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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
AUTONOMOUS TECHNOLOGIES CORPORATION
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Autonomous Technologies Corporation common stock, par value $0.01 per
share; Summit Technology, Inc. common stock, par value $0.01 per share.
2) Aggregate number of securities to which transaction applies: those
shares of Autonomous Technologies Corporation common stock outstanding on
the merger closing date; 11,650,400 shares of Summit Technology, Inc.
common stock.
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): 1/50 of 1% of
11,650,400 shares of Summit Technology, Inc. common stock multiplied by
the average high and low prices of that common stock on March 19, 1999 of
$5.78125 plus 1/50 of 1% of a maximum of $50,000,000 in cash for a total
fee of $23,471.
4) Proposed maximum aggregate value of transaction: To be determined on the
closing date of the merger; as of March 19, 1999 and as calculated using
the closing price of Summit common stock for the five trading days prior
to March 19, 1999 and adding the cash consideration, $118,520,662.
5) Total fee paid: $14,324 ($23,471 total fee as calculated above offset by
a fee of $9,147 previously paid by Summit Technology, Inc., pursuant to
Exchange Act Rule 0-11(a)(2).)
[_] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $9,147
2) Form, Schedule or Registration Statement No.: 333-66947
3) Filing Party: Summit Technology, Inc.
4) Date Filed: November 6, 1998
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SUMMIT TECHNOLOGY, INC. AUTONOMOUS TECHNOLOGIES
CORPORATION
March 26, 1999
Dear Fellow Stockholders:
The boards of directors of Summit Technology, Inc. and Autonomous Technologies
Corporation have agreed to a merger in which Summit will acquire Autonomous.
Autonomous will become a subsidiary of Summit, but will remain a separate
corporation and will remain headquartered in Orlando, Florida. The merger will
bring together complementary laser vision correction technologies, and we
believe it will benefit both companies and our stockholders. The accompanying
joint proxy statement/prospectus provides you with detailed information about
the transaction, and we urge you to read it carefully.
If you are an Autonomous stockholder, you will receive a combination of Summit
common stock and cash for each share of Autonomous common stock you own on the
date of the merger. Summit will issue up to 11,650,400 shares of its common
stock and an equal value of cash (up to $50 million) in the merger. The exact
amount of the consideration, and the mixture of stock and cash, will be
determined by a formula that is more fully described in the accompanying joint
proxy statement/prospectus. Summit common stock is traded on the Nasdaq
National Market under the symbol "BEAM."
YOUR VOTE IS VERY IMPORTANT. The merger cannot be completed unless the
stockholders of Autonomous approve it and the stockholders of Summit approve
the issuance of Summit common stock to be issued in the merger. We have
scheduled special meetings for our stockholders for this purpose which will
take place as follows:
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For Summit Stockholders For Autonomous Stockholders
Thursday, April 29, 1999; 9:00 a.m. EST Thursday, April 29, 1999; 9:00 a.m. EST
Conference Center The University Club of Orlando
Ropes & Gray 150 E. Central Boulevard
One International Place Orlando, Florida 32801
Boston, Massachusetts 02110
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Whether or not you plan to attend the meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us.
Robert J. Palmisano Randy W. Frey
Chief Executive Officer Chairman of the Board, President and Chief
Summit Technology, Inc. Executive Officer
Autonomous Technologies Corporation
Neither the SEC nor any state securities regulators have approved or
disapproved the Summit common stock to be issued in the merger or determined if
this prospectus is accurate or adequate. Anyone who tells you otherwise is
committing a crime.
These securities are subject to investment risks, which are discussed beginning
on page 15.
The joint proxy statement/prospectus is dated March 26, 1999 and is first being
mailed to stockholders on or about March 29, 1999.
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AUTONOMOUS TECHNOLOGIES CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Date: Thursday, April 29, 1999
Time: 9:00 a.m., Eastern Standard Time
Place: The University Club of Orlando, 150 E. Central Boulevard, Orlando,
Florida, 32801 (Parking is available in the parking garage located immediately
west of The University Club of Orlando)
At the special meeting, the stockholders of Autonomous will vote upon a
proposal to approve and adopt a merger agreement between Summit Technology,
Inc. and Autonomous Technologies Corporation, under which Autonomous will
become a subsidiary of Summit.
It is important that your shares be voted. Please vote as soon as possible by
telephone or by completing the proxy card and returning it in the enclosed
envelope. If you decide to attend the meeting in person, you can withdraw your
proxy and vote at that time. Stockholders of record at the close of business
(5:00 p.m., EST) on March 19, 1999 are entitled to one vote for each share
held. A list of these stockholders will be available for inspection for ten
days preceding the meeting at the office of the Secretary of Autonomous at 2800
Discovery Drive, Orlando, Florida 32826, and will also be available for
inspection at the meeting itself.
The board of directors of Autonomous has determined that the merger is in the
best interests of the stockholders of Autonomous and unanimously recommends
that stockholders vote to approve the merger and adopt the merger agreement at
the special meeting.
By order of the board of directors,
Randy W. Frey
Chairman of the Board, President and Chief Executive Officer
It is important that the enclosed proxy card be signed, dated and promptly
returned in the enclosed envelope or that you register your vote by
telephone by following the instructions on your proxy card, so that your
shares will be represented whether or not you plan to attend the special
meeting.
You should not send stock certificates with your proxy card
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The accompanying joint proxy statement/prospectus provides you with detailed
information about the transaction, and we urge you to read it carefully. The
joint proxy statement/prospectus also incorporates important business and
financial information about Summit that is not included in the accompanying
documents or delivered with them. You may obtain information about Summit
from documents filed with the Securities and Exchange Commission or you may
obtain them without charge upon written or oral request to Summit. If you
have questions or would like to obtain additional information, you may call
us on business days between 9:00 a.m. and 5:00 p.m. Please ask for Kate
Sturgis Burnham at 781-890-1234. You may also send your request in writing to
Ms. Burnham's attention at 21 Hickory Drive, Waltham, Massachusetts 02451. To
receive this information on a timely basis, you must make your request at
least five business days before the Special Meeting or by April 22, 1999.
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TABLE OF CONTENTS
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QUESTIONS & ANSWERS........................................................ 1
SUMMARY.................................................................... 3
SELECTED UNAUDITED PRO FORMA COMBINED AND HISTORICAL FINANCIAL DATA........ 10
Selected Unaudited Pro Forma Combined Financial Data..................... 10
Summit Selected Historical Consolidated Financial Data................... 11
Autonomous Selected Historical Consolidated Financial Data............... 12
UNAUDITED COMPARATIVE PER SHARE DATA....................................... 13
COMPARATIVE MARKET PRICE INFORMATION....................................... 14
RISK FACTORS............................................................... 15
THE SPECIAL MEETINGS....................................................... 22
Purposes, Time and Place................................................. 22
Record Date; Voting Power................................................ 22
Votes Required........................................................... 23
Share Ownership of Management and Certain Stockholders................... 23
Voting of Proxies........................................................ 24
Revocability of Proxies.................................................. 24
Solicitation of Proxies.................................................. 25
THE MERGER................................................................. 26
Background of the Merger................................................. 26
Recommendation of the Summit Board and Reasons for the Merger............ 28
Recommendation of the Autonomous Board and Reasons for the Merger........ 29
Opinion of Financial Advisor to Summit................................... 31
Opinion of Autonomous' Financial Advisor................................. 36
Merger Consideration..................................................... 40
Completion of the Merger; Effective Time................................. 42
Conversion of Shares; Procedures for Exchange of Certificates............ 42
Interests of Certain Persons in the Merger............................... 43
Material Federal Income Tax Consequences of the Merger................... 44
Accounting Treatment..................................................... 47
Effect on Stock Options and Warrants..................................... 48
Conversion and Redemption of the Autonomous Preferred Stock.............. 48
Resale of Summit Common Stock............................................ 49
Listing of Summit Common Stock........................................... 49
Dissenters' Rights....................................................... 49
THE MERGER AGREEMENT....................................................... 50
Terms of the Merger...................................................... 50
Amendment of the Merger Agreement........................................ 51
Exchange of Certificates................................................. 52
Restructuring of the Merger.............................................. 53
Representations and Warranties........................................... 54
Conduct of Business Pending the Merger................................... 55
Additional Agreements.................................................... 56
Conditions to the Merger................................................. 58
Termination.............................................................. 60
Amendment and Waiver..................................................... 62
</TABLE>
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OTHER AGREEMENTS......................................................... 63
Stockholder Agreements................................................. 63
Revolving Credit Agreement............................................. 63
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION............. 65
INFORMATION ABOUT SUMMIT................................................. 75
INFORMATION ABOUT AUTONOMOUS............................................. 82
AUTONOMOUS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................... 97
DESCRIPTION OF SUMMIT CAPITAL STOCK...................................... 108
Common Stock........................................................... 108
Preferred Stock........................................................ 108
Stockholder Rights Plan................................................ 109
Massachusetts Law and Certain Provisions of Summit's Articles of
Organization and Bylaws............................................... 111
Transfer Agent and Registrar........................................... 114
COMPARISON OF RIGHTS OF STOCKHOLDERS OF SUMMIT AND AUTONOMOUS............ 115
Special Meetings of Stockholders....................................... 115
Voting Requirements and Quorums for Stockholder Meetings............... 115
Business Conducted at Stockholder Meetings............................. 116
Inspection Rights...................................................... 116
Action by Written Consent of Stockholders.............................. 118
Cumulative Voting...................................................... 118
Dividends and Share Repurchases........................................ 119
Qualification, Nomination and Election of Directors.................... 119
Classification, Number and Removal of Directors........................ 120
Vacancies on the Board of Directors.................................... 121
Exculpation of Directors............................................... 121
Indemnification of Directors, Officers and Others...................... 122
Transactions with Interested Parties................................... 123
Fundamental Transactions............................................... 124
Charter Amendments..................................................... 125
Amendments to Bylaws................................................... 126
Appraisal and Dissenters' Rights....................................... 127
"Anti-Takeover" Statutes............................................... 128
Stockholder Rights Plans............................................... 129
APPROVAL OF AMENDMENT TO SUMMIT'S ARTICLES OF ORGANIZATION............... 130
APPROVAL OF AMENDMENT TO SUMMIT'S 1997 STOCK OPTION PLAN................. 132
VALIDITY OF COMMON STOCK................................................. 136
EXPERTS.................................................................. 136
WHERE YOU CAN FIND MORE INFORMATION...................................... 137
INDEX TO FINANCIAL STATEMENTS............................................ F-1
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ANNEXES
Annex A Agreement and Plan of Merger dated as of October 1, 1998, including
Amendment No. 1 dated March 16, 1999
Annex B Form of Stockholder Agreement
Annex C Opinion of Hambrecht & Quist, LLC
Annex D Opinion of EVEREN Securities, Inc.
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS
Q. When are the stockholder meetings?
A. The Summit special meeting will take place at 9:00 a.m. on April 29, 1999;
the Autonomous special meeting will also take place at 9:00 a.m. on April 29,
1999.
Q. What am I being asked to vote upon?
A. Autonomous stockholders: You are being asked to approve the merger and adopt
the merger agreement, which provides for the acquisition of Autonomous through
a merger.
The Autonomous board of directors has unanimously approved the merger and
recommends voting FOR the merger and the adoption of the merger agreement.
Summit stockholders: You are being asked to approve the issuance of up to
11,650,400 shares of Summit common stock in the merger. This approval is
required under the rules of the Nasdaq National Market System. As separate
matters, unrelated to the merger, you are also being asked to approve an
increase in Summit's authorized common stock to 100 million shares and an
increase of 1,500,000 shares available to be issued under Summit's 1997 Stock
Option Plan.
The Summit board of directors has unanimously approved each of these proposals
and recommends voting FOR each proposal.
Q. Who is entitled to vote?
A. You are entitled to vote at your stockholders' meeting if you owned shares
as of the close of business (5:00 p.m., EST) on March 19, 1999, the record
date.
On the record date, there were 13,391,817 shares of Autonomous common stock
entitled to vote at the special meeting. Autonomous stockholders will be
entitled to one vote for each share of Autonomous common stock they held of
record on the record date. Shares of Autonomous preferred stock will not be
entitled to vote.
On the record date, there were 31,153,765 shares of Summit common stock
entitled to vote at the special meeting. Summit stockholders will be entitled
to one vote for each share of Summit common stock they held of record on the
record date.
Q. What votes are required to complete the transaction?
A. Summit stockholders. The issuance of the Summit common stock in the merger
requires the approval of a majority of the outstanding shares of Summit common
stock entitled to vote on the proposal. If your shares are held by a broker and
you do not instruct your broker how to vote on this proposal, your shares will
not be considered as being entitled to vote. The increase in the authorized
Summit common stock requires the approval of a majority of the outstanding
shares of Summit common stock. The increase in the number of shares of Summit
common stock available for issuance under the 1997 Stock Option Plan requires
the approval of a majority of the outstanding shares of Summit common stock.
Autonomous stockholders. The vote of Autonomous stockholders required to
approve the merger agreement and the merger is the affirmative vote of a
majority of the shares of Autonomous common stock outstanding.
Q. Am I entitled to appraisal rights?
A. Under Florida law, Autonomous stockholders do not have the right to dissent
from the merger and obtain payment of the fair value of their shares in cash,
sometimes referred to as appraisal rights. Because Summit stockholders are not
exchanging their shares in
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the merger, they are not entitled to appraisal rights under Massachusetts law.
See "Comparison of Rights of Stockholders of Summit and Autonomous."
Q. What do I need to do now?
A. Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed return envelope as soon as possible, so that your shares will
be represented at your stockholders' meeting. If you prefer, you may vote by
telephone (the toll-free number is listed on the proxy card).
If you sign and send in your proxy and do not indicate how you want to vote,
your proxy will be counted as a vote in favor of all the proposals. If an
Autonomous stockholder does not vote or abstains, it will have the effect of a
vote against the merger. If a Summit stockholder who holds shares directly does
not vote or abstains, it will have the effect of a vote against all three
Summit proposals.
You may attend your stockholders' meeting and vote your shares in person,
rather than signing and mailing your proxy card. In addition, you may withdraw
your proxy up to and including the day of your stockholders' meeting by
following the directions on page 24 and either change your vote or attend your
stockholders' meeting and vote in person.
Q. If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A. Your broker will not vote your Summit or Autonomous shares on the proposals
related to the merger unless you provide instructions on how to vote. If an
Autonomous stockholder does not instruct the broker how to vote on the merger,
it will have the effect of a vote against the merger. If a Summit stockholder
does not instruct the broker how to vote on the proposal to issue Summit common
stock in the merger, it will have no effect on the outcome. This is so because
the vote required is a majority of Summit's shares that are outstanding and
entitled to vote. Under Summit's bylaws, those shares are not "entitled to
vote" on that matter.
For the proposals to increase the authorized Summit common stock and to
increase the shares available under Summit's 1997 Stock Option Plan, brokers
will have discretionary authority to vote without receiving instructions. Other
than as described above, your shares will not be voted without instructions.
Q. Should I send in my stock certificates now?
A. No. If you are an Autonomous common stockholder, after the merger is
completed, we will send you written instructions for exchanging your stock
certificates. If you are a Summit stockholder, you should retain your stock
certificates, as the merger will not require you to surrender your Summit stock
certificates at any time.
If you would like additional copies of this joint proxy statement/prospectus,
or if you have questions about the merger, you should contact:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
(800) 223-2064
Q. How can I obtain more information?
A. You may obtain more information about our companies from documents we have
filed with the Securities and Exchange Commission. In addition, if you have
questions about our companies, the merger or the special meetings, you may call
us on business days between 9:00 a.m. and 5:00 p.m. for further information.
Please ask for Kate Sturgis Burnham at (781) 890-1234, if you are calling
Summit, or Jonathan A. Kennedy at (407) 384-1664, if you are calling
Autonomous.
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SUMMARY
This summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document, including the annexes, and the documents to which we have
referred you. See "Where You Can Find More Information" on page 137. We have
included page references in parentheses to direct you to a more complete
description of the topics presented in this summary.
The Merger (page 26)
The proposed merger is an acquisition by Summit of the stock of Autonomous. In
the merger, Autonomous will become a wholly owned subsidiary of Summit.
Autonomous stockholders will receive a combination of Summit common stock and
cash for their Autonomous shares.
Reasons for the Merger (page 28)
Our companies are proposing to merge to take advantage of the complementary
strategic fit of our respective businesses, combining Summit's proven
technology, marketing, service and manufacturing experience and established
customer base with Autonomous' next generation laser and tracking technology.
We believe the combination will provide significant benefits to our
stockholders, customers and employees. To review the background and reasons for
the merger in greater detail, see pages 26 through 31.
We are working to complete the merger as soon as possible after the special
meetings.
Merger Consideration (page 40)
Autonomous common stockholders will receive a combination of Summit common
stock and cash in exchange for each share of Autonomous common stock they hold
at the closing. The exact amounts and mix of Summit stock and cash will be
based on a formula and cannot be determined until the closing. This formula
takes into account variables such as how many shares of Autonomous common stock
are outstanding, whether the holder of Autonomous' preferred stock elects to
redeem for cash and the Summit stock price. Because of this, Autonomous
stockholders will not know precisely the consideration they will receive when
they vote on the merger. We describe the formula for determining the total
merger consideration below. On page 8, we have provided a table that
illustrates the amounts of Summit common stock and cash each Autonomous
stockholder would receive on a per share basis in the merger based on the
assumptions we describe. There is no minimum or maximum value per share that
Autonomous stockholders will receive.
The maximum aggregate consideration payable for all of the equity of
Autonomous--that is, Autonomous common stock, preferred stock, options and
warrants--is 11,650,400 shares of Summit common stock and an equal value of
cash, not to exceed $50,000,000.
Stock Consideration
The stock portion of the consideration is fixed at 11,650,400 shares. The stock
consideration will be divided by the diluted Autonomous common stock
outstanding at the closing to arrive at the stock consideration per Autonomous
share. We describe below how the diluted shares outstanding will be calculated.
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Cash Consideration
The cash portion of the consideration will be determined by multiplying
11,650,400 by the average closing price of Summit common stock on the Nasdaq
National Market for the five days before the closing of the merger, not to
exceed $50,000,000. The cash amount will be reduced by:
. one half of any amounts Summit lends to Autonomous that remain
outstanding at the time of the closing, and
. any cash payable to redeem the Autonomous preferred stock.
The resulting cash amount will be divided by the diluted Autonomous shares
outstanding to arrive at the cash consideration per share. The $50,000,000 cap
applies before any of these reductions are made.
Diluted Autonomous Shares Outstanding
The diluted Autonomous shares outstanding will be calculated by adding:
. the shares of Autonomous common stock outstanding on the closing date,
. the number of shares issuable upon conversion of the Autonomous preferred
stock (unless that stock is redeemed for cash), and
. the number of shares issuable upon exercise of all outstanding in-the-
money options and warrants to purchase Autonomous common stock.
This sum will then be reduced by the number of shares that Autonomous could
repurchase at the then market value of its common stock with the amount of cash
it would receive if the options and warrants were exercised.
Series I Convertible Preferred Stock
The total consideration described above includes amounts that would be paid to
the holder of the preferred stock. The holder may elect to redeem in whole or
in part or convert in whole or in part. If the holder elects to redeem all of
its shares of preferred stock, it would receive an aggregate of $4,911,062 and
no shares of Summit common stock. If the holder elects to convert all of its
shares into Autonomous common stock, it would receive 1,031,449 shares of
Autonomous common stock and $355,552. At an assumed Summit stock price of
$5.50, the holder of the preferred stock would be entitled to 783,592 shares of
Summit common stock and $3,238,750 in respect of the 1,031,449 shares of common
stock held at closing. For a discussion of the consideration to be received by
Autonomous stockholders, please see the table and narrative on page 8.
After the merger, Autonomous' former common stockholders will own approximately
26% of the outstanding common stock of Summit.
Opinions of Financial Advisors (pages 31 through 40)
In deciding to approve the merger, our boards considered opinions from our
respective financial advisors as to the fairness of the transaction to Summit
and to the Autonomous stockholders from a financial point of view. Summit
received an opinion from Hambrecht & Quist LLC and Autonomous received an
opinion from EVEREN Securities, Inc. The EVEREN opinion was based on a Summit
stock price of $4.00 per share and assumed that Autonomous stockholders would
receive $6.26 in value per share, which may or may not be the case. EVEREN may
in its discretion withdraw its opinion that the transaction is fair to
Autonomous stockholders if the merger consideration value is less than $6.26.
These opinions are attached as Annexes C and D, respectively, to this joint
proxy statement/ prospectus. We encourage you to read these opinions.
Tax Consequences of the Merger (page 44)
Uncertainty of Tax Results
We will not be able to determine the tax consequences of the merger to
Autonomous
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stockholders until immediately before the closing. The merger may be either a
partially tax-free reorganization or a fully taxable merger depending on the
following factors:
. The average Summit stock price on the five trading days before the
closing date and the Summit stock price on the day before the closing
date;
. The Autonomous stock price at closing (used in the calculation of the
diluted Autonomous shares outstanding to determine the per share
consideration);
. The number of Autonomous options and warrants exercised before the
closing;
. Whether the Autonomous preferred stock is converted or redeemed; and
. The outstanding balance of any loan from Summit to Autonomous as of the
closing.
Because the Autonomous board of directors believes the merger is beneficial to
Autonomous stockholders regardless of the tax consequences to Autonomous
stockholders, the merger agreement allows the merger to be completed in either
event.
Partially Tax-free Reorganization
If the merger qualifies as a reorganization under the Internal Revenue Code,
the exchange of shares by Autonomous stockholders for Summit stock will not be
subject to federal income tax. Autonomous stockholders will, however, recognize
taxable gain to the extent of the cash consideration. Fluctuations in the
Summit stock price and a decision by the holder of preferred stock to redeem
for cash could result in the merger failing to qualify as a reorganization
under the Code.
Taxable Transaction
If the merger does not qualify as a reorganization, it will be fully taxable to
Autonomous stockholders. That means each Autonomous stockholder would recognize
taxable gain or loss equal to the difference between the value of all property
received (Summit common stock and cash) and the stockholder's adjusted tax
basis in the Autonomous common stock exchanged.
The tax consequences of the merger to you will depend on the factors listed
above under "Uncertainty of Tax Results", which cannot be determined until the
closing, as well as your own situation. You should consult your tax advisor for
a full understanding of the tax consequences of the merger to you.
If you are an Autonomous stockholder and are opposed to a fully taxable
transaction, then you should vote AGAINST approval of the merger agreement. We
cannot assure you what the tax consequences will be, and the merger agreement
allows the merger to be completed regardless of the tax consequences to
Autonomous stockholders.
Summit Stockholders
The tax consequences to Summit stockholders would be the same whether the
transaction is completed as a fully taxable merger or as a partially tax-free
reorganization. In either case, the transaction will be tax free to Summit
stockholders for federal income tax purposes.
Corporate Taxation
The tax consequences to Summit and Autonomous would be the same no matter how
the merger is completed.
To review the tax consequences to stockholders in greater detail, see pages 44
through 47.
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Accounting Treatment of the Merger (page 47)
Summit will account for the merger as a purchase of a business, which means
that the assets and liabilities of Autonomous, including intangible assets,
will be recorded in Summit's financial statements at their fair value.
The Companies (pages 75 and 82)
Summit develops, manufactures and markets ophthalmic laser systems designed to
correct common vision disorders such as nearsightedness, farsightedness and
astigmatism. Summit also sells contact lenses and related corrective vision
products.
Autonomous develops, manufactures and markets excimer laser instruments for
laser vision correction. The company's technology combines eye tracking with a
narrow beam excimer laser to correct common refractive vision disorders such as
nearsightedness, farsightedness and astigmatism.
Comparative Per Share Market Price Information (page 14)
Summit and Autonomous common stock are both traded on the Nasdaq National
Market. On October 1, 1998, the last full trading day prior to the public
announcement of the proposed merger, Summit common stock closed at $3.75 and
Autonomous common stock closed at $4.125. On March 23, 1999, the last
practicable trading day for which information was available before printing of
this joint proxy statement/prospectus, Summit common stock closed at $5.563 and
Autonomous common stock closed at $6.625.
Share Ownership of Management and Certain Stockholders (page 23)
On the record date, directors and executive officers of Summit and their
affiliates beneficially own 858,400 shares of Summit common stock, or
approximately 2.7% of the voting power of the Summit common stock outstanding
on the record date. The directors and executive officers of Summit have
indicated that they intend to vote their Summit stock FOR the proposal to
approve the share issuance in the merger, FOR the proposal to increase the
number of authorized shares of Summit common stock to 100 million shares and
FOR the increase in shares under the 1997 Stock Option Plan.
On the record date, directors and executive officers of Autonomous and their
affiliates beneficially own 2,884,699 shares or approximately 21% of the voting
power of Autonomous common stock outstanding on the record date. These
directors and executive officers and affiliates have entered into stockholder
agreements with Summit in which they have agreed to vote their Autonomous
common stock FOR the proposal to approve the merger agreement and against
alternative proposals.
Interests of Certain Persons in the Merger (page 43)
A number of Autonomous directors and executive officers have interests in the
merger as employees and/or directors that are different from, or in addition
to, yours as an Autonomous stockholder. If we complete the merger, Randy W.
Frey, Chairman, President and CEO of Autonomous, will have an employment
agreement with Summit and will receive options to purchase 200,000 shares of
Summit common stock. Certain options to purchase Autonomous common stock held
by Autonomous directors and officers may be converted into options to acquire
shares of Summit common stock adjusted to account for
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the exchange ratio of common shares and the cash consideration in the merger.
Also, Summit will continue certain indemnification arrangements and directors'
and officers' liability insurance for existing Autonomous directors and
officers. The boards of directors of Summit and Autonomous recognized these
interests and determined that they did not affect the benefits of the merger to
Summit or to the Autonomous stockholders. Please refer to pages 43 and 44 for
more information concerning these interests.
Directors of Summit Following the Merger (pages 43 and 50)
Following the merger, the board of directors of Summit will include Randy W.
Frey, the Autonomous Chairman, President and CEO, and Dr. C. Glen Bradley,
President and CEO of CIBA Vision Corporation, both of whom the Autonomous board
of directors has designated as Summit directors under the merger agreement. In
addition, Autonomous has designated Dr. Richard H. Keates, an ophthalmologist
and a current Autonomous director, to be an observer at Summit board meetings.
Termination Fee and Expenses (page 62)
Autonomous must pay Summit a termination fee of $2.6 million in cash if the
merger agreement is terminated in any of the following circumstances:
. the Autonomous stockholders have not approved the merger by April 30,
1999 and a proposal by a third party for an alternative transaction has
been made prior to the Autonomous Special Meeting;
. the Autonomous board of directors has withdrawn, modified or delayed its
recommendation on the merger in a manner adverse to Summit causing
Summit to elect to terminate the merger agreement; or
. Autonomous materially breaches any representation or warranty in the
merger agreement or fails to comply with any of its obligations under
the merger agreement if these result in a material adverse change
incapable of being cured by Autonomous.
Forward-Looking Statements May Prove Inaccurate
We have each made forward-looking statements in this document (and in documents
that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of Summit or Autonomous. Also,
when we use words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. Stockholders should note
that many factors, some of which are discussed elsewhere in this document and
in the documents that we incorporate by reference, could affect the future
financial results of Summit or Autonomous and could cause those results to
differ materially from those expressed in our forward-looking statements
contained or incorporated by reference in this document. These factors include
the risk factors that appear in the section entitled "Risk Factors" beginning
on page 15.
7
<PAGE>
What Will I Receive in the Merger?
Autonomous common stockholders will receive a combination of Summit common
stock and cash in exchange for each Autonomous share they hold at the merger
closing. We have prepared the following table to show the amounts of Summit
common stock and the cash payable for each share of Autonomous common stock at
varying prices (based on a five day average) for Summit common stock. The
information is based on several estimates and assumptions that we describe
below. The Summit stock prices presented in the table represent what we believe
is a reasonable range of potential trading prices for Summit's common stock.
There is no minimum or maximum value per share that Autonomous stockholders
will receive. The actual consideration that each Autonomous stockholder will
receive will be determined when the merger is completed. If the Summit stock
price is less then $2.50, or if any of our assumptions turn out to be
incorrect, the amounts payable to Autonomous stockholders could be less than
the amounts shown in the table.
<TABLE>
<CAPTION>
Consideration to be Received
Summit per Autonomous Share
Stock Price -----------------------------------------------------------------------
used in Number of
Calculation Summit Shares Cash Total Value
----------- ------------- ----- -----------
<S> <C> <C> <C>
$2.50 0.84 $1.64 $3.74
$3.00 0.78 $2.21 $4.55
$3.50 0.77 $2.59 $5.29
$4.00 0.77 $2.95 $6.03
$4.29 0.77 $3.17 $6.47
$4.50 0.76 $3.16 $6.58
$5.00 0.76 $3.15 $6.95
$5.50 0.76 $3.14 $7.32
$6.00 0.76 $3.13 $7.69
</TABLE>
Assumptions
.. The aggregate cash consideration to be paid in the merger will be reduced by
one-half of any amounts Summit lends to Autonomous which are not repaid
before the closing. In this table, we assume that Autonomous will have $3.0
million in borrowings from Summit outstanding at the time of closing.
.. The cash consideration available for Autonomous common stockholders will be
reduced by any amounts used to redeem shares of Autonomous preferred stock.
In this table, for all Summit stock prices except $2.50, we assume that 410
of the 442 shares of the preferred stock currently outstanding are converted
into 1,031,449 shares of Autonomous common stock and that the remaining 32
shares are redeemed for an aggregate of $355,552. At a Summit stock price of
$2.50, we assume that all 442 shares of the preferred stock currently
outstanding are redeemed for $4,911,062. At Summit prices below $3.00, we
assume that the holder of the preferred stock will elect redemption because
the economic value is then approximately equivalent with either choice.
.. The consideration per Autonomous share will vary if holders of options and
warrants exercise them before the closing. We assume in this table that
holders of options to acquire approximately 117,000 shares of Autonomous
common stock (out of options on approximately 1,483,000 shares) and holders
of warrants for 90,000 shares of Autonomous common stock (out of warrants on
8
<PAGE>
approximately 245,000 shares) will exercise their options or warrants before
the closing. The remaining options and warrants will be outstanding at the
time of the merger and will be included in the diluted Autonomous shares
outstanding used to determine the per share consideration. Also included in
Autonomous shares outstanding as of closing are 100,000 shares that will be
issued to the holder of the preferred stock in exchange for a warrant to
purchase 300,000 shares and 171,173 shares to be issued to CIBA Vision
Corporation immediately before the merger in satisfaction of an obligation
under the 1995 Strategic Alliance Agreement with Autonomous. For purposes of
determining the fully diluted Autonomous shares outstanding, we have valued
the Autonomous common stock at the total value of consideration per Autonomous
share.
.. The amounts shown above are approximate. The actual amounts determined upon
completion of the merger may differ if the assumptions presented above do not
reflect the actual facts on the closing date. In particular, the mix of
relative values of the Summit common stock and the cash portion of
consideration (at a Summit per share price of less than $3.00) may change
from approximately 52% stock/48% cash to approach as much as 56% stock/44%
cash if the holder of the preferred stock chooses to redeem all of its shares
for cash, rather than elect to convert all of its shares to Autonomous common
stock.
The assumptions used in the table are those we believe are most likely to
occur. We have also estimated the consideration per Autonomous share using what
we believe are worst case assumptions. If the Summit stock price is $2.50, we
believe that the preferred stock will redeem. If we assume further that
.. Autonomous borrows $4.5 million under the Summit credit line, the maximum
amount it could borrow as of the closing, and
.. all in-the-money options and warrants are exercised before the closing and
there is no use of such proceeds to repay amounts drawn down from the credit
line, which results in the highest diluted Autonomous shares outstanding and
thus the lowest per share consideration, then
each Autonomous stockholder would be entitled to receive 0.83 shares of Summit
common stock and $1.56 in cash for each share of Autonomous common stock, for a
total value of $3.64.
Both Summit and Autonomous will issue press releases shortly after the closing
of the merger to announce the final determination of the consideration and the
mix of Summit common stock and cash.
9
<PAGE>
SELECTED UNAUDITED PRO FORMA
COMBINED AND HISTORICAL FINANCIAL DATA
Selected Unaudited Pro Forma Combined Financial Data
We are providing the following selected unaudited pro forma combined financial
data to help stockholders analyze the financial aspects of the merger. This
information is only a summary and you should review the more detailed pro forma
condensed combined financial information included elsewhere in this joint proxy
statement/prospectus. You should also read it in conjunction with the
historical consolidated financial statements (and related notes) included in
the annual reports on Form 10-K and current report on Form 8-K that Summit has
filed with the SEC and the Autonomous historical financial statements that are
included in this joint proxy statement/prospectus. You should not rely on the
pro forma combined information as being indicative of the results that would
have been achieved had the companies been combined or the future results that
the combined company will experience after the merger. See "Unaudited Pro Forma
Condensed Combined Financial Statements" on page 65 and "Where You Can Find
More Information" on page 137.
The merger consideration paid by Summit for each share of Autonomous includes
varying amounts of Summit common stock and cash based on (i) the average
closing price of Summit common stock for the five days before the closing of
the merger and (ii) the decisions that holders of Autonomous preferred stock,
options and warrants may make before the closing. Pro forma presentations were
prepared using an assumed five-day average closing price of Summit common stock
of $2.50 per share and $6.00 per share to demonstrate a reasonable range of
possible results. There is no minimum or maximum value per share that
Autonomous stockholders will receive.
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-------------------
$2.50 per $6.00 per
share share
--------- ---------
(In thousands,
except per share
data)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues............................................ $ 91,863 $ 91,863
Income from continuing operations......................... 19,896 16,292
Income per share from continuing operations--basic and
diluted.................................................. $ 0.46 $ 0.38
Weighted average number of common shares:
basic................................................... 42,881 42,532
diluted................................................. 42,942 42,942
<CAPTION>
December 31, 1998
-------------------
$2.50 $6.00
per share per share
--------- ---------
<S> <C> <C>
BALANCE SHEET DATA
Working capital........................................... $ 46,248 $ 26,402
Total assets.............................................. 154,952 198,443
Long-term debt, less current maturities................... 315 315
Stockholders' equity...................................... 127,688 171,179
</TABLE>
10
<PAGE>
Summit Selected Historical Consolidated Financial Data
The selected consolidated financial data presented below for, and as of the end
of, each of the years in the five-year period ended December 31, 1998, are
derived from Summit's audited consolidated financial statements. This selected
consolidated financial data should be read in conjunction with Summit's audited
consolidated financial statements and notes and the related "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
are incorporated by reference in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
------- ------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA
Revenues................ $91,641 $79,650 $ 73,912 $95,258 $ 71,410
Income (loss) from
continuing
operations(1).......... 36,730 828 (13,491) 1,575 (14,433)
Cumulative effect of
accounting principle
change(2).............. (10,103) -- -- -- --
Net income (loss)....... 27,570 21,398 (36,857) (2,967) (16,799)
Basic and diluted
earnings (loss) per
share:
Income (loss) from
continuing
operations........... $ 1.17 $ .03 $ (.43) $ .06 $ (.54)
Cumulative effect of
accounting principle
change............... (.32) -- -- -- --
Net income (loss)..... .88 .68 (1.18) (.11) (.63)
Weighted average number
of common shares--
basic.................. 31,244 31,400 31,174 27,892 26,593
Weighted average number
of common shares--
diluted................ 31,292 31,591 31,174 27,892 26,593
Pro forma amounts
assuming accounting
principle change had
been applied
retroactively:
Net income (loss)....... $37,673 $22,682 $(37,772) $(6,073) $(19,966)
Net income (loss) per
share--basic and
diluted................ $ 1.20 $ .72 $ (1.21) $ (.22) $ (.75)
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital............... $ 78,953 $ 67,404 $ 73,085 $108,374 $23,560
Total assets.................. 144,925 115,103 133,660 161,661 54,288
Long-term debt, less current
maturities................... 150 6,330 11,472 537 503
Stockholders' equity.......... 119,334 88,987 101,947 138,239 38,692
</TABLE>
- - - --------
(1) In the second quarter of 1998, Summit received a litigation settlement of
$29.9 million, net of related taxes and expenses.
(2) In the fourth quarter of 1998, Summit changed its method of accounting for
Lens Express membership fee revenues which were previously recognized when
received. Under the new accounting method, Summit recognizes membership fee
revenues ratably over the term of the membership, which is one to five
years.
11
<PAGE>
Autonomous Selected Historical Consolidated Financial Data
The following selected consolidated financial data should be read in
conjunction with Autonomous' consolidated financial statements and notes and
the information contained in "Autonomous Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
joint proxy statement/prospectus. The selected consolidated financial data as
of December 31, and March 31, 1995, and for each of the years in the two-year
period ended December 31, 1995, are derived from audited financial statements
not included in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
Cumulative
from Inception
Nine Months (July 23,
Year Ended Year Ended Year Ended Ended Year Ended 1985) to
December 31, December 31, December 31, December 31, March 31, December 31,
1998 1997 1996 1995 1995 1998
------------ ------------ ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
LADARVision Systems and
Services................... $ 221,955 $ 37,065 $ -- $ -- $ -- $ 259,020
Research grants............. -- -- -- -- -- 3,450,517
OPERATING EXPENSES:
Costs of revenues--
LADARVision Systems and
Services.................. 395,130 105,892 -- -- -- 501,022
Costs of revenues from
research grants........... -- -- -- -- -- 3,465,596
Clinical trials and
compliance................. 2,666,914 2,980,317 1,715,412 602,847 569,389 8,537,108
Unabsorbed production
costs...................... 2,997,672 758,801 -- -- -- 3,756,473
Research and development.... 3,775,159 2,954,559 3,521,381 1,698,056 1,608,032 14,083,474
Selling and marketing....... 2,669,257 1,493,069 1,190,898 478,439 40,349 6,124,259
General and administrative.. 2,846,404 2,328,222 1,852,351 974,738 562,042 9,201,275
Other expenses.............. 1,660,453 1,596,671 1,283,874 375,000 -- 4,915,998
------------ ------------ ----------- ----------- ----------- ------------
OPERATING LOSS (16,789,034) (12,180,466) (9,563,916) (4,129,080) (2,779,812) (46,875,668)
Interest income (expense),
net........................ 146,281 541,111 555,872 30,035 84,463 1,329,640
Provision for income taxes.. -- -- -- -- -- 4,772
------------ ------------ ----------- ----------- ----------- ------------
NET LOSS.................... (16,642,753) (11,639,355) (9,008,044) (4,099,045) (2,695,349) ( 45,546,028)
Deemed dividend for Series I
preferred stock conversion
discount .................. 831,602 -- -- -- -- 831,602
------------ ------------ ----------- ----------- ----------- ------------
Net loss applicable to
common stockholders........ $(17,474,355) $(11,639,355) $(9,008,044) $(4,099,045) $(2,695,349) $(46,382,402)
============ ============ =========== =========== =========== ============
LOSS PER SHARE:
Basic net loss per share.... $ (1.59) $ (1.43) $ (2.36) $ (3.37) $ (2.40)
============ ============ =========== =========== ===========
Shares used in computing
basic net loss per share... 11,009,272 8,151,395 3,812,039 1,217,509 1,125,000
============ ============ =========== =========== ===========
<CAPTION>
December 31, March 31,
------------------------------------------------------ -----------
1998 1997 1996 1995 1995
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and investments........ $ 544,666 $ 7,301,072 $12,405,790 $ 492,326 $ 975,428
Total assets................ 7,918,582 12,416,149 14,144,249 799,493 1,252,317
Long-term obligations....... 164,993 1,760,007 1,097,133 2,802,832 2,405,000
Stockholders' equity
(deficit).................. 2,796,076 8,979,812 11,583,648 (3,564,616) (1,304,568)
</TABLE>
12
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth earnings and book value per common share for
Summit and Autonomous on a historical, pro forma combined and equivalent basis.
You should read this table along with Summit's historical consolidated
financial statements incorporated by reference in this joint proxy
statement/prospectus (see "Where You Can Find More Information" on page 137),
Autonomous' historical consolidated financial statements that begin on page F-
1, and the unaudited pro forma combined financial statements on page 65. You
should not rely on the pro forma combined information as being indicative of
the results that would have been achieved had the companies been combined or
the future results that the combined company will experience after the merger.
Neither Summit nor Autonomous has ever paid cash dividends on its common stock.
The merger consideration paid by Summit for each share of Autonomous includes
varying amounts of Summit common stock and cash based on (i) the average
closing price of Summit common stock for the five days before the closing of
the merger and (ii) the decisions that holders of Autonomous preferred stock,
options and warrants may make before the closing. Pro forma presentations were
prepared using an assumed five-day average closing price of Summit common stock
of $2.50 per share and $6.00 per share to demonstrate a reasonable range of
possible results. There is no minimum or maximum value per share that
Autonomous stockholders will receive.
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
<S> <C>
Summit Historical:
Book value per share (at period end)....................... $ 3.83
Income per share from continuing operations--basic and
diluted................................................... $ 1.17
Autonomous Historical:
Book value per share (at period end)....................... $ 0.23
Loss per share from continuing operations--basic and
diluted................................................... $(1.59)
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
---------------------
@$2.50 @$6.00
per share per share
---------- ----------
<S> <C> <C>
Summit Pro Forma Combined:(1)
Book value per share (at period end)............... $ 2.98 $ 4.03
Income per share from continuing operations--basic
and diluted....................................... $ 0.46 $ 0.38
Autonomous Equivalent Pro Forma:(2)
Book value per share (at period end)............... $ 2.51 $ 3.07
Income per share from continuing operations--basic
and diluted....................................... $ 0.39 $ 0.29
</TABLE>
- - - --------
(1) The pro forma information was calculated by combining the historical
amounts from Summit and Autonomous after considering the pro forma
adjustments divided by the sum of Summit's historical share information and
the additional shares of Summit common stock estimated to be issued in the
merger.
(2) The Autonomous equivalent pro forma per share amounts are calculated by
multiplying the Summit pro forma combined per share amounts by an assumed
exchange ratio of Summit common stock of 0.84 shares at $2.50 per share and
0.76 shares at $6.00 per share for each share of Autonomous common stock.
It does not include the cash portion of the merger consideration.
13
<PAGE>
COMPARATIVE MARKET PRICE INFORMATION
The following table presents trading information for Summit and Autonomous
common stock on Nasdaq on October 1, 1998 and March 23, 1999. October 1, 1998
was the last full trading day before our announcement of the signing of the
merger agreement. March 23, 1999 was the last practicable trading day for which
information was available before the date of this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
Summit Common Stock
Autonomous Price x Exchange
Summit Common Stock Common Stock Ratio
(dollars per share) (dollars per share) (dollars per share)
-------------------- -------------------- --------------------
High Low Close High Low Close High Low Close
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
October 1,
1998........... $3.875 $3.500 $3.750 $4.500 $3.875 $4.125 $2.984 $2.695 $2.888
March 23, 1999.. $5.625 $5.500 $5.563 $7.000 $6.500 $6.625 $4.275 $4.180 $4.228
</TABLE>
The amounts appearing under "Summit Common Stock Prices x Exchange Ratio"
represent the values per Autonomous share of the stock portion of the merger
consideration on the dates specified. The exchange ratio of 0.77 on October 1,
1998 and .76 on March 23, 1999, respectively, was based upon the price of
Summit common stock on each date. These values would be different at different
Summit stock prices at the time of the merger. Please refer to the table on
page 8. These amounts do not include the cash portion of the merger
consideration.
Summit common stock trades on Nasdaq under the symbol "BEAM." Autonomous
common stock trades on Nasdaq under the symbol "ATCI."
14
<PAGE>
RISK FACTORS
In addition to the other information included or incorporated by reference in
this joint proxy statement/prospectus, Autonomous stockholders, with respect to
the merger, and Summit stockholders, with respect to the issuance of Summit
common stock in the merger, should consider carefully the risk factors
described below in determining how to vote.
Risks Related to the Merger
Autonomous stockholders will not know how much Summit common stock and cash
they will receive until the closing
Autonomous stockholders will not know exactly how much they will receive per
share for each of their Autonomous shares until the closing of the merger.
Summit will pay a fixed consideration of 11,650,400 shares of Summit stock plus
an equal value of cash not to exceed $50 million to acquire Autonomous. The
Summit shares and cash will be allocated among Autonomous' common stock,
preferred stock and options and warrants. The per share amounts will be based
on the diluted Autonomous shares outstanding at the time the merger is
completed, which will be sensitive to the Autonomous stock price at the time
the merger is completed. The aggregate amount of cash will depend on the Summit
stock price. In addition, if the holder of the preferred stock elects to redeem
this stock for cash, there would be more Summit shares, and consequently less
cash, available for each Autonomous stockholder. We cannot predict what the
price of Autonomous common stock and Summit common stock will be when the
merger takes place, and we do not currently know whether the holder of the
preferred stock will elect a cash redemption. For these reasons, we will not be
able to determine the per share consideration Autonomous stockholders will
receive until the closing. See "The Merger--Merger Consideration."
The value of the consideration will fluctuate based on the Summit stock price
The value of the merger consideration will depend on the Summit stock price.
The number of shares of Summit stock issuable in the merger will not be
adjusted in the event of any decrease in the Summit stock price. In addition,
because the aggregate amount of cash payable is also based on the Summit stock
price, the amount of cash an Autonomous stockholder receives will also
fluctuate based on the Summit stock price and will decline at Summit stock
prices below $4.29. There is no floor on the total consideration.
Autonomous stockholders will not know the tax consequences of the Merger to
them until the closing
When Autonomous stockholders vote on the merger, the tax consequences of the
merger to them will be uncertain. Whether the merger will be a partially tax-
free reorganization or a fully taxable merger depends upon several factors
which cannot be determined prior to the closing. The most important of these
factors are the average Summit stock price on the five days preceding the
closing, the Summit stock price on the day preceding the closing and whether
the Autonomous preferred stock is converted to Autonomous common stock before
the merger or is redeemed for cash. The merger agreement allows the merger to
be completed regardless of the tax consequences to Autonomous shareholders. See
"The Merger--Material Federal Income Tax Consequences of the Merger."
15
<PAGE>
Summit may experience difficulty in integrating the operations of the two
companies and in realizing the benefits of the merger
The merger involves the integration of two companies that have previously
operated independently. Summit may not be able to integrate the operations of
Autonomous without encountering difficulties or experiencing the loss of key
employees, potential customers or suppliers, and the benefits expected from the
integration may not be realized. If customers view the merger of the companies
as a negative development, Summit may lose customers and market share. In
addition, there can be no assurance that Summit will realize anticipated
synergies from the merger. For example, Autonomous has only had limited
experience manufacturing its LADARVision(R) Systems and has had no experience
producing the system in significant quantities. Following the merger Summit
intends to assist Autonomous in developing its manufacturing capabilities. If
it is unsuccessful in doing so, or if the effort requires greater resources,
the expected benefits of the merger may not be realized.
Summit and Autonomous might not be able to complete the proposed merger if it
is challenged on antitrust grounds
There are a limited number of FDA approved manufacturers of laser vision
correction equipment. Although we were not required to file for the merger
under the Hart Scott Rodino Antitrust Improvements Act of 1976, the Federal
Trade Commission has evaluated the transaction and has advised us that is does
not intend to challenge it on antitrust grounds. However, state attorneys
general and private parties may bring actions under the antitrust laws under
certain circumstances. We cannot predict whether any such party will take
action to block the proposed transaction or what the outcome of any such
proceeding would be. If such an action were commenced, the companies might not
be able to complete the proposed transaction as currently structured or in a
timely manner, if at all.
Summit's use of significant cash resources for the merger and continuing
operations may strain its liquidity and place Summit in technical default under
financial covenants in its loan agreement
A significant amount of Summit's cash resources will be used to complete the
merger and support the Autonomous operation after the merger. This will put a
significant strain on Summit's liquidity and could preclude Summit from having
cash available to fund operations, make other acquisitions, or for other
purposes. The cash portion of the purchase price of up to $50 million
represented approximately 68% of Summit's cash, short-term investments and
long-term investments excluding the value of LCA common stock at December 31,
1998 and net of bank borrowings. Summit expects that the Autonomous operation
could require as much as $20 million before it reaches a cash flow break-even
status, although this amount could fluctuate up or down depending on a variety
of factors. Summit's use of cash to make loans to Autonomous and to complete
the merger places Summit in technical default under financial covenants
contained in its bank loan agreement. This could give rise to an acceleration
of Summit's bank indebtedness, further straining Summit's liquidity. As of
March 19, 1999, the total principal amount of this indebtedness was $5,000,000.
See "Information about Summit" and "Information About Autonomous."
The merger will be dilutive to Summit's earnings in the near term
The merger is likely to delay Summit's efforts to achieve consistent
profitability until at least the year 2000. Expenses related to research and
development of Autonomous' CustomCornea(TM)
16
<PAGE>
technology as well as the amortization of goodwill and other capitalized items
(approximately $38 million to $102 million assuming the five-day average
closing price of Summit common stock is $2.50 to $6.00 per share) created by
the merger will reduce Summit's operating income or increase its operating loss
for the applicable period. In addition, Summit expects that the Autonomous
operation will continue to have operating losses for at least the next twelve
months as it ramps up manufacturing, commences a significant marketing campaign
and continues incurring substantial research and development expenses. These
operating losses will reduce Summit's operating income and will likely cause
Summit to report operating losses during this period. See "Unaudited Pro Forma
Condensed Combined Financial Information."
The market acceptance of two laser vision correction systems is unpredictable
Summit cannot predict how existing and potential customers for laser vision
correction systems will respond to Summit's offering two distinctly different
laser vision correction systems. For example, sales of Summit's Apex Plus
system could decline in anticipation of the availability of the Autonomous
system, or Summit could lose existing Apex Plus customers who perceive that
Summit's acquisition of the Autonomous system would result in less support for
its existing installed base. However, Summit has not seen any evidence of this
since publicly announcing the proposed merger on October 1, 1998. The actual
availability of the Autonomous system from a manufacturing viewpoint may not be
sufficient to make up for any loss of sales of Summit's Apex Plus system while
the Autonomous operation ramps up its manufacturing capability for the
LADARVision System.
Competition Risks
New competitors may erode Summit's U.S. market share
Nidek Co., Ltd. obtained FDA approval of its EC-5000 excimer laser system in
December 1998. Other manufacturers, including Bausch & Lomb and LaserSight, are
expected to obtain approval during 1999, giving them the right to market their
systems commercially in the U.S. If ophthalmologists perceive new competitors'
systems to be technologically or economically superior to Summit's, Summit
could lose market share to these competitors. This could have a material
adverse effect on Summit's business, financial conditions and results of
operations. See "Information About Autonomous--Historical Market Development."
Competitors may have broader approvals which could give them a competitive
advantage over Summit
In the United States, the FDA strictly regulates the types and ranges of
surgical treatments that a manufacturer's laser vision system can perform. To
the extent the FDA approves one manufacturer's system for a wider range of
treatments than a competitor's system, a competitive advantage will arise. At
present, the laser vision correction system manufactured by VISX, Inc. is FDA
approved to perform a wider range of treatments than the Summit system,
including farsightedness and higher degrees of nearsightedness and astigmatism.
The laser vision correction system manufactured by Nidek is approved for a
higher degree of nearsightedness than the Summit system (but is not approved
for farsightedness or astigmatism). The Summit system is
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presently approved for mild to moderate nearsightedness and astigmatism. If
Summit is unsuccessful in obtaining timely FDA approvals for farsightedness and
for higher ranges of nearsightedness (applications for which are presently
pending before the FDA), its ability to affectively compete in the U.S. against
these companies (or future entrants with broader approvals) may be compromised.
See "Information About Autonomous--Historical Market Development."
Competitors may not charge their customers per procedure fees which, in turn,
could affect Summit's ability to collect license fees
Summit presently licenses a number of patents to users of its systems on a per
procedure basis. Summit derives a substantial portion of its revenue from the
per procedure fees it charges to license these patents. If competitors do not
charge per procedure fees to users of their systems, Summit could be forced to
reduce or eliminate the fees it collects. This could have a material adverse
effect on Summit's revenues and financial performance. Nidek, one of Summit's
competitors, has publicly stated that it does not intend to charge per
procedure fees to users of its systems.
Proliferation of unapproved systems could adversely affect Summit's revenues
Summit is aware that certain U.S. physicians are performing refractive
procedures in the United States with laser vision correction systems that have
not been approved by the FDA, including earlier versions of Summit systems
originally sold in international markets and so-called "homemade" or "black
box" systems. Pursuing these potential infringers could be costly and might not
result in any significant recoveries. Although Summit believes FDA enforcement
action has had some positive impact on this problem, continued use or
proliferation of these systems will negatively affect Summit's system sales and
per procedure revenues. In addition, any adverse clinical consequences
resulting from the use of these systems could negatively affect consumer
acceptance of laser vision correction generally.
Illegal tampering with system configurations could adversely affect revenue
collection
Summit believes that some users of its Apex excimer systems in the United
States have tampered with the software configuration of their systems to defeat
the card reading system that facilities the collection of per procedure license
fees. Summit's loss of per procedure fees as a result of this tampering could
adversely affect its revenues and operating results.
New products and technologies could erode demand for Summit products or make
them obsolete
In addition to competing with eyeglasses and contact lenses, excimer laser
vision correction competes or may compete with newer technologies such as
intraocular lenses, corneal rings and surgical techniques using different types
of lasers. To the extent that any of these or other new technologies are
perceived to be clinically superior or economically more attractive than
excimer laser vision correction, they could erode demand for Summit's excimer
laser products or render such products obsolete. Summit believes that the
Autonomous LADARVision System and CustomCornea(TM) technology represents the
next generation of excimer laser based vision correction technology and will
remain technologically competitive into the next decade. However, if one or
more competing technologies achieve broader market acceptance or render the
LADARVision System obsolete, Summit may never realize the anticipated benefits
of the transaction. This could have a material adverse effect on Summit's
business, financial condition and results of operations.
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Company Risks
Summit is involved in litigation that could subject it to significant
liabilities and consume company resources
Since August 2, 1996, stockholders have commenced sixteen separate legal
actions against Summit and its directors and officers. In addition, there are
multiple state and federal antitrust lawsuits pending against Summit and VISX
relating to the Pillar Point Partners arrangement that existed between the two
companies from 1992 to 1998. All these lawsuits seek substantial monetary
damages for alleged violations of securities or antitrust laws. Defending
against these lawsuits has and will continue to consume considerable resources,
including management time and attention, which has been diverted from operating
the business. The potential recoveries, if the plaintiffs are successful, would
have a significant negative effect on Summit's cash position. Litigation is
inherently uncertain and an adverse resolution of these actions may have a
material adverse effect on Summit's financial position and operating results in
the period they are resolved.
Challenges to owned or licensed intellectual property could adversely affect
our business
Failure to maintain the protection afforded by certain of Summit's owned and
licensed patents would have a material adverse effect on Summit's future
revenues and earnings. These patents might ultimately be found to be invalid,
or others might elect to infringe these patents or develop substantially
equivalent or competitive products. On March 24, 1998, the FTC commenced an
action challenging certain of the patents that VISX has licensed to Summit.
Although Summit has settled its part of this litigation, the FTC is seeking an
order to invalidate these VISX patents. In July 1997, a private party commenced
a lawsuit against VISX in which he asserts that he is the sole inventor of a
certain VISX patent. Successful challenges to the validity and enforceability
of any of Summit's patents or the patents licensed from VISX could have a
material adverse effect on Summit's ability to collect per procedure license
fees. Even if an unlicensed party's products or procedures infringe upon
Summit's patents, it may be costly to enforce these rights. An infringement
action may require the diversion of funds from Summit's operations and may
require management to expend funds and effort that might otherwise be devoted
to Summit's operations. Furthermore, Summit may not be successful in enforcing
its patent rights. Any failure by Summit to prevail in patent infringement
actions against others, or any success by others in invalidating or being found
not to infringe patents owned or licensed by Summit, could have a material
adverse effect on Summit's ability to collect per procedure fees.
Autonomous is engaged in patent litigation with VISX. VISX is seeking damages
and an injunction that would prevent Autonomous from making and selling the
LADARVision System in the United States. Although the merger will provide
Autonomous with a license for the contested patents, VISX's continued
prosecution of this lawsuit will delay Autonomous' proposed launch of the
LADARVision System in the United States. Autonomous and VISX have agreed to
stay the litigation until the earlier of the Summit/Autonomous merger,
termination of the merger or May 1, 1999. During this period, Autonomous has
agreed not to deliver LADARVision Systems in the U.S. This delay in the launch
could also delay the expected benefits of the combination of Summit and
Autonomous following the merger.
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There are a number of U.S. and foreign patents covering methods and apparatus
for performing corneal surgery that neither Summit nor Autonomous owns or has
the right to use. If Summit or Autonomous were found to infringe a patent in a
particular market, Summit and its customers may be enjoined from making, using
and selling that product in the market or be required to obtain a fee-bearing
license, if available on acceptable terms. Alternatively, Summit might be
required to redesign the infringing aspects of these products. Any redesign
efforts that Summit undertakes could be expensive and might require FDA review.
Furthermore, the redesign efforts could delay the reintroduction of these
products into certain markets, or may be so significant as to be impractical.
If redesign efforts were impractical, Summit could be prevented from
manufacturing and selling the infringing products, which would have a material
adverse effect on its business, financial and results of operations.
Failure or delay in obtaining regulatory approvals for products would adversely
affect Summit's business
Summit's excimer systems and related disposable and the Autonomous LADARVision
System are regulated medical devices under the Food, Drug and Cosmetics Act. As
such, these devices, expanded treatment types and levels for these devices and
significant design or manufacturing modifications require a premarket clearance
by the FDA prior to commercialization in the United States. This approval
process, which is lengthy and uncertain, requires underlying clinical studies
and requires substantial commitments of financial resources and management's
time and effort. Delays in obtaining or failure to obtain required regulatory
approvals or clearances in the United States and other countries would prevent
the marketing of these systems and other devices or the marketing of these
systems and other devices to treat expanded indications and impair Summit's
ability to generate sales, which in turn would have a material adverse effect
on its business, financial condition and results of operations.
Summit's and Autonomous' reliance on vendors for certain critical system
components could jeopardize operations if alternative sources are not readily
available
Summit currently purchases certain components used in the production, operation
and maintenance of its excimer systems and related products from a limited
number of suppliers. Similarly, Autonomous obtains key components from a
limited number of suppliers. If these suppliers were to cease providing
components, Summit would be required to locate and contract with substitute
suppliers, which it may not be able to do in a timely manner. Any interruption
in Summit's ability to manufacture and service excimer systems on a timely
basis would have a material adverse effect on its business, financial condition
and results of operations.
Inadequacy or unavailability of insurance may expose Summit to significant
liability
The testing and use of human health care products entails an inherent risk of
physical injury to patients and physicians and exposes the manufacturer to
potential product liability and other damage claims. In addition, our products
have high voltage power supplies and use corrosive gases. Although we maintain
product liability insurance, a product liability claim assessed against us
could exceed our insurance coverage. Adequate product liability insurance may
not continue to be available, either at existing or increased levels of
coverage, on commercially reasonable terms. Even if a claim is covered by
insurance, the costs of defending a product liability, malpractice, negligence
or other action, and the
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assessment of damages in excess of insurance
coverage, could have a material adverse effect on our business, financial
condition and results of operations.
Competitive factors beyond its control could adversely affect Lens Express'
competitive position and negatively affect Summit's revenues and profitability
The operations of Summit's Lens Express unit could be adversely affected by
certain risks beyond its control, including:
.. lack of consistent sources of supply
.. inability to obtain suitable advertising spots in selected media at cost-
effective prices
.. state regulations
.. competition from other contact lens providers
Because some contact lens manufacturers do not sell contact lenses directly to
Lens Express, Lens Express must obtain product through indirect channels. Lens
Express may not be able to obtain product through indirect channels at the
times, prices and quantities it requires. If it is unable to obtain product
from indirect suppliers, or is forced to do so on unfavorable terms, Lens
Express' sales and profitability could be adversely affected. Lens Express'
operations are subject to numerous state laws and regulations that govern the
dispensing of replacement contact lenses. Although some states impose little
regulation on mail order dispensing of contact lenses, other states have
stricter requirements. Burdensome regulatory requirements imposed by certain
states, such as prohibiting dispensing of replacement lenses without receipt of
a written prescription, make it more difficult and expensive for Lens Express
to sell replacement contact lenses in these states, and place Lens Express at a
competitive disadvantage versus competing mail order sellers that are able to
avoid or ignore these laws and regulations. Other states may enact or impose
laws or regulations that prohibit mail order dispensing of replacement contact
lenses or otherwise impair Lens Express' ability to sell lenses and operate
profitability. In addition, the contact lens dispensing industry is subject to
intense competition. Lens Express may lose market share to other contact lens
providers electing to pursue a marketing strategy which, like that of Lens
Express, emphasizes convenience and price, or to discount chains, wholesale
clubs and other competitors.
The market price of Summit stock historically has been volatile
The volatility of Summit common stock imposes a greater risk of capital losses
on stockholders as compared to less volatile stocks. In addition, such
volatility makes it difficult to ascribe a stable valuation to a stockholder's
holdings of Summit common stock. Factors such as announcements of technological
innovations or new products by Summit or its competitors, changes in domestic
or foreign governmental regulations or regulatory approval processes,
developments or disputes relating to patent or proprietary rights and public
concern as to the safety and efficacy of the procedures for which the excimer
system is used, has and may continue to have a significant impact on the market
price of the Summit common stock. Moreover, the possibility exists that the
stock market (and in particular the securities of technology companies such as
Summit) could experience extreme price and volume fluctuations unrelated to
operating performance.
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THE SPECIAL MEETINGS
Purpose, Time and Place
Summit and Autonomous are sending this joint proxy statement/prospectus to
their stockholders in connection with the solicitation of proxies by their
boards of directors for use at the special meetings of their stockholders. The
Summit special meeting will be held on Thursday, April 29, 1999 at 9:00 a.m. at
the Conference Center, Ropes & Gray, One International Place, Boston,
Massachusetts 02110. The Autonomous special meeting will also be held on
Thursday, April 29, 1999 at 9:00 a.m. at The University Club of Orlando, 150 E.
Central Boulevard, Orlando, Florida 32801. At the Summit special meeting,
holders of Summit common stock will be asked to consider and vote upon a
proposal to issue up to 11,650,400 shares of Summit common stock in the merger.
Separately, Summit stockholders will also be asked to authorize an increase in
the authorized Summit common stock from 60 million shares to 100 million shares
and an increase of 1,500,000 shares in the number of shares available under the
1997 Stock Option Plan. The approval of the share issuance proposal is not
contingent upon either the approval of the authorized share increase proposal
or the approval of the proposal to increase the shares available under the 1997
Stock Option Plan. At the Autonomous special meeting, holders of Autonomous
common stock will be asked to consider and vote upon a proposal to adopt the
merger agreement and approve the merger.
Record Date; Voting Power
Summit. The Summit board has fixed the close of business (5:00 p.m., EST) on
March 19, 1999 as the record date for determining the holders of Summit common
stock entitled to notice of, and to vote at, the Summit special meeting. Only
holders of record of Summit common stock at the close of business on the record
date will be entitled to notice of, and to vote at, the Summit special meeting.
At the close of business on the record date, 31,294,594 shares of Summit common
stock were issued and outstanding and entitled to vote at the Summit special
meeting. Holders of record of Summit common stock are entitled to one vote per
share on any matter that may properly come before the Summit special meeting.
Votes may be cast at the Summit special meeting in person or by proxy. See "--
Voting of Proxies."
The presence at the Summit special meeting, either in person or by proxy, of
the holders of a majority of the outstanding shares of Summit common stock is
necessary to constitute a quorum. If a quorum is not present at the Summit
special meeting, management will adjourn or postpone the meeting in order to
solicit additional proxies.
Autonomous. The Autonomous board has fixed the close of business (5:00 p.m.,
EST) on March 19, 1999 as the record date for determining the holders of
Autonomous common stock entitled to notice of, and to vote at, the Autonomous
special meeting. Only holders of record of Autonomous common stock at the close
of business on the record date will be entitled to notice of, and to vote at,
the Autonomous special meeting.
At the close of business on the record date, 13,391,817 shares of Autonomous
common stock were issued and outstanding and entitled to vote at the Autonomous
special meeting. Holders of record of Autonomous common stock are entitled to
one vote per share on any matter that may properly come before the Autonomous
special meeting. Shares of Autonomous Series I Convertible Preferred Stock
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will not be entitled to vote. Votes may be cast at the Autonomous special
meeting in person or by proxy. See "--Voting of Proxies."
The presence at the Autonomous special meeting, either in person or by proxy,
of the holders of a majority of the outstanding Autonomous common stock
entitled to vote is necessary to constitute a quorum. If a quorum is not
present at the Autonomous special meeting, management will adjourn or postpone
the meeting in order to solicit additional proxies.
Votes Required
Summit. Approval of the proposal for the issuance of shares in the merger and
the proposal to increase the shares available under the 1997 Stock Option Plan
will each require the affirmative vote of a majority of the outstanding shares
of Summit common stock entitled to vote on the proposal. Approval of the
proposal for the increase in authorized shares will require the affirmative
vote of a majority of the Summit common stock outstanding on the record date.
Under the rules of the New York Stock Exchange applicable to member firms,
brokers who hold shares of Summit common stock as nominees will not have
discretionary authority to vote the shares on the proposal for the issuance of
shares in the merger in the absence of instructions from the beneficial owners.
Under Summit's bylaws, these shares will not be considered as being entitled to
vote on that proposal. Therefore, broker non-votes will not count in
determining the outcome. Brokers who hold shares of Summit common stock as
nominees will have discretionary authority to vote the shares on the proposals
to increase the authorized shares and to increase the shares available under
the 1997 Stock Option Plan. Thus there will be no broker non-votes on these
proposals. In determining whether a proposal has received the requisite number
of affirmative votes, an abstention by a record owner or a direction by the
beneficial owner to the broker to abstain from voting will have the effect of a
vote against the proposal.
Autonomous. Approval of the proposal to adopt the merger agreement and approve
the merger will require the affirmative vote of a majority of the shares of
Autonomous common stock outstanding on the record date. Under applicable
Florida law, in determining whether the proposal in favor of the merger has
received the requisite number of affirmative votes, abstentions will have the
same effect as a vote against the proposal. Under the rules of the New York
Stock Exchange applicable to member firms, brokers who hold shares of
Autonomous common stock as nominees will not have discretionary authority to
vote the shares in the absence of instructions from the beneficial owners. Any
shares that are not voted because the nominee-broker lacks discretionary
authority will have the same effect as a vote against the proposal.
Share Ownership of Management and Certain Stockholders
Summit. As of the close of business on the record date, Summit's directors and
executive officers and their affiliates beneficially own 858,400 outstanding
shares of Summit common stock (collectively representing approximately 2.7% of
the voting power of the Summit common stock). The executive officers and
directors of Summit have indicated that they will vote for the issuance of
shares in the merger.
Autonomous. As of the close of business on the record date, Autonomous's
directors and executive officers and their affiliates (including CIBA Vision)
beneficially own 2,884,699 outstanding shares of
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Autonomous common stock (collectively representing approximately 21% of the
voting power of the Autonomous common stock). The executive officers and
directors of Autonomous and CIBA Vision have agreed to vote their shares to
adopt the merger agreement and approve the merger and against alternative
transactions. See "Other Agreements--Stockholder Agreements."
Voting of Proxies
Shares represented by properly executed proxies received in time for a special
meeting will be voted at the special meeting in the manner specified by such
proxies. Autonomous stockholders should be aware that, if your proxy is
properly executed but does not contain voting instructions, or if you use
telephonic voting without indicating how you want to vote, your proxy will be
voted FOR adoption of the merger agreement and approval of the merger. Summit
stockholders should be aware that, if your proxy is properly executed but does
not contain voting instructions, or if you use telephonic voting without
indicating how you want to vote, your proxy will be voted FOR approval of the
issuance of shares in the merger, FOR approval of the increase in authorized
shares and FOR approval of the increase in the number of shares available for
issuance under the 1997 Stock Option Plan. Summit and Autonomous do not expect
that any matter other than those described in this document will be brought
before the special meetings. If a stockholder of either company properly
presents other matters before the special meetings, the persons named in the
proxy will have authority to vote in accordance with their judgment on any
other such matter, including any proposal to adjourn or postpone the meeting.
However, a proxy that has been designated to vote against the adoption of the
merger agreement and approval of the merger or against the issuance of shares
in the merger, the increase in authorized shares and the increase in the number
of shares available for issuance under the 1997 Stock Option Plan will not be
voted, either directly or through a separate proposal, to adjourn the meeting
to solicit additional votes.
Revocability of Proxies
The grant of a proxy on the enclosed Autonomous or Summit proxy card or a vote
by telephone does not preclude a stockholder from voting in person.
A Summit stockholder may revoke a proxy at any time before its exercise by
doing any of the following:
. before the Summit special meeting, delivering to James A. Lightman, Vice
President, General Counsel and Clerk, Summit Technology, Inc., 21
Hickory Drive, Waltham, Massachusetts 02451, a written revocation
bearing a later date or time than the proxy; or
. delivering to the Clerk of Summit a duly executed proxy bearing a later
date or time than the revoked proxy; or
. attending the Summit special meeting and voting in person. Attendance at
the special meeting will not by itself constitute revocation of a proxy.
An Autonomous stockholder may revoke a proxy at any time before its exercise by
doing any of the following:
. before the Autonomous special meeting, delivering to Monty K. Allen, Vice
President, Treasurer and Secretary, Autonomous Technologies Corporation,
2800 Discovery Drive,
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Orlando, Florida 32826, a written notice of revocation bearing a later
date or time than the proxy; or
. delivering to the Secretary of Autonomous a duly executed proxy bearing a
later date or time than the revoked proxy; or
. attending the Autonomous special meeting and voting in person. Attendance
at the special meeting will not by itself constitute revocation of a
proxy.
Neither Autonomous nor Summit expects to adjourn its special meeting for a
period of time long enough to require the setting of a new record date for such
meeting. If an adjournment occurs, it will have no effect on the ability of
either the Autonomous or Summit stockholders of record as of the record date to
exercise their voting rights or to revoke any previously delivered proxies.
Solicitation of Proxies
Each of Autonomous and Summit will bear the cost of soliciting proxies from its
own stockholders, except that Summit and Autonomous intend to share equally the
costs associated with this joint proxy statement/prospectus, including related
filing fees. In addition to solicitation by mail, the directors, officers and
employees of each of Autonomous and Summit and their respective subsidiaries
may solicit proxies from stockholders of such company by telephone, telegram or
in person. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of stock held of record by such persons, and
Autonomous and Summit will reimburse such company's custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses.
In addition, Autonomous and Summit have retained Georgeson & Company Inc. to
help them solicit proxies. Georgeson will receive a fee that Autonomous and
Summit estimate at $7,000 as compensation for its services, plus reimbursement
of its out-of-pocket expenses. Autonomous and Summit have agreed to indemnify
Georgeson against certain liabilities arising out of or in connection with its
engagement.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
This section of the joint proxy statement/prospectus, as well as the next two
sections entitled "The Merger Agreement" and "Other Agreements," describe
certain aspects of the proposed merger. These sections highlight key
information about the merger and these agreements, but they may not include all
the information that a stockholder would like to know. The merger agreement is
attached as Annex A to this joint proxy statement/prospectus and the form of
stockholder agreement is attached as Annex B. We urge stockholders to refer to
the merger agreement and the form of stockholder agreement in their entirety.
Summit Technology, Inc. and Autonomous Technologies Corporation are furnishing
this joint proxy statement/prospectus to their stockholders in connection with
the solicitation of proxies by their boards of directors for use at their
respective special meetings. At the Autonomous special meeting, holders of
Autonomous common stock will be asked to vote upon a proposal to adopt the
merger agreement and approve the merger. At the Summit special meeting, Summit
stockholders will be asked to vote upon a proposal to issue 11,650,400 shares
of Summit common stock in the merger. Separately, Summit stockholders will be
asked to approve an amendment to its articles of organization to increase to
100 million the shares of Summit common stock authorized for issuance and an
increase of 1,500,000 shares in the shares of Summit common stock available
under the 1997 Stock Option Plan.
This joint proxy statement/prospectus is also a prospectus for Summit common
stock and is part of a registration statement on Form S-4 that Summit has filed
with the SEC to register the shares of Summit common stock that Autonomous
stockholders will receive in the merger.
In the merger each share of Autonomous common stock outstanding at the
effective time of the merger will be converted into the right to receive shares
of Summit common stock and cash. The exact amount is determinable by a formula
that is described beginning on page 40.
Background of the Merger
In late 1997 and early 1998, Robert J. Palmisano, Summit's Chief Executive
Officer, and Randy W. Frey, President and Chief Executive Officer of
Autonomous, and certain other individuals met several times to discuss the
possibility of a business combination of the two companies. These negotiations
ultimately were not productive and broke off in early 1998. On June 18, 1998,
Mr. Palmisano received a telephone call from Dr. C. Glen Bradley, President and
Chief Executive Officer of CIBA Vision, which owns approximately 13% of the
common stock of Autonomous. Dr. Bradley suggested that he and Mr. Palmisano
meet to discuss the possibility of a business combination between Summit and
Autonomous.
On June 22, 1998, Mr. Palmisano and Robert J. Kelly, Summit's Chief Financial
Officer, met in Boston with Mr. Bradley and Timothy Barabe, CIBA Vision's Chief
Financial Officer and a member of the Autonomous board of directors. The
parties agreed that a business combination could be advantageous for both
companies. Summit had manufacturing and marketing expertise, financial
capability and a cross-license on VISX patents and Autonomous' LADARVision
System represented a technological advance in laser vision correction. The
parties expressed mutual interest in pursuing the matter further.
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During July of 1998, Mr. Palmisano met individually with each of the other
members of Summit's board of directors to brief them on the discussions that
had taken place and on Summit management's preliminary views regarding a
possible transaction with Autonomous. On August 3, 1998, Summit and Autonomous
entered a confidentiality agreement in order to facilitate the process of
exchanging the information needed to evaluate the merits of a business
combination of the companies.
At a meeting of Summit's entire board of directors on August 4, 1998, the board
of directors specifically authorized Summit to pursue an acquisition of
Autonomous, subject to appropriate due diligence and subsequent approval of any
specific transaction by the board of directors. Direct negotiations between Mr.
Palmisano and Mr. Frey then formally commenced.
On August 21, 1998, Summit engaged Hambrecht & Quist, LLC as its financial
advisor. On that date, Mr. Palmisano, Mr. Kelly, and James A. Lightman,
Summit's Vice President and General Counsel, met with representatives of
Hambrecht & Quist at Summit's offices in Waltham, Massachusetts, to discuss the
proposed transaction and the status of negotiations.
On August 25, 1998, Messrs. Palmisano, Kelly and Lightman met in Boston with
Mr. Frey, Monty K. Allen, Autonomous' Chief Financial Officer, representatives
from Hambrecht & Quist, representatives from EVEREN Securities, Inc.,
Autonomous' financial advisor, and William A. Grimm of Gray, Harris and
Robinson, P.A., Autonomous' legal counsel, to exchange information and continue
discussions.
In early September, Messrs. Palmisano and Frey reached agreement on the general
financial terms of the transaction, which were summarized in a non-binding
letter from Mr. Palmisano to Mr. Frey dated September 9, 1998. The letter
contained customary contingencies, including satisfactory completion of due
diligence and execution of mutually acceptable definitive documentation.
On September 10, 11 and 12, Summit and its representatives conducted on-site
business and legal due diligence on Autonomous in Orlando, Florida. Commencing
on September 14, 1998, key Autonomous personnel, Autonomous legal counsel and
representatives from EVEREN Securities conducted due diligence on Summit in
Waltham, Massachusetts.
On September 14, Summit's board of directors met to formally consider the
transaction outlined in Mr. Palmisano's September 9 letter to Mr. Frey. At the
September 14 board of directors meeting, representatives of Hambrecht & Quist
made a preliminary presentation to Summit's directors. Messrs. Frey and Grimm
attended a portion of this meeting, during which Mr. Frey also made a
presentation.
Summit then completed its due diligence and, on October 1, 1998, Summit's board
of directors met again and formally approved the transaction. At the October 1
meeting, Hambrecht & Quist made its final presentation to the board and opined
to the board of directors that the proposed transaction, including the
consideration to be paid, was fair to Summit from a financial point of view.
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Recommendation of the Summit Board and Reasons for the Merger
At its meeting on October 1, 1998, the Summit board of directors determined
that the consideration to be paid in the merger was fair to Summit from a
financial point of view and the proposed merger was in the best interests of
Summit stockholders. The Summit board of directors based its determination on a
number of factors, including the following:
. Its conclusion that the Autonomous technology was the best available
technology and that acquiring the company would be more cost effective
and would present less risk than internally developing comparable
scanning technology.
. Its conclusion that Summit's manufacturing, marketing and service
experience and infrastructure would make the Autonomous technology easier
to commercialize.
. Its ability to provide the Autonomous products with a royalty-free cross-
license on VISX patents if Autonomous were to become a wholly owned
subsidiary of Summit.
. Its ability to expand the Summit product line and offer its customers and
potential customers a variety of laser vision correction products.
. The historical trading prices and trading activity for Summit common
stock and Autonomous common stock.
. Its receipt of the opinion of Hambrecht & Quist that, as of October 1,
1998, the consideration to be paid in the merger was fair to Summit from
a financial point of view.
The Summit board of directors also considered a number of risks in the proposed
transaction:
. The fact that Autonomous had not yet received FDA approval to market and
sell its LADARVision System in the United States.
. The potential customer confusion and interruption in product orders for
both companies.
. The possible erosion of Summit's revenues and cash reserves in the near
term.
. The fact that Autonomous had only limited experience manufacturing its
LADARVision System.
. The difficulties involved in integrating the two companies.
In the view of the Summit board of directors, the potentially negative factors
were not sufficient either individually or collectively to outweigh the
potential advantages.
The Summit board of directors considered the desire of the Autonomous board of
directors to have the merger structured, if possible, so the receipt of Summit
shares by Autonomous stockholders was tax-free. However, the Summit board of
directors was unwilling to accept any risk that the transaction might not be
tax free at the corporate level. Accordingly, because both boards believed that
completing the transaction was more important than the tax-free portion of the
share exchange, the Summit board of directors approved the merger agreement
that included the alternative structures. Summit stockholders will not incur
any tax under either structure. In addition, neither Summit nor Autonomous will
incur a corporate level tax under either structure.
In considering the transaction, the Summit board considered management's
current plans to manufacture, market and sell both the Apex Plus laser system
and the Autonomous LADARVision
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System. The Summit board recognized that the two systems offer different
technologies and management intends to market them with two distinct pricing
models. The current plans call for Summit to continue to sell the Apex Plus
system under a lease or purchase arrangement while it plans to offer the
LADARVision System under a user agreement with a per-procedure pricing
structure.
These factors were not all of the factors that the Summit board of directors
considered, but they are the material factors upon which it based its decision.
In view of the wide variety of information that the Summit board of directors
considered in the course of its deliberations, the board of directors did not
find it practical to, and did not, quantify or otherwise assign any relative or
specific weights to any of the factors. Individual directors may have given
differing weights to different factors.
Recommendation of the Autonomous Board and Reasons for the Merger
At its October 1, 1998 meeting, the Autonomous board of directors unanimously
determined that the merger was in the best interest of Autonomous and its
stockholders. The board of directors approved and adopted the merger agreement
and recommended that Autonomous stockholders vote to adopt the merger agreement
and approve the merger.
Before making its determination, the Autonomous board of directors consulted
with senior management about strategic and operational matters and with legal
counsel about its fiduciary duties, regulatory matters, tax matters, the merger
agreement, the stockholder agreements and related issues. The Autonomous board
of directors also consulted with EVEREN Securities, Inc., its financial
advisor, about the financial aspects of the merger and the fairness from a
financial point of view of the consideration to be received by the stockholders
of Autonomous. In reaching its determination, the Autonomous board of directors
also considered a number of factors, including:
. As a Summit subsidiary, Autonomous would benefit from Summit's royalty-
free cross-license of the VISX patents and would not owe license fees to
VISX for the manufacture and use of the LADARVision System.
. The negative effect that the ongoing patent litigation with VISX has had
and could continue to have on Autonomous' ability to raise capital if
Autonomous remained a separate company.
. The difficulty Autonomous was likely to have raising sufficient capital
in uncertain market conditions to fund the launch of the LADARVision
System in the United States if it remained a separate company.
. The apparent apprehension by potential customers that VISX would initiate
patent infringement actions against them if they used the LADARVision
System.
. Autonomous' ability to meet the anticipated demand for LADARVision
Systems in the United States in light of its lack of actual experience in
manufacturing the LADARVision Systems and its belief that Summit's
manufacturing experience could assist Autonomous' efforts in ramping-up
its manufacturing capability.
. The board of directors' view that Summit's established nationwide service
organization could provide responsive service to LADARVision System users
faster than if Autonomous established its own service organization.
. The amount and form of the merger consideration to be received by the
Autonomous stockholders and its belief that the part stock/part cash
structure of the merger consideration reflects an appropriate balance
between the potential for appreciation in the value of the Summit common
stock and the flexibility to invest the after-tax cash proceeds.
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. The financial advice and written opinion provided by EVEREN Securities,
Inc. that the consideration to be received by the stockholders of
Autonomous in the merger was fair, from a financial point of view, to the
stockholders of Autonomous.
. The terms and conditions of the merger agreement, including the
consideration to be received by the Autonomous stockholders, the parties'
representations, warranties and covenants, the conditions to their
respective obligations, the termination fee payable under the merger
agreement and the circumstances under which the termination fee will be
payable, and the likelihood that the merger would be consummated.
. The fact that the merger will be accounted for under the purchase method
of accounting and that the merger may or may not be tax-free as to the
shares of Summit common stock to be received by the Autonomous
stockholders, depending upon the circumstances at closing.
. The long-term and short-term interests of Autonomous and its stockholders
and, in accordance with the provisions of Florida law, the interests of
Autonomous' customers, employees and suppliers.
The Autonomous board of directors also considered a number of potentially
negative factors in its deliberations concerning the merger including:
. The likelihood that the market price of Summit common stock may decline
between the date of the merger agreement and the closing of the merger
and the impact such a decline would have on the consideration that
Autonomous stockholders would receive.
. The likelihood that the anticipated benefits of the merger might not be
fully realized.
. The fact that Summit is a defendant in several lawsuits with potentially
significant damages if the plaintiffs prevail.
. The fact that once it entered into the merger agreement Autonomous would
effectively be prevented from raising additional capital.
In the view of the Autonomous board of directors, the potentially negative
factors were not sufficient either individually or collectively to outweigh the
potential advantages of the merger.
If the consideration to be received by the stockholders of Autonomous in the
merger changes materially from the consideration which was anticipated at the
time the Autonomous board of directors received an opinion from EVEREN, the
Autonomous board of directors will not seek an updated opinion from EVEREN. If
EVEREN withdraws its fairness opinion due to a material decrease in the value
of Summit's stock, the Autonomous board of directors would expect to continue
recommending that Autonomous stockholders vote for the merger agreement and the
merger, so long as Summit is not in breach of the merger agreement.
The Autonomous board of directors preferred a transaction that would involve a
tax-free exchange of shares. However, because Autonomous stockholders would
recognize any gain on their stock to the extent of cash received in any event,
the Autonomous board of directors believed it more important that the
transaction be completed. As future stockholders of Summit, Autonomous
stockholders would not want to have the risk of a corporate level tax on the
transaction. Accordingly, the Autonomous board of directors approved the merger
agreement that accommodated either a tax-free reorganization or a fully taxable
merger.
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The Autonomous board of directors also considered Summit's agreement to extend
it credit during the pendency of the proposed transaction. Although the
Autonomous board expected that the holder of Series I Convertible Preferred
Stock would exercise its option to make an additional investment of $4,000,000,
which would satisfy the company's working capital needs through February 1999,
it realized that the timing of the receipt of this investment was not entirely
within its control. Entering into the merger agreement with Summit would also
foreclose its ability to seek additional sources of capital, at least in the
short term. Thus, the Autonomous board of directors requested that the line of
credit be included as part of the overall transaction.
In view of the variety of factors considered by the board of directors, the
board of directors did not find it practicable to quantify or otherwise assign
relative weights to any of the specific factors considered.
The Autonomous board of directors believes that the merger is in the best
interest of the Autonomous stockholders and recommends that the Autonomous
stockholders vote for the merger agreement and the merger.
Opinion of Financial Advisor to Summit
Summit engaged Hambrecht & Quist to act as its financial advisor in connection
with potential acquisitions and to render its opinion as to the fairness to
Summit, from a financial point of view, of the consideration that Summit would
pay in an acquisition. The Summit board of directors selected Hambrecht & Quist
based on its qualifications, expertise and reputation. On October 1, 1998, at a
meeting of the Summit board of directors, Hambrecht & Quist rendered its oral
opinion (subsequently confirmed in writing) that, as of that date, the
consideration that Summit would pay in the merger was fair to Summit from a
financial point of view. A copy of Hambrecht & Quist's written opinion dated
October 1, 1998, which sets forth the assumptions made, matters considered, the
scope and limitations of the review undertaken and the procedures it followed,
is attached as Annex C to this joint proxy statement/prospectus. Summit
stockholders should read the opinion in its entirety. The Summit board of
directors placed no limitations on Hambrecht & Quist's investigation or the
procedures it followed in preparing and rendering its opinion.
In reviewing the merger and arriving at its opinion, Hambrecht & Quist, among
other things:
. Reviewed Summit's publicly available historical financial statements for
recent periods and other relevant financial and operating data that
Hambrecht & Quist obtained from published sources and from Summit's
management,
. Discussed Summit's business, financial condition and prospects with
Summit's senior management,
. Reviewed Autonomous' publicly available historical financial statements
for recent periods and other relevant financial and operating data that
Hambrecht & Quist obtained from published sources and from Autonomous'
management,
. Discussed Autonomous' business, financial condition and prospects with
Autonomous' senior management,
. Used certain financial forecasts published by securities research
analysts in the investment community,
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. Reviewed the recent reported prices and trading activity for the common
stocks of Summit and Autonomous and compared this and certain Summit and
Autonomous financial information with similar information for companies
engaged in businesses that Hambrecht & Quist considered comparable,
. Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions,
. Reviewed the merger agreement and discussed the tax and accounting
treatment of the merger with Summit and Summit's legal counsel, and
. Performed other analyses and examinations and considered other
information, financial studies, analyses and investigations and
financial, economic and market data that Hambrecht & Quist deemed
relevant.
In connection with its opinion, Hambrecht & Quist did not:
. Independently verify any of the information about Summit or Autonomous
that it considered in its review of the merger and assumed such
information was accurate and complete,
. Prepare or obtain any independent evaluation or appraisal of the assets
or liabilities of Summit or Autonomous,
. Conduct a physical inspection of Summit's or Autonomous' properties and
facilities.
In connection with its opinion, Hambrecht & Quist assumed:
. That the forecasts it used reflected the best publicly available
estimates and judgments of the expected future financial performance of
each company,
. That neither Summit nor Autonomous was a party to any pending
transactions, including external financings, recapitalizations or merger
discussions, other than those in the ordinary course of conducting their
respective businesses, and
. That the merger would be accounted for by Summit as a purchase.
Hambrecht & Quist's opinion was based upon market, economic, financial and
other conditions as they existed as of the date of the opinion. Any subsequent
change in conditions would require a reevaluation of the opinion.
The preparation of a fairness opinion is a complex process. It is not
necessarily susceptible to partial analysis or summary description. The
following summary of Hambrecht & Quist's analyses is not a complete description
of its presentation to the Summit board of directors. In arriving at its
opinion, Hambrecht & Quist did not attribute any particular quantitative weight
to any analyses or factors that it considered. Rather, it made qualitative
judgments about the significance and relevance of each analysis and factor.
Hambrecht & Quist believes that its analyses and the following summary must be
considered as a whole. Selecting portions of its analyses, without considering
all of them, or considering only the following summary, without considering all
factors and analyses, could create an incomplete view of the processes
underlying the analyses in its presentation to the Summit board of directors
and its opinion. In performing its analyses, Hambrecht & Quist made numerous
assumptions about industry performance, general business and economic
conditions and other
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matters, many of which are beyond the control of Summit and Autonomous. The
analyses that Hambrecht & Quist performed (which are summarized below) are not
necessarily indicative of actual values or actual future results, which may be
significantly different that those suggested by the analyses. Additionally,
analyses about the values of a business for purposes of a fairness opinion are
not appraisals and do not reflect the prices at which the business may actually
be acquired.
The following is a brief summary of certain financial analyses that Hambrecht &
Quist performed in connection with providing its oral and written opinion to
the Summit board of directors on October 1, 1998:
Contribution Analysis. Hambrecht & Quist analyzed the contribution that each
company is expected to make to the revenue, gross profit, operating income and
net income of the pro forma combined company, without making any revenue or
expense adjustments. Hambrecht & Quist then compared this contribution analysis
to the pro forma ownership percentages that the stockholders of Summit and
Autonomous would have in the combined company after the merger. For each
company, Hambrecht & Quist examined the expected contributions to the combined
company's revenues, gross profit, operating income, and net income for each of
the five years 1999, 2000, 2001, 2002 and 2003. Hambrecht & Quist derived these
estimates from the estimates of its research analyst and from discussions with
management of each company. Hambrecht & Quist observed that, on a fully diluted
basis using the treasury stock method, Summit stockholders are expected to own
approximately 73% and Autonomous stockholders are expected to own approximately
27% of the combined company equity following the merger. The table below sets
forth the percentages that Hambrecht & Quist estimated each company would
contribute to the revenues, gross profit, operating income and net income of
the combined company for each of 1999, 2000, 2001, 2002 and 2003, assuming no
revenue or expense adjustments. No contribution was provided for operating
income and net income for 1999 and net income for 2000 because contribution is
expected not to be meaningful.
Pro Forma Contribution to Various Income Statement Line Items
<TABLE>
<CAPTION>
Operating Net
Revenues Gross Profit Income Income
-------- ------------ --------- ------
<S> <C> <C> <C> <C> <C>
1999 Summit 91% 91% * *
Autonomous 9% 9% * *
2000 Summit 75% 72% 63% *
Autonomous 25% 28% 37% *
2001 Summit 62% 58% 28% 36%
Autonomous 38% 42% 72% 64%
2002 Summit 52% 47% 16% 22%
Autonomous 48% 53% 84% 78%
2003 Summit 47% 39% 12% 20%
Autonomous 53% 61% 88% 80%
</TABLE>
Pro Forma Merger Analysis. Hambrecht & Quist analyzed the pro forma impact of
the merger on Summit's future earnings per share. It prepared financial
projections for Summit for each of the five years ending 2003 based on its
discussions with Summit management and on the published estimates of Hambrecht
& Quist's analyst. It prepared base case and downside case financial
projections for Autonomous for each of the five years ending 2003 based on its
discussions with Summit and Autonomous management and on published estimates of
its analyst. The analysis indicated that both
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pro forma base case and downside case EPS for the combined company would be
potentially lower for 1999 and 2000 and potentially higher for 2001, 2002 and
2003, than for Summit as a stand-alone company. These projections are subject
to risks and uncertainties. The actual results that the combined company
achieves may vary from the projected results and these variations may be
material.
Premium Analysis/Analysis of Selected Merger and Acquisition
Transactions. Hambrecht & Quist compared the merger with selected comparable
merger and acquisition transactions. This analysis included 28 comparable
public and private company medical product transactions since June 1993. The
selected transactions analyzed included Medtronic/Physio-Control (June 1998),
Sulzer Medica/Spine Tech (December 1997), Respironics/Healthdyne (November
1997), Guidant/Endovascular Technologies (October 1997) and Johnson &
Johnson/Innotech (February 1997). Hambrecht & Quist concluded that analyzing
certain income statement and balance sheet parameters would not be meaningful
and performed a premium analysis. It compared the implied price per share of
Summit common stock and cash to be issued in the merger as of September 30,
1998 to the last sale price of Autonomous common stock on both September 25,
1998 and August 28, 1998 (twenty trading days earlier) to premiums paid in
these medical product transactions. Hambrecht & Quist observed that the one-day
premiums ranged from approximately 17% to 62% and four-week premiums ranged
from approximately 27% to 74%. Autonomous' equity value ranged from
approximately $68 million to $94 million and $65 million to $90 million based
on one-day premiums and four-week premiums, respectively. These compared with
an implied value of $87 million of Autonomous in the merger, based on the
closing price of Summit common stock on September 30, 1998, the day before the
Summit board of directors meeting.
Discounted Cash Flow Analysis. Hambrecht & Quist analyzed Autonomous'
theoretical valuation based on the discounted cash flow of its projected base
case and downside case financial performance estimates. Autonomous' implied
equity value in the base case ranged from approximately $111 million to $154
million. Autonomous' implied equity value in the downside case ranged from
approximately $70 million to $102 million. These values compared with an
implied value of $87 million of Autonomous in the merger, based on the closing
price of Summit common stock on September 30, 1998.
Discounted Cash Flow Value of Autonomous Acquisition. Hambrecht & Quist
analyzed the implied equity value of Autonomous by taking the discounted cash
flow of the combined company and subtracting the discounted cash flow of Summit
on a stand-alone basis. Hambrecht & Quist examined base case and downside case
financial performance estimates of the pro forma combined company. Autonomous'
implied equity value in the base case ranged from approximately $168 million to
$230 million. Autonomous' implied equity value in the downside case ranged from
approximately $77 million to $109 million. This compared with an implied value
of $87 million of Autonomous in the merger, based on the closing price of
Summit common stock on September 30, 1998.
Publicly Traded Comparable Company Analysis. Hambrecht & Quist compared
selected financial information of Autonomous to publicly traded companies that
Hambrecht & Quist considered comparable. The data and ratios included the ratio
of price per share to projected earnings per share and technology value (market
value plus debt less cash and marketable securities) to historical revenue. The
companies selected included twelve PMA-approved companies and eleven medical
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capital equipment companies. The multiples for these companies were applied to
projected base case and downside case financial results of Autonomous for 2001,
2002 and 2003 derived from Hambrecht & Quist research estimates and discussions
with Summit and Autonomous management. Hambrecht & Quist determined that based
on the expected results for calendar year 1999, the average price/earnings per
share multiple for these selected publicly traded comparable companies was
19.7x. Hambrecht & Quist determined that the average multiple of price/last
twelve months revenue for these companies was 5.0x. The valuations based on
Autonomous projections and comparable company multiples were then discounted
back to the present. Based on a discounted public multiple analysis,
Autonomous' implied equity value ranged from approximately $106 million to
approximately $204 million in the base case and from approximately $52 million
to approximately $140 million in the downside case. These valuations compared
with an implied value of $87 million of Autonomous in the merger, based on the
closing price of Summit common stock on September 30, 1998.
None of the companies or transactions that Hambrecht & Quist used is identical
to Autonomous or Summit or the merger. Accordingly, an analysis of the
foregoing results is not purely mathematical. It involves complex
considerations and judgments about differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading values of the companies used in the comparisons.
Summit stockholders should read this description of Hambrecht & Quist's opinion
along with the full text of its opinion that is attached as Annex C to this
joint proxy statement/prospectus.
Hambrecht & Quist, as part of its investment banking services, regularly
conducts valuations of businesses and securities in connection with mergers and
acquisitions, corporate restructurings, strategic alliances, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and for corporate and other purposes. In the ordinary course
of business, Hambrecht & Quist acts as a market maker and broker in Summit and
Autonomous common stock and receives customary compensation for these
activities. It also provides research coverage on both Summit and Autonomous.
In the ordinary course of business, Hambrecht & Quist also actively trades for
its own account and for the accounts of its customers in the equity and
derivative securities of both Summit and Autonomous. Accordingly, it may at any
time hold a long or short position in such securities. In the past, Hambrecht &
Quist acted as financial advisor to Autonomous and made an investment in
Autonomous before it went public. At the time Summit engaged Hambrecht & Quist
to act as its financial advisor for this transaction, Hambrecht & Quist no
longer held any of the securities that comprised this investment.
Upon completion of the merger, Summit will pay Hambrecht & Quist a fee equal to
the greater of 1.0% of the aggregate consideration paid or $750,000. For
purposes of calculating this fee, the aggregate consideration will be valued at
the closing of the transaction and will include the sum of the cash paid in the
merger (including amounts payable to redeem the Series I Convertible Preferred
Stock) and the market value of Summit common stock issuable in the merger
(including shares underlying stock options and warrants that Summit is
assuming). Summit paid Hambrecht & Quist a $50,000 retainer fee at the time of
the initial engagement. A $400,000 fee for the fairness opinion became payable
to Hambrecht & Quist when it delivered the opinion. These amounts are not
contingent upon the completion of the merger but they will be credited against
the fee that is payable
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upon completion of the merger. Summit also has agreed to reimburse Hambrecht &
Quist for its reasonable out-of-pocket expenses and to indemnify Hambrecht &
Quist against certain liabilities, including liabilities under the federal
securities laws or relating to or arising out of Hambrecht & Quist's engagement
as financial advisor.
Opinion of Autonomous' Financial Advisor
Autonomous retained EVEREN Securities, Inc. as its exclusive financial advisor
and agent in connection with its merger with Summit to render an opinion to the
board of directors of Autonomous as to whether the consideration to be paid to
Autonomous stockholders in the merger was fair, from a financial point of view.
On October 1, 1998, during a telephonic meeting of the board of directors of
Autonomous, EVEREN rendered its opinion that, as of that date, the
consideration to be paid in the merger was fair from a financial point of view
to Autonomous stockholders. EVEREN's conclusion that the consideration to
Autonomous stockholders was fair from a financial point of view assumed that
they would receive at least $6.26 per share, based on a Summit stock price of
$4.00 per share. EVEREN has reserved the right to withdraw its opinion if
Summit's stock price changes materially.
Autonomous selected EVEREN as its advisor because of its reputation and
expertise as a nationally recognized investment banking firm. EVEREN, as part
of its investment banking business, is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwriting, competitive bidding, secondary distributions of listed
and unlisted securities, private placements and valuations for corporate and
other purposes.
In arriving at its opinion, EVEREN, among other things:
. Reviewed the draft merger agreement by and between Summit and Autonomous
in substantially final form
. Reviewed Autonomous' publicly available historical financial statements
for recent periods and other relevant financial and operating data that
EVEREN obtained from published sources and Autonomous' management
. Met with certain members of Autonomous' senior management to discuss its
operations, financial statements and projections and future prospects
. Reviewed Summit's publicly available historical financial statements for
recent periods and other relevant financial and operating data that
EVEREN obtained from published sources and Summit's management
. Met with certain members of Summit's management to discuss Summit's
operations, financial statements and projections and future prospects
. Interviewed certain members of Summit's outside legal counsel to discuss
the proceedings, status and anticipated impact of certain outstanding
litigation on Summit's business, financial condition and results of
operations
. Reviewed publicly available financial data and stock market performance
data of other ophthalmic and medical device manufacturers that EVEREN
deemed comparable to Autonomous and Summit
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. Reviewed the price premiums of recent mergers and acquisitions for
selected companies which EVEREN deemed generally comparable to Autonomous
. Reviewed the historical stock prices and reported traded volumes of
Autonomous' and Summit's common shares
. Conducted such other studies, analyses, inquiries and investigations as
EVEREN deemed appropriate
EVEREN did not conduct a physical inspection of any of the assets, properties
or facilities of either Autonomous or Summit, and did not make or obtain, and
was not furnished with, any independent evaluation or appraisal of any of such
assets, properties, facilities, liabilities or contingencies, including
outstanding legal claims, of Autonomous or Summit. EVEREN assumed and relied
upon, without independent investigation, the accuracy and completeness of the
financial and other information that was publicly available or provided to it
by Autonomous and Summit senior management, and did not independently attempt
to verify any of such information. EVEREN also assumed that all of the
conditions to the merger would be satisfied and that the merger would be
consummated on a timely basis. Autonomous did not impose any limitations on
EVEREN's scope of investigation and gave it no specific instructions in
connection with the fairness opinion.
In connection with its analyses, EVEREN assumed that the financial projections
that it reviewed were reasonably prepared using assumptions reflecting the best
currently available estimates and judgments of the future financial performance
of Autonomous and Summit. EVEREN's opinion was based upon market, economic,
financial and other conditions as they existed on the date of the opinion. Any
subsequent material change in conditions would require a reevaluation of the
opinion and may cause EVEREN to withdraw its opinion.
For purposes of its opinion, EVEREN assumed that:
. The merger would be accounted for as a purchase
. The holders of Autonomous' Series I Convertible Preferred Stock would
exercise their option to purchase an additional $4 million of Series I
Convertible Preferred Stock upon announcement of the merger and elect to
be redeemed for cash upon closing of the merger
. Autonomous' warrant and option holders would exercise their securities
prior to closing of the merger by means of a cashless exercise
. The consideration to be received by Autonomous common stockholders was
$6.26 per share (consisting of $2.50 in cash and $3.76 in Summit stock)
based on Summit's closing stock price of $4.00 per share on September 28,
1998
The following is a summary of certain of the financial analyses that EVEREN
used in connection with its written opinion provided to Autonomous' board of
directors dated October 1, 1998.
Historical Stock Price Analysis. EVEREN analyzed the historical trading prices
and volumes of Autonomous' common stock since May 1, 1996, the date of
Autonomous' initial public offering (IPO). The analysis indicated that the
merger consideration of $6.26 per share represented a premium of 39% to the
closing trade price of $4.50 on September 28, 1998, and a premium of 26% to the
average stock price of $4.97 since the IPO. The analysis also indicated that,
over the past year, 70%
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of Autonomous' total volume traded at a per share price of $6.00 or below, 50%
of the total volume traded at a per share price between $5.00 and $6.00, and
less than 16% of the total volume traded at or above a per share price of
$6.50.
Analysis of Premiums in Selected Merger and Acquisition Transactions. EVEREN
analyzed selected mergers and acquisitions in the medical device industry since
1997 with aggregate values between $30 million to $200 million. The selected
transactions included, among others, Hewlett Packard/Heartstream (March 1998),
Guidant Corp/Endovascular Technologies (December 1997), Cambrex
Corp/BioWhittaker (October 1997) and Henry Schein/Micro Bio-Medics (August
1997). EVEREN observed that the premium/discount paid in these transactions
ranged from: (i) a discount of 12% to a premium of 96% with a median premium of
47% four weeks prior to the announcement date; (ii) a discount of 23% to a
premium of 96% with a median premium of 26% one week prior to the announcement
date; and (iii) a discount of 24% to a premium of 96% with a median premium of
20% one day prior to the announcement date. Using Autonomous' closing trade
price of $4.50 on September 28, 1998, the analysis indicated that the merger
consideration of $6.26 per share represented a 79% premium to Autonomous'
closing trade price of $3.50 four weeks prior to such date, a 62% premium to
its closing trade price of $3.875 one week prior to such date, and a 39%
premium to its closing trade price of $4.50 on such date.
Discounted Cash Flow Analysis. EVEREN performed a discounted cash flow analysis
using projections provided by Autonomous' management. To derive an implied
aggregate value range for Autonomous, EVEREN calculated the net present value
of free cash flows for the years 1999 through 2001 using discount rates ranging
from 25% to 35% and calculated a terminal value in 2001 using a 2001 aggregate
value to revenue multiple of 2.1x, the median revenue multiple for publicly
held comparable companies as of September 28, 1998. To derive the implied value
range for Autonomous' common stock, EVEREN deducted the preference amount of
Autonomous' outstanding Series I Convertible Preferred Stock ($5.0 million)
from the implied aggregate values. The analysis indicated that the implied
values of Autonomous' common stock ranged from $3.03 to $4.26 per share, with a
midpoint of $3.59. EVEREN determined that the merger consideration of $6.26 per
share represented a 74% premium to the midpoint.
Summit Historical Stock Price Analysis. EVEREN analyzed the historical trading
prices and volumes of Summit's common stock for the period from September 10,
1993 to September 25, 1998. The analysis indicated that Summit's closing stock
price of $4.00 per share on September 28, 1998 represented a discount of 30% to
the average stock price over the past year and a discount of 33% to the average
stock price since September 1, 1996. EVEREN deemed September 1, 1996 a
significant date as it represented the approximate date at which Summit's stock
price began trading in the relatively tight range of $5.00 to $8.00 per share
after a steep decline from its all-time high of $32.53 per share in January
1996.
Analysis of Selected Summit Comparable Companies. EVEREN compared certain
financial information for Summit to corresponding financial information,
multiples and ratios of other laser vision correction and ophthalmic medical
device companies with market values between $35 and $960 million (the
"Comparable Group") as of September 28, 1998. EVEREN determined Summit's market
value was $124.6 million and enterprise value (market value plus debt, less
cash and marketable securities) was $32.9 million. The analysis indicated that:
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. Summit's enterprise value to revenue multiple of 0.35x represented an
83% discount to the median multiple of the Comparable Group of 2.06x;
. on an aggregate value to EBITDA basis, Summit's multiple of 4.61x
represented a 74% discount to the median multiple of the Comparable
Group of 17.91x; and
. using First Call consensus earnings per share estimates, Summit's stock
price was trading at 22.2x 1998 and 15.4x 1999 estimated earnings per
share, representing discounts of 26% and 22%, respectively, to the
median trading multiples of 29.9x and 19.8x for the Comparable Group for
the corresponding periods.
Summit Discounted Cash Flow Analysis. EVEREN performed a discounted cash flow
analysis using projections provided by Summit's management. To derive an
implied aggregate value range for Summit, EVEREN calculated the present value
of free cash flows for the years 1999 through 2001 using discount rates ranging
from 25% to 35% and calculated a terminal value in 2001 using a 2001 aggregate
value to revenue multiple of 2.1x, the median revenue multiple for the
Comparable Group as of September 28, 1998. To derive the implied value range
for Summit's common stock, EVEREN deducted Summit's outstanding debt of $7.9
million from the implied aggregate values. The analysis indicated that the
implied values of Summit's common stock ranged from $5.99 to $7.56 per share,
with a midpoint of $6.72. EVEREN determined that Summit's closing stock price
of $4.00 per share on September 28, 1998 represented a 40% discount to the
midpoint.
Summit Hypothetical "Break-Up" Value Analysis. EVEREN compared the market value
of Summit as of September 28, 1998 to its hypothetical break-up value, or the
sum of the values of its separable component assets and businesses using recent
publicly available financial information and other information provided to it
by Summit management. In performing its analysis, EVEREN separately valued the
following four components of Summit's assets and businesses:
.its cash and marketable securities (including long-term securities);
.its equity investment in LCA Vision common stock (a publicly-traded
company);
. its mail-order contact lens business, Lens Express, using public
comparable company multiples as a basis for valuation; and
. its laser vision correction business (also using public comparable
company multiples as a basis for valuation).
EVEREN observed that the aggregate value of Summit's separable assets and
businesses totaled $220.1 million, or $7.07 per share. To derive a hypothetical
break-up value, EVEREN deducted $22.9 million of liabilities representing
outstanding debt and certain outstanding legal contingencies from the aggregate
value. The resulting computation indicated a break-up value for Summit of
$197.1 million, or $6.33 per share. EVEREN concluded that Summit's stock price
of $4.00 per share on September 28, 1998 represented a 37% discount to its
implied break-up value.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying EVEREN's opinion. In arriving at its fairness determination, EVEREN
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considered the results of all such analyses. No company or transaction used in
the above analyses as a comparison is directly comparable to Autonomous, Summit
or to the contemplated transaction. The analyses were prepared solely for
purposes of EVEREN providing its opinion to Autonomous' Board of Directors as
to the fairness, from a financial point of view, of the merger consideration to
be received by Autonomous stockholders and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses are inherently subject
to uncertainty, being based upon numerous factors or events beyond the control
of EVEREN. As described above, EVEREN's opinion to Autonomous' board of
directors was one of many factors taken into consideration by such Board in
making its determination to approve the merger. The foregoing summary does not
purport to be a complete description of the analyses that EVEREN performed.
Autonomous stockholders should read the written opinion of EVEREN set forth as
Annex D to this joint proxy statement/prospectus.
Previously, EVEREN acted as Autonomous's financial advisor and placement agent
in connection with three private equity offerings for which it received
customary compensation. In the ordinary course of business, EVEREN provides
research coverage on Autonomous. EVEREN also acts as a market maker and broker
in Autonomous common stock for which it receives customary compensation for
these activities. EVEREN provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of Autonomous or Summit for its own account and for the account of
customers.
Pursuant to a letter agreement dated August 13, 1998, Autonomous engaged EVEREN
to act as its exclusive financial advisor in connection with the merger with
Summit. Pursuant to the terms of the engagement letter, Autonomous has agreed
to pay EVEREN a transaction fee equal to the greater of 1.00% of the sale price
(as defined in the engagement letter) or $1,200,000. Of such fee,
.$50,000 was paid to EVEREN upon execution of the Engagement Letter;
.$200,000 became payable upon the execution of the merger agreement;
. $75,000 became payable upon the delivery of the opinion to Autonomous'
board of directors; and
. the balance of such fee will become payable to EVEREN at the closing of
the merger.
Autonomous has agreed to reimburse EVEREN for its reasonable out-of-pocket
expenses, including attorney's fees, and to indemnify EVEREN against certain
liabilities, including certain liabilities under the federal securities laws.
Merger Consideration
What Autonomous stockholders will receive in the merger is not a fixed number
of Summit shares or cash. It will be determined by applying a formula described
in this section. The formula is sensitive to a number of variables, including
the Summit share price, the number of diluted Autonomous shares common stock
deemed to be outstanding and the Autonomous share price. It is also affected
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by whether the holder of Autonomous preferred stock elects to have its shares
redeemed in cash or converts into Autonomous common stock and whether holders
of Autonomous options and warrants elect to exercise them before the merger and
whether they elect to do so by cash or cashless exercise.
Summit and Autonomous chose to structure the transaction to emulate an all
stock transaction, where the value would be based on the Summit stock price,
but to provide a portion of the consideration in cash. Summit wanted to limit
the aggregate cash portion to $50 million. Another consideration was that the
share exchange in the merger can be tax-free only if the Autonomous
stockholders have a substantial continuing interest in Summit stock. Generally
a ratio of 50% stock and 50% cash satisfies this test. To preserve this split,
if the Summit stock price declines, either the amount of Summit stock must be
increased or the amount of cash must be decreased. The Summit board of
directors was not willing to increase the number of Summit shares. As a result,
the merger has been structured so that the amount of cash will be reduced if
the Summit stock price declines below $4.29 per share.
The table on page 8 shows the expected per share merger consideration at
various Summit stock prices. Because the maximum aggregate consideration is
fixed, the per share consideration will decrease as the number of outstanding
Autonomous shares increases. As the Summit stock price increases, we have
assumed that the Autonomous stock price will have also increased, thereby
resulting in more Autonomous shares outstanding under the method we use to
arrive at the diluted Autonomous shares outstanding. That is why both the
number of Summit shares declines on a per share basis at any Summit stock price
and the cash declines on a per share basis above a Summit stock price of $4.29
per share.
The maximum aggregate consideration to be paid by Summit for all of the equity
of Autonomous--that is, all of Autonomous' common stock, preferred stock,
options and warrants--is 11,650,400 shares of Summit common stock and an equal
value of cash, subject to a maximum cash amount of $50,000,000. At the
Effective Time, each Autonomous stockholder will be entitled to receive, in
exchange for each share of Autonomous stock, a portion of the stock
consideration and a portion of the cash consideration, as determined below.
Stock Consideration. The aggregate number of Summit shares payable in respect
of all of the outstanding equity of Autonomous is 11,650,400 shares. The
outstanding equity of Autonomous will be determined on the treasury stock
method, which is the same method that companies use to calculate "diluted
earnings per share" for income statement purposes. We will start with the
actual number of shares of Autonomous common stock outstanding as of the
closing, which will include 100,000 shares to be issued to the holder of the
Autonomous preferred stock in exchange for a warrant to purchase 300,000 shares
and 171,713 shares to be issued to CIBA Vision Corporation immediately before
the merger in satisfaction of an obligation under the 1995 Strategic Alliance
Agreement with Autonomous. To this number, we will add:
. The number of shares of Autonomous common stock underlying all
outstanding in-the-money options and warrants, reduced by the number of
shares that could be repurchased with the aggregate exercise proceeds.
. The number of shares of Autonomous common stock into which the
outstanding preferred stock could be converted, unless the holder has
elected to have those shares redeemed for cash.
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To determine how many shares of Summit common stock each Autonomous stockholder
will receive, we will divide the 11,650,400 shares of Summit common stock by
the diluted Autonomous shares outstanding common stock as determined above.
Cash Consideration. The maximum amount of cash payable by Summit for all of the
equity of Autonomous will equal the value of 11,650,400 shares of Summit common
stock, subject to a cap of $50,000,000. This amount is subject to adjustment as
described below. The value of the 11,650,400 shares will be determined by
multiplying 11,650,400 by the average closing price of Summit common stock on
Nasdaq for the five days ending on the day before the date on which the
Effective Time occurs. If the average closing price is equal to or greater than
$4.2917, then the aggregate cash amount payable for all the equity of
Autonomous will be $50,000,000. In all other cases the aggregate cash amount
payable for all the equity of Autonomous will be equal to 11,650,400 multiplied
by the average closing price. For example, if the average price equals $4.00,
then the aggregate cash amount would be $46,601,600.
The aggregate cash amount to be allocated to Autonomous common stockholders and
option and warrant holders will be reduced by the following:
. One half of the amount that Summit loans to Autonomous before the
Effective Time. Summit has agreed to lend Autonomous up to $8 million.
The loan is described beginning on page 63.
. Any amounts payable in redemption to the holder of preferred stock.
To determine how much cash each Autonomous stockholder will receive, we will
divide this amount by the diluted Autonomous shares as determined above.
Completion of the Merger; Effective Time
The merger agreement provides that the merger will be completed if the Summit
stockholders vote to issue the Summit shares in the merger and the Autonomous
stockholders vote to approve the merger and related transactions and if all
other conditions to the merger are satisfied or waived. If the merger is able
to be completed as a tax-free reorganization, Autonomous will merge into the
Summit subsidiary. If the merger is restructured as a fully taxable merger, the
Summit subsidiary will merge into Autonomous. In either case, each outstanding
share of Autonomous common stock (other than shares owned by Summit) will be
converted into the right to receive shares of Summit common stock and cash.
Completion of the merger will occur when certificates of merger are filed with
the Secretary of State of Delaware and the Secretary of State of Florida. We
refer to the time when the merger is completed as the "Effective Time." These
filings will occur as soon as practicable after we satisfy or waive the closing
conditions in the merger agreement. Either party may terminate the merger
agreement if it is not completed by April 30, 1999 or under the circumstances
we describe below under the captions "The Merger Agreement--Conditions to the
Merger" and "The Merger Agreement--Termination" at pages 58 through 62.
Conversion of Shares; Procedures for Exchange of Certificates
The conversion of Autonomous common stock into the right to receive Summit
common stock and cash will occur automatically at the Effective Time.
As soon as practicable after the Effective Time, the exchange agent will mail a
transmittal letter and instructions to each Autonomous stockholder describing
the procedures to follow in forwarding
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Autonomous stock certificates. When the exchange agent receives an executed
letter of transmittal and the original stock certificates, it will deliver
shares of Summit common stock and cash to the stockholder.
After the Effective Time, Autonomous will not permit any share transfers in its
stock transfer books. Any certificate presented for transfer will be canceled
and exchanged for the appropriate number of shares of Summit common stock and
an appropriate amount of cash. After the Effective Time and until surrendered,
shares of Autonomous common stock will only represent the right to acquire the
number of shares of Summit common stock and cash into which the shares were
convertible at the Effective Time. See "The Merger Agreement--Exchange of
Certificates."
Autonomous stockholders should not forward stock certificates to the exchange
agent until they have received a transmittal letter. Do not return stock
certificates with the enclosed proxy card.
Interests of Certain Persons in the Merger
In considering the Autonomous board's recommendation in favor of the merger,
Autonomous stockholders should be aware that certain members of Autonomous
management have interests in the merger that are in addition to their interests
as Autonomous stockholders generally.
Under the merger agreement, Randy W. Frey will be elected as a Summit director
for a term ending at the Summit annual meeting in 2001 and Dr. C. Glen Bradley,
president and chief executive officer of CIBA Vision, will be elected as a
Summit director for a term ending at the Summit annual meeting in 2000. Mr.
Frey is chairman of the board, president and chief executive officer of
Autonomous. From 1985 to March 1998 and again since October 1998, Mr. Frey was
president of Autonomous. Mr. Frey is 41 years old. Dr. Bradley has been the
chief executive officer of CIBA Vision since 1990. Dr. Bradley is 56 years old.
Dr. Richard H. Keates has been designated by Autonomous to be an observer at
Summit board meetings. Dr. Keates has been a director of Autonomous and
Professor of Ophthalmology at New York Medical College since 1997. From 1990 to
1997, Dr. Keates was a Professor of Ophthalmology at the University of
California--Irvine. Dr. Keates is 66 years old.
Upon the merger closing, Randy W. Frey will be appointed a Summit Executive
Vice President and a member of the Summit board of directors. He will be in
charge of the Autonomous Technologies operation in Orlando, Florida. As an at-
will employee, Mr. Frey will receive a base salary of $212,000 per year plus
benefits and will be eligible for discretionary bonuses, based on criteria
established from time to time by the Summit board of directors. In addition,
Mr. Frey will be granted an option to purchase 200,000 shares of Summit common
stock under the Summit 1997 Stock Option Plan. The shares underlying the option
will vest as follows:
. 100,000 shares will vest over a three-year period, in equal annual
installments beginning at the merger closing;
. 33,333 shares will vest when Summit's common stock closes at $8 per
share;
. 33,333 shares will vest when Summit's common stock closes at $13 per
share; and
. 33,334 shares will vest when Summit's common stock closes at $20 per
share.
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Notwithstanding these vesting periods, the option will vest five years after
the merger closing, provided Mr. Frey remains continuously employed by Summit
until that date. The option will be an incentive stock option to the fullest
extent possible, with the balance being a nonqualified option. The exercise
price of the incentive stock option portion will be the fair market value on
the date of the merger closing, and the exercise price of the nonqualified
portion will be $5.625 per share.
In the event Mr. Frey's employment is terminated without cause, he will receive
severance payments equal to one year's base compensation. In the event Mr.
Frey's employment is terminated within twelve months of a change in control of
Summit, he will receive severance payments equal to two years' base
compensation.
Summit will indemnify and hold harmless from liability the directors, officers
and employees of Autonomous for acts or omissions occurring at or before the
Effective Time to the fullest extent permitted under applicable law for a
period of six years after the date of the merger agreement. Summit will also
honor and fulfill the obligations of Autonomous under indemnification
agreements with its directors and officers existing at or before the Effective
Time. For three years after the Effective Time, Summit will maintain in effect,
if available, directors' and officers' liability insurance covering those
persons currently covered by Autonomous' directors' and officers' liability
insurance policy on terms comparable to those currently in place. In no event,
however, must Summit spend more than 150% of the annual premium that Autonomous
currently pays for that coverage, although Summit must purchase the maximum
coverage available for that amount.
Under the Autonomous 1995 Stock Option Plan and related agreements, all stock
options outstanding at the closing of the merger will become exercisable prior
to the merger and terminate when the merger is completed. Summit has agreed to
assume any stock options outstanding at the Effective Time if the holder of the
option waives the acceleration right and agrees to continue the existing
vesting schedule. These options would become options for Summit common stock
following the merger. Summit has agreed that if it terminates the employment of
any option holder without cause following the merger, it will accelerate the
exercisability of the assumed option to permit the employee to exercise it.
Autonomous does not know the extent to which its employees will waive the
acceleration right and accept the Summit stock options.
At the Effective Time, each outstanding warrant to purchase Autonomous common
stock will constitute a warrant to acquire, on the same terms and conditions
that were applicable to the warrant before the Effective Time, the shares of
Summit common stock and the cash that the holder of the warrant would have
received if the warrant had been exercised in full immediately before the
Effective Time.
Material Federal Income Tax Consequences of the Merger
The following summary discusses the material United States federal income tax
consequences of the merger to holders of Autonomous common stock who hold their
shares as a capital asset. This summary is based upon the relevant law as of
the date of this joint proxy statement/prospectus, which is subject to change
either prospectively or retroactively. This summary does not address the tax
consequences that may apply to particular Autonomous stockholders who are
subject to special treatment under the federal income tax laws.
As of the date of this joint proxy statement/prospectus, the federal income tax
consequences of the merger to Autonomous stockholders are uncertain. The tax
consequences depend upon whether or not
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the merger qualifies as a reorganization within the meaning of Section 368(a)
of the Code. To qualify as a reorganization, the merger must satisfy, in
addition to other requirements, a continuity of interest test. This test
requires that the Autonomous stockholders retain a substantial interest in the
Autonomous business following the merger. Under IRS ruling guidelines, this
requirement will be satisfied if Autonomous stockholders receive at least 50%
of the total consideration in the form of Summit stock. However, judicial
decisions are more liberal than the IRS ruling guidelines and courts have held
that less than 45% continuity may be sufficient. The merger agreement sets
forth two objective tests designed to determine if the continuity requirement
has been satisfied. Under these tests, the value of the Summit stock received
must equal or exceed 50% of the total consideration, valuing the Summit stock
on the day before the closing date, and 45% of the total consideration, valuing
the Summit stock at its average closing price for the five trading days
preceding the closing date.
Whether these continuity tests will be satisfied depends upon the following
variables:
. The average Summit stock price on the five trading days before the
closing date and the Summit stock price on the day before the closing
date;
. The Autonomous stock price at closing (used in the calculation of the
diluted Autonomous shares outstanding to determine the per share
consideration);
. The number of Autonomous options and warrants exercised prior to the
closing;
. Whether the Autonomous preferred stock is converted or redeemed; and
. The outstanding balance of any loan from Summit to Autonomous as of the
closing.
The tax consequences of the merger will remain uncertain until each of these
variables can be determined. The most important variables are the average
Summit stock price over the five days before the closing, the Summit stock
price on the day before the closing, and whether the Autonomous preferred stock
is converted to Autonomous common stock before the merger or is redeemed for
cash.
. Five-day Average Summit Stock Price. The probability that the merger
will qualify as a reorganization increases as the average Summit stock
price over the five days prior to the closing increases. As described
above, whether the merger will qualify as a reorganization depends upon
the ratio between the value of the stock and cash consideration paid to
Autonomous stockholders. The greater the relative value of the stock
consideration the more likely the merger will satisfy the continuity
tests. The stock consideration is fixed at 11,650,400 shares and the
cash consideration is determined by multiplying 11,650,400 by the five-
day average Summit stock price, but the cash consideration cannot exceed
$50,000,000. Because only the cash consideration is capped at
$50,000,000, at higher Summit stock prices there is a greater
probability that the merger will satisfy the continuity tests because
the value of the stock consideration will increase relative to the cash
consideration. In general, the merger is likely to qualify as a
partially tax-free reorganization if the Summit stock price exceeds
$4.29 during the five trading days before the closing.
. Summit Stock Price on the Day Before Closing. Although the merger is
likely to qualify as a partially tax-free reorganization if the five-day
average Summit stock price exceeds $4.29, even at these stock prices the
merger may not satisfy the continuity requirement if there is a
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significant drop in the Summit stock price on the day before closing. This
is because the five-day average price is used to determine the cash
consideration paid in the merger, but the Summit stock price on the day
before the closing is used to determine whether one of the continuity
tests is satisfied. If the value of the Summit stock used in determining
the cash consideration is significantly higher than the value of the
Summit stock used in testing continuity, the merger may not qualify as a
partially tax-free reorganization.
. Autonomous Preferred Stock. The probability that the merger will qualify
as a reorganization also increases if the Autonomous preferred stock is
converted to Autonomous common stock rather than redeemed for cash.
Based on the cash redemption price of the preferred stock, we believe
that the holder of preferred stock will convert to common stock if the
Summit stock price is $4.42 or higher. It is likely that the merger will
qualify as a partially tax-free reorganization if the Autonomous
preferred stock is converted to common stock and the Summit stock price
remains relatively stable during the five trading days preceding the
closing.
Partially Tax-Free Merger. If the continuity tests in the merger agreement are
met, the transaction will be completed as a merger of Autonomous into the
Summit subsidiary with the following federal income tax consequences:
. Each Autonomous stockholder will recognize gain equal to
. the fair market value of the Summit stock and cash received minus
. the stockholder's adjusted tax basis in the Autonomous common stock,
but not more than the amount of cash received in the merger (excluding
cash received in lieu of fractional shares).
Any gain in excess of the cash received will not be recognized for tax
purposes.
. Gain recognized by each Autonomous stockholder will generally be capital
gain and will be long-term capital gain if the stockholder held the
stock for more than one year. In certain circumstances, however, an
Autonomous stockholder who actually or constructively owns Summit stock
may be required to treat gain recognized as ordinary dividend income
(rather than capital gain). Because the attribution rules are complex,
each Autonomous stockholder who believes these rules may apply should
contact his or her own tax adviser.
. If an Autonomous stockholder's adjusted tax basis in the Autonomous
stock exceeds the value of the total consideration received in the
merger, the stockholder will not recognize any loss for tax purposes.
. Each Autonomous stockholder's adjusted tax basis in the Summit stock
received (including fractional shares deemed received) will equal the
stockholder's adjusted tax basis in his or her Autonomous common stock,
decreased by the amount of cash received and increased by the amount of
gain recognized.
. Each Autonomous stockholder's holding period in the Summit stock
received in the merger will include the stockholder's holding period in
his or her Autonomous common stock.
. Cash payments, if any, received in lieu of fractional shares of Summit
stock will be treated as if Summit had issued the fractional shares and
then redeemed them. An Autonomous
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stockholder receiving cash for a fractional share will recognize capital
gain or loss on the difference between the cash received and the portion
of the adjusted tax basis of Autonomous common stock allocable to that
fractional share.
If the continuity tests are satisfied, Summit's obligation to complete the
merger is conditioned on its receipt of an opinion from its counsel, Ropes &
Gray, that the merger constitutes a reorganization within the meaning of
Section 368(a) of the Code. This opinion will be based upon customary
assumptions and upon representations that counsel receives from Summit, the
Summit subsidiary and Autonomous. If the merger is completed as a
reorganization, each Autonomous stockholder will be required to file with the
stockholder's federal income tax return a statement setting forth certain facts
relating to the merger. The tax consequences set forth in this discussion and
Ropes & Gray's legal opinion are not binding on the IRS or the courts and
either could adopt a contrary position.
Taxable Merger. If the continuity tests in the merger agreement are not met,
the transaction will be completed as a merger of the Summit subsidiary into
Autonomous with the following federal income tax consequences:
. Each Autonomous stockholder will recognize taxable gain or loss equal to
the difference between
. the fair market value of the Summit stock and cash received and the
stockholder's adjusted tax basis in the Autonomous common stock.
. the gain or loss will be capital gain or loss and will be long-term
capital gain or loss if the stockholder held his or her Autonomous
stock for more than one year.
. Shares of Summit stock received in the merger will have a tax basis
equal to their fair market value on the closing date.
. The holding period of shares of Summit stock received in the merger will
begin the day after the closing date.
Backup Withholding. Certain noncorporate Autonomous stockholders may be subject
to backup withholding at a rate of 31% on the gross proceeds received pursuant
to the merger, without regard to whether the merger is restructured. Backup
withholding will not apply, however, to a stockholder who furnishes a correct
taxpayer identification number and certifies that such stockholder is not
subject to backup withholding on a Form W-9, or who provides a certificate of
foreign status on Form W-8, or who is otherwise exempt from backup withholding.
Autonomous stockholders are urged to consult their own tax advisors as to the
specific tax consequences to them of the merger, including tax return reporting
requirements and the applicability and effect of federal, state, local, and
other applicable tax laws.
Accounting Treatment
Summit will account for the merger under the purchase method of accounting in
accordance with generally accepted accounting principles. Under the purchase
method of accounting, Summit will allocate the purchase price (i.e., the
aggregate combined value of the Summit common stock and the cash paid in the
merger, including direct costs of the merger) to the identifiable assets of
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Autonomous based upon estimates of the fair value of the identifiable assets
and liabilities as of the Effective Time. The amount by which the purchase
price exceeds the fair value of Autonomous's net identifiable assets will
constitute goodwill. Summit intends to allocate approximately $19.8 million to
in-process research and development. It will record this amount as an expense
in the period in which the merger occurs. After the merger, Summit will include
Autonomous' financial condition and results of operations in its consolidated
financial condition and results of operations.
Effect on Stock Options and Warrants
Under the Autonomous 1995 Stock Option Plan and related agreements, all
outstanding stock options become immediately exercisable prior to the merger
and will terminate when the merger is completed. Summit has agreed to assume
any stock options outstanding at the Effective Time if the holder of the option
waives the acceleration right and agrees to continue the existing vesting
schedule. The assumed options will become exercisable on a per share basis for
a number of shares of Summit common stock equal to the per share stock
consideration plus the number of shares of Summit common stock that could be
purchased with the per share cash consideration. In determining the number of
shares of Summit common stock that could be purchased with the per share cash
consideration, the purchase price per share is based on the five-day average of
the Summit common stock prior to the closing of the merger. Summit has agreed
that if it terminates without cause the employment of the holder of any assumed
option following the merger, it will accelerate the exercisability of the
assumed option and permit the employee to exercise it.
At the Effective Time, each outstanding warrant to purchase Autonomous common
stock will constitute a warrant to acquire, on the same terms and conditions
that were applicable to the warrant before the Effective Time, the shares of
Summit common stock and the cash that the holder of the warrant would have
received in the merger if the warrant had been exercised in full immediately
before the Effective Time. As of the record date, there were outstanding
warrants to purchase 545,000 shares of Autonomous common stock at exercise
prices ranging from $3.33 per share to $9.60 per share.
Conversion and Redemption of the Autonomous Preferred Stock
As of March 19, 1999 there were 442 shares of Autonomous preferred stock
outstanding. The holder of the Autonomous preferred stock may elect to convert
it to Autonomous common stock or, subject to completion of the merger, redeem
it for cash. If the holder elects to convert, it will receive for each share of
preferred stock the number of shares of Autonomous common stock determined by
dividing the price per share of the preferred stock, which is $10,000, and the
lower of
. 90% of the average lowest per share trading price of Autonomous common
stock for the five days before the conversion date; or
. $3.975, which was the average per share trading price of Autonomous
common stock for the five days before the announcement of the proposed
merger.
There is, however, a limit imposed on the number of shares of Autonomous common
stock that the holder can receive should it elect to convert. This limit
derives from the rules of the Nasdaq National Market, which requires
stockholder approval for issuances of stock in excess of 20% of the amount
outstanding at the time of issuance. Since Autonomous has not sought this
stockholder approval, the limit is 2,263,197 shares.
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The current conversion formula will result in the holder of preferred stock
being entitled to more than the maximum limit of 2,263,197 shares of Autonomous
common stock. Thus, Autonomous must redeem for cash the portion of the
preferred stock that cannot be converted because of the limit. In addition,
because of the acquisition of Autonomous by Summit, the holder has the right to
require Autonomous to redeem all of its preferred stock for cash. The
redemption price in either case will be $11,111 per share of preferred stock.
Assuming that the applicable five day average trading price is $3.975 or more
per share, the holder of the Autonomous preferred stock will be able to convert
all but 32 of its shares into Autonomous common stock. Autonomous would have to
redeem these 32 shares upon conversion at a price of $11,111 per share, for an
aggregate cash redemption of $355,552. In the event that the applicable five
day average trading price is less than $3.975, the number of shares of
preferred stock which the holder will not be able to convert, and the aggregate
cash consideration Autonomous will pay, will both be larger.
Resale of Summit Common Stock
All of the Summit common stock issued in the merger will be freely transferable
except any shares that "affiliates" of Autonomous or Summit receive. An
affiliate of a corporation is someone who controls, is controlled by, or is
under common control with that corporation. The term generally includes
executive officers and directors and principal stockholders of the corporation.
During the year following the merger, affiliates of Autonomous may only sell
Summit common stock they receive in the merger under an effective registration
statement or in compliance with the manner-of-sale and volume restrictions of
Rule 144 under the Securities Act of 1933. The manner-of-sale restrictions
require that sales be executed in unsolicited brokers' transactions or
transactions directly with a market maker. The volume restrictions limit sales
in any three-month period to the greater of 1% of the outstanding shares of
Summit common stock or the average weekly trading volume of that stock during
the four calendar weeks preceding the sale. Affiliates would not be able to
sell if Summit was not current with its informational filings under the
Exchange Act. One year after the Effective Time, an affiliate of Autonomous who
is not also an affiliate of Summit would be able to sell Summit common stock
received in the merger without restriction so long as Summit was current with
its Exchange Act informational filings. Two years after the Effective Time, an
affiliate of Autonomous who is not also an affiliate of Summit would be able to
sell shares of Summit common stock received in the merger without any
restrictions.
Listing of Summit Common Stock
Summit has agreed to use its reasonable best efforts to list the shares of
Summit common stock issuable in the merger on the Nasdaq National Market. The
merger agreement requires that they be listed prior to the closing. Summit has
applied for the listing. The trading symbol for Summit common stock is "BEAM."
Dissenters' Rights
Under Florida law, the holders of Autonomous common stock do not have the right
to dissent from the merger and obtain payment of the fair value of their shares
in cash, sometimes referred to as appraisal rights. The holders of Summit
common stock are not entitled to any appraisal rights in connection with the
issuance of shares in the merger, the increase in authorized shares or the
increase in the shares available under the 1997 Stock Option Plan.
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THE MERGER AGREEMENT
The description of the merger agreement set forth below highlights the material
terms of the merger agreement and the amendment. A copy of the merger
agreement, as amended, is attached to this joint proxy statement/prospectus as
Annex A. This description may not include all the information that interests
you. We urge you to read the merger agreement carefully and in its entirety.
Terms of the Merger
The Merger. Unless the merger is restructured, at the Effective Time and
subject to and upon the terms and conditions of the merger agreement,
Autonomous will be merged with and into Alpine Acquisition Corp., a wholly
owned subsidiary of Summit. The separate corporate existence of Autonomous will
cease, and Alpine Acquisition will continue as the surviving corporation and a
wholly owned subsidiary of Summit. In the event that the merger is
restructured, at the Effective Time and subject to the terms and conditions of
the merger agreement, Alpine Acquisition will be merged with and into
Autonomous. In that case, Autonomous would continue as the surviving
corporation and a wholly owned subsidiary of Summit.
Effective Time. As promptly as practicable after the conditions to the merger
set forth in the merger agreement are waived or satisfied, we will complete the
merger by filing Certificates of Merger with the Secretary of State of the
State of Delaware and the Secretary of State of the State of Florida. We refer
to the time of these filings as the "Effective Time."
Certificate of Incorporation and Bylaws. The merger agreement provides that,
unless the merger is restructured, the Certificate of Incorporation and Bylaws
of Alpine Acquisition, as in effect immediately before the Effective Time, will
be the governing documents of the surviving corporation, except that the name
of the surviving corporation will be Autonomous Technologies Corporation.
Directors and Officers. Robert J. Palmisano, the sole director of Alpine
Acquisition immediately prior to the Effective Time, will be the initial
director of the surviving corporation. The officers of Alpine Acquisition
immediately before the Effective Time will be the initial officers of the
surviving corporation.
Conversion of Autonomous Common Stock in the Merger. At the Effective Time,
each share of Autonomous common stock outstanding (excluding shares that Summit
or Alpine Acquisition owns, which will be canceled) will be converted into the
right to receive the merger consideration. The merger consideration consists of
Summit common stock and cash. The per share stock consideration for Autonomous
common stock will be 11,650,400 shares of Summit common stock divided by the
diluted shares of Autonomous common stock outstanding at the Effective Time.
The cash consideration will consist of an amount of cash, not to exceed
$50,000,000, equal to the value of 11,650,400 shares of Summit common stock.
This value is calculated by multiplying the average closing price of Summit
common stock for the five trading days ending the day before the closing (the
"Average Closing Price") by 11,650,400. The cash consideration will be reduced
by one-half of any amounts owing from Autonomous to Summit at the closing. The
cash consideration available for Autonomous common stock and options and
warrants will be reduced by any cash that would be
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payable upon redemption of the Autonomous preferred stock at the closing. The
per share cash consideration will be determined by dividing this cash amount by
the same number of shares used to calculate the per share stock consideration.
Summit may issue fractional shares or it may chose to pay cash in lieu of
fractional shares of Summit common stock issuable in the merger.
Stock Options. At the Effective Time, Summit will assume each then outstanding
option to purchase shares under the Autonomous 1995 Stock Option Plan as to
which the holder has waived the acceleration of vesting under the plan. Each
assumed stock option will become an option to acquire, on a per share basis and
on substantially the same terms and conditions, the number of shares of Summit
common stock that a holder of one share of Autonomous common stock would have
received in the merger plus an additional number of shares of Summit common
stock that the per share cash consideration could purchase at the Average
Closing Price, rounded down to the nearest whole share. The exercise price per
share of Summit common stock will be equal to the aggregate exercise price of
the assumed option divided by the number of shares of Summit common stock into
which it will become exercisable after the Effective Time, increased to the
nearest whole cent. For incentive stock options, the conversion formula will be
adjusted if necessary to comply with the Internal Revenue Code.
Conversion of Capital Stock of Alpine Acquisition in the Merger. Each share of
common stock of Alpine Acquisition issued and outstanding immediately prior to
the Effective Time shall remain outstanding.
Adjustments to Stock Consideration. The aggregate stock consideration will be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Summit common stock), reorganization, recapitalization or other like change in
the Summit common stock or Autonomous common stock occurring after the date of
the merger agreement and before the Effective Time.
Fractional Shares. Unless Summit otherwise elects, it will not issue
certificates or scrip representing less than one share of Summit common stock
in the merger. If Summit so elects, in lieu of any such fractional share,
Summit will pay each holder of Autonomous common stock who would otherwise have
been entitled to a fractional share cash equal to the product of the fraction
and the Average Closing Price.
Amendment of the Merger Agreement
Effect on Termination Date. On March 16, 1999, Summit and Autonomous agreed to
amend the merger agreement to extend the termination date of the agreement to
April 30, 1999. Summit had previously extended the termination date of the
merger agreement for an additional 30 days after February 28, 1999. The
amendment changed the termination date from February 28, 1999 to April 30,
1999. In connection with the amendment, Summit agreed to increase the revolving
credit line and revolving promissory note to an aggregate of $8 million. As of
March 19, 1999, the total amount outstanding under this credit arrangement was
$3,000,000.
Effect on Autonomous Warrants. The amendment also provides that as of the
Effective Time each outstanding warrant to purchase Autonomous common stock
will represent a warrant to
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acquire, on the same terms and conditions that were applicable to the warrant
before the Effective Time, the shares of Summit common stock and the cash that
the holder of the warrant would have received in the merger if the warrant had
been exercised in full immediately before the Effective Time.
Exchange of Certificates
Exchange Agent. Summit will supply to the exchange agent, in trust for the
benefit of the holders of Autonomous common stock, for exchange in accordance
with the merger agreement, certificates evidencing the shares of Summit common
stock and cash issuable in exchange for outstanding Autonomous common stock.
Exchange Procedures. As soon as reasonably practicable after the Effective
Time, Summit will instruct the exchange agent to mail the following documents
to each holder of record of Autonomous common stock:
. a letter of transmittal, and
. instructions to effect the surrender of the certificates evidencing the
Autonomous common stock in exchange for certificates evidencing Summit
common stock and cash.
Upon surrender of a certificate to the exchange agent together with a letter of
transmittal, duly executed, and such other customary documents as the exchange
agent may require, the certificate holder will be entitled to receive the
following merger consideration:
. certificates evidencing that number of shares of Summit common stock that
the holder has the right to receive in the merger,
. the per share cash consideration,
. any dividends or other distributions to which such holder is entitled to
receive, and
. cash in respect of any fractional shares of Summit common stock if Summit
has elected to pay cash for fractional shares.
The certificate so surrendered will be canceled. If a holder of Autonomous
common stock makes a transfer that is not registered in the transfer records as
of the Effective Time, the exchange agent may issue and pay the merger
consideration to a transferee if the certificate evidencing the Autonomous
shares is presented to the exchange agent, accompanied by all documents
required to effect such transfer and evidence that any applicable stock
transfer taxes have been paid. Until so surrendered, each outstanding
certificate that, prior to the Effective Time, represented Autonomous shares
will from and after the Effective Time, for all corporate purposes, evidence
the ownership of the number of Summit shares that represent the stock
consideration and the cash with respect to such shares.
Transfers of Ownership. The exchange agent will issue a certificate for shares
of Summit common stock in a name other than that in which the Autonomous
certificate surrendered in exchange was registered only if the certificate
surrendered is properly endorsed and otherwise in proper form for transfer. The
person requesting the exchange must also have paid any required transfer or
other taxes or established to Summit's satisfaction that no tax is payable.
No Liability. At any time following one year after the Effective Time, Summit
may require the exchange agent to deliver to it any merger consideration that
has not been disbursed to Autonomous
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stockholders. From then on, these holders will be general creditors of Summit
with respect to the merger consideration payable upon surrender of their
certificates. However, neither Summit, Alpine Acquisition nor Autonomous will
be liable to any holder of Autonomous common stock for any merger consideration
delivered to a public official under any applicable abandoned property, escheat
or similar law.
Withholding Rights. Summit or the exchange agent may withhold from the merger
consideration otherwise payable under the merger agreement amounts that are
required to be deducted and withheld on such payment under any federal, state,
local or foreign tax law. To the extent that Summit or the exchange agent
withhold such amounts, they will be treated for purposes of the merger
agreement as having been paid to the holder of the shares of Autonomous common
stock in respect of which the deduction and withholding was made.
Lost, Stolen or Destroyed Certificates. If any certificates are lost, stolen
or destroyed, the exchange agent will issue replacement certificates, if the
holder makes an affidavit of that fact and, if Summit requests, upon delivery
of an indemnity bond in such sum as Summit may reasonably direct with respect
to the certificates alleged to have been lost, stolen or destroyed.
Detailed instructions, including a transmittal letter, will be mailed to the
Autonomous stockholders promptly following the Effective Time describing how to
exchange certificates formerly representing shares of Autonomous common stock.
Autonomous stockholders should not send certificates representing their shares
to the exchange agent before they receive the transmittal letter.
Restructuring of the Merger
As of the date of this joint proxy/prospectus, we are not certain what the tax
status of the merger will be. The tax status of the merger will depend in large
part on the value of the Summit stock that Autonomous stockholders receive in
the merger. If the value of the Summit stock in relation to the cash received
satisfies the continuity of interest requirement, which is discussed in the
section entitled "Material Federal Income Tax Consequences of the Merger," the
merger will qualify as a partially tax-free reorganization. To ensure the
continuity requirement is satisfied, the merger agreement sets forth two
objective tests for the merger to be completed as a partially tax-free
reorganization:
. The value of the Summit stock that will be issued in the merger using
the average closing price for the five trading days before the closing
date must not be less than 45% of the value of the total consideration
that Autonomous stockholders will receive, including any amounts payable
to redeem the Autonomous preferred stock, and
. The value of the Summit stock that will be issued in the merger based on
the high and low sale prices on the day before the closing must not be
less than 50% of the value of the total consideration that Autonomous
stockholders will receive, including any amounts payable to redeem the
Autonomous preferred stock.
The pricing formula that determines the per share merger consideration is
sensitive to a number of variables. Changes in these variables could cause the
Summit shares issued to Autonomous stockholders to fall below the thresholds
discussed above.
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If the value of Summit stock that would be issued to Autonomous stockholders
satisfies both of the continuity tests, the transaction will be structured as a
merger of Autonomous into a subsidiary of Summit and the tax consequences to
the Autonomous stockholders will be as described under "Material Federal Income
Tax Consequences of the Merger--Partially Tax-Free Merger."
If either of the continuity tests is not satisfied, the merger will be
completed as a merger of Summit's wholly owned subsidiary into Autonomous and
the tax consequences to Autonomous stockholders will be as described under
"Material Federal Income Tax Consequences--Taxable Merger." This restructuring
is necessary because a merger in which Autonomous is the surviving corporation
triggers only a stockholder level tax, but if Summit's subsidiary were to
survive there would be an additional corporate level tax. Apart from the tax
consequences to the Autonomous stockholders, the taxable merger should not have
any material impact on the stockholders of Summit or Autonomous. The Autonomous
stockholders will receive Summit stock and cash under either structure, and the
structure will not affect the corporate rights of the stockholders of Summit or
Autonomous nor the management or business operations of Summit or Autonomous
following the merger. The only practical consequence of restructuring the
merger is that it will be fully taxable to Autonomous stockholders.
Representations and Warranties
In the merger agreement, each of Summit and Autonomous makes customary
representations and warranties about itself and its business in favor of the
other party. These representations and warranties relate to such matters as:
. corporate organization, good . each company's SEC reports and
standing, qualification, financial statements
approvals and similar matters
. force and effect of charter . the conduct of business in the
and bylaws ordinary course and the
absence of certain changes
. the capital structure of each
company . the absence of material
undisclosed liabilities and
. the authorization, execution, the absence of material
delivery and enforceability of pending or threatened
the merger agreement litigation
. employee benefit and labor
. no breach or default under matters
material agreements
. payment of taxes and certain
other tax matters
. the absence of conflict of the
merger agreement with charter
documents, laws or agreements . compliance with applicable
regulatory requirements,
. the absence of conflict with, including FDA requirements.
default under or violation of
agreements and laws, and the
holding of permits necessary
for the conduct of business
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Conduct of Business Pending the Merger
Conduct of Business by Autonomous. Autonomous has agreed that it will operate
its business in the ordinary course through the Effective Time. Specifically,
it has agreed not to do any of the following:
. amend its articles of incorporation or bylaws;
. issue any of its capital stock or rights to acquire its capital stock,
except for options for up to 100,000 shares to newly hired employees and
except for issuances under currently outstanding options, warrants and
other rights;
. sell or encumber any of its assets, except for sales in the ordinary
course of business, dispositions of obsolete or worthless assets, and
sales of other assets not in excess of $100,000 in the aggregate;
. declare or pay any dividend or other distribution on any of its capital
stock, effect a stock split or reclassification or amend the terms of any
of its existing securities or rights;
. acquire any other business, incur any indebtedness for borrowed money or
make any guarantee, make any loans or advances (other than in the
ordinary course of business consistent with past practice), enter into or
amend any material contract or authorize any capital expenditures in
excess of $100,000 in the aggregate;
. increase the compensation payable to any employee except in the ordinary
course of business, enter into or amend any employment or severance
agreements with any director, executive officer or current Autonomous
employee, enter into employment or severance agreements with any new
Autonomous employee except in the ordinary course of business consistent
with past practice or establish or amend any employee benefit plan except
as may be required by law;
. change in any material respect its accounting policies or procedures
except as required under generally accepted accounting principles;
. make any material tax election inconsistent with past practice or settle
or compromise any material tax liability;
. pay any material liabilities or obligations, other than in the ordinary
course of business and consistent with past practice;
. take, or agree in writing or otherwise to take, any of the foregoing
actions.
No Solicitation by Autonomous. Autonomous has agreed that it will not solicit
any inquiries or proposals about any other merger, sale of substantial assets,
sale of stock or similar transactions or engage in negotiations about any
acquisition proposal. The Autonomous board of directors is not prevented,
however, from considering, approving and recommending a bona fide acquisition
proposal not solicited in violation of the merger agreement, if the board
concludes in good faith that the acquisition proposal would constitute a
Superior Proposal (as defined in the merger agreement) and determines in good
faith (upon advice of outside counsel) that it is required to do so in order to
discharge properly its fiduciary duties.
Under the merger agreement, Autonomous must immediately notify Summit if it
receives an acquisition proposal or any request for nonpublic information or
for access to the properties, books or
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records of Autonomous by any person or entity that is considering making, or
has made, an acquisition proposal.
If the Autonomous board of directors determines in good faith and upon the
advice of independent counsel that it is required to cause Autonomous to
provide such information in order to discharge properly the directors'
fiduciary duties, then, if the person making the acquisition proposal has
executed a confidentiality agreement, Autonomous may provide the person with
access to information regarding Autonomous.
Additional Agreements
Special Meetings. Autonomous and Summit have agreed to call and hold the
special meetings for the purpose of voting upon the approval of the merger and
the issuance of the Summit common stock in the merger, and Summit and
Autonomous will use their reasonable best efforts to hold the special meetings
on the same day and at the same time as soon as practicable after the date on
which the registration statement becomes effective. Unless the directors of
Summit and Autonomous are otherwise required under their applicable fiduciary
duties, as determined in good faith after consultation with and based upon the
advice of their outside legal counsel, Autonomous and Summit will use all
reasonable efforts to solicit from their stockholders proxies in favor of
adoption of the merger agreement and approval of the merger or the issuance of
Summit common stock in the merger and will take all other action reasonably
necessary or advisable to secure the vote or consent of stockholders to obtain
such approvals.
Access to Information; Confidentiality. Upon reasonable notice and subject to
restrictions contained in confidentiality agreements with others (from which
each party will use reasonable efforts to be released), Autonomous and Summit
will each afford to the officers, employees, accountants, counsel and other
representatives of the other reasonable access to all of its properties, books,
contracts, commitments and records. Each company will furnish promptly to the
other all information about its business, properties and personnel as the other
party may reasonably request and make available the appropriate individuals to
discuss the business as either Autonomous or Summit may reasonably request.
Each party will keep the information confidential in accordance with the terms
of the mutual non-disclosure letter between Summit and Autonomous, dated August
3, 1998.
Consents; Approvals. Autonomous and Summit will each use all reasonable efforts
to make all filings and obtain all consents and approvals that are required in
connection with the authorization of the merger agreement by Autonomous and
Summit and the completion of the transactions that it contemplates, in each
case as promptly as possible.
Agreements with Affiliates. Autonomous will identify all persons who are, and
at the time of the special meetings are expected to be, "affiliates" of
Autonomous for purposes of Rule 145 under the Securities Act. Autonomous will
use its best efforts to cause each "affiliate" to deliver a written agreement
acknowledging the restrictions on resale of Summit common stock received in the
merger that Rule 145 imposes.
Indemnification and Insurance. The merger agreement provides that the articles
of incorporation and bylaws of the surviving corporation will include
indemnification provisions comparable to those
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that Autonomous currently has and that these provisions will not be amended or
repealed for six years from the Effective Time in any manner that would
adversely affect the rights of the individuals who at or before the Effective
Time were covered by them, unless any change is required by law.
Autonomous and, after the Effective Time, Summit will, to the fullest extent
permitted under applicable law and its governing documents, indemnify and hold
harmless each present and former director, officer or employee of Autonomous or
any of its subsidiaries against any liabilities and amounts paid in settlement
in connection with any action, proceeding or investigation relating to the
transactions contemplated by the merger agreement or any acts or omissions
occurring at or prior to the Effective Time to the same extent as provided in
the Autonomous articles of incorporation or bylaws or any applicable contract
or agreement in effect on the date of the merger agreement. This obligation
will cease six years after the date of the merger agreement. The merger
agreement sets forth certain procedural protections designed to make sure that
the indemnified parties can participate effectively in any proceeding.
For three years after the Effective Time, Summit will maintain in effect, if
available, directors' and officers' liability insurance covering those persons
who are currently covered by Autonomous' directors' and officers' liability
insurance policy on terms comparable to those in effect on the date of the
merger agreement. In no event, however, will Summit be required to spend more
than 150% of the annual premium that Autonomous currently pays for this
coverage.
Notification of Certain Matters. Autonomous and Summit will give each other
prompt notice of any event that would be likely to cause any representation or
warranty that it made in the merger agreement to be materially untrue or
inaccurate. Each will also notify the other if it fails materially to comply
with or satisfy any covenant, condition or agreement in the merger agreement.
Further Action; Tax Treatment. Each of Autonomous and Summit will use its
reasonable efforts to complete the transactions contemplated by the merger
agreement and to satisfy or cause to be satisfied all conditions precedent to
its obligations under the merger agreement. Each of Summit and Autonomous will
use its reasonable best efforts to cause the merger to qualify as a
reorganization under the provisions of Section 368 of the Code.
Public Announcements. Summit and Autonomous have agreed to consult with each
other before issuing any press release about the merger and will not issue any
such press release or make any such public statement without the prior consent
of the other party, which consent will not be unreasonably withheld, except as
required by law or the regulations of the Nasdaq National Market.
Accountant's Letters. Upon reasonable notice from the other, each of Autonomous
and Summit will use its best efforts to cause its independent accountants to
deliver an accountants' "comfort" letter covering financial data in the
registration statement.
Board Representation. The Summit board of directors will cause Dr. C. Glen
Bradley, president and chief executive officer of CIBA Vision Corporation, to
be elected to serve as a Summit director for the vacant term expiring at
Summit's annual meeting in 2000 and Randy W. Frey to be elected as a Summit
director for the vacant term expiring at Summit's annual meeting in 2001. The
board of directors of Summit will nominate Dr. Bradley for re-election at
Summit's annual meeting in 2000,
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provided he is "independent" under the listing requirements for the Nasdaq
National Market and he has attended at least 75% of all meetings of the Summit
board of directors, by telephone or in person, during the previous fiscal year.
In addition, Autonomous has designated Dr. Richard H. Keates to attend meetings
of the Summit board of directors until the third anniversary of the Effective
Time, subject to the board's right to have portions of any such meeting open
only to members of the board. If Dr. Keates is unable to continue as an
observer until the end of the term, the directors named by Autonomous may
designate a replacement. Summit will pay the observer's reasonable travel
expenses in connection with his attendance at board meetings.
Nasdaq Listing; Listing of Summit Shares. Each of Summit and Autonomous will
use its reasonable best efforts to continue the quotation of its common stock
on the Nasdaq National Market during the term of the merger agreement. Summit
will use its reasonable best efforts to cause the Summit common stock to be
issued in the merger to be approved for quotation, upon official notice of
issuance, on the Nasdaq National Market.
Joint Shareholder Communications Efforts. Under the merger agreement,
Autonomous and Summit will use their reasonable best efforts to conduct a joint
communications program, including presentations and meetings, with
institutional stockholders of both Autonomous and Summit, for the purpose of
communicating the synergy, strategy and prospects for the combined companies
after the merger. Such presentations and meetings shall take place in those
cities of the United States where such institutional stockholders are located
and shall be conducted for seven to ten business days during the three-week
period preceding the special meetings.
Dismissal of Civil Actions. Autonomous has agreed to stipulate to the
dismissal, without prejudice, of all claims it has alleged against Summit and
Pillar Point Partners in Autonomous Technologies Corporation v. Pillar Point
Partners (Civil Action No. 96-515 JJF).
Issuance of Shares to CIBA Vision. Prior to the Effective Time, Autonomous will
issue 171,713 shares (increased by any required anti-dilution adjustments) of
Autonomous common stock to CIBA Vision in full satisfaction of its obligation
to deliver shares of common stock under the Strategic Alliance Agreement dated
May 15, 1995 between Autonomous and CIBA Vision.
Conditions to the Merger
Neither Summit nor Autonomous is required to complete the merger unless the
following conditions are met:
. The SEC must have declared the registration statement effective and not
have issued a stop order that suspends its effectiveness or initiated or
threatened proceedings for that purpose;
. The Autonomous stockholders shall have approved the merger agreement and
the merger and the Summit stockholders shall have approved the issuance
of Summit common stock in the merger;
. The waiting period, if any, that applies to the merger under the Hart-
Scott-Rodino Antitrust Improvements Act shall have expired or been
terminated;
. No temporary restraining order or injunction preventing the completion of
the merger shall be in effect, and no governmental agency shall have
brought any proceeding seeking to prevent the merger; and
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. The shares of Summit common stock to be issued in the merger shall have
been approved, upon official notice of issuance, for quotation on the
Nasdaq National Market.
In addition to the conditions that apply to both parties, there are separate
closing conditions in favor of each of Summit and Autonomous. These conditions
must either have been met or the party in whose favor they are must have waived
compliance.
Closing Conditions in Summit's Favor. The closing conditions in favor of Summit
are:
. The representations and warranties that Autonomous made in the merger
agreement must be true at the Effective Time except for changes
contemplated by the merger agreement or representations and warranties
that address matters only as of a particular date. The President and
Chief Financial Officer of Autonomous must sign a certificate to this
effect.
. Autonomous must have complied in all material respects with the
agreements and covenants that the merger agreement requires it to perform
on or before the Effective Time. The President and Chief Financial
Officer of Autonomous must also sign a certificate to this effect.
. Autonomous must have made all filings and obtained all consents and
approvals required to complete the merger.
. Unless the conditions have been met that require the merger to be
restructured as a fully taxable merger, Summit must have received a
written opinion from Ropes & Gray to the effect that the merger will be a
tax-free reorganization.
. Each person identified as an affiliate of Autonomous must have signed an
affiliate agreement, and that agreement must be in force.
. There must not be pending or threatened any proceeding or investigation
that:
. challenges or seeks to prohibit the completion of the merger or any
of the other transactions that the merger agreement contemplates;
. seeks to obtain from Summit any damages relating to the merger that
may be material to Summit;
. seeks to prohibit or limit in any material respect Summit's ability
to vote, receive dividends on or exercise ownership rights relating
to the stock of the surviving corporation;
. would materially and adversely affect the surviving corporation's
right to own Autonomous' assets or operate its business;
. if adversely determined, could have a Material Adverse Effect (as
defined below) on Autonomous or Summit.
. The stockholder agreements, in which the directors and executive officers
of Autonomous and CIBA Vision have agreed to vote for the merger, must be
effective at the Effective Time.
Closing Conditions in Autonomous' Favor. The closing conditions in favor of
Autonomous are:
. The representations and warranties that Summit and Alpine Acquisition
made in the merger agreement must be true at the Effective Time except
for changes contemplated by the merger
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agreement or representations and warranties that address matters only as
of a particular date. The President and Chief Financial Officer of Summit
must sign a certificate to this effect.
. Summit and Alpine Acquisition must have complied in all material respects
with the agreements and covenants that the merger agreement requires them
to perform on or before the Effective Time. The President and Chief
Financial Officer of Summit must also sign a certificate to this effect.
. Summit and Alpine Acquisition must have made all filings and obtained all
consents and approvals required to complete the merger and the issuance
of the shares of Summit common stock in the merger.
"Material Adverse Effect" means any change, effect or circumstance that,
individually or when taken together with all other such similar or related
changes, effects or circumstances that have occurred prior to the date of
determination of the occurrence of the Material Adverse Effect, (i) is
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of Autonomous and its
subsidiaries or Summit and its subsidiaries, as the case may be, in each case
taken as a whole (other than changes that are the effect of economic factors
affecting the economy as a whole), or (ii) is reasonably likely to materially
delay or prevent the consummation of the transactions contemplated by the
merger agreement.
Termination
Conditions to Termination. Both Summit and Autonomous have the right, under
certain circumstances, to terminate the merger agreement, even though it may
have received stockholder approval. These circumstances are described below.
. The boards of directors of Summit and Autonomous may terminate the merger
agreement by mutual written consent.
. Either Summit or Autonomous may terminate the merger agreement if the
merger has not been completed by April 30, 1999. However, this right is
not available to any party whose failure to fulfill any obligation under
the merger agreement has resulted in the merger not occurring by that
date.
. Either Summit or Autonomous may terminate the merger agreement if a court
or governmental agency has issued a final order permanently restraining
or otherwise prohibiting the merger. However, this right is not available
to a party who has not complied with its obligations under the merger
agreement to cause the merger to be completed if the noncompliance
materially contributed to the issuance of the order.
. Summit may terminate the merger agreement if the Autonomous stockholders
have not approved the merger by April 30, 1999, provided that Summit has
held its special meeting and solicited proxies in favor of the issuance
of the Summit common stock.
. Autonomous may terminate the merger agreement if the Summit stockholders
have not approved the issuance of the Summit common stock in the merger
by April 30, 1999, provided that Autonomous has held its special meeting
and solicited proxies in favor of the merger.
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. Summit may terminate the merger agreement if:
. the Autonomous board of directors withdraws or modifies its approval
or recommendation of the merger agreement or the merger in a manner
adverse to Summit.
. the Autonomous board of directors recommends to its stockholders an
Alternative Transaction (as defined below).
. a third party commences a tender or exchange offer for 25% or more of
the outstanding shares of Autonomous common stock and the Autonomous
board of directors either fails to recommend that stockholders not
tender their shares in the offer or takes no position on the
acceptance of the offer.
. Autonomous may terminate the merger agreement if the Autonomous board of
directors determines to recommend to its stockholders an acquisition
proposal after determining, in the exercise of its fiduciary duties, that
the acquisition proposal constitutes a Superior Proposal (as defined in
the merger agreement). To exercise this right, Autonomous must give
Summit at least three business days prior notice and pay the termination
fee that the merger agreement requires.
. Summit may terminate the merger agreement if any representation or
warranty that Autonomous made in the merger agreement that was qualified
by materiality was not true when made or if any such representation or
warranty not qualified by materiality was not true in all material
respects when made. Summit may also terminate the merger agreement if
Autonomous materially violates any of its agreements in the merger
agreement. In both cases, Summit would only have the right to terminate
if the untruths or violations would cause the closing conditions, as to
the accuracy of representations and warranties and the performance of
agreements and covenants, not to be satisfied. Before exercising this
right, Summit must give Autonomous the opportunity to cure any breaches
that are capable of being cured.
. Autonomous may terminate the merger agreement if any representation or
warranty that Summit made in the merger agreement that was qualified by
materiality was not true when made or if any such representation or
warranty not qualified by materiality was not true in all material
respects when made. Autonomous may also terminate the merger agreement if
Summit materially violates any of its agreements in the merger agreement.
In both cases, Autonomous would only have the right to terminate if the
untruths or violations would cause the closing conditions, as to the
accuracy of representations and warranties and the performance of
agreements and covenants, not to be satisfied. Before exercising this
right, Autonomous must give Summit the opportunity to cure any breaches
that are capable of being cured.
. Either Summit or Autonomous may terminate the merger agreement if any
representation or warranty of the other party, through no action or
inaction on its part, shall have become untrue so that the closing
condition as to the accuracy of representations and warranties would not
be satisfied.
An "Alternative Transaction" is any one of the following transactions:
. a transaction in which any person or group acquires or would acquire more
than 25% of the outstanding shares of Autonomous common stock, whether
from Autonomous or otherwise
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<PAGE>
. a merger or other business combination involving Autonomous in which any
person or group acquires more than 25% of the equity securities of
Autonomous or the entity surviving the merger or business combination
. any other transaction in which any person or group acquires or would
acquire control of assets (which includes equity securities of
subsidiaries of Autonomous or the entity surviving any merger or business
combination) of Autonomous or any of its subsidiaries having a fair
market value (as determined by the Autonomous board of directors in good
faith) equal to more than 25% of the fair market value of all the assets
of Autonomous and its subsidiaries, taken as a whole, immediately prior
to such transaction.
Effect of Termination. If the merger agreement is terminated, it will become
void and there will be no liability on the part of Summit, Alpine Acquisition
or Autonomous or any of their affiliates, directors, officers or stockholders,
except as otherwise provided in the merger agreement. Nothing, however, will
relieve any party from liability for any willful breach prior to termination.
Fees and Expenses. Each party will pay all fees and expenses that it incurs in
connection with the merger agreement, whether or not the merger is completed.
However, Summit and Autonomous have agreed to share equally all fees and
expenses, other than accountants' and attorneys' fees, incurred in connection
with printing and filing the joint proxy statement/prospectus and the
registration statement and any amendments or supplements to either of them.
Termination Fee. Autonomous will pay Summit a fee of $2,600,000 upon the first
to occur of the following events:
. Summit terminates the merger agreement because the Autonomous
stockholders have not approved the merger by April 30, 1999 and a
proposal for an Alternative Transaction has been made prior to the
Autonomous special meeting;
. Summit terminates the merger agreement if the Autonomous board of
directors withdraws its recommendation of the merger agreement or the
merger;
. Autonomous terminates the merger agreement because its board of directors
has determined to recommend an Alternative Transaction; or
. Summit terminates the merger agreement because Autonomous has breached
the merger agreement under circumstances that give Summit the right to
terminate.
Amendment and Waiver
Summit and Autonomous may amend the merger agreement by action taken by their
boards of directors at any time before the Effective Time. However, after the
Autonomous stockholders have approved the merger, no amendment may be made that
by law requires further stockholder approval without obtaining that approval.
The merger agreement must be amended by a written instrument signed by the
parties.
At any time prior to the Effective Time, any party to the merger agreement may
extend the time for the performance of any of the other party's obligations,
waive any of the other party's inaccurate representations and warranties in the
merger agreement, or waive the other party's compliance with its agreements or
conditions in the merger agreement. Any extension or waiver will be valid if
set forth in a written instrument signed by the affected party or parties.
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OTHER AGREEMENTS
The description of the stockholder agreements set forth below highlights
certain important terms of the stockholder agreements, a form of which is
attached to this joint proxy statement/prospectus as Annex B. The description
does not purport to be complete and it may not include all the information that
interests you. We urge you to read the form of stockholder agreement carefully
and in its entirety.
Stockholder Agreements
When Summit and Autonomous executed the merger agreement, Summit also entered
into stockholder agreements with each of CIBA Vision, Randy W. Frey, Monty K.
Allen, Timothy Barabe, Steven E. Bott, Charline A. Gauthier, Bruce A. Hays, G.
Arthur Herbert, Dr. Richard H. Keates, Donald I. Martin, Whitney A. McFarlin,
Christine Oliver, George H. Pettit and Stanley Ruffett (collectively the
"Autonomous Stockholders"). These individuals are all either directors,
executive officers or principal stockholders of Autonomous. Under the
stockholder agreements, the Autonomous Stockholders have agreed to vote all of
their shares of Autonomous common stock in favor of the merger and the adoption
of the merger agreement and against any alternative proposal to acquire
Autonomous. Each of them has granted Alpine Acquisition an irrevocable limited
proxy to that effect covering their shares. The Autonomous Stockholders
collectively owned approximately 21.8% (or 2,511,599 shares) of Autonomous
common stock outstanding as of the date of the merger agreement.
Each of the Autonomous Stockholders has agreed to not, directly or indirectly,
solicit or respond to any inquiries or proposals by any person or entity that
constitutes or could reasonably be expected to lead to an acquisition proposal
relating to Autonomous. This agreement will not restrict or limit any fiduciary
duty that an Autonomous Stockholder may have as a director or officer, but no
such duty will excuse the Autonomous Stockholder from the obligation to vote
the shares of Autonomous common stock in favor of the merger. Each Autonomous
Stockholder has also agreed not, directly or indirectly except pursuant to the
terms of the merger agreement, to offer for sale, sell, or otherwise dispose of
any shares of Autonomous common stock.
The stockholder agreements terminate on April 30, 1999 or 180 days after the
termination of the merger agreement, whichever comes first.
Revolving Credit Agreement
In connection with the merger, Summit agreed to loan Autonomous up to $8
million on a revolving basis. Autonomous may not borrow more than $1.5 million
in any calendar month and will be required to make monthly principal and
interest payments on the aggregate outstanding balance of the loan at a per
annum rate of 5.25%. As of March 19, 1999, the amount outstanding under this
credit line was $3,000,000.
Amounts borrowed under the revolving credit line must be repaid by Autonomous
upon earlier of:
. the termination of the merger agreement because the Autonomous board of
directors withdraws its recommendation in favor of the merger or
recommends another proposal;
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<PAGE>
. 180 days after termination of the merger agreement for any other reason;
or
. upon an "Event of Default."
An "Event of Default" includes
. the failure of Autonomous to pay any amounts due to Summit under the
credit line;
. the voluntary or involuntary bankruptcy of Autonomous;
. the merger or consolidation of Autonomous without Summit's approval; or
. breach by Autonomous of the merger agreement that gives rise to a right
to terminate by Summit.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Summit will account for the merger under the purchase method of accounting and
will allocate the consideration it pays in the merger to the assets it acquires
and the liabilities it assumes based on their estimated fair values. The pro
forma adjustments are preliminary and are based on management's estimates of
the value of Autonomous' tangible and intangible assets. In addition, Summit
management is assessing and formulating its integration plans. The finalization
of these plans could result in a material change to the estimates used in the
preparation of the pro forma financial data.
The merger consideration paid by Summit for each share of Autonomous includes
varying amounts of Summit common stock and cash based on (i) the average
closing price of Summit common stock for the five days before the closing of
the merger and (ii) the decisions that holders of Autonomous preferred stock,
options and warrants may make before the closing. Pro forma presentations were
prepared using an assumed five-day average closing price of Summit common stock
of $2.50 per share and $6.00 per share to demonstrate a reasonable range of
possible results. There is no minimum or maximum value per share that
Autonomous shareholders will receive.
Assumptions surrounding the decisions of Autonomous equity holders are as
follows (same for five-day average closing price of Summit common stock of
$2.50 per share and $6.00 per share unless otherwise noted):
.. The aggregate cash consideration to be paid in the merger will be reduced by
one-half of any amounts Summit lends to Autonomous not repaid before the
closing. We have assumed that Autonomous will have $3.0 million of borrowings
from Summit outstanding at the time of closing. This amount is estimated
based on Autonomous' current liquidity, proceeds from option and warrant
exercises and Autonomous' projected operating cash needs. As of March 19,
1999, Autonomous' borrowings from Summit were $3.0 million.
.. The cash consideration available for Autonomous common stockholders will be
reduced by any amounts used to redeem shares of Autonomous preferred stock.
The holder of Autonomous preferred stock can also elect to convert the
preferred shares into shares of Autonomous common stock. At a Summit common
stock price of $2.50, we have assumed that all 442 shares of Autonomous
preferred stock are redeemed for $4,911,062 because the economic value is
then approximately equivalent with either choice. The holder would probably
not opt for conversion because of increased risk it would have in holding
and/or trading out of stock received as merger consideration. At a Summit
common stock price of $6.00 per share, we have assumed that 410 of the 442
shares of Autonomous preferred stock are converted into 1,031,449 shares of
Autonomous common stock. The remaining 32 shares are redeemed for an
aggregate of $355,552 because the conversion of these shares is limited by
its terms to a certain number of shares of Autonomous common stock.
.. The consideration per Autonomous share will vary if holders of options and
warrants exercise them before the closing. We have assumed that holders of
options to acquire approximately 117,000 shares of Autonomous common stock
(out of options on approximately 1,483,000 shares) and holders of warrants
for 90,000 shares of Autonomous common stock (out of warrants on
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<PAGE>
approximately 245,000 shares) will exercise their options or warrants before
the closing. The options and warrants assumed to be exercised before the
closing are "in-the-money" and have a weighted-average exercise price of $0.26
per share and $3.61 per share, respectively. The remaining options and
warrants, which have a weighted exercise price of $5.05 per share and $7.83,
respectively, will be outstanding at the time of the merger and will be
included in the diluted Autonomous shares outstanding used to determine the
per share consideration. These options are assumed to be outstanding at the
time of the merger because they are held by employees of Autonomous who have
either agreed not to sell their shares because of the merger or have been
informed that Summit will not grant new options after the closing to replace
those exercised before the closing. As of closing, the number of Autonomous
shares outstanding also includes 100,000 shares that will be issued to the
holder of Autonomous preferred stock in exchange for a warrant to purchase
300,000 shares and 171,173 shares that will be issued to CIBA in settlement of
the Strategic Alliance Agreement obligation. For purposes of determining the
fully diluted Autonomous shares outstanding, we have valued the Autonomous
common stock at the total value of consideration per Autonomous share.
.. The actual amount of the total consideration per Autonomous share will be
determined upon completion of the merger and may differ from those presented
if the assumptions outlined above do not reflect the actual facts on the
closing date. In particular, the mix of relative values of the Summit common
stock and the cash portion of consideration (at a Summit per share price of
less than $3.00) may change from approximately 52% stock/48% cash to approach
as much as 56% stock/44% cash if the holder of Autonomous preferred stock
chooses to redeem all of its shares for cash, rather than convert its shares
to Autonomous common stock.
Based upon the above assumptions and using an assumed five-day average closing
price of $2.50 and $6.00 per share of Summit common stock, the exchange ratio
would be 0.84 and 0.76 shares of Summit common stock, respectively, and $1.64
and $3.13, respectively, for each share of Autonomous common stock.
An independent third-party appraisal company is conducting a valuation of the
intangible assets that Summit expects to acquire in the merger. These
intangibles include purchased technologies, in-process research and development
and other intangible assets. Purchased technologies which primarily consist of
Autonomous' LADARVision technology have been assigned a value of $28.1 million
which will be amortized over 15 years. See "Information About Autonomous"
beginning on page 82 for additional information surrounding the LADARVision.
The fair value of the in-process research and development which relates to
Autonomous' CustomCornea research project is currently estimated to be $19.8
million and will be recorded as an expense in the period in which the merger is
completed.
The valuation of these intangibles was determined using the income method.
Revenue projections were completed through year 2012 and were separately
identified as follows: (i) revenue derived from products relying on current
technology, (ii) revenue derived from products relying on a new in-process
research and development program--CustomCornea, and (iii) revenue from future
technologies not yet developed. Revenue generated from the CustomCornea product
has similar margin and expense levels as those generated from the LADARVision
product. The projected cash flows were discounted using a 27.5% rate. The fair
value of in-process research and development was determined separately from all
other acquired assets using the percentage of completion method.
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<PAGE>
The percentage of completion ratio was calculated by dividing total expected
expenditures on CustomCornea through the merger closing date by the total
estimated expenditures to achieve technological feasibility. Management is
responsible for the estimate of the value of the in-process research and
development.
Under the CustomCornea research project, Autonomous is attempting to develop a
diagnostic device and method that would increase the number of data elements
used in a laser vision correction surgical procedure from three variables to
hundreds of variables with the goal of substantially improving surgical
accuracy and therefore surgical outcomes for patients. To date, Autonomous'
work on CustomCornea has yielded:
.. A U.S. patent application for the device and certain methods which have had
claims allowed
.. A working prototype of the measurement device itself
.. A 100 patient trial using the device's measurement capabilities
.. Computer simulations that demonstrate virtually any eye has correctable
refractive aberrations and a scope and location of those aberrations
.. Development of the software algorithms to translate the data from the
diagnostic into an adjusted laser ablation plan for any given eye
The remaining significant steps in the CustomCornea project include:
.. Making application to the FDA for the approval necessary to begin clinical
surgeries to gather data for later FDA submission for approval
.. Conducting surgeries under an approved FDA protocol and subsequently
measuring those patients at several post-operative intervals to measure
efficacy
.. Continuing engineering development and testing of the device to optimize its
performance, cost of manufacture, usability, etc.
.. Preparing for manufacture of the device
.. Receiving FDA approval to market the device in the U.S.
There are a number of factors that may affect the completion and
commercialization of the CustomCornea project. These include:
.. Inability to demonstrate that the safety or efficacy of the laser vision
correction surgical outcome is materially improved by the diagnostic
measurement and surgical ablation modifications made
.. Inability to receive FDA approval of the device due to poor trial execution
or poor safety or efficacy results
.. Inability to develop a device with appropriate physical and usability
characteristics to render it a viable commercial choice for physicians and
optometrists
.. Technology obsolescence risk, i.e. the risk that this technology will be
bettered, before it is widely marketed and accepted, by another technology
concept, including non-laser refractive surgical modalities
Based on the timing of the closing of the transaction, the finalization of the
integration plans and other factors, the pro forma adjustments may differ
materially from those presented in the pro forma
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<PAGE>
financial information. A change in the pro forma adjustments would result in a
reallocation of the purchase price affecting the value assigned to purchased
in-process technology and long-term assets. The income statement effect of
these changes will depend on the nature and amount of the assets or liabilities
adjusted.
We estimate that merger-related fees and expenses, consisting primarily of
transaction costs including fees of investment bankers, attorneys, the
independent appraisal company, accountants, financial printing and other
related charges, will range from approximately $1.9 million to $2.3 million
when the five-day average closing price of Summit common stock is between $2.50
and $6.00 per share. The impact of the fees and expenses has been reflected in
the pro forma combined balance sheet and income statement as an increase in the
purchase price of the transaction and is allocated to the assets acquired and
liabilities assumed, based upon their estimated fair values.
The pro forma financial information does not purport to represent what the
consolidated financial position or results of operations actually would have
been if the merger in fact had occurred on December 31, 1998 or at the
beginning of the period indicated or to project the consolidated financial
position or results of operations as of any future date or any future period.
It should be read in conjunction with the historical consolidated financial
statements of Summit and Autonomous, including the related notes, and other
financial information included and incorporated by reference into this joint
proxy statement/prospectus. See "Where You Can Find More Information" beginning
on page 137.
The unaudited pro forma financial information does not give effect to any cost
savings and other synergies that may result from the merger. In addition, one-
time integration costs that may include severance and relocation costs have not
been reflected in the pro forma financial information. Summit is developing its
plans for integration of the business but cannot make final decisions until the
merger is complete. However, Summit believes that the likely maximum amount
that will be accrued for such costs will be in the range of $1.5 million to
$2.0 million.
The pro forma combined balance sheet assumes that the merger took place on
December 31, 1998 and combines the audited balance sheets of the two companies
on that date. The pro forma combined statement of income assumes that the
merger took place on January 1, 1998 and combines Summit's and Autonomous'
results of operations for the year ended December 31, 1998.
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<PAGE>
Unaudited Pro Forma Condensed Combined Balance Sheet (A)
As of December 31, 1998
(in thousands)
Assumes a five-day average closing price of $2.50 per share of Summit common
stock
<TABLE>
<CAPTION>
Historical
-------------------- Pro Forma Pro Forma
Summit Autonomous Adjustments Combined
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........ $ 31,314 $ 545 $ 355 (B) $ 3,567
(28,647)(C)
Short-term investments........... 33,295 -- 33,295
Receivables, net of allowances... 12,764 23 12,787
Inventories...................... 17,403 3,749 (4,000)(D) 17,152
Other current assets............. 5,965 610 (832)(C) 2,743
(3,000)(F)
-------- -------- ------- --------
Total current assets............. 100,741 4,927 (36,124) 69,544
Long-term investments............ 25,253 -- 25,253
Property and equipment, net...... 8,802 2,205 11,007
Patents and other intangibles,
net............................. 7,497 -- 7,497
Other assets..................... 2,632 787 3,419
In-process research and
development..................... -- -- 19,800 (C) --
(19,800)(E)
Purchased technologies........... -- -- 28,100 (C) 28,100
Goodwill and other intangible
asset........................... -- -- 10,132 (C) 10,132
-------- -------- ------- --------
Total Assets.................... $144,925 $ 7,919 $ 2,108 $154,952
======== ======== ======= ========
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable................. $ 4,132 $ 530 $ $ 4,662
Accrued expenses................. 5,081 600 5,681
Note payable..................... -- 3,000 (3,000)(F) --
Current maturities of long-term
debt............................ 6,431 69 6,500
Deferred revenue................. 6,144 309 6,453
Obligation under Strategic
Alliance Agreement.............. -- 450 (450)(B) --
-------- -------- ------- --------
Total current liabilities........ 21,788 4,958 (3,450) 23,296
Deferred revenue--noncurrent...... 3,653 3,653
Long-term debt, less current
maturities....................... 150 165 315
-------- -------- ------- --------
Total liabilities............... 25,591 5,123 (3,450) 27,264
-------- -------- ------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock.................. -- 3,139 (3,139)(C) --
Common stock..................... 314 120 3 (B) 430
116 (C)
(123)(C)
Additional paid-in capital....... 149,482 45,919 802 (B) 181,520
32,038 (C)
(46,721)(C)
Accumulated deficit.............. (20,219) (46,382) 46,382 (C) (44,019)
(19,800)(E)
(4,000)(D)
Accumulated other comprehensive
loss............................ (9,411) -- (9,411)
Treasury stock, at cost.......... (832) -- (832)
-------- -------- ------- --------
Total stockholders' equity...... 119,334 2,796 5,558 127,688
-------- -------- ------- --------
Total Liabilities and
Stockholders' Equity.......... $144,925 $ 7,919 $ 2,108 $154,952
======== ======== ======= ========
Common shares outstanding...... 31,154 11,998 42,791
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations (A)
Year Ended December 31, 1998
(in thousands, except per share amounts)
Assumes a five-day average closing price of $2.50 per share of Summit common
stock
<TABLE>
<CAPTION>
Historical
------------------- Pro Forma Pro Forma
Summit Autonomous Adjustments Combined
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Systems......................... $14,105 $ -- $ $14,105
License fees, service and
other.......................... 30,782 222 31,004
Contact lens and related
products....................... 46,754 -- 46,754
------- -------- ------ -------
Total revenues.................... 91,641 222 91,863
------- -------- ------ -------
Cost of revenues:
Systems......................... 11,333 -- -- 11,333
License fees, service and
other.......................... 12,187 3,393 1,873 (G) 17,453
Contact lens and related
products....................... 28,800 -- 28,800
------- -------- ------ -------
Total cost of revenues............ 52,320 3,393 1,873 57,586
------- -------- ------ -------
Gross profit...................... 39,321 (3,171) (1,873) 34,277
------- -------- ------ -------
Operating expenses:
Selling, general and
administrative................... 30,217 7,176 917 (G) 37,796
(514)(H)
Research, development and
regulatory....................... 7,223 6,442 13,665
------- -------- ------ -------
Total operating expenses........ 37,440 13,618 403 51,461
------- -------- ------ -------
Operating income (loss) from
continuing operations............ 1,881 (16,789) (2,276) (17,184)
Litigation settlement, net of
related expenses................. 34,386 -- 34,386
Interest income................... 4,351 191 (1,556)(I) 2,986
Interest expense.................. (780) (45) (825)
Other income...................... 1,913 -- 1,913
------- -------- ------ -------
Income (loss) from continuing
operations before provision for
income taxes..................... 41,751 (16,643) (3,832) 21,276
Provision (benefit) for income
taxes............................ 5,021 -- (3,641)(K) 1,380
------- -------- ------ -------
Income (loss) from continuing
operations....................... $36,730 $(16,643) $ (191) $19,896
======= ======== ====== =======
Income per share from continuing
operations--basic and diluted.... $ 1.17 $ 0.46
Weighted average number of common
shares:
Basic........................... 31,244 11,637 (J) 42,881
Diluted......................... 31,292 11,650 (J) 42,942
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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Unaudited Pro Forma Condensed Combined Balance Sheet (A)
As of December 31, 1998
(in thousands)
Assumes a five-day average closing price of $6.00 per share of Summit common
stock
<TABLE>
<CAPTION>
Historical
-------------------- Pro Forma Pro Forma
Summit Autonomous Adjustments Combined
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........ $ 31,314 $ 545 $ 354 (B) $ --
(32,213)(C)
Short-term investments........... 33,295 -- (16,279)(C) 17,016
Receivables, net of allowances... 12,764 23 12,787
Inventories...................... 17,403 3,749 (4,000)(D) 17,152
Other current assets............. 5,965 610 (832)(C) 2,743
(3,000)(F)
-------- ------- ------- --------
Total current assets............. 100,741 4,927 (55,970) 49,698
Long-term investments............ 25,253 -- 25,253
Property and equipment, net...... 8,802 2,205 11,007
Patents and other intangibles,
net............................. 7,497 -- 7,497
Other assets..................... 2,632 787 3,419
In-process research and
development..................... -- -- 19,800 (C) --
(19,800)(E)
Purchased technologies........... -- -- 28,100 (C) 28,100
Goodwill & other intangible
asset........................... -- -- 73,469 (C) 73,469
-------- ------- ------- --------
Total Assets.................... $144,925 $ 7,919 $45,599 $198,443
======== ======= ======= ========
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable................. $ 4,132 $ 530 $ $ 4,662
Accrued expenses................. 5,081 600 5,681
Note payable..................... -- 3,000 (3,000)(F) --
Current maturities of long-term
debt............................ 6,431 69 6,500
Deferred revenue................. 6,144 309 6,453
Obligation under Strategic
Alliance Agreement.............. -- 450 (450)(B) --
-------- ------- ------- --------
Total current liabilities........ 21,788 4,958 (3,450) 23,296
Deferred revenue--noncurrent...... 3,653 3,653
Long-term debt, less current
maturities....................... 150 165 315
-------- ------- ------- --------
Total liabilities............... 25,591 5,123 (3,450) 27,264
-------- ------- ------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock.................. -- 3,139 (3,139)(C) --
Common stock..................... 314 120 3 (B) 427
113 (C)
(123)(C)
Additional paid-in capital....... 149,482 45,919 801 (B) 225,014
75,532 (C)
(46,720)(C)
Accumulated deficit.............. (20,219) (46,382) 46,382 (C) (44,019)
(19,800)(E)
(4,000)(D)
Accumulated other comprehensive
loss............................ (9,411) -- (9,411)
Treasury stock, at cost.......... (832) -- (832)
-------- ------- ------- --------
Total stockholders' equity...... 119,334 2,796 49,049 171,179
-------- ------- ------- --------
Total Liabilities and
Stockholders' Equity.......... $144,925 $ 7,919 $45,599 $198,443
======== ======= ======= ========
Common shares outstanding...... 31,154 11,998 42,442
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations (A)
Year Ended December 31, 1998
(in thousands, except per share amounts)
Assumes a five-day average closing price of $6.00 per share of Summit common
stock
<TABLE>
<CAPTION>
Historical
------------------- Pro Forma Pro Forma
Summit Autonomous Adjustments Combined
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Systems......................... $14,105 $ -- $ -- $14,105
License fees, service and
other.......................... 30,782 222 -- 31,004
Contact lens and related
products....................... 46,754 -- -- 46,754
------- -------- ------- -------
Total revenues.................. 91,641 222 -- 91,863
------- -------- ------- -------
Cost of revenues:
Systems......................... 11,333 -- -- 11,333
License fees, service and
other.......................... 12,187 3,393 1,873 (G) 17,453
Contact lens and related
products....................... 28,800 -- -- 28,800
------- -------- ------- -------
Total cost of revenues.......... 52,320 3,393 1,873 57,586
------- -------- ------- -------
Gross profit...................... 39,321 (3,171) (1,873) 34,277
------- -------- ------- -------
Operating expenses:
Selling, general and
administrative................. 30,217 7,176 3,451 (G) 40,330
(514)(H)
Research, development and
regulatory..................... 7,223 6,442 -- 13,665
------- -------- ------- -------
Total operating expenses........ 37,440 13,618 2,937 53,995
------- -------- ------- -------
Operating income (loss) from
continuing operations............ 1,881 (16,789) (4,810) (19,718)
Litigation settlement, net of
related expenses................. 34,386 -- -- 34,386
Interest income................... 4,351 191 (2,648)(I) 1,894
Interest expense.................. (780) (45) -- (825)
Other income...................... 1,913 -- -- 1,913
------- -------- ------- -------
Income (loss) from continuing
operations before provision for
income taxes..................... 41,751 (16,643) (7,458) 17,650
Provision (benefit) for income
taxes............................ 5,021 -- (3,663)(K) 1,358
------- -------- ------- -------
Income (loss) from continuing
operations....................... $36,730 $(16,643) $(3,795) $16,292
======= ======== ======= =======
Income per share from continuing
operations--basic and diluted.. $ 1.17 $ 0.38
Weighted average number of common
shares:
Basic........................... 31,244 11,288 (J) 42,532
Diluted......................... 31,292 11,650 (J) 42,942
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
72
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(in thousands, except per share amounts)
The following notes are the same assuming a five day average closing price of
$2.50 per share and $6.00 per share of Summit common stock unless otherwise
noted:
(A) See the introductory paragraphs under "Unaudited Pro Forma Condensed
Combined Financial Statements."
(B) To record as of December 31, 1998 the estimated net issuance of 207 shares
of Autonomous common stock pursuant to options and warrants for a total of
362 shares of Autonomous common stock and to record the issuance of 114
shares of Autonomous common stock in settlement of the obligation accrued
to date to issue 172 shares of Autonomous common stock under the Strategic
Alliance Agreement.
(C) To record the purchase accounting adjustments (pursuant to Accounting
Principles Board Opinion No. 16) related to the merger of Summit and
Autonomous. The allocation of the purchase price is subject to change based
on final valuation and appraisals and was estimated as follows:
<TABLE>
<CAPTION>
@$2.50 @$6.00
per share per share
Total purchase price --------- ---------
<S> <C> <C>
Summit common stock (11,637 shares @ $2.50 per share and
11,288 shares @ $6.00 per share)........................ $ 29,093 $ 67,727
Cash paid to Autonomous equity holders................... 27,600 47,002
Estimated merger-related fees and expenses............... 1,879 2,322
Fair value of Autonomous options and warrants exchanged
for equivalent Summit stock options and warrants assumed
to be outstanding after the closing of the merger....... 3,061 7,918
-------- --------
Total purchase price..................................... $ 61,633 $124,969
======== ========
Allocation of purchase price
Estimated exercise of Autonomous options and warrants
(see Note B)............................................ $ 355 $ 355
Settlement of Strategic Alliance Agreement obligation
(see Note B)............................................ 450 450
Net worth of Autonomous as of December 31, 1998.......... 2,796 2,796
In-process research and development...................... 19,800 19,800
Purchased technologies................................... 28,100 28,100
Goodwill and other intangible asset...................... 10,132 73,468
-------- --------
$ 61,633 $124,969
======== ========
</TABLE>
(D) To record the write-down of Summit's inventory for laser systems to its net
realizable value. As a result of the merger with Autonomous, there will be
a reduction in the future requirements of work-in-process inventory and
spare parts inventory.
(E) To record the write-off of the in-process research and development upon
consummation of the merger.
(F) To eliminate borrowings by Autonomous from Summit under the revolving
credit line as of December 31, 1998. One half of the amount outstanding
under the revolver on the closing date will reduce the cash consideration
paid by Summit to Autonomous equity holders.
(G) To record the amortization of goodwill, purchased technologies and other
intangible assets from the allocation of the purchase price. The
amortization of purchased technologies is
73
<PAGE>
included in the cost of revenues. Amortization will be recognized on a
straight line basis over the following number of years:
Goodwill--25 years
Purchased technologies--15 years
Other intangible assets--5 years
(H) To eliminate legal fees related to Autonomous' litigation against Pillar
Point Partners of which Summit was a partner.
(I) To eliminate interest income earned on cash paid to Autonomous
stockholders and cash paid for estimated merger-related fees offset by
interest income earned on cash received from options and warrants
exercised in (B).
(J) To record the effect of Summit common stock distributed to Autonomous
stockholders and, if dilutive, the effect of Autonomous stock options and
warrants exchanged for equivalent Summit stock options and warrants.
(K) To record the income tax effect of combining Summit's and Autonomous'
results of operations and pro forma adjustments, excluding the impact of
nondeductible amounts.
(L) As required by Article 11 of Regulation S-X under the Securities Exchange
Act of 1934, the unaudited pro forma condensed combined statement of
operations excludes material nonrecurring charges which result directly
from the merger and which will be recorded within twelve months following
the merger. The following schedule shows the effects of the write-off of
the in-process research and development estimated at $19,800 and the
write-down of inventory as described in (D) estimated at $4,000
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
@$6.00
@$2.50 per
per share share
--------- -------
<S> <C> <C>
Loss from continuing operations........................ $(3,904) $(7,508)
Loss per share from continuing operations--basic and
diluted............................................... $ (0.09) $ (0.18)
</TABLE>
74
<PAGE>
INFORMATION ABOUT SUMMIT
Summit develops, manufactures, sells and services ophthalmic laser systems and
related products designed to correct common refractive vision disorders such as
nearsightedness (myopia), farsightedness (hyperopia) and astigmatism with a
procedure known as laser vision correction. Summit also collects per procedure
license fees from users of its systems. Summit's Apex and Apex Plus excimer
systems have received FDA approval for commercial sale in the United States to
treat nearsightedness between 1.5 and 7.0 diopters with a six millimeter
ablation zone. The Apex Plus system has also received FDA approval for the
treatment of nearsightedness with concomitant astigmatism using Summit's
emphasis(R) Laser Disc, a single-use polymer disc that Summit developed for
this purpose. On January 30, 1998, Summit applied to the FDA for approval of
its Apex Plus excimer systems to treat high levels of myopia. In July, 1998,
Summit applied to the FDA for approval of its Apex Plus system for hyperopia.
However, the FDA has not yet approved the Apex Plus for hyperopia or high
levels of myopia.
The principal purchasers of Summit's excimer systems have been
ophthalmologists, universities, clinics, hospitals and businesses that have
been created specifically to participate in the laser vision correction market
in the United States. Summit believes that U.S. ophthalmologists, who number
approximately 13,000, are receptive to laser vision correction as a treatment
for refractive vision disorders.
In October 1998, Summit acquired all rights to the Krumeich-Barraquer
Microkeratome, a high-precision surgical cutting device utilizing disposable,
single-use blades. This device is used by ophthalmologists in corneal surgery.
Summit immediately began marketing the product in international markets and, on
December 22, 1998, received 510K clearance from the FDA to begin marketing the
product in the United States.
In 1996, Summit acquired Lens Express, a leading mail order distributor of
contact lenses and related products in the United States. Lens Express' retail
sales consist of new orders of contact lenses, reorders of contact lenses,
program sales, sales of eye care solutions, lens case sales, sunglass sales,
membership sales, vitamin sales and shipping and handling fees. Lens Express'
wholesale sales are made to pharmacies and similar retail outlets and consist
of sales of contact lenses, sales of eye care solutions and shipping and
handling fees. Lens Express also markets certain of its eye care programs to
large employers as a cost effective alternative to more traditional vision
indemnity programs. Retail and group sales consisted of over 97% of total sales
in 1997.
On August 18, 1997, Summit sold its wholly-owned subsidiary Refractive Centers
International, Inc. to LCA-Vision Inc. Before the sale, RCII owned and operated
Summit's vision center business, which was accounted for as a discontinued
operation in 1996.
Summit was incorporated in Massachusetts on November 27, 1985 and commenced
operations on January 1, 1986. The Company's executive offices are located at
21 Hickory Drive, Waltham, Massachusetts 02451, and its telephone number is
(781) 890-1234.
75
<PAGE>
Recent Developments
On February 23, 1999, the United States District Court for the Western District
of Texas, San Antonio Division, granted summary judgment in favor of Summit,
Summit Partner, Inc., and Pillar Point Partners in John Taboada v. VISX, Inc.,
et al. (Civil Action No. SA-97-CA-794-FB). Summit, Summit Partner, Inc., and
Pillar Point Partners had filed a motion for summary judgment on November 20,
1998 and are no longer defendants in the case.
On February 16, 1999, Summit withdrew its motion to dismiss a suit brought by
Antoine Garabet, M.D., Inc. and Abraham Shammas, M.D., Inc., d/b/a Laser Eye
Center against Summit, Pillar Point Partners, VISX and certain of its
affiliates. Summit also filed a counterclaim against the plaintiffs and Antoine
Garabet and Abraham Shammas, as individuals, alleging patent infringement. The
plaintiffs filed suit on November 5, 1997 in the United States District Court
for the Northern District of California asserting that Summit engaged in fraud
in certain of its marketing and sales activities and seeking a declaratory
judgment that patents held by Pillar Point are invalid and unenforceable
because of alleged violations of the antitrust laws. The case is currently
pending in the United States District Court for the District of Arizona as part
of In re: Pillar Point Partners Antitrust and Patent Litigation (Civil Action
No. MDL 1202).
On February 10, 1999, Summit submitted a PMA supplement to the FDA for use of
the Summit Apex Plus Excimer System for reduction or elimination of myopia from
0 to -14.0 diopters with or without astigmatism ranging from -0.50 to -5.0
diopters using laser in situ keratomileusis in patients with documentation of a
stable manifest reaction of (plus or minus) 1 diopter during the one-year
period prior to treatment and who are 18 years of age or older. On January 30,
1998, Summit submitted a PMA supplement to the FDA for use of the Summit Apex
and Apex Plus Excimer Systems to treat myopia of -6.0 to -22.0 diopters using
photorefractive keratectomy and laser in situ keratomileusis. On September 10,
1998, Summit amended the January, 1998 submission to reduce the applied for
range to myopia of -6.0 to -15.0 diopters using photorefractive keratectomy
only. These submissions are presently pending.
On December 28, 1998, Summit filed a patent infringement lawsuit in the United
States District Court for the District of Massachusetts against Nidek, whose
laser system recently received FDA approval. The suit alleges that Nidek's
excimer laser system infringes certain of Summit's U.S. patents and seeks
damages and injunctive relief. On January 29, 1999, a district court in Tokyo,
Japan ruled against Summit in a patent infringement lawsuit which Summit
initiated against Nidek in 1996. The Japanese lawsuit involved the Japanese
counterpart of one of the two U.S. patents which Summit has alleged Nidek
infringes in the U.S. lawsuit. Summit intends to appeal the Tokyo district
court decision.
In December 1998, Summit and Field Service Engineering Associates, Inc., an
independent service organization, entered into a settlement agreement resolving
their outstanding litigation. In 1995, Summit filed a lawsuit against Field
Service alleging that it had serviced unapproved laser systems. As part of the
settlement, Summit agreed to purchase a portion of Field Service's parts and
tools inventory. Field Service agreed to the entry of a permanent injunction
barring it from, among other things, servicing unapproved excimer systems or
tampering with Summit systems to disable the cardreaders which facilitate
Summit's collection of per procedure license fees.
76
<PAGE>
On March 24, 1999, Summit's Chief Executive Officer received a letter written
on behalf of Olivia N. Serdarevic, M.D., claiming inventorship rights in
Summit's Marshall and Azema patents (U.S. Patent Nos. 4,941,093 and 4,973,330,
respectively). These patents, which issued in 1990, are the patents Summit
claims are infringed in its lawsuit against Nidek described above. Based on its
preliminary review, Summit believes these claims to be without merit. However,
any successful inventorship claims to these patents would have a material
adverse effect on Summit's business.
Liquidity and Capital Resources
As of the date of this joint proxy statement/prospectus, Summit's cash, cash
equivalents and available for sale investments, excluding its investment in
LCA-Vision, Inc., total approximately $80 million. The outstanding principal
balance under its term loan facility with Fleet National Bank and BankBoston,
N.A. is $5 million. Summit expects that it will use approximately $50 million
of cash to complete the merger. Summit's expenditures in connection with the
merger have triggered technical defaults under the financial covenants in the
loan agreement.
Summit is presently negotiating with its existing lenders and other
institutions for a new line of credit of approximately $20-25 million. If these
efforts are not successful and its existing lenders declare a default and
accelerate the term loan, Summit may be required to use an additional $5
million to retire this debt, leaving it with approximately $25 million of cash
and cash equivalents (exclusive of its investment in LCA-Vision, Inc.) after
the merger.
Summit and Autonomous believe that Autonomous has sufficient cash resources,
including borrowings from Summit, to fund its operations through April 1999.
Summit and Autonomous believe that, thereafter, Autonomous will require cash of
approximately $1.5 million per month to fund operations for the remainder of
1999 and could require up to $20 million in the aggregate before becoming cash
flow positive. The monthly amounts will increase as Summit increases production
of LADARVision Systems above current levels. Actual production levels will
depend on demand for the systems.
Although the resources necessary to complete the acquisition of Autonomous and
fund its operations through the end of 1999 will put a significant strain on
Summit's liquidity, Summit believes that its existing resources will be
sufficient to address the cash requirements of the combined enterprise for at
least the next twelve months.
77
<PAGE>
Executive Compensation
The following table shows for the fiscal years ended December 31, 1998, 1997
and 1996 compensation paid or accrued by Summit to (i) Summit's Chief Executive
Officer, (ii) the four other most highly compensated executive officers of
Summit who were serving as executive officers as of December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
---------------------------- ------------
Other Securities
Annual Underlying All Other
Fiscal Salary Bonus Compensation Options/ Compensation
Name and Principal Position Year ($) ($)(1) ($) SAR's (#) ($)(2)
- - - --------------------------- ------ ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Palmisano....... 1998 324,692 -- 32,112 (3) 40,000 (4) 6,400
Chief Executive Officer 18,430 (5) 2,446 (6)
4,813 (7)
1997 206,539 165,000 100,062 (3) 300,000 (4) --
11,562 (5)
45,039 (7)
1996 -- -- -- -- --
D. Verne Sharma........... 1998 275,738 -- -- 10,000 (8) 9,600
President & Chief 1997 250,000 74,375 62,633 (3) -- 472
Operating Officer 65,978 (7)
1996 174,308 35,960 38,436 (3) 100,000 (8) --
10,000 (8)
Robert J. Kelly........... 1998 238,846 -- -- 120,000 (9) 5,338
Executive Vice President 1997 30,962 -- -- 100,000 (9) --
Chief Financial Officer
and Treasurer 1996 -- -- -- -- --
Peter E. Litman........... 1998 229,517 -- -- 3,689 (10) 9,600
Executive Vice President 1997 211,313 67,620 -- -- --
of Business Development 1996 187,502 -- -- 100,000 (10) 2,996
15,000 (10)
Menderes Akdag............ 1998 220,022 -- -- 20,000 (11) --
President, 1997 204,552 119,322 -- -- --
Lens Express, Inc. 1996 156,940 -- -- 5,000 (11) --
</TABLE>
- - - --------
(1) The amounts of bonuses earned in fiscal year 1998 have not yet been
calcluated.
(2) Except where otherwise noted, the indicated amounts represent Summit's
contributions to its 401(k) plan.
(3) Moving and relocation expenses reimbursed by Summit.
(4) During the year ended December 31, 1998, Mr. Palmisano received options to
purchase 40,000 shares of Summit common stock. During the year ended
December 31, 1997, Mr. Palmisiano received options to purchase 300,000
shares of Summit common stock.
(5) During the year ended December 31, 1998, the indicated amount represents an
automobile allowance of $12,462 and imputed interest income of $5,968
because of a loan. During the year ended December 31, 1997, the indicated
amount represents an automobile allowance of $8,262 and imputed interest
income of $3,300 because of a loan.
(6) Summit's contribution to its Supplemental Deferral Plan.
(7) Employment tax paid on behalf of the employee by Summit.
(8) During the year ended December 31, 1998, Mr. Sharma received options to
purchase 10,000 shares of Summit common stock. During the year ended
December 31, 1996, Mr. Sharma received options to purchase 100,000 shares
of Summit common stock and 10,000 shares of common stock of Refractive
Centers International, Inc., a former wholly-owned subsidiary of Summit.
(9) During the year ended December 31, 1998, Mr. Kelly received options to
purchase 120,000 shares of Summit common stock. During the year ended
December 31, 1997, Mr. Kelly received options to purchase 100,000 shares of
Summit common stock, which have subsequently been cancelled.
78
<PAGE>
(10) During the year ended December 31, 1998, Mr. Litman received options to
purchase 3,689 shares of Summit common stock. During the year ended
December 31, 1996, Mr. Litman received options to purchase 100,000 shares
of Summit common stock and 15,000 shares of common stock of Refractive
Centers International.
(11) During the year ended December 31, 1998, Mr. Akdag, the president of
Summit's Lens Express subsidiary and not an officer of Summit, received
options to purchase 20,000 shares of Summit common stock. During the year
ended December 31, 1996, Mr. Akdag received options to purchase 5,000
shares of Summit common stock.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value At Assumed
Number of % of Total Annual Rates of Stock
Securities Options/SAR's Exercise Price Appreciation
Underlying Granted To or Base For Option Term
Options/SAR's Employees In Price Expiration ----------------------
Name Granted(#)(1) Fiscal Year ($/Share) Date 5%($) 10%($)
- - - ---- ------------- ------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Menderes Akdag.......... 20,000 3.34 3.50 09/01/2008 44,023 111,562
Robert Kelly............ 100,000(2) 16.72 4.53 10/22/2007 450,180 950,811
20,000 3.34 3.50 09/01/2008 44,023 111,562
Peter Litman............ 3,689 0.62 3.50 09/01/2008 8,120 20,578
Robert Palmisano........ 40,000 6.69 3.50 09/01/2008 88,045 223,124
D. Verne Sharma......... 10,000 1.67 3.50 09/01/2008 22,011 55,781
</TABLE>
- - - --------
(1) Except as otherwise noted, option vests in three equal installments
beginning 9/1/99.
(2) Option vests in three equal annual installments beginning 10/22/98.
The following table sets forth, as of December 31, 1998, certain information
concerning the number and value of options held by each of Summit's executive
officers listed in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised In-The-Money
Options/SAR's Options
at /SAR's at
Shares FY-End(#) FY-End($)
Acquired on Value -------------------- --------------------
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- - - ---- ----------- -------- -------------------- --------------------
<S> <C> <C> <C> <C>
Menderes Akdag.......... -- -- 5,000/2,000 (1) --/17,500
Robert Kelly............ -- -- 33,334/86,666 (1) --/17,500
Peter Litman............ -- -- 166,373/5,189 (1) 900/3,228
Robert Palmisano........ -- -- 100,000/240,000 (1) --/35,000
D. Verne Sharma......... -- -- 100,000/10,000 (1) --/8,750
</TABLE>
- - - --------
(1) Options to purchase shares of Summit common stock.
Compensation of Directors. Summit currently pays $10,000 per year to its
outside directors for their services as directors and $1,000 per year per
committee to each outside director for serving on Board committees. Summit also
pays each outside director $2,000 for each Board meeting attended and $500 for
each committee meeting attended.
In addition, Summit's outside directors (the "Participants") are eligible to
participate in the 1992 Stock Option Plan For Outside Directors, which
constitutes a "formula plan" for purposes of
79
<PAGE>
Section 16b-3 promulgated under the Securities Exchange Act of 1934. Pursuant
to this Plan, each Participant has been granted as of February 28, 1998,
options to purchase 13,500 shares of common stock (at prices ranging from $5.50
to $25.31 per share). Provided that a Participant remains a director of Summit,
he will be granted an additional option to acquire 3,000 shares of common stock
on January 1, 2000, at 100% of market value.
Summit's outside directors were each granted options to purchase 25,000 shares
of company stock on November 4, 1996, at an option price of $5.38 per share. Of
these, 8,333 options vest on November 4, 1997, 8,333 options vest on November
4, 1998, and the balance vest on November 4, 1999. On July 30, 1997, Summit's
outside directors were each also granted options to purchase 35,000 shares of
Summit common stock at an option price of $6.75 per share. Of these, 11,667
vest on July 30, 1998, 11,667 vest on July 30, 1999, and the balance vest on
July 30, 2000.
Employment Agreements. Robert J. Palmisano was elected as Summit's Chief
Executive Officer and a director on April 15, 1997. Mr. Palmisano's employment
arrangement with Summit provides that he will receive a base salary of $300,000
per year and will be eligible for discretionary bonuses, based on criteria
established from time to time. In addition, Mr. Palmisano has been granted
options to purchase 300,000 shares of Summit's common stock pursuant to
Summit's 1997 Stock Option Plan, at an option price of $5.63 per share (see
above for vesting information). In the event Mr. Palmisano's employment is
terminated without cause, Mr. Palmisano will be entitled to severance payments
equal to one year's base compensation. In the event Mr. Palmisano's employment
terminates within twelve months of a change in control of Summit, Mr.
Palmisano's severance payments will be equal to two years' base compensation.
All of Summit's executive officers, including Mr. Palmisano, are employees-at-
will.
Summit's Board of Directors has approved severance agreements for its officers
and director-level employees. These severance arrangements become available
only in the event of a "change of control" of Summit and entitle covered
employees to continuation of salary, standard bonuses and benefits in the event
they are terminated without cause after a change of control or terminate their
employment for "good reason" after a change of control. The severance
arrangements would not apply to a termination for "cause" after a change of
control. The arrangements approved by the Summit Board of Directors provide for
salary continuation for (i) two (2) years for the Chief Executive Officer,
President and Executive Vice Presidents, (ii) one (1) year for all other Vice
Presidents and (iii) six (6) months for director-level employees.
Compensation Committee Interlocks and Insider Participation. The Compensation
Committee of the Board of Directors consists of Mr. Traskos and Mr. Bernfeld.
Shoreline Insurance Agency, Inc., a firm with which Mr. Traskos is affiliated,
currently serves as one of Summit's insurance brokers. Arthur A. Watson &
Company, Inc., a firm with which Mr. Traskos was affiliated through September,
1997, also served as one of Summit's insurance brokers in 1997. The aggregate
premiums paid for insurance placed by Shoreline on behalf of Summit in 1997
amounted to approximately $277,625, and the aggregate premiums paid for
insurance placed by Arthur A. Watson on behalf of Summit in 1997 amounted to
approximately $149,470, which in each case is less than five percent of 1996
consolidated gross revenues of Summit, Shoreline, and Arthur A. Watson,
respectively. Summit believes that all transactions with Shoreline and Arthur
A. Watson & Company, Inc. are on terms no less favorable than those available
from other companies.
80
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of Summit's common stock on February 18, 1999, (i) by each person who
is known by Summit to own beneficially more than five percent of the
outstanding shares of Summit's common stock, (ii) by each of Summit's
directors, (iii) by each of the executive officers listed above in the Summary
Compensation Table and (iv) by all directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares Percent
Beneficially Beneficially
Beneficial Owner Owned (1) Owned (2)
- - - ---------------- ------------ ------------
<S> <C> <C>
Jeffrey A. Bernfeld............................... 44,534(3) *
Richard F. Miller................................. 34,934(4) *
John A. Norris.................................... 48,642(5) *
Richard M. Traskos................................ 47,113(6) *
Robert J. Palmisano............................... 151,000(7) *
D. Verne Sharma................................... 100,800(8) *
Robert J. Kelly................................... 36,334(9) *
Peter E. Litman................................... 167,923(10) *
Menderes Akdag.................................... 22,885(11) *
All Executive Officers and Directors as a Group
(17 persons)..................................... 858,400 2.7%
</TABLE>
- - - --------
* Less than 1% of the outstanding Summit common stock.
(1) Except as otherwise noted, Summit believes that the persons named in the
table have sole voting and investment power with respect to the shares of
Summit common stock set forth opposite such persons' name. Amounts shown
include shares pursuant to stock options which may be exercised within 60
days of December 15, 1998.
(2) Determined on the basis of 31,153,765 shares outstanding, except that
shares underlying options exercisable within 60 days of December 15, 1998
are deemed outstanding for calculating the percentage owned by holders
thereof.
(3) Includes options to purchase 41,834 shares of Summit common stock.
(4) Includes options to purchase 33,334 shares of Summit common stock.
(5) Includes options to purchase 41,834 shares of Summit common stock.
(6) Includes options to purchase 41,834 shares of Summit common stock.
(7) Includes options to purchase 150,000 shares of Summit common stock
(8) Includes options to purchase 100,000 shares of Summit common stock and 800
shares held in Summit's 401(k) plan.
(9) Includes options to purchase 33,334 shares of Summit common stock.
(10) Includes options to purchase 166,373 shares of Summit common stock and
1,550 shares held in Summit's 401(k) plan.
(11) Includes options to purchase 5,000 shares of Summit common stock.
81
<PAGE>
INFORMATION ABOUT AUTONOMOUS
Overview
Autonomous Technologies Corporation is a Florida corporation incorporated in
1985. Since 1993 Autonomous has been engaged in the design and development of
the next generation of excimer laser instruments for laser vision correction
(LVC). The field of laser vision correction consists primarily of treatments
aimed at reducing or eliminating a person's dependence on eyeglasses or contact
lenses. In a typical LVC procedure, small amounts of corneal tissue are removed
causing reshaping of a patient's cornea. Autonomous' technology combines eye
tracking with a narrow beam excimer laser to treat common refractive vision
disorders such as myopia (nearsightedness), hyperopia (farsightedness) and
astigmatism. Autonomous' objective is to improve refractive surgical outcomes
for these conditions in comparison to those achieved by earlier LVC systems.
In 1994 Autonomous entered into a strategic alliance with CIBA Vision Group
Management, Inc. (which subsequently merged into CIBA Vision Corporation), a
subsidiary of Novartis, A.G., for the worldwide co-promotion of the LADARVision
System. CIBA Vision invested an aggregate of approximately $5 million in cash
and $1.3 million in services to Autonomous. As a result of this investment,
CIBA Vision owns approximately 13% of Autonomous' common stock. Pursuant to the
strategic alliance, Autonomous plans co-promotion strategies, such as product
tie-ins, joint advertising and shared exhibit space, on a project-by-project
basis. Autonomous has retained the worldwide marketing rights for its
LADARVision System.
LVC Product--The LADARVision System
Autonomous' LADARVision System incorporates technology that can be used in both
laser in-situ keratomileusis (LASIK) and photorefractive keratectomy (PRK).
Both procedures ablate corneal tissue. In the LASIK procedure, the physician
partially removes a frontal layer of tissue that includes the epithelium and
some corneal tissue, creating a "flap." The laser then ablates the corneal
tissue under the flap. After the corneal tissue is ablated, the flap is
replaced. In PRK, the physician removes just the epithelial layer before
performing the corneal ablation. The epithelial layer is regenerated as part of
the healing process. The Autonomous LADARVision System received FDA approval
for PRK and Autonomous is conducting clinical studies to gain data to submit to
the FDA to enable the device to be approved for LASIK as well.
Autonomous' LADARVision System combines high speed, laser radar eye tracking
with narrow beam shaping to form its new and proprietary technology platform.
The LADARVision System is designed to address a need for sophisticated eye
tracking to compensate for eye movement during surgery, including saccadic eye
movements. Saccadic eye movements are very rapid, involuntary and random in
amplitude and direction and are not suppressed or reduced by medication used
during LVC procedures. These eye movements degrade predictability and visual
quality from the procedure. Autonomous believes that the LADARVision System
provides higher accuracy ablation (i.e., the process of re-shaping the cornea)
by virtually eliminating decentration and shaping error caused by eye movement.
Additionally, the narrow beam excimer provides a smooth ablation, and
Autonomous' shaping algorithms offer high speed ablations to minimize surgical
duration while retaining high pointing accuracy to achieve predictable shaping.
Autonomous believes the LADARVision System will yield more stable, predictable
results with less post-operative regression, thereby improving visual quality
and clinical outcomes for low to moderate
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levels of myopia compared to first generation excimer laser LVC systems
manufactured and sold by competitors. Autonomous has completed its Phase III
U.S. clinical trials for low to moderate levels of myopia (up to -10 diopters)
and astigmatism (up to -4 diopters). Data from LADARVision clinical trials to
date are supportive of improved stability and predictability for patients with
low to moderate levels of myopia when compared with other data supporting FDA
approvals of LVC systems. Autonomous also believes extensions of its
LADARVision technology platform may yield even greater improvements in patient
results for vision disorders that require more complex corneal reshaping such
as hyperopia, astigmatism and combinations of hyperopic and myopic sphere and
cylinder.
The LADARVision System includes many proprietary features, some of which are
the subject of patents and patent applications. The LADAR eye tracker measures
and adjusts more than 4,000 times per second. The LADARVision System's narrow
beam excimer moves over the cornea rapidly and with high accuracy. This feature
allows complex shaping algorithms to be implemented with a much smaller laser
device while minimizing surgical duration.
Autonomous believes the LADARVision System may offer advantages over current
excimer laser LVC systems in terms of manufacturing, installation and
maintenance costs. The LADARVision System is compact: all circuitry and systems
are contained in the patient bed and overhead arm. The narrow beam excimer
requires less energy and is designed to be more reliable and easier to service,
all of which tend to reduce life cycle costs. Finally, Autonomous has been
granted a U.S. patent on its laser cartridge approach, which offers the
potential for simple field replacement.
Autonomous' proprietary software in the LADARVision System is a user-friendly,
32-bit Windows-based, graphical user interface incorporating high resolution,
real-time imaging of both the tracked and untracked eye images. The software is
designed with full patient database features and unique eye tracker information
available to identify and count surgical procedures.
Market in the United States
The principal market for LVC is the correction of refractive vision disorders
such as myopia, hyperopia and astigmatism. It is estimated that more than 136
million people in the United States wear eyeglasses or contact lenses to
correct refractive vision disorders. Within this group, approximately 60
million people are myopic. Of the myopic population, approximately 80% have
myopia from 1 to 7 diopters. Consumers in the United States spend approximately
$13 billion on eyeglasses, contact lenses and other vision correction products
and services each year. Autonomous believes that contact lens wearers and
eyeglass wearers who were unsuccessful wearing contact lenses may be receptive
to LVC because they have already pursued an alternative to eyeglasses.
Approximately 26 million people in the United States wear contact lenses and
nearly an equal number have discontinued contact lens use.
Autonomous believes that approximately 200,000 LVC procedures were completed in
the United States during 1997, up from approximately 100,000 procedures in
1996. Industry sources forecast that approximately 400,000 procedures will be
performed in the United States in 1998, and early forecasts for 1999 are at or
near 650,000 procedures. With a substantial increase in the number of
procedures performed per machine in the United States during both 1997 and
1998, it is also believed that ophthalmologists will accelerate their efforts
to secure access to an LVC system, to obtain the requisite
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training and to offer the procedure to their patients and referral sources such
as optometrists. Autonomous believes many ophthalmologists are seeking new
sources of practice revenue as a result of a decline in Medicare reimbursement
for cataract surgery and are looking to maintain local market position as
refractive surgery becomes widespread. Autonomous believes that refractive
surgery offers practitioners the largest significant new revenue opportunity
for their practices in the near future.
The current price to the patient of an LVC procedure in the United States is
approximately $1,900 to $2,300 per eye, although there is significant price
variation by local market. The lower price is more typical for PRK and the
higher one more typical for LASIK. Vision correction is generally paid for by
the individual receiving treatment ("patient pay") without reimbursement from
governmental or other third-party health care payors.
Business Strategy and Distribution Plans
Autonomous' objective is to become the leader in the treatment of refractive
vision disorders through the commercialization of its LADARVision System. The
principal elements of Autonomous' business strategy are as follows:
. Seek Market Acceptance Through Innovative Marketing Strategy. In order to
broaden market acceptance of the LADARVision System, Autonomous has
developed an innovative marketing strategy which is directed toward
reducing the initial cost to the ophthalmologist. Under Autonomous'
marketing approach, the physician would pay an advance procedure fee as
well as an ongoing per procedure service fee. This approach permits the
physician to obtain the LADARVision System without either a substantial
capital investment or the risk that the equipment and technology
purchased will become obsolete, both of which can create barriers to
physician acceptance. Autonomous believes that this marketing strategy,
combined with comparable total cost of ownership, may appeal to
physicians who have already purchased a first generation LVC instrument
and have established an LVC component to their practice but wish to
utilize the advanced features contained in Autonomous' LADARVision
System.
. Accelerate Clinical Trials and the Regulatory Process. Autonomous has
implemented a strategy to accelerate the completion of the regulatory
process by conducting concurrent trials at a select group of institutions
in the United States and Europe. Autonomous has targeted institutions
that have had prior clinical trial experience in the use of excimer
lasers for LVC. By concentrating its efforts in a limited number of
experienced institutions and conducting extensive data review and site
audits, Autonomous believes that it can attain better accountability over
the clinical process and ensure high data integrity. Autonomous believes
a combination of highly accountable data with efficacious results has
expedited the data review portion of the regulatory review process.
Autonomous submitted its PMA application and on February 13, 1998 the
Ophthalmic Devices Panel recommended to the FDA that approval be granted.
The FDA approved Autonomous' PMA for the use of the LADARVision System in
the treatment of mild to moderate levels of myopia (-1 to -10 diopters)
with or without astigmatism (up to -4 diopters) on November 2, 1998.
. Leverage Technology Platform to Expand Indications for Use. Autonomous
has begun clinical trials to pursue additional clinical indications for
its LADARVision System, such as
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hyperopia, including hyperopic astigmatism, and LASIK. Autonomous may
pursue additional clinical indications such as higher diopter ranges for
myopia and hyperopia, and presbyopia (need for bifocals or reading
glasses). Autonomous believes that its proprietary combination of eye
tracking and narrow beam laser technology is well suited to addressing
these additional indications. Autonomous also believes that its existing
LADARVision System could be adapted for additional indications with
software upgrades.
Clinical Trials
FDA guidelines prescribe three steps or phases of clinical testing for excimer
refractive surgical systems. During the initial phase (Phase I), the device
manufacturer conducts feasibility studies to confirm design and operating
parameters. During the second phase (Phase II), the manufacturer attempts to
rule out major safety risks and to assure reasonable stability of testing
results, particularly refractive outcomes. During this phase, a manufacturer
may make minor modifications to the device and treatment protocols. During the
final phase (Phase III), the manufacturer provides reasonable safety and
efficacy assurances of the device to be submitted for PMA by virtue of
treating an expanded patient population.
Autonomous initiated LADARVision System pre-clinical trials with primates in
late 1994. In January 1995, Autonomous began a Phase I trial on five blind
eyes and then conducted a sighted eye study under the direction of Dr. Ioannis
Pallikaris, an associate professor of ophthalmology at the University of
Crete, Greece and co-inventor of the LASIK procedure. Autonomous was granted
an investigational device exemption by the FDA in January 1996 to begin
clinical trials in the United States. Autonomous then conducted a Phase II
confirming trial in the United States under the direction of Dr. Marguerite
McDonald, Autonomous' Medical Director. Following the Phase II surgeries and
data submission, the FDA permitted Autonomous to begin Phase III surgeries on
500 human eyes at up to seven United States sites. Autonomous carried out
Phase III studies between October 1996 and May 1997.
Clinical Trials Results. The FDA's primary measure of efficacy for LVC is
known as the uncorrected visual acuity (UCVA), or the percentage of patients
who can read to specified levels on the standard eye chart post-operatively
with no additional refractive correction. The FDA has concluded that certain
percentage levels of patients achieving 20/20 and 20/40 of UCVA constitute
efficacy. The Autonomous clinical results surpass levels used by the FDA to
denote an efficacious product.
The efficacy data from Autonomous' Phase III study were compiled on all of the
primary eyes treated. Certain twelve-month post-operative results of the
measure of uncorrected visual acuity are as follows:
<TABLE>
<S> <C>
Myopia only
% of eyes reaching 20/40 (good).......................................... 98%
% of eyes reaching 20/20 (optimal)....................................... 71%
Myopia with astigmatism
% of eyes reaching 20/40 (good).......................................... 95%
% of eyes reaching 20/20 (optimal)....................................... 59%
</TABLE>
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The FDA's primary measure of safety for LVC is known as the best spectacle
corrected visual acuity (BSCVA), or the percentage of patients treated who lose
the ability to read as far down the standard eye chart post-operatively as they
previously could with spectacles. The FDA has concluded that a 2 line (or more)
loss on the eye chart is a compromise of visual function and has set an upper
limit of such effect to denote safety. Autonomous' clinical results show a
small number of patients losing 2 or more lines of BSCVA and it falls within
the FDA's measure.
Another key part of the information for the FDA about an LVC system is the
stability of results for patients. The mean manifest refraction for the
LADARVision System in both the Greek and United States trials changed less than
a diopter in the three month post-operative interval.
Research and Development
Since 1993, Autonomous has spent significant resources on research and
development, including clinical testing on the LADARVision System. In the three
years ended December 31, 1997, Autonomous spent $2.3 million, $5.2 million, and
$6.0 million, respectively, on research and development. In the six months
ended June 30, 1998, Autonomous spent an additional $3.4 million on R&D,
bringing total expenditures from inception through June 30, 1998 to almost $20
million. Autonomous currently has R&D projects ongoing in three major areas, as
described below.
Additional indications: hyperopia, hyperopic astigmatism and LASIK. Autonomous
is pursuing additional treatment indications for its LADARVision System. In
addition to mild and moderate levels of myopia (up to -10 diopters) with or
without astigmatism (up to -4 diopters), which received panel approval in
February 1998 and FDA PMA approval in November 1998, clinical trial surgeries
are underway for hyperopia and hyperopia with astigmatism. Additionally, many
of these hyperopic surgeries are being done using the LASIK technique in order
to support an FDA label indication that the LADARVision System is compatible
with that popular surgical technique.
Engineering improvements. Autonomous continues to spend significant amounts on
engineering to improve the LADARVision System in order to enhance its
performance in clinic operation and to improve manufacturability and
serviceability. Operational performance improvements include not only
electrical/electronic and optical performance, but also physician requested
features to further enhance ease of use.
CustomCornea(TM). Autonomous is actively developing CustomCornea(TM), a patent
pending technology designed to further extend the precision and flexibility of
the LADARVision System by incorporating an advanced eye measurement technology.
The advanced eye measurement technology will allow CustomCornea to determine
the more subtle errors of the human visual system. With this information,
Autonomous can generate custom ablation patterns ideally suited for individual
patients. CustomCornea is intended to offer correction of the degrading effects
of complex corneal topographical anomalies, including irregular astigmatism.
Autonomous believes that CustomCornea will improve the night vision performance
of patients over current LVC performance. Autonomous has applied for a patent
covering certain aspects of this technology and certain claims of that
application were allowed in 1997. During late 1997, Autonomous conducted a
successful clinical trial of the measurement aspects of the CustomCornea
technology on approximately 100 eyes with a prototype device. During 1998,
Autonomous has studied the resultant data from the diagnostic
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measurements obtained in 1997 and developed the algorithms for custom
ablations. In early 1999, Autonomous anticipates conducting pre-clinical
surgeries on a small number of patients in order to evaluate the feasibility of
the treatment. In late 1999, Autonomous intends to apply to the FDA for
necessary approvals. Autonomous believes that CustomCornea corrections offer
the promise of increasing contrast sensitivity, improved night vision and
uncorrected visual acuity beyond that offered by current technology.
Autonomous' long term research and development plan includes an extension of
the CustomCornea and LADARVision technology to include multi-focal correction
of presbyopia. Presbyopia is the need for reading glasses. The CustomCornea
technology has measurement features that Autonomous believes will aid in the
development aspects of presbyopic correction. The correction of presbyopia
would require ablation of a highly complex and precise shape which Autonomous
believes may be achievable using LADARVision technology. Autonomous' plan to
develop presbyopic correction treatment is a multi-year development project.
Manufacturing
Autonomous' manufacturing operations consist of assembly, inspection and
testing of parts and system components to assure performance and quality. Most
parts and system components are manufactured and supplied by outside vendors. A
completed system must pass a series of final integration and acceptance tests
prior to shipment.
The laser component in the LADARVision System has been custom designed for
Autonomous for high performance and small size. Autonomous funded the
development of this laser and owns the design of the laser component, including
all drawings and trade secrets relating to the design and manufacture of the
laser component. The laser component is currently manufactured by a small U.S.
manufacturer that specializes in manufacturing excimer lasers. Autonomous
agreed to purchase 50 laser components from this small company before
purchasing laser components from other manufacturers or making the laser
component itself. To date, Autonomous has purchased 30 of the 50 laser
components, in whole or in part. Either Autonomous or this manufacturer (as the
non-breaching party) may terminate this relationship in the event of an uncured
breach of the manufacturing agreement. This agreement continues until
Autonomous has purchased 50 laser components. Autonomous decided to use a
single manufacturer for the laser component in order to achieve economies of
scale in the manufacture of the laser component and to assure better control of
the quality of the laser component. Achieving economies of scale and
controlling the quality of the laser component are and will continue to be
important factors and will significantly influence Autonomous' decision whether
to engage another manufacturer (or manufacture the laser component itself)
after Autonomous has met its obligation to purchase 50 laser components from
this manufacturer. In order to protect itself against this manufacturer being
unable to manufacture the laser component, Autonomous required this
manufacturer to lease a separate facility for the manufacture of the laser
component and to assign to Autonomous a security interest in all of the
equipment, drawings and inventory relating to the manufacturing of the laser
component as well as the facility lease. Autonomous also placed two of its
engineers at this manufacturer, beginning November 1997, for approximately six
months in order for these engineers to learn and document all of the details of
manufacturing the laser component. Autonomous does not currently have its
engineers working at this manufacturer on a full-time basis. However, the two
engineers have
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returned to this manufacturer for further documentation, and Autonomous
anticipates its personnel returning to this manufacturer on occasion in the
future. If this manufacturer is unable to supply the laser components as
required by Autonomous, Autonomous believes it has the ability to promptly step
in and manufacture the laser components on its own or have another qualified
manufacturer make the laser components at the current site where the laser
components are manufactured. With these protective measures in place,
Autonomous does not believe there is a significant risk that it will be unable
to obtain laser components from a qualified manufacturer or make such
components itself in the event that this manufacturer cannot manufacture the
laser components. However, this transfer process could take several months.
In addition to the excimer laser, the most significant component of the
LADARVision System is the optical module. The LADARVision optical module was
originally built and tested by Autonomous. During 1996 and 1997, Autonomous
outsourced the optical module to a sole source supplier to improve
manufacturability and serviceability and to achieve higher performance and
begin positioning Autonomous to enter higher volume manufacture. If this
supplier is unable to meet Autonomous' demand, Autonomous' ability to build
LADARVision Systems would be adversely affected. Autonomous wrote the
LADARVision System software and intends to protect this software as a trade
secret. The balance of the LADARVision System, consisting of common, non-
proprietary components purchased from third parties, is assembled and tested by
Autonomous.
In 1997, Autonomous leased a newly constructed main office and production
facility of approximately 25,000 square feet. The new facility will enable
Autonomous to maintain sufficient inventory levels and to achieve production
rates required for commercial placements.
Autonomous will be required to expand its assembly and test capabilities to
achieve the capacity required for commercial production of the LADARVision
System in the United States. During 1998, Autonomous experienced delays in the
production of LADARVision Systems in order for it to implement its Quality
System Regulation (QSR) systems, undergo FDA site and QSR system inspection,
and complete implementation of several engineering changes. Autonomous
substantially completed the engineering changes and QSR system by the end of
summer 1998. Autonomous' FDA site inspection was completed in 1998. The FDA
approved Autonomous' PMA for the use of the LADARVision System in the treatment
of mild to moderate levels of myopia (-1 to -10 diopters) with or without
astigmatism (up to -4 diopters) in November 1998. There can be no assurance
that Autonomous will not continue to experience such production and ongoing FDA
inspection difficulties as it converts from a research and development
operation into a commercial manufacturing operation. In addition, Autonomous
must continue to meet the FDA's QSR regulations in order to ship systems for
use in the United States. If any of Autonomous' suppliers of significant
components or sub-assemblies cannot meet the quality requirements of
Autonomous, Autonomous could experience delays in producing commercial systems
for the domestic market. Autonomous has received its ISO 9001 certification.
ISO 9000 series certification is required to obtain the CE Mark which is
necessary for marketing products in European Community countries.
Sales and Marketing; Customer Service
Autonomous plans to employ its own sales and service personnel to launch the
LADARVision System in markets outside the United States and within the United
States. Autonomous and CIBA Vision intend to co-promote their products at
industry meetings.
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Autonomous believes that affiliation with the CIBA Vision name in ophthalmic
products will initially assist it in gaining attention and added credibility
from ophthalmologists who have an interest in LVC. CIBA Vision markets a line
of products that can be used by practitioners performing LVC. These products
include topical anesthetics, post-operative wound healing compounds and bandage
contact lenses, some of which were used by physicians in Autonomous' clinical
trials.
Autonomous is actively building its capabilities in both sales and service.
There are a limited number of experienced service personnel available in the
workforce. Autonomous is providing training for both sales and service
personnel in order to familiarize them with the LADARVision System to increase
their long-term productivity.
Historical Market Development
The laser vision correction industry in the United States fully emerged in 1995
when Summit received FDA approval to market its system for phototherapeutic
keratectomy in March and for low to moderate nearsightedness in October. Prior
to that time, both Summit and VISX had sold systems outside the United States
and had been involved in the extensive process of clinical trials in the United
States. In March 1996, VISX received FDA approval for low to moderate
nearsightedness and began its United States marketing efforts. FDA approvals
have been a critical aspect of the market development. In April 1997, VISX
received an additional approval for astigmatism. The Summit system was approved
for astigmatism in March 1998. Autonomous believes that the earlier approval
for astigmatism gave VISX a competitive advantage in marketing its laser
systems in the United States.
Based on industry trade publications, Autonomous believes that VISX now
dominates the United States market for LVC procedures performed with an
estimated 75% share of the market with Summit having the remaining 25%.
VISX received FDA approval for farsightedness in November 1998 and is the only
LVC equipment supplier that has FDA approval to treat farsightedness. Both
Summit and Autonomous have submitted filings to the FDA for approval to treat
farsightedness. Autonomous believes that if it receives approval from the FDA
for farsightedness, it will not receive such approval until late 1999. VISX may
have a competitive advantage in the marketplace until Summit and Autonomous
receive FDA approval for farsightedness.
Nidek recently received FDA approval for its LVC system for low to moderate
nearsightedness without astigmatism. Two other companies, Bausch & Lomb's
Surgical Division and Lasersight, have applied for FDA approval for their LVC
systems. More entrants in the market will likely have the effect of increasing
competition in the industry.
Another aspect of market development has been in the technology area, which
appears to be moving from the original "wide beam" technology (or variations
thereof) characterized by the Summit and VISX systems, to small spot "scanning"
systems such as the LADARVision System.
Autonomous does not yet know how the LVC market in the United States will
accept the LADARVision System since only a limited number of systems have been
in operation in the United States for clinical trials. Owners of VISX or Summit
systems may be reluctant to change to the
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LADARVision System because of the significant capital investment they have
already made or their familiarity with the equipment and the inconvenience of
changing to a new system. If other providers of LVC systems are able to
penetrate the United States market with their equipment before Autonomous is
able to manufacture and market the LADARVision System, Autonomous could
experience a significantly lower market share than it had otherwise
anticipated.
Other technologies could present significant competition to laser vision
correction such as implantable ring devices and implantable contact lenses.
These technologies may be less expensive than LVC for both patients and
physicians.
The table below summarizes the product features and FDA approvals for LVC
systems currently approved by the FDA:
<TABLE>
<CAPTION>
Autonomous Summit VISX Nidek
------------ ---------------- -------------- -----------
<S> <C> <C> <C> <C>
Model Name.............. LADARVision Apex Plus Star S/2/ EC-5000
Weight (lbs.)........... 799 1,399 1,597 1,430
Beam Size............... Narrow Wide Wide Wide
Beam Shaping............ Programmable Iris & ablatable Iris, slit & Iris & slit
shot pattern mask beam splitting
Eye Tracking............ Active None None None
(LADAR)
FDA Approval Status
(diopters):
Myopia.................. -10 -7 -12 -13
Myopia with
astigmatism............. -4 -4 -4 No
Hyperopia............... No No +6 No
Hyperopia with
astigmatism............. No No No No
LASIK................... No No No No
</TABLE>
Several of Autonomous' potential competitors, such as Summit, VISX, Bausch &
Lomb, and Nidek have substantially greater resources than Autonomous. These
resources could be used to make it difficult for Autonomous to gain market
share in the LVC equipment market and procedure market.
Relationship with CIBA Vision
Autonomous and CIBA Vision entered into an agreement in 1994 whereby CIBA
Vision purchased certain securities of Autonomous for $4,000,000. CIBA Vision
subsequently converted these securities into 1,256,550 shares of common stock.
In 1995, CIBA Vision and Autonomous replaced their existing agreement with a
new Strategic Alliance Agreement. Under the new agreement, CIBA Vision advanced
$1,000,000 to Autonomous and agreed to provide in-kind services worth more than
$1,000,000 over a three-year period.
In addition, CIBA Vision has agreed to allow Autonomous to use the CIBA
Vision(R) and CIBA Vision Ophthalmics(R)/1/ trademarks to promote its
ophthalmic refractive laser products for the duration of the agreement (eight
years unless terminated earlier). As part of the in-kind services provided by
CIBA Vision, it has provided Autonomous exhibit space at appropriate ophthalmic
conventions or congresses attended by CIBA Vision worldwide and participated in
co-promotional activities with Autonomous.
- - - --------
/1/ CIBA Vision(R) and CIBA Vision Ophthalmics(R) are registered trademarks of
Novartis, A.G.
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The Strategic Alliance Agreement provides that Autonomous shall pay commissions
to CIBA Vision on all ophthalmic refractive laser equipment revenues, including
patient procedures fees, net of license fees to IBM, Summit and VISX, in the
amount of 6% of such revenues. The CIBA Vision commissions are limited to an
aggregate of $10,000,000. The agreement may be terminated by CIBA Vision under
certain circumstances.
Patents and Proprietary Intellectual Property
Autonomous' LADARVision eye tracking and excimer shaping technologies are the
product of several years of contract research and development for the Strategic
Defense Initiative and the National Aeronautic and Space Administration.
Autonomous has retained all commercial rights to these technologies and has
filed a total of thirteen patent applications in the United States. Five of the
thirteen U.S. patent filings have resulted in patents being issued to
Autonomous. The earliest of these patents will expire in 2012, and the latest
will expire in 2018. Several other filings have received an indication of
allowable subject matter. Autonomous has also filed numerous patent
applications in foreign jurisdictions.
The patents and applications generally relate to the following areas:
. A cartridge excimer laser device for high serviceability
. Fast response eye tracking
. Fast and accurate optical narrow beam delivery system with tracking
. Ablation with shot pattern, with minimal sensitivity to ablation debris
. The algorithm for shaping with arbitrary combinations of plus and minus
sphere and cylinder
. CustomCornea
. Measuring vision defects of a human eye
Autonomous' ability to protect its proprietary tracking and small-beam
technology as trade secrets is critically important to differentiating its
technology from earlier-to-market LVC systems. Both in the United States and
worldwide there is a large field of prior art covering methods and apparatus
for performing corneal surgery with ultraviolet laser ablation.
Autonomous' success will depend in part on its ability to obtain patents for
its products and processes, to preserve its trade secrets and to operate
without infringing the patent rights of third parties.
Patent Litigation and Technology Licenses
Summit and VISX, two of Autonomous' competitors, formed a domestic partnership,
Pillar Point Partners, in 1992 to pool certain of their respective patents
related to corneal sculpting technologies. On October 24, 1996, Autonomous
filed suit in the United States District Court for the District of Delaware
against Pillar Point Partners, Summit and VISX alleging noninfringement,
unenforceability and invalidity of certain of the patents held by Pillar Point
Partners. On June 9, 1998, Summit and VISX announced that they had reached
agreement on the dissolution of their partnership. As a part of the dissolution
of Pillar Point Partners, Summit and VISX granted each other a worldwide,
royalty
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free cross-license whereby each party will have full rights to license all
existing patents owned by either company relating to LVC for use with their
systems. On September 24, 1998, VISX filed a counterclaim in Autonomous' 1996
suit seeking a declaratory judgment of infringement by Autonomous and
preliminary and permanent injunctions. Autonomous believes that after the
merger the cross-license with VISX held by Summit pertaining to the VISX
patents will render moot the claim that Autonomous infringes on VISX patents
for Autonomous' activities after the merger. Autonomous and VISX have agreed to
stay the litigation until the earlier of the Summit/Autonomous merger,
termination of the merger or May 1, 1999. During this period, Autonomous has
agreed not to deliver LADARVision Systems in the U.S. If the merger does not
occur, a judgment in favor of VISX could have a material adverse effect on
Autonomous' business, financial condition and results of operations.
During 1996, Autonomous licensed patents related to ultraviolet laser ablation
of biological material from IBM. In 1997, IBM sold certain intellectual
property to Lasersight, Inc., which also makes LVC equipment. Autonomous has
been informed by IBM that while the laser ablation patent and certain licenses
thereto were included in the sale to Lasersight, Inc., the Autonomous license
is still owned by IBM. Under the terms of the license with IBM, Autonomous has
an automatic right of renewal for another four year term upon expiration in
2000, subject to a fixed limit increase in the royalty rates thereafter. Upon
expiration of the second term, the applicable patent will have expired.
Autonomous may need to negotiate licenses for additional patents in order to
sell, lease or use the LADARVision System in certain markets. There can be no
assurance that Autonomous will be successful in securing licenses for these
patents or, if Autonomous does obtain licenses for these patents, that such
licenses will be on terms acceptable to Autonomous. An inability to license
these patents might have a material adverse effect on Autonomous' business,
financial condition and results of operations.
Government Regulation
Food and Drug Administration. Before medical devices can be marketed and sold
in the United States they must be subjected to rigorous pre-clinical and
clinical testing to satisfy regulatory requirements imposed by the FDA and, to
a lesser extent, by certain state regulatory authorities.
Medical devices are classified by the FDA as Class I, Class II or Class III
based upon the extent of regulatory review necessary to reasonably ensure their
safety and effectiveness. Class III devices are subject to the most stringent
regulatory review and cannot be marketed for commercial sale in the United
States until the FDA grants a PMA for the device. Autonomous' LADARVision
System, which received PMA approval in November 1998, is such a Class III
device.
The process of obtaining approval of a PMA application is lengthy, expensive
and uncertain. It requires the submission of extensive clinical data and
supporting information to the FDA. Human clinical studies may be conducted only
under an FDA-approved IDE (Investigational Device Exemption) and must be
conducted in accordance with FDA regulations. In addition to the results of
clinical trials, the PMA application includes other information relevant to the
safety and efficacy of the device, a description of the facilities and controls
used in the manufacturing of the device, and proposed labeling. After the FDA
accepts a PMA application for filing and reviews the application, a
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public meeting may be held before an FDA advisory panel comprised of experts in
the field. After the PMA is reviewed and discussed, the panel issues a
favorable ("approvable") or unfavorable ("not approvable") recommendation to
the FDA and may recommend conditions. Although the FDA is not bound by the
panel's recommendations, it historically has given them significant weight.
Products manufactured and distributed by Autonomous pursuant to a PMA will be
subject to extensive, ongoing regulation by the FDA.
The FDA enabling legislation, the Food, Drug and Cosmetic Act, also requires
Autonomous to manufacture its products in accordance with its QSR quality
system regulations. Autonomous' facilities will be subject to periodic,
surprise inspections by the FDA. These regulations impose certain procedural
and documentation requirements upon Autonomous with respect to manufacturing
and quality assurance activities. Additionally, product and procedure labeling
and all forms of promotional activities are subject to examination by the FDA,
and current FDA enforcement policy prohibits the marketing of approved medical
devices for unapproved uses. Noncompliance with these requirements may result
in warning letters, fines, injunctions, recall or seizure of products,
suspension of manufacturing, denial or withdrawal of PMAs and criminal
prosecution.
Autonomous also is regulated by the FDA's Center for Devices and Radiological
Health under the United States Radiation Control for Health and Safety Act,
which requires any laser product to comply with certain performance standards
and manufacturers to certify in product labeling and in reports to the FDA that
their products comply with all such standards. The law also requires laser
manufacturers to file new product and annual reports, maintain manufacturing,
testing and sales records, and report product defects. Various warning labels
must be affixed and certain protective devices must be installed in order to be
in compliance. Autonomous believes it is in compliance with these reporting and
operating requirements.
In 1997, Autonomous submitted its PMA application for its initial indications
of myopia and astigmatism. On February 13, 1998, the FDA's Ophthalmic Devices
Panel reviewed the application and unanimously recommended that the FDA grant
the PMA approval for myopia up to -8 diopters and astigmatism up to -4
diopters. Subsequently, upon submission of additional data, the FDA indicated
that Autonomous' initial approval would be to -10 diopters of myopia. On
November 2, 1998, the FDA approved Autonomous' PMA for the use of the
LADARVision System in the treatment of mild to moderate levels of myopia (-1 to
- - - -10 diopters) with or without astigmatism (up to -4 diopters).
Autonomous' principal business facilities are located in Florida. The
Department of Health's Office of Radiation Control monitors reporting and
record keeping requirements applicable to Autonomous.
Autonomous believes that some foreign jurisdictions in which it anticipates
marketing the LADARVision System may impose restrictions on the marketing and
sale of medical laser devices and may require certain filings and other
information and procedures before a product can be sold to the public. The
member countries of the European Community have implemented regulations
requiring that medical products receive certifications necessary to affix the
CE mark to the device by June 14, 1998. The CE mark has gained acceptance as an
international symbol of adherence to quality assurance standards and compliance
with applicable European medical device directives. Certification under the ISO
9000 series of standards for quality assurance and manufacturing
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processes is one pre-requisite for obtaining the CE mark requirements.
Autonomous has received ISO 9001 certification and plans to apply for the CE
mark within the next nine months.
In November, 1998, Autonomous received a Medical Device License from the
Canadian Therapeutic Products Directorate for its LADARVision System. The
Autonomous license application was for mild to moderate myopia (-1 to -10
diopters) and astigmatism (up to -6 diopters) as a Class III device.
Other Regulation. Sales, both domestic and international, manufacturing and
product development of the LADARVision System also may be subject to federal
regulations pertaining to exports, environmental matters and worker protection.
In addition, state and/or local health and safety regulations may require that
Autonomous obtain various permits.
Changes in existing regulatory requirements or adoption of new requirements
could have a material adverse effect on Autonomous' business, financial
condition and results of operations. There can be no assurance that Autonomous
will not be required to incur significant costs to comply with laws and
regulations in the future or that laws and regulations will not have a material
adverse effect on Autonomous' business, financial condition or results of
operations.
Product Liability and Insurance
Autonomous' business involves the risk of product liability claims. Autonomous
has not experienced any product liability claims to date. Autonomous maintains
a "claims made" product liability insurance policy with coverage limits of $5
million per occurrence and $5 million in the aggregate. The inability of
Autonomous to maintain adequate insurance coverage at any time or product
liability or other claims in excess of Autonomous' insurance coverage could
have a material adverse effect on Autonomous' business, financial condition and
results of operations. Additionally, Autonomous has in the past and may in the
future agree to indemnify certain medical institutions and their personnel who
participate in Autonomous' clinical studies.
Employees
As of February 28, 1999, Autonomous had 88 full-time employees. Additionally,
from time to time Autonomous has retained the services of contract employees or
consultants. Autonomous expects that it will require additional staffing during
the remainder of 1999 in the areas of sales and marketing, customer support and
production functions. No employees are covered by collective bargaining
agreements and Autonomous believes that it maintains good relations with its
employees.
Legal Proceedings
Autonomous is involved in litigation relating to certain patents held by VISX.
Autonomous believes that after the merger the cross license with VISX held by
Summit pertaining to VISX patents relating to laser ablation of corneal tissue
will render moot the claim of VISX that Autonomous infringes on VISX patents
for Autonomous' activities after the merger. For a complete description of the
litigation pending with VISX, see "--Patent Litigation and Technology
Licenses."
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Description of Properties
Autonomous leases approximately 30,300 square feet of
office/manufacturing/warehouse space in Orlando, Florida at an annual cost of
approximately $415,000, including operating costs. The primary office and
manufacturing facility consists of approximately 25,250 square feet and is
covered by a lease that expires in 2007. The separate ancillary warehouse lease
consists of approximately 5,050 square feet and is covered by a lease that
expires in 2000, with renewal opportunities. Autonomous believes these
facilities are adequate to accomplish Autonomous' business objectives through
1999.
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Autonomous Selected Historical Consolidated Financial Data
The following table summarizes certain selected consolidated financial data,
which should be read in conjunction with Autonomous' Management's Discussion
and Analysis of Financial Condition and Results of Operations below. The
selected consolidated financial data as of December 31, and March 31, 1995, and
for each year in the two year period ended December 31, 1995, are derived from
audited financial statements filed previously with the Securities and Exchange
Commission. There were no cash dividends declared during any of the periods
presented below.
<TABLE>
<CAPTION>
Cumulative
Nine Months from Inception
Year Ended Year Ended Year Ended Ended Year Ended (July 23, 1985)
December 31, December 31, December 31, December 31, March 31, to December 31,
1998 1997 1996 1995 1995 1998
------------ ------------ ------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
LADARVision Systems and
Services............... $ 221,955 $ 37,065 $ -- $ -- $ -- $ 259,020
Research grants......... -- -- -- -- 3,450,517
OPERATING EXPENSES:
Costs of revenues--
LADARVision Systems and
Services.............. 395,130 105,892 -- -- -- 501,022
Costs of revenues from
research grants....... -- -- -- -- -- 3,465,596
Clinical trials and
compliance............. 2,666,914 2,980,317 1,715,412 602,847 569,389 8,537,108
Unabsorbed production
costs.................. 2,997,672 758,801 -- -- -- 3,756,473
Research and
development............ 3,775,159 2,954,559 3,521,381 1,698,056 1,608,032 14,083,474
Selling and marketing... 2,669,257 1,493,069 1,190,898 478,439 40,349 6,124,259
General and
administrative......... 2,846,404 2,328,222 1,852,351 974,738 562,042 9,201,275
Other expenses.......... 1,660,453 1,596,671 1,283,874 375,000 -- 4,915,998
------------ ------------ ----------- ----------- ----------- ------------
OPERATING LOSS (16,789,034) (12,180,466) (9,563,916) (4,129,080) (2,779,812) (46,8875,668)
Interest income
(expense), net......... 146,281 541,111 555,872 30,035 84,463 1,329,640
Provision for income
taxes.................. -- -- -- -- -- 4,772
------------ ------------ ----------- ----------- ----------- ------------
NET LOSS................ (16,642,753) (11,639,355) (9,008,044) (4,099,045) (2,695,349) (45,546,028)
Deemed dividend for
Series I preferred
stock conversion
discount............... 831,602 -- -- -- -- 831,602
------------ ------------ ----------- ----------- ----------- ------------
Net loss applicable to
common stockholders.... $(17,474,355) $(11,639,355) $(9,008,044) $(4,099,045) $(2,695,349) $(46,382,402)
============ ============ =========== =========== =========== ============
LOSS PER SHARE:
Basic net loss per
share.................. $ (1.59) $ (1.43) $ (2.36) $ (3.37) $ (2.40)
============ ============ =========== =========== ===========
Shares used in computing
basic net loss per
share.................. 11,009,272 8,151,395 3,812,039 1,217,509 1,125,000
============ ============ =========== =========== ===========
<CAPTION>
December 31, March 31,
------------------------------------------------------ -----------
1998 1997 1996 1995 1995
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and investments.... $ 544,666 $ 7,301,072 $12,405,790 $ 492,326 $ 975,428
Total assets............ 7,918,582 12,416,149 14,144,249 799,493 1,252,317
Long-term obligations... 164,993 1,760,007 1,097,133 2,802,832 2,405,000
Stockholders' equity
(deficit).............. 2,796,076 8,979,812 11,583,648 (3,564,616) (1,304,568)
</TABLE>
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AUTONOMOUS MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Autonomous was incorporated in 1985 and since 1993 has been engaged in the
design and development of the next generation of excimer laser instruments for
LVC. The field of LVC consists primarily of treatments aimed at reducing or
eliminating a person's dependence on eyeglasses or contact lenses. Autonomous
is still in the development stage and only recently introduced a commercial
product for sale in certain foreign markets. Autonomous' PMA application in the
United States was reviewed and recommended for approval by the Ophthalmic
Devices Panel of the FDA in February 1998. In November 1998, the FDA approved
Autonomous' PMA for the use of the LADARVision System in the treatment of mild
to moderate levels of myopia (-1 to -10 diopters) with or without astigmatism
(up to -4 diopters).
Autonomous has entered into an agreement with Summit Technology, Inc. to merge
with or into a wholly-owned subsidiary of Summit, subject to the approval of
the merger transaction by the shareholders of both Autonomous and Summit.
Years Ended December 31, 1998 and 1997
Results of Operations
Revenues. Autonomous had revenues of $221,955 and $37,065 for the years ended
December 31, 1998 and 1997, respectively. This increase of approximately six-
fold represented the procedure fee revenues from the placement of two
additional LADARVision systems (compared to one at December 31, 1997) for part
of the 1998 fiscal year. These revenues are not deemed to be material and
Autonomous is still reporting under Statement of Financial Accounting Standards
No. 7, "Accounting and Reporting by Development Stage Enterprises." Autonomous
did not actively launch commercial marketing of its LADARVision System in 1998.
If the proposed acquisition of Autonomous by Summit is completed, however,
Autonomous expects that it will be able to initiate its commercial launch of
the LADARVision System in the United States, partly because Autonomous will be
covered by a cross-license to certain intellectual property that will permit
such marketing activities without contention from VISX, Inc. The larger scale
launch of marketing activities outside the United States is dependent on a
number of factors, including the receipt of the CE Mark for European placements
of the LADARVision System.
Operating Expenses
Cost of Revenues
Cost of revenues from LADARVision Systems was $395,130 and $105,892 in the
years ended December 31, 1998 and 1997, respectively. These costs of revenues
include depreciation, local country import taxes, shipping, installation and
training costs and certain royalty accruals. The increase in cost of revenues
of nearly four-fold was less than the six-fold rate of increase in revenues
from the systems these costs represent.
Clinical trials and compliance expenses
Clinical trials expenses were $2,666,914 and $2,980,317 in the years ended
December 31, 1998 and 1997, respectively. This decrease of 11% is attributable
to the conclusion of the initial myopia
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and astigmatism clinical surgeries in mid-1997. Conclusion of the initial field
protocol greatly reduced costs related to clinic and data monitoring visits.
This decrease was not fully offset by commencement of hyperopia and LASIK
trials during 1998, which require fewer patients than the initial study.
Additionally, the CustomCornea clinical trials did not commence as anticipated
in 1998. Autonomous' clinical trials expenses are expected to resume their
increase as Autonomous concludes its hyperopia and LASIK trials in 1999,
supports commercial launch with clinical training, expands its work toward
other clinical indications such as higher levels of myopia and astigmatism and
begins its CustomCornea trials. The cost of the compliance organization grouped
here increased in 1998 due to its ISO9001 certification and preparations to
operate in accordance with those guidelines.
Unabsorbed production start-up costs
Unabsorbed production start-up costs increased 295% from $758,801 to $2,997,672
in the years ended December 31, 1997 and 1998, respectively. Until the third
quarter of 1997, when Autonomous first began foreign commercial activity, the
cost of the production organization was charged to research and development.
Subsequently, the production organization expenses not absorbed by limited
production were presented in Other Expenses. As the size and cost of the
production organization has grown in 1998 in anticipation of commercial levels
of activity, these costs have been presented separately and have been
reclassified for presentation purposes in 1997. Autonomous expects to present
the unabsorbed labor and overhead costs of the production organization in this
fashion in 1999 until such time as Autonomous reaches a continuous production
state. If the proposed acquisition of Autonomous is completed, Autonomous
expects to be able to establish continuous production to within several months.
Research and development expenses
Research and development expenses were $3,775,159 and $2,954,559 in the years
ended December 31, 1998 and 1997, respectively. This increase of 28% was caused
primarily by increased staffing in this area, including the addition of a Vice
President of Product Development to oversee the engineering aspects of the
organization. Autonomous incurred additional increases in development work on
the next set of product improvements to the LADARVision System (our so-called
"second generation" product), many of which were suggested by physicians in
feedback from the clinical trial usage. Research and development expenses are
expected to continue to increase moderately as the organization progresses
through the design processes described above and prepares the CustomCornea
device for clinical trial and subsequent commercial readiness.
Selling and marketing expenses
Selling and marketing expenses were $2,669,257 and $1,493,069 in the years
ended December 31, 1998 and 1997, respectively. This increase of 79% was
largely incurred as a result of Autonomous' preparation for a mid-year
commercial launch that was then delayed by the receipt of the PMA late in the
year and by the proposed acquisition of Autonomous by Summit, which will afford
Autonomous the opportunity to enter the U.S. market unfettered by intellectual
property claims and litigation from VISX. These commercial launch preparation
costs included the addition of two senior regional sales persons and agency
fees plus advertising and promotional material. The latter included costs of a
change in the Autonomous logo. Additionally, there was a severance accrual made
in 1998
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for the departure of Autonomous' former Vice President of Sales and Marketing
that added to 1998 costs as compared to 1997. While staffing increases were
modest in 1998, Autonomous expects these increases to expand in 1999 upon
Autonomous' U.S. commercial launch in the Spring of 1999. The CIBA in-kind
services agreement expired in May 1998 and all future costs of selling and
marketing are expected to be borne by Autonomous on an expenditure basis.
General and administrative expenses
General and administrative expenses were $2,846,404 and $2,328,222 in the years
ended December 31, 1998 and 1997, respectively. Approximately half of this
increase of 22% was due to a severance accrual for Autonomous' former President
and Chief Operating Officer, who left Autonomous in October. The balance, or
approximately an 11% increase, was due to increased staffing, including the
addition of a human resources manager, and various miscellaneous operating
costs such as office equipment and supplies which increased as Autonomous'
total headcount increased. As Autonomous' scope of operations increases in
1999, general and administrative expenses are expected to increase
proportionally, including in the area of staffing for cost accounting and
billings/collections.
Other expenses
Other expenses were $1,660,453 and $1,596,671 for the years ended December 31,
1998 and 1997, respectively. This increase of 4% was primarily due to costs
incurred in connection with the proposed acquisition of Autonomous by Summit
due to the planned merger with Summit offset by decreases in litigation
expense. There are three components of this expense category:
.. An accrual which is being made for the remaining 171,713 shares that may be
issued to CIBA Vision in May 1999 under the terms of the SAA. For both of
1998 and 1997, this accrual amounted to $600,000. If the proposed
acquisition of Autonomous by Summit is completed before May 1999, Autonomous
will issue these shares immediately prior to the closing of the proposed
transaction and the accrual will be completed.
.. Autonomous incurred legal expenses of approximately $501,000 and $956,000 in
1998 and 1997, respectively, relating to its pursuit of legal actions
involving alleged infringement, unenforceability, and invalidity of certain
LVC patents held in various jurisdictions by other participants in the LVC
industry. These expenses were reduced in 1998 because the action was dormant
until VISX counterclaimed against Autonomous in September 1998. Should the
proposed merger transaction be consummated as expected, Autonomous
anticipates that this particular legal action will become moot. Legal
expenses would therefore be reduced in 1999.
.. In 1998, Autonomous incurred approximately $338,000 of expenses related to
the proposed merger with or into a wholly-owned subsidiary of Summit. These
were primarily fees that became due and were paid to Autonomous' investment
banker in conjunction with various milestones in the proposed merger
negotiation process. Should the merger occur, other Autonomous costs
approximating $1.5 million would become due and payable in connection with
the merger.
Interest Income (Expense), Net. Interest income (expense), net was $146,281 and
$541,111 for the years ended December 31, 1998 and 1997, respectively. This
decrease of 73% was due to the fact
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that Autonomous' average earning balances in cash and investments, as computed
on monthly ending amounts, were approximately $2,600,000 in 1998 and
$10,400,000 in 1997. As in 1998, in an independent company scenario, interest
income in 1999 will be almost solely a function of the timing and size of
Autonomous' equity and debt financings during the year. Interest expense in
both periods was immaterial.
Net Loss. The net effect of the foregoing revenue and expense items was
Autonomous' net loss of $16,642,753 and $11,639,355 in the years ended December
31, 1998 and 1997, respectively. Autonomous' net loss for 1999 is dependent in
large part on the timing and scope of the planned U.S. market launch of the
LADARVision System. In turn, the U.S. market launch is dependent on the timing
of the planned merger with Summit. Autonomous' procedure fee pricing plan will
lengthen the time needed for Autonomous to earn a return on its investment in
LADARVision Systems, thereby delaying profitability.
Liquidity and Capital Resources
Historical Comments about sources and uses of Capital Resources. The following
table shows the summary sources and uses of Autonomous' funds for the six
fiscal years ended December 31, 1998 (comprising 69 months of operations).
These six fiscal years represent a substantial majority of Autonomous'
operating history to date, including all of the time Autonomous has been
focused on the LVC market.
<TABLE>
<S> <C>
Sources of Cash:
Preferred and common stock sales, net of expenses............. $20,201,000
CIBA equity and debt investments, net......................... 4,943,000
Proceeds from short-term borrowings (Summit).................. 3,000,000
Initial public offering, net.................................. 17,893,000
-----------
Total sources of cash....................................... 46,037,000
-----------
Uses of cash:
Operations.................................................... 41,851,000
Capital expenditures.......................................... 3,412,000
Debt repayment and other...................................... 616,000
-----------
Total uses of cash.......................................... 45,879,000
-----------
Net increase in cash balances................................... $ 158,000
===========
</TABLE>
The cash expenditure for operations of almost $42 million dollars in the last
six fiscal years has been used to develop the LADARVision System and its
enabling technologies as applied to LVC, to fund clinical investigation, to
build infrastructure and systems, to build production capacity and to commence
early sales and marketing efforts. As Autonomous continues to conduct clinical
investigations aimed at adding additional indications to the expected FDA PMA
approval, more fully develop a sales and marketing capability, and increase
commercial production of the LADARVision System, Autonomous expects that
additional losses will require substantial funding by equity or debt
placements, or both, in the absence of the proposed merger transaction.
Early 1999 status of Liquidity and Capital Resources. Autonomous' cash and
investment resources were $544,666 and $7,301,072 at December 31, 1998 and
1997, respectively. On January 15, 1999,
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Autonomous closed on the exercise of an option with respect to its Series I
convertible preferred stock and received gross proceeds of $4 million.
Autonomous used the proceeds to repay the outstanding balance of $3 million,
plus interest, to Summit under the line of credit attendant to the planned
merger (see below) and to pay the expenses relating to this option closing.
Subsequently, Autonomous re-borrowed $3 million under the line of credit from
Summit and expects such amount will remain outstanding until completion of the
proposed transaction with Summit. Additionally, Autonomous received proceeds of
approximately $1,600,000 from the exercise of various warrants which were
issued in connection with its Series D financing in 1996. The outstanding line
of credit balance of $3 million and the proceeds from the warrant exercises are
expected to be sufficient to fund operations to the end of April 1999. While
the proposed transaction is pending, Autonomous is effectively unable to raise
capital. If the proposed transaction is not completed in a timely manner,
Autonomous may exhaust its capital resources and be unable to continue
operations. This would occur on or about May 1, 1999 assuming that Autonomous
continues to fully prepare for a commercial introduction of the LADARVision
System in the United States.
Line of Credit with Summit. In connection with the merger agreement, Summit
agreed to lend up to $8 million to Autonomous on a revolving credit basis.
Under the revolving line of credit, Autonomous may not draw more than $1.5
million per month and will be charged interest on such draws at a rate of 5.25%
per annum. One half of the amount borrowed by Autonomous as of the closing date
of the proposed acquisition will reduce the amount of aggregate cash
consideration in the merger. In the event the proposed acquisition is not
completed through no fault of Autonomous, the amounts drawn on the revolving
credit facility are due and payable 180 days from the date of the termination
of the merger agreement. If this line of credit must be repaid by Autonomous,
Autonomous must raise sufficient capital to repay the line of credit as well as
to continue operations. Autonomous may not be able to raise sufficient capital
to either reduce the note payable or to stay in operation.
Year 2000 Computer Issues
The Year 2000 issue relates to the method used by computer systems and software
for displaying dates using two digits to represent a four-digit year. Such
computer systems and software may recognize a year represented by "00" as 1900
instead of 2000. This could result in unexpected behavior in the affected
systems or software. These systems and software will need to be able to accept
four-digit entries to distinguish years beginning with 2000 from prior years.
As a result, systems that do not accept four-digit year entries will need to be
upgraded or replaced to comply with such "Year 2000" requirements.
In early 1998, Autonomous' accounting and manufacturing requirements planning
("MRP") software vendor produced a Year 2000-specific update, which Autonomous
installed at that time. There was no cost of this upgrade to Autonomous as such
maintenance updates are included in the annual maintenance fee paid to the
vendor. As a result of this upgrade, Autonomous believes that its accounting
and MRP programs are fully Year 2000 compliant. Autonomous is the sole author
of the system application software in its LADARVision System. All versions of
that software have always been Year-2000 compliant, including the current 32-
bit version that Autonomous will deliver in commercial systems in the near
future. Autonomous believes that it will not incur any further
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material direct costs in hardware or software upgrades from third party vendor
software used internally in its business operations.
Autonomous is currently in the process of vendor certification for Year 2000
compliance. Autonomous is requiring a written statement from its key vendors
that such vendors systems are Year 2000 compliant as well as requiring a
description of the testing methods used by the vendor. At this time, Autonomous
has received such written statements from two of the four vendors it considers
its key vendors. The written statements Autonomous has received represent to
its satisfaction that these two vendors are currently Year 2000 compliant.
Autonomous anticipates that it will receive written statements from the other
two key vendors by the end of June 1999. Autonomous' production plan has the
system parts and/or sub-systems to be made by these key vendors in relatively
low volumes (measured in hundreds of items) and in a highly customized fashion.
Therefore, Autonomous does not believe that the manufacture of such parts or
sub-systems are automated such as to be wholly or even partially dependent on
embedded manufacturing systems at the vendors that may not be compliant.
Nevertheless, the greatest potential risk from Year 2000 issues relates to a
key vendor whose systems are not Year 2000 compliant and who may be unable to
meet delivery requirements for parts or components until they correct their
Year 2000 problem. Until Autonomous receives written statements from the other
two key vendors, it will not have reached maximum levels of assurance that
there will be no effect, if any, of possible non-Year 2000 compliance by these
vendors on Autonomous' business, results of operations, liquidity and financial
condition.
Autonomous does not currently have any U.S. commercial customers of its
LADARVision System and thus does not anticipate surveying potential customers
for Year 2000 compliance. Autonomous commercial customers will be service
providers and not manufacturing businesses. Because they provide medical
services, it is not expected that their operations will be unable to function
as a result of Year 2000 problems.
Autonomous has not completed a contingency plan for dealing with the most
reasonably likely worst case scenario which, in Autonomous' judgement, would
occur if one of its four key vendors is unable to deliver its parts or sub-
systems to Autonomous on a timely basis). Autonomous currently plans to
complete such analysis and contingency planning by June 30, 1999.
Years Ended December 31, 1997 and 1996
Results of Operations
Revenues from Research Grants. Autonomous had no material revenues in the three
fiscal years ended December 31, 1997. Autonomous made commercial placements of
LADARVision Systems in late 1997, one of which began to generate limited
procedure fee revenues before year-end. Previous revenues generated by
Autonomous during the period from inception to the year ended March 31, 1994
were from research work conducted for the United States Department of Defense,
NASA and under Small Business Innovation Research grants that totaled
approximately $3.5 million in the nine years ended March 31, 1994. Autonomous
concluded its research grant activity in 1994 in order to pursue
commercialization of the LADARVision System for its own account in the
ophthalmology market.
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Operating Expenses
Cost of Revenues
Cost of revenues from LADARVision Systems placed in 1997 included local country
import taxes, shipping, installation and training costs, and certain royalty
accruals. Autonomous incurred no costs of revenues from research work in the
three fiscal years ended December 31, 1997. Costs of revenues during the period
from inception to the nine years ended March 31, 1994, which offset the
revenues from research grants, totaled $3.5 million.
Clinical trials and compliance expenses
Clinical trials expenses were $2,980,317 and $1,715,412 in the years ended
December 31, 1997 and 1996, respectively. This increase of 74% was attributable
to an increase in the clinical staff and number of patient surgeries performed
in the first half of 1997 during the closing phases of Autonomous' initial
Phase III trials. Autonomous' clinical trials expenses are expected to continue
to increase as it expands its work toward other clinical indications and begins
its CustomCornea clinical trials in 1999. The compliance organization grouped
here will also increase in 1998 as the full impact of operating under FDA QSR
and ISO 9001 regulations is felt.
Unabsorbed production start-up costs
Unabsorbed production start-up costs of $758,801 for the year ended December
31, 1997 were re-classified from other expenses due to such production costs
not being fully absorbed by limited production beginning in the third quarter
of 1997. Such costs will continue into 1999 until such time as Autonomous has
reached a continuous production state.
Research and development expenses
Research and development expenses were $2,954,559 and $3,521,381 in the years
ended December 31, 1997 and 1996, respectively. This decrease of 16% was caused
primarily by the re- allocation of resources as Autonomous began limited
manufacturing commercial systems for foreign placement. Three commercial
systems were produced and placed between mid-1997 and March 1998. The
underlying cost of the research and development organization continued to
increase as Autonomous required new investment in its CustomCornea research
program. Autonomous also added to its engineering staff to handle the increased
need for product and process drawing and documentation for Autonomous' first
and second generation LADARVision Systems. Going forward, the cost of R&D will
reflect actual research and engineering costs because production expenses will
be charged to the product or to other operating expenses. Such "true" R&D costs
are expected to increase moderately.
Selling and marketing expenses
Selling and marketing expenses were $1,493,069 and $1,190,898 in the years
ended December 31, 1997 and 1996, respectively. This increase of 25% was
largely incurred in the latter months of 1997 as Autonomous began increasing
staffing and travel activities to secure contracts for the initial foreign
placements of the LADARVision System. Selling and marketing expenses are
expected to
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more than double in 1998 as Autonomous increases staff and activities to
address the U.S. market in anticipation of receiving its initial PMA from the
FDA on the LADARVision System. CIBA Vision in-kind services reached $471,000
for 1997, meaning just over $1,000,000 of such expenses were cash or accrual
outlays by Autonomous. The CIBA Vision in-kind services agreement will expire
in mid-1998 and the equivalent of those costs will be borne by Autonomous on an
expenditure basis.
General and administrative expenses
General and administrative expenses were $2,328,222 and $1,852,351 in the years
ended December 31, 1997 and 1996, respectively. This increase of 26% was due
largely to increased costs in human resources as personnel and programs were
expanded to manage the increased levels of recruiting and headcount; to the
costs of the move into a new office and plant facility in May 1997; and to
increased non-allocated operating costs of the new facility. Increases in
general and administrative costs in 1998, if any, are expected to be modest.
Other expenses
Other expenses were $1,596,671 and $1,283,874 for the years ended December 31,
1997 and 1996, respectively. This increase of 24% was due to legal expenses
increasing in 1997 as a result of its first quarter settlement of the VISX
litigation and pursuit of claims against Pillar Point Partners. In 1996, such
litigation costs were incurred primarily in the second half of the year versus
the full year for 1997. Autonomous will continue to incur litigation costs in
1998 as it pursues its position of non-infringement with regard to the
LADARVision System versus the Pillar Point Partners patent portfolio. The legal
expenses will be unpredictable as to their timing due to various phases through
which the trials may proceed. Additionally, should new litigation arise from
Autonomous' entry into the U.S. market, such additional costs could be
significant and will be charged here.
Interest Income (Expense), Net. Interest income (expense), net was $541,111 and
$555,872 for the years ended December 31, 1997 and 1996, respectively. This
decrease of 3%, or nearly level with the prior year, was due to the fact that
available interest rates declined on the short-term investments that Autonomous
utilizes for interest income. Average earning balances in cash and investments,
as computed on monthly ending amounts, were approximately equal in 1997
($10,400,000) and 1996 ($10,300,000). Additionally, Autonomous' interest
expense, netted into these amounts, increased by approximately $15,000 for the
year as Autonomous financed its cubicle furniture for its new facility with
capital leases. 1998 interest income will be almost solely a function of the
timing and size of Autonomous' equity and debt financings during the year.
Net Loss. The net effect of the foregoing revenue and expense items was
Autonomous' net loss of $11,639,355 and $9,008,044 in the years ended December
31, 1997 and 1996, respectively. Autonomous' procedure fee pricing plan will
lengthen the time for Autonomous to earn a return on its investment in
LADARVision Systems thereby potentially delaying profitability.
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MARKET PRICE FOR AUTONOMOUS COMMON STOCK
Autonomous common stock is traded on Nasdaq under the symbol "ATCI."
As of the record date, there were 13,391,817 shares of Autonomous common stock
outstanding and approximately 170 stockholders of record. This does not reflect
the number of persons or entities who hold Autonomous common stock in nominee
or street name through various brokerage firms.
The information regarding Autonomous common stock in the following table is
based upon the high and low closing prices reported on the Nasdaq National
Market. Autonomous common stock began trading on the Nasdaq National Market on
May 1, 1996 and previously was not traded on any exchange or market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1996
Second Quarter (May 1 to June 30).............................. $8.875 $5.750
Third Quarter.................................................. $6.125 $3.500
Fourth Quarter................................................. $4.750 $3.375
1997
First Quarter.................................................. $6.500 $4.000
Second Quarter................................................. $5.375 $3.375
Third Quarter.................................................. $5.500 $3.250
Fourth Quarter................................................. $7.125 $5.000
1998
First Quarter.................................................. $7.875 $4.875
Second Quarter................................................. $7.375 $3.688
Third Quarter.................................................. $5.875 $3.125
Fourth Quarter................................................. $6.125 $3.625
1999
First Quarter (January 1 to March 23).......................... $7.000 $5.250
</TABLE>
No dividends have been declared or paid in respect of the common stock.
Autonomous intends to retain current cash and future earnings to fund the
development and growth of its business and, therefore, does not anticipate
paying cash dividends within the foreseeable future. Any payment of dividends
will be determined by the Autonomous board of directors and will depend on
Autonomous' financial condition, results of operations and other factors deemed
relevant by the board of directors.
On October 1, 1998, the last trading day before the public announcement of the
merger, the closing price of Autonomous common stock was $4.125. On March 23,
1999, the last trading day before the printing of this joint proxy
statement/prospectus, the closing price was $6.625.
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AUTONOMOUS SECURITY OWNERSHIP INFORMATION
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as best known to Autonomous
regarding the beneficial ownership of Autonomous's common stock as of March 19,
1999, unless otherwise indicated, by (1) each person known to Autonomous to own
more than 5% of the issued and outstanding common stock, (2) each of
Autonomous' directors, (3) each of the Named Executive Officers for the fiscal
year ended December 31, 1998, and (4) all directors and executive officers as
a group.
<TABLE>
<CAPTION>
Shares of Approximate
Common Stock Percent
Beneficially Beneficially
Beneficial Owner Owned(1) Owned
- - - ---------------- ------------ ------------
<S> <C> <C>
CIBA Vision Corporation (2)
11460 Johns Creek Parkway
Duluth, GA 30136................................. 1,867,084 13.58%
Timothy Barabe (2).................................. 1,867,084 13.58%
OZ Management, Inc. (3)
153 East 53rd Street, 43rd Floor
New York, New York 10022.......................... 1,129,472 8.21%
DSAM, LLC (4)
18 W. Haviland Lane, 3rd Floor
Stamford, CT 06903................................ 708,455 5.15%
Randy W. Frey (5)................................... 677,250 4.93%
G. Arthur Herbert (6)............................... 72,150 *
Monty K. Allen (7).................................. 48,566 *
George H. Pettit (8)................................ 45,000 *
Stanley Ruffett (9)................................. 38,850 *
Richard H. Keates, MD (10).......................... 28,950 *
Charline Gauthier (11).............................. 26,349 *
Bruce A. Hays (12).................................. 9,000 *
Whitney A. McFarlin (13)............................ 7,000 *
All Directors and Executive Officers as a Group (14
persons) (14)...................................... 2,884,699 20.98%
</TABLE>
- - - --------
* Represents beneficial ownership of less than one percent of the outstanding
Autonomous common stock.
(1) The persons and entities in the table above have sole voting and investment
power with respect to all shares shown as beneficially owned by them,
except as noted in the footnotes below.
(2) The 1,867,084 shares are owned by CIBA Vision Corporation, a wholly owned
subsidiary of Novartis, A.G. of Basel Switzerland engaged in the business
of vision care products and services. The number of shares beneficially
owned includes 171,713 shares that will be issued immediately prior to the
merger in satisfaction of an obligation that would be due on May 15, 1999,
to CIBA Vision under the terms of the 1995 Strategic Alliance Agreement.
Mr. Barabe is an officer of CIBA Vision and serves on Autonomous's board of
directors as the designee of CIBA Vision. Mr. Barabe disclaims beneficial
ownership of the Autonomous securities owned by CIBA Vision. Mr. Barabe has
been granted non-qualified stock options for 7,000 shares which are
exercisable within 60 days, but which are not shown in the table due to
their transfer to his children. Mr. Barabe disclaims beneficial ownership
of these transferred options.
(3) As reported by OZ Management, LLC, on a Schedule 13-G dated February 12,
1999. Includes common shares that may be issuable at the date of filing of
the 13-G by converting shares of Autonomous' Series I Convertible Preferred
Stock into Autonomous' common stock in accordance with the schedule of
conversions under the terms of the Convertible Preferred Stock Purchase
Agreement and all related documents. Includes 300,000 shares that are
issuable upon the exercise of a stock purchase warrant, which will be
exchanged at the merger closing for 100,000 shares of common stock.
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(4) As reported by DiSilvestri Asset Management, LLC, on Schedule 13-G dated
February 19, 1999.
(5) Includes incentive options to acquire 12,000 shares which are exercisable
within 60 days. Excludes options to acquire 48,000 shares which are not
exercisable within 60 days. Excludes 975 shares of common stock held by Mr.
Frey's mother, for which he disclaims any beneficial ownership.
(6) Includes non-qualified options to acquire 9,000 shares which are
exercisable within 60 days.
(7) Includes incentive and non-qualified options to acquire 17,000 shares which
are exercisable within 60 days. Excludes incentive and non-qualified
options to acquire 85,000 shares which are not exercisable within 60 days.
(8) Includes incentive and non-qualified options to acquire 45,000 shares which
are exercisable within 60 days. Excludes incentive and non-qualified
options to acquire 76,000 shares which are not exercisable within 60 days.
(9) Includes non-qualified options to acquire 9,000 shares which are
exercisable within 60 days.
(10) Dr. Keates has been granted non-qualified stock options for 9,000 shares
which are exercisable within 60 days, but which are not shown in the table
due to their transfer to his children. Dr. Keates disclaims beneficial
ownership of these transferred options.
(11) Includes incentive options to acquire 15,000 shares which are exercisable
within 60 days. Excludes incentive options to acquire 94,000 shares which
are not exercisable within 60 days.
(12) Includes incentive options to acquire 9,000 shares which are exercisable
within 60 days. Excludes incentive stock options to acquire 57,000 shares
which are not exercisable within 60 days.
(13) Includes non-qualified options to acquire 7,000 shares which are
exercisable within 60 days.
(14) Includes options to acquire 186,000 shares which are exercisable within 60
days. Excludes options to acquire 581,000 shares which are not exercisable
within 60 days.
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DESCRIPTION OF SUMMIT CAPITAL STOCK
Summit's current authorized capital stock consists of 65,000,000 shares, of
which 60,000,000 are designated common stock, with a par value of $0.01 per
share, and 5,000,000 shares are designated preferred stock, with a par value of
$0.01 per share. This section summarizes the terms of Summit's capital stock.
Because this summary does not address all of the details a stockholder may be
interested in knowing, all stockholders are encouraged to read Summit's
articles of organization and bylaws in their entirety. See "Where You Can Find
More Information."
Common Stock
As of the record date, there were 31,153,765 shares of Summit common stock
outstanding, held of record by approximately 2,599 stockholders. Summit's
common stockholders are entitled to one vote per share, and to a proportionate
vote for each fractional share, on all matters submitted to a vote of
stockholders. Summit's common stockholders are entitled to receive dividends in
cash, stock or otherwise as the board of directors may declare out of funds
legally available for that purpose. In the event of a liquidation, dissolution
or winding up of Summit, Summit's common stockholders are entitled to share
proportionately in all assets remaining after Summit pays its liabilities and a
liquidation preference to any outstanding shares of preferred stock. Summit's
common stockholders have no preemptive, subscription, redemption or conversion
rights. All of the outstanding shares of Summit are, and the shares that Summit
will issue in connection with the merger will be, fully paid and nonassessable.
Summit's board of directors may establish and designate one or more series of
common stock, in addition to the common stock currently outstanding. The board
may fix the relative rights and preferences among different series including,
without limitation, the voting rights of each series. The issuance of a new
series of common stock or, as described below, preferred stock may adversely
affect the rights of Summit's existing common stockholders.
Preferred Stock
Summit's board of directors has the authority to issue 5,000,000 shares of
preferred stock in one or more series. Summit has no shares of preferred stock
outstanding and has no plans to issue any shares of preferred stock. Within
limitations established by law, the board of directors has the authority to fix
or alter the following aspects of any series of preferred stock prior to its
issuance:
. the dividend rights and dividend rates;
. the rights and terms of redemption, including the redemption price or
prices; and
. the preferences, qualifications, participation rights, conversion
rights, voting rights or other rights of the shares.
The voting rights, however, of preferred stock of any series can never exceed
either of the following:
. one vote per share of such series; or
. for preferred stock that is convertible into common stock, the number of
votes per share as equals the number of shares of common stock, at the
time the vote is taken, into which one share of that series of preferred
stock may be converted.
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In other words, if one share of preferred stock can be converted to four shares
of common stock, the holder of this preferred stock would not be entitled to
more than four votes--that is, the number of votes corresponding to four shares
of common stock. An issuance of preferred stock may have the effect of
delaying, deterring or preventing a change in control of Summit or of
discouraging bids for Summit's common stock at a premium over the market price.
It may also adversely affect the market price of, and the voting or other
rights of, Summit's common stockholders.
Stockholder Rights Plan
Summit's board of directors adopted a stockholder rights plan on March 29, 1990
and declared a dividend distribution of one right for each share of common
stock outstanding on April 10, 1990. This section summarizes the terms of the
rights plan. Because this summary does not address all of the details a
stockholder may be interested in knowing, all stockholders are encouraged to
consult the plan in its entirety. A copy of the plan may be obtained from
Summit. See "Where You Can Find More Information."
Distribution and Exercise of Rights
Under the plan, each share of Summit common stock, whether issued before or
after adoption of the plan, carries with it a right which permits its holder to
purchase one-quarter of a share of Summit common stock at price of $12.50,
subject to adjustment as described below. These rights will separate from the
underlying common stock and be distributed and holders of Summit common stock
can exercise the rights to purchase shares of Summit common stock only if one
of the following events occurs:
. a person or group of persons acquires beneficial ownership of 15% or
more of Summit's outstanding common stock; or
. ten days elapse after the announcement or commencement of a tender or
exchange offer by a person or group of persons who have beneficial
ownership of 15% or more of Summit's outstanding common stock (other
than a tender offer for all of the outstanding common stock which is
approved by a majority of the board of directors who are not
"interested" in the transaction).
If one of these events occurs, Summit will mail certificates representing the
rights to the record holders of its common stock. Notwithstanding, all of the
rights beneficially owned by a person or group, or any of their affiliates or
associates, that acquires beneficial ownership of 15% or more of Summit's
outstanding common stock, will be null and void--that is, they will not be
exercisable.
Until one of these events occurs, the rights will transfer with the underlying
shares of Summit common stock whenever shares are sold or otherwise
transferred. Any shares of Summit common stock issued after the adoption of the
plan will contain a notation that the shares incorporate and are subject to the
terms of the rights plan.
How to Exercise the Rights
If the rights are distributed, each holder of a right will have 60 days to
purchase an amount of Summit common stock having a value of eight times the
exercise price of the right for a purchase
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price equal to four times the exercise price of the right. In other words, if
the exercise price of a right was $12.50, and Summit's common stock had a value
of $5.00 per share, each right would allow its holder to purchase 20 shares of
Summit common stock (which is $12.50 multiplied by eight and divided by $5.00)
for a total price of $50.00 (or $2.50 per share).
In addition, holders of rights may purchase common stock of an acquiring
company having a value of eight times the exercise price of the right for a
purchase price equal to four times the exercise price of the right if all
Summit stockholders are not treated alike in one of the following types of
transactions:
. a merger or other business combination in which stockholders immediately
before the transaction do not have all of the voting power of the entity
that survives the transaction; or
. a person or group, or their affiliates or associates, whose activities
would cause the distribution of the rights, purchase more than 50% of
Summit's assets or earning capacity.
Adjustments to Rights--Purchase Price
The Summit board of directors may adjust the purchase price of each right and
the number of shares of Summit common stock that will be issued for each right
in order offset the impact of any of the following events:
. a stock split, a dividend paid in stock, a consolidation, combination or
reclassification of Summit's common stock or other similar event;
. a grant to Summit's common stockholders of rights or warrants to
purchase common stock at a price that is less than the current market
value of the common stock;
. a grant to Summit's common stockholders of securities that can be
converted into common stock at a price that is less than the current
market value of the common stock; or
. a distribution to Summit's common stockholders of evidences of
indebtedness, assets, or subscription rights or warrants.
The purpose of any such adjustment is to prevent dilution of the rights and to
ensure that the number of shares that may be issued for each right remains
relatively the same in relation to the total outstanding common stock of Summit
both before and after one of the above events.
Adjustments to Rights--Number
Before the rights are distributed, the Summit board of directors may adjust the
number of rights attached to each share as well as the number of shares of
Summit common stock issuable in exchange for each right. The board of directors
may make such adjustments to prevent the dilution created by an increase or
decrease in the number of shares of common stock outstanding as a result of a
stock split, a dividend paid in stock or a consolidation or combination of the
stock or other similar event.
Expiration of the Rights
The rights will expire at the close of business on March 29, 2000, unless the
Summit board of directors redeems them before that time.
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Redemption of the Rights
The Summit board of directors may redeem all of the outstanding rights at a
price of $0.001 per right at any time before expiration or distribution of the
rights. In addition, after a distribution event, the Summit board of directors
may redeem all of the rights at a price of $0.001 per right if all of the
following circumstances exist:
. there is a merger or other business transaction involving Summit;
. all holders of Summit common stock are treated the same in the
transaction; and
. the transaction does not involve a person or group of persons, or their
affiliates or associates, whose activities cause an event that would
trigger the distribution of the rights.
Amendment of Rights Plan
Before distribution of the rights, the Summit board of directors may change any
of the terms or provisions of the rights plan. After distribution of the
rights, the board may change the terms or provisions of the plan to clarify the
plan, to remove an inconsistency or inaccuracy or to shorten or lengthen any
period of time in the plan (such as a waiting period or notice period). After a
distribution event, the board may not make any changes which impair the
interests of holders of the rights.
Effect of the Rights Plan on Takeover Attempts
The rights plan may discourage individuals or entities from attempting a
takeover of Summit. The plan permits Summit stockholders to acquire a
potentially large number of shares of common stock for a fraction of their
market value. If a significant number of stockholders were to do so, it would
dilute the percentage of shares of Summit common stock owned by a person or
groups of persons attempting a takeover of Summit. For a takeover attempt to be
successful, it would likely have to be conditioned on the redemption of the
rights or the acquisition of a large number of the rights, which a potential
purchaser may be unwilling to do.
The rights should not, however, discourage a tender or exchange offer or
interfere with a merger which has the approval of Summit's board of directors.
They have no effect on a transaction which has the approval of a majority of
the members of the board of directors who are not officers of Summit and who
are not part of a group of persons, or associates or affiliates of these
persons, whose activities would cause an event that would trigger the
distribution of the rights. This is true for several reasons. First,
stockholders cannot exercise the rights in a tender or exchange offer which has
this approval of the board of directors. Second, the rights will expire
automatically if a merger is consummated where stockholders will receive the
same type, and at least the same amount, of consideration as they would in
transaction that would receive the approval of the board of directors. Third,
the board of directors may redeem the rights in a merger where all holders of
Summit common stock are treated the same.
Massachusetts Law and Certain Provisions of Summit's Articles of Organization
and Bylaws
Anti-Takeover Statute
Summit is governed by Chapter 110F of the Massachusetts General Laws. Chapter
110F restricts a publicly-held Massachusetts corporation from entering into a
business combination with an interested
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stockholder for a period of three years after the date of the transaction in
which the person became an interested stockholder. An interested stockholder
includes any person who, together with his or her affiliates or associates,
collectively acquires 5% of more of a corporation's outstanding voting stock. A
business combination includes a merger, a sale of stock or assets, and certain
other transactions in which an interested stockholder receives a financial
benefit. Chapter 110F does not apply where:
. the interested stockholder obtains the approval of the corporation's
board of directors before acquiring 5% of more of the corporation's
outstanding voting stock; or
. the interested stockholder acquires 90% of the corporation's outstanding
voting stock (excluding shares held by certain of the corporation's
affiliates) at the time he or she first acquires more than 5% of the
corporation's outstanding voting stock; or
. both the corporation's board of directors and its stockholders (other
than the interested stockholder) who hold two-thirds of the
corporation's voting stock approve the transaction.
Chapter 110F allows Massachusetts corporations to elect not to be governed by
its provisions. This election, however, would not be effective for 12 months
and would not apply to transactions with any person who became an interested
stockholder before the election. Summit has not made this election and,
therefore, is subject to the provisions of Chapter 110F.
Control Share Acquisition Statute
Summit is governed by Chapter 110D of the Massachusetts General Laws. Chapter
110D prevents a stockholder who acquires beneficial ownership of an amount of
voting stock equal to or greater than one fifth, one third or a majority of a
corporation's voting stock from voting his shares without obtaining the
approval of a majority of the shares empowered to elect directors. In
determining whether such approval has been received, the following shares are
excluded:
. shares owned by the person who is acquiring or proposing to acquire a
control share;
. shares owned by any officer of Summit; and
. shares owned by any employee of Summit who is also a director of Summit.
The statute does not require that the acquiring person complete the purchase
before the vote is taken. In addition, Chapter 110D permits a corporation to
redeem the control share for its fair value if:
. the acquiring person does not deliver a control acquisition statement to
the corporation; or
. even if a control share acquisition statement has been delivered to the
corporation, the acquiring person fails to obtain approval to vote the
control share.
Chapter 110D requires that a corporation authorize such a redemption it in its
articles of organization or bylaws. Summit has not done so. Chapter 110D also
allows a corporation to elect not to be governed by its provisions by including
a term in its articles of organization or bylaws. Summit has not made this
election and, therefore, is subject to the provisions of Chapter 110D.
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Classification of the Board of Directors
Chapter 156B, Section 50A, of the Massachusetts General Laws generally requires
that publicly-held Massachusetts corporations have a classified board of
directors. Section 50A further provides that the board of directors should
consist of three classes of directors, of equal size if feasible, and that one
class of directors should be elected each year for a term of three years. The
statute also requires that publicly-held Massachusetts corporations may only
remove a director from office for "cause," which includes any of the following:
. a felony conviction;
. a declaration of unsound mind; or
. intentional misconduct or a knowing violation of law that injures Summit
in a significant manner, if the director receives an improper and
substantial benefit from his or her actions.
The statute also contains the following requirements concerning the election
and tenure of directors:
. vacancies and newly-created directorships may be filled only by a vote
of a majority of directors then in office;
. directors elected to fill a vacancy serve for the remainder of the term
of their class;
. any decrease in the number of directors should not shorten the term of
any incumbent director; and
. only a vote of the board of directors can determine the number of
directors.
Summit is subject to Section 50A and has included terms in its articles of
organization and bylaws that comply with the statute's requirements. The
classification provision in Summit's articles of organization may only be
amended, changed or repealed by a vote of 66 2/3% of the shares having the
power to elect directors. Similarly, the provisions in Summit's articles and
bylaws concerning the number, election or term of directors, the filling of
vacancies on the board of directors and the removal of directors may only be
amended, changed or repealed by a vote of 66 2/3% of the shares having the
power to vote.
Effect of Classification
The classification of directors may have the effect of making it more difficult
for stockholders to change the composition of the board of directors in a
relatively short period of time. At least two annual meetings of stockholder,
instead of one, will generally be necessary to change a majority of the board
of directors. This delay will give the board of directors additional time to
evaluate proposed takeover attempts and other extraordinary corporate
transactions, to consider alternative courses of action and to act in the best
interests of stockholders.
Special Meetings of Stockholders
Summit's bylaws require it to call a special meeting of stockholders at the
request of stockholders who own at least 40% of Summit's voting power. This
percentage is the minimum threshold required by Chapter 156B of the
Massachusetts General Laws for publicly-held corporations.
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Exculpation and Indemnification of Certain Persons
Summit's articles of organization eliminate the personal liability of Summit's
directors for monetary damages from breaches of their fiduciary duties to the
extent permitted by the Massachusetts Business Corporation Law. In addition,
Summit's bylaws allow Summit to indemnify the following persons against all
liabilities and expenses, including reasonable fees of counsel, they may incur
because of any suit or other proceeding threatened or resulting from their
service to Summit:
. directors, officers, employees or other agents of Summit; and
. persons serving at Summit's request as directors, officers, employees or
other agents of another organization concerning Summit's employee
benefit plans.
Summit cannot indemnify the above persons if there has been an adjudication in
a final proceeding that they did not act in good faith and in the reasonable
belief that their actions were in Summit's best interests or in the bests
interests of the beneficiaries of its employee benefit plans. Summit also
cannot indemnify persons for matters that reach a settlement unless one of the
following groups approves the settlement:
. a majority of directors who are not involved, or are disinterested, in
the matter; or
. if a majority of directors are interested, a majority of the
disinterested directors then in office, as long as Summit's independent
legal counsel issues an opinion that the person does not appear to have
violated the applicable statutory standard; or
. holders of a majority of the shares of stock entitled to vote for
election of directors of Summit, excluding any shares held by interested
persons.
Effect on Proxy Contests, Takeover Attempts and Other Matters
Some of the provisions of Summit's articles of organization and bylaws
described above would discourage a proxy contest or an attempt to gain control
of Summit by a holder of a large amount of its stock. These provisions may also
discourage a tender offer or other attempt to gain control of Summit, even
though such an attempt might benefit Summit or its stockholders. In addition,
because the Summit articles and bylaws are designed to discourage accumulations
of large amounts of its stock by purchasers seeking to have Summit repurchase
the stock at a premium price, such provisions could tend to reduce the
temporary fluctuations typically caused by such accumulations. As a result,
Summit's stockholders could lose the opportunity to sell their stock at
potentially higher market price.
Transfer Agent and Registrar
BankBoston, N.A. is the transfer agent and registrar for Summit common stock.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
OF SUMMIT AND AUTONOMOUS
The rights of Autonomous' stockholders are currently governed by the Third
Amended and Restated articles of incorporation of Autonomous, the bylaws of
Autonomous and the laws of the State of Florida, including the Florida Business
Corporation Act (the "FBCA"). If the merger occurs, Autonomous' common
stockholders will become holders of Summit common stock. Their rights will then
be governed by the laws of The Commonwealth of Massachusetts, including the
Massachusetts Business Corporation Law (the "MBCL"), and Summit's articles of
organization and bylaws. This section summarizes the material differences
between the rights of Summit's common stockholders and the rights of
Autonomous' common stockholders. Because this summary does not describe all of
the details a stockholder may be interested in knowing, all stockholders are
encouraged to refer to the corporate statutes of Massachusetts and Florida and
the articles and bylaws of Summit and Autonomous.
Special Meetings of Stockholders
Under the FBCA, special meetings of stockholders may be called by the board of
directors and by other persons authorized to do so by the corporation's
articles of incorporation or bylaws. Holders of at least 10% of all the votes
entitled to be cast on any issue proposed for consideration at the meeting may
call a special meeting, unless the articles of incorporation specify a greater
percentage, which cannot exceed 50%.
Autonomous' bylaws provide that special meetings may be called by the president
or the board of directors, or by stockholders who hold a majority of the stock
having the right to vote at the meeting. Because Autonomous' bylaws do not
require a greater percentage, holders of at least 10% of all the votes entitled
to be cast on any issue proposed for consideration at a special meeting may
call a special meeting.
Under the MBCL, special meetings of stockholders of a corporation which has a
class of voting stock registered under the Securities Exchange Act of 1934 must
be called by the clerk (or in certain circumstances, any other officer) upon
written request by stockholders holding at least 40% of the capital stock
entitled to vote, unless otherwise provided in the articles of organizations or
bylaws.
Summit's bylaws provide that special meetings of stockholders may be called by
the president or the board of directors. In addition, the clerk (or, in certain
circumstance, any other officer) must call a special meeting upon written
request of stockholders who hold at least 40% of Summit's capital stock
entitled to vote at the proposed meeting. Thus, Summit's bylaws make it more
difficult for stockholders to call a special meeting.
Voting Requirements and Quorums for Stockholder Meetings
The FBCA provides generally that a majority of the votes entitled to be cast on
a particular matter constitutes a quorum for that matter. A corporation can
specify a lower quorum threshold, however, if it is not less than one third of
the shares entitled to vote. Except for the election of directors, stockholders
may take action on a matter by the affirmative vote of a majority of a quorum,
unless the articles of incorporation or FBCA requires a greater percentage.
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Autonomous' bylaws provide that the holders of a majority of Autonomous' stock
entitled to vote constitutes a quorum. Autonomous' bylaws further provide that
when a quorum is present, stockholders may take action on a matter by the
affirmative vote of a majority of the total vote cast. A majority of shares
present at the meeting, even if less than a quorum, may adjourn a meeting.
Under the MBCL, a majority of the issued and outstanding stock entitled to vote
at any meeting constitutes a quorum, unless the articles of organization or
bylaws provide otherwise. Except for the election of directors and other
fundamental matters, the MBCL does not prescribe the percentage vote required
for action by stockholders.
Summit's bylaws provide that a quorum consists of a majority of the
corporation's shares then issued, outstanding, and entitled to vote. Summit's
bylaws provide that, when a quorum is present at any meeting, a majority of all
stock issued, outstanding and entitled to vote thereon may decide any matter or
take any action, except when Summit's articles or bylaws, or law, require a
greater proportion. Summit's bylaws further provide that any action that may be
taken at any meeting of stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing.
The provisions of Summit's articles and bylaws governing the number, election,
classification, removal of directors and the filling of vacancies may not be
amended without the approval of at least 66 2/3% of the shares entitled to
vote.
Because the vote required under Summit's bylaws is a majority of the
outstanding stock entitled to vote (other than on matters where law, Summit's
articles or bylaws require a greater vote) and the Autonomous requirement is
only a majority of the votes cast, it may be more difficult for Summit to
obtain stockholder approval on a matter than it was for Autonomous.
Business Conducted at Stockholder Meetings
The FBCA provides that any proper business may be transacted at an annual
meeting of stockholders. The FBCA further provides that only business within
the purposes described in the notice of a special meeting may be conducted at a
special meeting of stockholders. Autonomous' articles and bylaws are silent
concerning business that may be conducted at stockholder meetings.
Under the MBCL, any proper business may be transacted at an annual or special
meeting of stockholders. The MBCL requires that stockholders receive written
notice of the place, date and hour of all meetings of stockholders stating the
purposes of the meeting. Summit's bylaws provide that the directors or the
president may specify the purposes for which any annual meeting of stockholders
are to be held, in addition to those prescribed by law or Summit's articles or
bylaws. In addition, Summit's bylaws provide that any request for a special
meeting of the stockholders shall state the place, date, hour and purposes of
the meeting.
Inspection Rights
The FBCA requires a corporation to make available for inspection by any
stockholder for a period of ten days prior to, and continuing through, the
stockholders meeting, a list of all its stockholders at a place identified in
the meeting notice or at the office of the corporation's transfer agent or
registrar. This list must include the names, addresses and number of, and the
class and series of shares held by, each stockholder entitled to notice of a
stockholders' meeting. The FBCA provides that a stockholder
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may inspect and copy the following if the stockholder gives the corporation
written notice five business days prior to the date of inspection:
. articles of incorporation and bylaws;
. board resolutions creating classes or series of shares and fixing their
relative rights, preferences and limitations, if such shares are issued
and outstanding;
. minutes of stockholder meetings and records of all actions taken for the
past three years; and
. written communications to all stockholders within the past three years,
including any financial statements furnished.
The FBCA further provides that a stockholder may also inspect and copy the
following documents upon five days written request to the corporation:
. excerpts from board or committee (when acting, in place of the board)
minutes, stockholder meeting minutes, and records of stockholder or
board actions taken without a meeting;
. accounting records of the corporation;
. the record of stockholders; and
. any other books or record.
A request to inspect these documents must be made in good faith and for a
proper purpose (described with reasonable particularity) that is directly
connected with the requested document. The corporation may deny any demand for
inspection, however, if the demand was made for an improper purpose. The
corporation may also deny any demand if the stockholder has sold or, if within
two years preceding his or her demand, offered for sale any list of the
corporation's stockholders or improperly used information obtained from a prior
examination.
Autonomous' bylaws further provide that the stock book or stock lists shall be
open for at least three business hours each business day for inspection by any
of the following persons:
. a record holder of the corporation's outstanding shares who has been so
for at least six months immediately preceding his or her demand; or
. an officer, a director or a committee or person holding or authorized in
writing by the holders of at least five (5%) percent of all the
outstanding shares of any class or series of stock.
Persons so entitled to inspect stock books or stock lists may make extracts
from them. Autonomous' bylaws also provide that inspection rights do not extend
to any person who has done any of the following:
. used, or proposed to use, the information obtained for reasons other
than the protection of his or her interest in the corporation; or
. has sold or offered for sale any list of the corporation's stockholders
or of any other corporation within two years; or
. has aided or abetted any person in procuring any stock list for any such
purposes.
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The MBCL requires every domestic corporation to maintain in Massachusetts and
make available for inspection by its stockholders the following:
. the original, or attested copies of, its articles of organization and
bylaws;
. records of all meetings of its incorporators and stockholders; and
. its stock and transfer records, listing the names and record addresses of
all stockholders and the amount of stock each holds.
In an action for damages or a proceeding in equity arising under the foregoing
provision, however, it is a defense to such action that the actual purpose and
reason for the inspection being sought is to sell the list or other information
or use it for purposes other than as a stockholder. The above inspection rights
include the right to copy materials and to be represented by agent or counsel
in exercising these rights. In addition to the inspection rights provided by
the MBCL, a stockholder of a Massachusetts corporation has a common law right
to inspect additional documents which may be obtained from the corporation or
by petitioning a court for an appropriate order should the corporation refuse a
request. In petitioning a court for such an order, the granting of which is
discretionary, the stockholder has the burden of demonstrating the following:
. the holder is acting in good faith and for the purpose of advancing his
or her own interest as a stockholder or the corporation's interests; and
. the documents requested are relevant to these purposes.
Summit's articles and bylaws do not contain provisions pertaining to inspection
rights.
Action by Written Consent of Stockholders
Under the FBCA, unless otherwise provided in the articles of incorporation,
actions otherwise required or permitted to be taken at an annual or special
meeting of shareholders may be taken by the written consent of the
stockholders. Prior notice is not required for such action. Autonomous'
articles provide that action to be taken by written consent in lieu of an
annual or special meeting of the stockholders is prohibited unless the use of
written consents is approved in advance by the board.
Under the MBCL, any action required or permitted to be taken by stockholders at
a meeting may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing, and the written consents are
filed with the records of stockholders' meetings. Summit's bylaws contain a
provision that conforms with the substance of the MBCL. Although Summit's
bylaws permit action by written consent, because the MBCL requires any such
consent to be unanimous, the existence of the right means nothing for a public
company.
Cumulative Voting
Under the FBCA, a corporation may provide for cumulative voting by stockholders
in the election of directors in its articles of incorporation. Autonomous'
articles do not provide for cumulative voting. The MBCL has no cumulative
voting provisions, and neither Summit's articles nor bylaws provide for it.
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Dividends and Share Repurchases
The FBCA provides that a corporation may authorize distributions unless
restricted by its articles of incorporation or unless any of the following
would be true after giving effect to the distribution:
. the corporation would be unable to pay its debts as they become due in
the usual course of its business; or
. the corporation's total assets would be less than the sum of its total
liabilities plus the amount necessary to satisfy any preferential rights
of shareholders senior to those receiving the distribution.
Autonomous' articles restrict its ability to pay dividends and repurchase
stock. The provisions that created the Autonomous Series I Convertible
Preferred Stock state that Autonomous shall not redeem, purchase or otherwise
acquire, or make any dividend or distribution on, any common stock or other
equity securities junior in rights and liquidation preferences to the Series I
Convertible Preferred Stock, provided that Autonomous may repurchase stock on
the open market pursuant to a direct stock purchase plan.
Under the MBCL, the directors of a corporation will be jointly and severally
liable if a payment of dividends or a repurchase of a corporation's stock
occurs when any of the following are true:
. the corporation is insolvent; or
.the distribution would render the corporation insolvent; or
. the distribution would violate the corporation's articles of
organization.
Stockholders who receive a distribution (except a distribution of stock of the
corporation) from a corporation that is, or is rendered by it, insolvent, are
liable to the corporation for the amount of the distribution paid to them which
exceeds the allowable amount, as described above. Any stockholder, however, who
pays more than his or her proportionate share of such distribution or excess
shall have a claim for contribution against the other stockholders.
Summit's articles provide that the board of directors may declare, from time to
time, dividends in cash, stock, or otherwise, on the outstanding shares of
common stock out of funds legally available for that purpose. Dividends on
common stock are subject to the relative rights and preferences of any
preferred stock. There are no shares of preferred stock currently outstanding.
Qualification, Nomination and Election of Directors
The FBCA provides that directors need not be residents of the state or
shareholders of the corporation, unless the articles of incorporation or bylaws
so require. Autonomous' bylaws provide that directors shall be elected at the
annual meeting of stockholders by a plurality of the votes cast at such
election. Autonomous' bylaws are silent concerning whether, and by what means,
stockholders may nominate persons to serve as directors. Neither Autonomous'
articles nor bylaws set forth specific qualification requirements for
directors.
The MBCL provides that a director need not be a stockholder unless required by
the corporation's bylaws. The MBCL further provides that, except as provided in
the corporation's articles of
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organization or certain sections of the MBCL pertaining to the filling of
vacancies, directors shall be elected at the annual meeting of the stockholders
by the stockholders entitled to vote. Summit's
bylaws provide that directors shall be elected at the annual meeting of the
stockholders or a special meeting in lieu of said annual meeting by the
stockholders who have the right to elect directors. Directors are elected by a
majority of the shares entitled to vote. If a nominee fails to get the
requisite majority, the incumbent director will remain in office. Elections of
directors shall be by ballot if so requested by any stockholder entitled to
vote. Summit's bylaws are silent concerning whether, and by what means,
stockholders may nominate persons to serve as directors. Summit's bylaws
provide that a director may, but need not, be a stockholder, officer or
employee of Summit.
Classification, Number and Removal of Directors
Under the FBCA, classification of a corporation's board of directors into one
or more classes is permitted but not required. A corporation's board of
directors must consist of one or more individuals, with the number determined
by the corporation's bylaws or articles of incorporation. In addition, under
the FBCA, shareholders may remove one or more directors with or without cause,
unless the articles of incorporation provide otherwise. However, if a director
is elected by a voting group of shareholders, only the shareholders of that
voting group may participate in the vote to remove him.
Autonomous' bylaws provide for a board of directors consisting of six members
which number may be changed from time to time by the board of directors, but do
not provide for a classified board. Autonomous' articles and bylaws provide
that any director may be removed either with or without cause at any time by a
vote of the stockholders holding a majority of the shares of the corporation
outstanding and entitled to vote at any special meeting called for that
purpose.
Unlike the FBCA, the MBCL requires classification of a public corporation's
board of directors into three classes (each having a three-year term), unless
the directors vote to be exempt from such requirement or the stockholders elect
to be exempt from such requirement by a vote of two-thirds of each class of
stock outstanding. See "Description of Summit Capital Stock,Massachusetts Law
and Certain Provisions of Summit's Articles of Organization and Bylaws." The
MBCL further requires that the number of directors be determined in the
corporation's bylaws. In addition, whenever there are more than two
stockholders of record, there must be at least three directors. Under the MBCL,
unless the articles of organization or bylaws provide otherwise, stockholders
may remove directors elected by stockholders, or elected by directors to fill
vacancies in the board, only for cause by the vote of the holders of a majority
of the shares entitled to vote. The directors may remove any director from
office for cause by vote of a majority of the directors then in office. A
director or officer may be removed for cause only after a reasonable notice and
opportunity to be heard before the body proposing to remove him.
Summit's articles provide that the board of directors shall consist of seven
directors classified into three classes. They further provide that the first
class shall consist of two directors; the second class shall consist of three
directors; and the third class shall consist of two directors. In addition,
Summit's articles provide that all directors shall hold office until their
successors shall have been duly elected and qualified. The term of any director
elected to fill a vacancy in any class of directors shall be the unexpired
balance of the term applicable to that class. The present term of the first
class of directors will expire as of the 1999 annual meeting of shareholders
(or special meeting in lieu
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thereof). The present term of the second class of directors will expire as of
the 2000 annual meeting
of shareholders (or special meeting in lieu thereof). The present term of the
third class of directors will expire as of the 2001 annual meeting of
shareholders (or special meeting in lieu thereof). Summit's articles provide
that the directors may not make, amend, or repeal Summit's bylaws in whole or
in part with respect to any provision relating to the number, election or term
of directors, the filling of vacancies on the board of directors, or the
removal of directors. In addition, Summit's articles provide that the
stockholders may remove any director only for cause and, in deviation from the
default provision of the MBCL, that the board of directors may remove any
director from office with or without cause. In addition, a director may be
removed for cause only after a reasonable notice and opportunity to be heard
before the body proposing to remove him or her.
Summit's classified board makes it more difficult for stockholders to replace
the directors than is the case currently for Autonomous stockholders and the
Autonomous board.
Vacancies on the Board of Directors
The FBCA provides that a vacancy on the board of directors and newly created
directorships shall be filled by the affirmative vote of a majority of the
remaining directors, or by the shareholders, unless the articles of
incorporation provide otherwise. Autonomous' bylaws provide that any vacancy on
Autonomous' board, whether occurring by reason of an increase in the size of
the board of directors or the death, resignation, disqualification, or removal
of a director, shall be filled by the directors then in office until the next
annual or special meeting of the stockholders after the creation of the
vacancy.
The MBCL provides that, in the case of a classified board (such as Summit's),
any vacancy in the board of directors, including a vacancy resulting from the
enlargement of the board of directors, shall be filled solely by the
affirmative vote of a majority of the directors then in office, even though
less than a quorum. Summit's articles contain a provision that conforms with
the substance of the MBCL.
Exculpation of Directors
The FBCA permits a corporation to provide in its articles of incorporation that
a director shall not be personally liable for monetary damages stemming from
breaches of his or her fiduciary duties. Under Section 607.0831 of the FBCA,
directors are not personally liable for monetary damages to the corporation or
any other person, unless the director breached or failed to perform his or her
duties as a director, and the director's breach of or failure to perform those
duties constituted any of the following:
. a violation of the criminal law (unless the director had reasonable
cause to believe this conduct was lawful or had no reasonable cause to
believe his or her conduct was unlawful); or
. a transaction from which the director derived an improper personal
benefit; or
. a circumstance under which the director would be liable for authorizing
an unlawful distribution; or
. conscious disregard for the best interest of the corporation, or willful
misconduct, in a proceeding to obtain a judgment by or in the right of
the corporation or by or in the right of a shareholder; or
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. in a proceeding by or in the right of someone other than the corporation
or a shareholder, recklessness or an act or omission which was committed
in bad faith or with malicious purpose or in a manner exhibiting wanton
and willful disregard of human rights, safety or property.
In Massachusetts, a corporation's articles of organization may limit the
personal liability of its directors for breaches of their fiduciary duties.
Under the MBCL, this limitation is generally unavailable for acts or omissions
by a director which constitute any of the following:
. a violation of such director's duty of loyalty; or
. bad faith, intentional misconduct or a knowing violation of law; or
. an improper a financial profit or other advantage to the director to
which the director has no entitlement.
The MBCL also prohibits the elimination or limitation of a director's liability
for unauthorized loans to insiders or distributions that occur when a
corporation is, or which renders a corporation, insolvent.
Autonomous' articles and Summit's articles allow for limitations on directors'
liability as permitted by the FBCA and the MBCL, respectively. The provision in
Summit's articles may not be amended without the approval of stockholders
holding 66 2/3% of the shares entitled to vote.
Indemnification of Directors, Officers and Others
The FBCA permits a corporation to indemnify the following persons (in a case-
by-case determination) against liabilities arising in the following
circumstances:
. any person who is or was a party to any proceeding by reason of their
service as a director, officer, employee or agent of the corporation; or
. any person serving in such capacity, at the request of the corporation,
for another corporation or business entity.
To be indemnified, a person seeking indemnification must have acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed
to, the best interests of the corporation. With respect to any criminal action
or proceeding, such person must have had no reason to believe his or her
conduct was unlawful.
Autonomous' articles authorize the corporation to indemnify any director or
officer, or any former director or officer, to the fullest extent permitted by
the laws of the State of Florida.
The MBCL generally permits indemnification of directors, officers, employees
and certain others for expenses incurred by them by reason of their position
with the corporation, if such person has acted in good faith and with the
reasonable belief that his or her conduct was in, or not opposed to, the best
interest of the corporation.
Summit's bylaws provide that the corporation shall indemnify against all
liabilities and expenses, including reasonable fees of counsel, certain persons
in specified circumstances. For more
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information, see "Description of Summit Capital Stock--Massachusetts Law and
Certain Provisions of Summit's Articles of Organization and Bylaws,Exculpation
and Indemnification of Certain Persons."
Transactions With Interested Parties
The FBCA provides that no contract or other transaction between a corporation
and one or more of its directors, or other entity in which one or more of its
directors are directors or officers or are financially interested, shall be
void or voidable solely because of one of the following reasons:
. the existence of such relationship or interest; or
. the presence of such directors at the meeting of the board or a committee
which authorizes, approves or ratifies such contract or transaction; or
. the counting of the votes of such directors in the authorization,
approval or ratification of such contract or transaction.
The FBCA further requires that, to benefit from these provisions in the
statute, one of the following must be true:
. the relationship or interest is disclosed or known to the board or
committee which authorizes the contract or transaction; or
. the relationship is disclosed or known to stockholders entitled to vote
to authorize the transaction, and the stockholders so authorize the
contract or transaction; or
. the contract or transaction is fair and reasonable at the time it is
authorized.
Such a transaction or contract is authorized if approved by a majority of the
board or a committee of disinterested directors or a vote of a majority of the
shares held by disinterested stockholders who are entitled to vote to authorize
such contract or transaction. Autonomous' articles include provisions that
conform with the substance of the FBCA as summarized above.
The MBCL contains no provision comparable to that contained in the FBCA.
Summit's bylaws permit the corporation to enter into certain transactions
(defined below) with interested parties. Summit's bylaws provide that the
following transactions with interested parties shall not be void or voidable
for this reason alone:
. a contract or transaction between the corporation and one or more of its
directors, officers, employees, agents or other persons with a financial
interest in the corporation; or
. a contract or transaction between the corporation and any other
corporation, firm association or other entity in which one or more of
these persons have a financial interest.
However, Summit's bylaws require that any common directorship, officership or
financial interest, if material, be disclosed or known to each of the directors
voting on or concurring in the approval of such contract or transaction.
Summit's bylaws further provide that common or interested directors shall be
counted in determining the presence of a quorum at a meeting of the board of
directors. Common or interested directors may also vote on the matter of the
approval of an interested contract
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or transaction. Any such vote, however, requires the affirmative vote of a
majority of the directors who have no interest in the contract or transaction,
even though the number of disinterested directors is less than a quorum.
Fundamental Transactions
The FBCA provides for a shareholder vote (except as indicated below) of both
the acquiring and acquired corporations to approve mergers. However, the FBCA
requires a shareholder vote of the selling corporation for the sale by a
corporation of all or substantially all of its assets only if the sale is not
in the regular course of business. The FBCA provides for a shareholder vote to
approve the dissolution of a corporation and requires the affirmative vote of a
majority of the outstanding shares of both the acquiring and acquired
corporations in share-for-share exchanges. The FBCA does not require a
shareholder vote of the surviving corporation in a merger, provided the
following conditions exist:
. the articles of incorporation of the surviving corporation will not
differ from its articles before the merger (except for amendments that
may be authorized absent shareholder approval); and
. each shareholder of the surviving corporation whose shares were
outstanding immediately prior to the effective date of the merger will
hold the same number of shares, with identical designations,
preferences, limitations, and relative rights, immediately after the
merger.
The FBCA does not require a shareholder vote for certain "short-form mergers"
between a parent company and its subsidiary, where the parent owns 80% or more
of the outstanding shares of each class of the subsidiary. The FBCA provides
that a vote of a class or series which votes as a separate voting group is
required on a plan of merger if the plan contains a provision which, if
contained in a proposed amendment to the articles of incorporation, would
entitle the class or series to vote as a separate voting group.
In addition, Autonomous is governed by certain sections of the FBCA which deal
with approvals required for certain business combinations. See "Anti-Takeover
Statutes."
The MBCL generally requires approval of mergers and consolidations and sales,
mortgages, leases or exchanges of all or substantially all of a corporation's
property by a vote of two-thirds of the shares of each class of stock
outstanding and entitled to vote thereon, except that the articles of
organization may provide for a vote of a lesser proportion, which in no case
can be less than a majority of each such class. In addition, unless required by
the corporation's articles of incorporation, an agreement providing for a
merger need not be submitted to the stockholders of a corporation surviving a
merger, but may be approved by vote of its directors if the following are true:
. the agreement of merger does not change the name, the amount of shares
authorized of any class of stock or other provisions of the articles of
organization of the corporation;
. the authorized unissued shares or shares held in the treasury of the
corporation of any class of its stock that will be issued or delivered
under the merger agreement do not exceed 15% of its shares of the same
class outstanding immediately prior to the merger's effective date; and
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. the issue, by vote of the directors, of any unissued stock that will be
issued under the merger agreement has been authorized in accordance with
the provisions of MBCL governing the issue of authorized but unissued
capital stock.
In addition, Summit is governed by certain sections of the MBCL which deal with
approvals required for certain business combinations. See "--Anti-Takeover
Statutes" and "Description of Summit Capital Stock--Massachusetts Law and
Certain Provisions of Summit's Articles of Organization and Bylaws."
Charter Amendments
Under the FBCA, shareholders may amend the articles of incorporation if the
amendment is approved by the following:
. a majority of the votes entitled to be cast on the amendment by any
voting group that would have dissenters' rights because of the
amendment; and
. the votes of every other voting group entitled to vote on the amendment,
as required for certain voting groups and multiple voting groups.
Autonomous' articles and bylaws do not contain provisions concerning their
amendment, except that the articles provide that any amendment of the provision
concerning action by written consent of the shareholders requires an
affirmative vote of the holders of not less than two-thirds of the outstanding
voting shares.
Under the MBCL, a majority vote of each class of stock outstanding and entitled
to vote is required to authorize an amendment of the articles of organization
effecting one or more of the following:
. an increase or reduction of the capital stock of any authorized class;
or
. a change in the par value of authorized shares with par value, or any
class thereof; or
. a change of authorized shares (or any class thereof) from shares with
par value to shares without par value, or from shares without par value
to shares with par value; or
. certain changes in the number of authorized shares (or any class
thereof); or
. a corporate name change.
Subject to certain conditions, a two-thirds vote of each class of stock
outstanding and entitled to vote is required to authorize any other amendment
of the articles of organization. However, a corporation's articles of
organization may provide for a vote of a lesser proportion, which in no case
can be less than a majority of each class of stock outstanding and entitled to
vote. If any amendment requiring a two-thirds vote would adversely affect the
rights of any class or series of stock, a two-thirds vote of such class voting
separately, or a two-thirds vote of such series, voting together with any other
series of the same class adversely affected in the same manner, is also
necessary to authorize such amendment.
Summit's articles provide that article 6 of the articles, pertaining to the
number, classification, removal, the filling of vacancies and the exculpation
of directors and other matters, may not be
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amended without the approval of 66 2/3% of outstanding shares entitled to vote.
Summit's articles further provide that an amendment to the articles which
creates or alters any restrictions on the transfer of stock shall not be
considered as adversely affecting the rights of a stockholder.
Amendments to Bylaws
Under the FBCA, a corporation's board of directors may amend or repeal the
corporation's bylaws unless one of the following is true:
. the articles of incorporation or bylaws provide otherwise; or
. the shareholders, in amending or repealing the bylaws or a particular
bylaw, provide that the board of directors may not amend or repeal the
bylaws or the particular bylaw.
Autonomous' bylaws provide that they may be amended or repealed, wholly or in
part, by the vote of a majority of the stock entitled to vote that is present
at any stockholders meeting, if notice of the proposed action was included in
the notice of the meeting or is waived in writing by the holders of a majority
of the stock entitled to vote. In addition, Autonomous' bylaws provide that
they may be amended consistent with any bylaws adopted by the stockholders, or
any part thereof that has not been adopted by the stockholders may be repealed,
by the vote of a majority of the members of the board of directors.
Under the MBCL, the power to make, amend or repeal bylaws lies with the
stockholders entitled to vote. Directors, however, may also make, amend or
repeal the bylaws, except with respect to any provision which by law, the
articles of organization or bylaws requires action by the stockholders.
Summit's bylaws provide that they may be altered, amended or repealed at any
meeting of the stockholders. Summit's bylaws further provide that certain
provisions in the bylaws pertaining to directors (including the provisions
pertaining to the number, election, or term of the directors and the removal of
directors) may not be amended without the approval of at least 66 2/3% of the
shares having a right to vote. Any alteration, repeal or amendment to the
provision of Summit's bylaws pertaining to amendments also requires the
approval of at least 66 2/3% of the shares having a right to vote. In addition,
Summit's bylaws provide that, if authorized in Summit's articles, the board of
directors may make, amend or repeal Summit's bylaws in whole or in part.
Summit's articles grant the board of directors this authorization. However, the
board of directors may not amend the provisions of Summit's bylaws concerning
any of the following:
. the number, election, tenure and resignation and removal of directors;
or
. election of committees by the board of directors and delegation of
powers to any committee; or
. amendment of Summit's bylaws; or
. any provision of the bylaws that by law, the corporation's articles of
organization or bylaws requires action by the stockholders.
In addition, Summit's bylaws provide that, not later than the time of giving
notice of the meeting of stockholders next following the making, amending or
repealing by the board of directors of any
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bylaw, notice stating the substance of such change shall be given to all
stockholders entitled to vote on amending bylaws. Any bylaw adopted by the
board of directors may be amended or repealed by the stockholders.
Appraisal and Dissenters' Rights
Under the FBCA, a dissenting shareholder of a corporation participating in
certain transactions, under varying circumstances, may receive cash in the
amount of the fair value of his or her shares (as determined by a court) in
lieu of the consideration otherwise receivable in the transaction. The FBCA
provides dissenters' rights in connection with the following:
. mergers, if the shareholders are entitled to vote on the merger;
. share exchanges, if the corporation's shares are being acquired and the
shareholders are entitled to vote on the share exchange;
. sales of substantially all of a corporation's assets;
. amendments to the articles of incorporation that may adversely affect
certain rights or preferences of shareholders; and
. control share acquisitions.
Unless the articles of incorporation provide otherwise, under the FBCA,
dissenters' rights are not available with respect to a plan of merger or share
exchange or a proposed sale or exchange of property to holders of shares of any
class or series which, on the relevant record date were one of the following:
. registered on a national securities exchange; or
. designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc.; or
. held of record by not fewer than 2,000 shareholders.
Under the MBCL, a properly dissenting stockholder is entitled to receive the
appraised value of his or her shares when the corporation votes to do any of
the following:
. sell, lease or exchange all, or substantially all, of its property and
assets; or
. adopt an amendment to its articles of organization which adversely
affects the rights of the stockholder; or
. merge or consolidate with another corporation, unless a vote of the
stockholders was not required to approve such merger or consolidation.
The respective articles and bylaws of Summit and Autonomous do not contain
provisions regarding appraisal rights or grant appraisal rights in addition to
those rights mandated by the FBCA and the MBCL, respectively. As Summit
stockholders, former Autonomous stockholders will have appraisal rights in a
wider variety of circumstances.
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"Anti-Takeover" Statutes
Affiliated Transactions. Section 607.0901 of the FBCA restricts certain
affiliated transactions and provides that, in addition to any affirmative vote
required by the FBCA or the articles of incorporation, an affiliated
transaction must be approved by the affirmative vote of the holders of two-
thirds of the voting shares other than the shares beneficially owned by the
interested shareholder (which is defined generally under the FBCA as a person
with 10% or more of a corporation's outstanding voting shares). The voting
requirement does not apply if any of the following are true:
. the affiliated transaction has been approved by a majority of the
disinterested directors; or
. the corporation has not had more than 300 shareholders of record at any
time during the three years preceding the announcement date; or
. the interested shareholder has been the beneficial owner of at least 80
percent of the corporation's outstanding voting shares for at least five
years preceding the announcement date; or
. the interested shareholder is the beneficial owner of at least 90
percent of the outstanding voting shares of the corporation, exclusive
of shares acquired directly from the corporation in a transaction not
approved by a majority of the disinterested directors; or
. the corporation is an investment company registered under the Investment
Company Act of 1940; or
. in the affiliated transaction, consideration is paid to the holders of
each class or series of voting shares pursuant to certain specified
valuation standards.
Additionally, the statute does not apply to any of the following:
. any corporation whose articles of incorporation, either as originally
adopted or as amended prior to January 1, 1989, contain a provision
expressly electing not to be governed by this section; or
. any corporation which adopts an amendment of its articles of
incorporation or bylaws, approved by affirmative vote of the holders,
other than interested shareholders, of a majority of the outstanding
voting shares of the corporation expressly electing not to be governed
by this section (although such amendment would not be valid for 18
months); or
. any affiliated transaction of the corporation with an interested
shareholder who became an interested shareholder inadvertently, if such
interested shareholder, as soon as practicable, divests itself of a
sufficient amount of voting shares so that it no longer is the
beneficial owner of 10 percent or more of the outstanding shares of the
corporation and would not at any time within the five-year period
preceding the announcement date of the affiliated transaction have been
an interested shareholder.
Neither Autonomous' articles nor bylaws contain any provisions or elections
concerning stockholder approval of affiliated transactions.
Affiliated transactions are governed by Chapter 110F of the Massachusetts
General Laws. For a discussion of this provision, see "Description of Summit
Capital Stock--Massachusetts Law and Certain Provisions of Summit's Articles of
Organization and Bylaws."
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Control Share Acquisitions. Autonomous is governed by Section 607.0902 of the
FBCA, which describes the voting rights that control shares (as defined below)
of a Florida corporation may enjoy. Voting rights for control shares must be
approved by a majority of each class of voting securities of a Florida
corporation, excluding those shares held by interested persons, if the
corporation has any of the following characteristics:
. 100 or more stockholders;
. its principal place of business, its principal office, or substantial
assets in Florida; and
. either more than 10% of its stockholders residing in Florida, more than
10% of its shares owned by Florida residents, or 1,000 stockholders
residing in Florida.
The FBCA defines "control shares" as shares acquired in a control share
acquisition that, when added to all other shares of the corporation that the
person owns, would entitle the person to voting power within any of the
following ranges:
. one fifth or more, but less than one third, of all voting power of the
corporation; or
. one-third or more but less than a majority of all voting power of the
corporation; or
. a majority or more of all of the voting power of the corporation.
The statute defines a "control share acquisition" as an acquisition in which a
person directly or indirectly obtains ownership of shares in an amount
exceeding one of the above thresholds. If authorized in a corporation's
articles of incorporation or bylaws before their acquisition, control shares
may be redeemed by the corporation for fair value in certain circumstances.
Unless otherwise provided in a corporation's articles of incorporation or
bylaws before a control share acquisition, if person has acquired control
shares with a majority or more of all voting power, and these shares have been
given voting rights, all stockholders shall have dissenters' rights. The
statute further provides that an acquisition of shares that otherwise would be
governed by its provisions does not constitute a control share acquisition in
certain instances. For example, an acquisition of shares approved by the
corporation's board of directors and mergers effected in compliance with the
applicable provisions of the FBCA, if the corporation is a party to the merger
agreement, are not control share acquisitions. Autonomous' articles and bylaws
are silent concerning control share acquisitions.
Control share acquisitions are governed by Chapter 110D of the Massachusetts
General Laws. For a discussion of this provision, see "Description of Summit
Capital Stock--Massachusetts Law and Certain Provisions of Summit's Articles of
Organization and Bylaws."
Stockholder Rights Plans
Autonomous has not adopted a stockholder rights plan.
Summit has a stockholder rights plan that is described on pages 109 to 111.
The foregoing summary is not a complete statement of the rights of holders of
Summit common stock and Autonomous common stock. All stockholders are
encouraged to consult the MBCL, the FBCA and the respective charters and bylaws
of Summit and Autonomous.
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APPROVAL OF AMENDMENT TO SUMMIT'S
ARTICLES OF ORGANIZATION
The Summit articles of organization presently provide that Summit is
authorized to issue 65,000,000 shares of capital stock, of which 60,000,000
shares are designated common stock, $0.01 par value per share, and 5,000,000
are designated preferred stock, $0.01 par value per share. As of the record
date, there were
. 31,153,765 shares of Summit common stock outstanding,
. 169,115 shares held in treasury, and
. no shares of preferred stock outstanding.
All outstanding shares of Summit common stock are fully paid and nonassessable
and the holders thereof are entitled to one vote for each share held. The
Summit board has proposed to increase the number of shares of authorized
Summit common stock by 60 million shares to 100 million shares. The proposal
to increase the authorized shares is wholly separate from the merger and is
not required for the issuance of shares in the merger.
If the increase in authorized shares is approved, the additional shares of
Summit common stock would be available for sale in public offerings, for use
in acquisitions, for stock dividends, for issuance pursuant to stock options
and other rights to purchase or receive shares and for any other purpose for
which shares of common stock may be issued under the laws of The Commonwealth
of Massachusetts. Summit has no other immediate plans for the issuance of any
of its authorized but unissued and reserved shares of Summit common stock. To
effect the increase in authorized shares, Summit would file an amendment to
its articles of organization with the Massachusetts Secretary of State.
The Summit board believes that approval of the increase in the authorized
shares is in the best interest of Summit's stockholders because it would
facilitate Summit's business and financial purposes in the future without the
necessity of delaying such activities for further stockholder approvals,
except as may be required in a particular case by its charter documents,
applicable law, or the rules of any stock exchange or other system on which
Summit common stock may be listed.
The authorization of additional shares of Summit common stock could make more
difficult, and thereby discourage attempts, to acquire control of Summit and
thereby discourage a third party from attempting to do so. For example, such
additional shares could be used to dilute the stock ownership of parties
seeking to obtain control of Summit, to increase the total amount of
consideration necessary for a party to obtain control, or to increase the
voting power of friendly third parties. These uses could have the effect of
making it more difficult for a third party to remove incumbent management or
to accomplish a given transaction, even if such actions would generally be
beneficial to shareholders. The Summit board of directors has concluded,
however, that the advantages of the additional authorized shares outweigh any
potential disadvantages. Assuming the proposed increase is approved by the
stockholders, Summit intends to use the additional shares for the purposes
described above, and has no intention to use them to deter takeovers.
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The affirmative vote of a majority of the shares of Summit common stock
outstanding is necessary to approve the increase in authorized shares. Votes
cast by proxy or in person at the Summit special meeting will be counted by
persons appointed by Summit to act as election inspectors for the meeting.
Because the increase in authorized shares must receive the affirmative vote of
a majority of the outstanding Summit common stock, abstentions and broker non-
votes will have the effect of a vote against the proposal. Shares represented
by proxies in the form enclosed, if properly executed and returned and not
revoked, will be voted as specified, but where no specification is made, the
shares will be voted in favor of the proposal.
The Board of Directors unanimously recommends that Summit stockholders vote for
the amendment to Summit's articles of organization to increase the number of
authorized shares of common stock.
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APPROVAL OF AMENDMENT TO SUMMIT'S 1997 STOCK OPTION PLAN
The 1997 Stock Option Plan is designed to enhance Summit's ability to attract
and retain employees and others in a position to make significant contributions
to Summit's success by allowing them to become owners of Summit common stock. A
total of 1,500,000 shares were initially reserved for issuance under the Plan.
As of the record date, there were outstanding options to purchase 1,203,762
shares of Summit common stock and 296,238 shares remained available for grant.
On October 28, 1998, the Summit board of directors voted to increase the number
of shares of Summit common stock reserved for issuance under the 1997 Plan by
1,500,000 shares, subject to approval by the Summit stockholders. The Summit
board of directors believes that this increase is necessary because Summit will
have a larger workforce following the integration of Autonomous and because
equity awards will be an important part of incentive compensation in the
combined company. The Summit board of directors is requesting that Summit
stockholders approve the increase at the special meeting.
Summary of 1997 Plan
The following is a summary of the key features of the 1997 Plan.
Eligible Participants
The Summit board of directors administers the Plan. Employees of Summit and its
subsidiaries and other persons or entities who are in a position to make a
significant contribution to Summit's success are eligible participants. The
board of directors has the authority to select employees to whom awards are
given. The number of Summit employees (including subsidiaries) as of March 19,
1999, was approximately 426.
Maximum Number of Shares
Currently, up to 1,500,000 shares of Summit common stock may be granted under
the 1997 Plan, subject to adjustments for stock splits and similar costs. The
Summit board of directors has approved and is recommending that the
stockholders approve an increase of 1,500,000 in the number of shares of Summit
common stock that may be awarded under the 1997 Plan.
Types of Awards
The 1997 Plan permits the board to grant the following types of awards:
. stock options--both incentive and nonstatutory
. stock appreciation rights.
Stock Options
The Summit board will determine the exercise or purchase price per share of any
option granted under the 1997 Plan. The exercise price of an incentive stock
option ("ISO") must be at least 100% (110% in the case of ten percent
shareholders) of the fair market value of the Summit common stock at the time
of grant. The Summit board of directors will fix the term of each option, not
to exceed ten
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years from grant, and specify when each option will be exercisable. Options may
be exercised in the following ways:
. by paying the exercise price in cash or check
. by tendering shares of common stock
. by using a promissory note
. by delivering to Summit an undertaking by a broker to deliver promptly
sufficient funds to pay the exercise price
. by a combination of these methods.
Stock Appreciation Rights
The Summit board may grant stock appreciation rights (SARs) under the Plan.
SARs entitle recipients to receive cash or Summit common stock of an amount
representing the appreciation in the market value of a specified number of
shares from the date of grant until the date of exercise.
Change of Control
In the case of certain mergers, consolidations or other transactions in which
Summit is acquired or liquidated, or its assets are sold, all outstanding
awards will terminate. Prior to such termination, however, all outstanding
awards will become exercisable unless the Summit board of directors arranges
for assumption of the awards by any surviving corporation.
Termination and Amendment
The Summit board of directors may discontinue granting awards under the 1997
Plan at any time. The board of directors may also amend the Plan for any
purpose permitted by law, but no amendment may adversely affect the rights of
any participant under any outstanding award without the participant's consent.
Stock Price Information
The closing price of Summit's common stock, as reported on Nasdaq on March 23,
1999 was $5.563.
Summary of 1997 Plan Federal Income Tax Consequences
Under the federal income tax laws as now in effect, the material income tax
consequences associated with stock options awarded under the Plan are as
follows:
Incentive Options. An option holder realizes no ordinary taxable income upon
the grant or exercise of an ISO. If the option holder does not dispose of the
shares received upon the exercise of the ISO within two years from the date of
grant, or within one year after their receipt, then upon sale of such shares
the option holder will be taxed on any amount realized in excess of the option
price (the amount paid for the shares) as a long-term capital gain. Any loss
allowed for tax purposes will be long-term capital loss. Summit will not be
entitled to any deduction. The exercise of an ISO will, however, increase the
option holder's alternative minimum taxable income and may result in
alternative minimum tax liability for the option holder.
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If the option holder disposes of the shares received upon exercise of an ISO
before the expiration of the holding periods described above (a "disqualifying
disposition"), the option holder generally will realize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair
market value of the shares at exercise (or, if less, the amount realized on a
sale to an unrelated party of such shares) over the option price thereof.
Summit will be entitled to a tax deduction for that amount. Any further gain
recognized by the option holder will be taxed as short-term or long-term
capital gain and will not give Summit any deduction. Special rules may apply
where the option holder pays the exercise price of the ISO by tendering shares
of common stock. A disqualifying disposition will eliminate the alternative
minimum taxable income adjustment associated with the exercise of the ISO if it
occurs in the same calendar year as the year in which the adjustment occurred.
If an option holder exercises an ISO at a time when it no longer qualifies for
the tax treatment described above, the option is treated as a nonstatutory
option. Generally, an ISO will not be eligible for the tax treatment described
above if it is exercised more than three months following termination of
employment (one year following termination of employment, in the case of
termination by reason of permanent and total disability), except in certain
cases where the ISO is exercised after the death of the option holder. Options
otherwise qualifying as ISOs will also be treated for federal income tax
purposes as nonstatutory options to the extent they (together with other ISOs
that the option holder owns) first become exercisable in any calendar year for
shares having a fair market value, determined at the time of the option grant,
exceeding $100,000.
Nonstatutory Options. An option holder realizes no income at the time a
nonstatutory option is granted under the Plan. Generally, an option holder
realizes ordinary income at exercise in an amount equal to the difference
between the option price and the fair market value of the shares on the date of
exercise. This amount is subject to withholding in the case of options granted
to employees. Summit will be entitled to a corresponding tax deduction. Any
gain or loss that the option holder recognizes upon a later sale is treated as
capital gain or loss, either short-term or long-term, depending on the
applicable holding period for the sale.
Stock Appreciation Rights. A participant realizes no income upon the grant of a
stock appreciation right under the Plan. When a participant exercises the stock
appreciation right or receives payment in cancellation of an option, the
participant will generally be required to include as ordinary income in the
year of such exercise or payment an amount equal to the amount of cash received
and the fair market value of any stock received. Summit will have a deduction
for the corresponding amount.
Certain Limitations. Section 162(m) of the Internal Revenue Code imposes a $1
million limitation on the deduction that a public corporation may claim for
remuneration paid to any of its five top officers, subject to a number of
exceptions and special rules. Certain performance-based compensation is
eligible for an exemption from this limit. Summit intends that compensation
associated with the exercise of stock options and SARs awarded under the Plan
will qualify for this performance-based exemption.
The Internal Revenue Code also limits the amount of compensation that may be
paid without penalty in connection with a change in control. In general, if the
total of an individual's compensation related to a change in control equals or
exceeds three times his or her average annual taxable compensation
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(determined, in general, over the five calendar years preceding the calendar
year in which the change in control occurs), the amount of such compensation
that exceeds the annual average is nondeductible to Summit and subject to an
additional 20% tax on the recipient. In making this determination, part or all
of the value of options, and other awards, granted or accelerated in connection
with a change in control may be required to be taken into account.
The foregoing discussion is provided for the information of stockholders and
does not purport to be a complete description of the federal tax consequences
of transactions under the Plan, nor does it describe state or local tax
consequences.
Recommendation and Vote
The Summit board of directors believes that the increase in the shares reserved
under the 1997 Plan will promote the interests of Summit and the stockholders
and enable Summit to attract, retain and reward persons important to Summit's
success.
The affirmative vote of a majority of the shares of Summit common stock
outstanding is necessary to approve the increase in shares authorized to be
issued under the 1997 Plan. Votes cast by proxy or in person at the Summit
special meeting will be counted by persons appointed by Summit to act as
election inspectors for the meeting. Because the increase in authorized shares
must receive the affirmative vote of a majority of the outstanding Summit
common stock, abstentions and broker non-votes will have the effect of a vote
against the proposal under applicable Massachusetts law. Shares represented by
proxies in the form enclosed, if properly executed and returned and not
revoked, will be voted as specified, but where no specification is made, the
shares will be voted in favor of the proposal.
The Board of Directors unanimously recommends that Summit stockholders vote to
increase the number of common shares reserved for issuance under the 1997 Stock
Option Plan.
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VALIDITY OF COMMON STOCK
The validity of the shares of Summit common stock to be issued in the merger
will be passed upon for Summit by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The consolidated financial statements as of December 31, 1998 and for the year
then ended incorporated by reference in this joint proxy statement/prospectus
from Summit Technology, Inc.'s Current Report on Form 8-K dated March 23, 1999
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report (which report expresses an unqualified opinion and includes an
explanatory paragraph referring to a change in accounting principles described
in Note 2 to the consolidated financial statements) which is incorporated
herein by reference, and have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Summit Technology, Inc. as of December
31, 1997, and for each of the years in the two-year period ended December 31,
1997, have been incorporated by reference herein and in the registration
statement from Summit Technology, Inc.'s Current Report on Form 8-K dated March
23, 1999 in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Autonomous Technologies Corporation
and subsidiary as of December 31, 1998, and for the year then ended and for the
period from July 23, 1985 (date of inception) to December 31, 1998, included in
this joint proxy statement/prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report (which report expresses an
unqualified opinion and includes an explanatory paragraph which indicates that
there are matters that raise substantial doubt about Autonomous' ability as a
going concern) appearing herein, and is included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
Autonomous Technologies Corporation's financial statements for the cumulative
period from inception (July 23, 1985) to December 31, 1997 were audited by
other auditors whose report included an explanatory paragraph with respect to
the uncertainty regarding Autonomous Technology Corporation's ability to
continue as a going concern. The other auditors' report has been furnished to
Deloitte & Touche LLP, and the Deloitte & Touche LLP opinion, insofar as it
relates to the amounts included for such prior period, is based solely on the
report of such other auditors.
The financial statements of Autonomous as of December 31, 1997, and for each of
the two years in the period ended December 31, 1997, and for the cumulative
period from inception (July 23, 1985) to December 31, 1997, included in this
joint proxy statement/prospectus have been audited by Arthur Andersen LLP,
independent certified public accountants, as stated in their report which is
included herein, and have been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
Reference is made to such report, which includes an explanatory paragraph with
respect to the uncertainty regarding Autonomous' ability to continue as a going
concern as discussed in Note 1 to the financial statements.
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WHERE YOU CAN FIND MORE INFORMATION
Summit and Autonomous file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that the companies file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Summit and Autonomous public filings are also available
to the public from commercial document retrieval services and at the SEC's
World Wide Web site at "http://www.sec.gov." Reports, proxy statements and
other information about Summit and Autonomous also may be inspected at the
offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006.
Summit has filed a registration statement to register with the SEC the shares
of Summit common stock it will issue to Autonomous stockholders in the merger.
This joint proxy statement/prospectus is a part of the registration statement
and constitutes a prospectus of Summit, a proxy statement of Summit for the
Summit special meeting and a proxy statement of Autonomous for the Autonomous
special meeting.
As allowed by SEC rules, this joint proxy statement/prospectus does not contain
all the information that stockholders can find in the registration statement or
the exhibits to the registration statement.
The SEC allows Summit to "incorporate by reference" information into this joint
proxy statement/prospectus, which means that Summit can disclose important
information to you by referring you to another document it has filed with the
SEC. The information incorporated by reference is deemed to be part of this
joint proxy statement/prospectus, except for any information superseded by
information contained directly in the joint proxy statement/prospectus. This
joint proxy statement/prospectus incorporates by reference the documents set
forth below that Summit has previously filed with the SEC. These documents
contain important information about Summit and its financial condition.
<TABLE>
<CAPTION>
Summit SEC Filings (File No. 000-
16937) Period
--------------------------------- ------
<S> <C>
Annual Report on Form 10-K and Year ended December 31, 1997
Form 10-K/A
Quarterly Reports on Form 10-Q For the quarters ended March 31, 1998; June 30,
1998; and September 30, 1998
Current Reports on Form 8-K Filed on March 23, 1999 (as amended on January
14, 1999); June 25, 1998; October 7, 1998; and
March , 1999, which includes Summit's 1998
audited financial statements and related
management's discussion and analysis of results
of operations
Registration Statements on Form Filed May 16, 1988, setting forth a description
8-A of the Summit common stock (including any
amendments or reports filed for the purpose of
updating such description), and filed April 3,
1990, describing Summit's common stock purchase
rights (including any amendments or reports
filed for the purpose of updating such
description)
</TABLE>
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Summit incorporates by reference additional documents that it may file with the
SEC between the date the registration statement was initially filed and the
date of the special meetings. These include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as well as proxy statements.
If you are a Summit stockholder, Summit may have sent you some of the documents
incorporated by reference, but you can obtain any of them through Summit or the
SEC or the SEC's world wide web site described above. Documents that Summit
incorporated by reference are available without charge, excluding all exhibits
unless specifically incorporated by reference as an exhibit to this joint proxy
statement/prospectus. Summit stockholders may obtain documents incorporated by
reference in this joint proxy statement/prospectus by requesting them in
writing or by telephone at the following address:
SUMMIT TECHNOLOGY, INC.
21 Hickory Drive
Waltham, Massachusetts 02451
Attention: Kate Sturgis Burnham
(781) 890-1234
If you would like to request public documents, please do so by April 22, 1999
to receive them before the Summit special meeting. If you request any
incorporated documents from us, we will mail them to you by first-class mail,
or other equally prompt means, within one business day of our receipt of your
request.
You should rely only on the information contained or incorporated by reference
in this joint proxy statement/prospectus to vote your shares at the special
meetings. Summit and Autonomous have not authorized anyone to provide you with
information that is different from what is contained in this joint proxy
statement/prospectus. This joint proxy statement/prospectus is dated March ,
1999. You should not assume that the information contained in the joint proxy
statement/prospectus is accurate as of any date other than that date, and
neither the mailing of this joint proxy statement/prospectus to stockholders
nor the issuance of Summit common stock in the merger shall create any
implication to the contrary.
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AUTONOMOUS TECHNOLOGIES CORPORATION AND SUBSIDIARY
(A Development Stage Company)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Reports............................................ F-2
Consolidated Financial Statements as of December 31, 1998 and 1997, each
of the three years in the Period Ended December 31, 1998, and the Period
from Inception (July 23,1985) to December 31, 1998:
Consolidated Balance Sheets.............................................. F-4
Consolidated Statements of Operations.................................... F-5
Consolidated Statements of Stockholders' Equity.......................... F-6
Consolidated Statements of Cash Flows.................................... F-7
Notes to Consolidated Financial Statements............................... F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Autonomous Technologies Corporation:
We have audited the accompanying consolidated balance sheet of Autonomous
Technologies Corporation and subsidiary [a development stage company (the
Company)] as of December 31, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended and
for the period from July 23, 1985 (date of inception) to December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The Company's financial statements
for the period July 23, 1985 (date of inception) through December 31, 1997 were
audited by other auditors whose report, dated June 2, 1998, expressed an
unqualified opinion on those statements and included an explanatory paragraph
that described substantial doubt about the ability of the Company to continue
as a going concern. The financial statements for the period July 23, 1985 (date
of inception) through December 31, 1997 reflect total revenues and net loss of
$3,487,582 and $28,908,047, respectively, of the related 1998 totals. The other
auditors' report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for such prior period, is based solely on the
report of such other auditors.
We conducted our audit 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 consolidated 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 audit and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 1998, and the results of
its operations and its cash flows for the year then ended, and for the period
from July 23, 1985 (date of inception) to December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is a development
stage enterprise engaged in developing and marketing an opthalmic laser product
for vision correction. As described in Notes 1 and 10 to the consolidated
financial statements, the Company has incurred material operating losses, has
yet to emerge from development stage, and is defendant in a lawsuit claiming
patent infringement and seeking preliminary and permanent injunctions against
the Company. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans concerning these
matters are described in Notes 1, 10, and 11. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Deloitte & Touche LLP
Orlando, Florida
February 22, 1999, except for Note 13,
as to which the date is March 16, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Autonomous Technologies Corporation:
We have audited the accompanying balance sheets of Autonomous Technologies
Corporation (a Florida corporation in the development stage) as of December 31,
1997, and the related statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1997 and 1996, and the period from
inception (July 23, 1985) to December 31, 1997. The statements of operations
and cash flows for the period from inception (July 23, 1985) to December 31,
1997, are not presented separately herein. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Autonomous Technologies
Corporation as of December 31, 1997, and the results of its operations and its
cash flows for the years ended December 31, 1997 and 1996, and the period from
inception (July 23, 1985) to December 31, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company is in the development stage with no
significant operating results to date. The factors discussed in Note 1 to the
financial statements raise a substantial doubt about the ability of the Company
to continue as a going concern. Management's plans in regard to those matters
are also described in Notes 1 and 11. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
Orlando, Florida,
June 2, 1998
F-3
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 544,666 $ 109,245
Investments........................................ -- 7,191,827
Accounts receivable................................ 22,500 --
Inventories (Note 1)............................... 3,749,458 2,358,934
Prepaid expenses and other assets.................. 609,725 356,892
----------- -----------
Total current assets............................. 4,926,349 10,016,898
PROPERTY AND EQUIPMENT--Net (Note 2)................. 1,662,627 1,155,718
LADARVision SYSTEMS-IN-SERVICE--Net (Note 2)......... 542,609 400,584
ADVANCE LICENSING FEES............................... 733,503 747,470
OTHER ASSETS......................................... 53,494 95,479
----------- -----------
Total assets..................................... $ 7,918,582 $12,416,149
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
LIABILITIES:
Accounts payable................................... $ 530,525 $ 743,898
Accrued expenses................................... 599,503 789,113
Customer deposits.................................. 308,801 46,211
Note payable (Note 11)............................. 3,000,000 --
Current portion of obligations under capital leases
(Note 3).......................................... 68,684 97,108
Obligation under strategic alliance agreement
(Notes 4 and 11).................................. 450,000 --
----------- -----------
Total current liabilities........................ 4,957,513 1,676,330
OBLIGATIONS UNDER CAPITAL LEASES--Less current
portion (Note 3).................................... 164,993 185,007
OBLIGATIONS UNDER STRATEGIC ALLIANCE AGREEMENT
(Notes 4 and 11).................................... -- 1,575,000
----------- -----------
Total liabilities................................ 5,122,506 3,436,337
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, 5, 6, 7,
10, and 11)
STOCKHOLDERS' EQUITY (Notes 4, 5, and 6):
Convertible preferred stock--Series I, $.01 par
value; 1,000 and -0- authorized at December 31,
1998 and 1997, respectively; 385 and -0- shares
issued at December 31, 1998 and 1997,
respectively; and 270 shares outstanding at
December 31, 1998 (at adjusted face value) (Note
6)................................................ 3,139,483 --
Common stock, $.01 par value; 25,000,000 shares
authorized, 11,997,841 shares and 9,986,755 shares
issued and outstanding at December 31, 1998 and
1997, respectively................................ 119,978 99,868
Additional paid-in capital......................... 45,919,017 37,787,991
Deficit accumulated during the development stage... (46,382,402) (28,908,047)
----------- -----------
Total stockholders' equity....................... 2,796,076 8,979,812
----------- -----------
Total liabilities and stockholders' equity....... $ 7,918,582 $12,416,149
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 AND PERIOD FROM INCEPTION (JULY
23, 1985) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Cumulative
from
Inception
Year Ended (July 23,
Years Ended Year Ended December 1985) to
December 31, December 31, 31, December 31,
1998 1997 1996 1998
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
LADARVision systems and services.................................... $ 221,955 $ 37,065 $ -- $ 259,020
Research grants..................................................... -- -- -- 3,450,517
------------ ------------ ----------- ------------
Total revenues.................................................... 221,955 37,065 -- 3,709,537
------------ ------------ ----------- ------------
OPERATING EXPENSES:
Costs of revenues--LADARVision systems and services................. 395,130 105,892 -- 501,022
Costs of revenues--research grants.................................. -- -- -- 3,465,596
Clinical trials and compliance...................................... 2,666,914 2,980,317 1,715,412 8,537,108
Unabsorbed production start-up costs................................ 2,997,672 758,801 -- 3,756,473
Research and development............................................ 3,775,159 2,954,559 3,521,381 14,083,474
Selling and marketing (Note 4)...................................... 2,669,257 1,493,069 1,190,898 6,124,259
General and administrative.......................................... 2,846,404 2,328,222 1,852,351 9,201,275
Other expenses (Notes 4 and 10)..................................... 1,660,453 1,596,671 1,283,874 4,915,998
------------ ------------ ----------- ------------
Total operating expenses.......................................... 17,010,989 12,217,531 9,563,916 50,585,205
------------ ------------ ----------- ------------
OPERATING LOSS........................................................ (16,789,034) (12,180,466) (9,563,916) (46,875,668)
INTEREST INCOME (EXPENSE):
Interest income..................................................... 191,424 582,219 581,866 1,479,146
Interest expense.................................................... (45,143) (41,108) (25,994) (149,506)
------------ ------------ ----------- ------------
Interest income--net.............................................. 146,281 541,111 555,872 1,329,640
------------ ------------ ----------- ------------
LOSS BEFORE PROVISION FOR INCOME TAXES................................ (16,642,753) (11,639,355) (9,008,044) (45,546,028)
PROVISION FOR INCOME TAXES (Note 8)................................... -- -- -- 4,772
------------ ------------ ----------- ------------
NET LOSS.............................................................. (16,642,753) (11,639,355) (9,008,044) (45,550,800)
DEEMED DIVIDEND FOR SERIES I PREFERRED STOCK CONVERSION DISCOUNT...... 831,602 -- -- 831,602
------------ ------------ ----------- ------------
NET LOSS TO COMMON STOCKHOLDERS....................................... $(17,474,355) $(11,639,355) $(9,008,044) $(46,382,402)
============ ============ =========== ============
LOSS PER SHARE (Notes 1 and 12):
Basic net loss per share............................................ $ (1.59) $ (1.43) $ (2.36)
============ ============ ===========
Weighted average common shares used in computing basic net loss per
share.............................................................. 11,009,272 8,151,395 3,812,039
- - - --------------------------------------------------
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 AND PERIOD FROM INCEPTION (JULY
23, 1985) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Deficit
Convertible Accumulated
Preferred Stock Common Stock Additional During the
------------------- ------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage
------- ---------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 23, 1985.. -- $ -- -- $ -- $ -- $ --
Issuance of common
stock................. -- -- 1,125,000 11,250 76,250 --
Issuance of Series A
convertible preferred
stock................. 3,000 3,000 -- -- 723,233 --
Issuance of Series B
convertible preferred
stock................. 1,313 1,313 -- -- 374,071 --
Net loss............. -- -- -- -- -- (1,466,254)
------- ---------- ---------- -------- ----------- ------------
BALANCE, MARCH 31,
1994................... 4,313 4,313 1,125,000 11,250 1,173,554 (1,466,254)
Issuance of Series A
convertible preferred
stock................. 354 354 -- -- 80,180 --
Issuance of Series B
convertible preferred
stock................. 170 170 -- -- 49,017 --
Issuance of Series C
convertible preferred
stock................. 2,927 2,927 -- -- 1,535,270 --
Net loss............. -- -- -- -- -- (2,695,349)
------- ---------- ---------- -------- ----------- ------------
BALANCE, MARCH 31,
1995................... 7,764 7,764 1,125,000 11,250 2,838,021 (4,161,603)
Common stock placed in
escrow for future
services.............. -- -- 120,000 1,200 22,850 --
Issuance of Series D
convertible preferred
stock................. 2,456 2,456 -- -- 1,211,717 --
In-kind services
provided by
stockholder........... -- -- -- -- 220,148 --
Compensation under
stock option plan..... -- -- -- -- 380,626 --
Net loss............. -- -- -- -- -- (4,099,045)
------- ---------- ---------- -------- ----------- ------------
BALANCE, DECEMBER 31,
1995................... 10,220 10,220 1,245,000 12,450 4,673,362 (8,260,648)
Issuance of Series D
convertible preferred
stock................. 4,363 4,363 -- -- 2,177,137 --
Conversion of all
preferred stock upon
closing of initial
public offering....... (14,583) (14,583) 2,187,450 21,875 (7,292) --
Conversion of note
payable and advance
from stockholder upon
closing of initial
public offering....... -- -- 817,500 8,175 3,396,825 --
Issuance of common
stock in initial
public offering, net
of offering costs..... -- -- 2,500,000 25,000 17,868,000 --
In-kind services
provided by
stockholder........... -- -- -- -- 449,736 --
Compensation under
stock plans and
agreements............ -- -- -- -- 218,890 --
Exercise of stock
options............... -- -- 13,237 132 8,050 --
Net loss............. -- -- -- -- -- (9,008,044)
------- ---------- ---------- -------- ----------- ------------
BALANCE, DECEMBER 31,
1996................... -- -- 6,763,187 67,632 28,784,708 (17,268,692)
Issuance of common
stock, net of offering
costs................. -- -- 3,000,000 30,000 7,984,996 --
In-kind services
provided by
stockholder........... -- -- -- -- 471,275 --
Compensation under
stock plans and
agreements............ -- -- -- -- 485,937 --
Exercise of stock
options and warrants.. -- -- 223,568 2,236 61,075 --
Net loss............. -- -- -- -- -- (11,639,355)
------- ---------- ---------- -------- ----------- ------------
BALANCE, DECEMBER 31,
1997................... -- -- 9,986,755 99,868 37,787,991 (28,908,047)
Issuance of common
stock to CIBA in
exchange for strategic
alliance obligation... -- -- 438,821 4,388 1,720,612 --
In-kind services
provided by
stockholder........... -- -- -- -- 177,199 --
Issuance of common
stock in private
offering, net of
offering costs........ -- -- 600,573 6,006 2,888,844 --
Issuance of Series I
convertible preferred
in private offering... 500 5,000,000 -- -- (318,727) --
Deemed dividend for
preferred stock
conversion discount... -- 831,602 -- -- -- (831,602)
Conversion of preferred
stock................. (230) (2,692,119) 656,148 6,561 2,685,558 --
Compensation under
stock option plan..... -- -- -- -- 374,397 --
Exercise of stock
options and warrants.. -- -- 315,544 3,155 603,143 --
Net loss............. -- -- -- -- -- (16,642,753)
------- ---------- ---------- -------- ----------- ------------
BALANCE, DECEMBER 31,
1998................... 270 $3,139,483 11,997,841 $119,978 $45,919,017 $(46,382,402)
------- ---------- ---------- -------- ----------- ------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 AND
PERIOD FROM INCEPTION (JULY 23, 1985) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Cumulative
from Inception
Year Ended Year Ended Year Ended (July 23, 1985) to
December 31, December 31, December 31, December 31,
1998 1997 1996 1998
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $(16,642,753) $(11,639,355) $(9,008,044) $(45,550,800)
Adjustments to
reconcile net loss to
net cash used in
operating
activities:
In-kind services
provided by
stockholder........ 177,199 471,275 449,736 1,318,358
Compensation expense
under stock option
plan............... 374,398 485,937 218,890 1,459,851
Compensation expense
related to common
stock placed in
escrow for future
services........... -- -- -- 24,050
Convertible
preferred stock
issued for
services........... -- -- -- 162,500
Loss on disposal of
property and
equipment.......... 185,271 -- 85,167 270,438
Depreciation and
amortization....... 800,793 315,054 173,724 1,494,652
Changes in assets
and liabilities:
Increase in
accounts
receivable....... (22,500) -- -- (22,500)
Increase in
inventories...... (1,390,524) (2,096,327) (262,607) (3,749,458)
Increase in
prepaid expenses
and other
assets........... (210,848) (180,074) (200,770) (663,219)
Decrease
(increase) in
advance licensing
fees............. 13,967 2,530 (750,000) (733,503)
Increase
(decrease) in
accounts
payable.......... (213,373) (90,887) 508,258 530,525
Increase in
accrued
expenses......... 72,980 413,070 191,973 908,304
Increase in
obligation under
strategic
alliance
agreement........ 600,000 600,000 600,000 2,175,000
------------ ------------ ----------- ------------
Net cash used in
operating
activities...... (16,255,390) (11,718,777) (7,993,673) (42,375,802)
------------ ------------ ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures
on property and
equipment............ (1,197,998) (802,556) (298,287) (2,681,248)
Investments in
LADARVision Systems-
in-Service........... (437,000) (437,000) -- (874,000)
Restricted investment
(made) proceeds...... -- 162,000 (162,000) --
Investments made...... -- (9,644,170) (14,144,080) (23,788,250)
Investment proceeds... 7,191,827 11,716,097 4,880,326 23,788,250
------------ ------------ ----------- ------------
Net cash provided
by (used in)
investing
activities...... 5,556,829 994,371 (9,724,041) (3,555,248)
------------ ------------ ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net proceeds from
issuance of
convertible preferred
stock................ 4,681,273 -- 2,181,500 10,674,435
Net proceeds from
issuance of common
stock................ 2,894,850 8,014,996 17,893,000 28,899,891
Proceeds from exercise
of stock options and
warrants............. 606,298 63,311 8,182 677,791
Payment of obligations
under capital
leases............... (48,439) (73,393) (28,557) (151,401)
Proceeds from note
payable.............. 3,000,000 -- -- 3,000,000
Net proceeds from
(payments of) note
payable.............. -- (151,299) 151,299 --
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)
Other--net............ -- -- -- (30,000)
------------ ------------ ----------- ------------
Net cash provided
by financing
activities...... 11,133,982 7,853,615 20,205,424 46,475,716
------------ ------------ ----------- ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 435,421 (2,870,791) 2,487,710 544,666
CASH AND CASH
EQUIVALENTS, beginning
of year............... 109,245 2,980,036 492,326 --
------------ ------------ ----------- ------------
CASH AND CASH
EQUIVALENTS, end of
year.................. $ 544,666 $ 109,245 $ 2,980,036 $ 544,666
============ ============ =========== ============
</TABLE>
[continued]
F-7
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 AND
PERIOD FROM INCEPTION (JULY 23, 1985) TO DECEMBER 31, 1998
(continued)
<TABLE>
<CAPTION>
Cumulative
from Inception
Year Ended Year Ended Year Ended (July 23, 1985) to
December 31, December 31, December 31, December 31,
1998 1997 1996 1998
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION AND NONCASH
INVESTING AND FINANCING
TRANSACTIONS:
Cash transactions--
Interest paid......... $ 33,301 $36,518 $ 22,057 $ 129,137
Noncash transactions:
Property and
equipment purchases
subject to capital
lease obligations... 55,089 178,246 178,519 440,168
Advance from
stockholder
converted to common
stock............... -- -- 1,000,000 1,000,000
Convertible note
converted to common
stock............... -- -- 2,405,000 2,405,000
Strategic alliance
obligation converted
to common stock..... 1,725,000 -- -- 1,725,000
Deemed dividend for
preferred stock
conversion
discount............ 831,602 -- -- 831,602
Issuance of common
stock upon
conversion of
convertible
preferred stock..... 2,692,118 -- -- 2,692,119
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
1. ORGANIZATION, FUNDING, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and History
Autonomous Technologies Corporation (together with its subsidiary, the Company)
was incorporated in the State of Florida in 1985. The Company was formed to
pursue applications in the specialized field of laser radar (LADAR). The
Company has now focused its efforts on applying unique LADAR tracking
technology to the medical field and to the development of an ophthalmic laser
product for vision correction, trade named the LADARVision(R) System.
The Company generated revenues under government research grants during the
early years of its existence while it was developing commercial applications of
the LADAR technology. The final grant under which the Company conducted such
research was completed in February 1994. All subsequent research and clinical
development efforts have been devoted toward ophthalmic commercial applications
for its LADARVision system.
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 as of December 31, 1998 and for the period since
formation of the subsidiary to December 31, 1998.
Funding
In May 1996, the Company completed its initial public offering of common stock.
The Company sold 2,500,000 shares of common stock in this offering. Concurrent
with this event, all of the outstanding convertible preferred stock and certain
debt of the Company were converted to common shares. In 1997 and 1998, the
Company concluded three additional private financings to continue to fund
operations.
On October 1, 1998, the Company entered into a merger agreement (Merger
Agreement) with Summit Technology, Inc. (Summit) whereby the Company may merge
into a subsidiary of Summit. Summit is also involved in the field of laser
vision correction. More detailed information is contained in Note 11.
The Company has a revolving credit agreement (Credit Agreement) that is part of
the Merger Agreement. Under the terms of the Credit Agreement, Summit agreed to
loan the Company up to $5 million. The Company may not borrow more than $1.5
million in any calendar month and is required to make monthly interest payments
on the aggregate loan balance at a per annum rate of 5.25%. See Note 13 for a
description of an amendment to the Credit Agreement.
F-9
<PAGE>
At December 31, 1998, the Company had drawn $3.0 million under the Credit
Agreement pending the closing of a previously arranged private financing. On
January 20, 1999, the Company repaid all outstanding balances from the proceeds
of that financing. The Company anticipates utilizing the Credit Agreement to
fund operations after January 31, 1999. See Note 11 for a full description of
the Credit Agreement.
The Company has a common stock warrant issue outstanding that expires February
28, 1999. It is anticipated that more than $1.0 million will be paid to the
Company upon the exercise of these warrants. See Note 5 concerning warrants
outstanding.
The Company believes that the warrant exercise proceeds and the Summit
revolving credit agreement will be sufficient to fund operations into the
second quarter of 1999. In the event the merger with Summit is not consummated
by March 31, 1999, the Company will renew efforts to seek external capital to
continue to fund operations. If no external financing is obtained during the
second quarter of 1999, operations of the Company would have to be materially
curtailed at that time, including the cessation of production and U.S.
marketing efforts. If the Summit merger does not occur, the Company will also
renew its efforts to be acquired by another firm as an alternative to raising
additional capital.
Should the Company be successful in raising adequate funds in 1999 to fund
operations for a reasonable period thereafter (assuming the Summit merger does
not occur), the financing may cause substantial dilution for current
stockholders. It is also uncertain whether another party could be found in a
short time period to acquire the Company on reasonable terms.
F-10
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Going Concern
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As further described within Notes
1 and 11, in the event the Summit merger is not completed, recurring operating
losses, possible future funding deficiencies, and patent litigation (see Notes
10 and 13) raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying consolidated financial statements do not
include any adjustments that might result from the Company's inability to
continue as a going concern.
Development Stage Company
The Company's primary operations since inception has been devoted to developing
commercial applications of its LADAR technology. No significant operating
revenue has yet been generated. As a result, the financial statements are
presented in accordance with Statement of Financial Accounting Standards (SFAS)
No. 7, Accounting and Reporting by Development Stage Enterprises. In order to
generate significant revenues and become an operating business, the Company is
in the process of building both U.S. and non-U.S. sales and marketing
capabilities. The Company received its initial Pre-market Approval (PMA) from
the FDA in November 1998. The PMA permits the Company to commence U.S. sales
and marketing activities. The Company has elected to commence its U.S. launch
of the LADARVision System in the U.S. after the merger with Summit is
consummated in order to be licensed under a royalty-free cross license from
both VISX, Incorporated and Summit, who held such intellectual property jointly
under a patent pooling arrangement until mid-1998. Several companies are
actively marketing ophthalmic laser devices outside the U.S. Three other such
devices have been approved by the FDA for U.S. marketing for various levels of
surgical indications.
Cash and Cash Equivalents
Cash in excess of immediate operating needs is invested for up to 90 days in
overnight repurchase agreements and/or marketable debt securities, such as
commercial paper, in accordance with the Company's investment policy. Such cash
equivalents are stated at cost plus accrued interest, which approximates market
value.
Investments
Certain other liquid funds of the Company have been invested for terms in
excess of 90 days in Treasury and Agency securities. These investments have
been accounted for as "available-for-sale" securities under SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Realized
gains and losses are computed using the specific identification method. As of
December 31, 1997, the investments were stated at cost which approximate quoted
market values. At December 31, 1998, the Company held no investment securities.
Property and Equipment, Net
Property and equipment is recorded at cost less accumulated depreciation and
amortization. The Company provides depreciation primarily using the straight-
line method over the estimated useful
F-11
<PAGE>
lives of the assets. Leasehold improvements are amortized over the shorter of
the term of the lease or the life of the asset. Asset lives range as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Furniture and office equipment......................................... 3-7
Assembly, design, and test equipment................................... 3-7
</TABLE>
Impairment
The Company periodically reviews long-lived assets to be held and used in
operations for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. An impairment loss
is recognized when the estimated undiscounted future cash flows from the assets
are less than the carrying value of the assets. Assets to be disposed of are
reported at the lower of their carrying amount or fair value less cost to sell.
No asset impairment losses were incurred by the Company during the years ended
December 31, 1998, 1997, or 1996.
Inventories
Inventories relate to LADARVision Systems, which consist of component parts
amounting to $2,255,324 (less an obsolescence allowance of $419,758) and
$988,403 and work-in-process of $1,913,892 and $1,370,531 at December 31, 1998
and 1997, respectively.
Inventories are valued at the lower of cost or market. Cost is determined on
the first-in, first-out method.
LADARVision Systems-in-Service
The Company's LADARVision Systems-in-Service are LVC systems placed under the
Company's Autonomous Affiliates ProgramSM wherein the ophthalmology clinic or
hospital pays the Company a per-procedure fee for the use of the system in LVC
procedures.
Effective January 1, 1996, the Company changed the estimated useful lives for
some of its property and equipment from five years to three years. The effect
of this change in accounting estimate on net loss and net loss per share for
the year ended December 31, 1996 was immaterial. Effective January 1, 1999, the
Company changed the estimated useful lives for its LADARVision Systems-in-
Service from five years to four years. The effect of this change in accounting
estimate on net loss and net loss per share for the year ended December 31,
1999 is expected to be immaterial.
Advance Licensing Fees
The Company paid an advance licensing fee for the right to use certain patented
technology in commercial applications of its LADARVision System in the future.
License fees, which began to accrue against the prepaid asset in 1997, are due
based on agreed upon percentages of certain of the Company's future revenues,
as defined in the license agreement.
Research and Development
Research and development costs, which include the costs to pursue new patents
and the costs of building prototype and clinical LADARVision Systems and
CustomCornea(R) units, are expensed as incurred.
F-12
<PAGE>
Software Development Costs
Costs of developing software that will be used in the LADARVision System units
have been included in research and development expenses from the inception of
the Company until the end of 1998. Upon the achievement of the technological
feasibility, defined as receipt of the initial PMA from the FDA (which occurred
in late 1998), the Company will capitalize software costs incurred hereafter
and report them at the lower of unamortized cost or net realizable value.
Cost of developing software that will be used in the CustomCorena diagnostic
device which is under development will be included in research and development
expenses until technological feasibility is established by achievement of the
appropriate FDA approval.
Income Taxes
The Company accounts for income taxes using an asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred income taxes have been
provided for the differences between the financial reporting carrying values
and the income tax reporting basis of the Company's assets and liabilities.
These temporary differences consist of differences between the timing of the
deduction of certain amounts between income tax reporting purposes and
financial statement purposes. Due to uncertainties regarding the Company's
ability to realize the benefits of its deferred tax assets through future
operations, a valuation allowance has been established that completely offsets
the net deferred tax asset.
Net Loss Per Share; Statement of Financial Accounting Standards 128
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings per Share (SFAS No. 128). SFAS No. 128 replaces the presentation of
primary earnings per share (EPS) with a presentation of basic EPS.
Additionally, for many companies with potential common stock instruments
outstanding (options, warrants, convertible securities, or other contingent
issuances), a dual presentation of basic and diluted EPS is required. The
Company's presentation of basic EPS is found in the accompanying consolidated
statements of operations. The Company's net losses for the periods presented
cause the inclusion of potential common stock instruments outstanding to be
antidilutive and, therefore, in accordance with SFAS No. 128, the Company is
not required to present a diluted EPS.
Stock Authorization and Stock Split
In February 1996, the Board of Directors (the Board) approved a 150-for-1 stock
split of the Company's common stock and a restatement of the par value of the
Company's common stock to $.01 per share, accompanied by an increase in
authorized common shares to 15,000,000. The Board also approved the creation of
a new class of convertible preferred stock of the Company and approved an
authorization of 1,000,000 shares of such stock, whose price, rights,
privileges and related terms shall be determined by the Board at the time of
issuance. Additionally, on June 12, 1997, the stockholders of the Company
authorized an increase in authorized common shares to 25,000,000.
F-13
<PAGE>
All share and per-share information in the consolidated financial statements
have been adjusted to give effect to the 150-for-1 stock split and par value
restatement which became effective upon Board and shareholder approval in
February 1996.
Stock Options
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), which encourages, but
does not require, companies to adopt the fair value method of accounting for
stock-based employee compensation plans. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period, which is usually the vesting
period. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, but are required to disclose on a proforma
basis, net income and, if presented, earnings per share, as if the fair value
based method of accounting had been applied.
Effective January 1, 1996, the Company elected to adopt only the disclosure
requirements of SFAS No. 123. Accordingly, the Company will continue to account
for stock based employee compensation under APB Opinion No. 25. See Note 7.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial assets and liabilities,
including cash and cash equivalents and accounts payable at December 31, 1998
and 1997, approximate fair value because of the short maturity of these items.
The carrying amount of the Company's obligations under capital leases
approximates fair value at December 31, 1998 and 1997, since the interest rates
approximate rates currently available to the Company for borrowings and
investments.
New Accounting Pronouncements
In June 1997, SFAS No. 130, Reporting Comprehensive Income (SFAS 130), was
issued. This statement, which was effective for years beginning after December
15, 1997, establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements. Implementation
of SFAS 130 by the Company did not affect the consolidated financial statements
of the Company as the Company did not have any items of other comprehensive
income during the periods reported. The net losses reported by the Company are
also its comprehensive net losses for all periods reported.
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS 131). SFAS 131 requires the disclosure of operating
information about segments of an enterprise based on how management information
is complied and used for decision making. The Company's plans are to provide
products and services for only one such market, that of refractive surgical
correction, and therefore no segment financial information is presented herein
in accordance with SFAS 131.
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
F-14
<PAGE>
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.
Reclassifications
Certain prior-year amounts have been reclassified to conform with the current-
year presentation.
2. Property, Equipment, and LADARVision Systems-in-Service
Property and equipment consisted of the following as of December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Furniture and office equipment.......................... $1,254,356 $ 941,298
Assembly, design and test equipment..................... 1,501,111 662,252
Leasehold improvements.................................. 182,195 151,178
---------- ----------
2,937,662 1,754,728
Less accumulated depreciation........................... (1,275,035) (599,010)
---------- ----------
Property and equipment--net........................... $1,662,627 $1,155,718
========== ==========
LADARVision Systems-in-Service consisted of the following at December 31:
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
LADARVision Systems-in-Service.......................... $ 655,500 $ 437,000
Less accumulated depreciation........................... (112,891) (36,416)
---------- ----------
LADARVision Systems-in-Service--net..................... $ 542,609 $ 400,584
========== ==========
</TABLE>
As of December 31, 1998, the Company held equipment under capital leases with a
net book value of $201,643. Depreciation expense totaled $732,813, $278,638 and
$173,724 for the years ended December 31, 1998, 1997, and 1996, respectively.
F-15
<PAGE>
3. Lease Obligations
The Company has acquired furniture, computer, design and communications
equipment under capital lease arrangements. The effective interest rate on the
leases range from 9% to 21%.
In May 1997, the Company began occupying a main office and production facility
with approximately 25,000 square feet under a lease. The lease term is 10
years, with two five-year renewal options and termination opportunities at
years five and seven. Base rent under this lease for the 1999-2000 year is
$252,000, with annual 3% increases in subsequent years, plus the Company's
allocated portion of common area maintenance and other operating costs. The
lease payments include rent on $500,000 of landlord provided and tenant
specified build-out improvements. Minimum future obligations under
noncancelable operating leases (including the aforementioned facilities lease)
and the present value of future minimum capital lease payments as of December
31, 1998, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
Year Ending December 31 -------- ----------
<S> <C> <C>
1999............................................... $108,900 $ 277,063
2000............................................... 79,759 280,706
2001............................................... 69,869 288,295
2002............................................... 20,623 282,300
2003............................................... -- 283,553
2004 and thereafter................................ -- 1,329,290
-------- ----------
Total minimum lease payments....................... 279,151 $2,741,207
==========
Less amount representing interest.................. (45,474)
--------
Present value of minimum lease payments............ 233,677
Less current portion............................... (68,684)
--------
Long-term obligation............................... $164,993
========
</TABLE>
Rent expense totaled $357,196, $362,876 and $168,741 for the years ended
December 31, 1998, 1997 and 1996, respectively.
4. Strategic Alliance
History and Terms
In May 1994, the Company entered into a strategic marketing alliance (the
Purchase Agreement) with CIBA Vision Group Management, Inc. (CIBA), whereby
CIBA invested $2,405,000 into the Company and received an interest-free,
convertible note of $2,405,000 (the CIBA Note) with a three-year term, made an
equity investment in the Company, and acquired exclusive marketing rights
outside of North America to the LADARVision System. The CIBA Note automatically
converted into common stock upon the Company's initial public offering in May
1996.
On May 15, 1995, the Company entered into a Strategic Alliance Agreement (SAA)
with CIBA which terminated the aforementioned marketing agreement with CIBA and
amended the Purchase Agreement. Under the SAA, the Company regained control of
all marketing rights, received a $1,000,000 cash payment, and a commitment of
$1,000,000 worth of contributed sales and marketing services over three years.
In return, CIBA obtained the right to a 6% commission on net revenue worldwide,
as defined in the SAA, from all of the Company's equipment sales and patient
procedure fees pertaining to ophthalmic refractive surgery. The commission is
limited to $10,000,000 in the aggregate.
F-16
<PAGE>
The Company was also required to issue 610,534 Additional Shares of common
stock, as further described below, to CIBA on May 15, 1999. In March 1998, the
Company and CIBA amended the SAA and agreed to the issuance of 438,821 of the
additional shares of stock to CIBA. Concurrent with the March 1998 issuance,
the Company's Obligation under SAA of $1,725,000 was reclassified to common
stock and additional paid-in capital. The remaining 171,713 of the Additional
Shares to be issued in 1999 are still to be governed by the terms of the SAA.
The Company is required to issue 171,713 shares of common stock to CIBA on May
15, 1999 (or earlier if the proposed merger with Summit is consummated--see
Note 11).
Additional Shares
The Company is accruing for the obligation to issue the Additional Shares to
CIBA under the SAA on a straight line basis from the agreement date of May 15,
1995, to the expected issuance date of May 15, 1999. The obligation being
accrued over this four-year period is $2.4 million, which represents the value
of the originally issuable preferred shares at the date of the SAA. In each of
the years in the three year period ended December 31, 1998, the Company
recorded $600,000 of expense under this SAA which are included in other
expenses on the accompanying consolidated statements of operations. This amount
is recorded as the obligation under strategic alliance agreement in the
accompanying consolidated balance sheets as of December 31, 1998 and 1997.
Termination Rights
Under the SAA, CIBA has the right, at its sole discretion, to terminate the SAA
upon 180 days notice to the Company whereby the Company would continue to be
obligated to pay to CIBA the 6% commission for three years beyond termination
on those LADARVision Systems that were commercially placed at the time of
termination. In this case, CIBA's right to the additional shares on May 15,
1999, would be terminated. Additionally, CIBA has the right to terminate the
SAA upon 30 days notice should there be a change of control of the Company or
if the commercial value of the Company's technology is materially impacted.
During the years ended December 31, 1998, 1997, and 1996, CIBA contributed
sales and marketing services of $177,199, $471,275 and $449,736, respectively,
to the Company. These amounts have been recorded as selling and marketing
expense in the accompanying consolidated statements of operations, with a
corresponding increase to additional paid-in capital. The sales and marketing
services agreement expired on May 15, 1998.
5. Common Stock
Investor Rights Agreement
In connection with the Purchase Agreement, CIBA entered into an Amended and
Restated Investors' Rights Agreement (the Rights Agreement) between the Company
and certain holders of its shares. The Rights Agreement provides, among other
things, for uniform registration and information among such holders and gives
CIBA the right of first offer with respect to future offerings of any shares of
any class of the Company's capital stock.
F-17
<PAGE>
1998 Sale of Common Stock
On May 26, 1998, the Company completed a private placement of 600,573 shares of
unregistered common stock for $5.166 per share to four European investors, with
funding completed on June 2, 1998. The Company realized net proceeds from this
sale of $2,904,000.
Common Stock Warrants
The Company issued detachable warrants (the Series D Warrants) for the purchase
of 1,048,350 shares of common stock in connection with a preferred stock
issuance prior to its 1996 initial public offering. The warrants had an
original weighted average exercise price of $3.47 per share. These warrants
expire on February 29, 1999, have a cashless exercise provision, and are
exercisable at any time during their term. On February 3, 1999, the Board
approved a resolution to lower the exercise price on the Series D Warrants to
$3.00 per share in the case of cash exercises. The exercise price will remain
as originally offered in cases where the holder opts for a cashless exercise.
Upon completion of its initial public offering, the Company issued warrants for
the purchase of 75,000 shares of common stock to the managing underwriters of
the offering. These warrants have an exercise price of $9.60 per share, are
exercisable after May 7, 1997, and have an expiration date of May 7, 1999. In
connection with its 1997 equity offering, the Company issued warrants for the
purchase of 90,000 shares of common stock to an investment banking firm and the
placement agent for the offering. These warrants have a weighted average
exercise price of $3.61 per share, are currently exercisable, and have
expiration dates in April 1999 and June 2002.
As part of the Company's 1998 preferred stock financing (see Note 6), the
Company is obligated, in certain circumstances, to issue warrants for a total
of 380,000 shares to both the preferred stockholder and the placement agent for
the offering. These warrants became issuable upon the closing of the preferred
stockholder's option to purchase a second tranche of preferred stock. The
preferred stockholder exercised the option to purchase the second tranche on
November 9, 1998 and the warrants were issued upon closing on January 15, 1999.
These warrants for the purchase of 380,000 shares have an exercise price of
$6.17 per share and expire in January 2001. These warrants are not included in
the table of outstanding warrants below since they were issued after December
31, 1998. The holder of the preferred stock has agreed to exchange its warrant
for 300,000 shares, upon the closing of the proposed merger with Summit (see
Note 11), for 100,000 shares of the Company's common stock.
Following is a tabulation of common stock purchase warrants outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Source of Issuance/Date Shares Price Expiration
----------------------- ------- -------- -------------------
<S> <C> <C> <C>
Series D Warrants/1996................. 754,350 $3.52(/1/) February 28, 1999
Underwriters Warrants/1996............. 75,000 9.60 May 7, 1999
Placement Agent Warrants/1997.......... 90,000 3.61 April 8, 1999; 2002
-------
919,350
=======
</TABLE>
- - - --------
(/1/For)the period from February 3, 1999 to expiration, the exercise price in
the case of cash exercise is $3.00 per share.
F-18
<PAGE>
6.Series I Preferred Stock
On April 16, 1998, the Company entered into a Convertible Preferred Stock
Purchase Agreement and certain other related documents with an investor,
including a Stock Purchase Warrant Agreement, relating to the sale by the
Company of 500 shares of a newly designated Series I Convertible Preferred
Stock (Preferred Stock) and an option for the investor to purchase an
additional 400 of such shares by November 1998. The purchase price of the
Preferred Stock is $10,000 per share, for an initial purchase price of
$5,000,000 with the option shares having an additional purchase price of
$4,000,000. The option was exercised by the investor on November 9, 1998.
The closing on the first 500 shares of the Preferred Stock occurred on August
7, 1998 and the closing on the option shares occurred January 15, 1999. As a
result of the latter closing date being after December 31, 1998, the
accompanying consolidated financial statements only reflect the first 500
shares of Preferred Stock. The Company realized $4,681,000 on the closing of
the first 500 shares of the Preferred Stock.
The Preferred Stock is convertible into common stock from time to time, but
generally on a schedule of no more than 115 shares per month, at a price 10%
less than the average of the prior five days low trading prices of the
Company's common stock on the Nasdaq National Market. Upon the announcement of
the agreement to merge with Summit (see Note 11), the conversion price became
fixed at the average low trading price of the five days prior to the
announcement, or $3.975 per share. In no case is the entire issue of 900 shares
of the Preferred Stock convertible into more than 2,263,197 shares of common
stock. Should operation of the aforementioned formula result in the issuance of
the maximum number of shares without full conversion of the Preferred Stock,
the Company will be required to redeem the remainder in cash at 111% of the
purchase price of the remaining Preferred Stock. Assuming that the Company's
stock price generally remains at a level high enough whereby the $3.975 per
share is the operative conversion price, the continued conversion of the
Preferred Stock would result in the issuance of the maximum number of common
shares indicated above and the mandatory redemption of a remaining 32 shares of
Preferred Stock for $355,552. Through December 31, 1998, the holder of the
Preferred Stock had converted 230 shares of the Preferred Stock into 656,148
shares of common stock.
See Note 5 for a description of the Stock Purchase Warrant issued in
conjunction with the closing of the purchaser's exercise of the option for 400
shares of the Preferred Stock.
The Company is accounting for the aggregate estimated discount from the
conversions as a "deemed" preferred stock dividend in the accompanying
consolidated statement of operations. This accounting treatment takes into
account the earliest schedule upon which the conversions can occur and
allocates the aggregate estimated discount to the periods for which those
scheduled shares of convertible preferred stock are outstanding. In the period
from the initial closing (August 7, 1998) to March 31, 1999, the Company has or
will recognize $1,000,000 of such deemed dividend on the preferred stock.
The Preferred Stock is generally nonvoting, is senior in liquidation preference
to the Company's common stock and to any other preferred stock so long as it
shall remain outstanding, and imposes certain limitations on the Company's
operations until such time as a substantial amount of the Preferred Stock has
been converted into common stock or 300 days from the initial closing,
whichever occurs first.
F-19
<PAGE>
7. Employee Benefit Plans
Stock Options
In 1995, the board established the Autonomous Technologies Corporation 1995
Stock Option Plan (1995 Option Plan), authorizing a total of 1,050,000 common
shares for the purpose of attracting and retaining the services of qualified
employees, directors and consultants. In both 1997 and 1998, the Company's
stockholders approved increases in authorized shares under the 1995 Option Plan
to bring authorized shares to 2,250,000. Options under the 1995 Option Plan can
be either incentive stock options for employees or nonqualified stock options
for consultants or directors and generally vest ratably over the five-year
period following their grant. Options granted under the 1995 Option Plan can
have a term of no more than 10 years.
The 1995 Option Plan has a provision whereby all outstanding options accelerate
in the case of a change of control of the Company. It is anticipated that the
merger with Summit (see Note 11) will be such a change of control event and
option holders will have the choice of accelerating vesting for outstanding
options that have not fully vested. Under the terms of the Merger Agreement,
the option holder will alternatively be able to choose to waive such
acceleration so that Summit will assume the option on its original terms, with
appropriate adjustments to the number of shares and the exercise price under a
formula in the Merger Agreement.
In 1996, the Board established the Autonomous Technologies Corporation Employee
Stock Purchase Plan (1996 ESPP), authorizing a total of 75,000 common shares
for the purpose of providing qualifying employees the opportunity to purchase
shares in accordance with the terms of the 1996 ESPP at a discount of 15% from
market. The 1996 ESPP began operation on July 1, 1996. As a result of the
pending Summit merger, the ESPP was suspended after the exercise of options on
December 31, 1998 and will only resume operation should the merger not be
consummated.
F-20
<PAGE>
A summary of the Company's 1995 Option Plan and 1996 ESPP as of December 31,
1998, 1997, and 1996 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
1995 Option Plan 1996 ESPP
-------------------- ------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
--------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding as of December 31, 1995.... 597,600 $ .29 -- $ --
===== =====
Granted in 1996...................... 283,550 $5.02 1,417 $3.40
===== =====
Exercised in 1996.................... (11,820) $ .28 (1,417) $3.40
--------- ===== ------- =====
Outstanding as of December 31, 1996.... 869,330 $1.84 -- $ --
===== =====
Granted in 1997...................... 694,000 $5.16 9,346 $3.47
===== =====
Exercised in 1997.................... (173,620) $ .29 (9,346) $3.47
===== =====
Cancellations in 1997................ (22,720) $3.14 -- $ --
--------- ===== ------- =====
Outstanding as of December 31, 1997.... 1,366,990 $3.70 -- $ --
===== =====
Granted in 1998...................... 607,626 $4.84 14,044 $4.15
===== =====
Exercised in 1998.................... (135,920) $ .40 (10,719) $4.03
===== =====
Cancellations in 1998................ (148,670) $5.19 (3,325) $4.55
--------- ===== ------- =====
Outstanding as of December 31, 1998.... 1,690,026 $4.24 -- $ --
========= ===== ======= =====
SFAS 123 weighted-average fair value of options granted during the year:
1996................................. 283,550 $3.42 1,417 $1.02
1997................................. 694,000 $3.57 9,346 $1.13
1998................................. 607,626 $3.61 14,044 $1.42
</TABLE>
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- --------------------
Weighted-
Average Weighted- Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.13--$0.33 291,550 6.8 years $ .30 226,000 $ .29
$3.50--$4.88 500,976 8.9 years 4.03 155,746 4.14
$5.13--$6.13 798,000 8.9 years 5.47 191,600 5.48
$6.25--$8.00 99,500 8.7 years 6.95 23,700 7.12
--------- ----- ------- -----
1,690,026 $4.24 597,046 $3.23
========= ===== ======= =====
</TABLE>
The options outstanding at December 31, 1998, expire from January 1999 to
November 2008. There are 238,614 shares remaining available for grant in the
1995 Option Plan and 53,518 shares remaining available for grant in the 1996
ESPP at December 31, 1998.
For options granted during 1995, the Company has recognized compensation
expense in the years ended December 31, 1998, 1997 and 1996, under APB 25 of
$374,400, $244,145 and $218,890,
F-21
<PAGE>
respectively. The additional compensation expense, under current vesting
schedules, the Company will recognize under APB 25 is immaterial.
The Company has not elected to adopt the compensation measurement provisions of
SFAS 123. Had the Company elected to measure compensation using the methodology
prescribed in SFAS 123 for options during the years ended December 31, 1998,
1997, and 1996, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C> <C>
Net loss........................ As reported $16,564,985 $11,639,355 $9,008,044
Pro forma $18,517,000 $12,205,000 $9,296,000
Basic net loss per share........ As reported $ 1.59 $ 1.43 $ 2.36
Pro forma $ 1.77 $ 1.50 $ 2.44
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model with the following assumptions summarized as
follows:
<TABLE>
<CAPTION>
Expected Interest
Grant type and period Volatility Life Rates
--------------------- ---------- -------- ---------
(in years)
<S> <C> <C> <C>
1996 option grants............................... 60% 6.3 5.6%--6.8%
1997 option grants............................... 70% 6.4 5.7%--6.9%
1998 option grants............................... 80% 6.4 4.3%--5.8%
Employee stock purchase plan grants.............. 60--80% 0.5 5.0%
</TABLE>
401(k) Plan
In December 1995, the Board authorized the formation of a retirement plan for
the Company's employees that qualifies under Internal Revenue code (IRC)
Section 401(k). The Plan, which began January 1, 1996, covers employees who
have attained at least 18 years of age. The Company may, at the Board's
discretion, make matching contributions to the employee contributions. The
Company has never made any matching contributions.
8. Income Taxes
The reconciliation of the benefit for income taxes based upon the U.S.
statutory federal rate (34%) to the Company's provision for income taxes is as
follows for the years ended:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Expected tax benefit at statutory rate $(5,941,000) $(3,958,000) $(3,063,000)
(Increase) decrease resulting from:
State income tax benefit, net of
federal tax benefit.................. (634,000) (423,000) (327,000)
Costs incurred but not deductible for
tax purposes......................... 462,000 11,000 6,000
Increase in the valuation allowance... 6,113,000 4,370,000 3,384,000
----------- ----------- -----------
Total provision for income taxes.... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
F-22
<PAGE>
The Company's deferred tax accounts consisted of the following as of December
31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Assets:
Net operating loss (NOL) carry forwards.............. $15,704,000 $ 9,220,000
Accruals and other................................... 1,188,000 1,559,000
----------- -----------
16,892,000 10,779,000
Less valuation allowance.............................. (16,892,000) (10,779,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The accruals and other items are a result of the Company being on a cash basis
for tax reporting purposes and accrual basis for book purposes. As of December
31, 1998, the NOL carryforwards amount to $41,732,000 and expire in years 2005
through 2013.
The Company has had greater than 50% ownership changes in 1993, 1994, and 1996,
as defined under the rules of IRC Section 382. Consequently, the use of the NOL
carryforwards generated in periods prior to the changes in control against
future taxable income in any one year may be limited.
9. Related Party Transactions
The Company received general and medical advisory services from three of its
directors. The Company was charged $162,173, $151,625, and $72,000 in
professional fees for such services in the years ended December 31, 1998, 1997,
and 1996, respectively. See also Note 4 which describes the relationship with
CIBA, a related party.
10. Contingencies
Legal Matters
In October 1996, the Company filed suit in the United States District Court for
the District of Delaware against Pillar Point Partners (Pillar Point), Summit,
VISX, Summit Partner, Inc. (Summit Partner) and VISX Partner, Inc. (VISX
Partner) (collectively, the Defendants). The Defendants hold a portfolio of
U.S. patents relating to refractive laser surgery. The complaint seeks a
declaratory judgment of noninfringement, invalidity, and/or unenforceability,
with regard to the Company's LADARVision System.
On September 24, 1998, VISX filed a counterclaim in the aforementioned action
seeking a declaratory judgment of infringement by the Company and preliminary
and permanent injunctions. The Company believes that after the pending merger
with Summit (see Note 11) the Company's technology will be covered by a
royalty-free cross license with VISX held by Summit pertaining to the VISX
patents. The Company believes that this post-merger cross license will render
moot the claim that the Company infringes on VISX patents for activities after
the merger. As of November 9, 1998, the Company and VISX agreed to stay the
litigation between themselves until the earlier of the merger, termination of
the merger or April 1, 1999. During this period, the Company has agreed not to
deliver LADARVision Systems in the U.S. If the merger does not occur, a re-
opening of the suit activities or a judgment in favor of VISX could have a
material adverse effect on the Company's business, financial condition and
results of operations.
F-23
<PAGE>
As a result of these actions, the Company has incurred significant expenses
consisting primarily of management resources, legal fees, expert witness fees
and related expenses. The expenses incurred in 1998 and 1997 are classified as
other expenses in the accompanying consolidated statements of operations.
Further, should the merger not occur these expenses will increase significantly
thereafter. Absent the aforementioned pre-merger stay or the post-merger cross
license, the Company believes that it does not infringe on the VISX apparatus
patents and that it must aggressively assert this position in order to bring
its products to the commercial markets in the United States, Canada and the
European Community. There can, however, be no assurances that renewed pursuit
of these actions in the case where the merger does not occur will bring the
Company any relief from the license arrangements that might be required nor is
there any assurance that such licenses as might be needed to enter certain
markets will be available to the Company if the Company does not prevail in its
actions.
As a condition to the merger agreement with Summit, the Company has agreed to
stipulate to the dismissal, without prejudice, of all claims it has alleged
against Summit, Summit Partner and Pillar Point Partners in the Company's 1996
action.
Product Liability and Insurance
The Company's business involves the risk of product liability claims. The
Company has not experienced any product liability claims to date. The Company
maintains a "claims made" product liability insurance policy with coverage
limits of $5 million per occurrence and $5 million in aggregate. The inability
of the Company to maintain adequate insurance coverage at any time could, in
the event of product liability or other claims in excess of the Company's
insurance coverage, have a material adverse effect on the Company's business,
financial condition and results of operations. Additionally, the Company has
agreed in the past, and is likely to agree in the future, to indemnify certain
medical institutions and their personnel who participate in the Company's
clinical studies.
11. Merger Agreement with Summit Technology
On October 1, 1998, the Company and Summit announced that they had entered into
a Merger Agreement whereby Summit would acquire the Company. The following is a
brief summary of the terms of the Agreement and Plan of Merger. The entire
Agreement and Plan of Merger, dated October 1, 1998, has been filed with the
SEC as Exhibit 10.1 to the Company's Current Report on Form 8-K dated October
7, 1998. Further, a Registration Statement on Form S-4 has been filed by Summit
on November 6, 1998 and amended on January 7, 1999.
The merger transaction is subject to the approval of the stockholders of both
the Company and Summit. The merger consideration is 11,650,400 shares of Summit
stock and an equivalent amount in value of cash, subject to a maximum of $50
million in cash. This consideration will be divided among the outstanding
shares of Autonomous common stock, the outstanding shares of Autonomous Series
I Preferred Stock and options and warrants for Autonomous common stock.
Autonomous common stockholders will receive part stock and part cash for their
Autonomous shares. The exact value, and the relative mix of cash and Summit
stock, will vary depending on the market price of Summit stock prior to the
closing, the amount of the loan under the Credit Agreement to Autonomous
described below, if any, whether the holder of the Series I Preferred Stock
exercises its right to redeem its shares for cash or convert to common stock
and certain other factors.
F-24
<PAGE>
Randy W. Frey, Chairman, President and Chief Executive Officer of the Company,
and CIBA Vision Corporation, together owning approximately 19% of the Company's
outstanding shares, and each of the Company's officers and directors have
agreed to vote, as shareholders, for the merger.
In connection with the merger agreement, Summit agreed to lend up to $5 million
to the Company under a Credit Agreement. Under the Credit Agreement, the
Company may not draw more than $1.5 million per month. One half of the amount
borrowed by the Company and not repaid as of the closing date of the merger
will reduce the amount of the aggregate cash consideration in the merger. In
the event the merger does not occur through no fault of the Company, the amount
drawn under the Credit Agreement is due and payable 180 days from the date of
the termination of the Merger Agreement.
Under the terms of the Merger Agreement, the Company must pay Summit a
termination fee of $2.6 million in cash if the Merger Agreement is terminated
in either of the following circumstances:
.. the Autonomous stockholders have not approved the merger by February 28,
1999 and a proposal by a third party for an alternative transaction has been
made prior to the Autonomous Special Meeting of Stockholders that will be
called in order to vote on the Merger Agreement; or
.. the Company materially breaches any representation or warranty in the Merger
Agreement or fails to comply with any of its obligations under the Merger
Agreement if these result in a material adverse change incapable of being
cured by the Company.
Upon the effectiveness of the aforementioned Summit S-4 registration statement,
the Company and Summit plan to distribute a joint proxy statement to their
respective shareholders. Depending on the timing of the effectiveness of the
registration statement and other factors, the Company and Summit plan to hold
their respective shareholder meetings as soon as practicable. See Note 13 for
modifications to the terms of the Merger Agreement with Summit Technology.
F-25
<PAGE>
12. Quarterly Financial Information--Unaudited
The tables below contain summarized unaudited quarterly data for the years
ended December 31, 1998 and 1997. The Company believes this information
reflects all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation of the quarterly information presented. The
operating results for any quarter are not necessarily indicative of the results
that may be expected for future periods.
<TABLE>
<CAPTION>
First Second Third Fourth Annual
Quarter Quarter Quarter Quarter Totals
---------- ---------- ---------- ---------- -----------
1998
- - - ----
<S> <C> <C> <C> <C> <C>
Operating loss.......... $3,876,170 $4,201,124 $4,160,749 $4,550,991 $16,789,034
Net loss*............... $3,804,389 $4,168,618 $4,551,760 $4,949,588 $17,474,355
Basic net loss per
share*................. $ .38 $ .39 $ .40 $ .42 $ 1.59
Shares used in computing
basic net loss per
share.................. 10,039,042 10,684,254 11,320,269 11,969,058 11,009,272
<CAPTION>
1997
- - - ----
<S> <C> <C> <C> <C> <C>
Operating loss.......... $2,746,078 $3,196,468 $2,845,743 $3,392,177 $12,180,466
Net loss................ $2,597,840 $3,091,332 $2,677,129 $3,273,054 $11,639,355
Basic net loss per
share.................. $ .38 $ .45 $ .27 $ .33 $ 1.43
Shares used in computing
basic net loss per
share.................. 6,852,814 6,888,689 9,900,212 9,958,832 8,151,395
</TABLE>
*--in the third and fourth quarters and annual totals for 1998, the net loss
and basic net loss per share is that attributable to common stockholders after
recognition of a charge for the deemed dividend for the Series I preferred
stock conversion discount.
13. Events Subsequent to December 31, 1998
Summit Merger, Revolving Credit Line and Revolving Promissory Note amendment;
Special Shareholders' Meeting
On March 16, 1999, the Company and Summit agreed to amend the Merger Agreement
to extend the date of termination of the Agreement to April 30, 1999. The
Revolving Credit Line and Revolving Promissory Note were amended such that the
total amount of borrowings available to the Company is $8 million with all
other terms and conditions remaining the same. The Company has tentatively
scheduled its Special Shareholders' Meeting for April 29, 1999 at which time
the shareholders of record on March 19, 1999 shall vote on adoption of the
Merger Agreement and approval of the merger itself.
Series D warrants
The Series D warrants discussed in Note 5 expired on February 28, 1999. Of the
warrants for 754,350 shares outstanding at year-end, warrants for 540,100
shares were exercised for cash of approximately $1.6 million and warrants for
214,250 shares were exercised in a "cashless" manner for a net issuance of
100,628 shares. Therefore, conversion of the Series D warrants resulted in the
issuance after December 31, 1998 of 640,728 common shares.
F-26
<PAGE>
ANNEX A
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SUMMIT TECHNOLOGY, INC.,
ALPINE ACQUISITION CORP.,
AND
AUTONOMOUS TECHNOLOGIES CORPORATION
Dated as of October 1, 1998
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I................................................................ 1
THE MERGER............................................................ 1
Section 1.1 The Merger.......................................... 1
Section 1.2 Effective Time...................................... 2
Section 1.3 Effect of the Merger................................ 2
Section 1.4 Certificate of Incorporation, By-Laws............... 2
Section 1.5 Directors and Officers.............................. 2
Section 1.6 Effect on Capital Stock............................. 2
Section 1.7 Exchange of Certificates............................ 5
Section 1.8 Stock Transfer Books................................ 6
No Further Ownership Rights in Company Common
Section 1.9 Stock.............................................. 6
Section 1.10 Lost, Stolen or Destroyed Certificates.............. 6
Section 1.11 Tax Consequences.................................... 7
Section 1.12 Taking of Necessary Action; Further Action.......... 7
Section 1.13 Material Adverse Effect............................. 7
Section 1.14 Restructuring of the Merger......................... 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... 8
Section 2.1 Organization and Qualification; Subsidiaries........ 9
Section 2.2 Articles of Incorporation and By-Laws............... 9
Section 2.3 Capitalization...................................... 9
Section 2.4 Authority Relative to this Agreement................ 10
Section 2.5 No Conflict; Required Filings and Consents.......... 11
Section 2.6 Compliance.......................................... 12
Section 2.7 SEC Filings; Financial Statements................... 12
Section 2.8 Absence of Certain Changes or Events................ 12
Section 2.9 No Undisclosed Liabilities.......................... 13
Section 2.10 Absence of Litigation............................... 13
Section 2.11 Employee Benefit Plans, Employment Agreements....... 13
Section 2.12 Labor Matters....................................... 15
Registration Statement, Joint Proxy
Section 2.13 Statement/Prospectus............................... 15
Section 2.14 Title to Property................................... 15
Section 2.15 Taxes............................................... 15
Section 2.16 Environmental Matters............................... 16
Section 2.17 Intellectual Property............................... 17
Section 2.18 Regulatory Matters.................................. 18
Section 2.19 Interested Party Transactions....................... 19
Section 2.20 Insurance........................................... 19
Section 2.21 Opinion of Financial Advisor........................ 19
Section 2.22 Brokers............................................. 19
Section 2.23 Change in Control Payments.......................... 20
Section 2.24 Expenses............................................ 20
Section 2.25 No Existing Discussions............................. 20
Sections 607.0901 and 607.0902 of the FBCA Not
Section 2.26 Applicable......................................... 20
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............... 20
Section 3.1 Organization and Qualification; Subsidiaries........ 21
Section 3.2 Charter and By-Laws................................. 21
Section 3.3 Capitalization...................................... 21
Section 3.4 Authority Relative to this Agreement................ 21
Section 3.5 No Conflict, Required Filings and Consents.......... 22
Section 3.6 Compliance.......................................... 23
Section 3.7 SEC Filings; Financial Statements................... 23
Section 3.8 Absence of Certain Changes or Events................ 24
Section 3.9 No Undisclosed Liabilities.......................... 24
Section 3.10 Absence of Litigation............................... 24
Section 3.11 Employee Benefit Plans; Employment Agreements....... 24
Section 3.12 Labor Matters....................................... 25
Registration Statement; Joint Proxy
Section 3.13 Statement/Prospectus............................... 26
Section 3.14 Title to Property................................... 26
Section 3.15 Taxes............................................... 26
Section 3.16 Environmental Matters............................... 27
Section 3.17 Intellectual Property............................... 27
Section 3.18 Regulatory Matters.................................. 28
Section 3.19 Interested Party Transactions....................... 28
Section 3.20 Financial Capacity.................................. 28
Section 3.21 Opinion of Financial Advisor........................ 29
Section 3.22 Brokers............................................. 29
Section 3.23 Ownership of Merger Sub; No Prior Activities........ 29
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER................................ 29
Conduct of Business by the Company Pending the
Section 4.1 Merger............................................. 29
Section 4.2 No Solicitation..................................... 31
ARTICLE V
ADDITIONAL AGREEMENTS................................................. 32
Section 5.1 HSR Act............................................. 32
Joint Proxy Statement Prospectus; Registration
Section 5.2 Statement.......................................... 32
Section 5.3 Stockholders Meetings............................... 33
Section 5.4 Access to Information; Confidentiality.............. 33
Section 5.5 Consents; Approvals................................. 33
Section 5.6 Agreements with Respect to Affiliates............... 34
Section 5.7 Indemnification and Insurance....................... 34
Section 5.8 Notification of Certain Matters..................... 35
Section 5.9 Further Action/Tax Treatment........................ 35
Section 5.10 Public Announcements................................ 36
Section 5.11 Accountants' Letters................................ 36
Section 5.12 Board Representation................................ 36
Section 5.13 Nasdaq Listing...................................... 36
Section 5.14 Listing of Parent Shares............................ 36
Section 5.15 Joint Shareholder Communications Efforts............ 36
Section 5.16 Dismissal of Civil Actions.......................... 37
Section 5.17 Issuance of CIBA Shares............................. 37
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE VI
CONDITIONS TO THE MERGER.............................................. 37
Conditions to Obligation of Each Party to Effect the
Section 6.1 Merger............................................. 37
Additional Conditions to Obligations of Parent and
Section 6.2 Merger Sub......................................... 37
Section 6.3 Additional Conditions to Obligation of the Company.. 38
ARTICLE VII
TERMINATION........................................................... 39
Section 7.1 Termination......................................... 39
Section 7.2 Effect of Termination............................... 41
Section 7.3 Fees and Expenses................................... 41
ARTICLE VIII
GENERAL PROVISIONS.................................................... 41
Section 8.1 Effectiveness of Representations, Warranties and
Agreements; Knowledge, Etc......................... 41
Section 8.2 Notices............................................. 42
Section 8.3 Certain Definitions................................. 42
Section 8.4 Amendment........................................... 43
Section 8.5 Waiver.............................................. 43
Section 8.6 Headings............................................ 43
Section 8.7 Severability........................................ 44
Section 8.8 Entire Agreement.................................... 44
Section 8.9 Assignment; Guarantee of Merger Sub................. 44
Section 8.10 Parties in Interest................................. 44
Failure or Indulgence Not Waiver; Remedies
Section 8.11 Cumulative......................................... 44
Section 8.12 Governing Law....................................... 44
Section 8.13 Counterparts........................................ 44
</TABLE>
iii
<PAGE>
Location of Defined Terms in Agreement and Plan of Merger
<TABLE>
<CAPTION>
Defined Terms Section of Merger Agreement
- - - ------------- ---------------------------
<S> <C>
1998 Company Balance Sheet.......................... 2.9
1998 Parent Balance Sheet........................... 3.9
Acquisition Proposal................................ 4.2(a)
Affiliates.......................................... 8.3
Affiliate Agreement................................. 5.6
Affiliate Letter.................................... 5.6
Agreement........................................... Preamble
Alternative Transaction............................. 7.1
Approvals........................................... 2.1
Average Closing Price............................... 1.6(a)
Beneficial Owner.................................... 8.3
Blue Sky Laws....................................... 2.5(d)
Business Day........................................ 8.3
Cash Consideration.................................. 1.6(a)
Certificates........................................ 1.6(f)
Certificates of Merger.............................. 1.2
Closing............................................. 1.1(b)
Code................................................ Preamble
Company............................................. Preamble
Company Common Stock................................ Preamble
Company Disclosure Schedule......................... Article II Preamble
Company Employee Plans.............................. 2.11(a)
Company ERISA Affiliate............................. 2.11(a)
Company Fee......................................... 7.3(b)
Company Intellectual Property Rights................ 2.17(a)
Company Liens....................................... 2.3
Company Permits..................................... 2.6(b)
Company Products.................................... 2.18(a)
Company SEC Reports................................. 2.7(a)
Company Stockholders Meeting........................ 2.13
Company Stock Option Plan........................... 1.6(c)(i)
Company Stock Purchase Plan......................... 1.6(c)(v)
Confidentiality Letter.............................. 5.4
Control............................................. 8.3
DGCL................................................ Preamble
Diluted Company Common Stock........................ 1.6(a)
Effective Time...................................... 1.2
Environmental Laws.................................. 2.16
ERISA............................................... 2.11(a)
Exchange Act........................................ 2.5(a)
Exchange Agent...................................... 1.7(a)
FBCA................................................ Preamble
FDA................................................. 2.18(a)
Generally accepted accounting principles............ 8.3
HSR Act............................................. 2.5(d)
Indemnified Parties................................. 5.7(b)
IRS................................................. 2.11(b)
ISO................................................. 2.11(c)
Joint Proxy Statement/Prospectus.................... 2.13
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Defined Terms Section of Merger Agreement
- - - ------------- ---------------------------
<S> <C>
Laws................................................ 2.5(c)
Licenses............................................ 2.18(b)
Liens............................................... 2.3
Material Adverse Effect............................. 1.13
Merger.............................................. Preamble
Merger Consideration................................ 1.7(b)
Merger Sub.......................................... Preamble
Parent.............................................. Preamble
Parent Common Stock................................. 1.6(a)
Parent Disclosure Schedule.......................... Article III Preamble
Parent Employee Plans............................... 3.11(a)
Parent ERISA Affiliate.............................. 3.11(a)
Parent Fee.......................................... 7.3(c)
Parent Intellectual Property Rights................. 3.17(a)
Parent Liens........................................ 3.3
Parent Material Adverse Effect...................... 1.13
Parent Permits...................................... 3.6(b)
Parent Products..................................... 3.18(a)
Parent SEC Reports.................................. 3.7(a)
Parent Shares....................................... 1.6(a)
Parent Stockholders Meeting......................... 2.13
PBGC................................................ 2.11(b)
Per Share Cash Consideration........................ 1.6(a)
Per Share Stock Consideration....................... 1.6(a)
Outstanding Company Common Stock.................... 1.6(a)
Rule 145............................................ 5.6
SEC................................................. 2.5(a)
Securities Act...................................... 1.6(c)(iv)
Series I Preferred Stock............................ 1.6(a)
Share............................................... Preamble
Stock Consideration................................. 1.6(a)
Stock Options....................................... 1.6(c)(i)
Stockholders Agreements............................. 2.26
Stockholders Meeting................................ 2.13
Subsidiary Documents................................ 2.2
Tax/Taxes........................................... 2.15
Tax Returns......................................... 2.15
Terminating Breach.................................. 7.1(f)
Third Party......................................... 7.1(h)
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 1, 1998 (this "Agreement"),
among Summit Technology, Inc., a Massachusetts corporation ("Parent"), Alpine
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Merger Sub"), and Autonomous Technologies Corporation, a Florida
corporation (the "Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a business combination with
the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of Parent,
Merger Sub and the Company have each approved the merger (the "Merger") of the
Company with and into Merger Sub or, if the Merger is restructured as provided
herein, of Merger Sub with and into the Company, in accordance with the
applicable provisions of the Florida Business Corporation Act (the "FBCA") and
the Delaware General Corporation Law (the "DGCL"), and upon the terms and
subject to the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, unless the Merger shall
have been restructured as provided herein, by approving resolutions authorizing
this Agreement, to adopt this Agreement as a plan of reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations promulgated thereunder; and
WHEREAS, pursuant to the Merger, each outstanding share (a "Share") of the
Company's common stock, $.01 par value per share (the "Company Common Stock"),
shall be converted into the right to receive the Merger Consideration (as
defined in Section 1.7(b)), upon the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements herein contained, and intending to be legally bound hereby, Parent,
Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger.
(a) Effective Time. At the Effective Time (as defined in Section 1.2), and
subject to and upon the terms and conditions of this Agreement, the FBCA and
the DGCL, the Company shall be merged with and into Merger Sub, the separate
corporate existence of the Company shall cease, and Merger Sub shall continue
as the surviving corporation. Merger Sub as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
<PAGE>
(b) Closing. Unless this Agreement shall have been terminated pursuant to
Section 7.1 and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the consummation of the Merger (the "Closing") will take
place as promptly as practicable (and in any event within two business days)
after satisfaction or waiver of the conditions set forth in Article VI, at the
offices of Ropes & Gray, One International Place, Boston, Massachusetts, unless
another date, time or place is agreed to in writing by the parties hereto.
Section 1.2 Effective Time. As promptly as practicable after the satisfaction
or waiver of the conditions set forth in Article VI, the parties hereto shall
cause the Merger to be consummated by filing certificates of merger as
contemplated by the FBCA and the DGCL (the "Certificates of Merger"), together
with any required related certificates, with the Secretary of State of the
State of Florida and the Secretary of State of the State of Delaware, in such
form as required by, and executed in accordance with the relevant provisions
of, the FBCA and the DGCL (the time of the later of such filings being the
"Effective Time").
Section 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificates of Merger and
the applicable provisions of the FBCA and the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
Section 1.4 Certificate of Incorporation, By-Laws.
(a) Certificate of Incorporation. Unless otherwise determined by Parent prior
to the Effective Time, at the Effective Time the Certificate of Incorporation
of Merger Sub, as in effect immediately prior to the Effective Time, shall be
the Certificate of Incorporation of the Surviving Corporation until thereafter
amended in accordance with the DGCL and such Certificate of Incorporation.
(b) By-Laws. Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time the By-Laws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended in accordance with the DGCL, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws.
Section 1.5 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
Section 1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the Parent, Merger Sub, the
Company or any of their respective stockholders:
(a) Conversion of Securities. Each Share issued and outstanding immediately
prior to the Effective Time (excluding any Shares to be canceled pursuant
to Section 1.6(b)) shall be
A-2
<PAGE>
converted, subject to Section 1.6(f), into the right to receive (i) the
quotient of 11,650,400 shares (the "Stock Consideration") of validly
issued, fully paid and nonassessable shares ("Parent Shares") of the
Common Stock, $0.01 par value per share, of Parent ("Parent Common Stock")
divided by the Diluted Company Common Stock (the "Per Share Stock
Consideration") and (ii) the quotient of $50,000,000 in cash less (A) one-
half of any amounts advanced to the Company by Parent after the date
hereof and (B) unless the holders of the Series I Preferred Stock shall
have converted such Series I Preferred Stock prior to the Effective Time,
any amounts that would be payable upon redemption of all shares of the
Company's Convertible Preferred Stock, Series I, $.01 par value per share
(the "Series I Preferred Stock"), that are issued or issuable as of the
date hereof, assuming redemption is made on the date on which the
Effective Time occurs in accordance with the provisions of the Company's
Articles of Incorporation or pursuant to any agreement with the holders of
Series I Preferred Stock prior to the Effective Time (the "Cash
Consideration") divided by the Diluted Company Common Stock (the "Per
Share Cash Consideration"). If the average closing price of Parent Common
Stock on The Nasdaq National Market for the five trading days ending on
the day before the date on which the Effective Time occurs (the "Average
Closing Price") is less than $4.2917, then the $50,000,000 in the previous
sentence shall be reduced to 11,650,400 multiplied by the Average Closing
Price.
"Diluted Company Common Stock" means the number of shares of Company
Common Stock outstanding at the Effective Time (the "Outstanding Company
Common Stock"), plus all shares of Company Common Stock issuable upon the
exercise or conversion of all options, warrants, convertible securities
or other rights, agreements, arrangements or other commitments of any
character pursuant to which the Company is obligated, contingently or
otherwise, to issue or sell shares of Company Common Stock (excluding the
Series I Preferred Stock and all rights to acquire the Series I Preferred
Stock) calculated by applying the treasury stock method to options,
warrants and convertible securities.
(b) Cancellation. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of
the holder thereof, cease to be outstanding, be canceled and retired
without payment of any consideration therefor and cease to exist.
(c) Stock Options and Stock Purchase Plan.
(i) At the Effective Time, Parent will assume each then outstanding
option to purchase Shares (the "Stock Options") under the Company's
1995 Stock Option Plan (the "Company Stock Option Plan") as to which
the holder has waived the acceleration of vesting under Section 14 of
the Company Stock Option Plan, and each such Stock Option shall
thereafter constitute an option to acquire, on substantially the same
terms and subject to substantially the same conditions as were
applicable under such Stock Option, including without limitation
term, vesting, exercisability, status as an "incentive stock option"
under Section 422 of the Code and termination provisions, the number
of shares of Parent Common Stock, rounded down to the nearest whole
share, equal to the sum of (i) the product of the number of Shares
subject to such Stock Option immediately prior to the Effective Time
multiplied by the Per Share Stock Consideration plus (ii) the
A-3
<PAGE>
product of the number of Shares subject to such Stock Option
immediately prior to the Effective Time multiplied by a fraction the
numerator of which is the Per Share Cash Consideration and the
denominator of which is the Average Closing Price. The exercise price
per share of Parent Common Stock (increased to the nearest whole cent)
shall be equal to the aggregate exercise price of the Stock Option
divided by the number of Shares of Parent Common Stock into which such
Stock Option will become exercisable at the Effective Time; provided,
however, that in the case of any Stock Option to which Section 421 of
the Code applies by reason of its qualification as an incentive stock
option under Section 422 of the Code, the conversion formula shall be
adjusted if necessary to comply with Section 424(a) of the Code.
(ii) The Company shall use its best efforts to obtain all necessary
waivers, consents or releases from holders of Stock Options under
the Company Stock Option Plan and take any such other action as may
be reasonably necessary to give effect to the transactions
contemplated by this Section 1.6(c).
(iii) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of Parent Shares for delivery pursuant
to the terms set forth in this Section 1.6(c).
(iv) Subject to any applicable limitations under the Securities Act of
1933, as amended, and the rules and regulations thereunder (the
"Securities Act"), Parent shall either (A) file a Registration
Statement on Form S-8 (or any successor form), effective as of the
Effective Time, with respect to the shares of Parent Common Stock
issuable upon exercise of the Stock Options, or (B) file any
necessary amendments to the Company's previously-filed Registration
Statement(s) on Form S-8 in order that the Parent will be deemed a
"successor registrant" thereunder, and, in either event the Parent
shall use all reasonable efforts to maintain the effectiveness of
such registration statement(s) (and maintain the current status of
the prospectus or prospectuses relating thereto) for so long as such
Stock Options shall remain outstanding.
(v) The Company will promptly cause written notice of the execution of
this Agreement to be given to persons holding options or other rights
to purchase Company Common Stock under the Company's 1996 Employee
Stock Purchase Plan (the "Company Stock Purchase Plan"). The Company
will terminate the Company Stock Purchase Plan at the end of the
current purchase period.
(d) Capital Stock of Merger Sub. Each share of common stock, $.01 par value,
of Merger Sub issued and outstanding immediately prior to the Effective
Time shall remain outstanding.
(e) Adjustments to Stock Consideration. The Stock Consideration shall be
adjusted to fully reflect the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock), reorganization, recapitalization
or other like change with respect to Parent Common Stock occurring after
the date hereof and prior to the Effective Time.
(f) Fractional Shares. Unless Parent otherwise elects, no certificates or
scrip representing less than one Parent Share shall be issued upon the
surrender for exchange of a certificate or certificates which immediately
prior to the Effective Time represented outstanding Shares (the
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"Certificates"). If Parent so elects, in lieu of any such fractional
share, each holder of Shares who would otherwise have been entitled to a
fraction of a Parent Share upon surrender of Certificates for exchange
shall be paid upon such surrender cash equal to the product of (i) such
fraction, multiplied by (ii) the Average Closing Price.
Section 1.7 Exchange of Certificates.
(a) Exchange Agent. Parent shall supply, or shall cause to be supplied, to or
for the account of BankBoston, N.A., or such other bank or trust company as
shall be designated by Parent (the "Exchange Agent"), in trust for the benefit
of the holders of Company Common Stock, for exchange in accordance with this
Section 1.7, through the Exchange Agent, certificates evidencing the Parent
Shares issuable pursuant to Section 1.6 in exchange for outstanding Shares.
(b) Exchange Procedures. As soon as reasonably practicable after the Effective
Time, Parent will instruct the Exchange Agent to mail to each holder of record
of Certificates (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent and shall
be in such form and have such other provisions as Parent may reasonably
specify), and (ii) instructions to effect the surrender of the Certificates in
exchange for the certificates evidencing Parent Shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter
of transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, the holder of such Certificate shall
be entitled to receive in exchange therefor (A) certificates evidencing that
number of whole Parent Shares which such holder has the right to receive
pursuant to Section 1.6(a) in respect of the Shares formerly evidenced by such
Certificate, (b) the per Share Cash Consideration, (C) any dividends or other
distributions to which such holder is entitled pursuant to Section 1.7(c), and
(D) cash in respect of fractional shares as provided in Section 1.6(f) (the
Stock Consideration, the Cash Consideration, dividends, distributions and cash
being, collectively, the "Merger Consideration"), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Shares which is not registered in the transfer records of the
Company as of the Effective Time, the Merger Consideration may be issued and
paid in accordance with this Article I to a transferee if the Certificate
evidencing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer pursuant to this
Section 1.7(b) and by evidence that any applicable stock transfer taxes have
been paid. Until so surrendered, each outstanding Certificate that, prior to
the Effective Time, represented Shares will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of
dividends and subject to Section 1.6(f), to evidence the ownership of the
number of whole Parent Shares that represent the Stock Consideration with
respect to such Shares.
(c) Distributions With Respect to Unexchanged Parent Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Parent Shares they
are entitled to receive until the holder of such Certificate shall surrender
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole Parent Shares issued in exchange therefor, without
interest, at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole Parent Shares.
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(d) Transfers of Ownership. If any certificate for Parent Shares is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it will be a condition to the issuance thereof
that the Certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other taxes
required by reason of the issuance of a certificate for Parent Shares in any
name other than that of the registered holder of the certificate surrendered,
or have established to the satisfaction of Parent or any agent designated by it
that such tax has been paid or is not payable.
(e) No Liability. At any time following one year after the Effective Time,
Parent shall be entitled to require the Exchange Agent to deliver to Parent any
Merger Consideration which had been made available to the Exchange Agent by or
on behalf of Parent and which has not been disbursed to holders of
Certificates, and thereafter such holders shall be entitled to look to Parent
only as general creditors thereof with respect to the Merger Consideration
payable upon due surrender of their Certificates. Notwithstanding the
foregoing, neither Parent, Merger Sub nor the Company shall be liable to any
holder of Company Common Stock for any Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) Withholding Rights. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of Company Common Stock such amounts as Parent or
the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Parent or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect of which
such deduction and withholding was made by Parent or the Exchange Agent.
Section 1.8 Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further
registration of transfers of Company Common Stock thereafter on the records of
the Company.
Section 1.9 No Further Ownership Rights in Company Common Stock. The Merger
Consideration delivered upon the surrender of Certificates in exchange for the
Shares represented thereby, in accordance with the terms hereof, shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such Shares, and there shall be no further registration of transfers on the
records of the Surviving Corporation of Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
Section 1.10 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, such Parent
Shares as may be required pursuant to Section 1.6; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity
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against any claim that may be made against Parent or the Exchange Agent with
respect to the Certificates alleged to have been lost, stolen or destroyed.
Section 1.11 Tax Consequences. Unless the Merger is restructured as the
Alternative Taxable Merger, it is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. The parties hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
Section 1.12 Taking of Necessary Action; Further Action. Each of Parent, Merger
Sub and the Company will take all such reasonable and lawful action as may be
necessary or appropriate in order to effectuate the Merger in accordance with
this Agreement as promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company, Parent and Merger Sub immediately prior to the Effective Time are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action.
Section 1.13 Material Adverse Effect. When used in connection with the Company
or any of its subsidiaries, or Parent or any of its subsidiaries, as the case
may be, the term "Material Adverse Effect" means any change, effect or
circumstance that, individually or when taken together with all other such
similar or related changes, effects or circumstances that have occurred prior
to the date of determination of the occurrence of the Material Adverse Effect,
(a) is materially adverse to the business, assets (including intangible
assets), financial condition or results of operations of the Company and its
subsidiaries or Parent and its subsidiaries, as the case may be, in each case
taken as a whole (other than changes that are the effect of economic factors
affecting the economy as a whole), or (b) is reasonably likely to materially
delay or prevent the consummation of the transactions contemplated hereby.
Section 1.14 Restructuring of the Merger.
(a) Notwithstanding any provision of this Agreement, in the event that either:
(i) the product of the Average Closing Price and the number of shares of
Parent Common Stock issuable in the Merger in respect of Outstanding
Company Common Stock shall be less than 82% of the sum of (A) the
product of the Per Share Cash Consideration and the Outstanding Company
Common Stock plus (B) the amounts described in Section 1.6(a)(ii)(B),
or
(ii) the product of the average of the high and low sale prices of the
Parent Common Stock on the Nasdaq National Market on the last trading
date prior to the Closing Date and the number of shares of Parent
Common Stock issuable in the Merger in respect of Outstanding Company
Common Stock adjusted to reflect the effect of any trading
restrictions, shall be less than the sum of (A) the product of the Per
Share Cash Consideration and the Outstanding Company Common Stock plus
(B) the amounts described in Section 1.6(a)(ii)(B),
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then as promptly as practicable, the Merger shall be restructured as provided
in this Section 1.14 (the "Alternative Taxable Merger").
(b) The following provisions shall apply to the Alternative Taxable Merger:
(i) Section 1.1(a) of this Agreement shall be deemed to read, in its
entirety, as follows:
"(a) Effective Time. At the Effective Time (as defined in Section 1.2),
and subject to and upon the terms and conditions of this Agreement,
the FBCA and the DGCL, Merger Sub shall be merged with and into the
Company, the separate corporate existence of Merger Sub shall cease,
and the Company shall continue as the surviving corporation. The
Company as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
(ii) Sections 1.4(a) and (b) of this Agreement shall be deemed to read, in
their entirety, as follows:
"(a) Articles of Incorporation. Unless otherwise determined by Parent
prior to the Effective Time, at the Effective Time the Articles of
Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter amended in accordance
with the FBCA and such Articles of Incorporation."
"(b) By-Laws. Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time the By-Laws of the Company,
as in effect immediately prior to the Effective Time, shall be the
By-Laws of the Surviving Corporation until thereafter amended in
accordance with the FBCA, the Articles of Incorporation of the
Surviving Corporation and such By-Laws."
(iii) Section 1.5(d) of this Agreement shall be deemed to read, in its
entirety, as follows:
"(d) Capital Stock of Merger Sub. Each share of common stock, $.01 par
value, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common
stock, $0.01 par value per share, of the Surviving Corporation."
(iv) The condition set forth in Section 6.2(d) of this Agreement shall not
be applicable to the Alternative Merger.
(v) All references in this Agreement to the Surviving Corporation shall be
deemed references to the Company as the Surviving Corporation in the
Alternative Merger.
(vi) All references in this Agreement to the Merger shall be deemed
references to the Alternative Merger, as provided for in this Section
1.14.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the written disclosure schedule delivered on or prior to
the date hereof by the Company to Parent that is arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
II (the "Company Disclosure Schedule"):
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Section 2.1 Organization and Qualification; Subsidiaries. Each of the Company
and each of its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has the requisite corporate power and authority and is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Approvals") necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
Approvals would not reasonably be expected to have a Company Material Adverse
Effect. Each of the Company and its subsidiaries is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not reasonably be expected to have a Company Material
Adverse Effect. A true and complete list as of the date hereof of all of the
Company's subsidiaries, together with the jurisdiction of incorporation of each
subsidiary, the authorized capitalization of each subsidiary, and the
percentage of each subsidiary's outstanding capital stock owned by the Company
or another subsidiary, is set forth in Section 2.1 of the Company Disclosure
Schedule. The Company does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity, with respect to which interest
the Company has invested or is required to invest $200,000 or more, excluding
securities in any publicly traded company held for investment by the Company
and comprising less than five percent of the outstanding stock of such company.
Section 2.2 Articles of Incorporation and By-Laws. The Company has heretofore
furnished to Parent a complete and correct copy of its Articles of
Incorporation and By-Laws as most recently restated and subsequently amended to
the date hereof, and has furnished or made available to Parent the Articles of
Incorporation and By-Laws (or equivalent organizational documents) of each of
its subsidiaries (the "Subsidiary Documents"). Such Articles of Incorporation,
By-Laws and Subsidiary Documents are in full force and effect and neither the
Company nor any of its subsidiaries is in violation of any of the provisions of
its Articles of Incorporation or By-Laws or Subsidiary Documents, except where
the failure to be in full force and effect or where such violation would not
have a Company Material Adverse Effect.
Section 2.3 Capitalization. The authorized capital stock of the Company
consists of (i) 25,000,000 shares of Company Common Stock and (ii) 1,000,000
shares of preferred stock, $0.01 par value per share. As of October 1, 1998,
(i) 11,524,467 shares of Company Common Stock were issued and outstanding, all
of which are validly issued, fully paid and nonassessable, and no shares were
held in treasury, (ii) 1,000 shares of preferred stock had been designated as
Series I Preferred Stock of which 436 shares are validly issued, fully paid and
nonassessable and of which 400 shares are subject to an option for their
purchase, (iii) no shares of Company Common Stock were held by subsidiaries of
the Company, (iv) 2,263,197 shares of Company Common Stock were reserved for
issuance upon the conversion of the Series I Preferred Stock, of which a
maximum of 1,750,000 shares are issuable upon the conversion of the initial 500
shares of Series I Preferred Stock and of which the remaining 513,197 shares
become issuable upon the purchase of an additional 400 shares of Series I
Preferred Stock pursuant to an option for such purchase, such that the total of
2,263,197
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shares of Company Common Stock are issuable upon the conversion of the total
900 shares of Series I Preferred Stock, (v) 922,350 shares of Company Common
Stock were reserved for issuance upon the exercise of outstanding warrants,
(vi) 1,690,926 shares of Company Common Stock were reserved for future issuance
pursuant to outstanding stock options granted under the Company Stock Option
Plan, (vii) 171,713 of Company Common Stock are reserved for future issuance
pursuant to the Strategic Alliance Agreement and (viii) 380,000 of Company
Common Stock are reserved for issuance pursuant to stock purchase warrants
which may become outstanding upon the exercise of an option to purchase Series
I Preferred Stock referred to in clause (iv) of this sentence. No material
change in such capitalization has occurred between September 30, 1998 and the
date hereof other than the issuance of shares of Company Common Stock under the
Company Stock Option Plans and under the Company Stock Purchase Plan. All
options, warrants or other rights, agreements, arrangements or commitments of
any character to which the Company or a subsidiary or, to the Company's
knowledge, any other person is a party relating to the issued or unissued
capital stock of the Company or any of its subsidiaries or obligating the
Company or any of its subsidiaries to issue or sell any shares of capital stock
of, or other equity interests in, the Company or any of its subsidiaries are
described in Section 2.3 of the Company Disclosure Schedule. All shares of
Company Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of the
Company or any of its subsidiaries to repurchase, redeem or otherwise acquire
any shares of Company Common Stock or the capital stock of any subsidiary or to
provide funds to or make any investment (in the form of a loan, capital
contribution, guaranty or otherwise) in any such subsidiary or any other
entity. All of the outstanding shares of capital stock of each of the Company's
subsidiaries are duly authorized, validly issued, fully paid and nonassessable,
and all such shares are owned by the Company or another subsidiary of the
Company, free and clear of all security interests, liens, claims, pledges,
agreements, limitations in the Company's voting rights, charges or other
encumbrances of any nature whatsoever (collectively, "Company Liens").
Section 2.4 Authority Relative to this Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action,
and no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated
(other than the adoption of this Agreement by the holders of at least a
majority of the outstanding shares of Company Common Stock entitled to vote in
accordance with the FBCA and the Company's Articles of Incorporation and By-
Laws). As of the date of this Agreement, the Board of Directors of the Company
has determined that it is advisable and in the best interest of the Company's
stockholders for the Company to enter into a business combination with Parent
upon the terms and subject to the conditions of this Agreement, and has
unanimously recommended that the Company's stockholders approve and adopt this
Agreement and the Merger. This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by Parent and Merger Sub, as applicable, constitutes a legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms.
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Section 2.5 No Conflict; Required Filings and Consents.
(a) Section 2.5(a) of the Company Disclosure Schedule includes a list of (i)
all contracts, agreements, commitments or other understandings or arrangements
to which the Company or any of its subsidiaries is a party or by which any of
them or any of their respective properties or assets are bound or affected, but
excluding (A) contracts, agreements, commitments or other understandings or
arrangements entered into in the ordinary course of business and involving, in
each case, payments by the Company or any of its subsidiaries of less than
$100,000 in any single instance, and (B) employment agreements and stock option
agreements and (ii) all agreements which, as of the date hereof, the Company is
required to file as "material contracts" with the Securities and Exchange
Commission ("SEC") pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, and the SEC's rules and regulations thereunder (the
"Exchange Act").
(b) (i) Neither the Company nor any of its subsidiaries has breached, is in
default under, or has received written notice of any breach of or default
under, any of the agreements, contracts or other instruments required to be
disclosed in Section 2.5(a) of the Company Disclosure Schedule, (ii) to the
best knowledge of the Company, no other party to any of the agreements,
contracts or other instrument required to be disclosed in Section 2.5(a) of the
Company Disclosure Schedule has breached or is in default of any of its
obligations thereunder, and (iii) each of the agreements, contracts and other
instruments required to be disclosed in Section 2.5(a) of the Company
Disclosure Schedule is in full force and effect, except in any such case for
breaches, defaults or failures to be in full force and effect that is not
currently having or would not reasonably be expected to have a Company Material
Adverse Effect.
(c) The execution and delivery of this Agreement by the Company does not, and
the performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby will not, (i) conflict with or violate the
Certificate of Incorporation or By-Laws of the Company, (ii) conflict with or
violate any federal, foreign, state or provincial law, rule, regulation, order,
judgment or decree (collectively, "Laws") applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or impair the Company's or any of its subsidiaries' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Company Lien on any of the properties or assets of the Company or
any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or its or any of their respective
properties is bound or affected, except in any such case for any such
conflicts, violations, breaches, defaults or other occurrences that would not
reasonably be expected to have a Company Material Adverse Effect.
(d) The execution and delivery of this Agreement by the Company does not, and
the performance of this Agreement by the Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
federal, foreign, state or provincial governmental or regulatory authority
except (i) for applicable requirements, if any, of the Securities Act, the
Exchange Act, state securities laws ("Blue Sky Laws"), the pre-merger
notification requirements of the Hart-Scott-
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Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the
filing and recordation of appropriate merger or other documents as required by
the DGCL, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would be
reasonably expected to have a Company Material Adverse Effect.
Section 2.6 Compliance. Neither the Company nor any of its subsidiaries is in
conflict with, or in default or violation of, (i) any Law or Approval
applicable to the Company or any of its subsidiaries or by which its or any of
their respective properties is bound or affected or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties is bound or affected, except for any such
conflicts, defaults or violations which would not reasonably be expected to
have a Company Material Adverse Effect.
Section 2.7 SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports and documents required to be filed
by it with the SEC since January 1, 1997 (collectively, the "Company SEC
Reports"). The Company SEC Reports (i) were prepared in all material respects
in accordance with the requirements of the Securities Act or the Exchange Act,
as the case may be, and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. None of the Company's subsidiaries is required to
file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case, any
related notes thereto) contained in the Company SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto), and each fairly presents in all material respects the
consolidated financial position of the Company and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and
cash flows and stockholders equity for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.
Section 2.8 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Reports filed prior to the date hereof, since June 30, 1998, the
Company has conducted its business in the ordinary course and there has not
occurred: (a) any Company Material Adverse Effect; (b) any amendments or
changes in the Articles of Incorporation or By-laws of the Company; (c) any
damage to, destruction or loss of any asset of the Company (whether or not
covered by insurance) that would reasonably be expected to have a Company
Material Adverse Effect; (d) any material change by the Company in its
accounting methods, principles or practices; (e) any material revaluation by
the Company of any of its assets, including, without limitation, writing down
the value of inventory or writing off notes or accounts receivable other than
in the ordinary course of business; (f) any other action or event that would
have required the consent of Parent pursuant to Section 4.1 had such action or
event occurred after the date of this Agreement; or (g) any sale of a material
amount of
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property of the Company or any of its subsidiaries taken as a whole, except in
the ordinary course of business.
Section 2.9 No Undisclosed Liabilities. Except as disclosed in the Company SEC
Reports filed prior to the date hereof and except for the severance obligation
disclosed in Schedule 2.9 of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise), except liabilities (a) in the aggregate adequately
provided for or disclosed in the Company's balance sheet (including any related
notes thereto) as of June 30, 1998 (the "1998 Company Balance Sheet"), (b)
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected on the 1998 Company Balance
Sheet, (c) incurred since June 30, 1998 in the ordinary course of business
consistent with past practice, (d) incurred in connection with this Agreement,
or (e) which would not reasonably be expected to have a Company Material
Adverse Effect.
Section 2.10 Absence of Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any properties or
rights of the Company or any of its subsidiaries, before any federal, foreign,
state or provincial court, arbitrator or administrative, governmental or
regulatory authority or body that would reasonably be expected to have a
Company Material Adverse Effect.
Section 2.11 Employee Benefit Plans, Employment Agreements.
(a) Section 2.11 (a) of the Company Disclosure Schedule lists all employee
pension plans (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), all material employee welfare
plans (as defined in Section 3(1) of ERISA), and all other material bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar fringe or employee benefit plans,
programs or arrangements, written or otherwise, for the benefit of, or relating
to, any current or former employees of or consultants to the Company, any trade
or business (whether or not incorporated) which is a member of a controlled
group including the Company or which is under common control with the Company
(a "Company ERISA Affiliate") within the meaning of Section 414 of the Code, or
any subsidiary of the Company, as well as each plan with respect to which the
Company or a Company ERISA Affiliate would incur liability under Section 4069
(if such plan has been or were terminated) or Section 4212(c) of ERISA (all
such plans, practices and programs are referred to as the "Company Employee
Plans"). To the extent requested by Parent, there have been made available to
Parent copies of (i) each such written Company Employee Plan (other than those
referred to in Section 4(b)(4) of ERISA), (ii) the most recent annual report on
Form 5500 series, with accompanying schedules and attachments, filed with
respect to each Company Employee Plan required to make such a filing, and (iii)
the most recent actuarial valuation for each Company Employee Plan subject to
Title IV of ERISA. For purposes of this Section 2.11 (a), the term "material,"
used with respect to any Company Employee Plan, shall mean that the Company or
a Company ERISA Affiliate has incurred or may reasonably be expected to incur
obligations in an annual amount exceeding $100,000 with respect to such Company
Employee Plan.
(b) (i) None of the Company Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person, and none of the Company
Employee Plans is a "multiemployer plan"
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as such term is defined in Section 3(37) of ERISA; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Company Employee Plan, which
could result in any material liability of the Company or any of its
subsidiaries; (iii) all Company Employee Plans are in compliance in all
material respects with the requirements prescribed by any and all Laws
(including ERISA and the Code), currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, Pension Benefit Guaranty Corporation (the "PBGC"),
Internal Revenue Service (the "IRS") or Secretary of the Treasury), and the
Company and each of its subsidiaries have performed all material obligations
required to be performed by them under, are not in any material respect in
default under or violation of, and have no knowledge of any default or
violation by any other party to, any of the Company Employee Plans; (iv) each
Company Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under Section 501(a) of the Code is the subject
of a favorable determination letter from the IRS, and nothing has occurred
which may reasonably be expected to impair such determination; (v) all
contributions required to be made to any Company Employee Plan pursuant to
Section 412 of the Code, or the terms of the Company Employee Plan or any
collective bargaining agreement, have been made on or before their due dates;
(vi) with respect to each Company Employee Plan, no "reportable event" within
the meaning of Section 4043 of ERISA (excluding any such event for which the 30
day notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has
occurred; and (vii) neither the Company nor any Company ERISA Affiliate has
incurred, nor reasonably expects to incur, any liability under Title IV of
ERISA (other than liability for premium payments to the PBGC arising in the
ordinary course), except where the failure of any of the foregoing to be true
would not have a Company Material Adverse Effect.
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true and
complete list as of the date hereof of each current or former employee, officer
or director of the Company or any of its subsidiaries who holds (i) any option
to purchase Company Common Stock as of the date hereof, together with the
number of shares of Company Common Stock subject to such option, the option
price of such option (to the extent determined as of the date hereof), whether
such option is intended to qualify as an ISO, and the expiration date of such
option; (ii) any other right, directly or indirectly, to acquire Company Common
Stock, together with the number of shares of Company Common Stock subject to
such right. Section 2.11(c) of the Company Disclosure Schedule also sets forth
the total number of such ISOs, such nonqualified options and such other rights
outstanding on the date hereof.
(d) Section 2.11(d) of the Company Disclosure Schedule sets forth a true and
complete list of: (i) all employment agreements with officers or employees of
the Company or any of its subsidiaries that provide for annual base salaries in
excess of $150,000; (ii) all agreements with consultants who are individuals
obligating the Company or any of its subsidiaries to make annual cash payments
in an amount exceeding $150,000; (iii) all severance agreements, programs and
policies of the Company or any of its subsidiaries with or relating to its
employees, in each case with outstanding commitments exceeding $150,000,
excluding programs and policies required to be maintained by law; and (iv) all
plans, programs, agreements and other arrangements of the Company or any of its
subsidiaries with or relating to its employees which contain change-in-control
provisions.
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Section 2.12 Labor Matters. (a) There are no claims or proceedings pending or,
to the knowledge of the Company or any of its subsidiaries, threatened, between
the Company or any of its subsidiaries and any of their respective employees,
asserting that the Company has committed an unfair labor practice which claims
or proceedings are currently having or would reasonably be expected to have a
Company Material Adverse Effect; (b) neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or its
subsidiaries; and (c) neither the Company nor any of its subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of the Company or any of its
subsidiaries, in each case which would reasonably be expected to have a Company
Material Adverse Effect.
Section 2.13 Registration Statement, Joint Proxy Statement/Prospectus. The
information supplied by the Company for inclusion or incorporation by reference
in the Registration Statement (as defined in Section 3.13) shall not at the
time the Registration Statement is declared effective by the SEC contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
information supplied by the Company for inclusion or incorporation by reference
in the joint proxy statement/prospectus to be sent to the stockholders of the
Company in connection with the meeting of the stockholders of the Company to
consider the Merger (the "Company Stockholders Meeting") and to be sent to the
stockholders of Parent in connection with the meeting of the stockholders of
Parent to consider the Merger (the "Parent Stockholders Meeting," and together
with the Company Stockholder Meeting, the "Stockholders Meetings") (such joint
proxy statement/prospectus as amended or supplemented is referred to herein as
the "Joint Proxy Statement/Prospectus"), will not, on the date the Joint Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is first
mailed to stockholders, at the time of the Stockholders Meetings, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders
Meetings which has become false or misleading. If at any time prior to the
Effective Time any event relating to the Company or any of its respective
affiliates, officers or directors should be discovered by the Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, the Company shall promptly
inform Parent and Merger Sub. Notwithstanding the foregoing, the Company makes
no representation or warranty with respect to any information supplied by
Parent or Merger Sub which is contained in or furnished in connection with the
preparation of the Registration Statement or the Joint Proxy
Statement/Prospectus.
Section 2.14 Title to Property. Neither the Company nor any of its subsidiaries
owns any real property.
Section 2.15 Taxes.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes, fees,
levies, duties, tariffs, imposts, and governmental impositions or charges of
any kind in the nature of (or similar to) taxes,
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payable to any federal, state, local or foreign taxing authority, including
(without limitation) (i) income, franchise, profits, gross receipts, ad
valorem, net worth, value added, sales, use, service, real or personal
property, special assessments, capital stock, license, payroll, withholding,
employment, social security, workers' compensation, unemployment compensation,
utility, severance, production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes, and (ii) interest, penalties, additional
taxes and additions to tax imposed with respect thereto; and "Tax Returns"
shall mean returns, reports, and information statements with respect to Taxes
required to be filed with the IRS or any other federal, foreign, state or
provincial taxing authority, domestic or foreign, including, without
limitation, consolidated, combined and unitary tax returns.
(b) (i) The Company and its subsidiaries have filed all Tax Returns required to
be filed by them, (ii) the Company and its subsidiaries have paid and
discharged all Taxes due in connection with or with respect to the periods or
transactions covered by such Tax Returns and have paid all other Taxes as are
due, except such as are being contested in good faith by appropriate
proceedings (to the extent that any such proceedings are required) and with
respect to which the Company is maintaining adequate reserves, and (iii) there
are no other Taxes that would be due if asserted by a taxing authority, except
with respect to which the Company is maintaining reserves to the extent
currently required, unless in the case of clauses (i), (ii) and (iii) above the
failure to do so would not reasonably be expected to have a Company Material
Adverse Effect. Except as does not involve or would not result in liability
that would reasonably be expected to have a Company Material Adverse Effect:
(i) there are no tax liens on any assets of the Company or any subsidiary
thereof; and (ii) neither the Company nor any of its subsidiaries has granted
any waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any Tax. Neither the Company nor any of its
subsidiaries has made any payments, is obligated to make any payments, or is a
party to any agreement that under any circumstance could obligate it to make
any payments that will not be deductible under Code Section 280G. None of the
Company and its subsidiaries (i) has been a member of an affiliated group
filing a consolidated federal income Tax Return (other than a group the common
parent of which was the Company) or (ii) has any liability for the Taxes of any
other person or entity (other than the Company and its subsidiaries) under
Treas. Reg. (S)1.1502-6 (or any similar provision of state, local or foreign
law), as transferee or successor, by contract or otherwise. Neither the Company
nor any subsidiary has consented at any time under Section 341(f)(1) of the
Code to have the provisions of Section 341(f)(2) of the Code apply to any
disposition of the assets of the Company or any subsidiary. The accruals and
reserves for Taxes (including deferred taxes) reflected in the 1998 Company
Balance Sheet are in all material respects adequate to cover all Taxes required
to be accrued through the date thereof (including interest and penalties, if
any, thereon and Taxes being contested) in accordance with generally accepted
accounting principles.
(c) Neither the Company nor any of its subsidiaries is, or has been, a United
States real property holding corporation (as defined in Section 897(c)(2) of
the Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Code. To the best knowledge of the Company, neither the Company nor any of
its subsidiaries owns any property of a character, the indirect transfer of
which, pursuant to this Agreement, would give rise to any material documentary,
stamp or other transfer tax.
Section 2.16 Environmental Matters. Except in all cases as, in the aggregate,
have not had and would not reasonably be expected to have a Company Material
Adverse Effect, the Company and
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each of its subsidiaries: (i) have obtained all Approvals which are required to
be obtained under all applicable federal, state, foreign or local laws or any
regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder relating to pollution or
protection of the environment, including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants, or
hazardous or toxic materials or wastes into ambient air, surface water, ground
water, or land or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants or hazardous or toxic materials or wastes by the
Company or its subsidiaries or their respective agents ("Environmental Laws");
(ii) are in compliance with all terms and conditions of such required
Approvals, and also are in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in applicable Environmental Laws; (iii) have not received
notice of any past or present violations of Environmental Laws or any event,
condition, circumstance, activity, practice, incident, action or plan which is
reasonably likely to interfere with or prevent continued compliance with or
which would give rise to any common law or statutory liability, or otherwise
form the basis of any claim, action, suit or proceeding, against the Company or
any of its subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by the Company or its subsidiaries (or
any of their respective agents) thereunder.
Section 2.17 Intellectual Property.
(a) The Company, directly or indirectly, owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, know-how,
computer software programs or applications, and tangible or intangible
proprietary information or material that are material to the business of the
Company and its subsidiaries, taken as a whole, as currently conducted or as
proposed to be conducted (the "Company Intellectual Property Rights"), except
where the failure to do so would not have a Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company, and the
consummation of the transactions contemplated hereby, will neither cause the
Company or any of its subsidiaries to be in violation or default in any
material respect under any license, sublicense or agreement with respect to the
Company Intellectual Property Rights, nor entitle any other party to any such
license, sublicense or agreement to terminate or modify such license,
sublicense or agreement, except where such violation, default, termination or
modification would not reasonably be expected to have a Company Material
Adverse Effect. No claims have been asserted or, to the knowledge of the
Company, are threatened by any person nor are there any valid grounds, to the
knowledge of the Company, for any bona fide claims (i) against the use by the
Company or any of its subsidiaries of the Company Intellectual Property Rights,
or (ii) challenging the ownership by the Company or any of its subsidiaries, or
the validity or effectiveness of any of the Company Intellectual Property
Rights, except for such claims that would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
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(c) Neither the Company nor any of its subsidiaries has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and there has never been any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Company or one of its Subsidiaries must license or refrain from using any
Intellectual Property rights of any third party).
(d) Section 2.17(d) of the Disclosure Schedule identifies each patent or
registration which has been issued to the Company or any of its subsidiaries
with respect to the Company Intellectual Property Rights, identifies each
pending patent application or application for registration which has been made
with respect to the Company Intellectual Property Rights, and identifies each
license, agreement, or other permission which the Company or any of its
subsidiaries have granted to any third party with respect to any of the Company
Intellectual Property Rights (together with any exceptions). The Company has
delivered to Parent correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and has made available to Parent correct and complete copies of all
other written documentation evidencing ownership and prosecution (if
applicable) of each such item. The Company disclosed all relevant prior art in
its patent applications, and it has no reason to believe that any of its
patents is invalid or unenforceable. With respect to each item of Intellectual
Property required to be identified in (S) 2.17(d) of the Company Disclosure
Schedule:
(i) the Company and its subsidiaries possess all right, title, and interest
in and to the item, free and clear of any Lien, license, or other
restriction;
(ii) the item is not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand is pending or, to the knowledge of the Company, is
threatened, which challenges the legality, validity, enforceability,
use, or ownership of the item; and
(iv) neither the Company nor any of its subsidiaries has agreed to indemnify
any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
Section 2.18 Regulatory Matters.
(a) Since January 1, 1996 through the date hereof (i) there have been no
written notices, citations or decisions by any governmental or regulatory body
that any product produced, manufactured, marketed or distributed at any time by
the Company or any Company subsidiary (the "Company Products") is defective or
fails to meet any applicable standards promulgated by any such governmental or
regulatory body, or any other governmental or regulatory body, agency or office
of any other jurisdiction to which the Company or any of its subsidiaries is
subject, (ii) there have been no recalls, field notifications or seizures
ordered or threatened by the United States Food and Drug Administration (the
"FDA") or any other comparable governmental or regulatory body with respect to
any of the Company Products and (iii) none of the Company or the Company
subsidiaries have received any warning letter, Section 305 notices from the FDA
or so-called Section 483 notices of adverse observations (or comparable notices
from such other governmental or regulatory bodies).
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(b) Except as would not, individually or in the aggregate, have a Company
Material Adverse Effect, with respect to each Company Product: (i) the Company
and its subsidiaries have obtained all applicable approvals, clearances,
authorizations, licenses (including site licensures) and registrations required
by United States or foreign governments or government agencies to permit the
manufacturing, distribution, sale (including reimbursement and pricing),
marketing, export, import or human research (including clinical and non-
clinical trials) of such Product (collectively, "Licenses"); and (ii) the
Company and its subsidiaries are in full compliance with all terms and
conditions of each License in each country in which such Company Product is
marketed, and with all requirements pertaining to the manufacturing (including
current good manufacturing practices), marketing, export, import or human
research (including good laboratory practices and clinical and non-clinical
trials) of such Company Product which is not required to be the subject of a
License.
(c) There are no impediments to issuance of any Company FDA premarket approval
application ("PMA") as to which the Company has received an approvable letter
from the FDA other than those set forth in the so-called Section 483 Notices
described in the Company Disclosure Schedule, and the Company is not aware of
any reason why it will be unable to address to the FDA's satisfaction all
observations contained in such Notices. The information in such PMAs is true
and correct in all material respects and the Company is not aware of any basis
upon which the FDA could fail to approve any material aspect of such
applications that have not yet received FDA approval.
Section 2.19 Interested Party Transactions. Except for transactions described
in the Company SEC Reports filed prior to the date hereof, no event has
occurred that would be required to be reported as a Certain Relationship or
Related Transaction, pursuant to Item 404 of Regulation S-K promulgated by the
SEC.
Section 2.20 Insurance. All material fire and casualty, general liability,
business interruption, product liability, professional liability and sprinkler
and water damage insurance policies maintained by the Company or any of its
subsidiaries are with reputable insurance carriers, provide adequate coverage
for all normal risks incident to the business of the Company and its
subsidiaries, taken as a whole, and their properties and assets, and are in
character and amount customary for persons engaged in similar businesses and
subject to the same or similar perils or hazards, except for any such failures
to maintain insurance policies that, individually or in the aggregate, would
not reasonably be expected to have a Company Material Adverse Effect.
Section 2.21 Opinion of Financial Advisor. The Company has been advised by its
financial advisor, EVEREN Securities, Inc. that in its opinion, as of the date
hereof, the Merger Consideration to be received by the holders of Shares in the
Merger is fair to the holders of Shares from a financial point of view.
Section 2.22 Brokers. No broker, finder or investment banker (other than EVEREN
Securities, Inc., the fees and expenses of whom will be paid by the Company) is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company or its subsidiaries or affiliates. The
Company has heretofore furnished to Parent a complete and correct copy of all
agreements between the Company and EVEREN Securities, Inc. pursuant to which
such firm would be entitled to any payment relating to the transactions
contemplated hereunder.
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Section 2.23 Change in Control Payments. Neither the Company nor any of its
subsidiaries have any plans, programs or agreements to which they are parties,
or to which they are subject, pursuant to which payments may be required or
acceleration of benefits may be required upon a change of control of the
Company.
Section 2.24 Expenses. The Company has provided to Parent a good faith estimate
and description of the expenses of the Company and its subsidiaries which the
Company expects to incur, or has incurred, in connection with the transactions
contemplated by this Agreement.
Section 2.25 No Existing Discussions. As of the date hereof, the Company is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal (as defined in Section
4.2).
Section 2.26 Sections 607.0901 and 607.0902 of the FBCA Not Applicable. The
Board of Directors of the Company has taken all actions so that the
restrictions contained in Section 607.0901 of the FBCA applicable to an
"affiliated transaction" (as defined in Section 607.0901) and the restrictions
contained in Section 607.0902 will not apply to the execution, delivery or
performance of this Agreement or the respective Stockholder Agreements dated as
of the date hereof between Parent and certain stockholders of the Company
(collectively, the "Stockholders Agreements") or the consummation of the Merger
or the other transactions contemplated by this Agreement or by the Stockholders
Agreements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant to
the Company that, except as set forth in the written disclosure schedule
delivered on or prior to the date hereof by Parent to the Company that is
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article III (the "Parent Disclosure Schedule") or disclosed
in the Parent SEC Reports filed prior to the date hereof:
Section 3.1 Organization and Qualification; Subsidiaries. Each of Parent and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power, authority and Approvals would not reasonably be expected to have a
Parent Material Adverse Effect. Each of Parent and its subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not reasonably be
expected to have a Parent Material Adverse Effect. A true and complete list as
of the date hereof of all of Parent's subsidiaries, together with the
jurisdiction of incorporation of each subsidiary and the percentage of each
subsidiary's outstanding capital stock owned by Parent or another subsidiary,
is set forth in
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Section 3.1 of the Parent Disclosure Schedule. Parent does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity, with respect to which Parent has invested or is required to invest
$200,000 or more, excluding securities in any publicly traded company held for
investment by Parent and comprising less than five percent of the outstanding
capital stock of such company.
Section 3.2 Charter and By-Laws. Parent has heretofore furnished to the Company
a complete and correct copy of its Articles of Organization and By-Laws, as
most recently restated and subsequently amended to the date hereof. Such
Articles of Organization and By-Laws are in full force and effect and neither
Parent nor Merger Sub is in violation of any of the provisions of its Articles
of Incorporation or By-Laws, except where the failure to be in full force and
effect or where such violation would not have a Parent Material Adverse Effect.
Section 3.3 Capitalization. As of September 29, 1998, the authorized capital
stock of Parent consisted of (i) 60,000,000 shares of Parent Common Stock, of
which 31,153,765 shares were issued and outstanding, all of which are validly
issued, fully paid and non-assessable, 169,115 shares were held in treasury,
2,484,097 shares were reserved for future issuance under Parent's stock option
and employee stock purchase plans and (ii) 5,000,000 shares of preferred stock,
$.01 par value per share, none of which was issued and outstanding and none of
which was held in treasury. No material change in such capitalization has
occurred between September ., 1998 and the date hereof, except for issuance of
Parent Common Stock pursuant to Parent stock plans. All options, warrants or
other rights, agreements, arrangements or commitments of any character to which
Parent or a subsidiary or, to Parent's knowledge, any other person is a party
relating to the issued or unissued capital stock of Parent or any of its
subsidiaries or obligating Parent or any of its subsidiaries to issue or sell
any shares of capital stock of, or other equity interests in, Parent or any of
its subsidiaries are described in Section 3.3 of the Parent Disclosure
Schedule. There are no obligations, contingent or otherwise, of Parent or any
of its subsidiaries to repurchase, redeem or otherwise acquire any shares of
Parent Common Stock or the capital stock of any subsidiary or to provide funds
to or make any investment (in the form of a loan, capital contribution or
otherwise) in any such subsidiary other than guarantees of bank obligations of
subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each of Parent's subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and all such shares
are owned by Parent or another subsidiary of Parent, free and clear of all
security interests, liens, claims, pledges, agreements, limitations in Parent's
voting rights, charges or other encumbrances of any nature whatsoever
(collectively, "Parent Liens").
Section 3.4 Authority Relative to this Agreement. Each of Parent and Merger Sub
has all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement or to consummate the transactions contemplated thereby
(other than the approval of the issuance of the Parent Common
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Stock by holders of a majority of the outstanding Parent Common Stock present
or represented by proxy and entitled to vote at the Parent Stockholders
Meeting). As of the date hereof, the Board of Directors of Parent has
determined that it is advisable and in the best interest of Parent's
stockholders for Parent to enter into a business combination with the Company
upon the terms and subject to the conditions of this Agreement and has
unanimously recommended that the stockholders of Parent approve the issuance of
Parent Common Stock in the Merger pursuant to this Agreement. This Agreement
has been duly and validly executed and delivered by Parent and Merger Sub and,
assuming the due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of Parent and Merger Sub
enforceable against each of them in accordance with its terms.
Section 3.5 No Conflict, Required Filings and Consents.
(a) Section 3.5(a) of the Parent Disclosure Schedule includes a list as of the
date hereof of: (i) all contracts, agreements, commitments or other
understandings or arrangements to which Parent or any of its subsidiaries is a
party or by which any of them or any of their respective property or assets are
bound or affected, but excluding (A) contracts, agreements, commitments or
other understandings or arrangements entered into in the ordinary course of
business and involving, in each case, payments by Parent or any of its
subsidiaries of less than $500,000, and sales contracts entered into in the
ordinary course of business, and (B) employment agreements and stock option
agreements; and (ii) all agreements which, as of the date hereof, Parent is
required to file with the SEC pursuant to the requirements of the Exchange Act
as "material contracts."
(b) (i) neither the Parent nor any of its subsidiaries has breached, is in
default under, or has received written notice of any breach of or default
under, any of the agreements, contracts or other instruments required to be
disclosed in Section 3.5(a) of the Parent Disclosure Schedule (ii) to the best
knowledge of Parent, no other party to any of the agreements, contracts or
other instrument required to be disclosed in Section 3.5(a) of the Parent
Disclosure Schedule has breached or is in default of any of its obligations
thereunder, and (iii) to the best knowledge of Parent, each of the agreements,
contracts and other instruments required to be disclosed in Section 3.5(a) of
the Parent Disclosure Schedule is in full force and effect, except in any such
case for breaches, defaults or failures to be in full force and effect that
would not reasonably be expected to have a Parent Material Adverse Effect.
(c) The execution and delivery of this Agreement by Parent and Merger Sub does
not, and the performance of this Agreement by Parent and Merger Sub will not,
and the consummation of the transactions contemplated hereby will not, (i)
conflict with or violate the Articles of Organization (or Certificate of
Incorporation) or By-Laws of Parent or Merger Sub, (ii) conflict with or
violate any Laws applicable to Parent or any of its subsidiaries or by which
its or their respective properties are bound or affected, or (iii) result in
any breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or impair Parent's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Parent Lien on any of the
properties or assets of Parent or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its
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subsidiaries or its or any of their respective properties are bound or
affected, except in any such case for any such conflicts, violations, breaches,
defaults or other occurrences that would not reasonably be expected to have a
Parent Material Adverse Effect.
(d) The execution and delivery of this Agreement by Parent and Merger Sub does
not, and the performance of this Agreement by Parent and Merger Sub will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any federal, foreign, state or provincial governmental or
regulatory authority, except (i) for applicable requirements, if any, of the
Securities Act, the Exchange Act, the Blue Sky Laws, the pre-merger
notification requirements of the HSR Act, and the filing and recordation of
appropriate merger or other documents as required by the FBCA and the DGCL, and
(ii) where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not reasonably be
expected to have a Parent Material Adverse Effect.
Section 3.6 Compliance. Neither Parent nor any of its subsidiaries is in
conflict with, or in default or violation of, (i) any Law or Approval
applicable to Parent or any of its subsidiaries or by which its or any of their
respective properties is bound or affected or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their respective
properties is bound or affected, except for any such conflicts, defaults or
violations which would not reasonably be expected to have a Parent Material
Adverse Effect.
Section 3.7 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
with the SEC since January 1, 1997 (collectively, the "Parent SEC Reports").
The Parent SEC Reports (i) were prepared in all material respects in accordance
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of Parent's subsidiaries is required to file any
forms, reports or other documents with the SEC. The redacted sections of
Parent's June 1998 Settlement Agreement with VISX, Inc. (which, as redacted, is
filed with the Parent SEC Reports) contain no provisions that purport to limit,
as between Parent and the Company, the operation of any non-redacted sections
addressing the applicability of cross-licenses to third parties which acquire
or are acquired by Parent.
(b) Each of the consolidated financial statements (including, in each case, any
related notes thereto) contained in the Parent SEC Reports has been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto) and each fairly presents in all material respects the
consolidated financial position of Parent and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and
cash flows and stockholders' equity for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.
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Section 3.8 Absence of Certain Changes or Events. Except as disclosed in the
Parent SEC Reports filed prior to the date hereof, since June 30, 1998, Parent
has conducted its business in the ordinary course and other than as disclosed
in the Parent SEC Reports filed prior to the date hereof there has not
occurred: (i) any Parent Material Adverse Effect; (ii) any amendments or
changes in the Articles of Organization or By-Laws of Parent; (iii) any damage
to, destruction or loss of any assets of the Parent (whether or not covered by
insurance) that would reasonably be expected to have a Parent Material Adverse
Effect; (iv) any material change by Parent in its accounting methods,
principles or practices; (v) any material revaluation by Parent of any of its
assets, including without limitation, writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course of
business; (vi) any other action or event that would have required the consent
of the Company pursuant to Section 4.3 had such action or event occurred after
the date of this Agreement; or (vii) any sale of a material amount of assets of
Parent or any of its subsidiaries except in the ordinary course of business.
Section 3.9 No Undisclosed Liabilities. Except as disclosed in the Parent SEC
Reports filed prior to the date hereof, neither Parent nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise),
except liabilities (a) in the aggregate adequately provided for or disclosed in
Parent's balance sheet (including any related notes thereto) as of June 30,
1998 included in the Parent's Quarterly Report on 10-Q for the period ended
June 30, 1998 (the "1998 Parent Balance Sheet"), (b) incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected on the 1997 Parent Balance Sheet, (c) incurred since
June 30, 1998 in the ordinary course of business and consistent with past
practice, (d) incurred in connection with this Agreement, or (e) which would
not reasonably be expected to have a Parent Material Adverse Effect.
Section 3.10 Absence of Litigation. Except as disclosed in the Parent SEC
Reports filed prior to the date hereof, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Parent,
threatened against the Parent or any of its subsidiaries, or any properties or
rights of the Parent or any of its subsidiaries, before any federal, foreign,
state or provincial court, arbitrator or administrative, governmental or
regulatory authority or body that would reasonably be expected to have a Parent
Material Adverse Effect.
Section 3.11 Employee Benefit Plans; Employment Agreements.
(a) Section 3.11(a) of the Parent Disclosure Schedule lists as of the date
hereof all employee pension plans (as defined in Section 3(2) of ERISA), all
material employee welfare plans, (as defined in Section 3(1) of ERISA) and all
other material bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or arrangements, written or otherwise, for the
benefit of, or relating to, any current or former employees of or consultants
to Parent, any trade or business (whether or not incorporated) which is a
member of a controlled group including Parent or which is under common control
with Parent (a "Parent ERISA Affiliate") within the meaning of Section 414 of
the Code, or any subsidiary of Parent, as well as each plan with respect to
which Parent or a Parent ERISA Affiliate would incur liability under Section
4069 (if such plan has been or were terminated) or Section 4212(c) of ERISA
(all such plans, practices, and programs are referred to herein as the "Parent
Employee Plans"). To the extent requested by the Company, there have been made
available to the
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Company copies of (i) each such written Parent Employee Plan (other than those
referred to in Section 4(b)(4) of ERISA), (ii) the most recent annual report on
form 5500 series, with accompanying schedules and attachments, filed with
respect to each Parent Employee Plan required to make such a filing, and (iii)
the most recent actuarial valuation for each Parent Employee Plan subject to
Title IV of ERISA. For purposes of this Section 3.11 (a) the term material,
used with respect to any Parent Employee Plan, shall mean that Parent or a
Parent ERISA Affiliate has incurred or may reasonably be expected to incur
obligations in an annual amount exceeding $400,000 with respect to such Parent
Employee Plan.
(b) (i) None of the Parent Employee Plans promises or provides retiree medical
or other welfare benefits to any person, and none of the Parent Employee Plans
is a "multiemployer plan" as such term is defined in Section 3(37) of ERISA;
(ii) there has been no "prohibited transaction," as such term is defined in
Section 406 of ERISA and Section 4975 of the Code, with respect to any Parent
Employee Plan, which would result in any material liability of Parent or any of
its subsidiaries; (iii) all Parent Employee Plans are in compliance in all
material respects with the requirements prescribed by any and all Laws
(including ERISA and the Code), currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, IRS, PBGC or Secretary of the Treasury), and Parent and
each of its subsidiaries have performed all material obligations required to be
performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any default or violation by any other
party to, any of the Parent Employee Plans; (iv) each Parent Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code is the subject of a favorable
determination letter from the IRS, and nothing has occurred which may
reasonably be expected to impair such determination; (v) all contributions
required to be made to any Parent Employee Plan pursuant to Section 412 of the
Code, or the terms of the Parent Employee Plan or any collective bargaining
agreement, have been made on or before their due dates; (vi) with respect to
each Parent Employee Plan, no "reportable event" within the meaning of Section
4043 of ERISA (excluding any such event for which the 30 day notice requirement
has been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii)
neither Parent nor any Parent ERISA Affiliate has incurred, nor reasonably
expects to incur, any liability under Title IV of ERISA (other than liability
for premium payments to the PBGC arising in the ordinary course), except where
the failure of any of the foregoing to be true would not have a Parent Material
Adverse Effect.
(c) Section 3.11(c) of the Parent Disclosure Schedule sets forth a true and
complete list of: (i) all employment agreements with officers or employees of
Parent or any of its subsidiaries that provide for annual base salaries in
excess of $250,000; (ii) all severance agreements, programs and policies of
Parent with or relating to its employees in each case with outstanding
commitments exceeding $250,000, excluding programs and policies required to be
maintained by law; and (iii) all plans, programs, agreements and other
arrangements of Parent with or relating to its employees which contain change-
in-control provisions.
Section 3.12 Labor Matters. There are no claims or proceedings pending or, to
the knowledge of Parent or any of its subsidiaries, threatened, between Parent
or any of its subsidiaries and any of their respective employees, asserting
that the Company has committed an unfair labor practice which
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claims or proceedings have or would reasonably be expected to have a Parent
Material Adverse Effect; (ii) neither Parent nor any of its subsidiaries is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by Parent or its subsidiaries; and (iii) neither
Parent nor any of its subsidiaries has any knowledge of any strikes, slowdowns,
work stoppages, lockouts, or threats thereof, by or with respect to any
employees of Parent or any of its subsidiaries, in each case which would
reasonably be expected to have a Parent Material Adverse Effect.
Section 3.13 Registration Statement; Joint Proxy Statement/Prospectus. Subject
to the accuracy of the representations of the Company in Section 2.13, the
registration statement (the "Registration Statement") pursuant to which the
Parent Common Stock to be issued in the Merger will be registered with the SEC
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements included therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Parent
for inclusion or incorporation in the Joint Proxy Statement/Prospectus will
not, on the date the Joint Proxy Statement/Prospectus is first mailed to
stockholders, at the time of the Stockholders Meetings and at the Effective
Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or will omit to state any material fact necessary in
order to make the statements therein not false or misleading; or omit to state
any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders
Meetings which has become false or misleading. If at any time prior to the
Effective Time any event relating to Parent, Merger Sub or any of their
respective affiliates, officers or directors should be discovered by Parent or
Merger Sub which should be set forth in an amendment to the Registration
Statement or a supplement to the Joint Proxy Statement/Prospectus, Parent or
Merger Sub will promptly inform the Company. Notwithstanding the foregoing,
Parent and Merger Sub make no representation or warranty with respect to any
information supplied by the Company which is contained in any of the foregoing
documents. Notwithstanding the foregoing, Parent makes no representation or
warranty with respect to any information supplied by the Company which is
contained in, or furnished in connection with the preparation of, the
Registration Statement or the Joint Proxy Statement/Prospectus.
Section 3.14 Title to Property. Neither the Parent nor any of its subsidiaries
owns any real property.
Section 3.15 Taxes. Parent and its subsidiaries have filed all United States
federal income Tax Returns and all other material Tax Returns required to be
filed by them, and Parent and its subsidiaries have paid and discharged all
Taxes due in connection with or with respect to the periods or transactions
covered by such Tax Returns and have paid all other Taxes as are due, except
such as are being contested in good faith by appropriate proceedings (to the
extent that any such proceedings are required) and there are no other Taxes
that would be due if asserted by a taxing authority, except with respect to
which Parent is maintaining reserves to the extent currently required unless
the failure to do so would not reasonably be expected to have a Parent Material
Adverse Effect. Except as does not involve or would not result in liability to
Parent that would reasonably be expected to have a
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Parent Material Adverse Effect: (i) there are no tax liens on any assets of
Parent or any subsidiary thereof; and (ii) neither Parent nor any of its
subsidiaries has granted any waiver of any statute of limitations with respect
to, or any extension of a period for the assessment of, any Tax. The accruals
and reserves for Taxes (including deferred taxes) reflected in the 1998 Parent
Balance Sheet are in all material respects adequate to cover all Taxes required
to be accrued through the date thereof (including interest and penalties, if
any, thereon and Taxes being contested) in accordance with generally accepted
accounting principles.
Section 3.16 Environmental Matters. Except in all cases as, in the aggregate,
have not had and would not reasonably be expected to have a Parent Material
Adverse Effect, Parent and each of its subsidiaries to the best of Parent's
knowledge: (i) have obtained all Approvals which are required to be obtained
under all applicable Environmental Laws by Parent or its subsidiaries (or their
respective agents); (ii) are in compliance with all terms and conditions of
such required Approvals, and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in applicable Environmental Laws; (iii) have
not received notice of any past or present violations of Environmental Laws, or
any event, condition, circumstance, activity, practice, incident, action or
plan which is reasonably likely to interfere with or prevent continued
compliance with or which would give rise to any common law or statutory
liability, or otherwise form the basis of any claim, action, suit or
proceeding, against Parent or any of its subsidiaries based on or resulting
from the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge or release into
the environment, of any pollutant, contaminant or hazardous or toxic material
or waste; and (iv) have taken all actions necessary under applicable
Environmental Laws to register any products or materials required to be
registered by Parent or its subsidiaries (or any of their respective agents)
thereunder.
Section 3.17 Intellectual Property.
(a) Parent, directly or indirectly, owns, or is licensed or otherwise possesses
legally enforceable rights to use, all trademarks, trade names, service marks,
copyrights, and any applications therefor, know-how, computer software programs
or applications, and tangible or intangible proprietary information or material
that are material to the business of the Company and its subsidiaries, taken as
a whole, as currently conducted or as proposed to be conducted (the "Parent
Intellectual Property Rights"), except where the failure to do so would not
have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent, and the
consummation of the transactions contemplated hereby, will neither cause Parent
or any of its subsidiaries to be in violation or default in any material
respect under any license, sublicense or agreement with respect to the Parent
Intellectual Property Rights, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement, except where such violation, default, termination or modification
would not reasonably be expected to have a Parent Material Adverse Effect. No
claims have been asserted or, to the knowledge of Parent, are threatened by any
person nor are there any valid grounds, to the knowledge of Parent, for any
bona fide claims (i) against the use by Parent or any of its subsidiaries of
Parent Intellectual Property Rights, or (ii) challenging the ownership by
Parent or any of its subsidiaries, or the validity or effectiveness of any
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of Parent Intellectual Property Rights, except for such claims that would not,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect.
(c) Except as disclosed in the Parent SEC Reports filed prior to the date
hereof, neither the Parent nor any of its subsidiaries has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and there has never been any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that Parent
or one of its Subsidiaries must license or refrain from using any Intellectual
Property rights of any third party).
Section 3.18 Regulatory Matters.
(a) Since January 1, 1996 through the date hereof (i) there have been no
written notices, citations or decisions by any governmental or regulatory body
that any product produced, manufactured, marketed or distributed at any time by
the Company or any Company subsidiary (the "Parent Products") is defective or
fails to meet any applicable standards promulgated by any such governmental or
regulatory body, or any other governmental or regulatory body, agency or office
of any other jurisdiction to which the Company or any of its subsidiaries is
subject, (ii) there have been no recalls, field notifications or seizures
ordered or threatened by the FDA or any other comparable governmental or
regulatory body with respect to any of the Parent Production and (iii) none of
the Parent or the Parent subsidiaries have received any warning letter, Section
305 notices from the FDA or so-called Section 483 notices of adverse
observations (or comparable notices from such other governmental or regulatory
bodies).
(b) Except as would not, individually or in the aggregate, have a Parent
Material Adverse Effect, with respect to each Parent Product: (i) the Parent
and its subsidiaries have obtained all applicable Licenses to permit the
manufacturing, distribution, sale (including reimbursement and pricing),
marketing, export, import or human research (including clinical and non-
clinical trials) of such Product and (ii) Parent and its subsidiaries are in
full compliance with all terms and conditions of each License in each country
in which such Parent Product is marketed, and with all requirements pertaining
to the manufacturing (including current good manufacturing practices),
marketing, export, import or human research (including good laboratory
practices and clinical and non-clinical trials) of such Parent Product which is
not required to be the subject of a License.
(c) There are no impediments to issuance of any Parent FDA premarket approval
application ("PMA") as to which Parent has received an approvable letter from
the FDA other than those set forth in any so-called Section 483 Notices
described in the Parent Disclosure Schedule, and Parent is not aware of any
reason why it will be unable to address to the FDA's satisfaction all
observations contained in such Notices.
Section 3.19 Interested Party Transactions. Since the date of Parent's 1998
proxy statement, other than as described therein, no event has occurred that
would be required to be reported as a Certain Relationship or Related
Transaction, pursuant to Item 404 of Regulation S-K promulgated by the SEC.
Section 3.20 Financial Capacity. Parent has available sufficient funds to
satisfy its obligations to pay the Cash Consideration for all the Shares.
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Section 3.21 Opinion of Financial Advisor. Parent has received the opinion of
its financial advisor, Hambrecht & Quist, LLC, that, as of the date hereof, the
Merger Consideration is fair to Parent from a financial point of view.
Section 3.22 Brokers. No broker, finder or investment banker (other than
Hambrecht & Quist, LLC, the fees and expenses of which will be paid by Parent)
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent or Merger Sub.
Section 3.23 Ownership of Merger Sub; No Prior Activities.
(a) Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
Section 4.1 Conduct of Business by the Company Pending the Merger. The Company
covenants and agrees that, during the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Effective Time, unless Parent shall otherwise agree in writing and except as
otherwise contemplated by this Agreement, the Company shall conduct its
business and shall cause the businesses of its subsidiaries to be conducted in
the ordinary course of business; and the Company shall use all reasonable
commercial efforts to preserve substantially intact the business organization
of the Company and its subsidiaries taken as a whole, to keep available the
services of the present officers, employees and consultants of the Company and
its subsidiaries taken as a whole and to preserve the present relationships of
the Company and its subsidiaries with customers, suppliers and other persons
with which the Company or any of its subsidiaries has significant business
relations. By way of amplification and not limitation, except as contemplated
by this Agreement, neither the Company nor any of its subsidiaries shall,
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, directly or
indirectly do, or propose to do, any of the following without the prior written
consent of Parent:
(a) amend or otherwise change the Articles of Incorporation or By-Laws of the
Company or any of its subsidiaries;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock
of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest)
in the Company
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or any of its subsidiaries, except that the Company may grant options for
Company Common Stock under the Company Stock Plan to newly hired employees
in the ordinary course of business in an amount not in excess of 100,000
shares in the aggregate and the Company may issue shares of Company Common
Stock upon the exercise of options, warrants and other rights listed in
Section 2.3 of the Company Disclosure Schedule.
(c) sell, pledge, dispose of or encumber any assets of the Company or any of
its subsidiaries (except for (i) sales of assets in the ordinary course
of business and in a manner consistent with past practice, (ii)
dispositions of obsolete or worthless assets, and (iii) sales of other
assets not in excess of $100,000 in the aggregate);
(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, except that a wholly owned
subsidiary of the Company may declare and pay a dividend to its parent,
(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, or (iii)
amend the terms or change the period of exercisability of, purchase,
repurchase, redeem or otherwise acquire, or permit any subsidiary to
purchase, repurchase, redeem or otherwise acquire, any of its securities
or any securities of its subsidiaries, including, without limitation,
shares of Company Common Stock or any option, warrant or right, directly
or indirectly, to acquire shares of Company Common Stock, or propose to
do any of the foregoing; provided, however, that the Company may enter
into agreements with holders of Stock Options in which they waive any
right to accelerated vesting of the Stock Options in exchange for a
promise by the Company that any substitute stock option for Parent Common
Stock will become immediately exercisable in the event the Company
terminates the holder's employment following the Merger without cause;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or assets)
any corporation, partnership or other business organization or division
thereof; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person or,
except in each case in the ordinary course of business consistent with
past practice, make any loans or advances; (iii) enter into or amend any
contract or agreement that would be material to the Company and its
subsidiaries taken as a whole; (iv) authorize any capital expenditures or
purchase of fixed assets which are, in the aggregate, in excess of
$100,000 for the Company and its subsidiaries taken as a whole; or (v)
enter into or amend any contract, agreement, commitment or arrangement to
effect any of the matters prohibited by this Section 4.1(e);
(f) (i) increase the compensation payable or to become payable to its
executive officers, directors or employees except in the ordinary course
of business consistent with past practice; (ii) grant any additional
severance or termination pay to, or enter into any new employment or
severance agreements with, any director, executive officer or current
employee of the Company or its subsidiaries; (iii) enter into any
employment or severance agreement with any new employees of the Company
or its subsidiaries except in the ordinary course of business consistent
with past practice; or (iv) establish, adopt, enter into or amend any
collective bargaining, profit sharing, thrift, restricted stock, pension,
retirement, deferred compensation or severance plan, trust, fund or
policy for the benefit of current or former directors, officers
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or employees of the Company or any of its subsidiaries, except, in each
case, as may be required by law;
(g) except as required under generally accepted accounting principles, take
any action to change in any material respect the accounting policies or
procedures (including, without limitation, procedures with respect to
revenue recognition, payments of accounts payable and collection of
accounts receivable) of the Company or any subsidiary (except in the case
of subsidiaries to conform to the Company's policies and procedures);
(h) make any material tax election inconsistent with past practice or settle
or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise)
material to the Company and its subsidiaries taken as a whole, other than
the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of liabilities reflected or reserved
against in the financial statements contained in the Company SEC Reports
filed prior to the date of this Agreement or incurred in the ordinary
course of business and consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (i) above.
Section 4.2 No Solicitation.
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Company or any of its
subsidiaries, (i) solicit, initiate or encourage the initiation of any
inquiries or proposals regarding any merger, sale of substantial assets, sale
of shares of capital stock (including without limitation by way of a tender
offer) or similar transactions involving the Company or any subsidiaries of the
Company other than the Merger (any of the foregoing inquiries or proposals
being referred to herein as an "Acquisition Proposal"), (ii) engage in
negotiations or discussions concerning, or provide any nonpublic information to
any person relating to, any Acquisition Proposal or (iii) agree to, approve or
recommend any Acquisition Proposal. Nothing contained in this Section 4.2(a)
shall prevent the Board of Directors of the Company from considering,
negotiating, approving and recommending to the stockholders of the Company a
bona fide Acquisition Proposal not solicited in violation of this Agreement,
provided the Board of Directors of the Company concludes in good faith that the
Acquisition Proposal would constitute a Superior Proposal (as defined below)
and determines in good faith (upon advice of outside counsel) that it is
required to do so in order to discharge properly its fiduciary duties.
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company or
any of its subsidiaries in connection with an Acquisition Proposal or for
access to the properties, books or records of the Company or any subsidiary by
any person or entity that informs the Board of Directors of the Company or such
subsidiary that it is considering making, or has made, an Acquisition Proposal.
Such notice to Parent shall be made orally and in writing, and shall identify
the person or entity making the Acquisition Proposal and set forth the material
terms and condition of the Acquisition Payment. The notice shall also indicate
whether the Company is
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providing or intends to provide the person making the Acquisition Proposal with
access to information concerning the Company as provided in Section 4.2(c).
(c) If the Board of Directors of the Company receives a request for material
nonpublic information by a person who makes, or indicates that it is
considering making, a bona fide Acquisition Proposal, and the Board of
Directors determines in good faith and upon the advice of independent counsel
that it is required to cause the Company to act as provided in this Section
4.2(c) in order to discharge properly the directors' fiduciary duties, then,
provided the person making the Acquisition Proposal has executed a
confidentiality agreement substantially similar to the one then in effect
between the Company and Parent, the Company may provide such person with access
to information regarding the Company.
(d) The Company shall ensure that the officers and directors of the Company and
its subsidiaries and any investment banker or other advisor or representative
retained by the Company are aware of the restrictions described in this Section
4.2.
(e) For purposes of this Agreement, "Superior Proposal" means a bona fide
Acquisition Proposal that the Board of Directors of the Company determines in
its good faith judgment to be more favorable to the Company's stockholders than
the Merger (based on the written opinion, with only customary qualifications,
of the Company's independent financial advisor that the value of the
consideration of the Company's stockholders provided for in such proposal
exceeds the value of the consideration to the Company's stockholders provided
for in the Merger) and for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Board of Directors of the
Company (based on the written advice of the Company's independent financial
advisor), is reasonably capable of being obtained by the person making the
proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 HSR Act. As promptly as practicable after the date of the execution
of this Agreement, if required, the Company and Parent shall file notifications
under and in accordance with the HSR Act in connection with the Merger and the
transactions contemplated hereby and respond as promptly as practicable to any
inquiries received from the Federal Trade Commission and the Antitrust Division
of the Department of Justice for additional information or documentation and
respond as promptly as practicable to all inquiries and requests received from
any State Attorney General or other governmental authority in connection with
antitrust matters.
Section 5.2 Joint Proxy Statement Prospectus; Registration Statement. As
promptly as practicable after the execution of this Agreement, the Company and
Parent shall prepare and file with the SEC preliminary proxy materials which
shall constitute the Joint Proxy Statement/Prospectus and the Registration
Statement of the Parent with respect to the Parent Common Stock to be issued in
connection with the Merger. As promptly as practicable after comments are
received from the SEC thereon and after the furnishing by the Company and
Parent of all information required to be contained therein, the Company and
Parent shall file with the SEC a combined proxy and Registration Statement on
Form S-4 (or on such other form as shall be appropriate) relating to the
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adoption of this Agreement and approval of the transactions contemplated hereby
by the stockholders of the Company and the approval by the stockholders of
Parent to increase the number of authorized shares of Parent Company Stock and
the issuance of Parent Common Stock in the Merger pursuant to this Agreement,
and shall use all reasonable efforts to cause the Registration Statement to
become effective, and to mail the Joint Proxy Statement/Prospectus to their
respective shareholders, as soon thereafter as practicable. The Joint Proxy
Statement/Prospectus shall include the recommendation of the Boards of
Directors of the Company and Parent in favor of the Merger, subject to the last
sentence of Section 5.3.
Section 5.3 Stockholders Meetings. The Company and Parent shall call and hold
their respective Stockholders Meetings as promptly as practicable and in
accordance with applicable laws for the purpose of voting upon the approval of
the Merger and the issuance of the Parent Common Stock, and Parent and the
Company shall use their reasonable best efforts to hold the Stockholders
Meetings on the same day (and at the same time of such day) and as soon as
practicable after the date on which the Registration Statement becomes
effective. Unless otherwise required under the applicable fiduciary duties of
the respective directors of the Company or Parent, as determined by such
respective directors in good faith after consultation with and based upon the
advice of their respective outside legal counsel, the Company and Parent shall
use all reasonable efforts to solicit from their respective stockholders
proxies in favor of adoption of this Agreement and approval of the transactions
contemplated hereby or the issuance of Parent Company Stock in the Merger
pursuant to this Agreement, as the case may be, and shall take all other action
reasonably necessary or advisable to secure the vote or consent of stockholders
to obtain such approvals.
Section 5.4 Access to Information; Confidentiality. Upon reasonable notice and
subject to restrictions contained in confidentiality agreements to which such
party is subject (from which such party shall use reasonable efforts to be
released), the Company and Parent shall each (and shall cause each of their
subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of the other, reasonable access, during the period to the
Effective Time, to all of its properties, books, contracts, commitments and
records and, during such prior period, the Company and Parent each shall (and
shall cause each of their subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as such other
party may reasonably request, and each shall make available to the other the
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either Parent or the Company may reasonably request. Each party shall keep
such information confidential in accordance with the terms of the mutual non-
disclosure letter, dated August, 1998 (the "Confidentiality Letter"), between
Parent and the Company.
Section 5.5 Consents; Approvals. The Company and Parent shall each use all
reasonable efforts to obtain all consents, waivers, approvals, authorizations
or orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals), and the Company and Parent
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the Company
and Parent and the consummation by them of the transactions contemplated
hereby, in each case as promptly as practicable. The Company and Parent shall
furnish promptly all information required to be included in the Joint Proxy
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Statement/Prospectus and the Registration Statement, or for any application or
other filing to be made pursuant to the rules and regulations of any United
States or foreign governmental body in connection with the transactions
contemplated by this Agreement.
Section 5.6 Agreements with Respect to Affiliates. The Company shall deliver to
Parent, prior to the date the Registration Statement becomes effective under
the Securities Act, a letter (the "Affiliate Letter") identifying all persons
who are, and at the time of the Company Stockholders Meeting are expected to
be, "affiliates" of the Company, for purposes of Rule 145 under the Securities
Act ("Rule 145"). The Company shall use its best efforts to cause each person
who is identified as an "affiliate" in the Affiliate Letter to deliver, prior
to the Effective Time, a written agreement (an "Affiliate Agreement") in
substantially the form of Exhibit 5.6(a).
Section 5.7 Indemnification and Insurance.
(a) The Certificate of Incorporation and By-Laws of the Surviving Corporation
shall contain the provisions with respect to indemnification set forth in the
Articles of Incorporation and By-Laws of the Company, which provisions shall
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who at or before the Effective Time were directors,
officers, employees or agents of the Company, unless such modification is
required by law.
(b) The Company shall, to the fullest extent permitted under applicable law or
under the Company's Articles of Incorporation or By-Laws and regardless of
whether the Merger becomes effective, indemnify and hold harmless and, after
the Effective Time, Parent and the Surviving Corporation shall, to the fullest
extent permitted under applicable law or under the Surviving Corporation's
Certificate of Incorporation or By-Laws, indemnify and hold harmless, each
present and former director, officer or employee of the Company or any of its
subsidiaries (collectively, the "Indemnified Parties") against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, (x) arising out of or pertaining to the
transactions contemplated by this Agreement or (y) otherwise with respect to
any acts or omissions occurring at or prior to the Effective Time, to the same
extent as provided in the Company's Articles of Incorporation or By-Laws or any
applicable contract or agreement as in effect on the date hereof, in each case
for a period of six years after the date hereof. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) any counsel retained by the Indemnified Parties
for any period after the Effective Time shall be reasonably satisfactory to the
Surviving Corporation, (ii) after the Effective Time, Parent or the Surviving
Corporation shall pay the reasonable fees and expenses of such counsel,
promptly after statements therefor are received, and (iii) Parent and the
Surviving Corporation will cooperate in the defense of any such matter;
provided, however, that neither Parent nor the Surviving Corporation shall be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld); and provided, further, that, in the event
that any claim or claims for indemnification are asserted or made within such
six-year period, all rights to indemnification in respect of any such claim or
claims shall continue until the disposition of any and all such claims. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to any single action unless there is, under applicable standards
of professional conduct, a conflict on any significant issue between the
positions of any two or more Indemnified Parties.
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(c) Parent and the Surviving Corporation shall honor and fulfill in all
respects the obligations of the Company pursuant to indemnification agreements
with the Company's directors and officers existing at or before the Effective
Time.
(d) For a period of three years after the Effective Time, Parent shall maintain
or cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who are
currently covered by the Company's directors' and officers' liability insurance
policy (a copy of which has been made available to Parent) on terms comparable
to those now applicable to directors and officers of the Company; provided,
however, that in no event shall Parent or the Surviving Corporation be required
to expend in excess of 150% of the annual premium currently paid by the Company
for such coverage; and provided further, that if the premium for such coverage
exceeds such amount, Parent or the Surviving Corporation shall purchase a
policy with the greatest coverage available for such 150% of the annual
premium.
(e) This Section 5.7 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
Parent and the Surviving Corporation and shall be enforceable by the
Indemnified Parties, their heirs and their representatives.
Section 5.8 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i)
the occurrence or nonoccurrence of any event known to such party the occurrence
or nonoccurrence of which would be likely to cause any representation or
warranty contained in this Agreement to become materially untrue or inaccurate,
or (ii) any failure of the Company, Parent or Merger Sub, as the case may be,
materially to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice; and
provided further that failure to give such notice shall not be treated as a
breach of covenant for the purposes of Sections 6.2(a) or 6.3(a) unless the
failure to give such notice results in material prejudice to the other party.
Section 5.9 Further Action/Tax Treatment. Upon the terms and subject to the
conditions hereof each of the parties hereto shall use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement, to
obtain in a timely manner all necessary waivers, consents and approvals and to
effect all necessary registrations and filings, and otherwise to satisfy or
cause to be satisfied all conditions precedent to its obligations under this
Agreement. The foregoing covenant shall not include any obligation by Parent to
agree to divest, abandon, license or take similar action with respect to any
assets (tangible or intangible) of Parent or the Company. Each of Parent,
Merger Sub and the Company shall use its reasonable best efforts (which shall
not include increasing the Merger Consideration or the Stock Consideration or
the Per Share Stock Consideration) to cause the Merger to qualify, and will not
(both before and after consummation of the Merger) take any actions which to
its knowledge would reasonably be expected to prevent the Merger from
qualifying as a reorganization under the provisions of Section 368 of the Code.
Following the Merger, Parent will cause the Surviving Corporation to continue
the Company's historic business or use a significant portion of the Company's
historic business assets in a business.
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Section 5.10 Public Announcements. Parent and the Company shall consult with
each other before issuing any press release with respect to the Merger or this
Agreement and shall not issue any such press release or make any such public
statement without the prior consent of the other party, which shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may upon the advice of counsel be required by law or the rules and
regulations of the Nasdaq National Market System, if it has used all reasonable
efforts to consult with the other party prior thereto.
Section 5.11 Accountants' Letters. Upon reasonable notice from the other,
Parent and the Company shall use their respective best efforts to cause
Deloitte & Touche LLP and Arthur Andersen LLP, respectively, to deliver to
Parent or the Company, as the case may be, a letter, dated within 2 business
days of the Effective Date of the S-4 Registration Statement covering such
matters as are requested by Parent or the Company and as are customarily
addressed in accountant's "comfort" letters.
Section 5.12 Board Representation. As of the Effective Time or as soon as
practicable thereafter, the Board of Directors of Parent will take such action
as is necessary to cause Glenn Bradley to be elected to serve as a director of
Parent for the vacant term expiring at Parent's annual meeting in 2000 (the
"Outside Director"), and Randy W. Frey to be elected as a director of Parent
for the vacant term expiring at Parent's annual meeting in 2001. The Board of
Directors of Parent will nominate the Outside Director for re-election at
Parent's annual meeting in 2000, provided that such Outside Director (x) is
"independent" as such term is applied under the listing requirements for the
Nasdaq National Market and (y) shall have attended at least 75% of all meetings
of the Board of Directors, by telephone or in person, during the previous
fiscal year. In addition, one person designated by the Company prior to the
mailing of the Joint Proxy Statement/Prospectus, subject to the reasonable
approval of Parent, shall be entitled to attend meetings of the Board of
Directors until the third anniversary of the Effective Time, subject to the
Board's right to have portions of any such meeting open only to members of the
Board. If the observer named in the Joint Proxy Statement/Prospectus is unable
to continue as an observer until the end of the term, Parent agrees that the
directors named by the Company may designate a replacement. Parent agrees to
pay the observer's reasonable travel expenses in connection with the observer's
attendance at Board meetings.
Section 5.13 Nasdaq Listing. Each of the Company and Parent shall use its
reasonable best efforts to continue the quotation of the Company Common Stock
and Parent Common Stock, respectively, on The Nasdaq National Market during the
term of this Agreement.
Section 5.14 Listing of Parent Shares. Parent shall use its reasonable best
efforts to cause the Parent Shares to be issued in the Merger to be approved
for quotation, upon official notice of issuance, on The Nasdaq National Market.
Section 5.15 Joint Shareholder Communications Efforts. The Company and Parent
agree to use their reasonable best efforts to conduct a joint communications
program, including presentations and meetings, with institutional stockholders
of both the Company and Parent, for the purpose of communicating the synergy,
strategy and prospects for the combined companies after the Merger. Such
presentations and meetings shall take place in those cities of the United
States where such
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institutional stockholders are located and shall be conducted for 7 to 10
business days during the three-week period preceding the Stockholder Meetings.
Section 5.16 Dismissal of Civil Actions. As soon as practicable after the date
hereof, the Company shall stipulate to the dismissal, without prejudice, of all
claims it has alleged against Parent and Pillar Point Partners in Autonomous
Technologies Corporation v. Pillar Point Partners (Civil Action No. 96-515
JJF).
Section 5.17 Issuance of CIBA Shares. Prior to the Effective Time, the Company
shall issue 171,713 shares (subject to any required anti-dilution adjustments)
of Company Common Stock to CIBA Vision Group Management, Inc. ("CIBA") in full
satisfaction of its obligation to deliver shares of capital stock under the
Strategic Alliance Agreement dated May 15, 1995 between the Company and CIBA.
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) Effectiveness of the Registration Statement. The Registration Statement
shall have been declared effective by the SEC under the Securities Act.
No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose and
no similar proceeding in respect of the Joint Proxy Statement/Prospectus
shall have been initiated or threatened by the SEC;
(b) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the
Company and the issuance of Parent Common Stock in the Merger pursuant to
this Agreement shall have been approved by the requisite vote of the
stockholders of Parent;
(c) HSR Act. The waiting period, if any, applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated;
(d) No Injunctions or Restraints. No temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding
brought by any administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the
foregoing be pending; and
(e) Nasdaq. The Parent Shares to be issued in the Merger shall have been
approved, upon official notice of issuance, for quotation on The Nasdaq
National Market.
Section 6.2 Additional Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger are also subject to
the following conditions:
(a) Representations and Warranties. The representations and warranties of the
Company contained in this Agreement shall be true and correct in all
respects at and as of the Effective
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Time as if made at and as of such time, except for (i) changes
contemplated by this Agreement and (ii) those representations and
warranties which address matters only as of a particular date (which shall
have been true and correct as of such date with the same force and effect
as if made at and as of the Effective Time), and Parent and Merger Sub
shall have received a certificate to such effect signed on behalf of the
Company by the President and the Chief Financial Officer of the Company;
(b) Agreements and Covenants. The Company shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the
Effective Time, and Parent and Merger Sub shall have received a
certificate to such effect signed on behalf of the Company by the
President and the Chief Financial Officer of the Company;
(c) Consents Obtained. All consents, waivers, approvals, authorizations or
orders required to be obtained, and all filings required to be made, by
the Company for the due authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated
hereby shall have been obtained and made by the Company;
(d) Tax Opinion. Unless the Merger shall be restructured as the Alternative
Taxable Merger, Parent shall have received a written opinion from Ropes &
Gray, in form and substance reasonably satisfactory to Parent, to the
effect that the Merger will constitute a reorganization within the
meaning of Section 368 of the Code;
(e) Affiliate Agreements. Parent shall have received from each person who is
identified in the Affiliate Letter as an "affiliate" of the Company, an
Affiliate Agreement, and such Affiliate Agreement shall be in full force
and effect;
(f) No Litigation. There shall not be pending or threatened any suit, action,
proceeding or investigation: (i) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by this Agreement; (ii) relating to the Merger and seeking
to obtain from Parent or any of its subsidiaries any damages that may be
material to Parent: (iii) seeking to prohibit or limit in any material
respect Parent's ability to vote, receive dividends with respect to or
otherwise exercise ownership rights with respect to the stock of the
Surviving Corporation; (iv) that would materially and adversely affect
the right of the Surviving Corporation to own the assets or operate the
business of the Company (v) which, if adversely determined, could have a
Material Adverse Effect on the Company or Parent.
(g) Stockholders Agreement. The Stockholders Agreements shall be in full
force and effect as of the Effective Time.
Section 6.3 Additional Conditions to Obligation of the Company. The obligation
of the Company to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall be true and
correct in all respects on and as of the Effective Time, except for (i)
changes contemplated by this Agreement and (ii) those representations and
warranties which address matters only as of a particular date (which
shall have been true and correct as of such date) with the same force and
effect as if made on and
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as of the Effective Time, and the Company shall have received a
certificate to such effect signed on behalf of Parent by the President and
the Chief Financial Officer of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or
prior to the Effective Time, and the Company shall have received a
certificate to such effect signed on behalf of Parent by the President
and the Chief Financial Officer of Parent;
(c) Consents Obtained. All consents, waivers, approvals, authorizations or
orders required to be obtained, and all filings required to be made, by
Parent and Merger Sub for the authorization, execution and delivery of
this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent and
Merger Sub;
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, notwithstanding approval thereof by the stockholders of the
Company or Parent:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent and the Company; or
(b) by either Parent or the Company, if the Merger shall not have been
consummated by February 28, 1999 (provided that the right to terminate
this Agreement under this Section 7.1(b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has
been the cause of or resulted in the failure of the Merger to occur on or
before such date); or
(c) by either Parent or the Company, if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall
have issued a nonappealable final order, decree or ruling or taken any
other action having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger (provided that the right to terminate
this Agreement under this Section 7.1(c) shall not be available to any
party who has not complied with its obligations under Section 5.9 and
such noncompliance materially contributed to the issuance of any such
order, decree or ruling or the taking of such action); or
(d) by Parent, if the requisite vote of the stockholders of the Company shall
not have been obtained by February 28, 1999, or by the Company, if the
requisite vote of the stockholders of Parent shall not have been obtained
by February 28, 1999 (provided that this right shall not be available to
any party who has not complied with its obligation under Section 5.3); or
(e) by Parent, if: (i) the Board of Directors of the Company shall withdraw,
modify or change its approval or recommendation of this Agreement or the
Merger in a manner adverse to Parent or shall have resolved to do so;
(ii) the Board of Directors of the Company shall have recommended to the
stockholders of the Company an Alternative Transaction (as defined
below); or (iii) a tender offer or exchange offer for 25% or more of the
outstanding shares of Company Common Stock is commenced (other than by
Parent or an affiliate of Parent) and the Board of Directors of the
Company either fails to recommend that the stockholders of the
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Company not tender their shares in such tender or exchange offer or takes
no position on the acceptance of the tender or exchange offer; or
(f) by the Company, if the Board of Directors of the Company shall have
determined to recommend an Acquisition Proposal to its stockholders after
determining, pursuant to Section 4.2 that such Acquisition Proposal
constitutes a Superior Proposal, and the Company gives Parent at least
three Business Days prior notice of its intention to effect such
termination pursuant to this subsection, and the Company makes the
payment required pursuant to Section 7.3(b) of this Agreement;
(g) by Parent, (i) if any representation or warranty of the Company set forth
in this Agreement that is qualified by materiality was not true when made
or if any such representation or warranty not qualified by materiality
was not true in all material respects when made, or (ii) upon the
Company's material breach of any covenant or agreement set forth in this
Agreement, such that the conditions set forth in Section 6.2(a) or 6.2(b)
would not be satisfied, or by the Company, (x) if any representation or
warranty of Parent set forth in this Agreement that is qualified by
materiality was not true when made or if any such representation or
warranty not qualified by materiality was not true in all material
respects when made, or (y) upon Parent's material breach of any covenant
or agreement set forth in this Agreement, such that the conditions set
forth in Section 6.3(a) or 6.3(b) would not be satisfied (any of such
events being referred to as a "Terminating Breach"), provided, that, the
non-breaching party shall have given the breaching party at least 10
business days' prior notice and provided, further, that if such
Terminating Breach is curable prior to February 28, 1999 by the breaching
party through the exercise of its reasonable best efforts and for so long
as the breaching party continues to exercise such reasonable best
efforts, the non-breaching party may not terminate this Agreement under
this Section 7.1(g); or
(h) by Parent, if any representation or warranty of the Company shall have
become untrue such that the condition set forth in Section 6.2(a) would
not be satisfied, or by the Company, if any representation or warranty of
Parent shall have become untrue such that the condition set forth in
Section 6.3(a) would not be satisfied, in either case other than by
reason of a Terminating Breach and after 10 business days' prior written
notice.
As used herein, "Alternative Transaction" means any of (i) a transaction
pursuant to which any person (or group of persons) other than Parent or its
affiliates (a "Third Party") acquires or would acquire more than 25% of the
outstanding Shares, whether from the Company or pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving the Company pursuant to which any Third Party acquires more than 25%
of the outstanding equity securities of the Company or the entity surviving
such merger or business combination, or (iii) any other transaction pursuant
to which any Third Party acquires or would acquire control of assets
(including for this purpose the outstanding equity securities of subsidiaries
of the Company, and the entity surviving any merger or business combination
including any of them) of the Company or any of its subsidiaries having a fair
market value (as determined by the Board of Directors of the Company in good
faith) equal to more than 25% of the fair market value of all the assets of
the Company and its subsidiaries, taken as a whole, immediately prior to such
transaction.
Notwithstanding the foregoing, if the staff of the SEC reviews the Joint Proxy
Statement/Prospectus or if any administrative agency or commission or other
governmental authority or instrumentality
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shall have instituted an inquiry, either formal or informal, into the Merger,
Parent may by written notice to the Company extend the February 28, 1999 date
in this Section 7.1 for up to 30 additional days provided that (i) Parent is
not in breach in any material respect of its obligations under this Agreement
and (ii) Parent agrees to extend credit to the Company under its revolving
credit line with Parent in additional amounts not to exceed $1,500,000 during
the period of any extension.
Section 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or any of its
affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.3 and Section 8.1 hereof, and (ii) nothing herein shall relieve any
party from liability for any willful breach hereof prior to such termination.
Section 7.3 Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated; provided, however, that Parent and the Company shall share equally
all fees and expenses, other than accountants' and attorneys' fees, incurred in
connection with the printing and filing of the Joint Proxy Statement/Prospectus
(including any preliminary materials related thereto) and the Registration
Statement (including financial statements and exhibits) and any amendments or
supplements thereto.
(b) The Company shall pay Parent a fee of $2,600,000 (the "Company Fee") upon
the first to occur of the following events:
(i) the termination of this Agreement by Parent pursuant to Section 7.1(d) if
the stockholders of the Company shall not have approved and adopted the
Merger Agreement by February 28, 1999 and a proposal for an Alternative
Transaction shall have been made prior to the Company Stockholders
Meeting; or
(ii) the termination of this Agreement by Parent pursuant to Section 7.1(e)
or the Company pursuant to Section 7.1(f); or
(iii) the termination of this Agreement by Parent pursuant to Section 7.1(g)
on account of a Terminating Breach by the Company.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Effectiveness of Representations, Warranties and Agreements;
Knowledge, Etc.
(a) Except as otherwise provided in this Section 8.1, the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.1, as the case may be, except that the agreements set
forth in Article I and Section 5.7 shall survive the Effective Time
indefinitely and those set forth
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<PAGE>
in Section 7.3 shall survive such termination indefinitely. The Confidentiality
Letter shall survive termination of this Agreement as provided therein.
(b) Reference to a party's "knowledge" in this Agreement refers to the actual
knowledge of the directors and officers of that party who are required to file
reports under Section 16(a) of the Exchange Act.
Section 8.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by facsimile transmission, with confirmation
received and a copy placed in the United States mail to the following
addresses, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to Parent or Merger Sub:
Attention: General Counsel
Telephone No.: (781) 890-1234
Telecopier No.: (781) 890-6739
With a copy to:
Keith F. Higgins, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
Telephone No.: (617) 951-7000
Telecopier No.: (617) 951-7050
(b) If to the Company:
Attention: President
Telephone No.: (407) 384-1600
Telecopier No.: (407) 277-0047
With a copy to:
William A. Grimm, Esq.
Gray, Harrison & Robinson, P.A.
201 East Pine Street, Suite 1200
Orlando, FL 37801
Telephone No.: (407) 843-8880
Telecopier No.: (407) 244-5690
Section 8.3 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliates" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person; including, without limitation,
any partnership or joint venture in which the first mentioned
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<PAGE>
person (either alone, or through or together with any other subsidiary)
has, directly or indirectly, an interest of 5% or more;
(b) "beneficial owner" with respect to any shares of Company Common Stock
means a person who shall be deemed to be the beneficial owner of such
shares (as such term is defined in Rule 13d-3 of the Exchange Act);
(c) "business day" means any day other than a day on which banks in The
Commonwealth of Massachusetts are required or authorized to be closed;
(d) "control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
or policies of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise;
(e) "generally accepted accounting principles" shall mean United States
generally accepted accounting principles.
(f) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act); and
(g) "subsidiary" or "subsidiaries" of the Company, Parent or any other person
means any corporation, partnership, joint venture or other legal entity
of which the Company, the Surviving Corporation, Parent or such other
person, as the case may be (either alone or through or together with any
other subsidiary), owns, directly or indirectly, more than 50% of the
stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
Section 8.4 Amendment. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after approval of
the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
Section 8.5 Waiver. At any time prior to the Effective Time, any party hereto
may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements
or conditions contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
Section 8.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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<PAGE>
Section 8.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the fullest extent possible.
Section 8.8 Entire Agreement. This Agreement constitutes the entire agreement
and supersedes all prior agreements and undertakings (other than the
Confidentiality Letters), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
Section 8.9 Assignment; Guarantee of Merger Sub Obligations. This Agreement
shall not be assigned by operation of law or otherwise, except that Merger Sub
may assign all or any of its rights hereunder to any wholly owned subsidiary of
the Parent provided that no such assignment shall relieve the assigning party
of its obligations hereunder. Parent guarantees the full and punctual
performance by Merger Sub of all the obligations hereunder of Merger Sub or any
such assignees.
Section 8.10 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation, other
than Section 5.7 (which is intended to be for the benefit of the Indemnified
Parties and may be enforced by such Indemnified Parties).
Section 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure
or delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or of any other right. All rights and remedies existing under
this Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
Section 8.12 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Delaware applicable to
contracts executed and fully performed within the State of Delaware.
Section 8.13 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SUMMIT TECHNOLOGY, INC.
/s/ Robert J. Palmisano
By: _________________________________
Name:Robert J. Palmisano
Title:Chief Executive Officer
ALPINE ACQUISITION CORP.
/s/ Robert J. Palmisano
By: _________________________________
Name:Robert J. Palmisano
Title:President
AUTONOMOUS TECHNOLOGIES CORPORATION
/s/ Randy W. Frey
By: _________________________________
Name:Randy W. Frey
Title:CEO
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<PAGE>
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
AND AMENDMENT NO. 1 TO REVOLVING CREDIT LINE
AND REVOLVING PROMISSORY NOTE
This Amendment No. 1 to the Agreement and Plan of Merger and Amendment No. 1
to Revolving Credit Line and Revolving Promissory Note dated as of October 1,
1998 (the "Merger Agreement") is entered into this 16th day of March, 1999, by
and among Autonomous Technologies Corporation ("Autonomous"), Summit
Technology, Inc. ("Summit") and Alpine Acquisition Corp. ("Alpine").
Capitalized terms used herein and not otherwise defined shall have the same
meaning as in the Merger Agreement.
WHEREAS, pursuant to notice duly given on February 17, 1999, Summit extended
the termination date of the Merger Agreement to March 30, 1999 and agreed to
increase the line of credit to Autonomous under the revolving credit line to
$6.5 million; and
WHEREAS, the parties now desire to, among other things, extend the
termination date of the Merger Agreement to April 30, 1999.
NOW THEREFORE, pursuant to Section 8.4 of the Merger Agreement, the parties
hereby agree to amend the Merger Agreement as follows:
1. Article VII of the Merger Agreement shall be amended by replacing the
reference to February 28, 1999 with April 30, 1999.
2. The last paragraph of Section 7.1 shall be deleted in its entirety.
3. In connection with the execution of this Amendment, Summit and
Autonomous hereby amend the Revolving Credit Line letter agreement,
dated October 1, 1998, such that all references to $5,000,000 within
such Revolving Credit Line letter are hereby replaced with $8,000,000.
Further, Summit and Autonomous hereby amend the Revolving Promissory
Note made by Autonomous to Summit, dated October 1, 1998, such that the
reference to "Five Million Dollars ($5,000,000)" in the first paragraph
of that Note is hereby replaced with "Eight Million Dollars
($8,000,000)."
4. A new Section 1.6(g) shall be inserted into the Merger Agreement as
follows:
(g) Assumption of Warrants. At the Effective Time, each warrant to
purchase Company Common Stock (a "Warrant") shall represent the
right to purchase and receive (in lieu of the Company Stock
purchasable and receivable upon exercise of the rights represented
thereby), upon exercise of the Warrant, the Merger Consideration
issued or payable with respect to or in exchange for a number of
outstanding shares of Company Common Stock equal to the number of
shares of Company Common Stock purchasable and receivable upon the
exercise of such Warrant immediately before the Merger. The
provisions of each Warrant (including, without limitation,
provisions for adjustment of the exercise price and the number of
shares purchasable and receivable upon exercise of the Warrant)
shall be applicable, as nearly as practicable, after the Merger in
relation to the Merger Consideration deliverable upon exercise of
the Warrant. At or before the Effective Time, Summit shall execute
such instruments of assumption as may be required by any Warrant.
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<PAGE>
5. Section 5.11 of the Merger Agreement is hereby amended in its entirety
such that it reads as follows:
"Upon reasonable notice from the other, Parent and the Company
shall use their respective best efforts to cause Deloitte & Touche
LLP, as auditor of the December 31, 1998 financial statements for
each of the Parent and the Company, and the Company shall use its
best efforts to cause Arthur Andersen LLP, as auditor of its
December 31, 1996 and 1997 financial statements, to deliver to
Parent or the Company, as the case may be, a letter, dated within 2
business days of the Effective Date of the S-4 Registration
Statement covering such matters as are requested by Parent or the
Company and as are customarily addressed in accountant's "comfort"
letters."
6. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument. This
Amendment may be executed by facsimile signature.
7. Except as amended hereby, the Merger Agreement the Revolving Credit Line
letter agreement and the Revolving Promissory Note shall remain in full
force and effect in accordance with their terms.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
SUMMIT TECHNOLOGY, INC.
/s/ Robert J. Palmisano
By:____________________________________
Name:
Title:
ALPINE ACQUISITION CORP.
/s/ Robert J. Palmisano
By: ___________________________________
Name:
Title:
AUTONOMOUS TECHNOLOGIES CORPORATION
/s/ Randy W. Frey
By: ___________________________________
Name: Randy W. Frey
Title:CEO
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<PAGE>
ANNEX B
FORM OF
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT, dated as of October 1, 1998 (the "Agreement"), between
the undersigned holder (the "Holder") of shares of the common stock, $0.01 par
value per share (the "Company Common Stock"), of Autonomous Technologies
Corporation, a Florida corporation (the "Company"), and Summit Technology,
Inc., a Massachusetts corporation ("Parent").
RECITALS
The Company, Parent and Alpine Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of Parent ("Merger Sub"), propose to enter into an
Agreement and Plan of Merger dated the date hereof (the "Merger Agreement";
capitalized terms not otherwise defined herein being used herein as therein
defined), pursuant to which the Company would be merged (the "Merger") with
and into Merger Sub, and each outstanding share of Company Common Stock would
be converted into the right to receive the Merger Consideration, which
includes shares ("Parent Shares") of the common stock, $0.01 par value per
share, of Parent;
In order to induce Parent to enter into the Merger Agreement, and at the
request of Parent, the Holder has agreed, to enter into this Agreement;
Prior to the date hereof, Parent, Merger Sub and the Holder had no agreement,
arrangement or understanding (as defined in Section 607.0901 of the Florida
Business Corporation Act (the "FBCA")) for the purpose of acquiring, holding,
voting or disposing of shares of Company Common Stock; and
In consideration for the agreements contained herein and in the Merger
Agreement, prior to the date hereof, and prior to the time at and date on
which each of Parent and Merger Sub became an "interested stockholder" for
purposes of Section 607.0901 of the FBCA, the board of the directors of the
Company has approved this Agreement.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. Representations and Warranties of Holder. The Holder represents and
warrants to Parent as follows:
(a) Ownership of Securities. The Holder is the record and beneficial owner
of the number of shares of Company Common Stock (together with any
shares of Company Common Stock hereafter acquired by the Holder, the
"Subject Shares") and the number and kind of other securities of the
Company (together with the Subject Shares and any other securities of
the Company hereafter acquired by the Holder, the "Subject Securities")
set forth on the signature page to this Agreement. The Holder has sole
voting power and sole power to issue instructions with respect to the
voting of the Subject Securities, sole power of disposition, sole power
of exercise or conversion and the sole power to demand appraisal right,
in each case with respect to all of the Subject Securities.
(b) Power; Binding Agreement. The Holder has the legal capacity, power and
authority to enter into and perform all of the Holder's obligations
under this Agreement. The execution,
<PAGE>
delivery and performance of this Agreement by the Holder will not
violate any other agreement to which such Holder is a party including,
without limitation, any trust agreement, voting agreement, stockholder's
agreement or voting trust. This Agreement has been duly and validly
executed and delivered by the Holder and constitutes a valid and binding
agreement of such Holder, enforceable against the Holder in accordance
with its terms. If the Holder is married and the Subject Securities
constitute community property, this Agreement has been duly authorized,
executed and delivered by, and constitutes a valid and binding agreement
of, the Holder's spouse, enforceable against such person in accordance
with its terms.
(c) No Conflicts. No filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary
for the execution of this Agreement by the Holder and the consummation
by the Holder of the transactions contemplated hereby and neither the
execution and delivery of this Agreement by the Holder nor the
consummation by the Holder of the transactions contemplated hereby nor
compliance by the Holder with any of the provisions hereof shall
conflict with or result in any breach of any applicable partnership or
other organizational documents applicable to the Holder, result in a
violation or breach of, or constitute (with or without notice or lapse
of time or both) a default (or give rise to any third-party right of
termination, cancellation, material modification or acceleration) under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which the
Holder is a party or by which the Holder's properties or assets may be
bound or violate any order, writ, injunction, decree, judgment, order,
statute, rule or regulation applicable to the Holder or any of the
Holder's properties or assets.
(d) No Liens. The Subject Securities are now and at all times during the
term hereof will be held by the Holder, or by a nominee or custodian
for the benefit of the Holder, free and clear of all liens, claims,
security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever,
except for any encumbrances arising hereunder.
(e) No Brokers. Except as provided in the Merger Agreement, no broker,
finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions
contemplated by the Merger Agreement based upon arrangements made by or
on behalf of the Holder.
2. Agreement to Vote Shares. At every meeting of the stockholders of the
Company called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of the Company with respect to any of the following, the Holder shall vote all
or cause to be voted the Subject Securities that he beneficially owns on the
record date of any such vote (i) in favor of the Merger, the adoption of the
Merger Agreement and the approval of the terms thereof and (ii) against (x) any
Acquisition Proposal made in opposition to or competition with the Merger, (y)
any merger (including, without limitation, an Alternative Transaction),
consolidation, sale of assets requiring stockholder approval, reorganization or
recapitalization of the Company, with any other person than Parent or its
affiliates, and (z) any liquidation or winding up of the Company.
B-2
<PAGE>
3. Proxy. THE STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS MERGER SUB AND THE
PRESIDENT OF MERGER SUB AND THE TREASURER OF MERGER SUB, IN THEIR RESPECTIVE
CAPACITIES AS OFFICERS OF MERGER SUB, AND ANY INDIVIDUAL WHO SHALL HEREAFTER
SUCCEED TO ANY SUCH OFFICE OF MERGER SUB, AND ANY OTHER DESIGNEE OF MERGER SUB,
AND EACH OF THEM INDIVIDUALLY, THE STOCKHOLDER'S PROXY AND ATTORNEY-IN-FACT
(WITH FULL POWER OF SUBSTITUTION) TO VOTE OR ACT BY WRITTEN CONSENT WITH
RESPECT TO THE SUBJECT SECURITIES SOLELY WITH RESPECT TO THE MATTERS IN AND
SOLELY IN ACCORDANCE WITH, SECTION 2 HEREOF. THIS PROXY IS COUPLED WITH AN
INTEREST AND SHALL BE IRREVOCABLE, AND THE HOLDER WILL TAKE SUCH FURTHER ACTION
OR EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT
OF THIS PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY HIM WITH
RESPECT TO THE SUBJECT SECURITIES.
4. Covenants of the Holder. The Holder hereby agrees and covenants that:
(a) No Solicitation. The Holder, solely in his capacity as a stockholder of
the Company, shall not, directly or indirectly, solicit (including by
way of furnishing information) or respond to any inquiries or the
making of any proposal by any person or entity (other than Parent or
any affiliate of Parent) with respect to the Company that constitutes
or could reasonably be expected to lead to an Acquisition Proposal. If
the Holder receives any such inquiry or proposal, then he shall
promptly inform Parent of the terms and conditions, if any, of such
inquiry or proposal and the identity of the person making it. The
Holder will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. The restrictions and
covenants contained in this Section 4(a) shall apply to the Holder only
in his capacity as a stockholder, and not to the Holder in his capacity
as a director or officer of the Company.
(b) Restriction on Transfer, Proxies and Noninterference. The Holder shall
not, directly or indirectly: (i) except pursuant to the terms of the
Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent
to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of the Holder's Subject
Securities; (ii) except as contemplated hereby, grant any proxies or
powers of attorney, deposit any Subject Shares into a voting trust or
enter into a voting agreement with respect to any Subject Shares; or
(iii) take any action that would make any representation or warranty
contained herein untrue or incorrect or have the effect of preventing
or disabling the Holder from performing his obligations under this
Agreement. Holder agrees within three (3) business days of the date of
this Agreement to cause to be affixed a legend on each certificate
representing Subject Securities the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
THE STOCKHOLDER AGREEMENT, DATED AS OF OCTOBER , 1998, A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF THE ISSUER."
B-3
<PAGE>
5. Agreement as Stockholder. Parent and the Holder acknowledge and agree that
none of the provisions set forth herein shall be deemed to restrict or limit
any fiduciary duty that the Holder may have as a director or an officer of the
Company provided that no such duty shall excuse the Holder from his obligation
to vote the Subject Securities, to the extent that they may be so voted as
provided herein, and to otherwise comply with each of the terms and conditions
of the Agreement.
6. Assignment; Benefits. The rights (but not the obligations) of Parent
hereunder may be assigned, in whole or in part, to Merger Sub or any other
direct or indirect wholly owned subsidiary of Parent, to the extent and for so
long as it remains a direct or indirect wholly owned subsidiary of Parent.
Other than as permitted in the preceding sentence, this Agreement may not be
assigned by any party hereto without the prior written consent of the other
party.
This Agreement shall be binding upon, and shall inure to the benefit of, the
Holder, Parent and their respective successors and permitted assigns.
7. Notices. All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made if and
when delivered personally or by overnight courier or sent by electronic
transmission, with confirmation received, to the telecopy numbers specified
below:
If to the Holder, to the Holder at the address appearing on the signature page
beneath the Holder's name, with a copy to:
Autonomous Technologies Corporation
2800 Discovery Drive
Orlando, FL 32826
Telecopier No.: (407) 384-1699
Telephone No.: (407) 384-1600
Attention: Chairman and CEO
With a copy to:
Gray, Harris & Robinson, P.A.
201 East Pine Street, Suite 1200
Orlando, FL 32801
Telecopier No.: (407) 244-5690
Telephone No.: (407) 843-8880
Attention: William A. Grimm, Esq.
If to Parent or Merger Sub:
Summit Technology, Inc.
21 Hickory Drive
Waltham, Massachusetts 02541
Telecopier No.: (781) 890-6316
Telephone No.: (781) 890-1234
Attention: General Counsel
B-4
<PAGE>
With a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Telecopier No.: (617) 951-7050
Telephone No.: (617) 951-7000
Attention: Keith F. Higgins, Esq.
or to such other address or telecopy number as any party may have furnished to
the other parties in writing in accordance herewith.
8. Specific Performance. The parties hereto agree that irreparable harm would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
9. Amendment. This Agreement may not be amended or modified, except by an
instrument in writing signed by or on behalf of each of the parties hereto.
This Agreement may not be waived by either party hereto, except by an
instrument in writing signed by or on behalf of the party granting such waiver.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts without giving
effect to the conflict of laws principles thereof.
11. Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same agreement.
12. Termination. Unless the Merger shall have been consummated, this Agreement
shall terminate upon the earlier to occur of (i) 180 days after the termination
of the Merger Agreement pursuant to Section 7.1 thereof, or (ii) February 28,
1999. The date and time at which this Agreement is terminated in accordance
with this Section 12 is referred to herein as the "Termination Date." Upon any
termination of this Agreement, this Agreement shall thereupon become void and
of no further force and effect, and there shall be no liability in respect of
this Agreement or of any transactions contemplated hereby or by the Merger
Agreement on the part of any party hereto or any of its directors, officers,
stockholders, employees, agents, advisors, representatives or affiliates;
provided, however, that nothing herein shall relieve any party from any
liability for such party's willful breach of this Agreement; and provided
further that nothing herein shall limit, restrict, impair, amend or otherwise
modify the rights, remedies, obligations or liabilities of any person under any
other contract or agreement, including, without limitation, the Merger
Agreement. This Agreement shall survive the consummation of the Merger.
[This space has been intentionally left blank.]
B-5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of each of
the parties hereto, all as of the date first above written.
Summit Technology, Inc.
By: _________________________________
Name:
Title:
The Holder:
_____________________________________
Name:
Address:
Shares of Company Common Stock:
Options/Warrants to Purchase Company Common Stock:
B-6
<PAGE>
ANNEX C
[Hambrecht & Quist Letterhead]
October 1, 1998
Confidential
The Board of Directors
Summit Technology, Inc.
21 Hickory Drive
Waltham, Massachusetts, 02451
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Summit Technology, Inc. ("Acquirer" or the "Company") of the
consideration to be paid by the Company in connection with the proposed
acquisition by Acquirer of the common stock of Autonomous Technologies
Corporation ("Seller") (the "Proposed Transaction") under the terms of the
Agreement and Plan of Merger by and among Summit Technology, Inc., Alpine
Acquisition Corp., and Autonomous Technologies Corporation dated as of
September 28, 1998 among Seller and Acquirer and the related Exhibits and
Schedules thereto (the "Agreement"). The Agreement provides, among other
things, that Acquirer will pay to Seller, upon consummation of the Proposed
Transaction, (i) 11,650,400 shares of Acquirer common stock and (ii)
$50,000,000 in cash less (a) one-half of any amounts advanced to the Seller by
Acquirer after the date of this letter and (b) any amounts that would be
payable upon redemption of all shares of the Seller's Convertible Preferred
Stock, Series I. If the average closing price of Acquirer common stock for the
ten trading days ending on the third day before the date on which the
Effective Time, as defined in the Agreement, occurs is less than $4.2917 (the
"Average Closing Price"), then the $50,000,000 in the previous sentence shall
be reduced to 11,650,400 multiplied by the Average Closing Price.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment banking
services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic
transactions, corporate restructurings, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. We have acted as a financial
advisor to the Board of Directors of Acquirer in connection with the Proposed
Transaction, and we will receive a fee for our services, which include the
rendering of this opinion.
In the ordinary course of business, Hambrecht & Quist acts as a market maker
and broker in the publicly traded securities of Acquirer and receives
customary compensation in connection therewith, and also provides research
coverage for Acquirer. In the ordinary course of business, Hambrecht & Quist
actively trades in the equity and derivative securities of Acquirer for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities. Hambrecht & Quist may
in the future provide additional investment banking or other financial
advisory services to Acquirer.
<PAGE>
In the past, Hambrecht & Quist acted as a financial advisor to Seller and, in
the past, made an investment in Seller when it was a private company. As of the
date of this letter, Hambrecht & Quist no longer holds any of the warrants or
common shares which comprised this investment. In the ordinary course of
business, Hambrecht & Quist acts as a market maker and broker in the publicly
traded securities of Seller and receives customary compensation in connection
therewith, and also provides research coverage for Seller. In the ordinary
course of business, Hambrecht & Quist actively trades in the equity and
derivative securities of Seller for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. Hambrecht & Quist may in the future provide additional
investment banking or other financial advisory services to Seller.
In connection with our review of the Proposed Transaction, and in arriving at
our opinion, we have, among other things:
(i) reviewed the publicly available financial statements of Acquirer for
recent years and interim periods to date and certain other relevant
financial and operating data of Acquirer made available to us from
published sources and from the internal records of Acquirer;
(ii) reviewed certain internal financial and operating information relating
to Acquirer prepared by the management of Acquirer;
(iii) discussed the business, financial condition and prospects of Acquirer
with certain of its officers;
(iv) reviewed the publicly available financial statements of Seller for
recent years and interim periods to date and certain other relevant
financial and operating data of Seller made available to us from
published sources and from the internal records of Seller;
(v) reviewed certain internal financial and operating information relating
to Seller prepared by the management of Seller;
(vi) discussed the business, financial condition and prospects of the
Seller with certain of its officers;
(vii) reviewed the recent reported prices and trading activity for the
common stocks of Acquirer and Seller and compared such information
and certain financial information for Acquirer and Seller with
similar information for certain other companies engaged in businesses
we consider comparable;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(ix) reviewed the Agreement;
(x) discussed the tax and accounting treatment of the Proposed Transaction
with Acquirer and Acquirer's lawyers; and
(xi) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning Acquirer or Seller considered
in connection with our review of the
C-2
<PAGE>
Proposed Transaction, and we have not assumed any responsibility for
independent verification of such information. We have not undertaken any
independent valuation or appraisal of any of the assets or liabilities of
Acquirer or Seller. With respect to the financial forecasts and projections
made available to us and used in our analysis, we have assumed that they
reflect the best currently available estimates and judgments of the expected
future financial performance of Acquirer and Seller. For purposes of this
Opinion, we have assumed that neither Acquirer nor Seller is a party to any
pending transactions, including external financings, recapitalizations or
material merger discussions, other than the Proposed Transaction and those
activities undertaken in the ordinary course of conducting their respective
businesses. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date of this
letter and any change in such conditions would require a reevaluation of this
opinion.
It is understood that this letter is for the information of the Board of
Directors and may not be used for any other purpose without our prior written
consent; provided, however, that this letter may be reproduced in full in the
Proxy Statement. This letter does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the Proposed Transaction.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be paid by Acquirer in the Proposed Transaction is fair to
the Company from a financial point of view.
Very truly yours,
Hambrecht & Quist LLC
/s/ Paul B. Cleveland
By __________________________________
Paul B. Cleveland
Managing Director
C-3
<PAGE>
ANNEX D
[EVEREN Securities, Inc. Letterhead]
October 1, 1998
Board of Directors
Autonomous Technologies Corporation
2800 Discovery Drive
Orlando, FL 32826
Gentlemen:
We understand that Autonomous Technologies Corporation ("ATCI" or the
"Company") plans to merge with Summit Technology, Inc. ("Summit"). Pursuant to
the agreement and plan of merger (the "Agreement"), 100% of ATCI's outstanding
capital stock will be exchanged for approximately $93.2 million, or $6.26 per
share based on Summit's closing price of $4.00 on September 28, 1998 (the
"Transaction"). Under the terms of the Transaction, each ATCI share will be
exchanged for approximately 0.94 shares of Summit stock (valued at $3.76) plus
$2.50 in cash. The purchase price per share will increase or decrease based on
changes in the trading price of Summit's stock. However, the cash portion will
not be greater than $50 million and is subject to reduction based upon cash
advances made by Summit to ATCI under a revolving credit line and the
redemption described below. Under the terms of the Company's Series I
Convertible Preferred Stock (the "Preferred Stock"), Preferred Stock investors
have the right to receive a cash redemption estimated at $15.5 million upon a
change of control event. For the purpose of our analysis, EVEREN has assumed
that the Preferred Stock investors will exercise this right. Upon closing of
the Transaction, ATCI shareholders will own approximately 27% of the combined
entity.
The Company's warrant and option holders will have the option to: (i) exercise
their positions prior to the Transaction, thereby becoming common stockholders
and receiving the same consideration as all other stockholders, or (ii) roll
over their warrants and options into Summit warrants and options. For the
purpose of our analysis, EVEREN has assumed that all warrant and option
holders elect (i) above by means of a cashless exercise.
The Company expects to execute an agreement and plan of merger (the "Merger
Agreement") and announce the Transaction on Thursday, October 1, 1998. ATCI's
founder, chairman and chief executive officer, Randy Frey, will become an
executive officer and a director of Summit following the Transaction.
Additionally, the board of ATCI will be able to nominate an additional
director and one non-voting observer to Summit's board.
ATCI has retained EVEREN Securities, Inc. ("EVEREN") to render an opinion (the
"Opinion") to the Board of Directors of ATCI as to whether the consideration
to be paid to ATCI shareholders in the Transaction is fair, from a financial
point of view, to ATCI's shareholders as of the date hereof. This Opinion does
not constitute a recommendation to ATCI or any ATCI shareholder.
In formulating the Opinion, EVEREN has:
reviewed the draft Agreement and Plan of Merger in substantially final form
by and between Summit and ATCI;
<PAGE>
reviewed ATCI's definitive proxy statement dated April 24, 1998, ATCI's
annual reports on Form 10-K for the years ended December 31, 1996 and 1997,
and ATCI's Forms 10-Q for the three month period ended March 31, 1998 and
six months ended June 30, 1998;
reviewed certain non-public operating and financial information, including
projections relating to ATCI's business prepared by management of ATCI;
met with certain members of ATCI's management to discuss its operations,
financial statements and projections, and future prospects;
reviewed Summit's definitive proxy statement dated April 15, 1998, Summit's
annual reports on Form 10-K for the years ended December 31, 1996 and 1997,
and Summit's Forms 10-Q for the three month period ended March 31, 1998 and
six months ended June 30, 1998;
reviewed certain non-public operating and financial information, including
internal management reports and projections, relating to Summit's business
by management of Summit;
met with certain members of Summit's management to discuss Summit's
operations, financial statements and projections, and future prospects;
interviewed certain members of Summit's outside legal counsel to discuss
the proceedings, status and anticipated impact of certain outstanding
litigation on Summit's business, financial condition and results of
operations;
reviewed publicly available financial data and stock market performance
data of other ophthalmic and electromedical device manufacturers which we
deemed comparable to ATCI and Summit;
reviewed the price premiums of recent acquisitions for selected companies
which we deemed generally comparable to ATCI;
reviewed the historical stock prices and reported traded volumes of ATCI's
and Summit's common shares; and
conducted such other studies, analyses, inquiries and investigations as we
deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by the management of ATCI and Summit. We have
further relied upon the assurances of each management team that they are
unaware of any factors that would make the information provided to us
incomplete or misleading. In arriving at our Opinion, we have not performed any
independent valuation or appraisal of the assets of ATCI or Summit.
Summit is currently involved in several legal disputes which can be grouped
into two principal categories: (i) suits brought by shareholders alleging
material misstatements of fact in a Registration Statement, and (ii) suits
alleging either patent infringement or antitrust violations pertaining to the
Pillar Point Partners arrangement. Based on discussions with ATCI's and
Summit's legal counsel, we have determined that the likely disposition or
resolution will not have a material adverse affect on Summit, and will not
affect our Opinion.
D-2
<PAGE>
In arriving at our Opinion, we have considered such factors as we have deemed
relevant including, but not limited to: (i) the historical stock price
performance of ATCI, (ii) acquisition premiums for comparable transactions,
(iii) discounted cash flow analysis for ATCI, (iv) business and strategic
considerations, (v) Summit's stock price history, (vi) the value of Summit's
stock versus comparable companies, (vii) a break-up analysis for Summit, and
(viii) a discounted cash flow analysis for Summit.
As our Opinion has taken into consideration forward looking valuation
techniques such as discounted cash flow analysis, we have assumed that the
financial projections which we reviewed were reasonably prepared using
assumptions reflecting the best currently available estimates and judgments of
the future financial performance of each company. Our Opinion is necessarily
based on the economic, market, and other conditions as in effect on, and the
information made available to us as of, the date hereof. We disclaim any
undertaking or obligation to advise any person of any change in any fact or
matter affecting our Opinion which may come or be brought to our attention
after the date of this Opinion.
As our Opinion is based upon the share prices of Summit as of the date hereof,
any material change in stock price may cause EVEREN to withdraw its Opinion.
We have acted as financial advisor to the Board of Directors of ATCI in
connection with this Opinion and will receive a fee for our services. We are
also serving as financial advisor to ATCI in connection with the Transaction
and will receive a success fee upon its completion. Pursuant to the terms of an
engagement letter dated August 13, 1998 (the "Engagement Letter"), ATCI has
agreed to pay EVEREN an aggregate cash fee equal to the greater of $1,200,000
or 1.00% of the aggregate Transaction value plus reimbursement for out-of-
pocket expenses. Of such fee, (i) $50,000 was paid to EVEREN upon execution of
the Engagement Letter; (ii) $200,000 becomes payable upon the completion of due
diligence and the execution of the Merger Agreement; (iii) $75,000 becomes
payable upon the delivery of the Opinion to ATCI's board of directors, and (iv)
the remaining $875,000 of such fee shall be payable at the closing of the
Transaction.
It is understood that this Opinion will be included in its entirety in any
proxy statement or other document distributed to shareholders of the Company in
connection with the Merger and this constitutes our express written approval
for that purpose. However, no summary of, or excerpt from, this Opinion may be
used, and no published public reference (other than as provided in the
preceding sentence) to this Opinion letter may be made without our prior
express written approval, which shall not be unreasonably withheld.
This Opinion does not constitute a recommendation to any shareholder of ATCI as
to how such shareholder should vote, or as to any other actions which such
shareholder should take in conjunction with the Merger. This Opinion relates
solely to the question of fairness to the ATCI shareholders, from a financial
point of view, of the consideration as currently proposed. Further, we express
no Opinion herein as to the structure, terms or effect of any other aspect of
the Merger, including, without limitation, any effects resulting from the
application or any bankruptcy, fraudulent conveyance or other federal or state
insolvency law or of any pending or threatened litigation affecting ATCI or
Summit.
D-3
<PAGE>
Based on the foregoing, we are of the opinion that the consideration to be paid
to ATCI shareholders in the Transaction which will result in ATCI shareholders
receiving $6.26 per ATCI share ($3.76 in Summit stock plus $2.50 in cash) is
fair, from a financial point of view, to the shareholders of ATCI as of the
date hereof.
Very truly yours,
EVEREN Securities, Inc.
/s/ Kathryn Burrer Hyer
By: _________________________________
Kathryn Burrer Hyer
Managing Director
D-4
<PAGE>
AUTONOMOUS TECHNOLOGIES CORPORATION
2800 Discovery Drive
Orlando, FL 32826
407-384-1600
Proxy Card
Randy W. Frey and Monty K. Allen, or either of them, are hereby authorized,
with full power of substitution, to represent and to vote the stock of the
undersigned at the Special Meeting of Stockholders of Autonomous to be held on
April 29, 1999, or at any adjournment, upon the business to come before the
meeting, which is restricted to the matter set forth below as described on the
joint proxy statement/registration statement:
Approval of the merger (the "Merger") of Autonomous Technologies
Corporation with or into Alpine Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Summit Technology, Inc., and adoption of
the merger agreement.
FOR the Merger of Autonomous Technologies Corporation with or into Alpine
Acquisition Corp. and the adoption of the merger agreement: [_]
AGAINST the Merger of Autonomous Technologies Corporation with or into
Alpine Acquisition Corp. and the adoption of the merger agreement: [_]
ABSTAIN: [_]
You are encouraged to specify your choice by marking the appropriate box. This
proxy, when properly executed, will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
for the Merger of Autonomous Technologies Corporation with or into Alpine
Acquisition Corp. and for the adoption of the merger agreement. The proxies
cannot vote your shares unless you sign and return this proxy card. In their
discretion, the proxies, or either of them, are authorized to vote upon such
other business as may properly come before the meeting.
I plan to attend the meeting: [_]
I do not plan to attend the meeting: [_]
Signature: ____________________________________________________________ Dated:
Joint Signature (if necessary): ________________________________________ Dated:
Note: Please sign exactly as your name appears on your Autonomous stock
certificate. When shares are held jointly, both should sign. Fiduciaries
and corporate officers should indicate their full titles.
This proxy is being solicited on behalf of
Autonomous Technologies Corporation's Board of Directors.
