<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1999
REGISTRATION NO. 333-83067
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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)
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<S> <C> <C>
DELAWARE 1850 RESEARCH PARK DRIVE 60-0232575
(STATE OR OTHER JURISDICTION OF DAVIS, CALIFORNIA 95616-4884 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) TELEPHONE: (530) 792-2600 IDENTIFICATION NO.)
TELECOPIER: (530) 792-2690
</TABLE>
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
-------------------------
MARK W. WINN
CHIEF FINANCIAL OFFICER
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. [ ]
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH MAXIMUM PROPOSED AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE MAXIMUM REGISTRATION
TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) FEE
- ------------------- ------------ --------------- ----------------- ------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value....... 2,121,635(2) $4.125(3) $8,751,744.38 $2,432.98
</TABLE>
- -------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933.
(2) Represents shares to be sold by the selling securityholders named herein,
including
- up to 750,000 shares that may be acquired upon conversion of the
Registrant's series C convertible stock, at an assumed conversion price
of $1.00 per share.
- up to 1,333,333 shares that may be acquired upon conversion of the
Registrant's series D convertible preferred stock, at an assumed
conversion price of $1.50 per share,
- 34,375 shares that may be acquired upon exercise of outstanding warrants.
- 3,927 shares previously acquired.
Also includes an indeterminate number of shares that the selling
securityholders may acquire as a result of a stock split, stock dividend or
similar transaction involving the common stock pursuant to the antidilution
provisions of the series C and series D convertible stock and the warrants.
Does not include additional shares that may be acquired by the selling
securityholders upon conversion of the series C and series D convertible
preferred stock attributable to the operation of the conversion price
formula set forth in the certificate of designations for those series due to
a decline in the market price of the common stock as a result of which the
conversion price is less than the assumed conversion prices set forth above.
(3) Calculated solely for the purpose of determining the registration fee
pursuant to rule 457(c) based upon the closing price of the common stock on
The Nasdaq SmallCap Market on July 9, 1999.
-------------------------
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.
<PAGE> 3
PRELIMINARY PROSPECTUS DATED SEPTEMBER 22, 1999
INTEGRATED SURGICAL SYSTEMS, INC.
COMMON STOCK
The selling securityholders named in this prospectus are offering and selling up
to 2,083,333 shares of our common stock that they may acquire upon conversion of
our series C and series D preferred stock and 34,375 shares they may acquire
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.
-------------------------
THE DATE OF THIS PROSPECTUS IS , 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.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Risk Factors................................................ 2
Forward Looking Statements.................................. 10
Selling Securityholders..................................... 11
Plan of Distribution........................................ 13
Information About Integrated Surgical Systems, Inc. ........ 15
Where You Can Find More Information......................... 15
Information Incorporated By Reference....................... 15
Legal Matters............................................... 15
Experts..................................................... 16
</TABLE>
-------------------------
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.
<PAGE> 5
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 $10.3 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 $4.7 million for the six months ended June 30, 1999 as
compared to a net loss of approximately $4.5 million for the six months ended
June 30, 1998. As a result of these losses, we had an accumulated deficit of
approximately $39.5 million as of June 30, 1999. 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.
Orto Maquet, a German manufacturer and major supplier of operating tables to
hospitals and physicians in Europe, has entered the market with a device
intended to compete with the ROBODOC System. Orto Maquet's system incorporates
pin-based registration and requires a second surgical procedure to place pins in
the patient's thigh bone prior to performing hip replacement surgery. Although
Orto Maquet offers a pre-surgical planning station, only our ROBODOC System
offers enhancements that allow the surgeon to plan and perform revision hip
surgery, the replacement of a previous hip implant. Orto Maquet has
relationships with hospitals and physicians throughout Europe as a supplier of
operating tables and has greater financial, marketing and distribution resources
than us. Several of our potential customers in Germany have decided to purchase
the Orto Maquet system instead of the ROBODOC System due to their preference for
doing business with a German company.
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,
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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 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.
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<PAGE> 7
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 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.
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
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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 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.
OUR PRODUCTION EXPERIENCE IS LIMITED.
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.
WE ARE DEPENDENT ON OUR SUPPLIER OF ROBOTS.
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.
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WE ARE DEPENDENT 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 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.
WE MAY NEED ADDITIONAL FINANCING FOR OUR OPERATIONS.
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.
WE ARE SUBJECT 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
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inability to hire or retain qualified personnel, could have a material adverse
effect on our business, financial condition and results of operations.
CONVERSION OF OUR PREFERRED STOCK AND SUBSEQUENT PUBLIC SALE OF OUR COMMON STOCK
WHILE ITS MARKET PRICE IS DECLINING MAY RESULT IN FURTHER DECREASES IN ITS
PRICE.
As of August 15, 1999, we had outstanding 5,940 shares of convertible preferred
stock. Each series of preferred stock has a stated value of $1,000 per share and
is convertible into common stock at a conversion price equal to 85% of the
lowest sale price of the common stock on the Nasdaq SmallCap Market over the
five trading days preceding the date of conversion. The number of shares of
common stock that may be acquired upon conversion is determined by dividing the
stated value of the number of shares of preferred stock to be converted by the
conversion price. The maximum conversion price for each series of preferred
stock remaining outstanding is as follows: Series B -- $3.063; Series
C -- $2.484; Series D -- $3.938 and Series E -- $5.063. There is no minimum
conversion price for any series of preferred stock. Consequently, there is no
limit on the number of shares of Common Stock that may be issued upon
conversion. At an assumed conversion price of $2.50 per share, 2,376,000 shares
of common stock, or approximately 26.6% of the 8,928,513 shares outstanding as
of August 20, 1999, may be acquired by the holders of the 5,940 shares of
preferred stock outstanding as of that date. The number of shares of common
stock that may be acquired based upon assumed conversion prices of $3.00, $2.00
and $1.00, is as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES OF COMMON STOCK
SHARES OF THAT MAY BE ACQUIRED UPON CONVERSION OF
PREFERRED STOCK PREFERRED STOCK AT ASSUMED CONVERSION PRICE OF
SERIES OF OUTSTANDING AT ------------------------------------------------
PREFERRED STOCK AUGUST 15, 1999 $3.00 $2.00 $1.00
- --------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
A None -- -- --
B 190 63,333 95,000 190,000
C 750 250,000 375,000 750,000
D 2,000 666,667 1,000,000 2,000,000
E 3,000 1,000,000 1,500,000 3,000,000
----- --------- --------- ---------
Total 5,940 1,980,000 2,970,000 5,940,000
===== ========= ========= =========
</TABLE>
The number of shares of common stock that the holders of the preferred stock may
acquire upon conversion will increase as the market price of the common stock
declines below the assumed prices in the above table, and our existing
stockholders will experience substantial dilution in their percentage ownership
of our common stock. Furthermore, the holders of the preferred stock may sell at
market price the shares of common stock they have acquired upon conversion at a
15% discount to prevailing market prices concurrently with, or shortly after,
conversion, realizing a profit equal to the difference between the market price
and the discounted conversion price. The holders of the preferred stock also
could engage in short sales of our common stock, after delivering a notice of
conversion to us, which could contribute to a decline in the market price of the
common stock and give them the opportunity to profit from that decrease by
covering their short position with shares acquired upon conversion at a 15%
discount to the prevailing market price. The conversion of the preferred stock
and subsequent sale of the common stock acquired upon conversion during periods
when the market price of the common stock declines, or the possibility of such
conversions and sales, may exacerbate the decline or impede increases in the
market price of the common stock.
OTHER ISSUANCES OF PREFERRED STOCK COULD ADVERSELY AFFECT EXISTING HOLDERS OF
OUR COMMON STOCK.
Under our certificate of incorporation, our Board of Directors may, without
further stockholder approval, issue up to an additional 989,730 shares of
preferred stock with dividend, liquidation, conversion, voting or other rights
that could adversely affect the voting power or other rights of the holders of
common stock. We could use new classes of preferred stock as a method of
discouraging, delaying or preventing a change in persons that control us. In
particular, the terms of the preferred stock could effectively restrict our
7
<PAGE> 11
ability to consummate a merger, reorganization, sale of all or substantially all
of our assets, liquidation or other extraordinary corporate transaction without
the approval of the holders of the preferred stock. We could also create a class
of preferred stock with rights and preferences similar to those of our
outstanding convertible preferred stock, which could result in substantial
dilution to holders of our common stock or adversely affect its market price.
CONVERSION OF OUR OUTSTANDING PREFERRED STOCK AND THE EXERCISE OF OUR
OUTSTANDING WARRANTS AND STOCK OPTIONS AND SUBSEQUENT PUBLIC SALE OF OUR COMMON
STOCK WILL RESULT IN SUBSTANTIAL DILUTION TO EXISTING STOCKHOLDERS.
As of August 20, 1999, we had outstanding 8,928,513 shares of common stock. An
additional
- 2,376,000 shares may be acquired upon conversion of our outstanding
preferred stock at an assumed conversion price of $2.50 per share
- 5,385,174 shares may be acquired upon exercise of outstanding warrants
- 1,324,570 shares may be acquired upon exercise of outstanding stock
options.
If all of the outstanding preferred stock was converted at an assumed conversion
price of $2.50 per share, and all outstanding warrants and stock options were
exercised, the number of outstanding shares of common stock would increase by
9,085,744 shares, representing approximately 102% of the outstanding common
stock as of August 20, 1999. If this occurs, existing stockholders will
experience substantial dilution in their percentage ownership of our common
stock.
ADDITIONAL FINANCING FOR OUR OPERATIONS COULD ADVERSELY AFFECT HOLDERS OF OUR
COMMON STOCK.
We are seeking additional financing for our operations. To obtain that
financing, we may issue common stock or debt or equity securities convertible
into shares of common stock. Any additional financing may result in substantial
dilution to current holders of our common stock.
SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK, OR THE POSSIBILITY OF SUCH
SALES, MAY HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK AND
IMPAIR OUR ABILITY TO RAISE CAPITAL THROUGH AN OFFERING OF EQUITY SECURITIES IN
THE FUTURE.
As of August 20, 1999, there were 8,928,513 shares of common stock outstanding.
Except for 1,039,792 shares of common stock (representing approximately 11.65%
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. In addition,
- An indeterminate number of shares may be acquired upon conversion of our
outstanding convertible preferred stock. As of August 20, 1999, we had
outstanding the following shares of convertible preferred stock:
<TABLE>
<S> <C> <C>
series B: 190
series C: 750
series D: 2,000
series E: 3,000
</TABLE>
Each series of preferred stock has a stated value of $1,000 per share
and is convertible into common stock at a conversion price equal to 85%
of the lowest sale price of the common stock on the Nasdaq SmallCap
Market over the five trading days preceding the date of conversion. The
number of shares of common stock that may be acquired upon conversion is
determined by
8
<PAGE> 12
dividing the stated value of the number of shares of preferred stock to
be converted by the conversion price. The maximum conversion price for
each series is:
<TABLE>
<S> <C> <C>
series B: $3.063
series C: $2.484
series D: $3.938
series E: $5.063
</TABLE>
There is no minimum conversion price. At an assumed conversion price of
$2.50 per share, holders of our outstanding convertible stock could
acquire 2,376,000 shares of common stock, or approximately 26.6% of our
outstanding shares. The number of shares that may be acquired upon
conversion of the preferred stock will increase if the market price of
the common stock declines below the assumed conversion price.
- 2,274,066 shares may be acquired upon exercise of warrants owned by IBM
at exercise prices ranging from $.01 to $.07.
- 2,190,209 shares may be acquired upon exercise of warrants issued in our
initial public offering at an exercise price of $4.60 per share.
- 920,899 shares may be acquired upon exercise of warrants having exercise
prices ranging from $1.83 to $6.16 per share.
- 1,324,570 shares may be acquired upon exercise of stock options granted
pursuant to our stock option plans at exercise prices ranging from $.07
to $8.63 per share.
Substantially all of such shares, when issued, may be immediately resold in the
public market pursuant to effective registration statements under the Securities
Act or pursuant to Rule 144.
We have granted registration rights to:
- holders of our convertible preferred stock with respect to the shares of
common stock they may acquire upon conversion.
- IBM, EJ Financial Investments V,L.P. and certain other institutional
investors owning or having the right to acquire 3,616,465 shares of
common stock.
- Holders of warrants to purchase 200,480 shares of common stock issued in
connection with our European offering in November 1997 have demand and
piggyback registration rights for those shares.
- The holders of warrants to purchase 83,229 shares of common stock have
piggyback registration rights for those shares.
If our securityholders sell publicly a substantial number of shares issued on
the exercise of outstanding options and warrants or on the conversion of our
convertible preferred stock, then the market price of our common stock may
decline. Public perception that those sales will occur may also adversely affect
the price of our common stock. Furthermore, the existence of securities of this
type may exert downward pressure on an issuer's stock price. A decline in the
price of our common stock may also impair our ability to raise capital through
the sale of equity securities.
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.
The conversion of our convertible preferred stock may have consequences that
could cause Nasdaq to delist our common stock. The conversion of our preferred
stock and resale of the common stock acquired
9
<PAGE> 13
upon conversion, or the possibility of the conversion of our preferred stock and
resale of our common stock, may depress or inhibit increases in the market price
of our common stock. As a result, the minimum bid price for our common stock may
decline below $1.00. Nasdaq also may delist our common stock if it deems it
necessary to protect investors and the public interest. If Nasdaq determines
that the returns on our convertible preferred stock are excessive compared with
the returns received by the holders of our common stock, and those excess
returns were egregious, Nasdaq could delist our common stock.
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.
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.
10
<PAGE> 14
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 August 20, 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 number of shares listed below as beneficially owned before the offering by
each selling securityholder owning series C and series D preferred stock has
been computed, without giving effect to the terms of the series C and series D
preferred stock, which provide 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, or result in
the issuance of more than an aggregate of 1,503,255 shares upon conversion of
the Series C preferred stock or more than an aggregate of 1,706,814 shares upon
conversion of the series D preferred stock, on the date that series of preferred
stock was issued.
On August 20, 1999, we had 8,928,513 shares of common stock outstanding. For
purposes of computing the number and percentage of shares beneficially owned by
a selling securityholder on August 20, 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.
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
COMMON STOCK COMMON STOCK COMMON STOCK
OWNED OFFERED IN THE BENEFICIALLY OWNED
BEFORE OFFERING(1) OFFERING AFTER OFFERING
---------------------- ---------------- -------------------
NAME AND ADDRESS OF SELLING SECURITYHOLDER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------------------------------ --------- ---------- ---------------- -------- --------
<S> <C> <C> <C> <C> <C>
Holder of series C and series D preferred
stock and warrants:
The Shaar Fund Ltd.(2)................. 1,896,083 17.5% 1,864,583(3) 31,500(4) *
Citro Building,
Wickhams Cay,
P.O. Box 662,
Road Town, Tortola, B.V.I.
Holder of Series C preferred stock and
warrants:
AMRO International, S.A.(5) ........... 595,625 6.3% 253,125(6) 342,500(7) 3.7%
c/o Ultrafinance,
Grossmunster Platz 6,
Zurich CH 8022
Holder of shares of Common Stock:
Trinity Capital Advisors, Inc. ........ 14,640 * 3,927 10,713 *
211 Sutter Street,
Suite 2000,
San Francisco, California 94104
</TABLE>
- -------------------------
* Less than one percent (1%).
1. The information presented in the table does not give effect to the terms of
the certificate of designations for the series C and series D preferred stock
and the warrants that limit the number of shares that any holder may acquire
upon conversion or exercise of these securities to 5.0% of the then issued
and outstanding shares of common stock.
11
<PAGE> 15
2. Shaar Investment Advisory Services N.V. is the investment advisor for The
Shaar Fund Ltd. InterCaribbean Services Ltd., a subsidiary of Citco Fund
Services, is the sole director of the fund. Luc Hollman, managing director of
the advisor, has sole voting and dispositive power with respect to shares
owned by The Shaar Fund Ltd.
3. Represents the number of shares that the selling securityholder may acquire
upon exercise of warrants to purchase 31,250 shares of common stock and
conversion of 500 shares of series C preferred stock at an assumed conversion
price of $1.00 per share and 2,000 shares of series D preferred stock at an
assumed conversion price of $1.50 per share. The actual conversion price is
85% of the lowest sale price of a share of common stock for the five trading
days preceding the date of conversion. The number of shares of common stock
that the selling securityholder may acquire upon conversion is equal to the
number of shares of preferred stock to be converted times $1,000, the stated
value of each share of preferred stock, divided by the conversion price. The
maximum conversion price of the series C preferred stock is $2.484 and the
maximum conversion price of the series D preferred stock is $3.938. Since
there is no minimum conversion price, if the market price of the common stock
declines below the assumed conversion price, the number of shares that the
selling securityholder may acquire upon conversion will increase. If
following a sustained increase in the market price of the common stock
sufficient to offset the 15% discount used in computing the conversion price
the conversion price is higher than the assumed conversion price, the number
of shares that the selling securityholder may acquire will decrease. The
number of shares that the selling securityholder may acquire upon conversion
of the series C and series D preferred stock at an assumed conversion price
of $1.00, $2,00 and $3.00 is:
<TABLE>
<CAPTION>
SERIES OF
PREFERRED NUMBER OF NUMBER OF SHARES OF COMMON STOCK THAT MAY BE ACQUIRED UPON
STOCK PREFERRED SHARES CONVERSION AT AN ASSUMED CONVERSION PRICE OF
- --------- ---------------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1.00 $ 2.00 $ 3.00
---------- ---------- --------
C 500 500,000 250,000 166,667
D 2,000 2,000,000 1,000,000 666,667
---------- ---------- --------
Total 2,500 2,500,000 1,250,000 833,334
===== ========== ========== ========
</TABLE>
4. Represents shares that may be acquired upon exercise of warrants.
5. Hans Ulrich Bachofen and Michael Klee share voting and dispositive power with
respect to shares owned by AMRO International, S.A.
6. Represents the number of shares that the selling securityholder may acquire
upon exercise of warrants to purchase 3,125 shares of common stock and
conversion of 250 shares of series C preferred stock at an assumed conversion
price of $1.00 per share. The actual conversion price is 85% of the lowest
sale price of a share of common stock for the five trading days preceding the
date of conversion. The number of shares of common stock that the selling
securityholder may acquire upon conversion is equal to the number of shares
of preferred stock to be converted times $1,000, the stated value of each
share of preferred stock, divided by the conversion price. The maximum
conversion price of the series C preferred stock is $2.484. Since there is no
minimum conversion price, if the market price of the common stock declines
below the assumed conversion price, the number of shares that the selling
securityholder may acquire upon conversion will increase. If following a
sustained increase in the market price of the common stock sufficient to
offset the 15% discount used in computing the conversion price the conversion
price is higher than the assumed conversion price, the number of shares that
the selling securityholder may acquire will decrease. If the conversion price
is
- $2.00 per share, instead of $1.00 per share, the selling securityholder
only may acquire 125,000 shares of common stock
- $3.00 per share, instead of $1.00 per share, the selling securityholder
only may acquire 166,667 shares of common stock.
12
<PAGE> 16
7. Includes 22,500 shares that may be acquired upon exercise of warrants and
320,000 shares that may be acquired upon conversion of the series E preferred
stock at an assumed conversion price of $2.50 per share.
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.
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
13
<PAGE> 17
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.
14
<PAGE> 18
INFORMATION ABOUT 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)
WHERE YOU CAN FIND MORE INFORMATION
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,
1998, including any amendments to that report.
2. Proxy Statement dated March 27, 1999.
3. Quarterly Reports on Form 10-QSB for the fiscal quarters ended March
31, 1999 and June 30, 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
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.
15
<PAGE> 19
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated financial
statements included in our Annual Report on Form 10-KSB for the year ended
December 31, 1998, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
consolidated financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
16
<PAGE> 20
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Company in connection with the issuance and
distribution of the securities being registered are estimated below:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 2,432.98
Listing fees................................................ 15,000.00
Legal fees and expenses..................................... 10,000.00
Printing expenses........................................... 5,000.00
Accounting fees............................................. 3,500.00
Miscellaneous............................................... 1,067.02
----------
Total............................................. $37,000.00
==========
</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.
II-1
<PAGE> 21
Finally, Article 6.7 of the Registrant's by-laws provides that the Registrant
may maintain insurance, at its expense, to reimburse itself and directors and
officers of the Registrant and of its direct and indirect subsidiaries against
any expense, liability or loss, whether or not the Registrant would have the
power to indemnify such persons against such expense, liability or loss under
the provisions of Article VI of the by-laws. The Registrant 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.
II-2
<PAGE> 22
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
4.1* -- Form of Series C Preferred Stock Purchase Agreement
4.2* -- Form of Series D Preferred Stock Purchase Agreement
4.3* -- Certificate of Designations for Series C Convertible
Preferred Stock (included as Exhibit A to Exhibit 4.1)
4.4* -- Certificate of Designations for Series D Convertible
Preferred Stock (included as Exhibit A to Exhibit 4.2)
4.5* -- Form of warrant issued in connection with the Series C
Convertible Preferred Stock financing (included as Exhibit B
to Exhibit 4.1)
4.6* -- Form of warrant issued in connection with the Series D
Convertible Preferred Stock financing (included as Exhibit B
to Exhibit 4.2)
4.7* -- Form of Registration Rights Agreement for the Series C
Convertible Preferred Stock financing (included as Exhibit C
to Exhibit 4.1)
4.8* -- Form of Registration Rights Agreement for the Series D
Convertible Preferred Stock financing (included as Exhibit C
to Exhibit 4.2)
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.
24.1* -- Power of Attorney (included in signature page of original
filing of registration statement)
</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
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.
II-3
<PAGE> 23
(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-4
<PAGE> 24
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 September 21,
1999.
<TABLE>
<S> <C>
INTEGRATED SURGICAL SYSTEMS, INC.
By: /s/ RAMESH C. TRIVEDI By: /s/ MARK W. WINN
------------------------------------------------- -------------------------------------------------
Ramesh C. Trivedi Mark W. Winn
Chief Executive Officer and President Chief Financial Officer
(Principal Executive Officer) (Principal Financial and
Accounting 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 September 21, 1999.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
/s/ RAMESH C. TRIVEDI Chief Executive Officer and President
--------------------------------------- (Principal Executive Officer)
Ramesh C. Trivedi
/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/ MARK W. WINN
---------------------------------------
Mark W. Winn
Attorney-in-fact
</TABLE>
II-5
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<C> <C> <S> <C>
4.1* -- Form of Series C Preferred Stock Purchase Agreement
4.2* -- Form of Series D Preferred Stock Purchase Agreement
4.3* -- Certificate of Designations for Series C Convertible
Preferred Stock (included as Exhibit A to Exhibit 4.1).
4.4* -- Certificate of Designations for Series D Convertible
Preferred Stock (included as Exhibit A to Exhibit 4.2).
4.5* -- Form of warrant issued in connection with the Series C
Convertible Preferred Stock financing (included as Exhibit C
to Exhibit 4.1).
4.6* -- Form of warrant issued in connection with the Series D
Convertible Preferred Stock financing (included as Exhibit C
to Exhibit 4.2).
4.7* -- Form of Registration Rights Agreement for the Series C
Convertible Preferred Stock financing (included as Exhibit D
to Exhibit 4.1).
4.8* -- Form of Registration Rights Agreement for the Series D
Convertible Preferred Stock financing (included as Exhibit D
to Exhibit 4.2).
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.
24.1* -- Power of attorney (included on signature page of original
filing of registration statement)
</TABLE>
- ---------------
* Previously filed
II-6
<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 on Form S-3
(Registration No. 333-83067) and related Prospectus of Integrated Surgical
Systems, Inc. for the registration of 2,121,635 shares of its common stock and
to the incorporation by reference therein of our report dated February 12,
1999, 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, 1998, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Sacramento, California
September 21, 1999
