
accordance with the terms of the Warrant Agreement, and against payment of the
consideration set forth herein, will be validly issued, fully paid and
non-assessable.
15. Miscellaneous
(a) Issue Date. The provisions of this Warrant Agreement
shall be construed and shall be given effect in all respect as if it had been
issued and delivered by the Company on the date hereof. This Warrant Agreement
shall be binding upon any successors or assigns of the Company. This Warrant
Agreement shall constitute a contract under the laws of the State of California
and for all purposes shall be construed in accordance with and governed by the
laws of said state.
(b) Waivers and Amendments. With the written consent of the
Company and the Warrantholder, the obligations of the Company and the right of
the Warrantholder may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
of indefinitely), and with the same consent the Company and the Warrantholder
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Warrant Agreement.
(c) Notices. All notices and other communications required
or permitted to be given under this Warrant Agreement shall be in writing and
shall be deemed effectively given upon personal delivery, delivery by nationally
recognized courier or upon deposit with the United States Post Office (by first
class mail, postage prepaid) addressed as follows: (i) if to the Company,
Integrated Surgical Systems, Inc., 829 West Stadium Lane, Sacramento, California
95834, and (ii) if to the Warrantholder, the address as provided in the books
of the Company.
(d) Survival and Assumption. The provisions of Section 11
hereof shall survive the exercise of the Warrants and shall remain in effect
until such time as the Warrantholder no longer holds Securities. Subject to the
provisions of Section 3 hereof, in the event of a merger of the
-9-
<PAGE> 156
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, or the sale or exchange of substantially all of the
shares of the Company for shares of another corporation, the Warrants shall
survive such merger or sale or exchange and shall be expressly assumed by the
successor corporation or, at the option of the Warrantholder, by the parent or
subsidiary of such successor corporation; provided, however, that if the
Warrants are not to be so assumed by such proposed successor or parent or
subsidiary, then the Company shall not effect such merger or sale or exchange.
-10-
<PAGE> 157
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by their officers thereunto duly authorized as of the
Effective Date.
INTEGRATED SURGICAL SYSTEMS, INC.
A DELAWARE CORPORATION
By:
------------------------------
Title:
---------------------------
SUTTER HEALTH VENTURE PARTNERS I, L.P.
By:
------------------------------
Title:
---------------------------
<PAGE> 158
NOTICE OF EXERCISE
To: INTEGRATED SURGICAL SYSTEMS, INC.
(1) The undersigned hereby elected to purchase ___________ shares
of Common Stock of Integrated Surgical Systems, Inc. pursuant to the terms of
the attached Warrant Agreement, and tenders herewith payment of the purchase
price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate of certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below.
--------------------------------
(Name)
--------------------------------
(Address)
(3) The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares.
- ---------------------------- --------------------------------
(Date) (Signature)
<PAGE> 159
ASSIGNMENT FORM
(To assign the foregoing Warrant Agreement, execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby assigned to
------------------------------------------------
(Please Print)
whose address is
------------------------------------------------
(Please Print)
-----------------------------------------------
Dated:
----------------
Holder's Signature:
---------------------
Holder's Address:
----------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or enlargement
or any change whatever. Officers of corporations and those acting in a
fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Warrant Agreement.
<PAGE> 160
EXHIBIT M
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE
TRANSFER IS IN ACCORDANCE WITH RULE 144 OR SIMILAR RULE OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
WARRANT AGREEMENT
To Purchase Shares of Common Stock of
INTEGRATED SURGICAL SYSTEMS, INC.
Dated as of December 21, 1995 (the "Effective Date")
WHEREAS, Integrated Surgical Systems, Inc., a Delaware corporation (the
"Company") proposes to effect a series of transactions resulting in the
recapitalization of the Company (the "Recapitalization"); and
WHEREAS, in connection with the Recapitalization, the Company wishes to
grant to Keystone Financial Corporation, a Pennsylvania Not-For-Profit
Corporation (the "Warrantholder"), the right to purchase shares of the Company's
Common Stock (the "Warrants").
NOW, THEREFORE, in consideration of the Warrantholder giving its
consent to the Recapitalization and in consideration of the mutual covenants
and agreements contained herein, the Company and the Warrantholder agree as
follows:
1. Grant of the Right to Purchase Common Stock. The Company hereby
grants to the Warrantholder, and the Warrantholder is entitled, upon the terms
and subject to the conditions hereinafter set forth, prior to December 31,
2005, to subscribe for and purchase from the Company, 64,065 shares of the
Company's Common Stock (the "Shares"). The Company represents and warrants to
the Warrantholder that the Shares constitute 1.08% of the Company's
fully-diluted shares of Common Stock (or Common Stock equivalents) after giving
effect to the Recapitalization (as defined in the Integrated Surgical Systems
Series D Preferred Stock and Warrant Purchase Agreement dated December 21,
1995). The purchase price (the "Exercise Price") of one share of Common Stock
under the Warrants shall be $0.50. Simultaneously with the date that is the
later of the Second Closing and the closing of the Rights Offering (as those
terms are defined in the Series D Preferred Stock and Warrant Purchase
Agreement of even date herewith by and between the Company and certain
Investors), the Company and the Warrantholder shall enter into a second Warrant
Agreement containing substantially the same terms and conditions as this
Warrant.
<PAGE> 161
Agreement, pursuant to which the Company shall grant to the Warrantholder the
right and the Warrantholder shall be entitled to subscribe for and purchase from
the Company, that number of shares of the Company's Common Stock (the
"Additional Warrants") which, when added to the number of Shares covered by
this Warrant Agreement, shall equal 1.08% of the number of fully-diluted shares
of the Company's Common Stock (or Common Stock equivalents), calculated as of
the later of the Second Closing and the closing of the Rights Offering. The
purchase price per share of the shares covered by the Additional Warrants shall
be $0.50. The Warrants and the Additional Warrants shall be referred to
collectively herein as the "Warrants"; the Shares and the shares of Common
Stock covered by the Additional Warrants shall be referred to collectively
herein as the "Shares."
2. Title to Warrant. Prior the expiration of hereof and subject to
compliance with applicable laws, this Warrant Agreement and all rights
hereunder are transferable, in whole or in part, at the office or agency of the
Company, by the Warrantholder in person or by duly authorized attorney, upon
surrender of this Warrant Agreement together with the Assignment Form annexed
hereto properly endorsed.
3. Exercise of Warrants. The purchase rights represented by the
Warrants are exercisable by the Warrantholder, in whole or in part, upon the
occurrence of one of the vents described in this Section 2 at any time before
the close of business on December 31, 2005, by the surrender of this Warrant
Agreement and the Notice of Exercise form annexed hereto duly executed at the
office of the Company in Sacramento, California (or such other office or agency
of the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company), and
upon payment of the purchase price of the shares thereby purchased (by cash or
by check or bank draft payable to the order of the Company); whereupon the
Warrantholder shall be entitled to receive a certificate for the number of
shares of Common Stock so purchased.
The Warrants shall become exercisable simultaneously with and for a
period of thirty days after the notice of the proposed occurrence of one of the
following events:
A. The closing of a registered public offering of the
Company's Common Stock in which, based on the public
offering price, net of underwriting discounts and
commissions, the Company would have a pre-money market
valuation of at least $10 million ("IPO").
B. The closing of a sale of shares or warrants by a
stockholder or stockholders and/or warrantholder or
warrantholders (other than Sutter Health, a California
non-profit public benefit corporation or Sutter Health
Venture Partners I, L.P.) of the Company in a single
transaction in which both (i) the value of the aggregate
consideration received by such selling stockholder or
stockholders and/or warrantholder or warrantholders is
at least equal to $1 million and (ii) the sale price per
share (whether an actual share or a share subject to a
-2-
<PAGE> 162
warrant) multiplied by the Company's outstanding equity
securities results in a market valuation of the Company
of least $10 million ("Share Sale").
C. The closing of a sale by the Company of all or some of
the assets of the Company in which the value of the
consideration received by the Company is at least equal
to $10 million ("Asset Sale").
D. The submission of an appraisal of the Company,
undertaken only under the circumstances described in the
paragraph below, at a value of at least $10 million
("Appraisal").
The Warrantholder shall be entitled, upon receipt of
notice of a Share Sale or Asset Sale that would result
in a market valuation of less than $10 million but
greater than $5 million, to have an appraisal of the
Company conducted, at the Warrantholder's expense, by an
appraiser reasonably acceptable to the Company. If such
appraisal results in a valuation of the Company of at
least $10 million, the Warrantholder shall be entitled
to exercise the Warrant pursuant to the terms of this
Section 2. Other than as set forth in this Section 3.D.,
the Warrantholder shall not have any right to exercise
the Warrants based on an appraisal.
This Warrant shall expire, if not previously exercised, upon an IPO,
Share Sale, Asset Sale or 30 days after an Appraisal. If no IPO, Share Sale,
Asset Sale or Appraisal has occurred before January 1, 2005, then the Warrant
shall become exercisable on January 1, 2005 and shall remain exercisable until
the earlier to occur of (a) an IPO, Share Sale, Asset Sale or Appraisal and (b)
December 31, 2005.
The Company shall notify the Warrantholder in writing at least thirty
days in advance of the scheduled closing of an IPO, Share Sale or Asset Sale
which would result in a market valuation of at least $5 million, and if the
Company fails to deliver such written notice, then notwithstanding anything to
the contrary contained in this Warrant Agreement, the Warrants shall not expire
until the Company complies with such notice provisions and the Warrantholder
has a reasonable opportunity thereafter to exercise the Warrants. If such
closing does not take place, the Company shall promptly notify the
Warrantholder that such proposed IPO, Share Sale or Asset Sale has been
terminated, and the Warrantholder shall rescind any exercise of its Warrants
promptly after such notice of termination of the proposed IPO, Share Sale or
Asset Sale if the exercise of the Warrants occurred after the Company notified
the Warrantholder that the IPO, Share Sale or Asset Sale was proposed or if the
exercise was otherwise precipitated by such proposed IPO, Share Sale or Asset
Sale. In the event of such rescission, the Warrants shall continue to be
exercisable on the same terms and conditions contained herein and the Company
shall return the purchase price to the Warrantholder.
-3-
<PAGE> 163
4. Issuance of Shares; No Fractional Shares or Scrip. The Company
covenants that all Shares issued upon the exercise of the Warrants shall, upon
exercise of the Warrants, be fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue). The
Company further covenants and agrees that if any shares of Common Stock to be
reserved for the purpose of the issuance of Shares upon the exercise of the
Warrants require registration with or approval of any governmental authority
under any Federal or State law before such Shares may be validly issued or
delivered upon exercise of the Warrants, then the Company will in good faith
and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be, and the right to exercise the Warrants shall be
extended until 10 days after the completion of any such registration or
approval. If and so long as any Common Stock issuable upon the exercise of the
Warrants is listed on any national securities exchange (or automated dealer
system), the Company will, if permitted by the rules of such exchange, list and
keep listed on such exchange (or system), upon official notice of issuance, all
shares of Common Stock issuable upon exercise of the Warrants. The Company
agrees that, if at the time of the surrender of this Warrant Agreement and
exercise of the Warrants, the Warrantholder shall be entitled to exercise such
Warrants, the Shares so issued shall be deemed to be issued to the
Warrantholder as the record owner of such Shares as of the close of business on
the date on which the Warrants shall have been exercised. No fractional shares
or scrip representing fractional shares shall be issued upon the exercise of the
Warrants. With respect to any fraction of a share called for upon the exercise
of the Warrants, an amount equal to such fraction multiplied by the then current
Exercise Price shall be paid in cash to the Warrantholder.
5. Charges, Taxes and Expenses. Issuance of certificates for
Shares upon the exercise of the Warrants shall be made without charge to the
Warrantholder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Warrantholder or in such name or names as may be directed by the
Warrantholder, provided, however, that in the event certificates for Shares are
to be issued in a name other than the name of the Warrantholder, this Warrant
Agreement when surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the Warrantholder; and provided further,
that upon any transfer involved in the issuance or delivery of any certificates
for Shares, the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
6. No Rights as Stockholders. This Warrant Agreement does not
entitle the Warrantholder to any additional voting rights or other rights as a
stockholder of the Company prior to the exercise of the Warrants.
7. Exchange and Registry of Warrant. This Warrant Agreement is
exchangeable, upon the surrender hereof by the registered holder at the
above-mentioned office or agency of the Company, for a new Warrant Agreement of
like tenor and dated as of such exchange
-4-
<PAGE> 164
The Company shall maintain at the above-mentioned office or agency a
registry showing the name and address of the registered holder of this Warrant
Agreement. This Warrant Agreement may be surrendered for exhcnage, transfer or
exercise, in accordance with its terms, at such office or agency of the
Company, and the Company shall be entitled to rely in all respects, prior to
written notice to the contrary, upon such registry.
8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruciton or mutilation of this Warrant Agreement, and in case of loss,
theft or destrucition, of indemnity or security reasonably satsifactory to it,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant Agreement, if
mutilated, the Company will make and deliver a new Warrant Agreement of like
tenor and dates as of such cancellation, in lieu of this Warrant Agreement.
9. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any aciton or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
10. Adjustments Rights
(a) Reclassification, etc. If the Company at any time shall,
by subdivision, combination or reclassification of securities or otherwise,
change any of the securities to which purchase rights under this Warrant
Agreement exist into the same of a different number of securities of any class
or classes, this Warrant Agreement shall thereafter be to acquire such number
and kind of securities as would have been issuable as the result of such change
with respect to the securities which were subject to the purchase rights under
this Warrant Agreement immediately prior to such subdivision, combination,
reclassification or other change. If shares of the Company's Common Stock are
subdivided or combined into a greater or smaller number of shares of Common
Stock, the Exercise Price under this Warrant Agreement shall be proportionately
reduced in case of subdivision of shares or proportionately increased in the
case of combination of shares, in both cases by the ratio which the total
number of shares of Common Stock to be outstanding immediately after such
event bears to the total number of shares of Common Stock outstanding
immediately prior to such event.
(b) Cash Distributions. No adjustment on account of cash
dividends will be made to the Exercise Price under this Warrant Agreement.
(c) Authorized Shares. The Company covenants that during
the period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of any purchase rights under this Warrant
Agreement. The Company further covenants that its issuance of this Warrant
Agreement shall constitute full authority to its officers who are charged with
the duty of
-5-
<PAGE> 165
executing stock certificates to execute and issue the necessary certificates for
shares of the Company's Common Stock upon the exercise of the purchase rights
under this Warrant Agreement.
(d) Exercise Price Adjustments. The Exercise Price of the
Warrants is subject to adjustment on the same terms and conditions as set forth
in Article 4, Section 5(d) of the Company's Restated Certificate of
Incorporation as accepted by the Delaware Secretary of State on December 20,
1995, a copy of which is attached hereto as Exhibit A (the "Current Certificate
of Incorporation") with respect to the conversion of the Company's Preferred
Stock into Common Stock. For purposes of applying the provisions of such Article
4, Section 5(d) to the adjustment of the Exercise Price of the Warrants, any
reference in such Article 4. Section 5(d) to the conversion or the Conversion
Price of any series of the Company's Preferred Stock shall refer to the exercise
and the Exercise Price, respectively, of the Warrants, and all Conversion Price
adjustment provisions of such Article 4. Section 5(d) shall be applied to the
initial Exercise Price of the Warrants of $0.50. If the Company's Current
Certificate of Incorporation is later amended to reduce or eliminate the right
of holders of Preferred Stock to adjustment upon the events set forth in Article
4. Section 5 of the Current Certificate of Incorporation, the exercise price of
the Warrants shall remain subject to adjustment as provided in the Current
Certificate of Incorporation. If the Company's Current Certificate of
Incorporation is later amended to increase the right of the holders of Preferred
Stock to adjustment upon any event, the exercise price of the Warrants shall be
entitled to adjustment on such better terms. At no time shall the exercise price
of the Warrants be subject to adjustment on terms less favorable than those set
forth in the Current Certificate of Incorporation.
11. Restrictions on Transferability of Securities
(a) Restrictions on Transferability. This Warrant Agreement
and the Shares issuable upon exercise of the Warrants (collectively the
"Securities") shall not be sold, assigned, transferred or pledged except upon
the conditions specified in this Section 11, which conditions are intended to
ensure compliance with the provisions of the Securities Act of 1933, as amended
(the "Securities Act"). Each holder of any of the Securities will cause any
proposed purchaser, assignee, transferee, or pledgee of the Securities held by
such holder to agree to take and hold such Securities subject to the provisions
and upon the conditions specified in this Section 11.
(b) Restrictive Legend. Each certificate representing the
Securities and any other securities issued in respect of the Securities
pursuant to Section 10 shall (unless otherwise permitted by the provisions of
Section 11(c) below) be stamped or otherwise imprinted with a legend in the
following form (in addition to any legend required under applicable state
securities laws).
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION UNLESS THE TRANSFER IS IN ACCORDANCE WITH RULE 144 OR
SIMILAR RULE OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT
-6-
<PAGE> 166
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT
Each holder of Securities and each subsequent transferee
(hereinafter collectively referred to as a "Holder") consents to the Company
making a notation on its records and giving instructions to any transfer agent
of the Securities in order to implement the restrictions on transfer
established in this Section 11.
(c) Notice of Proposed Transfers. Each Holder of a
certificate representing the Securities by acceptance thereof, agrees to comply
in all respects with the provisions of this Section 11(c). Prior to any
proposed sale, assignment, transfer or pledge of any Securities (other than (i)
a transfer not involving a change in beneficial ownership, (ii) in transactions
involving the distribution without consideration of Securities by a Holder to
any of its partners, or retired partners, or to the estate of any of its
partners or retired partners, (iii) a transfer to an affiliated fund,
partnership or company, which is not a competitor of the Company, subject to
compliance with applicable securities laws or (iv) transfers in compliance with
Rule 144, so long as the Company is furnished with satisfactory evidence of
compliance with such Rule), unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the Holder thereof
shall give written notice to the Company of such Holder's intention to effect
such transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge
in sufficient detail, and shall be accompanied, at such Holder's expense, by
either (i) an opinion of counsel (who shall, and whose opinion shall be,
addressed to the Company and reasonably satisfactory to the Company) to the
effect that the proposed transfer of the Securities may be effected without
registration under the Securities Act or (ii) a "no action" letter from the
Securities and Exchange Commission (the "Commission") to the effect that the
transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the Holder of such Securities shall be entitled to transfer
such Securities in accordance with the terms of the notice delivered by such
Holder to the Company. Each certificate evidencing the Securities transferred
as above provided shall bear, except if such transfer is made pursuant to Rule
144, the appropriate restrictive legend set forth in Section 11(b) above,
except that such certificate shall not bear such restrictive legend if in the
opinion of counsel for such Holder and in the opinion of counsel for the
Company such legend is not required in order to establish compliance with any
provision of the Securities Act.
(d) Removal of Restrictions on Transfer of Securities. Any
legend referred to in Section 11(b) hereof stamped on a certificate evidencing
the Securities and the stock transfer instructions and record notations with
respect to the Securities shall be removed and the Company shall issue a
certificate without such legend to the Holder of the Securities if the
Securities are registered under the Securities Act, or if such Holder provides
the Company with an opinion of counsel (which may be counsel for the Company)
reasonably satisfactory to the Company to the effect that a public sale or
transfer of such security may be made without registration under the Securities
Act or such Holder provides the Company with reasonable assurances, which may,
at the option of the Company, include an opinion of counsel (which may be
counsel for the Company)
-7-
<PAGE> 167
reasonably satisfactory to the Company, that such security can be
sold pursuant to paragraph (k) of Rule 144 (or any successor
provision) under the Securities Act.
12. Investment Representations of the Warrantholder. With respect
to the acquisition of any of the Securities, the Warrantholder hereby
represents and warrants to the Company as follows:
(a) Experience. The Warrantholder is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, and bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.
If other than an individual, the Warrantholder also represents it has not been
organized for the purpose of acquiring the Securities.
(b) Investment. The Warrantholder is acquiring the
Securities for investment for its own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Warrantholder has no present intention of selling, granting any participation
in, or otherwise distributing the same. By executing this Agreement, each
Warrantholder further represents that the Warrantholder does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Securities. The Warrantholder understands that the
Securities have not been, and will not be, registered under the Securities
Act by reason of a specific exemption from the registration provisions of the
Securities Act, the availability of which depends upon, among other things,
the bona fide nature of the investment intent and the accuracy of the
Warrantholder's representations as expressed herein.
(c) Rule 144. The Warrantholder understands that the
Securities are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Act") only in certain limited
circumstances. In this connection, the Warrantholder represents that it is
familiar with Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
(d) No Public Market. The Warrantholder understands that no
public market now exists for any of the securities issued by the Company and
that the Company has made no assurances that a public market will ever exist
for the Securities.
(e) Access to Data. The Warrantholder has had an
opportunity to discuss the Company's business, management and financial
affairs with the Company's management and has also had an opportunity to ask
questions of the Company's officers, which questions were answered to its
satisfaction.
13. Notice of Record Date. If at any time prior to the exercise of
the Warrants in full the Company takes a record of the holders of Common Stock
for the purpose of determining the holders
-8-
<PAGE> 168
thereof who are entitled to receive any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company will give to the Warrantholder at least thirty (15) days prior to
the date specified therein, written notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
14. Opinion of Counsel. Counsel to the Company shall deliver to the
Warrantholder as of the date hereof an opinion, satisfactory to counsel to the
Warrantholder, to the effect that (i) the Warrant Agreement and the Warrants
have been authorized by all necessary corporate action, (ii) the Warrant
Agreement and the Warrants have been duly executed and delivered and constitute
legally binding agreements of the Company, enforceable in accordance with their
terms, subject to customary exceptions, (iii) the Company has reserved out of
its authorized and unissued shares of Common Stock a number of shares
sufficient to provide for the exercise of the rights of purchase represented by
the Warrants, and (iv) the shares when issued upon exercise of the Warrants in
accordance with the terms of the Warrant Agreement, and against payment of the
consideration set forth herein, will be validly issued, fully paid and
non-assessable.
15. Miscellaneous
(a) Issue Date. The provisions of this Warrant Agreement
shall be construed and shall be given effect in all respect as if it had been
issued and delivered by the Company on the date hereof. This Warrant Agreement
shall be binding upon any successors or assigns of the Company. This Warrant
Agreement shall constitute a contract under the laws of the State of California
and for all purposes shall be construed in accordance with and governed by the
laws of said state.
(b) Waivers and Amendments. With the written consent of the
Company and the Warrantholder, the obligations of the Company and the right of
the Warrantholder may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
of indefinitely), and with the same consent the Company and the Warrantholder
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Warrant Agreement.
(c) Notices. All notices and other communications required
or permitted to be given under this Warrant Agreement shall be in writing and
shall be deemed effectively given upon personal delivery, delivery by
nationally recognized courier or upon deposit with the United States Post
Office (by first class mail, postage prepaid) addressed as follows: (i) if to
the Company, Integrated Surgical Systems, Inc., 829 West Stadium Lane,
Sacramento, California 95834, and (ii) if to the Warrantholder, the address as
provided in the books of the Company.
(d) Survival and Assumption. The provisions of Section 11
hereof shall survive the exercise of the Warrants and shall remain in effect
until such time as the Warrantholder no longer holds Securities. Subject to
the provisions of Section 3 hereof, in the event of a merger of the
-9-
<PAGE> 169
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, or the sale or exchange of substantially all of the
shares of the Company for shares of another corporation, the Warrants shall
survive such merger or sale or exchange and shall be expressly assumed by the
successor corporation or, at the option of the Warrantholder, by the parent or
subsidiary of such successor corporation; provided, however, that if the
Warrants are not to be so assumed by such proposed successor or parent or
subsidiary, then the Company shall not effect such merger or sale or exchange.
-10-
<PAGE> 170
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by their officers thereunto duly authorized as of the
Effective Date
INTEGRATED SURGICAL SYSTEMS, INC.
A DELAWARE CORPORATION
By:
------------------------------
Title:
---------------------------
KEYSTONE FINANCIAL CORPORATION,
A PENNSYLVANIA NOT-FOR PROFIT CORPORATION
By:
------------------------------
Title:
---------------------------
<PAGE> 171
NOTICE OF EXERCISE
To: INTEGRATED SURGICAL SYSTEMS, INC.
(1) The undersigned hereby elected to purchase ___________ shares
of Common Stock of Integrated Surgical Systems, Inc. pursuant to the terms of
the attached Warrant Agreement, and tenders herewith payment of the purchase
price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below:
--------------------------------
(Name)
--------------------------------
(Address)
(3) The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares.
- ---------------------------- --------------------------------
(Date) (Signature)
<PAGE> 172
ASSIGNMENT FORM
(To assign the foregoing Warrant Agreement, execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby assigned to
------------------------------------------------
(Please Print)
whose address is
------------------------------------------------
(Please Print)
------------------------------------------------
Dated:
----------------
Holder's Signature:
-----------------------
Holder's Address:
---------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or enlargement
or any change whatever. Officers of corporations and those acting in a
fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Warrant Agreement.
<PAGE> 173
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE
TRANSFER IS IN ACCORDANCE WITH RULE 144 OR SIMILAR RULE OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
WARRANT AGREEMENT
To Purchase Share of Common Stock of
INTEGRATED SURGICAL SYSTEMS, INC.
Dated as of March 7, 1996 (the "Effective Date")
WHEREAS, Integrated Surgical Systems, Inc., a Delaware corporation (the
"Company") and Keystone Financial Corporation, a Pennsylvania Not-For-Profit
Corporation (the "Warrantholder"), have entered into that certain Warrant
Agreement dated as of December 21, 1995 (the "December 21 Warrant
Agreement"), pursuant to which the Company has agreed to grant to the
Warrantholder, upon the date that is the later of the Second Closing and the
closing of the Rights Offering (as those terms are defined in the Series D
Preferred Stock and Warrant Purchase Agreement of even date herewith by and
between the Company and certain Investors), warrants to purchase shares of the
Company's Common Stock (the "Additional Warrants"), in addition to those
warrants (the "Warrants") to purchase shares of the Company's Common Stock
(the "Shares") which were granted to the Warrantholder on December 21, 1995,
pursuant to the December 21 Warrant Agreement; and
WHEREAS, the date of the Second Closing was February 29, 1996, and the
date of the closing of the Rights Offering is the date hereof;
NOW, THEREFORE, in consideration of the Warrantholder giving its
consent to the Recapitalization (as that term is defined in the December 21
Warrant Agreement) and in consideration of the mutual covenants and agreements
contained herein, the Company and the Warrantholder agree as follows:
1. Grant of the Rights to Purchase Common Stock. The Company hereby
grants to the Warrantholder, and the Warrantholder is entitled, upon the terms
and subject to the conditions hereinafter set forth, prior to December 31,
2005, to subscribe for and purchase from the Company, 19,945 shares of the
Company's Common Stock (the "Additional Shares"). The Company represents and
warrants to the Warrantholder that the Shares and the Additional Shares
together constitute 1.08% of the number of fully-diluted shares of the
Company's Common Stock (or Common Stock
<PAGE> 174
equivalents), calculated as of the later of the Second Closing and the closing
of the Rights Offering. The purchase price (the "Exercise Price") of one share
of Common Stock under the Additional Warrants shall be $0.50. The Warrants and
the Additional Warrants shall be referred to collectively herein as the
"Warrants", the Shares and the Additional Shares shall be referred to
collectively herein as the "Shares."
2. Title to Warrant. Prior to the expiration hereof and subject
to compliance with applicable laws, this Warrant Agreement and all rights
hereunder are transferable, in whole or in part, at the office or agency of the
Company, by the Warrantholders in person or by duly authorized attorney, upon
surrender of this Warrant Agreement together with the Assignment Form annexed
hereto properly endorsed.
3. Exercise of Warrants. The purchase rights represented by the
Warrants are exercisable by the Warrantholder, in whole or in part, upon the
occurrence of one of the events described in this Section 2 at any time before
the close of business on December 31, 2005, by the surrender of this Warrant
Agreement and the Notice of Exercise form annexed hereto duly executed at the
office of the Company in Sacramento, California (or such other office or agency
of the Company as it may designate by notice in writing to the registered
holder hereof at the address of such holder appearing on the books of the
Company), and upon payment of the purchase price of the shares thereby
purchased (by cash or by check or bank draft payable to the order of the
Company); whereupon the Warrantholder shall be entitled to receive a
certificate for the number of shares of Common Stock so purchased.
The Warrants shall become exercisable simultaneously with and for a
period of thirty days after the notice of the proposed occurrence of one of the
following events:
A. The closing of a registered public offering of the
Company's Common Stock in which, based on the public
offering price, net of underwriting discounts and
commissions, the Company would have a pre-money market
valuation of at least $10 million ("IPO").
B. The closing of a sale or shares or warrants by a
stockholder or stockholders and/or warrantholder or
warrantholders (other than Sutter Health, a California
nonprofit public benefit corporation or Sutter Health
Venture Partners I, L.P.) of the Company in a single
transaction in which both (i) the value of the aggregate
consideration received by such selling stockholder or
stockholders and/or warrantholder or warrantholder is at
least equal to $1 million and (ii) the sale price per share
(whether an actual share or a share subject to a warrant)
multiplied by the Company's outstanding equity securities
results in a market valuation of the Company of at least
$10 million ("Share Sale").
<PAGE> 175
C. The closing of a sale by the Company of all or some of the
assets of the Company in which the value of the consideration
received by the Company is at least equal to $10 million
("Asset Sale").
D. The submission of an appraisal of the Company, undertaken only
under the circumstances described in the paragraph below, at a
value of at least $10 million ("Appraisal").
The Warrantholder shall be entitled, upon receipt of notice of
a Share or Asset Sale that would result in a market valuation of
less than $10 million but greater than $5 million, to have an
appraisal of the Company conducted, at the Warrantholder's
expense, by an appraiser reasonably acceptable to the Company.
If such appraisal results in a valuation of the Company of at
least $10 million, the Warrantholder shall be entitled to
exercise the Warrant pursuant to the terms of this Section 2.
Other than as set forth in this Section 3.D., the Warrantholder
shall not have any right to exercise the Warrants based on an
appraisal.
This Warrant shall expire, if not previously exercised, upon an IPO,
Share Sale, Asset Sale or 30 days after an Appraisal. If no IPO, Share Sale,
Asset Sale or Appraisal has occurred before January 1, 2005, then the Warrant
shall become exercisable on January 1, 2005 and shall remain exercisable until
the earlier to occur or (a) an IPO, Share Sale, Asset Sale or Appraisal and (b)
December 31, 2005.
The Company shall notify the Warrantholder in writing at least thirty
days in advance of the scheduled closing of an IPO, Share Sale or Asset Sale
which would result in a market valuation of at least $5 million, and if the
Company fails to deliver such written notice, then notwithstanding anything
to the contrary contained in this Warrant Agreement, the Warrants shall not
expire until the Company complies with such notice provisions and the
Warrantholder has a reasonable opportunity thereafter to exercise the Warrants.
If such closing does not take place, the Company shall promptly notify the
Warrantholder that such proposed IPO, Share Sale or Asset Sale has been
terminated, and the Warrantholder shall rescind any exercise of its Warrants
promptly after such notice of termination of the proposed IPO, Share Sale or
Asset Sale if the exercise of the Warrants occurred after the Company notified
the Warrantholder that the IPO, Share Sale or Asset Sale was proposed or if the
exercise was otherwise precipitated by such proposed IPO, Share Sale or Asset
Sale. In the event of such rescission, the Warrants shall continue to be
exercisable on the same terms and conditions contained herein and the Company
shall return the purchase price to the Warrantholder.
4. ISSUANCE OF SHARES: NO FRACTIONAL SHARES OR SCRIP. The Company
covenants that all Shares issued upon the exercise of the Warrants shall, upon
exercise of the Warrants, be fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue). The
Company further
-3-
<PAGE> 176
covenants and agrees that if any shares of Common Stock to be reserved for the
purpose of the issuance of Shares upon the exercise of the Warrants require
registration with or approval of any governmental authority under any Federal
or State law before such Shares may be validly issued or delivered upon
exercise of the Warrants, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be, and the right to exercise the Warrants shall be extended until
10 days after the completion of any such registration or approval. If and so
long as any Common Stock issuable upon the exercise of the Warrants is listed
on any national securities exchange (or automated dealer system), the Company
will, if permitted by the rules of such exchange, list and keep listed on such
exchange (or system), upon official notice of issuance, all shares of Common
Stock issuable upon exercise of the Warrants. The company agrees that, if at
the time of the surrender of this Warrant Agreement and exercise of the
Warrants, the Warrantholder shall be entitled to exercise such Warrants, the
Shares so issued shall be deemed to be issued to the Warrantholder as the
record owner of such Shares as of the close of business on the date on which
the Warrants shall have been exercised. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of the
Warrants. With respect to any fraction of a share called for upon exercise of
the Warrants, an amount equal to such fraction multiplied by the then current
Exercise Price shall be paid in cash to the Warrantholder.
5. Charges, Taxes and Expenses. Issuance of certificates for
Shares upon the exercise of the Warrants shall be made without charge to the
Warrantholder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Warrantholder or in such name or names as may be directed by the
Warrantholder, provided however, that in the event certificates for Shares are
to be issued in a name other than the name of the Warrantholder, this Warrant
Agreement when surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the Warrantholder, and provided further,
that upon any transfer involved in the issuance or delivery of any certificates
for Shares, the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
6. No Rights as Stockholders. This Warrant Agreement does not
entitle the Warrantholder to any additional voting rights or other rights as a
stockholder of the Company prior to the exercise of the Warrants.
7. Exchange and Registry of Warrant. This Warrant Agreement is
exchangeable, upon the surrender hereof by the registered holder at the
above-mentioned office or agency of the Company, for a new Warrant Agreement of
like tenor and dated as of such exchange.
The Company shall maintain at the above-mentioned office or agency a
registry showing the name and address of the registered holder of this Warrant
Agreement. This Warrant Agreement may be surrendered for exchange, transfer or
exercise, in accordance with its terms, at such office or agency of the
Company, and the Company shall be entitled to rely in all respects, prior to
written notice to the contrary, upon such registry.
-4-
<PAGE> 177
8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant Agreement, and in case of loss, theft
or destruction, of indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant Agreement, if
mutilated, the Company will make and deliver a new Warrant Agreement of like
tenor and dated as of such cancellation, in lieu of this Warrant Agreement.
9. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
10. Adjustment Rights.
(a) Reclassification, etc. If the Company at any time
shall, by subdivision, combination or reclassification of securities or
otherwise, change any of the securities to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of
any class or classes, this Warrant Agreement shall thereafter be to acquire
such number and kind of securities as would have been issuable as the result of
such changes with respect to the securities which were subject to the purchase
rights under this Warrant Agreement immediately prior to such subdivision,
combination, reclassification or other change. If shares of the Company's
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, the Exercise Price under this Warrant Agreement shall
be proportionately reduced in case of subdivision of shares or proportionately
increased in the case of combination of shares, in both cases by the ratio
which the total number of shares of Common Stock to be outstanding immediately
after such event bears to the total number of shares of Common Stock
outstanding immediately prior to such event.
(b) Cash Distributions. No adjustment on account of cash
dividends will be made to the Exercise Price under this Warrant Agreement.
(c) Authorized Shares. The Company covenants that during
the period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of any purchase rights under this
Warrant Agreement. The Company further covenants that its issuance of this
Warrant Agreement shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of the Company's Common Stock upon the
exercise of the purchase rights under this Warrant Agreement.
(d) Exercise Price Adjustments. The Exercise Price of the
Warrants is subject to adjustment on the same terms and conditions as set forth
in Article 4, Section 5(d) of the Company's Restated Certificate of
Incorporation as accepted by the Delaware Secretary of State on December 20,
1995, a copy of which is attached as Exhibit A to the December 21 Warrant
Agreement (the
-5-
<PAGE> 178
"Current Certificate of Incorporation") with respect to the conversion of the
Company's Preferred Stock into Common Stock. For purposes of applying the
provisions of such Article 4, Section 5(d) to the adjustment of the Exercise
Price of the Warrants, any reference in such Article 4, Section 5(d) to the
conversion or the Conversion Price of any series of the Company's Preferred
Stock shall refer to the exercise and the Exercise Price, respectively, of the
Warrants, and all Conversion Price adjustment provisions of such Article 4,
Section 5(d) shall be applied to the initial Exercise Price of the Warrants of
$0.50. If the Company's Current Certificate of Incorporation is later amended
to reduce or eliminate the right of holders of Preferred Stock to adjustment
upon the events set forth in Article 4, Section 5 of the Current Certificate of
Incorporation, the exercise price of the Warrants shall remain subject to
adjustment as provided in the Current Certificate of Incorporation. If the
Company's Current Certificate of Incorporation is later amended to increase the
right of the holders of Preferred Stock to adjustment upon any event, the
exercise price of the Warrants shall be entitled to adjustment on such better
terms. At no time shall the exercise price of the Warrants be subject to
adjustment on terms less favorable than those set forth in the Current
Certificate of Incorporation.
11. Restrictions on Transferability of Securities.
(a) Restrictions on Transferability. This Warrant Agreement
and the Shares issuable upon exercise of the Warrants (collectively the
"Securities") shall not be sold, assigned, transferred or pledged except upon
the conditions specified in this Section 11, which conditions are intended to
ensure compliance with the provisions of the Securities Act of 1933, as amended
(the "Securities Act"). Each holder of any of the Securities will cause any
proposed purchaser, assignee, transferee, or pledgee of the Securities held by
such holder to agree to take and hold such Securities subject to the provisions
and upon the conditions specified in this Section 11.
(b) Restrictive Legend. Each certificate representing the
Securities and any other securities issued in respect of the Securities
pursuant to Section 10 shall (unless otherwise permitted by the provisions of
Section 11(c) below) be stamped or otherwise imprinted with a legend in the
following form (in addition to any legend required under applicable state
securities laws):
THE SECURITIES REPRESENTED BY THE CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION UNLESS THE TRANSFER IS IN ACCORDANCE WITH RULE 144 OR
SIMILAR RULE OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
Each holder of Securities and each subsequent transferee
(hereinafter collectively referred to as a "Holder") consents to the Company
making a notation on its records and giving instructions to any transfer agent
of the Securities in order to implement the restrictions on transfer
established in this Section 11.
-6-
<PAGE> 179
(c) Notice of Proposed Transfers. Each Holder of a
certificate representing the Securities, by acceptance thereof, agrees to
comply in all respects with the provisions of this Section 11(c). Prior to any
proposed sale, assignment, transfer or pledge of any Securities (other than
(i) a transfer not involving a change in beneficial ownership, (ii) in
transactions involving the distribution without consideration of Securities by
a Holder to any of its partners, or retired partners, or to the estate of any
of its partners or retired partners, (iii) a transfer to an affiliated fund,
partnership or company, which is not a competitor of the Company, subject to
compliance with applicable securities laws or (iv) transfers in compliance with
Rule 144, so long as the Company is furnished with satisfactory evidence of
compliance with such Rule), unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the Holder thereof
shall give written notice to the Company of such Holder's intention to effect
such transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge
in sufficient detail, and shall be accompanied, at such Holder's expense, by
either (i) an opinion of counsel (who shall, and whose opinion shall be,
addressed to the Company and reasonably satisfactory to the Company) to the
effect that the proposed transfer of the Securities may be effected without
registration under the Securities Act or (ii) a "no action" letter from the
Securities and Exchange Commission (the "Commission") to the effect that the
transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the Holder of such Securities shall be entitled to transfer
such Securities in accordance with the terms of the notice delivered by such
Holder to the Company. Each certificate evidencing the Securities transferred
as above provided shall bear, except if such transfer is made pursuant to Rule
144, the appropriate restrictive legend set forth in Section 11(b) above,
except that such certificate shall not bear such restrictive legend if in the
opinion of counsel for such Holder and in the opinion of counsel for the
Company such legend is not required in order to establish compliance with any
provision of the Securities Act.
(d) Removal of Restrictions on Transfer of Securities. Any
legend referred to in Section 11(b) hereof stamped on a certificate evidencing
the Securities and the stock transfer instructions and record notations with
respect to the Securities shall be removed and the Company shall issue a
certificate without such legend to the Holder of the Securities if the
Securities are registered under the Securities Act, or if such Holder provides
the Company with an opinion of counsel (which may be counsel for the Company)
reasonably satisfactory to the Company to the effect that a public sale or
transfer of such security may be made without registration under the Securities
Act or such Holder provides the Company with reasonable assurances, which may,
at the option of the Company, include an opinion of counsel (which may be
counsel for the Company) reasonably satisfactory to the Company, that such
security can be sold pursuant to paragraph (k) of Rule 144 (or any successor
provision) under the Securities Act.
12. Investment Representations of the Warrantholder. With respect
to the acquisition of any of the Securities, the Warrantholder hereby
represents and warrants to the Company as follows:
(a) Experience. The Warrantholder is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, and bear the economic risk of its
-7-
<PAGE> 180
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Securities. If other than an individual, the Warrantholder also
represents it has not been organized for the purpose of acquiring the
Securities.
(b) INVESTMENT. The Warrantholder is acquiring the Securities for
investment for its own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, and that the Warrantholder
has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, each
Warrantholder further represents that the Warrantholder does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Securities. The Warrantholder understands that the
Securities have not been, and will not be, registered under the Securities Act
by reason of a specific exemption from the registration provisions of the
Securities Act, the availability of which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of the
Warrantholder's representations as expressed herein.
(c) RULE 144. The Warrantholder understands that the Securities are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "Act") only in certain limited circumstances. In this
connection, the Warrantholder represents that it is familiar with Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
(d) NO PUBLIC MARKET. The Warrantholder understands that no public
market now exists for any of the securities issued by the Company and that the
Company has made no assurances that a public market will ever exist for the
Securities.
(e) ACCESS TO DATA. The Warrantholder has had an opportunity to discuss
the Company's business, management and financial affairs with the Company's
management and has also had an opportunity to ask questions of the Company's
officers, which questions were answered to its satisfaction.
13. NOTICE OF RECORD DATE. If at any time prior to the exercise of the
Warrants in full the Company takes a record of the holders of Common Stock for
the purpose of determining the holders purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to receive any
other right, the Company will give to the Warrantholder at least thirty (15)
days prior to the date specified therein, written notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
-8-
<PAGE> 181
14. Miscellaneous.
(a) Issue Date. The provisions of this Warrant Agreement
shall be construed and shall be given effect in all respect as if it had been
issued and delivered by the Company on the date hereof. This Warrant Agreement
shall be binding upon any successors or assigns of the Company. This Warrant
Agreement shall constitute a contract under the laws of the State of California
and for all purposes shall be construed in accordance with and governed by the
laws of said state.
(b) Waivers and Amendments. With the written consent of the
Company and the Warrantholder, the obligations of the Company and the right of
the Warrantholder may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
of indefinitely), and with the same consent the Company and the Warrantholder
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Warrant Agreement.
(c) Notices. All notices and other communications required
or permitted to be given under this Warrant Agreement shall be in writing and
shall be deemed effectively given upon personal delivery, delivery by
nationally recognized courier or upon deposit with the United States Post
Office (by first class mail, postage prepaid) addressed as follows: (i) if to
the Company, Integrated Surgical Systems, Inc., 829 West Stadium Lane,
Sacramento, California 95834, and (ii) if to the Warrantholder, the address as
provided in the books of the Company.
(d) Survival and Assumption. The provisions of Section 11
hereof shall survive the exercise of the Warrants and shall remain in effect
until such time as the Warrantholder no longer holds Securities. Subject to the
provisions of Section 3 hereof, 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 the sale or exchange of substantially all of the shares of the
Company for shares of another corporation, the Warrants shall survive such
merger or sale or exchange and shall be expressly assumed by the successor
corporation or, at the option of the Warrantholder, by the parent or subsidiary
of such successor corporation; provided, however, that if the Warrants are not
to be so assumed by such proposed successor or parent or subsidiary, then the
Company shall not effect such merger or sale or exchange.
-9-
<PAGE> 182
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by their officers thereunto duly authorized as of the
Effective Date.
INTEGRATED SURGICAL SYSTEMS, INC.
A DELAWARE CORPORATION
By:
------------------------------
Title:
-----------------------------
KEYSTONE FINANCIAL CORPORATION,
A PENNSYLVANIA NOT-FOR PROFIT CORPORATION
By:
-----------------------------
Title:
-----------------------------
<PAGE> 183
NOTICE OF EXERCISE
To: INTEGRATED SURGICAL SYSTEMS, INC.
(1) The undersigned hereby elects to purchase ______________ shares
of Common Stock of Integrated Surgical Systems, Inc. pursuant to the terms of
the attached Warrant Agreement, and tenders herewith payment of the purchase
price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate of certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
_______________________________________
(Name)
_______________________________________
(Address)
(3) The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not, with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares.
_________________________________ _______________________________
(Date) (Signature)
<PAGE> 184
ASSIGNMENT FORM
(To assign the foregoing Warrant Agreement, execute this form and
supply required information. Do not use this to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby assigned to
-------------------------------------------------
(Please Print)
whose address is
-------------------------------------------------
(Please Print)
-------------------------------------------------
Dated:
------------------
Holder's Signature:
---------------------------------
Holder's Address:
----------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or enlargement
or any change whatever. Officers of corporations and those acting in a
fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Warrant Agreement.
<PAGE> 1
EXHIBIT 10.7
December 8, 1995
Dr. Ramesh Trivedi
California Biomedical Consultants
964 Edmonds Way
Sunnyvale, California 94087
Dear Ramesh:
This letter agreement is intended to set forth the terms of your
employment with Integrated Surgical Systems, Inc. (the "Company").
You will be the President and Chief Executive Officer (CEO) of the
Company beginning effective November 14, 1995. In this capacity you will report
directly to the Board of Directors.
Your compensation for this position will include an annual salary of
$264,000 (based on a monthly salary of $22,000), paid semi-monthly in accordance
with the Company's normal payroll practices. In addition, you will be reimbursed
for reasonable out-of -pocket expenses incurred by you.
Following the First Closing (as that term is defined in the Company's
Series D Preferred Stock and Warrant Purchase Agreement), you will be granted an
option to purchase that number of shares of the Company's Common Stock which is
equal to six percent of the fully diluted capitalization of the Company
calculated immediately following the Second Closing, as that term is defined in
the Company's Series D Preferred Stock and Warrant Purchase Agreement.
The option will be evidenced by an Option Agreement that will state the
exercise price, vesting schedule, and other terms of the option, including
acceleration of vesting upon a merger. The exercise price of such option will be
determined following the commencement of your employment, and will be equal to
the then Fair Market Value of such stock as determined by the Board of
Directors. The exercise price of such option is expected to be $0.325 per share.
One third of the shares subject to the option will vest immediately, with the
remaining two-thirds of the shares subject to the option vesting monthly over
three years.
The exercise price of the option will be subject to antidilution
adjustment provisions similar to the antidilution adjustment provisions
applicable to the conversion price of the Series D Preferred Stock, as set forth
in the Company's Restated Certificate of Incorporation to be filed prior to the
First Closing and as subsequently amended. However, such antidilution adjustment
provisions shall not apply to the option with respect to any particular dilutive
issuance if the antidilution adjustment provisions applicable to the conversion
price of the Series D Preferred Stock are waived with respect to such dilutive
issuance.
<PAGE> 2
DR. RAMESH TRIVEDI
December 8, 1995
Page 2
As an employee of the Company, you will also be eligible for Company
benefits such as medical insurance and other programs which are generally made
available to other employees of the Company.
I have enclosed the Company's standard Proprietary Information and
Noncompetition Agreement (the "Proprietary Information Agreement"). Please
return to me a signed copy of such document.
You should be aware that your employment with the Company is for no
specified period and constitutes at-will employment. As a result, you are free
to resign at any time, for any reason or for no reason. Similarly, the Company
is free to conclude its employment relationship with you at any time, with or
without cause; however, upon a termination without cause, you will be entitled
to receive severance pay in the form of salary continuation for nine months. In
addition, you will be entitled to receive payment for approximately three months
of consulting services which you will provide to the Company within twelve
months following the date of such termination. The number of days of consulting
services to be provided by you will be determined by dividing three months'
worth of compensation by your then-prevailing daily rate for consulting
services. In addition, upon a termination without cause, the vesting of your
option will accelerate so that it is exercisable with respect to all the shares
subject to the option at the time of such termination. For purposes of this
agreement, the term "cause" means the commission of a crime involving moral
turpitude, a pattern of unexcused absences from work, or repeated willful
violations of lawful policies of the Company's Board of Directors. This letter
and the enclosed Confidentiality Agreement constitute the entire agreement
between you and the Company regarding your employment, and may be modified only
in writing.
Terms of this offer are considered confidential information to the
Company and we trust that you will treat it as such between you and the
Company's Board of Directors.
By signing this letter, you are representing to us that (i) you are not
a party to any employment agreement or other contract arrangement which
prohibits your full-time employment with the Company, (ii) you do not know of
any conflicts which would restrict your employment with the Company, and (iii)
you have not and will not bring with you to your employment with the Company any
documents, records or other confidential information belonging to former
employers.
Please return to me a signed copy of this letter, together with the
Proprietary Information Agreement. You may keep copies of the documents for your
file.
2
<PAGE> 3
DR. RAMESH TRIVEDI
December 8, 1995
Page 3
Ramesh, we look forward to working together at Integrated Surgical
Systems. We think this is a wonderful opportunity for both you and the Company,
and we look forward to receiving your acceptance.
Sincerely,
John N. Kapoor
I hereby agree to the foregoing terms and conditions:
_______________________________
Ramesh Trivedi
Date:__________________________
3
<PAGE> 1
EXHIBIT 11.1
INTEGRATED SURGICAL SYSTEMS, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------- -------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary and fully diluted:
Average common shares outstanding............................ 66,554 73,198 67,382 266,761
Common and common equivalent shares issued during the
twelve month period prior to the initial public
offering at prices below the assumed
public offering price in accordance with Staff
Accounting Bulletin No. 83................................. 4,096,022 4,096,022 4,096,022 4,096,022
----------- ----------- ----------- -----------
Shares used in per share calculations........................ 4,162,576 4,169,220 4,163,404 4,362,783
=========== =========== =========== ===========
Net loss..................................................... $(4,840,385) $(4,053,528) $(1,970,292) $(1,491,118)
Preferred stock dividends.................................... (956,574) (936,325) (478,287) --
----------- ----------- ----------- -----------
Net loss applicable to common stockholders................... $(5,796,959) $(4,989,853) $(2,448,579) $(1,491,118)
=========== =========== =========== ===========
Net loss per common and common share equivalent.............. $ (1.39) $ (1.20) $ (0.59) $ (0.34)
=========== =========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
Integrated Surgical Systems BV is a wholly-owned subsidiary of the Company. It
was organized under the laws of The Netherlands and does not do business under
any other name.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Information" and to the use of our report dated January 29,
1996, in the Registration Statement (Form SB-2) and related Prospectus of
Integrated Surgical Systems, Inc. for the registration of 3,750,000 shares of
its common stock and warrants to purchase 2,175,000 shares of its common stock.
ERNST & YOUNG LLP
Sacramento, California
July 29, 1996
