<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14, 1998
REGISTRATION NO. 333-66133
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTEGRATED SURGICAL SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1850 RESEARCH PARK DRIVE 60-0232575
(STATE OR OTHER JURISDICTION OF DAVIS, CALIFORNIA 95616-4884 (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) TELEPHONE: (530) 792-2600
TELECOPIER: (530) 792-2690
</TABLE>
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
-------------------------
DR. RAMESH C. TRIVEDI
CHIEF EXECUTIVE OFFICER AND PRESIDENT
INTEGRATED SURGICAL SYSTEMS, INC.
1850 RESEARCH PARK DRIVE
DAVIS, CALIFORNIA 95616-4884
TELEPHONE: (530) 792-2600
TELECOPIER: (530) 792-2690
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------------
A COPY OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO THE AGENT FOR
SERVICE SHOULD BE SENT TO:
JACK BECKER, ESQ.
SNOW BECKER KRAUSS P.C.
605 THIRD AVENUE
NEW YORK, N.Y. 10158-0125
TELEPHONE: (212) 687-3860
TELECOPIER: (212) 949-7052
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this registration statement.
-------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered or
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
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. [ ]
-------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED DECEMBER 14, 1998
1,809,000 SHARES
INTEGRATED SURGICAL SYSTEMS, INC.
COMMON STOCK
The selling securityholders named in this prospectus are offering and selling up
to 1,809,000 shares of the common stock of Integrated Surgical Systems, Inc.
They may acquire 1,760,000 of those shares upon conversion of 3,520 shares of
series A preferred stock and 44,000 shares upon exercise of warrants.
The selling securityholders may offer the shares from time to time in public or
private transactions on or off the Nasdaq SmallCap Market, at prevailing market
prices or privately negotiated prices. Sales may be made through brokers,
dealers or other agents who may receive compensation in the form of commissions,
discounts or concessions.
The common stock is quoted on The Nasdaq SmallCap Market under the symbol
"RDOC", and is listed on The Pacific Exchange Inc. under the symbol "ROB". The
common stock also has been admitted for trading on the European Association of
Securities Dealers' Automated Quotation system under the symbol "RDOC". On
December 11, 1998, the closing sale price of one share of common stock on The
Nasdaq SmallCap Market was $3.81.
Integrated Surgical Systems, Inc. will not receive any proceeds from the sale of
the common stock, but will receive the exercise price of the warrants.
THE COMMON STOCK IS A SPECULATIVE INVESTMENT AND INVOLVES A HIGH DEGREE OF RISK.
YOU SHOULD READ THE DESCRIPTION OF CERTAIN RISKS UNDER THE CAPTION "RISK
FACTORS" COMMENCING ON PAGE 4 BEFORE PURCHASING THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
THE DATE OF THIS PROSPECTUS IS , 1998
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 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 STATE.
<PAGE> 3
INFORMATION ABOUT THE COMPANY
At Integrated Surgical Systems, Inc., we develop, assemble, market and service
image-directed, computer-controlled robotic products for orthopaedic and
neurosurgical applications. Our principal orthopaedic product is the ROBODOC(R)
Surgical Assistant System, consisting of a computer-controlled surgical robot
and our ORTHODOC(R) Presurgical Planner, and our principal neurosurgical product
is the NeuroMate System.(TM)
We file reports, proxy statements and other information with the SEC. You may
read and copy any document we file at the Public Reference Room of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Regional Offices of the SEC at Seven World Trade Center, Suite 1300, New York,
New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Please call 1-800-SEC-0330 for further information concerning the
Public Reference Room. Our filings also are available to the public from the
SEC's website at www.sec.gov. We distribute to our stockholders annual reports
containing audited financial statements.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with it,
which means that we can disclose important information to you by referring to
those documents. The information incorporated by reference is considered to be
part of this prospectus, and information we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act until the
offering is completed:
1. Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997.
2. Proxy Statement dated March 26, 1998.
3. Quarterly Reports on Form 10-QSB for the fiscal quarters ended March
31, 1998, June 30, 1998 and September 30, 1998.
4. The description of the common stock contained in our Registration
Statement on Form 8-A (File No. 1-12471) under Section 12 of the
Securities Exchange Act.
You may request a copy of these filings, at no cost, by writing or calling us
at:
INTEGRATED SURGICAL SYSTEMS
1850 Research Park Drive
Davis, California 95616-4884
Attention: Corporate Secretary
Telephone: (530) 792-2600
RECENT DEVELOPMENTS
DIGIMATCH SINGLE SURGERY SYSTEM. We have developed and commenced marketing to
our customers in Europe our DigiMatch Single Surgery System, that, in most
cases, eliminates the need for an initial surgery to place registration pins in
a patient's femur before using the ROBODOC System in total hip replacement
surgery. More than 150 patient surgeries have been successfully performed at a
clinic in Frankfurt, Germany with our DigiMatch Single Surgery System.
We plan to amend our investigational device exemption under the Food, Drug and
Cosmetic Act, which allowed us to conduct clinical trials for the ROBODOC System
in the United States, to permit us to perform a relatively small clinical study
showing a correlation between the ROBODOC System using the DigiMatch technology
and the three pin system that we used in our initial clinical
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evaluations. We have deferred the filing of our pre-market approval application
to market the ROBODOC System in the United States so that we may incorporate our
DigiMatch Single Surgery System, and possibly other technical developments, as
part of our pre-market approval submission with the Food and Drug
Administration. We believe, based upon our discussions with representatives of
the FDA, that the incorporation of the DigiMatch Single Surgery System will
enhance our prospects for obtaining FDA approval. However, we cannot give you
any assurance as to when or if the FDA will approve our pre-market approval
application to market the ROBODOC System or that such approval, if obtained,
will not include unfavorable limitations or restrictions. See "Risk
Factors -- Government Regulation -- U.S. Regulation."
-------------------------
This prospectus is part of a registration statement we filed with the SEC. You
should rely only on the information or representations provided in this
prospectus. We have not authorized anyone to provide you with different
information. The common stock will not be offered in any state where an offer is
not permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the cover of this prospectus.
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<PAGE> 5
RISK FACTORS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
prospectus, including the documents that we incorporate by reference, before you
decide to purchase shares of common stock.
Some of the information in this prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "believe," "intend," "anticipate,"
"estimate," "continue" or similar words. These statements discuss future
expectations, estimate the happening of future events or our financial condition
or state other "forward-looking" information. When considering such
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements in this prospectus and the documents that we incorporate
by reference. The risk factors noted in this section and other factors noted
throughout this prospectus, including certain risks and uncertainties, could
cause our actual results to differ materially from those contained in any
forward-looking statement.
HISTORY OF LOSSES. We have incurred losses since we commenced operations in
1990. We incurred a net loss of approximately $4,478,000 (on net sales of
approximately $4,934,000) for the fiscal year ended December 31, 1997 and a net
loss of approximately $3,449,000 (on net sales of approximately $2,280,000) for
the fiscal year ended December 31, 1996. We incurred a net loss of approximately
$7,454,000 (on net sales of approximately $4,188,000) for the nine months ended
September 30, 1998, as compared to a net loss of approximately $2,851,000 (on
net sales of approximately $2,818,000) for the nine months ended September 30,
1997. As a result of continuing losses, our accumulated deficit was
approximately $31,049,000 at September 30, 1998. We expect to continue to incur
operating losses until such time, if ever, as we derive significant revenues
from the sale of our products. Our ability to operate profitably depends upon
market acceptance of our orthopaedic and neurosurgical products, our development
of an effective sales and marketing organization, and our development of new
products and improvements to existing products. We cannot give you any assurance
that we will obtain FDA approval to market the ROBODOC System in the United
States or that our products will achieve market acceptance in the United States,
Europe and other foreign markets to generate sufficient revenues to become
profitable.
LIMITED OPERATING HISTORY. Although commercial sales of the ROBODOC System have
been made in Europe and Japan, we have engaged only in clinical testing of the
ROBODOC System in the United States, and our ability to market the ROBODOC
System in the United States is dependent upon FDA approval. See "Risk
Factors -- Government Regulation." Accordingly, you must evaluate us in light of
the uncertainties, delays, difficulties and expenses commonly experienced by
companies with limited operating experience, which generally include
unanticipated problems and additional costs relating to the development and
testing of products, product approval or clearance, regulatory compliance,
commencement of production, product introduction and marketing, and competition.
Many of these factors may be beyond our 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 our products and development of competing products by
others. In addition, our future performance also will be subject to other
factors beyond our control, including general economic conditions and conditions
in the healthcare industry or targeted commercial markets. See "Risk
Factors -- Dependence on Principal Product," "-- Uncertainty of Market
Acceptance," "-- Alternatives to Our Products," and "-- Government Regulation --
U.S. Regulation."
LENGTHY SALES CYCLE. Since the purchase of a ROBODOC System or NeuroMate 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. We anticipate that the period
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between initial contact of a customer for a 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 for either the ROBODOC
System or the NeuroMate System is approximately four months after receipt of the
order. We may be required to expend significant cash resources to fund our
operations until the purchase price is paid. Accordingly, we may not recognize
the sales price of a system until a fiscal quarter subsequent to the fiscal
quarter in which we incurred marketing and sales expenses associated with an
order.
ABILITY TO MANAGE GROWTH. We plan to expand our sales and marketing, research
and development and technical personnel to increase and support sales of systems
and to develop additional surgical applications for our orthopaedic and
neurosurgical systems. Our anticipated growth will likely result in new and
increased responsibilities for management personnel and place significant strain
upon our management, operating and financial systems and resources. To
accommodate such growth and compete effectively, we must continue to implement
and improve our operational, financial, management and information systems,
procedures and controls, and to expand, train, motivate and manage our
personnel. We cannot give you any assurance that our personnel, systems,
procedures and controls will be adequate to support our future operations. If we
fail to implement and improve our operational, financial, management and
information systems, procedures or controls, or to expand, train, motivate or
manage our employees, our business, financial condition and results of
operations could be materially and adversely affected.
DEPENDENCE ON PRINCIPAL PRODUCT. For the near term, we expect to derive most of
our revenues from sales of the ROBODOC System. Accordingly, our potential future
success and financial performance will depend almost entirely on our ability to
successfully market the ROBODOC System. If we are unable to obtain the requisite
regulatory approvals or to achieve commercial acceptance of the ROBODOC System,
our business, financial condition and results of operations will be materially
and adversely affected. We have not obtained, and we cannot give you any
assurance that we will obtain, clearance or approval to market the ROBODOC
System in the United States. See "Risk Factors -- Government Regulation."
UNCERTAINTY OF MARKET ACCEPTANCE. To successfully commercialize our systems we
must commit substantial marketing efforts and expend significant funds to inform
potential customers, including hospitals and physicians, of the distinctive
characteristics and advantages of using our systems instead of traditional
surgical tools and procedures. Since our systems employ innovative technology,
rather than being an improvement of existing technology, and represent a
substantial capital expenditure, we expect to encounter resistance to change,
which we must overcome to successfully market our products. If our systems do
not achieve significant market acceptance, our business, financial condition and
results of operations would be materially and adversely affected.
ALTERNATIVES TO OUR PRODUCTS. The principal competition for the ROBODOC System
is manual surgery performed by orthopaedic surgeons, using surgical power tools
and manual devices. The providers of these instruments are the major orthopaedic
companies, which include Howmedica, Inc. (a subsidiary of Stryker Corporation),
located in New York; Zimmer, Inc. (a subsidiary of Bristol-Myers Squibb
Company), located in Indiana; Johnson & Johnson Orthopaedics, Inc. (a subsidiary
of Johnson & Johnson), located in New Jersey; DePuy, Inc. (a subsidiary of
Johnson & Johnson) located in Indiana; Biomet, Inc., located in Indiana; and
Osteonics, Inc. (a subsidiary of the Stryker Corporation), located in New
Jersey. MAQUET, a manufacturer of operating tables located in Germany, has
announced that it intends to market a device similar to the ROBODOC System. The
principal competition for the NeuroMate System are frame-based and frameless
navigators, which are manually operated. Approximately twenty navigator models
have been introduced, including those by Radionics, Sofamor-Danek and Ohio
Medical Surgical products, all located in the United States; Elekta, located in
Sweden; and Fischer Leibingher and Brain Lab, both located in Germany. In
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general, 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 us, and have
established reputations in the medical device industry. Furthermore, we cannot
give you any assurance that IBM or the University of California, which developed
the technology embodied in the ROBODOC System and hold patents relating thereto,
will not enter the market or license the technology to other companies.
We cannot give you any assurance that future competition will not have a
material adverse effect on our business. The cost of our systems represents a
significant capital expenditure for a customer and accordingly may discourage
purchases by certain customers.
GOVERNMENT REGULATION.
SUMMARY. Our products are subject to continued and pervasive regulation by the
Food and Drug Administration and foreign and state regulatory authorities. In
the United States, we must comply with food and drug laws and with regulations
promulgated by the FDA. These laws and regulations require us to obtain various
authorizations prior to marketing our products in the United States, and we
cannot give you any assurance that our products will receive these
authorizations. Our manufacturing facilities and practices also are subject to
FDA regulations. In each foreign market, our products may be subject to
substantially different regulations. If we fail to comply with U.S. or
applicable foreign regulations, our business could be materially and adversely
affected.
U.S. REGULATION.
GENERAL. 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 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 recall, repair, replacement or refund of the cost of any device that we
manufacture or distribute. If we fail to comply with regulatory requirements,
including any future changes to such requirements, our business, financial
condition and results of operations could be materially and adversely affected.
FDA REVIEW PROCESS FOR ROBODOC SYSTEM. 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 for medical devices
which are substantially similar to other approved medical devices or the
costlier, lengthier and less certain pre-market approval application process.
Following a pre-filing meeting with representatives of the FDA in early 1998, we
stated that we intended to file our pre-market approval application to market
the ROBODOC System with the FDA in the second quarter of 1998. As a result of
further discussions with representatives of the FDA as part of the
pre-submission review process (which process is intended to expedite the FDA's
formal pre-market approval process), we have deferred the filing of our
pre-market approval application so that we may incorporate our DigiMatch Single
Surgery System, and possibly other technical developments, as part of our
pre-market approval submission with the FDA. We believe, based upon our
discussions with representatives of the FDA, that the incorporation of the
DigiMatch Single Surgery System will enhance our prospects for obtaining FDA
approval. However, we cannot give you any assurance as to when or if the FDA
will grant pre-market approval for the ROBODOC System or that such approval, if
obtained, will not include unfavorable limitations or restrictions.
New surgical applications for the ROBODOC System generally will require FDA
clearance through the 510(k) pre-market notification process or approval of a
new 510(k) submission or a pre-market
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approval supplement or, possibly, a new pre-market approval application. We also
are likely to require additional FDA approvals, supported by additional clinical
data, before incorporating new imaging modalities such as ultrasound and MRI or
other different technologies in the ROBODOC System.
ABILITY TO DEMONSTRATE SAFETY AND EFFECTIVENESS OF ROBODOC SYSTEM. In order to
obtain FDA clearance or approval, we must demonstrate that the ROBODOC System is
safe and effective, and we may be required to show a clinical benefit to
patients. We believe that a reduced incidence of intraoperative fractures with
the ROBODOC System compared to conventional total hip replacement surgery would
offer an important benefit. The number of patients enrolled in our U.S. clinical
study is less than the 300 patients (150 ROBODOC System; 150 control group) we
initially requested to study in our investigational device exemption application
to the FDA. Nonetheless, over 3,300 primary surgeries have been performed with
the ROBODOC System in the U.S. clinical trial and the European treatment
population without a single reported intraoperative fracture. Since the observed
fracture rate in the control group in the U.S. clinical trial was lower than
anticipated, the data from this study are not sufficient to establish a
statistically significant reduction in intraoperative fractures compared to the
control group. Nevertheless, the data from both the U.S. and the European group
of patients suggest that the ROBODOC System reduces intraoperative fractures
when compared to the fracture rate of approximately 3 to 28 percent for
conventional surgery reported in the scientific and medical literature. However,
we cannot give you any assurance that the FDA will agree that the ROBODOC System
offers a clinically significant reduction in intraoperative fractures, in the
absence of a controlled trial demonstrating such a reduction, or that such a
reduction is of clinical benefit to patients.
The FDA has advised us that it believes long-term functional assessments are the
primary endpoints for evaluating the safety and effectiveness of the ROBODOC
System. Our preliminary review of the functional assessment data from the U.S.
clinical trial shows equivalence between the ROBODOC System and conventional
surgery. We believe that achieving better implant fit and alignment in the
femoral cavity are significant factors in the success of cementless total hip
replacement surgery, although the FDA has questioned whether fit is an
appropriate endpoint and has not addressed alignment.
Our most recent statistical analysis of fit and alignment parameters from
3-month radiographs showed that the ROBODOC System surgeries produced better fit
and alignment when compared to conventional surgeries. We believe a more
accurate fit of the prosthesis reflects the implant manufacturers' design goals
for implant cavity preparation. We also reviewed 24-month radiographs evaluating
prosthesis stability. We cannot give you any assurance that the FDA will accept
our data that demonstrates the ROBODOC System achieves better implant fit,
alignment and stability, or that the FDA will agree that better fit and
alignment are significant surgical endpoints. In addition, we cannot give you
any assurance that the FDA will agree that the greater surgery time and blood
loss associated with the ROBODOC System does not pose a significant safety
concern or create an unfavorable risk/benefit ratio. Further, we cannot give you
any assurance that the FDA will not require us to obtain additional clinical
data from a randomized, controlled trial to resolve any concern about the
risk/benefit ratio offered by the ROBODOC System. If we must obtain such
additional data, the FDA review process could be prolonged by several years.
In February 1995, a law firm specializing in FDA regulatory matters examined an
interim report of preliminary data and concluded that it was doubtful that the
FDA would find that the device was safe and effective for its intended use, or
provided a therapeutic benefit, sufficient to permit pre-market approval, if the
FDA were presented with the then existing preliminary data or future data
qualitatively similar to the preliminary data. We believe that the additional
data analyzed subsequent to the law firm's February 1995 report address many of
the concerns identified in that report. These
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data and analyses include non-radiographic clinical follow-up data from the U.S.
trial, preliminary analysis and review by an outside radiologist and an outside
biostatistician of 3-month, 12-month and 24-month radiographic films from the
U.S. clinical trial. We cannot give you any assurance that the data, once fully
analyzed and reviewed, will demonstrate that the ROBODOC System is safe and
effective for its intended use, provides a clinical benefit, or has an
acceptable risk/benefit ratio in light of increased surgery time and
intraoperative blood loss. In addition, our Director of Regulatory Affairs and
Quality Assurance resigned in September 1996 and subsequently asserted that one
of the reasons for his resignation was his concern, similar to that expressed in
the February 1995 law firm report, about the adequacy of our clinical data to
support product approval.
If the FDA concludes that the existing clinical data are insufficient to
establish the safety and efficacy of the ROBODOC System, the FDA could require
us to obtain additional clinical data from a randomized, controlled trial, which
could significantly delay completion of the pre-market approval review process,
and accordingly have a material adverse effect on our business, financial
condition and results of operations.
NO ASSURANCE OF APPROVALS; SUBSEQUENT REVIEW OF APPROVALS, ETC. We cannot give
you any assurance that any of our current or future products will obtain
required FDA approvals on a timely basis, or at all, or that we will have the
necessary resources to obtain such approvals. If any of our products are not
approved for use in the United States, we will be limited to marketing them in
foreign countries. Furthermore, approvals that have been or may be granted are
subject to continual review, and later discovery of previously unknown problems
can result in product labeling restrictions or withdrawal of the product from
the market.
ADVERSE EFFECT OF DELAYS OR LOSS OF APPROVALS. If we experience delays in the
receipt of, or fail to receive, FDA approvals or clearances, or lose any
previously received approvals or clearances, or the FDA imposes limitations on
intended use as a condition of such approvals or clearances, our business,
financial condition and results of operations could be materially and adversely
affected.
REQUIREMENT TO FOLLOW GOOD MANUFACTURING PRACTICES. Assuming we obtain the
necessary FDA approvals and clearances for our products, in order to maintain
such approvals and clearances we must, among other things, register our
establishment and list our devices with the FDA and with certain state agencies,
maintain extensive records, report any adverse experiences on the use of our
products and submit to periodic inspections by the FDA and certain state
agencies. The Food, Drug, and Cosmetic Act also requires devices to be
manufactured in accordance with the quality system regulation, which sets forth
good manufacturing practices requirements with respect to manufacturing and
quality assurance activities. The quality system regulation revises the previous
good manufacturing practices regulation and imposes certain enhanced
requirements that are likely to increase the cost of compliance, including
design controls.
MODIFICATIONS TO CLEARED DEVICES. We have made certain minor modifications to
the ORTHODOC and the NeuroMate System which we do not believe require the
submission of new 510(k) notices. However, we cannot give you any assurance that
the FDA would agree with any of our determinations not to submit a new 510(k)
notice for any of these changes or would not require us to submit a new 510(k)
notice for any of the changes made to the device. If the FDA requires us to
submit a new 510(k) notice for any device modification, we may be prohibited
from marketing the modified device until the 510(k) notice is cleared by the
FDA.
FOREIGN REGULATION. The introduction of our products in foreign markets has
subjected and will continue to subject us to foreign regulatory clearances,
which may be unpredictable and uncertain, and which may impose substantial
additional costs and burdens. The ROBODOC and NeuroMate Systems satisfy the
appropriate international electromedical safety standards and comply with the
requirements of the Electromagnetic Compatibility Directive, thus allowing us to
apply the CE Mark
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under the European Directives and to distribute the ROBODOC and NeuroMate
Systems throughout the European Union. Outside the European Union, 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. We cannot give you any
assurance that any of our products will receive further approvals or clearances,
if required on a timely basis, or at all.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY.
SUMMARY. Certain technology underlying our products is the subject of a United
States patent issued to IBM, which IBM has agreed not to enforce against the
manufacture and sale of the Company's products. We have been issued four U.S.
patents and filed seven patent applications covering various aspects of our
technology. Third party claims to the technology used in our products could, if
valid, require us to obtain licenses to the technology; those licenses may not
be available on acceptable terms. The technology used in our products could be
(a) disclosed by our employees despite their confidentiality obligations or (b)
independently developed or otherwise acquired by potential competitors.
GENERAL. Our ability to compete successfully may depend, in part, on our
ability to obtain and protect patents, protect trade secrets and operate without
infringing the proprietary rights of others. Our policy is to seek to protect
our proprietary position by, among other methods, filing U.S. and foreign patent
applications relating to our technology, inventions and improvements that are
important to the development of our business.
Our U.S. patents include
- Computer assisted software system for planning and performing hip
revision surgery
- Computer assisted system and method for creating cavities in the
femur that will accept a prosthesis
- Computer system and method for creating a pre-operative surgical
plan for hip replacement surgery
- Method for orienting real patient anatomy to a digital image of the
patient's anatomy
In addition, IBM has agreed not to assert infringement claims against us with
respect to an IBM patent relating to robotic medical technology, to the extent
such technology is used in our products. IBM has granted us a non-exclusive
royalty-free perpetual license for the underlying software code for the ROBODOC
System. Significant portions of the ROBODOC System and ORTHODOC software are
protected by copyrights.
We cannot give you any assurance that our pending or future patent applications
will mature into issued patents, or that we will continue to develop our own
patentable technologies. Further, we cannot give you any assurance that any
patents that may be issued to us effectively protect our technology or provide a
competitive advantage for our products or will not be challenged, invalidated,
or circumvented in the future. In addition, we cannot give you any assurance
that competitors, many of which have substantially more resources than us and
have made substantial investments in competing technologies, will not obtain
patents that will prevent, limit or interfere with our ability to make, use or
sell our products either in the United States or internationally.
SECRECY OF PATENT APPLICATIONS UNTIL PATENTS ISSUED. 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 we cannot give you any assurance that
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<PAGE> 11
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 that we use or propose to use.
ABSENCE OF INFRINGEMENT STUDY. Our patent counsel has not undertaken any
infringement study to determine if our products, patents and pending patent
applications infringe on other existing patents due to our belief that an
infringement study would not be cost-effective, nor offer sufficient protection
against potential infringement claims, if and when made. The medical device
industry has been characterized by substantial competition and litigation
regarding patent and other proprietary rights. We intend to vigorously protect
and defend our patents and other proprietary rights relating to our proprietary
technology. Litigation alleging infringement claims against us (with or without
merit), or instituted by us to enforce patents and to protect trade secrets or
know-how owned by us 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, we could be prevented from practicing
the subject matter claimed in such patents, or could be required to obtain
licenses from the patent owners of each patent, or to redesign our products or
processes to avoid infringement. We cannot give you any assurance that such
licenses would be available or, if available, would be available on terms
acceptable to us or that we would be successful in any attempt to redesign our
products or processes to avoid infringement. Accordingly, an adverse
determination in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent us from manufacturing and selling our products,
which would have a material adverse effect on our business, financial condition
and results of operations.
POSSIBILITY OF DISCLOSURE OR DISCOVERY OF PROPRIETARY INFORMATION. Although we
require each of our employees, consultants, and advisors to execute
confidentiality and assignment of inventions and proprietary information
agreements, we cannot give you any assurance that these agreements will provide
effective protection for our proprietary information in the event of
unauthorized use or disclosure of such information. Furthermore, we cannot give
you any assurance that our competitors will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our proprietary technology, or that we can meaningfully protect
our rights in unpatented proprietary technology.
LIMITED PRODUCTION EXPERIENCE. Our success will depends in part on our ability
to assemble our products in a timely, cost-effective manner and in compliance
with good manufacturing practices, and manufacturing requirements of other
countries, including the International Standards Organization 9000 standards and
other regulatory requirements. The assembly of our products is a complex
operation involving a number of separate processes and components. Our
production activities to date have consisted primarily of assembling limited
quantities of systems for use in clinical trials and systems for commercial
sale. We do not have experience in assembling our products in larger commercial
quantities. Furthermore, as a condition to receipt of pre-market approval, our
facilities, procedures and practices will be subject to pre-approval and ongoing
good manufacturing practices inspections by the 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.
We cannot give you any assurance that production yields, costs or quality will
not be adversely affected as we seek to increase production, and any such
adverse effect could have a material adverse effect on our business, financial
condition and results of operations.
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<PAGE> 12
DEPENDENCE ON SUPPLIER FOR ROBOT. Although we have multiple sources for most of
our components, parts and assemblies used in the ROBODOC and NeuroMate Systems,
we are dependent on Sankyo Seiki of Japan for the ROBODOC System robot arm and
Audemars-Piguet of Switzerland for the supply of the customized NeuroMate robot.
Although we can obtain the robot for either the ROBODOC System or the NeuroMate
System from other suppliers, with appropriate modifications and engineering
effort, we cannot give you any assurance that delays resulting from the required
modifications or engineering effort to adapt alternative components would not
have a material adverse effect on our business, financial condition and results
of operations.
RELIANCE ON FOREIGN SALES. Since we commenced operations, substantially all of
our sales have been to customers in Germany, Austria, France and Japan. We
believe that until such time, if ever, as we receive approval from the FDA to
market the ROBODOC System in the United States, substantially all of our sales
for the ROBODOC System will be derived from customers in foreign markets.
Foreign sales are subject to certain risks, including economic or political
instability, shipping delays, fluctuations in 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 our
business. To date, payment for substantially all ROBODOC Systems in Europe has
been fixed in U.S. Dollars. However, we cannot give you any assurance that in
the future customers will be willing to make payment for our products in U.S.
Dollars. If the U.S. Dollar strengthens substantially against the foreign
currency of a country in which we sell our products, the cost of purchasing our
products in U.S. Dollars would increase and may inhibit purchases of our
products by customers in that country. We are unable to predict the nature of
future changes in foreign markets or the effect, if any, they might have on us.
UNCERTAINTY CONCERNING THIRD PARTY REIMBURSEMENT. We expect that our ability to
successfully commercialize our products will depend significantly on the
availability of reimbursement for surgical procedures using our 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. Although we are not
aware of any potential customer that has declined to purchase the ROBODOC System
based upon third party reimbursement policies, cost control measures adopted by
third-party payors may have a significant effect on surgeries performed with the
ROBODOC System or as to the levels of reimbursement. We cannot give you any
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 our
products or our ability to sell our 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 we cannot predict the timing or effect of any such proposal. If third-party
payor coverage or reimbursement is unavailable or inadequate, our business,
financial condition and results of operation could be materially and adversely
affected.
DEPENDENCE ON KEY PERSONNEL. Our business and marketing plan was formulated by,
and is to be implemented under the direction of, Dr. Ramesh C. Trivedi, Chief
Executive Officer and President. Dr. Trivedi is employed pursuant to an
employment agreement that may be terminated by either Dr. Trivedi or us at any
time. If we terminate Dr. Trivedi's employment other than for cause, we must pay
him his monthly salary (currently, $23,320) for a period of 18 months following
the date of termination. We maintain key-man insurance on the life of Dr.
Trivedi. Our growth and future success also will depend in large part on the
continued contributions of key technical and senior management personnel, as
well as our ability to attract, motivate and retain highly qualified personnel
generally and, in particular, trained and experienced professionals capable of
developing, selling and
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<PAGE> 13
installing the Systems and training surgeons in their use. Competition for such
personnel is intense, and we cannot give you any assurance that we will be
successful in hiring, motivating or retaining such qualified personnel. None of
our executive or key technical personnel, other than Dr. Trivedi, is employed
pursuant to an employment agreement. 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 our
business, financial condition and results of operations.
OWNERSHIP OF SHARES BY MANAGEMENT. Our executive officers and directors own
(directly or indirectly) 1,065,792 shares of common stock, or approximately 20%
of the outstanding shares of common stock. Although these securityholders may or
may not agree on any particular matter that is the subject of a vote of the
stockholders, these securityholders may be effectively able to control the
outcome of any issues which may be subject to a vote of securityholders,
including the election of directors, proposals to increase the authorized
capital stock, or the approval of mergers, acquisitions, or the sale of all or
substantially all of our assets.
NEED FOR ADDITIONAL FINANCING. Although we believe that we have sufficient
funding to finance our operations through 1999, we cannot give you any assurance
that additional financing will not be needed at an earlier date. This will
depend upon our ability to generate sufficient sales of our products and the
timing of required expenditures. We cannot give you any assurance that if we
need additional financing in the future, such financing will be available on
acceptable terms, if at all.
PRODUCT LIABILITY. The manufacture and sale of medical products exposes us to
the risk of significant damages from product liability claims. Although we
maintain product liability insurance against product liability claims in the
amount of $5 million per occurrence and $5 million in aggregate, we cannot give
you any assurance that the coverage limits of our insurance policies will be
adequate or that such insurance can be maintained at acceptable costs. Although
we have not experienced any product liability claims to date, a successful claim
brought against us in excess of our insurance coverage could have a materially
adverse effect on our business, financial condition and results of operations.
LIMITATION ON DIRECTOR LIABILITY. Our certificate of incorporation provides
that a director shall not be personally liable to the company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
with certain exceptions under Delaware law. This may discourage stockholders
from bringing suit against a director for breach of fiduciary duty and may
reduce the likelihood of derivative litigation brought by stockholders on behalf
of the company against a director. In addition, our by-laws provide for
mandatory indemnification of directors and officers.
ABSENCE OF DIVIDENDS. Since inception, we have has not paid any dividends on
the common stock and do not anticipate paying such dividends in the foreseeable
future. We intend to retain earnings, if any, to finance our operations.
POSSIBLE VOLATILITY OF MARKET PRICE FOR THE COMMON STOCK. From time to time and
in particular during the last several months, 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. We believe that factors such as
announcement of developments related to our business, announcements of
technological innovations or new products by us or our competitors, sales of our
common stock in the public market, and shortfalls or changes in the our
financial results from analysts' expectations could cause the price of the
common stock to fluctuate substantially. Our operating results and various
factors affecting the medical device industry generally also may significantly
impact the market price of the common stock.
SHARES ELIGIBLE FOR FUTURE SALE. We cannot give you any assurance as to the
effect, if any, that future sales of common stock, or the availability of shares
of common stock for future sales, will
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<PAGE> 14
have on the market price of the common stock from time to time. Sales of
substantial amounts of common stock, or the possibility of such sales, could
adversely affect the market price of the common stock and also impair our
ability to raise capital through an offering of equity securities in the future.
As of December 1, 1998, there were 5,643,372 shares of common stock outstanding.
Except for 1,039,792 shares of common stock (representing approximately 18.4% of
the outstanding common stock) owned by EJ Financial Investments V, L.P., which
may be sold in accordance with the volume limitations of Rule 144, substantially
all of the outstanding shares of common stock are transferable without
restriction under the Securities Act. An additional
- 1,760,000 shares are issuable upon conversion of the Series A preferred
stock, at an assumed conversion price of $2.00 per share
- 2,274,066 shares are issuable upon exercise of warrants owned by IBM at
exercise prices ranging from $.01 to $.07
- 1,795,750 shares are issuable upon exercise of warrants issued in our
initial public offering at an exercise price of $6.00 per share
- 1,321,058 shares are issuable upon exercise of stock options granted
pursuant to our employee stock option plans at exercise prices ranging
from $.01 to $8.63 per share
- 482,000 shares are issuable upon exercise of warrants having exercise
prices ranging from $4.31 to $8.25 per share
Substantially all of such shares (other than the shares issuable upon exercise
of the warrants owned by IBM), when issued, may be immediately resold in the
public market pursuant to effective registration statements under the Securities
Act or pursuant to Rule 144. In April 1998, we amended the warrants owned by IBM
to permit IBM to exercise them without the payment of cash for a lesser number
of shares, based upon the difference between the market price of the common
stock at the time of exercise and the exercise price (a "cashless exercise"), in
which case such shares could be sold immediately under Rule 144 since under
applicable SEC interpretations, the holding period under Rule 144 for shares
acquired as a result of a cashless exercise of warrants includes the period for
which the selling shareholder owned the warrants.
Certain securityholders have agreed to limit the number of shares they may sell:
- IBM has agreed to limit sales of shares acquired upon exercise of its
warrants to the volume limitations of Rule 144, whether or not
applicable, and has granted us or our designee a right of first refusal
with respect to such sales.
- Former securityholders of Innovative Medical Machines International,
S.A., which we acquired in September 1997 in exchange for shares of
common stock, have agreed to limit future sales of shares under a
currently effective registration statement to the volume limitations of
Rule 144, except that during the period from December 6, 1998 through
March 5, 1999, they may sell an aggregate of 100,000 shares plus 1% of
the total number of shares of common stock traded on Nasdaq during the
preceding three month period.
We have granted registration rights to:
- The selling securityholders with respect to the shares of common stock
covered by this prospectus.
- IBM, EJ Financial Investments V,L.P and certain other institutional
investors owning or having the right to acquire 4,030,649 shares of
common stock. These investors have agreed that they will not exercise
these registration rights prior to May 21, 1999.
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<PAGE> 15
- Holders of warrants to purchase 150,000 shares of common stock issued in
connection with our European offering in November 1997 have demand and
piggyback registration rights for those shares.
- The holder of warrants to purchase 25,000 shares of common stock has
piggyback registration rights for those shares, fully subordinated to
the registration rights of our other securityholders.
DILUTIVE EFFECT OF CONVERSION OF SERIES A PREFERRED STOCK. The conversion of
the series A preferred stock at a discount to the then prevailing market price
of the common stock, at an assumed conversion price of $2.00 per share, would
result in the issuance of up to 1,760,000 shares of common stock, or
approximately 23.8% of the outstanding shares, and consequently could have an
immediately adverse effect on the market price of the Common Stock, and will
have a dilutive impact on other stockholders.
POSSIBLE ADVERSE EFFECT OF OTHER ISSUANCES OF PREFERRED STOCK. Our certificate
of incorporation authorizes the issuance of 1,000,000 shares of "blank check"
preferred stock, with designations, rights and preferences 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 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, since the terms of the preferred stock that might be
issued could effectively restrict our ability to consummate a merger,
reorganization, sale of all or substantially all of its assets, liquidation or
other extraordinary corporate transaction without the approval of the holders of
the preferred stock. The series A preferred stock is the only series of
preferred stock outstanding.
EFFECT OF ISSUANCE OF COMMON STOCK UPON EXERCISE OF WARRANTS AND OPTIONS. As of
December 1, 1998, there were outstanding options and warrants to purchase
5,872,874 shares of common stock
- 2,274,066 shares are issuable upon exercise of warrants owned by IBM
at exercise prices ranging from $.01 to $.07
- 1,795,750 shares are issuable upon exercise of warrants issued in
our initial public offering at an exercise price of $6.00 per share
- 1,321,058 shares are issuable upon exercise of stock options granted
pursuant to our employee stock option plans at exercise prices
ranging from $.01 to $8.63 per share
- 482,000 shares are issuable upon exercise of warrants having
exercise prices ranging from $4.31 to $8.25 per share
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) could have an
adverse effect on the market price of the Common Stock, and will have a dilutive
impact on other stockholders. Moreover, the terms upon which we 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 we would, in all likelihood, be able to obtain any
needed capital on terms more favorable than those provided in such warrants or
options.
ANTITAKEOVER PROVISIONS OF DELAWARE BUSINESS COMBINATION STATUTE. We are
subject to Section 203 of the Delaware General Corporation Law ("DGCL"), which
limits transactions between a publicly held company and "interested
stockholders" (generally, those stockholders who, together with their affiliates
and associates, own 15% or more of a company's outstanding capital stock). This
provision of the DGCL also may have the effect of deterring certain potential
acquisitions of the company.
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<PAGE> 16
SELLING SECURITYHOLDERS
The following table sets forth the names of the selling securityholders, the
number of shares of common stock beneficially owned by each selling
securityholder as of December 1, 1998, and the number of shares that each may
offer, and the number of shares of common stock beneficially owned by each
selling securityholder upon completion of the Offering, assuming all of the
shares offered are sold. The number of shares sold by each selling
securityholder may depend upon a number of factors, including, among other
things, the market price of the common stock. None of the selling
securityholders has, or within the past three years has had, any position,
office or other material relationship with us or any of our predecessors or
affiliates.
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED OFFERED IN THE BENEFICIALLY OWNED
BEFORE OFFERING(1) OFFERING(1) AFTER OFFERING
NAME OF SELLING -------------------- ---------------- ------------------
SECURITYHOLDER NUMBER PERCENT(2) NUMBER NUMBER PERCENT
--------------- ------- ---------- ---------------- ------- --------
<S> <C> <C> <C> <C> <C>
The Shaar Fund Ltd.(3).............. 297,020(4) 5.0%(5) 1,291,500(6) 0 --
AMRO International, S.A.(7)......... 297,020(4) 5.0%(5) 512,500(6) 0 --
Trinity Capital Advisors, Inc.(8)... 5,000(9) * 5,000 0 --
</TABLE>
- -------------------------
* Less than one percent (1%).
(1) Unless otherwise indicated, each person has sole investment and voting power
with respect to the shares indicated. For purposes of computing the
percentage of outstanding shares held by each selling securityholder on
December 1, 1998, any security which such person 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, 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 based upon 5,643,372 shares of common
stock outstanding.
(3) The address of the principal business office of the selling securityholder
is Citco Building, Wickhams Cay, P.O. Box 662, Road Town, Tortola B.V.I.
(4) Represents the maximum number of shares into which the series A preferred
stock may be converted, based upon an assumed conversion price of $2.00 per
share. The series A preferred stock is not convertible for any number of
shares of common stock in excess of that number which would (i) render a
selling securityholder the beneficial owner of more than five percent of the
then issued and outstanding shares of common stock, or (ii) result in the
issuance of an aggregate of 1,127,674 shares of common stock, representing
20% of the number of shares of common stock issued and outstanding on
September 10, 1998, the date upon which the series A preferred stock was
issued. The warrants are not exercisable until March 9, 1999.
(5) Calculated based upon 5,940,392 shares of common stock outstanding.
(6) Represents shares that may be acquired upon conversion of the series A
preferred stock, at an assumed conversion price of $2.00 per share, and upon
the exercise of warrants under a Preferred Stock Purchase Agreement dated as
of August 25, 1998.
(7) The address of the principal business office of the selling securityholder
is c/o Ultrafinance, Grossmunster Platz 26, Zurich CH 8022.
(8) The address of the principal business office of the selling securityholder
is 211 Sutter Street, Suite 2000, San Francisco, California 94104.
(9) These shares were acquired by the selling securityholder as a finder's fee
in connection with the issuance and sale of the series A preferred stock to
the other selling securityholders.
We are registering the shares for resale by the selling securityholders in
accordance with registration rights granted to the selling securityholders. We
will pay the registration and filing fees, printing expenses, listing fees, blue
sky fees, if any, and fees and disbursements of our counsel in connection with
this offering, but the selling securityholders will pay any underwriting
discounts, selling commissions and similar expenses relating to the sale of the
shares, as well as the fees and expenses of their counsel. In addition, we have
agreed to indemnify the selling securityholders, underwriters who may be
selected by the selling securityholders and certain affiliated parties, against
certain liabilities, including liabilities under the Securities Act, in
connection with the offering. The selling
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<PAGE> 17
securityholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities under the Securities Act. The selling
securityholders have agreed to indemnify us and our directors and officers, as
well as any person controlling the company, against certain liabilities,
including liabilities under the Securities Act. Insofar as indemnification for
liabilities under the Securities Act may be permitted to our directors or
officers, or persons controlling the company, we have been informed that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
PLAN OF DISTRIBUTION
The selling securityholders (or, subject to applicable law, their pledgees,
donees, distributees, transferees or other successors in interest)may sell
shares from time to time in public transactions, on or off The Nasdaq SmallCap
Market, or private transactions, at prevailing market prices or at privately
negotiated prices, including but not limited to the following types of
transactions:
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- a block trade in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this prospectus; and
- face-to-face transactions between sellers and purchasers without a
broker-dealer.
The selling securityholders also may sell shares that qualify under Section 4(1)
of the Securities Act or Rule 144.
In effecting sales, brokers or dealers engaged by the selling securityholders
may arrange for other brokers or dealers to participate in the resales. The
selling securityholders may enter into hedging transactions with broker-dealers,
and in connection with those transactions, broker-dealers may engage in short
sales of the shares. The selling securityholders also may sell shares short and
deliver the shares to close out such short positions, except that the selling
securityholders have agreed that they will not enter into any put option or
short position with respect to the common stock prior to the date of the
delivery of a conversion notice. The selling securityholders also may enter into
option or other transactions with broker-dealers which require the delivery to
the broker-dealer of the shares, which the broker-dealer may resell pursuant to
this prospectus. The selling securityholders also may pledge the shares to a
broker or dealer and upon a default, the broker or dealer may effect sales of
the pledged shares pursuant to this prospectus.
Brokers, dealers or agents may receive compensation in the form of commissions,
discounts or concessions from selling securityholders in amounts to be
negotiated in connection with the sale. The selling securityholders and any
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting
compensation.
Information as to whether underwriters who may be selected by the selling
securityholders, or any other broker-dealer, is acting as principal or agent for
the selling securityholders, the compensation to be received by underwriters who
may be selected by the selling securityholders, or any broker-dealer, acting as
principal or agent for the selling securityholders and the compensation to be
received by other broker-dealers, in the event the compensation of such other
broker-dealers is in excess of usual and customary commissions, will, to the
extent required, be set forth in a supplement to this prospectus. Any dealer or
broker participating in any distribution of the shares may be required to
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<PAGE> 18
deliver a copy of this prospectus, including a prospectus supplement, if any, to
any person who purchases any of the shares from or through such dealer or
broker.
We have advised the selling securityholders that during such time as they may be
engaged in a distribution of the shares they are required to comply with
Regulation M promulgated under the Securities Exchange Act. With certain
exceptions, Regulation M precludes any selling securityholder, any affiliated
purchasers and any broker-dealer or other person who participates in such
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the common stock.
LEGAL MATTERS
The validity of the shares of common stock offered hereby has been passed upon
by Snow Becker Krauss P.C., 605 Third Avenue, New York, New York 10158.
EXPERTS
The consolidated financial statements of Integrated Surgical Systems, Inc. at
December 31, 1997 and for the years ended December 31, 1996 and 1997, appearing
in our Annual Report (on Form 10-KSB) for the year ended December 31, 1997 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Registrant in connection with the issuance and
distribution of the securities being registered are estimated below:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 1,445.85
Listing fees................................................ 15,000.00
Legal fees and expenses..................................... 10,000.00
Printing expenses........................................... 5,000.00
Accounting fees............................................. 3,500.00
Miscellaneous............................................... 54.15
----------
Total............................................. $35,000.00
==========
</TABLE>
ITEM 15. 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
II-1
<PAGE> 20
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 maintains and has in effect such insurance.
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.
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 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 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
4.1 -- Preferred Stock Purchase Agreement, as amended.*
4.2 Certificate of Designations for Series A Convertible
-- Preferred Stock.*
4.3 -- Form of Warrant.*
4.4 -- Form of Registration Rights Agreement.*
5.1 -- Opinion of Snow Becker Krauss.*
23.1 -- Consent of Snow Becker Krauss P.C. (included in Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP, independent auditors.
</TABLE>
- ---------------
* Previously filed.
ITEM 17. 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 l0(a) (3) of the
Securities Act.
(ii) Reflect in the prospectus any facts or events which, individually
or in the aggregate, 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
II-2
<PAGE> 21
set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) For determining any liability under the Securities Act, each such
post-effective amendment shall be deemed a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time to be the initial bona fide offering thereof.
(3) Remove from registration by means of a post-effective amendment any of
the securities being registered that remain unsold at the termination
of the offering.
(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.
II-3
<PAGE> 22
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
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, hereunto
duly authorized, in the City of Davis, State of California, on December 14,
1998.
<TABLE>
<S> <C>
INTEGRATED SURGICAL SYSTEMS, INC.
By /s/ RAMESH C. TRIVEDI By: /s/ MARK W. WINN
------------------------------------------------
---------------------------------------------------- Mark W. Winn
Ramesh C. Trivedi Chief Financial Officer
Chief Financial Officer (Principal Financial and
and President (Principal Accounting Officer)
Executive Officer)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities indicated on December 14, 1998.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
/s/ RAMESH C. TRIVEDI Chief Executive Officer,
- --------------------------------------- President and Director
Ramesh C. Trivedi (Principal Executive Officer)
/s/ MARK W. WINN Chief Financial Officer
- --------------------------------------- (Principal Financial and
Mark W. Winn Accounting Officer
* Chairman of the Board of
- --------------------------------------- Directors
James C. McGroddy
* Director
- ---------------------------------------
John N. Kapoor
* Director
- ---------------------------------------
Paul A. H. Pankow
* Director
- ---------------------------------------
Gerald D. Knudson
Director
- ---------------------------------------
Patrick G. Hays
*By /s/ RAMESH C. TRIVEDI
--------------------------------------
Ramesh C. Trivedi
Attorney-in-fact
</TABLE>
II-4
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<C> <C> <S> <C>
4.1 -- Preferred Stock Purchase Agreement, as amended.*
4.2 Certificate of Designations for Series A Convertible
-- Preferred Stock.*
4.3 -- Form of Warrant.*
4.4 -- Form of Registration Rights Agreement.*
5.1 -- Opinion of Snow Becker Krauss.*
23.1 -- Consent of Snow Becker Krauss P.C. (included in Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP, independent auditors.
</TABLE>
- ---------------
* Previously filed
<PAGE> 1
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" in Amendment No. 1 to the Registration Statement (Form S-3 No.
333-66133) and related Prospectus of Integrated Surgical Systems, Inc. for the
registration of 1,809,000 shares of its common stock and to the incorporation by
reference therein of our report dated February 26, 1998, with respect to the
consolidated financial statements of Integrated Surgical Systems, Inc. included
in its Annual Report (Form 10-KSB) for the year ended December 31, 1997, filed
with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Sacramento, California
December 9, 1998
