VISX Governance Principles

The following principles have been approved by the Board of Directors ("the Board") and, along with the charters of the various Board committees, provide the framework for the governance of VISX. This structure is designed to be a working structure for principled actions, effective decision-making and appropriate monitoring of both compliance and performance. The Board recognizes that there is an on-going and energetic debate about corporate governance, and will review these principles and other aspects of governance annually, or more often if deemed necessary.

  1. Role of Board and Management. VISX's business is conducted by its employees, managers and officers, under the direction of the chief executive officer (CEO) and the oversight of the Board. The primary focus of these groups is the enhancement of the long-term value of the company for its stockholders.

    The Board is elected by the stockholders to oversee management and to assure that the long-term interests of the stockholders are served.

    VISX's Board and management are committed to achieving business success through maintenance of the highest standards of responsibility and ethics.

     

  2. Functions of the Board. The Board has five scheduled meetings a year at which it reviews and discusses reports by management on the performance of the company, its plans and prospects, as well as immediate issues facing the company.

    In addition to its general oversight of management, the Board performs a number of specific functions, including:

     

    a. selecting, evaluating and compensating the CEO and overseeing CEO succession planning;

     

    b. evaluating and compensating the executive officers of the company;

     

    c. reviewing, approving and monitoring fundamental financial and business strategies and major corporate actions;

     

    d. assessing major risks facing the company - and reviewing options for their mitigation; and

     

    e. ensuring processes are in place for maintaining the integrity of the company - including but not limited to the integrity of the financial statements, the integrity of compliance with law and ethics, the integrity of relationships with customers and suppliers, and the integrity of relationships with stockholders.

     

  3. Director Responsibilities. The fundamental role of the directors is to exercise their business judgment to act in what they reasonably believe to be the best interests of VISX. To satisfy this duty, the directors will take an active, focused approach to their position.

    The directors' job requires them to ask probing questions of management and to obtain accurate and honest answers. Directors rely on the advice, reports and opinions of management, counsel and expert advisors. They shall have the benefit of directors' and officers' insurance, paid by VISX, will receive indemnification to the fullest extent allowed under VISX's charter and Delaware law, and will receive exculpation as provided by VISX's charter and Delaware law.

    Directors are expected to rigorously prepare for, attend and participate in all Board meetings, and to spend the time needed and meet as often as necessary to properly discharge their obligations. Information that is important to the understanding of the business to be conducted at such meetings should generally be distributed in writing to the directors prior to the meeting, although sensitive subjects may be discussed without advance distribution of written materials.

     

  4. Director Qualifications. Directors should possess high personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the stockholders. They must also have an inquisitive and objective perspective, practical wisdom and mature judgment.

    Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serve on the Board for an extended period of time. Directors should offer their resignation in the event of any significant change in their personal circumstances that could affect their ability to act in the best interests of the Company, including a change in their principal job responsibilities, so the Board may review the continued appropriateness of their Board membership under the circumstances.

    The Board does not believe that arbitrary term limits on directors' service are appropriate, nor does it believe that directors should expect to be renominated annually until they reach the mandatory retirement age. The Governance Committee shall be responsible for reviewing with the Board, on an annual basis, the appropriate skills and characteristics required of directors and the composition of the Board. This assessment will include an evaluation of directors' qualifications as independent, as well as consideration of character, diversity, skills, judgment and experience in such areas as operations, technology, finance, marketing, manufacturing and the general needs of the Board. This process will be an important determinant for Board tenure.

    Directors will not be nominated for election to the Board after their 72nd birthday, although this limitation does not apply to non-employee directors serving as of December 12, 2002. Directors shall not serve on more than three other boards of public companies in addition to the VISX Board.

     

  5. Independence of Directors. A majority of the directors will be independent under the proposed criteria established by the New York Stock Exchange (NYSE). To be considered independent under the proposed NYSE rules, the Board must determine that a director does not have any direct or indirect material relationship with VISX. Independence determinations will be made each December in connection with the Board's annual self-evaluation process.

    The company will not make extensions of credit in the form of personal loans to directors or executive officers.

     

  6. Selection Process and Size of Board. The directors are elected each year by the stockholders at the annual meeting of stockholders. Directors will be nominated by the Governance Committee of the Board, in accordance with the charter of that committee. The Board will review such nominations and will finalize the slate of nominees to be presented to stockholders.

    Between annual stockholder meetings, the Board may elect directors to serve until the next annual meeting. The Board believes that, given the size and breadth of VISX and the need for diversity of Board views, the size of the Board should be up to seven directors. The Board may amend the corporate by-laws to modify the size of the Board should it determine such a change is appropriate.

     

  7. Board Committees. The Board has established the following three committees to assist the Board in discharging its responsibilities: (i) audit; (ii) compensation; and (iii) governance. Committee members will be appointed by the Board following recommendation by the Governance Committee, in accordance with the charter of that committee. Committee chairs shall be appointed by the Board, and shall be rotated, such that the chair of each committee shall serve for no longer than three consecutive years at a time, commencing December 12, 2002.

     

    a. Independence of Committee Members. All committee members must meet the criteria for independence established by the NYSE, the Securities and Exchange Commission, and applicable law.

     

    b. Committee Charters. Each committee shall have its own charter. Each charter will set forth the purposes, policies and responsibilities of the committee in addition to the qualifications for committee membership, procedures for committee member nomination and removal, committee organization and functioning and how the committee will communicate with the Board. The charters will provide that each committee will meet to review its performance once a year. The current charters of each committee shall be published on the VISX website, and will be mailed to stockholders on written request.

     

    c. Meeting Procedures. The chairman of each committee will, in consultation with the appropriate committee members and members of management, and in accordance with the committee's charter, determine the frequency and length of committee meetings and develop the committee's agenda. At the beginning of the year, each committee will establish a schedule of agenda subjects to be discussed during the year (to the extent these can be foreseen). The schedule for each committee will be furnished to the full Board.

     

    d.Committee Responsibilities. The committees shall have the following general responsibilities:

     

    i. Audit Committee. The Audit Committee shall oversee the company's financial reporting process. In discharging its responsibilities, the Audit Committee shall, among other things, monitor internal corporate controls, review and evaluate independent auditors, including the independence of such auditors, hire or replace such auditors, and report to the Board the results of such auditor examinations and recommendations.

     

    ii. Compensation Committee. The Compensation Committee shall, among other things, evaluate and approve compensation and benefits for VISX's CEO and other executive officers and make recommendations to the Board respecting incentive compensation plans. In addition, the committee may grant equity compensation to VISX's employees pursuant to VISX's equity compensation plans.

     

    iii. Governance Committee. The Governance Committee shall, among other things, review, solicit and make recommendations to the Board and stockholders respecting candidates for election to the Board, administer the Board self-evaluation process, evaluate the current organization, governance and composition of the Board, and review and make recommendations to the Board about director qualifications and Board committee appointments. The committee shall also make recommendations to the Board respecting compensation and benefits for non-employee directors and succession planning for the CEO.

     

  8. Meetings of Non-Employee Directors. The Board will conduct an independent Board session at each Board meeting without management present. The chairman of the Governance Committee will preside at such meetings, and will serve as the "Lead Director" in performing such other functions as the Board may direct, including advising on the selection of committee chairs and advising management on the agenda for Board meetings. The Lead Director shall be identified in the company's annual proxy materials.

    The non-employee directors may meet without management present at such other times as determined by the Lead Director.

     

  9. Self-Evaluation. The Board and each of the committees will perform an annual self-evaluation. These evaluations will review the conduct and contributions of the Board and the committees as a whole, and will specifically review areas in which the Board and management believe improvements can be made. The Governance Committee will oversee the evaluation process, and will organize and summarize the evaluations for discussion with the Board and the committees at the December Board meeting.

     

  10. Setting Board Agenda. The Board shall be responsible for its agenda. At the December Board meeting, the CEO will propose for the Board's approval key issues of strategy, risk and integrity to be scheduled and discussed during the course of the next calendar year. Before that meeting, the Board may offer its suggestions. As a result of this process, a schedule of major discussion items for the following year will be established. Prior to each Board meeting, the CEO will discuss the other specific agenda items for the meeting with the Lead Director. The CEO and the Lead Director, or committee chair as appropriate, shall determine the information that shall be provided regularly to the directors before each scheduled Board or committee meeting. Directors are urged to make suggestions for agenda items, or additional pre-meeting materials, to the CEO, the Lead Director, or appropriate committee chair at any time.

     

  11. Ethics and Conflict of Interest. The Board expects directors, as well as officers and employees, to act ethically at all times and to acknowledge their adherence to the policies comprising VISX's code of ethics. If an actual or potential conflict of interest arises for a director, the director shall promptly inform the CEO and the Lead Director. If a significant conflict exists and cannot be resolved, the director should resign. All directors will recuse themselves from any discussion or decision affecting their personal, business or professional interests. The Board shall resolve any conflict of interest question involving the CEO or executive officers.

     

  12. Reporting of Concerns to Non-Employee Directors or the Audit Committee. Beginning January 1, 2003, anyone who has a concern about VISX's conduct, or about the company's accounting, internal accounting controls or auditing matters, may communicate that concern directly to the Lead Director, to the non-employee directors, or to the Audit Committee. Such communications may be confidential or anonymous, and may be e-mailed, submitted in writing, or reported by phone. All such concerns will be forwarded to the appropriate directors for their review, and will be reviewed and addressed in the same way that other concerns are addressed by the company. The status of all outstanding concerns addressed to the non-employee directors, the Lead Director, or the Audit Committee will be reported to the directors on a quarterly basis. The non-employee directors, the Lead Director, or the Audit Committee may direct special treatment, including the retention of outside advisors or counsel, for any concern addressed to them.

     

  13. Compensation of Board. The Governance Committee shall review non-employee director compensation and benefits on an annual basis. Changes in non-employee director compensation, if any, shall be recommended by the committee and discussed and voted upon by the full Board. Director compensation shall be guided by three goals: to compensate directors fairly for work required in a company of VISX's size and scope; to align directors' interests with the long-term interests of stockholders; and to structure director compensation so it is simple, transparent and easy to understand.

     

  14. Succession Plan. The Board shall approve and maintain a succession plan for the CEO, based upon recommendations from the Governance Committee.

     

  15. Annual Compensation Review of Senior Management. The Compensation Committee shall annually approve the goals and objectives for compensating the CEO. That committee shall evaluate the CEO's performance in light of these goals before setting the CEO's salary, bonus and other incentive and equity compensation. The committee shall also annually approve the compensation structure for the company's executive officers, and shall evaluate the performance of such officers before approving their salary, bonus and other incentive and equity compensation.

     

  16. Access to Senior Management. Non-employee directors have complete access to all VISX officers and employees. Any meetings or contacts that a director desires to initiate may be arranged privately by the director or through the CEO or other VISX officer.

     

  17. Access to Independent Advisors. The Board and its committees shall have the right at any time to retain independent outside financial, legal or other advisors at company expense.

     

  18. Director Orientation. The general counsel and the chief financial officer shall be responsible for providing an orientation for new directors, and for periodically providing materials or briefing sessions for all directors on subjects that would assist them in discharging their duties. Each new director shall, within six months of election to the Board, attend a certified director education course, selected from a list of such courses approved by the Governance Committee. Incumbent directors will also attend certified director education courses, selected from a list of such courses approved by the Governance Committee, from time to time.