<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
INTEGRATED SURGICAL SYSTEMS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1:
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check boxes if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
INTEGRATED SURGICAL SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 12, 2000
To the Stockholders of Integrated Surgical Systems, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of
Integrated Surgical Systems, Inc., a Delaware corporation (the "Company"), will
be held at 9:00 a.m. on Tuesday, December 12, 2000, at the Company's executive
offices, 1850 Research Park Drive, Davis, California 95616-4884 for the
following purposes:
1. To elect three (3) Directors of the Company to serve until the next
annual meeting of stockholders and until their successors are duly
elected and qualified.
2. To approve amendments to the Company's Restated Certificate of
Incorporation and Bylaws to eliminate cumulative voting rights with
respect to the election of Directors.
3. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized capital stock of the Company
by increasing the number of authorized shares of Common Stock from 50
million to 100 million shares.
4. To approve the issuance under an equity line of credit agreement of
more than 3,843,939 shares of Common Stock, representing 19.9% of the
outstanding shares of Common Stock on the date the Company entered
into the equity line of credit agreement, as required by Nasdaq
rules.
5. To approve the adoption of the Company's 2000 Long-Term Performance
Plan.
6. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 2000.
7.To approve the issuance upon conversion of Series H Convertible
Preferred Stock of more than 3,494,298 shares of Common Stock, as
required by Nasdaq rules.
8. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
Only stockholders of record at the close of business on October 23, 2000
are entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.
A list of stockholders entitled to vote at the Annual Meeting will be open
to examination by any stockholder for any purpose germane to the meeting, at the
executive offices of the Company, 1850 Research Park Drive, Davis, California
95616-4884, for a period of ten days prior to the Annual Meeting. Such list also
shall be available during the Annual Meeting.
By Order of the Board of Directors
LOUIS KIRCHNER
Secretary
Davis, California
November 8, 2000
IMPORTANT:
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF
DIRECTORS OF THE COMPANY, AND RETURN IT TO THE COMPANY. THE PROXY MAY BE REVOKED
AT ANY TIME BEFORE IT IS VOTED, AND STOCKHOLDERS EXECUTING PROXIES MAY ATTEND
THE MEETING AND VOTE IN PERSON SHOULD THEY SO DESIRE.
<PAGE> 3
INTEGRATED SURGICAL SYSTEMS, INC.
1850 RESEARCH PARK DRIVE
DAVIS, CALIFORNIA 95616-4884
(530) 792-2600
------------------------
PROXY STATEMENT
------------------------
The Board of Directors of Integrated Surgical Systems, Inc. (the "Company")
presents this Proxy Statement and the enclosed proxy card to all stockholders
and solicits their proxies for the Annual Meeting of Stockholders to be held at
9:00 a.m. on Tuesday, December 12, 2000 at the Company's executive offices, 1850
Research Park Drive, Davis, California 95616-4884. The record date of this proxy
solicitation is October 23, 2000. All proxies duly executed and received will be
voted on all matters presented at the Annual Meeting in accordance with the
instructions given by such proxies. In the absence of specific instructions,
proxies so received will be voted FOR the named nominees for election to the
Company's Board of Directors (Proposal 1), FOR the approval of amendments of the
Company's Restated Certificate of Incorporation and Bylaws eliminating
cumulative voting rights with respect to the election of Directors (Proposal 2),
FOR the approval of an amendment to the Company's Restated Certificate of
Incorporation increasing the number of shares of Common Stock the Company is
authorized to issue to 100 million shares (Proposal 3), FOR the approval of the
issuance under an equity line of credit agreement of more than 3,843,939 shares
of Common Stock, representing 19.9% of the outstanding shares of Common Stock on
the date the Company entered into the line of credit agreement, as required by
the Nasdaq Stock Market, Inc. (Proposal 4), FOR the approval of the adoption of
the Company's 2000 Long-Term Performance Plan (Proposal 5), FOR the ratification
of the appointment of Ernst & Young LLP as the Company's independent auditors
for the year ending December 31, 2000 (Proposal 6) and FOR the approval of the
issuance upon conversion of Series H Convertible Preferred Stock of more than
3,494,298 shares of Common Stock, as required by Nasdaq rules (Proposal 7). The
Board of Directors does not anticipate that any of its nominees will be
unavailable for election and does not know of any matters that may be brought
before the Annual Meeting other than those listed in the Notice of Annual
Meeting.
In the event that any other matter should come before the Annual Meeting or
that any nominee is not available for election, the persons named in the
enclosed proxy will have discretionary authority to vote all proxies not marked
to the contrary with respect to such matter in accordance with their best
judgment. A proxy may be revoked at any time before being voted by sending a new
proxy bearing a later date or a revocation notice to the Company at the above
address, attn: Secretary, or by notifying the Secretary of the Company at the
Annual Meeting. The Company is soliciting these proxies and will pay the entire
expense of solicitation which will be made by use of the mails. This Proxy
Statement is being mailed on or about November 8, 2000.
The total number of shares of Common Stock, $.01 par value ("Common
Stock"), of the Company outstanding as of October 23, 2000, was 21,495,527
shares. The Common Stock is the only outstanding class of securities of the
Company entitled to vote. Each share of Common Stock has one vote. Only
stockholders of record as of the close of business on October 23, 2000 will be
entitled to vote at the Annual Meeting or any adjournments thereof.
The affirmative vote by holders of a plurality of the votes cast for the
election of directors at the Annual Meeting is required for the election of
Directors. In voting for directors, a stockholder is entitled to cast three
votes for each share of Common Stock held, one for each of three directors. A
stockholder may cast his votes evenly for all nominees or may cumulate these
votes and cast them for one nominee or distribute them among two or more
nominees.
The affirmative vote of a majority of the outstanding shares of Common
Stock is required for approval of the amendments to the Restated Certificate of
Incorporation and Bylaws to eliminate cumulative voting, and for approval of the
amendment to the Restated Certificate of Incorporation to increase the
authorized capital
<PAGE> 4
stock of the Company by increasing the number of authorized Shares of Common
Stock from 50 million to 100 million shares. The affirmative vote by the
majority of the votes present at the Annual Meeting and entitled to vote is
required to approve the issuance of more than 3,843,939 shares of Common Stock
under the equity line of credit agreement, to approve the adoption of the
Company's 2000 Long-Term Performance Plan, to ratify the appointment of Ernst &
Young LLP, and to approve the issuance of more than 3,494,298 shares of Common
Stock upon conversion of Series H Convertible Preferred Stock. All proxies will
be counted for determining the presence of a quorum. Votes withheld in
connection with the election of one or more nominees for Director will not be
counted as votes cast for such individuals and shares represented by proxies
which are marked "abstain" for any other Proposal on the proxy card and proxies
which are marked to deny discretionary authority on all other matters will only
be counted for the purpose of determining the presence of a quorum on such
proposals. In addition, where brokers are prohibited from exercising
discretionary authority for beneficial owners who have not provided voting
instructions (commonly referred to as "broker non-votes"), those shares will not
be included in the vote totals.
A list of stockholders entitled to vote at the Annual Meeting will be
available at the Company's executive offices, 1850 Research Park Drive, Davis,
California 95616-4884 during business hours, for a period of ten (10) days prior
to the Annual Meeting for examination by any stockholder. Such list shall also
be available at the Annual Meeting.
CHANGE IN CONTROL
On December 14, 1999, the Company issued and sold to ILTAG International
Licensing Holding S.A.L. ("ILTAG"), Bernd Herrmann and Urs Wettstein an
aggregate of 2,922,396 shares of Common Stock and three-year warrants to
purchase an additional 11,700,000 shares of Common Stock pursuant to a Stock and
Warrant Purchase Agreement dated as of October 1, 1999. The purchase price for
the shares and warrants was $4 million. The exercise price of the warrants is
$1.02656 per share. The sale was approved by the Company's stockholders at a
special meeting on December 14, 1999. ILTAG purchased one-half of the shares and
warrants and Messrs. Herrmann and Wettstein each purchased one-quarter of the
shares and warrants. As of October 23, 2000 the purchasers owned 2,922,396
shares representing approximately 13.6% of the outstanding Common Stock, and
warrants to acquire an additional 5,000,000 shares.
ILTAG is a Lebanese company that invests in health care and information
technology companies. Bernd Herrmann is a German venture capitalist who was an
asset manager at Deutsche Bank A.G. and Commerzbank A.G. Urs Wettstein is a
Swiss tax and accounting consultant. As a condition of the sale, James C.
McGroddy, Paul A.H. Pankow, Gerald D. Knudson and Patrick G. Hays resigned from
the Company's Board of Directors immediately prior to the closing of the sale,
and were replaced by Messrs. Herrmann, Wettstein and Falah Al-Kadi, the Vice
Chairman of the Dogmoch Group of Companies ("Dogmoch"), an affiliate of ILTAG
that provides consulting and support services to over 20 German companies doing
business in countries throughout the Middle East. Dr. Ramesh C. Trivedi,
President and Chief Executive Officer of the Company, was appointed to fill the
remaining vacancy on the Board. Since, as a result of the sale, the purchasers
obtained control of the Board of Directors and effective voting control of the
Company, the sale resulted in a change in control.
Messrs. Wettstein and Herrmann resigned from the Board of Directors in June
2000. In addition, in June 2000 ILTAG, Bernd Herrmann and Urs Wettstein agreed
to surrender an aggregate of 5,700,000 warrants and to exercise an aggregate of
2,000,000 of the remaining 6,000,000 warrants as follows: 500,000 warrants by
each of September 5, October 5, November 5, and December 5, 2000, provided the
market price of the Common Stock was not less than $1.03, the exercise price of
the warrants. These 2,000,000 warrants will expire if they are not exercised by
those dates. The remaining 4,000,000 warrants are exercisable until December 14,
2002. Since the closing market price of the Common Stock has been less than
$1.03 since August 1, 2000, none of these warrants have been exercised and
500,000 of these warrants expired on each of September 5, 2000 and October 5,
2000.
2
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of Common Stock at October 16, 2000 by (i) each stockholder
known by the Company to be a beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each director, (iii) each executive officer
listed in the Summary Compensation Table (see Proposal 1) and (iv) all directors
and officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OF
NATURE OF COMMON STOCK
BENEFICIAL BENEFICIALLY
NAME OWNERSHIP(1) OWNED(2)
---- ------------ -------------
<S> <C> <C>
International Business Machines Corporation................. 2,274,066(3) 9.72%
Old Orchard Road, Armonk, N.Y. 10504
EJ Financial Investments V, L.P............................. 1,039,792 4.92%
225 East Deer Path Road, Suite 250
Lake Forest, IL 60045
ILTAG International Licensing Holding S.A.L................. 3,961,198(4) 16.76%
Adnan Al Hakim Street
Assaf Bldg.
P.O. Box 135660
Beirut, Lebanon
Ramesh C. Trivedi(5)........................................ 402,318(6) 1.87%
John N. Kapoor(7)........................................... 1,039,792(8) 4.92%
Falah Al-Kadi(9)............................................ 3,961,198(10) 16.76%
Urs Wettstein............................................... 1,980,599(11) 8.85%
Gartenstrasse 33
8002 Zurich, Switzerland
Bernd Herrmann(13).......................................... 1,980,599(11) 8.85%
37 Avenue des Papalins, MC-8000 Monaco
All directors and officers as a group (5 persons)........... 5,403,308 20.37%
</TABLE>
---------------
(1) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated, subject to community property
laws, where applicable.
(2) For purposes of computing the percentage of outstanding shares held by each
person or group of persons named above on October 16, 2000, any security
which such person or group of persons has the right to acquire within 60
days after such date is deemed to be outstanding for the purpose of
computing the percentage ownership for such person or persons, but is not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(3) Includes warrants to purchase 2,206,479 shares of Common Stock at an
exercise price of $0.01 per share exercisable until December 31, 2005 and
warrants to purchase 67,587 shares of Common Stock at an exercise price of
$0.07 per share exercisable until December 31, 2000.
(4) Includes warrants to purchase 2,500,000 shares of Common Stock at an
exercise price of $1.027 per share, with 250,000 exercisable until November
5, 2000, 250,000 exercisable until December 5, 2000, and the balance of
2,000,000 exercisable until December 14, 2002.
(5) Address is c/o the Company, 1850 Research Park, Davis, California
95616-4884.
(6) Includes 4,000 shares owned by Dr. Trivedi and 398,318 shares that he may
acquire upon exercise of stock options exercisable within 60 days -316,907
shares at an exercise price of $0.07 per share, 75,201 shares at an
exercise price of $3.00 per share and 6,210 shares at an exercise price of
$0.10 per share. Dr. Trivedi may acquire 44,799 additional shares upon
exercise of stock options that become exercisable over the remaining term
of the options at an exercise price of $3.00 per share.
(7) Address is c/o EJ Financial Enterprises, 225 E. Deer Path Road, Suite 250,
Lake Forest, Illinois 60045.
3
<PAGE> 6
(8) Represents shares of Common Stock owned by EJ Financial Investments V,
L.P., a limited partnership of which Mr. Kapoor is the managing general
partner. Mr. Kapoor disclaims beneficial ownership of such shares.
(9) Address is c/o Dogmoch Group of Companies, Adnan Al Hakim St., Assaf Bldg.,
P.O. Box 135660, Beirut, Lebanon.
(10) Represents shares and warrants owned by ILTAG, an affiliate of Dogmoch of
which Mr. Al Kadi is Vice-Chairman.
(11) Includes 1,250,000 warrants to purchase shares of Common Stock at $1.027
per share, with 125,000 exercisable until November 5, 2000, 125,000
exercisable until December 5, 2000 and the balance of 1,000,000 exercisable
until December 14, 2002.
ACTIONS TO BE TAKEN AT THE ANNUAL MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
The Directors to be elected at the Annual Meeting will serve until the next
Annual Meeting of Stockholders and until their successors are duly elected and
qualified. Unless nominees other than those listed below are nominated at the
Annual Meeting, proxies not marked to the contrary will be voted "FOR" the
election to the Board of Directors of the following three (3) persons, all of
whom are incumbent Directors. If nominees other than those listed below are
nominated at the Annual Meeting, proxies not marked to the contrary may be voted
cumulatively for the election of less than all of the nominees for Director, at
the discretion of the persons named in the accompanying proxy. In the event any
of the three nominees for Director shall become unavailable for election for any
presently unforeseen reason, it is the intention of the persons in the
accompanying proxy to vote for an alternate nominee who will be designated by
the Board of Directors.
Set forth below is certain information as of October 18, 2000 concerning
each nominee for Director, including his age, present principal occupation and
business experience during the past five years and the period he has served as a
director.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND RELATED INFORMATION SINCE
---- --- -------------------------------------------- --------
<S> <C> <C> <C>
Ramesh C. Trivedi.................... 61 Chief Executive Officer of the Company since November
November 1995; consultant to the Company 1995
from February 1995 until November 1995;
Principal of California Biomedical
Consultants (an international consulting
firm) since 1987; President and Chief
Executive Officer of DigiRad Corporation (a
medical imaging company) from 1985 to 1986.
Falah Al Kadi........................ 50 Chairman of the Board of Directors since December
January 2000. Vice Chairman of the Dogmoch 1999
Group of Companies since 1994.
John N. Kapoor....................... 56 President of EJ Financial Enterprises, Inc December
(a healthcare consulting and investment 1995
company); Chairman of Option Care, Inc.
(a franchiser of home infusion therapy
businesses) since October 1990; Chairman of
Unimed Pharmaceuticals, Inc. (a specialty
pharmaceutical company) since 1990; Chief
Executive Officer and Chairman of Akorn,
Inc. (a manufacturer and distributor of
ophthalmic products) since May 1996;
Chairman of NeoPharm, Inc. (a cancer drug
research and development company).
</TABLE>
4
<PAGE> 7
On August 16, 1992, a lawsuit was filed against Dr. Kapoor in the United
States District Court for the Northern District of Illinois by Fujisawa
Pharmaceutical Co., Ltd. and Fujisawa USA, Inc. ("Fujisawa"). The complaint
alleged that Dr. Kapoor, while President and Chief Executive Officer of
Lyphomed, Inc., a company acquired by Fujisawa, violated provisions of the
Federal securities laws and the Racketeer Influenced and Corrupt Organizations
Act (RICO), and also asserted certain state law claims. The factual basis of the
complaint alleges that Dr. Kapoor filed false applications for generic drug
approvals with the FDA on behalf of Lyphomed, Inc. Dr. Kapoor countersued, and
in 1999, the litigation was settled on terms mutually acceptable to the parties.
The terms of the settlement are subject to a confidentiality agreement.
All directors hold office until the annual meeting of stockholders of the
Company following their election or until their successors are duly elected and
qualified.
MEETINGS OF THE BOARD OF DIRECTORS AND INFORMATION REGARDING COMMITTEES
The Board of Directors has two standing committees, an Audit Committee and
a Compensation Committee.
The Audit Committee is composed of Dr. Kapoor (Chairman) and Mr. Al-Kadi.
The duties of the Audit Committee include recommending the engagement of
independent auditors, reviewing and considering actions of management in matters
relating to audit functions, reviewing with the independent auditors the scope
and results of its audit engagement, reviewing reports from various regulatory
authorities, reviewing the system of internal controls and procedures of the
Company, and reviewing the effectiveness of procedures intended to prevent
violations of law and regulations. The Audit Committee held two meetings in
1999.
The Compensation Committee is composed of Dr. Kapoor and Mr. Al-Kadi
(Chairman). The duties of the Compensation Committee are to recommend to the
Board remuneration for officers of the Company, to determine the number and
issuance of options pursuant to the Company's stock option plans and to
recommend the establishment of and to monitor a compensation and incentive
program for all executives of the Company. The Compensation Committee did not
hold any meetings in 1999.
The Board of Directors held 13 meetings in 1999. Dr. Kapoor and Dr. Trivedi
attended at least 75% of the total number of Board meetings and meetings of
committees on which they served during the period they served thereon in 1999.
There were no meetings of the Board of Directors or any committee of which Mr.
Al-Kadi was a member held after December 14, 1999, the date he became a member
of the Board.
THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE NOMINEES FOR
DIRECTOR NAMED ABOVE (PROPOSAL 1)
5
<PAGE> 8
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each other executive officer
whose salary and bonus exceeded $100,000 for the year ended December 31, 1999.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTION
--------------------------- ---- -------- ------------ ------------
<S> <C> <C> <C> <C>
Ramesh C. Trivedi.............................. 1999 $279,840 $48,281(1) 6,210
Chief Executive Officer and President 1998 $279,840 $42,501(1) 120,000
1997 $264,000 $50,400(1) 20,000
Mark W. Winn................................... 1999 $126,500 $ -- --
Chief Financial Officer 1998 $118,833 $ -- --
1997(2) $ 38,333 $ -- 45,000
</TABLE>
---------------
(1) Represents expense allowances paid in accordance with the executive
officer's employment contract.
(2) Mr. Winn's employment commenced with the Company on September 2, 1997 and
ended on December 31, 1999.
EMPLOYMENT AGREEMENT
Dr. Ramesh Trivedi serves as executive officer and president of the Company
pursuant to an employment agreement terminable at will by either party. Dr.
Trivedi's annual salary is $279,840 ($23,320 per month). If his employment is
terminated without cause, Dr. Trivedi is entitled to receive his monthly salary
for a period of eighteen months following the date of termination.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1998 stock option plan to Dr. Trivedi and Mr. Winn
(collectively, the "Named Executive Officers") during the fiscal year ended
December 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SHARES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN PRICE PER EXPIRATION
NAME GRANTED(1) FISCAL YEAR SHARE(2) DATE
---- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Ramesh C. Trivedi............................... 6,210 3.7% $0.10 8/16/09
Mark W. Winn.................................... -- -- -- --
</TABLE>
---------------
(1) Stock options are granted at the discretion of the Compensation Committee of
the Board of Directors. Stock options have a 10-year term and vest
periodically over a period not to exceed five years.
(2) The Compensation Committee of the Board of Directors may elect to reduce the
excise price of any option to the current fair market value of the Common
Stock if the value of the Common Stock has declined from the date of grant.
The following table summarizes for each of the Named Executive Officers the
total number of unexercised options, if any, held at December 31, 1999, and the
aggregate dollar value of in-the-money, unexercised options, held at December
31, 1999. The value of the unexercised, in-the-money options at December 31,
1999, is the difference between their exercise or base price and the value of
the underlying
6
<PAGE> 9
Common Stock on December 31, 1999. The closing sale price of the Common Stock on
the Nasdaq SmallCap Market on December 31, 1999 was $1.6562 per share.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
SHARES ACQUIRED
UPON NUMBER OF SECURITIES VALUE OF UNEXERCISED
EXERCISE OF OPTIONS UNDERLYING IN-THE-MONEY
DURING FISCAL 1999 UNEXERCISED OPTIONS OPTIONS AT
-------------------- AT DECEMBER 31, 1999 DECEMBER 31, 1999
VALUE ---------------------------- ----------------------------
NAME NUMBER REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ramesh C. Trivedi...... None None 374,852 68,265 $512,342(1) 0
Mark W. Winn........... None None 15,000 30,000 0 0
</TABLE>
---------------
(1) Represents value of options to purchase 316,907 shares at an exercise price
of $0.07 per share and options to purchase 6,210 shares at an exercise price
of $0.10 per share.
CERTAIN TRANSACTIONS
In November 1999, the Company entered into a distribution agreement that
gave Spark 1(st) Vision GmbH & Co. KG, a German company, the exclusive right to
distribute the Company's products in Europe, the Middle East and Africa through
2003. Under the agreement, Spark 1(st) Vision was obligated to purchase a
minimum of 24 ROBODOC systems during 2000 and 32 ROBODOC systems during 2001. It
also was required to pay the Company $200,000 per month for the first six months
of 2000, $300,000 per month for the remainder of 2000, and $400,000 per month
for 2001, offset by the purchase price of products purchased. Spark 1(st)
Vision's liability to the Company under the agreement was limited to $1 million,
exclusive of the minimum purchase obligation. Spark 1(st) Vision is controlled
by Manfred Schmitt, a German venture capitalist. At the time the Company entered
into the distribution agreement, Mr. Schmitt beneficially owned slightly more
than five percent of the Company's Common Stock.
In May 2000, the Company terminated the agreement with Spark 1(st) Vision.
The Company received approximately $1,000,000 from Spark 1(st) Vision in
settlement of its obligations under the agreement.
PROPOSAL 2. AMENDMENTS TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
AND BYLAWS TO ELIMINATE CUMULATIVE VOTING RIGHTS WITH RESPECT TO THE
ELECTION OF DIRECTORS.
Article 10 of the Company's Restated Articles of Incorporation and Section
2.9 of the Company's Bylaws presently permit stockholders to cumulate votes in
the election of directors. The Board of Directors recommends that cumulative
voting no longer be employed in the election of directors as it is cumbersome
and may be confusing to stockholders.
Cumulative voting permits holders of shares of Common Stock to cast, for
any one or more nominees for the Board, a number of votes equal to the product
of the number of shares such stockholder owns and the number of nominees
proposed for election to the Board. Thus, by casting all their votes for one
nominee, minority stockholders may succeed in electing one or more nominees to
the Board who would not otherwise have received sufficient votes to be elected.
The Board of Directors believes, however, that the benefit of allowing minority
stockholders the possibility of electing representatives is outweighed by the
burden and expense of administering cumulative voting for a public company and
the risk that an individual may seek to be elected to the Board of Directors
merely to disrupt Board proceedings.
Approval of these amendments to the Restated Certificate of Incorporation
and Bylaws requires approval by a majority of the outstanding shares of Common
Stock entitled to vote thereon. As a result, any shares not
7
<PAGE> 10
voted (whether by abstention, broker non-vote or otherwise) will have the same
effect as a vote against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE ADOPTION OF THE AMENDMENTS TO THE RESTATED CERTIFICATE OF
INCORPORATION AND BYLAWS TO ELIMINATE CUMULATIVE VOTING RIGHTS WITH
RESPECT TO THE ELECTION OF DIRECTORS (PROPOSAL 2)
PROPOSAL 3. AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE AUTHORIZED CAPITAL STOCK BY INCREASING THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 50 MILLION TO 100 MILLION.
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Restated Certificate of Incorporation to increase the
authorized capital stock of the Company by increasing the number of authorized
shares of Common Stock from 50,000,000 to 100,000,000 shares.
The Company is presently authorized to issue 50,000,000 shares of Common
Stock and 1,000,000 shares of preferred stock ("Preferred Stock"), each with par
value $.01 per share. As of October 23, 2000, there were 21,495,527 shares of
Common Stock outstanding and an additional 21,572,889 shares of Common Stock
reserved for issuance upon conversion of the preferred stock and upon exercise
of outstanding warrants and options granted pursuant to the Company's stock
options plans. The remainder of the 50,000,000 shares authorized have been
reserved for issuance under the equity line of credit. As of October 23, 2000,
there were a total of 1,343 shares of Series G and Series H convertible
preferred stock outstanding and an additional 984,730 shares of preferred stock
available for issuance.
The additional 50,000,000 shares of Common Stock to be authorized would be
available for issuance under our equity line of credit and would provide needed
flexibility for future financial and capital requirements so that proper
advantage could be taken of favorable market conditions and possible business
acquisitions. Additional shares of Common Stock would also be available to the
Company for stock dividends or splits should the Board of Directors decide that
it would be desirable, in light of market conditions then prevailing, to broaden
the public ownership of, and to enhance the market for, the shares of the
Company's Common Stock. The additional shares would be available for issuance
for these and other purposes, subject to the laws of Delaware and Nasdaq rules,
at the discretion of the Company's Board of Directors without, in most cases,
the delays and expenses attendant to obtain further stockholder approval.
Although the Company's Board of Directors does not consider the proposed
amendment to the Company's Restated Certificate of Incorporation to be an
antitakeover proposal, the ability to issue additional shares of Common Stock
could also be used to discourage hostile takeover attempts of the Company. Among
other things, the additional shares could be privately placed thereby diluting
the stock ownership of persons seeking to obtain control of the Company, or the
Board could adopt a stockholders' rights plan that would provide for the
issuance of additional shares of Common Stock in the event of certain purchases
not approved by the Board of Directors.
Although the Board of Directors has no current plans to propose other
measures to the Company's stockholders that may have the effect of discouraging
takeovers apart from those included in the proposed amendments to the Company's
Amended Certificate of Incorporation, such additional measures may be proposed
if warranted from time to time in the judgment of the Board of Directors. In
addition, the Board of Directors may, from time to time, adopt other measures or
enter into agreements that could have the effect of discouraging takeovers, but
that do not require stockholder approval.
8
<PAGE> 11
Approval of this amendment to the Restated Certificate of Incorporation
requires approval by a majority of the outstanding shares of Common Stock
entitled to vote thereon. As a result, any shares not voted (whether by
abstention, broker non-vote or otherwise) will have the same effect as a vote
against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE ADOPTION OF THE AMENDMENT TO THE RESTATED CERTIFICATE
OF INCORPORATION TO INCREASE AUTHORIZED CAPITAL STOCK BY INCREASING
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 50 MILLION
TO 100 MILLION SHARES (PROPOSAL 3)
PROPOSAL 4. TO APPROVE THE ISSUANCE UNDER AN EQUITY LINE OF CREDIT AGREEMENT OF
MORE THAN 3,843,939 SHARES OF COMMON STOCK, AS REQUIRED BY NASDAQ
RULES.
Nasdaq rules require the Company to obtain stockholder approval for the
issuance of securities involving the sale of 20% or more of its Common Stock at
less than fair market value. Nasdaq may delist the securities of any issuer that
fails to obtain such stockholder approval before the issuance of such
securities.
The Company has entered into an equity line of credit agreement for the
sale of $12,000,000 of our common stock with Triton West Group, Inc. Under the
terms of the agreement, the Company may sell shares of common stock over a
three-year period to Triton at a price equal to 85% of the lowest closing bid
price during the nine trading days commencing two trading days prior to the
delivery of a purchase notice to Triton. The maximum dollar amount of shares
that may be purchased on each closing date depends upon the average closing bid
price and average trading volume of the common stock for the 30 trading days
preceding the day we deliver a purchase notice to Triton, as indicated by the
chart presented below.
<TABLE>
<S> <C> <C> <C> <C>
Average Closing
Bid Price of
Common Stock for
Preceding 30 Average Trading Volume For Preceding 30 Trading Days
-----------------------------------------------------------------------------
Trading Days 15,000 - 50,000 50,001 - 100,000 100,001 - 150,000 More than 150,000
</TABLE>
MAXIMUM DOLLAR AMOUNT OF SHARES THAT CAN BE SOLD TO TRITON
<TABLE>
<S> <C> <C> <C> <C>
$0.50 - 1.00 $400,000 $400,000 $600,000 $600,000
1.00 - 3.00 $500,000 $500,000 $750,000 $750,000
3.01 - 4.50 $500,000 $750,000 $750,000 $1,000,000
4.51 - 6.00 $750,000 $750,000 $1,000,000 $1,000,000
6.01 - 7.50 $750,000 $1,000,000 $1,000,000 $1,250,000
7.51 - 9.00 $1,000,000 $1,000,000 $1,250,000 $1,250,000
More than $9.00 $1,000,000 $1,250,000 $1,250,000 $1,500,000
</TABLE>
For example, if the average closing bid price of a share of the Company's
common stock is between $0.50 and $1.00, and the average trading volume is more
than 100,000 shares for the 30-day trading period preceding the delivery of a
purchase notice to Triton, the Company can sell up to $600,000 of Common Stock
to Triton. But if the trading volume for that 30-day trading period is more than
15,000 shares but not more than 100,000 shares, the Company can only sell up to
$400,000 of Common Stock to Triton. As illustrated by the table, the amount
available to the Company under the equity line increases as the bid price and
trading volume of the Company's Common Stock increase.
However, if at the time the Company delivers a purchase notice to Triton,
the average closing bid price of a share of common stock has been less than
$0.50 for the preceding 30 trading day period, the Company can only sell up to
$250,000 of common stock to Triton. The minimum amount of shares the Company may
sell to Triton on any closing date is $100,000. The Company may not sell shares
to Triton more often than once every fifteen trading days.
9
<PAGE> 12
The Company has issued a warrant to purchase 35,000 shares of Common Stock
to Triton in connection with the agreement. The warrant is exercisable at $0.86
per share during the period commencing March 15, 2001 and ending on September
14, 2003. The equity line of credit agreement limits the number of shares that
may be issued under the line, including shares that may be acquired upon
exercise of warrants, to an aggregate of 3,843,939 shares, representing 19.9% of
the shares outstanding on September 15, 2000, the date the Company entered into
the equity line agreement, until stockholders approve the issuance of shares in
excess of that number. This limitation is required under the corporate
governance rules of the Nasdaq Stock Market, Inc. We will also pay Triton $7,000
at each closing.
If this proposal is not approved by stockholders, the Company will not be
able to sell shares and obtain financing under its equity line of credit to the
extent such sale (or issuance of shares upon exercise of warrants issued in
connection with the equity line) would result in the issuance of more than
3,843,939 shares. At an assumed market price of $0.50 per share, the Company
could only receive approximately $1,650,000 under its equity line until such
stockholder approval was obtained. Until stockholder approval is obtained, the
Company may need additional financing since its available cash resources,
together with anticipated cash flows from operations, may not be sufficient to
continue operations at current levels. Additional financing, if required, may
not be available on acceptable terms, if at all. If the Company is unable to
obtain alternative financing on favorable terms, it may have to reduce
operations, defer research and development projects and reduce staffing. To
obtain alternative financing, the Company 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 stockholders. The
purchase of shares by Triton under the equity line at a discount of
approximately 15% of the then prevailing market price of the Common Stock, and
the immediate resale of those shares into the public market may depress the
market price of the Common Stock and will have a dilutive impact on other
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE APPROVAL OF THE ISSUANCE UNDER THE
EQUITY LINE OF CREDIT AGREEMENT OF MORE THAN 3,843,939 SHARES
OF COMMON STOCK, AS REQUIRED BY NASDAQ RULES (PROPOSAL 4)
PROPOSAL 5. APPROVAL AND ADOPTION OF THE COMPANY'S 2000 LONG-TERM PERFORMANCE
PLAN.
Description of 2000 Long Term Performance Plan
On September 21, 2000 the Board of Directors adopted the Company's 2000
Long-Term Performance Plan (the "2000 Plan"). Competition for key employees is
very intense. To secure top talent, the Company needs to have competitive
compensation programs, including equity based awards.
The 2000 Plan provides for stock awards of up to 1,000,000 shares. The 2000
Plan permits the grant of any form of award, including, but not limited to,
stock options, stock appreciation rights ("SAR's") and stock and cash awards,
whether granted singly, in combination or in tandem. Stock options will be
granted at an exercise price of not less than 100% of fair market value (as
defined in the 2000 Plan) on the date of grant and it is expected that options
and SAR's will typically be granted for periods of 10 years or less. The 2000
Plan also permits the grant of other awards in stock or denominated in units of
stock, which may be subject to restrictions or transfer and/or forfeiture
provisions.
For purposes of determining the number of shares of Common Stock issued
under the 2000 Plan, no shares will be deemed issued until they are actually
delivered to a participant, or such other person in accordance with Section 10
of the 2000 Plan. Shares covered by awards that either wholly or in part are not
earned, or that expire or are forfeited, terminated, canceled, settled in cash,
payable solely in cash or exchanged for other awards shall be available for
future issuance under the 2000 Plan. Further, shares tendered to or withheld by
the Company in connection with the exercise of stock options, or the payment of
tax withholding on any award, will also be available for future issuance under
the 2000 Plan.
The Company intends that the 2000 Plan will be administered by the
Compensation Committee (or any successor committee), which is constituted in
compliance with the rules and regulations issued under the
10
<PAGE> 13
federal securities laws and the Internal Revenue Code. In administering the 2000
Plan, the Committee has the full power to select participants, to interpret the
provisions of the plan, to grant waivers of award restrictions, to continue or
accelerate the exercisability, vesting or payment of an award and to adopt such
rules, regulations and guidelines for carrying out the 2000 Plan as the
Committee may deem necessary or proper. The Committee may delegate certain of
its duties, power and authority to officers of the Company, pursuant to such
conditions and limitations as the Committee may establish. The 2000 Plan may not
be amended to increase the maximum number of shares that may be issued under the
2000 Plan (except for adjustments pursuant to Section 14 of the 2000 Plan) or to
permit the granting of stock options or SAR's with exercise or grant prices
lower than those specified in Section 6 of the 2000 Plan without stockholder
approval.
Awards under the 2000 Plan may be made to employees of, and other
individuals providing services to the Company. Participants in the 2000 Plan
will be recommended by their management, and the Committee intends to review and
act on all 2000 Plan grants and awards for officers and certain other senior
management positions.
The 2000 Plan has been designed to meet the requirements of section 162(m)
of the Internal Revenue Code for stock options and SAR's. In addition, the 2000
Plan contains performance criteria for future long-term incentive awards to
qualify those awards for tax deductibility under section 162(m). Those criteria
consist of objective tests based on one or more of the following: earnings, cash
flow, customer satisfaction, revenues, financial return ratios, market
performance, shareholder return and/or value, operating profits, net profits,
earnings per share, profit return and margins, stock price and working capital.
The formula for any such award may include or exclude items to measure the
specific objectives, such as losses from discontinued operations, extraordinary
gains and losses, the cumulative effect of accounting changes, acquisitions or
divestitures, foreign exchange impacts and any unusual, nonrecurring gain or
loss. These terms apply to "covered employees" as defined in section 162(m),
which include the Company's chief executive officer and the four other most
highly compensated executive officers of the Company.
The foregoing summary of the terms and features of the 2000 Plan is
qualified by reference to the 2000 Plan itself.
Other Plans
The Company has two stock option plans -- the 1995 Stock Option Plan and
the 1998 Stock Option Plan. The plans authorize the issuance of incentive stock
options ("ISOs"), as defined in Section 422A of the Internal Revenue Code of
1986, non-qualified stock options ("NQSOs"), and in the case of the 1998 Plan
stock appreciation rights ("SARs", and together with ISOs and NQSOs, "Options"),
and in the case of the 1995 Plan stock purchase rights ("SPRs"). Directors,
employees (including officers) and consultants of the Company are eligible to
participate in the plans. Consultants and directors who are not also employees
of the Company are eligible for grants of only NQSOs and/or SPRs. The plans are
administered, and the terms of Options or SPRs are determined, by the Board
and/or the Compensation Committee. The exercise price of each ISO may not be
less than 85% of the fair market value of the Common Stock at the time of grant,
except that in the case of a grant to an employee who owns 10% or more of the
outstanding stock of the Company or a subsidiary or parent of the Company (a
"10% Stockholder"), the exercise price may not be less than 110% of the fair
market value on the date of grant. The aggregate fair market value of the shares
covered by ISOs granted under the plans that become exercisable by a plan
participant for the first time in any calendar year is subject to a $100,000
limitation. The exercise price of a NQSO, or a NQSO granted in tandem with an
SAR, may not be less than 85% of the fair market value of the Common Stock on
the date of grant. In no event may an Option have a term of more than ten (10)
years (five (5) years with respect to ISOs granted to a 10% Stockholder) or vest
at a rate less than 20% per year. Options granted under the plans are not
transferable, other than by will or by the laws of descent and distribution. No
Options or SPRs may be granted under the 1995 Plan after December 12, 2005 and
no Options may be granted under the 1998 Plan after January 23, 2008.
11
<PAGE> 14
Information concerning these plans is presented below:
<TABLE>
<CAPTION>
1995 PLAN 1998 PLAN
--------- ---------
<S> <C> <C>
Shares Authorized........................................... 1,249,070 850,000
Options Granted (net of cancelations)....................... 1,245,850 844,498
Options Exercised........................................... 319,048 29,610
Options Available for Grant................................. 3,220 5,502
</TABLE>
No SPRs or SARs have been granted under the plans.
The Company also has a 2000 Stock Award Program under which up to 500,000
shares of Common Stock may be granted to employees and consultants (but not
officers and directors) of the Company. The award program is administered by the
Board and/or the Compensation Committee. As of September 20, 2000, 22,500 shares
have been issued to 20 employees and 49,108 shares have been awarded to 4
consultants.
The Company has approximately 77 employees (3 of whom are also officers)
and two non-employee directors who are eligible for grants or awards under the
plan. The Company is not able to compute the number of consultants eligible, or
who may become eligible, for grants or awards under the plan.
The Company also has an employee stock purchase plan that has not been
implemented. The purchase plan provides that all employees (including officers
and directors who are also employees) who have been in the employ of the Company
and/or corporations in which the Company owns 50% or more of the voting shares
thereof for six months or more, are eligible to participate in the plan.
Participants in the purchase plan will have deducted from their base weekly
salaries a percentage or stated amount thereof to be applied toward the purchase
of shares of Common Stock. The Company will, no less frequently than monthly,
sell or cause to be sold to the plan full shares of Common Stock in an amount
equal to the then accumulated compensation deductions, based upon a price equal
to 85% of the closing price of the Common Stock at the time the Common Stock is
acquired. As such, the Company will be deemed to be contributing 15% (85% of the
purchase price of the Common Stock is to be borne by the participants) of the
employee's contributions toward the purchase of such shares. Furthermore, the
Company shall bear all administrative and commission costs in connection with
the acquisition of the Common Stock and reasonable administrative costs, other
than commissions, from a sale of the Common Stock or transfer to a participant.
Federal Income Tax Consequences
The Company has been advised by counsel that in general, under the Internal
Revenue Code as presently in effect, a Participant (as defined in the 2000 Plan)
will not be deemed to recognize any income for Federal Income Tax purposes at
the time an option or stock appreciation right ("SAR") is granted or a
restricted stock award is made, nor will the Company be entitled to a tax
deduction at that time. However, when any part of an option or SAR is exercised,
when restrictions on restricted stock lapse, or when an unrestricted stock award
is made, the federal income tax consequences may be summarized as follows:
1. In the case of an exercise of a stock option other than an ISO, the
Participant will generally recognize ordinary income in an amount equal to
the excess of the fair market value of the shares on the exercise date over
the option price.
2. In the case of an exercise of an SAR, the Participant will
generally recognize ordinary income on the exercise date in an amount equal
to any cash and the fair market value of any unrestricted shares received.
3. In the case of an exercise of an option or SAR payable in
restricted stock, or in the case of an award of restricted stock, the
immediate federal income tax effect for the Participant will depend on the
nature of the restrictions. Generally, the fair market value of the stock
will not be taxable as ordinary income until the year in which the
Participant's interest in the stock is freely transferable or is no longer
subject to a substantial risk of forfeiture. However, the Participant may
elect to recognize income when the stock is received, rather than when the
interest in the stock is received, the stock is freely transferable
12
<PAGE> 15
or is no longer subject to a substantial risk of forfeiture. If the
Participant makes this election, the amount taxed to the Participant as
ordinary income is determined as of the date of receipt of the restricted
stock.
4. In the case of ISO's, there is generally no tax liability at time
of exercise. However, the excess of the fair market value of the stock on
the exercise date of over the option price is included in the Participant's
income for purposes of the alternative minimum tax. If no disposition of
the ISO stock is made before the later of one year from the date of
exercise and two years from the date of grant, the Participant will realize
a capital gain or loss upon a sale of the stock, equal to the difference
between the option price and the sale price, if the stock is not held for
the required period, ordinary income tax treatment will generally apply to
the excess of the fair market value of the stock on the date of exercise
(or, if less, the amount of gain realized on the disposition of the stock)
over the option price, and the balance of any gain or any loss will be
treated as capital gain or loss. In order for ISO's to be treated as
described above, the Participant must remain employed by the Company (or a
subsidiary in which the Company holds at least 50 percent of the voting
power) from the ISO grant date until three months before the ISO is
exercised. The three-month period is extended to one year if the
Participant's employment terminates on account of disability. If the
Participant does not meet the employment requirement, the option will be
treated for federal income tax purposes as an option as described in
paragraph 5 below. A Participant who exercises an ISO might also be subject
to an alternative minimum tax.
5. Upon the exercise of a stock option other than an ISO, the exercise
of a SAR, the award of stock, or the recognition of Income on restricted
stock, the Company will generally be allowed an income tax deduction equal
to the ordinary income recognized by a Participant. The Company will not
receive an income tax deduction as a result of the exercise of an ISO,
provided that the ISO stock is held for the required period as described
above. When a cash payment is made pursuant to the Award, the recipient
will recognize the amount of the cash payment as ordinary income, and the
Company will generally be entitled to a deduction in the same amount.
6. Pursuant to section 162(m) of the Code, the Company may not deduct
compensation of more than $1,000,000 that is paid in a taxable year to an
individual who, on the last day of the taxable year, is the Company's chief
executive officer or among one of its four other highest compensated
officers for that year. The deduction limit, however, does not apply to
certain types of compensation, including qualified performance-based
compensation. The Company believes that compensation attributable to stock
options and stock appreciation rights granted under the Plan will be
treated as qualified performance-based compensation and therefore will not
be subject to the deduction limit. The Plan also authorizes the grant of
long-term performance incentive awards utilizing the performance criteria
set forth in the Plan that may likewise be treated as qualified
performance-based awards.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE "FOR" THE APPROVAL AND ADOPTION OF THE COMPANY'S
2000 LONG-TERM PERFORMANCE PLAN (PROPOSAL 5)
PROPOSAL 6. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.
The Board of Directors has appointed Ernst & Young LLP, independent
auditors, to continue as the Company's auditors and to audit the consolidated
financial statements of the Company for the fiscal year ending December 31,
2000. Ernst & Young LLP has audited the Company's financial statements since the
fiscal year ended December 31, 1991. They have no financial interest, either
direct or indirect, in the Company. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting to respond to appropriate questions
from stockholders and to make a statement if they desire to do so.
13
<PAGE> 16
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS (PROPOSAL 6)
PROPOSAL 7. TO APPROVE THE ISSUANCE UPON CONVERSION OF SERIES H CONVERTIBLE
PREFERRED STOCK OF MORE THAN 3,494,298 SHARES OF COMMON STOCK, AS REQUIRED BY
NASDAQ RULES.
Nasdaq rules require the Company to obtain stockholder approval for the
issuance of securities involving the sale of 20% or more of its Common Stock at
less than fair market value. Nasdaq may delist the securities of any issuer that
fails to obtain such stockholder approval before the issuance of such
securities.
On August 17, 2000, the Company sold 1,200 shares of the Company's Series H
Convertible Preferred Stock and warrants to purchase 500,000 shares of its
Common Stock to four accredited investors for an aggregate purchase price of
$1,200,000. The four accredited investors are: Albors Select Opportunities Fund,
Nassau, Bahamas, Spiga Limited, Tortola, British Virgin Islands, Target Growth
Fund, Hamilton, Bermuda and IIG Equity Opportunities Fund Limited, Hamilton,
Bermuda. The Series H Convertible Preferred Stock is convertible into shares of
Common Stock, at the option of the holder thereof, subject to certain
limitations discussed below. The number of shares of Common Stock into which the
Series H Convertible Preferred Stock may be converted is determined by dividing
the product of $1,000 and the number of shares to be converted by a conversion
price equal to 80% of the lowest sale price of the Common Stock on the Nasdaq
SmallCap Market during the five trading days preceding the date of conversion
(the "Market Price"), but in no event more than $1.05625. No holder may convert
the Series H Convertible Preferred Stock to the extent such conversion would
result in the holders in the aggregate acquiring more than 3,494,298 shares of
Common Stock, representing 19.9% of the number of shares of Common Stock
outstanding on the date upon which the shares of Series H Convertible Preferred
Stock were issued, unless and until such issuance is approved by stockholders.
Until such stockholder approval is obtained, a holder requesting conversion may
only receive cash equal to the product of the number of shares of Common Stock
in excess of 3,494,298 shares and the closing price of the Common Stock on the
date of conversion.
As of November 6, 2000, the Company had issued 1,899,336 shares of Common
Stock upon conversion of 580 shares of Series H Preferred Stock at an average
conversion price of $0.31 per share. The closing market price on November 8,
2000, was $0.34 per share. Assuming conversions at 80% of this closing market
price, holders of the outstanding 620 shares of Series H Preferred Stock could
acquire upon conversion an additional 2,279,412 shares of Common Stock, but for
the limitation described above. However, until stockholder approval is obtained,
they may only acquire an additional 1,594,962 shares. If stockholder approval is
not obtained, the holders of the Series H Preferred Stock could require the
Company to redeem the shares of Common Stock in excess of the 3,494,298 shares
that could have been acquired upon conversion but for the limitation, at the
then current market price.
The conversion price and the number of shares of Common Stock that may be
acquired upon conversion of the Series H Convertible Preferred Stock is subject
to adjustment in the event of a stock split, stock dividend, reorganization or
reclassification. In addition, if prior to August 17, 2001 the Company issues
shares of Common Stock (or securities into or exercisable or exchangeable for
Common Stock) at less than the conversion price in a transaction exempt from the
registration requirements of the Securities Act and the Company grants the
purchasers of such shares or other securities the right to demand registration
of such shares, the conversion price of the Series H Convertible Preferred Stock
will be adjusted to the price (or conversion or exercise price, or exchange
rate) of such subsequent issuance.
The conversion, or the potential conversion, of the Series H Convertible
Preferred Stock at a discount of approximately 20% 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.
If this proposal is not approved by stockholders, the Company will be
required to pay holders of the Series H Convertible Preferred Stock upon any
conversion that, together with prior conversions, would result, in the absence
of the limitation discussed above, in the issuance of more than 3,494,298 shares
of Common Stock, an amount in cash equal to the product of the closing price of
the Common Stock on the date of conversion and the number of shares in excess of
3,494,298 shares that but for such limitation would have otherwise been issuable
upon such conversion. The Company's ability to make such cash payments will
depend on its available cash resources at the time of a request for conversion.
The payment of such amounts in lieu of the issuance of shares of Common Stock
upon conversion may adversely affect the liquidity and financial condition of
the Company.
14
<PAGE> 17
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" THE APPROVAL OF THE ISSUANCE OF MORE THAN
3,494,298 SHARES OF COMMON STOCK UPON CONVERSION OF THE
SERIES H CONVERTIBLE PREFERRED STOCK, AS REQUIRED
BY NASDAQ RULES (PROPOSAL 7)
OTHER MATTERS
The Board of Directors is not aware of any business to be presented at the
Annual Meeting except the matters set forth in the Notice of Annual Meeting and
described in this Proxy Statement. Unless otherwise directed, all shares
represented by Board of Directors' proxies will be voted in favor of the
proposals of the Board of Directors described in this Proxy Statement. If any
other matters come before the Annual Meeting, the persons named in the
accompanying Proxy will vote on those matters according to their best judgment.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The names, ages and business backgrounds of the executive officers and
other significant employees of the Company who are not nominees for Director are
as follows:
LOUIS J. KIRCHNER, 57, has been Chief Financial Officer and Secretary since
February 2000. Mr. Kirchner served as Vice President and Chief Financial Officer
of Robroy Industries, Inc. (manufacturer of electrical, oil field and computer
electronic products) from January 1981 to January 2000. Mr. Kirchner held
several positions with the Westinghouse Electric Corporation from February 1968
to December 1980.
LELAND WITHERSPOON, 48, has been Vice President, Engineering since April
1997. Mr. Witherspoon was Director Product Research and Development for Sorin
Biomedicals, Inc. (a developer and manufacturer of cardiopulmonary and
cardiovascular products) from February 1992 to April 1997. He was Manager of
Research and Development for Pfizer/Shiley (a developer and manufacturer of
cardiopulmonary and cardiovascular equipment and disposables) from November 1990
to February 1992. Mr. Witherspoon held various technical and management
positions with Xerox Medical Systems (a manufacturer and developer of diagnostic
medical electronic and mechanical systems) from March 1979 to October 1990.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Officers, Directors and persons who own more than ten percent of a registered
class of the Company's equity securities within specified time periods to file
certain reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "Commission"). Officers, Directors and ten-percent
stockholders are required by regulation to furnish the Company with copies of
all Section 16(a) forms they file. Messrs. Al-Kadi, Herrmann and Wettstein
failed to timely file Form 3's reporting that they had become directors of the
Company and reporting their ownership of shares and warrants. Based solely on a
review of copies of such reports received by the Company and written
representations from such persons concerning the necessity to file such reports,
the Company is not aware of any other failures to file reports or report
transactions in a timely manner during the fiscal year ended December 31, 1999.
EXPENSES
The entire cost of preparing, assembling, printing and mailing this Proxy
Statement, the enclosed Proxy and other materials, and the cost of soliciting
Proxies with respect to the Annual Meeting, will be borne by the Company. The
Company will request banks and brokers to solicit their customers who
beneficially own shares listed of record in names of nominees, and will
reimburse those banks and brokers for the reasonable out-of-pocket expenses of
such solicitations. Telephone and telegram by officers and other regular
employees of the Company may supplement the original solicitation of proxies by
mail, but no additional compensation will be paid to such individuals.
15
<PAGE> 18
STOCKHOLDER PROPOSALS
No person who intends to present a proposal for action at a forthcoming
stockholders' meeting of the Company may seek to have the proposal included in
the proxy statement or form of proxy for such meeting unless that person (a) is
a record beneficial owner of at least 1% or $1,000 in market value of shares of
Common Stock, has held such shares for at least one year at the time the
proposal is submitted, and such person shall continue to own such shares through
the date on which the meeting is held, (b) provides the Company in writing with
his name, address, the number of shares held by him and the dates upon which he
acquired such shares with documentary support for a claim of beneficial
ownership, (c) notifies the Company of his intention to appear personally at the
meeting or by a qualified representative under Delaware law to present his
proposal for action, and (d) submits his proposal timely. A proposal to be
included in the proxy statement or proxy for the Company's next annual meeting
of stockholders, will be submitted timely only if the proposal has been received
at the Company's principal executive office no later than August 13, 2001. If
the date of such meeting is changed by more than 30 calendar days from the date
such meeting is scheduled to be held under the Company's Bylaws, or if the
proposal is to be presented at any meeting other than the next annual meeting of
stockholders, the proposal must be received at the Company's principal executive
office at a reasonable time before the solicitation of proxies for such meeting
is made.
Even if the foregoing requirements are satisfied, a person may submit only
one proposal with a supporting statement of not more than 500 words, if the
latter is requested by the proponent for inclusion in the proxy materials, and
under certain circumstances enumerated in the Securities and Exchange
Commission's rules relating to the solicitation of proxies, the Company may be
entitled to omit the proposal and any statement in support thereof from its
proxy statement and form of proxy.
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1999
Copies of the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1999 as filed with the Securities and Exchange Commission,
including the financial statements, can be obtained without charge by
stockholders (including beneficial owners of the Company's Common Stock) upon
written request to Louis J. Kirchner, the Company's Secretary, Integrated
Surgical Systems, Inc. 1850 Research Park Drive, Davis, California 95616-4884 or
on the Commission's Web Site at www.sec.gov.
By Order of the Board of Directors
LOUIS J. KIRCHNER,
Secretary
Davis, California
November 8, 2000
16
<PAGE> 19
PROXY INTEGRATED SURGICAL SYSTEMS, INC.
1850 RESEARCH PARK DRIVE, DAVIS, CALIFORNIA 95616-4884
The undersigned, a holder of Common Stock of INTEGRATED SURGICAL SYSTEMS,
INC., a Delaware corporation (the "Company"), hereby appoints DR. RAMESH C.
TRIVEDI and LOUIS J. KIRCHNER, and each of them, the proxy of the undersigned,
with full power of substitution, to attend, represent and vote for the
undersigned, all of the shares of the Company which the undersigned would be
entitled to vote, at the Annual Meeting of Stockholders of the Company to be
held on December 12, 2000 and any adjournments thereof, as follows:
1. The election of three (3) Directors of the Company to serve until the next
annual meeting of stockholders and until their successors are duly elected
and qualified.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
nominees listed below.
(Instructions: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH OR OTHERWISE STRIKE OUT HIS NAME BELOW. YOU ARE ALLOWED TO
CUMULATE VOTING FOR THE NOMINEES. IN VOTING FOR DIRECTORS, A STOCKHOLDER IS
ENTITLED TO CAST THREE VOTES FOR EACH SHARE OF COMMON STOCK HELD, ONE FOR EACH
OF THE THREE NOMINEES. A STOCKHOLDER MAY CAST HIS OR HER VOTES EVENLY FOR ALL
NOMINEES OR MAY CUMULATE SUCH VOTES AND CAST ALL FOR ONE NOMINEE OR DISTRIBUTE
THEM AMONG THE THREE NOMINEES. TO CUMULATE VOTES FOR ANY NOMINEE, WRITE THE
NUMBER OF VOTES CAST IN FAVOR OF EACH NOMINEE IN THE SPACE PROVIDED TO THE RIGHT
OF EACH NOMINEE'S NAME)
Ramesh C. Trivedi ____________________, Falah Al-Kadi, ____________________
John Kapoor ____________________.
2. The approval of amendments to the Company's Restated Certificate of
Incorporation and Bylaws to eliminate cumulative voting rights with respect
to the election of Directors.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
3. The approval of an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized capital stock by increasing the
number of authorized shares of Common Stock from 50 million to 100 million.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
4. The approval of the issuance of more than 3,843,939 shares of Common Stock
under an equity line of credit agreement, as required by Nasdaq rules.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
5. The approval of the adoption of the 2000 Long-Term Performance Plan.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
(Continued, and to be signed, on other side)
<PAGE> 20
(Continued from other side)
6. The ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7.The approval of the issuance of more than 3,494,298 shares of Common Stock
upon conversion of Series H Convertible Preferred Stock, as required by Nasdaq
rules.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. Upon such other matters as may properly come before the meeting or any
adjournments thereof.
The undersigned hereby revokes any other proxy to vote at such Annual
Meeting, and hereby ratifies and confirms all that said attorneys and proxies,
and each of them, may lawfully do by virtue hereof. With respect to matters not
known at the time of the solicitations hereby, said proxies are authorized to
vote in accordance with their best judgment.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE OTHER SIDE HEREOF. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF THE THREE DIRECTORS NAMED IN PROPOSAL 1 AND FOR THE
ADOPTION OF PROPOSALS 2 THROUGH 7 AND AS SAID PROXIES SHALL DEEM ADVISABLE ON
SUCH OTHER BUSINESS AS MAY COME BEFORE THE MEETING.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting dated November 8, 2000 relating to the Annual Meeting.
Date: , 2000
-----------------------------------
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Signature(s) of Stockholder(s)
The signature(s) hereon should
correspond exactly with the name(s)
of the Stockholder(s) appearing on
the Stock Certificate. If stock is
jointly held, all joint owners should
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such. If signer is a corporation,
please sign the full corporate name,
and give title of signing officer.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF INTEGRATED SURGICAL
SYSTEMS, INC.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
