INTEGRATED SENSOR SOLUTIONS INC
DEF 14A, 1998-07-20
SEMICONDUCTORS & RELATED DEVICES
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<PAGE>
                            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:
    / /  Preliminary Proxy Statement
    / /  Confidential, for Use of the Commission Only (as permitted by Rule
         14a-6(c)(2))
    /X/  Definitive Proxy Statement
    / /  Definitive Additional Materials
    / /  Soliciting Material Pursuant to Section 240.14a-11(c) or Section
         240.14a-12
 
                             INTEGRATED SENSOR SOLUTIONS, 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)(4) and 0-11.
     1)  Title of each class of securities to which transaction applies:
         -----------------------------------------------------------------------
     2)  Aggregate number of securities to which transaction applies:
         -----------------------------------------------------------------------
     3)  Per unit price or other underlying value of transaction computed
         pursuant to Exchange Act Rule 0-11: (Set forth the amount on which the
         filing fee is calculated and state how it was determined)
         -----------------------------------------------------------------------
     4)  Proposed maximum aggregate value of transaction:
         -----------------------------------------------------------------------
     5)  Total fee paid:
         -----------------------------------------------------------------------
/ /  Fee paid previously with preliminary materials.
/ /  Check box if any part of the fee is offset as provided by Exchange Act Rule
     0-11(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:
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     2)  Form, Schedule or Registration Statement No.:
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     3)  Filing Party:
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     4)  Date Filed:
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<PAGE>
                                     [LOGO]
 
                       INTEGRATED SENSOR SOLUTIONS, INC.
 
                                                                   July 22, 1998
 
Dear Stockholder:
 
    This year's annual meeting of stockholders will be held on Friday, August
14, 1998 at 9 a.m. local time, at The Fairmont Hotel, 170 South Market Street,
San Jose, California 95113. You are cordially invited to attend.
 
    The Notice of Annual Meeting of Stockholders and a Proxy Statement, which
describe the formal business to be conducted at the meeting, follow this letter.
 
    After reading the Proxy Statement, please promptly mark, sign and return the
enclosed proxy card in the prepaid envelope to assure that your shares will be
represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU DATE, SIGN, AND RETURN THE
ENCLOSED PROXY CARD OR ATTEND THE ANNUAL MEETING IN PERSON. Regardless of the
number of shares you own, your careful consideration of, and vote on, the
matters before our stockholders is important.
 
    A copy of the Company's Annual Report to Stockholders is also enclosed for
your information. At the annual meeting we will review the activities of
Integrated Sensor Solutions, Inc. over the past year and our plans for the
future. The Board of Directors and Management look forward to seeing you at the
annual meeting.
 
                                          Very truly yours,
 
                                              [LOGO]
                                          MANHER D. NAIK
                                          Chairman of the Board, President and
                                          Chief Executive Officer
<PAGE>
                       INTEGRATED SENSOR SOLUTIONS, INC.
                             625 RIVER OAKS PARKWAY
                               SAN JOSE, CA 95134
 
                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                           TO BE HELD AUGUST 14, 1998
 
To the Stockholders of Integrated Sensor Solutions, Inc.:
 
    NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Integrated
Sensor Solutions, Inc. (the "Company") will be held on Friday, August 14, 1998,
at 9 a.m. at The Fairmont Hotel, 170 South Market Street, San Jose, California
95113 for the following purposes:
 
    1.  To elect two (2) Class I directors to hold office for three-year terms
       and until successors are elected and qualified;
 
    2.  To consider and vote upon a proposal to amend the Company's 1997 Stock
       Plan to increase the maximum number of shares of Common Stock of the
       Company authorized for issuance thereunder from 800,000 shares to
       1,150,000 shares, to provide for automatic annual increases in the number
       of shares reserved for issuance thereunder and to establish a limit on
       the number of shares which may be granted to any employee during a fiscal
       year;
 
    3.  To vote upon a proposal to ratify the appointment of Ernst & Young LLP
       as the Company's independent public accountants for the year ending March
       31, 1999; and
 
    4.  To transact such other business as may properly come before the meeting.
 
    Stockholders of record at the close of business on June 30, 1998 are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof. For ten days prior to the meeting, a complete list of the stockholders
entitled to vote at the meeting will be available for examination by any
stockholder for any purpose relating to the meeting during ordinary business
hours at the principal office of the Company.
 
                                          By Order of the Board of Directors
 
                                          /s/ DAVID SATTERFIELD
 
                                          DAVID SATTERFIELD, SECRETARY
 
San Jose, California
July 22, 1998
 
STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. PROXIES ARE REVOCABLE, AND
ANY STOCKHOLDER MAY WITHDRAW HIS OR HER PROXY PRIOR TO THE TIME IT IS VOTED, OR
BY ATTENDING THE MEETING AND VOTING IN PERSON.
<PAGE>
                       INTEGRATED SENSOR SOLUTIONS, INC.
                             625 RIVER OAKS PARKWAY
                               SAN JOSE, CA 95134
 
               PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
                                AUGUST 14, 1998
 
    The accompanying proxy is being solicited by the Board of Directors of
Integrated Sensor Solutions, Inc., a Delaware corporation (the "Company"), for
use at the 1998 Annual Meeting of Stockholders to be held August 14, 1998, or
any adjournment thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting. The date of this Proxy Statement is July 22, 1998, the
approximate date on which this Proxy Statement and the accompanying form of
proxy were first sent or given to stockholders.
 
                              GENERAL INFORMATION
 
    ANNUAL REPORT.  An annual report for the year ended March 31, 1998, is
enclosed with this Proxy Statement.
 
    VOTING SECURITIES.  Only stockholders of record as of the close of business
on June 30, 1998 will be entitled to vote at the meeting and any adjournment
thereof. As of that date, there were 7,595,916 shares of Common Stock of the
Company, par value $.001 per share, issued and outstanding. Stockholders may
vote in person or by proxy. Each holder of shares of Common Stock is entitled to
one vote for each share of Common Stock held by him or her on the proposals
presented in this Proxy Statement. The Company's bylaws provide that a majority
of all of the shares of the Common Stock entitled to vote, whether present in
person or represented by proxy, shall constitute a quorum for the transaction of
business at the meeting.
 
    SOLICITATION OF PROXIES.  The cost of soliciting proxies will be borne by
the Company. In addition to soliciting stockholders by mail through its regular
employees, the Company may request banks and brokers, and other custodians,
nominees and fiduciaries, to solicit their customers who have stock of the
Company registered in the names of such persons and will reimburse them for
their reasonable, out-of-pocket costs. The Company may use the services of its
officers, directors and others to solicit proxies, personally or by telephone,
without additional compensation.
 
    VOTING OF PROXIES.  All valid proxies received prior to the meeting will be
voted. All shares represented by a proxy will be voted, and where a stockholder
specifies by means of the proxy a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the specification so made. If
no choice is indicated on the proxy, the shares will be voted in favor of the
proposal. A stockholder giving a proxy has the power to revoke his or her proxy,
at any time prior to the time it is voted, by delivery to the Secretary of the
Company of a written instrument revoking the proxy or a duly executed proxy with
a later date or by attending the meeting and voting in person.
 
                                       1
<PAGE>
          STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1998, and as adjusted to
reflect the sale of the shares offered hereby (i) by each person who is known by
the Company to own beneficially more than 5% of the Company's Common Stock, (ii)
by each of the Named Executive Officers and (iii) by all officers and directors
as a group. Except pursuant to applicable community property laws or as
indicated in the footnotes to this table, each stockholder identified in the
table possesses sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by such stockholder. Unless otherwise
noted, the address for the individuals listed below is: c/o Integrated Sensor
Solutions, Inc., 625 River Oaks Parkway, San Jose, CA 95134.
 
<TABLE>
<CAPTION>
                                                                               NUMBER SHARES
BENEFICIAL OWNER                                                             BENEFICIALLY OWNED   PERCENT SHARES(1)
- ---------------------------------------------------------------------------  ------------------   ------------------
<S>                                                                          <C>                  <C>
Breed Technologies, Inc.(2) ...............................................        530,038                7.0%
Stuart A Boyd
5300 Old Tampa Highway
P.O. Box 33050
Lakewood, FL 33807-3050
 
WK Technology Fund(3) .....................................................        502,039                6.6
10th Floor, 115, Sec. 3
Ming Sheng E. Road
Taipei, Taiwan, R.O.C.
 
TDK Semiconductor Corporation .............................................        445,524                5.9
14351 Myford Road
Tustin, CA 92780-7068
 
Nagano Keiki Co., Ltd.(4) .................................................        291,007                3.8
Shigeru Miyashita
1-30-4 Higashimagome
Ohta-ku
Tokyo 162
JAPAN
 
Vinod K. Sood(5)...........................................................        181,121                2.4
 
Manher D. Naik(6)..........................................................        257,527                3.4
 
Donald E. Paulus(7)........................................................        150,958                2.0
 
Ramesh Sirsi(8)............................................................         74,000                1.0
 
Gerald F. Taylor...........................................................              0                  0
 
Y.S. Fu....................................................................              0                  0
 
All directors and executive officers as a group (9 persons)(9).............      1,520,109               19.6
</TABLE>
 
- ------------------------
 
(1) Percent ownership is based on: 7,595,916 shares of Common Stock outstanding
    plus any shares issuable pursuant to options held by the person in question
    which may be exercised within 60 days of June 30, 1998.
 
(2) Includes 530,038 shares held by Breed Technologies, Inc. Stuart Boyd, a
    director of the Company, is an officer of Breed Technologies, Inc. with
    certain voting and investment power over such shares.
 
                                       2
<PAGE>
    Although Mr. Boyd may be deemed to be a beneficial owner of such shares, he
    disclaims all such beneficial ownership except to the extent of any
    pecuniary interest therein which he may have.
 
(3) Includes 502,039 shares held by WK Technology Fund and affiliated funds.
 
(4) Includes 291,007 shares held by Nagano Keiki Co., Ltd. Shigeru Miyashita, a
    director of the Company, is an officer of Nagano Keiki Co., Ltd. Although
    Mr. Miyashita may be deemed to be a beneficial owner of such shares, he
    disclaims all such beneficial ownership except to the extent of any
    pecuniary interest therein which he may have.
 
(5) Includes 178,704 shares held by the Sood Family Trust and 2,417 shares
    subject to options which are exercisable within 60 days of June 30, 1998.
 
(6) Includes 193,360 shares held by the Manher & Gita M. Naik Family Trust and
    64,167 shares subject to options which are exercisable within 60 days of
    June 30, 1998.
 
(7) Includes 10,958 shares subject to options which are exercisable within 60
    days of June 30, 1998.
 
(8) Includes 50,000 shares subject to options which are exercisable within 60
    days of June 30, 1998.
 
(9) Includes 163,000 shares subject to options which are exercisable within 60
    days of June 30, 1998.
 
                                       3
<PAGE>
                                  PROPOSAL ONE
                             ELECTION OF DIRECTORS
 
    The Company has a classified Board of Directors. At each Annual Meeting of
Stockholders, directors are elected for a full term of three years to succeed
those directors whose terms expire on the Annual Meeting dates.
 
    Management's nominees for election at the Annual Meeting of Stockholders to
Class I of the Board of Directors are Manher D. Naik and Vinod K. Sood. If
elected, the nominees will serve as directors until the Company's Annual Meeting
of Stockholders in 2001, and until their successors are elected and qualified.
If one of the nominees declines to serve or becomes unavailable for any reason,
or if a vacancy occurs before the election (although management knows of no
reason to anticipate that this will occur), the proxies may be voted for such
substitute nominee as management may designate.
 
    If a quorum is present and voting, the nominees for Class I directors
receiving the highest number of votes will be elected as Class I directors.
Abstentions and shares held by brokers that are present, but not voted because
the brokers were prohibited from exercising discretionary authority, i.e.,
"broker non-votes," will be counted as present for the purposes of determining
if a quorum is present.
 
    The table below sets forth for the current directors, including the Class I
nominees to be elected at this meeting, and certain information with respect to
age and background.
 
<TABLE>
<CAPTION>
       NAME                                 POSITION WITH THE COMPANY                           AGE   DIRECTOR SINCE
- ----------------------------------------------------------------------------------------------  ---   --------------
<S>                <C>                                                                          <C>   <C>
CLASS I DIRECTORS TO BE ELECTED AT THE 1998 ANNUAL MEETING OF STOCKHOLDERS:
 
Manher D. Naik                       President, Chief Executive Officer and                     55         1989
                                       Chairman of the Board of Directors
 
Vinod K. Sood                                       Director                                    61         1989
 
CLASS II DIRECTORS TO BE ELECTED AT THE 1999 ANNUAL MEETING OF STOCKHOLDERS:
 
Shigeru Miyashita                                   Director                                    62         1997
 
Stuart D. Boyd                                      Director                                    41         1997
 
CLASS III DIRECTORS TO BE ELECTED AT THE 2000 ANNUAL MEETING OF STOCKHOLDERS:
 
Y.S. Fu                                             Director                                    49         1997
 
Gerald F. Taylor                                    Director                                    58         1998
</TABLE>
 
    Manher D. Naik founded the Company in March 1989 and has served as
President, Chief Executive Officer and Chairman of the Board of Directors since
March 1989. From August 1979 through March 1989 Mr. Naik served as Vice
President of Strategic Marketing of National Semiconductor Corporation, a
semiconductor manufacturer. Mr. Naik received a BS in Mechanical Engineering
from the Indian Institute of Technology, an MS degree in Industrial Engineering
from Cornell University, and an MBA degree from Pepperdine University.
 
    Vinod K. Sood has served as a director of the Company since March 1989. Mr.
Sood has been self employed as an advisor and director to technology and
telecommunication companies since 1992. From 1969 to 1992, Mr. Sood was the
Project Administrator/Principal Engineer of the Overseas Projects Division at
General Electric Nuclear. Mr. Sood is also currently a director at a privately
held software company.
 
    Shigeru Miyashita has served as a director of the Company since February
1997. Mr. Miyashita has been the General Corporate Manager at Nagano Keiki Co.,
Ltd. since April 1992.
 
                                       4
<PAGE>
    Stuart D. Boyd has served as a director of the Company since June 1997. Mr.
Boyd has been the Vice President, Associate General Counsel and Assistant
Secretary at Breed Technologies, Inc., an automotive safety system and component
manufacturer, since March 1992.
 
    Y.S. Fu has served as a director of the Company since February 1997. Mr. Fu
is currently President of WYSE Technology Taiwan and also serves as a consultant
to WK Technology Fund. From 1995 to December 1997, Mr. Fu was a Partner of WK
Technology Fund, an investment company. Prior to that time, beginning in 1993,
Mr. Fu served as Senior Vice President OEM (Worldwide) of Logic Technology, Inc.
and from 1986 to 1993 served as Chairman/General Manager (Far East Region) of
Logic Technology, Inc. From 1982 to 1986, Mr. Fu was Plant Manager at Qume.
 
    Gerald F. Taylor has served as a director of the Company since June 1998.
Mr. Taylor is currently a senior advisor to the Chief Executive Officer at
Applied Materials, Inc. From June 1984 to January 1998 Mr. Taylor served as
Chief Financial Officer of Applied Materials, Inc. and from October 1991 to
January 1998 Mr. Taylor served as Senior Vice President/Chief Financial Officer
of Applied Materials. Prior to working at Applied Materials, Mr. Taylor spent 20
years in a broad range of international and domestic controllership positions at
Schlumberger, Fairchild Semiconductor and Instrument Corporation and Honeywell.
Mr. Taylor is also currently a director at Electro Scientific Industries, Inc.
 
    MEETINGS OF THE BOARD OF DIRECTORS.  During the fiscal year ended March 31,
1998, the Board of Directors of the Company held four (4) meetings. In addition
to the regularly scheduled Board Meetings, the Board approved items by Unanimous
Written Consent on three (3) occasions. During the fiscal year ended March 31,
1998, the Audit Committee of the Board held no meetings and the Compensation
Committee of the Board held four (4) meetings. The Company has no standing
nominating committee of the Board. No director attended fewer than 75% of the
total number of meetings of the Board and all of the committees of the Board on
which such director served held during that period.
 
    The members of the Audit Committee during fiscal 1998 were Y.S. Fu and
Stuart D. Boyd. The functions of the Audit Committee include, among others:
recommending to the Board the retention of independent public auditors, subject
to stockholder approval; reviewing and approving the planned scope, proposed fee
arrangements and results of the Company's annual audit; reviewing the adequacy
of accounting and financial controls; and reviewing the independence of the
Company's auditors.
 
    The members of the Compensation Committee during fiscal 1998 were Y.S. Fu
and Vinod K. Sood. The Compensation Committee reviews and determines the salary
and bonus criteria of and stock option grants to all executive officers.
 
                                       5
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    Since March 31, 1996, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or is
to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or beneficial holder of more than 5% of any class of
voting securities of the Company or members of such person's immediate family
had or will have a direct or indirect material interest other than the
transactions described below.
 
    In December 1996 and October 1997, the Company sold 249,616 and 12,111
shares of Series E Preferred Stock, respectively, at a price of $3.78 per share.
In addition, in December 1996, the Company issued warrants to purchase shares of
Series F Preferred Stock at $6.38 per share. In December 1996, February 1997 and
June 1997, the Company sold 766,818 shares of Series F Preferred Stock at a
price of $6.13 per share. All outstanding and issuable shares of Preferred Stock
converted into shares of Common Stock in connection with the closing of the
Company's initial public offering. The following executive officers, directors,
beneficial holders of more than 5% of a class of the Company's capital stock and
immediate family members of such persons purchased Series E and Series F
Preferred Stock:
 
<TABLE>
<CAPTION>
                                                                                     WARRANTS TO PURCHASE
                                                                      SERIES E             SERIES F            SERIES F
EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS(1)               PREFERRED STOCK     PREFERRED STOCK      PREFERRED STOCK
- -----------------------------------------------------------------  ---------------   --------------------   ---------------
<S>                                                                <C>               <C>                    <C>
Nagano Keiki Co., Ltd.(2)........................................      131,007(3)
TDK Semiconductor Corporation(2).................................       17,978(4)
WK Technology Fund(2)............................................                           48,978(5)           453,057(6)
Vinod K. Sood(7).................................................                                                34,493(8)
</TABLE>
 
- ------------------------
 
(1) See notes to table of beneficial ownership in "Principal Stockholders" for
    information relating to the beneficial ownership of such shares.
 
(2) A beneficial holder of more than 5% of a class of the Company's capital
    stock.
 
(3) Represents shares issued in exchange for the cancellation of indebtedness.
 
(4) Represents shares issued in exchange for the cancellation of indebtedness.
 
(5) Represents warrants to purchase 13,714 shares held by WK Technology Fund,
    10,285 shares held by WK Technology Fund II, 18,612 shares held by WK
    Technology Fund III and 6,367 shares held by WK Technology Fund IV. These
    warrants were exercised in November 1997.
 
(6) Represents 123,591 shares held by WK Technology Fund, 103,306 shares held by
    WK Technology Fund II, 155,836 shares held by WK Technology Fund III and
    70,326 shares held by WK Technology Fund IV.
 
(7) A director of the Company.
 
(8) Represents shares issued in exchange for the cancellation of the Company's
    Promissory Note dated June 15, 1996 in the amount of $211,268.75 payable to
    the Sood Family Trust.
 
    During fiscal 1997 and 1998, respectively, the Company designed and
manufactured specific products for Breed Technologies, Inc. which resulted in
sales of approximately $181,000 and $0 to Breed Technologies, Inc. of which
approximately $0 and $0 is included in the accounts receivable balance at March
31, 1997 and 1998, respectively.
 
    During fiscal years 1997 and 1998, the Company purchased goods and services
from TDK Semiconductor Corporation resulting in payments of $2,323,000 and
$375,000, respectively. At March 31, 1997 and 1998, the accounts payable balance
included approximately $304,000 and $138,000 payable to TDK Semiconductor
Corporation. Included in the notes payable balance at March 31, 1996 and 1997,
were
 
                                       6
<PAGE>
approximately $679,000 and $679,000 payable to TDK. On April 15, 1993, the
Company issued a promissory note to TDK Semiconductor Corporation in the amount
of $500,000 with an interest rate of 9% per year. On June 14, 1995, the Company
repaid the principal amount of the loan and issued 41,488 shares of Common Stock
to TDK Semiconductor Corporation in exchange for the cancellation of accrued and
unpaid interest on such indebtedness. On December 15, 1995, the Company issued a
promissory note to TDK Semiconductor Corporation in the amount of $679,000 with
an interest rate of 10% per year. As of February 1, 1998, the Company and TDK
have amended and restated the December 15, 1995 promissory note to capitalize
all interest due to date and to specify a new maturity date. The principal
amount of the amended and restated promissory note is $760,000, which bears
interest at 10% per year, and all amounts thereunder were paid in full in June
1998. In December 1996, the Company issued Series E Preferred Stock to TDK
Semiconductor Corporation in exchange for the cancellation of interest payments
for the fiscal year ended March 31, 1997 in the amount of $67,868 on the
December 1995 promissory note.
 
    During fiscal 1997 and 1998, the Company performed development services for
and sold ASICs to Nagano resulting in approximately $1,119,000 and $1,766,000 of
revenues in those periods, of which approximately $709,000 and $802,000 are
included in the accounts receivable balance at March 31, 1997 and 1998,
respectively. Included in the accounts payable balance at March 31 1997, and
1998 are approximately $381,000 and $988,000, respectively, payable to Nagano
for purchases of sensing elements of $630,000 and $2,136,000 during fiscal 1997
and 1998, respectively. In addition, included in the notes payable balance at
March 31, 1997 is approximately $437,000 payable to Nagano. In August 1995, the
Company issued a promissory note to Nagano in the amount of $453,000 with an
interest rate of 9.5% per year. In December 1996 and October 1997, the Company
issued Series E Preferred Stock to Nagano in exchange for the cancellation of
interest and principal amounts due and payable on the August 1995 promissory
note. On November 1, 1996, the Company issued a promissory note to Nagano in the
amount of $437,000 with an interest rate of 10% per year. The Company repaid all
interest and principal on the November 1996 promissory note on May 30, 1997. On
July 31, 1997, the Company entered into an agreement to increase its ownership
of ISS-Nagano by converting approximately $1.0 million in long term intercompany
indebtedness owed by ISS-Nagano into an increased equity interest. Accordingly,
the Company now owns 74% of the equity of ISS-Nagano. For periods subsequent to
July 1997, 26% of ISS-Nagano's net income (loss) has been attributed to the
minority shareholders' interest.
 
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
    Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership on Form 3 and changes in
ownership on Form 4 or Form 5 with the Securities and Exchange Commission (the
"SEC"). Such officers, directors and ten percent stockholders are also required
by SEC rules to furnish the Company with copies of all Section 16(a) reports
they file.
 
    Based solely on its review of the copies of such forms received by it, the
Company believes that, during the year ended March 31, 1998, all reporting
persons complied with Section 16(a) filing requirements applicable to them.
 
                                       7
<PAGE>
                    EXECUTIVE COMPENSATION AND OTHER MATTERS
 
EXECUTIVE COMPENSATION
 
    The following summary compensation table sets forth information concerning
the compensation during the fiscal years ended March 31, 1998 and 1997 to the
Company's chief executive officer and each of the two other executive officers
whose total compensation for services in all capacities to the Company exceeded
$100,000 during such year (the "Named Executive Officers").
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                         ANNUAL COMPENSATION   LONG TERM COMPENSATION AWARDS
                                                                         -------------------   -----------------------------
NAME AND PRINCIPAL POSITION                                        YEAR       SALARY(1)        SECURITIES UNDERLYING OPTIONS
- -----------------------------------------------------------------  ----  -------------------   -----------------------------
<S>                                                                <C>   <C>                   <C>
Manher D. Naik ..................................................  1998       $155,000                    40,000
President and Chief Executive Officer                              1997       $136,667                    40,000
 
Donald E. Paulus ................................................  1998        133,400                --
Chief Operating Officer                                            1997        116,400                    14,000
 
Ramesh M. Sirsi..................................................  1998        120,000                --
Executive Vice President, Marketing and                            1997        104,850                    32,000
  Business Development
</TABLE>
 
- ------------------------
 
(1) Includes amounts deferred at the election of the Named Executive Officer
    pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended.
 
STOCK OPTION INFORMATION
 
    The following table sets forth certain information with respect to grants of
options to purchase the Company's Common Stock made during the fiscal year ended
March 31, 1998 to the Named Executive Officers:
 
                       OPTION GRANTS IN FISCAL YEAR 1998
 
<TABLE>
<CAPTION>
                                                             NUMBER OF
                                                             SECURITIES        % OF TOTAL OPTIONS
                                                         UNDERLYING OPTIONS   GRANTED TO EMPLOYEES   EXERCISE PRICE   EXPIRATION
NAME                                                         GRANTED(1)        IN FISCAL YEAR(2)      PER SHARE(3)       DATE
- -------------------------------------------------------  ------------------   --------------------   --------------   ----------
<S>                                                      <C>                  <C>                    <C>              <C>
Manher D. Naik.........................................        40,000                36.9%               $2.00        03/31/2002
 
Donald E. Paulus.......................................       --                   --                   --                --
 
Ramesh M. Sirsi........................................       --                   --                   --                --
</TABLE>
 
- ------------------------
 
(1) Options granted in fiscal 1998 generally vest over a four year period: 1/8
    of the total number of shares subject to each option vest and become
    exercisable six months after the vesting start date, which is stated in the
    option agreement; and 1/48 vest and become exercisable monthly thereafter.
    Each option may be terminated earlier upon the cessation of the individual's
    employment with the Company.
 
(2) The Company granted options to purchase 109,390 shares of Common Stock
    during fiscal 1998.
 
(3) All options were granted at an exercise price equal to the fair market value
    of the Company's Common Stock as determined by the Board of Directors of the
    Company on the date of grant.
 
                                       8
<PAGE>
   AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR END OPTION
                                     VALUES
 
    The following table sets forth for each of the Named Executive Officers
certain information concerning the number of shares subject to both exercisable
and unexercisable stock options as of March 31, 1998. Also reported are values
for "in the money" options that represent the positive spread between the
respective exercise prices of outstanding options and the fair market value of
the Company's Common Stock as of March 31, 1998. No options or stock
appreciation rights were exercised during the fiscal year ended March 31, 1998.
 
<TABLE>
<CAPTION>
                                                                        NUMBER OF SECURITIES           VALUE OF UNEXERCISED
                                                                   UNDERLYING UNEXERCISED OPTIONS    IN-THE- MONEY OPTIONS AT
                                                                         AT FISCAL YEAR END             FISCAL YEAR END(2)
                                                                   ------------------------------   ---------------------------
NAME                                                               EXERCISABLE(1)   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
- -----------------------------------------------------------------  --------------   -------------   -----------   -------------
<S>                                                                <C>              <C>             <C>           <C>
Manher D. Naik...................................................      53,542          56,458        $379,427       $383,073
 
Donald E. Paulus.................................................       9,500          10,500          65,813         66,937
 
Ramesh M. Sirsi..................................................      42,500          29,500         303,750        200,750
</TABLE>
 
- ------------------------
 
(1) Exercisable in accordance with the vesting provisions described above in
    Note 1 to the table entitled "Option Grants in Fiscal Year 1998."
 
(2) Calculated by determining the difference between the fair market value of
    the securities underlying the option at March 31, 1998 ($8.375 which was the
    closing sale price of the Company's Common Stock as reported on the Nasdaq
    National Market on March 31, 1998) and the exercise price of the Named
    Executive Officer's option. Under the Company's 1997 Stock Plan, the Board
    retains discretion to modify the terms including the prices of outstanding
    options. For additional information concerning options, see "Proposal
    Two--Approval of Amendment to Integrated Sensor Solutions, Inc. 1997 Stock
    Plan."
 
DIRECTOR COMPENSATION
 
    The directors generally do not receive cash compensation for their services
as directors. However, Vinod K. Sood receives compensation of $150 per board
meeting. In addition, the Company's directors are eligible to receive option
grants under the Company's 1997 Stock Plan.
 
CHANGES TO BENEFIT PLANS
 
    In May 1998, the Board of Directors amended the Company's 1997 Stock Plan
(the "Option Plan"), subject to stockholder approval, to increase the shares
reserved for issuance under the Option Plan. Since this amendment, none of the
directors or executive officers as a group have received any stock option
grants. Non-employee directors are eligible to participate in the Option Plan.
 
    The following table sets forth stock options received under the Option Plan
during the fiscal year ended March 31, 1998 by (1) the executive officers named
in the Summary Compensation Table; (2) all current executive officers as a
group; (3) all current directors who are not executive officers as a group; and
(4) all employees, including all officers who are not executive officers, as a
group. Grants under the Option Plan are made at the discretion of the Board of
Directors. Accordingly, future grants under the Option Plan are not yet
determinable.
 
                                       9
<PAGE>
                               NEW PLAN BENEFITS
 
<TABLE>
<CAPTION>
                                                                             INTEGRATED
                                                                             SENSOR
                                                                             SOLUTIONS,
                                                                             INC. 1997
                                                                               STOCK
                                                                              PLAN(1)
                                                                             ---------
                                                                             NUMBER OF
NAME AND PRINCIPAL POSITION                                                  SHARES(2)
- ---------------------------------------------------------------------------  ---------
<S>                                                                          <C>
Manher D. Naik ............................................................   50,000
President and Chief Executive Officer
 
Donald Paulus .............................................................   21,000
Chief Operating Officer
 
Ramesh Sirsi ..............................................................   27,000
Executive Vice President, Marketing and Sales
 
All Executive Officers as a Group (4 persons)..............................  109,000
 
All Outside Directors as a Group (5 persons)...............................    --
 
All Non-Executive Officer Employees as a Group.............................  203,560
</TABLE>
 
- ------------------------
 
(1) Only employees, directors and independent contractors of, and consultants
    to, the Company are eligible to participate in the Option Plan.
 
(2) Number of options granted from inception of the 1997 Stock Plan through the
    date of this Proxy Statement.
 
                                       10
<PAGE>
                                  PROPOSAL TWO
                            APPROVAL OF AMENDMENT TO
               INTEGRATED SENSOR SOLUTIONS, INC. 1997 STOCK PLAN
 
    At the 1998 Annual Meeting, the stockholders will be asked to approve
amendments to the Company's 1997 Stock Plan (the "Option Plan") to increase by
350,000 the maximum number of shares of Common Stock that may be issued under
the Option Plan.
 
    The Company's stockholders have previously approved the reservation of
800,000 shares of the Company's Common Stock (subject to adjustment upon certain
changes in the capital structure of the Company) for issuance to employees
(including officers), directors and consultants under the Option Plan. As of
July 15, 1998, options to purchase an aggregate of 287,360 shares of Common
Stock were outstanding, at a weighted average exercise price of $4.936 per
share, and 9,266 shares had been issued upon the exercise of previously granted
options, leaving 503,374 shares available for future option grants not including
the proposed reserve increase of 350,000. To enable the Company to continue to
provide long-term equity incentives, the Board of Directors has amended the
Option Plan, subject to approval by the stockholders, to increase the maximum
number of shares that may be issued under the Option Plan by 350,000 to an
aggregate of 1,150,000 shares. In addition, the Board of Directors has amended
the Option Plan, subject to stockholder approval, to provide that the number of
shares issuable under the Option Plan will be increased on the first day of each
fiscal year of the Company beginning on or after April 1, 1999 by a number of
shares equal to 5% of the number of shares of the Company's common stock issued
and outstanding on the last day of the preceding fiscal year.
 
    The Internal Revenue Code of 1986, as amended (the "Code") limits the amount
of compensation paid to a corporation's chief executive officer and four other
most highly compensated officers which may be deductible as an expense for
federal income tax purposes. To enable the Company to continue to deduct in full
all amounts of ordinary income recognized by its executive officers in
connection with awards granted under the Option Plan, the Board of Directors has
amended the Option Plan, subject to stockholder approval, to limit to 250,000
the maximum number of shares for which awards under the Option Plan may be
granted to any employee in any fiscal year (the "Grant Limit"). However, the
Company's grants typically do not approach this limit.
 
    The stockholders are now being asked to approve an increase of 350,000 in
the maximum aggregate number of shares that may be issued under the Option Plan,
the automatic share reserve increase provision and the establishment of the
Grant Limit. The Board of Directors believes that approval of these amendments
is in the best interests of the Company and its stockholders because the
availability of an adequate stock option program is an important factor in
attracting, motivating and retaining qualified officers, employees and
consultants essential to the success of the Company and in aligning their
long-term interests with those of the stockholders.
 
SUMMARY OF THE OPTION PLAN, AS AMENDED
 
    The following summary of the Option Plan, as amended, is qualified in its
entirety by the specific language of the Option Plan, a copy of which is
available to any stockholder upon request.
 
    GENERAL.  The purpose of the Option Plan is to advance the interests of the
Company and its stockholders by providing an incentive to attract, retain and
reward the Company's employees, directors and consultants and by motivating such
persons to contribute to the Company's growth and profitability. It provides for
the grant of incentive stock options within the meaning of section 422 of the
Code and nonstatutory stock options. In addition, stock purchase rights
("rights") may also be granted under the Option Plan.
 
    SHARES SUBJECT TO PLAN.  The stockholders have previously authorized an
aggregate of 800,000 shares of the Company's Common Stock for issuance under the
Option Plan. As amended, the Option Plan would
 
                                       11
<PAGE>
provide that the maximum aggregate number of authorized but unissued or
reacquired shares of Common Stock that may be issued under the plan is
1,150,000. In addition, the Board of Directors has amended the Option Plan,
subject to stockholder approval, to provide that the number of shares issuable
under the Option Plan will be increased on the first day of each fiscal year of
the Company beginning on or after April 1, 1999 by a number of shares equal to
5% of the number of shares of the Company's common stock issued and outstanding
on the last day of the preceding fiscal year. However, without further
shareholder approval, no more than 1,150,000 shares may cumulatively be
available for issuance upon the exercise of incentive stock options (the "ISO
Share Limit"). Appropriate adjustments will be made to the shares subject to the
Option Plan, the Grant Limit and the ISO Share Limit and to outstanding options
upon any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification, or similar change in the capital structure of the
Company. To the extent that any outstanding option or right under the Option
Plan expires or terminates prior to exercise in full, or if unvested shares
issued upon exercise of a right are subject to a Company repurchase right which
is subsequently exercised by the Company, the shares of Common Stock for which
such option or right is not exercised, or the repurchased shares are returned to
the Option Plan and become available for future grant.
 
    ADMINISTRATION.  The Option Plan is administered by the Board of Directors
or a duly appointed committee of the Board (hereinafter referred to as the
"Board"). Subject to the provisions of the Option Plan, the Board determines the
persons to whom options or rights are to be granted, the number of shares to be
covered by each option or right, whether an option is to be an incentive stock
option or a nonstatutory stock option, the timing and terms of exercisability
and vesting of each option or right, the exercise price of and the type of
consideration to be paid to the Company upon the exercise of each option and
right, the duration of each option and right, and all other terms and conditions
of the options and rights. The Board will interpret the Option Plan and options
granted thereunder, and all determinations of the Board will be final and
binding on all persons having an interest in the Option Plan or any option or
right.
 
    ELIGIBILITY.  Options and rights may be granted under the Option Plan to
employees (including officers), directors and consultants of the Company or of
any present or future parent or subsidiary corporations of the Company. As of
July 15, 1998, the Company had approximately 120 employees, including 4
executive officers, 5 directors and 0 consultants eligible under the Option
Plan. While any person eligible under the Option Plan may be granted a
nonstatutory stock option or a right, only employees may be granted incentive
stock options. Subject to stockholder approval, no employee may be granted, in
any fiscal year, options and rights under the Option Plan for more shares than
the Grant Limit.
 
    TERMS AND CONDITIONS OF OPTIONS.  Each option granted under the Option Plan
is evidenced by a written agreement between the Company and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the plan. The
exercise price of each incentive stock option granted under the Option Plan may
not be less than the fair market value of a share of the Company's Common Stock
on the date of grant, while the exercise price of a nonstatutory stock option
may not be less than 85% of such fair market value. However, any option granted
to a person who at the time of grant owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any parent
or subsidiary corporation of the Company (a "Ten Percent Stockholder") must have
an exercise price equal to at least 110% of the fair market value of a share of
Common Stock on the date of grant. As of July 15, 1998, the closing price of the
Company's Common Stock, as reported on the Nasdaq National Market, was $5.813
per share.
 
    The Option Plan provides that the exercise price may be paid in cash, by
check, or in cash equivalent, by tender of shares of the Company's Common Stock
owned by the optionee having a fair market value not less than the exercise
price, by the assignment of the proceeds of a sale or loan with respect to some
or all of the shares of Common Stock being acquired upon the exercise of the
option, by means of a promissory note or by any combination of these. The Board
may nevertheless restrict the forms of payment permitted
 
                                       12
<PAGE>
in connection with any option grant. No option may be exercised until the
optionee has made adequate provision for federal, state, local and foreign
taxes, if any, relating to the exercise of the option.
 
    Options granted under the Option Plan become exercisable and vested at such
times and subject to such conditions as specified by the Board. Generally,
options granted under the Option Plan generally vest over a four year period:
1/8 of the total number of shares subject to each option vest and become
exercisable six months after the vesting start date, which is stated in the
option agreement; and 1/48 vest and become exercisable monthly thereafter. Each
option may be terminated earlier upon the cessation of the individual's
employment or service with the Company. The maximum term of an option granted
under the Option Plan is ten years, provided that an incentive stock option
granted to a 10% Stockholder must have a term not exceeding five years.
 
    Options are nontransferable by the optionee other than by will or by the
laws of descent and distribution, and are exercisable during the optionee's
lifetime only by the optionee. Generally, options remain exercisable for 90 days
following an optionee's termination of service, unless such termination results
from the optionee's death or disability, in which case the option will remain
exercisable for twelve months following the optionee's termination of service,
provided that in any event the option must be exercised no later than its
expiration date.
 
    STOCK PURCHASE RIGHTS.  Stock purchase rights may be granted alone or in
tandem with other awards granted under the Option Plan. Shares acquired upon
exercise of a stock purchase right are generally subject to the Company's option
to repurchase such shares at the original purchase price if the purchaser
terminates his or her employment or service with the Company prior to completion
of a service requirement set forth in the agreement evidencing the stock
purchase right.
 
    CHANGE IN CONTROL.  The Option Plan provides that in the event of (i) a
merger or consolidation in which the Company is a party or (ii) the sale,
exchange or transfer of all or substantially all of the assets of the Company,
(a "Change in Control"), the acquiring or successor corporation or parent
corporation thereof may either assume the Company's rights and obligations under
the outstanding options and rights or substitute substantially equivalent
options and rights for such corporation's stock. In the event that the acquiring
or successor corporation does not assume or substitute for an outstanding option
or right, shares subject to such option or right will become fully vested and
exercisable. To the extent that the outstanding options are not assumed,
replaced or exercised prior to the Change in Control, they will terminate.
 
    TERMINATION OR AMENDMENT.  The Option Plan will continue in effect until
February 20, 2007, unless earlier terminated by the Board. The Board may
terminate or amend the Option Plan at any time, provided that the Board will
obtain stockholder approval of any amendment to the extent required by
applicable laws. No termination or amendment may adversely affect an outstanding
option without the consent of the optionee.
 
SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
 
    The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law with respect to options
granted under the Option Plan and does not attempt to describe all possible
federal or other tax consequences or tax consequences based on particular
circumstances.
 
    INCENTIVE STOCK OPTIONS.  An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a long-term capital gain or loss equal to the difference, if any,
between the sale price and the purchase price of the shares. If an optionee
satisfies such holding periods upon a sale of the shares, the Company will not
be entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years after the date of grant
 
                                       13
<PAGE>
or within one year from the date of exercise (a "disqualifying disposition"),
the difference between the fair market value of the shares on the determination
date (see discussion under "Nonstatutory Stock Options" below) and the option
exercise price (not to exceed the gain realized on the sale if the disposition
is a transaction with respect to which a loss, if sustained, would be
recognized) will be taxed as ordinary income at the time of disposition. Any
gain in excess of that amount will be a capital gain. If a loss is recognized,
there will be no ordinary income, and such loss will be a capital loss. A
capital gain or loss will be mid-term or long-term if the optionee's holding
period is more than 12 months or 18 months, respectively. Any ordinary income
recognized by the optionee upon the disqualifying disposition of the shares
generally should be deductible by the Company for federal income tax purposes,
except to the extent such deduction is limited by applicable provisions of the
Code or the regulations thereunder.
 
    The difference between the option exercise price and the fair market value
of the shares on the exercise date of an incentive stock option is an adjustment
in computing the optionee's alternative minimum taxable income and may be
subject to an alternative minimum tax which is paid if such tax exceeds the
regular tax for the year. Special rules may apply with respect to certain
subsequent sales of the shares in a disqualifying disposition, certain basis
adjustments for purposes of computing the alternative minimum taxable income on
a subsequent sale of the shares and certain tax credits which may arise with
respect to optionees subject to the alternative minimum tax.
 
    NONSTATUTORY STOCK OPTIONS.  Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally recognizes no taxable
income as the result of the grant of such an option. Upon exercise of a
nonstatutory stock option, the optionee normally recognizes ordinary income in
the amount of the difference between the option exercise price and the fair
market value of the shares on the exercise date. If the optionee is an employee,
such ordinary income generally is subject to withholding of income and
employment taxes. Upon the sale of stock acquired by the exercise of a
nonstatutory stock option, any gain or loss, based on the difference between the
sale price and the fair market value on the determination date, will be taxed as
capital gain or loss. A capital gain or loss will be mid-term or long-term if
the optionee's holding period is more than 12 months or 18 months, respectively.
No tax deduction is available to the Company with respect to the grant of a
nonstatutory stock option or the sale of the stock acquired pursuant to such
grant. The Company generally should be entitled to a deduction equal to the
amount of ordinary income recognized by the optionee as a result of the exercise
of a nonstatutory stock option, except to the extent such deduction is limited
by applicable provisions of the Code or the regulations thereunder.
 
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION
 
    The affirmative vote of a majority of the votes cast at the Annual Meeting
of Stockholders, at which a quorum representing a majority of all outstanding
shares of Common Stock of the Company is present and voting, either in person or
by proxy, is required for approval of this proposal. Abstentions and broker non-
votes will each be counted as present for purposes of determining the presence
of a quorum, but will not be counted as having been voted on the proposal.
 
    The Board of Directors believes that the proposed amendments to the Option
Plan increasing the maximum aggregate number of shares of Common Stock issuable
under the plan and the establishment of the Grant Limit are in the best
interests of the Company and the stockholders for the reasons stated above.
 
    THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO AMEND THE OPTION PLAN TO INCREASE THE MAXIMUM AGGREGATE NUMBER OF
SHARES OF COMMON STOCK ISSUABLE UNDER THE PLAN AS DESCRIBED HEREIN AND THE
ESTABLISHMENT OF THE GRANT LIMIT.
 
                                       14
<PAGE>
                                 PROPOSAL THREE
             RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
 
    The Board of Directors of the Company has selected Ernst & Young LLP as
independent accountants to audit the financial statements of the Company for the
year ending March 31, 1999. Ernst & Young LLP has acted as the Company's
independent auditors since the Company's inception. A representative of Ernst &
Young LLP is expected to be present at the Annual Meeting with the opportunity
to make a statement if the representative desires to do so, and is expected to
be available to respond to appropriate questions.
 
    The affirmative vote of a majority of the votes cast at the Annual Meeting
of Stockholders, at which a quorum representing a majority of all outstanding
shares of Common Stock of the Company is present and voting, either in person or
by proxy, is required for approval of this proposal. Abstentions and broker non-
votes will each be counted as present for purposes of determining the presence
of a quorum. Neither abstentions nor broker non-votes will have any effect on
the outcome of this vote.
 
    THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT
OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE YEAR
ENDING MARCH 31, 1999.
 
                     STOCKHOLDER PROPOSALS TO BE PRESENTED
                             AT NEXT ANNUAL MEETING
 
    Proposals of stockholders intended to be presented at the next Annual
Meeting of the Stockholders of the Company must be received by the Company at
its offices at 625 River Oaks Parkway, San Jose, CA 95134, not later than March
22, 1999, and satisfy the conditions established by the Securities and Exchange
Commission for stockholder proposals to be included in the Company's proxy
statement for that meeting.
 
                                       15
<PAGE>
                         TRANSACTION OF OTHER BUSINESS
 
    At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
 
                                          By Order of the Board of Directors
 
                                          /s/ DAVID SATTERFIELD
 
                                          DAVID SATTERFIELD,
                                          SECRETARY
 
July 22, 1998
 
                                       16
<PAGE>
PROXY                   INTEGRATED SENSOR SOLUTIONS, INC.                  PROXY
 
 PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS -- TO BE HELD ON AUGUST 14, 1998
 
                      SOLICITED BY THE BOARD OF DIRECTORS
 
    The undersigned hereby appoints Manher D. Naik and David Satterfield, and
each of them, with full power of substitution, to represent the undersigned and
to vote all of the shares of stock in Integrated Sensor Solutions, Inc., a
Delaware corporation (the "Company"), which the undersigned is entitled to vote
at the Annual Meeting of Stockholders of the Company to be held at The Fairmont
Hotel, 170 South Market Street, San Jose, California 95113 at 9:00 a.m., local
time, and at any adjournment or postponement thereof (i) as hereinafter
specified upon the proposals listed on the reverse side and as more particularly
described in the Proxy Statement of the Company dated July 22, 1998 (the "Proxy
Statement"), receipt of which is hereby acknowledged, and (ii) in their
discretion upon such other matters as may properly come before the meeting.
 
    THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1, 2 AND 3.
 
    WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY
BE REPRESENTED AT THE MEETING.
 
A vote FOR the following proposals is recommended by the Board of Directors:
 
1. To elect the following two (2) persons as Class I directors to hold office
   for a three-year term and until their respective successors are elected and
   qualified:
 
<TABLE>
<S>                                                                 <C>
/ / FOR all the nominees listed below                               / / WITHHOLD AUTHORITY
  (except as marked to the contrary below)                            to vote for all nominees listed below
</TABLE>
 
                                         Nominees:  Manher D. Naik, Vinod K.
Sood
 
2. To approve amendments to the Company's 1997 Stock Plan to increase the
   maximum number of shares of Common Stock of the Company authorized for
   issuance thereunder from 800,000 shares to 1,150,000 shares, to provide for
   automatic annual increases in the number of shares reserved for issuance
   thereunder and to establish a limit on the number of shares which may be
   granted to any employee during a fiscal year.
 
    / / FOR                / / AGAINST                / / ABSTAIN
 
                      PLEASE SIGN AND DATE ON REVERSE SIDE
<PAGE>
                   (CONTINUED FORM FRONT SIDE OF PROXY CARD)
 
3. To consider, approve and ratify the appointment of Ernst & Young LLP as
   independent public auditors for the Company for the fiscal year ending March
   31, 1999.
 
    / / FOR                / / AGAINST                / / ABSTAIN
                                                DATED: ___________________, 1998
 
                                                --------------------------------
                                                          SIGNATURE
 
                                              ----------------------------------
                                                           SIGNATURE
 
                                                PLEASE SIGN HERE. Sign exactly
                                                as your name(s) appears on your
                                                stock certificate. If shares of
                                                stock are held of record in the
                                                names of two or more persons or
                                                in the name of husband and wife,
                                                whether as joint tenants or
                                                otherwise, both or all of such
                                                persons should sign the Proxy.
                                                If shares of stock are held of
                                                record by a corporation, the
                                                Proxy should be executed by the
                                                President or Vice President and
                                                the Secretary or Assistant
                                                Secretary. Executors or
                                                administrators or other
                                                fiduciaries who execute the
                                                Proxy for a deceased stockholder
                                                should give their full title.
                                                Please date the Proxy.
 
                                                Mark here for address change and
                                                note at left / /
 
                                                Mark here if you plan to attend
                                                the meeting / /
 
 PLEASE SIGN, DATE AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE
                           PREPAID ENVELOPE PROVIDED.


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