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
240.14a-11(c) or 240.14a-12
LCA-Vision Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than
Registrant)
Payment of Filing fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
________________________________________________________
2) Aggregate number of securities to which transaction applies:
__________________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount
on which the filing fee is calculated and state how it was
determined):______________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________________
5) Total fee paid:____________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid: ___________________________________
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4) Date filed:___________________________________ <PAGE>
LCA-VISION INC.
7840 Montgomery Road
Cincinnati, Ohio 45236
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
October 16, 1998
TO THE STOCKHOLDERS OF LCA-VISION INC.:
You are cordially invited to attend a Special Meeting of the
Stockholders of LCA-Vision Inc. to be held on October 16, 1998 at
9:00 a.m. at the Company's executive offices located at 7840
Montgomery Road, Cincinnati, Ohio 45236, for the purpose of
considering and acting on the following:
1. To approve the issuance of an indeterminate number of
shares of the Company's Common Stock issuable upon the conversion
of shares of 6% Series B-1 and B-2 Convertible Preferred Stock,
outstanding or to be outstanding, for purposes of complying with
the stockholder approval requirements of The Nasdaq Stock Market.
2. To approve and adopt the Company's 1998 Long Term
Stock Incentive Plan.
3. Transaction of such other business as may properly
come before the meeting or any adjournment thereof.
Stockholders of record at the close of business on September
15, 1998 will be entitled to vote at the meeting.
By Order of the Board of Directors
Sandra F.W. Joffe
Secretary
September 21, 1998
IMPORTANT
A Proxy Statement and proxy are submitted herewith. As a
stockholder, you are urged to complete and mail the proxy promptly
whether or not you plan to attend this Annual Meeting in person.
The enclosed envelope for return of proxy requires no postage if
mailed in the U.S.A. Stockholders attending the meeting may
personally vote on all matters which are considered in which event
their signed proxies are revoked. It is important that your
shares be voted. In order to avoid the additional expense to the
Company of further solicitation, we ask your cooperation in
mailing your proxy promptly.
<PAGE>
PROXY STATEMENT
LCA-VISION INC.
7840 Montgomery Road
Cincinnati, Ohio 45236
SPECIAL MEETING OF STOCKHOLDERS
October 16, 1998
INTRODUCTION
The enclosed form of proxy is being solicited on behalf of
the Board of Directors of LCA-Vision Inc. (also referred to as
"LCA-Vision" or the "Company") for a Special Meeting of
Stockholders to be held on October 16, 1998. Each of the
37,242,334 shares of LCA-Vision Common Stock, $.001 par value (the
"Common Stock") and each of the 1,688 shares of LCA-Vision Class A
Preferred Stock, $.001 par value (the "Class A Preferred Stock")
outstanding on September 15, 1998, the record date of the meeting,
is entitled to one vote on all matters coming before the meeting.
Each of the 12.6 shares of Interim Series Class B Preferred Stock,
$.001 par value (the "Class B Preferred Stock") outstanding on
such date is entitled to one vote for each share of Common Stock
into which a share of Class B Preferred Stock is convertible on
such date (a total of 806,328 shares of Common Stock). Only
stockholders of record on the books of the Company at the close of
business on September 15, 1998 will be entitled to vote at the
meeting either in person or by proxy. This Proxy Statement is
being mailed to stockholders on or about September 21, 1998.
The shares represented by all properly executed proxies which
are sent to the Company will be voted as designated and each not
designated will be voted affirmatively. Each person granting a
proxy may revoke it by giving notice to the Company's Secretary in
writing or in open meeting at any time before it is voted.
Proxies will be solicited principally by mail, but may also be
solicited by directors, officers and other regular employees of
the Company who will receive no compensation therefor in addition
to their regular salaries. Brokers and others who hold stock in
trust will be asked to send proxy materials to the beneficial
owners of the stock, and the Company will reimburse them for their
expenses. The expense of soliciting proxies will be borne by the
Company.
PROPOSAL TO APPROVE SHARES OF COMMON STOCK
TO BE ISSUED UPON CONVERSION
OF SERIES B-1 AND B-2 PREFERRED STOCK
Background
On May 8, 1998, the Company entered into a Convertible
Preferred Stock Purchase Agreement with Brown Simpson Strategic
Growth Fund, L.P., Brown Simpson Strategic Growth Fund, Ltd.,
Southbrook International Investments, Ltd., Proprietary
Convertible Investment Group, Inc., Westover Investments, LP and
Montrose Investments, Ltd. (the "Investors") pursuant to which the
Investors purchased a total of 10,000 shares of Series B-1 6%
Convertible Preferred Stock (the "B-1 Preferred") for a total of
$10 million cash and were granted the right to purchase an
additional 5,000 shares of Series B-2 6% Convertible Preferred
Stock (the "B-2 Preferred) for $5 million cash. The option to
purchase the B-2 Preferred is exercisable between November 11,
1998 and May 11, 1999.
This transaction was effected in accordance with Delaware law
and pursuant to the authority conferred upon the Company's Board
of Directors in the Company's Certificate of Incorporation to
designate the terms of and to issue shares of Class B Preferred
Stock. A Certificate of Designation (as corrected) of the terms
of the B-1 Preferred was filed with the Delaware Secretary of
State. The Board approved the transaction because the Company was
in need of the funds obtained in order to pay down bank debt and
to fund its business strategy.
The B-1 Preferred and the B-2 Preferred (if issued) are
identical in all respects except the conversion price. Both the
B-1 Preferred and the B-2 Preferred are convertible into Common
Stock at a conversion price equal to the lessor of (A) 125% of the
per share market value of Common Stock as of the original issuance
date of the B-1 Preferred and/or B-2 Preferred, as the case may
be, or (B) the average of the four lowest daily per share closing
market prices for the Common Stock during the 22 trading days
prior to the date notice of conversion is given. Other than the
different original issuance dates of the B-1 Preferred and B-2
Preferred and the resultant potentially different conversion
prices, the terms and conditions of the two series will be
identical.
Because the conversion price can vary depending on changes in
market value of the underlying Common Stock issuable upon
conversion of the B-1 Preferred and the B-2 Preferred (if issued),
the exact number of shares of Common Stock to be issued cannot be
exactly determined in advance of a conversion election. As of
September 1, 1998 the outstanding B-1 Preferred was convertible
into a total of 6,049,708 shares of Common Stock, or approximately
16% of the total outstanding Common Stock immediately prior to the
issuance of the B-1 Preferred. However, assuming the B-2
Preferred is also issued in the future, and if the market price of
the Company's Common Stock were to decrease substantially below
its current levels, it is possible that the total number of shares
of Common Stock issuable upon conversion of both the B-1 Preferred
and the B-2 Preferred could exceed 7,372,972, or 20% of the total
Common Stock outstanding as of the May 8, 1998 date of issuance of
the B-1 Preferred.
The Nasdaq Stock Market
The Company's Common Stock is traded on The Nasdaq SmallCap
Market. It is now the policy of The Nasdaq Stock Market,
applicable to both Nasdaq National Market and SmallCap companies,
to require stockholder approval of the issuance, other than in a
public offering, of securities convertible into Common Stock if
such underlying Common Stock would have upon issuance voting power
equal to or in excess of 20% of the voting power outstanding
before such issuance. As noted above, under certain circumstances
it is possible that the B-1 Preferred and the B-2 Preferred could
be convertible into Common Stock exceeding such 20% threshold.
For this reason, the terms of the B-1 Preferred include, and
the terms of the B-2 Preferred will include, a provision to the
effect that if on any date the holders of the B-1 Preferred and/or
B-2 Preferred elect to convert their shares and the number of
shares of Common Stock then issuable would exceed the 20%
limitation, then the Company at its election must either use its
best efforts to obtain the necessary stockholder approval or pay
cash to the holders equal to the market value (determined under a
contractual formula) of the shares of Common Stock not issued but
which would have been issued but for the 20% limitation. Rather
than waiting until a proposed conversion that would trigger this
provision, the Company has elected to request the requisite
stockholder approval at the Special Meeting.
At the Special Meeting, the following resolution will be
introduced:
RESOLVED, that the stockholders of LCA-Vision do hereby
approve the Company's issuance of 10,000 shares of 6% Convertible
Preferred Stock and its potential issuance of 5,000 shares of 6%
Convertible Series B-2 Preferred Stock as described in the Proxy
Statement relating to this Special Meeting of Stockholders.
The affirmative vote of the holders of a majority of the
voting power of the Company's outstanding voting stock present in
person or by proxy at the Special Meeting is required to adopt the
resolution. Proxies in the form solicited hereby which are
returned to the Company will be voted in favor of the resolution
unless otherwise instructed by the stockholders. Abstentions will
have the same effect as votes cast against the resolution,
provided such shares are properly present at the meeting in person
or by proxy. Shares not voted by broker and other entities
holding shares on behalf of beneficial owners will have no effect
on the outcome of the proposal. The Board of Directors recommends
the adoption of the resolution.
Other Terms and Conditions of the B-1 and B-2 Preferred
In addition to the aspects of the B-1 Preferred (and the B-2
Preferred, if issued) described above, there are numerous other
terms and conditions, certain of which are described below. It
should be noted that such terms and conditions are contained in
several lengthy documents which have been filed with the
Securities and Exchange Commission as exhibits to the Company's
Quarterly Report on Form 10-QSB relating to the quarter ended
March 31, 1998 which is incorporated by reference herein (see
"Incorporation of Certain Documents by Reference"). The following
description is merely a brief summary of such documents and is
qualified in its entirety by reference to such documents.
Conversion Features. Each share of B-1 and/or B-2 Preferred
is convertible into that number of shares of Common Stock of the
Company determined by multiplying such share by $1,000 (plus the
amount of any accrued but unpaid dividends other than dividends of
Common Stock) and dividing the result by a conversion price equal
to the lessor of (i) 125% of the closing bid price on the trading
day preceding original issuance of such shares of B-1 and/or B-2
Preferred, or (ii) the average of the lowest closing bid prices on
any four of the 22 trading days immediately preceding conversion
of such shares of B-1 and/or B-2 Preferred, subject to adjustment
as described in the Certificate of Designation for B-1 and/or B-2
Preferred. However, each Investor has agreed to restrict its
ability to convert shares of B-1 Preferred and B-2 Preferred (and
receive shares of Common Stock in payment of dividends thereon) to
the extent that the number of shares of Common Stock held by it
and its affiliates after such conversion exceeds 4.999% of the
then issued and outstanding shares of Common Stock following such
conversion.
Call Provision. If the per share market value of the
Company's Common Stock exceeds 175% of such market value in the
trading date immediately preceding the original issuance date of
the B-1 and/or B-2 Preferred for a period of at least 15 days, and
certain other conditions are not, the Company can force conversion
of the B-1 and/or B-2 Preferred.
Mandatory Redemption. The holders of the B-1 and/or B-2
Preferred have the right, if certain triggering events occur, to
require the Company to redeem the outstanding B-1 and/or B-2
Preferred for a cash redemption price equal to the market value
(based on a stated formula) of the Common Stock into which the
Preferred could have been converted on the redemption date plus
accrued dividends. Triggering events include failure of the
Company to secure registration of the Common Stock underlying the
B-1 and/or B-2 Preferred under the federal securities laws within
prescribed periods, failure to maintain listing of the Common
Stock on The Nasdaq Stock Market, certain change of control
transactions, and certain other defaults by the Company.
Registration Rights. The Company is required to file a
registration statement with respect to resales of the underlying
Common Stock within 30 days of the original issuance date of the
B-1 and/or B-2 Preferred and to secure its effectiveness within 90
days thereafter. Failure to secure effectiveness by such time
will result in a penalty in the form of reductions in the B-1
and/or B-2 Preferred conversion price of 2% per month
effectiveness of the registration statement is delayed.
B-2 Preferred Purchase Option. If the Investors owning
shares of B-1 Preferred exercise their option to purchase up to
5,000 shares of B-2 Preferred, the Company will file a Certificate
of Designation for the B-2 Preferred which will establish
respective rights, preferences and privileges for B-2 Preferred
identical to the B-1 Preferred, with equal priority with regard to
dividends, liquidation, voting rights and any other preferential
rights, except that the price of conversion for B-2 Preferred
shall be determined by reference to the issue date of the B-2
Preferred.
Dividends. The B-1 and/or B-2 Preferred are entitled to
dividends, payable in either cash or Common stock, at the rate of
6% per annum.
Voting Rights. The B-1 and/or B-2 Preferred do not carry
voting rights.
PROPOSAL TO ADOPT 1998 LONG TERM
STOCK INCENTIVE PLAN
A key factor in the Company's continuing advancement and
growth is its ability to attract, motivate and retain highly
qualified employees. The market for such employees has always
been extremely competitive and the competition for employees at
all levels is continually growing more intense.
Many of the companies with which the Company must
compete for employees at all levels make extensive use of stock
incentives, and the most desirable prospective employees insist
upon receiving stock incentives. The Company believes stock
incentives enable the Company to cost-effectively compete for the
services of key employees.
The Company believes that stock incentives, especially
stock options, are an effective tool which can be used to focus
its key employees on the Company's strategic direction.
The Company believes that stock incentives provide a
long-term ownership stake in the Company and as a result serve to
align the economic interests of its employees with those of its
stockholders.
The Company has been using its 1995 Long-Term Stock Incentive
Plan (the "1995 Plan") to provide stock incentives to key
employees. However, the Common Stock which remains available
under the 1995 Plan is insufficient to satisfy the Company's
anticipated future compensation requirements. Accordingly, the
Company now believes that it is necessary to adopt the 1998 Long-Term Stock
Incentive Plan (the "1998 Plan"). Although the
proposed 1998 Plan is fundamentally similar to the 1995 Plan,
there are some material changes. While the 1995 Plan authorized
grants of stock appreciation rights, stock appreciation rights are
not part of the 1998 Plan because, as a device which does not
result in the actual issuance of shares to employees, the Board
believes stock appreciation rights are not as effective as stock
options and stock awards in aligning the long-term interests of
employees and shareholders. The Company also believes that it is
necessary to have the flexibility to cancel or suspend incentive
compensation awards in order to protect its trade secrets and
confidential processes. The 1998 Plan contains the authority to
determine whether, to what extent and under what circumstances
stock options or restricted stock may be canceled or suspended in
the event of improper actions by employees.
On August 10, 1998, the Board of Directors approved, subject
to stockholder approval, the adoption of the LCA-Vision Inc. 1998
Long-Term Stock Incentive Plan. The 1998 Plan will be submitted
for shareholder approval at the Special Meeting. The full text of
the 1998 Plan is attached as Exhibit A to this Proxy Statement,
and the following discussion is qualified in its entirety by
reference to Exhibit A.
General
The Company presently has the 1995 Plan which provides for
option grants to employees. The 1995 Plan provides that the total
shares of Common Stock subject to stock incentives granted under
this plan in any calendar year may not exceed 5,000,000 shares of
Common Stock. As of August 31, 1998, options covering a total of
1,989,625 such shares had been granted, leaving 490,375 shares
available for future grants, an insufficient number to cover the
Company's anticipated future needs. The 1995 Plan does not
provide for the authorization of any additional shares during the
six remaining years of its term.
In approving the 1998 Plan for submission to the Company's
stockholders, the Board of Directors recognized both the Company's
anticipated needs for additional options and the changing
environment for the compensation of eligible employees. To
provide a flexible vehicle under which appropriate incentives can
be awarded, the 1998 Plan permits the grant of nonqualified and
incentive stock options and restricted stock awards as is
currently provided for under the 1995 Plan. Unlike the 1995 Plan,
the 1998 Plan eliminates the use of stock appreciation rights. In
reviewing the Company's overall compensation practices as well as
its corporate goal of increasing the level of outright ownership
of the Company's Common Stock by executive officers and other
employees, the Board of Directors concluded that stock options and
stock awards are preferable to stock appreciation rights, and the
1998 Plan reflects this determination. Although the Company
currently does not have any specific plans to grant any awards
under the 1998 Plan other than options, the Board of Directors
feels that it is desirable that the Company have the ability to
grant stock awards, including restricted stock, in the future
should changing conditions so require.
In drafting the 1998 Plan, the Board of Directors was mindful
of Section 162(m) of the Internal Revenue Code of 1986, as
amended, which limits the deductibility, for federal income tax
purposes, of compensation paid to certain executive officers in
excess of $1 million per year per executive officer. The
limitation excludes "performance-based compensation", however, and
the 1998 Plan was prepared so that stock options and possibly
restricted stock granted under the 1998 Plan will constitute
performance-based compensation which is fully tax deductible by
the Company. See "Federal Income Tax Consequences."
The 1998 Plan will become effective as of the day it is
approved and adopted by the stockholders. If it is not approved
by the shareholders, the 1998 Plan will be of no force and effect.
If approved, the 1998 Plan will continue in existence indefinitely
until terminated by the Board of Directors, except that incentive
options, described below, may not be granted under the 1998 Plan
after August 10, 2008. The Board of Directors may terminate the
1998 Plan at any time, but outstanding stock incentives will
continue to be exercisable until they expire or are otherwise
terminated in accordance with their terms.
On August 31, 1998, the closing price of the Company's Common
Stock on The Nasdaq SmallCap Market was $1.406.
Nature of Incentives; Eligibility; Purposes
Stock incentives which may be issued under the 1998 Plan
include stock options (which for federal income tax purposes may
be either "nonqualified" options or "incentive" options which meet
the requirements of Section 422 of the Internal Revenue Code of
1986, as amended) and stock awards, as well as any combination
thereof. Stock incentives may be granted to "eligible employees"
of the Company and its subsidiaries. Eligible employees are
defined as employees of the Company or a subsidiary who in the
opinion of the Committee (as defined below) are deemed to have the
capacity to contribute significantly to the growth and successful
operations of the Company. The number of persons who will be
eligible employees is not determinable. The Committee determines
those persons who are eligible employees.
The purposes of the 1998 Plan are to secure for the Company
the benefits of incentives inherent in ownership of Common Stock
by eligible employees, to encourage eligible employees to increase
their interest in the future growth and prosperity of the Company
and to stimulate and sustain constructive and imaginative thinking
by eligible employees, to further the identity of interest of
those who hold positions of major responsibility in the Company
and its subsidiaries with the interests of the Company's
shareholders, to induce the employment or continued employment of
eligible employees, and to enable the Company to compete with
other organizations offering similar or other incentives in
obtaining and retaining the services of competent employees.
Limitations on Available Shares
A total of 5,000,000 shares of Common Stock are available for
stock incentives granted under the 1998 Plan. If any shares of
Common Stock that are subject to stock incentives are forfeited,
such shares will again be available under the 1998 Plan. For this
purpose, "forfeited shares" means any shares that were issued
pursuant to prior grants of stock incentives that expire or
terminate for any reason without having been exercised. In the
future, if another company is acquired by the Company or combines
with the Company, any of the Company's shares covered by or issued
as a result of the assumption or substitution of outstanding
grants of the acquired company would not be deemed issued under
the 1998 Plan and would not be subtracted from the shares of
Common Stock available for grant under the 1998 Plan.
Grants of stock incentives under the 1998 Plan are subject to
the further limitation that the maximum number of shares granted
to any one person in a calendar year may not exceed 100,000
shares, except for recipients who are granted awards at the time
of their initial hire by the Company, in which case such
limitation will be 1,000,000 shares. Additionally, the maximum
number of shares which may be granted under the 1998 Plan as stock
awards (as described below) to all participants may not exceed an
aggregate of 500,000 shares of Common Stock (i.e.,10% of the total
number of shares available for stock incentives under the 1998
Plan). The number of shares available under the 1998 Plan, and
the separate limitations on the amounts that may be granted to
individuals, will not be adjusted if the Company effects the
reverse stock split described below.
Administration
The 1998 Plan is to be administered by a committee (the
"Committee") consisting of no fewer than two directors designated
by the Board of Directors of the Company. All members of the
Committee must be both "disinterested persons" within the meaning
of Rule 16b-3 promulgated by the Securities and Exchange
Commission and "outside directors" within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder. The Committee determines
which employees of the Company and its subsidiaries are eligible
employees who might participate in the 1998 Plan and the form,
terms and number of shares covered by each stock incentive granted
to such persons under the 1998 Plan. In making such
determinations, the Committee may consider an employee's present
or potential contribution to the success of the Company or any
subsidiary and other factors which it may deem relevant. Stock
incentives may be granted only by the Committee. The Board has
determined that the Committee will initially be comprised of John
H. Gutfreund and William O. Coleman.
Director Options
Directors are presently entitled to receive options to
purchase 75,000 shares of Common Stock upon their initial election
or appointment to the Board and are thereafter entitled to
automatic annual grants of options to purchase 1,250 shares under
the LCA-Vision Directors' Nondiscretionary Stock Option Plan (the
"Directors' Plan"). The Board believes that the annual grants are
unrealistically low and are insufficient to permit the Company to
attract and retain qualified directors in the future.
Accordingly, the 1998 Plan contains a provision for annual
automatic grants of options to purchase 12,500 shares of Common
Stock and continues the practice of initial grants of options to
purchase 75,000 shares. If the 1998 Plan is adopted by the
stockholders, the current Directors' Plan will be discontinued.
New Plan Benefits
No specific determinations have been made or can be made in
advance as to future recipients of awards under the 1998 Plan.
Stock Options
A stock incentive in the form of a stock option will provide
for the purchase of shares of Common Stock in the future at an
option price per share which will not be less than 100% of the
fair market value of the shares covered thereby on the date the
stock option is granted. An incentive option granted to a person
who, on the date of grant, owns 10% or more of the shares of
voting stock of the Company or its subsidiaries must have an
option price of not less than 110% of the fair market value of the
Common Stock on the date of grant. Each option shall be
exercisable in full or in part six months after the date the
option is granted, or may become exercisable in one or more
installments and at such later time or times, as the Committee
shall determine. Options may be, but are not required to be, made
subject to the attainment of specified performance objectives.
Unless otherwise provided in the option, an option, to the extent
it is or becomes exercisable, may be exercised at any time in
whole or in part until the expiration or termination of the
option.
Upon the exercise of an option, the purchase price may be
paid in cash or, unless otherwise provided in the option, in
shares of Common Stock (including shares withheld by the Company
from the shares issuable upon exercise of the option) or in a
combination of cash and such shares. The Company may cancel all
or a portion of an option subject to exercise, and pay the holder
cash or shares equal in value to the excess of the fair market
value of the shares subject to the portion of the option so
canceled over the option price of such shares.
All stock options granted under the 1998 Plan will expire
within ten years from the date of grant. A stock option is not
transferable or assignable by an optionee otherwise than by will
or by the laws of descent and distribution, and each option is
exercisable, during the optionee's lifetime, only by the optionee.
Unexercised options terminate on the sixtieth day following
termination of employment, except that if termination arises from
a resignation with the consent of the Committee, death or
disability, the options terminate 18 months after an optionee's
termination of employment. The exercise of options after the
termination of employment is limited to the extent that the
options could have been exercised as of the date the optionee's
employment terminated. A leave of absence for military or
governmental service or for other purposes, if approved by the
Committee, does not constitute a termination of employment.
The Committee shall have full power and authority to
determine whether, to what extent and under what circumstances any
stock option shall be canceled or suspended. In particular, but
without limitation, all outstanding stock options to any
participant shall be canceled if the participant, without the
consent of the Committee, while employed by the Company or after
termination of such employment, engages in any activity which is
in competition with the Company, as determined by the Committee.
Exercise of a stock option will be conditioned on an
optionee's payment in full of the purchase price for the shares,
in cash or by transfer to the Company of shares of the Company's
Common Stock (including shares withheld by the Company from the
shares issuable upon exercise of the option) at fair market value
on the date of transfer. An optionee shall not be considered a
holder of the shares subject to a stock option until actual
delivery of a certificate representing such shares is made by the
Company.
The proceeds of the sale of Common Stock upon the exercise of
options issued under the 1998 Plan constitute general funds of the
Company and may be used by it for any purpose.
Stock Awards
Shares subject to a stock award may be issued when the award
is granted or at a later date, with or without dividend equivalent
rights. The number of shares of Common Stock which may be granted
as restricted stock is limited to 500,000 shares (i.e., 10% of the
maximum aggregate number of shares of Common Stock that may be
granted to participants in the Plan). A stock award shall be
subject to such terms, conditions and restrictions (including
restrictions on the transfer of the shares issued pursuant to the
award) as the Committee may determine, including specified
corporate or personal performance objectives the attainment of
which may, but is not required to be, specified as a condition to
the vesting of the stock award.
The Committee shall have full power and authority to
determine whether, to what extent and under what circumstances any
stock award shall be canceled or suspended. In particular, but
without limitation, all outstanding stock awards to any
participant shall be canceled if the participant, without the
consent of the Committee, while employed by the Company or after
termination of such employment, engages in any activity which is
in competition with the Company, as determined by the Committee.
Federal Income Tax Consequences
No taxable income for federal income tax purposes results
from the exercise of an incentive option at the time of exercise.
Any gain realized on the sale of stock acquired on exercise of an
incentive option is considered as capital gain for federal income
tax purposes if the stock has been held at least one year after it
was acquired on exercise of the option and if at least two years
have expired after the grant of the option. Except as hereafter
indicated, the Company is not entitled to any deduction with
respect to the grant or exercise of any incentive option. If the
stock is sold or otherwise disposed of within one year after
exercise or within two years after the grant, any appreciation at
the date of exercise above the option price is treated, subject to
certain limitations, as "ordinary" income for federal income tax
purposes. Any appreciation after the date of exercise is
considered as long-term capital gain to the optionee if the stock
was held longer than eighteen months. The amount of ordinary
income received by the optionee generally is treated as a tax
deductible expense to the Company.
Gain taxable as ordinary income to the optionee is generally
deemed to be realized at the date of exercise of a nonqualified
option, the amount of gain on each share being the difference
between the market price on the date of exercise and the option
price. This amount is generally treated as a tax deductible
expense to the Company at the time of exercise. Any appreciation
in the value of the stock after the date of exercise is considered
as long or short-term capital gain, depending on the length of
time the stock is held by the optionee prior to the time of its
sale.
With respect to stock awards that are settled either in cash
or in Common Stock that is either transferable or not subject to a
substantial risk of forfeiture, the employee must recognize
ordinary income equal to the cash or the fair market value of the
Common Stock and the Company will be entitled to a tax deduction
for the same amount. With respect to stock awards that are
settled in Common Stock that is restricted as to transferability
and subject to substantial risk of forfeiture, the employee must
recognize ordinary income equal to the fair market value of the
Common Stock at the first time the Common Stock becomes
transferable or not subject to a substantial risk of forfeiture,
whatever occurs earlier, and the Company will be entitled to a
deduction for the same amount.
Under Section 162(m) of the Internal Revenue Code of 1986, as
amended, corporations with a class of securities required to be
registered under Section 12 of the Securities Exchange Act of 1934
(i.e., "public companies") are not permitted to deduct, for income
tax purposes, compensation paid to certain executive officers to
the extent such compensation exceeds $1 million in a tax year.
However, certain types of compensation, including generally
compensation which constitutes "performance-based" compensation,
are excluded from this limitation.
The cash compensation paid by the Company to its executive
officers does not currently approach the Section 162(m)
limitation. However, in any given year, as to options exercised
by an executive officer, the difference between the exercise price
and the market price on the exercise date (the "spread") would be
included as compensation for Section 162(m) purposes unless the
applicable option plan meets certain requirements contained in the
Treasury regulations under Section 162(m) of the Code (the
"Regulations").
The Regulations provide that in order for the spread realized
upon the exercise of an option to constitute performance-based
compensation which is exempt from the Section 162(m) deduction
limitation, the stock option plan under which the options were
granted must, among other requirements, be administered by a
compensation committee comprised solely of two or more "outside
directors" and must contain a specific limit on the number of
options which may be granted to any one employee participant.
The 1998 Plan was drafted with the intention of preserving
the Company's ability to deduct for federal income tax purposes
the compensation expense relating to stock options and other stock
incentives granted to executive officers. Accordingly, only
directors who are "outside directors" within the meaning of
Section 162(m) and applicable regulations may serve as members of
the Committee. The number of shares with respect to which stock
incentives may be granted to any one person in a calendar year is
limited to 100,000 shares, except for recipients who are granted
awards at the time of their initial hire by the Company, in which
case such limitation will be 1,000,000 shares. Also, the
Committee may impose performance standards on any stock incentive
granted under the 1998 Plan.
Change in Control
Notwithstanding any vesting schedule contained in any stock
incentives granted under the 1998 Plan, if a change in control (as
such term is defined in the 1998 Plan) of the Company occurs, any
stock incentives under the 1998 Plan that have been outstanding
for over six months will become immediately exercisable in full.
Plan Amendments
The Board of Directors, upon the recommendation of the
Committee, may amend the 1998 Plan subject, in the case of
specified amendments, to stockholder approval. The 1998 Plan may
be discontinued at any time by the Board of Directors. No
amendment or discontinuance of the 1998 Plan shall, without the
consent of the employee, adversely affect any stock incentive held
by him under the 1998 Plan.
Stockholder Approval
The proposal to approve the 1998 Plan as described above is
contained in the following resolution which will be submitted to
the shareholders for adoption at the Annual Meeting. The proposal
is being submitted for approval of the shareholders in accordance
with the requirements of The Nasdaq SmallCap Market, Rule 16b-3 of
the Securities and Exchange Commission, and Section 162(m) of the
Internal Revenue Code of 1986, as amended. The affirmative vote
of the holders of a majority of voting power of the Company's
outstanding voting stock present in person or by proxy at the
Special Meeting is required to adopt the resolution. Proxies in
the form solicited hereby which are returned to the Company will
be voted in favor of the following resolution unless otherwise
instructed by the stockholders. Abstentions will have the same
effect as votes cast against the proposal, provided such shares
are properly present at the meeting in person or by proxy. Shares
not voted by brokers and other entities holding shares on behalf
of beneficial owners will have no effect on the outcome of the
proposal. The Board of Directors recommends the adoption of the
resolution.
The resolution states:
RESOLVED, that the LCA-Vision Inc. 1998 Long-Term Stock
Incentive Plan be, and it hereby is, adopted in the form attached
as Exhibit A to the Proxy Statement relating to this Special
Meeting of Stockholders.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Under Section 13(d) of the Securities Exchange Act of 1934
and the rules promulgated thereunder, a beneficial owner of a
security is any person who directly or indirectly has or shares
voting power or investment power over such security. Such
beneficial owner under this definition need not enjoy the economic
benefit of such securities. The following table sets forth
information with respect to the beneficial ownership of shares of
Common Stock and Preferred Stock as of September 15, 1998 of each
executive officer, each director, and each stockholder known to be
the beneficial owner of 5% or more of Common Stock, and all
officers and directors as a group.
Name and Address of
Beneficial Owner Title of Class Amount and Nature
of Ownership(1)
Percent
of
Class
Stephen N. Joffe, M.D., Common Stock 15,736,927 shares 41.4%
President & Director owned of record
Sandra F.W. Joffe, and
Secretary & Treasurer beneficially(2)
8750 Red Fox Lane
Cincinnati, Ohio 45243 Class A 844 shares owned 50.0%
Preferred of record and
Stock beneficially
Interim Series 12.6 shares owned 100.0%
Class B of record and
Preferred beneficially
Stock
Summit Technology, Common Stock 7,164,371 shares owned 19.2%
Inc. of record and
21 Hickory Drive beneficially
Waltham, MA 02154
Craig P.R. Joffe Common Stock 2,500,313 shares owned
7840 Montgomery Road of record and
Cincinnati, Ohio 45236 beneficially(3) 6.7%
William O. Coleman Common Stock 141,250 shares owned
Director beneficially (4) *
John H. Gutfreund Common Stock 126,900 shares owned
Director of record and
beneficially (5) *
John C. Hassan Common Stock 153,250 shares owned
Director beneficially(6) *
Larry P. Rapp
Chief Financial
Officer Common Stock 205,500 shares owned
of record and
beneficially (7) *
All directors and Common Stock 16,363,827 shares owned 42.4%
executive officers as of record and
a group (6 persons) beneficially(8)
Class A 844 shares owned 50.0%
Preferred of record and
Stock beneficially
Interim 12.6 shares owned 100.0%
Series of record and
Class B beneficially
Preferred Stock
__________________________
*Less than 1%
(1) The persons named in the table have sole voting and
investment power with respect to all shares of common stock shown
as beneficially owned by them, subject to community property laws,
where applicable, and the information contained in other footnotes
to this table.
(2) Stephen N. Joffe, MD and Sandra F.W. Joffe are married to
one another and each is therefore deemed to be the beneficial
owner of all shares owned by the other. The total shown consists
of 11,077,950 shares of Common Stock owned of record by Dr. Joffe,
3,851,649 shares of Common Stock owned of record by Mrs. Joffe,
1,000 shares of Common Stock owned of record by Dr. and Mrs. Joffe
jointly, 703,937 shares of Common Stock issuable to Dr. Joffe in
the event of conversion of 11 shares of Interim Series Class B
Preferred Stock owned by him, and 102,391 shares of Common Stock
issuable to Mrs. Joffe in the event of conversion of 1.6 shares of
Interim Series Class B Preferred Stock owned by her.
(3) Includes 11 shares owned of record by Dr. Joffe and 1.6
shares owned of record by Mrs. Joffe.
(4) Includes 65,000 shares owned of record and 76,250 shares
issuable to Mr. Coleman upon the exercise of certain unexercised
stock options.
(5) Includes 50,000 shares owned of record by Mr. Gutfreund,
650 shares owned of record by him as custodian for his minor
child, and 76,250 shares of Common Stock issuable to Mr. Gutfreund
upon the exercise of certain unexercised outstanding stock
options.
(6) Includes 2,000 shares owned of record and 151,250 shares
of Common Stock issuable to Mr. Hassan upon the exercise of
certain unexercised stock options.
(7) Includes 500 shares owned of record and 205,000 shares of
Common Stock issuable to Mr. Rapp upon the exercise of certain
unexercised stock options.
(8) Consists of 15,048,749 shares owned of record directly or
indirectly by such persons, 806,328 shares issuable upon
conversion of Interim Series Class B Preferred Stock owned by such
persons, and 508,750 shares issuable upon the exercise of stock
options held directly or indirectly by such persons.
EXECUTIVE COMPENSATION
Summary
The following table summarizes, for the fiscal years
indicated, all annual compensation earned by or granted to the
Company's Chief Executive Officer and the only other executive
officers whose compensation exceeded $100,000 for all services
rendered to the Company in all capacities (the "named executives")
during the last fiscal year:
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Awards
Compensation
Name and Securities
Principal Underlying All other
Position Year Salary($) Bonus($) Options (#) Compensation
Stephen N. 1997 $198,000 -- -- $55,009(1)
Joffe, 1996 $198,000 -- -- $52,534(1)
President and 1995 $547,032 -- -- $60,672(1)
Chief Executive
Officer
Larry P. 1997 $114,975 -- -- --
Rapp, 1996 $ 76,915(2) -- 200,000 shs --
Chief
Financial
Officer
Judith A. 1997 $109,400 -- -- --
Crist, 1996 $109,400 -- 200,750 shs. --
Executive 1995 $ 94,600 $25,594 -- --
Vice-President,
Operations
- ------------------------
(1) Includes for 1995, 1996 and 1997, respectively, $5,845,
5,845 and $7,468, which was a car allowance and $14,139, $778 and
$681, which were term life insurance and long-term disability
premiums for insurance benefitting named executive. Also includes
for 1995, 1996 and 1997, respectively, $40,688, $45,911 and
$46,860, respectively, placed in a life insurance trust
benefitting the named executive.
(2) Partial year salary. Mr. Rapp commenced his employment
with the Company on April 15, 1996.
<PAGE>
Stock Options
The Company did not grant any stock options to any of the
named executives in 1997, nor did any named executives exercise
any options held by them in 1997. The following table sets forth
information regarding the value of unexercised in-the-money
options held by the named executives as of December 31, 1997:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEARS AND FY-END OPTION VALUES
Number of Value of
Securities Unexercised
Shares Underlying In-the-Money
Acquired Unexercised Options at FY-
on Value Options at End ($)
Name Exercise Realized Fy-End
Exercis- Unexer- Exercis- Unexer-
able cisable able cisable
Larry P.
Rapp -- -- 40,000 160,000 -- --
Judith A.
Crist -- -- 40,188 160,562 -- --
Director Compensation
Effective 1998, non-employee directors of the Company are
paid cash director's fees of $2,500 per calendar quarter plus
reimbursement of related out-of-pocket expenses. In addition,
directors are entitled to receive stock option grants under the
LCA-Vision Directors' Nondiscretionary Stock Option Plan. Under
this Plan, a nonemployee director receives a grant of options to
purchase 75,000 shares of Common Stock upon his or her election or
appointment to the Board and is entitled thereafter to an annual
grant of options to purchase 1,250 shares.
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
The following documents filed by the Company with the
Securities and Exchange Commission are incorporated into this
Proxy Statement by reference:
1. The Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997.
2. The Company's Quarterly Reports on Form 10-QSB for the
quarters ended March 31 and June 30, 1998.
3. The Company's Current Reports on Form 8-K filed on
July 2, August 25 and September 3, 1998.
Any statement contained in a document incorporated by
reference in this Proxy Statement shall be deemed to be modified
or superseded for purposes of this Proxy Statement to the extent
that a statement contained in this Proxy Statement modifies or
supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement.
OTHER MATTERS
The Board of Directors does not know of any other business to
be presented to the meeting and does not intend to bring other
matters before the meeting. However, if other matters properly
come before the meeting, it is intended that the persons named in
the accompanying proxy will vote thereon according to their best
judgment in the interests of the Company.
By Order of the Board of Directors
Sandra F.W. Joffe
Secretary
1714-PS-SP98
<PAGE>
EXHIBIT A
LCA-VISION INC.
1998 LONG-TERM STOCK INCENTIVE PLAN
1. Purposes: The purposes of this Plan are (a) to secure
for the Company the benefits of incentives inherent in ownership
of Common Stock by Eligible Employees, (b) to encourage Eligible
Employees to increase their interest in the future growth and
prosperity of the Company and to stimulate and sustain
constructive and imaginative thinking by Eligible Employees, (c)
to further the identity of interest of those who hold positions of
major responsibility in the Company and its Subsidiaries with the
interests of the Company's shareholders, (d) to induce the
employment or continued employment of Eligible Employees and (e)
to enable the Company to compete with other organizations offering
similar or other incentives in obtaining and retaining the
services of competent employees.
2. Definitions: Unless otherwise required by the
context, the following terms when used in this Plan shall have the
meanings set forth in this Section 2.
Board of Directors: The Board of Directors of the Company.
Change of Control: The event which shall be deemed to have
occurred if either (i) after the date this Plan is adopted by the
Company's shareholders, without prior approval of the Board, any
"person" becomes a beneficial owner, directly or indirectly, of
securities of the Company representing 20% or more of the combined
voting power of the Company's then outstanding securities; or (ii)
without prior approval of the Board, as a result of, or in
connection with, or within two years following, a tender or
exchange offer for the voting stock of the Company, a merger or
other business combination to which the Company is a party, the
sale or other disposition of all or substantially all of the
assets of the Company, a reorganization of the Company, or a proxy
contest in connection with the election of members of the Board of
Directors, the persons who were directors of the Company
immediately prior to any of such transactions cease to constitute
a majority of the Board of Directors or of the board of directors
of any successor to the Company (except for resignations due to
death, disability or normal retirement). For purposes of this
definition, a person shall be deemed the "beneficial owner" of any
securities (i) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; or (ii)
which such person or any of its Affiliates or Associates, has
directly or indirectly, (1) the right to acquire (whether such
right is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants
or options, or otherwise, or (2) the right to vote pursuant to any
agreement, arrangement or understanding; or (iii) which are
beneficially owned, directly or indirectly, by any other person
with which such person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any securities. For
purposes of this definition, a "person" shall mean any individual,
firm, company, partnership, other entity or group, and the terms
"Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as in effect on the
date the Plan is approved by the shareholders of the Company and
becomes effective.
Code: The Internal Revenue Code of 1986, as amended.
Committee: The Committee of the Board of Directors
designated to administer this Plan pursuant to the provisions of
section 11.
Common Stock: The Common Stock of the Company, without par
value.
Company: LCA-Vision Inc., a Delaware corporation.
Eligible Employee: An employee (as such term is defined for
purposes of the Form S-8 registration statement promulgated by the
Securities and Exchange Commission) of the Company or of a
Subsidiary who in the opinion of the Committee can contribute
significantly to the growth and successful operations of the
Company or a Subsidiary. The recommendation of the grant of a
Stock Incentive to an employee by the Committee shall be deemed a
determination by the Committee that such employee is an Eligible
Employee.
Fair Market Value: As applied to any date, the mean of the
highest and lowest quoted selling prices of a share of Common
Stock on the composite tape of the Nasdaq National Market (or any
stock exchange on which the Company's Common Stock may be listed
in the future) on the date specified, or if the Common Stock was
not traded on such system on such date, on the next preceding date
on which the Common Stock was traded; provided, however, that, if
the Common Stock is not so quoted, Fair Market Value shall be
determined in accordance with the method approved by the Board of
Directors, and, provided further, if any of the foregoing methods
of determining Fair Market Value shall not be consistent with the
regulations of the Secretary of the Treasury or his delegate at
the time applicable to a Stock Incentive of the type involved,
Fair Market Value in the case of such Stock Incentive shall be
determined in accordance with such regulations and shall mean the
value as so determined.
Incentive Compensation: Bonuses, extra and other
compensation payable in addition to a salary or other base amount,
whether contingent or discretionary or required to be paid
pursuant to an agreement, resolution or arrangement, and whether
payable currently, or on a deferred basis, in cash, Common Stock
or other property, awarded by the Company or a Subsidiary prior or
subsequent to the date of the approval and adoption of this Plan
by the shareholders of the Company.
Incentive Option: An option granted under this Plan which is
designated to be an incentive stock option under the provisions of
Section 422 of the Code; and any provisions elsewhere in this Plan
or in any such Incentive Option which would prevent such option
from being an incentive stock option may be deleted and/or voided
retroactively to the date of the granting of such option, by
action of the Committee.
Nonqualified Option: An option granted under this Plan which
is not an incentive stock option under the provisions of Section
422 of the Code; and which is exercisable even though there is
outstanding an Incentive Option which was granted before the
granting of the Nonqualified Option to the same participant. Such
Nonqualified Option shall not be affected by any actions taken
retroactively as provided above with respect to Incentive Options.
Option: An option to purchase shares of Common Stock.
Outside Director: A duly elected or appointed member of the
Board of Directors who is not employed by the Company in any other
capacity.
Performance Objectives: Stated criteria which may, but need
not be set forth in a Stock Incentive at the discretion of the
Committee, the successful attainment of which is specified in the
Stock Incentive as a condition precedent to the issuance, transfer
or retention of some or all of the shares of Common Stock covered
by the Stock Incentive. Performance Objectives may be personal
and/or corporate in nature and shall include, but shall not be
limited to, objectives determined by reference to or changes in
(a) the Fair Market Value, book value or earnings per share of
Common Stock, or (b) sales and revenues, income, profits and
losses, return on capital employed, or net worth of the Company
(on a consolidated or unconsolidated basis) or of any or more of
its groups, divisions, Subsidiaries or departments, or (c) a
combination of two or more of the foregoing or other factors.
Plan: The 1998 Long-Term Stock Incentive Plan herein set
forth as the same may from time to time be amended.
Stock Award: An issuance or transfer of shares of Common
Stock at the time the Stock Incentive is granted or as soon
thereafter as practicable, or an undertaking to issue or transfer
such shares in the future.
Stock Incentive: A stock incentive granted under this Plan
in one of the forms provided for in section 3.
Subsidiary: A company or other entity designated by the
Committee in which the Company has a significant equity interest,
except that, with respect to grants of Incentive Options, the term
"Subsidiary" shall be deemed to mean a company or other form of
business association of which shares (or other ownership
interests) having 50% or more of the voting power are owned or
controlled, directly or indirectly, by the Company.
3. Grants of Stock Incentives:
(a) Subject to the provisions of this Plan, the Committee
may at any time, or from time to time, grant Stock Incentives
under this Plan to, and only to, Eligible Employees.
(b) Stock Incentives may be granted in the following
forms:
(i) an Option, or
(ii) a Stock Award, or
(iii) a combination of an Option and a Stock
Award.
(c) Stock Incentives contingently granted prior to the
approval of this Plan by the Company's stockholders but subject to
such approval shall be deemed to be granted hereunder as of the
date of such stockholder approval.
4. Stock Subject to this Plan:
(a) A total of 5,000,000 shares of Common Stock are
available for Stock Incentives granted under the Plan; provided,
that if another company is acquired by the Company or combines
with the Company, any of the Company's shares covered by or issued
as a result of the assumption or substitution of outstanding
grants of the acquired company would not be deemed issued under
the Plan and would not be subtracted from the shares of Common
Stock available for grant under the Plan; and provided further,
that if any shares of Common Stock that are subject to Stock
Incentives are forfeited, such shares shall again become available
under the Plan. For purposes of the preceding sentence:
(i) "Forfeited shares" means any shares issued
pursuant to grants of Stock Incentives which expire or terminate
for any reason in a calendar year without ever having been
exercised or as to which the recipient did not receive any
benefits of ownership (other than voting rights).
(ii) Shares of Common Stock subject to Stock
Incentives granted under this Plan may be either authorized but
unissued shares or shares held in the Company's treasury, or any
combination thereof, in the discretion of the Committee.
(b) The maximum amount of Common Stock with respect to
which Stock Incentives may be granted to any person during any
calendar year shall be 100,000 shares; provided, however, that in
the event of a grant made to a recipient upon the recipient's
initial hiring by the Company, such limitation shall be 1,000,000
shares.
5. Options: Stock Incentives in the form of Options
shall be subject to the following provisions:
(a) Upon the exercise of an Option, the purchase price
shall be paid in cash by means reasonably acceptable to the
Company or, unless otherwise provided by the Committee (and
subject to such terms and conditions as are specified in the
Option or by the Committee), in shares of Common Stock delivered
to the Company by the optionee or by the withholding of shares
issuable upon exercise of the Option or in a combination of such
payment methods. Shares of Common Stock thus delivered or
withheld shall be valued at their Fair Market Value on the date of
the exercise. The purchase price per share shall be not less than
100% of the Fair Market Value of a share of Common Stock on the
date the Option is granted.
(b) Each Option shall be exercisable in full or in part
not less than six months after the date the Option is granted, or
may become exercisable in one or more installments at such later
time or times as the Committee shall determine. Unless otherwise
provided in the Option, an Option, to the extent it is or becomes
exercisable, may be exercised at any time in whole or in part
until the expiration or termination of the Option. Any term or
provision in any outstanding Option specifying that the Option not
be immediately exercisable or that it be exercisable in
installments may be modified at any time during the life of the
Option by the Committee, provided, however, no such modifications
of an outstanding Option shall, without the consent of the
optionee, adversely affect any Option theretofore granted to the
optionee.
(c) Each Option shall be exercisable during the life of
the optionee only by the optionee and, after the optionee's death,
only by the optionee's estate or by a person who acquired the
right to exercise the Option by will or the laws of descent and
distribution. An Option, to the extent that it shall not have
been exercised, shall terminate at the close of business on the
60th day following the date the optionee ceases to be an employee
or director of the Company or a Subsidiary, unless the optionee
ceases to be an employee or director because of resignation with
the consent of the Committee (which consent may be given before or
after resignation), or by reason of death or incapacity, in which
case any unexercised Option or portion thereof held by such person
shall terminate 18 months after such resignation, death or
incapacity, or at the Option's stated expiration date, whichever
is earlier. Any Option that is exercisable hereunder after the
date an optionee ceases to be an employee or director of the
Company for any reason may be exercised only to the extent it
could have been exercised as of the date the optionee ceases to be
an employee or director. A leave of absence for military or
governmental service or for other purposes shall not, if approved
by the Committee, be deemed a termination of employment within the
meaning of this paragraph (c). Notwithstanding the foregoing
provisions of this paragraph (c) or any other provisions of this
Plan, no Option shall be exercisable after expiration of the term
for which the Option was granted, which shall in no event exceed
ten years.
(d) Options shall be granted for such lawful
consideration as the Committee shall determine.
(e) No Option nor any right thereunder may be assigned or
transferred by the optionee except by will or the laws of descent
and distribution. If so provided in the Option or if so
authorized by the Committee and subject to such terms and
conditions as are specified in the Option or by the Committee, the
Company shall have the right, upon or without the request of the
holder of the Option and at any time or from time to time, to
cancel all or a portion of the Option then subject to exercise and
either (i) pay the holder an amount of money equal to the excess,
if any, of the Fair Market Value, at such time or times, of the
shares subject to the portion of the Option so canceled over the
aggregate purchase price of such shares, or (ii) issue or transfer
shares of Common Stock to the holder with a Fair Market Value, at
such time or times, equal to such excess.
(f) Each Option shall be evidenced by a written
instrument, which shall contain such terms and conditions
(including, without limitation, Performance Objectives), and shall
be in such form, as the Committee may determine, provided the
Option is consistent with this Plan and incorporates it by
reference. Notwithstanding the preceding sentence, an Option if
so recommended by the Committee, may include restrictions and
limitations in addition to those provided for in this Plan.
(g) Any federal, state or local withholding taxes payable
by an optionee upon the exercise of an Option shall be paid in
cash or, unless otherwise provided by the Committee, by the
surrender of shares of Common Stock or the withholding of shares
of Common Stock to be issued to the optionee, or in any
combination thereof, or in such other form as the Committee may
authorize from time to time. All such shares so surrendered or
withheld shall be valued at Fair Market Value on the date they are
surrendered to the Company or authorized to be withheld.
(h) Options may be either Incentive Options or
Nonqualified Options at the discretion of the Committee. Options
not otherwise designated shall be Nonqualified Options.
Notwithstanding any other provisions herein, the following
provisions shall apply to Incentive Options: (i) the exercise
price of any Incentive Option granted to any person who on the
date of grant owns (within the meaning of Section 425(d) of the
Code) stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any Subsidiary
shall not be less than 110% of the Fair Market Value of the stock
on the date of grant; (ii) the maximum term of any Incentive
Option granted hereunder shall be ten years, except that the
maximum term of any Incentive Option granted to a person described
in section 5(h)(i) above shall be five years; (iii) no Incentive
Option may be granted subsequent to the tenth anniversary of the
date of shareholder approval of this Plan; (iv) Incentive Options
may only be granted to persons who are employees of the Company or
any Subsidiary within the meaning of the Code; (v) the aggregate
Fair Market Value, determined as of the time of the grant, of the
shares of Common Stock with respect to which Incentive Stock
Options held by any Eligible Employee which are exercisable for
the first time by such Eligible Employee during any calendar year
under the Plan and under any other benefit plans of the Company
shall not exceed $100,000, or if different, the maximum limitation
in effect at the time of grant under Section 422 of the Code, or
any successor provision, and any regulations promulgated
thereunder; and (vi) Incentive Options may not be granted with
respect to more than an aggregate of 3,500,000 shares of Common
Stock under this Plan.
6. Stock Awards: Stock Incentives in the form of Stock
Awards shall be subject to the following provisions:
(a) A Stock Award shall be granted only in payment of
Incentive Compensation that has been earned or as Incentive
Compensation to be earned, including, without limitation,
Incentive Compensation awarded concurrently with or prior to the
grant of the Stock Award.
(b) For the purposes of this Plan, in determining the
value of a Stock Award, all shares of Common Stock subject to such
Stock Award shall be valued at not less than 100% of the Fair
Market Value of such shares on the date such Stock Award is
granted, regardless of whether or when such shares are issued or
transferred to the Eligible Employee and whether or not such
shares are subject to restrictions which affect their value.
(c) The number of shares of Common Stock which may be
granted under the Plan as Stock Awards shall not exceed 500,000
shares of Common Stock (i.e.,10% of the maximum aggregate number
of shares of Common Stock that may be granted to participants in
the Plan).
(d) Shares of Common Stock subject to a Stock Award may
be issued or transferred to the Eligible Employee at the time the
Stock Award is granted, or at any time subsequent thereto, or in
installments from time to time, as the Committee shall determine.
In the event that any such issuance or transfer shall not be made
to the Eligible Employee at the time the Stock Award is granted,
the Committee may provide for payment to such Eligible Employee,
either in cash or in shares of Common Stock from time to time or
at the time or times such shares shall be issued or transferred to
such Eligible Employee, of amounts not exceeding the dividends
which would have been payable to such Eligible Employee in respect
of such shares (as adjusted under section 8) if they had been
issued or transferred to such Eligible Employee at the time such
Stock Award was granted. Any amount payable in shares of Common
Stock under the terms of a Stock Award may, at the discretion of
the Company, be paid in cash, on each date on which delivery of
shares would otherwise have been made, in an amount equal to the
Fair Market Value on such date, of the shares which would
otherwise have been delivered.
(e) A Stock Award shall be subject to such terms and
conditions, including, without limitation, restrictions on sale or
other disposition of the Stock Award or of the shares issued or
transferred pursuant to such Stock Award, as the Committee shall
determine; provided, however, that upon the issuance or transfer
of shares pursuant to a Stock Award, the recipient shall, with
respect to such shares, be and become a shareholder of the Company
fully entitled to receive dividends, to vote and to exercise all
other rights of a shareholder except to the extent otherwise
provided in the Stock Award. The Committee may, in its sole
discretion, but shall not be required to, specify in any Stock
Award that the issuance, transfer and/or retention of some or all
of the shares of Common Stock covered by the Stock Award shall be
subject to the attainment of Performance Objectives. Each Stock
Award shall be evidenced by a written instrument in such form as
the Committee shall determine, provided such written instrument is
consistent with this Plan and incorporates it by reference.
(f) In the event the holder of shares of Common Stock
subject to a Stock Award dies prior to the time such shares are no
longer subject to forfeiture pursuant to the terms of the Stock
Award, the estate of such holder may retain such shares subject to
the restrictions set forth in the Stock Award.
7. Combinations of Options and Stock Awards: Stock
Incentives authorized by paragraph (b)(iii) of Section 3 in the
form of combinations of Options and Stock Awards, shall be subject
to the following provisions:
(a) A Stock Incentive may be a combination of any form of
Option with any form of Stock Award; provided, however, that the
terms and conditions of such Stock Incentive pertaining to an
Option are consistent with Section 5 and the terms and conditions
of such Stock Incentive pertaining to a Stock Award are consistent
with Section 6.
(b) Such combination Stock Incentive shall be subject to
such other terms and conditions as the Committee may determine,
including, without limitation, a provision terminating in whole or
in part a portion thereof upon the exercise in whole or in part of
another portion thereof. Such combination Stock Incentive shall
be evidenced by a written instrument in such form as the Committee
shall determine, provided it is consistent with this Plan and
incorporates it by reference.
8. Nondiscretionary Grants to Outside Directors: Upon
election or appointment to the Board of Directors, an Outside
Director shall automatically be granted a Nonqualified Option to
purchase 75,000 shares of the Company's Common Stock. In
addition, at every annual organizational meeting of the Board of
Directors following the Company's regular annual meeting of
stockholders, each Outside Director who is then serving on the
Board of Directors shall receive an automatic grant of a
Nonqualified Option to purchase 12,500 shares of Common Stock;
provided, however, that the number of shares subject to such
annual options granted to Outside Directors who have not yet
served a full year on the Board of Directors shall be prorated
such that those Outside Directors shall receive an Option to
purchase a percentage of 12,500 shares commensurate with the
actual portion of the year that such director served on the Board
of Directors. The following additional provisions shall apply to
Nonqualified Options granted under this Section 8:
(a) Each such Option shall terminate not later than five
years from the date of grant thereof; and
(b) Each such Option shall not be exercisable for the
first year after grant. On and after the first anniversary of the
grant date, such an option shall be exercisable as to 50% of the
shares covered thereby, and on and after the second anniversary of
the grant date, such Option shall be exercisable as to 100% of the
shares covered thereby to the extent not previously exercised.
9. Adjustment Provisions: In the event that any
recapitalization, reclassification, forward or reverse split
(except as provided below) of shares of Common Stock, or any
similar transaction shall be effected, or the outstanding shares
of Common Stock are, in connection with a merger or consolidation
of the Company or a sale by the Company of all or a part of its
assets, exchanged for a different number of class of shares of
stock or other securities of the Company or for shares of the
stock or other securities of any other company, or a record date
for determination of holders of Common Stock entitled to receive a
dividend payable in Common Stock shall occur, (a) the number and
class of shares or other securities that may be issued or
transferred pursuant to Stock Incentives or with respect to which
a cash payment pursuant to the Stock Incentive is determinable,
(b) the number and class of shares or other securities which have
not been issued or transferred under outstanding Stock Incentives,
(c) the purchase price to be paid per share or other security
under outstanding Options, and (d) the price to be paid by the
Company or a Subsidiary for shares or other securities issued or
transferred pursuant to Stock Incentives which are subject to a
right of the Company or a Subsidiary to reacquire such shares or
other securities, shall in each case be equitably adjusted.
Notwithstanding the foregoing or any other provision in this Plan,
there shall be no adjustment to the number of shares available
under this Plan for Stock Incentives, or in any of the Plan
limitations upon numbers of shares underlying Stock Incentives
granted to individuals, or available for Stock Awards, as the
result of a reverse stock split approved by the Company's
stockholders at the same stockholders' meeting this Plan is
approved by the stockholders.
10. Acceleration: In the event of a Change of Control,
any Stock Incentives which have then been outstanding hereunder
for at least six months shall be immediately exercisable (without
regard to any limitation imposed by the Plan or the Committee at
the time the Stock Incentive was granted, which permits all or any
part of the Stock Incentive to be exercised only after the lapse
of time or the attainment of Performance Objectives or other
conditions to exercise), and will remain exercisable until the
expiration of the Stock Incentive.
11. Term: This Plan shall be deemed adopted and shall
become effective on the date it is approved and adopted by the
shareholders of the Company. This Plan shall remain in effect
until such time as it is terminated by the Board of Directors;
provided, however, that no Incentive Options may be granted
hereunder after August 31, 2008.
12. Administration:
(a) The Plan shall be administered by the Committee,
which shall consist of not less than two directors of the Company
designated by the Board of Directors in accordance with the Bylaws
of the Company; provided, however, that no director shall be
designated as or continue to be a member of the Committee unless
such director shall at the time of designation and service be both
(i) a "disinterested person" within the meaning of Rule 16b-3 of
the Securities and Exchange Commission (or any successor provision
at the time in effect) and (ii) an "outside director" within the
meaning of Section 162(m) of the Code and any regulations
promulgated thereunder by the Department of the Treasury. Grants
of Stock Incentives may be recommended by the Committee either
with or without consultation with employees, but, anything in this
Plan to the contrary notwithstanding, the Committee shall have
full authority to act in the matter of selection of all Eligible
Employees and in recommending Stock Incentives to be granted to
them.
(b) The Committee may establish such rules and
regulations, not inconsistent with the provisions of this Plan, as
it deems necessary to determine eligibility to participate in this
Plan and for the proper administration of this Plan, and may amend
or revoke any rule or regulation so established. The Committee
may make such determinations and interpretations under or in
connection with this Plan as it deems necessary or advisable. All
such rules, regulations, determinations and interpretations shall
be binding and conclusive upon the Company, its Subsidiaries, its
shareholders and all employees, and upon their respective legal
representatives, beneficiaries, successors and assigns and upon
all other persons claiming under or through any of them.
(c) Members of the Board of Directors and members of the
Committee acting under this Plan shall be fully protected in
relying in good faith upon the advice of counsel and shall incur
no liability except for gross negligence or willful misconduct in
the performance of their duties.
13. Acquisitions: Notwithstanding Section 4(a), if the
Company or any Subsidiary should merge or consolidate with, or
purchase stock or assets or otherwise acquire the whole or part of
the business of, another company, the Company in connection
therewith, upon the recommendation of the Committee and the
approval of the Board of Directors, (a) may assume, in whole or in
part and with or without modifications or conditions, any stock
options granted by the acquired company to its employees, in their
capacity as such, or (b) may grant new Options in substitution
therefore; provided that the granting of an Option with the terms
and conditions of the assumed or substitute options is
permissible under either this Plan or a plan approved by the
shareholders of the acquired company. For the purposes of the
preceding sentence, the permissibility of the granting of an
option under a plan shall be determined as of the date of grant of
the original option by the acquired company and not as of the date
of assumption or substitution by the Company.
14. General Provisions:
(a) Nothing in this Plan nor in any instrument executed
pursuant hereto shall confer upon any employee any right to
continue in the employ of the Company or a Subsidiary, or shall
affect the right of the Company or of a Subsidiary to terminate
the employment of any employee with or without cause.
(b) No shares of Common Stock shall be issued or
transferred pursuant to a Stock Incentive unless and until all
legal requirements applicable to the issuance or transfer of such
shares, in the opinion of counsel to the Company, have been
complied with. In connection with any such issuance or transfer
the person acquiring the shares shall, if requested by the
Company, give assurances, satisfactory to counsel to the Company,
that the shares are being acquired for investment and not with a
view to resale or distribution thereof and assurances in respect
of such other matters as the Company or a Subsidiary may deem
desirable to assure compliance with all applicable legal
requirements. No employee (individually or as a member of a
group), and no beneficiary or other person claiming under or
through him, shall have any right, title or interest in or to any
shares of Common Stock allocated or reserved for the purposes of
this Plan or subject to any Stock Incentive except as to shares of
Common Stock, if any, as shall have been issued or transferred to
him.
(c) The Company or a Subsidiary may, with the approval of
the Committee, enter into an agreement or other commitment to
grant a Stock Incentive in the future to a person who is or will
be an Eligible Employee at the time of grant, and, notwithstanding
any other provision of this Plan, any such agreement or commitment
shall not be deemed the grant of a Stock Incentive until the date
on which the Company takes action to implement such agreement or
commitment.
(d) In the case of a grant of a Stock Incentive to an
employee of a Subsidiary, such grant may, if the Committee so
directs, be implemented by the Company issuing or transferring the
shares, if any, covered by the Stock Incentive to the Subsidiary,
for such lawful consideration as the Committee may specify, upon
the condition or understanding that the Subsidiary will transfer
the shares to the employee in accordance with the terms of the
Stock Incentive specified by the Committee pursuant to the
provisions of this Plan. Notwithstanding any other provision
hereof, such Stock Incentive may be issued by and in the name of
the Subsidiary and shall be deemed granted on the date it is
approved by the Committee, on the date it is delivered by the
Subsidiary, or on such other date between said two dates, as the
Committee shall specify.
(e) The Committee shall have full power and authority to
determine whether, to what extent and under what circumstances any
Stock Incentive shall be canceled or suspended by the Company. In
particular, but without limitation, all outstanding Stock
Incentives to any Eligible Employee may be canceled if the
Eligible Employee, without the consent of the Committee, while
employed by the Company or after termination of such employment,
engages in any activity which is in competition with the Company,
including but not limited to an activity whereby the Company's or
its Subsidiary's trade secrets or confidential information may
conceivably be divulged, or is otherwise detrimental to the
Company's best interest, as determined by the Committee.
(f) The Company or a Subsidiary may make such provisions
as it may deem appropriate for the withholding of any taxes which
the Company or a Subsidiary determines it is required to withhold
in connection with any Stock Incentive.
(g) Nothing in this Plan is intended to be a substitute
for, or shall preclude or limit the establishment or continuation
of, any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any
class or group of employees, which the Company or any Subsidiary
or other affiliate now has or may hereafter lawfully put into
effect, including, without limitation, any retirement, pension,
group insurance, stock purchase, stock bonus or stock option plan.
(h) The Plan and any rules and regulations relating to
the Plan shall be determined in accordance with the laws of the
State of Delaware and applicable federal law.
(i) If any provision of the Plan is or becomes or is
deemed invalid, illegal or unenforceable in any jurisdiction, or
would disqualify the Plan or any stock option or Stock Award under
any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to applicable laws or if
it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of
the Plan, it shall be stricken and the remainder of the Plan shall
remain in full force and effect.
(j) Stock options or Stock Awards may be granted to
Eligible Employees who are foreign nationals or employed outside
the United States, or both, on such terms and conditions different
from those specified in the Plan as may, in the judgment of the
Committee, be necessary or desirable in order to recognize
differences in local law or tax policy. The Committee also may
impose conditions on the exercise or vesting of stock options or
Stock Awards in order to minimize the Company's obligation with
respect to tax equalization for Eligible Employees on assignments
outside their home country.
15. Amendments and Discontinuance:
(a) This Plan may be amended by the Board of Directors
upon the recommendation of the Committee, provided that, without
the approval of the stockholders of the Company, no amendment
shall be made which (i) increases the maximum aggregate number of
shares of Common Stock that may be issued or transferred pursuant
to Stock Incentives as provided in Section 4, (ii) withdraws the
administration of this Plan from the Committee or amends the
provisions of paragraph (a) of section 11 with respect to
eligibility and disinterest of members of the Committee, (iii)
permits any person who is not at the time an Eligible Employee of
the Company or of a Subsidiary to be granted a Stock Incentive,
(iv) permits any Option to be exercised more than ten years after
the date it is granted, (v) amends Section 10 to extend the date
set forth therein, or (vi) amends this Section 15.
(b) The Board of Directors may by resolution adopted by a
majority of the entire Board of Directors discontinue this Plan.
(c) No amendment or discontinuance of this Plan by the
Board of Directors or the stockholders of the Company shall,
without the consent of the employee, adversely affect any Stock
Incentive theretofore granted to him.
1714-PS-SP98<PAGE>
PROXY
LCA-VISION INC.
7840 Montgomery Road
Cincinnati, Ohio 45236
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Stephen N. Joffe, M.D. and Larry
P. Rapp, and each of them, with full power of substitution, as
proxies to vote, as designated below, for and in the name of the
undersigned all shares of stock of LCA-Vision Inc. which the
undersigned is entitled to vote at the Special Meeting of the
Stockholders of said Company scheduled to be held on October 16,
1998 at 9:00 a.m. at LCA-Vision Inc., 7840 Montgomery Road, Third
Floor, Cincinnati, Ohio 45236 or at any adjournment or recess
thereof.
Please mark X in the appropriate box. The Board of Directors
recommends a FOR vote on each proposal.
1. To approve the issuance of an indeterminate number of
shares of the Company's Common Stock issuable upon the conversion
of shares of 6% Series B-1 and B-2 Convertible Preferred Stock,
outstanding or to be outstanding, for purposes of complying with
the stockholder approval requirements of The Nasdaq Stock Market.
FOR AGAINST ABSTAIN
2. To approve and adopt the Company's 1998 Long Term Stock
Incentive Plan.
FOR AGAINST ABSTAIN
3. In their discretion, the proxies are authorized to vote
upon such other business as may properly come before the meeting
or an adjournment thereof.
This proxy when properly executed will be voted in the manner
directed herein by the undersigned shareholder. If no direction
is made, this proxy will be voted FOR the above proposals.
ALL FORMER PROXIES ARE HEREBY REVOKED.
NUMBER OF SHARES ___________
_______________________________
_______________
(Signature of Stockholder)
Date
_______________________________
_______________
(Signature of Stockholder)
Date
Please mark, date and sign as your
name appears at left and return in
the envelope.
(Please sign exactly as your name appears hereon. All joint owners
should sign. When signing in a fiduciary capacity or as a
corporate officer, please give your full title as such.)
