<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1999
REGISTRATION NO. 333-66947
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
SUMMIT TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 3845 04-2897945
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
OF INCORPORATION OR
ORGANIZATION)
21 HICKORY DRIVE
WALTHAM, MASSACHUSETTS 02451
(781) 890-1234
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES A. LIGHTMAN
VICE PRESIDENT AND GENERAL COUNSEL
SUMMIT TECHNOLOGY, INC.
21 HICKORY DRIVE
WALTHAM, MASSACHUSETTS 02451
(781) 890-1234
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
KEITH F. HIGGINS, ESQ. WILLIAM A. GRIMM, ESQ.
ROPES & GRAY GRAY, HARRIS & ROBINSON, P.A.
ONE INTERNATIONAL PLACE 201 EAST PINE STREET, SUITE 1200
BOSTON, MASSACHUSETTS 02110 ORLANDO, FLORIDA 32801
(617) 951-7000 (407) 843-8880
(617) 951-7050 (FAX) (407) 244-5690 (FAX)
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of the Registration Statement.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGOS] [LOGOS]
SUMMIT TECHNOLOGY, INC. AUTONOMOUS TECHNOLOGIES
CORPORATION
[Date]
Dear Fellow Stockholders:
The boards of directors of Summit Technology, Inc. and Autonomous Technologies
Corporation have agreed to a merger in which Summit will acquire Autonomous.
Autonomous will become a subsidiary of Summit, but will remain a separate
corporation and will remain headquartered in Orlando, Florida. The merger will
bring together complementary laser vision correction technologies, and we
believe it will benefit both companies and our stockholders.
If you are an Autonomous stockholder, you will receive a combination of Summit
common stock and cash for each share of Autonomous common stock you own on the
date of the merger. Summit will issue up to 11,650,400 shares of its common
stock and an equal value of cash (up to $50 million) in the merger. The exact
amount of the consideration, and the mixture of stock and cash, will be
determined by a formula that is more fully described in the accompanying joint
proxy statement/prospectus. Summit common stock is traded on the Nasdaq
National Market under the symbol "BEAM."
YOUR VOTE IS VERY IMPORTANT. The merger cannot be completed unless the
stockholders of Autonomous approve it and the stockholders of Summit approve
the issuance of the Summit shares to be issued in the merger. We have scheduled
special meetings for our stockholders for this purpose which will take place as
follows:
For Summit Stockholders For Autonomous Stockholders
[Date] [Date]
[Place] [Place]
Whether or not you plan to attend the meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us. If you complete and
return your card but don't indicate how you want to vote, your proxy will be
counted as a vote in favor of the merger or for the share issuance. If you
don't return your card or abstain from voting, the effect will be a vote
against the merger. If you decide to attend the meeting, you may vote in person
even though you have already submitted a proxy.
The accompanying joint proxy statement/prospectus provides you with detailed
information about the transaction, and we urge you to read it carefully. In
addition, you may obtain information about our companies from documents we have
filed with the Securities and Exchange Commission. If you have questions, you
may call us on business days between 9:00 a.m. and 5:00 p.m. for further
information. Please ask for Kate Sturgis Burnham at 781-890-1234, or Jonathan
A. Kennedy at 407-384-1664.
Robert J. Palmisano Randy W. Frey
Chief Executive Officer Chairman of the Board, President and Chief
Summit Technology, Inc. Executive Officer
Autonomous Technologies Corporation
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATORS HAVE APPROVED OR
DISAPPROVED THE SUMMIT COMMON STOCK TO BE ISSUED IN THE MERGER OR DETERMINED IF
THIS PROSPECTUS IS ACCURATE OR ADEQUATE. ANYONE WHO TELLS YOU OTHERWISE IS
COMMITTING A CRIME.
THESE SECURITIES ARE SUBJECT TO INVESTMENT RISKS, WHICH ARE DISCUSSED BEGINNING
ON PAGE .
The joint proxy statement/prospectus is dated January , 1999 and is first
being mailed to stockholders on or about January , 1999.
<PAGE>
SUMMIT TECHNOLOGY, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Date: [Day], February , 1999
Time: 10:00 a.m., Eastern Standard Time
Place:
At the special meeting, the stockholders of Summit will vote upon a proposal to
approve the issuance of up to 11,650,400 shares of Summit common stock in
connection with Summit's acquisition of Autonomous Technologies Corporation. In
addition, Summit stockholders will vote on a proposal to amend Summit's
articles of organization to increase the authorized common stock from 60
million shares to 100 million shares. Summit stockholders will also vote on a
proposal to amend Summit's 1997 Stock Option Plan to increase the number of
shares of common stock available to be issued under the Plan by 1,500,000
shares. The proposals to increase the authorized shares under Summit's articles
of organization and to increase the shares available for issuance under the
1997 Plan are wholly separate proposals and are not necessary to complete the
Autonomous acquisition.
It is important that your shares be voted. Please vote as soon as possible by
telephone or by completing the proxy card and returning it in the enclosed
envelope. If you decide to attend the meeting in person, you can withdraw your
proxy and vote at that time. Stockholders of record at the close of business
(5:00 p.m., EST) on January , 1999 are entitled to one vote for each share
held. A list of these stockholders will be available for inspection for ten
days preceding the meeting at the office of the Clerk of Summit at 21 Hickory
Drive, Waltham, Massachusetts 02451, and will also be available for inspection
at the meeting itself.
THE BOARD OF DIRECTORS OF SUMMIT HAS DETERMINED THAT THE ISSUANCE OF SUMMIT
COMMON STOCK IN THE MERGER, THE INCREASE IN AUTHORIZED SHARES AND THE INCREASE
IN THE SHARES AVAILABLE UNDER THE 1997 PLAN ARE IN THE BEST INTERESTS OF THE
STOCKHOLDERS OF SUMMIT. IT HAS UNANIMOUSLY APPROVED EACH OF THESE MATTERS AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THESE PROPOSALS AT THE
SPECIAL MEETING.
By order of the board of directors,
Robert J. Palmisano
Chief Executive Officer
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE SIGNED, DATED AND PROMPTLY
RETURNED IN THE ENCLOSED ENVELOPE OR THAT YOU REGISTER YOUR VOTE BY
TELEPHONE BY FOLLOWING THE INSTRUCTIONS ON YOUR PROXY CARD, SO THAT YOUR
SHARES WILL BE REPRESENTED WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING.
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD.
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Date: [Day], January , 1999
Time: 10:00 a.m., Eastern Standard Time
Place:
At the special meeting, the stockholders of Autonomous will vote upon a
proposal to approve and adopt a merger agreement between Summit Technology,
Inc. and Autonomous Technologies Corporation, under which Autonomous will
become a subsidiary of Summit. Autonomous will be acquired by Summit in a
merger that will be completed as a tax-free reorganization or, if the merger
cannot be completed on this basis, the merger agreement provides that the
merger will be restructured as a fully taxable merger. In either case, the
consideration you receive for your Autonomous shares will be the same. The only
difference will be in the tax treatment.
It is important that your shares be voted. Please vote as soon as possible by
telephone or by completing the proxy card and returning it in the enclosed
envelope. If you decide to attend the meeting in person, you can withdraw your
proxy and vote at that time. Stockholders of record at the close of business
(5:00 p.m., EST) on January , 1999 are entitled to one vote for each share
held. A list of these stockholders will be available for inspection for ten
days preceding the meeting at the office of the Secretary of Autonomous at 2800
Discovery Drive, Orlando, Florida 32826, and will also be available for
inspection at the meeting itself.
THE BOARD OF DIRECTORS OF AUTONOMOUS HAS DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF THE STOCKHOLDERS OF AUTONOMOUS AND UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE TO ADOPT THE MERGER AGREEMENT AT THE SPECIAL MEETING.
By order of the board of directors,
Randy W. Frey
Chairman of the Board, President and Chief Executive Officer
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE SIGNED, DATED AND PROMPTLY
RETURNED IN THE ENCLOSED ENVELOPE OR THAT YOU REGISTER YOUR VOTE BY
TELEPHONE BY FOLLOWING THE INSTRUCTIONS ON YOUR PROXY CARD, SO THAT YOUR
SHARES WILL BE REPRESENTED WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING.
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS & ANSWERS ABOUT THE MERGER...................................... 1
SUMMARY................................................................... 6
SELECTED UNAUDITED PRO FORMA COMBINED AND HISTORICAL FINANCIAL DATA....... 10
Selected Unaudited Pro Forma Combined Financial Data.................... 10
Summit Selected Historical Consolidated Financial Data.................. 11
Autonomous Selected Historical Consolidated Financial Data.............. 12
UNAUDITED COMPARATIVE PER SHARE DATA...................................... 13
COMPARATIVE MARKET PRICE INFORMATION...................................... 14
RISK FACTORS.............................................................. 15
THE SPECIAL MEETINGS...................................................... 22
Purposes, Time and Place................................................ 22
Record Date; Voting Power............................................... 22
Votes Required.......................................................... 23
Share Ownership of Management and Certain Stockholders.................. 23
Voting of Proxies....................................................... 24
Revocability of Proxies................................................. 24
Solicitation of Proxies................................................. 25
THE MERGER................................................................ 26
Background of the Merger................................................ 26
Recommendation of the Summit Board and Reasons for the Merger........... 28
Recommendation of the Autonomous Board and Reasons for the Merger....... 29
Opinion of Financial Advisor to Summit.................................. 31
Opinion of Autonomous' Financial Advisor................................ 35
Merger Consideration.................................................... 40
Completion of the Merger; Effective Time................................ 41
Conversion of Shares; Procedures for Exchange of Certificates........... 42
Interests of Certain Persons in the Merger.............................. 42
Material Federal Income Tax Consequences of the Merger.................. 43
Accounting Treatment.................................................... 46
Effect on Stock Options and Warrants.................................... 46
Resale of Summit Common Stock........................................... 46
Listing of Summit Common Stock.......................................... 47
Dissenters' Rights...................................................... 47
THE MERGER AGREEMENT...................................................... 48
Terms of the Merger..................................................... 48
Exchange of Certificates................................................ 49
Restructuring of the Merger............................................. 51
Representations and Warranties.......................................... 52
Conduct of Business Pending the Merger.................................. 52
Additional Agreements................................................... 53
Conditions to the Merger................................................ 56
Termination............................................................. 58
Amendment and Waiver.................................................... 60
OTHER AGREEMENTS.......................................................... 61
Stockholder Agreements.................................................. 61
Revolving Credit Agreement.............................................. 61
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION............ 63
INFORMATION ABOUT SUMMIT................................................ 70
INFORMATION ABOUT AUTONOMOUS............................................ 76
AUTONOMOUS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................. 91
DESCRIPTION OF SUMMIT CAPITAL STOCK..................................... 105
Common Stock.......................................................... 105
Preferred Stock....................................................... 105
Stockholder Rights Plan............................................... 106
Massachusetts Law and Certain Provisions of Summit's Articles of
Organization and Bylaws.............................................. 108
Transfer Agent and Registrar.......................................... 110
COMPARISON OF RIGHTS OF STOCKHOLDERS OF SUMMIT AND AUTONOMOUS........... 111
Special Meetings of Stockholders...................................... 111
Voting Requirements and Quorums for Stockholder Meetings.............. 111
Business Conducted at Stockholder Meetings............................ 112
Inspection Rights..................................................... 113
Action by Written Consent of Stockholders............................. 114
Cumulative Voting..................................................... 114
Dividends and Share Repurchases....................................... 114
Qualification, Nomination and Election of Directors................... 115
Classification, Number and Removal of Directors....................... 116
Vacancies on the Board of Directors................................... 117
Exculpation of Directors.............................................. 117
Indemnification of Directors, Officers and Others..................... 118
Transactions with Interested Parties.................................. 119
Fundamental Transactions.............................................. 119
Charter Amendments.................................................... 120
Amendments to Bylaws.................................................. 121
Appraisal and Dissenters' Rights...................................... 122
"Anti-Takeover" Statutes.............................................. 122
Stockholder Rights Plans.............................................. 124
APPROVAL OF AMENDMENT TO SUMMIT'S ARTICLES OF ORGANIZATION.............. 125
APPROVAL OF AMENDMENT TO SUMMIT'S 1997 STOCK OPTION PLAN................ 127
VALIDITY OF COMMON STOCK................................................ 131
EXPERTS................................................................. 131
WHERE YOU CAN FIND MORE INFORMATION..................................... 132
</TABLE>
<TABLE>
<S> <C>
INDEX TO FINANCIAL
STATEMENTS
ANNEXES
Annex A Agreement and Plan of Merger dated as of October 1, 1998
Annex B Form of Stockholder Agreement
Annex C Opinion of Hambrecht & Quist, LLC
Annex D Opinion of EVEREN Securities, Inc.
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHAT IS THE PROPOSED MERGER?
A. The proposed merger is an acquisition by Summit of the stock of Autonomous.
Autonomous will become a wholly owned subsidiary of Summit.
Q. WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A. Our companies are proposing to merge to take advantage of the complementary
strategic fit of our respective businesses, combining Summit's proven
technology, marketing, service and manufacturing experience and established
customer base with Autonomous' next generation laser and tracking technology.
We believe the combination will provide significant benefits to our
stockholders, customers and employees. To review the background and reasons for
the merger in greater detail, see pages [ ] through [ ].
Q. WHEN ARE THE STOCKHOLDER MEETINGS?
A. The Summit special meeting will take place at 10:00 a.m. on February ,
1999; the Autonomous special meeting will also take place at 10:00 a.m. on
February , 1999.
Q. WHAT AM I BEING ASKED TO VOTE UPON?
A. Autonomous stockholders: You are being asked to approve the merger agreement
which provides for the acquisition of Autonomous through a merger.
THE AUTONOMOUS BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS VOTING FOR THE ADOPTION OF THE MERGER AGREEMENT.
Summit stockholders: You are being asked to approve the issuance of up to
11,650,400 shares of Summit common stock in the merger. This approval is
required under the rules of the Nasdaq National Market System. As separate
matters, unrelated to the merger, you are also being asked to approve an
increase in Summit's authorized common stock to 100 million shares and an
increase of 1,500,000 shares available to be issued under Summit's 1997 Stock
Option Plan.
THE SUMMIT BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED EACH OF THESE PROPOSALS
AND RECOMMENDS VOTING FOR EACH PROPOSAL.
Q. WHAT WILL I RECEIVE IN THE MERGER?
A. Autonomous common stockholders will receive a combination of Summit common
stock and cash in exchange for each share of Autonomous common stock they hold.
The exact amounts and mix of Summit stock and cash will be determined by a
formula that we have summarized below. Each share of Summit common stock
outstanding before the merger will remain outstanding after the merger.
The maximum aggregate consideration payable for all of the equity of
Autonomous--that is, Autonomous common stock, Series I Convertible Preferred
Stock, options and warrants--is 11,650,400 shares of Summit common stock and an
equal value of cash, not to exceed $50,000,000.
The maximum consideration will be adjusted as described below and then
allocated among the Autonomous equity holders:
. The stock portion of the consideration is fixed at 11,650,400 shares.
. The cash portion of the consideration will be determined by multiplying
11,650,400 by the
1
<PAGE>
average closing price of Summit common stock on the Nasdaq National Market for
the five days before the closing of the merger.
. The cash amount will be reduced by one-half of any amounts Summit lends to
Autonomous that remain outstanding at the time of the closing and by any cash
payable to redeem the Autonomous' Series I Convertible Preferred Stock.
. The 11,650,400 shares of Summit common stock and the adjusted cash amount
will each be divided by the fully diluted number of shares of Autonomous
common stock determined using the treasury stock method. The result will be
the per share stock consideration and the per share cash consideration for
each share of Autonomous common stock.
. On page 4, we have provided a table that illustrates the amounts of Summit
common stock and cash each Autonomous stockholder would receive in the merger
based on the assumptions we describe. There is no minimum or maximum price.
The actual value an Autonomous stockholder receives will depend on the price
of Summit stock at the time of the closing.
After the merger, Autonomous's former common stockholders will own
approximately 26% of the outstanding common stock of Summit.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We are working to complete the merger as soon as possible after the special
meetings.
Q. WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A. We currently expect that the exchange of shares by Autonomous stockholders
for Summit stock will not be subject to federal income tax. Autonomous
stockholders will, however, recognize taxable gain to the extent of the cash
consideration. The merger will be tax-free to Summit stockholders for federal
income tax purposes. If the merger cannot be completed so that the exchange of
shares is tax-free, we have provided that it will automatically without further
action by Autonomous stockholders be completed as a fully taxable transaction.
That means each Autonomous stockholder would recognize taxable gain or loss
equal to the difference between the value of all property received (Summit
common stock and cash) and the stockholder's adjusted tax basis in the
Autonomous common stock exchanged. The tax consequences to Summit stockholders
would be the same. To review the tax consequences to stockholders in greater
detail, see pages [ ] through [ ].
THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON YOUR OWN SITUATION.
YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
Q. WHY IS THERE AN ALTERNATIVE TAXABLE TRANSACTION?
A. Fluctuations in the price of Summit common stock during the five-day period
prior to closing could cause the value of the Summit common stock issued in the
merger, measured on the day before the closing, to be less than the amount of
cash consideration. If the imbalance is too great, the merger would not qualify
as a tax-free reorganization. Because the Autonomous board of directors
believes the merger is beneficial to Autonomous stockholders even if it is not
a tax-free reorganization, the merger agreement provides for an alternative
fully taxable merger. THE
2
<PAGE>
CONSIDERATION PAYABLE TO AUTONOMOUS STOCKHOLDERS WILL REMAIN THE SAME.
Q. WHAT IF I AM OPPOSED TO A FULLY TAXABLE TRANSACTION?
A. If you are an Autonomous stockholder and are opposed to a fully taxable
merger, then you should vote AGAINST approval of the merger agreement. The
merger agreement allows the merger to be completed as a tax-free reorganization
or a fully taxable merger. You will not be voting separately on the fully
taxable merger. Autonomous stockholders should remember, however, that they
will be taxed on any gain on their stock to the extent of cash received in the
merger, regardless of how it is structured.
Q. WHAT DO I NEED TO DO NOW?
A. Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed return envelope as soon as possible, so that your shares will
be represented at your stockholders' meeting. If you prefer, you may vote by
telephone (the toll-free number is listed on the proxy card).
If you sign and send in your proxy and do not indicate how you want to vote,
your proxy will be counted as a vote in favor of all the proposals. If
Autonomous stockholders do not vote or abstain, it will have the effect of a
vote against the merger. If a Summit stockholder does not vote or abstains, it
will have the effect of a vote against the increase in authorized Summit common
stock and against the increase in the number of shares available under the 1997
Stock Option Plan, but it will have no effect on the proposal to issue Summit
common stock in the merger.
You may attend your stockholders' meeting and vote your shares in person,
rather than signing and mailing your proxy card. In addition, you may withdraw
your proxy up to and including the day of your stockholders' meeting by
following the directions on page [ ] and either change your vote or attend your
stockholders' meeting and vote in person.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. Your broker will vote your Summit or Autonomous shares only if you provide
instructions on how to vote, except for the proposal to increase the authorized
common stock to 100 million shares, as to which nominees will have
discretionary authority to vote. Other than as described above, your shares
will not be voted without instructions.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. If you are an Autonomous common stockholder, after the merger is
completed we will send you written instructions for exchanging your stock
certificates. If you are a Summit stockholder, you should retain your stock
certificates as the merger will not require you to surrender your Summit stock
certificates at any time.
If you would like additional copies of this joint proxy statement/prospectus,
or if you have questions about the merger, you should contact:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
3
<PAGE>
WHAT WILL I RECEIVE IN THE MERGER?
Autonomous common stockholders will receive a combination of Summit common
stock and cash in exchange for each share of Autonomous common stock they hold.
We have prepared the following table to show the amounts of Summit common stock
and the cash that would be received for each share of Autonomous common stock
at varying prices for Summit common stock. The information is based on several
estimates and assumptions that we describe below. The Summit stock prices
presented in the table represent what we believe is a reasonable range of
potential trading prices for Summit's common stock. THERE IS NO MINIMUM OR
MAXIMUM VALUE PER SHARE THAT AUTONOMOUS STOCKHOLDERS WILL RECEIVE. The actual
consideration that each Autonomous stockholder will receive will be determined
when the merger is completed and may be different from what is shown below.
<TABLE>
<CAPTION>
CONSIDERATION TO BE RECEIVED
SUMMIT PER AUTONOMOUS SHARE
STOCK PRICE -----------------------------------------------------------------------
USED IN NUMBER OF
CALCULATION SUMMIT SHARES CASH TOTAL VALUE
----------- ------------- ----- -----------
<S> <C> <C> <C>
$2.50 0.89 $1.66 $3.89
$3.00 0.89 $2.10 $4.77
$3.50 0.88 $2.44 $5.52
$4.00 0.87 $2.77 $6.25
$4.29 0.87 $2.96 $6.69
$4.50 0.87 $2.94 $6.86
$5.00 0.86 $2.88 $7.18
$5.50 0.86 $2.83 $7.56
$6.00 0.86 $2.78 $7.94
</TABLE>
ASSUMPTIONS
. The aggregate cash consideration to be paid in the merger will be reduced by
one-half of any amounts Summit lends to Autonomous not repaid before the
closing. In this table, we assume that Autonomous will have no borrowings
from Summit outstanding at the time of closing.
. The cash consideration available for Autonomous common stockholders will be
reduced by any amounts used to redeem shares of Series I Convertible
Preferred Stock. In this table, we assume that all shares of Series I
Convertible Preferred Stock will be redeemed for cash. The estimated
redemption amounts, which are based on the average closing price of
Autonomous common stock in the five days before the merger, range from
approximately $7.4 million to $12.6 million.
. The consideration per Autonomous share will vary if holders of options and
warrants exercise them before the closing. We assume in this table that
holders of options to acquire approximately 292,000 shares of Autonomous
common stock (out of options on approximately 1,682,000 shares) and holders
of warrants for 690,000 shares of Autonomous common stock (out of warrants on
approximately 1,302,000 shares) will exercise their options or warrants
before the closing. The remaining options and warrants will be outstanding at
the time of the merger and will be part of the treasury stock method used to
determine the per share consideration. For purposes of the treasury stock
calculation, we have valued the Autonomous common stock at the total value of
consideration per Autonomous share.
4
<PAGE>
. The amounts shown above are approximate. The actual amounts determined upon
completion of the merger may differ if the assumptions presented above do not
reflect the actual facts on the closing date. In particular, the mix of
relative values of the Summit common stock and the cash portion of
consideration (at a Summit per share price of $4.29 or less) may change from
approximately 56% stock/44% cash to approach 50% stock/50% cash if the holder
of the Series I Convertible Preferred Stock chooses to convert its shares
into Autonomous common stock before the effective time of the merger, rather
than elect cash redemption.
Both Summit and Autonomous will issue press releases shortly after the closing
of the merger to announce the final determination of the consideration and the
mix of Summit common stock and cash.
5
<PAGE>
SUMMARY
This summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document, including the annexes, and the documents to which we have
referred you. See "Where You Can Find More Information" on page [ ]. We have
included page references in parentheses to direct you to a more complete
description of the topics presented in this summary.
THE COMPANIES
SUMMIT TECHNOLOGY, INC.
21 Hickory Drive
Waltham, Massachusetts 02451
(781) 890-1234
Summit develops, manufactures and markets ophthalmic laser systems designed to
correct common vision disorders such as nearsightedness, farsightedness and
astigmatism. Summit also sells contact lenses and related corrective vision
products.
AUTONOMOUS TECHNOLOGIES CORPORATION
2800 Discovery Drive
Orlando, Florida 32826
(407) 384-1600
Autonomous develops, manufactures and markets excimer laser instruments for
laser vision correction. The company's technology combines eye tracking with a
narrow beam excimer laser to correct common refractive vision disorders such as
nearsightedness, farsightedness and astigmatism.
THE MERGER
In the merger, Autonomous will become a wholly owned subsidiary of Summit.
Autonomous stockholders will receive a combination of Summit common stock and
cash for their Autonomous shares. The actual consideration received is based on
a formula that we have described on pages 1 and 2. We have provided examples of
what an Autonomous stockholder would receive on page 4.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE )
Summit and Autonomous common stock are both listed on the Nasdaq National
Market. On October 1, 1998, the last full trading day prior to the public
announcement of the proposed merger, Summit common stock closed at $3.75 and
Autonomous common stock closed at $4.125. On January , 1999, the last
practicable trading day for which information was available before printing of
this joint proxy statement/prospectus, Summit common stock closed at $ and
Autonomous common stock closed at $ .
RECORD DATE; VOTING POWER (PAGE )
You are entitled to vote at your stockholders' meeting if you owned shares as
of the close of business (5:00 p.m., EST) on [ ] 1998, the record date.
On the record date, there were [ ] shares of Autonomous common stock entitled
to vote at the special meeting. Autonomous stockholders will be entitled to one
vote for each share of Autonomous common stock they held of record on the
record date. Shares of Autonomous preferred stock will not be entitled to vote.
On the record date, there were [ ] shares of Summit common stock entitled to
vote at the special meeting. Summit stockholders will be entitled to one vote
for each share of Summit common stock they held of record on the record date.
6
<PAGE>
VOTES REQUIRED (PAGE )
The vote required to approve the issuance of the Summit common stock in the
merger is a majority of the outstanding shares of Summit common stock entitled
to vote on the proposal. Shares as to which brokers have not received
instructions from the beneficial owner are not considered as being entitled to
vote. The vote required to approve the increase in the authorized Summit common
stock is the affirmative vote of a majority of the outstanding shares of Summit
common stock. The vote required to approve the increase in the number of shares
of Summit common stock available for issuance under the 1997 Stock Option Plan
is the affirmative vote of a majority of the outstanding shares of Summit
common stock.
The vote of Autonomous stockholders required to approve the merger agreement
and the merger is the affirmative vote of a majority of the shares of
Autonomous common stock outstanding.
NO DISSENTERS' RIGHTS (PAGE )
Under Florida law, Autonomous stockholders do not have the right to dissent
from the merger and obtain payment of the fair value of their shares in cash,
sometimes referred to as appraisal rights.
ACCOUNTING TREATMENT (PAGE )
Summit will account for the merger as a purchase of a business, which means
that the assets and liabilities of Autonomous, including intangible assets,
will be recorded in Summit's financial statements at their fair value.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS (PAGE )
On the record date, directors and executive officers of Summit and their
affiliates beneficially own [ ] shares of Summit common stock, or
approximately [ ]% of the voting power of the Summit common stock outstanding
on the record date. The directors and executive officers of Summit have
indicated that they intend to vote their Summit stock FOR the proposal to
approve the share issuance in the merger, FOR the proposal to increase the
number of authorized shares of Summit common stock to 100 million shares and
FOR the increase in shares under the 1997 Stock Option Plan.
On the record date, directors and executive officers of Autonomous and their
affiliates beneficially own [ ] shares or approximately [ ]% of the voting
power of Autonomous common stock outstanding on the record date. These
directors and executive officers and affiliates have entered into stockholder
agreements with Summit in which they have agreed to vote their Autonomous
common stock FOR the proposal to approve the merger agreement and against
alternative proposals.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE )
A number of Autonomous directors and executive officers have interests in the
merger as employees and/or directors that are different from, or in addition
to, yours as an Autonomous stockholder. If we complete the merger, certain
options to purchase Autonomous common stock held by Autonomous directors and
officers may be converted into options to acquire shares of Summit common stock
adjusted to account for the exchange ratio of common shares in the merger.
Also, Summit will continue certain indemnification arrangements and directors'
and
7
<PAGE>
officers' liability insurance for existing Autonomous directors and officers.
The board of directors of Summit and Autonomous recognized these interests and
determined that they did not affect the benefits of the merger to Summit or to
the Autonomous stockholders. Please refer to pages [ ] through [ ] for more
information concerning these interests.
DIRECTORS OF SUMMIT FOLLOWING THE MERGER (PAGE )
Following the merger, the board of directors of Summit will include Randy W.
Frey, the Autonomous Chairman, President and CEO, and Dr. C. Glen Bradley,
President and CEO CIBA Vision Corporation, both of whom the Autonomous board of
directors has designated as Summit directors under the merger agreement. In
addition, Autonomous has designated Dr. Richard H. Keates, a current Autonomous
director, to be an observer at Summit board meetings.
TERMINATION FEE AND EXPENSES (PAGE )
Autonomous must pay Summit a termination fee of $2.6 million in cash if the
merger agreement is terminated in any of the following circumstances:
. the Autonomous stockholders have not approved the merger by February 28, 1999
and a proposal by a third party for an alternative transaction has been made
prior to the Autonomous Special Meeting;
. the Autonomous board of directors has withdrawn, modified or delayed its
recommendation on the merger in a manner adverse to Summit causing Summit to
elect to terminate the merger agreement; or
. Autonomous materially breaches any representation or warranty in the merger
agreement or fails to comply with any of its obligations under the merger
agreement if these result in a material adverse change incapable of being
cured by Autonomous.
OPINIONS OF FINANCIAL ADVISORS (PAGE )
In deciding to approve the merger, our boards considered opinions from our
respective financial advisors as to the fairness of the transaction to Summit
and to the Autonomous stockholders from a financial point of view. Summit
received an opinion from Hambrecht & Quist LLC and Autonomous received an
opinion from EVEREN Securities, Inc. The EVEREN opinion was based on a Summit
stock price of $4.00 per share and assumed that Autonomous stockholders would
receive $6.26 per share, which may or may not be the case. These opinions are
attached as Annexes C and D, respectively, to this joint proxy
statement/prospectus. We encourage you to read these opinions.
In connection with these opinions, our financial advisors performed a variety
of analyses. While not performed or presented in the same way, the analyses
included comparing Summit and Autonomous historical stock prices and financial
multiples to each other and to those of other selected publicly-traded
companies, comparing the financial terms of the merger to those of other
publicly announced transactions, and estimating the relative values and
contributions of Summit and Autonomous based on past and estimated future
performance.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE )
We have each made forward-looking statements in this document (and in documents
that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
8
<PAGE>
possible or assumed future results of operations of Summit or Autonomous. Also,
when we use words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. Stockholders should note
that many factors, some of which are discussed elsewhere in this document and
in the documents that we incorporate by reference, could affect the future
financial results of Summit or Autonomous and could cause those results to
differ materially from those expressed in our forward-looking statements
contained or incorporated by reference in this document. These factors include
the risk factors that appear in the section entitled "Risk Factors" beginning
on page 15.
9
<PAGE>
SELECTED UNAUDITED PRO FORMA
COMBINED AND HISTORICAL FINANCIAL DATA
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
We are providing the following selected unaudited pro forma financial data to
help stockholders analyze the financial aspects of the merger. We derived this
information from the audited financial statements of Summit and Autonomous for
1997 and their unaudited financial statements for the nine-month period ended
September 30, 1998. This information is only a summary and you should review
the more detailed pro forma combined financial information included elsewhere
in this joint proxy statement/prospectus. You should also read it in
conjunction with the historical financial statements (and related notes)
included in the annual reports on Form 10-K that Summit has filed with the SEC
and the Autonomous historical financial statements that are included in this
joint proxy statement/prospectus. You should not rely on the pro forma combined
information as being indicative of the results that would have been achieved
had the companies been combined or the future results that the combined company
will experience after the merger. See "Unaudited Pro Forma Condensed Combined
Financial Statements" on page [ ] and "Where You Can Find More Information" on
page [ ].
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
1998 DECEMBER 31, 1997
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues............................ $ 67,655 $ 79,687
Income (loss) from continuing operations.. 14,808 (15,703)
Income (loss) per share from continuing
operations--basic and diluted............ $ 0.35 $ (0.37)
Weighted average number of common shares
outstanding--basic....................... 42,511 42,494
Weighted average number of common shares
outstanding--diluted..................... 42,881 42,685
<CAPTION>
SEPTEMBER 30,
1998
-----------------
<S> <C> <C>
BALANCE SHEET DATA
Working capital........................... $ 35,455
Total assets.............................. 168,931
Long-term debt, less current maturities... 1,568
Stockholders' equity...................... 144,063
</TABLE>
10
<PAGE>
SUMMIT SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for, and as of the end
of, each of the years in the five-year period ended December 31, 1997, are
derived from Summit's audited consolidated financial statements. Effective
January 1, 1998, Summit began recording as net revenues the license fee
revenues of Pillar Point Partners net of license fees payable to Pillar Point
Partners and net of administrative expense allocations. Prior year net revenues
have been reclassified to conform with the 1998 presentation. The selected
consolidated financial data at September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 have been derived from Summit's unaudited
consolidated financial statements. In the opinion of Summit's management, the
interim information reflects all adjustments of a normal recurring nature
necessary for a fair statement of these periods. These selected consolidated
financial data should be read in conjunction with Summit's audited and
unaudited consolidated financial statements and notes and the related
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that are incorporated by reference in this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30, YEARS ENDED DECEMBER 31,
--------------- -------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- -------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA
Net revenues............ $67,520 $59,781 $79,650 $ 73,912 $95,258 $ 71,410 $68,500
Income (loss) from
continuing
operations(1).......... 31,379 1,196 1,503 (13,491) 1,575 (14,433) (6,487)
Income (loss) per share
from continuing
operations............. $ 1.00 $ 0.04 $ 0.05 $ (0.44) $ 0.06 $ (0.55) $ (0.26)
Weighted average number
of common shares
outstanding............ 31,199 31,146 31,182 30,956 27,674 26,375 25,087
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------------------------
1998 1997 1996 1995 1994 1993
------------- -------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital......... $ 80,093 $ 67,895 $ 73,085 $108,374 $23,560 $28,830
Total assets............ 144,359 115,103 133,660 161,661 54,288 55,230
Long-term debt, less
current maturities..... 1,445 6,330 11,472 537 503 400
Stockholders' equity.... 121,214 88,987 101,947 138,239 38,692 42,611
</TABLE>
- --------
(1) In the second quarter of 1998, Summit received a litigation settlement of
$29.6 million, net of related taxes and expenses.
11
<PAGE>
AUTONOMOUS SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Autonomous' consolidated financial statements and notes and the information
contained in "Autonomous Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this joint proxy
statement/prospectus. The selected financial data as of December 31, 1997, 1996
and 1995, and for each of the two years in the period ended December 31, 1997,
and the nine months ended December 31, 1995, are derived from financial
statements that have been audited by Arthur Andersen LLP, independent certified
public accountants, and that are included elsewhere in this joint proxy
statement/prospectus. The selected financial data as of March 31, 1995 and
1994, and for each of the years in the two-year period ended March 31, 1995,
are derived from audited financial statements not included in this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1998 1997 1997 1996 1995 1995 1994
------------- ------------- ------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
LADARVision
Systems and
Services....... $ 135,330 $ 11,000 $ 37,065 $ -- $ -- $ -- $ --
Research
grants......... -- -- -- -- -- -- 378,274
OPERATING EXPENSES:
Costs of
revenues--
LADARVision
Systems and
Services...... 285,696 35,528 105,892 -- -- -- --
Costs of
revenues from
research
grants........ -- -- -- -- -- -- 300,186
Clinical
trials......... 2,111,391 2,158,449 2,980,317 1,715,412 602,847 569,389 2,229
Unabsorbed
production
costs.......... 2,178,538 -- 758,801 -- -- -- --
Research and
development.... 2,867,603 2,375,933 2,954,559 3,521,381 1,698,056 1,608,032 468,307
Selling and
marketing...... 1,787,422 1,029,840 1,493,069 1,190,898 478,439 40,349 252,247
General and administrative.. 2,022,936 1,746,226 2,328,222 1,852,351 974,738 562,042 379,313
Other expenses.. 1,119,787 1,453,311 1,596,671 1,283,874 375,000 -- --
------------- ------------ ------------ ----------- ----------- ----------- -----------
OPERATING LOSS (12,238,043) (8,788,287) (12,180,466) (9,563,916) (4,129,080) (2,779,812) (1,024,008)
Interest income
(expense),
net............ 141,626 421,986 541,111 555,872 30,035 84,463 (13,942)
PROVISION FOR
INCOME TAXES... -- -- -- -- -- -- --
------------- ------------ ------------ ----------- ----------- ----------- -----------
NET LOSS $ (12,096,417) $ (8,366,301) $(11,639,355) $(9,008,044) $(4,099,045) $(2,695,349) $(1,037,950)
============= ============ ============ =========== =========== =========== ===========
Deemed dividend
for Series I
preferred stock
conversion
discount ...... 428,350 -- -- -- -- -- --
------------- ------------ ------------ ----------- ----------- ----------- -----------
Net loss
applicable to
common
stockholders... $ (12,524,767) $ (8,366,301) -- -- -- -- --
============= ============ ============ =========== =========== =========== ===========
LOSS PER SHARE:
Basic net loss
per share...... (1.18) (1.06) $ (1.43) $ (2.36) $ (3.37) $ (2.40) $ (0.92)
============= ============ ============ =========== =========== =========== ===========
Shares used in
computing basic
net loss per
share.......... 10,583,677 7,884,019 8,151,395 3,812,039 1,217,509 1,125,000 1,125,000
============= ============ ============ =========== =========== =========== ===========
<CAPTION>
DECEMBER 31, MARCH 31,
SEPTEMBER 30, ----------------------------------------- -------------------------
1998 1997 1996 1995 1995 1994
------------- ------------- ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Cash and
investments.... $ 2,845,552 $ 7,301,072 $ 12,405,790 $ 492,326 $ 975,428 $ 4,893
Total assets.... 9,104,181 12,416,149 14,144,249 799,493 1,252,317 111,533
Long-term
obligations.... 422,531 1,760,007 1,097,133 2,802,832 2,405,000 89,124
Stockholders'
equity
(deficit)...... 7,081,784 8,979,812 11,583,648 (3,564,616) (1,304,568) (277,137)
<CAPTION>
CUMULATIVE
FROM INCEPTION
(JULY 23,
1985) TO
SEPTEMBER 30,
1998
--------------
(UNAUDITED)
<S> <C>
REVENUES:
LADARVision
Systems and
Services....... $ 172,395
Research
grants......... 3,450,517
OPERATING EXPENSES:
Costs of
revenues--
LADARVision
Systems and
Services...... 391,588
Costs of
revenues from
research
grants........ 3,465,596
Clinical
trials......... 7,981,585
Unabsorbed
production
costs.......... 2,937,339
Research and
development.... 13,175,918
Selling and
marketing...... 5,242,424
General and administrative.. 8,377,807
Other expenses.. 4,375,332
--------------
OPERATING LOSS (42,324,677)
Interest income
(expense),
net............ 1,324,985
PROVISION FOR
INCOME TAXES... 4,772
--------------
NET LOSS $(41,004,464)
==============
Deemed dividend
for Series I
preferred stock
conversion
discount ...... 428,350
--------------
Net loss
applicable to
common
stockholders... (41,432,814)
==============
LOSS PER SHARE:
Basic net loss
per share......
Shares used in
computing basic
net loss per
share..........
<CAPTION>
<S> <C>
BALANCE SHEET
DATA:
Cash and
investments....
Total assets....
Long-term
obligations....
Stockholders'
equity
(deficit)......
</TABLE>
12
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth earnings and book value per common share for
Summit and Autonomous on a historical, pro forma combined and equivalent basis.
You should read this table along with Summit's historical consolidated
financial statements incorporated by reference in this joint proxy
statement/prospectus (see "Where You Can Find More Information" on page [ ]),
Autonomous' historical consolidated financial statements that begin on page
[ ], and the unaudited pro forma combined financial statements on page [ ]. You
should not rely on the pro forma combined information as being indicative of
the results that would have been achieved had the companies been combined or
the future results that the combined company will experience after the merger.
Neither Summit nor Autonomous has ever paid cash dividends on its common stock.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Summit Historical:
Book Value Per Share (at period end).... $ 3.89 $ 2.84
Income (Loss) Per Share from Continuing
Operations--Basic...................... $ 1.00 $ 0.05
Income (Loss) Per Share from Continuing
Operations--Diluted.................... $ 1.00 $ 0.05
Autonomous Historical:
Book Value Per Share (at period end).... $ 0.61 $ 0.90
Income (Loss) Per Share from Continuing
Operations--Basic...................... $(1.18) $(1.43)
Income (Loss) Per Share from Continuing
Operations--Diluted.................... $(1.18) $(1.43)
Summit Pro Forma Combined:(1)
Book Value Per Share (at period end).... $ 3.39 N/A
Income (Loss) Per Share from Continuing
Operations--Basic...................... $ 0.35 $(0.37)
Income (Loss) Per Share from Continuing
Operations--Diluted.................... $ 0.35 $(0.37)
Autonomous Equivalent Pro Forma:(2)
Book Value Per Share (at period end).... $ 2.95 N/A
Income (Loss) Per Share from Continuing
Operations--Basic...................... $ 0.30 $(0.32)
Income (Loss) Per Share from Continuing
Operations--Diluted.................... $ 0.30 $(0.32)
</TABLE>
- --------
(1) The pro forma information was calculated by combining the historical
amounts from Summit and Autonomous after considering the pro forma
adjustments divided by the sum of Summit's historical share information and
the additional shares of Summit common stock estimated to be issued in the
merger. Pro forma book value per share is presented for the interim period
only.
(2) The Autonomous equivalent pro forma per share amounts are calculated by
multiplying the Summit pro forma combined per share amounts by an assumed
exchange ratio of 0.87 shares of Summit common stock for each share of
Autonomous common stock and does not include the cash portion of the merger
consideration.
13
<PAGE>
COMPARATIVE MARKET PRICE INFORMATION
The following table presents trading information for Summit and Autonomous
common stock on Nasdaq on October 1, 1998 and January , 1999. October 1, 1998
was the last full trading day before our announcement of the signing of the
merger agreement. January , 1999 was the last practicable trading day for
which information was available before the date of this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
AUTONOMOUS SUMMIT COMMON STOCK
SUMMIT COMMON STOCK COMMON STOCK PRICE X .87
(DOLLARS PER SHARE) (DOLLARS PER SHARE) (DOLLARS PER SHARE)
------------------- -------------------- --------------------
HIGH LOW CLOSE HIGH LOW CLOSE HIGH LOW CLOSE
------ ------ ----- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
October 1, 1998.. $3.875 $3.500 $3.75 $4.500 $3.875 $4.125 $3.371 $3.045 $3.263
January ,
1999............
</TABLE>
Summit common stock trades on Nasdaq under the symbol "BEAM." Autonomous
common stock trades on Nasdaq under the symbol "ATCI."
14
<PAGE>
RISK FACTORS
In addition to the other information included or incorporated by reference in
this joint proxy statement/prospectus, Autonomous stockholders, with respect to
the merger, and Summit stockholders, with respect to the issuance of Summit
common stock in the merger, should consider carefully the risk factors
described below in determining how to vote.
RISKS RELATED TO THE MERGER
THE PRECISE CONSIDERATION AUTONOMOUS STOCKHOLDERS WILL RECEIVE CANNOT BE
DETERMINED UNTIL THE CLOSING
Summit will pay a fixed consideration of 11,650,400 shares of Summit stock plus
an equal value of cash not to exceed $50 million to acquire Autonomous. The
Summit shares and cash will be allocated among Autonomous' common stock, Series
I Convertible Preferred Stock and options and warrants. The per share amounts
will be based on the Autonomous common stock outstanding at the time the merger
is completed, determined using the treasury stock method. One of the variables
in the treasury stock calculation is the current Autonomous stock price, which
is determined as of the date the merger is completed. In addition, if the
holder of the Series I Convertible Preferred Stock elects to redeem this stock
for cash, there would be more Summit shares, and consequently less cash,
available for each Autonomous stockholder. We cannot predict what the price of
Autonomous common stock will be when the merger takes place, and we do not
currently know whether the preferred stock will elect a cash redemption. For
these reasons, although Autonomous stockholders will know the aggregate
consideration for the entire company, they will not know exactly how much they
will receive per share for each of their Autonomous shares until the closing of
the merger. See "The Merger--Merger Consideration."
THE VALUE OF THE CONSIDERATION WILL FLUCTUATE BASED ON THE SUMMIT STOCK PRICE
A portion of the merger consideration consists of Summit stock, and thus the
value of the merger consideration will depend on the Summit stock price. The
number of shares of Summit stock issuable in the merger will not be adjusted in
the event of any decrease in the Summit stock price. In addition, because the
aggregate amount of cash payable is also based on the Summit stock price, the
amount of cash an Autonomous stockholder receives will also fluctuate based on
the Summit stock price and will decline at Summit stock prices below $4.29.
There is no floor on the total consideration.
SUMMIT MAY EXPERIENCE DIFFICULTY IN INTEGRATING THE OPERATIONS OF THE TWO
COMPANIES
The merger involves the integration of two companies that have previously
operated independently. Summit may not be able to integrate the operations of
Autonomous without encountering difficulties or experiencing the loss of key
employees, potential customers or suppliers, and the benefits expected from the
integration may not be realized. If customers view the merger of the companies
as a negative development, Summit may lose customers and market share. In
addition, there can be no assurance that Summit will realize anticipated
synergies from the merger. For example, Autonomous has only had limited
experience manufacturing its LADARVision systems and has had no experience
producing the system in significant quantities. Following the merger Summit
intends to assist Autonomous in developing its manufacturing capabilities. If
it
15
<PAGE>
is unsuccessful in doing so, or if the effort requires greater resources, the
expected benefits of the merger may not be realized.
THE TRANSACTION COULD BE CHALLENGED ON ANTITRUST GROUNDS
There are a limited number of FDA-approved manufacturers of laser vision
correction equipment and the Federal Trade Commission is currently evaluating
the Summit/Autonomous transaction under the federal antitrust laws to determine
if it might significantly reduce competition. If the FTC were to conclude that
the transaction was anticompetitive, it could seek an injunction to prevent its
consummation, a divestiture of acquired assets or other relief. State attorneys
general and private parties, including customers and competitors of either
company, may also bring actions under the antitrust laws under certain
circumstances. The companies cannot predict whether the FTC or any private
party will take action to block the proposed transaction or what the outcome of
any such proceeding would be. If such an action were commenced, the companies
might not be able to complete the proposed transaction as currently structured
or in a timely manner, if at all.
SUMMIT WILL USE SIGNIFICANT CASH RESOURCES FOR THE MERGER AND CONTINUING
OPERATIONS
A significant amount of Summit's cash resources will be used to complete the
merger and support the Autonomous operation after the merger. This will put a
significant strain on Summit's liquidity and could preclude Summit from having
cash available to fund operations, make other acquisitions, or for other
purposes. The cash portion of the purchase price up to $50 million represented
approximately 62% of Summit's cash, short-term investments and long-term
investments excluding the value of LCA common stock at September 30, 1998.
Summit expects that the Autonomous operation could require as much as $20
million before it reaches a cash flow break-even status, although this amount
could fluctuate up or down depending on a variety of factors. See "Information
About Autonomous."
THE MERGER WILL BE DILUTIVE TO SUMMIT'S EARNINGS IN THE NEAR TERM
The merger is likely to delay Summit's efforts to achieve consistent
profitability until at least the year 2000. Expenses related to research and
development of Autonomous' custom cornea technology as well as the amortization
of goodwill and other capitalized items (approximately $59 million) created by
the merger will reduce Summit's operating income or increase its operating loss
for the applicable period. In addition, Summit expects that the Autonomous
operation will continue to have operating losses for at least the next twelve
months as it ramps up manufacturing, commences a significant marketing campaign
and continues incurring substantial research and development expenses. These
operating losses will reduce Summit's operating income and will likely cause
Summit to report operating losses during this period. See "Unaudited Pro Forma
Condensed Combined Financial Information."
THE MARKET ACCEPTANCE OF TWO LASER VISION CORRECTION SYSTEMS IS UNPREDICTABLE
Summit cannot predict how existing and potential customers for laser vision
correction systems will respond to Summit's offering two distinctly different
laser vision correction systems. For example, sales of Summit's Apex Plus
system could decline in anticipation of the availability of the Autonomous
system, or Summit could lose existing Apex Plus customers who perceive that
Summit's acquisition of the Autonomous system would result in less support for
its existing installed base. However, Summit has not seen any evidence of this
since publicly announcing the proposed merger on October 1, 1998. The
16
<PAGE>
actual availability of the Autonomous system from a manufacturing viewpoint may
not be sufficient to make up for any loss of sales of Summit's Apex Plus system
while the Autonomous operation ramps up its manufacturing capability for the
Autonomous system.
COMPETITION RISKS
NEW COMPETITORS MAY ERODE SUMMIT'S U.S. MARKET SHARE
Nidek Co., Ltd. obtained FDA approval of its EC-5000 excimer laser system in
December 1998. Other manufacturers, including Bausch & Lomb and LaserSight, are
expected to obtain approval during 1999, giving them the right to market their
systems commercially in the U.S. If ophthalmologists perceive new competitors'
systems to be technologically or economically superior to Summit's, Summit
could lose market share to these competitors. This could have a material
adverse effect on Summit's business, financial conditions and results of
operations. See "Information About Autonomous--Historical Market Development."
COMPETITORS MAY HAVE BROADER APPROVALS
In the United States, the FDA strictly regulates the types and ranges of
surgical treatments that a manufacturer's laser vision system can perform. To
the extent the FDA approves one manufacturer's system for a wider range of
treatments than a competitor's system, a competitive advantage will arise. At
present, the laser vision correction system manufactured by VISX, Inc. is FDA
approved to perform a wider range of treatments than the Summit system,
including farsightedness and higher degrees of nearsightedness and astigmatism.
The laser vision correction system manufactured by Nidek is approved for a
higher degree of nearsightedness than the Summit system (but is not approved
for farsightedness or astigmatism). The Summit system is
presently approved for mild to moderate nearsightedness and astigmatism. If
Summit is unsuccessful in obtaining timely FDA approvals for farsightedness and
for higher ranges of nearsightedness (applications for which are presently
pending before the FDA), its ability to affectively compete in the U.S. against
these companies (or future entrants with broader approvals) may be compromised.
See "Information About Autonomous--Historical Market Development."
COMPETITORS MAY NOT CHARGE THEIR CUSTOMERS PER PROCEDURE FEES
Summit presently licenses a number of patents to users of its systems on a per
procedure basis. Summit derives a substantial portion of its revenue from the
per procedure fees it charges to license these patents. If competitors do not
charge per procedure fees to users of their systems, Summit could be forced to
reduce or eliminate the fees it collects. This could have a material adverse
effect on Summit's revenues and financial performance. Nidek, one of Summit's
competitors, has publicly stated that it does not intend to charge per
procedure fees to users of its systems.
PROLIFERATION OF UNAPPROVED SYSTEMS COULD AFFECT SUMMIT'S REVENUES
Summit is aware that certain U.S. physicians are performing refractive
procedures in the United States with laser vision correction systems that have
not been approved by the FDA, including earlier versions of Summit systems
originally sold in international markets and so-called "homemade" or "black
box" systems. Summit also believes that some owners of Summit excimer systems
in the United States have tampered with the software configuration of their
systems to defeat the card reading system that facilitates the collection of
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per procedure license fees. The users of these systems have not been paying per
procedure licensing fees. Pursuing these potential
infringers could be costly and might not result in any significant recoveries.
Although Summit believes FDA enforcement action has had some positive impact on
this problem, continued use or proliferation of these systems will negatively
impact Summit's system sales and per procedure revenues. In addition, any
adverse clinical consequences resulting from the use of these systems could
negatively impact consumer acceptance of laser vision correction generally.
NEW PRODUCTS AND TECHNOLOGIES COULD ERODE DEMAND FOR SUMMIT PRODUCTS OR MAKE
THEM OBSOLETE
In addition to competing with eyeglasses and contact lenses, excimer laser
vision correction competes or may compete with newer technologies such as
intraocular lenses, corneal rings and surgical techniques using different types
of lasers. To the extent that any of these or other new technologies are
perceived to be clinically superior or economically more attractive than
excimer laser vision correction, they could erode demand for Summit's excimer
laser products or render such products obsolete. Summit believes that the
Autonomous LADARVision System and Custom Cornea(TM) Technology represents the
next generation of excimer laser based vision correction technology and will
remain technologically competitive into the next decade. However, if one or
more competing technologies achieve broader market acceptance or render the
LADARVision System obsolete, Summit may never realize the anticipated benefits
of the transaction. This could have a material adverse effect on Summit's
business, financial condition and results of operations.
COMPANY RISKS
SUMMIT IS SUBJECT TO A SIGNIFICANT AMOUNT OF LITIGATION
Since August 2, 1996, stockholders have commenced sixteen separate legal
actions against Summit and its directors and officers. In addition, there are
multiple state and federal antitrust lawsuits pending against Summit and VISX
relating to the Pillar Point Partners arrangement that existed between the two
companies from 1992 to 1998. All these lawsuits seek substantial monetary
damages for alleged violations of securities or antitrust laws. Defending
against these lawsuits has and will continue to consume considerable resources,
including management time and attention, which has been diverted from operating
the business. The potential recoveries, if the plaintiffs are successful, would
have a significant negative effect on Summit's cash position. Litigation is
inherently uncertain and an adverse resolution of these actions may have a
material adverse effect on Summit's financial position and operating results in
the period they are resolved.
CHALLENGES TO OWNED OR LICENSED INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT
OUR BUSINESS
Failure to maintain the protection afforded by certain of Summit's owned and
licensed patents would have a material adverse effect on Summit's future
revenues and earnings. These patents might ultimately be found to be invalid,
or others might elect to infringe these patents or develop substantially
equivalent or competitive products. On March 24, 1998, the FTC commenced an
action challenging certain of the patents that VISX has licensed to Summit.
Although Summit has settled its part of this litigation, the FTC is seeking an
order to invalidate these VISX patents. In July 1997, a
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private party commenced a lawsuit against VISX in which he asserts that he is
the sole inventor of a certain VISX patent. Summit has been added as an
additional defendant. Successful challenges to the validity and enforceability
of any of Summit's patents or the patents licensed from VISX could have a
material adverse effect on Summit's ability to collect per procedure license
fees. Even if an unlicensed party's products or procedures infringe upon
Summit's patents, it may be costly to enforce these rights. An infringement
action may require the diversion of funds from Summit's operations and may
require management to expend funds and effort that might otherwise be devoted
to Summit's operations. Furthermore, Summit may not be successful in enforcing
its patent rights. Any failure by Summit to prevail in patent infringement
actions against others, or any success by others in invalidating or being found
not to infringe patents owned or licensed by Summit, could have a material
adverse effect on Summit's ability to collect per procedure fees.
Autonomous is engaged in patent litigation with VISX. VISX is seeking damages
and an injunction that would prevent Autonomous from making and selling the
LADARVision System in the United States. Although the merger will provide
Autonomous with a license for the contested patents, VISX's continued
prosecution of this lawsuit will delay Autonomous' proposed launch of the
LADARVision System in the United States. As of November 9, 1998, Autonomous and
VISX agreed to stay the litigation until the earlier of the Summit/Autonomous
merger, termination of the merger or March 1, 1999. During this period,
Autonomous has agreed not to deliver LADARVision Systems in the U.S. This delay
in the launch could also delay the expected benefits of the combination of
Summit and Autonomous following the merger.
There are a number of U.S. and foreign patents covering methods and apparatus
for performing corneal surgery that neither Summit nor Autonomous owns or has
the right to use. If Summit or Autonomous were found to infringe a patent in a
particular market, Summit and its customers may be enjoined from making, using
and selling that product in the market or be required to obtain a fee-bearing
license, if available on acceptable terms. Alternatively, Summit might be
required to redesign the infringing aspects of these products. Any redesign
efforts that Summit undertakes could be expensive and might require FDA review.
Furthermore, the redesign efforts could delay the reintroduction of these
products into certain markets, or may be so significant as to be impractical.
If redesign efforts were impractical, Summit could be prevented from
manufacturing and selling the infringing products, which would have a material
adverse effect on its business, financial and results of operations.
FAILURE OR DELAY IN OBTAINING REGULATORY APPROVALS FOR PRODUCTS WOULD ADVERSELY
AFFECT SUMMIT'S BUSINESS
Summit's excimer systems and related disposable and Autonomous' LADARVision
System are regulated medical devices under the Food, Drug and Cosmetics Act. As
such, these devices, expanded treatment types and levels for these devices and
significant design or manufacturing modifications require a premarket clearance
by the FDA prior to commercialization in the United States. This approval
process, which is lengthy and uncertain, requires underlying clinical studies
and requires substantial commitments of financial resources and management's
time and effort. Delays in obtaining or failure to obtain required regulatory
approvals or clearances in the United States and other countries would prevent
the marketing of these systems and other devices or the marketing of these
systems
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and other devices to treat expanded indications and impair Summit's ability to
generate sales, which in turn would have a material adverse effect on its
business, financial condition and results of operations.
SUMMIT AND AUTONOMOUS RELY ON VENDORS FOR CERTAIN CRITICAL SYSTEM COMPONENTS
Summit currently purchases certain components used in the production, operation
and maintenance of its excimer systems and related products from a limited
number of suppliers. Similarly, Autonomous obtains key components from a
limited number of suppliers. If these suppliers were to cease providing
components, Summit would be required to locate and contract with substitute
suppliers, which it may not be able to do in a timely manner. Any interruption
in Summit's ability to manufacture and service excimer systems on a timely
basis would have a material adverse effect on its business, financial condition
and results of operations.
INADEQUACY OR UNAVAILABILITY OF INSURANCE MAY EXPOSE SUMMIT TO SIGNIFICANT
LIABILITY
The testing and use of human health care products entails an inherent risk of
physical injury to patients and physicians and exposes the manufacturer to
potential product liability and other damage claims. In addition, our products
have high voltage power supplies and use corrosive gases. Although we maintain
product liability insurance, a product liability claim assessed against us
could exceed our insurance coverage. Adequate product liability insurance may
not continue to be available, either at existing or increased levels of
coverage, on commercially reasonable terms. Even if a claim is covered by
insurance, the costs of defending a product liability, malpractice, negligence
or other action, and the assessment of damages in excess of insurance
coverage, could have a material adverse effect on our business, financial
condition and results of operations.
RISKS ASSOCIATED WITH LENS EXPRESS MAY AFFECT SUMMIT'S REVENUES AND
PROFITABILITY
The operations of Summit's Lens Express unit could be adversely affected by
certain risks beyond its control, including:
. lack of consistent sources of supply
. inability to obtain suitable advertising spots in selected media at cost-
effective prices
. state regulations
. competition from other contact lens providers
Because some contact lens manufacturers do not sell contact lenses directly to
Lens Express, Lens Express must obtain product through indirect channels. Lens
express may not be able to obtain product through indirect channels at the
times, prices and quantities it requires. If it is unable to obtain product
from indirect suppliers, or is forced to do so on unfavorable terms, Lens
Express' sales and profitability could be adversely affected. Lens Express'
operations are subject to numerous state laws and regulations that govern the
dispensing of replacement contact lenses. Although some states impose little
regulation on mail order dispensing of contact lenses, other states have
stricter requirements. Burdensome regulatory requirements imposed by certain
states, such as prohibiting dispensing of replacement lenses without receipt of
a written prescription, make it more difficult and expensive for Lens Express
to sell replacement contact lenses in these states, and place Lens Express at a
competitive disadvantage versus competing mail order sellers that are able to
avoid or ignore these laws and regulations. Other states may enact or impose
laws or regulations that prohibit mail order dispensing of replacement contact
lenses or otherwise impair Lens Express' ability to sell
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lenses and operate profitability. In addition, the contact lenses dispensing
industry is subject to intense competition. Lens Express may lose market share
to other contact lens providers electing to pursue a marketing strategy which,
like that of Lens Express, emphasizes convenience and price, or to discount
chains, wholesale clubs and other competitors.
FORMER CEO'S RECEIPT OF CONFIDENTIAL FDA INFORMATION MAY STILL BE UNDER
INVESTIGATION
Summit believes that the federal government has conducted, or may be
conducting, one or more investigations into the facts and circumstances
surrounding the delivery in November 1995 to David F. Muller, Summit's former
CEO and Chairman, of a package that apparently included confidential FDA
documents. Summit has cooperated and intends to cooperate with any such
investigation to the extent its cooperation is or has been requested by any
appropriate authority. Although Summit is not aware of any findings to date,
were this investigation to result in a determination of culpability on Summit's
part or in government action, such event could have a material
adverse effect on Summit's business, financial condition or results of
operations.
THE MARKET PRICE OF SUMMIT STOCK HISTORICALLY HAS BEEN VOLATILE
The volatility of Summit common stock imposes a greater risk of capital losses
on stockholders as compared to less volatile stocks. In addition, such
volatility makes it difficult to ascribe a stable valuation to a stockholder's
holdings of Summit common stock. Factors such as announcements of technological
innovations or new products by Summit or its competitors, changes in domestic
or foreign governmental regulations or regulatory approval processes,
developments or disputes relating to patent or proprietary rights and public
concern as to the safety and efficacy of the procedures for which the excimer
system is used, has and may continue to have a significant impact on the market
price of the Summit common stock. Moreover, the possibility exists that the
stock market (and in particular the securities of technology companies such as
Summit) could experience extreme price and volume fluctuations unrelated to
operating performance.
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THE SPECIAL MEETINGS
PURPOSE, TIME AND PLACE
Summit and Autonomous are sending this joint proxy statement/prospectus to
their stockholders in connection with the solicitation of proxies by their
boards of directors for use at the special meetings of their stockholders. The
Summit special meeting will be held on [ ] at 10:00 a.m. at [address]. The
Autonomous special meeting will be held on [ ] at 10:00 a.m. at [address].
At the Summit special meeting, holders of Summit common stock will be asked to
consider and vote upon a proposal to issue up to 11,650,400 shares of Summit
common stock in the merger. Separately, Summit stockholders will also be asked
to authorize an increase in the authorized Summit common stock from 60 million
shares to 100 million shares and an increase of 1,500,000 shares in the number
of shares available under the 1997 Stock Option Plan. The approval of the share
issuance proposal is not contingent upon either the approval of the authorized
share increase proposal or the approval of the proposal to increase the shares
available under the 1997 Stock Option Plan. At the Autonomous special meeting,
holders of Autonomous common stock will be asked to consider and vote upon a
proposal to adopt the merger agreement and approve the merger.
RECORD DATE; VOTING POWER
Summit. The Summit board has fixed the close of business (5:00 p.m., EST) on
January , 1999 as the record date for determining the holders of Summit common
stock entitled to notice of, and to vote at, the Summit special meeting. Only
holders of record of Summit common stock at the close of business on the record
date will be entitled to notice of, and to vote at, the Summit special meeting.
At the close of business on the record date, shares of Summit common stock
were issued and outstanding and entitled to vote at the Summit special meeting.
Holders of record of Summit common stock are entitled to one vote per share on
any matter that may properly come before the Summit special meeting. Votes may
be cast at the Summit special meeting in person or by proxy. See "--Voting of
Proxies."
The presence at the Summit special meeting, either in person or by proxy, of
the holders of a majority of the outstanding shares of Summit common stock is
necessary to constitute a quorum. If a quorum is not present at the Summit
special meeting, management will adjourn or postpone it in order to solicit
additional proxies.
Autonomous. The Autonomous board has fixed the close of business (5:00 p.m.,
EST) on January , 1999 as the record date for determining the holders of
Autonomous common stock entitled to notice of, and to vote at, the Autonomous
special meeting. Only holders of record of Autonomous common stock at the close
of business on the record date will be entitled to notice of, and to vote at,
the Autonomous special meeting.
At the close of business on the record date, [ ] shares of Autonomous common
stock were issued and outstanding and entitled to vote at the Autonomous
special meeting. Holders of record of Autonomous common stock are entitled to
one vote per share on any matter that may properly come before the Autonomous
special meeting. Shares of Autonomous Series I Convertible Preferred Stock
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will not be entitled to vote. Votes may be cast at the Autonomous special
meeting in person or by proxy. See "--Voting of Proxies."
The presence at the Autonomous special meeting, either in person or by proxy,
of the holders of a majority of the outstanding Autonomous common stock
entitled to vote is necessary to constitute a quorum. If a quorum is not
present at the Autonomous special meeting, management will adjourn or postpone
it in order to solicit additional proxies.
VOTES REQUIRED
Summit. Approval of the proposal for the issuance of shares in the merger and
the proposal to increase the shares available under the 1997 Stock Option Plan
will each require the affirmative vote of a majority of the outstanding shares
of Summit common stock entitled to vote on the proposal. Approval of the
proposal for the increase in authorized shares will require the affirmative
vote of a majority of the Summit common stock outstanding on the record date.
Under the rules of the New York Stock Exchange applicable to member firms,
brokers who hold shares of Summit common stock as nominees will not have
discretionary authority to vote the shares on the proposal for the issuance of
shares in the merger in the absence of instructions from the beneficial owners.
These shares will not be considered as being entitled to vote on the proposal,
and therefore, broker non-votes will not count in determining the outcome. An
abstention would count as a vote against this proposal. Brokers who hold shares
of Summit common stock as nominees will have discretionary authority to vote
the shares on the proposals to increase the authorized shares and to increase
the shares available under the 1997 Stock Option Plan. These shares will be
entitled to vote on the increase in shares available under the 1997 Stock
Option Plan and thus there would be no broker non-votes. Abstentions would
count as votes against this proposal. In determining whether the proposal to
approve and adopt the increase in the authorized shares has received the
requisite number of affirmative votes, abstentions and broker non-votes
(although there should be none) will have the effect of a vote against this
proposal.
Autonomous. Approval of the proposal to adopt the merger agreement and the
merger will require the affirmative vote of a majority of the shares of
Autonomous common stock outstanding on the record date. Under applicable
Florida law, in determining whether the proposal in favor of the merger has
received the requisite number of affirmative votes, abstentions will have the
same effect as a vote against the proposal. Under the rules of the New York
Stock Exchange applicable to member firms, brokers who hold shares of
Autonomous common stock as nominees will not have discretionary authority to
vote the shares in the absence of instructions from the beneficial owners. Any
shares that are not voted because the nominee-broker lacks discretionary
authority will have the same effect as a vote against the proposal.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
Summit. As of the close of business on the record date, Summit's directors and
executive officers and their affiliates beneficially own outstanding shares
of Summit common stock (collectively representing approximately [ ]% of the
voting power of the Summit common stock). The executive officers and directors
of Summit have indicated that they will vote for the issuance of shares in the
merger.
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Autonomous. As of the close of business on the record date, Autonomous's
directors and executive officers and their affiliates (including CIBA Vision)
beneficially own outstanding shares of Autonomous common stock (collectively
representing approximately [ ]% of the voting power of the Autonomous common
stock). The executive officers and directors of Autonomous and CIBA Vision have
agreed to vote their shares for approval of the merger agreement and the merger
and against alternative transactions. See "Other Agreements--Stockholder
Agreements."
VOTING OF PROXIES
Shares represented by properly executed proxies (whether through the return of
the enclosed proxy card or by telephone) received in time for a special meeting
will be voted at the special meeting in the manner specified by such proxies.
Autonomous stockholders should be aware that, if your proxy is properly
executed but does not contain voting instructions, or if you use telephonic
voting without indicating how you want to vote, your proxy will be voted FOR
approval of the merger agreement and the merger. Summit stockholders should be
aware that, if your proxy is properly executed but does not contain voting
instructions, or if you use telephonic voting without indicating how you want
to vote, your proxy will be voted FOR approval of the issuance of shares in the
merger, FOR approval of the increase in authorized shares and FOR approval of
the increase in the number of shares available for issuance under the 1997
Stock Option Plan. Summit and Autonomous do not expect that any matter other
than those described in this document will be brought before the special
meetings. If a stockholder of either company properly presents other matters
before the special meetings, the persons named in the proxy will have authority
to vote in accordance with their judgment on any other such matter, including
any proposal to adjourn or postpone the meeting. However, a proxy that has been
designated to vote against the approval of the merger agreement and the merger
or against the issuance of shares in the merger, the increase in authorized
shares and the increase in the number of shares available for issuance under
the 1997 Stock Option Plan will not be voted, either directly or through a
separate proposal, to adjourn the meeting to solicit additional votes.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed Autonomous or Summit proxy card [or a vote
by telephone] does not preclude a stockholder from voting in person. A Summit
stockholder may revoke a proxy at any time before its exercise by (i)
delivering, before the Summit special meeting, to James A. Lightman, Vice
President, General Counsel and Clerk, Summit Technology, Inc., 21 Hickory
Drive, Waltham, Massachusetts 02451, a written revocation bearing a later date
or time than the proxy; (ii) delivering to the Clerk of Summit a duly executed
proxy bearing a later date or time than the revoked proxy; or (iii) attending
the Summit special meeting and voting in person. A stockholder of Autonomous
may revoke a proxy at any time before its exercise by (i) delivering, before
the Autonomous special meeting, to Monty K. Allen, Vice President, Treasurer
and Secretary, Autonomous Technologies Corporation, 2800 Discovery Drive,
Orlando, Florida 32826, a written notice of revocation bearing a later date or
time than the proxy; (ii) delivering to the Secretary of Autonomous a duly
executed proxy bearing a later date or time than the revoked proxy; or (iii)
attending the Autonomous special meeting and voting in person. Attendance at
the relevant special meeting will not by itself constitute revocation of a
proxy. Neither Autonomous nor Summit expects
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to adjourn its special meeting for a period of time long enough to require the
setting of a new record date for such meeting. If an adjournment occurs, it
will have no effect on the ability of either the Autonomous or Summit
stockholders of record as of the record date to exercise their voting rights or
to revoke any previously delivered proxies.
SOLICITATION OF PROXIES
Each of Autonomous and Summit will bear the cost of soliciting proxies from its
own stockholders, except that Summit and Autonomous intend to share equally the
costs associated with this joint proxy statement/prospectus, including related
filing fees. In addition to solicitation by mail, the directors, officers and
employees of each of Autonomous and Summit and their respective subsidiaries
may solicit proxies from stockholders of such company by telephone, telegram or
in person. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of stock held of record by such persons, and
Autonomous and Summit will reimburse such company's custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses.
In addition, Autonomous and Summit have retained Georgeson & Company Inc. to
help them solicit proxies. Georgeson will receive a fee that Autonomous and
Summit expect will not exceed $ as compensation for its services and
reimbursement of its out-of-pocket expenses. Autonomous and Summit have agreed
to indemnify each of Georgeson against certain liabilities arising out of or in
connection with its engagement.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
This section of the joint proxy statement/prospectus, as well as the next two
sections entitled "The Merger Agreement" and "Other Agreements," describe
certain aspects of the proposed merger. These sections highlight key
information about the merger and these agreements, but they may not include all
the information that a stockholder would like to know. The merger agreement is
attached as Annex A to this joint proxy statement/prospectus and the form of
stockholder agreement is attached as Annex B. We urge stockholders to refer to
the merger agreement and the form of stockholder agreement in their entirety.
Summit Technology, Inc. and Autonomous Technologies Corporation are furnishing
this joint proxy statement/prospectus to their stockholders in connection with
the solicitation of proxies by their boards of directors for use at their
respective special meetings. At the Autonomous special meeting, holders of
Autonomous common stock will be asked to vote upon a proposal to approve and
adopt the merger agreement and the merger. At the Summit special meeting,
Summit stockholders will be asked to vote upon a proposal to issue 11,650,400
shares of Summit common stock in the merger. Separately, Summit stockholders
will be asked to approve an amendment to its articles of organization to
increase to 100 million the shares of Summit common stock authorized for
issuance and an increase of 1,500,000 shares in the shares of Summit common
stock available under the 1997 Stock Option Plan.
This joint proxy statement/prospectus is also a prospectus for Summit common
stock and is part of a registration statement on Form S-4 that Summit has filed
with the SEC to register the shares of Summit common stock that Autonomous
stockholders will receive in the merger.
In the merger, other than shares held in treasury, each share of Autonomous
common stock outstanding at the effective time of the merger will be converted
into the right to receive shares of Summit common stock and cash. The exact
amount is determinable by a formula that is described on page [ ] and [ ].
BACKGROUND OF THE MERGER
In late 1997 and early 1998, Robert J. Palmisano, Summit's Chief Executive
Officer, and Randy W. Frey, President and Chief Executive Officer of
Autonomous, and certain other individuals met several times to discuss the
possibility of a business combination of the two companies. These negotiations
ultimately were not productive and broke off in early 1998. On June 18, 1998,
Mr. Palmisano received a telephone call from Dr. C. Glen Bradley, President and
Chief Executive Officer of CIBA Vision, which owns approximately 16% of the
common stock of Autonomous. Dr. Bradley suggested that he and Mr. Palmisano
meet to discuss the possibility of a business combination between Summit and
Autonomous.
On June 22, 1998, Mr. Palmisano and Robert J. Kelly, Summit's Chief Financial
Officer, met in Boston with Mr. Bradley and Timothy Barabe, CIBA Vision's Chief
Financial Officer and a member of the Autonomous board of directors. The
parties agreed that a business combination could be advantageous for both
companies. Summit had manufacturing and marketing expertise, financial
capability and a cross-license on VISX patents and Autonomous' LADARVision
system represented a technological advance in laser vision correction. The
parties expressed mutual interest in pursuing the matter further.
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During July of 1998, Mr. Palmisano met individually with each of the other
members of Summit's board of directors to brief them on the discussions that
had taken place and on Summit management's preliminary views regarding a
possible transaction with Autonomous. On August 3, 1998, Summit and Autonomous
entered a confidentiality agreement in order to facilitate the process of
exchanging the information needed to evaluate the merits of a business
combination of the companies.
At a meeting of Summit's entire board of directors on August 4, 1998, the board
of directors specifically authorized Summit to pursue an acquisition of
Autonomous, subject to appropriate due diligence and subsequent approval of any
specific transaction by the board of directors. Direct negotiations between Mr.
Palmisano and Mr. Frey then formally commenced.
On August 21, 1998, Summit engaged Hambrecht & Quist, LLC as its financial
advisor. On that date, Mr. Palmisano, Mr. Kelly, and James A. Lightman,
Summit's Vice President and General Counsel, met with representatives of
Hambrecht & Quist at Summit's offices in Waltham, Massachusetts, to discuss the
proposed transaction and the status of negotiations.
On August 25, 1998, Messrs. Palmisano, Kelly and Lightman met in Boston with
Mr. Frey, Monty K. Allen, Autonomous' Chief Financial Officer, representatives
from Hambrecht & Quist, representatives from EVEREN Securities, Inc.,
Autonomous' financial advisor, and William A. Grimm of Gray, Harris and
Robinson, P.A., Autonomous' legal counsel, to exchange information and continue
discussions.
In early September, Messrs. Palmisano and Frey reached agreement on the general
financial terms of the transaction, which were summarized in a non-binding
letter from Mr. Palmisano to Mr. Frey dated September 9, 1998. The letter
contained customary contingencies, including satisfactory completion of due
diligence and execution of mutually acceptable definitive documentation.
On September 10, 11 and 12, Summit and its representatives conducted on-site
business and legal due diligence on Autonomous in Orlando, Florida. Commencing
on September 14, 1998, key Autonomous personnel, Autonomous legal counsel and
representatives from EVEREN Securities conducted due diligence on Summit in
Waltham, Massachusetts.
On September 14, Summit's board of directors met to formally consider the
transaction outlined in Mr. Palmisano's September 9 letter to Mr. Frey. At the
September 14 board of directors meeting, representatives of Hambrecht & Quist
made a preliminary presentation to Summit's directors. Messrs. Frey and Grimm
attended a portion of this meeting, during which Mr. Frey also made a
presentation.
Summit then completed its due diligence and, on October 1, 1998, Summit's board
of directors met again and formally approved the transaction. At the October 1
meeting, Hambrecht & Quist made its final presentation to the board and opined
to the board of directors that the proposed transaction, including the
consideration to be paid, was fair to Summit from a financial point of view.
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RECOMMENDATION OF THE SUMMIT BOARD AND REASONS FOR THE MERGER
At its meeting on October 1, 1998, the Summit board of directors determined
that the consideration to be paid in the merger was fair to Summit from a
financial point of view and the proposed merger was in the best interests of
Summit stockholders. The Summit board of directors based its determination on a
number of factors, including the following:
. Its conclusion that the Autonomous technology was the best available
technology and that acquiring the company would be more cost effective
and would present less risk than internally developing comparable
scanning technology.
. Its conclusion that Summit's manufacturing, marketing and service
experience and infrastructure would make the Autonomous technology easier
to commercialize.
. Its ability to provide the Autonomous products with a royalty-free cross-
license on VISX patents if Autonomous were to become a wholly owned
subsidiary of Summit.
. Its ability to expand the Summit product line and offer its customers and
potential customers a variety of laser vision correction products.
. The historical trading prices and trading activity for Summit common
stock and Autonomous common stock.
. Its receipt of the opinion of Hambrecht & Quist that, as of October 1,
1998, the consideration to be paid in the merger was fair to Summit from
a financial point of view.
The Summit board of directors also considered a number of risks in the proposed
transaction:
. The fact that Autonomous had not yet received FDA approval to market and
sell its LADARVision(R) System in the United States.
. The potential customer confusion and interruption in product orders for
both companies.
. The possible erosion of Summit's revenues and cash reserves in the near
term.
. The fact that Autonomous had only limited experience manufacturing its
LADARVision(R) System.
. The difficulties involved in integrating the two companies.
In the view of the Summit board of directors, the potentially negative factors
were not sufficient either individually or collectively to outweigh the
potential advantages.
The Summit board of directors considered the desire of the Autonomous board of
directors to have the merger structured, if possible, so the receipt of Summit
shares by Autonomous stockholders was tax-free. However, the Summit board of
directors was unwilling to accept any risk that the transaction might not be
tax free at the corporate level. Accordingly, because both boards believed that
completing the transaction was more important than the tax-free portion of the
share exchange, the Summit board of directors approved the merger agreement
that included the alternative structures. Summit stockholders will not incur
any tax under either structure.
In considering the transaction, the Summit board considered management's
current plans to manufacture, market and sell both the Apex Plus laser system
and the Autonomous LADARVision System. The Summit board recognized that the two
systems offer different technologies and
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management intends to market them with two distinct pricing models. The current
plans call for Summit to continue to sell the Apex Plus system under a lease or
purchase arrangement while it plans to offer the LADARVision System under a
user agreement with a per-procedure pricing structure.
These factors were not all of the factors that the Summit board of directors
considered, but they are the material factors upon which it based its decision.
In view of the wide variety of information that the Summit board of directors
considered in the course of its deliberations, the board of directors did not
find it practical to, and did not, quantify or otherwise assign any relative or
specific weights to any of the factors. Individual directors may have given
differing weights to different factors.
RECOMMENDATION OF THE AUTONOMOUS BOARD AND REASONS FOR THE MERGER
At its October 1, 1998 meeting, the Autonomous board of directors unanimously
determined that the merger was in the best interest of Autonomous and its
stockholders. The board of directors approved and adopted the merger agreement
and recommended that Autonomous stockholders vote to approve and adopt the
merger agreement and the merger.
Before making its determination, the Autonomous board of directors consulted
with senior management about strategic and operational matters and with legal
counsel about its fiduciary duties, regulatory matters, tax matters, the merger
agreement, the stockholder agreements and related issues. The Autonomous board
of directors also consulted with EVEREN Securities, Inc., its financial
advisor, about the financial aspects of the merger and the fairness from a
financial point of view of the consideration to be received by the stockholders
of Autonomous. In reaching its determination, the Autonomous board of directors
also considered a number of factors, including:
. As a Summit subsidiary, Autonomous would benefit from Summit's royalty-
free cross-license of the VISX patents and would not owe license fees to
VISX for the manufacture and use of the LADARVision(R) System.
. The negative effect that the ongoing patent litigation with VISX has had
and could continue to have on Autonomous' ability to raise capital if
Autonomous remained a separate company.
. The difficulty Autonomous was likely to have raising sufficient capital
in uncertain market conditions to fund the launch of the LADARVision
System in the United States if it remained a separate company.
. The apparent apprehension by potential customers that VISX would initiate
patent infringement actions against them if they used the LADARVision
System.
. Autonomous' ability to meet the anticipated demand for LADARVision
Systems in the United States in light of its lack of actual experience in
manufacturing the LADARVision Systems and its belief that Summit's
manufacturing experience could assist Autonomous' efforts in ramping-up
its manufacturing capability.
. The board of directors' view that Summit's established nationwide service
organization could provide responsive service to LADARVision System users
faster than if Autonomous established its own service organization.
. The amount and form of the merger consideration to be received by the
Autonomous stockholders and its belief that the part stock/part cash
structure of the merger consideration reflects an appropriate balance
between the potential for appreciation in the value of the Summit common
stock and the flexibility to invest the after-tax cash proceeds.
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. The financial advice and written opinion provided by EVEREN Securities,
Inc. that the consideration to be received by the stockholders of
Autonomous in the merger was fair, from a financial point of view, to the
stockholders of Autonomous.
. The terms and conditions of the merger agreement, including the
consideration to be received by the Autonomous stockholders, the parties'
representations, warranties and covenants, the conditions to their
respective obligations, the termination fee payable under the merger
agreement and the circumstances under which the termination fee will be
payable, and the likelihood that the merger would be consummated.
. The fact that the merger will be accounted for under the purchase method
of accounting and that the merger may or may not be tax-free as to the
shares of Summit common stock to be received by the Autonomous
stockholders, depending upon the circumstances at closing.
. The long-term and short-term interests of Autonomous and its stockholders
and, in accordance with the provisions of Florida law, the interests of
Autonomous' customers, employees and suppliers.
The Autonomous board of directors also considered a number of potentially
negative factors in its deliberations concerning the merger including:
. The likelihood that the market price of Summit common stock may decline
between the date of the merger agreement and the closing of the merger
and the impact such a decline would have on the consideration that
Autonomous stockholders would receive.
. The likelihood that the anticipated benefits of the merger might not be
fully realized.
. The fact that Summit is a defendant in several lawsuits with potentially
significant damages if the plaintiffs prevail.
. The fact that once it entered into the merger agreement Autonomous would
effectively be prevented from raising additional capital.
In the view of the Autonomous board of directors, the potentially negative
factors were not sufficient either individually or collectively to outweigh the
potential advantages of the merger.
The Autonomous board of directors preferred a transaction that would involve a
tax-free exchange of shares. However, because Autonomous stockholders would
recognize any gain on their stock to the extent of cash received in any event,
the Autonomous board of directors believed it more important that the
transaction be completed. As future stockholders of Summit, Autonomous
stockholders would not want to have the risk of a corporate level tax on the
transaction. Accordingly, the Autonomous board of directors approved the merger
agreement that accommodated either a tax-free reorganization or a fully taxable
merger.
The Autonomous board of directors also considered Summit's agreement to extend
it credit during the pendency of the proposed transaction. Although the
Autonomous board expected that the holder of Series I Convertible Preferred
Stock would exercise its option to make an additional investment of $4,000,000,
which would satisfy the company's working capital needs through February 1999,
it realized that the timing of the receipt of this investment was not entirely
within its control. Entering into the merger agreement with Summit would also
foreclose its ability to seek additional sources of capital, at least in the
short term. Thus, the Autonomous board of directors requested that the line of
credit be included as part of the overall transaction.
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In view of the variety of factors considered by the board of directors, the
board of directors did not find it practicable to quantify or otherwise assign
relative weights to any of the specific factors considered.
The Autonomous board of directors believes that the merger is in the best
interest of the Autonomous stockholders and recommends that the Autonomous
stockholders vote for the merger agreement and the merger.
OPINION OF FINANCIAL ADVISOR TO SUMMIT
Summit engaged Hambrecht & Quist to act as its financial advisor in connection
with potential acquisitions and to render its opinion as to the fairness to
Summit, from a financial point of view, of the consideration that Summit would
pay in an acquisition. The Summit board of directors selected Hambrecht & Quist
based on its qualifications, expertise and reputation. On October 1, 1998, at a
meeting of the Summit board of directors, Hambrecht & Quist rendered its oral
opinion (subsequently confirmed in writing) that, as of that date, the
consideration that Summit would pay in the merger was fair to Summit from a
financial point of view. A COPY OF HAMBRECHT & QUIST'S WRITTEN OPINION DATED
OCTOBER 1, 1998, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, THE
SCOPE AND LIMITATIONS OF THE REVIEW UNDERTAKEN AND THE PROCEDURES IT FOLLOWED,
IS ATTACHED AS ANNEX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS. SUMMIT
STOCKHOLDERS SHOULD READ THE OPINION IN ITS ENTIRETY. THE SUMMIT BOARD OF
DIRECTORS PLACED NO LIMITATIONS ON HAMBRECHT & QUIST'S INVESTIGATION OR THE
PROCEDURES IT FOLLOWED IN PREPARING AND RENDERING ITS OPINION.
In reviewing the merger and arriving at its opinion, Hambrecht & Quist, among
other things:
. Reviewed Summit's publicly available historical financial statements for
recent periods and other relevant financial and operating data that
Hambrecht & Quist obtained from published sources and from Summit's
management
. Discussed Summit's business, financial condition and prospects with
Summit's senior management
. Reviewed Autonomous' publicly available historical financial statements
for recent periods and other relevant financial and operating data that
Hambrecht & Quist obtained from published sources and from Autonomous'
management
. Discussed Autonomous' business, financial condition and prospects with
Autonomous' senior management
. Reviewed the recent reported prices and trading activity for the common
stocks of Summit and Autonomous and compared this and certain Summit and
Autonomous financial information with similar information for companies
engaged in businesses that Hambrecht & Quist considered comparable
. Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions
. Reviewed the merger agreement and discussed the tax and accounting
treatment of the merger with Summit and Summit's legal counsel
. Performed other analyses and examinations and considered other
information, financial studies, analyses and investigations and
financial, economic and market data that Hambrecht & Quist deemed
relevant.
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Hambrecht & Quist did not independently verify any of the information about
Summit or Autonomous that it considered in its review of the merger. For
purposes of its opinion, Hambrecht & Quist assumed that this information was
accurate and complete. In connection with its opinion, Hambrecht & Quist did
not prepare or obtain any independent evaluation or appraisal of any of the
assets or liabilities of Summit or Autonomous, nor did it conduct a physical
inspection of their properties and facilities. In connection with its analysis,
Hambrecht & Quist used certain financial forecasts published by securities
research analysts in the investment community. Hambrecht & Quist assumed that
these financial forecasts reflected the best publicly available estimates and
judgments of the expected future financial performance of each company.
Hambrecht & Quist also assumed that neither Summit nor Autonomous was a party
to any pending transactions, including external financings, recapitalizations
or merger discussions, other than the merger and those in the ordinary course
of conducting their respective businesses. For purposes of its opinion,
Hambrecht & Quist assumed that the merger would be accounted for as a purchase.
Hambrecht & Quist's opinion was based upon market, economic, financial and
other conditions as they existed on the date of the opinion. Any subsequent
change in conditions would require a reevaluation of the opinion.
The preparation of a fairness opinion is a complex process. It is not
necessarily susceptible to partial analysis or summary description. The
following summary of Hambrecht & Quist's analyses is not a complete description
of its presentation to the Summit board of directors. In arriving at its
opinion, Hambrecht & Quist did not attribute any particular quantitative weight
to any analyses or factors that it considered. Rather, it made qualitative
judgments about the significance and relevance of each analysis and factor.
Hambrecht & Quist believes that its analyses and the following summary must be
considered as a whole. Selecting portions of its analyses, without considering
all of them, or considering only the following summary, without considering all
factors and analyses, could create an incomplete view of the processes
underlying the analyses in its presentation to the Summit board of directors
and its opinion. In performing its analyses, Hambrecht & Quist made numerous
assumptions about industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Summit
and Autonomous. The analyses that Hambrecht & Quist performed (which are
summarized below) are not necessarily indicative of actual values or actual
future results, which may be significantly different that those suggested by
the analyses. Additionally, analyses about the values of a business for
purposes of a fairness opinion are not appraisals and do not reflect the prices
at which the business may actually be acquired.
The following is a brief summary of certain financial analyses that Hambrecht &
Quist performed in connection with providing its oral and written opinion to
the Summit board of directors on October 1, 1998:
Contribution Analysis. Hambrecht & Quist analyzed the contribution that each
company is expected to make to the revenue, gross profit, operating income and
net income of the pro forma combined company, without making any revenue or
expense adjustments. Hambrecht & Quist then compared this contribution analysis
to the pro forma ownership percentages that the stockholders of Summit and
Autonomous would have in the combined company after the merger. For each
company, Hambrecht & Quist examined the expected contributions to the combined
company's revenues, gross profit, operating income, and net income for each of
the five years 1999, 2000, 2001, 2002 and 2003. Hambrecht & Quist derived these
estimates from the estimates of its research analyst and from discussions with
management of each company. Hambrecht & Quist observed that, on a fully diluted
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basis using the treasury stock method, Summit stockholders are expected to own
approximately 73% and Autonomous stockholders are expected to own approximately
27% of the combined company equity following the merger. The table below sets
forth the percentages that Hambrecht & Quist estimated each company would
contribute to the revenues, gross profit, operating income and net income of
the combined company for each of 1999, 2000, 2001, 2002 and 2003, assuming no
revenue or expense adjustments. No contribution was provided for operating
income and net income for 1999 and net income for 2000 because contribution is
expected not to be meaningful.
PRO FORMA CONTRIBUTION TO VARIOUS INCOME STATEMENT LINE ITEMS
<TABLE>
<CAPTION>
OPERATING NET
REVENUES GROSS PROFIT INCOME INCOME
-------- ------------ --------- ------
<S> <C> <C> <C> <C> <C>
1999 Summit 91% 91% * *
Autonomous 9% 9% * *
2000 Summit 75% 72% 63% *
Autonomous 25% 28% 37% *
2001 Summit 62% 58% 28% 36%
Autonomous 38% 42% 72% 64%
2002 Summit 52% 47% 16% 22%
Autonomous 48% 53% 84% 78%
2003 Summit 47% 39% 12% 20%
Autonomous 53% 61% 88% 80%
</TABLE>
Pro Forma Merger Analysis. Hambrecht & Quist analyzed the pro forma impact of
the merger on Summit's future earnings per share. It prepared financial
projections for Summit for each of the five years ending 2003 based on its
discussions with Summit management and on the published estimates of Hambrecht
& Quist's analyst. It prepared base case and downside case financial
projections for Autonomous for each of the five years ending 2003 based on its
discussions with Summit and Autonomous management and on published estimates of
its analyst. The analysis indicated that both pro forma base case and downside
case EPS for the combined company would be potentially lower for 1999 and 2000
and potentially higher for 2001, 2002 and 2003, than for Summit as a stand-
alone company. These projections are subject to risks and uncertainties. The
actual results that the combined company achieves may vary from the projected
results and these variations may be material.
Premium Analysis/Analysis of Selected Merger and Acquisition
Transactions. Hambrecht & Quist compared the merger with selected comparable
merger and acquisition transactions. This analysis included 28 comparable
public and private company medical product transactions since June 1993. The
selected transactions analyzed included Medtronic/Physio-Control (June 1998),
Sulzer Medica/Spine Tech (December 1997), Respironics/Healthdyne (November
1997), Guidant/Endovascular Technologies (October 1997) and Johnson &
Johnson/Innotech (February 1997). Hambrecht & Quist concluded that analyzing
certain income statement and balance sheet parameters would not be meaningful
and performed a premium analysis. It compared the implied price per share of
Summit common stock and cash to be issued in the merger as of September 30,
1998 to the last sale price of Autonomous common stock on both September 25,
1998 and August 28, 1998 (twenty trading days earlier) to premiums paid in
these medical product transactions.
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Hambrecht & Quist observed that the one-day premiums ranged from approximately
17% to 62% and four-week premiums ranged from approximately 27% to 74%.
Autonomous' equity value ranged from approximately $68 million to $94 million
and $65 million to $90 million based on one-day premiums and four-week
premiums, respectively. These compared with an implied value of $87 million of
Autonomous in the merger, based on the closing price of Summit common stock on
September 30, 1998, the day before the Summit board of directors meeting.
Discounted Cash Flow Analysis. Hambrecht & Quist analyzed Autonomous'
theoretical valuation based on the discounted cash flow of its projected base
case and downside case financial performance estimates. Autonomous' implied
equity value in the base case ranged from approximately $111 million to $154
million. Autonomous' implied equity value in the downside case ranged from
approximately $70 million to $102 million. These values compared with an
implied value of $87 million of Autonomous in the merger, based on the closing
price of Summit common stock on September 30, 1998.
Discounted Cash Flow Value of Autonomous Acquisition. Hambrecht & Quist
analyzed the implied equity value of Autonomous by taking the discounted cash
flow of the combined company and subtracting the discounted cash flow of Summit
on a stand-alone basis. Hambrecht & Quist examined base case and downside case
financial performance estimates of the pro forma combined company. Autonomous'
implied equity value in the base case ranged from approximately $168 million to
$230 million. Autonomous' implied equity value in the downside case ranged from
approximately $77 million to $109 million. This compared with an implied value
of $87 million of Autonomous in the merger, based on the closing price of
Summit common stock on September 30, 1998.
Publicly Traded Comparable Company Analysis. Hambrecht & Quist compared
selected financial information of Autonomous to publicly traded companies that
Hambrecht & Quist considered comparable. The data and ratios included the ratio
of price per share to projected earnings per share and technology value (market
value plus debt less cash and marketable securities) to historical revenue. The
companies selected included twelve PMA-approved companies and eleven medical
capital equipment companies. The multiples for these companies were applied to
projected base case and downside case financial results of Autonomous for 2001,
2002 and 2003 derived from Hambrecht & Quist research estimates and discussions
with Summit and Autonomous management. Hambrecht & Quist determined that based
on the expected results for calendar year 1999, the average price/earnings per
share multiple for these selected publicly traded comparable companies was
19.7x. Hambrecht & Quist determined that the average multiple of price/last
twelve months revenue for these companies was 5.0x. The valuations based on
Autonomous projections and comparable company multiples were then discounted
back to the present. Based on a discounted public multiple analysis,
Autonomous' implied equity value ranged from approximately $106 million to
approximately $204 million in the base case and from approximately $52 million
to approximately $140 million in the downside case. These valuations compared
with an implied value of $87 million of Autonomous in the merger, based on the
closing price of Summit common stock on September 30, 1998.
None of the companies or transactions that Hambrecht & Quist used is identical
to Autonomous or Summit or the merger. Accordingly, an analysis of the
foregoing results is not purely mathematical. It involves complex
considerations and judgments about differences in financial and operating
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characteristics of the companies and other factors that could affect the public
trading values of the companies used in the comparisons.
SUMMIT STOCKHOLDERS SHOULD READ THIS DESCRIPTION OF HAMBRECHT & QUIST'S OPINION
ALONG WITH THE FULL TEXT OF ITS OPINION THAT IS ATTACHED AS ANNEX C TO THIS
JOINT PROXY STATEMENT/PROSPECTUS.
Hambrecht & Quist, as part of its investment banking services, regularly
conducts valuations of businesses and securities in connection with mergers and
acquisitions, corporate restructurings, strategic alliances, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and for corporate and other purposes. In the ordinary course
of business, Hambrecht & Quist acts as a market maker and broker in Summit and
Autonomous common stock and receives customary compensation for these
activities. It also provides research coverage on both Summit and Autonomous.
In the ordinary course of business, Hambrecht & Quist also actively trades for
its own account and for the accounts of its customers in the equity and
derivative securities of both Summit and Autonomous. Accordingly, it may at any
time hold a long or short position in such securities. In the past, Hambrecht &
Quist acted as financial advisor to Autonomous and made an investment in
Autonomous before it went public. At the time Summit engaged Hambrecht & Quist
to act as its financial advisor for this transaction, Hambrecht & Quist no
longer held any of the securities that comprised this investment.
Upon completion of the merger, Summit will pay Hambrecht & Quist a fee equal to
the greater of 1.0% of the aggregate consideration paid or $750,000. For
purposes of calculating this fee, the aggregate consideration will be valued at
the closing of the transaction and will include the sum of the cash paid in the
merger (including amounts payable to redeem the Series I Convertible Preferred
Stock) and the market value of Summit common stock issuable in the merger
(including shares underlying stock options and warrants that Summit is
assuming). Summit paid Hambrecht & Quist a $50,000 retainer fee at the time of
the initial engagement. A $400,000 fee for the fairness opinion became payable
to Hambrecht & Quist when it delivered the opinion. These amounts are not
contingent upon the completion of the merger but they will be credited against
the fee that is payable upon completion of the merger. Summit also has agreed
to reimburse Hambrecht & Quist for its reasonable out-of-pocket expenses and to
indemnify Hambrecht & Quist against certain liabilities, including liabilities
under the federal securities laws or relating to or arising out of Hambrecht &
Quist's engagement as financial advisor.
OPINION OF AUTONOMOUS' FINANCIAL ADVISOR
Autonomous retained EVEREN Securities, Inc. as its exclusive financial advisor
and agent in connection with its merger with Summit to render an opinion to the
board of directors of Autonomous as to whether the consideration to be paid to
Autonomous stockholders in the merger was fair, from a financial point of view.
On October 1, 1998, during a telephonic meeting of the board of directors of
Autonomous, EVEREN rendered its opinion that, as of that date, the
consideration to be paid in the merger was fair from a financial point of view
to Autonomous stockholders. EVEREN's conclusion that the consideration to
Autonomous stockholders was fair from a financial point of view assumed that
they would receive at least $6.26 per share, based on a Summit stock price of
$4.00 per share. EVEREN has reserved the right to withdraw its opinion if
Summit's stock price changes materially.
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Autonomous selected EVEREN as its advisor because of its reputation and
expertise as a nationally recognized investment banking firm. EVEREN, as part
of its investment banking business, is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwriting, competitive bidding, secondary distributions of listed
and unlisted securities, private placements and valuations for corporate and
other purposes.
In arriving at its opinion, EVEREN, among other things:
. Reviewed the draft merger agreement by and between Summit and Autonomous
in substantially final form
. Reviewed Autonomous' publicly available historical financial statements
for recent periods and other relevant financial and operating data that
EVEREN obtained from published sources and Autonomous' management
. Met with certain members of Autonomous' senior management to discuss its
operations, financial statements and projections and future prospects
. Reviewed Summit's publicly available historical financial statements for
recent periods and other relevant financial and operating data that
EVEREN obtained from published sources and Summit's management
. Met with certain members of Summit's management to discuss Summit's
operations, financial statements and projections and future prospects
. Interviewed certain members of Summit's outside legal counsel to discuss
the proceedings, status and anticipated impact of certain outstanding
litigation on Summit's business, financial condition and results of
operations
. Reviewed publicly available financial data and stock market performance
data of other ophthalmic and medical device manufacturers that EVEREN
deemed comparable to Autonomous and Summit
. Reviewed the price premiums of recent mergers and acquisitions for
selected companies which EVEREN deemed generally comparable to Autonomous
. Reviewed the historical stock prices and reported traded volumes of
Autonomous' and Summit's common shares
. Conducted such other studies, analyses, inquiries and investigations as
EVEREN deemed appropriate
EVEREN did not conduct a physical inspection of any of the assets, properties
or facilities of either Autonomous or Summit, and did not make or obtain, and
was not furnished with, any independent evaluation or appraisal of any of such
assets, properties, facilities, liabilities or contingencies, including
outstanding legal claims, of Autonomous or Summit. EVEREN assumed and relied
upon, without independent investigation, the accuracy and completeness of the
financial and other information that was publicly available or provided to it
by Autonomous and Summit senior management, and did not independently attempt
to verify any of such information. EVEREN also assumed that all of the
conditions to the merger would be satisfied and that the merger would be
consummated on a timely basis. Autonomous did not impose any limitations on
EVEREN's scope of investigation and gave it no specific instructions in
connection with the fairness opinion.
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In connection with its analyses, EVEREN assumed that the financial projections
that it reviewed were reasonably prepared using assumptions reflecting the best
currently available estimates and judgments of the future financial performance
of Autonomous and Summit. EVEREN's opinion was based upon market, economic,
financial and other conditions as they existed on the date of the opinion. Any
subsequent material change in conditions would require a reevaluation of the
opinion and may cause EVEREN to withdraw its opinion.
For purposes of its opinion, EVEREN assumed that:
. The merger would be accounted for as a purchase
. The holders of Autonomous' Series I Convertible Preferred Stock would
exercise their option to purchase an additional $4 million of Series I
Convertible Preferred Stock upon announcement of the merger and elect to
be redeemed for cash upon closing of the merger
. Autonomous' warrant and option holders would exercise their securities
prior to closing of the merger by means of a cashless exercise.
. The consideration to be received by Autonomous common stockholders was
$6.26 per share (consisting of $2.50 in cash and $3.76 in Summit stock)
based on Summit's closing stock price of $4.00 per share on September 28,
1998
The following is a summary of certain of the financial analyses that EVEREN
used in connection with its written opinion provided to Autonomous' board of
directors dated October 1, 1998.
Historical Stock Price Analysis. EVEREN analyzed the historical trading prices
and volumes of Autonomous' common stock since May 1, 1996, the date of
Autonomous' initial public offering (IPO). The analysis indicated that the
merger consideration of $6.26 per share represented a premium of 39% to the
closing trade price of $4.50 on September 28, 1998, and a premium of 26% to the
average stock price of $4.97 since the IPO. The analysis also indicated that,
over the past year, 70% of Autonomous' total volume traded at a per share price
of $6.00 or below, 50% of the total volume traded at a per share price between
$5.00 and $6.00, and less than 16% of the total volume traded at or above a per
share price of $6.50.
Analysis of Premiums in Selected Merger and Acquisition Transactions. EVEREN
analyzed selected mergers and acquisitions in the medical device industry since
1997 with aggregate values between $30 million to $200 million. The selected
transactions included, among others, Hewlett Packard/Heartstream (March 1998),
Guidant Corp/Endovascular Technologies (December 1997), Cambrex
Corp/BioWhittaker (October 1997) and Henry Schein/Micro Bio-Medics (August
1997). EVEREN observed that the premium/discount paid in these transactions
ranged from: (i) a discount of 12% to a premium of 96% with a median premium of
47% four weeks prior to the announcement date; (ii) a discount of 23% to a
premium of 96% with a median premium of 26% one week prior to the announcement
date; and (iii) a discount of 24% to a premium of 96% with a median premium of
20% one day prior to the announcement date. Using Autonomous' closing trade
price of $4.50 on September 28, 1998, the analysis indicated that the merger
consideration of $6.26 per share represented a 79% premium to Autonomous'
closing trade price of $3.50 four weeks prior to such date, a 62% premium to
its closing trade price of $3.875 one week prior to such date, and a 39%
premium to its closing trade price of $4.50 on such date.
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Discounted Cash Flow Analysis. EVEREN performed a discounted cash flow analysis
using projections provided by Autonomous' management. To derive an implied
aggregate value range for Autonomous, EVEREN calculated the net present value
of free cash flows for the years 1999 through 2001 using discount rates ranging
from 25% to 35% and calculated a terminal value in 2001 using a 2001 aggregate
value to revenue multiple of 2.1x, the median revenue multiple for publicly
held comparable companies as of September 28, 1998. To derive the implied value
range for Autonomous' common stock, EVEREN deducted the preference amount of
Autonomous' outstanding Series I Convertible Preferred Stock ($5.0 million)
from the implied aggregate values. The analysis indicated that the implied
values of Autonomous' common stock ranged from $3.03 to $4.26 per share, with a
midpoint of $3.59. EVEREN determined that the merger consideration of $6.26 per
share represented a 74% premium to the midpoint.
Summit Historical Stock Price Analysis. EVEREN analyzed the historical trading
prices and volumes of Summit's common stock for the period from September 10,
1993 to September 25, 1998. The analysis indicated that Summit's closing stock
price of $4.00 per share on September 28, 1998 represented a discount of 30% to
the average stock price over the past year and a discount of 33% to the average
stock price since September 1, 1996. EVEREN deemed September 1, 1996 a
significant date as it represented the approximate date at which Summit's stock
price began trading in the relatively tight range of $5.00 to $8.00 per share
after a steep decline from its all-time high of $32.53 per share in January
1996.
Analysis of Selected Summit Comparable Companies. EVEREN compared certain
financial information for Summit to corresponding financial information,
multiples and ratios of other laser vision correction and ophthalmic medical
device companies with market values between $35 and $960 million (the
"Comparable Group") as of September 28, 1998. EVEREN determined Summit's market
value was $124.6 million and enterprise value (market value plus debt, less
cash and marketable securities) was $32.9 million. The analysis indicated that:
. Summit's enterprise value to revenue multiple of 0.35x represented an
83% discount to the median multiple of the Comparable Group of 2.06x;
. on an aggregate value to EBITDA basis, Summit's multiple of 4.61x
represented a 74% discount to the median multiple of the Comparable
Group of 17.91x; and
. using First Call consensus earnings per share estimates, Summit's stock
price was trading at 22.2x 1998 and 15.4x 1999 estimated earnings per
share, representing discounts of 26% and 22%, respectively, to the
median trading multiples of 29.9x and 19.8x for the Comparable Group for
the corresponding periods.
Summit Discounted Cash Flow Analysis. EVEREN performed a discounted cash flow
analysis using projections provided by Summit's management. To derive an
implied aggregate value range for Summit, EVEREN calculated the present value
of free cash flows for the years 1999 through 2001 using discount rates ranging
from 25% to 35% and calculated a terminal value in 2001 using a 2001 aggregate
value to revenue multiple of 2.1x, the median revenue multiple for the
Comparable Group as of September 28, 1998. To derive the implied value range
for Summit's common stock, EVEREN deducted Summit's outstanding debt of $7.9
million from the implied aggregate values. The analysis indicated that the
implied values of Summit's common stock ranged from $5.99 to $7.56 per share,
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with a midpoint of $6.72. EVEREN determined that Summit's closing stock price
of $4.00 per share on September 28, 1998 represented a 40% discount to the
midpoint.
Summit Hypothetical "Break-Up" Value Analysis. EVEREN compared the market value
of Summit as of September 28, 1998 to its hypothetical break-up value, or the
sum of the values of its separable component assets and businesses using recent
publicly available financial information and other information provided to it
by Summit management. In performing its analysis, EVEREN separately valued the
following four components of Summit's assets and businesses:
.its cash and marketable securities (including long-term securities);
.its equity investment in LCA Vision common stock (a publicly-traded
company);
. its mail-order contact lens business, Lens Express, using public
comparable company multiples as a basis for valuation; and
. its laser vision correction business (also using public comparable
company multiples as a basis for valuation).
EVEREN observed that the aggregate value of Summit's separable assets and
businesses totaled $220.1 million, or $7.07 per share. To derive a hypothetical
break-up value, EVEREN deducted $22.9 million of liabilities representing
outstanding debt and certain outstanding legal contingencies from the aggregate
value. The resulting computation indicated a break-up value for Summit of
$197.1 million, or $6.33 per share. EVEREN concluded that Summit's stock price
of $4.00 per share on September 28, 1998 represented a 37% discount to its
implied break-up value.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying EVEREN's opinion. In arriving at its fairness determination, EVEREN
considered the results of all such analyses. No company or transaction used in
the above analyses as a comparison is directly comparable to Autonomous, Summit
or to the contemplated transaction. The analyses were prepared solely for
purposes of EVEREN providing its opinion to Autonomous' Board of Directors as
to the fairness, from a financial point of view, of the merger consideration to
be received by Autonomous stockholders and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses are inherently subject
to uncertainty, being based upon numerous factors or events beyond the control
of EVEREN. As described above, EVEREN's opinion to Autonomous' board of
directors was one of many factors taken into consideration by such Board in
making its determination to approve the merger. The foregoing summary does not
purport to be a complete description of the analyses that EVEREN performed.
Autonomous stockholders should read the written opinion of EVEREN set forth as
Annex D to this joint proxy statement/prospectus.
Previously, EVEREN acted as Autonomous's financial advisor and placement agent
in connection with three private equity offerings for which it received
customary compensation. In the ordinary course of business, EVEREN provides
research coverage on Autonomous. EVEREN also acts as a
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market maker and broker in Autonomous common stock for which it receives
customary compensation for these activities. EVEREN provides a full range of
financial advisory and securities services and, in the course of its normal
trading activities, may from time to time effect transactions and hold
securities, including derivative securities, of Autonomous or Summit for its
own account and for the account of customers.
Pursuant to a letter agreement dated August 13, 1998, Autonomous engaged EVEREN
to act as its exclusive financial advisor in connection with the merger with
Summit. Pursuant to the terms of the engagement letter, Autonomous has agreed
to pay EVEREN a transaction fee equal to the greater of 1.00% of the sale price
(as defined in the engagement letter) or $1,200,000. Of such fee,
.$50,000 was paid to EVEREN upon execution of the Engagement Letter;
.$200,000 became payable upon the execution of the merger agreement;
. $75,000 became payable upon the delivery of the opinion to Autonomous'
board of directors; and
. the balance of such fee will become payable to EVEREN at the closing of
the merger.
Autonomous has agreed to reimburse EVEREN for its reasonable out-of-pocket
expenses, including attorney's fees, and to indemnify EVEREN against certain
liabilities, including certain liabilities under the federal securities laws.
MERGER CONSIDERATION
What Autonomous stockholders will receive in the merger is not a fixed number
of Summit shares or cash. It will be determined by applying a formula described
in this section. The formula is sensitive to a number of variables, including
the number of shares of Autonomous common stock deemed to be outstanding using
the treasury stock method, the Autonomous share price and the Summit share
price. It is also affected by whether the holder of Series I Convertible
Preferred Stock elects to have its shares redeemed in cash and whether holders
of Autonomous options and warrants elect to exercise them before the merger.
Summit and Autonomous chose to structure the transaction to emulate an all
stock transaction, where the value would be based on the Summit stock price,
but to provide a portion of the consideration in cash. Summit wanted to limit
the aggregate cash portion to $50 million. Another consideration was that the
share exchange in the merger can be tax-free only if the Autonomous
stockholders have a substantial continuing interest in Summit stock. Generally
a ratio of 50% stock and 50% cash satisfies this test. To preserve this split,
if the Summit stock price declines, either the amount of Summit stock must be
increased or the amount of cash must be decreased. The Summit board of
directors was not willing to increase the number of Summit shares. As a result,
the merger has been structured so that the amount of cash will be reduced if
the Summit stock price declines below $4.29 per share.
The maximum aggregate consideration to be paid by Summit for all of the equity
of Autonomous--that is, all of Autonomous common stock, Series I Convertible
Preferred Stock, options and warrants--is 11,650,400 shares of Summit common
stock and an equal value of cash, subject to a maximum cash amount of
$50,000,000. At the Effective Time, each Autonomous stockholder will be
entitled to receive, in exchange for each share of Autonomous stock, a portion
of the stock consideration and a portion of the cash consideration, as
determined below.
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Stock Consideration. The aggregate number of Summit shares payable in respect
of all of the outstanding equity of Autonomous is 11,650,400 shares. The
outstanding equity of Autonomous will be determined on the treasury stock
method, which is the same method that companies use to calculate "diluted
earnings per share" for income statement purposes. We will start with the
actual number of shares of Autonomous common stock outstanding. To this number,
we will add:
. The number of shares of Autonomous common stock underlying all
outstanding in-the-money options and warrants, reduced by the number of
shares that could be repurchased with the aggregate exercise proceeds.
. The number of shares of Autonomous common stock into which the
outstanding Series I Convertible Preferred Stock could be converted,
unless the holder has elected to have those shares redeemed for cash.
To determine how many shares of Summit common stock each Autonomous stockholder
will receive, we will divide the 11,650,400 shares of Summit common stock by
the fully diluted Autonomous common stock as determined above.
Cash Consideration. The maximum amount of cash payable by Summit for all of the
equity of Autonomous will equal the value of 11,650,400 shares of Summit common
stock, subject to a cap of $50,000,000. This amount is subject to adjustment as
described below. The value of the 11,650,400 shares will be determined by
multiplying 11,650,400 by the average closing price of Summit common stock on
Nasdaq for the five days ending on the day before the date on which the
Effective Time occurs. If the average closing price is equal to or greater than
$4.2917, then the aggregate cash amount payable for all the equity of
Autonomous will be $50,000,000. In all other cases the aggregate cash amount
payable for all the equity of Autonomous will be equal to 11,650,400 multiplied
by the average closing price. For example, if the average price equals $4.00,
then the aggregate cash amount would be $46,601,600.
The aggregate cash amount to be allocated to Autonomous common stockholders and
option and warrant holders will be reduced by the following:
. One half of the amount that Summit loans to Autonomous before the
Effective Time. Summit has agreed to lend Autonomous up to $5 million,
plus up to an additional $1.5 million if Summit elects to extend the
termination date beyond February 28, 1999. The loan is described on pages
[ ] and [ ].
. Any amounts payable in redemption to the holder of Series I Convertible
Preferred Stock.
To determine how much cash each Autonomous stockholder will receive, we will
divide this amount by the fully diluted shares of Autonomous common stock as
determined above.
COMPLETION OF THE MERGER; EFFECTIVE TIME
The merger agreement provides that the merger will be completed if the Summit
stockholders vote to issue the Summit shares in the merger and the Autonomous
stockholders vote to approve the merger and related transactions and if all
other conditions to the merger are satisfied or waived. If the merger is able
to be completed as a tax-free reorganization, Autonomous will merge into the
Summit subsidiary. If the merger is restructured as a fully taxable merger, the
Summit subsidiary will merge into Autonomous. In either case, each outstanding
share of Autonomous common stock (other than
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shares held in treasury by Autonomous or owned by Summit) will be converted
into the right to receive shares of Summit common stock and cash. Completion of
the merger will occur when certificates of merger are filed with the Secretary
of State of Delaware and the Secretary of State of Florida. We refer to the
time when the merger is completed as the "Effective Time." These filings will
occur as soon as practicable after we satisfy or waive the closing conditions
in the merger agreement. Either party may terminate the merger agreement if it
is not completed by February 28, 1999, although Summit can extend this date by
30 days under certain circumstances. Either party may also terminate the merger
agreement under certain other circumstances. We describe these circumstances
below under the captions "The Merger Agreement--Conditions to the Merger" and
"The Merger Agreement--Termination" at pages [ ] through [ ].
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of Autonomous common stock into the right to receive Summit
common stock and cash will occur automatically at the Effective Time.
As soon as practicable after the Effective Time, the exchange agent will mail a
transmittal letter and instructions to each Autonomous stockholder describing
the procedures to follow in forwarding Autonomous stock certificates. When the
exchange agent receives an executed letter of transmittal and the original
stock certificates, it will deliver shares of Summit common stock and cash to
the stockholder.
After the Effective Time, Autonomous will not permit any share transfers in its
stock transfer books. Any certificate presented for transfer will be canceled
and exchanged for the appropriate number of shares of Summit common stock and
an appropriate amount of cash. After the Effective Time and until surrendered,
shares of Autonomous common stock will only represent the right to acquire the
number of shares of Summit common stock and cash into which the shares were
convertible at the Effective Time. See "The Merger Agreement--Exchange of
Certificates."
AUTONOMOUS STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED A TRANSMITTAL LETTER. DO NOT RETURN STOCK
CERTIFICATES WITH THE ENCLOSED PROXY CARD.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the Autonomous board's recommendation in favor of the merger,
Autonomous stockholders should be aware that certain members of Autonomous
management have interests in the merger that are in addition to their interests
as Autonomous stockholders generally.
Under the Merger Agreement, Randy W. Frey will be elected as a Summit director
for a term ending at the Summit annual meeting in 2001 and Dr. C. Glen Bradley,
president and chief executive Officer of CIBA Vision, will be elected as a
Summit director for a term ending at the Summit annual meeting in 2000. Mr.
Frey is Chairman of the board, President and Chief Executive Officer of
Autonomous. From 1985 to March 1998 and again since October 1998, Mr. Frey was
President of Autonomous. Mr. Frey is 41 years old. Dr. Bradley has been the
Chief Executive Officer of CIBA Vision since 1990. Dr. Bradley is 56 years old.
Dr. Richard H. Keates has been designated by Autonomous to be an observer at
Summit board meetings. Dr. Keates has been a director of Autonomous and
Professor of Ophthalmology at New York Medical College since 1997. From 1990
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to 1997, Dr. Keates was a Professor of Ophthalmology at the University of
California--Irvine. Dr. Keates is 66 years old.
Summit will indemnify and hold harmless from liability the directors, officers
and employees of Autonomous for acts or omissions occurring at or before the
Effective Time to the fullest extent permitted under applicable law for a
period of six years after the date of the merger agreement. Summit will also
honor and fulfill the obligations of Autonomous under indemnification
agreements with its directors and officers existing at or before the Effective
Time. For three years after the Effective Time, Summit will maintain in effect,
if available, directors' and officers' liability insurance covering those
persons currently covered by Autonomous' directors' and officers' liability
insurance policy on terms comparable to those currently in place. In no event,
however, must Summit spend more than 150% of the annual premium that Autonomous
currently pays for that coverage, although Summit must purchase the maximum
coverage available for that amount.
Under the Autonomous 1995 Stock Option Plan and related agreements, all stock
options outstanding at October 1, 1998 will become exercisable prior to the
merger and terminate when the merger is completed. Summit has agreed to assume
any stock options outstanding at the Effective Time if the holder of the option
waives the acceleration right and agrees to continue the existing vesting
schedule. These options would become options for Summit common stock following
the merger. Summit has agreed that if it terminates the employment of any
option holder without cause following the merger, it will accelerate the
exercisability of the assumed option to permit the employee to exercise it.
Autonomous does not know the extent to which its employees will waive the
acceleration right and accept the Summit stock options.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the material United States federal income tax
consequences of the merger to holders of Autonomous common stock. This summary
does not address tax consequences other than material federal income tax
consequences and does not address the tax consequences that may apply to
particular Autonomous stockholders who are subject to special treatment under
certain federal income tax laws, such as dealers in securities, banks,
insurance companies, tax-exempt organizations, corporate stockholders which are
collapsible corporations, non-United States persons, stockholders who acquired
shares of Autonomous common stock as compensation, stockholders who are subject
to the alternative minimum tax provisions of the Internal Revenue Code of 1986
or stockholders who hold their Autonomous common stock as part of a hedging,
straddle, conversion or other risk reduction or constructive sale transaction.
This summary does not address the tax consequences to holders of Autonomous
common stock who do not hold their stock as a capital asset at the Effective
Time. In addition, this summary does not address the tax consequences to the
holder of Series I Convertible Preferred Stock. This summary is based upon the
Code, currently applicable Treasury Regulations, published administrative
rulings and court decisions as they exist on the date of this joint proxy
statement/prospectus. All of the foregoing are subject to change either
prospectively or retroactively, and any such change could affect the continuing
validity of the tax consequences described below. We have not provided any
information about the tax consequences of the merger arising under any state,
local or foreign law. This summary discusses only the federal income tax
consequences of the merger and does not discuss the tax consequences of any
other transaction that may occur in connection with the merger.
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AUTONOMOUS STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE MERGER TO EACH OF THEM, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
Tax-Free Merger. The merger is structured to qualify as a reorganization within
the meaning of Section 368(a) of the Code. To qualify as a reorganization under
Section 368(a) of the Code, the merger must satisfy the "continuity of
interest' test, which requires that the Autonomous stockholders retain a
substantial proprietary interest in the Autonomous business that Summit
conducts following the merger. The IRS ruling guidelines require that
Autonomous shareholders receive at least 50% of the total consideration in the
form of Summit common stock to satisfy this requirement. However, these
guidelines only describe the circumstances in which the IRS will issue a
favorable ruling and are not a statement of the substantive law regarding the
qualification of a transaction as a reorganization. The case law is more
liberal than the IRS ruling guidelines, and, in one early case, the Supreme
Court ruled that less than 45% continuity was sufficient. Under the merger
agreement, the transaction will be restructured as a fully taxable merger if
continuity falls below 50% valuing the Summit common stock on the day before
the Closing Date, or 45% valuing the Summit common stock based on its average
closing price for the five trading days ending on the day before the Closing
Date. Thus, unless restructured as a fully taxable merger, the transaction
should satisfy the continuity test and qualify as a reorganization, and the
following federal income tax consequences should result:
. Each Autonomous stockholder's gain will be measured on the excess of (i)
the sum of the fair market value of the Summit common stock and cash the
stockholder receives in the merger over (ii) the stockholder's adjusted
tax basis in the Autonomous common stock, to the extent it does not
exceed the amount of cash received in the merger (excluding cash received
in lieu of fractional shares). Any gain in excess of the cash received
will not be recognized.
. Gain recognized by each Autonomous stockholder will generally be capital
gain. The gain will be long-term capital gain if the stockholder held his
or her Autonomous common stock for more than one year. Net long-term
capital gains are subject to a maximum federal tax rate of 20% for
noncorporate taxpayers. In certain circumstances, however, an Autonomous
stockholder who actually or constructively owns Summit common stock may
be required to treat gain recognized in the merger as dividend income
(rather than capital gain) if the receipt of cash by such stockholder has
the effect of a distribution of a dividend. For these purposes, a
stockholder is treated as owning stock owned by certain family members,
stock issuable upon the exercise of an option owned by the stockholder,
stock owned by certain estates and trusts of which the stockholder is a
beneficiary and stock owned by certain affiliated entities. Because these
rules are complex, each holder of Autonomous common stock who believes
the constructive ownership rules may apply should contact his or her own
tax advisor.
. If an Autonomous stockholder's adjusted tax basis in the Autonomous stock
exceeds the sum of the fair market value of the Summit common stock and
the cash received in the merger, the stockholder will not recognize any
loss.
. Each Autonomous stockholder's tax basis in the Summit common stock
received (including fractional shares of Summit common stock deemed
received, as discussed below) will equal the stockholder's adjusted tax
basis in the Autonomous common stock surrendered in the
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merger, decreased by the amount of cash received and increased by the
amount of gain recognized by the stockholder.
. Each Autonomous stockholder's holding period in the Summit common stock
received in the merger will include the stockholder's holding period in
the Autonomous common stock surrendered in the merger.
. Cash payments, if any, received by holders of Autonomous common stock in
lieu of fractional shares of Summit common stock will be treated as if
Summit had issued the fractional shares and then redeemed them. An
Autonomous stockholder receiving such cash will recognize capital gain or
loss on the difference (if any) between the cash received and the portion
of the adjusted tax basis of Autonomous common stock allocable to such
fractional share.
Provided the transaction is not restructured as a fully taxable merger, the
obligations of Summit to consummate the merger are conditioned on the receipt
by Summit of an opinion from its counsel, Ropes & Gray, that the merger
constitutes a reorganization within the meaning of Section 368(a) of the Code.
This opinion will be based upon certain assumptions and representations of
appropriate officers of Summit, Alpine Acquisition Corp. (a wholly owned
subsidiary of Summit) and Autonomous. If the assumptions and representations
are inaccurate, the opinion of counsel could be adversely affected. Neither
Summit nor Autonomous will request a ruling from the IRS on the federal income
tax consequences of the merger. The tax consequences set forth in this
discussion are not binding on the IRS or the courts, and either the IRS or a
court could adopt a contrary position.
Each Autonomous stockholder will be required to retain records (and file with
the stockholder's United States federal income tax return) a statement setting
forth certain facts relating to the merger.
Taxable Merger. Although the merger is structured to qualify as a
reorganization within the meaning of Section 368(a) of the Code, under certain
circumstances the transaction may not qualify and will be restructured as a
fully taxable merger. The circumstances under which the transaction will be
restructured are described in the section entitled "Restructuring of the
Merger" beginning on page 52. If the transaction is restructured as a fully
taxable merger, the merger will be a taxable sale of the Autonomous common
stock. Accordingly, each Autonomous stockholder will recognize taxable gain or
loss equal to the difference between the fair market value of all property
(Summit common stock and cash) received and the stockholder's adjusted tax
basis in the Autonomous common stock exchanged therefor. The gain or loss will
be capital gain or loss and will be long-term capital gain or loss if the
stockholder held his or her Autonomous common stock for more than one year. Net
long-term capital gains are subject to a maximum federal tax rate of 20% for
noncorporate taxpayers. Shares of Summit common stock received in the merger
will have a tax basis equal to their fair market value at the Effective Time,
and the holding period with respect to such shares will begin the day after the
Closing Date.
Backup Withholding. Certain noncorporate Autonomous stockholders may be subject
to backup withholding at a rate of 31% on the gross proceeds received pursuant
to the merger, without regard to whether the merger is restructured. Backup
withholding will not apply, however, to a stockholder who furnishes a correct
taxpayer identification number and certifies that such stockholder is not
subject to backup withholding on a Form W-9, or who provides a certificate of
foreign status on Form W-8, or who is otherwise exempt from backup withholding.
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THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL TAX
CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. AUTONOMOUS
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS
AND THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE
TAX LAWS.
ACCOUNTING TREATMENT
Summit will account for the merger under the purchase method of accounting in
accordance with generally accepted accounting principles. Under the purchase
method of accounting, Summit will allocate the purchase price (i.e., the
aggregate combined value of the Summit common stock and the cash paid in the
merger, including direct costs of the merger) to the identifiable assets of
Autonomous based upon estimates of the fair value of the identifiable assets
and liabilities as of the Effective Time. The amount by which the purchase
price exceeds the fair value of Autonomous's net identifiable assets will
constitute goodwill. Summit intends to allocate approximately $33.5 million to
in-process research and development. It will record this amount as an expense
in the period in which the merger occurs. After the merger, Summit will include
Autonomous' financial condition and results of operations in its consolidated
financial condition and results of operations.
EFFECT ON STOCK OPTIONS AND WARRANTS
Under the Autonomous 1995 Stock Option Plan and related agreements, all
outstanding stock options become immediately exercisable prior to the merger
and will terminate when the merger is completed. Summit has agreed to assume
any stock options outstanding at the Effective Time if the holder of the option
waives the acceleration right and agrees to continue the existing vesting
schedule. The assumed options will become exercisable on a per share basis for
a number of shares of Summit common stock equal to the per share stock
consideration plus the number of shares of Summit common stock that could be
purchased with the per share cash consideration. In determining the number of
shares of Summit common stock that could be purchased with the per share cash
consideration, the purchase price per share is based on the five-day average of
the Summit common stock prior to the closing of the merger. Summit has agreed
that if it terminates without cause the employment of the holder of any assumed
option following the merger, it will accelerate the exercisability of the
assumed option and permit the employee to exercise it.
At the Effective Time, each outstanding warrant to purchase Autonomous common
stock will constitute a warrant to acquire, on the same terms and conditions
that were applicable to the warrant before the Effective Time, the shares of
Summit common stock and the cash that the holder of the warrant would have been
received in the merger if the warrant had been exercised in full immediately
before the Effective Time. As of the record date, there were outstanding
warrants to purchase [ ] shares of Autonomous common stock at exercise prices
ranging from $[ ] per share to $[ ] per share.
RESALE OF SUMMIT COMMON STOCK
All of the Summit common stock issued in the merger will be freely transferable
except any shares that "affiliates" of Autonomous or Summit receive. An
affiliate of a corporation is someone who
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controls, is controlled by, or is under common control with that corporation.
The term generally includes executive officers and directors and principal
stockholders of the corporation. During the year following the merger,
affiliates of Autonomous may only sell Summit common stock they receive in the
merger under an effective registration statement or in compliance with the
manner-of-sale and volume restrictions of Rule 144 under the Securities Act of
1933. The manner-of-sale restrictions require that sales be executed in
unsolicited brokers' transactions or transactions directly with a market maker.
The volume restrictions limit sales in any three-month period to the greater of
1% of the outstanding shares of Summit common stock or the average weekly
trading volume of that stock during the four calendar weeks preceding the sale.
Affiliates would not be able to sell if Summit was not current with its
informational filings under the Exchange Act. One year after the Effective
Time, an affiliate of Autonomous who is not also an affiliate of Summit would
be able to sell Summit common stock received in the merger without restriction
so long as Summit was current with its Exchange Act informational filings. Two
years after the Effective Time, an affiliate of Autonomous who is not also an
affiliate of Summit would be able to sell shares of Summit common stock
received in the merger without any restrictions.
LISTING OF SUMMIT COMMON STOCK
Summit has agreed to use its reasonable best efforts to list the shares of
Summit common stock issuable in the merger on the Nasdaq National Market. The
merger agreement requires that they be listed prior to the closing. Summit has
applied for the listing. The trading symbol for Summit common stock is "BEAM."
DISSENTERS' RIGHTS
Under Florida law, the holders of Autonomous common stock do not have the right
to dissent from the merger and obtain payment of the fair value of their shares
in cash, sometimes referred to as appraisal rights. The holders of Summit
common stock are not entitled to any appraisal rights in connection with the
issuance of shares in the merger, the increase in authorized shares or the
increase in the shares available under the 1997 Stock Option Plan.
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THE MERGER AGREEMENT
The description of the merger agreement set forth below highlights the material
terms of the merger agreement, a copy of which is attached to this joint proxy
statement/prospectus as Annex A. This description does not purport to be
complete and it may not include all the information that interests you. We urge
you to read the merger agreement carefully and in its entirety.
TERMS OF THE MERGER
The Merger. Unless the merger is restructured as a fully taxable merger, at the
Effective Time and subject to and upon the terms and conditions of the merger
agreement, Autonomous will be merged with and into Alpine Acquisition Corp., a
wholly owned subsidiary of Summit. The separate corporate existence of
Autonomous will cease, and Alpine Acquisition will continue as the surviving
corporation and a wholly owned subsidiary of Summit. In the event that the
merger is restructured, at the Effective Time and subject to the terms and
conditions of the merger agreement, Alpine Acquisition will be merged with and
into Autonomous. In that case, Autonomous would continue as the surviving
corporation and a wholly owned subsidiary of Summit.
Effective Time. As promptly as practicable after the conditions to the merger
set forth in the merger agreement are waived or satisfied, we will complete the
merger by filing Certificates of Merger with the Secretary of State of the
State of Delaware and the Secretary of State of the State of Florida. We refer
to the time of these filings as the "Effective Time."
Certificate of Incorporation and Bylaws. The merger agreement provides that,
unless the merger is restructured for tax reasons, the Certificate of
Incorporation and Bylaws of Alpine Acquisition, as in effect immediately before
the Effective Time, will be the governing documents of the surviving
corporation, except that the name of the surviving corporation will be
Autonomous Technologies Corporation.
Directors and Officers. Robert J. Palmisano, the sole director of Alpine
Acquisition immediately prior to the Effective Time, will be the initial
director of the surviving corporation. The officers of Alpine Acquisition
immediately before the Effective Time will be the initial officers of the
surviving corporation.
Conversion of Autonomous Common Stock in the Merger. At the Effective Time,
each share of Autonomous common stock outstanding (excluding treasury shares or
shares that Summit or Alpine Acquisition owns, which will be canceled) will be
converted into the right to receive the merger consideration. The merger
consideration consists of Summit common stock and cash. The per share stock
consideration for Autonomous common stock will be 11,650,400 shares of Summit
common stock divided by the shares of Autonomous common stock outstanding at
the Effective Time plus common stock equivalents outstanding determined using
the treasury stock method. The treasury stock method reduces the number of
shares of Autonomous common stock underlying the common stock equivalents by
the number of shares that Autonomous could repurchase with the proceeds of any
exercise. The cash consideration will consist of an amount of cash, not to
exceed $50,000,000, equal to the value of 11,650,400 shares of Summit common
stock. This value is calculated by multiplying the average closing price of
Summit common stock for the five trading days ending the day before the closing
(the "Average Closing Price") by 11,650,400. The cash consideration will be
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reduced by one-half of any amounts owing from Autonomous to Summit at the
closing. The cash consideration available for Autonomous common stock and
options and warrants will be reduced by any cash that would be payable upon
redemption of the Series I Convertible Preferred Stock at the closing. The per
share cash consideration will be determined by dividing this cash amount by the
same number of shares used to calculate the per share stock consideration.
Summit may issue fractional shares or it may chose to pay cash in lieu of
fractional shares of Summit common stock issuable in the merger.
Stock Options. At the Effective Time, Summit will assume each then outstanding
option to purchase shares under the Autonomous 1995 Stock Option Plan as to
which the holder has waived the acceleration of vesting under the Plan. Each
assumed stock option will become an option to acquire, on a per share basis and
on substantially the same terms and conditions, the number of shares of Summit
common stock that a holder of one share of Autonomous common stock would have
received in the merger plus an additional number of shares of Summit common
stock that the per share cash consideration could purchase at the Average
Closing Price, rounded down to the nearest whole share. The exercise price per
share of Summit common stock will be equal to the aggregate exercise price of
the assumed option divided by the number of shares of Summit common stock into
which it will become exercisable after the Effective Time, increased to the
nearest whole cent. For incentive stock options, the conversion formula will be
adjusted if necessary to comply with the Internal Revenue Code.
Conversion of Capital Stock of Alpine Acquisition in the Merger. Each share of
common stock of Alpine Acquisition issued and outstanding immediately prior to
the Effective Time shall remain outstanding.
Adjustments to Stock Consideration. The aggregate stock consideration will be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Summit common stock), reorganization, recapitalization or other like change in
the Summit common stock or Autonomous common stock occurring after the date of
the merger agreement and before the Effective Time.
Fractional Shares. Unless Summit otherwise elects, it will not issue
certificates or scrip representing less than one share of Summit common stock
in the merger. If Summit so elects, in lieu of any such fractional share,
Summit will pay each holder of Autonomous common stock who would otherwise have
been entitled to a fractional share cash equal to the product of the fraction
and the Average Closing Price.
EXCHANGE OF CERTIFICATES
Exchange Agent. Summit will supply to the exchange agent, in trust for the
benefit of the holders of Autonomous common stock, for exchange in accordance
with the merger agreement, certificates evidencing the shares of Summit common
stock and cash issuable in exchange for outstanding Autonomous common stock
Exchange Procedures. As soon as reasonably practicable after the Effective
Time, Summit will instruct the Exchange Agent to mail to each holder of record
of Autonomous common stock (i) a letter of transmittal and (ii) instructions to
effect the surrender of the certificates evidencing the
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Autonomous common stock in exchange for certificates evidencing Summit common
stock and cash. Upon surrender of a certificate to the Exchange Agent together
with a letter of transmittal, duly executed, and such other customary documents
as the Exchange Agent may require, the certificate holder will be entitled to
receive in exchange (A) certificates evidencing that number of shares of Summit
common stock that the holder has the right to receive in the merger, (B) the
per share cash consideration, (C) any dividends or other distributions to which
such holder is entitled to receive, and (D) cash in respect of any fractional
shares of Summit common stock if Summit has elected to pay cash for fractional
shares (the consideration described in clauses (A), (B), (C) and (D) being,
collectively, the "Merger Consideration"), and the certificate so surrendered
will be canceled. If a holder of Autonomous common stock makes a transfer that
is not registered in the transfer records as of the Effective Time, the
exchange agent may issue and pay the Merger Consideration to a transferee if
the certificate evidencing the Autonomous shares is presented to the Exchange
Agent, accompanied by all documents required to effect such transfer and
evidence that any applicable stock transfer taxes have been paid. Until so
surrendered, each outstanding certificate that, prior to the Effective Time,
represented Autonomous shares will from and after the Effective Time, for all
corporate purposes, evidence the ownership of the number of Summit shares that
represent the stock consideration and the cash with respect to such shares.
Transfers of Ownership. The exchange agent will issue a certificate for shares
of Summit common stock in a name other than that in which the Autonomous
certificate surrendered in exchange was registered only if the certificate
surrendered is properly endorsed and otherwise in proper form for transfer. The
person requesting the exchange must also have paid any required transfer or
other taxes or established to Summit's satisfaction that no tax is payable.
No Liability. At any time following one year after the Effective Time, Summit
may require the Exchange Agent to deliver to it any Merger Consideration that
has not been disbursed to Autonomous stockholders. From then on, these holders
will be general creditors of Summit with respect to the Merger Consideration
payable upon surrender of their certificates. However, neither Summit, Alpine
Acquisition nor Autonomous will be liable to any holder of Autonomous common
stock for any Merger Consideration delivered to a public official under any
applicable abandoned property, escheat or similar law.
Withholding Rights. Summit or the exchange agent may withhold from the Merger
Consideration otherwise payable under the merger agreement amounts that are
required to be deducted and withheld on such payment under any federal, state,
local or foreign tax law. To the extent that Summit or the exchange agent
withhold such amounts, they will be treated for purposes of the merger
agreement as having been paid to the holder of the shares of Autonomous common
stock in respect of which the deduction and withholding was made.
Lost, Stolen or Destroyed Certificates. If any certificates are lost, stolen
or destroyed, the exchange agent will issue replacement certificates, if the
holder makes an affidavit of that fact and, if Summit requests, upon delivery
of an indemnity bond in such sum as Summit may reasonably direct with respect
to the certificates alleged to have been lost, stolen or destroyed.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO THE
AUTONOMOUS STOCKHOLDERS PROMPTLY FOLLOWING THE EFFECTIVE TIME DESCRIBING HOW TO
EXCHANGE CERTIFICATES
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FORMERLY REPRESENTING SHARES OF AUTONOMOUS COMMON STOCK. AUTONOMOUS
STOCKHOLDERS SHOULD NOT SEND CERTIFICATES REPRESENTING THEIR SHARES TO THE
EXCHANGE AGENT BEFORE THEY RECEIVE THE TRANSMITTAL LETTER.
RESTRUCTURING OF THE MERGER
If the merger cannot be completed as a tax-free reorganization under Section
368(a) of the Code then, as promptly as practicable, the merger will be
restructured as a fully taxable merger. For purposes of the merger agreement,
the merger will not be able to be completed as a tax-free reorganization if one
of the following conditions exists at the closing:
. If the value of the Summit common stock issuable in the merger using the
Average Closing Price is less than 82% of the cash payable to Autonomous
stockholders (including the amounts payable, if any, to redeem the Series
I Convertible Preferred Stock), or
. If the value of the Summit common stock issuable in the merger (adjusted
to reflect the effect of any trading restrictions) based on the high and
low sale prices on the day before the closing is less than the cash
payable to Autonomous stockholders (including the amounts payable to
redeem the Series I Convertible Preferred Stock).
The terms of the fully taxable merger would be as follows:
The Fully Taxable Merger. Instead of completing the merger by having Autonomous
merge into Alpine Acquisition, Alpine Acquisition would merge into Autonomous.
Autonomous would be the surviving corporation and a wholly-owned subsidiary of
Summit.
Articles of Incorporation and Bylaws. Unless Summit decided otherwise before
the Effective Time, the articles of incorporation and the bylaws of Autonomous
would be the governing documents of the surviving corporation.
Conversion of Capital Stock of Alpine Acquisition. Each share of common stock
of Alpine Acquisition issued and outstanding immediately before the Effective
Time would be converted into one validly issued, fully paid and nonassessable
share of common stock of the surviving corporation.
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REPRESENTATIONS AND WARRANTIES
In the merger agreement, each of Summit and Autonomous makes customary
representations and warranties about itself and its business in favor of the
other party. These representations and warranties relate to such matters as:
. each company's SEC reports and
. corporate organization, good financial statements
standing, qualification,
approvals and similar matters
. the conduct of business in the
ordinary course and the
absence of certain changes
. force and effect of charter
and bylaws
. the absence of material
. the capital structure of each undisclosed liabilities and
company the absence of material
pending or threatened
litigation
. the authorization, execution,
delivery and enforceability of
the merger agreement
. employee benefit and labor
matters
. no breach or default under
material agreements . payment of taxes and certain
other tax matters
. the absence of conflict of the . compliance with applicable
merger agreement with charter regulatory requirements,
documents, laws or agreements including FDA requirements.
. the absence of conflict with,
default under or violation of
agreements and laws, and the
holding of permits necessary
for the conduct of business
CONDUCT OF BUSINESS PENDING THE MERGER
Conduct of Business by Autonomous. Autonomous has agreed that it will operate
its business in the ordinary course through the Effective Time. Specifically,
it has agreed not to do any of the following:
. amend its articles of incorporation or bylaws;
. issue any of its capital stock or rights to acquire its capital stock,
except for options for up to 100,000 shares to newly hired employees and
except for issuances under currently outstanding options, warrants and
other rights;
. sell or encumber any of its assets, except for sales in the ordinary
course of business, dispositions of obsolete or worthless assets, and
sales of other assets not in excess of $100,000 in the aggregate;
. declare or pay any dividend or other distribution on any of its capital
stock, effect a stock split or reclassification or amend the terms of any
of its existing securities or rights;
. acquire any other business, incur any indebtedness for borrowed money or
make any guarantee, make any loans or advances (other than in the
ordinary course of business consistent with past practice), enter into or
amend any material contract or authorize any capital expenditures in
excess of $100,000 in the aggregate;
. increase the compensation payable to any employee except in the ordinary
course of business, enter into or amend any employment or severance
agreements with any director, executive
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officer or current Autonomous employee, enter into employment or severance
agreements with any new Autonomous employee except in the ordinary course
of business consistent with past practice or establish or amend any
employee benefit plan except as may be required by law;
. change in any material respect its accounting policies or procedures
except as required under generally accepted accounting principles;
. make any material tax election inconsistent with past practice or settle
or compromise any material tax liability;
. pay any material liabilities or obligations, other than in the ordinary
course of business and consistent with past practice;
. take, or agree in writing or otherwise to take, any of the foregoing
actions.
No Solicitation by Autonomous. Autonomous has agreed that it will not solicit
any inquiries or proposals about any other merger, sale of substantial assets,
sale of stock or similar transactions ("Acquisition Proposals"), or engage in
negotiations about any Acquisition Proposal. The Autonomous board of directors
is not prevented, however, from considering, approving and recommending a bona
fide Acquisition Proposal not solicited in violation of the merger agreement,
if the board concludes in good faith that the Acquisition Proposal would
constitute a Superior Proposal (as defined in the merger agreement) and
determines in good faith (upon advice of outside counsel) that it is required
to do so in order to discharge properly its fiduciary duties.
Under the merger agreement, Autonomous must immediately notify Summit if it
receives an Acquisition Proposal or any request for nonpublic information or
for access to the properties, books or records of Autonomous by any person or
entity that is considering making, or has made, an Acquisition Proposal.
If the Autonomous board of directors determines in good faith and upon the
advice of independent counsel that it is required to cause Autonomous to
provide such information in order to discharge properly the directors'
fiduciary duties, then, if the person making the Acquisition Proposal has
executed a confidentiality agreement, Autonomous may provide the person with
access to information regarding Autonomous.
ADDITIONAL AGREEMENTS
Special Meetings. Autonomous and Summit have agreed to call and hold the
special meetings for the purpose of voting upon the approval of the merger and
the issuance of the Summit common stock in the merger, and Summit and
Autonomous will use their reasonable best efforts to hold the special meetings
on the same day and at the same time as soon as practicable after the date on
which the registration statement becomes effective. Unless the directors of
Summit and Autonomous are otherwise required under their applicable fiduciary
duties, as determined in good faith after consultation with and based upon the
advice of their outside legal counsel, Autonomous and Summit will use all
reasonable efforts to solicit from their stockholders proxies in favor of
adoption of the merger agreement and approval of the merger or the issuance of
Summit common stock in the merger and will take all other action reasonably
necessary or advisable to secure the vote or consent of stockholders to obtain
such approvals.
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Access to Information; Confidentiality. Upon reasonable notice and subject to
restrictions contained in confidentiality agreements with others (from which
each party will use reasonable efforts to be released), Autonomous and Summit
will each afford to the officers, employees, accountants, counsel and other
representatives of the other reasonable access to all of its properties, books,
contracts, commitments and records. Each company will furnish promptly to the
other all information about its business, properties and personnel as the other
party may reasonably request and make available the appropriate individuals to
discuss the business as either Autonomous or Summit may reasonably request.
Each party will keep the information confidential in accordance with the terms
of the mutual non-disclosure letter between Summit and Autonomous, dated August
3, 1998.
Consents; Approvals. Autonomous and Summit will each use all reasonable efforts
to make all filings and obtain all consents and approvals that are required in
connection with the authorization of the Merger Agreement by Autonomous and
Summit and the completion of the transactions that it contemplates, in each
case as promptly as possible.
Agreements with Affiliates. Autonomous will identify all persons who are, and
at the time of the special meetings are expected to be, "affiliates" of
Autonomous for purposes of Rule 145 under the Securities Act. Autonomous will
use its best efforts to cause each "affiliate" to deliver a written agreement
acknowledging the restrictions on resale of Summit common stock received in the
merger that Rule 145 imposes.
Indemnification and Insurance. The merger agreement provides that the articles
of incorporation and bylaws of the surviving corporation will include
indemnification provisions comparable to those that Autonomous currently has
and that these provisions will not be amended or repealed for six years from
the Effective Time in any manner that would adversely affect the rights of the
individuals who at or before the Effective Time were covered by them, unless
any change is required by law.
Autonomous and, after the Effective Time, Summit will, to the fullest extent
permitted under applicable law and its governing documents, indemnify and hold
harmless each present and former director, officer or employee of Autonomous or
any of its subsidiaries against any liabilities and amounts paid in settlement
in connection with any action, proceeding or investigation relating to the
transactions contemplated by the merger agreement or any acts or omissions
occurring at or prior to the Effective Time to the same extent as provided in
the Autonomous articles of incorporation or bylaws or any applicable contract
or agreement in effect on the date of the merger agreement. This obligation
will cease six years after the date of the merger agreement. The merger
agreement sets forth certain procedural protections designed to make sure that
the indemnified parties can participate effectively in any proceeding.
For three years after the Effective Time, Summit will maintain in effect, if
available, directors' and officers' liability insurance covering those persons
who are currently covered by Autonomous' directors' and officers' liability
insurance policy on terms comparable to those in effect on the date of the
merger agreement. In no event, however, will Summit be required to spend more
than 150% of the annual premium that Autonomous currently pays for this
coverage.
Notification of Certain Matters. Autonomous and Summit will give each other
prompt notice of any event that would be likely to cause any representation or
warranty that it made in the merger
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agreement to be materially untrue or inaccurate. Each will also notify the
other if it fails materially to comply with or satisfy any covenant, condition
or agreement in the merger agreement.
Further Action; Tax Treatment. Each of Autonomous and Summit will use its
reasonable efforts to complete the transactions contemplated by the merger
agreement and to satisfy or cause to be satisfied all conditions precedent to
its obligations under the merger agreement. Each of Summit and Autonomous will
use its reasonable best efforts to cause the merger to qualify as a
reorganization under the provisions of Section 368 of the Code.
Public Announcements. Summit and Autonomous have agreed to consult with each
other before issuing any press release about the merger and will not issue any
such press release or make any such public statement without the prior consent
of the other party, which consent will not be unreasonably withheld, except as
required by law or the regulations of the Nasdaq National Market.
Accountant's Letters. Upon reasonable notice from the other, each of Autonomous
and Summit will use its best efforts to cause its independent accountants to
deliver an accountants' "comfort" letter covering financial data in the
registration statement.
Board Representation. The Summit board of directors will cause Dr. C. Glen
Bradley, President and Chief Executive Officer of CIBA Vision Corporation, to
be elected to serve as a Summit director for the vacant term expiring at
Summit's annual meeting in 2000 and Randy W. Frey to be elected as a Summit
director for the vacant term expiring at Summit's annual meeting in 2001. The
board of directors of Summit will nominate Dr. Bradley for re-election at
Summit's annual meeting in 2000, provided he is "independent" under the listing
requirements for the Nasdaq National Market and he has attended at least 75% of
all meetings of the Summit board of directors, by telephone or in person,
during the previous fiscal year. In addition, Autonomous has designated Dr.
Richard H. Keates to attend meetings of the Summit board of directors until the
third anniversary of the Effective Time, subject to the board's right to have
portions of any such meeting open only to members of the board. If Dr. Keates
is unable to continue as an observer until the end of the term, the directors
named by Autonomous may designate a replacement. Summit will pay the observer's
reasonable travel expenses in connection with his attendance at board meetings.
Nasdaq Listing; Listing of Summit Shares. Each of Summit and Autonomous will
use its reasonable best efforts to continue the quotation of its common stock
on the Nasdaq National Market during the term of the merger agreement. Summit
will use its reasonable best efforts to cause the Summit common stock to be
issued in the merger to be approved for quotation, upon official notice of
issuance, on the Nasdaq National Market.
Joint Shareholder Communications Efforts. Under the merger agreement,
Autonomous and Summit will use their reasonable best efforts to conduct a joint
communications program, including presentations and meetings, with
institutional stockholders of both Autonomous and Summit, for the purpose of
communicating the synergy, strategy and prospects for the combined companies
after the merger. Such presentations and meetings shall take place in those
cities of the United States where such institutional stockholders are located
and shall be conducted for seven to ten business days during the three-week
period preceding the special meetings.
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Dismissal of Civil Actions. Autonomous has agreed to stipulate to the
dismissal, without prejudice, of all claims it has alleged against Summit and
Pillar Point Partners in Autonomous Technologies Corporation v. Pillar Point
Partners (Civil Action No. 96-515 JJF).
Issuance of Shares to CIBA Vision. Prior to the Effective Time, Autonomous will
issue 171,713 shares (increased by any required anti-dilution adjustments) of
Autonomous common stock to CIBA Vision in full satisfaction of its obligation
to deliver shares of common stock under the Strategic Alliance Agreement dated
May 15, 1995 between Autonomous and CIBA.
CONDITIONS TO THE MERGER
Neither Summit nor Autonomous is required to complete the merger unless the
following conditions are met:
. The SEC must have declared the registration statement effective and not
have issued a stop order that suspends its effectiveness or initiated or
threatened proceedings for that purpose;
. The Autonomous stockholders shall have approved the merger agreement and
the merger and the Summit stockholders shall have approved the issuance
of Summit common stock in the merger;
. The waiting period, if any, that applies to the merger under the Hart-
Scott-Rodino Antitrust Improvements Act shall have expired or been
terminated;
. No temporary restraining order or injunction preventing the completion of
the merger shall be in effect, and no governmental agency shall have
brought any proceeding seeking to prevent the merger; and
. The shares of Summit common stock to be issued in the merger shall have
been approved, upon official notice of issuance, for quotation on the
Nasdaq National Market.
In addition to the conditions that apply to both parties, there are separate
closing conditions in favor of each of Summit and Autonomous. These conditions
must either have been met or the party in whose favor they are must have waived
compliance.
Closing Conditions in Summit's Favor. The closing conditions in favor of Summit
are:
. The representations and warranties that Autonomous made in the merger
agreement must be true at the Effective Time except for changes
contemplated by the merger agreement or representations and warranties
that address matters only as of a particular date. The President and
Chief Financial Officer of Autonomous must sign a certificate to this
effect.
. Autonomous must have complied in all material respects with the
agreements and covenants that the merger agreement requires it to perform
on or before the Effective Time. The President and Chief Financial
Officer of Autonomous must also sign a certificate to this effect.
. Autonomous must have made all filings and obtained all consents and
approvals required to complete the merger.
. Unless the conditions have been met that require the merger to be
restructured as a fully taxable merger, Summit must have received a
written opinion from Ropes & Gray to the effect that the merger will be a
tax-free reorganization.
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. Each person identified as an affiliate of Autonomous must have signed an
affiliate agreement, and that agreement must be in force.
. There must not be pending or threatened any proceeding or investigation
that:
. challenges or seeks to prohibit the completion of the merger or any
of the other transactions that the merger agreement contemplates;
. seeks to obtain from Summit any damages relating to the merger that
may be material to Summit;
. seeks to prohibit or limit in any material respect Summit's ability
to vote, receive dividends on or exercise ownership rights relating
to the stock of the surviving corporation;
. would materially and adversely affect the surviving corporation's
right to own Autonomous' assets or operate its business;
. if adversely determined, could have a Material Adverse Effect (as
defined below) on Autonomous or Summit.
. The Stockholder Agreements, in which the directors and executive officers
of Autonomous and CIBA Vision have agreed to vote for the merger, must be
effective at the Effective Time.
Closing Conditions in Autonomous' Favor. The closing conditions in favor of
Autonomous are:
. The representations and warranties that Summit and Alpine Acquisition
made in the merger agreement must be true at the Effective Time except
for changes contemplated by the merger agreement or representations and
warranties that address matters only as of a particular date. The
President and Chief Financial Officer of Summit must sign a certificate
to this effect.
. Summit and Alpine Acquisition must have complied in all material respects
with the agreements and covenants that the merger agreement requires them
to perform on or before the Effective Time. The President and Chief
Financial Officer of Summit must also sign a certificate to this effect.
. Summit and Alpine Acquisition must have made all filings and obtained all
consents and approvals required to complete the merger and the issuance
of the shares of Summit common stock in the merger.
"Material Adverse Effect" means any change, effect or circumstance that,
individually or when taken together with all other such similar or related
changes, effects or circumstances that have occurred prior to the date of
determination of the occurrence of the Material Adverse Effect, (i) is
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of Autonomous and its subsidiaries
or Summit and its subsidiaries, as the case may be, in each case taken as a
whole (other than changes that are the effect of economic factors affecting the
economy as a whole), or (ii) is reasonably likely to materially delay or
prevent the consummation of the transactions contemplated by the merger
agreement.
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TERMINATION
Conditions to Termination. Both Summit and Autonomous have the right, under
certain circumstances, to terminate the merger agreement, even though it may
have received stockholder approval. These circumstances are described below.
. The boards of directors of Summit and Autonomous may terminate the merger
agreement by mutual written consent.
. Either Summit or Autonomous may terminate the merger agreement if the
merger has not been completed by February 28, 1999, unless Summit extends
this date as described below. However, this right is not available to any
party whose failure to fulfill any obligation under the merger agreement
has resulted in the merger not occurring by that date.
. Either Summit or Autonomous may terminate the merger agreement if a court
or governmental agency has issued a final order permanently restraining
or otherwise prohibiting the merger. However, this right is not available
to a party who has not complied with its obligations under the merger
agreement to cause the merger to be completed if the noncompliance
materially contributed to the issuance of the order.
. Summit may terminate the merger agreement if the Autonomous stockholders
have not approved the merger by February 28, 1999, provided that Summit
has held its special meeting and solicited proxies in favor of the
issuance of the Summit common stock.
. Autonomous may terminate the merger agreement if the Summit stockholders
have not approved the issuance of the Summit common stock in the merger
by February 28, 1999, provided that Autonomous has held its special
meeting and solicited proxies in favor of the merger.
. Summit may terminate the merger agreement if:
. the Autonomous board of directors withdraws or modifies its approval
or recommendation of the merger agreement or the merger in a manner
adverse to Summit.
. the Autonomous board of directors recommends to its stockholders an
Alternative Transaction (as defined below).
. a third party commences a tender or exchange offer for 25% or more of
the outstanding shares of Autonomous common stock and the Autonomous
board of directors either fails to recommend that stockholders not
tender their shares in the offer or takes no position on the
acceptance of the offer.
. Autonomous may terminate the merger agreement if the Autonomous board of
directors determines to recommend to its stockholders an Acquisition
Proposal after determining, in the exercise of its fiduciary duties, that
the Acquisition Proposal constitutes a Superior Proposal (as defined in
the Merger Agreement). To exercise this right, Autonomous must give
Summit at least three business days prior notice and pay the termination
fee that the merger agreement requires.
. Summit may terminate the merger agreement if any representation or
warranty that Autonomous made in the merger agreement that was qualified
by materiality was not true when made or if any such representation or
warranty not qualified by materiality was not true in all material
respects when made. Summit may also terminate the merger agreement if
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Autonomous materially violates any of its agreements in the merger
agreement. In both cases, Summit would only have the right to terminate if
the untruths or violations would cause the closing conditions, as to the
accuracy of representations and warranties and the performance of
agreements and covenants, not to be satisfied. Before exercising this
right, Summit must give Autonomous the opportunity to cure any breaches
that are capable of being cured.
. Autonomous may terminate the merger agreement if any representation or
warranty that Summit made in the merger agreement that was qualified by
materiality was not true when made or if any such representation or
warranty not qualified by materiality was not true in all material
respects when made. Autonomous may also terminate the merger agreement if
Summit materially violates any of its agreements in the merger agreement.
In both cases, Autonomous would only have the right to terminate if the
untruths or violations would cause the closing conditions, as to the
accuracy of representations and warranties and the performance of
agreements and covenants, not to be satisfied. Before exercising this
right, Autonomous must give Summit the opportunity to cure any breaches
that are capable of being cured.
. Either Summit or Autonomous may terminate the merger agreement if any
representation or warranty of the other party, through no action or
inaction on its part, shall have become untrue so that the closing
condition as to the accuracy of representations and warranties would not
be satisfied.
An "Alternative Transaction" is any one of the following transactions:
. a transaction in which any person or group acquires or would acquire more
than 25% of the outstanding shares of Autonomous common stock, whether
from Autonomous or otherwise
. a merger or other business combination involving Autonomous in which any
person or group acquires more than 25% of the equity securities of
Autonomous or the entity surviving the merger or business combination
. any other transaction in which any person or group acquires or would
acquire control of assets (which includes equity securities of
subsidiaries of Autonomous or the entity surviving any merger or business
combination) of Autonomous or any of its subsidiaries having a fair
market value (as determined by the Autonomous board of directors in good
faith) equal to more than 25% of the fair market value of all the assets
of Autonomous and its subsidiaries, taken as a whole, immediately prior
to such transaction.
Extension of Termination Date. If the staff of the SEC reviews the joint proxy
statement/prospectus or if any administrative agency or commission or other
governmental authority or instrumentality institutes an inquiry, either formal
or informal, into the merger, Summit may by written notice to Autonomous
extend the February 28, 1999 date referred to above for up to 30 additional
days. It may do so only if it is not in breach in any material respect of its
obligations under the merger agreement and if it agrees to extend additional
credit to Autonomous under its revolving credit line in additional amounts not
to exceed $1,500,000 during the period of any extension.
Effect of Termination. If the merger agreement is terminated, it will become
void and there will be no liability on the part of Summit, Alpine Acquisition
or Autonomous or any of their affiliates, directors, officers or stockholders,
except as otherwise provided in the merger agreement. Nothing, however, will
relieve any party from liability for any willful breach prior to termination.
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Fees and Expenses. Each party will pay all fees and expenses that it incurs in
connection with the merger agreement, whether or not the merger is completed.
However, Summit and Autonomous have agreed to share equally all fees and
expenses, other than accountants' and attorneys' fees, incurred in connection
with printing and filing the joint proxy statement/prospectus and the
registration statement and any amendments or supplements to either of them.
Termination Fee. Autonomous will pay Summit a fee of $2,600,000 upon the first
to occur of the following events:
. Summit terminates the merger agreement because the Autonomous
stockholders have not approved the merger by February 28, 1999 and a
proposal for an Alternative Transaction has been made prior to the
Autonomous special meeting;
. Summit terminates the merger agreement if the Autonomous board of
directors withdraws its recommendation of the merger agreement or the
merger;
. Autonomous terminates the merger agreement because its board of directors
has determined to recommend an Alternative Transaction; or
. Summit terminates the merger agreement because Autonomous has breached
the merger agreement under circumstances that give Summit the right to
terminate.
AMENDMENT AND WAIVER
Summit and Autonomous may amend the merger agreement by action taken by their
boards of directors at any time before the Effective Time. However, after the
Autonomous stockholders have approved the merger, no amendment may be made that
by law requires further stockholder approval without obtaining that approval.
The merger agreement must be amended by a written instrument signed by the
parties.
At any time prior to the Effective Time, any party to the merger agreement may
extend the time for the performance of any the other party's obligations, waive
any of the other party's inaccurate representations and warranties in the
merger agreement, or waive the other party's compliance with its agreements or
conditions in the merger agreement. Any extension or waiver will be valid if
set forth in a written instrument signed by the affected party or parties.
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OTHER AGREEMENTS
The description of the stockholder agreements set forth below highlights
certain important terms of the stockholder agreements, a form of which is
attached to this joint proxy statement/prospectus as Annex B. The description
does not purport to be complete and it may not include all the information that
interests you. We urge you to read the form of stockholder agreement carefully
and in its entirety.
STOCKHOLDER AGREEMENTS
When Summit and Autonomous executed the merger agreement, Summit also entered
into stockholder agreements with each of CIBA Vision, Randy W. Frey, Monty K.
Allen, Timothy Barabe, Steven E. Bott, Charline A. Gauthier, Bruce A. Hays, G.
Arthur Herbert, Dr. Richard H. Keates, Donald I. Martin, Whitney A. McFarlin,
Christine Oliver, George H. Pettit and Stanley Ruffett (collectively the
"Autonomous Stockholders"). These individuals are all either directors,
executive officers or principal stockholders of Autonomous. Under the
stockholder agreements, the Autonomous Stockholders have agreed to vote all of
their shares of Autonomous common stock in favor of the merger and the adoption
of the merger agreement and against any alternative proposal to acquire
Autonomous. Each of them has granted Alpine Acquisition an irrevocable limited
proxy to that effect covering their shares. The Autonomous Stockholders
collectively owned approximately 21.8% (or 2,511,599 shares) of Autonomous
common stock outstanding as of the date of the merger agreement.
Each of the Autonomous Stockholders has agreed to not, directly or indirectly,
solicit or respond to any inquiries or proposals by any person or entity that
constitutes or could reasonably be expected to lead to an acquisition proposal
relating to Autonomous. This agreement will not restrict or limit any fiduciary
duty that an Autonomous Stockholder may have as a director or officer, but no
such duty will excuse the Autonomous Stockholder from the obligation to vote
the shares of Autonomous common stock in favor of the merger. Each Autonomous
Stockholder has also agreed not, directly or indirectly except pursuant to the
terms of the merger agreement, to offer for sale, sell, or otherwise dispose of
any shares of Autonomous common stock.
The stockholder agreements terminate on February 28, 1999 or 180 days after the
termination of the merger agreement, whichever comes first.
REVOLVING CREDIT AGREEMENT
In connection with the merger, Summit agreed to loan Autonomous up to $5
million on a revolving basis (or up to $6.5 million if Summit extends the
closing for 30 days beyond February 28, 1999 under certain circumstances).
Autonomous may not borrow more than $1.5 million in any calendar month and will
be required to make monthly principal and interest payments on the aggregate
outstanding balance of the loan at a per annum rate of 5.25%.
Amounts borrowed under the revolving credit line must be repaid by Autonomous
upon earlier of:
. the termination of the merger agreement because the Autonomous board of
directors withdraws its recommendation in favor of the merger or
recommends another proposal;
61
<PAGE>
. 180 days after termination of the merger agreement for any other reason;
or
. upon an "Event of Default."
An "Event of Default" includes
. the failure of Autonomous to pay any amounts due to Summit under the
credit line;
. the voluntary or involuntary bankruptcy of Autonomous;
. the merger or consolidation of Autonomous without Summit's approval; or
. breach by Autonomous of the merger agreement that gives rise to a right
to terminate by Summit.
62
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Summit will account for the merger under the purchase method of accounting.
Summit will allocate the consideration it pays in the merger to the assets it
acquires and the liabilities it assumes based on their estimated fair values.
The pro forma adjustments are preliminary and are based on management's
estimates of the value of Autonomous' tangible and intangible assets. An
independent third-party appraisal company is conducting a valuation of the in-
process research and development that Summit expects to acquire in the merger.
This amount, which is currently estimated to be $33.5 million, will be recorded
as an expense in the period in which the merger is completed. In addition,
Summit management is assessing and formulating its integration plans. The
finalization of these plans could result in a material change to the estimates
used in the preparation of the pro forma financial data.
The pro forma adjustments include several assumptions about decisions that
holders of Autonomous derivative securities (the Series I Convertible Preferred
Stock, options and warrants) may make before the closing. These assumptions are
as follows:
. The aggregate cash consideration to be paid in the merger will be reduced by
one-half of any amounts Summit lends to Autonomous not repaid before the
closing. We have assumed that Autonomous will have no borrowings from Summit
at the time of closing.
. The cash consideration available for Autonomous common stockholders will be
reduced by any amounts used to redeem shares of Series I Convertible
Preferred Stock. We have assumed that all shares of Series I Convertible
Preferred Stock will be redeemed for cash.
. The actual consideration per Autonomous share will vary if holders of options
and warrants exercise them before the closing. We have assumed that holders
of options to acquire approximately 292,000 shares of Autonomous common stock
(out of options on approximately 1,682,000 shares) and holders of warrants
for 690,000 shares of Autonomous common stock (out of warrants on
approximately 1,302,000 shares) will exercise their options or warrants
before the closing. The remaining options and warrants will be outstanding at
the time of the merger and will be part of the treasury stock method used to
determine the per share consideration. For purposes of the treasury stock
calculation, we have valued the Autonomous common stock at the total value of
consideration per Autonomous share.
. The actual amount of the total consideration per Autonomous share will be
determined upon completion of the merger and may differ significantly from
our assumptions if the assumptions presented above do not reflect the actual
facts on the closing date. In particular, the mix of relative values of the
Summit common stock and the cash portion of consideration (at a Summit per
share price of $4.29 or less) may change from approximately 56% stock/44%
cash to approach 50% stock/50% cash if the holder of the Series I Convertible
Preferred Stock chooses to convert its shares into Autonomous common stock
before the effective time of the merger, rather than elect cash redemption.
63
<PAGE>
Based upon the above assumptions and using an average closing price of $4.37
per share of Summit common stock, the exchange ratio would be 0.87 shares of
Summit common stock and $2.95 for each share of Autonomous common stock. The
average closing price of $4.37 per share of Summit common stock is the average
closing price of Summit common stock for the five day period ended December 31,
1998 (the latest practical date before this filing). The distribution of
11,312,491 shares of Summit common stock to Autonomous stockholders is valued
at $4.38 per share (the closing price of Summit common stock on December 31,
1998).
Based on the timing of the closing of the transaction, the finalization of the
integration plans and other factors, the pro forma adjustments may differ
materially from those presented in the selected pro forma combined financial
data. A change in the pro forma adjustments would result in a reallocation of
the purchase price affecting the value assigned to purchased in-process
technology and long-term assets. The income statement effect of these changes
will depend on the nature and amount of the assets or liabilities adjusted.
We estimate that merger-related fees and expenses, consisting primarily of
transaction costs including fees of investment bankers, attorneys, the
independent appraisal company, accountants, financial printing and other
related charges, will be approximately $1.9 million. The impact of the fees and
expenses has been reflected in the pro forma combined balance sheet and income
statement as an increase in the purchase price of the transaction and is
allocated to the assets acquired and liabilities assumed, based upon their
estimated fair values.
The pro forma financial information does not purport to represent what the
consolidated financial position or results of operations actually would have
been if the merger in fact had occurred on September 30, 1998 or at the
beginning of the period indicated or to project the consolidated financial
position or results of operations as of any future date or any future period.
It should be read in conjunction with the historical consolidated financial
statements of Summit and Autonomous, including the related notes, and other
financial information included and incorporated by reference into this Joint
Proxy Statement/Prospectus. See "Where You Can Find More Information" on pages
[ ] to [ ].
The unaudited pro forma financial information does not give effect to any cost
savings and other synergies that may result from the merger. In addition, one-
time integration costs that may include severance and relocation costs have not
been reflected in the pro forma financial information. Summit is developing its
plans for integration of the businesses but cannot make final decisions until
the merger is complete. However, Summit believes that the likely maximum amount
that will be accrued for such costs will be in the range of $1.5 million to
$2.0 million.
The pro forma combined balance sheet assumes that the merger took place on
September 30, 1998 and combines the unaudited balance sheets of the two
companies on that date. The pro forma combined statement of income assumes that
the merger took place on January 1, 1997 and combines Summit's and Autonomous'
results of operations for the year ended December 31, 1997 and for the nine-
month period ended September 30, 1998.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (A)
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------ PRO FORMA PRO FORMA
SUMMIT AUTONOMOUS ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents............. $ 33,445 $ 2,845 $ 1,620 (B) $ --
-- -- (37,910)(C)
Short-term investments... 36,754 -- (12,877)(C) 23,877
Receivables, net of
allowances.............. 13,571 14 13,585
Inventories.............. 14,121 3,059 17,180
Prepaid expenses and
other current assets.... 3,891 211 4,102
Due from related party... 11 -- 11
----------- ----------- ------- -----------
Total current assets..... 101,793 6,129 (49,167) 58,755
Long-term investments.... 27, 851 -- 27,851
Property and equipment,
net..................... 9,155 2,183 11,338
Patents, net............. 4,422 -- 4,422
Other assets............. 1,138 792 1,930
In-process research and
development............. -- -- 33,500 (C) --
(33,500)(D)
Purchased technologies... -- -- 28,100 (C) 28,100
Goodwill and other
intangible asset........ -- -- 36,535 (C) 36,535
----------- ----------- ------- -----------
Total Assets............ $ 144,359 $ 9,104 $15,468 $ 168,931
=========== =========== ======= ===========
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable......... $ 5,209 $ 337 $ $ 5,546
Accrued expenses......... 9,367 1,180 10,547
Current maturities of
long-term debt.......... 5,193 83 5,276
Deferred revenue......... 1,931 -- 1,931
----------- ----------- ------- -----------
Total current
liabilities............. 21,700 1,600 23,300
Long-term debt, less
current maturities...... 1,445 123 1,568
Obligation under
Strategic Alliance
Agreement............... -- 300 (300)(B) --
----------- ----------- ------- -----------
Total liabilities....... 23,145 2,023 (300) 24,868
----------- ----------- ------- -----------
Stockholders' equity:
Preferred stock.......... -- 4,677 (4,677)(C) --
Common stock............. 314 115 10 (B) 427
(125)(C)
113 (C)
Additional paid-in
capital................. 152,796 43,722 1,910 (B) 209,032
(45,632)(C)
56,236 (C)
Accumulated deficit...... (28,934) (41,433) 41,433 (C) (62,434)
(33,500)(D)
----------- ----------- ------- -----------
124,176 7,081 15,768 147,025
----------- ----------- ------- -----------
Accumulated other
comprehensive loss...... (2,130) -- (2,130)
Treasury stock, at cost.. (832) -- (832)
----------- ----------- ------- -----------
Total stockholders'
equity................. 121,214 7,081 15,768 144,063
----------- ----------- ------- -----------
Total Liabilities and
Stockholders' Equity.. $ 144,359 $ 9,104 $15,468 $ 168,931
=========== =========== ======= ===========
Common shares
outstanding........... 31,153,765 11,524,467 42,466,256
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
65
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (A)
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------- PRO FORMA PRO FORMA
SUMMIT AUTONOMOUS ADJUSTMENTS COMBINED
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Systems......................... $11,507 $ -- $ $11,507
License fees, service and
other.......................... 22,705 135 22,840
Contact lens and related
products....................... 33,308 -- 33,308
------- -------- ------- -------
Total revenues..................... 67,520 135 67,655
------- -------- ------- -------
Cost of revenues:
Systems......................... 9,611 286 1,405 (E) 11,302
License fees, service and
other.......................... 9,116 -- 9,116
Contact lens and related
products....................... 21,730 -- 21,730
------- -------- ------- -------
Total cost of revenues............. 40,457 286 1,405 42,148
------- -------- ------- -------
Gross profit....................... 27,063 (151) (1,405) 25,507
------- -------- ------- -------
Operating expenses:
Selling, general and
administrative.................... 22,198 7,108 1,480 (E) 30,348
(438)(F)
Research, development and
regulatory........................ 5,405 4,979 10,384
------- -------- ------- -------
Total operating expenses......... 27,603 12,087 1,042 40,732
------- -------- ------- -------
Operating income (loss) from
continuing operations............. (540) (12,238) (2,447) (15,225)
Litigation settlement, net of
related expenses.................. 34,386 -- 34,386
Other income....................... 2,485 142 (2,028)(G) 599
------- -------- ------- -------
Income (loss) from continuing
operations before provision for
income taxes...................... 36,331 (12,096) (4,475) 19,760
Provision (benefit) for income
taxes............................. 4,952 -- 4,952
------- -------- ------- -------
Income (loss) from continuing
operations........................ $31,379 $(12,096) $(4,475) $14,808
======= ======== ======= =======
Basic income (loss) per share from
continuing operations............. $ 1.00 $ 0.35
Diluted income (loss) per share
from continuing operations........ $ 1.00 $ 0.35
Weighted average number of common
shares used for basic earnings per
share calculation................. 31,199 11,312 (H) 42,511
Weighted average number of common
shares and dilutive securities
used for diluted earnings per
share calculation................. 31,231 11,650 (H) 42,881
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
66
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (A)
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------- PRO FORMA PRO FORMA
SUMMIT AUTONOMOUS ADJUSTMENTS COMBINED
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Systems......................... $ 7,589 $ -- $ 7,589
License fees, service and
other.......................... 25,486 37 25,523
Contact lens and related
products....................... 46,575 -- 46,575
------- -------- ------- --------
Total revenues..................... 79,650 37 79,687
Cost of revenues:
Systems......................... 8,490 106 1,873 (E) 10,469
License fees, service and
other.......................... 9,788 -- 9,788
Contact lens and related
products....................... 31,721 -- 31,721
------- -------- ------- --------
Total cost of revenues............. 49,999 106 1,873 51,978
------- -------- ------- --------
Gross profit....................... 29,651 (69) (1,873) 27,709
------- -------- ------- --------
Operating expenses:
Selling, general and
administrative.................... 24,131 6,176 1,973 (E) 31,297
(983)(F)
Research, development and
regulatory........................ 6,213 5,935 12,148
------- -------- ------- --------
Total operating expenses......... 30,344 12,111 990 43,445
------- -------- ------- --------
Operating income (loss) from
continuing operations............. (693) (12,180) (2,863) (15,736)
Other income....................... 2,333 541 (2,704)(G) 170
------- -------- ------- --------
Income (loss) from continuing
operations before provision for
income taxes...................... 1,640 (11,639) (5,567) (15,566)
Provision (benefit) for income
taxes............................. 137 -- 137
------- -------- ------- --------
Income (loss) from continuing
operations........................ $ 1,503 $(11,639) $(5,567) $(15,703)
======= ======== ======= ========
Basic income (loss) per share from
continuing operations............. $ 0.05 $ (0.37)
Diluted income (loss) per share
from continuing operations........ $ 0.05 $ (0.37)
Weighted average number of common
shares used for basic earnings per
share calculation................. 31,182 11,312 (H) 42,494
Weighted average number of common
shares and dilutive securities
used for diluted earnings per
share calculation................. 31,373 11,312 (H) 42,685
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
67
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(A) See the introductory paragraphs under "Unaudited Pro Forma Condensed
Combined Financial Statements."
(B) To record as of September 30, 1998 the estimated net issuance of 874,177
shares of Autonomous common stock pursuant to options and warrants for a
total of 1,016,900 shares of Autonomous common stock and to record the
issuance of 76,317 shares of Autonomous common stock in settlement of the
obligation accrued to date to issue 171,713 shares of Autonomous common
stock under the Strategic Alliance Agreement.
(C) To record the purchase accounting adjustments (pursuant to Accounting
Principles Board Opinion No. 16) related to the merger of Summit and
Autonomous. The allocation of the purchase price is subject to change based
on final valuation and appraisals and was estimated as follows:
<TABLE>
<S> <C>
TOTAL PURCHASE PRICE
Summit common stock (11,312 shares @ $4.38 per share).......... $ 49,492
Cash paid to Autonomous equity holders......................... 48,851
Estimated merger-related fees and expenses..................... 1,936
Fair value of Autonomous options and warrants exchanged for
equivalent Summit stock options and warrants assumed to be
outstanding after the closing of the merger................... 6,857
--------
Total purchase price........................................... $107,136
========
ALLOCATION OF PURCHASE PRICE
Estimated exercise of Autonomous options and warrants (see Note
B)............................................................ $ 1,620
Settlement of Strategic Alliance Agreement obligation (see Note
B)............................................................ 300
Net worth of Autonomous as of September 30, 1998............... 7,081
In-process research and development............................ 33,500
Purchased technologies......................................... 28,100
Goodwill and other intangible asset............................ 36,535
--------
$107,136
========
</TABLE>
(D) To record the write-off of the in-process research and development upon
consummation of the merger.
(E) To record the amortization of goodwill, purchased technologies and other
intangible assets from the allocation of the purchase price. The
amortization of purchased technologies is included in the cost of revenues.
Amortization will be recognized on a straight line basis over the following
number of years:
Goodwill--25 years
Purchased technologies--15 years
Other intangible assets--5 years
(F) To eliminate legal fees related to Autonomous' litigation against Pillar
Point Partners of which Summit is a partner.
(G) To eliminate interest income earned on cash paid to Autonomous stockholders
and cash paid for estimated merger-related fees offset by interest income
earned on cash received from options and warrants exercised in (B).
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<PAGE>
(H) To record the effect of Summit common stock distributed to Autonomous
stockholders and, if dilutive, the effect of Autonomous stock options and
warrants exchanged for equivalent Summit stock options and warrants.
(I) As required by Article 11 of Regulation S-X under the Securities Exchange
Act of 1934, the pro forma condensed combined statements of operations
exclude the nonrecurring write-off of in-process research and development
estimated at $33,500. The following schedule shows the effect of the write-
off on the pro forma net income from continuing operations and basic and
diluted earning (loss) per common share.
<TABLE>
<CAPTION>
YEAR ENDED
DEC. 31, 1997
-------------
<S> <C>
Income (loss) from continuing operations.................... $(49,203)
Basic and diluted income (loss) per share from continuing
operations................................................. $ (1.16)
</TABLE>
69
<PAGE>
INFORMATION ABOUT SUMMIT
Summit develops, manufactures, sells and services ophthalmic laser systems and
related products designed to correct common refractive vision disorders such as
nearsightedness (myopia), farsightedness (hyperopia) and astigmatism with a
procedure known as laser vision correction. Summit also collects per procedure
license fees from users of its systems. Summit's Apex and Apex Plus excimer
systems have received FDA approval for commercial sale in the United States to
treat nearsightedness between 1.5 and 7.0 diopters with a six millimeter
ablation zone. The Apex Plus system has also received FDA approval for the
treatment of nearsightedness with concomitant astigmatism using Summit's
emphasis(R) Laser Disc, a single-use polymer disc that Summit developed for
this purpose. On January 30, 1998, Summit applied to the FDA for approval of
its Apex Plus excimer systems to treat high levels of myopia. In July, 1998,
Summit applied to the FDA for approval of its Apex Plus system for hyperopia.
However, the FDA has not yet approved the Apex Plus for hyperopia or high
levels of myopia.
The principal purchasers of Summit's excimer systems have been
ophthalmologists, universities, clinics, hospitals and businesses that have
been created specifically to participate in the laser vision correction market
in the United States. Summit believes that U.S. ophthalmologists, who number
approximately 13,000, are receptive to laser vision correction as a treatment
for refractive vision disorders.
In October 1998, Summit acquired all rights to the Krumeich-Barraquer
Microkeratome, a high-precision surgical cutting device utilizing disposable,
single-use blades. This device is used by ophthalmologists in corneal surgery.
Summit immediately began marketing the product in international markets and, on
December 22, 1998, received 510K clearance from the FDA to begin marketing the
product in the United States.
In 1996, Summit acquired Lens Express, a leading mail order distributor of
contact lenses and related products in the United States. Lens Express' retail
sales consist of new orders of contact lenses, reorders of contact lenses,
program sales, sales of eye care solutions, lens case sales, sunglass sales,
membership sales, vitamin sales and shipping and handling fees. Lens Express'
wholesale sales are made to pharmacies and similar retail outlets and consist
of sales of contact lenses, sales of eye care solutions and shipping and
handling fees. Lens Express also markets certain of its eye care programs to
large employers as a cost effective alternative to more traditional vision
indemnity programs. Retail and group sales consisted of over 97% of total sales
in 1997.
On August 18, 1997, Summit sold its wholly-owned subsidiary Refractive Centers
International, Inc. to LCA-Vision Inc. Before the sale, RCII owned and operated
Summit's vision center business, which was accounted for as a discontinued
operation in 1996.
Summit was incorporated in Massachusetts on November 27, 1985 and commenced
operations on January 1, 1986. The Company's executive offices are located at
21 Hickory Drive, Waltham, Massachusetts 02451, and its telephone number is
(781) 890-1234.
RECENT DEVELOPMENTS
On December 28, 1998, Summit filed a patent infringement lawsuit in the United
States District Court for the District of Massachusetts against Nidek, whose
laser system recently received FDA approval.
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<PAGE>
The suit alleges that Nidek's excimer laser system infringes certain of
Summit's U.S. patents and seeks damages and injunctive relief.
EXECUTIVE COMPENSATION
The following table shows for the fiscal years ended December 31, 1997, 1996
and 1995 compensation paid or accrued by Summit to (i) Summit's Chief Executive
Officer, (ii) the four other most highly compensated executive officers of
Summit who were serving as executive officers as of December 31, 1997 and (iii)
an individual for whom disclosure in this table would have been required but
for the fact that he was not serving as an executive officer as of December 31,
1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) SAR'S (#) ($)
- --------------------------- ------ ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Palmisano....... 1997 206,539 165,000 100,062 (1) 300,000 (2) --
Chief Executive Officer 45,039 (3)
11,562 (4)
1996 -- -- -- -- --
1995 -- -- -- -- --
D. Verne Sharma........... 1997 250,000 74,375 62,633 (1) -- 472 (6)
President & Chief
Operating 65,978 (3)
Officer 1996 174,308 35,960 38,436 (1) 100,000 (9) --
10,000 (9) --
1995 -- -- -- -- --
Peter E. Litman........... 1997 211,313 67,620 -- -- --
Executive Vice
President, 1996 187,502 -- -- 100,000 (5) 2,996 (6)
Corporate Business 15,000 (5)
Development 1995 157,737 19,814 (7) -- -- 3,000 (6)
Alex C. Sacharoff......... 1997 133,115 -- -- 1,800 (8) 1,090 (6)
Vice President of
Research & 1996 103,923 -- -- 10,775 (8) 1,932 (6)
Development 1995 94,442 2,494 (7) -- 840 (8) 1,472 (6)
Menderes Akdag............ 1997 204,552 119,322 -- -- --
President, Lens Express,
Inc. 1996 156,940 -- -- 5,000 (11) --
1995 88,804 80,000 -- -- --
Rajiv P. Bhatt............ 1997 165,276 -- -- -- 1,500 (6)
Former Executive Vice
President, 75,778 (10)
Treasurer & Chief
Financial 1996 188,633 -- -- 100,000 (10) 2,996 (6)
Officer 15,000 (10)
1995 165,788 21,363 (7) -- -- --
</TABLE>
- --------
(1) Moving and relocation expenses reimbursed by Summit.
(2) During the year ended December 31, 1997, Mr. Palmisano received options to
purchase 300,000 shares of Summit common stock.
(3) Employment tax paid on behalf of the employee by Summit.
71
<PAGE>
(4) Represents automobile allowance of $8,262 and imputed interest income of
$3,300 calculated on loan.
(5) During the year ended December 31, 1996, Mr. Litman received options to
purchase 100,000 shares of Summit common stock and 15,000 shares of common
stock of Refractive Centers International, Inc. a former wholly owned
subsidiary of Summit.
(6) Dollar equivalent value of Summit's contribution to its 401(k) plan. Actual
contribution made in shares of Summit common stock.
(7) Bonus received in the form of stock options to purchase shares of Summit
common stock is deemed annual compensation and, therefore, is not included
as long-term compensation. The amounts are calculated based on the excess
of the fair market value of Summit common stock over the price on the date
of the grant.
(8) During the year ended December 31, 1997, Dr. Sacharoff received options to
purchase 1,800 shares of Summit common stock. During the year ended
December 31, 1996, Dr. Sacharoff received options to purchase 10,775 shares
of Summit common stock. During the year ended December 31, 1995, Dr.
Sacharoff received options to purchase 840 shares of Summit common stock.
(9) During the year ended December 31, 1996, Mr. Sharma received options to
purchase 100,000 shares of Summit common stock and 10,000 shares of common
stock of RCII.
(10) Mr. Bhatt's employment with Summit terminated on August 18, 1997. Mr.
Bhatt received a total of $75,778 from August 19, 1997 through December
31, 1997 for consulting services provided to Summit pursuant to the terms
of his Severance Agreement. During the year ended December 31, 1996, Mr.
Bhatt received options to purchase 100,000 shares of Summit common stock
and 15,000 shares of common stock of RCII.
(11) During the year ended December 31, 1996, Mr. Akdag, who is the President
of Summit's Lens Express subsidiary, received options to purchase 5,000
shares of Summit common stock. Mr. Akdag is not an officer of Summit
Technology, Inc.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
NUMBER OF % OF TOTAL PRICE
SECURITIES OPTIONS/SAR'S EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS/SAR'S EMPLOYEES IN PRICE EXPIRATION -----------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ---- ------------- ------------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Palmisano..... 300,000(1) 47.64 5.63 05/1/2007 707,506 2,241,200
Alex C. Sacharoff....... 1,800(2) 0.29 7.38 09/30/2007 8,349 21,157
</TABLE>
- --------
(1) 50,000 shares vest on 4/15/98, 50,000 shares vest on 4/15/99, 50,000 shares
vest on 4/15/00, 50,000 shares vest when Summit's stock price reaches $8.00
per share (vested 10/6/1997), 50,000 shares vest when Summit's stock price
reaches $13.00 per share and 50,000 shares vest when Summit's stock price
reaches $20.00 per share.
(2) Option vests in three equal annual installments beginning 9/30/98.
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<PAGE>
The following table sets forth, as of December 31, 1997, certain information
concerning the number and value of unexercised options held by each of Summit's
Named Executive Officers and one former executive officer for whom disclosure
in this table would have been required but for the fact that he was not serving
as an executive officer as of December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SAR'S OPTIONS
AT /SAR'S AT
SHARES FY-END(#) FY-END($)
ACQUIRED ON VALUE -------------------- --------------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---- ----------- -------- -------------------- --------------------
<S> <C> <C> <C> <C>
Menderes Akdag.......... -- -- 2,500/2,500 (1) --/--
Rajiv P. Bhatt.......... 40,000 (2) 31,200 152,050/-- (1) --/--
Peter E. Litman......... 30,000 (2) 23,400 133,873/34,000 (1) 4,020/--
Robert J. Palmisano..... -- -- 50,000/250,000 (1) --/--
Alex C. Sacharoff....... -- -- 7,006/4,976 (1) --/--
D. Verne Sharma......... 10,000 (2) 7,800 75,000/25,000 (1) --/--
</TABLE>
- --------
(1) Options to purchase shares of Summit common stock.
(2) Exercise of RCII Options
Compensation of Directors. Summit currently pays $10,000 per year to its
outside directors for their services as directors and $1,000 per year per
committee to each outside director for serving on Board committees. Summit also
pays each outside director $2,000 for each Board meeting attended and $500 for
each committee meeting attended.
In addition, Summit's outside directors (the "Participants") are eligible to
participate in the 1992 Stock Option Plan For Outside Directors, which
constitutes a "formula plan" for purposes of Section 16b-3 promulgated under
the Securities Exchange Act of 1934. Pursuant to this Plan, each Participant
has been granted as of February 28, 1998, options to purchase 13,500 shares of
common stock (at prices ranging from $5.50 to $25.31 per share). Provided that
a Participant remains a director of Summit, he will be granted an additional
option to acquire 3,000 shares of common stock on January 1, 2000, at 100% of
market value.
Summit's outside directors were each granted options to purchase 25,000 shares
of company stock on November 4, 1996, at an option price of $5.38 per share. Of
these, 8,333 options vest on November 4, 1997, 8,333 options vest on November
4, 1998, and the balance vest on November 4, 1999. On July 30, 1997, Summit's
outside directors were each also granted options to purchase 35,000 shares of
Summit common stock at an option price of $6.75 per share. Of these, 11,667
vest on July 30, 1998, 11,667 vest on July 30, 1999, and the balance vest on
July 30, 2000.
Employment Agreements. Robert J. Palmisano was elected as Summit's Chief
Executive Officer and a Director on April 15, 1997. Mr. Palmisano's employment
arrangement with Summit provides that he will receive a base salary of $300,000
per year and will be eligible for discretionary bonuses, based on criteria
established from time to time. In addition, Mr. Palmisano has been granted
options to purchase 300,000 shares of Summit's common stock pursuant to
Summit's 1997 Stock Option
73
<PAGE>
Plan, at an option price of $5.63 per share (see above for vesting
information). In the event Mr. Palmisano's employment is terminated without
cause, Mr. Palmisano will be entitled to severance payments equal to one year's
base compensation. In the event Mr. Palmisano's employment terminates within
twelve months of a change in control of Summit, Mr. Palmisano's severance
payments will be equal to two years' base compensation. All of Summit's
executive officers, including Mr. Palmisano, are employees-at-will.
Severance Agreements. On July 17, 1997, Summit entered into a severance
agreement with Rajiv P. Bhatt, its former Executive Vice President and Chief
Financial Officer. In exchange for consulting services to continue for one year
after Mr. Bhatt's separation from employment, and for certain other
accommodations, Summit agreed to pay Mr. Bhatt a total of $221,375 in equal
biweekly installments over one year, and to accelerate the vesting of Mr.
Bhatt's existing, unexercised stock options, to the extent not already vested.
Summit's Board of Directors has approved severance agreements for its officers
and director-level employees. These severance arrangements become available
only in the event of a "change of control" of Summit and entitle covered
employees to continuation of salary, standard bonuses and benefits in the event
they are terminated without cause after a change of control or terminate their
employment for "good reason" after a change of control. The severance
arrangements would not apply to a termination for "cause" after a change of
control. The arrangements approved by the Summit Board of Directors provide for
salary continuation for (i) two (2) years for the Chief Executive Officer,
President and Executive Vice Presidents, (ii) one (1) year for all other Vice
Presidents and (iii) six (6) months for director-level employees.
Compensation Committee Interlocks and Insider Participation. The Compensation
Committee of the Board of Directors consists of Mr. Traskos and Mr. Bernfeld.
Shoreline Insurance Agency, Inc., a firm with which Mr. Traskos is affiliated,
currently serves as one of Summit's insurance brokers. Arthur A. Watson &
Company, Inc., a firm with which Mr. Traskos was affiliated through September,
1997, also served as one of Summit's insurance brokers in 1997. The aggregate
premiums paid for insurance placed by Shoreline on behalf of Summit in 1997
amounted to approximately $277,625, and the aggregate premiums paid for
insurance placed by Arthur A. Watson on behalf of Summit in 1997 amounted to
approximately $149,470, which in each case is less than five percent of 1996
consolidated gross revenues of Summit, Shoreline, and Arthur A. Watson,
respectively. Summit believes that all transactions with Shoreline and Arthur
A. Watson & Company, Inc. are on terms no less favorable than those available
from other companies.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Summit's common stock on December 15, 1998, (i) by each person who
is known by Summit to own beneficially more than five percent of the
outstanding shares of Summit's common stock, (ii) by each of Summit's
directors, (iii) by each of the Named Executive Officers listed above in the
Summary Compensation Table and (iv) by all directors and executive officers as
a group.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED (1) OWNED (2)
- ---------------- ------------ ------------
<S> <C> <C>
Jeffrey A. Bernfeld............................... 43,434(3) *
Richard F. Miller................................. 33,834(4) *
John A. Norris.................................... 47,542(5) *
Richard M. Traskos................................ 47,063(6) *
Robert J. Palmisano............................... 101,000(7) *
Peter E. Litman................................... 167,923(8) *
Alex C. Sacharoff................................. 26,901(9) *
D. Verne Sharma................................... 100,800(10) *
Menderes Akdag.................................... 22,885(11) *
All Executive Officers and Directors as a Group
(17 persons)..................................... 766,238 2.4%
Rajiv P. Bhatt.................................... 0(12) *
</TABLE>
- --------
* Less than 1% of the outstanding Summit common stock.
(1) Except as otherwise noted, Summit believes that the persons named in the
table have sole voting and investment power with respect to the shares of
Summit common stock set forth opposite such persons' name. Amounts shown
include shares pursuant to stock options which may be exercised within 60
days of December 15, 1998.
(2) Determined on the basis of 31,153,765 shares outstanding, except that
shares underlying options exercisable within 60 days of December 15, 1998
are deemed outstanding for calculating the percentage owned by holders
thereof.
(3) Includes options to purchase 41,834 shares of Summit common stock.
(4) Includes options to purchase 33,334 shares of Summit common stock.
(5) Includes options to purchase 41,834 shares of Summit common stock.
(6) Includes options to purchase 41,834 shares of Summit common stock.
Includes 1,050 shares owned by Mr. Traskos' wife as to which Mr. Traskos
disclaims beneficial ownership.
(7) Includes options to purchase 100,000 shares of Summit common stock
(8) Includes options to purchase 166,373 shares of Summit common stock and
1,550 shares held in Summit's 401(k) plan.
(9) Includes options to purchase 10,584 shares of Summit common stock and
1,317 shares held in Summit's 401(k) plan.
(10) Includes options to purchase 100,000 shares of Summit common stock and
800 shares held in Summit's 401(k) plan.
(11) Includes options to purchase 5,000 shares of Summit common stock.
(12) Mr. Bhatt's employment with Summit terminated effective August 18, 1997.
75
<PAGE>
INFORMATION ABOUT AUTONOMOUS
OVERVIEW
Autonomous Technologies Corporation is a Florida corporation incorporated in
1985. Since 1993 Autonomous has been engaged in the design and development of
the next generation of excimer laser instruments for laser vision correction
(LVC). The field of laser vision correction consists primarily of treatments
aimed at reducing or eliminating a person's dependence on eyeglasses or contact
lenses. In a typical LVC procedure, small amounts of corneal tissue are removed
causing reshaping of a patient's cornea. Autonomous' technology combines eye
tracking with a narrow beam excimer laser to treat common refractive vision
disorders such as myopia (nearsightedness), hyperopia (farsightedness) and
astigmatism. Autonomous' objective is to improve refractive surgical outcomes
for these conditions in comparison to those achieved by earlier LVC systems.
In 1994 Autonomous entered into a strategic alliance with CIBA Vision Group
Management, Inc., a subsidiary of Novartis, A.G., for the worldwide co-
promotion of the LADARVision System. CIBA Vision invested an aggregate of
approximately $5 million in cash and $1.3 million in services to Autonomous. As
a result of this investment, CIBA Vision owns approximately 16% of Autonomous'
common stock. Pursuant to the strategic alliance, Autonomous plans co-promotion
strategies, such as product tie-ins, joint advertising and shared exhibit
space, on a project-by-project basis. Autonomous has retained the worldwide
marketing rights for its LADARVision System.
LVC PRODUCT--THE LADARVISION SYSTEM
Autonomous' LADARVision System incorporates technology that can be used in both
laser in-situ keratomileusis (LASIK) and photorefractive keratectomy (PRK).
Both procedures ablate corneal tissue. In the LASIK procedure, the physician
partially removes a frontal layer of tissue that includes the epithelium and
some corneal tissue, creating a "flap." The laser then ablates the corneal
tissue under the flap. After the corneal tissue is ablated, the flap is
replaced. In PRK, the physician removes just the epithelial layer before
performing the corneal ablation. The epithelial layer is regenerated as part of
the healing process. The Autonomous LADARVision System received FDA approval
for PRK and Autonomous is conducting clinical studies to gain data to submit to
the FDA to enable the device to be approved for LASIK as well.
Autonomous' LADARVision System combines high speed, laser radar eye tracking
with narrow beam shaping to form its new and proprietary technology platform.
The LADARVision System is designed to address a need for sophisticated eye
tracking to compensate for eye movement during surgery, including saccadic eye
movements. Saccadic eye movements are very rapid, involuntary and random in
amplitude and direction and are not suppressed or reduced by medication used
during LVC procedures. These eye movements degrade predictability and visual
quality from the procedure. Autonomous believes that the LADARVision System
provides higher accuracy ablation (i.e., the process of re-shaping the cornea)
by virtually eliminating decentration and shaping error caused by eye movement.
Additionally, the narrow beam excimer provides a smooth ablation, and
Autonomous' shaping algorithms offer high speed ablations to minimize surgical
duration while retaining high pointing accuracy to achieve predictable shaping.
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<PAGE>
Autonomous believes the LADARVision System will yield more stable, predictable
results with less post-operative regression, thereby improving visual quality
and clinical outcomes for low to moderate levels of myopia compared to first
generation excimer laser LVC systems manufactured and sold by competitors.
Autonomous has completed its Phase III U.S. clinical trials for low to moderate
levels of myopia (up to -10 diopters) and astigmatism (up to -4 diopters). Data
from LADARVision clinical trials to date are supportive of improved stability
and predictability for patients with low to moderate levels of myopia when
compared with other data supporting FDA approvals of LVC systems. Autonomous
also believes extensions of its LADARVision technology platform may yield even
greater improvements in patient results for vision disorders that require more
complex corneal reshaping such as hyperopia, astigmatism and combinations of
hyperopic and myopic sphere and cylinder.
The LADARVision System includes many proprietary features, some of which are
the subject of patents and patent applications. The LADAR eye tracker measures
and adjusts more than 4,000 times per second. The LADARVision System's narrow
beam excimer moves over the cornea rapidly and with high accuracy. This feature
allows complex shaping algorithms to be implemented with a much smaller laser
device while minimizing surgical duration.
Autonomous believes the LADARVision System may offer advantages over current
excimer laser LVC systems in terms of manufacturing, installation and
maintenance costs. The LADARVision System is compact: all circuitry and systems
are contained in the patient bed and overhead arm. The narrow beam excimer
requires less energy and is designed to be more reliable and easier to service,
all of which tend to reduce life cycle costs. Finally, Autonomous has been
granted a U.S. patent on its laser cartridge approach, which offers the
potential for simple field replacement.
Autonomous' proprietary software in the LADARVision System is a user-friendly,
32-bit Windows-based, graphical user interface incorporating high resolution,
real-time imaging of both the tracked and untracked eye images. The software is
designed with full patient database features and unique eye tracker information
available to identify and count surgical procedures.
MARKET IN THE UNITED STATES
The principal market for LVC is the correction of refractive vision disorders
such as myopia, hyperopia and astigmatism. It is estimated that more than 136
million people in the United States wear eyeglasses or contact lenses to
correct refractive vision disorders. Within this group, approximately 60
million people are myopic. Of the myopic population, approximately 80% have
myopia from 1 to 7 diopters. Consumers in the United States spend approximately
$13 billion on eyeglasses, contact lenses and other vision correction products
and services each year. Autonomous believes that contact lens wearers and
eyeglass wearers who were unsuccessful wearing contact lenses may be receptive
to LVC because they have already pursued an alternative to eyeglasses.
Approximately 26 million people in the United States wear contact lenses and
nearly an equal number have discontinued contact lens use.
Autonomous believes that approximately 200,000 LVC procedures were completed in
the United States during 1997, up from approximately 100,000 procedures in
1996. Industry sources forecast that approximately 400,000 procedures will be
performed in the United States in 1998, and early
77
<PAGE>
forecasts for 1999 are at or near 650,000 procedures. With a substantial
increase in the number of procedures performed per machine in the United States
during both 1997 and 1998, it is also believed that ophthalmologists will
accelerate their efforts to secure access to an LVC system, to obtain the
requisite training and to offer the procedure to their patients and referral
sources such as optometrists. Autonomous believes many ophthalmologists are
seeking new sources of practice revenue as a result of a decline in Medicare
reimbursement for cataract surgery and are looking to maintain local market
position as refractive surgery becomes widespread. Autonomous believes that
refractive surgery offers practitioners the largest significant new revenue
opportunity for their practices in the near future.
The current price to the patient of an LVC procedure in the United States is
approximately $1,900 to $2,300 per eye, although there is significant price
variation by local market. The lower price is more typical for PRK and the
higher one more typical for LASIK. Vision correction is generally paid for by
the individual receiving treatment ("patient pay") without reimbursement from
governmental or other third-party health care payors.
BUSINESS STRATEGY AND DISTRIBUTION PLANS
Autonomous' objective is to become the leader in the treatment of refractive
vision disorders through the commercialization of its LADARVision System. The
principal elements of Autonomous' business strategy are as follows:
. Seek Market Acceptance Through Innovative Marketing Strategy. In order to
broaden market acceptance of the LADARVision System, Autonomous has
developed an innovative marketing strategy which is directed toward
reducing the initial cost to the ophthalmologist. Under Autonomous'
marketing approach, the physician would pay an advance procedure fee as
well as an ongoing per procedure service fee. This approach permits the
physician to obtain the LADARVision System without either a substantial
capital investment or the risk that the equipment and technology
purchased will become obsolete, both of which can create barriers to
physician acceptance. Autonomous believes that this marketing strategy,
combined with comparable total cost of ownership, may appeal to
physicians who have already purchased a first generation LVC instrument
and have established an LVC component to their practice but wish to
utilize the advanced features contained in Autonomous' LADARVision
System.
. Accelerate Clinical Trials and the Regulatory Process. Autonomous has
implemented a strategy to accelerate the completion of the regulatory
process by conducting concurrent trials at a select group of institutions
in the United States and Europe. Autonomous has targeted institutions
that have had prior clinical trial experience in the use of excimer
lasers for LVC. By concentrating its efforts in a limited number of
experienced institutions and conducting extensive data review and site
audits, Autonomous believes that it can attain better accountability over
the clinical process and ensure high data integrity. Autonomous believes
a combination of highly accountable data with efficacious results has
expedited the data review portion of the regulatory review process.
Autonomous submitted its PMA application and on February 13, 1998 the
Ophthalmic Devices Panel recommended to the FDA that approval be granted.
The FDA approved Autonomous' PMA for the use of the LADARVision System in
the treatment of mild to moderate levels of myopia (-1 to -10 diopters)
with or without astigmatism (up to -4 diopters) on November 2, 1998.
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<PAGE>
. Leverage Technology Platform to Expand Indications for Use. Autonomous
has begun clinical trials to pursue additional clinical indications for
its LADARVision System, such as hyperopia, including hyperopic
astigmatism, and LASIK. Autonomous may pursue additional clinical
indications such as higher diopter ranges for myopia and hyperopia, and
presbyopia (need for bifocals or reading glasses). Autonomous believes
that its proprietary combination of eye tracking and narrow beam laser
technology is well suited to addressing these additional indications.
Autonomous also believes that its existing LADARVision System could be
adapted for additional indications with software upgrades.
CLINICAL TRIALS
FDA guidelines prescribe three steps or phases of clinical testing for excimer
refractive surgical systems. During the initial phase (Phase I), the device
manufacturer conducts feasibility studies to confirm design and operating
parameters. During the second phase (Phase II), the manufacturer attempts to
rule out major safety risks and to assure reasonable stability of testing
results, particularly refractive outcomes. During this phase, a manufacturer
may make minor modifications to the device and treatment protocols. During the
final phase (Phase III), the manufacturer provides reasonable safety and
efficacy assurances of the device to be submitted for PMA by virtue of treating
an expanded patient population.
Autonomous initiated LADARVision System pre-clinical trials with primates in
late 1994. In January 1995, Autonomous began a Phase I trial on five blind eyes
and then conducted a sighted eye study under the direction of Dr. Ioannis
Pallikaris, an associate professor of ophthalmology at the University of Crete,
Greece and co-inventor of the LASIK procedure. Autonomous was granted an
investigational device exemption by the FDA in January 1996 to begin clinical
trials in the United States. Autonomous then conducted a Phase II confirming
trial in the United States under the direction of Dr. Marguerite McDonald,
Autonomous' Medical Director. Following the Phase II surgeries and data
submission, the FDA permitted Autonomous to begin Phase III surgeries on 500
human eyes at up to seven United States sites. Autonomous carried out Phase III
studies between October 1996 and May 1997.
Clinical Trials Results. The FDA's primary measure of efficacy for LVC is known
as the uncorrected visual acuity (UCVA), or the percentage of patients who can
read to specified levels on the standard eye chart post-operatively with no
additional refractive correction. The FDA has concluded that certain percentage
levels of patients achieving 20/20 and 20/40 of UCVA constitute efficacy. The
Autonomous clinical results surpass levels used by the FDA to denote an
efficacious product.
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<PAGE>
The efficacy data from Autonomous' Phase III study were compiled on all of the
primary eyes treated. Certain twelve-month post-operative results of the
measure of uncorrected visual activity are as follows:
<TABLE>
<S> <C>
MYOPIA ONLY
% of eyes reaching 20/40 (good).......................................... 98%
% of eyes reaching 20/20 (optimal)....................................... 71%
MYOPIA WITH ASTIGMATISM
% of eyes reaching 20/40 (good).......................................... 95%
% of eyes reaching 20/20 (optimal)....................................... 59%
</TABLE>
The FDA's primary measure of safety for LVC is known as the best spectacle
corrected visual acuity (BSCVA), or the percentage of patients treated who lose
the ability to read as far down the standard eye chart post-operatively as they
previously could with spectacles. The FDA has concluded that a 2 line (or more)
loss on the eye chart is a compromise of visual function and has set an upper
limit of such effect to denote safety. Autonomous' clinical results show a
small number of patients losing 2 or more lines of BSCVA and it falls within
the FDA's measure.
Another key part of the information for the FDA about an LVC system is the
stability of results for patients. The mean manifest refraction for the
LADARVision System in both the Greek and United States trials changed less than
a diopter in the three month post-operative interval.
RESEARCH AND DEVELOPMENT
Since 1993, Autonomous has spent significant resources on research and
development, including clinical testing on the LADARVision System. In the three
years ended December 31, 1997, Autonomous spent $2.3 million, $5.2 million, and
$6.0 million, respectively, on research and development. In the six months
ended June 30, 1998, Autonomous spent an additional $3.4 million on R&D,
bringing total expenditures from inception through June 30, 1998 to almost $20
million. Autonomous currently has R&D projects ongoing in three major areas, as
described below.
Additional indications: hyperopia, hyperopic astigmatism and LASIK. Autonomous
is pursuing additional treatment indications for its LADARVision System. In
addition to mild and moderate levels of myopia (up to -10 diopters) with or
without astigmatism (up to -4 diopters), which received panel approval in
February 1998 and FDA PMA approval in November 1998, clinical trial surgeries
are underway for hyperopia and hyperopia with astigmatism. Additionally, many
of these hyperopic surgeries are being done using the LASIK technique in order
to support an FDA label indication that the LADARVision System is compatible
with that popular surgical technique.
Engineering improvements. Autonomous continues to spend significant amounts on
engineering to improve the LADARVision System in order to enhance its
performance in clinic operation and to improve manufacturability and
serviceability. Operational performance improvements include not only
electrical/electronic and optical performance, but also physician requested
features to further enhance ease of use.
Custom Cornea(TM). Autonomous is actively developing CustomCornea(TM), a patent
pending technology designed to further extend the precision and flexibility of
the LADARVision System by incorporating an advanced eye measurement technology.
The advanced eye measurement technology
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<PAGE>
will allow CustomCornea to determine the more subtle errors of the human visual
system. With this information, Autonomous can generate custom ablation patterns
ideally suited for individual patients. CustomCornea is intended to offer
correction of the degrading effects of complex corneal topographical anomalies,
including irregular astigmatism. Autonomous believes that CustomCornea will
improve the night vision performance of patients over current LVC performance.
Autonomous has applied for a patent covering certain aspects of this technology
and certain claims of that application were allowed in 1997. During late 1997,
Autonomous conducted a successful clinical trial of the measurement aspects of
the CustomCornea technology on approximately 100 eyes with a prototype device.
During 1998, Autonomous has studied the resultant data from the diagnostic
measurements obtained in 1997 and developed the algorithms for custom
ablations. In early 1999, Autonomous anticipates conducting pre-clinical
surgeries on a small number of patients in order to evaluate the feasibility of
the treatment. In late 1999, Autonomous intends to apply to the FDA for
necessary approvals. Autonomous believes that CustomCornea corrections offer
the promise of increasing contrast sensitivity, improved night vision and
uncorrected visual acuity beyond that offered by current technology.
Autonomous' long term research and development plan includes an extension of
the CustomCornea and LADARVision technology to include multi-focal correction
of presbyopia. Presbyopia is the need for reading glasses. The CustomCornea
technology has measurement features that Autonomous believes will aid in the
development aspects of presbyopic correction. The correction of presbyopia
would require ablation of a highly complex and precise shape which Autonomous
believes may be achievable using LADARVision technology. Autonomous' plan to
develop presbyopic correction treatment is a multi-year development project.
MANUFACTURING
Autonomous' manufacturing operations consist of assembly, inspection and
testing of parts and system components to assure performance and quality. Most
parts and system components are manufactured and supplied by outside vendors. A
completed system must pass a series of final integration and acceptance tests
prior to shipment.
The laser component in the LADARVision System has been custom designed for
Autonomous for high performance and small size. Autonomous funded the
development of this laser and owns the design of the laser component, including
all drawings and trade secrets relating to the design and manufacture of the
laser component. The laser component is currently manufactured by a small U.S.
manufacturer that specializes in manufacturing excimer lasers. Autonomous
agreed to purchase 50 laser components from this small company before
purchasing laser components from other manufacturers or making the laser
component itself. To date, Autonomous has purchased approximately 20 of the 50
laser components. Either Autonomous or this manufacturer (as the non-breaching
party) may terminate this relationship in the event of an uncured breach of the
manufacturing agreement. This agreement continues until Autonomous has
purchased 50 laser components. Autonomous decided to use a single manufacturer
for the laser component in order to achieve economies of scale in the
manufacture of the laser component and to assure better control of the quality
of the laser component. Achieving economies of scale and controlling the
quality of the laser component are and will continue to be important factors
and will significantly influence Autonomous' decision whether to engage another
manufacturer (or manufacture the laser component
81
<PAGE>
itself) after Autonomous has met its obligation to purchase 50 laser components
from this manufacturer. In order to protect itself against this manufacturer
being unable to manufacture the laser component, Autonomous required this
manufacturer to lease a separate facility for the manufacture of the laser
component and to assign to Autonomous a security interest in all of the
equipment, drawings and inventory relating to the manufacturing of the laser
component as well as the facility lease. Autonomous also placed two of its
engineers at this manufacturer, beginning November 1997, for approximately six
months in order for these engineers to learn and document all of the details of
manufacturing the laser component. Autonomous does not currently have its
engineers working at this manufacturer on a full-time basis. However, the two
engineers have returned to this manufacturer for further documentation, and
Autonomous anticipates its personnel returning to this manufacturer on occasion
in the future. If this manufacturer is unable to supply the laser components as
required by Autonomous, Autonomous believes it has the ability to promptly step
in and manufacturer the laser components on its own or have another qualified
manufacturer make the laser components at the current site where the laser
components are manufactured. With these protective measures in place,
Autonomous does not believe there is a significant risk that it will be unable
to obtain laser components from a qualified manufacturer or make such
components itself in the event that this manufacturer cannot manufacture the
laser components. However, this transfer process could take several months.
In addition to the excimer laser, the most significant component of the
LADARVision System is the optical module. The LADARVision optical module was
originally built and tested by Autonomous. During 1996 and 1997, Autonomous
outsourced the optical module to a sole source supplier to improve
manufacturability and serviceability and to achieve higher performance and
begin positioning Autonomous to enter higher volume manufacture. If this
supplier is unable to meet Autonomous' demand, Autonomous' ability to build
LADARVision Systems would be adversely affected. Autonomous wrote the
LADARVision System software and intends to protect this software as a trade
secret. The balance of the LADARVision System, consisting of common, non-
proprietary components purchased from third parties, is assembled and tested by
Autonomous.
In 1997, Autonomous leased a newly constructed main office and production
facility of approximately 25,000 square feet. The new facility will enable
Autonomous to maintain sufficient inventory levels and to achieve production
rates required for commercial placements.
Autonomous will be required to expand its assembly and test capabilities to
achieve the capacity required for commercial production of the LADARVision
System in the United States. During 1998, Autonomous experienced delays in the
production of LADARVision Systems in order for it to implement its Quality
System Regulation (QSR) systems, undergo FDA site and QSR system inspection,
and complete implementation of several engineering changes. Autonomous
substantially completed the engineering changes and QSR system by the end of
summer 1998. Autonomous' FDA site inspection was completed in 1998. The FDA
approved Autonomous' PMA for the use of the LADARVision System in the treatment
of mild to moderate levels of myopia (-1 to -10 diopters) with or without
astigmatism (up to -4 diopters) in November 1998. There can be no assurance
that Autonomous will not continue to experience such production and ongoing FDA
inspection difficulties as it converts from a research and development
operation into a commercial manufacturing operation. In addition, Autonomous
must continue to meet the FDA's QSR regulations in order to ship systems
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<PAGE>
for use in the United States. If any of Autonomous' suppliers of significant
components or sub-assemblies cannot meet the quality requirements of
Autonomous, Autonomous could experience delays in producing commercial systems
for the domestic market. Autonomous has received its ISO 9001 certification.
ISO 9000 series certification is required to obtain the CE Mark which is
necessary for marketing products in European Community countries.
SALES AND MARKETING; CUSTOMER SERVICE
Autonomous plans to employ its own sales and service personnel to launch the
LADARVision System in markets outside the United States and within the United
States. Autonomous and CIBA Vision intend to co-promote their products at
industry meetings.
Autonomous believes that affiliation with the CIBA Vision name in ophthalmic
products will initially assist it in gaining attention and added credibility
from ophthalmologists who have an interest in LVC. CIBA Vision markets a line
of products that can be used by practitioners performing LVC. These products
include topical anesthetics, post-operative wound healing compounds and bandage
contact lenses, some of which were used by physicians in Autonomous' clinical
trials.
Autonomous is actively building its capabilities in both sales and service.
There are a limited number of experienced service personnel available in the
workforce. Autonomous is providing training for both sales and service
personnel in order to familiarize them with the LADARVision System to increase
their long-term productivity.
HISTORICAL MARKET DEVELOPMENT
The laser vision correction industry in the United States fully emerged in 1995
when Summit received FDA approval to market its system for phototherapeutic
keratectomy in March and for low to moderate nearsightedness in October. Prior
to that time, both Summit and VISX had sold systems outside the United States
and had been involved in the extensive process of clinical trials in the United
States. In March 1996, VISX received FDA approval for low to moderate
nearsightedness and began its United States marketing efforts. FDA approvals
have been a critical aspect of the market development. In April 1997, VISX
received an additional approval for astigmatism. The Summit system was approved
for astigmatism in March 1998. Autonomous believes that the earlier approval
for astigmatism gave VISX a competitive advantage in marketing its laser
systems in the United States.
Based on industry trade publications, Autonomous believes that VISX now
dominates the United States market for LVC procedures performed with an
estimated 75% share of the market with Summit having the remaining 25%.
VISX received FDA approval for farsightedness in November 1998 and is the only
LVC equipment supplier that has FDA approval to treat farsightedness. Both
Summit and Autonomous have submitted filings to the FDA for approval to treat
farsightedness. Autonomous believes that if it receives approval from the FDA
for farsightedness, it will not receive such approval until late 1999. VISX may
have a competitive advantage in the marketplace until Summit and Autonomous
receive FDA approval for farsightedness.
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<PAGE>
Nidek recently received FDA approval for its LVC system for low to moderate
nearsightedness without astigmatism. Two other companies, Bausch & Lomb's
Surgical Division and Lasersight, have applied for FDA approval for their LVC
systems. More entrants in the market will likely have the effect of increasing
competition in the industry.
Another aspect of market development has been in the technology area, which
appears to be moving from the original "wide beam" technology (or variations
thereof) characterized by the Summit and VISX systems, to small spot "scanning"
systems such as the LARDARVision System.
Autonomous does not yet know how the LVC market in the United States will
accept the LADARVision System since only a limited number of systems have been
in operation in the United States for clinical trials. Owners of VISX or Summit
systems may be reluctant to change to the LADARVision System because of the
significant capital investment they have already made or their familiarity with
the equipment and the inconvenience of changing to a new system. If other
providers of LVC systems are able to penetrate the United States market with
their equipment before Autonomous is able to manufacture and market the
LADARVision System, Autonomous could experience a significantly lower market
share than it had otherwise anticipated.
Other technologies could present significant competition to laser vision
correction such as implantable ring devices and implantable contact lenses.
These technologies may be less expensive than LVC for both patients and
physicians.
The table below summarizes the product features and FDA approvals for LVC
systems currently approved by the FDA:
<TABLE>
<CAPTION>
AUTONOMOUS SUMMIT VISX NIDEK
------------ ---------------- -------------- -----------
<S> <C> <C> <C> <C>
Model Name.............. LADARVision Apex Plus Star S/2/ EC-5000
Weight (lbs.)........... 799 1,399 1,597 1,430
Beam Size............... Narrow Wide Wide Wide
Beam Shaping............ Programmable Iris & ablatable Iris, slit & Iris & slit
shot pattern mask beam splitting
Eye Tracking............ Active None None None
(LADAR)
FDA Approval Status
(diopters):
Myopia.................. -10 -7 -12 -13
Myopia with
astigmatism............. -4 -4 -4 No
Hyperopia............... No No +6 No
Hyperopia with
astigmatism............. No No No No
LASIK................... No No No No
</TABLE>
Several of Autonomous' potential competitors, such as Summit, VISX, Bausch &
Lomb, and Nidek have substantially greater resources than Autonomous. These
resources could be used to make it difficult for Autonomous to gain market
share in the LVC equipment market and prodecure market.
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<PAGE>
RELATIONSHIP WITH CIBA VISION
Autonomous and CIBA Vision entered into an agreement in 1994 whereby CIBA
Vision purchased certain securities of Autonomous for $4,000,000. CIBA Vision
subsequently converted these securities into 1,256,550 shares of common stock.
In 1995, CIBA Vision and Autonomous replaced their existing agreement with a
new Strategic Alliance Agreement. Under the new agreement, CIBA Vision advanced
$1,000,000 to Autonomous and agreed to provide in-kind services worth more than
$1,000,000 over a three-year period.
In addition, CIBA Vision has agreed to allow Autonomous to use the CIBA
Vision(R) and CIBA Vision Ophthalmics(R)/1/ trademarks to promote its
ophthalmic refractive laser products for the duration of the agreement (eight
years unless terminated earlier). As part of the in-kind services provided by
CIBA Vision, it has provided Autonomous exhibit space at appropriate ophthalmic
conventions or congresses attended by CIBA Vision worldwide and participated in
co-promotional activities with Autonomous.
The Strategic Alliance Agreement provides that Autonomous shall pay commissions
to CIBA Vision on all ophthalmic refractive laser equipment revenues, including
patient procedures fees, net of license fees to IBM, Summit and VISX, in the
amount of 6% of such revenues. The CIBA Vision commissions are limited to an
aggregate of $10,000,000. The agreement may be terminated by CIBA Vision under
certain circumstances.
PATENTS AND PROPRIETARY INTELLECTUAL PROPERTY
Autonomous' LADARVision eye tracking and excimer shaping technologies are the
product of several years of contract research and development for the Strategic
Defense Initiative and the National Aeronautic and Space Administration.
Autonomous has retained all commercial rights to these technologies and has
filed a total of thirteen patent applications in the United States. Five of the
eleven U.S. patent filings have resulted in patents being issued to Autonomous.
The earliest of these patents will expire in 2012, and the latest will expire
in 2018. Several other filings have received an indication of allowable subject
matter. Autonomous has also filed numerous patent applications in foreign
jurisdictions.
The patents and applications generally relate to the following areas:
. A cartridge excimer laser device for high serviceability
. Fast response eye tracking
. Fast and accurate optical narrow beam delivery system with tracking
. Ablation with shot pattern, with minimal sensitivity to ablation debris
. The algorithm for shaping with arbitrary combinations of plus and minus
sphere and cylinder
. CustomCornea
. Measuring vision defects of a human eye
- --------
/1/CIBA Vision(R) and CIBA Vision Ophthalmics(R) are registered trademarks of
Novartis, A.G.
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<PAGE>
Autonomous' ability to protect its proprietary tracking and small-beam
technology as trade secrets is critically important to differentiating its
technology from earlier-to-market LVC systems. Both in the United States and
worldwide there is a large field of prior art covering methods and apparatus
for performing corneal surgery with ultraviolet laser ablation.
Autonomous' success will depend in part on its ability to obtain patents for
its products and processes, to preserve its trade secrets and to operate
without infringing the patent rights of third parties.
PATENT LITIGATION AND TECHNOLOGY LICENSES
Summit and VISX, two of Autonomous' competitors, formed a domestic partnership,
Pillar Point Partners, in 1992 to pool certain of their respective patents
related to corneal sculpting technologies. On October 24, 1996, Autonomous
filed suit in the United States District Court for the District of Delaware
against Pillar Point Partners, Summit and VISX alleging noninfringement,
unenforceability and invalidity of certain of the patents held by Pillar Point
Partners. On June 9, 1998, Summit and VISX announced that they had reached
agreement on the dissolution of their partnership. As a part of the dissolution
of Pillar Point Partners, Summit and VISX granted each other a worldwide,
royalty free cross-license whereby each party will have full rights to license
all existing patents owned by either company relating to LVC for use with their
systems. On September 24, 1998, VISX filed a counterclaim in Autonomous' 1996
suit seeking a declaratory judgment of infringement by Autonomous and
preliminary and permanent injunctions. Autonomous believes that after the
merger the cross-license with VISX held by Summit pertaining to the VISX
patents will render moot the claim that Autonomous infringes on VISX patents
for Autonomous' activities after the merger. As of November 9, 1998, Autonomous
and VISX agreed to stay the litigation until the earlier of the
Summit/Autonomous merger, termination of the merger or March 1, 1999. During
this period, Autonomous has agreed not to deliver LADARVision Systems in the
U.S. If the merger does not occur, a judgment in favor of VISX could have a
material adverse effect on Autonomous' business, financial condition and
results of operations.
During 1996, Autonomous licensed patents related to ultraviolet laser ablation
of biological material from IBM. In 1997, IBM sold certain intellectual
property to Lasersight, Inc., which also makes LVC equipment. Autonomous has
been informed by IBM that while the laser ablation patent and certain licenses
thereto were included in the sale to Lasersight, Inc., the Autonomous license
is still owned by IBM. Under the terms of the license with IBM, Autonomous has
an automatic right of renewal for another four year term upon expiration in
2000, subject to a fixed limit increase in the royalty rates thereafter. Upon
expiration of the second term, the applicable patent will have expired.
Autonomous may need to negotiate licenses for additional patents in order to
sell, lease or use the LADARVision System in certain markets. There can be no
assurance that Autonomous will be successful in securing licenses for these
patents or, if Autonomous does obtain licenses for these patents, that such
licenses will be on terms acceptable to Autonomous. An inability to license
these patents might have a material adverse effect on Autonomous' business,
financial condition and results of operations of Autonomous.
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<PAGE>
GOVERNMENT REGULATION
Food and Drug Administration. Before medical devices can be marketed and sold
in the United States they must be subjected to rigorous pre-clinical and
clinical testing to satisfy regulatory requirements imposed by the FDA and, to
a lesser extent, by certain state regulatory authorities.
Medical devices are classified by the FDA as Class I, Class II or Class III
based upon the extent of regulatory review necessary to reasonably ensure their
safety and effectiveness. Class III devices are subject to the most stringent
regulatory review and cannot be marketed for commercial sale in the United
States until the FDA grants a PMA for the device. Autonomous' LADARVision
System, which received PMA approval in November 1998, is such a Class III
device.
The process of obtaining approval of a PMA application is lengthy, expensive
and uncertain. It requires the submission of extensive clinical data and
supporting information to the FDA. Human clinical studies may be conducted only
under an FDA-approved IDE (Investigational Device Exemption) and must be
conducted in accordance with FDA regulations. In addition to the results of
clinical trials, the PMA application includes other information relevant to the
safety and efficacy of the device, a description of the facilities and controls
used in the manufacturing of the device, and proposed labeling. After the FDA
accepts a PMA application for filing and reviews the application, a public
meeting may be held before an FDA advisory panel comprised of experts in the
field. After the PMA is reviewed and discussed, the panel issues a favorable
("approvable") or unfavorable ("not approvable") recommendation to the FDA and
may recommend conditions. Although the FDA is not bound by the panel's
recommendations, it historically has given them significant weight. Products
manufactured and distributed by Autonomous pursuant to a PMA will be subject to
extensive, ongoing regulation by the FDA.
The FDA enabling legislation, the Food, Drug and Cosmetic Act, also requires
Autonomous to manufacture its products in accordance with its QSR quality
system regulations. Autonomous' facilities will be subject to periodic,
surprise inspections by the FDA. These regulations impose certain procedural
and documentation requirements upon Autonomous with respect to manufacturing
and quality assurance activities. Additionally, product and procedure labeling
and all forms of promotional activities are subject to examination by the FDA,
and current FDA enforcement policy prohibits the marketing of approved medical
devices for unapproved uses. Noncompliance with these requirements may result
in warning letters, fines, injunctions, recall or seizure of products,
suspension of manufacturing, denial or withdrawal of PMAs and criminal
prosecution.
Autonomous also is regulated by the FDA's Center for Devices and Radiological
Health under the United States Radiation Control for Health and Safety Act,
which requires any laser product to comply with certain performance standards
and manufacturers to certify in product labeling and in reports to the FDA that
their products comply with all such standards. The law also requires laser
manufacturers to file new product and annual reports, maintain manufacturing,
testing and sales records, and report product defects. Various warning labels
must be affixed and certain protective devices must be installed in order to be
in compliance. Autonomous believes it is in compliance with these reporting and
operating requirements.
Autonomous has submitted its PMA application for its initial indications of
myopia and astigmatism. On February 13, 1998, the FDA's Ophthalmic Devices
Panel reviewed the application and
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<PAGE>
unanimously recommended that the FDA grant the PMA approval for myopia up to -8
diopters and astigmatism up to -4 diopters. Subsequently, upon submission of
additional data, the FDA indicated that Autonomous' initial approval would be
to -10 diopters of myopia. On November 2, 1998, the FDA approved Autonomous'
PMA for the use of the LADARVision System in the treatment of mild to moderate
levels of myopia (-1 to -10 diopters) with or without astigmatism (up to -4
diopters).
Autonomous' principal business facilities are located in Florida. The
Department of Health and Rehabilitative Services' Office of Radiation Control
monitors reporting and record keeping requirements applicable to Autonomous.
Autonomous believes that some foreign jurisdictions in which it anticipates
marketing the LADARVision System may impose restrictions on the marketing and
sale of medical laser devices and may require certain filings and other
information and procedures before a product can be sold to the public. The
member countries of the European Community have implemented regulations
requiring that medical products receive certifications necessary to affix the
CE mark to the device by June 14, 1998. The CE mark has gained acceptance as an
international symbol of adherence to quality assurance standards and compliance
with applicable European medical device directives. Certification under the ISO
9000 series of standards for quality assurance and manufacturing processes is
one pre-requisite for obtaining the CE mark requirements. Autonomous has
received ISO 9001 certification and plans to apply for the CE mark within the
next nine months.
In November, 1998, Autonomous received a Medical Device License from the
Canadian Therapeutic Products Directorate for its LADARVision System. The
Autonomous license application was for mild to moderate myopia (-1 to -10
diopters) and astigmatism (up to -6 diopters) as a Class III device.
Other Regulation. Sales, both domestic and international, manufacturing and
product development of the LADARVision System also may be subject to federal
regulations pertaining to exports, environmental matters and worker protection.
In addition, state and/or local health and safety regulations may require that
Autonomous obtain various permits.
Changes in existing regulatory requirements or adoption of new requirements
could have a material adverse effect on Autonomous' business, financial
condition and results of operations. There can be no assurance that Autonomous
will not be required to incur significant costs to comply with laws and
regulations in the future or that laws and regulations will not have a material
adverse effect on Autonomous' business, financial condition or results of
operations.
PRODUCT LIABILITY AND INSURANCE
Autonomous' business involves the risk of product liability claims. Autonomous
has not experienced any product liability claims to date. Autonomous maintains
a "claims made" product liability insurance policy with coverage limits of $5
million per occurrence and $5 million in the aggregate. The inability of
Autonomous to maintain adequate insurance coverage at any time or product
liability or other claims in excess of Autonomous' insurance coverage could
have a material adverse effect on Autonomous' business, financial condition and
results of operations. Additionally, Autonomous has in the past and may in the
future agree to indemnify certain medical institutions and their personnel who
participate in Autonomous' clinical studies.
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<PAGE>
EMPLOYEES
As of September 30, 1998, Autonomous had 78 full-time employees. Additionally,
from time to time Autonomous has retained the services of contract employees or
consultants. Autonomous expects that it will require additional staffing during
the remainder of 1998 and in 1999 in the areas of sales and marketing, customer
support and production functions. No employees are covered by collective
bargaining agreements and Autonomous believes that it maintains good relations
with its employees.
LEGAL PROCEEDINGS
Autonomous is involved in litigation relating to certain patents held by VISX.
Autonomous believes that after the merger the cross license with VISX held by
Summit pertaining to VISX patents relating to laser ablation of corneal tissue
will render moot the claim of VISX that Autonomous infringes on VISX patents
for Autonomous' activities after the merger. For a complete description of the
litigation pending with VISX, see "--Patent Litigation and Technology
Licenses."
DESCRIPTION OF PROPERTIES
Autonomous leases approximately 25,250 square feet of office/manufacturing
space in Orlando, Florida at an annual cost of approximately $340,000,
including operating costs. The lease expires in 2007. Autonomous believes this
facility is adequate to accomplish Autonomous' business objectives through
1999.
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<PAGE>
AUTONOMOUS SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data, which should
be read in conjunction with Autonomous' Management's Discussion and Analysis of
Financial Condition and Results of Operations below. The selected financial
data as of December 31, 1997, 1996 and 1995, and for each of the two years in
the period ended December 31, 1997, and the nine months ended December 31,
1995, are derived from financial statements that have been audited by Arthur
Andersen LLP, independent certified public accountants, which are included in
the Autonomous Annual Report on Form 10-K, as amended, and are qualified by
reference to such financial statements. The selected financial data as of March
31, 1995 and 1994, and for each year in the two year period ended March 31,
1995, are derived from audited financial statements filed previously with the
Securities and Exchange Commission. There were no cash dividends declared
during any of the periods presented below.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1998 1997 1997 1996 1995 1995 1994
------------- -------------- ------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
LADARVision
Systems and
Services........ $ 135,330 $ 11,000 $ 37,065 $ -- $ -- $ -- $ --
Research grants.. -- -- -- -- -- -- 378,274
OPERATING
EXPENSES:
Costs of
revenues--
LADARVision
Systems and
Services....... 285,696 35,528 105,892 -- -- -- --
Costs of
revenues from
research
grants......... -- -- -- -- -- -- 300,186
Clinical trials.. 2,111,391 2,158,449 2,980,317 1,715,412 602,847 569,389 2,229
Unabsorbed
production
costs........... 2,178,538 -- 758,801 -- -- -- --
Research and
development..... 2,867,603 2,375,933 2,954,559 3,521,381 1,698,056 1,608,032 468,307
Selling and
marketing....... 1,787,422 1,029,840 1,493,069 1,190,898 478,439 40,349 252,247
General and
administrative.. 2,022,936 1,746,226 2,328,222 1,852,351 974,738 562,042 379,313
Other expenses... 1,119,787 1,453,311 1,596,671 1,283,874 375,000 -- --
------------- ------------ ------------ ----------- ----------- ----------- -----------
OPERATING LOSS (12,238,043) (8,788,287) (12,180,466) (9,563,916) (4,129,080) (2,779,812) (1,024,008)
Interest income
(expense), net.. 141,626 421,986 541,111 555,872 30,035 84,463 (13,942)
PROVISION FOR
INCOME TAXES.... -- -- -- -- -- -- --
------------- ------------ ------------ ----------- ----------- ----------- -----------
NET LOSS $ (12,096,417) $ (8,366,301) $(11,639,355) $(9,008,044) $(4,099,045) $(2,695,349) $(1,037,950)
============= ============ ============ =========== =========== =========== ===========
Deemed dividend
for Series I
preferred stock
conversion
discount........ 428,350 -- -- -- -- -- --
------------- ------------ ------------ ----------- ----------- ----------- -----------
Net loss
applicable to
common
stockholders.... $ (12,524,767) $ (8,366,301) -- -- -- -- --
============= ============ ============ =========== =========== =========== ===========
LOSS PER SHARE:
Basic net loss
per share....... (1.18) (1.06) $ (1.43) $ (2.36) $ (3.37) $ (2.40) $ (0.92)
============= ============ ============ =========== =========== =========== ===========
Shares used in
computing basic
net loss per
share........... 10,538,677 7,884,019 8,151,395 3,812,039 1,217,509 1,125,000 1,125,000
============= ============ ============ =========== =========== =========== ===========
<CAPTION>
DECEMBER 31, MARCH 31,
SEPTEMBER 30, ----------------------------------------- -------------------------
1998 1997 1996 1995 1995 1994
------------- -------------- ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Cash and
investments..... $ 2,845,522 $ 7,301,072 $ 12,405,790 $ 492,326 $ 975,428 $ 4,893
Total assets..... 9,104,181 12,416,149 14,144,249 799,493 1,252,317 111,533
Long-term
obligations..... 422,531 1,760,007 1,097,133 2,802,832 2,405,000 89,124
Stockholders'
equity
(deficit)....... 7,081,784 8,979,812 11,583,648 (3,564,616) (1,304,568) (277,137)
<CAPTION>
CUMULATIVE
FROM INCEPTION
(JULY 23, 1985)
TO SEPTEMBER 30,
1998
----------------
(UNAUDITED)
<S> <C>
REVENUES:
LADARVision
Systems and
Services........ $ 172,395
Research grants.. 3,450,517
OPERATING
EXPENSES:
Costs of
revenues--
LADARVision
Systems and
Services....... 391,588
Costs of
revenues from
research
grants......... 3,465,596
Clinical trials.. 7,981,585
Unabsorbed
production
costs........... 2,937,339
Research and
development..... 13,175,918
Selling and
marketing....... 5,242,424
General and
administrative.. 8,377,807
Other expenses... 4,375,332
----------------
OPERATING LOSS (42,324,677)
Interest income
(expense), net.. 1,324,985
PROVISION FOR
INCOME TAXES.... 4,772
----------------
NET LOSS $(41,004,464)
================
Deemed dividend
for Series I
preferred stock
conversion
discount........ 428,350
----------------
Net loss
applicable to
common
stockholders.... (41,432,814)
================
LOSS PER SHARE:
Basic net loss
per share.......
Shares used in
computing basic
net loss per
share...........
<CAPTION>
<S> <C>
BALANCE SHEET
DATA:
Cash and
investments.....
Total assets.....
Long-term
obligations.....
Stockholders'
equity
(deficit).......
</TABLE>
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AUTONOMOUS MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Autonomous was incorporated in 1985 and since 1993 has been engaged in the
design and development of the next generation of excimer laser instruments for
LVC. The field of LVC consists primarily of treatments aimed at reducing or
eliminating a person's dependence on eyeglasses or contact lenses. Autonomous
is still in the development stage and only recently introduced a commercial
product for sale in certain foreign markets. Autonomous' PMA application in the
United States was reviewed and recommended for approval by the Ophthalmic
Devices Panel of the FDA on February 13, 1998. On November 2, 1998, the FDA
approved Autonomous' PMA for the use of the LADARVision system in the treatment
of mild to moderate levels of myopia (-1 to -10 diopters) with or without
astigmatism (up to -4 diopters).
In December 1995, Autonomous changed its fiscal year end from March 31 to
December 31, effective with the nine months ended December 31, 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
RESULTS OF OPERATIONS
Operating Expenses. Clinical trials expenses were $716,163 and $715,348 in the
quarters ended September 30, 1998 and 1997, respectively. Clinical trials
expenses were $2,111,391 and $2,158,449 in the nine months ended September 30,
1998 and 1997, respectively. These expenses were flat in the comparative
quarters and decreased 2% in the comparative nine month periods, respectively,
due to Autonomous' near finalization of its myopia/astigmatism PRK clinical
trial expenses. Autonomous' clinical trial expenses are expected to increase as
Autonomous expands its work toward other clinical indications such as higher
levels of myopia and astigmatism, hyperopia, LASIK and begins its CustomCornea
clinical trials in 1999. Additionally, the cost of the compliance organization
grouped for financial reporting purposes will also increase as the full impact
of operating under FDA, QSR and ISO9001 regulations is felt in a commercial
setting.
Unabsorbed production costs were $862,415 and $0 in the quarters ended
September 30, 1998 and 1997, respectively. Unabsorbed production costs were
$2,178,538 and $0 in the nine months ended September 30, 1998 and 1997,
respectively. Until the third quarter of 1997, when the first foreign
commercial placements were made, the cost of the production organization was
charged to research and development. Subsequently, the production organization
expenses not absorbed by limited production were presented in Other Expenses.
As the size and cost of the production organization has grown in anticipation
of commercial levels of activity, these costs have been presented separately
herein. Such costs in prior periods have been reclassified to conform to this
presentation. The unabsorbed labor and overhead costs of the production
organization will be presented here into 1999 until such time as Autonomous
reaches a continuous production state, which is expected several months after
receiving its PMA.
Research and development expenses were $803,554 and $706,637 in the quarters
ended September 30, 1998 and 1997, respectively. Research and development
expenses were $2,867,603
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and $2,375,933 in the nine months ended September 30, 1998 and 1997,
respectively. These increases of 14% and 21% in the quarters and nine months,
respectively, are due to (a) research and development staffing increases in
1998, primarily to add engineering management and certain other engineering
specialists for continued LADARVision System improvements, and (b) for
engineering contracts to outside parties and consultants in order to facilitate
the continuance of Autonomous' outsourcing strategy in manufacturing.
Selling and marketing expenses were $496,802 and $415,244 in the quarters ended
September 30, 1998 and 1997, respectively. Selling and marketing expenses were
$1,787,422 and $1,029,840 in the nine months ended September 30, 1998 and 1997,
respectively. These increases of 20% and 74% in the quarters and nine months,
respectively, are due to increased staff and activities in preparation for
addressing the U.S. market upon achieving its PMA for the LADARVision System
from the FDA. CIBA in-kind services booked in the first nine months of 1998
were $177,198. In June 1998, the CIBA in-kind services agreement expired and
these costs or their equivalent will be borne by Autonomous on a cash
expenditure basis hereafter. Sales and marketing expenses will increase
substantially in the future as Autonomous enters the U.S. market with its
product and programs.
General and administrative expenses were $834,801 and $617,542 in the quarters
ended September 30, 1998 and 1997, respectively. General and administrative
expenses were $2,022,936 and $1,746,226 in the nine months ended September 30,
1998 and 1997, respectively. These increases of 35% and 16% in the quarters and
nine months, respectively, are due to an accrual for concluding Autonomous'
agreed upon obligations to its former president, who left Autonomous due to the
plan to merge with Summit.
Other expenses were $445,322 and $1,119,787 in the quarters ended September 30,
1998 and 1997 respectively. Other expenses were $1,119,787 and $1,453,311 in
the nine months ended September 30, 1998 and 1997, respectively. There are two
major components of this expenses category:
. An accrual which is being made for the remaining 171,713 shares that may be
issued to CIBA Vision in May, 1999 under the terms of the 1995 Strategic
Alliance Agreement. For both of the quarters ended September 30, 1998 and
1997, this accrual amounted to $150,000. For both of the nine month periods
ended September 30, 1998 and 1997, this accrual amounted to $450,000. Should
the planned merger with Summit consummate before May 1999, as expected,
these shares will be issued immediately prior to the closing of the merger
transaction.
. Legal expenses of $251,991 and $194,902 for the quarters ended September 30,
1998 and 1997, respectively, and $425,014 and $985,123 for the nine months
ended September 30, 1998 and 1997, respectively, have been incurred that
relate to Autonomous' pursuit, beginning in the latter half of 1996, of
legal actions having to do with alleged infringement, unenforceability and
invalidity of certain LVC patents held in various jurisdictions by other
participants in the LVC industry. Autonomous is still pursuing, as the
plaintiff, one remaining case in the United States. The legal expenses will
be unpredictable to their size and timing due to various phases through
which the trial may proceed. There can be no assurance that the continued
pursuit of this remaining case will result in any change in commercial terms
for Autonomous' LADARVision System in the U.S. Further, there can be no
assurances that other legal matters will not be
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opened that Autonomous cannot presently foresee. Summit has a royalty-free
cross license with VISX, which, by the terms of the cross license, applies
to wholly owned subsidiaries of Summit. Autonomous believes the claims of
Autonomous and VISX relating to alleged infringement of VISX patents as to
the manufacture, use, sale or placement of the LADARVision System after the
proposed merger with Summit will become moot.
Interest income and interest expense. Interest income was $45,162 and $182,850
in the quarters ended September 30, 1998 and 1997, respectively. Interest
income was $171,757 and $453,260 for the nine months ended September 30, 1998
and 1997, respectively. These decreases of 75% and 62% in the quarters and
nine months, respectively, is due to both lower average cash and investment
balances and lower available short-term rates in the 1998 quarter as compared
to the 1997 quarter. In the 1998 and 1997 quarters, Autonomous' cash and
investments balance averaged approximately $2.8 million and $12.3 million,
respectively. Interest expense was $7,823 and $14,236 in the quarters ended
September 30, 1998 and 1997, respectively. Interest expense was $30,131 and
$31,274 for the nine months ended September 30, 1998 and 1997, respectively.
Operating and Net Losses. The net effect of the foregoing expense items was
that Autonomous' operating loss increased to $4,160,749 or by 46%, in the
quarter ended September 30, 1998, from $2,845,743 in the quarter ended
September 30, 1997. Autonomous' net loss increased to $4,123,410 or by 54%, in
the quarter ended September 30, 1998, from $2,677,129 in the quarter ended
September 30, 1997.
For the nine month period ended September 30, 1998 Autonomous' operating loss
increased by 39% to $12,238,043, from $8,788,287 in 1997. The net loss
increased by 45% to $12,096,417 in the nine month period ended September 30,
1998, from $8,366,301 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
General Comments. Autonomous' cash, cash equivalents and available-for-sale
investments were $2,845,552 at September 30, 1998 and $7,301,072 at December
31, 1997. Autonomous used cash of $11,327,718 to support operations and
$775,302 for capital expenditures during the nine months of fiscal 1998. With
the addition of approximately $3.8 million, net of expenses, assuming the
exercise of the Option closes, Autonomous' cash resources will be sufficient
to fund the operations until early in 1999.
Merger Agreement with Summit Technology. In connection with the merger
agreement, Summit agreed to lend up to $5 million to Autonomous on a revolving
credit basis. Under the revolving credit agreement, Autonomous may not draw
more than $1.5 million per month and will be charged interest on such draws at
a rate of 5.25% per annum. One half of the amount borrowed by Autonomous as of
the closing date of the merger will reduce the amount of the aggregate cash
consideration in the merger. In the event the merger does not occur through no
fault of Autonomous, the amount drawn on the revolving credit facility is due
and payable 180 days from the date of the termination of the merger agreement.
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FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996
RESULTS OF OPERATIONS
Revenues from Research Grants. Autonomous had no material revenues in the three
fiscal years ended December 31, 1997. Autonomous made commercial placements of
LADARVision Systems in late 1997, one of which began to generate limited
procedure fee revenues before year-end. Previous revenues generated by
Autonomous during the period from inception to the year ended March 31, 1994
were from research work conducted for the United States Department of Defense,
NASA and under Small Business Innovation Research grants that totaled
approximately $3.5 million in the nine years ended March 31, 1994. Autonomous
concluded its research grant activity in 1994 in order to pursue
commercialization of the LADARVision System for its own account in the
ophthalmology market.
Operating Expenses. Cost of revenues from LADARVision Systems placed in 1997
included local country import taxes, shipping, installation and training costs,
and certain royalty accruals.
COST OF REVENUES
Autonomous incurred no costs of revenues from research work in the three fiscal
years ended December 31, 1997. Costs of revenues during the period from
inception to the nine years ended March 31, 1994, which offset the revenues
from research grants, totaled $3.5 million.
CLINICAL TRIALS EXPENSES 1997
Clinical trials expenses were $2,980,317 and $1,715,412 in the years ended
December 31, 1997 and 1996, respectively. This increase of 74% was attributable
to an increase in the clinical staff and number of patient surgeries performed
in the first half of 1997 during the closing phases of Autonomous' initial
Phase III trials. Autonomous' clinical trials expenses are expected to continue
to increase as it expands its work toward other clinical indications and begins
its CustomCornea clinical trials in 1999. The compliance organization grouped
here will also increase in 1998 as the full impact of operating under FDA QSR
and ISO 9001 regulations is felt.
CLINICAL TRIALS EXPENSES 1996
Clinical trials expenses were $1,715,412 in the year ended December 31 1996,
and $602,847 for the nine month period ended December 31, 1995. This increase
of 185% was attributable to the incremental effect of a twelve month year in
1996 versus a nine month period in 1995 and, additionally, to a greatly
expanded clinical trials program during 1996 and the staffing of a compliance
function. Autonomous began Phase II and Phase III clinical trials in the United
States during 1996. The number of patients treated under these protocols
increased significantly over the number of patients treated during any prior
period for Autonomous. Staffing of the clinical department was also expanded.
The compliance organization increased by approximately 6 persons during the
year in order to prepare Autonomous for ISO 9001 certification, FDA QSR
compliance and to assist in documenting Autonomous' production processes. Less
than half of Autonomous' Phase III clinical trial surgeries in the United
States were completed at December 31, 1996. The completion of those patient
surgeries, the subsequent follow-up of those patients and the expansion of
clinical trials to protocols for other indications of refractive correction
caused clinical trial expense to grown at a slower rate in 1997.
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UNABSORBED PRODUCTION COSTS 1997
Unabsorbed production costs of $758,801 for the year ended December 31, 1997
were re-classified from other expenses due to such production costs not being
fully absorbed by limited production beginning in the third quarter of 1997.
Such costs will continue into 1999 until such time as Autonomous has reached a
continuous production state.
RESEARCH AND DEVELOPMENT EXPENSES 1997
Research and development expenses were $2,954,559 and $3,521,381 in the years
ended December 31, 1997 and 1996, respectively. This decrease of 16% was caused
primarily by the re- allocation of resources as Autonomous began limited
manufacturing commercial systems for foreign placement. Three commercial
systems were produced and placed between mid-1997 and March 1998. The
underlying cost of the research and development organization continued to
increase as Autonomous required new investment in its CustomCornea research
program. Autonomous also added to its engineering staff to handle the increased
need for product and process drawing and documentation for Autonomous' first
and second generation LADARVision Systems. Going forward, the cost of R&D will
reflect actual research and engineering costs because production expenses will
be charged to the product or to other operating expenses. Such "true" R&D costs
are expected to increase moderately.
RESEARCH AND DEVELOPMENT EXPENSES 1996
Research and development expenses were $3,521,381 in the year ended December
31, 1996 and $1,698,056 in the nine month period ended December 31, 1995. This
increase of 107% was due to the incremental effect of a twelve-month year in
1996 versus a nine-month period in 1995 and, additionally, due to the increase
in staffing of the production function, the initial organization of Autonomous'
CustomCornea project and the increase in U.S. and foreign patent filing
activities. Autonomous chose to expense the cost of the production organization
and the clinical trial systems due to the fact that these assets will not
produce revenue until Autonomous begins producing commercial systems. During
all of 1996, the growing production function costs are presented in research
and development expenses due to this accounting treatment. At year end
Autonomous had not fully completed its conversion to commercial production.
Autonomous also added three persons during 1996 to pursue the CustomCornea
research project. Those costs will continue to increase into 1997 as the
project advances. Autonomous filed U.S. and certain foreign patent applications
regarding CustomCornea and continued to prosecute other additional patent
property.
SELLING AND MARKETING EXPENSES 1997
Selling and marketing expenses were $1,493,069 and $1,190,898 in the years
ended December 31, 1997 and 1996, respectively. This increase of 25% was
largely incurred in the latter months of 1997 as Autonomous began increasing
staffing and travel activities to secure contracts for the initial foreign
placements of the LADARVision System. Selling and marketing expenses are
expected to more than double in 1998 as Autonomous increases staff and
activities to address the U.S. market in anticipation of receiving its initial
PMA from the FDA on the LADARVision System. CIBA Vision in-kind services
reached $471,000 for 1997, meaning just over $1,000,000 of such expenses were
cash or accrual outlays by Autonomous. The CIBA Vision in-kind services
agreement will expire in mid-1998 and the equivalent of those costs will be
borne by Autonomous on an expenditure basis.
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SELLING AND MARKETING EXPENSES 1996
Selling and marketing expenses were $1,190,898 and $478,439 in the year ended
December 31, 1996 and the nine month period ended December 31, 1995,
respectively. This increase of 149% was due to the incremental effect of a
twelve-month year in 1996 versus a nine-month period in 1995 and, additionally,
to the effect of having a full year of CIBA Vision in-kind services which are
charged to sales and marketing expenses in the financial statements. CIBA
Vision's in-kind service contribution increased from approximately $220,000 in
1995 to $450,000 in 1996. Autonomous also incurred substantially increased
salary and travel costs for its marketing staff as they began presenting the
LADARVision System to prospective accounts outside the United States.
GENERAL AND ADMINISTRATIVE EXPENSES 1997
General and administrative expenses were $2,328,222 and $1,852,351 in the years
ended December 31, 1997 and 1996, respectively. This increase of 26% was due
largely to increased costs in human resources as personnel and programs were
expanded to manage the increased levels of recruiting and headcount; to the
costs of the move into a new office and plant facility in May 1997; and to
increased non-allocated operating costs of the new facility. Increases in
general and administrative costs in 1998, if any, are expected to be modest.
GENERAL AND ADMINISTRATIVE EXPENSES 1996
General and administrative expenses were $1,852,351 and $974,738 in the year
ended December 31, 1996 and the nine month period ended December 31, 1995,
respectively. This increase of 90% was due to the incremental effect of a
twelve-month year in 1996 versus a nine-month period in 1995 and, additionally,
to increased salary costs. The compensation costs of Autonomous' Chief
Operating Officer and Chief Financial Officer were incurred for the full year
in 1996 and only the latter few months of the nine month period in 1995.
Autonomous also added a Controller's position in 1996 and licensed accounting
and production software that added to costs. Employee benefits expense
increased due to the commencement of Autonomous' 401(k) Retirement Plan and its
Employee Stock Purchase Plan. Telephone, fax and office consumables expenses
also increased due to the fact that Autonomous' employment increased by more
than 100% during the most recent year. Autonomous added the cost of directors
and officers liability insurance as well as certain investor relations expenses
to general and administrative expenses.
OTHER EXPENSES 1997
Other expenses were $1,596,671 and $1,283,874 for the years ended December 31,
1997 and 1996, respectively. This increase of 24% was due to legal expenses
increasing in 1997 as a result of its first quarter settlement of the VISX
litigation and pursuit of claims against Pillar Point Partners. In 1996, such
litigation costs were incurred primarily in the second half of the year versus
the full year for 1997. Autonomous will continue to incur litigation costs in
1998 as it pursues its position of non-infringement with regard to the
LADARVision System versus the Pillar Point Partners patent portfolio. The legal
expenses will be unpredictable as to their timing due to various phases through
which the trials may proceed. Additionally, should new litigation arise from
Autonomous' entry into the U.S. market, such additional costs could be
significant and will be charged here.
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OTHER EXPENSES 1996
Other expenses were $1,283,874 and $375,000 for the year ended December 31,
1996, and the nine month period ended December 31, 1995, respectively. This
increase of 242% was due to the incremental effect of a twelve month year in
1996 versus a nine month period in 1995, particularly with respect to the
accrual being made under the CIBA Vision Strategic Alliance Agreement. However,
the most substantial component of the increase was legal expenses that
Autonomous began incurring to defend itself in the VISX UK suit and to prepare,
file and prosecute legal actions against Pillar Point Partners and its
respective partner entities and VISX in Canada. Legal expenses related to these
matters will continue in 1997 and will be unpredictable as to their timing due
to various phases through which the trials may proceed. Autonomous anticipates
that it will incur approximately $100,000 per month or $1.2 million dollars per
year in expenses relating to these suits during 1997. Should unexpected events
occur in those suits or should the pursuit of similar claims be expanded with
additional suits by or among the parties, the related costs could increase
significantly.
Interest Income (Expense), Net. Interest income (expense), net was $541,111 and
$555,872 for the years ended December 31, 1997 and 1996, respectively. This
decrease of 3%, or nearly level with the prior year, was due to the fact that
available interest rates declined on the short-term investments in Treasuries
and Agencies that Autonomous utilizes for interest income. Average earning
balances in cash and investments, as computed on monthly ending amounts, were
approximately equal in 1997 ($10,400,000) and 1996 ($10,300,000). Additionally,
Autonomous' interest expense, netted into these amounts, increased by
approximately $15,000 for the year as Autonomous financed its cubicle furniture
for the new facility with capital leases. 1998 interest income will be almost
solely a function of the timing and size of Autonomous' equity and debt
financings during the year.
Interest income (expense), net was $555,872 and $30,035 for the year ended
December 31, 1996, and the nine month period ended December 31, 1995,
respectively. This increase of over 17 times is due entirely to Autonomous'
investable balances during 1996 being substantially higher than in previous
periods due to the initial public offering proceeds of over $17 million being
invested since May 7, 1996. Although those invested balances are being reduced
to meet operating cash needs, Autonomous ended the year with over $12 million
invested. Autonomous' available-for-sale investment portfolio has been earning
approximately 5.9% and Autonomous' cash and cash equivalent funds has been
earning approximately 4.9% during the period subsequent to the initial public
offering.
Net Loss. The net effect of the foregoing revenue and expense items was
Autonomous' net loss of $11,639,355, $9,008,044, and $4,099,045 in the years
ended December 31, 1997 and 1996, and the nine month period ended December 31,
1995, respectively. Autonomous' procedure fee pricing plan will lengthen the
time for Autonomous to earn a return on its investment in LADARVision Systems
thereby potentially delaying profitability.
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LIQUIDITY AND CAPITAL RESOURCES
The following table shows the summary sources and uses of Autonomous' funds for
the five fiscal years ended December 31, 1997 and the nine month period ended
September 30, 1998 (comprising 66 months of operations). These five fiscal
years and the nine month period represent a substantial majority of Autonomous'
operating history to date, including all of the time Autonomous has been
focused on the LVC market.
<TABLE>
<S> <C>
Sources of cash:
Preferred and common stock sales, net of expenses............. $20,180,000
CIBA Vision equity and debt investments, net.................. 4,943,000
Initial public offering, net.................................. 17,893,000
-----------
TOTAL SOURCES OF CASH....................................... $43,016,000
===========
Uses of cash:
Operations.................................................... 37,007,000
Capital expenditures.......................................... 3,001,000
Debt repayment and other...................................... 550,000
-----------
TOTAL USES OF CASH.......................................... 40,558,000
-----------
NET INCREASE IN CASH BALANCES................................. $ 2,458,000
===========
</TABLE>
The cash expenditure for operations of over $37 million dollars in the last
five fiscal years and the nine month period has been used to develop the
LADARVision System and its enabling technologies as applied to LVC, to fund
clinical investigation, to build company infrastructure and systems, to build
production capacity and to commence early marketing and sales efforts toward
markets outside the United States. As Autonomous continues to conduct clinical
investigations aimed at adding additional indications to the FDA PMA approval,
to more fully develop a sales and marketing capability and to increase
commercial production of the LADARVision System, it is expected that additional
losses will be incurred that will require substantial funding by equity or debt
placements, or both. Autonomous believes that its cash resources in excess of
$2 million at September 30, 1998, when combined with the funding of $4 million
pursuant to an option to acquire Series I Convertible Preferred Stock, and with
the availability of the $5 million under a credit facility from Summit, will be
sufficient to fund operations and continued development into the second quarter
of 1999.
Autonomous commenced efforts in the first quarter of 1998 to raise additional
funds for operations for the balance of 1998 and into 1999. Autonomous believes
it has made sufficient progress in compiling clinical evidence of LADARVision
System safety and efficacy, in moving through the attendant regulatory
processes, and in readying the LADARVision System for commercial launch to
warrant the type of additional investment that would constitute this 1998
funding. During the latter half of 1996 and continuing into 1997, however, the
LVC industry saw its equity market valuations come under intense pressure by
the investment community due to questions raised about the speed of development
of patient demand. To date, with the exception of one LVC firm, those
valuations have not recovered to and do not appear likely to recover to their
highs of early 1996. As a result, the equity market for LVC companies and for
small cap and development stage companies is not as favorable for Autonomous as
it was in the first half of 1996 (the time of Autonomous' initial public
offering). In addition, the ongoing patent litigation with VISX had and is
likely to continue to have an adverse effect on Autonomous' ability to raise
capital. Additionally, should Autonomous be
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successful in raising adequate funds in 1998 to fund operations for a
reasonable period thereafter, it may be on terms that may cause dilution for
current stockholders.
At December 31, 1997, Autonomous' long-term obligations consisted of its
accrual of $1,575,000 for future share issuance to CIBA Vision which is not
expected to be settled in cash, and approximately $185,000 of obligation
remaining under capitalized lease obligations.
Private Placement of Autonomous Common Stock. On June 2, 1998, Autonomous
completed a private placement with four European investors of 600,573 shares of
Autonomous' common stock at a price of $5.166 per share. The net proceeds from
this sale were approximately $2,884,000. Autonomous filed a resale registration
statement on Form S-3 on behalf of the European investors, which was declared
effective on August 27, 1998.
Private Placement of Series I Convertible Preferred Stock. On April 16, 1998,
Autonomous entered into an agreement for the private sale of 500 shares of
Series I Convertible Preferred Stock at a price per share of $10,000 with an
option to purchase 400 additional shares of Series I Convertible Preferred
Stock at the same price per share and a two-year stock purchase warrant for
300,000 shares of Autonomous common stock. The funding for the initial 500
shares of Series I Convertible Preferred Stock occurred on August 7, 1998 after
the SEC declared effective a registration statement on Form S-3 registering the
maximum number of shares of Autonomous common stock into which the 500 shares
may be converted. The approximate net proceeds from this sale were $4.7
million. The option was exercised on November 9, 1998. Upon the closing of the
exercise of the option, the investor will receive 400 shares of Series I
Convertible Preferred Stock and the warrant for 300,000 shares of Autonomous
common stock exercisable at $6.17 per share. Closing of the option is expected
to occur on or before January 12, 1999. Autonomous expects to receive net
proceeds of $3.8 million upon closing.
The 900 shares of Series I Convertible Preferred Stock are convertible into an
aggregate maximum of 2,263,197 shares of Autonomous common stock based upon a
conversion formula and with maximum monthly allowable amounts of such
conversion. This formula is based on 90% of the average lowest trade price for
the five trading days prior to conversion. If the option for 400 shares is
exercised, the estimated net proceeds will be approximately $3.8 million.
Autonomous believes that the proceeds along with existing cash resources of
Autonomous will be sufficient to fund operations through the end of 1998. If
the option exercise closing does not occur, Autonomous may borrow any necessary
amounts from the $5 million revolving credit line with Summit.
Prospects for 1999 Financing of Operating Needs. In order to support operations
until funding of the second 400 shares of Series I Convertible Preferred Stock,
Autonomous has drawn $3.0 million from the Summit credit facility at December
31, 1998, which will be repaid from the proceeds of the closing of the option.
Autonomous believes that these proceeds and the Summit credit facility, along
with existing cash resources of Autonomous, will be sufficient to fund
operations into the second quarter of 1999. In the event the merger with Summit
is not consummated by March 31, 1999, Autonomous will renew efforts to seek
external capital to continue to fund operations. If no external financing is
obtained during the second quarter of 1999, operations of Autonomous would have
to be
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materially curtailed at that time, including the cessation of production and
the U.S. marketing efforts. If the Summit merger does not occur, Autonomous
will also renew its efforts to be acquired as an alternative to raising
additional capital.
The equity environment for LVC companies without positive earnings and cash
flow from operations, as well as the general equity environment for non-
Internet, small cap and development stage companies has been extremely poor
since the first half of 1996 (the time of Autonomous' initial public offering).
There is no evidence at the end of 1998 that the equity market bias against
non-Internet, small cap and development stage companies is abating. Should
Autonomous be successful in raising adequate funds in 1999 to fund operations
for a reasonable period thereafter (assuming the Summit merger does not occur),
the financing terms may cause substantial dilution for current stockholders. It
is also uncertain whether another party could be found in a short time period
to acquire Autonomous on reasonable terms.
At September 30, 1998, Autonomous' long-term obligations consisted of its
accrual of $300,000 for future share issuance to CIBA which is not expected to
be settled in cash and approximately $123,000 of obligations remaining under
capitalized lease obligations.
YEAR 2000 COMPUTER PROGRAMMING
The Year 2000 issue relates to the method used by computer systems and software
for displaying dates using two digits to represent a four-digit year. In some
cases, computer systems and software may recognize a year represented by "00"
as 1900 instead of 2000 which could result in unexpected behavior in the
affected systems or software. Such computer systems and software will need to
be able to accept four-digit entries to distinguish years beginning with 2000
from prior years. As a result, systems that do not accept four-digit year
entries will need to be upgraded or replaced to comply with such Year 2000
requirements.
In early 1998, Autonomous' accounting and manufacturing resource planning
software vendor produced a Year 2000 specific update which Autonomous installed
at that time. There was no additional cost of this upgrade to Autonomous
because such maintenance updates are included in the annual maintenance fee
paid to the vendor. As a result of this upgrade, Autonomous believes that its
accounting and MRP programs are fully Year 2000 compliant. Autonomous is the
sole author of the system software in its LADARVision System. All versions of
that software have always been Year 2000 compliant, including the current 32-
bit version that will be delivered in commercial systems in the near future.
Autonomous believes that it will not incur any further material direct costs in
hardware or software upgrades from third party vendor software used internally
in its business operations.
Autonomous is currently in the process of vendor certification for Year 2000
compliance. Autonomous is requiring a written statement from its key vendors
that such vendor's systems are Year 2000 compliant as well as requiring a
description of the testing methods used by the vendor. At this time, Autonomous
has received such written statements from two of the four vendors it considers
its key vendors. The written statements Autonomous has received represent to
Autonomous' satisfaction that these two vendors are currently Year 2000
compliant. Autonomous anticipates that it will receive written statements from
the other two key vendors by the end of 1998. Autonomous has
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arranged for system parts and/or sub-systems to be made by these key vendors in
low volumes and in a highly customized fashion. Therefore, Autonomous does not
believe that the manufacture of such parts or sub-systems is automated, and as
such, wholly or partially dependent on imbedded manufacturing systems which may
not be Year 2000 compliant. The greatest potential risk related to a key vendor
whose systems are not Year 2000 compliant and who may be unable to meet
delivery requirements for parts or components. Until Autonomous receives
written statements from the other two key vendors, it will not have reached
maximum levels of assurance that there will be no effect, if any, of possible
non-Year 2000 compliance by these vendors on Autonomous' business, results of
operations, liquidity and financial condition.
Autonomous does not currently have any United States commercial customers of
its LADARVision System and thus does not anticipate surveying potential
customers for Year 2000 compliance.
Autonomous has not completed a contingency plan for responding to the most
reasonably likely worst case scenario (wherein, in Autonomous' judgement, one
of these four key vendors would not be able to deliver its parts or sub-systems
to Autonomous on a timely basis). Autonomous currently intends to complete such
analysis and contingency planning by March 31, 1999.
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MARKET PRICE FOR AUTONOMOUS COMMON STOCK
Autonomous common stock is traded on Nasdaq under the symbol "ATCI."
As of the record date, there were [ ] shares of Autonomous common stock
outstanding and approximately [ ] stockholders of record. This does not
reflect the number of persons or entities who hold their stock in nominee or
street name through various brokerage firms.
The information regarding Autonomous common stock in the following table is
based upon the high and low closing prices reported on the Nasdaq National
Market. Autonomous common stock began trading on Nasdaq NMS on May 1, 1996 and
previously was not traded on any exchange or market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996
Second Quarter (May 1 to June 30).............................. $8.875 $5.750
Third Quarter.................................................. $6.125 $3.500
Fourth Quarter................................................. $4.750 $3.375
1997
First Quarter.................................................. $6.500 $4.000
Second Quarter................................................. $5.375 $3.375
Third Quarter.................................................. $5.500 $3.250
Fourth Quarter................................................. $7.125 $5.000
1998
First Quarter.................................................. $7.875 $4.875
Second Quarter................................................. $7.375 $3.688
Third Quarter.................................................. $5.875 $3.125
Fourth Quarter................................................. $6.125 $3.625
1999
First Quarter (January 1 to )................................ $ $
</TABLE>
No dividends have been declared or made in respect of the common stock.
Autonomous intends to retain current cash and future earnings to fund the
development and growth of its business and, therefore, does not anticipate
paying cash dividends within the foreseeable future. Any payment of dividends
will be determined by the Autonomous board of directors and will depend on
Autonomous' financial condition, results of operations and other factors deemed
relevant by the board of directors.
On October 1, 1998, the last trading day before the public announcement of the
merger, the closing price of Autonomous common stock was $4.125. On January ,
1999, the last trading day before the printing of this joint proxy
statement/prospectus, the closing price was $[ ].
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AUTONOMOUS SECURITY OWNERSHIP INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as best known to Autonomous
regarding the beneficial ownership of Autonomous's common stock as of December
31, 1998, unless otherwise indicated, by (1) each person known to Autonomous to
own more than 5% of the issued and outstanding common stock, (2) each of
Autonomous' directors, (3) each of the Named Executive Officers for the fiscal
year ended December 31, 1997, and (4) all directors and executive officers as
a group.
<TABLE>
<CAPTION>
SHARES OF APPROXIMATE
COMMON STOCK PERCENT
BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED(1) OWNED
- ---------------- ------------ ------------
<S> <C> <C>
CIBA Vision Corporation (2)
11460 Johns Creek Parkway
Duluth, GA 30136................................. 1,867,084 14.85%
Timothy Barabe (2).................................. 1,867,084 14.85%
OZ Management, Inc. (3)
153 East 53rd Street, 43rd Floor
New York, New York 10022.......................... 724,890 5.77%
Randy W. Frey (4)................................... 677,250 5.39%
Richard C. Capozza, Ph.D. (5)....................... 355,259 2.83%
G. Arthur Herbert (6)............................... 72,150 *
Monty K. Allen (7).................................. 48,566 *
George H. Pettit (8)................................ 45,000 *
Stanley Ruffett (9)................................. 38,850 *
Richard H. Keates, MD (10).......................... 28,950 *
Whitney A. McFarlin (11)............................ 7,000 *
All Directors and Executive Officers as a Group (14
persons) (12)...................................... 3,200,458 25.46%
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of the outstanding
Autonomous common stock.
(1) The persons and entities in the table above have sole voting and investment
power with respect to all shares shown as beneficially owned by them,
subject to the Stockholders Agreement, except as noted in the footnotes
below.
(2) The 1,867,084 shares are owned by CIBA Vision Corporation, a wholly owned
subsidiary of Novartis AG of Basel Switzerland engaged in the business of
vision care products and services. The number of shares beneficially owned
includes 171,713 shares that will be issued immediately prior to the merger
in satisfaction of an obligation that would be due on May 15, 1999, to CIBA
Vision under the terms of the 1995 Strategic Alliance Agreement. Mr. Barabe
is an officer of CIBA Vision and serves on Autonomous's Board of Directors
as the designee of CIBA Vision. Mr. Barabe disclaims beneficial ownership
of the Autonomous securities owned by CIBA Vision. Mr. Barabe has been
granted non-qualified stock options for 7,000 shares which are exercisable
within 60 days, but which are not shown in the table due to their transfer
to his children. Mr. Barabe disclaims beneficial ownership of these
transferred options.
(3) As reported by OZ Management, LLC, on a Schedule 13-G dated September 1,
1998, and not recalculated as of December 31, 1998. Includes common shares
that may be issuable at the date of filing of the 13-G by converting shares
of Autonomous' Series I Convertible Preferred Stock into Autonomous' common
stock. As of December 11, 1998, OZ Management LLC held 224,264 common
shares outright.
(4) Includes incentive options to acquire 12,000 shares which are exercisable
within 60 days. Excludes options to acquire 48,000 shares which are not
exercisable within 60 days. Excludes 525 shares of common stock and a stock
purchase warrant to purchase 450 shares of common stock exercisable through
February 28, 1999 at $3.33 per share held by Mr. Frey's mother, for which
he disclaims any beneficial ownership.
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(5) Includes a stock purchase warrant to purchase 15,000 shares of common stock
exercisable through February 28, 1999, at $3.33 per share and options to
acquire 223,000 shares which are exercisable within 60 days and expire on
January 7, 1999. Dr. Capozza resigned from his position as Autonomous'
President and Chief Operating Officer on September 30, 1998.
(6) Includes non-qualified options to acquire 9,000 shares which are
exercisable within 60 days and a stock purchase warrant to acquire 15,000
shares of common stock exercisable through February 28, 1999, at $3.33 per
share.
(7) Includes incentive and non-qualified options to acquire 17,000 shares which
are exercisable within 60 days. Excludes incentive and non-qualified
options to acquire 85,000 shares which are not exercisable within 60 days.
(8) Includes incentive and non-qualified options to acquire 45,000 shares which
are exercisable within 60 days. Excludes incentive and non-qualified
options to acquire 76,000 shares which are not exercisable within 60 days.
(9) Includes non-qualified options to acquire 9,000 shares which are
exercisable within 60 days.
(10) Dr. Keates has been granted non-qualified stock options for 9,000 shares
which are exercisable within 60 days, but which are not shown in the table
due to their transfer to his children. Dr. Keates disclaims beneficial
ownership of these transferred options.
(11) Includes non-qualified options to acquire 7,000 shares which are
exercisable within 60 days.
(12) Includes options to acquire 369,500 shares which are exercisable within 60
days and stock purchase warrants to acquire 30,000 shares of common stock
exercisable through February 28, 1999, at $3.33 per share. Excludes
options to acquire 620,500 shares which are not exercisable within 60
days.
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DESCRIPTION OF SUMMIT CAPITAL STOCK
The current authorized capital stock of Summit consists of 65,000,000 shares,
of which 60,000,000 are designated common stock, par value $0.01 per share, and
5,000,000 shares are designated preferred stock, par value $0.01 per share. The
following description of the capital stock of Summit is a summary and, by its
nature, not a complete description of all aspects of the capital stock set
forth in the Summit's articles of organization and the bylaws. All stockholders
are encouraged to read the Summit articles and the Summit bylaws in their
entirety.
COMMON STOCK
As of [recent date], there were [ ] shares of Summit common stock outstanding,
held of record by approximately [ ] stockholders. Holders of Summit common
stock are entitled to one vote per share, and to a proportionate vote for each
fractional share, on all matters submitted to a vote of stockholders. Holders
of Summit common stock are entitled to receive dividends in cash, stock or
otherwise as the board of directors may declare out of funds legally available
for that purpose. In the event of a liquidation, dissolution or winding up of
Summit, holders of Summit common stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference of
any outstanding shares of preferred stock. Holders of Summit common stock have
no preemptive, subscription, redemption or conversion rights. All of the
outstanding shares of Summit are, and the shares of Summit to be issued by
Summit in connection with the merger will be, fully paid and nonassessable. The
Summit board of directors may establish and designate one or more series of
common stock, in addition to the common stock currently outstanding, and to fix
the relative rights and preferences as between different series, including
without limitation, the voting rights, if any, of each series. The rights,
privileges and preferences of Summit common stock are subject to, and could be
adversely affected by, the issuance of a new series of common stock or, as
described below, preferred stock.
PREFERRED STOCK
The Summit board of directors has the authority to issue 5,000,000 shares of
preferred stock in one or more series. Summit has no shares of preferred stock
outstanding and has no plans to issue any shares of preferred stock. Within
limitations established by law, the board of directors has the authority to fix
or alter the dividend rights, dividend rates, rights and terms of redemption,
redemption price or prices, preferences, qualifications, participation rights,
conversion rights, voting rights and other rights of the shares of any series
of Summit preferred stock prior to the issuance of that series. However, the
voting rights of preferred stock of any series in no case shall exceed the
greater of (i) one vote per share of such series, or (ii), in the case of
preferred stock that is convertible to common stock, the number of votes per
share as equals the following: the number shares of common stock, at the time
the vote is taken, into which one share of that series of preferred stock may
be converted. The issuance of preferred stock in certain circumstances may have
the effect of delaying, deterring or preventing a change in control of Summit,
may discourage bids for Summit common stock at a premium over the market price
of Summit common stock, and may adversely affect the market price of, and the
voting and other rights of the holders of, Summit common stock.
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STOCKHOLDER RIGHTS PLAN
On March 29, 1990, the board of directors of Summit declared a dividend
distribution of one right (a "Right") for each share of common stock
outstanding on April 10, 1990. Each share of Summit common stock issued after
that date included one Right. Except as set forth below, each Right, when it
becomes exercisable, entitles the registered holder to purchase from Summit
one-quarter share of common stock at a price of $12.50 (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between Summit and BankBoston,
N.A., as Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all certificates representing common
stock then outstanding, and no separate Right Certificates will be distributed.
The Rights will separate from the common stock upon the earliest to occur of
(i) a person or group of affiliated or associated persons having acquired
beneficial ownership of 15% or more of the outstanding common stock (except
pursuant to a Permitted Offer, as hereinafter defined below); or (ii) ten days
(or such later date as the Board of Directors may determine) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in a person or group
becoming an Acquiring Person (as hereinafter defined) (the earliest of such
dates being called the "Distribution Date"). A person or group whose
acquisition of common stock causes a Distribution Date pursuant to clause (i)
above is an "Acquiring Person." The date that a person or group becomes an
Acquiring Person is the "Shares Acquisition Date."
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with, and only with, the common stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights) new
common share certificates issued after the record date will contain a notation
incorporating the Rights Agreement by reference. Transfers of shares of common
stock will also transfer the Rights. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the common stock as of
the close of business on the Distribution Date, and the separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire at
the close of business on March 29, 2000, unless earlier redeemed by Summit as
described below.
In the event that any person becomes an Acquiring Person (except pursuant to a
tender or exchange offer which is for all outstanding common shares at a price
and on terms which a majority of the members of the board of directors who are
not officers of Summit and who are not Acquiring Persons, Affiliates or
Associates or nominees or representatives of an Acquiring Person determines to
be adequate and in the best interests of Summit, its stockholders (other than
such Acquiring Person, its affiliates and associates) and other relevant
constituencies that directors may consider under Massachusetts law (a
"Permitted Offer")), each holder of a Right will for a 60-day period thereafter
have the right (the "Flip-In Right") to receive upon exercise the number of
shares of common stock (or, in certain circumstances, other securities of
Summit) having a value (immediately prior to the triggering event) equal to
eight times the exercise price of the Right for a purchase price equal to four
times the exercise price of the Rights. Notwithstanding the foregoing,
following the occurrence of the event described above, all Rights that are, or
(under certain circumstances specified in the
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Rights Agreement) were, beneficially owned by any Acquiring Person or any
affiliate or associate thereof will be null and void.
In the event that, at any time following the Shares Acquisition Date, (i)
Summit is acquired in a merger or other business combination transaction in
which the holders of all of the outstanding common stock immediately prior to
the consummation of the transaction are not the holders of all of the surviving
corporation's voting power, or (ii) more than 50% of Summit's assets or earning
power is sold or transferred, in either case with or to an Acquiring Person or
any affiliate or associate or any other person in which such Acquiring Person,
affiliate or associate has an interest or any person acting on behalf of or in
concert with such Acquiring Person, affiliate or associate, or, if in such
transaction all holders of common stock are not treated alike, any other
person, then each holder of a Right (except Rights which previously have been
voided as set forth above), shall thereafter have the right (the "Flip-Over
Right") to receive, upon exercise, common shares of the acquiring company
having a value equal to eight times the exercise price of the Right for a
purchase price equal to four times the exercise price of the Rights. The holder
of a Right will continue to have the Flip-Over Right whether or not such holder
exercises or surrenders the Flip-In Right.
The Purchase Price payable, and the number of shares of common stock or other
securities issuable, upon exercise of the Rights are subject to adjustment from
time to time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the common stock, (ii) upon
the grant to holders of the common stock of certain rights or warrants to
subscribe for or purchase common stock at a price, or securities convertible
into common stock with a conversion price, less than the then current market
price of the common stock, or (iii) upon the distribution to holders of the
common stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
The number of outstanding Rights and the number of common stock issuable upon
exercise of each Right are also subject to adjustment in the event of a stock
split of the common stock or a stock dividend on the common stock payable in
common stock or subdivision, consolidations or combinations of the common stock
occurring, in any such case, prior to the Distribution Date.
At any time prior to the earlier to occur of (i) a person becoming an Acquiring
Person or (ii) the expiration of the Rights, and under certain other
circumstances, Summit may redeem the Rights in whole, but not in part, at a
price of $0.001 per Right (the "Redemption Price") which redemption shall be
effective upon the action of the board of directors. Additionally, following
the Shares Acquisition Date, Summit may redeem the then outstanding Rights in
whole, but not in part, at the Redemption Price, provided that such redemption
is in connection with a merger or other business combination transaction or
series of transactions involving Summit in which all holders of common stock
are treated alike but not involving an acquiring Person or its affiliates or
associates.
The Summit board of directors may amend all of the provisions of the Rights
Agreement before the Distribution Date. After the Distribution Date, the Summit
board may amend the Rights Agreement to cure any ambiguity, defect or
inconsistency, to make changes that do not adversely affect the interests of
holders of Rights (excluding the interests of any Acquiring Person), or,
subject to certain limitations, to shorten or lengthen any time period under
the Rights Agreement.
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Until a Right is exercised, its holder thereof, as such, will have no rights as
a stockholder of Summit, including, without limitation, the right to vote or to
receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Summit
without conditioning the offer on the Rights being redeemed or a substantial
number of Rights being acquired. However, the Rights should not interfere with
any tender offer or merger approved by Summit (other than with an Acquiring
Person) because the Rights (i) do not become exercisable in the event of a
Permitted Offer and expire automatically upon the consummation of a merger in
which the form of consideration is the same as, and the price is not less than
the price paid in, the Permitted Offer, and (ii) are redeemable in connection
with an approved merger in which all holders of common stock are treated alike.
MASSACHUSETTS LAW AND CERTAIN PROVISIONS OF SUMMIT'S ARTICLES OF ORGANIZATION
AND BYLAWS
Summit is governed by Chapter 110F of the Massachusetts General Laws, an anti-
takeover law. Chapter 110F of the Massachusetts General Laws restricts certain
affiliated transactions. This statute prohibits a publicly-held Massachusetts
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless (i) the interested
stockholder obtains the approval of the board of directors before becoming an
interested stockholder, (ii) the interested stockholder acquires 90% of the
outstanding voting stock of the corporation (excluding shares held by certain
affiliates of the corporation) at the time it becomes an interested
stockholder, or (iii) the business combination is approved by both the board of
directors and the holders of two-thirds of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder). An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 5% or
more of the outstanding voting stock of the corporation. A "business
combination" includes a merger, a stock or asset sale, and certain other
transactions resulting in a financial benefit to the interested stockholder.
Summit may at any time elect not to be governed by Chapter 110F by vote of a
majority of its stockholders, but such an election would not be effective for
12 months and would not apply to a business combination with any person who
became an interested stockholder before such election. Summit has not made such
an election and is governed by Chapter 110F of the Massachusetts General Laws.
Summit is also governed by a provision of the Massachusetts General Laws,
Chapter 110D, entitled "Regulation of Control Share Acquisitions." Under the
Massachusetts Control Share Acquisition statute, a person who acquires
beneficial ownership of shares of stock of a Massachusetts corporation in a
threshold amount equal to or greater than one-fifth, one-third, or a majority
of the voting stock of the corporation (a "control share acquisition") must
obtain the approval of a majority of shares entitled to vote generally in the
election of directors (excluding (i) any shares owned by such person acquiring
or proposing to acquire beneficial ownership of shares in a control share
acquisition, (ii) any shares owned by any officer of the corporation, and (iii)
any shares owned by any employee of the corporation who is also a director of
the corporation) in order to vote the shares that such person acquires in
crossing the foregoing thresholds. The statute does not require that such
person consummate the purchase before the stockholder vote is taken. The
Massachusetts Control Share Acquisition statute permits, to the extent
authorized by a corporation's articles of organization or bylaws, redemption of
all shares acquired by an acquiring person in a control share acquisition for
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fair value (which is to be determined in accordance with procedures adopted by
the corporation) if (i) no control acquisition statement is delivered by the
acquiring person or (ii) a control share acquisition statement has been
delivered and voting rights were not authorized for such shares by the
stockholders in accordance with applicable law. Neither Summit's articles nor
bylaws contain such an authorization. The Massachusetts Control Share
Acquisition statute permits a Massachusetts corporation to elect not to be
governed by the statute's provisions, by including a provision in the
corporation's articles of organization or bylaws pursuant to which the
corporation opts out of the statute. Summit has not made such an election and
is governed by the Massachusetts Control Share Acquisition statute.
Massachusetts General Laws Chapter 156B, Section 50A, generally requires that
publicly-held Massachusetts corporations have a classified board of directors
consisting of three classes as nearly equal in size as possible, with one class
to be elected each year to a three-year term. This statute also provides that
directors of publicly-held Massachusetts corporations may only be removed for
"cause." "Cause" includes (i) a felony conviction, (ii) declaration of an
unsound mind, or (iii) intentional misconduct or a knowing violation of law, if
the director derives an improper and substantial personal benefit from his
actions and his actions materially injure Summit. This statute further provides
that (i) vacancies and newly-created directorships may be filled solely by a
majority vote of directors remaining in office, (ii) directors elected to fill
any vacancy hold office for the remainder of the full term of the class to
which they are elected, (iii) no decrease in the number of directors shortens
the term of any incumbent director, and (iv) the number of directors is to be
fixed only by vote of the board. Summit is governed by Chapter 156B, Section
50A, but has included provisions substantially similar to those of Section 50A
in its articles of organization and bylaws. The classification of directors may
have the effect of making it more difficult for stockholders to change the
composition of the board of directors in a relatively short period of time. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the board of directors. This delay
will provide the board of directors with additional time to evaluate proposed
takeover efforts and other extraordinary corporate transactions, to consider
appropriate alternatives to such proposals and to act in what it believes to be
the best interest of the stockholders. The classified board of directors
provision in the Summit articles may only be amended, altered, changed or
repealed, and any inconsistent provision may only be adopted, by a vote of
holders of 66 2/3% of the shares entitled to vote at an election of directors.
Certain other provisions in the Summit bylaws and the Summit articles
pertaining to directors (including the provisions pertaining to the number,
election, or term of the directors, the filling of vacancies on the board of
directors, and the removal of directors) may not be amended and no provision
inconsistent therewith may be adopted without the approval of at least 66 2/3%
of the shares having a right to vote.
The Summit bylaws require Summit to call a special meeting of stockholders at
the request of stockholders holding at least 40% of the voting power of Summit,
the minimum threshold for publicly-held Massachusetts corporations required by
Massachusetts General Laws, Chapter 156B, Section 34.
The Summit articles include provisions eliminating the personal liability of
Summit's directors for monetary damages from breaches of their fiduciary duty
to the extent permitted by the Massachusetts Business Corporation Law (the
"MBCL"). Additionally, the Summit bylaws provide that Summit
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shall indemnify each person who is or was a director, officer, employee or
other agent of Summit, and each person who is or was serving at the request of
Summit as a director, officer, employee or other agent of another organization
in any capacity with respect to any employee benefit plan against all
liabilities and expenses, including reasonable fees of counsel, incurred by any
such person in connection with the defense or disposition of, or otherwise in
connection with or resulting from, any action, suit or other proceeding with
which they may be threatened or to which they may be made a party by reason of
being or having been such a director, officer, employee, or other agent.
Notwithstanding the foregoing, there shall be no indemnification with respect
to any matter as to which such person shall have been finally adjudicated in
any proceeding not to have acted in good faith in the reasonable belief that
his or her action was in the best interest of Summit or the beneficiaries of
the employee benefit plan. Indemnification for matters that are settled
requires approval by (i) a majority of disinterested directors, or if a
majority of directors are interested, a majority of the disinterested directors
then in office, provided that independent legal counsel has given a written
opinion to the effect that the statutory standard does not appear to have been
violated, or (ii) the holders of a majority of the shares of stock entitled to
vote for directors of Summit, exclusive of shares held by interested persons.
Certain provisions of the Summit articles and the Summit bylaws discussed above
would make more difficult or discourage a proxy contest or the assumption of
control by a holder of a substantial block of Summit's stock. Such provisions
could also have the effect of discouraging a third party from making a tender
offer or otherwise attempting to obtain control of Summit, even though such an
attempt might be beneficial to Summit and its stockholders. In addition, since
the Summit articles and the Summit bylaws are designed to discourage
accumulations of large blocks of Summit's stock by purchasers whose objective
is to have such stock repurchased by Summit at a premium, such provisions could
tend to reduce the temporary fluctuations in the market price of Summit's stock
which are caused by such accumulations. Accordingly, stockholders could be
deprived of certain opportunities to sell their stock at a potentially higher
market price.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Summit common stock is BankBoston, N.A.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
OF SUMMIT AND AUTONOMOUS
The rights of Autonomous' stockholders are currently governed by the Third
Amended and Restated articles of incorporation of Autonomous and the bylaws of
Autonomous and also by the laws of the State of Florida, including the Florida
Business Corporation Act (the "FBCA"). If the merger is consummated, holders of
Autonomous common stock will become holders of Summit common stock. Their
rights will thereafter be governed by the laws of The Commonwealth of
Massachusetts, including the Massachusetts Business Corporation Law (the
"MBCL"), and by the Summit articles and bylaws. The following is a summary of
the material differences between the rights of holders of Summit common stock
and the rights of holders of Autonomous common stock. This summary is not, by
its nature, a complete description of all differences between the rights of
holders of Summit common stock and Autonomous common stock. All stockholders
are encouraged to consult the corporate statutes of Massachusetts and Florida
and the articles and bylaws of Summit and Autonomous.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the FBCA, special meetings of stockholders may be called by the board of
directors and by other persons authorized to do so by the corporation's
articles of incorporation or bylaws. Under the FBCA, holders of at least 10%
(unless the articles of incorporation specify a greater percentage, not to
exceed 50%) of all the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting may call a special meeting.
The Autonomous bylaws provide that special meetings may be called by the
president or the board of directors, or stockholders who hold a majority of the
stock having the right to vote at such a meeting. Because the Autonomous bylaws
do not require a greater percentage, holders of at least 10% of all the votes
entitled to be cast on any issue proposed to be considered at the special
meeting may call a special meeting.
Under the MBCL, special meetings of stockholders of a corporation with a class
of voting stock registered under the Securities Exchange Act of 1934, unless
otherwise provided in the articles of organization or bylaws, must be called by
the clerk (or, in certain circumstances, any other officer) upon written
application by stockholders who hold at least 40% of interest of the capital
stock entitled to vote thereon.
The Summit bylaws provide that special meetings of stockholders may be called
by the president or by the board of directors of Summit and shall be called by
the clerk (or, in certain circumstances, any other officer) upon written
application of stockholders who hold at least 40% in interest of the capital
stock of Summit entitled to vote at the proposed meeting. Thus, the Summit
bylaws make it more difficult for stockholders to call a special meeting.
VOTING REQUIREMENTS AND QUORUMS FOR STOCKHOLDER MEETINGS
The FBCA provides generally that a majority of the votes entitled to be cast on
a particular matter constitutes a quorum for purposes of that matter. A
corporation can specify a lower quorum
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threshold, provided that the quorum is not less than one third of the shares
entitled to vote. In general, except for the election of directors, action on a
matter submitted to the stockholders may be effected by a majority of a quorum,
unless the articles of incorporation or FBCA requires a greater percentage.
The Autonomous bylaws provide that the holders of a majority of the stock of
Autonomous entitled to vote shall constitute a quorum for the transaction of
business. The Autonomous bylaws provide that when a quorum is present, action
on a matter is approved by the affirmative vote of a majority of the total vote
cast. A majority of shares held by stockholders at the meeting, even if less
than a quorum, may adjourn a meeting.
Under the MBCL, unless the articles of organization or bylaws provide
otherwise, a majority of the issued and outstanding stock entitled to vote at
any meeting constitutes a quorum. Except for the election of directors and
other fundamental matters, the MBCL does not prescribe the percentage vote
required for stockholder action.
The Summit bylaws provide that a majority of the shares of the corporation then
issued, outstanding, and entitled to vote constitutes a quorum for the
transaction of business. The Summit bylaws provide that, when a quorum is
present at any meeting, the vote or concurrence of a majority in interest of
all stock issued, outstanding and entitled to vote thereon shall be required to
decide any matter or take any action, except to the extent that a greater
proportion is required by law, the Summit articles or the bylaws. The Summit
bylaws further provide that any action permitted or required to be taken at any
meeting of stockholders may be taken without a meeting if all stockholders
entitled to vote on the matter consent to the action in writing. Certain
provisions of the Summit articles and bylaws concerning directors (including
the provisions concerning the number, election, classification, removal of
directors and the filling of vacancies) may not be amended without the approval
of at least 66 2/3% of the shares entitled to vote.
Because, other than on matters where by law, the Summit articles or bylaws a
greater vote is required, the vote required under the Summit bylaws is a
majority of the outstanding stock entitled to vote, and the Autonomous
requirement is only a majority of the votes cast, it may be more difficult for
Summit to obtain stockholder approval on a matter than it was for Autonomous.
BUSINESS CONDUCTED AT STOCKHOLDER MEETINGS
The FBCA provides that any proper business may be transacted at an annual
meeting of stockholders. The FBCA further provides that only business within
the purposes described in the notice of a special meeting may be conducted at a
special meeting of stockholders. The Autonomous articles and bylaws are silent
as to the business that may be conducted at stockholder meetings.
Under the MBCL, any proper business may be transacted at an annual or special
meeting of the stockholders. The MBCL requires that stockholders be given
written notice of the place, date and hour of all meetings of stockholders
stating the purposes of the meeting. The Summit bylaws provide that the
purposes for which any annual meeting of stockholders is to be held, in
addition to those prescribed by law, by the Summit articles or bylaws, may be
specified by the directors or the president. In addition, the Summit bylaws
provide that the call for a special meeting of the stockholders shall state the
place, date, hour and purposes of the meeting.
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INSPECTION RIGHTS
The FBCA requires that a corporation shall make available for inspection by any
stockholder, for a period of ten days prior to, and continuing through, the
stockholders meeting, a list of all its stockholders (including the names,
addresses and number, class and series of shares held by each stockholder) who
are entitled to notice of a stockholders meeting at a place identified in the
meeting notice or at the office of the corporation's transfer agent or
registrar. Under the FBCA, a corporation shall also make the record of
stockholders available for inspection and copying by stockholders upon five
days written notice to the corporation if made in good faith and for a proper
purpose (described with reasonable particularity) and the list is directly
connected with the stockholder's purpose. In addition, the FBCA provides that a
stockholder is entitled to inspect and copy the corporation's (i) articles of
incorporation, (ii) bylaws, (iii) board resolutions creating classes or series
of shares and fixing their relative rights, preferences and limitations if such
shares are issued and outstanding, (iv) minutes of stockholder meetings and
records of all actions taken for the past three years, and (v) written
communications to all stockholders within the past three years, including any
financial statements furnished, if the stockholder gives the corporation
written notice five business days prior to the date of inspection. The FBCA
further provides that a stockholder is entitled to inspect and copy (i)
excerpts from board or committee (when acting in place of the board) minutes,
stockholder meeting minutes, and records of stockholder or board actions taken
without a meeting, (ii) accounting records of the corporation, (iii) the record
of stockholders, and (iv) any other books and records, if the stockholder gives
the corporation written notice five business days prior to the date he wishes
to inspect and the stockholder describes his purpose and the records he desires
to inspect with reasonable particularity and such records are directly
connected with such purpose. The corporation may deny such a demand for
inspection if the demand was made for an improper purpose or if the stockholder
had sold or, if within two years preceding his demand, offered for sale any
list of stockholders of the corporation or improperly used information secured
through a prior examination.
The Autonomous bylaws provide that the stock book or stock lists shall be open
for at least three business hours each business day for inspection by any
person who shall have been for at least six months immediately preceding his
demand a record holder of outstanding shares of the corporation or by any
officer, director or any committee or person holding or authorized in writing
by the holders of at least five (5%) percent of all the outstanding shares of
any class or series of stock of Autonomous. In addition, persons entitled to
inspect stock books or stock lists may make extracts from them. The Autonomous
bylaws further provide that this right of inspection shall not extend to any
person who has used, or proposes to use, the information so obtained otherwise
than to protect his interest in the corporation, or has, within two years, sold
or offered for sale any list of stockholders of the corporation or any other
corporation, or has aided or abetted any person in procuring any stock list for
any such purpose.
The MBCL requires that every domestic corporation maintain in Massachusetts,
and make available for inspection by its stockholders, the original, or
attested copies of, the corporation's articles of organization, bylaws, records
of all meetings of incorporators and stockholders, and the stock and transfer
records listing the names of all stockholders and their records addresses and
the amount of stock held by each. In an action for damages or a proceeding in
equity under the foregoing provision, however, it is a defense to such action
that the actual purpose and reason for the inspection being
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sought is to secure a list of stockholders or other information for the purpose
of selling the list or other information or of using them for purposes other
than in the interest of the person seeking them, as a stockholder, relative to
the affairs of the corporation. The foregoing rights relating to inspection are
deemed to include the right to copy materials and to be represented by agent or
counsel in exercising these rights. In addition to the rights of inspection
provided by the MBCL, a stockholder of a Massachusetts corporation has a common
law right to inspect additional documents which, if such request is refused by
the corporation, may be obtained by petitioning a court for the appropriate
order. In petitioning a court for such an order, the granting of which is
discretionary, the stockholder has the burden of demonstrating (i) that such
holder is acting in good faith and for the purposes of advancing the interests
of the corporation and protecting such holder's own interest as a stockholder
and (ii) that the requested documents are relevant to those purposes.
The Summit articles and bylaws do not contain provisions pertaining to
inspection rights.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
Under the FBCA, unless otherwise provided in the articles of incorporation,
actions that would be required or permitted to be taken at an annual or special
meeting of shareholders may be taken by the written consent of the holders of
shares constituting not less than the minimum number of shares that would be
necessary to take such action at a meeting of shareholders at which all shares
entitled to vote thereon were present and voted. Prior notice is not required
for such action. The Autonomous articles provide that action to be taken by
written consent in lieu of an annual or special meeting of the stockholders is
prohibited unless the use of written consents is approved in advance thereof by
the board.
Under the MBCL, any action required or permitted to be taken by stockholders at
a meeting may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. The Summit bylaws
contain a provision that conforms with the foregoing substance of the MBCL.
Although the Summit bylaws permit action by written consent, because the MBCL
requires any such consent to be unanimous, the existence of the right means
nothing for a public company.
CUMULATIVE VOTING
Under the FBCA, a corporation may provide in its articles of incorporation for
cumulative voting by stockholders in the election of directors. The Autonomous
articles do not provide for cumulative voting. The MBCL has no cumulative
voting provisions, and neither the Summit articles nor bylaws provide for it.
DIVIDENDS AND SHARE REPURCHASES
The FBCA provides that a corporation, unless otherwise restricted by its
articles of incorporation, may authorize distributions, unless after giving the
distribution effect (i) the corporation would not be able to pay its debts as
they become due in the usual course of business or (ii) the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.
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The Autonomous articles restrict the ability to pay dividends and repurchase
stock. The provisions that created the Autonomous Series I Convertible
Preferred Stock state that Autonomous shall not redeem, purchase or otherwise
acquire, or make any dividend or distribution on, any common stock or other
equity securities junior in rights and liquidation preferences to the Series I
Convertible Preferred Stock, provided that Autonomous may repurchase stock on
the open market pursuant to a direct stock purchase plan.
Under the MBCL, the directors of a corporation will be jointly and severally
liable if a payment of dividends or a repurchase of a corporation's stock is
(i) made when the corporation is insolvent, (ii) renders the corporation
insolvent or (iii) violates the corporation's articles of organization.
Stockholders to whom a corporation makes any distribution (except a
distribution of stock of the corporation) if the corporation is, or is thereby
rendered, insolvent, are liable to the corporation for the amount of such
distribution made, or for the amount of such distribution which exceeds that
which could have been made without rendering the corporation insolvent, but in
either event only to the extent of the amount paid or distribution to them,
respectively. In such event, a stockholder who pays more than such holder's
proportionate share of such distribution or excess shall have a claim for
contribution against the other stockholders.
The Summit articles provide that the board of directors may declare, from time
to time, dividends in cash, stock, or otherwise, on the outstanding shares of
common stock, out of funds legally available for that purpose. Dividends on
common stock are subject to the relative rights and preferences of any
preferred stock. There are no shares of preferred stock currently outstanding.
QUALIFICATION, NOMINATION AND ELECTION OF DIRECTORS
The FBCA provides that directors need not be residents of the state or
shareholders of the corporation, unless the articles of incorporation or bylaws
so require. The Autonomous bylaws provide that directors shall be elected at
the annual meeting of stockholders by a plurality of the votes cast at such
election. The Autonomous bylaws are silent concerning whether, and by what
means, stockholders may nominate persons to serve as directors. Neither the
Autonomous articles nor bylaws set forth specific qualification requirements
for directors.
The MBCL provides that no director need be a stockholder unless required by the
corporation's bylaws. The MBCL further provides that, except as provided in the
corporation's articles of organization or certain sections of the MBCL
pertaining to the filling of vacancies, directors shall be elected at the
annual meeting of the stockholders by the stockholders entitled to vote. The
Summit bylaws provide that directors shall be elected at the annual meeting of
the stockholders or a special meeting in lieu of said annual meeting by such
stockholders as have the right to vote on election of directors. Directors are
elected by a majority of the shares entitled to vote. If a nominee fails to get
the requisite majority, the incumbent director will remain in office. Elections
of directors shall be by ballot if so requested by any stockholder entitled to
vote. The Summit bylaws are silent concerning whether, and by what means,
stockholders may nominate persons to serve as directors. The Summit bylaws
provide that a director may, but need not, be a stockholder, officer or
employee of Summit.
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CLASSIFICATION, NUMBER AND REMOVAL OF DIRECTORS
Under the FBCA, classification of a corporation's board of directors into one
or more classes is permitted but not required. A corporation's board of
directors must consist of one or more individuals, with the number fixed by, or
in the manner provided in, the corporation's bylaws or its articles of
incorporation. In addition, under the FBCA, shareholders may remove one or more
directors with or without cause unless the articles of incorporation provide
otherwise. However, if a director is elected by a voting group of shareholders,
only the shareholders of that voting group may participate in the vote to
remove him.
The Autonomous bylaws provide for a board of directors consisting of six
members which number may be changed from time to time by the board of
directors, but do not provide for a classified board. The Autonomous articles
and bylaws state that any director may be removed either with or without cause
at any time by a vote of the stockholders holding a majority of the shares of
the corporation outstanding and entitled to vote at any special meeting called
for that purpose.
Unlike the FBCA, the MBCL requires classification of a public corporation's
board of directors into three classes (each having a three-year term), unless
the directors vote to be exempt from such requirement or the stockholders elect
to be exempt from such requirement by a vote of two-thirds of each class of
stock outstanding. The MBCL further requires that the number of directors be
fixed or determined in the corporation's bylaws but shall not be less than
three directors whenever there are more than two stockholders of record. See
"Description of Summit Capital Stock--Massachusetts Law and Certain Provisions
of Summit's Articles of Organization and Bylaws." In addition, under the MBCL,
unless the articles of organization or bylaws provide otherwise, stockholders
may remove directors elected by stockholders, or elected by directors to fill
vacancies in the board, only for cause by the vote of the holders of a majority
of the shares entitled to vote, and directors may remove any director from
office for cause by vote of a majority of the directors then in office. A
director or officer may be removed for cause only after a reasonable notice and
opportunity to be heard before the body proposing to remove him.
The Summit articles provide that the board of directors shall consist of seven
directors classified into three classes, the first class of which shall consist
of two directors, the second class of which shall consist of three directors,
and the third class of which shall consist of two directors. In addition, the
Summit articles provide that all directors shall hold office until their
successors shall have been duly elected and qualified and that the term of any
director elected to fill a vacancy in any class of directors shall be the
unexpired balance of the term applicable to that class. The present term of the
first class of directors will expire as of the 1999 annual meeting of
shareholders (or special meeting in lieu thereof); the present term of the
second class of directors will expire as of the 2000 annual meeting of
shareholders (or special meeting in lieu thereof); the present term of the
third class of directors will expire as of the 2001 annual meeting of
shareholders (or special meeting in lieu thereof). The Summit articles provide
that the directors may not make, amend, or repeal the Summit bylaws in whole or
in part with respect to any provision relating to the number, election or term
of directors, the filling of vacancies on the board of directors, or the
removal of directors. In addition, the Summit articles provide that the
stockholders may remove any director only for cause and, in deviation from the
default provision of the MBCL, that the board of directors may remove any
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director from office with or without cause. In addition, a director may be
removed for cause only after a reasonable notice and opportunity to be heard
before the body proposing to remove him or her.
Summit's classified board makes it more difficult for stockholders to replace
the directors than is the case currently for Autonomous stockholders and the
Autonomous board.
VACANCIES ON THE BOARD OF DIRECTORS
The FBCA provides that a vacancy on the board of directors and newly created
directorships shall be filled by the affirmative vote of a majority of the
remaining directors, or by the shareholders, unless the articles of
incorporation provide otherwise. The Autonomous bylaws provide that any vacancy
on the Autonomous board, whether occurring by reason of an increase in the size
of the board of directors or the death, resignation, disqualification, or
removal of a director, shall be filled by the directors then in office until
the next annual or special meeting of the stockholders after the creation of
such vacancy.
The MBCL provides that, in the case of a classified board (such as Summit's),
any vacancy in the board of directors, including a vacancy resulting from the
enlargement of the board of directors, shall be filled solely by the
affirmative vote of a majority of the directors then in office, even though
less than a quorum. The Summit articles contain a provision that conforms with
the foregoing substance of the MBCL.
EXCULPATION OF DIRECTORS
The FBCA permits a corporation to provide in its articles of incorporation that
a director shall not be personally liable for monetary damages stemming from
breaches of fiduciary duties. Under Section 607.0831 of the FBCA, directors are
not personally liable for monetary damages to the corporation or any other
person, unless the director breached or failed to perform his duties as a
director, and the director's breach of or failure to perform those duties
constitutes any of the following: (i) a violation of the criminal law (unless
the director had reasonable cause to believe this conduct was lawful or had no
reasonable cause to believe his conduct was unlawful); (ii) a transaction from
which the director derived an improper personal benefit; (iii) a circumstance
under which the director would be liable for authorizing an unlawful
distribution; (iv) conscious disregard for the best interest of the
corporation, or willful misconduct, in a proceeding by or in the right of the
corporation to procure a judgment in its favor or by or in the right of a
shareholder; or (v) in a proceeding by or in the right of someone other than
the corporation or a shareholder, recklessness or an act or omission which was
committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety or property.
In Massachusetts, a corporation's articles of organization may limit the
personal liability of its directors for breaches of their fiduciary duties.
Under the MBCL, this limitation is generally unavailable for acts or omissions
by a director which (i) were in violation of such director's duty of loyalty,
(ii) were in bad faith or which involved intentional misconduct or a knowing
violation of law, or (iii) involved a financial profit or other advantage to
which the director was not legally entitled. The MBCL also prohibits the
elimination or limitation of director liability for unauthorized loans to
insiders or distributions that occur when a corporation is, or which renders a
corporation, insolvent.
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The Autonomous articles and the Summit articles allow for limitations on
directors' liability as permitted by the FBCA and the MBCL, respectively. The
provision in the Summit articles may not be amended without the approval of
stockholders holding 66 2/3% of the shares entitled to vote.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
The FBCA permits a corporation to indemnify (in a case-by-case determination)
any person who is or was a party to any proceeding by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation
or serving in such a capacity at the request of the corporation for another
corporation (or other specified business entity) in which such person acted in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the corporation with respect to any criminal action or
proceeding and, had no reason to believe his conduct was unlawful, for the
amount of liability incurred in connection with such proceeding and any appeal
thereof.
The Autonomous Articles authorize the corporation to indemnify any director or
officer, or any former director or officer, to the fullest extent permitted by
the laws of the State of Florida.
The MBCL generally permits indemnification of directors, officers, employees
and certain others for expenses incurred by them by reason of their position
with the corporation, if such person has acted in good faith and with the
reasonable belief that his or her conduct was in, or not opposed to, the best
interest of the corporation.
The Summit bylaws provide that the corporation shall indemnify against all
liabilities and expenses, including reasonable fees of counsel, any person
threatened with or made a party to any action, suit or other proceeding by
reason of the fact that he, she, his or her testator or intestate, is or was a
director, officer, employee or other agent of the corporation, or is or was a
director, officer, employee or other agent of the corporation who serves or
served, at the request of the corporation, as a director, officer, employee or
other agent of another organization or who, at the request of the corporation,
serves or served in any capacity with respect to an employee benefit plan.
However, as to matters disposed of by a compromise payment, pursuant to a
consent decree or otherwise, no reimbursement, either for said payment or for
any other expenses in connection with the matter so disposed of, shall be
provided unless such compromise shall be approved: (i) by a disinterested
majority of the directors then in office; or (ii) if a majority of such
directors are interested, by a majority of the disinterested directors then in
office, provided that independent legal counsel has given a written opinion to
the effect that such director or officer does not appear not to have acted in
good faith in the reasonable belief that his action was in the best interests
of the corporation or, to the extent that such matter relates to service, in
the best interests of the participants of an employee benefit plan; or (iii) by
the holders of a majority of the outstanding stock at the time entitled to vote
for directors, not counting as outstanding any stock owned by any interested
person. Notwithstanding the foregoing, no indemnification shall be provided for
any person with respect to any matter as to which such person shall have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that his or her action was in the best interests of the corporation or
of the participants or beneficiaries of the employee benefit plan.
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TRANSACTIONS WITH INTERESTED PARTIES
The FBCA provides that no contract or other transaction between a corporation
and one or more of its directors or other entity in which one or more of its
directors are directors or officers or are financially interested shall be void
or voidable because of such relationship or interest, because such directors
are present at the meeting of the board or a committee which authorizes,
approves or ratifies such contract or transaction, or because their votes are
counted for such purpose, if (i) the relationship or interest is disclosed or
known to the board or committee which authorizes the contract or transaction,
(ii) the relationship is disclosed or known to stockholders entitled to vote to
authorize such transaction and the stockholders so authorize the contract or
transaction, or (iii) the contract or transaction is fair and reasonable at the
time it is authorized. Such a transaction or contract is authorized if approved
by a majority of the board or committee of disinterested directors or by a vote
of a majority of those shares held by disinterested stockholders and entitled
to vote to authorize such contract or transaction. The Autonomous articles
include provisions with regard to transactions with interested parties that
conform with the substance of the FBCA as summarized above.
The MBCL contains no provision comparable to that of the FBCA. The Summit
bylaws permit the corporation to enter into certain transactions (defined
below) with interested parties. The Summit Bylaws provide that no contract or
transaction between the corporation and one or more of its directors, officers,
employees, agents or other persons financially interested in the corporation,
or between the corporation and any other corporation, firm, association or
other entity in which one or more of such persons are also financially
interested shall be either void or voidable for this reason alone, provided
that such common directorship, officership or financial interest, if material,
was disclosed or known to each of the directors voting on or concurring in the
matter of the approval of such contract or transaction. The Summit bylaws
further provide that common or interested directors shall be counted in
determining the presence of a quorum at a meeting of the board of directors and
that such common or interested directors may vote on the matter of the approval
of such contract or transaction, but any such vote shall require the
affirmative vote of a majority of the directors who have no interest in such
contract or transaction, even though the number of disinterested directors is
less than the number required to constitute a quorum.
FUNDAMENTAL TRANSACTIONS
The FBCA provides for a shareholder vote (except as indicated below) of both
the acquiring and acquired corporation to approve mergers. In addition, while
the FBCA requires a shareholder vote of the selling corporation for the sale by
a corporation of all or substantially all of its assets, the FBCA requires such
a vote only if the sale is not in the regular course of business. The FBCA
provides for a shareholder vote to approve the dissolution of a corporation and
requires the affirmative vote of a majority of the outstanding shares of both
the acquiring and acquired corporation in share-for-share exchanges. The FBCA
does not require a shareholder vote of the surviving corporation in a merger
provided certain conditions are satisfied: (i) the articles of incorporation of
the surviving corporation will not differ from its articles before the merger
(except for amendments authorized absent shareholder approval); and (ii) each
shareholder of the surviving corporation whose shares were outstanding
immediately prior to the effective date of the merger will hold the same number
of shares, with identical designations, preferences, limitations, and relative
rights, immediately after the merger. The FBCA does not require a shareholder
vote for certain "short-form mergers" between a
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parent company and its subsidiary, where the parent owns 80% or more of the
outstanding shares of each class of the subsidiary. The FBCA provides that a
vote of a class or series voting as a separate voting group is required on a
plan of merger if the plan contains a provision which, if contained in a
proposed amendment to the articles of incorporation, would entitle the class or
series to vote as a separate voting group on the proposed amendment.
In addition, Autonomous is governed by certain sections of the FBCA which deal
with approvals required for certain business combinations. See "--Anti-Takeover
Statutes."
The MBCL generally requires approval of mergers and consolidations and sales,
mortgages, leases or exchanges of all or substantially all of a corporation's
property by a vote of two-thirds of the shares of each class of stock
outstanding and entitled to vote thereon, except that (i) the articles of
organization may provide for a vote of a lesser proportion but not less than a
majority of each such class and (ii) unless required by the corporation's
articles of incorporation, an agreement providing for a merger need not be
submitted to the stockholders of a corporation surviving a merger but may be
approved by vote of its directors if (a) the agreement of merger does not
change the name, the amount of shares authorized of any class of stock or other
provisions of the articles of organization of such corporation, (b) the
authorized unissued shares or shares held in the treasury of such corporation
of any class of stock of such corporation to be issued or delivered pursuant to
the agreement of merger do not exceed 15% of the shares of such corporation of
the same class outstanding immediately prior to the effective date of the
merger, and (c) the issue by vote of the directors of any unissued stock to be
issued pursuant to the agreement of merger has been authorized in accordance
with the provisions of MBCL governing the issue of authorized but unissued
capital stock.
In addition, Summit is governed by certain sections of the MBCL which deal with
approvals required for certain business combinations. See "--Anti-Takeover
Statutes" and "Description of Summit Capital Stock--Massachusetts Law and
Certain Provisions of Summit's Articles of Organization and Bylaws."
CHARTER AMENDMENTS
Under the FBCA, shareholders may amend the articles of incorporation if the
amendment is approved by (i) a majority of the votes entitled to be cast on the
amendment by any voting group with respect to which the amendment would create
dissenter rights; and (ii) the votes of every other voting group entitled to
vote on the amendment, as required for certain voting groups and multiple
voting groups.
The Autonomous articles and bylaws do not contain provisions concerning their
amendment, except that the articles provide that any amendment of the provision
concerning action by written consent of the shareholders requires an
affirmative vote of the holders of not less than two-thirds of the outstanding
voting shares.
Under the MBCL, a majority vote of each class of stock outstanding and entitled
to vote is required to authorize an amendment of the articles of organization
effecting one or more of the following: (i) an increase or reduction of the
capital stock of any authorized class; (ii) a change in the par value
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of authorized shares with par value, or any class thereof; (iii) a change of
authorized shares (or any class thereof) from shares with par value to shares
without par value, or from shares without par value to shares with par value;
(iv) certain changes in the number of authorized shares (or any class thereof);
or (v) a corporate name change. Subject to certain conditions, a two-thirds
vote of each class of stock outstanding and entitled to vote is required to
authorize any other amendment of the articles of organization, or, if the
articles or organization so provide, for a vote of a lesser proportion but not
less than a majority of each class of stock outstanding and entitled to vote.
If any amendment requiring a two-thirds vote would adversely affect the rights
of any class or series of stock, a two-thirds vote of such class voting
separately, or a two-thirds vote of such series, voting together with any other
series of the same class adversely affected in the same manner, is also
necessary to authorize such amendment.
The Summit articles provide that article 6 of the articles, pertaining to the
number, classification, removal and the filling of vacancies of directors, the
exculpation of directors and other matters, may not be amended without the
approval of 66 2/3% of outstanding shares entitled to vote. The Summit articles
further provide that an amendment to the articles which creates or alters any
restrictions on the transfer of stock shall not be considered as adversely
affecting the rights of a stockholder.
AMENDMENTS TO BYLAWS
Under the FBCA, a corporation's board of directors may amend or repeal the
corporation's bylaws unless (i) the articles of incorporation or bylaws provide
otherwise, or (ii) the shareholders, in amending or repealing the bylaws or a
particular bylaw, provide that the board of directors may not amend or repeal
the bylaws or the particular bylaw.
The Autonomous bylaws provide that the bylaws may be amended, or repealed,
wholly or in part, by the vote of a majority of the stock entitled to vote that
is present at any stockholders meeting, if notice of the proposed action was
included in the notice of the meeting or is waived in writing by the holders of
a majority of the stock entitled to vote. In addition, the Autonomous bylaws
provide that the bylaws may be amended consistent with any bylaws adopted by
the stockholders, or any part thereof that has not been adopted by the
stockholders may be repealed, by the vote of a majority of the members of the
board of directors.
Under the MBCL, the power to make, amend or repeal bylaws lies in the
stockholders entitled to vote; provided that the directors may also make, amend
or repeal the bylaws, except with respect to any provision which by law, the
articles of organization or the bylaws requires action by the stockholders.
The Summit bylaws provide that the bylaws may be altered, amended or repealed
at any meeting of the stockholders. The Summit bylaws further provide that
certain provisions in the bylaws pertaining to directors (including the
provisions pertaining to the number, election, or term of the directors and the
removal of directors) may not be amended without the approval of at least 66
2/3% of the shares having a right to vote. Any alteration, repeal or amendment
to the provision of the Summit bylaws pertaining to amendments also requires
the approval of at least 66 2/3% of the shares having a right to vote. In
addition, the Summit bylaws provide that, if authorized in the Summit articles,
the board of directors may make, amend or repeal the Summit bylaws in whole or
in part, except that the board
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of directors may not amend the provisions of the Summit bylaws with respect to
the number, election, tenure and resignation and removal of directors or
election of committees by the board of directors and delegation of powers to
any committee, with respect to amendment of the Summit bylaws or with respect
to any provision of the bylaws that by law, the corporation's articles of
organization or bylaws, requires action by the stockholders. The Summit
articles grant the board of directors this authorization. In addition, the
Summit bylaws provide that, not later than the time of giving notice of the
meeting of stockholders next following the making, amending or repealing by the
board of directors of any bylaw, notice stating the substance of such change
shall be given to all stockholders entitled to vote on amending bylaws. Any
bylaw adopted by the board of directors may be amended or repealed by the
stockholders.
APPRAISAL AND DISSENTERS' RIGHTS
Under the FBCA, a dissenting shareholder of a corporation participating in
certain transactions, under varying circumstances, may receive cash in the
amount of the fair value of his or her shares (as determined by a court) in
lieu of the consideration otherwise receivable in any such transaction. The
FBCA provides dissenters' rights in connection with (i) mergers, if the
shareholders are entitled to vote on the merger, (ii) share exchanges if the
corporation's shares are being acquired and the shareholders are entitled to
vote on the share exchange, (iii) sales of substantially all of a corporation's
assets, (iv) amendments to the articles of incorporation that may adversely
affect certain rights or preferences of shareholders, and (v) control share
acquisitions. Unless the articles of incorporation provide otherwise, under the
FBCA, dissenters' rights are not available with respect to a plan of merger or
share exchange or a proposed sale or exchange of property to holders of shares
of any class or series which, on the record date fixed to determine the
shareholders entitled to vote at the meeting of shareholders at which such
action is to be acted upon or to consent to any such action without a meeting,
were (i) registered on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc., or (ii) held of record by not
fewer than 2,000 shareholders.
Under the MBCL, a properly dissenting stockholder is entitled to receive the
appraised value of his shares when the corporation votes (i) to sell, lease or
exchange all, or substantially all, of its property and assets, (ii) to adopt
an amendment to its articles of organization which adversely affects the rights
of the stockholder, or (iii) to merge or consolidate with another corporation,
unless a vote of the stockholders was not required to approve such merger or
consolidation.
The respective articles and bylaws of Summit and Autonomous do not contain
provisions regarding appraisal rights or grant appraisal rights in addition to
those rights mandated by the FBCA and the MBCL, respectively. As Summit
stockholders, former Autonomous stockholders will have appraisal rights in a
wider variety of circumstances.
"ANTI-TAKEOVER" STATUTES
Affiliated Transactions. Section 607.0901 of the FBCA restricts certain
affiliated transactions and provides that, in addition to any affirmative vote
required by the FBCA or the articles of incorporation, an affiliated
transaction must be approved by the affirmative vote of the holders of two-
thirds of the voting shares other than the shares beneficially owned by the
interested shareholder
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(which is defined generally under the FBCA as a person with 10% or more of a
corporation's outstanding voting shares). The voting requirement does not apply
if (i) the affiliated transaction has been approved by a majority of the
disinterested directors; (ii) the corporation has not had more than 300
shareholders of record at any time during the three years preceding the
announcement date; (iii) the interested shareholder has been the beneficial
owner of at least 80 percent of the corporation's outstanding voting shares for
at least five years preceding the announcement date; (iv) the interested
shareholder is the beneficial owner of at least 90 percent of the outstanding
voting shares of the corporation, exclusive of shares acquired directly from
the corporation in a transaction not approved by a majority of the
disinterested directors; (v) the corporation is an investment company
registered under the Investment Company Act of 1940; or (vi) in the affiliated
transaction, consideration is paid to the holders of each class or series of
voting shares pursuant to certain specified valuation standards.
Additionally, this section does not apply (i) to any corporation whose articles
of incorporation, either as originally adopted or as amended prior to January
1, 1989, contain a provision expressly electing not to be governed by this
section; (ii) to any corporation which adopts an amendment of its articles of
incorporation or bylaws, approved by affirmative vote of the holders, other
than interested shareholders, of a majority of the outstanding voting shares of
the corporation expressly electing not to be governed by this section (although
the amendment is not valid for 18 months); or (iii) to any affiliated
transaction of the corporation with an interested shareholder of the
corporation which became an interested shareholder inadvertently, if such
interested shareholder, as soon as practicable, divests itself of a sufficient
amount of the voting shares of the corporation so that it no longer is the
beneficial owner of 10 percent or more of the outstanding shares of the
corporation and would not at any time within the five-year period preceding the
announcement date with respect to such affiliated transaction have been an
interested shareholder but for such inadvertent acquisition. Neither the
Autonomous articles nor bylaws contain any provisions or elections concerning
stockholder approval of affiliated transactions.
Affiliated transactions are governed by Chapter 110F of the Massachusetts
General Laws. For a discussion of this provision, see "Description of Summit
Capital Stock--Massachusetts Law and Certain Provisions of Summit's Articles of
Organization and Bylaws."
Control Share Acquisitions. Autonomous is governed by Section 607.0902 of the
FBCA, which provides that the voting rights to be accorded Control Shares (as
defined below) of a Florida corporation that has (i) 100 or more stockholders,
(ii) its principal place of business, its principal office, or substantial
assets in Florida, and (iii) either (A) more than 10% of its stockholders
residing in Florida, (B) more than 10% of its shares owned by Florida
residents, or (C) 1,000 stockholders residing in Florida, must be approved by a
majority of each class of voting securities of the corporation, excluding those
shares held by interested persons, before the Control Shares will be granted
any voting rights. The FBCA defines "Control Shares" as shares acquired in a
Control Share Acquisition (as defined below) that, when added to all other
shares of the issuing corporation owned by such person, would entitle such
person to exercise, either directly or indirectly, voting power within any of
the following ranges (i) one fifth or more, but less than one third, of all
voting power of the corporation's voting securities, (ii) one-third or more but
less than a majority of all voting power of the corporation's voting
securities, or (iii) a majority or more of all of the voting power or
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the corporation's voting securities. A "Control Share Acquisition" is defined
as an acquisition, either directly or indirectly, by any person of ownership
of, or the power to direct the exercise of voting power with respect to,
outstanding Control Shares. If authorized in the articles of incorporation or
bylaws of a corporation prior to their acquisition, Control Shares may be
redeemed by the corporation for fair value in certain circumstances. Unless
otherwise provided in a corporation's articles of incorporation or bylaws prior
to a Control Share Acquisition, in the event Control Shares are accorded full
voting rights and the acquiring person has acquired Control Shares with a
majority or more of all voting power, all stockholders shall have dissenters'
rights. Section 607.0902 further provides that, in certain circumstances, an
acquisition of shares that otherwise would be governed by its provisions does
not constitute a Control Shares Acquisition. Among such circumstances are
acquisition of shares approved by the corporation's board of directors and
mergers effected in compliance with the applicable provisions of the FBCA, if
the corporation is a party to the agreement of merger. The Autonomous articles
and bylaws are silent concerning control share acquisitions.
Control share acquisitions are governed by Chapter 110D of the Massachusetts
General Laws. For a discussion of this provision, see "Description of Summit
Capital Stock--Massachusetts Law and Certain Provisions of Summit's Articles of
Organization and Bylaws."
STOCKHOLDER RIGHTS PLANS
Autonomous has not adopted a stockholder rights plan.
Summit has a stockholder rights plan that is described at pages [ ] to [ ].
The foregoing summary is not a complete statement of the rights of holders of
Summit common stock and Autonomous common stock. All stockholders are
encouraged to consult the MBCL, the FBCA and the respective charters and bylaws
of Summit and Autonomous.
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APPROVAL OF AMENDMENT TO SUMMIT'S
ARTICLES OF ORGANIZATION
The Summit articles of organization presently provide that Summit is
authorized to issue 65,000,000 shares of capital stock, of which 60,000,000
shares are designated common stock, $0.01 par value per share, and 5,000,000
are designated preferred stock, $.01 par value per share. As of September 29,
1998, there were (i) 31,153,765 shares of Summit common stock outstanding,
(ii) 2,484,097 shares reserved for future issuance upon the exercise of
outstanding options and rights to acquire Summit common stock and under
Summit's stock option and employee stock purchase plans, (iii) 169,115 shares
held in treasury, and (ii) no shares of preferred stock outstanding. All
outstanding shares of Summit common stock are fully paid and nonassessable and
the holders thereof are entitled to one vote for each share held. The Summit
board has proposed to increase the number of shares of authorized Summit
common stock by 60 million shares to 100 million shares. The proposal to
increases the authorized shares is wholly separate from the merger and is not
required for the issuance of shares in the merger.
If the increase in authorized shares is approved, the additional shares of
Summit common stock would be available for sale in public offerings, for use
in acquisitions, for stock dividends, for issuance pursuant to stock options
and other rights to purchase or receive shares and for any other purpose for
which shares of common stock may be issued under the laws of The Commonwealth
of Massachusetts. Summit has no other immediate plans for the issuance of any
of its authorized but unissued and reserved shares of Summit common stock. To
effect the increase in authorized shares, Summit would file an amendment to
its articles of organization with the Massachusetts Secretary of State.
The Summit board believes that approval of the increase in the authorized
shares is in the best interest of Summit's stockholders because it would
facilitate Summit's business and financial purposes in the future without the
necessity of delaying such activities for further stockholder approvals,
except as may be required in a particular case by its charter documents,
applicable law, or the rules of any stock exchange or other system on which
Summit common stock may be listed.
The authorization of additional shares of Summit common stock could make more
difficult, and thereby discourage attempts, to acquire control of Summit and
thereby discourage a third party from attempting to do so. For example, such
additional shares could be used to dilute the stock ownership of parties
seeking to obtain control of Summit, to increase the total amount of
consideration necessary for a party to obtain control, or to increase the
voting power of friendly third parties. These uses could have the effect of
making it more difficult for a third party to remove incumbent management or
to accomplish a given transaction, even if such actions would generally be
beneficial to shareholders. The Summit board of directors has concluded,
however, that the advantages of the additional authorized shares outweigh any
potential disadvantages. Assuming the proposed increase is approved by the
stockholders, Summit intends to use the additional shares for the purposes
described above, and has no intention to use them to deter takeovers.
The affirmative vote of a majority of the shares of Summit common stock
outstanding is necessary to approve the increase in authorized shares. Votes
cast by proxy or in person at the Summit special meeting will be counted by
persons appointed by Summit to act as election inspectors for the
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meeting. Because the increase in authorized shares must receive the affirmative
vote of a majority of the outstanding Summit common stock, abstentions and
broker non-votes will have the effect of a vote against the proposal. Shares
represented by proxies in the form enclosed, if properly executed and returned
and not revoked, will be voted as specified, but where no specification is
made, the shares will be voted in favor of the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SUMMIT STOCKHOLDERS VOTE
FOR THE AMENDMENT TO SUMMIT'S ARTICLES OF ORGANIZATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.
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<PAGE>
APPROVAL OF AMENDMENT TO SUMMIT'S 1997 STOCK OPTION PLAN
The 1997 Stock Option Plan is designed to enhance Summit's ability to attract
and retain employees and others in a position to make significant contributions
to Summit's success by allowing them to become owners of Summit common stock. A
total of 1,500,000 shares were initially reserved for issuance under the Plan.
As of [month/day], 1998, there were outstanding options to purchase [ ] shares
of Summit common stock and [ ] shares remained available for grant.
On October 28, 1998, the Summit board of directors voted to increase the number
of shares of Summit common stock reserved for issuance under the 1997 Plan by
1,500,000 shares, subject to approval by the Summit stockholders. The Summit
board of directors believes that this increase is necessary because Summit will
have a larger workforce following the integration of Autonomous and because
equity awards will be an important part of incentive compensation in the
combined company. The Summit board of directors is requesting that Summit
stockholders approve the increase at the special meeting.
SUMMARY OF 1997 PLAN
The following is a summary of the key features of the 1997 Plan.
ELIGIBLE PARTICIPANTS
The Summit board of directors administers the Plan. Employees of Summit and its
subsidiaries and other persons or entities who are in a position to make a
significant contribution to Summit's success are eligible participants. The
board of directors has the authority to select employees to whom awards are
given. The number of Summit employees (including subsidiaries) as of [ ,
1998], was approximately [ ].
MAXIMUM NUMBER OF SHARES
Currently, up to 1,500,000 shares of Summit common stock may be granted under
the 1997 Plan, subject to adjustments for stock splits and similar costs. The
Summit board of directors has approved and is recommending that the
stockholders approve an increase of 1,500,000 in the number of shares of Summit
common stock that may be awarded under the 1997 Plan.
TYPES OF AWARDS
The 1997 Plan permits the board to grant the following types of awards:
. stock options--both incentive and nonstatutory
. stock appreciation rights.
STOCK OPTIONS
The Summit board will determine the exercise or purchase price per share of any
option granted under the 1997 Plan. The exercise price of an incentive stock
option ("ISO") must be at least 100% (110% in the case of ten percent
shareholders) of the fair market value of the Summit common stock at the time
of grant. The Summit board of directors will fix the term of each option, not
to exceed
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ten years from grant, and specify when each option will be exercisable. Options
may be exercised in the following ways:
. by paying the exercise price in cash or check
. by tendering shares of common stock
. by using a promissory note
. by delivering to Summit an undertaking by a broker to deliver promptly
sufficient funds to pay the exercise price
. by a combination of these methods.
STOCK APPRECIATION RIGHTS
The Summit board may grant stock appreciation rights (SARs) under the Plan.
SARs entitle recipients to receive cash or Summit common stock of an amount
representing the appreciation in the market value of a specified number of
shares from the date of grant until the date of exercise.
CHANGE OF CONTROL
In the case of certain mergers, consolidations or other transactions in which
Summit is acquired or liquidated, or its assets are sold, all outstanding
awards will terminate. Prior to such termination, however, all outstanding
awards will become exercisable unless the Summit board of directors arranges
for assumption of the awards by any surviving corporation.
TERMINATION AND AMENDMENT
The Summit board of directors may discontinue granting awards under the 1997
Plan at any time. The board of directors may also amend the Plan for any
purpose permitted by law, but no amendment may adversely affect the rights of
any participant under any outstanding award without the participant's consent.
STOCK PRICE INFORMATION
The closing price of Summit's common stock, as reported on Nasdaq on [ ,
1998] was $[ ].
SUMMARY OF 1997 PLAN FEDERAL INCOME TAX CONSEQUENCES
Under the federal income tax laws as now in effect, the material income tax
consequences associated with stock options awarded under the Plan are as
follows:
Incentive Options. An option holder realizes no ordinary taxable income upon
the grant or exercise of an ISO. If the option holder does not dispose of the
shares received upon the exercise of the ISO within two years from the date of
grant, or within one year after their receipt, then upon sale of such shares
the option holder will be taxed on any amount realized in excess of the option
price (the amount paid for the shares) as a long-term capital gain. Any loss
allowed for tax purposes will be long-term capital loss. Summit will not be
entitled to any deduction. The exercise of an ISO will, however, increase the
option holder's alternative minimum taxable income and may result in
alternative minimum tax liability for the option holder.
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If the option holder disposes of the shares received upon exercise of an ISO
before the expiration of the holding periods described above (a "disqualifying
disposition"), the option holder generally will realize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair
market value of the shares at exercise (or, if less, the amount realized on a
sale to an unrelated party of such shares) over the option price thereof.
Summit will be entitled to a tax deduction for that amount. Any further gain
recognized by the option holder will be taxed as short-term or long-term
capital gain and will not give Summit any deduction. Special rules may apply
where the option holder pays the exercise price of the ISO by tendering shares
of common stock. A disqualifying disposition will eliminate the alternative
minimum taxable income adjustment associated with the exercise of the ISO if it
occurs in the same calendar year as the year in which the adjustment occurred.
If an option holder exercises an ISO at a time when it no longer qualifies for
the tax treatment described above, the option is treated as a nonstatutory
option. Generally, an ISO will not be eligible for the tax treatment described
above if it is exercised more than three months following termination of
employment (one year following termination of employment, in the case of
termination by reason of permanent and total disability), except in certain
cases where the ISO is exercised after the death of the option holder. Options
otherwise qualifying as ISOs will also be treated for federal income tax
purposes as nonstatutory options to the extent they (together with other ISOs
that the option holder owns) first become exercisable in any calendar year for
shares having a fair market value, determined at the time of the option grant,
exceeding $100,000.
Nonstatutory Options. An option holder realizes no income at the time a
nonstatutory is granted under the Plan. Generally, an option holder realizes
ordinary income at exercise in an amount equal to the difference between the
option price and the fair market value of the shares on the date of exercise.
This amount is subject to withholding in the case of options granted to
employees. Summit will be entitled to a corresponding tax deduction. Any gain
or loss that the option holder recognizes upon a later sale is treated as
capital gain or loss, either short-term or long-term, depending on the
applicable holding period for the sale.
Stock Appreciation Rights. A participant realizes no income upon the grant of a
stock appreciation right under the Plan. When a participant exercises the stock
appreciation right or receives payment in cancellation of an option, the
participant will generally be required to include as ordinary income in the
year of such exercise or payment an amount equal to the amount of cash received
and the fair market value of any stock received. Summit will have a deduction
for the corresponding amount.
Certain Limitations. Section 162(m) of the Internal Revenue Code imposes a $1
million limitation on the deduction that a public corporation may claim for
remuneration paid to any of its five top officers, subject to a number of
exceptions and special rules. Certain performance-based compensation is
eligible for an exemption from this limit. Summit intends that compensation
associated with the exercise of stock options and SARs awarded under the Plan
will qualify for this performance-based exemption.
The Internal Revenue Code also limits the amount of compensation that may be
paid without penalty in connection with a change in control. In general, if the
total of an individual's compensation related to a change in control equals or
exceeds three times his or her average annual taxable compensation
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(determined, in general, over the five calendar years preceding the calendar
year in which the change in control occurs), the amount of such compensation
that exceeds the annual average is nondeductible to Summit and subject to an
additional 20% tax on the recipient. In making this determination, part or all
of the value of options, and other awards, granted or accelerated in connection
with a change in control may be required to be taken into account.
The foregoing discussion is provided for the information of stockholders and
does not purport to be a complete description of the federal tax consequences
of transactions under the Plan, nor does it describe state or local tax
consequences.
RECOMMENDATION AND VOTE
The Summit board of directors believes that the increase in the shares reserved
under the 1997 Plan will promote the interests of Summit and the stockholders
and enable Summit to attract, retain and reward persons important to Summit's
success.
The affirmative vote of a majority of the shares of Summit common stock
outstanding is necessary to approve the increase in shares authorized to be
issued under the 1997 Plan. Votes cast by proxy or in person at the Summit
special meeting will be counted by persons appointed by Summit to act as
election inspectors for the meeting. Because the increase in authorized shares
must receive the affirmative vote of a majority of the outstanding Summit
common stock, abstentions and broker non-votes will have the effect of a vote
against the proposal under applicable Massachusetts law. Shares represented by
proxies in the form enclosed, if properly executed and returned and not
revoked, will be voted as specified, but where no specification is made, the
shares will be voted in favor of the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT SUMMIT STOCKHOLDERS VOTE TO INCREASE THE NUMBER OF COMMON SHARES
RESERVED FOR ISSUANCE UNDER THE 1997 STOCK OPTION PLAN.
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VALIDITY OF COMMON STOCK
The validity of the shares of Summit common stock to be issued in the merger
will be passed upon for Summit by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The financial statements of Summit Technology, Inc. as of December 31, 1997 and
1996, and for each of the years in the three-year period ended December 31,
1997, have been incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Autonomous as of December 31, 1997 and
1996, and for each of the two years in the period ended December 31, 1997, the
nine months ended December 31, 1995, and for the cumulative period from
inception (July 23, 1985) to December 31, 1997, included in this joint proxy
statement/prospectus have been audited by Arthur Andersen LLP, independent
certified public accountants, as stated in their report which is included
herein, and have been so incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing. Reference is
made to such report, which includes an explanatory paragraph with respect to
the uncertainty regarding Autonomous' ability to continue as a going concern as
discussed in Note 1 to the financial statements.
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WHERE YOU CAN FIND MORE INFORMATION
Summit and Autonomous file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that the companies file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Summit and Autonomous public filings are also available
to the public from commercial document retrieval services and at the SEC's
World Wide Web site at "http://ww.sec.gov." Reports, proxy statements and other
information about Summit and Autonomous also may be inspected at the offices of
the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006.
Summit has filed a registration statement to register with the SEC the shares
of Summit common stock it will issue to Autonomous stockholders in the merger.
This joint proxy statement/prospectus is a part of the registration statement
and constitutes a prospectus of Summit, a proxy statement of Summit for the
Summit special meeting and a proxy statement of Autonomous for the Autonomous
special meeting.
As allowed by SEC rules, this joint proxy statement/prospectus does not contain
all the information that stockholders can find in the registration statement or
the exhibits to the registration statement.
The SEC allows Summit to "incorporate by reference" information into this joint
proxy statement/prospectus, which means that Summit can disclose important
information to you by referring you to another document it has filed with the
SEC. The information incorporated by reference is deemed to be part of this
joint proxy statement/prospectus, except for any information superseded by
information contained directly in the joint proxy statement/prospectus. This
joint proxy statement/prospectus incorporates by reference the documents set
forth below that Summit has previously filed with the SEC. These documents
contain important information about the Summit and its financial condition.
<TABLE>
<CAPTION>
SUMMIT SEC FILINGS (FILE NO. 000-
16937) PERIOD
--------------------------------- ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Reports on Form 10-Q Three months ended March 31, 1998
Six months ended June 30, 1998
Current Reports on Form 8-K Filed June 19, 1998, June 25, 1998
and October 7, 1998
Registration Statements on Form Filed May 16, 1988, setting forth a description
8-A of the Summit common stock (including any
amendments or reports filed for the purpose of
updating such description), and filed April 3,
1990, describing Summit's common stock purchase
rights (including any amendments or reports
filed for the purpose of updating such
description)
</TABLE>
Summit incorporates by reference additional documents that it may file with the
SEC between the date the registration statement was initially filed and the
date of the special meetings. These include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as well as proxy statements.
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If you are a Summit stockholder, Summit may have sent you some of the documents
incorporated by reference, but you can obtain any of them through Summit or the
SEC or the SEC's world wide web site described above. Documents that Summit
incorporated by reference are available without charge, excluding all exhibits
unless specifically incorporated by reference as an exhibit to this joint proxy
statement/prospectus. Summit stockholders may obtain documents incorporated by
reference in this joint proxy statement/prospectus by requesting them in
writing or by telephone at the following address:
SUMMIT TECHNOLOGY, INC.
21 Hickory Drive
Waltham, Massachusetts 02451
Attention: Kate Sturgis Burnham
(781) 891-1234
If you would like to request public documents, please do so by January , 1999
to receive them before the Summit special meeting. If you request any
incorporated documents from us, we will mail them to you by first-class mail,
or other equally prompt means, within one business day of our receipt of your
request.
You should rely only on the information contained or incorporated by reference
in this joint proxy statement/prospectus to vote your shares at the special
meetings. Summit and Autonomous have not authorized anyone to provide you with
information that is different from what is contained in this joint proxy
statement/prospectus. This joint proxy statement/prospectus is dated January
[ ], 1999. You should not assume that the information contained in the joint
proxy statement/prospectus is accurate as of any date other than that date, and
neither the mailing of this joint proxy statement/prospectus to stockholders
nor the issuance of Summit common stock in the merger shall create any
implication to the contrary.
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INDEX TO FINANCIAL STATEMENTS
AUTONOMOUS TECHNOLOGIES CORPORATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Report of Independent Certified Public Accountants................... F-2
Balance Sheets as of December 31, 1997 and 1996...................... F-3
Statement of Operations for the Years Ended December 31, 1997 and
1996, the Nine Months Ended December 31, 1995 and Cumulative from
Inception........................................................... F-4
Statements of Shareholders Equity for the Period from Inception to
December 31, 1997................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1997 and
1996, the Nine Months Ended December 31, 1995 and Cumulative from
Inception........................................................... F-7
Notes to Financial Statements........................................ F-9
Consolidated Balance Sheets (unaudited) as of June 30, 1998 and
December 31, 1997................................................... F-22
Consolidated Statements of Operations (unaudited) for the Three
Months Ended June 30, 1998 and 1997, the Six Months Ended June 30,
1998 and 1997 and Cumulative from Inception......................... F-23
Consolidated Statements of Cash Flows (unaudited) for the Six Months
Ended June 30, 1998 and 1997 and Cumulative from Inception.......... F-24
Notes to Consolidated Financial Statements........................... F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Autonomous Technologies Corporation:
We have audited the accompanying balance sheets of Autonomous Technologies
Corporation (a Florida corporation in the development stage) as of December 31,
1997 and 1996, and the related statements of operations, stockholders' equity
and cash flows for the years ended December 31, 1997 and 1996, the nine months
ended December 31, 1995, and the period from inception (July 23, 1985) to
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Autonomous Technologies
Corporation as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years ended December 31, 1997 and 1996, the nine
months ended December 31, 1995, and the period from inception (July 23, 1985)
to December 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company is in the development stage with no
significant operating results to date. The factors discussed in Note 1 to the
financial statements raise a substantial doubt about the ability of the Company
to continue as a going concern. Management's plans in regard to those matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ ARTHUR ANDERSEN LLP
Orlando, Florida,
June 2, 1998
F-2
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS -- DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 109,245 $ 2,980,036
Investments........................................ 7,191,827 9,263,754
Restricted investment.............................. -- 162,000
Inventories........................................ 2,358,934 262,607
Prepaid expenses and other assets.................. 356,892 63,018
----------- -----------
Total current assets............................. 10,016,898 12,731,415
PROPERTY AND EQUIPMENT, net (Note 2)................. 1,155,718 453,555
LADARVision SYSTEMS-IN-SERVICE, net (Note 2)......... 400,584 --
ADVANCE LICENSING FEES............................... 747,470 750,000
OTHER ASSETS......................................... 95,479 209,279
----------- -----------
Total assets..................................... $12,416,149 $14,144,249
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 743,898 $ 834,785
Accrued expenses................................... 835,324 422,254
Note payable....................................... -- 151,299
Current portion of obligations under capital leases
(Note 3).......................................... 97,108 55,130
----------- -----------
Total current liabilities........................ 1,676,330 1,463,468
OBLIGATIONS UNDER CAPITAL LEASES, less current
portion (Note 3).................................... 185,007 122,133
OBLIGATION UNDER STRATEGIC ALLIANCE AGREEMENT (Notes
4 and 11)........................................... 1,575,000 975,000
----------- -----------
Total liabilities................................ 3,436,337 2,560,601
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, 5, 6 and
9)
STOCKHOLDERS' EQUITY (Notes 4, 5 and 6):
Undesignated series, $.01 par value; 1,000,000
shares authorized at December 31, 1997 and 1996; 0
shares issued and outstanding Common stock, $.01
par value; 25,000,000 shares authorized, 9,986,755
shares issued and outstanding at December 31,
1997; 15,000,000 shares authorized, 6,763,187
shares issued and outstanding at December 31,
1996.............................................. 99,868 67,632
Additional paid-in capital......................... 37,787,991 28,784,708
Deficit accumulated during the development stage... (28,908,047) (17,268,692)
----------- -----------
Total stockholders' equity....................... 8,979,812 11,583,648
----------- -----------
Total liabilities and stockholders' equity....... $12,416,149 $14,144,249
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION
(JULY 23,
YEAR ENDED YEAR ENDED NINE MONTHS 1985) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1997
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
REVENUES:
LADARVision systems and services.................................... $ 37,065 $ -- $ -- $ 37,065
Research grants..................................................... -- -- -- 3,450,517
OPERATING EXPENSES:
Costs of revenues--LADARVision systems and services 105,892 -- -- 105,892
Costs of revenues--research grants.................................. -- -- -- 3,465,596
Clinical trials..................................................... 2,980,317 1,715,412 602,847 5,870,194
Unabsorbed production costs......................................... 758,801 -- -- 758,801
Research and development............................................ 2,954,559 3,521,381 1,698,056 10,308,315
Selling and marketing (Notes 4 and 5)............................... 1,493,069 1,190,898 478,439 3,455,002
General and administrative.......................................... 2,328,222 1,852,351 974,738 6,354,871
Other expenses (Notes 4 and 9)...................................... 1,596,671 1,283,874 375,000 3,255,545
------------ ----------- ----------- ------------
OPERATING LOSS........................................................ (12,180,466) (9,563,916) (4,129,080) (30,086,634)
OTHER INCOME (EXPENSE):
Interest income..................................................... 582,219 581,866 32,155 1,287,722
Interest expense.................................................... (41,108) (25,994) (2,120) (104,363)
------------ ----------- ----------- ------------
LOSS BEFORE PROVISION FOR INCOME TAXES................................ (11,639,355) (9,008,044) (4,099,045) (28,903,275)
PROVISION FOR INCOME TAXES (Note 7)................................... -- -- -- 4,772
------------ ----------- ----------- ------------
NET LOSS.............................................................. $(11,639,355) $(9,008,044) $(4,099,045) $(28,908,047)
============ =========== =========== ============
LOSS PER SHARE (NOTES 1 AND 10):
Basic net loss per share............................................ $ (1.43) $ (2.36) $ (3.37)
============ =========== ===========
Weighted average common shares used in computing basic net loss per
share.............................................................. 8,151,395 3,812,039 1,217,509
- --------------------------------------------------
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JULY 23, 1985) TO DECEMBER 31, 1997
(NOTE 5)
<TABLE>
<CAPTION>
CONVERTIBLE DEFICIT
PREFERRED ACCUMULATED
STOCK COMMON STOCK ADDITIONAL DURING THE
-------------- ----------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
------ ------- --------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 23, 1985.. -- $ -- -- $ -- $ -- $ --
Issuance of common
stock................ -- -- 1,125,000 11,250 76,250 --
Issuance of Series A
convertible preferred
stock................ 3,000 3,000 -- -- 723,233 --
Issuance of Series B
convertible preferred
stock................ 1,313 1,313 -- -- 374,071 --
Net loss............ -- -- -- -- (1,466,254)
------ ------- --------- ------- ---------- -----------
BALANCE, March 31,
1994................... 4,313 4,313 1,125,000 11,250 1,173,554 (1,466,254)
Issuance of Series A
convertible preferred
stock................ 354 354 -- -- 80,180 --
Issuance of Series B
convertible preferred
stock................ 170 170 -- -- 49,017 --
Issuance of Series C
convertible preferred
stock................ 2,927 2,927 -- -- 1,535,270 --
Net loss............ -- -- -- -- -- (2,695,349)
------ ------- --------- ------- ---------- -----------
BALANCE, March 31,
1995................... 7,764 7,764 1,125,000 11,250 2,838,021 (4,161,603)
Common stock placed in
escrow for future
services............. -- -- 120,000 1,200 22,850 --
Issuance of Series D
convertible preferred
stock................ 2,456 2,456 -- -- 1,211,717 --
In-kind services
provided by
stockholder.......... -- -- -- -- 220,148 --
Compensation under
stock option plan.... -- -- -- -- 380,626 --
Net loss............ -- -- -- -- -- (4,099,045)
------ ------- --------- ------- ---------- -----------
BALANCE, December 31,
1995.................... 10,220 $10,220 1,245,000 $12,450 $4,673,362 $(8,260,648)
</TABLE>
(continued)
F-5
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JULY 23, 1985) TO DECEMBER 31, 1997
(NOTE 5)
(CONTINUED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL PAID- DEFICIT ACCUMULATED
----------------- ----------------- IN DURING THE DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
------- -------- --------- ------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1995................... 10,220 $ 10,220 1,245,000 $12,450 $ 4,673,362 $ (8,260,648)
Issuance of Series D
convertible preferred
stock................ 4,363 4,363 -- -- 2,177,137 --
Conversion of all
preferred stock upon
closing of initial
public offering...... (14,583) (14,583) 2,187,450 21,875 (7,292) --
Conversion of note
payable and advance
from stockholder upon
closing of initial
public offering...... -- -- 817,500 8,175 3,396,825 --
Issuance of common
stock in initial
public offering, net
of offering costs.... -- -- 2,500,000 25,000 17,868,000 --
In-kind services
provided by
stockholder.......... -- -- -- -- 449,736 --
Compensation under
stock plans and
agreements........... -- -- -- -- 218,890 --
Exercise of stock
options.............. -- -- 13,237 132 8,050 --
Net loss............ -- -- -- -- -- (9,008,044)
------- -------- --------- ------- ----------- ------------
BALANCE, December 31,
1996................... -- -- 6,763,187 67,632 28,784,708 (17,268,692)
Issuance of common
stock, net of
offering costs....... -- -- 3,000,000 30,000 7,984,996 --
In-kind services
provided by
stockholder.......... -- -- -- -- 471,275 --
Compensation under
stock plans and
agreements........... -- -- -- -- 485,937 --
Exercise of stock
options and
warrants............. -- -- 223,568 2,236 61,075 --
Net loss............ -- -- -- -- -- (11,639,355)
------- -------- --------- ------- ----------- ------------
BALANCE, December 31,
1997................... -- $ -- 9,986,755 $99,868 $37,787,991 $(28,908,047)
======= ======== ========= ======= =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE FROM
NINE MONTHS INCEPTION
YEAR ENDED ENDED (JULY 23 1985)
YEAR ENDED DECEMBER DECEMBER TO
DECEMBER 31, 31, 31, DECEMBER 31,
1997 1996 1995 1997
------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $(11,639,355) $(9,008,044) $(4,099,045) $(28,908,047)
Adjustments to
reconcile net loss to
net cash used in
operating
activities--
In-kind services
provided by
stockholder........ 471,275 449,736 220,148 1,141,159
Compensation expense
under stock option
plan............... 485,937 218,890 380,626 1,085,453
Compensation expense
related to common
stock placed in
escrow for future
services........... -- -- 24,050 24,050
Convertible pre-
ferred stock issued
for services....... -- -- 132,500 162,500
Loss on disposal of
property and
equipment.......... -- 85,167 -- 85,167
Depreciation and
amortization....... 315,054 173,724 33,886 693,859
Changes in assets
and liabilities--
Increase in
inventory........ (2,096,327) (262,607) -- (2,358,934)
Decrease
(increase) in
prepaid expenses
and other
assets........... (180,074) (200,770) 35,248 (452,371)
Decrease
(increase) in
advance licensing
fees............. 2,530 (750,000) -- (747,470)
Increase
(decrease) in
accounts
payable.......... (90,887) 508,258 267,263 743,898
Increase in
accrued
expenses......... 413,070 191,973 137,660 835,324
Increase in
obligation under
strategic
alliance
agreement........ 600,000 600,000 375,000 1,575,000
------------ ----------- ----------- ------------
Net cash used in
operating
activities..... (11,718,777) (7,993,673) (2,492,664) (26,120,412)
------------ ----------- ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures
on property and
equipment............ (802,556) (298,287) (71,098) (1,483,250)
Investments in
LADARVision Systems-
in-Service........... (437,000) -- -- (437,000)
Restricted investment
(made) proceeds...... 162,000 (162,000) -- --
Investments made...... (9,644,170) (14,144,080) -- (23,788,250)
Investment proceeds... 11,716,097 4,880,326 -- 16,596,423
------------ ----------- ----------- ------------
Net cash
provided by
(used in)
investing
activities..... 994,371 (9,724,041) (71,098) (9,112,077)
------------ ----------- ----------- ------------
</TABLE>
(continued)
F-7
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS CUMULATIVE FROM
YEAR ENDED YEAR ENDED ENDED INCEPTION
DECEMBER 31, DECEMBER 31, DECEMBER 31, (JULY 23, 1985) TO
1997 1996 1995 DECEMBER 31, 1997
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net proceeds from
issuance of
convertible preferred
stock................ -- 2,181,500 1,081,673 6,002,708
Net proceeds from
issuance of common
stock................ 8,014,996 17,893,000 -- 25,995,496
Proceeds from exercise
of stock options and
warrants............. 63,311 8,182 -- 71,493
Payment of obligations
under capital
leases............... (73,393) (28,557) (1,013) (102,963)
Net proceeds from
(payments of) note
payable.............. (151,299) 151,299 -- --
Advance from
stockholder.......... -- -- 1,000,000 1,000,000
Proceeds from issuance
of convertible note
payable.............. -- -- -- 2,405,000
Proceeds from long-
term debt............ -- -- -- 200,000
Repayment of long-term
debt................. -- -- -- (200,000)
Other, net............ -- -- -- (30,000)
---------- ---------- --------- ----------
Net cash provided by
financing
activities......... 7,853,615 20,205,424 2,080,660 35,341,734
---------- ---------- --------- ----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (2,870,791) 2,487,710 (483,102) 109,245
CASH AND CASH
EQUIVALENTS, beginning
of year................ 2,980,036 492,326 975,428 --
---------- ---------- --------- ----------
CASH AND CASH
EQUIVALENTS, end of
year................... $ 109,245 $2,980,036 $ 492,326 $ 109,245
========== ========== ========= ==========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
Cash transactions-
Interest paid........ $ 36,518 $ 22,057 $ 2,120 $ 95,836
Non-cash transactions-
Property and
equipment purchases
subject to capital
lease obligations... $ 178,246 $ 178,519 $ 28,314 $ 385,079
Advance from
stockholder
converted to common
stock............... $ -- $1,000,000 $ -- $1,000,000
Convertible note
converted to common
stock............... $ -- $2,405,000 $ -- $2,405,000
</TABLE>
The accompanying notes are an integral part of these statements
F-8
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. ORGANIZATION, FUNDING AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND FUNDING
Autonomous Technologies Corporation (the Company) was incorporated in the State
of Florida in 1985. The Company was formed to pursue applications in the
specialized field of laser radar (LADAR). The Company has now focused its
efforts on applying unique LADAR tracking technology to the medical field of
ophthalmology and has developed an ophthalmic laser product for vision
correction, tradenamed the LADARVision(R) System (formerly called the T-PRK(R)
System).
The Company generated revenues under government research grants during the
early years of its existence while it was developing commercial applications of
the LADAR technology. The final grant under which the Company conducted such
research was completed in February 1994. All subsequent research and clinical
development efforts have been devoted toward ophthalmic commercial applications
for its LADARVision System.
In May 1996, the Company completed its initial public offering of common stock.
The Company sold 2,500,000 shares of common stock in this offering. Concurrent
with this event, all of the outstanding convertible preferred stock and certain
debt of the Company were converted to common shares. In June 1997, the Company
completed a secondary offering of 3,000,000 shares of common stock.
The Company's management believes that its current cash and investment
resources will be sufficient to fund operations through the first quarter of
1998. Management intends to seek additional funding during 1998 to fund the
Company's operations as it: (a) progresses through the clinical and regulatory
process directed at seeking approval from the U.S. Food & Drug Administration
(FDA) for its initial indications of moderate myopia (up to -10 diopters) and
astigmatism, (b) initiates and executes new clinical protocols for additional
indications and clinical capabilities, including hyperopia and the Company's
Custom CorneaTM technology, and (c) prepares and launches the LADARVision
System in markets to include Canada, Europe and the U.S. Such funding may be
sought from one or more sources, including: debt financing to support the
Company's commercial placements, and equity financing and/or the sale of
marketing rights to fund on-going operations.
F-9
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. Accordingly, the financial statements do not
include any adjustments that might result from the Company's inability to
continue as a going concern.
Development Stage Company
The Company's primary operations since inception have been devoted to
developing commercial applications of its LADAR technology. No significant
operating revenue has yet been generated. As a result, the financial statements
are presented in accordance with Statement of Financial Accounting Standards
(SFAS) No. 7, "Accounting and Reporting by Development Stage Enterprises." In
order to generate significant revenues and become an operating business, the
Company is in the process of building both U.S. and non-U.S. sales and
marketing capabilities and commercially introducing the LADARVision(R) System
overseas. Additionally, the Company must continue FDA clinical trial protocols
for its submitted indications and achieve a Pre-Market Approval (PMA) from the
FDA before commencing U.S. sales and marketing activities. Several companies
are actively marketing ophthalmic laser devices outside the U.S. Two such
devices have been approved by the FDA for U.S. marketing.
Change in Fiscal Year
The Company changed its fiscal year from March 31 to December 31 effective
December 31, 1995. This change was made to be consistent with general medical
device industry practice. As a result, the fiscal period ended December 31,
1995, presented herein is a nine-month period.
Cash and Cash Equivalents
Cash in excess of immediate operating needs is invested for up to 90 days in
overnight repurchase agreements and/or marketable debt securities, such as
commercial paper, in accordance with the Company's investment policy. Such cash
equivalents are stated at cost plus accrued interest which approximates market
value. The Company considers these investments as cash for cash flow statement
purposes.
Investments
Certain other liquid funds of the Company have been invested for terms in
excess of 90 days in Treasury and Agency securities. These investments are
being accounted for as "available-for-sale" securities under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Realized
gains and losses are computed using the specific identification method. As of
December 31, 1997 and 1996, the investments are stated at amounts which
approximate quoted market value. All of the Company's investments held at
December 31, 1997, mature in 1998.
Inventories
As of December 31, 1997, inventory is made up of component parts for
LADARVision Systems ($988,822) and work-in-progress on LADARVision Systems
($1,370,111). Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method.
F-10
<PAGE>
Property and Equipment, Net
Property and equipment is recorded at cost less accumulated depreciation and
amortization. The Company provides depreciation primarily using the straight-
line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the term of the lease or the
life of the asset. Asset lives range as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and office equipment.......................................... 3-7
Assembly, design and test equipment .................................... 3-7
</TABLE>
LADARVision Systems-in-Service
The Company's LADARVision Systems-in-Service are LVC systems placed under the
Company's Autonomous Affiliates ProgramSM wherein the ophthalmology clinic or
hospital pays the Company a per-procedure fee for the use of the system in LVC
procedures. The Company is depreciating LADARVision Systems-in-Service for
financial reporting purposes over five years on a straight-line basis.
Advance Licensing Fee
The Company paid an advance licensing fee for the right to use certain patented
technology in commercial applications of its LADARVision System in the future.
License fees, which began to accrue in 1997, are due based on agreed upon
percentages of certain of the Company's future revenues, as defined in the
license agreement.
Research and Development
Research and development costs, which include the costs to pursue new patents
and the costs of building prototype LADARVision System and Custom Cornea units,
are expensed as incurred.
Software Development Costs
Costs of developing software that will be used in the LADARVision System units
have been included in research and development expenses since technological
feasibility has not yet been established. Once technological feasibility is
established, the Company intends to capitalize such costs thereinafter incurred
and report them at the lower of unamortized cost or net realizable value. Due
to uncertainties surrounding the FDA approval process, technological
feasibility will not be considered established until the approval process has
advanced to the point when the Company has received its PMA from the FDA.
Income Taxes
The Company accounts for income taxes using an asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred income taxes have been
provided for the differences between the financial reporting and income tax
reporting basis of the Company's assets and liabilities. These temporary
differences consist of differences
F-11
<PAGE>
between the timing of the deduction of certain amounts between income tax
reporting purposes and financial statement purposes. Due to uncertainties
regarding the Company's ability to realize the benefits of its deferred tax
assets through future operations, a valuation allowance has been established
that completely offsets the net deferred tax asset.
Net Loss Per Share; Statement of Financial Accounting Standards 128
Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No.
128 replaces the presentation of primary earnings per share ("EPS") with a
presentation of basic EPS. Additionally, for many companies with potential
common stock instruments outstanding (options, warrants, convertible
securities, or other contingent issuances), a dual presentation of basic and
diluted EPS is required. The Company's presentation of basic EPS is found in
the accompanying statements of operations. The Company's net losses for the
periods presented cause the inclusion of potential common stock instruments
outstanding to be antidilutive and, therefore, in accordance with SFAS No. 128,
the Company is not required to present a diluted EPS.
All share and per-share information in the financial statements have been
adjusted to give effect to the 150-for-1 stock split and par value restatement
which became effective upon Board of Directors (the Board) and shareholder
approval in February 1996, as further discussed below in the notes.
Stock Authorization and Stock Split
In February 1996, the Board approved a 150-for-1 stock split of the Company's
common stock and a restatement of the par value of the Company's common stock
to $.01 per share, accompanied by an increase in authorized common shares to
15,000,000. The Board also approved the creation of a new class of convertible
preferred stock of the Company and approved an authorization of 1,000,000
shares of such stock, whose price, rights, privileges and related terms shall
be determined by the Board at the time of issuance. On June 12, 1997, the
stockholders of the Company authorized an increase in authorized common shares
to 25,000,000.
Stock Options
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), which encourages, but
does not require, companies to adopt the fair value method of accounting for
stock-based employee compensation plans. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period, which is usually the vesting
period. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board ("APB") Opinion No. 25, but are
required to disclose on a pro forma basis, net income and, if presented,
earnings per share, as if the fair value based method of accounting had been
applied.
Effective January 1, 1996, the Company elected to adopt only the disclosure
requirements of SFAS No. 123. Accordingly, the Company will continue to account
for stock based employee compensation under APB Opinion No. 25.
F-12
<PAGE>
Fair Value of Financial Instruments
The carrying amounts of the Company's financial assets and liabilities,
including cash and cash equivalents and accounts payable at December 31, 1997
and 1996, approximate fair value because of the short maturity of these items.
The carrying amount of the Company's obligations under capital leases
approximates fair value at December 31, 1997 and 1996, since the interest rates
approximate rates currently available to the Company for borrowings and
investments.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Effective January 1, 1996, the Company changed the estimated useful lives for
some of its property and equipment from five years to three years. The effect
of this change in accounting estimate on net loss and net loss per share for
the year ended December 31, 1996 was immaterial.
Reclassifications
Certain prior-year amounts have been reclassified to conform with the current-
year presentation.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following as of December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Furniture and office equipment............................ $ 941,298 $475,732
Assembly, design and test equipment....................... 662,252 298,823
Leasehold improvements.................................... 151,178 --
---------- --------
1,754,728 774,555
Less--Accumulated depreciation and amortization........... (599,010) (321,000)
---------- --------
Property and equipment, net............................. $1,155,718 $453,555
========== ========
</TABLE>
As of December 31, 1997, the Company held equipment under capital leases with a
net book value of $242,251. Depreciation expense totaled $278,638, $173,724,
and $33,886 for the periods ended December 31, 1997, 1996, and 1995,
respectively.
3. LEASE OBLIGATIONS:
The Company has acquired furniture, computer, design and communications
equipment under capital lease arrangements. The effective interest rate on the
leases range from 9 percent to 21 percent.
In May 1997, the Company began occupying a main office and production facility
with approximately 25,000 square feet under a lease. The lease term is 10
years, with two five-year
F-13
<PAGE>
renewal options and termination opportunities at years five and seven. Base
rent under this lease for the first year is $237,500, with annual 3 percent
increases in subsequent years, plus the Company's allocated portion of common
area maintenance and other operating costs. The lease payments include rent on
$500,000 of landlord provided and tenant specified improvements, including
certain outfitting of production areas. Minimum future obligations under
noncancelable operating leases (including the aforementioned facilities lease)
and the present value of future minimum capital lease payments as of December
31, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING LEASES LEASES
DECEMBER 31, -------- ----------
<S> <C> <C>
1998................................................ $125,983 $ 244,595
1999................................................ 94,919 251,933
2000................................................ 56,828 259,491
2001................................................ 46,930 267,276
2002................................................ 21,499 275,294
2003 and thereafter................................. -- 1,505,419
-------- ----------
Total minimum lease payments........................ 346,159 $2,804,008
-------- ==========
Less--Amount representing interest.................. (64,044)
--------
Present value of minimum lease payments............. 282,115
Less--Current portion............................... (97,108)
--------
Long-term obligation................................ $185,007
========
</TABLE>
Rent expense totaled $362,876, $168,741, and $80,720 for the periods ended
December 31, 1997, 1996 and 1995, respectively.
4. STRATEGIC ALLIANCE:
In May 1994, the Company entered into a strategic marketing alliance (the
Purchase Agreement) with CIBA Vision Group Management, Inc. (CIBA), whereby
CIBA invested $2,405,000 into the Company and received an interest-free,
convertible note of $2,405,000 (the Note) with a three-year term, made an
equity investment in the Company (see Note 5), and acquired exclusive marketing
rights outside of North America to the LADARVision System. The Note
automatically converted into common stock upon the Company's initial public
offering in May 1996.
On May 15, 1995, the Company entered into a Strategic Alliance Agreement (SAA)
with CIBA which terminated the aforementioned marketing agreement with CIBA and
amended the Purchase Agreement. Under this agreement, the Company regained
control of all marketing rights, received a $1,000,000 cash payment (see
below), and a commitment of $1,000,000 worth of contributed sales and marketing
services over three years. In return, CIBA obtained the right to a 6 percent
commission on net revenue worldwide, as defined in the SAA, from all of the
Company's equipment sales and patient procedure fees pertaining to ophthalmic
refractive surgery. The commission is limited to $10,000,000 in the aggregate
unless the Company chooses to continue paying such commissions for five
additional years in lieu of issuing the stock discussed below. Unless the
commission period is extended, the Company is required to issue 610,534 shares
of common stock (Additional Shares) to CIBA on May 15, 1999. The number of such
Additional Shares was increased from 529,500 during 1997 due to the operation
of an anti-dilution provision in connection with the Company's 1997 equity
financing. See Note 11.
F-14
<PAGE>
The Company is accruing for the obligation to issue the additional shares to
CIBA under the SAA on a straight line basis from the agreement date of May 15,
1995, to the expected issuance date of May 15, 1999. The obligation being
accrued over this four-year period is $2.4 million, which represents the value
of the originally issuable preferred shares at the date of agreement. In the
periods ended December 31, 1997, 1996 and 1995, the Company recorded $600,000,
$600,000 and $375,000, respectively, of expenses under this agreement which are
included in other expenses on the accompanying statements of operations. This
amount is recorded as the obligation under strategic alliance agreement in the
accompanying balance sheets as of December 31, 1997 and 1996.
Under the SAA, CIBA has the right, at its sole discretion, to terminate the SAA
upon 180 days notice to the Company whereby the Company would continue to be
obligated to pay to CIBA the 6 percent commission for three years beyond
termination on those LADARVision Systems that were commercially placed at the
time of termination. In this case, CIBA's right to the additional shares on May
15, 1999, would be terminated. Additionally, CIBA has the right to terminate
the SAA upon 30 days notice should there be a change of control of the Company
or if the commercial value of the Company's technology is materially impacted.
The $1,000,000 cash payment from CIBA referred to above was, in accordance with
the terms of the SAA, reclassified to additional paid-in capital upon the
Company's initial public offering. This amount was previously reflected as
advance from shareholder in balance sheets prior to the initial public
offering.
During the periods ended December 31, 1997, 1996 and 1995, CIBA contributed
sales and marketing services of $471,275, $449,736 and $220,148, respectively,
to the Company. This amount has been recorded as selling and marketing expense
in the accompanying statements of operations, with a corresponding increase to
additional paid-in capital.
5. COMMON STOCK:
COMMON STOCK AND COMMON STOCK WARRANTS
The Company issued detachable warrants for the purchase of 1,048,350 shares of
common stock in connection with a preferred stock issuance prior to its initial
pubic offering. The warrants have a weighted average exercise price of $3.47
per share. These warrants expire on February 28, 1999, have a cashless exercise
provision, and are exercisable at any time during their term. As of
December 31, 1997, warrants for 93,000 of these shares have been exercised
resulting in the issuance of 46,246 shares of common stock.
Upon completion of its initial public offering, the Company issued warrants for
the purchase of 75,000 shares of common stock to the managing underwriters of
the offering. These warrants have an exercise price of $9.60 per share, are
exercisable after May 7, 1997, and have an expiration date of May 7, 1999.
In connection with its 1997 equity offering, the Company issued warrants for
the purchase of 90,000 shares of common stock to an investment banking firm and
the placement agent for the offering. These warrants have a weighted average
exercise price of $3.61 per share, are currently exercisable, and have
expiration dates in April 1999 and June 2002.
F-15
<PAGE>
In June 1995, the Company agreed to place 120,000 shares of common stock in
escrow for the benefit of a CIBA employee who is providing sales and marketing
services to the Company. A portion of these shares was to be released to the
individual in fixed annual increments over a three-year period. In June 1997,
the original agreement was amended by the Board of Directors to remove any
performance based vesting on the variable shares under the agreement. Of the
120,000 shares, 32,100 remain in escrow for the individual pending his
commencement of employment with the Company. With the removal of variability of
the stock grant based on performance, the grant was deemed to have become fixed
and the Company recorded its final compensation expense using the then current
fair market value of the stock. Compensation expense of approximately $215,000,
$156,000 and $24,000 was recorded under this agreement during the periods ended
December 31, 1997, 1996 and 1995, respectively. These amounts are included in
selling and marketing expense in the statements of operations for those
periods.
INVESTOR RIGHTS AGREEMENT
In connection with the Purchase Agreement, CIBA entered into an Amended and
Restated Investors' Rights Agreement (the Rights Agreement) between the Company
and certain holders of its shares. The Rights Agreement provides, among other
things, for uniform registration and information among such holders and gives
CIBA the right of first offer with respect to future offerings of any shares of
any class of the Company's capital stock.
6. EMPLOYEE BENEFIT PLANS:
STOCK OPTIONS
In 1995, the Board established the Autonomous Technologies Corporation 1995
Stock Option Plan (1995 Option Plan), authorizing a total of 1,050,000 common
shares for the purpose of attracting and retaining the services of qualified
employees, directors and consultants. In June 1997, the Company's stockholders
approved an increase in authorized shares under the 1995 Option Plan to
1,750,000. Options under the 1995 Option Plan can be either incentive stock
options for employees or non-qualified stock options for consultants or
directors and generally vest ratably over the five-year period following their
grant. Options granted under the 1995 Option Plan can have a term of no more
than 10 years.
In 1996, the Board established the Autonomous Technologies Corporation Employee
Stock Purchase Plan (1996 ESPP), authorizing a total of 75,000 common shares
for the purpose of providing qualifying employees the opportunity to purchase
shares in accordance with the terms of the 1996 ESPP at a discount of 15
percent from market. The 1996 ESPP began operation on July 1, 1996.
F-16
<PAGE>
A summary of the Company's 1995 Option Plan and 1996 ESPP as of December 31,
1997, 1996, and 1995 and changes during the periods then ended is presented
below:
<TABLE>
<CAPTION>
1995 OPTION PLAN 1996 ESPP
--------------------------- ------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Granted in 1995.......... 597,600 $ .29 -- $ --
--------- ----- ------ -----
Outstanding as of
December 31, 1995....... 597,600 .29 -- --
----- -----
Granted in 1996.......... 283,550 5.02 1,417 3.40
----- -----
Exercised in 1996........ (11,820) .28 (1,417) 3.40
--------- ----- ------ -----
Outstanding as of
December 31, 1996....... 869,330 1.84 -- --
----- -----
Granted in 1997.......... 694,000 5.16 9,346 3.47
----- -----
Exercised in 1997........ (173,620) .29 (9,346) 3.47
----- -----
Cancellations in 1997.... (22,720) 3.14 -- --
--------- ----- ------ -----
Outstanding as of
December 31, 1997....... 1,366,990 $3.70 -- $ --
========= ===== ====== =====
SFAS 123 weighted-average
fair value of options
granted during the year:
1995................... 597,600 $2.08 -- --
1996................... 283,550 $3.42 1,417 $1.02
1997................... 694,000 $3.57 9,346 $1.13
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -----------------------------
NUMBER NUMBER
OUTSTANDING AT WEIGHTED-AVERAGE WEIGHTED- EXERCISABLE AT WEIGHTED-
RANGE OF DECEMBER 31, REMAINING AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE
--------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ .13--$ .33........... 430,940 7.8 years $ .30 156,080 $ .25
$3.50--$4.88........... 290,550 9.3 years $4.08 31,810 $4.40
$5.13--$8.00........... 645,500 9.6 years $5.79 45,600 $5.63
--------- -------
1,366,990 $3.70 233,490 $1.87
========= ===== ======= =====
</TABLE>
The options outstanding at December 31, 1997, expire from February 2003 to
December 2007. There are 197,570 shares remaining available for grant in the
1995 Option Plan and 64,237 shares remaining available for grant in the 1996
ESPP at December 31, 1997.
For options granted during the periods ended December 31, 1997, 1996 and 1995,
the Company recognized compensation expense under APB 25 of $244,145, $218,890
and $380,626, respectively. According to the current vesting schedules related
to those individual option grants, the Company will recognize additional
compensation expense under APB 25 as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
1998 ............................................................ 184,000
1999 ............................................................ 173,500
2000 ............................................................ 108,200
2001 ............................................................ 300
--------
$466,000
========
</TABLE>
F-17
<PAGE>
The Company has not elected to adopt the compensation measurement provisions of
SFAS 123. Had the Company elected to measure compensation using the methodology
prescribed in SFAS 123 for options during the periods ended December 31, 1997,
1996 and 1995, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER YEAR ENDED ENDED
31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss................ As reported $11,639,355 $9,008,044 $4,099,045
Pro forma $12,205,000 $9,296,000 $4,126,000
Basic net loss per
share.................. As reported $ 1.43 $ 2.36 $ 3.37
Pro forma $ 1.50 $ 2.44 $ 3.39
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option-pricing model with the following assumptions summarized as
follows:
<TABLE>
<CAPTION>
GRANT TYPE AND PERIOD VOLATILITY EXPECTED LIFE INTEREST RATES
--------------------- ---------- ------------- --------------
(IN YEARS)
<S> <C> <C> <C>
1995 option grants................. 60% 4.1 5.8%
1996 option grants................. 60% 6.3 5.6%--6.8%
1997 option grants................. 70% 6.4 5.7%--6.9%
Employee stock purchase plan
grants............................ 60%-70% 0.5 5.0%--5.4%
</TABLE>
401(K) PLAN
In December 1995, the Board authorized the formation of a retirement plan for
the Company's employees that qualifies under Internal Revenue Code (IRC)
Section 401(k). The Plan, which began January 1, 1996, covers employees who
have attained at least 18 years of age with three or more months of service.
The Company may, at the Board's discretion, make matching contributions to the
employee contributions. The Company has never made any matching contributions.
7. INCOME TAXES:
The reconciliation of the benefit for income taxes based upon the U.S.
statutory federal rate (34 percent) to the Company's provision for income taxes
is as follows for the periods ended:
<TABLE>
<CAPTION>
DECEMBER DECEMBER DECEMBER
31, 31, 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Expected tax benefit at statutory rate.. $(3,958,000) $(3,063,000) $(1,394,000)
(Increase) decrease resulting from:
State income tax benefit, net of fed-
eral tax benefit..................... (423,000) (327,000) (149,000)
Costs incurred but not deductible for
tax purposes......................... 11,000 6,000 18,000
Increase in the valuation allowance... 4,370,000 3,384,000 1,525,000
----------- ----------- -----------
Total provision for income taxes..... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
F-18
<PAGE>
The Company's deferred tax accounts consisted of the following as of December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Assets:
Net operating loss (NOL) carryforwards................ $ 9,220,000 $5,382,000
Accruals and other.................................... 1,559,000 1,042,000
----------- ----------
10,779,000 6,424,000
Less--Valuation allowance............................. (10,779,000) (6,424,000)
----------- ----------
$ -- $ --
=========== ==========
</TABLE>
The NOL carryforwards expire in years 2005 through 2012.
The Company has had greater than 50 percent ownership changes in 1993, 1994 and
1996, as defined under the rules of IRC Section 382. Consequently, the use of
the NOL carryforwards generated in periods prior to the changes in control
against future taxable income in any one year may be limited. The deferred tax
asset is fully reserved.
8. RELATED PARTY TRANSACTIONS:
The Company received general and medical advisory services from three of its
directors. The Company was charged $151,625, $72,000, and $18,194 in
professional fees for such services in the periods ended December 31, 1997,
1996 and 1995, respectively. See also Note 4 which describes the relationship
with CIBA, a related party.
9. CONTINGENCIES:
LEGAL MATTERS
In July 1996, VISX, Inc. (VISX) sued the Company in London, England, alleging
that the Company infringed on certain European Community patents held by VISX.
In October 1996, the Company filed suit in Federal Court of Canada, Trial
Division against VISX. VISX is the holder of certain Canadian Letters patents
relating to refractive laser surgery. In March 1997, the Company was able to
reach a settlement in these two cases whereby the Company received a license
from VISX to utilize certain patents outside the U.S.
In October 1996, the Company filed suit in the United States District Court for
the District of Delaware against Pillar Point Partners (Pillar Point), Summit
Technologies, Inc. (Summit), VISX, Summit Partner, Inc. (Summit Partner) and
VISX Partner, Inc. (VISX Partner) (collectively, the Defendants). The
Defendants hold a portfolio of U.S. patents relating to refractive laser
surgery. The complaint seeks a declaratory judgment of non-infringement,
invalidity, and/or unenforceability, with regard to the Company's LADARVision
System.
As a result of these actions, the Company has incurred and anticipates that it
will incur significant expenses consisting primarily of management resources,
legal fees, expert witness fees and related expenses. The expenses incurred in
1997 and 1996 are classified as other expenses in the
F-19
<PAGE>
accompanying statements of operations. These expenses could amount to over
$100,000 per month for the foreseeable future depending on whether or not the
remaining matter can be settled and when the court proceedings, including jury
trials, will be held concerning these matters. The Company believes that it
does not infringe on the VISX or Pillar Point apparatus patents and that it
must aggressively assert this position in order to bring its products to the
commercial markets in the United States, Canada and the European Community.
There can, however, be no assurances that pursuit of these actions will bring
the Company any relief from the license arrangements that might be required nor
is there any assurance that such licenses as might be needed to enter certain
markets will be available to the Company if the Company does not prevail in its
actions.
PRODUCT LIABILITY AND INSURANCE
The Company's business involves the risk of product liability claims. The
Company has not experienced any product liability claims to date. The Company
maintains a "claims made" product liability insurance policy with coverage
limits of $5 million per occurrence and $5 million in the aggregate. The
inability of the Company to maintain adequate insurance coverage at any time
could, in the event of product liability or other claims in excess of the
Company's insurance coverage, have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, the
Company has agreed in the past, and is likely to agree in the future, to
indemnify certain medical institutions and their personnel who participate in
the Company's clinical studies.
10. QUARTERLY FINANCIAL INFORMATION--UNAUDITED:
The tables below contain summarized unaudited quarterly data for the years
ended December 31, 1997 and 1996. The Company believes this information
reflects all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation of the quarterly information presented. The
operating results for any quarter are not necessarily indicative of the results
that may be expected for future periods.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH ANNUAL
QUARTER QUARTER QUARTER QUARTER TOTALS
---------- ---------- ---------- ---------- -----------
1997
- ----
<S> <C> <C> <C> <C> <C>
Operating loss
Net loss................ $2,597,840 $3,091,332 $2,677,129 $3,273,054 $11,639,355
Basic net loss per
share.................. $ (0.38) $ (0.45) $ (0.27) $ (0.33) $ (1.43)
Shares used in computing
basic net loss per
share.................. 6,852,814 6,888,689 9,900,212 9,958,832 8,151,395
<CAPTION>
1996
- ----
<S> <C> <C> <C> <C> <C>
Operating loss.......... $1,365,696 $2,061,456 $3,104,560 $3,032,204 $ 9,563,916
Net loss................ $1,354,597 $1,923,320 $2,891,380 $2,838,747 $ 9,008,044
Basic net loss per
share.................. $ (1.09) $ (0.43) $ (0.43) $ (0.42) $ (2.36)
Shares used in computing
basic net loss per
share.................. 1,245,000 4,511,674 6,749,950 6,753,012 3,812,039
</TABLE>
*--Due to the adoption of SFAS No. 128 concerning the computation of a basic
net loss per share, the loss per share amounts reported in this Note 10 differ,
in some cases, from those previously reported in Company filings with the
Securities and Exchange Commission. See Note 1 for a further explanation of
SFAS No. 128 and the specifics of the Company's adoption thereof.
F-20
<PAGE>
11. SUBSEQUENT EVENTS
CIBA STRATEGIC ALLIANCE AGREEMENT--ADDITIONAL SHARES
On March 30, 1998, the Company and CIBA agreed to the issuance of 438,821
shares of common stock to CIBA under an amendment to the SAA. These shares
comprise a portion of the Additional Shares discussed in Note 4. Concurrent
with this issuance, the Company's Obligation under Strategic Alliance Agreement
of $1,725,000 was reclassified to common stock and additional paid-in capital.
The remaining shares of the Additional Shares to be issued in 1999 (171,713)
shall still be governed by the terms of the SAA.
PROPOSED SALE OF CONVERTIBLE PREFERRED STOCK
On April 16, 1998, the Company entered into a Convertible Preferred Stock
Purchase Agreement and certain other related documents with an investor,
including a Stock Purchase Warrant Agreement, relating to the sale by the
Company of 500 shares of a newly designated Series I Convertible Preferred
Stock ("Preferred Stock") and an option for the investor to purchase an
additional 400 of such shares. The purchase price of the Preferred Stock is
$10,000 per share, for a total initial purchase price of $5,000,000 with the
option shares having a purchase price of $4,000,000. The option must be
exercised within 55 days of the initial closing.
The Preferred Stock is convertible into common stock from time to time, but
generally on a schedule of 115 shares per month, at a price ten percent less
than the average of the prior five days low trading prices of the Company's
common stock on the Nasdaq National Market. In no case is the entire issue of
the Preferred Stock convertible into more than 2,261,597 shares of common
stock.
Should operation of the aforementioned formula result in the issuance of the
maximum number of shares without full conversion of the Preferred Stock, the
Company will be required to redeem the remainder in cash at 110% of the
purchase price of the remaining Preferred Stock.
The Stock Purchase Warrant ("Warrant") shall be issued upon the purchaser's
exercise of the option for 400 shares of the Preferred Stock and shall be for
300,000 shares of common stock at an exercise price of 125% of the price of the
Company's common stock at the time of the initial closing. The Warrant shall
have a term of 2 years.
The Preferred Stock is generally non-voting, is senior in liquidation
preference to the Company's common stock and to any other preferred stock so
long as it shall remain outstanding, and imposes certain limitations on the
Company's operations until such time as a substantial amount of the Preferred
Stock has been converted into common stock or 300 days from the initial
closing, which
ever occurs first.
The initial closing on the Preferred Stock shall occur upon the declaration by
the U.S. Securities Exchange Commission on effectiveness of a resale
registration statement on Form S-3, which the Company filed during April 1998.
SALE OF COMMON STOCK
On May 26, 1998, the Company completed a private placement of 600,573 shares of
unregistered common stock for $5.166 per share to four European investors, with
funding completed on June 2, 1998. The Company estimates the net proceeds of
this sale to be $2,884,000. The Company expects to file a registration
statement on Form S-3 on behalf of these investors covering the resale of the
shares of common stock in the near future.
F-21
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER
30, DECEMBER 31,
ASSETS 1998 1997
------ --------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................ $ 2,845,552 $ 109,245
Investments (note 1)............................. -- 7,191,827
Accounts Receivable.............................. 14,000 --
Inventories (note 1)............................. 3,058,824 2,358,934
Prepaid expenses and other assets................ 211,005 356,892
------------ ------------
Total current assets........................... 6,129,386 10,016,898
PROPERTY AND EQUIPMENT, net........................ 1,607,615 1,155,718
LADARVision SYSTEMS-IN-SERVICE, net................ 575,384 400,584
ADVANCE LICENSING FEES............................. 738,302 747,470
OTHER ASSETS....................................... 53,494 95,479
------------ ------------
Total assets................................... $ 9,104,181 $ 12,416,149
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................. 337,129 743,898
Accrued expenses................................. 1,180,037 835,324
Current portion of obligation under capital
leases.......................................... 82,700 97,108
------------ ------------
Total current liabilities...................... 1,599,866 1,676,330
OBLIGATION UNDER CAPITAL LEASES, less current
portion........................................... 122,531 185,007
OBLIGATION UNDER STRATEGIC ALLIANCE AGREEMENT...... 300,000 1,575,000
------------ ------------
Total liabilities.............................. 2,022,397 3,436,337
------------ ------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock-Series I, $0.01 par
value; 1000 and 0 shares authorized at September
30, 1998 and December 31, 1997, respectively;
500 and 0 shares issued at September 30, 1998
and December 31, 1997, respectively, and 436
outstanding at September 30, 1998 (at adjusted
face value) (Note 3)............................ 4,677,213 --
Common stock $.01 par value 25,000,000 and
15,000,000 shares authorized at September 30,
1998 and December 31, 1997, respectively;
11,524,667 and 9,986,755 shares issued and
outstanding at September 30, 1998 and
December 31, 1997, respectively................. 115,245 99,868
Additional paid--in capital...................... 43,722,140 37,787,991
Deficit accumulated during the development
stage........................................... (41,432,814) (28,908,047)
------------ ------------
Total stockholders' equity..................... 7,081,784 8,979,812
------------ ------------
$ 9,104,181 $ 12,416,149
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-22
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
THREE MONTHS ENDED NINE MONTHS ENDED FROM INCEPTION
--------------------------- ---------------------------- (JULY 23, 1985)
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, TO SEPTEMBER 30,
1998 1997 1998 1997 1998
------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES FROM
LADARVision Systems.... $ 30,935 $ 11,000 $ 135,330 $ 11,000 $ 172,395
REVENUES FROM RESEARCH
GRANTS................. -- -- -- -- 3,450,517
OPERATING EXPENSES:
Costs of revenues--
LADARVision System.... 32,627 35,528 285,696 35,528 391,588
Costs of revenue--re-
search grants......... -- -- -- -- 3,465,596
Clinical trials........ 716,163 715,348 2,111,391 2,158,449 7,981,585
Unabsorbed production
costs................. 862,415 -- 2,178,538 -- 2,937,339
Research and develop-
ment.................. 803,554 706,637 2,867,603 2,375,933 13,175,918
Selling and marketing.. 496,802 415,244 1,787,422 1,029,840 5,242,424
General and administra-
tive.................. 834,801 617,542 2,022,936 1,746,226 8,377,807
Other expenses......... 445,322 366,444 1,119,787 1,453,311 4,375,332
----------- ----------- ------------ ----------- ------------
OPERATING LOSS.......... (4,160,749) (2,845,743) (12,238,043) (8,788,287) (42,324,677)
OTHER INCOME (EXPENSE):
Interest income........ 45,162 182,850 171,757 453,260 1,459,479
Interest expense....... (7,823) (14,236) (30,131) (31,274) (134,494)
----------- ----------- ------------ ----------- ------------
LOSS BEFORE INCOME
TAXES.................. (4,123,410) (2,677,129) (12,096,417) (8,366,301) (40,999,692)
INCOME TAXES............ -- -- -- -- 4,772
----------- ----------- ------------ ----------- ------------
NET LOSS................ $(4,123,410) $(2,677,129) $(12,096,417) $(8,366,301) $(41,004,464)
=========== =========== ============ =========== ============
Deemed dividend for
Series I preferred
stock conversion
discount (Note3)....... 428,350 -- 428,350 -- 428,350
=========== =========== ============ =========== ============
Net loss applicable to
common stockholders.... $(4,551,760) $(2,677,129) $(12,524,767) $(8,366,301) $(41,432,814)
=========== =========== ============ =========== ============
LOSS PER SHARE:
Basic net loss per
share................. $ (0.40) $ (0.27) $ (1.18) $ (1.06)
=========== =========== ============ ===========
Weighted average common
and common equivalent
shares used in comput-
ing basic net loss per
share................. 11,320,269 9,898,367 10,583,677 7,884,019
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FROM INCEPTION
---------------------------- (JULY 23, 1985)
SEPTEMBER 30, SEPTEMBER 30, TO SEPTEMBER 30,
1998 1997 1998
------------- ------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss........................ $(12,096,417) $(8,366,301) $(41,004,464)
Adjustments to reconcile net loss
to net cash used in operating
activities:
In-kind services provided by
shareholder.................... 177,198 368,069 1,318,357
Compensation expense related to
employee stock options......... 134,806 374,106 1,220,259
Compensation expense related to
common stock placed in escrow
for future services............ -- 37,567 24,050
Convertible preferred stock
issued for services............ -- -- 162,500
Loss on disposal of property and
equipment...................... 181,395 -- 266,562
Depreciation and amortization... 404,211 203,305 1,098,070
Changes in assets and liabilities:
(Increase) in accounts
receivable..................... (14,000) -- (14,000)
(Increase) in inventories....... (699,895) (1,413,455) (3,058,829)
Decrease (increase) in prepaid
expenses and other assets...... 187,872 (325,703) (264,499)
Decrease (increase) in advance
licensing fees................. 9,168 880 (738,302)
(Decrease) increase in accounts
payable........................ (406,769) (360,408) 337,129
Increase in accrued expenses.... 344,713 702,765 1,180,037
Increase in obligation under
strategic alliance agreement... 450,000 450,000 2,025,000
------------ ----------- ------------
Net cash used in operating
activities................... (11,327,718) (8,329,175) (37,448,230)
------------ ----------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures............ (775,302) (898,205) (2,258,552)
Investments in LADARVision
Systems-in-Service............. (437,000) -- (874,000)
Decrease in restricted cash
investment..................... -- 50,955 --
Investments made................ -- (9,644,170) (23,788,250)
Investment proceeds............. 7,191,827 8,362,408 23,788,250
------------ ----------- ------------
Net cash provided by (used in)
investing activities......... 5,979,525 (2,129,012) (3,132,552)
------------ ----------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from issuance of
convertible preferred stock.... 4,681,273 -- 10,683,981
Proceeds from issuance of common
stock, net of issuance costs... 2,904,395 8,014,996 28,899,891
Proceeds from exercise of stock
options and warrants........... 575,716 62,525 647,209
Payments of note payable........ -- (1,715) --
Payments of obligations under
capital leases................. (76,884) (91,207) (179,847)
Advance from stockholder........ -- -- 1,000,000
Proceeds from issuance of
convertible note payable....... -- -- 2,405,000
Proceeds from long-term debt.... -- -- 200,000
Repayment of long-term debt..... -- -- (200,000)
</TABLE>
(continued)
F-24
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
CONTINUED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------- FROM INCEPTION
SEPTEMBER SEPTEMBER (JULY 23, 1985) TO
30, 1998 30, 1997 SEPTEMBER 30, 1998
---------- ---------- ------------------
<S> <C> <C> <C>
Other, net......................... -- -- (30,000)
Net cash provided by financing ac-
tivities.......................... 8,084,500 7,984,599 43,426,234
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... 2,736,307 (2,473,588) 2,845,552
CASH AND CASH EQUIVALENTS, beginning
of period........................... 109,245 2,980,036 --
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of pe-
riod................................ $2,845,552 $ 506,448 $2,845,552
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Noncash transactions--
Equipment acquired under capital
leases.......................... -- $ 178,246 $ 206,833
Stockholder advance converted to
common stock.................... -- -- $1,000,000
Convertible note converted to
common stock.................... -- -- $2,405,000
Strategic alliance obligation
converted to common stock....... $1,725,000 -- $1,725,000
Deemed dividend for preferred
stock conversion (Note 3)....... 428,350 -- 428,350
Issuance of common stock upon
conversion of Series I Convert-
ible Preferred Stock............ 751,137 -- 751,137
Cash transactions--
Interest paid.................... $ 7,362 $ 27,277 $ 96,969
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and adjustments) considered necessary for a fair
presentation have been included. Operating results for the three month or nine
month periods ended September 30, 1998, are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. For further
information, refer to the Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Financial Statements and Footnotes
thereto included in the Autonomous Technologies Corporation ("Company") Annual
Report on Form 10-K as filed with the Securities and Exchange Commission
("SEC") on March 31, 1998, and as amended on June 17, 1998.
The Company formed a wholly-owned subsidiary in May, 1998, to facilitate the
conduct of its business in non-U.S. markets. The accounts of this subsidiary,
Autonomous International Corporation, are consolidated for presentation in
these financial statements at September 30, 1998 and for periods since
formation of the subsidiary to September 30, 1998.
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method. At September 30, 1998, the Company's components
and purchased sub-assemblies inventory was $2,242,623 and work-in-progress
LADARVision(R) Systems totaled $816,206.
Diluted loss per common and common equivalent share is not presented due to the
anti-dilutive effect (i.e., the effect of reducing loss per share) of the
Company's convertible preferred stock, stock options and warrants in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per Share."
2. SALE OF SECURITIES
Private Placement of Common Stock. On May 26, 1998, the Company completed a
private placement of 600,573 shares of unregistered Common Stock for $5.166 per
share to four European investors. The Common Stock was sold pursuant to an
exemption from the registration requirements of the Securities Act of 1933
provided by Section 4(2) thereof. EVEREN Securities, Inc. acted as placement
agent for this sale and was paid a commission of 6% of the gross proceeds. The
approximate net proceeds of this sale were $2,884,000. The Company used the
proceeds from the sale of the Common Stock to fund operating expenses and
working capital. The Company filed a Registration Statement on Form S-3 on
behalf of the European investors covering the resale of the shares of Common
Stock in August, 1998. This sale of Common Stock was funded to the Company in
early June 1998.
F-26
<PAGE>
Private Placement of Series I Convertible Preferred Stock. On April 16, 1998,
the Company completed a private placement with OZ Master Fund, Ltd. (the
"Investor"). The private placement was of 500 shares of the Company's newly
created Series I Convertible Preferred Stock (the "Initial Shares"), with an
option to purchase 400 shares of Series I Convertible Preferred Stock and a
stock purchase warrant for 300,000 shares of Common Stock with an exercise
price of $6.17 (the "Warrant") (the 400 shares and the Warrant collectively,
the "Option"). The price of each share of Series I Convertible Preferred Stock
is $10,000. The Initial Shares are convertible, subject to a pricing formula to
be invoked upon each periodic conversion, into a maximum of 1,750,000 shares of
the Company's Common Stock (the "Initial Maximum Shares").
The Initial Shares and the 400 shares of Series I Convertible Preferred Stock
(the "Option Shares"), together, may be converted into an aggregate maximum of
2,263,197 shares of Common Stock. The Initial Shares and Option Shares are
convertible into shares of Common Stock upon the election of the Investor, at
no more than 115 shares per month, based on 90% of the average daily low trade
price of the Company's Common Stock, subject to an upper limit after October 1,
1998, the date of the announcement of the merger with Summit (see Note 5).
Upon the announcement of the merger with Summit, the operation of the
Certificate of Designation of the Series I Convertible Preferred Stock
permitted such conversions to be made thereafter at a price no higher than
$3.975, the average daily low trade price or the Company's Common Stock in the
five trading days prior to the announcement.
The Company has used the proceeds from the sale of the Series I Convertible
Preferred Stock to fund operating expenses and working capital. The Series I
Convertible Preferred Stock and Option were sold to the Investor pursuant to an
exemption from the registration requirements of the Securities Act provided by
Section 4(2) thereof. The Company subsequently filed a Registration Statement
on Form S-3 on behalf of the Investor covering the resale of the Initial
Maximum Shares and agreed to file a separate Form S-3 for the additional shares
of Common Stock into which the Option Shares are convertible and the shares of
Common Stock underlying the Warrant, if the Option is exercised. The first
Registration Statement was declared effective by the SEC on August 6, 1998 and
the closing of the purchase of the Initial Shares occurred on August 7, 1998.
The Company received an irrevocable notification of exercise of the Option by
the Investor on November 9, 1998. The closing of the Option is subject to the
effectiveness of a resale Registration Statement for those additional shares of
Common Stock into which the Option Shares are exercisable and the shares of
Common Stock underlying the Warrant.
3. ACCOUNTING FOR CONVERTIBLE PREFERRED STOCK WITH CONVERSION AT DISCOUNT TO
MARKET
Various pronouncements, including provisions of Regulation S-X and certain SEC
Staff Accounting Bulletins, govern the accounting for a convertible preferred
stock issue with a conversion feature calculated at a discount from the market
price of the underlying common stock (see Note 2, "Sale Of Securities--Private
Placement of Series I Convertible Preferred Stock"). Under these
pronouncements, the Company is accounting for the aggregate estimated discount
from the conversions as a "deemed" preferred stock dividend in the Company's
Consolidated Statement of Operations. This accounting treatment takes into
account the earliest schedule upon which the
F-27
<PAGE>
conversions can occur and allocates the aggregate estimated discount to the
periods for which those scheduled shares of convertible preferred stock are
outstanding. In the period from the closing of the Initial Shares (August 7,
1998) to September 30, 1998, the Company recognized $428,350 of such deemed
dividend on the preferred stock. The Company will recognize an additional
$571,650 of such deemed dividend between October 1, 1998 and March 31, 1999.
4. NEWLY ISSUED ACCOUNTING STANDARDS
The Company has adopted the following Statements of Financial Accounting
Standards at their respective effective dates. There was no impact on the
September 30, 1998 financial statements as a result of the implementation of
these Statements.
SFAS No. 130, "Reporting Comprehensive Income"
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information"
SFAS No. 132, "Employers Disclosures About Pensions and Other Post-
retirement Benefits"
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities"
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the
securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise"
5. SUBSEQUENT EVENT--MERGER AGREEMENT WITH SUMMIT TECHNOLOGY, INC.
On October 1, 1998, the Company and Summit Technology, Inc. ("Summit")
announced that they had entered into an agreement whereby Summit would acquire
the Company. The following is a brief summary of the terms of the Agreement and
Plan of Merger and is qualified in its entirety by reference to the Agreement
and Plan of Merger, dated October 1, 1998.
On October 1, 1998, the Company entered into an Agreement and Plan of Merger
that provides for its merger with and into a wholly owned subsidiary of Summit
Technology, Inc. ("Summit"). The merger transaction is subject to the approval
of the stockholders of both the Company and Summit. The merger consideration is
11,650,400 shares of Summit stock and an equivalent amount in value of cash
subject to a maximum of $50 million in cash. This consideration will be divided
among the outstanding shares of Autonomous common stock, the outstanding shares
of Autonomous Series I Preferred Stock and options and warrants for Autonomous
common stock. Autonomous common stockholders will receive part stock and part
cash for their Autonomous shares. The exact value, and the relative mix of cash
and Summit stock, will vary depending on the market price of Summit stock prior
to the closing, the amount of the loan to Autonomous described below, if any,
whether the holder of the Series I Preferred Stock exercises its right to
redeem its shares for cash and certain other factors.
Randy W. Frey, Chairman, President and Chief Executive Officer of the Company
and CIBA Vision Corporation, together owning approximately 21% of the Company's
outstanding shares, and each of the Company's officers and directors have
agreed to vote, as shareholders, for the merger.
In connection with the merger agreement, Summit agreed to lend up to $5 million
to the Company on a revolving credit basis. Under the revolving credit
agreement, the Company may not draw more than $1.5 million per month. One half
of the amount borrowed by the Company as of the closing
F-28
<PAGE>
date of the merger will reduce the amount of the aggregate cash consideration
in the merger. In the event the merger does not occur through no fault of the
Company, the amount drawn on the revolving credit facility is due and payable
180 days from the date of the termination of the merger agreement.
Under the terms of the merger agreement, the Company must pay Summit a
termination fee of $2.6 million in cash if the merger agreement is terminated
in either of the following circumstances:
. the Autonomous stockholders have not approved the merger by February 28,
1999 and a proposal by a third party for an alternative transaction has
been made prior to the Autonomous Special Meeting of Stockholders that
will be called in order to vote on the merger agreement; or
. the Company materially breaches any representation or warranty in the
merger agreement of fails to comply with any of its obligations under the
merger agreement if these result in a material adverse change incapable
of being cured by the Company.
Upon the effectiveness of the aforementioned Summit S-4 registration statement,
the Company and Summit plan to distribute a joint proxy statement to their
respective shareholders. Depending on the timing of the effectiveness of the
registration statement and other factors, the Company and Summit plan to hold
their respective shareholder meetings as soon as practicable.
F-29
<PAGE>
ANNEX A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SUMMIT TECHNOLOGY, INC.,
ALPINE ACQUISITION CORP.,
AND
AUTONOMOUS TECHNOLOGIES CORPORATION
DATED AS OF OCTOBER 1, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I................................................................ 1
THE MERGER............................................................ 1
Section 1.1 The Merger.......................................... 1
Section 1.2 Effective Time...................................... 2
Section 1.3 Effect of the Merger................................ 2
Section 1.4 Certificate of Incorporation, By-Laws............... 2
Section 1.5 Directors and Officers.............................. 2
Section 1.6 Effect on Capital Stock............................. 2
Section 1.7 Exchange of Certificates............................ 5
Section 1.8 Stock Transfer Books................................ 6
No Further Ownership Rights in Company Common
Section 1.9 Stock.............................................. 6
Section 1.10 Lost, Stolen or Destroyed Certificates.............. 6
Section 1.11 Tax Consequences.................................... 7
Section 1.12 Taking of Necessary Action; Further Action.......... 7
Section 1.13 Material Adverse Effect............................. 7
Section 1.14 Restructuring of the Merger......................... 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... 8
Section 2.1 Organization and Qualification; Subsidiaries........ 9
Section 2.2 Articles of Incorporation and By-Laws............... 9
Section 2.3 Capitalization...................................... 9
Section 2.4 Authority Relative to this Agreement................ 10
Section 2.5 No Conflict; Required Filings and Consents.......... 11
Section 2.6 Compliance.......................................... 12
Section 2.7 SEC Filings; Financial Statements................... 12
Section 2.8 Absence of Certain Changes or Events................ 12
Section 2.9 No Undisclosed Liabilities.......................... 13
Section 2.10 Absence of Litigation............................... 13
Section 2.11 Employee Benefit Plans, Employment Agreements....... 13
Section 2.12 Labor Matters....................................... 15
Registration Statement, Joint Proxy
Section 2.13 Statement/Prospectus............................... 15
Section 2.14 Title to Property................................... 15
Section 2.15 Taxes............................................... 15
Section 2.16 Environmental Matters............................... 16
Section 2.17 Intellectual Property............................... 17
Section 2.18 Regulatory Matters.................................. 18
Section 2.19 Interested Party Transactions....................... 19
Section 2.20 Insurance........................................... 19
Section 2.21 Opinion of Financial Advisor........................ 19
Section 2.22 Brokers............................................. 19
Section 2.23 Change in Control Payments.......................... 20
Section 2.24 Expenses............................................ 20
Section 2.25 No Existing Discussions............................. 20
Sections 607.0901 and 607.0902 of the FBCA Not
Section 2.26 Applicable......................................... 20
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............... 20
Section 3.1 Organization and Qualification; Subsidiaries........ 21
Section 3.2 Charter and By-Laws................................. 21
Section 3.3 Capitalization...................................... 21
Section 3.4 Authority Relative to this Agreement................ 21
Section 3.5 No Conflict, Required Filings and Consents.......... 22
Section 3.6 Compliance.......................................... 23
Section 3.7 SEC Filings; Financial Statements................... 23
Section 3.8 Absence of Certain Changes or Events................ 24
Section 3.9 No Undisclosed Liabilities.......................... 24
Section 3.10 Absence of Litigation............................... 24
Section 3.11 Employee Benefit Plans; Employment Agreements....... 24
Section 3.12 Labor Matters....................................... 25
Registration Statement; Joint Proxy
Section 3.13 Statement/Prospectus............................... 26
Section 3.14 Title to Property................................... 26
Section 3.15 Taxes............................................... 26
Section 3.16 Environmental Matters............................... 27
Section 3.17 Intellectual Property............................... 27
Section 3.18 Regulatory Matters.................................. 28
Section 3.19 Interested Party Transactions....................... 28
Section 3.20 Financial Capacity.................................. 28
Section 3.21 Opinion of Financial Advisor........................ 29
Section 3.22 Brokers............................................. 29
Section 3.23 Ownership of Merger Sub; No Prior Activities........ 29
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER................................ 29
Conduct of Business by the Company Pending the
Section 4.1 Merger............................................. 29
Section 4.2 No Solicitation..................................... 31
ARTICLE V
ADDITIONAL AGREEMENTS................................................. 32
Section 5.1 HSR Act............................................. 32
Joint Proxy Statement Prospectus; Registration
Section 5.2 Statement.......................................... 32
Section 5.3 Stockholders Meetings............................... 33
Section 5.4 Access to Information; Confidentiality.............. 33
Section 5.5 Consents; Approvals................................. 33
Section 5.6 Agreements with Respect to Affiliates............... 34
Section 5.7 Indemnification and Insurance....................... 34
Section 5.8 Notification of Certain Matters..................... 35
Section 5.9 Further Action/Tax Treatment........................ 35
Section 5.10 Public Announcements................................ 36
Section 5.11 Accountants' Letters................................ 36
Section 5.12 Board Representation................................ 36
Section 5.13 Nasdaq Listing...................................... 36
Section 5.14 Listing of Parent Shares............................ 36
Section 5.15 Joint Shareholder Communications Efforts............ 36
Section 5.16 Dismissal of Civil Actions.......................... 37
Section 5.17 Issuance of CIBA Shares............................. 37
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE VI
CONDITIONS TO THE MERGER.............................................. 37
Conditions to Obligation of Each Party to Effect the
Section 6.1 Merger............................................. 37
Additional Conditions to Obligations of Parent and
Section 6.2 Merger Sub......................................... 37
Section 6.3 Additional Conditions to Obligation of the Company.. 38
ARTICLE VII
TERMINATION........................................................... 39
Section 7.1 Termination......................................... 39
Section 7.2 Effect of Termination............................... 41
Section 7.3 Fees and Expenses................................... 41
ARTICLE VIII
GENERAL PROVISIONS.................................................... 41
Section 8.1 Effectiveness of Representations, Warranties and
Agreements; Knowledge, Etc......................... 41
Section 8.2 Notices............................................. 42
Section 8.3 Certain Definitions................................. 42
Section 8.4 Amendment........................................... 43
Section 8.5 Waiver.............................................. 43
Section 8.6 Headings............................................ 43
Section 8.7 Severability........................................ 44
Section 8.8 Entire Agreement.................................... 44
Section 8.9 Assignment; Guarantee of Merger Sub................. 44
Section 8.10 Parties in Interest................................. 44
Failure or Indulgence Not Waiver; Remedies
Section 8.11 Cumulative......................................... 44
Section 8.12 Governing Law....................................... 44
Section 8.13 Counterparts........................................ 44
</TABLE>
iii
<PAGE>
LOCATION OF DEFINED TERMS IN AGREEMENT AND PLAN OF MERGER
<TABLE>
<CAPTION>
DEFINED TERMS SECTION OF MERGER AGREEMENT
- ------------- ---------------------------
<S> <C>
1998 Company Balance Sheet.......................... 2.9
1998 Parent Balance Sheet........................... 3.9
Acquisition Proposal................................ 4.2(a)
Affiliates.......................................... 8.3
Affiliate Agreement................................. 5.6
Affiliate Letter.................................... 5.6
Agreement........................................... Preamble
Alternative Transaction............................. 7.1
Approvals........................................... 2.1
Average Closing Price............................... 1.6(a)
Beneficial Owner.................................... 8.3
Blue Sky Laws....................................... 2.5(d)
Business Day........................................ 8.3
Cash Consideration.................................. 1.6(a)
Certificates........................................ 1.6(f)
Certificates of Merger.............................. 1.2
Closing............................................. 1.1(b)
Code................................................ Preamble
Company............................................. Preamble
Company Common Stock................................ Preamble
Company Disclosure Schedule......................... Article II Preamble
Company Employee Plans.............................. 2.11(a)
Company ERISA Affiliate............................. 2.11(a)
Company Fee......................................... 7.3(b)
Company Intellectual Property Rights................ 2.17(a)
Company Liens....................................... 2.3
Company Permits..................................... 2.6(b)
Company Products.................................... 2.18(a)
Company SEC Reports................................. 2.7(a)
Company Stockholders Meeting........................ 2.13
Company Stock Option Plan........................... 1.6(c)(i)
Company Stock Purchase Plan......................... 1.6(c)(v)
Confidentiality Letter.............................. 5.4
Control............................................. 8.3
DGCL................................................ Preamble
Diluted Company Common Stock........................ 1.6(a)
Effective Time...................................... 1.2
Environmental Laws.................................. 2.16
ERISA............................................... 2.11(a)
Exchange Act........................................ 2.5(a)
Exchange Agent...................................... 1.7(a)
FBCA................................................ Preamble
FDA................................................. 2.18(a)
Generally accepted accounting principles............ 8.3
HSR Act............................................. 2.5(d)
Indemnified Parties................................. 5.7(b)
IRS................................................. 2.11(b)
ISO................................................. 2.11(c)
Joint Proxy Statement/Prospectus.................... 2.13
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERMS SECTION OF MERGER AGREEMENT
- ------------- ---------------------------
<S> <C>
Laws................................................ 2.5(c)
Licenses............................................ 2.18(b)
Liens............................................... 2.3
Material Adverse Effect............................. 1.13
Merger.............................................. Preamble
Merger Consideration................................ 1.7(b)
Merger Sub.......................................... Preamble
Parent.............................................. Preamble
Parent Common Stock................................. 1.6(a)
Parent Disclosure Schedule.......................... Article III Preamble
Parent Employee Plans............................... 3.11(a)
Parent ERISA Affiliate.............................. 3.11(a)
Parent Fee.......................................... 7.3(c)
Parent Intellectual Property Rights................. 3.17(a)
Parent Liens........................................ 3.3
Parent Material Adverse Effect...................... 1.13
Parent Permits...................................... 3.6(b)
Parent Products..................................... 3.18(a)
Parent SEC Reports.................................. 3.7(a)
Parent Shares....................................... 1.6(a)
Parent Stockholders Meeting......................... 2.13
PBGC................................................ 2.11(b)
Per Share Cash Consideration........................ 1.6(a)
Per Share Stock Consideration....................... 1.6(a)
Outstanding Company Common Stock.................... 1.6(a)
Rule 145............................................ 5.6
SEC................................................. 2.5(a)
Securities Act...................................... 1.6(c)(iv)
Series I Preferred Stock............................ 1.6(a)
Share............................................... Preamble
Stock Consideration................................. 1.6(a)
Stock Options....................................... 1.6(c)(i)
Stockholders Agreements............................. 2.26
Stockholders Meeting................................ 2.13
Subsidiary Documents................................ 2.2
Tax/Taxes........................................... 2.15
Tax Returns......................................... 2.15
Terminating Breach.................................. 7.1(f)
Third Party......................................... 7.1(h)
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 1, 1998 (this "Agreement"),
among Summit Technology, Inc., a Massachusetts corporation ("Parent"), Alpine
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Merger Sub"), and Autonomous Technologies Corporation, a Florida
corporation (the "Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a business combination with
the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of Parent,
Merger Sub and the Company have each approved the merger (the "Merger") of the
Company with and into Merger Sub or, if the Merger is restructured as provided
herein, of Merger Sub with and into the Company, in accordance with the
applicable provisions of the Florida Business Corporation Act (the "FBCA") and
the Delaware General Corporation Law (the "DGCL"), and upon the terms and
subject to the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, unless the Merger shall
have been restructured as provided herein, by approving resolutions authorizing
this Agreement, to adopt this Agreement as a plan of reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations promulgated thereunder; and
WHEREAS, pursuant to the Merger, each outstanding share (a "Share") of the
Company's common stock, $.01 par value per share (the "Company Common Stock"),
shall be converted into the right to receive the Merger Consideration (as
defined in Section 1.7(b)), upon the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements herein contained, and intending to be legally bound hereby, Parent,
Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger.
(a) Effective Time. At the Effective Time (as defined in Section 1.2), and
subject to and upon the terms and conditions of this Agreement, the FBCA and
the DGCL, the Company shall be merged with and into Merger Sub, the separate
corporate existence of the Company shall cease, and Merger Sub shall continue
as the surviving corporation. Merger Sub as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
<PAGE>
(b) Closing. Unless this Agreement shall have been terminated pursuant to
Section 7.1 and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the consummation of the Merger (the "Closing") will take
place as promptly as practicable (and in any event within two business days)
after satisfaction or waiver of the conditions set forth in Article VI, at the
offices of Ropes & Gray, One International Place, Boston, Massachusetts, unless
another date, time or place is agreed to in writing by the parties hereto.
Section 1.2 Effective Time. As promptly as practicable after the satisfaction
or waiver of the conditions set forth in Article VI, the parties hereto shall
cause the Merger to be consummated by filing certificates of merger as
contemplated by the FBCA and the DGCL (the "Certificates of Merger"), together
with any required related certificates, with the Secretary of State of the
State of Florida and the Secretary of State of the State of Delaware, in such
form as required by, and executed in accordance with the relevant provisions
of, the FBCA and the DGCL (the time of the later of such filings being the
"Effective Time").
Section 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificates of Merger and
the applicable provisions of the FBCA and the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
Section 1.4 Certificate of Incorporation, By-Laws.
(a) Certificate of Incorporation. Unless otherwise determined by Parent prior
to the Effective Time, at the Effective Time the Certificate of Incorporation
of Merger Sub, as in effect immediately prior to the Effective Time, shall be
the Certificate of Incorporation of the Surviving Corporation until thereafter
amended in accordance with the DGCL and such Certificate of Incorporation.
(b) By-Laws. Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time the By-Laws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended in accordance with the DGCL, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws.
Section 1.5 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
Section 1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the Parent, Merger Sub, the
Company or any of their respective stockholders:
(a) Conversion of Securities. Each Share issued and outstanding immediately
prior to the Effective Time (excluding any Shares to be canceled pursuant
to Section 1.6(b)) shall be
A-2
<PAGE>
converted, subject to Section 1.6(f), into the right to receive (i) the
quotient of 11,650,400 shares (the "Stock Consideration") of validly
issued, fully paid and nonassessable shares ("Parent Shares") of the
Common Stock, $0.01 par value per share, of Parent ("Parent Common Stock")
divided by the Diluted Company Common Stock (the "Per Share Stock
Consideration") and (ii) the quotient of $50,000,000 in cash less (A) one-
half of any amounts advanced to the Company by Parent after the date
hereof and (B) unless the holders of the Series I Preferred Stock shall
have converted such Series I Preferred Stock prior to the Effective Time,
any amounts that would be payable upon redemption of all shares of the
Company's Convertible Preferred Stock, Series I, $.01 par value per share
(the "Series I Preferred Stock"), that are issued or issuable as of the
date hereof, assuming redemption is made on the date on which the
Effective Time occurs in accordance with the provisions of the Company's
Articles of Incorporation or pursuant to any agreement with the holders of
Series I Preferred Stock prior to the Effective Time (the "Cash
Consideration") divided by the Diluted Company Common Stock (the "Per
Share Cash Consideration"). If the average closing price of Parent Common
Stock on The Nasdaq National Market for the five trading days ending on
the day before the date on which the Effective Time occurs (the "Average
Closing Price") is less than $4.2917, then the $50,000,000 in the previous
sentence shall be reduced to 11,650,400 multiplied by the Average Closing
Price.
"Diluted Company Common Stock" means the number of shares of Company
Common Stock outstanding at the Effective Time (the "Outstanding Company
Common Stock"), plus all shares of Company Common Stock issuable upon the
exercise or conversion of all options, warrants, convertible securities
or other rights, agreements, arrangements or other commitments of any
character pursuant to which the Company is obligated, contingently or
otherwise, to issue or sell shares of Company Common Stock (excluding the
Series I Preferred Stock and all rights to acquire the Series I Preferred
Stock) calculated by applying the treasury stock method to options,
warrants and convertible securities.
(b) Cancellation. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of
the holder thereof, cease to be outstanding, be canceled and retired
without payment of any consideration therefor and cease to exist.
(c) Stock Options and Stock Purchase Plan.
(i) At the Effective Time, Parent will assume each then outstanding
option to purchase Shares (the "Stock Options") under the Company's
1995 Stock Option Plan (the "Company Stock Option Plan") as to which
the holder has waived the acceleration of vesting under Section 14 of
the Company Stock Option Plan, and each such Stock Option shall
thereafter constitute an option to acquire, on substantially the same
terms and subject to substantially the same conditions as were
applicable under such Stock Option, including without limitation
term, vesting, exercisability, status as an "incentive stock option"
under Section 422 of the Code and termination provisions, the number
of shares of Parent Common Stock, rounded down to the nearest whole
share, equal to the sum of (i) the product of the number of Shares
subject to such Stock Option immediately prior to the Effective Time
multiplied by the Per Share Stock Consideration plus (ii) the
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product of the number of Shares subject to such Stock Option
immediately prior to the Effective Time multiplied by a fraction the
numerator of which is the Per Share Cash Consideration and the
denominator of which is the Average Closing Price. The exercise price
per share of Parent Common Stock (increased to the nearest whole cent)
shall be equal to the aggregate exercise price of the Stock Option
divided by the number of Shares of Parent Common Stock into which such
Stock Option will become exercisable at the Effective Time; provided,
however, that in the case of any Stock Option to which Section 421 of
the Code applies by reason of its qualification as an incentive stock
option under Section 422 of the Code, the conversion formula shall be
adjusted if necessary to comply with Section 424(a) of the Code.
(ii) The Company shall use its best efforts to obtain all necessary
waivers, consents or releases from holders of Stock Options under
the Company Stock Option Plan and take any such other action as may
be reasonably necessary to give effect to the transactions
contemplated by this Section 1.6(c).
(iii) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of Parent Shares for delivery pursuant
to the terms set forth in this Section 1.6(c).
(iv) Subject to any applicable limitations under the Securities Act of
1933, as amended, and the rules and regulations thereunder (the
"Securities Act"), Parent shall either (A) file a Registration
Statement on Form S-8 (or any successor form), effective as of the
Effective Time, with respect to the shares of Parent Common Stock
issuable upon exercise of the Stock Options, or (B) file any
necessary amendments to the Company's previously-filed Registration
Statement(s) on Form S-8 in order that the Parent will be deemed a
"successor registrant" thereunder, and, in either event the Parent
shall use all reasonable efforts to maintain the effectiveness of
such registration statement(s) (and maintain the current status of
the prospectus or prospectuses relating thereto) for so long as such
Stock Options shall remain outstanding.
(v) The Company will promptly cause written notice of the execution of
this Agreement to be given to persons holding options or other rights
to purchase Company Common Stock under the Company's 1996 Employee
Stock Purchase Plan (the "Company Stock Purchase Plan"). The Company
will terminate the Company Stock Purchase Plan at the end of the
current purchase period.
(d) Capital Stock of Merger Sub. Each share of common stock, $.01 par value,
of Merger Sub issued and outstanding immediately prior to the Effective
Time shall remain outstanding.
(e) Adjustments to Stock Consideration. The Stock Consideration shall be
adjusted to fully reflect the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock), reorganization, recapitalization
or other like change with respect to Parent Common Stock occurring after
the date hereof and prior to the Effective Time.
(f) Fractional Shares. Unless Parent otherwise elects, no certificates or
scrip representing less than one Parent Share shall be issued upon the
surrender for exchange of a certificate or certificates which immediately
prior to the Effective Time represented outstanding Shares (the
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"Certificates"). If Parent so elects, in lieu of any such fractional
share, each holder of Shares who would otherwise have been entitled to a
fraction of a Parent Share upon surrender of Certificates for exchange
shall be paid upon such surrender cash equal to the product of (i) such
fraction, multiplied by (ii) the Average Closing Price.
Section 1.7 Exchange of Certificates.
(a) Exchange Agent. Parent shall supply, or shall cause to be supplied, to or
for the account of BankBoston, N.A., or such other bank or trust company as
shall be designated by Parent (the "Exchange Agent"), in trust for the benefit
of the holders of Company Common Stock, for exchange in accordance with this
Section 1.7, through the Exchange Agent, certificates evidencing the Parent
Shares issuable pursuant to Section 1.6 in exchange for outstanding Shares.
(b) Exchange Procedures. As soon as reasonably practicable after the Effective
Time, Parent will instruct the Exchange Agent to mail to each holder of record
of Certificates (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent and shall
be in such form and have such other provisions as Parent may reasonably
specify), and (ii) instructions to effect the surrender of the Certificates in
exchange for the certificates evidencing Parent Shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter
of transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, the holder of such Certificate shall
be entitled to receive in exchange therefor (A) certificates evidencing that
number of whole Parent Shares which such holder has the right to receive
pursuant to Section 1.6(a) in respect of the Shares formerly evidenced by such
Certificate, (b) the per Share Cash Consideration, (C) any dividends or other
distributions to which such holder is entitled pursuant to Section 1.7(c), and
(D) cash in respect of fractional shares as provided in Section 1.6(f) (the
Stock Consideration, the Cash Consideration, dividends, distributions and cash
being, collectively, the "Merger Consideration"), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Shares which is not registered in the transfer records of the
Company as of the Effective Time, the Merger Consideration may be issued and
paid in accordance with this Article I to a transferee if the Certificate
evidencing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer pursuant to this
Section 1.7(b) and by evidence that any applicable stock transfer taxes have
been paid. Until so surrendered, each outstanding Certificate that, prior to
the Effective Time, represented Shares will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of
dividends and subject to Section 1.6(f), to evidence the ownership of the
number of whole Parent Shares that represent the Stock Consideration with
respect to such Shares.
(c) Distributions With Respect to Unexchanged Parent Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Parent Shares they
are entitled to receive until the holder of such Certificate shall surrender
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole Parent Shares issued in exchange therefor, without
interest, at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole Parent Shares.
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(d) Transfers of Ownership. If any certificate for Parent Shares is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it will be a condition to the issuance thereof
that the Certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other taxes
required by reason of the issuance of a certificate for Parent Shares in any
name other than that of the registered holder of the certificate surrendered,
or have established to the satisfaction of Parent or any agent designated by it
that such tax has been paid or is not payable.
(e) No Liability. At any time following one year after the Effective Time,
Parent shall be entitled to require the Exchange Agent to deliver to Parent any
Merger Consideration which had been made available to the Exchange Agent by or
on behalf of Parent and which has not been disbursed to holders of
Certificates, and thereafter such holders shall be entitled to look to Parent
only as general creditors thereof with respect to the Merger Consideration
payable upon due surrender of their Certificates. Notwithstanding the
foregoing, neither Parent, Merger Sub nor the Company shall be liable to any
holder of Company Common Stock for any Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) Withholding Rights. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of Company Common Stock such amounts as Parent or
the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Parent or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect of which
such deduction and withholding was made by Parent or the Exchange Agent.
Section 1.8 Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further
registration of transfers of Company Common Stock thereafter on the records of
the Company.
Section 1.9 No Further Ownership Rights in Company Common Stock. The Merger
Consideration delivered upon the surrender of Certificates in exchange for the
Shares represented thereby, in accordance with the terms hereof, shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such Shares, and there shall be no further registration of transfers on the
records of the Surviving Corporation of Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
Section 1.10 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, such Parent
Shares as may be required pursuant to Section 1.6; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity
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against any claim that may be made against Parent or the Exchange Agent with
respect to the Certificates alleged to have been lost, stolen or destroyed.
Section 1.11 Tax Consequences. Unless the Merger is restructured as the
Alternative Taxable Merger, it is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. The parties hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
Section 1.12 Taking of Necessary Action; Further Action. Each of Parent, Merger
Sub and the Company will take all such reasonable and lawful action as may be
necessary or appropriate in order to effectuate the Merger in accordance with
this Agreement as promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company, Parent and Merger Sub immediately prior to the Effective Time are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action.
Section 1.13 Material Adverse Effect. When used in connection with the Company
or any of its subsidiaries, or Parent or any of its subsidiaries, as the case
may be, the term "Material Adverse Effect" means any change, effect or
circumstance that, individually or when taken together with all other such
similar or related changes, effects or circumstances that have occurred prior
to the date of determination of the occurrence of the Material Adverse Effect,
(a) is materially adverse to the business, assets (including intangible
assets), financial condition or results of operations of the Company and its
subsidiaries or Parent and its subsidiaries, as the case may be, in each case
taken as a whole (other than changes that are the effect of economic factors
affecting the economy as a whole), or (b) is reasonably likely to materially
delay or prevent the consummation of the transactions contemplated hereby.
Section 1.14 Restructuring of the Merger.
(a) Notwithstanding any provision of this Agreement, in the event that either:
(i) the product of the Average Closing Price and the number of shares of
Parent Common Stock issuable in the Merger in respect of Outstanding
Company Common Stock shall be less than 82% of the sum of (A) the
product of the Per Share Cash Consideration and the Outstanding Company
Common Stock plus (B) the amounts described in Section 1.6(a)(ii)(B),
or
(ii) the product of the average of the high and low sale prices of the
Parent Common Stock on the Nasdaq National Market on the last trading
date prior to the Closing Date and the number of shares of Parent
Common Stock issuable in the Merger in respect of Outstanding Company
Common Stock adjusted to reflect the effect of any trading
restrictions, shall be less than the sum of (A) the product of the Per
Share Cash Consideration and the Outstanding Company Common Stock plus
(B) the amounts described in Section 1.6(a)(ii)(B),
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then as promptly as practicable, the Merger shall be restructured as provided
in this Section 1.14 (the "Alternative Taxable Merger").
(b) The following provisions shall apply to the Alternative Taxable Merger:
(i) Section 1.1(a) of this Agreement shall be deemed to read, in its
entirety, as follows:
"(a) Effective Time. At the Effective Time (as defined in Section 1.2),
and subject to and upon the terms and conditions of this Agreement,
the FBCA and the DGCL, Merger Sub shall be merged with and into the
Company, the separate corporate existence of Merger Sub shall cease,
and the Company shall continue as the surviving corporation. The
Company as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
(ii) Sections 1.4(a) and (b) of this Agreement shall be deemed to read, in
their entirety, as follows:
"(a) Articles of Incorporation. Unless otherwise determined by Parent
prior to the Effective Time, at the Effective Time the Articles of
Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter amended in accordance
with the FBCA and such Articles of Incorporation."
"(b) By-Laws. Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time the By-Laws of the Company,
as in effect immediately prior to the Effective Time, shall be the
By-Laws of the Surviving Corporation until thereafter amended in
accordance with the FBCA, the Articles of Incorporation of the
Surviving Corporation and such By-Laws."
(iii) Section 1.5(d) of this Agreement shall be deemed to read, in its
entirety, as follows:
"(d) Capital Stock of Merger Sub. Each share of common stock, $.01 par
value, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common
stock, $0.01 par value per share, of the Surviving Corporation."
(iv) The condition set forth in Section 6.2(d) of this Agreement shall not
be applicable to the Alternative Merger.
(v) All references in this Agreement to the Surviving Corporation shall be
deemed references to the Company as the Surviving Corporation in the
Alternative Merger.
(vi) All references in this Agreement to the Merger shall be deemed
references to the Alternative Merger, as provided for in this Section
1.14.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the written disclosure schedule delivered on or prior to
the date hereof by the Company to Parent that is arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
II (the "Company Disclosure Schedule"):
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Section 2.1 Organization and Qualification; Subsidiaries. Each of the Company
and each of its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has the requisite corporate power and authority and is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Approvals") necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
Approvals would not reasonably be expected to have a Company Material Adverse
Effect. Each of the Company and its subsidiaries is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not reasonably be expected to have a Company Material
Adverse Effect. A true and complete list as of the date hereof of all of the
Company's subsidiaries, together with the jurisdiction of incorporation of each
subsidiary, the authorized capitalization of each subsidiary, and the
percentage of each subsidiary's outstanding capital stock owned by the Company
or another subsidiary, is set forth in Section 2.1 of the Company Disclosure
Schedule. The Company does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity, with respect to which interest
the Company has invested or is required to invest $200,000 or more, excluding
securities in any publicly traded company held for investment by the Company
and comprising less than five percent of the outstanding stock of such company.
Section 2.2 Articles of Incorporation and By-Laws. The Company has heretofore
furnished to Parent a complete and correct copy of its Articles of
Incorporation and By-Laws as most recently restated and subsequently amended to
the date hereof, and has furnished or made available to Parent the Articles of
Incorporation and By-Laws (or equivalent organizational documents) of each of
its subsidiaries (the "Subsidiary Documents"). Such Articles of Incorporation,
By-Laws and Subsidiary Documents are in full force and effect and neither the
Company nor any of its subsidiaries is in violation of any of the provisions of
its Articles of Incorporation or By-Laws or Subsidiary Documents, except where
the failure to be in full force and effect or where such violation would not
have a Company Material Adverse Effect.
Section 2.3 Capitalization. The authorized capital stock of the Company
consists of (i) 25,000,000 shares of Company Common Stock and (ii) 1,000,000
shares of preferred stock, $0.01 par value per share. As of October 1, 1998,
(i) 11,524,467 shares of Company Common Stock were issued and outstanding, all
of which are validly issued, fully paid and nonassessable, and no shares were
held in treasury, (ii) 1,000 shares of preferred stock had been designated as
Series I Preferred Stock of which 436 shares are validly issued, fully paid and
nonassessable and of which 400 shares are subject to an option for their
purchase, (iii) no shares of Company Common Stock were held by subsidiaries of
the Company, (iv) 2,263,197 shares of Company Common Stock were reserved for
issuance upon the conversion of the Series I Preferred Stock, of which a
maximum of 1,750,000 shares are issuable upon the conversion of the initial 500
shares of Series I Preferred Stock and of which the remaining 513,197 shares
become issuable upon the purchase of an additional 400 shares of Series I
Preferred Stock pursuant to an option for such purchase, such that the total of
2,263,197
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shares of Company Common Stock are issuable upon the conversion of the total
900 shares of Series I Preferred Stock, (v) 922,350 shares of Company Common
Stock were reserved for issuance upon the exercise of outstanding warrants,
(vi) 1,690,926 shares of Company Common Stock were reserved for future issuance
pursuant to outstanding stock options granted under the Company Stock Option
Plan, (vii) 171,713 of Company Common Stock are reserved for future issuance
pursuant to the Strategic Alliance Agreement and (viii) 380,000 of Company
Common Stock are reserved for issuance pursuant to stock purchase warrants
which may become outstanding upon the exercise of an option to purchase Series
I Preferred Stock referred to in clause (iv) of this sentence. No material
change in such capitalization has occurred between September 30, 1998 and the
date hereof other than the issuance of shares of Company Common Stock under the
Company Stock Option Plans and under the Company Stock Purchase Plan. All
options, warrants or other rights, agreements, arrangements or commitments of
any character to which the Company or a subsidiary or, to the Company's
knowledge, any other person is a party relating to the issued or unissued
capital stock of the Company or any of its subsidiaries or obligating the
Company or any of its subsidiaries to issue or sell any shares of capital stock
of, or other equity interests in, the Company or any of its subsidiaries are
described in Section 2.3 of the Company Disclosure Schedule. All shares of
Company Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of the
Company or any of its subsidiaries to repurchase, redeem or otherwise acquire
any shares of Company Common Stock or the capital stock of any subsidiary or to
provide funds to or make any investment (in the form of a loan, capital
contribution, guaranty or otherwise) in any such subsidiary or any other
entity. All of the outstanding shares of capital stock of each of the Company's
subsidiaries are duly authorized, validly issued, fully paid and nonassessable,
and all such shares are owned by the Company or another subsidiary of the
Company, free and clear of all security interests, liens, claims, pledges,
agreements, limitations in the Company's voting rights, charges or other
encumbrances of any nature whatsoever (collectively, "Company Liens").
Section 2.4 Authority Relative to this Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action,
and no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated
(other than the adoption of this Agreement by the holders of at least a
majority of the outstanding shares of Company Common Stock entitled to vote in
accordance with the FBCA and the Company's Articles of Incorporation and By-
Laws). As of the date of this Agreement, the Board of Directors of the Company
has determined that it is advisable and in the best interest of the Company's
stockholders for the Company to enter into a business combination with Parent
upon the terms and subject to the conditions of this Agreement, and has
unanimously recommended that the Company's stockholders approve and adopt this
Agreement and the Merger. This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by Parent and Merger Sub, as applicable, constitutes a legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms.
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Section 2.5 No Conflict; Required Filings and Consents.
(a) Section 2.5(a) of the Company Disclosure Schedule includes a list of (i)
all contracts, agreements, commitments or other understandings or arrangements
to which the Company or any of its subsidiaries is a party or by which any of
them or any of their respective properties or assets are bound or affected, but
excluding (A) contracts, agreements, commitments or other understandings or
arrangements entered into in the ordinary course of business and involving, in
each case, payments by the Company or any of its subsidiaries of less than
$100,000 in any single instance, and (B) employment agreements and stock option
agreements and (ii) all agreements which, as of the date hereof, the Company is
required to file as "material contracts" with the Securities and Exchange
Commission ("SEC") pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, and the SEC's rules and regulations thereunder (the
"Exchange Act").
(b) (i) Neither the Company nor any of its subsidiaries has breached, is in
default under, or has received written notice of any breach of or default
under, any of the agreements, contracts or other instruments required to be
disclosed in Section 2.5(a) of the Company Disclosure Schedule, (ii) to the
best knowledge of the Company, no other party to any of the agreements,
contracts or other instrument required to be disclosed in Section 2.5(a) of the
Company Disclosure Schedule has breached or is in default of any of its
obligations thereunder, and (iii) each of the agreements, contracts and other
instruments required to be disclosed in Section 2.5(a) of the Company
Disclosure Schedule is in full force and effect, except in any such case for
breaches, defaults or failures to be in full force and effect that is not
currently having or would not reasonably be expected to have a Company Material
Adverse Effect.
(c) The execution and delivery of this Agreement by the Company does not, and
the performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby will not, (i) conflict with or violate the
Certificate of Incorporation or By-Laws of the Company, (ii) conflict with or
violate any federal, foreign, state or provincial law, rule, regulation, order,
judgment or decree (collectively, "Laws") applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or impair the Company's or any of its subsidiaries' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Company Lien on any of the properties or assets of the Company or
any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or its or any of their respective
properties is bound or affected, except in any such case for any such
conflicts, violations, breaches, defaults or other occurrences that would not
reasonably be expected to have a Company Material Adverse Effect.
(d) The execution and delivery of this Agreement by the Company does not, and
the performance of this Agreement by the Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
federal, foreign, state or provincial governmental or regulatory authority
except (i) for applicable requirements, if any, of the Securities Act, the
Exchange Act, state securities laws ("Blue Sky Laws"), the pre-merger
notification requirements of the Hart-Scott-
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Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the
filing and recordation of appropriate merger or other documents as required by
the DGCL, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would be
reasonably expected to have a Company Material Adverse Effect.
Section 2.6 Compliance. Neither the Company nor any of its subsidiaries is in
conflict with, or in default or violation of, (i) any Law or Approval
applicable to the Company or any of its subsidiaries or by which its or any of
their respective properties is bound or affected or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties is bound or affected, except for any such
conflicts, defaults or violations which would not reasonably be expected to
have a Company Material Adverse Effect.
Section 2.7 SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports and documents required to be filed
by it with the SEC since January 1, 1997 (collectively, the "Company SEC
Reports"). The Company SEC Reports (i) were prepared in all material respects
in accordance with the requirements of the Securities Act or the Exchange Act,
as the case may be, and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. None of the Company's subsidiaries is required to
file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case, any
related notes thereto) contained in the Company SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto), and each fairly presents in all material respects the
consolidated financial position of the Company and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and
cash flows and stockholders equity for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.
Section 2.8 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Reports filed prior to the date hereof, since June 30, 1998, the
Company has conducted its business in the ordinary course and there has not
occurred: (a) any Company Material Adverse Effect; (b) any amendments or
changes in the Articles of Incorporation or By-laws of the Company; (c) any
damage to, destruction or loss of any asset of the Company (whether or not
covered by insurance) that would reasonably be expected to have a Company
Material Adverse Effect; (d) any material change by the Company in its
accounting methods, principles or practices; (e) any material revaluation by
the Company of any of its assets, including, without limitation, writing down
the value of inventory or writing off notes or accounts receivable other than
in the ordinary course of business; (f) any other action or event that would
have required the consent of Parent pursuant to Section 4.1 had such action or
event occurred after the date of this Agreement; or (g) any sale of a material
amount of
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property of the Company or any of its subsidiaries taken as a whole, except in
the ordinary course of business.
Section 2.9 No Undisclosed Liabilities. Except as disclosed in the Company SEC
Reports filed prior to the date hereof and except for the severance obligation
disclosed in Schedule 2.9 of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise), except liabilities (a) in the aggregate adequately
provided for or disclosed in the Company's balance sheet (including any related
notes thereto) as of June 30, 1998 (the "1998 Company Balance Sheet"), (b)
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected on the 1998 Company Balance
Sheet, (c) incurred since June 30, 1998 in the ordinary course of business
consistent with past practice, (d) incurred in connection with this Agreement,
or (e) which would not reasonably be expected to have a Company Material
Adverse Effect.
Section 2.10 Absence of Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any properties or
rights of the Company or any of its subsidiaries, before any federal, foreign,
state or provincial court, arbitrator or administrative, governmental or
regulatory authority or body that would reasonably be expected to have a
Company Material Adverse Effect.
Section 2.11 Employee Benefit Plans, Employment Agreements.
(a) Section 2.11 (a) of the Company Disclosure Schedule lists all employee
pension plans (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), all material employee welfare
plans (as defined in Section 3(1) of ERISA), and all other material bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar fringe or employee benefit plans,
programs or arrangements, written or otherwise, for the benefit of, or relating
to, any current or former employees of or consultants to the Company, any trade
or business (whether or not incorporated) which is a member of a controlled
group including the Company or which is under common control with the Company
(a "Company ERISA Affiliate") within the meaning of Section 414 of the Code, or
any subsidiary of the Company, as well as each plan with respect to which the
Company or a Company ERISA Affiliate would incur liability under Section 4069
(if such plan has been or were terminated) or Section 4212(c) of ERISA (all
such plans, practices and programs are referred to as the "Company Employee
Plans"). To the extent requested by Parent, there have been made available to
Parent copies of (i) each such written Company Employee Plan (other than those
referred to in Section 4(b)(4) of ERISA), (ii) the most recent annual report on
Form 5500 series, with accompanying schedules and attachments, filed with
respect to each Company Employee Plan required to make such a filing, and (iii)
the most recent actuarial valuation for each Company Employee Plan subject to
Title IV of ERISA. For purposes of this Section 2.11 (a), the term "material,"
used with respect to any Company Employee Plan, shall mean that the Company or
a Company ERISA Affiliate has incurred or may reasonably be expected to incur
obligations in an annual amount exceeding $100,000 with respect to such Company
Employee Plan.
(b) (i) None of the Company Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person, and none of the Company
Employee Plans is a "multiemployer plan"
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as such term is defined in Section 3(37) of ERISA; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Company Employee Plan, which
could result in any material liability of the Company or any of its
subsidiaries; (iii) all Company Employee Plans are in compliance in all
material respects with the requirements prescribed by any and all Laws
(including ERISA and the Code), currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, Pension Benefit Guaranty Corporation (the "PBGC"),
Internal Revenue Service (the "IRS") or Secretary of the Treasury), and the
Company and each of its subsidiaries have performed all material obligations
required to be performed by them under, are not in any material respect in
default under or violation of, and have no knowledge of any default or
violation by any other party to, any of the Company Employee Plans; (iv) each
Company Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under Section 501(a) of the Code is the subject
of a favorable determination letter from the IRS, and nothing has occurred
which may reasonably be expected to impair such determination; (v) all
contributions required to be made to any Company Employee Plan pursuant to
Section 412 of the Code, or the terms of the Company Employee Plan or any
collective bargaining agreement, have been made on or before their due dates;
(vi) with respect to each Company Employee Plan, no "reportable event" within
the meaning of Section 4043 of ERISA (excluding any such event for which the 30
day notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has
occurred; and (vii) neither the Company nor any Company ERISA Affiliate has
incurred, nor reasonably expects to incur, any liability under Title IV of
ERISA (other than liability for premium payments to the PBGC arising in the
ordinary course), except where the failure of any of the foregoing to be true
would not have a Company Material Adverse Effect.
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true and
complete list as of the date hereof of each current or former employee, officer
or director of the Company or any of its subsidiaries who holds (i) any option
to purchase Company Common Stock as of the date hereof, together with the
number of shares of Company Common Stock subject to such option, the option
price of such option (to the extent determined as of the date hereof), whether
such option is intended to qualify as an ISO, and the expiration date of such
option; (ii) any other right, directly or indirectly, to acquire Company Common
Stock, together with the number of shares of Company Common Stock subject to
such right. Section 2.11(c) of the Company Disclosure Schedule also sets forth
the total number of such ISOs, such nonqualified options and such other rights
outstanding on the date hereof.
(d) Section 2.11(d) of the Company Disclosure Schedule sets forth a true and
complete list of: (i) all employment agreements with officers or employees of
the Company or any of its subsidiaries that provide for annual base salaries in
excess of $150,000; (ii) all agreements with consultants who are individuals
obligating the Company or any of its subsidiaries to make annual cash payments
in an amount exceeding $150,000; (iii) all severance agreements, programs and
policies of the Company or any of its subsidiaries with or relating to its
employees, in each case with outstanding commitments exceeding $150,000,
excluding programs and policies required to be maintained by law; and (iv) all
plans, programs, agreements and other arrangements of the Company or any of its
subsidiaries with or relating to its employees which contain change-in-control
provisions.
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Section 2.12 Labor Matters. (a) There are no claims or proceedings pending or,
to the knowledge of the Company or any of its subsidiaries, threatened, between
the Company or any of its subsidiaries and any of their respective employees,
asserting that the Company has committed an unfair labor practice which claims
or proceedings are currently having or would reasonably be expected to have a
Company Material Adverse Effect; (b) neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or its
subsidiaries; and (c) neither the Company nor any of its subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of the Company or any of its
subsidiaries, in each case which would reasonably be expected to have a Company
Material Adverse Effect.
Section 2.13 Registration Statement, Joint Proxy Statement/Prospectus. The
information supplied by the Company for inclusion or incorporation by reference
in the Registration Statement (as defined in Section 3.13) shall not at the
time the Registration Statement is declared effective by the SEC contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
information supplied by the Company for inclusion or incorporation by reference
in the joint proxy statement/prospectus to be sent to the stockholders of the
Company in connection with the meeting of the stockholders of the Company to
consider the Merger (the "Company Stockholders Meeting") and to be sent to the
stockholders of Parent in connection with the meeting of the stockholders of
Parent to consider the Merger (the "Parent Stockholders Meeting," and together
with the Company Stockholder Meeting, the "Stockholders Meetings") (such joint
proxy statement/prospectus as amended or supplemented is referred to herein as
the "Joint Proxy Statement/Prospectus"), will not, on the date the Joint Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is first
mailed to stockholders, at the time of the Stockholders Meetings, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders
Meetings which has become false or misleading. If at any time prior to the
Effective Time any event relating to the Company or any of its respective
affiliates, officers or directors should be discovered by the Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, the Company shall promptly
inform Parent and Merger Sub. Notwithstanding the foregoing, the Company makes
no representation or warranty with respect to any information supplied by
Parent or Merger Sub which is contained in or furnished in connection with the
preparation of the Registration Statement or the Joint Proxy
Statement/Prospectus.
Section 2.14 Title to Property. Neither the Company nor any of its subsidiaries
owns any real property.
Section 2.15 Taxes.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes, fees,
levies, duties, tariffs, imposts, and governmental impositions or charges of
any kind in the nature of (or similar to) taxes,
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payable to any federal, state, local or foreign taxing authority, including
(without limitation) (i) income, franchise, profits, gross receipts, ad
valorem, net worth, value added, sales, use, service, real or personal
property, special assessments, capital stock, license, payroll, withholding,
employment, social security, workers' compensation, unemployment compensation,
utility, severance, production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes, and (ii) interest, penalties, additional
taxes and additions to tax imposed with respect thereto; and "Tax Returns"
shall mean returns, reports, and information statements with respect to Taxes
required to be filed with the IRS or any other federal, foreign, state or
provincial taxing authority, domestic or foreign, including, without
limitation, consolidated, combined and unitary tax returns.
(b) (i) The Company and its subsidiaries have filed all Tax Returns required to
be filed by them, (ii) the Company and its subsidiaries have paid and
discharged all Taxes due in connection with or with respect to the periods or
transactions covered by such Tax Returns and have paid all other Taxes as are
due, except such as are being contested in good faith by appropriate
proceedings (to the extent that any such proceedings are required) and with
respect to which the Company is maintaining adequate reserves, and (iii) there
are no other Taxes that would be due if asserted by a taxing authority, except
with respect to which the Company is maintaining reserves to the extent
currently required, unless in the case of clauses (i), (ii) and (iii) above the
failure to do so would not reasonably be expected to have a Company Material
Adverse Effect. Except as does not involve or would not result in liability
that would reasonably be expected to have a Company Material Adverse Effect:
(i) there are no tax liens on any assets of the Company or any subsidiary
thereof; and (ii) neither the Company nor any of its subsidiaries has granted
any waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any Tax. Neither the Company nor any of its
subsidiaries has made any payments, is obligated to make any payments, or is a
party to any agreement that under any circumstance could obligate it to make
any payments that will not be deductible under Code Section 280G. None of the
Company and its subsidiaries (i) has been a member of an affiliated group
filing a consolidated federal income Tax Return (other than a group the common
parent of which was the Company) or (ii) has any liability for the Taxes of any
other person or entity (other than the Company and its subsidiaries) under
Treas. Reg. (S)1.1502-6 (or any similar provision of state, local or foreign
law), as transferee or successor, by contract or otherwise. Neither the Company
nor any subsidiary has consented at any time under Section 341(f)(1) of the
Code to have the provisions of Section 341(f)(2) of the Code apply to any
disposition of the assets of the Company or any subsidiary. The accruals and
reserves for Taxes (including deferred taxes) reflected in the 1998 Company
Balance Sheet are in all material respects adequate to cover all Taxes required
to be accrued through the date thereof (including interest and penalties, if
any, thereon and Taxes being contested) in accordance with generally accepted
accounting principles.
(c) Neither the Company nor any of its subsidiaries is, or has been, a United
States real property holding corporation (as defined in Section 897(c)(2) of
the Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Code. To the best knowledge of the Company, neither the Company nor any of
its subsidiaries owns any property of a character, the indirect transfer of
which, pursuant to this Agreement, would give rise to any material documentary,
stamp or other transfer tax.
Section 2.16 Environmental Matters. Except in all cases as, in the aggregate,
have not had and would not reasonably be expected to have a Company Material
Adverse Effect, the Company and
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each of its subsidiaries: (i) have obtained all Approvals which are required to
be obtained under all applicable federal, state, foreign or local laws or any
regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder relating to pollution or
protection of the environment, including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants, or
hazardous or toxic materials or wastes into ambient air, surface water, ground
water, or land or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants or hazardous or toxic materials or wastes by the
Company or its subsidiaries or their respective agents ("Environmental Laws");
(ii) are in compliance with all terms and conditions of such required
Approvals, and also are in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in applicable Environmental Laws; (iii) have not received
notice of any past or present violations of Environmental Laws or any event,
condition, circumstance, activity, practice, incident, action or plan which is
reasonably likely to interfere with or prevent continued compliance with or
which would give rise to any common law or statutory liability, or otherwise
form the basis of any claim, action, suit or proceeding, against the Company or
any of its subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by the Company or its subsidiaries (or
any of their respective agents) thereunder.
Section 2.17 Intellectual Property.
(a) The Company, directly or indirectly, owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, know-how,
computer software programs or applications, and tangible or intangible
proprietary information or material that are material to the business of the
Company and its subsidiaries, taken as a whole, as currently conducted or as
proposed to be conducted (the "Company Intellectual Property Rights"), except
where the failure to do so would not have a Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company, and the
consummation of the transactions contemplated hereby, will neither cause the
Company or any of its subsidiaries to be in violation or default in any
material respect under any license, sublicense or agreement with respect to the
Company Intellectual Property Rights, nor entitle any other party to any such
license, sublicense or agreement to terminate or modify such license,
sublicense or agreement, except where such violation, default, termination or
modification would not reasonably be expected to have a Company Material
Adverse Effect. No claims have been asserted or, to the knowledge of the
Company, are threatened by any person nor are there any valid grounds, to the
knowledge of the Company, for any bona fide claims (i) against the use by the
Company or any of its subsidiaries of the Company Intellectual Property Rights,
or (ii) challenging the ownership by the Company or any of its subsidiaries, or
the validity or effectiveness of any of the Company Intellectual Property
Rights, except for such claims that would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
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(c) Neither the Company nor any of its subsidiaries has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and there has never been any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Company or one of its Subsidiaries must license or refrain from using any
Intellectual Property rights of any third party).
(d) Section 2.17(d) of the Disclosure Schedule identifies each patent or
registration which has been issued to the Company or any of its subsidiaries
with respect to the Company Intellectual Property Rights, identifies each
pending patent application or application for registration which has been made
with respect to the Company Intellectual Property Rights, and identifies each
license, agreement, or other permission which the Company or any of its
subsidiaries have granted to any third party with respect to any of the Company
Intellectual Property Rights (together with any exceptions). The Company has
delivered to Parent correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and has made available to Parent correct and complete copies of all
other written documentation evidencing ownership and prosecution (if
applicable) of each such item. The Company disclosed all relevant prior art in
its patent applications, and it has no reason to believe that any of its
patents is invalid or unenforceable. With respect to each item of Intellectual
Property required to be identified in (S) 2.17(d) of the Company Disclosure
Schedule:
(i) the Company and its subsidiaries possess all right, title, and interest
in and to the item, free and clear of any Lien, license, or other
restriction;
(ii) the item is not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand is pending or, to the knowledge of the Company, is
threatened, which challenges the legality, validity, enforceability,
use, or ownership of the item; and
(iv) neither the Company nor any of its subsidiaries has agreed to indemnify
any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
Section 2.18 Regulatory Matters.
(a) Since January 1, 1996 through the date hereof (i) there have been no
written notices, citations or decisions by any governmental or regulatory body
that any product produced, manufactured, marketed or distributed at any time by
the Company or any Company subsidiary (the "Company Products") is defective or
fails to meet any applicable standards promulgated by any such governmental or
regulatory body, or any other governmental or regulatory body, agency or office
of any other jurisdiction to which the Company or any of its subsidiaries is
subject, (ii) there have been no recalls, field notifications or seizures
ordered or threatened by the United States Food and Drug Administration (the
"FDA") or any other comparable governmental or regulatory body with respect to
any of the Company Products and (iii) none of the Company or the Company
subsidiaries have received any warning letter, Section 305 notices from the FDA
or so-called Section 483 notices of adverse observations (or comparable notices
from such other governmental or regulatory bodies).
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(b) Except as would not, individually or in the aggregate, have a Company
Material Adverse Effect, with respect to each Company Product: (i) the Company
and its subsidiaries have obtained all applicable approvals, clearances,
authorizations, licenses (including site licensures) and registrations required
by United States or foreign governments or government agencies to permit the
manufacturing, distribution, sale (including reimbursement and pricing),
marketing, export, import or human research (including clinical and non-
clinical trials) of such Product (collectively, "LICENSES"); and (ii) the
Company and its subsidiaries are in full compliance with all terms and
conditions of each License in each country in which such Company Product is
marketed, and with all requirements pertaining to the manufacturing (including
current good manufacturing practices), marketing, export, import or human
research (including good laboratory practices and clinical and non-clinical
trials) of such Company Product which is not required to be the subject of a
License.
(c) There are no impediments to issuance of any Company FDA premarket approval
application ("PMA") as to which the Company has received an approvable letter
from the FDA other than those set forth in the so-called Section 483 Notices
described in the Company Disclosure Schedule, and the Company is not aware of
any reason why it will be unable to address to the FDA's satisfaction all
observations contained in such Notices. The information in such PMAs is true
and correct in all material respects and the Company is not aware of any basis
upon which the FDA could fail to approve any material aspect of such
applications that have not yet received FDA approval.
Section 2.19 Interested Party Transactions. Except for transactions described
in the Company SEC Reports filed prior to the date hereof, no event has
occurred that would be required to be reported as a Certain Relationship or
Related Transaction, pursuant to Item 404 of Regulation S-K promulgated by the
SEC.
Section 2.20 Insurance. All material fire and casualty, general liability,
business interruption, product liability, professional liability and sprinkler
and water damage insurance policies maintained by the Company or any of its
subsidiaries are with reputable insurance carriers, provide adequate coverage
for all normal risks incident to the business of the Company and its
subsidiaries, taken as a whole, and their properties and assets, and are in
character and amount customary for persons engaged in similar businesses and
subject to the same or similar perils or hazards, except for any such failures
to maintain insurance policies that, individually or in the aggregate, would
not reasonably be expected to have a Company Material Adverse Effect.
Section 2.21 Opinion of Financial Advisor. The Company has been advised by its
financial advisor, EVEREN Securities, Inc. that in its opinion, as of the date
hereof, the Merger Consideration to be received by the holders of Shares in the
Merger is fair to the holders of Shares from a financial point of view.
Section 2.22 Brokers. No broker, finder or investment banker (other than EVEREN
Securities, Inc., the fees and expenses of whom will be paid by the Company) is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company or its subsidiaries or affiliates. The
Company has heretofore furnished to Parent a complete and correct copy of all
agreements between the Company and EVEREN Securities, Inc. pursuant to which
such firm would be entitled to any payment relating to the transactions
contemplated hereunder.
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Section 2.23 Change in Control Payments. Neither the Company nor any of its
subsidiaries have any plans, programs or agreements to which they are parties,
or to which they are subject, pursuant to which payments may be required or
acceleration of benefits may be required upon a change of control of the
Company.
Section 2.24 Expenses. The Company has provided to Parent a good faith estimate
and description of the expenses of the Company and its subsidiaries which the
Company expects to incur, or has incurred, in connection with the transactions
contemplated by this Agreement.
Section 2.25 No Existing Discussions. As of the date hereof, the Company is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal (as defined in Section
4.2).
Section 2.26 Sections 607.0901 and 607.0902 of the FBCA Not Applicable. The
Board of Directors of the Company has taken all actions so that the
restrictions contained in Section 607.0901 of the FBCA applicable to an
"affiliated transaction" (as defined in Section 607.0901) and the restrictions
contained in Section 607.0902 will not apply to the execution, delivery or
performance of this Agreement or the respective Stockholder Agreements dated as
of the date hereof between Parent and certain stockholders of the Company
(collectively, the "STOCKHOLDERS AGREEMENTS") or the consummation of the Merger
or the other transactions contemplated by this Agreement or by the Stockholders
Agreements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant to
the Company that, except as set forth in the written disclosure schedule
delivered on or prior to the date hereof by Parent to the Company that is
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article III (the "PARENT DISCLOSURE SCHEDULE") or disclosed
in the Parent SEC Reports filed prior to the date hereof:
Section 3.1 Organization and Qualification; Subsidiaries. Each of Parent and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power, authority and Approvals would not reasonably be expected to have a
Parent Material Adverse Effect. Each of Parent and its subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not reasonably be
expected to have a Parent Material Adverse Effect. A true and complete list as
of the date hereof of all of Parent's subsidiaries, together with the
jurisdiction of incorporation of each subsidiary and the percentage of each
subsidiary's outstanding capital stock owned by Parent or another subsidiary,
is set forth in
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Section 3.1 of the Parent Disclosure Schedule. Parent does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity, with respect to which Parent has invested or is required to invest
$200,000 or more, excluding securities in any publicly traded company held for
investment by Parent and comprising less than five percent of the outstanding
capital stock of such company.
Section 3.2 Charter and By-Laws. Parent has heretofore furnished to the Company
a complete and correct copy of its Articles of Organization and By-Laws, as
most recently restated and subsequently amended to the date hereof. Such
Articles of Organization and By-Laws are in full force and effect and neither
Parent nor Merger Sub is in violation of any of the provisions of its Articles
of Incorporation or By-Laws, except where the failure to be in full force and
effect or where such violation would not have a Parent Material Adverse Effect.
Section 3.3 Capitalization. As of September 29, 1998, the authorized capital
stock of Parent consisted of (i) 60,000,000 shares of Parent Common Stock, of
which 31,153,765 shares were issued and outstanding, all of which are validly
issued, fully paid and non-assessable, 169,115 shares were held in treasury,
2,484,097 shares were reserved for future issuance under Parent's stock option
and employee stock purchase plans and (ii) 5,000,000 shares of preferred stock,
$.01 par value per share, none of which was issued and outstanding and none of
which was held in treasury. No material change in such capitalization has
occurred between September ., 1998 and the date hereof, except for issuance of
Parent Common Stock pursuant to Parent stock plans. All options, warrants or
other rights, agreements, arrangements or commitments of any character to which
Parent or a subsidiary or, to Parent's knowledge, any other person is a party
relating to the issued or unissued capital stock of Parent or any of its
subsidiaries or obligating Parent or any of its subsidiaries to issue or sell
any shares of capital stock of, or other equity interests in, Parent or any of
its subsidiaries are described in Section 3.3 of the Parent Disclosure
Schedule. There are no obligations, contingent or otherwise, of Parent or any
of its subsidiaries to repurchase, redeem or otherwise acquire any shares of
Parent Common Stock or the capital stock of any subsidiary or to provide funds
to or make any investment (in the form of a loan, capital contribution or
otherwise) in any such subsidiary other than guarantees of bank obligations of
subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each of Parent's subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and all such shares
are owned by Parent or another subsidiary of Parent, free and clear of all
security interests, liens, claims, pledges, agreements, limitations in Parent's
voting rights, charges or other encumbrances of any nature whatsoever
(collectively, "Parent Liens").
Section 3.4 Authority Relative to this Agreement. Each of Parent and Merger Sub
has all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement or to consummate the transactions contemplated thereby
(other than the approval of the issuance of the Parent Common
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Stock by holders of a majority of the outstanding Parent Common Stock present
or represented by proxy and entitled to vote at the Parent Stockholders
Meeting). As of the date hereof, the Board of Directors of Parent has
determined that it is advisable and in the best interest of Parent's
stockholders for Parent to enter into a business combination with the Company
upon the terms and subject to the conditions of this Agreement and has
unanimously recommended that the stockholders of Parent approve the issuance of
Parent Common Stock in the Merger pursuant to this Agreement. This Agreement
has been duly and validly executed and delivered by Parent and Merger Sub and,
assuming the due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of Parent and Merger Sub
enforceable against each of them in accordance with its terms.
Section 3.5 No Conflict, Required Filings and Consents.
(a) Section 3.5(a) of the Parent Disclosure Schedule includes a list as of the
date hereof of: (i) all contracts, agreements, commitments or other
understandings or arrangements to which Parent or any of its subsidiaries is a
party or by which any of them or any of their respective property or assets are
bound or affected, but excluding (A) contracts, agreements, commitments or
other understandings or arrangements entered into in the ordinary course of
business and involving, in each case, payments by Parent or any of its
subsidiaries of less than $500,000, and sales contracts entered into in the
ordinary course of business, and (B) employment agreements and stock option
agreements; and (ii) all agreements which, as of the date hereof, Parent is
required to file with the SEC pursuant to the requirements of the Exchange Act
as "material contracts."
(b) (i) neither the Parent nor any of its subsidiaries has breached, is in
default under, or has received written notice of any breach of or default
under, any of the agreements, contracts or other instruments required to be
disclosed in Section 3.5(a) of the Parent Disclosure Schedule (ii) to the best
knowledge of Parent, no other party to any of the agreements, contracts or
other instrument required to be disclosed in Section 3.5(a) of the Parent
Disclosure Schedule has breached or is in default of any of its obligations
thereunder, and (iii) to the best knowledge of Parent, each of the agreements,
contracts and other instruments required to be disclosed in Section 3.5(a) of
the Parent Disclosure Schedule is in full force and effect, except in any such
case for breaches, defaults or failures to be in full force and effect that
would not reasonably be expected to have a Parent Material Adverse Effect.
(c) The execution and delivery of this Agreement by Parent and Merger Sub does
not, and the performance of this Agreement by Parent and Merger Sub will not,
and the consummation of the transactions contemplated hereby will not, (i)
conflict with or violate the Articles of Organization (or Certificate of
Incorporation) or By-Laws of Parent or Merger Sub, (ii) conflict with or
violate any Laws applicable to Parent or any of its subsidiaries or by which
its or their respective properties are bound or affected, or (iii) result in
any breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or impair Parent's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Parent Lien on any of the
properties or assets of Parent or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its
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subsidiaries or its or any of their respective properties are bound or
affected, except in any such case for any such conflicts, violations, breaches,
defaults or other occurrences that would not reasonably be expected to have a
Parent Material Adverse Effect.
(d) The execution and delivery of this Agreement by Parent and Merger Sub does
not, and the performance of this Agreement by Parent and Merger Sub will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any federal, foreign, state or provincial governmental or
regulatory authority, except (i) for applicable requirements, if any, of the
Securities Act, the Exchange Act, the Blue Sky Laws, the pre-merger
notification requirements of the HSR Act, and the filing and recordation of
appropriate merger or other documents as required by the FBCA and the DGCL, and
(ii) where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not reasonably be
expected to have a Parent Material Adverse Effect.
Section 3.6 Compliance. Neither Parent nor any of its subsidiaries is in
conflict with, or in default or violation of, (i) any Law or Approval
applicable to Parent or any of its subsidiaries or by which its or any of their
respective properties is bound or affected or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their respective
properties is bound or affected, except for any such conflicts, defaults or
violations which would not reasonably be expected to have a Parent Material
Adverse Effect.
Section 3.7 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
with the SEC since January 1, 1997 (collectively, the "Parent SEC Reports").
The Parent SEC Reports (i) were prepared in all material respects in accordance
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of Parent's subsidiaries is required to file any
forms, reports or other documents with the SEC. The redacted sections of
Parent's June 1998 Settlement Agreement with VISX, Inc. (which, as redacted, is
filed with the Parent SEC Reports) contain no provisions that purport to limit,
as between Parent and the Company, the operation of any non-redacted sections
addressing the applicability of cross-licenses to third parties which acquire
or are acquired by Parent.
(b) Each of the consolidated financial statements (including, in each case, any
related notes thereto) contained in the Parent SEC Reports has been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto) and each fairly presents in all material respects the
consolidated financial position of Parent and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and
cash flows and stockholders' equity for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.
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Section 3.8 Absence of Certain Changes or Events. Except as disclosed in the
Parent SEC Reports filed prior to the date hereof, since June 30, 1998, Parent
has conducted its business in the ordinary course and other than as disclosed
in the Parent SEC Reports filed prior to the date hereof there has not
occurred: (i) any Parent Material Adverse Effect; (ii) any amendments or
changes in the Articles of Organization or By-Laws of Parent; (iii) any damage
to, destruction or loss of any assets of the Parent (whether or not covered by
insurance) that would reasonably be expected to have a Parent Material Adverse
Effect; (iv) any material change by Parent in its accounting methods,
principles or practices; (v) any material revaluation by Parent of any of its
assets, including without limitation, writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course of
business; (vi) any other action or event that would have required the consent
of the Company pursuant to Section 4.3 had such action or event occurred after
the date of this Agreement; or (vii) any sale of a material amount of assets of
Parent or any of its subsidiaries except in the ordinary course of business.
Section 3.9 No Undisclosed Liabilities. Except as disclosed in the Parent SEC
Reports filed prior to the date hereof, neither Parent nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise),
except liabilities (a) in the aggregate adequately provided for or disclosed in
Parent's balance sheet (including any related notes thereto) as of June 30,
1998 included in the Parent's Quarterly Report on 10-Q for the period ended
June 30, 1998 (the "1998 Parent Balance Sheet"), (b) incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected on the 1997 Parent Balance Sheet, (c) incurred since
June 30, 1998 in the ordinary course of business and consistent with past
practice, (d) incurred in connection with this Agreement, or (e) which would
not reasonably be expected to have a Parent Material Adverse Effect.
Section 3.10 Absence of Litigation. Except as disclosed in the Parent SEC
Reports filed prior to the date hereof, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Parent,
threatened against the Parent or any of its subsidiaries, or any properties or
rights of the Parent or any of its subsidiaries, before any federal, foreign,
state or provincial court, arbitrator or administrative, governmental or
regulatory authority or body that would reasonably be expected to have a Parent
Material Adverse Effect.
Section 3.11 Employee Benefit Plans; Employment Agreements.
(a) Section 3.11(a) of the Parent Disclosure Schedule lists as of the date
hereof all employee pension plans (as defined in Section 3(2) of ERISA), all
material employee welfare plans, (as defined in Section 3(1) of ERISA) and all
other material bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or arrangements, written or otherwise, for the
benefit of, or relating to, any current or former employees of or consultants
to Parent, any trade or business (whether or not incorporated) which is a
member of a controlled group including Parent or which is under common control
with Parent (a "Parent ERISA Affiliate") within the meaning of Section 414 of
the Code, or any subsidiary of Parent, as well as each plan with respect to
which Parent or a Parent ERISA Affiliate would incur liability under Section
4069 (if such plan has been or were terminated) or Section 4212(c) of ERISA
(all such plans, practices, and programs are referred to herein as the "Parent
Employee Plans"). To the extent requested by the Company, there have been made
available to the
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Company copies of (i) each such written Parent Employee Plan (other than those
referred to in Section 4(b)(4) of ERISA), (ii) the most recent annual report on
form 5500 series, with accompanying schedules and attachments, filed with
respect to each Parent Employee Plan required to make such a filing, and (iii)
the most recent actuarial valuation for each Parent Employee Plan subject to
Title IV of ERISA. For purposes of this Section 3.11 (a) the term material,
used with respect to any Parent Employee Plan, shall mean that Parent or a
Parent ERISA Affiliate has incurred or may reasonably be expected to incur
obligations in an annual amount exceeding $400,000 with respect to such Parent
Employee Plan.
(b) (i) None of the Parent Employee Plans promises or provides retiree medical
or other welfare benefits to any person, and none of the Parent Employee Plans
is a "multiemployer plan" as such term is defined in Section 3(37) of ERISA;
(ii) there has been no "prohibited transaction," as such term is defined in
Section 406 of ERISA and Section 4975 of the Code, with respect to any Parent
Employee Plan, which would result in any material liability of Parent or any of
its subsidiaries; (iii) all Parent Employee Plans are in compliance in all
material respects with the requirements prescribed by any and all Laws
(including ERISA and the Code), currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, IRS, PBGC or Secretary of the Treasury), and Parent and
each of its subsidiaries have performed all material obligations required to be
performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any default or violation by any other
party to, any of the Parent Employee Plans; (iv) each Parent Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code is the subject of a favorable
determination letter from the IRS, and nothing has occurred which may
reasonably be expected to impair such determination; (v) all contributions
required to be made to any Parent Employee Plan pursuant to Section 412 of the
Code, or the terms of the Parent Employee Plan or any collective bargaining
agreement, have been made on or before their due dates; (vi) with respect to
each Parent Employee Plan, no "reportable event" within the meaning of Section
4043 of ERISA (excluding any such event for which the 30 day notice requirement
has been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii)
neither Parent nor any Parent ERISA Affiliate has incurred, nor reasonably
expects to incur, any liability under Title IV of ERISA (other than liability
for premium payments to the PBGC arising in the ordinary course), except where
the failure of any of the foregoing to be true would not have a Parent Material
Adverse Effect.
(c) Section 3.11(c) of the Parent Disclosure Schedule sets forth a true and
complete list of: (i) all employment agreements with officers or employees of
Parent or any of its subsidiaries that provide for annual base salaries in
excess of $250,000; (ii) all severance agreements, programs and policies of
Parent with or relating to its employees in each case with outstanding
commitments exceeding $250,000, excluding programs and policies required to be
maintained by law; and (iii) all plans, programs, agreements and other
arrangements of Parent with or relating to its employees which contain change-
in-control provisions.
Section 3.12 Labor Matters. There are no claims or proceedings pending or, to
the knowledge of Parent or any of its subsidiaries, threatened, between Parent
or any of its subsidiaries and any of their respective employees, asserting
that the Company has committed an unfair labor practice which
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claims or proceedings have or would reasonably be expected to have a Parent
Material Adverse Effect; (ii) neither Parent nor any of its subsidiaries is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by Parent or its subsidiaries; and (iii) neither
Parent nor any of its subsidiaries has any knowledge of any strikes, slowdowns,
work stoppages, lockouts, or threats thereof, by or with respect to any
employees of Parent or any of its subsidiaries, in each case which would
reasonably be expected to have a Parent Material Adverse Effect.
Section 3.13 Registration Statement; Joint Proxy Statement/Prospectus. Subject
to the accuracy of the representations of the Company in Section 2.13, the
registration statement (the "Registration Statement") pursuant to which the
Parent Common Stock to be issued in the Merger will be registered with the SEC
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements included therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Parent
for inclusion or incorporation in the Joint Proxy Statement/Prospectus will
not, on the date the Joint Proxy Statement/Prospectus is first mailed to
stockholders, at the time of the Stockholders Meetings and at the Effective
Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or will omit to state any material fact necessary in
order to make the statements therein not false or misleading; or omit to state
any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders
Meetings which has become false or misleading. If at any time prior to the
Effective Time any event relating to Parent, Merger Sub or any of their
respective affiliates, officers or directors should be discovered by Parent or
Merger Sub which should be set forth in an amendment to the Registration
Statement or a supplement to the Joint Proxy Statement/Prospectus, Parent or
Merger Sub will promptly inform the Company. Notwithstanding the foregoing,
Parent and Merger Sub make no representation or warranty with respect to any
information supplied by the Company which is contained in any of the foregoing
documents. Notwithstanding the foregoing, Parent makes no representation or
warranty with respect to any information supplied by the Company which is
contained in, or furnished in connection with the preparation of, the
Registration Statement or the Joint Proxy Statement/Prospectus.
Section 3.14 Title to Property. Neither the Parent nor any of its subsidiaries
owns any real property.
Section 3.15 Taxes. Parent and its subsidiaries have filed all United States
federal income Tax Returns and all other material Tax Returns required to be
filed by them, and Parent and its subsidiaries have paid and discharged all
Taxes due in connection with or with respect to the periods or transactions
covered by such Tax Returns and have paid all other Taxes as are due, except
such as are being contested in good faith by appropriate proceedings (to the
extent that any such proceedings are required) and there are no other Taxes
that would be due if asserted by a taxing authority, except with respect to
which Parent is maintaining reserves to the extent currently required unless
the failure to do so would not reasonably be expected to have a Parent Material
Adverse Effect. Except as does not involve or would not result in liability to
Parent that would reasonably be expected to have a
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Parent Material Adverse Effect: (i) there are no tax liens on any assets of
Parent or any subsidiary thereof; and (ii) neither Parent nor any of its
subsidiaries has granted any waiver of any statute of limitations with respect
to, or any extension of a period for the assessment of, any Tax. The accruals
and reserves for Taxes (including deferred taxes) reflected in the 1998 Parent
Balance Sheet are in all material respects adequate to cover all Taxes required
to be accrued through the date thereof (including interest and penalties, if
any, thereon and Taxes being contested) in accordance with generally accepted
accounting principles.
Section 3.16 Environmental Matters. Except in all cases as, in the aggregate,
have not had and would not reasonably be expected to have a Parent Material
Adverse Effect, Parent and each of its subsidiaries to the best of Parent's
knowledge: (i) have obtained all Approvals which are required to be obtained
under all applicable Environmental Laws by Parent or its subsidiaries (or their
respective agents); (ii) are in compliance with all terms and conditions of
such required Approvals, and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in applicable Environmental Laws; (iii) have
not received notice of any past or present violations of Environmental Laws, or
any event, condition, circumstance, activity, practice, incident, action or
plan which is reasonably likely to interfere with or prevent continued
compliance with or which would give rise to any common law or statutory
liability, or otherwise form the basis of any claim, action, suit or
proceeding, against Parent or any of its subsidiaries based on or resulting
from the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge or release into
the environment, of any pollutant, contaminant or hazardous or toxic material
or waste; and (iv) have taken all actions necessary under applicable
Environmental Laws to register any products or materials required to be
registered by Parent or its subsidiaries (or any of their respective agents)
thereunder.
Section 3.17 Intellectual Property.
(a) Parent, directly or indirectly, owns, or is licensed or otherwise possesses
legally enforceable rights to use, all trademarks, trade names, service marks,
copyrights, and any applications therefor, know-how, computer software programs
or applications, and tangible or intangible proprietary information or material
that are material to the business of the Company and its subsidiaries, taken as
a whole, as currently conducted or as proposed to be conducted (the "Parent
Intellectual Property Rights"), except where the failure to do so would not
have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent, and the
consummation of the transactions contemplated hereby, will neither cause Parent
or any of its subsidiaries to be in violation or default in any material
respect under any license, sublicense or agreement with respect to the Parent
Intellectual Property Rights, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement, except where such violation, default, termination or modification
would not reasonably be expected to have a Parent Material Adverse Effect. No
claims have been asserted or, to the knowledge of Parent, are threatened by any
person nor are there any valid grounds, to the knowledge of Parent, for any
bona fide claims (i) against the use by Parent or any of its subsidiaries of
Parent Intellectual Property Rights, or (ii) challenging the ownership by
Parent or any of its subsidiaries, or the validity or effectiveness of any
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of Parent Intellectual Property Rights, except for such claims that would not,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect.
(c) Except as disclosed in the Parent SEC Reports filed prior to the date
hereof, neither the Parent nor any of its subsidiaries has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and there has never been any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that Parent
or one of its Subsidiaries must license or refrain from using any Intellectual
Property rights of any third party).
Section 3.18 Regulatory Matters.
(a) Since January 1, 1996 through the date hereof (i) there have been no
written notices, citations or decisions by any governmental or regulatory body
that any product produced, manufactured, marketed or distributed at any time by
the Company or any Company subsidiary (the "Parent Products") is defective or
fails to meet any applicable standards promulgated by any such governmental or
regulatory body, or any other governmental or regulatory body, agency or office
of any other jurisdiction to which the Company or any of its subsidiaries is
subject, (ii) there have been no recalls, field notifications or seizures
ordered or threatened by the FDA or any other comparable governmental or
regulatory body with respect to any of the Parent Production and (iii) none of
the Parent or the Parent subsidiaries have received any warning letter, Section
305 notices from the FDA or so-called Section 483 notices of adverse
observations (or comparable notices from such other governmental or regulatory
bodies).
(b) Except as would not, individually or in the aggregate, have a Parent
Material Adverse Effect, with respect to each Parent Product: (i) the Parent
and its subsidiaries have obtained all applicable Licenses to permit the
manufacturing, distribution, sale (including reimbursement and pricing),
marketing, export, import or human research (including clinical and non-
clinical trials) of such Product and (ii) Parent and its subsidiaries are in
full compliance with all terms and conditions of each License in each country
in which such Parent Product is marketed, and with all requirements pertaining
to the manufacturing (including current good manufacturing practices),
marketing, export, import or human research (including good laboratory
practices and clinical and non-clinical trials) of such Parent Product which is
not required to be the subject of a License.
(c) There are no impediments to issuance of any Parent FDA premarket approval
application ("PMA") as to which Parent has received an approvable letter from
the FDA other than those set forth in any so-called Section 483 Notices
described in the Parent Disclosure Schedule, and Parent is not aware of any
reason why it will be unable to address to the FDA's satisfaction all
observations contained in such Notices.
Section 3.19 Interested Party Transactions. Since the date of Parent's 1998
proxy statement, other than as described therein, no event has occurred that
would be required to be reported as a Certain Relationship or Related
Transaction, pursuant to Item 404 of Regulation S-K promulgated by the SEC.
Section 3.20 Financial Capacity. Parent has available sufficient funds to
satisfy its obligations to pay the Cash Consideration for all the Shares.
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Section 3.21 Opinion of Financial Advisor. Parent has received the opinion of
its financial advisor, Hambrecht & Quist, LLC, that, as of the date hereof, the
Merger Consideration is fair to Parent from a financial point of view.
Section 3.22 Brokers. No broker, finder or investment banker (other than
Hambrecht & Quist, LLC, the fees and expenses of which will be paid by Parent)
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent or Merger Sub.
Section 3.23 Ownership of Merger Sub; No Prior Activities.
(a) Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
Section 4.1 Conduct of Business by the Company Pending the Merger. The Company
covenants and agrees that, during the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Effective Time, unless Parent shall otherwise agree in writing and except as
otherwise contemplated by this Agreement, the Company shall conduct its
business and shall cause the businesses of its subsidiaries to be conducted in
the ordinary course of business; and the Company shall use all reasonable
commercial efforts to preserve substantially intact the business organization
of the Company and its subsidiaries taken as a whole, to keep available the
services of the present officers, employees and consultants of the Company and
its subsidiaries taken as a whole and to preserve the present relationships of
the Company and its subsidiaries with customers, suppliers and other persons
with which the Company or any of its subsidiaries has significant business
relations. By way of amplification and not limitation, except as contemplated
by this Agreement, neither the Company nor any of its subsidiaries shall,
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, directly or
indirectly do, or propose to do, any of the following without the prior written
consent of Parent:
(a) amend or otherwise change the Articles of Incorporation or By-Laws of the
Company or any of its subsidiaries;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock
of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest)
in the Company
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or any of its subsidiaries, except that the Company may grant options for
Company Common Stock under the Company Stock Plan to newly hired employees
in the ordinary course of business in an amount not in excess of 100,000
shares in the aggregate and the Company may issue shares of Company Common
Stock upon the exercise of options, warrants and other rights listed in
Section 2.3 of the Company Disclosure Schedule.
(c) sell, pledge, dispose of or encumber any assets of the Company or any of
its subsidiaries (except for (i) sales of assets in the ordinary course
of business and in a manner consistent with past practice, (ii)
dispositions of obsolete or worthless assets, and (iii) sales of other
assets not in excess of $100,000 in the aggregate);
(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, except that a wholly owned
subsidiary of the Company may declare and pay a dividend to its parent,
(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, or (iii)
amend the terms or change the period of exercisability of, purchase,
repurchase, redeem or otherwise acquire, or permit any subsidiary to
purchase, repurchase, redeem or otherwise acquire, any of its securities
or any securities of its subsidiaries, including, without limitation,
shares of Company Common Stock or any option, warrant or right, directly
or indirectly, to acquire shares of Company Common Stock, or propose to
do any of the foregoing; provided, however, that the Company may enter
into agreements with holders of Stock Options in which they waive any
right to accelerated vesting of the Stock Options in exchange for a
promise by the Company that any substitute stock option for Parent Common
Stock will become immediately exercisable in the event the Company
terminates the holder's employment following the Merger without cause;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or assets)
any corporation, partnership or other business organization or division
thereof; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person or,
except in each case in the ordinary course of business consistent with
past practice, make any loans or advances; (iii) enter into or amend any
contract or agreement that would be material to the Company and its
subsidiaries taken as a whole; (iv) authorize any capital expenditures or
purchase of fixed assets which are, in the aggregate, in excess of
$100,000 for the Company and its subsidiaries taken as a whole; or (v)
enter into or amend any contract, agreement, commitment or arrangement to
effect any of the matters prohibited by this Section 4.1(e);
(f) (i) increase the compensation payable or to become payable to its
executive officers, directors or employees except in the ordinary course
of business consistent with past practice; (ii) grant any additional
severance or termination pay to, or enter into any new employment or
severance agreements with, any director, executive officer or current
employee of the Company or its subsidiaries; (iii) enter into any
employment or severance agreement with any new employees of the Company
or its subsidiaries except in the ordinary course of business consistent
with past practice; or (iv) establish, adopt, enter into or amend any
collective bargaining, profit sharing, thrift, restricted stock, pension,
retirement, deferred compensation or severance plan, trust, fund or
policy for the benefit of current or former directors, officers
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or employees of the Company or any of its subsidiaries, except, in each
case, as may be required by law;
(g) except as required under generally accepted accounting principles, take
any action to change in any material respect the accounting policies or
procedures (including, without limitation, procedures with respect to
revenue recognition, payments of accounts payable and collection of
accounts receivable) of the Company or any subsidiary (except in the case
of subsidiaries to conform to the Company's policies and procedures);
(h) make any material tax election inconsistent with past practice or settle
or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise)
material to the Company and its subsidiaries taken as a whole, other than
the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of liabilities reflected or reserved
against in the financial statements contained in the Company SEC Reports
filed prior to the date of this Agreement or incurred in the ordinary
course of business and consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (i) above.
Section 4.2 No Solicitation.
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Company or any of its
subsidiaries, (i) solicit, initiate or encourage the initiation of any
inquiries or proposals regarding any merger, sale of substantial assets, sale
of shares of capital stock (including without limitation by way of a tender
offer) or similar transactions involving the Company or any subsidiaries of the
Company other than the Merger (any of the foregoing inquiries or proposals
being referred to herein as an "Acquisition Proposal"), (ii) engage in
negotiations or discussions concerning, or provide any nonpublic information to
any person relating to, any Acquisition Proposal or (iii) agree to, approve or
recommend any Acquisition Proposal. Nothing contained in this Section 4.2(a)
shall prevent the Board of Directors of the Company from considering,
negotiating, approving and recommending to the stockholders of the Company a
bona fide Acquisition Proposal not solicited in violation of this Agreement,
provided the Board of Directors of the Company concludes in good faith that the
Acquisition Proposal would constitute a Superior Proposal (as defined below)
and determines in good faith (upon advice of outside counsel) that it is
required to do so in order to discharge properly its fiduciary duties.
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company or
any of its subsidiaries in connection with an Acquisition Proposal or for
access to the properties, books or records of the Company or any subsidiary by
any person or entity that informs the Board of Directors of the Company or such
subsidiary that it is considering making, or has made, an Acquisition Proposal.
Such notice to Parent shall be made orally and in writing, and shall identify
the person or entity making the Acquisition Proposal and set forth the material
terms and condition of the Acquisition Payment. The notice shall also indicate
whether the Company is
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providing or intends to provide the person making the Acquisition Proposal with
access to information concerning the Company as provided in Section 4.2(c).
(c) If the Board of Directors of the Company receives a request for material
nonpublic information by a person who makes, or indicates that it is
considering making, a bona fide Acquisition Proposal, and the Board of
Directors determines in good faith and upon the advice of independent counsel
that it is required to cause the Company to act as provided in this Section
4.2(c) in order to discharge properly the directors' fiduciary duties, then,
provided the person making the Acquisition Proposal has executed a
confidentiality agreement substantially similar to the one then in effect
between the Company and Parent, the Company may provide such person with access
to information regarding the Company.
(d) The Company shall ensure that the officers and directors of the Company and
its subsidiaries and any investment banker or other advisor or representative
retained by the Company are aware of the restrictions described in this Section
4.2.
(e) For purposes of this Agreement, "Superior Proposal" means a bona fide
Acquisition Proposal that the Board of Directors of the Company determines in
its good faith judgment to be more favorable to the Company's stockholders than
the Merger (based on the written opinion, with only customary qualifications,
of the Company's independent financial advisor that the value of the
consideration of the Company's stockholders provided for in such proposal
exceeds the value of the consideration to the Company's stockholders provided
for in the Merger) and for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Board of Directors of the
Company (based on the written advice of the Company's independent financial
advisor), is reasonably capable of being obtained by the person making the
proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 HSR Act. As promptly as practicable after the date of the execution
of this Agreement, if required, the Company and Parent shall file notifications
under and in accordance with the HSR Act in connection with the Merger and the
transactions contemplated hereby and respond as promptly as practicable to any
inquiries received from the Federal Trade Commission and the Antitrust Division
of the Department of Justice for additional information or documentation and
respond as promptly as practicable to all inquiries and requests received from
any State Attorney General or other governmental authority in connection with
antitrust matters.
Section 5.2 Joint Proxy Statement Prospectus; Registration Statement. As
promptly as practicable after the execution of this Agreement, the Company and
Parent shall prepare and file with the SEC preliminary proxy materials which
shall constitute the Joint Proxy Statement/Prospectus and the Registration
Statement of the Parent with respect to the Parent Common Stock to be issued in
connection with the Merger. As promptly as practicable after comments are
received from the SEC thereon and after the furnishing by the Company and
Parent of all information required to be contained therein, the Company and
Parent shall file with the SEC a combined proxy and Registration Statement on
Form S-4 (or on such other form as shall be appropriate) relating to the
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adoption of this Agreement and approval of the transactions contemplated hereby
by the stockholders of the Company and the approval by the stockholders of
Parent to increase the number of authorized shares of Parent Company Stock and
the issuance of Parent Common Stock in the Merger pursuant to this Agreement,
and shall use all reasonable efforts to cause the Registration Statement to
become effective, and to mail the Joint Proxy Statement/Prospectus to their
respective shareholders, as soon thereafter as practicable. The Joint Proxy
Statement/Prospectus shall include the recommendation of the Boards of
Directors of the Company and Parent in favor of the Merger, subject to the last
sentence of Section 5.3.
Section 5.3 Stockholders Meetings. The Company and Parent shall call and hold
their respective Stockholders Meetings as promptly as practicable and in
accordance with applicable laws for the purpose of voting upon the approval of
the Merger and the issuance of the Parent Common Stock, and Parent and the
Company shall use their reasonable best efforts to hold the Stockholders
Meetings on the same day (and at the same time of such day) and as soon as
practicable after the date on which the Registration Statement becomes
effective. Unless otherwise required under the applicable fiduciary duties of
the respective directors of the Company or Parent, as determined by such
respective directors in good faith after consultation with and based upon the
advice of their respective outside legal counsel, the Company and Parent shall
use all reasonable efforts to solicit from their respective stockholders
proxies in favor of adoption of this Agreement and approval of the transactions
contemplated hereby or the issuance of Parent Company Stock in the Merger
pursuant to this Agreement, as the case may be, and shall take all other action
reasonably necessary or advisable to secure the vote or consent of stockholders
to obtain such approvals.
Section 5.4 Access to Information; Confidentiality. Upon reasonable notice and
subject to restrictions contained in confidentiality agreements to which such
party is subject (from which such party shall use reasonable efforts to be
released), the Company and Parent shall each (and shall cause each of their
subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of the other, reasonable access, during the period to the
Effective Time, to all of its properties, books, contracts, commitments and
records and, during such prior period, the Company and Parent each shall (and
shall cause each of their subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as such other
party may reasonably request, and each shall make available to the other the
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either Parent or the Company may reasonably request. Each party shall keep
such information confidential in accordance with the terms of the mutual non-
disclosure letter, dated August, 1998 (the "CONFIDENTIALITY LETTER"), between
Parent and the Company.
Section 5.5 Consents; Approvals. The Company and Parent shall each use all
reasonable efforts to obtain all consents, waivers, approvals, authorizations
or orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals), and the Company and Parent
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the Company
and Parent and the consummation by them of the transactions contemplated
hereby, in each case as promptly as practicable. The Company and Parent shall
furnish promptly all information required to be included in the Joint Proxy
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Statement/Prospectus and the Registration Statement, or for any application or
other filing to be made pursuant to the rules and regulations of any United
States or foreign governmental body in connection with the transactions
contemplated by this Agreement.
Section 5.6 Agreements with Respect to Affiliates. The Company shall deliver to
Parent, prior to the date the Registration Statement becomes effective under
the Securities Act, a letter (the "AFFILIATE LETTER") identifying all persons
who are, and at the time of the Company Stockholders Meeting are expected to
be, "affiliates" of the Company, for purposes of Rule 145 under the Securities
Act ("RULE 145"). The Company shall use its best efforts to cause each person
who is identified as an "affiliate" in the Affiliate Letter to deliver, prior
to the Effective Time, a written agreement (an "AFFILIATE AGREEMENT") in
substantially the form of Exhibit 5.6(a).
Section 5.7 Indemnification and Insurance.
(a) The Certificate of Incorporation and By-Laws of the Surviving Corporation
shall contain the provisions with respect to indemnification set forth in the
Articles of Incorporation and By-Laws of the Company, which provisions shall
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who at or before the Effective Time were directors,
officers, employees or agents of the Company, unless such modification is
required by law.
(b) The Company shall, to the fullest extent permitted under applicable law or
under the Company's Articles of Incorporation or By-Laws and regardless of
whether the Merger becomes effective, indemnify and hold harmless and, after
the Effective Time, Parent and the Surviving Corporation shall, to the fullest
extent permitted under applicable law or under the Surviving Corporation's
Certificate of Incorporation or By-Laws, indemnify and hold harmless, each
present and former director, officer or employee of the Company or any of its
subsidiaries (collectively, the "INDEMNIFIED PARTIES") against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, (x) arising out of or pertaining to the
transactions contemplated by this Agreement or (y) otherwise with respect to
any acts or omissions occurring at or prior to the Effective Time, to the same
extent as provided in the Company's Articles of Incorporation or By-Laws or any
applicable contract or agreement as in effect on the date hereof, in each case
for a period of six years after the date hereof. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) any counsel retained by the Indemnified Parties
for any period after the Effective Time shall be reasonably satisfactory to the
Surviving Corporation, (ii) after the Effective Time, Parent or the Surviving
Corporation shall pay the reasonable fees and expenses of such counsel,
promptly after statements therefor are received, and (iii) Parent and the
Surviving Corporation will cooperate in the defense of any such matter;
provided, however, that neither Parent nor the Surviving Corporation shall be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld); and provided, further, that, in the event
that any claim or claims for indemnification are asserted or made within such
six-year period, all rights to indemnification in respect of any such claim or
claims shall continue until the disposition of any and all such claims. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to any single action unless there is, under applicable standards
of professional conduct, a conflict on any significant issue between the
positions of any two or more Indemnified Parties.
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(c) Parent and the Surviving Corporation shall honor and fulfill in all
respects the obligations of the Company pursuant to indemnification agreements
with the Company's directors and officers existing at or before the Effective
Time.
(d) For a period of three years after the Effective Time, Parent shall maintain
or cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who are
currently covered by the Company's directors' and officers' liability insurance
policy (a copy of which has been made available to Parent) on terms comparable
to those now applicable to directors and officers of the Company; provided,
however, that in no event shall Parent or the Surviving Corporation be required
to expend in excess of 150% of the annual premium currently paid by the Company
for such coverage; and provided further, that if the premium for such coverage
exceeds such amount, Parent or the Surviving Corporation shall purchase a
policy with the greatest coverage available for such 150% of the annual
premium.
(e) This Section 5.7 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
Parent and the Surviving Corporation and shall be enforceable by the
Indemnified Parties, their heirs and their representatives.
Section 5.8 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i)
the occurrence or nonoccurrence of any event known to such party the occurrence
or nonoccurrence of which would be likely to cause any representation or
warranty contained in this Agreement to become materially untrue or inaccurate,
or (ii) any failure of the Company, Parent or Merger Sub, as the case may be,
materially to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice; and
provided further that failure to give such notice shall not be treated as a
breach of covenant for the purposes of Sections 6.2(a) or 6.3(a) unless the
failure to give such notice results in material prejudice to the other party.
Section 5.9 Further Action/Tax Treatment. Upon the terms and subject to the
conditions hereof each of the parties hereto shall use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement, to
obtain in a timely manner all necessary waivers, consents and approvals and to
effect all necessary registrations and filings, and otherwise to satisfy or
cause to be satisfied all conditions precedent to its obligations under this
Agreement. The foregoing covenant shall not include any obligation by Parent to
agree to divest, abandon, license or take similar action with respect to any
assets (tangible or intangible) of Parent or the Company. Each of Parent,
Merger Sub and the Company shall use its reasonable best efforts (which shall
not include increasing the Merger Consideration or the Stock Consideration or
the Per Share Stock Consideration) to cause the Merger to qualify, and will not
(both before and after consummation of the Merger) take any actions which to
its knowledge would reasonably be expected to prevent the Merger from
qualifying as a reorganization under the provisions of Section 368 of the Code.
Following the Merger, Parent will cause the Surviving Corporation to continue
the Company's historic business or use a significant portion of the Company's
historic business assets in a business.
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Section 5.10 Public Announcements. Parent and the Company shall consult with
each other before issuing any press release with respect to the Merger or this
Agreement and shall not issue any such press release or make any such public
statement without the prior consent of the other party, which shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may upon the advice of counsel be required by law or the rules and
regulations of the Nasdaq National Market System, if it has used all reasonable
efforts to consult with the other party prior thereto.
Section 5.11 Accountants' Letters. Upon reasonable notice from the other,
Parent and the Company shall use their respective best efforts to cause
Deloitte & Touche LLP and Arthur Andersen LLP, respectively, to deliver to
Parent or the Company, as the case may be, a letter, dated within 2 business
days of the Effective Date of the S-4 Registration Statement covering such
matters as are requested by Parent or the Company and as are customarily
addressed in accountant's "comfort" letters.
Section 5.12 Board Representation. As of the Effective Time or as soon as
practicable thereafter, the Board of Directors of Parent will take such action
as is necessary to cause Glenn Bradley to be elected to serve as a director of
Parent for the vacant term expiring at Parent's annual meeting in 2000 (the
"Outside Director"), and Randy W. Frey to be elected as a director of Parent
for the vacant term expiring at Parent's annual meeting in 2001. The Board of
Directors of Parent will nominate the Outside Director for re-election at
Parent's annual meeting in 2000, provided that such Outside Director (x) is
"independent" as such term is applied under the listing requirements for the
Nasdaq National Market and (y) shall have attended at least 75% of all meetings
of the Board of Directors, by telephone or in person, during the previous
fiscal year. In addition, one person designated by the Company prior to the
mailing of the Joint Proxy Statement/Prospectus, subject to the reasonable
approval of Parent, shall be entitled to attend meetings of the Board of
Directors until the third anniversary of the Effective Time, subject to the
Board's right to have portions of any such meeting open only to members of the
Board. If the observer named in the Joint Proxy Statement/Prospectus is unable
to continue as an observer until the end of the term, Parent agrees that the
directors named by the Company may designate a replacement. Parent agrees to
pay the observer's reasonable travel expenses in connection with the observer's
attendance at Board meetings.
Section 5.13 Nasdaq Listing. Each of the Company and Parent shall use its
reasonable best efforts to continue the quotation of the Company Common Stock
and Parent Common Stock, respectively, on The Nasdaq National Market during the
term of this Agreement.
Section 5.14 Listing of Parent Shares. Parent shall use its reasonable best
efforts to cause the Parent Shares to be issued in the Merger to be approved
for quotation, upon official notice of issuance, on The Nasdaq National Market.
Section 5.15 Joint Shareholder Communications Efforts. The Company and Parent
agree to use their reasonable best efforts to conduct a joint communications
program, including presentations and meetings, with institutional stockholders
of both the Company and Parent, for the purpose of communicating the synergy,
strategy and prospects for the combined companies after the Merger. Such
presentations and meetings shall take place in those cities of the United
States where such
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institutional stockholders are located and shall be conducted for 7 to 10
business days during the three-week period preceding the Stockholder Meetings.
Section 5.16 Dismissal of Civil Actions. As soon as practicable after the date
hereof, the Company shall stipulate to the dismissal, without prejudice, of all
claims it has alleged against Parent and Pillar Point Partners in Autonomous
Technologies Corporation v. Pillar Point Partners (Civil Action No. 96-515
JJF).
Section 5.17 Issuance of CIBA Shares. Prior to the Effective Time, the Company
shall issue 171,713 shares (subject to any required anti-dilution adjustments)
of Company Common Stock to CIBA Vision Group Management, Inc. ("CIBA") in full
satisfaction of its obligation to deliver shares of capital stock under the
Strategic Alliance Agreement dated May 15, 1995 between the Company and CIBA.
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) Effectiveness of the Registration Statement. The Registration Statement
shall have been declared effective by the SEC under the Securities Act.
No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose and
no similar proceeding in respect of the Joint Proxy Statement/Prospectus
shall have been initiated or threatened by the SEC;
(b) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the
Company and the issuance of Parent Common Stock in the Merger pursuant to
this Agreement shall have been approved by the requisite vote of the
stockholders of Parent;
(c) HSR Act. The waiting period, if any, applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated;
(d) No Injunctions or Restraints. No temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding
brought by any administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the
foregoing be pending; and
(e) Nasdaq. The Parent Shares to be issued in the Merger shall have been
approved, upon official notice of issuance, for quotation on The Nasdaq
National Market.
Section 6.2 Additional Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger are also subject to
the following conditions:
(a) Representations and Warranties. The representations and warranties of the
Company contained in this Agreement shall be true and correct in all
respects at and as of the Effective
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Time as if made at and as of such time, except for (i) changes
contemplated by this Agreement and (ii) those representations and
warranties which address matters only as of a particular date (which shall
have been true and correct as of such date with the same force and effect
as if made at and as of the Effective Time), and Parent and Merger Sub
shall have received a certificate to such effect signed on behalf of the
Company by the President and the Chief Financial Officer of the Company;
(b) Agreements and Covenants. The Company shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the
Effective Time, and Parent and Merger Sub shall have received a
certificate to such effect signed on behalf of the Company by the
President and the Chief Financial Officer of the Company;
(c) Consents Obtained. All consents, waivers, approvals, authorizations or
orders required to be obtained, and all filings required to be made, by
the Company for the due authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated
hereby shall have been obtained and made by the Company;
(d) Tax Opinion. Unless the Merger shall be restructured as the Alternative
Taxable Merger, Parent shall have received a written opinion from Ropes &
Gray, in form and substance reasonably satisfactory to Parent, to the
effect that the Merger will constitute a reorganization within the
meaning of Section 368 of the Code;
(e) Affiliate Agreements. Parent shall have received from each person who is
identified in the Affiliate Letter as an "affiliate" of the Company, an
Affiliate Agreement, and such Affiliate Agreement shall be in full force
and effect;
(f) No Litigation. There shall not be pending or threatened any suit, action,
proceeding or investigation: (i) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by this Agreement; (ii) relating to the Merger and seeking
to obtain from Parent or any of its subsidiaries any damages that may be
material to Parent: (iii) seeking to prohibit or limit in any material
respect Parent's ability to vote, receive dividends with respect to or
otherwise exercise ownership rights with respect to the stock of the
Surviving Corporation; (iv) that would materially and adversely affect
the right of the Surviving Corporation to own the assets or operate the
business of the Company (v) which, if adversely determined, could have a
Material Adverse Effect on the Company or Parent.
(g) Stockholders Agreement. The Stockholders Agreements shall be in full
force and effect as of the Effective Time.
Section 6.3 Additional Conditions to Obligation of the Company. The obligation
of the Company to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall be true and
correct in all respects on and as of the Effective Time, except for (i)
changes contemplated by this Agreement and (ii) those representations and
warranties which address matters only as of a particular date (which
shall have been true and correct as of such date) with the same force and
effect as if made on and
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as of the Effective Time, and the Company shall have received a
certificate to such effect signed on behalf of Parent by the President and
the Chief Financial Officer of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or
prior to the Effective Time, and the Company shall have received a
certificate to such effect signed on behalf of Parent by the President
and the Chief Financial Officer of Parent;
(c) Consents Obtained. All consents, waivers, approvals, authorizations or
orders required to be obtained, and all filings required to be made, by
Parent and Merger Sub for the authorization, execution and delivery of
this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent and
Merger Sub;
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, notwithstanding approval thereof by the stockholders of the
Company or Parent:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent and the Company; or
(b) by either Parent or the Company, if the Merger shall not have been
consummated by February 28, 1999 (provided that the right to terminate
this Agreement under this Section 7.1(b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has
been the cause of or resulted in the failure of the Merger to occur on or
before such date); or
(c) by either Parent or the Company, if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall
have issued a nonappealable final order, decree or ruling or taken any
other action having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger (provided that the right to terminate
this Agreement under this Section 7.1(c) shall not be available to any
party who has not complied with its obligations under Section 5.9 and
such noncompliance materially contributed to the issuance of any such
order, decree or ruling or the taking of such action); or
(d) by Parent, if the requisite vote of the stockholders of the Company shall
not have been obtained by February 28, 1999, or by the Company, if the
requisite vote of the stockholders of Parent shall not have been obtained
by February 28, 1999 (provided that this right shall not be available to
any party who has not complied with its obligation under Section 5.3); or
(e) by Parent, if: (i) the Board of Directors of the Company shall withdraw,
modify or change its approval or recommendation of this Agreement or the
Merger in a manner adverse to Parent or shall have resolved to do so;
(ii) the Board of Directors of the Company shall have recommended to the
stockholders of the Company an Alternative Transaction (as defined
below); or (iii) a tender offer or exchange offer for 25% or more of the
outstanding shares of Company Common Stock is commenced (other than by
Parent or an affiliate of Parent) and the Board of Directors of the
Company either fails to recommend that the stockholders of the
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Company not tender their shares in such tender or exchange offer or takes
no position on the acceptance of the tender or exchange offer; or
(f) by the Company, if the Board of Directors of the Company shall have
determined to recommend an Acquisition Proposal to its stockholders after
determining, pursuant to Section 4.2 that such Acquisition Proposal
constitutes a Superior Proposal, and the Company gives Parent at least
three Business Days prior notice of its intention to effect such
termination pursuant to this subsection, and the Company makes the
payment required pursuant to Section 7.3(b) of this Agreement;
(g) by Parent, (i) if any representation or warranty of the Company set forth
in this Agreement that is qualified by materiality was not true when made
or if any such representation or warranty not qualified by materiality
was not true in all material respects when made, or (ii) upon the
Company's material breach of any covenant or agreement set forth in this
Agreement, such that the conditions set forth in Section 6.2(a) or 6.2(b)
would not be satisfied, or by the Company, (x) if any representation or
warranty of Parent set forth in this Agreement that is qualified by
materiality was not true when made or if any such representation or
warranty not qualified by materiality was not true in all material
respects when made, or (y) upon Parent's material breach of any covenant
or agreement set forth in this Agreement, such that the conditions set
forth in Section 6.3(a) or 6.3(b) would not be satisfied (any of such
events being referred to as a "TERMINATING BREACH"), provided, that, the
non-breaching party shall have given the breaching party at least 10
business days' prior notice and provided, further, that if such
Terminating Breach is curable prior to February 28, 1999 by the breaching
party through the exercise of its reasonable best efforts and for so long
as the breaching party continues to exercise such reasonable best
efforts, the non-breaching party may not terminate this Agreement under
this Section 7.1(g); or
(h) by Parent, if any representation or warranty of the Company shall have
become untrue such that the condition set forth in Section 6.2(a) would
not be satisfied, or by the Company, if any representation or warranty of
Parent shall have become untrue such that the condition set forth in
Section 6.3(a) would not be satisfied, in either case other than by
reason of a Terminating Breach and after 10 business days' prior written
notice.
As used herein, "Alternative Transaction" means any of (i) a transaction
pursuant to which any person (or group of persons) other than Parent or its
affiliates (a "THIRD PARTY") acquires or would acquire more than 25% of the
outstanding Shares, whether from the Company or pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving the Company pursuant to which any Third Party acquires more than 25%
of the outstanding equity securities of the Company or the entity surviving
such merger or business combination, or (iii) any other transaction pursuant
to which any Third Party acquires or would acquire control of assets
(including for this purpose the outstanding equity securities of subsidiaries
of the Company, and the entity surviving any merger or business combination
including any of them) of the Company or any of its subsidiaries having a fair
market value (as determined by the Board of Directors of the Company in good
faith) equal to more than 25% of the fair market value of all the assets of
the Company and its subsidiaries, taken as a whole, immediately prior to such
transaction.
Notwithstanding the foregoing, if the staff of the SEC reviews the Joint Proxy
Statement/Prospectus or if any administrative agency or commission or other
governmental authority or instrumentality
A-40
<PAGE>
shall have instituted an inquiry, either formal or informal, into the Merger,
Parent may by written notice to the Company extend the February 28, 1999 date
in this Section 7.1 for up to 30 additional days provided that (i) Parent is
not in breach in any material respect of its obligations under this Agreement
and (ii) Parent agrees to extend credit to the Company under its revolving
credit line with Parent in additional amounts not to exceed $1,500,000 during
the period of any extension.
Section 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or any of its
affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.3 and Section 8.1 hereof, and (ii) nothing herein shall relieve any
party from liability for any willful breach hereof prior to such termination.
Section 7.3 Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated; provided, however, that Parent and the Company shall share equally
all fees and expenses, other than accountants' and attorneys' fees, incurred in
connection with the printing and filing of the Joint Proxy Statement/Prospectus
(including any preliminary materials related thereto) and the Registration
Statement (including financial statements and exhibits) and any amendments or
supplements thereto.
(b) The Company shall pay Parent a fee of $2,600,000 (the "COMPANY FEE") upon
the first to occur of the following events:
(i) the termination of this Agreement by Parent pursuant to Section 7.1(d) if
the stockholders of the Company shall not have approved and adopted the
Merger Agreement by February 28, 1999 and a proposal for an Alternative
Transaction shall have been made prior to the Company Stockholders
Meeting; or
(ii) the termination of this Agreement by Parent pursuant to Section 7.1(e)
or the Company pursuant to Section 7.1(f); or
(iii) the termination of this Agreement by Parent pursuant to Section 7.1(g)
on account of a Terminating Breach by the Company.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Effectiveness of Representations, Warranties and Agreements;
Knowledge, Etc.
(a) Except as otherwise provided in this Section 8.1, the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.1, as the case may be, except that the agreements set
forth in Article I and Section 5.7 shall survive the Effective Time
indefinitely and those set forth
A-41
<PAGE>
in Section 7.3 shall survive such termination indefinitely. The Confidentiality
Letter shall survive termination of this Agreement as provided therein.
(b) Reference to a party's "knowledge" in this Agreement refers to the actual
knowledge of the directors and officers of that party who are required to file
reports under Section 16(a) of the Exchange Act.
Section 8.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by facsimile transmission, with confirmation
received and a copy placed in the United States mail to the following
addresses, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to Parent or Merger Sub:
Attention: General Counsel
Telephone No.: (781) 890-1234
Telecopier No.: (781) 890-6739
With a copy to:
Keith F. Higgins, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
Telephone No.: (617) 951-7000
Telecopier No.: (617) 951-7050
(b) If to the Company:
Attention: President
Telephone No.: (407) 384-1600
Telecopier No.: (407) 277-0047
With a copy to:
William A. Grimm, Esq.
Gray, Harrison & Robinson, P.A.
201 East Pine Street, Suite 1200
Orlando, FL 37801
Telephone No.: (407) 843-8880
Telecopier No.: (407) 244-5690
Section 8.3 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliates" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person; including, without limitation,
any partnership or joint venture in which the first mentioned
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<PAGE>
person (either alone, or through or together with any other subsidiary)
has, directly or indirectly, an interest of 5% or more;
(b) "beneficial owner" with respect to any shares of Company Common Stock
means a person who shall be deemed to be the beneficial owner of such
shares (as such term is defined in Rule 13d-3 of the Exchange Act);
(c) "business day" means any day other than a day on which banks in The
Commonwealth of Massachusetts are required or authorized to be closed;
(d) "control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
or policies of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise;
(e) "generally accepted accounting principles" shall mean United States
generally accepted accounting principles.
(f) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act); and
(g) "subsidiary" or "subsidiaries" of the Company, Parent or any other person
means any corporation, partnership, joint venture or other legal entity
of which the Company, the Surviving Corporation, Parent or such other
person, as the case may be (either alone or through or together with any
other subsidiary), owns, directly or indirectly, more than 50% of the
stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
Section 8.4 Amendment. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after approval of
the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
Section 8.5 Waiver. At any time prior to the Effective Time, any party hereto
may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements
or conditions contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
Section 8.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
A-43
<PAGE>
Section 8.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the fullest extent possible.
Section 8.8 Entire Agreement. This Agreement constitutes the entire agreement
and supersedes all prior agreements and undertakings (other than the
Confidentiality Letters), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
Section 8.9 Assignment; Guarantee of Merger Sub Obligations. This Agreement
shall not be assigned by operation of law or otherwise, except that Merger Sub
may assign all or any of its rights hereunder to any wholly owned subsidiary of
the Parent provided that no such assignment shall relieve the assigning party
of its obligations hereunder. Parent guarantees the full and punctual
performance by Merger Sub of all the obligations hereunder of Merger Sub or any
such assignees.
Section 8.10 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation, other
than Section 5.7 (which is intended to be for the benefit of the Indemnified
Parties and may be enforced by such Indemnified Parties).
Section 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure
or delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or of any other right. All rights and remedies existing under
this Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
Section 8.12 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Delaware applicable to
contracts executed and fully performed within the State of Delaware.
Section 8.13 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SUMMIT TECHNOLOGY, INC.
/s/ Robert J. Palmisano
By: _________________________________
Name:Robert J. Palmisano
Title:Chief Executive Officer
ALPINE ACQUISITION CORP.
/s/ Robert J. Palmisano
By: _________________________________
Name:Robert J. Palmisano
Title:President
AUTONOMOUS TECHNOLOGIES CORPORATION
/s/ Randy W. Frey
By: _________________________________
Name:Randy W. Frey
Title:CEO
A-45
<PAGE>
ANNEX B
FORM OF
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT, dated as of October 1, 1998 (the "Agreement"), between
the undersigned holder (the "Holder") of shares of the common stock, $0.01 par
value per share (the "Company Common Stock"), of Autonomous Technologies
Corporation, a Florida corporation (the "Company"), and Summit Technology,
Inc., a Massachusetts corporation ("Parent").
RECITALS
The Company, Parent and Alpine Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of Parent ("Merger Sub"), propose to enter into an
Agreement and Plan of Merger dated the date hereof (the "Merger Agreement";
capitalized terms not otherwise defined herein being used herein as therein
defined), pursuant to which the Company would be merged (the "Merger") with
and into Merger Sub, and each outstanding share of Company Common Stock would
be converted into the right to receive the Merger Consideration, which
includes shares ("Parent Shares") of the common stock, $0.01 par value per
share, of Parent;
In order to induce Parent to enter into the Merger Agreement, and at the
request of Parent, the Holder has agreed, to enter into this Agreement;
Prior to the date hereof, Parent, Merger Sub and the Holder had no agreement,
arrangement or understanding (as defined in Section 607.0901 of the Florida
Business Corporation Act (the "FBCA")) for the purpose of acquiring, holding,
voting or disposing of shares of Company Common Stock; and
In consideration for the agreements contained herein and in the Merger
Agreement, prior to the date hereof, and prior to the time at and date on
which each of Parent and Merger Sub became an "interested stockholder" for
purposes of Section 607.0901 of the FBCA, the board of the directors of the
Company has approved this Agreement.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. Representations and Warranties of Holder. The Holder represents and
warrants to Parent as follows:
(a) Ownership of Securities. The Holder is the record and beneficial owner
of the number of shares of Company Common Stock (together with any
shares of Company Common Stock hereafter acquired by the Holder, the
"Subject Shares") and the number and kind of other securities of the
Company (together with the Subject Shares and any other securities of
the Company hereafter acquired by the Holder, the "Subject Securities")
set forth on the signature page to this Agreement. The Holder has sole
voting power and sole power to issue instructions with respect to the
voting of the Subject Securities, sole power of disposition, sole power
of exercise or conversion and the sole power to demand appraisal right,
in each case with respect to all of the Subject Securities.
(b) Power; Binding Agreement. The Holder has the legal capacity, power and
authority to enter into and perform all of the Holder's obligations
under this Agreement. The execution,
<PAGE>
delivery and performance of this Agreement by the Holder will not
violate any other agreement to which such Holder is a party including,
without limitation, any trust agreement, voting agreement, stockholder's
agreement or voting trust. This Agreement has been duly and validly
executed and delivered by the Holder and constitutes a valid and binding
agreement of such Holder, enforceable against the Holder in accordance
with its terms. If the Holder is married and the Subject Securities
constitute community property, this Agreement has been duly authorized,
executed and delivered by, and constitutes a valid and binding agreement
of, the Holder's spouse, enforceable against such person in accordance
with its terms.
(c) No Conflicts. No filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary
for the execution of this Agreement by the Holder and the consummation
by the Holder of the transactions contemplated hereby and neither the
execution and delivery of this Agreement by the Holder nor the
consummation by the Holder of the transactions contemplated hereby nor
compliance by the Holder with any of the provisions hereof shall
conflict with or result in any breach of any applicable partnership or
other organizational documents applicable to the Holder, result in a
violation or breach of, or constitute (with or without notice or lapse
of time or both) a default (or give rise to any third-party right of
termination, cancellation, material modification or acceleration) under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which the
Holder is a party or by which the Holder's properties or assets may be
bound or violate any order, writ, injunction, decree, judgment, order,
statute, rule or regulation applicable to the Holder or any of the
Holder's properties or assets.
(d) No Liens. The Subject Securities are now and at all times during the
term hereof will be held by the Holder, or by a nominee or custodian
for the benefit of the Holder, free and clear of all liens, claims,
security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever,
except for any encumbrances arising hereunder.
(e) No Brokers. Except as provided in the Merger Agreement, no broker,
finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions
contemplated by the Merger Agreement based upon arrangements made by or
on behalf of the Holder.
2. Agreement to Vote Shares. At every meeting of the stockholders of the
Company called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of the Company with respect to any of the following, the Holder shall vote all
or cause to be voted the Subject Securities that he beneficially owns on the
record date of any such vote (i) in favor of the Merger, the adoption of the
Merger Agreement and the approval of the terms thereof and (ii) against (x) any
Acquisition Proposal made in opposition to or competition with the Merger, (y)
any merger (including, without limitation, an Alternative Transaction),
consolidation, sale of assets requiring stockholder approval, reorganization or
recapitalization of the Company, with any other person than Parent or its
affiliates, and (z) any liquidation or winding up of the Company.
B-2
<PAGE>
3. Proxy. THE STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS MERGER SUB AND THE
PRESIDENT OF MERGER SUB AND THE TREASURER OF MERGER SUB, IN THEIR RESPECTIVE
CAPACITIES AS OFFICERS OF MERGER SUB, AND ANY INDIVIDUAL WHO SHALL HEREAFTER
SUCCEED TO ANY SUCH OFFICE OF MERGER SUB, AND ANY OTHER DESIGNEE OF MERGER SUB,
AND EACH OF THEM INDIVIDUALLY, THE STOCKHOLDER'S PROXY AND ATTORNEY-IN-FACT
(WITH FULL POWER OF SUBSTITUTION) TO VOTE OR ACT BY WRITTEN CONSENT WITH
RESPECT TO THE SUBJECT SECURITIES SOLELY WITH RESPECT TO THE MATTERS IN AND
SOLELY IN ACCORDANCE WITH, SECTION 2 HEREOF. THIS PROXY IS COUPLED WITH AN
INTEREST AND SHALL BE IRREVOCABLE, AND THE HOLDER WILL TAKE SUCH FURTHER ACTION
OR EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT
OF THIS PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY HIM WITH
RESPECT TO THE SUBJECT SECURITIES.
4. Covenants of the Holder. The Holder hereby agrees and covenants that:
(a) No Solicitation. The Holder, solely in his capacity as a stockholder of
the Company, shall not, directly or indirectly, solicit (including by
way of furnishing information) or respond to any inquiries or the
making of any proposal by any person or entity (other than Parent or
any affiliate of Parent) with respect to the Company that constitutes
or could reasonably be expected to lead to an Acquisition Proposal. If
the Holder receives any such inquiry or proposal, then he shall
promptly inform Parent of the terms and conditions, if any, of such
inquiry or proposal and the identity of the person making it. The
Holder will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. The restrictions and
covenants contained in this Section 4(a) shall apply to the Holder only
in his capacity as a stockholder, and not to the Holder in his capacity
as a director or officer of the Company.
(b) Restriction on Transfer, Proxies and Noninterference. The Holder shall
not, directly or indirectly: (i) except pursuant to the terms of the
Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent
to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of the Holder's Subject
Securities; (ii) except as contemplated hereby, grant any proxies or
powers of attorney, deposit any Subject Shares into a voting trust or
enter into a voting agreement with respect to any Subject Shares; or
(iii) take any action that would make any representation or warranty
contained herein untrue or incorrect or have the effect of preventing
or disabling the Holder from performing his obligations under this
Agreement. Holder agrees within three (3) business days of the date of
this Agreement to cause to be affixed a legend on each certificate
representing Subject Securities the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
THE STOCKHOLDER AGREEMENT, DATED AS OF OCTOBER , 1998, A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF THE ISSUER."
B-3
<PAGE>
5. Agreement as Stockholder. Parent and the Holder acknowledge and agree that
none of the provisions set forth herein shall be deemed to restrict or limit
any fiduciary duty that the Holder may have as a director or an officer of the
Company provided that no such duty shall excuse the Holder from his obligation
to vote the Subject Securities, to the extent that they may be so voted as
provided herein, and to otherwise comply with each of the terms and conditions
of the Agreement.
6. Assignment; Benefits. The rights (but not the obligations) of Parent
hereunder may be assigned, in whole or in part, to Merger Sub or any other
direct or indirect wholly owned subsidiary of Parent, to the extent and for so
long as it remains a direct or indirect wholly owned subsidiary of Parent.
Other than as permitted in the preceding sentence, this Agreement may not be
assigned by any party hereto without the prior written consent of the other
party.
This Agreement shall be binding upon, and shall inure to the benefit of, the
Holder, Parent and their respective successors and permitted assigns.
7. Notices. All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made if and
when delivered personally or by overnight courier or sent by electronic
transmission, with confirmation received, to the telecopy numbers specified
below:
If to the Holder, to the Holder at the address appearing on the signature page
beneath the Holder's name, with a copy to:
Autonomous Technologies Corporation
2800 Discovery Drive
Orlando, FL 32826
Telecopier No.: (407) 384-1699
Telephone No.: (407) 384-1600
Attention: Chairman and CEO
With a copy to:
Gray, Harris & Robinson, P.A.
201 East Pine Street, Suite 1200
Orlando, FL 32801
Telecopier No.: (407) 244-5690
Telephone No.: (407) 843-8880
Attention: William A. Grimm, Esq.
If to Parent or Merger Sub:
Summit Technology, Inc.
21 Hickory Drive
Waltham, Massachusetts 02541
Telecopier No.: (781) 890-6316
Telephone No.: (781) 890-1234
Attention: General Counsel
B-4
<PAGE>
With a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Telecopier No.: (617) 951-7050
Telephone No.: (617) 951-7000
Attention: Keith F. Higgins, Esq.
or to such other address or telecopy number as any party may have furnished to
the other parties in writing in accordance herewith.
8. Specific Performance. The parties hereto agree that irreparable harm would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
9. Amendment. This Agreement may not be amended or modified, except by an
instrument in writing signed by or on behalf of each of the parties hereto.
This Agreement may not be waived by either party hereto, except by an
instrument in writing signed by or on behalf of the party granting such waiver.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts without giving
effect to the conflict of laws principles thereof.
11. Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same agreement.
12. Termination. Unless the Merger shall have been consummated, this Agreement
shall terminate upon the earlier to occur of (i) 180 days after the termination
of the Merger Agreement pursuant to Section 7.1 thereof, or (ii) February 28,
1999. The date and time at which this Agreement is terminated in accordance
with this Section 12 is referred to herein as the "Termination Date." Upon any
termination of this Agreement, this Agreement shall thereupon become void and
of no further force and effect, and there shall be no liability in respect of
this Agreement or of any transactions contemplated hereby or by the Merger
Agreement on the part of any party hereto or any of its directors, officers,
stockholders, employees, agents, advisors, representatives or affiliates;
provided, however, that nothing herein shall relieve any party from any
liability for such party's willful breach of this Agreement; and provided
further that nothing herein shall limit, restrict, impair, amend or otherwise
modify the rights, remedies, obligations or liabilities of any person under any
other contract or agreement, including, without limitation, the Merger
Agreement. This Agreement shall survive the consummation of the Merger.
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK.]
B-5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of each of
the parties hereto, all as of the date first above written.
Summit Technology, Inc.
By: _________________________________
Name:
Title:
The Holder:
_____________________________________
Name:
Address:
Shares of Company Common Stock:
Options/Warrants to Purchase Company Common Stock:
B-6
<PAGE>
ANNEX C
[Hambrecht & Quist Letterhead]
October 1, 1998
CONFIDENTIAL
The Board of Directors
Summit Technology, Inc.
21 Hickory Drive
Waltham, Massachusetts, 02451
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Summit Technology, Inc. ("Acquirer" or the "Company") of the
consideration to be paid by the Company in connection with the proposed
acquisition by Acquirer of the common stock of Autonomous Technologies
Corporation ("Seller") (the "Proposed Transaction") under the terms of the
Agreement and Plan of Merger by and among Summit Technology, Inc., Alpine
Acquisition Corp., and Autonomous Technologies Corporation dated as of
September 28, 1998 among Seller and Acquirer and the related Exhibits and
Schedules thereto (the "Agreement"). The Agreement provides, among other
things, that Acquirer will pay to Seller, upon consummation of the Proposed
Transaction, (i) 11,650,400 shares of Acquirer common stock and (ii)
$50,000,000 in cash less (a) one-half of any amounts advanced to the Seller by
Acquirer after the date of this letter and (b) any amounts that would be
payable upon redemption of all shares of the Seller's Convertible Preferred
Stock, Series I. If the average closing price of Acquirer common stock for the
ten trading days ending on the third day before the date on which the
Effective Time, as defined in the Agreement, occurs is less than $4.2917 (the
"Average Closing Price"), then the $50,000,000 in the previous sentence shall
be reduced to 11,650,400 multiplied by the Average Closing Price.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment banking
services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic
transactions, corporate restructurings, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. We have acted as a financial
advisor to the Board of Directors of Acquirer in connection with the Proposed
Transaction, and we will receive a fee for our services, which include the
rendering of this opinion.
In the ordinary course of business, Hambrecht & Quist acts as a market maker
and broker in the publicly traded securities of Acquirer and receives
customary compensation in connection therewith, and also provides research
coverage for Acquirer. In the ordinary course of business, Hambrecht & Quist
actively trades in the equity and derivative securities of Acquirer for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities. Hambrecht & Quist may
in the future provide additional investment banking or other financial
advisory services to Acquirer.
<PAGE>
In the past, Hambrecht & Quist acted as a financial advisor to Seller and, in
the past, made an investment in Seller when it was a private company. As of the
date of this letter, Hambrecht & Quist no longer holds any of the warrants or
common shares which comprised this investment. In the ordinary course of
business, Hambrecht & Quist acts as a market maker and broker in the publicly
traded securities of Seller and receives customary compensation in connection
therewith, and also provides research coverage for Seller. In the ordinary
course of business, Hambrecht & Quist actively trades in the equity and
derivative securities of Seller for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. Hambrecht & Quist may in the future provide additional
investment banking or other financial advisory services to Seller.
In connection with our review of the Proposed Transaction, and in arriving at
our opinion, we have, among other things:
(i) reviewed the publicly available financial statements of Acquirer for
recent years and interim periods to date and certain other relevant
financial and operating data of Acquirer made available to us from
published sources and from the internal records of Acquirer;
(ii) reviewed certain internal financial and operating information relating
to Acquirer prepared by the management of Acquirer;
(iii) discussed the business, financial condition and prospects of Acquirer
with certain of its officers;
(iv) reviewed the publicly available financial statements of Seller for
recent years and interim periods to date and certain other relevant
financial and operating data of Seller made available to us from
published sources and from the internal records of Seller;
(v) reviewed certain internal financial and operating information relating
to Seller prepared by the management of Seller;
(vi) discussed the business, financial condition and prospects of the
Seller with certain of its officers;
(vii) reviewed the recent reported prices and trading activity for the
common stocks of Acquirer and Seller and compared such information
and certain financial information for Acquirer and Seller with
similar information for certain other companies engaged in businesses
we consider comparable;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(ix) reviewed the Agreement;
(x) discussed the tax and accounting treatment of the Proposed Transaction
with Acquirer and Acquirer's lawyers; and
(xi) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning Acquirer or Seller considered
in connection with our review of the
C-2
<PAGE>
Proposed Transaction, and we have not assumed any responsibility for
independent verification of such information. We have not undertaken any
independent valuation or appraisal of any of the assets or liabilities of
Acquirer or Seller. With respect to the financial forecasts and projections
made available to us and used in our analysis, we have assumed that they
reflect the best currently available estimates and judgments of the expected
future financial performance of Acquirer and Seller. For purposes of this
Opinion, we have assumed that neither Acquirer nor Seller is a party to any
pending transactions, including external financings, recapitalizations or
material merger discussions, other than the Proposed Transaction and those
activities undertaken in the ordinary course of conducting their respective
businesses. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date of this
letter and any change in such conditions would require a reevaluation of this
opinion.
It is understood that this letter is for the information of the Board of
Directors and may not be used for any other purpose without our prior written
consent; provided, however, that this letter may be reproduced in full in the
Proxy Statement. This letter does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the Proposed Transaction.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be paid by Acquirer in the Proposed Transaction is fair to
the Company from a financial point of view.
Very truly yours,
Hambrecht & Quist LLC
/s/ Paul B. Cleveland
By __________________________________
Paul B. Cleveland
Managing Director
C-3
<PAGE>
ANNEX D
[EVEREN Securities, Inc. Letterhead]
October 1, 1998
Board of Directors
Autonomous Technologies Corporation
2800 Discovery Drive
Orlando, FL 32826
Gentlemen:
We understand that Autonomous Technologies Corporation ("ATCI" or the
"Company") plans to merge with Summit Technology, Inc. ("Summit"). Pursuant to
the agreement and plan of merger (the "Agreement"), 100% of ATCI's outstanding
capital stock will be exchanged for approximately $93.2 million, or $6.26 per
share based on Summit's closing price of $4.00 on September 28, 1998 (the
"Transaction"). Under the terms of the Transaction, each ATCI share will be
exchanged for approximately 0.94 shares of Summit stock (valued at $3.76) plus
$2.50 in cash. The purchase price per share will increase or decrease based on
changes in the trading price of Summit's stock. However, the cash portion will
not be greater than $50 million and is subject to reduction based upon cash
advances made by Summit to ATCI under a revolving credit line and the
redemption described below. Under the terms of the Company's Series I
Convertible Preferred Stock (the "Preferred Stock"), Preferred Stock investors
have the right to receive a cash redemption estimated at $15.5 million upon a
change of control event. For the purpose of our analysis, EVEREN has assumed
that the Preferred Stock investors will exercise this right. Upon closing of
the Transaction, ATCI shareholders will own approximately 27% of the combined
entity.
The Company's warrant and option holders will have the option to: (i) exercise
their positions prior to the Transaction, thereby becoming common stockholders
and receiving the same consideration as all other stockholders, or (ii) roll
over their warrants and options into Summit warrants and options. For the
purpose of our analysis, EVEREN has assumed that all warrant and option
holders elect (i) above by means of a cashless exercise.
The Company expects to execute an agreement and plan of merger (the "Merger
Agreement") and announce the Transaction on Thursday, October 1, 1998. ATCI's
founder, chairman and chief executive officer, Randy Frey, will become an
executive officer and a director of Summit following the Transaction.
Additionally, the board of ATCI will be able to nominate an additional
director and one non-voting observer to Summit's board.
ATCI has retained EVEREN Securities, Inc. ("EVEREN") to render an opinion (the
"Opinion") to the Board of Directors of ATCI as to whether the consideration
to be paid to ATCI shareholders in the Transaction is fair, from a financial
point of view, to ATCI's shareholders as of the date hereof. This Opinion does
not constitute a recommendation to ATCI or any ATCI shareholder.
In formulating the Opinion, EVEREN has:
reviewed the draft Agreement and Plan of Merger in substantially final form
by and between Summit and ATCI;
<PAGE>
reviewed ATCI's definitive proxy statement dated April 24, 1998, ATCI's
annual reports on Form 10-K for the years ended December 31, 1996 and 1997,
and ATCI's Forms 10-Q for the three month period ended March 31, 1998 and
six months ended June 30, 1998;
reviewed certain non-public operating and financial information, including
projections relating to ATCI's business prepared by management of ATCI;
met with certain members of ATCI's management to discuss its operations,
financial statements and projections, and future prospects;
reviewed Summit's definitive proxy statement dated April 15, 1998, Summit's
annual reports on Form 10-K for the years ended December 31, 1996 and 1997,
and Summit's Forms 10-Q for the three month period ended March 31, 1998 and
six months ended June 30, 1998;
reviewed certain non-public operating and financial information, including
internal management reports and projections, relating to Summit's business
by management of Summit;
met with certain members of Summit's management to discuss Summit's
operations, financial statements and projections, and future prospects;
interviewed certain members of Summit's outside legal counsel to discuss
the proceedings, status and anticipated impact of certain outstanding
litigation on Summit's business, financial condition and results of
operations;
reviewed publicly available financial data and stock market performance
data of other ophthalmic and electromedical device manufacturers which we
deemed comparable to ATCI and Summit;
reviewed the price premiums of recent acquisitions for selected companies
which we deemed generally comparable to ATCI;
reviewed the historical stock prices and reported traded volumes of ATCI's
and Summit's common shares; and
conducted such other studies, analyses, inquiries and investigations as we
deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by the management of ATCI and Summit. We have
further relied upon the assurances of each management team that they are
unaware of any factors that would make the information provided to us
incomplete or misleading. In arriving at our Opinion, we have not performed any
independent valuation or appraisal of the assets of ATCI or Summit.
Summit is currently involved in several legal disputes which can be grouped
into two principal categories: (i) suits brought by shareholders alleging
material misstatements of fact in a Registration Statement, and (ii) suits
alleging either patent infringement or antitrust violations pertaining to the
Pillar Point Partners arrangement. Based on discussions with ATCI's and
Summit's legal counsel, we have determined that the likely disposition or
resolution will not have a material adverse affect on Summit, and will not
affect our Opinion.
D-2
<PAGE>
In arriving at our Opinion, we have considered such factors as we have deemed
relevant including, but not limited to: (i) the historical stock price
performance of ATCI, (ii) acquisition premiums for comparable transactions,
(iii) discounted cash flow analysis for ATCI, (iv) business and strategic
considerations, (v) Summit's stock price history, (vi) the value of Summit's
stock versus comparable companies, (vii) a break-up analysis for Summit, and
(viii) a discounted cash flow analysis for Summit.
As our Opinion has taken into consideration forward looking valuation
techniques such as discounted cash flow analysis, we have assumed that the
financial projections which we reviewed were reasonably prepared using
assumptions reflecting the best currently available estimates and judgments of
the future financial performance of each company. Our Opinion is necessarily
based on the economic, market, and other conditions as in effect on, and the
information made available to us as of, the date hereof. We disclaim any
undertaking or obligation to advise any person of any change in any fact or
matter affecting our Opinion which may come or be brought to our attention
after the date of this Opinion.
As our Opinion is based upon the share prices of Summit as of the date hereof,
any material change in stock price may cause EVEREN to withdraw its Opinion.
We have acted as financial advisor to the Board of Directors of ATCI in
connection with this Opinion and will receive a fee for our services. We are
also serving as financial advisor to ATCI in connection with the Transaction
and will receive a success fee upon its completion. Pursuant to the terms of an
engagement letter dated August 13, 1998 (the "Engagement Letter"), ATCI has
agreed to pay EVEREN an aggregate cash fee equal to the greater of $1,200,000
or 1.00% of the aggregate Transaction value plus reimbursement for out-of-
pocket expenses. Of such fee, (i) $50,000 was paid to EVEREN upon execution of
the Engagement Letter; (ii) $200,000 becomes payable upon the completion of due
diligence and the execution of the Merger Agreement; (iii) $75,000 becomes
payable upon the delivery of the Opinion to ATCI's board of directors, and (iv)
the remaining $875,000 of such fee shall be payable at the closing of the
Transaction.
It is understood that this Opinion will be included in its entirety in any
proxy statement or other document distributed to shareholders of the Company in
connection with the Merger and this constitutes our express written approval
for that purpose. However, no summary of, or excerpt from, this Opinion may be
used, and no published public reference (other than as provided in the
preceding sentence) to this Opinion letter may be made without our prior
express written approval, which shall not be unreasonably withheld.
This Opinion does not constitute a recommendation to any shareholder of ATCI as
to how such shareholder should vote, or as to any other actions which such
shareholder should take in conjunction with the Merger. This Opinion relates
solely to the question of fairness to the ATCI shareholders, from a financial
point of view, of the consideration as currently proposed. Further, we express
no Opinion herein as to the structure, terms or effect of any other aspect of
the Merger, including, without limitation, any effects resulting from the
application or any bankruptcy, fraudulent conveyance or other federal or state
insolvency law or of any pending or threatened litigation affecting ATCI or
Summit.
D-3
<PAGE>
Based on the foregoing, we are of the opinion that the consideration to be paid
to ATCI shareholders in the Transaction which will result in ATCI shareholders
receiving $6.26 per ATCI share ($3.76 in Summit stock plus $2.50 in cash) is
fair, from a financial point of view, to the shareholders of ATCI as of the
date hereof.
Very truly yours,
EVEREN Securities, Inc.
/s/ Kathryn Burrer Hyer
By: _________________________________
Kathryn Burrer Hyer
Managing Director
D-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Massachusetts General Laws, Chapter 156B, Section 67, empowers a Massachusetts
corporation to indemnify any person in connection with any action, suit or
proceeding brought or threatened by reason of the fact that such person is or
was a director, officer, employee or agent of the corporation or was serving as
such with respect to another corporation or other entity at the request of such
corporation, unless such person shall have been adjudicated in any proceeding
not to have acted in good faith in the reasonable belief that such action was
in the best interests of the corporation.
Section 13(b)(1 1/2) of Chapter 156B permits a corporation to include in its
articles of organization a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Sections 61
or 62 of Chapter 156B (relating to unauthorized distributions and loans to
insiders) or (iv) for any transaction from which the director derived an
improper personal benefit.
Summit's articles of organization and by-laws provide broadly for
indemnification of the officers and directors of Summit. In addition, Summit's
articles of organization provide that, to the fullest extent permitted by
Massachusetts law, no director shall be personally liable to Summit or its
stockholders for monetary damages for any breach of fiduciary duty by such
director in his or her capacity as a director. The provisions of Summit's
articles of organization may not limit the availability of non-monetary relief
and may not apply to violations of the federal securities laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated October 1, 1998 by and among Summit
Technology, Inc., Alpine Acquisition Corp. and Autonomous Technologies
Corporation (Incorporated by Reference to Exhibit 2.1 of the Current
Report on Form 8-K filed by Summit Technology Inc. on October 7,
1998).
4.1 Form of Stockholder Agreement dated as of October 1, 1998 by and
between Summit Technology, Inc. and certain stockholders of Autonomous
Technologies Corporation (Incorporated by Reference to Exhibit 4.1 of
the Current Report on Form 8-K filed by Summit Technology, Inc.
on October 7, 1998).
4.2 Rights Agreement dated as of March 29, 1990 (Incorporated by Reference
to Exhibit 1 of Form 8-A filed by Summit Technology, Inc. on April 2,
1990).
5.1 Opinion of Ropes & Gray as to validity of shares.
8.1 Opinion of Ropes & Gray re: tax matters.
23.1 Consent of Ropes & Gray (included in Exhibit 5).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (included on signature page hereto).
</TABLE>
II-1
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned registration hereby undertakes:
(1) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(2) that every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, THE REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF WALTHAM, THE COMMONWEALTH OF MASSACHUSETTS, ON THE 7TH DAY OF JANUARY, 1999.
SUMMIT TECHNOLOGY, INC.
/s/ Robert J. Kelly
By: ____________________________
NAME: ROBERT J. KELLY
TITLE: CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
* Chief Executive Officer
______________________________________ and Director (principal
ROBERT J. PALMISANO executive officer)
* Executive Vice President,
______________________________________ Chief Financial Officer
ROBERT J. KELLY and Treasurer (principal
financial and accounting
officer)
* Director
______________________________________
JEFFREY A. BERNFELD
* Director
______________________________________
RICHARD F. MILLER
* Director
______________________________________
JOHN A. NORRIS
* Director
______________________________________
RICHARD M. TRASKOS
</TABLE>
/s/ Robert J. Kelly
By: _____________________________ Dated: January 7, 1999
ROBERT J. KELLY
ATTORNEY IN FACT
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGES
------- ----------- --------------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated October 1, 1998 by
and among Summit Technology, Inc., Alpine Acquisition
Corp. and Autonomous Technologies Corporation
(Incorporated by Reference to Exhibit 2.1 of the
Current Report on Form 8-K filed by Summit Technology
Inc. on October 7, 1998).
4.1 Form of Stockholder Agreement dated as of October 1,
1998 by and between Summit Technology, Inc. and
certain stockholders of Autonomous Technologies
Corporation (Incorporated by Reference to Exhibit 4.1
of the Current Report on Form 8-K filed by Summit
Technology, Inc. on October 7, 1998).
4.2 Rights Agreement dated as of March 29, 1990
(Incorporated by Reference to Exhibit 1 of Form 8-A
filed by Summit Technology, Inc. on April 2, 1990).
5.1 Opinion of Ropes & Gray as to validity of shares.
8.1 Opinion of Ropes & Gray re: tax matters.
23.1 Consent of Ropes & Gray (included in Exhibit 5).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (included on signature page
hereto).
</TABLE>
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF ROPES & GRAY]
January 7, 1998
Summit Technology, Inc.
21 Hickory Drive
Waltham, MA 02451
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration statement
on Form S-4 (the "Registration Statement") filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, for the registration of 11,650,400 shares of Common Stock, par value
$0.01 per share (the "Shares") of Summit Technology, Inc., a Massachusetts
corporation (the "Company"). The Shares are to be issued in exchange for shares
of common stock, $0.01 par value per share, of Autonomous Technologies
Corporation ("Autonomous") pursuant to an Agreement and Plan of Merger dated as
of October 1, 1998 (the "Merger Agreement") by and among the Company,
Autonomous and Alpine Acquisition Corp., a wholly-owned subsidiary of the
Company and a Delaware corporation. The Merger Agreement provides for the
acquisition of Autonomous by the Company.
We have acted as counsel for the Company in connection with the issuance of
the Shares pursuant to the Merger. For purposes of our opinion, we have
examined and relied upon such documents, records, certificates and other
instruments as we have deemed necessary.
We express no opinion as to the applicability of, compliance with or effect
of federal law or the law of any jurisdiction other than The Commonwealth of
Massachusetts.
Based upon the foregoing, we are of the opinion that the Shares being issued
by the Company have been duly authorized and, when issued in accordance with
the Merger Agreement, will be fully paid and nonassessable.
We hereby consent to the filing of this opinion as part of the Registration
Statement and to the use of our name therein and in the related proxy
statement/prospectus under the caption "Validity of Common Stock."
This opinion is to be used only in connection with the issuance of the Shares
while the Registration Statement is in effect.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF ROPES & GRAY]
January 7, 1999
Summit Technology, Inc.
21 Hickory Drive
Waltham, MA 02451
Ladies and Gentlemen:
We have acted as counsel to Summit Technology, Inc. ("Summit"), a
Massachusetts corporation, in connection with the planned transaction (the
"Merger") contemplated by the Agreement and Plan of Merger, dated as of October
1, 1998, by and among Summit, Alpine Acquisition Corp., a Delaware corporation
and a wholly-ownded subsidiary of Summit ("Merger Sub"), and Autonomous
Technologies Corporation, a Florida corporation ("Autonomous") (the "Merger
Agreement"). All capitalized terms used but not defined herein have the
meanings ascribed to them in the Merger Agreement.
For purposes of the opinion set forth below, we have reviewed and relied upon
the Merger Agreement, the Joint Proxy Statement and Prospectus included in the
Registration Statement on Form S-4 filed by Summit with the Securities and
Exchange Commission on January 7, 1999 (the "Proxy Statement"), and such other
documents, records and instruments as we have deemed necessary or appropriate
as a basis for our opinion. We have assumed without investigation or
verification that all statements contained in the foregoing documents are true,
correct, and complete as of the date hereof and will remain true, correct and
complete through the Effective Time; that no actions inconsistent with such
statements have occurred or will occur; that all such statements made "to the
best of the knowledge of" any persons or parties, or similarly qualified, are
true, correct and complete as if made without such qualification; and, as to
all matters in which a person or entity making a representation has represented
that such person or entity either is not a party to, does not have, or is not
aware of, any plan or intention, understanding or agreement, we have assumed
that there is in fact no such plan, intention, understanding or agreement.
We also have assumed that (i) the Merger will be consummated in accordance
with the Merger Agreement (including satisfaction of all covenants and
conditions to the obligations of the parties without amendment or waiver
thereof); (ii) all representations and warranties contained in the Merger
Agreement are true, correct, and complete in all respects; (iii) the Merger
will be effective as a merger under the applicable laws of Delaware and
Massachusetts; and (iv) if the Merger is not restructured as a fully taxable
Merger, (a) each of Summit, Autonomous and Merger Sub will deliver a tax
representation certificate satisfactory to Ropes & Gray and (b) each of Summit,
Autonomous and Merger Sub will comply with the reporting obligations with
respect to the Merger, if any, required under the Internal Revenue Code (the
"Code") and the Treasury regulations promulgated thereunder.
<PAGE>
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations and assumptions and any change in applicable law after the date
hereof could adversely affect our opinion. No ruling has been sought from the
Internal Revenue Service by Summit, Autonomous or Merger Sub as to the federal
income tax consequences of any aspect of the Merger, and the Internal Revenue
Service is not bound by our opinion herein.
Based upon and subject to the foregoing as well as to the qualifications and
limitations set forth below, it is our opinion that the discussion under the
caption "Material Federal Income Tax Consequences of the Merger" in the Proxy
Statement constitutes the opinion of Ropes & Gray as to the material United
States federal income tax consequences generally applicable to Autonomous
stockholders in connection with the Merger.
No opinion is expressed as to any matter not specifically addressed above,
including the tax consequences of any of the transactions under any foreign,
state, or local tax law or the tax consequences of any other transactions
contemplated or entered into by Summit, Autonomous or Merger Sub in connection
with the transactions described above. Our opinion is based on current federal
income tax law and we do not undertake to advise you as to any changes in
federal income tax law after the date hereof that may affect our opinion.
This opinion is solely for your benefit, shall not inure to the benefit of
any other person, including without limitation any successor or assign of
Summit, whether by operation of law or otherwise, and is not to be used,
circulated, quoted or otherwise referred to for any purpose without our express
written permission.
We hereby consent to the filing with the Securities and Exchange Commission
of this opinion as an exhibit to the Proxy Statement.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
EXHIBIT 23.2
The Board of Directors
Summit Technology, Inc.
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Summit Selected Historical Data"
and "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
January 6, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our report (and to all references to our firm) included in or made a part of
this registration statement.
/s/ ARTHUR ANDERSEN LLP
January 6, 1998
Orlando, Florida
