<PAGE>
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of
[x] Definitive Proxy Statement the Commission only
[ ] Definitive Additional Materials (as permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-ll(c) or Rule 14a-12
INTEGRATED SURGICAL SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
INTEGRATED SURGICAL SYSTEMS, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:___________________________
(2) Aggregate number of securities to which transaction
applies:_________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1____________________________
(4) Proposed maximum aggregate value of transaction:______________
(5) Total fee paid:__________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-ll(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:$______________
(2) Form, Schedule or Registration Statement No.: _________________
(3) Filing Party: _________________
(4) Date Filed: __________________
<PAGE>
INTEGRATED SURGICAL SYSTEMS, INC.
------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1997
------
To the Stockholders of Integrated Surgical Systems, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of
Integrated Surgical Systems, Inc., a Delaware corporation (the "Company"),
will be held on May 14, 1997, at the Hyatt Regency, 1209 L Street,
Sacramento, California 95814, at the hour of 9:00 A.M., for the following
purposes:
1. To elect six Directors of the Company to serve until the next annual
meeting of stockholders and until their successors are duly elected and
qualified.
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent public accountants for the year ending December 31, 1997.
3. To transact such other business as may properly come before the Annual
Meeting or adjournments thereof.
Only stockholders of record at the close of business on April 8, 1997 are
entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.
By Order of the Board of Directors
Michael J. Tomczak
Secretary
Sacramento, California,
April 15, 1997
IMPORTANT:
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD
OF DIRECTORS OF THE COMPANY, AND RETURN IT TO THE COMPANY. THE PROXY MAY BE
REVOKED AT ANY TIME BEFORE IT IS VOTED, AND STOCKHOLDERS EXECUTING PROXIES
MAY ATTEND THE MEETING AND VOTE IN PERSON SHOULD THEY SO DESIRE.
<PAGE>
INTEGRATED SURGICAL SYSTEMS, INC.
829 WEST STADIUM LANE
SACRAMENTO, CALIFORNIA 95834
(916) 646-3487
------
PROXY STATEMENT
------
The Board of Directors of Integrated Surgical Systems, Inc. (the
"Company") presents this Proxy Statement and the enclosed proxy card to all
stockholders and solicits their proxies for the Annual Meeting of
Stockholders to be held on May 14, 1997. The record date of this proxy
solicitation is April 8, 1997. All proxies duly executed and received will be
voted on all matters presented at the Annual Meeting in accordance with the
instructions given by such proxies. In the absence of specific instructions,
proxies so received will be voted for the named nominees for election to the
Company's Board of Directors and for ratification of the appointment of Ernst
& Young LLP as the Company's independent accountants for the year ending
December 31, 1997. The Board of Directors does not anticipate that any of its
nominees will be unavailable for election and does not know of any matters
that may be brought before the Annual Meeting other than those listed on the
Notice of the Annual Meeting.
In the event that any other matter should come before the Annual Meeting
or that any nominee is not available for election, the persons named in the
enclosed proxy will have discretionary authority to vote all proxies not
marked to the contrary with respect to such matter in accordance with their
best judgment. A proxy may be revoked at any time before being voted by
sending a new proxy bearing a later date or a revocation notice to the
Company at the above address, attn: Secretary, or by notifying the Secretary
of the Company at the Annual Meeting. The Company is soliciting these proxies
and will pay the entire expense of solicitation, which will be made by use of
the mails. This Proxy Statement is being mailed on or about April 15, 1997.
The total number of shares of common stock, $.01 par value ("Common
Stock"), of the Company outstanding as of April 8, 1997, was 3,366,028
shares. The Common Stock is the only outstanding class of securities of the
Company entitled to vote. Each share of Common Stock has one vote. Only
stockholders of record as of the close of business on April 8, 1997 will be
entitled to vote at the Annual Meeting or any adjournments thereof.
The affirmative vote by holders of a plurality of the votes cast for the
election of directors at the Annual Meeting is required for the election of
Directors. The affirmative vote by the majority of the votes present at the
Annual Meeting and entitled to vote is required to approve the ratification
of the appointment of Ernst & Young LLP. All proxies will be counted for
determining the presence of a quorum. Votes withheld in connection with the
election of one or more nominees for Director will not be counted as votes
cast for such individuals. In addition, where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not
provided voting instructions (commonly referred to as "broker non-votes"),
those shares will not be included in the vote totals.
A list of stockholders entitled to vote at the Annual Meeting will be
available at the Company's principal office, 829 West Stadium Lane,
Sacramento, California 95834, during business hours, for a period of ten (10)
days prior to the Annual Meeting for examination by any stockholder. Such
list shall also be available at the Annual Meeting.
<PAGE>
ACTIONS TO BE TAKEN AT THE ANNUAL MEETING
PROPOSAL 1.
ELECTION OF DIRECTORS
The Directors to be elected at the Annual Meeting will serve until the
next Annual Meeting of Stockholders and until their successors are duly
elected and qualified. Proxies not marked to the contrary will be voted "FOR"
the election to the Board of Directors of the following six persons, all of
whom, with the exception of Gerald D. Knudson and Patrick G. Hays, are
incumbent Directors.
The following table sets forth information concerning the nominees:
<TABLE>
<CAPTION>
Name Age Position
----------------------- ----- --------
<S> <C> <C>
Ramesh C. Trivedi 57 Chief Executive Officer, President and a Director
James C. McGroddy(1)(2) 59 Chairman of the Board
John N. Kapoor(1)(2) 52 Director
Paul A.H. Pankow(1)(2) 67 Director
Gerald D. Knudson 53 Director
Patrick G. Hays 54 Director
</TABLE>
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
BIOGRAPHICAL INFORMATION ABOUT NOMINEES
Ramesh C. Trivedi, Ph.D., has been Chief Executive Officer, President 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 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. From 1978 to 1984, he was
the director of business development of Syva Company and the General Manager
of Synaco, Inc., divisions of Syntex Corporation, a pharmaceutical company.
From 1972 to 1978, Dr. Trivedi was the head of the product management group
at the Worthington division of Millipore Corporation, a membrane filtration
company, 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. Dr. McGroddy was employed by IBM from 1965
to December 31, 1996. From January 1, 1996 he 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 was 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.
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. Since October 1990, Dr. Kapoor has been Chairman of Option Care,
Inc., a home health care provider franchisor. Dr. Kapoor has been the
Chairman of Unimed Pharmaceuticals, Inc., a specialty pharmaceutical company
since 1990. Since May 1996, Dr. Kapoor has been Chief Executive Officer of
Akorn, Inc., a manufacturer and distributor of ophthalmic products, of which
Dr. Kapoor also serves as Chairman. In addition, Dr. Kapoor serves as
Chairman of NeoPharm, Inc., a cancer drug research and development company.
Dr. Kapoor also served as Chairman of Lyphomed, Inc., a pharmaceutical
company, from 1983 to 1990, and was a Director of Lunar Corp., a manufacturer
and marketer of x-ray and ultrasound systems, from May 1990 to April 1996.
Dr. Kapoor received a Ph.D. in medicinal chemistry from State University of
New York in 1970.
2
<PAGE>
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 positions with 3M Corporation, most recently as a Vice President of the
Medical Imaging Systems Division (1982-1986) and as Staff Vice President,
Special Programs and Government Research and Development Programs (1987-1995).
He served as Chairman of the Optoelectronic Industry Development Association
(1994-1995) and is currently 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.
Gerald D. Knudson has been nominated as a Director. Since January 1997,
Mr. Knudson has been Executive Vice President of Sterling Diagnostic Imaging,
Inc., a manufacturer and distributor of medical diagnostic imaging products.
From 1994 to 1996, Mr. Knudson was President, Medical Systems Division of
Polaroid which manufactured medical diagnostic imaging printers and film.
From 1988 to 1994, Mr. Knudson was Chief Executive Officer of Resonex, Inc.,
a manufacturer of MRI systems. Previously, Mr. Knudson held various executive
and marketing positions in the life science industry since 1966. Mr. Knudson
received a B.A. in Biology from Augustana College in 1965.
Patrick G. Hays has been nominated as a Director. Since February 1995, Mr.
Hays has been President and Chief Executive Officer of Blue Cross and Blue
Shield Association, the national coordinating body for the United States'
sixty-two community based and independent Blue Cross and Blue Shield Plans,
collectively, the United States' largest insurer. From 1980 to 1995, Mr. Hays
was President and Chief Executive Officer of Sutter Health, a vertically
integrated provider of health services in northern California. Previously,
Mr. Hays held various administrative and executive positions with healthcare
providers since 1971. Mr. Hays received a Master's degree in Healthcare
Administration from the University of Minnesota in 1971.
On August 16, 1992 a lawsuit was filed against Dr. Kapoor in the United
States District Court for the Northern District of Illinois by Fujisawa
Pharmaceutical Co., Ltd. and Fujisawa USA, Inc. ("Fujisawa"). The complaint
alleged that Dr. Kapoor, while President and Chief Executive Officer of
Lyphomed, Inc., a company acquired by Fujisawa, violated provisions of the
Federal securities laws and the Racketeer Influenced and Corrupt
Organizations Act (RICO), and also asserted certain state law claims. On July
25, 1996, the complaint was dismissed in part, and Dr. Kapoor was granted
summary judgment on the remaining claims. On August 22, 1996, Fujisawa filed
a notice of appeal of the dismissal and summary judgment decision. Dr. Kapoor
vigorously denies the allegations and filed a complaint against Fujisawa in
Illinois state court on August 27, 1996 claiming breach of contract,
defamation of character and other state law claims.
All directors hold office until the annual meeting of stockholders of the
Company following their election and until their successors are duly elected
and qualified. Officers are appointed by the Board of Directors and serve at
its discretion.
INFORMATION ABOUT THE BOARD OF DIRECTORS,
COMMITTEES OF THE BOARD, AND EXECUTIVE OFFICERS
MEETINGS OF THE BOARD OF DIRECTORS AND INFORMATION REGARDING COMMITTEES
The Board of Directors has two standing committees, an Audit Committee and
a Compensation Committee.
The Audit Committee is composed of Dr. McGroddy, Dr. Kapoor and Mr.
Pankow. The duties of the Audit Committee include recommending the engagement
of independent auditors, reviewing and considering actions of management in
matters relating to audit functions, reviewing with independent auditors the
scope and results of its audit engagement, reviewing reports from various
regulatory authorities, reviewing the system of internal controls and
procedures of the Company, and reviewing the effectiveness of procedures
intended to prevent violations of law and regulations. The Audit Committee
held no meetings in 1996.
The Company's Compensation Committee is composed of Dr. McGroddy, Dr.
Kapoor and Mr. Pankow. The duties of this Committee are to recommend to the
Board remuneration for officers of the Company, to determine the number and
issuance of options pursuant to the Company's stock option plans and to
recommend the establishment of and to monitor a compensation and incentive
program for all executives of the Company. The Compensation Committee held
four meeting in 1996.
3
<PAGE>
The Board of Directors held three meetings in 1996. All Directors attended
at least 75% of the total number of Board meetings and of the meetings of
committees on which they served.
The Company has adopted a policy of compensating independent directors in
the amount of $7,500 annually and $500 additional for each Board of Directors
meeting attended and $250 for each telephonic Board of Directors meeting
attended. Members who serve on either the Audit or Compensation Committees
are to be paid $300 for each meeting attended and $150 for each telephonic
meeting attended. Committee chairmen also are to be paid a fee of $500 per
annum.
The Company will also grant independent members of the Board of Directors
ten year non-qualified stock options to purchase 3,500 shares of the
Company's Common Stock at an exercise price equal to the greater of the fair
market value on the date of issue or $5.00 per share.
No member of the Compensation Committee was an officer or employee of the
Company or of any of its subsidiaries during the prior year or was formerly
an officer of the Company or of any of its subsidiaries. None of the
Executive Officers of the Company has served on the Board of Directors or
Compensation Committee during the last fiscal year of any other entity, any
of whose officers served either on the Board of Directors of the Company or
on the Compensation Committee of the Company.
On July 26, 1996, Mr. Pankow was granted an option to purchase 2,704
shares of Common Stock at an exercise price of $2.07 per share. On January
24, 1997, Dr. McGroddy was granted an option to purchase 25,000 shares of
Common Stock at an exercise price of $5.00 per share.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The names and business backgrounds of executive officers and other
significant employees of the Company who are not nominees for Director are as
follows:
Michael J. Tomczak, 41, has been Vice President and Chief Financial
Officer of the Company since October 1991 and Secretary since September 1996.
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 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.
Peter Kazanzides, Ph.D., 35, 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 from March 1989 to March 1990 at the IBM T.J. Watson
Research Center.
Brent D. Mittelstadt, 37, a co-founder of the Company, has been an
employee of the Company since November 1990 and Director of Biomedical
Applications of the Company since December 1995. He began research in
surgical robotics in 1986 as a visiting research scientist 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" THE NOMINEES FOR DIRECTORS IN THE
FOREGOING PROPOSAL 1
4
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
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 and certain other management personnel of the Company whose salary
and bonus for the year ended December 31, 1996 exceeded $100,000
(collectively, the "Named Executives and Certain Other Management").
SUMMARY COMPENSATION TABLE
<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 1996 $264,000 $50,000 316,907
Chief Executive Officer and President
Wendy Shelton-Paul(1) 1996 $120,000 $30,000 30,415
Vice President of Medical Affairs
Michael J. Tomczak 1996 $112,060 $30,000 30,415
Vice President and Chief Financial
Officer
Peter Kazanzides 1996 $ 80,080 $30,000 77,726
Director of Robotics and Software
Brent Mittelstadt 1996 $ 76,670 $30,000 77,726
Director of Biomedical Applications
</TABLE>
- ------
(1) Dr. Shelton-Paul resigned from her position as Vice President of Medical
Affairs effective December 31, 1996 and is not standing for election as a
Director at the Annual Meeting.
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 terminable at will by either party. 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 316,907 shares of the
Company's Common Stock, at an exercise price of $0.07 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 consulting rate) for
three months of consulting services to be rendered during the 12 months
following such termination.
None of the other Named Executives and Certain Other Management has an
employment agreement with the Company.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1995 Stock Option Plan to Dr. Trivedi, Dr.
Shelton-Paul, Mr. Tomczak, Dr. Kazanzides, and Mr. Mittelstadt during the
fiscal year ended December 31, 1996.
5
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Percent of
Number of Total
Shares Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted(1)(3) Fiscal Year(3) Share(2) Date
- --------------------- ------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Ramesh C. Trivedi ... 316,907 41.7% $0.07 2/16/06
Wendy Shelton-Paul .. 30,415 4.3% $0.07 2/16/06
Michael J. Tomczak .. 30,415 4.3% $0.07 2/16/06
Peter Kazanzides .... 77,726 11.0% $0.07 2/16/06
Brent D. Mittelstadt 77,726 11.0% $0.07 2/16/06
</TABLE>
- ------
(1) Stock options are granted at the discretion of the Compensation Committee
of the Company's Board of Directors. Stock options have a 10-year term
and vest periodically over a period not to exceed five years.
(2) The Compensation Committee of the Company's Board of Directors may elect
to reduce the exercise price of any option to the current fair market
value of the Common Stock if the value of the Common Stock has declined
from the date of grant.
(3) Does not include the options previously outstanding under the Company's
1991 Stock Option Plan which were repriced on February 16, 1996.
The following table summarizes for each of the Named Executives and
Certain Other Management the total number of unexercised options, if any,
held at December 31, 1996, and the aggregate dollar value of in-the-money,
unexercised options, held at December 31, 1996. The value of the unexercised,
in-the-money options at December 31, 1996, is the difference between their
exercise or base price and the value of the underlying Common Stock on
December 31, 1996, at an assumed price of $5.00 per share.
6
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY END OPTION VALUES
<TABLE>
<CAPTION>
Shares Acquired Number of Securities Value of Unexercised
Upon Exercise Underlying In-The-Money
of Options Unexercised Options Options at
During Fiscal 1996 at December 31. 1996 December 31, 1996
---------------------- -------------------------------- --------------------------------
Value
Name Number Realized Exercisable Unexercisable Exercisable Unexercisable
------------------- -------- ---------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ramesh C. Trivedi . -- -- 163,559 153,348 $806,346 $756,006
Wendy Shelton-Paul -- -- 40,553 57,449 $199,926 $283,224
Michael J. Tomczak -- -- 64,620 33,850 $318,577 $166,881
Peter Kazanzides .. -- -- 19,822 78,884 $ 97,722 $388,898
Brent D. Mittelsta -- -- 19,960 79,014 $ 98,403 $390,539
</TABLE>
REPORT ON REPRICING OF OPTIONS
<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 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 67,587 $ .888 $4.88 $ .07 9.25 years
Michael J. Tomczak .. 2/16/96 43,932 $ .888 $4.88 $ .07 9.25 years
Michael J. Tomczak .. 2/16/96 6,759 $ .888 $7.84 $ .07 8.00 years
Michael J. Tomczak .. 2/16/96 13,308 $ .888 $7.84 $ .07 6.50 years
Michael J. Tomczak .. 2/16/96 4,056 $ .888 $7.84 $ .07 6.00 years
Peter Kazanzides .... 2/16/96 3,380 $ .888 $4.88 $ .07 9.25 years
Peter Kazanzides .... 2/16/96 1,014 $ .888 $7.84 $ .07 8.00 years
Peter Kazanzides .... 2/16/96 4,420 $ .888 $7.84 $ .07 6.50 years
Peter Kazanzides .... 2/16/96 12,166 $ .888 $3.33 $ .07 6.00 years
Brent D. Mittelstadt 2/16/96 3,380 $ .888 $4.88 $ .07 9.25 years
Brent D. Mittelstadt 2/16/96 1,352 $ .888 $7.84 $ .07 8.00 years
Brent D. Mittelstadt 2/16/96 4,350 $ .888 $7.84 $ .07 6.50 years
Brent D. Mittelstadt 2/16/96 12,166 $ .888 $3.33 $ .07 6.00 years
</TABLE>
The Compensation Committee of the Board of Directors approved the
replacement of these options to Dr. Shelton-Paul, Mr. Tomczak, Dr.
Kazanzides, and Mr. Mittelstadt and options to other employees of the
Company, at an exercise price of $.07 per share, having concluded that the
principal purpose of the Company's stock option program (i.e., to 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. The Plan, as initially adopted, authorized the Company to grant
stock purchase rights and/or options to acquire an aggregate of 1,108,949
shares of Common Stock to directors, employees (including officers) and
consultants of the Company ("Plan participants"). On September 16, 1996, the
Board of Directors of the Company adopted, and stockholders approved, an
amendment to the Plan, increasing the number of shares of Common Stock
covered by the Plan to 1,249,070 shares.
7
<PAGE>
As of December 31, 1996, there were outstanding options to purchase an
aggregate of 925,859 shares granted pursuant to the Plan and options to
purchase an aggregate of 21,325 shares granted pursuant to the Company's 1991
Stock Option Plan, which was terminated in December 1995. At December 31,
1996, options to purchase an aggregate 292,366 shares of Common Stock were
available for grant under the Plan. No stock purchase rights have been
granted pursuant to the Plan.
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 a 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 242,746 shares of
Common Stock, at an exercise price of $0.07 per share, to certain officers,
directors and employees of the Company pursuant to the Company's 1995 Stock
Option Plan, including options to purchase 67,587 shares granted to Dr. Wendy
Shelton-Paul, Vice President of Medical Affairs of the Company, and options
to purchase 68,055 shares granted to Michael J. Tomczak, Vice President and
Chief Financial Officer of the Company, options to purchase 20,980 shares
granted to Peter Kazanzides, Director of Robotics and Software and options to
purchase 21,248 shares granted to Brent D. Mittelstadt, Director of
Biomedical Applications. These options were issued in replacement of options
previously granted pursuant to the Company's 1991 Stock Option Plan, with
exercise prices ranging from $3.33 to $7.84 per share, surrendered for
cancellation.
SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock at March 14, 1997 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 Named Executive and Certain Other Management named in the
Summary Compensation Table above and (iii) all directors, executive officers
and certain other management personnel as a group.
8
<PAGE>
<TABLE>
<CAPTION>
Amount and Percentage of
Nature of Common Stock
Beneficial Beneficially
Name Ownership Owned(1)(2)
- ---- -------------- --------------------
<S> <C> <C>
International Business Machines Corp. ........................... 2,274,066(4) 40.32%(5)
Old Orchard Road
Armonk, NY 10504
EJ Financial Investments V, L.P. ................................ 1,039,792 30.89%
225 East Deer Path Road
Suite 250
Lake Forest, IL 60045
Sutter Health and Sutter Health Venture ......................... 611,607(6) 18.17%
Partners, L.P.
One Capitol Mall
Sacramento, CA 95814
Ramesh C. Trivedi (3) ........................................... 175,355(7) 4.95%(8)
John N. Kapoor .................................................. 1,039,792(9) 30.89%
James J. McGroddy (3) ........................................... 21,000(10) 0.62%
Paul A.H. Pankow (3) ............................................ 1,127(7) 0.03%(11)
Wendy Shelton-Paul (3) .......................................... 89,290(12) 2.61%(13)
Mike Tomczak (3) ................................................ 71,407(7) 2.08%(14)
Peter Kazanides (3) ............................................. 41,784(15) 1.23%(16)
Brent Mittelstadt (3) ............................................ 45,046(17) 1.32%(18)
All directors,executive officers and certain other management as
a group (8 persons) ............................................ 1,463,801(19) 39.10%(20)
</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
March 14, 1997, 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 3,366,028 shares
of Common Stock issued and outstanding.
(3) Address is c/o the Company, 829 West Stadium Lane, Sacramento, California
95834.
(4) Includes warrants to purchase 2,079,584 shares of Common Stock at an
exercise price of $0.01 per share exercisable until December 31, 2005,
warrants to purchase 67,587 shares of Common Stock at an exercise price
of $0.07 per share exercisable until December 31, 2000, and warrants to
purchase 126,895 shares of Common Stock at an exercise price of $0.01 per
share exercisable until December 31, 2005, all of which warrants are
presently exercisable.
(5) Calculated on the basis of 5,640,094 shares of Common Stock issued and
outstanding.
(6) Includes 593,538 shares of Common Stock owned by Sutter Health and 18,069
shares of Common Stock beneficially owned by Sutter Health Venture
Partners I, L.P., an affiliate of Sutter Health.
(7) Represents shares issuable upon the exercise of stock options exercisable
within 60 days, at an exercise price of $0.07 per share.
(8) Calculated on the basis of 3,541,383 shares of Common Stock issued and
outstanding.
(9) 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.
9
<PAGE>
(10) Includes 20,000 shares of Common Stock owned by Dr. McGroddy and 1,000
shares of Common Stock beneficially owned by his daughter.
(11) Calculated on the basis of 3,367,155 shares of Common Stock issued and
outstanding.
(12) Includes 50,410 shares issuable upon exercise of stock options
exercisable within 60 days, at an exercise price of $0.07 per share.
(13) Calculated based upon 3,416,438 shares of Common Stock issued and
outstanding.
(14) Calculated based upon 3,437,435 shares of Common Stock issued and
outstanding.
(15) Includes 39,452 shares issuable upon exercise of stock options
exercisable within 60 days at no exercise price of $0.07 per share.
(16) Calculated based upon 3,405,480 shares of Common Stock issued and
outstanding.
(17) Includes 39,605 shares issuable upon exercise of stock options
exercisable within 60 days at an exercise price of $0.07 per share.
(18) Calculated based upon 3,405,633 shares of Common Stock issued and
outstanding.
(19) Includes 377,356 shares of Common Stock issuable upon exercise of
options exercisable within 60 days, at exercise prices ranging from
$0.07 to $2.07 per share.
(20) Calculated based upon 3,743,384 shares of Common Stock issued and
outstanding.
COMPLIANCE WITH 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, Directors and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, Directors and ten percent stockholders are
required by regulation to furnish the Company with copies of all Section
16(a) forms they file. Based on the Company's copies of such forms received,
or written representations from certain reporting persons that no Form 5's
were required for those persons, the Company believes that, during 1996,
Officers, Directors and greater than ten percent beneficial owners complied
with all applicable filing requirements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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 30,482 shares of Common Stock to each of
Sutter Health and the Kapoor Trust, or a total of 60,964 shares. In addition,
the Company issued 8,955 shares of Common Stock to each of Sutter Health and
the Kapoor Trust, or a total of 17,910 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 89,604
shares. In addition, the Company issued 19,512 shares of Common Stock to
Sutter Health and 3,169 shares of Common Stock to Keystone, or a total of
22,681 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
126,895 shares of Common Stock, at an exercise price of $0.01 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 693,195 shares of Series D Preferred Stock
for an aggregate purchase price of $666,667 ($0.96 per share), and IBM
purchased a warrant to purchase 1,386,390 shares of Series D Preferred Stock,
exercisable at
10
<PAGE>
any time prior to December 31, 2005, at an exercise price of $0.01 per share,
for an aggregate purchase price of $1,333,333 ($0.96 per warrant). In
addition, EJ Financial received an option to purchase an additional 346,597
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 693,194 shares of Series D Preferred 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 390,888
shares, 11,899 shares and 43,300 shares, of Common Stock, respectively, at an
exercise price of $0.74 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 agreed to
amend these warrants to permit payment of the exercise price by surrender of
a portion of the warrants in lieu of payment of the cash exercise price.
Accordingly, on August 25, 1996, Sutter Health and Sutter Health Venture
Partners received 449,374 shares and 13,680 shares of Common Stock,
respectively (or 63,200 fewer shares and 1,924 fewer shares, respectively,
than they would have received if the exercise price had been paid in cash)
and on October 29, 1996, Keystone received 49,777 shares of Common Stock (or
7,002 fewer shares than it would have received if the exercise price had been
paid in cash.)
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 242,736 shares of
Common Stock, at an exercise price of $0.07 per share, to certain officers,
directors, and employees of the Company pursuant to the Company's 1995 Stock
Option Plan, including options to purchase 67,587 shares granted to Dr. Wendy
Shelton-Paul, Vice President of Medical Affairs of the Company, options to
purchase 68,055 shares granted to Michael J. Tomczak, Vice President and
Chief Financial Officer of the Company, options to purchase 20,980 shares
granted to Peter Kazanzides, Director of Robotics and Software and options to
purchase 21,248 shares granted to Brent D. Mittelstadt, Director of
Biomedical Applications. These options were issued in replacement of options
previously granted pursuant to the Company's 1991 Stock Option Plan, with
exercise prices ranging from $3.33 to $7.84 per share, surrendered for
cancellation. See the table captioned "Repricing of Options" above.
PROPOSAL 2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP, independent public
accountants, to continue as the Company's auditors and to audit the books of
account and other records of the Company for the fiscal year ending December
31, 1997. Ernst & Young LLP has audited the Company's financial statements
since the fiscal year ended December 31, 1991. They have no financial
interest, either direct or indirect, in the Company. Representatives of Ernst
& Young LLP are expected to be present at the Annual Meeting to respond to
appropriate questions from stockholders and to make a statement if they
desire to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE RATIFICATION OF APPOINTMENT OF INDEPENDENT
AUDITORS IN THE FOREGOING PROPOSAL 2
OTHER MATTERS
The Board of Directors is not aware of any business to be presented at the
Annual Meeting except the matters set forth in the Notice and described in
this Proxy Statement. Unless otherwise directed, all shares represented by
Board of Directors' Proxies will be voted in favor of the proposals of the
Board of Directors described in this Proxy Statement. If any other matters
come before the Annual Meeting, the persons named in the accompanying Proxy
will vote on those matters according to their best judgment.
11
<PAGE>
EXPENSES
The entire cost of preparing, assembling, printing and mailing this Proxy
Statement, the enclosed Proxy and other materials, and the cost of soliciting
Proxies with respect to the Annual Meeting, will be borne by the Company. The
Company will request banks and brokers to solicit their customers who
beneficially own shares listed of record in names of nominees, and will
reimburse those banks and brokers for the reasonable out-of-pocket expenses
of such solicitations. The original solicitation of Proxies by mail may be
supplemented by telephone and telegram by officers and other regular
employees of the Company, but no additional compensation will be paid to such
individuals.
STOCKHOLDER PROPOSALS
No person who intends to present a proposal for action at a forthcoming
stockholders' meeting of the Company may seek to have the proposal included
in the proxy statement or form of proxy for such meeting unless that person
(a) is a record beneficial owner of at least 1% or $1,000 in market value of
shares of Common Stock, has held such shares for at least one year at the
time the proposal is submitted, and such person shall continue to own such
shares through the date on which the meeting is held, (b) provides the
Company in writing with his name, address, the number of shares held by him
and the dates upon which he acquired such shares with documentary support for
a claim of beneficial ownership, (c) notifies the Company of his intention to
appear personally at the meeting or by a qualified representative under
Delaware law to present his proposal for action, and (d) submits his proposal
timely. A proposal to be included in the proxy statement or proxy for the
Company's next annual meeting of stockholders, will be submitted timely only
if the proposal has been received at the Company's principal executive office
no later than December 16, 1997. If the date of such meeting is changed by
more than 30 calendar days from the date such meeting is scheduled to be held
under the Company's By-Laws, or if the proposal is to be presented at any
meeting other than the next annual meeting of stockholders, the proposal must
be received at the Company's principal executive office at a reasonable time
before the solicitation of proxies for such meeting is made.
Even if the foregoing requirements are satisfied, a person may submit only
one proposal with a supporting statement of not more than 500 words, if the
latter is requested by the proponent for inclusion in the proxy materials,
and under certain circumstances enumerated in the Securities and Exchange
Commission's rules relating to the solicitation of proxies, the Company may
be entitled to omit the proposal and any statement in support thereof from
its proxy statement and form of proxy.
AVAILABLE INFORMATION
Copies of the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996 as filed with the Securities and Exchange Commission,
including the financial statements, can be obtained without charge by
stockholders (including beneficial owners of the Company's Common Stock) upon
written request to Michael J. Tomczak, the Company's Secretary, Integrated
Surgical Systems, Inc., 829 West Stadium Lane, Sacramento, California 95834
or on the Commission's Web Site at www.sec.gov.
By Order of the Board of Directors
Michael J. Tomczak, Secretary
Sacramento, California
April 15, 1997
12
<PAGE>
APPENDIX I -- PROXY CARD
INTEGRATED SURGICAL SYSTEMS, INC.
829 West Stadium Lane
Sacramento, California 95834
PROXY
The undersigned, a holder of Common Stock of Integrated Surgical
Systems, Inc., a Delaware corporation (the "Company"), hereby appoints MICHAEL
J. TOMCZAK the proxy of the undersigned, with full power of substitution, to
attend represent and vote for the undersigned, all of the shares of the Company
which the undersigned would be entitled to vote, at the Annual Meeting of
Stockholders of the Company to be held on May 14, 1997 and any adjournments
thereof, as follows:
1. The election of six Directors of the Company to serve until the next annual
meeting of stockholders and until their successors are duly elected and
qualified.
[ ] FOR all nominees listed below
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
(Instructions: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH OR OTHERWISE STRIKE OUT HIS OR HER NAME BELOW)
Ramesh C. Trivedi, James C. McGroddy, John N. Kapoor, Paul A.H. Pankow,
Gerald D. Knudson and Patrick G. Hays
2. The ratification of the appointment of Ernst & Young LLP as the Company's
independent public accountants for the year ending December 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Upon such other matters as may properly come before the meeting or
any adjournments thereof.
The undersigned hereby revokes any other proxy to vote at such Annual
Meeting, and hereby ratifies and confirms all that said attorneys and proxies,
and each of them, may lawfully do by virtue hereof. With respect to matters not
known at the time of the solicitations hereby, said proxies are authorized to
vote in accordance with their best judgment.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE OTHER SIDE HEREOF. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF THE SIX DIRECTORS NAMED IN PROPOSAL 1 AND FOR THE
ADOPTION OF PROPOSALS 2 AND 3, AND AS SAID PROXIES SHALL DEEM ADVISABLE ON SUCH
OTHER BUSINESS AS MAY COME BEFORE THE MEETING.
<PAGE>
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting dated April 15, 1997 relating to the Annual Meeting.
----------------------------------
Signature(s) of Stockholder(s)
The signature(s) hereon should correspond exactly with the name(s) of
the Stockholder(s) appearing on the Stock Certificate. If stock is jointly held,
all joint owners should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If signer is a corporation,
please sign the full corporate name, and give title of signing officer.
Date: ____________________, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF
DIRECTORS OF INTEGRATED SURGICAL SYSTEMS, INC.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
