AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 6, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------------
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 3845 77-0148208
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
47257 Fremont Boulevard
Fremont, California 94538
(510) 623-9001
(ADDRESS, INCLUDING POSTAL OR ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES )
The Prentice Hall Corporation
1013 Centre Road
Wilmington, DE 19805
302-998-0595
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
----------------
with copies to:
Jay L. Margulies, Esq. Lowell S. Lifschultz, Esq.
Thelen, Marrin, Johnson & Bridges LLP Seth Truwit, Esq.
333 West San Carlos Street, 17th Floor Epstein Becker & Green, P.C.
San Jose, California 95110-2701 250 Park Avenue, 14th Floor
New York, New York 10177
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AT THE
EFFECTIVE TIME OF THE MERGER (THE "MERGER") OF SUNRISE ACQUISITION, INC., A
DELAWARE CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF SUNRISE TECHNOLOGIES,
INC., A DELAWARE CORPORATION, WITH AND INTO EYESYS TECHNOLOGIES, INC., A
DELAWARE CORPORATION ("EYESYS"), AS DESCRIBED HEREIN.
If the 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. [ ]
----------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==========================================================================================================
PROPOSED
MAXIMUM OFFERING PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 12,411,429 shares $0.9434 $11,708,702 $3,548.09
- ----------------------------------------------------------------------------------------------------------
Warrants to Purchase Common
Stock -- -- -- --
- ----------------------------------------------------------------------------------------------------------
<FN>
(1) Pursuant to the Merger, an aggregate of 12,411,429 shares of Common Stock
of the registrant ("Common Stock") will be (a) issued to holders of
convertible subordinated notes, preferred stock or common stock of EyeSys
("EyeSys Stock"), (b) reserved for issuance pursuant to options and
warrants to purchase Common Stock to be granted as a result of the Merger
to holders of vested options and warrants to purchase EyeSys Stock, or (c)
issued to Cowen & Company as partial payment for its services to EyeSys.
Any exercise of options or warrants to purchase EyeSys Stock prior to the
consummation of the Merger will increase the number of shares of Common
Stock issued pursuant to the Merger, and will correspondingly decrease the
number of options or warrants granted (and the number of shares of Common
Stock reserved for issuance pursuant thereto) as a result of the Merger.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933, as
amended.
</FN>
</TABLE>
----------------
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
46257 FREMONT BOULEVARD
FREMONT, CALIFORNIA 94538
, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting (the "Sunrise Special
Meeting") of the holders of common stock ("Sunrise Stock") of Sunrise
Technologies International, Inc. ("Sunrise"), to be held on , 1997
at a.m., local time, at , located at .
At the Sunrise Special Meeting, you will be asked to consider and vote upon
certain matters in connection with an Agreement and Plan of Merger dated as of
December 27, 1996 (the "Merger Agreement"), among Sunrise, Sunrise Acquisition,
Inc., a Delaware corporation and a wholly owned subsidiary of Sunrise ("Merger
Sub"), and EyeSys Technologies, a Delaware corporation ("EyeSys"), providing for
the merger (the "Merger") of Merger Sub with and into EyeSys, as described in
the accompanying Joint Proxy Statement/Prospectus (the "Merger Proposals"). You
also will be asked to consider and vote upon two proposals (together, the "Sale
Proposals") to sell substantially all of the assets of Sunrise relating to its
dental business (the "Asset Sale" and, together with the Merger, the "Proposed
Transactions").
Pursuant to the Merger, Sunrise will issue, or reserve for issuance, up to an
aggregate of 12,411,429 shares of Sunrise Stock, subject to adjustment in
certain circumstances ("Merger Shares"), to (i) holders of common and preferred
stock of EyeSys ("EyeSys Stock"), (ii) holders of vested options and warrants to
purchase EyeSys Stock, (iii) holders of convertible subordinated notes of EyeSys
and (iv) Cowen & Company as partial payment for its services to EyeSys in
connection with the Merger, all as more fully described in the accompanying
Joint Proxy Statement/Prospectus under the caption "The Merger and Related
Agreements." Holders of vested options and warrants to purchase EyeSys Stock
will receive options and warrants, respectively, to purchase Merger Shares
(collectively, "Merger Options"). Approval of the Merger Proposals is necessary
to permit the issuance of the Merger Shares and Merger Options.
Sunrise's Board of Directors has unanimously approved the Proposed
Transactions, as well as the Merger Agreement and the transactions contemplated
thereby, and unanimously recommends a vote in favor of the Merger Proposals and
the Sale Proposals.
In the material accompanying this letter, you will find a Notice of Special
Meeting and a Joint Proxy Statement/Prospectus relating to the actions to be
taken by Sunrise's stockholders at the Sunrise Special Meeting. The Joint Proxy
Statement/Prospectus more fully describes the Merger Agreement and the Proposed
Transactions and includes important information concerning Sunrise and EyeSys.
Whether or not you plan to attend the Sunrise Special Meeting, please
complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. You may revoke your Proxy in the manner described in
the accompanying Joint Proxy Statement/Prospectus at any time before it has been
voted at the Sunrise Special Meeting. If you attend the Sunrise Special Meeting,
you may vote in person even if you have previously returned your proxy card.
Your prompt cooperation will be greatly appreciated.
Sincerely,
David W. Light
Chairman of the Board and Chief
Executive Officer
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
46257 FREMONT BOULEVARD
FREMONT, CALIFORNIA 94538
----------------
NOTICE OF SPECIAL MEETING
TO THE STOCKHOLDERS OF SUNRISE TECHNOLOGIES INTERNATIONAL, INC.:
You are cordially invited to attend a Special Meeting (the "Sunrise Special
Meeting") of the holders of common stock, par value $0.001 per share ("Sunrise
Stock"), of Sunrise Technologies International, Inc. ("Sunrise"), to be held on
, , 1997 at a.m., local time, at , located at
.
At the Sunrise Special Meeting, you will be asked to consider and vote upon
certain matters in connection with an Agreement and Plan of Merger dated as of
December 27, 1996 (the "Merger Agreement"), among Sunrise, Sunrise Acquisition,
Inc., a Delaware corporation and a wholly owned subsidiary of Sunrise ("Merger
Sub"), and EyeSys Technologies, a Delaware corporation ("EyeSys"), providing for
the merger (the "Merger") of Merger Sub with and into EyeSys, as described in
the accompanying Joint Proxy Statement/Prospectus. A copy of the Merger
Agreement is attached as Appendix A to the accompanying Joint Proxy
Statement/Prospectus. You also will be asked to consider and vote upon two
proposals (together, the "Sale Proposals") to sell substantially all of the
assets of Sunrise relating to its dental business (the "Asset Sale" and,
together with the Merger, the "Proposed Transactions").
Specifically, you will be asked to vote on the following matters (the
"Proposals"):
1. To amend Sunrise's Certificate of Incorporation to increase the number of
shares of Company Stock authorized to be issued from 40,000,000 to 75,000,000.
2. To adopt a new stock option plan (the "New Stock Plan") pursuant to which
Sunrise would be authorized to issue up to 3,000,000 shares of Sunrise Stock,
approximately 330,550 of which shares would be reserved for issuance to persons
who are granted options to purchase Sunrise Stock pursuant to the Merger. A copy
of the New Stock Plan is attached as Appendix C to the accompanying Joint Proxy
Statement/Prospectus.
3. To approve the Asset Sale to Lares Research, substantially on the terms
contained in the Lares Letter of Intent, described in the accompanying Joint
Proxy Statement/Prospectus.
4. To approve the Asset Sale to another purchaser on terms substantially
similar to those contained in the Lares Letter of Intent.
5. For the transaction of such other business as may properly come before
said meeting or adjournments thereof.
You may vote on each of the Proposals independently. Consummation of the
Merger is conditioned upon approval of each of Proposals 1 and 2 (together, the
"Merger Proposals"). In addition, as one of the conditions to closing the
Merger, Sunrise must enter into a binding agreement for the Asset Sale. Approval
of each of the Proposals will require the affirmative vote of a majority of the
outstanding shares of Sunrise Stock entitled to vote at the Sunrise Special
Meeting.
The Proposed Transactions and the Merger Agreement are more fully described
in the accompanying Joint Proxy Statement/Prospectus. Pursuant to the Merger,
Sunrise will issue, or reserve for issuance, up to an aggregate of 12,411,429
shares of Sunrise Stock, subject to adjustment in certain circumstances ("Merger
Shares"), to (i) holders of common and preferred stock of EyeSys ("EyeSys
Stock"), (ii) holders of vested options and warrants to purchase EyeSys Stock,
(iii) holders of convertible subordinated notes of EyeSys and (iv) Cowen &
Company as partial payment for its services to EyeSys in connection with the
Merger, all as more fully described in the accompanying Joint Proxy
Statement/Prospectus under the caption "The Merger and Related Agreements."
Holders of vested options and warrants to purchase EyeSys Stock will receive
options and warrants, respectively, to purchase Merger Shares (collectively,
"Merger Options"). Approval of the Merger Proposals is necessary to permit the
issuance of the Merger Shares and Merger Options.
<PAGE>
In addition to your review of the details of the Proposed Transactions
appearing in the accompanying Joint Proxy Statement/Prospectus and in the Merger
Agreement, you should carefully review the investment considerations associated
with the Proposed Transactions discussed under the section entitled "Risk
Factors" in the accompanying Joint Proxy Statement/Prospectus.
If the Merger is consummated, holders of EyeSys Stock that are entitled to
vote to approve the Merger but that do not vote in favor of the Merger and that
otherwise comply with Section 262(d) of the Delaware General Corporation Law, as
amended (the "Delaware Law"), will be entitled to dissenters' appraisal rights
with respect to their shares. The procedures involved in the exercise of such
appraisal rights are described in the accompanying Joint Proxy
Statement/Prospectus and in Section 262 of the Delaware Law, a copy of which is
attached as Appendix B to the Joint Proxy Statement/Prospectus.
The Board of Directors has fixed the close of business on December 13, 1996,
as the record date for the determination of stockholders entitled to notice of
and to vote at the Sunrise Special Meeting and at any adjournment or
postponement thereof.
Sincerely,
David W. Light
Chairman of the Board and Chief
Executive Officer
Fremont, California
, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
HOWEVER, TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO MARK,
SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, IN THE POSTAGE
PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER ATTENDING THE
MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE RETURNED A PROXY. PLEASE NOTE,
HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
EYESYS TECHNOLOGIES, INC.
2776 BINGLE ROAD
HOUSTON, TX 77055
, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting (the "EyeSys Special
Meeting") of the holders of common stock, par value $0.001 per share, Series A
Preferred Stock and Series B Preferred Stock (collectively, "EyeSys Stock") of
EyeSys Technologies, Inc., a Delaware corporation ("EyeSys"), to be held on
February 25, 1997 at 10:00 a.m., local time, at EyeSys, located at 2776 Bingle
Road, Houston, Texas.
At the EyeSys Special Meeting, you will be asked to consider and vote upon
the adoption of an Agreement and Plan of Merger, dated as of December 27, 1996
(the "Merger Agreement"), among Sunrise Technologies International, Inc., a
Delaware corporation ("Sunrise"), Sunrise Acquisition, Inc., a Delaware
corporation and a wholly owned subsidiary of Sunrise ("Merger Sub"), and EyeSys,
providing for the merger (the "Merger") of Merger Sub with and into EyeSys, as
described in the accompanying Joint Proxy Statement/Prospectus. In connection
with the adoption of the Merger Agreement, you will be asked to approve certain
amendments to the Certificate of Incorporation of EyeSys, which are necessary to
effect the Merger on the terms set forth in the Merger Agreement.
Pursuant to the Merger, Sunrise will issue, or reserve for issuance, up to an
aggregate of 12,411,429 shares of common stock of Sunrise, subject to adjustment
in certain circumstances ("Merger Shares"), to (i) holders of EyeSys Stock, (ii)
holders of vested options and warrants to purchase EyeSys Stock, (iii) holders
of convertible subordinated notes of EyeSys and (iv) Cowen & Company as partial
payment for its services to EyeSys in connection with the Merger, all as more
fully described in the accompanying Joint Proxy Statement/Prospectus under the
caption "The Merger and Related Agreements." Holders of vested options and
warrants to purchase EyeSys Stock will receive options and warrants,
respectively, to purchase Merger Shares.
The Board of Directors of EyeSys has unanimously approved the Merger
Agreement and the transactions contemplated thereby and unanimously recommends a
vote (i) in favor of adoption of the Merger Agreement and approval of the Merger
and (ii) in favor of the amendments to the Certificate of Incorporation.
In the material accompanying this letter, you will find a Notice of Special
Meeting and a Joint Proxy Statement/Prospectus relating to the actions to be
taken by holders of EyeSys Stock at the EyeSys Special Meeting. The Joint Proxy
Statement/Prospectus more fully describes the Merger and the Merger Agreement
and includes important information concerning Sunrise and EyeSys.
Whether or not you plan to attend the EyeSys Special Meeting, please
complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. You may revoke your Proxy in the manner described in
the accompanying Joint Proxy Statement/Prospectus at any time before it has been
voted at the EyeSys Special Meeting. If you attend the EyeSys Special Meeting,
you may vote in person even if you have previously returned your proxy card.
Your prompt cooperation will be greatly appreciated.
Sincerely,
Youssef F. Wakil
Chairman of the Board
<PAGE>
EYESYS TECHNOLOGIES, INC.
2776 BINGLE ROAD
HOUSTON, TX 77055
--------------------
NOTICE OF SPECIAL MEETING
TO THE STOCKHOLDERS OF EYESYS TECHNOLOGIES, INC.:
You are cordially invited to attend a Special Meeting (the "EyeSys Special
Meeting") of the holders of common stock, par value $0.001 per share ("EyeSys
Common Stock"), Series A Preferred Stock and Series B Preferred Stock (together,
"EyeSys Preferred Stock" and, collectively with EyeSys Common Stock "EyeSys
Stock") of EyeSys Technologies, Inc., a Delaware corporation ("EyeSys"), to be
held on Tuesday, February 25, 1997 at 10:00 a.m, local time, at EyeSys, located
at 2776 Bingle Road, Houston, Texas.
At the EyeSys Special Meeting, you will be asked to consider and vote upon
the adoption of an Agreement and Plan of Merger, dated as of December 27, 1996
(the "Merger Agreement"), among Sunrise Technologies International, Inc., a
Delaware corporation ("Sunrise"), Sunrise Acquisition, Inc., a Delaware
corporation and a wholly owned subsidiary of Sunrise ("Merger Sub"), and EyeSys.
The Merger Agreement provides for the merger (the "Merger") of Merger Sub with
and into EyeSys, with EyeSys surviving as a wholly owned subsidiary of Sunrise
and provides that, at the effective time of the Merger (the "Effective Time"),
the outstanding shares of EyeSys Stock, vested options and warrants to purchase
EyeSys Common Stock, warrants to purchase Series B Preferred Stock and EyeSys
Notes (defined herein) will be converted into the right to receive an aggregate
of 12,186,479 shares of common stock of Sunrise ("Sunrise Stock"), subject to
adjustment for fractional shares, and 224,950 shares of Sunrise Stock will be
issued to Cowen & Company as partial payment for its services to EyeSys in
connection with the Merger (collectively, the "Merger Shares"), all as more
fully described in the accompanying Joint Proxy Statement/Prospectus. A copy of
the Merger Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus.
As a condition to consummation of the Merger, holders of at least 85% of the
principal on the convertible subordinated notes of EyeSys due 1997 ("EyeSys
Notes") outstanding as of the date of the Merger Agreement (collectively, the
"Converting Noteholders"), in accordance with the terms of the EyeSys Notes,
shall have surrendered all of their EyeSys Notes to EyeSys and shall have
converted such EyeSys Notes, and all accrued but unpaid interest thereon, into
EyeSys Common Stock. Pursuant to the terms of the EyeSys Notes, the directors
must determine the fair market value of the EyeSys Common Stock, which for
purposes of converting the Converting Noteholders' EyeSys Notes shall be the
product of the Deemed Sunrise Stock Value (defined herein) and the Common Stock
Conversion Price (as defined in the accompanying Joint Proxy
Statement/Prospectus). As a further condition to consummation of the Merger, all
holders of EyeSys Notes other than the Converting Noteholders shall have agreed
(i) to receive Merger Shares in payment of their EyeSys Notes and (ii) to value
the Merger Shares at the greater of (A) the average of the closing bid prices
per share over the five (5) day period ending three (3) business days prior to
the closing of the Merger Agreement (the "Average Stock Price") and (B) $1.25
per share (the greater of (A) and (B), the "Deemed Sunrise Stock Value"). In
addition, as a further condition to consummation of the Merger, holders of a
majority of the principal amount of EyeSys Notes outstanding prior to conversion
by the Converting Noteholders shall have approved the Proposals (defined
herein).
The following matters (the "Proposals") will be submitted to the stockholders
of EyeSys:
1. Subject to all other conditions of the Merger Agreement having been
satisfied, approval to amend Section 4.2.4(b)(ii) of the Restated Certificate
of Incorporation of EyeSys (the "EyeSys Certificate") to provide that the
Merger Shares will be valued at the Deemed Sunrise Stock Value (the "Series A
Amendment");
<PAGE>
2. Subject to all other conditions of the Merger Agreement having been
satisfied, approval to amend Section 4.3.4(c) of the EyeSys Certificate to
provide that the Merger Shares will be valued at the Deemed Sunrise Stock
Value (the "Series B Amendment" and, together with the Series A Amendment,
the "Charter Amendments");
3. Provided that Proposals 1 and 2, above, are approved by the requisite
votes, approval and adoption of the Merger Agreement. Giving effect to the
conversion of the EyeSys Notes held by the Converting Noteholders, the
foregoing amendments to the EyeSys Notes by holders other than the Converting
Noteholders and approval of the Charter Amendments, the shares of EyeSys
Common Stock will be converted into the right to receive a minimum of 0.195
Merger Shares (assuming (a) a Deemed Sunrise Stock Value of $1.25 per share,
and (b) an Effective Time of February 28, 1997).
A copy of the proposed Charter Amendments is attached as Appendix D to the
accompanying Joint Proxy Statement/Prospectus.
In addition to your review of the details of the Merger appearing in the
accompanying Joint Proxy Statement/Prospectus and in the Merger Agreement, you
should carefully review the investment considerations associated with the Merger
discussed under the section entitled "Risk Factors" in the accompanying Joint
Proxy Statement/Prospectus.
If the Merger is consummated, stockholders of EyeSys that are entitled to
vote to approve the Merger but that do not vote in favor of the Merger and that
otherwise comply with Section 262(d) of the Delaware General Corporation Law, as
amended (the "Delaware Law"), will be entitled to dissenters' appraisal rights
with respect to their shares. The procedures involved in the exercise of such
appraisal rights are described in the accompanying Joint Proxy
Statement/Prospectus and in Section 262 of the Delaware Law, a copy of which is
attached as Appendix B to the accompanying Joint Proxy Statement/Prospectus.
The Board of Directors has fixed the close of business on January 29, 1997,
as the record date for the determination of the stockholders entitled to notice
of and to vote at the Special Meeting and at any adjournment or postponement
thereof.
Sincerely,
Youssef F. Wakil
Chairman of the Board
Houston, Texas
, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE EYESYS SPECIAL MEETING IN
PERSON. HOWEVER, TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO
MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, IN THE
POSTAGE PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER ATTENDING
THE MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE RETURNED A PROXY. PLEASE NOTE,
HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Joint Proxy Statement/Prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
SUBJECT TO COMPLETION, DATED JANUARY 3, 1997
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
EYESYS TECHNOLOGIES, INC.
JOINT PROXY STATEMENT
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
PROSPECTUS
------------------------
This Joint Proxy Statement/Prospectus is being furnished to (a) holders of
common stock, par value $0.001 per share ("Sunrise Stock"), of Sunrise
Technologies International, Inc., a Delaware corporation ("Sunrise" or the
"Company"), (b) holders of common stock, par value $0.001 per share ("EyeSys
Common Stock"), Series A Preferred Stock and Series B Preferred Stock
(collectively with the EyeSys Common Stock, "EyeSys Stock") and convertible
subordinated notes due 1997 ("EyeSys Notes") of EyeSys Technologies, Inc., a
Delaware corporation ("EyeSys"), and (c) Cowen & Company, in connection with the
proposed merger (the "Merger") of Sunrise Acquisition, Inc., a Delaware
corporation and a wholly owned subsidiary of Sunrise ("Merger Sub"), with and
into EyeSys, pursuant to an Agreement and Plan of Merger dated as of December
27, 1996 (the "Merger Agreement"), among Sunrise, Merger Sub and EyeSys. As a
result of the Merger, EyeSys will become a wholly owned subsidiary of Sunrise.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Sunrise Stock in connection with the proposed sale by Sunrise of substantially
all of its assets relating to its dental business (the "Asset Sale").
Pursuant to the Merger, Sunrise will issue, or reserve for issuance, up to an
aggregate of 12,411,429 shares of Sunrise Stock, subject to adjustment in
certain circumstances ("Merger Shares"), to (A) holders of (i) EyeSys Stock,
(ii) vested options to purchase EyeSys Common Stock ("EyeSys Options"), (iii)
warrants to purchase EyeSys Common Stock ("EyeSys Common Warrants") and warrants
to purchase Series B Preferred Stock of EyeSys ("EyeSys Preferred Warrants" and,
together with the EyeSys Common Warrants, "EyeSys Warrants"), and (iv) EyeSys
Notes, as more fully described under the caption "The Merger and Related
Agreements--Manner and Basis of Converting Securities" and "--Treatment of
Options and Warrants" and (B) Cowen & Company ("Cowen") as partial payment for
their services to EyeSys in connection with the Merger. Holders of EyeSys
Options and EyeSys Warrants will receive options and warrants, respectively, to
purchase Merger Shares.
SEE "RISK FACTORS" BEGINNING ON PAGE FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING THE PROPOSALS TO BE VOTED ON AT THE SPECIAL
MEETINGS AND THE ACQUISITION OF THE SECURITIES OFFERED HEREBY.
This Joint Proxy Statement/Prospectus constitutes (a) the Proxy Statement of
Sunrise relating to the special meeting of holders of Sunrise Stock, scheduled
to be held on February __, 1997 (the "Sunrise Special Meeting"), (b) the Proxy
Statement of EyeSys relating to the special meeting of holders of EyeSys Stock,
scheduled to be held on February 25, 1997 (the "EyeSys Special Meeting" and,
together with the Sunrise Special Meeting, the "Special Meetings"), and (c) the
Prospectus of Sunrise constituting part of the Registration Statement on Form
S-4 filed with the Securities and Exchange Commission (the "Commission")
relating to the Merger Shares. All information herein with respect to Sunrise or
Merger Sub has been provided by Sunrise, and all information herein with respect
to EyeSys has been provided by EyeSys.
This Joint Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to holders of Sunrise Stock and holders of EyeSys Stock on or
about January , 1997, in connection with the solicitation of proxies by
management of the respective companies for use at the respective Special
Meetings.
NEITHER THE MERGER NOR THE ISSUANCES OF THE SECURITIES OFFERED
HEREBY HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is .
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AVAILABLE INFORMATION .......................................... 3
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS ................ 3
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY ....................... 4
The Companies ............................................... 4
Special Meetings ............................................ 5
Reasons for the Merger ...................................... 6
The Merger and Related Transactions ......................... 7
Price Range of Common Stock; Dividend Data .................. 11
Comparison of Rights of Stockholders ........................ 11
New Stock Plan .............................................. 11
Asset Sale .................................................. 12
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
SELECTED FINANCIAL INFORMATION ................................ 13
EYESYS TECHNOLOGIES, INC. SELECTED FINANCIAL INFORMATION ...... 14
PRO FORMA (UNAUDITED) CONDENSED COMBINED
FINANCIAL INFORMATION ......................................... 15
RISK FACTORS ................................................... 17
SPECIAL MEETINGS ............................................... 22
THE MERGER AND RELATED TRANSACTION ............................. 27
General ..................................................... 27
Manner and Basis of Converting Securities ................... 27
Treatment of Options and Warrants ........................... 29
Conditions to the Merger .................................... 29
Interests of Certain Persons in the Merger .................. 29
Restrictions on Resales of Merger Shares .................... 30
Indemnification; Escrow Agreement ........................... 31
Certain Federal Income Tax Consequences ..................... 32
Accounting Treatment ........................................ 33
Amendment and Termination ................................... 34
REASONS FOR THE MERGER ......................................... 34
MANAGEMENT FOLLOWING THE MERGER ................................ 40
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS ... 44
DESCRIPTION OF SUNRISE COMMON STOCK ............................ 52
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT ...... 54
COMPARISON OF RIGHTS OF HOLDERS OF SUNRISE STOCK AND
HOLDERS OF EYESYS STOCK ....................................... 54
INFORMATION ABOUT SUNRISE ...................................... 57
INFORMATION ABOUT EYESYS ....................................... 67
AMENDMENT OF SUNRISE'S CERTIFICATE OF INCORPORATION ........... 75
AMENDMENT OF EYESYS' CERTIFICATE OF INCORPORATION .............. 75
THE NEW STOCK PLAN ............................................. 77
THE ASSET SALE ................................................. 79
EXPERTS ........................................................ 81
LEGAL MATTERS .................................................. 81
INDEX TO FINANCIAL STATEMENTS .................................. F-1
</TABLE>
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments, supplements, exhibits, annexes and schedules
thereto, the "Registration Statement") pursuant to the Securities Act of 1933,
as amended (the "Securities Act") and the rules and regulations thereunder, with
respect to the Sunrise Stock offered hereby. This Joint Proxy
Statement/Prospectus does not include all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements made in the Joint Proxy
Statement/Prospectus as to the contents of any contract, agreement or other
document referred to in the Registration Statement are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at Seven World Trade Center, Suite 1300, New York, New York 10048, and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can be obtained by mail from the Public Reference
section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy
statements and other information that the Company files with the Commission
electronically are contained in the Internet Web site maintained by the
Commission. The Commission's Web site address is http:// www.sec.gov.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THESE MATTERS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR EYESYS. NEITHER THE DELIVERY
HEREOF NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF. THIS JOINT PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus, as it may be amended or supplemented,
and certain documents incorporated by reference herein contain both statements
of historical fact and "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Examples
of forward-looking statements include: (i) projections of revenue, income,
earnings, capital expenditures, dividends, capital structure and other financial
items, (ii) statements of the plans and objectives of Sunrise, EyeSys or
management of either company, (iii) statements of the future economic
performance of Sunrise, EyeSys or the combined company and (iv) the assumptions
underlying statements regarding Sunrise, EyeSys or their businesses. Important
factors, risks and uncertainties that could cause actual results to differ
materially from any forward-looking statements ("Cautionary Statements") are
disclosed herein, under the caption "Risk Factors" and elsewhere. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements.
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JOINT PROXY STATEMENT/PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Joint Proxy Statement/Prospectus and in
the exhibits and appendices hereto. In particular, this summary does not contain
a complete statement of all provisions of the proposals to be voted on or a
complete description of the Merger Agreement.
THE COMPANIES
SUNRISE AND MERGER SUB
Sunrise develops, manufactures and markets laser and other systems for
applications in ophthalmology and dentistry.
The Ophthalmic Business
Sunrise has developed a patented laser corneal shaping product (the "Sunrise
Corneal Shaping System") using laser thermal keratoplasty for the correction of
certain refractive disorders of the eye. The Sunrise Corneal Shaping System is
designed to treat hyperopia (farsightedness) and presbyopia (loss of variable
focusing over distances), disorders which affect hundreds of millions of people
worldwide. Currently, eyeglasses or contact lenses are the only means of
restoring normal vision to persons affected by these refractive disorders. The
Sunrise Corneal Shaping System employs a holmium laser to selectively shrink the
collagen in the cornea, thereby changing the curvature of the cornea and the
refractive power of the eye, without removing any corneal tissue.
The Sunrise Corneal Shaping System currently is undergoing premarket clinical
studies in the United States as required by the Food and Drug Administration
(the "FDA"). Approval from the FDA is required before the Sunrise Corneal
Shaping System may be sold commercially in the United States. There can be no
assurance FDA approval will be obtained. In any event, the Company does not
expect to receive FDA approval prior to 1999. The Sunrise Corneal Shaping System
presently is in use in over 10 foreign countries where regulatory approval is
not required or has already been achieved.
The Dental Business
Although recently Sunrise's primary efforts have been focused on the
engineering and development of laser products used in the ophthalmic business,
Sunrise began as a developer and manufacturer of dental laser systems. Through
the end of 1991, Sunrise was the exclusive developer and manufacturer of dental
laser systems for American Dental Technologies, Inc. ("ADT"), and received
substantially all of its revenues from the sale of its dLase Dental Laser System
(the "Sunrise dLase System") to ADT. Sunrise's exclusive relationship with ADT
has since been terminated, and Sunrise has been marketing its dental laser
systems directly. In 1990, Sunrise received FDA market clearance to sell the
Sunrise dLase System in the United States for soft tissue applications; however,
it has not received FDA market clearance for the Sunrise dLase System for hard
tissue applications.
In 1993, pursuant to a joint development and manufacturing agreement with
Danville Engineering, Sunrise commenced development of the MicroPrep cavity
preparation system (the "Sunrise MicroPrep System"), an air abrasion system used
to prepare a cavity for restorative material. Sunrise began distribution of the
system in the second quarter of 1994. In October 1995, Sunrise introduced the
Associate cavity preparation system, a table-top version of the Sunrise
MicroPrep System.
Principal Executive Offices
Sunrise was incorporated in 1987 under the laws of the State of California
and was reincorporated in 1993 under the laws of the State of Delaware. Prior to
effectiveness of the Merger, Merger Sub will be incorporated under the laws of
the State of Delaware, for the sole purpose of effecting the Merger. The
principal executive offices of Sunrise are, and the principal executive offices
of Merger Sub will be, located at 47257 Fremont Boulevard, Fremont, California
94538; telephone (510) 623-9001.
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EYESYS TECHNOLOGIES, INC.
EyeSys designs, develops and markets a line of non-invasive corneal
topography systems for use by ophthalmologists and optometrists in surgical
planning and evaluation, diagnosis of corneal pathologies and contact lens
fitting. Founded in 1986, EyeSys has installed more than 3,000 systems.
Since late 1994, EyeSys' primary product has been the EyeSys 2000 Corneal
Analysis System (the "EyeSys System 2000"). The EyeSys System 2000 combines
proprietary hardware used for capturing an image of the patient's cornea,
proprietary software used to analyze the captured image and a personal computer
to control the hardware and to run the software. The output of the EyeSys System
2000 is a color-coded map of the shape and curvature of the human cornea.
EyeSys markets its products on a worldwide basis through a combination of
direct employees, independent manufacturer representatives and international
distributors. EyeSys currently has approximately 40 employees.
EyeSys was incorporated in 1986 under the laws of the State of Texas and was
reincorporated in 1994 under the laws of the State of Delaware. Its principal
executive offices are located at 2776 Bingle Road, Houston, Texas 77055;
telephone (713) 465-1921.
SPECIAL MEETINGS
The Sunrise Special Meeting is scheduled to be held on ,
, 1997 at a.m., local time, at ,
located at . At the Sunrise Special Meeting, holders of Sunrise
Stock will be asked (a) to amend the Certificate of Incorporation of Sunrise
(the "Sunrise Certificate") to increase the number of shares of Sunrise Stock
authorized to be issued from 40,000,000 to 75,000,000, (b) to adopt the New
Stock Plan, pursuant to which Sunrise would be authorized to issue up to
3,000,000 shares of Sunrise Stock, approximately 330,550 of which shares would
be reserved for issuance to persons who are granted Sunrise Options (together,
the "Sunrise Merger Proposals"), and (c) to approve the Asset Sale either to
Lares Research or to another purchaser, substantially on the terms set forth in
this Joint Proxy Statement/Prospectus (together, the "Sale Proposals" and,
collectively with the Sunrise Merger Proposals, the "Sunrise Proposals").
Approval of each of the Sunrise Proposals requires the affirmative vote by
the holders of a majority (13,934,307 shares) of the Sunrise Stock outstanding
as of the Sunrise Record Date.
The EyeSys Special Meeting is scheduled to be held on Tuesday, February 25,
1997 at 10:00 a.m., local time, at EyeSys, located at 2776 Bingle Road, Houston,
Texas. At the EyeSys Special Meeting, holders of EyeSys Stock will be asked (a)
to amend Sections 4.2.4(b)(ii) and 4.3.4(c) of the Restated Certificate of
Incorporation of EyeSys (the "EyeSys Certificate") to revise certain terms of
the Series A Preferred Stock and Series B Preferred Stock (together, the
"Charter Amendments"), and (b) to adopt the Merger Agreement and approve the
consummation of the Merger and other transactions contemplated thereby
(together, the "EyeSys Merger Proposals"). By amending the EyeSys Certificate as
set forth in EyeSys Merger Proposals 1 and 2, holders of EyeSys Preferred Stock
are agreeing to a minimum deemed value for the Merger Shares of $1.25 per share.
If the price per Merger Share, as determined pursuant to the EyeSys Certificate
currently in effect, were less than $1.25 per share, holders of EyeSys Preferred
Stock would receive fewer Merger Shares than they would have been entitled to
receive had such amendments not been approved.
Approval of each of the Charter Amendments requires the affirmative vote of
(a) a majority (4,621,278 shares) of the (i) 3,354,307 shares of EyeSys Common
Stock outstanding on the EyeSys Record Date (defined herein), (ii) the 198,479
shares of EyeSys Common Stock into which the 101,784 shares of Series A
Preferred Stock outstanding on the EyeSys Record Date are convertible under the
EyeSys Certificate based upon the current conversion rate of 1.95 shares of
Common Stock for each share of Series A Preferred Stock, and (iii) the 5,522,624
shares of EyeSys Common Stock into which the 4,953,026 shares of Series B
Preferred Stock outstanding on the EyeSys Record Date are convertible under the
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EyeSys Certificate based upon the current conversion rate of 1.115 shares of
Common Stock for each share of Series B Preferred Stock (collectively, the
"EyeSys Voting Shares"), all classes of EyeSys Stock voting as one class, (b)
holders of a majority of the principal amount of the EyeSys Notes outstanding
prior to conversion by the Converting Noteholders, and (c) at least 67%
(3,318,528 shares) of the 4,953,026 shares of Series B Preferred Stock
outstanding on the EyeSys Record Date, voting as a separate class. Approval of
the amendment to Section 4.2.4(b)(ii) of the EyeSys Certificate also requires
the approval of a majority (50,893 shares) of the 101,784 shares of Series A
Preferred Stock outstanding on the EyeSys Record Date, voting as a separate
class.
Approval and adoption of the Merger Agreement requires the affirmative vote
of holders of (a) a majority (4,621,278 shares) of the EyeSys Voting Shares,
voting as one class, (b) at least 67% (3,318,528 shares) of the 4,953,026 shares
of Series B Preferred Stock outstanding on the EyeSys Record Date, voting as a
separate class, and (c) a majority of the principal amount of the EyeSys Notes
outstanding prior to conversion by the Converting Noteholders.
REASONS FOR THE MERGER
SUNRISE
Management of Sunrise believes that the Merger is in the best interests of
Sunrise and its stockholders. Based on its observations of and experience in the
high technology sector of the eye care industry, management believes that the
most successful companies are those that provide multiple technologies to a
specific market segment. The target market for Sunrise's ophthalmologic systems
generally is the same as the target market for EyeSys systems, and EyeSys
currently has an established marketing network and large customer base,
particularly outside the United States. The Merger automatically will increase
the number of technologies that the Company can offer to the combined customer
base, and both EyeSys and Sunrise are currently in the process of developing
additional technologies and systems. Sunrise also expects to benefit from the
economies of scale that the Merger can provide. For example, EyeSys has an
experienced, relatively low-cost manufacturing facility in Houston, Texas, where
following the Merger Sunrise intends to consolidate manufacturing operations of
the combined companies.
EYESYS
The board of directors of EyeSys has unanimously determined that the Merger
is in the best interests of the EyeSys stockholders and recommends a vote in
favor of the Merger Agreement. In early 1996, management of EyeSys determined
that EyeSys would need to pursue a strategy that would enable it to broaden its
product offerings to leverage its distribution channel and achieve
profitability. At the same time, management realized that future growth and
product development was becoming severely constrained by the requirement for
additional capital resources. Under these circumstances, the EyeSys board of
directors suggested that the interests of the EyeSys stockholders might best be
served by some form of strategic transaction, including (i) the sale of EyeSys,
(ii) an initial public offering or (iii) additional stockholder financings.
Management of EyeSys conferred with several financial advisors with respect to
this suggestion and, in March 1996, the board of directors authorized EyeSys to
retain Cowen & Company, based primarily on Cowen's strengths in the health care
industry. In particular, EyeSys believed that Cowen was best suited to provide
EyeSys with access to other companies that might be interested in a strategic
transaction with EyeSys.
In reaching its decision to approve the Merger Agreement, the directors
reviewed and considered a number of relevant factors, including but not limited
to (i) information concerning Sunrise's and EyeSys' respective businesses,
current and historical financial performance, operations, products, technologies
and management; (ii) the financial condition of the combined companies after the
Merger; (iii) the current financial market conditions and historical market
prices, volatility and trading information with respect to Sunrise Stock; (iv)
publicly available information on Sunrise; (v) a review of other possible merger
candidates, their readiness to move to an offer and estimates of their valuation
placed on EyeSys; (vi) the
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prospects of EyeSys continuing as an independent company; (vii) alternative
forms of growth financing, including an initial public offering; (viii) the
extensive marketing effort undertaken by Cowen in connection with the sale of
EyeSys; (ix) the terms and conditions of the Merger, including the parties'
representations, warranties and obligations thereunder; (x) the consideration
given to the stockholders of EyeSys, including a review of the fairness opinion
presented by Cowen; and (xi) the effect of the Merger on the employees and
customers of EyeSys. A copy of the fairness opinion presented by Cowen to the
board of directors of EyeSys is attached hereto as Appendix E.
THE MERGER AND RELATED TRANSACTIONS
EFFECTS OF THE MERGER
Pursuant to the terms of the Merger Agreement, Merger Sub will be merged with
and into EyeSys and EyeSys, as the surviving corporation, will become a wholly
owned subsidiary of Sunrise. Holders of EyeSys Stock and holders of EyeSys Notes
will become holders of Sunrise Stock. Holders of EyeSys Options and EyeSys
Warrants will become holders of options to purchase Sunrise Stock (collectively,
"Sunrise Options") and warrants to purchase Sunrise Stock (collectively,
"Sunrise Warrants" and, together with the Sunrise Options, "Merger Options"),
respectively. Cowen will receive 224,950 Merger Shares (the "Cowen Shares") as
partial payment for its services to EyeSys in connection with the Merger.
EFFECTIVE TIME OF THE MERGER
Provided that all conditions to consummation of the Merger have been met, the
closing of the Merger Agreement (the "Closing") will occur as soon as
practicable following the Special Meetings. The Merger will become effective
upon the filing of a certificate of merger with the Secretary of State of the
State of Delaware (the "Effective Time"). It is anticipated that the Effective
Time will be on or about February 28, 1997.
MANNER AND BASIS OF CONVERTING SECURITIES
The capitalization of EyeSys consists of EyeSys Common Stock, Series A
Preferred Stock and Series B Preferred Stock. In addition, EyeSys has
outstanding EyeSys Options, EyeSys Warrants and EyeSys Notes. Allocation of the
Merger Shares to the holders of such securities will be based upon the greater
of (a) the average of the closing bid prices of Sunrise Stock, on a per share
basis, over the five (5) day period ending three business days prior the closing
of the Merger Agreement (the "Average Stock Price"), and (b) $1.25 per share
(the greater of (a) and (b), the "Deemed Sunrise Stock Value").
As a condition to consummation of the Merger, holders of at least 85% of the
principal on the EyeSys Notes outstanding as of the date of the Merger Agreement
(collectively, the "Converting Noteholders"), in accordance with the terms of
the EyeSys Notes, shall have converted such EyeSys Notes, and all accrued but
unpaid interest thereon ("Interest"), into EyeSys Common Stock. Pursuant to the
terms of the EyeSys Notes, the directors must determine the fair market value of
the EyeSys Common Stock, which for purposes of converting the Converting
Noteholders' EyeSys Notes shall be the product of the Deemed Sunrise Stock Value
(defined herein) and the Common Stock Conversion Price (defined herein). As a
further condition to consummation of the Merger, all holders of EyeSys Notes
other than the Converting Noteholders (collectively, the "Nonconverting
Noteholders") shall have agreed (i) to receive Merger Shares in payment of their
EyeSys Notes and (ii) to value the Merger Shares at the Deemed Sunrise Stock
Value. As of the date hereof, the aggregate principal amount of EyeSys Notes
outstanding is $2,999,993, of which noteholders that are directors of EyeSys or
affiliates of directors of EyeSys (collectively, "Affiliated Noteholders") hold
an aggregate principal amount of approximately $2,639,993, representing 88% of
the outstanding EyeSys Notes. Assuming conversion of EyeSys Notes into EyeSys
Common Stock by all of the Affiliated Noteholders, but not by any other EyeSys
Noteholders, between the date hereof and the Effective Time and assuming an
Effective Time of February 28, 1997, pursuant to
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the Merger, the Nonconverting Noteholders will have the right to receive in the
aggregate a maximum of 889,443 Merger Shares. Converting Noteholders will have
the right to receive Merger Shares based solely on their ownership of the EyeSys
Common Stock acquired upon conversion of their EyeSys Notes.
Each share of Series B Preferred Stock shall be converted into the right to
receive such number of Merger Shares as is determined by adding (a) the Series B
Preference (defined herein) divided by the Deemed Sunrise Stock Value and (b)
the Series B Participation (defined herein). Prior to any allocation of Merger
Shares to holders of Series A Preferred Stock or EyeSys Common Stock Equivalents
(defined herein), Merger Shares having a value of $1.26 plus accumulated but
unpaid dividends on the Series B Preferred Stock through the Effective Time
("Dividends") shall be allocated to each share of Series B Preferred Stock (the
"Series B Preference"). Following the allocation of Merger Shares to the Series
A Preferred Stock, holders of Series B Preferred Stock shall participate in any
allocation to holders of other EyeSys Common Stock Equivalents based on the
Series B Conversion Rate (defined herein). Such allocation to each share of
Series B Preferred Stock (the "Series B Participation") shall be determined by
multiplying (i) the number of shares of EyeSys Common Stock into which each
share of Series B Preferred Stock is convertible (the "Series B Conversion
Rate") by (ii) the Common Stock Conversion Rate (defined herein). As of the date
hereof, an aggregate of 4,953,026 shares of Series B Preferred Stock
are outstanding and the Series B Conversion Rate is 1.115 shares. Assuming no
conversion of Series B Preferred Stock into EyeSys Common Stock and no exercise
of EyeSys Preferred Warrants between the date hereof and the Closing and
assuming an Effective Time of February 28, 1997, pursuant to the Merger, the
holders of the Series B Preferred Stock will have the right to receive in the
aggregate a maximum of 7,035,435 Merger Shares.
Holders of EyeSys Preferred Warrants, because they do not hold the underlying
Series B Preferred Stock, are not entitled to dividends on such Series B
Preferred Stock. However, pursuant to the Merger, such holders are entitled to
receive a preference equal to $1.26 per share of Series B Preferred Stock
underlying the EyeSys Preferred Warrant (the "Warrant Preference"). The number
of shares of Sunrise Stock underlying each Sunrise Warrant shall include shares
of Sunrise Stock attributable to the Warrant Preference. As of the date hereof,
EyeSys Preferred Warrants to purchase an aggregate of 134,921 shares of Series B
Preferred Stock are outstanding and the exercise price of such warrants is $1.26
per share. The maximum number of Merger Shares that will be allocated to the
Warrant Preference pursuant to the Merger is 136,000.
Each share of Series A Preferred Stock shall be converted into the right to
receive such number of Merger Shares as is determined by dividing the Series A
Preference (defined herein) by the Deemed Sunrise Stock Value. Prior to any
allocation of Merger Shares to holders of EyeSys Common Stock Equivalents,
Merger Shares having a value of $7.00 shall be allocated to each share of Series
A Preferred Stock (the "Series A Preference"). As of the date hereof, an
aggregate of 101,784 shares of Series A Preferred Stock are outstanding.
Assuming no conversion of Series A Preferred Stock into EyeSys Common Stock
between the date hereof and the Effective Time, the holders of Series A
Preferred Stock will have the right to receive in the aggregate a maximum of
569,990 Merger Shares.
The Merger Shares remaining after allocation of Merger Shares to satisfy (i)
the rights of the Nonconverting Noteholders, (ii) the Series B Preference, (iii)
the Warrant Preference, (iv) the Series A Preference and (v) payment of the
Cowen Shares (the "Remaining Merger Shares") shall be allocated to the holders
of EyeSys Common Stock, Series B Preferred Stock, EyeSys Options and EyeSys
Warrants (collectively, the "EyeSys Common Stock Equivalents"), based on the
Common Stock Conversion Rate (defined herein). For purposes of allocating Merger
Shares, the number of EyeSys Common Stock Equivalents shall be determined by
adding the number of shares of EyeSys Common Stock (a) outstanding immediately
prior to the Effective Time, including shares of EyeSys Common Stock issuable to
Converting Noteholders, (b) issuable pursuant to the exercise of EyeSys Options
and EyeSys Common Warrants outstanding immediately prior to the Effective Time,
(c) into which the Series B Preferred Stock outstanding immediately prior to the
Effective Time is convertible immediately prior to the Merger and
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(d) into which the Series B Preferred Stock underlying the EyeSys Preferred
Warrants outstanding immediately prior to the Effective Time would have been
convertible immediately prior to the Merger if the EyeSys Preferred Warrants had
been exercised. The EyeSys Common Stock Equivalents shall share the Remaining
Merger Shares on a pro rata basis, except that holders of EyeSys Common Stock
and Series B Preferred Stock shall be entitled to receive Merger Shares and
holders of EyeSys Options and EyeSys Warrants shall receive Merger Options.
Therefore, the number of Merger Shares into which each EyeSys Common Stock
Equivalent shall be convertible (the "Common Stock Conversion Rate") shall be
equal to the number of Remaining Merger Shares divided by the number of EyeSys
Common Stock Equivalents. Assuming no conversion of Series B Preferred Stock or
Series A Preferred Stock into EyeSys Common Stock between the date hereof and
the Effective Time and assuming an Effective Time of February 28, 1997, the
Common Stock Conversion Rate will be at least 0.195. Accordingly, pursuant to
the Merger, each share of EyeSys Common Stock, and each EyeSys Common Stock
Equivalent, shall be converted into the right to receive at least 0.195 Merger
Shares.
TREATMENT OF OPTIONS AND WARRANTS
Sunrise shall substitute Sunrise Options and Sunrise Warrants for EyeSys
Options and EyeSys Common Warrants, respectively, based on the Common Stock
Conversion Rate. The exercise price of each Merger Option shall be the exercise
price of the EyeSys Option or EyeSys Common Warrant surrendered divided by the
Common Stock Conversion Rate. For example, if the Common Stock Conversion Rate
is 0.25, a holder of an EyeSys Option to purchase 1,000 shares of EyeSys Common
Stock for $0.50 per share shall receive, pursuant to the Merger, a Sunrise
Option to purchase 250 shares of Sunrise Stock for $2.00 per share.
Sunrise shall substitute Sunrise Warrants for EyeSys Preferred Warrants
outstanding as of the Effective Time, based on the Series B Conversion Rate, the
Common Stock Conversion Rate and the Warrant Preference. The number of shares of
Sunrise Stock underlying each Sunrise Warrant shall be equal to the number of
shares of Series B Preferred Stock underlying the EyeSys Preferred Warrant
surrendered multiplied by the sum of (a) the Series B Conversion Rate multiplied
by the Common Stock Conversion Rate (representing the participation portion of
the warrant) and (b) the Warrant Preference per share divided by the Deemed
Sunrise Stock Value (representing the preference portion of the warrant). For
example, if the Series B Conversion Ratio is 1.115, the Common Stock Conversion
Rate is 0.195, and the Deemed Sunrise Stock Value is $1.25 per share, a holder
of an EyeSys Preferred Warrant to purchase 10,000 shares of Series B Preferred
Stock for $1.26 per share shall receive, pursuant to the Merger, a Sunrise
Warrant to purchase 12,254 shares of Sunrise Stock for approximately $1.03 per
share.
Options to purchase EyeSys Common Stock that are not vested at the time of
the Merger ("Unvested EyeSys Options") shall be substituted with unvested
options to purchase Sunrise Stock ("Unvested Sunrise Options"), based on the
Common Stock Conversion Rate. The vesting schedules applicable to the Unvested
EyeSys Options shall apply to the Unvested Sunrise Options.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to certain conditions, including
without limitation: (a) approval of the EyeSys Merger Proposals; (b) approval of
the Sunrise Merger Proposals; (c) agreement of Silicon Valley Bank or another
lender acceptable to Sunrise to continue the Loan Agreement (defined herein) for
at least one year following the Effective Time, at advance rates no greater than
those specified in the Loan Agreement and with adjustments to the loan covenants
as reflect the merged companies and as are acceptable to Sunrise; (d)
consummation of a financing by Sunrise that has produced the greater of (i)
$1,700,000 in cash or liquid assets and (ii) sufficient cash or liquid assets to
pay certain costs related to the Merger and to cover the reasonably anticipated
working capital requirements of Sunrise and EyeSys for at least three (3) months
after the Effective Time; (e) execution of a binding agreement for the Asset
Sale, for a cash purchase price of at least $4,000,000; (f) execution of all of
the Lock Up
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Agreements; (g) conversion of at least 85% of the EyeSys Notes outstanding as of
the date of the Merger Agreement into EyeSys Common Stock, and (h) declaration
of effectiveness of the Registration Statement by the Commission.
LOCK-UP AGREEMENTS
Each holder of EyeSys Stock that will be entitled to receive pursuant to the
Merger more than 125,000 Merger Shares, other than Cowen, will enter into a
lock-up agreement with Sunrise which will (i) prohibit for 90 days following the
Effective Time the sale of any Merger Shares, and (ii) limit monthly sales of
Merger Shares during the following nine-month period to 50,000 shares.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The boards of directors of Sunrise and EyeSys have unanimously recommended to
their respective stockholders adoption of the Merger Agreement and approval of
the transactions contemplated thereby. In considering such recommendations,
stockholders should be aware that certain officers and directors of Sunrise and
EyeSys may have substantial interests in the Merger, separate from their
interests arising from their ownership of securities of Sunrise or EyeSys. Upon
consummation of the Merger, it is expected that James E. Crawford, III, a
director of EyeSys, will be appointed to the board of directors of Sunrise, and
that David W. Light and C. Russell Trenary, III, executive officers of Sunrise,
will become executive officers of EyeSys.
Merger Shares acquired by persons that are affiliates (within the meaning of
Rule 145 under the Securities Act) of EyeSys immediately prior to the Effective
Time will be registered by Sunrise under the Securities Act as soon as
practicable following the expiration of the Lock-Up Agreements.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
If consummated in accordance with the Merger Agreement, the Merger will be a
reorganization within the meaning of Internal Revenue Code sections 368(a)(1)(A)
and 368(a)(2)(E). Accordingly, (1) no gain or loss will be recognized on the
exchange of EyeSys Stock for Sunrise Stock, (2) the tax basis of the Sunrise
Stock in the hands of a former EyeSys stockholder will be equal to the basis of
the EyeSys Stock surrendered in exchange therefor, and (3) the holding period of
the Sunrise Stock in the hands of a former EyeSys stockholder will include the
holding period of the EyeSys Stock exchanged therefor, provided that the EyeSys
Stock was held as a capital asset at the time of the Merger. For additional
details regarding federal income tax consequences of the Merger, including a
discussion of the consequences to holders of EyeSys Notes, see "The Merger and
Related Transactions--Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
As required by generally accepted accounting principles, the Merger will be
accounted for under the purchase method of accounting.
AMENDMENT AND TERMINATION OF THE MERGER AGREEMENT
An amendment to the Merger Agreement may be made in writing, if signed by the
party against whom enforcement of such amendment is sought.
Notwithstanding adoption of the Merger Agreement by the stockholders of
Sunrise and EyeSys, the Merger Agreement may be terminated by written consent of
all of the parties at any time prior to the closing. In certain circumstances,
such as a breach of the Merger Agreement or if the closing has not occurred by
February 28, 1997, any one party may terminate the Merger Agreement by delivery
of written notice to the other parties. In the event of termination of the
Merger Agreement, all of the parties shall
10
<PAGE>
bear their own costs associated with the Merger Agreement and the transactions
contemplated thereby. Termination of the Merger Agreement shall not relieve any
party from any liability for a breach of the Merger Agreement prior to such
termination.
APPRAISAL RIGHTS
If the Merger is consummated, holders of EyeSys Stock that are entitled to
vote to approve the Merger but that do not vote in favor of the Merger and that
otherwise comply with Section 262(d) of the Delaware General Corporation Law, as
amended (the "Delaware Law"), will be entitled to dissenters' appraisal rights
with respect to their shares. The procedures involved in the exercise of such
appraisal rights are described herein and in Section 262 of the Delaware Law, a
copy of which is attached as Appendix B to the Joint Proxy Statement/Prospectus.
PRICE RANGE OF COMMON STOCK; DIVIDEND DATA
Sunrise Stock is traded in the over-the-counter market. Price information for
Sunrise Stock may be obtained from the OTC Bulletin Board. On October 31, 1996,
the last trading day prior to the announcement by Sunrise and EyeSys that they
had reached an agreement concerning the Merger, the closing price of Sunrise
Stock as reported on the OTC Bulletin Board was $1.75 per share. On December 30,
1996, the closing price of Sunrise Stock as reported on the OTC Bulletin Board
was $0.906 per share.
In the past three years, Sunrise has not declared or paid any cash dividend
on the Sunrise Stock. Sunrise currently intends to retain any and all future
earnings to finance its business. Accordingly, Sunrise does not anticipate
paying cash or other dividends on the Sunrise Stock in the foreseeable future.
COMPARISON OF RIGHTS OF STOCKHOLDERS
The rights of holders of EyeSys Stock currently are governed by the General
Corporation Law of the State of Delaware (the "Delaware Law"), the EyeSys
Certificate and the Bylaws of EyeSys. Upon consummation of the Merger,
stockholders of EyeSys will become stockholders of Sunrise and their rights as
stockholders of Sunrise, which is also a Delaware corporation, will be governed
by the Delaware Law, the Sunrise Certificate and the Bylaws of Sunrise. In
addition, preferred stockholders of EyeSys will become common stockholders of
Sunrise. See "Comparison of Rights of Holders of Sunrise Stock and Holders of
EyeSys Stock."
NEW STOCK PLAN
If the Merger is consummated, Sunrise Options will be substituted for all the
outstanding EyeSys Options and all of the Unvested EyeSys Options. At the
Sunrise Special Meeting, holders of Sunrise Stock will be asked to adopt and
approve a new stock option plan (the "New Stock Plan") pursuant to which Sunrise
would be authorized to issue up to 3,000,000 shares of Sunrise Stock,
approximately 330,550 of which shares would be reserved for issuance to persons
who had been holders of EyeSys Options or Unvested EyeSys Options and who, as a
result of the Merger, receive Merger Options or Unvested Sunrise options,
assuming no exercise of EyeSys Options between the date hereof and the Closing.
The remaining options under the New Stock Plan will be issuable to employees,
directors and consultants of Sunrise, as determined from time to time by the
administrator of the New Stock Plan. A copy of the New Stock Plan is attached as
Appendix C to this Joint Proxy Statement/Prospectus.
In 1988, Sunrise adopted the 1988 Stock Option Plan (the "Existing Stock
Plan"). Sunrise is authorized to issue up to 3,750,000 shares of Sunrise Stock
pursuant to options granted under the Existing Stock Plan ("Existing Plan
Options"). As of November 30, 1996, 447,037 shares of Sunrise Stock had been
issued pursuant to Existing Plan Options and Existing Plan Options to purchase
an additional 2,949,438
11
<PAGE>
shares of Sunrise Stock remained outstanding. The Existing Stock Plan expires in
1998. If the New Stock Plan is adopted, Sunrise will not issue any additional
Existing Plan Options. Existing Plan Options outstanding as of the Effective
Time will not be affected by the adoption of the New Stock Plan.
The terms of the New Stock Plan are substantially similar to the terms of the
Existing Stock Plan, except that the New Stock Plan (i) enables the
administrator of the plan to qualify certain grants for favorable tax treatment,
(ii) provides for transferability of certain options granted under the plan to
members of an optionee's immediate family, certain estate planning trusts and
other entities; and (iii) expires in 2007.
ASSET SALE
On November 18, 1996 Sunrise entered into a non-binding letter of intent (the
"Lares Letter of Intent") with Lares Research, a privately held company located
in Chico, California ("Lares"), providing for the sale of the Sunrise dental
business and the assets used in the operation thereof (collectively, the "Dental
Business") to Lares in consideration for a cash payment of $5,000,000 at
closing, a six-year non-interest bearing promissory note in the principal amount
of $2,000,000 and warrants for 2-1/2% of the stock of Lares outstanding at the
time of closing. The warrants must be redeemed for $750,000 if Lares has not
effected an initial public offering of its common stock within five years after
the closing date. The parties expect to enter into a definitive agreement in
January 1997. The transaction is subject to several conditions, including (i)
the successful completion by Lares of a debt or equity financing to cover the
$5,000,000 payment at closing and (ii) the approval of the stockholders of
Sunrise. If the transaction closes, Sunrise will pay to ADT a transfer fee of
approximately $350,000. ADT has licensed Sunrise and its successors under
certain dental patents subject to the payment of the foregoing fee.
In the event the Asset Sale is not consummated with Lares, Sunrise will seek
to sell the dental business to another purchaser on substantially similar terms
as those contained in the Lares Letter of Intent. Sunrise is seeking stockholder
approval for the Asset Sale to Lares and for any other Asset Sale provided that
the aggregate net proceeds to Sunrise are not less than $5,000,000 and the
material terms of the Asset Sale are no less favorable to the Sunrise
stockholders than those contained in the Lares Letter of Intent.
12
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
SELECTED FINANCIAL INFORMATION
The statement of operations data set forth below with respect to the fiscal
years ended December 31, 1993, 1994 and 1995 and the balance sheet data at
December 31, 1994 and 1995 are derived from, and are qualified by reference to,
Sunrise's audited financial statements included elsewhere in this Joint Proxy
Statement/Prospectus and should be read in conjunction with those financial
statements and the notes thereto. The statement of operations data for the years
ended December 31, 1991 and 1992 and the balance sheet data at December 31,
1991, 1992 and 1993 are derived from audited financial statements not included
in this Joint Proxy Statement/Prospectus. The statement of operations data for
the nine months ended September 30, 1995 and 1996 and the balance sheet data at
September 30, 1995 and 1996 are derived from unaudited financial statements. The
unaudited financial statements have been prepared on the same basis as the
audited financial statements and, in the opinion of management, contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations for such periods. The results of
operations for the nine months ended September 30, 1996 are not necessarily
indicative of results to be expected for the full fiscal year.
<CAPTION>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ -----------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS
DATA:
Net sales ......................... $20,337 $ 8,550 $11,860 $ 7,578 $ 5,294 $ 3,680 $ 4,327
Gross profit ...................... 11,333 3,604 5,009 1,340 1,637 1,269 1,243
Purchase of in-process technology -- 8,466 -- -- -- -- --
Income (loss) from operations .... 6,038 (13,337) (6,452) (6,917) (4,187) (2,821) (4,062)
Income tax expense (benefit) ..... 2,176 (1,612) 232 -- -- -- --
Net income (loss) ................. 3,986 (11,640) (6,624) (6,910) (4,130) (2,815) (4,019)
Net income (loss) per share(1) ... 0.52 (1.44) (0.74) (0.68) (0.28) (0.24) (0.16)
Weighted average shares
outstanding(1) ................... 7,693 8,111 8,955 10,129 14,935 11,487 25,898
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Working capital ............... $ 8,545 $ 7,877 $ 1,965 $ 1,101 $ 4,541 $ 5,843 $ 3,034
Total assets .................. 12,596 10,339 5,511 3,822 6,689 8,209 4,983
Long-term debt ................ 98 79 18 -- -- -- --
Stockholders' equity .......... 9,608 9,038 2,708 1,357 4,745 6,060 3,221
<FN>
- ----------
(1) See Note 1 of Notes to Consolidated Financial Statements.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
EYESYS TECHNOLOGIES, INC.
SELECTED FINANCIAL INFORMATION
The statement of operations data set forth below with respect to the fiscal
years ended December 31, 1993, 1994 and 1995 and the balance sheet data at
December 31, 1994 and 1995 are derived from, and are qualified by reference to
EyeSys' audited financial statements included elsewhere in this Joint Proxy
Statement/Prospectus and should be read in conjunction with those financial
statements and the notes thereto. The statement of operations data for the years
ended December 31, 1991 and 1992 and the balance sheet data at December 31,
1991, 1992 and 1993 are derived from audited financial statements not included
in this Joint Proxy Statement/Prospectus. The statement of operations data for
the nine months ended September 30, 1995 and 1996 and the balance sheet data at
September 30, 1995 and 1996 are derived from unaudited financial statements. The
unaudited financial statements have been prepared on the same basis as the
audited financial statements and, in the opinion of management, contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations for such period. The results of
operations for the nine months ended September 30, 1996 are not necessarily
indicative of results to be expected for the full fiscal year.
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS
DATA:
Net sales ......................... $3,706 $7,777 $9,057 $ 8,298 $ 8,922 $ 7,434 $ 6,319
Gross profit ...................... 2,404 4,745 4,580 3,799 3,832 3,774 2,779
Income (loss) from operations .... 64 643 (749) (3,734) (3,240) (1,395) (2,506)
Income tax expense (benefit) ..... -- 175 (95) (38) 16 -- 15
Net income (loss) ................. -- 449 (679) (3,709) (3,425) (1,458) (2,899)
Net income (loss) per common share -- 0.15 (0.22) (1.24) (1.19) (0.55) (0.98)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Working capital ................ $ 491 $ 973 $ 885 $1,566 $1,693 $1,240 $(3,205)
Total assets ................... 1,263 3,064 4,100 4,649 6,814 6,275 5,456
Long-term debt ................. 6 -- 44 32 2,629 27 235
Stockholders' equity (deficit) 604 1,538 1,493 2,403 468 2,428 (2,425)
Book value per common share ... 0.21 0.49 0.48 0.74 0.14 0.74 (0.72)
</TABLE>
14
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth, in summary form, certain unaudited pro forma
condensed combined financial information which gives effect to the acquisition
of EyeSys pursuant to the Merger (the "EyeSys Acquisition") and with and without
the disposal of Sunrise's dental business and the assets used in the operation
thereof (the "Dental Operations") as if they had occurred on January 1, 1995 for
purposes of the unaudited pro forma condensed combined statement of operations
and as of September 30, 1996 for the purposes of the unaudited pro forma
condensed combined balance sheet. The pro forma adjustments have been applied to
the financial information derived from the audited financial statements of
Sunrise and EyeSys to account for the EyeSys Acquisition as a purchase;
accordingly, assets acquired and liabilities assumed will be recorded at their
estimated fair values which are subject to further refinement, including
appraisals and other analyses, with appropriate recognition given to the effect
of current interest rates and income taxes.
The unaudited summary pro forma condensed combined financial information is
not necessarily indicative of what actual results would have been had the EyeSys
Acquisition and the disposal of the Dental Operations occurred at the dates
indicated nor do they purport to project the future financial position or the
results of the Company.
The unaudited summary pro forma condensed combined financial information
should be read in conjunction with the accompanying notes and the audited
financial statements, including the notes thereto, of the Company, included
elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
---------------------------- ----------------------------
WITH DENTAL WITHOUT DENTAL WITH DENTAL WITHOUT DENTAL
OPERATIONS OPERATIONS OPERATIONS OPERATIONS
----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF
OPERATIONS DATA:
Net sales .................................. $14,816 $10,799 $10,646 $ 6,454
Loss from operations ....................... 8,627 6,199 7,468 5,410
Loss before taxes .......................... 8,739 6,368 7,621 5,593
Net loss applicable to common shareholders 8,755 6,384 7,636 5,608
Net loss per share ......................... 0.32 0.23 0.20 0.15
Weighted average shares outstanding ....... 27,375 27,375 38,338 38,338
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
WITH DENTAL WITHOUT DENTAL
NET ASSETS NET ASSETS
----------- --------------
<S> <C> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments $ 1,508 $ 3,934
Working capital .................................. 2,512 2,680
Total assets ..................................... 14,039 14,039
Long-term obligations ............................ 307 307
Total stockholders' equity ....................... 7,079 7,079
Book value per share(1) .......................... 0.18 0.18
Common shares outstanding ........................ 40,278 40,278
<FN>
- -----------
(1) Book value per share is computed by dividing the pro forma stockholders'
equity by the pro forma number of shares of common stock outstanding at
September 30, 1996. The pro forma number of shares of common stock
outstanding is computed by taking 27,867,000 shares of Sunrise Common Stock
outstanding at September 30, 1996 and adding 12,411,429 shares anticipated
to be issued for the EyeSys Acquisition.
</FN>
</TABLE>
15
<PAGE>
<TABLE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth (1) the historical net loss per share and the
historical book value per share of Sunrise Common Stock; (2) the historical net
loss per share and the historical book value per share of EyeSys Common Stock;
(3) the unaudited pro forma combined net loss per share and the unaudited pro
forma combined book value per share after giving effect to the EyeSys
Acquisition and with and without the proposed disposal of the Dental Operations
and Net Assets on a retroactive basis excluding the gain (if any) from the sale;
and (4) the unaudited pro forma net income per equivalent EyeSys share assuming
an exchange ratio of 0.195. The information presented in the table should be
read in conjunction with the unaudited pro forma condensed combined financial
statements, the separate historical consolidated financial statements and the
interim consolidated unaudited financial statements and the notes thereto
appearing elsewhere herein or incorporated by reference. No cash dividends have
been declared by Sunrise or EyeSys.
<CAPTION>
SUNRISE EQUIVALENT EYESYS
PRO FORMA COMBINED PRO FORMA COMBINED
HISTORICAL ---------------------------- ----------------------------
----------------- WITH DENTAL WITHOUT DENTAL WITH DENTAL WITHOUT DENTAL
SUNRISE EYESYS OPERATIONS OPERATIONS OPERATIONS OPERATIONS
------- ------ ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET LOSS PER SHARE
Fiscal year ended December 31, 1995 .. 0.28 1.19 0.32 0.23 0.06 0.05
Nine months ended September 30, 1996 . 0.16 0.98 0.20 0.15 0.04 0.03
BOOK VALUE PER SHARE AT
December 31, 1995 .................... 0.19 0.74 -- -- -- --
September 30, 1996 ................... 0.12 (0.72) 0.18 0.18 0.04 0.04
</TABLE>
1. Sunrise's and EyeSys' historical net loss per share represents amounts for
the year ended December 31, 1995 and the nine months ended September 30, 1996.
2. Sunrise's and EyeSys' historical book value per share is calculated by
dividing stockholders' equity by the number of shares of common stock
outstanding at the end of the period. Pro forma combined book value per share is
computed by dividing pro forma combined stockholders' equity by the pro forma
combined number of shares of common stock outstanding at the end of the period.
3. The unaudited pro forma combined net loss per share is based on the
weighted average number of common shares of Sunrise Common Stock outstanding
during the period adjusted to give effect to shares assumed to be issued had the
EyeSys Acquisition taken place as of January 1, 1995 (12,411,429 shares based on
the exchange ratio of 0.195 of a share of Sunrise Common Stock for each share of
EyeSys Common Stock).
4. The unaudited equivalent EyeSys pro forma combined per share amounts are
calculated by multiplying the Sunrise pro forma combined share amounts by the
exchange ratio of 0.195 of a share of Sunrise Common Stock for each share of
EyeSys Common Stock.
16
<PAGE>
RISK FACTORS
The following factors should be considered carefully in evaluating the
proposals to be voted on at the Special Meetings and the acquisition of the
securities offered hereby. For periods following the Merger, references to the
products, business, financial results or financial condition of Sunrise or the
Company should be considered to refer to Sunrise and its subsidiaries, including
EyeSys, unless the context otherwise requires.
HISTORY OF LOSSES; NEED FOR ADDITIONAL CAPITAL
Since 1992, both Sunrise and EyeSys have incurred substantial losses which
have depleted their working capital and reduced their shareholders' equity.
Losses have been incurred in both segments of Sunrise's business, dental and
ophthalmic, as well as in EyeSys' entire business. Sunrise's and EyeSys'
management both believe that the Sunrise dental business and the EyeSys
ophthalmic business can be operated at or near break-even levels during 1997,
but there can be no assurance that these objectives can be achieved. In
addition, the Sunrise ophthalmic business will continue to be a significant
consumer of cash as the revenues from such business are not expected to be
sufficient to cover its operating costs unless and until FDA approval is
obtained to permit domestic sale of the Sunrise Corneal Shaping System, which
approval is not expected until 1999 at the earliest.
The negative cash flows of both Sunrise and EyeSys have been funded during
1995 and 1996 by the sale of additional equity and, in the case of EyeSys, loans
from its principal stockholders. At September 30, 1996, the working capital of
Sunrise was $3,034,000 and EyeSys had fully exhausted its working capital, even
assuming the conversion to equity of all EyeSys stockholder loans. The Company
anticipates that it will be required to raise additional working capital to fund
its activities for 1997 and beyond. Any additional equity financings may be
dilutive to the Company's stockholders. No assurance can be given that financing
will be available or that, if available, it will be available on terms favorable
to the Company and its stockholders. If funds are not available to satisfy the
Company's short-term and long-term operating requirements, the Company may be
required to reduce substantially, or eliminate, certain areas of its product
development activities, sell off certain assets, limit or suspend its operations
in their entirety or, under certain circumstances, be forced to seek protection
from creditors under the Bankruptcy Act.
GOING CONCERN REPORT
Each of Sunrise's and EyeSys' independent auditors have included an
explanatory paragraph in their report covering the respective company's
financial statements for the year ended December 31, 1995, which paragraph
emphasizes substantial doubt as to the respective company's ability to continue
as a going concern.
CONTINUING LOSSES EXPECTED
The Company expects to report operating losses during 1997 and beyond. The
losses will come primarily from the expenses of the FDA approval process and
underlying clinical studies related to the Sunrise Corneal Shaping System. The
Company will not have any domestic revenues from this product line unless and
until FDA approval is obtained and the international revenues will not be
sufficient to cover the cost of the approval process. Upon completion of the
Merger, the Company will operate the EyeSys business which has produced
significant operating losses in the past three years. Although management of the
Company anticipates that the EyeSys business will return to profitability, the
business is not large enough to produce operating income at a level sufficient
to overcome the anticipated operating losses from the Sunrise ophthalmic
business. In addition, if the Merger closes after December 31, 1996, the Company
will take a one time charge in 1997 of approximately $9,000,000 as a result of
the acquisition of in process research and development expenses of EyeSys. The
Company anticipates the sale of the assets of its dental business during 1997 to
raise funds for the continuing clinical studies for the Sunrise Corneal Shaping
System. Even if the dental business is retained and can operate profitably,
consolidated operating losses would be anticipated at least during 1997.
17
<PAGE>
EFFECTS OF FDA APPROVAL REQUIREMENTS AND GOVERNMENT REGULATION ON
MARKETABILITY OF THE COMPANY'S SYSTEMS
The Company's activities are subject to extensive regulation by the Food and
Drug Administration and similar health authorities in certain foreign countries.
The Sunrise Corneal Shaping System is regulated as a Class III medical device by
the FDA under the Food, Drug and Cosmetic Act (the "FDC Act"). Class III devices
require a Pre-Market Approval by the FDA prior to commercial sale in the U.S.
The PMA approval process (and underlying clinical studies) is lengthy and
uncertain and requires substantial commitments of the Company's financial
resources and management's time and effort. Delays in obtaining or failure to
obtain required regulatory approvals or clearances in the U.S. and other
countries would postpone or prevent the marketing of the Sunrise Corneal Shaping
System and other devices and would impair the Company's ability to generate
funds from operations, which in turn would have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance the Company will be able to obtain in a timely manner, if at all,
required premarket approvals in the United States or Japan for intended uses of
the Sunrise Corneal Shaping System, or for any other devices for which the
Company may seek approvals or clearances.
The Company has been issued an Investigational Device Exemption (an "IDE") by
the FDA to permit it to generate data necessary to support a Pre-Market Approval
application (a "PMA") for the use and marketing of the Company's holmium laser
corneal shaping product in laser thermal kerotoplasty ("LTK") applications. The
FDA has advised the Company that the initial Phase II(a) clinical trials
conducted by the Company did not produce enough statistically significant data
to enable the FDA to determine that the treatment algorithms employed in such
clinical trials were predictable or effective for the treatment of hyperopia. On
September 5, 1996, the FDA authorized the Company to treat an additional 100
subjects at five United States locations in a continuation of Phase II(a)
clinical trials using a treatment algorithm developed by the Company in the
course of the initial Phase II(a) clinical trials and in the course of studies
conducted by ophthalmologists in Mexico, Great Britain and Canada. The continued
clinical trial is limited to the treatment of forty subjects for the +1 diopter
treatment group and sixty subjects for the +2 diopter treatment group.
The FDA will grant a PMA with respect to a particular procedure performed
with the Sunrise Corneal Shaping System only if and when it is satisfied the use
of the device for that procedure is safe and effective treatment for the
condition indicated. In granting a PMA, the FDA may restrict the types of
patients who may be treated, thereby limiting the market acceptance of the
Sunrise Corneal Shaping System. Even if FDA approval is obtained, a marketed
product is subject to continual review. Later discovery of previously unknown
problems or failure to comply with applicable regulatory requirements may result
in restrictions on the marketing of a product or withdrawal of the product from
the market, in addition to possible criminal and/or civil proceedings.
Modifications to a device that is the subject of an approved PMA, its labeling,
or manufacturing process may require approval by the FDA of PMA supplements or
new PMAs. Supplements to a PMA often require the submission of the same type of
information required for an initial PMA, except the supplement is generally
limited to information needed to support the proposed change from the product
covered by the original PMA. There can be no assurance the Sunrise Corneal
Shaping System will be shown to be safe and effective, or that it will be
approved or cleared by the FDA or foreign regulatory bodies, for the intended
uses for which it is being investigated. Modifications could also be required if
the Company is unable to reach a satisfactory licensing arrangement with the
University of Miami on a jointly developed component of the delivery system. See
"--Patent Concerns."
Any products manufactured or distributed by the Company will be subject to
pervasive and continuing regulation by the FDA. The FDC Act also requires the
Company to manufacture its products in registered establishments, in accordance
with the FDA's Good Manufacturing Practices ("GMP") regulations, and to list its
devices with the FDA. Such manufacturing facilities are subject to periodic GMP
inspections by the FDA. GMP regulations impose certain procedural and
documentation requirements with respect to manufacturing and quality assurance
activities. The FDA has proposed changes to the
18
<PAGE>
GMP regulations which will likely increase the cost of compliance with GMP
requirements. Labeling and promotional activities are subject to scrutiny by the
FDA and, in certain instances, by the Federal Trade Commission.
In addition, the introduction of the Company's products in foreign countries
may require obtaining individual foreign regulatory clearances in numerous
countries. These products have been sold in approximately 15 foreign countries.
Sales of the Sunrise Corneal Shaping Systems are restricted in several countries
in addition to the United States, including Japan, Canada, Taiwan and Mexico.
There can be no assurance the Company will be able to obtain regulatory
clearances for its products in the United States or foreign markets.
UNCERTAIN MARKET ACCEPTANCE OF THE SUNRISE CORNEAL SHAPING SYSTEM
Although the Company has other ophthalmic laser products, the Company has and
intends to concentrate its efforts primarily on the development of a holmium
laser corneal shaping product for the correction of hyperopia and will be
dependent upon the successful development of that system to generate increased
revenues. Use of the Sunrise Corneal Shaping System for laser thermal
keratoplasty has not yet been introduced commercially in the United States, and
there can be no assurance that if approved by the FDA, such system will be
accepted by either the ophthalmic community or the general population as an
alternative to existing methods of treating refractive vision disorders. Many
ophthalmologists may have already invested significant time and resources in
developing expertise in other corrective ophthalmic techniques. The acceptance
of LTK may be affected adversely by its cost, concerns relating to its safety
and efficacy, the lack of third party reimbursement for LTK, general resistance
to use of laser products on the eye, the effectiveness of alternative methods of
correcting refractive vision disorders, the lack of long-term follow-up data and
the possibility of unknown side effects. Promotional efforts by suppliers of
products or procedures which are alternatives to the Sunrise Corneal Shaping
System, including eyeglasses and contact lenses, may also adversely affect the
market acceptance of LTK. The Company's failure to achieve broad market
acceptance of LTK will have a material adverse effect on the Company's business,
financial condition and results of operations.
SAFETY AND EFFICACY CONCERNS; LACK OF LONG-TERM FOLLOW-UP
The Company has developed only limited clinical data to date on the safety
and efficacy of the Sunrise Corneal Shaping System in correcting farsightedness,
and related long-term safety and efficacy data. The FDA has not yet determined
whether the Sunrise Corneal Shaping System will prove to be safe or effective
for the predictable and reliable treatment of farsightedness or other common
vision problems. Potential complications and side effects from the use of the
Company's Sunrise Corneal Shaping System include: post-operative discomfort;
decreases in contrast sensitivity; temporary increases in intraocular pressure
in reaction to post-procedure medication; modest fluctuations in refractive
capabilities during healing; unintended over-or under-corrections; regression of
effect; and induced astigmatism. There can be no assurance that long-term safety
and efficacy data when collected will be consistent with the clinical trial
results previously obtained or will demonstrate that the LTK Corneal Shaping
System can be used safely and successfully to treat hyperopia in a broad segment
of the population on a long-term basis.
NO ASSURANCE OF PROFITABILITY OF EYESYS
EyeSys currently markets a single product (a corneal topography measuring
system) into a highly competitive market. Historically, EyeSys has incurred
substantial losses. During 1996, the management of EyeSys took certain actions
which it believes will allow EyeSys to operate at or near break-even levels in
1997. The ability of EyeSys to achieve this level of performance is dependent on
the demand for the company's product as well as maintaining sufficient research,
development and sales and marketing expenditures to meet the requirements of the
market. There can be no assurance that the revenues from the EyeSys product line
will be sufficient to cover all of the expenses related to such operations. If
EyeSys is unable to achieve a break-even cash flow performance, additional
levels of capital will be required which will further strain the Company's
working capital.
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LIMITED TRADING MARKET; APPLICATIONS OF THE PENNY STOCK RULES
On July 8, 1995, the Sunrise Stock was delisted from The Nasdaq Stock Market
because Sunrise was unable to maintain the requisite standards for continued
listing. Accordingly, trading of Sunrise Stock is now conducted on an electronic
bulletin board established for securities that do not meet the Nasdaq listing
requirements. As a result, an investor may find it more difficult to dispose of,
or to obtain accurate quotations as to the price of, the Sunrise Stock.
While the Company intends to pursue being relisted on The Nasdaq Stock
Market, the Company's securities are now subject to the Commission's "penny
stock rules" that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally defined as an investor with a net
worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with a spouse). For transactions covered by this rule, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale. Consequently, the Company's delisting may affect the ability of
broker-dealers to sell the Company's securities and the ability of recipients of
securities in this offering to sell their securities in the secondary market.
There can be no assurance that the Company will be successful in being relisted
on The Nasdaq Stock Market in the near future, if at all.
The Commission has adopted regulations that define "penny stock" to be any
equity security that has a market price (as defined) of less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. As a result of these
regulations, an investor may find it difficult to dispose of Sunrise Stock.
COMPETITION
VISION CORRECTION MARKET
The vision correction industry is subject to intense competition. Patients
with hyperopia (farsightedness) can achieve vision correction with eyeglasses,
contact lenses and radial keratotomy, as well as with other technologies and
surgical techniques currently under development, such as corneal implants and
surgery using different types of lasers. Most of the Company's competitors have
substantially greater product development capabilities and financial and
marketing resources than the Company, which may enable such competitors to
market their products or procedures to the consumer and to the ophthalmic
community in a more effective manner. The success of any competing alternatives
to LTK for treating hyperopia would have a material adverse effect on the
Company's business, financial condition and results of operations. The
significant competitive factors in the industry include price, convenience,
success relative to vision correction, acceptance of new technologies, patient
satisfaction and government approval.
Currently, the excimer laser is the dominant laser used for the treatment of
refractive disorders, although it is not currently used to treat hyperopia. In
the United States, VISX and Summit are the leading manufacturers of excimer
refractive surgical systems. While the Company believes the LTK process offers
several distinct advantages over the use of excimer lasers for treating
hyperopia, including ease of use and decreased invasiveness, both VISX and
Summit have significantly greater financial resources than the Company and have
received FDA approval for their respective excimer laser products for treating
myopia. Although the VISX and Summit excimer laser products are not currently
approved for treating hyperopia in the United States, any alternative treatment
offered by VISX or Summit will have a competitive advantage because of the name
recognition being created by the current promotion of excimer laser products for
correcting refractive errors using lasers.
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CORNEAL TOPOGRAPHY MARKET
The Corneal Topography Market is highly competitive. There are many
companies, both public and private, some with significantly greater resources
than EyeSys or Sunrise, engaged in the corneal topography market. These
companies include Alcon Laboratories (a subsidiary of Nestle), Humphrey
Instruments (a subsidiary of Carl Zeiss), and Tomey Technology. These companies,
together with EyeSys and others, market corneal topography instruments which
utilize a technology for measuring corneal curvature based on reflected images.
Other companies, including PAR Technology and Orbtek, utilize other technologies
to measure the corneal surface. There can be no assurances that EyeSys'
competitors will not succeed in developing technologies, procedures or products
that are more effective or economical than those marketed or being developed by
EyeSys or that would render EyeSys' products obsolete or noncompetitive.
To continue to remain competitive, EyeSys must develop new software and
hardware meeting the needs of ophthalmologists and optometrists. The company's
future revenues will depend, in part, on its ability to develop and
commercialize these new products as well as on the success of development and
commercialization efforts of its competitors.
DENTAL PRODUCTS MARKET
The Company's dental products include laser systems for soft tissue
applications such as gingivectomies and gum contouring and an air abrasive
system (MicroPrep) for cavity preparation. The Company's sale of dental laser
systems has decreased significantly in the past few years as a result of
increased competition as well as a decrease in the size of the total market. The
MicroPrep, introduced in 1994, has experienced increased sales levels as a
result of growing market acceptance of this new alternative to standard drilling
techniques. The Company's primary competitor in the dental market is American
Dental Technologies ("ADT"), its former distributor and the holder of basic air
abrasion patents (for which Sunrise has a license). ADT offers products
competitive with the Company's laser and air abrasive products. The Company's
dental products compete with respect to price, ease of use, rapid, effective
treatment and breadth of applications. In addition, the Company's dental
products compete with conventional dentist drills and conventional soft tissue
surgery.
PATENT CONCERNS
Although the Company believes it and its subsidiary Laser Biotech hold all of
the U.S. process patents for the use of holmium lasers in cornea shaping,
foreign process patents and U.S. and foreign apparatus patents for shaping the
cornea with holmium lasers have been issued to others. If patents held by others
were considered valid and interpreted broadly in an adversarial proceeding, they
could be deemed to cover one or more aspects of the Company's holmium laser
cornea shaping systems or use of such systems to perform LTK or other
procedures. There can be no assurance the Company and Laser Biotech will not be
subject to one or more claims for patent infringement, or that the Company and
Laser Biotech would prevail in any such action or that its patents will afford
protection against competitors with similar technology.
In addition, the Company has attempted to negotiate with the University of
Miami to reach agreement regarding the nonexclusive use of a component of the
delivery system used in the Sunrise Corneal Shaping System which was jointly
developed by the Company and the University. The Company believes that it will
be able to make reasonable arrangements with the University. If, however, the
Company is unable to conclude negotiations with the University successfully, the
University may seek to prohibit the manufacture, sale and use of the delivery
system presently configured in the Sunrise Corneal Shaping System. If the
Company is forced to redesign the Sunrise Corneal Shaping System, such redesign
efforts could be time consuming, expensive and prolong FDA review.
In the event the Sunrise Corneal Shaping System is adjudged to infringe a
patent in a particular market, the Company and its customers may be enjoined
from making, selling and using such system in such market or be required to
obtain a royalty-bearing license, if available on acceptable terms.
Alternatively, in the event a license is not offered or available, the Company
might be required to redesign those aspects of the Sunrise Corneal Shaping
System held to infringe so as to avoid infringement. Any
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redesign could delay reintroduction of the Company's products into certain
markets, or may be so significant as to be impractical. If redesign efforts were
impractical, the Company could be prevented from manufacturing and selling the
infringing products, which would have a material effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON SOLE SOURCE SUPPLIERS
Certain computer memory chips used by EyeSys in its proprietary hardware are
manufactured by a single company. These computer memory chips are subject to
rapid innovation and obsolescence. The discontinuance of the manufacturing of
this chip may cause EyeSys to redesign certain hardware and software to
accommodate a replacement chip. While in the past EyeSys has been successful in
these redesign efforts, there can be no assurances that such an event would not
prove costly or cause a disruption in sales of corneal topography systems.
SPECIAL MEETINGS
SUNRISE SPECIAL MEETING
The Sunrise Special Meeting is scheduled to be held on ,
, 1997, at a.m., local time, at , located at
. At the Sunrise Special Meeting, holders of Sunrise Stock will
be asked to consider and vote upon the following matters (the "Sunrise
Proposals"): (1) to amend Sunrise's Certificate of Incorporation to increase the
number of shares of Sunrise Stock authorized to be issued from 40,000,000 to
75,000,000, (2) to adopt the New Stock Plan, pursuant to which Sunrise would be
authorized to issue up to 3,000,000 shares of Sunrise Stock, approximately
351,000 of which shares would be reserved for issuance to persons who are
granted Merger Options (together, the "Sunrise Merger Proposals"), and (3) to
approve the Asset Sale, substantially on the terms set forth in this Joint Proxy
Statement/Prospectus.
Record Date; Voting
The Sunrise board of directors has fixed the close of business on December
13, 1996 as the record date (the "Sunrise Record Date") for the determination of
holders of Sunrise Stock entitled to notice of and to vote at the Sunrise
Special Meeting. As of the Sunrise Record Date, there were 27,868,613 shares of
Sunrise Stock issued and outstanding, held of record by 710 persons.
Each share of Sunrise Stock is entitled to one vote on each of the Sunrise
Proposals. The presence, whether in person or by proxy, of a majority of the
outstanding shares of Sunrise Stock is necessary to constitute a quorum at the
Sunrise Special Meeting. The affirmative vote of a majority of the votes
eligible to be cast at the Sunrise Special Meeting is required to approve each
of the Sunrise Proposals.
As of the Sunrise Record Date, the directors and executive officers of
Sunrise, together with their respective affiliates, held 865,913 shares of
Sunrise Stock, representing three percent (3%) of the votes to be cast at the
Sunrise Special Meeting.
Revocability of Proxies
If a person who has executed and returned a proxy is present at the meeting
and wishes to vote in person, such person may elect to do so and thereby suspend
the power of the proxy holders to vote such proxy. A proxy also may be revoked
before it is exercised by filing with the Secretary of Sunrise a duly signed
revocation or a proxy bearing a later date.
Solicitation
Sunrise will bear the entire cost of the solicitation of proxies from its
stockholders, including preparation, assembly, printing and mailing of this
Joint Proxy Statement/Prospectus, the proxy and any additional information
furnished to stockholders. Copies of solicitation materials will be furnished to
banks, brokerage houses, fiduciaries and custodians holding in their names
shares of Sunrise Stock beneficially owned by others to forward to such
beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone, facsimile, telegram or personal solicitation by directors,
officers or
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other regular employees of Sunrise. No additional compensation will be paid to
such persons for such services. Sunrise also intends to employ the services of
Beacon Hill Partners, Inc., a professional solicitation company ("Beacon Hill"),
to assist with solicitation of Sunrise stockholders. Beacon Hill will be paid a
fee of $4,000 plus $3 per telephone call made by Beacon Hill to a Sunrise
stockholder entitled to vote at the Sunrise Special Meeting.
ChaseMellon Shareholder Services LLC, transfer agent and registrar for the
Sunrise Stock, will be paid its customary fee, estimated to be $1,500.
EYESYS SPECIAL MEETING
The EyeSys Special Meeting is scheduled to be held on Tuesday, February 25,
1997, at 10:00 a.m., local time, at EyeSys, located at 2776 Bingle Road,
Houston, Texas. At the EyeSys Special Meeting, holders of EyeSys Stock will be
asked to consider and vote upon the following matters (the "EyeSys Merger
Proposals"): (1) to amend Section 4.2.4(b)(ii) of the EyeSys Certificate to
revise certain terms of the Series A Preferred Stock, (2) to amend Section
4.3.4(c) of the EyeSys Certificate to revise certain terms of the Series B
Preferred Stock, and (3) provided that the Charter Amendments are approved, to
adopt the Merger Agreement and approve the consummation of the Merger and other
transactions contemplated thereby.
Record Date; Voting
The EyeSys board of directors has fixed the close of business on January 29,
1997 as the record date (the "EyeSys Record Date") for the determination of
holders of EyeSys Stock entitled to notice of and to vote at the EyeSys Special
Meeting. As of the EyeSys Record Date, there were 3,354,707 shares of EyeSys
Common Stock, 101,784 shares of EyeSys Series A Preferred Stock, and 4,953,026
shares of EyeSys Series B Preferred Stock issued and outstanding.
The EyeSys Special Meeting shall serve as (a) a meeting of the holders of
Series A Preferred Stock, (b) a meeting of the holders of Series B Preferred
Stock, and (c) a meeting of the holders of all classes and series of EyeSys
Stock (including the Series A Preferred Stock and Series B Preferred Stock). The
presence, whether in person or by proxy, of a majority of the votes eligible to
be cast is necessary to constitute a quorum at the EyeSys Special Meeting.
All classes and series of EyeSys Stock, voting as a single class, must
approve each of the EyeSys Merger Proposals. Each share of EyeSys Common Stock
will be entitled to one vote, each share of Series A Preferred Stock will be
entitled to 1.95 votes and each share of Series B Preferred Stock will be
entitled to 1.115 votes on each of the EyeSys Merger Proposals. The affirmative
vote of a majority of the votes entitled to be cast at the EyeSys Special
Meeting is required to approve each of the EyeSys Merger Proposals.
Holders of Series A Preferred Stock will vote as a separate class on approval
of EyeSys Merger Proposal 1. Each share of Series A Preferred Stock will be
entitled to one vote . The affirmative vote of a majority of the shares of
Series A Preferred Stock outstanding (50,893 shares of Series A Preferred Stock)
is required to approve EyeSys Merger Proposal 1. Holders of Series B Preferred
Stock will vote as a separate class on approval of each of the EyeSys Merger
Proposals. Each share of Series B Preferred Stock will be entitled to one vote.
The affirmative vote of not less than 67% of the shares of Series B Preferred
Stock outstanding (3,318,528 shares of Series B Preferred Stock) is required to
approve each of the EyeSys Merger Proposals. In addition, as a condition to
consummation of the Merger, holders of a majority of the principal amount of the
EyeSys Notes outstanding prior to conversion by the Converting Noteholders shall
have approved each of the EyeSys Merger Proposals.
As of the EyeSys Record Date, the directors and executive officers of EyeSys,
together with their respective affiliates, held EyeSys Stock representing 28% of
the EyeSys Common Stock outstanding and 96% of the Series B Preferred Stock
outstanding. With respect to the vote of all classes and series of EyeSys Stock
voting as a single class, such EyeSys Stock represents 68% of the votes entitled
to be cast.
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Revocability of Proxies
If a person who has executed and returned a proxy is present at the meeting
and wishes to vote in person, such person may elect to do so and thereby suspend
the power of the proxy holders to vote such proxy. A proxy also may be revoked
before it is exercised by filing with the Secretary of EyeSys a duly signed
revocation or a proxy bearing a later date.
Solicitation
Sunrise will bear the cost of preparing this Joint Proxy
Statement/Prospectus. Other costs of soliciting proxies from EyeSys stockholders
will be borne by EyeSys. Copies of solicitation materials will be furnished to
banks, brokerage houses, fiduciaries and custodians holding in their names
shares of EyeSys Stock beneficially owned by others to forward to such
beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone, facsimile, telegram or personal solicitation by directors,
officers or other regular employees of EyeSys. No additional compensation will
be paid to such persons for such services.
Appraisal Rights
Under Section 262 of the Delaware Law ("Section 262"), holders of EyeSys
Stock are entitled to appraisal rights in connection with the Merger.
If the Merger is consummated, holders of EyeSys Stock who (i) hold such
shares of record on the date of making a written demand for appraisal as
described below, (ii) continuously hold such shares through the Effective Time,
and (iii) otherwise comply fully with the procedures prescribed in Section 262
will be entitled to a judicial determination of the "fair value" of their shares
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) and to receive from the Company payment of such fair
value in cash.
Shares of EyeSys Stock which are outstanding immediately prior to the
Effective Time with respect to which appraisal shall have been properly demanded
in accordance with Section 262 shall not be converted into the right to receive
shares of Sunrise Stock in the Merger at or after the Effective Time unless and
until the holder of such shares withdraws his or her demand for such appraisal
or becomes ineligible for such appraisal.
Under Section 262, EyeSys is required to notify each stockholder eligible for
appraisal rights of the availability of such appraisal rights not less than 20
days prior to the EyeSys Special Meeting. This Proxy Statement/Prospectus
constitutes notice to holders of EyeSys Stock that appraisal rights are
available to them.
The following is a brief summary of the statutory procedures to be followed
by a holder of EyeSys Stock in order to perfect appraisal rights under the
Delaware Law. This summary is not intended to be complete and is qualified in
its entirety by reference to Section 262, a copy of which is attached hereto as
Appendix B and is incorporated herein by reference. Any EyeSys Stockholder
considering demanding appraisal of shares owned is advised to read the full text
of Section 262 contained in Appendix B and to consult legal counsel.
If any EyeSys stockholder elects to exercise such stockholder's appraisal
rights, such stockholder must satisfy each of the following conditions:
(i) A written demand for appraisal of shares of EyeSys Stock must be
delivered to EyeSys by any holder thereof seeking appraisal before the taking
of the vote on the Merger at the EyeSys Special Meeting. Such demand must
reasonably inform EyeSys that the stockholder intends thereby to demand
appraisal of his shares. Merely voting against, or failing to vote in favor
of, the approval of the Merger Agreement and the Merger will not constitute a
demand for appraisal within the meaning of Section 262.
(ii) Stockholders electing to exercise their appraisal rights under
Section 262 must not vote for approval of the Merger. A failure to vote will
satisfy this condition. If, however, a stockholder votes for approval and
adoption of the Merger Agreement and the Merger or returns a signed proxy but
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does not specify a vote against the approval of the Merger, or a direction to
abstain, the proxy will be voted for the approval of the Merger, which will
have the effect of waiving such stockholder's appraisal rights.
(iii) Such stockholder must continually hold such shares from the date of
the making of the demand through the Effective Time of the Merger.
(iv) A demand for appraisal must be executed by or for the EyeSys
Stockholder of record, fully and correctly, as such stockholder's name
appears on the stock certificates. If EyeSys Stock is owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, such demand
must be executed by the fiduciary. If EyeSys Stock is owned of record by more
than one person, as in a joint tenancy or tenancy in common, such demand must
be executed by all joint owners. An authorized agent, including an agent for
two or more joint owners, may execute the demand for appraisal for a
stockholder of record so long as the agent identifies the record owner and
expressly discloses the fact that, in exercising the demand, such agent is
acting as agent for the record owner.
A record owner who holds EyeSys Stock as a nominee for others may exercise
appraisal rights with respect to the shares held for all or fewer than all
beneficial owners of shares of EyeSys Stock as to which the holder is the record
owner. In such case, the written demand must set forth the number of shares
covered by such demand. Where the number of shares is not expressly stated, the
demand will be presumed to cover all shares of EyeSys Stock outstanding in the
name of such record owner. Beneficial owners who are not record owners and who
intend to exercise appraisal rights should instruct the record owner to comply
strictly with the statutory requirements with respect to the delivery of written
demand for appraisal. A demand for appraisal submitted by a beneficial owner who
is not the record owner will not be honored.
If any EyeSys stockholder fails to comply with any of the conditions of
Section 262 and the Merger becomes effective, such stockholder will be entitled
to receive the consideration provided for in the Merger Agreement, but will have
no appraisal rights with respect to such stockholder's EyeSys Stock.
A holder of EyeSys Stock who elects to exercise appraisal rights must mail or
deliver the written demand for appraisal to EyeSys Technologies, Inc., 2776
Bingle Road, Houston, Texas, 77055, Attention: Corporate Secretary. The written
demand for appraisal should specify the stockholder's name and mailing address
and the number of shares of EyeSys Stock covered by the demand, and should state
that the stockholder is thereby demanding appraisal in accordance with Section
262.
Within ten days after the Effective Time, EyeSys must provide notice as to
the date of effectiveness of the Merger to each EyeSys Stockholder who has duly
and timely delivered demands for appraisal and otherwise complied with Section
262 (a "Dissenting Holder").
Within 120 days after the Effective Time, any Dissenting Holder is entitled,
upon written request, to receive from EyeSys a statement setting forth the
aggregate number of shares not voted in favor of the Merger and with respect to
which demands for appraisal have been received by EyeSys, and the number of
holders of such shares. Such statement must be mailed within ten days after the
written request therefor has been received by EyeSys.
Within 120 days after the Effective Time, EyeSys or any Dissenting Holder may
file a petition in the Delaware Court of Chancery demanding a determination of
the fair value of each share of EyeSys Stock. If a petition for an appraisal is
timely filed, after a hearing on such petition, the Delaware Court of Chancery
will determine which holders of EyeSys Stock are entitled to appraisal rights
and thereafter will appraise the shares of EyeSys Stock owned by such
stockholders, determining the fair value of such shares, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest to be paid, if any, upon the amount
determined to be fair value. In determining fair value, the Delaware Court of
Chancery is to take into account all relevant factors.
Holders of EyeSys Stock considering whether to seek appraisal should bear in
mind that the fair value of their EyeSys Stock determined under Section 262
could be more than, the same as or less than the value of the consideration to
be paid pursuant to the Merger, and that an opinion of an investment banking
firm as to fairness from a financial point of view is not necessarily an opinion
as to fair value under Section 262.
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The cost of the appraisal proceeding may be determined by the Delaware Court
of Chancery and assessed upon the parties as the Delaware Court of Chancery
deems equitable in the circumstances. Upon application of a Dissenting Holder,
the Delaware Court of Chancery may order that all or a portion of the expenses
incurred by any Dissenting Holder in connection with the appraisal proceeding,
including without limitation, reasonable attorneys' fees and the fees and
expenses of experts, be charged pro rata against the value of all shares
entitled to appraisal. In the absence of such a determination or assessment,
each party bears its own expenses.
A Dissenting Holder who has duly demanded appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote for any
purpose the EyeSys Stock subject to such demand or to receive payment of
dividends or other distributions on such EyeSys Stock except for dividends or
other distributions payable to stockholders of record at a date prior to the
Effective Time.
At any time within 60 days after the Effective Time, any Dissenting Holder
may withdraw his or her demand for appraisal and accept the consideration to be
paid under the Merger Agreement without interest. After this period, a
Dissenting Holder may withdraw his or her demand for appraisal only with the
consent of EyeSys. If no petition for appraisal is filed with the Delaware Court
of Chancery within 120 days after the Effective Time of the Merger, Dissenting
Holders' rights to appraisal shall cease and they shall be entitled to receive
the consideration to be paid under the Merger Agreement without interest.
Inasmuch as EyeSys has no obligation or intention to file such a petition, any
holder of EyeSys Stock who desires such a petition to be filed is advised to
file it on a timely basis. No petition timely filed in the Delaware Court of
Chancery demanding appraisal shall be dismissed as to any EyeSys Stockholder
without the approval of the Delaware Court of Chancery, and such approval may be
conditioned upon such terms as the Delaware Court of Chancery deems just.
Failure to take any required step in connection with the exercise of
appraisal rights may result in the termination or waiver of such rights.
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THE MERGER AND RELATED TRANSACTION
GENERAL
The following is a summary of certain aspects of the Merger. This summary
does not purport to be complete and is qualified in its entirety by reference to
the Merger Agreement, which is attached to this Joint Proxy Statement/Prospectus
as Appendix A. Sunrise and EyeSys stockholders are urged to review the entire
Merger Agreement carefully.
At the Effective Time, Merger Sub will be merged with and into EyeSys. The
corporate existence of Merger Sub will cease and EyeSys will become a wholly
owned subsidiary of Sunrise. Also at the Effective Time, Sunrise will issue the
Cowen Shares and will repay on behalf of EyeSys approximately $60,000 of
stockholder indebtedness currently on the books of EyeSys (not including any
indebtedness evidenced by EyeSys Notes).
MANNER AND BASIS OF CONVERTING SECURITIES
The capitalization of EyeSys consists of EyeSys Common Stock, Series A
Preferred Stock and Series B Preferred Stock. In addition, EyeSys has
outstanding EyeSys Options, EyeSys Warrants and EyeSys Notes. Allocation of the
Merger Shares to the holders of such securities will be based upon the greater
of (a) the average of the closing bid prices of the Sunrise Stock, on a per
share basis, over the five (5) day period ending three business days prior to
the closing of the Merger Agreement (previously defined as the "Average Stock
Price"), and (b) $1.25 per share (the greater of (a) and (b), previously defined
as the "Deemed Sunrise Stock Value").
As a condition to consummation of the Merger, holders of at least 85% of
principal on the EyeSys Notes outstanding as of the date of the Merger
Agreement, in accordance with the terms of the EyeSys Notes, shall have
converted all of their EyeSys Notes and Interest thereon into EyeSys Common
Stock at the product of the Deemed Sunrise Stock Value and the Common Stock
Conversion Rate. Each holder of an EyeSys Note, other than a Converting
Noteholder, shall be entitled to receive such number of Merger Shares as is
determined by dividing (i) the outstanding Principal of such holder's EyeSys
Note immediately prior to the Effective Time plus the Contingency Payment (two
times the Principal) plus accrued and unpaid Interest on such EyeSys Note
through the Effective Time, by (ii) the Deemed Sunrise Stock Value. As of the
date hereof, the aggregate principal amount of EyeSys Notes outstanding is
$2,999,993, of which Affiliated Noteholders hold an aggregate principal amount
of approximately $2,639,993, or 88% of the outstanding EyeSys Notes. Assuming
conversion of EyeSys Notes into EyeSys Common Stock by all of the Affiliated
Noteholders, but not by any other EyeSys Noteholders, between the date hereof
and the Effective Time and assuming an Effective Time of February 28, 1997,
pursuant to the Merger, the Nonconverting Noteholders will have the right to
receive in the aggregate a maximum of 889,443 Merger Shares.
Each share of Series B Preferred Stock shall be converted into the right to
receive such number of Merger Shares as is determined by adding (a) the Series B
Preference divided by the Deemed Sunrise Stock Value and (b) the Series B
Participation. Prior to any allocation of Merger Shares to holders of Series A
Preferred Stock or EyeSys Common Stock Equivalents, Merger Shares having a value
of $1.26 plus accumulated but unpaid Dividends on the Series B Preferred Stock
shall be allocated to each share of Series B Preferred Stock (previously defined
as the "Series B Preference"). Following the allocation of Merger Shares to
cover the Series A Preference and the Warrant Preference, holders of Series B
Preferred Stock shall participate in the allocation to holders of other EyeSys
Common Stock Equivalents based on the Series B Conversion Rate. Such allocation
to each share of Series B Preferred Stock (previously defined as the "Series B
Participation") shall be determined by multiplying (i) the number of shares of
EyeSys Common Stock into which each share of Series B Preferred Stock is
convertible by (ii) the Common Stock Conversion Rate. As of the date hereof, an
aggregate of 4,953,026 shares of Series B Preferred Stock are outstanding and
the Series B Conversion Rate is 1.115 shares. Assuming no conversion of Series B
Preferred Stock into EyeSys Common Stock and no exercise of EyeSys Preferred
Warrants between the date hereof and the Closing and assuming the Closing occurs
as of February 28, 1997, pursuant to the Merger, the holders of the Series B
Preferred Stock will have the right to receive in the aggregate a maximum of
7,035,435 Merger Shares.
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Holders of EyeSys Preferred Warrants, because they do not hold the underlying
Series B Preferred Stock, are not entitled to dividends on such Series B
Preferred Stock. However, pursuant to the Merger, such holders are entitled to
receive the Warrant Preference. The number of shares of Sunrise Stock underlying
the Sunrise Warrant that is substituted for an EyeSys Preferred Warrant shall
include shares of Sunrise Stock attributable to the Warrant Preference. As of
the date hereof, EyeSys Preferred Warrants to purchase an aggregate of 134,921
shares of Series B Preferred Stock are outstanding and the exercise price of
such warrants is $1.26 per share. The maximum number of Merger Shares that will
be allocated to the Warrant Preference pursuant to the Merger is 136,000.
Each share of Series A Preferred Stock shall be converted into the right to
receive such number of Merger Shares as is determined by dividing the Series A
Preference by the Deemed Sunrise Stock Value. Prior to any allocation of Merger
Shares to holders of EyeSys Common Stock Equivalents, Merger Shares having a
value of $7.00 shall be allocated to each share of Series A Preferred Stock
(previously defined as the "Series A Preference"). As of the date hereof, an
aggregate of 101,784 shares of Series A Preferred Stock are outstanding.
Assuming no conversion of Series A Preferred Stock into EyeSys Common Stock
between the date hereof and the Effective Time, the holders of Series A
Preferred Stock will have the right to receive in the aggregate a maximum of
569,990 Merger Shares.
The Merger Shares remaining after allocation of Merger Shares to satisfy (i)
the rights of the Nonconverting Noteholders, (ii) the Series B Preference, (iii)
the Warrant Preference, (iv) the Series A Preference and (v) payment of the
Cowen Shares (previously defined as the "Remaining Merger Shares") shall be
allocated to the holders of EyeSys Common Stock, Series B Preferred Stock,
EyeSys Options and EyeSys Warrants, based on the Common Stock Conversion Rate.
For purposes of allocating Merger Shares, the number of EyeSys Common Stock
Equivalents shall be determined by adding the number of shares of EyeSys Common
Stock (a) outstanding as of the Closing, including shares of EyeSys Common Stock
issuable to Converting Noteholders, (b) issuable pursuant to the exercise of
EyeSys Options and EyeSys Common Warrants, (c) into which the Series B Preferred
Stock is convertible immediately prior to the Merger, and (d) into which the
Series B Preferred Stock underlying the EyeSys Preferred Warrants would have
been convertible had the EyeSys Preferred Warrants been exercised. The EyeSys
Common Stock Equivalents shall share the Remaining Merger Shares on a pro rata
basis, except that holders of EyeSys Common Stock and Series B Preferred Stock
shall be entitled to receive Merger Shares and holders of EyeSys Options and
EyeSys Warrants shall receive Merger Options. Therefore, the Common Stock
Conversion Rate shall be equal to the number of Remaining Merger Shares divided
by the number of EyeSys Common Stock Equivalents. Assuming no conversion of
Series B Preferred Stock or Series A Preferred Stock into EyeSys Common Stock
between the date hereof and the Effective Time and assuming an Effective Time of
February 28, 1997, the Common Stock Conversion Rate will be at least 0.195.
Accordingly, pursuant to the Merger, each share of EyeSys Common Stock, and each
EyeSys Common Stock Equivalent, shall be converted into the right to receive at
least 0.195 Merger Shares.
The following table sets forth certain information regarding the conversion
of the securities of EyeSys pursuant to the Merger, assuming an Effective Time
of February 28, 1997. This information is provided solely to illustrate
potential results of the Merger and does not reflect Sunrise's or EyeSys'
projections as to the future value, market price or range of the Sunrise Stock.
MERGER SHARES ISSUABLE TO
--------------------------------------------------------------
NON-CONVERTING SERIES B SERIES A EYESYS
NOTEHOLDERS PREFERRED PREFERRED COMMON
DEEMED SUNRISE (PER $1,000 STOCKHOLDERS STOCKHOLDERS STOCKHOLDERS
STOCK VALUE($) FACE VALUE) (PER SHARE) (PER SHARE) (PER SHARE)(1)
- --------------- -------------- ------------- ------------- --------------
1.25 2,470 1.42 5.60 0.195
1.75 1,764 1.35 4.00 0.435
2.25 1,372 1.30 3.11 0.569
- ----------
(1) Also applies to EyeSys Common Stock issuable to Converting Noteholders.
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Notwithstanding the foregoing, any shares of EyeSys Stock held by a
Dissenting Holder will not be converted into Merger Shares, but instead will be
purchased by Sunrise for its "fair value," as determined in accordance with
Delaware Law. See "Special Meetings--EyeSys Special Meeting--Appraisal Rights."
TREATMENT OF OPTIONS AND WARRANTS
Sunrise will substitute Sunrise Options and Sunrise Warrants, respectively,
for all EyeSys Options and EyeSys Common Warrants outstanding as of the
Effective Time, based on the Common Stock Conversion Rate. The exercise price of
each Merger Option shall be the exercise price of the EyeSys Option or EyeSys
Common Warrant surrendered divided by the Common Stock Conversion Rate. For
example, if the Common Stock Conversion Rate is 0.25, a holder of an EyeSys
Option to purchase 1,000 shares of EyeSys Common Stock for $0.50 per share shall
receive, pursuant to the Merger, a Merger Option to purchase 250 shares of
Sunrise Stock for $2.00 per share.
Sunrise will substitute Sunrise Warrants for all EyeSys Preferred Warrants
outstanding as of the Effective Time, based on the Series B Conversion Rate, the
Common Stock Conversion Rate and the Warrant Preference. The number of shares of
Sunrise Stock underlying each Sunrise Warrant shall be equal to the number of
shares of Series B Preferred Stock underlying the EyeSys Preferred Warrant
surrendered multiplied by the sum of (a) the Series B Conversion Rate multiplied
by the Common Stock Conversion Rate (representing the participation portion of
the warrant) and (b) the Warrant Preference per share divided by the Deemed
Sunrise Stock Value (representing the preference portion of the warrant). For
example, if the Series B Conversion Rate is 1.115, the Common Stock Conversion
Rate is 0.195 and the Deemed Sunrise Stock Value is $1.25 per share, a holder of
an EyeSys Preferred Warrant to purchase 10,000 shares of Series B Preferred
Stock for $1.26 per share shall receive, pursuant to the Merger, a Sunrise
Warrant to purchase 12,254 shares of Sunrise Stock for approximately $1.03 per
share.
Sunrise will substitute Unvested Sunrise Options for all options to purchase
EyeSys Common Stock that are not vested at the time of the Merger, based on the
Common Stock Conversion Price. The vesting schedules applicable to the Unvested
EyeSys Options shall apply to the Unvested Sunrise Options.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to certain conditions, including
without limitation: (a) approval of the EyeSys Merger Proposals; (b) approval of
the Sunrise Merger Proposals; (c) agreement of Silicon Valley Bank or another
lender acceptable to Sunrise to continue the Silicon Valley Bank Loan Agreement,
dated as of March 31, 1995, as amended, pursuant to which Silicon Valley Bank
agreed to loan EyeSys up to $2,100,000 (the "Loan Agreement"), for at least one
year following the Effective Time, at advance rates no greater than those
specified in the Loan Agreement, with such adjustments to the loan covenants as
reflect the merged companies and as are acceptable to Sunrise; (d) consummation
of a financing by Sunrise that has produced the greater of (i) $1,700,000 in
cash or liquid assets and (ii) sufficient cash or liquid assets to pay
Transaction Costs (as defined in the Merger Agreement) and certain other costs
related to the Merger and to cover the reasonably anticipated working capital
requirements of Sunrise and EyeSys for at least three (3) months after the
Effective Time; (e) execution of a binding agreement for the Asset Sale to Lares
or another purchaser, for a cash purchase price of at least $4,000,000, which
sale shall be (i) expected to close within 90 days of the Effective Time and
(ii) not subject to any financing contingency, unless such contingency has been
waived by the purchaser thereunder; (f) execution of all of the Lock-Up
Agreements; (g) conversion of at least 85% of the EyeSys Notes outstanding as of
the date of the Merger Agreement into EyeSys Common Stock, and (g) declaration
of effectiveness of the Registration Statement by the Commission.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The boards of directors of Sunrise and EyeSys have unanimously recommended to
their respective stockholders adoption of the Merger Agreement and approval of
the transactions contemplated thereby. In considering such recommendations,
stockholders should be aware that certain officers and directors of
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Sunrise and EyeSys may have substantial interests in the Merger, separate from
their interests arising from their ownership of securities of Sunrise or EyeSys.
Upon consummation of the Merger, it is expected that James Crawford, III, a
director of EyeSys, will be appointed to the board of directors of Sunrise, and
that David W. Light and C. Russell Trenary, III, executive officers of Sunrise,
will become executive officers of EyeSys.
Merger Shares acquired by persons that are affiliates (within the meaning of
Rule 145 under the Securities Act) of EyeSys immediately prior to the Effective
Time will be registered by Sunrise under the Securities Act as soon as
practicable following the expiration of the Lock-Up Agreements.
As of the Sunrise Record Date, directors and officers of Sunrise and their
affiliates have the right to vote approximately 3% of the outstanding shares of
Sunrise Stock eligible to vote at the Sunrise Special Meeting. Each of such
persons has indicated its intent to vote or direct the vote of all of the
outstanding shares of Sunrise Stock over which such person has voting control in
favor of adoption of the Merger Agreement and other Sunrise Merger Proposals.
As of the EyeSys Record Date, directors and officers of EyeSys and their
affiliates have the right to vote approximately 68% of the EyeSys Voting Shares
and approximately 96% of the Series B Preferred Stock eligible to vote at the
EyeSys Special Meeting. Each of such persons has indicated its intent to vote or
direct the vote of all of the outstanding shares of EyeSys Stock over which such
person has voting control in favor of adoption of the Merger Agreement and
amendment of the EyeSys Certificate of Incorporation.
RESTRICTIONS ON RESALES OF MERGER SHARES
LOCK-UP AGREEMENTS
Each holder of EyeSys Stock that will be entitled to receive pursuant to the
Merger more than 125,000 Merger Shares will enter into a lock-up agreement with
Sunrise which will (i) prohibit for 90 days following the Effective Time the
sale of any Merger Shares and (ii) limit monthly sales of Merger Shares during
the following nine-month period to 50,000 shares.
RESALES BY AFFILIATES OF EYESYS
Merger Shares issued to any person, other than an "affiliate" of EyeSys or
Sunrise, generally will be freely tradable, in the over-the-counter market and
otherwise. A person is an "affiliate" of a company if the person directly, or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with such company. Generally, officers, directors and
significant stockholders of a company are deemed to be affiliates of the
company.
Merger Shares issued to any person who may be deemed to be an "affiliate" of
EyeSys may not be sold by such persons except (a) pursuant to an effective
registration statement under the Securities Act covering resale of such Merger
Shares, or (b) pursuant to an applicable exemption from registration under the
Securities Act. In addition, affiliates of EyeSys may be able to resell Merger
Shares pursuant to the exemption from registration provided by Rule 145 under
the Securities Act.
In order for resales of Merger Shares to be made under Rule 145 within the
first two years following the Effective Time, the following conditions must be
met:
(a) at the time of the proposed sale, Sunrise is current in filing the
reports required to be filed by it under the Exchange Act ("Exchange Act
Reports");
(b) the number of Merger Shares to be sold, together with all other sales
of Sunrise Stock by or for the account of the selling person within the
preceding three months, does not exceed one percent of the shares of Sunrise
Stock outstanding (as shown in the most recent report or statement published
by Sunrise);
(c) the Merger Shares are sold in a "brokers' transaction," within the
meaning of Section 4(4) of the Securities Act or in one or more transactions
directly with a "market maker," as that term is defined in Section 3(a)(38)
of the Exchange Act; and
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(d) the person selling the Merger Shares shall not (i) solicit or arrange
for the solicitation of orders to buy Sunrise Stock in connection with the
offer or sale of Merger Shares or (ii) make any payment in connection with
the transaction to any person other than the broker who executes the order to
sell the Merger Shares.
Under the current rules of the Commission, beginning two years after the
Effective Time, Merger Shares may be sold under Rule 145 by persons who were
affiliates of EyeSys at the time of the Merger so long as, at the time of the
proposed sale, (a) Sunrise is current in filing its Exchange Act Reports, and
(b) the person selling Merger Shares is not an affiliate of Sunrise. Under the
current rules of the Commission, beginning three years after the Effective Time,
Merger Shares may be sold under Rule 145 by persons who were affiliates of
EyeSys at the time of the Merger so long as such person is not, and has not been
for at least three months, an affiliate of Sunrise.
REGISTRATION RIGHTS
Sunrise has agreed to file a registration statement, as soon as practicable
following termination of the Lock-Up Agreements, relating to the resale of those
Merger Shares and shares of Sunrise Stock acquired pursuant to Merger Options
that had been subject to the Lock-Up Agreements that are held by affiliates of
Sunrise or persons who had been affiliates of EyeSys. In addition, Sunrise shall
include shares issuable pursuant to the exercise of Sunrise Warrants on any
registration statement it may file during 1997 in connection with a private
placement of Sunrise Stock that occurs after the Closing; provided, however,
that any such registration statement will not include any shares subject to the
Lock-Up Agreements. If the shares underlying the Sunrise Warrants are not
registered during 1997, then within a reasonable period of time after March 31,
1998, Sunrise will file a registration statement relating to such shares of
Sunrise Stock.
INDEMNIFICATION; ESCROW AGREEMENT
Pursuant to the Merger Agreement, all of the representations and warranties,
covenants and agreements of EyeSys under the Merger Agreement ("EyeSys
Obligations") shall survive the Closing for a period of at least twelve (12)
months. No claim for indemnification for breach of an EyeSys Obligation may be
commenced by Sunrise after first anniversary of the Closing; however, if a claim
is made prior to such date, the representations and warranties at issue and the
claim shall survive until the claim is finally determined and, if applicable,
shares are released in settlement of such determination.
In order to secure the indemnification obligations of the EyeSys stockholders
and noteholders under the Merger Agreement, twenty percent (20%) of the Merger
Shares issuable to holders of EyeSys Stock and EyeSys Notes at the Effective
Time shall be held in escrow ("Escrow Shares"). Assuming no exercise of EyeSys
Options or EyeSys Warrants between the date hereof and the Closing and assuming
no dissenting shares, approximately 2,300,000 Merger Shares will be Escrow
Shares. By approving the Merger Agreement and accepting the Merger Shares, the
EyeSys stockholders and noteholders agree that the Escrow Shares shall be
available to indemnify, defend, protect and hold harmless each of Sunrise,
Merger Sub and EyeSys, as the surviving corporation, and any of their respective
affiliates ("Indemnified Persons") from and against any and all Losses (as
defined in the Merger Agreement) that any Indemnified Person shall incur or
suffer and which arise from or are attributable to any breach, inaccuracy or
failure of EyeSys to perform any EyeSys Obligations.
The aggregate liability of the EyeSys stockholders with respect to the
matters set forth above shall not exceed the Escrow Shares, and all claims for
indemnification shall be paid solely from the escrow account. To the extent that
an Indemnified Person makes a claim against the escrow account pursuant to the
Escrow Agreement, and such claim is paid in Escrow Shares, then for purposes of
such payment, the Escrow Shares shall be valued at the greater of (a) $1.40 and
(b) the average of the closing bid price of Sunrise Stock as reported on the OTC
Bulletin Board (or other over-the-counter quotation system), on a per share
basis, over the 30-day period ending three (3) business days prior to the date
Escrow Shares are to be released.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Thelen, Marrin, Johnson & Bridges, counsel to Sunrise, the
following discussion describes the material United States federal income tax
consequences of the Merger to holders of EyeSys Stock and EyeSys Notes ("EyeSys
Securities") that hold such securities as capital assets.
This section is a summary of certain United States federal income tax
considerations that may be relevant to holders of EyeSys Securities that are
exchanged for Merger Shares. The discussion does not address the federal income
tax consequences of the conversion of EyeSys Options or EyeSys Warrants. The
section represents the opinion of Thelen, Marrin, Johnson & Bridges insofar as
it relates to matters of law and legal conclusions. This section is based on the
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change, possibly with
retroactive effect. Subsequent changes may cause the tax consequences to vary
materially from the consequences described below.
No attempt has been made in the following discussion to comment on all United
States federal income tax matters affecting holders of EyeSys Securities.
Moreover, the discussion does not address the circumstances of certain types of
holders subject to special treatment under federal income tax law (for example,
dealers in securities, banks, tax exempt organizations, insurance companies and
stockholders who acquired their shares through the exercise of options or
otherwise as compensation or through a tax-qualified retirement plan).
Accordingly, each holder of EyeSys Stock or EyeSys Notes should consult, and
should depend upon, his or her own tax adviser in analyzing the federal, state,
local and foreign tax consequences of the Merger.
Conversion of EyeSys Notes
The conversion of EyeSys Notes into EyeSys Common Stock pursuant to the
conversion right provided in the Eyesys Notes will be a non-taxable transaction,
except to the extent that EyeSys Common Stock is received in payment of accrued
interest on the Eyesys Notes. EyeSys Common Stock received in payment of accrued
interest on the Eyesys Notes will be taxable as ordinary income.
The tax basis of EyeSys Common Stock received in a non-taxable transaction in
exchange for EyeSys Notes will be equal to the tax basis of the EyeSys Notes
surrendered, and the holding period of such stock will include the holding
period of such Eyesys Notes. The tax basis of EyeSys Common Stock received in
payment of interest on the Eyesys Notes will be equal to the fair market value
of such stock at the time received, and the holding period of such stock will
begin at the time of receipt.
EXCHANGE OF EYESYS COMMON AND PREFERRED STOCK FOR SUNRISE COMMON STOCK
If at least 80% of the EyeSys Stock is exchanged for Sunrise Stock in
accordance with the Merger Agreement, the merger of Merger Sub with and into
EyeSys will be a reorganization within the meaning of Code sections 368(a)(1)(A)
and 368(a)(2)(E). Each of Sunrise, Merger Sub and EyeSys will be a party to the
reorganization. Accordingly:
(1) No gain or loss will be recognized on the exchange of EyeSys Common
Stock, Series A Preferred Stock or Series B Preferred Stock for Sunrise
Stock;
(2) The tax basis of the Sunrise Stock in the hands of a former EyeSys
stockholder will be equal to the basis of the EyeSys Stock surrendered in
exchange therefor; and
(3) The holding period of the Sunrise Stock in the hands of a former
EyeSys stockholder will include the holding period of the EyeSys Stock
exchanged therefor, provided that the EyeSys Stock was held as a capital
asset at the time of the Merger.
EXCHANGE OF EYESYS NOTES FOR SUNRISE COMMON STOCK
a) Accrued Interest and Original Issue Discount
The fair market value of Sunrise Stock received in payment of accrued
interest will be treated as interest income to the holders. In addition, the
fair market value of any Sunrise Stock received in
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satisfaction of the Contingency Payment provisions of the EyeSys Notes will be
treated as interest income to the holders pursuant to the original issue
discount provisions of sections 1271-1275 of the Code. The tax basis of Sunrise
Stock treated as interest income will be the fair market value of such stock at
the time of the Merger. The holding period of such stock will begin at the time
of the Merger.
b) Exchange treatment
The tax consequences of the exchange of EyeSys Notes for Sunrise Stock (other
than Sunrise Stock treated as interest income) will depend on whether the EyeSys
Notes constitute "securities" for federal income tax purposes. If the EyeSys
Notes are "securities" for such purposes, no gain or loss will be recognized on
the exchange of such EyeSys Notes for Sunrise Stock (other than Sunrise Stock
treated as interest income) pursuant to the Merger. In such event, the tax basis
of the Sunrise Stock so received will be equal to the tax basis of the EyeSys
Notes exchanged, and the holding period of the Sunrise Stock so received will
include the holding period of the EyeSys Notes exchanged, provided that the
EyeSys Notes were held as capital assets. If the EyeSys Notes are not
"securities" for federal income tax purposes, gain or loss will be recognized on
the exchange in an amount equal to the difference between the tax basis of the
EyeSys Notes surrendered and the fair market value of the Sunrise Stock received
in exchange therefor (other than Sunrise Stock treated as interest income). In
such event, the tax basis of the Sunrise Stock in the hands of an exchanging
EyeSys Note holder will be equal to the fair market value of the Sunrise Stock
on the date of the exchange, and the holding period of the Sunrise Stock will
begin on the date of the exchange.
Whether a debt instrument constitutes a security for the purpose of the
reorganization provisions of the Internal Revenue Code is determined under case
law based on all of the facts and circumstances. In general, notes having a term
of less than five years are not considered to be securities for federal income
tax purposes. However, some cases have considered factors other than the term of
the notes in classifying instruments as securities. Such factors have included
the nature of the debt, the degree of participation by the note holders in the
business of the corporation, the extent of proprietary interest compared with
the similarity of the note to a cash payment and the purpose of the advances.
Because the issue turns in part on facts and circumstances existing at the time
holders acquired the EyeSys Notes and counsel to Sunrise lacks information
regarding those facts and circumstances, counsel cannot express an opinion as to
whether the EyeSys Notes will be treated as securities for tax purposes.
Accordingly, each holder of EyeSys Notes should consult his or her own tax
adviser on this issue.
RECEIPT OF DISPROPORTIONATE CONSIDERATION
In Rev. Rul. 73-233, 1973-1 C.B. 179, the Internal Revenue Service held that
the exchange of shares pursuant to a corporate merger was taxable to the extent
that the majority stockholder of the acquired corporation allowed the minority
stockholders to receive an amount of stock in the surviving corporation that was
disproportionate to their pre-merger ownership of stock of the acquired
corporation. The stated purpose for the majority stockholder's action was to
induce the minority stockholders to vote in favor of the merger. Although
counsel to Sunrise believes that Rev. Rul. 73-233 should not apply to the
exchanges made pursuant to the Merger, it is possible that the Internal Revenue
Service could take a contrary position. Accordingly, each holder of EyeSys
Securities should consult his or her own tax adviser regarding the potential
application of Rev. Rul. 73-233 to the holder's situation.
APPRAISAL RIGHTS
A holder of EyeSys Stock who perfects appraisal rights under Delaware law and
receives solely cash in exchange for EyeSys Stock will recognize taxable gain or
loss measured by the difference between the holder's basis in the EyeSys Stock
and the amount of cash received. Such gain or loss will be taxed as capital gain
or loss if the holder held the EyeSys Stock as a capital asset at the time of
the Merger.
ACCOUNTING TREATMENT
As required by generally accepted accounting principles and pursuant to APB
Opinion No. 16, "Business Combinations," the Merger will be accounted for under
the purchase method of accounting.
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The purchase price will be allocated to the tangible and intangible assets and
liabilities of the acquired business based on the relative fair values of such
assets and liabilities. Such allocations are subject to final determination,
which may differ from the values set forth in this document.
AMENDMENT AND TERMINATION
An amendment to the Merger Agreement may be made in writing, if signed by the
party against whom enforcement of such amendment is sought.
Notwithstanding adoption of the Merger Agreement by the stockholders of
Sunrise and EyeSys, the Merger Agreement may be terminated by written consent of
all of the parties at any time prior to the closing. In addition, any party may
terminate the Merger Agreement at any time prior to the Closing by delivery of
written notice to the other parties to the Merger Agreement if (1) EyeSys (in
the case of a termination by Sunrise) or Sunrise or Merger Sub (in the case of a
termination by EyeSys) has breached or violated the Merger Agreement and has
failed to cure such violation within the time specified in the Merger Agreement,
(2) any representation or warranty made by EyeSys (in the case of a termination
by Sunrise) or Sunrise or Merger Sub (in the case of a termination by EyeSys) is
false or inaccurate in any material respect or there is a material
misrepresentation or omission by EyeSys (in the case of a termination by
Sunrise) or Sunrise or Merger Sub (in the case of a termination by EyeSys), or
(3) the Closing has not occurred by February 28, 1997.
In the event of termination of the Merger Agreement, all of the parties shall
bear their own costs associated with the Merger Agreement and the transactions
contemplated thereby. Termination of the Merger Agreement shall not relieve any
party from any liability for a breach of the Merger Agreement prior to such
termination.
REASONS FOR THE MERGER
SUNRISE
Management of Sunrise believes that the Merger is in the best interests of
Sunrise and its stockholders. Based on its observations of and experience in the
high technology sector of the eye care industry, management believes that the
most successful companies are those that provide multiple technologies to a
specific market segment.
The target market for Sunrise's ophthalmologic systems generally is the same
as the target market for EyeSys systems. Mapping the cornea is a critical step
that must be taken prior to cornea shaping procedures and other corrective
treatments. Purchasers of EyeSys' corneal mapping technology, therefore, are
potential purchasers of Sunrise's laser cornea shaping technology. EyeSys
currently has an established marketing network and large customer base,
particularly outside the United States, where the Sunrise Corneal Shaping System
can be commercially sold. Accordingly, the Merger will immediately increase the
marketing and distribution networks for Sunrise's systems.
The Merger also will immediately increase the number of technologies that the
Company can offer to the combined customer base. Further, both EyeSys and
Sunrise are currently in the process of developing additional technologies and
systems.
Sunrise also expects to benefit from the economies of scale that the Merger
can provide. For example, EyeSys has an experienced, relatively low-cost
manufacturing facility in Houston, Texas, where following the Merger Sunrise
intends to consolidate manufacturing operations of the combined companies.
Consummation of the Merger is subject to approval by holders of a majority of
the shares of Sunrise Stock outstanding as of the Sunrise Record Date of each of
(a) the Sunrise Merger Proposal to amend the Sunrise Certificate to increase the
number of authorized shares of Sunrise Stock from 40,000,000 to 75,000,000, and
(b) the Sunrise Merger Proposal to adopt the New Stock Option Plan.
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THE BOARD OF DIRECTORS OF SUNRISE UNANIMOUSLY RECOMMENDS A VOTE FOR
EACH OF THE SUNRISE MERGER PROPOSALS.
EYESYS
In 1995, to respond to anticipated future demand related to projected growth
in the laser surgery industry, EyeSys invested heavily to develop its sales and
marketing channel. In early 1996, in part because anticipated growth in the PRK
laser industry had been slower than previously expected, the EyeSys Board of
Directors and EyeSys management determined that EyeSys would need to pursue a
strategy that would enable EyeSys to broaden its product offerings to more fully
leverage its distribution channel and also achieve profitability. At the same
time, EyeSys realized that future growth and product development was becoming
severely constrained by the requirement for additional capital resources. Under
these circumstances, the EyeSys Board of Directors discussed assessments made by
EyeSys management and suggested that the interests of EyeSys Stockholders might
best be served by some form of strategic transaction, including (i) the possible
sale of EyeSys, (ii) an initial public offering, or (iii) the possibility of
additional stockholder financings. The EyeSys Board of Directors also considered
the possible countervailing risks of consummating, or even seriously considering
or pursuing, any such transaction, including diversion of EyeSys management
resources, disruption of EyeSys' business which might be caused by uncertainty
regarding EyeSys' future among employees and the possible adverse impact upon
employees and customers served by EyeSys.
In March 1996, after further discussions with EyeSys management, the EyeSys
Board of Directors authorized EyeSys management to retain Cowen & Company to
initiate discussions with, and receive inquiries from, various companies which
either had expressed interest in or were likely to have an interest in acquiring
EyeSys or engaging in other possible transactions with EyeSys. Based upon
contacts with potential partners, four parties submitted initial indications of
interest in acquiring EyeSys, with two of these parties submitting final offers.
In reaching its unanimous decision to enter into and endorse the Merger
Agreement, the EyeSys Board reviewed and considered a number of relevant
factors. The factors considered included, but were not limited to: (i)
information concerning Sunrise's and EyeSys' respective businesses, current and
historical financial performance, operations, products, technologies and
management; (ii) the financial condition of the combined companies after the
Merger; (iii) the current financial market conditions and historical market
prices, volatility and trading information with respect to Sunrise Stock; (iv)
the publicly available information on Sunrise; (v) a review of other possible
merger candidates, their readiness to move to an offer, and estimates of their
valuation placed on EyeSys; (vi) the prospects of EyeSys continuing as an
independent company; (vii) alternative forms of growth financing, including an
initial public offering; (viii) the extensive marketing effort undertaken by
Cowen in connection with the sale of EyeSys; (ix) the terms and conditions of
the Merger, including the parties' representations, warranties and obligations
thereunder; (x) the consideration given to the stockholders of EyeSys including
a review of the fairness opinion presented by Cowen & Company; and (xi) the
effect of the Merger on the employees and customers of EyeSys.
The EyeSys Board of Directors believes that the Merger will be beneficial to
EyeSys for the additional following reasons: (i) there exists considerable
synergy in the strategic and technical plans of the two companies that will
provide both short and long term benefits including the possible integration of
EyeSys' corneal topography technology with the Sunrise Corneal Shaping System;
(ii) economies of scale may be achieved in marketing activities, including
advertising, tradeshows and other related activities of the combined companies;
(iii) there is a perceived compatibility of the corporate cultures of EyeSys and
Sunrise; and (iv) the receipt by EyeSys' stockholders of Sunrise Stock which is
publicly traded and therefore will provide an increase in liquidity.
The EyeSys Board of Directors considered a variety of potentially negative
factors in its deliberations concerning the Merger, including, but not limited
to: (i) the requirement by the combined company for additional financings and
the possibility that these financings may not be achieved; (ii) the future
dilutive
35
<PAGE>
effects of anticipated financings; (iii) the possibility that the Merger might
not be consummated and the effect of public announcement of the Merger on
EyeSys' operating results, customers and personnel; (iv) the uncertainty in
gaining FDA approval for the Sunrise Corneal Shaping System; (v) the lack of
significant revenues to be generated by the Sunrise Corneal Shaping system until
FDA approval for domestic marketing is obtained; (vi) the risks related to the
anticipated sale of Sunrise's dental business and the resultant market reaction
and effects on the market capitalization of Sunrise Stock; and (vii) the risks
associated with liquidity and volatility of Sunrise Stock.
In view of the wide variety of factors considered, both positive and
negative, the EyeSys Board of Directors did not find it practical to and did not
quantify or otherwise assign relative weights to the specific factors
considered. Although the EyeSys Board of Directors did not quantify specific
factors, the EyeSys Board of Directors did utilize a framework to evaluate each
of the alternatives and determined that the anticipated benefits of the Merger
outweighed the potentially negative factors considered.
Consummation of the Merger is subject to stockholder approval of each of the
following EyeSys Merger Proposals:
The EyeSys Merger Proposal to amend Section 4.2.4(b)(ii) of the EyeSys
Certificate to provide that the Merger Shares will be valued at the Deemed
Sunrise Stock Value must be approved by the affirmative vote of holders of (a) a
majority (4,621,278 shares) of the EyeSys Voting Shares, voting as one class,
(b) a majority (50,893 shares) of the 101,784 shares of Series A Preferred Stock
outstanding on the EyeSys Record Date, voting as a separate class, (c) at least
67% (3,318,528 shares) of the 4,953,026 shares of Series B Preferred Stock
outstanding on the EyeSys Record Date, voting as a separate class, and (d) a
majority of the principal amount of EyeSys Notes outstanding prior to conversion
by the Converting Noteholders.
The EyeSys Merger Proposal to amend Section 4.3.4(c) of the EyeSys
Certificate to provide that the Merger Shares will be valued at the Deemed
Sunrise Stock Value must be approved by the affirmative vote of holders of (a) a
majority (4,621,278 shares) of the EyeSys Voting Shares, voting as one class,
(b) at least 67% (3,318,528 shares) of the 4,953,026 shares of Series B
Preferred Stock outstanding as of the EyeSys Record Date, and (c) a majority of
the principal amount of EyeSys Notes outstanding prior to conversion by the
Converting Noteholders.
The EyeSys Merger Proposal to adopt the Merger Agreement and approve the
transactions contemplated thereby requires the affirmative vote of the holders
of (a) a majority (4,621,278 shares) of the EyeSys Voting Shares, voting as one
class, (b) at least 67% (3,318,528 shares) of the 4,953,026 shares of Series B
Preferred Stock outstanding as of the EyeSys Record Date, and (c) a majority of
the principal amount of EyeSys Notes outstanding prior to conversion by the
Converting Noteholders.
THE BOARD OF DIRECTORS OF EYESYS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE ADOPTION AND APPROVAL OF EACH OF THE EYESYS MERGER PROPOSALS.
OPINION OF FINANCIAL ADVISOR
Cowen & Company has acted as financial advisor to EyeSys in connection with
the Merger. Pursuant to an engagement letter dated March 5, 1996 (the "Cowen
Engagement Letter"), EyeSys retained Cowen to furnish financial advisory and
investment banking services with respect to assisting EyeSys in evaluating
strategic business alternatives, including the possible sale of EyeSys. As part
of this assignment, Cowen was asked to render an opinion to the Board of
Directors of EyeSys (the "EyeSys Board") as to the fairness, from a financial
point of view, to the holders of EyeSys Stock, of the consideration to be paid
to the holders of EyeSys Stock pursuant to the Merger Agreement. On December 20,
1996, Cowen delivered certain of its written analyses and its oral opinion to
the EyeSys Board, to the effect that, as of December 20, 1996, the consideration
to be received pursuant to the Merger Agreement, is fair, from a financial point
of view, to the holders of EyeSys Stock. THE FULL TEXT OF THE WRITTEN OPINION OF
COWEN, DATED DECEMBER 27, 1996, IS ATTACHED HERETO AS APPENDIX E. HOLDERS OF
EYESYS STOCK ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY
COWEN. THIS SUMMARY OF THE WRITTEN OPINION OF COWEN SET FORTH IN THE PROXY
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<PAGE>
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION. Cowen's analyses and opinion were prepared for the EyeSys Board and are
directed only to the fairness, from a financial point of view, of the
consideration to be received by holders of EyeSys Stock pursuant to the Merger
Agreement and do not constitute an opinion as to the merits of the transaction
contemplated by the Merger Agreement or a recommendation to any holders of
EyeSys Stock as to how to vote at the EyeSys Special Meeting. The terms of the
fee arrangement with Cowen, which are customary in transactions of this nature,
were negotiated at arm's length between EyeSys and Cowen, and the EyeSys Board
was aware of such arrangement, including the fact that a significant portion of
the aggregate fee payable to Cowen is contingent upon consummation of the
Merger.
Cowen was selected by EyeSys as its financial advisor, and to render an
opinion to the EyeSys Board, because Cowen is a nationally recognized investment
banking firm and because the principals of Cowen have substantial experience in
transactions similar to the Merger and are familiar with EyeSys and its
businesses. As part of its investment banking business, Cowen is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and valuations for corporate and other purposes.
In arriving at its opinion, Cowen reviewed (a) certain information, furnished
to it by EyeSys, of a business and financial nature regarding EyeSys; (b)
discussed with the EyeSys management EyeSys' competitive position, current and
anticipated future conditions in the ophthalmic instrument industry and the
potential strategic synergies of a combination with Sunrise; and (c) held
meetings and discussions with representatives of the management of EyeSys and
Sunrise to discuss the business operations, historical financial results and
future prospects of EyeSys, Sunrise and the combined company. In addition, Cowen
(i) reviewed the Merger Agreement; (ii) compared EyeSys from a financial point
of view with certain other similar companies that were deemed by Cowen to be
relevant; (iii) considered the financial terms, to the extent publicly
available, of selected recent business transactions deemed to be similar in
whole or in part to the Merger; (iv) performed a discounted future net income
valuation analysis of EyeSys based on projections provided by EyeSys'
management; (v) reviewed certain publicly available filings of Sunrise with the
Securities and Exchange Commission, including consolidated financial statements
for the fiscal years ended December 31, 1993, 1994, and 1995 and the fiscal
quarter ended September 30, 1996; (vi) reviewed historical market prices and
trading volumes of Sunrise Stock from December 1, 1995 to December 19, 1996, and
compared those trading histories with other companies deemed relevant; (vii)
analyzed pro forma ownership in the combined company by holders of EyeSys Stock;
and, (viii) at the request of the EyeSys Board, solicited third party
indications of interest in acquiring all or substantially all of the stock or
assets of EyeSys. Cowen also reviewed other publicly available information and
conducted such other studies, analyses, inquiries and investigations as it
deemed appropriate. Cowen noted in its opinion that it had not been provided
with detailed financial projections by Sunrise.
Cowen assumed and relied, without independent verification, upon the accuracy
and completeness of the financial and other information that was provided to it
by EyeSys or its representatives, or that was otherwise reviewed by it. In
addition, with respect to the financial projections furnished to Cowen by the
management of EyeSys, Cowen assumed the attainability of the financial results
therein and that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of EyeSys. Because such projections are inherently subject to uncertainty, none
of EyeSys, Cowen or any other person assumes responsibility for their accuracy.
Cowen did not make any independent valuation or appraisal of the assets or
liabilities of EyeSys or Sunrise, nor has Cowen been furnished with any such
appraisals. Cowen made no independent investigations of any legal matters
affecting EyeSys or Sunrise. Cowen's opinion was necessarily based on economic,
market and other conditions as in effect on, and the information made available
to it as of, December 20, 1996. It should be understood that, although
developments subsequent to December 20, 1996 may affect its opinion, Cowen does
not have any obligation to update, revise or reaffirm its opinion.
The following is a summary of certain financial analyses performed by Cowen
to arrive at its opinion. Cowen performed certain procedures, including each of
the financial analyses described below and reviewed with the management of
EyeSys the assumptions on which such analyses were based and other
37
<PAGE>
factors, including the current and projected financial results of EyeSys and
Sunrise. No limitations were imposed by the EyeSys Board with respect to the
investigations made or procedures followed by Cowen in rendering its opinion.
EXCLUSIVE SALE PROCESS. In addition to the financial analysis described
below, in rendering its opinion, Cowen also considered the extensive marketing
effort it undertook in connection with the sale of EyeSys. As part of this
process, at the request of the EyeSys Board, Cowen contacted 35 potential
acquirers and ultimately received four indications of interest in acquiring all
or substantially all of the stock or assets of EyeSys.
TRANSACTION ANALYSIS. Cowen reviewed the financial terms, to the extent
publicly available, of twenty-five selected transactions (collectively, the
"Selected Transactions") involving the acquisition of companies in the
diagnostic medical technology industry (the "Selected Diagnostic Medical
Technology Transactions") and the acquisition of companies in the ophthalmology
instrument industry (the "Selected Ophthalmic Instrument Transactions"), which
were announced or completed since November 1991.
Cowen reviewed the market capitalization of common stock plus total debt less
cash and equivalents ("Enterprise Value") paid in the Selected Transactions as a
multiple of the latest twelve month revenues, earnings before interest, income
taxes, depreciation and amortization ("EBITDA"), and earnings before interest
expense and taxes ("EBIT"). Cowen also examined the multiples of equity value
paid in the Selected Transactions to book value, and the latest twelve month
earnings per share. In conducting its analysis, Cowen noted that EyeSys' latest
twelve month EBITDA, EBIT and net income as well as book value were negative.
Such analysis indicated that, on the basis of the Enterprise Value paid, the
Selected Diagnostic Medical Technology Transactions had a median valuation of
1.9 times revenue and the Selected Ophthalmic Transactions had a median
valuation of 1.0 times revenue. The corresponding multiple of revenue for EyeSys
implied by Sunrise's offer is 1.6x.
Although the Selected Transactions were used for comparison purposes, none of
such transactions is directly comparable to the Merger.
ANALYSIS OF CERTAIN PUBLICLY TRADED COMPANIES. To provide contextual data and
comparative market information, Cowen compared selected historical operating and
financial ratios for EyeSys to the corresponding data and ratios of certain
companies whose securities are publicly traded and which Cowen believes have
operating, market valuation, and trading valuations similar to what might be
expected if EyeSys were a publicly traded entity. These companies included
Autonomous Technologies Corp., Coherent, Inc., Premier Laser Systems, Inc.,
Summit Technology, Inc., VISX, Inc., Chiron Corp., Escalon Medical Corp.,
KeraVision, Inc. and Staar Surgical Company (the "Selected Companies"). Such
data and ratios include Enterprise Value of such Selected Companies as a
multiple of revenues, EBTIDA and EBIT for the latest reported twelve month
period, and the market capitalization of common stock of such Selected Companies
as a multiple of book value. Cowen also examined the ratios of the current
prices of the Selected Companies to the latest twelve month earnings per share
("EPS"), current calendar year EPS (as estimated by Institutional Brokers
Estimating System ("IBES") and First Call) and estimated EPS for the following
calendar year (as estimated by IBES and First Call) for these companies. In
conducting its analysis, Cowen noted that EyeSys' latest twelve month EBITDA,
EBIT and net income; estimated calendar 1996 and calendar 1997 net income; and
book value were negative.
Such analysis indicated that, of the Selected Companies, the median value of
Enterprise Value as a multiple of latest twelve month revenue was 3.7x, as
compared to the corresponding multiple for EyeSys implied by Sunrise's offer of
1.6x.
Although the Selected Companies were used for comparison purposes, none of
such companies is directly comparable to EyeSys.
DISCOUNTED FUTURE NET INCOME ANALYSIS. Cowen estimated the range of values
for EyeSys based upon the discounted present value of the projected 1998
calendar net income of EyeSys. This analysis was based upon projections supplied
by the management of EyeSys. In performing this analysis, Cowen utilized
discount rates of 15.0x to 25.0x. Utilizing this methodology, the equity value
of EyeSys ranged from $7.3 million to $14.4 million.
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<PAGE>
PRO FORMA OWNERSHIP ANALYSIS OF THE COMBINED ENTITY. Cowen analyzed pro forma
ownership in the combined company by holders of EyeSys Stock. Cowen's analysis
concluded that holders of EyeSys stock would own approximately 32% of the
combined company.
SUNRISE'S HISTORICAL STOCK PRICE TRADING HISTORY. Cowen reviewed the
historical market prices and trading volumes of Sunrise Common Stock between
December 1, 1995 and December 19, 1996. Cowen observed that during this period
approximately 44 of Sunrise's shares traded between prices of $1.26 and $1.75
and that the average daily trading volume of Sunrise shares traded was
approximately 90,115 during this period.
The summary set forth above does not purport to be a complete description of
the analyses performed by Cowen. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, notwithstanding the separate factors
summarized above, Cowen believes, and has advised the EyeSys Board, that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the evaluation process underlying
its opinion. In performing its analyses, Cowen made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters. These analyses performed by Cowen are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses.
Pursuant to the Cowen Engagement Letter, EyeSys has agreed to pay certain
fees to Cowen for its financial advisory services provided in connection with
the Merger. If the Merger is consummated, Cowen will be entitled to receive an
aggregate transaction fee consisting of (i) $25,000 cash paid to it by EyeSys
prior to the Merger, (ii) $100,000 cash to be paid by Sunrise following the
Merger and (iii) 224,950 shares of Sunrise Stock to be issued to Cowen as of the
Effective Time. If the Merger is not consummated as contemplated in the Merger
Agreement, EyeSys has agreed to pay Cowen an advisory fee of $50,000 in
consideration for Cowen's professional services. Additionally, EyeSys has agreed
to reimburse Cowen for its out-of-pocket expenses (including the reasonable fees
and expenses of its counsel) incurred or accrued during the period of, and in
connection with, Cowen's engagement. EyeSys has also agreed to indemnify Cowen
against certain liabilities, including liabilities under the federal securities
laws, relating to or arising out of services performed by Cowen as financial
advisor to EyeSys in connection with the Merger, unless such liabilities arose
out of Cowen's gross negligence, bad faith or willful misconduct.
39
<PAGE>
MANAGEMENT FOLLOWING THE MERGER
The current executive officers of EyeSys are Frederick J. Ruegsegger,
President and Chief Executive Officer, and Henry Kuehn, Chief Operating Officer,
and the current executive officers of Sunrise are David W. Light, Chairman of
the Board and Chief Executive Officer, C. Russell Trenary, III, President and
Chief Operating Officer and Joseph W. Shaffer, Vice President and Secretary.
Immediately following the Merger, Mr. Light and Mr. Trenary will become Chief
Executive Officer and President, respectively, of EyeSys. In addition,
immediately following the Merger, James E. Crawford, III, currently a director
of EyeSys, will be appointed to the Board of Directors of Sunrise.
<TABLE>
Accordingly, the executive officers and directors of Sunrise following the
Merger (collectively, the "Resulting Management") will consist of the following
persons:
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David W. Light .......... 51 Chairman of the Board and Chief Executive
Officer and Class I Director
C. Russell Trenary, III 39 President and Chief Operating
Officer and Class III Director
Joseph W. Shaffer ....... 50 Vice President, Secretary and Class II Director
Ronald A. Slocum ........ 56 Class I Director
James E. Crawford, III . 49 Class II Director
Joseph D. Koenig ........ 66 Class III Director
</TABLE>
Mr. Light was appointed Chairman of the Board and Chief Executive Officer of
Sunrise in November 1996. From October 1994 to November 1996, Mr. Light served
as President and Chief Executive Officer of Sunrise. Mr. Light was appointed to
the Board of Directors of Sunrise in October 1994. From March 1994 until the
time he joined Sunrise, Mr. Light was a private consultant to Sunrise. Prior to
March 1994, Mr. Light was Vice President of Operations of Advanced Polymer
Systems, Inc., a polymer-based drug delivery company. Mr. Light received a
B.B.A. degree from Boise State University and is a licensed Certified Public
Accountant.
Mr. Trenary was appointed President and Chief Operating Officer of Laser
Biotech, Inc., a wholly owned subsidiary of Sunrise, in May 1996. In November
1996, Mr. Trenary was appointed President and Chief Operating Officer of Sunrise
and was also appointed to the Board of Directors of Sunrise. From 1995 until the
time he joined Sunrise, Mr. Trenary served as Senior Vice President of sales and
marketing for Vidamed, Inc. Prior to 1995, Mr. Trenary served in various
positions with Allergan, Inc., most recently as Senior Vice President, General
Manager of AMO Surgical Products, an ophthalmic business with annual revenues of
$140 million and an employee base of 800. Mr. Trenary received a B.S. degree
from Miami University and an M.B.A. degree from Michigan State University.
Mr. Shaffer, a co-founder of Sunrise, has been a director of Sunrise and has
held an executive officer position with Sunrise since its inception. From April
1987 to October 1988, Mr. Shaffer served as President and Chief Executive
Officer and, from October 1988 until January 1991, Mr. Shaffer served as
President. Since 1991, Mr. Shaffer has been a Vice President of Sunrise. Prior
to founding Sunrise, Mr. Shaffer was employed by the medical division of
Coherent, Inc., a laser manufacturer, as Electrical Engineering Section Manager.
Mr. Shaffer holds a B.S. degree in Electrical Engineering from the University of
New Mexico.
Mr. Slocum was appointed to the board of directors of Sunrise in December
1994. Mr. Slocum has been employed by Bank of America Idaho since 1991 and is
currently the President, Chief Executive Officer and Chairman of the Board of
Bank of America Idaho. Mr. Slocum is also a Director of Bank of America Oregon.
Mr. Slocum received a B.S. degree in Business Management from San Diego
University.
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<PAGE>
Mr. Crawford has served as a director of EyeSys since June 1994. Mr. Crawford
is a partner of Frontenac Company, one of the Company's stockholders. Mr.
Crawford joined Frontenac in 1992 following eight (8) years at William Blair
Venture Partners, where he was a general partner. Prior to joining William Blair
Venture Partners, he spent six years in operating positions at Mark Controls
Corporation, where he directed the research and development and marketing and
sales organizations. Mr. Crawford also has been a management consultant with
McKinsey & Company. He is a Phi Beta Kappa electrical engineering graduate of
Princeton University and studied economics at Oxford University on a Rhodes
Scholarship.
Joseph D. Koenig was appointed to the board of directors of Sunrise in
December 1994. Mr. Koenig had also served as a director of Sunrise from August
1991 through January 1994. He has been a consultant for Koenig Associates, a
management consultant firm, since October 1984. Mr. Koenig is also a director of
Ancot Corporation, Hench Controls Corporation and Cardiac Mariners. Mr. Koenig
received a B.S. degree in Electrical Engineering from the University of
Illinois.
Except for Mr. Crawford, who will be appointed to the board of directors of
Sunrise in connection with the Merger, none of the members of the Resulting
Management was selected as an executive officer or director of Sunrise pursuant
to any arrangement or understanding. There are no family relationships between
any of the members of the Resulting Management.
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<PAGE>
<TABLE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information regarding the compensation
paid by the Company during the past three fiscal years to Messrs. Light and
Trenary. Compensation information with respect to Mr. Shaffer, who also will be
an executive officer in the Resulting Management, is omitted from this Joint
Proxy Statement/Prospectus in accordance with the rules of the Commission. Mr.
Shaffer's annual salary and bonus have not exceeded $100,000 in any of the past
three fiscal years.
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
YEAR SALARY ($) BONUS ($) AWARDS (#)(1)
---- ---------- -------- --------------
<S> <C> <C> <C> <C>
David W. Light 1996 220,000 (2) Nil 600,000
Chairman of the Board and 1995 220,000 (2) Nil 500,000 (3)
Chief Executive Officer 1994 47,680 Nil 500,000 (3)
C. Russell Trenary, III 1996 131,753 (4) Nil 650,000
President and Chief Operating Officer
<FN>
- ------------
(1) Reflects the number of shares of Sunrise Stock underlying options granted
by Sunrise.
(2) Includes a deferred compensation payment of $60,000 made on each
anniversary of Mr. Light's employment with the Company.
(3) In 1994, Mr. Light was granted an option to purchase 500,000 shares of
Sunrise Stock at an exercise price of $2.00 per share (the "Initial
Option"). On June 20, 1995, Mr. Light exchanged the Initial Option for an
an option to acquire 500,000 shares of Sunrise Stock at a price of $1.00
per share (the "Replacement Option"), pursuant to Sunrise's option exchange
program described below (the "Exchange Program").
(4) Represents amounts paid to Mr. Trenary for his service to the Company,
which began on April 30, 1996.
</FN>
</TABLE>
<TABLE>
The following table sets forth certain information regarding the options
granted to Messrs. Light and Trenary in 1996.
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
NUMBER OF ASSUMED ANNUAL RATE OF
SECURITIES PERCENT OF STOCK PRICE
UNDERLYING TOTAL OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(2)
GRANTED IN EMPLOYEES PRICE EXPIRATION ------------------------
NAME 1996(1) IN 1996 PER SHARE DATE 5% 10%
---- ------- ---------- --------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
David W. Light ......... 600,000 28% $1.03 9/10/06 $389,879 $986,878
C. Russell Trenary, III 250,000 12% 1.63 4/30/06 286,275 649,450
400,000 19% 1.03 9/10/06 259,916 657,919
<FN>
(1) Options granted generally become exercisable for 25% of the shares one year
after the granted date and 1/36th of the remaining shares subject to the
option become exercisable each month thereafter.
(2) The 5% and 10% assumed rates of appreciation applied to the fair market
value of the Sunrise Stock over the term of the options are prescribed by
the rules of the Commission and do not represent Sunrise's estimate or
projection of the future price of the Sunrise Stock.
</FN>
</TABLE>
The following table sets forth certain information with respect to the
exercise of options during the last fiscal year and the number and value of
unexercised options held as of the end of the last fiscal year.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON EXERCISE OF VALUE AT THE END OF 1996 AT THE END OF 1996
NAME OPTIONS (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
David W. Light ......... Nil -- 366,666/733,334 Nil/Nil
C. Russell Trenary, III Nil -- 162,500/487,500 Nil/Nil
</TABLE>
42
<PAGE>
COMPENSATION OF DIRECTORS
Each non-employee director of Sunrise receives a fee of $300 for each meeting
of the board of directors attended. In the fiscal year ended December 31, 1996,
the total compensation paid to non-employee directors was $3,900. Directors are
also eligible for reimbursement for their expenses incurred in connection with
attendance at meetings of the board of directors. Each non-employee director of
Sunrise also receives a stock option grant under the 1994 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). Only non-employee
directors of Sunrise or an affiliate of such directors are eligible to receive
options under the Directors' Plan. Options granted under the Directors' Plan are
not intended by Sunrise to qualify as incentive stock options under the Internal
Revenue Code of 1986, as amended.
Options granted under the Directors' Plan are non-discretionary. An option to
purchase 20,000 shares of Sunrise Stock was or is automatically granted to each
non-employee director (a) at the time the board of directors approved the
Directors' Plan, or (b) the first time a person is elected or appointed as a
non-employee director. Options granted to non-employee directors at the time the
board of directors approved the Directors' Plan initially had an exercise price
of $2.00 per share. In 1995, such options were exchanged for replacement
options, with an exercise price of $1.00 per share, pursuant to the Exchange
Program.
EXCHANGE PROGRAM
The Exchange Program was established by the board of directors of Sunrise in
December 1994 based on its determination that (a) the purpose of issuing stock
options to employees to provide an equity incentive would not be achieved for
employees holding options exercisable above the market price and (b) it was
critical to the best interests of Sunrise and the stockholders of Sunrise to
retain the services of its employees. Pursuant to the Exchange Program, at such
times as the board of directors or Compensation Committee determines to conduct
an exchange of options thereunder (the "Exchange Offer"), employees holding
options with exercise prices higher than the then fair market value of the
Sunrise Stock shall be offered the opportunity to exchange such options for new
options ("replacement options"), which would have substantially the same terms
as the options exchanged therefor, except that the exercise price would be the
fair market value of the Sunrise Stock at the time the board of directors or
Compensation Committee determined to effect the Exchange Offer. Replacement
options cannot be exercised, except under certain circumstances, for six months
from the date of exchange.
43
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
represent the three proposals envisaged by this document. (1) that Sunrise may
acquire EyeSys, (2) that Sunrise may dispose of the Dental Business and (3) that
Sunrise may acquire EyeSys and dispose of the Dental Business.
EYESYS ACQUISITION
On October 29, 1996 the Company entered into a Memorandum of Understanding
with EyeSys Technologies, Inc. (EyeSys) providing for the EyeSys Acquisition
(together with the assumption of certain liabilities), subject to post-closing
adjustments and conditions. The EyeSys Acquisition will be funded primarily
through issuance of 12,186,479 shares of Sunrise Stock to current stockholders
and noteholders of EyeSys. In November 1996, the Company announced that it had
entered into a definitive merger agreement which provides for the EyeSys
acquisition.
The unaudited pro forma condensed combined financial information ("Sunrise &
EyeSys Pro Forma Combined") gives effect to the EyeSys Acquisition as if it had
occurred on January 1, 1995 for purposes of the unaudited pro forma condensed
combined statement of operations and as of September 30, 1996 for the purposes
of the unaudited pro forma condensed combined balance sheet. The pro forma
adjustments have been applied to the financial information derived from the
financial statements of the Company and EyeSys to account for the EyeSys
Acquisition as a purchase; accordingly, assets acquired and liabilities assumed
will be recorded at their estimated fair values with appropriate recognition
given to the effect of current interest rates and income taxes.
The EyeSys Acquisition will be accounted for using the purchase method of
accounting. The unaudited pro forma condensed combined financial information for
the EyeSys Acquisition has been prepared on the basis of assumptions described
in the notes thereto and includes assumptions relating to the allocation of the
consideration paid for the assets and liabilities of EyeSys based on preliminary
estimates of their fair value. The actual allocation may differ from that
reflected in the unaudited pro forma condensed combined financial information
after valuations subsequent to the closing of the EyeSys Acqusition have been
finalized. This in process charge has been excluded from the unaudited pro forma
condensed combined statement of operations included herein because it is
nonrecurring.
DISPOSAL OF DENTAL OPERATIONS
Sunrise also may dispose of its dental business and assets used in the
operation thereof ("Dental Operations"). Sunrise has accepted a non-binding
letter of intent to sell its Dental Operations to an unrelated third party. If
the transaction is completed, Sunrise expects to receive consideration of
$5,000,000 in cash, $2,000,000 of non-interest bearing promissory notes
receivable in six equal annual installments beginning December 31, 1997 and
warrants. This transaction is subject to certain conditions including the
acquirer's ability to complete a private placement in an amount not less than $5
million.
The unaudited condensed combined financial information ("Sunrise Net of
Dental Assets to be Sold" and "Sunrise and EyeSys Net of Dental Assets Pro Forma
Combined") gives effect to the disposal of the Dental Operations both without
and with (respectively) the proposed EyeSys Acquisition, as if the
transaction(s) had occurred on January 1, 1995 for the purposes of the unaudited
statements of operations and as of September 30, 1996 for the purposes of the
unaudited balance sheet.
EYESYS ACQUISITION AND DISPOSAL OF DENTAL OPERATIONS
The unaudited pro forma condensed combined financial information is not
necessarily indicative of what actual results would have been had the EyeSys
Acquisition and the disposal of the Dental Operations occurred at the dates
indicated nor do they purport to project the future financial position or the
results of the Company.
The unaudited pro forma condensed combined balance sheet as of September 30,
1996 has been prepared by combining the historical balance sheet of Sunrise as
of September 30, 1996, with the historical balance sheet of EyeSys as of
September 30, 1996 after eliminating the Net Dental Assets to be Sold and gives
effect to the pro forma adjustments as described in the notes hereto.
44
<PAGE>
The unaudited pro forma condensed combined statements of operations have been
prepared by combining the historical consolidated statement of operations of the
Company with the historical combined statement of operations of EyeSys after
eliminating the Net Dental Assets to be Sold and gives effect to the pro forma
adjustments as described in the notes thereto.
The unaudited pro forma condensed combined financial information should be
read in conjunction with the accompanying notes and the historical financial
statements, including the notes thereto, of the companies, included elsewhere in
this Prospectus.
45
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUNRISE PRO FORMA
TECHNOLOGIES EYESYS ADJUSTMENTS
INTERNATIONAL, TECHNOLOGIES FOR EYESYS
INC. INC. ACQUISITION
-------------- ------------ ------------
(A) (B) (C)
<S> <C> <C> <C>
ASSETS
Cash and cash
equivalents ............ $1,443 $ 65 $ --
Accounts receivable .... 1,014 2,419 --
Inventories ............. 2,031 1,762 --
Prepaid expenses ........ 308 123 --
------ ------ ------
Total current assets ... 4,796 4,369 --
Net property, plant &
equipment .............. 187 1,012 --
Other non-current assets -- 75 --
Intangible assets ....... -- -- 3,600 (2)
------ ------ ------
Total non-current assets 187 1,087 3,600
------ ------ ------
Total assets ............ $4,983 $5,456 $3,600
====== ====== ======
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SUNRISE &
SUNRISE & SUNRISE SUNRISE NET EYESYS NET OF
EYESYS TECHNOLOGIES SUNRISE OF DENTAL DENTAL ASSETS
PRO FORMA INTERNATIONAL, DENTAL ASSETS ASSETS TO PRO FORMA
COMBINED INC. TO BE SOLD BE SOLD COMBINED
--------- -------------- ------------- ----------- --------------
(D) (E) (F) (G) (H)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents ............ $ 1,508 $ 1,443 $ 2,426 $ 3,869 $ 3,934
Accounts receivable .... 3,433 1,014 -- 1,014 3,433
Inventories ............. 3,793 2,031 (1,988) 43 1,805
Prepaid expenses ........ 431 308 (270) 38 161
------- ------ -------- ------ -------
Total current assets ... 9,165 4,796 168 4,964 9,333
Net property, plant &
equipment .............. 1,199 187 (168) 19 1,031
Other non-current assets 75 -- -- -- 75
Intangible assets ....... 3,600 -- -- -- 3,600
------- ------ -------- ------ -------
Total non-current assets 4,874 187 (168) 19 4,706
------- ------ -------- ------ -------
Total assets ............ $14,039 $4,983 $ -- $4,983 $14,039
======= ====== ======== ====== =======
<FN>
- -------------
(a) Represents historical Sunrise financial statements, including Net Dental
Assets to be sold.
(b) Represents historical EyeSys financial statements.
(c) Represents pro forma adjustments following the EyeSys purchase by Sunrise.
(d) Represents pro forma combined financial statements of Sunrise and EyeSys
[d=a+b+c].
(e) Represents historical Sunrise financial statements, including Net Dental
Assets to be sold (same as column a).
(f) Represents historical Sunrise Dental Assets to be sold and consideration
received therefrom exclusive of any gain which may be realized on sale.
(g) Represents historical Sunrise, Net of Dental Assets to be sold and
consideration received therefrom exclusive of any gain which may be
realized on sale [g=e-f].
(h) Represents pro forma combined financial statements of Sunrise and EyeSys
Net of Dental Assets to be sold and cash received therefrom exclusive of
any gain which may be realized on sale [h=d-f].
See accompanying notes to the Pro Forma Condensed Combined Financial Statements
</FN>
</TABLE>
46
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUNRISE PRO FORMA
TECHNOLOGIES EYESYS ADJUSTMENTS
INTERNATIONAL, TECHNOLOGIES FOR EYESYS
INC. INC. ACQUISITION
--- --- -----------
(A) (B) (C)
<S> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Notes payable ............. $ -- $ 1,902 $ --
Notes payable to
stockholders, current
maturities ............... -- 3,000 (3,000) (4)
Accounts payable .......... 770 1,535 --
Accrued interest on
convertible debt ......... -- 183 (183) (4)
Accrued payroll and
related expenses ......... 306 509 --
Accrued warranty .......... 324 138 --
Other accrued expenses ... 362 307 500 (2)
-------- -------- --------
Total current liabilities 1,762 7,574 (2,683)
Term notes payable ........ -- 235 --
Long-term deferred income
tax ...................... -- 72 --
-------- -------- --------
Total non-current
liabilities .............. -- 307 --
-------- -------- --------
Convertible preferred
stock .................... -- 6,703 (6,703) (5)
Common stock .............. 28 2,006 (1,994) (6)
Additional paid-in capital 31,688 -- 12,788 (7)
Less treasury stock at
cost ..................... -- -- --
Accumulated deficit ....... (28,495) (11,134) 2,192 (8)
-------- -------- --------
Total stockholders' equity 3,221 (2,425) 6,283
-------- -------- --------
Total liabilities and
stockholders' equity .... $ 4,983 $ 5,456 $ 3,600
======== ======== ========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SUNRISE &
SUNRISE & SUNRISE SUNRISE NET EYESYS NET OF
EYESYS TECHNOLOGIES SUNRISE OF DENTAL DENTAL ASSETS
PRO FORMA INTERNATIONAL, DENTAL ASSETS ASSETS TO PRO FORMA
COMBINED INC. TO BE SOLD BE SOLD COMBINED
--------- ------------ ----------- --------- -------------
(D) (E) (F) (G) (H)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Notes payable ............. $ 1,902 $ -- $-- $ -- $ 1,902
Notes payable to
stockholders, current
maturities ............... -- -- -- -- --
Accounts payable .......... 2,305 770 -- 770 2,305
Accrued interest on
convertible debt ......... -- -- -- -- --
Accrued payroll and
related expenses ......... 815 306 -- 306 815
Accrued warranty .......... 462 324 -- 324 462
Other accrued expenses ... 1,169 362 -- 362 1,169
-------- -------- ---- -------- --------
Total current liabilities 6,653 1,762 -- 1,762 6,653
Term notes payable ........ 235 -- -- -- 235
Long-term deferred income
tax ...................... 72 -- -- -- 72
-------- -------- ---- -------- --------
Total non-current
liabilities .............. 307 -- -- -- 307
-------- -------- ---- -------- --------
Convertible preferred
stock .................... -- -- -- -- --
Common stock .............. 40 28 -- 28 40
Additional paid-in capital 44,476 31,688 -- 31,688 44,476
Less treasury stock at
cost ..................... -- -- -- -- --
Accumulated deficit ....... (37,437) (28,495) -- (28,495) (37,437)
-------- -------- ---- -------- --------
Total stockholders' equity 7,079 3,221 -- 3,221 7,079
-------- -------- ---- -------- --------
Total liabilities and
stockholders' equity .... $ 14,039 $ 4,983 $-- $ 4,983 $ 14,039
======== ======== ==== ======== ========
<FN>
- ------------
(a) Represents historical Sunrise financial statements, including Net Dental
Assets to be sold.
(b) Represents historical EyeSys financial statements.
(c) Represents pro forma adjustments following the EyeSys purchase by Sunrise.
(d) Represents pro forma combined financial statements of Sunrise and EyeSys
[d=a+b+c].
(e) Represents historical Sunrise financial statements, including Net Dental
Assets to be sold (same as column a).
(f) Represents historical Sunrise Dental Assets to be sold and consideration
received therefrom exclusive of any gain which may be realized on sale.
(g) Represents historical Sunrise, Net of Dental Assets to be sold and
consideration received therefrom exclusive of any gain which may be
realized on sale [g=e-f].
(h) Represents pro forma combined financial statements of Sunrise and EyeSys
Net of Dental Assets to be sold and cash received therefrom exclusive of
any gain which may be realized on sale [h=d-f].
See accompanying notes to the Pro Forma Condensed Combined Financial Statements
</FN>
</TABLE>
47
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUNRISE
TECHNOLOGIES EYESYS
INTERNATIONAL, TECHNOLOGIES PRO FORMA
INC. INC. ADJUSTMENTS
--- --- ------------
(A) (B) (C)
<S> <C> <C> <C>
Net Revenues ........... $ 4,327 $ 6,319 $ --
Cost of revenues ....... 3,084 3,540 --
------- ------- -------
Gross profit ........... 1,243 2,779 --
Other costs and
expenses
Engineering &
development ........... 494 898 --
Sales, marketing &
regulatory ............ 2,938 3,201 --
General and
administrative ........ 1,873 1,186 900 (2)
------- ------- -------
Total other costs and
expenses .............. 5,305 5,285 900
------- ------- -------
Net income/(loss) from
operations ............ (4,062) (2,506) (900)
------- ------- -------
Net interest
income/(expense) ...... 43 (379) 183 (4)
------- ------- -------
Net income/(loss)
before taxes .......... (4,019) (2,885) (717)
Income tax expense .... -- 15 --
------- ------- -------
Net income/(loss) ...... $(4,019) $(2,900) $ (717)
======= ======= =======
Net loss per share .... $ (0.16) $ (0.06)
======= =======
Shares used in
calculation of net
loss per share ........ 25,898 12,411
======= =======
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SUNRISE & SUNRISE &
EYESYS SUNRISE LESS EYESYS NET OF
PRO TECHNOLOGIES SUNRISE SUNRISE DENTAL OPERATIONS
FORMA INTERNATIONAL, DENTAL OPTHAMALIC PRO FORMA
COMBINED INC. OPERATIONS OPERATIONS COMBINED
-------- --- ---------- ---------- --------
(D) (E) (F) (G) (H)
<S> <C> <C> <C> <C> <C>
Net Revenues ........... $10,646 $ 4,327 $ 4,192 $ 135 $ 6,454
Cost of revenues ....... 6,624 3,084 3,039 45 3,585
------- -------- ------- ------- -------
Gross profit ........... 4,022 1,243 1,153 90 2,869
Other costs and
expenses
Engineering &
development ........... 1,392 494 379 115 1,013
Sales, marketing &
regulatory ............ 6,139 2,938 2,021 917 4,118
General and
administrative ........ 3,959 1,873 811 1,062 3,148
------- -------- ------- ------- -------
Total other costs and
expenses .............. 11,490 5,305 3,211 2,094 8,279
------- -------- ------- ------- -------
Net income/(loss) from
operations ............ (7,468) (4,062) (2,058) (2,004) (5,410)
------- -------- ------- ------- -------
Net interest
income/(expense) ...... (153) 43 30 13 (183)
------- -------- ------- ------- -------
Net income/(loss)
before taxes .......... (7,621) (4,019) (2,028) (1,991) (5,593)
Income tax expense .... 15 -- -- -- 15
------- -------- ------- ------- -------
Net income/(loss) ...... $(7,636) $(4,019) $(2,028) $(1,991) $(5,608)
======= ======= ======= ======= =======
Net loss per share .... $ (0.20) $ (0.16) $ (0.08) $ (0.15)
======= ======= ======= =======
Shares used in
calculation of net
loss per share ........ 38,338 25,898 25,898 38,338
======= ======= ======= =======
<FN>
- ----------
(a) Represents historical Sunrise financial statements, including Dental
Operations to be sold.
(b) Represents historical EyeSys financial statements.
(c) Represents pro forma adjustments following the EyeSys purchase by Sunrise.
(d) Represents pro forma combined financial statements of Sunrise and EyeSys
[d=a+b+c].
(e) Represents historical Sunrise financial statements, including Dental
Operations to be sold (same as column a).
(f) Represents historical Sunrise Dental Operations to be sold.
(g) Represents historical Sunrise, Net of Dental Operations to be sold [g=e-f].
(h) Represents pro forma combined financial statements of Sunrise and EyeSys
Net of Dental Operations to be sold [h=d-f].
See accompanying notes to the Pro Forma Condensed Combined Financial Statements
</FN>
</TABLE>
48
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUNRISE
TECHNOLOGIES EYESYS
INTERNATIONAL, TECHNOLOGIES PRO FORMA
INC. INC. ADJUSTMENTS
------- ------- -------
(A) (B) (C)
<S> <C> <C> <C>
Net Revenues ........... $ 5,294 $ 9,522 $ --
Cost of revenues ....... 3,657 5,090 --
------- ------- -------
Gross profit ........... 1,637 4,432 --
Other costs and
expenses
Engineering &
development ........... 503 1,946 --
Sales, marketing &
regulatory ............ 2,992 4,726 --
General and
administrative ........ 2,329 1,000 1,200 (2)
------- ------- -------
Total other costs and
expenses .............. 5,824 7,672 1,200
------- ------- -------
Net income/(loss) from
operations ............ (4,187) (3,240) (1,200)
------- ------- -------
Net interest
income/(expense) ...... 57 (169) --
------- ------- -------
Net income/(loss)
before taxes .......... (4,130) (3,409) (1,200)
Income tax expense .... -- 16 --
------- ------- -------
Net income/(loss) ...... $(4,130) $(3,425) $(1,200)
======= ======= =======
Net loss per share .... $ (0.28) $ (0.10)
======= =======
Shares used in
calculation of net
loss per share ........ 14,935 12,411
======= =======
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SUNRISE & SUNRISE &
EYESYS SUNRISE LESS EYESYS NET OF
PRO TECHNOLOGIES SUNRISE SUNRISE DENTAL OPERATIONS
FORMA INTERNATIONAL, DENTAL OPTHAMALIC PRO FORMA
COMBINED INC. OPERATIONS OPERATIONS COMBINED
------- -------- ------- ------- -------
(D) (E) (F) (G) (H)
<S> <C> <C> <C> <C> <C>
Net Revenues ........... $14,816 $ 5,294 $ 4,017 $ 1,277 $10,799
Cost of revenues ....... 8,747 3,657 2,848 809 5,899
------- -------- ------- ------- -------
Gross profit ........... 6,069 1,637 1,169 468 4,900
Other costs and
expenses
Engineering &
development ........... 2,449 503 299 204 2,150
Sales, marketing &
regulatory ............ 7,718 2,992 2,225 767 5,493
General and
administrative ........ 4,529 2,329 1,073 1,256 3,456
------- -------- ------- ------- -------
Total other costs and
expenses .............. 14,696 5,824 3,597 2,227 11,099
------- -------- ------- ------- -------
Net income/(loss) from
operations ............ (8,627) (4,187) (2,428) (1,759) (6,199)
------- -------- ------- ------- -------
Net interest
income/(expense) ...... (112) 57 57 -- (169)
------- -------- ------- ------- -------
Net income/(loss)
before taxes .......... (8,739) (4,130) (2,371) (1,759) (6,368)
Income tax expense .... 16 -- -- -- 16
------- -------- ------- ------- -------
Net income/(loss) ...... $(8,755) $(4,130) $(2,371) $(1,759) $(6,384)
======= ======= ======= ======= =======
Net loss per share .... $ (0.32) $ (0.28) $ (0.12) $ (0.23)
======= ======= ======= =======
Shares used in
calculation of net
loss per share ........ 27,375 14,935 14,935 27,375
======= ======= ======= =======
<FN>
- ----------
(a) Represents historical Sunrise financial statements, including Net Dental
Operations to be sold.
(b) Represents historical EyeSys financial statements.
(c) Represents pro forma adjustments following the EyeSys purchase by Sunrise.
(d) Represents pro forma combined financial statements of Sunrise and Eyesys
[d=a+b+c].
(e) Represents historical Sunrise financial statements, including Dental
Operations to be sold (same as column a).
(f) Represents historical Sunrise Dental Operations to be sold.
(g) Represents historical Sunrise, Net of Dental Operations to be sold [g=e-f].
(h) Represents pro forma combined financial statements of Sunrise and EyeSys
Net of Dental Operations to be sold [h=d-f].
See accompanying notes to the Pro Forma Condensed Combined Financial Statements
</FN>
</TABLE>
49
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE YEAR ENDED DECEMBER 31, 1995
The pro forma condensed combined financial statements gives effect to the
following pro forma adjustments:
(1) EYESYS ACQUISITION
On October 29, 1996, the Company signed a memorandum of understanding to
acquire EyeSys Technologies, Inc. for 12,500,000 shares. This acquisition
will be accounted for as a purchase pursuant to APB Opinion No. 16,
"Business Combinations." The respective purchase price will be allocated to
the assets and liabilities of the acquired business based on their relative
fair values. Such allocations are subject to change due to operating results
of EyeSys prior to Closing and finalization of valuation assumptions at the
time of Closing. The final values may differ from those set forth below.
(2) DISPOSAL OF DENTAL OPERATIONS
On November 18, 1996 the Company signed a non-binding letter of intent to
sell its Dental Operations and related assets to an unrelated party.
Consideration is anticipated to be $5 million in cash, $2 million of
non-interest bearing promissory notes receivable in six equal annual
installments beginning December 31, 1997 and warrants to purchase 2.5% of
the common stock of the purchaser. Completion of this transaction is subject
to certain conditions including the acquirer's ability to complete a private
placement in an amount not less than $5 million. The pro forma condensed
consolidated balance sheet column Sunrise Net of Dental Operations reflects
the elimination of the assets of the Dental Operations to be sold as though
the transaction occurred at the balance sheet date.
The unaudited pro forma financial statement column Sunrise Net of Dental
Operations reflects the proceeds of the sale equal to the net assets to be
disposed. No profit, if any ultimately arises, has been reflected in the
column Sunrise Net of Dental Operations Pro Forma Combined due to (a) the
significant conditions and uncertainties associated with this proposed
transaction and (b) the nonrecurring nature of this transaction.
BOOK VALUE ESTIMATED FAIR VALUE AT
AT SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
--------------------- ------------------------
(IN THOUSANDS)
TANGIBLE ASSETS:
Total current assets ..... $ 4,369 $ 4,369
Property and equipment ... 1,012 1,012
Other assets .............. 75 75
------- --------
Total identified assets .. 5,456 5,456
INTANGIBLE ASSETS:
In-process technology .... -- 8,942
Assembled work force ..... -- 700
Customer base ............. -- 1,100
Trademark and trade name . -- 1,800
------- --------
Total intangible assets .. -- 12,542
------- --------
Total assets .............. 5,456 17,998
Less: liabilities assumed 4,698 4,698
------- --------
Net assets acquired ..... $ 758 $ 13,300
======= ========
Purchase price calculation
Stock consideration ....... $ 12,800
Transaction costs ......... 500
--------
Total purchase price ..... $ 13,300
========
50
<PAGE>
<TABLE>
The following table represents the amortization of intangible assets arising
upon the EyeSys Acquisition:
<CAPTION>
AMORTIZATION AMORTIZATION
AMORTIZATION ESTIMATED FAIR NINE MONTHS ENDED YEAR ENDED
INTANGIBLE ASSET PERIOD VALUE SEPTEMBER 30, 1996 DECEMBER 31, 1995
- ---------------- ------ ----- ------------------ -----------------
(YEARS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Assembled workforce ..... 3 $ 700 $175 $ 233
Customer base ............ 3 1,100 275 367
Trademark and trade name 3 1,800 450 600
------ ---- ------
$3,600 $900 $1,200
====== ==== ======
</TABLE>
(3) In accordance with generally accepted accounting principles, the Company
will allocate a portion of the EyeSys purchase price to in-process research
and development. This allocation has resulted in an immediate write-off of
an estimated $9,000,000 of in-process research and development as a charge
to operations upon consummation of the EyeSys Acquisition with a
corresponding charge to retained earnings. This charge is reflected in the
unaudited pro forma condensed combined balance sheet but not in the
unaudited pro forma condensed combined statement of operations.
The allocation of the purchase price to in-process research and development
was based upon a third party independent appraisal. The valuation analysis
relied upon a standard income approach, specifically a discounted cash flow
method. The scope of the analysis included discussions with company
management regarding the nature of the technology, its stage of development,
regulatory affairs, the cost of the remaining development effort to attain
technological feasibility and the riskiness of the associated cash flows.
(4) As a condition to consummation of the Merger, prior to the Effective Time,
at least 85% of the convertible debt of EyeSys (including accrued and unpaid
interest thereon) must be converted into equity of EyeSys, which equity will
be converted into the right to receive Merger Shares pursuant to the Merger.
The remainder of the convertible debt of EyeSys (including accrued and
unpaid interest thereon) also will be converted into the right to receive
Merger Shares pursuant to the Merger. The aggregate of the convertible debt
is approximately $3,000,000. Accrued but unpaid interest on all of the
convertible debt, which is included in current liabilities, aggregates
approximately $183,000.
(5) All outstanding preferred stock of EyeSys will be converted into the right
to receive common stock of Sunrise pursuant to the Merger and hence is
eliminated in the pro forma balance sheet.
(6) Pro Forma Common Stock
Eliminate EyeSys issued common stock (2,006)
Par value of Sunrise Stock to be issued as
considered for EyeSys Acquisition 12
-------
$(1,994)
=======
(7) Pro Forma Additional Paid in Capital
Stock consideration (Note 2 above) 12,800
Par value of Sunrise Stock to be issued as
consideration for EyeSys Acquisition (12)
-------
$12,788
=======
(8) Pro Forma Accumulated Deficit
Eliminate EyeSys accumulated deficit 11,134
In-process technology acquired (per Note 2 above) (8,942)
-------
$ 2,192
=======
51
<PAGE>
DESCRIPTION OF SUNRISE COMMON STOCK
The current authorized capitalization of Sunrise consists of 40,000,000
shares of Sunrise Stock and 2,000,000 shares of Preferred Stock, par value
$0.001 per share ("Sunrise Preferred Stock"). As of the Sunrise Record Date,
there were issued and outstanding 27,868,613 shares of Sunrise Stock. No shares
of Sunrise Preferred Stock have been issued or reserved for issuance by the
board of directors of Sunrise.
The following summary of the terms of Sunrise's capital stock does not
purport to be complete and is qualified in its entirety by reference to the
terms set forth in the Sunrise Certificate. For a discussion of the material
differences between the rights of the holders of EyeSys Stock and the rights of
the holders of Sunrise Stock, see "Comparison of Rights of Holders of EyeSys
Stock and Sunrise Stock."
COMMON STOCK
Holders of Sunrise Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders of Sunrise. Stockholders do not have
cumulative voting rights. In the event of a liquidation, dissolution or winding
up of Sunrise, the holders of Sunrise Stock are entitled to share equally and
ratably in any assets remaining after the payment of all debts and liabilities
of Sunrise, subject to the prior rights, if any, of the holders of Sunrise
Preferred Stock. Holders of Sunrise Stock do not have preemptive or other
subscription or conversion rights. Sunrise Stock is not subject to redemption
and the outstanding shares are, and the Merger Shares issued in accordance with
the Merger Agreement will be, fully paid and nonassessable.
PREFERRED STOCK
Sunrise Preferred Stock may be issued from time to time in one or more
series, as determined by the Sunrise Board of Directors. The directors may fix
or alter from time to time the designation, powers, preferences and rights of
the shares of each series of Sunrise Preferred Stock, provided that the
directors may alter the qualifications, limitations or restrictions of any
series of Sunrise Preferred Stock only prior to the issuance of any shares of
such series. The directors may also establish from time to time the number of
shares constituting any series of Sunrise Preferred Stock. The directors may
increase or decrease the number of shares subsequent to the issuance of shares
of a series, so long as the directors do not decrease the number of authorized
shares of a series below the number of shares of such series then outstanding.
As of the date hereof, the directors have not designated any series of
Sunrise Preferred Stock.
52
<PAGE>
PRICE RANGE OF COMMON STOCK
As of September 30, 1996, there were 717 holders of record of Sunrise Stock.
Price information for Sunrise Stock may be obtained from the OTC Bulletin Board.
The table below sets forth the reported high and low bid quotations of Sunrise
Common Stock as reported on the OTC Bulletin Board for the periods indicated.
HIGH LOW
---- ---
1994
First Quarter .......... $6.50 $4.25
Second Quarter ......... $6.25 $4.25
Third Quarter .......... $4.50 $1.63
Fourth Quarter ......... $3.00 $1.13
1995
First Quarter .......... $1.97 $0.69
Second Quarter ......... $1.25 $0.56
Third Quarter .......... $2.37 $0.50
Fourth Quarter ......... $2.44 $0.94
1996
First Quarter .......... $2.94 $1.13
Second Quarter ......... $2.31 $1.13
Third Quarter .......... $2.00 $0.88
Fourth Quarter (through
December 30, 1996) ... $2.13 $0.81
On October 31, 1996, the last trading day prior to the announcement by
Sunrise and EyeSys that they had reached an agreement concerning the proposed
merger, the closing price of Sunrise Stock as reported on the OTC Bulletin Board
was $1.75 per share. On December 30, 1996, the closing price of Sunrise Stock as
reported on the OTC Bulletin Board was $0.906 per share. The over-the-counter
market quotations provided herein may reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
No established trading market exists for EyeSys Common Stock. As of the
EyeSys Record Date, there were approximately 65 holders of record of EyeSys
Common Stock, approximately 43 holders of record of warrants for EyeSys Common
Stock and approximately 61 holders of record of options to purchase shares of
EyeSys Common Stock.
DIVIDEND POLICY
In the past three years, Sunrise has not declared or paid any cash dividend
on the Sunrise Stock. Sunrise currently intends to retain any and all future
earnings to finance its business. Accordingly, Sunrise does not anticipate
paying cash or other dividends on the Sunrise Stock in the foreseeable future.
EyeSys has never declared or paid and, even absent consummation of the
Merger, has no present intentions to declare or pay any cash dividends on the
EyeSys Stock in the foreseeable future
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SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Sunrise Stock as
of November 30, 1996 by certain members of management and by all executive
officers and directors of Sunrise, as a group. Sunrise is not aware of any
person who beneficially owns more than 5% of the outstanding Sunrise Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------------------------
PERCENT OF PERCENT OF
SHARES PRIOR SHARES AS A
NUMBER OF TO THE RESULT OF THE
SHARES MERGER MERGER
------ ------ ------
<S> <C> <C> <C>
David W. Light(2) .............................. 415,000 1.5 1.0
C. Russell Trenary, III(3) ..................... 162,500 * *
Joseph W. Shaffer .............................. 815,913 2.9 2.0
Joseph D. Koenig(4) ............................ 13,334 * *
Ronald A. Slocum(5) ............................ 23,334 * *
All executive officers and directors as a group
(5 persons)(2)(3)(4)(5) ....................... 1,430,081 5.1 3.5
<FN>
- ----------
* Less than one percent
(1) Based on information provided by each of the identified officers and
directors.
(2) Includes 375,000 shares that Mr. Light does not currently own, but which he
has the right to acquire within 60 days of November 30, 1996, pursuant to
Existing Plan Options.
(3) Consists of shares that Mr. Trenary does not currently own, but which he
has the right to acquire within 60 days of November 30, 1996, pursuant to
Existing Plan Options.
(4) Consists of shares that Mr. Koenig does not currently own, but which he has
the right to acquire within 60 days of November 30, 1996, pursuant to
Existing Plan Options.
(5) Includes 13,334 shares that Mr. Slocum does not currently own, but which he
has the right to acquire within 60 days of November 30, 1996.
</FN>
</TABLE>
COMPARISON OF RIGHTS OF HOLDERS OF SUNRISE STOCK AND
HOLDERS OF EYESYS STOCK
GENERAL
Pursuant to the Merger, shares of EyeSys Stock will be converted into shares
of Sunrise Stock. The following is a summary of material differences between the
rights of holders of Sunrise Stock and EyeSys Stock. Because each of Sunrise and
EyeSys is incorporated under the Delaware Law, differences between the rights of
holders of Sunrise Stock and EyeSys Common Stock arise from various provisions
of the Sunrise Certificate, the EyeSys Certificate, the Bylaws of Sunrise
("Sunrise Bylaws") and the Bylaws of EyeSys ("EyeSys Bylaws"). Differences
between the rights of holders of Sunrise Stock and Series A Preferred Stock or
Series B Preferred Stock also arise from the lack of preference provisions in
the Sunrise Stock.
The following summary does not purport to be a complete statement of the
rights of holders of Sunrise Stock and EyeSys Stock under, and is qualified in
its entirety by reference to, the Delaware law and the respective Certificates
of Incorporation and Bylaws of Sunrise and EyeSys.
PREFERENCE RIGHTS
The Series A Preferred Stock and Series B Preferred Stock have certain
preferences over the EyeSys Common Stock and include certain provisions that are
not applicable to common stock, such as (i) liquidation preferences, (ii)
dividend preferences, (iii) conversion rights, (iv) redemption rights, (v) class
voting rights and (vi) in the case of the Series B Preferred Stock,
participation rights. The holders of Sunrise Stock do not possess any similar or
comparable preferential rights.
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AMENDMENT OF CERTIFICATE OF INCORPORATION
The Sunrise Certificate provides that the affirmative vote of the holders of
at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all
of the then-outstanding shares of the voting stock shall be required to alter,
amend or repeal certain articles of the Sunrise Certificate, including but not
limited to those articles that address (i) the creation, power and structure of
the Board of Directors, (ii) the rights and powers of the stockholders, (iii)
the limitation of liability and indemnification of directors, and (iv) the
amendment of the Certificate of Incorporation. The EyeSys Certificate provides
that no provision of such certificate shall be amended to diminish the rights
and privileges of the holders of the Series B Convertible Preferred Stock
without the written consent of the holders of not less than sixty-seven percent
(67%) of the outstanding shares of Series B Convertible Preferred Stock.
AMENDMENT OF BYLAWS
The Sunrise Certificate and the Sunrise Bylaws provide that the Sunrise
Bylaws may be amended by either (i) the affirmative vote of sixty-six and
two-thirds percent (66-2/3%) of the voting power of all the then outstanding
shares of the voting stock of the corporation, or (ii) the Board of Directors.
The EyeSys Certificate and EyeSys Bylaws provide that the EyeSys Bylaws may be
amended by either (i) a majority of the stockholders entitled to vote, or (ii)
the Board of Directors.
STOCKHOLDER POWER TO CALL SPECIAL STOCKHOLDERS MEETING; STOCKHOLDER
NOMINATIONS AND PROPOSALS
The Sunrise Certificate and Bylaws provide that special meetings of the
stockholders may be called by (i) the Chairman of the Board of Directors, (ii)
the Chief Executive Officer, or (iii) the Board of Directors. The Sunrise
Certificate and Bylaws do not contain a provision whereby the stockholders may
call a special meeting. The EyeSys Bylaws provide that a special meeting of the
stockholders may be called by (i) the Board of Directors, (ii) the Chairman of
the Board of Directors, (iii) the President, or (iv) any one or more
stockholders holding shares in the aggregate entitled to cast not less than ten
percent of the votes at such meeting.
The Sunrise Bylaws contain advance notice provisions regarding stockholder
nominations for directors and other stockholder proposals. To submit a
nomination of any person for election to the Sunrise Board of Directors at the
annual meeting, a stockholder must provide advance notice to Sunrise of the name
of and certain other information regarding the nominee and the proposing
stockholder. To be effective, such notice must be received by Sunrise not later
than the close of business on the sixtieth (60th) day nor earlier than the close
of business on the ninetieth (90th) day prior to the first anniversary of the
preceding year's annual meeting; provided however, that in the event that no
annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than thirty (30) days from the date contemplated at the
time of the previous year's proxy statement, notice by the stockholder to be
timely must be so received not earlier than the 90th day prior to such annual
meeting nor later than the 60th day prior to such meeting or, in the event
public announcement of the date of such annual meeting is first made by Sunrise
fewer than seventy (70) days prior to the date of such meeting, the close of
business on the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made by Sunrise. Unless a stockholder
nominee is nominated in accordance with these provisions, he or she is not
eligible for election as a director. In addition to the foregoing, a stockholder
who wishes to have any business considered at the annual meeting must provide
similar advance notice to Sunrise regarding the business to be conducted and
other information regarding the proposing stockholder. Unless such advance
notice provisions are satisfied, no business proposed by a stockholder shall be
considered at the annual meeting.
ACTION BY WRITTEN CONSENT OF THE STOCKHOLDERS
The Sunrise Certificate provides that no action shall be taken by the
stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with the Sunrise Bylaws and that no action
shall be taken by the stockholders by written consent. The EyeSys Bylaws provide
that any action that may be taken at any annual or special meeting of the
stockholders of EyeSys may be taken
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<PAGE>
without a meeting if a consent in writing is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
NUMBER OF DIRECTORS; CLASSIFIED BOARD
The Sunrise Certificate provides that the number of directors which shall
constitute the whole Board of Directors shall be fixed exclusively by one or
more resolutions adopted by the Board of Directors. The Sunrise Certificate
further provides that the Board of Directors shall be divided into three
classes, each class consisting, as nearly as possible, of one-third of the total
number of directors, with each class having a three-year term. The Sunrise Board
of Directors is presently comprised of five members. The EyeSys Bylaws generally
provide that the number of directors of the corporation shall be not less than
five (5) nor more than (9), the actual number to be determined from time to time
by the Board of Directors. The EyeSys Board of Directors is presently comprised
of six members.
REMOVAL OF DIRECTORS
The Sunrise Certificate provides that no director shall be removed without
cause. The Sunrise Certificate further provides that the entire Board of
Directors, or any individual director may be removed from office with cause by
the affirmative vote of the holders of a majority of the voting power of all the
then-outstanding shares of voting stock entitled to vote at an election of
directors. The EyeSys Bylaws provide that any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares entitled to vote at an election of directors.
INDEMNIFICATION OF DIRECTORS
The Sunrise Bylaws provide that Sunrise shall indemnify its directors and
executive officers to the fullest extent not prohibited by the Delaware Law;
provided, however, that the extent of such indemnification may be limited by
individual contracts with directors or executive officers; and, provided,
further, that under certain circumstances Sunrise shall not be required to
indemnify any director or executive officer in connection with any proceeding
initiated by such person. The Sunrise Bylaws further provide that the
corporation shall advance expenses incurred by any person who was or is a
director or executive officer of Sunrise or was serving at the request of
Sunrise as a director or executive officer of another entity by reason of the
fact that he is or was such a director or executive officer. The EyeSys
Certificate provides that each person who is or was a director or officer of the
corporation and each person who serves or served at the request of the
corporation as a director, officer or partner of another entity shall be
indemnified by the corporation to the fullest extent authorized by the Delaware
Law. The EyeSys Bylaws provide that the corporation shall indemnify any person
who was or is a party to any proceeding by reason of the fact that he is or was
a director, officer, employee or agent of EyeSys, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
entity, so long as such person acted in "good faith" and "in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation." Notwithstanding the foregoing, the EyeSys Bylaws provide that no
person shall be indemnified thereunder for any expenses or amounts paid in
settlement with respect to any action to recover short-swing profits under
Section 16(b) of the Securities Exchange Act of 1934, as amended.
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<PAGE>
INFORMATION ABOUT SUNRISE
BUSINESSES
The Ophthalmic Business
Sunrise and its wholly owned subsidiary, Laser Biotech, Inc., a California
corporation, are the holders of certain patents and patent applications covering
a laser thermal keratoplasty technique for reshaping the cornea to correct
certain refractive disorders of the eye. In 1992, Sunrise acquired Laser Biotech
and began clinical trials with a prototype Sunrise Corneal Shaping System
pursuant to an Investigational Device Exemption from the FDA. In January 1996,
Sunrise decided to have Laser Biotech independently pursue the research and
development and governmental approvals required in order to commercialize the
Sunrise Corneal Shaping System in the United States. As a result, certain
Sunrise personnel, and other resources associated with the LTK program were
transferred to Laser Biotech.
The Sunrise Corneal Shaping System alters the shape of the cornea to correct
certain refractive disorders such as hyperopia (farsightedness) and presbyopia
(loss of variable focusing over distances). The Sunrise Corneal Shaping System
employs a holmium laser to shrink selectively the collagen in the cornea,
changing the curvature of the cornea and thereby changing the refractive power
of the eye, without removing corneal tissue. The Sunrise Corneal Shaping System
was introduced outside the United States in 1993 and is currently sold to
ophthalmologists in over 15 countries for use in treatment of hyperopia. The
Sunrise Corneal Shaping System has been found to be most effective for the
treatment of patients with low hyperopia, in the +1 to +2 diopter treatment
groups, which covers the majority of those requiring treatment for hyperopia.
The Sunrise Corneal Shaping System currently is undergoing premarket clinical
studies in the United States as required by the FDA. Approval from the FDA is
required before the Sunrise Corneal Shaping System may be sold commercially in
the United States. There can be no assurance FDA approval will be obtained. In
any event, Sunrise does not expect to receive FDA approval prior to 1999.
The IDE issued to Sunrise by the FDA permits Sunrise to generate data
necessary to support a PMA application for the use and marketing of the Sunrise
Corneal Shaping System. The FDA has advised Sunrise that the initial Phase II(a)
clinical trials conducted by Sunrise did not produce enough statistically
significant data to enable the FDA to determine that the treatment algorithms
employed in such clinical trials were predictable or effective for the treatment
of hyperopia. On September 5, 1996, the FDA authorized Sunrise to treat an
additional 100 subjects at five United States locations in a continuation of
Phase II(a) clinical trials using a treatment algorithm developed by Sunrise in
the course of the initial Phase II(a) clinical trials and in the course of
studies conducted by ophthalmologists in Mexico, Great Britain and Canada. The
continued clinical trial is limited to the treatment of forty subjects for the
+1 diopter treatment group and sixty subjects for the +2 diopter treatment
group.
The Vision Correction Market
Products and procedures that correct vision impairment resulting from
refractive errors of the eye constitute one of the largest medical markets
worldwide. In the United States, approximately 150 million people use eyewear
(glasses or contact lenses) to correct refractive errors. In 1994, United States
consumers spent approximately $14 billion for such purchases. Outside the United
States, at least 300 million additional people use eyewear to correct refractive
errors. Many eyewear users with myopia (nearsightedness) have sought refractive
surgery procedures, such as radial keratotomy and photo refractive keratectomy
("PRK"), as an alternative to eyewear. PRK has been used in an estimated 250,000
procedures worldwide, with a very limited number of such procedures performed in
the United States. In PRK, an excimer laser is used to remove irreversibly
tissue within the optical zone to reshape the cornea. The FDA issued a PMA to
Summit Technologies, Inc. ("Summit") in October 1995 for the use of its excimer
laser system in PRK procedures. Currently, the excimer laser is the dominant
laser used for the treatment of refractive disorders.
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The Sunrise Corneal Shaping System
Sunrise believes that the Sunrise Corneal Shaping System, which uses the LTK
process, offers several advantages over the use of excimer lasers for treating
hyperopia, including ease of use and decreased invasiveness. In contrast to
radial keratotomy and PRK procedures, there is no surgical trauma or major
inconvenience in the Sunrise Corneal Shaping System.
The Sunrise Corneal Shaping System incorporates a holmium laser source built
into a standard slit-lamp to perform the LTK procedure. A slit-lamp is a
binocular microscope used regularly by ophthalmologists to examine an eye
binocularly under high magnification. The Sunrise Corneal Shaping System
delivers simultaneous laser beams in a symmetrical ring of spots whose diameter
can be varied. This system allows for easy alignment on the patient's eye and
the delivery of a two-second or less exposure for the treatment. To the
knowledge of Sunrise, after use of the system in at least four thousand
treatments, no patient has ever suffered a vision-threatening complication. The
LTK procedure typically is performed on the area of the eye that is outside the
central visual zone, leaving the central cornea untouched.
Two direct competitors of Sunrise have developed LTK devices for the
treatment of hyperopia: Summit and TechnoMed, a German company. Both of these
competitors produce a contact-mode holmium laser system equipped with a
hand-held probe that delivers laser energy to a single spot on the cornea during
each application. The physician must move the probe sequentially from spot to
spot in order to produce treatment patterns. Since laser energy is not delivered
simultaneously and symmetrically to a ring of spots, as it is with the Sunrise
Corneal Shaping System, the cornea is changed asymmetrically during treatment,
which may lead to irregular induced astigmatism. Sunrise believes that the
contact-mode treatment of the Summit and TechnoMed devices will not be embraced
by physicians. Further, based on discussions with its patent counsel, Sunrise
believes that Summit's holmium laser system may violate certain of Sunrise's
patents.
Sunrise has developed two other products for the ophthalmic business. The
first, a holmium laser system designed to perform a filtering procedure for
treatment of glaucoma, the gLase 210 System, was developed in 1990. The gLase
210 System filtering procedure relieves pressure inside the eye by making a
small hole in the sclera. The design characteristics and the unique delivery
device of the gLase 210 System enable ophthalmologists to perform the procedure
on an outpatient basis. Foreign sales of the gLase 210 System commenced on a
limited basis during the second quarter of 1990. Domestic sales began in
December 1990 upon receipt by Sunrise of FDA clearance to commence commercial
sale of the product in the United States for the filtering procedure. The gLase
210 System currently is marketed through dealers in the United States and
distributors abroad. Sunrise has also obtained an IDE for a second laser product
used in the treatment of glaucoma. The IDE permits treatment of up to six
persons, only one of whom has been treated to date.
The Dental Business
Although recently Sunrise's primary efforts have been focused on the
engineering and development of laser products used in the ophthalmic business,
Sunrise began as a developer and manufacturer of dental laser systems. Through
the end of 1991, Sunrise was the exclusive developer and manufacturer of dental
laser systems for American Dental Technologies, Inc. and received substantially
all of its revenues from the sale of its dLase Dental Laser System (the "Sunrise
dLase System") to ADT. Sunrise's exclusive relationship with ADT has since been
terminated, and Sunrise has been marketing its dental laser systems directly. In
1990, Sunrise received FDA market clearance to sell the Sunrise dLase System in
the United States for soft tissue applications; however, it has not received FDA
market clearance for the Sunrise dLase System for hard tissue applications.
The SunLase 800 System is a portable laser system designed to be used in
dentistry for hard tissue applications, such as treatment of dental caries
(cavities) and precarious dental lesions. The SunLase 800 System is also used
for soft tissue cutting procedures in the oral cavity. Sunrise introduced the
SunLase 800 System for sales in international markets during the third quarter
of 1992. The SunLase 800 System incorporates a memory feature that allows a
dentist the choice of up to eight programmable treatment
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settings. The application of solid-state laser technology provides low-cost,
efficient and reliable operations. No special utilities are required and the
unit plugs into a standard electrical outlet. In March 1993, Sunrise introduced
in the United States market two dental laser systems for soft tissue
applications: the SunLase 400 System, a four watt system and the SunLase Master,
an eight watt system.
In 1993, pursuant to a joint development and manufacturing agreement with
Danville Engineering, Sunrise commenced development of the MicroPrep cavity
preparation system (the "Sunrise MicroPrep System"), an air abrasion system used
to prepare a cavity for restorative material. The Sunrise MicroPrep System
combines the technology developed by Danville Engineering with the electronics,
system engineering and manufacturing skills of Sunrise. Sunrise began
distribution of the system in the second quarter of 1994. In the United States,
the Sunrise MicroPrep System is marketed through distributors as well as
Sunrise's direct sales force. Outside the United States, the Sunrise MicroPrep
System is marketed through exclusive distributors on a country-by-country basis.
In October 1995, Sunrise introduced the Associate cavity preparation system, a
table-top version of the Sunrise MicroPrep System.
GOVERNMENT REGULATION
Sunrise's activities are subject to extensive regulation by the FDA and
similar health authorities in certain foreign countries. The Sunrise Corneal
Shaping System is regulated as a Class III medical device by the FDA under the
FDC Act. Class III devices require a PMA by the FDA prior to commercial sale in
the U.S. The PMA approval process (and underlying clinical studies) is lengthy
and uncertain and requires substantial commitments of Sunrise's financial
resources and management's time and effort. Delays in obtaining or failure to
obtain required regulatory approvals or clearances in the U.S. and other
countries would postpone or prevent the marketing of the Sunrise Corneal Shaping
System and other devices and would impair Sunrise's ability to generate funds
from operations, which in turn would have a material adverse effect on Sunrise's
business, financial condition and results of operations. There can be no
assurance Sunrise will be able to obtain in a timely manner, if at all, required
premarket approvals in the United States or Japan for intended uses of the
Sunrise Corneal Shaping System, or for any other devices for which Sunrise may
seek approvals or clearances.
Sunrise has been issued an IDE by the FDA to permit it to generate data
necessary to support a PMA application for the use and marketing of Sunrise's
holmium laser corneal shaping product in LTK applications. The FDA has advised
Sunrise that the initial Phase II(a) clinical trials conducted by Sunrise did
not produce enough statistically significant data to enable the FDA to determine
that the treatment algorithms employed in such clinical trials were predictable
or effective for the treatment of hyperopia. On September 5, 1996, the FDA
authorized Sunrise to treat an additional 100 subjects at five United States
locations in a continuation of Phase II(a) clinical trials using a treatment
algorithm developed by Sunrise in the course of the initial Phase II(a) clinical
trials and in the course of studies conducted by ophthalmologists in Mexico,
Great Britain and Canada. The continued clinical trial is limited to the
treatment of forty subjects for the +1 diopter treatment group and sixty
subjects for the +2 diopter treatment group.
The FDA will grant a PMA with respect to a particular procedure performed
with the Sunrise Corneal Shaping System only if and when it is satisfied the use
of the device for that procedure is safe and effective treatment for the
condition indicated. In granting a PMA, the FDA may restrict the types of
patients who may be treated, thereby limiting the market acceptance of the
Sunrise Corneal Shaping System. Even if FDA approval is obtained, a marketed
product is subject to continual review. Later discovery of previously unknown
problems or failure to comply with applicable regulatory requirements may result
in restrictions on the marketing of a product or withdrawal of the product from
the market, in addition to possible criminal and/or civil proceedings.
Modifications to a device that is the subject of an approved PMA, its labeling,
or manufacturing process may require approval by the FDA of PMA supplements or
new PMAs. Supplements to a PMA often require the submission of the same type of
information required for an initial PMA, except the supplement is generally
limited to information needed to support the proposed change from the product
covered by the original PMA. There can be no assurance the Sunrise Corneal
Shaping System will be shown to be safe and effective, or that it will be
approved or cleared by the FDA or foreign regulatory bodies, for the intended
uses for which it is being
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investigated. Modifications could also be required if Sunrise is unable to reach
a satisfactory licensing arrangement with the University of Miami on a jointly
developed component of the delivery system. See "Risk Factors--Patent Concerns."
Any products manufactured or distributed by Sunrise will be subject to
pervasive and continuing regulation by the FDA. The FDC Act also requires
Sunrise to manufacture its products in registered establishments, in accordance
with the FDA's Good Manufacturing Practices ("GMP") regulations, and to list its
devices with the FDA. Such manufacturing facilities are subject to periodic GMP
inspections by the FDA. GMP regulations impose certain procedural and
documentation requirements with respect to manufacturing and quality assurance
activities. The FDA has proposed changes to the GMP regulations which will
likely increase the cost of compliance with GMP requirements. Labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
instances, by the Federal Trade Commission.
In addition, the introduction of Sunrise's products in foreign countries may
require obtaining individual foreign regulatory clearances in numerous
countries. These products have been sold in approximately 15 foreign countries.
Sales of the Sunrise Corneal Shaping Systems are restricted in several countries
in addition to the United States, including Japan, Canada, Taiwan and Mexico.
There can be no assurance Sunrise will be able to obtain regulatory clearances
for its products in the United States or foreign markets.
PATENTS AND PROPRIETARY TECHNOLOGY
In addition to United States process patents for use of holmium lasers in
corneal shaping held by Sunrise and Laser Biotech, foreign process patents and
United States and foreign apparatus patents for shaping the cornea with holmium
lasers have been issued to others. If patents held by others were considered
valid and interpreted broadly in an adversarial proceeding, they could be deemed
to cover one or more aspects of the holmium laser cornea shaping system or use
of such systems to perform LTK or other procedures. There can be no assurance
that Sunrise or Laser Biotech will not be subject to one or more claims for
patent infringement, or that Sunrise and Laser Biotech would prevail in any such
action. See "Risk Factors--Patent Concerns." Sunrise has attempted to negotiate
with the University of Miami (the "University") to reach agreement regarding the
non-exclusive use of a component of the delivery system used in the Sunrise
Corneal Shaping System which was jointly developed by Sunrise and the
University. Sunrise believes that it will be able to make reasonable
arrangements with the University. If, however, Sunrise is unable to conclude
negotiations with the University successfully, the University may seek to
prohibit the manufacture, use and sale of the delivery system presently
configured in the Sunrise Corneal Shaping System. If Laser Biotech is forced to
redesign the Sunrise Corneal Shaping System, such efforts could be time
consuming, expensive and prolong or prohibit FDA review.
In the United States, Sunrise holds seven patents on methods and apparatus
for thermal modification of collagen (in the cornea and in other tissues),
including those upon which the Sunrise Corneal Shaping System and the Sunrise
gLase 210 System are based. Internationally, Sunrise holds twelve patents on
ophthalmic lasers and apparatus for corneal shaping in the European community,
Japan and Canada. Additional patent applications are pending, although there can
be no assurance that any of these patents will be granted.
Summit also holds certain United States and international patents on LTK
technology. Summit has acknowledged in certain filings with the Commission that
it may be infringing with respect to Laser Biotech's LTK method patents; this
infringement may prohibit Summit from manufacturing or selling LTK systems in
the United States. However, Summit is specifically exempt from patent litigation
arising from U.S. sales prior to completion of its U.S. clinical trial. Further,
an infringement action by Sunrise or Laser Biotech would require management to
expend efforts and resources that might otherwise be devoted to Sunrise's
operations. There can be no assurance that Sunrise or Laser Biotech will bring
any such infringement action or, if brought, the same would be successful in
such an infringement action.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
RESULTS OF OPERATIONS
Revenues of $1,767,000 and $4,327,000 for the three-and nine-month periods
ended September 30, 1996 represent 357% and 18% increases, respectively over the
$387,000 and $3,680,000 for the same periods in 1995. MicroPrep, Sunrise's air
abrasion cavity preparation system introduced in June 1994, continues to exhibit
strong customer acceptance and accounted for approximately 60% of Sunrise's
revenues for the three-and nine-month periods ended September 30, 1996.
Gross profit as a percentage of sales was 41% for the three months ended
September 30, 1996. Gross profit for the same period of 1995 was negative 14%
due to the effect of fixed manufacturing costs on a relatively low sales volume.
For the nine-month period ended September 30, 1996, gross profit as a percentage
of sales increased from 34% to 41%. This increase is due to increased absorption
of overheads due to higher sales and production volumes.
Engineering and development expenses increased $30,000 (25%) and $143,000
(41%) to $149,000 and $494,000 for the three-and nine-month periods ended
September 30, 1996, over the $119,000 and $351,000 expense for the same periods
in 1995. This increased effort was directed primarily toward Sunrise's air
abrasion product line with relatively level spending on the advancement of the
LTK system.
General and administrative expenses for the three-month period ended
September 30, 1996 decreased to $668,000 from $734,000 for the same period in
1995. This decrease is due to decreased legal expenses and Sunrise's efforts to
reduce costs. General and administrative expenses for the nine-month period
ended September 30, 1996 increased to $1,873,000 from $1,646,000 in the same
period of 1995. The increase is due to relatively higher legal expenses in
earlier quarters of 1996.
Sales, marketing and regulatory costs increased $409,000 (77%) and $845,000
(40%) to $942,000 and $2,938,000 for the three and nine months ended September
30, 1996, respectively, from the $533,000 and $2,093,000 for the same 1995
periods, due to increased costs relating to the implementation of a direct sales
organization as well as increased marketing and regulatory costs.
FINANCIAL CONDITION
As of September 30, 1996 Sunrise had $1,443,000 in cash and cash equivalents.
Sunrise's operating activities used $4,528,000 in the nine months ended
September 30, 1996 and used $4,495,000 in cash during fiscal 1995. A substantial
portion of the 1995 and 1996 losses were funded by the $7.5 million net proceeds
received from the completion of private placements of 15,100,000 shares of
Sunrise's common stock at prices ranging from $0.50 to $0.625 per share in June
and September 1995. In August 1996, Sunrise closed a private placement of
approximately 2,300,000 shares of its common stock in exchange for approximately
$2,200,000 net proceeds to Sunrise. This financing will be used primarily to
support FDA clinical trials for the Sunrise Corneal Shaping System, ongoing
research and development, and general and administrative costs including costs
associated with possible acquisitions.
Working capital amounted to $4,541,000 at December 31, 1995 and decreased to
$3,034,000 at September 30, 1996. Working capital, including the proceeds from
the private placements, was used to fund Sunrise's 1995 and 1996 losses.
Sunrise's current operations continue to be cash-flow negative, further
straining Sunrise's limited working capital resources. The level of current
product sales is not sufficient to provide enough cash for adequate working
capital to expand the dental business and support ongoing marketing and
regulatory development of the ophthalmic subsidiary. To continue its current
level of operations, it will be necessary for Sunrise to obtain additional
working capital resources from the placement of debt or equity instruments or
the sale of some of its assets or it will be necessary for Sunrise to curtail or
suspend operations.
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FOR THE YEAR ENDED DECEMBER 31, 1995
OVERVIEW
The Company has incurred substantial losses in the past three years which
have seriously depleted its working capital. Sales of its existing dental
products at current levels will not be sufficient to sustain both the existing
business and the continued development and regulatory licensing of additional
products including the LTK system. Sunrise has been able to raise additional
working capital for all aspects of its business through the private placement of
its common stock. These private placements raised $13,051,000 in 1994 and 1995
in new equity for Sunrise. Sunrise is seeking to raise additional working
capital for all aspects of its business. If Sunrise is unable to obtain
additional working capital, it may be forced to substantially curtail its
activities and could, under certain circumstances, be forced to eliminate or
suspend operations.
Since its inception, Sunrise has been engaged in the design, development,
manufacture and sale of laser systems for applications in medicine and
dentistry. Sunrise's first commercial product, the Sunrise dLase System, was
developed pursuant to a series of development, manufacturing and marketing
agreements with American Dental Technologies, Inc. Pursuant to its agreements
with ADT, Sunrise had exclusive manufacturing rights to this product and ADT had
exclusive distribution rights and owns the technology rights including related
patent rights. ADT commenced foreign sales of the Sunrise dLase System in
December 1988 and, following clearance from the FDA to market the product for
soft tissue applications, commenced United States distribution at the end of the
second quarter of 1990. Sunrise filed a PMA with the FDA for treatment of
precarious lesions in October 1988, which was denied in August 1990, and
commenced additional clinical trials for this application in 1991 after
conferring with the FDA with respect to a new protocol. In the first quarter of
1993, Sunrise received FDA approval to expand the clinical studies to add more
patients, an additional research site, and include the treatment of 2o caries.
Sunrise filed a new PMA during 1994. In February 1996 the FDA's dental products
advisory board voted not to recommend pre-market approval of Sunrise's dental
laser for hard tissue applications. Sunrise is currently evaluating this
development in relation to the overall marketing of the dental laser and whether
it should continue to pursue FDA approval for hard tissue.
Commencing in late 1990, Sunrise completed development of two new holmium
laser systems, the gLase 210 and sLase 210, and obtained United States and
certain foreign regulatory approvals for filtering and thermal sclerostomy
procedures for treatment of glaucoma, percutaneous disc compression procedures
for minimally invasive back surgery, as well as general and orthopedic surgical
procedures.
In the first half of 1992, Sunrise completed the acquisitions of in-process
technology from Laser Biotech and Emmetropix Corporation ("Emmetropix"), which
together had patents, patent applications and other proprietary technology
relating to laser thermal keratoplasty, which Sunrise believes will be useful in
the treatment of myopia, hyperopia, and astigmatism. Phase I clinical trials
using a prototype system commenced in mid-1992 pursuant to an Investigational
Device Exemption from the FDA. The results of Phase I were filed with the FDA in
the summer of 1993 and permission was granted by the FDA to commence Phase IIa
in the fourth quarter of 1993. Sunrise completed Phase IIa clinical trials of
the LTK system for hyperopia in the United States in November 1994. In February
1995, Sunrise filed its request with the FDA to commence Phase IIb clinical
trials. In a March 1995 letter, the FDA cited various deficiencies in Sunrise's
February letter and requested additional information. In December 1995, Sunrise
submitted the requested additional information. In January 1996, the FDA
responded to Sunrise's submittal by requesting current follow-up data on all
Phase IIa patients. In March 1996, Sunrise provided the current follow-up data
on all Phase IIa patients and received approval to expand its Phase II study in
April 1996. Sunrise does not expect it will receive FDA approval of the LTK
system for several years.
In April 1993 Sunrise entered into an agreement with Danville Engineering to
develop the MicroPrep, an air abrasive unit for cavity preparation by dentists.
A 510(k) was filed with the FDA in July 1993. Sunrise received FDA clearance to
commence commercial sale of the product in the United States on May 3, 1994.
Sunrise expects some of its products will require filing of a 510(k)
application or a PMA with the FDA prior to marketing in the United States. In
the past, Sunrise has encountered significant delays with
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respect to its PMA filing with the FDA for hard tissue dental applications and
has been required to perform additional clinical studies to support such
application There can be no assurance Sunrise's applications to the FDA, when
filed, will ultimately receive marketing approval or will be approved in a
timely manner, the FDA will not request additional information or, where a
510(k) application is filed, the FDA will not require Sunrise to file a PMA for
such products.
Through 1991, revenues increased dramatically, and a substantial portion of
Sunrise's revenues were derived from sales of the dLase 300 to ADT, accounting
for approximately 90% and 79% of revenues in 1990 and 1991, respectively.
Furthermore, since all dental products were marketed through ADT, Sunrise did
not have significant sales and marketing expenses until 1991, when Sunrise began
marketing the gLase 210. In early 1992, ADT withdrew earlier forecasts and
advised Sunrise that orders for 1992 would be significantly reduced. Sunrise
terminated its development and domestic distribution agreements with ADT, and
ADT filed for arbitration regarding termination of the agreements as well as
ownership of several new lasers developed by Sunrise in late 1991 and 1992. In
the third quarter of 1992, Sunrise commenced sale of the SunLase 800, an
eight-watt dental laser system, in Europe through established dental laser
distributors. The arbitration was settled in February 1993, and, pursuant to the
terms of settlement, both parties have equal rights to the eight-watt system
developed by Sunrise. Sunrise was free to develop, manufacture and market dental
lasers for its own account and has obtained royalty-bearing licenses under ADT's
patents for this purpose. Sunrise also relinquished its rights to exclusively
manufacture the dLase 300 for ADT or develop or manufacture future dental
products for ADT. Sunrise currently markets the SunLase 800 and SunLase 400, a
four watt dental laser system, overseas through established dental distributors.
In late February 1993, Sunrise introduced the SunLase and SunLase Master, a
four-watt and eight-watt system, respectively, for sale in the United States.
On August 31, 1994, Sunrise sold certain assets associated with its surgical
laser business to David Hennings, an individual, in exchange for 275,000 shares
of Sunrise's common stock held by Mr. Hennings and a note receivable of $48,000.
Sunrise also granted royalty-bearing licenses to certain patents owned by
Sunrise. Up until the time of the transaction, Mr. Hennings was an employee and
officer of Sunrise. Subsequent to the transaction, Mr. Hennings resigned his
position on Sunrise's board of directors. The loss in disposition of these
assets, which was facilitated through the formation of a new subsidiary, was not
significant.
As a result of termination of the ADT business relationship and competition
in the dental industry, sales of Sunrise's dental laser products decreased from
a high of $20 million in 1991, to less than $4 million in 1994. Revenues from
the sale of dental laser products were expected to stabilize or slightly
increase in 1995. However, the termination of the representation of the product
line by Sunrise's German distributor adversely affected 1995 revenues. Sales of
the MicroPrep, a non-laser dental product, which commenced in mid-1994, (see
"Business") are becoming a more important part of Sunrise's total revenues.
Sunrise does not expect any other products to contribute significantly to sales
in 1996, and its results are highly dependent on the sale of these products.
Significant revenues from sales of the LTK system cannot be anticipated until
and unless U.S. regulatory approvals are obtained, a process which is expected
to take no less than three additional years.
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The following table sets forth certain operations data as a percentage of net
revenue for the periods indicated.
YEAR ENDED DECEMBER 31,
------------------------
1995 1994 1993
---- ---- ----
Net Revenues .................... 100% 100% 100%
Cost of revenues ................ 69 82 58
--- --- ---
Gross profits ................... 31 18 42
Other costs and expenses:
Engineering and development .. 9 20 18
Sales, marketing and regulatory 57 50 48
General and Administration ... 44 39 30
--- --- ---
Total other costs and expenses . 110 109 96
--- --- ---
Loss from operations ............ (79) (91) (54)
Interest income, net of expense 1 -- 0
--- --- ---
Loss before taxes on income .... (78) (91) (54)
Income tax expense (benefit) ... -- -- 2
--- --- ---
Net Loss ........................ (78)% (91)% (56)%
=== === ===
REVENUES
1993 revenues of $11,860,000 reflect a full year of sales activity in the
international marketplace for the SunLase 800 and introduction of the LTK
product internationally in December 1993. Revenues decreased to $7,578,000 in
1994, approximately a 36% reduction from the 1993 levels. All product lines
suffered volume decreases in 1994 when compared to 1993 with the exception of
the newly introduced MicroPrep. Sunrise exited the surgical products market upon
the sale of its surgical laser operation business to David R. Hennings, a
co-founder and director of Sunrise. The sale was consummated in the third
quarter of 1994. The MicroPrep, an air abrasive cavity preparation system,
showed strong initial customer acceptance in both the domestic and international
marketplaces following its June 1994 introduction. Revenues decreased to
$5,294,000 in 1995, approximately a 30% reduction from the 1994 levels.
Substantially all of this decrease is attributed to the dental laser product
line, which experienced a revenue reduction in excess of 50%. The decrease is
principally related to the German market, where Sunrise's exclusive distributor
discontinued its representation of the product line. Sunrise's MicroPrep and
Corneal Shaping System product lines maintained 1994 volume levels. Another
factor influencing Sunrise's drop in revenue was its decision in July 1995 to
rely less upon its domestic distributors and develop its own direct sales force.
Although this strategic change should provide Sunrise with better control over
its future sales, the short term impact (during the last half of 1995) adversely
affected sales because of the training costs and learning curve for the new
sales organization.
In 1993, approximately 95% of Sunrise's dental laser sales were to
international customers with very little market penetration in the United
States. Although domestic laser sales increased in 1994, Sunrise experienced a
48% drop in total worldwide dental laser sales. Sunrise's marketing and sales
efforts indicate dentists have been confused by the variety of lasers offered
for dental applications and the market for dental lasers may not expand
significantly until FDA approval for hard tissue applications has been obtained
(see "Competition"-"Dentistry"). Sunrise believes university based educational
programs coupled with clinical support may allow the dental laser market to
become viable at some future date. This marketing program will require
significant effort and expenses in order to establish a market presence in the
United States.
For those international sales not made in United States dollars, Sunrise,
when appropriate, engages in foreign currency management to minimize the impact
of foreign exchange fluctuations.
GROSS PROFIT
Gross profit margins were 42%, 18% and 31% in 1993, 1994 and 1995
respectively. The major factors contributing to the significant reduction in
gross profit margins in 1994 from the 1993 levels include lower
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revenues of Sunrise's high margin laser products, underutilization of
manufacturing capacity due to decreased product shipments and increased product
costs associated with the MicroPrep product line. The 1995 improvement in gross
profit margin, when compared to 1994, is attributed to introduction of the cost
reduced MicroPrep Director, price increases for dental lasers and the Corneal
Shaping System (CSS) being a greater percentage of total Company revenues. The
CSS product line has a higher gross profit margin than Sunrise's blended profit
margin. Underutilization of manufacturing capacity continues to adversely affect
gross profit margins.
ENGINEERING AND DEVELOPMENT
Engineering and development expenses were $2,170,000, $1,561,000 and $503,000
for the years ended 1993, 1994, and 1995, respectively. Engineering and
development expenses decreased to $503,000 in 1995, approximately a 68%
reduction from the 1994 level. This reduction is principally due to the effect
of the sale of the surgical products line (see "Overview").
SALES, MARKETING AND REGULATORY
Sales, Marketing and Regulatory expenses were $5,686,000, $3,763,000, and
$2,992,000 for the years ended 1993, 1994, and 1995 respectively.
Sunrise currently markets its ophthalmic lasers and dental products through a
direct sales organization working with dealers, distributors and manufacturer's
representatives in the United States. Distribution for all products
internationally is handled through distributors.
Sunrise had five direct sales employees at the end of 1993 and 1994, and
thirteen at the end of 1995. During the first quarter of 1993, Sunrise began to
aggressively pursue relationships with foreign distributors to market the
SunLase dental laser systems, resulting in increased sales and marketing
expenses. Increased spending for the United States market commenced during the
second quarter of 1993 with the development of brochures, attendance at trade
shows and discussions with United States distributors. 1994 sales, marketing,
and regulatory expenses decreased 34% from the 1993 levels. This reduction is
due primarily to reduced sales commissions resulting from a drop in revenues and
curtailment of advertising and promotional expenditures. Sales, Marketing and
Regulatory expenses decreased to $2,992,000 in 1995, approximately a 20%
reduction from the 1994 level. This reduction is principally due to lower
international sales and marketing costs, including commissions, as a result of
decreased revenues in Germany.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $3,605,000, $2,933,000 and
$2,329,000 for the years ended 1993, 1994, and 1995 respectively.
Sunrise's general and administrative expenses consist primarily of product
liability and officer and director liability insurance premiums; accounting,
legal and other fees related to financial transactions, patent and general
corporate matters, and litigation, as well as provisions for Sunrise's allowance
for bad debts. Expenses associated with the arbitration of the ADT contract
dispute and continued legal expenses associated with ADT legal actions in
federal and state courts in Michigan and California resulted in substantial
legal fees in all three years. Sunrise implemented a reduction in workforce in
December 1993 which resulted in a charge of approximately $175,000. Sunrise's
expansion of the foreign distribution network resulted in a significant increase
in the 1993 allowance for bad debts as compared with prior periods when
substantially all sales were made to domestic customers. Sunrise anticipates
on-going legal actions with ADT will result in continued high levels of legal
expenses in 1996. The major factors accounting for the decrease in general and
administrative expenses in 1994 from 1993 were lower salaries and related
benefits, reduction in the provision for doubtful accounts and an increase in
currency exchange gains. General and administrative expenses decreased to
$2,329,000 in 1995, approximately a 20% reduction from the 1994 level.
Although legal expenses, both general corporate and litigation, remain at
high levels they are much lower than in 1994 and principally account for the
lower spending level.
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INCOME TAXES
In 1993, a provision of $232,000 was made to write off deferred tax assets
which had been recorded in previous years. At December 31, 1995 and 1994, all
deferred tax assets computed in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" have been fully
offset by a valuation allowance.
As of December 31, 1995, Sunrise had federal net operating loss
carry-forwards of approximately $18,800,000. The ownership provisions of the
Internal Revenue Code of 1986 would limit utilization of the carry-forwards
should there be a substantial change in Sunrise's ownership.
NET LOSS
Sunrise reported losses of $6,624,000, $6,910,000 and $4,130,000 in 1993,
1994, and 1995 respectively.
The net loss in 1993 was due primarily to increased sales and marketing
expenses associated with Sunrise's efforts to establish relationships with
dental laser distributors in the United States, expenses associated with the
development of MicroPrep, clinical work on the LTK system, sales launch of the
LTK system internationally in late 1993, legal expenses associated with ADT
litigation and the stockholders' class action suit settlement, and an increase
in the reserve for bad debts.
The net loss in 1994 was due principally to a severe drop in ophthalmic laser
sales in both the domestic and international marketplace and a decrease in
foreign sales of dental lasers. Somewhat offsetting these reductions were the
initial sales of the MicroPrep, Sunrise's air abrasive product introduced in
June 1994, and across-the-board reductions in operating expenses.
The net loss in 1995 was due principally to the continued low level of sales,
excess manufacturing capacity and Sunrise's need to maintain the basic sales,
marketing, regulatory and corporate infrastructure. Although across-the-board
operating expense reduction totaled $2,433,000 in 1995 when compared to 1994,
the reductions did not offset the low level of sales volume.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995 Sunrise had $3,514,000 in cash and cash equivalents.
Sunrise's operating activities used $4,495,000 in cash during 1995. A
substantial portion of the 1995 loss was funded by the $7.5 million net proceeds
received from the completion of private placements of 15,100,000 shares of
Sunrise's common stock at prices ranging from $0.50 to $0.625 per share in June
and September, 1995.
Working capital amounted to $1,101,000 at December 31, 1994 and increased to
$4,541,000 at December 31, 1995. Working capital, including the proceeds from
the private placement, was used to fund Sunrise's 1995 loss and pay down its
Accounts Payable.
Sunrise's current operations continue to be cash flow negative, further
straining Sunrise's working capital resources. The level of current product
sales is not sufficient to provide enough cash to pursue the dental business and
support ongoing development and regulatory approval of the LTK system. In order
to continue its current level of operations, it will be necessary for Sunrise to
obtain additional working capital resources, whether from debt or equity
sources. If Sunrise is unable to obtain additional working capital resources
from the placement of debt or equity instruments or the sale of some of its
assets, it may be necessary for Sunrise to curtail or suspend operations.
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INFORMATION ABOUT EYESYS
OVERVIEW
EyeSys designs, develops and markets a line of non-invasive corneal
topography systems for use by ophthalmologists and optometrists in surgical
planning and evaluation, diagnosis of corneal pathologies and contact lens
fitting. Founded in 1986, EyeSys has installed more than 3,000 systems.
The EyeSys System 2000 combines proprietary hardware used for capturing an
image of the patient's cornea, proprietary software used to analyze the captured
image and a personal computer to control the hardware and to run the software.
The output of the EyeSys System 2000 is a color-coded map of the shape and
curvature of the human cornea that vision care professionals can easily
interpret and utilize for treatments such as refractive and cataract surgery and
corneal transplants, for diagnosis of astigmatisms and corneal pathology, and
for contact lens fitting and custom lens manufacturing.
MARKET BACKGROUND
The eye is analogous to a camera, with three main components: the lens
(comprised of the cornea and the lens) which focuses the light, the aperture
(the iris) which regulates the amount of light passing through the system and
the film (the retina) which receives the image for subsequent processing by the
brain. Approximately 75% of the refractive or focusing power of the eye is
provided by the curvature of the anterior cornea. As with conventional lenses, a
steeper cornea has greater refractive power and a shorter focal length, while a
flatter cornea has less refractive power and a longer focal length.
Approximately 40% of the world population suffers from refractive error great
enough to require correction with spectacles, contact lenses or refractive
surgery.
Refractive errors result when the eye cannot properly focus images on the
retina. The most common refractive errors include myopia, hyperopia and
astigmatism. In the myopic (or nearsighted) eye, light rays are focused in front
of the retina. The myopic patient can clearly see nearby objects, while distant
objects appear blurry. Alternatively, the hyperopic (or farsighted) eye has a
focal length which is too long. The hyperopic patient can clearly see distant
objects, but nearby objects appear out of focus. In the astigmatic eye, the
curvature of the cornea is non-uniform. This non-uniformity causes light passing
through various portions of the cornea to be focused at different locations
either in front of, on or behind the retina. The astigmatic patient experiences
blurry vision at any distance. The correction of these refractive errors is the
primary driver in the vision care marketplace and dominates the practices of
most ophthalmologists and optometrists throughout the world.
Because of the importance of the cornea to visual performance, virtually all
ophthalmologists and optometrists have historically used a measuring instrument
known as a keratometer to quantify corneal curvature. This instrument obtains
four measurement points reflected on a 3 millimeter diameter circle on the
cornea. Because of the small number of data points and other limitations of this
instrument, it cannot accurately measure asymmetrical curvatures. This is
clinically significant because, according to clinical studies, more than one out
of every three people suffers from asymmetric refractive errors. While in the
past the limitations of keratometry were accepted since only symmetrical
refractive errors were correctable with glasses or contact lenses, this is no
longer the case. Advanced contact lens designs and refractive surgical
procedures provide clinicians and patients with a variety of optical solutions,
even for asymmetrical errors, and require more accurate information over a
greater area of the cornea.
Applications of corneal topography technology include:
o Refractive Surgery: More than 140 million Americans suffer from refractive
errors requiring them to wear glasses or contact lenses. Every year there
are an estimated 65-70 million patient visits to ophthalmologists and
optometrists in the U.S. which result in the purchase of over 60 million
eyeglasses and contact lenses. It is also estimated that over 40% of the
world's population suffers from refractive errors significant enough to
require some form of correction. Many industry analysts believe that
emerging refractive surgery techniques will be attractive to a significant
number of these patients. Corneal topography has important applications in
selecting the appropriate procedure for each patient, preoperative
surgical planning, postoperative evaluation and patient follow-up.
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o Cataract Surgery: Cataract surgery is a procedure involving removal of an
opacified natural crystalline lens, primarily in elderly patients. The
evacuated lens is replaced with an implant called an intraocular lens.
Corneal topography can help the surgeon improve pre-surgical planning,
assess and correct surgically induced astigmatism (which is the most
frequent complication caused by IOL surgery), potentially improve the
calculation of the implanted IOL power, and support combination
cataract/refractive surgical procedures.
o Corneal Transplants: Corneal topography provides important information for
other surgical procedures, including post operative evaluation of corneal
transplants. An increasing number of corneal transplants are performed
using corneal topography to provide for improved surgical outcomes by
allowing the practitioner to evaluate surgical technique and adjust
postoperative treatment. EyeSys estimates that approximately 50,000
corneal transplants are performed in the U.S. each year.
o Diagnosis of Astigmatism and Corneal Pathology: Corneal topography is a
valuable technology for the analysis and diagnosis of astigmatism and
various corneal pathologies, including keratoconus, pellucid marginal
degeneration and contact lens-induced corneal warpage. Because of the
aforementioned limitations of keratometers, many of these patients have
pathology that cannot be accurately measured by keratometry, the most
widely used method of measuring corneal curvature.
o Contact Lens Fitting and Custom Lens Manufacturing: Corneal topography has
several applications in contact lens fitting and manufacturing, including
(i) identification of irregular and hard-to-fit corneas, (ii) detection of
contact-lens induced corneal warpage, (iii) computerized selection of
lenses and evaluation of fit, (iv) custom designed contact lenses and (v)
verification of lens parameters. EyeSys believes that the combination of
an affordable corneal topography system and applications software targeted
at improving contact lens fitting is particularly attractive to
optometrists and general ophthalmologists who currently fit contact
lenses. EyeSys has developed a software application, Pro-Fit (Trade Mark),
which utilizes the available corneal topography data to recommend lenses
which can be selected from a comprehensive worldwide database of rigid gas
permeable (RGP or "hard") and soft lenses. Clinical testing of Pro-Fit
shows that the use of this application software can yield dispensable RGP
prescriptions over 90% of the time providing for dramatic improvements in
the quality of contact lens fits and can result in a significant saving of
clinicians' time. Traditional RGP lens fitting, based on keratometer
readings, is often a trial and error process, consuming clinician or staff
time and can be uncomfortable for patients.
TECHNOLOGY BACKGROUND
While corneal curvature is generally referred to as the key variable in
determining how well light is focused on the retina, it is in fact the tear film
which is the first physiological surface encountered by light rays as they enter
the ocular system. The general shape and curvature of the tear film is naturally
determined by the cornea, but this liquid layer does act to smooth small surface
irregularities and presents a better optical surface than the corneal tissue.
For this reason, vision care specialists have used images reflected off the
anterior tear film for over 100 years to study the refractive power of the
cornea.
To obtain more information about corneal curvature than was otherwise
available, a pattern of concentric, alternating black and white rings, such as
that used by EyeSys, was first used by Antonio Placido in 1890. These reflected
images optically correlate with the image generated on the retina which leads to
vision. By the capture of the reflected image (virtual image) of this known
pattern, EyeSys' corneal topography system can calculate corneal curvature and
refractive power to within 0.13 diopter (a unit of measure of the refractive
power of a lens). For reference, spectacle or contact lens correction targets
refraction within 0.25 diopter of 20/20 vision and refractive surgery is
considered very successful if within 0.50 diopters of 20/20 vision. In fact, the
refractive instrumentation used by ophthalmologists and optometrists operates
only in 0.25 diopter steps since changes smaller than this are insignificant
with respect to their impact on quality of vision. EyeSys' corneal topography
system operates by detecting each of 18 edges (rings) of alternating black to
white and white to black transitions. These rings are then
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compared to calibration files of known surfaces in order to compute curvature.
Although EyeSys' instrument has proven to be accurate in its measurements of the
corneal surface in numerous studies, EyeSys is actively engaged in bringing
improved placido and image processing technology to the market to maintain its
clinical and competitive position.
CURRENT PRODUCTS
o EyeSys 2000 Corneal Analysis System: In the fourth quarter of 1994 EyeSys
launched the System 2000 corneal topography instrument and Microsoft
Windows based software targeted at refractive surgeons, general
ophthalmologists and optometrists for diagnostic, surgical and contact
lens fitting applications. The primary function of the instrument is to
position a patient for corneal image capture, acquire the image of
reflected rings and send the image to an Intel based personal computer for
further processing. The System 2000 is modular and is marketed as a
proprietary computer peripheral and software. The System 2000 hardware
interfaces to the computer via a parallel port connection, allowing EyeSys
to unbundle the computer, monitor, printer, tables and other third party
items. This can significantly lower the price to the customer by allowing
physicians to utilize hardware they already own. Customers that need to
purchase non-proprietary hardware are given the option of ordering through
EyeSys or obtaining suitable hardware on their own.
The EyeSys System 2000 software modules are Microsoft Windows applications and
include the following basic modules:
o Patient Examination Software: This core application is the fundamental
software marketed by EyeSys and is required to perform corneal topography
examinations. It provides the control functions for EyeSys' System 2000
instrumentation as well as image processing and basic topographical
mapping capability.
o Patient History Software: This application provides a database for patient
topographic and demographic data as well as the results of other tests
performed as part of an eye examination. This software includes the
ability to compare multiple corneal topography examinations for a patient
allowing the clinician to monitor surgical and other corneal changes over
time. Features include the ability to digitally subtract multiple
examinations, providing high resolution analysis of corneal changes.
o Advanced Diagnostic Software: This application provides software tools to
allow for diagnosing corneal pathologies and analyzing visual function.
More specifically, this package presents unique information on the
cornea's refractive power, aspherecity and optical surface distortion.
o Pro-Fit Contact Lens Fitting Software: Pro-Fit utilizes the available
corneal topography data to recommend specific lenses which can be selected
from a comprehensive worldwide database of rigid gas permeable (RGP or
"hard") and soft lenses. This application also has been designed for the
needs of foreign markets, particularly for the European market where
contact lens fitting methods and practices differ from those in the United
States.
o DirectLink Co-management Software: DirectLink software allows the
transmission of patient topographical and other information between vision
care practitioners or between contact lens fitters and contact lens
laboratories.
EyeSys has recently introduced a new program of software and hardware support
agreements to extend the one-year hardware warranty on its instrumentation and
one year of software support (unlimited phone support and software updates). For
all customers not covered under warranty or extended service contracts, repairs
are billed on a time and materials basis, either by EyeSys or its international
distributors. Under its software support program, EyeSys markets software
maintenance contracts, which include free software upgrades and updates and
unlimited phone support.
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PRODUCTS UNDER DEVELOPMENT
In addition to the continued development of new and enhanced software for
corneal topography, EyeSys has development programs in the following areas:
o System 2000 with Checkerboard Placido: Subject to the successful
completion of clinical studies, EyeSys expects to introduce a newly
designed placido (a term referring to the concentric ring image the
instrument projects onto the cornea) technology. EyeSys believes that
enhancements to the basic placido technology will improve corneal analysis
by providing both enhanced accuracy and additional information. EyeSys is
therefore developing a polar grid pattern or "checkerboard" placido
employing a checkerboard pattern which allows for traditional radial image
analysis as well as a new dimension of circumferential analysis using
rings which are segmented into alternating black and white boxes. The
processing benefits of the polar grid may include (i) more information,
(ii) improved accuracy and (iii) more reliable detection of the pupil and
limbus contour. The checkerboard placido has been designed to be an easy
field upgrade for existing EyeSys System 2000 customers and will require
no changes, other than to the placido disc itself, to the System 2000
hardware. This new placido will require a software upgrade incorporating
the new image processing required by the checkerboard pattern as well as
the display of new information generated.
o Spatially Resolved Refractometer (SRR): EyeSys has entered into a
worldwide exclusive license agreement with CollOptics, Inc. of Palo Alto,
California for certain patents and technology which will allow it to
develop and commercialize a new diagnostic instrument for the measurement
and analysis of total ocular refraction across a number of data points on
the anterior surface of the cornea (i.e., in a spatially resolved manner).
This instrument, originally developed by The General Electric Company, if
successfully commercialized, is expected to represent a major advance in
ocular diagnosis and has the potential to change the practice patterns for
ophthalmologists and optometrists in measuring refraction.
Clinicians today use manual, time consuming trial and error methods to
determine the amount of refractive correction required for spectacles,
contact lenses and refractive surgery. In many practices, refractions
comprise most of the daily effort by many clinicians or their staff. The
SRR is intended to eliminate or greatly reduce the need for manually
performed tests. This can result in a significant cost savings to the
clinician. Additionally, in combination with corneal topography
information, this refraction data can enable the calculation of a detailed
(spatially resolved) new contour for the anterior surface of the eye which
will provide corrected vision. In this manner, the SRR can aid not only in
more accurate refraction of patients, but can also ideally provide a
surgical road map for use in conjunction with laser and other refractive
surgical modalities.
SALES AND MARKETING
EyeSys' products are sold to end-users through a sales channel which is
configured as follows:
o United States: EyeSys sells its products directly to end users through a
mix of direct sales representatives employed by EyeSys and independent
manufacturers' representatives. Direct sales representatives are 100%
focused on the sales of EyeSys' products while independent manufacturers'
representatives typically sell other ophthalmic capital equipment, in
addition to EyeSys'. All sales representatives are managed by EyeSys'
Houston based Director of Sales for North America. EyeSys also employs a
national accounts manager who focuses on surgicenter companies, vision
care chains, contact lens labs and large group practices. Telemarketing
representatives, based in Houston, generate qualified leads for new
systems, upgrades, trade-ins and support agreements.
o International: EyeSys sells its products to independent distributors who
in turn resell within their geographic territories. EyeSys utilizes
approximately 40 distributors covering over 60 countries. EyeSys'
distributors typically carry other ophthalmic capital equipment, regularly
call on ophthalmic clinicians with synergistic products and remain well
established within their geographic areas. International distributors are
supported by EyeSys' sales manager located in Paris, France,
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whose efforts are supplemented in the Asia Pacific region by EyeSys'
regional sales manager located in Singapore. Selling prices to independent
distributors reflect a discount of approximately 30% from published list
prices. Distributors assume service and support obligations for sales in
their territory with EyeSys providing back up support. In addition,
distributors are responsible for maintaining product inventory as well as
performing invoicing and collection activities. International sales are
denominated in U.S. dollars and are subject to risks common to export
activities, including government regulation and trade barriers. EyeSys
currently has systems installed in over 50 countries around the world.
For 1995, the U. S. accounted for approximately 50% of revenues and 35% of
unit shipments, and international markets accounted for 50% of revenues and 65%
of unit shipments.
GOVERNMENT REGULATION AND PRODUCT TESTING
In the United States, medical devices are subject to review by the FDA. The
Federal Food, Drug and Cosmetic Act, the Public Health Service Act and other
federal statutes and regulations govern or influence the testing, manufacture,
safety, labeling, storage, record keeping, reporting, approval, advertising and
promotion of such products. Prior to marketing, substantially all medical
devices must undergo FDA review by means of a 510(k) pre-market notification (a
"Notification") or a PMA. In order to obtain clearance from the FDA for a new
medical device by way of a Notification ("510(k) Clearance"), the manufacturer
must show that the device is "substantially equivalent" to a device or devices
cleared by the FDA prior to 1976. In order for the FDA to clear a new medical
device by way of a PMA ("PMA Clearance"), the manufacturer must show that the
new device is safe and effective, based primarily on extensive clinical testing.
The System 2000 is classified by the FDA as a Class I medical device. To date,
the FDA has required only that EyeSys obtain a 510(k) Clearance.
A company that desires to market medical devices must also comply with
FDA-established Good Manufacturing Practices regulations. EyeSys has been
inspected by the FDA twice, most recently in March 1996.
Sales of medical devices outside the United States are subject to widely
varying regulatory requirements, depending on the country. EyeSys generally
relies on distributors for sales outside the United States, and requires such
distributors to obtain regulatory approval for all EyeSys products sold in the
distributors' respective territories.
FACILITIES
EyeSys' manufacturing, research and development and office facilities are
located in Houston, Texas, in approximately 22,750 square feet of leased space.
The lease on the facilities expires in September 2000. EyeSys will have the
option to terminate the lease beginning in 1998, for a payment equal to the
unamortized portion of the landlord's leasehold improvements plus two months
rent. Management of EyeSys believes that sufficient space exists in the current
facilities or can be reasonably obtained to satisfy its currently projected
needs.
COMPETITION
EyeSys' primary competitors in the corneal topography market are Tomey
Technology ("Tomey"), Alcon Surgical, Inc., a subsidiary of Nestle ("Alcon"),
and Humphrey Instruments, a subsidiary of Carl Zeiss ("Humphrey").
Tomey, a Japanese ophthalmic diagnostic instrument manufacturer, has
historically been EyeSys' principal established competitor. Tomey initially
obtained worldwide marketing rights for the TMS-1 topography system from
Computed Anatomy, the product's developer, and subsequently purchased Computed
Anatomy. Computed Anatomy first introduced a placido disk based topography unit
at the 1987 American Academy of Ophthalmology ("AAO") meeting. The Tomey
instrument distinguishes itself with a small placido and a very short working
distance.
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Alcon, by its 1993 acquisition of Visioptic Inc., became a competitor of
EyeSys, with considerable financial and marketing strength. Visioptic first
introduced its placido disc based topography system at the AAO in 1989. The
founder of Visioptic, Sami El Hage, OD, is a pioneer in three-dimensional
measurement of the cornea and holds several patents on both the EH-270 placido
ring based system and algorithms used in the device.
Humphrey, with its acquisition of the corneal topography business of Optical
Radiation Corporation (ORC), entered the corneal topography market at the
American Academy of Ophthalmology meeting in San Francisco in October 1994.
Humphrey has a strong international reputation in diagnostic instrumentation and
is a formidable competitor.
Other placido based instruments and technologies are marketed or are under
development by other companies, although to date none of such companies has
achieved appreciable market share. Included among placido based companies are
Topcon America Corporation, Opticon and TechnoMed GmbH. Non-placido based
technologies are marketed by PAR Technology Corporation, Kerametrics, Inc. and
Orbtek. EyeSys anticipates that it will encounter established competitors as it
enters new markets for ophthalmic instrumentation. Some of these competitors may
have greater financial, technical and marketing resources.
EMPLOYEES
As of November 30, 1996, EyeSys had 39 employees, of whom 30 work at the
Houston facility. None of the employees is covered by a collective bargaining
agreement and EyeSys believes its relationships with employees are good.
LEGAL PROCEEDINGS
EyeSys is subject to various legal proceedings in the ordinary course of its
business. Currently, EyeSys is party to the following litigation. The Chubb
Group of Insurance Companies, the insurance carrier for EyeSys, has assumed the
defense of these claims. EyeSys holds a general liability insurance policy in
which the policy limits are One Million Dollars ($1,000,000) and an excess
umbrella insurance policy in which the limits are Ten Million Dollars
($10,000,000). No provision with respect to the following litigation has been
made in EyeSys' financial statements.
Rollins v. International Vision Expo, et al.
On November 13, 1995, Richardo Rollins and Lisa Rollins instituted a legal
action against EyeSys, The International Expo and Conference Incorporating
Optifair, Ophthalmic Instrument Company, Opis Software by Bright Eyedeas and
Nano Film in the Supreme Court of the State of New York, County of Queens. The
complaint alleges that on April 2, 1995, as a result of the negligence of one or
more of the defendants, Mr. Rollins slipped and fell in an area of the Jacob K.
Javitz Convention Center where several of the defendants (including EyeSys) had
previously maintained booths during a trade show. At the time of the accident,
the booths that were used by the defendants during the trade show had been
removed from the floor of the Convention Center. As a result of the accident,
Mr. Rollins claims to have sustained severe injuries and seeks relief in the
amount of Five Million Dollars ($5,000,000). Mrs. Rollins has also asserted a
claim for loss of consortium and seeks relief in the amount of One Hundred
Thousand Dollars ($100,000).
Stothers v. EyeSys
On March 22, 1996, Alvin B. Stothers, an individual, filed a complaint
against EyeSys in the District Court of Harris County, Texas. The complaint
alleges that on December 21, 1995, Mr. Stothers slipped and fell on property
leased by EyeSys and as a result sustained substantial injuries. At the time of
the accident, the Plaintiff was employed by a subcontractor that had been hired
to perform some remodeling work on the premises leased by EyeSys. As a result of
the accident, Plaintiff alleges that he sustained deep burns on his arm and a
partial tear of his rotator cuff. Plaintiff contends that his injuries are the
result of negligence on the part of EyeSys and seeks damages in the amount of
Five Million Dollars ($5,000,000).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EyeSys commenced operations in 1986 and has devoted the majority of its
efforts and resources to date to the development of corneal topography
technology and, commencing in the first quarter of 1990, to the manufacture and
marketing of its products.
FINANCIAL CONDITION
As of September 30, 1996, EyeSys had $64,935 in cash and cash equivalents.
EyeSys' operating activities used $2,935,038 in the nine months ended September
30, 1996 and $2,912,071 during fiscal 1995. A substantial portion of the 1995
and 1996 losses were funded by the $1.5 million proceeds received from the
completion of the private placement of Series B Preferred Stock in June 1995,
$3.0 million proceeds received from the completion of the private placement of
Convertible Subordinated Notes and Warrants in the period from December 1995
through May 1996, and approximately $2.6 million in proceeds from lines of
credit with a bank.
Working capital amounted to $1,692,648 at December 31, 1995 and decreased to
($3,204,946) at September 30, 1996. Working capital, including the proceeds from
the 1995 and 1996 private placements and the line of credit with a bank, was
used to fund EyeSys' 1995 and 1996 losses.
EyeSys current operations continue to be cash flow negative, further
straining its limited working capital resources. Management believes that the
current level of product sales may allow EyeSys to operate near a break-even
level of performance during the next few months. The ability of EyeSys to
achieve this level of performance is dependent on the demand for EyeSys' product
as well as maintaining sufficient research, development and sales and marketing
expenditures to meet the requirements of the market. If EyeSys is unable to
operate near a break-even level of performance, losses requiring additional
levels of capital will be incurred.
RESULTS OF OPERATIONS
Revenues or Net Sales: Revenues of $2,085,087 and $6,319,167 for the three
and nine month periods ended September 30, 1996 represent 6% and 15% decreases,
respectively over revenues of $2,223,634 and $7,433,795 for the same periods in
1995. In 1995 EyeSys recognized revenues associated with a one time software
licensing transaction of $400,000 and $600,000 for the three and nine month
periods ended September 30, 1995, respectively, which are included in EyeSys'
reported revenues. Revenues from this source have not recurred in 1996. EyeSys'
total unit shipments have increased from the first nine months of 1995 to the
first nine months of 1996, while at the same time average selling prices have
decreased resulting in a reduction of overall revenue, even after considering
the one time licensing revenues mentioned above. Additionally, EyeSys has
experienced a decrease of $358,000 in accessory revenues (comprising third party
computers, printers and tables) associated with customers choosing to purchase
such items from other sources.
EyeSys reported revenues of $9,521,968 and $8,297,967 for the years ended
December 31, 1995 and 1994 respectively, an increase of 15%. During 1995 EyeSys
recognized revenues of $600,000 associated with a one time software licensing
transaction. Additionally, unit shipments of EyeSys corneal topography systems
increased 35% between 1994 and 1995. This increase is not fully reflected by a
commensurate increase in product revenues because of a decrease in average
selling prices and because of a decrease of $587,000 in accessory revenues
(comprising third party computers, printers and tables) associated with
customers choosing to purchase such items from other sources. Prior to 1995, the
majority of all EyeSys shipments were required to include the purchase of
accessories from EyeSys. Beginning in 1995 such items could be purchased
separately.
EyeSys reported revenues of $8,297,967 and $9,057,092 for the years ended
December 31, 1994 and 1993, respectively, a decrease of 8%. This decrease
resulted mainly from a decrease in average selling prices and a delay in product
shipments at the end of 1994 associated with the introduction of a new corneal
topography system by EyeSys.
Gross Profit: Gross profit decreased as a percentage of revenues from 57% and
51% for the three and nine month periods ended September 30, 1995, respectively,
to 44% and 44% for the same periods in 1996. This is due primarily to EyeSys
having recognized revenues associated with a one time software
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licensing transaction of $400,000 and $600,000 for the three and nine month
periods ended September 30, 1995, respectively, which are included in EyeSys'
reported revenues and against which no costs of sales were incurred. Were it not
for this revenue, gross profits would have been 47% and 46% for the three and
nine month periods ended September 30, 1995, respectively.
Gross profit increased as a percentage of revenues from 46% to 47% between
1994 and 1995. This is due primarily to EyeSys having recognized $600,000 of
revenues associated with a one time software licensing transaction in 1995 and
against which no costs of sales were incurred. Were it not for this revenue,
gross profits would have decreased from 46% to 43% between 1994 and 1995. This
is due primarily to a decrease in average selling price.
Gross profit decreased as a percentage of revenues from 51% to 46% between
1993 and 1994. This is due primarily to a decrease in average selling price.
Selling, General & Administrative Expenses: Selling, general and
administrative expenses ("SG&A") increased from $1,141,182 and $3,722,248 for
the three and nine month periods ended September 30, 1995, respectively, to
$1,223,201 and $4,387,303 for the same periods in 1996, an increase of 7% and
18%, respectively. This increase results primarily from EyeSys adding direct
sales representatives in certain territories in the United States and increased
marketing costs associated with sales to optometrists.
SG&A expenses increased from $5,277,651 to $5,726,183 for the years ended
December 31, 1994 and 1995, respectively, an increase of 8%. The increase
results primarily from an increase in sales and marketing costs associated with
EyeSys entering the optometry market.
SG&A expenses increased from $4,013,378 to $5,277,651 for the years ended
December 31, 1993 and 1994, respectively, an increase of 32%. The increase
results primarily from the costs associated with a new product launch in 1994
and a general increase in sales and marketing expenditures associated primarily
with EyeSys' U.S. product marketing.
Research & Development Expenses: Research and development expenses ("R&D")
decreased from $417,214 and $1,447,459 for the three and nine month periods
ended September 30, 1995, respectively, to $227,940 and $897,770 for the same
periods in 1996, a decrease of 45% and 38% respectively. This decrease results
primarily from EyeSys focusing its development efforts on a smaller number of
projects than was previously the case.
R&D expenses decreased from $2,255,320 to $1,946,153 for the years ended
December 31, 1994 and 1995, a decrease of 14%. This resulted primarily from a
decrease in outside engineering charges in 1995 vs. 1994 due to one time costs
incurred in 1994 associated with the design of a new product by EyeSys.
R&D expenses increased from $1,315,231 to $2,255,320 for the years ended
December 31, 1993 and 1994, respectively, an increase of 71%. This resulted
primarily from an increase in software and hardware development costs leading up
to a new product launch in the fourth quarter of 1994.
Net Income. Net losses of $689,519 and $2,899,537 for the three and nine
month periods ended September 30, 1996, respectively, represent increases of
118% and 99%, respectively, over net losses of $316,009 and $1,457,629 for the
same periods in 1995. In 1995 EyeSys recognized revenues associated with a one
time software licensing transaction of $400,000 and $600,000 for the three and
nine month periods ended September 30, 1995 which are included in EyeSys'
reported net income. Revenues from this source have not recurred in 1996. Were
it not for this one time revenue, losses for the three and nine month periods
ended September 30, 1995 would have been $716,009 and $2,057,629.
Net losses decreased from $3,708,657 to $3,424,996 for the years ended
December 31, 1994 and 1995, respectively, a decrease of 8%. This resulted
primarily from the one time software licensing transaction of $600,000, together
with increased costs in other areas of EyeSys.
Net losses increased from $679,453 to $3,708,657 for the years ended December
31, 1993 and 1994, an increase of 446%.
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AMENDMENT OF SUNRISE'S CERTIFICATE OF INCORPORATION
Sunrise is authorized to issue up to 40,000,000 shares of Sunrise Stock, of
which 27,868,613 shares were issued and outstanding as of the Sunrise Record
Date. In connection with the Merger, Sunrise expects to issue approximately
11,720,000 shares of Sunrise Stock, including shares to be issued to Cowen, and
to reserve for issuance approximately 750,000 shares of Sunrise Stock for
issuance pursuant to the future exercise of Merger Options and Unvested Sunrise
Options. Therefore, in order to consummate the Merger, the authorized
capitalization of Sunrise needs to be increased.
In addition, Sunrise historically has issued Sunrise Stock in order to raise
working capital to fund its activities. In 1995, Sunrise effected two (2)
private placements of an aggregate of 15,100,000 shares of Sunrise Stock. Until
FDA approval is granted for commercial distribution of the Sunrise Corneal
Shaping System, even if the Merger and the Asset Sale are consummated, Sunrise
expects to continue to require to raise working capital to fund its activities,
which may involve additional private placements or offerings of Sunrise Stock.
Accordingly, management of Sunrise considers it desirable to increase the
authorized Sunrise Stock to 75,000,000 shares. Approval of the Sunrise Merger
Proposal to amend the Sunrise Certificate to increase the number of shares of
Sunrise Stock authorized to be issued from 40,000,000 to 75,000,000 requires the
affirmative vote of holders of a majority (13,934,307 shares) of the Sunrise
Stock outstanding as of the Sunrise Record Date.
THE BOARD OF DIRECTORS OF SUNRISE UNANIMOUSLY RECOMMENDS A VOTE FOR AN
INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF SUNRISE STOCK FROM
40,000,000 TO 75,000,000.
AMENDMENT OF EYESYS' CERTIFICATE OF INCORPORATION
In order to effect the allocation of Merger Shares as proposed in the Merger
Agreement, the terms of the Series A Preferred Stock and Series B Preferred
Stock must be amended. Based on its consideration of the contributions made to
EyeSys by its stockholders and of the prospective benefits of the Merger that
may be realized by the EyeSys stockholders, management of EyeSys has determined
it to be in the interests of all of the EyeSys stockholders to effect the
allocation of the Merger Shares as proposed in the Merger Agreement. A copy of
the proposed amendments to the EyeSys Certificate is attached hereto as Appendix
D.
SERIES A PREFERRED STOCK
The Merger will be deemed to be a "Liquidation" within the meaning of Section
4.2.4 of the EyeSys Certificate. Pursuant to the terms of the Series A Preferred
Stock, the value of the Merger Shares is deemed to be the average of the closing
bid prices over the five (5) day period ending three (3) business days prior to
the closing of the Merger (previously defined as the "Average Stock Price").
Pursuant to the Merger Agreement, the Deemed Sunrise Stock Value is the greater
of the Average Stock Price and $1.25. Accordingly, if the Average Stock Price is
less than $1.25, the holders of Series A Preferred Stock will receive fewer
Merger Shares than they otherwise would have been entitled to receive. Under the
EyeSys Certificate as currently in effect, if the Average Stock Price were equal
to $ per share (the closing bid price on January , 1997, the day
before the mailing of this Joint Proxy Statement/Prospectus), each share of
Series A Preferred Stock would be converted into the right to receive
Merger Shares. By contrast, giving effect to EyeSys Proposal 1, if the minimum
Deemed Sunrise Stock Value of $1.25 per share were used to determine the
conversion rate, each share of Series A Preferred Stock would be converted into
the right to receive Merger Shares.
SERIES B PREFERRED STOCK
The Merger will be deemed to be a "Liquidation" within the meaning of Section
4.3.4 of the EyeSys Certificate. Pursuant to the terms of the Series B Preferred
Stock, in the event of a Liquidation, the holders of Series B Preferred Stock
are entitled to be paid, among other things, an amount equal to $1.26 per share
plus accumulated but unpaid dividends on the Series B Preferred Stock. Pursuant
to the Merger Agreement, each share of Series B Preferred stock shall be
converted into the right to receive, among
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other things, the right to receive a certain number of Merger Shares based on
the Deemed Sunrise Stock Value. Accordingly, if the stock price at the Effective
Time were less than $1.25 per share, the holders of Series B Preferred Stock
would receive fewer Merger Shares than they otherwise would have been entitled
to receive. For example, if the price per Merger Share as determined pursuant to
the EyeSys Certificate currently in effect were equal to $ per
share (the closing bid price on January , 1997, the day before the mailing of
this Proxy Statement) and the Effective Time were February 28, 1997, each share
of Series B Preferred Stock would be converted into Merger Shares.
By contrast, giving effect to EyeSys Merger Proposal 2, if the minimum Deemed
Sunrise Stock Value of $1.25 per share were used to determine the conversion
rate, and the Effective Time were February 28, 1997, each share of Series B
Preferred Stock would be converted into the right to receive Merger
Shares.
The EyeSys Merger Proposal to amend Section 4.2.4(b)(ii) of the EyeSys
Certificate to provide that the Merger Shares will be valued at the Deemed
Sunrise Stock Value must be approved by the affirmative vote of holders of (a) a
majority (4,621,278 shares) of the EyeSys Voting Shares, voting as one class,
(b) a majority (50,893 shares) of the 101,784 shares of Series A Preferred Stock
outstanding as of the EyeSys Record Date, and (c) a majority of the principal
amount of EyeSys Notes outstanding prior to conversion by the Converting
Noteholders.
The EyeSys Merger Proposal to amend Section 4.3.4(c) of the EyeSys
Certificate to provide that the Merger Shares will be valued at the Deemed
Sunrise Stock Value must be approved by the affirmative vote of holders of (a) a
majority (4,621,278 shares) of the EyeSys Voting Shares, voting as one class,
(b) at least 67% (3,318,528 shares) of the 4,953,026 shares of Series B
Preferred Stock outstanding as of the EyeSys Record Date, and (c) a majority of
the principal amount of EyeSys Notes outstanding prior to conversion by the
Converting Noteholders.
THE BOARD OF DIRECTORS OF EYESYS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
PROPOSED AMENDMENTS TO THE TERMS OF THE SERIES A PREFERRED STOCK AND THE
SERIES B PREFERRED STOCK IN ORDER TO EFFECT THE ALLOCATION OF MERGER
SHARES AS PROPOSED IN THE MERGER AGREEMENT.
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THE NEW STOCK PLAN
BACKGROUND
Sunrise is authorized to issue up to 3,750,000 shares of Sunrise Stock
pursuant to options granted under the Existing Stock Plan. As of December 16,
1996, options to purchase an aggregate of 447,037 shares of Sunrise Stock had
been exercised and options to purchase an aggregate of 2,949,438 shares of
Sunrise Stock were outstanding. Pursuant to the terms of the Merger Agreement,
Sunrise is to issue to holders of options to purchase EyeSys Stock Sunrise
Options, Sunrise Warrants and Unvested Sunrise Options to purchase an aggregate
of approximately 330,550 shares of Sunrise Stock (collectively, "Substituted
Options").
The Existing Stock Plan expires in 1998. Rather than extending the term of
the Existing Stock Plan, the directors of Sunrise have determined it to be
preferable to adopt the New Stock Plan for grants of Substituted Options and, in
the future, for grants to employees, directors and consultants of the Company.
The stated purposes of the 1996 Stock Option Plan are to attract and retain
the best available personnel for positions of substantial responsibility, to
provide additional incentive to the employees, directors and consultants of the
Company and to promote the success of the Company's business.
Options may be issued under the New Stock Plan ("New Plan Options") to any
person, including an officer or director, employed by the Company or an
affiliate of the Company, or to any person who is engaged by the Company or an
affiliate of the Company to render consulting services, provided that such
person is compensated for such services ("Eligible Optionees"). As of December
16, 1996, approximately 40 persons (not including employees, directors and
consultants of EyeSys), would have qualified as Eligible Optionees under the New
Stock Plan. New Plan Options may be incentive stock options within the meaning
of Section 422 of the Code ("ISOs") or nonstatutory stock options ("NSOs").
The New Stock Plan will be administered by the board of directors of Sunrise,
except to the extent the board of directors elects to delegate such powers and
responsibilities to a committee (in either case, the "Administrator"). The
Administrator will have the power to determine from time to time the Eligible
Optionees to be granted New Plan Options, as well as the power to determine the
terms and conditions of such New Plan Options, within the parameters set forth
in the New Stock Plan. The Sunrise Board may amend or terminate the New Stock
Plan at any time and for any reason, subject to any required regulatory approval
and any required approval of the stockholders of the Company.
Approval of the Sunrise Merger Proposal to adopt the New Stock Plan requires
the affirmative vote of holders of a majority (13,934,907 shares) of the Sunrise
Stock outstanding as of the Sunrise Record Date.
THE BOARD OF DIRECTORS OF SUNRISE UNANIMOUSLY RECOMMENDS A VOTE FOR THE
ADOPTION OF THE NEW STOCK PLAN.
DESCRIPTION OF NEW PLAN OPTIONS
The provisions of individual New Plan Options need not be identical, but each
New Plan Option shall be subject to the following provisions: (a) the term of a
New Plan Option may not be longer than ten (10) years from the date of grant,
(b) the exercise price of an ISO shall not be less than 100% of the fair market
value of the underlying Company Stock, and the exercise price of an NSO shall
not be less than 85% of the fair market value of the underlying Company Stock,
and (c) a New Plan Option shall not be transferable except by will or by the
laws of descent and distribution or pursuant to a qualified domestic relations
order (as defined in the Code); provided that an NSO may also be transferred to
an immediate family member of the optionee, a trust for the benefit of immediate
family members of the optionee or a partnership in which immediate family
members are the only partners.
EXERCISE OF NEW PLAN OPTIONS
A New Plan Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company and full payment for the Sunrise Stock to
be purchased pursuant thereto has been received by the Company. Payment of the
exercise price of a New Plan Option shall be made in the form
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authorized by the Administrator, which may be (a) by cash, check or promissory
note or (b) with shares of Sunrise Stock that either (i) have been owned by the
optionee for more than six (6) months on the date of surrender or (ii) were not
acquired, directly or indirectly, from the Company.
ALLOCATION OF NEW PLAN OPTIONS
The potential benefit to be received by an optionee is dependent on increases
in the price of the Sunrise Stock prior to the exercise of the option.
Accordingly, the ultimate dollar value of options is not currently
ascertainable. As of December 16, 1996, the closing bid price of the Sunrise
Stock on the OTC Bulletin Board was $0.88 per share.
The following table sets forth certain information with respect to options
granted in 1996 under the Existing Stock Plan to the members of the Resulting
Management, to the current executive officers of Sunrise as a group and to all
employees (excluding executive officers) of Sunrise as a group. Allocation among
such persons and such groups of Existing Plan Options in 1996 is not necessarily
indicative of the allocation to be made of New Plan Options in 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
EXERCISE PRICE OF SUNRISE STOCK
OPTIONS ($) UNDERLYING OPTIONS
----------------- -------------------
<S> <C> <C>
David W. Light
Chairman of the Board and Chief Executive Officer 1.03 600,000
C. Russell Trenary, III
President and Chief Operating Officer 1.03-1.63 650,000
Executive Officer Group 1.03-1.63 1,400,000
Non-Executive Officer Employee Group 0.97-2.88 950,000
</TABLE>
The Existing Plan Options granted in 1996 generally become exercisable as to
25% of the underlying shares of Sunrise Stock one year after the grant date and
as to 1/36th of the remaining underlying shares each month thereafter.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal anticipated United States federal
income tax considerations of the grant and exercise of a New Plan Option to and
by an optionee who is resident in the United States. It is based on the current
provisions of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder (the "Current Tax Rules"). This discussion is general
only and is not a substitute for independent advice from an individual's own tax
and other advisors.
With respect to EyeSys Options that are ISOs, the Company intends to treat
the issuance of Substituted Options as a "substitution" as defined in Section
424(a) of the Code. Accordingly, after the Merger, such Substituted Options will
continue to be treated as ISOs. The grant date shall be deemed to be the date of
the original issuance by EyeSys, and such Substituted Options will not be
treated as having been granted by Sunrise. All other Substituted Options will be
NSOs.
INCENTIVE STOCK OPTIONS
No taxable income will be recognized by an Eligible Optionee upon the grant
of an ISO, and no taxable income will be recognized at the time the ISO is
exercised, so long as the optionee remains an employee of the Company (or a
parent or subsidiary corporation) at all times during the period beginning on
the grant date of the ISO and ending on the date three months before the date of
exercise. However, the difference between the fair market value of the Sunrise
Stock purchased on exercise of the ISO and the exercise price of the ISO
generally will constitute a tax preference item for purposes of the alternative
minimum tax. If the optionee does not dispose of the Sunrise Stock so purchased
within two years of the
78
<PAGE>
grant date of the ISO, nor within one year of the date of exercise (together,
the "Holding Periods"), any profit or loss recognized upon a subsequent
disposition will be long-term capital gain or loss.
If an optionee disposes of the Sunrise Stock purchased on exercise of an ISO
within either of the Holding Periods, the optionee will recognize ordinary
income in the year of disposition equal to the amount of ordinary income the
optionee would have recognized from the exercise of the option with respect to
Sunrise Stock so purchased had the option been an NSO at the time of exercise
or, if less, the difference between the amount received upon disposition and the
exercise price. For this purpose, the delivery of shares within either of the
Holding Periods, as payment of part or all of the exercise price of an ISO, will
constitute a disposition.
So long as the optionee does not dispose of any shares purchased under an ISO
before the expiration of the Holding Periods, no business expense deduction may
be taken by the Company. To the extent that the optionee recognizes ordinary
income due to a disqualifying disposition of stock, the Company may take a
business expense deduction.
NONSTATUTORY STOCK OPTIONS
An optionee will not recognize any taxable income at the time an NSO is
granted. Upon exercise of the NSO, an optionee generally will recognize ordinary
income, for United States income tax purposes, equal to the excess, if any, of
the then fair market value of the Sunrise Stock acquired over the exercise price
of the NSO. Any taxable income recognized in connection with the exercise of an
NSO generally will be subject to tax withholding by the Company, and the Company
generally will be entitled to United States income tax deductions to the extent
and in the year that such taxable income is recognized by the optionee.
When an optionee sells Sunrise Stock acquired pursuant to the exercise of an
NSO, any difference between the sale price and the optionee's tax basis in the
Sunrise Stock acquired will be treated as capital gain or loss.
DIVIDENDS
Dividends payable on Sunrise Stock out of earnings and profits of the Company
are ordinary income taxable at ordinary income rates.
THE ASSET SALE
The stockholders of Sunrise will be asked to approve the sale of
substantially all of the assets of its dental business to Lares Research or to
another purchaser if the proposed transaction with Lares is not completed.
Management is recommending the Asset Sale to raise cash for completion of
clinical studies on the Sunrise Corneal Shaping System. Management believes
that, given the Company's limited resources, it will be in the best interest of
the stockholders to concentrate these resources on the field of ophthalmology,
with particular emphasis on the vision correction market. Although the Dental
Business has seen improvement in the past six months, the Company has
experienced significant operating losses on this product line during the last
few years, which has severely depleted the Company's available working capital.
THE PROPOSED SALE
On November 18, 1996, the Company entered into a non-binding Letter of Intent
with Lares Research, Inc. ("Lares"), a privately held company located in Chico,
California, providing for the sale of the Dental Business. The parties expect to
enter into a definitive purchase agreement in January 1997. The transaction is
subject to Lares' ability to raise $5,000,000 in a private placement to fund the
closing date payment described below. There is no assurance that Lares will be
able to attract private equity capital and, if Lares is unsuccessful, the
transaction will be abandoned. Lares is wholly owned by the family of Craig
Lares and has had no experience in raising capital. Lares has been a privately
held family-owned business for over 40 years.
79
<PAGE>
If Lares is able to raise the required capital, the Company would transfer to
Lares all assets associated with the Dental Business except for cash and
accounts receivable (book value at September 30, 1996 of approximately
$2,426,000). All liabilities of the Dental Business would be retained by
Sunrise, except for certain obligations relating to royalties and a supply
contract. Lares would pay Sunrise $5,000,000 at closing, would issue a six-year
non-interest bearing promissory note in the principal amount of $2,000,000,
payable in six annual installments beginning on December 31, 1997, and would
issue to Sunrise a warrant for 2-1/2% of the stock of Lares outstanding at the
time of closing. The warrant must be redeemed for $750,000 if Lares has not
effected an initial public offering of its common stock within five years after
the closing date.
ALTERNATIVE AUTHORITY TO SELL DENTAL BUSINESS
In the event the transaction with Lares is not consummated, Sunrise will seek
to sell the Dental Business to another purchaser on substantially similar terms
as those contained in the Lares Letter of Intent. At the Sunrise Special
Meeting, the stockholders of Sunrise will be asked to authorize the Board of
Directors to sell the Dental Business to an alternative purchaser, on the
condition that the transaction would be completed on or prior to December 31,
1997 and would result in cash proceeds to Sunrise of not less than $5,000,000.
Management does not presently have any other definitive transaction to present
and is limited under its arrangement with Lares to discussions of back-up offers
until the end of February 1997. Management believes that it is in the
stockholders' best interests to sell the dental assets to fund the ophthalmic
activities and is concerned about the time and expense involved in scheduling a
new stockholders' meeting to approve a specific future transaction. Therefore,
management is seeking the limited contingent authority at this time to enable it
to complete a replacement transaction without the necessity for resolicitation.
Approval of each of the Sale Proposals to sell the dental business and the
assets used in the operation thereof (i) to Lares pursuant to the Lares Letter
of Intent or (ii) to another purchaser on substantially similar terms, requires
the affirmative vote of holders of a majority (13,934,307 shares) of the Sunrise
Stock outstanding as of the Sunrise Record Date.
THE BOARD OF DIRECTORS OF SUNRISE UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF THE ASSET SALE TO LARES AND A VOTE FOR THE ASSET SALE TO
ANOTHER PURCHASER ON SUBSTANTIALLY SIMILAR TERMS AS THOSE CONTAINED IN
THE LARES LETTER OF INTENT, IN THE EVENT THE ASSET SALE IS NOT
CONSUMMATED WITH LARES.
80
<PAGE>
EXPERTS
The consolidated financial statements of Sunrise Technologies International,
Inc. at December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995, included in this Joint Proxy Statement/Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The balance sheets of EyeSys Technologies, Inc. at December 31, 1995 and 1994
and the statements of operations, changes in stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1995, included in
this Joint Proxy Statement/Prospectus and Registration Statement, have been
included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Merger Shares and
Merger Options and statements as to United States taxation herein under the
caption "Certain United States Federal Tax Consequences" will be passed upon for
Sunrise by Thelen, Marrin, Johnson & Bridges, San Francisco, California. Certain
legal matters in connection with the Merger will be passed upon for EyeSys by
Epstein Becker & Green, P.C., New York, New York.
81
<PAGE>
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
<S> <C>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Audited Financial Statements:
Report of Ernst & Young LLP .................................................................. F-2
Consolidated Balance Sheets at December 31, 1995 and 1994 .................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 ............................................................ F-4
Consolidated Statements of Stockholders' Equity for the three years ended
December 31, 1995 ........................................................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 ............................................................ F-6
Notes to Consolidated Financial Statements, December 31, 1995 ................................ F-7
Unaudited Financial Statements:
Consolidated Statements of Operations for the three months ended September 30, 1996
and 1995 and for the nine months ended September 30, 1996 and 1995 .......................... F-15
Consolidated Balance Sheets at September 30, 1996 and December 31, 1995 ...................... F-16
Consolidated Statements of Cash Flows, Increase (decrease) in cash and cash equivalents
for the nine months ended September 30, 1996 and 1995 ....................................... F-17
Notes to Consolidated Financial Statements, September 30, 1996 ............................... F-18
Schedule II--Valuation and Qualifying Accounts ................................................. F-20
EYESYS TECHNOLOGIES, INC.
Audited Financial Statements:
Report of Coopers & Lybrand L.L.P. ........................................................... F-21
Balance Sheets at December 31, 1994 and 1995 ................................................. F-22
Statements of Operations at December 31, 1993, 1994 and 1995 ................................. F-23
Statements of Changes in Stockholders' Equity for the three years ended December 31, 1995 ... F-24
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 ................ F-25
Notes to Financial Statements, December 31, 1995 ............................................. F-26
Unaudited Financial Statements:
Balance Sheets at September 30, 1996 and December 31, 1995 ................................... F-37
Statements of Operations for the three months ended September 30, 1996 and 1995 and
for the nine months ended September 30, 1996 and 1995 ....................................... F-38
Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 .............. F-39
Notes to Financial Statements, September 30, 1996 ............................................ F-40
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
We have audited the accompanying consolidated balance sheet of Sunrise
Technologies International, Inc. as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sunrise Technologies International, Inc. at December 31, 1994 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that Sunrise Technologies International, Inc. will continue as a going
concern. As more fully described in Note 1, the Company has incurred recurring
operating losses. This condition raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the outcome of this uncertainty.
Ernst & Young LLP
Palo Alto, California
March 1, 1996
F-2
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 3,514 $ 559
Accounts receivable, net of allowance of $25,000 and $450,000 in
1995 and 1994 ...................................................... 1,048 770
Inventories ......................................................... 1,666 1,955
Prepaid expenses .................................................... 257 282
-------- --------
Total current assets .............................................. 6,485 3,566
Property and equipment, net ......................................... 204 256
-------- --------
Total assets ...................................................... $ 6,689 $ 3,822
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 1,097 $ 1,375
Accrued payroll and related expenses ................................ 181 150
Accrued warranty .................................................... 324 324
Current portion of capital lease obligations ........................ -- 18
Other accrued expenses .............................................. 342 598
-------- --------
Total current liabilities ......................................... 1,944 2,465
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value; 2,000,000 shares authorized,
none issued or outstanding Common stock, $0.001 par value;
40,000,000 shares authorized, 25,280,056 and 10,459,286 shares
issued and outstanding at December 31, 1995 and 1994, respectively. 25 10
Additional paid-in-capital .......................................... 29,196 22,312
Less treasury stock at cost, 275,000 shares at
December 31, 1994 .............................................. -- (619)
Accumulated deficit ............................................... (24,476) (20,346)
-------- --------
Total stockholders' equity ...................................... 4,745 1,357
-------- --------
Total liabilities and stockholders' equity ...................... $ 6,689 $ 3,822
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
F-3
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net revenues ..................................... $ 5,294 $ 7,578 $11,860
Cost of revenues ................................. 3,657 6,238 6,851
------- ------- -------
Gross profit ..................................... 1,637 1,340 5,009
Other costs and expenses:
Engineering and development .................... 503 1,561 2,170
Sales, marketing and regulatory ................ 2,992 3,763 5,686
General and administrative ..................... 2,329 2,933 3,605
------- ------- -------
Total other costs and expenses ............... 5,824 8,257 11,461
------- ------- -------
Loss from operations ............................. (4,187) (6,917) (6,452)
Interest income, net of expense .................. 57 7 60
------- ------- -------
Loss before taxes on income ...................... (4,130) (6,910) (6,392)
Income tax expense (benefit) ..................... -- -- 232
Net loss ......................................... $(4,130) $(6,910) $(6,624)
======= ======= =======
Net loss per share ............................... $ (0.28) $ (0.68) $ (0.74)
======= ======= =======
Shares used in calculation of net loss per share 14,935 10,129 8,955
======= ======= =======
<FN>
See accompanying notes.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1995
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
--------------------- PAID-IN TREASURY (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNTS CAPITAL STOCK DEFICIT) EQUITY
---------- -------- ------- ----- -------- -----
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 ..... 8,907,209 $ 15,850 -- -- $ (6,812) $ 9,038
Recapitalization in the State of
Delaware ....................... -- (15,841) 15,841 -- -- --
Exercise of warrants and options 101,084 -- 294 -- -- 294
Net loss ........................ -- -- -- (6,624) (6,624)
---------- -------- ------- ----- -------- -----
Balance at December 31, 1993 ..... 9,008,293 9 16,135 -- (13,436) 2,708
Sale of common stock, net of
offering costs ................. 1,250,000 1 5,507 -- -- 5,508
Exercise of warrants and options 200,993 -- 670 -- -- 670
Treasury stock acquired through
sale of surgical laser business -- -- -- (619) -- (619)
Net loss ........................ -- -- -- -- (6,910) (6,910)
---------- -------- ------- ----- -------- -----
Balance at December 31, 1994 ..... 10,459,286 10 22,312 (619) (20,346) 1,357
Sale of common stock, net of
offering costs ................. 15,100,000 15 7,528 -- -- 7,543
Cancellation of treasury stock . (275,000) -- (619) 619 -- --
Other ........................... (4,570) -- (25) -- -- (25)
Net Loss ........................ -- -- -- -- (4,130) (4,130)
---------- -------- ------- ----- -------- -----
Balance at December 31, 1995 ..... 25,279,716 $ 25 $29,196 $ -- $(24,476) 4,745
---------- -------- ------- ----- -------- -----
<FN>
See accompanying notes.
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ............................................. $(4,130) $(6,910) $(6,624)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................ 102 469 871
Provision for doubtful accounts ...................... 25 -- 845
Changes in assets and liabilities:
Accounts receivable ............................... (303) 777 237
Inventories ....................................... 289 (68) 685
Prepaid taxes and other ........................... 25 (69) 855
Accounts payable .................................. (278) (1,091) 1,789
Accrued payroll and related expenses .............. 31 68 (13)
Accrued warranty .................................. -- 181 38
Other accrued expenses ............................ (256) 571 (241)
------- ------- -------
Total adjustments .................................... (365) 838 5,066
------- ------- -------
Net cash used in operating activities ................ (4,495) (6,072) (1,558)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ................... (50) (22) (384)
Sale of short-term investments .................... -- -- 958
------- ------- -------
Net cash (used in) provided by investing activities. (50) (22) 574
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on capital lease obligations ................. (18) (61) (79)
Issuance of common stock, net of offering costs ..... 7,518 6,178 293
------- ------- -------
Net cash provided by financing activities ............ 7,500 6,117 214
------- ------- -------
Net increase (decrease) in cash and equivalents ..... 2,955 23 (770)
Cash and cash equivalents at beginning of period .... 559 536 1,306
------- ------- -------
Cash and cash equivalents at end of period .......... $ 3,514 $ 559 $ 536
======= ======= =======
<FN>
See accompanying notes.
</FN>
</TABLE>
F-6
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Sunrise Technologies International, Inc. (the "Company") develops,
manufactures and markets laser systems and other products for applications in
ophthalmology and dentistry. The Company was organized as a California
corporation in March 1987 and was reincorporated in Delaware in June 1993 as
Sunrise Technologies International, Inc. The Company continues to do business
under the name Sunrise Technologies, Inc.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries after elimination of all material intercompany
balances and transactions.
The Company has incurred significant losses for the last several years and at
December 31, 1995 has an accumulated deficit of $24,476,000. The accompanying
financial statements have been prepared assuming the Company will continue as a
going concern. The Company's long term ability to continue as a going concern is
dependent upon returning to profitable operations. Management's plans include
increasing sales through increased direct sales and marketing efforts on
existing products and pursuing timely regulatory approval for certain products
under development. Management also recognizes the need for infusion of cash
during the fiscal year 1996 and is actively pursuing various options including
securing additional equity financing.
INDUSTRY SEGMENT AND CONCENTRATION OF RISK
The Company, which operates in a single industry segment, designs,
manufactures, markets and services medical laser and air abrasive systems. The
Company sells its products to customers in the medical industries globally. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations. One customer
accounted for 21%, 57% and 53% of revenues in 1995, 1994 and 1993 respectively.
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of cash investments and trade receivables.
The Company invests its excess cash in deposits with major banks, in U.S.
Treasury and U.S. Agency obligations.
CONCENTRATION OF OTHER RISKS
The Company's operating results each quarter are subject to various
uncertainties as discussed in the Company's Annual Report on 10-K for 1995,
including uncertainties related to the composition, timing and size of orders
from the shipments to major customers, variations in product mix and variations
in product cost and competitive pressures.
One of the more significant risks potentially affecting the Company's
operating results is the fact that a substantial portion of the Company's net
revenues in each quarter generally result from shipments during the latter part
of the quarter. Because the Company establishes its operating expense level
based on expected revenue, if anticipated shipments in any quarter do not occur
as expected, gross profits may be adversely affected. For these and other
reasons, the Company may not learn of shortfalls in revenues, margins or other
financial results until later in a quarter. Any such shortfall could have an
immediate and significant adverse effect on the trading price of the Company's
common stock.
Inventories: Most components used in the Company's air abrasive and laser
systems are purchased from outside sources. Certain components in the air
abrasive systems are currently purchased from a
F-7
<PAGE>
single supplier. The failure of such supplier to meet its commitment on schedule
could have a material adverse effect on the Company. If the sole source supplier
were to go out of business or otherwise become unable to meet its supply
commitments, the process of locating and qualifying alternate sources could
require up to several months during which time the Company's production could be
delayed. Such delays could adversely affect the Company's business and financial
results.
International Operations: Sunrise's international business is an important
contributor to the Company's net revenues and gross profits. Substantially all
of Sunrise's international sales are denominated in the U.S. dollar and an
increase in the value of the U.S. dollar relative to foreign currencies could
make products sold internationally less competitive. The Company does not have
any overseas offices.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash consists of cash on deposit with banks and highly liquid investments
with a maturity from the date of purchase of 90 days or less. As of December 31,
1995 and 1994, the Company did not hold any investments in debt or equity
securities.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory at December 31, consists of:
1995 1994
------ ------
(IN THOUSANDS)
Raw materials ... $ 909 $1,262
Work-in-process .. 237 377
Finished goods .. 520 316
------ ------
$1,666 $1,955
====== ======
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the
straight-line method for financial reporting over estimated useful lives of two
to five years. Assets under capitalized leases are amortized over the shorter of
the term of the lease or their useful lives, and such amortization is included
with depreciation expense. Property and equipment at December 31, consists of:
1995 1994
------- -------
(IN THOUSANDS)
Machinery and equipment.. $ 1,412 $ 1,458
Computer Equipment ...... 599 503
Furniture and fixtures .. 207 207
Leasehold improvements .. 167 167
------- -------
2,385 2,335
Less accumulated
depreciation and
amortization ........... (2,181) (2,079)
------- -------
$ 204 $ 256
======= =======
F-8
<PAGE>
NET LOSS PER SHARE
Net loss per share for the years ended December 31, 1995, 1994 and 1993 is
based solely on weighted average shares of common stock outstanding during the
period. Common equivalent shares have not been considered in the computation
since their inclusion would have an antidilutive effect.
REVENUE RECOGNITION
Revenues are recognized at time of shipment. A provision for the estimated
future cost of warranty is made at the time a sale is recorded.
CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND EXPORT SALES
The Company performs on-going credit analysis of its customers. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations. One customer accounted for 21%, 57% and 53% of
revenues in 1995, 1994 and 1993 respectively.
The Company had export sales by region as follows:
1995 1994 1993
------ ------ -------
(IN THOUSANDS)
Europe ........ $1,948 $4,291 $ 7,400
Pacific Rim .. 1,192 139 1,363
Canada ........ 248 393 82
Other ......... 282 363 1,354
------ ------ -------
Total ....... $3,670 $5,186 $10,199
====== ====== =======
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation," which is effective for the
Company's December 31, 1996 financial statements. Statement 123 allows companies
to either account for stock-based compensation under the new provisions of
Statement 123 or under the provisions of APB 25, but requires pro forma
disclosure in the footnotes to the financial statements as if the measurement
provisions of Statement 123 had been adopted. The Company intends to continue
accounting for its stock-based compensation in accordance with the provisions of
APB 25. As such, the adoption of Statement 123 will not impact the financial
position or the results of operations of the Company.
2. TAXES ON INCOME
Effective January 1, 1993, the Company changed its method of accounting for
income taxes to the liability method required by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). As
permitted under the new standard, prior years' financial statements have not
been restated. The cumulative effect of adopting SFAS 109 was not material.
F-9
<PAGE>
The provision for income taxes for each of the three years ended December 31,
consists of:
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
Federal:
Current ................ -- -- --
Deferred (prepaid) .... -- -- 232
-- -- 232
---- ---- ----
State:
Current ................ -- -- --
---- ---- ----
$-- $-- $232
==== ==== ====
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rates to income before income taxes. The source
and tax effect of the differences is as follows:
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
Statutory Rate .................... (35) (35) (35)
Purchase of in-process technology -- -- --
Foreign sales corporation ......... -- -- --
Other ............................. -- -- --
NOL's not benefited which have
been reserved .................... 35 35 35
Increase in valuation reserve .... -- -- 4
---- ---- ----
-- -- 4
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1995 and 1994 are as follows:
1995 1994
------- -------
(IN THOUSANDS)
Deferred tax assets:
Net Operating Loss Carryforwards ............ 0 $ 5,168
Research Credits (expire 2005-2009) ........ 642 577
Inventory valuation adjustment .............. 188 206
Bad Debt Reserve ............................ 10 181
Other ....................................... 751 706
------- -------
Total deferred tax asset .................. 8,766 6,838
Valuation allowance for deferred tax assets ... (8,766) (6,838)
------- -------
Net deferred tax assets ....................... $ -- $ --
======= =======
As of December 31, 1995, the Company had federal and state net operating loss
carryforwards of approximately $18,800,000 and $8,400,000 respectively. The
change in the Company's valuation allowance from 1993 to 1994 was an increase of
$2,601,000. The net operating loss and credit carryforwards will expire at
various dates through 2010 if not utilized.
The ownership change provisions of the Internal Revenue Code of 1986 and
similar state provisions would limit utilization of the carryforwards should
there be a substantial change in the Company's ownership. The annual limitation
may result in the expiration of net operating losses and credits before
utilization.
F-10
<PAGE>
3. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leased certain equipment under noncancellable capital leases. The
cost of assets under capital leases as of December 31, 1994 was approximately
$236,000 and accumulated amortization applied to assets under capital leases was
$236,000 and $231,000 at December 31, 1995 and in 1994 respectively. The Company
leases certain of its facilities and equipment under a noncancellable operating
lease. Rent expense was $281,000, $279,000 and $271,000 in 1995, 1994 and 1993,
respectively.
The following is a schedule by year of future minimum lease payments at
December 31, 1995:
OPERATING
(IN THOUSANDS)
Year ending December 31,
1996 .................... $245
1997 .................... 24
----
Total minimum payments
required ............... $269
====
CONTINGENCIES
American Dental Technologies, Inc. v. Sunrise Technologies International,
Inc.
In October 1993, the Company filed an action against American Dental
Technologies, Inc., formerly American Dental Laser, Inc., in Alameda County
Superior Court. The complaint asserts a cause of action for breach of contract
and seeks compensatory damages in excess of $900,000, as well as attorneys' fees
and costs. The case arises from a dispute between the parties regarding their
rights and obligations under the terms of the settlement agreement that
terminated their manufacturing/distribution relationship for dental products. In
December 27, 1993, ADT filed a general answer to the complaint denying all
material allegations thereof and asserting various affirmative defenses. In
addition, ADT filed a cross-complaint against the Company asserting causes of
action for breach of contract, fraud, unfair competition, unfair trade
practices, interference with contract and prospective economic advantage,
indemnity, and injunctive and declaratory relief. The Company filed its answer
to the cross-complaint in January 1994, generally denying all the allegations
thereof and asserting various affirmative defenses. This matter was brought to
trial in July 1995, resulting in a jury verdict in the Company's favor on July
28, 1995. Subsequently, on November 14, 1995, ADT deposited with the court a
cashier's check in the amount of $1,410,267 and filed an appeal of the jury
verdict, which is presently pending. Such amount has not been recorded on the
Company's book pending outcome of the appeal. The Company believes the outcome
of this legal proceeding will not have a material adverse effect on the
financial position, results of operations or liquidity of the Company.
Sunrise Technologies International, Inc. and Danville Engineering, Inc. v.
American Dental Technologies, Inc.
In May 1994, the Company and Danville Engineering, Inc. filed two separate
actions against ADT in the U.S. District Court for the Northern District of
California seeking a declaration of invalidity and non-infringement of five
patents related to air-abrasive dental technology. The patents at issue are
either owned or exclusively licensed by ADT. ADT acknowledged the patents in one
of the cases and did not cover Sunrise products. Accordingly, this action was
dismissed. ADT brought a motion to dismiss both complaints for lack of subject
matter jurisdiction, which was denied on July 7, 1994. ADT answered the
complaints on October 12, 1994. The answers assert numerous affirmative
defenses, as well as a counterclaim that the Company and Danville have infringed
one of ADT's patents by the manufacture, sale
F-11
<PAGE>
or use of the MicroPrep. The counterclaim seeks damages, injunctive relief,
attorneys' fees, costs, and a declaration of validity and infringement. ADT also
seeks a declaration of validity for the remaining patents. Discovery is
currently pending. The Company believes it has meritorious defenses to the
cross-complaint. The Company believes the outcome of this legal proceeding will
not have a material adverse effect on the financial position, results of
operations or liquidity of the Company.
American Dental Technologies, Inc. v. Sunrise Technologies International,
Inc. et al.
In October 1994, ADT filed an action against the Company and several of its
distributors in the U.S. District Court for the Eastern District of Michigan,
alleging infringement of a newly-issued patent assigned to ADT, which covers
technology and uses related to air-abrasive dental products. This action appears
to involve substantially the same issues as the actions filed by the Company in
the Northern District of California, but is based on a patent which has not
issued at the time the Company filed its claims. In December 1994, the Company
filed a motion to dismiss this action as to one of the distributor defendants
and to transfer the remainder of the case to California for consolidation with
the California declaratory relief actions filed by the Company against ADT. The
Company's motion was granted in May 1995. The case was transferred and has been
consolidated. Discovery is currently pending. The Company vigorously denies the
plaintiffs allegations and believes it has meritorious defenses to this claim.
The Company believes the outcome of this legal proceeding will not have a
material adverse effect on the financial position, results of operations or
liquidity of the Company.
4. STOCKHOLDERS' EQUITY
COMMON STOCK
As of December 31, 1995, there remains 38,340 warrants to purchase common
stock which were issued in connection with the acquisition of Laser Biotech,
Inc. in April 1992. The exercise prices of these warrants range from $3.70 to
$9.26 per share.
In September 1995, the Company completed a private placement of 13,000,000
shares of common stock. In connection with the private placement, the placement
agent received a warrant to purchase 675,000 shares of common stock. The
exercise price for these warrants is $0.55 and they are exercisable at any time
before September 6, 2000.
In June 1995, the Company completed a private placement of 2,100,000 shares
of common stock.
In February 1994, the Company completed a private placement of 1,250,000
shares of common stock. In connection with the private placement, the placement
agent received a warrant to purchase 62,500 shares of common stock. The exercise
price for these warrants is $6.00 and they are exercisable at any time before
February 8, 1999.
In conjunction with the 1992 private placement, the placement agent received
a warrant to purchase 25,000 shares of common stock for $8.05 per share. The
warrant is exercisable at any time prior to August 28, 1997 and is not
redeemable by the Company.
As of December 31, 1995, there were warrants outstanding to purchase 800,840
shares of common stock.
STOCK OPTION PLAN
In 1988, the Company adopted the 1988 Stock Option Plan (the "Plan") under
which employees, directors and consultants may be granted incentive or
nonstatutory stock options. Under the Plan, incentive stock options must be
granted at an exercise price of not less than the fair market value of the
common stock at the date of grant, except that options granted to stockholders
owning greater than 10
F-12
<PAGE>
percent of the total voting power of all classes of stock of the Company must
have an exercise price of not less than 110 percent of the fair market value at
the date of grant. Nonstatutory options must be at least 85 percent of fair
market value at the date of grant. Options granted generally provide that 25
percent of the shares subject thereto become exercisable one year after the date
of grant and 1/36 of the remaining shares subject to the option become
exercisable each month thereafter. The Plan expires in 1998.
Information with respect to Plan activity is as follows:
OUTSTANDING OPTIONS
SHARES -----------------------------
AVAILABLE SHARE
FOR GRANT SHARES PRICE
---------- -------- --------
Balance, December 31, 1993 415,350 771,900 $0.75 -$8.50
Shares reserved ............ 440,000 -- --
Granted .................... (1,168,214) 1,168,214 $2.00
Exercised .................. -- (189,561) $0.75 -$5.63
Canceled ................... 582,339 (582,339) $1.25 -$8.50
---------- ---------- ------------
Balance, December 31, 1994 269,475 1,168,214 $0.75 -$2.00
Shares reserved ............ 1,550,000 -- --
Granted .................... (1,633,331) 1,633,331 $0.97 -$2.50
Exercised .................. -- -- --
Canceled ................... 1,497,381 (1,497,381) $1.00
---------- ---------- ------------
Balance, December 31, 1995 1,683,529 1,304,164 $0.75 -$2.50
========== ========= ============
As of December 31, 1995 and 1994, options to purchase 472,840 and 555,119
shares respectively were exercisable. In 1995, 1,058,331 options to purchase
shares were reissued at $1.00 per share prices under an option exchange program.
During 1994 options outstanding were cancelled and reissued under an option
exchange program.
EMPLOYEE STOCK PURCHASE PLAN
In June 1992, the Company adopted the 1992 Employee Stock Purchase Plan under
which 200,000 shares have been reserved for issuance. Eligible employees may
purchase common stock at 85 percent of the lower of the closing price of the
stock on the offering date or the exercise date determined by the Board of
Directors. Purchases are limited to 10 percent of each employee's compensation.
As of December 31, 1995 and 1994, 34,689 shares had been issued under the plan.
5. SALE OF ASSETS
On August 31, 1994, the Company sold certain assets associated with its
surgical laser business to David Hennings, an individual, in exchange for
275,000 shares of the Company's common stock held by Mr. Hennings and a note
receivable of $48,000. The Company also granted royalty-bearing licenses to
certain patents owned by the Company. Up until the time of the transaction, Mr.
Hennings was an employee and officer of the Company. Subsequent to the
transaction, Mr. Hennings also resigned his position on the Company's board of
directors. The loss in disposition of these assets, which was facilitated
through the formation of a new subsidiary, was not significant.
F-13
<PAGE>
6. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
CASH PAID (REFUNDED) DURING THE YEAR FOR:
Interest ............................ -- -- $ 60
Income taxes ........................ -- -- $(826)
Supplemental schedule of noncash investing and financing activities:
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
Acquisition of equipment pursuant to
capital gains lease obligations .... -- -- $8
7. EVENTS SUBSEQUENT TO DATE OF AUDITORS REPORT
LITIGATION SETTLEMENTS
In July 1996, the Company settled all of its outstanding litigation with
American Dental Technologies ("ADT"). These matters were reported on most
recently in the Company's Form 10-K for the year ended December 31, 1995. The
material terms of the settlement are as follows:
1. Sunrise waived its rights to collect a judgment of $940,000 obtained
against ADT in a prior case, which had been subject to an appeal by ADT.
2. Sunrise obtained a non-exclusive license to certain ADT patents
covering air abrasion systems used in dental applications.
3. Sunrise will pay ADT a royalty of 7% on all air abrasion products
shipped after December 31, 1996.
4. If Sunrise sells its dental air abrasion business before July 1998, it
must pay to ADT a transfer fee equal to 10% of the amount received for the
air abrasion business.
PROPOSED ACQUISITION
On October 29, 1996 the Company signed a Memorandum of Understanding to
acquire EyeSys Technologies, Inc. for approximately 12,500,000 newly-issued
shares of common stock. Completion of the transaction is subject to approval by
the stockholders of both companies and other conditions. Closing conditions
include a requirement that Sunrise raise additional working capital.
PROPOSED DISPOSAL
On November 18, 1996 the Company signed a Letter of Intent to sell its Dental
Operations to Lares Research. Consideration for the sale will be $5 million in
cash on completion, $2 million in non-interest-bearing promissory notes
receivable in six annual installments beginning December 31, 1997 and warrants
to purchase 2.5% of the outstanding common stock of Lares Research. This
transaction is subject to stockholder approval and other conditions including
Lares' ability to complete a private placement in an amount not less than $5
million.
F-14
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenues ..................... $ 1,767 $ 387 $ 4,327 $ 3,680
Cost of revenues ................. 1,046 440 3,084 2,411
------- ------- ------- -------
Gross profit (loss) .............. 721 (53) 1,243 1,269
Other costs and expenses:
Engineering and development ... 149 119 494 351
Sales, marketing and regulatory. 942 533 2,938 2,093
General and administrative .... 668 734 1,873 1,646
------- ------- ------- -------
Total other costs and expenses .. 1,759 1,386 5,305 4,090
------- ------- ------- -------
Loss from operations ............. (1,038) (1,439) (4,062) (2,821)
Interest income .................. 10 2 43 6
------- ------- ------- -------
Net loss ......................... $(1,028) $(1,437) $(4,019) $(2,815)
======= ======= ======= =======
Net loss per share ............... $ (0.04) $ (0.11) $ (0.16) $ (0.24)
======= ======= ======= =======
Shares used in calculation of net
loss per share .................. 26,932 13,234 25,898 11,487
======= ======= ======= =======
<FN>
See accompanying notes.
</FN>
</TABLE>
F-15
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------- --------
(UNAUDITED) (NOTE)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 1,443 $ 3,514
Accounts receivable, net of allowance ..................................... 1,014 1,048
Inventories ............................................................... 2,031 1,666
Prepaid expenses .......................................................... 308 257
-------- --------
Total current assets .................................................... 4,796 6,485
Property and equipment, net .................................................. 187 204
-------- --------
Total assets ............................................................ $ 4,983 $ 6,689
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................................... $ 770 $ 1,097
Accrued payroll and related expenses ...................................... 306 181
Accrued warranty .......................................................... 324 324
Other accrued expenses .................................................... 362 342
-------- --------
Total current liabilities ............................................... 1,762 1,944
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 2,000,000 shares authorized, none issued or
outstanding. Common stock, $0.001 par value, 40,000,000 shares authorized,
27,866,613 and 25,280,056 shares issued and outstanding at
September 30, 1996 and December 31, 1995 respectively. ................... 28 25
Additional paid-in-capital ................................................ 31,688 29,196
Accumulated deficit ....................................................... (28,495) (24,476)
-------- --------
Total stockholders' equity .............................................. 3,221 4,745
-------- --------
Total liabilities and stockholders' equity .............................. $ 4,983 $ 6,689
======== ========
<FN>
Note: The consolidated balance sheet at December 31, 1995 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See accompanying notes.
</FN>
</TABLE>
F-16
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(unaudited)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .................................................................. $(4,019) $(2,815)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and additions to allowance
for doubtful accounts ................................................... 85 78
Changes in assets and liabilities:
Accounts receivable ..................................................... 4 437
Inventories ............................................................. (365) 284
Prepaid expenses ........................................................ (51) (81)
Accounts payable ........................................................ (327) (30)
Accrued payroll and related expenses .................................... 125 25
Other accrued expenses .................................................. 20 (299)
Total adjustments ......................................................... (509) 414
Net cash used in operating activities ..................................... (4,528) (2,401)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ........................................ (38) (39)
Net cash used in investing activities ..................................... (38) (39)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on capital lease obligations ...................................... -- (12)
Issuance of common stock, net of offering costs ........................... 2,495 7,573
Purchase of Treasury Stock ................................................ -- (55)
Net cash provided by financing activities ................................. 2,495 7,506
Net increase (decrease) in cash and equivalents ........................... (2,071) 5,066
Cash and cash equivalents at beginning of period .......................... 3,514 559
Cash and cash equivalents at end of period ................................ $ 1,443 $ 5,625
<FN>
See accompanying notes.
</FN>
</TABLE>
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 1996
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries after elimination of all material intercompany
balances and transactions.
The consolidated financial data at and for the periods ended September 30,
1996 and 1995 are unaudited, but include all adjustments (consisting only of
normal recurring adjustments) that the management of Sunrise Technologies
International, Inc. believes to be necessary for fair presentation of the
periods presented. Interim results are not necessarily indicative of results for
the full year. The financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 1995 included in
the Company's annual report on Form 10-K filed with the Securities and Exchange
Commission.
The Company has incurred significant losses for the last several years and,
at September 30, 1996 has an accumulated deficit of approximately $28,495,000.
The accompanying condensed financial statements have been prepared assuming the
Company will continue as a going concern. The Company's long-term ability to
continue as a going concern is dependent on returning to profitable operations.
Management's plans include increasing sales through expanded marketing efforts
for existing products and pursuing timely regulatory approval for certain
products under development. Management also recognizes the need for infusion of
cash and is actively pursuing various options including securing additional
equity financing. If the Company is unable to obtain additional working capital
resources from the placement of debt or equity instruments, or the sale of some
of its assets, it will be necessary for the Company to curtail or suspend
operations.
2. NET LOSS PER SHARE
Net loss per share for the periods ended September 30, 1996 and 1995 is based
solely on weighted average shares of common stock outstanding during the period.
Common equivalent shares have not been considered in the computation since their
inclusion would have an antidilutive effect.
3. REVENUE RECOGNITION
Revenues are recognized at time of shipment.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and consisted of the following on the dates indicated:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------ ------
(IN THOUSANDS)
Raw materials .. $1,166 $ 909
Work-in-process.. 435 237
Finished goods . 430 520
------ ------
$2,031 $1,666
====== ======
5. INCOME TAXES
Due to the Company's losses from operations, all deferred tax assets, which
primarily result from net operating loss carry forwards, have been offset in
full by a valuation allowance in accordance with SFAS No. 109.
F-18
<PAGE>
6. LITIGATION SETTLEMENTS
In July 1996, the Company settled all of its outstanding litigation with
American Dental Technologies ("ADT"). These matters were reported on most
recently in the Company's Form 10-K for the year ended December 31, 1995. The
material terms of the settlement are as follows:
1. Sunrise waived its rights to collect a judgment of $940,000 obtained
against ADT in a prior case, which had been subject to an appeal by ADT.
2. Sunrise obtained a non-exclusive license to certain ADT patents
covering air abrasion systems used in dental applications.
3. Sunrise will pay ADT a royalty of 7% on all air abrasion products
shipped after December 31, 1996.
4. If Sunrise sells its dental air abrasion business before July 1998, it
must pay to ADT a transfer fee equal to 10% of the amount received for the
air abrasion business.
7. SUBSEQUENT EVENTS
On October 29, 1996 the Company signed a Memorandum of Understanding to
acquire EyeSys Technologies, Inc. for 12,500,000 newly-issued shares of common
stock. Completion of the transaction is subject to approval by the stockholders
of both companies and other conditions. Closing conditions include a requirement
that Sunrise raise additional working capital.
On November 18, 1996 the Company signed a Letter of Intent to sell its Dental
Operations to Lares Research. Consideration for the sale will be $5 million in
cash on completion, $2 million in non-interest-bearing promissory notes
receivable in six annual installments beginning December 31, 1997 and warrants
to purchase 2.5% of the outstanding common stock of Lares Research. This
transaction is subject to stockholder approval and other conditions including
Lares' ability to complete a private placement in an amount not less than $5
million.
F-19
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
OF PERIOD EXPENSES DEDUCTIONS OTHER(A) OF PERIOD
---------- ---------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Reserves and allowances deducted
from assets accounts:
Allowance for uncollectible accounts $135 $846 $ -- $ -- $981
Allowance for inventory ............. $349 $537 $ -- $ -- $886
Year ended December 31, 1994
Reserves and allowances deducted
from assets accounts:
Allowance for uncollectible accounts $981 $ -- $ -- $(531) $450
Allowance for inventory ............. $886 $ -- $ -- $(373) $513
Year ended December 31, 1995
Reserves and allowances deducted
from assets accounts:
Allowance for uncollectible accounts $450 $ 25 $(450) $ -- $ 25
Allowance for inventory ............. $513 $250 $(295) $ -- $468
<FN>
(a) Amounts relate to valuation allowance assigned to disposed assets as
discussed in note 5 to the consolidated financial statements.
</FN>
</TABLE>
F-20
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
EyeSys Technologies, Inc.:
We have audited the accompanying balance sheets of EyeSys Technologies, Inc. as
of December 31, 1994 and 1995, and the related statements of operations, changes
in stockholders' equity and cash flows for the years ended December 31, 1993,
1994 and 1995. 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 EyeSys Technologies, Inc. as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1993, 1994 and 1995, 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 discussed in Note 13 to the
financial statements, the Company has reported net losses of $679,453,
$3,708,657 and $3,424,996 for the years ended December 31, 1993, 1994 and 1995,
respectively, and was in default of several loan covenants relating to its
revolving lines of credit. In addition, the Company has not repaid these
obligations within the respective terms. The above conditions raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to this matter are also described in Note 13. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Houston, Texas
March 11, 1996, except for Notes 5 and 13
as to which the date is April 26, 1996
F-21
<PAGE>
<TABLE>
EYESYS TECHNOLOGIES, INC.
BALANCE SHEETS
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 149,085 $ 730,968
Receivables, net of allowance for doubtful accounts of $207,263 and
$219,262, respectively ..................................................... 2,135,587 2,601,015
Inventories ................................................................. 1,345,556 1,827,644
Prepaid expenses ............................................................ 81,702 177,122
----------- ------------
Total current assets ...................................................... 3,711,930 5,336,749
Property and equipment, net ................................................. 924,230 1,312,286
Deposits and other assets ................................................... 12,795 164,768
----------- ------------
Total assets .............................................................. $ 4,648,955 $ 6,813,803
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt ...................... $ 12,647 $ 158,786
Notes payable to stockholders, current maturities ........................... -- --
Accounts payable ............................................................ 1,433,493 2,784,611
Accrued liabilities ......................................................... 582,416 548,584
Customer deposits ........................................................... 78,638 69,653
Deferred revenue ............................................................ 38,325 80,992
Accrued interest payable to stockholders .................................... -- 1,475
----------- ------------
Total current liabilities ................................................. 2,145,519 3,644,101
Deferred income taxes .......................................................... 69,000 72,000
Long-term debt, less current maturities ........................................ 31,737 1,347,058
Notes payable to stockholders .................................................. -- 1,282,238
Commitments and contingencies
Stockholders' equity:
Series A: noncumulative convertible preferred stock, 350,000 shares authorized;
101,784 shares issued and outstanding at December 31, 1994 and 1995 ($7.00 per
share or $712,488 aggregate liquidation preference at
December 31, 1994 and 1995) ................................................ 630,791 630,791
Series B: cumulative, convertible preferred stock, 3,762,552 and 4,953,026
at December 31, 1994 and 1995, respectively, shares authorized; 3,762,552 and
4,953,026 shares issued and outstanding at December 31, 1994 and 1995,
respectively, ($1.31 and $1.39 per share or $4,935,910 and $6,884,544 aggregate
liquidation preference at December 31, 1994 and 1995,
respectively) .............................................................. 4,598,379 6,071,869
Common stock; no par or stated value, 20,000,000 shares authorized;
3,238,311 and 3,324,374 shares issued and outstanding at December 31, 1994
and 1995, respectively ..................................................... 1,982,749 1,999,962
Accumulated deficit ......................................................... (4,809,220) (8,234,216)
----------- ------------
Total stockholders' equity ................................................ 2,402,699 468,406
----------- ------------
Total liabilities and stockholders' equity ................................ $ 4,648,955 $ 6,813,803
=========== ============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-22
<PAGE>
EYESYS TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Product revenue .................................. $ 9,057,092 $ 8,297,967 $ 8,921,968
License fee revenue .............................. -- -- 600,000
----------- ------------ ------------
9,057,092 8,297,967 9,521,968
----------- ------------ ------------
Expenses:
Costs of sales ................................... 4,477,155 4,498,840 5,089,694
Selling, general and administrative .............. 4,013,378 5,277,651 5,726,183
Research and development ......................... 1,315,231 2,255,320 1,946,153
----------- ------------ ------------
Total operating costs and expenses ............. 9,805,764 12,031,811 12,762,030
----------- ------------ ------------
Loss from operations ............................... (748,672) (3,733,844) (3,240,062)
Interest expense, net of other income of $1,413 and
$28,953 for 1994 and 1995, respectively ........... 25,310 12,813 169,238
----------- ------------ ------------
Loss before income tax (provision) benefit ........ (773,982) (3,746,657) (3,409,300)
Income tax (provision) benefit ..................... 94,529 38,000 (15,696)
----------- ------------ ------------
Net loss ........................................... (679,453) (3,708,657) (3,424,996)
Less preferred stock dividends ..................... -- (195,094) (448,635)
----------- ------------ ------------
Net loss to common stockholders .................... $ (679,453) $ (3,903,751) $ (3,873,631)
=========== ============ ============
Net loss per common share .......................... $ (.22) $ (1.24) $ (1.19)
=========== ============ ============
Weighted average shares outstanding ................ 3,139,927 3,142,852 3,265,034
=========== ============ ============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-23
<PAGE>
<TABLE>
EYESYS TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK
------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 .... -- $ -- -- $ --
Issuance of common shares for
cash under incentive Stock
Option Plan ................... -- -- -- --
Issuance of preferred stock for
cash .......................... 101,784 712,488 -- --
Payment of offering costs
related to the preferred stock
issuance ...................... -- (81,697) -- --
Net loss for the year ended
December 31, 1993 ............. -- -- -- --
------- --------- --------- -----------
Balance at December 31, 1993 .. 101,784 630,791 -- --
------- --------- --------- -----------
Issuance of common shares for
cash under incentive Stock
Option Plan ................... -- -- -- --
Issuance of preferred stock for
cash .......................... -- -- 3,737,770 $4,709,591
Issuance of preferred stock for
consulting services ........... -- -- 24,782 31,225
Payment of offering costs
related to the preferred stock
issuance ...................... -- -- -- (142,437)
Net loss for the year ended
December 31, 1994 ............. -- -- -- --
------- --------- --------- -----------
Balance at December 31, 1994 .. 101,784 630,791 3,762,552 4,598,379
------- --------- --------- -----------
Issuance of common shares for
cash under incentive Stock
Option Plan ................... -- -- -- --
Issuance of preferred stock for
cash .......................... -- -- 1,190,474 1,499,999
Payment of offering costs
related to the preferred stock
issuance ...................... -- -- -- (26,509)
Net loss for the year ended
December 31, 1995 ............. -- -- -- --
------- --------- --------- -----------
Balance at December 31, 1995 .. 101,784 $630,791 4,953,026 $6,071,869
======= ========= ========= ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 .... 3,138,936 $1,958,656 $ (421,110) $ 1,537,546
Issuance of common shares for
cash under incentive Stock
Option Plan ................... 3,125 4,843 -- 4,843
Issuance of preferred stock for
cash .......................... -- -- -- 712,488
Payment of offering costs
related to the preferred stock
issuance ...................... -- -- -- (81,697)
Net loss for the year ended
December 31, 1993 ............. -- -- (679,453) (679,453)
--------- ----------- ------------ ------------
Balance at December 31, 1993 .. 3,142,061 1,963,499 (1,100,563) 1,493,727
--------- ----------- ------------ ------------
Issuance of common shares for
cash under incentive Stock
Option Plan ................... 96,250 19,250 -- 19,250
Issuance of preferred stock for
cash .......................... -- -- -- 4,709,591
Issuance of preferred stock for
consulting services ........... -- -- -- 31,225
Payment of offering costs
related to the preferred stock
issuance ...................... -- -- -- (142,437)
Net loss for the year ended
December 31, 1994 ............. -- -- (3,708,657) (3,708,657)
--------- ----------- ------------ ------------
Balance at December 31, 1994 .. 3,238,311 1,982,749 (4,809,220) (2,402,699)
--------- ----------- ------------ ------------
Issuance of common shares for
cash under incentive Stock
Option Plan ................... 86,063 17,213 -- 17,213
Issuance of preferred stock for
cash .......................... -- -- -- 1,499,999
Payment of offering costs
related to the preferred stock
issuance ...................... -- -- -- (26,509)
Net loss for the year ended
December 31, 1995 ............. -- -- (3,424,996) (3,424,996)
--------- ----------- ------------ ------------
Balance at December 31, 1995 .. 3,324,374 $1,999,962 $(8,234,216) $ 468,406
========= =========== ============ ============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-24
<PAGE>
<TABLE>
EYESYS TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................. $ (679,453) $ (3,708,657) $ (3,424,996)
----------- ------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense .............. 136,319 208,723 348,898
Bad debt expense ................................... 100,976 165,000 195,200
Loss on disposal of property and equipment ........ 113,000 -- 3,493
Deferred federal income tax expense ................ -- 22,000 3,000
Compensation for consulting services paid
through issuance of preferred stock .............. -- 31,225 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ..... 92,555 (573,881) (660,628)
Decrease (increase) in income tax refundable ... (283,000) -- --
Decrease (increase) in inventories .............. (1,129,449) 125,921 (482,088)
Decrease (increase) in prepaid expenses ........ 33,846 14,904 (95,420)
Decrease (increase) in deposits and other assets 34,072 (2,154) (151,973)
Increase (decrease) in accounts payable ........ 784,028 (146,213) 1,351,118
Increase (decrease) in accrued liabilities ..... (167,765) 347,869 (33,832)
Increase (decrease) in customer deposits ....... 40,727 23,970 (8,985)
Increase (decrease) in deferred revenue ........ 56,205 (24,380) 42,667
Increase in accrued interest to stockholders ... -- -- 1,475
Decrease in income taxes payable ................ (83,500) -- --
----------- ------------ ------------
Total adjustments ............................. (271,986) 192,984 512,925
----------- ------------ ------------
Net cash used in operating activities ......... (951,439) (3,515,673) (2,912,071)
----------- ------------ ------------
Cash flows from investing activities:
Capital expenditures ............................... (216,443) (458,833) (742,329)
Proceeds from disposals of property and
equipment ........................................ -- -- 1,882
----------- ------------ ------------
Net cash used in investing activities ........ (216,443) (458,833) (740,447)
Cash flows from financing activities:
Proceeds from revolving line of credit ............ 572,000 75,000 1,594,000
Repayment of revolving line of credit .............. (200,000) (647,000) (519,552)
Proceeds from notes payable ........................ (8,835) 329,780 424,699
Repayment of notes payable ......................... -- (341,316) (37,687)
Proceeds from bridge loans ......................... -- -- 1,282,238
Proceeds from issuance of preferred stock ......... 712,488 4,709,591 1,499,999
Offering costs in connection with issuance of
preferred stock .................................. (81,697) (142,437) (26,509)
Proceeds from issuance of common stock ............ 4,843 19,250 17,213
----------- ------------ ------------
Net cash provided by financing activities ... 998,799 4,002,868 4,234,401
----------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents .................................. (169,083) 28,362 581,883
Cash and cash equivalents at beginning of period ..... 289,806 120,723 149,085
----------- ------------ ------------
Cash and cash equivalents at end of period .......... $ 120,723 $ 149,085 $ 730,968
=========== ============ ============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-25
<PAGE>
EyeSys Technologies, Inc.
Notes to Financial Statements
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
EyeSys Technologies, Inc. (the "Company"), formerly EyeSys Laboratories,
Inc., manufactures and distributes a specialized line of diagnostic ophthalmic
equipment which was internally developed by the Company for medical equipment
distributors and doctors geographically located in North and South America,
Europe and portions of Asia. Targeted markets include ophthalmologists and
optometrists affiliated with refractive networks or contact lens labs. Domestic
and foreign sales each comprise approximately 50% of the Company's sales. The
Company faces competition from primarily three other companies in the corneal
topography market. The following is a summary of the Company's significant
accounting policies.
TECHNOLOGY AND PATENTS
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and changing customer needs. The Company
believes that its future success will depend, in part, upon its ability to
change and its ability to identify and develop technical innovations and apply
them to new products designed for specific ophthalmic applications. The
Company's success depends, in part, on its ability to continue to have patent
protection for its products, maintain trade secret protection and operate
without infringing the proprietary rights of others. The Company intends to
vigorously defend its patents against any infringements. The Company has been
issued several patents and several others are pending, all of which were
internally developed.
REGULATIONS
The Company's medical equipment is subject to review by the United States
Food and Drug Administration (the "FDA"). The EyeSys Corneal Analysis system is
categorized by the FDA as a Class One medical device and to date, has required
only Regulation 510(k) Notification in the United States. To date, the Company
has been inspected twice and has not received a notice of noncompliance with
regulations specified by the FDA. In addition, sales of medical devices outside
the United States are subject to foreign regulatory requirements that vary
widely from country to country. The Company requires its distributors to obtain
regulatory approval for the Company's products in their territories.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows the Company considers any highly liquid
instruments purchased with an original maturity of three months or less to be
cash equivalents. For these short-term instruments, the carrying amount
approximates estimated fair value.
INVENTORIES
Inventories, consisting of finished goods and parts and materials for
construction of ophthalmic equipment, are stated at the lower of cost or market
value with cost determined using the first-in, first-out (FIFO) method. A
valuation allowance is provided, if necessary, to reduce obsolete inventory to
its estimated net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Disposals are removed at cost
less accumulated depreciation and any gain or loss from disposition is reflected
in income currently. Depreciation is provided over the estimated useful lives of
the depreciable assets using the straight-line method for financial reporting
purposes and an accelerated method for tax reporting purposes. All equipment is
depreciated over an estimated useful life of 5 years. Additions or improvements
that increase the value or extend the life of an asset are capitalized.
Maintenance and repairs are expensed as incurred.
F-26
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PROVISION FOR WARRANTY CLAIMS
Estimated warranty costs are accrued at the time of sale of the warranted
products. Actual results could differ from those estimates.
INCOME TAXES
Income taxes have been provided in accordance with the liability method of
accounting for income taxes (See Note 8). Accordingly, deferred income taxes are
recorded to reflect the tax consequences on future years of temporary
differences between the tax basis of assets and liabilities and their financial
amounts at year end. A valuation allowance is provided, if necessary, to reduce
any resulting deferred tax assets to their estimated net realizable value.
Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company generally recognizes revenue upon shipment of its product to the
customer. Revenue from the sale of extended warranties is deferred and
recognized ratably over the warranty period. Revenues from extended warranties
totaled approximately $85,000 and $172,000 for the years ended December 31, 1994
and 1995, respectively. Revenues from license fees are recognized upon delivery
of the software and completion of substantially all obligations.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
CONCENTRATIONS OF CREDIT AND MARKET RISK
The Company sells products and grants credit primarily to medical equipment
distributors and doctors geographically located in North and South America,
Europe and portions of Asia. The Company investigates customers but generally
does not require collateral for credit granted.
The Company maintains its cash in demand deposits with major financial
institutions selected by management based upon management's assessment of the
financial stability of such financial institutions. Balances periodically exceed
the $100,000 level covered by federal depository insurance; however, the Company
has experienced no losses.
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.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, entitled "Accounting for Stock-Based Compensation"
("SFAS No. 123"), in October 1995. The Company is required to adopt either the
new accounting rules or the new disclosure rules of SFAS No. 123 no later than
its fiscal year ending December 31, 1996. The Company has decided to adopt the
disclosure requirements of SFAS No. 123.
LOSS PER SHARE
Loss per share is computed on the basis of the weighted average number of
shares of common stock and common stock equivalents, if inclusion of such
equivalents is not anti-dilutive, outstanding during the periods.
F-27
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
RECLASSIFICATIONS
Certain amounts previously reported in the 1994 financial statements have
been reclassified to conform with the 1995 presentation.
2. ACCOUNTS RECEIVABLE, NET:
Accounts receivable, net consisted of the following at:
DECEMBER 31, DECEMBER 31,
1994 1995
----------- -----------
Accounts receivable, trade ... $ 2,263,020 $ 2,749,260
Federal income tax refundable 62,970 --
Employee advances and other .. 16,860 71,017
----------- -----------
Total ....................... 2,342,850 2,820,277
Less allowance for doubtful
accounts ..................... (207,263) (219,262)
----------- -----------
Accounts receivable, net ... $ 2,135,587 $ 2,601,015
=========== ===========
3. INVENTORIES:
Inventories consisted of the following at:
DECEMBER 31, DECEMBER 31,
1994 1995
----------- -----------
Parts and materials ..... $ 681,413 $ 1,020,277
Work in process .......... 134,250 120,055
Finished goods inventory 617,272 721,472
----------- -----------
1,432,935 1,861,804
Obsolescence reserve .... (87,379) (34,160)
----------- -----------
$ 1,345,556 $ 1,827,644
=========== ===========
4. PROPERTY AND EQUIPMENT, NET:
Property and equipment, net, consisted of the following at:
DECEMBER 31, DECEMBER 31,
1994 1995
----------- -----------
Computer equipment ............ $ 618,622 $ 780,123
Demonstration units ........... 296,248 329,845
Office furniture and fixtures 266,403 381,705
Machinery and equipment ...... 54,172 119,324
Tooling and fixtures .......... 119,708 415,594
Leasehold improvements ........ 29,615 60,617
----------- -----------
Total ....................... 1,384,768 2,087,208
Less accumulated depreciation (460,538) (774,922)
----------- -----------
Property and equipment, net.. $ 924,230 $ 1,312,286
=========== ===========
Demonstration units represent the Company's internally produced diagnostic
ophthalmic devices that were removed from inventory at cost for placement at
medical or research facilities to promote sales. Depreciation expense totaled
$195,772 and $335,947 for fiscal years 1994 and 1995, respectively.
F-28
<PAGE>
<TABLE>
5. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt consisted of the following at:
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
--------- -----------
<S> <C> <C>
Uncollateralized bridge loans payable to stockholders, bearing
interest at approximately 10.5% per year. Principal and interest
payments due in June 1997. At any time, at the option of the holders,
the loans are convertible into shares of common stock based on the
estimated fair value of the common stock at the conversion date ............... -- $ 1,282,238
Less current maturities ......................................................... -- --
--------- -----------
-- $ 1,282,238
========= ===========
Notes payable to a bank under $1,000,000 domestic revolving line of credit
agreement funded by Silicon Valley Bank, bearing interest at approximately 10.5%
per year, due monthly. Advances under this agreement are due in March 1996.
This note is collateralized by all assets except inventory and fixed assets. On
April 26, 1996, the Company renewed the revolving line of credit through
January 15, 1997 ............................................................... -- $ 398,992
Notes payable to a bank under $1,000,000 foreign revolving line of
credit agreement funded by Silicon Valley Bank, bearing interest at
approximately 10% per year, due monthly. Advances under this agreement are due
in March 1996. This note is collateralized by certain inventory and
receivables. On April 26, 1996, the Company renewed the
revolving line of credit through January 15, 1997 .............................. -- 675,457
Notes payable to a partnership, bearing interest at approximately 9.12%
per year. Principal and interest payments due in monthly
installments based on a loan factor of 3.2137% through July 1998. This
note is collateralized by certain fixed assets and equipment .................. -- 212,986
Notes payable to a partnership, bearing interest at approximately
10.17% per year. Principal and interest payments due in monthly
installments based on a loan factor of 3.2137% through January 1999.
This note is collateralized by certain fixed assets and
equipment ...................................................................... -- 186,671
Other, principally capitalized leases (See Note 6) .............................. $ 44,384 31,738
--------- -----------
44,384 1,505,844
Less current maturities ......................................................... (12,647) (158,786)
--------- -----------
$ 31,737 $ 1,347,058
========= ===========
</TABLE>
Approximate maturities of long-term debt and notes payable to stockholders
under existing terms at December 31, 1995 are as follows:
FISCAL YEARS ENDING IN:
-----------------------
1996 ................... $ 158,786
1997 ................... 2,453,158
1998 ................... 121,411
1999 ................... 54,727
-----------
$ 2,788,082
===========
The weighted average interest rate for fiscal year 1995 was 10.29%.
The domestic and foreign revolving note payable agreements contain certain
covenants, the most restrictive of which requires that the Company maintain a
minimum net worth of not less than $2,450,000.
F-29
<PAGE>
5. NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED:
At December 31, 1995, the Company was in violation of this, the quick ratio,
debt to net worth ratio and other reporting covenants, which could allow the
financial institution to accelerate the maturity of the note. The fair value of
notes payable and long-term debt approximates carrying value as the related
obligations accrue interest at a rate which is consistent with that currently
offered for similar obligations.
In connection with the renewal of the revolving lines of credit on April 26,
1996, the Company obtained an additional $650,000 term note payable to Silicon
Valley Bank which is guaranteed by certain investors. Advances shall accrue
interest at prime plus 2.25% and are payable monthly. The entire amount of such
advances and all accrued but unpaid interest are due and payable on January 15,
1997. The Company issued to Silicon Valley Bank a warrant for 158,730 shares of
common stock at an exercise price of $.20 which represents current market value.
6. CAPITAL LEASE OBLIGATION:
The Company leases certain office equipment, which is included in property
and equipment, under an agreement which is classified as a capital lease.
Amortization of the lease is included in depreciation.
DECEMBER 31, DECEMBER 31,
1994 1995
--------- ---------
Equipment held under capital lease $ 64,755 $ 64,755
Accumulated amortization ........... (18,347) (31,298)
--------- ---------
$ 46,408 $ 33,457
========= =========
The following is a summary of required future minimum lease payments
associated with this capital lease obligation at December 31, 1995.
1996 .......................... $ 16,217
1997 .......................... 16,217
1998 .......................... 2,703
--------
Total minimum lease payments . 35,137
Less amount representing
interest expense ............. 3,399
--------
Present value of minimum lease
payments at December 31, 1995
(See Note 5) ................. 31,738
Less current portion .......... 13,865
--------
Noncurrent portion ............ $ 17,873
========
F-30
<PAGE>
7. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
DECEMBER 31, DECEMBER 31,
1994 1995
--------- ---------
Accrued professional fees $ 20,259 $ 33,952
Accrued marketing costs .. 43,904 --
Sales taxes payable ....... 37,283 16,884
Accrued commissions ....... 238,866 137,158
Accrued warranty costs ... 127,274 127,902
Accrued payroll ........... 23,322 56,219
Accrued vacation .......... 62,329 70,929
Accrued interest payable . -- 8,632
Other ..................... 29,179 96,908
--------- ---------
$ 582,416 $ 548,584
========= =========
8. INCOME TAXES:
The composition of deferred tax assets and liabilities and the related tax
effects as of December 31, 1994 and 1995 were as follows:
1994 1995
------------ -------------
Allowance for doubtful accounts
receivable .................... $ 70,000 $ 90,000
Inventory reserves ............. 89,000 46,000
Warranty service reserve ...... 44,000 44,000
Deferred revenue ............... 13,000 27,000
Research and development credit
carryforward .................. 156,000 191,000
Other .......................... 7,000 48,000
Net operating loss carryforward 1,144,000 2,269,000
------------ ------------
Total assets ................. 1,523,000 2,715,000
Liability--property and
equipment basis ............... (69,000) (72,000)
Valuation allowance ............ (1,523,000) (2,715,000)
------------ ------------
Net deferred tax liabilities.. $ (69,000) $ (72,000)
============ ============
The change in the total valuation allowance for the year ended December 31,
1995 was a net increase of approximately $1.2 million. This change resulted
primarily from operating losses incurred during 1995.
F-31
<PAGE>
<TABLE>
8. INCOME TAXES, CONTINUED:
The difference between the 1993, 1994 and 1995 income tax provision (benefit)
in the accompanying statement of operations and the amount that would result if
the U.S. federal statutory rate of 34% were applied to the pre-tax financial
loss was as follows:
<CAPTION>
1993 1994 1995
-------------------------- --------------------------- ----------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
OF PRETAX OF PRETAX OF PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
---------- ----- ------------ ---- ------------ ---
<S> <C> <C> <C> <C> <C> <C>
Benefit of federal income tax at
statutory rate ................. $ (263,086) (34.0)% $ (1,273,863) (34.0)% $ (1,159,162) (34.0)%
State income tax, net of federal
benefit ........................ 3,300 0.5 -- -- -- --
Research and development tax
credits ........................ (37,000) (4.8) (64,999) (1.7) (35,499) (1.0)
Increase in valuation reserve .. 200,000 25.8 1,323,000 35.3 1,192,000 35.0
Other ........................... 2,257 0.3 (22,138) (0.6) 18,357 0.4
---------- ----- ------------ ---- ------------ ---
$ (94,529) (12.2)% $ (38,000) (1.0)% $ 15,696 0.4%
========== ===== ============ ==== ============ ===
</TABLE>
The components of the income tax provision (benefit) for the years ended
December 31, 1993, 1994 and 1995, were as follows:
1993 1994 1995
---------- --------- --------
Current
Foreign .............................. -- -- $ 12,696
Federal .............................. $ (160,529) $ (60,000) --
---------- --------- --------
(160,529) (60,000) 12,696
---------- --------- --------
Deferred
Federal .............................. 61,000 22,000 3,000
State ................................ 5,000 -- --
---------- --------- --------
66,000 22,000 3,000
---------- --------- --------
Total income tax provision (benefit) $ (94,529) $ (38,000) $ 15,696
========== ========= ========
At December 31, 1995, the Company had net operating loss and tax credit
carryforwards of approximately $6,761,000 and $191,000, respectively, which
expire between 2009 and 2010. The utilization of the net operating loss
carryforward is limited by approximately $918,000 relating to certain ownership
changes under Internal Revenue Code Section 382. The utilization of the tax
credit carryforward will be limited by certain provisions under Internal Revenue
Code Section 382.
9. STOCKHOLDERS' EQUITY:
On June 15, 1994, the Company's board of directors authorized the issuance of
3,762,552 shares of Series B Cumulative Preferred Stock ("Series B Preferred
Stock"), and subsequently issued 3,737,770 shares at $1.26 per share.
Additionally, 24,782 shares of preferred stock were issued in exchange for
consulting services valued at $31,225, approximately the fair value of the
preferred shares. Holders of the Series B Preferred Stock are entitled to
receive dividends at the rate of $.10 per share per year, payable in preference
to any payments of dividends on Common Stock. The Series B Preferred Stock is
convertible to common stock at the option of the holder with the value of the
Series B Preferred Stock initially fixed at $1.26 per share and the value of the
common shares determined by an independent appraisal. (The value of the Series B
Preferred Stock for purposes of conversion is subject to periodic adjustment).
The Series B Preferred Stock is automatically convertible to common stock upon
the closing of a pubic offering of the Company's common stock meeting certain
criteria as described in the amendment to the Company's articles of
incorporation authorizing the issuance of Preferred Stock. At December 31, 1995
and 1994, the Company had approximately $449,000 and $195,000, respectively, in
undeclared cash Series B Preferred dividends. The undeclared dividends are
required to be paid upon conversion of the Series B Preferred Stock to common
stock. During 1995, an additional 1,190,474 shares of Series B preferred stock
were authorized and issued at $1.26 per share.
F-32
<PAGE>
9. STOCKHOLDERS' EQUITY, CONTINUED:
On February 5, 1993, the Company's board of directors authorized the issuance
of 350,000 shares of Series A noncumulative preferred stock ("Series A Preferred
Stock") and, subsequently, issued 101,784 shares at $7.00 per share. Holders of
the Series A Preferred Stock are entitled to receive dividends at the rate of
$0.70 per share per year, payable in preference to any payment of dividends on
common stock. The Series A Preferred Stock is convertible to common stock at the
option of the holder, on a value basis, with the value of the Preferred Stock
initially fixed at $7.00 per share and the value of common shares determined by
independent appraisal. (The value of the Series A Preferred Stock for purposes
of conversion is subject to periodic adjustment). The Series A Preferred Stock
is automatically convertible to common stock upon the closing of a public
offering of the Company's common stock meeting certain criteria as described in
the amendment to the Company's articles of incorporation authorizing the
issuance of Preferred Stock. On April 5, 1995, the Company authorized 3,000,000
shares of nondesignated preferred stock. As of December 31, 1995, there was no
nondesignated preferred stock issued or outstanding.
NON QUALIFIED STOCK OPTIONS
In years ended prior to December 31, 1994, the Company issued stock options
to certain stockholders and other individuals who provided services to the
Company. The following is an analysis of stock option activity during the years
ended December 31, 1993 and 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
- ---------------------------------------------------------------------------------------------------
UNEXERCISED UNEXERCISED
OPTIONS AT OPTIONS OPTIONS ORIGINAL
OPTION PRICE YEAR BEGINNING OPTIONS EXERCISED OR AT END DURATION OF
PER SHARE GRANTED OF PERIOD GRANTED CANCELED OF PERIOD OPTION
--------- ------- --------- ------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
$1.55 1992 214,516 -- -- 214,516 5 years
2.15 1992 15,000 -- -- 15,000 5 years
2.55 1992 30,000 -- -- 30,000 5 years
3.53 1993 95,000 157,000 95,000 157,000 5 years
------- ------- ------ -------
354,516 157,000 95,000 416,516
======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------------------------
UNEXERCISED UNEXERCISED
OPTIONS AT OPTIONS ORIGINAL
OPTION PRICE YEAR BEGINNING OPTIONS OPTIONS AT END DURATION OF
PER SHARE GRANTED OF PERIOD GRANTED CANCELED OF PERIOD OPTION
--------- ------- --------- ------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
$1.55 1992 214,516 -- 214,516 -- 5 years
2.15 1992 15,000 -- 15,000 -- 5 years
2.55 1992 30,000 -- 30,000 -- 5 years
3.53 1993 157,000 -- 157,000 -- 5 years
------- ---- ------- ----
416,516 -- 416,516 --
======= ==== ======= =====
</TABLE>
INCENTIVE STOCK OPTION PLAN
Effective March 1, 1992, the stockholders adopted the Company's 1992
Incentive Stock Option Plan (the "ISOP"). The ISOP provides for the granting of
options to purchase the Company's common stock by officers or other key
employees of the Company upon the terms and conditions determined by a committee
of the Board of Directors which administers the ISOP (1,000,000 shares of the
Company's no par common stock were reserved for issuance under the ISOP). The
ISOP expires in February 2002, and no further options or rights may be granted
thereafter. Options granted under the ISOP generally expire ten years from the
date of grant and the option price is market value, as determined by an
independent appraisal. Options for 770,500 of the 1,000,000 shares reserved for
issuance under the Plan have been issued based upon fair market values ranging
from $1.55 to $3.53 per share. The following is an analysis of stock option
activity in the ISOP during the years ended December 31, 1993 and 1994:
F-33
<PAGE>
9. STOCKHOLDERS' EQUITY, CONTINUED:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
- --------------------------------------------------------------------------------------------------
UNEXERCISED UNEXERCISED
OPTIONS AT OPTIONS OPTIONS ORIGINAL
OPTION PRICE YEAR BEGINNING OPTIONS EXERCISED OR AT END DURATION OF
PER SHARE GRANTED OF PERIOD GRANTED CANCELED OF PERIOD OPTION
--------- ------- ---------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
$1.55 1992 377,250 -- 19,000 358,250 10 years
2.15 1992 17,500 -- 3,000 14,500 10 years
2.55 1992 66,000 -- -- 66,000 10 years
2.80 1992 95,000 -- -- 95,000 10 years
3.53 1993 -- 244,750 8,000 236,750 10 years
------- ------- ------ -------
555,750 244,750 30,000 770,500
======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------
UNEXERCISED UNEXERCISED
OPTIONS AT OPTIONS ORIGINAL
OPTION PRICE YEAR BEGINNING OPTIONS OPTIONS AT END DURATION OF
PER SHARE GRANTED OF PERIOD GRANTED CANCELED OF PERIOD OPTION
--------- ------- ---------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
$1.55 1992 358,250 -- 358,250 -- 10 years
2.15 1992 14,500 -- 14,500 -- 10 years
2.55 1992 66,000 -- 66,000 -- 10 years
2.80 1992 95,000 -- 95,000 -- 10 years
3.53 1993 236,750 -- 236,750 -- 10 years
------- ------- ------- -----
770,500 -- 770,500 --
======= ======= ======= =====
</TABLE>
All stock options were granted at option prices believed to be in excess of
the fair value of the stock at the date of grant and accordingly, no
compensation was recognized in connection with the granting of such options.
Effective July 19, 1994, the stockholders adopted the Company's 1994 Stock
Option Plan (the "Plan") as a replacement to the previous nonqualified stock
option plan and incentive stock option plan. Each incentive stock option or
nonqualified stock option was replaced on the same terms as the surrendered
option, except that the exercise price shall be the current fair market value of
the common stock, $.20 per share, at date of grant. At December 31, 1995 and
1994, a total of 2,100,000 shares of common stock were reserved for issuance
under the Plan. Generally, for new employees, initial stock options granted vest
25% at the end of the first year and approximately two percent per month for the
next 36 months. For existing employees, subsequent stock options granted vest at
approximately two percent per month for 48 months. The following is an analysis
of stock option activity in the Plan during the years ended December 31, 1994
and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------
UNEXERCISED UNEXERCISED
OPTIONS AT OPTIONS OPTIONS ORIGINAL
OPTION PRICE YEAR BEGINNING OPTIONS EXERCISED AT END DURATION OF
PER SHARE GRANTED OF PERIOD GRANTED OR CANCELED OF PERIOD OPTION
--------- ------- --------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
$.20 1994 -- 1,686,629 242,395 1,444,234 1 to 10 years
.20 1995 1,444,234 455,600 168,335 1,731,499 1 to 10 years
</TABLE>
COMMON STOCK PURCHASE WARRANTS
On September 28, 1994, the Board of Directors granted 80,000 common stock
purchase warrants to certain of the Company's consultants. The exercise price of
the warrants is $.20 and the warrants are exercisable as of the date of
issuance. On December 14, 1994, the Board of Directors granted an additional
18,000 common stock purchase warrants. As of December 31, 1994, no warrants had
been exercised. During 1995, 18,000 warrants were exercised.
F-34
<PAGE>
9. STOCKHOLDERS' EQUITY, CONTINUED:
SERIES B PREFERRED STOCK PURCHASE WARRANTS
On March 28, 1995, the Company issued 15,873 Series B preferred stock
purchase warrants to Silicon Valley Bank. The exercise price of the warrants is
$1.26 and the warrants are exercisable as of the date of issuance. On November
16, 1995, the Board of Directors issued 119,048 Series B preferred stock
purchase warrants in connection with a loan agreement. The exercise price of the
warrants is $1.26 and the warrants are exercisable as of the date of issuance.
As of December 31, 1995, no Series B preferred stock warrants have been
exercised.
10. OPERATING LEASE COMMITMENT:
The Company leases its principal place of operations under a noncancelable
operating lease. At December 31, 1995 the minimum future rental payments,
including common area maintenance charges, due under this lease for the
remainder of the lease term were as follows:
YEAR ENDING
DECEMBER 31,
------------
1996 ....... $138,707
1997 ....... 141,960
1998 ....... 158,340
1999 ....... 158,340
2000 ....... 118,755
Total rent expense incurred under operating leases for the years ended
December 31, 1993, 1994 and 1995 was approximately $96,000, $117,000 and
$121,000, respectively.
11. EMPLOYEE BENEFIT PLAN:
Effective October 1, 1993, the Company adopted a defined contribution profit
sharing 401(k) plan covering substantially all full time employees who have
attained the age of twenty-one. Under the terms of the plan, employees who have
completed at least one month of service may contribute from 1% to 20% of their
annual salary to the plan. At the discretion of the Company, such contributions
are available for matching contributions. The Company made no contributions to
the plan for the years ended December 31, 1993, 1994 and 1995.
12. SUPPLEMENTAL CASH FLOW INFORMATION:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
--------- -------- ---------
Cash paid for interest expense $ 24,267 $ 42,184 $ 187,724
========= ======== =========
Cash paid for income taxes .... $ 157,102 $ -- $ 12,696
========= ======== =========
13. CONTINUING OPERATIONS AND BASIS OF PRESENTATION:
The Company reported net losses for the years ended December 31, 1994 and
1995 of $3,708,657 and $3,424,996, respectively. During the year, the Company
was in default of the minimum net worth covenant, quick ratio, debt to net worth
ratio and other reporting requirements relating to its revolving lines of
credit. Effective April 26, 1996, the Company renewed its lines of credit and
obtained an additional $650,000 term note payable to Silicon Valley Bank which
is guaranteed by certain investors. Advances shall accrue interest at prime plus
2.25% and are payable monthly. The entire amount of such advances and all
accrued but unpaid interest are due and payable at January 15, 1997. Management
has implemented or is in the process of implementing plans to improve
profitability and financial position by obtaining additional equity investments
and reducing expenses.
F-35
<PAGE>
13. CONTINUING OPERATIONS AND BASIS OF PRESENTATION, CONTINUED:
On April 17, 1996, the Company executed an extension of the bridge loans.
From January 1, 1996 through April 17, 1996, the Company's investors have
provided approximately $1,458,000 under the uncollateralized bridge loans. In
addition, on April 26, 1996, the Company renewed the notes payable to Silicon
Valley Bank extending the maturity date and modifying the financial covenants of
the notes. In connection with the renewal, a warrant for 158,730 shares of
common stock was issued to Silicon Valley Bank at an exercise price of $.20
which represents the estimated current market value of the Company's stock. The
Company has also engaged an investment banking firm to advise it with respect to
various potential transactions by one or more third parties.
As part of the effort to ensure the long-term viability of the Company,
management is enacting a plan to significantly reduce expenses while maintaining
important sales and marketing activities. The Company believes that these
expense reductions will bring the Company to break even operations for the last
nine months of 1996.
The Company's financial statements have been prepared using accounting
principles applicable to a going concern which contemplates the realization of
assets and liquidation of liabilities in the ordinary course of business. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets or liabilities that might
be necessary should the Company be unable to continue in existence.
14. SUBSEQUENT EVENT (UNAUDITED):
For the nine months ended September 30, 1996, EyeSys has continued to incur
significant losses. As a result, the Company obtained uncollateralized bridge
loans from various stockholders totaling approximately $1.7 million during the
period ended September 30, 1996 and is currently attempting to raise additional
capital.
On October 29, 1996, the Company entered into an agreement ("Agreement") with
Sunrise Technologies International, Inc. ("Sunrise") to merge with or into
Sunrise. As consideration for the merger, Sunrise will issue up to an aggregate
of approximately 12.4 million shares of its common stock (subject to adjustment)
based on the average bid price of Sunrise's common stock at a certain date
specified in the Agreement. Additionally, Sunrise will issue options or warrants
to acquire Sunrise common stock to the holders of unexercised EyeSys options and
warrants. The transaction will be closed on or about February 28, 1997.
F-36
<PAGE>
<TABLE>
EYESYS TECHNOLOGIES, INC.
BALANCE SHEETS
(Unaudited)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 64,935 $ 730,968
Receivables, net of allowance for doubtful accounts of $188,238 and
$219,262, respectively .............................................. 2,419,359 2,601,015
Inventories .......................................................... 1,762,284 1,827,644
Prepaid expenses ..................................................... 122,521 177,122
------------- ------------
Total current assets ............................................... 4,369,099 5,336,749
Property and equipment, net ............................................. 1,012,076 1,312,286
Deposits and other assets ............................................... 74,684 164,768
------------- ------------
Total assets ....................................................... $ 5,455,859 $ 6,813,803
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt .............. $ 1,902,529 $ 158,786
Notes payable to stockholders, current maturities .................... 2,999,993 --
Accounts payable ..................................................... 1,534,890 2,784,611
Accrued liabilities .................................................. 777,948 548,584
Customer deposits .................................................... 43,549 69,653
Deferred revenue ..................................................... 132,025 80,992
Accrued interest payable to stockholders ............................. 183,111 1,475
------------- ------------
Total current liabilities .......................................... 7,574,045 3,644,101
Deferred income taxes ................................................... 72,000 72,000
Long-term debt, less current maturities ................................. 234,860 1,347,058
Notes payable to stockholders ........................................... -- 1,282,238
Commitments and contingencies
Stockholders' equity:
Series A: noncumulative convertible preferred stock, 350,000 shares authorized;
101,784 shares issued and outstanding at September 30, 1996 and December 31,
1995 ($7.00 per share or $712,488 aggregate liquidation preference at September
30, 1996 and December 31, 1995) ...................................... 630,791 630,791
Series B: cumulative, convertible preferred stock, 4,953,026 at
September 30, 1996 and December 31, 1995, respectively, shares authorized;
4,953,026 and 3,762,552 shares issued and outstanding at September 30, 1996 and
December 31, 1995, respectively, ($1.47 and $1.39 per share or $7,258,993 and
$6,884,544 aggregate liquidation preference at September 30, 1996 and December
31, 1995, respectively) ............................................. 6,071,869 6,071,869
Common stock; no par or stated value, 20,000,000 shares authorized;
3,354,307 and 3,324,374 shares issued and outstanding at September
30, 1996 and December 31, 1995, respectively ........................ 2,006,047 1,999,962
Accumulated deficit .................................................. (11,133,753) (8,234,216)
------------- ------------
Total stockholders' equity ......................................... (2,425,046) 468,406
------------- ------------
Total liabilities and stockholders' equity ......................... $ 5,455,859 $ 6,813,803
============= ============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-37
<PAGE>
<TABLE>
EYESYS TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 1996 30, 1995 30, 1996 30, 1995
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues: ..................................
Product revenue ........................... $ 2,085,087 $ 1,823,634 $ 6,319,167 $ 6,833,795
License fee revenue ....................... -- 400,000 -- 600,000
---------- ----------- ------------ ------------
2,085,087 2,223,634 6,319,167 7,433,795
---------- ----------- ------------ ------------
Expenses:
Costs of sales ............................. 1,175,778 962,677 3,539,902 3,659,551
Selling, general and administrative ....... 1,223,201 1,141,182 4,387,303 3,722,248
Research and development ................... 227,940 417,214 897,770 1,447,459
---------- ----------- ------------ ------------
Total operating costs and expenses ...... 2,626,919 2,521,073 8,824,975 8,829,258
---------- ----------- ------------ ------------
Loss from operations ....................... (541,832) (297,439) (2,505,808) (1,395,463)
Interest expense, net of other income of
$21,030 and $23,286 for the three
months and nine months ended September 30,
1995, respectively ......................... 147,687 18,570 378,729 62,166
---------- ----------- ------------ ------------
Loss before income tax (provision) benefit (689,519) (316,009) (2,884,537) (1,457,629)
Income tax (provision) benefit ............... -- -- (15,000) --
---------- ----------- ------------ ------------
Net loss ..................................... (689,519) $ (316,009) $ (2,899,537) $ (1,457,629)
Less preferred stock dividends ............... (124,816) (124,816) (374,449) (324,490)
---------- ----------- ------------ ------------
Net loss to common stockholders .............. $ (814,335) $ (440,825) $ (3,273,986) $ (1,782,119)
========== =========== ============ ============
Net loss per common share .................... $ (.24) $ (.14) $ (.98) $ (.55)
========== =========== ============ ============
Weighted average shares outstanding ......... 3,354,307 3,261,311 3,349,732 3,259,472
========== =========== ============ ============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-38
<PAGE>
<TABLE>
EYESYS TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1996 30, 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $ (2,899,537) $ (1,457,629)
------------ ------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization expense ......................... 383,523 248,113
Bad debt expense .............................................. 16,000 --
Loss on disposal of property and equipment .................... 3,067 3,548
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable .................. 165,656 (576,987)
Decrease (increase) in income tax refundable ................ -- 60,284
Decrease (increase) in inventories .......................... 65,360 (660,994)
Decrease (increase) in prepaid expenses ..................... 54,601 (91,004)
Decrease (increase) in deposits and other assets ............ 90,084 (222,381)
Increase (decrease) in accounts payable ..................... (1,249,721) 300,432
Increase (decrease) in accrued liabilities .................. 229,364 (50,373)
Increase (decrease) in customer deposits .................... (26,104) (8,387)
Increase (decrease) in deferred revenue ..................... 51,033 109,317
Increase in accrued interest to stockholders ................ 181,636 --
------------ ------------
Total adjustments ......................................... (35,501) (888,432)
------------ ------------
Net cash used in operating activities ..................... (2,935,038) (2,346,061)
------------ ------------
Cash flows from investing activities:
Capital expenditures .......................................... (87,936) (376,548)
Proceeds from disposals of property and equipment ............ 1,556 --
------------ ------------
Net cash used in investing activities ..................... (86,380) (376,548)
Cash flows from financing activities:
Proceeds from revolving line of credit ........................ 1,088,682 --
Repayment of revolving line of credit ......................... (300,826) --
Proceeds from notes payable ................................... -- 1,178,506
Repayment of notes payable .................................... (156,311) --
Proceeds from bridge loans .................................... 1,717,755 --
Proceeds from issuance of preferred stock ..................... -- 1,478,002
Proceeds from issuance of common stock ........................ 6,085 4,600
------------ ------------
Net cash provided by financing activities ................. 2,355,385 2,661,108
------------ ------------
Net decrease in cash and cash equivalents ..................... (666,033) (61,501)
Cash and cash equivalents at beginning of period .............. 730,968 149,085
------------ ------------
Cash and cash equivalents at end of period .................... $ 64,935 $ 87,584
============ ============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-39
<PAGE>
EyeSys Technologies, Inc.
Notes to Financial Statements (Unaudited)
1. BASIS OF PRESENTATION:
The financial statements as of and for the periods ended September 30, 1996
and 1995 are unaudited, but in the opinion of management include all adjustments
consisting of normal recurring adjustments, necessary for a fair presentation of
the Company's financial position and results of operations. Interim results are
not necessarily indicative of year-end results. The financial statements should
be read in conjunction with the audited financial statements for the year ended
December 31, 1995.
2. CONTINGENCIES:
TECHNOLOGY AND PATENTS
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and changing customer needs. The Company
believes that its future success will depend, in part, upon its ability to
change and its ability to identify and develop technical innovations and apply
them to new products designed for specific ophthalmic applications. The
Company's success depends, in part, on its ability to continue to have patent
protection for its products, maintain trade secret protection and operate
without infringing the proprietary rights of others. The Company intends to
vigorously defend its patents against any infringements. The Company has been
issued several patents and several others are pending, all of which were
internally developed.
REGULATIONS
The Company's medical equipment is subject to review by the United States
Food and Drug Administration (the "FDA"). The EyeSys Corneal Analysis system is
categorized by the FDA as a Class One medical device and to date, has required
only Regulation 510(k) Notification in the United States. To date, the Company
has been inspected twice and has not received a notice of noncompliance with
regulations specified by the FDA. In addition, sales of medical devices outside
the United States are subject to foreign regulatory requirements that vary
widely from country to country. The Company requires its distributors to obtain
regulatory approval for the Company's products in their territories.
3. SUBSEQUENT EVENTS:
MERGER
For the nine months ended September 30, 1996, the Company has continued to
incur significant losses. As a result, the Company has obtained bridge loans
(See "Convertible Debt" below) and is attempting to raise additional capital. On
October 29, 1996, the Company entered into an agreement ("Agreement") with
Sunrise Technologies International, Inc. ("Sunrise") to merge with or into
Sunrise. As consideration for the merger, Sunrise will issue up to an aggregate
of approximately 12.4 million shares of its common stock (subject to adjustment)
based on the average bid price of Sunrise's common stock at a certain date
specified in the Agreement. Additionally, Sunrise will issue options or warrants
to acquire Sunrise common stock to the holders of unexercised EyeSys options and
warrants. The transaction will be closed on or about February 28, 1997.
The Company's financial statements have been prepared using accounting
principles applicable to a going concern which contemplates the realization of
assets and liquidation of liabilities in the ordinary course of business. The
finanical statements do not include any adjustments relating to the
recoverability and classification of recorded assets or liabilites that might be
necessary should the Company be unable to continue in existence.
F-40
<PAGE>
3. SUBSEQUENT EVENTS, CONTINUED:
CONVERTIBLE DEBT
During the nine months ended September 30, 1996, the Company obtained
uncollateralized bridge loans from various stockholders totaling approximately
$1.7 million. The loans bear interest at approximately 10.5% per year. Principal
and accrued interest are payable in June 1997. At any time, at the option of the
holder, the loans are convertible into shares of common stock based on the
estimated fair value of the common stock at the conversion date.
F-41
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is made as of December 27, 1996 by and
among Sunrise Technologies International, a Delaware corporation, Sunrise
Acquisition, Inc., a Delaware corporation, and EyeSys Technologies, Inc., a
Delaware corporation.
RECITALS
A. The parties hereto intend that, subject to the terms and conditions
hereinafter set forth, SAI, a wholly owned subsidiary of Sunrise, will be merged
with and into EyeSys (the "Merger") in accordance with this Agreement and the
applicable provisions of the laws of the State of Delaware, with EyeSys
surviving as a wholly-owned subsidiary of Sunrise. All outstanding shares of
EyeSys Common Stock, EyeSys Series A Preferred Stock and EyeSys Series B
Preferred Stock and the EyeSys Notes will be converted into the right to receive
shares of Sunrise Common Stock.
B. All outstanding EyeSys Common Stock Warrants, Preferred Warrants and
EyeSys Options shall be converted into warrants and options, as the case may be,
to purchase Sunrise Common Stock. EyeSys Common Stock, Preferred Stock, EyeSys
Notes, EyeSys Options and EyeSys Warrants shall be collectively referred to
herein as "Interests in EyeSys."
C. By executing this Agreement, the parties hereto intend to adopt a plan of
reorganization within the meaning of Section 368(a) the Internal Revenue Code of
1986.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto, intending to be legally bound, do hereby
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms shall have the following meanings for
purposes of this Agreement:
"Agreement" means this Agreement and Plan of Merger among Sunrise, SAI and
EyeSys, dated as of December 27, 1996.
"Asset Sale" shall mean the sale of substantially all of the assets of
Sunrise relating to its dental business.
"Bank" means the Silicon Valley Bank.
"Certificate of Merger" shall mean that certificate, substantially in the
form attached hereto as Exhibit D, which shall be filed in the office of the
Delaware Secretary of State at the Effective Time.
"Code" means the Internal Revenue Code of 1986.
"Claim" or "Claims" shall mean any and all claims, demands, causes of action,
suits, proceedings, administrative proceedings, losses, judgments, decrees,
debts, damages, liabilities, court costs, attorneys' fees, and any other
expenses incurred, assessed or sustained by or against EyeSys.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985.
"Closing" shall have the meaning stated in Section 2.4.
"Common Stock Conversion Rate" shall be determined by dividing (a) the
Remaining Merger Shares, by (b) the EyeSys Common Stock Equivalents.
"Converting Noteholder" shall mean a holder of an EyeSys Note who elects to
convert such note into EyeSys Common Stock prior to the Closing.
"Contingency Payment" means, with respect to each EyeSys Note, the Principal
of such Note multiplied by a factor of two (2).
A-1
<PAGE>
"Cowen" shall mean Cowen & Company, a limited partnership.
"Cowen Shares" shall mean 224,950 shares of Sunrise Common Stock.
"Deemed Sunrise Stock Value" shall mean the greater of (a) $1.25 per share of
Sunrise Common Stock, and (b) the average of the closing bid price for Sunrise
Common Stock, on a per share basis, over the 5-day period ending three (3)
business days prior to the Closing.
"Dividends" with respect to a share of Series B Preferred Stock shall mean
the accumulated and unpaid dividends thereon immediately prior to the Effective
Time.
"Effective Time" shall have the meaning stated in Section 2.5.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"Escrow Agreement" shall mean that agreement pursuant to which certain Merger
Shares shall be held in escrow for a period of one (1) year after the Effective
Time as the source of payment for the indemnification obligations of EyeSys
pursuant to Article 7 of this Agreement substantially in the form of Exhibit B
attached hereto.
"Escrow Shares" shall have the meaning given in Section 2.3.
"Exchange Act" means the Securities Exchange Act of 1934.
"EyeSys" shall mean EyeSys Technologies, Inc., a Delaware corporation.
"EyeSys Common Stock" shall mean all of the issued and outstanding shares of
EyeSys Common Stock.
"EyeSys Common Stock Equivalents" shall mean the total of (a) the number of
shares of EyeSys Common Stock outstanding immediately prior to the Effective
Time, including shares of EyeSys Common Stock issuable to Converting
Noteholders, (b) the number of shares of EyeSys Common Stock issuable upon
exercise of vested EyeSys Options and EyeSys Common Warrants immediately prior
to the Effective Time, (c) the number of shares of EyeSys Common Stock issuable
upon conversion of the shares of Series B Preferred Stock outstanding
immediately prior to the Effective Time, and (d) the number of shares of EyeSys
Common Stock issuable upon conversion of the shares of Series B Preferred Stock
issuable upon exercise of the Preferred Warrants outstanding immediately prior
to the Effective Time.
"EyeSys Common Warrants" means all warrants to purchase EyeSys Common Stock
outstanding immediately prior to the Effective Time.
"EyeSys Financials" shall have the meaning given in Section 3.5 of this
Agreement.
"EyeSys Investor Consents" shall have the meaning indicated in Section
2.1(a).
"EyeSys Letter" means that certain disclosure letter certified by the
President and Secretary of EyeSys and delivered by EyeSys to Sunrise prior to
the Closing which describes certain matters regarding EyeSys and sets forth
exceptions to certain representations and warranties made by EyeSys for the
benefit of Sunrise and SAI in this Agreement.
"EyeSys Lock Up Agreements" has the meaning given in Section 2.7.
"EyeSys Material Adverse Effect" means any fact, event or condition, or the
absence of any fact, event or condition, as the context requires, which,
individually or in the aggregate, would have a material adverse effect on the
business, properties, condition (financial or otherwise) or results of
operations of EyeSys, or which would constitute a liability of EyeSys,
individually in excess of $10,000, or in the aggregate in excess of $25,000.
"EyeSys Notes" means those certain convertible subordinated issued by EyeSys
prior to the date of this Agreement and outstanding immediately prior to the
Closing.
"EyeSys Options" shall mean all options outstanding immediately prior to the
Effective Time to purchase EyeSys Common Stock.
"EyeSys Pension Plan" shall have the meaning given in Section 3.12.
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"EyeSys Stockholders" has the meaning given in Section 2.7.
"EyeSys Warrants" means all outstanding EyeSys Common Warrants and all
outstanding Preferred Warrants.
"First Amendment to the Restated Certificate of Incorporation of EyeSys"
means the Certificate of Amendment of the Restated Certificate of Incorporation
of EyeSys in the form attached hereto as Exhibit E.
"Form 10-K" shall have the meaning given in Section 4.14 of this Agreement.
"Hazardous Substances" shall mean any asbestos, petroleum or any substance or
material defined or designated as hazardous or toxic waste, hazardous or toxic
material, hazardous or toxic substance, or other similar term, by any federal,
state or local environmental statute, regulation or ordinance presently in
effect, including, without limitation, any material or substance which is
designated or defined as a "hazardous substance," "hazardous waste" or "toxic
substance" in (a) the Federal Water Pollution Control Act, 33 U.S.C. 1251 et
seq., and any amendments thereto, (b) the Federal Resource Conservation and
Recovery Act 42 U.S.C. 6901 et seq., and any amendments thereto, (c) the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
9601 et seq., and any amendments thereto, or (d) the Hazardous Material
Transportation Act, 49 U.S.C. 1801 et seq., and any amendments thereto.
"Interest" with respect to an EyeSys Note shall mean the accrued and unpaid
interest thereon immediately prior to the Closing.
"Interests in EyeSys" shall have the meaning given in Recital B.
"GAAP" means generally accepted accounting principles.
"Intellectual Property" shall have the meaning given in Section 3.11 of this
Agreement.
"Loan Agreement" has the meaning given in Section 5.14 of this Agreement.
"Losses" shall have the meaning given in Section 7.1 of this Agreement.
"Merger" shall mean the merger of SAI, a wholly owned subsidiary of Sunrise,
into EyeSys on the terms and conditions set forth in this Agreement.
"Merger Shares" shall mean the sum of (a) 12,186,479 shares of Sunrise Common
Stock allocable to the holders of Interests in EyeSys as indicated in Section
2.2, and (b) any additional shares required as a result of the elimination of
fractional shares pursuant to Section 2.2(c).
"Nonconverting Noteholders" shall mean a holder of an EyeSys Note that does
not elect to convert such note into EyeSys Common Stock prior to the Closing.
"Preferred Stock" shall collectively refer to the Series A Preferred Stock
and the Series B Preferred Stock.
"Preferred Warrants" means all of the warrants to purchase Series B Preferred
Stock which are outstanding immediately prior to the Effective Time.
"Principal" with respect to an EyeSys Note shall mean the outstanding
principal amount of such EyeSys Note immediately prior to the Effective Time.
"Proxy Statement/Prospectus" means the Joint Proxy Statement/Prospectus
furnished by Sunrise and EyeSys to their respective shareholders for special
meetings of the shareholders of each company to be held on or about January 31,
1997.
"Registration Statement" means that certain registration statement on Form
S-4 to be filed with the Securities and Exchange Commission by Sunrise in
connection with the registration of the issuance of the Merger Shares.
"Remaining Merger Shares" shall mean the difference between the Merger
Shares and the sum of the aggregate number of the Merger Shares (1) into which
(a) the EyeSys Notes held by the Nonconverting Noteholders are convertible at
the Effective Time, (b) the Series A Preferred Stock is convertible at the
Effective Time, (c) the Series B Preferred is convertible at the Effective Time
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in consideration for the Series B Preference on all such shares, and (2)
issuable upon exercise of the Sunrise Warrants issuable to the holders of the
Preferred Warrants at the Effective Time in consideration for the Series B
Warrant Preference on all such warrants.
"Returns" shall have the meaning given in Section 3.20 of this Agreement.
"SAI" shall mean Sunrise Acquisition, Inc., a Delaware corporation.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall have the meaning given in Section 4.14 of this
Agreement.
"Series A Preference" with respect to a share of Series A Preferred Stock
shall mean $7.00.
"Series A Preferred Stock" means all of the outstanding shares of EyeSys
Series A Preferred Stock immediately prior to the Effective Time.
"Series B Conversion Rate" is the number of shares of EyeSys Common Stock
into which each share of Series B Preferred Stock is convertible based on the
terms of the Series B Preferred Stock contained in the Restated Certificate of
Incorporation of EyeSys, which as of the date of this Agreement is 1.115.
"Series B Participation" with respect to a share of Series B Preferred Stock
shall mean the product of (a) the Series B Conversion Rate, and (b) the Common
Stock Conversion Rate.
"Series B Preference" with respect to a share of Series B Preferred Stock
shall mean the sum of $1.26 and the Dividends thereon.
"Series B Preferred Stock" means all of the outstanding shares of EyeSys
Series B Preferred Stock immediately prior to the Effective Time.
"Series B Warrant Participation" with respect to Preferred Warrants shall
mean the product of (a) the Series B Conversion Rate, and (b) the Common Stock
Conversion Rate.
"Series B Warrant Preference" shall mean a preference equal to $1.26 per
share.
"Shareholder Guarantees" has the meaning given in Section 5.14 of this
Agreement.
"Shareholder Guarantors" has the meaning given in Section 5.15 of this
Agreement.
"Sunrise" shall mean Sunrise Technologies International, a Delaware
corporation.
"Sunrise Common Stock" means the common stock of Sunrise.
"Sunrise Letter" means that certain disclosure letter certified by the
President and Secretary of Sunrise and delivered by Sunrise to EyeSys prior to
the Closing which describes certain matters regarding Sunrise and SAI and sets
forth exceptions to certain representations and warranties made by Sunrise and
SAI for the benefit of EyeSys in this Agreement.
"Sunrise Material Adverse Effect" means any fact, event or condition, or the
absence of any fact, event or condition, as the context requires, which,
individually or in the aggregate, could or would have a material adverse effect
on the business, properties, condition (financial or otherwise) or results of
operations of Sunrise.
"Sunrise Options" has the meaning given in Section 2.8(b).
"Sunrise Prepayment Agreement" has the meaning given in Section 4.15 of
this Agreement.
"Sunrise Stock Option Plan" shall have the meaning given in Section 2.1(c) of
this Agreement.
"Sunrise Warrants" has the meaning given in Section 2.8(b).
"Taxes" shall have the meaning given in Section 3.20 of this Agreement.
"Transactional Costs" means such standard and customary fees and costs as may
be reasonably claimed in connection with rendering services related to the
Merger on behalf of EyeSys by Cowen, the accounting firm of Coopers & Lybrand
and the following law firms: Epstein Becker & Green P.C., Hopkins & Sutter, and
Gardere, Wynn, Sewell & Riggs, L.L.P.
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1.2 General Terms. As used in this Agreement, the terms "herein," "herewith,"
and "hereof" are references to this Agreement, taken as a whole, the term
"includes" or "including" shall mean "including, without limitation," and
references to a "Section," "subsection," "clause," "Article," "Exhibit,"
"Appendix," or "Schedule" shall mean a Section, subsection, clause, Article,
Exhibit, Appendix or Schedule of this Agreement, as the case may be, unless in
any such case the context requires otherwise. All references to a given
agreement, instrument or other document shall be a reference to that agreement,
instrument or other document as modified, amended, supplemented and restated
through the date as of which such reference is made, and reference to a Law
includes any amendment or modification thereof. The singular shall include the
plural and the masculine shall include the feminine and neuter, and vice versa.
ARTICLE 2
PLAN OF MERGER
2.1 Board of Directors' and Stockholders' Approval.
(a) The board of directors of EyeSys has duly adopted this Agreement and,
prior to the Closing, this Agreement shall be submitted for approval by (1) at
least 67 of the outstanding shares of Series B Preferred Stock voting as a
separate class, (2) a majority of the outstanding shares of the following voting
as one class: EyeSys Common Stock, Series A Preferred Stock on an as converted
basis and Series B Preferred Stock on an as converted basis, and (3) the holders
of a majority of the outstanding principal under the EyeSys Notes. In addition,
as conditions to the consummation of the Merger:
(i) the First Amendment to the Restated Certificate of Incorporation of
EyeSys which amends the Restated Certificate of Incorporation of EyeSys to
provide that if the Merger is consummated the Series A Preference and the
Series B Preference shall be converted into Sunrise Common Stock valued at
the Deemed Sunrise Stock Value shall be approved by (1) a majority of the
outstanding shares of the following voting as one class: EyeSys Common Stock,
Series A Preferred Stock on an as converted basis, and Series B Preferred
Stock on an as converted basis, (2) with respect to the amendment of Section
4.3.4(c) of the Restated Certificate of Incorporation of EyeSys, at least 67
of the outstanding shares of Series B Preferred Stock voting as a separate
class, (3) with respect to the amendment of Section 4.2.4(b)(ii), a majority
of the holders of Series A Preferred Stock voting as a separate class and at
least 67% of the outstanding shares of Series B Preferred Stock voting as a
separate class, and (4) the holders of a majority of the outstanding
principal under the EyeSys Notes;
(ii) on or before January 15, 1997, each holder of an EyeSys Note which
has not been converted as of such date shall agree that upon consummation of
the Merger such EyeSys Note shall (1) be converted into the right to receive
shares of Sunrise Common Stock under Section 2.2(b) as payment in full of
such EyeSys Note, and (2) that such Sunrise Common Stock shall be valued at
the Deemed Sunrise Stock Value; and
(iii) on or before the Closing, the holders of at least 85 of the
outstanding principal under the EyeSys Notes shall have surrendered their
EyeSys Notes to EyeSys and shall have given written notice to EyeSys that
such noteholders have elected to convert his or its EyeSys Note into EyeSys
Common Stock on the terms and conditions set forth in Section 1(iii) of the
Conversion Rights and Procedures section of such EyeSys Notes.
Each of the holders of the EyeSys Notes, Preferred Stock and those holders of
EyeSys Common Stock listed on Schedule 2.1(a) shall indicate approval of the
Merger and of the other required approvals by executing and delivering to EyeSys
by no later than January 15, 1997 an EyeSys Investor Consent in the form
attached hereto as Exhibit A (the "EyeSys Investor Consents").
(b) The board of directors of SAI has duly adopted and approved this
Agreement, and this Agreement shall be submitted to Sunrise, the sole
stockholder of SAI, for approval in accordance with the applicable provisions of
the General Corporation Law of the State of Delaware.
(c) Prior to the Closing, Sunrise shall request its stockholders to authorize
(1) the issuance of a total of 75,000,000 shares of Sunrise Common, (2) the
adoption of the Sunrise Technologies International 1996
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Stock Option Plan (the "Sunrise Stock Option Plan"), pursuant to which Sunrise
would be authorized to issue up to 3,000,000 shares of Sunrise Common Stock,
including shares of Sunrise Common Stock issuable upon exercise of the Sunrise
Options, and (3) the Asset Sale.
2.2 The Merger.
(a) At the Effective Time, subject to the terms and conditions of this
Agreement, SAI shall be merged with and into EyeSys pursuant to the Certificate
of Merger, with EyeSys as the surviving corporation, and the separate existence
of SAI shall thereupon cease, and EyeSys, as the surviving corporation in the
Merger and a wholly owned subsidiary of Sunrise, shall continue its corporate
existence under the laws of the State of Delaware.
(b) Subject to Section 2.2(c) and Section 2.3, at the Effective Time:
(i) each EyeSys Note outstanding immediately prior to the Effective Time,
but after giving effect to the conversion of the EyeSys Notes held by
Converting Noteholders, shall be converted into the right to receive such
number of the Merger Shares as is equal to the sum of the (A) Principal, (B)
the Contingency Payment and (C) Interest payable under such EyeSys Note,
divided by the Deemed Sunrise Stock Value.
(ii) each share of Series B Preferred Stock shall be converted into the
right to receive such number of the Merger Shares as is equal to the sum of
(A) the Series B Preference thereon divided by the Deemed Sunrise Stock
Value, and (B) the Series B Participation thereon.
(iii) each Preferred Warrant shall be converted into the right to receive
a Sunrise Warrant to purchase such number of the Merger Shares as is equal to
the sum of (A) the Series B Warrant Preference thereon divided by the Deemed
Sunrise Stock Value, and (B) the Series B Warrant Participation thereon.
(iv) each share of Series A Preferred Stock shall be converted into the
right to receive such number of the Merger Shares as is equal to the Series A
Preference, divided by the Deemed Sunrise Stock Value.
(v) each share of EyeSys Common Stock, including EyeSys Common Stock
issued upon conversion of the EyeSys Notes held by Converting Noteholders,
shall be converted into the right to receive such number of the Merger Shares
as is equal to the Common Stock Conversion Rate.
(vi) each EyeSys Option which is vested immediately prior to the Effective
Time and each EyeSys Common Warrant shall be converted into the right to
receive a Sunrise Option or Sunrise Warrant, as the case may be, to purchase
such number of the Merger Shares as is equal the Common Stock Conversion
Rate.
(vii) each EyeSys Option which is not vested immediately prior to the
Closing shall be converted into the right to receive a Sunrise Option to
purchase such number of the shares of Sunrise Common Stock as is equal to the
Common Stock Conversion Rate.
(c) Notwithstanding anything herein, with respect to each holder of
Interests in EyeSys, if the aggregate number of shares of Sunrise Common Stock
collectively issuable to such a holder for conversion of all of such holder's
EyeSys Common Stock, Preferred Stock and EyeSys Notes pursuant to Section 2.2(b)
includes a fractional share, such fractional share shall be rounded up to the
nearest whole number. The aggregate number of shares of Sunrise Common Stock
purchasable under Sunrise Options and Sunrise Warrants issued in conversion for
EyeSys Options and EyeSys Warrants, respectively, shall be rounded down to the
nearest whole number and the exercise price per share thereof shall be
proportionately adjusted (rounding up to the nearest whole cent) so that the
aggregate exercise price of the Sunrise Option or Sunrise Warrant shall remain
substantially identical to the exercise price of the EyeSys Option or EyeSys
Warrant being converted. As so adjusted, except as expressly set forth herein to
the contrary with respect to certain registration rights and other provisions of
the EyeSys Warrants, each such Sunrise Option and Sunrise Warrant shall have the
same terms and conditions as the EyeSys Options and EyeSys Warrants,
respectively, being converted. Notwithstanding any other provision of this
Agreement,
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the maximum number of shares of Sunrise Common Stock issued under Section 2.2(b)
shall not exceed the sum of the aggregate number of Merger Shares and the shares
of Sunrise Common Stock issuable under Section 2.2(b)(vii).
To the extent that any of the holders of Interests in EyeSys have presently
outstanding rights to purchase shares of EyeSys capital stock which expire in
whole or in part unexercised, the exchange ratios set forth above with respect
to the exchange of interests in EyeSys into shares of Sunrise Common Stock shall
not be adjusted after the Effective Time of the Merger. All shares of EyeSys
Common Stock or EyeSys Preferred Stock that are owned by EyeSys shall be
canceled, and no securities of Sunrise or other consideration shall be delivered
in exchange therefor.
2.3 Escrow. Twenty percent of all shares otherwise issuable in respect of
EyeSys Common Stock, Preferred Stock and the EyeSys Notes pursuant to Section
2.2(b)(i), (ii), (iv) and (v) (collectively, the "Escrow Shares") shall be
deducted from the Merger Shares on a prorata basis among the holders of EyeSys
Common Stock, Preferred Stock and the EyeSys Notes and placed in an escrow for a
one (1) year period as the source of payment for the indemnification obligations
of EyeSys pursuant to Article 7 of this Agreement and the Escrow Agreement.
2.4 The Closing. Subject to termination of this Agreement as provided in
Article 8 below, the closing of the Merger shall take place at the offices of
Thelen, Marrin, Johnson & Bridges, Two Embarcadero Center, San Francisco,
California, at 10:00 a.m. January 31, 1997, or such other place, time and date
as Sunrise, SAI and EyeSys may mutually select (the "Closing").
2.5 Effective Time. Upon the complete satisfaction or satisfactory waiver of
all conditions set forth in Article 6 of this Agreement, the Certificate of
Merger shall be executed and filed as set forth herein. Simultaneously with the
Closing, the Certificate of Merger shall be submitted for filing in the office
of the Secretary of State for the State of Delaware. The Merger shall become
effective immediately upon the filing of the Certificate of Merger in the office
of the Secretary of State for the State of Delaware (the "Effective Time").
2.6 Registration Rights.
(a) The Merger Shares and the Cowen Shares shall be registered pursuant to
the Registration Statement to be filed with the Securities and Exchange
Commission. Sunrise and EyeSys shall furnish their respective shareholders with
a Proxy Statement/Prospectus for special meetings of the shareholders of each
company to be held on or about January 31, 1997.
(b) The shares of Sunrise Common Stock to be issued pursuant to the Sunrise
Stock Option Plan to employees or consultants shall be registered on a Form S-8
registration statement on or about the Effective Time.
(c) During 1997, for the benefit of the holders of Sunrise Warrants, Sunrise
shall include on any registration statement it may file in connection with a
private placement which occurs after the Closing the issuance and resale of
shares issuable pursuant to the exercise of Sunrise Warrants (excluding any such
shares held by EyeSys Stockholders).
(d) Within a reasonable period of time after March 31, 1998, for the benefit
of the holders of Sunrise Warrants, Sunrise shall file a registration statement
for the registration of the issuance and resale of shares issuable pursuant to
the exercise of Sunrise Warrants, including any such shares held by EyeSys
Stockholders.
2.7 Restrictions on Securities. The Sunrise Common Stock issued to certain
holders of Interests in EyeSys shall be subject to the following agreements: (a)
the Lock Up Agreement, executed by the EyeSys stockholders listed on Schedule
2.7 (the "EyeSys Stockholders") in the form attached hereto as Exhibit C (the
"EyeSys Lock Up Agreements"); and
(b) the Escrow Agreement.
2.8 Surrender and Exchange of Outstanding Certificates, Sunrise Warrants for
EyeSys Warrants and Sunrise Options for EyeSys Options; Status of Outstanding
Certificates.
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(a) The conversion of the EyeSys Notes, the EyeSys Common Stock and Preferred
Stock into the right to receive Merger Shares as provided for by this Agreement
shall occur automatically at the Effective Time without further action by the
holders thereof. Until surrendered, each certificate that prior to the Effective
Time represented shares of EyeSys Common Stock and Preferred Stock, and each
EyeSys Note will be deemed to evidence the right to receive the number of shares
of Sunrise Common Stock into which such EyeSys Common Stock, Preferred Stock or
EyeSys Note have been converted. Sunrise shall, within ten (10) business days
after the Effective Time, use reasonable efforts to notify each holder of a
certificate or certificates theretofore representing a share or shares of EyeSys
Common Stock, Preferred Stock and EyeSys Notes to surrender all of such holder's
certificates or EyeSys Notes, as the case may be, to Sunrise and upon such
surrender such holder shall be entitled to receive in exchange a certificate or
certificates representing the Sunrise Common Stock into which such shares or
EyeSys Notes have been converted.
(b) The conversion of outstanding EyeSys Options into the right to receive
options for Sunrise Common Stock, which options shall be on terms consistent
with the terms of the Sunrise Stock Option Plan (the "Sunrise Options") and the
conversion of the outstanding EyeSys Warrants into the right to receive warrants
to purchase Merger Shares on the form attached hereto as Exhibit E (the "Sunrise
Warrants") shall occur automatically at the Effective Time without further
action on the part of the holders thereof. As of the Effective Time, the holders
of EyeSys Options and EyeSys Warrants shall no longer have any right to purchase
EyeSys Common Stock. Until surrendered, each vested EyeSys Option or EyeSys
Warrant, as the case may be, shall be deemed to evidence the right to receive a
Sunrise Option or Sunrise Warrant to purchase the number of Merger Shares
specified pursuant to Section 2.2(b)(vi). The holders of unvested EyeSys Options
shall be entitled to purchase such number of shares of Sunrise Common Stock as
is specified in Section 2.2(b)(vii). As soon as practicable, but in no event
later than ten (10) business days after the Effective Time, Sunrise shall use
reasonable efforts to notify each holder of an EyeSys Option or an EyeSys
Warrant to surrender all of such holder's EyeSys Options or EyeSys Warrants, as
the case may be, and shall issue a form of a Sunrise Option or Sunrise Warrant
to each such holder that evidences the substitution of the Sunrise Option for
the EyeSys Option, and the Sunrise Warrant for the EyeSys Warrant. Upon such
surrender to Sunrise and receipt of an executed Sunrise Option or Sunrise
Warrant, as the case may be, by the holder thereof, Sunrise shall deliver to
each such holder the Sunrise Options or Sunrise Warrants, acknowledged and
executed by Sunrise. Notwithstanding any provision in the Agreement to the
contrary, with respect to each EyeSys Option which was intended to be an
incentive stock option prior to the Effective Time, the option price, the number
of Merger Shares or shares of Sunrise Common Stock, as applicable, purchasable
and the other terms and conditions of exercise of the Sunrise Option received in
substitution for the EyeSys Option shall be determined in order to comply with
Section 424(a) of the Code.
2.9 Appraisal Rights. Holders of EyeSys Common Stock or Preferred Stock who
have complied with all requirements for perfecting the appraisal rights as set
forth in the Delaware General Corporation Law shall be entitled to their rights
under such laws. EyeSys shall give Sunrise prompt written notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other
instrument in respect thereof received by EyeSys.
2.10 Reorganization. The parties intend to adopt the Agreement as a plan of
reorganization and to consummate the Merger in accordance with Section 368(a) of
the Code. To the best of its knowledge, EyeSys believes that (a) the fair market
value of the Merger Shares and other consideration received by each EyeSys
shareholder from Sunrise in respect of the Merger is approximately equal to the
fair market value of the Interests in EyeSys surrendered in the exchange, and
(b) that the fair market value of the assets of EyeSys after the Effective Time
will equal or exceed the sum of the liabilities to which the transferred assets
are subject.
2.11 Certificate of Incorporation; Bylaws; Directors and Officers of Sunrise
and the Surviving Corporation.
(a) The Certificate of Incorporation of Sunrise as in effect as of the date
of this Agreement shall be the Certificate of Incorporation of Sunrise after the
Merger, unless and until thereafter amended, except
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that such Certificate of Incorporation shall be amended to authorize the
issuance of up to 75,000,000 shares of Sunrise Common Stock. The Certificate of
Incorporation of EyeSys, modified as indicated in the Certificate of Merger,
shall be the Certificate of Incorporation of EyeSys as the surviving corporation
after the Merger, unless and until thereafter amended.
(b) The Bylaws of Sunrise as in effect immediately prior to the Effective
Time shall be the Bylaws of Sunrise after the Merger, unless and until
thereafter amended. The Bylaws of SAI in effect immediately prior to the Merger
shall be the Bylaws of EyeSys as the surviving corporation after the Merger,
unless and until thereafter amended.
(c) The directors and officers of Sunrise immediately following the Effective
Time of the Merger shall be as follows until their successors are elected or
appointed and qualified:
David W. Light .............. Chairman of the Board of Directors, Chief
Executive Officer, Principal Financial Officer and
Director
C. Russell Trenary, III .... President, Chief Operating Officer and Director
Joseph W. Shaffer ........... Vice President, Secretary and Director
Joseph D. Koenig ............ Director
Ronald A. Slocum ............ Director
James E. Crawford ........... Director
(d) The directors and officers of EyeSys as the surviving corporation
immediately following the Effective Time of the Merger shall be as follows until
their successors are elected or appointed and qualified:
David W. Light .............. Director
C. Russell Trenary, III .... Director
Joseph D. Koenig ............ Director
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF EYESYS
Except as set forth in the EyeSys Letter, which disclosures shall be deemed
representations and warranties hereunder, EyeSys represents and warrants to
Sunrise and SAI as follows:
3.1 Organization and Standing.
(a) EyeSys is a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware, has all requisite corporate
power and authority to own, operate and lease its properties and carry on its
business as now conducted, and is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
so qualify would have a Material Adverse Effect.
(b) EyeSys has delivered to Sunrise and SAI complete and accurate copies of
its current Certificate of Incorporation and Bylaws, and minutes of all of its
directors' and shareholders' meetings. EyeSys' stock books provided to Sunrise
and SAI are complete and accurate as of the date hereof.
3.2 Capitalization.
(a) EyeSys' current outstanding capitalization (common stock, preferred
stock, warrants and options and any other issued or granted security) is as set
forth in the EyeSys Letter. The EyeSys Letter accurately describes the vesting
schedules associated with EyeSys Options, states the number of shares of EyeSys
Common Stock which may be acquired pursuant to unvested EyeSys Options and
includes the addresses of all of the EyeSys security holders. EyeSys does not
have in effect any stock appreciation rights plan and no stock appreciation
rights are currently outstanding.
(b) Other than as set forth in the EyeSys Letter, EyeSys does not have
outstanding any preemptive or subscription rights, options, warrants, rights to
convert, capital stock equivalents or other rights to purchase or otherwise
acquire any of EyeSys' capital stock or other securities.
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(c) All of the issued and outstanding shares of EyeSys Common Stock and
EyeSys Preferred Stock have been duly authorized and validly issued and are
fully paid and non-assessable, and such common and preferred stock has been
issued in full compliance with all applicable federal and state securities laws.
All of EyeSys' incentive stock options have been issued in compliance with all
laws, rules and regulations necessary to preserve such incentive stock option
treatment. All EyeSys Options have been issued in accordance with EyeSys'
current stock option plan. None of EyeSys' Warrants or Options are entitled to
be accelerated as a result of the Merger.
(d) Except for any restrictions imposed by applicable state and federal
securities laws, and except as set forth in the EyeSys Letter, there is no right
of first refusal, co-sale right, right of participation, right of first offer,
option or other restriction on transfer applicable to any shares of EyeSys
Common or Preferred Stock.
(e) Except as set forth in the EyeSys Letter, (i) none of the holders of
EyeSys Option or EyeSys Warrants has registration rights, and (ii) EyeSys is not
and will not be under any obligation to register under the Securities Act any
shares of EyeSys Common or Preferred Stock or any other of its securities that
might be issued in the future if the Merger were not consummated.
(f) Except as set forth in the EyeSys Letter, EyeSys is not a party or
subject to any agreement or understanding, and, to EyeSys' knowledge, there is
no agreement or understanding between or among any persons that affects or
relates to the voting or giving of written consent with respect to any security.
(g) Except as set forth in the EyeSys Letter, there have not been and are not
outstanding any adjustments made or required to be made to the conversion prices
of the Preferred Stock from those set forth in EyeSys' Restated Certificate of
Incorporation. The number of Merger Shares into which each share of EyeSys
Common Stock, Preferred Stock and the EyeSys Notes convert pursuant to Section
2.2 of this Agreement is consistent with that which the holders of the
respective Interests in EyeSys are entitled to under the amendments to the
EyeSys Notes and the First Amendment to the Restated Certificate of
Incorporation of EyeSys. Upon obtaining the approvals and consents described in
Section 2.1(a) of this Agreement, (i) the EyeSys Notes shall have been duly
amended and such amended EyeSys Notes shall be the legal, valid and binding
obligation of EyeSys and the holders of the EyeSys Notes, and (ii) the First
Amendment to the Restated Certificate of Incorporation of EyeSys shall have been
duly adopted in accordance with Delaware Law upon the filing with the Secretary
of State for the State of Delaware, and shall constitute the certificate of
incorporation of EyeSys.
3.3 Subsidiaries. EyeSys does not own or control, directly or indirectly,
any corporation, partnership, business, trust or other entity.
3.4 Authority, Approval and Enforceability.
(a) Subject to obtaining the approval of the holders of EyeSys Common Stock,
Preferred Stock and the holders of the EyeSys Notes required pursuant to Section
2.1(a), EyeSys has full corporate power and authority to execute, deliver and
perform its obligations under this Agreement and all corporate action on its
part necessary for such execution, delivery and performance has been duly taken.
(b) Subject to obtaining all necessary consents, the execution and delivery
by it of this Agreement do not, and the performance and consummation of the
transactions contemplated by this Agreement shall not, result in any conflict
with, breach or violation of or default, termination or forfeiture under (or
upon the failure to give notice or the lapse of time, or both, result in any
conflict with, breach or violation of or default, termination or forfeiture
under) any terms or provisions of the First Amendment to the Restated
Certificate of Incorporation of EyeSys or its Bylaws, or, to the best of EyeSys'
knowledge, any statute, rule, regulation, judicial, governmental, regulatory or
administrative decree, order or judgment, or any agreement, lease, license,
permit or other instrument to which it is a party or to which any of its assets
is subject, the breach, violation, default, termination or forfeiture of which
could or would result in a Material Adverse Effect.
(c) To the best of EyeSys' knowledge, no consent, approval, authorization,
order, registration, qualification or filing of or with any court or any
regulatory authority or any other governmental or administrative body is
required on its part for the consummation by it of the transactions contemplated
by this
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Agreement, except the filing of the First Amendment to the Restated Certificate
of Incorporation of EyeSys, the amendment to the Sunrise Certificate of
Incorporation contemplated by Section 2.1(c) of this Agreement, and the
Certificate of Merger in the office of the Secretary of State of the State of
Delaware.
(d) Subject to Sunrise, SAI and EyeSys obtaining the approvals identified in
Section 2.1, this Agreement is the legal, valid and binding obligation of
EyeSys, enforceable against EyeSys in accordance with its terms, except as may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and subject to the
availability of equitable remedies.
3.5 Financial Statements.
(a) EyeSys has delivered to Sunrise and SAI complete copies of its
consolidated balance sheets as at December 31 for calendar years 1991 through
1995, and the related statements of operations, shareholders' equity and cash
flows for the calendar years 1990 through 1995 and the notes thereto
(collectively, the "Audited Financials"), accompanied by the auditors' report
containing the unqualified opinion of its independent certified public
accountants. EyeSys' Audited Financials present fairly its consolidated
financial position as of those dates and the results of its operations and cash
flows for the years then ended in conformity GAAP applied on a consistent basis.
(b) EyeSys has delivered to Sunrise and SAI an unaudited consolidated balance
sheet as of September 30, 1996 and the related unaudited statements of
operations, shareholders' equity and cash flows for the nine (9) months then
ended (the "Interim Financials"). EyeSys' Interim Financials present fairly its
financial condition as of September 30, 1996 and the results of its operations
and cash flows for the nine (9) months then ended, in conformity with GAAP
applied on a basis consistent with its Audited Financials (except for the
absence of notes thereto and subject to normal year-end audit adjustments which
are not material). The Audited Financials and the Interim Financials are
hereinafter collectively referred to as the "EyeSys Financials."
(c) There are no debts, liabilities or claims against EyeSys as of the dates
of the EyeSys Financials that are not currently reflected in such EyeSys
Financials, contingent or otherwise, which are or would be of a nature required
to be reflected in a balance sheet prepared in accordance with GAAP. EyeSys'
revenue recognition policies with respect to the EyeSys Financials have been
made in accordance with GAAP. All of EyeSys' general ledgers, books and records
are located at EyeSys' principal place of business. EyeSys does not have any of
its records, systems, controls, data or information recorded, stored,
maintained, operated or otherwise wholly or partly dependent upon or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not) that (including all means of access thereto and therefrom)
are not under the exclusive ownership and direct control of EyeSys.
(d) Subject to any reserves set forth in the EyeSys Financials, all of the
accounts receivable and notes receivable owing to EyeSys, as of the date hereof,
constitute and as of the Effective Time will constitute, valid and enforceable
claims arising from bona fide transactions in the ordinary course of business,
and there are no known or asserted claims, refusals to pay, or other rights of
set-off against any thereof. Except as set forth in the EyeSys Letter, there is
(i) no account debtor or note debtor delinquent in its payment by more than 60
days, (ii) no account debtor or note debtor that has refused (or, to the best
knowledge of EyeSys, threatened to refuse) to pay its currently outstanding
obligations to EyeSys for any reason, (iii) to the best knowledge of EyeSys, no
account debtor or note debtor that is insolvent or bankrupt, and (iv) no account
receivable or note receivable pledged to any third party by EyeSys.
(e) Except for any Transaction Costs, all accounts payable and notes payable
by EyeSys to third parties as of the date hereof arose, and as of the Closing
will have arisen, in the ordinary course of business, and, there is no such
account payable or note payable delinquent in its payment, except as set forth
in the EyeSys Letter, or any update thereto prior to the Closing.
3.6 Material Changes. Since September 30, 1996, except as set forth in the
EyeSys Letter, there has not been:
(a) any material change in its assets, liabilities, financial condition,
or operating results from that reflected in the Financials, except changes in
the ordinary course of business that have not been, in the aggregate,
material; or any damage, destruction or loss, whether or not covered by
insurance,
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materially adversely affecting its business, properties, prospects, or
financial condition (as such business is presently conducted and as it is
proposed to be conducted);
(b) any waiver or compromise by it of a valuable right or of a debt owed
to it; or any satisfaction or discharge of any lien, claim, or encumbrance or
payment of any obligation by it, except in the ordinary course of business
and that is not material to its business, properties, prospects, or financial
condition (as such business is presently conducted and as it is proposed to
be conducted);
(c) any material change to a material contract or material arrangement by
which it or any of its material assets is bound or subject; any material
change in any compensation arrangement or agreement with any employee,
consultant, officer, director or shareholder; any sale, assignment, or
transfer of any patents, trademarks, copyrights, trade secrets, or other
intangible assets; or notification that there has been a loss of or material
order or contract cancellation by any of its customers;
(d) any resignation or termination of employment of any of its key
officers or employees; and EyeSys, to the best of its knowledge, does not
know of the impending resignation or termination of employment of any such
officer or employee;
(e) any mortgage, pledge, transfer of a security interest in, or lien
created by it, with respect to any of its material properties or assets,
except liens for taxes not yet due or payable; any loans or guarantees made
by it to or for the benefit of its employees, officers, or directors, or any
members of their immediate families, other than travel advances and other
advances made in the ordinary course of its business; or any declaration,
setting aside, or payment or other distribution in respect of any of its
capital stock, or any direct or indirect redemption, purchase, or other
acquisition of any of such stock by it;
(f) any other event or condition of any character that would result in a
Material Adverse Effect; or (other than in the ordinary course of business)
any agreement or commitment by it to do any of the things described in this
Section 3.6.
3.7 Returns. EyeSys has not had any of its products returned by a purchaser
or user thereof, other than for minor, nonrecurring warranty problems. EyeSys is
not aware of any pending warranty claims.
3.8 Properties and Inventories.
(a) EyeSys has good and marketable title to and the right to use all of the
assets used in its operations or necessary for the conduct of its business, free
and clear of any mortgages, pledges, security interests, licenses, encumbrances,
restrictions or adverse claims, except as disclosed in the notes to its
Financials and except for the lien of taxes not yet due and payable. All of the
physical assets reflected on its balance sheets as at December 31, 1995 and
September 30, 1996 are in good operating condition, normal wear and tear
excepted, and are adequate and suitable for the purposes for which they are
presently being used.
(b) Since September 30, 1996, there has not occurred any transfer of title
other than in the ordinary course of business, any abandonment, any pilferage or
any other material loss with respect to, any of its property, plant or
equipment.
(c) Included in the EyeSys Letter is a true and correct list of all of the
physical assets (including fixed assets) having a net book value in excess of
$5,000 owned by EyeSys. EyeSys does not own any real property. To the best
knowledge of EyeSys, all improvements on leased property used in the business of
EyeSys and the present use thereof are in accordance with all applicable laws.
The net book value of any fixed assets owned by EyeSys has not been written up
or down, other than pursuant to depreciation or amortization expense in
accordance with its historical practice.
(d) The EyeSys Letter lists all real property leases to which EyeSys is a
party. Assuming due authorization, execution and delivery by the other parties
thereto, such leases are legal, valid, binding and enforceable in accordance
with their respective terms (except as limited by bankruptcy, insolvency,
reorganization or other laws of general application affecting creditors' rights
generally). EyeSys has a valid and subsisting leasehold interest in its leased
real property, free and clear of all material encumbrances. Neither EyeSys nor,
to the knowledge of EyeSys, any other party to any of such leases, is in
material default under any of such leases or has performed any act or omitted to
perform any act which act or omission, with notice or lapse of time or both,
will become a material default thereunder.
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3.9 Insurance. EyeSys maintains policies of insurance covering its assets,
properties, business and liabilities in types and amounts customary for
similarly sized companies engaged in similar businesses. To the best knowledge
of EyeSys, it is in compliance with each of such policies such that none of the
coverage provided under such policies has been invalidated. EyeSys has fully
paid all premiums and other payments which have become due to its insurers. The
EyeSys Letter contains a complete and accurate list of all insurance policies,
bonds and surety instruments. To the knowledge of EyeSys, there is no threat by
any of the insurers to terminate or materially increase the premiums payable
under any of such insurance policies due to the activities or loss experience of
EyeSys.
3.10 Purchase, Sale and Other Agreements.
(a) Except as described in the EyeSys Letter, EyeSys is not a party to or
subject to any written:
(i) agreement for the purchase of inventory, supplies, or equipment, other
real or personal property, or the procurement of services, except individual
purchase orders or aggregate purchase orders to a single vendor involving
payments of less than $10,000 or as have been entered into in the ordinary
course of the business of EyeSys;
(ii) lease or ownership of equipment, machinery or other personal
property;
(iii) agreement for the sale or lease of products or furnishing of its
services except individual purchase orders or aggregate purchase orders from
a single customer involving payments of less than $10,000 or as have been
entered into in the ordinary course of the business of EyeSys;
(iv) joint venture, partnership or other contract or arrangement involving
the sharing of profits;
(v) agreement relating to the purchase or acquisition, by merger or
otherwise, of a significant portion of its business, assets or securities by
any other person or of any other person by it other than as contemplated
herein;
(vi) agreement containing a covenant or covenants which purport to limit
its ability or right to engage in any lawful business activity or compete
with any person or entity;
(vii) agreement presently in effect pursuant to which it has appointed any
organization or person to act as its distributor or sales agent or pursuant
to which it has been appointed a distributor or sales agent by any third
party;
(viii) agreement with any of its officers, directors or affiliates, other
than stock option or stock purchase plans or agreements or proprietary
information or consulting or independent contractor agreements;
(ix) agreement for the license of any patent, copyright, trade secret or
other proprietary right or indemnification by it with respect to
infringements of proprietary rights, except employee or consultant
proprietary information agreements and except for those end user licenses
sold in the ordinary course of business by EyeSys in connection with the sale
of its products;
(x) agreements involving payments to or obligations of it not otherwise
described in this Section 3.10 in excess of $10,000 or as have been entered
into in the ordinary course of the business of EyeSys; or
(xi) agreements of indebtedness, capital equipment leases or guarantees of
the obligations of others.
(b) To the best of EyeSys' knowledge, no party to any such contract,
agreement or arrangement intends to cancel, withdraw, modify or amend such
agreement or arrangement or return a product for reimbursement or discontinue
any provision of agreed upon services.
(c) Except as described in the EyeSys Letter, EyeSys has performed all
material obligations required to be performed by it on or prior to the date
hereof under each contract, obligation, commitment, agreement, undertaking,
arrangement or lease referred to in this Agreement or the EyeSys Letter, and it
is not in default, breach or violation thereunder, or under any other agreements
to which it is a party, except for such defaults, breaches, or violations under
such instruments or obligations that would not have a Material Adverse Effect.
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3.11 Intellectual Property Rights.
(a) EyeSys has complete and undisputed title and ownership and the right to
utilize all patents, trademarks, license rights, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
(collectively, "Intellectual Property") necessary for or used in its business as
now conducted and as proposed to be conducted without any conflict with or
infringement of the rights of others. Except as disclosed in the EyeSys Letter,
there are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is it bound by or a party to any options, licenses or
agreements of any kind with respect to the Intellectual Property of any other
person or entity. It has not received any communications nor is it aware of any
entity alleging that it has violated or, by conducting its business as proposed,
would violate any Intellectual Property of any other person or entity. It is not
aware that any of its employees or consultants is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of his or her best efforts to promote
the interests of EyeSys or that would conflict with its business as proposed to
be conducted. EyeSys does not believe it is or will be necessary to utilize any
inventions of any of its employees or consultants (or persons it currently
intends to hire as service providers) made prior to their employment by it. The
EyeSys Letter sets forth all patents, patent applications, trademarks
(registered or unregistered), license agreements, independent contractor or
consulting agreements and any other Intellectual Property that requires a
consent or waiver to consummate the transactions contemplated in this Agreement.
All of EyeSys' license agreements with respect to its Intellectual Property are
in writing and evidence legitimate ownership of such rights in EyeSys. All
royalty obligations of EyeSys are listed in the EyeSys Letter. No claims for
royalties have been, are or will be asserted against EyeSys. No invention that
is shown as being owned by any individual service provider of EyeSys is
necessary for the conduct of EyeSys' business.
(b) To the best of its knowledge, and after due inquiry, EyeSys is not making
use of any confidential information of third parties nor any confidential
information in which any of its present or, to its actual knowledge, past
employees or other service providers, has claimed a proprietary interest; and
EyeSys is not actually aware of any facts that would give rise to such a claim.
(c) Without limiting the generality of the foregoing representations, except
as described in the EyeSys Letter, EyeSys expressly represents and warrants
that:
(i) EyeSys has satisfied all obligations pursuant to any and all
consulting agreements;
(ii) To the best of its knowledge, EyeSys has no reasonable basis to
believe that it has any present or future liability under any agreement to
(x) provide indemnification for infringement of any third party rights or
otherwise; or (y) provide updates, enhancements, modifications, bug fixes,
support, maintenance or the like of any products, or technology;
(iii) Except as disclosed in the EyeSys Letter, as of the date of this
Agreement, EyeSys has not entered into nor negotiated with others to enter
into any consulting agreements, software development agreements, license
agreements or similar agreements; and
(iv) EyeSys has retained all rights, title and interest (including,
without limitation, rights to derivatives, modifications, updates and
enhancements) to the components necessary for its business as now conducted
and as proposed to be conducted in the future.
3.12 Employees and Employee Benefit Plans.
(a) Other than as set forth in the EyeSys Letter regarding employee benefit
plans, programs or arrangements maintained or sponsored by EyeSys (such plans,
the "Employee Plans"), neither EyeSys nor any entity or trade or business which
together with EyeSys is treated as a single employer under Sections 414(b), (c),
(m) or (o) of the Code (its "ERISA Affiliates") is a party to any pension,
profit sharing, savings, retirement or other deferred compensation plan, any
bonus (whether payable in cash or stock), stock option, stock purchase or
incentive program, or any group health plan (whether insured or self-funded), or
any disability or group life insurance plan, severance or other employee benefit
plan (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), or to any collective bargaining agreement or
other agreement, written or oral, with any trade
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or labor union, employees association or similar organization. EyeSys is not a
party to, nor has made any contribution to or otherwise incurred any obligation
under, any "multiemployer plan" as defined in Section 3(37) of ERISA.
With respect to each such Employee Plan, EyeSys has furnished to Sunrise and
SAI or their counsel complete and accurate copies of the plan documents
(including plan amendments currently under consideration, trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any material employee communications), and
all IRS Forms 5500 filed with respect to any Employee Plans.
(b) With respect to each of the Employee Plans subject to ERISA as either an
employee pension benefit plan within the meaning of Section 3(2) of ERISA or an
employee welfare benefit plan within the meaning of Section 3(l) of ERISA,
EyeSys has prepared in good faith and timely filed all requisite governmental
reports and has properly and timely posted or distributed all notices and
reports to employees required to be filed, posted or distributed with respect to
each such Employee Plan.
(c) Each such Employee Plan has at all times been operated and administered
in all material respects in accordance with its terms and all applicable laws,
including, but not limited to, ERISA and the Code.
(d) Each Employee Plan that is intended to be qualified under Code Section
401(a) ("EyeSys Pension Plan") has received a favorable determination letter
from the Internal Revenue Service that such Employee Plan is qualified under
Code Section 401(a) and that the trust under such Employee Plan is exempt from
tax under Code Section 501(a). EyeSys knows of no reasonable basis for the
disqualification of any EyeSys Pension Plan from exemption under Section 401(a)
of the Code.
(e) Neither EyeSys nor any EyeSys Pension Plan, nor any fiduciary, trustee
thereof, nor, to the best knowledge of EyeSys, the administrator thereof or any
party in interest (as defined in Section 3(14) of ERISA) or disqualified person
(as defined in Section 4975(e)(2) of the Code) with respect to such plan has
engaged in any transaction which would subject EyeSys, the EyeSys Pension Plan,
any trust created under such plan, or any trustee or administrator thereof, or
any party dealing with such EyeSys Pension Plan or any such trust to either
civil liability or a civil penalty assessed pursuant to Section 409 or 502 of
ERISA or a tax imposed pursuant to Section 4975, 4976 or 4979 of the Code.
EyeSys has no knowledge of any breach of fiduciary duties owed to EyeSys Pension
Plan participants pursuant to the provisions of Part 4 of Title I of ERISA.
(f) There are no pending claims by or on behalf of any of the EyeSys Employee
Plans, by any employee or beneficiary covered under any such EyeSys Employee
Plan, or otherwise involving any such EyeSys Employee Plan (other than claims
for benefits in the ordinary course).
(g) No EyeSys Pension Plan is subject to Section 412 of the Code or Title IV
of ERISA.
(h) There are no strikes or labor disputes pending or threatened by or any
attempts at union organization of any EyeSys employees.
(i) The EyeSys Letter includes a full and complete list of all directors,
officers and employees of EyeSys as of the date of this Agreement, specifying
their names and job title. The EyeSys Letter provides accurate information to
Sunrise and SAI regarding the total amount of base salary, whether it is fixed
or commission or a combination thereof with respect to each of the foregoing.
Except as set forth in the EyeSys Letter, the employment of each of EyeSys'
employees is "at will" employment, except as may be required to the contrary
under applicable law. Except as set forth in the EyeSys Letter, EyeSys does not
have any obligation (i) to provide any particular form or period of notice prior
to termination, or (ii) to pay any of such employees any severance benefits in
connection with their termination of employment or service. In addition, except
as set forth in the EyeSys Letter, no severance pay will become due to any
EyeSys employees under any EyeSys agreement, plan or program as a result of the
Merger. EyeSys does not owe and has not accrued any bonuses or vacation pay or
retirement benefits to employees or former employees, other than as set forth on
the payroll records delivered by EyeSys to Sunrise and SAI prior to the Closing.
(j) EyeSys has not violated any of the health care continuation coverage
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") applicable to its employees prior to the Effective Time of the Merger.
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3.13 Environmental and Safety Laws. Except as described in the EyeSys Letter,
to the best knowledge of EyeSys after due inquiry, there are no Hazardous
Substances (as hereinafter defined) at any of the facilities owned or used by
EyeSys. The EyeSys Letter describes the way in which EyeSys disposes of any
Hazardous Substances used by it, including the names and locations of any
offsite storage or disposal facilities used by EyeSys. EyeSys has not released,
discharged or disposed of Hazardous Substances on or under any of such
facilities or on or under any premises previously occupied by EyeSys during the
period in which such facilities have been owned or used by EyeSys. To the best
knowledge of EyeSys, facilities owned or used by EyeSys do not now contain, nor
did such facilities or any premises previously occupied by EyeSys contain, any
underground storage tanks for any Hazardous Substances. EyeSys has complied and
is in compliance with all applicable local, state and federal environmental
laws, regulations, ordinances and administrative and judicial orders relating to
the generation, recycling, use, sale, storage, handling, transfer and disposal
of any Hazardous Substances. EyeSys has not been alleged to be in violation of,
or been subject to any administrative, judicial or regulatory proceeding
pursuant to, such laws or regulations either now or any time during the past
twenty-four months. No Claims have been or are currently asserted against EyeSys
or, to EyeSys' knowledge, will be asserted against EyeSys after the Effective
Time based on EyeSys' acts or failures to act prior to the Effective Time with
respect to Hazardous Substances.
3.14 Proprietary Information and Inventions and Confidentiality Agreements.
Each employee, officer and director of EyeSys has executed a proprietary
information and inventions and confidentiality agreement, copies of which have
been provided to counsel to Sunrise and SAI. EyeSys is not aware that any of
such persons is in violation thereof.
3.15 Powers of Attorney. Except as set forth in the EyeSys Letter, no person
holds a power of attorney from EyeSys.
3.16 Compliance with Laws and Permits. Except where the failure to so comply
would not have a Material Adverse Effect, EyeSys has all valid and current
permits, licenses, orders, authorizations, registrations, approvals and other
analogous instruments (and each is in full force and effect) and EyeSys has made
all filings and registrations and the like necessary or required by law to
conduct its business. EyeSys has not received any governmental notice within two
years of the date hereof of any violation by EyeSys of any such laws, rules,
regulation or orders. . Except where the failure to comply would not have a
Material Adverse Effect, (a) EyeSys is not in default or noncompliance under any
such permits, consents, or similar instruments, and (b) the business and
operations of EyeSys are in compliance with all foreign, federal, state, local
and county laws, ordinances, regulations, judgments, orders, decrees or rules of
any court, arbitrator or governmental, regulatory or administrative agency or
entity.
3.17 Absence of Litigation. Except as disclosed in the EyeSys Letter,
neither EyeSys nor, to the best of its knowledge, any of its officers or
directors is engaged in, or has been threatened with, any litigation,
arbitration, investigation or other proceeding relating to it, its employee
benefit plans, property, business, assets, licenses, permits or goodwill, or
against or affecting the Merger or the actions taken or contemplated in
connection therewith, nor, to the best of its knowledge, is there any reasonable
basis therefor. There is no action, suit, proceeding or investigation pending or
threatened against EyeSys that questions the validity of this Agreement or the
Agreement of Merger or the right of EyeSys to enter into this Agreement or the
Agreement of Merger or to consummate the transactions contemplated hereby or
thereby or which might result in any Material Adverse Effect. The foregoing
includes actions pending or threatened (or any reasonable basis therefor known
to it) involving any dispute with its consultants or the prior employment of any
of its employees, their use in connection with its business of any information
or techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. There is no action, suit,
proceeding or investigation by EyeSys currently pending or which it intends to
initiate. Neither EyeSys nor, to the best of its knowledge, any of its officers
or directors is bound by any judgment, decree, injunction, ruling or order of
any court, governmental, regulatory or administrative department, commission,
agency or instrumentality, arbitrator or any other person which would have a
Material Adverse Effect.
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3.18 No Brokers. Except with respect to the fees payable to Cowen pursuant to
Section 1.2(d), EyeSys is not obligated for the payment of fees or expenses of
any broker or finder in connection with the origin, negotiation or execution of
this Agreement or the Agreement of Merger or in connection with any transaction
contemplated hereby or thereby.
3.19 The Registration Statement and Proxy Statement/Prospectus. The
information supplied by EyeSys for inclusion in the Registration Statement 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 the light of the circumstances under which they were made, not
misleading. The information supplied by EyeSys for inclusion in the Proxy
Statement/Prospectus to be sent to the holders of Interests in EyeSys will not,
on the date the Proxy Statement/ Prospectus (or any amendment thereof or
supplement thereto) is first mailed to holders of Interests in EyeSys or Sunrise
stockholders, at the time of the Stockholder Meeting of either EyeSys or
Sunrise, 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 statement made therein not false or
misleading. If at any time prior to the Effective Time any event relating to
EyeSys or any of its respective affiliates, officers or directors should be
discovered by EyeSys which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus, EyeSys
shall promptly inform Sunrise and SAI. The Proxy Statement/Prospectus, including
all financial statements of EyeSys required to be included therein, shall comply
in all material respects as to form with the requirements of the Securities Act,
the Exchange Act and the rules and regulations thereunder. Notwithstanding the
foregoing, EyeSys makes no representation or warranty with respect to any
information supplied or required to be supplied by Sunrise or SAI which is
contained in any of the foregoing documents.
3.20 Taxes.
(a) Definitions. For purposes of this Agreement:
(i) the term "Taxes" means (A) all federal, state, local, foreign and
other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, windfall
profits, customs, duties or other taxes, fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to
tax or additional amounts with respect thereto, (B) any liability for payment
of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or
unitary group for any period, or otherwise through operation of law and (C)
any liability for the payment of amounts described in clauses (A) or (B) as a
result of any tax sharing, tax indemnity or tax allocation agreement or any
other express or implied agreement to indemnify any other person; and the
term "Tax" means any one of the foregoing Taxes; and
(ii) the term "Returns" means all returns, declarations, reports,
statements and other documents required to be filed in respect of Taxes, and
the term "Return" means any one of the foregoing Returns.
(b) EyeSys has properly completed and filed on a timely basis all Returns
required to be filed on or prior to the date of this Agreement. As of the time
of filing, the foregoing Returns properly reflected the applicable facts then
known to EyeSys regarding its income, business, assets, operations, activities,
status or any other information required to be shown thereon. No extension of
time within which to file any Return that has been required to be filed has
failed to be requested and granted. EyeSys will properly complete and file on a
timely basis all Returns required to be filed on or prior to the Closing.
(c) With respect to all Taxes imposed upon EyeSys, or for which EyeSys is or
was liable, whether to taxing authorities (as, for example, under law) or to
other persons or entities (as, for example, under tax allocation agreements),
with respect to all taxable periods or portions of periods ending on or before
the date of Closing, EyeSys has fully complied with all applicable tax laws and
agreements, and all such
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amounts required to be paid by EyeSys to taxing authorities on or before the
date of this Agreement have been paid. The Company does not owe any taxes on
compensation paid to any of its employees.
(d) No issues have been raised (and are currently pending) by any taxing
authority in connection with any of the Returns. No extensions or waivers of
statutes of limitations with respect to the Returns have been given by or
requested from EyeSys. The EyeSys Letter sets forth: (i) the taxable years of
EyeSys as to which the respective statutes of limitations with respect to Taxes
have not expired, and (ii) with respect to such taxable years sets forth those
years for which state or federal income tax examinations have been completed,
those years for which state or federal income tax examinations are presently
being conducted, those years for which state or federal income tax examinations
have not been initiated, and those years for which required Returns have not yet
been filed. Except to the extent indicated in the EyeSys Letter, all
deficiencies asserted or assessments made as a result of any state or federal
income tax examinations have been fully paid, or are fully reflected as a
liability in the Financials of EyeSys, or are being contested and an adequate
reserve therefor has been established and is fully reflected in the Financials
of EyeSys.
(e) There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of EyeSys. EyeSys is not a party to or bound by
(nor will EyeSys become a party to or bound by) any tax indemnity, tax sharing
or tax allocation agreement. EyeSys has never been a member of an affiliated
group of corporations, within the meaning of Section 1504 of the Code. EyeSys
has not filed a consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign income Tax law) or agreed to have Section 341(f)(2) of the Code (or any
corresponding provision of state, local or foreign income Tax law) apply to any
disposition of any asset owned by it.
(f) EyeSys has not elected to be treated as an S Corporation pursuant to
Section 1362(a) of the Code. None of the assets of EyeSys is property that
EyeSys is required to treat as being owned by any other person pursuant to the
so-called "safe harbor lease" provisions of former Section 168(f)(8) of the
Code. None of the assets of EyeSys directly or indirectly secures any debt the
interest on which is tax exempt under Section 103(a) of the Code. None of the
assets of EyeSys is "tax-exempt use property" within the meaning of Section
168(h) of the Code.
(g) EyeSys has not made and has not agreed to make a deemed dividend election
under Treas. Reg. 1.1502-32(f)(2) or a consent dividend election under Section
565 of the Code. EyeSys has not agreed to make, nor is it required to make, any
adjustment under Sections 481(a) or 263A of the Code or any comparable provision
of any applicable state or foreign tax laws by reason of a change in accounting
method or otherwise. EyeSys has not participated in (and has not agreed to
participate in) an international boycott within the meaning of Section 999 of
the Code.
(h) EyeSys is not a party to any agreement, contract, arrangement or plan
that has resulted or would result, whether separately or in the aggregate, in
connection with the Merger, or with any change of control of EyeSys or any other
transaction contemplated by this Agreement, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code. To the best
knowledge of EyeSys, except as set forth in the EyeSys Letter, no Shareholder of
EyeSys is other than a United States person within the meaning of the Code.
EyeSys does not have and has not had a permanent establishment in any foreign
country, as defined in any applicable Tax treaty or convention between the
United States of America and such foreign country, and EyeSys has not engaged in
a trade or business within any foreign country.
(i) Except as set forth in the EyeSys Letter, EyeSys is not party to any
joint venture, partnership, or other arrangement or contract which is treated as
a partnership for federal income tax purposes.
(j) The unpaid Taxes of EyeSys do not exceed any reserve for Tax liability
(excluding any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth or included in EyeSys'
balance sheets as at December 31, 1995 and September 30, 1996 as adjusted for
the passage of time through the Effective Time in good faith in accordance with
the past custom and practice of EyeSys. No Tax liability of EyeSys has been
incurred since December 31, 1995 other than in the ordinary course of business
and an adequate reserve on the Financials has been made for all Taxes since that
date.
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(k) After the date of this Agreement, no material election with respect to
Taxes shall be made by EyeSys without the prior written consent of Sunrise and
SAI.
(l) The liabilities of EyeSys to which the transferred assets of EyeSys are
subject were incurred by EyeSys in the ordinary course of its business.
(m) To the best knowledge of EyeSys, there is no plan or intention on the
part of the shareholders of EyeSys to sell, exchange, or otherwise dispose of
such number of the Merger Shares as would reduce the EyeSys shareholders'
ownership of shares of Sunrise Common Stock to a number of shares having a
value, determined as of the Effective Time of less than 50 of the value,
determined as of the Effective Time, of all of the shares of EyeSys Common and
Preferred Stock outstanding immediately prior to the Effective Time. For
purposes of this representation, shares of EyeSys Common or Preferred Stock
exchanged for cash or other property surrendered by dissenters, shall be treated
as outstanding EyeSys Common or Preferred Stock at the Effective Time of the
Merger. Moreover, shares of EyeSys Common or Preferred Stock and shares of
Sunrise Common Stock held by EyeSys shareholders as of the date hereof and
otherwise sold, redeemed, or disposed of prior or subsequent to the Merger will
be considered in making this representation.
(n) EyeSys is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(o) At least ninety percent (90) of the fair market value of the net assets
and at least seventy percent (70) of the fair market value of the gross assets
held by EyeSys immediately prior to the Merger will be held by the surviving
corporation immediately after the Merger. For the purpose of determining the
percentage of EyeSys' net and gross assets held by the surviving corporation
immediately following the Merger, the following assets will be treated as
property held by EyeSys immediately prior to the Merger that is not held by the
surviving corporation subsequent to the Merger: (i) assets disposed of by EyeSys
prior to the Merger and in contemplation thereof (including without limitation
any asset disposed of by EyeSys, other than in the ordinary course of business,
pursuant to a plan or intent existing during the period ending on the Effective
Time of the Merger and beginning with the commencement of negotiations (whether
formal or informal) with Sunrise regarding the Merger), (ii) assets disposed of
after the Merger pursuant to a binding obligation entered into by EyeSys before
the Merger and in contemplation thereof other than in the ordinary course of
business, (iii) assets used by EyeSys to pay shareholders perfecting dissenters'
rights or other expenses or liabilities incurred in connection with the Merger,
and (iv) assets used to make distribution, redemption or other payments in
respect of EyeSys capital stock or rights to acquire such stock (including
payments treated as such for tax purposes) that are made in contemplation of the
Merger or related thereto.
(p) EyeSys has not sold, exchanged or discontinued any line or lines of
business with a value representing in the aggregate more than 25of the current
fair market value of the total assets of EyeSys as of the Closing.
3.21 Other Taxes.
(a) The hours worked by and payments made to EyeSys' employees have not been,
to the best of knowledge of EyeSys, in violation of the Fair Labor Standards Act
or any other applicable federal, foreign, state or local labor laws.
(b) All payments due from EyeSys on account of employee health and welfare
insurance have been paid or accrued as a liability on its balance sheets as at
December 31, 1995 and September 30, 1996.
(c) All severance and vacation payments which are or were due and payable by
EyeSys under the terms of any agreement have been paid or accrued as a liability
on its balance sheets as at December 31, 1995 and September 30, 1996.
3.22 Compliance with Instruments. EyeSys is not in violation of or conflict
with, breach of or in default under (either with the giving of notice or the
passage of time or both) any term or provision of the Restated Articles of
Incorporation or Bylaws.
3.23 Foreign Status. EyeSys is not a foreign corporation, foreign
partnership, foreign trust or foreign establishment (as each such term is
defined in the Code).
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3.24 Consents and Approvals. The EyeSys Letter lists all consents and
approvals required for the execution and delivery of this Agreement by EyeSys
and the consummation of the Merger by EyeSys, including those that are necessary
because of the transactions contemplated by this Agreement or those which are
necessary to avoid the loss of the rights to use EyeSys' Intellectual Property
or other rights.
3.25 Accounts Receivable. The EyeSys Letter lists all accounts receivable,
unbilled invoices and other debts due or recorded in the records of EyeSys. At
least 95 of the amount of all accounts receivable, unbilled invoices and other
debts due or recorded in the records and books of account of EyeSys as being due
to EyeSys as at the Closing will be good, payable and collectible in full in the
ordinary course of business within one hundred twenty (120) days after the
Closing, net of applicable reserves; no contest with respect to the amount or
validity of any amount is pending; and none of such accounts receivable or other
debts is or will at the Closing, to the best knowledge of EyeSys, be subject to
any counterclaim or set-off. The values at which accounts receivable are carried
reflect the accounts receivable valuation policy of EyeSys which is consistent
with GAAP applied on a consistent basis.
3.26 Inventory. The inventories shown on the Financials as of December 31,
1995 and September 30, 1996 or thereafter acquired by EyeSys, consisted of items
of a quantity and quality usable or salable in the ordinary course of business.
The inventories exclude scrap, slow-moving items and obsolete items and are
valued at the lower of cost or market value, determined in accordance with
generally accepted accounting principles consistently applied and on a basis
which is consistent with the past practices of EyeSys. Since December 31, 1995,
EyeSys has continued to replenish inventories in a normal and customary manner
consistent with past practices. EyeSys has not received written or oral notice
that it will experience in the foreseeable future any difficulty in obtaining,
in the desired quantity and quality and at a reasonable price and upon
reasonable terms and conditions, the raw materials, supplies or component
products required for the manufacture, assembly or production of its products.
Except as disclosed in the EyeSys Letter, EyeSys does not have any sole source
suppliers and has been and is able to acquire component parts from multiple
sources on a timely basis. The values at which inventories are carried reflect
the inventory valuation policy of EyeSys which is consistent with its past
practice and in accordance with GAAP applied on a consistent basis.
3.27 No Undisclosed Liabilities. To the best knowledge of EyeSys there is no
outstanding claim, liability or obligation of any nature, whether absolute,
accrued, contingent or otherwise, other than: (a) the liabilities and
obligations that are fully reflected, accrued or reserved against on the
Financials for which the reserves are appropriate and reasonable; (b)
liabilities incurred in the ordinary course of business since the date of the
Financials, (c) Transactional Costs, or (d) contractual liabilities or
obligations not required to be disclosed in the Financials prepared in
accordance with GAAP.
3.28 Related Party Transactions. Except as set forth in the EyeSys Letter,
no employee, officer or director of EyeSys or member of his or her immediate
family is indebted to EyeSys, nor is EyeSys indebted (or committed to make loans
or extend or guarantee credit) to any of them. Except as set forth in the EyeSys
Letter, to the best of EyeSys' knowledge, none of such persons has any direct or
indirect ownership interest in any firm or corporation with which EyeSys is
affiliated or with which EyeSys has a business relationship, or any firm or
corporation that competes with EyeSys, except that the employees, officers or
directors of EyeSys and members of their immediate families may own stock in
publicly traded companies that may compete with EyeSys. No member of the
immediate family of any officer or director of EyeSys is directly interested in
any material contract with EyeSys.
When used in this Article 3, "knowledge" means information actually known or
which should have been known by any one of the directors of EyeSys or any of the
following: Youssef Wakil, Frederick Ruegsegger, Nicholas Colucci, Kenneth
Carbonari, David Liu or Henry Kuehn after inquiry by such persons of EyeSys
personnel who report to them.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SUNRISE AND SAI
Except as set forth in Sunrise Letter, which disclosures shall be deemed
representations and warranties hereunder, each of Sunrise and SAI represents and
warrants to EyeSys as follows:
4.1 Organization and Standing.
(a) Each of Sunrise and SAI is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation, has all
requisite corporate power and authority to own, operate and lease its properties
and carry on its business as now conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to so qualify could or would have a Material Adverse Effect.
(b) Prior to Closing, each of Sunrise and SAI shall have delivered or made
available to EyeSys complete and accurate copies of its current Certificates of
Incorporation and Bylaws, as the case may be, and minutes of all of its
directors' and stockholders' meetings.
4.2 Subsidiaries. Sunrise does not own or control, directly or indirectly,
any corporation, partnership, business, trust or other entity, except Laser
Biotech, Inc. and SAI.
4.3 Authority, Approval and Enforceability.
(a) Subject to obtaining any required approvals of their respective
stockholders, each of Sunrise and SAI has full corporate power and authority to
execute, deliver and perform its obligations under this Agreement, and all
corporate action on their respective parts necessary for such execution,
delivery and performance has been duly taken.
(b) Subject to obtaining all necessary consents, the execution and delivery
by each of Sunrise and SAI, as the case may be, of this Agreement do not, and
the performance and consummation of the transactions contemplated by this
Agreement shall not, result in any conflict with, breach or violation of or
default, termination or forfeiture under (or upon the failure to give notice or
the lapse of time, or both, result in any conflict with, breach or violation of
or default, termination or forfeiture under) any terms or provisions of its
current Certificates of Incorporation or Bylaws, as the case may be, or, to the
best of Sunrise's and SAI's knowledge, any statute, rule, regulation, judicial,
governmental, regulatory or administrative decree, order or judgment, or any
agreement, lease or other instrument to which either is a party or to which any
of its assets is subject, the breach, violation, default, termination or
forfeiture of which could or would result in a Material Adverse Effect.
(c) To the best of Sunrise's and SAI's knowledge, no consent, approval,
authorization, order, registration, qualification or filing of or with any court
or any regulatory authority or any other governmental or administrative body is
required on its part for the consummation by each of Sunrise and SAI, as the
case may be, of the transactions contemplated by this Agreement, except the
filing of the First Amendment to the Restated Certificate of Incorporation of
EyeSys, the amendment to the Sunrise Certificate of Incorporation contemplated
by Section 2.1(c) of this Agreement, and the Certificate of Merger in the
Secretary of State of the State of Delaware.
(d) Subject to Sunrise, SAI and EyeSys obtaining the approvals identified in
Section 2.1 of this Agreement, this Agreement is the legal, valid and binding
obligation of Sunrise and SAI, respectively, and enforceable against Sunrise and
SAI in accordance with the respective terms hereof and thereof, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and subject to the
availability of equitable remedies.
4.4 Financial Statements.
(a) Sunrise has delivered or made available to EyeSys complete copies of its
consolidated balance sheets as at December 31 for the calendar years 1991
through 1995 and the related statements of operations, shareholders' equity and
cash flows for the years ended on each December 31 for the years 1990 through
1995 and the notes thereto (collectively, the "Sunrise Audited Financials")
accompanied by the auditors' report and the unqualified opinion of its
independent certified public accountants. Sunrise's
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Audited Financials present fairly its consolidated financial position as of
those dates and the results of its operations and cash flows for the years then
ended in conformity with GAAP applied on a consistent basis.
(b) Sunrise has delivered to EyeSys an unaudited consolidated balance sheet
as of September 30, 1996 and the related unaudited statements of operations for
the nine (9) months then ended (the "Sunrise Interim Financials"). Sunrise's
Interim Financials present fairly its financial condition as of September 30,
1996 and the results of its operations and cash flows for the nine (9) months
then ended, in conformity with GAAP applied on a basis consistent with the
Sunrise Audited Financials (except for the absence of notes thereto and subject
to normal year-end audit adjustments which are not material). The Audited
Financials and the Interim Financials are hereinafter collectively referred to
as the "Sunrise Financials."
4.5 Material Changes. Since September 30, 1996, there has not been any
material change in Sunrise's assets, liabilities, financial condition, or
operating results from that reflected in the Sunrise Financials or the
Registration Statement, except changes in the ordinary course of business that
have not been, in the aggregate, material.
4.6 Absence of Litigation. Neither Sunrise nor, to the best of its knowledge,
any of its officers or directors is engaged in, or has been threatened with, any
litigation, arbitration, investigation or other proceeding relating to it, its
employee benefit plans, property, business, assets, licenses, permits or
goodwill, or against or affecting the Merger or the actions taken or
contemplated in connection therewith, nor, to the best of its knowledge, is
there any reasonable basis therefor. There is no action, suit, proceeding or
investigation pending or threatened against Sunrise that questions the validity
of this Agreement or the right of Sunrise or SAI to enter into this Agreement or
to consummate the transactions contemplated hereby or thereby or which might
result in any Material Adverse Effect. The foregoing includes, without
limitation, actions pending or threatened (or any reasonable basis therefor
known to Sunrise) involving the prior employment of any of its employees, their
use in connection with its business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. There is no action, suit, proceeding or
investigation by Sunrise currently pending or which it intends to initiate.
Neither Sunrise nor, to the best of its knowledge, any of its officers or
directors is bound by any judgment, decree, injunction, ruling or order of any
court, governmental, regulatory or administrative department, commission, agency
or instrumentality, arbitrator or any other person which would or could have a
Material Adverse Effect.
4.7 No Brokers. Except with respect to the fees payable to Cowen pursuant to
Section 2.2(d), Sunrise is not obligated for the payment of fees or expenses of
any broker or finder in connection with the origin, negotiation or execution of
this Agreement or in connection with any transaction contemplated hereby.
4.8 Insurance. Sunrise maintains policies of insurance covering its assets,
properties and business in types and amounts customary for similarly sized
companies engaged in similar businesses. To the best knowledge of Sunrise, it is
in compliance with each of such policies such that none of the coverage provided
under such policies has been invalidated. Sunrise has fully paid all premiums
and other payments which may be due to its insurers. The Sunrise Letter contains
a complete and accurate list of all insurance policies, bonds and surety
instruments. There is no threat by any of the insurers to terminate or
materially increase the premiums payable under any of such insurance policies
due to the activities or loss experience of Sunrise.
4.9 Capitalization.
(a) Sunrise's capitalization (common stock, preferred stock, warrants and
options and any other issued or granted security) is as set forth in the Sunrise
Letter. Sunrise does not have in effect any stock appreciation rights plan and
no stock appreciation rights are currently outstanding.
(b) Other than as set forth in the Sunrise Letter, Sunrise does not have
outstanding any preemptive or subscription rights, options, warrants, rights to
convert, capital stock equivalents or other rights to purchase or otherwise
acquire any of Sunrise's capital stock or other securities.
(c) All of the issued and outstanding shares of Sunrise's capital stock have
been duly authorized, validly issued, are fully paid and nonassessable, and such
capital stock has been issued in full compliance
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with all applicable federal and state securities laws. All of Sunrise's
incentive stock options have been issued in compliance with all laws, rules and
regulations necessary to preserve such incentive stock option treatment. All of
Sunrise's options have been issued in accordance with Sunrise's current stock
option plan. None of Sunrise's options are entitled to be accelerated as a
result of the Merger.
(d) Except for any restrictions imposed by applicable state and federal
securities laws, there is no right of first refusal, co-sale right, right of
participation, right of first offer, or other restriction on transfer applicable
to any shares of Sunrise capital stock.
(e) Except as described in the Sunrise Letter, Sunrise is not and will not be
under any obligation to register under the Securities Act any shares of its
capital stock or any other of its securities that might be issued in the future
if the Merger were not consummated.
(f) Sunrise is not a party or subject to any agreement or understanding, and,
to Sunrise's knowledge, there is no agreement or understanding between or among
any persons that affects or relates to the voting or giving of written consent
with respect to any security.
(g) More than one-half of the outstanding voting securities of Sunrise,
excluding from consideration any securities held in the name of broker-dealers,
nominees for broker-dealers (including clearing corporations) or banks,
associations or other entities holding securities in a nominee name or otherwise
on behalf of a beneficial owner, are held of record by persons having addresses
outside the State of California.
4.10 Compliance with Laws. To the best of Sunrise's and SAI's knowledge, the
business and operations of Sunrise and SAI are in compliance with all foreign,
federal, state, local and county laws, ordinances, regulations, judgments,
orders, decrees or rules of any court, arbitrator or governmental, regulatory or
administrative agency or entity, except where the failure to so comply would not
have a Material Adverse Effect. Each of Sunrise and Sunrise SAI has all valid
and current permits, licenses, orders, authorizations, registrations, approvals
and other analogous instruments (and each is in full force and effect) and each
of Sunrise and SAI has made all filings and registrations and the like necessary
or required by law to conduct its business, except where the failure to maintain
such permits and other instruments or to make such filings and registrations
would not have a Material Adverse Effect. Neither Sunrise nor SAI has received
any governmental notice within two years of the date hereof of any violation by
it of any such laws, rules, regulation or orders. Neither Sunrise nor SAI is in
material default or material noncompliance under any such permits, consents, or
similar instruments.
4.11 The Registration Statement and Proxy Statement/Prospectus. The
Registration Statement pursuant to which the Sunrise Common Stock to be issued
in the Merger will be registered with the SEC 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 the
light of the circumstances under which they were made, not misleading. The
information supplied by Sunrise and SAI for inclusion in the Proxy Statement/
Prospectus to be sent to the holders of Interests in EyeSys and the Sunrise
stockholders will not, on the date the Proxy Statement/ Prospectus (or any
amendment thereof or supplement thereto) is first mailed to holders of Interests
in EyeSys or Sunrise stockholders, at the time of the Stockholder Meeting of
either EyeSys or Sunrise, 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 statement made therein not
false or misleading. If at any time prior to the Effective Time any event
relating to Sunrise or SAI or any of their respective affiliates, officers or
directors should be discovered by Sunrise or SAI which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Sunrise and SAI shall promptly inform EyeSys. The Proxy
Statement/Prospectus, including all financial statements of Sunrise and SAI
required to be included therein, shall comply in all material respects as to
form with the requirements of the Securities Act, the Exchange Act and the rules
and regulations thereunder. Notwithstanding the foregoing, Sunrise and SAI make
no representation or warranty with respect to any information supplied by EyeSys
which is contained in any of the foregoing documents.
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4.12 Taxes.
(a) Prior to the Merger, Sunrise will be in control of SAI within the meaning
of Section 368(c) of the Code. Sunrise shall not cause or permit SAI to issue
additional shares of its stock that would result in Sunrise losing control of
SAI within the meaning of Section 368(c) of the Code. No stock of SAI will be
issued in the Merger.
(b) During its corporate existence, SAI has owned no assets and prior to the
Merger shall not own any assets other than the Merger Shares of Sunrise to be
distributed in the Merger.
(c) As of the date hereof and as of the Effective Time, Sunrise has no plan
or intention to reacquire any of its stock issued in the Merger other than the
possible acquisition of the Escrow Shares pursuant to Article 7 hereof and the
possible acquisition in the ordinary course of business of stock held by EyeSys
employees pursuant to Sunrise's issuance of options in replacement of EyeSys'
options.
(d) Sunrise shall not liquidate SAI; merge SAI with or into another
corporation; to sell or otherwise dispose of the stock of SAI in any transaction
other than this Merger; or to cause SAI to sell or otherwise dispose of any of
the assets of EyeSys acquired in the Merger, except for dispositions made in the
ordinary course of business or transfers described in Section 368(a) of the
Code. Following the Merger, Sunrise will cause EyeSys to continue the historic
business of EyeSys or use a significant portion of EyeSys' business assets in a
business.
(e) There is no intercorporate indebtedness existing between EyeSys and
Sunrise or between EyeSys and SAI that was issued, acquired, or will be settled
at a discount. Sunrise is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
4.13 Shares Fully Paid and Non-Assessable. The shares of Sunrise Common Stock
issuable to holders of Interests in EyeSys pursuant to Section 2.2, when issued
as contemplated by this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of any preemptive rights of any security
holder of Sunrise.
4.14 SEC Documents. Sunrise has furnished EyeSys with a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Sunrise with the SEC since November 1, 1994 (the "SEC
Documents"), which are all the documents that Sunrise was required to file with
the SEC under the Exchange Act since that date. The SEC Documents as of their
respective dates complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC thereunder, applicable to
such SEC Documents, and none of the SEC Documents as of the date thereof
contained any untrue statement of a material fact or omitted to state a material
fact required to be state therein or necessary to make the statements therein
not misleading. Except to the extent that the information contained in Sunrise's
Annual Report on Form 10-K for its fiscal year ended December 31, 1995 ("Form
10-K") has been revised or superseded by a later-filed SEC Document, or except
as set forth in the Registration Statement or the Sunrise Letter, the Form 10-K
does not currently 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 light of the circumstances under which they were
made, not misleading. The financial statements of Sunrise included in the SEC
Documents as of their respective dates complied as to form in all material
respects with applicable accounting requirements and the rules and regulations
of the SEC with respect thereto and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved, except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q and subject to normal
recurring audit adjustments.
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ARTICLE 5
COVENANTS OF SUNRISE, SAI, AND EYESYS
Each of Sunrise, SAI and EyeSys, as the case may be, covenants to the other,
except as expressly provided otherwise herein, as follows:
5.1 Maintenance of Business.
(a) During the period from the date hereof to the Effective Time, it shall
carry on and preserve its business, goodwill and its relationships with
customers, suppliers, officers, employees, agents and others in substantially
the same manner as it did prior to the date of this Agreement. It will use its
best efforts to keep and maintain the existing favorable business relationship
with each of such customers, suppliers, officers, employees and agents. If it
becomes aware of a deterioration in a relationship with any customer, supplier,
officer, employee or agent which is material to its business or prospects, it
will promptly bring such information to the attention of the other and will use
its best efforts to restore such relationship or establish a reasonable
replacement relationship, as may be appropriate. EyeSys recognizes that Sunrise
and SAI intend to continue certain of EyeSys' existing businesses after the
Effective Date and that Sunrise and SAI intend to continue EyeSys' current
relationships with its customers and other parties.
(b) EyeSys agrees to consult with Sunrise concerning any material operating
decisions (including, without limitation, proposed employee hiring, layoff and
termination decisions). Notwithstanding the foregoing, EyeSys expressly
acknowledges that EyeSys alone shall make such operating decisions and shall be
solely responsible for their implementation, consequences and liabilities, if
any.
(c) EyeSys recognizes that Sunrise shall be entitled (without EyeSys'
approval) to conduct discussions with any prospective buyer in connection with
the Asset Sale.
5.2 Absence of Certain Changes. Prior to the Closing, except as expressly
permitted or contemplated hereby, or except as set forth in the EyeSys Letter or
the Sunrise Letter, as the case may be, neither party shall, without the prior
written consent of the other party:
(a) incur any additional indebtedness for money borrowed or guarantee any
indebtedness or obligation of any other party; set aside or pay any dividend
or distribution of assets to, or repurchase any of its stock from any of its
shareholders; issue or grant any securities or securities convertible into
capital stock or grant or issue any options, warrants or rights to subscribe
for its capital stock or securities convertible into its capital stock;
(b) enter into, amend or terminate any employment or consulting agreement
or any similar agreement or arrangement; increase the compensation payable or
to become payable to any of its officers, employees or agents above the
amount payable as of September 30, 1996, or adopt or amend any employee
benefit plan or arrangement;
(c) acquire or dispose of any properties or assets used in its business
except in the ordinary course of business; permit any change in the nature of
business or the manner in which its books and records are maintained;
(d) waive any statute of limitations so as to extend any tax or other
liability; create or suffer to be imposed any lien, mortgage, security
interest or other charge on or against its properties or assets; or enter
into, amend or terminate any lease of real or personal property otherwise
than in the ordinary course of business;
(e) except as contemplated by Section 2.1, amend its Certificate of
Incorporation or Bylaws; engage in any activities or transactions outside the
ordinary course of its business as conducted at the date hereof; make any
amendments or changes in any instruments, agreements, other documents or
written information delivered by it or its representatives to the other or
its representatives; or accelerate the vesting of any employee stock benefit
(including vesting under stock purchase agreements or the exercisability of
stock options).
5.3 Actions Contrary to Stated Intent. Each party will use its best efforts
to cause the Merger to qualify as a tax-free reorganization under Section 368(a)
of the Code and accordingly will not, either
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before or after consummation of the Merger, take any action or fail to take any
action which would prevent the Merger from so qualifying as a tax-free
reorganization under Section 368(a) of the Code or be inconsistent with such
qualification.
5.4 Access to Information. Each party will give to the other party and their
respective accountants, legal counsel and other representatives full access,
during normal business hours throughout the period prior to the Closing, to all
of the properties, books, contracts, commitments and records relating to its
business, assets and liabilities, and each party will furnish to the other
party, their respective accountants, legal counsel and other representatives
during such period all such information concerning its affairs as the other may
reasonably request but subject to Section 9.10 below; provided, that any
furnishing of such information pursuant hereto or any investigation by each
party hereto shall not affect such party's right to rely on the representations,
warranties, agreements and covenants made by the other party in this Agreement.
5.5 Other Discussions. From the date hereof until the Closing or the
termination of this Agreement in accordance with Article 8 hereof, whichever
occurs first, neither EyeSys nor any officer, director, shareholder, agent or
representative of EyeSys will discuss or negotiate, or authorize any person or
entity to discuss or negotiate on its or their behalf, with any other party,
concerning the possible disposition of EyeSys' business, assets or capital
stock, except that such persons may discuss and negotiate back-up offers to sell
or otherwise dispose of EyeSys' business, assets or capital stock in case the
Merger is not consummated pursuant to this Agreement, provided that EyeSys must
inform any potential purchaser or acquirer that EyeSys has entered into this
definitive Agreement with Sunrise.
5.6 EyeSys Investor Consents and Lock Up Agreements. EyeSys shall use its
reasonable best efforts to cause (a) the holders of Interests in EyeSys
indicated in Section 2.1 to deliver executed EyeSys Investor Consents, and (b)
the EyeSys Shareholders to execute and deliver to Sunrise the EyeSys Lock Up
Agreements.
5.7 Reasonable Best Efforts. Each party will use its reasonable best efforts
to cause all conditions to the Closing to be satisfied, including obtaining any
of its consents necessary or desirable in connection with the consummation of
the transactions contemplated by this Agreement.
5.8 [intentionally omitted]
5.9 Registration Statement and Proxy Statement/Prospectus. As promptly as
practicable, Sunrise, SAI and EyeSys shall prepare and file with the SEC
preliminary proxy materials which shall constitute the Proxy
Statement/Prospectus and the Registration Statement of Sunrise with respect to
the Sunrise Common Stock to be issued in connection with the Merger and shall
use all reasonable efforts to cause the Registration Statement to become
effective as soon as practicable, and to mail the Proxy Statement/Prospectus to
EyeSys shareholders, as soon thereafter as practicable. The Proxy Statement/
Prospectus shall include the recommendation of the Boards of Directors of
Sunrise and EyeSys in favor of the Merger; provided, that the Boards of
Directors of Sunrise or EyeSys may, at any time prior to the Effective Time,
withdraw, modify or change such recommendation if, in the opinion of either such
Board of Directors, the Board determines in good faith that there is a
reasonable possibility that the failure to withdraw, modify or change such
recommendation could be a breach of its fiduciary duties under applicable law.
EyeSys and Sunrise shall each call and hold a shareholder meeting as promptly as
practicable after the date on which the Registration Statement becomes effective
and in accordance with applicable laws for the purpose of obtaining the
approvals required herein.
5.10 EyeSys Payables. EyeSys shall pay its accounts payable, including
(without limitation) its payroll, amounts due under equipment and facilities
leases, loan agreements and similar leases and agreements, sales and payroll
taxes and trade payables, and all other taxes, in a timely manner.
5.11 Tax Forms. EyeSys shall not make or change any material Tax election,
adopt or change any material Return or any amendment to a material Return, enter
into any closing agreement, settle any Tax claim or assessment, file any state
or federal income tax return prior to March 15, 1997, or consent to any
extension or waiver of limitation period applicable to any Tax claim or
assessment, without the prior consent of Sunrise, which consent will not be
unreasonably withheld.
5.12 Notification of Certain Matters. EyeSys shall give prompt notice to
Sunrise, and Sunrise and SAI shall give prompt notice to EyeSys, of (a) the
occurrence or nonoccurrence of any event the
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occurrence or nonoccurrence of which would be likely to cause any representation
or warranty of the notifying party contained in this Agreement to become
materially untrue or inaccurate, or (b) any failure of the notifying party to
materially comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder.
5.13 Merger Expenses. EyeSys will use its best efforts to limit all of its
non merger-related fees and expenses to be incurred by it prior to or on the
Closing.
5.14 Extension of Bank Loan Agreement. EyeSys and the Silicon Valley Bank
("Bank") have entered into that certain Bank Loan Agreement, dated as of March
11, 1995, as amended, pursuant to which the Bank agreed to loan EyeSys up to
$2,100,000 (the "Loan Agreement"). Up to $650,000 of such loan has been
guaranteed by each of Frontenac VI Limited Partnership and American Healthcare
Fund II, L.P., shareholders of EyeSys (the "Shareholder Guarantees"). EyeSys
shall use its reasonable best efforts to obtain the agreement of the Bank, or
another lender acceptable to Sunrise, to agree to advance at least $2,100,000
for at least one year after Closing at advance rates no greater than those
specified in the Loan Agreement, with such adjustments to the loan covenants as
reflect the merger companies and are acceptable to Sunrise.
5.15 The Sunrise Prepayment. For the benefit of Frontenac VI Limited
Partnership and American Healthcare Fund II, L.P. (collectively, the
"Shareholder Guarantors"), Sunrise shall have executed an agreement (the
"Sunrise Prepayment Agreement") in favor of Guarantors in a form reasonably
acceptable to Guarantors, to use its best efforts, subject to the conditions
described in Section 5.14, to restructure the Loan Agreement to eliminate the
Shareholder Guarantees. The Sunrise Prepayment Agreement shall provide that in
the event that Sunrise is unable to persuade the Bank to continue the Loan
Agreement without such Shareholder Guarantees, Sunrise shall use twenty percent
(20%) of the proceeds of any stock offering after the Closing and ten percent
(10%) of the net proceeds from the Asset Sale to prepay a portion of the loan
covered by the Shareholder Guarantees.
5.16. Sunrise Covenant Regarding SEC Filings. For the benefit of affiliates
of EyeSys, Sunrise agrees to make all filings it is required to make pursuant to
the Exchange Act through 1998 on a timely basis; provided, however, that Sunrise
shall be entitled to cure any late filings in accordance with the Exchange Act
and the rules and regulations promulgated thereunder.
ARTICLE 6
CONDITIONS TO OBLIGATIONS OF SUNRISE, SAI AND EYESYS
The obligations of Sunrise, SAI and EyeSys to consummate the transactions
contemplated hereby are, at the election of each such party, subject to
satisfaction of the following conditions by the other party, to the extent
applicable to the other party, or waiver thereof:
6.1 Consents and Approvals. The parties hereto shall have obtained all
consents and approvals of stockholders and third parties (including governmental
authorities) required to consummate the transactions contemplated by this
Agreement and the Certificate of Merger.
6.2 Representations, Warranties and Agreements. All representations and
warranties (including those contained in the Sunrise and EyeSys Letters) made
herein by the other party and those contained in any documents executed by
stockholders of the other party shall be true, accurate and correct in all
material respects as of the date made and as if made as of the Closing. The
other party shall have performed in all material respects all obligations and
agreements undertaken by it herein to be performed at or prior to the Closing.
6.3 Certificate. The parties shall have received at the Closing a
certificate, dated as of the Closing and executed by the other's President and
Secretary, to the effect that the conditions set forth in Sections 6.1 and 6.2
shall have been satisfied or waived by the other party.
6.4 Opinions of Counsel. Sunrise and SAI shall have received at the Closing
the opinion of Epstein Becker & Green, P.C. counsel to EyeSys, in form and
substance satisfactory to Sunrise and SAI and their counsel.
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EyeSys shall have received at the Closing the opinion of Thelen, Marrin, Johnson
& Bridges, counsel to Sunrise and SAI, in form and substance satisfactory to
EyeSys and its counsel.
6.5 No Actions. Consummation of the transactions contemplated by this
Agreement shall not violate any order, decree or judgment of any court or
governmental body having jurisdiction.
6.6 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
reasonably satisfactory to its counsel, and it shall have received all such
counterpart originals or certified or other copies of such documents as it may
reasonably request.
6.7 Accuracy of Documents and Information. The copies of all material
instruments, agreements, other documents and written information delivered to
the other by it or its representatives, including, without limitation, the
EyeSys Letter and the Sunrise Letter, shall be complete and correct as of the
Closing.
6.8 Lock Up Agreements and EyeSys Investor Consents. Sunrise and SAI shall
have received an EyeSys Shareholder Lock Up Agreement executed by each EyeSys
Shareholder and EyeSys shall have received executed EyeSys Investor Consents in
accordance with the requirements of Section 2.1 of this Agreement.
6.9 Contracts. Sunrise shall be satisfied that EyeSys shall have amended or
obtained waivers in respect of any and all rights pursuant to contract that will
be necessary in order to consummate the Merger and to enable EyeSys to conduct
its business and operations after the Effective Time of the Merger substantially
as EyeSys did immediately preceding the Effective Time of the Merger.
6.10 Securities Approval. 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
Proxy Statement/Prospectus shall have been initiated or threatened by the SEC.
6.11 Delaware Filings. Sunrise and EyeSys shall be satisfied that as of the
Effective Time, the First Amendment to the Restated Certificates of
Incorporation of EyeSys, the Second Amendment to the Certificate of
Incorporation of Sunrise Technologies, Inc., and the Certificate of Merger shall
have been filed in the office of the Secretary of State of the State of
Delaware.
6.12 Termination of EyeSys Stock Option Plan. The EyeSys Board of Directors
shall have voted to terminate the EyeSys' Stock Option Plan as of the Effective
Time.
6.13 Transactional Costs. EyeSys shall deliver to Sunrise at least two
business days prior to the Closing a list of the transactional fees claimed by
the parties listed on Schedule 6.13 in connection with the Merger. At the
Effective Time, Sunrise shall pay the Transactional Costs of such parties,
including a payment of $100,000 in cash to Cowen and shall also issue the Cowen
Shares to Cowen in payment of the balance of the investment fee due Cowen. At
the Effective Time, Sunrise also shall repay on behalf of EyeSys approximately
$60,000 of stockholder indebtedness currently on the books of EyeSys (not
including any indebtedness evidenced by EyeSys Notes).
6.14 Options, Warrants and EyeSys Notes. Holders of at least 85% of the
outstanding principal under the EyeSys Notes shall have converted such EyeSys
Notes into EyeSys Common Stock pursuant to Section 2.1(a). All outstanding
rights, options, warrants and convertible securities of EyeSys described in the
EyeSys Letter shall have been terminated, canceled, replaced or otherwise
eliminated to the satisfaction of Sunrise. All existing registration rights of
holders of Interests in EyeSys shall have been terminated and Sunrise shall have
received a certificate to such effect signed on behalf of EyeSys by the
President and Secretary of EyeSys.
6.15 Foreign Status Representation Letter. EyeSys shall furnish Sunrise with
an affidavit stating under penalty of perjury that EyeSys is not a foreign
corporation, foreign partnership, foreign trust or foreign establishment (as
each term is defined in the Code) and will provide in such affidavit its
taxpayer identification number and shall have executed a representation letter
substantially in the form provided before Closing to EyeSys and its counsel.
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6.16 Appointment of Board Member. As of the Effective Time, EyeSys shall have
one representative, James E. Crawford, appointed to Sunrise's board of
directors.
6.17 Sunrise Private Placement and Asset Sale. Neither Sunrise nor EyeSys
shall be obligated to proceed to Closing unless Sunrise shall have (a) completed
a financing that has produced the greater of (i) $1,700,000 in cash or liquid
assets and (ii) sufficient cash or liquid assets to pay the Transaction Costs,
cover the initial costs of integration, bring current the outstanding payables
of EyeSys and cover the reasonably anticipated working capital requirements of
Sunrise and EyeSys for a period of at least three (3) months after the Effective
Time, and (b) entered into a binding contract for the Asset Sale for a cash
purchase price of at least $4,000,000, which sale shall be expected to close
within ninety (90) days of the Effective Time and shall not be subject to any
financing contingency not waived by the purchaser under such binding contract
prior to the Effective Time.
6.18 Escrow Agreement. The Escrow Agreement shall be executed by all of the
appropriate parties.
6.19 Bank Loan Agreement. Bank, or another lender acceptable to Sunrise,
shall have agreed to continue to loan at least $2,100,000 for at least one year
after Closing at the advance rates currently available to EyeSys, as specified
in the Loan Agreement, with such adjustments to the loan covenants as reflect
the merged companies and are acceptable to Sunrise.
6.20 Sunrise Prepayment Agreement. Sunrise shall have delivered the Sunrise
Prepayment Agreement to the Shareholder Guarantors.
6.21 No EyeSys Material Adverse Effect. Sunrise shall not have become aware
of any fact, event or condition, or the absence of any fact, event or condition,
as the context requires, which, individually or in the aggregate would have a
material adverse effect on the business, properties, condition (financial or
otherwise) or results of operations of EyeSys.
6.22 No Sunrise Material Adverse Effect. EyeSys shall not have become aware
of any fact, event or condition, or the absence of any fact, event or condition,
as the context requires, which, individually or in the aggregate would have a
material adverse effect on the business, properties, condition (financial or
otherwise) or results of operations of Sunrise.
ARTICLE 7
INDEMNITY
7.1 Indemnification. EyeSys agrees to indemnify, defend and hold harmless
Sunrise and SAI from and against and shall reimburse Sunrise and SAI against and
in respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, remedies and penalties, including interest, penalties and
reasonable attorneys' fees and expenses (collectively, "Losses") that Sunrise or
SAI shall incur or suffer and which arise from or are attributable to by reason
of or in connection with any breach or inaccuracy of or any failure to perform
or comply with any of EyeSys' representations, warranties, agreements or
covenants contained in this Agreement (including any exhibit, letter, schedule
or certificate referred to herein) or in the Escrow Agreement.
7.2 Escrow Agreement. The indemnity obligations of EyeSys hereunder shall be
met pursuant to the terms and conditions of the Escrow Agreement. The
indemnification made pursuant to Section 7.1 and the representations,
warranties, covenants and other agreements set forth in this Agreement and in
the Escrow Agreement, shall survive Closing for a period of twelve (12) months
after the Effective Time, except that indemnity for Losses for which claim has
been made pursuant to the terms of the Escrow Agreement against the Escrow
Shares within such twelve (12) month period shall survive until resolved
pursuant to the terms of the Escrow Agreement. As set forth herein, the
indemnity obligations of EyeSys under this Article 7 (together with all of
EyeSys' representations, warranties, covenants and other agreements) set forth
herein shall survive the Closing and, absent fraud, shall be satisfied solely
and exclusively by recourse against the Escrow Shares in accordance with the
Escrow Agreement and this Agreement.
7.3 No Waiver. No investigation made by or on behalf of Sunrise or SAI with
respect to EyeSys shall be deemed to affect Sunrise's or SAI's reliance on the
representations, warranties, covenants and
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agreements made by EyeSys contained in this Agreement and shall not be a waiver
of Sunrise's or SAI's rights to indemnity as herein provided for the breach or
inaccuracy of or failure to perform or comply with any of EyeSys'
representations, warranties, covenants or agreements under this Agreement or the
Escrow Agreement.
7.4 Indemnification of EyeSys Agents. Sunrise agrees that until six (6) years
from the Effective Time, Sunrise shall maintain all rights to indemnification
existing in favor of the present and former directors, officers, employees,
fiduciaries and agents of EyeSys under the terms of its charter and bylaws in
effect immediately prior to the Effective Time, and that the charter and bylaws
of EyeSys as the surviving corporation, or any successor in interest of EyeSys,
shall not be amended to reduce or limit the rights of indemnity afforded to such
persons.
ARTICLE 8
TERMINATION
8.1 Termination by Mutual Consent. At any time prior to the Closing, this
Agreement and the Agreement of Merger may be terminated by written consent of
Sunrise, SAI and EyeSys, notwithstanding approval of the Merger by the
stockholders of SAI or EyeSys.
8.2 Termination by Sunrise or SAI or EyeSys.
(a) Sunrise or SAI may terminate this Agreement at any time prior to the
Closing by delivery of written notice to EyeSys if: (1) EyeSys has breached or
violated this Agreement in any material respect and, if such breach or violation
is curable, has failed to cure such violations within ten (10) days of receiving
written notice thereof; (2) any representation or warranty made by EyeSys is
false or inaccurate in any material respect or there is any material
misrepresentation or omission by EyeSys; (3) upon the occurrence of a Material
Adverse Effect with respect to EyeSys or (4) the Closing has not occurred by
February 28, 1997.
(b) EyeSys may terminate this Agreement at any time prior to the Closing by
delivery of written notice to Sunrise and SAI if: (1) Sunrise or SAI has
breached or violated this Agreement in any material respect and, if such breach
or violation is curable, has failed to cure such violations within ten (10) days
of receiving written notice thereof; (2) any representation or warranty made by
Sunrise or SAI is false or inaccurate in any material respect or there is any
material misrepresentation or omission by either Sunrise or SAI; or (3) the
Closing has not occurred by February 28, 1997.
8.3 Effect of Termination. In the event of termination as provided above, all
parties hereto shall bear their own costs associated with this Agreement and all
transactions mentioned herein and there shall be no obligation on the part of
either party's officers, directors or stockholders; provided, that (a) Sections
9.5, 9.9, 9.10 and 9.11 shall survive such termination and continue in full
force and effect, and (b) nothing herein will relieve any party from liability
for any breach of this Agreement prior to such termination.
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ARTICLE 9
MISCELLANEOUS
9.1 Notices. Any notice given hereunder shall be in writing and shall be
deemed effective upon the earlier of personal delivery (including personal
delivery by facsimile) or the third day after mailing by certified or registered
mail, postage prepaid as follows:
(a) If to Sunrise or SAI:
Sunrise Technologies International, Inc.
47257 Fremont Boulevard
Fremont, CA 94538
Attention: Chief Executive Officer
Facsimile: (510) 623-9163
With a copy to:
Thelen, Marrin, Johnson & Bridges
333 West San Carlos Street
17th Floor
San Jose, CA 95110-2701
Attention: Jay L. Margulies, Esq.
Facsimile: (408) 287-8040
(b) If to EyeSys
EyeSys Technologies, Inc.
2776 Bingle Road
Houston, TX 77055
Attention: President and Chief
Executive Officer
Facsimile: (713) 465-2418
With a copy to:
Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
Attention: Lowell S. Lifschultz, Esq.
Facsimile: (212) 661-0989
or to such other address as any party may have furnished in writing to the other
parties in the manner provided above.
9.2 Entire Agreement; Modifications; Waiver. Except as set forth in Section
9.10 herein, this Agreement constitutes the final, exclusive and complete
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, understandings and discussions with
respect thereto, including, without limitation, the Memorandum of Understanding,
dated October 29, 1996, by and among Sunrise and EyeSys. No variation or
modification of this Agreement and no waiver of any provision or condition
hereof, or granting of any consent contemplated hereby, shall be valid unless in
writing and signed by the party against whom enforcement of any such variation,
modification, waiver or consent is sought. After the Effective Time, the rights
and remedies available to Sunrise and SAI pursuant to this Agreement and all
exhibits hereunder shall be as set forth in Article 7.
9.3 Captions. The captions in this Agreement are for convenience only and
shall not be considered a part of or affect the construction or interpretation
of any provision of this Agreement.
9.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one agreement.
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9.5 Publicity. Except for disclosure (if any) required by any law to which
any party is subject, the timing and content of any announcements, press
releases and public statements concerning the acquisition contemplated hereby
shall be by mutual agreement of Sunrise and EyeSys.
9.6 Successors and Assigns. No party may, without the prior express written
consent of each other party, assign this Agreement in whole or in part. This
Agreement shall be binding upon and inure to the benefit of the respective
successors and permitted assigns of the parties hereto.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California as applied to contracts
between California residents made and to be performed entirely within the State
of California; provided that matters affecting the validity of the corporate
action taken by the parties relating to the Merger shall be governed by the
General Corporation Law of the State of Delaware.
9.8 Further Assurances. At the request of any of the parties hereto, and
without further consideration, the other parties agree to execute such documents
and instruments and to do such further acts as may be necessary or desirable to
effectuate the Merger.
9.9 Each Party to Bear Own Costs. Subject to Section 6.13, each of the
parties shall pay all costs and expenses incurred or to be incurred by it in
negotiating and preparing this Agreement and the Agreement of Merger and in
closing and carrying out the transactions contemplated by this Agreement and the
Agreement of Merger; provided, however, that any costs related to the Merger
other than the Transactional Costs shall be paid by EyeSys shareholders. Each of
the parties and its respective advisors shall use its best efforts to minimize
all Merger-related fees and expenses.
9.10 Confidentiality and Nondisclosure Agreements. Except as required by law,
statute, rule or regulation, all confidential information which shall have been
furnished or disclosed by one party to the other pursuant to this Agreement
shall be held in confidence pursuant hereto or pursuant to the confidential
information non-disclosure agreements entered into by such parties and shall not
be disclosed to any person other than their respective employees, directors,
legal counsel, accountants or financial advisors, with a need to have access to
such information.
9.11 Attorneys' Fees. In the event of any suit or other proceeding to
construe or enforce any provision of this Agreement or any other agreement to be
entered into pursuant hereto, or otherwise in connection with this Agreement,
the prevailing party's or parties' reasonable attorneys' fees and costs (in
addition to all other amounts and relief to which such party or parties may be
entitled) shall be paid by the other party or parties.
9.12 Transfer of EyeSys Books and Assets. EyeSys agrees, at any time after
the Closing, upon the request of Sunrise or SAI to do, execute, acknowledge and
deliver or to cause to be done, executed, acknowledged and delivered, all such
further acts, deeds, assignments, transfers, conveyances, power of attorney and
assurances as may be required for the better assigning, transferring, conveying
and confirming to Sunrise, or to its successors and assigns, or for the aiding,
assisting, collecting and reducing to possession of any or all of the books,
records and assets of EyeSys. EyeSys and its counsel shall provide Sunrise and
its counsel upon request all documentation covering all aspects of EyeSys'
business operations.
9.13 Appointment and Indemnity of Escrow Committee.
(a) By approval of this Agreement (by written consent or at a duly authorized
shareholders' meeting) the EyeSys shareholders shall appoint James E. Crawford,
or any successor designated by James E. Crawford or his legal representative, as
the EyeSys Representative pursuant to the Escrow Agreement. Mr. Crawford or his
designated successor shall have all of the authority granted to the EyeSys
Representative pursuant to the Escrow Agreement.
(b) The EyeSys Representative shall not be liable to anyone whatsoever by
reason of any error or judgment or of any act done or step taken or omitted by
him in good faith or for any mistake of fact or law as is provided in Section 11
of the Escrow Agreement.
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9.14 Survival of Representations and Warranties. The representations and
warranties made by EyeSys in this Agreement shall survive the Effective Time for
a one (1) year period consistent with the provisions of Article 7 of this
Agreement. The representations and warranties of Sunrise and SAI shall terminate
as of the Effective Time; provided, however, the representation made by Sunrise
and SAI in Section 4.13 of this Agreement shall survive the Closing for a one
(1) year period.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the
date first above written.
SUNRISE TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/ David W. Light
-------------------------------
Name: David W. Light
Title: Chairman of the Board and
Chief Executive Officer
SUNRISE ACQUISITION, INC.
By: /s/ David W. Light
-------------------------------
Name: David W. Light
Title: Chief Executive Officer
EYESYS TECHNOLOGIES, INC.
By: /s/ Frederick J. Ruegsegger
-------------------------------
Name: Frederick J. Ruegsegger
Title: President and Chief
Executive Officer
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APPENDIX B
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
Section 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251, Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were
either (i) listed 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
more than 2,000 holders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent corporation surviving
a merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsections (f) or
(g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed 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 held of record by more then 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall
notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within twenty days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
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date is fixed and the notice is given prior to the effective dated, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
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holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (8 Del. C. 1953, Section 262;
56 Del. Laws, c. 50; 56 Del. Laws, c. 186, Section 24; 57 Del. Laws, c. 148,
Sections 27-29; 59 Del. Laws, c. 106, Section 12; 60 Del. Laws, c. 371, Sections
3-12; 63 Del. Laws, c. 25, Section 14; 63 Del. Laws, c. 152, Sections 1, 2; 64
Del. Laws, c. 112, Sections 46-54; 66 Del. Laws, c. 136, Sections 30-32; 66 Del.
Laws, c. 352, Section 9; 67 Del. Laws, c. 376, Sections 19, 20; 68 Del. Laws, c.
337, Sections 3, 4; 69 Del. Laws, c. 61, Section 10; 69 Del. Laws, c. 262,
Sections 1-9; 70 Del. Laws. c. 79. Section 16.)
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APPENDIX C
SUNRISE TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
"Applicable Laws" shall mean the legal requirements relating to the
administration of stock incentive plans, if any, under applicable provisions
of federal securities laws, state corporate and securities laws, the Code,
and the rules of any applicable stock exchange or national market system.
"Board" shall mean the Committee, if one has been appointed, or the Board
of Directors of the Company, if no Committee is appointed.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Committee appointed by the Board of Directors
in accordance with Section 4 of the Plan, if one is appointed.
"Common Stock" shall mean the Common Stock of the Company.
"Company" shall mean Sunrise Technologies International, Inc., a Delaware
corporation.
"Consultant" shall mean any person who is engaged by the Company or any
Parent or Subsidiary to render consulting services and is compensated for
such consulting services, and any director of the Company whether or not
compensated for such services.
"Continuous Status as an Employee or Consultant" shall mean the absence of
any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interpreted in the case of sick leave, military leave, or any other leave of
absence approved by the Board; provided that such leave is for a period of
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
"Covered Employee" shall mean an Employee who is, or in the opinion of the
Board may become, a "covered employee" under Section 162(m)(3) of the Code at
the time of the grant of an Option.
"Employee" shall mean any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
"Incentive Stock Option" shall mean an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
"Nonstatutory Stock Option" shall mean an Option not intended to qualify
as an Incentive Stock Option.
"Option" shall mean a stock option granted pursuant to the Plan.
"Optioned Stock" shall mean the Common Stock subject to an Option.
"Optionee" shall mean an Employee or Consultant who receives an Option.
"Parent" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
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"Performance-Based Compensation" shall mean compensation qualifying as
"performance-based compensation" under Section 162(m) of the Code.
"Plan" shall mean this 1996 Stock Option Plan.
"Share" shall mean a share of the Common Stock, as adjusted in accordance
with Section 11 of the Plan.
"Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the
Plan, the maximum aggregate number of shares which may be issued under Options
granted under the Plan is three million five hundred thousand (3,500,000) shares
of Common Stock. The Shares may be authorized, but unissued, or reacquired
Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. Notwithstanding any other provision of the Plan, shares
issued under the Plan and later repurchased by the Company shall not become
available for future grant or sale under the Plan.
4. Composition of Administrator.
(a) Multiple Administrative Bodies. If permitted by the Applicable Laws,
the Plan may (but need not) be administered by different administrative
bodies with respect to Covered Employees (in connection with
Performance-Based Compensation), directors, officers who are not directors
and Consultants and Employees who are neither directors nor officers.
(b) Administration with respect to Directors and Officers. With respect to
grants of Options to Employees or Consultants who are also officers or
directors of the Company, the Plan shall be administered by (A) the Board, if
the Board may administer the Plan in compliance with the Applicable Laws, or
(B) a Committee designated by the Board to administer the Plan, which
Committee shall be constituted in such a manner as to satisfy the Applicable
Laws.
(c) Administration with respect to Other Persons. With respect to grants
of Options to Employees or Consultants who are neither directors nor officers
of the Company, the Plan shall be administered by (A) the Board or (B) a
Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws.
(d) Administration With Respect To Covered Employees. Notwithstanding the
foregoing, grants of Options to any Covered Employee intended to qualify as
Performance-Based Compensation shall be made only by a Committee (or
subcommittee of a Committee) which is composed solely of two or more
Directors eligible under the Code to serve on a committee making grants
qualifying as Performance-Based Compensation. In the case of such grants to
Covered Employees, references to the "Board" shall be deemed to be references
to such Committee or subcommittee.
(e) General. Once a Committee has been appointed pursuant to subsection
(b), (c) or (d) of this Section 4, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to
time the Board may increase the size of any Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all
to the extent permitted by the Applicable Laws.
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5. Eligibility.
(a) Nonstatutory Stock Options may be granted only to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) The maximum aggregate number of Shares with respect to which Options
may be granted to any Employee in any fiscal year of the Company shall be one
million (1,000,000) Shares. The foregoing limitation shall be adjusted
proportionately in connection with any change in the Company's capitalization
pursuant to Section 11, below. This Section 5(b) is intended to comply with
the requirements for the award of Performance-Based Compensation applicable
to stock options and shall be construed in accordance with the requirements
of Section 162(m) of the Code and the regulations thereunder.
(c) No Incentive Stock Option may be granted to an Employee which, when
aggregated with all other incentive stock options granted to such Employee by
the Company or any Parent or Subsidiary, would result in Shares having an
aggregate fair market value (determined for each Share as of the date of
grant of the Option covering such Share) in excess of $100,000 becoming first
available for purchase upon exercise of one or more incentive stock options
during any calendar year.
(d) Section 5(c) of the Plan shall apply only to an Incentive Stock Option
evidenced by an "Incentive Stock Option Agreement" which sets forth the
intention of the Company and the Optionee that such Option shall qualify as
an incentive stock option. Section 5(c) of the Plan shall not apply to any
Option evidenced by a "Nonstatutory Stock Option Agreement" which sets forth
the intention of the Company and the Optionee that such Option shall be a
Nonstatutory Stock Option.
(e) The Plan shall not confer upon any Optionee any right with respect to
continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his right or the Company's right to
terminate his employment or consulting relationship at any time, with or
without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to occur of
its adoption by the Board of Directors or its approval by the shareholders of
the Company as described in Section 17 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 13 of the
Plan.
7. Term of Option. The term of each Incentive Stock Option shall be ten (10)
years from the date of grant thereof or such shorter term as may be provided in
the Incentive Stock Option Agreement. The term of each Nonstatutory Stock Option
shall be ten (10) years from the date of grant thereof or such shorter term as
may be provided in the Nonstatutory Stock Option Agreement. However, in the case
of an Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10) of the voting power of all classes
of stock of the Company or any Parent or Subsidiary, (a) if the Option is an
Incentive Stock Option, the term of the Option shall be five (5) years from the
date of grant thereof or such shorter term as may be provided in the Incentive
Stock Option Agreement, or (b) if the Option is a Nonstatutory Stock Option, the
term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Nonstatutory Stock Option Agreement.
8. Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued pursuant to
exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the fair market value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price shall be no
less than 100% of the fair market value per Share on the date of grant.
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(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of such Option, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the fair market value per Share
on the date of the grant.
(B) granted to any person, other than a Covered Employee, the per Share
exercise price shall be no less than 85% of the fair market value per Share
on the date of grant as determined by the Board.
(C) granted to any Covered Employee, the per Share exercise price shall be
no less than the fair market value per Share on the date of grant as
determined by the Board.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the bid price (or the
closing price per share if the Common Stock is listed on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") National
Market System) of the Common Stock for the date of grant, as reported in the
Wall Street Journal (or, if not so reported, as otherwise reported by the
NASDAQ System) or, in the event the Common Stock is listed on stock exchange,
the fair market value per Share shall be the closing price on such exchange
on the date of grant of the Option, as reported in the Wall Street Journal.
(c) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the
Board and may consist entirely of cash, check, promissory note, other Shares
of Common Stock which (i) either have been owned by the Optionee for more
than six (6) months on the date of surrender or were not acquired, directly
or indirectly, from the Company, and (ii) have a fair market value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, or any combination of such methods of
payment, or such other consideration and method of payment for the issuance
of Shares to the extent permitted under Sections 408 and 409 of the
California General Corporation Law. In making its determination as to the
type of consideration to accept, the Board shall consider if acceptance of
such consideration may be reasonably expected to benefit the Company (Section
315(b) of the California General Corporation Law).
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of
the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall issue
(or cause to be issued) such stock certificate promptly upon exercise of the
Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except
as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
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(b) Termination of Status as an Employee or Consultant. In the event of
termination of an Optionee's Continuous Status as an Employee or Consultant
(as the case may be), such Optionee may, but only within thirty (30) days (or
such other period of time, not exceeding three (3) months in the case of an
Incentive Stock Option or six (6) months in the case of a Nonstatutory Stock
Option, as is determined by the Board, with such determination in the case of
an Incentive Stock Option being made at the time of grant of the Option)
after the date of such termination (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement),
exercise his Option to the extent that he was entitled to exercise it at the
date of such termination. To the extent that he was not entitled to exercise
the Option at the date of such termination, or if he does not exercise such
Option (which he was entitled to exercise) within the time specified herein,
the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section 9(b)
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his total and permanent disability (as
defined in Section 22(e)(3) of the Code), he may, but only within six (6)
months (or such other period of time not exceeding twelve (12) months as is
determined by the Board, with such determination in the case of an Incentive
Stock Option being made at the time of grant of the Option) from the date of
such termination (but in no event later than the date of expiration of the
term of such Option as set forth in the Option Agreement), exercise his
Option to the extent he was entitled to exercise it at the date of such
termination. To the extent that he was not entitled to exercise the Option at
the date of termination, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death an
Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of
the Option, the Option may be exercised, at any time within twelve (12)
months following the date of death (but in no event later than the date of
expiration of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or
Consultant twelve (12) months after the date of death, subject to the
limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the
time of grant of the Option) after the termination of Continuous Status as
an Employee or Consultant, the Option may be exercised, at any time within
six (6) months following the date of death (but in no event later than the
date of expiration of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination.
10. Transferability of Options.
(a) Incentive Stock Options. Incentive Stock Options may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent and distribution or pursuant to
a qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder. The
designation of a beneficiary by an Optionee does not constitute a transfer.
An Incentive Stock Option may be exercised, during the lifetime of the
Optionee, only by the Optionee or a transferee permitted by this Section
10(a).
(b) Nonstatutory Stock Options. Nonstatutory Stock Options may permit
transfer of all or a portion of the Option by such Optionee to (i) the
spouse, children or grandchildren of the Optionee ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or (iii) a partnership in which such Immediate Family Members
are the only
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partners, provided that (x) there may be no consideration for any such
transfer, (y) the stock option agreement pursuant to which such Nonstatutory
Stock Options are granted must be approved by the Committee, and must
expressly provide for transferability in a manner consistent with this
Section, and (z) subsequent transfers of transferred options shall be
prohibited except those in accordance with Section 10(a). Following transfer,
any such Options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that
for purposes of Section 8(c) hereof the term "Optionee" shall be deemed to
refer to the transferee. The events of termination of employment of Section 9
hereof shall continue to be applied with respect to the original Optionee,
following which the options shall be exercisable by the transferee only to
the extent, and for the periods specified at Sections 9(b), (c) and (d).
11. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have
yet been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock
covered by each such outstanding Option, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion
of any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Option will terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by the
Board. The Board may, in the exercise of its sole discretion in such
instances, declare that any Option shall terminate as of a date fixed by the
Board and give each Optionee the right to exercise his Option as to all or
any part of the Optioned Stock, including Shares as to which the Option would
not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of the proposed sale of
substantially all of the assets of the Company or a merger of the Company, in
which the Company is not the surviving entity:
(i) Options. Each Option shall be assumed or an equivalent option shall
be substituted by such successor corporation (including as a "Successor"
any purchaser of substantially all of the assets of the Company) or a
parent or subsidiary of such successor corporation. In the event that the
successor corporation or a parent or subsidiary of such successor
corporation does not agree to assume the Option or to substitute an
equivalent option, the Board shall, as soon as practicable prior to the
effective date of such transaction, provide for the Optionee to have the
right to exercise the Option as to all of the Optioned Stock, including
Shares that would not otherwise be exercisable. In such event the Board
shall notify the Optionee as soon as practicable prior to the effective
date of such transaction that the Option shall be fully exercisable for a
period of ten (10) days from the date of such notice, and the Option shall
terminate upon the expiration of such period. For the purposes of this
paragraph, the Option shall be considered assumed if following the merger,
the option confers the right to purchase, for each Share of Optioned Stock
subject to the Option immediately prior to the merger, the consideration
(whether stock, cash or other securities or property) received in the
merger by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided,
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however, that if such consideration received in the merger was not solely
common stock of the successor corporation or Parent, the Board may, with
the consent of the successor corporation, provide for the consideration
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger.
(ii) Shares Subject to Repurchase Option. Any Shares subject to a
repurchase option of the Company shall be exchanged for the consideration
(whether stock, cash or other securities or property) received in the
merger or asset sale by the holders of Common Stock for each Share held on
the effective date of the transaction, as described in the preceding
paragraph. If the Optionee receives shares of stock of the successor
corporation or a parent or subsidiary of such successor corporation in
exchange for Shares subject to a repurchase option, such exchanged shares
shall continue to be subject to the repurchase option as provided in the
restricted stock purchase agreement.
12. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date on which the Board makes the determination granting such
Option. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, suspend or
terminate the Plan. To the extent necessary and desirable to comply with
Applicable Laws, the Company shall obtain shareholder approval of any Plan
amendment in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or termination
of the Plan shall not affect Options already granted and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the
Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written option agreements
in such form as the Board shall approve.
17. Shareholder Approval. Continuance of the Plan with respect to the grant
of Incentive Stock Options and grants to Covered Employees shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted, and such
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stockholder approval shall be a condition to the right of a Covered Employee to
receive Performance-Based Compensation hereunder. Such stockholder approval
shall be obtained in the degree and manner required under Applicable Laws.
18. Information to Optionees. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
19. Miscellaneous.
(a) Code Section 162(m). In the sole discretion of the Committee,
Agreements may provide that, in the event Code Section 162(m), or any
successor provision relating to excessive employee remuneration, would
operate to disallow a deduction by Company for all or part of any
compensation attributable to an Option under the Plan, an Employee's exercise
of an Option, to the extent that the exercise would result in compensation
that would not be deductible by Company, shall be deferred until the next
succeeding year or years in which the Employee's remuneration either does not
exceed the limit set forth in Code Section 162(m) or is not subject to Code
Section 162(m).
(b) Withholding. To the extent required by applicable federal, state,
local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise in connection with the Plan. The
Company shall not be required to issue any Shares or make any cash payment
under the Plan until such obligations are satisfied. The Committee may permit
a Participant to satisfy all or part of his or her withholding or income tax
obligations by having the Company withhold all or a portion of any Shares
that otherwise would be issued to him or her or by surrendering all or a
portion of any Shares that he or she previously acquired. Such Shares shall
be valued at their Fair Market Value on the date when taxes otherwise would
be withheld in cash. Any payment of taxes by assigning Shares to the Company
may be subject to restrictions, including any restrictions required by rules
of the Securities and Exchange Commission.
(c) Pooling. If any Option, or any provision of any Option, granted under
the Plan would prevent a transaction from being account for as a pooling of
interests (in the opinion of the Company's accountants), the Option, or the
provision shall be void. No consent shall be required to void the Option or
the provision.
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APPENDIX D
PROPOSED CHARTER AMENDMENTS
EyeSys Technologies, Inc. (the "Corporation") proposes to amend its Restated
Certificate of Incorporation (the "EyeSys Certificate") as follows (proposed
additions to the text of the current EyeSys Certificate appear in bold-type):
(1) EyeSys Merger Proposal 1 is to amend Section 4.2.4(b)(ii) of the EyeSys
Certificate so that Section 4.2.4(b) will read in its entirety as follows:
Mergers. A merger, reorganization, or sale of all or substantially all of
the assets of this Corporation in which the stockholders of this Corporation
immediately prior to the transaction possess less than 50% of the voting
power of the surviving entity (or its parent) immediately after the
transaction shall be deemed to be a Liquidation within the meaning of this
Section II of Article FOURTH. Any securities to be delivered to the holders
of the Series A Preferred Stock and Common Stock upon merger, reorganization
or sale of substantially all the assets of the Corporation shall be valued
for purposes of this Section 4.2.4 as follows:
(i) if traded on a securities exchange, the value shall be deemed to be
the average of the closing prices of the securities on such exchange over
the 30-day period ending three (3) business days prior to the closing;
(ii) if actively traded over-the-counter, the value shall be deemed to
be the average of the closing bid prices over the 30-day period ending
three (3) business days prior to the closing; PROVIDED, HOWEVER, IN THE
CASE OF THE COMMON STOCK OF SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
("SUNRISE STOCK") TO BE DELIVERED TO THE HOLDERS OF SERIES A PREFERRED
STOCK UNDER THE AGREEMENT AND PLAN OF MERGER DATED AS OF DECEMBER 27,
1996, BY AND AMONG SUNRISE TECHNOLOGIES INTERNATIONAL, INC., SUNRISE
ACQUISITION, INC. AND EYESYS TECHNOLOGIES, INC. (THE "SUNRISE MERGER
AGREEMENT"), THE SUNRISE STOCK SHALL BE VALUED AT THE GREATER OF $1.25 PER
SHARE AND THE AVERAGE OF THE CLOSING BID PRICES, AS REPORTED ON THE OTC
BULLETIN BOARD, OVER THE FIVE-DAY PERIOD ENDING THREE BUSINESS DAYS PRIOR
TO THE CLOSING OF THE SUNRISE MERGER AGREEMENT (THE "OTC CURRENT MARKET
VALUE"); and
(iii) if there is no active public market, the value shall be the fair
market value thereof as determined in good faith by the Board of Directors
of the Corporation.
(2) EyeSys Merger Proposal 2 is to amend Section 4.3.4(c) of the EyeSys
Certificate to read in its entirety as follows:
(c) EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION 4.3.4(C), if any of the
assets of the Corporation are to be distributed other than in cash under this
Section 4.3.4 or for any other purpose, then the Board of Directors of the
Corporation shall promptly engage independent competent appraisers to
determine the value of the assets to be distributed to the holders of Series
A Preferred Stock, Series B Preferred Stock or Common Stock. The Corporation
shall, upon receipt of such appraiser's valuation, give prompt written notice
to each holder of shares of Series B Preferred Stock of the appraiser's
valuation. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE
VALUE OF THE SUNRISE STOCK TO BE DELIVERED TO HOLDERS OF SERIES B PREFERRED
STOCK UNDER THE SUNRISE MERGER AGREEMENT SHALL BE THE GREATER OF $1.25 PER
SHARE AND THE OTC CURRENT MARKET VALUE OF THE SUNRISE STOCK.
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APPENDIX E
[LETTERHEAD OF COWEN & COMPANY]
December 27, 1996
Board of Directors
EyeSys Technologies, Inc.
2776 Bingle Road
Houston, TX 77055
Gentlemen:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the holders of the outstanding shares of common
stock, par value $0.001 per share ("EyeSys Common Stock"), Series A Preferred
Stock and Series B Preferred Stock (collectively, "EyeSys Stock") of EyeSys
Technologies, Inc. ("EyeSys" or the "Company"), of the terms of the Merger (as
hereinafter defined) with Sunrise Technologies International, Inc. ("Sunrise").
For the purposes of this opinion, the "Merger" means the transaction described
below pursuant to that certain Agreement and Plan of Merger among the Company,
Sunrise and Sunrise Acquisition, Inc. ("SAI") dated December 27, 1996 (the
"Merger Agreement").
As more specifically set forth in the Merger Agreement, and subject to certain
terms and conditions thereof, the Merger contemplates that SAI shall be merged
with and into EyeSys pursuant to the Merger Agreement, at the Effective Time (as
defined in the Merger Agreement). At the Effective Time, Sunrise will exchange
12,186,479 shares of common stock of Sunrise for the issued and outstanding
shares of EyeSys Stock, vested options and warrant to purchase EyeSys Common
Stock, warrants to purchase Series B Preferred Stock and convertible
subordinated notes due 1997.
Consummation of the Merger on the foregoing terms will be subject to the
approval of the respective stockholders of the Company and Sunrise.
In the ordinary course of its services, Cowen & Company ("Cowen") is regularly
engaged in the valuation and pricing of businesses and their securities and in
advising corporate securities issuers on related matters.
In arriving at our opinion, Cowen has, among other things:
(1) reviewed the Merger Agreement;
(2) held meetings and discussions with representatives of the management
of EyeSys and Sunrise to discuss the business operations, historical
financial results and future prospects of EyeSys, Sunrise and the combined
company;
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(3) reviewed certain information, furnished to us by EyeSys, of a business
and financial nature regarding EyeSys;
(4) discussed with the Company's management EyeSys' competitive position,
current and anticipated future conditions in the ophthalmic instrument
industry and the potential strategic synergies of a combination with Sunrise;
(5) considered the financial terms, to the extent publicly available, of
selected recent business transactions deemed to be similar in whole or in
part to the Merger;
(6) compared EyeSys from a financial point of view, with certain other
similar companies which we deemed relevant;
(7) performed a discounted future net income valuation analysis of the
Company based on projections provided by the Company's management;
(8) reviewed certain publicly available filings of Sunrise with the
Securities and Exchange Commission, including consolidated financial
statements for the fiscal years ended December 31, 1993, 1994, and 1995 and
the fiscal quarter ended September 30, 1996;
(9) reviewed historical market prices and trading volumes of Sunrise
Common Stock from December 1, 1995 to December 19, 1996, and compared those
trading histories with other companies deemed relevant;
(10) analyzed pro forma ownership in the combined company by EyeSys'
current shareholders;
(11) at the request of the EyeSys Board, solicited third party indications
of interest in acquiring all or substantially all of the stock or assets of
EyeSys; and
(12) reviewed other publicly available information and conducted such
other studies, analyses, inquiries and investigations as it deemed
appropriate.
On December 23, 1996, the closing price of common stock of Sunrise, in the last
transaction reported by the electronic bulletin board established for securities
that do not meet the Nasdaq listing requirements, was $0.875 per share.
In rendering our opinion, we relied upon the Company's management with respect
to the accuracy and completeness of the financial and other information
furnished to us as described above. Cowen was not provided with detailed
financial projections for Sunrise. We have not assumed any responsibility for
independent verification of such information, including financial information,
nor have we made an independent evaluation or appraisal of any of the properties
or assets of the Company or Sunrise.
We have acted as financial advisor to the Board of Directors of the Company in
connection with the transaction contemplated by the Agreement and will receive a
fee for our services. Such fee is contingent upon the closing of the Merger.
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On the basis of our review and analysis, as described above, it is our opinion
as investment bankers that, as of the date hereof, the financial terms of the
Merger are fair, from a financial point of view, to the holders of the
outstanding shares of common stock, par value $0.001 per share, Series A
Preferred Stock and Series B Preferred Stock of EyeSys Technologies, Inc.
Very truly yours,
/s/ Cowen & Company
Cowen & Company
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PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
SUNRISE
Section 102(b)(7) of the General Corporation Law of the State of Delaware
("Delaware Law") grants corporations the right to limit or eliminate the
personal liability of their directors in certain circumstances in accordance
with provisions therein set forth. Sunrise's Certification of Incorporation
contains a provision eliminating director liability to Sunrise and its
stockholders for monetary damages for breach of fiduciary duty as a director.
The provision does not, however, eliminate or limit the personal liability of a
director (i) for any breach of such director's duty of loyalty to Sunrise 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 the Delaware
statutory provision making directors personally liable, for improper payment of
dividends or improper stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision offers persons who serve on the Board of Directors of Sunrise
protection against awards of monetary damages resulting from breaches of their
duty of care (except as indicated above). As a result of this provision, the
ability of Sunrise or a stockholder thereof to successfully prosecute an action
against a director for a breach of his duty of care is limited. However, the
provision does not affect the availability of equitable remedies such as an
injunction or rescission based upon a director's breach of his duty of care. The
Commission has taken the position that the provision will have no effect on
claims arising under federal securities laws.
Section 145 of the Delaware Law grants corporations the right to indemnify
their directors, officers, employees and agents in accordance with the
provisions therein set forth. Sunrise's Bylaws provide that the corporation
shall, subject to limited exceptions, indemnify its directors and executive
officers to the fullest extent not prohibited by the Delaware Law. Sunrise's
Bylaws provide further that the corporation shall have the power to indemnify
its other officers, employees and other agents as set forth in the Delaware Law.
Such indemnification rights include reimbursement for expenses incurred by such
director, executive officer, other officer, employee, or agent in advance of the
final disposition of such proceeding in accordance with the applicable
provisions of the Delaware Law.
Sunrise has entered into agreements with each of its directors and officers
pursuant to which Sunrise has agreed to indemnify such directors and officers to
the fullest extent permitted under applicable law. [In addition, Sunrise has
purchased insurance containing customary terms and conditions as permitted by
law on behalf of its directors and officers, which may cover liabilities under
the Securities Act of 1933.]
EYESYS
Section 102(b)(7) of the Delaware Law grants corporations the right to limit
or eliminate the personal liability of their directors in certain circumstances
in accordance with provisions therein set forth. EyeSys' Restated Certificate of
Incorporation contains a provision eliminating director liability to EyeSys and
its stockholders for monetary damages for breach of fiduciary duty as a
director. The provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty to
EyeSys 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
the Delaware statutory provision making directors personally liable for improper
payment of dividends or improper stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision offers persons who serve on the Board of Directors of EyeSys
protection against awards of monetary damages resulting from breaches of their
fiduciary duty (except as indicated above). As a result of this provision, the
ability of EyeSys or a stockholder thereof to successfully prosecute an action
against a director for a breach of the director's fiduciary duty is limited.
However, the provision does not affect the availability of equitable remedies
such as an injunction or rescission based upon a breach of a director's
fiduciary duty. The SEC has taken the position that the provision will have no
effect on claims arising under federal securities laws.
Section 145 of the Delaware Law grants corporations the right to indemnify
their directors, officers, employees and agents in accordance with the
provisions therein set forth. The EyeSys Restated Certificate
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of Incorporation provides that each director or officer shall be indemnified by
EyeSys in accordance with, and to the fullest extent authorized by, the Delaware
Law. The EyeSys By-laws provide that such indemnification rights include
reimbursement for expenses incurred by such director, officer, employee, or
agent in advance of the final disposition of such proceeding in accordance with
the applicable provisions of the Delaware Law. In addition, EyeSys has purchased
insurance containing customary terms and conditions as permitted by law on
behalf of its directors and officers, which may cover liabilities under the
Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT DESCRIPTION
------- -----------
2 AGREEMENT AND PLAN OF MERGER, BY AND AMONG SUNRISE TECHNOLOGIES
INTERNATIONAL, INC., SUNRISE ACQUISITION, INC. AND EYESYS
TECHNOLOGIES, INC., DATED AS OF DECEMBER 27, 1996*
3 CHARTER DOCUMENTS
3.1 Certificate of Incorporation of Sunrise, as amended(1)
3.2 Bylaws of Sunrise(1)
5 OPINION OF THELEN, MARRIN, JOHNSON & BRIDGES LLP AS TO THE
LEGALITY OF THE MERGER SHARES BEING REGISTERED*
8 OPINION OF THELEN, MARRIN, JOHNSON & BRIDGES LLP AS TO CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER*
10 MATERIAL CONTRACTS
10.1 Lease Agreement with Bayside Spinnaker Partners III, as lessor,
for the lease of facilities at 47257 Fremont Boulevard, Fremont,
California, dated July 16, 1991(2)
10.2 Patent License Agreement between Sunrise and Patlex Corporation
dated January 1, 1990(3)
10.3 Agreement between Sunrise and the University of Miami,
Department of Ophthalmology, dated October 28, 1991(2)
10.4 Joint Development and Exclusive Manufacturing Agreement dated
April 17, 1993 between Sunrise and Danvill Engineering, Inc.(1)
10.5 Settlement Agreement between Sunrise and American Dental Laser,
Inc., dated February 4, 1993 (confidential treatment has
previously been granted for portions of this exhibit)(4)
10.6 License Agreement between Sunrise and American Dental Laser,
Inc., dated February 4, 1993 (confidential treatment has
previously been granted for portions of this exhibit)(4)
10.7 Settlement Agreement between Sunrise and American Dental
Technologies, dated July 30, 1996
10.8 Form of Indemnification Agreement between Sunrise and each of
its officers and directors(3)
10.10 1988 Stock Option Plan, as amended(5)
10.11 1996 Stock Option Plan (incorporated by reference to Appendix C
to the Joint Proxy Statement/Prospectus included in this
registration statement).
10.12 Employment Agreement entered into between Sunrise and Joseph W.
Shaffer, dated April 5, 1989(5)
10.16 Common Stock and Warrant Purchase Agreement between Sunrise and
each of the signatories thereto, dated August 28, 1992(4)
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EXHIBIT DESCRIPTION
------- -----------
10.17 Form of Consent to the Amendment of the Common Stock and Warrant
Purchase Agreement(4)
10.18 Registration Rights Agreement between Sunrise and the Purchasers
under the Common Stock and Warrant Purchase Agreement, dated
August 28, 1992(4)
10.19 Form of 1992 Private Placement Warrant(4)
10.20 Form of Warrant issued to Pennsylvania Merchant Group to
purchase an aggregate of 25,000 shares of Sunrise Stock(4)
11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
11.1 Statement re Computation of Per Share Loss for Sunrise
Technologies International, Inc.
21 SUBSIDIARIES OF SUNRISE
23 CONSENTS
23.1 Consents of Thelen, Marrin, Johnson & Bridges LLP (included in
the opinions filed as Exhibits 5 and 8)*
23.2 Consent of Ernst & Young LLP
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Cowen & Company
99 OPINION OF COWEN & COMPANY (incorporated by reference to
Appendix E to the Joint Proxy Statement/Prospectus included in
this registration statement)
- ------------
* To be filed by amendment.
(1) Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 0-17816).
(2) Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1991 (File No. 0-17816).
(3) Incorporated by reference to the registrant's Registration Statement on
Form S-1, as amended (File No. 33-36768).
(4) Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1992 (File No. 9-17816).
(5) Incorporated by reference to the registrant's Registration Statement on
Form S-18, as amended (File No. 33-27029-LA).
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts (see page F-20),
Schedules not listed above have been omitted from this registration
statement because the information required to be set forth therein is not
applicable or is shown in the Consolidated Financial Statements or Notes
thereto.
(c) Opinion of Financial Advisor
The opinion of Cowen & Company delivered to the board of directors of
EyeSys is summarized in the Joint Proxy Statement/Prospectus and is attached
thereto as Appendix E.
ITEM 22. UNDERTAKINGS
PURSUANT TO ITEM 512(G) OF REGULATION S-K
(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration
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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) The registrant undertakes 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 a 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.
PURSUANT TO ITEM 512(H) OF REGULATION S-K
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
PURSUANT TO ITEM 22(B) OF FORM S-4
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.
PURSUANT TO ITEM 22(C) OF FORM S-4
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.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fremont, state of
California, on December 30, 1996.
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ David W. Light
---------------------------------------
Name: David W. Light
Title: Chairman of the Board and Chief
Executive Officer
POWERS OF ATTORNEY
Each person whose signature appears below hereby appoints David W. Light and
C. Russell Trenary, III, and each of them severally, acting alone and without
the other, his true and lawful attorney-in-fact with authority to execute in the
name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including without limitation post-effective amendments)
to this registration statement, and to sign any registration statement for the
same offering covered by this registration statement that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act, necessary or
advisable to enable the Registrant to comply with the Securities Act and any
rules, regulations and requirements of the Securities and Exchange Commission in
respect thereof, which amendments may make such changes in this registration
statement as the aforesaid attorney-in-fact deems appropriate.
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.
December 30, 1996 /s/ David W. Light
- ----------------- ---------------------------------------------------------
Date David W. Light
Chairman of the Board and Chief Executive Officer and
Director (Principal Executive Officer, Principal
Financial Officer and Principal Accounting Officer)
December 30, 1996 /s/ C. Russell Trenary, III
- ----------------- ---------------------------------------------------------
Date C. Russell Trenary, III
Director
December 30, 1996 /s/ Joseph W. Shaffer
- ----------------- ---------------------------------------------------------
Date Joseph W. Shaffer
Director
December 30, 1996 /s/ Joseph D. Koenig
- ----------------- ---------------------------------------------------------
Date Joseph D. Koenig
Director
December 30, 1996 /s/ Ronald A. Slocum
- ----------------- ---------------------------------------------------------
Date Ronald A. Slocum
Director
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
2 AGREEMENT AND PLAN OF MERGER, BY AND AMONG SUNRISE TECHNOLOGIES
INTERNATIONAL, INC., SUNRISE ACQUISITION, INC. AND EYESYS
TECHNOLOGIES, INC., DATED AS OF DECEMBER 27, 1996*
3 CHARTER DOCUMENTS
3.1 Certificate of Incorporation of Sunrise, as amended(1)
3.2 Bylaws of Sunrise(1)
5 OPINION OF THELEN, MARRIN, JOHNSON & BRIDGES LLP AS TO THE
LEGALITY OF THE MERGER SHARES BEING REGISTERED*
8 OPINION OF THELEN, MARRIN, JOHNSON & BRIDGES LLP AS TO CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER*
10 MATERIAL CONTRACTS
10.1 Lease Agreement with Bayside Spinnaker Partners III, as lessor,
for the lease of facilities at 47257 Fremont Boulevard, Fremont,
California, dated July 16, 1991(2)
10.2 Patent License Agreement between Sunrise and Patlex Corporation
dated January 1, 1990(3)
10.3 Agreement between Sunrise and the University of Miami,
Department of Ophthalmology, dated October 28, 1991(2)
10.4 Joint Development and Exclusive Manufacturing Agreement dated
April 17, 1993 between Sunrise and Danvill Engineering, Inc.(1)
10.5 Settlement Agreement between Sunrise and American Dental Laser,
Inc., dated February 4, 1993 (confidential treatment has
previously been granted for portions of this exhibit)(4)
10.6 License Agreement between Sunrise and American Dental Laser,
Inc., dated February 4, 1993 (confidential treatment has
previously been granted for portions of this exhibit)(4)
10.7 Settlement Agreement between Sunrise and American Dental
Technologies, dated July 30, 1996
10.8 Form of Indemnification Agreement between Sunrise and each of
its officers and directors(3)
10.10 1988 Stock Option Plan, as amended(5)
10.11 1996 Stock Option Plan (incorporated by reference to Appendix C
to the Joint Proxy Statement/Prospectus included in this
registration statement).
10.12 Employment Agreement entered into between Sunrise and Joseph W.
Shaffer, dated April 5, 1989(5)
10.16 Common Stock and Warrant Purchase Agreement between Sunrise and
each of the signatories thereto, dated August 28, 1992(4)
10.17 Form of Consent to the Amendment of the Common Stock and Warrant
Purchase Agreement(4)
10.18 Registration Rights Agreement between Sunrise and the Purchasers
under the Common Stock and Warrant Purchase Agreement, dated
August 28, 1992(4)
10.19 Form of 1992 Private Placement Warrant(4)
10.20 Form of Warrant issued to Pennsylvania Merchant Group to
purchase an aggregate of 25,000 shares of Sunrise Stock(4)
11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
11.1 Statement re Computation of Per Share Loss for Sunrise
Technologies International, Inc.
<PAGE>
EXHIBIT DESCRIPTION
------- -----------
21 SUBSIDIARIES OF SUNRISE
23 CONSENTS
23.1 Consents of Thelen, Marrin, Johnson & Bridges LLP (included in
the opinions filed as Exhibits 5 and 8)*
23.2 Consent of Ernst & Young LLP
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Cowen & Company
99 OPINION OF COWEN & COMPANY (incorporated by reference to
Appendix E to the Joint Proxy Statement/Prospectus included in
this registration statement)
- ------------
* To be filed by amendment.
(1) Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 0-17816).
(2) Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1991 (File No. 0-17816).
(3) Incorporated by reference to the registrant's Registration Statement on
Form S-1, as amended (File No. 33-36768).
(4) Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1992 (File No. 9-17816).
(5) Incorporated by reference to the registrant's Registration Statement on
Form S-18, as amended (File No. 33-27029-LA).
Exhibit 10.7
SETTLEMENT AGREEMENT
THIS AGREEMENT is made effective this 30th day of July, 1996, by and
between American Dental Technologies (hereinafter, "ADT"), a Delaware
corporation, having offices at 28411 Northwestern Highway, Suite 1100,
Southfield, Michigan 48034-5541, and Sunrise Technologies International, Inc.
(hereinafter, "SUNRISE"), a Delaware corporation, having offices at 47257
Fremont Boulevard, Fremont, California.
WITNESSETH:
WHEREAS, ADT and SUNRISE are presently engaged in the following
litigation:
(a) Appellate Action No. A072262, entitled "Sunrise
Technologies International, Inc., Plaintiff/Cross-Defendant and Respondent v.
American Dental Technologies, Inc., f/k/a American Dental Laser, Inc.,
Defendant/Cross-Claimant and Appellant," now pending in the Court of Appeal of
the State of California, First Appellate District, Division Four, as appealed
from the lower court Civil Action No. H-172132-2, entitled, "Sunrise
Technologies International, Inc. et al. v. American Dental Technologies," which
was litigated in the Superior Court for the County of Alameda - Southern
Division (collectively hereinafter, "State Court Action"); and
(b) Civil Action No. C94-1512 (EFL), entitled "Sunrise
Technologies International, Inc. and Danville Manufacturing v. American Dental
Technologies, Inc.," now pending in the United States District Court for the
Northern District of California, Civil Action No. C94-1513 (EFL), entitled,
"Sunrise Technologies International, Inc. and Danville Manufacturing v. American
Dental Technologies, Inc.," now pending in the United States District Court for
the Northern District of California; and Civil Action No. C95-2048-EFL, entitled
"American Dental Technologies, Inc. v. Sunrise Technologies International, Inc.
et al." (collectively hereinafter, "Federal Court Actions");
WHEREAS, a judgment was entered against ADT in the lower court
proceedings of the State Court Action in the sum of $940,178.00, plus taxable
costs and interest, ADT having posted a cash deposit with the state court
pending an appeal in the State Court Action in the sum of $1,410,267.00;
WHEREAS, ADT and SUNRISE desire to settle and terminate the foregoing
litigation and as part of such settlement SUNRISE desires to obtain certain
patent licenses from ADT;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, ADT and SUNRISE agree as follows:
State Court Action
1. SUNRISE shall relinquish and forgive the judgment in the State Court
Action in its full amount of $940,178.00, plus costs, interest and attorney
fees. SUNRISE shall release ADT, its officers, agents, affiliates, and attorneys
from any and all claims and counterclaims arising prior
<PAGE>
to the effective date of this Agreement which were made or which could have been
made arising out of the subject matter of the State Court Action, including all
such claims for damages, costs, interest and attorney fees. SUNRISE will execute
all documents necessary to dismiss the State Court Action with prejudice and to
release the full amount of the cash deposit (plus interest) posted on appeal by
ADT immediately upon execution of this Agreement, each party to bear its own
costs and attorney fees. SUNRISE represents and warrants that it has made no
assignment or hypothecation of any judgment or claims, including but not limited
to claims for attorney fees, arising out of the State Court Action to any
creditor, attorney or other third party and agrees to indemnify and hold ADT
harmless from any such third party claim. As used in this Agreement,
"affiliates" shall mean any corporation of which fifty percent (51%) or more of
the voting stock is owned or controlled by a party to this Agreement.
2. ADT shall release SUNRISE, its officers, agents, affiliates and
attorneys from any and all claims and counterclaims arising prior to the
effective date of this Agreement which were made or which could have been made
arising out of the subject matter of the State Court Action, including all such
claims for damages, costs, interest and attorney fees. ADT will execute all
documents necessary to dismiss the State Court Action with prejudice immediately
upon execution of this Agreement, each party to bear its own costs and attorney
fees. ADT represents and warrants that it has made no assignment or
hypothecation of any claims, including but not limited to claims for attorney
fees, arising out of the State Court Action to any creditor, attorney or other
third party and agrees to indemnify and hold SUNRISE harmless from any such
third party claim.
Federal Court Actions
3. ADT shall release SUNRISE, its officers, agents, affiliates and
attorneys from any and all claims and counterclaims arising prior to the
effective date of this Agreement which were made or which could have been made
arising out of the subject matter of the Federal Court Actions, including all
such claims for damages, costs, interest and attorney fees. ADT further releases
SUNRISE with respect to SUNRISE's past Senior model and current MicroPrep
Associate and Director models, as described and identified in the depositions of
Mark Fernwood and Joseph Shaffer in the Federal Court Actions, from any and all
claims of infringement under patents issuing on any pending or presently
contemplated patent applications owned or controlled by ADT which relate to air
abrasive equipment or apparatus, other than such patents or applications
covering air abrasive dental systems or methods of treatment as otherwise
provided herein. ADT will execute all documents necessary to dismiss SUNRISE
from the Federal Court Actions with prejudice immediately upon execution of this
Agreement, each party to bear its own costs and attorney fees. In no event,
however, shall this paragraph 3 be interpreted to constitute a release of any
liability or damages, directly or indirectly, arising out of ADT's claims
against Danville Manufacturing or a dismissal of any of the claims in the
Federal Court Actions against Danville Manufacturing. Notwithstanding, upon
execution of this Agreement, ADT will offer to dismiss without prejudice all
pending litigation by ADT against Danville Manufacturing in return for a
dismissal without prejudice by Danville Manufacturing of all pending litigation
by Danville Manufacturing against ADT, each party to bear its own costs and
attorneys fees. ADT represents and warrants that it has made no assignment or
hypothecation of any claims, including but not limited to claims for attorney
fees, arising out of the Federal Court Actions to any creditor,
2
<PAGE>
attorney or other third party and agrees to indemnify and hold SUNRISE harmless
from any such third party claim.
4. SUNRISE shall release ADT, its officers, agents, affiliates and
attorneys from any and all claims and counterclaims arising prior to the
effective date of this Agreement which were made or which could have been made
arising out of the subject matter of the Federal Court Actions, including all
such claims for declaratory judgment, damages, costs, interest and attorney
fees. SUNRISE will execute all documents necessary to dismiss its claims in the
Federal Court Actions against ADT with prejudice immediately upon execution of
this Agreement, each party to bear its own costs and attorneys fees. SUNRISE
represents and warrants that it has made no assignment or hypothecation of any
claims, including but not limited to claims for attorney fees, arising out of
the State Court Action to any creditor, attorney or third party and agrees to
indemnify and hold ADT harmless from any such third party claim.
5. The dismissals submitted to the Court pursuant to paragraphs 3 and 4
of this Agreement shall include (i) a stipulation by SUNRISE that the patents
asserted in Civil Action No. C95-2048 (EFL), to wit, U.S. Patent No. 5,330,354,
U.S. Patent No. 5,350,299 and U.S. Patent No. 5,525,058 and the patent asserted
in Civil Action No. C94-1513 (ELF), to wit, U.S. Patent No. 5,275,561, are
acknowledged by SUNRISE to be valid; (ii) an order commensurate in scope with
the stipulation of section (i) of this paragraph 5; (iii) a stipulation by ADT
that the patents asserted in Civil Action No. C94-1512 (EFL), to wit, U.S.
Patent No. 4,893,440, U.S. Patent No. 4,733,503, U.S. Patent No. 4,708,534 and
U.S. Patent No. 4,635,897, and any non-dental air abrasive patents or patent
applications presently owned by ADT are not infringed by SUNRISE's past Senior
model and current MicroPrep Associate and Director models as described and
identified in the depositions of Mark Fernwood and Joseph Shaffer in the Federal
Court Actions; and (iv) an order commensurate in scope with the stipulation of
section (iii) of this paragraph 5.
Patent License
6. ADT hereby grants to SUNRISE a nonexclusive license under U.S.
Patent No. 5,275,561, U.S. Patent No. 5,330,354, U.S. Patent No. 5,350,299 and
U.S. Patent No. 5,525,058, and any foreign counterparts, reexaminations,
reissues, continuations or continuations-in-part based on the disclosures of the
patents of this paragraph 6, for the life of such patents, to make, use, lease
and sell SUNRISE's current MicroPrep Associate and Director models as described
and identified in the depositions of Mark Fernwood and Joseph Shaffer in the
Federal Court Actions, and future models to the extent such future models do not
infringe any non-dental patents or patent applications (for example, on helical
powder feed mechanisms) of ADT, throughout the world, but excluding those
territories (Japan, China, including Hong Kong, Taiwan, North Korea, South
Korea, India, Pakistan, Australia, New Zealand, Singapore, Thailand, Malaysia
and Indonesia) presently covered by agreements between ADT and Denics Co., Ltd.,
a/k/a Dental Innovative Corporation, a Japanese corporation. The license granted
in this paragraph 6 is non-transferable by assignment, sublicense or other means
of transfer except as provided in paragraphs 7 and 8 of this Agreement,
provided, further, that the period in which SUNRISE is licensed under this
Agreement, SUNRISE shall have the right to have the products of this paragraph 6
manufactured by a third party solely for SUNRISE. The license granted in
3
<PAGE>
this paragraph 6 is subject to the payments provided in paragraph 9 of this
Agreement. ADT represents and warrants that other than the patents licensed in
this paragraph 6, ADT does not presently own or hold licensable rights in any
other patents or patent applications covering the products of this paragraph 6.
7. The license granted in paragraph 6 of this Agreement is
non-transferable for a period of eighteen (18) months from the effective date of
this Agreement and SUNRISE shall make no such transfer or promise to transfer
within such eighteen (18) month period, except as provided in paragraph 8 of
this Agreement. After the expiration of such eighteen (18) month period, SUNRISE
shall have the right to transfer the license of paragraph 6 of this Agreement
upon the following terms and conditions: the transferee shall assume all
obligations of SUNRISE under this Agreement, including the obligation to make
the payments required by paragraph 9 of this Agreement; provided, however, that
no such transfer of the license after such eighteen (18) month period has
expired, but before the expiration of twenty-four (24) months after the
effective date of this Agreement, shall be made conditioned on the subsequent
sale or transfer of all of SUNRISE's dental air abrasive products business.
8. SUNRISE may at any time transfer the license of paragraph 6 of this
Agreement if such transfer is made with the transfer of all of SUNRISE's dental
air abrasive products business (for the purposes of this Agreement, the phrase
"transfer of all of SUNRISE's dental air abrasive products business" shall mean
any such transfer by asset sale or exchange or by stock transfer or exchange,
and shall further include any merger by or into, or consolidation with,
SUNRISE); provided, however, that, if such transfer occurs within two (2) years
of the effective date of this Agreement, then SUNRISE shall pay to ADT, in cash,
a transfer fee equal to ten percent (10%) of the gross consideration for the
transfer of the license and the dental air abrasive products business received
by SUNRISE, regardless of the form of the consideration (provided that, in the
event of a merger, such gross consideration shall be based on the fair market
value of the shares thereupon issued by SUNRISE or thereupon issued to SUNRISE
and/or its shareholders) and the transferee or surviving entity shall assume all
obligations of SUNRISE under this Agreement, including the obligation to make
the payments required by paragraph 9 of this Agreement. In the event such
transfer of all of SUNRISE's dental air abrasive products business shall occur
more than two (2) years after the effective date of this Agreement, then
SUNRISE's only obligation upon transfer shall be to require such transferee or
continuing entity to assume all obligations of SUNRISE under this Agreement,
including the obligation to make the payments required by paragraph 9 of this
Agreement.
Payments
9. Beginning on January 1, 1997, SUNRISE, or its permitted successor or
assignee, shall pay to ADT the sum of seven percent (7%) on the net sales price
(defined as gross sales price less freight, duties and taxes) on all air
abrasive products manufactured, sold or leased by SUNRISE, or its permitted
successor or assignee, which are manufactured (by or on behalf of SUNRISE), sold
or leased in a county in which ADT, presently or in the future, owns or controls
patents or patent applications on any dental air abrasive products or methods of
treatment, until the expiration of all such patents/patent applications. In the
event that SUNRISE, or its permitted successor or assignee, manufactures or has
manufactured on its behalf, and sells or leases (i.e.,
4
<PAGE>
manufactures and sells or manufactures and leases), air abrasive products wholly
within a country where ADT holds no such patents or patent applications or where
all such patents have expired, then no such payments shall be required. The
payments required under this paragraph 9 of this Agreement shall accrue when the
subject products are delivered, invoiced or paid for, whichever occurs first.
All payments shall be made in U.S. dollars. In no event shall a payment by
SUNRISE under this paragraph 9 be required for products that are both made and
sold prior to January 1, 1997.
10. SUNRISE, and any permitted successor or assignee, shall (i) make
the payments required in paragraph 9 of this Agreement on February 15th, May
15th, June 15th and November 15th for the preceding accounting quarter, with the
first payment to be made on May 15, 1997. SUNRISE shall keep accurate books and
records reflecting transactions made under this Agreement and shall make reports
at the time of such payments fully supporting the calculation of payments made,
including the number of units sold or leased and the sales price used to
determine payments. ADT shall have the right to inspect such books and records
through an independent certified accountant, not to exceed one such audit per
year.
Termination
11. ADT may terminate the license granted by paragraph 6 of this
Agreement only in the event of a material breach of this Agreement by SUNRISE,
and then only if, upon receiving notice of such breach SUNRISE fails to cure
such breach within thirty (30) days of such notice; such right of termination
shall not be in lieu of other remedies such as specific performance.
Patent Marking
12. SUNRISE shall apply statutory notice to its MicroPrep air abrasive
units sold in the United States substantially as follows: "This unit and its use
is protected by one or more of the following U.S. Patents: 5,275,561, 5,330,354,
5,350,299 and 5,525,058."
Notice
13. All notices required to be given under this Agreement shall be
given in writing and shall be sent by regular mail, postage prepaid, certified
mail or by recognized overnight express mail service to the parties at the
addresses below.
If to ADT, to:
Anthony D. Fiorillo
President and Chief Executive Officer
American Dental Technologies, Inc.
28411 Northwestern Highway, Suite 1100
Southfield, Michigan 48034-5541
Tel.: (810) 353-5300
Fax: (810) 353-0663
5
<PAGE>
With a copy to:
Dykema Gossett PLLC
1577 North Woodward Avenue, Suite 300
Bloomfield Hills, Michigan 48304
Attention: Robert L. Kelly, Esq.
Tel.: (810) 540-0849
Fax: (810) 540-0763
If to SUNRISE, to:
David W. Light
President and Chief Executive Officer
Sunrise Technologies International
47257 Fremont Boulevard
Fremont, California
Tel.:
Fax:
With a copy to:
Daniel Johnson, Esq.
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square, 4th Floor
Palo Alto, California 94306
Tel.: (415) 843-5000
Fax: (415) 857-0663
14. A notice sent pursuant to paragraph 13 of this Agreement shall be
deemed given on the date it is mailed, unless the intended recipient can
establish that such notice was not timely received.
Jurisdiction
15. The Court in the Federal Court Actions shall retain jurisdiction of
the parties and this Agreement for purposes of resolving any dispute which may
arise hereunder.
Governing Law
16. This Agreement is made in the County of Oakland, State of Michigan,
and shall be governed by the laws of the State of Michigan without regard to its
conflict of laws principles.
Warranties
17. Both parties represent that their undersigned representatives have
the full power and authority to enter into this Agreement. ADT represents and
warrants that it has the right and power to grant the license of paragraph 6 of
this Agreement, but makes no other warranties whatsoever regarding the patents
so licensed.
6
<PAGE>
Relationship of Parties
18. This Agreement is not intended by the parties to, and shall not,
constitute or create a joint venture, partnership or other business organization
and neither party shall be nor shall act as an agent of the other party. Neither
party shall use the other party's name in any marketing efforts.
Severabilitv
19. The invalidity of any provision of this Agreement shall not affect
the validity of any other provision of this Agreement.
Complete Agreement
20. This Agreement constitutes the entire agreement of the parties
regarding this subject matter and supercedes any and all prior or
contemporaneous oral or written agreements, understandings, negotiations or
discussions among the parties regarding this subject matter. Any amendments or
other modifications to this Agreement must be made in writing and must be duly
executed by an authorized representative or agent of each party.
Counterparts
21. This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original, and all such counterparts shall
constitute but one instrument.
Permitted Successors and Assigns
22. This Agreement, and all provisions herein, shall bind the parties
and their permitted successors and permitted assigns.
The parties have executed this Agreement as effective the date first
written above by their duly authorized agents.
AMERICAN DENTAL SUNRISE TECHNOLOGIES
TECHNOLOGIES, INC. INTERNATIONAL, INC.
- ------------------------------------ ---------------------------------------
By: Anthony D. Fiorillo By: David W. Light
President and Chief Executive President and Chief Executive
Officer Officer
Date: __________________________ Date:________________________________
Exhibit 11
Statement Regarding Computation of Per Share Loss
Weighted average shares:
Years Ended December 31,
------------------------------------
1995 1994 1993
Primary:
Common stock 14,935,468 10,129,283 8,955,292
Warrants and stock options -- -- --
---------- ---------- ---------
Weighted average common and common
equivalent shares outstanding 14,935,468 10,129,283 8,955,292
---------- ---------- ---------
equivalent shares outstanding
Fully Diluted:
- -------------
Common stock 14,935,468 10,129,283 8,955,292
Warrants and stock options -- -- --
---------- ---------- ---------
Weighted average common and common
equivalent shares outstanding 14,935,468 10,129,283 8,955,292
---------- ---------- ---------
Fully diluted earnings per share are not presented on the face of the
Consolidated Statement of Operations since they are not materially different
than primary earnings per share.
Exhibit 21
Subsidiaries of Sunrise Technologies International, Inc.
Laser Biotech, Inc., a California corporation, is the only
subsidiary of the registrant and is wholly owned by the registrant.
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 1, 1996, with respect to the consolidated
financial statements and schedule of Sunrise Technologies International, Inc.
included in the Registration Statement (Form S-4) and related Prospectus of
Sunrise Technologies International, Inc.
ERNST & YOUNG LLP
Palo Alto, California
January 2, 1997
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report, which includes an explanatory paragraph which relates to the Company's
ability to continue as a going concern, dated March 11, 1996, except for Notes 5
and 13, as to which the date is April 26, 1996, on our audits of the financial
statements of EyeSys Technologies, Inc. as of December 31, 1994 and 1995, and
for each of the three years in the period ended December 31, 1995. We also
consent to the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Houston, Texas
January 3, 1997
[Letterhead of Cowen & Company]
Exhibit 23.4
We hereby consent to the inclusion of our opinion dated December 27, 1996, in
the joint proxy statement/prospectus of Sunrise Technologies International, Inc.
and EyeSys Technologies, Inc., which is a part of this Registration Statement on
Form S-4. In executing this consent, we do not admit or acknowledge that Cowen &
Company is within the class of persons whose consent is required by Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations promulgated
thereunder.
Date: December 27, 1996
COWEN & COMPANY
By: /s/ Nancy M. Crowell
-----------------------------
Name: Nancy M. Crowell
Title: Managing Director
