PREMIER LASER SYSTEMS INC, 10-K, 1997-05-28

PREMIER LASER SYSTEMS INC
10-K, 1997-05-28
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

Previous: STEWART ENTERPRISES INC, S-3/A, 1997-05-28

Next: MERRILL LYNCH TECHNOLOGY FUND INC, NSAR-B, 1997-05-28

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

(MARK ONE)

<TABLE>
<S> <C>
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended March 31, 1997.

/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for
the transition period from to .
</TABLE>

COMMISSION FILE NUMBER 0-25242
------------------------

PREMIER LASER SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
CALIFORNIA 33-0472684
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

3 MORGAN, IRVINE, CALIFORNIA 92718
(Address of principal executive (Zip Code)
offices)
</TABLE>

(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (714) 859-0656

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Class A Common Stock, Class A Warrants, Class B Warrants, Units (each comprised
of one share of Class A Common Stock, one Class A Warrant and one Class B
Warrant)
(TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act or
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /

The aggregate market value of the registrant's voting stock held by
nonaffiliates was approximately $103,504,753 on May 19, 1997, based upon the
closing sale price of such stock.

Number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date:

As of May 19, 1997:

<TABLE>
<S> <C>
Class A Common Stock: 9,260,671
Shares
Class E-1 Common Stock: 1,257,178
Shares
Class E-2 Common Stock: 1,257,178
Shares
</TABLE>

DOCUMENTS INCORPORATED BY REFERENCE. List hereunder the following documents
if incorporated by reference, and the part of the Form 10-K (e.g., Part I, Part
II, etc.) into which the document is incorporated: (1) any annual report to
security holders; (2) any proxy or information statement; and (3) any prospectus
filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933: Part III
incorporates certain information by reference from the registrant's definitive
proxy statement for the annual meeting of shareholders, which proxy statement
will be filed no later than 120 days after the close of the registrant's fiscal
year ended March 31, 1997.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I

ITEM 1. BUSINESS.
OVERVIEW

Premier Laser Systems, Inc. (the "Company," or "Registrant") develops,
manufactures and markets several lines of proprietary medical lasers, fiberoptic
delivery systems and associated products for a variety of dental, ophthalmic and
surgical applications. The Company is currently in the process of acquiring
EyeSys Technologies, Inc. ("EyeSys"), which is a leading developer and supplier
of corneal topography (diagnostic imaging) systems with an installed base of
more than 3,500 systems worldwide. The Company's majority-owned Data.Site joint
venture ("Data.Site") assists physicians and researchers with ophthalmic data
collection and outcomes analysis for specific procedures.

The Company's lasers and related products use the controlled application of
thermal, acoustic and optical energy to allow the physician or dentist to
perform selected minimally invasive procedures which, compared to conventional
techniques not involving the use of lasers, vaporize or sever tissue with
minimal blood loss and scarring, increase patient comfort and reduce patient
treatment time and treatment costs. To date, the Company has received clearance
to market 20 models of medical lasers, which are covered by 20 U.S. patents, 14
pending U.S patent applications, 13 foreign patents and 44 pending foreign
patents. The Company currently markets certain of these lasers for dentistry,
ophthalmology and surgery.

The Company commenced operations in August 1991 after acquiring
substantially all of the assets of Pfizer Laser, a division of Pfizer Hospital
Products Group ("Pfizer HPG") which is a wholly-owned subsidiary of Pfizer, Inc.
The Company acquired from Proclosure, Inc. ("Proclosure") certain technology,
assets and proprietary rights relating to a laser system for tissue fusion in
1993, and completed its initial public offering of securities in 1994. In 1997,
it formed a joint venture, named "Data.Site," with Kansas City-based Refractive
Surgical Services for the purpose of providing data collection and outcomes
analysis and in April 1997 entered into an agreement to acquire EyeSys.
Completion of the EyeSys transaction is subject to the satisfaction of several
conditions including approval by the EyeSys shareholders.

The Company participates in three market segments: dentistry, ophthalmology
and surgery. The Company's innovations include: the first laser cleared for use
on hard tissue (teeth) in dentistry, the first diode laser in dentistry, the
first laser for cataract emulsification, the first Erbium:YAG laser for ablation
of skin and the first laser in clinical trials for tissue melding.

Although the Company has received more than 100 clearances from the United
States Food and Drug Administration (the "FDA") in multiple specialty areas to
market its laser products for a variety of medical applications, due to limited
financial resources the Company has initially focused its marketing efforts on
dental lasers which the Company believes have the most promise for commercial
success. The Company plans to initiate marketing efforts in ophthalmology in
calendar 1997. The level of future marketing efforts is partially dependent upon
the receipt of future financing. As resources permit, the Company plans to
commence marketing efforts with respect to other medical applications which it
believes may also be commercially successful.

MARKET OVERVIEW

The use of laser technology in dentistry, ophthalmology and surgery involves
the controlled application of laser light to hard or soft tissue causing an
optical, thermal, acoustic or plasma interaction with the tissue. When applied
to tissue, the laser light is partially absorbed. This process of absorption
converts the light to heat, which in turn alters the state of the tissue. The
degree of tissue absorption varies with the choice of wavelength and is an
important variable in the application of laser technology in treating various
tissues. The laser energy can also form a gas bubble in a water medium which
provides an acoustic cutting effect as it bursts. The Company often uses its
proprietary delivery systems to control the relative proportions of acoustic,
thermal and optical energy applied to tissue resulting in enhanced cutting
effects. These delivery systems include flexible fiberoptics, waveguides,
articulated arms and micromanipulators which are used on a disposable or limited
reuse basis, and which the Company expects will provide a

2
<PAGE>
recurring revenue stream for the Company. The Company's strategy is to target
specific applications in the dental, ophthalmic and surgical markets, where
management believes that the Company's technology and products have competitive
strengths.

DENTAL AND PERIODONTAL MARKET

The current market for laser equipment in dental procedures is comprised of
soft tissue procedures, composite curing and teeth whitening. The Company has
recently received FDA clearance to market its Er:YAG laser for hard tissue and
cavity preparation procedures, and is in the process of implementing its
marketing plans to address this market.

SOFT TISSUE. The dental laser can be used for certain periodontal
procedures and to treat early gum disease, postponing or in some cases
eliminating the need for conventional periodontal surgery and providing the
opportunity for overall cost savings. While the Company has clearance to market
six lasers (including the Aurora diode laser and Centauri Er:YAG laser) for soft
tissue dental procedures, the Company focuses its marketing efforts on its
Aurora diode laser in this area.

COMPOSITE CURING. Composites are rapidly replacing amalgams (gold and
silver) as the material of choice for restoration of cavities, because they more
closely match the color of teeth and because amalgams have drawn increasing
worldwide concern over safety due to the toxic gases which may be released when
the amalgams are removed from teeth. Composite fillings are typically cured
using a curing light which provides a broad spectrum of wavelengths. The use of
the argon laser for this application has been shown to result in a stronger
restoration than composites cured by traditional curing lights. The Company's
argon lasers can also be used to cure the resins used in placing veneers or bond
orthodontic brackets. The Company's Arago and MOD argon lasers have received FDA
clearance for use in these applications.

TEETH WHITENING. A large number of dentists use light accelerated bleaching
materials for teeth whitening. These materials are traditionally applied at
night over a six to eight week period to whiten a patient's teeth while he or
she sleeps. Lasers have been shown to facilitate the use of these light
sensitive materials in the dentist's office by accelerating this process and
resulting in an approximately three shade change in less than one hour. The
Company's MOD laser has been cleared to market for this procedure.

HARD TISSUE (CAVITY PREPARATION). Potential dental laser applications for
hard tissue procedures (i.e., procedures on teeth) include pit and fissure
sealing, etching, caries removal and cavity preparation. Based on user feedback
from the Company's clinical sites, the Company believes that the use of a laser
in dentistry reduces the pain associated with various traditional procedures
performed with a dental drill. On May 7, 1997, the Company's Er:YAG laser was
cleared to market for tooth etching, caries removal and cavity preparation. This
laser was the first to be cleared by the FDA for such procedures.

CAVITY PREVENTION. The Company is currently conducting research and is
initiating clinical trials to use its lasers for cavity prevention applications.
The Company's clinical trials are at an early stage and there can be no
assurances that FDA clearance will be obtained for these applications.

OPHTHALMIC MARKET

Laser systems have been used for the treatment of eye disorders for many
years and are widely accepted in the ophthalmic community. The original and most
widely accepted use of laser systems in ophthalmology has been for posterior
capsulotomy. The Company does not promote its lasers for this market, which it
believes is approaching saturation, but instead focuses on intraocular
procedures including anterior capsulotomy, cataract removal, glaucoma treatment,
corneal sculpting and occuloplastic or cosmetic procedures. The Company has
developed the Centauri Er:YAG laser which is capable of performing all of these
procedures, which are typically performed by several different types of medical
lasers. To date, however, the Centauri laser has only been cleared for use in
anterior capsulotomies and certain cosmetic procedures.

3
<PAGE>
CATARACT REMOVAL PROCEDURES. The Company believes that no medical lasers
have been approved to date for cataract extraction procedures, and that medical
lasers may result in less trauma and inflammation than traditional surgical
methods, providing more comfort to the patient. The Company's Centauri Er:YAG
laser has been cleared to market for anterior capsulotomy, a procedure which
opens the capsule of the eye prior to the removal of the cataract. The Company
is also currently conducting clinical trials on the Centauri laser for lens
emulsification (the removal of the cataract itself), as an alternative to
phacoemulsification (the breakup of the cataract by ultrasonic energy). The
Company believes that this patented technology for use in lens emulsification
may provide an easier and safer method of cataract removal.

TREATMENT OF GLAUCOMA. Glaucoma, a disease of the eye characterized by
increased intraocular pressure within the eyeball and progressive loss of
vision, has traditionally been treated with drug therapy. When drug therapy is
ineffective, periodic invasive surgery may be required. In these cases, lasers
may be used to open the sclera and relieve pressure in the eye. This procedure,
which must be repeated periodically, can be performed under local anesthesia
with a self closing incision on an outpatient basis. The Company is currently
conducting clinical trials prior to seeking clearance to market its Centauri
Er:YAG laser for this procedure. If clearance is obtained, concerning which
there can be no assurance, the Company's Er:YAG laser could provide a viable
alternative to the traditional invasive surgical procedures.

CORNEAL SCULPTING. The Company believes that the recent approval of excimer
lasers has resulted in greater acceptance and recognition of laser refractive
surgery in the ophthalmic market. Medical lasers may be used for corneal
sculpting (photorefractive keratectomy), a procedure in which the laser is used
to sculpt the cornea of the eye to a desired curvature to correct the myopia,
hyperopia or astigmatism. The Company plans to seek approval to market the
Centauri laser for corneal sculpting and has initiated animal studies for this
application. No assurance can be given, however, that approval will be given for
this application.

SURGICAL MARKET

Laser systems have been approved for and are currently being used in a
variety of surgical applications including orthopedics, neurosurgery, urology,
gastroenterology, ophthalmology, cardiology, dermatology, gynecology and plastic
surgery. Although the Company's products are cleared to market in a number of
specialty areas within the surgical market, the Company has specifically
targeted tissue melding (tissue fusion) and cosmetic applications within the
surgical market.

TISSUE MELDING. The Company believes a significant number of wound closure
procedures may be addressed with surgical lasers in conjunction with or
independent of traditional sutures or staples. The clinically demonstrated
benefits of the use of surgical lasers for tissue melding, as compared to
sutures and staples, include fluid-static seals, immediate strength of the
closure and reduced surgical time. The Company and its strategic partner have
conducted animal tests to support IDE submittals for the use of the Company's
Polaris Nd:YAG laser in the areas of arteries, veins, blood vessels and ducts,
and are currently conducting clinical studies for skin and hypospadias. The
Company has also completed clinical trials for vasovasotomy (reversal of
vasectomies) which demonstrated a success rate of approximately 89%. The Company
is also beginning Phase I clinical trials for the treatment of hypospadias, the
lengthening of the urethra to the end of the penis in infants, in which it is
anticipated that the laser's fluid-static seal may minimize post-surgical
complications such as the leakage of urine which results in secondary surgical
procedures. The Company has clearance for Phase II clinical trials for skin
closure following mastectomies and eyelid surgery at five clinical sites. Artery
and vein anastomosis is being tested in animals by the Company's strategic
partner in Japan in preparation for clinical studies.

COSMETIC SURGICAL PROCEDURES. The market for cosmetic surgery is growing
rapidly worldwide. The Company has a number of approvals for lasers to be used
in cosmetic applications and will devote further efforts in the future to
entering into and capitalizing on this market.

4
<PAGE>
The Company has regulatory clearance to market its products for a variety of
additional applications, including in urology, orthopedics, gynecology,
gastroenterology, podiatry, pulmonary and neurosurgery, among other areas. In
areas where the Company's technology is not being fully utilized, the Company
may seek agreements to supply its products under private label for other
manufacturers or may enter into strategic alliances to develop and market the
Company's lasers for other applications.

LASER PRODUCTS

The Company's line of portable lasers are specifically designed for use in
outpatient surgical centers and medical offices. The Company believes that its
lasers are also well suited for the international market, particularly in
facilities with many surgical suites where easy transportation of equipment is
necessary. By employing techniques developed in the computer industry, the
Company has designed a laser system that (i) is modularly designed and uses
similar components for multiple laser systems thereby reducing their overall
cost, (ii) allows for efficient and inexpensive repair by replacing a board or
assembly in the field or through the mail, reducing the need for a field service
force, and (iii) can be easily moved from the office to surgical centers because
of its compact size and limited voltage requirements. The Company's Er:YAG
lasers are currently priced from $39,000 to $126,000 and its Nd:YAG lasers are
currently priced from $25,000 to $80,000. The Company's diode lasers are
currently priced from $22,000 to $35,000 and its argon laser is priced from
$8,000 to $22,000. The prices of lasers within these ranges depend upon each
model's power capability and the features offered.

The following table presents in summary form, the Company's principal lasers
and delivery systems, the principal applications for which the Company intends
to use them, and the FDA status of such products.

<TABLE>
<CAPTION>
PRODUCT MEDICAL APPLICATION FDA REGULATORY STATUS
- ---------------------------- ------------------------------------------------------------- ---------------------
<S> <C> <C>
Centauri (Er:YAG) Dental--Soft Tissue.......................................... Cleared to market
Dental--Hard Tissue.......................................... Cleared to market
Ophthalmology (e.g. Anterior Capsulotomy).................... Cleared to market
Ab-externo and Ab-interno Sclerostomy, Laser Lens
Emulsification............................................... Clinical trials
Corneal Sculpting............................................ Preclinical animal
studies
General Surgery, Neurosurgery, Orthopedics, Gastrointestinal
and Genitourinary Procedures, Urology, Gynecology and Oral
Surgery...................................................... Cleared to market
Pegasus (Nd:YAG) 20W Dental--Soft Tissue.......................................... Cleared to market
Polaris (1.32m Nd:YAG) Tissue Melding............................................... Clinical trials
General Surgery, Ophthalmology, Arthroscopic Surgery,
Gastrointestinal and Genitourinary Procedures, Urology,
Gynecology and Oral Surgery.................................. Cleared to market
Aurora (diode) Dental--Soft Tissue.......................................... Cleared to market
Dental and General Surgery, Ophthalmology, Arthroscopic
Surgery, Gastrointestinal and Genitourinary Procedures,
Urology, Dermatology, Plastic Surgery, Podiatry,
Neurosurgery, Gynecology, Pulmonary Surgery and Oral
Surgery...................................................... Cleared to market
MOD (argon) Dental--Composite Curing..................................... Cleared to market
Dental--Teeth Whitening...................................... Cleared to market
</TABLE>

CENTAURI ER:YAG LASER

The Company's Centauri Er:YAG laser is a portable Er:YAG pulsed solid state
laser which generates high frequencies (up to 30Hz) at relatively low peak
power. These high frequencies allow faster cutting at

5
<PAGE>
lower energies. The 2.9 micron wavelength of the Er:YAG is highly absorbed by
water, producing a cut similar to the scalpel. The Er:YAG wavelength is
delivered through a fiber optic delivery system which enables the beams to be
focused and angled. These fiberoptic catheters are difficult to produce and the
Company has invested heavily in the technology to develop fibers which can
handle adequate power. The Company had experienced difficulties in securing a
consistent source for these fibers in the past. It has procured two sources for
these fibers. See "--Manufacturing and Materials" and "Legal Proceedings."

The Company's Centauri Er:YAG laser has many potential applications in
different medical specialties, including cutting hard tissue such as bone and
teeth, which could replace or minimize the use of noisy, high speed dental hand
drills, and removing ocular structures or performing microsurgery with minimal
thermal damage. Although until recently marketed only for soft tissue dental
procedures and anterior capsulotomy, the Centauri laser also has received FDA
clearance to market for hard tissue dental procedures. This laser also has
received FDA clearances to market for hemostasis, excision and vaporization of
tissues in ophthalmology, general surgery, neurosurgery, orthopedics,
gastroenterology, urology, gynecology and oral surgery. See "--Government
Regulation." The Centauri laser is highly effective in cataract ophthalmic
procedures because its wavelength is at the peak of the water absorption
spectrum and water comprises greater than sixty percent of ophthalmic tissues.
Therefore, the Centauri laser can emulsify cataracts, surgically excise tissue
in the treatment of glaucoma and can precisely remove layers of cornea similarly
to an excimer laser. This system, which currently is cleared for anterior
capsulotomy and other procedures in ophthalmology, is estimated to be available
for approximately one-third the price of refractive excimer lasers currently on
the market and requires substantially lower maintenance costs than excimer
lasers (an estimated $10,000 per year as compared to approximately $70,000). In
addition, the multipurpose Centauri Er:YAG laser is completely portable and does
not emit any toxic gases or cause any potential mutagenic effect which may
result from the use of the excimer laser.

The Company has recently introduced what it believes to be the industry's
first fully-integrated Er:YAG laser system for ophthalmic procedures. The new
system incorporates the Centauri Er:YAG laser and provides the option of either
a bi-manual or coaxial, uni-manual handpiece to accommodate an individual
physician's technique. The Company has also recently introduced a new irrigation
aspiration product for use in conjunction with the Centauri system, which
integrates with the laser in performing the cataract removal procedures, and
includes proprietary vacuum monitoring connectors that create a sterile
aspiration line.

While animal studies have been encouraging, there can be no assurance that
the FDA will approve the use of the Company's Centauri laser for corneal
sculpting, or that the laser will work effectively in clinical trials. Clinical
trials are estimated to continue for two to five years before approval can be
sought in the United States. There are several patents pending on this
technology and application, although no assurances can be given that these
patents will be approved or approved with the current claims.

POLARIS AND PEGASUS ND:YAG LASERS

The energy of Nd:YAG lasers is absorbed by blood in tissue and as a result
these systems are the preferred lasers to limit bleeding during surgery and for
procedures requiring fiberoptic delivery, such as laparoscopic surgery. The
Nd:YAG fiberoptic delivery system allows the surgeon to perform surgery through
small incisions, providing minimally invasive surgery to patients and usually
reducing treatment costs and the length of hospital stays.

The Company manufactures a variety of continuous wave solid state Nd:YAG
lasers which are designed for use in dentistry and a number of medical
specialties. The Company received its first FDA clearance to market a continuous
wave Nd:YAG laser system for dental (soft tissue) applications and introduced
its 20 watt dental Pegasus Nd:YAG laser in February 1992 (which has in large
part been superseded by the Company's newer diode laser system). The Company
also manufactures 40, 60 and 100 watt Pegasus Nd:YAG lasers which have FDA
clearance to market for various applications and procedures in general surgery,
urology, gastrointestinal procedures, pulmonary procedures, gastroenterology,
gynecology and ophthalmology.

6
<PAGE>
These lasers also utilize the Company's disposable unique TouchTIPS,
AngleTIPS and sculptured fibers. By using the Pegasus laser with TouchTIPS, the
surgeon is allowed direct contact with tissue and the tactile feeling of the
scalpel or other surgical instruments. The Company believes that the
availability of these technologies permits the use of lower power laser systems
(20W in dental, 40-60W in surgery).

The Company holds the proprietary rights, including several patents, to
manufacture and sell the Polaris laser, a 1.32 micron Nd:YAG laser (except in
Japan, China and Taiwan), together with specialized software and delivery
systems, for tissue melding. The Company is developing the Polaris laser for use
in cosmetic skin closures, vascular surgeries and minimally invasive surgical
procedures normally performed with sutures and staples. Although the use of the
Polaris laser for tissue melding is still in the development stage, and no
clearance for this application has been received, the Company believes that
tissue melding offers clinical advantages over traditional sutures and staples
including fluid-static seals, immediate strength of the closure and reduced
surgical time.

AURORA DIODE LASER

The Aurora diode laser is the Company's first semiconductor laser and is the
first truly portable diode laser designed for dentistry. The Aurora diode laser
replaces the 20 watt Pegasus laser for periodontal procedures, and is one-fourth
the size and one-half of the cost of that system. The diode wavelength is
absorbed by blood in pigmentation and has been cleared for use in multiple
specialties such as general surgery, ophthalmology, urology and plastic surgery.
The Aurora laser, which was introduced for soft tissue dental applications in
February 1996, is designed to utilize the Nd:YAG delivery systems, including
TouchTIPS, AngleTIPS and sculptured fibers, for soft tissue surgery with minimal
bleeding or anesthesia. The dental laser can also be used to treat early stage
gum disease, postponing or in some cases eliminating the need for periodontal
surgery and providing the opportunity for overall cost savings. The Company
believes the Aurora laser compares favorably with competitive products including
pulsed Nd:YAG lasers, which cannot produce the required laser settings for use
with TouchTIPs, or in the new technique for the treatment of periodontal
disease, as well as with CO(2) lasers (which cannot be delivered through a
fiber), and argon lasers (which tend to be slower in cutting and may produce
charring).

ARAGO AND MOD ARGON LASERS

The Arago and the MOD (Multi Operatory Dentalaser) are gas lasers which have
been cleared to market in dentistry to accelerate the composite curing process.
Composites are rapidly replacing amalgams (gold and silver) as the material of
choice for the restoration of cavities. The argon wavelength penetrates through
the composite and has been shown to result in a stronger restoration than
composites cured by traditional curing lights. The Company's argon lasers can
also be used to cure the resins used in placing veneers or bonding orthodontic
brackets.

The argon laser can also be used to enhance teeth whitening procedures using
light activated bleaching materials which have traditionally been applied at
night over a six to eight week period. Lasers have been shown to facilitate the
use of these light activated products in a dentist's office by accelerating this
process and resulting in an approximately three shade change in less than one
hour. The argon laser has been cleared to market for this procedure. No
assurance may be given that the use of the argon laser for teeth whitening will
become a widely accepted practice in the dental industry. The Company plans to
bundle its lasers with light activated whitening materials and co-market these
products with the manufacturers of these materials. The Company is currently
manufacturing the MOD lasers in-house and has experienced some minor problems
with the supply of components required for such production. The Company's
supplier of components for its Arago laser previously ceased shipments causing
the Company to temporarily cease production of these lasers. By September 1997,
the Company intends to commence the in-house manufacture of the Arago lasers.

7
<PAGE>
OTHER LASERS

The Company has developed other solid state pulsed lasers including the
Sirius .532 Nd:YAG laser, Orion Ho:YAG laser and the Arcturus alexandrite:YAG
laser, and other applications for its existing lasers, but is not actively
marketing these lasers at the present time. The following table sets forth in
summary form, certain additional lasers owned by the Company which are not
currently marketed by the Company, and the principal applications for which the
Company has clearance to market such lasers.

<TABLE>
<CAPTION>
PRODUCT MEDICAL APPLICATION FDA REGULATORY STATUS
- ---------------------------- ------------------------------------------------------------- ---------------------
<S> <C> <C>
Altair (CO(2)) and a CO(2) Orthopedics, General and Plastic Surgery, Dermatology,
laser acquired from Pfizer Podiatry, Ear, Nose and Throat, Gynecology, Pulmonary
HPG Procedures; Neurosurgery and Ophthalmology................... Cleared to market
Dental--Soft Tissue.......................................... Cleared to market
Pegasus (Nd:YAG) 40W/60W General Surgery, Urology, Gastrointestinal Procedures,
Pulmonary Procedures, Gastroenterology, Gynecology and
Ophthalmology................................................ Cleared to market
Pegasus (Nd:YAG) 100W Oral, Arthroscopic and General Surgery, Gastroenterology,
Gastrointestinal and Genitourinary Procedures, Pulmonary
Procedures, Gynecology, Neurosurgery and Ophthalmology....... Cleared to market
Sirius (.532m Nd:YAG) Dermatology, General and Plastic Surgery, Podiatry and
Orthopedic Applications...................................... Cleared to market
Orion (Ho:YAG) General Surgery, Orthopedics, Ear, Nose and Throat,
Ophthalmology, Gastroenterology, Pulmonary Procedures and
Urology...................................................... Cleared to market
Er:YAG/Nd:YAG combination Various specialties.......................................... Cleared to market
</TABLE>

DELIVERY SYSTEMS AND DISPOSABLE PRODUCTS

An integral part of any laser system is the means of delivering laser light
to the target tissue. Delivery systems commonly employed in laser surgery
include flexible fiberoptics, waveguides, articulated arms and
micromanipulators. The Company's proprietary delivery systems control the
relative proportions of acoustic, thermal and optical energy applied to tissue
resulting in enhanced cutting efforts. Flexible fibers are a preferred method of
delivery for most clinical procedures, but until recently were only available
for Nd:YAG and argon lasers. The end of a fiber may be shaped or used with a
detachable tip to control the mechanism of laser/tissue interaction, to give a
tactile feel, to provide certain mechanical effects and to angle or focus the
laser beam. The Company has also been granted a perpetual paid-up license to
manufacture, use and sell flexible waveguides to deliver CO(2) energy pursuant
to the Assignment and Modification Agreement dated July 26, 1991 among the
Company, Pfizer HPG and Medical Laser Technologies Limited.

While each laser system marketed by the Company consists of a laser and an
integral fiber, these fibers and other products, such as tubing sets, are used
by surgeons on a disposable or limited reuse basis for each clinical procedure.
The Company believes that expansion into this market could provide it with a
recurring revenue stream. The Company manufactures a variety of fiberoptic
delivery systems, sculpted fiberoptic probes, optical tips (AngleTIPS and
TouchTIPS), waveguides and catheters which are designed for single-patient use.
The patented connectors and need for product sterility encourage the users of
the Company's lasers to purchase only products which are compatible with this
system. The Company believes it can sell these products on a custom basis to
hospital administrators for other surgical laser systems at a significant
discount to competitors' published prices, while maintaining gross margins
through vertical

8
<PAGE>
integration and the extensive use of molds and tooling. The Company also
assembles and distributes a full line of laser accessories, including glasses,
goggles, laser signs and smoke evacuators.

MARKETING, SALES AND SERVICE

MARKETING AND SALES

The Company markets its products to the dental market in the United States
directly to dentists and periodontists through its direct sales force consisting
of five area sales managers and its distributor and manufacturer's
representative network consisting of approximately 20 people. The Company
markets its products primarily through conventions, educational courses, direct
mail, telemarketing and other dental training programs. In March 1994, the
Company entered into a sales and marketing arrangement for its dental lasers
with Burkhart Dental Supply Company, a member of the American Dental
Cooperative, Inc., which is one of the largest distributors of dental equipment
and supplies in the United States. This agreement is terminable by either party
at any time. If this strategic alliance is successful, the Company believes this
relationship may be expanded to the other members of the American Dental
Cooperative, Inc. which markets dental products to a significant number of the
approximately 129,000 practicing dentists in the United States. Such alliance is
expected to assist the Company's marketing of the Centauri laser for hard tissue
applications.

Through an active program of educational courses and preceptorships, the
Company has trained dentists in many countries during the past year using
industry recognized dentists and periodontists.

The Company markets its products in the ophthalmic market through two direct
sales managers who focus their efforts on key ophthalmologists worldwide. The
Company has entered into distribution agreements with distributors in many
countries in preparation for market introduction of the Centauri laser. The
Company grants exclusive distribution rights in select territories to its
distributors who must maintain certain distribution minimums in order to retain
their exclusive rights. The Company plans to expand its ophthalmic sales force
both by enlarging its domestic sales force, either internally or through
acquisition, and by acquiring or engaging additional international manufacturing
representatives. The Company has recently entered into an agreement to acquire
the operations and assets of EyeSys in preparation of the establishment of
increased international distribution. See "--Overview."

In the surgical market, the Company intends to form strategic alliances in
any specialty area where the partner has an established presence in the market
selling to either the physician or the hospital. The Company has entered into
such a strategic alliance with Nippon Shoji Kaisha, Ltd. ("NSK"), which is one
of the leading suppliers of sutures in the Pacific Rim pursuant to an Exclusive
Marketing Agreement. Under this agreement, Proclosure granted to NSK, in
exchange for a license fee, the exclusive rights to market and distribute the
Polaris Nd:YAG laser in Japan, China and Taiwan. In addition, under this
agreement the Company granted to NSK an option to manufacture the Polaris, which
if exercised would require NSK to pay the Company a $1.5 million fee and
royalties. NSK has not yet indicated whether it intends to manufacture these
products. There can be no assurance that the Company will receive any payments
under this agreement.

No customer accounted for more than 10% of net sales in fiscal 1997. Sales
in fiscal 1996 to one customer, Rockford Industries, Inc., a leasing company,
accounted for approximately 10% of the Company's net sales for that year. Sales
in fiscal 1995 to LaserSight Centers, Inc., accounted for approximately 11% of
the Company's net sales for that year.

9
<PAGE>
CUSTOMER SERVICE AND SUPPORT

The Company is seeking to create a group of loyal customers by focusing on
customer service, quality and reliability. In addition to its educational
courses, the Company performs a complete installation of its lasers and trains
the customers' staff in its proper use. Educational videos and papers are
available upon request. The Company conducts service training courses for the
representatives of its distributors. Prior to shipping, every laser is subjected
to an extensive battery of quality control tests. The Company generally provides
a one year warranty with all lasers and extended warranties are available at an
additional cost. The Company ordinarily provides service within one business day
to all of its customers in the United States. An owner is either sent a loaner
laser by overnight carrier or a service representative visits the owner to
repair the unit. International service is provided either by the foreign
distributor or by return of the laser to the Company. The Company has
experienced and may continue to experience difficulties in providing prompt and
cost-effective service of its medical lasers in foreign countries.

COMPETITION

The Company is and will continue to be subject to competition in its
targeted markets, principally from businesses providing other traditional
surgical and nonsurgical treatments, including existing and developing
technologies or therapies, some of which include medical lasers manufactured by
competitors. In the dental market, the Company competes primarily with dental
drills, traditional curing lights and other existing technologies, and to a
lesser extent competitors' CO(2), argon, Er:YAG and Nd:YAG lasers. In the
ophthalmic market, the Company is subject to competition principally from (i)
traditional surgical treatments using a tearing needle in anterior capsulotomy,
(ii) phacoemulsification, an ultrasound device used to break up cataracts in
cataract removal procedures, (iii) corrective eyewear (such as eyeglasses and
contact lenses) and surgical treatments for refractive disorders such as
photorefractive keratectomy which is typically performed with an excimer laser
and radial keratotomy which is performed with a scalpel, and (vi) drug therapy
or surgical treatment of glaucoma. In the surgical market, wound closure
procedures are usually performed using sutures and staples, and traditional
cosmetic surgical procedures may be performed with a scalpel or a CO(2) laser.
The Company believes that for many applications its patented or patent pending
methods and fiberoptic delivery systems provide clinical benefits over other
currently known technologies and competitors' laser products.

The medical laser industry in particular is also subject to intense
competition and rapid technological changes. The Company believes that there are
approximately 30 competitors in different sectors of the medical laser industry.
The Company believes that the principal competitive factors for medical laser
products are the products' technological capabilities, proven clinical ability,
patent protection, price and scope of regulatory approval, as well as industry
expert endorsements. Many conventional laser systems target one particular
application, while the Company's Er:YAG system is designed to perform in
multiple therapeutic applications. The Company's self-contained units are
significantly smaller than competitive surgical models, have internal cooling
devices and are powered primarily by dedicated readily available 110 volt lines
instead of the 220 volt lines used by most surgical solid state lasers. The
specialized menu-driven system software utilized in the Company's lasers also
enhances safety and ease of use of the lasers.

The Company believes that its ability to compete successfully against
traditional treatments, competitive laser systems and treatments that may be
developed in the future will depend on its ability to create and maintain
advanced technology, develop proprietary products, obtain required regulatory
approvals and clearances for its products, attract and retain scientific
personnel, obtain patent or other proprietary protection for its products and
technologies, and manufacture and successfully market products either alone or
through other parties. Certain of the Company's competitors have substantially
greater financial, technical and marketing resources than the Company. There can
be no assurance that such competition will not adversely affect the Company's
results of operations or its ability to maintain or increase market share.

11
<PAGE>
SEASONALITY

To date, the Company's revenues have typically been significantly higher in
the second and fourth calendar quarters. This seasonality reflects the timing of
major medical and dental industry trade shows in these quarters, significantly
reduced sales during the summer and the effect of year end tax planning
influencing the purchasing of capital equipment for depreciation during the
fourth calendar quarter. Although revenues during the summer of 1996 did not
follow this historical pattern, the Company expects that this seasonality will
continue indefinitely.

RESEARCH AND DEVELOPMENT

In the past three fiscal years, the Company has invested approximately $4.5
million in research and development programs. The Company's research and
development programs have capitalized on the research and development activities
conducted by Pfizer Laser wherein that company identified key military and
aerospace technologies and adapted these technologies to portable, efficient,
solid-state laser products that were modular in nature. This investment in
research and development has resulted in the development of 20 models of lasers,
reusable accessories such as smoke evacuators and irrigation aspiration systems,
more than 1,000 types of custom delivery systems and approximately 20 types of
surgical tips and accessories.

In order to maintain its technological advantage, the Company must continue
to invest in new product development. The Company seeks to augment its funding
of research and development through government grants. The Company has been
awarded a Phase II SBIR grant of $750,000, substantially all of which has been
drawn to fund additional research and clinical trials regarding laser
emulsification of cataracts. The Company has also applied for new Phase I
research grants related to dentistry, orthopedics, tissue melding, and
ophthalmology. No assurance can be given that the Company will be awarded any of
these potential government grants.

The Company's current research is focused on expanding the clinical
applications of its existing products, reducing the size and cost of current
laser systems, developing custom delivery systems and developing new innovative
products. The Company's in-house research and development efforts have focused
on the development of a systems approach to medical laser products with
proprietary delivery systems designed to allow the laser to interact with tissue
by a number of different mechanisms (e.g., acoustic, ablative and thermal) for
unique laser/tissue effects. These disposable fiberoptic delivery systems,
developed specifically for niche surgical applications, demonstrate the
principal focus of the Company's research efforts. Examples of patented or
patent pending products resulting from these research efforts include:
TouchTIPS, AngleTIPS, Er:YAG fiberoptics and CO(2) waveguides. Clinical research
has also yielded several new surgical procedures.

PATENTS AND PATENT APPLICATIONS

Patent protection is an important part of the Company's business strategy,
and the Company's success depends, in part, on its ability to maintain patents
and trade secret protection and on its ability to operate without infringing on
the rights of third parties. The Company has sought to protect its unique
technologies and clinical advances through the use of the patent process. Patent
applications filed in the United States are frequently also filed in selected
foreign countries. The Company focuses its efforts on filing only for those
patents which the Company believes will provide it with key defensible features
instead of filing for all potential minor device features. In the United States,
the Company holds 20 patents which expire at various times throughout
approximately the next 7-17 years, and has an additional 14 pending patent
applications, including divisional applications. In addition, the Company holds
13 foreign patents including two utility model patents and has at least 44
foreign patent applications. The Company also has a

12
<PAGE>
nonexclusive license to a number of basic laser technologies which are commonly
licensed on such basis in the laser industry.

The Company's success will depend in part on its ability to obtain patent
protection for its products and processes, to preserve trade secrets and to
operate without infringing the rights of others. The Company is aware of certain
patents which, along with other patents that may exist or be granted in the
future, could restrict the Company's right to market certain of its technologies
without a license, including, without limitation, patents relating to the
Company's lens emulsification product and ophthalmic probes for its Er:YAG
laser. In the past, the Company has received allegations that certain of the
Company's laser products infringe other patents. There has been significant
patent litigation in the medical industry in general, and in the medical laser
industry in particular. Adverse determinations in litigation or other patent
proceedings in which the Company may become a party could subject the Company to
significant legal judgments or liabilities to third parties, and could require
the Company to seek licenses from third parties that may or may not be
economically viable. Patent and other intellectual property rights disputes
often are settled through licensing arrangements. No assurance can be given that
any licenses required under these or any other patents or proprietary rights
would be available on terms acceptable to the Company, if at all. If the Company
does not obtain such licenses, it could encounter delays in product
introductions while it attempts to design around such patents, or it could find
that the development, manufacture or sale of products requiring such licenses
could be enjoined. If the Company is found, in a legal proceeding, to have
infringed the patents or other proprietary rights of others, it could be liable
for significant damages. The Company also relies on unpatented trade secrets,
and no assurance can be given that others will not independently develop or
otherwise acquire substantially equivalent trade secrets.

GOVERNMENT REGULATION

FDA REGULATION

The lasers that are manufactured by the Company are regulated as medical
devices by the FDA under the FDC Act. Satisfaction of applicable regulatory
requirements may take several years and requirements vary substantially based
upon the type, complexity and novelty of such devices as well as the clinical
procedure. Pursuant to the FDC Act and the regulations promulgated thereunder,
the FDA regulates the preclinical and clinical testing, manufacture, labeling,
distribution, and promotion of medical devices. Noncompliance with applicable
requirements can result in fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, denial or
withdrawal of premarket clearance or approval for devices, recommendations by
the FDA that the Company not be allowed to enter into government contracts, and
criminal prosecution. The FDA also has the authority to request recall, repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.

The FDA classifies medical devices in commercial distribution into one of
three classes: Class I, II or Ill. This classification is based on the controls
the FDA deems necessary to reasonably ensure the safety and effectiveness of
medical devices. Class I devices are subject to general control (e.g., labeling,
premarket notification and adherence to applicable requirements for Good
Manufacturing Practices or cGMPs) and Class II devices are subject to general
and special controls (e.g., performance standards, postmarket surveillance,
patient registries, and FDA guidelines). Generally, Class III devices are those
which must receive premarket approval by the FDA to ensure their safety and
effectiveness (e.g., life-sustaining, life-supporting and implantable devices,
or new devices which have been found not to be substantially equivalent to
legally marketed devices). Lasers typically are classified as Class II devices,
but the FDA may classify certain indications or technologies into Class III and
require a premarket approval application ("PMA").

If a manufacturer or distributor of a medical device can establish that a
proposed device is "substantially equivalent" to a legally marketed Class I or
Class II medical device or to a pre-1976 Class III medical device for which the
FDA has not called for a PMA, the manufacturer or distributor may seek FDA

13
<PAGE>
clearance for the device by filing a Section 510(k) premarket notification. If a
manufacturer or distributor of a medical device cannot establish that a proposed
device is substantially equivalent to another legally marketed device, the
manufacturer or distributor will have to seek premarket approval for the
proposed device. A 510(k) notification and the claim of substantial equivalence
will likely have to be supported by various types of data and materials,
possibly including test results or the results of clinical studies in humans. A
PMA would have to be submitted and be supported by extensive data, including
preclinical and clinical study data, to prove the safety and effectiveness of
the device. There can be no assurance that some of the Company's products will
not require the more rigorous and time consuming PMA approval, including laser
uses for vasovasotomy or other tissue melding procedures, cavity preparation,
cosmetic surgery, sclerostomy and lens emulsification, among others.

If human clinical studies of a proposed device are required, whether for a
510(k) or a PMA, and the device presents a "significant risk," the manufacturer
or the distributor of the devices will have to file an IDE application with the
FDA prior to commencing human clinical trials. The IDE application must be
supported by data, typically including the results of animal and mechanical
laboratory testing. If the IDE application is approved by the FDA and one or
more appropriate Institutional Review Boards ("IRBs"), human clinical trials may
begin at a specific number of investigational sites with a specific number of
patients, as approved by the FDA. Submission of an IDE does not give assurance
that FDA will approve the IDE and, if it is approved, there can be no assurance
that the FDA will determine that the data derived from these studies support the
safety and efficacy of the device or warrant the continuation of clinical
studies. Sponsors of clinical studies are permitted to charge for those devices
distributed in the course of the study provided such compensation does not
exceed recovery of the costs of manufacture, research, development and handling.
Clinical studies of nonsignificant risk devices may be performed without prior
FDA approval, but various regulatory requirements still apply, including the
requirement for approval by an IRB, conduct of the study according to applicable
portions of the IDE regulations, and prohibitions against commercialization of
an investigational device.

The manufacturer or distributor may not place the device into interstate
commerce until an order is issued by the FDA granting premarket clearance for
the device. The FDA has no specific time limit by which it must respond to a
510(k) premarket notification. The FDA has recently been requiring more rigorous
demonstration of substantial equivalence in connection with 510(k) notifications
and the review time can take four to 12 months or longer for a 510(k). If a PMA
submission is filed, the FDA has by statute 180 days to review it; however, the
review time is often extended significantly by the FDA asking for more
information or clarification of information already provided in the submission.
During the review period, an advisory committee may also evaluate the
application and provide recommendations to the FDA as to whether the device
should be approved. In addition, the FDA will inspect the manufacturing facility
to ensure compliance with the FDA's good manufacturing practice requirements
prior to approval of a PMA.

Devices are cleared by 510(k) or approved by PMA only for the specific
intended uses claimed in the submission and agreed to by the FDA. Labeling and
promotional activities are also subject to scrutiny by the FDA and, in certain
instances, by the Federal Trade Commission. Marketing or promotion of products
for medical applications other than those that are cleared or approved could
lead to enforcement action by the FDA.

There can be no assurance that the Company will be able to obtain necessary
regulatory approvals or clearances for its products on a timely basis or at all,
and delays in receipt of or failure to receive such approvals or clearances, the
loss of previously received approvals or clearances, limitations on intended use
imposed as a condition of such approvals or clearances, or failure to comply
with existing or future requirements would have a material adverse effect on the
Company's business, financial condition and results of operations. FDA or other
governmental approvals of products developed by the Company in the future may
require substantial filing fees which could limit the number of applications
sought by the Company and may entail limitations on the indicated uses for which
such products may be marketed. In

14
<PAGE>
addition, approved or cleared products may be subject to additional testing and
surveillance programs required by the FDA and other regulatory agencies, and
product approvals and clearances could be withdrawn for failure to comply with
regulatory standards or by the occurrence of unforeseen problems following
initial marketing.

REGULATORY STATUS OF PRODUCTS

The Company has received 510(k) clearance to market the following lasers in
an aggregate of more than 100 specialty areas: CO(2) (four models: 10W, 20W,
35W, 65W); Nd:YAG (four models: 20W, 40W, 60W, 100W); Ho:YAG (one model); Er:YAG
(two models); 1.32m Nd:YAG (two models: 15W, 25W); .532m Nd:YAG (one model);
Argon (two models); diode (four models); Nd:YAG/Er:YAG combination laser (one
model). Each of these lasers has clearances in multiple specialty areas. The
Company also has received 510(k) clearance to market sculptured fiber contact
tip fibers, bare fibers, TouchTIPS, AngleTIPS and focusing tips for all cleared
wavelengths of the Company's lasers as well as argon lasers. If a device for
which the Company has already received 510(k) premarket clearance is changed or
modified in design, components, method of manufacture or intended use, such that
the safety or effectiveness of the device could be significantly affected, a new
510(k) premarket notification is required before the modified device can be
marketed in the United States. The Company has made modifications to certain of
its products which the Company believes do not require the submission of new
510(k) notifications. However, there can be no assurance that the FDA will agree
with the Company's determinations and not require the Company to discontinue
marketing one or more of the modified devices until they have been cleared by
the FDA. There also can be no assurance that any such clearance of modifications
would be granted should clearance be necessary.

The Company currently is conducting preclinical animal studies and clinical
trials, both under approved IDEs and as nonsignificant risk studies. There can
be no assurance that the results of any of these clinical studies will be
successful or that the FDA will not require the Company to discontinue any of
these studies in the interest of the public health or due to any violations of
the FDA's IDE regulations. There can be no assurance that the Company will
receive approval from the FDA to conduct any of the significant risk studies for
which the Company seeks IDE approval, or that the FDA will not disagree with the
Company's determination that any of its studies are "nonsignificant risk"
studies and require the Company to obtain approval of an IDE before the study
can continue.

ADDITIONAL REGULATORY REQUIREMENTS

Any products manufactured or distributed by the Company pursuant to a 510(k)
premarket clearance notification or PMA are or will be subject to pervasive and
continuing regulation by the FDA. The FDC Act also requires the Company to
manufacture its products in registered establishments and in accordance with
current cGMP regulations, which include testing, control and documentation
requirements. The Company must also comply with Medical Device Reporting ("MDR")
requirements that a firm report to the FDA any incident in which its product may
have caused or contributed to a death or serious injury, or in which its product
malfunctioned and, if the malfunction were to recur, would be likely to cause or
contribute to a death or serious injury. The Company's facilities in the United
States are subject to periodic inspections by the FDA. The FDA may require
postmarketing surveillance with respect to the Company's products. The export of
medical devices is also subject to regulation in certain instances.

All lasers manufactured by the Company are subject to the Radiation Control
for Health and Safety Act administered by the Center for Devices and
Radiological Health of the FDA. The law requires laser manufacturers to file new
product and annual reports and to maintain quality control, product testing and
sales records, to incorporate certain design and operating features in lasers
sold to end users pursuant to a performance standard, and to comply with
labeling and certification requirements. Various warning labels must be affixed
to the laser, depending on the class of the product under the performance
standard.

15
<PAGE>
In addition, the use of the Company's products may be regulated by various
state agencies. For instance, the Company is required to register as a medical
device manufacturer with certain state agencies. In addition to being subject to
inspection by the FDA, the Company also will be routinely inspected by the State
of California for compliance with cGMP regulations and other requirements.

Although the Company believes that it currently complies and will continue
to comply with the applicable regulations regarding the manufacture and sale of
medical devices, such regulations are always subject to change and depend
heavily on administrative interpretations. There can be no assurance that future
changes in law, regulations, review guidelines or administrative interpretations
by the FDA or other regulatory bodies, with possible retroactive effect, will
not adversely affect the Company's business, financial condition and results of
operations. In addition to the foregoing, the Company is subject to numerous
federal, state and local laws relating to such matters as safe working
conditions, manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous substances. There can
be no assurance that the Company will not be required to incur significant costs
to comply with such laws and regulations in the future, or that such laws or
regulations will not have a material adverse effect upon the Company's ability
to conduct business.

Furthermore, the introduction of the Company's products in foreign countries
may require obtaining foreign regulatory clearances, and additional safety and
effectiveness standards are required in certain other countries. The Company
believes that only a limited number of foreign countries currently have
extensive regulatory requirements. These countries include the European Union
countries, France, Germany, Canada, Mexico and Japan. Domestic manufacturing
locations of American companies doing business in certain foreign countries,
including European Union countries, may be subject to inspection. The time
required for regulatory approval in foreign countries varies and can take a
number of years. During the period in which the Company will be attempting to
obtain the necessary regulatory approvals, the Company expects to market its
products on a limited basis in certain other countries that do not require
regulatory approval. There can be no assurance that the Company's products will
be cleared or approved by the FDA or other governmental agencies for additional
applications in the United States or in other countries or that countries that
do not now require regulatory approval will not require such approval in the
future.

MANUFACTURING AND MATERIALS

Manufacturing consists of component assembly and systems integration of
electronic, mechanical and optical components and modules. The Company's product
costs are principally related to the purchase of raw materials while labor and
overhead have been reduced due to the use of customized tooling and automated
test systems. The Company believes that its customized tooling and automated
systems improve quality and manufacturing reliability resulting in lower overall
manufacturing costs. The Company believes that these systems will allow the
Company to expand production rapidly.

The Company purchases certain raw materials, components and subassemblies
included in the Company's products from a limited group of qualified suppliers
and does not maintain long-term supply contracts with any of its key suppliers.
While multiple sources of supply exist for most critical components used in the
laser and fiberoptic delivery systems, the disruption or termination of these
sources could have a material adverse effect on the Company's business and
results of operations. Vendor delays or quality problems could also result in
production delays of up to six months as several components have long production
lead times. These long lead times, as well as the need for demonstration units,
require a significant portion of working capital to fund inventory growth. The
Company has in the past experienced and may continue to experience shortages in
raw materials and certain supplies.

The Company owns the molds used to produce certain proprietary parts of the
devices. The Company also designs and develops the software necessary for the
operation of its laser systems. The Company designs and assembles its own
fiberoptic delivery systems and laser accessory equipment such as laser carts,

16
<PAGE>
smoke evacuation devices and associated disposable supplies. The Company
believes that its manufacturing practices are in accordance with cGMP
regulations.

BACKLOG OF ORDERS

At the end of fiscal 1997, the Company had a backlog of orders of
approximately $2,000,000, compared with the end of fiscal 1996 when the
Company's backlog of orders was negligible. The Company's backlog of orders has
increased substantially in both the dental and ophthalmic market segments during
the first quarter of fiscal 1998. The Company expects to build and ship all of
these orders within the current fiscal year. There can be no assurance that any
of such orders will not be cancelled by the customer prior to shipment by the
Company.

PRODUCT LIABILITY AND INSURANCE

Since the Company's products are intended for use in the treatment of human
medical conditions, the Company is subject to an inherent risk of product
liability and other liability claims which may involve significant claims and
defense costs. The Company currently has product liability insurance with
coverage limits of $5.0 million per occurrence and $5.0 million in the aggregate
per year. Product liability insurance is expensive and subject to various
coverage exclusions, and in the future may not be available in acceptable
amounts, on acceptable terms, or at all. Although the Company does not have any
outstanding product liability claims, in the event the Company were to be held
liable for damages exceeding the limits of its insurance coverage or outside of
the scope of its coverage, the business and results of operations of the Company
could be materially adversely affected. The Company's reputation and business
could also be adversely affected by product liability claims, regardless of
their merit or eventual outcome.

EMPLOYEES

As of May 15, 1997, the Company employed 47 people, 2 of whom are employed
on a part-time basis. None of these employees are represented by a union. Eleven
employees perform sales, marketing and customer support activities. The
remaining employees perform manufacturing, financial, administration,
regulatory, research and development and quality control activities. The Company
also engages the services of many independent contractors and temporary
personnel. The Company believes that its relationship with its employees is
good.

ITEM 2. PROPERTIES.

The Company leases approximately 28,000 square feet in one facility in
Irvine, California pursuant to a lease which expires in December 2000. This
facility contains the Company's executive offices, service center and
manufacturing space. The Company is required to lease an additional 13,000
square feet in the same facility commencing in January 1999, or on such earlier
date that the adjoining tenant's lease terminates. While the Company believes
that its manufacturing and administrative facilities are adequate to satisfy the
Company's needs through at least 2000, it may need to lease additional clean
room facilities in the future.

ITEM 3. LEGAL PROCEEDINGS.

In March 1994, the Company instituted litigation (the "Fiber Litigation") in
the U.S. District Court, Central District of California, against Infrared Fiber
Systems, Inc., a Delaware corporation ("IFS") which contracted to supply optical
fiber to the Company for the Company's Er:YAG laser. Two of IFS's senior
officers are also named as defendants. The Company's complaint in this matter
alleges that IFS and two of its officers made misrepresentations to the Company
and that IFS breached its agreement to supply fibers and certain warranties
concerning the quality of the fiber to be provided. The Company is seeking
damages and an injunction requiring IFS to subcontract the production of optical
fiber to a third party, as provided

17
<PAGE>
in the supply agreement. In April 1994, IFS filed a general denial and a
cross-complaint against the Company alleging breach of contract and intentional
interference with prospective economic advantage, seeking compensatory damages
"in excess of $500,000," punitive damages and a judicial declaration that the
contract has been terminated and that IFS is free to market its fibers to
others. In September 1996, IFS filed a new cross-complaint alleging the same
causes of action and seeking substantially the same relief in the Orange County
California Superior Court. The Company has filed an answer to the complaint,
denying the allegations and asserting several affirmative defenses.

IFS has agreed to license certain fiber technologies, to which the Company
claims exclusive license rights, to Coherent, Inc. ("Coherent"), a competitor of
the Company. Coherent joined the above federal litigation on behalf of IFS,
seeking a declaration that IFS had the legal right to enter into this license
and supply the fiber covered by that agreement, and then subsequently filed a
new complaint in the Orange County California Superior Court for declaratory
relief, seeking an order that the Company's original agreement with IFS applies
only to a specific type of optical fiber. The Company has answered this
complaint.

In May 1995, the Company instituted litigation concerning this dispute in
the Orange County, California Superior Court against Coherent, Westinghouse
Electric Corporation ("Westinghouse") and an individual employee of Westinghouse
who was an officer of IFS from 1986 to 1993, when the events involved in the
federal action against IFS took place and while Westinghouse owned a substantial
minority interest in IFS. The complaint charges that Coherent conspired with IFS
in the wrongful conduct which is the subject of the federal lawsuit described
above and interfered with the Company's contracts and relations with IFS and
with prospective contracts and advantageous economic relations with third
parties. The complaint asserts that Westinghouse is liable for its employee's
wrongful acts as an IFS executive while acting within the scope of his
employment at Westinghouse. The lawsuit seeks injunctive relief and compensatory
damages. In October 1995, the federal action was stayed by order of the court in
favor of the California state court action, in which the pleadings have been
amended to include all claims asserted by the Company in the federal action.

In July 1996, the court in the California state court action granted
demurrers by Westinghouse and the employee of Westinghouse to all causes of
action against them, as well as all but one of the Company's claims against
Coherent. As a result, the claims that were the subject of the granted demurrers
have been dismissed, subject to the Company's right to appeal. The Company has
filed an appeal of these decisions and briefs have been submitted. No date has
been set for a hearing of this appeal. No trial date has been set as to the
remaining outstanding causes of action.

The Company is involved in various disputes and other lawsuits from time to
time arising from its normal operations. The litigation process is inherently
uncertain and it is possible that the resolution of the IFS litigation, disputes
and other lawsuits may adversely affect the Company. It is the opinion of
management that the outcome of such matters will not have a material adverse
impact on the Company's financial position, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The Company's annual meeting of shareholders was held on March 31, 1997. Two
matters were to be submitted to a vote of security holders at such meeting: the
election of the Board of Directors and the approval and adoption of a Stock
Option Plan. A quorum was not obtained and as a result, no vote was taken.

18
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's Class A Common Stock, Class A Warrants and Class B Warrants
are listed on the Nasdaq National Market under the symbols "PLSIA," "PLSIW" and
"PLSIZ," respectively. Prior to May 1, 1995, such securities were listed on the
Nasdaq SmallCap Market under the same symbols. The Company's Units currently
trade on the Nasdaq SmallCap Market under the symbol "PLSIU." Each Unit consists
of one share of Common Stock, one Class A Warrant and one Class B Warrant.

The following table sets forth, for the quarters indicated, the high and low
bid prices of the Company's securities on the Nasdaq SmallCap Market, and the
high and low closing sale prices per share of the Common Stock, Class A Warrants
and Class B Warrants on the Nasdaq National Market. These prices are as reported
on the Nasdaq SmallCap Market through April 30, 1995, and as reported on the
Nasdaq National Market (for Common Stock, Class A Warrants and Class B Warrants
only) thereafter. The Units continue to trade on the Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK CLASS A CLASS B
WARRANTS WARRANTS
------------ ------------------------- ------------
HIGH LOW HIGH LOW HIGH
----- --- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1996:
First Quarter*........................................ 63/4 33/4 25/16 63/64 3/4
Second Quarter........................................ 7 55/8 21/2 13/4 2
Third Quarter......................................... 61/8 5 31/8 11/2 23/8
Fourth Quarter........................................ 85/8 37/8 43/4 13/4 3
FISCAL YEAR ENDED MARCH 31, 1997:
First Quarter......................................... 103/4 8 77/8 37/8 35/8
Second Quarter........................................ 9 61/8 57/8 3 23/4
Third Quarter......................................... 77/8 5 47/8 2 21/16
Fourth Quarter........................................ 81/8 53/16 49/16 2 111/16

UNITS
------------------------
LOW HIGH LOW
----- ------ -----
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1996:
First Quarter*........................................ 25/32 101/8 53/4
Second Quarter........................................ 11/2 101/8 91/4
Third Quarter......................................... 13/8 101/8 83/4
Fourth Quarter........................................ 15/8 16 73/4
FISCAL YEAR ENDED MARCH 31, 1997:
First Quarter......................................... 21/8 213/4 15
Second Quarter........................................ 13/8 171/2 101/4
Third Quarter......................................... 13/16 151/2 8
Fourth Quarter........................................ 27/32 1515/16 8
</TABLE>

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

* For April 1 through April 30, 1995, the high and low bid prices of the
Common Stock, Class A Warrants and Class B Warrants were $5.00 and $3.50,
$1.00 and $0.935, and $0.75 and $0.50, respectively.

On January 31, 1997, the Company issued 159,787 shares of its Class A Common
Stock to RSS, LLC, a Kansas limited liability company ("RSS") pursuant to a
Joint Venture Agreement between the Company, RSS, LLC and Data.Site, LLC.
Pursuant to this agreement, RSS transferred to the Company an undivided 30%
interest in all of its intangible assets. The assets of RSS were ultimately
transferred to Data.Site, in which the Company and RSS were issued a 51% and 49%
interest, respectively. The Company's issuance of these securities was exempt
from registration under Section 4(2) of the Securities Act of 1933.

In March 1997, the Company granted options to purchase an aggregate of
1,033,000 shares of its Class A Common Stock to certain employees and directors
pursuant to its 1997 Stock Option Plan. Such grants are not considered to be
sales of securities under the federal securities laws.

In addition, in June, 1996, in connection with its Credit Facility with
Silicon Valley Bank (the "Credit Facility"), the Company issued to Silicon
Valley Bank warrants to purchase up to 9,756 shares of Class A Common Stock at
an exercise price of $10.25 per share. The Company's issuance of warrants in
connection with its Credit Facility were exempt from registration under Section
4(2) of the Securities Act of 1933.

On May 13, 1997, the last reported sale price for the Company's Common
Stock, Class A Warrants and Class B Warrants on the Nasdaq National Market was
$11.75, $9.25 and $3.94, respectively. The closing bid price for the Company's
Units on the Nasdaq SmallCap Market as of May 14, 1997 was $21.50. As of May 15,
1997, the approximate number of holders of record of the Common Stock, Class A

19
<PAGE>
Warrants, Class B Warrants, Class E-1 Common Stock and Class E-2 Common Stock
were 247, 20, 18, 326 and 326, respectively. There is no public market for the
Company's Class E-1 and Class E-2 Common Stock.

ITEM 6. SELECTED FINANCIAL DATA.

SELECTED FINANCIAL DATA
(HISTORICAL)

The following table contains certain selected consolidated financial data of
the Company and is qualified by the more detailed financial statements and notes
thereto of the Company included herein. The balance sheet and statement of
operations data for the periods ended March 31, 1994, 1995, 1996 and 1997, as
well as statement of operations data for the nine months ended March 31, 1993,
have been derived from the Company's financial statements, audited by Price
Waterhouse LLP, independent accountants. The report of Price Waterhouse LLP with
respect to such financial statements contains an explanatory paragraph that
describes uncertainty as to the ability of the Company to continue as a going
concern. The selected financial data for the year ended March 31, 1997 was
derived from the Company's financial statements audited by Ernst & Young LLP.
The following information should be read in conjunction with the Company's
financial statements and related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included herein.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH
31, FISCAL YEAR ENDED MARCH 31,
------------ --------------------------------------------------
1993(1) 1994 1995 1996 1997
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Net sales.................................... $1,527,457 $ 2,079,335 $ 1,249,403 $ 1,704,390 $ 5,530,861
Cost of sales................................ 1,053,180 1,753,352 1,298,420 3,324,757 3,968,539
------------ ----------- ----------- ----------- -----------
Gross profit (loss).......................... 474,277 325,983 (49,017) (1,620,367) 1,562,322
Selling and marketing expenses............... 1,261,571 1,087,461 1,035,863 1,308,767 2,406,010
Research and development expenses............ 647,810 678,279 1,035,705 1,213,471 1,563,228
General and administrative expenses.......... 574,676 1,322,888 1,747,090 1,709,327 1,736,184
Write-off of investment in Mattan............ -- -- -- -- 881,010
Termination of strategic alliance with IBC... -- -- -- -- 331,740
In-process research and development acquired
in the Data.Site acquisition............... -- -- -- -- 250,000
------------ ----------- ----------- ----------- -----------
Loss from operations......................... (2,009,780) (2,762,645) (3,867,675) (5,851,932) (5,605,850)
Interest (expense) income.................... (201,697) (434,851) (322,540) 99,037 15,493
------------ ----------- ----------- ----------- -----------
Loss before extraordinary items.............. (2,211,477) (3,197,496) (4,190,215) (5,752,895) (5,590,357)
Extraordinary gain from extinguishment of
indebtedness............................... -- -- 381,730 -- --
------------ ----------- ----------- ----------- -----------
Net loss..................................... $(2,211,477) $(3,197,496) $(3,808,485) $(5,752,895) $(5,590,375)
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
</TABLE>

20
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH
31, FISCAL YEAR ENDED MARCH 31,
------------ --------------------------------------------------
1993(1) 1994 1995 1996 1997
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Loss per share before extraordinary
item(2).................................... -- $ (2.45) $ (1.59) $ (1.26) $ (.96)
Extraordinary gain from extinguishment of
indebtedness -- .15
------------ ----------- ----------- ----------- -----------
Net loss per share........................... -- $ (2.45) $ (1.44) $ (1.26) $ (.96)
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
Weighted average shares outstanding(3)....... -- 1,288,751 2,584,722 4,556,959 5,833,326
<CAPTION>

AT MARCH 31,
----------------------------------------------------------------
1993(1) 1994 1995 1996 1997
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents(4)................. $ 308,764 $ 5,888,237 $ 35,463 $ 173,610
Working capital(4)........................... 1,287,587 6,756,149 5,818,492 8,018,616
Total assets(5).............................. 7,459,161 12,325,029 16,883,975 15,674,568 19,320,611
Long-term debt(5)............................ 1,564,507 4,303,890 -- -- 49,356
Shareholders' equity(4)...................... 6,022,174 15,002,260 13,797,046 16,631,710
</TABLE>

- ------------------------------
(1) The Company changed its fiscal year end from June 30 to March 31, commencing
with the fiscal year ended March 31, 1993. Accordingly, the fiscal year
ended March 31, 1993 was a nine-month period.

(2) The effect on net loss per common share of the conversion of the Company's
debentures was to reduce historical net loss by $37,500 and $67,995 and to
increase weighted average shares outstanding by 76,875 shares and 321,099
shares for the fiscal years ended March 31, 1994 and 1995, respectively. Net
loss per common share was computed based on the weighted average number of
the Company's common shares outstanding during the fiscal years ended March
31, 1995 and 1994 after giving retroactive adjustment for recapitalization
and conversion of debentures into Units upon completion of the Company's
initial public offering.

(3) Does not include shares of Class E-1 or Class E-2 Common Stock, which are
subject to cancellation in certain circumstances.

(4) These amounts are unavailable at March 31, 1993.

(5) Total assets and long-term debt amounts at March 31, 1993 are unaudited.
Amounts for long-term debt at March 31, 1994 include $285,000 in mandatorily
redeemable warrants.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.

The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and related notes thereto appearing elsewhere in
this Report. This Report contains forward-looking statements including, without
limitation, statements concerning future cost of sales, which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in these forward-looking statements.

GENERAL

The Company develops, manufactures and markets several lines of proprietary
medical lasers, fiberoptic delivery systems and associated products for a
variety of dental, ophthalmic and surgical applications. The Company commenced
operations in August 1991, after acquiring substantially all of the assets of
Pfizer Laser Systems ("Pfizer Laser"), a division of Pfizer HPG which is a
wholly-owned subsidiary of Pfizer, Inc. The assets acquired by the Company
included the proprietary rights to a broad base of laser and fiberoptic
technologies developed by Pfizer Laser. This acquisition was led by the
Company's current Chief Executive Officer.

Since its formation and until its initial public offering in December 1994,
the Company principally focused on, and its research and development activities
related to, growing markets in dentistry, ophthalmology, cosmetic procedures and
certain surgical specialties to be used in surgical centers and medical offices.
To implement this strategy, the Company developed the Pegasus Nd:YAG dental
laser system from existing technology and introduced this laser to the dental
market in February 1992. In June 1993, the Company introduced the Centauri
Er:YAG laser for ophthalmology and initiated clinical trials for hard

21
<PAGE>
tissue procedures in dentistry. In December 1993, the Company acquired from
Proclosure certain technology, assets and proprietary rights relating to a 1.32
Nd:YAG laser system for tissue melding. From its formation in 1991 through its
initial public offering, the Company developed and received regulatory approvals
for 15 models of lasers and sold certain of those products for soft tissue
applications in dentistry and as part of clinical trials conducted by third
parties.

After the Company's initial public offering in December 1994 (the "IPO"),
the Company increased its inventory, acquired the distribution rights to two new
dental lasers and, in December 1995, expanded its dental sales force. In
September and November 1995, the Company acquired rights to market and
distribute the Arago and MOD argon lasers, respectively, for dental
applications, and in February 1996, the Company introduced and began shipping
its Aurora diode laser for soft tissue dental applications. The Company
completed a secondary offering in October 1996. In 1997, it formed a joint
venture named "Data.Site," with Kansas City-based Refractive Surgical Services
for the purposes of providing ophthalmic data collection and outcomes analysis.
In April 1997, the Company entered into an agreement to acquire EyeSys
Technologies, Inc., which is a leading developer and supplier of corneal
topography (diagnostic imaging) systems with an installed base of more than
3,500 systems worldwide. As of the date of this report, this transaction has not
yet been completed. No assurance can be given that the transactions contemplated
by such agreement will be consummated.

While the Company has received FDA clearance to market laser products
covering a variety of medical applications, to date the Company has focused its
research, development and marketing efforts on a limited number of products or
applications (principally specific dental and more recently, ophthalmic
applications). As future resources permit, the Company may introduce certain
products for applications for which it already has all necessary approvals or
may seek strategic alliances to develop, market and distribute such products.

The Company has recorded operating losses in each of the fiscal years since
its formation, resulting principally from substantial costs incurred in research
and development activities and obtaining regulatory approvals, together with the
absence of significant revenues to date and limited commercial sales of its
products.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31,
1996

Net sales increased 225% to $5,531,000 for the year ended March 31, 1997
("fiscal 1997") from $1,704,000 for the year ended March 31, 1996 ("fiscal
1996"). This increase was primarily attributable to an increase in sales to the
dental market of the Aurora diode laser and argon lasers which were introduced
in the latter half of fiscal 1996. Ophthalmic sales also increased significantly
as the Er:YAG was purchased by key ophthalmic industry leaders in several
countries. Sales during the last two quarters of fiscal 1997 were adversely
affected by a disruption in the supply of the Company's Arago argon laser and
vendor supply problems with the MOD argon laser.

Cost of sales increased 19% to $3,969,000 in fiscal 1997 from $3,325,000 in
fiscal 1996, due to an increase in sales.

Selling and marketing expenses increased 84% to $2,406,000 in fiscal 1997
from $1,309,000 in fiscal 1996. This increase was primarily attributable to
increased commissions and associated selling expenses, expenses associated with
attendance at two ophthalmic shows and from the consolidation of the Company's
expenses with those of Data.Site.

Research and development expenses increased 29% to $1,563,000 in fiscal 1997
from $1,213,000 in fiscal 1996. This increase resulted primarily from increases
in research and development personnel at the Company, partially offset by a
$450,000 payment received by the Company under a Small Business

22
<PAGE>
Innovative Research ("SBIR") grant. The Company also recognized $190,000 as a
research and development expense from the issuance of stock options to clinical
evaluators and medical directors.

General and administrative expenses increased 2% to $1,736,000 in fiscal
1997 from $1,709,000 in fiscal 1996. This increase was partially due to $75,000
of additional expenses from the consolidation of Data.Site.

Net interest income decreased to $15,000 in fiscal 1997 from $99,000 in
fiscal 1996. This reduction reflected the Company's limited cash balances prior
to the completion of its secondary offering in October 1996.

In fiscal 1997, the Company wrote off its investment in Mattan of $881,000
when the Mattan shares ceased being traded on the public market. In addition,
the Company expensed $250,000 of in-process research and development incurred in
connection with the formation of Data.Site. During the year the Company also
wrote off $332,000 as a settlement of its joint marketing relationship with
International Biolaser Corporation ("IBC") since it is unlikely that IBC will
repay its debt to the Company.

FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31,
1995

Net sales increased 36% to $1,704,000 in fiscal 1996 from $1,249,000 for the
year ended March 31, 1995 ("fiscal 1995"). This increase was primarily
attributable to an increase of $723,000 in sales to the dental market, related
principally to the introduction of three new products in the latter half of
fiscal 1996, the Aurora diode laser, the Arago argon laser and the MOD argon
laser. This increase was partially offset by a decrease in sales to the surgical
market of approximately $200,000, largely due to a decline in the demand for the
Company's 10 and 20 watt CO(2) lasers, which are nearing the end of their
product life cycle. The Company has recently experienced supply difficulties
with its Arago and MOD argon lasers.

Cost of sales increased 156% to $3,325,000 in fiscal 1996 from $1,298,000 in
fiscal 1995. This increase in the cost of sales was due primarily to (i) a
write-down of approximately $848,000 principally attributed to the Company's
CO(2) lasers and accessories obtained in the acquisition of Pfizer Laser, and
Nd:YAG lasers and accessories, which lasers were developed prior to March 31,
1992 and are nearing the end of their product life cycle, (ii) the
underabsorption of manufacturing costs due to low production volumes due in part
to the unavailability of certain key components which require long lead-times
for delivery, coupled with an increase in the number of manufacturing employees
during fiscal 1996 from 12 to 17 employees resulting in an increase in payroll
expense of approximately $280,000, and (iii) increased costs associated with
higher sales volumes in fiscal 1996. Cost of sales for fiscal 1996 also included
a fee of $122,000 to a third party pursuant to the Company's manufacturing
arrangement relating to the MOD argon laser.

Selling and marketing expenses increased 26% to $1,309,000 in fiscal 1996
from $1,036,000 in fiscal 1995. This increase was primarily attributable to
marketing efforts related to the Company's dental products, which included a
$219,000 expense related to the appointment of more than 25 new manufacturer's
representatives during the third quarter, and associated expenses including
training, promotional costs and commissions.

Research and development expenses increased 17% to $1,213,000 in fiscal 1996
from $1,036,000 in fiscal 1995. This increase resulted primarily from increases
in outside industrial and software design services of approximately $305,000,
and expenses of approximately $196,000 associated with the development of new
laser products. This increase was partially offset by a $175,000 reduction in
clinical studies expense, due to the completion of the Company's dental hard
tissue clinical trials and a $250,000 payment received by the Company under a
SBIR grant.

General and administrative expenses decreased 2% to $1,709,000 in fiscal
1996 from $1,747,000 in fiscal 1995. This decrease was the result of a reduction
of legal expenses associated with the Fiber Litigation, partially offset by
increases associated with becoming a public company. In 1995, the Company
incurred legal expenses of approximately $400,000 in connection with the Fiber
Litigation. Future legal

23
<PAGE>
expenses related to the Fiber Litigation (not including out-of-pocket expenses)
are expected to be limited in accordance with the Company's agreement with its
legal counsel, although if the litigation is successful, counsel will be
entitled to certain contingency fees.

Net interest income increased to $99,000 in fiscal 1996 from net interest
expense of $323,000 on fiscal 1995, reflecting the investment of the Company's
remaining net proceeds from its IPO and the repayment in December 1994 of a
significant portion of the Company's outstanding debt. Net loss increased 51% to
$5,753,000 in fiscal 1996 from $3,808,000 in fiscal 1995. This increase was
principally attributable to increases in cost of sales, selling and marketing
expenses and research and development expenses.

LIQUIDITY AND CAPITAL RESOURCES

The Company's operations have been financed through the proceeds from the
sale of the Company's equity securities, including an initial public offering in
December 1994 and a secondary public offering in October 1996, revenues from
operations and the proceeds from an SBIR grant. The Company's principal capital
requirements include the financing of inventory, accounts receivable, research
and development activities, the development of an ophthalmic and a surgical
sales force, the development of marketing programs and the acquisition and/or
licensing of patents.

At March 31, 1997, the Company had cash and short-term investments of
$5,192,000 and its working capital was $8,019,000. This represents an increase
from March 31, 1996, when the Company had a minimal cash balance. The increase
in cash and short-term investments was the result of the secondary offering of
securities completed in October 1996.

At March 31, 1997, the Company's indebtedness consisted of a $800,000
balance on its Silicon Valley line of credit, $57,000 in capital lease
obligations and $24,000 in a note payable.

The Company's Credit Facility with Silicon Valley Bank permits borrowings of
up to $1,000,000. Borrowings under the Credit Facility are secured by a
Certificate of Deposit pledged to Silicon Valley Bank by the Company pursuant to
a Pledge Agreement and bear an interest rate equal to the prime rate of
interest, as announced by Silicon Valley Bank, and are due and payable in
February 1998. As of March 31, 1997, total borrowings under this agreement were
$800,000. In connection with the Credit Facility, the Company issued to such
lender warrants to purchase up to 9,756 shares of the Company's Class A Common
Stock at an exercise price equal to $10.25 per share.

At March 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes totaling approximately $20,400,000 which will begin
to expire in fiscal 2006. The Tax Reform Act of 1986 includes provisions which
may limit the net operating loss carryforwards available for use in any given
year if certain events occur, including significant changes in stock ownership.
Utilization of the Company's net operating loss carryforwards to offset future
income may be limited.

From the end of fiscal 1997 through May 22, 1997, the Company has received
approximately $19,108,000 from the exercise of approximately 1,401,000 Class A
Warrants and approximately 1,251,000 Class B Warrants. As a result of such
exercises, the Company has issued an additional 1,401,000 Class B Warrants and
2,652,000 shares of Class A Common Stock.

The Company's future capital requirements will depend on many factors,
including the progress of the Company's research and development activities, the
scope and results of preclinical studies and clinical trials, the costs and
timing of regulatory approvals, the rate of technology advances by the Company,
competitive conditions within the medical laser industry, the establishment of
manufacturing capacity and the establishment of collaborative marketing and
other relationships which may either involve cash infusions to the Company, or
require additional cash from the Company. The Company's ability to meet its
working capital needs will be dependent on its ability to achieve a positive
cash flow from operations and profitable operations, in addition to its ability
to secure additional debt or equity financing. No assurance

24
<PAGE>
can be given that the Company will be able to achieve a positive cash flow from
operations, profitable operations or secure financing on acceptable terms.

GOVERNMENT GRANTS

The Company has been awarded a SBIR grant for approximately $750,000 for the
study of laser cataract emulsification. Substantially all of this grant has been
drawn for such purposes. The remainder of the grant can be drawn over the next
six months upon the achievement of specified criteria.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Company's financial statements, including notes thereto, at March 31,
1997 and 1996 and for the years ended March 31, 1997, 1996 and 1995 follow.

25
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Premier Laser Systems, Inc.

We have audited the accompanying consolidated balance sheet of Premier Laser
Systems, Inc. as of March 31, 1997, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended. Our
audit also included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Premier Laser Systems, Inc. at March 31, 1997, and the consolidated results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

ERNST & YOUNG LLP

Orange County, California

May 1, 1997

26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and the Shareholders of
Premier Laser Systems, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, shareholders' equity and cash flows present fairly, in all material
respects, the financial position of Premier Laser Systems, Inc. at March 31,
1996, and the results of its operations and its cash flows for each of the two
years in the period ended March 31, 1996, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

PRICE WATERHOUSE LLP

Costa Mesa, California
May 17, 1996

27
<PAGE>
PREMIER LASER SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 173,610 $ 35,463
Short-term investments........................................................... 3,968,288 4,547,377
Restricted cash.................................................................. 1,050,000 --
Accounts receivable, net of an allowance for doubtful accounts of $387,263 and
$154,677 in 1997 and 1996, respectively........................................ 1,718,312 508,315
Inventories...................................................................... 2,964,632 2,185,355
Prepaid expenses and other current assets........................................ 783,319 419,504
------------- -------------
Total current assets............................................................... 10,658,161 7,696,014
Property and equipment, net........................................................ 780,945 493,942
Intangible assets, net............................................................. 7,875,028 7,353,462
Other assets....................................................................... 6,477 131,150
------------- -------------
Total assets....................................................................... $ 19,320,611 $ 15,674,568
------------- -------------
------------- -------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 1,217,256 $ 1,208,219
Line of credit..................................................................... 800,000 --
Notes payable to Pfizer............................................................ -- 481,195
Accrued compensation and related costs............................................. 318,000 96,132
Other accrued liabilities.......................................................... 272,369 91,976
Note payable and current portion of capital lease obligations...................... 31,920 --
------------- -------------
Total current liabilities.......................................................... 2,639,545 1,877,522
Capital lease obligations, net of current portion.................................. 49,356 --
Commitments and contingencies
Shareholders' equity
Preferred stock, no par value:
Authorized shares--8,850,000
Issued and outstanding shares--none -- --
Common stock, Class A, no par value:
Authorized shares--35,600,000
Issued and outstanding shares--7,313,841 at March 31, 1997 and 4,702,203 at
March 31, 1996............................................................... 27,320,449 16,317,376
Common stock, Class E-1, no par value:
Authorized shares--2,200,000
Issued and outstanding shares--1,257,178 at March 31, 1997 and 1,256,818 at
March 31, 1996............................................................... 4,769,878 4,769,878
Common stock, Class E-2, no par value:
Authorized shares--2,200,000
Issued and outstanding shares--1,257,178 at March 31, 1997 and 1,256,818 at
March 31, 1996............................................................... 4,769,878 4,769,878
Warrants and options............................................................. 3,978,276 2,889,961
Unrealized holding gain on short-term investments................................ -- 3,666,367
Accumulated deficit.............................................................. (24,206,771) (18,616,414)
------------- -------------
Total shareholders' equity......................................................... 16,631,710 13,797,046
------------- -------------
Total liabilities and shareholders' equity......................................... $ 19,320,611 $ 15,674,568
------------- -------------
------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES.

28
<PAGE>
PREMIER LASER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales............................................................ $ 5,530,861 $ 1,704,390 $ 1,249,403
Cost of sales........................................................ 3,968,539 3,324,757 1,298,420
------------- ------------- -------------
Gross profit (loss).................................................. 1,562,322 (1,620,367) (49,017)
Selling and marketing expenses....................................... 2,406,010 1,308,767 1,035,863
Research and development expenses.................................... 1,563,228 1,213,471 1,035,705
General and administrative expenses.................................. 1,736,184 1,709,327 1,747,090
Write off of investment in Mattan Corporation........................ 881,010 -- --
Termination of strategic alliance with IBC........................... 331,740 -- --
In-process research and development acquired in the Data.Site
acquisition........................................................ 250,000 -- --
------------- ------------- -------------
Loss from operations................................................. (5,605,850) (5,851,932) (3,867,675)
Interest income (expense), net....................................... 15,493 99,037 (322,540)
------------- ------------- -------------
Loss before extraordinary item....................................... (5,590,357) (5,752,895) (4,190,215)
Extraordinary gain from extinguishment of indebtedness............... -- -- 381,730
------------- ------------- -------------
Net loss............................................................. $ (5,590,357) $ (5,752,895) $ (3,808,485)
------------- ------------- -------------
------------- ------------- -------------
Net loss per share................................................... $ (0.96) $ (1.26)
------------- -------------
------------- -------------
Shares used in the computation of net loss per share................. 5,833,326 4,556,959
------------- -------------
------------- -------------
Pro forma net loss per share (unaudited):
Loss before extraordinary items.................................... $ (1.59)
Extraordinary gain from extinguishment of indebtedness............. 0.15
-------------
Net loss........................................................... $ (1.44)
-------------
-------------
Shares used in computation of pro forma net loss per share........... 2,584,722
-------------
-------------
</TABLE>

SEE ACCOMPANYING NOTES.

29
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK COMMON STOCK
CLASS A CLASS E-1 CLASS E-2
----------------------- ---------------------- ---------------------- CLASS A
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS
---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994.................. 1,432,636 $ 5,372,022 1,268,488 $4,756,528 1,268,488 $4,756,528 $ --
Exercise of common stock options......... 4,936 2,848 3,011 1,081 3,011 1,081 --
Common stock issued in lieu of cash
payments............................... 1,635 13,046 1,447 11,552 1,447 11,552 --
Common stock forfeited due to cessation
of employment.......................... (7,798) (20,124) (6,905) (17,818) (6,905) (17,818) --
Warrants issued in connection with
private placement units................ -- -- -- -- -- -- --
Repurchase of common stock............... (17,681) (6,910) (15,752) (6,119) (15,752) (6,119) --
Initial public offering of units, net
proceeds............................... 2,400,000 7,633,504 -- -- -- -- 1,622,222
Conversion of warrants................... -- -- -- -- -- -- 186,000
Conversions of certain related party
notes and associated accrued
interest............................... 7,072 28,448 6,260 24,596 6,260 24,596 --
Conversion of debentures and associated
accrued interest....................... 321,099 1,284,397 -- -- -- -- 272,934
Exercise of over-allotment option........ 360,000 1,128,947 -- -- -- -- 239,901
Net loss................................. -- -- -- -- -- -- --
---------- ----------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1995.................. 4,501,899 15,436,178 1,256,549 4,769,820 1,256,549 4,769,820 2,321,057
Common stock issued for investment in
Mattan................................. 200,000 881,010 -- -- -- -- --
Exercise of stock options................ 304 188 269 58 269 58 --
Increase in unrealized holding gain on
short-term investments................. -- -- -- -- -- -- --
Net loss................................. -- -- -- -- -- -- --
---------- ----------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1996.................. 4,702,203 16,317,376 1,256,818 4,769,878 1,256,818 4,769,878 2,321,057
Common stock and B warrants issued in
connection with secondary public
offering............................... 2,403,500 9,363,298 -- -- -- -- --
Common stock issued in connection with
the formation of the Data.Site joint
venture................................ 159,787 1,200,000 -- -- -- -- --
Exercise of stock options and warrants... 48,351 249,774 360 -- 360 -- (25,729)
Stock options issued to Advisory Board
members, clinical evaluators and
medical directors...................... -- 190,001 -- -- -- -- --
Decrease in unrealized holding gain on
short-term investments................. -- -- -- -- -- -- --
Net loss................................. -- -- -- -- -- -- --
---------- ----------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1997.................. 7,313,841 $27,320,449 1,257,178 $4,769,878 1,257,178 $4,769,878 $2,295,328
---------- ----------- ---------- ---------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ---------- ---------- ----------

COMMON UNREALIZED
CLASS B STOCK HOLDING ACCUMULATED
WARRANTS WARRANTS GAIN DEFICIT TOTAL
---------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1994.................. $ -- $ 192,130 $ -- $(9,055,034) $ 6,022,174
Exercise of common stock options......... -- -- -- -- 5,010
Common stock issued in lieu of cash
payments............................... -- -- -- -- 36,150
Common stock forfeited due to cessation
of employment.......................... -- -- -- -- (55,760)
Warrants issued in connection with
private placement units................ -- 186,000 -- -- 186,000
Repurchase of common stock............... -- -- -- -- (19,148)
Initial public offering of units, net
proceeds............................... 286,274 -- -- -- 9,542,000
Conversion of warrants................... -- (186,000) -- -- --
Conversions of certain related party
notes and associated accrued
interest............................... -- -- -- -- 77,640
Conversion of debentures and associated
accrued interest....................... 48,165 -- -- -- 1,605,496
Exercise of over-allotment option........ 42,335 -- -- -- 1,411,183
Net loss................................. -- -- -- (3,808,485) (3,808,485)
---------- --------- ----------- ------------- -----------
Balance at March 31, 1995.................. 376,774 192,130 -- (12,863,519) 15,002,260
Common stock issued for investment in
Mattan................................. -- -- -- -- 881,010
Exercise of stock options................ -- -- -- -- 304
Increase in unrealized holding gain on
short-term investments................. -- -- 3,666,367 -- 3,666,367
Net loss................................. -- -- -- (5,752,895) (5,752,895)
---------- --------- ----------- ------------- -----------
Balance at March 31, 1996.................. 376,774 192,130 3,666,367 (18,616,414) 13,797,046
Common stock and B warrants issued in
connection with secondary public
offering............................... 1,037,514 -- -- -- 10,400,812
Common stock issued in connection with
the formation of the Data.Site joint
venture................................ -- -- -- -- 1,200,000
Exercise of stock options and warrants... 76,530 -- -- -- 300,575
Stock options issued to Advisory Board
members, clinical evaluators and
medical directors...................... -- -- -- -- 190,001
Decrease in unrealized holding gain on
short-term investments................. -- -- (3,666,367) -- (3,666,367)
Net loss................................. -- -- -- (5,590,357) (5,590,357)
---------- --------- ----------- ------------- -----------
Balance at March 31, 1997.................. $1,490,818 $ 192,130 $ -- $(24,206,771) $16,631,710
---------- --------- ----------- ------------- -----------
---------- --------- ----------- ------------- -----------
</TABLE>

SEE ACCOMPANYING NOTES.

30
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................................. $(5,590,357) $(5,752,895) $(3,808,485)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization........................................ 841,467 814,401 812,196
Write off of investment in Mattan Corporation........................ 881,010 -- --
Acquired in-process research and development......................... 250,000 -- --
Stock options issued to Advisory Board members....................... 190,001 -- --
Termination of strategic alliance with IBC........................... 125,000 -- --
Provision (reversal) of allowance for doubtful accounts receivable... 177,515 (151,751) --
Issuance of stock and stock options in lieu of payment for
services........................................................... -- -- 36,150
Extraordinary gain from extinguishment of debt....................... -- -- (381,730)
Amortization of debt discount........................................ -- -- 119,230
Common stock forfeited upon cessation of employment.................. -- -- (55,760)
Changes in operating assets and liabilities:
Accounts receivable................................................ (1,382,560) (92,716) 142,591
Inventories........................................................ (779,277) (14,665) 21,880)
Prepaid expenses and other current assets.......................... (351,438) (110,565) 137,224
Accounts payable................................................... (272,769) 594,654 (411,197)
Accrued liabilities................................................ 319,936 (598,847) 28,907
----------- ----------- -----------
Net cash used in operating activities.................................... (5,591,472) (5,312,384) (3,402,754)

INVESTING ACTIVITIES
Purchase of short-term investments....................................... (3,968,288) -- --
Patent expenditures...................................................... (178,139) (195,971) (204,838)
Acquisition of Data.Site................................................. (96,028) -- --
Purchase of property and equipment....................................... (24,477) (219,723) (45,785)
Note receivable pursuant to strategic alliance with IBC.................. -- (125,000) --
----------- ----------- -----------
Net cash used in investing activities.................................... (4,266,932) (540,694) (250,623)

FINANCING ACTIVITIES
Proceeds from equity offerings........................................... 10,400,812 -- 10,958,193
Net borrowings under line of credit...................................... 800,000 -- --
Proceeds from exercise of stock options and warrants..................... 300,575 304 --
Principle payments on note payable and capital lease obligations......... (454,836) -- (3,126,195)
Increase in restricted cash.............................................. (1,050,000) -- --
Proceeds from issuance of notes payable.................................. -- -- 1,519,000
Proceeds from issuance of common stock warrants.......................... -- -- 186,000
Repurchase of common stock............................................... -- -- (19,148)
Repurchase of mandatorily redeemable warrants............................ -- -- (285,000)
----------- ----------- -----------
Net cash provided by financing activities................................ 9,996,551 304 9,232,850
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents..................... 138,147 (5,852,774) 5,579,473
Cash and cash equivalents at beginning of year........................... 35,463 5,888,237 308,764
----------- ----------- -----------
Cash and cash equivalents at end of year................................. $ 173,610 $ 35,463 $ 5,888,237
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest................................................... $ 115,283 $ 52,129 $ 550,962
</TABLE>

SEE ACCOMPANYING NOTES.

31
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

1. ORGANIZATION AND NATURE OF OPERATIONS

Premier Laser Systems, Inc. (the Company) was incorporated in July 1991 and
commenced operations in August 1991 after acquiring substantially all of the
assets and certain liabilities of Pfizer Laser Systems (Pfizer), a division of
Pfizer Hospital Products Group, Inc. The Company designs, develops, manufactures
and markets several lines of lasers for surgical and other medical purposes,
laser waveguides and fiber optic devices, disposables and associated accessory
products for the medical and dental market. The accompanying consolidated
financial statements include the accounts of the Company and its 51% owned
subsidiary Data.Site, LLC which is a joint venture established on January 31,
1997. All intercompany transactions and balances have been eliminated.

The Company has suffered recurring losses from operations and may continue
to incur losses for the foreseeable future due to the significant costs
anticipated to be incurred in connection with manufacturing, marketing and
distributing its laser products. In addition, the Company intends to conduct
continuing research and development activities, including regulatory submittals
and clinical trials to develop additional applications for its laser technology.
The Company operates in a highly competitive environment and is subject to all
of the risks inherent in a new business enterprise. In October 1996, the Company
completed a public offering of its securities which generated net proceeds
aggregating $10.4 million. The Company believes that the proceeds of this
offering and anticipated proceeds from the exercise of outstanding warrants and
options to acquire the Company's Class A common stock will be sufficient to meet
its working capital requirements through at least fiscal 1998.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Revenues are recognized when products are shipped to customers.

SHORT-TERM INVESTMENTS AND RESTRICTED CASH

The Company invests excess cash in United States Treasury securities and
commercial paper generally with maturities of less than one year. Short-term
investments with a maturity of less than three months when purchased are
classified as cash equivalents. Investments with maturities in excess of three
months are presented as short-term investments in the accompanying financial
statements. Pursuant to Statement of Financial Accounting Standards No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, the Company's
short-term investments are classified as available-for-sale and are reported at
fair market value with unrealized gains and losses reflected as an adjustment to
shareholders' equity. There were no material unrealized gains or losses at March
31, 1997.

Restricted cash consists primarily of certificates of deposits held to
secure borrowings under the Company's line of credit.

CONCENTRATION OF CREDIT RISK AND FOREIGN SALES

The Company generates revenues principally from sales in the medical field.
As a result, the Company's accounts receivable are concentrated primarily in
this industry. In addition, sales to one customer represented 10% of the
Company's sales in fiscal 1996 and 11% to a different customer in fiscal 1995.
Sales in foreign countries accounted for approximately 25%, 40% and 63% of the
Company's total sales in fiscal 1997, 1996 and 1995, respectively. These foreign
sales related almost entirely to sales in Asia and Europe.

32
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Generally, letters of credit are obtained
on international sales. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.

LONG LIVED ASSETS

In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF (SFAS No. 121). The adoption of SFAS No. 121
had no impact on the Company's financial position or results of operations.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market,
and are comprised of the following at March 31:

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Raw materials..................................................... $ 1,583,460 $ 938,560
Work-in-progress.................................................. 101,802 276,998
Finished goods.................................................... 1,279,370 969,797
------------ ------------
$ 2,964,632 $ 2,185,355
------------ ------------
------------ ------------
</TABLE>

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Expenditures for replacements and
improvements are capitalized and expenditures for repairs and maintenance are
charged to operating expense as incurred.

Property and equipment consist of the following at March 31:

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Machinery, equipment, molds and tooling........................... $ 1,041,574 $ 1,032,188
Furniture, fixtures and office equipment.......................... 596,347 433,286
Software.......................................................... 250,000 --
------------ ------------
1,887,921 1,465,474
Less accumulated depreciation..................................... 1,106,976 971,532
------------ ------------
$ 780,945 $ 493,942
------------ ------------
------------ ------------
</TABLE>

Depreciation of furniture, machinery and equipment is calculated on a
straight-line basis over the following estimated useful lives:

<TABLE>
<S> <C>
Machinery and equipment....................... 5-10 years
Furniture and fixtures........................ 10 years
Software...................................... 3 years
Leasehold improvements........................ Shorter of estimated useful
life or term of lease
</TABLE>

INTANGIBLE ASSETS

Intangible assets consist primarily of patents and technology rights,
goodwill and license agreements. The costs assigned to acquired intangible
assets, partially based upon independent appraisals, are being amortized on a
straight-line basis over the estimated useful lives of the assets ranging from 2
to 15 years.

33
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangibles consist of the following at March 31:

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Patents and technology rights..................................... $ 9,581,230 $ 9,413,088
Goodwill.......................................................... 1,042,279 --
License agreements................................................ 265,000 255,000
Other............................................................. -- 201,000
------------ ------------
10,888,509 9,869,088
Less accumulated amortization..................................... 3,013,481 2,515,626
------------ ------------
$ 7,875,028 $ 7,353,462
------------ ------------
------------ ------------
</TABLE>

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred. A substantial
portion of the Company's research and development expense is related to
developing new products, improving existing products or processes, and clinical
research programs.

The Company enters into agreements with certain doctors to exchange a
portion of a product's sales price for services related to the completion of
certain portions of clinical studies necessary for obtaining product approval
from the U.S. Food and Drug Administration. Typically, the amounts consist of a
portion of the product sales price which is equal to the cost of the services to
be rendered by the doctor. Pursuant to the agreements, in the event the doctor
is unable to complete the agreed upon clinical study, the doctor is required to
remit a cash payment for the entire amount. The amounts are capitalized as
prepaid research and development expense and are amortized upon completion of
certain milestones of the clinical study. These studies are generally completed
within one year. Research and development expenses included in prepaid expenses
totaled $405,000 and $204,000 at March 31, 1997 and 1996, respectively.

INCOME TAXES

The Company accounts for income taxes in accordance with statement of
Statement of Financial Accounting Standards No. 109 (SFAS No. 109), ACCOUNTING
FOR INCOME TAXES. SFAS 109 requires the liability method of accounting for
income taxes. This method mandates the recognition of deferred tax liabilities
and assets for expected future tax consequences of temporary differences between
the carrying amounts and tax bases of assets and liabilities.

STATEMENTS OF CASH FLOWS

The Company invests its excess cash in money market funds. The Company
considers all highly liquid investments with an original maturity of three
months or less and money market funds to be cash equivalents.

Significant noncash investing and financing activities excluded from the
accompanying statements of cash flows are as follows:

In fiscal 1996, the Company issued 200,000 shares of Class A common stock in
connection with the acquisition of 1,150,000 shares of Mattan Corporation's
common stock. The value of the Mattan Corporation common stock shares was
$881,010 on the date of the transaction.

Concurrent with the completion of the Company's initial public offering,
certain notes payable to shareholders totaling $66,500 and convertible
debentures totaling $1,500,000, plus related accrued

34
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
interest, were converted into 7,072 shares of Class A common stock and 6,260
shares of each Class E-1 and E-2 common stock, and 321,099 Units,
respectively.

In fiscal 1997, the Company issued 159,787 shares of Class A common stock
valued at $1,200,000 in connection with its acquisition of Data.Site.

NET LOSS PER SHARE

Net loss per share was computed based on the weighted average number of the
Company's common shares outstanding during fiscal 1997 and 1996 and excludes all
shares of Class E-1 and Class E-2 common stock, outstanding or subject to
option, because all such shares of stock are subject to escrow and the
conditions for the release of shares from escrow have not been satisfied. Common
stock equivalents were not considered in the net loss per share calculation
because the effect would be antidilutive.

PRO FORMA NET LOSS PER SHARE (UNAUDITED)

Pro forma net loss per common share was computed based on the weighted
average number of the Company's common shares outstanding during the fiscal year
ended March 31, 1995 after giving retroactive adjustment for the
recapitalization and the conversion of the Company's debentures into units which
occurred upon completion of the Company's initial public offering. The effect on
pro forma net loss per common share of the conversion of the Company's
debentures was to reduce historical net loss by $67,995 and to increase weighted
average shares outstanding by 321,099 shares for fiscal year ended March 31,
1995. Class E-1 and E-2 common stock shares were excluded from the pro forma net
loss per share calculation because the conditions for release of shares from
escrow have not been satisfied. Other common stock equivalents were not
considered in the pro forma net loss per share calculation because the effect on
the pro forma net loss per share would be antidilutive. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, all stock options and
warrants granted and common shares issued within one year of the Company's
initial public offering and not in escrow have been included as outstanding for
the six months ended September 30, 1994 (the date of the most recent financial
statements included in the Company's initial public offering prospectus) using
the treasury stock method.

EARNINGS PER SHARE

In February 1997, Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE was issued and is effective for interim and annual periods
ending after December 15, 1997. The statement requires presentation of both
basic and diluted earnings per share. As of the result of the Company's net
loss, basic and diluted loss per share will not differ materially from the per
share amounts in the accompanying financial statements.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25) and related
Interpretations in accounting for its employee stock option grants. Options
granted to consultants and other non-employees are accounted for under the fair
value method in accordance with Statement of Financial Accounting Standards No
123, ACCOUNTING FOR STOCK BASED COMPENSATION.

35
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

Significant estimates and assumptions include inventory valuation and the
realizability of certain intangible assets. The Company's inventory and
intangibles largely relate to technologies which have yet to gain wide spread
market acceptance. Management believes no loss will be incurred on the
disposition of its inventory and that the remaining economic life of the
Company's tangible assets is reasonable. If wide spread market acceptance of the
Company's products is not achieved, the carrying amount of inventory and
intangible assets could be materially affected.

BASIS OF PRESENTATION

Certain prior year amounts have been reclassified in order to conform with
the current year presentation.

3. STRATEGIC ALLIANCES

In December 1995, the Company entered into a strategic marketing alliance
with Mattan Corporation (Mattan), a Canadian Corporation, whose stock was
publicly traded on the Alberta Stock Exchange. The strategic marketing alliance
agreement (the Agreement) stipulates that the Company would supply all laser
equipment and associated disposables for any laser surgery centers to be
designed and opened by Mattan in Canada and the United States. These surgery
centers would be operated under the name of Medical Laser Institute of America
(MLIA). In connection with entering into the Agreement, the Company issued
200,000 shares of the Company's Class A common stock with a fair market value of
$881,000 for 1,150,000 shares of Mattan's common stock. The Company accounted
for this investment as an available-for-sale security pursuant to SFAS No. 115.
At March 31, 1996, the fair value of this investment totaled approximately
$4,547,377 and the related unrealized holding gain totaled approximately
$3,666,367. As a result of the halting of trading of Mattan stock and ongoing
reorganization activities, the fair market value of the investment was zero at
March 31, 1997 and accordingly, the Company wrote off its investment.

In October 1995, the Company entered into a strategic business alliance
(Strategic Alliance) with International Biolaser Corporation (IBC). This
Strategic Alliance specified that the Company would manufacture IBC's CO2 and
argon lasers and that such products would be jointly marketed by the two
companies. Pursuant to the agreement, the Company advanced $125,000 to IBC in
exchange for a convertible note payable due in October 1997, bearing interest at
10% per annum and secured by substantially all of IBC's intangible assets. This
note payable is convertible, at the Company's sole option, into an 80% ownership
interest in IBC only after IBC has repaid certain pre-existing indebtedness. IBC
and the Company terminated the Strategic Alliance in August 1996. In settlement
of the Strategic Alliance, the Company obtained IBC's argon MOD laser
proprietary rights, intellectual property and technology in exchange for a
guaranty of $201,000 of IBC's outstanding indebtedness. As of March 31, 1997,
the Company wrote-off the $331,740 carrying value of its advances and payments
made under the guarantee on behalf of IBC due to the uncertainty regarding its
realizability.

36
<PAGE>
PREMIER LASER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. JOINT VENTURE

Effective January 31, 1997, the Company entered into a joint venture with
Refractive Surgical Services, LLC (RSS), a Kansas City based company engaged in
the development of certain medical outcomes software. Under this joint venture,
the Company and RSS formed Data.Site. LLC, ("Data.Site"). Data.Site acquired and
assumed substantially all of the assets and liabilities of RSS. The Company
acquired a 51 percent interest in Data.Site, which was accounted for under the
purchase method of accounting, and issued 159,787 shares of its Class A common
stock to RSS. In connection with the acquisition the Company recorded goodwill
in the amount of $1,042,279. The Company is obligated to pay an additional
$300,000 to the shareholders of RSS in the form of common stock or cash, at the
option of the Company, if Data.Site's gross revenues equal or exceed $1,500,000
for the year ending December 31, 1997. The Company is also obligated to fund
Data.Site's operations with up to an additional $1,000,000 in cash or equivalent
services during the two-year period ending January 31, 1999.

5. GRANTS

In September 1995, the Company obtained a Small Business Innovative Research
Grant totaling approximately $750,000 for the study of laser emulsification.
Pursuant to the terms of the grant, the Company is eligible to receive
reimbursement for research and development costs incurred in connection with the
laser emulsification study up to $750,000 upon the achievement of certain
milestones, as defined. During fiscal 1997 and 1996, the Company received
approximately $450,000 and $250,000 under the grants, respectively. The amounts
received under the grant were offset against research and development costs
incurred in the study.

6. LINE OF CREDIT

The Company has a line of credit agreement with a bank which provides for
borrowings of up to $1,000,000. As of March 31, 1997, total borrowings under
this agreement were $800,000, bearing interest at the bank's prime rate (8.50%
at March 31, 1997). Borrowings under the agreement are secured by a certificate
of deposit. The agreement matures on February 12, 1998.

7. NOTES PAYABLE AND EXTRAORDINARY GAIN

Pursuant to an agreement between the Company and Pfizer, the Company paid
$1,386,195 of the notes payable to Pfizer immediately subsequent to the closing
of the Company's fiscal 1995 initial public offering and Pfizer forgave $650,000
of the total indebtedness. The remaining balance of $481,195, bearing interest
at 10% per annum at March 31, 1996, and related accrued interest were payable in
quarterly installments. This remaining balance was paid in full upon the closing
of the Company's fiscal 1997 public offering.

In June 1994, notes payable to third parties of $1,500,000 were converted
into convertible debentures. The debentures and related accrued interest were
converted into 321,099 Units (see footnote 10) concurrent with the closing of
the initial public offering. Also concurrent with the close of the offering,
notes payable to shareholders totaling $66,500 plus related accrued interest
were converted into 7,072 shares of Class A Common Stock and 6,260 shares each
of Class E-1 and E-2 common stock.

In August 1994, the Company completed a private placement of debt units,
whereby $1,550,000 of notes payable bearing interest at 10% per annum (the
Bridge Notes) and warrants to purchase 1,085,000 shares of Class A common stock
were issued. In connection with this private placement, the Company incurred
placement costs of $201,500 and issued the notes at a discount totaling
$186,000. These notes payable were paid in full in December 1994.

37
<PAGE>
PREMIER LASER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In connection with the debt forgiven by Pfizer and the extinguishment of the
bridge notes, the Company recognized a net extraordinary gain on extinguishment
of debt totaling $381,730 in fiscal 1995.

8. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

The Company leases its facilities and certain equipment under noncancellable
operating leases. Total rental expense for operating leases was $296,000,
$348,000 and $387,000 for the fiscal years ended March 31, 1997, 1996 and 1995,
respectively. At March 31, 1997, future minimum lease payments under
noncancellable operating leases are as follows:

Pursuant to the Company's facility lease, effective January 1997, the
Company becomes guarantor of a lease agreement between the Company's lessor and
a third party lessee. The guaranteed future minimum lease payments relating to
the third party are $112,000, and $86,000 for the years ended March 31, 1998 and
1999, respectively.

LITIGATION

The Company entered into an agreement with Infrared Fiber Systems, Inc.
(IFS), as a supplier of certain fiber optics that expires in the fiscal year
ending March 31, 2002. The agreement requires the supplier to sell exclusively
to the Company fiberoptics for medical and dental applications as long as the
Company purchases defined minimum amounts.

In March 1994, the Company initiated litigation against IFS. The Company's
complaint alleges that IFS and two of its officers misrepresented IFS' ability
to supply optical fibers, and that IFS breached its supply agreement and certain
warranties. In April 1994, IFS filed a cross-complaint alleging breach of
contact and intentional interference with prospective economic advantage,
seeking declaratory relief that the contract has been terminated and that IFS is
free to market its fiber optics to others. In July 1994, Coherent, Inc., a major
shareholder of IFS and a manufacturer of medical lasers which employ IFS optical
fibers, joined the lawsuit for the express purpose of defending their rights to
the IFS optical fibers. In May 1995, the Company instituted litigation
concerning this dispute in Orange County, California Superior Court against
Coherent, Westinghouse Electric Corporation ("Westinghouse") and an individual
employee of Westinghouse who was an officer of IFS from 1986 to 1993, when the
events involved in the federal action against IFS took place and while
Westinghouse owned a substantial minority interest in IFS. The complaint charges
that Coherent conspired with IFS in the wrongful conduct which is the subject of
the federal lawsuit and interfered with the Company's contracts and relations
with IFS and with prospective contracts and advantageous economic relations with
third parties. The complaint asserts that Westinghouse is liable for its
employee's wrongful acts as an IFS executive while acting within the scope of
his employment at Westinghouse. The lawsuit seeks injunctive relief and
compensatory damages. In October 1995 the federal action was stayed by order of
the court in favor of the California state court action, in which the pleadings
have been amended to include all claims asserted by the Company in the federal
action. No trial date has been set.

38
<PAGE>
PREMIER LASER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is involved in various disputes and other lawsuits from time to
time arising from its normal operations. The litigation process is inherently
uncertain and it is possible that the resolution of the IFS litigation, disputes
and other lawsuits may adversely affect the Company, however, it is the opinion
of management, that the outcome of such matters will not have a material adverse
impact on the Company's financial position, results of operations, or cash
flows.

9. INCOME TAXES

The Company has incurred operating losses since its inception and as a
result, no provision for or benefit from income tax has been recorded.

Deferred tax assets consist of the following at March 31:

<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Tax operating loss carryforwards................................ $ 7,540,050 $ 6,033,150
Inventory and receivable reserves and related temporary
differences................................................... 1,051,030 708,404
Depreciation and amortization................................... 598,817 141,077
Research and development credit carryforwards................... 429,686 597,683
Accruals not currently deductible............................... 126,693 105,767
------------- -------------
Total deferred tax assets....................................... 9,746,276 7,586,081
Valuation allowance for deferred tax assets..................... (9,746,276) (7,586,081)
------------- -------------
Net deferred taxes.............................................. $ -- $ --
------------- -------------
------------- -------------
</TABLE>

The Company has approximately $20.4 million of federal net operating loss
carryforwards at March 31, 1997, which will begin to expire in 2006. A valuation
allowance has been established for the entire deferred tax asset related to
those net operating losses.

The Tax Reform Act of 1986 contains provisions which could substantially
limit the availability of the net operating loss carryforwards if there is a
greater than 50% change in ownership during a three year period. As a result of
the Company's public offerings the Company experienced an ownership change of
more than 50%, resulting in a limitation on the utilization of their net
operating loss carryforwards. The limitation is based on the value of the
Company on the date that the change in ownership occurred. The ultimate
realization of the loss carryforwards is dependent on the future profitability
of the Company.

10. SHAREHOLDERS' EQUITY

INITIAL AND SECONDARY PUBLIC OFFERINGS

On December 7, 1994, the Company completed an initial public offering of
2,400,000 Units of the Company's securities, each unit consisting of one share
of Class A common stock, one redeemable Class A warrant and one redeemable Class
B warrant (the Units). The Company realized net proceeds of $9,542,000 from this
offering. Each Class A warrant consists of the right to purchase one share of
Class A common stock and one Class B warrant through November 30, 1999 at an
exercise price of $6.50. Each Class B warrant consists of the right to purchase
one share of Class A common stock at an exercise price of $8.00. The Company has
the right to redeem the Class A and Class B warrants after November 30, 1997 at
a price of $.05 per warrant subject to certain conditions regarding the bid
price of the Class A common

39
<PAGE>
PREMIER LASER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. SHAREHOLDERS' EQUITY (CONTINUED)
stock. On January 12, 1995, the underwriter in the initial public offering
exercised its over allotment option to purchase 360,000 Units at the public
offering price, resulting in additional net proceeds of $1,411,000.

On October 18, 1996, the Company completed a public offering of 11,000 Units
of the Company's securities, each Unit consisting of 190 shares of Class A
common stock and 95 redeemable Class B warrants (the "Units"). The Company
realized net proceeds of $10,402,000 from this offering and the related exercise
of the underwriters overallotment option. Each Class B warrant consists of the
right to purchase one share of Class A common stock through November 30, 1999 at
an exercise price of $8.00.

STOCK OPTIONS

The Company has adopted several stock option plans that authorize the
granting of options to employees, officers and/or consultants to purchase shares
of the Company's Class A common stock. The stock option plans are administered
by the Board of Directors or a committee appointed by the Board of Directors,
which determines the terms of the options, including the exercise price, the
number of shares subject to option and the exercisability of the option. The
options are generally granted at the fair market value of the shares underlying
the options at the date of the grant and expire within ten years of the grant
date.

In addition to options granted pursuant to the stock option plans, the
Company has issued options to purchase shares of the Company's Class A common
stock to certain members of the Board of Directors, consultants and former notes
payable holders.

Effective December 30, 1993, the Company issued warrants under the 1993
Limited Warrant Plan to purchase 50,872 shares of common stock, with an exercise
price of $8.85 per share for services rendered by consultants in connection with
the acquisition of technology rights. In January 1995, the warrant holders
exercised their right to receive a cash payment of $285,000, an amount equal to
the liability owed to the consultants on the date of issuance, in exchange for
cancellation of the warrants.

The Company has elected to follow APB Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related Interpretations in accounting for its employee
stock option grants. Accordingly, no compensation expense has been recognized
for its employee stock option awards and its employee stock purchase plan
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant. The Company recognized
expense related to grants of options to non-employees in accordance with the
fair value provision of SFAS No. 123. Such expense was $190,001 and none during
fiscal 1997 and 1996, respectively. FASB Statement No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, requires pro forma information regarding net income
(loss) and net income (loss) per share using compensation that would have been
incurred if the Company had accounted for its employee stock options under the
fair value method of that Statement. The fair value of options granted have been
estimated at the date of grant using a Black-Scholes option pricing model using
the following assumptions:

<TABLE>
<CAPTION>
Risk free interest rate.......................................... 6.0%
<S> <C>
Stock volatility factor.......................................... 0.580
Weighted average expected option life............................ 4 years
Expected dividend yield.......................................... 0%
</TABLE>

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
compensation expense used in determining the pro forma

40
<PAGE>
PREMIER LASER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. SHAREHOLDERS' EQUITY (CONTINUED)
information may not be indicative of such expense in future periods as the 1997
and 1996 amounts are based only on option grants after December 15, 1994. Pro
forma information is as follows:

<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Pro forma net loss.............................................. $ (6,593,000) $ (6,135,000)
Pro forma net loss per share.................................... $ (1.13) $ (1.35)
</TABLE>

A summary of the Company's stock option activity, and related information
for the years ended March 31 follows:

<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning of year............ 1,423,949 $ 5.58 788,157 $ 6.14 734,646 $ 9.14
Granted................................... 1,042,756 6.16 704,700 4.89 621,815 5.01
Exercised................................. (1,899) 1.00 (1,722) 1.00 (3,067) 1.03
Forfeited................................. (156,757) 10.53 (67,186) 4.96 (565,237) 8.81
---------- ---------- ----------
Outstanding--end of year.................. 2,308,049 5.51 1,423,949 5.58 788,157 6.14
---------- ----------- ---------- ----- ---------- -----
---------- ----------- ---------- ----- ---------- -----
Exercisable at end of year................ 775,629 $ 5.18 782,999 $ 6.15 758,157 $ 6.19
---------- ----------- ---------- ----- ---------- -----
---------- ----------- ---------- ----- ---------- -----
Weighted-average fair value of options
granted during the year................. $ 3.44 $ 2.46 $ 2.53
----------- ----- -----
----------- ----- -----
</TABLE>

The weighted average remaining contractual life of options as of March 31,
1997 was as follows:

<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------
----------------------------------------------------------------
WEIGHTED-
NUMBER OF WEIGHTED-AVERAGE WEIGHTED AVERAGE
SHARES REMAINING CONTRACTUAL AVERAGE SHARES EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE PRICE
- ---------------------------------------- ----------- --------------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$1.00................................... 28,438 1.7 $ 1.00 28,438 $ 1.00
$4.50 - $8.85........................... 2,255,921 9.0 5.51 723,501 5.16
Greater than $10.00..................... 23,690 6.8 10.73 23,690 10.73
</TABLE>

CLASS E-1 AND CLASS E-2 COMMON STOCK

The Company's Class E-1 and Class E-2 common stock is held in escrow, is not
transferable, can be voted and will be converted into Class A common stock only
upon the occurrence of specified events. All of the Class E-1 common stock will
be automatically converted into Class A common stock in the event that the
Company's net income before provision for income taxes, as defined, exceeds
certain amounts. These amounts were originally $6,850,000, $8,425,000,
$9,900,000 for the fiscal years ending March 31, 1998 through 2000,
respectively, but these amounts will be increased in future fiscal years in
proportion to increases in the weighted average number of shares of common stock
outstanding (as defined) in the relevant year, as compared to the number of
shares outstanding immediately after the Company's initial public offering. In
addition, the Class E-1 common stock will be converted if the closing price, as
defined, of the Company's Class A common stock shall average in excess of $19.25
for any 30 consecutive trading

41
<PAGE>
PREMIER LASER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. SHAREHOLDERS' EQUITY (CONTINUED)
days during the period May 1, 1996 to November 30, 1997. If none of the above
events occur, the Class E-1 common stock will be canceled on June 30, 2000. All
of the Class E-2 common stock will be automatically converted into Class A
common stock in the event that: (1) the Company's net income before provision
for income taxes, as defined, amounts to at least $14,750,000, $20,475,000 or
$26,750,000 for the years ending March 31, 1998 through 2000, respectively,
(which amounts shall be adjusted in the same manner as those for the Class E-1
common stock) or (2) the closing price, as defined, of the Company's Class A
common stock shall average in excess of $24.00 for any 30 consecutive trading
days during the period May 1, 1996 to November 30, 1997. If none of the above
events occur, the Class E-2 common stock will be canceled on June 30, 2000.

The Company will, in the event of the release of the Class E-1 and Class E-2
common stock, recognize during the period in which the earnings thresholds are
met or such minimum bid prices are achieved, a substantial noncash charge to
earnings equal to the fair value of such shares on the date of their release,
which would have the effect of significantly increasing the Company's loss or
reducing or eliminating earnings, if any, at such time.

11. EMPLOYEE BENEFIT PLAN

The Company adopted a Defined Contribution 401(k) Profit Sharing Plan,
effective January 1, 1997 covering substantially all of its employees. The Plan
permits eligible employees to contribute a portion of their compensation to the
Plan, on a tax deferred basis. The Company may make matching contributions, in
amounts determined by the Company's Board of Directors. The Company's
contributions will be in the form of shares of the Company's common stock.
During 1997, no amounts were contributed by the Company to the Plan.

12. SUBSEQUENT EVENT

ACQUISITION OF EYESYS TECHNOLOGIES, INC.

On April 24, 1997, the Company entered into an Agreement and Plan of Merger,
pursuant to which it will acquire EyeSys Technologies, Inc. ("EyeSys").
Consummation of the transaction is subject to satisfaction of certain
conditions. In connection with the merger, the Company will issue, to certain
EyeSys creditors, shareholders, option holders and warrant holders, common stock
having a value of $10,600,000, as well as options to purchase 165,000 shares of
the Company's common stock with a value of $200,000. If EyeSys enters into
certain license agreements related to its technology within 90 days of closing,
the Company may be required to issue additional common stock or options to
purchase common stock pursuant to the following formula: the Company shall issue
securities with a value equal to 78% of the first $1,500,000 of license fees and
50% of additional license fees received prior to April 24, 1998.

42
<PAGE>
PREMIER LASER SYSTEMS, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED MARCH 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS/
BEGINNING RECOVERIES BALANCE
OF AND AT END OF
DESCRIPTION PERIOD ADDITIONS WRITE-OFFS OTHER* PERIOD
- ---------------------------------------------- ----------- ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
1997
Allowance for doubtful accounts
receivable................................ $ 154,677 $ 177,515 $ (119,054) $ 174,125 $ 387,263
Inventory reserves.......................... 950,325 252,999 -- -- 1,203,324

1996
Allowance for doubtful accounts
receivable................................ $ 306,428 $ 254,962 $ (406,713) $ -- $ 154,677
Inventory reserves.......................... 699,269 838,968 (587,912) -- 950,325

1995
Allowance for doubtful accounts
receivable................................ $ 574,106 $ 220,453 $ (488,131) $ -- $ 306,428
Inventory reserves.......................... 540,987 158,282 -- -- 699,269
</TABLE>

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

* Allowance for Data.Site

43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

On March 1, 1997, the Company filed a Current Report on Form 8-K, reporting
a change in its certified accountant. Reference is hereby made to such Current
Report for further discussion of this matter.

44
<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this item is incorporated herein by this
reference to the section entitled "Election of Directors" in the Company's
definitive Proxy Statement prepared pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, for the Company's 1997 Annual
Meeting of Shareholders involving, among other things, the election of
directors. Such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the Company's fiscal year
ended March 31, 1997.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this item is incorporated herein by this
reference to the section entitled "Executive Compensation" in the Company's
definitive Proxy Statement prepared pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, for the Company's 1997 Annual
Meeting of Shareholders involving, among other things, the election of
directors. Such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the Company's fiscal year
ended March 31, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this item is incorporated herein by this
reference to the section entitled "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive Proxy Statement prepared
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, for the Company's 1997 Annual Meeting of Shareholders involving, among
other things, the election of directors. Such Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the close
of the Company's fiscal year ended March 31, 1997.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this item is incorporated herein by this
reference to the section entitled "Executive Compensation--Certain Transactions"
in the Company's definitive Proxy Statement prepared pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, for the Company's 1997
Annual Meeting of Shareholders involving, among other things, the election of
directors. Such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the Company's fiscal year
ended March 31, 1997.

45
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

<TABLE>
<CAPTION>
PAGE IN
ANNUAL REPORT
ON FORM 10-K
---------------
<S> <C>
(a) The following documents are filed as part of this Annual Report on Form 10-K:

(1) Report of Ernst & Young LLP, Independent Auditors.............................. 26

Report of Price Waterhouse LLP, Independent Accountants........................ 27

Consolidated Balance Sheets at March 31, 1997 and 1996......................... 28

Consolidated Statements of Operations for the Years Ended March 31, 1997, 1996
and 1995..................................................................... 29

Consolidated Statements of Shareholders' Equity for the years ended March 31,
1997, 1996 and 1995.......................................................... 30

Consolidated Statements of Cash Flows for the Years Ended March 31, 1996, 1995
and 1994..................................................................... 31

Notes to Consolidated Financial Statements..................................... 32

(2) Financial Statements Schedules

Schedule II--Valuation and Qualifying Accounts for the Years Ended March 1997,
1996 and 1995................................................................ 43

Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K).............. 46
</TABLE>

<TABLE>
<CAPTION>
EXHIBITS
- -------------
<C> <S>
3.1 Amended and Restated Articles of Incorporation filed with the California Secretary of
State on November 23, 1994. (incorporated herein by this reference to Exhibit 4.8 to the
Registrant's Quarterly Report on Form 10-QSB for the Quarter ended December 31, 1994)

3.2 Bylaws (incorporated herein by this reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-83984).

10.1 Letter Agreement and Patent License Agreement dated August 29, 1991 among the Company,
Patlex Corporation and Gordon Gould (incorporated herein by this reference to Exhibit
10.1 to the Registrant's Registration Statement on Form SB-2, Registration No.
33-83984).

10.2 Assignment Agreement dated July 27, 1992 between the Company and Michael Colvard, M.D.
(incorporated herein by this reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).

10.3 Gold Catalyst Licensing Agreement dated April 16, 1992 between the Company and Optical
Engineering, Inc. (incorporated herein by this reference to Exhibit 10.3 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).
</TABLE>

46
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- -------------
<C> <S>
+10.4 Lead Generation/Distribution Agreement dated March 17, 1994 between the Company and
Burkhart Dental Supply Company (incorporated herein by this reference to Exhibit 10.10
to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).

10.5 Form of International Distribution Agreement (incorporated herein by this reference to
Exhibit 10.12 to the Registrant's Registration Statement on Form SB-2, Registration No.
33-83984).

10.6 Letter of Intent between the Company and Richard Leaderman, D.D.S., together with related
Patent Assignments as filed in the U.S. Patent and Trademark Office on February 22, 1994
(incorporated herein by this reference to Exhibit 10.13 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).

+10.7 Exclusive Marketing Agreement dated July 26, 1994 between the Company, Proclosure, Inc.
and Nippon Shoji Kaisha, Ltd. (incorporated herein by this reference to Exhibit 10.14 to
the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).

10.8 Form of Indemnification Agreement (incorporated herein by this reference to Exhibit 10.23
to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).

10.9 Purchase/Supply Agreement dated January 13, 1987 between Infrared Fiber Systems, Inc. and
Pfizer Hospital Products Group, Inc., as amended (incorporated herein by this reference
to Exhibit 10.26 to the Registrant's Registration Statement on Form SB-2, Registration
No. 33-83984).

10.10 Form of Warrant Agreement (including forms of Class A and Class B Warrant Certificates)
(incorporated herein by this reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).

10.11 Form of Underwriter's Unit Purchase Option (incorporated herein by this reference to
Exhibit 4.2 to the Registrant's Registration Statement on Form SB-2, Registration No.
33-83984).

10.12 Form of Finder's Unit Purchase Option (incorporated herein by this reference to Exhibit
4.3 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).

10.13 1992 Stock Option Plan, together with form of Nonstatutory Stock Option Agreement and form
of Incentive Stock Option Agreement (incorporated herein by this reference to Exhibit
4.5 to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).

10.14 Employee Bonus Stock Plan, together with form of Bonus Stock Agreement (incorporated
herein by this reference to Exhibit 4.6 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-83984).

10.15 Assignment and Modification Agreement dated July 26, 1991, among the Registrant, Pfizer
Hospital Products Group and Medical Laser Technologies Limited (incorporated herein by
this reference to Exhibit 10.4 of the Registrant's Registration Statement on Form SB-2,
Registration Number 33-83984).
</TABLE>

47
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- -------------
<C> <S>
10.16 Letter agreement dated October 13, 1987 between Pfizer Laser Systems, Inc. and Duke
University, together with patent assignment as filed in the U.S. Patent and Trademark
Office on October 23, 1993 (incorporated herein by this reference to Exhibit 10.8 to the
Registrant's Registration Statement on Form SB-2, Registration Number 33-83984).

10.17 Industrial Lease dated December 6, 1995 between the Registrant and Irvine Company
(incorporated herein by this reference to Exhibit 10.22 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1996).

10.18 Use and Cost Sharing Agreement dated December 1, 1995 between the Registrant and Biopsys
Medical, Inc. (incorporated herein by this reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996).

10.19 Letter of Intent dated October 19, 1995 between the Registrant and International Biolaser
Corporation, together with related Promissory Note dated October 19, 1995 payable to
Registrant in the original principal amount of $125,000, and Security Agreement dated
October 19, 1995 between the Registrant and International Biolaser Corporation
(incorporated herein by this reference to Exhibit 10.24 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1996).

10.20 Share Exchange Agreement dated December 20, 1995 among the Registrant, 658994 Alberta
Ltd., 658997 Alberta Ltd. and Mattan Corporation (incorporated herein by this reference
to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1995).

10.21 Purchasing Agreement dated December 20, 1995 between Registrant and Mattan Corporation
(incorporated herein by this reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1995).

10.22 Exclusive Licensing Agreement dated June 1, 1992 between the Registrant and Quentin M.
Murphy, D.D.S. (incorporated herein by this reference to Exhibit 10.27 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996).

10.23 Broker Agreement dated March 13, 1996 among the Registrant, First National Marketing
Services, Inc. and William F. Sullivan (incorporated herein by this reference to Exhibit
10.29 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March
31, 1996).

10.24 Form of Consulting Agreement (incorporated herein by this reference to Exhibit 10.30 to
the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996).

10.25 Radiation Services Agreement dated January 10, 1994 between the Registrant and SteriGenics
International (incorporated herein by this reference to Exhibit 10.31 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996).
</TABLE>

48
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- -------------
<C> <S>
10.26 Form of Nonstatutory Stock Option Agreement between the Registrant and Colette Cozean
(granting option to purchase 358,650 shares of Registrant's Common Stock) (incorporated
herein by this reference to Exhibit 10.32 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1996).

10.27 Form of Termination Agreement between the Registrant and certain of the Registrant's
Executive Officers (incorporated herein by this reference to Exhibit 10.33 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996).

10.28 1995 Employee Stock Option Plan, together with form of Nonqualified Stock Option Agreement
and form of Incentive Stock Option Agreement (incorporated herein by this reference to
Exhibit 10.34 to the Registrant's Registration Statement on Form SB-2, Registration No.
33-83984).

10.29 February 1996 Stock Option Plan (incorporated herein by this reference to Exhibit 10.35 to
the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996).

10.30 1996 Stock Option Plan (incorporated herein by this reference to Exhibit 10.36 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996).

10.31 Loan Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank, together
with Schedule to Loan Agreement dated June 3, 1996 (incorporated herein by this
reference to Exhibit 10.36 to the Registrant's Registration Statement on Form SB-2
Registration No. 33-83984).

10.32 Pledge Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank
(incorporated herein by this reference to Exhibit 10.37 to the Registrant's Registration
Statement on Form SB-2 Registration No. 33-83984).

10.33 Warrant to Purchase Stock dated June 3, 1996 issued to Silicon Valley Bank (incorporated
herein by this reference to Exhibit 10.38 to the Registrant's Registration Statement on
Form SB-2 Registration No. 33-83984).

10.34 Registration Rights Agreement dated June 3, 1996 between the Registrant and Silicon Valley
Bank (incorporated herein by this reference to Exhibit 10.39 to the Registrant's
Registration Statement on Form SB-2 Registration No. 33-83984).

10.35 Antidilution Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank
(incorporated herein by this reference to Exhibit 10.40 to the Registrant's Registration
Statement on Form SB-2 Registration No. 33-83984).

10.36 Agreement dated August 12, 1996 between the Registrant and Circuit Tree Medical, Inc.
(incorporated herein by this reference to Exhibit 10.42 to the Registrant's Registration
Statement on Form SB-2 Registration No. 33-83984).

10.37 Amendment to Loan Agreement together with Schedule, dated February 13, 1997, between the
Registrant and Silicon Valley Bank.*

10.38 Pledge Agreement dated February 13, 1997 between the Registrant and Silicon Valley Bank.*

10.39 Joint Venture Agreement dated January 31, 1997 between the Registrant, RSS, LLC and
Data.Site.*
</TABLE>

49
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- -------------
<C> <S>
10.40 Operating Agreement of Data.Site dated January 31, 1997.*

10.41 Agreement and Plan of Merger dated April 24, 1997 between the Registrant, Premier
Acquisition of Delaware, Inc. and EyeSys Technologies, Inc.*

23.1 Consent of Ernst & Young LLP.*

23.2 Consent of Price Waterhouse LLP.*
</TABLE>

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

* Filed herewith.

+ Confidential treatment has been granted with respect to portions of this
Exhibit.

(b) Reports on Form 8-K. During the last quarter of the period covered
by this report, on March 1, 1997, the Company filed a Current Report on Form
8-K, reporting a change in its public accountant. On March 18, 1997, the
Company filed an amendment to its Current Report on Form 8-K/A for the
purpose of filing a letter by its former accountants confirming the
information contained in the Form 8-K.

50
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

PREMIER LASER SYSTEMS, INC.

By: /s/ COLETTE COZEAN
-----------------------------------------
Colette Cozean, Ph.D.,
CHIEF EXECUTIVE OFFICER AND PRESIDENT

Dated: May 21, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

NAME TITLE DATE
------------------------- -------------------------- -------------------

Chief Executive Officer,
By: /s/ COLETTE COZEAN President (Principal
------------------------- Executive Officer), Dated: May 21, 1997
Colette Cozean, Ph.D. Director

By: /s/ PATRICK J. DAY
------------------------- Director Dated: May 21, 1997
Patrick J. Day

By: /s/ GRACE CHING-HSIN
LIN
------------------------- Director Dated: May 21, 1997
Grace Ching-Hsin Lin

By: /s/ E. DONALD SHAPIRO
------------------------- Director Dated: May 21, 1997
E. Donald Shapiro

Chief Financial Officer
By: /s/ MICHAEL HIEBERT (Principal Financial
------------------------- Officer and Principal Dated: May 21, 1997
Michael Hiebert Accounting Officer)

By: /s/ G. LYNN POWELL
------------------------- Director Dated: May 21, 1997
G. Lynn Powell, D.D.S.

51
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation filed with the California Secretary of State on
November 23, 1994. (incorporated herein by this reference to Exhibit 4.8 to the Registrant's
Quarterly Report on Form 10-QSB for the Quarter ended December 31, 1994).............................

3.2 Bylaws (incorporated herein by this reference to Exhibit 3.3 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984)...................................................

10.1 Letter Agreement and Patent License Agreement dated August 29, 1991 among the Company, Patlex
Corporation and Gordon Gould (incorporated herein by this reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).........................

10.2 Assignment Agreement dated July 27, 1992 between the Company and Michael Colvard, M.D. (incorporated
herein by this reference to Exhibit 10.2 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-83984)...........................................................................

10.3 Gold Catalyst Licensing Agreement dated April 16, 1992 between the Company and Optical Engineering,
Inc. (incorporated herein by this reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984)...................................................

+10.4 Lead Generation/Distribution Agreement dated March 17, 1994 between the Company and Burkhart Dental
Supply Company (incorporated herein by this reference to Exhibit 10.10 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-83984)......................................

10.5 Form of International Distribution Agreement (incorporated herein by this reference to Exhibit 10.12
to the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984)..................

10.6 Letter of Intent between the Company and Richard Leaderman, D.D.S., together with related Patent
Assignments as filed in the U.S. Patent and Trademark Office on February 22, 1994 (incorporated
herein by this reference to Exhibit 10.13 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-83984)...........................................................................

+10.7 Exclusive Marketing Agreement dated July 26, 1994 between the Company, Proclosure, Inc. and Nippon
Shoji Kaisha, Ltd. (incorporated herein by this reference to Exhibit 10.14 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-83984)......................................

10.8 Form of Indemnification Agreement (incorporated herein by this reference to Exhibit 10.23 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).........................

10.9 Purchase/Supply Agreement dated January 13, 1987 between Infrared Fiber Systems, Inc. and Pfizer
Hospital Products Group, Inc., as amended (incorporated herein by this reference to Exhibit 10.26 to
the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).....................

10.10 Form of Warrant Agreement (including forms of Class A and Class B Warrant Certificates) (incorporated
herein by this reference to Exhibit 4.1 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-83984)...........................................................................

10.11 Form of Underwriter's Unit Purchase Option (incorporated herein by this reference to Exhibit 4.2 to
the Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).....................

10.12 Form of Finder's Unit Purchase Option (incorporated herein by this reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).........................
</TABLE>

52
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.13 1992 Stock Option Plan, together with form of Nonstatutory Stock Option Agreement and form of
Incentive Stock Option Agreement (incorporated herein by this reference to Exhibit 4.5 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).........................

10.14 Employee Bonus Stock Plan, together with form of Bonus Stock Agreement (incorporated herein by this
reference to Exhibit 4.6 to the Registrant's Registration Statement on Form SB-2, Registration No.
33-83984)............................................................................................

10.15 Assignment and Modification Agreement dated July 26, 1991, among the Registrant, Pfizer Hospital
Products Group and Medical Laser Technologies Limited (incorporated herein by this reference to
Exhibit 10.4 of the Registrant's Registration Statement on Form SB-2, Registration Number
33-83984)............................................................................................

10.16 Letter agreement dated October 13, 1987 between Pfizer Laser Systems, Inc. and Duke University,
together with patent assignment as filed in the U.S. Patent and Trademark Office on October 23, 1993
(incorporated herein by this reference to Exhibit 10.8 to the Registrant's Registration Statement on
Form SB-2, Registration Number 33-83984).............................................................

10.17 Industrial Lease dated December 6, 1995 between the Registrant and Irvine Company (incorporated
herein by this reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1996)....................................................................

10.18 Use and Cost Sharing Agreement dated December 1, 1995 between the Registrant and Biopsys Medical,
Inc. (incorporated herein by this reference to Exhibit 10.23 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1996)................................................

10.19 Letter of Intent dated October 19, 1995 between the Registrant and International Biolaser
Corporation, together with related Promissory Note dated October 19, 1995 payable to Registrant in
the original principal amount of $125,000, and Security Agreement dated October 19, 1995 between the
Registrant and International Biolaser Corporation (incorporated herein by this reference to Exhibit
10.24 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996).....

10.20 Share Exchange Agreement dated December 20, 1995 among the Registrant, 658994 Alberta Ltd., 658997
Alberta Ltd. and Mattan Corporation (incorporated herein by this reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1995)...............

10.21 Purchasing Agreement dated December 20, 1995 between Registrant and Mattan Corporation (incorporated
herein by this reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1995)....................................................................

10.22 Exclusive Licensing Agreement dated June 1, 1992 between the Registrant and Quentin M. Murphy, D.D.S.
(incorporated herein by this reference to Exhibit 10.27 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1996).....................................................

10.23 Broker Agreement dated March 13, 1996 among the Registrant, First National Marketing Services, Inc.
and William F. Sullivan (incorporated herein by this reference to Exhibit 10.29 to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996)...............................

10.24 Form of Consulting Agreement (incorporated herein by this reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996)..................

10.25 Radiation Services Agreement dated January 10, 1994 between the Registrant and SteriGenics
International (incorporated herein by this reference to Exhibit 10.31 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1996)......................................
</TABLE>

53
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.26 Form of Nonstatutory Stock Option Agreement between the Registrant and Colette Cozean (granting
option to purchase 358,650 shares of Registrant's Common Stock) (incorporated herein by this
reference to Exhibit 10.32 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1996)......................................................................................

10.27 Form of Termination Agreement between the Registrant and certain of the Registrant's Executive
Officers (incorporated herein by this reference to Exhibit 10.33 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1996)................................................

10.28 1995 Employee Stock Option Plan, together with form of Nonqualified Stock Option Agreement and form
of Incentive Stock Option Agreement (incorporated herein by this reference to Exhibit 10.34 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-83984).........................

10.29 February 1996 Stock Option Plan (incorporated herein by this reference to Exhibit 10.35 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996)..................

10.30 1996 Stock Option Plan (incorporated herein by this reference to Exhibit 10.36 to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996)...............................

10.31 Loan Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank, together with
Schedule to Loan Agreement dated June 3, 1996 (incorporated herein by this reference to Exhibit 10.36
to the Registrant's Registration Statement on Form SB-2 Registration No. 33-83984)...................

10.32 Pledge Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank (incorporated
herein by this reference to Exhibit 10.37 to the Registrant's Registration Statement on Form SB-2
Registration No. 33-83984)...........................................................................

10.33 Warrant to Purchase Stock dated June 3, 1996 issued to Silicon Valley Bank (incorporated herein by
this reference to Exhibit 10.38 to the Registrant's Registration Statement on Form SB-2 Registration
No. 33-83984)........................................................................................

10.34 Registration Rights Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank
(incorporated herein by this reference to Exhibit 10.39 to the Registrant's Registration Statement on
Form SB-2 Registration No. 33-83984).................................................................

10.35 Antidilution Agreement dated June 3, 1996 between the Registrant and Silicon Valley Bank
(incorporated herein by this reference to Exhibit 10.40 to the Registrant's Registration Statement on
Form SB-2 Registration No. 33-83984).................................................................

10.36 Agreement dated August 12, 1996 between the Registrant and Circuit Tree Medical, Inc. (incorporated
herein by this reference to Exhibit 10.42 to the Registrant's Registration Statement on Form SB-2
Registration No. 33-83984).

10.37 Amendment to Loan Agreement together with Schedule, dated February 13, 1997, between the Registrant
and Silicon Valley Bank.*............................................................................

10.38 Pledge Agreement dated February 13, 1997 between the Registrant and Silicon Valley Bank.*............

10.39 Joint Venture Agreement dated January 31, 1997 between the Registrant, RSS, LLC and Data.Site.*......

10.40 Operating Agreement of Data.Site dated January 31, 1997.*............................................

10.41 Agreement and Plan of Merger dated April 24, 1997 between the Registrant, Premier Acquisition of
Delaware, Inc. and EyeSys Technologies, Inc.*........................................................

23.1 Consent of Ernst & Young LLP*........................................................................
</TABLE>

54
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
23.2 Consent of Price Waterhouse LLP*.....................................................................
</TABLE>

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

+ Confidential treatment has been granted with respect to portions of this
Exhibit.

+ Incorporated by reference herein.

* Filed herewith.

<PAGE>

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

SILICON VALLEY BANK

AMENDMENT TO LOAN AGREEMENT

BORROWER: PREMIER LASER SYSTEMS, INC.
ADDRESS: 3 MORGAN
IRVINE, CALIFORNIA 92718

DATE: FEBRUARY 13, 1997

THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower").

The Parties agree to amend the Loan Agreement between them, dated June 3,
1996, as amended by that Amendment to Loan Agreement dated October __, 1996 (the
"Loan Agreement"), as follows. (Capitalized terms used but not defined in this
Amendment, shall have the meanings set forth in the Loan Agreement.)

1. AMENDED SCHEDULE. The Schedule to Loan Agreement is hereby amended in
its entirety to read as is set forth on the Schedule to the Loan Agreement as
attached hereto.

2. FEE. Borrower shall pay to Silicon concurrently herewith a fee of
$5,000, which shall be in addition to all interest and all other amounts payable
hereunder and which shall not be refundable.

3. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.

4. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms

<PAGE>

and provisions of the Loan Agreement, and all other documents and agreements
between Silicon and the Borrower shall continue in full force and effect and the
same are hereby ratified and confirmed.

BORROWER: SILICON:

PREMIER LASER SYSTEMS, INC. SILICON VALLEY BANK

By /S/ COLETTE COZEAN By /S/ Robert Anderson
------------------------------ -----------------------------
PRESIDENT OR VICE PRESIDENT TITLE
------------------------

By /S/ RONALD E. HIGGINS
------------------------------
SECRETARY OR ASS'T SECRETARY

/S/ MICHAEL L. HIEBERT
- --------------------------------
TREASURER

<PAGE>

----------------------------------------------------------------------
SILICON VALLEY BANK

SCHEDULE TO
LOAN AGREEMENT

BORROWER: PREMIER LASER SYSTEMS, INC.
ADDRESS: 3 MORGAN
IRVINE, CALIFORNIA 92718

DATE: FEBRUARY 13, 1997

THIS SCHEDULE is an integral part of the Loan Agreement between
Silicon Valley Bank ("Silicon") and the above-named borrower ("Borrower").

REVOLVING LOAN CREDIT An amount not to exceed the lesser of:
LIMIT (SECTION 1.2): (i) $1,000,000 at any one time outstanding; or (ii)
the amount of the Certificate of Deposit pledged to
Silicon by Borrower pursuant to the Pledge
Agreement dated February 13, 1997.

REVOLVING LOAN A rate equal to the "Prime Rate" in effect from
(SECTION 1.2): time to time, calculated on the basis of a 360-day
year for the actual number of days elapsed.
"Prime Rate" means the rate announced from time to
time by Silicon as its "prime rate"; it is a base
rate upon which other rates charged by Silicon are
based, and it is not necessarily the best rate
available at Silicon. The interest rate applicable
to the Obligations shall change on each date there
is a change in the Prime Rate.

LOAN ORIGINATION FEE
(SECTION 1.3): See Amendment to Loan Agreement of even date
herewith.

MATURITY DATE
(SECTION 4.1): February 12, 1998.

CORPORATE SUBSIDIARIES
AND AFFILIATES
(SECTION 2.1): Sonoma Corporation, a Florida corporation, a
wholly-owned subsidiary of Borrower.

PRIOR NAMES OF BORROWER
(SECTION 3.2): None

TRADE NAMES OF BORROWER
(SECTION 3.2): Altair, Arago, Arago Mod, Arcturus, Angletips,
Aurora, Centauri, Orion, LTM, MOD, Pegasus,
Polaris, Premier Laser Systems, Premier MOD,
Proclosure, SAFE, Sirius, and Touch Tips.

-1-

<PAGE>

OTHER LOCATIONS AND
ADDRESSES (SECTION 3.3): None

OTHER COVENANTS
(SECTION 3.1): Borrower shall at all times comply with all of the
following additional covenants:

1. BANKING RELATIONSHIP. Borrower shall at all
times maintain its bank accounts and its primary
banking relationship with Silicon.

2. PLEDGE AGREEMENT. Borrower shall
concurrently execute and deliver to Silicon a
Pledge Agreement regarding a $1,000,000 certificate
of deposit, in form and substance satisfactory to
Silicon in its discretion.

3. WARRANTS. Borrower shall continue in full
force and effect the Warrant to Purchase Stock and
related documents delivered to Silicon in
connection with the original Loan Agreement.

4. INDEBTEDNESS. Without limiting any of the
foregoing terms or provisions of this Agreement,
Borrower shall not in the future incur indebtedness
for borrowed money, except for (i) indebtedness to
Silicon, and (ii) indebtedness incurred in the
future for the purchase price of or lease of
equipment in an aggregate amount not exceeding
$250,000 at any time outstanding.

BORROWER: SILICON:

PREMIER LASER SYSTEMS, INC. SILICON VALLEY BANK

By /S/ COLETTE COZEAN By /S/ Robert Anderson
---------------------------------- -----------------------------
PRESIDENT OR VICE PRESIDENT TITLE
------------------------
By /S/ RONALD E. HIGGINS
----------------------------------
SECRETARY OR ASS'T SECRETARY

/S/ MICHAEL L. HIEBERT
- ------------------------------------
TREASURER

-2-

<PAGE>

---------------------------------------------------------------------------
SILICON VALLEY BANK

PLEDGE AGREEMENT

PLEDGOR: PREMIER LASER SYSTEMS, INC. DOLLAR AMOUNT TO BE
PLEDGED:
ADDRESS: 3 MORGAN $1,000,000
IRVINE, CALIFORNIA 92718 ----------
----------

DATE: FEBRUARY 13, 1997

THIS PLEDGE AGREEMENT is entered into as of the above date between SILICON
VALLEY BANK ("Silicon"), whose address is 3003 Lakeside Drive, Santa Clara,
California 95054, and the pledgor named above ("Pledgor").

1. PLEDGE OF FUNDS. Pledgor shall concurrently deposit with Silicon the
sum set forth above, by wire transfer or cashier's check payable to Silicon,
which funds shall be invested in a certificate of deposit issued by Silicon, at
the interest rate currently offered by Silicon (which, together with all
proceeds thereof is referred to in this Agreement as the "Certificate of
Deposit"). Pledgor hereby pledges to Silicon and grants Silicon a security
interest in such funds and the Certificate of Deposit to secure the payment and
performance of all present and future debts, duties, obligations, liabilities,
representations, warranties and guaranties of the Pledgor to Silicon,
heretofore, now, or hereafter made, incurred or created, whether primary,
secondary, direct, absolute, contingent, fixed, secured or unsecured, whether as
principal, guarantor or otherwise, whether joint or several, whether evidenced
by written instrument or oral, whether monetary or non-monetary, and regardless
of whether or not the instrument evidencing the same recites that it is secured
hereby, including without limitation any and all of the foregoing arising under
the Loan Agreement between Pledgor and Silicon dated June 3, 1996, as amended
from time to time (the "Loan Agreement") and all extensions and renewals and
modifications thereof, and including without limitation any and all attorneys'
fees, court costs and collection charges incurred in endeavoring to collect or
enforce any of the foregoing against Pledgor and any and all costs, fees and
expenses incurred by Silicon in connection with any of the foregoing (all of the
foregoing is hereinafter collectively referred to as the "Indebtedness").
Unless and until an "Event of Default" (as defined below) shall occur, interest
on the Certificate of Deposit shall be paid to Pledgor.

2. RENEWAL OF CERTIFICATE OF DEPOSIT. At the maturity of the Certificate
of Deposit, Silicon is hereby authorized to reinvest the proceeds in a new
Certificate of Deposit issued by Silicon having such term as Silicon shall
specify, and bearing interest at the rate then regularly offered by Silicon.
Silicon shall have no liability for any loss of interest on the Certificate of
Deposit, whether resulting from delays in reinvesting the proceeds of the
Certificate of deposit or from any other cause.

3. REPRESENTATION, WARRANTIES AND COVENANTS. Pledgor hereby represents
and warrants that (i) Pledgor has good title to the Certificate of Deposit, free
and clear of any and all claims, liens, encumbrances and security interests,
(ii) this Agreement has been duly and validly authorized, executed and delivered
and constitutes the binding obligation of Pledgor, enforceable in accordance
with its terms, and (iii) the execution and delivery of this Agreement does not
violate or constitute a default under (with or without giving of notice, the
passage of time, or both) any order, judgment, decree, instrument or agreement
to which Pledgor is a party or by which it or its assets are affected or bound.

4. RECOURSE TO CERTIFICATE OF DEPOSIT; EVENTS OF DEFAULT. If any Event
of Default shall occur, Silicon shall have the right, without notice to or
demand upon Pledgor, to obtain payment of the Certificate of Deposit (regardless
of whether or not it has matured and regardless of any loss of interest
resulting from its payment prior to maturity of any other cause), and to apply
the proceeds thereof to the Indebtedness, regardless of whether or not the
Indebtedness is then due and payable by their terms. An "Event of Default," as
used herein, shall be deemed to occur in the event Pledgor shall fail to pay or
perform when due all or any part of the Indebtedness, or any other default or
event of default occurs under, or as specified in,

-1-

<PAGE>

any present or future instrument or agreement between Silicon and Pledgor,
including but not limited to the Loan Agreement.

5. REMEDIES, CUMULATIVE; NO WAIVER. Silicon shall have the right to
recourse to the Certificate of Deposit to the full extent provided for herein
and in any other document or instrument evidencing obligations of Pledgor to
Silicon. No election in one form of action or proceeding, or against any party,
or on any obligation, shall constitute a waiver of Silicon's right to proceed in
any other form of action or proceeding or against any other party. The failure
of Silicon to enforce any of the provisions of this Agreement at any time or for
any period of time shall not be construed to be a waiver of any such provision
or the right thereafter to enforce the same. All remedies hereunder shall be
cumulative and shall be in addition to all rights, powers and remedies given to
Silicon by law.

6. TERM. This Agreement and Silicon's rights hereunder shall continue in
full force and effect until all agreements between Silicon and Pledgor have
terminated and all of the Indebtedness has been fully paid, performed and
discharged. Following such date all of the foregoing events have occurred,
Silicon shall return the Certificate of Deposit to Pledgor.

7. COSTS. Pledgor shall, upon demand, reimburse Silicon for all
reasonable costs, fees and expenses, which are incurred by Silicon in connection
with or arising out of this Pledge Agreement or the enforcement hereof
(including without limitation reasonable attorneys' fees), whether or not suit
be brought.

8. INTEGRATION. This Agreement is the entire and only agreement between
Pledgor and Silicon with respect to the subject matter hereof, and all
representations, warranties, agreements or undertakings with respect to the
subject hereof which are not set forth herein, are superseded hereby. Nothing
herein shall, however, limit or affect any of the terms or provisions of any
other document or agreement between Pledgor and Silicon, and all of the same
shall continue in full force and effect.

9. REVIVOR. If any payment made on any of the Indebtedness to Silicon
shall for any reason be required to be returned by Silicon, whether on the
ground that such payment constituted a preference or for any other reason, then
for purposes of this Agreement, and notwithstanding any prior termination of
this Agreement, such payment shall be treated as not having been made, and this
Agreement shall in all respects be effective with respect to the Indebtedness,
as though such payment had not been made; and if the Certificate of Deposit or
the funds represented thereby have been released or returned to Pledgor, then
Pledgor shall return the Certificate of Deposit or the funds, as the case may
be, to Silicon, to be held and dealt with in accordance with the terms of this
Agreement.

10. WAIVER; AMENDMENT. The terms and provisions hereof may not be waived,
altered, modified, or amended except in a writing executed by Pledgor and a duly
authorized officer of Silicon.

11. SUCCESSORS. All rights, benefits and privileges hereunder shall inure
to the benefit of and be enforceable by Silicon and its successors and assigns
and shall be binding upon Pledgor and his or its heirs, executors,
administrators, personal representatives, successors and assigns.

12. HEADINGS. Paragraph headings are used herein for convenience only;
the same may not describe completely the subject matter of the applicable
paragraph, and the same shall not be used in any manner to construe, limit,
define or interpret any term or provision hereof.

13. GOVERNING LAW. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed, and interpreted in accordance with the laws of the State of
California. Pledgor hereby agrees that all actions or proceedings relating
directly or indirectly hereto may, at the option of Silicon, be litigated in
courts located within said State, and Pledgor hereby expressly consents to the
jurisdiction of any such court and consents to the service of process in any
such action or proceeding by personal delivery or by certified or registered
mailing directed to Pledgor at his last address known to Silicon.

14. MUTUAL WAIVER OF JURY TRIAL. SILICON AND PLEDGOR EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND PLEDGOR; OR (III) ANY
CONDUCT, ACTS OR OMISSIONS OF SILICON OR PLEDGOR OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
SILICON OR PLEDGOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.

Silicon:
SILICON VALLEY BANK

By /S/ Robert Anderson
-------------------------------
Title
----------------------------

Pledgor:
PREMIER LASER SYSTEMS, INC.

By /S/ COLETTE COZEAN
-------------------------------
Title CHIEF EXECUTIVE OFFICER
---------------------------

-2-

<PAGE>

JOINT VENTURE AGREEMENT

THIS JOINT VENTURE AGREEMENT ("AGREEMENT") is effective as of January 31,
1997, by and between PREMIER LASER SYSTEMS, INC., a California corporation
("PREMIER"), RSS, LLC, a Kansas limited liability company ("RSS"), and
DATA.SITE, a California limited liability company ("DATA.SITE").

R E C I T A L S:

A. Premier and RSS desire to form a joint venture to develop and market
"outcomes" software in multiple medical specialties and to market and distribute
certain other products of Premier.

B. The parties have caused the formation of Data.Site, through which the
operations of the joint venture will be conducted.

C. The parties desire to exchange certain assets and to contribute
certain assets to Data.Site in accordance with the terms and conditions of this
Agreement.

D. Dr. Daniel Durrie, Mr. Ramgopal Rao and Dr. John Hunkeler are members
of RSS (the "Members").

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:

1. FORMATION AND OPERATION OF LIMITED LIABILITY COMPANY.

1.1 ARTICLES OF ORGANIZATION. The parties previously have caused to be
filed with the California Secretary of State the Articles of Organization for
Data.Site, a copy of which is attached hereto as EXHIBIT A.

1.2 OPERATING AGREEMENT. The parties shall execute the Operating
Agreement for Data.Site, which is attached hereto as EXHIBIT B and incorporated
herein by this reference (the "OPERATING AGREEMENT").

1.3 BUSINESS OF DATA.SITE. Data.Site has been formed for the purpose of
developing and marketing "outcomes" software in multiple medical specialties and
to market and distribute certain other products of Premier. Upon reasonable
request of Premier, and upon mutual agreement concerning the terms of such
arrangement, Data.Site shall market and sell certain products of Premier through
Data.Site's distribution channels and the efforts of Data.Site's employees.
Upon reasonable request of Data.Site, and upon mutual

<PAGE>

agreement concerning the terms of such arrangement, Premier shall market and
sell certain products of Data.Site through Premier's distribution channels
and the efforts of Premier's employees.

2. ISSUANCE OF COMMON STOCK.

2.1 PRESENT ISSUANCE. Premier hereby sells and issues to RSS 159,787
shares (the "Shares") of Class A Common Stock (the "COMMON STOCK"), such number
being that number of shares of Common Stock equal to $1,200,000 divided by the
average of the closing price of such Common Stock during the last fifteen (15)
days immediately preceding the Closing. For all purposes of this Agreement, the
date of the "CLOSING" shall be the date hereof. In consideration for the
issuance of such Shares, RSS hereby transfers to Premier an undivided 30%
interest in all of the intangible assets of RSS (the "INTANGIBLE ASSETS"),
including but not limited to, intellectual property rights (including the
"Intellectual Property" as defined in SECTION 6.16), copyrights, contractual
rights and trade secrets, and more particularly described in the Bill of Sale
attached hereto as EXHIBIT C and incorporated herein by this reference.

2.2 FUTURE ISSUANCE. If Data.Site's gross revenue (as determined in
accordance with generally accepted accounting principles) equals or exceeds
$1,500,000 for the year ending December 31, 1997, then Premier will pay to RSS
an additional $300,000 in cash or Common Stock, at Premier's option (the
"ADDITIONAL PAYMENT"). Premier shall give written notice to RSS on or before
January 31, 1998 of its determination to pay the Additional Payment in the form
of cash or Common Stock (the "DETERMINATION NOTICE"). If Premier issues Common
Stock to RSS pursuant to this Section 2.2, the number of shares so issued shall
be equal to $300,000 divided by the average of the closing price of such Common
Stock during, at Premier's option, either (i) the last fifteen (15) days
immediately preceding the date the Determination Notice is given, or (ii) the
thirty (30) day period ending fifteen (15) days prior to the date the
Determination Notice is given. Common Stock issued pursuant to this SECTION 2.2
shall be restricted securities and shall be subject to SECTIONS 6.8, 6.9 AND
6.10 hereof. RSS agrees that it shall acquire any shares of Common Stock
pursuant to this SECTION 2.2 solely for the purpose of investment for its own
account. It will not acquire such shares with a view to distribution in
connection with any resale or other distribution of those shares.

2.3 DISCLAIMER CONCERNING LIABILITIES. Premier does not assume and shall
not be required to assume, pay or discharge any duties, obligations or
liabilities of RSS whatsoever, past or present or future, fixed or contingent,
direct or indirect, known or unknown, express or implied.

2.4 SALES TAX. RSS shall be responsible for the payment of any sales or
use tax or other transfer, registration or recordation

-2-

<PAGE>

tax, fee or charge levied by any governmental authority upon the transfer to
Premier of the Intangible Assets.

2.5 REGISTRATION RIGHTS.

(a) If Premier proposes to register any of its stock or other
securities under the Securities Act of 1933, as amended (the "ACT") in
connection with the public offering of such securities solely for cash
(other than a registration relating solely to the sale of securities to
employee participants in an employee benefit plan or a sale with respect to
a transaction to which Rule 145 promulgated under the Act or any successor
to such Rule, is applicable or otherwise pursuant to a registration on Form
S-4), Premier shall, at such time, promptly give RSS written notice of such
registration. Upon the written request of RSS given within thirty (30)
days after such notice is given by Premier, Premier shall, subject to the
following provisions, use all reasonable efforts to cause to be included in
such public offering all of the Shares issued to RSS hereunder that RSS has
requested to be registered. Premier shall not be required under this
SECTION 2.5 to include any of RSS's Shares in an underwritten offering of
Premier's Common Stock unless RSS accepts the terms of the underwriting as
agreed upon between Premier and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the managing
underwriter, interfere with the successful marketing of the offering by
Premier; provided, however, the terms of the underwriting applied to RSS
shall be no less favorable than the terms applied to other persons holding
Premier's Common Stock and who are selling such shares in such offering.

(b) Beginning on the date six (6) months after the Closing, Premier
shall (provided Premier has not previously commenced a public offering
since the Closing), as promptly as practicable (but in any event within
sixty (60) days), after written request (the "REQUEST") by RSS or persons
holding 100% of the Shares, prepare and file at its own expense a
Registration Statement with the Securities and Exchange Commission and
appropriate Blue Sky authorities sufficient to permit the public offering
of the Shares and will use its best efforts at its own expense through its
officers, directors, auditors and counsel, in all matters necessary or
advisable, to cause such Registration Statement to become effective as
promptly as practicable and to maintain such effectiveness so as to permit
resale of the Shares covered by the Request until the earlier of the time
that all such Shares have been sold or the expiration of two (2) years from
the effective date of the Registration Statement (the "MINIMUM PERIOD");
provided, however, that Premier shall only be obligated to file and have
declared effective one such Registration Statement under this SECTION 2.5.
If a Registration Statement is filed pursuant to this subsection but not
declared effective, or is not kept effective for the Minimum Period, then
it shall not be deemed

-3-

<PAGE>

to be a Registration Statement meeting the requirements hereunder.

(c) Premier shall not be required by this SECTION 2.5 to file a
Registration Statement if, in the opinion of counsel for RSS and Premier
(or, if they do not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for RSS and Premier), the
proposed public offering or other transfer as to which such Registration
Statement is requested is exempt from applicable federal and state
securities laws and would result in all purchasers or transferees obtaining
securities which are not "restricted securities," as defined in Rule 144
under the Act. In addition, Premier shall not be required to register the
Shares under SECTION 2.5(a) if the sale of the Shares was previously
registered under SECTION 2.5(b).

3. CONTRIBUTION OF ASSETS BY RSS.

3.1 CAPITAL CONTRIBUTION. In exchange for a 49% interest in Data.Site,
RSS hereby transfers to Data.Site all of its right, title and interest to its
equipment and machinery, its undivided 70% interest in the Intangible Assets,
and all of its other tangible and intangible property, as more particularly
described in the Bill of Sale attached hereto at EXHIBIT D and incorporated
herein by this reference (the Intangible Assets and all other property of RSS to
be transferred hereunder are collectively referred to herein as the "ASSETS").

3.2 DISCLAIMER CONCERNING LIABILITIES. Data.Site will not assume and
shall not be required to assume, pay or discharge any duties, obligations or
liabilities of RSS whatsoever, past or present or future, fixed or contingent,
direct or indirect, known or unknown, express or implied, except for those
specific liabilities identified on EXHIBIT 3.2 hereto (the "ASSUMED
LIABILITIES").

3.3 SALES TAX. RSS shall be responsible for the payment of any sales or
use tax or other transfer, registration or recordation tax, fee or charge levied
by any governmental authority upon the transfer to Data.Site of the Assets.

4. CONTRIBUTION OF INTANGIBLE ASSETS BY PREMIER.

4.1 CAPITAL CONTRIBUTION. In exchange for a 51% interest in Data.Site:
(i) Premier hereby transfers to Data.Site its undivided 30% interest in the
Intangible Assets, as set forth in the Bill of Sale attached hereto as EXHIBIT E
and incorporated herein by this reference; and (ii) during the two year period
following the Closing, Premier agrees to contribute to Data.Site an additional
$1,000,000 in cash or "cash equivalent services" (as defined below) pursuant to
SECTION 4.2.

-4-

<PAGE>

4.2 CASH OR CASH EQUIVALENT SERVICES. During the two year period
following the Closing, Premier shall provide such cash or cash equivalent
services at the times and in the amounts as determined by the Board of Managers
of Data.Site. "CASH EQUIVALENT SERVICES" are payments made by Premier to
individuals or entities to perform services on behalf of Data.Site, including
but not limited to payments to Premier's personnel who perform functions such as
accounting, research and development, or attending a trade show on behalf of
Data.Site. RSS hereby acknowledges that Premier has, as of the date hereof,
funded $100,000 towards its obligation to contribute cash or cash equivalent
services under SECTION 4.1 above.

4.3 DISCLAIMER CONCERNING LIABILITIES. Data.Site will not assume and
shall not be required to assume, pay or discharge any duties, obligations or
liabilities of Premier whatsoever, past or present or future, fixed or
contingent, direct or indirect, known or unknown, express or implied.

5. CLOSING.

5.1 CLOSING. The closing of the transactions contemplated by this
Agreement shall occur simultaneously with the execution of this Agreement by all
parties hereto (the "CLOSING").

5.2 DELIVERY BY RSS. Concurrently herewith, RSS is delivering to Premier
(or to Data.Site as applicable) the following:

(a) the Operating Agreement (EXHIBIT B) duly executed by RSS and the
Members;

(b) the Bill of Sale (EXHIBIT C) duly executed by RSS;

(d) certified copies of resolutions adopted by the Managers and
Members of RSS authorizing and approving the execution, delivery and
performance of this Agreement.

(e) evidence, satisfactory to Premier, that all consents of third
parties required for RSS's consummation of the transactions contemplated by
this Agreement have been obtained.

(f) an opinion of counsel in the form attached hereto as EXHIBIT F.

5.3 DELIVERY BY PREMIER. Concurrently herewith, Premier is delivering to
RSS (or to Data.Site as applicable) the following:

(a) the Operating Agreement (EXHIBIT B) duly executed by Premier;

-5-

<PAGE>

(b) a Stock Certificate duly executed by Premier evidencing the
Shares issued to RSS hereunder (provided that at the option of Premier such
stock certificate may be delivered within five (5) business days of the
date hereof, and provided further that such certificate shall be held by
Premier in accordance with SECTION 10.5; below);

(d) certified copies of resolutions adopted by the Board of Directors
of Premier authorizing and approving the execution, delivery and
performance of this Agreement.

(e) evidence, satisfactory to RSS, that all consents of third parties
required for Premier's consummation of the transactions contemplated by
this Agreement have been obtained.

(f) an opinion of counsel in the form attached hereto as EXHIBIT G.

5.4 DELIVERY BY DATA.SITE. Concurrently herewith, Data.Site is delivering
to RSS the following:

(a) An instrument by which Data.Site is assuming the Assumed
Liabilities.

6. RSS'S REPRESENTATIONS AND WARRANTIES.

RSS and the Members, jointly and severally, represent, warrant and agree,
as follows:

6.1 ORGANIZATION AND RELATED MATTERS. RSS is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Kansas. RSS has all necessary power and authority to own its
properties and conduct its business as now being conducted by it and to
consummate the transactions contemplated hereby. RSS is duly qualified and in
good standing in each of the jurisdictions in which it is required by the nature
of its business so to qualify, and where failure so to qualify might have a
material adverse effect upon its business or assets or impair the ability of RSS
to consummate the transactions contemplated hereby.

6.2 VALID AND BINDING AGREEMENT. The execution, delivery and performance
by RSS of this Agreement have been duly and validly authorized by all necessary
action on the part of RSS and its members and managers, and the Agreement
constitutes the valid and binding obligation of RSS, enforceable against RSS in
accordance with its terms, except as limited or otherwise affected by
bankruptcy, insolvency, reorganization, moratorium or other similar

-6-

<PAGE>

laws relating to or affecting creditors' rights generally and by the
application of general equitable principles.

6.3 INFORMATION. RSS has received, reviewed and is familiar with
Premier's Annual Report on Form 10-KSB filed for the fiscal year ended March 31,
1996 (the "ANNUAL REPORT"), Quarterly Report on Form 10-QSB filed for the
quarter ended September 30, 1996 (the "QUARTERLY REPORT"), and Registration
Statement on Form SB-2 declared effective on October 15, 1996 (the
"REGISTRATION STATEMENT"). RSS has had an opportunity to ask questions and
receive answers from Premier's officers and directors concerning such documents
and any other aspects of Premier's business or operations. RSS acknowledges
that Premier has made no representation or warranty regarding any projections,
estimates or budgets of future revenues or expenses, future results of
operations, or the future business and operations of Premier.

6.4 NO GOVERNMENTAL RECOMMENDATION/INDORSEMENT. RSS is aware that no
federal or state agency has made any finding or determination concerning the
fairness for public investment in, nor any recommendation or endorsement of, the
Shares.

6.5 RISK. RSS recognizes and has assessed the risk involved in investing
in the Shares and has determined based on sufficient experience in business and
financial matters that it is capable of bearing that risk.

6.6 INVESTMENT INTENT. RSS is acquiring the Shares solely for the purpose
of investment for its own account. It is not acquiring the Shares with a view
to distribution in connection with any resale or other distribution of the
Shares. RSS was not formed for the purpose of acquiring or investing in the
Shares. The principal executive offices of RSS are located in Kansas City,
Kansas, and RSS's operations have been conducted from such offices.

6.7 PREEXISTING RELATIONSHIP. RSS has a preexisting personal or business
relationship with Premier or one or more of its officers, directors or
controlling persons, which relationship is of a nature and duration as to permit
RSS to be aware of the character, business acumen and general business and
financial circumstances of the person with whom such relationship exists.

6.8 LEGEND. RSS agrees and represents that it will not transfer or
distribute any of the Shares to its members or make any other disposition of the
Shares unless a registration statement under the Securities Act of 1933, as
amended, is in effect with respect to such securities or, in the alternative, an
exemption from registration under said Act is found to be available to the
reasonable satisfaction of Premier. RSS further understands that an opinion of
counsel with respect thereto may be required by Premier in its sole discretion.
RSS further understands and agrees that the following legend will be placed on
the certificates representing the Shares:

-7-

<PAGE>

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933 AND
THE RULES AND REGULATIONS THEREUNDER.

6.9 STOP TRANSFER NOTICE. RSS understands and is aware that, in order to
insure that transfers of the Shares are made in strict accordance with all
limitations upon transfer imposed by the federal securities laws, the books and
records of Premier will include a "stop transfer" notation to the effect that no
transfer of any shares shall be effective unless strict compliance with such
limitation has been made, the determination of which will be made at the
absolute discretion of Premier.

6.10 HOLDING PERIOD FOR SHARES. Until January 31, 1997, RSS agrees that it
shall not sell, assign, pledge, transfer or otherwise dispose of the Shares or
any interest therein until the expiration of the period set forth in SECTION
10.3, except that RSS may pledge the Shares in accordance with the terms of
SECTION 10.5(b).

6.11 TITLE TO AND SUFFICIENCY OF ASSETS. RSS has good and marketable title
to all of the Assets and other property being transferred to Premier and to
Data.Site pursuant to this Agreement, and RSS will transfer and convey the
Assets and other property to Premier and Data.Site, as provided herein, free and
clear of all mortgages, liens, pledges, charges, agreements, title retention or
security agreements, claims, restrictions, defects of title, easements or other
encumbrances other than those which do not and will not materially impair the
value or use of any of the Assets or other property subject thereto. The Assets
being transferred to Data.Site hereunder constitute all of the tangible and
intangible assets of RSS, and are sufficient for the operation of the business
of Data.Site in substantially the same manner as currently conducted by RSS.
There are no other assets used by RSS in connection with the conduct of its
business which are not being transferred to Data.Site hereunder.

6.12 LITIGATION. RSS is not involved in any pending or threatened
investigation, litigation or legal proceeding that may have a material adverse
effect upon the assets, business operations or condition (financial or
otherwise) of RSS, nor is it subject to any order, judgment or decree that may
have such an effect. RSS has no knowledge of any facts which may give rise to
such an investigation or legal proceeding.

6.13 DEFAULTS. The execution, delivery and performance of this Agreement
and the consummation of the transactions provided for in this Agreement do not
and will not (i) violate any provision of law applicable to RSS, the Articles of
Organization, Bylaws or Operating Agreement of RSS, or any order, judgment or
decree of any court or other agency of government binding on RSS, (ii) conflict

-8-

<PAGE>

with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any contractual obligation of RSS, or (iii) result in or
require the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the assets or properties of RSS.

6.14 CONSENTS. No approval, authorization, consent, order or other action
of, or filing with, any third party, including without limitation, any private
party or public, governmental, administrative or regulatory authority or agency,
is required in connection with the execution, delivery or performance of this
Agreement by RSS or the consummation of the transactions contemplated hereby,
except such approvals, authorizations, consents or orders as have been obtained.

6.15 INTELLECTUAL PROPERTY. RSS owns, or is licensed or otherwise has the
full right to use, all Intellectual Property (as defined below) necessary for
the conduct of its business. All such Intellectual Property owned, held by, or
licensed to RSS and used or intended for use in connection with the business of
RSS is valid and does not infringe any similar rights owned or controlled by
others. RSS is in compliance with all licenses of Intellectual Property. For
purposes hereof, "INTELLECTUAL PROPERTY" means all intellectual property rights,
both registered and at common law, relating to the RSS's business, irrespective
of where any of the same were issued, whether pending or existing, including,
without limitation, all: United States and foreign patents or any description
and applications therefor; registrations of trademarks, service marks and of
other marks, registrations of trade names, labels, logos, trading styles or
other trade rights, registered user entries, and applications for any such
registrations or entries; United States and foreign copyrights, copyright
registrations and applications therefor; United States and foreign trademarks
and other marks, trade names, labels and other trade rights, whether or not
registered, and applications therefor; trade secrets, know-how, inventions,
discoveries, improvements, engineering or other drawings, designs, processes and
formulae, whether patented or patentable or not; customer lists, technical data,
marketing information and plans, software and software documentation source
codes; any other proprietary information or intangible rights; shop rights,
license agreements and other agreements relating in whole or in part to any of
the foregoing; and all claims and causes of action on behalf of RSS or against
third parties relating to any of the foregoing, including claims and causes of
action for past infringement. SCHEDULE 6.15 contains a true and complete list
of (a) the Intellectual Property used or proposed to be used by the RSS in
connection with the conduct of its business, all applications therefor and all
licenses and other agreements relating thereto and (b) all agreements relating
to technology, know-how or processes which RSS is licensed or authorized to use
by others or which the RSS licenses or authorizes others to use in connection
with the conduct of its business. No consent of any third party is required for
the use of the Intellectual Property by Data.Site upon the consummation of the

-9-

<PAGE>

transactions contemplated hereby, except for such consents as have been
obtained.

6.16 FINANCIAL STATEMENTS. RSS has heretofore delivered to Premier the
following financial statements:

(a) the unaudited balance sheet as of December 31, 1996 for RSS (the
"BALANCE SHEET"); and

(b) the unaudited statement of income as of December 31, 1996 for
RSS.

All such statements were prepared in accordance with generally accepted
accounting principles and fairly present the financial position of RSS at the
respective dates thereof and the results of operations and changes in financial
position of RSS for each of the periods then ended, subject to changes for
normal year-end adjustments.

6.17 NO MATERIAL ADVERSE CHANGE. Since December 31, 1996, there has not
been any material adverse change in the financial condition, business, assets or
liabilities of RSS.

6.18 LIABILITIES OR DEBTS. RSS has no liabilities or debts, fixed or
contingent, liquidated or unliquidated, secured or unsecured, or of any other
kind, other than those specifically disclosed and identified as to nature and
amount on the Balance Sheet. All salaries and compensation, including without
limitation any bonuses or other variable compensation, of all employees and
others who perform personal service for RSS have been paid when due.

6.19 CONDITIONS OF PROPERTIES. All machinery and equipment, furniture,
fixtures and improvements and other assets and properties of RSS to be
transferred pursuant to this Agreement are in good operating condition and
repair, ordinary wear and tear excepted, and have been reasonably serviced and
maintained since the time of installation.

6.20 PERFORMANCE OF SOFTWARE PRODUCTS. The software products of RSS
transferred to Data.Site hereunder shall operate and perform in substantial
conformance with the standards and specifications described in the brochures and
product material attached hereto in SCHEDULE 6.20, and will be free of defects
which substantially affect system performance, except for those defects of which
RSS has notified Premier in writing.

6.21 REGULATORY MATTERS. RSS has all licenses, permits, authorizations,
approvals, consents, franchises, and orders, including but not limited to all
federal, state and local regulatory approvals and clearances, (individually, a
"PERMIT" and, collectively, the "PERMITS") required for the conduct and
operation of its business and the marketing, sale and distribution of its
products. No violations have been recorded in respect of any such

-10-

<PAGE>

Permit. There is no claim or action pending, or, to the best of the RSS's
knowledge, after due inquiry and diligent investigation, threatened, which
disputes the validity of any such Permit or threatens to revoke, cancel,
suspend or limit any such Permit.

6.22 EMPLOYEE BENEFIT PLANS. Except as set forth on SCHEDULE 6.22, RSS has
no pension, retirement, severance, welfare, profit-sharing, stock purchase,
stock option, vacation, deferred compensation, bonus or other incentive plan, or
other employee benefit program, arrangement, agreement or understanding, or
medical, vision, dental or other health plan, or life insurance or disability
plan, retiree medical or life insurance plan or any other employee benefit
plans, to which RSS contributes or is a party or by which it is bound or under
which it may have liability and under which employees or former employees of RSS
(or their beneficiaries) are eligible to participate or derive a benefit.

6.23 EMPLOYMENT LAW MATTERS.

(a) RSS (i) is in compliance with all applicable laws respecting
employment, employment practices, terms and conditions of employment and
wages and hours with respect to the conduct of its business; (ii) is in
compliance with all applicable laws and regulations relating to the
employment of aliens or similar immigration matters with respect to the
conduct of its business; and (iii) is not engaged in any unfair labor
practice, including, but not limited to, discrimination or wrongful
discharge with respect to the conduct of its business.

(b) None of the employees of RSS is represented by a labor union, and
no petition has been filed or proceedings instituted by any employee or
group of employees with any labor relations board seeking recognition of a
bargaining representative. RSS is not a party to any multi-employer
collective bargaining agreement covering any of its employees involved in
its business.

6.24 MATERIAL CONTRACTS. SCHEDULE 6.24 sets forth a complete list of all
contracts and commitments of RSS relating to the marketing, sale or distribution
of its products or services or which are otherwise material to the conduct of
its business (the "MATERIAL CONTRACTS"). Each of the Material Contracts has
been entered into in the ordinary course of business and is valid and binding,
and none of such contracts contains terms or conditions which are materially
adverse to RSS or its business. RSS is not, and no other party is, in default
under or in breach or violation of, nor has RSS received notice of any asserted
claim of default by RSS or by any other party under, or a breach or violation
of, any of the Material Contracts.

-11-

<PAGE>

6.25 SUPPLIERS AND CUSTOMERS.

(a) RSS enjoys good commercial relationships under all of its supply,
purchase, sale, distribution, sales representative and similar agreements
necessary for the normal operation of its business.

(b) SCHEDULE 6.25 contains a true and complete list of all suppliers,
customers and distributors of RSS, which during any of the calendar years
1995, 1994, or 1993, and for the nine (9) month period ended September 30,
1996, accounted for 5% or more of the RSS's gross purchases or sales,
respectively, during such period.

(c) RSS has no knowledge or basis for knowledge that any such
supplier, customer or distributor has cancelled or otherwise terminated or
threatened to cancel or otherwise terminate, its relationship with RSS,
which termination would have a material adverse effect on the business of
RSS, or has during the last twelve (12) months decreased materially, or
threatened to decrease or limit materially, its services, supplies or
materials to RSS or its usage or purchase of the services or products of
RSS, as the case may be, or that any such supplier, distributor or customer
expects to reduce its business with RSS (or Data.Site) by reason of the
transactions contemplated by this Agreement or for any other reason
whatsoever.

6.26 ACCOUNTS RECEIVABLE. The amount of all accounts receivable, unbilled
invoices and other debts due or recorded in the respective records and books of
account of RSS as being due to RSS as of the Closing (less the amount of any
provision or reserve therefor made in the respective records and books of
account of RSS) will be good and collectible in full in the ordinary course of
business without resort to legal proceedings and in any event not later than
sixty (60) days after the Closing; and none of such accounts receivable or other
debts is or will at the Closing be subject to any counterclaim or set-off except
to the extent of any such provision or reserve.

6.27 FINDERS. RSS has not made, nor will it make, any commitment to pay
any finder's or brokerage fee or commission on account of the execution of this
Agreement or the consummation of the transactions contemplated by this
Agreement.

6.28 ACCURACY OF INFORMATION FURNISHED. No representation, warranty or
statement made, or information provided by RSS in this Agreement, the schedules,
the exhibits hereto or included in any certificates or documents to be delivered
to Premier at the Closing, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements or facts contained therein, in light of the circumstances under
which they were made, not misleading.

-12-

<PAGE>

7. REPRESENTATIONS AND WARRANTIES BY PREMIER.

Premier hereby represents and warrants to RSS as follows:

7.1 ORGANIZATION AND RELATED MATTERS. Premier is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Premier has the corporate power and authority to own its properties
and conduct its business as now being conducted by it, to consummate the
transactions contemplated hereby and to issue the Shares to be issued and sold
to RSS hereunder. Premier is duly qualified and in good standing in each of the
jurisdictions in which it is required by the nature of its business or the
ownership of its properties so to qualify and where the failure so to qualify
might have a material adverse effect upon Premier, or its business or
properties.

7.2 VALID AND BINDING AGREEMENT. The execution, delivery and performance
by Premier of this Agreement have been duly and validly authorized by all
necessary corporate action on the part of Premier and the Agreement constitutes
the valid and binding obligation of Premier, enforceable against Premier in
accordance with its terms, except as limited or otherwise affected by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally and by the application of
general equitable principles.

7.3 ISSUANCE OF SHARES. All of the Shares issued to RSS hereunder shall
be validly issued, fully paid and nonassessable, and good title thereto shall be
vested in RSS, free and clear of all liens, claims and encumbrances, except
those created by RSS.

7.4 LITIGATION. Except as described in the Registration Statement or in
SCHEDULE 7.4 hereto, Premier is not involved in any pending or, to the best
knowledge of Premier, threatened investigation, litigation or legal proceeding
that may have a material adverse effect upon the assets, business operations or
condition (financial or otherwise) of Premier or might impair Premier's ability
to perform any or all of its obligations under this Agreement, nor is it subject
to any order, judgment or decree that may have such an effect.

7.5 NO CONFLICT. The execution, delivery and performance by Premier of
this Agreement, the issuance, delivery and payment of the Note, and the
consummation of the transactions provided for in this Agreement do not and will
not (i) violate any provision of law applicable to Premier, the Articles of
Incorporation or Bylaws of Premier, or any order, judgment or decree of any
court or other agency of government binding on Premier, (ii) conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any contractual obligation of Premier, or (iii) require any
approval of stockholders or any approval or consent of any person under any
contractual obligation of Premier other than approvals or consents which have
been obtained.

-13-

<PAGE>

7.6 FINDERS. Premier has not made, nor will it make, any commitment to
pay any finder's or brokerage fee or commission on account of the execution of
this Agreement or the consummation of the transactions contemplated by this
Agreement.

7.7 ACCURACY OF INFORMATION FURNISHED. No representation, warranty or
statement made, or information provided, by Premier in this Agreement, the
Annual Report, the Quarterly Report or the Registration Statement, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements or facts contained
therein, in light of the circumstances under which they were made, not
misleading.

8. CONFIDENTIALITY AGREEMENT.

8.1 Each party hereto acknowledges that it has received, had access to,
and will continue to have access to certain information, trade secrets, customer
lists, other customer information, technical data or know-how relating to the
products, developments, services, processes, methods, designs or business
practices of the other parties hereto ("CONFIDENTIAL INFORMATION").

8.2 No party shall at any time, either during the term of Data.Site or
thereafter, directly or indirectly: (i) use for its own benefit (other than
benefits accruing pursuant to this Agreement) or for the benefit of others, or
(ii) disseminate or disclose to any person or entity, any such Confidential
Information, whether acquired in the performance of services in connection with
this Agreement or in any other capacity; provided, however, that the foregoing
covenant not to disclose Confidential Information shall not apply to any
information which has become publicly available without a breach of this
Agreement, or the disclosure of which is required by applicable law or legal
process.

9. RECONCILIATION OF ACCOUNTS RECEIVABLE AND ASSUMED LIABILITIES.

For purposes hereof, the term "PAID RECEIVABLES" shall refer to those of
RSS's accounts receivable transferred to Data.Site hereunder which have been
collected since the Closing Date. On or before the earliest of: (1) January 31,
1998; (2) the date the RSS Board of Managers requests the members of RSS to make
an additional capital contribution to RSS; or (3) such earlier date as the
parties may mutually agree, the parties shall perform an accounting, in which
they shall compare the amounts of the Assumed Liabilities to the aggregate
amount of the Paid Receivables. On or before January 31, 1999, RSS shall pay to
Data.Site an amount equal to the sum of: (a) the amount, if any, by which the
Assumed Liabilities exceeds the aggregate amount of the Paid Receivables, plus
(b) $49,000 (representing the reimbursement of RSS's pro rata portion of amounts
advanced by Premier and used by RSS).

-14-

<PAGE>

10. INDEMNITY.

10.1 RSS'S AND MEMBERS' INDEMNITY. Subject to the limitations set forth in
SECTIONS 10.3 AND 10.5 below, RSS and the Members agree to, jointly and
severally, indemnify and hold harmless Premier and Data.Site against, and to
reimburse Premier and Data.Site for, any actual damage, loss, cost or expense
(including attorneys' fees and costs of investigation incurred in defending
against and/or settling such damage, loss, costs or expense or claim therefor
and any amounts paid in settlement thereof) reasonably incurred by Premier or
Data.Site (i) in respect of any misrepresentation, breach of warranty, or
failure to perform or violation of any agreement or covenant on the part of RSS
under this Agreement (including, without limitation, its obligations under
SECTION 9 above), and (ii) in respect of any liability, obligation or claim
relating to or resulting from the operations, assets or business of RSS prior to
or after the Closing.

10.2 PREMIER'S INDEMNITY. Subject to the limitations set forth in SECTIONS
10.3 AND 10.6 below, Premier agrees to indemnify and hold harmless RSS and
Data.Site against, and to reimburse RSS and Data.Site for, any actual damage,
loss, cost or expense (including attorneys' fees and costs of investigation
incurred in defending against and/or settling such damage, loss, cost or expense
or claim therefor and any amounts paid in settlement thereof) reasonably
incurred by RSS or Data.Site in respect of any misrepresentation, breach of
warranty, or failure to perform or violation of any agreement or covenant on the
part of Premier under this Agreement.

10.3 DURATION OF INDEMNITIES. The indemnities set forth in SECTION 10.1
and SECTION 10.2, and any other liability that any party may have for any breach
of a representation, warranty or covenant in this Agreement, shall survive the
Closing and shall remain in effect until the later of January 31, 1998 or the
date RSS makes the payment required under SECTION 9 above, at which time they
shall expire (provided that if RSS does not make the payment required under
SECTION 9 by January 31, 1999, Premier's indemnity obligations and other
liabilities hereunder shall nonetheless terminate on January 31, 1999).
Notwithstanding the foregoing, the respective indemnitors shall continue to be
bound by the indemnification provisions of SECTIONS 10.1 AND 10.2 after such
date with respect to any claim which has been asserted hereunder prior to such
date and which is pending or unresolved at the end of such periods.

10.4 NOTIFICATION AND PARTICIPATION. RSS, the Members, Premier and
Data.Site shall each notify the others of any liabilities, claims, litigation or
proceeding that reasonably appears to involve matters covered by the indemnities
set forth in SECTION 10.1 AND 10.2 promptly upon its discovery or notification
thereof, whether before or after the Closing, provided, however, that the
failure to give such notification shall not terminate or otherwise affect the
parties' respective obligations to indemnify

-15-

<PAGE>

each other hereunder, unless, and only to the extent that, such failure
results in actual prejudice to the indemnifying party.

10.5 LIMITATIONS ON INDEMNITIES BY RSS AND MEMBERS. In addition to the
limitations set forth in SECTION 10.3 above, the obligations of RSS and the
Members under SECTION 10.1 or otherwise for any breach of this Agreement shall
be limited as follows:

(a) In the event Premier is entitled to indemnity hereunder or
otherwise to damages for breach of this Agreement, the amount to which
Premier is entitled (the "LOSS") shall be liquidated and paid as follows:

(i) The amount of Shares issued to RSS shall be reduced by
an amount (expressed in Shares) equal to the amount of the Loss
divided by the per share price used in SECTION 2.1 for purposes of
calculating the number of Shares to be delivered to RSS hereunder.
RSS shall transfer and assign to Premier the number of Shares so
calculated. Subject to SECTION 10.5(b) below, so long as RSS remains
obligated to indemnify Premier hereunder, Premier shall have (and is
hereby granted) a security interest in the Shares (including any
shares which may become issuable under SECTION 2.2 hereof)as
collateral for performance of such indemnification obligations. At
any time after a default in the performance of such indemnification
obligations, Premier shall be entitled to all rights and remedies of a
secured party under the California Uniform Commercial Code, with
respect to the Shares so pledged.

(ii) If the remedy provided under SECTION 10.5(b)(i) above
is insufficient to make Premier whole for the full amount of the Loss,
then all of the Shares shall, pursuant to SECTION 10.5(b)(i) above, be
transferred to Premier, and in addition the number of additional
Shares to which RSS is entitled under SECTION 2.2 hereof (the
"ADDITIONAL SHARES") shall be reduced by an amount (expressed in
Shares) equal to: (1) the amount of the Loss which is not reimbursed
under SECTION 10.5(b)(i), divided by (2) the per share price used in
calculating the number of Additional Shares issuable under
SECTION 2.2. RSS shall transfer and assign to Premier the number of
Shares so calculated. This SECTION 10.5(b)(ii) shall be operative only
to the extent RSS becomes entitled to the additional Shares under
SECTION 2.2. Subject to SECTION 10.5(b) below, the security interest
granted under SECTION 10.5(b)(i) shall extend to any Shares issued or
issuable under SECTION 2.2.

(iii) If the remedies provided under SECTIONS 10.5(b)(i) AND
(b)(ii) above are insufficient to make Premier whole for the full
amount of the Loss, then

-16-

<PAGE>

all of the Shares and Additional Shares shall, pursuant to SECTIONS
10.5(b)(i) AND (b)(ii) above, be transferred to Premier, and in
addition RSS's "Percentage Interest" in Data.Site (as such term is
defined in the Operating Agreement) shall be reduced by 1% for each
$43,137 by which the Loss exceeds $1,200,000 (being the value of the
Shares so transferred to Premier). In the event that RSS becomes
entitled to Additional Shares under SECTION 2.2, and the remedy set
forth in SECTION 10.5(b)(ii) is implemented, then for purposes of this
SECTION 10.5(b)(iii) the reference to $1,200,000 in the foregoing
sentence shall read, instead, "$1,500,000."

(iv) If the remedies provided under SECTIONS 10.5(b)(i) TO
10.5(b)(iii) above are insufficient to make Premier whole for the full
amount of the Loss, then the Members shall indemnify Premier for any
Loss for which Premier has not been reimbursed under such Sections, up
to the maximum amount set forth in SECTION 10.5(c) below.

(b) So long as Premier continues to have a security interest in the
Shares and Additional Shares under SECTIONS 10.5(a)(i) AND (a)(ii) above,
Rutan & Tucker, LLP, counsel to Premier, shall retain possession of the
certificate representing such Shares and Additional Shares, in order to
perfect the security interest granted to Premier hereunder. The parties
agree to enter into an agreement with Rutan & Tucker, LLP, promptly
following the Closing, containing reasonable terms relating to such firm's
duties in its capacity as agent for Premier. Notwithstanding any
provisions of this Agreement to the contrary, in the event the Company
makes a capital call of its members at a time at which the Shares and
Additional Shares remain subject to the security interest described above,
Premier will release from such security interest a sufficient number of
shares to permit RSS to pledge such Shares and Additional Shares as
collateral for a loan to be used to fund its obligations under such capital
call. In addition, on the date RSS pays the amounts required to be paid
under SECTION 9 above (the "SECTION 9 PAYMENT"), Premier shall release its
security interest in the Shares and Additional Shares (but in no event
earlier than July 31, 1997). The release of such security interest shall
not, however, terminate or otherwise affect the indemnity obligations of
RSS and the Members under SECTION 10.1 above, which shall continue until
the expiration of the periods set forth in SECTION 10.3. If RSS becomes
entitled to and thereafter disposes of any Shares or Additional Shares, the
remaining Shares and Additional Shares held by them shall continue to be
subject to the terms of this Agreement, and in satisfying the
indemnification obligations of RSS and the Members, such parties shall then
receive credit under SECTIONS 10.5(a)(i) AND (ii) only to the extent of the
actual amount of Shares or Additional Shares returned to Premier, and

-17-

<PAGE>

the formula set forth in SECTION 10.5(a)(iii) shall be correspondingly
adjusted.

(c) The maximum amount for which each of the Members shall be liable
shall not exceed 10% of the amount, determined in accordance with generally
accepted accounting principles, initially recorded on the Premier balance
sheet for its investment in Data.Site.

10.6 LIMITATIONS ON INDEMNITY BY PREMIER. In addition to the limitations
set forth in SECTION 10.3 above, RSS and the Members agree that they shall not
rely upon, and shall have no recourse against Premier for, any representations
or warranties that are not contained in SECTION 7 hereof, and Premier shall not
be deemed to have made to RSS or the Members any representation or warranty
other than as expressly made by Premier in SECTION 7 hereof. Without limiting
the generality of the foregoing, and notwithstanding any express representations
and warranties made by Premier in SECTION 7, Premier makes no representations or
warranty to RSS or the Members with respect to the value of the Shares, any
projections, estimates or budgets heretofore delivered or made available to RSS
with respect to future revenues, expenses or expenditures or results of
operations, or any other information or documents made available to RSS or its
counsel, accountants or advisors with respect to Premier, except as expressly
covered by a representation and warranty contained in SECTION 7 hereof.

11. MISCELLANEOUS.

11.1 BULK SALES. RSS hereby represents and warrants to Premier that it has
complied with the bulk sales provisions of the Uniform Commercial Code, to the
extent that they apply to the transactions contemplated hereby.

11.2 NOTICES. Written notice given in accordance with any provision of
this Agreement shall be hand delivered or sent by prepaid registered or
certified mail with return receipt requested to the respective addresses of the
parties set forth on the signature page hereof (or to such other address as any
party may designate in writing). Any notice delivered by hand is deemed to have
been given upon delivery. Any notice mailed as provided above is deemed to have
been given five (5) days after the date of mailing.

11.3 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, together
with all exhibits, schedules and statements delivered pursuant to the terms of
this Agreement, constitutes the entire agreement between the parties hereto and
supersedes any prior agreement and understanding of the parties in connection
herewith. No supplement, modification or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other

-18-

<PAGE>

provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.

11.4 FURTHER ASSURANCES. Each of the parties hereto shall, following the
Closing, and without charge to the other, take such additional actions and
execute, deliver and file such additional instruments as may be reasonably
required to give effect to the transactions contemplated hereby.

11.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.

11.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.

11.7 HEADINGS. The headings of the several Sections herein are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.

11.8 NO ASSIGNMENTS. This Agreement may not be assigned by operation of
law or otherwise without the written consent of the other party hereto.

-19-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Joint Venture
Agreement as of the date first written above.

PREMIER: PREMIER LASER SYSTEMS, INC.,
a California corporation

By: /s/ Colette Cozean
--------------------------
Colette Cozean, President

ADDRESS:
3 Morgan
Irvine, California 92718

RSS: RSS, LLC, a Kansas
limited liability company

By: /s/ Daniel S. Durrie
--------------------------
Daniel S. Durrie, President

ADDRESS:
1212 Cambridge Circle Drive
Kansas City, Kansas 66103

DATA.SITE: DATA.SITE, LLC, a California
limited liability company

By: /s/ Colette Cozean
--------------------------
Colette Cozean, Manager

By: /s/ Daniel S. Durrie
--------------------------
Daniel S. Durrie, Manager

MEMBERS:
/s/ Daniel S. Durrie
-----------------------------
Dr. Daniel S. Durrie

/s/ John D. Hunkeler
-----------------------------
Dr. John D. Hunkeler

/s/ Ramgopal Rao
-----------------------------
Ramgopal Rao

-20-

<PAGE>

OPERATING AGREEMENT
OF

DATA.SITE, LLC

THIS OPERATING AGREEMENT is entered into and effective as of the 31st day
of January, 1997, by and between PREMIER LASER SYSTEMS, INC., a California
corporation ("PREMIER"), and RSS, LLC, a Kansas limited liability company
("RSS") (collectively referred to as the "MEMBERS").

A. On December 27, 1996, the Members caused a California limited
liability company to be formed pursuant to the Beverly-Killea Limited
Liability Company Act (the "ACT") under the name "Data.Site, LLC" (the
"COMPANY") and they now desire to enter into an Operating Agreement, as
defined in Section 17001(ab) of the Act, to delineate their rights and
liabilities as members with each other, to provide for the management of the
business, and to provide for certain other matters, all as permitted under
the Act.

B. In connection with the formation of the Company the Members have
entered into that certain Joint Venture Agreement dated January 31, 1997 (the
"JOINT VENTURE AGREEMENT").

NOW, THEREFORE, THE MEMBERS AGREE AS FOLLOWS:

ARTICLE 1

THE COMPANY

1.1 PRINCIPAL PURPOSE. The principal purpose of the Company shall be to
engage in the business of developing and marketing "outcomes" software and
marketing other products of Premier and in any and all lawful business
activities related or incidental thereto.

1.2 PLACE OF BUSINESS. The principal place of business of the Company
shall be 1212 Cambridge Circle Drive, Kansas City, Kansas, unless changed by
a vote of the Members.

<PAGE>

1.3 TERM. The Company commenced on the date when its Articles of
Organization (the "ARTICLES") were filed with the California Secretary of
State as required by the Act and shall continue until terminated as a result
of the dissolution and winding up of the Company in accordance with Article 8
hereof.

ARTICLE 2

MEMBERS; CAPITAL CONTRIBUTIONS; PERCENTAGE INTERESTS

2.1 INITIAL MEMBERS. The names and addresses of the Members of the
Company, their respective initial capital contributions, and the percentage
which shall be used to determine their respective interests in Company
profits, losses and distributions ("PERCENTAGE INTEREST") are set forth
below. Each Member's acquisition of a membership interest in the Company
shall be effective upon the payment in full in cash of such Member's
respective capital contribution.

Initial Capital Percentage
Member Contribution Interest
------ --------------- ----------
Premier Laser Systems, Inc. certain assets 51%
3 Morgan contributed
Irvine, CA 92718 pursuant to the
Joint Venture
Agreement, and
valued at
$2,200,000

RSS, LLC certain assets 49%
1212 Cambridge Circle Dr. contributed
Kansas City, KS 66103 pursuant to the
Joint Venture
Agreement, and
valued at
$2,113,725

-2-
<PAGE>

2.2 ADDITIONAL CAPITAL CONTRIBUTIONS.

(a) The Board of Managers may determine from time to time that
additional cash is required to permit the Company to carry on its business,
and may therefore request that such additional cash be contributed by the
Members in proportion to their respective Percentage Interests. The
Members shall have the option, but not the obligation, to make such
additional capital contributions at any time during a period of four (4)
months after the determination of the need for such additional cash has
been made. Each Member shall receive a credit to its capital account in
the amount of any additional capital which it contributes to the Company.
Immediately following any such capital contributions, the Percentage
Interests shall be adjusted by the Company to reflect the new relative
proportions of the capital accounts of the Members.

(b) The Board of Managers may also determine, from time to time, that
it is in the best interest of the Company to issue options, warrants, or
other securities representing an equity interest in the Company, on term
authorized by the Board of Managers. Such options, warrants, and other
securities may include terms, among others, providing for their
exercisability or conversion into other interests in the Company upon the
occurrence of future events, including, without limitation, the completion
of a public offering by the Company or by a successor to the Company. In
no event, however, shall said options, warrants, additional securities, or
other securities into which they are convertible or for they are
exercisable provide the holder thereof with voting rights with respect to
the affairs of the Company, except with the express prior written consent
of Premier. The Board of Managers is authorized to cause the Company to
issue options, warrants and other securities in accordance with the
foregoing, without further approval of the Members.

-3-
<PAGE>

2.3 OTHER MATTERS.

(a) No interest shall accrue on any capital contributed to the
Company by any Member. Except as otherwise expressly provided herein, no
Member shall be entitled to receive a return of such Member's capital
contributions prior to the dissolution and winding up of the Company.

(b) Except as otherwise expressly provided herein or as may be
mandatory under the Act, no Member shall be entitled to retire, withdraw
from, or dissolve the Company without the consent of all the other Members.

2.4 LIABILITY OF MEMBERS; INDEMNITY.

(a) No Member shall be personally liable for the debts, obligations
or liabilities of the Company solely by reason of being a Member. Each
Member shall indemnify and hold the other Members (and, where applicable,
their respective officers, partners, directors and shareholders) harmless
from and against all claims, demands, costs, losses and damages, including,
without limitation, attorneys' fees and expenses (collectively, "LOSSES")
incurred as a result of or in connection with the indemnifying party's
breach (directly or by its agents or other representatives) of any
provision of this Agreement or action outside the scope of this Agreement.

(b) Subject to paragraph (a) above, the Company shall indemnify and
hold each Member (and, where applicable, such Member's respective officers,
partners, directors and shareholders) harmless from and against all Losses
incurred as a result of or in connection with (i) any claim that such
Member is liable for any debt, obligation or liability of the Company or is
directly or indirectly required to make payments in respect thereof or in
connection therewith, and (ii) any act or omission by such Member

-4-
<PAGE>

for or on behalf of the Company, unless such act or omission is
unauthorized, contrary to this Agreement, in bad faith or
constitutes gross negligence or fraud.

(c) Each party to be indemnified under paragraph (a) or (b) above
shall give each indemnifying party notice of any Loss subject to the
indemnity within thirty (30) days after the indemnified party has received
actual notice thereof. The indemnifying party shall be entitled to
participate in or direct the defense of any action in connection with the
reported Loss, provided that it employs counsel reasonably satisfactory to
the indemnified party. An indemnifying party shall not be liable to an
indemnified party in respect of settlements effected by the indemnified
party without the written consent of the indemnifying party, which consent
shall not be unreasonably withheld or delayed.

2.5 MEMBERS ARE NOT AGENTS. Pursuant to SECTION 5.1 hereof and the
Articles, the management of the Company is vested in the Board of Managers. The
Members shall have no power to participate in the management of the Company
except as expressly authorized by this Agreement or the Articles and except as
expressly required by the Act. No Member, acting solely in the capacity of a
Member, is an agent of the Company nor does any Member, unless expressly and
duly authorized in writing to do so by the Board of Managers, have any power or
authority to bind or act on behalf of the Company in any way, to pledge its
credit, to execute any instrument on its behalf or to render it liable for any
purpose.

ARTICLE 3

CAPITAL ACCOUNTS; PROFITS AND LOSSES; DISTRIBUTIONS

3.1 CAPITAL ACCOUNTS. The Company shall establish and maintain a
capital account for each Member, which accounts shall have initial balances
equal to such Member's initial capital contribution. A Member's capital
account shall be increased by the amount of (a) any

-5-
<PAGE>

additional capital contributions by, and (b) the income and gain allocated
to, such Member, and shall be decreased by any losses and deductions
allocated, or distributions made, to such Member pursuant to the terms of
this Agreement. It is the intention of the Members that capital accounts be
maintained strictly in accordance with Treas. Reg. Section 1.704-1(b)(2)(iv).

3.2 ALLOCATIONS OF PROFITS AND LOSSES. All profits and losses of the
Company shall be allocated to the Members in accordance with their respective
Percentage Interests.

3.3 DISTRIBUTIONS. Prior to the dissolution of the Company, the Company
shall distribute its funds and other assets to Members at such times and in such
amounts as the Board of Managers determines to be appropriate. Distributions
shall be made to the Members in accordance with their respective Percentage
Interests.

ARTICLE 4

MEETINGS OF MEMBERS

4.1 CALL, NOTICE AND CONDUCT OF MEETINGS. Meetings of the Members, for
any purpose or purposes, may be called by a Member or Members then owning
more than ten percent (10%) of the Percentage Interests in the Company.
Whenever any meeting of the Members is called, written notice thereof shall
be given and the meeting shall otherwise be conducted in accordance with the
provisions of Section 17104 of the Act.

4.2 VOTING BY MEMBERS. At any meeting of Members, every Member shall be
entitled to vote either in person or by proxy executed in writing by such
Member. Except as may otherwise be specifically provided herein, with respect
to any matter at any meeting, or otherwise with respect to any determination or
action required or permitted to be made or taken by the Members under this
Agreement, the affirmative vote of Members then owning more than

-6-
<PAGE>

fifty percent (50%) of the Percentage Interests in the Company shall be
sufficient to make such determination or to take such action.

4.3 ACTION WITHOUT A MEETING. Any action which is required or permitted
to be taken at any annual or special meeting of Members, including
determinations under this Agreement, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the Members whose affirmative vote
would otherwise be required for such action at a meeting hereunder. Such action
by written consent shall constitute the act of the Members.

4.4 TELEPHONIC MEETINGS. Members may participate in and hold meetings by
using conference telephone or similar communications equipment, by means of
which all persons participating in such meeting can hear each other, and
participation in a meeting pursuant to this Section shall constitute presence in
person at such meeting.

ARTICLE 5

MANAGEMENT OF COMPANY

5.1 MANAGEMENT OF THE COMPANY BY BOARD OF MANAGERS.

(a) EXCLUSIVE MANAGEMENT BY BOARD OF MANAGERS. The business,
property and affairs of the Company shall be managed exclusively by the
Board of Managers. Except for situations in which the approval of the
Members is expressly required by the Act, the Articles or this Agreement,
the Managers shall have full, complete and exclusive authority, power, and
discretion to manage and control the business, property and affairs of the
Company, to make all decisions regarding those matters and to perform any
and all other acts or activities customary or incident to the management of
the Company's business, property and affairs.

-7-
<PAGE>

(b) MEETINGS OF BOARD OF MANAGERS. Meetings of the Board of Managers
may be called by any Manager. All meetings shall be held upon four (4)
days notice by mail or forty-eight (48) hours notice delivered personally
or by telephone, telegraph or facsimile. A notice need not specify the
purpose of any meeting. Notice of a meeting need not be given to any
Manager who signs a waiver of notice or a consent to holding the meeting
(which waiver or consent need not specify the purpose of the meeting) or an
approval of the minutes thereof, whether before or after the meeting, or
who attends the meeting without protesting, prior to its commencement, the
lack of notice to such Manager. All such waivers, consents and approvals
shall be filed with the Company records or made a part of the minutes of
the meeting. A majority of the Managers present, whether or not a quorum
is present, may adjourn any meeting to another time and place. If the
meeting is adjourned for more than twenty-four (24) hours, notice of any
adjournment shall be given prior to the time of the adjourned meeting to
the Managers who are not present at the time of the adjournment. Meetings
of the Board of Managers may be held at any place within or without the
State of California which has been designated in the notice of the meeting
or at such place as may be approved by the Board of Managers. Managers may
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all Managers participating in such
meeting can hear one another. Participation in a meeting in such manner
constitutes a presence in person at such meeting. A majority of the
authorized number of Managers constitutes a quorum of the Managers for the
transaction of business. Except to the extent that this Agreement
expressly requires the approval of all Managers, every act requiring the
approval of the Managers must be approved by a majority of a quorum of the
Managers, and every act or decision done or made by a majority of the

-8-
<PAGE>

Managers present at a meeting duly held at which a quorum is present is the
act of the Board of Managers. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
Managers, if any action taken is approved by at least a majority of the
required quorum for such meeting.

(c) ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the Board of Managers may be taken by the Board of Managers
without a meeting, if all of the Managers individually or collectively
consent in writing to such action. Such action by written consent shall
have the same force and effect as a vote of such Managers.

5.2 ELECTION OF MANAGERS.

(a) NUMBER, TERM, AND QUALIFICATIONS. The Company shall have five
(5) Managers. The number of Managers of the Company may be changed only
upon the approval of all the Members, provided that in no instance shall
there be less than one Manager and provided further that if the number of
Managers is reduced from more than one to one, the Articles shall be
amended to so state, and if the number of Managers is increased to more
than one, the Articles shall be amended to delete the statement that the
Company has only one Manager. Unless he resigns or is removed, each
Manager shall hold office until a successor shall have been elected and
qualified. A Manager need not be a Member, an individual, a resident of
the State of California, or a citizen of the United States.

(b) ELECTION. Premier and RSS each shall be entitled to appoint two
Managers to the Board of Managers (the "PREMIER MANAGERS" and "RSS
MANAGERS" respectively). The fifth Manager shall be elected by the
affirmative vote or written

-9-
<PAGE>

consent of all Members. The following persons shall be the initial Managers
of the Company:

Premier Manager Daniel Caruso
Premier Manager Colette Cozean
RSS Manager Daniel Durrie
RSS Manager John Hunkeler
Elected by Members ______________________

(c) RESIGNATION. Any Manager may resign at any time by giving
written notice to the Members and remaining Managers without prejudice to
the rights, if any, of the Company under any contract to which the Manager
is a party. The resignation of any Manager shall take effect upon receipt
of that notice or at such later time as shall be specified in the notice.
Unless otherwise specified in the notice, the acceptance of the resignation
shall not be necessary to make it effective. The resignation of a Manager
who is also a Member shall not affect the Manager's rights as a Member and
shall not constitute a withdrawal of a Member.

(d) REMOVAL. The Premier Managers and the RSS Managers may be
removed only by Premier or RSS, respectively. The fifth Manager may be
removed at any time, with or without cause, by the affirmative vote of all
of the Members at a meeting called expressly for that purpose. Any removal
shall be without prejudice to the rights, if any, of the Manager under any
employment contract and, if the Manager is also a Member, shall not affect
the Manager's rights as a Member or constitute a withdrawal of a Member.

(e) VACANCIES. Any vacancy occurring for any reason with respect to
the Premier Managers or RSS Managers may be filled only by Premier or RSS,
respectively.

-10-
<PAGE>

Any vacancy occurring with respect to the fifth Manager may be filled by
the affirmative vote or written consent of all of the Members.

5.3 POWERS OF MANAGERS.

(a) POWERS OF BOARD OF MANAGERS. Without limiting the generality of
SECTION 5.1, but subject to SECTION 5.3(b) and to the express limitations
set forth elsewhere in this Agreement, the Board of Managers shall have all
necessary powers to manage and carry out the purposes, business, property,
and affairs of the Company, including, without limitation, the power to
exercise on behalf and in the name of the Company all of the powers
described in Corporations Code Section 17003.

(b) LIMITATIONS ON POWER OF MANAGERS. Notwithstanding any other
provisions of this Agreement, no debt, liability or expenditure of more
than $100,000 may be contracted or made on behalf of the Company in the
ordinary course of business except by the written consent of all Managers,
and no debt, liability or expenditure of more than $25,000 may be
contracted or made on behalf of the Company outside the ordinary course of
business except with the written consent of all Managers. Additionally,
the Managers shall not have authority hereunder to cause the Company to
engage in the following transactions without first obtaining the
affirmative vote or written consent of all of the Members.

(i) The dissolution of the Company;

(ii) The sale, exchange or other disposition of all, or
substantially all, of the Company's assets occurring as part of a
single transaction or plan, or in multiple transactions over a six (6)
month period, except in the orderly liquidation and winding up of the
business of the Company upon its duly authorized dissolution;

-11-
<PAGE>

(iii) The merger of the Company with another business entity;

(iv) The establishment of different classes of Members;

(v) The issuance of any new membership interests in the
Company or options or commitments to issue any such interests, and

(vi) The amendment of the Articles.

5.4 PERFORMANCE OF DUTIES. The Managers shall perform their managerial
duties in good faith, in a manner they reasonably believe to be in the best
interests of the Company and its Members, and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position would use
under similar circumstances. A Manager who so performs the duties of Manager
shall not have any liability by reason of being or having been a Manager of the
Company.

In performing their duties, the Managers shall be entitled to rely on
information, opinions, reports, or statements, including financial statements
and other financial data, of the following persons or groups unless they have
knowledge concerning the matter in question that would cause such reliance to be
unwarranted and provided that the Managers act in good faith and after
reasonable inquiry when the need therefor is indicated by the circumstances:

(a) One or more officers, employees or other agents of the Company
whom the Managers reasonably believe to be reliable and competent in the
matters presented;

(b) Any attorney, independent accountant, or other person as to
matters which the Managers reasonably believe to be within such person's
professional or expert competence; or

(c) A committee upon which the Managers do not serve, duly designated
in accordance with a provision of the Articles or this Agreement, as to
matters within its

-12-
<PAGE>

designated authority, which committee the Managers reasonably believe to
merit competence.

5.5 DEVOTION OF TIME. The Managers are not obligated to devote all of
their time or business efforts to the affairs of the Company. The Managers
shall devote whatever time, effort, and skill as they deem appropriate for the
operation of the Company.

5.6 TRANSACTIONS BETWEEN THE COMPANY AND THE MANAGERS. Notwithstanding
that it may constitute a conflict of interest, the Managers may, and may cause
their affiliates to, engage in any transaction (including, without limitation,
the purchase, sale, lease, or exchange of any property or the rendering of any
service, or the establishment of any salary, other compensation, or other terms
of employment) with the Company so long as such transaction is not expressly
prohibited by this Agreement and so long as the terms and conditions of such
transaction, on an overall basis, are fair and reasonable to the Company and are
at least as favorable to the Company as those that are generally available from
Persons capable of similarly performing them and in similar transactions between
parties operating at arm's-length.

A transaction between the Managers and/or their affiliates, on the one
hand, and the Company, on the other hand, shall be conclusively determined to
constitute a transaction on terms and conditions, on an overall basis, fair and
reasonable to the Company and at least as favorable to the Company as those
generally available in a similar transaction between parties operating at arm's-
length if the Members having no interest in such transaction (other than their
interests as Members) affirmatively vote or consent in writing to approve the
transaction. Notwithstanding the foregoing, the Managers shall not have any
obligation, in connection with any such transaction between the Company and the
Managers or an affiliate of the Managers, to seek the consent of the Members.

-13-
<PAGE>

5.7 PAYMENTS TO MANAGERS. Except as specified in the Joint Venture
Agreement or other agreement between the parties, the Managers and their
affiliates shall receive only the following payments:

(a) MANAGEMENT FEE. The Company shall pay the Managers a monthly fee
for services in connection with the management of the Company in the amount
of $__________. Such fee may be changed from time to time only by the
affirmative vote or written consent of all of the Members, and no Manager
shall be prevented from receiving any fee because the Manager is also a
Member of the Company.

(b) SERVICES PERFORMED BY MANAGERS OR AFFILIATES. The Company shall
pay the Managers or affiliates of the Managers for services rendered or
goods provided to the Company to the extent that the Managers are not
required to render such services or goods themselves without charge to the
Company, and to the extent that the fees paid to such Managers or
affiliates do not exceed the fees that would be payable to an independent
responsible third party that is willing to perform such services or provide
such goods.

5.8 APPOINTMENT OF OFFICERS. The Board of Managers may appoint officers
at any time. The officers of the Company, if deemed necessary by the Board of
Managers, may include a chairman, president, vice president, secretary, and
chief financial officer. The officers shall serve at the pleasure of the Board
of Managers, subject to all rights, if any, of an officer under any contract of
employment. Any individual may hold any number of offices. No officer need be
a resident of the State of California or citizen of the United States. If a
Manager is not an individual, such Manager's officers may serve as officers of
the Company if elected by the Board of Managers. The officers shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board of Managers.

-14-
<PAGE>

5.9 SIGNING AUTHORITY OF MANAGER/OFFICERS. Subject to SECTION 5.3(b) and
any restrictions imposed by the Members or the Board of Managers, any Manager
(or officer if authorized by the Board of Managers), acting alone, is authorized
to endorse checks, drafts, and other evidences of indebtedness made payable to
the order of the Company, but only for the purpose of deposit into the Company's
accounts. All checks, drafts, and other instruments obligating the Company to
pay money in an amount of less than $5,000 may be signed by any one Manager (or
authorized officer), acting alone. All checks, drafts, and other instruments
obligating the Company to pay money in an amount of $5,000 or more must be
signed on behalf of the Company by any two Managers (or authorized officers)
acting together. Any two Managers (or authorized officers) acting together,
shall be authorized to sign contracts and obligations on behalf of the Company.
Notwithstanding the above, however, when the signature of two managers is
required, this Section 5.9 is not satisfied if the only two managers signing the
document are both RSS Managers or both Premier Managers.

5.10 REGULATORY MATTERS. The Board of Managers shall keep each Member
apprised of all developments relating to federal, state or local regulatory
matters affecting the Company's business, including but not limited to inquiries
made by, or correspondence received from or directed to, any regulatory agency.
Notwithstanding any power or authority granted to the Board of Managers herein,
the Board of Managers shall follow Premier's direction in connection with all
such regulatory matters unless such direction would result in a violation of the
law and any Member or Manager presents a legal opinion from counsel to that
effect.

5.11 LIMITED LIABILITY. No person who is a Manager and/or officer of the
Company shall be personally liable under any judgment of a court, or in any
other manner, for any debt, obligation, or liability of the Company, whether
that liability or obligation arises in contract, tort, or otherwise, solely by
reason of being a Manager and/or officer of the Company. A

-15-
<PAGE>

Manager or officer shall not be liable to the Company or to any Member for
any loss or damage sustained by the Company or any Member, unless the loss or
damage shall have been the result of fraud, deceit, gross negligence,
reckless or intentional misconduct, or a knowing violation of law by the
Manager or officer.

5.12 INDEMNIFICATION OF MANAGER; INSURANCE. The Company shall, to the
fullest extent permitted by applicable law from time to time, indemnify, save
harmless, and pay all judgments and claims against any Manager or officer
relating to any liability or damage incurred by reason of any act performed or
omitted to be performed by such Manager or officer in connection with the
business of the Company, including attorneys' fees incurred by the Manager or
officer in connection with the defense of any action based on any such act or
omission, which attorneys' fees may be paid as incurred; provided, however, that
a Manager or officer shall not be indemnified from any liability for fraud, bad
faith, willful misconduct or violation of the terms of this Agreement. The
Company shall obtain and maintain product liability and directors' and officers'
insurance in amounts and with insurance companies satisfactory to Premier.

ARTICLE 6

TRANSFERS OF INTERESTS

6.1 LIMITATION ON TRANSFER. Except as otherwise expressly provided
below, a Member shall not sell, assign, mortgage, pledge or otherwise
transfer (collectively, "TRANSFER") all or any part of such Member's
membership interest in the Company, nor shall any Member suffer or permit any
third party to Transfer such Member's membership interest in the Company,
without the prior written consent of all Members, which consent may be
withheld for any reason or for no reason; and any purported Transfer of a
Member's membership interest in the Company without such prior consent shall
be void and of no effect against the Company, any

-16-
<PAGE>

other Member, any creditor of the Company, or any claimant against the
Company. If the required prior consent to any such Transfer is obtained as
above provided, the transferee shall be admitted to the Company as a
substituted Member provided that the following conditions are complied with:

(a) The other Members shall approve of the form and content of the
instrument of assignment;

(b) The transferring Member and such transferee shall execute and
acknowledge such other instrument or instruments as the other Members may
deem necessary or desirable to effectuate such admission;

(c) Such transferee shall in writing accept, adopt and agree to be
bound by all of the terms and provisions of this Agreement; and

(d) The transferring Member or such transferee shall pay or agree to
pay, as the other Members may determine, all reasonable expenses connected
with such admission, including, but not limited to, legal fees and costs.

The giving of such consent in any one or more instances shall not limit or waive
the need for such consent in any other or subsequent instances.

6.2 PERMITTED TRANSFERS. The foregoing notwithstanding, the restrictions
of this ARTICLE 6 shall not apply to:

(a) A Transfer of a Member's membership interest in the Company by
will or by intestacy, or by a Transfer to a trustee or trustees of a trust
revocable by the Member and under which the Member has a significant
beneficial interest, or to a Member's immediate family (defined as the
husband, wife, adult child, father, mother or adult grandchild of the
Member, trustees for any of the foregoing, or trustees for minor lineal
issue of the Member); or

-17-
<PAGE>

(b) A Transfer of a membership interest in the Company held by a
Member which is a corporation, partnership, trust or other entity which
Transfer is a result of the dissolution or termination of such entity;

provided, however, that before any such transferee shall be admitted to the
Company as a substituted Member, such transferee must in writing accept, adopt
and agree to be bound by all of the terms and provisions of this Agreement.

6.3 ASSIGNEE. An assignee who has acquired a beneficial interest in this
Company from a Member but who has not become a substituted Member in accordance
with the provisions of SECTIONS 6.1 OR 6.2 above shall have no right to require
any information on account of Company transactions, to inspect the Company
books, or to vote on any of the matters to which the transferor Member would be
entitled to vote pursuant to this Agreement. An Assignee shall be entitled to
only receive the share of distributions to which such transferor Member would
otherwise be entitled.

6.4 RIGHT OF FIRST REFUSAL. Each time a Member proposes to transfer all
or any part of its membership interest (or as required by operation of law or
other involuntary transfer to do so) other than pursuant to SECTION 6.2, such
Member shall first offer such membership interest to the Company and the
non-transferring Members in accordance with the following provisions:

(a) Such Member shall deliver a written notice ("OPTION NOTICE") to
the Company and the other Members stating such Member's bona fide intention
to transfer such membership interest, the membership interest to be
transferred, the purchase price and terms of payment for which the Member
proposes to transfer such membership interest and the name and address of
the proposed transferee.

-18-
<PAGE>

(b) Within thirty (30) days after receipt of the Option Notice, the
Company shall have the right, but not the obligation, to elect to purchase
all or any part of the membership interest upon the price and terms of
payment designated in the Option Notice. If the Option Notice provides for
the payment of non-cash consideration, the Company may elect to pay the
consideration in cash equal to the good faith estimate of the present fair
market value of the non-cash consideration offered as determined by the
Board of Managers. If the Company exercises such right within such thirty
(30) day period, the Board of Managers shall give written notice of that
fact to the transferring and non-transferring Members.

(c) If the Company fails to elect to purchase the entire membership
interest proposed to be transferred within the thirty (30) day period
described in SECTION 6.4(b), the non-transferring Members shall have the
right, but not the obligation, to elect to purchase any remaining share of
such membership interest upon the price and terms of payment designated in
the Option Notice. If the Option Notice provides for the payment of
non-cash consideration, such purchasing Members each may elect to pay the
consideration in cash equal to the good faith estimate of the present fair
market value of the non-cash consideration offered as determined by the
Board of Managers. Within sixty (60) days after receipt of the Option
Notice, each non-transferring Member shall notify the Board of Managers in
writing of his desire to purchase a portion of the membership interest
proposed to be so transferred. The failure of any Member to submit a
notice within the applicable period shall constitute an election on the
part of that Member not to purchase any of the membership interest which
may be so transferred. Each Member so electing to purchase shall be
entitled to purchase a portion of such membership interest in the same
proportion that the Percentage Interest of such Member

-19-
<PAGE>

bears to the aggregate of the Percentage Interests of all of the Members
electing to so purchase the membership interest being transferred. In the
event any Member elects to purchase none or less than all of his pro rata
share of such membership interest, then the other Members can elect to
purchase more than their pro rata share.

(d) If the Company and the other Members elect to purchase or obtain
all of the membership interest designated in the Option Notice, then the
closing of such purchase shall occur within ninety (90) days after receipt
of such notice and the transferring Member, the Company and/or the other
Members shall execute such documents and instruments and make such
deliveries as may be reasonably required to consummate such purchase.

(e) If the Company and the other Members elect not to purchase or
obtain, or default in their obligation to purchase or obtain, all of the
membership interest designated in the Option Notice, then the transferring
Member shall not be obligated hereunder to sell to the Company and the
other Members any portion of the membership interest proposed to be
transferred, but instead may proceed with the transfer described in the
Option Notice, providing such transfer is completed within thirty (30) days
after the expiration of the Company's and the other Members' right to
purchase such membership interest, is made on terms no less favorable to
the transferring Member than as designated in the Option Notice, and
complies with SECTION 6.1 relating to unanimous consent of Members. If
such membership interest is not so transferred, the transferring Member
must give notice in accordance with this Section prior to any other or
subsequent transfer of such membership interest.

-20-
<PAGE>

ARTICLE 7

DISSOCIATION OF A MEMBER

7.1 DISSOCIATION. A Member shall cease to be a Member upon the
occurrence of any of the following events:

(a) the death of the Member;

(b) the retirement or withdrawal of the Member;

(d) if the Member is an entity other than a natural person, the
dissolution, termination or commencement of winding up of the Member.

7.1 RIGHTS OF DISSOCIATING MEMBER. If any Member dissociates from the
Company prior to the latest date on which the Company is to dissolve as
specified in its Articles of Organization:

(a) If the dissociation causes a dissolution and winding up of the
Company under ARTICLE 8 hereof, the Member (or his or her estate) shall be
entitled to participate in the winding up of the Company as would any other
Member, except that if the dissociation is the result of the retirement,
withdrawal or bankruptcy of the Member (and for this purpose, the
revocation of any Member which is a revocable trust shall be deemed to be
the withdrawal of such Member), any distributions to which the dissociating
Member would have been entitled shall be reduced by any damages sustained
by the Company as a result of the dissolution and winding up; and

(b) If the dissociation does not cause a dissolution and winding up
of the Company under ARTICLE 8 hereof, the business of the Company shall
continue without interruption and without any break in continuity, and the
other Members shall continue to conduct the business of the Company under
the terms of this Agreement with any

-21-
<PAGE>

successor or transferee of such former Member who shall be bound by the
provisions of this Agreement, but who shall not be entitled to participate
in the management or affairs of the Company or to exercise any rights of
a Member unless such successor or transferee has been admitted as a
substituted Member of the Company in accordance with the provisions of
ARTICLE 6 hereof.

ARTICLE 8

DISSOLUTION AND WINDING UP OF THE COMPANY

8.1 EVENTS CAUSING DISSOLUTION. The Company shall be dissolved
and wound up upon the first to occur of any of the following events:

(a) The latest date on which the Company is to dissolve as specified
in its Articles of Organization;

(b) The election by Members then owning more than fifty percent (50%)
of the Percentage Interests in the Company to dissolve the Company;

(c) The death, retirement, withdrawal, bankruptcy or expulsion of a
Member unless, within ninety (90) days after the occurrence of such event,
other Members then owning more than fifty percent (50%) of the Percentage
Interests in the Company vote to continue the Company business, in which
event the business shall continue without interruption and without any
break in continuity;

(d) The entry of a decree of dissolution; or

(e) Any event which causes there to be only one Member.

8.2 WINDING UP. Upon dissolution of the Company, the Company shall wind
up its affairs promptly, in accordance with the direction of the Board of
Managers (or such other person elected by the Members to perform such duties).

-22-
<PAGE>

8.3 LIQUIDATING DISTRIBUTIONS. Any monies or property (other than money)
then held by the Company shall be applied or distributed in one or more
installments in the following order of priority:

(a) First, to the payment and discharge of all of the Company's debts
and liabilities, other than debts to Members and transferable debts secured
by Company property;

(b) Second, to the payment and discharge of any loans or advances
made by Members to the Company and all expenses, including attorneys' fees,
incurred by the Members in connection with the winding up and liquidation
of the Company; then

(c) The balance, if any, to the Members in accordance with the
positive balances in their respective capital accounts after giving effect
to all contributions, distributions and allocations for all periods.

If the Board of Managers so determines, a pro rata portion of the distributions
that would otherwise be made to the Members pursuant to this SECTION 8.3 may be:

(i) distributed to a trust established for the benefit of
the Members for the purpose of liquidating Company assets, collecting
amounts owed to the Company, and paying any contingent or unforeseen
liabilities or obligations of the Company. The assets of any such
trust shall be distributed to the Members from time to time in the
same proportions as the amount distributed to such trust by the
Company would otherwise have been distributed to the Members pursuant
to this Agreement;

(ii) withheld to provide a reasonable reserve for Company
liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment

-23-
<PAGE>

obligations owed the Company, provided that such withheld amounts
shall be distributed to the Members as soon as practicable.

ARTICLE 9

MISCELLANEOUS

9.1 NOTICES. Notices given under this Agreement shall be in writing and
shall either be served personally or delivered by first class registered or
certified, return receipt requested U.S. mail, postage prepaid. Notices may
also effectively be given by transmittal over electronic transmitting devices
such as Telex, facsimile or telecopy machine, if the party to whom the notice
is being sent has such a device in its office, provided a complete copy of
any notice so transmitted shall also be mailed in the same manner as required
for a mailed notice. Notices shall be deemed received at the earlier of
actual receipt or three (3) days following deposit in U.S. mail, postage
prepaid. Notices shall be directed to the Company at 1212 Cambridge Circle
Drive, Kansas City, Kansas 66103, and to the Members at the addresses shown
in SECTION 2.1 hereof, provided that a Member may change such Member's
address for notice by giving written notice to all other Members in
accordance with this Section.

9.2 CAPTIONS. Any titles or captions of Articles or Sections contained in
this Agreement are for convenience only and shall not be deemed part of the
context of this Agreement.

9.3 SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement.

9.4 GENDER; NUMBER. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identification of the individual

-24-
<PAGE>

or entity may require. The use of the singular includes the plural, and the
use of the plural includes the singular, wherever the context thereof may
require.

9.5 SUCCESSORS. Except as otherwise herein provided, this Agreement shall
be binding upon and inure to the benefit of the parties hereto, their heirs,
executors, administrators, successors and all individuals or entities hereafter
having or holding an interest in the Company, whether as assignees, substituted
Members, or otherwise.

9.6 ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire
understanding between the parties and supersedes any prior understandings and
agreements between them respecting the within subject matter. No amendment,
alteration or modification of this Agreement shall be binding unless in writing
and signed by all of the Members.

9.7 COUNTERPART EXECUTION. This Agreement may be executed in any number
of counterparts with the same effect as if all of the Members had signed the
same document. All counterparts shall be construed together and shall
constitute one agreement.

9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California and, unless expressly or by
necessary implication contravened by any provision hereof, the provisions of the
Act shall apply.

-25-
<PAGE>

IN WITNESS WHEREOF, the parties have signed this Agreement as of the day
and year first above written.

PREMIER LASER SYSTEMS, INC.,
a California corporation

By: /s/ Colette Cozean
---------------------------
Colette Cozean, President

RSS, LLC, a Kansas
limited liability company

By: /s/ Daniel S. Durrie
---------------------------
Its: President
-----------------------

-26-

<PAGE>

AGREEMENT AND PLAN OF MERGER

AMONG

PREMIER LASER SYSTEMS, INC.

PREMIER ACQUISITION, INC.

AND

EYESYS TECHNOLOGIES, INC.

APRIL 24, 1997

<PAGE>

TABLE OF CONTENTS
-----------------
Page
----

RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 General Terms. . . . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE 2 PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 Board of Directors' and Stockholders' Approval . . . . . . . . . 9
2.2 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.4 The Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.5 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.6 Registration Rights. . . . . . . . . . . . . . . . . . . . . . . 15
2.7 Restrictions on Securities . . . . . . . . . . . . . . . . . . . 15
2.8 Surrender and Exchange of Outstanding Certificates, Premier
Warrants for EyeSys Warrants and Premier Options for EyeSys
Options; Status of Outstanding Certificates. . . . . . . . . . . 15
2.9 Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . 16
2.10 Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.11 Articles and Certificate of Incorporation; Bylaws; Directors and
Officers of Premier and the Surviving Corporation. . . . . . . . 16

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EYESYS . . . . . . . . . . . . 17
3.1 Organization and Standing. . . . . . . . . . . . . . . . . . . . 17
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.4 Authority, Approval and Enforceability . . . . . . . . . . . . . 18
3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 19
3.6 Material Changes . . . . . . . . . . . . . . . . . . . . . . . . 20
3.7 Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.8 Properties and Inventories . . . . . . . . . . . . . . . . . . . 21
3.9 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.10 Purchase, Sale and Other Agreements. . . . . . . . . . . . . . . 22
3.11 Intellectual Property Rights . . . . . . . . . . . . . . . . . . 24
3.12 Employees and Employee Benefit Plans . . . . . . . . . . . . . . 25
3.13 Environmental and Safety Laws. . . . . . . . . . . . . . . . . . 27
3.14 Proprietary Information and Inventions and Confidentiality
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.15 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . 28
3.16 Compliance with Laws and Permits; Regulatory Matters . . . . . . 28
3.17 Absence of Litigation. . . . . . . . . . . . . . . . . . . . . . 28
3.18 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.19 The Registration Statement and Proxy Statement/Prospectus. . . . 29
3.20 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

-i-
<PAGE>

Page
----

3.21 Other Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.22 Compliance with Instruments. . . . . . . . . . . . . . . . . . . 33
3.23 Foreign Status . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.24 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . 33
3.25 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . 33
3.26 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.27 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 34
3.28 Related Party Transactions . . . . . . . . . . . . . . . . . . . 34
3.29 Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 34

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PREMIER AND PAI. . . . . . . . 34
4.1 Organization and Standing. . . . . . . . . . . . . . . . . . . . 34
4.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3 Authority, Approval and Enforceability . . . . . . . . . . . . . 35
4.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 35
4.5 Material Changes . . . . . . . . . . . . . . . . . . . . . . . . 36
4.6 Absence of Litigation. . . . . . . . . . . . . . . . . . . . . . 36
4.7 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.8 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.9 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.10 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 37
4.11 The Registration Statement and Proxy Statement/Prospectus. . . . 38
4.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.13 Shares Fully Paid and Non-Assessable . . . . . . . . . . . . . . 39
4.14 SEC Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 39

ARTICLE 5 COVENANTS OF PREMIER, PAI AND EYESYS . . . . . . . . . . . . . . 40
5.1 Maintenance of Business. . . . . . . . . . . . . . . . . . . . . 40
5.2 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . 40
5.3 Actions Contrary to Stated Intent. . . . . . . . . . . . . . . . 41
5.4 Access to Information. . . . . . . . . . . . . . . . . . . . . . 41
5.5 Other Discussions. . . . . . . . . . . . . . . . . . . . . . . . 41
5.6 EyeSys Lock-Up Agreements. . . . . . . . . . . . . . . . . . . . 41
5.7 Reasonable Best Efforts. . . . . . . . . . . . . . . . . . . . . 41
5.8 Registration Statement and Proxy Statement/Prospectus. . . . . . 42
5.9 EyeSys Payables. . . . . . . . . . . . . . . . . . . . . . . . . 42
5.10 Tax Forms. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.11 Notification of Certain Matters. . . . . . . . . . . . . . . . . 42
5.12 Merger Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 42
5.13 Assumption of Bank Loan Agreement. . . . . . . . . . . . . . . . 42
5.14 Premier Covenant Regarding SEC Filings . . . . . . . . . . . . . 43
5.15 Premier Board Seat . . . . . . . . . . . . . . . . . . . . . . . 43
5.16 Funding For EyeSys . . . . . . . . . . . . . . . . . . . . . . . 43
5.17 Nonincluded Costs. . . . . . . . . . . . . . . . . . . . . . . . 44
5.18 Options and Warrants . . . . . . . . . . . . . . . . . . . . . . 44

-ii-
<PAGE>

Page
----

5.19 March 31, 1997 Financial Statements. . . . . . . . . . . . . . . 44
5.20 "Stay Bonuses," RSS Payable. . . . . . . . . . . . . . . . . . . 44
5.21 Transactional Costs. . . . . . . . . . . . . . . . . . . . . . . 44
5.22 Reimbursement of Amounts Paid to Dissenting Shareholders . . . . 45

ARTICLE 6 CONDITIONS TO OBLIGATIONS OF PREMIER, PAI AND EYESYS . . . . . . 45
6.1 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . 45
6.2 Representations, Warranties and Agreements . . . . . . . . . . . 45
6.3 Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.4 Opinions of Counsel. . . . . . . . . . . . . . . . . . . . . . . 45
6.5 No Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.6 Proceeding and Documents . . . . . . . . . . . . . . . . . . . . 46
6.7 Accuracy of Documents and Information. . . . . . . . . . . . . . 46
6.8 Lock-Up Agreements . . . . . . . . . . . . . . . . . . . . . . . 46
6.9 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.10 Securities Approval. . . . . . . . . . . . . . . . . . . . . . . 46
6.11 Delaware Filings . . . . . . . . . . . . . . . . . . . . . . . . 46
6.12 Termination of EyeSys Stock Option Plan. . . . . . . . . . . . . 46
6.13 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . 46
6.14 Options, Warrants and EyeSys Notes . . . . . . . . . . . . . . . 46
6.15 Foreign Status Representation Letter . . . . . . . . . . . . . . 47
6.16 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . 47
6.17 Bank Loan Agreement. . . . . . . . . . . . . . . . . . . . . . . 47
6.18 No EyeSys Material Adverse Effect. . . . . . . . . . . . . . . . 47
6.19 No Premier Material Adverse Effect . . . . . . . . . . . . . . . 47
6.20 Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . 47
6.21 Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . 47
6.22 Amount of Shares Issuable. . . . . . . . . . . . . . . . . . . . 48
6.23 Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . 48
6.24 Compliance With Rule 145 . . . . . . . . . . . . . . . . . . . . 48
6.25 EyeSys Financial Information . . . . . . . . . . . . . . . . . . 48
6.26 EyeSys Personnel . . . . . . . . . . . . . . . . . . . . . . . . 48

ARTICLE 7 INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.1 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . 49
7.3 No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.4 Indemnification of EyeSys Agents . . . . . . . . . . . . . . . . 49
7.5 Indemnification regarding Securities Act Issues. . . . . . . . . 49

ARTICLE 8 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.1 Termination by Mutual Consent. . . . . . . . . . . . . . . . . . 50
8.2 Termination by Premier or PAI or EyeSys. . . . . . . . . . . . . 50
8.3 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . 51

-iii-
<PAGE>

Page
----

ARTICLE 9 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.2 Entire Agreement; Modifications; Waiver. . . . . . . . . . . . . 52
9.3 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.5 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 52
9.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 53
9.9 Each Party to Bear Own Costs . . . . . . . . . . . . . . . . . . 53
9.10 Confidentiality and Nondisclosure Agreements . . . . . . . . . . 53
9.11 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . 53
9.12 Transfer of EyeSys Books and Assets. . . . . . . . . . . . . . . 53
9.13 Appointment and Indemnity of Escrow Committee. . . . . . . . . . 53
9.14 Survival of Representations and Warranties . . . . . . . . . . . 54

EXHIBITS

B Escrow Agreement and Instructions
C-1 Lock-Up Agreement
C-2 Lock-Up Agreement
D Certificate of Merger
F Terms of Securities
G EyeSys Operating Plan
H Loans included in Nonincluded Costs

SCHEDULES

2.1 Noteholders
2.7 Stockholders Executing Lock-Up Agreements
5.16 EyeSys Personnel
5.21 Transactional Costs

-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger is made as of April 24, 1997 by
and among Premier Laser Systems, Inc., a California corporation ("PREMIER"),
Premier Acquisition of Delaware, Inc., a Delaware corporation ("PAI"), EyeSys
Technologies, Inc., a Delaware corporation ("EYESYS"), and Frontenac Company
(the "PRINCIPAL SHAREHOLDER").

RECITALS

A. The parties hereto intend that, subject to the terms and
conditions hereinafter set forth, PAI, a wholly owned subsidiary of Premier,
will be merged with and into EyeSys (the "MERGER") in accordance with this
Agreement and the applicable provisions of the laws of the State of Delaware,
with EyeSys surviving as a wholly owned subsidiary of Premier. All
outstanding shares of EyeSys Common Stock, EyeSys Series A Preferred Stock
and EyeSys Series B Preferred Stock and the EyeSys Notes will be converted
into the right to receive shares of Premier Common Stock.

B. All outstanding EyeSys Common Stock Warrants, Preferred
Warrants and EyeSys Options shall be either exercised or terminated prior to
the Closing, or exchanged for Premier Options. EyeSys Common Stock,
Preferred Stock, EyeSys Notes, EyeSys Options and EyeSys Warrants shall be
collectively referred to herein as "INTERESTS IN EYESYS."

C. By executing this Agreement, the parties hereto intend to
adopt a plan of reorganization within the meaning of Section 368(a) the
Internal Revenue Code of 1986.

NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto, intending to be legally bound,
do hereby agree as follows:

ARTICLE 1

DEFINITIONS

1.1 DEFINITIONS. The following terms shall have the following
meanings for purposes of this Agreement:

"AGREEMENT" means this Agreement and Plan of Merger among Premier, PAI
and EyeSys, dated as of April 24, 1997.

"APPRAISAL RIGHTS" shall have the meaning set forth in Section 5.22.

"BANK" means the Silicon Valley Bank.
<PAGE>

"CERTIFICATE OF MERGER" shall mean that certificate, substantially in
the form attached hereto as EXHIBIT D, that shall be filed in the office of the
Delaware Secretary of State at the Effective Time.

"CLAIM" or "CLAIMS" shall mean any and all claims, demands, causes of
action, suits, proceedings, administrative proceedings, losses, judgments,
decrees, debts, damages, liabilities, court costs, attorneys' fees, and any
other expenses incurred, assessed or sustained by or against EyeSys.

"CLOSING" shall have the meaning stated in Section 2.4.

"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985.

"CODE" means the Internal Revenue Code of 1986.

"CONTINGENCY PAYMENT" means, with respect to each EyeSys Note, the
Principal of such Note multiplied by a factor of two (2).

"COWEN" shall mean Cowen & Company, a limited partnership.

"COWEN SHARES" shall mean that amount of shares of Premier Common
Stock, valued at the Per Share Value, equal to the lesser of (i) $75,000, or
(ii) one-fourth of the amount of fees payable by EyeSys to Cowen and which are
included in the Transactional Costs.

"DISSENTING SHAREHOLDERS" means those EyeSys shareholders that
exercise their dissenter's appraisal rights under the Delaware General
Corporation Law, in connection with the Merger.

"DIVIDENDS" with respect to a share of Series B Preferred Stock shall
mean the accumulated and unpaid dividends thereon immediately prior to the
Effective Time.

"EA" shall mean, with respect to an EyeSys Note held by an EyeSys
Affiliate Noteholder, the number of Merger Shares equal to the quotient of the
Principal thereon divided by the Per Share Value.

"EFFECTIVE TIME" shall have the meaning stated in Section 2.5.

"ENA" shall mean with respect to an Eyesys Note held by an EyeSys Non-
Affiliate Noteholder, the number of Merger Shares equal to the quotient of (x)
the product of two multiplied by the Principal, divided by (y) the Per Share
Value.

"ERISA" means the Employee Retirement Income Security Act of 1974.

"ESCROW AGREEMENT" shall mean that agreement pursuant to which certain
Merger Shares shall be held in escrow for a period of one (1) year after the
Effective Time as the source

-2-
<PAGE>

of payment for the indemnification obligations of EyeSys pursuant to Article
7 of this Agreement, substantially in the form of EXHIBIT B attached hereto.

"ESCROW SHARES" shall have the meaning given in Section 2.3.

"EXCHANGE ACT" means the Securities Exchange Act of 1934.

"EYESYS" shall mean EyeSys Technologies, Inc., a Delaware corporation.

"EYESYS AFFILIATE NOTEHOLDERS" shall mean all holders of EyeSys Notes
as so identified on Schedule 2.1.

"EYESYS CERTIFICATE OF INCORPORATION" shall have the meaning given in
Section 3.2(g) of this Agreement.

"EYESYS COMMON STOCK" shall mean all of the issued and outstanding
shares of EyeSys Common Stock.

"EYESYS COMMON STOCK AND COMMON STOCK EQUIVALENTS" shall mean the sum
of (i) the number of shares of Eyesys Common Stock outstanding immediately prior
to the Effective Time (after giving effect to any exercise of Eyesys Warrants or
Eyesys Options prior to the Closing) and (ii) the product of (a) the number of
shares of Eyesys Common Stock issuable upon exercise of EyeSys Options
outstanding immediately prior to the Effective Time and (b) the fraction, the
numerator of which is the difference between the EyeSys Common Stock
Consideration Per Share and the exercise price of each such EyeSys Option and
the denominator of which is the Common Stock Consideration Per Share; and (iii)
the product of (a) the number of shares of Eyesys Common Stock issuable upon
exercise of EyeSys Common Warrants outstanding immediately prior to the
Effective Time and (b) the fraction, the numerator of which is the difference
between the EyeSys Common Stock Consideration Per Share and the exercise price
of each such EyeSys Common Warrant and the denominator of which is the Common
Stock Consideration Per Share.

"EYESYS COMMON STOCK AND COMMON STOCK EQUIVALENTS CONSIDERATION" shall
mean the difference between the Shareholder Consideration and the sum of the
Series A Preference and the Series B Preference.

"EYESYS COMMON STOCK CONSIDERATION PER SHARE" shall mean the quotient
of Eyesys Common Stock and Common Stock Equivalents Consideration divided by
EyeSys Common Stock and Common Stock Equivalents.

"EYESYS COMMON WARRANTS" means all warrants to purchase EyeSys Common
Stock outstanding immediately prior to the Effective Time.

"EYESYS FINANCIALS" shall have the meaning given in Section 3.5 of
this Agreement.

-3-
<PAGE>

"EYESYS LETTER" means that certain disclosure letter, certified by the
President and Secretary of EyeSys and delivered by EyeSys to Premier prior to
the Closing, that describes certain matters regarding EyeSys and sets forth
exceptions to certain representations and warranties made by EyeSys for the
benefit of Premier and PAI in this Agreement.

"EYESYS LOCK-UP AGREEMENTS" has the meaning given in Section 2.7.

"EYESYS MATERIAL ADVERSE EFFECT" means any fact, event or condition,
or the absence of any fact, event or condition, as the context requires, that,
individually or in the aggregate, would have a material adverse effect on the
business, properties, condition (financial or otherwise) or results of
operations of EyeSys, or that would constitute a liability of EyeSys,
individually in excess of $10,000, or in the aggregate in excess of $25,000.

"EYESYS NON-AFFILIATE NOTEHOLDERS" shall mean all holders of EyeSys
Notes as so identified on Schedule 2.1.

"EYESYS NOTES" means those certain convertible subordinated notes
issued by EyeSys prior to the date of this Agreement and outstanding immediately
prior to the Closing.

"EYESYS OPTIONS" shall mean all options outstanding immediately prior
to the Effective Time to purchase EyeSys Common Stock.

"EYESYS PENSION PLAN" shall have the meaning given in Section 3.12.

"EYESYS STOCKHOLDERS" has the meaning given in Section 2.7.

"EYESYS WARRANTS" means all outstanding EyeSys Common Warrants and all
outstanding Preferred Warrants.

"FIRST AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF
EYESYS" means the Certificate of Amendment of the Restated Certificate of
Incorporation of EyeSys to be filed prior to the Closing, as provided in
Section 2.1(a), in form reasonably acceptable to Premier.

"FORM 10-K" shall have the meaning given in Section 4.14 of this
Agreement.

"FRONTENAC PAYABLE" shall mean the obligation of EyeSys to reimburse
Frontenac Company the amount of $72,500 for expenses paid by Frontenac Company
on behalf of EyeSys.

"GAAP" means generally accepted accounting principles.

"HAZARDOUS SUBSTANCES" shall mean any asbestos, petroleum or any
substance or material defined or designated as hazardous or toxic waste,
hazardous or toxic material, hazardous or toxic substance, or other similar
term, by any federal, state or local environmental statute, regulation or
ordinance presently in effect, including, without limitation, any material or
substance that is designated or defined as a "hazardous substance," "hazardous
waste" or "toxic substance" in (a) the Federal Water Pollution Control Act, 33
U.S.C. Sections 1251 et seq.,

-4-
<PAGE>

and any amendments thereto, (b) the Federal Resource Conservation and
Recovery Act 42 U.S.C. Sections 6901 et seq., and any amendments thereto, (c)
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Sections 9601 et seq., and any amendments thereto, or (d) the
Hazardous Material Transportation Act, 49 U.S.C. Sections 1801 et seq., and
any amendments thereto.

"INTEREST" with respect to an EyeSys Note shall mean the accrued
and unpaid interest thereon immediately prior to the Closing.

"INTERESTS IN EYESYS" shall have the meaning given in Recital B.

"INTELLECTUAL PROPERTY" shall have the meaning given in Section
3.11 of this Agreement.

"LOAN AGREEMENT" has the meaning given in Section 5.13 of this
Agreement.

"LOSSES" shall have the meaning given in Section 2 of this Agreement.

"MERGER" shall mean the merger of PAI, a wholly owned subsidiary of
Premier, into EyeSys on the terms and conditions set forth in this Agreement.

"MERGER CONSIDERATION" shall mean the aggregate dollar amount of
the Merger Securities issued in the Merger based upon the value(s)
attributable to such Merger Securities under Article 2, plus $495,000.

"MERGER SECURITIES" shall mean the Merger Shares and the securities
issuable under Section 2.2(c) below.

"MERGER SHARES" shall mean the sum of (a) that number of shares of
Premier Common Stock determined by dividing $10,600,000 by the Per Share Value
of the Premier Common Stock, plus (b) any additional shares required as a result
of the elimination of fractional shares pursuant to Section 2.2(f).

"NONINCLUDED COSTS" shall mean all obligations for money borrowed as
shown on Exhibit H existing at the Closing of EyeSys to one or more shareholders
to EyeSys (excluding the Frontenac Payable); all legal and accounting fees
payable by EyeSys other than those which are payable by Premier under Section
5.21 hereof; all amounts due to Cowen that are in excess of the amounts required
to be paid by Premier hereunder; all amounts payable by EyeSys to settle claims
as required by Section 5.20; and all interest accrued on the EyeSys Notes as of
the Closing Date.

"PAI" shall mean Premier Acquisition of Delaware, Inc., a Delaware
corporation.

"PER SHARE VALUE" shall mean, at the election of Premier, either (i)
the average of the closing sales prices of Premier's Class A Common Stock for
the fifteen (15) trading days immediately preceding the Closing; or (ii) the
average of the closing sale prices of the Common

-5-
<PAGE>

Stock for the thirty (30) days ending fifteen (15) days prior to such
Closing. The Per Share Value, as so defined, shall be used in the
calculation of both the base amount of Merger Securities issuable under
Section 2.2(b) hereof, as well as the additional Merger Securities
potentially issuable under Section 2.2(c) hereof, except that with respect to
the calculation of the additional securities issuable under Section 2.2(c),
the Per Share Value shall also be determined in accordance with the terms of
Section 2.2(c)(iii).

"PREFERRED STOCK" shall collectively refer to the Series A
Preferred Stock and the Series B Preferred Stock.

"PREFERRED WARRANTS" means all of the warrants to purchase Series B
Preferred Stock that are outstanding immediately prior to the Effective Time.

"PREMIER" shall mean Premier Laser Systems, Inc., a California
corporation.

"PREMIER CLASS AA OPTIONS" shall mean options to purchase Premier
Common Stock, and having the terms set forth in EXHIBIT F hereto.

"PREMIER CLASS BB OPTIONS" shall mean options to purchase Premier
Common Stock, and having the terms set forth in EXHIBIT F hereto.

"PREMIER COMMON STOCK" means the Class A Common Stock of Premier.

"PREMIER LETTER" means that certain disclosure letter certified by the
President and Secretary of Premier and delivered by Premier to EyeSys prior to
the Closing, which describes certain matters regarding Premier and PAI and sets
forth exceptions to certain representations and warranties made by Premier and
PAI for the benefit of EyeSys in this Agreement.

"PREMIER MATERIAL ADVERSE EFFECT" means any fact, event or condition,
or the absence of any fact, event or condition, as the context requires, that,
individually or in the aggregate, could or would have a material adverse effect
on the business, properties, condition (financial or otherwise) or results of
operations of Premier.

"PREMIER OPTIONS" shall mean options to purchase 165,000 shares of
Premier Common Stock, and having the terms set forth in EXHIBIT F hereto.

"PRINCIPAL" with respect to an EyeSys Note shall mean the outstanding
principal amount of such EyeSys Note immediately prior to the Effective Time.

"PRINCIPAL SHAREHOLDER" means Frontenac Company.

"PROXY STATEMENT/PROSPECTUS" means the Proxy Statement/Prospectus
furnished to the EyeSys shareholders for a special meeting of shareholders to be
held on or about June 25, 1997.

-6-
<PAGE>

"REGISTRATION STATEMENT" means that certain registration statement on
Form S-4 to be filed with the Securities and Exchange Commission by Premier in
connection with the registration of the issuance of the Merger Shares.

"RETURNS" shall have the meaning given in Section 3.20 of this
Agreement.

"SEC" shall mean the Securities and Exchange Commission.

"SEC DOCUMENTS" shall have the meaning given in Section 4.14 of this
Agreement.

"SERIES A PREFERENCE" with respect to all of the outstanding shares of
Series A Preferred Stock, in the aggregate, means that amount determined by
multiplying the total amount of the Shareholder Consideration times "D,"
calculated under the following formula:

D = 0.12293255 - (0.084469 * 10(8) * (Shareholder Consideration minus the
Series B Preference)); provided, however, in no event shall D be more than
.1215426 or less than .1204357.

"SERIES B PREFERENCE" with respect to all of the outstanding shares of
Series B Preferred Stock, in the aggregate, shall mean that amount of the
Shareholder Consideration equal to "A" in the following formula:

A = (1-P)*(Shareholder Consideration), where

P equals (9.732853 * 10(8) * Shareholder Consideration) minus 0.31470577;
provided, however, in no event shall P be less than .2726550 or more than
.4016254.

"SERIES B PREFERRED STOCK" means all of the outstanding shares of
EyeSys Series B Preferred Stock immediately prior to the Effective Time.

"SHAREHOLDER CONSIDERATION" shall mean the difference between (a) the
Merger Consideration and (b) the sum of (i) the Nonincluded Costs and (ii) the
value of the Merger Shares issued to the holders of the EyeSys Notes pursuant to
Section 2.2(b)(i), based upon the Per Share Value.

"SHAREHOLDER GUARANTEES" has the meaning given in Section 5.13 of this
Agreement.

"SHAREHOLDER GUARANTORS" has the meaning given in Section 5.14 of this
Agreement.

"STAY BONUS" shall have the meaning set forth in Section 5.20 of this
Agreement.

"TAXES" shall have the meaning given in Section 3.20 of this
Agreement.

-7-
<PAGE>

"TRANSACTIONAL COSTS" means such standard and customary fees and costs
as may be reasonably claimed in connection with rendering services related to
the Merger on behalf of EyeSys by Cowen, the accounting firm of Coopers &
Lybrand and the following law firms: Epstein Becker & Green P.C., Hopkins &
Sutter, and Gardere, Wynn, Sewell & Riggs, L.L.P.

1.2 GENERAL TERMS. As used in this Agreement, the terms "herein,"
"herewith," and "hereof" are references to this Agreement, taken as a whole; the
term "includes" or "including" shall mean "including, without limitations," and
references to a "Section," "subsection," "clause," "Article," "Exhibit,"
"Appendix," or "Schedule" shall mean a Section, subsection, clause, Article,
Exhibit, Appendix or Schedule of this Agreement, as the case may be, unless in
any such case the context requires otherwise. All references to a given
agreement, instrument or other document shall be a reference to that agreement,
instrument or other document as modified, amended, supplemented and restated
through the date as of which such reference is made, and reference to a Law
includes any amendment or modification thereof. The singular shall include the
plural, and the masculine shall include the feminine and neuter, and vice versa.

[remainder of page intentionally left blank]

-8-
<PAGE>

ARTICLE 2

PLAN OF MERGER

2.1 BOARD OF DIRECTORS' AND STOCKHOLDERS' APPROVAL.

(a) The board of directors of EyeSys has duly adopted this
Agreement and, prior to the Closing, this Agreement shall be submitted for
approval by (1) at least 67% of the outstanding shares of Series B Preferred
Stock voting as a separate class, (2) a majority of the outstanding shares of
the following voting as one class: EyeSys Common Stock, Series A Preferred
Stock on an as-converted basis and Series B Preferred Stock on an
as-converted basis, and (3) the holders of a majority of the outstanding
principal under the EyeSys Notes. In addition, as conditions to the
consummation of the Merger:

(i) the First Amendment to the Restated Certificate of
Incorporation of EyeSys, which amends the EyeSys Certificate of Incorporation
to provide that if the Merger is consummated the Series A Preference and the
Series B Preference shall be as set forth in Article 1, and to eliminate any
right of the Series B Preferred Stock to participate with EyeSys Common Stock
in liquidation of the net assets of EyeSys after payment of debts and
preferences, shall be approved by (1) a majority of the outstanding shares of
the following, voting as one class: EyeSys Common Stock, Series A Preferred
Stock on an as-converted basis, and Series B Preferred Stock on an
as-converted basis, (2) with respect to the amendments of Sections 4.3.4(b)
and (c) of the Restated Certificate of Incorporation of EyeSys, at least 67%
of the outstanding shares of Series B Preferred Stock voting as a separate
class, (3) with respect to the amendment of Section 4.2.4(b)(ii), a majority
of the holders of Series A Preferred Stock voting as a separate class and at
least 67% of the outstanding shares of Series B Preferred Stock voting as a
separate class, and (4) the holders of a majority of the outstanding
principal under the EyeSys Notes;

(ii) on or before the Closing, the holders of EyeSys
Notes who are listed on Schedule 2.1 shall have elected to accept in payment
of their EyeSys Notes (excluding interest thereon), in whole or in part, EA
or ENA, as the case may be.

(b) The board of directors and sole shareholder of PAI have
duly adopted and approved this Agreement in accordance with the applicable
provisions of the Delaware General Corporation Law.

2.2 THE MERGER.

(a) At the Effective Time, subject to the terms and
conditions of this Agreement, PAI shall be merged with and into EyeSys
pursuant to the Certificate of Merger, with EyeSys as the surviving
corporation; and the separate existence of PAI shall thereupon cease, and
EyeSys, as the surviving corporation in the Merger and a wholly owned
subsidiary of Premier, shall continue its corporate existence under the laws
of the State of Delaware.

-9-
<PAGE>

(b) Subject to Section 2.2(f) and Section 2.3, at the
Effective Time the Interests in EyeSys identified below shall be converted
into the right to receive the securities set forth in this Section 2.2(b) as
well as in Section 2.2(c), and the settlement of such issuance of securities
shall be effected pursuant to Section 2.2(d):

(i) each EyeSys Note outstanding immediately prior to
the Effective Time held by an EyeSys Affiliate Noteholder shall be converted
into the right to receive such number of the Merger Shares equal to EA, and
each EyeSys Note outstanding immediately prior to the Effective Time held by
an EyeSys Non-Affiliate Holder shall be converted into the right to receive
such number of Merger Shares equal to ENA;

(ii) each share of Series B Preferred Stock shall be
converted into the right to receive such number of the Merger Securities
equal to the Series B Preference divided by the Per Share Value, divided by
the number of shares of Series B Preferred Stock outstanding immediately
prior to the Effective Time.

(iii) each Preferred Warrant that has not been exercised
shall be cancelled.

(iv) each share of Series A Preferred Stock shall be
converted into the right to receive such number of Merger Securities equal to
the Series A Preference, divided by the Per Share Value divided by the number of
shares of Series A Preferred Stock outstanding immediately prior to the
Effective Time.

(v) each share of EyeSys Common Stock, excluding shares
held by Dissenting Shareholders, shall be converted into the right to receive
such number of Merger Securities as is equal to the EyeSys Common Stock
Consideration Per Share divided by the Per Share Value.

(vi) all of the EyeSys Options and EyeSys Common Warrants
that are not exchanged for Premier Options pursuant to Section 2.2(e) below or
exercised by the holders thereof shall be terminated.

If the Merger Securities include Premier Class AA Options or Premier Class BB
Options, the holders of each of the classes of EyeSys securities identified
in Section 2.2(b)(ii) through 2.2(b)(vi) above shall, in their capacities as
holders of such class of EyeSys securities, receive a pro rata share of each
of the types of Premier securities included in the Merger Securities. The
references in Sections 2.2(b)(ii), 2.2(b)(iv) and 2.2(b)(v) to the "number of
Merger Securities" to be issued and to the "Per Share Value" shall be deemed
to refer to the respective numbers of each type of Premier securities
allocated, on such pro rata basis, under such sections, and to the Per Share
Value of the Premier Common Stock, or the values attributed to the Premier
Class AA Options and Premier Class BB Options determined under Section
2.2(c)(iii) below, as appropriate.

(c) The Merger Securities shall also include Premier Common
Stock, Premier Class AA Options and/or Premier Class BB Options, as set forth
below.

-10-
<PAGE>

(i) Except as set forth in Section 2.2(c)(iv) below,
EyeSys may, at its election, determine whether the securities so issuable
shall be Premier Common Stock, Premier Class AA Options or Premier Class BB
Options; provided, however, that unless waived by Premier in its sole
discretion the maximum aggregate amount of Premier Class AA Options and
Premier Class BB Options shall not exceed options to purchase 335,000 shares
of Premier Common Stock.

(ii) Such securities shall be issuable under this Section
2.2(c) only if EyeSys shall, prior to or within 90 days of the Closing Date (the
"CONTINGENCY TERMINATION DATE"), execute a definitive license agreement with
Nidek Company, Ltd. and/or Marco Ophthalmic, Inc., on terms reasonably
acceptable to Premier (the "FUTURE LICENSE AGREEMENTS"), and which provides for
the payment of at least 10% of the Future License Fees (as defined below) on or
prior to the Contingency Termination Date. The aggregate amount of securities
issuable under this Section 2.2(c) (the "CONTINGENT CONSIDERATION") shall be
calculated by reference to the noncontingent license fees (the "FUTURE LICENSE
FEES") paid or payable to EyeSys under the Future License Agreements, which
amounts shall have been actually received by EyeSys before the Contingency
Termination Date or which are contractually required to be paid within one year
from the date hereof. The value of the securities issuable under this Section
2.2(c) shall be equal to the sum of: (i) .78 times the amount of the Future
License Fees, for the first $1,500,000 of such Future License Fees; plus (iii)
.5 times the amount of the Future License Fees in excess of $1,500,000.

(iii) For purposes of this Section 2.2(c), with respect to
that amount of the Future License Fees which is received prior to the Closing
Date, Premier Common Stock shall be valued at the Per Share Value used in
connection with the Merger, and Premier Class AA Options and Premier Class BB
Options shall be deemed to have the same value as Premier's outstanding
publicly traded Class A Warrants and Class B Warrants computed in the same
manner as the Per Share Value and over the same measuring periods,
respectively, used in the calculation of the Per Share Value (but without
adjustment for the differences in terms between such securities). With
respect to that amount of the Future License Fees which is received after the
Closing Date, the Premier Common Stock, Premier Class AA Options and Premier
Class BB Options shall be valued using the same measuring period selected by
Premier in computing the Per Share Value, but substituting the date of
receipt of such additional Future License Fees for the date of the "Closing"
in such definition.

(iv) In no event shall Premier be obligated to issue
Premier Common Stock under this Section 2.2(c) if the total number of shares
so issuable, when taken together with all other Premier Common Stock issued
in connection with the Merger, shall exceed the maximum number of shares
issuable in the Merger without the approval of the Merger by Premier
shareholders in accordance with the California Corporations Code (the
"MAXIMUM AMOUNT"); provided, however, that in the event the number of shares
of Premier Common Stock issuable hereunder exceeds the Maximum Amount,
Premier shall have the option of delivering, in lieu of the shares that would
be in excess of the Maximum Amount, either cash, Premier Class AA Options or
Premier Class BB Options, such that the total amount of consideration paid by
Premier hereunder is equal to the amount required to be paid under Section
2.2(c)(ii) above.

-11-
<PAGE>

(v) If any part of the Future License Fees with respect
to which the Contingent Consideration has been calculated is not paid when
due by the party obligated to pay such amounts, then the Contingent
Consideration shall be recalculated using the amount of Future License Fees
actually received within the one-year period after the Closing Date and the
Per Share Value and/or warrant prices specified in Section 2.2(c)(iii) used
to calculate the number of shares or options issued in the Contingent
Consideration (the "ORIGINAL VALUES"), and the excess of the amount of
Contingent Consideration actually paid or delivered over the amount of
Contingent Consideration as recalculated shall be reimbursed to Premier out
of the Escrow Shares (using the Original Values). Section 2.3 shall govern
the reallocation of the Merger Securities among the holders of Interests in
EyeSys, in the event that Merger Securities shall be returned to Premier out
of the Escrow pursuant to this Section 2.2(c)(v).

(d) The conversion of the EyeSys Notes and exchange of Merger
Securities for Nonincluded Costs (other than Stay Bonuses) shall be effected
at the Closing. The amount and type of securities into which the Interests
in EyeSys (other than the EyeSys Notes) shall be converted hereunder shall be
calculated immediately after the Contingency Termination Date, when the total
amount of the Contingent Consideration is known. Accordingly, within 3
business days after the Contingency Termination Date, the EyeSys
Representative selected pursuant to Section 9.13 shall notify Premier of the
type of securities EyeSys has elected to issue under Section 2.2(c)(i), and
shall calculate the total amount and type of the securities issuable
hereunder and shall notify Premier in writing of such calculation. Premier
shall have 3 business days from the receipt of such notice to review the
calculations contained therein, and unless Premier gives the EyeSys
Representative notice in writing within such 3 day period of Premier's
disapproval of such calculation, it shall be deemed final, absent manifest
error. If Premier disapproves such calculation, it shall provide the EyeSys
Representative with written notice of the reasons for such disapproval. The
parties shall thereafter confer in a good faith effort to resolve such
dispute. If such dispute cannot be resolved within two weeks after the date
of Premier's notice of disapproval, the matter shall be submitted to binding
arbitration in accordance with the procedures set forth in the Escrow
Agreement. After the allocation of the Merger Securities has been agreed
upon, or determined according to such arbitration procedures, Premier shall
promptly forward certificates representing the Merger Securities, in
accordance with such allocation.

(e) For purposes of this Section 2.2(e) only, the Premier
Options included in the Shareholder Consideration shall be deemed to have a
value of $3.00 per option. Premier shall issue to the holders of all
then-outstanding EyeSys Options and EyeSys Common Warrants, and to the
persons entitled to the Stay Bonuses, an aggregate of 165,000 Premier
Options, as follows:

(i) The value of outstanding and unexercised EyeSys
Options shall be equal to the value of the EyeSys Common Stock issuable upon
exercise thereof (using the Per Share Value of the Premier Common Stock into
which such EyeSys Common Stock would be converted in this Merger), less the
exercise price of such options. Each EyeSys Option shall be exchanged for
that number of Premier Options as is equal to the value determined under the
foregoing sentence, divided by $3.00. In the event that the Contingent
Consideration is payable hereunder and there are no further Premier Options
issuable in exchange for the full value of an Eyesys Option, determined in
accordance with the second

-12-
<PAGE>

preceding sentence, then the holder thereof shall be entitled to receive the
balance of such value in Merger Securities.

(ii) If any Premier Options remain after EyeSys Options
are exchanged under Section 2.2(e)(i) above, the remaining Premier Options
shall then be issued in exchange for outstanding EyeSys Common Warrants.
Each outstanding and unexercised EyeSys Common Warrant shall be exchanged for
that number of Premier Options as is equal to the value of the EyeSys Common
Stock issuable upon the "net exercise" thereof (using the Per Share Value of
the Premier Common Stock into which such EyeSys Common Stock would be
converted in this Merger), divided by $3.00. In the event that the
Contingent Consideration is payable hereunder and there are no further
Premier Options issuable in exchange for the full value of an EyeSys Common
Warrant, determined in accordance with the second preceding sentence, then
the holder thereof shall be entitled to receive the balance of such value in
Merger Securities.

(iii) If any Premier Options remain after the application
of sections 2.2(e)(i) and 2.2(e)(ii) above, the remaining Premier Options
shall be issued to the persons entitled to the holders of the Stay Bonuses,
in satisfaction of such Stay Bonuses, at the rate of $3.00 of Stay Bonus
forgiven for each Premier Option so issued. EyeSys shall determine which
persons shall receive Premier Options under this Section 2.2(e)(iii).

(iv) EyeSys shall make arrangements for agreements with
the holders of the EyeSys Options and EyeSys Common Warrants and the persons
entitled to the Stay Bonuses to exchange such securities or claims for the
Premier Options in accordance with this Section 2.2(e), and for the
termination of any EyeSys Option or EyeSys Common Warrant, or payment of any
Stay Bonus, that is not exchanged or paid as set forth above. Premier will
issue the Premier Options within three (3) business days after the
determination of the allocation of the Merger Securities as set forth in
Section 2.2(d).

(f) Notwithstanding anything herein, with respect to each
holder of Interests in EyeSys, if the aggregate number of shares of Premier
Common Stock collectively issuable to such a holder for conversion of all of
such holder's EyeSys Common Stock, Preferred Stock and EyeSys Notes pursuant
to Section 2.2(b) includes a fractional share, such fractional share shall be
rounded to the nearest whole number. The aggregate number of shares of
Premier Common Stock purchasable under Premier Options issued in exchange for
EyeSys Options and EysSys Common Warrants shall be rounded to the nearest
whole number and the aggregate exercise price (but not the exercise price per
share thereof) shall be adjusted accordingly. To the extent that any of the
holders of Interests in EyeSys have presently outstanding rights to purchase
shares of EyeSys capital stock that expire in whole or in part unexercised,
the exchange ratios set forth above with respect to the exchange of Interests
in EyeSys into shares of Premier Common Stock or Premier Options shall not be
adjusted after the Effective Time of the Merger. All shares of EyeSys Common
Stock or EyeSys Preferred Stock that are owned by EyeSys shall be canceled,
and no securities of Premier or other consideration shall be delivered in
exchange therefor.

(g) At the Effective Time, by virtue of the Merger and
without any action on the part of any shareholder of PAI, each issued and
outstanding share of capital stock

-13-
<PAGE>

of PAI shall continue to be issued and shall be converted into one share of
Common Stock of EyeSys, as the surviving corporation in the Merger. Each
stock certificate of PAI evidencing ownership of any such shares shall
continue to evidence ownership of such shares of capital stock of EyeSys, as
the surviving corporation in the Merger.

2.3 ESCROW.

(a) Twenty percent of all securities otherwise issuable in
respect of EyeSys Common Stock, Preferred Stock and the EyeSys Notes pursuant
to Sections 2.2(b) (collectively, the "ESCROW SHARES") shall be deducted from
the Merger Shares on a pro rata basis among the holders of EyeSys Common
Stock, Preferred Stock and the EyeSys Notes and placed in an escrow for a one
(1)-year period as the source of payment for the indemnification obligations
of EyeSys, pursuant to Article 7 of this Agreement and the Escrow Agreement.

(b) In addition to the shares described in Section 2.3(a)
above, there shall be deposited into the Escrow that number of shares of
Premier Common Stock (the "ESCROWED DISSENTING SHARES") equal to the number
of shares that would be issuable to any EyeSys stockholders who have
perfected their Appraisal Rights at the Closing Date in accordance with
Delaware law. To the extent that the Principal Shareholder sells shares of
Premier Common Stock under Section 5.22, the Escrowed Dissenting Shares so
deposited in the Escrow shall be immediately released to the Principal
Shareholder, in an amount equal to the amounts of Premier Common Stock sold
by it, and shall be subject to the Lock-Up Agreement executed by the
Principal Shareholder. At such time as the claims of dissenting shareholders
have been paid, all of the Escrowed Dissenting Shares that have not been
released to the Principal Shareholder shall be returned to Premier. The
Interests in Eyesys held by the Principal Shareholder shall be deemed
converted, upon consummation of the Merger, into the right to receive that
number of the Escrowed Dissenting Shares required to be delivered under this
Section 2.3(b).

(c) Upon the distribution out of the Escrow of any remaining
securities to the holders of Interests in EyeSys, such securities shall be
distributed to such holders in such amounts as would provide such holders
with that amount of the Merger Securities that they would have received under
Section 2.2(b) had the aggregate amount of Merger Securities originally
issued been only the total amount of Merger Securities outstanding after any
reimbursement to Premier of Merger Securities required to be made under this
Agreement.

2.4 THE CLOSING. Subject to termination of this Agreement as
provided in Article 8 below, the closing of the Merger shall take place at
the offices of Rutan & Tucker, 611 Anton Boulevard, Suite 1400, Costa Mesa,
California 92626, at 10:00 a.m. on the business day that is three (3)
business days after the Merger has been approved by the EyeSys shareholders,
or such other place, time and date as Premier, PAI and EyeSys may mutually
select (the "CLOSING").

2.5 EFFECTIVE TIME. Upon the complete satisfaction or satisfactory
waiver of all conditions set forth in Article 6 of this Agreement, the
Certificate of Merger shall be executed and filed as set forth herein.
Simultaneously with the Closing, the Certificate of Merger shall be submitted
for filing in the office of the Secretary of State for the State of

-14-
<PAGE>

Delaware. The Merger shall become effective immediately upon the filing of
the Certificate of Merger in the office of the Secretary of State for the
State of Delaware (the "EFFECTIVE TIME").

2.6 REGISTRATION RIGHTS.

(a) The Merger Shares, the Premier Options, the Premier Class
AA Options, the Premier Class BB Options, the securities issuable upon
exercise of any of such options and the Cowen Shares shall be registered,
pursuant to the Registration Statement to be filed with the Securities and
Exchange Commission. EyeSys shall furnish its shareholders with a Proxy
Statement/Prospectus for a special meeting of the shareholders of such
company, to be held on or about June 15, 1997, or as soon thereafter as is
practicable.

(b) EyeSys shall provide Premier with such audited financial
statements and other information concerning EyeSys (including updated
financial information, if required by applicable securities laws) as may be
required in order to accurately prepare the Registration Statement, and
Premier shall have no obligation to file the Registration Statement until
such information has been provided.

2.7 RESTRICTIONS ON SECURITIES. The Premier Common Stock, Premier
Class AA Options, Premier Class BB Options, and Premier Options issued to
certain holders of Interests in EyeSys shall be subject to the following
agreements:

(a) the Lock-Up Agreement, executed by the EyeSys
stockholders listed on Schedule 2.7 (the "EYESYS STOCKHOLDERS") in the forms
attached hereto as EXHIBIT C-1 (for holders of 5% or more of the EyeSys
Shares, on an as-converted basis) or EXHIBIT C-2 (for holders of less than 5%
of the EyeSys Shares, on an as-converted basis) (collectively, the "EYESYS
LOCK-UP AGREEMENTS"); and

(b) the Escrow Agreement.

2.8 SURRENDER AND EXCHANGE OF OUTSTANDING CERTIFICATES, PREMIER
WARRANTS FOR EYESYS WARRANTS AND PREMIER OPTIONS FOR EYESYS OPTIONS; STATUS OF
OUTSTANDING CERTIFICATES. The conversion of the EyeSys Notes, the EyeSys Common
Stock and Preferred Stock into the right to receive Merger Shares and additional
securities under Section 2.2(d), as provided for by this Agreement, shall occur
automatically at the Effective Time without further action by the holders
thereof. Until surrendered, each certificate that prior to the Effective Time
represented shares of EyeSys Common Stock and Preferred Stock, as well as each
EyeSys Note, will be deemed to evidence the right to receive the number of
shares of Premier Common Stock or additional securities into which such EyeSys
Common Stock, Preferred Stock or EyeSys Note have been converted. Premier
shall, within ten (10) business days after the Effective Time, use reasonable
efforts to notify each holder of a certificate or certificates theretofore
representing a share or shares of EyeSys Common Stock, Preferred Stock and
EyeSys Notes to surrender all of such holder's certificates or EyeSys Notes, as
the case may be, to Premier; and upon such surrender such holder shall be
entitled to receive in exchange a certificate or certificates representing the
Premier Common Stock into which such shares or EyeSys Notes have been converted.

-15-
<PAGE>

2.9 APPRAISAL RIGHTS. Holders of EyeSys Common Stock or Preferred
Stock who have complied with all requirements for perfecting the appraisal
rights as set forth in the Delaware General Corporation Law shall be entitled to
their rights under such laws. EyeSys shall give Premier prompt written notice
of any written demands for appraisal, withdrawals of demands for appraisal and
any other instrument in respect thereof received by EyeSys.

2.10 REORGANIZATION. The parties intend to adopt the Agreement as a
plan of reorganization and to consummate the Merger in accordance with
Section 368(a) of the Code. To the best of its knowledge, EyeSys believes that
(a) the fair market value of the Merger Shares and other consideration received
by each EyeSys shareholder from Premier in respect of the Merger is
approximately equal to the fair market value of the Interests in EyeSys
surrendered in the exchange, and (b) that the fair market value of the assets of
EyeSys after the Effective Time will equal or exceed the sum of the liabilities
to which the transferred assets are subject.

2.11 ARTICLES AND CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS AND
OFFICERS OF PREMIER AND THE SURVIVING CORPORATION.

(a) The Articles of Incorporation of Premier as in effect as
of the date of this Agreement shall be the Articles of Incorporation of
Premier after the Merger, unless and until thereafter amended. The
Certificate of Incorporation of EyeSys, modified as indicated in the
Certificate of Merger, shall be the Certificate of Incorporation of EyeSys as
the surviving corporation after the Merger, unless and until thereafter
amended.

(b) The Bylaws of Premier as in effect immediately prior to
the Effective Time shall be the Bylaws of Premier after the Merger, unless
and until thereafter amended. The Bylaws of PAI in effect immediately prior
to the Merger shall be the Bylaws of EyeSys as the surviving corporation
after the Merger, unless and until thereafter amended.

(c) The directors and officers of Premier immediately
following the Effective Time of the Merger shall be the same as the directors
and officers of Premier immediately prior to the Merger, until their
successors are elected or appointed and qualified, except as set forth in
Section 5.15.

(d) The officers of EyeSys as the surviving corporation
immediately following the Effective Time of the Merger shall be as follows
until their successors are elected or appointed and qualified:

Rom Rao President and Director

Michael Hiebert Secretary and Chief Financial Officer

The directors of EyeSys as the surviving corporation immediately following the
Effective Time shall be those persons specified by Premier at the Closing.

-16-
<PAGE>

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF EYESYS

Except as set forth in the EyeSys Letter, which disclosures shall be
deemed representations and warranties hereunder, EyeSys represents and warrants
to Premier and PAI as follows:

3.1 ORGANIZATION AND STANDING.

(a) EyeSys is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, has all
requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted, and is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect.

(b) EyeSys has delivered to Premier and PAI complete and
accurate copies of its current Certificate of Incorporation and Bylaws, and
minutes of all of its directors' and shareholders' meetings. EyeSys' stock
books provided to Premier and PAI are complete and accurate as of the date
hereof

3.2 CAPITALIZATION.

(a) EyeSys' current outstanding capitalization (common stock,
preferred stock, warrants and options and any other issued or granted
security) is as set forth in the EyeSys Letter. The EyeSys Letter accurately
describes the vesting schedules associated with EyeSys Options and states the
number of shares of EyeSys Common Stock which may be acquired pursuant to
unvested EyeSys Options. EyeSys has advised Premier in writing of the
residence of any holder of an Interest in EyeSys if such residence is outside
of the United States. EyeSys does not have in effect any stock appreciation
rights plan and no stock appreciation rights are currently outstanding.

(b) Other than as set forth in the EyeSys Letter, EyeSys does
not have outstanding any preemptive or subscription rights, options,
warrants, rights to convert, capital stock equivalents or other rights to
purchase or otherwise acquire any of EyeSys' capital stock or other
securities.

(c) All of the issued and outstanding shares of EyeSys Common
Stock and EyeSys Preferred Stock have been duly authorized and validly issued
and are fully paid and non-assessable, and such common and preferred stock
has been issued in full compliance with all applicable federal and state
securities laws. All of EyeSys' incentive stock options have been issued in
compliance with all laws, rules and regulations necessary to preserve such
incentive stock option treatment. All EyeSys Options have been issued in
accordance with EyeSys' current stock option plan.

(d) Except for any restrictions imposed by applicable state
and federal securities laws, and except as set forth in the EyeSys Letter,
there is no right of first refusal,

-17-
<PAGE>

co-sale right, right of participation, right of first offer, option or other
restriction on transfer applicable to any shares of EyeSys Common or
Preferred Stock.

(e) Except as set forth in the EyeSys Letter, (i) none of the
holders of EyeSys Option or EyeSys Warrants has registration rights, and (ii)
EyeSys is not and will not be under any obligation to register under the
Securities Act any shares of EyeSys Common or Preferred Stock or any other of
its securities that might be issued in the future if the Merger were not
consummated.

(f) Except as set forth in the EyeSys Letter, EyeSys is
neither a party nor subject to any agreement or understanding, and, to
EyeSys' knowledge, there is no agreement or understanding between or among
any persons that affects or relates to the voting or giving of written
consent with respect to any security.

(g) Except as set forth in the EyeSys Letter, there have
not been and nor are there outstanding any adjustments made or required to be
made to the conversion prices of the Preferred Stock from those set forth in
EyeSys' Restated Certificate of Incorporation (the "EYESYS CERTIFICATE OF
INCORPORATION"). The number of Merger Securities into which each share of
EyeSys Common Stock, Preferred Stock and the EyeSys Notes convert pursuant to
Section 2.2 of this Agreement is consistent with that which the holders of the
respective Interests in EyeSys are entitled to under the amendments to the
EyeSys Notes and the First Amendment to the Restated Certificate of
Incorporation of EyeSys. Upon obtaining the approvals and consents described in
Section 2. 1 (a) of this Agreement, (i) the EyeSys Notes shall have been duly
amended and such amended EyeSys Notes shall be the legal, valid and binding
obligation of EyeSys and the holders of the EyeSys Notes, and (ii) the First
Amendment to the Restated Certificate of Incorporation of EyeSys shall have been
duly adopted in accordance with Delaware Law upon the filing with the Secretary
of State for the State of Delaware.

3.3 SUBSIDIARIES. EyeSys neither owns nor controls, directly or
indirectly, any corporation, partnership, business, trust or other entity.

3.4 AUTHORITY, APPROVAL AND ENFORCEABILITY.

(a) Subject to obtaining the approval of the holders of
EyeSys Common Stock, Preferred Stock and the holders of the EyeSys Notes
required pursuant to Section 2.1(a), EyeSys has full corporate power and
authority to execute, deliver and perform its obligations under this
Agreement and all corporate action on its part necessary for such execution,
delivery and performance has been duly taken.

(b) Subject to obtaining all necessary consents, the
execution and delivery by it of this Agreement do not, and the performance
and consummation of the transactions contemplated by this Agreement shall
not, result in any conflict with, breach or violation of or default,
termination or forfeiture under (or upon the failure to give notice or the
lapse of time, or both, result in any conflict with, breach or violation of
or default, termination or forfeiture under) any terms or provisions of the
EyeSys Certificate of Incorporation, the First Amendment to the Restated
Certificate of Incorporation of EyeSys or its Bylaws, or any statute, rule,
regulation, judicial, governmental, regulatory or administrative decree,
order or judgment, or

-18-
<PAGE>

any agreement, lease, license, permit or other instrument to which it is a
party or to which any of its assets is subject, the breach, violation,
default, termination or forfeiture of which could or would result in a
Material Adverse Effect.

(c) No consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or
any other governmental or administrative body is required on its part for the
consummation by it of the transactions contemplated by this Agreement, except
the filing of the First Amendment to the Restated Certificate of
Incorporation of EyeSys and the Certificate of Merger in the office of the
Secretary of State of the State of Delaware.

(d) Subject to Premier, PAI and EyeSys obtaining the
approvals identified in Section 2.1, this Agreement is the legal, valid and
binding obligation of EyeSys, enforceable against EyeSys in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and subject to the availability of equitable remedies.

3.5 FINANCIAL STATEMENTS.

(a) Except as set forth in the EyeSys Letter, EyeSys has
delivered to Premier and PAI complete copies of its consolidated balance
sheets as at December 31 for calendar years 1991 through 1995 and the related
statements of operations, shareholders' equity and cash flows for the
calendar years 1990 through 1995 and the notes thereto, accompanied by the
auditors' report containing the unqualified opinion of its independent
certified public accountants. Prior to the Closing, EyeSys shall deliver to
Premier and PAI a complete copy of its consolidated balance sheets as at
December 31, 1996, and the related statements of operations, shareholders
equity and cash flows for the calendar year 1996 and the notes thereto,
accompanied by the auditor's report containing the opinion of its independent
certified public accountants, containing a "going concern" qualification (the
"1996 FINANCIALS"). The financial statements described above are referred to
herein, collectively as the "AUDITED FINANCIALS." EyeSys' Audited Financials
are (or, with respect to the 1996 Financials, will be) complete and correct
in all material respects and present fairly its consolidated financial
position as of those dates and the results of its operations and cash flows
for the years then ended, in conformity with GAAP applied on a consistent
basis.

(b) EyeSys has delivered to Premier and PAI an unaudited
consolidated balance sheet as of December 31, 1996 and the related unaudited
statements of operations, shareholders' equity and cash flows for the twelve
(12) months then ended (the "INTERIM FINANCIALS"). EyeSys' Interim
Financials are complete and correct in all material respects (notwithstanding
any annotations in the EyeSys Letter schedule of accounts receivable) and
present fairly its financial condition as of December 31, 1996 and the
results of its operations and cash flows for the twelve (12) months then
ended, in conformity with GAAP applied on a basis consistent with its Audited
Financials (except for the absence of notes thereto and subject to normal
year-end audit adjustments, which are not material). The Audited Financials
and the Interim Financials are hereinafter collectively referred to as the
"EYESYS FINANCIALS."

-19-
<PAGE>

(c) There are no debts, liabilities or claims against EyeSys
as of the dates of the EyeSys Financials that are not currently reflected in
such EyeSys Financials, contingent or otherwise, which are or would be of a
nature required to be reflected in a balance sheet prepared in accordance
with GAAP. All deferred taxes of EyeSys are properly accounted for in the
EyeSys Financials, in accordance with GAAP. EyeSys' revenue recognition
policies with respect to the EyeSys Financials have been made in accordance
with GAAP. All of EyeSys' general ledgers, books and records are located at
EyeSys' principal place of business. EyeSys does not have any of its
records, systems, controls, data or information recorded, stored, maintained,
operated or otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process, whether
computerized or not) that (including all means of access thereto and
therefrom) are not under the exclusive ownership and direct control of EyeSys.

(d) Subject to any reserves set forth in the EyeSys
Financials, all of the accounts receivable and notes receivable owing to
EyeSys, as of the date hereof, constitute and as of the Effective Time will
constitute, valid and enforceable claims arising from bona fide transactions
in the ordinary course of business, and there are no known or asserted
claims, refusals to pay, or other rights of set-off against any thereof.
Except as set forth in the EyeSys Letter, there is (i) no account debtor nor
note debtor delinquent in its payment by more than 60 days, (ii) no account
debtor nor note debtor that has refused (or, to the best knowledge of EyeSys,
threatened to refuse) to pay its currently outstanding obligations to EyeSys
for any reason, (iii) to the best knowledge of EyeSys, no account debtor nor
note debtor that is insolvent or bankrupt, and (iv) no account receivable nor
note receivable pledged to any third party by EyeSys.

(e) Except for any Transaction Costs, all accounts payable
and notes payable by EyeSys to third parties as of the date hereof arose, and
as of the Closing will have arisen, in the ordinary course of business, and,
there is no such account payable nor note payable delinquent in its payment,
except as set forth in the EyeSys Letter, or any update thereto prior to the
Closing.

3.6 MATERIAL CHANGES. Since December 31, 1996, except as set forth
in the EyeSys Letter, there has not been:

(a) any material change in its assets, liabilities, financial
condition, or operating results from that reflected in the Financials, except
changes in the ordinary course of business that have not been, in the
aggregate, material; nor any damage, destruction or loss, whether or not
covered by insurance, materially adversely affecting its business,
properties, prospects, or financial condition (as such business is presently
conducted and as it is proposed to be conducted);

(b) any waiver or compromise by it of a valuable right or of
a debt owed to it; nor any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by it, except in the ordinary course
of business and that is not material to its business, properties, prospects,
or financial condition (as such business is presently conducted and as it is
proposed to be conducted);

-20-
<PAGE>

(c) any material change to a material contract or material
arrangement by which it or any of its material assets is bound or subject;
any material change in any compensation arrangement or agreement with any
employee, consultant, officer, director or shareholder; any sale, assignment,
or transfer of any patents, trademarks, copyrights, trade secrets, or other
intangible assets; nor notification that there has been a loss of or material
order or contract cancellation by any of its customers;

(d) any resignation or termination of employment of any of
its key officers or employees; and EyeSys, to the best of its knowledge, does
not know of the impending resignation or termination of employment of any
such officer or employee;

(e) any mortgage, pledge, transfer of a security interest in,
or lien created by it, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable; any loans or
guarantees made by it to or for the benefit of its employees, officers, or
directors, or any members of their immediate families, other than travel
advances and other advances made in the ordinary course of its business; nor
any declaration, setting aside or payment or other distribution in respect of
any of its capital stock, nor any direct or indirect redemption, purchase, or
other acquisition of any of such stock by it;

(f) any other event or condition of any character that would
result in a Material Adverse Effect; nor (other than in the ordinary course
of business) any agreement or commitment by it to do any of the things
described in this Section 3.6.

3.7 RETURNS. EyeSys has not had any of its products returned by a
purchaser or user thereof other than for minor, nonrecurring warranty
problems. Except as set forth in the EyeSys Letter, EyeSys is not aware of
any pending warranty claims. The reserves reflected on the EyeSys Financials
for future warranty claims are adequate to provide for future warranty claims
on products sold by EyeSys through the date of the EyeSys Financials.

3.8 PROPERTIES AND INVENTORIES.

(a) EyeSys has good and marketable title to and the right to
use all of the assets used in its operations or necessary for the conduct of
its business, as reflected in the EyeSys Financials, free and clear of any
mortgages, pledges, security interests, licenses, encumbrances, restrictions
or adverse claims, except as disclosed in the notes to its Financials, except
for the lien of taxes not yet due and payable, and except as set forth in the
EyeSys Letter. All of the physical assets reflected on its balance sheets
included in the EyeSys Financials are valued therein at the lower of fair
market value or the amount computed under other EyeSys financial reporting
policies (and, for such purposes, taking into account any obsolescence of
such assets), are in the possession of EyeSys, and will be in the possession
of EyeSys at the Closing (except for inventory sold in the ordinary course of
business). All of such physical assets are in good operating condition,
normal wear and tear excepted.

(b) Since September 30, 1996, there has not occurred any
transfer of title other than in the ordinary course of business, any
abandonment, any pilferage or any other material loss with respect to, any of
its property, plant or equipment.

-21-
<PAGE>

(c) Included in the EyeSys Letter is a true and correct list
of all of the physical assets (including fixed assets) owned by EyeSys having
a net book value in excess of $5,000. EyeSys does not own any real property.
All improvements on leased property used in the business of EyeSys and the
present use thereof are in accordance with all applicable laws. The net book
value of any fixed assets owned by EyeSys has not been written up nor down,
other than pursuant to depreciation or amortization expense in accordance
with its historical practice.

(d) The EyeSys Letter lists all real property leases to which
EyeSys is a party. Assuming due authorization, execution and delivery by the
other parties thereto, such leases are legal, valid, binding and enforceable
in accordance with their respective terms (except as limited by bankruptcy,
insolvency, reorganization or other laws of general application affecting
creditors' rights generally). EyeSys has a valid and subsisting leasehold
interest in its leased real property, free and clear of all material
encumbrances. Neither EyeSys nor, to the knowledge of EyeSys, any other
party to any of such leases, is in material default under any of such leases,
or has performed any act or omitted to perform any act which act or omission,
with notice or lapse of time or both, will become a material default
thereunder.

3.9 INSURANCE. EyeSys maintains policies of insurance covering
its assets, properties, business and liabilities in types and amounts
customary for similarly sized companies engaged in similar businesses.
EyeSys is in compliance with each of such policies, such that none of the
coverage provided under such policies has been invalidated. EyeSys has fully
paid all premiums and other payments which have become due to its insurers.
The EyeSys Letter contains a complete and accurate list of all insurance
policies, bonds and surety instruments. To the knowledge of EyeSys, there is
no threat by any of the insurers to terminate or materially increase the
premiums payable under any of such insurance policies due to the activities
or loss experience of EyeSys.

3.10 PURCHASE, SALE AND OTHER AGREEMENTS.

(a) Except as described in the EyeSys Letter, EyeSys is not
a party to nor subject to any:

(i) agreement for the purchase of inventory, supplies,
or equipment, other real or personal property, or the procurement of
services, except individual purchase orders or aggregate purchase orders to a
single vendor involving payments of less than $10,000 or as have been entered
into in the ordinary course of the business of EyeSys;

(ii) lease or ownership of equipment, machinery or other
personal property;

(iii) agreement for the sale or lease of products or
furnishing of its services, except individual purchase orders or aggregate
purchase orders from a single customer involving payments of less than
$10,000, or as have been entered into in the ordinary course of the business
of EyeSys;

-22-
<PAGE>

(iv) joint venture, partnership or other contract or
arrangement involving the sharing of profits;

(v) agreement relating to the purchase or acquisition,
by merger or otherwise, of a significant portion of its business, assets or
securities by any other person or of any other person by it other than as
contemplated herein;

(vi) agreement containing a covenant or covenants which
purport. to limit its ability or right to engage in any lawful business
activity or compete with any person or entity;

(vii) agreement presently in effect pursuant to which it
has appointed any organization or person to act as its distributor or sales
agent or pursuant to which it has been appointed a distributor or sales agent
by any third party;

(viii) agreement with any of its officers, directors or
affiliates, other than stock option or stock purchase plans or agreements or
proprietary information or consulting or independent contractor agreements;

(ix) agreement for the license of any patent, copyright,
trade secret or other proprietary right or indemnification by it with respect to
infringements of proprietary rights, except employee or consultant proprietary
information agreements and except for those end-user licenses sold in the
ordinary course of business by EyeSys in connection with the sale of its
products;

(x) agreements involving payments to or obligations of
it, not otherwise described in this Section 3.10, in excess of $10,000 (other
than agreements for the sale of inventory in the ordinary course of business);
or

(xi) agreements of indebtedness, capital equipment leases
or guarantees of the obligations of others.

(b) To the best of EyeSys' knowledge, except as set forth in
the EyeSys Letter, no party to any such contract, agreement or arrangement
intends to cancel, withdraw, modify or amend such agreement or arrangement or
return a product for reimbursement or discontinue any provision of
agreed-upon services.

(c) Except as described in the EyeSys Letter, EyeSys has
performed all material obligations required to be performed by it on or prior
to the date hereof under each contract, obligation, commitment, agreement,
undertaking, arrangement or lease referred to in this Agreement (including,
without limitation, the Loan Agreement) or the EyeSys Letter, and it is not
in default, breach nor violation thereunder, or under any other agreements to
which it is a party, except for such defaults, breaches, or violations under
such instruments or obligations that would not have a Material Adverse Effect.

-23-
<PAGE>

3.11 INTELLECTUAL PROPERTY RIGHTS.

(a) EyeSys has complete and undisputed title and ownership
and the right to utilize all patents, trademarks, license rights, service
marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes (collectively, "INTELLECTUAL PROPERTY") necessary for or
used in its business as now conducted and as proposed to be conducted without
any conflict with or infringement of the rights of others. All of EyeSys'
patents, trademarks, license rights, service marks, trade names and
copyrights, whether or not registered, are identified in the EyeSys Letter.
Except as disclosed in the EyeSys Letter, there are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is it
bound by or a party to any options, licenses or agreements of any kind with
respect to the Intellectual Property of any other person or entity. It has
not received any communications nor is it aware of any entity alleging that
it has violated or, by conducting its business as proposed, would violate any
Intellectual Property of any other person or entity. It is not aware that
any of its employees or consultants is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of EyeSys or that would conflict with its
business as proposed to be conducted. EyeSys does not believe it is or will
be necessary to utilize any inventions of any of its employees or consultants
(or persons it currently intends to hire as service providers) made prior to
their employment by it. The EyeSys Letter sets forth all patents, patent
applications, trademarks (registered or unregistered), license agreements,
independent contractor or consulting agreements and any other Intellectual
Property that requires a consent or waiver to consummate the transactions
contemplated in this Agreement. All of EyeSys' license agreements with
respect to its Intellectual Property are in writing and evidence legitimate
ownership of such rights in EyeSys. All royalty obligations of EyeSys are
listed in the EyeSys Letter. No claims for royalties have been, are or will
be asserted against EyeSys. No invention that is shown as being owned by any
individual service provider of EyeSys is necessary for the conduct of EyeSys'
business.

(b) EyeSys is not making use of any confidential information
of third parties nor any confidential information in which any of its present
or, to its actual knowledge, past employees or other service providers, has
claimed a proprietary interest; and EyeSys is not actually aware of any facts
that would give rise to such a claim.

(c) Without limiting the generality of the foregoing
representations, except as described in the EyeSys Letter, EyeSys expressly
represents and warrants that:

(i) EyeSys has satisfied all obligations pursuant to any
and all consulting agreements;

(ii) EyeSys has no present or future liability under any
agreement to (x) provide indemnification for infringement of any third-party
rights or otherwise; or (y) provide updates, enhancements, modifications, bug
fixes, support, maintenance or the like of any products, or technology;

-24-
<PAGE>

(iii) Except as disclosed in the EyeSys Letter, as of the
date of this Agreement, EyeSys has not entered into nor negotiated with others
to enter into any consulting agreements, software development agreements,
license agreements or similar agreements;

(iv) EyeSys has retained all rights, title and interest
(including, without limitation, rights to derivatives, modifications, updates
and enhancements) to the components necessary for its business as now conducted
and as proposed to be conducted in the future;

(v) EyeSys knows of no facts or circumstances which would
materially and adversely affect the validity or enforceability of any of its
patents, trademarks, or copyrights;

(vi) All fees and filings necessary to keep the patents,
copyrights and trademarks of EyeSys in full force and effect, including without
limitation, patent maintenance fees and annuity fees, have been duly and
properly paid or executed;

(vii) All applications of EyeSys for patents, trademark
registrations and copyright registrations were properly filed in compliance with
the applicable laws of the countries in which they were filed;

(viii) All information known to EyeSys to be material to the
patentability of the claims of EyeSys' U.S. patents and U.S. patent applicable
was submitted to the United States Patent and Trademark Office in accordance
with the duty of candor and good faith set forth in 37 C.F.R. Section 1.56;

(ix) EyeSys has taken reasonable precautions to safeguard
the confidentiality of its trade secrets;

(x) All copyrightable material used in EyeSys products
were either authored solely by employees of EyeSys within the scope or their
employment or authored by nonemployees with the copyright rights assigned in
writing to EyeSys; and

(xi) The manufacturing, distribution, promotion and/or
activities of EyeSys as its business is presently conducted or proposed to be
conducted, does not violate any intellectual property rights, including without
limitation patent rights, of any other person or entity.

3.12 EMPLOYEES AND EMPLOYEE BENEFIT PLANS.

(a) Other than as set forth in the EyeSys Letter regarding
employee benefit plans, programs or arrangements maintained or sponsored by
EyeSys (such plans, the "EMPLOYEE PLANS"), neither EyeSys nor any entity or
trade or business which together with EyeSys is treated as a single employer
under Sections 414(b), (c), (m) or (o) of the Code (its "ERISA AFFILIATES")
is a party to any pension, profit sharing, savings, retirement or other
deferred compensation plan, any bonus (whether payable in cash or stock),
stock option, stock

-25-
<PAGE>

purchase or incentive program, or any group health plan (whether insured or
self-funded), or any disability or group life insurance plan, severance or
other employee benefit plan (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), or to any
collective bargaining agreement or other agreement, written or oral, with any
trade or labor union, employees' association or similar organization. EyeSys
is not a party to, nor has made any contribution to or otherwise incurred any
obligation under, any "multiemployer plan" as defined in Section 3(37) of
ERISA.

With respect to each such Employee Plan, EyeSys has furnished to
Premier and PAI or their counsel complete and accurate copies of the plan
documents (including plan amendments currently under consideration, trust
documents, insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and any material employee
communications), and all IRS Forms 5500 filed with respect to any Employee
Plans.

(b) With respect to each of the Employee Plans subject to
ERISA as either an employee pension benefit plan within the meaning of
Section 3(2) of ERISA or an employee welfare benefit plan within the meaning
of Section 3(l) of ERISA, EyeSys has prepared in good faith and timely filed
all requisite governmental reports, and has properly and timely posted or
distributed all notices and reports to employees required to be filed, posted
or distributed with respect to each such Employee Plan.

(c) Each such Employee Plan has at all times been operated
and administered in all material respects in accordance with its terms and
all applicable laws, including but not limited to, ERISA and the Code.

(d) Each Employee Plan that is intended to be qualified under
Code Section 401(a) ("EYESYS PENSION PLAN") has received a favorable
determination letter from the Internal Revenue Service that such Employee
Plan is qualified under Code Section 401(a) and that the trust under such
Employee Plan is exempt from tax under Code Section 501(a). EyeSys knows of
no reasonable basis for the disqualification of any EyeSys Pension Plan from
exemption under Section 401(a) of the Code.

(e) Neither EyeSys nor any EyeSys Pension Plan, nor any
fiduciary, trustee thereof nor, to the best knowledge of EyeSys, the
administrator thereof or any party in interest (as defined in Section 3(14)
of ERISA) or disqualified person (as defined in Section, 4975(e)(2) of the
Code) with respect to such plan has engaged in any transaction which would
subject EyeSys, the EyeSys Pension Plan, any trust created under such plan,
or any trustee or administrator thereof, or any party dealing with such
EyeSys Pension Plan or any such trust, to either civil liability or a civil
penalty assessed pursuant to Section 409 or 502 of ERISA, or a tax imposed
pursuant to Section 4975, 4976 or 4979 of the Code. EyeSys has no knowledge
of any breach of fiduciary duties owed to EyeSys Pension Plan participants
pursuant to the provisions of Part 4 of Title I of ERISA.

(f) There are no pending claims by or on behalf of any of the
EyeSys Employee Plans, by any employee or beneficiary covered under any such
EyeSys Employee

-26-
<PAGE>

Plan, or otherwise involving any such EyeSys Employee Plan (other than claims
for benefits in the ordinary course).

(g) No EyeSys Pension Plan is subject to Section 412 of the
Code nor Title IV of ERISA.

(h) There are no strikes or labor disputes pending or
threatened by nor any attempts at union organization of any EyeSys employees.

(i) The EyeSys Letter includes a full and complete list of
all directors, officers and employees of EyeSys as of the date of this
Agreement, specifying their names and job titles. The EyeSys Letter provides
accurate information to Premier and PAI regarding the total amount of base
salary, whether it is fixed or commission or a combination thereof with
respect to each of the foregoing. Except as set forth in the EyeSys Letter,
the employment of each of EyeSys' employees is "at will" employment, except
as may be required to the contrary under applicable law. Except as set forth
in the EyeSys Letter, EyeSys does not have any obligation (i) to provide any
particular form or period of notice prior to termination, or (ii) to pay any
of such employees any severance benefits in connection with their termination
of employment or service. In addition, except as set forth in the EyeSys
Letter, no severance pay will become due to any EyeSys employees under any
EyeSys agreement, plan or program as a result of the Merger. EyeSys does not
owe and has not accrued any bonuses or vacation pay or retirement benefits to
employees or former employees, other than as set forth on the payroll records
delivered by EyeSys to Premier and PAI prior to the Closing.

(j) EyeSys has not violated any of the health care
continuation coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") applicable to its employees prior to the
Effective Time of the Merger.

3.13 ENVIRONMENTAL AND SAFETY LAWS. Except as described in the
EyeSys Letter, there are no Hazardous Substances (as hereinafter defined) at any
of the facilities owned or used by EyeSys. The EyeSys Letter describes the way
in which EyeSys disposes of any Hazardous Substances used by it, including the
names and locations of any offsite storage or disposal facilities used by
EyeSys. EyeSys has not released, discharged nor disposed of Hazardous
Substances on or under any of such facilities or on or under any premises
previously occupied by EyeSys during the period in which such facilities have
been owned or used by EyeSys. The facilities owned or used by EyeSys do not now
contain, nor did such facilities or any premises previously occupied by EyeSys
contain, any underground storage tanks for any Hazardous Substances. EyeSys has
complied and is in compliance with all applicable local, state and federal
environmental laws, regulations, ordinances and administrative and judicial
orders relating to the generation, recycling, use, sale, storage, handling,
transfer and disposal of any Hazardous Substances. EyeSys has not been alleged
to be in violation of, nor been subject to any administrative, judicial or
regulatory proceeding pursuant to, such laws or regulations either now or any
time during the past twenty-four months. No Claims have been or are currently
asserted against EyeSys nor, to EyeSys' knowledge, will be asserted against
EyeSys after the Effective Time, based on EyeSys' acts or failures to act prior
to the Effective Time with respect to Hazardous Substances.

-27-
<PAGE>

3.14 PROPRIETARY INFORMATION AND INVENTIONS AND CONFIDENTIALITY
AGREEMENTS. Each employee, officer and director of EyeSys has executed a
confidentiality agreement and all of the employees, officers and directors
(not including non-employee directors) of EyeSys have executed a proprietary
information and inventions agreement. Copies of such agreements have been
provided to counsel to Premier and PAI. EyeSys is not aware that any of such
persons is in violation thereof.

3.15 POWERS OF ATTORNEY. Except as set forth in the EyeSys Letter,
no person holds a power of attorney from EyeSys.

3.16 COMPLIANCE WITH LAWS AND PERMITS; REGULATORY MATTERS. Except
where the failure to so comply would not have a Material Adverse Effect,
EyeSys has all valid and current permits, licenses, orders, authorizations,
registrations, approvals and other analogous instruments (and each is in full
force and effect) and EyeSys has made all filings and registrations and the
like necessary or required by law to conduct its business as presently
conducted. EyeSys has not received any governmental notice within two years
of the date hereof of any violation by EyeSys of any such laws, rules,
regulations or orders. Except where the failure to comply would not have a
Material Adverse Effect, (a) EyeSys is not in default or noncompliance under
any such permits, consents, or similar instruments, and (b) the business and
operations of EyeSys are in compliance with all foreign, federal, state,
local and county laws, ordinances, regulations, judgments, orders, decrees or
rules of any court, arbitrator or governmental, regulatory or administrative
agency or entity. Without limiting the generality of the foregoing, all of
the products presently marketed by EyeSys have been approved or cleared to
market pursuant to valid and subsisting Premarket Approval or Section 510(k)
Clearances issued by the United States Food and Drug Administration ("FDA").
EyeSys has never conducted any clinical trials which have required
Investigational Device Exemptions ("IDE's"). EyeSys is unaware of any medical
complications arising in connection with or resulting from clinical trials
conducted by EyeSys either directly or under its direction, or from the use
of its products following FDA approval or clearance, except as set forth in
the EyeSys Letter. No complaints have been received by EyeSys with respect
to such procedures, and no Medical Device Reports have been filed by EyeSys
or have been required to be filed. The design, manufacture and distribution
of all of EyeSys' products has been conducted, and shall continue through the
Closing Date to be conducted, in accordance with "good manufacturing
practices" as required by the FDA.

3.17 ABSENCE OF LITIGATION. Except as disclosed in the EyeSys
Letter, neither EyeSys nor, to the best of its knowledge, any of its officers or
directors is engaged in, or has been threatened with, any litigation,
arbitration, investigation or other proceeding relating to it, its employee
benefit plans, property, business, assets, licenses, permits or goodwill, or
against or affecting the Merger or the actions taken or contemplated in
connection therewith, nor, to the best of its knowledge, is there any reasonable
basis therefor. There is no action, suit, proceeding or investigation pending
or threatened against EyeSys that questions the validity of this Agreement or
the Agreement of Merger or the right of EyeSys to enter into this Agreement or
the Agreement of Merger or to consummate the transactions contemplated hereby or
thereby or which might result in any Material Adverse Effect. The foregoing
includes actions pending or threatened (or any reasonable basis therefor known
to it) involving any dispute with its consultants or the prior employment of any
of its employees, their use in connection with its

-28-
<PAGE>

business of any information or techniques allegedly proprietary to any of
their former employers, or their obligations under any agreements with prior
employers. There is no action, suit, proceeding or investigation by EyeSys
currently pending, nor which it intends to initiate. Neither EyeSys nor, to
the best of its knowledge, any of its officers or directors is bound by any
judgment, decree, injunction, ruling or order of any court, governmental,
regulatory or administrative department, commission, agency or
instrumentality, arbitrator or any other person which would have a Material
Adverse Effect.

3.18 NO BROKERS. Except with respect to the fees payable to Cowen
which are included in the Transactional Costs, EyeSys is not obligated for
the payment of fees or expenses of any broker or finder in connection with
the origin, negotiation or execution of this Agreement or the Agreement of
Merger nor in connection with any transaction contemplated hereby or thereby.

3.19 THE REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS.
The information supplied by EyeSys for inclusion in the Registration
Statement shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact nor omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The information supplied by EyeSys for
inclusion in the Proxy Statement/Prospectus to be sent to the holders of
interests in EyeSys will not, on the date the Proxy Statement/Prospectus (or
any amendment thereof or supplement thereto) is first mailed to holders of
Interests in EyeSys, at the time of the EyeSys Stockholder Meeting, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with
respect to any material fact, or shall omit to state any material fact
necessary in order to make the statement made therein not false or
misleading. If at any time prior to the Effective Time any event relating to
EyeSys or any of its respective affiliates, officers or directors should be
discovered by EyeSys which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/ Prospectus,
EyeSys shall promptly inform Premier and PAI. The Proxy
Statement/Prospectus, including all financial statements of EyeSys required
to be included therein, shall comply in all material respects as to form with
the requirements of the Securities Act, the Exchange Act and the rules and
regulations thereunder. Notwithstanding the foregoing, EyeSys makes no
representation or warranty with respect to any information supplied or
required to be supplied by Premier or PAI which is contained in any of the
foregoing documents.

3.20 TAXES.

(a) DEFINITIONS. For purposes of this Agreement:

(i) the term "TAXES" means (A) all federal, state,
local, foreign and other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, use,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs, duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts with respect thereto,
(B) any liability for payment of amounts described in clause (A) whether as a
result of transferee liability, of being a member

-29-
<PAGE>

of an affiliated, consolidated, combined or unitary group for any period, or
otherwise through operation of law and (C) any liability for the payment of
amounts described in clauses (A) or (B) as a result of any tax sharing, tax
indemnity or tax allocation agreement or any other expressed or implied
agreement to indemnify any other person; and the term "TAX" means any one of
the foregoing Taxes; and

(ii) the term "RETURNS" means all returns, declarations,
reports, statements and other documents required to be filed in respect of
Taxes, and the term "RETURN" means any one of the foregoing Returns.

(b) EyeSys has properly completed and filed on a timely
basis all Returns required to be filed on or prior to the date of this
Agreement. As of the time of filing, the foregoing Returns properly
reflected the applicable facts then known to EyeSys regarding its income,
business, assets, operations, activities, status or any other information
required to be shown thereon. No extension of time within which to file any
Return that has been required to be filed has failed to be requested and
granted. EyeSys will properly complete and file on a timely basis all
Returns required to be filed on or prior to the Closing.

(c) With respect to all Taxes imposed upon EyeSys, or for
which EyeSys is or was liable, whether to taxing authorities (as, for
example, under law) or to other persons or entities (as, for example, under
tax allocation agreements), with respect to all taxable periods or portions
of periods ending on or before the date of Closing, EyeSys has fully complied
with all applicable tax laws and agreements, and except as set forth in the
EyeSys Letter, all such amounts required to be paid by EyeSys to taxing
authorities, on or before the date of this Agreement, have been paid. EyeSys
does not owe any taxes on compensation paid to any of its employees.

(d) No issues have been raised (nor are currently pending)
by any taxing authority in connection with any of the Returns. No extensions
nor waivers of statutes of limitations with respect to the Returns have been
given by or requested from EyeSys. Except to the extent indicated in the
EyeSys Letter, all deficiencies asserted or assessments made as a result of
any state or federal income tax examinations have been fully paid, or are
fully reflected as a liability in the Financials of EyeSys, or are being
contested and an adequate reserve therefor has been established and is fully
reflected in the Financials of EyeSys.

(e) Except as set forth in the EyeSys Letter, there are no
liens for Taxes (other than for current Taxes not yet due and payable) upon
the assets of EyeSys. EyeSys is not a party to or bound by (nor will EyeSys
become a party to or bound by) any tax indemnity, tax sharing or tax
allocation agreement. EyeSys has never been a member of an affiliated group
of corporations, within the meaning of Section 1504 of the Code. EyeSys has
not filed a consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign income Tax law) nor agreed to have Section 341(f)(2) of the Code (or
any corresponding provision of state, local or foreign income Tax law) apply
to any disposition of any asset owned by it.

(f) EyeSys has not elected to be treated as an S Corporation
pursuant to Section 1362(a) of the Code. None of the assets of EyeSys is
property that EyeSys is

-30-
<PAGE>

required to treat as being owned by any other person pursuant to the
so-called "safe harbor lease" provisions of former Section 168(f)(8) of the
Code. None of the assets of EyeSys directly or indirectly secures any debt
the interest on which is tax-exempt under Section 103 (a) of the Code. None
of the assets of EyeSys is "tax-exempt use property" within the meaning of
Section 168(h) of the Code.

(g) EyeSys has not made and has not agreed to make a deemed
dividend election under Treas. Reg. Section 1.1502-32(f)(2) nor a consent
dividend election under Section 565 of the Code. EyeSys has not agreed to
make, nor is it required to make, any adjustment under Sections 481(a) or
263A of the Code or any comparable provision of any applicable state or
foreign tax laws by reason of a change in accounting method or otherwise.
EyeSys has not participated in (and has not agreed to participate in) an
international boycott within the meaning of Section 999 of the Code.

(h) EyeSys is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, whether separately or
in the aggregate, in connection with the Merger, or with any change of
control of EyeSys or any other transaction contemplated by this Agreement, in
the payment of any "excess parachute payments" within the meaning of Section
28OG of the Code. To the best knowledge of EyeSys, except as set forth in
the EyeSys Letter, no Shareholder of EyeSys is other than a United States
person within the meaning of the Code. EyeSys does not have and has not had
a permanent establishment in any foreign country, as defined in any
applicable Tax treaty or convention between the United States of America and
such foreign country, and EyeSys has not engaged in a trade or business
within any foreign country.

(i) Except as set forth in the EyeSys Letter, EyeSys is not
party to any joint venture, partnership, or other arrangement or contract
which is treated as a partnership for federal income tax purposes.

(j) The unpaid Taxes of EyeSys do not exceed any reserve for
Tax liability (excluding any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth or included
in EyeSys' balance sheets as at December 31, 1995 and September 30, 1996, as
adjusted for the passage of time through the Effective Time in good faith in
accordance with the past custom and practice of EyeSys. No Tax liability of
EyeSys has been incurred since December 31, 1995, other than in the ordinary
course of business, and an adequate reserve on the Financials has been made
for all Taxes since that date.

(k) After the date of this Agreement, no material election
with respect to Taxes shall be made by EyeSys without the prior written
consent of Premier and PAI.

(l) The liabilities of EyeSys to which the transferred
assets of EyeSys are subject were incurred by EyeSys in the ordinary course
of its business.

(m) To the best knowledge of EyeSys, there is no plan or
intention on the part of the shareholders of EyeSys to sell, exchange, or
otherwise dispose of such number of the Merger Shares as would reduce the
EyeSys shareholders' ownership of shares of Premier

-31-
<PAGE>

Common Stock to a number of shares having a value, determined as of the
Effective Time, of less than 50% of the value, determined as of the Effective
Time, of all of the shares of EyeSys Common and Preferred Stock outstanding
immediately prior to the Effective Time. For purposes of this representation,
shares of EyeSys Common or Preferred Stock exchanged for cash or other
property surrendered by dissenters, shall be treated as outstanding EyeSys
Common or Preferred Stock at the Effective Time of the Merger. Moreover,
shares of EyeSys Common or Preferred Stock and shares of Premier Common Stock
held by EyeSys shareholders as of the date hereof and otherwise sold,
redeemed, or disposed of prior or subsequent to the Merger will be considered
in making this representation.

(n) EyeSys is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.

(o) At least ninety percent (90%) of the fair market value of
the net assets and at least seventy percent (70%) of the fair market value of
the gross assets held by EyeSys immediately prior to the Merger will be held
by the surviving corporation immediately after the Merger. For the purpose
of determining the percentage of EyeSys' net and gross assets held by the
surviving corporation immediately following the Merger, the following assets
will be treated as property held by EyeSys immediately prior to the Merger
that is not held by the surviving corporation subsequent to the Merger: (i)
assets disposed of by EyeSys prior to the Merger and in contemplation thereof
(including, without limitation, any asset disposed of by EyeSys, other than
in the ordinary course of business, pursuant to a plan or intent existing
during the period ending on the Effective Time of the Merger and beginning
with the commencement of negotiations (whether formal or informal) with
Premier regarding the Merger); (ii) assets disposed of after the Merger
pursuant to a binding obligation entered into by EyeSys before the Merger and
in contemplation thereof, other than in the ordinary course of business;
(iii) assets used by EyeSys to pay shareholders perfecting dissenters' rights
or other expenses or liabilities incurred in connection with the Merger; and
(iv) assets used to make distribution, redemption or other payments in
respect of EyeSys capital stock or rights to acquire such stock (including
payments treated as such for tax purposes) that are made in contemplation of
the Merger or related thereto.

(p) EyeSys has not sold, exchanged or discontinued any line
or lines of business with a value representing in the aggregate more than 25%
of the current fair market value of the total assets of EyeSys as of the
Closing.

3.21 OTHER TAXES.

(a) The hours worked by and payments made to EyeSys'
employees have not been in violation of the Fair Labor Standards Act or any
other applicable federal, foreign, state or local labor laws.

(b) All payments due from EyeSys on account of employee
health and welfare insurance have been paid or accrued as a liability on its
balance sheets included in the EyeSys Financials.

-32-
<PAGE>

(c) All severance and vacation payments which are or were due
and payable by EyeSys under the terms of any agreement have been paid or
accrued as a liability on its balance sheets included in the EyeSys
Financials.

3.22 COMPLIANCE WITH INSTRUMENTS. EyeSys is not in violation of or
conflict with, breach of or in default under (either with the giving of notice
or the passage of time or both) any term or provision of the EyeSys Certificate
of Incorporation or its Bylaws.

3.23 FOREIGN STATUS. EyeSys is not a foreign corporation, foreign
partnership, foreign trust or foreign establishment (as each such term is
defined in the Code).

3.24 CONSENTS AND APPROVALS. The EyeSys Letter lists all consents
and approvals required for the execution and delivery of this Agreement by
EyeSys and the consummation of the Merger by EyeSys, including those that are
necessary because of the transactions contemplated by this Agreement or those
which are necessary to avoid the loss of the rights to use EyeSys' Intellectual
Property or other rights.

3.25 ACCOUNTS RECEIVABLE. The EyeSys Letter lists all accounts
receivable, unbilled invoices and other debts due or recorded in the records of
EyeSys, as of April 7, 1997. Notwithstanding any annotations in the EyeSys
Letter schedule of accounts receivable, at least 95% of the amount of all
accounts receivable, unbilled invoices and other debts due or recorded in the
records and books of account of EyeSys as being due to EyeSys as at the date of
this Agreement will be good, payable and collectible in full in the ordinary
course of business within ninety (90) days after the Closing (or one hundred
twenty (120) days, with respect to receivables, invoices and debts due from
foreign (non-U.S.) payors), net of applicable reserves as recorded on EyeSys'
books on the date hereof; no contest with respect to the amount or validity of
any amount is pending; and none of such accounts receivable or other debts is or
will at the Closing be subject to any counterclaim or set-off. The values at
which accounts receivable are carried reflect the accounts receivable valuation
policy of EyeSys which is consistent with GAAP applied on a consistent basis.

3.26 INVENTORY. The inventories shown on the Financials as of
December 31, 1995 and September 30, 1996 or thereafter acquired by EyeSys,
consisted of items of a quantity and quality usable or salable in the ordinary
course of business. The inventories are valued at the lower of cost or market
value, determined in accordance with generally accepted accounting principles
consistently applied and on a basis which is consistent with the past practices
of EyeSys. Since December 31, 1996, EyeSys has continued to replenish
inventories in a normal and customary manner consistent with past practices.
EyeSys has not received written or oral notice that it will experience in the
foreseeable future any difficulty in obtaining, in the desired quantity and
quality and at a reasonable price and upon reasonable terms and conditions, the
raw materials, supplies or component products required for the manufacture,
assembly or production of its products. Except as disclosed in the EyeSys
Letter, EyeSys does not have any sole source suppliers and has been and is able
to acquire component parts from multiple sources on a timely basis. The values
at which inventories are carried reflect the inventory valuation policy of
EyeSys which is consistent with its past practice and in accordance with GAAP
applied on a consistent basis.

-33-
<PAGE>

3.27 NO UNDISCLOSED LIABILITIES. Except as set forth in the EyeSys
Letter, there is no outstanding claim, liability or obligation of any nature,
whether absolute, accrued, contingent or otherwise, other than: (a) the
liabilities and obligations that are fully reflected, accrued or reserved
against on the Financials for which the reserves are appropriate and
reasonable; (b) liabilities incurred in the ordinary course of business since
the date of the Financials, (c) Transactional Costs, or (d) contractual
liabilities or obligations not required to be disclosed in the Financials
prepared in accordance with GAAP.

3.28 RELATED PARTY TRANSACTIONS. Except as set forth in the EyeSys
Letter, or otherwise reflected in the Capitalization Table included in the
EyeSys Letter, no employee, officer or director of EyeSys or member of his or
her immediate family is indebted to EyeSys, nor is EyeSys indebted (or committed
to make loans or extend or guarantee credit) to any of them. Except as set
forth in the EyeSys Letter, to the best of EyeSys' knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which EyeSys is affiliated or with which EyeSys has a business
relationship, or any firm or corporation that competes with EyeSys, except that
the employees, officers or directors of EyeSys and members of their immediate
families may own stock in publicly traded companies that may compete with
EyeSys. No member of the immediate family of any officer or director of EyeSys
is directly interested in any material contract with EyeSys.

3.29 DISTRIBUTION. All of EyeSys' international distributors for
its products are identified in the EyeSys Letter. EyeSys has entered into
written distribution agreements with each of such distributors, copies of
which have been delivered to Premier. All of such agreements are in full
force and effect. To EyeSys' knowledge, no such distributor intends or
expects to materially reduce the volume of purchases of EyeSys' products from
the amounts purchased during the fiscal year ended December 31, 1996.

When used in this Article 3, "KNOWLEDGE" means information actually known or
which should have been known by any one of the directors of EyeSys or any of the
following: Youssef Wakil, Kenneth Carbonari, David Harley, Michel Ulsas, David
Liu or Henry Kuehn after inquiry by such persons of EyeSys personnel who report
to them.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF PREMIER AND PAI

Except as set forth in Premier Letter, which disclosures shall be
deemed representations and warranties hereunder, each of Premier and PAI
represents and warrants to EyeSys as follows:

4.1 ORGANIZATION AND STANDING.

(a) Each of Premier and PAI is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted,
and is duly qualified to do business and is in good standing as a foreign

-34-
<PAGE>

corporation in each jurisdiction in which the failure to so qualify could or
would have a Material Adverse Effect.

(b) Prior to Closing, each of Premier and PAI shall have
delivered or made available to EyeSys complete and accurate copies of its
current Certificates of Incorporation and Bylaws, as the case may be.

4.2 SUBSIDIARIES. Premier does not own or control, directly or
indirectly, any corporation, partnership, business, trust or other entity,
except Data.Site, LLC and PAI.

4.3 AUTHORITY, APPROVAL AND ENFORCEABILITY.

(a) Subject to obtaining any required approvals of their
respective stockholders, each of Premier and PAI has full corporate power and
authority to execute, deliver and perform its obligations under this
Agreement, and all corporate action on their respective parts necessary for
such execution, delivery and performance has been duly taken.

(b) Subject to obtaining all necessary consents, the
execution and delivery by each of Premier and PAI, as the case may be, of
this Agreement do not, and the performance and consummation of the
transactions contemplated by this Agreement shall not, result in any conflict
with, breach or violation of or default, termination or forfeiture under (or
upon the failure to give notice or the lapse of time, or both, result in any
conflict with, breach or violation of or default, termination or forfeiture
under) any terms or provisions of its current Articles of Incorporation or
Bylaws, as the case may be, or any statute, rule, regulation, judicial,
governmental, regulatory or administrative decree, order or judgment, or any
agreement, lease or other instrument to which either is a party or to which
any of its assets is subject, the breach, violation, default, termination or
forfeiture of which could or would result in a Material Adverse Effect.

(c) No consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or
any other governmental or administrative body is required on its part for the
consummation by each of Premier and PAI, as the case may be, of the
transactions contemplated by this Agreement, except the filing of the First
Amendment to the Restated Certificate of Incorporation of EyeSys, and the
Certificate of Merger in the offices of the Secretaries of State of the
States of Delaware and California.

(d) Subject to Premier, PAI and EyeSys obtaining the
approvals identified in Section 2.1 of this Agreement, this Agreement is the
legal, valid and binding obligation of Premier and PAI, respectively, and
enforceable against Premier and PAI in accordance with the respective terms
hereof and thereof, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and subject to the availability of equitable remedies.

4.4 FINANCIAL STATEMENTS.

(a) Premier has delivered or made available to EyeSys
complete copies of its consolidated balance sheets as at March 31 for the
fiscal years 1994 through 1996 and the

-35-
<PAGE>

related statements of operations, shareholders' equity and cash flows for the
years ended on each March 31 for the years 1994 through 1996 and the notes
thereto (collectively, the "PREMIER AUDITED FINANCIALS") accompanied by the
auditors' report and the opinion of its independent certified public
accountants. Premier's Audited Financials present fairly its consolidated
financial position as of those dates and the results of its operations and
cash flows for the years then ended, in conformity with GAAP applied on a
consistent basis.

(b) Premier has delivered to EyeSys an unaudited consolidated
balance sheet as of December 31, 1996 and the related unaudited statements of
operations for the nine (9) months then ended (the "PREMIER INTERIM
FINANCIALS"). Premier's Interim Financials present fairly its financial
condition as of December 31, 1996 and the results of its operations and cash
flows for the nine (9) months then ended, in conformity with GAAP applied on
a basis consistent with the Premier Audited Financials (except for the
absence of notes thereto and subject to normal year-end audit adjustments
which are not material). The Audited Financials and the Interim Financials
are hereinafter collectively referred to as the "PREMIER FINANCIALS."

4.5 MATERIAL CHANGES. Since December 31, 1996, there has not been
any material change in Premier's assets, liabilities, financial condition or
operating results from that reflected in the Premier Financials or the
Registration Statement, except changes in the ordinary course of business that
have not been, in the aggregate, material.

4.6 ABSENCE OF LITIGATION. Neither Premier nor, to the best of its
knowledge, any of its officers or directors is engaged in, or has been
threatened with, any litigation, arbitration, investigation or other proceeding
relating to it, its employee benefit plans, property, business, assets,
licenses, permits or goodwill, or against or affecting the Merger or the actions
taken or contemplated in connection therewith, nor, to the best of its
knowledge, is there any reasonable basis therefor. There is no action, suit,
proceeding or investigation pending or threatened against Premier that questions
the validity of this Agreement or the right of Premier or PAI to enter into this
Agreement or to consummate the transactions contemplated hereby or thereby or
which might result in any Material Adverse Effect. The foregoing includes,
without limitation, actions pending or threatened (or any reasonable basis
therefor known to Premier) involving the prior employment of any of its
employees, their use in connection with its business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. There is no action,
suit, proceeding or investigation by Premier currently pending or which it
intends to initiate. Neither Premier nor, to the best of its knowledge, any of
its officers or directors is bound by any judgment, decree, injunction, ruling
or order of any court, governmental, regulatory or administrative department,
commission, agency or instrumentality, arbitrator or any other person which
would or could have a Material Adverse Effect.

4.7 NO BROKERS. Except with respect to the fees payable to Cowen
pursuant to Section 5.21, Premier is not obligated for the payment of fees or
expenses of any broker or finder in connection with the origin, negotiation or
execution of this Agreement or in connection with any transaction contemplated
hereby.

4.8 INSURANCE. Premier maintains policies of insurance covering its
assets, properties and business in types and amounts customary for similarly
sized companies engaged

-36-
<PAGE>

in similar businesses. Premier is in compliance with each of such policies
such that none of the coverage provided under such policies has been
invalidated. Premier has fully paid all premiums and other payments which
may be due to its insurers. The Premier Letter contains a complete and
accurate list of all insurance policies, bonds and surety instruments. There
is no threat by any of the insurers to terminate or materially increase the
premiums payable under any of such insurance policies due to the activities
or loss experience of Premier.

4.9 CAPITALIZATION.

(a) Premier's capitalization (common stock, preferred stock,
warrants and options and any other issued or granted security) is as set
forth in the Premier Letter. Premier does not have in effect any stock
appreciation rights plan and no stock appreciation rights are currently
outstanding.

(b) Other than as set forth in the Premier Letter, Premier
does not have outstanding any preemptive or subscription rights, options,
warrants, rights to convert, capital stock equivalents or other rights to
purchase or otherwise acquire any of Premier's capital stock or other
securities.

(c) All of the issued and outstanding shares of Premier's
capital stock have been duly authorized, validly issued, are fully paid and
nonassessable, and such capital stock has been issued in full compliance with
all applicable federal and state securities laws. All of Premier's incentive
stock options have been issued in compliance with all laws, rules and
regulations necessary to preserve such incentive stock option treatment. All
of Premier's options have been issued in accordance with Premier's current
stock option plans. None of Premier's options are entitled to be accelerated
as a result of the Merger.

(d) Except for any restrictions imposed by applicable state
and federal securities laws, there is no right of first refusal, co-sale
right, right of participation, right of first offer, or other restriction on
transfer applicable to any shares of Premier capital stock.

(e) Except as described in the Premier Letter, Premier is not
and will not be under any obligation to register under the Securities Act any
shares of its capital stock or any other of its securities that might be
issued in the future if the Merger were not consummated.

(f) Premier is not a party or subject to any agreement or
understanding, and, to Premier's knowledge, there is no agreement or
understanding between or among any persons that affects or relates to the
voting or giving of written consent with respect to any security.

4.10 COMPLIANCE WITH LAWS. The business and operations of Premier
and PAI are in compliance with all foreign, federal, state, local and county
laws, ordinances, regulations, judgments, orders, decrees or rules of any court,
arbitrator or governmental, regulatory or administrative agency or entity,
except where the failure so to comply would not have a Material Adverse Effect.
Each of Premier and Premier PAI has all valid and current permits, licenses,
orders, authorizations, registrations, approvals and other analogous instruments
(and each is in

-37-
<PAGE>

full force and effect) and each of Premier and PAI has made all filings and
registrations and the like necessary or required by law to conduct its
business as presently conducted, except where the failure to maintain such
permits and other instruments or to make such filings and registrations would
not have a Material Adverse Effect. Neither Premier nor PAI has received any
governmental notice within two years of the date hereof of any violation by
it of any such laws, rules, regulation or orders. Neither Premier nor PAI is
in material default or material noncompliance under any such permits,
consents, or similar instruments.

4.11 THE REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS. The
Registration Statement pursuant to which the Premier Common Stock to be issued
in the Merger will be registered with the SEC shall not, at the time the
Registration Statement is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
information supplied by Premier and PAI for inclusion in the Proxy
Statement/Prospectus to be sent to the holders of Interests in EyeSys will not,
on the date the Proxy Statement/Prospectus (or any amendment thereof or
supplement thereto) is first mailed to holders of Interests in EyeSys, at the
time of the EyeSys Stockholder Meeting or at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, or
shall omit to state any material fact necessary in order to make the statement
made therein not false or misleading. If at any time prior to the Effective
Time any event relating to Premier or PAI or any of their respective affiliates,
officers or directors should be discovered by Premier or PAI which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Premier and PAI shall promptly inform EyeSys. The Proxy
Statement/Prospectus, including all financial statements of Premier and PAI
required to be included therein, shall comply in all material respects as to
form with the requirements of the Securities Act, the Exchange Act and the rules
and regulations thereunder. Notwithstanding the foregoing, Premier and PAI make
no representation or warranty with respect to any information supplied by EyeSys
which is contained in any of the foregoing documents.

4.12 TAXES.

(a) Prior to the Merger, Premier will be in control of PAI
within the meaning of Section 368(c) of the Code. Premier shall not cause or
permit PAI to issue additional shares of its stock that would result in
Premier losing control of PAI within the meaning of Section 368(c) of the
Code. No stock of PAI will be issued in the Merger.

(b) During its corporate existence, PAI has owned no assets,
and prior to the Merger shall not own any assets other than the Merger Shares
of Premier to be distributed in the Merger.

(c) As of the date hereof and as of the Effective Time,
Premier has no plan or intention to reacquire any of its stock issued in the
Merger, other than the possible acquisition of the Escrow Shares pursuant to
Article 7 hereof.

-38-
<PAGE>

(d) Premier shall not: liquidate PAI; merge PAI with or into
another corporation; sell or otherwise dispose of the stock of PAI in any
transaction other than this Merger, nor cause PAI to sell or otherwise
dispose of any of the assets of EyeSys acquired in the Merger, except for
dispositions made in the ordinary course of business transfers described in
Section 368(a) of the Code, or other liquidations, dispositions or transfers
which may be made without disqualifying the Merger as a tax-free
reorganization under the Code. Following the Merger, Premier will cause
EyeSys to continue the historic business of EyeSys or to use a significant
portion of EyeSys' business assets in a business.

(e) There is no intercorporate indebtedness existing between
EyeSys and Premier nor between EyeSys and PAI that was issued, acquired, or
will be settled at a discount. Premier is not an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.

4.13 SHARES FULLY PAID AND NON-ASSESSABLE. The shares of Premier
Common Stock issuable to holders of Interests in EyeSys pursuant to Section 2.2,
when issued as contemplated by this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable and free of any preemptive rights of any
security holder of Premier.

4.14 SEC DOCUMENTS. Premier has furnished, or within 10 days of the
date hereof shall furnish, EyeSys with a true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed by Premier
with the SEC since November 1, 1994 (the "SEC DOCUMENTS"), which are all the
documents that Premier was required to file with the SEC under the Exchange Act
since that date. The SEC Documents as of their respective dates complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC thereunder, applicable to such SEC Documents, and none of
the SEC Documents as of the date thereof contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading. Except to the
extent that the information contained in Premier's Annual Report on Form 10-K
for its fiscal year ended March 31, 1996 ("FORM 10-K") has been revised or
superseded by a later-filed SEC Document, or except as set forth in the
Registration Statement or the Premier Letter, the Form 10-K does not currently
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Premier included in the SEC Documents
as of their respective dates complied as to form in all material respects with
applicable accounting requirements and the rules and regulations of the SEC with
respect thereto and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved,
except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q and subject to normally recurring audit
adjustments.

-39-
<PAGE>

ARTICLE 5

COVENANTS OF PREMIER, PAI AND EYESYS

Each of Premier, PAI and EyeSys, as the case may be, covenants to the
other, except as expressly provided otherwise herein, as follows:

5.1 MAINTENANCE OF BUSINESS.

(a) During the period from the date hereof to the Effective
Time, it shall carry on and preserve its business, goodwill and its
relationships with distributors, customers, suppliers, officers, employees,
agents and others in substantially the same manner as it did prior to the
date of this Agreement. It will use its reasonable efforts to keep and
maintain the existing favorable business relationship with each of such
distributors, customers, suppliers, officers, employees and agents. If it
becomes aware of a deterioration in a relationship with any distributor,
customer, supplier, officer, employee or agent which is material to its
business or prospects, it will promptly bring such information to the
attention of the other and will use its best efforts to restore such
relationship or establish a reasonable replacement relationship, as may be
appropriate. EyeSys recognizes that Premier and PAI intend to continue
certain of EyeSys' existing businesses after the Effective Date and that
Premier and PAI intend to continue EyeSys' current relationships with its
customers and other parties.

(b) EyeSys agrees to consult with Premier concerning any
material operating decisions (including, without limitation, proposed
employee hiring layoff and termination decisions). Notwithstanding the
foregoing, EyeSys expressly acknowledges that EyeSys alone shall make such
operating decisions and shall be solely responsible for their implementation,
consequences and liabilities, if any.

5.2 ABSENCE OF CERTAIN CHANGES. Prior to the Closing, except as
expressly permitted or contemplated hereby, or except as set forth in the
EyeSys Letter or the Premier Letter, as the case may be, neither party shall,
without the prior written consent of the other party:

(a) incur any additional indebtedness for money borrowed or
guarantee any indebtedness or obligation of any other party; set aside or pay
any dividend or distribution of assets to, or repurchase any of its stock
from any of its shareholders; issue or grant any securities or securities
convertible into capital stock or grant or issue any options, warrants or
rights to subscribe for its capital stock or securities convertible into its
capital stock;

(b) enter into, amend or terminate any employment or
consulting agreement or any similar agreement or arrangement; increase the
compensation payable or to become payable to any of its officers, employees
or agents above the amount payable as of December 31, 1996, or adopt or amend
any employee benefit plan or arrangement;

(c) acquire or dispose of any properties or assets used in
its business except in the ordinary course of business; permit any change in
the nature of business or the manner in which its books and records are
maintained;

-40-

<PAGE>

(d) waive any statute of limitations so as to extend any tax
or other liability; create or suffer to be imposed any lien, mortgage,
security interest or other charge on or against its properties or assets; or
enter into, amend or terminate any lease of real or personal property
otherwise than in the ordinary course of business;

(e) except as contemplated by Section 2.1, amend its
Certificate of Incorporation or Bylaws; engage in any activities or
transactions outside the ordinary course of its business as conducted at the
date hereof; make any amendments or changes in any instruments, agreements,
other documents or written information delivered by it or its representatives
to the other or its representatives; or accelerate the vesting of any
employee stock benefit (including vesting under stock purchase agreements or
the exercisability of stock options).

5.3 ACTIONS CONTRARY TO STATED INTENT. Each party will use its
best efforts to cause the Merger to qualify as a tax-free reorganization
under Section 368(a) of the Code and accordingly will not, either before or
after consummation of the Merger, take any action or fail to take any action
that would prevent the Merger from so qualifying as a tax-free reorganization
under Section 368(a) of the Code, or that would be inconsistent with such
qualification.

5.4 ACCESS TO INFORMATION. Each party will give to the other
party and their respective accountants, legal counsel and other
representatives full access, during normal business hours throughout the
period prior to the Closing, to all of the properties, books, contracts,
commitments and records relating to its business, assets and liabilities, and
each party will furnish to the other party, their respective accountants,
legal counsel and other representatives during such period all such
information concerning its affairs as the other may reasonably request but
subject to Section 9.10 below; provided, that any furnishing of such
information pursuant hereto or any investigation by each party hereto shall
not affect such party's right to rely on the representations, warranties,
agreements and covenants made by the other party in this Agreement.

5.5 OTHER DISCUSSIONS. From the date hereof until the Closing or
the termination of this Agreement in accordance with Article 8 hereof,
whichever occurs first, neither EyeSys nor any officer, director,
shareholder, agent or representative of EyeSys will discuss or negotiate, or
authorize any person or entity to discuss or negotiate on its or their
behalf, with any other party, concerning the possible disposition of EyeSys'
business, assets or capital stock, except that such persons may discuss and
negotiate back-up offers to sell or otherwise dispose of EyeSys' business,
assets or capital stock in case the Merger is not consummated pursuant to
this Agreement, provided that EyeSys must inform any potential purchaser or
acquirer that EyeSys has entered into this definitive Agreement with Premier.

5.6 EYESYS LOCK-UP AGREEMENTS. EyeSys shall use its reasonable
best efforts to cause the EyeSys Shareholders to execute and deliver to
Premier the EyeSys Lock-Up Agreements.

5.7 REASONABLE BEST EFFORTS. Each party will use its reasonable
best efforts to cause all conditions to the Closing to be satisfied,
including obtaining any of its consents

-41-

<PAGE>

necessary or desirable in connection with the consummation of the
transactions contemplated by this Agreement.

5.8 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS. As
promptly as practicable, Premier, PAI and EyeSys shall prepare and file with
the SEC preliminary proxy materials which shall constitute the Proxy
Statement/Prospectus and the Registration Statement of Premier with respect
to the Premier Common Stock to be issued in connection with the Merger and
shall use all reasonable efforts to cause the Registration Statement to
become effective as soon as practicable, and to mail the Proxy
Statement/Prospectus to EyeSys shareholders, as soon thereafter as
practicable. The Proxy Statement/Prospectus shall include the recommendation
of the Boards of Directors of Premier and EyeSys in favor of the Merger;
provided, that the Boards of Directors of Premier or EyeSys may, at any time
prior to the Effective Time, withdraw, modify or change such recommendation
if, in the opinion of either such Board of Directors, the Board determines in
good faith that there is a reasonable possibility that the failure to
withdraw, modify or change such recommendation could be a breach of its
fiduciary duties under applicable law. EyeSys shall call and hold a
shareholder meeting as promptly as practicable after the date on which the
Registration Statement becomes effective and in accordance with applicable
laws for the purpose of obtaining the approvals required herein.

5.9 EYESYS PAYABLES. EyeSys shall pay its accounts payable,
including (without limitation) its payroll, amounts due under equipment and
facilities leases, loan agreements and similar leases and agreements, sales
and payroll taxes and trade payables, and all other taxes, in a timely manner.

5.10 TAX FORMS. EyeSys shall not make or change any material Tax
election, adopt or change any material Return or any amendment to a material
Return, enter into any closing agreement, settle any Tax claim or assessment,
file any state or federal income tax return, or consent to any extension or
waiver of limitation period applicable to any Tax claim or assessment,
without the prior consent of Premier, which consent will not be unreasonably
withheld.

5.11 NOTIFICATION OF CERTAIN MATTERS. EyeSys shall give prompt
notice to Premier, and Premier and PAI shall give prompt notice to EyeSys, of
(a) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or
warranty of the notifying party contained in this Agreement to become
materially untrue or inaccurate, or (b) any failure of the notifying party to
materially comply with or to satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder.

5.12 MERGER EXPENSES. EyeSys will use its best efforts to limit
all of its non merger-related fees and expenses to be incurred by it prior to
or on the Closing.

5.13 ASSUMPTION OF BANK LOAN AGREEMENT. EyeSys and the Silicon
Valley Bank ("BANK") have entered into that certain Bank Loan Agreement,
dated as of March 11, 1995, as amended, pursuant to which the Bank agreed to
loan EyeSys up to $2,100,000 (the "LOAN AGREEMENT"). Up to $650,000 of such
loan has been guaranteed by each of Frontenac VI Limited Partnership and
American Healthcare Fund II, L.P., shareholders of EyeSys (the

-42-

<PAGE>

"SHAREHOLDER GUARANTEES"). EyeSys shall use its reasonable best efforts to
obtain the agreement of the Bank, or another lender acceptable to Premier, to
agree to advance at least $2,100,000 for at least one year after Closing at
advance rates no greater than those specified in the Loan Agreement, with
such adjustments to the loan covenants as reflect the merged companies and
are acceptable to Premier. Premier agrees to provide to Bank the corporate
guaranty of Premier with respect to $300,000 principal amount of indebtedness
of EyeSys to Bank; provided, however, that (i) Bank's recourse under such
guaranty shall be limited to Premier's accounts receivable, inventory and
fixed assets; (ii) Premier's obligation to provide such guaranty is subject
to the condition that Frontenac Company and/or other shareholders reasonably
acceptable to Premier shall have agreed that in the event the Merger is
terminated for any reason, Frontenac and such other shareholders shall
provide a guaranty to Bank in substitution for the guaranty provided by
Premier; and (iii) Bank shall have agreed to accept such substitute guaranty
in lieu of the Premier guaranty.

5.14 PREMIER COVENANT REGARDING SEC FILINGS. For the benefit of
affiliates of EyeSys, Premier agrees to make all filings it is required to
make pursuant to the Exchange Act through 1998 on a timely basis; provided,
however, that Premier shall be entitled to cure any late filings in
accordance with the Exchange Act and the rules and regulations promulgated
thereunder.

5.15 PREMIER BOARD SEAT. Commencing with the next annual meeting
of Premier shareholders at which directors are to be elected after the
Closing (or at such earlier time as there may be a vacancy on Premier Board
of Directors), Premier shall nominate for election to its Board of Directors
a person who is designated from time to time by Frontenac Co., and who is
reasonably acceptable to Premier. The foregoing obligation shall terminate
on the earlier of: (i) three (3) years from the Closing Date of the Merger;
or (ii) at such time as the persons receiving Premier Common Stock in the
Merger hold in the aggregate less than five percent (5%) of the outstanding
Premier voting stock.

5.16 FUNDING FOR EYESYS. From the date hereof until the earlier of
the Closing or the termination of the Merger in accordance with Article 8
below, Premier will loan to EyeSys, pursuant to a Demand Promissory Note
bearing interest at the rate of 10.5% per annum (or, if less, the maximum
rate permitted by law) and secured by substantially all of the assets of
EyeSys, the Reasonable Cash Requirements of EyeSys; provided that Premier's
obligation to provide such loan shall be subject to the conditions that: (i)
all necessary approvals of shareholders of EyeSys with respect to the Merger
and the transactions contemplated hereby shall have been obtained and shall
be irrevocable (provided that for this purpose, the delivery of irrevocable
written consents to the Merger by those EyeSys shareholders holding
sufficient votes to approve the Merger under its charter documents and
applicable law shall be deemed to satisfy this condition); (ii) EyeSys shall
not be in breach of any material representation, warranty or covenant set
forth in this Agreement; (iii) no regulatory approvals or licenses shall be
required as a condition to the Closing (other than approval of the Securities
and Exchange Commission of the Registration Statement); (iv) the condition
set forth in Section 6.17 concerning the Bank's credit facilities shall have
been met, and (v) the employees of EyeSys identified on Schedule 5.16 shall
have agreed to be employed by Premier after the Closing. For purposes
hereof, the term "REASONABLE CASH REQUIREMENTS" shall mean the monthly cash
requirements of EyeSys following the execution of this Agreement as set forth
in that certain

-43-

<PAGE>

operating plan of EyeSys attached hereto as Exhibit G (the "OPERATING PLAN"),
but in no event shall exceed $100,000 per month.

5.17 NONINCLUDED COSTS. EyeSys shall make arrangements for the
payment of the Nonincluded Costs either out of the Merger Shares or from the
proceeds received by EyeSys after the date hereof from the exercise of any
option or warrant, but in no event from the funds or other assets of EyeSys.

5.18 OPTIONS AND WARRANTS. Prior to the Closing, EyeSys shall make
arrangements for the exercise, termination or exchange of the EyeSys Options
and EyeSys Warrants, as set forth herein. Any cash proceeds received as a
result of such exercise may be applied by EyeSys to the payment of the
Nonincluded Costs.

5.19 MARCH 31, 1997 FINANCIAL STATEMENTS. Prior to the Closing,
EyeSys shall prepare and forward to Premier unaudited financial statements
for the three-month period ended March 31, 1997, which statements shall be
prepared in accordance with GAAP, and shall be subject to normal audit
adjustments, but shall reflect accounting policies and conventions with
respect to reserves, write-offs and other similar matters approved by
Premier. Prior to the Closing, Premier shall prepare and forward to EyeSys
unaudited financial statements for the year ended March 31, 1997, which shall
be prepared in accordance with GAAP but shall be subject to normal audit
adjustments, and shall further deliver, upon completion, copies of its
audited financial statements for such fiscal year (provided that EyeSys shall
maintain such financial statements as confidential until such time as a press
release or other public announcement concerning Premier's results of
operations for such fiscal year has been published).

5.20 "STAY BONUSES," RSS PAYABLE. Prior to the Closing, EyeSys
shall make arrangements for the termination and/or satisfaction of all
bonuses or other consideration payable to EyeSys employees, consultants or
advisers in order to induce them to remain in the employ of, or to continue
to render services to, EyeSys (the "Stay Bonuses"). Prior the Closing,
EyeSys shall also make arrangements for the compromise and payment of all
amounts due by EyeSys to RSS, LLC. Any amounts payable in connection with
the foregoing arrangements shall be paid from the Merger Shares or the
proceeds thereof.

5.21 TRANSACTIONAL COSTS. EyeSys shall deliver to Premier at least
two business days prior to the Closing a list of the transactional fees
claimed by the parties listed on Schedule 5.21 in connection with the Merger.
At the Effective Time, Premier shall pay the lesser of: (i) the
Transactional Costs of such parties, or (ii) the amount of $100,000, to be
applied to the Transactional Costs other than the fees payable to Cowen. In
addition, Premier shall pay a cash payment to Cowen of the lesser of
(i) $75,000 or (ii) one-fourth of the investment banking fee of Cowen (the
"COWEN FEES"), and shall issue the Cowen Shares to Cowen, all of which shall
be in payment of one-half of the investment fee due Cowen. EyeSys shall be
responsible for paying the remaining portion of such transactional costs and
remaining portion of the Cowen Fee, pursuant to Section 5.17 hereof. At the
Effective Time, Premier also shall repay on behalf of EyeSys the amount of
$72,500 in full satisfaction of the Frontenac Payable.

-44-

<PAGE>

5.22 REIMBURSEMENT OF AMOUNTS PAID TO DISSENTING SHAREHOLDERS. The
Principal Shareholder agrees that if the total amount payable to Dissenting
Shareholders under the Delaware General Corporation Law ("APPRAISAL RIGHTS"),
as a result of the exercise of their Appraisal Rights, exceeds $250,000, the
Principal Shareholder shall sell Premier Common Stock received by it in the
Merger, in a manner reasonably acceptable to Premier, until the net proceeds
from such sale(s) equals the total amount payable to such Dissenting
Shareholders, and shall remit such net proceeds to Premier to reimburse it
for the amounts so paid to Dissenting Shareholders. The Principal
Shareholder shall be released from its Lock Up Agreements to the extent
necessary to sell Premier Common Stock under this Section 5.22. The maximum
number of shares that the Principal Shareholder shall sell hereunder is equal
to the number of Escrowed Dissenting Shares.

ARTICLE 6

CONDITIONS TO OBLIGATIONS OF PREMIER, PAI AND EYESYS

The obligations of Premier, PAI and EyeSys to consummate the
transactions contemplated hereby are, at the election of each such party,
subject to satisfaction of the following conditions by the other party, to
the extent applicable to the other party, or waiver thereof:

6.1 CONSENTS AND APPROVALS. The parties hereto shall have
obtained all consents and approvals of stockholders and third parties
(including governmental authorities) required to consummate the transactions
contemplated by this Agreement and the Certificate of Merger, or as required
by applicable law.

6.2 REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties (including those contained in the Premier and
EyeSys Letters) made herein by the other party and those contained in any
documents executed by stockholders of the other party shall be true, accurate
and correct in all material respects as of the date made and as if made as of
the Closing. The other party shall have performed in all material respects
all obligations and agreements undertaken by it herein to be performed at or
prior to the Closing.

6.3 CERTIFICATE. The parties shall have received at the Closing a
certificate, dated as of the Closing and executed by the other's President
and Secretary, to the effect that the conditions set forth in Sections 6.1
and 6.2 shall have been satisfied or waived by the other party.

6.4 OPINIONS OF COUNSEL. Premier and PAI shall have received at
the Closing the opinion of Epstein Becker & Green, P.C., counsel to EyeSys,
in form and substance satisfactory to Premier and PAI and their counsel.
EyeSys shall have received at the Closing the opinion of Rutan & Tucker, LLP,
counsel to Premier and PAI, in form and substance satisfactory to EyeSys and
its counsel.

6.5 NO ACTIONS. Consummation of the transactions contemplated by
this Agreement shall not violate any order, decree or judgment of any court
or governmental body

-45-

<PAGE>

having jurisdiction, and no litigation, arbitration, action or other
proceeding shall have been commenced or overtly threatened against either
party hereto as a result of or relating to the transactions contemplated
hereby.

6.6 PROCEEDING AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
reasonably satisfactory to its counsel, and it shall have received all such
counterpart originals or certified or other copies of such documents as it
may reasonably request.

6.7 ACCURACY OF DOCUMENTS AND INFORMATION. The copies of all
material instruments, agreements, other documents and written information
delivered to the other by it or its representatives, including, without
limitation, the EyeSys Letter and the Premier Letter, shall be complete and
correct as of the Closing.

6.8 LOCK-UP AGREEMENTS. Premier and PAI shall have received an
EyeSys Shareholder Lock-Up Agreement executed by each EyeSys Shareholder.

6.9 CONTRACTS. Premier shall be satisfied that EyeSys shall have
amended or obtained waivers in respect of any and all rights pursuant to
contract that will be necessary in order to consummate the Merger and to
enable EyeSys to conduct its business and operations after the Effective Time
of the Merger substantially as EyeSys did immediately preceding the Effective
Time of the Merger.

6.10 SECURITIES APPROVAL. The Registration Statement shall have
been declared effective by the SEC under the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose and no similar
proceeding in respect of the Proxy Statement/Prospectus shall have been
initiated or threatened by the SEC.

6.11 DELAWARE FILINGS. Premier and EyeSys shall be satisfied that
as of the Effective Time, the First Amendment to the Restated Certificates of
Incorporation of EyeSys, and the Certificate of Merger shall have been filed
in the office of the Secretary of State of the State of Delaware.

6.12 TERMINATION OF EYESYS STOCK OPTION PLAN. The EyeSys Board of
Directors shall have voted to terminate the EyeSys' Stock Option Plan as of
the Effective Time.

6.13 INTENTIONALLY OMITTED.

6.14 OPTIONS, WARRANTS AND EYESYS NOTES. Those persons identified
on Exhibit 2.1 as converting their EyeSys Notes or waiving Contingency
Payments thereon shall have converted such EyeSys Notes, or waived their
Contingency Payments, to the extent shown in such schedule. All outstanding
rights, options, warrants and convertible securities of EyeSys described in
the EyeSys Letter shall have been terminated, canceled, replaced or otherwise
eliminated, to the satisfaction of Premier, consistent with the other
provisions of this Agreement. All existing registration rights of holders of
Interests in EyeSys shall have been terminated and

-46-

<PAGE>

Premier shall have received a certificate to such effect, signed on behalf of
EyeSys by the President and Secretary of EyeSys.

6.15 FOREIGN STATUS REPRESENTATION LETTER. EyeSys shall furnish
Premier with an affidavit stating under penalty of perjury that EyeSys is not
a foreign corporation, foreign partnership, foreign trust or foreign
establishment (as each term is defined in the Code) and will provide in such
affidavit its taxpayer identification number and shall have executed a
representation letter substantially in the form provided by Premier to EyeSys
and its counsel before Closing.

6.16 ESCROW AGREEMENT. The Escrow Agreement shall be executed by
all of the appropriate parties.

6.17 BANK LOAN AGREEMENT. Bank, or another lender acceptable to
Premier, shall have consented to the Merger and shall have agreed to continue
to loan at least $2,100,000 for at least one year after Closing at the
advance rates currently available to EyeSys, as specified in the Loan
Agreement, with such adjustments to the loan covenants and other terms as
reflect the merged companies and are acceptable to Premier, and shall further
have agreed to release the Shareholder Guarantees at the Closing.

6.18 NO EYESYS MATERIAL ADVERSE EFFECT. Premier shall not have
become aware of any fact, event or condition, or the absence of any fact,
event or condition, as the context requires, which, individually or in the
aggregate would have a material adverse effect on the business, properties,
condition (financial or otherwise) or results of operations of EyeSys.

6.19 NO PREMIER MATERIAL ADVERSE EFFECT. EyeSys shall not have
become aware of any fact, event or condition, or the absence of any fact,
event or condition, as the context requires, which, individually or in the
aggregate would have a material adverse effect on the business, properties,
condition (financial or otherwise) or results of operations of Premier.

6.20 APPRAISAL RIGHTS. At the Closing, EyeSys shareholders holding
in the aggregate less than 10% of the EyeSys Common Stock, shall have
perfected their Appraisal Rights, and none of the holders of EyeSys Preferred
Stock shall have perfected their Appraisal Rights.

6.21 DILIGENCE REVIEW. Premier shall have completed, to its
reasonable satisfaction, a "due diligence review" of: (i) the patent and
proprietary rights, including potential infringement of patents, relating to
the products sold or proposed to be sold and technology owned by EyeSys; and
(ii) the relationships between EyeSys and its distributors and vendors. Such
due diligence review shall be deemed satisfactorily completed unless Premier
notifies EyeSys: (x) within 21 days of the date hereof that it is
dissatisfied with the relationships between EyeSys and its distributors
and/or vendors; (y) prior to the Closing Date, that it is dissatisfied with
issues pertaining to the validity of EyeSys' patents or to the possible
infringement of the patent rights of others by products sold by EyeSys; and
(z) within 10 days of the date hereof that it is dissatisfied with EyeSys'
title to the proprietary rights to the technology used in EyeSys' products.

-47-

<PAGE>

6.22 AMOUNT OF SHARES ISSUABLE. The number of shares of Premier
Common Stock issuable hereunder shall not exceed the maximum amount that is
issuable without the approval of the Merger by the shareholders of Premier
(the "MAXIMUM AMOUNT") as required under the California Corporations Code.
To the extent the number of shares of Premier Common Stock issuable hereunder
exceeds such Maximum Amount, Premier shall deliver, in lieu of such excess,
Premier Class AA Options, Premier Class BB Options, cash or promissory notes
(having a maturity of not more than three years and bearing interest at the
rate of 10.5% per annum), selected by Premier, having a value equivalent to
the value of such excess.

6.23 ESTOPPEL CERTIFICATE. Premier shall have received from
General Electric Company and Colloptics Inc. an Estoppel Certificate, in form
and substance acceptable to Premier, confirming that the License Agreement
among them and EyeSys dated September 23, 1994 is in full force and effect.

6.24 COMPLIANCE WITH RULE 145. All persons who are "affiliates" of
EyeSys at the Closing Date shall have executed and delivered to Premier an
agreement in form and substance satisfactory to Premier providing that such
persons will not sell or otherwise dispose of any securities of Premier
received pursuant to the Merger except in compliance with Rule 145
promulgated under the Securities Act of 1933, as amended.

6.25 EYESYS FINANCIAL INFORMATION. EyeSys shall have delivered to
Premier its audited financial statements for the year ended December 31,
1996, and such additional financial information concerning EyeSys as is
necessary to permit Premier to comply with its reporting requirements under
the Securities Exchange Act of 1934, as amended.

6.26 EYESYS PERSONNEL. No more than three of the EyeSys personnel
identified on Schedule 5.16 shall have failed to agree to be employed by
Premier after the closing, and no more than two of Joe Wakil, Ken Carbonari,
David Liu, Michel Olsas, David Headlee and Eric Serfoss shall have failed to
so agree.

ARTICLE 7

INDEMNITY

7.1 INDEMNIFICATION. EyeSys agrees to indemnify, defend and hold
harmless Premier and PAI from and against and shall reimburse Premier and PAI
against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, remedies and penalties,
including interest, penalties and reasonable attorneys' fees and expenses
(collectively, "LOSSES") that Premier or PAI shall incur or suffer and which
arise from or are attributable to by reason of or in connection with any
breach or inaccuracy of or any failure to perform or comply with any of
EyeSys' representations, warranties, agreements or covenants contained in
this Agreement (including any exhibit, letter, schedule or certificate
referred to herein) or in the Escrow Agreement. Notwithstanding the
foregoing, in the absence of fraud, EyeSys shall have no obligations under
this Section 7.1 with respect to Losses that would otherwise be deemed to
have incurred: (a) due to a breach of a representation or warranty by EyeSys
with respect to its inventory, or (b) as a result of the condition of its
fixed assets, so

-48-

<PAGE>

long as the representations and warranties set forth in the first two
sentences of Section 3.8(a) hereof are true and correct.

7.2 ESCROW AGREEMENT. The indemnity obligations of EyeSys
hereunder shall be met pursuant to the terms and conditions of the Escrow
Agreement. The indemnification made pursuant to Section 7.1 and the
representations, warranties, covenants and other agreements set forth in this
Agreement and in the Escrow Agreement, shall survive Closing for a period of
twelve (12) months after the Effective Time, except that indemnity for Losses
for which claim has been made pursuant to the terms of the Escrow Agreement
against the Escrow Shares within such twelve (12)-month period shall survive
until resolved pursuant to the terms of the Escrow Agreement. As set forth
herein, the indemnity obligations of EyeSys under this Article 7 (together
with all of EyeSys' representations, warranties, covenants and other
agreements) set forth herein shall survive the Closing and, absent fraud,
shall be satisfied solely and exclusively by recourse against the Escrow
Shares in accordance with the Escrow Agreement and this Agreement.

7.3 NO WAIVER. No investigation made by or on behalf of Premier
or PAI with respect to EyeSys shall be deemed to affect Premier's or PAI's
reliance on the representations, warranties, covenants and agreements made by
EyeSys contained in this Agreement and shall not be a waiver of Premier's or
PAI's rights to indemnity as herein provided for the breach or inaccuracy of
or failure to perform or comply with any of EyeSys' representations,
warranties, covenants or agreements under this Agreement or the Escrow
Agreement.

7.4 INDEMNIFICATION OF EYESYS AGENTS. Premier agrees that until
six (6) years from the Effective Time, Premier shall maintain all rights to
indemnification existing in favor of the present and former directors,
officers, employees, fiduciaries and agents of EyeSys under the terms of its
charter and bylaws in effect immediately prior to the Effective Time, and
that the charter and bylaws of EyeSys as the surviving corporation, or any
successor in interest of EyeSys, shall not be amended to reduce or limit the
rights of indemnity afforded to such persons.

7.5 INDEMNIFICATION REGARDING SECURITIES ACT ISSUES. In connection
with the registration by Premier of any of its securities under the Securities
Act pursuant to this Agreement, EyeSys shall indemnify and hold harmless
Premier, each underwriter (as defined in the Securities Act) and each
controlling person of any holder or underwriter, if any (within the meaning of
the Securities Act), against any losses, claims, damages of liabilities, joint
or several (or actions in respect thereof), to which Premier, such underwriter
or controlling person may be subject under the Securities Act, under any other
statute or at common law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any untrue
statement (or alleged untrue statement) of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary proxy statement/prospectus or final proxy
statement/prospectus contained therein, or any amendment to supplement thereto,
or any other document, or (ii) any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any violation by EyeSys of the Securities Act or any Blue
Sky law, or any rule or regulation promulgated under the Securities Act or any
Blue Sky law, or any other

-49-

<PAGE>

law, applicable to Premier in connection with any such registration,
qualification or compliance, and shall reimburse each such holder,
underwriter or controlling person for any legal or other expenses reasonably
incurred by such holder, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that EyeSys shall not be liable to Premier, any
underwriter or any controlling person in any such case unless and to the
extent that any such loss, claim, damage or liability arises out of or is
based upon any such untrue statement or omission made in such registration
statement, preliminary prospectus, summary prospectus, prospectus, or
amendment or supplement thereto, or any other document, in reliance upon and
in conformity with written information furnished to Premier by EyeSys
specifically for use therein. The indemnity provided for herein shall remain
in full force and effect regardless of any investigation made by or on behalf
of Premier or such underwriter or controlling person.

ARTICLE 8

TERMINATION

8.1 TERMINATION BY MUTUAL CONSENT. At any time prior to the
Closing, this Agreement and the Agreement of Merger may be terminated by
written consent of Premier, PAI and EyeSys, notwithstanding approval of the
Merger by the stockholders of PAI or EyeSys.

8.2 TERMINATION BY PREMIER OR PAI OR EYESYS.

(a) Premier or PAI may terminate this Agreement at any time
prior to the Closing by delivery of written notice to EyeSys if: (1) EyeSys
has breached or violated this Agreement in any material respect and, if such
breach or violation is curable, has failed to cure such violations within ten
(10) days of receiving written notice thereof, (2) any representation or
warranty made by EyeSys is false or inaccurate in any material respect or
there is any material misrepresentation or omission by EyeSys; (3) upon the
occurrence of a Material Adverse Effect with respect to EyeSys; (4) the rate
of sales received by EyeSys, measured on a monthly basis, shall have declined
by more than 10% (calculated separately for international sales and domestic
sales) as compared to the average monthly sales rate over the corresponding
period as set forth in the Operating Plan; (5) any of the EyeSys foreign
distributors who have been responsible on an annual basis for more than ten
percent (10%) of EyeSys' foreign sales, or any EyeSys domestic independent
manufacturing representative who has been responsible on an annual basis for
more than ten percent (10%) of EyeSys' domestic sales, shall have terminated
his, her or its relationship with EyeSys; or (6) the Closing has not occurred
by July 15, 1997.

(b) EyeSys may terminate this Agreement at any time prior to
the Closing by delivery of written notice to Premier and PAI if: (1) Premier
or PAI has breached or violated this Agreement in any material respect and,
if such breach or violation is curable, has failed to cure such violations
within ten (10) days of receiving written notice thereof, (2) any
representation or warranty made by Premier or PAI is false or inaccurate in
any material respect or there is any material misrepresentation or omission
by either Premier or PAI; (3) upon the

-50-

<PAGE>

occurrence of a Material Adverse Effect with respect to Premier; or (4) the
Closing has not occurred by July 15, 1997.

8.3 EFFECT OF TERMINATION. In the event of termination as
provided above, all parties hereto shall bear their own costs associated with
this Agreement and all transactions mentioned herein and there shall be no
obligation on the part of either party's officers, directors or stockholders;
provided, that (a) Sections 9.5, 9.9, 9.10 and 9.11 shall survive such
termination and continue in full force and effect, and (b) nothing herein
will relieve any party from liability for any breach of this Agreement which
occurred prior to such termination.

ARTICLE 9

MISCELLANEOUS

9.1 NOTICES. Any notice given hereunder shall be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by facsimile) or the third day after mailing by certified
or registered mail, postage prepaid as follows:

(a) If to Premier or PAI:

Premier Laser Systems, Inc.
3 Morgan
Irvine, CA 92718
Attention: Chief Executive Officer
Facsimile: (714) 951-7218

With a copy to:

Rutan & Tucker
611 Anton Boulevard, Suite 1400
Costa Mesa, California 92626
Attention: Thomas G. Brockington, Esq.
Facsimile: (714) 546-9035

(b) If to EyeSys:

EyeSys Technologies, Inc.
2776 Bingle Road
Houston, TX 77055
Attention: President and Chief Executive Officer
Facsimile: (713) 465-2418

-51-

<PAGE>

With a copy to:

Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
Attention: Lowell S. Lifschultz, Esq.
Facsimile: (212) 661-0989

or to such other address as any party may have furnished in writing to the
other parties in the manner provided above.

9.2 ENTIRE AGREEMENT; MODIFICATIONS; WAIVER. Except as set forth
in Section 9.10 herein, this Agreement constitutes the final, exclusive and
complete understanding of the parties with respect to the subject matter
hereof and supersedes any and all prior agreements, understandings and
discussions with respect thereto, including, without limitation, the Letter
of Intent dated March 3, 1997, by and between Premier and EyeSys. No
variation or modification of this Agreement and no waiver of any provision or
condition hereof or granting of any consent contemplated hereby, shall be
valid unless in writing and signed by the party against whom enforcement of
any such variation, modification, waiver or consent is sought. After the
Effective Time, the rights and remedies available to Premier and PAI pursuant
to this Agreement and all exhibits hereunder shall be as set forth in
Article 7.

9.3 CAPTIONS. The captions in this Agreement are for convenience
only and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.

9.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original
copy hereof but all of which together shall constitute one agreement.

9.5 PUBLICITY. Except for disclosure (if any) required by any law
to which any party is subject, the timing and content of any announcements,
press releases and public statements concerning the acquisition contemplated
hereby shall be by mutual agreement of Premier and EyeSys.

9.6 SUCCESSORS AND ASSIGNS. No party may, without the prior
express written consent of each other party, assign this Agreement in whole
or in part. This Agreement shall be binding upon and inure to the benefit of
the respective successors and permitted assigns of the parties hereto.

9.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California as applied
to contracts between California residents made and to be performed entirely
within the State of California; provided that matters affecting the validity
of the corporate action taken by the parties relating to the Merger shall be
governed by the applicable General Corporation Laws of the States of Delaware
and California.

-52-

<PAGE>

9.8 FURTHER ASSURANCES. At the request of any of the parties
hereto, and without further consideration, the other parties agree to execute
such documents and instruments and to do such further acts as may be
necessary or desirable to effect the Merger.

9.9 EACH PARTY TO BEAR OWN COSTS. Subject to Section 5.21, each
of the parties shall pay all costs and expenses incurred or to be incurred by
it in negotiating and preparing this Agreement and the Agreement of Merger
and in closing and carrying out the transactions contemplated by this
Agreement and the Agreement of Merger; provided, however, that any costs
related to the Merger, other than the Transactional Costs to be paid by
Premier pursuant to Section 5.21, shall be paid by EyeSys shareholders. Each
of the parties and its respective advisors shall use its best efforts to
minimize all Merger-related fees and expenses.

9.10 CONFIDENTIALITY AND NONDISCLOSURE AGREEMENTS. Except as
required by law, statute, rule or regulation, all confidential information
which shall have been finished or disclosed by one party to the other
pursuant to this Agreement shall be held in confidence pursuant hereto or
pursuant to the confidential information non-disclosure agreements entered
into by such parties, and shall not be disclosed to any person other than
those with a need to have access to such information, including their
respective employees, directors, legal counsel, accountants or financial
advisors.

9.11 ATTORNEYS' FEES. In the event of any suit or other proceeding
to construe or enforce any provision of this Agreement or any other agreement
to be entered into pursuant hereto, or otherwise in connection with this
Agreement, the prevailing party's or parties' reasonable attorneys, fees and
costs (in addition to all other amounts and relief to which such party or
parties may be entitled) shall be paid by the other party or parties.

9.12 TRANSFER OF EYESYS BOOKS AND ASSETS. EyeSys agrees, at any
time after the Closing, upon the request of Premier or PAI to do, execute,
acknowledge and deliver or to cause to be done, executed, acknowledged and
delivered, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be required for the better
assigning, transferring, conveying and confirming to Premier, or to its
successors and assigns, or for the aiding, assisting, collecting and reducing
to possession of any or all of the books, records and assets of EyeSys.
EyeSys and its counsel shall provide Premier and its counsel upon request all
documentation covering all aspects of EyeSys' business operations.

9.13 APPOINTMENT AND INDEMNITY OF ESCROW COMMITTEE.

(a) By approval of this Agreement (by written consent or at a
duly authorized shareholders' meeting) the EyeSys shareholders shall appoint
James E. Crawford, or any successor designated by James E. Crawford or his
legal representative as the EyeSys Representative pursuant to the Escrow
Agreement. Mr. Crawford or his designated successor shall have all of the
authority granted to the EyeSys Representative pursuant to the Escrow
Agreement.

(b) The EyeSys Representative shall not be liable to anyone
whatsoever by reason of any error or judgment or of any act done or step
taken or omitted by him in good

-53-

<PAGE>

faith or for any mistake of fact or law except as is provided in Section 11
of the Escrow Agreement.

9.14 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by EyeSys in this Agreement shall survive
the Effective Time for a one (1)-year period consistent with the provisions
of Article 7 of this Agreement. The representations and warranties of
Premier and PAI shall terminate as of the Effective Time; provided, however,
the representation made by Premier and PAI in Sections 4.11 and 4.13 of this
Agreement shall survive the Closing for a one (1)-year period.

-54-

<PAGE>

IN WITNESS WHEREOF, each of the parties has executed this Agreement
as of the date first above written.

PREMIER LASER SYSTEMS, INC.

By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------

PREMIER ACQUISITION OF DELAWARE, INC.

By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------

EYESYS TECHNOLOGIES, INC.

By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------

FRONTENAC COMPANY (signing as the "Principal
Shareholder" and with respect to the obligations
in Section 5.22 of this Agreement only)

By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------

-55-

<PAGE>

EXHIBIT B

ESCROW AGREEMENT AND INSTRUCTIONS

This Escrow Agreement and Instructions ("AGREEMENT") is entered
into by and among Premier Laser Systems, Inc., a California corporation,
EyeSys Technologies, Inc., a Delaware corporation, James E. Crawford or his
duty appointed successor in interest, and _____________________.

RECITALS

A. Pursuant to the terms of the Merger Agreement, Premier and
EyeSys have agreed to establish an escrow to hold twenty percent (20%) of the
Merger Securities issued in respect of the EyeSys Common Stock, Preferred
Stock and the EyeSys Notes (collectively, the "ESCROW SHARES") for a one
(1)-year period as the source of payment for certain indemnification
obligations of EyeSys. In addition, pursuant to the terms of Section 2.3(b)
of the Merger Agreement, the escrow shall hold the "Escrowed Dissenting
Shares," as such term is defined in the Merger Agreement, for disposition
pursuant to such Section 2.3(b). The term "Escrow Shares," as used herein,
does not include the "Escrowed Dissenting Shares."

B. ______________ has agreed to act as Escrow Holder. James E.
Crawford has been appointed to serve as the EyeSys Representative pursuant to
Section 9.13 of the Merger Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto, intending to be legally
bound, do hereby agree as follows:

1. DEFINITIONS. Unless the context requires to the contrary or
terms are otherwise defined herein, terms used in this Agreement, but not
defined herein shall have the meaning given in the Merger Agreement. The
following terms shall have the meanings specified below:

"AGREEMENT" shall mean this Escrow Agreement and Instructions.

"DISTRIBUTION DATE" shall mean the date which is five (5) business
days after Escrow Holder has received written authorization from both Premier
and the EyeSys Representative to distribute Escrow Shares, or Escrow Holder
is otherwise authorized to make a distribution of Escrow Shares pursuant to
the terms of this Agreement.

"ESCROW HOLDER" shall mean ______________.

"ESCROW PERIOD" shall have the meaning set forth in Section 4 of this
Agreement.

"ESCROW SHARES" shall have the meaning given in Recital A of this
Agreement, and shall also include any stock resulting from stock
recapitalizations, any stock dividends paid

-1-

<PAGE>

on such shares during the period of time they are held in escrow, and any
cash or other property received by EyeSys prior to the Distribution Date from
account debtors on account of receivables, invoices or other payables with
respect to which an indemnification claim has been made under Sections 7.1
and 3.25 of the Agreement, and for which Premier has been reimbursed as a
result thereof.

"ESCROW SHAREHOLDERS" shall mean the former holders of EyeSys
Common Stock, Preferred Stock and EyeSys Notes who have Merger Shares held in
escrow pursuant to the terms of the Agreement.

"ESCROWED DISSENTING SHARES" shall have the meaning set forth in
Section 2.3(b) of the Merger Agreement.

"EYESYS" shall mean EyeSys Technologies, Inc., a Delaware corporation.

"EYESYS REPRESENTATIVE" shall mean James Crawford or any successor
duly appointed pursuant to the terms of the Merger Agreement.

"LOSSES" shall have the meaning given in Section 1 of this Agreement.

"MERGER AGREEMENT" shall mean that certain Agreement and Plan of
Merger, entered into by and among Premier, EyeSys and Premier Acquisition,
Inc., dated as of April 24, 1997.

"PREMIER" shall mean Premier Laser Systems, Inc., a California
corporation, or any of its subsidiaries.

"PREMIER CERTIFICATE" shall have the meaning given in Section 6 of
this Agreement.

"PREMIER NOTICE" shall have the meaning given in Section 6 of this
Agreement.

"SHARE PRICE" shall mean the Per Share Value, as defined in the
Merger Agreement, and shall be calculated by using the same measuring period
selected by Premier in computing the Per Share Value under the Merger
Agreement, but substituting the date three (3) business days prior to the
date of a distribution of Shares to Premier hereunder for the "Closing Date"
in such definition (except in the case of reimbursements under
Section 2.2(d)(v) of the Merger Agreement, in which case Escrow Shares shall
be valued as set forth in such Section 2.2(d)(v)).

2. INDEMNIFICATION. Pursuant to Article 7 of the Merger Agreement,
EyeSys has entered into the following indemnification agreement:

"EyeSys agrees to indemnify, defend and hold harmless Premier and PAI
from and against and shall reimburse Premier and PAI against and in
respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages,

-2-

<PAGE>

remedies and penalties, including interest, penalties and reasonable
attorneys' fees and expenses (collectively, "LOSSES") that Premier or
PAI shall incur or suffer and which arise from or are attributable
to by reason of or in connection with any breach or inaccuracy of or
any failure to perform or comply with any of EyeSys' representations,
warranties, agreements or covenants contained in this Agreement
(including any exhibit, letter, schedule or certificate referred to
herein) or in the Escrow Agreement. Notwithstanding the foregoing,
in the absence of fraud, EyeSys shall have no obligations under this
Section 7.1 with respect to Losses that would otherwise be deemed to
have incurred: (a) due to a breach of a representation or warranty
by EyeSys with respect to its inventory, or (b) as a result of the
condition of its fixed assets, so long as the representations and
warranties set forth in the first two sentences of Section 3.8(a)
hereof are true and correct."

EyeSys has also agreed in the Agreement that in the circumstances set
forth in Section 2.2(c)(vi) of the Agreement, it may be required to return
certain Escrow Shares to Premier. Any claim by Premier that it is entitled
to the receipt of such securities under Section 2.2(c)(vi) shall be deemed a
"claim for indemnification" hereunder, and the amount of Escrow Shares
Premier believes it is entitled to as a result thereof shall be treated as a
"LOSS" hereunder.

3. ESCROW HOLDER. Pursuant to Section 1.3 of the Merger
Agreement, as of the Effective Time, Premier shall cause the Escrow Shares to
be deposited with Escrow Holder. Escrow Holder shall hold, safeguard, and
distribute the Escrow Shares in accordance with the terms and instructions
set forth in this Agreement.

4. ESCROW PERIOD. The Escrow Shares shall be held in escrow by
the Escrow Holder for a period of twelve (12) months after the Effective
Time, except that if any notice of a claim for indemnification has been given
to Escrow Holder by Premier against the Escrow Shares within such twelve
(12)-month period, such number of Escrow Shares as may be necessary to
satisfy the claim for indemnification (as determined pursuant to Section 10
below) shall remain in escrow until such time as all of such indemnification
claims have been resolved pursuant to Section 8 or Section 9 of this
Agreement (the "ESCROW PERIOD").

5. THE EYESYS REPRESENTATIVE. The EyeSys Representative shall
act as the agent of EyeSys and the Escrow Shareholders, for the purpose of
receiving all notices, giving all approvals, and doing all other things and
exercising all other rights of EyeSys and the Escrow Shareholders pursuant to
this Agreement. The EyeSys Representative has agreed to waive the right to
any fees for performing such services. Any costs or expenses incurred by the
EyeSys Representative in performance of his obligations under this Agreement
shall be reimbursed from the Escrow Shares at the expiration of the Escrow
Period, subject to the prior satisfaction of any rights of Premier to
reimbursement from the Escrow Shares.

6. PREMIER CERTIFICATION. In the event that Premier believes in
good faith that it is entitled to indemnification pursuant to the Merger
Agreement, or to receive Escrow Shares under Section 2.2(c)(vi) of the Merger
Agreement, Premier shall deliver a notice (the "PREMIER NOTICE") to the
Escrow Holder and the EyeSys Representative which:

-3-

<PAGE>

(a) states that Premier anticipates that it may sustain
Losses for which it is entitled to indemnification pursuant to the Merger
Agreement; and the nature of the misrepresentation, breach of warranty or
covenant, or other basis upon which the claim for indemnification is based;
and

(b) provides a good faith estimate of the amount of Losses
which Premier may sustain, if Premier has sufficient information upon which
to estimate reasonably the amount of the Losses, including any amounts paid
or accrued as of the date of the Premier Certificate, if applicable.

At such time as Premier has determined the exact amount of any claim for
Losses, Premier shall deliver a certificate signed by the chief executive
officer, president or any vice president of Premier to Escrow Holder and the
EyeSys Representative ("PREMIER CERTIFICATE") which certifies that Premier is
entitled to payment of the amount specified pursuant to this Merger Agreement
and this Agreement.

7. DISTRIBUTIONS TO PREMIER OF THE ESCROW SHARES. Subject to the
provisions of Section 8 of this Agreement, within no more than forty-five
(45) days after receipt of a Premier Certificate which makes claim for a
specific amount, Escrow Holder shall distribute to Premier such number of the
Escrow Shares, based upon the Share Price, as is equal to the amount claimed
by Premier in the Premier Certificate. To the extent that the Escrow Shares
consist of different types of securities (e.g., Common Stock or different
types of options), Premier shall be entitled to specify which types of such
securities are to be distributed to it under this Section 7.

8. OBJECTIONS TO DISTRIBUTIONS. Notwithstanding Section 7 of
this Agreement, Escrow Holder shall not make any distribution of Escrow
Shares claimed by Premier unless Escrow Holder either (a) has received
written authorization from the EyeSys Representative to make the
distribution, or (b) at least thirty (30) days have elapsed from the date
that Escrow Holder determines that a Premier Certificate was delivered to the
EyeSys Representative without any response from the EyeSys Representative.
Escrow Holder shall distribute such number of Escrow Shares to Premier as is
required pursuant to Section 7 no later than five (5) days after receipt of
authorization from the EyeSys Representative or expiration of the thirty
(30)-day period. If the EyeSys Representative has a reasonable basis for
objecting to a claim for Losses from Premier and has provided the Escrow
Holder with written notice of an objection ("NOTICE OF OBJECTION") within
such thirty (30)-day period, Escrow Holder shall make a distribution of the
Escrow Shares only when permitted pursuant to Section 9 of this Agreement.

9. SETTLEMENT OF DISPUTED CLAIMS; ARBITRATION.

(a) If the EyeSys Representative delivers a Notice of
Objection to the reimbursement of Premier for any claim made in any Premier
Certificate, the EyeSys Representative and Premier shall attempt in good
faith to agree on the rights of the respective parties regarding any disputed
claims. At such time as the EyeSys Representative and Premier may reach
agreement, a memorandum setting forth the agreement shall be prepared and
signed by both parties and shall be furnished to Escrow Holder. Escrow
Holder shall be entitled to rely

-4-

<PAGE>

on any such memorandum, and shall promptly make distributions of the Escrow
Shares in accordance with the terms of such a memorandum.

(b) If no such agreement has been reached within fifteen (15)
days after a Notice of Objection from the EyeSys Representative, such
disputed claim may be sent to mediation in accordance with such mediation
procedures as the parties may agree. If the dispute has not been resolved
within sixty (60) days after issuance of a Notice of Objection from the
EyeSys Representative, the dispute shall be submitted to arbitration as set
forth below. The mediator of any dispute submitted to mediation under this
section shall not serve as arbitrator of such dispute unless otherwise agreed
to by all of the parties to the arbitration. In addition to resolving
pending disputes, the mediator shall provide assistance with respect to
allocating responsibility for the costs of mediation.

(c) If, and to the extent that, any disputed claim is not
resolved through good faith negotiation or through mediation in accordance
with subsections (a) and (b) above, such disputed claim shall, upon demand of
a party, be submitted to and decided by binding arbitration. The arbitration
shall be conducted pursuant to Part 3, Title 9 of the California CODE OF
CIVIL PROCEDURE (Sections 1280-1288.8). Discovery, including depositions for
the purpose of discovery, shall be broadly permitted, and the provisions of
CODE OF CIVIL PROCEDURE Section 1283.05 shall apply. Any demand to
arbitrate, for purposes of the statute of limitations, shall have the same
effect as if suit had been filed on the date the demand is made. The
arbitration shall occur in Orange County, California. The parties shall
agree upon an arbitrator twenty-one (21) days after the demand is made, and
if the parties fail to so agree, then any of them may apply to the court for
an order appointing an arbitrator meeting the requirements of this section.
The decision of the arbitrator shall be final and binding, and shall be
subject to confirmation, correction or vacation in accordance with the
provisions of Code of Civil Procedure Sections 1285-1287.4. Any application,
petition or other proceeding (i) to enforce the award or the provisions of
this Agreement, (ii) to the extent that the arbitrator does not have the
power or authority to resolve or grant the relief sought, and/or (iii) for
provisional or equitable relief pending appointment of the arbitrator, shall
be commenced in the appropriate state or federal courts having jurisdiction
in Orange County, California and the parties hereby consent to jurisdiction
and venue in such courts. The decision of the arbitrator about the validity
of any claim in a Premier Certificate shall be binding and conclusive on the
parties to this Agreement; and notwithstanding anything to the contrary in
this Escrow Agreement, Escrow Holder shall make or withhold distributions of
the Escrow Shares or otherwise act in accordance with the arbitrator's
decision. The prevailing party in the arbitration, as determined by the
arbitrator, shall be entitled to reimbursement of any costs or expenses
incurred by it in connection with any mediation or arbitration hereunder,
except to the extent decided to the contrary by the arbitrator. Judgment on
any award rendered by the arbitrator may be entered in any court having
jurisdiction over the matter.

10. FINAL DISTRIBUTION OF ESCROW SHARES. Upon expiration of the
Escrow Period and receipt of written authorization from Premier, Escrow
Holder shall distribute to Escrow Shareholders all shares then remaining in
the escrow, except (a) such number of Escrow Shares as are sufficient, in the
reasonable judgment of Premier to satisfy any unsatisfied claims specified in
any Premier Notice or Premier Certificate previously delivered to Escrow
Holder; (b) such number of Escrow Shares as are sufficient, in the reasonable
judgment of the EyeSys

-5-

<PAGE>

Representative to pay the costs and expenses incurred or likely to be
incurred by the EyeSys Representative, and (c) the fees and disbursements of
the Escrow Holder. As soon as all claims have been resolved, Escrow Holder
shall distribute to the EyeSys Shareholders all shares then remaining in the
escrow not required to satisfy those claims, amounts due to the EyeSys
Representative and the unpaid fees and disbursements of the Escrow Holder.
Distributions of the remaining Escrow Shares to the EyeSys Shareholders
pursuant to this Escrow Agreement, whenever made, shall be proportionate to
the EyeSys Shareholders respective interests as determined pursuant to
Section 2.2 of the Merger Agreement.

11. DISPOSITION OF ESCROWED DISSENTING SHARES. In the event the
Principal Shareholder (as defined in the Merger Agreement) sells any shares
and remits the proceeds thereof to Premier pursuant to Section 5.22 of the
Merger Agreement, upon the notification to Escrow Holder of such sale and
acknowledgment of receipt by Premier of such proceeds, Escrow Holder shall
distribute to the Principal Shareholder, out of the Escrowed Dissenting
Shares, shares of Premier Class A Common Stock in an amount equal to the
number of shares sold by the Principal Shareholder. At such time as the
Principal Shareholder has no further obligations under Section 5.22 of the
Merger Agreement, all of the Escrowed Dissenting Shares then remaining in the
Escrow shall be returned to Premier.

12. LIABILITY AND INDEMNIFICATION OF ESCROW HOLDER AND THE EYESYS
REPRESENTATIVE.

(a) In performing any duties under this Escrow Agreement,
neither Escrow Holder nor the EyeSys Representative shall be liable to any
party hereto for damages, losses or expenses, except for gross negligence or
willful misconduct on the part of the Escrow Holder. Escrow Holder shall not
incur any such liability for (i) any act or failure to act made or omitted in
good faith, or (ii) any action taken or omitted in reliance upon any
instrument, including any written statement or affidavit provided for in this
Agreement, that Escrow Holder shall in good faith believe to be genuine, nor
shall Escrow Holder be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority.
Escrow Holder is not responsible for determining and verifying the authority
of any person acting or purporting to act on behalf of any party to this
Escrow Agreement.

(b) The parties hereto agree jointly and severally to
indemnify and hold Escrow Holder harmless against any and all losses, claims,
damages, liabilities, and expenses, including reasonable costs of
investigation, reasonable attorneys' fees and disbursements that may be
imposed on or incurred by Escrow Holder in connection with the performance of
Escrow Holder's duties under this Agreement, including but not limited to any
litigation arising from this Agreement or involving its subject matter, but
excluding any losses, claims, damages, liabilities and expenses (including
costs of investigation, attorneys' fees and disbursements) resulting from
Escrow Holder's negligence or willful misconduct.

(c) Notwithstanding the foregoing, the EyeSys Representative
shall have no personal responsibility with respect to any actions taken or
not taken in connection with the performance of his obligations hereunder.
To the extent that the EyeSys Representative may incur costs or expenses
under this Agreement, including with respect to the indemnity provided

-6-

<PAGE>

to the Escrow Holder, such obligations shall be satisfied solely by the
Escrow Shares, subject to the prior satisfaction of any rights of Premier to
reimbursement from the Escrow Shares.

13. MISCELLANEOUS.

(a) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and, except as otherwise expressly provided herein, shall inure to the
benefit of the parties hereto and their respective successors and assigns.

(b) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California as applied
to contracts between California residents made and to be performed entirely
within the State of California.

(c) ATTORNEYS' FEES. Except as provided otherwise in Section
9 of this Agreement, in the event of any suit or other proceeding to construe
or enforce any provision of this Agreement or any other agreement to be
entered into pursuant hereto, or otherwise in connection with this Agreement,
the prevailing party's or parties' reasonable attorneys' fees and costs (in
addition to all other amounts and relief to which such party or parties may
be entitled) shall be paid by the other party or parties.

(d) CAPTIONS AND HEADINGS. The captions and headings
included in this Agreement are for the convenience of the parties only and
shall not affect the construction or interpretation of this Agreement.

(e) ENTIRE AGREEMENT; MODIFICATIONS; WAIVER. This Agreement,
together with the Merger Agreement, constitutes the final, exclusive and
complete understanding of the parties with respect to the subject matter
hereof and supersedes any and all prior agreements, understandings and
discussions with respect thereto, including, without limitation, the
Memorandum of Understanding, dated ____________, 1997, by and among Premier
and EyeSys. No variation nor modification of this Agreement and no waiver of
any provision or condition hereof, nor granting of any consent contemplated
hereby, shall be valid unless in writing and signed by the party against whom
enforcement of any such variation, modification, waiver or consent is sought.

(f) SEVERABILITY. If any provision of this Agreement or the
application thereof to any person, entity or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provision to other persons, entities or circumstances
shall not be affected and shall be enforced to the greatest extent permitted
by law.

(g) NOTICE. Any notice given hereunder shall be in writing
and shall be deemed delivered upon the earlier of personal delivery
(including personal delivery by facsimile) or the third day after mailing by
certified or registered mail, postage prepaid as follows:

-7-

<PAGE>

If to Premier:

Premier Laser Systems, Inc.
3 Morgan
Irvine, CA 92718
Attention: Chief Executive Officer
Facsimile: (714) 951-7218

With a copy to:

Rutan & Tucker
611 Anton Boulevard, Suite 1400
Costa Mesa, California 92626
Attention: Thomas G. Brockington, Esq.
Facsimile: (714) 546-9035

If to EyeSys:

EyeSys Technologies, Inc.
2776 Bingle Road
Houston, TX 77055
Attention: President and Chief Executive Officer
Facsimile: (713) 465-2418

With a copy to:

Epstein Becker & Green, PC
250 Park Avenue
New York, New York 10177
Attention: Lowell S. Lifschultz, Esq.
Facsimile: (212) 661-0989

or to such other address as any party may have furnished in writing to the
other parties in the manner provided above.

(h) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, enforceable
against the signatory thereto, but all of which together shall constitute but
one agreement.

-8-

<PAGE>

IN WITNESS WHEREOF, each of the parties hereto has executed, or
caused to be executed on its behalf by its duly authorized officer, this
Agreement, all as of the day and year first above written.

PREMIER LASER SYSTEMS, INC.
a California corporation

By:
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------

EYESYS TECHNOLOGIES, INC.
a Delaware corporation

By:
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------

EYESYS REPRESENTATIVE

By:
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------

ESCROW HOLDER

By:
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------

-9-

<PAGE>

EXHIBIT C-1

PREMIER LASER SYSTEMS, INC.

LOCK-UP AGREEMENT
(for holders of 5% or more of the Shares)

___________, 1997

Premier Laser Systems, Inc.
3 Morgan
Irvine, CA 92718

Ladies and Gentlemen:

The undersigned understands that you have entered into that certain
Agreement and Plan of Merger dated as of ______________, 1997, by and among
Premier Laser Systems, Inc., a California corporation ("PREMIER"), Premier
Acquisition, Inc., a California corporation, and a wholly owned subsidiary of
Premier, and EyeSys Technologies, Inc., a Delaware corporation (the "MERGER
AGREEMENT"), which provides for the issuance of Class A Common Stock, no par
value, of Premier ("COMMON STOCK") pursuant to Premier's Registration
Statement on Form S-4 filed with the Securities and Exchange Commission on
____________, 1997 (Registration No. 333-_______) (as may be amended or
supplemented, the "REGISTRATION STATEMENT"). For purposes hereof, the term
"PRIMARY EYESYS SHAREHOLDER GROUP" shall mean the ___ former holders of
EyeSys securities who receive the largest number of shares of Common Stock as
a result of the transactions described in the Merger Agreement.

In consideration of the foregoing and in acknowledgment of the benefit
therefrom to the undersigned, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the undersigned hereby agrees:
(i) for a period of four and one-half (4 1/2) months from the Effective Time
(as defined in the Merger Agreement), not to offer for sale, sell or
otherwise dispose of (or enter into any transaction which is designed to, or
could be expected to, result in the disposition by any person of), directly
or indirectly (collectively, a "DISPOSITION") any of the shares of Common
Stock, any then-vested options or any then-vested warrants to purchase any
shares of Common Stock or any securities convertible into or exchangeable for
shares of Common Stock (collectively, "SECURITIES"), now owned by the
undersigned; and (ii) for a period commencing at the end of such four and
one-half (4 1/2) month period and ending November 30, 1997, an amount which,
when added to all other Dispositions by the Primary EyeSys Shareholder Group,
does not exceed 65,000 shares per month, and thereafter, during each month,
an amount equal to one-ninth (1/9) of the number of shares held by such
person on November 30, 1997; provided, however, that if at any time Premier
notifies the undersigned that it will commence within thirty (30) days a
"call" with respect to Premier's outstanding Class A or Class B Warrants, the
undersigned will not make any further Dispositions until the termination of
such call (provided that the foregoing suspension of dispositions shall

<PAGE>

not exceed ninety (90) days in length). The restrictions set forth in
section (i) above are expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a Disposition of
Securities during the four and one-half (4 1/2) month lock-up period, even if
such Securities would be disposed of by someone other than the undersigned.

Notwithstanding any other provision of this Agreement to the contrary,
in no event shall the undersigned offer for sale, sell or otherwise dispose
of any Securities received pursuant to the Merger Agreement in an amount or
manner which violates Rule 145(d) promulgated under the Securities Act of
1933, as amended.

Furthermore, the undersigned hereby agrees and consents to the entry of
stop-transfer instructions with Premier's transfer agent against the transfer
of the Securities held by the undersigned except in compliance with this
Lock-Up Agreement.

------------------------------------------------
Name:

Accepted as of the date
first set forth above:

PREMIER LASER SYSTEMS, INC.

By:
-------------------------------------
Authorized Representative

Premier requests that this Lock-Up Agreement be completed and delivered to
Premier's counsel, Rutan & Tucker, LLP, 611 Anton Boulevard, Suite 1400,
Costa Mesa, California 92626, Attn: Thomas G. Brockington, Esq.

-2-

<PAGE>

EXHIBIT C-2

PREMIER LASER SYSTEMS, INC.

LOCK-UP AGREEMENT
(for holders of less than 5% of the Shares)

__________, 1997

Premier Laser Systems, Inc.
3 Morgan
Irvine, CA 92718

Ladies and Gentlemen:

In consideration of the foregoing and in acknowledgment of the benefit
therefrom to the undersigned, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the undersigned hereby agrees that
the undersigned shall not offer for sale, sell or otherwise dispose of, (or
enter into any transaction which is designed to, or could be expected to,
result in the disposition by any person of), directly or indirectly
(collectively, a "DISPOSITION"), any of the shares of Common Stock, any
then-vested options or any then-vested warrants to purchase any shares of
Common Stock or any securities convertible into or exchangeable for shares of
Common Stock (collectively, "SECURITIES"), except that during each calendar
month after the closing of the transactions contemplated by the Merger
Agreement the undersigned shall be entitled to sell or otherwise dispose of
Securities in an amount equal to (but not more than) one-tenth (1/10) of the
number of shares of Common Stock issued to such person in connection with the
Merger Agreement (treating, for such purposes, warrants, options and
convertible securities as though they had been exercised or converted in
accordance with their terms). The restrictions set forth above are
expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected
to lead to or result in a Disposition of Securities in excess of the amount
specified above, even if such Securities would be disposed of by someone
other than the undersigned.

<PAGE>

------------------------------------------------
Name:

Accepted as of the date
first set forth above:

PREMIER LASER SYSTEMS, INC.

By:
------------------------------------
Authorized Representative

-2-

<PAGE>

EXHIBIT D

CERTIFICATE OF MERGER
OF DOMESTIC CORPORATIONS

CERTIFICATE OF MERGER
OF
PREMIER ACQUISITION, INC.
INTO
EYESYS TECHNOLOGIES, INC.

The undersigned corporation, organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,

DOES HEREBY CERTIFY:

FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:

NAME STATE OF INCORPORATION

Premier Acquisition, Inc. Delaware
EyeSys Technologies, Inc. Delaware

SECOND: That a plan and agreement of merger between the parties
to the merger has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance
with the requirements of Section 251 of the General Corporation Law of
the State of Delaware.

THIRD: That the name of the surviving corporation of the merger
is EyeSys Technologies, Inc.

FOURTH: That the certificate of incorporation in the form of the
Certificate of Incorporation of EyeSys attached hereto, shall be the
certificate of incorporation of the surviving corporation.

FIFTH: That the executed plan and agreement of merger is on file
at the principal place of business of the surviving corporation. The
address of the principal place of business of the surviving
corporation is EyeSys Technologies, Inc., c/o Premier Laser Systems,
Inc., 3 Morgan, Irvine, California 92618.

<PAGE>

SIXTH: That a copy of the plan and agreement of merger will be
furnished by the surviving corporation, on request and without cost,
to any stockholder of any constituent corporation.

EYESYS TECHNOLOGIES, INC.

By:
---------------------------------------------
President

ATTEST:

By:
---------------------------------------

- ------------------------------------------
Secretary

-2-

<PAGE>

EXHIBIT F

TERMS OF SECURITIES

PREMIER CLASS AA OPTIONS

Each Premier Class AA Option shall represent the right to purchase one
share of Premier's Class A Common Stock at an exercise price of $6.50 at any
time through November 30, 1999. Commencing immediately, such Premier Class
AA Option shall be redeemable by Premier at a price of $.05 per option on
thirty (30) days written notice, so long as the average closing bid price, as
reported by the Nasdaq Stock Market, of the Class A Common Stock exceeds
$9.10 per share, for thirty (30) consecutive trading days ending within
fifteen (15) days of the notice of redemption.

PREMIER CLASS BB OPTIONS

Each Premier Class BB Option shall represent the right to purchase one
share of Premier's Class A Common Stock at an exercise price of $8.00 at any
time through November 30, 1999. Commencing immediately, such Premier Class
BB Option shall be redeemable by Premier at a price of $.05 per option on
thirty (30) days written notice, so long as the average closing bid price, as
reported by the Nasdaq Stock Market, of the Class A Common Stock exceeds
$11.20 per share, for thirty (30) consecutive trading days ending within
fifteen (15) days of the notice of redemption.

PREMIER OPTIONS

Each Premier Option shall represent the right to purchase one share of
Class A Common Stock for a period commencing twelve (12) months from the
Closing Date and ending of three (3) years from the Closing Date, at an
exercise price equal to the Per Share Value. The Premier Options shall not
be redeemable.

<PAGE>

EXHIBIT G

OPERATING PLAN

-2-

<PAGE>

EXHIBIT H

LOANS INCLUDED IN NONINCLUDED COSTS

The obligations for money borrowed included in the Nonincluded Costs shall
consist of $300,000 principal amount of loans from shareholders made in 1997,
together with accrued interest thereon.

-3-

<PAGE>

SCHEDULE 2.1

NOTEHOLDERS

EYESYS AFFILIATE NOTEHOLDERS

Frontenac VI Limited Partnership
Trinity Ventures II, L.P.
Trinity Ventures III, L.P.
Trinity Ventures Side-by-Side Fund I, L.P.
American Healthcare Fund II, L.P.
Robert G. Martin, M.D.
Frederick Ruegseggar

EYESYS NONAFFILIATE NOTEHOLDERS

All other Noteholders

-4-

<PAGE>

SCHEDULE 5.16

EYESYS PERSONNEL

David Headlee
Lisa Manis
Bonnie Schwebb
Chris Boyle
Liz Ojeda
Michel Ulsas
Victor Lau
Debbie Gabriel
Beth Soper
David Liu
Eddie Phillipe
James Tang
Eric Serfoss
John Clark
Ken Carbonari
Joe Wakil

-5-

<PAGE>
Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-1680) pertaining to the 1995 Stock Option Plan of Premier
Laser Systems, Inc. and related Prospectus and in the Registration Statement
(Form S-8 No. 333-27151) pertaining to the February 1996 Stock Option Plan of
Premier Laser Systems, Inc. and related Prospectus of our report dated May 1,
1997, with respect to the consolidated financial statements and schedule of
Premier Laser Systems, Inc. included in its Annual Report (Form 10-K) for the
year ended March 31, 1997.

ERNST & YOUNG LLP

Orange County, California
May 22, 1997

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-01680 and 333-27151) of Premier Laser
Systems, of our report dated May 17, 1996 appearing on page 27 of this
Form 10-K. We also consent to the application of such report to the Financial
Statement Schedule for the two years ended March 31, 1996 listed in the
accompanying index when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in
such report are also included in this schedule.

PRICE WATERHOUSE LLP

Costa Mesa, California
May 22, 1997

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 173,610
<SECURITIES> 3,968,288
<RECEIVABLES> 2,105,575
<ALLOWANCES> 387,263
<INVENTORY> 2,964,632
<CURRENT-ASSETS> 10,658,161
<PP&E> 1,895,091
<DEPRECIATION> 1,114,146
<TOTAL-ASSETS> 19,320,611
<CURRENT-LIABILITIES> 2,639,545
<BONDS> 0
0
0
<COMMON> 36,670,204
<OTHER-SE> (20,038,494)
<TOTAL-LIABILITY-AND-EQUITY> 19,320,611
<SALES> 5,530,861
<TOTAL-REVENUES> 5,530,861
<CGS> 3,968,539
<TOTAL-COSTS> 3,968,539
<OTHER-EXPENSES> 7,168,172
<LOSS-PROVISION> 387,263
<INTEREST-EXPENSE> (15,493)
<INCOME-PRETAX> (5,590,357)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,590,357)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,590,357)
<EPS-PRIMARY> (.96)
<EPS-DILUTED> (.96)

</TABLE>