LCA-VISION
FULL VALUE COMMITTEE
March 12,
2009
Dear
Fellow Shareholder:
First, the bad news: In a display of
astonishing inattention and disregard for stockholder interests, the LCA-Vision
(NASDAQ: LCAV) Board recently granted options totaling
at
least
365,307 shares to
Steven Straus and other members of LCAV’s executive
team.
These grants represent
over 2% of the Company’s outstanding
shares
– the stockholders’ equity. This is the same Board and
management that presided over a loss of over 94% of the market value over the
past 2 years; that delivered stockholders an adjusted operating
loss
of approximately ($25)
million in 2008, capping off the year with the largest quarterly loss in LCAV’s
history; and that the vast majority of LCAV’s key revenue producers (its
affiliated physicians) don’t trust with the management and strategic direction
of the company.
The good news: Thanks to
our efforts, these options grants have been rescinded.
On
March 9
th
, we
sent a letter to the Compensation Committee of the LCAV Board pointing out that
the option grants exceeded the explicit limits imposed by the terms of the 2006
Stock Incentive Plan stockholders approved at the 2006 annual meeting. Pursuant
to the Plan, options covering no more than 37,500 shares may be granted to any
one individual in any one year. The Board obliterated those limits in
granting Mr. Straus options for 108,816 shares, and each of three other top
executives options for 85,497 shares. In a terse filing on March
11
th
, the
Compensation Committee, characterizing the grants as made “in accordance with
its customary practices,” announced that they had “
inadvertently exceeded the
limitation
” set forth in the Plan.
Unfortunately
for stockholders, this is not the first time that the Board and management have
lined their own pockets in the face of LCAV’s ever-declining performance. Steve
Straus is now entitled to receive two years of severance even upon non-renewal
of his employment agreement, and he is entitled to full vesting of his unearned
performance vesting shares
as
if these shares had been earned at target level
. Stockholders
should only be so lucky. Similarly, according to RiskMetrics Group
(RMG), the annual retainer fee of $225,000 paid to LCAV’s part-time,
non-executive chairman “represented the maximum in annual retainer fees paid to
chairmen in the comparison of companies in all industries.” RMG goes
on to note, “the company’s market capitalization has declined significantly,
while total director pay has remained the same.”
While we
are glad that the options have been rescinded, the episode leaves us with many,
deeply troubling questions.
How could the Compensation Committee
of a public company, responsible for the administration of the Company’s
executive remuneration arrangements, “inadvertently” blow through limits set out
in black and white in a stockholder-approved stock incentive
plan?
How could LCAV’s Board, chaired by Mr. Tony Woods, and
its Compensation Committee, chaired by Mr. Bill Bahl, be so asleep at the wheel
as to let this fiasco occur under their supposed watch?
We
believe the underlying themes are chillingly consistent: ignorance and
arrogance. The Compensation Committee did not understand the
authority granted to it by stockholders under the Plan, nor did they care to do
the diligence necessary to find out. We are also troubled that the
Board, having blundered into these inappropriate grants, rescinded them “at the
recommendation of the company’s chief executive officer.” It is our
understanding that stockholders elect the Board to oversee, direct and hold
accountable management of the company for the benefit of the
stockholders. As the sad tale of LCAV stockholder value attests,
stockholders beware when a Board instead tries to delegate these fundamental
duties back to management. Relevant here is the proverbial fox in the
henhouse.
As LCAV’s
largest stockholder, we question the duty of care and loyalty the Board brings
to its responsibilities, the care with which the Board oversees stockholder
assets, and the seemingly reckless, rubber-stamp inattention that lets the Board
hand out our equity like candy
bars on Halloween
.
If the Board is capable of such
blatant lack of care and attention to its duties in the midst of a proxy contest
when the spotlight is on, all stockholders should fear what costly and
unfortunate surprises may be in store if that spotlight were off. If
we had not caught and raised this issue, who would? The Board
itself? We think not.
Have
there been similar lapses in the past that we don’t know about? Most
chillingly – is the Board really paying attention to the rosy predictions and
assurances management has been making recently in their effort to convince
stockholders of the bright future ahead?
Will the Board closely monitor the
company’s progress and demand accountability from, and change in, management if
and when management once again fails to deliver on
its promises? Given the current, dire state of the
company, the very viability of LCAV and the remaining value of stockholders’
investment rides on the answer to that question.
What we as
stockholders know for certain is the past. The Board appears to have
taken no action when management failed to hit consensus estimates for every
single quarter of 2008, and 6 of the 8 quarters Steve Straus has served as
LCAV’s CEO. Nor did the fact that the Company’s same store procedure
volume has lagged the industry for the last seven quarters seem to raise any
“red flags” for the Board. As stockholders currently captive to this
Board, we can all only hope that the Board does not suffer from color
blindness.
We are
dismayed and disgusted by the arrogant carelessness displayed by the Board in
this fiasco.
We are
offering stockholders an opportunity to step in and change the Board of
LCA-Vision before it’s too late.
You can do your part to make
it happen by signing, dating and returning a WHITE Consent card
today. Remember - we need the consents of a majority of the
outstanding shares to succeed, so doing nothing is effectively a vote for the
incompetent status quo. As a fellow stockholder, help us help us
all.
Thank you
for your support.
Sincerely,
LCA-Vision
Full Value Committee