SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-b(e)(2))
[ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
LASERSIGHT INCORPORATED
(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.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined)
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
................................................................................
2) Form, Schedule or Registration Statement No.:
................................................................................
3) Filing Party:
................................................................................
4) Date Filed:
................................................................................
<PAGE>
LASERSIGHT INCORPORATED
12249 Science Drive, Suite 160
Orlando, Florida 32826
Dear Fellow Stockholder:
You are invited to attend the 1998 Annual Meeting of Stockholders of
LaserSight Incorporated to be held at the Clarion Plaza Hotel, 9700
International Drive, Orlando, Florida (telephone: (407) 354-1715) on Friday,
June 12, 1998 at 10:00 a.m. local time. We are pleased to enclose the notice of
our 1998 annual stockholders' meeting, together with the attached Proxy
Statement, a proxy card and an envelope for returning the proxy card.
Please carefully review the Proxy Statement and then complete, date and
sign your Proxy and return it promptly. If you attend the meeting and decide to
vote in person, you may withdraw your Proxy at the meeting.
If you have any questions or need assistance in how to vote your
shares, please call Julie Tockman, Director of Corporate Relations, at (314)
469-3220. Your time and attention are appreciated.
Sincerely,
Michael R. Farris
President and Chief Executive Officer
May ___, 1998
<PAGE>
LASERSIGHT INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1998 Annual Meeting of Stockholders (the "Annual Meeting") of
LaserSight Incorporated, a Delaware corporation (the "Company"), will be held on
Friday, June 12, 1998 at 10:00 a.m. local time, at the Clarion Plaza Hotel, 9700
International Drive, Orlando, Florida, for the following purposes:
1. To elect the directors to serve until the next annual meeting;
2. To consider and vote on a proposal to amend the conversion terms of the
Company's Series B Convertible Participating Preferred Stock, $.001 par
value (the "Series B Preferred Stock"), and to reduce the exercise
price of the 750,000 warrants issued to the holders of the Series B
Preferred Stock in August 1997 (the "Existing Warrants") (collectively,
the "Series B Proposal");
3. To vote on an amendment of the Company's 1996 Equity Incentive Plan
("Equity Incentive Plan") to increase the aggregate number of shares
available for delivery under the Equity Incentive Plan and to make
certain technical amendments to reflect changes in the rules of the
Securities and Exchange Commission ("SEC")(collectively, the "Equity
Incentive Plan Proposal");
4. To ratify the appointment of KPMG Peat Marwick LLP as auditors of the
Company for the 1998 fiscal year (the "Auditor Ratification Proposal");
and
5. To transact such other business that is properly brought before the
meeting.
These proposals are described in the attached Proxy Statement.
Only holders of the Company's common stock, $.001 par value (the "Common
Stock"), of record on the books of the Company at the close of business on May
15, 1998 (the "Record Date") will be entitled to vote at the Annual Meeting.
Your vote is important. All stockholders are invited to attend the Annual
Meeting in person. However, to assure your representation at the Annual Meeting,
please mark, date and sign your Proxy and return it promptly in the enclosed
envelope. Any stockholder attending the Annual Meeting may vote in person even
if the stockholder returned a Proxy.
By Order of the Board of Directors
Gregory L. Wilson
Secretary
Orlando, Florida
May ___, 1998
THE ENCLOSED PROXY, WHICH IS BEING SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF THE COMPANY, CAN BE RETURNED
IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
<PAGE>
LASERSIGHT INCORPORATED
12249 Science Drive, Suite 160
Orlando, Florida 32826
PROXY STATEMENT
Proxies in the accompanying form are being solicited by the Board of
Directors of the Company for use at the Annual Meeting of Stockholders on
Friday, June 12, 1998, or at any adjournment thereof. The Annual Meeting will be
held at the Clarion Plaza Hotel, 9700 International Drive, Orlando, Florida at
10:00 a.m. local time. This Proxy Statement is being mailed to stockholders
commencing on or about May ___, 1998.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
The nominees for the Board of Directors are set forth below. At the Annual
Meeting, the shares of Common Stock represented by proxies in the form
accompanying this Proxy Statement, unless otherwise specified, will be voted to
elect the nominees named below. The terms of all incumbent directors expire at
the Annual Meeting or at such later time as their successors have been duly
elected and qualified. Nominees elected at the Annual Meeting will serve until
the annual meeting of stockholders next succeeding and until their election and
until their successors have been duly elected and qualified. All seven of the
nominees are currently directors of the Company and are standing for reelection.
The nominees have agreed to serve if elected. However, if any nominee
becomes unable or unwilling to serve if elected, the Proxies will be voted for
the election of the person, if any, recommended by the Board of Directors or, in
the alternative, for holding a vacancy to be filled by the Board of Directors.
The Board of Directors has no reason to believe that any nominee will be unable
or unwilling to serve.
Listed below are the names and ages of the nominees, the year each
individual began continuous service as director of the Company, and the business
experience of each, including principal occupations, at present and for at least
the past five years.
Nominees for Election at the Annual Meeting
Michael R. Farris (38) Director since 1995
Mr. Farris has been the Company's President and Chief Executive Officer
since November 1995. He had previously been President and Chief Executive
Officer of The Farris Group ("TFG") (which the Company acquired from Mr. Farris
in February 1994) and predecessor consulting and search firms for more than 10
years.
Francis E. O'Donnell, Jr., M.D. (48) Director since 1992
Dr. O'Donnell has been the Chairman of the Board of the Company since
April 1993. He also was Chief Executive Officer of the Company from April 1993
to July 1993. He is the Medical Director of the O'Donnell Eye Institute, St.
Louis, Missouri, which has performed photorefractive keratectomy procedures
since 1989. He is Chairman and Chief Executive Officer of PerArdua Corporation
and BioKeys, privately-held biopharmaceutical companies. He is a member of Laser
Skin Toner, L.L.C., a privately-held aesthetic laser company, and Sublase,
L.L.C., a privately-held medical laser company. He is also a Clinical Professor
of Ophthalmology at the St. Louis University School of Medicine.
<PAGE>
Thomas Quinn (49) Director since 1994
Mr. Quinn has been President of Smithton Rockwell & Irwin, a development
company in the areas of healthcare management services and consulting programs
for managed care, since February 1998. From 1995 to 1997, he was a Vice
President of the Hospital Alliance Division of Olsten Kimberly QualityCare, a
home health care management services provider and a subsidiary of Olsten Corp.
From 1992 to 1995, he was Vice President of Sales and Marketing of Integrated
Health Services, Inc., a post-acute health care provider.
Richard C. Lutzy (52) Director since 1995
Mr. Lutzy has been the founder and Chief Executive Officer of Palmer
Capital Corporation, a financial advisory and venture capital services company,
since 1988. From 1981 through 1987, he was Managing Director of Merrill Lynch
Private Capital, Ltd., a London-based investment banking subsidiary of Merrill
Lynch & Company. He is a director of Acamedica, a privately-held demand
management company, and Markman Company, a privately-held, insurance financial
services organization.
J. Richard Crowley (42) Director since 1994
Mr. Crowley has been President of LaserSight Technologies since October
1997 and its Chief Operating Officer since June 1997. He had previously been the
Chief Operating Officer and Chief Financial Officer of Clinical Diagnostic
Systems, Inc., a medical diagnostic testing company, since 1991. From 1984 to
1991, he was President and Chief Financial Officer of Control Laser Corporation,
a manufacturer of industrial lasers.
David T. Pieroni (52) Director since 1996
Mr. Pieroni has been President of Pieroni Management Counselors, Inc., a
management consulting company, since September 1996 and during a portion of
1995. He was President of the Company's TFG subsidiary from November 1995 to
September 1996. From 1991 to 1995, he was President of Spencer & Spencer
Systems, Inc., an information systems consulting company. From 1977 to 1990, he
was a partner in the health care and management consulting practice of a
predecessor of Ernst & Young LLP. He is a director of Citation Computer Systems
Inc., a health care software company.
Terry A. Fuller, PhD. (49) Director since 1997
Dr. Fuller has been President and Chief Executive Officer of Fuller
Research Corporation, a privately-held producer of high-technology surgical
devices, since March 1984. Since December 1997, he has also been President and
Chief Executive Officer of Laser Skin Toner, L.L.C. From 1990 to November 1996,
he was Chief Operating Officer and Executive Vice-President of Surgical Laser
Technologies, Inc., a producer of laser systems for surgical use.
The Board of Directors recommends that stockholders vote "FOR" its nominees.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During 1997, the Board of Directors met in person or by telephone
conference call 15 times. No member of the Board attended fewer than 75% of the
aggregate of the total number of meetings of the Board of Directors and of the
meetings of committees on which such director serves.
2
<PAGE>
The Board of Directors has an Executive Committee, an Audit and Finance
Committee, a Executive Compensation and Stock Option Committee and a Nominating
Committee. Each such committee consists of one or more directors appointed by
the Board of Directors.
The Executive Committee is responsible for facilitating certain executive
actions, thereby eliminating the need for full Board approval for such actions.
Specific duties, responsibilities and authority are established by the full
Board of Directors from time to time. The Executive Committee did not meet
during 1997. The Executive Committee consists of Messrs. O'Donnell and Farris.
The Audit and Finance Committee is responsible for recommending the
appointment of independent accountants; reviewing the arrangements for and scope
of the audit by independent accountants; reviewing the independence of the
independent accountants; considering the adequacy of the system of internal
accounting controls and reviewing any proposed corrective actions; discussing
with management and the independent accountants the Company's draft annual
financial statements and key accounting and/or reporting matters; and reviewing
the terms of potential acquisitions. The Audit and Finance Committee met six
times. The Audit and Finance Committee consists of Messrs. Lutzy, Crowley and
Pieroni.
The Nominating Committee is responsible for reviewing the qualifications
of, and recommending to the Board of Directors, candidates for election to the
Board of Directors. The Nominating Committee considers suggestions from many
sources regarding possible candidates for director. Although there are no formal
procedures for stockholders to recommend nominations, the Nominating Committee
will consider shareholder recommendations for the 1999 Annual Meeting. Any such
recommendation, together with appropriate biographical information and a
statement of the reasons for such recommendation, should be addressed to Mr.
Gregory L. Wilson, Secretary of the Company, and received at the Company's
principal offices by December 31, 1998. In 1997, the Nominating Committee met
once. The Nominating Committee consists of Messrs. Crowley, Lutzy and Quinn.
The Executive Compensation and Stock Option Committee (the "Compensation
Committee") is responsible for reviewing the Company's general compensation
strategy; establishing salaries and reviewing benefit programs for certain
executive officers; reviewing, approving, recommending and administering the
Company's stock option plans and certain other compensation plans; and approving
certain employment contracts. In 1997, Compensation Committee met four times.
The Compensation Committee consists of Messrs. Quinn, Lutzy and Fuller.
COMPENSATION OF DIRECTORS
Each non-employee director receives a fee of $500 for each board or
committee meeting attended. In addition, during 1997, each non-employee director
was granted an option under the Company's Non-Employee Directors Stock Option
Plan to purchase 15,000 shares of Common Stock and each committee chairman and
the Chairman of Board was granted an additional option to purchase 5,000 shares.
The exercise price of each such option was $7.00 per share (100% of the market
price of Common Stock on the date of grant). Directors who are also full-time
employees of the Company received no additional cash compensation for services
as directors.
3
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of May 15, 1998 by (i) each person known
to the Company to beneficially own 5% or more of the Common Stock, (ii) each
director, and (iii) all officers and directors of the Company as a group. Each
number of shares of Common Stock shown as owned below assumes the exercise of
all currently-exercisable options and warrants and the conversion of all
convertible securities held by the applicable person or group. Each percentage
shown assumes the exercise of all such options and warrants and the conversion
of such convertible securities by the applicable person or group, but assumes
that no options, warrants or convertible securities held by any other persons
are exercised or converted. Unless otherwise indicated below, the persons named
below have sole voting and investment power with respect to the number of shares
set forth opposite their respective names. For purposes of the following table,
each person's "beneficial ownership" of the Common Stock has been determined in
accordance with the rules of the SEC.
<TABLE>
<CAPTION>
Name of Number of Shares of % of Common
Individual or Group Position Held Common Stock Stock Owned
------------------- ------------- ------------ -----------
<S> <C> <C> <C>
Francis E. O'Donnell, Jr., M.D. Chairman of the Board; Director 424,552 (1)(2) 3.3
Michael R. Farris President and Chief Executive
Officer; Director 450,200 (2) 3.5
J. Richard Crowley President, LaserSight Technologies;
Director 68,000 (2) *
Terry A. Fuller Director -- --
Richard C. Lutzy Director 36,000 (2) *
Thomas Quinn Director 46,050 (2) *
David T. Pieroni Director 117,500 (2) *
Richard Stensrud Chief Operating Officer; President,
TFG 45,110 (2) *
Gregory L. Wilson Chief Financial Officer 25,000 (2) *
All directors and executive officers
as a group (9 persons) 1,212,412 (2) 9.2
James W. Vaughan (3) 969,725 7.6
2470 Schuetz Road
Maryland Heights, MO 63043
Stark International and 1,864,722 (5) 13.0
Shepherd Investments International, Ltd. (4)
c/o Staro Asset Management, L.L.C.
1500 West Market Street
Mequon, WI 53092
Societe Generale 721,909 (5) 5.4
c/o Societe Generale Securities Corp.
1221 Avenue of the Americas
New York, NY 10020
CC Investments, LDC 661,531 (5) 4.9
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
* Less than 1%.
4
<PAGE>
(1) Includes 262,274 shares held by the Irrevocable Trust No. 7 for the benefit
of the Francis E. O'Donnell, Jr., M.D. Trust and 22,778 shares held by the
Francis E. O'Donnell, Jr. Descendants Trust. Ms. Kathleen M. O'Donnell, the
sister of Dr. O'Donnell, is trustee of both Trusts. Dr. O'Donnell disclaims
beneficial ownership of such shares.
(2) Includes options to acquire shares of Common Stock which are now
exercisable or will first become exercisable on or before June 26, 1998, as
follows: Dr. O'Donnell (111,000); Mr. Farris (35,000); Mr. Crowley
(65,000); Mr. Fuller (none); Mr. Lutzy (35,000); Mr. Quinn (45,000); Mr.
Pieroni (115,000); Mr. Stensrud (45,000); Mr. Wilson (10,000); and all
directors and executive officers as a group (461,000).
(3) Information derived from an amended Schedule 13D filed by Mr. Vaughan on
March 2, 1998.
(4) Based on a Schedule 13D filed by Michael Roth and Brian Stark on October 1,
1997, such shares may be deemed to be beneficially owned by Messrs. Roth
and Stark, who are investment fund managers for Staro Asset Management,
L.L.C. The business address of Messrs. Roth and Stark is the same as that
of Staro Asset Management, L.L.C.
(5) Represents (i) the number of actual shares of Common Stock presently owned
by such person (based on written information supplied to the Company as of
May 15, 1998) and (ii) such additional shares of Common Stock that would
have been issuable if the indicated person had converted all of its shares
of the Series B Preferred Stock at an assumed conversion price of $2.270833
per share (the conversion price in effect on May 18, 1998) and exercised
all of its warrants to purchase shares of Common Stock at a price of $5.91
per share, all as set forth in the following table:
</TABLE>
<TABLE>
<CAPTION>
Shares of Common Stock
----------------------
Issuable on Issuable on
Series B Oustanding Conversion of Exercise of
Preferred shares Series B Existing
Stockholder Shares Held owned Preferred Stock Warrants
----------- ----------- ----- --------------- --------
<S> <C> <C> <C> <C>
Societe Generale................... 132 -- 581,284 140,625
Stark International; Shepherd 296 186,236 1,303,486 375,000
Investments International, Ltd..
CC Investments, LDC................ 97 -- 427,156 234,375
-- -- ------- -------
TOTAL......................... 525 186,236 2,311,926 750,000
=== ======= ========= =======
</TABLE>
5
<PAGE>
Excludes shares of Common Stock that such persons acquired upon conversions
of Series B Preferred Stock but have sold pursuant to a registration
statement under the Securities Act of 1933.
The actual number of shares of Common Stock to be issued upon the
conversion of the Series B Preferred Stock cannot be determined at this
time, but will be based on the following formula: First, multiply the
number of shares of Preferred Stock being converted by the face amount
($10,000 per share). Then divide this dollar amount by a conversion price
equal to the lesser of (i) $6.68 per share or (ii) the average of the three
lowest closing bid prices of the Common Stock during the 30-trading day
period preceding the conversion date.
No Series B Preferred stockholder can convert its shares into Common
Stock to the extent that such conversion would result in its beneficial
ownership of more than 4.9% (9.9% in the case of Stark International and
Shepherd Investments International Ltd.) of the Common Stock that would be
outstanding after giving effect to such conversion. However, this
restriction can be terminated upon 90 days' written notice to the Company
by the holders of a majority of the Series B Preferred Stock.
In March 1998, the holders of the Series B Preferred Stock agreed to
limit their conversions so as to result in the issuance of no more than
1,000,000 shares of Common Stock through June 12, 1998. As of May 18, 1998,
989,586 of such 1,000,000 shares had been issued. Such conversion limit
will be extended to September 14, 1998 if the Company's stockholders
approve the Series B Proposal. The conversion limit may be terminated at
any time under certain events, including a material adverse change in the
Company's financial condition, operating results, assets, liabilities,
operations or business prospects. See "Summary of the Series B Preferred
Stock Agreement."
6
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than 10%
of the outstanding Common Stock, to file reports of ownership and changes in
ownership of such securities with the SEC. Officers, directors and over-10%
beneficial owners are required to furnish the Company with copies of all Section
16(a) forms they file. Based solely upon a review of the copies of the forms
furnished to the Company, and/or written representations from certain reporting
persons that no other reports were required, the Company believes that all
Section 16(a) filing requirements applicable to its officers, directors and
over-10% beneficial owners during or with respect to the year ended December 31,
1997 were met.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the
compensation paid or earned for services rendered to the Company in all
capacities during 1995, 1996 and 1997 for (i) the Company's Chief Executive
Officer ("CEO"), and (ii) each of the other executive officers of the Company
serving at December 31, 1997 whose total annual salary and bonus for 1997
exceeded $100,000 (collectively, the "Named Executive Officers"). During such
years, the Company did not make any grants of stock appreciation rights ("SARs")
or restricted stock or any awards or payouts under any long-term incentive plan.
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Compensation
-------------------
Other Securities All
Annual Underlying Other
Compen- Options/ Compensation
Name and Principal Position Year Salary ($) Bonus ($) sation SARs(#) ($)
--------------------------- ---- ---------- --------- ------ ------- ---
<S> <C> <C> <C> <C> <C> <C>
Michael R. Farris................ 1997 250,000 -- -- -- --
President and CEO (1) 1996 250,000 -- -- -- --
1995 150,000 120,178 -- 35,000 --
Richard L. Stensrud.............. 1997 125,000 -- -- -- --
Chief Operating Officer of the 1996 43,750 -- -- 100,000 --
Company and President of TFG (2)
Gregory L. Wilson................ 1997 150,000 -- -- -- --
Chief Financial Officer 1996 120,000 -- -- -- --
1995 105,000 10,000 -- 10,000 --
(1) Mr. Farris joined the Company in February 1994 and been President and CEO
since November 1995.
(2) Mr. Stensrud joined the Company in September 1996 and has been its Chief
Operating Officer since that time and President of TFG since May 1997.
</TABLE>
No stock options or SARs were granted to the Named Executive Officers during
1997.
7
<PAGE>
The following table sets forth certain information relating to options
held by the Named Executive Officers at December 31, 1997:
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/(1)(2)
Year-End(#)(1) SARs at Year-End($)
Shares -------------- -------------------
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($)(1) Unexercisable Unexercisable
---- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C>
Michael R. Farris............. -- -- 55,000/0 $0/0
Richard L. Stensrud........... -- -- 45,000/60,000 $0/0
Gregory L. Wilson............. -- -- 10,000/0 $0/0
<FN>
(1) No SARs have been issued by the Company.
(2) The $2.75 closing price of the Common Stock on the Nasdaq National Market
on December 31, 1997 was less than the exercise price for each such option.
</FN>
</TABLE>
Employment Agreements
In December 1995, the Company entered into an employment agreement with
Mr. Farris (the "Employment Agreement"). The Employment Agreement provides for a
three-year term, an annual salary of $150,000, and an annual bonus equal to 10%
of the net pre-tax profit of TFG. If the employment of Mr. Farris is terminated
by the Company without "cause" or by him with "good reason" (as such terms are
defined in the Employment Agreement), Mr. Farris would be entitled to all salary
and other benefits under the Employment Agreement through the lesser of (i) the
remaining term of the Agreement or (ii) one year after the date of his
termination. Under such circumstances, the amount of bonus for the
post-termination period would equal the greater of (x) $100,000 or (y) the
product of the most recent actual quarterly bonus amount multiplied by the
number of full or fractional fiscal quarters during a one-year post-termination
period. The Employment Agreement includes non-compete and confidentiality
covenants. The Company intends to revise Mr. Farris' employment agreement during
1998 to link his bonus opportunity to company-wide performance rather than to
the performance of TFG. As further described in the section entitled
"Compensation Committee Report on Executive Compensation", the Compensation
Committee authorized an increase in Mr. Farris' base salary beginning in 1996,
after the date he accepted the position as the Company's President and CEO.
Under the Company's employment agreement with Mr. Stensrud dated September
1996 and amended effective July 1, 1997, Mr. Stensrud is entitled to an annual
salary of $100,000, a car allowance and club dues other expense reimbursement.
If Mr. Stensrud's employment is terminated without "cause" (as defined in the
agreement) during the four-year term of the contract, he is entitled to his base
salary for one year after the date of his termination. The Stensrud agreement
includes non-compete and confidentiality covenants.
8
<PAGE>
Severance Arrangement
In connection with the resignation of Mr. Pieroni as President of TFG and
Chief Development Officer of the Company in September 1996, the Company agreed,
in lieu of the provisions under his employment agreement, to the following: (i)
the payment of six months salary ($75,000) in monthly installments, (ii) the
amendment of Mr. Pieroni's option to purchase 200,000 shares of Common Stock at
an exercise price of $11.25 per share to provide that as to 100,000 shares, such
options become fully exercisable, and as to the remaining 100,000 shares, the
options will be canceled, and (iii) the continuation of a car allowance, office
space and clerical support for six months. The Company has not yet determined
whether the options should remain exercisable for more than 90 days after the
termination of Mr. Pieroni's service as a director.
Compensation Committee Interlocks and Insider Participation
During 1997, Messrs. Lutzy, Quinn and Crowley each served as members of
the Company's Executive Compensation and Stock Option Committee. In June 1997,
Mr. Crowley resigned from the committee upon his employment with the Company. In
January 1998, Mr. Fuller was appointed as a member of the committee. None of the
members of this Committee were employees of the Company while serving on the
Committee.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors, composed of
independent outside directors, is responsible for setting the policies that
govern the Company's compensation programs, administering the Company's equity
compensation plans, and establishing the cash compensation of executive
officers. The Compensation Committee's objectives are to establish compensation
programs designed to attract, motivate, retain, and reward executives who can
lead the Company in achieving its long-term business goals in a highly
competitive and rapidly changing industry, whose services the Company needs to
maximize its return to stockholders, and to ensure that management compensation
is reasonable in light of the Company's objectives, compensation for similar
personnel in other companies, and other relevant criteria. The compensation mix
for executive officers consists of base salaries, a cash bonus system, and stock
option awards. As a result, much of an executive officer's compensation is based
upon the financial performance of the Company.
The Compensation Committee periodically establishes each executive
officer's base salary based on the committee's evaluation of the officer's
performance and contribution in the previous year and on competitive pay
practices.
The CEO's cash and bonus compensation was originally based on an
employment agreement which was last amended in December 1995. See "Employment
Agreements" section. Due to the assumption of his additional duties and
Company-wide responsibilities, the Compensation Committee increased the base
salary of Mr. Farris in 1996 at that time and determined that any bonus would be
awarded at the committee's discretion and not tied to the results of TFG. In
light of the Company's loss in 1997, the Compensation Committee did not increase
Mr. Farris's base salary or award him any bonus or stock options in 1997. The
Committee intends to continue its review of such agreement during 1998 to ensure
a proper alignment between compensation and the company-wide duties of Mr.
Farris.
9
<PAGE>
The Compensation Committee and the Board of Directors believe that
management's ownership of a significant equity interest in the Company is a
major incentive in building stockholder wealth and aligning the long-term
interests of management and stockholders. Stock options, therefore, are granted
by the Compensation Committee at option prices not less than the fair market
value of Common Stock on the grant date. Thus stock options have no value unless
the share price increases over the fair market value on the date of grant.
Option awards contribute to the retention of key executives since executives
realize the benefits of options only as they vest based on tenure after the
grant. The Compensation Committee determines which employees receive stock
option grants by evaluating the responsibilities and relative positions of key
employees in comparison to like or similar positions at competitor companies.
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation in excess of $1
million paid to a corporation's Chief Executive Officer or four other
most-highly compensated executive officers named in the proxy statement. The
Compensation Committee has reviewed the possible effect on the Company of
Section 162(m), and it does not believe that such section will be applicable to
the Company in the foreseeable future, but will review compensation practices as
circumstances warrant. To this effect, the Equity Incentive Plan made it
possible for the Company to satisfy the conditions for an exemption from Section
162(m)'s deduction limit. However, other characteristics of a grant effect
whether or not compensation received from a stock option is counted in
determining whether an executive officer has received compensation in excess of
$1 million.
Compensation Committee
Thomas Quinn
Richard Lutzy
Terry A. Fuller, Ph.D.
Performance Information
The following graph compares the performance of the Company's cumulative
stockholder return at December 31 of each year between 1992 and 1997 with
stockholder returns on (i) the Nasdaq Non-Financial Composite Index and (ii) the
Nasdaq National Market Composite Index. The graph assumes that the value of the
investment in the Common Stock and each index was $100 at December 31, 1992 and
that all dividends, if any, were reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Base
Point Return Return Return Return Return
Company/Index Name 1992 1993 1994 1995 1996 1997
- ------------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
LASERSIGHT INCORPORATED 100 143 225 239 118 50
NASDAQ NON-FINANCIAL 100 115 111 155 188 221
NASDAQ NATIONAL MARKET 100 115 112 159 195 240
</TABLE>
10
<PAGE>
Certain Relationships and Related Transactions
LaserSight Centers. In March 1997, pursuant to an amendment to a
previously-reported 1993 acquisition agreement (as so amended, the "Amended
Centers Agreement"), the Company issued 625,000 unregistered shares of Common
Stock to a group of former stockholders and former optionholders (the "Former
Centers Holders") of LaserSight Centers Incorporated ("LaserSight Centers"), a
developmental stage company that the Company acquired in April 1993 and through
which the Company intends to begin to provide services for ophthalmic laser
surgical centers using excimer and other lasers. The Amended Centers Agreement
also provides for issuance of up to 600,000 additional shares of Common Stock to
the Former Centers Holders to the extent that a revised earnout (as described
below) is satisfied through March 31, 2002. Trusts for the benefit of Dr.
O'Donnell, the Chairman of the Board of the Company, or his descendants
(collectively, the "O'Donnell Trusts") received 226,644 (approximately 36%) of
the 625,000 shares issued and would be entitled to receive the same percentage
of any additional shares issued.
Under the Amended Centers Agreement, Earnout Shares are issuable at the
rate of one share of Common Stock per $4.00 of PRK Earnings (as defined)
received by the Company through March 31, 2002. No Earnout Shares have become
issuable as of the date of this Proxy Statement. For this purpose, the following
items are considered revenue: (i) per procedure revenues received by the Company
in connection with the utilization of a fixed or mobile excimer laser owned or
operated by the Company to perform photorefractive keratectomy ("PRK") and treat
myopia, astigmatism and hyperopia; (ii) certain revenues received by the Company
from managed care companies or employers for arranging the delivery of PRK, and
(iii) any royalties received by the Company on account of patents assigned to
LaserSight Centers. The Amended Centers Agreement excludes the following from
the computation of PRK Earnings: (i) revenues derived from the manufacture and
servicing of excimer lasers, (ii) fees from patents not assigned to LaserSight
Centers, (iii) managed care fees for non-PRK services, and (iv) revenues from
non-excimer procedures. Management of the Company believes that these exclusions
will benefit the Company by eliminating uncertainty as to how the LaserSight
Centers earnout is to be computed. In addition, the Company is no longer
required to use LaserSight Centers as its exclusive representative in the U.S.
and Canada for the sale and distribution of ophthalmic refractive lasers or
related refractive procedures. However, it may be in the interest of Dr.
O'Donnell for the Company to pursue business strategies that maximize the
issuance of Earnout Shares.
In March 1997, the Company also amended its previously-reported royalty
agreement (as so amended, the "Amended Royalty Agreement") with Laser Partners,
a Florida general partnership, that it had entered into shortly before the
LaserSight Centers acquisition. The Amended Royalty Agreement reduces the
maximum per eye royalty to be paid by the Company from $86 to $43, and delays
the commencement of such royalty payments until after March 2002 or, if sooner,
the delivery of all of the 600,000 shares contingently issuable under the
earnout provisions of the Amended Centers Agreement. The Company's obligations
under the Amended Royalty Agreement are perpetual. The Company understands that
one of the O'Donnell Trusts is a partner of Laser Partners with a 36%
partnership interest.
The Amended Royalty Agreement provides that the Company is not required to
pay a royalty in connection with any of the following: (i) procedures which do
not involve both an excimer laser and PRK, (ii) laser procedures performed by a
third party in connection with any license granted by the Company, and (iii)
laser procedures performed pursuant to a contract with a managed care company or
an employer, pursuant to which the Company agrees to arrange for the delivery of
eye care services other than PRK or for eye care services which include PRK
without any identifiable fee attributable thereto. The management of the Company
believes that these exclusions reduce the scope of the Company's obligation to
make royalty payments. It may be in the interest of Dr. O'Donnell for the
Company to pursue business strategies that maximize such royalty payments.
11
<PAGE>
The Board of Directors has discretion to discontinue, sell or transfer at
any time the Company's business related to arranging for the performance of PRK.
Sale of Laser System. As previously reported, in December 1995, the
Company sold one of its laser systems to a company owned by Dr. O'Donnell at a
price of $235,000 for use in clinical trials. The Company received payment of
the $235,000 in January 1997.
Acquisition of TFG. Pursuant to a December 1995 amendment to the earnout
provisions of the agreement pursuant to which the Company had acquired TFG from
Mr. Farris in February 1994, the Company and Mr. Farris agreed that the earnout
would be payable in shares of Common Stock in both January 1997 (based on TFG's
annual performance during 1994, 1995, and 1996) and January 1999 (based on TFG's
annual performance during 1997 and 1998). The 406,700 earnout shares which had
been earned under the amended agreement for the three-year period ended December
31, 1996 were issued in April 1997. In view of TFG's losses in 1997, no earnout
shares were payable for that year. If TFG has pre-tax income in 1998, Mr. Farris
will be entitled to a number of earnout shares equal to 750,000 multiplied by a
fraction, the numerator of which is the amount of such pre-tax income and the
denominator of which is $3.3 million, provided that such number of earnout
shares cannot exceed 343,300. It may be in the interest of Mr. Farris for the
Company to pursue business strategies that maximize the issuance of earnout
shares.
Consulting Arrangement. In May 1997, the Company's LaserSight Technologies
subsidiary entered into an agreement, effective as of January 1, 1997, with Dr.
Byron A. Santos ("Dr. Santos"), an ophthalmologist employed by the O'Donnell Eye
Institute, a corporation of which Dr. O'Donnell, the Chairman of the Board of
the Company, is the Medical Director and owner. The amount that became payable
to Dr. Santos under this agreement during 1997 was $96,000. Under the agreement,
Dr. Santos is required to be available to provide a minimum of 40 hours of
services each month. Such services have related to the development of the
LaserScan 2000 excimer laser system, the development of clinical protocols, and
training and other consulting services. The agreement provides for a term ending
December 31, 2002, subject to LaserSight Technologies' right to terminate the
agreement in the event that Dr. Santos fails to perform in accordance with the
terms of the agreement.
Fuller Agreement. The Company and Dr. Fuller have entered into discussions
concerning Dr. Fuller's performance of certain consulting services with respect
to the Company's patent portfolio. In exchange for his consulting services, the
Company anticipates granting Dr. Fuller an option to acquire shares of Common
Stock pursuant to the Company's Equity Incentive Plan.
PROPOSAL NO. 2:
APPROVAL OF AMENDMENT TO CERTIFICATE OF DESIGNATION
AND OF REDUCTION OF EXERCISE PRICE OF EXISTING WARRANTS
Summary of the Series B Preferred Stock Agreement
In a private placement completed on August 29, 1997, the Company sold to
four institutional investors (the "Series B Holders") 1,600 shares of the Series
B Preferred Stock and issued the Existing Warrants. Under the current terms of
the Series B Preferred Stock, the Series B Preferred Stock may be converted into
shares of Common Stock at the lower of the average of the lowest three closing
bid prices during the 30 trading days preceding a conversion date, or $6.68 per
share. The Company initially had a right to redeem the Series B Preferred Stock
at a premium which commenced at 4% and increased to 30% over time. The Company's
right to redeem the Series B Preferred Stock expired on January 26, 1998.
12
<PAGE>
In late February 1998 and early March 1998, the price of the Common Stock
was depressed to historically low levels. The Company believed that this low
price was, in part, a result of a concern over the potential dilution to current
stockholders' ownership interest in the Company which could have resulted from
conversions of the Series B Preferred Stock into Common Stock. The Company
concluded that immediate action was necessary to address concerns related to the
conversion of the Series B Preferred Stock. The Company initiated discussions
with the Series B Holders to obtain a limitation on the conversion of Series B
Preferred Stock into Common Stock and an option to purchase the Series B
Preferred Stock.
On March 13, 1998, the Company entered into an agreement (the "Series B
Agreement") with the Series B Holders whereby such holders agreed that until
June 12, 1998 (the "Initial Restricted Period"), the Series B Holders would
limit their conversions of Series B Preferred Stock so that no more than
1,000,000 common shares are issued during such period (the "Conversion
Limitation"). The Conversion Limitation will be extended to September 14, 1998
(the "Extended Restricted Period") if the Company's stockholders approve the
Series B Proposal. Under the Series B Agreement, the Series B Holders also
granted the Company an option to purchase any or all of the remaining Series B
Preferred Stock at any time before June 12, 1998 (the "Initial Purchase
Option"), but insisted that such repurchase be at a premium of 20%. The Initial
Purchase Option will be extended (the "Extended Purchase Option") to September
14, 1998 (the "Extended Purchase Period") if the Series B Proposal is approved.
In exchange for the Conversion Limitation and Purchase Option, the Company
agreed, subject to the approval of its stockholders, (i) to reduce the exercise
price of the Existing Warrants from $5.91 to $2.753 per share (115% of an
average closing bid price of the Common Stock during the five trading days
following March 16, 1998) and (ii) to amend the Company's Certificate of
Designation to change the fixed component of the conversion price of the Series
B Preferred Stock (currently $6.68) to equal the lesser of $6.68 or 110% of the
average closing bid prices of the Common Stock during the 20-trading day period
ending on September 14, 1998.
The Series B Holders agreed to the Conversion Limitation and the Initial
Purchase Option based on the Company's agreement to either reprice the Existing
Warrants from $5.91 to $2.753 per share or issue the Additional Warrants and the
Company's agreement to seek the approval of the Series B Proposal from the
Company's stockholders. The approval of the Company's stockholders was not
sought at the time the Series B Agreement was entered into because the Company's
management believed, based in part on the advice of counsel and preliminary
discussions with the staff of the NASDAQ Stock Market, that such approval was
not required by applicable law or the listing rules of the NASDAQ Stock Market.
However, stockholder approval of the Series B Proposal is now being sought
because such stockholder approval is required in order to extend the Purchase
Option and the Conversion Limitation from June 12 to September 14, 1998.
Amendment of Certificate of Designation
The current terms of the Certificate of Designation provide that the
Series B Preferred Stock are convertible into Common Stock at a conversion price
which is the lower of the average of the lowest three closing bid prices during
the 30 trading days preceding a conversion date or $6.68 per share. Therefore,
even if the average of the lowest three closing bid prices during the 30 trading
days preceding a conversion date is above $6.68 per share, the conversion price
will not exceed $6.68 per share (which was 130% of the average closing bid
prices of the Common Stock for the five consecutive trading days prior to August
29, 1997).
The Board of Directors has unanimously approved an amendment to the
Company's Certificate of Designation to provide that the fixed conversion price
component of the Series B Preferred Stock will equal the lower of $6.68 (its
current level) or 110% of the average closing bid prices of the Common Stock
during the 20 trading days ending on September 14, 1998. The full text of
Section III F. of the Company's Certificate of Designation, if amended as
proposed, is as follows:
13
<PAGE>
F. "Fixed Conversion Price" means either (i) $6.68 (subject to
equitable adjustment for any stock splits, stock dividends,
reclassifications or similar events during such twenty (20) trading day
period), or (ii) if the Extended Restricted Period (as defined herein) is
not terminated prior to September 14, 1998, the lesser of (A) $6.68, or
(B) 110% of the average Closing Bid Prices of the Common Stock (as
reported by Bloomberg Financial Markets) for the twenty (20) consecutive
trading days ending on the last day of the Extended Restricted Period
(subject to equitable adjustment for any stock splits, stock dividends,
reclassifications or similar events during such twenty (20) trading day
period)), and shall be subject to adjustment as provided herein. For
purposes hereof, "Extended Restricted Period" shall have the meaning given
thereto in that certain Series B Preferred Stock Agreement, dated March
13, 1998, among the Holders and the Company.
The terms of the Series B Preferred Stock would otherwise remain unchanged.
14
<PAGE>
The following table summarizes the terms of the Series B Preferred Stock
and the warrants held or to be held by the Series B Holders, as such terms
presently exist and as they will be modified depending on whether or not the
Company's stockholders approve the Series B Proposal:
<TABLE>
<CAPTION>
If Proposal If Proposal
Present Terms Is Approved Is Not Approved
<S> <C> <C> <C>
---
Series B Warrants -- amount 750,000 shs. @ $5.91 750,000 shs. @ $2.753 Total of 1,500,000 shs:
and exercise price
750,000 shs. @ $5.91
750,000 shs. @ $2.753
Series B Preferred Stock -- Lower of: Lower of: Same as present terms.
conversion price
(A) the average of the (A) the average of the
lowest three closing bid lowest three closing bid
prices during the 30 trading prices during the 30 trading
days preceding a conversion days preceding a conversion
date, or date, or
(B) $6.68 per sh. (B) $6.68 per sh. or, if
less, 110% of the average
closing bid prices during the
20 trading days before
9/14/98.
Series B Preferred Stock -- Into no more than 1.0 million 1.0 million share ceiling Share ceiling expires
when convertible common shares between 3/13/98 expires 9/14/98. 6/12/98.
and 6/12/98. (2)
Series B Preferred Stock -- Through 6/12/98, at a 20% Company's repurchase option Company's repurchase option
Company's repurchase option premium. expires 9/14/98. expires 6/12/98.
(3)
15
<PAGE>
- --------------------
<FN>
(1) The Series B Holders would only agree to the terms of the Series B
Agreement if either the Existing Warrants were repriced from $5.91 to
$2.753 per share or the Additional Warrants were issued. The issuance of
the Additional Warrants was not contemplated when the Series B Preferred
Stock was initially issued on August 29, 1997. However, the Company
believes that in order for the Company to receive the benefits of the
Series B Agreement (e.g., the Conversion Limitations and Initial Purchase
Option with the possibility of the Extended Restricted Period and Extended
Purchase Period) it was necessary for the Company to agree to issue the
Additional Warrants if the Existing Warrants were not repriced from $5.91
to $2.753 per share. The Company agreed to issue the Additional Warrants
if the Existing Warrants were not repriced because the Company believed
that due to the depressed price of the Common Stock it was necessary to
implement the Conversion Limitation in order to minimize the ownership
dilution that stockholders could have experienced if the Series B
Preferred Stock had converted to Common Stock at such depressed prices. In
addition, the re-pricing of the Existing Warrants or the issue of the
Additional Warrants at a price per share of Common Stock in excess of the
market value per share at the date of the Series B Agreement increases the
possibility of the Company obtaining additional working capital if such
options are exercised.
(2) As of May 18, 1998, 989,586 of such 1.0 million shares had been issued.
(3) The Company's loan facility with Foothill Capital Corporation, the
Company's secured lender ("Foothill"), does not permit the Company to
repurchase any of the Series B Preferred Stock without Foothill's consent
so long as any of the Company's Foothill indebtedness, due on June 15,
1998, remains outstanding. Foothill has consented to the Company's two
previous repurchases of shares of the Series B Preferred Stock and the
Company has held preliminary discussions with Foothill regarding its
consent to another repurchase of Series B Preferred Stock. However, there
can be no assurance that Foothill will consent. In addition, any
significant repurchases of Series B Preferred Stock could require the
Company to obtain new financing. See "Repurchase of Series B Preferred
Stock." There can be no assurance as to whether or on what terms either of
these conditions can be satisfied. The Company's loan facility with
Foothill terminates on June 15, 1998. Upon the termination of the loan
facility the Company would no longer need Foothill's consent to repurchase
shares of the Series B Preferred Stock. If the Company repays all amounts
owed to Foothill, the Company may be able to terminate the loan facility
prior to June 15, 1998. The Company intends to use a portion of the
proceeds it receives from the liquidation of the Vision Twenty-One, Inc.
common stock it currently owns to repay the Foothill obligations. There
can be no assurance that the Company will possess the funds necessary to
retire the Foothill debt prior to June 15, 1998.
</FN>
</TABLE>
16
<PAGE>
The Conversion Limitation, the Initial Purchase Option and the Extended
Purchase Option may be terminated by the Series B Holders under any of the
following circumstances:
o As of the end of any month, the Company's current ratio (current assets
divided by current liabilities) falls below 1.1 to 1.
o As of the end of the first or second quarter of 1998, the Company's
income or loss from operations for such quarter has not improved
relative to the Company's results for the prior quarter. (The Company
expects that its loss from operations for the first quarter of 1998
will be less than the Company's loss from operations for the fourth
quarter of 1997.)
o At any time, the Company undergoes or announces a material adverse
change in its financial condition, operating results, assets,
liabilities, operations or business prospects which is material to the
Company and its subsidiaries taken as a whole. The Series B Agreement
does not specify any criteria for determining whether such a change
qualifies under this "material adverse" standard. If the Series B
Holders claim that a material adverse change has occurred and the
Company disagrees the parties would be forced to reach a mutually
agreeable solution or seek resolution through litigation or some other
mutually agreeable form of dispute resolution.
If the Conversion Limitation is terminated prior to June 12, 1998 due to
the occurrence of one or more of these circumstances or if the Company's
stockholders do not approve the Series B Proposal, then the Company will be
required to issue to the Series B Holders warrants to purchase up to 750,000
shares of Common Stock at a price of $2.753 per share (the "Additional
Warrants"). As of April 30, 1998, the Company was in compliance with the first
two of these tests (current ratio and operating results), but cannot predict
whether or not the Series B Holders may claim that the Company has failed to
meet the third test (no material adverse change). However, the Company believes
that such a claim would be unwarranted based on the Company's improved operating
results during the first quarter of 1998 as compared to the fourth quarter of
1997.
Factors Considered by the Board of Directors
The factors that Board of Directors considered as positive in its decision
to enter into the Series B Agreement included:
o The Conversion Limitation may prevent the further depression of the
market price of the Company's Common Stock price at a time when such
price was already at historically low levels.
o The Initial Purchase Option and the Extended Purchase Option, if
exercised by the Company, would prevent further dilution of the
Company's existing stockholders and the potentially adverse impact of
additional shares of Common Stock entering the market. The Company
intends to exercise the Initial Purchase Option and the Extended
Purchase Option if the necessary funds are available and other
repurchase conditions were satisfied. To date, the Company has not
repurchased any shares of Series B Preferred Stock under the Initial
Purchase Option.
o If the Company's stock market price increases by June 12, 1998 or
September 14, 1998, the number of shares of Common Stock issuable upon
conversion will be less than if converted at the conversion prices in
effect during March and April 1998 of approximately $2.00.
17
<PAGE>
The factors that Board of Directors considered as negative in its decision
to enter into the Series B Agreement included:
o If the Company's stockholders do not approve the Series B Proposal, the
issuance of the Additional Warrants, if exercised, would reduce the
percentage ownership of the current stockholders and dilute their
interest in the Company's operating results.
o If the Company is to exercise the Initial Purchase Option and the
Extended Purchase Option the Company must have the funds necessary to
accomplish such purchases which may require the Company to obtain new
financing. In addition, the Company would need to obtain Foothill's
consent (unless the Foothill loan facility is no longer in effect at
the time of a repurchase) and will need to analyze any repurchases to
insure compliance with applicable law. Repurchases cannot impair the
Company's capital or render the Company insolvent or unable to pay its
debts as they become due.
o If the market price of the Company's Common Stock continues trading at
its current levels, and if after September 14, 1998, the market price
for the Company's Common Stock increased so that the average of the
lowest three closing bid prices during the 30 trading days preceding a
conversion date would have exceeded $6.68, the decrease in the fixed
component of the conversion price may result in the issuance of more
conversion shares than would have been required to be issued if the
Amendment to the Certificate of Designation had not been approved.
o If the market price of the Common Stock exceeds $5.91 per share during
the life of the Existing Warrants and the Company's stockholders
approve the Series B Proposal, the reduction in the exercise price of
the Existing Warrants from $5.91 to $2.753 would reduce the potential
proceeds to the Company from the exercise of the Existing Warrants by
approximately $2.4 million.
o Although the Company did receive the right under the Initial Purchase
Option and Extended Purchase Option to purchase the Series B Common
Stock, the Series B Holders would only grant such options in exchange
for such purchases being at a 20% premium.
The Board of Directors determined that, taken as a whole, the positive
factors outweighed these negative factors. The Board of Directors determined
that the ability to implement the Conversion Limitation and the possibility of
extending such limitation during the Extended Restricted Period was of utmost
importance due to the dilution in the ownership interest of the Company's
current stockholders which would have occurred if the Series B Preferred Stock
was converted into Common Stock at the then depressed market price. In addition,
the Conversion Limitation (and Extended Restricted Period, if in effect)
temporarily eliminates uncertainties associated with the floating conversion
price of the Series B Preferred Stock and such uncertainties may be permanently
eliminated if the Company is able to repurchase the Series B Preferred Stock
pursuant to the Initial Purchase Option (and Extended Purchase Option, if in
effect).
Possible Disadvantages of Approving the Series B Proposal
Potential for Increased Dilution of Common Stockholders. If the Company's
stockholders do approve the Series B Proposal, the number of shares of Common
Stock that may be ultimately issued upon the conversion of the Series B Stock
may be greater than if the Series B Proposal had not been approved. For example,
if the market price of the Company's Common Stock continues trading at its
current levels, and if after September 14, 1998, the market price for the
Company's Common Stock increased so that the average of the lowest three closing
bid prices during the 30 trading days preceding a conversion date would have
exceeded $6.68, the decrease in the fixed component of the conversion price may
result in the issuance of more conversion shares than would have been required
to be issued if the Amendment to the Certificate of Designation had not been
approved. The issuance of such additional shares would reduce the percentage
18
<PAGE>
ownership of the current stockholders and dilute their interest in the Company's
operating results.
Decrease in Proceeds Resulting From Exercise of Existing Warrants. If the
market price of the Common Stock exceeds $5.91 per share during the life of the
Existing Warrants, the reduction in the exercise price of the Existing Warrants
from $5.91 to $2.753 would reduce the potential proceeds to the Company from the
exercise of the Existing Warrants by approximately $2.4 million. If the market
price of the Common Stock remains less than $5.91 per share throughout the term
of the Existing Warrants, the Company believes that the Existing Warrants would
never be exercised and the Company would not receive any proceeds from the
Existing Warrants. If the Existing Warrants are repriced from $5.91 to $2.753
per share and the market price of Common Stock exceeds $2.753 per share
throughout the term of the Existing Warrants the Company expects that it would
probably receive proceeds from the Existing Warrants, although such proceeds
will be less than if the Existing Warrants were exercised at the current price
of $5.91 per share.
Potential Decrease in Fixed Component of Conversion Price. Even if the
market price of the Common Stock ultimately increases substantially above its
current level, the approval of the Series B Proposal would result in conversions
of the remaining Series B Preferred Stock into Common Stock at a conversion
price below (and possibly significantly below) the current maximum conversion
price of $6.68 if the market price of the Common Stock during the 20 trading
days before September 14, 1998 is less than $6.07 (an amount equal to $6.68
divided by 110%).
Consequences if Stockholder Approval is Not Obtained
If for any reason the Company's common stockholders do not approve the
Series B Proposal, the Company will be required to issue the Additional Warrants
to purchase Common Stock at a price equal to $2.753 per share, and the Initial
Purchase Option and the Conversion Limitation will expire. The Additional
Warrants would be exercisable at any time through August 29, 2002 and would not
be subject to the Conversion Limitation. As a condition to entering into the
Series B Agreement the Series B Holders required the Company to commit to issue
the Additional Warrants if the Company's stockholders did not approve the Series
B Proposal. If the Company would not agree to this requirement, the Company
believes that the Series B Agreement would not have been implemented and the
Conversion Limitation and the Initial Repurchase Option would not now be
effective.
Repurchase of the Series B Preferred Stock
The Company is engaged in discussions regarding potential private
placement equity financings. The Company anticipates that the net proceeds of
such financings would be used to (i) exercise the Initial Purchase Option either
as in effect through June 12, 1998 or as may be extended during the Extended
Purchase Period if the Company's stockholders approve the Series B Proposal, and
(ii) repay the Company's obligations to Foothill if not previously repaid at the
time of sale. Any remaining funds would be used for general corporate purposes.
Such financings may involve sales of Common Stock at a price below market prices
prevailing at the time of sale. There can be no assurance as to whether or on
what terms the Company will be able to complete such potential financings. In
addition, there can be no assurance as to whether such potential financings
would be completed prior to or after June 12, 1998. Even if the Company was able
to complete such potential financings and repurchase all of the Series B
Preferred Stock prior to June 12, 1998, the approval of the Company's
stockholders of the Series B Proposal would be necessary to avoid the issuance
of the Additional Warrants.
19
<PAGE>
Issuance of the Series B Preferred Stock and Existing Warrants
In a private placement completed on August 29, 1997, the Company sold to
the Series B Holders a total of 1,600 shares of Series B Preferred Stock, and
issued to such investors the Existing Warrants. The Company received gross
proceeds of $16 million and net proceeds of approximately $14.8 million, after
the payment of cash fees to its placement agent and estimated transaction
expenses.1 On the same date, the Company used such net proceeds to purchase
several patents from International Business Machines Corporation ("IBM")
relating to the use of ultraviolet light for laser vision correction as well as
to all non-ophthalmic applications (the "IBM Patents"). The IBM Patents
represent fundamental claims in 13 countries. The IBM Patents include patents
for Far Ultraviolet Surgical and Dental Procedures, with an expiration date of
November 2005 in the United States and expiration dates ranging from December
1998 to June 2005 in Australia, Austria, Belgium, Brazil, Canada, France,
Germany, Italy, Japan, Spain, Sweden, Switzerland and the United Kingdom. The
IBM Patents also include patents for Enhancement of Ultraviolet Light Ablation
and Etching Organic Solids, with an expiration date of October 2008 in the
United States and expiration dates ranging from July 2009 to October 2009, in
France, Germany, Japan and the United Kingdom.
As part of the same transaction, the Company also acquired, effective as
of January 1, 1997, all of IBM's rights to royalty payments under IBM's
pre-existing agreements licensing certain of the IBM Patents to Visx Inc.
("Visx") and Summit Technology, Inc. ("Summit Technology"). These license
agreements require Visx and Summit Technology to each pay, during each six-month
period, a royalty equal to 2% of their excimer laser revenues for such period
that are covered by such patents. Under these agreements, the Company received
an aggregate of approximately $800,000 from Visx and Summit Technology for the
year ended December 31, 1997 and is due to receive from Visx and Summit
Technology royalty payments within 60 days after the end of each subsequent
six-month period thereafter throughout the term of the IBM Patents.
Licensing Arrangements
In September 1997, the Company received a $4.0 million lump-sum payment
for its grant of an exclusive, world-wide, royalty-free license to a third party
covering the use of the IBM Patents in the vascular and cardiovascular fields.
In February 1998, the Company transferred to Nidek Co., Ltd., a Japanese
surgical and diagnostic products company ("Nidek") all rights in those IBM
Patents which have been issued in countries outside the United States (the
"Non-U.S. Patents"). The Company received from Nidek a payment of $7.5 million
in cash (of which $200,000 was withheld for Japanese taxes) and an exclusive
license to use and sublicense the Non-U.S. Patents in all fields other than
ophthalmic, cardiovascular and vascular. The Company retained ownership of the
IBM Patents issued in the United States (the "U.S. Patents"), and granted Nidek
a non-exclusive license to use the U.S. Patents. The Nidek transaction brings to
approximately $12.3 million the total amount of lump-sum and periodic cash
payments (before transaction expenses and withholding taxes) that the Company
has received to date as a result of its acquisition of the IBM Patents.
The Company continues to hold the following rights relating to the IBM
Patents:
o A nonexclusive license to use (subject to the payment of a per unit
royalty) the Non-U.S. Patents in the ophthalmic field in all countries
that issued them.
- --------------------
(1) These amounts included $800,000 paid to the Company's placement
agent and approximately $400,000 for legal, accounting, and other expenses.
20
<PAGE>
o An exclusive license to use and sublicense the Non-U.S. Patents in all
fields other than the ophthalmic, cardiovascular and vascular areas
(subject to a 2% royalty in certain countries).
o The ownership of the U.S. Patents, subject to non-exclusive licenses
granted to Nidek and five ophthalmic laser system producers and to an
exclusive license to use the IBM Patents in the vascular and
cardiovascular fields.
o The right to receive royalties from Visx and Summit Technology equal to
2% of their U.S. revenue from the sale of laser systems that rely on
the IBM Patents.
The Company's management believes that these rights offer the Company
substantial future opportunity.
Redemptions and Conversions of Series B Preferred Stock
Of the 1,600 shares of Series B Preferred Stock issued in August 1997, a
total of 1,175 shares have been redeemed, repurchased or converted as follows:
<TABLE>
<CAPTION>
Number Balance
Month Transaction of Shares Outstanding
- ----- ----------- --------- -----------
<S> <C> <C> <C>
Oct. 1997 Redemption (at a 4% premium) 305 1,295
Feb.-Mar. 1998 Repurchases (at a 20% premium) 351 944
Mar.-Apr. 1998 Conversions (at $1.739583 per share) 376 568
Apr. 1998 Conversions (at $1.75 per share) 8 560
Apr. 1998 Conversions (at $1.802083 per share) 17 543
Apr. 1998 Conversions (at $1.979167 per share) 10 533
Apr. 1998 Conversions (at $1.989583 per share) 8 525
</TABLE>
All such redemptions and repurchases have been funded from a blocked account
established for the exclusive benefit of the Series B Holders, as required by
the agreements the Company entered into with such holders in August 1997.
There is no limit on the number of shares of Common Stock potentially
issuable in connection with conversions of Series B Preferred Stock. As
illustrated in the table below, the number of shares of Common Stock issuable
upon such conversions (the "Series B Conversion Shares") depends on the market
price of the Common Stock at the time of conversions:
21
<PAGE>
Assumed Number of As % of Common Shares
Conversion Series B Conversion Assumed Outstanding
Price (1) Shares Issuable (2)(3) After Conversion (4)
--------- ---------------------- --------------------
$0.50 10,500,000 45.2%
$1.00 5,250,000 29.2%
$2.00 2,625,000 17.1%
$2.270833 (5) 2,311,927 15.4%
$3.00 1,750,000 12.1%
$4.00 1,312,500 9.4%
$5.00 1,050,000 7.6%
$6.00 875,000 6.4%
$6.68 (6) 785,928 5.8%
(1) Equals the lesser of (A) $6.68 or (B) the average of the three lowest
closing bid prices of the Common Stock during the 30 trading days
immediately preceding the applicable conversion date.
(2) Excludes an aggregate of 2,392,220 Series B Conversion Shares that have
been issued in connection with conversions through May 18, 1998.
(3) Based on the Series B Agreement, no more than 10,414 additional Series
B Conversion Shares may be issued before June 12, 1998 or, if the
Series B Proposal is approved by the Company's common stockholders,
September 14, 1998. This agreement can be terminated by the preferred
stockholders under certain circumstances. See "Summary of Series B
Preferred Stock Agreement."
(4) Equals the 12,712,712 shares of Common Stock outstanding on May 15,
1998 plus the number of Series B Conversion Shares issuable upon the
conversion (at a conversion price indicated in the table) of all 560
shares of Series B Preferred Stock outstanding as of such date.
(5) Equals the conversion price in effect as of May 18, 1998.
(6) Currently, under the terms of the Series B Preferred Stock, the
conversion price cannot exceed $6.68, regardless of the market price of
the Common Stock. If the Company's stockholders approve the Series B
Proposal, this maximum conversion price will be adjusted to equal the
lesser of $6.68 or 110% of the average closing bid prices of the Common
Stock during the 20-trading day period ending on September 14, 1998.
Failure to receive such approval on or before June 12, 1998 will
require the Company to issue the Additional Warrants. "Summary of
Series B Preferred Stock Agreement."
Vote Required
If the Series B Proposal is approved by the holders of a majority of the
outstanding shares of Common Stock, the reduction to the exercise price of the
Existing Warrants shall be effective immediately and the adjustment of the fixed
component of the conversion price of the Series B Stock will become effective
upon the filing by the Company of an amendment to the Company's Certificate of
Designation with the Delaware Secretary of State, which is expected to be done
as soon as practicable after stockholder approval is obtained. The Board of
Directors has unanimously recommended that stockholders vote FOR the Series B
Proposal. The directors and officers of the Company intend to vote their shares
in favor of this Proposal.
22
<PAGE>
PROPOSAL NO. 3:
AMENDMENT TO EQUITY INCENTIVE PLAN
The Equity Incentive Plan was approved by the Company's stockholders in
June 1996. The Board of Directors has unanimously approved an amendment and
restatement of the Equity Incentive Plan (as so amended and restated, the
"Amended and Restated Equity Incentive Plan"), subject to the approval of the
Company's stockholders. The principal and only material change reflected in the
Amended and Restated Equity Incentive Plan is an increase in the aggregate
number of shares of Common Stock available for delivery under the Amended and
Restated Equity Incentive Plan from 750,000 to 1,250,000. In addition, the
Amended and Restated Equity Incentive Plan reflects certain technical amendments
to reflect changes in the rules of the SEC. As of May 15, 1998, only 175,000
shares remained available for future grants and awards under the Equity
Incentive Plan. The number of options granted under the Equity Incentive Plan
during 1996 and 1997 was 268,000 and 191,000, respectively, and 110,000 options
have been granted under the Equity Incentive Plan through May 18, 1998. In
addition, during 1997 and during 1998 to date, 5,000 and 10,000 shares,
respectively, were granted to outside consultants who were eligible to receive
shares under the Equity Incentive Plan. As of May 19, 1998, the aggregate number
of outstanding options granted under the Equity Incentive Plan was 560,000 and
the aggregate market value of the underlying shares of Common Stock was
$2,590,000 (based on a closing price of $4.625 as of such date).
If the Amended and Restated Equity Incentive Plan is not approved by the
Company's stockholders, awards will continue to be automatically granted in
accordance with the terms of the current Equity Incentive Plan.
The summary of the Amended and Restated Equity Incentive Plan that appears
below is qualified in its entirety by reference to the full text of the plan
document, a copy of which is available upon request from the Company's
secretary.
Purpose of Plan. The Amended and Restated Equity Incentive Plan is intended
to allow employees and consultants to acquire or increase equity ownership in
the Company, thereby strengthening their commitment to the success of the
Company and stimulating their efforts on behalf of the Company, and to assist
the Company in attracting new employees and consultants and retaining existing
employees and consultants.
Types of Awards. Under the Amended and Restated Equity Incentive Plan, the
Compensation Committee would be authorized to grant nonqualified stock options,
incentive stock options, stock appreciation rights, limited stock appreciation
rights ("LSARs"), shares of restricted Common Stock ("restricted shares"),
performance shares, and shares of Common Stock awarded as a bonus (all of the
foregoing collectively, "Awards").
Eligibility. All employees (including officers) and consultants of the
Company are eligible to receive Awards. No employee may receive Awards covering
an aggregate of more than 250,000 shares of Common Stock during any year. The
Compensation Committee is authorized, subject to certain limits specified in the
Amended and Restated Plan, to determine to whom and on what terms and conditions
Awards shall be made.
Number of Shares Issuable. The Amended and Restated Equity Incentive Plan
would provide for the issuance of up to 1,250,000 shares of Common Stock, as
compared to the current limit of 750,000 shares, subject to anti-dilution
adjustments.
Stock options. Options must be granted at an exercise price of no less than
100% of the fair market value of a share of Common Stock on the date of grant.
Unless otherwise specified by the Compensation Committee, options will become
exercisable in four annual installments of 25% beginning on the first
anniversary of the grant date. The option exercise price may be paid by any one
or more of the following methods: (i) cash or (ii) a "cashless" exercise
23
<PAGE>
pursuant to a sale through a broker of a portion of the shares covered by the
option. Options may be granted as either (i) nonstatutory options upon exercise
of which grantees would recognize ordinary taxable income, and the Company would
be entitled to a compensation expense deduction or (ii) as incentive stock
options (ISOs) which, subject to certain conditions, would not result in the
recognition of taxable income by the grantee upon exercise, nor a compensation
deduction to the Company until the shares are disposed of by the grantee.
SARs. An award of a stock appreciation right ("SAR") entitles the grantee
to receive a payment equal to the appreciation in value of the Common Stock over
the strike price. The strike price will equal either (i) at least 100% of the
fair market value of the Common Stock on the grant date of the SAR, or (ii) if
the SAR is linked to an option, the exercise price of such option. The amount of
appreciation will be payable in cash or Common Stock.
Restricted shares. Restricted shares will be forfeited if the conditions
set by the Compensation Committee have not been satisfied or waived. The
Compensation Committee will determine whether or not a grantee shall be required
to pay for such restricted shares and, if so, what the price shall be.
Performance shares. To the extent that the performance goals specified by
the Compensation Committee (including without limitation stock price, market
share, sales, earnings per share, and return on equity) in a grant of
performance shares have been achieved, then a benefit shall be paid after the
end of the performance-measuring period specified by the Compensation Committee.
The amount of the benefit is based upon the percentage attainment of the
performance goals multiplied by the value of a share of Common Stock at the end
of the performance period. No benefit will be payable if the minimum performance
goals have not been met.
LSARs. LSARs may in the discretion of the Compensation Committee be granted
with any option or stock appreciation right, either in connection with the
original grant or at any later date.
Termination of employment. If a grantee's employment is terminated for
cause, all unexercised options (and any associated LSARs) and SARs will
immediately terminate and unvested restricted shares and performance shares will
be forfeited. In the event of death or permanent disability, any restricted
shares will be vested, any unexercised options (and any associated LSARs) or
SARs (whether or not previously exercisable) may be exercised by a beneficiary
for six months after the date of death or disability, and any unexercised
performance shares may be exercised for one year thereafter, provided that if a
performance-measuring period has not ended, the benefit will be pro-rated. If a
grantee terminates for any other reason, restricted shares will be forfeited,
any unexercised option (and any associated LSARs) or SARs may be exercised for
30 days following the date of termination, and any unexercised performance
shares may be exercised only as determined by the Compensation Committee.
Other. Options and SARs will have a maximum term of 10 years. In the event
of a "Change in Control" of the Company, restricted shares will become
nonforfeitable, all other Awards will become exercisable. The Amended and
Restated Equity Incentive Plan may be amended by the Board without stockholder
approval unless stockholder approval is required by federal securities law or
the listing requirements of a securities exchange on which any of the Company's
equity securities are listed. The Amended and Restated Equity Incentive Plan
will terminate on January 19, 2006. For purposes of this paragraph "Change of
Control" means, generally (i) certain acquisitions of the beneficial ownership
of 25% or more of the then-outstanding Common Stock, (ii) certain changes in the
composition of the Board, and (iii) certain transactions whereby stockholders
who immediately before such transaction do not, immediately, thereafter,
beneficially own, directly or indirectly, more than 60% of the then-outstanding
Common Stock, and the sale or other disposition of all or substantially all of
the assets of the Company or the dissolution or liquidation of the Company.
24
<PAGE>
Tax Implications. Under present law, the following are the federal tax
consequences generally arising with respect to awards granted under the Amended
and Restated Equity Incentive Plan. The grant of an option or an SAR will create
no tax consequences for the grantee or the Company. The grantee will have no
taxable income upon exercising an ISO (except that the alternative minimum tax
may apply) and the Company will recognize no deduction when the ISO is
exercised. Upon exercising a non-qualified option or SAR, the grantee must
recognize ordinary income equal to the difference between (i) the exercise price
of the option or the strike price for an SAR, as applicable, and (ii) and the
fair market value of the Common Stock on the date of exercise; the Company will
be entitled to a deduction for the same amount. With respect to other Awards
under the Amended and Restated Equity Incentive Plan that are either
transferable or not subject to a substantial risk of forfeiture, the grantee
must recognize ordinary income equal to the fair market value of the shares or
other property received. With respect to awards that are settled in stock or
other property that is restricted as to transferability and subject to a
substantial risk of forfeiture, the grantee recognizes ordinary income when the
shares or other property become transferable or not subject to a substantial
risk of forfeiture, whichever occurs first.
Plan Benefits
The Company has not yet determined which persons will receive any of the
awards which will be based on the additional 500,000 shares proposed to be made
available under the Equity Incentive Plan. As of May 20, 1998, the only awards
that have been made under the Equity Incentive Plan are stock options except for
stock grants made to outside consultants in the aggregate amount of 15,000
shares. The table below sets forth the number of stock options outstanding as of
such date that have been granted under the Equity Incentive Plan to the persons
and groups listed in the table. None of such options have been exercised.
<TABLE>
<CAPTION>
No. of
Name and Position Options
- ----------------- -------
<S> <C>
Michael R. Farris (President and CEO)................................ --
Richard L. Stensrud (Chief Operating Officer of the Company; President
of TFG)........................................................... 100,000
Gregory L. Wilson (Chief Financial Officer)......................... 25,000
All current executive officers as a group............................ 205,000
All directors (excluding executive officers) as a group.............. Not eligible
All employees (excluding executive officers) as a group.............. 355,000
</TABLE>
No associate (as defined in the SEC's rules) of any of the persons named or
described in the table above has received any stock options under the Equity
Incentive Plan. The persons who have received 5% or more of the 750,000 options
originally available for awards under the Equity Incentive Plan and the number
of options received by them are as follows: David Pieroni (100,000); Charles
Stewart (100,000); Richard Crowley (80,000); and Richard Jones (50,000).
The Board of Directors recommends that stockholders vote "FOR"
the Amended and Restated Equity Incentive Plan.
PROPOSAL NO. 4:
INDEPENDENT AUDITORS
The Board of Directors recommends that stockholders ratify the appointment
of KPMG Peat Marwick LLP by voting "FOR" ratification of KPMG Peat Marwick LLP
as the Company's auditors for the 1998 fiscal year. In the event such selection
is not ratified, the Board of Directors will reconsider its selection.
25
<PAGE>
KPMG Peat Marwick LLP has audited the Company's financial statements for
fiscal years 1995, 1996 and 1997. Representatives of KPMG Peat Marwick LLP are
expected to be present at the meeting with the opportunity to make a statement
if they desire to do so, and are expected to be available to respond to
appropriate questions.
The Board of Directors recommends that
stockholders vote "FOR" the Auditor Ratification Proposal
OTHER MATTERS
The Board of Directors of the Company is not aware that any matter other
than those listed in the Notice of Meeting is to be presented for action at the
Annual Meeting. If any of the Board's nominees is unavailable for election as a
director or any other matter should properly come before the meeting, it is
intended that votes will be cast pursuant to the Proxy in respect thereto in
accordance with the best judgment of the person or persons acting as proxies.
INFORMATION CONCERNING SOLICITATION AND VOTING
Revocability of Proxies. Any stockholder who executes and returns a Proxy
may revoke it at any time before it is exercised by filing with the Secretary of
the Company written notice of such revocation or a duly executed proxy bearing a
later date, or by attending the Annual Meeting and voting in person. Attendance
at the Annual Meeting will not in and of itself constitute revocation of a
Proxy.
Record Date; Voting. Stockholders of record as of the close of business on
the Record Date are entitled to notice of and to vote at the Annual Meeting. On
the Record Date, 12,712,712 shares of Common Stock of the Company were
outstanding, each of which is entitled to one vote upon each of the matters to
be presented at the Annual Meeting. The presence of holders of a majority of the
outstanding shares of Common Stock, whether in person or by proxy, will
constitute a quorum at the Annual Meeting. The Company's Certificate of
Incorporation does not provide for cumulative voting. Abstentions will be
considered present for purposes of determining whether a quorum exists. Votes
withheld for director nominees will be disregarded. "Broker non-votes" (that is,
shares represented at the Annual Meeting which are held by a broker or nominee
and as to which (i) instructions have not been received from the beneficial
owner or the person entitled to vote and (ii) the broker or nominee does not
have discretionary voting power) are considered not entitled to vote, and thus
they do not count towards a quorum (However, if they are voted with respect to
any item or if a proxy is signed and returned, even if it is not marked with
respect to any vote, they will count towards a quorum.) A plurality of the votes
of the shares present (either in person or by proxy) and entitled to vote on the
election at the Annual Meeting is required to elect directors. The affirmative
vote of the holders of a majority of the shares of Common Stock present (either
in person or by proxy) and entitled to vote at the Annual Meeting is required to
approve the Equity Incentive Plan Proposal and the Auditor Ratification
Proposal. The affirmative vote of a majority of the outstanding shares of Common
Stock is required for the approval of the Series B Proposal. In accordance with
Delaware law and the Company's Certificate of Incorporation and Bylaws, (i) for
the election of directors, which requires a plurality of the votes present,
votes withheld and broker non-votes will not be counted, and (ii) for the
adoption of all other proposals, which require a majority of the shares of the
Common Stock present in person or by proxy and entitled to vote, broker
non-votes will not be considered present, but abstentions will have the effect
of a vote against such proposals.
Solicitation. The cost of soliciting proxies will be borne by the Company.
In addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
26
<PAGE>
solicitation material to such beneficial owners. Proxies may also be solicited
by certain of the Company's directors, officers and regular employees, without
additional compensation, personally or by telephone.
Deadline for Receipt of Stockholder Proposals. Proposals of stockholders
which are intended to be presented by such stockholders at the Company's next
annual meeting of stockholders to be held in 1999 must be received by the
Company no later than January 21, 1999 in order that they may be included in the
proxy statement and form of proxy relating to that meeting.
May __, 1998
27
<PAGE>
LASERSIGHT INCORPORATED
PROXY
ANNUAL MEETING OF STOCKHOLDERS, JUNE 12, 1998
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby (i) appoints Michael R. Farris and Gregory L. Wilson and
each of them as Proxy holders and attorneys, with full power of substitution to
appear and vote all of the shares of Common Stock of LaserSight Incorporated
which the undersigned shall be entitled to vote at the Annual Meeting of
Stockholders of the Company, to be held on Friday, June 12, 1998 at 10:00 a.m.
EDT, and at any adjournments thereof, hereby revoking any and all proxies
previously given and (ii) authorizes and directs said Proxy holders to vote all
of the shares of Common Stock of the Company represented by this Proxy as
follows. If no directions are given below, said shares will be voted "FOR" Items
1, 2, 3 and 4.
(1) ELECTION OF DIRECTORS. J. Richard Crowley; Michael R. Farris; Terry A.
Fuller, PhD.; Richard C. Lutzy; Francis E. O'Donnell, Jr., M.D.; David T.
Pieroni; and Thomas Quinn.
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for the nominees
contrary below) listed
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the following line.)
- --------------------------------------------------------------------------------
(2) Approve Amendment to Certificate
of Designation and Reduction of
Exercise Price of Existing Warrants [ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Approve Amendment to Equity Incentive
Plan [ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) Ratify appointment of
independent auditors [ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) In their discretion to act on any other matters which may properly come
before the Annual Meeting.
Please date, sign and return promptly
in the accompanying envelope.
Dated: ____________________________, 1998
-----------------------------------------
-----------------------------------------
(If held jointly)
Your signature should be exactly the same
as the name imprinted herein. Persons
signing as executors, administrators,
trustees or in similar capacities should
so indicate. For joint accounts, each
joint owner must sign.
The Board of Directors Recommends You Vote FOR the Above Proposals.
---
28
LaserSight Incorporated
Amended and Restated 1996 Equity Incentive Plan
Introduction. The LaserSight Incorporated 1996 Equity Incentive Plan
(the "Plan"), as established by LaserSight Incorporated, a Delaware corporation
(the "Company"), effective as of January 19, 1996 is hereby amended and restated
as set forth herein effective April 29, 1998 (as so amended and restated, the
"Plan"), subject to the approval of the holders of a majority of the shares of
Common Stock (as defined below) present or represented and entitled to vote at
the Company's 1998 annual meeting of stockholders.
1. Purpose. The Plan is intended to allow employees and consultants to
acquire or increase equity ownership in the LaserSight, thereby strengthening
their commitment to the success of the Company and stimulating their efforts on
behalf of the Company, and to assist the Company in attracting new employees and
retaining existing employees.
2. Definitions.
The terms set forth below have the following meanings (such meanings to
be applicable to both the singular and plural forms):
(A) "Award" means options, including incentive stock options,
Restricted Shares, Bonus Shares, stock appreciation rights ("SARs"), limited
stock appreciation rights ("LSARs"), or performance shares granted under the
Plan.
(B) "Award Agreement" means the written agreement by which an Award
shall be evidenced.
(C) "Board" means the Board of Directors of LaserSight.
(D) "Bonus Shares" means shares of Stock that are awarded to a Grantee
without cost (other than a payment of the Minimum Consideration, if applicable)
and without restrictions in recognition of past performance or as an incentive
to become an employee of the Company.
(E) "Cause" means a Grantee's commission of a crime which, in the
judgment of the Committee, is likely to result in material injury to the
Company; the material violation by the Grantee of written policies of the
Company; the habitual neglect by the Grantee in the performance of his or her
duties to the Company; or the action or inaction in connection with his or her
duties to the Company resulting, in the judgment of the Committee, in a material
injury to the Company.
(F) "Change of Control" means any one or more of the following:
(I) the acquisition or holding by any person, entity or
"group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act,
other than by the Company or any employee benefit plan of the Company, of
beneficial ownership (within the meaning of SEC Rule 13d-3 under the 1934 Act)
of 25% or more of the then-outstanding Stock; provided, however, that no Change
A-1
<PAGE>
of Control shall occur solely by reason of any such acquisition by a corporation
with respect to which, after such acquisition, more than 60% of the
then-outstanding common shares of such corporation are then beneficially owned,
directly or indirectly, by the persons who were the beneficial owners of the
Stock immediately before such acquisition in substantially the same proportions
as their respective ownership, immediately before such acquisition, of the
then-outstanding Stock; or
(II) individuals who, as of the Effective Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided that any individual who becomes a director after
the Effective Date whose election or nomination for election by the stockholders
of LaserSight was approved by at least a majority of the Incumbent Board (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest (as such
terms are used in SEC Rule 14a-11 under the 1934 Act) relating to the election
of the directors of LaserSight ) shall be deemed to be a member of the Incumbent
Board; or
(III) approval by the stockholders of LaserSight of (A) a
merger, reorganization or consolidation ("Transaction") with respect to which
persons who were the respective beneficial owners of the Stock immediately
before the Transaction do not, immediately thereafter, beneficially own,
directly or indirectly, more than 60% of the then-outstanding common shares of
the corporation resulting from the Transaction, (B) a liquidation or dissolution
of LaserSight or (C) the sale or other disposition of all or substantially all
of the assets of LaserSight.
Notwithstanding the foregoing, a Change of Control not occur with
respect to any executive officer of the Company who is, by agreement or
understanding (written or otherwise), a participant on his or her own behalf in
a transaction which causes the Change of Control to occur.
(G) "Change of Control Value" means the Fair Market Value of a share of
Stock on the date of a Change of Control.
(H) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations and rulings thereunder. References to a particular section of the
Code include references to successor provisions.
(I) "Committee" means the committee of the Board appointed pursuant to
Section 0.
(J) "Company" -- see the introductory paragraph.
(K) "Disability" means, for purposes of the exercise of an incentive
stock option after termination of employment, a disability within the meaning of
Section 22(e)(3) of the Code, and for all other purposes, a mental or physical
condition which, in the judgment of the Committee, renders a Grantee unable to
carry out the job responsibilities which such Grantee held or the tasks to which
such Grantee was assigned at the time the disability was incurred, and which
condition is expected to be permanent or for an indefinite duration exceeding
one year.
(L) "Disqualifying Disposition" -- see Section 6(C)(VI);
(M) "Effective Date" means January 19, 1996;
(N) "Eligible Employee" means any employee (including any officer) or
consultant of the Company;
(O) "Fair Market Value" of an equity security as of any date means:
A-2
<PAGE>
(I) if the security is listed on a national securities
exchange or The NASDAQ Stock Market, the closing price, regular way, of the
security as reported on the consolidated transaction reporting system applicable
to such security, or if no such reported sale of the security have occurred on
such date, on the next preceding date on which there was such a reported sale,
or
(II) if the security is not listed on a national securities
exchange or The NASDAQ Stock Market, but is listed on The NASDAQ SmallCap
Market, the average of the closing bid and asked prices, regular way, on The
NASDAQ SmallCap Market or, if no such prices have been so reported for such
date, on the latest preceding date for which such prices were so reported, or
(III) if the security is not listed on a national securities
exchange, The NASDAQ Stock Market or The NASDAQ SmallCap Market, the fair market
value of the security as determined in good faith by the Committee by whatever
means or method as it, in the good faith exercise of its discretion, shall at
such time deem appropriate.
(P) "Grant Date" -- see Section 6(A)(I).
(Q) "Grantee" means an individual who has been granted an Award.
(R) "Immediate Family" means, with respect to a particular Grantee,
such Grantee's spouse, children and grandchildren.
(S) "including" or "includes" means "including, without limitation," or
"includes, without limitation", respectively.
(T) "LaserSight" -- see the introductory paragraph.
(U) "LSARs" -- see Section 2(a).
(V) "Mature Shares" means shares of Stock for which the holder thereof
has good title, free and clear of all liens and encumbrances, and which such
holder either (i) has held for at least six months or (ii) has purchased on the
open market.
(W) "Minimum Consideration" means $.001 per share of Stock or such
other amount that is from time to time considered to be capital for purposes of
Section 154 of the Delaware General Corporation Law.
(X) "1934 Act" means the Securities Exchange Act of 1934. References to
a particular section of, or rule under, the 1934 Act include references to
successor provisions.
(Y) "Option Price" means the per share exercise price of an option.
(Z) "Performance Percentage" -- see Section 6(F)(I)(C).
(AA) "Performance Period" -- see Section 6(F)(I)(B).
(BB) "Plan" -- see the introductory paragraph.
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(CC) "Restricted Shares" means shares of Stock that are that are
nontransferable and subject to forfeiture if the Grantee does not satisfy the
conditions specified in the Award Agreement applicable to such shares. Such
shares shall cease to be Restricted Shares to the extent that such conditions
are satisfied.
(DD) "Retirement" means a termination of employment with the Company
other than for Cause at any time after attaining age 65.
(EE) "Rule 16b-3" means SEC Rule 16b-3 under the 1934 Act, as such
Rule may be amended from time to time.
(FF) "SEC" means the Securities and Exchange Commission.
(GG) "Section 16 Person" means a person who is subject to potential
liability under Section 16(b) of the 1934 Act with respect to transactions in
equity securities of LaserSight.
(HH) "Stock" means the common stock, $.001 par value, of LaserSight.
(II) "Strike Price" -- see Section 6(D)(II).
(JJ) "Subsidiary" means, for purposes of grants of incentive stock
options, a corporation as defined in Section 424(f) of the Code (with LaserSight
being treated as the employer corporation for purposes of this definition) and,
for all other purposes, a United States or foreign corporation with respect to
which LaserSight owns, directly or indirectly, 50% or more of the
then-outstanding common stock.
(KK) "10% Owner" means a person who owns capital stock (including stock
treated as owned under Section 424(d) of the Code) possessing more than 10% of
the total combined voting power of all classes of capital stock of LaserSight or
any Subsidiary.
(LL) "Term" means the period beginning on the Grant Date of an option
or SAR and ending on the expiration date of such option or SAR, as specified in
the applicable Award Agreement and as may, in the discretion of the Committee
and consistently with the provisions of the Plan, be extended at any time or
from time to time prior to the expiration date of such option or SAR then in
effect.
3. Scope of the Plan. The aggregate number of shares of Stock available
under the Plan for grants of Awards (including shares of Stock underlying SARs)
is 1,250,000 shares; provided that no more than 250,000 shares of Stock in the
aggregate are available for the grant of Restricted Shares and Bonus Shares
under the Plan. Shares of Stock awarded under the Plan may be treasury shares or
newly-issued shares. If and to the extent an Award expires or terminates for any
reason without having been exercised in full (including a cancellation and
regrant of an option), or shall be forfeited, the shares of Stock or number of
SARs associated with such Award shall again become available for other Awards.
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4. Administration.
(A) Subject to Section 4(B), the Plan shall be administered by a
committee ("Committee") consisting of not less than two directors of LaserSight
who qualify as "outside directors" for purposes of the regulations under Code
Section 162(m) and satisfy the conditions of Rule 16b-3. Membership on the
Committee shall from time to time be increased or decreased and shall be subject
to such conditions, in each case as the Board deems appropriate to permit
transactions in Stock pursuant to the Plan to satisfy such conditions of Rule
16b-3 and Code Section 162(m).
(B) The Board may reserve to itself or delegate to another committee of
the Board any or all of the authority of the Committee with respect to Awards to
Grantees who are not Section 16 Persons at the time any such delegated authority
is exercised. Such other committee may consist of two or more directors who may,
but need not be, officers or employees of the Company. To the extent that the
Board has reserved to itself or delegated to such other committee the authority
of the Committee, all references to the Committee in the Plan shall be to the
Board or such other committee.
(C) Subject to the express provisions of the Plan, the Committee has
full and final authority and discretion as follows:
(I) to determine the terms and conditions applicable to each
Award, and whether or not specific Awards shall be identified with other
specific Awards, and if so whether they shall be exercisable cumulatively with,
or alternatively to, such other specific Awards;
(II) to interpret the Plan and to make, amend and rescind all
rules and determinations necessary or advisable for the administration of the
Plan, including rules with respect to the treatment of Awards upon the
termination of employment of a Grantee;
(III) to determine the provisions of all Award Agreements
(which need not be identical) and, with the consent of the Grantee, to amend any
such Award Agreement at any time; provided that the consent of the Grantee shall
not be required for any amendment which (A) does not adversely affect the rights
of the Grantee, or (B) is necessary or advisable (as determined by the
Committee) to carry out the purpose of the Award as a result of any new or
change in existing applicable law;
(IV) to accelerate the exercisability (including
exercisability within a period of less than one year after the Grant Date) of,
and to accelerate or waive any or all of the terms and conditions applicable to,
any Award or any group of Awards for any reason and at any time, including in
connection with a termination of employment (other than for Cause);
(V) subject to Section 6(A)(II) and 6(C)(II), to extend the
time during which any Award or group of Awards may be exercised; and
(VI) to make such adjustments or modifications to Awards to
Grantees working outside the United States as are advisable to fulfill the
purposes of the Plan.
The determination of the Committee on all matters relating to the Plan
or any Award or Award Agreement shall be final. No member of the Committee shall
be liable for any action or determination made in good faith with respect to the
Plan or any Award.
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5. Eligibility. The Committee may in its discretion grant Awards to any
Eligible Employee, whether or not he or she has previously received an Award.
6. Conditions to Grants.
(A) General Conditions.
(I) The Grant Date of an Award shall be the date on which the
Committee grants the Award or such later date as specified in advance by the
Committee.
(II) Any provision of the Plan to the contrary
notwithstanding, the Term of an Award shall under no circumstances extend more
than 10 years after the Grant Date of such Award, and shall be subject to
earlier termination as herein provided.
(III) To the extent not set forth in the Plan, the terms and
conditions of each Award shall be set forth in an Award Agreement.
(B) Grant of Options.
(I) No later than the Grant Date of any option, the Committee
shall determine the Option Price of such option. The Option Price of an option
shall not be less than 100% of the Fair Market Value of the Stock on the Grant
Date. An option shall be exercisable for Stock unless the Award Agreement
provides that it is exercisable for Restricted Shares.
(II) The Committee may, in its discretion, permit an employee
to elect, before earning compensation, to be granted an Award in lieu of
receiving such compensation; provided that, in the judgment of the Committee,
the value of such Award on the Grant Date equals the amount of compensation
foregone by such employee.
(III) The number of shares for which options may be granted to
any Grantee in any calendar year shall not exceed 250,000.
(C) Grant of Incentive Stock Options. At the time of the grant of any
option, the Committee may in its discretion designate that such option shall be
made subject to additional restrictions to permit it to qualify as an "incentive
stock option" under the requirements of Section 422 of the Code. Any option
designated as an incentive stock option:
(I) shall, if granted to a 10% Owner, have an Option Price not
less than 110% of the Fair Market Value of the Stock on the Grant Date;
(II) shall be for a period of not more than 10 years (five
years if the Grantee is a 10% Owner) from the Grant Date, and shall be subject
to earlier termination as provided herein or in the applicable Award Agreement;
(III) shall not have an aggregate Fair Market Value
(determined for each incentive stock option at its Grant Date) of Stock with
respect to which incentive stock options are exercisable for the first time by
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such Grantee during any calendar year (under the Plan and any other employee
stock option plan of the Grantee's employer or any parent or Subsidiary thereof
("Other Plans")), determined in accordance with the provisions of Section 422 of
the Code, which exceeds $100,000 (the "$100,000 Limit");
(IV) shall, if the aggregate Fair Market Value of Stock
(determined on the Grant Date) with respect to the portion of such grant which
is exercisable for the first time during any calendar year ("Current Grant") and
all incentive stock options previously granted under the Plan and any Other
Plans which are exercisable for the first time during a calendar year ("Prior
Grants") would exceed the $100,000 Limit, be exercisable as follows:
(A) the portion of the Current Grant which would,
when added to any Prior Grants, be exercisable with respect to Stock which would
have an aggregate Fair Market Value (determined as of the respective Grant Date
for such options) in excess of the $100,000 Limit shall, notwithstanding the
terms of the Current Grant, be exercisable for the first time by the Grantee in
the first subsequent calendar year or years in which it could be exercisable for
the first time by the Grantee when added to all Prior Grants without exceeding
the $100,000 Limit; and
(B) if, viewed as of the date of the Current Grant,
any portion of a Current Grant could not be exercised under the preceding
provisions of this Section during any calendar year commencing with the calendar
year in which it is first exercisable through and including the last calendar
year in which it may by its terms be exercised, such portion of the Current
Grant shall not be an incentive stock option, but shall be exercisable as a
separate option at such date or dates as are provided in the Current Grant;
(V) shall be granted within 10 years from the earlier of the
date the Plan is adopted or the date the Plan is approved by the stockholders of
LaserSight;
(VI) shall require the Grantee to notify the Committee of any
disposition of any Stock delivered pursuant to the exercise of the incentive
stock option under the circumstances described in Code Section 421(b) (relating
to certain disqualifying dispositions) (any such circumstance, a "Disqualifying
Disposition"), within 10 days of such Disqualifying Disposition; and
(VII) shall by its terms not be assignable or transferable
other than by will or the laws of descent and distribution and may be exercised,
during the Grantee's lifetime, only by the Grantee; provided, however, that the
Grantee may, to the extent provided in the Plan in any manner specified by the
Committee, designate in writing a beneficiary to exercise his or her incentive
stock option after the Grantee's death;
Notwithstanding the foregoing and Section 4(C)(III), the Committee may,
without the consent of the Grantee, at any time before the exercise of an option
(whether or not an incentive stock option), take any action necessary to prevent
such option from being treated as an incentive stock option.
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(D) Grant of Stock Appreciation Rights.
(I) When granted, SARs may, but need not, be identified with a
specific option, specific Restricted Shares, or specific performance shares of
the Grantee (whether granted on or before the Grant Date of the SARs) in a
number equal to or different from the number of such SARs. If SARs are
identified with an option, Restricted Shares, or performance shares, then,
unless otherwise provided in the applicable Award Agreement, the Grantee's
associated SARs shall terminate upon (x) the expiration, termination, forfeiture
or cancellation of such option, Restricted Shares, or performance shares, (y)
the exercise of such option or performance shares or (z) such Restricted Shares
becoming nonforfeitable.
(II) The Strike Price of any SAR shall equal, for any SAR that
is identified with an option, the Option Price of such option, or for any other
SAR, 100% of the Fair Market Value of the Stock on the Grant Date of such SAR;
provided that the Committee may (x) specify a higher Strike Price in the Award
Agreement, or (y) provide that the benefit payable upon exercise of any SAR
shall not exceed such percentage of the Fair Market Value of a share of Stock on
such Grant Date as the Committee shall specify.
(E) Grant of LSARs. LSARs may in the discretion of the Committee be
granted to each Grantee upon the grant of any option or SAR under the Plan,
except as otherwise provided by the Committee in such grant. Each LSAR shall be
identified with a share of Stock subject to an option or a SAR of the Grantee.
The number of LSARs granted to a Grantee in respect of an option or SAR shall
equal the number of shares of Stock subject to such option or SAR. The Committee
may also grant an LSAR with respect to any share of Stock subject to an option
or SAR previously granted under this Plan or any other employee benefit plan of
the Company. Upon the exercise, expiration, termination, forfeiture, or
cancellation of a Grantee's option or SARs, as the case may be, the Grantee's
associated LSARs shall automatically terminate.
(F) Grant of Performance Shares.
(I) Before the grant of any performance share, the Committee
shall:
(A) determine objective performance goals (which may
consist of any one or more of the following: the attainment by a share of Stock
of a specified Fair Market Value for a specified period of time, earnings per
share, return to stockholders (including dividends), return on equity, earnings
of the Company, growth in revenues, market share, cash flow or cost reduction
goals, or any combination of the foregoing) and the amount of compensation under
the goals applicable to such grant;
(B) designate a period, of not less than one year nor
more than seven years, for the measurement of the extent to which performance
goals are attained, which period may begin prior to the Grant Date (the
"Performance Period"); and
(C) assign a "Performance Percentage" to each level
of attainment of performance goals during the Performance Period, with the
percentage applicable to minimum attainment being zero percent (0%) and the
percentage applicable to maximum attainment to be determined by the Committee
from time to time, but not in excess of 150%.
(II) If a Grantee is promoted, demoted or transferred to a
different business unit of the Company during a Performance Period, then, to the
extent the Committee determines the performance goals or Performance Period are
no longer appropriate, the Committee may adjust, change or eliminate the
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performance goals or the applicable Performance Period as it deems appropriate
in order to make them appropriate and comparable to the initial performance
goals or Performance Period.
(III) When granted, performance shares may, but need not, be
identified with shares of Stock subject to a specific option, specific
Restricted Shares or specific SARs of the Grantee granted under the Plan in a
number equal to or different from the number of the performance shares so
granted. If performance shares are so identified, then, unless otherwise
provided in the applicable Award Agreement, the Grantee's associated performance
shares shall terminate upon (A) the expiration, termination, forfeiture or
cancellation of the option, Restricted Shares or SARs with which the performance
shares are identified, (B) the exercise of such option or SARs or (C) the date
Restricted Shares become nonforfeitable.
(IV) The shares of Stock related to the performance shares
awarded to any Grantee for any Performance Period shall not have a Fair Market
Value in excess of 100% of the Grantee's base annual salary in effect at the
time of the grant of the Award multiplied by the number of years in the
Performance Period.
(G) Grant of Restricted Shares.
(I) The Committee shall in its discretion determine the
amount, if any, that a Grantee shall pay for Restricted Shares, subject to the
following sentence. Except with respect to Restricted Shares that are treasury
shares (for which no payment need be required), the Committee shall require the
Grantee to pay at least the Minimum Consideration for each Restricted Share.
Such payment shall be made in full by the Grantee before the delivery of the
shares and in any event no later than 10 days after the Grant Date for such
shares.
(II) The Committee shall provide in each Award Agreement
relating to an Award of Restricted Shares (including Restricted Shares acquired
upon exercise of an option) that such Restricted Shares shall be forfeited:
(A) upon the Grantee's termination of employment
(other than under circumstances that may be specified in the Award
Agreement) within a specified time period after the Grant Date,
(B) if, during Grantee's employment with the Company
and within a time period specified in the Award Agreement, the Company
or the Grantee does not achieve the performance goals specified in the
Award Agreement, or
(C) upon failure to satisfy such other conditions as
the Committee may specify in the Award Agreement.
Unless otherwise expressly provided in an Award Agreement, the Committee may in
its discretion waive any or all of the foregoing provisions in accordance with
Section 4(C)(IV).
(III) If Restricted Shares are forfeited, then the Grantee
shall be deemed to have resold such Restricted Shares to LaserSight at a price
equal to the lesser of (x) the amount, if any, paid by the Grantee for such
Restricted Shares, or (y) the Fair Market Value of a share of Stock on the date
of such forfeiture. LaserSight shall pay to the Grantee the required amount, if
any, as soon as is administratively practical. Such Restricted Shares shall
cease to be outstanding, and shall no longer confer on the Grantee thereof any
rights as a stockholder of LaserSight, from and after the date the event causing
the forfeiture, whether or not the Grantee accepts LaserSight's tender of
payment for such Restricted Shares.
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(IV) Certificates for any Restricted Shares shall bear an
appropriate legend restricting the transfer of such Restricted Shares and, if
the Committee in its discretion so determines, shall be held (together with a
stock power executed in blank by the Grantee) in escrow by the Secretary of
LaserSight until such Restricted Shares become nonforfeitable or are forfeited.
If any Restricted Shares become nonforfeitable, LaserSight shall cause
certificates for such shares to be issued without such legend.
(H) Grant of Stock Bonuses. The Committee may grant Bonus Shares to any
Eligible Employee.
7. Non-transferability. Each Award granted hereunder shall not be
assignable or transferable other than by will or the laws of descent and
distribution and may be exercised, during the Grantee's lifetime, only by the
Grantee or his or her guardian or legal representative, except that, subject to
Section 6(C)(VII) in respect of incentive stock options, a Grantee may in a
manner and to the extent permitted by the Committee (a) designate in writing a
beneficiary to exercise an Award after his or her death (provided, however, that
no such designation shall be effective unless received by the office of the
Company designated for that purpose prior to the Grantee's death) and (b) if the
Award Agreement expressly permits, transfer an Option (other than an incentive
stock option), SAR or LSAR for no consideration to any (i) member of the
Grantee's Immediate Family, (ii) trust solely for the benefit of members of the
Grantee or the Grantee's Immediate Family, (iii) partnership whose only partners
are the Grantee or members of the Grantee's Immediate Family, or (iv) revocable
inter vivos trust of which the Grantee is both the settlor and a trustee;
provided, however, that the transferee shall agree to be subject to all of the
terms and conditions applicable to such Award prior to such transfer.
8. Exercise.
(A) Exercise of Options.
(I) Subject to Section 4(C)(IV) and except as otherwise
provided in the applicable Award Agreement, each option shall become exercisable
with respect to 25% of the shares of Stock subject thereto on each of the first
four anniversaries of the Grant Date of such option.
(II) An option shall be exercised by the delivery to the
Company during the Term of such option of (x) written notice of intent to
purchase a specific number of shares of Stock subject to the option and (y)
payment in full of the Option Price of such specific number of shares of Stock.
(III) Payment of the Option Price may be made by any one or
more of the following means: personal check or wire transfer or through
simultaneous sale of shares acquired on exercise of the option through a
broker-dealer acceptable to the Company to whom the Grantee has submitted an
irrevocable notice of exercise, as permitted under Regulation T of the Federal
Reserve Board. In addition, with the prior approval of the Committee, the
following may also be used in payment of the Option Price: Mature Shares or
Restricted Shares held by the Grantee for at least six months prior to the
exercise of the option, each such share valued at the Fair Market Value of a
share of Stock on the date of exercise. The Committee may in its discretion
specify that, if any Restricted Shares ("Tendered Restricted Shares") are used
to pay the Option Price, (x) all the shares of Stock acquired on exercise of the
option shall be subject to the same restrictions as the Tendered Restricted
Shares, determined as of the date of exercise of the option, or (y) a number of
shares of Stock acquired on exercise of the option equal to the number of
Tendered Restricted Shares shall be subject to the same restrictions as the
Tendered Restricted Shares, determined as of the date of exercise of the option.
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(B) Exercise of Stock Appreciation Rights.
(I) Subject to Sections 4(C)(IV) and 8(F), and except as
otherwise provided in the applicable Award Agreement, (x) each SAR not
identified with any other Award shall become exercisable with respect to 25% of
the shares subject thereto on each of the first four anniversaries of the Grant
Date of such SAR unless the Committee provides otherwise in the Award Agreement
and (y) each SAR which is identified with any other Award shall become
exercisable as and to extent that the option or Restricted Shares with which
such SAR is identified may be exercised or becomes nonforfeitable, as the case
may be.
(II) SARs shall be exercised by delivery to the Company of
written notice of intent to exercise a specific number of SARs. Unless otherwise
provided in the applicable Award Agreement, the exercise of SARs which are
identified with shares of Stock subject to an option or Restricted Shares shall
result in the cancellation or forfeiture of such option or Restricted Shares, as
the case may be, to the extent of such exercise.
(III) The benefit for each SAR exercised shall be equal to (x)
the Fair Market Value of a share of Stock on the date of such exercise, minus
(y) the Strike Price of such SAR. Such benefit shall be payable in cash, except
that the Committee may provide in the Award Agreement that benefits may be paid
wholly or partly in Stock.
(C) Exercise of LSARs. Within 10 business days after the exercise of
any LSAR, the Company shall pay the Grantee, in cash, an amount equal to the
difference between (x) the Change of Control Value and (y) in the case of an
LSAR identified with an option, the Option Price of such option, or, in the case
of an LSAR identified with a SAR, the Strike Price of such SAR; provided that
the amount determined under this Section shall not exceed any maximum benefit
provided in the applicable Award Agreement.
(D) Payment of Performance Shares. Unless otherwise provided in the
Award Agreement with respect to an Award of performance shares, if the minimum
performance goals applicable to such performance shares have been achieved
during the applicable Performance Period, then the Company shall pay to the
Grantee of such Award that number of shares of Stock equal to the product of:
(i) the sum of (x) number of performance shares specified in
the applicable Award Agreement and (y) the number of shares of Stock
that would have been issuable if such performance shares had been
shares of Stock outstanding throughout the Performance Period and the
stock dividends, cash dividends (except as otherwise provided in the
Award Agreement), and other property paid in respect of such shares had
been reinvested in additional shares of Stock as of each dividend
payment date,
multiplied by
(ii) the Performance Percentage achieved during such
Performance Period.
The Committee may in its discretion determine that cash be paid in lieu of some
or all of such shares of Stock. with each such share to be valued at its Fair
Market Value on the business day next preceding the date on which such cash is
to be paid. Payments pursuant to this Section shall be made as soon as
administratively practical after the end of the applicable Performance Period.
Any performance shares with respect to which the performance goals shall not
have been achieved by the end of the applicable Performance Period shall expire.
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(E) Accelerated Vesting Upon Change of Control. In the event of a
Change of Control, all unvested Awards shall immediately become fully
exercisable or payable, as applicable, except as otherwise provided in Section
8(F); provided that the benefit payable with respect to any performance share
with respect to which the Performance Period has not ended as of the date of
such Change of Control shall be equal to the product of the Unit Value
multiplied successively by each of the following:
(I) a fraction, the numerator of which is the number of whole
and partial months that have elapsed between the beginning of such Performance
Period and the date of such Change of Control and the denominator of which is
the number of whole and partial months in the Performance Period; and
(II) a percentage equal to the greater of (x) the target
percentage, if any, specified in the applicable Award Agreement or (y) the
maximum percentage, if any, that would be earned under the terms of the
applicable Award Agreement assuming that the rate at which the performance goals
have been achieved as of the date of such Change of Control would continue until
the end of the Performance Period.
(F) Pooling Considerations. Any provision of the Plan to the contrary
notwithstanding, if the Committee determines, in its discretion exercised prior
to a sale or merger of the Company that in the Committee's judgment is
reasonably likely to occur, that the exercise of SARs or LSARs would preclude
the use of pooling-of-interests accounting ("pooling") after the consummation of
such sale or merger and that such preclusion of pooling would have a material
adverse effect on such sale or merger, the Committee may either unilaterally
cancel such SARs and LSARs prior to the Change of Control or cause the Company
to pay the benefit attributable to such SARs or LSARs in the form of shares of
Stock if the Committee determines that such payment would not cause the
transaction to become ineligible for pooling.
9. Notification under Section 83(b). If the Grantee, in connection with
the exercise of any option, or the grant of Restricted Shares, makes the
election permitted under Section 83(b) of the Code to include in such Grantee's
gross income in the year of transfer the amounts specified in Section 83(b) of
the Code, then such Grantee shall notify the Company of such election within 10
days of filing the notice of the election with the Internal Revenue Service, in
addition to any filing and notification required pursuant to regulations issued
under Section 83(b) of the Code. The Committee may, in connection with the grant
of an Award or at any time thereafter, prohibit a Grantee from making the
election described above.
10. Mandatory Tax Withholding.
(A) Whenever shares of Stock are to be delivered in connection with an
Award, the Company shall be entitled to require (i) that the Grantee remit an
amount sufficient to satisfy all federal, state, and local tax withholding
requirements related thereto ("Required Withholding"), (ii) the withholding of
such Required Withholding from compensation otherwise due to the Grantee or from
any shares of Stock or other payment due to the Grantee under the Plan or (iii)
any combination of the foregoing.
(B) Any Grantee who makes a Disqualifying Disposition or an election is
made under Section 83(b) of the Code shall remit to the Company an amount
sufficient to satisfy all resulting Required Withholding; provided that, in lieu
of or in addition to the foregoing, the Company shall have the right to withhold
such Required Withholding from compensation otherwise due to the Grantee or from
any shares of Stock or other payment due to the Grantee under the Plan.
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11. Elective Share Withholding.
(A) With the Committee's prior approval and subject to the following
subsection, a Grantee may elect the withholding ("Share Withholding") by the
Company of a portion of the shares of Stock otherwise deliverable to such
Grantee in connection with an Award (a "Taxable Event") having a Fair Market
Value equal to (I) the minimum amount necessary to satisfy Required Withholding
liability attributable to the Taxable Event, or (II) a greater amount, not to
exceed the estimated total amount of such Grantee's tax liability with respect
to the Taxable Event.
(B) Each Share Withholding election shall be subject to the following
conditions: (I) any Grantee's election shall be subject to the Committee's
discretion to revoke the Grantee's right to elect Share Withholding at any time
before the Grantee's election if the Committee has reserved the right to do so
in the Award Agreement; and (II) the Grantee's election must be made before the
date (the "Tax Date") on which the amount of tax to be withheld is determined;
(III) the Grantee's election shall be irrevocable.
12. Termination of Employment.
(A) For Cause. If a Grantee's employment is terminated for Cause, (i)
the Grantee's Restricted Shares that are forfeitable shall thereupon be
forfeited; and (ii) any unexercised option, SAR, LSAR, or performance share
shall terminate effective immediately upon such termination of employment.
(B) On Account of Death or Disability. Except as otherwise provided by
the Committee in the Award Agreement, if a Grantee's employment terminates on
account of death or Disability, then:
(I) the Grantee's Restricted Shares that were forfeitable
shall thereupon become nonforfeitable;
(II) any unexercised option or SAR, whether or not exercisable
on the date of such termination of employment, may be exercised, in whole or in
part, within six months after such termination of employment (but only during
the Option Term) by the Grantee or, after his or her death, by (A) his or her
personal representative or by the person to whom the option or SAR, as
applicable, is transferred by will or the applicable laws of descent and
distribution, (B) the Grantee's beneficiary designated in accordance with
Sections 6(C)(VII) or 7, or (C) the then-acting trustee of the trust described
in Section 7; and
(III) any unexercised performance share may be exercised in
whole or in part, at any time within 180 days after such termination of
employment on account of death or Disability by the Grantee or, after the
Grantee's death, by (A) his personal representative or by the person to whom the
performance share is transferred by will or the applicable laws of descent and
distribution, (B) the Grantee's beneficiary designated in accordance with
Section 7, or (C) the then-serving trustee of the trust described in Section 7;
provided that the benefit payable with respect to any performance share with
respect to which the Performance Period has not ended as of the date of such
termination of employment on account of death or Disability shall be equal to
the product of the Unit Value multiplied successively by each of the following:
(1) a fraction, the numerator of which is the number
of months (including as a whole month any partial month) that have
elapsed since the beginning of such Performance Period until the date
of such termination of employment and the denominator of which is the
number of months (including as a whole month any partial month) in the
Performance Period; and
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(2) a percentage determined in the discretion of the
Committee that would be earned under the terms of the applicable Award
Agreement assuming that the rate at which the performance goals have
been achieved as of the date of such termination of employment would
continue until the end of the Performance Period, or, if the Committee
elects to compute the benefit after the end of the Performance Period,
the Performance Percentage, as determined by the Committee, attained
during the Performance Period for the performance share.
(C) On Account of Retirement. Except as otherwise provided by the
Committee in the Award Agreement, if a Grantee has a termination of employment
on account of Retirement, any unexercised option, whether or not exercisable on
the date of such termination of employment, may be exercised, in whole or in
part, at any time within one year after such Retirement (but only during the
Option Term).
(D) Any Other Reason. Except as otherwise provided by the Committee in
the Award Agreement, if a Grantee's employment terminates for any reason other
than for Cause, Retirement, death, or Disability, then:
(I) the Grantee's Restricted Shares (and any SARs identified
therewith), to the extent forfeitable on the date of the Grantee's termination
of employment), shall be forfeited on such date;
(II) any unexercised option or SAR (other than a SAR
identified with a Restricted Share or performance share), to the extent
exercisable immediately before the Grantee's termination of employment,
Grantee's termination of employment) may be exercised in whole or in part, not
later than the 30th day after such termination of employment (but only during
the Option Term); and
(iii) the Grantee's performance shares (and any SARs
identified therewith) shall become non-forfeitable and may be exercised in whole
or in part, but only if and to the extent determined by the Committee.
(E) Extended Exercisability. If the Grantee has entered into an
agreement with the Company not to sell any shares of Stock (or the capital stock
of a successor to the Company) for a specified period after the consummation of
a business combination between the Company and another corporation or entity
(the "Specified Period"), such option may be exercised in whole or in part until
the later of the end of the post-termination period specified in subparagraph
(b), (c) or (d) of this Section, as applicable, or 10 business days after the
end of the Specified Period.
(F) Extension of Term. In the event of a termination of the Grantee's
employment other than for Cause, the term of any Award (whether or not
exercisable immediately before such termination) which would otherwise expire
after the Grantee's termination of employment but before the end of the period
following such termination of employment described in subparagraphs (b), (c),
and (d) of this Section may, in the Committee's discretion, be extended so as to
permit any unexercised portion thereof to be exercised at any time within such
period. The Committee may further extend the period of exercisability to permit
any unexercised portion thereof to be exercised within a specified period
provided by the Committee. In no event shall the Term of any Award be extended
beyond the 10th anniversary of such Award.
13. Plans of Foreign Subsidiaries. The Committee may authorize any
foreign Subsidiary to adopt a plan for granting Awards ("Foreign Plan"). All
Awards granted under such Foreign Plan shall be treated as grants under the
Plan. Such Foreign Plans shall have such provisions as the Committee permits not
inconsistent with the provisions of the Plan. Awards granted under a Foreign
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Equity Incentive Plans shall be governed by the terms of the Plan, except to the
extent that the provisions of the Foreign Plan are more restrictive than the
provisions of the Plan, in which case the Foreign Plan shall control.
14. Substituted Awards. If the Committee cancels any Award (whether
granted under this Plan or any plan of any entity acquired by the Company) with
the consent of the applicable Grantee or other holder thereof, the Committee may
in its discretion substitute a new Award therefor upon such terms and conditions
consistent with the Plan as the Committee may determine; provided, that (a) the
Grant Date of the new Award shall be the date on which such new Award is
granted; and (b) the Option Price of any new option, and the Strike Price of any
new SAR, shall not be less than 100% (110% for an incentive stock option granted
to a 10% Owner) of the Fair Market Value of a share of Stock on the Grant Date
of the new Award.
15. Securities Law Matters. If the Committee deems necessary to comply
with applicable securities law, the Committee may require a written investment
intent representation by the Grantee and may require that a restrictive legend
be affixed to certificates for shares of Stock. If, based upon the advice of
counsel to the Company, the Committee determines that the exercise or
nonforfeitability of, or delivery of benefits pursuant to, any Award would
violate any applicable provision of (i) federal or state securities laws or (ii)
the listing requirements of any national securities exchange or national market
system on which are listed any of the Company's equity securities, then the
Committee may postpone any such exercise, nonforfeitability or delivery, as
applicable, but the Company shall use commercially reasonable efforts to cause
such exercise, nonforfeitability or delivery to comply with all such provisions
at the earliest practicable date.
16. No Employment Rights. Neither the establishment of the Plan nor the
grant of any Award shall (a) give any Grantee the right to remain employed by
the Company or to any benefits not specifically provided by the Plan or (b)
modify the right of the Company to modify, amend, or terminate any employee
benefit plan.
17. No Rights as a Stockholder. A Grantee shall not have any rights as
a stockholder of LaserSight with respect to the shares of Stock (other than
Restricted Shares) which may be deliverable upon exercise or payment of such
Award until such shares have been delivered to him. Restricted Shares, whether
held by a Grantee or in escrow by the Secretary of LaserSight, shall confer on
the Grantee all rights of a stockholder of LaserSight, except as otherwise
provided in the Plan. At the time of a grant of Restricted Shares, the Committee
may in its discretion require that cash dividends thereon be deferred (with or
without interest) or the reinvested in additional Restricted Shares. Stock
dividends and deferred or reinvested cash dividends issued with respect to
Restricted Shares shall be subject to the same restrictions and other terms as
apply to the Restricted Shares with respect to which such dividends are issued.
18. Nature of Payments. Awards shall be special incentive payments to
the Grantee and shall not be taken into account in computing the amount of
salary or compensation of the Grantee for purposes of determining any pension,
retirement, death or other benefit under (a) any pension, retirement,
profit-sharing, bonus, insurance or other employee benefit plan of the Company
or (b) any agreement between the Company and the Grantee, except as such plan or
agreement shall otherwise expressly provide.
19. Non-Uniform Determinations. The Committee's determinations under
the Plan need not be uniform and may be made selectively among persons who
receive, or are eligible to receive, Awards, whether or not such persons are
similarly situated. Without limiting the generality of the foregoing, the
Committee shall be entitled to enter into Award Agreements that are non-uniform
and selective as to (a) the identity of the Grantees, (b) the terms and
provisions of Awards, and (c) the treatment of terminations of employment.
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20. Adjustments. The Committee shall make equitable adjustment of (I)
the aggregate numbers of shares of Stock available under the Plan for Awards in
general and for the grant of incentive stock options, Restricted Shares and
Bonus Shares, (II) the number of shares of Stock, SARs, or performance shares
covered by an Award, and (III) the Option Price of all outstanding options and
the Strike Price of all outstanding SARs, to reflect a stock dividend, stock
split, reverse stock split, share combination, recapitalization, merger,
consolidation, spin-off, split-off, reorganization, rights offering, liquidation
or similar event, of or by the Company.
21. Amendments.
(A) The Board may from time to time in its discretion amend the Plan
without the approval of the stockholders of LaserSight, except as such
stockholder approval may be required under the listing requirements of any
securities exchange or national market system on which are listed equity
securities of LaserSight.
(B) Notwithstanding any provision in this Plan or any Award Agreement,
in the event of a Change in Control within the meaning of Section 2(f)(iii) in
connection with which the holders of Stock receive shares of common stock of the
surviving or successor corporation that are registered under Section 12 of the
1934 Act, there shall be substituted for each option and SAR outstanding on the
date of the consummation of corporate transaction relating to such Change of
Control, a new option or SAR, as the case may be, reflecting the number and
class of shares into which each outstanding share of Stock shall be converted
pursuant to such Change in Control and providing each Grantee with rights that
are substantially identical to those under this Plan in all material respects.
In the event of any such substitution, the purchase price per share in the case
of an option and the Strike Price in the case of an SAR shall be appropriately
adjusted by the Committee, such adjustments to be made in the case of
outstanding options and SARs without a change in the aggregate purchase price or
Strike Price.
22. Termination of the Plan. The Plan shall terminate on the tenth
(10th) anniversary of the Effective Date or at such earlier time as the Board
may determine. No termination shall affect any Award then outstanding under the
Plan.
23. No Illegal Transactions. The Plan and all Awards are subject to all
applicable laws and regulations. Notwithstanding any provision of the Plan or
any Award, Grantees shall not be entitled to exercise, or receive benefits
under, any Award, and the Company shall not be obligated to deliver any Stock or
other benefits to a Grantee, if such exercise or delivery would constitute a
violation by the Grantee or the Company of any applicable law or regulation.
24. Controlling Law. The law of Delaware, except its law with respect
to choice of law, shall control all matters relating to the Plan.
25. Severability. If any part of the Plan is declared to be unlawful or
invalid, such unlawfulness or invalidity shall not invalidate any other part of
the Plan. Any Section or part of a Section so declared to be unlawful or invalid
shall, if possible, be construed in a manner which gives effect to the terms of
such Section or part of a Section to the fullest extent possible while remaining
lawful and valid.
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