<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
For the quarterly period ended JUNE 30, 1998
-------------
Commission File Number: 000-28278
---------
AUTONOMOUS TECHNOLOGIES CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2554729
- ------------------------------- -----------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2800 DISCOVERY DRIVE, ORLANDO, FLORIDA 32826
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(407) 384-1600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
On July 31, 1998, there were 11,315,991 shares of the registrant's $.01 par
value Common Stock outstanding.
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A Development Stage Company)
Index to Form 10-Q
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets as of June 30, 1998, and December 31, 1997 3
Statements of Operations for the three months ended June 30, 1998 and 1997, for
the six months ended June 30, 1998 and 1997, and for the cumulative period from 4
inception to June 30, 1998
Statements of Cash Flows for the six months ended June 30, 1998 and 1997, and for
the cumulative period from inception to June 30, 1998 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
-----------------------------------
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
------ ------------------- ----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,086,675 $ 109,245
Investments (note 1) - 7,191,827
Inventories (note 1) 3,346,691 2,358,934
Prepaid expenses and other assets 199,020 356,892
--------------------------------------
Total current assets 5,632,386 10,016,898
PROPERTY AND EQUIPMENT, net 1,336,871 1,155,718
LADARVision SYSTEMS-IN-SERVICE, net 378,734 400,584
ADVANCE LICENSING FEES 741,665 747,470
OTHER ASSETS 53,494 95,479
Total assets $ 8,143,150 $ 12,416,149
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable 235,731 743,898
Accrued expenses 960,337 835,324
Current portion of obligation under capital leases 103,776 97,108
--------------------------------------
Total current liabilities 1,299,844 1,676,330
OBLIGATION UNDER CAPITAL LEASES, less current portion 132,535 185,007
OBLIGATION UNDER STRATEGIC ALLIANCE AGREEMENT 150,000 1,575,000
Total liabilities 1,582,379 3,436,337
--------------------------------------
STOCKHOLDERS' EQUITY:
Common stock $.01 par value 25,000,000 and 15,000,000 shares
authorized at June 30, 1998 and December 31, 1997, respectively;
11,311,491 and 9,986,755 shares issued and outstanding at June 30,
1998 and December 31, 1997, respectively
113,115 99,868
Additional paid--in capital 43,328,710 37,787,991
Deficit accumulated during the development stage (36,881,054) (28,908,047)
--------------------------------------
Total stockholders' equity 6,560,771 8,979,812
$ 8,143,150 $ 12,416,149
======================================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
-----------------------------------
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
Cumulative from
Inception (July
23, 1985) to June
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997 30, 1998
------------- ------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
REVENUES FROM LADARVision Systems $ 45,125 $ - $ 104,395 $ - $ 141,460
REVENUES FROM RESEARCH GRANTS - - - - 3,450,517
OPERATING EXPENSES:
Costs of revenues - LADARVision - -
systems 86,021 - 253,069 - 358,961
Costs of revenue - research
grants - - - - 3,465,596
Clinical trials 741,199 853,820 1,395,228 1,443,102 7,265,422
Unabsorbed production costs 828,648 - 1,316,123 - 2,074,924
Research and development 1,038,426 895,249 2,064,049 1,669,298 12,372,364
Selling and marketing 538,373 318,554 1,290,620 614,595 4,745,622
General and administrative 573,092 618,863 1,188,135 1,128,685 7,543,006
Other expenses 440,490 509,982 674,465 1,086,866 3,930,010
-------------------------------------------------------------------------------------------
OPERATING LOSS (4,201,124) (3,196,468) (8,077,294) (5,942,546) (38,163,928)
OTHER INCOME (EXPENSE):
Interest income 43,201 114,417 126,595 271,226 1,414,317
Interest expense (10,695) (9,281) (22,308) (17,852) (126,671)
-------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (4,168,618) (3,091,332) (7,973,007) (5,689,172) (36,876,282)
INCOME TAXES - - - - 4,772
-------------------------------------------------------------------------------------------
NET LOSS $(4,168,618) $(3,091,332) $(7,973,007) $(5,689,172) $(36,881,054)
===========================================================================================
LOSS PER SHARE:
Basic net loss per share $(0.39) $(0.45) $(0.79) $(0.83)
=======================================================================
Weighted average common and common
equivalent shares used in
computing basic net loss per share 10,684,254 6,888,689 10,150,557 6,860,152
=======================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
------------------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------
From Inception (July
23, 1985) to June 30,
June 30, 1998 June 30, 1997 1998
-------------------------------------- ----------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,973,007) $(5,689,172) $(36,881,054)
Adjustments to reconcile net loss to
net cash used in operating activities:
In-kind services provided by
shareholder 288,633 243,066 1,429,792
Compensation expense related to
employee stock options 90,440 133,832 1,175,893
Compensation expense related to
common stock placed in escrow for
future services - 37,567 24,050
Convertible preferred stock issued
for services - - 162,500
Loss on disposal of property and equipment 180,965 - 266,132
Depreciation and amortization 268,508 116,179 962,367
Changes in assets and liabilities:
(Increase) in inventories (987,757) (526,285) (3,346,691)
(Increase) decrease in prepaid expenses
and other assets 199,857 (222,651) (252,514)
(Increase) decrease in advance licensing fees 5,805 - (741,665)
(Decrease) increase in accounts payable (508,167) (532,725) 235,731
Increase in accrued expenses 125,013 623,706 960,337
Increase in obligation under
strategic alliance agreement 300,000 300,000 1,875,000
----------- ----------- ------------
Net cash used in operating activities (8,009,710) (5,516,483) (34,130,122)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (390,276) (402,798) (1,873,526)
Investments in LADARVision Systems-in-Service (218,500) - (655,500)
Decrease in restricted cash investment - 25,283 -
Investments made - (2,261,274) (23,788,250)
Investment proceeds 7,191,827 5,919,580 23,788,250
----------- ----------- ------------
Net cash provided by (used in) investing activities 6,583,051 3,280,791 (2,529,026)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
convertible preferred stock - - 6,002,708
Proceeds from issuance of common
stock, net of issuance costs 2,904,395 3,889,997 28,899,891
Proceeds from exercise of stock options and warrants 545,498 58,186 616,991
Payments of obligations under capital leases (45,804) 6,786 (148,767)
Payments of note payable - (40,254) -
Advance from stockholder - - 1,000,000
Proceeds from issuance of convertible
note payable - - 2,405,000
Proceeds from long-term debt - - 200,000
Repayment of long-term debt - - (200,000)
</TABLE>
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
-----------------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Continued
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------
From Inception
(July 23, 1985) to
June 30, 1998 June 30, 1997 June 30, 1998
----------------------------------- --------------------
<S> <C> <C> <C>
Other, net - - (30,000)
---------- ---------- -----------
Net cash provided by financing
activities 3,404,089 3,914,715 38,745,823
---------- ---------- -----------
NET INCREASE IN CASH 1,977,430 1,679,023 2,086,675
CASH AND CASH EQUIVALENTS, beginning of period 109,245 2,980,036 -
---------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of period $2,086,675 $4,659,059 $ 2,086,675
========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Noncash transactions -
Equipment acquired under
capital leases - $ 154,009 $ 206,833
Stockholder advance converted to common stock - - $ 1,000,000
Convertible note converted to common stock - - $ 2,405,000
Strategic alliance obligation converted to common stock $1,725,000 - $ 1,725,000
Cash transactions -
Interest paid $ 19,692 $ 17,853 $ 89,607
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and adjustments) considered necessary for a fair
presentation have been included. Operating results for the three month or six
month periods ended June 30, 1998, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1998. For further
information, refer to the Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Financial Statements and Footnotes
thereto included in the Autonomous Technologies Corporation ("Company") Annual
Report on Form 10-K as filed with the Securities and Exchange Commission ("SEC")
on March 31, 1998, and as amended on June 17, 1998.
The Company formed a wholly-owned subsidiary in May, 1998, to facilitate the
conduct of its business in non-U.S. markets. The accounts of this subsidiary,
Autonomous International Corporation, are consolidated for presentation in these
financial statements at June 30, 1998 and for the period since formation of the
subsidiary to June 30, 1998.
Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out method. At June 30, 1998, the Company's components and
purchased sub-assemblies inventory was $2,575,357 and work-in-progress
LADARVision Systems totaled $771,334.
Diluted loss per common share is not presented due to the anti-dilutive effect
(i.e. the effect of reducing loss per share) of the Company's stock options and
warrants in accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share."
2. SALE OF SECURITIES
PRIVATE PLACEMENT OF COMMON STOCK. On May 26, 1998, the Company completed a
private placement of 600,573 shares of unregistered Common Stock for $5.166 per
share to four European investors. The Common Stock was sold pursuant to an
exemption from the registration requirements of the Securities Act of 1933
provided by Section 4(2) thereof. EVEREN Securities, Inc. acted as placement
agent for this sale and was paid a commission of 6% of the gross proceeds. The
Company estimates the final net proceeds of this sale to be $2,884,000. The
Company will use the proceeds from the sale of the Common Stock to fund
operating expenses and working capital. The Company expects to file a
Registration Statement on Form S-3 on behalf of the European investors covering
the resale of the shares of Common Stock within 10 days of the effectiveness of
the Registration Statement described in the following paragraph. This sale of
Common Stock was funded to the Company at the date of the accompanying financial
statements.
PRIVATE PLACEMENT OF SERIES I CONVERTIBLE PREFERRED STOCK. On April 16, 1998,
the Company completed a private placement with OZ Master Fund, Ltd. (the
"Investor"). The private placement was of 500 shares of the Company's newly
created Series I Convertible Preferred Stock (the "Initial Shares"), with an
option to purchase 400 shares of Series I Convertible Preferred Stock and a
stock purchase warrant for 300,000 shares of Common Stock (the "Warrant") (the
400 shares and the Warrant collectively, the "Option"). The price of each share
of Series I Convertible Preferred Stock is $10,000. The Initial Shares are
convertible, subject to a pricing formula to be invoked upon each periodic
conversion, into a maximum of 1,750,000 shares of the Company's Common Stock
(the "Initial Maximum Shares"). In the event the Option is exercised, the
Initial Shares and the 400 shares of Series I Convertible Preferred Stock (the
"Option Shares"), together, may be converted into an aggregate maximum of
2,263,197 shares of Common Stock. The Initial Shares and Option Shares are
convertible into shares of Common Stock upon the election of the Investor, at no
more than $1,150,000 per month, based on 90% of the average trading price of the
<PAGE>
Company's Common Stock.
The Option, if exercised by the Investor, must be exercised by November 10,
1998. The Company anticipates using the proceeds from the sale of the Series I
Convertible Preferred Stock to fund operating expenses and working capital. The
Series I Convertible Preferred Stock and Option were sold to the Investor
pursuant to an exemption from the registration requirements of the Securities
Act provided by Section 4(2) thereof. The Company agreed to file a Registration
Statement on Form S-3 on behalf of the Investor covering the resale of the
Initial Maximum Shares and a separate Form S-3 for the shares of Common Stock
into which the Option Shares are convertible and the shares of Common Stock
underlying the Warrant, if the Option is exercised. Due to a full review of the
Registration Statement, this sale of Series I Convertible Preferred Stock was
not funded to the Company on the date of the accompanying financial statements
and the Series I Convertible Preferred Stock is therefore not shown as
outstanding in the accompanying financial statements.
The Registration Statement was declared effective by the SEC on August 6, 1998
and the closing of the Initial Shares occurred on August 7, 1998.
3. ACCOUNTING FOR CONVERTIBLE PREFERRED STOCK WITH CONVERSION AT DISCOUNT TO
MARKET
Various pronouncements, including provisions of Regulation S-X and certain SEC
Staff Accounting Bulletins, govern the accounting for a convertible preferred
stock issue with a conversion feature calculated at a discount from the market
price of the underlying common stock (see Note 2, "Sale Of Securities - Private
Placement of Series I Convertible Preferred Stock"). Under these pronouncements,
the Company intends to account for the aggregate estimated discount from the
conversions as a preferred stock dividend in the Company's Consolidated
Statement of Operations. This accounting treatment shall take into account the
earliest schedule upon which the conversions can occur and allocate the
aggregate estimated discount to the periods for which those scheduled shares of
convertible preferred stock are outstanding. This accounting treatment will
begin in August 1998 with the issuance of the aforementioned Initial Shares.
4. NEWLY ISSUED ACCOUNTING STANDARD - COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income," in the
first quarter of 1998. There was no impact on the June 30, 1998 financial
statements as a result of the implementation of this Statement.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Statements containing terms such as
"believes," "does not believe," "no reason to believe," "expects," "plans,"
"intends," "estimates," "anticipated," or "anticipates" are considered to
contain uncertainty and are forward looking statements. Actual results could
differ materially from those projected in the forward-looking statements as a
result of a number of important factors. For a discussion of important factors
that could affect the Company's results, please refer to the Overview section,
the Management's Discussion and Analysis of Financial Condition and Results of
Operations, and the Risk Factors section contained in the Company's Annual
Report on Form 10-K, as amended, for the year ended December 31, 1997.
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I -- Item 1 of this
Quarterly Report; and in conjunction with the audited financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the Company's Annual Report on Form 10-K
filed with the SEC on March 31, 1998, and as amended on June 17, 1998.
OVERVIEW
Autonomous, a Florida corporation formed in 1985, has been engaged since 1993 in
the design and development of the next generation of excimer laser instruments
for laser vision correction ("LVC") to reduce or eliminate a person's dependence
on eyeglasses or contact lenses. The Company's technology combines eye tracking
with a narrow beam excimer laser to treat common refractive vision disorders
such as myopia (nearsightedness), hyperopia (farsightedness) and astigmatism
(blurred vision). The Company's objective is to improve refractive surgical
outcomes for these conditions over those achieved by earlier LVC systems.
Vision correction is one of the largest medical markets, with over 136 million
people in the United States using eyeglasses or contact lenses. Within this
group, approximately 60 million people are myopic. Industry sources estimate
that Americans spend approximately $13 billion on eyeglasses, contact lenses and
other vision correction products and services each year.
The Company is a development stage enterprise. Since inception, the Company has
experienced significant operating losses, and, as of June 30, 1998, had an
accumulated deficit of approximately $37.0 million. To date, the Company has had
significant revenues relating only to research grants, which is an endeavor no
longer pursued by the Company. Despite the fact that LADARVision Systems
placements have begun outside the U.S., the Company anticipates that its
operating losses will continue for the foreseeable future because it plans to
expend substantial resources in funding clinical trials, U.S. sales and
marketing activities, commercial manufacturing, and research and development.
Additionally, the Company is funding, and expects to continue to fund, a legal
action against successors to a patent pooling partnership that operated from
1992 until June, 1998, in the U.S. LVC industry. The Company expects that
research and development expenses will remain at relatively high levels for the
foreseeable future due to continued development of the Company's CustomCornea
project. The foregoing forward looking statements could be affected by certain
risks and uncertainties, including: the ability to complete research and
development projects (and register their capabilities with the FDA) that the
Company judges to be necessary to be a viable competitor in the future LVC
marketplace; the ongoing results from past and future clinical trials; the U.S.
market acceptance of the LADARVision System; the ability of the Company to
demonstrate the adequacy of its adherence to the Quality System Regulations
("QSR") to achieve PMA approval; the ability of the Company to increase
production to adequate levels to meet demand and generate net revenues to cover
the overhead of the business; and the ability of the Company to operate
commercially in the U.S. LVC marketplace in the post-patent pooling partnership
environment.
RESULTS OF OPERATIONS
Operating Expenses
Clinical trials expenses were $741,199 and $853,820 in the quarters ended June
30, 1998 and 1997, respectively. Clinical trials expenses were $1,395,228 and
$1,443,102 in the six months ended June 30, 1998 and 1997, respectively. These
expenses decreased 13% and 3% in the quarters and six months, respectively, due
to the Company's near finalization of its myopia/astigmatism PRK
<PAGE>
clinical trial expenses. The Company's clinical trial expenses are expected to
increase as the Company expands its work toward other clinical indications such
as higher levels of myopia and astigmatism, hyperopia, LASIK and begins it's
CustomCornea clinical trials in 1998. Additionally, the cost of the compliance
organization grouped here for financial reporting purposes will also increase as
the full impact of operating under FDA, QSR and ISO9001 regulations is felt in a
commercial setting.
Unabsorbed production costs were $828,648 and $0 in the quarters ended June 30,
1998 and 1997, respectively. Unabsorbed production costs were $1,316,123 and $0
in the six months ended June 30, 1998 and 1997, respectively. Until the third
quarter of 1997, when the first foreign commercial placements were made, the
cost of the production organization was charged to research and development.
Subsequently, the production organization expenses not absorbed by limited
production were presented in Other Expenses. As the size and cost of the
production organization has grown, these costs have been presented separately
herein. Such costs in prior periods have been reclassified to conform to this
presentation. The unabsorbed labor and overhead costs of the production
organization will be presented here into 1999 until such time as the Company
reaches a continuous production state, which is expected several months after
receiving the expected PMA. The Company has experienced delays in manufacturing
and placing commercial systems while it resolves quality system matters and
implements engineering changes to meet new FDA inspection criteria in order to
receive its PMA.
Research and development expenses were $1,038,426 and $895,249 in the quarters
ended June 30, 1998 and 1997, respectively. Research and development expenses
were $2,064,049 and $1,669,298 in the six months ended June 30, 1998 and 1997,
respectively. These increases of 16% and 24% in the quarters and six months,
respectively, are due to (a) research and development staffing increases in
1998, primarily to add engineering management and certain other engineer
specialists for continued LADARVision System improvements, and (b) for
engineering contracts to outside parties and consultants in order to facilitate
the continuance of the Company's outsourcing strategy in manufacturing.
Research and development expenses are not expected to increase substantially in
the future.
Selling and marketing expenses were $538,373 and $318,554 in the quarters ended
June 30, 1998 and 1997, respectively. Selling and marketing expenses were
$1,290,620 and $614,595 in the six months ended June 30, 1998 and 1997,
respectively. These increases of 69% and 110% in the quarters and six months,
respectively, are due to increased staff and activities in preparation for
addressing the U.S. market upon achieving its PMA for the LADARVision System
from the FDA. CIBA in-kind services booked in the first six months of 1998 were
$288,633. In June 1998, the CIBA in-kind services agreement expired and these
costs or their equivalent will be borne by the Company on a cash expenditure
basis hereafter. Sales and marketing expenses will increase substantially in
the future as the Company enters the U.S. market with its product and programs.
General and administrative expenses were $573,092 and $618,863 in the quarters
ended June 30, 1998 and 1997, respectively. General and administrative expenses
were $1,188,135 and $1,128,685 in the six months ended June 30, 1998 and 1997,
respectively. The decline of 7% and increase of 5%, respectively, are due to
headcount remaining constant in the administrative functions over these periods
and travel needs declining in the 1998 periods. Additionally, the Company
incurred costs for moving to its new facility in the second quarter of 1997,
which were not incurred in the same 1998 period. It is anticipated that general
and administrative expenses will increase, but at a slower rate than the
clinical and selling and marketing expenses discussed in the foregoing
paragraphs.
Other expenses were $440,490 and $509,982 in the quarters ended June 30, 1998
and 1997, respectively. Other expenses were $674,465 and $1,086,866 in the six
months ended June 30, 1998 and 1997, respectively. There are two major
components of this expense category:
1) An accrual which is being made for the remaining 171,713 shares that may be
issuable to CIBA Vision in May, 1999 under the terms of the 1995 Strategic
Alliance Agreement. The shares are to be issued unless certain requirements,
relating to the accumulated 6% commission on revenues the Company will pay to
CIBA Vision, are satisfied. The Company anticipates that the shares will be
issued in May, 1999. The balance sheet accrual at March 31, 1998, was reduced
to zero in accordance with an agreement to issue some of the CIBA 1999 shares.
See the Company's Annual Report on Form 10-K for December 31, 1997, page 47.
2) Legal expenses that relate to the Company's pursuit, beginning in the
latter half of 1996, of legal actions having to do with alleged infringement,
unenforceability and invalidity of certain LVC patents held in various
jurisdictions by other participants in the LVC industry. In the first quarter of
1997, two of the three suits were settled. The Company is still pursuing, as
the plaintiff, one remaining case in the U.S. The legal expenses will be
unpredictable as to their size and timing due to various
<PAGE>
phases through which the trial may proceed. There can be no assurance that the
continued pursuit of this remaining case will result in any change in commercial
terms for the Company's LADARVision System in the U.S. Further, there can be no
assurances that other legal matters will not be opened that the Company cannot
presently foresee.
Interest income and interest expense
Interest income was $43,201 and $114,417 in the quarters ended June 30, 1998 and
1997, respectively. Interest income was $126,595 and $271,226 for the six months
ended June 30, 1998 and 1997, respectively. These decreases of 62% and 53% in
the quarters and six months is due to both lower average cash and investment
balances and lower available short-term rates in the 1998 quarter as compared to
the 1997 quarter. In the 1998 and 1997 quarters, the Company's cash and
investments balance averaged approximately $3.5 million and $7.3 million,
respectively. Interest expense was $10,695 and $9,281 in the quarters ended
June 30, 1998 and 1997, respectively. Interest expense was $22,308 and $17,852
for the six months ended June 30, 1998 and 1997, respectively. These increases
in interest expense are due primarily to the capital lease obligations for
furniture for the Company's new facility, which began accruing in the middle of
the second quarter of 1997.
Operating and Net Losses
The net effect of the foregoing expense items was that the Company's operating
loss increased to $4,201,124, or by 31%, in the quarter ended June 30, 1998,
from $3,196,468 in the quarter ended June 30, 1997. The Company's net loss
increased to $4,168,618 or by 35%, in the quarter ended June 30, 1998, from
$3,091,332 in the quarter ended June 30, 1997.
For the six month period ended June 30, 1998 the Company's operating loss
increased by 36% to $8,077,294, from $5,942,546 in 1997. The net loss increased
by 40% to $7,973,007 in the six month period ended June 30, 1998, from
$5,689,172 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and available-for-sale investments were
$2,086,675 at June 30, 1998 and $7,301,072 at December 31, 1997. The Company
used cash of $8,009,710 to support operations and $390,276 for capital
expenditures during the first half of fiscal 1998. With the addition of
approximately $4.7 million in cash from the closing of the Initial Shares of the
Series I Convertible Preferred Stock, net of expenses and the prospective
addition of $3.9 million assuming exercise of the Option (see note 2 in the
Notes to the Unaudited Financial Statements), the Company's cash resources would
be sufficient to fund the operations until late in 1998. There can, however, be
no assurances that the Option will be exercised since that event is solely at
the choice of the investor. Therefore, the company intends to seek additional
equity financing in the fourth quarter of 1998 to sustain operations into 1999.
The equity environment for "small cap" and development stage companies is not as
favorable for the Company as it was in the first half of 1996 (the time of the
Company's initial pubic offering) and there can be no assurances that the
Company will be able to raise funds at all or of sufficient amount to fund
operations for a sufficiently lengthy period to enable a meaningful U.S. launch
of its LADARVision System, once anticipated approval ("PMA") is received from
the FDA. Additionally, should the Company be successful in raising adequate
funds in late 1998, as intended, to fund operations for a reasonable period
thereafter, it may be on terms that may cause dilution for current stockholders.
The Company's common stock is quoted on NASDAQ under the symbol "ATCI".
<PAGE>
PART II -- OTHER INFORMATION AUTONOMOUS TECHNOLOGIES CORPORATION
-----------------------------------
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
On May 26, 1998, the Company completed a private placement of 600,573 shares of
unregistered Common Stock for $5.166 per share to four European investors. The
Common Stock was sold pursuant to an exemption from the registration
requirements of the Securities Act of 1933 provided by Section 4(2) thereof.
EVEREN Securities, Inc. acted as placement agent for this sale and was paid a
commission of 6% of the gross proceeds. The Company estimates the final net
proceeds of this sale to be $2.9 million. The Company will use the proceeds
from the sale of the Common Stock to fund operating expenses and working
capital. The Company agreed to file a Registration Statement on Form S-3 on
behalf of the European investors covering the resale of the shares of Common
Stock.
On April 16, 1998, the Company completed a private placement with OZ Master
Fund, Ltd. (the "Investor"). The Investor is managed by the Och-Ziff Capital
Management Group. The private placement was of 500 shares of the Company's newly
created Series I Convertible Preferred Stock (the "Initial Shares"), with an
option to purchase 400 shares of Series I Convertible Preferred Stock and a
stock purchase warrant for 300,000 shares of Common Stock (the "Warrant")
(collectively, the "Option"). The price of each share of Series I Convertible
Preferred Stock is $10,000. The Initial Shares are convertible, subject to a
pricing formula to be invoked upon each periodic conversion, into a maximum of
1,750,000 shares of the Company's Common Stock (the "Initial Maximum Shares").
In the event the Option is exercised, the Initial Shares and the 400 shares of
Series I Convertible Preferred Stock (the "Option Shares"), together, may be
converted into an aggregate maximum of 2,263,197 shares of Common Stock. The
Series I Convertible Preferred Stock is convertible into shares of Common Stock
upon the election of the Investor, at no more than $1,150,000 per month, based
on a formula whereby the conversion price is set at the time of the notice of
conversion as a function of the recent trading prices of the Company's Common
Stock.
The Option, if exercised by the Investor, must be exercised by November 10,
1998. EVEREN Securities, Inc. was paid a commission of $150,000 in connection
with this sale of the Initial Shares and will be paid a commission of $120,000
if the Option is exercised. The Company estimates the final net proceeds of the
sale of the Initial Shares to be $4.7 million and in the event the Option is
exercised, estimates the final net proceeds of the sale of the Option Shares to
be an additional $3.9 million. The Company anticipates using the proceeds from
the sale of the Series I Convertible Preferred Stock to fund operating expenses
and working capital. The Series I Convertible Preferred Stock and Option were
sold to the Investor pursuant to an exemption from the registration requirements
of the Securities Act provided by Section 4(2) thereof. The Company filed a
Registration Statement on Form S-3 on behalf of the Investor covering the resale
of the Initial Maximum Shares and agreed to file a separate Form S-3 for the
shares of Common Stock into which the Option Shares are convertible and the
shares of Common Stock underlying the Warrant, if the Option is exercised.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on June 12, 1998 at the
Orlando Airport Marriott Hotel at 7499 Augusta National Drive, Orlando,
Florida 32822 at 9:00 a.m. Eastern Daylight Time. At the meeting, in
person or by proxy, a total of 7,888,674 shares of common stock were
represented, or 74.7% of the shares eligible to vote.
<PAGE>
(b) At the Annual Meeting, the following directors were re-elected for a one
year term with the following vote tabulation:
<TABLE>
<CAPTION>
Votes Votes Abstentions/
Name Votes for against withheld non-votes
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mr. Randy Frey 7,835,263 53,411 0 0
Dr. Richard C. Capozza 7,835,263 53,411 0 0
Mr. G. Arthur Herbert 7,835,263 53,411 0 0
Mr. Stanley Ruffett 7,835,263 53,411 0 0
Mr. Timothy Barabe 7,835,263 53,411 0 0
Dr. Richard H. Keates 7,835,263 53,411 0 0
Mr. Whitney A. McFarlin 7,835,163 53,511 0 0
</TABLE>
(c) At the Annual Meeting, a proposal to amend the Company's 1995 Stock Option
Plan to increase the number of shares available for grant from 1,750,000 to
2,250,000 was approved. There were 7,709,688 shares voted for the
proposal; 162,344 shares voted against the proposal; and 16,642 abstentions
and broker non-votes regarding the proposal.
Item 5. Other Information
The Securities and Exchange Commission recently amended Rule14a-4, which governs
the use by the Company of discretionary voting authority with respect to certain
stockholder proposals. Rule 14a-4(c)(1) provides that, if the proponent of a
stockholder proposal fails to notify the Company of such proposal at least 45
days prior to the month and day of mailing the prior year's proxy statement, the
Company's management would be permitted to use the discretionary authority
granted by the proxies at the Company's next annual meeting of stockholders if
such proposal were raised at the meeting without any discussion of the matter in
the proxy statement. In order to provide stockholders with notice of the
deadline for the submission of such proposals for the Company's 1999 Annual
Meeting of Stockholders, the Company hereby notifies all stockholders that any
stockholder proposal submitted outside the process of Rule 14a-8 will be
considered untimely for purposes of Rule 14a-4 and Rule 14a-5 if received by the
Company after March 10, 1999.
Stockholder proposals that are intended to be presented at the Company's 1999
Annual Meeting of Stockholders must be received by the Company no later than
December 23, 1998 in order to be included in the proxy statement and related
proxy materials pursuant to Rule 14a-8.
Item 6. Exhibits and Reports on Form 8-K
(a) Report on Form 8-K filed April 27, 1998. The Company filed this Form 8-K
to report that it had entered into a Convertible Stock Purchase Agreement
and a Registration Rights Agreement with OZ Master Fund, Ltd. OZ Master
Fund, Ltd. is managed by Och-Ziff Capital Management Group. Attached to
the Form 8-K as Exhibits were four agreement documents. On April 29, 1998,
the Company filed a registration statement on Form S-3 for the shares that
OZ Master Fund, Ltd. has the right to acquire upon conversion of the
Convertible Preferred Stock and the exercise of a related stock purchase
warrant.
(b) Report on Form 8-K filed June 12, 1998. The Company filed this Form 8-K
to report that it had closed a private placement of 600,573 shares of
Common Stock of the Company at $5.166 per share.
Exhibit 10.1 - 1995 STOCK OPTION PLAN, AS AMENDED
In Item 4(c) above, it is noted that the Company's 1995 Stock Option Plan was
amended by shareholder vote to increase the shares available for grant from
1,750,000 to 2,250,000. Additionally, on June 12, 1998, the Company's Board of
Directors approved an amendment to the 1995 Stock Option Plan permitting
transfers of non-qualified options to "immediate family" in accordance with the
definition of that term in Rule 16a-1(e) of the Securities Exchange Act of 1934,
as amended.
Exhibit 27 - Financial Data Schedule (for SEC use only).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUTONOMOUS TECHNOLOGIES CORPORATION
August 13, 1998
By: /s/ Monty K. Allen
-------------------------------------
Monty K. Allen
Vice President and Chief Financial Officer
(Principal Financial Officer and Chief Accounting Officer)
<PAGE>
Exhibit 10.1
AUTONOMOUS TECHNOLOGIES CORPORATION
1995 STOCK OPTION PLAN
----------------------
As amended
----------
Autonomous Technologies Corporation, a Florida corporation (the "Company"),
hereby adopts the 1995 Stock Option Plan (the "Plan") for its key employees,
officers and directors, in accordance with the following terms and conditions:
1. Purpose of the Plan. The purpose of the Plan is to advance the growth
-------------------
and development of the Company by affording an opportunity to executives,
consultants and key employees of the Company, as well as directors of the
Company and its affiliates, to purchase shares of the Company's common stock and
to provide incentives for them to put forth maximum efforts for the success of
the Company's business. The Plan is intended to permit certain designated stock
options granted under the Plan to qualify as incentive stock options under
Section 422A of the Internal Revenue Code of 1986.
2. Definitions. For purposes of this Plan, the following capitalized terms
-----------
shall have the meanings set forth below:
(a) "Board of Directors" means the board of directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as currently in effect
or as hereafter amended.
(c) "Company" means Autonomous Technologies Corporation, a Florida
corporation.
(d) "Eligible Employee" means all directors, consultants, officers, and
executive, managerial, and other key employees of the Company or any Parent or
Subsidiary. In order to be eligible for an Incentive Stock Option, a director
or a consultant must also be a common law employee of the Company as provided in
Section 422A of the Code; however, in order to be eligible for a Nonqualified
Stock Option, a director or consultant need not be a common law employee of the
Company.
(e) "Incentive Stock Option(s)" means a stock option granted to an
Eligible Employee to purchase shares of Stock which is intended to qualify as an
"incentive stock option," as defined in Section 422A of the Code.
(f) "Nonqualified Stock Option(s)" means a stock option granted to an
Eligible Employee to purchase shares of Stock which is not intended to qualify
as an "incentive stock option" as defined in Section 422A of the Code.
(g) "Option" means any unexercised and unexpired Incentive Stock option or
Nonqualified Stock Option issued under this Plan, or any portion thereof
remaining unexercised and unexpired.
(h) "Option Agreement" means a written agreement by and between the
Company and an Optionee setting forth the terms and conditions of the Option
granted by the Board of
<PAGE>
Directors to such Optionee.
(i) "Optionee" means any Eligible Employee who is granted an Option as
provided in the Plan.
(j) "Parent" means any present or future "parent corporation" of the
Company as such term is defined in Section 425 (e) of the Code and which the
Board of Directors of the Company has elected to be covered by the Plan.
(k) "Plan" shall mean the Company's Stock Option Plan.
(l) "Stock" means authorized and unissued shares of the Company's Common
Stock, or treasury shares of such class.
(m) "Subsidiary" means any present or future "subsidiary corporation" of
the Company, as such term is defined in Section 425 (f) of the Code and which
the Board of Directors has elected to be covered by the Plan.
(n) Where applicable, the terms used in this Plan have the same meaning as
the terms used in the Code and the regulations and rulings issued thereunder and
pursuant thereto, with reference to Options.
(o) Wherever appropriate, words used in this Plan in the singular may mean
the plural, the plural may mean the singular and the masculine may mean the
feminine or neuter.
3. Stock Subject to Option.
-----------------------
(a) Total Number of Shares. The total number of shares of Stock which may
----------------------
be issued by the Company to all Optionees under this Plan is 2,250,000 shares.
The total number of shares of Stock which may be so issued may be increased only
by a resolution adopted by the Board of Directors and approved by the
shareholders of the Company.
(b) Expired Options. If any Option granted under this Plan is terminated
---------------
or expires for any reason whatsoever, in whole or in part, the shares (or
remaining shares) of Stock subject to that particular Option shall again be
available for grant under this plan.
4. Administration of the Plan.
--------------------------
(a) Board of Directors. This plan shall be administered by the Board of
------------------
Directors who may, from time to time, issue orders or adopt resolutions, not
inconsistent with the provisions of the Plan, to interpret the provisions and
supervise the administration of the Plan. All determinations shall be by the
affirmative vote of a majority of the members of the Board of Directors at a
meeting called for such purpose, or reduced to writing and signed by a majority
of the members of the Board of Directors. Subject to the Company's Bylaws, all
decisions made by the Board of Directors in selecting Optionees, establishing
the number of shares and terms applicable to each option, and in construing the
provisions of this Plan shall be final, conclusive and binding on all persons,
including the Company, shareholders, Optionees, and purchasers of shares
pursuant to this Plan. No member of the Board of Directors shall be liable for
any action or determination made in good faith with respect to the Plan or an
Option granted hereunder.
<PAGE>
(b) Stock Option Plan Committee. The Board of Directors may from time to
---------------------------
time appoint a Stock Option Plan Committee, consisting of not less than two (2)
directors (the "Committee"). The Board of Directors may delegate to such
Committee full power and authority to take any action required or permitted to
be taken by the Board of Directors under this Plan, subject to restrictions on
affiliate participation under the Securities Exchange Act of 1934, pertaining
to, among other things, Section 16(b). The Board of Directors may from time to
time, at its sole discretion, remove members from or add members to the
Committee. Vacancies may be filled by the Board of Directors only. Where the
context requires, the Board of Directors shall mean the Committee, if appointed,
for matters dealing with administration of the Plan.
(c) Compliance with Internal Revenue Code. The Board of Directors (or
-------------------------------------
committee if appointed) shall at all times administer this Plan and make
interpretations hereunder in such a manner that Options granted hereunder
designated as Incentive Stock Options will meet the requirements of Section 422A
of the Code.
5. Selection of Optionees.
----------------------
(a) Discretion of the Board of Directors. In determining which Eligible
------------------------------------
Employees shall be offered Options, as well as the terms thereof, the Board of
Directors shall evaluate, among other things, (I) the duties and
responsibilities of Eligible Employees, (ii) their past and prospective
contributions to the success of the Company, (iii) the extent to which they are
performing and will continue to perform outstanding services for the benefit of
the Company, and (iv) such other factors as the Board of Directors deems
relevant.
(b) Limitation on Grant of Options. An Incentive Stock option may not be
------------------------------
granted to any optionee if the grant of such Option to such Optionee would
otherwise cause the aggregate fair market value (determined at the time the
Option is granted) of the Stock for which Options are exercisable for the first
time by such Optionee under all incentive stock option plans of the Company
during any calendar year to exceed $100,000. Non qualified Stock Options may be
granted to Eligible Employees at the sole discretion of the Board of Directors.
6. Option Agreement. Subject to the provisions of this Plan, each Option
----------------
granted to an Optionee shall be set forth in an Option Agreement upon such terms
and conditions as the Board of Directors determines, including a vesting
schedule. Each such Option Agreement shall incorporate the provisions of this
Plan by reference. The date of the grant of an Option is the date specified in
the Option Agreement. Any Option Agreement shall clearly identify such Options
as Incentive Stock Options
7. Option Prices.
-------------
(a) Determination of Option Price. The option price for Stock shall not
-----------------------------
be less than one hundred percent (100%) of the fair market value of the Stock on
the date of the grant of such Option. The option price for Stock granted to an
Eligible Employee who possesses more than ten percent (10%) of the total
combined voting power of all classes of common stock of the Company shall not be
less than one hundred ten percent (110%) of the fair market value of the Stock
on the date of the grant of such Option.
(b) Determination of Fair Market Value. For the purpose of this Plan, the
----------------------------------
fair market
<PAGE>
value of the Stock on the date of granting an Option shall be determined by the
Board of Directors in accordance with the applicable regulations under the Code.
(c) Determination of Stock Ownership. For purposes of paragraphs 7 and 8,
--------------------------------
an optionee's common stock ownership shall be determined by taking into account
the rules of constructive ownership set forth in Section 425(d) of the Code.
8. Term of Option. The term of an Option may vary within the sole
--------------
discretion of the Board of Directors, provided, however, that the term of an
Incentive Stock Option granted to an Eligible Employee shall not exceed ten (10)
years from the date of grant of such Incentive Stock Option. An Incentive Stock
Option may be canceled only in connection with the termination of employment or
death of the Optionee (as more particularly described in paragraph 9 hereof). A
Nonqualified Stock Option may be canceled only in connection with the
termination of employment (or consulting contract) or death of an Optionee, or
the removal or resignation of an Optionee who is a director.
9. Exercise of Option.
------------------
(a) Limitation on Exercise of Option. Except as otherwise provided
--------------------------------
herein, the Board of Directors, in its sole discretion, may limit an Option by
restricting its exercise in whole or in part to specified vesting periods or
until specified conditions have occurred. The vesting periods and any
restrictions will be set forth in the Option Agreement.
(b) Exercise Prior to Cancellation. An Option shall be exercisable only
------------------------------
during the term of the Option as long as the Optionee is in "Continuous
Employment" with the Company or is continually on the Board of Directors of the
Company or any Subsidiary, or any successor thereof. Notwithstanding the
preceding sentence, as long as the Option's term has not expired, as Option
which is otherwise exercisable in accordance with its provisions shall be
exercisable
(i) for a period ending ninety (90) days after the Optionee's
Continuous Employment with the Company has terminated, unless the Optionee was
terminated for cause by the Company, in which case the Option terminates on
notice of termination of employment; or
(ii) for a period ending ninety (90) days after the removal or
resignation of the Optionee from the Board of Directors, on which such Optionee
has served; or
(iii) by the estate of the Optionee, within one (1) year after the
date of the Optionee's death, if the Optionee should die while in the Continuous
Employment of the Company or while serving on the Board of Directors of the
Company or any Subsidiary, or any successor thereof; or
(iv) within one (1) year after the Optionee's employment with the
Company terminates, if the Optionee becomes disabled during Continuous
Employment with the Company and such disability is the cause of termination.
For purposes of this Plan, the term "Continuous Employment" shall mean the
absence of any interruption or termination of employment (or termination of a
consulting contract) by the Company or any Parent or Subsidiary which now exists
or hereafter is organized or acquired by the Company. Continuous Employment
with the Company shall not be considered interrupted in
<PAGE>
the case of sick leave, military leave, or any other leave of absence approved
by the Company or in the case of transfers between locations of the Company or
between any Parent or Subsidiary, or successor thereof. The term "cause" as used
in this subparagraph 9(b) shall mean: (i) commission of a felony or a charge of
theft, dishonesty, fraud or embezzlement; (ii) failure to adhere to Company's
reasonable directives and policies, willful disobedience or insubordination;
(iii) disclosing to a competitor or other unauthorized person, proprietary
information, confidences or trade secrets of the Company or any Parent or
Subsidiary; (iv) recruitment of Company or any Parent or Subsidiary personnel on
behalf of a competitor or potential competitor of the Company, any Parent or
Subsidiary, or any successor thereof; or (v) solicitation of business on behalf
of a competitor or potential competitor of the Company, any Parent or
Subsidiary, or any successor thereof.
(c) Method of exercising an Option. Subject to the provisions of any
------------------------------
particular Option, including any provisions relating to vesting of an Option, an
Optionee may exercise an Option, in whole or in part, by written notice to the
Company stating in such written notice the number of shares of Stock such
Optionee elects to purchase under the Option, and the time of the delivery
thereof, which time shall be at least fifteen (15) days after the giving of such
notice, unless an earlier date shall have been mutually agreed upon. Upon
receipt of such written notice, the Company shall provide the Optionee with that
information required by the applicable state and federal securities laws. If
after receipt of such information, the Optionee desires to withdraw such notice
of exercise, the Optionee may withdraw such notice of exercise by notifying the
Company, in writing, prior to the time set forth for delivery of the shares of
Stock. In no event may an Option be exercised after the expiration of its term.
An Optionee is under no obligation to exercise an Option or any part thereof.
(d) Payment for Option Stock. The exercise of any Option shall be
------------------------
contingent upon receipt by the Company of cash or certified bank check to its
order (or in the discretion of the Board of Directors, with shares of the
Company's Common Stock or cancellation of a vested portion of the Stock Option,
or any combination of the foregoing) in an amount equal to the full option price
of the shares of Stock being purchased. For purposes of this paragraph 9,
shares of the Company's Common Stock that are delivered in payment of the option
price shall be valued at their fair market value, as determined under the
provisions of the Plan. In the alternative, the Board of Directors may, but is
not required to, accept a promissory note, secured or unsecured, in the amount
of the option price made by the Optionee on terms and conditions satisfactory to
the Board of Directors.
(e) Delivery of Stock to Optionee. Provided the optionee has delivered
-----------------------------
proper notice of exercise and full payment of the option price, the Company
shall undertake and follow all necessary procedures to make prompt delivery of
the number of shares of Stock which the Optionee elects to purchase at the time
specified in such notice. Such delivery, however, may be postponed at the sole
discretion of the Company to enable the Company to comply with any applicable
procedures, regulations or listing requirements of any governmental agency,
stock exchange or regulatory authority. As a condition to the issuance of
shares of Stock, the Company may require such additional payments from the
Optionee as may be required to allow the Company to withhold any income taxes
which Company deems necessary to insure the Company that it can comply with any
federal or state income tax withholding requirements.
10. Transferability of Options.
--------------------------
<PAGE>
(a) Incentive Stock Options. Except as otherwise provided in paragraphs
-----------------------
9(b)(iii) and (iv) hereof, an Incentive Stock Option granted to an Optionee may
be exercised only during such Optionee's lifetime by such Optionee. An
Incentive Stock Option may not be sold, exchanged, assigned, pledged,
encumbered, hypothecated or otherwise transferred except by will or by the laws
of decent and distribution. No Incentive Stock Option or any right thereunder
shall be subject to execution, attachment or similar process by any creditors of
the Optionee. Upon any attempted assignment, transfer, pledge, hypothecation or
other encumbrance of any Incentive Stock Option contrary to the provisions
hereof, such Incentive Stock Option and all rights thereunder shall immediately
terminate and shall be null and void with respect to the transferee or assignee.
(b) Nonqualified Stock Options. Except as otherwise provided in this
--------------------------
paragraph, and except as otherwise provided in paragraphs 9(b)(iii) and (iv)
hereof, a Nonqualified Stock Option granted to an Optionee may be exercised only
during such Optionee's lifetime by such Optionee. A Nonqualified Stock Option
may be transferred in whole or in part to any member of the Optionee's
"immediate family" as such term is defined in Rule 16a-1(e) promulgated under
the Securities Exchange Act of 1934, as amended, to one or more trusts whose
sole beneficiaries are members of such Optionee's "immediate family" or to one
or more partnerships in which such Optionee's "immediate family" are the only
partners; provided, however, that the Optionee receives no consideration for the
transfer and such transferred Nonqualified Stock Option shall continue to be
subject to the same terms and conditions as were applicable to such Nonqualified
Stock Option immediately prior to its transfer. A Nonqualified Stock Option may
not be sold, exchanged, assigned, pledged, encumbered, hypothecated or otherwise
transferred except by will or by the laws of decent and distribution or as set
forth above. No Nonqualified Stock Option or any right thereunder shall be
subject to execution, attachment or similar process by any creditors of the
Optionee. Upon any attempted assignment, transfer, pledge, hypothecation or
other encumbrance of any Nonqualified Stock Option contrary to the provisions
hereof, such Nonqualified Stock Option and all rights thereunder shall
immediately terminate and shall be null and void with respect to the transferee
or assignee. The aforementioned Rule 16a-1(e) deems "immediate family" to mean
any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-
law, or sister-in-law, and shall include adoptive relationships.
11. Compliance with the Securities Laws.
-----------------------------------
(a) Optionee's Written Statement. The Board of Directors may, in its
----------------------------
sole discretion, require that at the time an Optionee elects to exercise his
Option, he shall furnish a written statement to the Company that he is acquiring
such shares of Stock for investment purposes only and that he has no intention
of reselling or otherwise disposing of such Stock, along with a written
acknowledgment that the Option and the shares of Stock pertaining to the Option
are not registered under the Securities Act of 1933, as amended (the "Act"), the
Florida securities laws, or any other state securities laws. In the event that
shares of Stock subject to the Option are registered with the Securities and
Exchange Commission, an Optionee shall no longer be required to comply with this
subparagraph 11(a).
(b) Registration Requirements. If at any time the Board of Directors
-------------------------
determines, in its sole discretion, that the listing, registration or
qualification of the shares of Stock subject to the Option upon any securities
exchange or under any state or federal securities laws, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
<PAGE>
condition of, or in connection with, the issuance or purchase of shares
thereunder, then the Option may not be exercised, in whole or in part, unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained (and the same shall have been free of any conditions not
acceptable to the Board of Directors).
(c) Restrictions on Transfer of Shares. Subject to the Company's
----------------------------------
repurchase agreement and right of first refusal, as more particularly set forth
in paragraph 15 hereof, the shares of Stock acquired by an Optionee pursuant to
the exercise of an Option hereunder shall be freely transferable; provided,
however, that such shares of Stock may not be sold, transferred, pledged or
hypothecated, unless (i) a registration statement covering the securities is
effective under the Act and appropriate state securities laws, or (ii) an option
of counsel, satisfactory to the Company, that such sale, transfer, pledge or
hypothecation may legally be made without registration of such shares under
federal or state securities laws has been received by the Company.
(d) Restrictive Legend. In order to enforce the restrictions imposed upon
------------------
shares of Stock under this Plan, the Company shall make appropriate notation in
its stock records or, if applicable, shall issue an appropriate stock transfer
instruction to the Company's stock transfer agent. In addition, the Company may
cause a legend or legends to be placed on any certificates representing shares
of Stock issued pursuant to this Plan, which legend or legends shall make
appropriate reference to such restrictions in substantially the following form:
The shares of Common Stock evidenced by this certificate have been issued
under the Autonomous Technologies Corporation 1995 Stock Option Plan (the
"Plan") and are subject to the terms and provisions of such Plan.
These shares have not been registered under the Securities Act of 1933, as
amended, the Florida Securities and Investor Protection Act or any other state
securities laws, and, therefore, cannot be sold unless they are subsequently
registered under the Act and any applicable state securities laws, or unless an
exemption from registration is available.
These shares are subject to a repurchase option and right of first refusal
as set forth in the Plan, and any sale, transfer, gift, pledge, or encumbrance
of these shares is subject to this repurchase agreement and right of first
refusal.
(e) In the event of a transaction (as defined in Section 14 of the Plan),
Optionee will comply with Rule 145 of the Securities Act of 1933 and any other
restrictions imposed under other applicable legal or accounting principles if
Optionee is an "affiliate" (as defined in such applicable legal and accounting
principles) at the time of the transaction, and Optionee will execute any
documents necessary to ensure compliance with such rules.
12. Changes in Capital Structure of Company. In the event of a capital
---------------------------------------
adjustment resulting from a stock dividend, stock spit, reclassification,
recapitalization, or by reason of a merger, consolidation, or other
reorganization in which the Company is the surviving corporation, the Board of
Directors shall make such adjustment, if any, as it may deem appropriate in the
number and kind of shares authorized by this Plan, or in the number, option
price and kind of shares covered by the Options granted. The Company shall give
notice of any adjustment to each Optionee and such adjustment shall be deemed
conclusive. The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined solely
<PAGE>
by the Board of Directors, and any such adjustment may provide for the
elimination of fractional shares.
13. Reorganization, Dissolution or Liquidation. In the event of the
------------------------------------------
dissolution or liquidation of the Company, or any merger or combination in which
the Company is not a surviving corporation is involved, or the Company transfers
substantially all of its assets or property to another corporation, or in the
event any other corporation acquires control of the Company in a reorganization
within the meaning of Section 368(a) of the Code, all outstanding Options shall
thereupon terminate, subject to the provisions of Section 14 herein, unless such
Options are assumed or substitutes therefor are issued (within the meaning of
Section 425(a) of the Code) by the surviving or acquiring corporation in any
such merger, combination or other reorganization. Not withstanding the previous
sentence, the Company shall give at least fifteen (15) days written notice of
such transaction to holders of unexercised Options prior to the effective date
of such merger, combination, reorganization, dissolution or liquidation.
14. Accelerated Vesting Upon Certain Events. Not withstanding the
---------------------------------------
provisions of the foregoing sections 12 and 13, and unless otherwise provided in
the Option Agreement, in the event of an acquisition of the Company through the
sale of substantially all of the Company's assets and the consequent
discontinuance of its business or through a merger, consolidation, exchange,
reorganization, reclassification, extraordinary dividend, divestiture or
liquidation of the Company (collectively referred to as a "change in control
transaction" or "transaction"), all outstanding Options shall become immediately
exercisable, whether such Options had become exercisable prior to the
transaction; provided, however, that if the acquiring party seeks to have the
transaction accounted for on a "pooling of interests" basis and, in the opinion
of the Company's independent certified public accountants and the Company's
counsel, accelerating the exercisability of such options would preclude a
pooling of interests under generally accepted accounting principles, the
exercisability of such options shall not accelerate. In addition to the
foregoing, in the event of such a transaction, the Board may provide for one or
more of the following:
the complete termination of this Plan and the cancellation of outstanding
options not exercised prior to a date specified by the Board (which date shall
give Optionees a reasonable period of time in which to exercise the options
prior to or simultaneously with the effectiveness of such transaction);
that Optionees holding outstanding options shall receive, with respect to
each share of Option Stock subject to such options, as of the effective date of
any such transaction, cash in an amount equal to the excess of the Fair Market
Value of such Option Stock on the date immediately preceding the effective date
of such transaction over the option price per share of such options; provided
that the Board may, in lieu of such cash payment, distribute to such Optionees
shares of stock of the Company or shares of stock of any corporation succeeding
the Company by reason of such transaction, such shares having a value equal to
the cash payment herein; or
the continuance of the Plan with respect to the exercise of options which
were outstanding as of the date of adoption by the Board of such plan for such
transaction and provide to Optionees holding such options the right to exercise
their respective options as to an equivalent (in value) number of shares of
stock of the corporation succeeding the Company by reason of such transaction.
<PAGE>
The Board may restrict the rights or applicability of this Section 14 to the
extent necessary to comply with Section 16(b) of the Securities Exchange Act of
1934, the Internal Revenue Code or any other applicable law or regulation or to
qualify to have the transaction accounted for on a "pooling of interests" basis.
15. Option to Repurchase: Right of First Refusal.
--------------------------------------------
(a) Company's Option. Any Stock purchased pursuant to this Plan shall be
----------------
subject to an option to repurchase such Stock by the Company until the Company
becomes publicly held. Such option may be exercised by the Company during said
period only in the event of the voluntary termination of employment or the
involuntary termination of employment of the Optionee (except in the event of a
sale or liquidation of the Company in an acquisition), or in the event of the
resignation or removal of the Optionee from the Board of Directors of the
Company or any Parent, Subsidiary or successor thereof. The Company must elect
to exercise the option to repurchase within sixty (60) days following the
termination of the Optionee, otherwise such option shall expire. In order to
exercise the option, the Company must notify the optionee of its intent to
exercise its option by mailing a notice to the Optionee or the representative of
the Optionee's estate at the last address contained in the Company's files for
such Optionee. Such notice shall state that the Company intends to exercise its
option and shall state the purchase price per share which will be paid by the
Company and the date on which such option will be exercised, which date will not
be earlier than ten (10) days following the date of mailing said notice nor
later than sixty (60) days following the date (the "Termination") of termination
of employment, resignation or removal from the Board of Directors, or death of
the Optionee, as the case may be. The purchase price, in the case of
termination of employment or removal or resignation as a director, voluntarily
or without cause, shall be the fair market value of the Stock as determined by
the Board of Directors as of the date of the optionee's termination of
employment or death. The purchase price, in the case of termination of
employment or removal as a Director for cause, shall be the price paid by the
Optionee for said shares. The purchase price shall be evidenced by a promissory
note, bearing interest at the applicable federal rate under Section 1274(d) of
the Code. Payments on said note shall be made in three (3) equal annual
installments commencing six (6) months after the Termination Date. The term
"cause" as used in this paragraph shall mean a determination by the Board of
Directors that Optionee breached a material agreement with the Company or
committed an offense against the Company which constituted a breach of fiduciary
duty or a material civil tort.
(b) Right of First Refusal. Until the Company becomes publicly held, the
----------------------
Company will have the irrevocable right, privilege, and option to purchase any
Stock purchased by the Optionee pursuant to an option at any time when the
Optionee or any subsequent holder of said Stock ("Holder") receives a bonafide
offer to purchase part or all of said Stock by any other party, which offer is
acceptable to such Optionee or Holder, at the same price and upon the same terms
as such other party offers for the Stock or at fair market value of the Stock as
determined by the Board of Directors, whichever price is lower. If the Optionee
or Holder objects to the fair market value set by the Board of Directors, the
Optionee has the right to have the Stock appraised by a qualified, independent
appraiser with the cost of such appraisal to be paid by the optionee or Holder.
After such appraisal, the Company shall have the option to purchase the Stock on
the terms of the bona fide offer or the appraisal, whichever is less. The
Optionee or Holder will, upon receipt will be, or will be deemed to be, a holder
of any share of Stock subject to an option unless and until stock certificates
of such shares of Stock are issued to such person
<PAGE>
or persons pursuant to the terms of this Plan. Except as otherwise provided in
paragraph 12 of this Plan, no adjustment shall be made for dividends or other
rights for which the record date occurs prior to the date such stock certificate
is issued.
(c) Dividends. Purchasers of Stock pursuant to this Plan will be
---------
entitled, after issuance of their stock certificates, to any dividends that may
be declared and paid on the shares of Stock registered in their names. A stock
certificate representing dividends declared and paid in shares of Stock shall be
issued and delivered to the purchaser after such shares have been registered in
the purchaser's name. Such stock certificate shall bear the legends set forth
above and shall be subject to the provisions of this Plan, the Option Agreement
and any escrow arrangement.
(d) Voting Rights. Purchasers of shares of the Stock shall be entitled to
-------------
receive all notices of meetings and exercise all voting rights of a shareholder
with respect to the shares of Stock purchased.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Discretion of the Board of Directors. The Board of Directors may
------------------------------------
amend or terminate this Plan at any time provided; however, that (i) any such
amendment or termination shall not adversely affect the rights of Optionees who
were granted Options prior thereto, (ii) any such amendment shall not result in
a "modification" of any Option within the meaning of Section 425(h) of the Code
and (iii) any amendment which increases the total number of shares of Stock
covered by this Plan or changes the definition of Eligible Employee shall be
subject to obtaining the approval of the Company's shareholders.
(b) Automatic Termination. This Plan shall terminate ten (10) years after
---------------------
its approval by the shareholders of the Company or its adoption by the Board of
Directors, whichever is earlier, unless the Board of Directors shall, in its
discretion, elect to terminate this Plan at an earlier date. Options may be
granted under this Plan at any time and from time to time prior to termination
of the Plan under this subparagraph 17(b). Any Option outstanding at the time
the Plan is terminated under this subparagraph 17(b) shall remain in effect
until the Option is exercised or expires.
17. Miscellaneous.
-------------
(a) Notices. All notices and elections by an Optionee shall be in writing
-------
and delivered in person or by mail to the President or Treasurer of the Company
at the principal office of the Company.
(b) Effective Date of the Plan. The effective date of this Plan shall be
--------------------------
the earlier of the date on which the Board adopts the Plan, or the date of this
approval by the shareholders of the Company.
(c) Employment. Nothing in the Plan or in any Option granted hereunder,
----------
or in any Stock Option Agreement relating thereto shall confer upon any employee
of the Company or any Subsidiary, or any successor thereof, the right to
continue in the employ of the Company or any Subsidiary.
(d) Plan Binding. The Plan shall be binding upon the successors and
------------
assigns of the
<PAGE>
Company.
(e) Gender. Whenever used herein, nouns in the singular shall include the
------
plural, and the masculine pronoun shall include the feminine gender.
(f) Headings. Captioned headings of paragraphs and subparagraphs hereof
--------
are inserted for convenience and reference, and constitute no part of the Plan.
(g) Applicable Law. The validity, interpretation and enforcement of this
--------------
Plan are governed in all respects by the laws of the State of Florida and the
United States of America.
Originally adopted by the Board of Directors on October 25, 1995.
Originally adopted by the Shareholders on February 14, 1996.
- --------------------------------------------------------------------------------
Amended by the Shareholders on June 12, 1997 to increase the shares in the
Plan by 700,000 and on June 12, 1998 to increase the shares in the Plan by
500,000.
Amended by the Board of Directors on October 14, 1997 to include provisions
effecting acceleration of options in certain conditions of a change in control
or acquisition of the Company.
Amended by the Board of Directors on June 12, 1998 to include provisions
providing for limited transferability of Nonqualified Stock Options.
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<PAGE>
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