VISX INC, 424B1, 1995-11-13

VISX INC
424B1, 1995-11-13
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration Statement No. 33-63235

2,500,000 SHARES

LOGO

COMMON STOCK

THE 2,500,000 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE (THE
"COMMON STOCK"), OFFERED HEREBY (THIS "OFFERING") ARE BEING OFFERED BY VISX,
INCORPORATED ("VISX" OR THE "COMPANY"). THE COMMON STOCK IS QUOTED ON THE NASDAQ
NATIONAL MARKET ("NASDAQ") UNDER THE SYMBOL "VISX." ON NOVEMBER 8, 1995, THE
LAST REPORTED SALES PRICE OF THE COMMON STOCK ON NASDAQ WAS $24 PER SHARE. SEE
"PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY."

FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 5 TO 10.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS* COMPANY+
<S> <C> <C> <C>
PER SHARE...................... $23.75 $1.365 $22.385
TOTAL++........................ $59,375,000 $3,412,500 $55,962,500
</TABLE>

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* THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."

+ BEFORE DEDUCTING EXPENSES OF THIS OFFERING PAYABLE BY THE COMPANY ESTIMATED TO
BE $350,000.

++ THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
375,000 ADDITIONAL SHARES OF COMMON STOCK ON THE SAME TERMS PER SHARE SOLELY
TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE
TOTAL PRICE TO PUBLIC WILL BE $68,281,250, THE TOTAL UNDERWRITING DISCOUNTS
AND COMMISSIONS WILL BE $3,924,375 AND THE TOTAL PROCEEDS TO COMPANY WILL BE
$64,356,875. SEE "UNDERWRITING."

------------------------

THE COMMON STOCK IS BEING OFFERED BY THE UNDERWRITERS AS SET FORTH UNDER
"UNDERWRITING" HEREIN. IT IS EXPECTED THAT THE DELIVERY OF CERTIFICATES THEREFOR
WILL BE MADE AT THE OFFICES OF DILLON, READ & CO. INC., NEW YORK, NEW YORK, ON
OR ABOUT NOVEMBER 14, 1995, AGAINST PAYMENT THEREFOR IN NEW YORK FUNDS. THE
UNDERWRITERS INCLUDE:

DILLON, READ & CO. INC. PAINEWEBBER INCORPORATED

THE DATE OF THIS PROSPECTUS IS NOVEMBER 9, 1995.

<PAGE> 2

[VISX Logo appears here]
COMMERCIALIZING PROPRIETARY TECHNOLOGY

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<S> <C>
United States International
Pillar Point Partners Licensing Agreements
[Above text appears inside of a [Above text appears inside
photo of U.S. Map] of a photo of world globe]
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*Worldwide Equipment
Sales through Alcon

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<S> <C>
*Per Procedure *Equipment Royalties
Royalties from Licensees from Licensed Manufacturers
*Equipment Royalties *Use Royalties from
from Licensees Licenced Manufacturers
</TABLE>

*[Text appears inside of an outline of a diamond]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS OR OTHER SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

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<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," the consolidated financial statements and
notes thereto appearing elsewhere in this Prospectus and the documents
incorporated by reference herein. Unless otherwise indicated, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
See "Underwriting."

THE COMPANY

VISX is a leader in the design and development of proprietary technologies
and systems for laser vision correction ("LVC"), an outpatient surgical
procedure to treat refractive vision disorders such as nearsightedness,
astigmatism and farsightedness with the goal of eliminating or reducing reliance
on eyeglasses and contact lenses. In LVC, a computer-controlled excimer laser
ablates, or removes, submicron layers of tissue from the surface of the cornea
to reshape the eye, thereby improving visual acuity. Vision correction
represents one of the largest medical markets with over 100 million people in
the United States experiencing some form of nearsightedness, astigmatism or
farsightedness. Industry sources estimate that approximately $13 billion was
spent on eyeglasses, contact lenses and other corrective eyewear in the United
States in 1994. Vision correction is typically paid for by the individual
receiving treatment and does not rely on reimbursement from governmental or
private health care payors.

Since its inception in 1985, VISX has been developing a substantial
proprietary position in system and application technology relating to the use of
lasers for vision correction. The Company's strategy is to commercialize this
intellectual property position through (i) per procedure and equipment royalties
from Pillar Point Partners ("Pillar Point"), (ii) international use and
equipment royalties collected under direct licensing agreements, and (iii)
worldwide sales of the Company's excimer laser system. Alcon Laboratories, Inc,
and its affiliates ("Alcon") has served as the Company's exclusive marketing
partner since 1986. On October 28, 1995, Alcon, VISX and the other participants
in VISX's pending stockholder derivative litigation announced an agreement in
principle to settle such litigation pursuant to which, among other things,
Alcon's exclusive domestic marketing and international distribution rights will
be terminated subject to execution of a definitive settlement agreement and
effective upon court approval of the settlement. Court approval, if any, is not
expected until the first quarter of 1996. As a result of the termination of
Alcon's exclusive marketing and distribution rights, the Company will need to
establish and implement new marketing and sales strategies for the United States
and international markets.

Pillar Point was formed by the Company and Summit Technology, Inc.
("Summit") in 1992 to hold certain United States patent rights of both companies
relating to LVC. Through Pillar Point, the Company will participate in the
commercialization of LVC in the United States by either company. Under the terms
of the Pillar Point agreement, which relates only to United States equipment
sales and use, VISX and Summit will share profits from per procedure royalties,
and all partnership profits attributable to royalties on laser equipment sales
by Summit will be allocated to VISX. In October 1995, Summit announced that it
had received United States Food and Drug Administration ("FDA") approval of its
pre-market approval ("PMA") application for use of LVC to treat low-level
myopia. This approval will enable Summit to market and sell LVC systems in the
United States and thereby positions Pillar Point to begin receiving revenues in
early 1996. Pillar Point also intends to make its patents available, through
licensing agreements, to other manufacturers that obtain PMA for LVC systems and
seek to make, use or sell such systems in the United States. VISX and Summit
would, in such event, share in profits from per procedure and equipment
royalties paid to Pillar Point by other manufacturers that are licensed by
Pillar Point. The Company believes that one of its key strengths is the patent
position of Pillar Point, which holds exclusive licenses from VISX and Summit to
more than 20 United States patents covering methods and hardware for performing
LVC.

Internationally, VISX holds 75 patents and is pursuing a strategy which
includes licensing other manufacturers of excimer laser systems for LVC in the
countries in which VISX holds patents. In September 1995, VISX entered into a
license agreement with Chiron Vision Corporation ("Chiron") and extended its
agreement, originally entered into in 1994, with Aesculap-Meditec ("Meditec").
Under these agreements, the Company will receive royalties for sales and use of
Chiron and Meditec equipment in Canada and will receive equipment royalties on
all other international sales. Chiron and

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<PAGE> 4

Meditec are two of the largest manufacturers of excimer lasers for eye care
applications in international markets.

The Company manufactures its proprietary excimer laser system (the "VISX
System") for LVC and other applications and has been marketing the VISX System
internationally since 1988. To date, over 200 VISX Systems have been shipped,
and the Company estimates that over 250,000 eyes have been treated with the
installed base of VISX Systems in over 30 countries. The Company has completed
United States clinical trials for LVC for the treatment of low-level myopia and
for phototherapeutic keratectomy ("PTK"), a laser surgical procedure for
treating corneal pathologies. On September 29, 1995, the Company received FDA
approval of its PMA application for the VISX System for PTK and has commenced
United States commercialization of the VISX System for this indication. On
October 20, 1995, the FDA's Ophthalmic Devices Advisory Panel recommended
approval of the Company's PMA application for the VISX System for treatment of
low-level myopia, subject to VISX providing certain additional patient data.
Although the FDA is not bound by the panel's recommendations in determining
whether or not to grant PMA and there can be no assurance as to when or whether
such approval will be received, the FDA tends to accord significant weight to
advisory panel recommendations in determining whether to grant PMA.

THE OFFERING

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<S> <C>
Common Stock Offered by the Company.......... 2,500,000 shares
Common Stock Outstanding after this
Offering................................... 14,703,392 shares(1)
Use of Proceeds.............................. For research and development, ongoing
clinical trials, expansion of marketing and
manufacturing activities, working capital and
other general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol................ VISX
</TABLE>

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................... $ 6,621 $13,171 $ 20,285 $22,074 $17,896 $10,237 $ 6,475
Cost of revenues.................. 4,126 8,285 12,551 12,030 10,274 5,250 4,438
Total costs and expenses.......... 14,632 15,573 30,859(2) 22,266 25,230 10,723 12,962
Loss from operations.............. (8,011) (2,402) (10,574)(2) (192) (7,334) (486) (6,487)
Net income (loss)................. (7,209) (1,817) (9,551)(2) 179 (6,264) (257) (8,279)
Net income (loss) per share....... $ (.94) $ (.22) $ (.98)(2) $ .02 $ (.60) $ (.03) $ (.71)
Weighted average number of shares
and equivalents outstanding..... 7,643 8,214 9,706 10,540 10,372 10,271 11,654
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1995
-------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments.............................................. $ 14,845 $ 70,458
Working capital.............................................................. 17,788 73,401
Total assets................................................................. 27,344 82,957
Deferred revenue and other long-term obligations............................. 409 409
Accumulated deficit.......................................................... (45,082) (45,082)
Stockholders' equity......................................................... 20,157 75,770
</TABLE>

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(1) Based on shares of Common Stock outstanding as of September 30, 1995.
Excludes 1,403,713 shares of Common Stock reserved for issuance upon exercise of
outstanding options and an additional 752,315 shares reserved for issuance
pursuant to future grants under the Company's stock plans as of September 30,
1995.

(2) Includes a $6.0 million charge for purchased research and development
incurred in connection with an acquisition. See Note 1 of Notes to Consolidated
Financial Statements.

(3) Adjusted to reflect the sale of the 2,500,000 shares of Common Stock
offered by the Company hereby at the public offering price of $23 3/4 per share
and after deducting the estimated underwriting discounts and commissions and
offering expenses.

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<PAGE> 5

RISK FACTORS

In evaluating the Company's business, prospective investors should
carefully consider the following risk factors in addition to the other
information in this Prospectus and the documents incorporated by reference
herein.

ABSENCE OF PROFITABLE OPERATIONS HISTORY; FLUCTUATIONS IN RESULTS OF OPERATIONS

The Company began operations in March 1986 and has recorded losses from
operations in all years since its inception. At June 30, 1995, the Company had
an accumulated deficit of $45.1 million. The Company anticipates continued
losses from operations due to ongoing research, development and clinical
expenditures as well as increased sales, marketing and manufacturing
expenditures to support United States commercial introduction of the VISX
System. In addition, the Company's results of operations have in the past
fluctuated substantially from period to period, due largely to the timing and
amount of orders received from Alcon, and its future results of operations may
vary significantly from quarter to quarter, as a result of the amount and timing
of revenues from use and equipment royalties paid to Pillar Point, royalties
under international licensing arrangements, international and United States
equipment sales and the Company's ability to implement alternate marketing and
sales strategies following the termination of Alcon's exclusive marketing and
distribution rights. There can be no assurance that the Company will achieve
profitability in the future or that profitability, if achieved, will be
sustained. In addition, failure to receive FDA approval for the VISX System for
LVC could materially affect the perception of the Company in the marketplace,
and could also have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

UNCERTAINTY OF MARKET ACCEPTANCE

The Company believes that its profitability and growth will depend upon
broad acceptance of LVC in the United States and key international markets
targeted by the Company. There can be no assurance that LVC will be accepted by
either the ophthalmic community or the general population as an alternative to
existing methods of treating refractive vision disorders. The acceptance of LVC
may be affected adversely by its cost, concerns relating to its safety and
efficacy, general resistance to surgery, the effectiveness of alternative
methods of correcting refractive vision disorders, the lack of long-term
follow-up data, the possibility of unknown side effects, and the lack of
third-party reimbursement for the procedure. Many consumers may choose not to
have LVC due to the availability of nonsurgical methods for vision correction.
Any future reported adverse events or other unfavorable publicity involving
patient outcomes from use of LVC systems manufactured by any participant in the
LVC market could also adversely affect acceptance of the procedure. Market
acceptance could also be affected by the ability of the Company and other
participants in the LVC market to train a broad population of ophthalmologists
in the procedure. Ophthalmologist acceptance could also be affected by the cost
of the excimer laser systems used to perform LVC. Promotional efforts by
suppliers of products or procedures which are alternatives to LVC, including
eyeglasses and contact lenses, may also adversely affect the market acceptance
of LVC. The failure of LVC to achieve broad market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Marketing, Sales and Distribution."

RISKS RELATING TO PILLAR POINT PARTNERS

The agreements establishing Pillar Point (collectively, the "Pillar Point
Agreement") contemplate that royalties will be paid to Pillar Point each time a
laser system is used to perform LVC in the United States under licenses granted
to the Company, Summit or other manufacturers. Should the Company receive PMA
for LVC, the Company will seek to establish and maintain contractual
arrangements permitting it to collect per procedure royalties from use of VISX
Systems. There can, however, be no assurance that the Company or Summit will be
able to collect such royalties. In forming Pillar Point, the Company and Summit
endeavored to structure the operations of the partnership in a manner

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<PAGE> 6

consistent with antitrust laws. The compliance of Pillar Point with these laws
will depend upon the activities of the partners, a determination of what
constitutes a relevant market for purposes of such laws, the nature of the
patents, the number and relative strength of competitors in such markets and
numerous other factors, many of which are presently unknown or are beyond the
control of Pillar Point, VISX and Summit. No assurance can be given that the
activities of Pillar Point will not be challenged under such laws. In March
1995, Pillar Point sued LaserSight, Inc. for patent infringement in the Federal
District Court for Delaware. In that action, LaserSight has asserted several
affirmative defenses and has entered a declaratory judgment counterclaim
asserting, among other things, that the Pillar Point Agreement constitutes
patent misuse. Additionally, in October 1995, VISX received notice that the
Federal Trade Commission ("FTC") is requesting the production of certain
documents in connection with an investigation relating to whether or not Pillar
Point and/or the companies that formed Pillar Point, VISX and Summit, have
engaged in any unfair methods of competition in violation of federal trade
regulation laws. Any successful challenge to the operation of Pillar Point or to
its patents could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Pillar Point
Partners and Other Licensing Arrangements."

In addition, there can be no assurance that the Pillar Point Agreement will
preclude patent disputes with Summit relating to technology not included in
Pillar Point in the United States or relating to any technology outside the
United States. In particular, Summit has sued VISX in the United States under a
patent held by Summit and not licensed to Pillar Point, and VISX has sued Summit
in Canada for infringement of certain of VISX's Canadian patents. See
"-- Reliance on Patents and Proprietary Technology; Risks Related to Patent
Litigation" and "Business -- Legal Proceedings."

RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGY; RISKS RELATED TO PATENT
LITIGATION

Protection of the Company's proprietary technology is important to its
business. In the United States, there are a number of patents covering methods
and apparatus for performing corneal surgery with ultraviolet lasers, including
patents owned by VISX and Summit. Pursuant to the Pillar Point Agreement VISX
and Summit each contributed their rights under United States patents previously
issued to them covering apparatus and methods for performing ultraviolet laser
corneal surgery. The Pillar Point Agreement also provides that certain other
patent rights obtained by either VISX or Summit must be contributed or offered
to Pillar Point, depending upon the nature of the particular patent rights
involved. In addition, there are also multiple foreign patents covering
apparatus for performing excimer laser corneal surgery, including patents or
patent rights held by VISX, Summit, and others. See "Business -- Pillar Point
Partners and Other Licensing Arrangements" and "Business -- Patents and
Proprietary Rights."

There can be no assurance that the United States patent rights held by
Pillar Point or international patents held by VISX will afford any significant
degree of protection or provide the Company with a competitive advantage. In
particular, there can be no assurance that any such patents will not be
challenged, invalidated or circumvented in the future, either in the United
States or internationally. Failure to maintain the protection afforded by the
patents held by Pillar Point and the Company's international patents would have
a material adverse effect on the Company's future revenues and ability to become
profitable. Further, there can be no assurance that the patents held by Pillar
Point or the Company's international patents will ultimately be found to be
valid or enforceable or that the Company's patent rights will deter others from
developing substantially equivalent or competitive products.

In addition, the medical device industry, including the ophthalmic laser
sector, has been characterized by substantial litigation, both in the United
States and internationally, regarding patents and proprietary rights. The
Company is engaged in several pending patent proceedings, both in the United
States and internationally. In the United States, Summit has sued the Company
for infringement of a patent held by Summit and not licensed to Pillar Point.
Internationally, the Company has filed actions alleging infringement of its
patents against certain parties in Canada, is involved in opposition proceedings
challenging the issuance of certain patents in the European Patent Office
("EPO") and

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has filed an action alleging patent infringement against a company in Germany.
For additional detail regarding these patent proceedings, see "Business -- Legal
Proceedings." There can be no assurance that additional patent infringement
claims in the United States or in other countries will not be asserted against
VISX by Summit (limited in the United States to patent rights not included in
Pillar Point) or others, or, if asserted, that VISX will be successful in
defending against such claims. Furthermore, Pillar Point or VISX may undertake
additional infringement actions against others. Infringement actions with
respect to United States patents licensed to Pillar Point could be brought or
defended by Pillar Point, although the partners would have the right to
initiate, pursue, defend or participate in such actions if Pillar Point declined
to do so. The defense and prosecution of patent proceedings is costly and
involves substantial commitments of management time. Adverse determinations in
litigation or other patent proceedings to which the Company currently is or may
become a party could subject the Company to significant liabilities to third
parties and require the Company to seek licenses from third parties. Although
patent and intellectual property disputes in the medical device area have often
been settled through licensing or similar arrangements, costs associated with
such arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms or at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing and
selling its products in one or more markets, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Patents and Proprietary Rights" and "Business -- Legal
Proceedings."

LACK OF FDA APPROVAL OF VISX SYSTEM FOR LVC; GOVERNMENT REGULATION

LVC systems, including the VISX System, are regulated in the United States
as medical devices by the FDA under the federal Food, Drug, and Cosmetic Act
("FDC Act") and, as such, require FDA approval of a PMA application prior to
commercial sale in the United States. The process of obtaining approval of a PMA
application is lengthy, expensive and uncertain, generally takes several years
or longer to complete, if approval is obtained at all, and requires the
submission of extensive clinical data and supporting information to the FDA. The
PMA process also typically requires a public hearing before an advisory panel
comprised of experts in the relevant field. The FDA is not bound by the advisory
panel's recommendations; however, it tends to accord them significant weight.

On September 29, 1995, the Company received FDA approval of its PMA
application for the VISX System for PTK. In addition, on October 20, 1995, the
FDA's Ophthalmic Devices Advisory Panel recommended approval of the Company's
PMA application for the VISX System for treatment of low-level myopia. The
panel's recommendation is subject to submission by VISX of certain additional
updated follow-up data on patients previously treated with the VISX System.
Although the FDA is not bound by the panel's recommendations in determining
whether or not to grant PMA and there can be no assurance as to when or whether
such approval will be received, the FDA tends to accord significant weight to
advisory panel recommendations in determining whether to grant PMA. The FDA will
continue its review of the Company's PMA application, particularly in light of
the observations and recommendations made by the panel. The time frame required
to obtain a PMA following the panel recommendation could be significant. Failure
to receive FDA approval for the VISX System for LVC could materially affect the
perception of the Company in the marketplace, and could also have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Government Regulation."

In June 1995, the FDA promulgated a draft proposal entitled "FDA Guidance
for Photorefractive Keratectomy Laser Systems: IDE Studies and PMA
Applications." The proposal, which would add substantial additional requirements
for LVC clinical trials, is intended to supersede prior draft guidelines
promulgated by the FDA in 1990 but never finalized. In July 1995, at a public
hearing regarding the draft proposal, the FDA and the Ophthalmic Devices
Advisory Panel heard recommendations from various industry sources. It is
uncertain as to whether the FDA will accept all or any of the

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recommended changes to the draft proposal. FDA implementation of some or all of
proposal's recommendations could, particularly if such implementation is
retroactive, require the Company to submit additional clinical data, including
data not collected in the Company's United States clinical trials. Such
implementation could therefore substantially delay receipt of PMA for the VISX
System for LVC and increase the likelihood that the Company will not be able to
obtain such approval.

Products manufactured or distributed by the Company pursuant to a PMA will
be subject to pervasive and continuing regulation by the FDA. The FDC Act also
requires the Company to manufacture its products in accordance with its Good
Manufacturing Practices ("GMP") regulations. The Company's facilities are
subject to periodic GMP inspections by the FDA. These regulations impose certain
procedural and documentation requirements upon the Company with respect to
manufacturing and quality assurance activities. The FDA has proposed amendments
to the GMP regulations which will likely increase the cost of compliance with
GMP requirements. Labeling and promotional activities are subject to scrutiny by
the FDA, and current FDA enforcement policy prohibits the marketing of approved
medical devices for unapproved uses. Noncompliance with applicable requirements
can result in, among other things, warning letters, fines, injunctions,
penalties, recall or seizure of products, total or partial suspension of
production, denial or withdrawal of premarket approval of devices, and criminal
prosecution. Changes in existing regulatory requirements or adoption of new
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company 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 the Company's business, financial condition or
results of operations.

International sales of LVC systems, including the VISX System, are subject
to regulations governing the sale of medical devices in the countries in which
these systems are sold, as well as to FDA export clearances. International
regulatory requirements vary by country and there can be no assurance that VISX
will receive additional international regulatory approvals or meet requirements
for ongoing commercial sales, or as to the associated cost or delay. Failure to
receive approval in, or meet the requirements of, any country would prevent the
Company from selling its products in such country, which could adversely affect
the Company's results of operations. See "Business -- Government Regulation."

LACK OF LONG-TERM FOLLOW-UP DATA; UNDETERMINED MEDICAL RISKS

Concerns with respect to the safety and efficacy of LVC include
predictability and stability of results. Potential complications and side
effects include: post-operative discomfort; corneal haze during healing (an
increase in the light scattering properties of the cornea); glare/halos
(undesirable visual sensations produced by bright lights); decreases in contrast
sensitivity; temporary increases in intraocular pressure in reaction to
procedure medication; modest fluctuations in refractive capabilities during
healing; modest decrease in best corrected vision (i.e., with corrective
eyewear); unintended over- or under-corrections; regression of effect; disorders
of corneal healing; corneal scars; corneal ulcers and induced astigmatism. There
can be no assurance that long-term follow-up data will not reveal additional
complications that may have a material adverse effect on acceptance of LVC which
in turn would have a material adverse effect on the Company's business,
financial condition and results of operations. Concern over the safety of LVC or
other procedures could in turn adversely affect market acceptance of LVC and the
VISX System or result in adverse regulatory action, including product recalls,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Clinical Trials
and Results."

RISKS ASSOCIATED WITH SALES AND MARKETING; RISKS ASSOCIATED WITH INTERNATIONAL
SALES

Alcon has served as the Company's exclusive international distributor and
has exclusive domestic sales and marketing rights. Accordingly, the Company has
been entirely dependent upon the efforts of Alcon for international sales of
VISX Systems and, under the existing agreements with Alcon, would be

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dependent upon Alcon for domestic product sales. Furthermore, the Company's
international marketing agreement with Alcon does not contain specified minimum
purchase commitments and requires annual agreement on unit pricing and number of
systems to be purchased by Alcon. The agreement provides that disputes
thereunder as to pricing and certain other matters are to be resolved by binding
arbitration. The Company's domestic agreement provides that sales targets are
also subject to binding arbitration if not agreed upon by the parties. Both
agreements also require the Company to indemnify Alcon and its affiliates for
damages, up to an aggregate of $4.0 million, arising out of certain potential
claims, including personal injury and patent infringement claims. On October 28,
1995, Alcon, VISX and the other participants in VISX's pending stockholder
derivative litigation announced an agreement in principle for the settlement of
such litigation pursuant to which, among other things, the domestic and
international marketing agreements between VISX and Alcon will terminate subject
to execution of a definitive settlement agreement and after a transition period
during which court approval of the settlement will be sought. Court approval, if
any, is not expected until the first quarter of 1996. Alcon will cease, after
the transition period, all marketing and sales efforts on behalf of VISX.
However, Alcon will continue to service VISX Systems sold internationally by
Alcon. Alcon has agreed to cooperate with the Company in various respects to
facilitate the transition resulting from termination of the marketing agreements
with Alcon. As a result of the termination of Alcon's exclusive marketing
rights, the Company will need to establish and implement new marketing and sales
strategies for the United States and international markets. The Company's future
success will depend in large part on its ability to establish and implement new
domestic and international marketing and sales strategies, and there can be no
assurance that the Company will be able to do so in a timely manner or at all.

International sales may be limited or disrupted by the imposition of
government controls, export license requirements, political instability, trade
restrictions, changes in tariffs, difficulties in staffing and coordinating
communications among and managing international operations. Additionally, the
Company's business, financial condition and international results of operations
may be adversely affected by increases in duty rates, difficulties in obtaining
export licenses, ability to maintain or increase prices, and competition. See
"Business -- Marketing, Sales and Distribution."

COMPETITION AND TECHNOLOGICAL CHANGE

The medical device and ophthalmic laser industries are subject to intense
competition and technological change. LVC using excimer laser systems for
treatment of refractive disorders competes with eyeglasses, contact lenses and
radial keratotomy ("RK"), as well as with other technologies and surgical
techniques currently under development, such as corneal implants and surgery
using different types of lasers. In the United States, the Company believes that
it and Summit are the leading manufacturers of excimer laser systems. In October
1995, Summit received FDA approval of its PMA application for LVC for treatment
of nearsightedness. This approval enables Summit to commence commercial sale of
its laser system for LVC in the United States prior to the Company, which,
although the Company will receive per procedure and equipment royalties through
Pillar Point, will afford Summit a competitive advantage with respect to
equipment sales for LVC.

Use of the VISX System for PTK to treat corneal pathologies competes with
corneal transplants, surgery and drug treatments. The VISX System also competes
with products marketed or under development by other laser and medical equipment
manufacturers, many of which may have greater financial and other resources than
the Company. Additionally, competitors, both in the United States and abroad,
may enter the excimer laser equipment manufacturing business or acquire existing
companies. Such competitors may be able to offer their products at a lower cost
or may develop procedures that involve a lower per procedure cost. Competition
from new entrants may be particularly prevalent in those countries where
significant regulatory approvals are not required. In addition, medical
companies, academic and research institutions and others could develop new
therapies, including new medical devices or surgical procedures, for the
conditions targeted by the Company, which therapies could be more medically
effective and less expensive than LVC, and could potentially render LVC
obsolete. Any such developments could have a material adverse effect on the
business, financial condition and results of operations of the Company. See
"Business -- Competition."

9
<PAGE> 10

VOLATILITY OF STOCK PRICE

The Company's Common Stock has experienced substantial price volatility,
and such volatility may occur in the future. In addition, the stock market from
time to time has experienced extreme price and volume fluctuations that have
affected the market price of many companies and have often been unrelated to the
operating performance of particular companies. Factors such as developments with
respect to the Company's PMA applications and clinical trials, fluctuations in
the Company's operating results, announcements of technological innovations or
new products by the Company or its competitors, developments with respect to
patents or proprietary rights and litigation relating thereto, public concern as
to the safety of products developed by the Company or others, changes in
recommendations of securities analysts and general market conditions may have a
significant effect on the market price of the Company's Common Stock. See "Price
Range of Common Stock and Dividend Policy."

PRODUCT LIABILITY AND INSURANCE

Inherent in the testing and use of human health care devices is the
potentially significant risk of physical injury to patients which could result
in product liability or other claims based upon injuries or alleged injuries
associated with a defect in the product's performance, which may not become
evident for a number of years. The VISX System includes high-voltage power
supplies, cryogenic subsystems, high-pressure gases, toxic gases, and other
potentially hazardous factors. In the event of an accident, the Company could be
liable for any damages that result, and any such liability could exceed the
resources of the Company. VISX maintains a "claims made" product liability
insurance policy in the amount of $4.0 million, which is the maximum payout for
all claims that could be made during the policy period. The inability of the
Company to maintain adequate insurance coverage as well as any product liability
or personal injury claims in excess of the Company's insurance coverage could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Product Liability and Insurance."

MANUFACTURING RISKS

The Company currently does not have experience manufacturing its VISX
System in large-scale, commercial quantities. In the event that the Company
receives FDA approval for LVC, the Company would need to hire and train
additional manufacturing personnel to meet increased production requirements. In
addition, the Company contracts with third parties for the manufacture or
assembly of certain components. Several of these components are currently
provided by a single vendor. If any of these suppliers were to cease providing
components to the Company, the Company would be required to locate and contract
with a substitute supplier, and there can be no assurances that such substitute
supplier could be located and qualified in a timely manner or could provide
required components on commercially reasonable terms. A failure to increase
production volumes in a cost-effective or timely manner, or an interruption in
the manufacturing of VISX Systems, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Manufacturing, Components and Raw Materials."

FUTURE CAPITAL REQUIREMENTS

Although the Company anticipates that the net proceeds of this Offering
will be sufficient to meet the Company's capital requirements for at least the
next 24 months, there can be no assurance that the Company will not require
additional financing. The Company's future liquidity and capital requirements
will depend upon numerous factors, many of which are outside the control of the
Company. Future financings may result in the issuance of senior securities or in
dilution to holders of the Common Stock. Any such financing, if required, may
not be available on satisfactory terms or at all. See "Management's Discussion
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

10
<PAGE> 11

THE COMPANY

The Company is incorporated in Delaware. The Company's principal executive
offices are located at 3400 Central Expressway, Santa Clara, California 95051
and its telephone number at that location is (408) 733-2020. All references in
this Prospectus to VISX and the Company refer to VISX and its subsidiaries
unless the context otherwise indicates. The VISX logo and VisionKey are Company
trademarks. Trademarks of other companies also are referred to in this
Prospectus.

USE OF PROCEEDS

The net proceeds to the Company from the sale of 2,500,000 shares of Common
Stock offered hereby, after deduction of underwriting discounts and commissions
and offering expenses, are estimated to be $55.6 million (or $64.0 million if
the Underwriters' over-allotment option is exercised in full).

The Company expects to use a majority of the net proceeds of this Offering
for research and development, ongoing clinical trials of the VISX System for
additional indications and expansion of marketing and manufacturing activities,
and expects to use the remainder of the net proceeds for general corporate
purposes including working capital. The amount and timing of the expenditures of
the net proceeds for these purposes will depend on numerous factors, including
timing of receipt of FDA approval to market the VISX System for LVC. The Company
may also use a portion of the net proceeds to acquire complementary businesses,
products or technologies, although the Company has no current agreements or
understandings with respect to any such transactions. Pending such uses, the
Company intends to invest such net proceeds in short-term, investment-grade,
interest-bearing securities.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Since November 4, 1993, the Common Stock has traded on the Nasdaq National
Market under the symbol "VISX." From February 1991 to November 3, 1993, the
Common Stock was listed on the American Stock Exchange under the symbol "VSX."
The following table sets forth for the periods indicated the high and low sale
prices of the Common Stock as reported by the Nasdaq National Market and the
American Stock Exchange, as appropriate.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C> <C> <C> <C>
1993
1st Quarter...................................................... $13 7/8 $ 9 1/2
2nd Quarter...................................................... 12 1/2 8 1/2
3rd Quarter...................................................... 15 3/4 9 1/2
4th Quarter...................................................... 18 1/4 12 1/2
1994
1st Quarter...................................................... $28 3/4 $15 1/2
2nd Quarter...................................................... 21 1/4 13 3/4
3rd Quarter...................................................... 22 11 3/4
4th Quarter...................................................... 14 1/2 10
1995
1st Quarter...................................................... $15 7/8 $10
2nd Quarter...................................................... 14 5/16 10 7/8
3rd Quarter...................................................... 24 1/8 13
4th Quarter (through November 8, 1995)........................... 26 1/8 18 3/4
</TABLE>

On November 8, 1995, the last reported sale price of the Common Stock on
the Nasdaq National Market was $24 per share. As of such date, there were
approximately 813 holders of record of the Common Stock.

The Company has never declared or paid any cash dividends on its Common
Stock. The Company presently intends to retain any future earnings for use in
its business and does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future.

11
<PAGE> 12

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1995, and as adjusted to reflect the sale of the 2,500,000 shares of Common
Stock offered by the Company hereby (at the public offering price of $23 3/4 per
share) and the receipt of the estimated net proceeds therefrom by the Company
after deducting the estimated underwriting discounts and commissions and
offering expenses.

<TABLE>
<CAPTION>
JUNE 30, 1995
---------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred revenue and other long-term obligations..................... $ 409 $ 409
-------- --------
Stockholders' equity:
Common Stock, $0.01 par value, 30,000,000 shares authorized;
12,571,142 shares issued actual, 15,071,142 shares issued as
adjusted(1)(2).................................................. 125 151
Additional paid-in capital......................................... 65,117 120,704
Accumulated deficit................................................ (45,082) (45,082)
Less: 500,000 Common Stock treasury shares, at cost(2)............. (3) (3)
-------- --------
Total stockholders' equity...................................... 20,157 75,770
-------- --------
Total capitalization............................................... $ 20,566 $ 76,179
======== ========
</TABLE>

- ---------------
(1) Excludes 1,502,393 shares of Common Stock reserved for issuance upon
exercise of outstanding options and an additional 571,972 shares reserved for
issuance pursuant to future grants under the Company's stock plans as of June
30, 1995. See Note 5 of Notes to Consolidated Financial Statements.

(2) Includes 500,000 shares of Common Stock held in the Company's treasury
which were retired in July 1995.

12
<PAGE> 13

SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated statement of operations data set forth below for the years
ended December 31, 1992, 1993 and 1994 and the consolidated balance sheet data
at December 31, 1993 and 1994 are derived from the consolidated financial
statements of the Company audited by Arthur Andersen LLP, independent public
accountants, which are included elsewhere in this Prospectus. The consolidated
statement of operations data set forth below with respect to the years ended
December 31, 1990 and 1991 and the balance sheet data at December 31, 1990, 1991
and 1992 are derived from audited financial statements of the Company which are
not included in this Prospectus. The statement of operations data for the six
months ended June 30, 1994 and 1995 and the balance sheet data at June 30, 1995
have been derived from unaudited financial statements of the Company which are
included elsewhere in this Prospectus. Unaudited financial statements include
all adjustments (consisting only of normal recurring adjustments) that the
Company considers necessary for a fair presentation of the financial information
set forth therein, in accordance with generally accepted accounting principles.
The results of operations for the six months ended June 30, 1995 are not
necessarily indicative of the results for the entire fiscal year. The data set
forth below should be read in conjunction with the consolidated financial
statements and related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- -------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales................................... $ 5,977 $11,182 $ 9,368 $ 1,092 $ 1,240 $ 940 $ 2,800
Product sales to Alcon, a related party......... -- 1,678 9,566 18,450 13,993 8,067 1,680
Service and other revenues...................... 644 311 1,351 2,532 2,663 1,230 1,995
------- ------- -------- ------- ------- ------- -------
Total revenues................................ 6,621 13,171 20,285 22,074 17,896 10,237 6,475
------- ------- -------- ------- ------- ------- -------
Costs and Expenses:
Cost of revenues................................ 4,126 8,285 12,551 12,030 10,274 5,250 4,438
Marketing, general and administrative........... 6,034 4,624 6,846 5,272 6,371 2,495 3,916
Research, development and regulatory............ 4,472 2,664 5,445 4,964 7,085 2,978 4,608
Reserve for product line disposition............ -- -- -- -- 1,500 -- --
Purchased research and development.............. -- -- 6,017 -- -- -- --
------- ------- -------- ------- ------- ------- -------
Total costs and expenses...................... 14,632 15,573 30,859 22,266 25,230 10,723 12,962
------- ------- -------- ------- ------- ------- -------
Loss from operations.......................... (8,011) (2,402) (10,574) (192) (7,334) (486) (6,487)
------- ------- -------- ------- ------- ------- -------
Other income (expense):
Interest income................................. 814 589 767 295 472 206 376
Other income.................................... -- -- 276 76 598 23 82
Interest expense................................ (12) (4) (20) -- -- -- --
Litigation settlement........................... -- -- -- -- -- -- (2,250)
------- ------- -------- ------- ------- ------- -------
Other income (expense), net................... 802 585 1,023 371 1,070 229 (1,792)
------- ------- -------- ------- ------- ------- -------
Net income (loss)................................. $(7,209) $(1,817) $ (9,551) $ 179 $(6,264) $ (257) $(8,279)
======= ======= ======== ======= ======= ======= =======
Net income (loss) per share....................... $ (.94) $ (.22) $ (.98) $ .02 $ (.60) $ (.03) $ (.71)
======= ======= ======== ======= ======= ======= =======
Weighted average number of shares and equivalents
outstanding..................................... 7,643 8,214 9,706 10,540 10,372 10,271 11,654
======= ======= ======== ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------ JUNE 30,
1990 1991 1992 1993 1994 1995
------- ------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments................... $ 4,880 $ 6,823 $ 9,135 $11,847 $11,161 $14,845
Working capital................................... 6,773 7,595 14,003 15,733 11,842 17,788
Total assets...................................... 10,544 25,157 23,033 22,917 20,627 27,344
Deferred revenue and other long-term
obligations..................................... 1,619 699 664 659 409 409
Accumulated deficit............................... (19,350) (21,167) (30,718) (30,539) (36,803) (45,082)
Stockholders' equity.............................. 5,938 19,603 16,207 18,024 13,993 20,157
</TABLE>

13
<PAGE> 14

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BACKGROUND

Since its inception, VISX has been engaged in the design and development of
proprietary technologies and systems for LVC and has been manufacturing such
systems since 1987. In 1994, the Company determined that it was necessary for
the Company to strengthen its management as well as to devote increased
attention to regulatory affairs and monitoring of activities at clinical trial
sites. This determination arose, in part, as the Company became aware of
procedural and administrative irregularities at three of the Company's clinical
sites following FDA inspections in September 1994, which were conducted as part
of the FDA's normal oversight responsibility. The issues raised by the FDA
inspections did not involve concerns over patient safety or the efficacy of the
VISX System.

On November 1, 1994, the Company hired Mark B. Logan as President and Chief
Executive Officer to strengthen its executive management. Also in 1995, the
Company hired Jordan D. Haller, M.D. as Vice President, Regulatory and Clinical
Affairs and retained Marc G. Odrich, M.D. as Medical Monitor to provide
additional oversight of clinical trials. As a result of these management changes
and increased focus on clinical and regulatory affairs, the Company has
increased its expenditures in the regulatory and clinical affairs area.

During 1994 and throughout 1995, the Company has undergone a transition
from being primarily focused on development and clinical evaluation of the
Company's products to a broad-based, market-driven strategy to expand and
commercialize the Company's proprietary technology. In May 1995, Elizabeth
Davila joined the Company as Executive Vice President and Chief Operating
Officer to help implement this new strategy.

Until May 26, 1995, Alcon had been a related party to the Company by virtue
of its representation on the Company's board of directors. Alcon's
representatives did not stand for reelection at the Company's 1995 annual
stockholders' meeting, and Alcon is therefore no longer considered a related
party to the Company. Certain allegations in pending derivative litigation
brought by stockholders of the Company relate to Alcon's marketing of the VISX
System. On October 28, 1995, Alcon, VISX and the other participants in VISX's
pending stockholder derivative litigation announced an agreement in principle
for the settlement of such litigation pursuant to which, among other things, the
domestic and international marketing agreements between VISX and Alcon will
terminate subject to execution of a definitive settlement agreement and after a
transition period during which court approval of the settlement will be sought.
Court approval, if any, is not expected until the first quarter of 1996. See
Notes 2 and 3 of Notes to Consolidated Financial Statements,
"Business -- Marketing, Sales and Distribution" and "-- Legal Proceedings."

In March 1995, the Company introduced a new, streamlined model of the VISX
System. On September 29, 1995, the Company received FDA approval of its PMA
application for the VISX System for PTK. On October 20, 1995, the FDA's
Ophthalmic Devices Advisory Panel recommended approval of the Company's PMA
application for the VISX System for treatment of low-level myopia, subject to
VISX providing certain additional patient data.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1995 Compared to Six Months Ended June 30, 1994

Revenues. Product revenues for the six month period ended June 30, 1995
were $4,480,000, a decrease of 50% from the $9,007,000 in product sales for the
six month period ending June 30, 1994. The decline in product revenues in 1995
compared to 1994 is due to a reduced number of systems sold during the period to
Alcon, the Company's exclusive international distributor. In light of market
conditions and Alcon's level of inventory, Alcon purchased fewer VISX Systems
from the Company during the first six months of 1995 than in the first six
months of 1994. Additionally, in connection with the introduction of the new
model VISX System, the Company agreed to reduce the distributor price to Alcon
during 1995. Service and other revenues for the six month period ended June 30,
1995 were

14
<PAGE> 15

$1,995,000, an increase of 62% over the $1,230,000 in service and other revenues
for the six month period ended June 30, 1994, due primarily to a larger
installed base of VISX Systems.

International sales to Alcon accounted for 100% of the Company's product
sales in the six months ended June 30, 1995, compared to 90% in the six months
ended June 30, 1994. Through May 26, 1995, sales to Alcon were reported as
"Product sales to Alcon, a related party," and after such date sales to Alcon
are reported as "Product sales." See Notes 2 and 3 of Notes to Consolidated
Financial Statements.

Cost of Revenues. Cost of revenues consists of manufacturing costs, cost
of services and warranty expenses. Gross profit as a percentage of revenues was
31% for the six months ended June 30, 1995 and 49% for the six months ended June
30, 1994. Decreased gross profit as a percentage of revenues for the six months
ended June 30, 1995 as compared to the six months ended June 30, 1994 reflects
lower VISX System sales volume and product transition costs from the Company's
prior generation of the VISX System to the new model VISX System.

Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses were $3,916,000 for the first six months of 1995, an
increase of 57% compared to $2,495,000 of marketing, general and administrative
expenses in the first six months of 1994. The increase in the first six months
ended June 30, 1995 compared to the same period of 1994 primarily reflects
increases in staffing and in legal expenses associated with pending litigation.

Research, Development and Regulatory Expenses. Research, development and
regulatory expenses were $4,608,000 for the first six months of 1995, an
increase of 55% compared to $2,978,000 of research, development and regulatory
expenses in the first six months of 1994. The increase in the first six months
of 1995 compared to the first six months of 1994 primarily reflects increased
consulting and regulatory expenses necessary to conduct United States clinical
trials, to compile clinical data and to pursue PMA applications filed with the
FDA.

Other Income (Expense), Net. Other expense, net was $1,792,000 in the
first six months of 1995 compared to other income, net of $229,000 in the first
six months of 1994. Other expense, net in the first six months of 1995 was due
primarily to the settlement (pending court approval) in June 1995 of the
securities class action lawsuit against the Company. The net cost of settlement
after insurance reimbursement was $2,250,000. Interest income in the first six
months of 1995 increased to $376,000 from $206,000 in the first six months of
1994. The increase in interest income is primarily due to higher average cash
and cash equivalent balances. In addition, other income increased as a result of
royalty payments from the Company's patent license agreement with Meditec
entered into in September 1994.

1994 Compared to 1993

Revenues. Revenues from product sales for 1994 decreased 22% to
$15,233,000 from product sales of $19,542,000 in 1993. The decline in product
sales in 1994 compared to 1993 is due to a reduced number of international
systems sold during the second half of the year to Alcon, the Company's
exclusive international distributor. Alcon's inventory of VISX Systems increased
in the first half of 1994 and as such Alcon required fewer units from VISX in
the second half of the year to satisfy international customer demand. Alcon
accounted for 92% of the Company's product sales in 1994, compared to 94% in
1993.

Service and other revenues, consisting primarily of customer service
revenue, sale of parts for VISX Systems, and sales of VisionKey cards, increased
to $2,663,000 in 1994 from $2,532,000 in 1993. The increase is primarily due to
increased service revenues and increased sale of parts and accessories due to a
larger installed base of VISX Systems internationally and an increase in the
number of procedures performed as the installed base of VISX Systems increases.
Including revenues from the sale of parts and VisionKey cards, Alcon accounted
for 86% and 87% of total revenues in 1994 and 1993, respectively.

Cost of Revenues. Cost of revenues for 1994 decreased by 15% to
$10,274,000 from $12,030,000 in 1993. The reduction in cost of sales reflects
lower material costs due to fewer units shipped during 1994 partially offset by
increased costs associated with the product transition to the new model VISX

15
<PAGE> 16

System. Gross margins decreased to 43% in 1994 compared to 46% for 1993. The
lower margins are due primarily to the lower volume of units shipped during
1994.

Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses increased by 21% to $6,371,000 in 1994 from $5,272,000
in 1993. The increase in 1994 compared to 1993 primarily reflects increases in
patent enforcement expenses, other legal expenses and expenses associated with a
reduction in workforce implemented in the third quarter of 1994.

Research, Development and Regulatory Expenses. Research, development and
regulatory expenses increased by 43% to $7,085,000 in 1994 from $4,964,000 in
1993. The increase in 1994 compared to 1993 primarily reflects increased
regulatory expenses necessary to monitor and support United States clinical
trials and to manage processing of the Company's PMA applications to the FDA. In
1994, the Company recorded an expense of $1,500,000 for disposition of the model
2015 excimer system product line. The Company determined not to pursue FDA
approval of the model 2015 system, discontinued clinical trials of such system
as of August 31, 1994 and withdrew the IDEs pursuant to which those trials were
conducted. The Company has not manufactured the model 2015 system since 1990.

Other Income, Net. Other income, net increased $699,000 in 1994 as
compared to 1993 primarily as a result of the Company's patent license agreement
with Meditec entered into in September 1994. The license agreement included a
payment for past infringement and provides for ongoing royalty payments based
upon future sales.

1993 Compared to 1992

Revenues. Revenues from product sales for the year ended December 31, 1993
increased 3% to $19,542,000 from $18,934,000 for the year ended December 31,
1992. The increase in product sales in 1993 compared to 1992 is primarily due to
increased sales of VISX Systems to Alcon. Alcon accounted for 94% of the
Company's product sales in 1993 compared to 51% in 1992.

Service and other revenues, consisting primarily of customer service
revenue, sale of parts for VISX Systems, and sales of VisionKey cards, increased
to $2,532,000 in 1993 from $1,351,000 in 1992. The increases are primarily due
to increased service revenues and increased sale of parts and accessories due to
a larger installed base of VISX Systems internationally and an increase in the
number of procedures performed as the installed base of VISX Systems increases.
Including revenues from the sale of parts and VisionKey cards, Alcon accounted
for 87% and 48% of total revenues in 1993 and 1992, respectively.

Cost of Revenues. Cost of revenues for 1993 decreased by 4% to $12,030,000
from $12,551,000 in 1992. Gross margins increased to 46% in 1993 compared to 38%
in 1992. The increase in gross margins in 1993 reflects increased efficiency as
well as lower product costs resulting from the consolidation of
VISX-Massachusetts, a laser manufacturer formerly known as Questek, Inc. that
was acquired by the Company in 1992 and was the Company's sole supplier of
lasers for the VISX System. During 1993 the Company scaled down the operations
of VISX-Massachusetts and in December 1993 consolidated all operations of
VISX-Massachusetts into its California facility.

Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses decreased by 23% to $5,272,000 in 1993 compared to
$6,846,000 in 1992. The decrease in 1993 compared to 1992 was primarily due to
reduced commissions as a result of the Company's shift from direct sales to
end-users to international distribution through Alcon and reduced expenses under
the marketing agreement with Alcon.

Research, Development and Regulatory Expenses. Research, development and
regulatory expenses decreased 9% to $4,964,000 in 1993 from $5,445,000 in 1992.
The decrease in expenses in 1993 compared to 1992 is primarily due to reduced
product development expenses resulting from the transition and consolidation of
VISX-Massachusetts into the Company's California facility in December 1993.

During 1992, the Company acquired VISX-Massachusetts for approximately
$5,932,000 in cash, assumed VISX-Massachusetts' outstanding stock options, and
forgave the intercompany balances between VISX and VISX-Massachusetts. The
acquisition was accounted for using the purchase method

16
<PAGE> 17

of accounting. The Company incurred a charge against earnings of $6,017,000 in
1992, which it allocated to VISX-Massachusetts research and development projects
that were in process at the time of the acquisition.

Other Income, Net. Other income, net decreased by $652,000 in 1993 as
compared to 1992. This decrease reflects lower interest income due to lower
average investment balances and lower interest rates in 1993 compared to 1992.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company's primary sources of liquidity have
consisted of financing from the sale of Common Stock and revenues from the sale
of VISX Systems. At June 30, 1995, the Company had $14,845,000 in cash, cash
equivalents and short-term investments, compared to $11,161,000 at December 31,
1994. At June 30, 1995, the Company had working capital of $17,788,000 compared
with $11,842,000 at December 31, 1994. The ratio of current assets to current
liabilities at June 30, 1995 was 3.62 to one, compared to 2.90 to one at
December 31, 1994.

Cash Flows from Operating Activities. Net cash used for operating
activities was $10,014,000 in the first six months of 1995 and was $2,472,000 in
1994, compared to $1,699,000 of net cash provided by operating activities in
1993. The cash flows used for operating activities in the first six months of
1995 and in 1994 primarily reflects the net loss incurred in these periods. In
addition, the Company's inventories increased by $1,516,000 in the six months
ended June 30, 1995 as a result of planned increases in production. The decrease
in accounts receivable in 1994 primarily reflects a lower level of system sales
in 1994 to Alcon. Net cash provided by operating activities was $1,699,000 in
1993 compared to cash used for operating activities of $7,991,000 in 1992. The
increase in net cash provided by operating activities in 1993 compared to 1992
reflects a higher net income, decreases in receivables, and reduced purchases of
raw materials resulting in decreases in inventories in 1993, offset by a
decrease in accounts payable and accrued liabilities. The decrease in accounts
receivable in 1993 primarily reflects collection of receivables from Alcon.

Cash Flows from Investing Activities. Net cash used for investing
activities was $8,794,000 in the first six months of 1995 and was primarily due
to the purchase of short-term investments. Net cash used for investing
activities was $447,000, and $620,000, in 1994 and 1993 respectively, and was
due to the purchase of capital equipment. By comparison, in 1992 the Company's
net cash provided by investing activities was $5,473,000, including $12,758,000
in proceeds received from the conversion of short and long-term investments to
cash and cash equivalents, which was partially offset by $5,932,000 used for the
purchase of VISX-Massachusetts and $1,353,000 for the purchase of capital
equipment.

Cash Flows from Financing Activities. Net cash provided by financing
activities in the first six months of 1995 was $14,443,000 and was primarily due
to proceeds received from a private placement of 1,200,000 shares of Common
Stock. Net cash provided by financing activities in 1994 and 1993 was $2,233,000
and $1,633,000, respectively, and was primarily due to proceeds received from
the exercise of stock options and warrants. Cash provided by financing
activities was $5,891,000 in 1992 and includes net proceeds of $5,529,000 from
the May 1992 public offering of its common stock, and $381,000 from the exercise
of stock options.

The Company anticipates that its current cash and short-term investments,
together with the proceeds of this Offering, will be sufficient to fund
operating expenses for at least the next 24 months, including anticipated
capital expenditures. The Company expects to continue to fund future operations
and related research and development expenses from existing cash and short-term
investments, revenues received from the sales of VISX Systems and future
financing as required. If the Company were to receive FDA approval to market the
VISX System for LVC in the United States, the Company could require additional
capital to fund larger-scale manufacturing of the VISX System as well as future
product development. There can be no assurance that capital will be available
when needed or, if available, that the terms for obtaining such funds will be
favorable to the Company or will not result in dilution to the Company's
stockholders.

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BUSINESS

THE COMPANY

VISX is a leader in the design and development of proprietary technologies
and systems for LVC, an outpatient surgical procedure to treat refractive vision
disorders such as nearsightedness, astigmatism and farsightedness with the goal
of eliminating or reducing reliance on eyeglasses and contact lenses. In LVC, a
computer-controlled excimer laser ablates, or removes, submicron layers of
tissue from the surface of the cornea to reshape the eye, thereby improving
visual acuity. Vision correction represents one of the largest medical markets
with over 100 million people in the United States experiencing some form of
nearsightedness, astigmatism or farsightedness. Industry sources estimate that
approximately $13 billion was spent on eyeglasses, contact lenses and other
corrective eyewear in the United States in 1994. Vision correction is typically
paid for by the individual receiving treatment, and does not rely on
reimbursement from governmental or private health care payors.

REFRACTIVE VISION DISORDERS AND LVC

The human eye is approximately 25 millimeters in diameter and functions
much like a camera, incorporating a lens system that focuses light (the cornea
and the lens), a variable aperture system which regulates the amount of light
passing through the eye (the iris) and a film which records the image (the
retina). Images enter the human eye through the cornea. In a properly
functioning eye, the cornea bends, or refracts, the incoming images, causing the
images to focus on the retina of the eye. Refractive vision disorders are caused
by improper curvature of the cornea, which results in the cornea being unable to
properly focus the light passing through it. As a result, the viewer perceives a
blurred image. Nearsightedness (also known as myopia), astigmatism and
farsightedness (also known as hyperopia) are the three most common refractive
vision disorders. In a nearsighted eye, images are focused in front of the
retina. In an astigmatic eye, images are not focused at any one point. In a
farsighted eye, images are focused behind the retina. Currently, eyeglasses or
contact lenses are most often used to correct the vision of people with
refractive vision disorders.

The principal market for LVC is the correction of refractive vision
disorders such as nearsightedness, astigmatism and farsightedness. In 1993,
industry sources estimated that over 100 million people in the United States
used eyeglasses or contact lenses to correct refractive vision disorders. Of
these individuals, approximately 60 million are estimated to suffer from
nearsightedness, with approximately 90% of nearsighted persons having low-level
myopia. The Company estimates that approximately one-fourth of all sufferers of
nearsightedness also experience astigmatism and an additional 23 million people
in the United States suffer from astigmatism, but do not experience
nearsightedness. United States consumers spent approximately $13 billion on
eyeglasses, contact lenses and other corrective eyewear in 1994 according to
industry sources. The Company believes that LVC will make it possible for many
of these people to eliminate or reduce their reliance on corrective eye wear. In
particular, the Company believes that many of the approximately 26 million
contact lens users in the United States will be particularly receptive to LVC as
they have already chosen to use an alternative to eyeglasses for vision
correction.

Industry sources estimate that between 250,000 and 300,000 radial
keratotomy ("RK") procedures are performed annually in the United States. RK is
a surgical procedure in which the ophthalmologist uses a scalpel to make a
series of incisions in the cornea with the goal of reshaping the cornea to
correct the patient's vision. Because RK is a manual procedure and is not
performed with a computer-controlled device, it is highly dependent on the
surgical skill of the ophthalmologist performing the procedure. In addition,
because RK involves incisions into the corneal tissue, it weakens

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the structure of the cornea which can have adverse consequences as patients age.
Furthermore, RK has never undergone a controlled clinical study under an FDA
protocol because no medical devices, other than a scalpel, are used in the
procedure. The Company believes, based on currently available follow-up data and
market trends in countries where LVC is commercially available, that more people
will seek vision correction through LVC than through RK because LVC involves
reduced surgical risk, does not weaken the corneal tissue, is less invasive and
is less dependent on the ophthalmologist's skill.

CORNEAL PATHOLOGIES AND PTK

Corneal pathologies include traumatic and congenital defects and diseases
of the cornea which result in restricted vision. A number of conditions can
cause a clouding or opacification of the cornea, resulting in a loss of visual
acuity. A typical treatment of these conditions is a corneal transplant, which
involves major surgery, is expensive and is dependent on the availability of a
suitable donor cornea as well as on the individual surgeon's skill and
experience. Corneal transplants frequently produce irregular corneal surfaces
which can compromise the patient's vision. Additional major concerns relating to
corneal transplants are the possible transmission of viruses and rejection of
the transplanted tissue. Certain corneal pathologies can be addressed with an
excimer laser system in a procedure known as PTK. In PTK, submicron layers of
tissue are ablated from the surface of the cornea in order to remove diseased,
scarred or sight-inhibiting tissue with the principal goal of alleviating the
symptoms associated with the corneal pathology. Although PTK is an important
medical procedure for people who suffer from corneal pathologies, the market
opportunity represented by PTK is significantly smaller than that represented by
LVC.

BUSINESS STRATEGY

The Company's objective is to position LVC as the preferred means of
treatment for refractive vision disorders, including nearsightedness,
astigmatism and farsightedness, conditions which are now most often addressed
with eyeglasses or contact lenses. The Company's strategy encompasses several
key elements:

- Commercialize Proprietary Technology through Licensing Agreements. The
Company will seek to commercialize its proprietary technology through
United States per procedure and equipment royalties from Pillar Point at
such time as the FDA grants PMA for LVC indications as well as
international use and equipment royalties collected under direct
licensing agreements.

- Increase Worldwide Market Penetration of VISX Products. Internationally,
the Company is seeking to increase market penetration of the VISX System.
In the United States, the Company has commenced commercialization of the
VISX System for PTK and intends to introduce the VISX System for LVC
applications, subject to FDA approval. Additionally, the Company intends
to expand its technology through development of other medical laser
technologies and possible acquisition of complementary technologies.

- Increase Consumer and Physician Acceptance of LVC. The Company intends
to pursue market development by generating awareness regarding LVC among
consumers and ophthalmologists. To expand awareness of LVC among the
general public in markets entered by the Company, the Company intends to
use print and broadcast media advertising, direct mail or other
promotional tools. The Company and Alcon have sponsored periodic seminars
and conferences to improve awareness among ophthalmologists and other eye
care specialists, including an annual global users meeting regarding LVC
and the Company's products.

- Expand Clinical Indications for LVC. The Company intends to seek
expansion of the number of LVC procedures performed by conducting
clinical trials of and pursuing regulatory approval for additional
indications. The initial FDA approval for LVC obtained by Summit, and the
initial approval for LVC being sought by the Company, are for treatment
of low-level nearsightedness which accounts for approximately 90% of the
cases of myopia. The Company is conducting clinical trials of LVC for the
treatment of moderate and severe nearsightedness, astigmatism and
farsightedness and intends to seek FDA approval for these indications.

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- Aggressively Protect United States and International Patent
Position. The Company believes that establishment and protection of its
intellectual property rights will be important to its long-term success.
The Company intends to aggressively enforce its intellectual property
rights worldwide.

PROCEDURES

LVC Procedure. To perform LVC, also known as photorefractive keratectomy
or PRK, with excimer lasers, the ophthalmologist determines the exact correction
required (which is measured by the same examination used to prescribe eyeglasses
or contact lenses) and programs the correction into the excimer laser system's
computer. The computer calculates the data needed to make a precise corneal
correction which the physician verifies before commencing the laser treatment.
The excimer laser system emits laser pulses to ablate submicron (a micron equals
0.001 of a millimeter) layers of tissue from the surface of the cornea in a
pattern to reshape the front surface of the cornea. The depth of tissue ablated
during the procedure typically is less than one-half of the thickness of a human
hair. The average procedure, which lasts approximately 15 to 40 seconds,
consists of approximately 150 laser pulses each of which lasts several
billionths of a second with cumulative exposure to laser light of less than one
second. The entire patient visit, including preparation, application of a
topical anesthetic and post-operative dressing, generally lasts no more than 30
minutes.

The following diagram illustrates correction of nearsightedness using LVC:

Cornea Flattened Cornea
[Diagram of nearsighted [Diagram of formerly nearsighted
eye prior to LVC treatment.] eye after LVC treatment.]

Incorrect Point Corrected Point
of Focus of Focus

Before After

Following the procedure, the ophthalmologist may prescribe topical
pharmaceuticals to promote corneal healing and alleviate discomfort. Individuals
undergoing LVC may experience discomfort for approximately 24 hours, and blurred
vision for approximately 48 to 72 hours, after the procedure. Although most
patients experience improvement in uncorrected vision within a few days of the
procedure, it generally takes from two to six months for the correction to
stabilize and for the full benefit of the procedure to be realized. An
individual typically has one eye treated in a session, with the second eye
treated three to six months later.

The LVC procedure described above can be performed using a number of
manufacturers' excimer laser systems, including the VISX System. However, the
VISX System incorporates several advanced technological features that permit
treatment of hyperopia as well as simultaneous treatment of myopia and
astigmatism, including a proprietary adjustable iris and proprietary software.

The Company has been engaged in United States clinical trials of the VISX
System under an IDE issued by the FDA for treatment of low-level nearsightedness
with LVC since 1988. The Company has filed a PMA application for treatment of
nearsightedness with the FDA. On October 20, 1995, the FDA's Ophthalmic Devices
Advisory Panel recommended approval of the Company's PMA application for the
VISX System for treatment of low-level myopia. The panel's recommendation is
subject to the submission by VISX of certain additional updated follow-up data
on patients previously treated with the VISX System. The Company believes that
it will be able to fulfill this requirement. Although the

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FDA is not bound by the panel's recommendations in determining whether or not to
grant PMA and there can be no assurance as to when or whether such approval will
be received, the FDA tends to accord significant weight to advisory panel
recommendations in determining whether to grant PMA. The Company has also
conducted United States clinical trials for LVC with the VISX System to treat
individuals with moderate and severe myopia, astigmatism and farsightedness.

PTK Procedure. PTK is an outpatient surgical procedure to treat corneal
pathologies. In this procedure, submicron layers of tissue are ablated from the
surface of the cornea to remove diseased, scarred or sight-inhibiting tissue.
The Company estimates that VISX Systems have been used worldwide to perform
approximately 10,000 PTK procedures. On September 29, 1995, the Company received
FDA approval of its PMA application for the VISX System for PTK. As a result,
the Company has commenced commercial sales of VISX Systems in the United States
for this indication.

LASIK Procedure. Another procedure that can be performed with excimer
laser systems is laser in situ keratomileusis ("LASIK"). LASIK is a variation of
a non-laser technique in which a knife, or microkeratome, is used to open a flap
on the surface of the cornea. Laser energy is then used to ablate corneal cells
on the exposed surface to improve the person's visual acuity, and the flap is
then folded back into place. VISX Systems are being used for LASIK in several
international markets. The Company has not commenced clinical trials involving
use of the VISX System for LASIK in the United States.

PRODUCTS

VISX System. The VISX System is a fully integrated unit incorporating an
excimer laser and a computer-driven workstation for use by an ophthalmologist.
The system is designed to enable an ophthalmologist to perform LVC and PTK after
a brief training program. The VISX System automatically varies the diameter of
the laser beam using a sophisticated optical delivery system that provides
temporal and spatial integration of an excimer laser beam through an adjustable,
mechanical iris. In March 1995, the Company introduced a streamlined model of
the VISX System which currently has an international end-user list price of
approximately $500,000. This system is functionally equivalent to the prior
model, but is one-half its size, easier and more economical to operate, and is
capable of treating farsightedness in addition to nearsightedness and
astigmatism.

Excimer lasers ablate tissue without generating the heat associated with
many other types of lasers that use different wavelengths which can result in
unintended thermal damage to surrounding tissue. The excimer laser operates in
the ultraviolet spectrum and acts on the surface of the cornea without any
measurable effect in the interior of the cornea, which is approximately 500
microns thick, or the other parts of the eye.

VisionKey Card. The use of the VISX System is controlled by a proprietary
optical memory card, the VisionKey card, which is sold separately and is encoded
with proprietary software required to operate the VISX System. Approximately 30
VISX Systems still in the field have not been retrofitted to include the
VisionKey card system. Additionally, the VisionKey card provides the user with
access to software upgrades and can facilitate the collection of patient data.
One VisionKey card must be used with each procedure performed, and therefore
sales of the VisionKey card correlate to the number of procedures performed,
except for those procedures performed with units that have not been retrofitted
to include the VisionKey card system. The price charged per card varies based on
the package of services and materials programmed onto the VisionKey card
provided to the user. The percentage of VISX revenues received from sales of the
VisionKey card is expected to vary based upon demographics and other
site-specific considerations, as well as the competitive and marketing position
of the Company and Alcon.

CLINICAL TRIALS AND RESULTS

The first LVC procedure for the treatment of nearsightedness was performed
in the United States in 1987 and the first PTK procedure for the treatment of a
corneal pathology was performed in 1988.

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To date, over 200 VISX Systems have been shipped, and the Company estimates that
over 250,000 eyes have been treated with the installed base of VISX Systems in
over 30 countries. In the United States, most LVC and PTK procedures have been
performed using excimer lasers during clinical trials conducted only in the past
four years under IDEs approved by the FDA.

The Company has sponsored clinical trials in the United States for
low-level myopia on 1,610 eyes. According to two-year follow-up data accumulated
by the Company during these trials, all persons undergoing LVC experienced an
improvement in visual acuity without corrective eyewear. Of the eyes treated in
these trials, approximately 86% were 20/200 or worse and approximately 94% were
20/100 or worse prior to treatment. Approximately 93% of the eyes treated in
these trials improved to 20/40 or better, the legal requirement to obtain a
driver's license in most states without corrective eyewear. VISX Systems are
currently in 19 clinical investigational sites in the United States.

FDA guidelines prescribe four phases of clinical testing for excimer
refractive surgical systems. During Phase I, the device manufacturer conducts
feasibility studies to confirm design and operating parameters. During Phase
IIA, the manufacturer attempts to rule out major safety risks and assure
reasonable stability of results and may make major modifications to the device
and protocol. During Phase IIB, the manufacturer attempts to rule out major
safety risks and further assure reasonable stability and predictability of
results in a larger patient population and may make minor modifications to the
device and protocol. During Phase III, the manufacturer provides reasonable
safety and efficacy assurances of the final device to be submitted for PMA.

The Company is in various clinical trial stages for PTK and LVC indications
with the VISX System. On September 29, 1995, the FDA approved the Company's PMA
application for PTK for treatment of corneal pathologies. On October 20, 1995,
the FDA's Ophthalmic Devices Advisory Panel recommended approval of the
Company's PMA application for the VISX System for treatment of low-level myopia
(-6 or less diopters of correction), subject to VISX providing certain
additional patient data. Other LVC indications under clinical trial include mild
myopia (greater than -6 and less than -10 diopters of correction), severe myopia
(more than -10 diopters of correction), astigmatism and hyperopia. The Company
has completed Phase III trials and has submitted a PMA application to the FDA
for low-level myopia. VISX has completed Phase IIA and IIB trials for
astigmatism and has completed Phase I trials for hyperopia. The Company's
clinical trials for moderate and severe myopia are ongoing.

PILLAR POINT PARTNERS AND OTHER LICENSING AGREEMENTS

Pillar Point Partners. On June 3, 1992, VISX and Summit entered into the
Pillar Point Agreement by virtue of which all then pending issues between Summit
and VISX regarding the ownership and use of their respective United States
patents for performing ultraviolet laser corneal surgery were settled. Under the
agreements, each of Summit and VISX exclusively licensed to Pillar Point, a
partnership consisting of entities controlled by VISX and Summit, their
respective rights under patents previously issued to them covering apparatus and
methods for performing ultraviolet laser corneal surgery. The Pillar Point
Agreement also provides that any patent covering apparatus and methods for
performing ultraviolet laser corneal surgery which is issued after the date of
the Pillar Point Agreement to either party with respect to patent applications
filed, or which claim a priority date, at any time prior to June 3, 1993, will
automatically be contributed to Pillar Point at no additional cost. The Pillar
Point Agreement also contains provisions requiring VISX and Summit to offer to
the partnership certain after-acquired precluding patents more particularly
defined in the Pillar Point Agreement regardless of when issued.

Pillar Point has licensed to each of VISX and Summit, on a nonexclusive
basis, the rights to the inventions covered by the patents described above. It
is also contemplated that Pillar Point will grant licenses to other qualified
third parties. Under the Pillar Point Agreement, Pillar Point will be paid
certain per procedure and equipment royalties by VISX and Summit. This revenue,
net of applicable expenses, and any other revenue of Pillar Point, will be
shared between VISX and Summit in accordance with the provisions of the Pillar
Point Agreement.

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The Pillar Point Agreement provides that the per procedure royalty charged
by Pillar Point will be fixed at the highest amount proposed by VISX or Summit,
up to $250 per procedure. Summit has announced that it intends to propose $250
as the initial per procedure LVC royalty. Profits realized from per procedure
royalties from LVC procedures using an excimer laser with an adjustable iris
(the only type of system approved by, or for which PMA applications have been
filed with, the FDA) are allocated 56% to VISX and 44% to Summit assuming a $250
per procedure royalty. Pillar Point profits realized from receipt of PTK per
procedure royalties are allocated 51% to VISX and 49% to Summit. However, Pillar
Point has decided not to charge any per procedure royalties for PTK at this
time.

In addition, VISX and Summit are required to pay Pillar Point royalties of
6% for sales of excimer laser systems using an adjustable iris (excimer laser
systems owned by VISX or Summit generally are not subject to royalties). Profits
from royalties on such sales paid to Pillar Point are allocated entirely to
VISX. If and when manufacturers other than VISX and Summit obtain FDA approval
for excimer laser systems, profits from royalties received as a result of the
sale of their equipment would be allocated 50% to VISX and 50% to Summit.

The Pillar Point Agreement has been challenged as, among other things, a
misuse of patents in litigation involving LaserSight. Additionally, in October
1995, VISX received notice that the FTC is requesting the production of certain
documents in connection with an investigation relating to whether or not Pillar
Point and/or the companies that formed Pillar Point, VISX and Summit, have
engaged in any unfair methods of competition in violation of federal trade
regulation laws. Any successful challenge to the structure and operation of
Pillar Point could have a material adverse effect on the Company's business,
financial condition and result of operations. See "Risk Factors -- Risks
Relating to Pillar Point Partners."

Other Licensing Agreements. In September 1995, VISX entered into a license
agreement with Chiron and extended its agreement, originally entered into in
1994, with Meditec. Under these agreements, the Company will receive royalties
for sales and use of Chiron and Meditec equipment in Canada and will receive
equipment royalties on all other international sales. Chiron and Meditec are two
of the largest manufacturers of excimer lasers for eye care applications in
international markets.

In March 1992, the Company and IBM signed a license agreement that grants
the Company nonexclusive rights under United States and foreign IBM patents that
include claims that cover ultraviolet laser technology for removal of human
tissue. VISX has agreed to pay a royalty of 2% of the net sales price of VISX
Systems made, used, sold or otherwise transferred by or for VISX in the United
States, Canada, Japan, Australia, Brazil and Spain. The Company also has entered
into a nonexclusive, worldwide license agreement with Patlex Corporation which
holds certain patents on lasers. Under this agreement, the Company pays a
royalty on certain laser components of the VISX System.

MARKETING, SALES AND DISTRIBUTION

Alcon, one of the world's largest eye care speciality companies with annual
sales in excess of $1.5 billion and distribution in over 120 countries, has
served as the Company's exclusive international distributor and currently has
exclusive domestic sales and marketing rights. On October 28, 1995, Alcon, VISX
and the other participants in VISX's pending stockholder derivative litigation
reached an agreement in principle for the settlement of such litigation pursuant
to which, among other things, the domestic and international marketing
agreements between VISX and Alcon will terminate subject to execution of a
definitive settlement agreement and after a transition period during which court
approval of the settlement will be sought. Court approval, if any, is not
expected until the first quarter of 1996. Under the terms of the agreement in
principle, Alcon will cease, after the transition period, all marketing and
sales efforts on behalf of VISX. However, Alcon will continue to service VISX
Systems sold internationally by Alcon. In addition, as part of the settlement,
Alcon will obtain a fully-paid license under VISX's Canadian patents for the use
of the 23 VISX Systems sold by Alcon in Canada. Alcon has agreed to cooperate
with the Company in various respects to facilitate the transition resulting from
termination of the marketing agreements with Alcon. Under the settlement terms,
Alcon will be able to market competitors' LVC systems. See "--Legal
Proceedings."

During the past month, the Company received deposits for the direct sale of
more than 50 VISX Systems, and experienced a significant increase in orders for
which deposits have not yet been received, as a result of (i) FDA approval of
VISX's PMA application for PTK, (ii) FDA approval of a PMA

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application for LVC with a VISX competitor's system and (iii) a recommendation
by the FDA's Ophthalmic Devices Advisory Panel for approval of VISX's PMA
application for LVC using the VISX System. Nevertheless, the termination of the
agreements with Alcon may have a material adverse effect on the Company's future
revenues and results of operations.

International Sales and Marketing Strategy. Unless and until the FDA
grants approval for the VISX System in the United States, VISX will be dependent
upon international sales of VISX Systems for a major portion of its revenues.
Under the international marketing agreement with Alcon as currently in effect,
the volume and terms of any purchases of VISX Systems for resale in the
international market are determined by agreement between Alcon and VISX from
time to time. Alcon currently purchases VISX Systems from the Company and
resells the purchased systems in the international market. Alcon markets
directly to individual ophthalmologists, ophthalmic clinics and hospitals and
its strategy is to provide the ophthalmologist with a full range of
ophthalmology products and services. The international marketing agreement with
Alcon will terminate upon court approval of the derivative litigation
settlement. In the event that the settlement does not become final, the
international agreement provides that it will remain in effect until the
expiration of the last patent licensed to Alcon under the international
agreement which patents expire in years ranging from 2004 to 2011, subject to
extension if patents are issued under certain pending patent applications.

In September 1995, the Company received notice that the Health Protection
Branch of the Canadian government approved the use of the VISX System in Canada
for treatment of low-level myopia. This approval permits VISX System marketing
for low-level myopia in Canada without labeling the VISX System "for
investigational use" for that indication. The Company believes that it is the
first and only LVC system manufacturer to receive such approval in Canada.

Domestic Sales and Marketing Strategy. As a result of the Company's PMA
for PTK, the Company has commenced United States commercialization for this
indication. The VISX System cannot be marketed in the United States for LVC
unless and until a PMA for LVC is received. The domestic marketing agreement
with Alcon obligates the Company to reimburse Alcon for certain budgeted
marketing expenses. The agreement also contains provisions obligating VISX to
repay to Alcon certain funds advanced by Alcon for development of the VISX
System and enables Alcon, under certain circumstances, to receive 25% of VISX's
excess cash flow, as defined in the marketing agreement. To date, no payments
have accrued or become due and payable by VISX under such provisions. Under the
terms of the settlement, the Company will be released from its obligation to
reimburse Alcon for approximately $1.5 million of developmental expenses for the
VISX System previously advanced by Alcon. Additionally, Alcon's right to receive
25% of VISX's future excess cash flow will be terminated. The Company's
agreements with Alcon require the Company to indemnify Alcon and its affiliates
for damages, up to an aggregate of $4.0 million, arising out of certain
potential claims, including personal injury and patent infringement claims. See
Note 3 of Notes to Consolidated Financial Statements and "-- Legal Proceedings."

The marketing agreement as currently in effect provides a mechanism for
approval of marketing costs, formulation of operating and marketing strategy for
the VISX System, and establishment of minimum unit volume and market share sales
targets. The marketing agreement with Alcon will terminate upon court approval
of the derivative litigation settlement. In the event that the settlement does
not become final, the agreement will remain in effect until the expiration of
the last patent licensed to Alcon under the marketing agreement, which patents
expire in years ranging from 2004 to 2011, subject to extension if patents are
issued under certain pending patent applications. VISX may terminate the
marketing agreement, subject to certain limitations, if Alcon fails to meet
sales targets for specified time periods. Alcon can terminate the marketing
agreement if any of VISX's patent rights are found to be invalid or
unenforceable in the United States and under certain other specified
circumstances.

In the United States, there are over 15,000 ophthalmologists, including
those practicing individually and in groups, in eye care centers and in
ophthalmology clinics. Alcon markets directly to individual ophthalmologists,
ophthalmic clinics and hospitals, and its strategy is to provide the
ophthalmologist with a full range of ophthalmology products and services. The
Company and Alcon have sponsored periodic seminars and conferences to improve
awareness of LVC among ophthalmolo-

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gists and other eye care specialists, including an annual global users meeting
regarding LVC and the Company's products. To expand awareness of LVC among the
general public in markets entered by the Company, the Company intends to use
print and broadcast media advertising, direct mail or other promotional tools.
As a result of the termination of Alcon's exclusive marketing and distribution
rights, the Company will need to establish and implement new marketing and sales
strategies for the United States and for international markets. The Company's
future success will depend in large part on its ability to establish and
implement new domestic and international sales and marketing strategies, and
there can be no assurance that the Company will be able to do so in a timely
manner or at all.

PATENTS AND PROPRIETARY RIGHTS

Protection of proprietary technology is important to the Company's
business. VISX holds over 100 United States and foreign patents, including
patents licensed to Pillar Point by VISX. VISX believes that its patents provide
a substantial proprietary position in system and application technology relating
to the use of lasers for vision correction. In addition, the Company has several
pending patent applications in the United States and in foreign countries.

There can be no assurance that the United States patent rights held by
Pillar Point or international patents held by VISX will afford any significant
degree of protection or provide the Company with a competitive advantage. In
particular, there can be no assurance that any such patents will not be
challenged, invalidated or circumvented in the future, either in the United
States or internationally. Failure to maintain the protection afforded by the
patents held by Pillar Point and the Company's international patents would have
a material adverse effect on the Company's future revenues and ability to become
profitable. Further, there can be no assurance that the patents held by Pillar
Point or the Company's international patents will ultimately be found to be
valid or enforceable, or that the Company's patent rights will deter others from
developing substantially equivalent or competitive products.

The medical device industry including the ophthalmic laser sector, has been
characterized by substantial litigation, both in the United States and
internationally, regarding patents and proprietary rights. The Company is
engaged in several pending patent proceedings, both in the United States and
internationally. In the United States, Summit sued the Company for infringement
of a patent held by Summit and not licensed to Pillar Point. Internationally,
the Company has filed actions alleging infringement of its patents against
certain parties in Canada, is involved in opposition proceedings challenging the
issuance of certain patents in the EPO and has filed an action alleging patent
infringement against a company in Germany. For additional detail regarding these
patent proceedings, see "-- Legal Proceedings." There can be no assurance that
additional patent infringement claims in the United States or in other countries
will not be asserted against VISX by Summit (limited in the United States to
patent rights not included in Pillar Point) or others, or, if asserted, that
VISX will be successful in defending against such claims. Furthermore, it may be
necessary for Pillar Point or VISX to undertake additional infringement actions
against others. Infringement actions by the Company in the United States fall
within the scope of the Pillar Point Agreement, although the Company would have
the right to pursue such actions if Pillar Point declined to do so.

The defense and prosecution of patents is costly and involves substantial
commitments of management time. Adverse determinations in patent proceedings to
which the Company currently is or may become a party could subject the Company
to significant liabilities to third parties and require the Company to seek
licenses from third parties. Although patent and intellectual property disputes
in the medical device area have often been settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial and
could include ongoing royalties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products in one or more markets, which would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the Company's marketing agreement is
terminable if any of the Company's patent rights is found to be unenforceable or
invalid in the United States, which could adversely affect the marketing of the
VISX System. See "-- Legal Proceedings."

25
<PAGE> 26

The Company also seeks to protect its proprietary technology, in part,
through proprietary confidentiality and nondisclosure agreements with employees,
consultants and other parties. The Company's confidentiality agreements with its
employees and consultants generally contain industry standard provisions
requiring such individuals to assign to the Company without additional
consideration any inventions conceived or reduced to practice by them while
employed or retained by the Company, subject to customary exceptions. There can
be no assurance that proprietary information agreements with employees,
consultants and others will not be breached, that the Company would have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known to or independently developed by competitors.

GOVERNMENT REGULATION

United States. Ophthalmic excimer lasers such as the VISX System are
considered medical devices, and as such are subject to regulation by the FDA
under the FDC Act and by similar agencies outside the United States. Medical
devices are classified by the FDA into class I, II or III on the basis of the
controls necessary to reasonably ensure their safety and effectiveness. Class
III devices, such as the VISX System, are subject to the most stringent form of
regulation and oversight and cannot be marketed for commercial sale in the
United States until the FDA grants a PMA for the device.

To obtain a PMA for a medical device, the Company must file a PMA
application that includes clinical data and the results of pre-clinical and
other testing sufficient to show that there is a reasonable assurance of safety
and effectiveness of the VISX System for its intended conditions of use. Human
clinical studies may be conducted only under an FDA-approved IDE 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 after the FDA's review of the
application, a public meeting is held before an FDA advisory panel in which the
PMA is reviewed and discussed. The panel then issues a favorable or unfavorable
recommendation to the FDA or recommends approval with conditions. Although the
FDA is not bound by the panel's recommendations, it tends to give them
significant weight.

On September 29, 1995, the Company received FDA approval of its PMA
application for the VISX System for PTK. On October 20, 1995, the FDA's
Ophthalmic Devices Advisory Panel recommended approval of the Company's PMA
application for the VISX System for treatment of low-level myopia. The panel's
recommendation is subject to the submission by VISX of certain additional
updated follow-up data on patients previously treated with the VISX System. The
Company believes that it will be able to fulfill this requirement. Although the
FDA is not bound by the panel's recommendations in determining whether or not to
grant PMA and there can be no assurance as to when or whether such approval will
be received, the FDA tends to accord significant weight to advisory panel
recommendations in determining whether to grant PMA. The FDA will continue its
review of the Company's PMA application, particularly in light of the
observations and recommendations made by the panel. The time frame required to
obtain a PMA following the panel recommendation could be significant.
Accordingly, there can be no assurance as to when or whether the Company will
receive approval of its PMA application for the VISX System for LVC. The failure
to receive such PMA could have a material adverse effect on the Company's
business, financial condition and results of operations.

In granting PMA for excimer laser systems for LVC, it is possible that the
FDA could limit the classes of patients who could be treated, such as those
having specific vision defects or pathologies. Such limitations could reduce the
potential patient population in the United States, which could therefore result
in reduced per procedure royalties to Pillar Point and, in turn, reduced
partnership allocations to the Company. In addition, if the Company receives PMA
for the VISX System for LVC, it will be necessary for the Company to seek
additional regulatory approvals, through either additional PMA applications or
supplements to existing PMA applications, for additional indications for the
VISX System. There can be no assurance that any such approvals would be obtained
on a timely basis, or at all. The failure to receive such PMAs could have a
material adverse effect on the Company's business, financial condition and
results of operations.

26
<PAGE> 27

In 1990, the FDA issued a draft guideline outlining the type of clinical
data it expects applicants to present in PMA applications for excimer laser
refractive surgical systems and the nature of the clinical trials necessary to
obtain such data. The draft guideline defined four phases of clinical testing
for excimer laser systems. The Company's clinical trials are being conducted in
accordance with the FDA's draft guideline. In June 1995, the FDA promulgated a
draft proposal "FDA Guidance for Photorefractive Keratectomy Laser Systems: IDE
Studies and PMA Applications." The proposal, which would add substantial
additional requirements, is intended to supersede prior draft guidelines
promulgated by FDA in 1990 but never finalized. In July 1995, at a public
hearing regarding the draft proposal, the FDA and the Ophthalmic Devices
Advisory Panel heard recommendations from various industry sources. It is
uncertain as to whether the FDA will accept all or any of the recommended
changes to the draft proposal. FDA implementation of some or all of the
recommendations could, particularly if such implementation is retroactive,
require the Company to submit additional clinical data, including data not
collected in the Company's United States clinical trials. Such implementation
could therefore substantially delay receipt of PMA for the VISX System for LVC
and increase the likelihood that the Company will not be able to obtain such
approval.

Other Government Regulation. Products manufactured or distributed by the
Company pursuant to a PMA will be subject to pervasive and continuing regulation
by the FDA, including, among other things, postmarket surveillance and adverse
event reporting requirements. Failure to comply with applicable regulatory
requirements can result in, among other things, warning letters, fines,
suspensions or delays of approvals, seizures or recalls of products, operating
restrictions or criminal prosecutions. The FDC Act also requires the Company to
manufacture its products in registered establishments and in accordance with
FDA's GMP regulations and to list its devices with the FDA. The Company's
manufacturing facilities have undergone GMP compliance inspections conducted by
the FDA. As a condition to receipt of PMA approval, the Company's facilities,
procedures and practices will be subject to additional pre-approval GMP
inspections and thereafter to ongoing, periodic GMP inspections by the FDA.
These GMP regulations impose certain procedural and documentation requirements
upon the Company with respect to manufacturing and quality assurance activities.
The FDA has proposed amendments to the GMP regulations that will likely increase
the cost of compliance with GMP requirements. Labeling and promotional
activities are subject to scrutiny by the FDA and, in certain instances, by the
Federal Trade Commission. Current FDA enforcement policy prohibits the marketing
of approved medical devices for unapproved uses. Changes in existing regulatory
requirements or adoption of new requirements could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that the Company 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 upon the Company's
business, financial condition and results of operations.

VISX is also regulated under the Radiation Control for Health and Safety
Act, which requires laser products to comply with performance standards,
including design and operation requirements, 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 installed, depending on the class of the product. In
addition, VISX is subject to California regulations governing the manufacture of
medical devices, including an annual licensing requirement, and VISX's
facilities have been inspected by, and are subject to ongoing, periodic
inspections by, California regulatory authorities.

Sales, manufacture and further development of the VISX System also may be
subject to additional federal regulations pertaining to export controls and
environmental and worker protection, as well as to state and local health,
safety and other regulations that vary by locality, which may require obtaining
additional permits. The impact of such regulations cannot be predicted.

International. Many countries outside the United States do not impose
safety and efficacy testing and regulatory approval requirements for medical
laser systems. International regulatory requirements

27
<PAGE> 28

vary by country and there can be no assurance that VISX will receive additional
international regulatory approvals or meet requirements for ongoing commercial
sales, or as to the associated cost or delay. Failure to receive approval in, or
meet the requirements of, any country would prevent the Company from selling its
products in that country, which could adversely affect the Company's results of
operations.

In Europe, the member countries of the European Union have promulgated
rules which require that medical products receive by mid-1998 the certifications
necessary to affix the CE mark to the device. The CE mark is an international
symbol of adherence to quality assurance standards and compliance with
applicable European medical device directives. Certification under the ISO 9000
series of standards for quality assurance and manufacturing processes is one of
the CE mark requirements. The Company is implementing policies and procedures to
enable it to achieve ISO 9000 qualification within the required time frame. In
Japan, sales of VISX Systems are limited until such time as the Company receives
additional regulatory approvals.

MANUFACTURING, COMPONENTS AND RAW MATERIALS

VISX purchases the various components of the VISX System and assembles them
at its California facility. The manufacture of VISX Systems is a complex
operation involving numerous procedures and the completed system must pass a
series of quality control and reliability tests prior to shipment.

The Company purchases from various independent suppliers many components
that are either standard or built to the Company's proprietary specifications.
In addition, the Company contracts with third parties for the manufacture or
assembly of certain components. Several of these components are currently
provided by a single vendor. If any of these suppliers were to cease providing
components to the Company, the Company would be required to locate and contract
with a substitute supplier, and there can be no assurances that such substitute
supplier could be located and qualified in a timely manner, or could provide
required components on commercially reasonable terms. A failure to increase
production volumes in a cost-effective or timely manner or an interruption in
the manufacturing of VISX Systems could have a material adverse effect on the
Company's business, financial condition and results of operations.

COMPETITION

The medical device and ophthalmic laser industries are subject to intense
competition and technological change. LVC for treatment of refractive vision
disorders competes with eyeglasses, contact lenses and RK, as well as with other
technologies and surgical techniques currently under development, such as
corneal implants and surgery using different types of lasers. In the United
States, the Company believes that it and Summit are the leading manufacturers of
LVC systems. In October 1995, Summit received FDA approval of its PMA
application for LVC for treatment of nearsightedness. This approval enables
Summit to commence commercial sale of its laser system for LVC in the United
States prior to the Company, which, although the Company will receive per
procedure and equipment royalties through Pillar Point, will afford Summit a
competitive advantage with respect to equipment sales. The Company's principal
international competitors are Chiron and Meditec, both of whom have received
licenses from VISX and are obligated to pay VISX royalties on system sales.

28
<PAGE> 29

academic and research institutions and others could develop new therapies,
including new medical devices or surgical procedures, for the conditions
targeted by the Company, which therapies could be more medically effective and
less expensive than LVC, and could potentially render LVC obsolete. Any such
developments could have a material adverse effect on the business, financial
condition and results of operations of the Company.

RESEARCH AND DEVELOPMENT

The Company intends to remain a leader in the development of
state-of-the-art laser technologies for the treatment of ophthalmic disorders.
Toward this end, the Company incurred research and development expenses,
including clinical trial expenses, of $5.4 million, $5.0 million and $7.1
million during the years ended December 31, 1992, 1993 and 1994, respectively.
The Company expects to continue spending significant amounts in research and
development for the foreseeable future.

PRODUCT LIABILITY AND INSURANCE

VISX maintains a "claims made" product liability insurance policy in the
amount of $4.0 million, which represents the maximum payout for all claims that
could be made during an annual policy period. At such time as the VISX System is
marketed commercially in the United States, the Company may require broader
coverage in greater amounts. 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, VISX has agreed to indemnify certain medical institutions where
research was sponsored by the Company and certain of the medical institutions
participating in the Company's clinical studies.

EMPLOYEES

As of June 30, 1995, VISX had 116 full-time employees, 25 temporary
employees and 9 consultants. Of the full-time employees, 51 are employed in
manufacturing and service, 43 in research and development and regulatory, and 22
in general administrative and marketing positions. None of VISX's employees is
covered by a collective bargaining agreement. The Company believes that its
relations with its employees are good.

FACILITIES

VISX's operations are located in a 52,000 square foot leased facility in
Santa Clara, California. The facility is leased through September 1997, with a
five-year renewal term at the option of the Company. VISX also has a right of
refusal to lease an additional 52,000 square feet directly above the space
currently leased by the Company. The Company believes its facilities are
sufficient to meet its current and reasonably anticipated future requirements.
See Note 7 of Notes to Consolidated Financial Statements.

LEGAL PROCEEDINGS

Patent Proceedings and Litigation

The Company is a party to a number of patent-related legal proceedings in
the United States and in several international jurisdictions. Adverse
determinations in one or more of such proceedings could limit or restrict the
Company from manufacturing, marketing or selling its products in certain
markets, limit the Company's ability to collect use and equipment royalties in
certain markets and have a material, adverse effect on the Company's business,
financial condition and results of operations. These proceedings are discussed
separately below.

Canada. In February 1994, the Company filed suit in the Federal Court of
Canada against Nidek Co., Ltd. and its Canadian distributor for infringement of
three of VISX's Canadian patents. In August 1994, the Canadian trial court
dismissed most of Nidek's counterclaims against VISX, and Nidek has appealed
this dismissal. The Nidek appeal does not stay or delay the trial of VISX's
claims against

29
<PAGE> 30

Nidek. In July 1995, the Company notified Chiron, LaserSight, Meditec, Nidek and
Summit, and all of the doctors known to be using their equipment in Canada, that
such manufacturers' products infringe VISX's Canadian patents. The Company
offered all such manufacturers the opportunity to take a license in Canada. The
Company entered into license agreements for Canada with Chiron and Meditec. The
Company's offer to enter into license agreements expired on September 1, 1995,
and on September 5, 1995, the Company filed lawsuits in Canada against
LaserSight, Summit and their respective customers. The Company has also taken
action in Canada to add Nidek's customers to the lawsuit already pending there
between the Company and Nidek. The Company is seeking injunctive relief and
unspecified money damages against all defendants in Canada. The Canadian actions
other than the Nidek proceedings are in the pleading stage.

Europe. During the last two years, both Carl Zeiss GmbH and Summit filed
oppositions to several of VISX's European patents before the EPO. The Company
has filed written submissions in response to these oppositions. On October 17,
1995, the EPO held an oral hearing in the first of these oppositions and
rendered an oral decision to revoke the patent. The patent at issue is directed
to comparative topography apparatus and is neither currently in use in the VISX
System nor part of the fundamental VISX patents for vision correction. The
Company expects to appeal the decision once it receives a written opinion from
the EPO. The EPO has set oral hearings in two additional opposition proceedings
for December 1995. Due to the nature of the patent opposition process (in which
claims can be reworded to overcome the opposition), it is impossible to predict
the outcome of these opposition proceedings. In August 1995, the Company sued
Herbert Schwind GmbH in Germany, alleging infringement of certain of the
Company's European patents. In addition, Schwind has filed a nullity action in
Germany against one of VISX's European patents. Although the Company believes it
will prevail in this nullity action, there can be no assurance that such patent
will survive the proceeding.

Azema Patent. On August 30, 1995, Summit sued the Company in the United
States for infringement of a United States patent held by Summit. Summit
acquired the rights to the patent in 1993, and Pillar Point did not acquire
rights to the patent from Summit. The lawsuit claims that the manufacture and
export of VISX Systems from the United States is an infringement of the patent.
The Company believes that the lawsuit is without merit and intends to vigorously
defend its position. Nevertheless, the cost of defending this action could be
significant, and there can be no assurance that the VISX System will be held not
to infringe the patent. In such event, the Company could be subject to
significant liabilities to Summit and it could be necessary for the Company to
seek a license from Summit in order for the Company to manufacture, market and
sell products in the United States. There can be no assurance that a license
would be available on acceptable terms or at all. It might also be necessary for
the Company to attempt to redesign the VISX System so that it no longer
infringes the patent, although there can be no assurance that any such redesign
efforts would be successful. Additionally, a redesign of the VISX System,
depending on its scope, could entail delays in FDA approval of the redesign.

Stockholder Derivative Litigation

In September 1994, an action was filed as a derivative action on behalf of
the Company by CAP Advisers Limited, CAP Trust and Osterfak Limited
(collectively, the "CAP Group"), who collectively owned in excess of 10% of the
Company's outstanding Common Stock at the time the action was filed. The action
names as defendants several former officers of the Company, present and former
directors of the Company including representatives of Alcon, and Alcon and
certain of its affiliates. The suit alleges, among other things, breaches of
fiduciary duties involving the failure to exercise appropriate oversight over
regulatory affairs and the Alcon marketing agreement by the named individual
defendants including the Alcon representatives as well as breaches of certain of
Alcon's marketing obligations under the Company's agreements with Alcon, and
seeks monetary damages in excess of $2.25 billion from Alcon and the named
individual defendants. Alcon has filed counterclaims against the CAP Group and
two former directors of the Company not named in the original suit for
interference with the Company's contractual relationship with Alcon. Alcon and
the named individual defendants have also filed counterclaims against such two
former directors for equitable indemnification and contribution.

30
<PAGE> 31

On October 28, 1995, VISX, Alcon and the CAP Group announced an agreement in
principle to settle the litigation. The settlement is subject to execution of a
definitive settlement agreement as well as court approval. The agreement in
principle also relates to the settlement of the counterclaims filed by Alcon in
the proceeding. Under the proposed settlement terms, the Company's domestic and
international marketing agreements with Alcon will terminate upon court approval
of the settlement. Court approval, if any, is not expected until the first
quarter of 1996. Under the settlement, VISX will also be obligated to reimburse
the CAP Group for legal fees and expenses and certain other related expenses
incurred by them. In addition, VISX has certain obligations to indemnify its
directors and officers in the event of litigation and is therefore obligated to
reimburse the individual defendants for their legal fees and expenses. As a
result, VISX anticipates incurring additional legal expenses in connection with
the settlement of this litigation.

Product Liability

VISX requires all clinical investigators to advise persons treated in
United States clinical trials that the procedure is investigational and has not
been determined to be safe or effective by the FDA and requires that signed
consents be obtained prior to treatment. Notwithstanding these requirements,
three individuals who were treated in United States clinical trials of the VISX
System have sued their ophthalmologists and VISX following their surgery. These
suits are currently pending in Michigan, New Jersey and Pennsylvania. VISX
believes that it has meritorious defenses to these actions, and that their
resolution will not have a material adverse effect on the Company's financial
position or results of operations. However, all three suits are in the early
stages of discovery and there can be no assurance as their outcome.

Securities Class Action Litigation

In September 1994, various actions were filed in United States District
Court against the Company and several former and current directors and officers
of the Company alleging violations of federal securities laws involving the
issuance of misleading statements and failure to make required disclosures
regarding the Company's prospects and the FDA regulatory status of the VISX
System. These actions were subsequently consolidated into a single class action.
In June 1995, the Company reached a settlement (pending court approval) of the
securities class action lawsuit against the Company. The net cost of settlement
after insurance reimbursement was $2,250,000.

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<PAGE> 32

MANAGEMENT

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Mark B. Logan................ 57 Chairman of the Board, Chief Executive Officer and
President
Elizabeth H. Davila.......... 51 Executive Vice President, Chief Operating Officer
Katrina J. Church............ 34 Vice President, General Counsel and Secretary
Terrance N. Clapham.......... 48 Vice President, Research and Development
Jordan D. Haller, M.D. ...... 63 Vice President, Regulatory and Clinical Affairs
Timothy R. Maier............. 47 Vice President, Chief Financial Officer
Judith A. Somerville......... 52 Vice President, Human Resources
W. Michael Wilson............ 51 Vice President, Operations
Glendon E. French............ 61 Director
Robert B. Samuels............ 55 Director
Richard B. Sayford........... 64 Director
</TABLE>

Mark B. Logan. Mr. Logan has served as Chairman of the Board, President
and Chief Executive Officer of the Company since November 1994. From January
1992 to July 1994, Mr. Logan was Chairman of the Board, President and Chief
Executive Officer of Insmed Pharmaceuticals, Inc., a development-stage
biopharmaceutical company, and has served on its board of directors since its
founding in 1988. Prior to 1992, Mr. Logan was a Principal Associate with
McManis Associates, Inc., a Washington, D.C. based research and management firm
specializing in the health care field. From 1981 to 1985, Mr. Logan was employed
by Bausch & Lomb, Inc. as President, Health Care and Consumer Group, and was a
member of Bausch & Lomb's board of directors. From 1975 to 1981, he was employed
by Becton, Dickinson & Co. where he held the position of Consumer Group
President, and was responsible for that Company's worldwide diabetes syringe
business. From 1967 to 1974, Mr. Logan held various management positions with
American Home Products Corporation.

Elizabeth H. Davila. Ms. Davila has been Executive Vice President and
Chief Operating Officer since May 1995. From 1977 to 1994, Ms. Davila held
senior management positions with Syntex Corporation which included Vice
President of Quality and Reengineering, Vice President and Director of the
Company's Drug Development Optimization Program, Vice President of Marketing and
Sales for the Syva Company Diagnostics Division and Vice President of Marketing
and Sales of the Syntex Ophthalmics Division.

Katrina J. Church. Ms. Church has been Vice President, General Counsel
since January 1995 and corporate counsel since June 1991. She has served as
Secretary of the Company since May 1994. Before joining the Company in 1991, Ms.
Church practiced law with the firm Hopkins & Carley in San Jose, California.

Terrance N. Clapham. Mr. Clapham has been Vice President, Research and
Development since March 1993. He also served as Secretary of the Company from
November 1990 to May 1994 and Vice President, Engineering and Product
Development from November 1990 to March 1993. He was a founder, Vice President,
Secretary and director of one of the Company's predecessors from its inception
in August 1987 until November 1990, when it was merged with the Company.

Jordan D. Haller, M.D. Dr. Haller has been Vice President, Regulatory and
Clinical Affairs since July 1995. Prior to joining VISX, Dr. Haller was Medical
Director of Quantum Bio-Medical Technologies from 1990. Dr. Haller also served
on the faculty at Columbia University and taught courses in technology
assessment, with emphasis on government and FDA regulation. From 1985 to 1990,
he was Medical Director for C.R. Bard Company. In 1984 he founded The Laser
Institute of Pittsburgh. Prior

32
<PAGE> 33

to 1984, Dr. Haller was Director of Cardiovascular Surgery at Maimonides Medical
Center and a practicing cardiovascular surgeon.

Timothy R. Maier. Mr. Maier has been Vice President, Chief Financial
Officer since June 1995. From 1991 to June 1995, he served as Vice President,
Chief Financial Officer of GenPharm, International, Inc., a privately held
international biotechnology company. From 1976 to 1991, Mr. Maier held various
positions with Spectra-Physics, Inc., an international manufacturer of
scientific and commercial laser products. His positions included Operations
Manager, International Finance and Administration Manager, and Vice President of
Finance.

Judith A. Somerville. Ms. Somerville has been Vice President, Human
Resources since September 1995 and Director, Human Resources since March 1995.
From 1993 to March 1995, she served as Corporate Director, Compensation and
Benefits at VLSI Technology, Inc., a publicly held semiconductor company. From
1990 to 1993, she was Director, Corporate Compensation and Benefits at Conner
Peripherals, Inc., an international manufacturer of disk drives. From 1989 to
1990, she was Corporate Compensation Manager at Hexcel Corporation. From 1980 to
1989, Ms. Somerville was employed by United Technologies Corporation in a
variety of Human Resource positions.

W. Michael Wilson. Mr. Wilson has been Vice President, Operations since
January 1992 and served as Director of Operations from December 1991 to January
1993. He was Manufacturing Manager with one of the Company's predecessors from
January to November 1990 and Manufacturing Manager of the Company from November
1990 to December 1991.

Glendon E. French. Mr. French has served as a director of the Company
since May 1995. Mr. French served as Chairman and Chief Executive Officer of
Imagyn Medical, Inc. ("Imagyn") from February 1992 until his retirement as Chief
Executive Officer in December 1994. He continued to serve as Chairman of Imagyn
until April 1995 and as a director of Imagyn until September 1995. From 1989
until he joined Imagyn in February 1992, Mr. French was Chairman, Chief
Executive Officer and a director of Applied Immune Sciences, Inc. From 1982 to
1988, Mr. French was President of the Health and Education Services Sector of
ARA Services, Inc., and from 1972 to 1982, he was President of American Critical
Care (formerly a division of American Hospital Supply Corp., now known as Dupont
Critical Care). Mr. French is also a director of Pacific Physician Services,
Inc.

Robert B. Samuels. Dr. Samuels has served as a director of the Company
since February 1993. He is Chairman of TEC, Inc., an organization that
specializes in business skills development for chief executive officers. He
served as President of Allergan Humphrey, a supplier of eye care diagnostic
instruments, from 1987 through December 1991. He has 26 years experience in the
health care industry, including corporate executive positions with Smith Kline
Beckman, Inc. and Allergan, Inc.

Richard B. Sayford. Mr. Sayford has served as a director of the Company
since May 1995. Mr. Sayford has been President of Strategic Enterprises, Inc., a
private business consulting firm specializing in work with high technology and
venture firms since 1979. He is a founding investor of MCI Communications Co.
and has served as a member of the Board of Directors of MCI since 1980. He is
also a director of Medtrac, Inc. and Laser Technologies, Inc. He is former
President of Amdahl International, Ltd. and Corporate Vice President of Amdahl
Corporation.

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<PAGE> 34

UNDERWRITING

The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares which each has severally agreed to purchase
from the Company (subject to the terms and conditions specified in the
Underwriting Agreement) are as follows:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
-------------------------------------------------------------------- ----------------
<S> <C>
Dillon, Read & Co. Inc. ............................................ 670,000
PaineWebber Incorporated............................................ 670,000
Robert W. Baird & Co. Incorporated.................................. 25,000
Bear, Stearns & Co. Inc. ........................................... 50,000
Alex. Brown & Sons Incorporated..................................... 50,000
CS First Boston Corporation......................................... 50,000
Cowen & Company..................................................... 25,000
Dain Bosworth Incorporated.......................................... 25,000
Donaldson, Lufkin & Jenrette Securities Corporation................. 50,000
A.G. Edwards & Sons, Inc. .......................................... 50,000
Everen Securities, Inc. ............................................ 25,000
Fahnestock & Co. Inc. .............................................. 25,000
Furman Selz Incorporated............................................ 25,000
Goldman, Sachs & Co................................................. 50,000
Hambrecht & Quist LLC............................................... 50,000
Raymond James & Associates, Inc. ................................... 25,000
C.L. King & Associates, Inc. ....................................... 50,000
Lazard Freres & Co. LLC............................................. 50,000
Lehman Brothers Inc. ............................................... 50,000
Montgomery Securities............................................... 50,000
Morgan Keegan & Company, Inc. ...................................... 25,000
Needham & Company, Inc. ............................................ 25,000
David A. Noyes & Company............................................ 15,000
Oppenheimer & Co., Inc. ............................................ 50,000
Pennsylvania Merchant Group Ltd. ................................... 15,000
Piper Jaffray Inc. ................................................. 25,000
Robertson, Stephens & Company, L.P.................................. 50,000
Salomon Brothers Inc................................................ 50,000
Schroder Wertheim & Co. Incorporated................................ 50,000
UBS Securities Inc.................................................. 50,000
Vector Securities International, Inc. .............................. 25,000
Wedbush Morgan Securities Inc. ..................................... 15,000
Wellington (H.G.) & Co. Inc. ....................................... 15,000
Wessels, Arnold & Henderson......................................... 25,000
---------
Total..................................................... 2,500,000
=========
</TABLE>

The Managing Underwriters are Dillon, Read & Co. Inc. and PaineWebber
Incorporated.

If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10% of the shares hereby, the remaining
Underwriters, or some of them, must assume such obligations.

The shares of Common Stock offered hereby are being offered severally by
the Underwriters for sale at the price set forth on the cover page hereof, or at
such price less a concession not to exceed $0.81 per share on sales to certain
dealers. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $0.10 per share on sales to certain dealers. The offering of the
shares of Common Stock is made for delivery when, as, and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offer without notice. The Underwriters

34
<PAGE> 35

reserve the right to reject any order for the purchase of the shares. After the
shares are released for sale to the public, the public offering price, the
concession and the reallowance may be changed by the Managing Underwriters.

The Company has granted to the Underwriters an option to purchase up to an
additional 375,000 shares of Common Stock on the same terms per share. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
proportion of the aggregate shares so purchased as the number of shares to be
purchased by it shown in the above table bears to the total number of shares in
such table. The Underwriters may exercise such option on or before the thirtieth
day from the date of the public offering of the shares offered hereby and only
to cover over-allotments made of the shares in connection with this Offering.

The Company has agreed that it will not, without the prior written consent
of Dillon, Read & Co. Inc., sell, grant any option to sell, transfer or
otherwise dispose of, directly or indirectly, any shares of the Common Stock, or
any securities convertible into, or exercisable or exchangeable for, Common
Stock or warrants or other rights to purchase Common Stock, prior to the
expiration of 90 days from the date of the consummation of this Offering, except
(i) shares of Common Stock issued upon the exercise of options issued under its
existing stock option plans and (ii) options granted to its employees, officers
and directors under its stock option plans and (iii) shares of Common Stock
offered and sold pursuant to its existing stock purchase plan. The Company's
officers and directors, who beneficially own an aggregate of 460,974 shares of
Common Stock, have agreed that they will not, without the prior written consent
of Dillon, Read & Co. Inc., sell, grant any option to sell, transfer or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, Common Stock or
warrants or other rights to purchase Common Stock, prior to the expiration of 90
days from the date of the consummation of this Offering. In addition, under the
Company's agreement in principle with Alcon relating to the proposed stockholder
derivative litigation settlement, Alcon has agreed not to sell, transfer or
otherwise dispose of its 224,000 shares of Common Stock before January 24, 1996.

The Company has agreed in the Underwriting Agreement to indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.

In connection with the Company's private placement of 1,200,000 shares of
its Common Stock completed in February 1995 at a price of $10.854 per share,
PaineWebber Growth Fund and PaineWebber Growth Portfolio, affiliates of
PaineWebber Incorporated, purchased from the Company an aggregate of 100,000
shares of the Common Stock.

In connection with this Offering, certain Underwriters and selling group
members or their affiliates may engage in passive marketing making transactions
in the Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A
under the Exchange Act during the two business day period before the
commencement of sales in this Offering. Passive market making consists of, among
other things, displaying bids on the Nasdaq National Market limited by the bid
prices of independent market makers and purchases limited by such prices and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during a specified prior period
and all possible market making activity must be discontinued when such limit is
reached. Passive market making may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if commenced, may
be discontinued at any time.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters in connection with this Offering will be
passed upon for the Underwriters by Gibson, Dunn & Crutcher, Los Angeles,
California.

EXPERTS

The audited financial statements as of December 31, 1993 and 1994 and for
each of the three years in the period ended December 31, 1994 included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.

35
<PAGE> 36

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at its office at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's Regional Offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common Stock is
quoted on the Nasdaq National Market and reports, proxy statements and other
information concerning the Company may be inspected at the offices of the Nasdaq
Stock Market, 1735 K Street, N.W., Washington, D.C. 20006-1500.

The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the Commission's principal office, and copies of all or any part of the
Registration Statement may be obtained from such office upon the payment of the
fees prescribed by the Commission.

INFORMATION INCORPORATED BY REFERENCE

The following documents, heretofore filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference:

(1) The Company's Annual Report on Form 10-K for the year ended December
31, 1994.

(2) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995.

(3) The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A filed with the Commission on
February 4, 1991, as amended.

(4) The Company's Current Reports on Form 8-K filed with the Commission on
October 17, 1995 and November 3, 1995.

All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this Offering shall be deemed to be
incorporated by reference into this Prospectus and shall be a part hereof from
the date of filing of such reports and documents. Any statement incorporated
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein 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 Prospectus.

The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any report or document described above (other than exhibits,
unless such exhibits are specifically incorporated by reference herein).
Requests for such copies should be directed to VISX at its principal executive
offices located at 3400 Central Expressway, Santa Clara, California 95051,
telephone (408) 733-2020, attention, Investor Relations.

36
<PAGE> 37

VISX, INCORPORATED AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-1
Consolidated Balance Sheets........................................................... F-2
Consolidated Statements of Operations................................................. F-3
Consolidated Statements of Stockholders' Equity....................................... F-4
Consolidated Statements of Cash Flows................................................. F-5
Notes to Consolidated Financial Statements............................................ F-6
</TABLE>

37
<PAGE> 38

(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 39

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO VISX, INCORPORATED:

We have audited the accompanying consolidated balance sheets of VISX,
Incorporated (a Delaware corporation) and subsidiaries as of December 31, 1993
and 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. 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 VISX, Incorporated and
subsidiaries as of December 31, 1993 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

-----------------------------------
Arthur Andersen LLP

San Jose, California
February 14, 1995

F-1
<PAGE> 40

VISX, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1993 1994 1995
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............................. $ 11,847 $ 11,161 $ 6,796
Short-term investments................................. -- -- 8,049
Accounts receivable:
Trade............................................... 1,059 268 4,160
Alcon, a related party.............................. 3,690 2,659 --
Inventories............................................ 3,206 3,792 5,308
Prepaid expenses....................................... 165 187 253
-------- -------- --------
Total current assets................................ 19,967 18,067 24,566
PROPERTY AND EQUIPMENT, NET.............................. 1,590 1,450 1,884
OTHER ASSETS............................................. 1,360 1,110 894
-------- -------- --------
$ 22,917 $ 20,627 $ 27,344
======== ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....................................... $ 1,014 $ 2,058 $ 3,092
Accrued liabilities.................................... 3,220 4,167 3,686
-------- -------- --------
Total current liabilities........................... 4,234 6,225 6,778
-------- -------- --------
DEFERRED REVENUE & OTHER LONG-TERM OBLIGATIONS........... 659 409 409
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 7 AND 8)
STOCKHOLDERS' EQUITY:
Common stock -- $.01 par value, 30,000,000 shares
authorized; 10,686,572, 11,024,808 and 12,571,142
shares issued at December 31, 1993, 1994 and June
30, 1995, respectively.............................. 107 110 125
Additional paid-in capital............................. 48,459 50,689 65,117
Accumulated deficit.................................... (30,539) (36,803) (45,082)
Less: 500,000 common stock treasury shares, at cost.... (3) (3) (3)
-------- -------- --------
Total stockholders' equity.......................... 18,024 13,993 20,157
-------- -------- --------
$ 22,917 $ 20,627 $ 27,344
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-2
<PAGE> 41

VISX, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1992 1993 1994 1994 1995
-------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Product sales....................... $ 9,368 $ 1,092 $ 1,240 $ 940 $ 2,800
Product sales to Alcon, a related
party............................ 9,566 18,450 13,993 8,067 1,680
Service and other revenues.......... 1,351 2,532 2,663 1,230 1,995
-------- ------- ------- ------- -------
Total revenues.............. 20,285 22,074 17,896 10,237 6,475
-------- ------- ------- ------- -------
COSTS AND EXPENSES:
Cost of revenues.................... 12,551 12,030 10,274 5,250 4,438
Marketing, general and
administrative................... 6,846 5,272 6,371 2,495 3,916
Research, development and
regulatory....................... 5,445 4,964 7,085 2,978 4,608
Reserve for product line
disposition...................... -- -- 1,500 -- --
Purchased research and development.. 6,017 -- -- -- --
-------- ------- ------- ------- -------
Total costs and expenses.... 30,859 22,266 25,230 10,723 12,962
-------- ------- ------- ------- -------
LOSS FROM OPERATIONS.................. (10,574) (192) (7,334) (486) (6,487)
-------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest income..................... 767 295 472 206 376
Other income........................ 276 76 598 23 82
Interest expense.................... (20) -- -- -- --
Litigation settlement............... -- -- -- -- (2,250)
-------- ------- ------- ------- -------
Other income (expense), net...... 1,023 371 1,070 229 (1,792)
-------- ------- ------- ------- -------
NET INCOME (LOSS)..................... $ (9,551) $ 179 $(6,264) $ (257) $(8,279)
======== ======= ======= ======= =======
NET INCOME (LOSS) PER SHARE........... $ (.98) $ .02 $ (.60) $ (.03) $ (.71)
======== ======= ======= ======= =======
Weighted average number of shares and
equivalents outstanding............. 9,706 10,540 10,372 10,271 11,654
======== ======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE> 42

VISX, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY
------ ------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991............. 9,827 $ 98 $ 40,675 $ (21,167) $ (3) $19,603
Exercise of stock options.............. 66 1 380 -- -- 381
Issuance of common stock and stock
options in connection with the
acquisition of VISX-Massachusetts.... 7 -- 245 -- -- 245
Sale of common stock in a public
offering, net of issuance costs...... 496 5 5,524 -- -- 5,529
Net loss............................... -- -- -- (9,551) -- (9,551)
------ ---- ------- -------- ---- -------
BALANCE, DECEMBER 31, 1992............. 10,396 104 46,824 (30,718) (3) 16,207
Exercise of stock options.............. 177 2 682 -- -- 684
Exercise of warrants and options issued
to Underwriters...................... 114 1 953 -- -- 954
Net income............................. -- -- -- 179 -- 179
------ ---- ------- -------- ---- -------
BALANCE, DECEMBER 31, 1993............. 10,687 107 48,459 (30,539) (3) 18,024
Exercise of stock options.............. 265 3 1,488 -- -- 1,491
Exercise of warrants issued to
Underwriters......................... 35 -- 350 -- -- 350
Issuance of common stock under the
Employee Stock Purchase Plan......... 38 -- 392 -- -- 392
Net loss............................... -- -- -- (6,264) -- (6,264)
------ ---- ------- -------- ---- -------
BALANCE, DECEMBER 31, 1994............. 11,025 110 50,689 (36,803) (3) 13,993
Exercise of stock options.............. 331 3 2,067 -- -- 2,070
Sale of common stock in a private
placement, net of issuance costs..... 1,200 12 12,222 -- -- 12,234
Issuance of common stock under the
Employee Stock Purchase Plan......... 15 -- 139 -- -- 139
Net loss............................... -- -- -- (8,279) -- (8,279)
------ ---- ------- -------- ---- -------
BALANCE, JUNE 30, 1995 (UNAUDITED)..... 12,571 $125 $ 65,117 $ (45,082) $ (3) $20,157
====== ==== ======= ======== ==== =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 43

VISX, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1992 1993 1994 1994 1995
------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $(9,551) $ 179 $(6,264) $ (257) $ (8,279)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and amortization........... 409 550 609 287 322
Purchased research and development...... 6,017 -- -- -- --
CHANGES IN ASSETS AND LIABILITIES:
Decrease (increase) in trade accounts
receivable........................... 1,577 478 791 22 (3,892)
Decrease (increase) in accounts
receivable from Alcon................ (4,071) 1,589 1,031 (357) 2,659
Decrease (increase) in inventories...... (1,400) 519 (586) (215) (1,516)
Decrease (increase) in prepaid
expenses............................. (61) 324 (22) (169) (66)
Decrease (increase) in other assets..... (63) (12) 228 205 205
Increase (decrease) in accounts
payable.............................. 142 (940) 1,044 777 1,034
Decrease in amounts payable to Alcon.... (1,000) -- -- -- --
Increase (decrease) in accrued
liabilities.......................... 34 (988) 947 (348) (481)
Decrease in deferred revenue and other
long-term obligations................ (24) -- (250) -- --
------- ------- ------- ------- --------
Net cash provided by (used for)
operating activities............... (7,991) 1,699 (2,472) (55) (10,014)
------- ------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................... (1,353) (620) (447) (220) (745)
Acquisition of VISX-Massachusetts....... (5,932) -- -- -- --
Purchase of short-term investments...... -- -- -- -- (8,712)
Proceeds from maturities of short-term
investments.......................... 1,061 -- -- -- 663
Decrease in long-term investments....... 11,697 -- -- -- --
------- ------- ------- ------- --------
Net cash provided by (used for)
investing activities............... 5,473 (620) (447) (220) (8,794)
------- ------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common
stock................................ 5,910 1,638 2,233 1,236 14,443
Repayments of long-term obligations and
capital leases....................... (19) (5) -- -- --
------- ------- ------- ------- --------
Net cash provided by financing
activities......................... 5,891 1,633 2,233 1,236 14,443
------- ------- ------- ------- --------
Net increase (decrease) in cash and
cash equivalents................... 3,373 2,712 (686) 961 (4,365)
Cash and cash equivalents, beginning of
period............................... 5,762 9,135 11,847 11,847 11,161
------- ------- ------- ------- --------
Cash and cash equivalents, end of
period............................... $ 9,135 $11,847 $11,161 $12,808 $ 6,796
======= ======= ======= ======= ========
Cash paid for interest expense.......... $ 20 $ -- $ -- $ -- $ --
======= ======= ======= ======= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 44

VISX, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)

NOTE 1. THE COMPANY

VISX, Incorporated (the "Company" or "VISX") was incorporated in Delaware
in 1988 as Taunton Technologies Inc. The Company changed its name to VISX,
Incorporated in 1990 when it acquired VISX, Incorporated ("VISX California").
The Company is engaged in the design and development of proprietary technologies
and systems for laser vision correction ("LVC"). The Company has developed and
manufactures a device (the "VISX System") which utilizes an excimer laser to
reshape the surface of the cornea to treat nearsightedness, astigmatism and
farsightedness and is intended to reduce or eliminate the patient's dependence
on corrective lenses. The device is also intended to treat other eye disorders,
such as opacities and superficial scars.

In 1992, the Company acquired VISX-Massachusetts, Inc.
("VISX-Massachusetts"), formerly known as Questek, Inc., a manufacturer of
excimer lasers and related products for medical, scientific and industrial
applications. VISX-Massachusetts was the Company's sole supplier of lasers for
the VISX System. The Company acquired VISX-Massachusetts for approximately
$5,932,000 in cash, assumed VISX-Massachusetts' outstanding stock options, and
forgave the intercompany balances between VISX and VISX-Massachusetts. The
acquisition was accounted for using the purchase method of accounting. The
Company incurred a charge against earnings of $6,017,000 in 1992, which it
allocated to VISX-Massachusetts' research and development projects that were in
process at the time of the acquisition. In 1993, VISX sold the non-medical
technology of VISX-Massachusetts to Lambda-Physik for $850,000, to be paid in
four installments over three years. The Company accounted for the proceeds from
the sale of this technology as a re-allocation of the initial purchase price of
VISX-Massachusetts. VISX retained certain rights to the technology which is
incorporated into the VISX System.

The Company's consolidated statements of operations include the results of
operations of VISX-Massachusetts since the date of acquisition. For 1992, the
combined results of operations on an unaudited pro forma basis, as though the
acquisition of VISX-Massachusetts had occurred at the beginning of the period,
were (in thousands, except per share data):

<TABLE>
<CAPTION>
1992
-------
<S> <C>
Revenues........................................................... $20,978
Net loss........................................................... $(9,821)
Net loss per share................................................. $ (1.01)
</TABLE>

Although further along in the development stage, the Company continues to
be subject to a number of risks similar to other companies in a comparable stage
of development. The success of the Company's future operations is affected by a
number of significant risk factors including, but not limited to, the following:
(1) the Company expects to collect per procedure fees or some other type of
payment from users of its equipment in foreign countries, based upon the
Company's patents, which is innovative and may encounter resistance; (2) until
the Food and Drug Administration (FDA) grants pre-market approval for the sale
of the VISX System for LVC, the Company will be dependent upon international
sales to sustain or increase product sales, which are also subject to
international regulations and restrictions; (3) although the FDA has authorized
VISX to conduct clinical trials on humans for the VISX System, there can be no
assurance that the FDA will determine that the data derived from these studies
supports the safety and efficacy of the VISX System for LVC; and (4) the Company
may need additional financing to complete the testing and development required
for regulatory approval and to ultimately manufacture the VISX System on a
commercial basis; there can be no assurance that such financing will be
available when needed or, if available, that the terms for obtaining such
financing will

F-6
<PAGE> 45

VISX, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)

be favorable to the Company. See "Risk Factors" included elsewhere in this
Prospectus for a discussion of certain factors affecting the Company.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Data. The unaudited interim financial
statements as of June 30, 1995 and for the six months ended June 30, 1994 and
1995 have been prepared on the same basis as the audited financial statements
and, in the opinion of management, include all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
information set forth therein, in accordance with generally accepted accounting
principles. The data disclosed in the notes to the financial statements for
these periods are unaudited. The Company believes the results of operations for
the interim periods are not necessarily indicative of the results to be expected
for any future period.

Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its subsidiaries after the elimination of
significant intercompany accounts and transactions.

Cash and Cash Equivalents. The Company considers all highly liquid debt
instruments purchased with an original maturity of 90 days or less to be cash
equivalents.

Short-term Investments. In 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 ("SFAS No. 115") "Accounting for Certain
Investments in Debt and Equity Securities." In 1995, the Company's short-term
investments consist of U.S. Treasury Bills with original maturities of between
three and twelve months that will be held-to-maturity and are thus accounted for
at amortized cost in accordance with SFAS No. 115. At June 30, 1995, the
amortized cost of short-term investments approximated the aggregate fair market
value and the investments mature through May 1996.

Inventories. Inventories consist of purchased parts and systems and are
stated at the lower of cost or market, using the first-in, first-out method.
Work-in-process and finished goods include material, labor, and overhead.
Inventories consisted of the following at (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1993 1994 1995
------ ------ --------
<S> <C> <C> <C>
Raw Materials and Component Stock....................... $ 851 $1,394 $ 1,556
Work-in-Process......................................... 1,683 2,398 3,209
Finished Goods.......................................... 672 -- 543
------ ------ ------
$3,206 $3,792 $ 5,308
====== ====== ======
</TABLE>

Property and Equipment. Property and equipment is depreciated using the
straight-line method over estimated useful lives of the assets, generally three
to seven years or, in the case of leasehold

F-7
<PAGE> 46

VISX, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)

improvements, the term of the related lease. Property and equipment is stated at
cost and consisted of the following at (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Furniture and fixtures............................... $ 791 $ 813 $ 946
Machinery and equipment.............................. 1,995 2,676 3,201
Leasehold improvements............................... 62 103 112
------- ------- -------
2,848 3,592 4,259
Less -- accumulated depreciation and amortization.... (1,258) (2,142) (2,375)
------- ------- -------
Property and equipment, net.......................... $ 1,590 $ 1,450 $ 1,884
======= ======= =======
</TABLE>

Revenue Recognition. The Company recognizes revenue on product sales when
the products are shipped. Service revenue is recognized as the services are
performed. An allowance for installation and training costs is made at the time
sales are recognized.

Net Income (Loss) Per Share. Net income per share data for 1993 has been
computed using the weighted average number of common shares outstanding, after
giving effect to dilutive common stock equivalents. Common stock equivalents
consist of the dilutive shares issuable upon the exercise of stock options and
warrants (using the treasury stock method). Net loss per share data has been
computed using the weighted average number of shares outstanding during each
period; dilutive common stock equivalents have been excluded from the
computation as their effect would be to reduce the net loss per share amount.

Concentration of Credit Risk; Major Customers and Export Revenues. The
Company's credit risk in its accounts receivable is concentrated primarily in
sales to Alcon. Internationally, Alcon buys product from the Company and sells
direct to end-users. The Company recognized $9,566,000, $18,450,000,
$13,993,000, $8,067,000 and $4,480,000 in revenues from the sale of VISX Systems
to Alcon for the years ended December 31, 1992, 1993 and 1994, and for the six
months ended June 30, 1994 and 1995, respectively. Including sales of parts and
VisionKey cards, Alcon accounted for 48%, 87%, 86%, 84% and 90% of total
revenues for the years ended December 31, 1992, 1993 and 1994, and for the six
months ended June 30, 1994 and 1995, respectively. The Company's marketing
agreements with Alcon require the Company to nominate two representatives of
Alcon for election to the Company's Board of Directors. Alcon was a related
party to the Company due to its representation on the Company's Board of
Directors. Alcon representatives did not stand for reelection at the Company's
1995 stockholders' meeting on May 26, 1995. Accordingly, after such date, Alcon
is no longer considered a related party to the Company. The accompanying
financial statements reflect transactions with Alcon up until May 26, 1995 as
related party transactions (see Note 3).

Export revenues accounted for 86%, 86%, 85%, 88% and 69% of revenues for
the years ended December 31, 1992, 1993 and 1994, and for the six months ended
June 30, 1994 and 1995, respectively.

F-8
<PAGE> 47

VISX, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)

The following table represents export revenues by geographic region for the
periods ended (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------- -----------------
1992 1993 1994 1994 1995
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Europe................................... $10,365 $18,450 $12,653 $7,732 $4,200
Canada................................... 1,444 -- 1,790 485 280
Far East................................. 5,586 453 790 790 --
------- ------- ------- ------ ------
$17,395 $18,903 $15,233 $9,007 $4,480
======= ======= ======= ====== ======
</TABLE>

NOTE 3. RELATIONSHIP WITH ALCON

Marketing Agreement. In 1987, the Company amended its then-existing
agreement with Alcon Laboratories, Inc. and Alcon Pharmaceuticals Ltd.
(collectively "Alcon") whereby the Company granted a license and exclusive
marketing rights for the VISX System to Alcon, and in 1988, Alcon advanced
$2,500,000 to the Company to defray development costs. In January 1990, the
Company and Alcon entered into a Second Amended and Restated Marketing Agreement
("Marketing Agreement") which amended and restated the marketing agreement, as
it pertained to domestic marketing. The Marketing Agreement grants Alcon a
license and exclusive marketing rights for the Company's VISX System in the
U.S., and Alcon is required to collect a per-procedure fee and remit it to the
Company. The Marketing Agreement contains provisions to repay the $2,500,000
previously advanced to defray development costs. The Company repaid $1,000,000
of that amount in 1992. Alcon is compensated for its duties under the Marketing
Agreement as follows: (1) The Company reimburses Alcon for costs it incurs
throughout the year on behalf of the Company. The Company recorded expenses of
$905,000, $90,000 and $120,000, $60,000 and $400,000 for the years ended
December 31, 1992, 1993 and 1994, and for the six months ended June 30, 1994,
and 1995, respectively, related to the reimbursement of these costs. These
expenses are recorded in marketing, general and administrative expenses in the
accompanying consolidated statements of operations. (2) VISX is contingently
liable to Alcon for $1,500,000, the balance of the $2,500,000 previously
advanced. This payment will be made at the end of each year, to the extent VISX
has Annual Cash Flow, as defined in the Marketing Agreement. (3) VISX reimburses
Alcon for certain additional approved costs not previously reimbursed, to the
extent the Company has Annual Cash Flow. (4) Thereafter, Alcon would receive 25%
of the Company's Excess Cash Flow, as defined in the Marketing Agreement. To
date, no payments have accrued or become due and payable under these segments of
the Marketing Agreement described in (2), (3) and (4), above. The Marketing
Agreement will remain in effect until the expiration of the last patent licensed
under the agreement, unless earlier terminated by Alcon or VISX in accordance
with the terms of the Marketing Agreement.

Insurance/Indemnification. Under the Marketing Agreement, the Company will
be required to indemnify Alcon, its affiliates and their respective officers,
directors, partners, employees and stockholders for damages, up to an aggregate
of $4,000,000, arising out of the design, manufacture or authorized use of the
VISX Systems or any claim that the manufacture, design, use, marketing or sale
of the VISX Systems infringes any patent owned or controlled by any third party.
The indemnity does not cover damages resulting from negligence, recklessness,
willful misconduct or unauthorized act of any party seeking indemnification.
VISX maintains a product liability policy in the amount of $4,000,000.

Clinical and Regulatory. In September 1994, VISX and Alcon signed a letter
of intent pursuant to which Alcon agreed to provide interim regulatory and
clinical assistance to the Company. During 1994,

F-9
<PAGE> 48

VISX, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)

the Company recognized expenses of $400,000 related to these services provided
by Alcon. Effective February 1995, the Company terminated the interim regulatory
and clinical agreement with Alcon.

Subsequent Event. On October 28, 1995, Alcon, VISX and the other
participants in VISX's pending stockholder derivative litigation announced an
agreement in principle for the settlement of such litigation pursuant to which,
among other things, the domestic and international marketing agreements between
VISX and Alcon will terminate subject to execution of a definitive settlement
agreement and after a transition period during which court approval of the
settlement will be sought. Court approval, if any, is not expected until the
first quarter of 1996. Under the terms of the agreement in principle, Alcon will
cease, after the transition period, all marketing and sales efforts on behalf of
VISX. However, Alcon will continue to service VISX Systems sold internationally
by Alcon. In addition, as part of the settlement, Alcon will obtain a fully-paid
license under VISX's Canadian patents for the use of the 23 VISX Systems sold by
Alcon in Canada. Alcon has agreed to cooperate with the Company in various
respects to facilitate the transition resulting from termination of the
marketing agreements with Alcon. Under the settlement terms, Alcon will be able
to market competitors' LVC systems. Also, under settlement terms, the Company
will be released from its obligation to reimburse Alcon for approximately $1.5
million of developmental expenses for the VISX System previously advanced by
Alcon. Additionally, Alcon's right to receive 25% of VISX's future excess cash
flow will also be terminated. (See Note 8).

NOTE 4. ACCRUED LIABILITIES

Accrued liabilities consisted of the following at (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1993 1994 1995
------ ------ --------
<S> <C> <C> <C>
Payroll and related accruals............................ $1,081 $ 729 $ 804
Accrued installation/training........................... 1,235 657 473
Product line disposition................................ -- 1,437 1,223
Accrued royalties....................................... 188 318 265
Deferred revenue........................................ 258 101 93
Other................................................... 458 925 828
------ ------ ------
$3,220 $4,167 $ 3,686
====== ====== ======
</TABLE>

NOTE 5. STOCKHOLDERS' EQUITY

Common Stock. On February 14, 1995, the Company concluded a private
placement of 1,200,000 shares of its Common Stock at a price of $10.85 per share
and received net proceeds of approximately $12,234,000. Certain holders of the
shares purchased in the private placement demanded registration of those shares
for resale under the Securities Act of 1933, pursuant to the terms of the
private placement agreement. The Company filed for registration of those shares
in April 1995.

Stock Option Plans. The Company has reserved shares of its common stock
for issuance upon the exercise of stock options granted to the Company's
employees under five separate option plans. In 1993, the Company adopted a
Flexible Stock Incentive Plan (the "1993 Plan") and reserved 1,000,000 shares.
The 1993 Plan permits the issuance of incentive or non-qualified stock options
and stock grants to employees, consultants and non-employee directors of the
Company with an exercise price not less than 85% of the fair market value on the
date of grant (100% for incentive stock options). Options granted under the 1993
Plan generally vest 25% one year after the date of grant and ratably thereafter

F-10
<PAGE> 49

VISX, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)

over three years and expire ten years from the date of grant. In addition to the
1993 Plan, the Company has options outstanding under its 1983, 1987, 1988 and
1990 option plans, which have generally the same eligibility and vesting terms
as options granted under the 1993 Plan. The Company grants 2,000 shares of the
Company's common stock annually to each non-employee director of the Company.
Options granted to non-employee directors of the Company become fully
exercisable six months after the date of grant; however, unvested shares are
subject to repurchase as set forth in the agreement.

A summary of stock option activity for all plans follows:

<TABLE>
<CAPTION>
SHARES EXERCISE
UNDER OPTION PRICE
------------ ---------------
<S> <C> <C>
December 31, 1991............................................ 1,024,966 $ 1.70-$14.88
Granted.................................................... 306,788 10.52-16.15
Exercised.................................................. (49,789) 1.70-10.52
Canceled................................................... (83,001) 5.25-16.15
--------- --------------
December 31, 1992............................................ 1,198,964 1.70-16.15
Granted.................................................... 320,755 9.88-14.75
Exercised.................................................. (176,531) 1.70-16.15
Canceled................................................... (93,301) 5.25-16.15
--------- --------------
December 31, 1993............................................ 1,249,887 3.00-16.15
Granted.................................................... 545,910 11.25-19.25
Exercised.................................................. (262,642) 5.25-16.15
Canceled................................................... (59,340) 5.25-17.125
--------- --------------
December 31, 1994............................................ 1,473,815 3.00-19.25
Granted.................................................... 432,500 11.375-13.875
Exercised.................................................. (340,830) 5.25-12.40
Canceled................................................... (63,092) 10.84-19.25
--------- --------------
June 30, 1995................................................ 1,502,393 $ 3.00-$16.50
========= ==============
</TABLE>

Employee Stock Purchase Plan. The Company has an Employee Stock Purchase
Plan ("the Purchase Plan"). The Purchase Plan is available to all eligible
full-time employees, excluding those owning 5% or more of the Company's stock.
Pursuant to the Purchase Plan, employees can purchase the Company's common stock
at 85% of fair market value, in an amount up to 10% of the employee's wages
during the semiannual plan purchase period. At June 30, 1995, 53,110 shares had
been issued under the Purchase Plan.

Option Agreement. The Company has also assumed a stock option that VISX
California granted to an officer to purchase 66,195 shares of common stock at
$5.70 per share. These options were exercised during 1994.

Warrants and Stock Options Issued to Underwriters. In December 1993, Noel
Group, Inc. ("Noel"), which had two representatives on the Company's Board of
Directors, exercised a warrant to purchase 100,000 shares of the Company's
common stock at a purchase price of $8.40 per share, which resulted in net
proceeds to the Company of $840,000. Noel purchased the warrant in 1991 from the
underwriter that received the warrant in 1988 in connection with the Company's
initial public offering.

Also in 1993, options to purchase an additional 14,000 shares of common
stock were exercised at a purchase price of $8.16 per share, resulting in net
proceeds to the Company of $114,000. The options were initially issued to the
underwriters in connection with the initial public offering of VISX

F-11
<PAGE> 50

VISX, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)

California. The Company assumed the options in connection with the 1990
acquisition of VISX California.

In January 1990, in connection with the private placement of 800,000 shares
of its common stock, the Company issued to its private placement agent a warrant
to purchase up to 35,000 shares of the Company's common stock at a purchase
price of $10.00 per share. The warrant became exercisable in January 1991, and
was exercised during 1994, resulting in proceeds to the Company of $350,000.

At June 30, 1995, there were no remaining warrants or stock options
outstanding outside of the Company's Stock Option and Purchase plans. The
following table summarizes the share information at June 30, 1995 related to all
Stock Option plans and the Purchase Plan.

<TABLE>
<CAPTION>
AVAILABLE
SHARES FOR
RESERVED OUTSTANDING FUTURE GRANT EXERCISABLE
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
All Option Plans.......................... 2,278,532 1,502,393 125,082 530,869
Purchase Plan............................. 500,000 -- 446,890 --
--------- --------- ------- -------
Total..................................... 2,778,532 1,502,393 571,972 530,869
========= ========= ======= =======
</TABLE>

NOTE 6. INCOME TAXES

In January 1993, the Company adopted on a prospective basis Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes." SFAS No. 109 is an asset and liability approach for computing deferred
income taxes. This method requires that the statement of operations reflect any
changes in tax laws and rates enacted during the period affecting events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, SFAS No. 109 generally considers all
expected future events other than enactments of changes in the tax law or rates.
The Company has not had any taxable income or related tax liabilities for any
period and accordingly, there is no provision for income taxes in the
accompanying statements of operations. As a result, the implementation of SFAS
No. 109 did not have any effect on the Company's financial position or results
of operations.

At December 31, 1994, the Company had net operating loss carryforwards of
approximately $34,000,000 available to offset future Federal taxable income.
These loss carryforwards expire through the year 2009. The availability and
timing of the amount of prior losses to be used to offset taxable income in
future years will be limited due to various provisions, including any change in
ownership interest of the Company resulting from significant stock transactions.

The components of the net deferred income tax asset as of December 31, 1993
and 1994 were as follows (in thousands):

<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Net operating loss carryforwards............................. $ 8,700 $ 12,700
Cumulative temporary differences (reserves).................. 1,500 1,900
Tax credit carryforwards..................................... 1,200 1,400
-------- --------
11,400 16,000
Valuation allowance.......................................... (11,400) (16,000)
-------- --------
Net deferred income tax asset................................ $ -- $ --
======== ========
</TABLE>

The valuation allowance consisted of net operating losses, deferred tax
assets and tax credit carryforwards which may expire before the Company can use
them. The Company believes sufficient

F-12
<PAGE> 51

VISX, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)

uncertainty exists regarding the realizability of these items, and accordingly,
a valuation allowance has been established.

NOTE 7. COMMITMENTS

The Company leases its facilities under operating leases which expire
through 1997. Rent expense was $408,000, $657,000, $529,000, $270,000 and
$269,000 for the years ended December 31, 1992, 1993 and 1994 and for the six
months ended June 30, 1994 and 1995, respectively. Future minimum lease
commitments are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C>
1995.............................................................. $ 586
1996.............................................................. 585
1997.............................................................. 427
------
Total minimum lease payments...................................... $1,598
======
</TABLE>

NOTE 8. LITIGATION

Securities Class Action Litigation

In September 1994, various actions were filed in United States District
Court for the Northern District of California against the Company and several
former and current directors and officers of the Company alleging violations of
federal securities laws. These actions were consolidated into a single class
action. The plaintiffs in the class action allege that from periods ranging from
November 1993 to October 1994, the Company issued misleading statements and
failed to make required disclosures about the Company's business prospects and
the status of FDA process relating to approval of the VISX System, in violation
of certain Federal securities laws. The amount of damages sought was
unspecified. In June 1995, the Company reached a settlement (pending court
approval) of the securities class action lawsuit against the Company. The net
cost of settlement after insurance reimbursement was $2,250,000, which has been
paid into an escrow account as of June 30, 1995.

Stockholder Derivative Litigation

In September 1994, an action was filed as a derivative action on behalf of
the Company by CAP Advisers Limited, CAP Trust and Osterfak Limited
(collectively, the "CAP Group"), who collectively owned in excess of 10% of the
Company's outstanding Common Stock at the time the action was filed. The action
names as defendants several former officers of the Company, present and former
directors of the Company including representatives of Alcon, and Alcon and
certain of its affiliates. The suit alleges, among other things, breaches of
fiduciary duties involving the failure to exercise appropriate oversight over
regulatory affairs and the Alcon marketing agreements by the named individual
defendants including the Alcon representatives as well as breaches of certain of
Alcon's marketing obligations under the Company's agreements with Alcon, and
seeks monetary damages in excess of $2.25 billion from Alcon and the named
individual defendants. Alcon has made counterclaims against the CAP Group and
two former directors of the Company not named in the original suit for
interference with the Company's contractual relationship with Alcon. Because
this action is a derivative suit, any recovery of monetary damages would be for
the benefit of the Company. However, the Company has certain obligations to
indemnify its officers and directors in the event of litigation, and the Company
has incurred and expects to continue to incur significant legal expenses in
connection with the derivative litigation. The Company believes that the
resolution of this matter will not have a material adverse

F-13
<PAGE> 52

VISX, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)

effect on the Company's financial position or results of operations. However,
this suit is currently in the pleading stage, and there can be no assurance as
to the outcome of the litigation.

On October 28, 1995, VISX, Alcon and the CAP Group announced an agreement
in principle to settle the litigation. The settlement is subject to execution of
a definitive settlement agreement as well as court approval. The agreement in
principle also relates to the settlement of the counterclaims filed by Alcon in
the proceeding. Under the proposed settlement terms, the Company's domestic and
international marketing agreements with Alcon will terminate upon court approval
of the settlement. Court approval, if any, is not expected until the first
quarter of 1996. Under the settlement, VISX will also be obligated to reimburse
the CAP Group for legal fees and expenses and certain other related expenses
incurred by them. In addition, VISX has certain obligations to indemnify its
directors and officers in the event of litigation and is therefore obligated to
reimburse the individual defendants for their legal fees and expenses. As a
result, VISX anticipates incurring additional legal expenses in connection with
the settlement of this litigation. (See Note 3).

Azema Patent Litigation

On August 30, 1995, Summit Technology, Inc. ("Summit") sued the Company in
the United States for infringement of a U.S. patent held by Summit. Summit
acquired the rights to the patent in 1993, and Pillar Point Partners, a
partnership consisting of entities controlled by VISX and Summit, has not
acquired rights to the patent. The lawsuit claims that the manufacture and
export of VISX Systems from the United States is an infringement of the patent.
A preliminary analysis of these patents by the Company leads the Company to
believe that the current VISX System does not infringe these patents. The
Company believes that the lawsuit is without merit and intends to vigorously
defend its position and believes that the resolution of this matter will not
have a material adverse effect on the Company's financial position or results of
operations.

F-14
<PAGE> 53

(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 54

(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 55
[Photo of VisionKey card]

A VisionKey card, which is used
for each procedure, is encoded
with proprietary software and
is a part of the VISX System.

[Photo of VISX System]

[Photo of ophthalmologist
treating a patient with
the VISX System]

The excimer laser is an investigational device for LVC indications. Limited
by United States law to investigational use within the United States.

<PAGE> 56

- ------------------------------------------------------
- ------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, SHARES OF
COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 5
The Company............................. 11
Use of Proceeds......................... 11
Price Range of Common Stock and Dividend
Policy................................ 11
Capitalization.......................... 12
Selected Consolidated Financial Data.... 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 14
Business................................ 18
Management.............................. 32
Underwriting............................ 34
Legal Matters........................... 35
Experts................................. 35
Available Information................... 36
Information Incorporated by Reference... 36
Index to Consolidated Financial
Statements............................ 37
- ----------------------------------------------
- ----------------------------------------------
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------

LOGO
------------------------

2,500,000 SHARES

COMMON STOCK
PROSPECTUS

November 9, 1995

------------------------

DILLON, READ & CO. INC.

PAINEWEBBER INCORPORATED
- ------------------------------------------------------
- ------------------------------------------------------