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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-79473
3,902,929 SHARES
INTEGRATED SURGICAL SYSTEMS, INC.
COMMON STOCK
The selling securityholders named in this prospectus are offering and selling up
to 3,902,929 shares of the common stock of Integrated Surgical Systems, Inc.
They may acquire 3,840,000 of those shares upon conversion of series A and
series B preferred stock and 56,500 shares upon exercise of warrants.
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".
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 2 BEFORE PURCHASING THE COMMON STOCK.
Our executive offices are at 1850 Research Park Drive, Davis, California
95616-4884, and our telephone number is 530-792-2600.
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.
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THE DATE OF THIS PROSPECTUS IS JUNE 10, 1999
INFORMATION CONTAINED IN THIS PROSPECTUS 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.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Risk Factors................................................ 2
Forward Looking Statements.................................. 8
Selling Securityholders..................................... 9
Plan of Distribution........................................ 10
Information About Integrated Surgical Systems, Inc. ........ 12
Where You Can Find More Information......................... 12
Recent Developments......................................... 12
Legal Matters............................................... 14
Experts..................................................... 14
</TABLE>
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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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RISK FACTORS
WE HAVE A HISTORY OF OPERATING LOSSES AND THESE LOSSES MAY CONTINUE. We have
experienced significant losses since we began operations. We incurred net losses
of approximately $10.6 million for the year ended December 31, 1998 and
approximately $4.5 million for the year ended December 31, 1997 and a net loss
of approximately $2.6 million for the three months ended March 31, 1999 as
compared to a net loss of approximately $2.0 million for the three months ended
March 31, 1998. As a result of these losses, as of March 31, 1999, we had an
accumulated deficit of approximately $36.8 million. We will continue to incur
losses until such time, if ever, as we derive significant revenues from the sale
of our products.
OUR POTENTIAL FUTURE SUCCESS AND FINANCIAL PERFORMANCE WILL DEPEND ALMOST
ENTIRELY ON OUR ABILITY TO SUCCESSFULLY MARKET THE ROBODOC SYSTEM. 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. To
successfully market the ROBODOC System, we must commit substantial marketing
efforts, develop an effective sales and marketing organization, and expend
significant funds to inform potential customers, including hospitals and
physicians, of the distinctive characteristics and advantages of using the
ROBODOC System instead of traditional surgical tools and procedures. Since the
ROBODOC System employs innovative technology, rather than being an improvement
of existing technology, and represents a substantial capital expenditure, we
expect to encounter resistance to change, which we must overcome if the ROBODOC
System is to achieve significant market acceptance. Furthermore, our ability to
market the ROBODOC System in the United States is dependent upon approval by the
U.S. Food and Drug Administration. We cannot give you any assurance that we will
obtain FDA approval to market the ROBODOC System in the United States, or that
the ROBODOC System will achieve significant market acceptance in the United
States, Europe and other foreign markets to generate sufficient revenues to
become profitable.
ALTERNATIVES TO OUR PRODUCTS MAY AFFECT OUR POTENTIAL FUTURE SUCCESS. 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, recently entered the market
with 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 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.
WE NEED BUT HAVE NOT YET OBTAINED APPROVAL OF THE U.S. FOOD AND DRUG
ADMINISTRATION TO MARKET THE ROBODOC SYSTEM IN THE UNITED STATES. Before a new
medical device can be introduced into the U.S. market, the manufacturer must
obtain FDA permission to market through either the 510(k) pre-market
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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 with the FDA so that
we may incorporate our DigiMatch Single Surgery System, and possibly other
technical developments, as part of our pre-market approval application. 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.
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 4,000 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.
WE MAY NOT BE ABLE TO COMPLY WITH QUALITY SYSTEM AND OTHER FDA REPORTING AND
INSPECTION REQUIREMENTS. 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
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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.
WE MAY NOT BE ABLE TO OBTAIN REGULATORY APPROVALS NEEDED TO SELL OUR PRODUCTS IN
FOREIGN MARKETS. 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. 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. 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. Certain robotic medical 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 our products. We have
been issued four U.S. patents and filed seven patent applications covering
various aspects of our technology.
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
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.
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
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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.
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.
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 believe we can obtain a robot arm 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.
LENGTHY SALES CYCLE MAY CAUSE US TO RECOGNIZE THE SALES PRICE OF A SYSTEM IN A
SUBSEQUENT FISCAL QUARTER TO THE FISCAL QUARTER IN WHICH WE INCURRED RELATED
MARKETING AND SALES EXPENSES. 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 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
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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.
NEED FOR ADDITIONAL FINANCING. Our available cash resources, together with
anticipated cash flows from operations, may not be sufficient to continue our
operations at current levels without additional financing. We cannot give you
any assurance that such financing, if required, will be available on acceptable
terms, if at all. If we are unable to obtain such additional financing on
favorable terms, we may have to reduce or curtail certain activities.
EXPOSURE TO PRODUCT LIABILITY CLAIMS. 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.
WE MAY NOT BE ABLE TO RETAIN OUR KEY PERSONNEL OR HIRE THE ADDITIONAL PERSONNEL
WE NEED TO SUCCEED. 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 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 is
employed pursuant to an employment agreement. The loss of the services of 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.
IF WE CANNOT SATISFY NASDAQ'S MAINTENANCE REQUIREMENTS, IT MAY DELIST OUR COMMON
STOCK FROM ITS SMALLCAP MARKET. Our common stock is quoted on the Nasdaq
SmallCap Market. To continue to be listed, we are required to maintain net
tangible assets of $2,000,000 and our common stock must maintain a minimum bid
price of $1.00 per share. We may not be able to continue to satisfy those
requirements. If we are unable to satisfy Nasdaq's maintenance requirements, our
common stock may be delisted. If we are delisted and we are not then listed or
do not qualify for a listing on a stock exchange, our common stock would be
traded in the over-the-counter market and quoted in the NASD's "Electronic
Bulletin Board" or the "pink sheets." Consequently, it may be more difficult for
an investor to obtain price quotations for our common stock or to sell it.
IF OUR COMMON STOCK IS DELISTED, IT MAY BECOME SUBJECT TO THE SEC'S "PENNY
STOCK" RULES AND MORE DIFFICULT TO SELL. SEC rules require brokers to provide
information to purchasers of securities traded at less than $5.00 and not traded
on a national securities exchange or quoted on the Nasdaq Stock Market. If our
common stock becomes a "penny stock" that is not exempt from the SEC rules,
these disclosure requirements may have the effect of reducing trading activity
in our common stock and make it more difficult for investors to sell. The rules
require a broker-dealer to deliver a standardized risk disclosure document
prepared by the SEC that provides information about penny stocks and the nature
and level of risks in the penny market. The broker must also give bid and offer
quotations and broker and salesperson compensation information to the customer
orally or in writing before or with his confirmation. The SEC rules also require
a broker to make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction before a transaction in a penny stock.
POSSIBLE ADVERSE EFFECT OF FUTURE SALES OF COMMON STOCK ON THE MARKET PRICE OF
OUR COMMON STOCK. Sales of substantial amounts of common stock, or the
possibility of such sales, could adversely affect the market
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price of our common stock and also impair our ability to raise capital through
an offering of equity securities in the future. As of May 1, 1999, there were
5,965,719 shares of common stock outstanding. Except for 1,039,792 shares of
common stock (representing approximately 17.4% 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
- 3,840,000 shares are issuable upon conversion of the series A and series
B preferred stock, at an assumed conversion price of $1.00 per share.
The actual conversion price is computed by reference to 85% of the
lowest sale price of one share of common stock for the five trading days
preceding the date of conversion.
- 2,274,066 shares are issuable upon exercise of warrants owned by IBM at
exercise prices ranging from $.01 to $.07.
- 2,445,433 shares are issuable upon exercise of warrants issued in our
initial public offering at an exercise price of $4.68 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 $.07 to $8.63 per share.
- 477,069 shares are issuable upon exercise of warrants having exercise
prices ranging from $2.00 to $6.33 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, 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 in this
manner 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.
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.
- Holders of warrants to purchase 195,675 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 32,465 shares of common stock has
piggyback registration rights for those shares, fully subordinated to
the registration rights of our other securityholders.
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FORWARD LOOKING STATEMENTS
Some of the information in this prospectus and the documents we incorporate by
reference 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 discussed in
this prospectus 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.
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SELLING SECURITYHOLDERS
The table below sets forth the name and address of each selling securityholder,
the number of shares of common stock beneficially owned by each selling
securityholder as of May 1, 1999, the number of shares that each selling
securityholder may offer, and the number of shares of common stock beneficially
owned by each selling securityholder upon completion of this offering, assuming
all of the shares offered are sold. 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.
The selling securityholders are offering up to 3,902,929 by this prospectus.
- - 3,840,000 shares may be acquired upon conversion of the series A and series B
preferred stock, based upon an assumed conversion price of $1.00 per share.
The conversion price is computed by reference to 85% of the lowest sale price
of one share of common stock for the five trading days preceding the date of
conversion.
- - 56,500 shares may be acquired upon exercise of warrants.
- - 6,429 shares were acquired by one of the selling securityholders as a finder's
fee in connection with the sale of the series A and series B preferred stock
and warrants to the other selling securityholders.
The number of shares listed below as beneficially owned before the offering by
each selling securityholder owning series A and series B preferred stock has
been computed, in part, based upon the terms of the series A and series B
preferred stock, which provides that the number of shares that the selling
securityholders may acquire upon conversion may not exceed that number which
would render a selling securityholder the beneficial owner of more than five
percent of the then issued and outstanding shares of common stock. For purposes
of computing the number and percentage of shares beneficially owned by a selling
securityholder on May 1, 1999, any shares which such person has the right to
acquire within 60 days after such date are deemed to be outstanding, but those
shares are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other selling securityholder. On May 1, 1999, we had
5,965,719 shares of common stock outstanding.
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED OFFERED IN THE BENEFICIALLY OWNED
BEFORE OFFERING OFFERING AFTER OFFERING
-------------------- ---------------- ------------------
NAME AND ADDRESS OF SELLING SECURITYHOLDER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------------------------------ ------- ---------- ---------------- ------- --------
<S> <C> <C> <C> <C> <C>
Holders of Series A Preferred Stock and
Warrants:
The Shaar Fund Ltd...................... 313,985 5.0% 2,146,500 0 --
Citro Building,
Wickhams Cay,
P.O. Box 662,
Road Town, Tortola, B.V.I.
AMRO International, S.A. ............... 313,985 5.0% 737,500 0 --
c/o Ultrafinance,
Grossmunster Platz 26,
Zurich CH 8022
Holders of Series B Preferred Stock and
Warrants:
Austinvest Anstalt Balzers.............. 313,985 5.0% 379,687 0 --
Landstrasse 938 9494 Furstentums
Balzers, Liechtenstein
Esquire Trade & Finance Inc............. 313,985 5.0% 379,687 0 --
Trident Chambers
P.O. Box 146
Road Town, Tortola, B.V.I
</TABLE>
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<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED OFFERED IN THE BENEFICIALLY OWNED
BEFORE OFFERING OFFERING AFTER OFFERING
-------------------- ---------------- ------------------
NAME AND ADDRESS OF SELLING SECURITYHOLDER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------------------------------ ------- ---------- ---------------- ------- --------
<S> <C> <C> <C> <C> <C>
Guarantee & Finance Corp................ 151,876 2.5% 151,876 0 --
Vallarino P.H
Calle 52
Elzimo Mendez, Panama
Nesher, Inc............................. 101,250 1.7% 101,250 0 --
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Holder of Shares of Common Stock:
Trinity Capital Advisors, Inc. ......... 6,429 * 6,429 0 --
211 Sutter Street,
Suite 2000,
San Francisco, California 94104
</TABLE>
- -------------------------
* Less than one percent (1%).
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 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 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. They may sell their
shares in 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.
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The selling securityholders also may sell shares that qualify under Section 4(1)
of the Securities Act or Rule 144. As used in this prospectus, selling
securityholders include donees, pledgees, distributees, transferees and other
successors-in-interest of the selling securityholders named in this prospectus.
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 under 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 under 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 them, and the
compensation to be received by other broker-dealers, in the event such
compensation 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
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.
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<PAGE> 13
INFORMATION ABOUT INTEGRATED SURGICAL SYSTEMS, INC.
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.
WHERE YOU CAN FIND MORE INFORMATION
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,
1998 including any amendments to that report.
2. Proxy Statement dated March 27, 1999.
3. Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31,
1999, including any amendments to that report.
4. Current Report on Form 8-K dated April 28, 1999, including any
amendments to that report.
5. 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
SERIES C CONVERTIBLE PREFERRED STOCK FINANCING
On June 10, 1999, we sold 750 shares of series C convertible preferred stock and
warrants to purchase 9,375 shares of common stock to the selling securityholders
owning series A convertible preferred stock for a total purchase price of
$7,500. Subject to the limitations discussed below, the
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holders of the series C convertible preferred stock may convert their shares of
series C convertible preferred stock into shares of common stock
- commencing September 8, 1999 as to 187 shares
- commencing October 8, 1999 as to a cumulative total of 375 shares
- commencing November 7, 1999 as to a cumulative total of 562 shares
- commencing December 7, 1999, or such earlier date on which the market
price of a share of common stock exceeds $2.48, as to all 750 shares.
The conversion price of the series C convertible preferred stock is computed by
reference to 85% of the lowest sale price of a share of common stock on the
Nasdaq SmallCap Market during the five trading days preceding the date of
conversion. There is no minimum conversion price, but in no event may the
conversion price exceed $2.48. Assuming a conversion price of $1.00 per share,
holders of the series C convertible preferred stock could acquire 750,000 shares
of common stock upon conversion. The right of conversion is subject to the
following limitations:
1. The number of shares of common stock that the holder may acquire upon
conversion, together with shares beneficially owned by the holder and
its affiliates, may not exceed 5% of the total outstanding shares of
common stock.
2. The number of shares of common stock that the holders may acquire upon
conversion may not exceed 1,503,255 shares, until stockholders approve
the issuance upon conversion of more than that number of shares,
representing 19.99% of the shares outstanding on the date upon which
the series C convertible preferred stock was issued. This limitation is
required by the rules of The Nasdaq Stock Market, Inc. Until
stockholder approval is obtained, upon any request for conversion that,
together with prior conversions, would result in the issuance of more
than 1,503,255 shares of common stock but for this limitation, we will
be required to pay the holder requesting conversion an amount in cash
equal to the greater of (A) $1,500 per share of series C convertible
preferred stock we are unable to convert because of this limitation,
and (B) the number of shares of common stock in excess of 1,503,255
shares that would have been issued upon conversion but for this
limitation times the lowest sale price of a share of common stock
during the five trading days preceding the notice of conversion.
The conversion, or the potential conversion, of the series C convertible
preferred stock at a discount of approximately 15% of the then prevailing market
price of the common stock and the immediate resale of the shares of common stock
acquired upon conversion into the public market may depress the market price of
the common stock and will have a dilutive impact on other stockholders.
The warrants may be exercised at any time during the period commencing December
10, 1999 and ending December 9, 2003. The exercise price of the warrants is
$2.15 per share. The number of shares of common stock that the holder may
acquire upon exercise of the warrants, together with shares beneficially owned
by the holder and its affiliates, may not exceed 5% of the total outstanding
shares of common stock.
We have agreed to file a registration statement for the resale of the shares of
common stock that the holder may acquire upon conversion of the series C
convertible preferred stock and the exercise of the warrants.
In connection with the sale of the series C convertible preferred stock and
warrants, we reduced the exercise price of warrants to purchase 44,000 shares of
common stock issued as part of the sale of the series A convertible preferred
stock from $5.12 to $2.15 per share.
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<PAGE> 15
PROPOSED EQUITY FINANCING
On May 25, 1999, we entered into a letter of intent with a group of foreign
investors who would provide us with $4 million for approximately 2,922,000
shares ($1.36874 per share) of common stock, plus warrants to purchase
additional shares of common stock that would entitle the investors to acquire
40% of our fully diluted equity. The warrants would have a term of three years
and an initial exercise price of $1.02656 per share, but may not be exercised
prior to twelve months after their issuance.
The investor group would have the right to designate a majority of the members
of our Board of Directors. In furtherance of the proposed transaction, Dr.
Ramesh C. Trivedi, who resigned his positions as chief executive officer,
president, and a director on April 26, 1999, has rejoined us as chief executive
officer and president.
The proposed financing is subject to the negotiation and execution of final
agreements and approval of our stockholders.
As contemplated by the letter of intent, we also are negotiating a distribution
agreement that would give the distributor the exclusive right to distribute our
products in Europe, the Middle East and Africa. The distributor may or may not
be affiliated with the investors. Under the terms of the letter of intent, the
distributor would pay us a monthly royalty of $400,000 through the end of 2000,
offset by the purchase price or products that they purchase.
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.
appearing in Integrated Surgical Systems, Inc. Annual Report (Form 10-KSB) for
the year ended December 31, 1998 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
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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