Advanced Medical Optics (EYE)

Voluntary Stock Option Cancellation

On December 10, 2008, 50 members of AMO’s senior management voluntarily forfeited an aggregate of 785,730 stock options (both vested and unvested) having exercise prices of greater than $40 per share. This action was initiated by management to reduce future expense (2009 and beyond) associated with the initial grant of such stock options in light of the fact that these options may not deliver compensation to the executives that is equivalent to the expense of the grant, which will burden the Company’s statement of operations over the next two to three years, and to more efficiently utilize shares authorized under AMO’s equity compensation plans to meet the plans’ purposes to attract, motivate and retain key talent. The individuals who forfeited options received nothing in return, and were promised nothing in return, such as future equity grants to replace the forfeited options. No new equity grants have been made to members of the Company’s senior management since May 2008, and the Company has no plans to vary its equity grant practices as a result of this forfeiture. In accordance with SFAS 123R, the Company accelerated the remaining expense on these cancelled awards that resulted in pre-tax charges of approximately $0.2 million recorded in cost of sales, $1.0 million recorded in research and development and $4.7 million recorded in selling, general and administrative expense, which is included in the total stock-based compensation expense of $35.0 million. This cancellation created tax shortfalls that resulted in the reversal of $2.5 million of prior period deferred tax assets and the reversal of $2.3 million of deferred tax assets recorded in the current period. The reversal of these deferred tax assets resulted in a decrease to additional paid-in capital as the Company has a sufficient windfall tax pool.

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