<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[Amendment No. ____]
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
PREMIER LASER SYSTEMS, INC.
----------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
______________________________________________________________________
2. Aggregate number of securities to which transaction applies:
______________________________________________________________________
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
______________________________________________________________________
4. Proposed maximum aggregate value of transaction:
______________________________________________________________________
5. Total fee paid:
______________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
<PAGE>
1. Amount Previously Paid: ______________________________________________
2. Form, Schedule or Registration Statement No.: ________________________
3. Filing Party: ________________________________________________________
4. Date Filed: __________________________________________________________
<PAGE>
PREMIER LASER SYSTEMS, INC.
3 Morgan
Irvine, California 92618
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on Friday, February 26, 1999
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Premier
Laser Systems, Inc. (the "Company") will be held at 3 Morgan, Irvine,
California, on Friday, February 26, 1999 at 1:30 p.m. for the following
purposes:
(1) To elect members of the Board of Directors to serve until the next
annual meeting of shareholders;
(2) To approve and adopt a Stock Option Plan providing for the issuance of
options for up to 1,500,000 shares of Common Stock to eligible employees,
officers, directors and consultants of the Company and its subsidiaries;
and
(3) To transact such other business as may properly come before the meeting
or any adjournments and postponements thereof.
The Board of Directors has fixed the close of business on December 31, 1998
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting. Only holders of the Company's Class A Common
Stock, Class E-1 Common Stock and Class E-2 Common Stock at the close of
business on the record date are entitled to vote at the meeting. Shareholders
attending the meeting whose shares are held in the name of a broker or other
nominee should bring with them a proxy or letter from that firm confirming
their ownership of shares.
Accompanying this Notice are a Proxy and Proxy Statement. IF YOU WILL NOT BE
ABLE TO ATTEND THE MEETING TO VOTE IN PERSON PLEASE SIGN AND DATE THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. The Proxy
may be revoked at any time prior to its exercise at the meeting.
By Order of the Board of Directors,
/s/ Judith A. McCall
Judith A. McCall, Secretary
Irvine, California
January 27, 1999
YOUR VOTE IS IMPORTANT
You are cordially invited to attend the Annual Meeting. However, even if
you do plan to attend, please promptly complete, sign, date and mail the
enclosed Proxy in the envelope provided. Returning a signed Proxy will not
prevent you from voting in person at the Annual Meeting, if you so desire,
but will help the Company secure a quorum and reduce the expense of
additional proxy solicitation.
<PAGE>
PREMIER LASER SYSTEMS, INC.
3 Morgan
Irvine, California 92618
----------------
ANNUAL MEETING OF SHAREHOLDERS
Friday, February 26, 1999
----------------
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished to the shareholders of Premier Laser
Systems, Inc., a California corporation, in connection with the solicitation
of proxies by and on behalf of the Board of Directors of the Company. The
proxies solicited hereby are to be voted at the Annual Meeting of Shareholders
of the Company to be held at 1:30 p.m. on February 26, 1999, at the Company's
offices at 3 Morgan, Irvine, California 92618, and at any and all adjournments
and postponements thereof (the "Annual Meeting"). This Proxy Statement and the
accompanying form of proxy are being mailed to all shareholders on or about
January 27, 1999.
A form of proxy is enclosed for your use. The shares represented by each
properly executed unrevoked proxy will be voted as directed by the shareholder
with respect to the matters described therein. If no direction is made, the
shares represented by each properly executed proxy will be voted FOR
management's nominees for the Board of Directors and FOR the proposed Stock
Option Plan.
Any proxy given may be revoked at any time prior to the exercise thereof by
filing with the Secretary of the Company an instrument revoking such proxy or
by the filing of a duly executed proxy bearing a later date. Any shareholder
present at the meeting who has given a proxy may withdraw it and vote his
shares in person if such shareholder so desires.
It is contemplated that the solicitation of proxies will be made primarily
by mail. The Company will make arrangements with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to the
beneficial owners of the shares and will reimburse them for their expenses in
so doing. Should it appear desirable to do so in order to ensure adequate
representation of shares at the meeting, officers, agents and employees of the
Company may communicate with shareholders, banks, brokerage houses and others
by telephone or in person to request that proxies be furnished. All expenses
incurred in connection with this solicitation will be borne by the Company.
The Company has no present plans to hire special employees or paid solicitors
to assist in obtaining proxies, but reserves the option of doing so if it
should appear that a quorum otherwise might not be obtained.
Only holders of record of the Company's Class A Common Stock, Class E-1
Common Stock or Class E-2 Common Stock (collectively, the "Common Stock") at
the close of business on December 31, 1998 are entitled to notice of and vote
at the Annual Meeting. As of January 22, 1999, the Company had issued and
outstanding 14,932,763 shares of Class A Common Stock, 1,257,499 shares of
Class E-1 Common Stock and 1,257,499 shares of Class E-2 Common Stock. Each
share of Common Stock issued and outstanding on the record date of December
31, 1998 is entitled to one vote at the Annual Meeting.
The holders of a majority of the shares of stock of the Company issued and
outstanding and entitled to vote at the Annual Meeting, present in person or
represented by proxy, shall constitute a quorum. Except with respect to the
election of directors or as otherwise provided by statute, all matters coming
before the Annual Meeting shall be decided by the vote of the holders of a
majority of the stock present in person or represented by proxy at the Annual
Meeting and entitled to vote thereat. Votes cast at the Annual Meeting will be
tabulated by the persons appointed by the Company to act as inspectors of
election for the Annual Meeting.
<PAGE>
The inspectors of election will treat shares of voting stock represented by
a properly signed and returned proxy as present at the Annual Meeting for
purposes of determining a quorum, without regard to whether the proxy is
marked as casting a vote or abstaining. Likewise, the inspectors of election
will treat shares of voting stock represented by "broker non-votes" (i.e.,
shares of voting stock held in record name by brokers and nominees concerning
which (i) instructions have not been received from the beneficial owners or
persons entitled to vote; (ii) the broker or nominee does not have
discretionary voting power under applicable rules or the instrument under
which it serves in such capacity; or (iii) the record holder has indicated on
the proxy card or has executed a proxy and otherwise notified the Company that
it does not have authority to vote such shares on that matter) as present for
purposes of determining a quorum. Abstentions or broker non-votes will have no
effect in the election of Directors. Except as otherwise provided by statute,
all other matters to come before the Annual Meeting require the approval of a
majority of the shares of voting stock present and entitled to vote thereat.
Therefore, abstentions concerning a particular proposal will have the same
effect as votes against such proposal.
At the Annual Meeting, each shareholder will have cumulative voting rights
with respect to the election of Directors, provided that such shareholder has
given notice at the Annual Meeting prior to the voting for Directors of the
shareholder's intention to cumulate votes. If any one shareholder has given
such notice, all shareholders may cumulate their votes. Management presently
intends to cumulate votes at the Annual Meeting for all shares for which it
holds proxies. If cumulative voting rights are exercised, in voting for
Directors each share will have that number of votes which equals the number of
Directors which may be elected (seven). Such votes may be cast for one nominee
or allocated among two or more nominees. In the event that the Board of
Directors deems it appropriate, proxies may be cumulated and distributed
unequally among the seven nominees identified herein in order to ensure the
election of the maximum number of such nominees. The seven nominees receiving
the highest number of votes at the Annual Meeting will be elected.
ELECTION OF DIRECTORS
Nominees
Directors are elected at each annual meeting of shareholders and hold office
until the next annual meeting of shareholders or until their respective
successors are elected and qualified. The Board of Directors is of the opinion
that the election to the Board of Directors of the persons identified below,
all of whom are currently serving as Directors of the Company and have
consented to continue to serve if elected, would be in the best interests of
the Company. The names of such nominees are as follows: Colette Cozean, Ph.D.,
Patrick J. Day, G. Lynn Powell, D.D.S., Lawrence D. Ashcroft, Fredric J.
Feldman, Ph.D., John D. Hunkeler, M.D., F.A.C.S. and Lewis H. Stanton.
Management proxies will be voted FOR the election of the above-named
nominees unless the shareholders indicate that the proxy shall not be voted
for all or any one of the nominees. If for any reason a nominee should, prior
to the Annual Meeting, become unavailable for election as a Director, an event
not now anticipated, the proxies will be voted for such substitute nominee if
any, as may be recommended by management. In no event, however, shall the
proxies be voted for a greater number of persons than the number of nominees
named.
2
<PAGE>
Management of the Company
Set forth below is certain information with respect to the executive
officers of the Company as of January 26, 1999 and nominees of the Board of
Directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Colette Cozean.......... 40 Director, Chairman, Chief Executive Officer,
President and Director
T. Daniel Caruso,
Jr.(1)................. 55 Director of Corporate Marketing & Development
Tom Hazen............... 56 Executive Vice President, Operations
Judith A. McCall........ 57 Vice President, Human Resources, Administration
and Special Projects and Secretary
Jeffrey A. Anderson..... 31 Vice President, Regulatory Affairs and
Quality Assurance
Charles J. Olson II(2).. 42 Chief Financial Officer, Vice President, Finance
Robert V. Mahoney(3).... 57 Chief Financial Officer, Executive Vice President,
Finance
Patrick J. Day.......... 71 Director
G. Lynn Powell(4)....... 57 Director
Lawrence D.
Ashcroft(4)(5)......... 70 Director
Fredric J. Feldman,
Ph.D.(4)(5)............ 58 Director
John D. Hunkeler, M.D.,
F.A.C.S.(4)............ 57 Director
Lewis H. Stanton(5)..... 44 Director
</TABLE>
- --------
(1) Mr. Caruso passed away in October 1998.
(2) Mr. Olson joined the Company in July, 1998 as Chief Financial Officer and
Vice President, Finance. Effective as of January 15, 1999, Mr. Olson
resigned from such positions.
(3) Mr. Mahoney replaced Mr. Olson as the Company's Chief Financial Officer
and Executive Vice President, Finance effective as of January 15, 1999.
(4) Member of the Compensation Committee.
(5) Member of the Audit Committee.
Colette Cozean, Ph.D. is a founder of the Company and has been Chairman of
the Board of Directors, President and Director of Research of the Company
since it commenced operations in August 1991 and became the Chief Executive
Officer in 1994. From April 1987 to August 1991, Dr. Cozean served as Director
of Research and Development, Regulatory Affairs and Clinical Programs at
Pfizer Laser Systems, a division of Pfizer Hospital Products Group, Inc.
("Pfizer Laser") and in such capacities managed the development of the laser
technologies which were acquired by the Company from Pfizer Laser. Prior to
April 1987, Dr. Cozean held various research positions at Baxter Edwards, a
division of Baxter Healthcare Corporation ("Baxter"), and American Technology
and Ventures, a division of American Hospital Supply Company ("American
Hospital"). Baxter and American Hospital are manufacturers and suppliers of
advanced medical products. Dr. Cozean holds several patents, has published
many articles and has served as a member of the National Institutes of Health
("NIH") grant review committee. Dr. Cozean holds a Ph.D. in biomedical
engineering and an M.S. in Electrical Engineering from Ohio State University,
a B.S. in biomedical engineering from the University of Southern California,
and a B.A. in physical sciences from Westmont College.
T. Daniel Caruso, Jr. was appointed to the office of Director of Corporate
Marketing & Development in July 1998. Prior to such time and since April 1998,
Mr. Caruso served as the Executive Vice President, Mergers and Acquisitions of
the Company. Prior to serving in that capacity, Mr. Caruso served as Senior
Vice President of Sales and Marketing and from July 1992 until May 1996 served
as Vice President, Sales and Marketing.
3
<PAGE>
Tom Hazen has been the Executive Vice President, Operations of the Company
since October 1997. Prior to joining the Company and since 1992, Mr. Hazen
served as Vice President of Operations of Imagyn Medical, Inc. In addition,
Mr. Hazen has served in various executive offices with several companies in
the medical field specializing in product development and manufacturing. Such
positions include Vice President Operations at MICA Technology Services in
Buffalo Grove, Illinois and President and Chief Executive Officer of
California based Dolphin Imaging Systems. Mr. Hazen received a BSME degree
from the University of Arizona and an MBA from UCLA.
Judith A. McCall has been with the Company since April 1993 and became Vice
President, Human Resources, Administration and Special Projects and Secretary
in January 1998. For the past three years, Ms. McCall has headed the Company's
human resources department. Prior to joining the Company, Ms. McCall held
various senior operations and administrative positions with firms in Southern
California and served as Director of Training and Development for API
Security. Ms. McCall received a M.A. in Marriage, Family and Child Psychology
from Azusa Pacific College in Azusa, California and a B.A. in Christian
Education from St. Andrews Presbyterian College in Lauringburg, North
Carolina.
Jeffrey A. Anderson has been Vice President, Regulatory Affairs and Quality
Assurance since September 1997 when he joined the Company. Prior to such time
and since November 1995, Mr. Anderson had served as Regulatory Affairs Manager
of Medtronic. From December 1993 to November 1995, Mr. Anderson served as
Regulatory Affairs Specialist of Sybron Dental Specialties and from December
1991 to December 1993, he served as Regulatory Affairs/Quality Assurance
Manager of Laser Medical Technology, Inc. Mr. Anderson received a B.S. in
Physics from California State University Fullerton.
Charles J. Olson II joined the Company in July, 1998 as Chief Financial
Officer. Prior to joining the Company, and since 1996, Mr. Olson served as
Chief Financial Officer of The Quikset Organization, a subsidiary of For
Better Living Inc. From 1986 to 1996, Mr. Olson served in several different
capacities with Corning Nichols Institute ("CNI"), a developer of medical
diagnostics products that was acquired by Corning Inc. in 1994. His positions
with CNI during such period included consultant, employee, and Vice President
and Corporate Controller. Mr. Olson also served as Chief Financial Officer of
several of CNI subsidiaries. Mr. Olson is a Certified Public Accountant and is
a member of the American Institute of Certified Public Accountants and the
California Society of Certified Public Accountants. Mr. Olson holds a B.S. in
Accounting from Arizona State University.
Robert V. Mahoney joined the Company in December, 1998 as the Chief
Accounting Officer. In January 1999, Mr. Mahoney was appointed to the offices
of Chief Financial Officer and Executive Vice President, Finance. Prior to
joining the Company and since February 1997, Mr. Mahoney served as Director,
Strategy and New Ventures of Tandem Computers, Inc. From August 1996 until
November 1996, Mr. Mahoney was an employee of Superstill Technology, Inc.
("Superstill"). Prior to his employment at Superstill, from January 1996 until
July 1996, Mr. Mahoney served as the Chief Financial Officer and Vice
President, Finance of Micronics Computers, Inc. and from June 1993 until July
1995, he served as Chief Financial Officer and Senior Vice President, Finance
of Interactive Network, Inc. Mr. Mahoney received an MBA from Stanford
University and holds a B.S. in Public Policy from the United States Air Force
Academy.
Patrick J. Day has served as a director of the Company since August 1991.
Mr. Day is a Certified Public Accountant and owns a CPA firm which he
established in 1967. Mr. Day has served as a director for several
organizations including the First Presbyterian Church of Hollywood and many
private companies. Mr. Day is the father of Dr. Cozean, the Company's Chairman
of the Board and President. Mr. Day has a B.A. in accounting from the
University of Idaho.
G. Lynn Powell, D.D.S. joined the Board of Directors in January 1997. Dr.
Powell has been on the faculty at the University of Utah since 1982, where he
currently serves as the Assistant Dean for Dental Education in the School of
Medicine and Professor in the Department of Pathology. He is a patent holder
who has performed extensive research in the field of dentistry serving as
primary investigator on several funded grants and is author or co-author of
over 45 papers in journals, a majority of which relate to the use of lasers in
dentistry. He serves
4
<PAGE>
as a reviewer for three dental and laser journals, has lectured nationally as
well as internationally, and routinely presents his work at research meetings.
Dr. Powell is the current President of the International Society for Lasers in
Dentistry. Dr. Powell received his D.D.S. from the University of Washington
and was on the full time faculty in Restorative Dentistry at that institution
for ten years.
Lawrence D. Ashcroft joined the Board of Directors in December 1998. Mr.
Ashcroft has held a number of senior management and directorial posts in both
the United States and Europe. Prior to his retirement, from 1988 to 1995, Mr.
Ashcroft served as Chairman of the Board of Directors of Cardiopet, Inc., a
company which specialized in reading animal electrocardiograms worldwide via
telephone. Mr. Ashcroft currently serves on the Board of Directors of Leasing
Edge Technologies and is a non-executive director of Tatatech Inc.,
Westergaard Broadcasting Inc. and Comstock and Madison Systems Inc.
Fredric J. Feldman, Ph.D. joined the Board of Directors in December 1998.
Dr. Feldman has been a consultant to start up healthcare companies, investment
banks and venture capital groups since 1992. Prior to and during that period,
Dr. Feldman served as Chief Executive Officer of Biex, Inc., a company
specializing in women's health; as Chief Executive Officer and Chairman of the
Board of Directors of Oncogenetics, Inc., a cancer diagnostics company; and as
President and Chief Executive Officer of Microgenics Corporation, a
biotechnology company. Currently, Dr. Feldman serves as a director for Ostex
International, Inc., SangStat Medical Corporation and Orthologic Corp. and
several private companies. Dr. Feldman holds a Ph.D. in Analytical Chemistry
and a M.S. in Inorganic Chemistry from the University of Maryland and a B.S.
in Chemistry from the City University of New York.
John D. Hunkeler, M.D., F.A.C.S. joined the Board of Directors in December
1998. Dr. Hunkeler is a board certified ophthalmologist who has been in
private practice in Kansas City, Missouri since 1973. He is also a professor
and Chairman of the Department of Ophthalmology at the University of Kansas
Medical Center, the President of Hunkeler Eye Centers and the former President
of the American Society of Cataract and Refractive Surgery. Dr. Hunkeler is
the former Medical Director and is currently the Vice President of the Kansas
City Eye Bank. In addition, Dr. Hunkeler serves as a director for First
Business Bank and Novamed Eyecare Management Co., both private companies and
for RSS, LLC, a limited liability company. Dr. Hunkeler holds a B.A. from
Harvard College and received his medical degree from the University of Kansas
in 1973.
Lewis H. Stanton joined the Board of Directors in December 1998. Mr. Stanton
has been the Executive Vice President, Chief Operating Officer and Chief
Financial Officer of MAI Systems Corporation (ASE:NOW) ("MAI") since he joined
the company in 1997. From 1996 until he joined MAI in 1997, Mr. Stanton was
the President of Stanton & Associates, a consulting company. From September
1996 until January 1997, Mr. Stanton served as Chief Executive Officer
(acting) of Worldsite Networks, Inc., an internet access provider. From 1988
until 1996, Mr. Stanton served as Chief Financial Officer of Data Analysis
Inc., the parent company of Investor's Business Daily, a national daily
newspaper; William O'Neill & Co. Inc., an institutional research firm and
database company; and other companies. At Data Analysis Inc. Mr. Stanton also
had responsibility for online product development. From 1976 until 1988, Mr.
Stanton was with the international accounting firm Arthur Andersen & Co.,
specializing in financial services.
Mr. Stanton is a member of the AICPA and was chair of the California Society
of CPAs, Los Angeles, Members in Industry Committee for four years. Mr.
Stanton is also a past president of the Association of Western Securities
Management.
Meetings of Board and Committees
The Board of Directors held eight meetings during the fiscal year ended
March 31, 1998 and has held fifteen meetings since the end of such fiscal
year. Among the incumbent nominees for membership on the Board of Directors,
no director attended fewer than 75% of the aggregate of the meetings of the
Board and the Committees upon which he or she served.
5
<PAGE>
The Board of Directors has standing Audit and Compensation Committees, but
does not have a Nominating Committee. In practice, the entire Board performs
the function of a Nominating Committee.
The Audit Committee of the Board of Directors held one meeting during the
fiscal year ended March 31, 1998 and has held five meetings since the end of
such fiscal year. The Committee's responsibility is to review and act or
report to the Board of Directors with respect to various audit and accounting
matters, including the selection of independent auditors, the determination of
the scope of audit procedures, the nature of the services to be performed by
and the fees to be paid to the Company's independent auditors, the
establishment of the accounting practices of the Company, and the monitoring
of all financial aspects of the Company's operations. The Audit Committee is
composed of Dr. Feldman and Messrs. Ashcroft and Stanton.
The Compensation Committee of the Board of Directors held two meetings
during the fiscal year ended March 31, 1998, and has held no meetings since
the end of such fiscal year. The Committee is responsible for making
recommendations to the Board concerning such executive compensation
arrangements and plans as it deems appropriate. The Compensation Committee is
composed of Dr. Feldman, Dr. Hunkeler, Dr. Powell and Mr. Ashcroft.
Director Compensation
All directors are elected annually and hold office until the next Annual
Meeting of Shareholders and until their successors are duly elected and
qualified. The Company pays to all nonemployee directors $1,000 per Board
meeting attended, $1,000 per committee meeting attended which is not in
conjunction with a Board meeting, $500 per committee meeting attended in
conjunction with a Board meeting, and $500 per telephonic Board or committee
meeting. In addition, directors are reimbursed for their out-of-pocket
expenses incurred in attending meetings of the Board of Directors and its
committees. During fiscal 1998 and until his resignation in November 1998, a
former director, E. Donald Shapiro received a fee of $3,000 per month as
compensation for additional consulting services relating to one of the
Company's pending litigation matters and to new business issues. During the
fiscal year ended March 31, 1998, Dr. Powell received a cash bonus of $15,000
for his efforts in obtaining FDA clearance for hard tissue applications.
The Company may also periodically award options or warrants to its
directors, under its existing stock option plans and otherwise. The Company's
outstanding Stock Option Plans include: (i) the 1995 Stock Option Plan which
provides for the granting of "incentive stock options," within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended ("Incentive Stock
Options"), and nonstatutory options; (ii) the 1996 Stock Option Plan which
also provides for the granting of Incentive Stock Options and nonstatutory
stock options; (iii) the February 1996 Stock Option Plan which provides for
the granting of nonstatutory stock options; (iv) the 1997 Stock Option Plan
which provides for the granting of nonstatutory stock options; and (v) the
1998 Stock Option Plan, described below.
The Company's 1998 Stock Option Plan (hereinafter, the "1998 Plan" or the
"Plan") authorizes the Company to grant options to purchase shares of the
Company's Class A Common Stock, no par value, to selected officers, directors
(including nonemployee directors) key employees (including officers and
directors who are employees) and other providers of service to the Company and
its subsidiaries, with the aggregate number of shares to be delivered upon
exercise not to exceed 1,500,000.
The 1998 Plan terminates in January 2008. Options granted under the 1998
plan will have a term not to exceed ten (10) years and an exercise price in an
amount determined by the Board of Directors or the committee administering the
Plan. As of January 22, 1999, options to purchase an aggregate of 1,320,000
shares of the Company's Class A Common Stock had been issued under the 1998
Plan to the Company's directors and executive officers, at exercise prices
ranging from $1.94 to $10.31 per share.
In fiscal 1998, the Company issued options to purchase the following numbers
of shares to its directors: (i) Colette Cozean--1,000,000 shares vesting over
5 years; (ii) Patrick J. Day, Grace Ching-Hsin Lin, G. Lynn Powell, and E.
Donald Shapiro--40,000 shares each vesting over 4 years. All of such options
have an exercise
6
<PAGE>
price of $7.98 per share, the fair market value of the Company's Common Stock
on the date of grant. In addition to the above, Mr. Shapiro and Dr. Powell
were each granted options to purchase 30,000 shares at $10.31 per share
vesting over 3 years in connection with services rendered by them to the
Company. All of the above options have a term of ten years.
The Company's Articles of Incorporation and indemnification agreements
entered into between the Company and certain of the Company's directors and
officers require the Company to indemnify such officers and directors to the
fullest extent permitted by applicable law against liabilities incurred in
connection with their duties as officers and directors of the Company. Such
indemnification rights may extend to liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Company, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable.
Litigation
The Company has been named as a nominal defendant in a shareholder
derivative lawsuit filed in the Orange County, California Superior Court, in a
case captioned Eskeland v. Cozean, et al., which was commenced in October,
1998. The complaint in this matter was filed by a shareholder of the Company,
on behalf of the Company, against certain of the Company's officers and
directors, including Colette Cozean, Michael Hiebert, Richard Roemer, Ronald
Higgins, Patrick Day, Grace Chin-Hsin Lin, G. Lynn Powell and E. Donald
Shapiro. The complaint alleges, among other things, that such persons violated
their fiduciary duty to the Company by exposing the Company to liability under
the securities laws, failing to insure that the Company maintained adequate
accounting controls, and related actions and omissions. Although the Company
is a named defendant, the lawsuit seeks to recover damages in unspecified
amounts from the individual defendants on behalf of the Company, as well as
other remedies. Settlement discussions in this case have commenced, although
no assurance can be given that the case will be settled, or concerning the
terms of any such settlement.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning compensation paid to
the Company's Chief Executive Officer and each other executive officer of the
Company who received an annual salary and bonus of more than $100,000 for
services rendered to the Company during the fiscal year ended March 31, 1998.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Compensation(1) Securities
----------------------- Underlying
Name and Principal Fiscal Stock All Other
Position Year Salary Bonus Options Compensation
- ------------------ ------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Colette Cozean,
President,............. 1998 $ 165,000 $ 100,000 1,000,000 $16,704(2)
Chief Executive Officer
and 1997 $ 151,064 $ -- 140,000 $32,300(3)
Director of Research 1996 $ 112,000 $ 20,000 358,650 $19,800(4)
T. Daniel Caruso,
Jr.(5)................. 1998 $ 114,000 $ 14,500 -0- $ --
Senior Vice President, 1997 $ 105,625 $ 10,000 109,500 $ --
Sales and Marketing 1996 $ 90,625 $ 10,000 95,000 $ --
</TABLE>
- --------
(1) Excludes perquisite and other personal benefits, securities and properties
otherwise categorized as salary or bonuses which in the aggregate, for
each of the named persons did not exceed the lesser of either $50,000 or
10% of the total annual salary reported for such person. The Board has
authorized the Company to enter into Termination Agreements with the above
executive officers which will provide, when executed, that in the event of
a termination of employment following a change in control of the Company,
as defined in such agreement, the named executive officer will receive (i)
a lump sum cash payment equal to two times the
7
<PAGE>
highest annual level of total cash compensation paid to that officer during
the three calendar years prior to the termination; (ii) immediate vesting
of all previously granted stock options; and (iii) continuing health
benefits for a period of 24 months. The Company has also entered into
Employment Agreements with each of the named persons which provide for two
to four months of severance benefits upon their termination of employment.
Based upon salary levels as of March 31, 1998, such severance benefits
range from approximately $36,668 to $55,000 for each of the named persons.
(2) Represents the full amount of premiums paid by the Company ($5,000) for a
split-dollar life insurance policy in the amount of $2 million on the
life of Dr. Cozean and an auto allowance of $11,704. Included in the auto
allowance figure is the initial down-payment for the lease.
(3) Represents the full amount of premiums paid by the Company ($27,500) for
a split-dollar life insurance policy in the amount of $2 million on the
life of Dr. Cozean and an auto allowance of $4,800.
(4) Represents the full amount of premiums paid by the Company ($15,000) for
a split-dollar life insurance policy in the amount of $2 million on the
life of Dr. Cozean, and an auto allowance for Dr. Cozean ($4,800).
(5) Mr. Caruso passed away in October 1998.
Options Granted in Last Fiscal Year
The following table sets forth certain information concerning stock options
granted to the named executive officers during the fiscal year ended March 31,
1998. This information includes hypothetical potential gains from stock
options granted in fiscal 1998. These hypothetical gains are based entirely on
assumed annual growth rates of 5% and 10% in the value of the Company's Common
Stock price from the date of grant over the 10 year life of the stock options
granted in 1998. These assumed rates of growth were selected by the Securities
and Exchange Commission for illustration purposes only, and are not intended
to predict future stock prices, which will depend upon market conditions and
the Company's future performance and prospects.
<TABLE>
<CAPTION>
Potential Realizable Value
Number of Percent of at Assumed Annual Rates
Shares of Total Options of Stock Price Appreciation
Common Stock Granted to Exercise or for Option Term
Underlying Employees During Base Price Expiration ---------------------------
Name Options Granted Fiscal Year Per Share(1) Date 5%($) 10%($)
---- --------------- ---------------- ----------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Colette Cozean, Ph.D.... 1,000,000(2) 57% $7.98 2008 $ 618,213 $ 1,027,613
T. Daniel Caruso, Jr.... 0 0% $ -- -- $ -- $ --
</TABLE>
- --------
(1) The options were granted at an exercise price at least equal to the fair
market value of the Class A Common Stock on the date of grant. The
exercise price may be paid by delivery of cash or already owned shares,
subject to certain conditions. As of January 22, 1999, the last sale price
of the Company's Class A Common Stock as quoted on the Nasdaq Stock Market
was $3.125.
(2) Such options vest in five equal annual installments commencing March 31,
1998.
Aggregated Option Exercises and Fiscal Year-End Option Values
The following table sets forth certain information regarding stock options
exercised by the named executive officers during the fiscal year ended March
31, 1998, as well as the number of exercisable and unexercisable in-the-money
stock options and their values at fiscal year-end. An option is in-the-money
if the fair market value for the underlying securities exceeds the exercise
price of the option.
<TABLE>
<CAPTION>
Value of
Number of Unexercised In-the- Money
Shares Unexercised Options Options at
Acquired at March 31, 1998 March 31, 1998(1)
on Value ------------------------- -------------------------
Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
-------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Colette Cozean, Ph.D.... 0 0 341,730/1,374,420 $0/$0
T. Daniel Caruso, Jr.... 0 0 37,530/179,500 $0/$0
</TABLE>
- --------
(1) Represents the Nasdaq last sale price of underlying securities at fiscal
year end, minus the exercise price of the options.
8
<PAGE>
Certain Transactions
On February 21, 1998, the Board of Directors of the Company extended the
terms of two warrants which it had previously granted to Patrick J. Day, a
director of the Company, as follows:
Prior to the Company's initial public offering in 1994, the Company issued
to Mr. Day a warrant to purchase 9,044 shares of Class A Common Stock, 8,008
shares of Class E-1 Common Stock and 8,008 shares of Class E-2 Common Stock at
an aggregate exercise price of $100,000. Such warrant initially provided for
an expiration date of August 7, 1996. The Board extended the expiration of
this warrant on May 20, 1996 until March 31, 1997, again on February 21, 1997
until March 31, 1998, and again in February 1998 until August 7, 2000.
The Company has also previously granted to Mr. Day another warrant to
purchase 9,948 shares of Class A Common Stock, 8,008 shares of Class E-1
Common Stock and 8,008 shares of Class E-2 Common Stock at an aggregate
exercise price of $9,948. This warrant initially provided for an expiration
date of April 26, 1998. In February 1998, the Board extended the term of such
warrant for an additional two years expiring on April 26, 2000.
Neither the Company nor any of its directors, nominees, executive officers
or beneficial owners of more than five percent of the outstanding Common
Stock, or any immediate family member of the foregoing, are, or during fiscal
1998 at any time, were, or are proposed to be, parties to, or have a direct or
indirect material interest in, any relationships or transactions, or series of
related transactions, described in Item 404 of Regulation S-K promulgated by
the Securities and Exchange Commission.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended March 31, 1998, the members of the Compensation
Committee were Grace Ching-Hsin Lin, G. Lynn Powell, D.D.S. and E. Donald
Shapiro, all of whom are non-employee directors of the Company. Since the end
of the 1998 fiscal year, Ms. Lin and Mr. Shapiro have retired from the Board,
and have been replaced on the Compensation Committee by Dr. Feldman, Mr.
Hunkeler and Mr. Ashcroft. No member of the Compensation Committee has a
relationship that would constitute an interlocking relationship with executive
officers and directors of another entity.
Board Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors hereby submits its
report concerning the compensation of the Company's executive officers,
including the Chief Executive Officer. The Compensation Committee is
responsible for setting and administering the compensation policies of the
Company with respect to its executive officers.
The Company's executive compensation program is designed to align executive
compensation with the Company's business strategy and performance. The goals
of the executive compensation program are: (i) to attract and retain key
executives critical to the success of the Company; (ii) to provide levels of
compensation which are competitive with other entities in the industry of
similar size; and (iii) to motivate executives to enhance long-term
shareholder value by building appropriate ownership in the Company.
The annual compensation has been considered for the executive officers,
including Dr. Colette Cozean, the Company's President and Chief Executive
Officer, including base salaries, coupled with stock options and other
incentives. Base salaries are the fixed component of the executive officers'
compensation package. Salaries are set and adjusted based upon competitive
standards and individual performance. During fiscal 1998, the Company also
engaged Ernst & Young, LLP to perform a survey of compensation packages for
Chief Executive Officers of comparable companies.
The award of any bonuses is based upon the performance of the Company during
the prior year as set forth in the Company's audited financial statements, and
the contribution of each individual executive officer to the
9
<PAGE>
Company's performance. Among the factors (the "Performance Factors") which the
Committee has established to assess the Company's overall performance are: the
Company's performance against budget and targets for sales, expenses and
revenue, and the successful implementation of both short and long-term
corporate strategies for enhancing shareholder value (e.g. strategic
acquisitions, divestitures, facilities expansion, productivity, improvements,
etc.) and product development along with technical advances and new patents.
A substantial portion of the compensation of executive officers is based
upon the award of stock options which rely on increases in the value of the
Company's Common Stock. The issuance of options is intended to encourage such
employees to establish a meaningful, long-term ownership interest in the
Company consistent with the interests of the Company's shareholders. Under the
Company's stock option plans, options are granted from time to time to certain
officers, directors and key employees of the Company and its subsidiaries at
the fair market value of the Company's Common Stock at the time of grant.
Because the compensation element of options is dependent on increases over
time in the market value of such shares, stock options represent compensation
that is tied to the Company's long-term performance.
The Committee has reviewed the fiscal 1998 base salaries of each of the
executive officers and is of the opinion that such salaries are not at all
unreasonable in view of those paid by the Company's competitors of a similar
size. The Committee also reviewed the stock options awarded in fiscal 1998 and
is of the opinion that the option awards are reasonable in view of the
officers' individual performance and positions with the Company.
In February 1998 the Committee reviewed Dr. Cozean's base salary for 1998,
and concluded that her salary is not unreasonable in view of those paid to
Chief Executive Officers of the Company's competitors of similar size. Dr.
Cozean was paid a cash bonus of $100,000 for 1998, in view of her contribution
towards the Company's receipt of FDA clearance for the use of a laser in hard
tissue procedures and other milestones achieved by the Company which were
reported to the Committee. Dr. Cozean also received options for the purchase
of 1,000,000 shares of the Company's common stock all at prices equaling the
Company's then current trading price, subject to a five (5) year vesting
schedule, for her past and anticipated future services to the Company, which
the Committee believes to be reasonable and appropriate in light of her
individual performance.
COMPENSATION COMMITTEE:
E. Donald Shapiro
Grace Ching-Hsin Lin
G. Lynn Powell, D.D.S.
10
<PAGE>
Performance Graph
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Class A Common Stock, based on its market price, with
the cumulative total return of companies on the Nasdaq Stock Market (U.S.
common stocks) and the Surgical and Medical Instruments Index, assuming
reinvestment of dividends, for the period beginning December 1, 1994 through
the Company's fiscal year ended March 31, 1998. The Company's Class A Common
Stock was initially offered to the public on November 30, 1994. This graph
assumes that the value of the investment in the Company's Class A Common Stock
and each of the comparison groups was $100 on December 1, 1994.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
November 30, March 31, March 31, March 31, March 31,
1994 1995 1996 1997 1998
------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Premier Laser Systems,
Inc..................... $100.00 $ 80.00 $172.50 $110.00 $210.00
Surgical and Medical
Instruments............. $100.00 $119.05 $186.74 $190.53 $262.85
Nasdaq Market Index...... $100.00 $103.04 $138.60 $155.06 $234.33
</TABLE>
In the Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1997, the Company compared the cumulative total shareholder return on its
Common Stock to the Hambrecht & Quist Technology Index, instead of the Surgical
and Medical instruments Index, as used this year. The Hambrecht & Quist
Technology Index was unavailable to the Company for purposes of this report.
APPROVAL OF 1998 STOCK OPTION PLAN
On January 8, 1999 the Board of Directors adopted, subject to the approval of
the shareholders, the 1998 Stock Option Plan (the "Plan") in order to
strengthen the commonality of interest among management, the
11
<PAGE>
Board and shareholders and to (i) provide incentives for participants to
improve operations and increase profits of the Company; (ii) encourage such
persons to accept or continue employment with the Company; and (iii) encourage
such persons to begin or continue providing services to the Company.
The following is a general summary of the Plan which is qualified in its
entirety by reference to the full text of the Plan, which is attached to this
Proxy Statement as Exhibit A.
Eligibility for Participation
The employees, including officers and Directors who are employees, of the
Company and its subsidiaries (the "Eligible Employees") who are designated by
the Committee (as defined below under the heading "Administration") and
certain consultants to the Company who are designated by the Committee
("Eligible Consultants") are eligible to receive grants of options to purchase
shares of the Company's Class A Common Stock under the Plan.
Members of the Board of Directors who are not officers or employees of the
Company or its subsidiaries ("Eligible Directors") are also eligible to
receive grants of certain options under the Plan. As of the close of business
on the date the Plan is approved by the Company's shareholders ("Effective
Date") there are expected to be seven Eligible Directors who will be entitled
to receive grants of such options, based on the assumptions that (i) the Plan
is approved by the shareholders at the Annual Meeting, and (ii) all Director
nominees are elected (such seven Eligible Directors being referred to herein
as the "Expected Eligible Directors").
No determination has been made concerning the designation of Eligible
Employees, Eligible Consultants or Eligible Directors who will participate in
the Plan in the future nor as to the number of options to be granted to
Eligible Employees, Eligible Consultants or Eligible Directors under the Plan.
Therefore, it is not possible to state either the number of Eligible
Employees, Eligible Consultants or Eligible Directors who will receive such
grants or the number of options to be granted. For the same reasons, it is
also not possible to state the number of Eligible Employees, Eligible
Consultants or Eligible Directors, nor the number of options granted, with
respect to the prior fiscal year had the Plan been in effect. As of December
22, 1998, the Company has five persons serving as executive officers, has a
total of 82 employees who are not executive officers, and approximately
40 consultants performing services.
The Eligible Employees, Eligible Consultants and Eligible Directors are
sometimes collectively referred to herein as "Eligible Optionees."
Types of Options
Options granted under the Plan may be either "incentive stock options"
(which qualify for special tax treatment under section 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) or nonqualified options.
Eligible Employees may be granted either incentive stock options or
nonqualified options while Eligible Consultants and Eligible Directors and
only may be granted nonqualified options.
Exercise of Options
The exercise price of any incentive stock option granted under the Plan may
not be less than the fair market value of the shares of Class A Common Stock
underlying such option, determined as of the date of grant. If an Eligible
Employee owns more than 10% of the shares of Class A Common Stock of the
Company (a "10% Eligible Employee") at the time of grant of an incentive stock
option, the exercise price may not be less than 110% of the fair market value
of the shares of Class A Common Stock underlying such incentive stock option,
determined as of the date of grant. The exercise price of nonqualified options
may be more or less than, or equal to, the fair market value of the underlying
Class A Common Stock. The exercise price of an option may be paid in cash,
through the delivery of other shares of Class A Common Stock or through the
delivery of a combination
12
<PAGE>
of such shares of Class A Common Stock and cash. If any such shares of Class A
Common Stock to be delivered in payment of an exercise price were obtained
through the previous exercise of any option granted under the Plan, such
shares must have been held for at least six months prior to such delivery. The
Committee may provide for other methods of payment upon the exercise of an
option.
The market value of a share of Class A Common Stock on January 22, 1999, was
$3.125, based on the closing sale price of such stock on the Nasdaq National
Market System.
Expiration of Options
No option granted under the Plan may be made exercisable after the
expiration of ten years from the date such option is granted. In addition, any
option granted to a 10% Eligible Employee may not be made exercisable after
the expiration of five years from the date the option is granted.
Before the expiration date of an option, such option is exercisable by an
Employee Optionee or Eligible Consultant (i) while such person continues to be
employed or is performing consulting services for the Company, as the case may
be, or (ii) so long as such option was then exercisable at the date of
termination of employment for reasons other than death, retirement, or
termination for cause, within three months after the termination of such
employment or consulting relationship. In the event of such termination
because of death while an option is exercisable by an Employee Optionee or
Eligible Consultant, the option will terminate on the earlier of the
expiration date of such option and the expiration of one year after such
death. In the event of such termination because of retirement or disability
while an option is exercisable by an Employee Optionee, or termination because
of disability while an option is exercisable by an Eligible Consultant, the
option will terminate on the earlier of (i) the expiration date of such
option, or (ii) the expiration of three years after termination of employment
due to retirement or disability, or termination of the consulting relationship
due to disability. In the event of termination for cause, the option will
terminate as of such date of termination even if such option was then
exercisable.
With respect to nonqualified options granted to an Eligible Director: (i) in
the event of such termination of directorship for reasons other than death,
disability or termination for certain causes, the nonqualified option is
exercisable by an Eligible Director until the earlier of the expiration date
of such option and the expiration of the three month period after such
termination, (ii) in the event of such termination because of death, the
nonqualified option will terminate on the earlier of the expiration date of
such option and the expiration of one year after such death, (iii) in the
event of such termination because of disability, the nonqualified option will
terminate on the earlier of the expiration date of such option and the
expiration of three years after termination of directorship due to disability,
and (iv) in the event of termination for certain causes, the nonqualified
option will terminate as of such date of termination.
Options which are not exercisable by an Eligible Employee or Eligible
Consultant at the time of termination of employment or consulting relationship
will terminate as of the date of the Eligible Employee's termination of
employment or Eligible Consultant's termination of relationship.
Corporate Change
Upon a Corporate Change (as defined in the Plan, and generally relating to
the acquisition or liquidation of the Company), all outstanding options,
including options which are then not exercisable, will become exercisable in
full; provided that the consent of a holder of an accelerated incentive stock
option is required if such acceleration will cause such incentive stock option
not to be treated as an incentive stock option under the Code.
Limitation on Shares Available Under Stock Option Plan
Subject to certain adjustments permitted under the Plan, the aggregate
number of shares of Class A Common Stock to be delivered upon exercise of all
options granted under the Plan may not exceed 1,500,000 shares of
13
<PAGE>
the Company's Class A Common Stock as now constituted. The shares of Class A
Common Stock issuable upon exercise of options granted under the Plan may be
authorized and unissued shares or reacquired shares. If the number of shares
to be delivered upon the exercise in full of any option granted under the Plan
is reduced for any reason whatsoever or if any option granted under the Plan
for any reason shall expire or shall terminate unexercised as to all or any
shares covered thereby, the number of shares no longer subject to any such
option will be released from such option and will be available to be re-
optioned under the Plan, subject to certain limitations concerning incentive
stock options.
Limitation on Grants to Eligible Employees
There are statutory limits on the number of shares of Class A Common Stock
for which incentive stock options may be granted to certain employees in any
calendar year. Currently, the aggregate fair market value of such shares
(determined at the time the incentive stock option is granted) may not exceed
$100,000 for all shares covered by incentive stock options awarded to certain
employees which become exercisable for the first time in any calendar year.
Administration
The Plan will be administered by the Compensation Committee or such other
committee of the Board of Directors which succeeds to the functions and
responsibilities of the Compensation Committee (the "Committee"). The
Committee will have the authority to (i) determine the individuals to whom
options will be granted under the Plan and the terms and provisions of such
options, (ii) interpret the Plan and all options granted under the Plan, (iii)
adopt, amend or rescind such rules as it deems necessary for the proper
administration of the Plan, (iv) make all other determinations necessary or
advisable for the administration of the Plan, and (v) correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any
option granted under the Plan in the manner and to the extent that the
Committee deems desirable to carry the Plan or any option into effect.
In determining which Eligible Employees and Eligible Consultants will be
granted options under the Plan, the Committee may consider such factors as the
office or position of an Eligible Employee or Eligible Consultant, the degree
of responsibility for, and contribution to, the growth and success of the
Company by such Eligible Employee or Eligible Consultant, the length of
service, promotions, and potential of such Eligible Employee or Eligible
Consultant as well as any other factors which the Committee may deem relevant.
Amendments
The Board of Directors may amend, suspend or terminate the Plan; provided,
however, that each such amendment of the Plan (i) extending beyond ten years
the period within which options may be granted thereunder, (ii) increasing the
aggregate number of shares of Class A Common Stock to be optioned under the
Plan except as otherwise permitted in the Plan, (iii) materially modifying the
requirements as to eligibility of Eligible Employees or Eligible Consultants
or changing the class of Eligible Employees or Eligible Consultants to whom
options may be granted, (iv) materially increasing the benefits to optionees
under the Plan, (v) modifying the provisions relating to the granting of
nonqualified options to Eligible Directors, or (vi) granting options to
Eligible Directors other than pursuant to the provisions referred to in clause
(v), will, in each case, be subject to approval by the shareholders of the
Company; provided, further, however, that no amendment, suspension or
termination of the Plan may cause the Plan to fail to comply with the
conditions of Rule 16b-3 ("Rule 16b-3") under the Exchange Act, or may,
without the consent of the holder of an option, terminate such option or
adversely affect such person's rights in any material respect (except as set
forth in the Plan). The Board of Directors may alter, amend, suspend,
discontinue or terminate the Plan and any option granted thereunder, without
the approval of the shareholders of the Company or any holder of any option
thereby affected, if necessary in order to comply with Rule 16b-3 or sections
422 or 162(m) of the Code.
14
<PAGE>
Term of Stock Option Plan
The Plan will terminate ten years following the effective date of the Plan
(the "Termination Date"), unless terminated by the Board of Directors at an
earlier date. No options will be granted under the Plan after the Termination
Date, although the exercise periods for previously granted options may extend
beyond the Termination Date.
Nontransferability
No option is transferable by the optionee except by will or the laws of
descent and distribution.
Certain Federal Income Tax Consequences
Incentive Stock Options. Upon the grant of an incentive stock option, the
optionee will not recognize any taxable income and the Company will not be
entitled to a tax deduction. Upon the exercise thereof while the optionee is
employed by the Company or a subsidiary or within three months after
termination of employment, the optionee will not recognize taxable income if
certain holding period requirements under the Code are met; however, under
certain circumstances, the excess of the fair market value of the shares of
Class A Common Stock acquired upon such exercise over the exercise price may
be subject to the alternative minimum tax.
If the shares of Class A Common Stock acquired pursuant to the exercise of
an incentive stock option are held for at least two years from the date of
grant and at least 1 year from the date of exercise, the optionee's gain or
loss upon a disposition of such shares of Class A Common Stock will be a long-
term capital gain or loss equal to the difference, if any, between the sale
price and the purchase price of the shares. If the optionee satisfies such
holding periods upon a sale of the shares, the Company will not be entitled to
any deduction for federal income tax purposes. If such shares are disposed of
prior to the expiration of these holding periods, the optionee will recognize
ordinary income on certain amounts in excess of the option price and the
Company will be entitled to a corresponding tax deduction.
Nonqualified Options. Upon the grant of a nonqualified option, the optionee
will not recognize any taxable income. Upon the exercise thereof, the optionee
will recognize taxable income in an amount equal to the difference between (i)
the fair market value of the shares of Common Stock acquired upon such
exercise, and (ii) the exercise price. At that time, the Company will be
entitled to a corresponding tax deduction. Upon a subsequent disposition of
shares of Common Stock acquired upon the exercise of a nonqualified option,
the optionee will recognize long-term or short-term capital gain or loss,
depending on the holding period of such shares.
New Plan Benefits
As stated above, the Committee has the authority to determine the amounts,
terms and grant dates of options to be granted in the future to Eligible
Employees, Eligible Directors and Eligible Consultants under the Plan. To
date, no such determinations have been made and, as a result, it is not
possible to state such information.
The numbers of shares of Common Stock subject to options granted under the
Plan to certain persons during the fiscal year ended March 31, 1998 are as
follows: Colette Cozean, the Company's President, Chief Executive Officer and
Chairman of the Board of Directors was granted options to purchase 750,000
shares of Common Stock; all current executive officers as a group were granted
options to purchase 965,000 shares of Common Stock; and all current directors
who are not executive officers were granted options to purchase 120,000 shares
of Common Stock. During such fiscal year, (i) an aggregate of 860,000 options
were granted under the Plan to nominees for election as a director; and (ii)
no options were granted to any associates of any current directors who are not
executive officers, or of any nominees for election as a director, or of any
executive officers, and no person other than those individuals set forth above
was granted five percent or more of the total amount of options granted under
the Plan during that period. The options granted under the 1998 Plan will be
valid and exercisable only if the 1998 Plan is approved by the shareholders at
the Annual Meeting.
15
<PAGE>
The affirmative vote of a majority of the shares of Common Stock present in
person or by proxy at the Annual Meeting and entitled to vote is required to
approve the Plan.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE 'FOR' APPROVAL OF THE PLAN.
PROXIES AND VOTING INSTRUCTIONS WILL BE VOTED IN FAVOR OF THE APPROVAL OF THE
PLAN UNLESS THE SHAREHOLDER SPECIFIES OTHERWISE.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 22, 1999,
regarding the beneficial ownership of the Company's Common Stock by: (i) all
persons known by the Company to beneficially own more than 5% of the Company's
Common Stock, (ii) each director and executive officer of the Company, and
(iii) all directors and executive officers as a group. The following table
treats the Common Stock, the Class E-1 Common Stock and the Class E-2 Common
Stock as a single class.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name and Address of Beneficial Owner(1) Beneficial Ownership Common Stock
--------------------------------------- -------------------- ------------
<S> <C> <C>
Colette Cozean, Ph.D.(2).................... 661,550 4.3%
Patrick J. Day(3)........................... 257,981 1.7%
T. Daniel Caruso, Jr.(4).................... 172,052 1.1%
G. Lynn Powell, D.D.S.(5)................... 101,501 *
Lawrence D. Ashcroft........................ 0 0%
Fredric J. Feldman, Ph.D.................... 0 0%
John D. Hunkeler, M.D. F.A.C.S.............. 0 0%
Lewis H. Stanton............................ 0 0%
Tom Hazen................................... 0 0%
Robert V. Mahoney........................... 0 0%
Jeffrey Anderson............................ 0 0%
Judith A. McCall(6)......................... 30,532 *
All directors and executive officers as a
group (11 persons)(7)...................... 1,051,564 6.6%
</TABLE>
- --------
* Less than 1%.
(1) The address of each of Dr. Cozean, Ms. McCall and Messrs. Day, Powell,
Ashcroft, Feldman, Hunkeler, Stanton, Hazen, Mahoney and Anderson is 3
Morgan, Irvine, California 92618. Unless otherwise noted, the Company
believes that all persons named in the table have sole investment and
voting power with respect to all shares of Class A Common Stock
beneficially owned by such person, such shares, subject to community
property laws where applicable.
(2) Includes 49,144 shares of Class A Common Stock, 43,514 shares of Class E-1
Common Stock and 43,514 shares of Class E-2 Common Stock held by Dr.
Cozean and 1,594 shares of Class A Common Stock, 1,412 shares of Class E-1
Common Stock and 1,412 shares of Class E-2 Common Stock held by Dr. Cozean
as custodian for her two minor children. Also includes 520,960 of Class A
Common Stock subject to options exercisable within sixty (60) days.
(3) Includes 49,263 shares of Class A Common Stock, 48,047 shares of Class E-1
Common Stock and 48,047 shares of Class E-2 Common Stock. Also includes
78,992 shares of Class A Common Stock, 16,816 shares of Class E-1 Common
Stock and 16,816 shares of Class E-2 Common Stock subject to warrants and
options exercisable within sixty (60) days.
(4) Includes 13,722 shares of Class A Common Stock, 12,150 shares of Class E-1
Common Stock and 12,150 shares of Class E-2 Common Stock held by Mr.
Caruso's estate. Also includes 126,022 shares of Class A Common Stock,
4,004 shares of Class E-1 Common Stock and 4,004 shares of Class E-2
Common Stock subject to options exercisable on behalf of the estate of Mr.
Caruso within sixty (60) days.
16
<PAGE>
(5) Includes 101,501 shares of Class A Common Stock subject to warrants and
options exercisable within sixty (60) days.
(6) Consists of 30,532 shares of Class A Common Stock subject to option
exercisable within sixty (60) days.
(7) Includes 100,001 shares of Class A Common Stock, 92,973 shares of Class E-
1 Common Stock and 92,973 shares of Class E-2 Common Stock. Also includes
731,985 shares of Class A Common Stock, 16,816 shares of Class E-1 Common
Stock and 16,816 shares of Class E-2 Common Stock subject to warrants and
options exercisable within sixty (60) days. Such figure does not include
any shares or options held by the estate of Mr. Caruso.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, and the regulations
thereunder, require the Company's directors, executive officers and persons
who own more than 10% of a registered class of the Company's equity securities
to file with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company, and to furnish the Company with copies of all
Section 16(a) forms they file.
During the most recent fiscal year ended March 31, 1998, Jeffrey A.
Anderson, J. Randy Alexander and Judith A. McCall, each an executive officer
of the Company, failed to file on a timely basis an Initial Statement of
Beneficial Ownership of Securities on Form 3. During the fiscal year ended
March 31, 1998, Tom Hazen, also an executive officer of the Company, and
Patrick J. Day, a director of the Company, failed to file on a timely basis an
Initial Statement of Beneficial Ownership of Securities on Form 4.
All of the delinquent forms referred to above were subsequently filed.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the two (2) fiscal years ended March 31, 1997
and 1998, all other Section 16(a) filing requirements applicable to the
Company's officers, directors and greater than 10% beneficial owners were
complied with.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders are advised that any shareholder proposal intended for
consideration at the next Annual Meeting must be received by the Company at
the address set forth on the first page of this Proxy Statement no later than
August 15, 1999 to be included in the proxy material for the 1999 Annual
Meeting. It is recommended that shareholders submitting proposals direct them
to the Secretary of the Company and utilize certified mail, return-receipt
requested in order to ensure timely delivery.
CHANGE IN ACCOUNTANT
The accounting firm of Haskell & White, LLP has been selected as the
Company's accountants for the fiscal year ended March 31, 1999. A
representative of Haskell & White, LLP is expected to be present at the Annual
Meeting and will be given the opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
Information regarding changes in the Company's accountants is included in
the annual report to security holders which accompanies this Proxy Statement
under the heading "Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure."
17
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ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998, as filed with the Securities and Exchange Commission, is
available without charge by writing to: Corporate Secretary, Premier Laser
Systems, Inc., 3 Morgan, Irvine, California 92718.
OTHER MATTERS
The Board of Directors knows of no matter to come before the Annual Meeting
other than as specified herein. If other business should, however, be properly
brought before such meeting the persons voting the proxies will vote them in
accordance with their best judgement.
THE SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN PROMPTLY THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
/s/ Judith A. McCall
Judith McCall, Secretary
Irvine, California
January 27, 1999
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EXHIBIT A
PREMIER LASER SYSTEMS, INC.
1998 STOCK OPTION PLAN
ARTICLE I
GENERAL PROVISIONS
1.1 Purpose. Premier Laser Systems, Inc. (the "Company") proposes to grant
to selected "Eligible Employees" and "Eligible Consultants" (as defined below)
options to purchase shares of Class A common stock, no par value, of the
Company ("Common Stock") for the purposes of (i) furnishing to such persons
incentives to improve operations and increase profits of the Company, (ii)
encouraging such persons to accept or continue employment with the Company and
its "Affiliates" (as defined below) and (iii) encouraging such persons to
begin or continue providing services to the Company. For purposes hereof, the
term "subsidiary" shall have the meaning set forth in Rule 405 promulgated
under the Securities Act of 1933, as amended. The term "Eligible Employees"
shall mean employees (including officers and directors who are employees) of
the Company or its subsidiaries, and the term "Eligible Consultants" shall
mean persons performing services for the Company or a subsidiary of the
Company as independent contractors and not as employees or members of the
Board of Directors.
The Company also proposes to grant to those members of the Board of
Directors of the Company (the "Board of Directors") who are not officers or
employees of the Company at the time of a grant (such persons being
hereinafter referred to as "Non-Employee Directors") options to purchase
shares of Common Stock pursuant to the Plan. The purpose of such grants is to
(i) provide incentives for highly qualified individuals to stand for election
to the Board of Directors and continue service on the Board of Directors, (ii)
provide incentives to promote long-term shareholder value, and (iii) promote a
greater identity of interest between Non-Employee Directors and the Company's
shareholders.
Eligible Employees, Eligible Consultants and Non-Employee Directors who are
granted options pursuant to the Plan are sometimes collectively referred to
herein as "Optionees."
The plan herein set forth shall be known as the 1998 Stock Option Plan of
Premier Laser Systems, Inc. (and is herein referred to as the "Plan").
1.2 Shares Subject to the Plan. Subject to adjustment as provided in Section
1.4 and Section 1.11.3 (the "Adjustment Provisions"), the aggregate number of
shares of Common Stock to be delivered upon exercise of all options granted
under the Plan shall not exceed 1,500,000 shares. The shares of Common Stock
issuable upon exercise of options granted under the Plan may be authorized and
unissued shares or reacquired shares. In the event the number of shares to be
delivered upon the exercise in full of any option granted under the Plan is
reduced for any reason whatsoever or in the event any option granted under the
Plan for any reason shall expire or shall terminate unexercised as to all or
any shares covered thereby, the number of shares no longer subject to any such
option shall thereupon be released from such option and shall thereafter be
available to be re-optioned under the Plan, subject to the limitations, if
any, imposed by the Internal Revenue Code of 1986, as amended (the "Code") on
the availability for regrant of options previously granted pursuant to Article
III. The Compensation Committee of the Board of Directors or such other
committee of the Board of Directors which shall succeed to the functions and
responsibilities of the Compensation Committee, or as shall otherwise be
delegated the responsibility of administering the Plan (the "Committee") shall
have the authority to effect, at any time and from time to time, (i) the
repricing of any outstanding options under the Plan, and/or (ii) with the
consent of the affected holders of options, the cancellation of any
outstanding options under the Plan and the grant in substitution therefor of
new options under the Plan pursuant to terms consistent therewith, covering
the same or different numbers of shares of stock, provided, however, that no
option granted pursuant to Article III
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shall be repriced or regranted on terms that would constitute a "modification"
within the meaning of Section 424(h)(3) of the Code which would disqualify
such option as an incentive stock option described in Section 422 of the Code
unless the Company and the holder of such option shall so agree. Shares issued
pursuant to the exercise of options granted under the Plan shall be fully paid
and nonassessable.
1.3 Administration of the Plan. Subject to the provisions of the Plan, the
Committee shall have the authority to (a) determine which persons shall be
granted Options under the Plan, (b) determine the provisions of the options to
be granted under the Plan, (c) interpret the Plan and all options granted
under the Plan, (d) adopt, amend or rescind such rules as it deems necessary
for the proper administration of the Plan, (e) make all other determinations
necessary or advisable for the administration of the Plan, and (f) correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option granted under the Plan in the manner and to the extent that the
Committee deems desirable to carry the Plan or any option into effect. The
Board of Directors shall have the power to add or remove members of the
Committee from time to time, to fill vacancies thereon arising by resignation,
death, removal, or otherwise, and shall designate a chairman from among the
members of the Committee, which chairman shall preside at all meetings of the
Committee. Meetings shall be held at such times and places as shall be
determined by the Committee. A majority of the members of the Committee shall
constitute a quorum for the transaction of business, and the vote of a
majority of those members present at any meeting shall decide any question
brought before that meeting. The actions of the Committee in exercising all of
the rights, powers and authorities set out in the Plan, when performed in good
faith and in its sole judgment, shall be final and conclusive. When
appropriate, the Plan shall be administered in order to qualify certain of the
options granted hereunder as "incentive stock options" described in section
422 of the Code.
The Committee shall consist of at least two members of the Board of
Directors.
Notwithstanding any provision of the Plan, the Committee may not exercise
any discretion with respect to any option granted hereunder which would be
inconsistent with the intent that the Plan meet the requirements of Rule 16b-3
("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as
amended (the "Act"), or any similar or successor rule. If any Plan provision
is found not to be in compliance with Rule 16b-3 or Section 162(m) of the Code
("Section 162(m)"), that provision shall be deemed amended so that the Plan
does so comply, to the extent permitted by law and deemed advisable by the
Committee, and in all events the Plan shall be construed in favor of its
meeting the requirements of Rule 16b-3 and Section 162(m).
1.4 Amendment and Discontinuance of the Plan. The Board of Directors may
amend, suspend or terminate the Plan; provided, however, that each such
amendment of the Plan (a) extending the period within which options may be
granted under the Plan, (b) increasing the aggregate number of shares of
Common Stock to be optioned under the Plan except as provided in the
Adjustment Provisions, (c) materially modifying the requirements as to
eligibility of employees or consultants receiving options under, or changing
the eligibility of employees or consultants or class of employees or
consultants to whom options may be granted under, Article II or III, as
applicable, or (d) materially increasing the benefits to optionees under the
Plan, shall, in each case, be subject to approval by the shareholders of the
Company (but only if such amendment is required to be approved under the Code,
the Act, the rules promulgated under the Code or the Act, or the rules of any
exchange (including the Nasdaq Stock Market) on which the Company's securities
are listed); and provided further, however, that no amendment, suspension or
termination of the Plan shall be made which may cause the Plan to fail to meet
the requirements of Rule 16b-3 or may, without the consent of the holder of an
option granted under Article II or III, terminate such option or adversely
affect such person's rights in any material respect (except as set forth in
the Plan). Furthermore, the Board of Directors may alter, amend, suspend,
discontinue or terminate the Plan and any option granted hereunder, without
the approval of the shareholders of the Company or any holder of any option
thereby affected, if necessary in order to (a) enable the Plan and any option
granted hereunder intended to be so qualified, to qualify for (i) the
exemption provided by Rule 16b-3, (ii) the benefits provided under section 422
of the Code, or (iii) the exclusion for qualified performance-based
compensation under Section 162(m) and the applicable interpretive authority
thereunder, and (b) comply with changes in the Code, the Employee Retirement
Income Security Act or any other applicable law (including, with respect to
any of the foregoing, changes in any rule, regulation or other interpretive
authority).
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1.5 Granting of Options to Employees. The Committee shall have authority to
grant, prior to the expiration date of the Plan, to (i) Eligible Employees,
Eligible Consultants and Non-Employee Directors options to purchase, on the
terms and conditions hereinafter set forth in Article II, and (ii) Eligible
Employees options to purchase, on the terms and conditions hereinafter set
forth in Article III, authorized but unissued, or reacquired, shares of Common
Stock, provided such grants shall be made only to those Optionees, in such
amounts and at such times as determined in the discretion of the Committee,
and, for this purpose, the Committee may consider the Optionee's office or
position, degree of responsibility for, and contribution to, the growth and
success of the Company, length of service, promotions, potential and any other
factors which it may deem relevant. Options granted to Eligible Employees
under Section III shall be "incentive stock options" within the meaning of
section 422(b) of the Code, and are hereinafter referred to as "incentive
stock options." All other options granted to Optionees under the Plan shall be
granted pursuant to Article II, and are hereinafter referred to as
"nonqualified options."
1.6 Option Agreements. Each option granted under the Plan shall be evidenced
by a written agreement ("Stock Option Agreement") between the Company and the
applicable optionee and shall contain such terms and conditions, and may be
exercisable for such periods, as may be approved by the Committee, which terms
and conditions need not be identical but which must be in compliance with the
terms and provisions hereof.
1.7 Effective Date. The Plan shall become effective as of the date the Plan
is approved by the Board (the "Effective Date"). No options granted prior to
the approval of the Plan by the shareholders of the Company shall be
exercisable until such approval is received. Except with respect to options
then outstanding, if not sooner terminated under Section 1.4, the Plan shall
terminate upon, and no further options shall be granted after, the expiration
of ten years from the Effective Date.
1.8 Rule 16b-3 Compliance. The Company intends:
(a) that the Plan comply with all applicable conditions of Rule 16b-3 or
its successors under the Act; and
(b) that transactions of the type specified in the first paragraph of
Rule 16b-3 by officers of the Company (whether or not they are directors)
pursuant to the Plan will be exempt from the operation of Section 16(b) of
the Act. In all cases, the terms, provisions, conditions and limitations of
the Plan shall be construed and interpreted consistent with the Company's
intent as stated in this Section 1.8.
1.9 Recapitalization or Reorganization. If at any time or from time to time
after the grant of any option hereunder there is a capital reorganization of
the Common Stock, then the Optionee shall be entitled to receive upon the
exercise of an option, in lieu of the Common Stock, the number of shares of
stock or other securities or property of the Company to which a holder of the
number of shares of Common Stock deliverable upon exercise of such option
would have been entitled as a result of such capital reorganization. If the
Company shall merge with another corporation and the Company is the surviving
corporation in such merger and under the terms of such merger the Common Stock
outstanding immediately prior to the merger remain outstanding and unchanged,
any option granted hereunder shall continue to apply to the Common Stock
thereto and shall also pertain and apply to any additional securities and
other property, if any, to which a holder of the number of shares of Common
Stock deliverable upon exercise of such option would have been entitled as a
result of the merger. If (i) the Company shall not be the surviving entity in
any merger, consolidation or other reorganization (or survives only as a
subsidiary of an entity other than a previously wholly-owned subsidiary of the
Company), (ii) the Company sells, leases or exchanges all or substantially all
of its assets to any other person or entity (other than a wholly-owned
subsidiary of the Company), (iii) the Company is to be dissolved and
liquidated, or (iv) any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power),
(each such event is referred to herein as a "Corporate Change"), then all
options granted hereunder, including that portion not then otherwise vested,
shall become
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exercisable in full effective immediately prior to the consummation of the
Corporate Change, provided that the exercise of any such option that would not
have been vested in the absence of the Corporate Change shall be conditioned
upon the occurrence of the Corporate Change (i.e., so that if the Corporate
Change does not subsequently occur, the unvested portion of the option shall
vest according to its original terms), and provided further, however, in no
event shall any incentive stock option, without the consent of the holder
thereof, first become exercisable pursuant hereto if the result would be to
cause such option, when granted, not to be treated as an incentive stock
option (whether or not by reason of the possible future violation of the
annual limitation set forth in Section 3.3.3 or otherwise).
1.10 Foreign Options and Rights. The Committee may grant options to Eligible
Employees, Eligible Consultants and Non-Employee Directors who are subject to
the tax laws of nations other than the United States, which options may have
terms and conditions as determined by the Committee as necessary to comply
with applicable foreign laws. The Committee may take any action which it deems
advisable to obtain approval of any such option by the appropriate foreign
governmental entity; provided, however, that no such option may be granted
pursuant to this Section 1.10 and no action may be taken which would result in
a violation of the Act, the Code or any other applicable law.
1.11 General Terms and Conditions of Options. Options granted under the Plan
shall be subject to the following terms and conditions and may contain such
additional terms and conditions, not inconsistent with law or the Article
pursuant to which such option was granted, as the Committee shall deem
desirable:
1.11.1 Manner of Exercise. In order to exercise all or a portion of any
option granted under the Plan, an Optionee shall deliver to the Company
payment in full of the shares then being purchased, together with any
required withholding tax. The payment of such exercise price and any
required withholding tax shall either be in cash or, to the extent
permitted by the applicable Stock Option Agreement, either (i) through
delivery to the Company of shares of Common Stock, (ii) by any combination
of cash or shares, or (iii) pursuant to a "net exercise" provision,
permitting exchange of the Option for shares subject to such Option. The
value of each share of Common Stock delivered upon exercise shall be deemed
to be equal to the per share price of the last sale of Common Stock on the
trading day immediately preceding the date the option is exercised (or the
closing bid if no sales were reported), based on the composite transactions
in the Common Stock as reported in The Wall Street Journal (or any
successor publication thereto). If the Committee so requires, such person
or persons shall also deliver a written representation that all shares
being purchased are being acquired for investment and not with a view to,
or for resale in connection with, any distribution of such shares. An
option agreement may, in the discretion of the Committee, provide for other
methods to pay for, or otherwise exercise, an option. An option agreement
also may, in the discretion of the Committee, provide for the withholding
of Federal, state or local income tax upon exercise of an option from any
cash or stock remuneration (from the Plan or otherwise) then or thereafter
payable by the Company to the Optionee. To the extent provided by the terms
of the applicable Stock Option Agreement, the Optionee may, at the
discretion of the Committee, satisfy any mandatory federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under an option by any of the following means or by a combination of such
means: (1) tendering cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the
Optionee as a result of the exercise or acquisition of stock under the
option provided that such arrangement will not result in a charge to the
Company's reported earnings in excess of that which the Company is willing
to accept; or (3) delivering to the Company owned and unencumbered shares
of the Common Stock of the Company that have been held for the greater of
(i) six months, or (ii) the period required to avoid a charge to the
Company's reported earnings in excess of that which the Company is willing
to accept. The exercise of the option may be conditioned upon the receipt
by the Company of satisfactory evidence of the Optionee's satisfaction of
any withholding obligations.
1.11.2 Options not Transferable. No option granted under the Plan shall
be transferable otherwise than by will or by the laws of descent and
distribution and, during the lifetime of the Optionee, such option shall be
exercisable only by the Optionee. Any attempt to transfer, assign, pledge,
hypothecate or otherwise
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dispose of, or to subject to execution, attachment or similar process, any
option granted under the Plan, or any right thereunder, contrary to the
provisions hereof, shall be void and ineffective, shall give no right to
the purported transferee, and shall, at the sole discretion of the
Committee, result in forfeiture of the option with respect to the shares
involved in such attempt.
1.11.3 Adjustment of Shares. In the event that at any time after the
Effective Date the outstanding shares of Common Stock are changed into or
exchanged for a different number or kind of shares of the Company or other
securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split, stock dividend, or
combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares subject to the Plan
(including shares as to which all outstanding options granted under the
Plan, or portions thereof then unexercised, shall be exercisable), to the
end that after such event the shares subject to the Plan and each
Optionee's proportionate interest shall be maintained as if such Optionee
had exercised the option before the occurrence of such event. Such
adjustment in an outstanding option granted under the Plan shall be made
without change in the total price applicable to such option or the
unexercised portion of such option (except for any change in the aggregate
price resulting from rounding-off of share quantities or prices) and with
any necessary corresponding adjustment in exercise price per share. Any
such adjustment made by the Committee shall be final, conclusive and
binding upon all Optionees, the Company, and all other interested persons.
Any adjustment of an incentive stock option pursuant to this Section 1.11.3
shall be made in such manner as not to constitute a "modification" within
the meaning of Section 424(h)(3) of the Code.
1.11.4 Listing and Registration of Shares. Each option granted under the
Plan shall be subject to the requirement that if at any time the Committee
determines, in its discretion, that the listing, registration, or
qualification of the shares subject to such option upon any securities
exchange or under any state or Federal law, or the consent or approval of
any governmental regulatory body, is necessary or desirable as a condition
of, or in connection with, the issue or purchase of shares thereunder, such
option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected
or obtained and the same shall have been free of any conditions not
acceptable to the Committee.
1.11.5 Amendments. The Committee may, with the consent of the person or
persons entitled to exercise any outstanding option granted under the Plan,
amend such option; provided, however, that any such amendment shall be
subject to shareholder approval when required in Section 1.4. The Committee
may at any time or from time to time, in its discretion, in the case of any
option previously granted under the Plan which is not then immediately
exercisable in full, accelerate the time or times at which such option may
be exercised to any earlier time or times. Any adjustment of an incentive
stock option pursuant to this Section 1.11.5 shall be made in such manner
as not to constitute a "modification" within the meaning of Section
424(h)(3) of the Code.
1.11.6 Fair Market Value. The "fair market value" of the Company's Common
Stock (as referred to in Sections 2.2, 3.2 and 3.3.3 below), shall be
determined by the Committee using any one of the following methods (as
selected by the Committee in its discretion):
(a) The fair market value shall be the last sale price, as reported
on the Nasdaq National Market System, of the Company's Common Stock on
the business day immediately preceding the date of grant.
(b) For grants of options to persons who will first become Eligible
Employees, Eligible Consultants or Non-Employee Directors at a date
after the date the Committee or Board of Directors authorizes the grant
of the Option, the fair market value shall be the last sale price, as
reported on the Nasdaq National Market System, of the Company's Common
Stock on the business day immediately preceding the date of hire (for
Eligible Employees), date of engagement (for Eligible Consultants) or
date of appointment to the Board of Directors (for Non Employee
Directors).
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(c) The fair market value shall be average of the last sale prices,
as reported on the Nasdaq National Market System, of the Company's
Common Stock on the fifteen consecutive business days immediately
preceding the date of grant.
1.11.7 Miscellaneous.
(a) The person or persons entitled to exercise, or who have exercised,
any option granted under the Plan shall not be entitled to any rights as a
shareholder of the Company with respect to any shares subject to such
option until such person shall have become the beneficial owner of such
shares.
(b) No option granted under the Plan shall be construed as limiting any
right which the Company or any subsidiary of the Company may have to
terminate at any time, with or without cause, the employment of any person
to whom such option has been granted.
(c) Notwithstanding any provision of the Plan or the terms of any option
granted under the Plan, the Company shall not be required to issue any
shares hereunder or thereunder if such issuance would, in the judgment of
the Committee, constitute a violation of any state or Federal law or of the
rules or regulations of any governmental regulatory body, and the failure
or refusal to issue shares under such circumstances shall not constitute a
breach of contract or otherwise be actionable by the Optionee.
(d) The Committee may require any person who exercises an incentive stock
option to give prompt notice to the Company of any disposition of shares of
Common Stock acquired upon exercise of an incentive stock option within one
year after the transfer of shares to such person.
1.12 Maximum Grant. The maximum number of shares issuable under options
granted in any single calendar year to any single Optionee shall be 1,000,000
shares.
ARTICLE II
NONQUALIFIED OPTIONS
2.1 Eligible Employees. All Eligible Employees, Non-Employee Directors and
Eligible Consultants shall be eligible to receive nonqualified options under
this Article II.
2.2 Calculation of Exercise Price. The exercise price to be paid for each
share of Common Stock deliverable upon exercise of each nonqualified option
granted under Article II shall be determined by the Committee and may be more
or less than, or equal to, the fair market value per share of Common Stock at
the time of grant as determined by the Committee. The exercise price for each
nonqualified option shall be subject to adjustment as provided in the
Adjustment Provisions.
2.3 Terms and Conditions of Options. Nonqualified options granted under this
Article II shall be in such form as the Committee may from time to time
approve, shall be subject to the following terms and conditions and may
contain such additional terms and conditions, not inconsistent with this
Article II, as the Committee shall deem desirable:
2.3.1 Option Period and Conditions and Limitations on Exercise. Subject
to Section 1.11.5, no nonqualified option shall be exercisable by an
Eligible Employee, Non-Employee Director or Eligible Consultant later than
the date which is the date determined by the Committee upon the grant
thereof (the "Nonqualified Option Expiration Date") which shall be no later
than ten years after the date of grant. To the extent not prohibited by
other provisions of the Plan, each nonqualified option granted to an
Eligible Employee, Non-Employee Director or Eligible Consultant shall be
exercisable at such time or times as the Committee in its discretion may
determine at or prior to the time such option is granted. In the event the
Committee makes no such determination, each nonqualified option granted to
an Eligible Employee, Non-Employee Director or Eligible Consultant shall be
exercisable from time to time, in whole or in part, at any time prior to
the Nonqualified Option Expiration Date.
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2.3.2 Termination of Employment or Relationship as Eligible Consultant;
Death. For purposes of this Article II and each nonqualified option granted
under this Article II, an Eligible Employee's employment, a Non-Employee
Director's term and a Eligible Consultant's relationship with the Company
shall be deemed to have terminated at the close of business on the day
preceding the first date on which such Eligible Employee, Non-Employee
Director or Eligible Consultant no longer for any reason whatsoever
(including the death of such Eligible Employee, Non-Employee Director or
Eligible Consultant) is employed by, or has a relationship with, the
Company or a subsidiary of the Company. An Eligible Employee shall be
considered to be in the employment of the Company or a subsidiary of the
Company as long as such Eligible Employee remains an employee of the
Company or a subsidiary of the Company, whether active or on any authorized
leave of absence. An Eligible Consultant shall be considered to have a
relationship with the Company as long as such Eligible Consultant has an
executory assignment from Company personnel authorized to make such an
assignment. Any question as to whether and when there has been a
termination of such employment or relationship, and the cause of such
termination, shall be determined by the Committee and its determination
shall be final and conclusive. If an Eligible Employee's employment, a Non-
Employee Director's term or a Eligible Consultant's relationship is
terminated for any reason whatsoever (including the death of such Eligible
Employee, Non-Employee Director or Eligible Consultant), each nonqualified
option thereunto granted under this Article II and all rights thereunder
shall wholly and completely terminate as follows:
(a) With respect to nonqualified options not then exercisable, at the
time the Eligible Employee's employment, the Non-Employee's term or the
Eligible Consultant's relationship is terminated; and
(b) With respect to nonqualified options then exercisable:
(i) At the time the Eligible Employee's employment, the Non-
Employee Director's term as a director or the Eligible Consultant's
relationship is terminated if the Eligible Employee's employment,
the Non-Employee Director's term or the Eligible Consultant's
relationship is terminated because such person has committed fraud,
theft or embezzlement against the Company or a subsidiary,
affiliated entity or customer of the Company, or for conflict of
interest (other than legitimate competition); or
(ii) At the expiration of a period of one year after the Eligible
Employee's, the Non-Employee Director's, or Eligible Consultant's
death (but in no event later than the Nonqualified Option Expiration
Date) if the Eligible Employee's employment, the Non-Employee
Director's term or Eligible Consultant's relationship is terminated
by reason of such person's death. Any such nonqualified option may
be exercised by the Eligible Employee's, the Non-Employee Director's
or Eligible Consultant's estate or by the person or persons who
acquire the right to exercise such nonqualified option by bequest or
inheritance; or
(iii) At the expiration of a period of three years (but in no
event later than the Nonqualified Option Expiration Date) after the
Eligible Employee's employment or the Non-Employee Director's term
is terminated because of retirement, or the Eligible Employee's
employment, the Non-Employee Director's term or the Eligible
Consultant's relationship is terminated because of disability, if
the Eligible Employee's employment or the Non-Employee Director's
term has terminated because of retirement or disability or the
Eligible Consultant's relationship has terminated because of
disability; or
(iv) At the expiration of a period of three months after the
Eligible Employee's employment, the Non-Employee Director's term or
Eligible Consultant's relationship is terminated (but in no event
later than the Nonqualified Option Expiration Date) if the Eligible
Employee's employment, the Non-Employee Director's term or the
Eligible Consultant's relationship is terminated for any reason
other than the reasons specified in Section 2.3.2(b)(i)-(iii).
A-7
<PAGE>
ARTICLE III
INCENTIVE STOCK OPTIONS
3.1 Eligible Employees. All Eligible Employees shall be eligible to receive
incentive stock options under this Article III.
3.2 Calculation of Exercise Price. The exercise price to be paid for each
share of Common Stock deliverable upon exercise of each incentive stock option
granted hereunder shall be equal to the fair market value per share of Common
Stock at the time of grant, as determined by the Committee pursuant to Section
1.11.6; provided, however, that in the case of an Eligible Employee who, at
the time such incentive stock option is granted, owns more than 10% of the
total combined voting power of all classes of stock of the Company or any
subsidiary corporation, within the meaning of section 422(b)(6) of the Code (a
"10% Eligible Employee"), the exercise price per share shall be at least 110%
of the fair market value per share of Common Stock at the time of grant. The
exercise price for each incentive stock option shall be subject to adjustment
as provided in Section 1.11.5.
3.3 Term and Conditions of Options. Incentive stock options shall be in such
form as the Committee may from time to time approve, shall be subject to the
following terms and conditions and may contain such additional terms and
conditions, not inconsistent with this Article III, as the Committee shall
deem desirable:
3.3.1 Option Period and Conditions and Limitations on Exercise. Subject
to Section 3.4, no incentive stock option shall be exercisable with respect
to any of the shares subject to such incentive stock option later than the
date which is the date determined by the Committee upon the grant thereof
(the "ISO Expiration Date"), which shall be no later than ten years after
the date of grant; provided, however, that in the case of any 10% Eligible
Employee, the ISO Expiration Date of any incentive stock option granted
thereto shall not be later than five years after the date of such grant. To
the extent not prohibited by other provisions of the Plan, each incentive
stock option shall be exercisable at such time or times as the Committee in
its discretion may determine at or prior to the time such incentive stock
option is granted. In the event the Committee makes no such determination,
each incentive stock option shall be exercisable from time to time, in
whole or in part, subject to the monetary limitations set forth in Section
3.3.3, at any time prior to the ISO Expiration Date.
3.3.2 Termination of Employment; Death. For purposes of this Article III
and each incentive stock option granted hereunder, an Eligible Employee's
employment shall be deemed to have terminated at the close of business on
the day preceding the first date on which such Eligible Employee is no
longer for any reason whatsoever (including the death of such Eligible
Employee) employed by the Company or a subsidiary of the Company. An
Eligible Employee shall be considered to be in the employment of the
Company or a subsidiary of the Company as long as such Eligible Employee
remains an employee of the Company or a subsidiary of the Company, whether
active or on any authorized leave of absence. Any question as to whether
and when there has been a termination of such employment, and the cause of
such termination, shall be determined by the Committee and its
determination shall be final and conclusive. If an Eligible Employee's
employment is terminated for any reason whatsoever (including the death of
such Eligible Employee), each incentive stock option thereunto granted
hereunder and all rights thereunder shall wholly and completely terminate
as follows:
(a) With respect to incentive stock options not then exercisable, at
the time the Eligible Employee's employment is terminated; and
(b) With respect to incentive stock options then exercisable:
(i) At the time the Eligible Employee's employment is terminated
if his employment is terminated because he is discharged for fraud,
theft or embezzlement committed against the Company or a subsidiary,
affiliated entity or customer of the Company, or for conflict of
interest (other than legitimate competition); or
A-8
<PAGE>
(ii) At the expiration of a period of one year after the Eligible
Employee's death (but in no event later than the ISO Expiration
Date) if the Eligible Employee's employment is terminated by reason
of his death. An incentive stock option granted under this Article
III may be exercised by the Eligible Employee's estate or by the
person or persons who acquire the right to exercise such incentive
stock option by bequest or inheritance; or
(iii) At the expiration of a period of three years (but in no
event later than the ISO Expiration Date) after the Eligible
Employee's employment is terminated if the Eligible Employee's
employment has terminated because of retirement or disability ; or
(iv) At the expiration of a period of three months after the
Eligible Employee's employment is terminated (but in no event later
than the ISO Expiration Date) if the Eligible Employee's employment
is terminated for any reason other than the reasons specified in
Section 3.3.2(b)(i)-(iii); provided, however, that the Committee.
In the event and to the extent that an incentive stock option granted under
this Article III is not exercised (i) within three months after the
Eligible Employee's employment is terminated because of retirement or
disability not within the meaning of section 22(e)(3) of the Code, or (ii)
within one year after the Eligible Employee's employment is terminated
because of disability within the meaning of section 22(e)(3) of the Code,
such option shall be taxed as a nonqualified option.
3.3.3 Limitation on Amount. Notwithstanding any other provision of the
Plan, the aggregate fair market value (determined as of the time an
incentive stock option is granted, based upon the calculation of the
exercise price as provided in Sections 3.2 and 1.11.6) of the Common Stock
with respect to which incentive stock options are exercisable for the first
time by an Eligible Employee, under all incentive stock option plans of the
Company and its subsidiaries, during any calendar year cannot exceed
$100,000 or such other maximum amount permitted under Section 422(d) of the
Code. If the date on which one or more of such incentive stock options
could first be exercised would be accelerated pursuant to any provision of
the Plan or any option agreement, and the acceleration of such exercise
date would result in a violation of the monetary restriction set forth in
the preceding sentence, then, notwithstanding any such provision, but
subject to the provisions of the next succeeding sentence, the exercise
dates of such incentive stock options shall be accelerated only to the date
or dates, if any, that do not result in a violation of such restriction
and, in such event the exercise date of the incentive stock options with
the lowest option prices shall be accelerated to the earliest such dates.
The Committee may, in its discretion, authorize the acceleration of the
exercise date of one or more incentive stock options even if such
acceleration would violate the monetary restriction set forth in the first
sentence of this Section 3.3.3 and even if such incentive stock options
were thereby converted in whole or in part to nonqualified options.
A-9
<PAGE>
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
PREMIER LASER SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Colette Cozean, Ph.D. and Tom Hazen, and each of
them, with full power of substitution, to vote all shares of Common Stock of any
class of Premier Laser Systems, Inc. ("Premier") held of record by the
undersigned as of December 31, 1998, at the Annual Meeting of Shareholders of
Premier to be held at 3 Morgan, Irvine, California, on Friday, February 26, 1999
at 1:30 p.m. local time, and at all adjournments thereof, (the "Annual Meeting")
upon the following matters, which are described in Premier's Proxy Statement for
the Annual Meeting.
(Continued and to be Signed on Reverse Side)
<PAGE>
A [X] Please mark your
votes as in this
example.
FOR all nominees WITHHOLD
listed at right AUTHORITY to vote
(except as marked to for all nominees
the contrary below) listed at right NOMINEES:
1. ELECTION Colette Cozean
OF [_] [_] Patrick J. Day
DIRECTORS: G. Lynn Powell
(INSTRUCTIONS: To withhold authority to vote for any Lawrence D. Ashcroft
individual nominee, write the nominee's Fredric J. Feldman
name on the lines immediately below) Robert D. Hunkeler
Lewis H. Stanton
_______________________________________
_______________________________________
_______________________________________
_______________________________________
_______________________________________
_______________________________________
_______________________________________
FOR AGAINST ABSTAIN
2. For approval of 1998 Stock Option Plan [_] [_] [_]
3. In accordance with the discretion of the proxy holder, to act upon all
matters incident to the conduct of the meeting and upon other matters
that properly come before the meeting.
FOR AGAINST ABSTAIN
[_] [_] [_]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF ANY NOMINEE NAMED ABOVE DECLINES OR IS
UNABLE TO SERVE AS A DIRECTOR, THE PERSONS NAMES AS PROXIES SHALL HAVE FULL
DISCRETION TO VOTE FOR ANY OTHER PERSON WHO MAY BE NOMINATED.
PLEASE DATE, SIGN, MAIL AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
SIGNATURE(S)______________________________________ DATE________________________
NOTE: Please sign exactly as your name appears herein. If the stock is
registered in the name of two or more persons, each should sign.
Executors, administrators, trustees, guardians, attorneys and corporate
officers should add their titles.
