Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, For use of the
Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
KERAVISION, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| 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 transactions 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>
KERAVISION, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 4, 1998
TO THE STOCKHOLDERS OF KERAVISION, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
KERAVISION, INC., a Delaware corporation, (the "Company") will be held on
Monday, May 4, 1998, at 1:00 p.m., local time, at Embassy Suites, 901 East
Calaveras Blvd., Milpitas, California 95035 for the following purposes:
1. To elect two directors to Class III of the Board of Directors to serve
for a term of three years and until their successors are elected and
qualified.
2. To approve the amendment to the Company's 1995 Stock Plan to increase
the number of shares of Common Stock reserved for issuance thereunder
by 490,000 shares.
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1998.
4. To transact such other business as may properly come before the
meeting or any postponement or adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 16, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting and
any adjournment(s) thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if such stockholder returned a Proxy.
FOR THE BOARD OF DIRECTORS
Michael W. Hall
Secretary
Fremont, California
March 30, 1998
- --------------------------------------------------------------------------------
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE SIGN AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE
ADDED EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND
SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY.
- --------------------------------------------------------------------------------
<PAGE>
KERAVISION, INC.
48630 Milmont Drive
Fremont, California 94538
PROXY STATEMENT
----------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
KeraVision, Inc. (the "Company"), for use at the Annual Meeting of Stockholders
to be held on Monday, May 4, 1998, at 1:00 p.m., local time, or at any
postponement or adjournment(s) thereof, for the purposes set forth herein and in
an accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
will be held at Embassy Suites, located at 901 East Calaveras Blvd., Milpitas,
CA 95035. The Company's telephone number for information regarding that location
is (510)353-3000.
These proxy solicitation materials were mailed to stockholders on or about
March 30, 1998. The cost of soliciting these proxies will be borne by the
Company.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use either (i) by delivering to the Company
(Attention: Mark Fischer-Colbrie) a written notice of revocation or a duly
executed proxy bearing a later date or (ii) by attending the meeting of
stockholders and voting in person.
Voting and Solicitation
Each share of Common Stock entitles its holder to one vote on matters to be
acted upon at the Annual Meeting, including the election of directors. Votes
cast by proxy or in person at the meeting will be tabulated by the Inspector of
Elections (the "Inspector") with the assistance of the Company's transfer agent.
The Inspector will also determine whether or not a quorum is present. Except in
certain specific circumstances, the affirmative vote of a majority of shares
present in person or represented by proxy at a duly held meeting at which a
quorum is present is required under Delaware law for approval of proposals
presented to stockholders. In general, Delaware law also provides that a quorum
consists of a majority of the shares entitled to vote and present in person or
represented by proxy. The Inspector will treat abstentions as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum and as negative votes for purposes of determining the approval of any
matter submitted to the stockholders for a vote. Any proxy which is returned
using the form of proxy enclosed and which is not marked as to a particular item
will be voted for the election of directors, for the proposed amendment to the
Company's 1995 Stock Plan and for ratification of the appointment of the
designated independent auditors and, as the proxy holders deem advisable, on
other matters that may come before the meeting, as the case may be with respect
to the item not marked. If a broker indicates on the enclosed proxy or its
substitute that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present with
respect to that matter. The Company believes that the tabulation procedures to
be followed by the Inspector are consistent with the general statutory
requirements in Delaware concerning voting of shares and determination of a
quorum.
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 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 or telegram.
-2-
<PAGE>
Record Date and Share Ownership
Only stockholders of record at the close of business on March 16, 1998 are
entitled to notice of and to vote at the meeting. At the record date, 12,667,950
shares of the Company's Common Stock, $0.001 par value, were issued and
outstanding.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
Board of Directors
The Board of Directors is divided into three classes, with two or three
directors in each class. Class I consists of three directors who are serving a
three-year term expiring at the Annual Meeting of Stockholders to be held in
1999. Class II consists of two directors who are serving a three-year term
expiring at the Annual Meeting of Stockholders to be held in 2000. Class III
consists of two directors who are serving a three-year term expiring at this
Annual Meeting. In each case, a director serves for the designated term and
until his or her respective successor is elected and qualified.
The following table sets forth certain information with respect to the
directors of the Company as of March 16, 1998:
<TABLE>
<CAPTION>
Name of Director Age Principal Occupation Director Since Class
- ---------------- --- -------------------- -------------- -----
<S> <C> <C> <C> <C>
Kshitij Mohan 53 Corporate Vice President for research 1997 I
and technical services at Baxter
International, Inc.
Arthur M. Pappas 50 Founder of A.M. Pappas & Associates 1997 I
Steven N. Weiss 51 Partner of Montgomery Medical Ventures 1987 I
Charles Crocker 59 Chairman, President and CEO of BEI 1987 II
Technologies, Inc.
Lawrence A. Lehmkuhl 60 Former Chairman, President and Chief 1992 II
Executive Officer of St. Jude Medical,
Inc.
John R. Gilbert 61 Vice-Chairman of the Board of Directors 1992 III
of the Company
Thomas M. Loarie 51 President, Chief Executive Officer and 1987 III
Chairman of the Board of Directors of
the Company
</TABLE>
Kshitij Mohan has served as a director of the Company since January 1997.
From 1995 to present, Dr. Mohan has served as Corporate Vice President for
research and technical services at Baxter International Inc. Dr. Mohan
previously served as a director of device evaluation at the Food and Drug
Administration's Center for Devices and Radiological Health. Dr. Mohan holds a
B.S. in Physics from Patna University, a M.S. in Physics from University of
Colorado, and a Ph. D. in Physics from Georgetown University.
Arthur M. Pappas has served as a director of the Company since January
1997. In 1994, Mr. Pappas founded the life science and high technology
consulting and investment firm of A.M. Pappas & Associates LLC. Mr. Pappas is a
former board member of Glaxo Holdings plc and past chairman of Glaxo Far East
Ltd., Glaxo Latin America Inc. and Glaxo Canada Inc. Mr. Pappas is currently a
director of Quintiles Transnational Corp., GeneMedicine, Inc. and Embrex, Inc.
Mr. Pappas holds a B.S. in Biology from Ohio State University and a M.B.A. in
Finance from Xavier University.
Steven N. Weiss has served as a director of the Company since January 1987.
Since 1985 he has been a partner of Montgomery Medical Ventures, a venture
capital firm. Mr. Weiss has held a number of senior management positions in the
medical device industry and holds B.S. and M.S. degrees from City College of New
York and an M.B.A. from Fordham University. Mr. Weiss also serves as a director
of Innerdyne, Inc. and a number of private companies.
-3-
<PAGE>
Charles Crocker has served as a director of the Company since January 1987.
Mr. Crocker served as Chairman of the Board of BEI Electronics, Inc. from 1974
to September 27, 1997. As of September 27, 1997, Mr. Crocker serves as Chairman,
President and CEO of BEI Technologies, Inc., a diversified electronics company
specializing in electronic sensors and motion control products, and as Chairman
of the Board of BEI Medical Systems Company (formerly BEI Electronics, Inc.), a
medical device company specializing in diagnostic and therapeutic products for
the women's healthcare market. He has been President of Crocker Capital, a
private venture capital firm, since 1985. Mr Crocker holds a B.S. degree from
Standford University and an M.B.A. from the University of California at
Berkeley. Mr. Crocker also serves as a Director of BEI Technologies, Inc., BEI
Medical Systems Company, Inc., Fiduciary Trust Company International and Pope &
Talbot, Inc.
Lawrence A. Lehmkuhl has served as a director of the Company since August
1992. From 1985 to 1994, Mr. Lehmkuhl was the Chairman, President and Chief
Executive Officer of St. Jude Medical, Inc., a medical device manufacturer.
Prior to 1985, Mr. Lehmkuhl spent 18 years in management positions with American
Hospital Supply Corporation. Mr. Lehmkuhl holds a B.B.A. from the University of
Iowa. Mr. Lehmkuhl is also a director of Nutrition Medical, Inc. and Fisher
Imaging, Inc.
John R. Gilbert has served as a director of the Company since April 1992.
Mr. Gilbert retired from a 30-year career at Johnson & Johnson, where he served
as Vice Chairman of IOLAB Corporation and Vice President of Johnson & Johnson
International. From 1981 to 1987, Mr. Gilbert was President of IOLAB
Corporation, an international manufacturer and distributor of ophthalmic
products. Mr. Gilbert holds a B.S. degree in Industrial Technology from Texas
A&M University.
Thomas M. Loarie has served as President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since September 1987. From
1985 until joining KeraVision, Mr. Loarie served as President of ABA
BioManagement, a management service firm specializing in medical technology
start-ups, and from 1984 to 1985 he served as President of Novacor Medical
Corporation, a manufacturer of cardiovascular implants. Prior to 1984, Mr.
Loarie held management positions in four divisions of American Hospital Supply
Corporation, a manufacturer of healthcare products (now Baxter International),
serving most recently as President of the American Heyer-Schulte Division, where
he was responsible for bringing several new implantable devices to the markets
of neurosurgery, oncology, urology, plastic surgery and wound management as well
as rebuilding the company's international business. Mr. Loarie holds a B.S.
degree in engineering from the University of Notre Dame and has completed
graduate work in business administration at the Universities of Chicago and
Minnesota. Mr. Loarie also serves as a director and member of the Executive
Committee of the Health Industry Manufacturers Association and as a director of
the California Healthcare Institute.
Nominees
Two directors are to be elected at this Annual Meeting. The Board has
nominated the two current members of the Board constituting Class III to be
re-elected and to serve a three-year term expiring at the Annual Meeting of
Stockholders to be held in 2001. Unless otherwise instructed, the proxy holders
will vote the proxies received by them for the nominees named below, regardless
of whether any other names are placed in nomination by anyone other than one of
the proxy holders. In the event that any such nominee is unable or declines to
serve as a director at the time of the Annual Meeting, the proxy holders will
vote in their discretion for a substitute nominee. It is not expected that any
nominee will be unable or will decline to serve as a director. The term of
office of each person elected as a director will continue until his term expires
and until his successor has been elected and qualified.
The names of the nominees, their ages as of March 16, 1998, and certain
other information about them are set forth below:
<TABLE>
<CAPTION>
Name of Nominee Age Principal Occupation Director Since
- --------------- --- -------------------- --------------
<S> <C> <C> <C>
John R. Gilbert........................ 61 Vice-Chairman of the Board of Directors of the Company 1992
Thomas M. Loarie....................... 51 President, Chief Executive Officer and Chairman of the 1987
Board of Directors of the Company
</TABLE>
Except as set forth above, each of the nominees has been engaged in the
principal occupation set forth next to his name during the past five years.
There are no family relationships among the directors or executive officers of
the Company.
-4-
<PAGE>
Board Meetings and Committees
The Board of Directors of the Company held a total of seven meetings during
the year ended December 31, 1997. The Board of Directors has an Executive
Committee, an Audit Committee and a Compensation Committee. It does not have a
nominating committee or a committee performing the functions of a nominating
committee.
The Executive Committee currently consists of directors Crocker, Gilbert,
Loarie and Weiss, and held one meeting during the year ended December 31, 1997.
The Executive Committee has much of the authority of the full Board of Directors
(subject to certain limitations).
The Audit Committee of the Board of Directors currently consists of
directors Pappas and Weiss, and held two meetings during the year ended December
31, 1997. The Audit Committee reviews the Company's internal controls and meets
periodically with management and the independent auditors.
The Compensation Committee of the Board of Directors currently consists of
directors Crocker and Lehmkuhl, and held six meetings during the year ended
December 31, 1997. The Compensation Committee is responsible for setting and
administering the policies for executive compensation and short-term and
long-term incentive programs.
None of the incumbent directors attended fewer than 75% of the aggregate
number of meetings of the Board of Directors and of the committees upon which
such director served during 1997.
Director Compensation
The Company currently pays each director who is not an employee $1,000 for
each meeting attended of the Board of Directors, $500 if attended by telephone,
an annual retainer of $12,000 and reimburses each director for out-of-pocket
expenses incurred in connection with their attendance at meetings of the Board
of Directors. In addition, pursuant to the terms of a special arrangement with
Directors Pappas and Weiss, the Company is obligated to pay Mr. Pappas and Mr.
Weiss $19,450 and $26,250, respectively. For 1997, Mr. Crocker, Mr. Gilbert, Mr.
Lehmkuhl, Mr. Mohan, Mr. Pappas and Mr. Weiss received $19,500, $19,000,
$21,000, $16,500, $15,500 and $25,608, respectively. Nonemployee directors
participate in the Company's 1995 Director Stock Option Plan (the "Directors'
Plan"), pursuant to which such directors are automatically granted options to
purchase shares of Common Stock of the Company on the terms and conditions set
forth in the Directors' Plan. During 1997, Messrs. Mohan and Pappas (both new
directors as of January 1, 1997) each were granted options to purchase 7,500
shares of Common Stock of the Company under the Directors' Plan at an exercise
price of $13.25. Messrs. Crocker, Gilbert, Lehmkuhl and Weiss each were granted
options to purchase 2,500 shares of Common Stock of the Company under the
Directors' Plan at an exercise price of $9.875 per share.
Involvement in Certain Legal Proceedings
Mr. Weiss consented, without admitting or denying any wrongdoing, to the
entry of an administrative cease and desist order issued by the Securities and
Exchange Commission on July 1, 1997 in connection with allegations that he did
not timely file certain reports required as a result of his indirect beneficial
ownership in Montgomery Medical Ventures II, L.P., a California limited
partnership ("MMV") under Section 16 of the Securities Exchange Act of 1934. Mr.
Weiss is a general partner of Montgomery Medical Partners II, L.P., a California
limited partnership, and a general partner of MMV. Mr. Weiss has informed the
Company that he believes that the alleged untimely filings were inadvertent, and
resulted neither in any economic harm to any person nor any economic gain to
either Mr. Weiss or MMV.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES LISTED
ABOVE.
PROPOSAL 2: APPROVAL OF THE AMENDMENT TO THE 1995 STOCK PLAN
The Company's 1995 Stock Plan (the "Stock Plan") was adopted by the Board
of Directors on June 1, 1995 and approved by the stockholders in July 1995. In
June 1996, the Stock Plan was amended by the Board of Directors to comply with
certain requirements of Rule 16b-3 of the Securities Exchange Act of 1934, as
amended, and the Internal Revenue Code of 1986, as amended (the "Code"). In May
1997, the Board of Directors amended the Stock Plan to comply with
-5-
<PAGE>
certain French laws in order to enable French employees to obtain preferential
tax benefits. A total of 800,000 shares of Common Stock have been authorized for
issuance under the Stock Plan.
On February 26, 1998, the Board amended the Stock Plan, subject to
stockholder approval, to increase by 490,000 shares the aggregate number of
shares authorized for issuance under the Stock Plan (from 800,000 shares to
1,290,000 shares). The amendment was designed to ensure that the Company can
continue to grant stock options at levels determined appropriate by the Board.
The Board of Directors believes that in order to attract, motivate and retain
highly qualified employees and consultants and to provide such employees and
consultants with adequate incentive through their proprietary interest in the
Company, it is necessary to increase the number of shares available for issuance
under the Stock Plan. Stock options serve as an incentive which rewards
employees and consultants for their performance and for business successes
reflected in stock price appreciation. The proposed 490,000 share increase in
the number opf shares reserved for issuance under the Stock Plan represents
approximately 3.9% of the number of outstanding shares.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE 1995 STOCK PLAN
The essential features of the Stock Plan are outlined below.
General
The Stock Plan provides for the grant to employees of the Company
(including officers and employee directors) of "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and for the grant of nonstatutory stock options to employees and
consultants of the Company. The purposes of the Stock Plan are to attract and
retain the best available personnel for positions of substantial responsibility
to provide additional incentives to the employees and consultants of the Company
and to promote the success of the Company's business.
Administration
The Stock Plan is administered by the Compensation Committee of the Board
of Directors of the Company (the "Administrator"). The Administrator selects the
optionees, determines the number of shares to be subject to each option and
determines the exercise price, term and the rate at which the options become
exercisable.
Eligibility
Under the Stock Plan, employees (including officers and employee directors)
may be granted incentive stock options within the meaning of Section 422 of the
Code, and employees and consultants may be granted nonstatutory stock options.
The Stock Plan provides that the maximum number of shares of Common Stock which
may be granted under options to any one employee during any fiscal year shall be
250,000 shares, subject to adjustment as provided in the Stock Plan. In
addition, to the extent than an optionee would have the right in any calendar
year to exercise for the first time one or more incentive stock options for
shares having an aggregate fair market value (under all plans of the Company and
determined for each share as of the date the option to purchase the share was
granted) in excess of $100,000, such excess options shall be treated as
nonstatutory stock options.
Exercise Price
The exercise price of all incentive stock options granted under the Stock
Plan must be at least equal to 100% of the fair market value of the Common Stock
of the Company on the date of grant. The exercise price of all nonstatutory
stock options granted under the Stock Plan must be equal to at least 85% of the
fair market value of the Common Stock on the date of grant. With respect to any
participant who owns stock representing more than 10% of the voting power of all
classes of stock of the Company, the exercise price of any stock option granted
must equal at least 110% of the fair market value. With respect to any
nonstatutory stock option granted to certain executive officers of the Company,
the exercise price of such option must be at least equal to the fair market
value of the Common Stock of the Company on the date of grant. The fair market
value per share is equal to the closing price on the Nasdaq National Market on
the date of grant. The exercise price may be paid in such consideration as
determined by the Administrator, including, but not limited to cash, check,
promissory notes and shares of the Company's Common Stock.
-6-
<PAGE>
Term
The Administrator determines the term of options. If an optionee owns stock
possessing more than 10% of the voting power of the Company's outstanding
capital stock, the term of an option may not exceed five years. The term of
incentive stock options may not exceed ten years. The Stock Plan provides that
in the event of the termination of an optionee's employment or consulting
relationship with the Company, such optionee may exercise any vested options
within three months following termination (or such other period of time not
exceeding six months, in the case of a nonstatutory stock option following
termination as determined by the Administrator). If the optionee was not
entitled to exercise the option at the date of such termination, or if the
optionee does not exercise such option (which the optionee was entitled to
exercise) within the time specified the option shall terminate.
Exercisability
The Administrator determines when options become exercisable, including any
restrictions or limitations such as those based on continued employment.
Adjustment Upon Changes in Capitalization or Merger
In the event of certain changes in control of the Company, such as a
proposed sale of all or substantially all of the Company's assets, or a merger
of the Company with or into another corporation, the Stock Plan requires that
each outstanding option be assumed or an equivalent option substituted by the
successor corporation; provided, however, that the Administrator may, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
provide for the optionee to have the right to exercise the option as to all or a
portion of the stock subject thereto, including shares which would not otherwise
be exercisable, or the Administrator may terminate the unvested and unexercised
option.
Transferability
No option may be transferred by the optionee other than by will or the laws
of descent or distribution. Each option may be exercised, during the lifetime of
the optionee, only by such optionee.
Amendment and Termination of Stock Plan
The Board of Directors may at any time amend or terminate the Stock Plan,
except that such action cannot adversely affect options previously granted
without the agreement of any optionee so affected. To the extent necessary and
desirable to comply with Rule 16b-3 under the Exchange Act or with Sections
162(m) and 422 of the Internal Revenue Code (or any other applicable law or
regulation, including the requirements of any exchange or reporting system on
which the Company's Common Stock may then be listed), the Company must obtain
stockholder approval of any Stock Plan amendment in such a manner and to such a
degree as required. If not terminated earlier, the Stock Plan will terminate in
2005.
Options Granted
As of December 31, 1997, options for 773,573 shares were outstanding under
the Stock Plan and 25,021 shares remained available for future grants. As of
December 31, 1997, the aggregate fair market value of shares subject to
outstanding options under the Stock Plan was $4,931,528, based upon the closing
price of the Common Stock as reported on the Nasdaq National Market on such
date. The actual benefits, if any, to the holders of stock options issued under
the Stock Plan are not determinable prior to exercise, as the value, if any, of
such stock options to their holders is represented by the difference between the
market price of a share of the Company's Common Stock on the date of exercise
and the exercise price of a holder's stock option.
Tax Information
The following is only a brief summary of the federal income tax
consequences for the optionee and the Company with respect to the grant and
exercise of options under the Stock Plan. This summary does not purport to be
complete, and does not discuss the tax consequences of the optionee's death or
the income tax laws of any municipality, state or foreign country in which an
optionee may reside. The Company advises all optionees to consult their own tax
advisors with respect to the tax consequences of their participation in the
Stock Plan.
-7-
<PAGE>
Options granted under the Stock Plan may be either incentive stock options,
which are intended to qualify for the special tax treatment provided by Section
422 of the Code, or nonstatutory stock options which will not so qualify.
If an option granted under the Stock Plan is an incentive stock option,
under Federal tax law, an optionee will recognize income upon grant of the
option and have no regular taxable liability due to the exercise. However, the
excess of the value of the stock subject to the option over the exercise price
will be an item of alternative minimum taxable income, which could result in the
optionee being subject to the alternative minimum tax for the year of exercise.
Upon the sale or exchange of the shares more than two years after grant of the
option and more than one year after exercise of the option, any gain will be
treated as long-term capital gain. If both of these holding periods are not
satisfied (a "disqualifying disposition"), the optionee will recognize ordinary
income equal to the difference, if any, between the exercise price and the lower
of (i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. A different rule for measuring ordinary
income upon such a disqualifying disposition may apply if the optionee is also
an officer, director, or 10% stockholder of the Company. The Company will be
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Any gain or loss recognized on such a disqualifying disposition of
the shares in excess of the amount treated as ordinary income will be
characterized as long-term or short-term capital gain or loss, depending on
whether or not the disposition occurs more than one year after the exercise
date.
All other options which do not qualify as incentive stock options or are
not designated as such are referred to as nonstatutory stock options. An
optionee will not recognize any taxable income under Federal tax laws at the
time he or she is granted a nonstatutory stock option. However, upon its
exercise, the optionee will recognize ordinary taxable income measured by the
excess of the then fair market value of the shares over the exercise price. A
different rule for measuring ordinary income upon exercise may apply if the
optionee is an officer, director or 10% stockholder of the Company. The Company
will be entitled to a tax deduction in the same amount as the ordinary income
recognized by the optionee with respect to shares acquired upon exercise of a
nonstatutory stock option. The taxable income recognized by an optionee who is
also an employee of the Company will be subject to income and employment tax
withholding by the Company by payment in cash by the optionee or out of the
optionee's current earnings. Upon resale of such shares by the optionee, any
difference between the sale price and the optionee's tax basic (exercise price
plus the income recognized upon exercise) are treated as capital gain or loss
and will qualify for long-term capital gain or loss treatment if the shares have
been held for more than one year after the exercise date.
PROPOSAL NO. 3: APPROVAL OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP,
independent auditors, to audit the financial statements of the Company for the
year ending December 31, 1998. In the event the stockholders do not ratify such
appointment, the Board of Directors will reconsider its selection.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting and will have the opportunity to respond to appropriate questions and to
make a statement if they desire.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPROVAL
OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDING
DECEMBER 31, 1998.
-8-
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of March 16, 1998 as to (i) each person who is known by the
Company to beneficially own more than five percent of the Company's Common
Stock, (ii) each of the Company's current directors, (iii) each of the executive
officers named in the Summary Compensation Table beginning on page 10, and (iv)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
5% Stockholders, Directors, Shares Beneficially Owned(1)
Named Executive Officers, ---------------------------------------
and Directors and Executive Officers as a Group Number Percent
- ------------------------------------------------------------------ ---------------- -------------------
<S> <C> <C>
Goldman Sachs & Co.............................................. 2,322,404 18.33%
85 Broad Street
New York, NY 10004
The Capital Group Companies, Inc................................ 795,000 6.28%
333 South Hope Street
Los Angeles, CA 90071
Charles Crocker(2).............................................. 174,942 1.38%
Darlene E. Crockett-Billig(3)................................... 177,882 1.40%
John R. Gilbert(4).............................................. 62,366 *
Lawrence A. Lehmkuhl(5)......................................... 24,999 *
Thomas M. Loarie(6)............................................. 540,442 4.27%
Kshitij Mohan(7)................................................ 2,500 *
Edward R. Newill(8)............................................. 26,981 *
Arthur Pappas(9)................................................ 24,500 *
Patrick Sabaria(10)............................................. 36,666 *
Thomas A. Silvestrini(11)....................................... 224,342 1.77%
Steven N. Weiss (12)............................................ 24,900 *
All directors and officers as a group (11 persons)(13).......... 1,320,520 10.42%
</TABLE>
- ----------
*Less than 1%
(1) Information with respect to beneficial ownership is based upon information
furnished by each director and officer or contained in filings made with
the Securities and Exchange Commission. Except as indicated in the
footnotes to this table, the stockholders named in this table have sole
voting and investment power with respect to all shares of common stock
shown as beneficially owned by them, subject to community property laws
where applicable.
(2) Includes 55,215 shares held by Fund FBO Charles Crocker and 10,999 shares
subject to options exercisable within 60 days after March 16, 1998.
(3) Includes 26,305 shares subject to options exercisable within 60 days after
March 16, 1998.
(4) Includes 44,866 shares subject to options exercisable within 60 days after
March 16, 1998.
(5) Includes 8,999 shares subject to options exercisable within 60 days after
March 16, 1998.
(6) Includes 56,259 shares subject to options exercisable within 60 days after
March 16, 1998.
(7) Represents 2,500 shares subject to options exercisable within 60 days after
March 16, 1998.
(8) Includes 26,250 shares subject to options exercisable within 60 days after
March 16, 1998.
(9) Includes 2,500 shares subject to options exercisable within 60 days after
March 16, 1998.
(10) Represents 36,666 shares subject to options exercisable within 60 days
after March 16, 1998.
(11) Includes 26,450 shares subject to options exercisable within 60 days after
March 16, 1998.
(12) Includes 6,665 shares subject to options exercisable within 60 days after
March 16, 1998.
(13) Includes an aggregate of 248,459 shares subject to options held by officers
and directors which options are exercisable within 60 days after March 16,
1998.
-9-
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows the compensation received by the Company's Chief
Executive Officer and the four most highly compensated executive officers of the
Company for 1997, and the compensation received by each such individual for 1996
and 1995.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards All Other(3)
----------------------------------------- ------------------------- -----------------
Securities Underlying
Year Salary Bonus Options(2)
--------- -------- ------- ---------------------
<S> <C> <C> <C> <C> <C>
Thomas M. Loarie (1) 1997 $235,000 $26,446 80,327 --
1996 $309,272(4) -- -- $50,000
1995 $205,000 -- 40,000 --
Patrick Sabaria (5) 1997 $206,044 $13,788 40,700 --
1996 $125,485 -- 80,000 --
1995 -- -- -- --
Thomas A. Silvestrini 1997 $175,000 $14,879 34,000 --
1996 $181,757(4) -- -- $12,500
1995 $150,000 -- 32,000 --
Edward R. Newill(1) 1997 $149,692 $8,264 40,100 --
1996 $91,577 -- 60,000 --
1995 -- -- -- --
Darlene E. Crockett-Billig (1) 1997 $145,000 $12,220 28,200 --
1996 $143,481(4) -- -- $12,500
1995 $120,000 -- 32,000 --
</TABLE>
- ----------
(1) Includes amounts earned but deferred at the election of the executive under
the Company's 401(k) Plan.
(2) Consists of incentive stock options ("ISO") granted pursuant to the
Company's 1987 and 1995 Stock Option Plans, of which 6.25% are exercisable
at the end of each three month period from the grant date. The maximum term
of each option under the 1987 Plan is five years from the date of grant and
under the 1995 Plan is ten years from the date of grant. The exercise price
is equal to the market value of the stock on the grant date.
(3) This amount represents forgiveness of outstanding principal on certain
promissory notes owed to the Company.
(4) These amounts reflect retroactive compensation adjustments made by the
Board of Directors in 1996.
(5) Mr. Sabaria joined the Company on April 8, 1996.
-10-
<PAGE>
The following tables set forth information for the named executive officers
with respect to grants of options to purchase Common Stock of the Company made
in the year ended December 31, 1997 and the value of all options held by such
executive officers on December 31, 1997.
Option Grants During Year Ended December 31, 1997
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------------------------------------------
Number of % of Total Potential Realizable
Securities Options Value at Assumed Annual
Underlying Granted to Exercise or Rates of
Options Employees during Base Price Expiration Stock Price Appreciation
Name Granted Year(1) ($/Sh) Date for Option Term(2)
- ------------------------- ------------ ---------------- ---------- --------- ------------------------
5% ($) 10% ($)
--------- ---------
<S> <C> <C> <C> <C> <C> <C>
Darlene Crockett-Billig 28,200 5.75% $7.375 8/28/2007 $130,883 $331,683
Thomas M. Loarie 7,827 1.60% $12.250 2/27/2007 60,299 152,809
Thomas M. Loarie 72,500 14.79% $7.375 8/28/2007 336,490 852,732
Edward R. Newill 40,100 8.18% $7.375 8/28/2007 186,114 471,649
Patrick Sabaria 40,700 8.30% $7.375 8/28/2007 188,899 478,706
Thomas A. Silvestrini 34,000 6.93% $7.375 8/28/2007 157,802 399,902
</TABLE>
- --------------
(1) Based on an aggregate total of 490,342 options granted to employees in
1997.
(2) Potential realizable values are reported net of the option exercise price,
but before taxes associated with the exercise, if any. These amounts
represent certain assumed rates of appreciation only, in accordance with
regulations of the Securities and Exchange Commission. Actual gains, if
any, on stock option exercises and Common Stock holdings are dependent on
the future performance of the Common Stock and overall market conditions,
as well as executives continued employment through the vesting period.
There is no assurance that the amounts reflected will be realized.
Aggregated Option Exercises in the Year Ended
December 31, 1997 and Year-End Option Values
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Shares December 31, 1997 December 31, 1997(1)
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- ---------------------------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Thomas M. Loarie 10,500 $47,250 78,967/ 90,860 $147,631/$0
Thomas A. Silvestrini 28,497 $128,237 22,400/43,600 $0/$0
Darlene Crockett-Billig -- -- 42,926/37,800 $39,167/$0
Edward R. Newill -- -- 22,500/77,600 $0/$0
Patrick Sabaria -- -- 25,833/94,867 $0/$0
</TABLE>
- --------------
(1) The fair market value of the Company's Common Stock (as reported on the
Nasdaq National Market) at the close of business on December 31, 1997 was
$6.375.
-11-
<PAGE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following Compensation
Report and the Performance Graph shall not be incorporated by reference into any
such filings.
COMPENSATION COMMITTEE REPORT
The following is a report of the Compensation Committee of the Board of
Directors (the "Committee") describing the compensation policies applicable to
the Company's executive officers during the year ended December 31, 1997. The
Committee recommends salaries, incentives and other forms of compensation for
directors, officers and other employees of the Company, administers the
Company's various incentive compensation and benefit plans (including stock
plans) and recommends policies relating to such incentive compensation and
benefit plans. Executive officers who are also directors have not participated
in deliberations or decisions involving their own compensation.
Compensation Policy
The Company's executive officer compensation philosophies are designed to
attract, motivate and retain senior management by providing an opportunity for
competitive, performance-based compensation. Executive officer compensation
consists of competitive base salaries and stock-based incentive opportunities in
the form of options to purchase the Company's Common Stock. The Company
currently does not contribute to any retirement programs on behalf of its
employees, including executive officers.
Base Salaries for 1997
In establishing compensation guidelines with respect to base salary, the
Company utilized data from various surveys prepared by independent firms to
assist it in setting salary levels competitive with those of other medical
industry companies. While it is the Committee's intent to continue to review
periodically base salary information to monitor competitive ranges within the
applicable market, including consideration of the Company's geographic location
and individual job responsibilities, it is further the intent of the Committee
to maintain a close relationship between the Company's performance and the base
salary component of its executive officers' compensation.
Stock Option Awards for 1997
The Company's 1995 Stock Option Plan provides for the issuance of stock
options to officers and employees of the Company to purchase shares of the
Company's Common Stock at an exercise price equal to the fair market value of
such stock on the date of grant. The Company's stock options typically vest
ratably over a period of four years. Stock options are granted to the Company's
executive officers and other employees both as a reward for past individual and
corporate performance and as an incentive for future performance. The Committee
believes that stock-based performance compensation arrangements are essential in
aligning the interests of management and the stockholders in enhancing the value
of the Company's equity.
Compensation of the Chief Executive Officer
The compensation for Thomas M. Loarie, the Company's Chief Executive
Officer ("CEO") is determined based on a number of factors, including
comparative salaries of CEO's of medical companies in the Company's peer group,
the CEO's individual performance and the Company's performance as measured
against the stated objectives. The CEO's total compensation package includes
stock option grants with the goal of motivating leadership for long-term Company
success and providing significant reward upon achievement of Company objectives
and enhancing stockholder value. As with other executives, size of option grants
is also based on a review of competitive survey data. The 1997 compensation of
Thomas M. Loarie consisted of base salary, bonus and stock options. See
"Executive Compensation -- Summary Compensation Table."
Deductibility of Executive Compensation
The Committee has considered the impact of Section 162(m) of the Internal
Revenue Code adopted under the Omnibus Budget Reconciliation Act of 1993, which
section disallows a deduction for any publicly held corporation for individual
compensation exceeding $1 million in any taxable year for the CEO and four other
most highly compensated executive officers, unless such compensation meets the
requirements for the "performance-based" exception to the general
-12-
<PAGE>
rule. Since the cash compensation paid by the Company to each of its executive
officers is expected to be well below $1 million and the Company believes that
options granted under the Company's 1987 and 1995 Stock Option Plans will meet
the requirements for qualifying as performance-based, the Committee believes
that this section will not affect the tax deductions available to the Company.
It will be the Committee's policy to qualify, to the extent reasonable, the
executive officers' compensation for deductibility under applicable tax law.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Charles Crocker
Lawrence A. Lehmkuhl
-13-
<PAGE>
Performance Graph
The following graph compares the cumulative total stockholder return,
assuming reinvestment of all dividends, for the Company's Common Stock at
December 31, 1997 since July 28, 1995 (the date on which the Company's stock was
first registered under Section 12 of the Securities Exchange Act of 1934) to the
cumulative return over such period of (i) the U.S. Index for the Nasdaq National
Market and (ii) the S&P Health Care Composite Index. The graph assumes that $100
was invested on July 28, 1995 in the Common Stock of the Company and in each of
the comparative indices. The graph further assumes that such amount was
initially invested in the Common Stock of the Company at a price per share of
$13.50, the price to which such stock was first offered to the public by the
Company on that date. The stock price performance on the following graph is not
necessarily indicative of future stock price performance.
Comparison of Total Return
AMONG KERAVISION, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE S & P HEALTH CARE SECTOR INDEX
Cumulative Total Return
------------------------------
7/28/95 12/95 12/96 12/97
Keravision Inc KER 100 93 102 47
NASDAQ STOCK MARKET (U.S.) INAS 100 113 139 171
S & P HEALTH CARE SECTOR IHCC 100 129 156 224
-14-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has issued 394,678 shares of Common Stock to Thomas M. Loarie,
149,495 shares of Common Stock to Thomas A. Silvestrini, 108,121 shares of
Common Stock to Darlene Crockett-Billig and 15,000 shares of Common Stock to
Mark D. Fischer-Colbrie, each of whom is an executive officer of the Company, in
exchange for promissory notes at interest rates ranging from 3.7% to 7.4%. As of
March 16, 1998 pursuant to the terms of such promissory notes, the officers were
indebted to the Company in the amounts of $442,788.91, $212,212.03, $137,944.10
and $29,463.37, respectively. In October 1996, the Board of Directors forgave
principal in the amount of $50,000, $12,500, $5,000 and $12,500 owed to the
Company by each of Messrs. Loarie, Silvestrini, Fischer-Colbrie and Ms.
Crockett-Billig, respectively, under certain promissory notes. The shares were
issued pursuant to restricted stock purchase agreements under the Company's 1987
Stock Purchase Plan at the fair market value of the Common Stock of the Company
on the date of grant.
In May 1997, the Company entered into Change of Control Agreements with
each of its executive officers. Pursuant to the terms of the agreements, in the
event of a change in control of the Company, the executive officers are entitled
to certain severance benefits, including acceleration of vesting, continuation
of salary, bonus and other benefits.
In January 1997, the Company entered into a three year employment agreement
with Thomas M. Loarie. Pursuant to the terms of the agreement, Mr. Loarie is
entitled to receive annual base salary of $250,000, an option to purchase 7,827
of common stock, a performance bonus of up to 50% of base salary, additional
benefits and 18 months base salary compensation in the event of involuntary
termination of employment.
In January 1996, the Company entered into a Consulting Agreement with John
R. Gilbert, one of the Company's directors. This agreement provides for an
annual consulting fee of $80,000 to be paid to Mr. Gilbert. For the year ended
December 31, 1997, the Company paid Mr. Gilbert $80,000.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers that may require the Company, among
other things, to indemnify them against certain liabilities that may arise by
reason of their status or services as director or officer and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified.
The terms of the transactions described above were negotiated at arms
length such that the terms were as favorable to the Company as could have been
obtained from an unaffiliated third party.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities
to file with the Securities and Exchange Commission (the "SEC") initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. To the Company's knowledge, all of
these filing requirements have been satisfied with the following exception: Mr.
Loarie was late in filing a Form 4 for the month of December 1997 in connection
with his exercise of an option. In making this statement, the Company has relied
solely upon review of the copies of such reports furnished to the Company and
written representations from its officers and directors that no other reports
were required.
DEADLINE FOR RECEIPT OF STOCKHOLDER
PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 1999 Annual Meeting must be received by the
Company no later than December 2, 1998 in order that such proposals may be
included in the proxy statement and form of proxy relating to that meeting.
-15-
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the
meeting. If any other matters properly come before the meeting, then the persons
named in the enclosed form of proxy will vote the shares they represent in such
manner as the Board may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Michael W. Hall
Secretary
Dated: March 30, 1998
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1997 is available
without charge upon written request to Investor Relations, KeraVision, Inc.,
48630 Milmont Drive, Fremont, California, 94538.
-16-
<PAGE>
DETACH HERE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
KERAVISION, INC.
1998 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of KeraVision, Inc., a Delaware corporation,
hereby acknowledged receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated March 30, 1998, and hereby appoints Thomas M. Loarie
and Mark D. Fischer-Colbrie, or either of them, as proxies and attorneys-in-fact
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1998 Annual Meeting of
Stockholders of KeraVision, Inc. to be held on Monday, May 4, 1998 at 1:00 p.m.,
local time, at Embassy Suites, 901 East Calaveras Blvd., Milpitas, California,
and at any adjournment(s) or postponement(s) thereof, and to vote all shares of
Common Stock that the undersigned would be entitled to vote if then and there
personally present, on the matters set forth on the reverse side, and in their
discretion, upon such other matter or matters that may properly come before the
meeting and any adjournment(s) thereof.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<PAGE>
DETACH HERE
|X| Please mark
votes as in
this example.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF THE CLASS III DIRECTORS TO
SERVE FOR A TERM OF THREE YEARS; (2) FOR APPROVAL OF AN AMENDMENT TO THE
COMPANY'S 1995 STOCK PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE THEREUNDER BY 490,000 SHARES; (3) FOR RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
1. Election of FOR WITHHELD Nominees:
Directors |_| |_| John R. Gilbert
Thomas M. Loarie
|_|
---------------------------------------
For both nominees except as noted above
2. To approve an amendment to the Company's 1995 FOR AGAINST ABSTAIN
Stock Plan to increase the number of shares |_| |_| |_|
of Common Stock reserved for issuance
thereunder by 490,000 shares
3. To ratify the appointment of Ernst & Young FOR AGAINST ABSTAIN
LLP as the Company's independent auditors for |_| |_| |_|
the year ending December 31, 1998
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT |_|
NOTE: This Proxy should be marked, dated, signed by the stockholder(s) exactly
as his or her name appears hereon, and returned in the enclosed envelop. Persons
signing in a fiduciary capacity should so indicate. If shares are held by joint
tenants or community property, both should sign.
Signature: Date:
----------------------------------------------------- ----------
Signature: Date:
----------------------------------------------------- ----------
