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 26, 1999
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
Wednesday, May 26, 1999, at 9:00 a.m., local time, at Embassy Suites, 901 East
Calaveras Blvd., Milpitas, California 95035 for the following purposes:
1. To elect three directors to Class I 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 250,000 shares.
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1999.
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 April 12, 1999 (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.
This Proxy is solicited by and on behalf of the Board of Directors.
FOR THE BOARD OF DIRECTORS
Michael W. Hall
Secretary
Fremont, California
April 23, 1999
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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.
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<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 Wednesday, May 26, 1999, at 9:00 a.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. Only holders of record of the Company's Common Stock, $.001
par value per share (the "Common Stock") and the Series B Convertible Preferred
Stock (the "Preferred Stock") at the close of business on April 12, 1999 (the
"Record Date") will be entitled to vote at the Annual Meeting. The Common Stock
and the Preferred Stock are sometimes referred to herein as the "Capital Stock."
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.
Record Date, Voting and Solicitation
These proxy solicitation materials are being mailed on or about April 23,
1999, to the holders of the Capital Stock on the Record Date, who are entitled
to notice of and to vote at the Annual Meeting. Each share of Common Stock
entitles its holder to one vote on matters to be acted upon at the Annual
Meeting. Each share of Preferred Stock entitles its holder to vote in accordance
with the number of shares of Common Stock into which their shares of Preferred
Stock are convertible. At the Record Date, 12,821,353 shares of the Company's
Common Stock, $0.001 par value, were issued and outstanding and 590,422 shares
of the Company's Preferred Stock were issued and outstanding. As of the Record
Date, each share of Preferred Stock entitled its holder to four votes and the
holders of Preferred Stock were entitled to 2,361,688 votes in the aggregate.
The total number of votes available in the aggregate at the Record Date was
15,183,041.
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. In general, Delaware law 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 and broker non-votes as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. Directors will be elected by a plurality of the votes cast that are
present in person or represented by proxy. Abstentions, withheld votes and
broker non-votes will not effect the election of directors. All other proposals
require the favorable vote of a majority of the votes present and entitled to
vote on the particular proposal. Abstentions will have the same effect as votes
against such a proposal. Broker non-votes will not be counted as votes for or
against such proposal and will not be included in counting the number of votes
necessary for approval of the proposal. 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 all nominees for directors named in the proxy, FOR the
approval of the amendment to the Company's stock plan, 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. 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.
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<PAGE>
The cost of soliciting proxies will be borne by the Company. The Company
has retained Corporate Investor Communications, Inc. to assist in the proxy
solicitation for a fee of $4,500 plus expenses. 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.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
Board of Directors
The Board of Directors consists of eight members, seven of whom are divided
into three classes, with two or three directors in each class, and one
unclassified director. Class I consists of three directors who are serving a
three-year term expiring at this Annual Meeting. 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 three directors who are
serving a three-year term expiring at the Annual Meeting of Stockholders to be
held in 2001. The unclassified director will serve a one-year term expiring at
the Annual Meeting of Stockholders to be held in 2000. 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 April 12, 1999:
<TABLE>
<CAPTION>
Name of Director Age Principal Occupation Director Since Class
- ---------------- --- -------------------- -------------- -----
<S> <C> <C> <C> <C>
Kshitij Mohan 54 Corporate Vice President for research 1997 I
and technical services at Baxter
International, Inc.
Arthur M. Pappas 51 Founder of A.M. Pappas & Associates 1997 I
Peter Wilson 54 Former President of Procter & Gamble's 1998 I
Richardson Vicks USA
Charles Crocker 60 Chairman, President and CEO of BEI 1987 II
Technologies, Inc.
Lawrence A. Lehmkuhl 61 Former Chairman, President and Chief 1992 II
Executive Officer of St. Jude Medical,
Inc.
John R. Gilbert 62 Vice-Chairman of the Board of Directors 1992 III
of the Company
Thomas M. Loarie 52 President, Chief Executive Officer and 1987 III
Chairman of the Board of Directors of
the Company
Kathleen D. La Porte 37 General Partner of the Sprout Group 1998 N/A
</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. Dr. Mohan serves
as a director of the Health Industry Manufacturers Association.
Arthur M. Pappas has served as a director of the Company since January
1997. Mr. Pappas is Chairman and Chief Executive Officer of A.M. Pappas &
Associates, LLC, an international consulting, investment and venture company
that works with early to mid-stage life science companies, technologies and
products. Prior to founding A.M. Pappas & Associates in 1994, he was a director
on the main board of Glaxo Holdings plc with executive responsibilities for
operations in Asia Pacific, Latin America, and Canada. In this capacity, he was
Chairman and Chief Executive of Glaxo Far East (Pte)
-3-
<PAGE>
Ltd. And Glaxo Latin America Inc., as well as Chairman of Glaxo Canada Inc. He
has held various senior executive positions with Abbott Laboratories
International Ltd., Merrell Dow Pharmaceuticals, and the Dow Chemical Company,
in the United States and internationally. Mr. Pappas is a director of
publicly-traded Quintiles Transnational Corp., a leading full-service drug
development organization; GeneMedecine Inc., a gene therapy research company;
Embrex Inc., a research and development company specializing in poultry
in-the-egg delivery systems. He is also a director of privately-held
AtheroGenics Inc. Mr. Pappas received a BS in biology from Ohio State University
and an MBA in finance from Xavier University.
Peter Wilson has served as a director of the Company since August 1998. He
is the former president of Procter & Gamble's Richardson Vicks USA. In 1972 Mr.
Wilson joined the marketing department of Richardson Vicks/Merrell
Pharmaceuticals, rising to president and general manager of the Vidal Sassoon
Division in 1984 and president and general manager of the Personal Care Division
in 1986. He was appointed president of Richardson Vicks in 1990. Mr. Wilson
holds a BS in Geology from Princeton University and an MBA from Columbia
University.
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 1997. As of September 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
Stanford University and an M.B.A. from the University of California at Berkeley.
Mr. Crocker also serves as a Director of 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.
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.
Kathleen D. La Porte has served as a director of the Company since June
1998. Ms. La Porte is a General Partner of the Sprout Group, a venture capital
affiliate of Donaldson, Lufkin & Jenrette Securities Corp. Prior to joining
Sprout in 1993, Ms. La Porte was a Principal at Asset Management Company, a
venture capital firm focused on early stage investments. Prior to joining Asset
Management Company, Ms. La Porte was a Financial Analyst at the First Boston
Corporation. She holds BS in biology from Yale University and an MBA from
Stanford University.
There are no family relationships among the directors or executive officers
of the Company.
-4-
<PAGE>
Nominees
Four directors are to be elected at this Annual Meeting. The Board has
nominated the three current members of the Board constituting Class I to be
re-elected by the holders of Capital Stock and to serve a three-year term
expiring at the Annual Meeting of Stockholders to be held in 2002 and the fourth
director to be elected by the holders of Preferred Stock. 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 nominees are:
o Kshitij Mohan
o Aruthur M. Pappas
o Peter L. Wilson
The holders of Preferred Stock are entitled to elect one director by a
majority vote at the Annual Meeting so long as 300,000 shares of Preferred Stock
are outstanding. Kathleen D. LaPorte is the nominee to be elected by the holders
of Preferred Stock to serve a one-year term expiring at the Annual Meeting of
Stockholders to be held in 2000.
Board Meetings and Committees
The Board of Directors of the Company held a total of ten meetings during
the year ended December 31, 1998. The Board of Directors has 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 Audit Committee of the Board of Directors currently consists of
directors Pappas and La Porte, and held two meetings during the year ended
December 31, 1998. 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, 1998. 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 1998.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1998, none of the Company's executive
officers served on the board of any entities whose directors or officers serve
on the Company's compensation committee. No current or former executive officer
or employee of the Company serves on the committee.
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. For 1998, Mr. Crocker, Mr. Gilbert, Ms. LaPorte, Mr. Lehmkuhl, Mr.
Mohan, Mr. Pappas and Mr. Wilson received $22,500, $20,000, $9,500, $20,000,
$19,500, $20,000 and $9,500, 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 1998, Ms. LaPorte and Mr. Wilson (both new directors as
of June 1998 and August 1998) each were granted options to purchase 7,500 shares
of Common Stock of the Company under the Directors' Plan at an exercise price of
$9.125 and $7.125, respectively. Messrs. Crocker, Gilbert, Lehmkuhl, Mohan and
Pappas each were granted options to purchase 2,500 shares of Common Stock of the
Company under the Directors' Plan at an exercise price of $7.813 per share. Mr.
Weiss, a former director of the Company who resigned in July 31, 1998, was
granted options to purchase 2,500 shares of Common Stock of the Company under
the Directors' Plan at an exercise price of $7.813 per share.
-5-
<PAGE>
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 certain
French laws in order to enable French employees to obtain preferential tax
benefits. On February 26, 1998, the Board amended the Stock Plan, which was
approved at the 1998 Annual meeting, 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). A total of 1,290,000 shares of Common Stock have
been authorized for issuance under the Stock Plan.
On February 17, 1999, the Board amended the Stock Plan, subject to
stockholder approval, to increase by 250,000 shares the aggregate number of
shares authorized for issuance under the Stock Plan (from 1,290,000 shares to
1,540,000 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 250,000 share increase in
the number of shares reserved for issuance under the Stock Plan represents
approximately 2.0% 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 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.
-6-
<PAGE>
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.
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 Code (or any other
-7-
<PAGE>
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, 1998, options for 835,619 shares were outstanding under
the Stock Plan and 448,101 shares remained available for future grants. As of
December 31, 1998, the aggregate fair market value of shares subject to
outstanding options under the Stock Plan was $5,600,870, 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.
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, 1999. 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
-8-
<PAGE>
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, 1999.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of April 12, 1999 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 12, and (iv)
all directors and executive officers as a group. Unless otherwise indicated in
the table, the address of each stockholder identified in the table is 48630
Milmont Drive, Fremont, California 94538. Each percent of ownership assumes that
in addition to the 12,821,353 shares actually outstanding on April 12, 1999, any
shares of Common Stock covered by an option, warrant or other convertible
security owned by the stockholder that could be issued within 60 days, but no
other stockholder, were also outstanding.
<TABLE>
<CAPTION>
Shares
5% Stockholders, Directors, Acquirable Shares Beneficially Owned(1)
Named Executive Officers, and Shares Within 60 -----------------------------
Directors and Executive Officers as a Group Owned Days Number Percent
- ------------------------------------------------------- --------- ----------- -----------------------------
<S> <C> <C> <C> <C>
Goldman Sachs & Co...................................... 2,095,012 -- 2,095,012 16.34%
85 Broad Street
New York, NY 10004
The Sprout Group(2)..................................... -- 1,590,204 1,590,204 11.03%
Sprout Capital VIII, L.P. .............................. -- 1,333,948 1,333,948 9.42%
3000 Sand Hill Road
Menlo Park, CA 94025
The Capital Group Companies, Inc........................ 795,000 -- 795,000 6.20%
333 South Hope Street
Los Angeles, CA 90071
Charles Crocker(3)...................................... 166,943 10,000 176,943 1.38%
Darlene E. Crockett-Billig.............................. 109,085 31,267 140,352 1.09%
Mark Fischer-Colbrie.................................... 76,617 27,501 104,118 *
John R. Gilbert......................................... 37,500 6,500 44,000 *
Kathleen D. La Porte(4)................................. -- 1,590,204 1,590,204 11.03%
Lawrence A. Lehmkuhl.................................... 17,000 10,000 27,000 *
Thomas M. Loarie........................................ 498,733 -- 498,733 3.89%
Kshitij Mohan .......................................... -- 5,000 5,000 *
Edward R. Newill........................................ 1,834 -- 1,834 *
Arthur Pappas .......................................... 22,000 5,000 27,000 *
Thomas A. Silvestrini................................... 197,892 2,975 200,867 1.57%
Peter L. Wilson......................................... 7,000 -- 7,000 *
All directors and officers as a group (12 persons)(5)... 1,134,604 1,688,447 2,823,051 19.46%
</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
-9-
<PAGE>
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) Shares of Common Stock represent the number of shares of Common Stock
issuable to the Sprout Group upon conversion of the Preferred Stock issued
and sold on June 12, 1998 and Preferred Stock issued to the Sprout Group as
dividends as of December 31, 1998. Shares held by the Sprout Group include
shares held by DLJ Capital Corporation, DLJ ESC II, L.P., Sprout Capital
VIII, L.P., Sprout Venture Capital, L.P. and The Sprout CEO Fund.
(3) Includes 55,215 shares held by Fund FBO Charles Crocker.
(4) Represents 1,590,204 shares of Preferred Stock beneficially owned by the
Sprout Group, which is a partnership of which Mr. LaPorte is a general
partner.
(5) Shares attributable to directors and officers as a group include 55,215
shares beneficially held by Mr. Crocker, and aggregate of 98,243 shares
subject to options held by officers and directors which are exercisable
within 60 days after April 12, 1999 and 1,590,204 shares of Common Stock
issuable upon conversion of the Preferred Stock issued to the Sprout Group,
of which Ms. LaPorte is a general partner.
The following table sets forth the beneficial ownership of the Company's
Preferred Stock as of April 12, 1999 as to (i) each person who is known by the
Company to beneficially own more than five percent of the Company's Preferred
Stock, (ii) each of the Company's current directors, (iii) each of the executive
officers named in the Summary Compensation Table beginning on page 12 and (iv)
all directors and executive officers as a group. Unless otherwise indicated in
the table, the address of each stockholder identified in the table is 48560
Milmont Drive, Fremont, California 94538.
5% Stockholders, Directors,
Named Executive Officers, and Shares
Directors and Executive Officers as a Group Owned(1) Percent
- -------------------------------------------------------------------------------
The Sprout Group(2).......................... 393,616 66.67%
Sprout Capital VIII, L.P. ................... 333,487 56.48%
3000 Sand Hill Road
Menlo Park, CA 94025
Johnson & Johnson Development Corporation.... 98,403 16.7%
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
GMI/DRI Investment Trust..................... 32,801 5.6%
P.O. Box 1113
Minneapolis, MN 55440
Special Situations Fund(3)................... 65,602 11.0%
153 East 53rd Street
New York, NY 10022
Charles Crocker ............................. -- *
Darlene E. Crockett-Billig .................. -- *
Mark Fischer-Colbrie ........................ -- *
John R. Gilbert ............................. -- *
Kathleen D. LaPorte(4) ...................... 393,616 66.67%
Lawrence A. Lehmkuhl ........................ -- *
Thomas M. Loarie ............................ -- *
Kshitij Mohan ............................... -- *
Edward R. Newill ............................ -- *
Arthur Pappas ............................... -- *
Thomas A. Silvestrini ....................... -- *
Peter L. Wilson ............................. -- *
All directors and officers as a group
(12 persons) ........................... 393,616 66.67%
(1) As of April 12, 1999, there were accrued dividends on the Preferred Stock,
to be paid in the form of Preferred Stock.
(2) Includes shares held by DLJ Capital Corporation, DLJ ESC II, L.P., Sprout
Capital VIII, L.P., Sprout Venture Capital, L.P. and The Sprout CEO Fund.
(3) Includes shares held by Special Situations Private Equity Fund, L.P.,
Special Situations Fund III, L.P., and Special Situations Cayman Fund, L.P.
(4) Includes 393,616 shares of Preferred Stock beneficially owned by the Sprout
Group, of which Ms. LaPorte is a general partner.
-10-
<PAGE>
EXECUTIVE OFFICERS OF KERAVISION
The current executive officers of KeraVision are as follows:
Name Age Position
Thomas M. Loarie ............ 52 Chairman of the Board of Directors,
Chief Executive Officer and
President
Darlene Crockett-Billig ..... 46 Vice President, Regulatory Affairs
and Clinical Research
Mark D. Fischer-Colbrie ..... 42 Vice President, Finance and
Administration, Chief Financial
Officer
David Heniges ............... 55 Vice President, Europe
Richard Meader .............. 53 Vice President, Quality Assurance
Edward R. Newill ............ 45 Vice President, North American
Marketing and Sales
Thomas A. Silvestrini ....... 46 Vice President, Research and
Development
Robert P. Wood .............. 40 Vice President, Manufacturing
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 f0rom 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, now Baxter International, a manufacturer of healthcare products,
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 member of the Executive Committee of the
Company, a director of the Health Industry Manufacturers Association and serves
on the Board of the California Healthcare Institute.
Darlene E. Crockett-Billig has served as Vice President, Regulatory Affairs
and Clinical Research of the Company since February 1988. From 1986 to 1988, she
served as Regulatory Affairs Manager for CooperVision Ophthalmic Products, an
ophthalmic device manufacturer, where she was responsible for all FDA
submissions, product approval strategies and regulatory compliance. Prior to
that time, Ms. Crockett-Billig spent ten years in management and laboratory
supervision positions with Miles Laboratories and Medtronic, Inc., two
healthcare product manufacturers. Ms. Crockett-Billig received her B.A. in
Biology from Augustana College and her M.B.A. from the College of St. Thomas,
Minnesota.
Mark D. Fischer-Colbrie has served as Vice President, Finance and
Administration and Chief Financial Officer of the Company since March 1992. From
1983 to 1992, Mr. Fischer-Colbrie held several senior financial positions, most
recently as Vice President, Controller, at Maxtor Corporation, a manufacturer of
computer disk drives. Prior to 1983, he worked for four years with a subsidiary
of Xerox Corp. in accounting and finance. Mr. Fischer-Colbrie holds a B.A. from
Stanford University and an M.B.A. in Finance and Marketing from the University
of California at Berkeley.
David Heniges has served as Vice-President Europe since July, 1998. Mr.
Heniges was most recently VP Global Marketing for Baxter International's
Cardiovascular Surgery Division. Prior to that position, Mr. Heniges was VP
Worldwide Business Development for IOLAB, a division of Johnson & Johnson. Mr.
Heniges worked for Johnson & Johnson for 23 years.
Richard Meader has served as Vice-President, Quality Assurance since
September, 1998. Mr. Meader was most recently VP Regulatory and Quality Affairs
for B. Braun/McGaw Inc., a $350 million-a-year maker of medical device systems
for drug delivery and a provider of pharmacy out-source services.
-11-
<PAGE>
Edward R. Newill has served as Vice President, Marketing and Sales since
May 1996. Mr. Newill has 21 years of international experience in a broad range
of surgical specialties including plastic surgery, which like vision correction
surgery is consumer-based and non-reimbursed by insurers. Mr. Newill held
management positions with Mentor from 1990 to 1996. Mr. Newill holds a B.S. in
General Business from Miami University and a Masters International Management
from American Graduate School of International Management.
Thomas A. Silvestrini has served as Vice President, Research and
Development of the Company since July 1990. Prior to joining the Company, Mr.
Silvestrini spent 12 years in senior management and project positions including
Manager of Research and Development, Project Leader, and Senior Research
Scientist with the Corporate Research Center of the Hospital Products Group for
the Pfizer Corporation, a manufacturer of healthcare products. He has received
11 patents for medical devices and has an additional 12 patents pending. Mr.
Silvestrini received his B.S. in Chemical Engineering and his M.S. in Organic
Chemistry from the University of Minnesota.
Robert P. Wood has served as Vice President, Manufacturing since April
1996. From 1994 to 1996, Mr. Wood was operations manager of Allergan, Inc.'s
medical device and pharmaceutical facility. From 1987 to 1994 Mr. Wood held
management positions with Abbott Laboratories. Mr. Wood holds a B.S., in
mechanical engineering from Texas A&M University.
Each executive officer serves at the sole discretion of the Board of
Directors.
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 1998, and the compensation received by each such individual for 1997
and 1996.
<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) 1998 $250,000 $22,500 111,261 $15,000
1997 $250,000 $26,446 80,327 --
1996 $309,272(4) -- -- $50,000
Thomas A. Silvestrini 1998 $178,904 $14,175 40,600 $17,500
1997 $175,000 $14,879 34,000 --
1996 $181,757(4) -- -- $12,500
Edward R. Newill(1) 1998 $155,391 $11,025 63,000 --
1997 $149,692 $8,264 40,100 --
1996 $91,577 -- 60,000 --
Darlene E. Crockett-Billig (1) 1998 $148,235 $12,180 15,000 $14,500
1997 $145,000 $12,220 28,200 --
1996 $143,481(4) -- -- $12,500
Mark Fischer-Colbrie (1) 1998 $138,012 $16,000 15,000 $13,500
1997 $135,000 $10,928 26,300 --
1996 $125,926(4) -- -- $5,000
</TABLE>
(1) Includes amounts earned but deferred at the election of the executive under
the Company's 401(k) Plan.
(2) Consists of incentive stock options ("ISO") granted pursuant to the
Company's 1987 and 1995 Stock Option Plans, of which 6.25% are exercisable
at the end of each three-month period from the grant date. The maximum term
of
-12-
<PAGE>
each option under the 1987 Plan is five years from the date of grant and
under the 1995 Plan is ten years from the date of grant. The exercise price
is equal to the market value of the stock on the grant date.
(3) This amount represents forgiveness of outstanding principal on certain
promissory notes owed to the Company.
(4) These amounts reflect retroactive compensation adjustments made by the
Board of Directors in 1996.
The following tables set forth information for the named executive officers
with respect to grants of options to purchase Common Stock of the Company made
in the year ended December 31, 1998 and the value of all options held by such
executive officers on December 31, 1998.
Option Grants During Year Ended December 31, 1998
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------------------------------------
Number of % of Total Potential Realizable
Securities Options Value at Assumed Annual
Underlying Granted to Exercise or Rates of
Options Employees during Base Price Expiration Stock Price Appreciation
Name Granted Year(1) ($/Sh) Date for Option Term(2)
- ------------------------ ---------- ------------------ ----------- ---------- ------------------------
5% ($) 10% ($)
-------- ---------
<S> <C> <C> <C> <C> <C> <C>
Darlene Crockett-Billig 15,000(4) 2.41% $5.438 8/3/2008 $51,299 $130,002
Mark Fischer-Colbrie 15,000(4) 2.41% $5.438 8/3/2008 51,299 130,002
Thomas M. Loarie 15,000(4) 2.41% $5.438 8/3/2008 51,299 130,002
Thomas M. Loarie 32,000(3) 5.15% $5.938 5/10/2000 119,500 302,837
Thomas M. Loarie 64,261(3) 10.35% $5.938 10/28/2008 239,975 608,143
Edward R. Newill 15,000(4) 2.41% $5.438 8/3/2008 51,299 130,002
Edward R. Newill 48,000(3) 7.73% $5.938 10/28/2008 179,250 454,255
Thomas A. Silvestrini 15,000(4) 2.41% $5.438 8/3/2008 51,299 130,002
Thomas A. Silvestrini 25,600(3) 4.12% $5.938 5/10/2000 95,600 242,269
</TABLE>
- ----------
(1) Based on an aggregate total of 621,131options granted to employees in 1998,
under the Company's 1995 Stock Plan.
(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 would be realized.
(3) Option granted in connection with KeraVision's October repricing program.
These options become exercisable on October 28, 1999 and will be forfeited
if the employee leaves KeraVision prior to that date. See "Option Exchange
Programs" and "Compensation Committee Report - Stock Option Awards for
1998".
(4) These options were granted under the 1995 Stock Plan at an exercise price
equal to the fair market value of KeraVision's Common Stock on the date of
grant. Options will become exercisable, if not accelerated pursuant to the
provisions described below, at the rate of 25% of the original number of
option shares on each of the following dates: May 3, 2003, August 3, 2003,
November 3, 2003 and February 3, 2004. The options exercisability can be
accelerated in part, with the balance to become exercisable in four equal
six-month increments, in the event that the closing price of KeraVision's
Common Stock is at least $22.00 per share (as determined by the daily
closing price on the Nasdaq National Market) for a period of 20 consecutive
trading days (the "Initial Period") and for each of the five business days
(the "Final Period") commencing on the first business day following public
disclosure of KeraVision's earnings release for the fiscal quarter in which
occur the majority of the days in the Initial Period. Exercisability will
commence on the first business day following completion of the Final
Period. 25% of the total number of shares subject to each option shall vest
and become exercisable on the first business day following completion of
the Final Period, and 25% of the remaining balance of such shares shall
vest and become exercisable on each 6-month anniversary of such date
thereafter, for so long as the option holder remains an employee of, or
consultant to, KeraVision.
-13-
<PAGE>
Aggregated Option Exercises in the Year Ended
December 31, 1998 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, 1998 December 31, 1998(1)
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- ---------------------- ----------- -------- --------------------- --------------------
<S> <C> <C> <C> <C>
Darlene Crockett-Billig 20,526 $255,302 27,362/ 47,838 $154,637/$352,155
Mark Fischer-Colbrie 23,228 288,910 24,044/45,256 $136,017/$335,341
Thomas M. Loarie 49,500 615,681 --/111,261 $0/$939,311
Edward R. Newill -- -- --/103,100 $0/$813,339
Thomas A. Silvestrini -- -- 2,125/72,475 $14,743/$568,674
</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, 1998 was
$14.313.
Option Exchange Programs
The following table sets forth certain information with respect to the
Company's exchange of outstanding options with certain of its officers in
October 1998. For further information with respect to such option exchanges, see
"Board Compensation Committee on Executive Compensation - Stock Option Awards in
1998."
Option Repricings in the Year Ended
December 31, 1998 and Year-End Option Values
<TABLE>
<CAPTION>
Number of Weighted Length of
Securities Weighted Original Option Term
Underlying Market price of Exercise Price Remaining (in years)
Options Stock at Time at Time of New at date of Repricing
Repriced of Repricing or Repricing or Exercise or Amendment
Name Date or Amended Amendment Amendment Price
- -------------------- -------- ---------- --------------- -------------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas M. Loarie 10-28-98 32,000 $5.938 $8.75 $5.938 0.70
Thomas M. Loarie 10-28-98 6,261 $5.938 $12.25 $5.938 8.40
Thomas M. Loarie 10-28-98 11,600 $5.938 $7.375 $5.938 8.10
Thomas M. Loarie 10-28-98 46,400 $5.938 $7.375 $5.938 8.10
Edward R. Newill 10-28-98 48,000 $5.938 $15.25 $5.938 7.70
Thomas A. Silvestrini 10-28-98 25,600 $5.938 $8.75 $5.938 0.70
Robert P. Wood 10-28-98 40,000 $5.938 $12.625 $5.938 7.70
Thomas A. Silvestrini 10-28-98 25,600 $5.938 $8.75 $5.938 0.70
</TABLE>
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.
-14-
<PAGE>
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, 1998. 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 1998
Base salaries are set to correspond approximately with the mean of salaries
offered individuals with similar job responsibilities at comparable companies,
including companies in a similar geographic location, and to maintain a close
relationship to the company's performance. In establishing compensation
guidelines with respect to base salary, the Company utilized three outside data
sources for like companies, as provided by a bioscience salary survey, a venture
capital firm salary survey and a review of proxy statements by an outside
service. In addition, a compensation consultant reviewed the Company's plans.
Based on the result of the salary survey, the compensation committee granted
salary increases commensurate with the ranges listed for bioscience companies.
Bonus Plan for 1998
The bonuses paid in 1998 were earned as part of the 1997 bonus plan which
listed specific objectives to be achieved. The compensation committee assessed
performance to those 1997 objectives and determined the appropriate percentage
of completion of goals. These objectives included revenue goals, status of
progress with the FDA, status of new product development and infrastructure
development in several areas.
Stock Option Awards for 1998
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. In 1998, stock option grants of 15,000 shares for each
officer were made and the vesting was tied to the achievement of a specific
stock price as a mechanism for increasing performance.
Vesting is designed to encourage the creation of stockholder value over the
long-term, as no benefit is realized from a stock option grant unless the price
of the Common Stock rises over a number of years and the option holder is
actively employed at the time of vesting. In October 1998, the Company's Board
of Directors reviewed employees' outstanding options and determined that many
employees of the Company held options at exercise prices that exceeded the
closing price of the Common Stock, which limited the options' effectiveness as a
long-term incentive and as a tool for employee retention. Accordingly, the Board
approved an option exchange program, whereby employees were permitted to
voluntarily exchange options held for new options on a four-for-five basis with
a new exercise price of $5.938, the closing price of the Company's Common Stock
on October 28, 1998. The new options granted can not be exercised until October
28, 1999; one year after the program became effective. As an added long-term
incentive, employees participating in the exchange program that leave the
Company prior to the one year lock-up will forfeit their repriced shares. The
forfeited shares will be returned back into the stock plan. In addition to other
non-executive employees, Mr. Thomas M. Loarie, Edward R. Newill and Thomas A.
Silvestrini elected to participate in the October Exchange Program.
-15-
<PAGE>
Compensation of the Chief Executive Officer
The compensation for Thomas M. Loarie, the Company's Chief Executive
Officer ("CEO") consisted of a base salary, an annual bonus, stock option grants
and employee benefits provided to all salaried employees that are usual and
custom for the position.
The Committee determined Mr. Loarie's salary 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 salary was compared to three
outside data sources for like companies, as provided by a bioscience salary
survey, a venture capital firm salary survey and a review of proxy statements by
an outside service. In addition, a compensation consultant reviewed the
Company's plans. Based on the results of the salary survey, the CEO's salary was
not increased in 1998.
Mr. Loarie's 1998 bonus payment of $22,500 reflects the Companies
achievement of the bonus goals set in the 1997 bonus plan. The bonus reflects
the achievement of objectively measured, qualitative goals under the bonus plan
as reviewed and approved by the Committee. As with other executives, size of
option grants is also based on a review of competitive survey data. The stock
option grant of 15,000 shares, given in equal amounts to all of the officers of
the company, is tied to the achievement of a specific stock price in that there
is no vesting of stock until that price point is achieved. 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 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
-16-
<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, 1998 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
[Insert Performance Graph]
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has issued Common Stock to some of its executive officers in
exchange for 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. The
following table sets forth the details of these transactions.
<TABLE>
<CAPTION>
Amount
Amount of Outstanding
Name of Debtor Shares Issued Date Issued Interest Rate 12/31/98
-------------- ------------- ----------- ------------- --------
<S> <C> <C> <C> <C>
Thomas M. Loarie 29,800 1/29/88 5.93% $764.15
Thomas M. Loarie 20,000 3/8/88 5.62% $195.94
Thomas M. Loarie 30,000 3/8/89 5.62% $1,505.42
Thomas M. Loarie 212,685 10/30/91 5.79% $212,848.09
Thomas M. Loarie 42,193 4/12/93 5.73% $102,469.02
Thomas M. Loarie 60,000 11/7/93 5.79% $145,807.79
Thomas A. Silvestrini 34,048 10/30/91 5.79% $34,074.08
Thomas A. Silvestrini 23,447 10/30/91 5.95% $22,952.18
Thomas A. Silvestrini 60,000 11/7/93 5.79% $145,807.79
Darlene Crockett-Billig 12,000 3/8/89 5.62% $62.27
Darlene Crockett-Billig 44,121 10/30/91 5.79% $32,064.08
Darlene Crockett-Billig 40,000 11/7/93 5.79% $97,205.20
Mark Fischer-Colbrie 15,000 11/7/93 5.79% $16,854.70
</TABLE>
In June 1998, the Board of Directors forgave principal in the following amounts:
o $17,500 owed to the Company by Mr. Silvestrini;
o $14,500 owed to the Company by Ms. Crockett-Billig; and
o $13,500 owed to the Company by Mr. Fischer-Colbrie.
In October 1996, the Board of Directors forgave principal in the following
amounts:
o $50,000 owed to the Company by Mr. Loarie;
o $12,500 owed to the Company by Mr. Silvestrini;
o $12,500 owed to the Company by Ms. Crockett-Billig; and
o $5,000 owed to the Company by Mr. Fischer-Colbrie.
On April 1, 1998, the Company entered into the following full-recourse
promissory notes. The loans were AMT cash payments generated by the exercise of
expiring options.
Amount Outstanding
Name of Debtor Interest Rate as of 12/31/98
-------------- ------------- ------------------
Thomas M. Loarie 5.62% $57,665.76
Thomas M. Loarie 5.62% $20,525.10
Thomas A. Silvestrini 5.62% $86,267.32
Mark Fischer-Colbrie 5.62% $98,696.67
On September 1, 1998, the Company entered into the following full-recourse
promissory notes. The loans were utilized to pay off other debt associated with
the financing of expiring option exercises.
Amount Outstanding
Name of Debtor Interest Rate as of 12/31/98
-------------- ------------- ------------------
Thomas M. Loarie 5.35% $298,069.55
Darlene Crockett-Billig 5.35% $84,568.07
Thomas A. Silvestrini 5.35% $77,689.10
Mark Fischer-Colbrie 5.35% $72,578.92
In January 1998, the Company entered into a contract with A.M. Pappas &
Associates, LLC to plan for a clinical trial in Singapore. For the year ended
December 31, 1998, the Company paid A.M. Pappas & Associates, LLC $77,663.
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<PAGE>
In May 1997, the Company entered into change of control agreements with
each of its executive officers. These agreements are intended to provide for
continuity of employment in the event of a change of control as defined by the
agreements, including the following events:
o acquisition by any person of 20 percent or more of the Company;
o reorganization, merger or consolidation of the Company; and
o changes of the "Incumbent Directors" as defined in the agreements.
In the event that during the two year period following a change of control,
the Company terminates an executive's employment "without cause" (as defined in
the agreement) or the executive terminates his employment as a result of an
"Involuntary Termination" (as defined in the agreement), the executive would
receive the following benefits:
o severance payments equal to the salary the executive was receiving at
the time of termination in accordance with the Company's payroll
schedule;
o monthly severance payments equal to one-twelfth of the employee's
"target bonus" (as defined in the agreement");
o the continuation of health and life insurance benefits; and o
outplacement services with a value not to exceed $15,000.
With respect to the change of control agreement with Mr. Loarie, these
benefits will continue for eighteen months from the date of his termination.
With respect to the other executives, these benefits will continue for twelve
months from the date of the executive's termination.
In the event of a change of control of the Company, Mr. Loarie's stock
options shall become fully vested and 50% of the other executive's stock options
shall become fully vested so long as the acceleration of vesting of options does
not preclude a pooling of interests for the proposed transaction. The agreements
provide that any benefits received from the Company constituting "parachute
payments" within the meaning of section 280G of the Code that would subject the
executive to the excise tax imposed by Section 4999 of the Code may be payable
in a manner that does not result in the benefits being subject to an excise tax.
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:
o annual base salary of $250,000;
o an option to purchase 7,827 of common stock;
o a performance bonus of up to 50% of base salary;
o medical, disability and life insurance;
o vacation and sick leave;
o a business expense allowance of up to $15,000 per year, and
o 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, 1998, the Company paid Mr. Gilbert $73,333. This agreement ended in
November 1998.
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
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<PAGE>
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: A Form 4
for Mr. Gilbert was late in filing in connection with an open market purchase.
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 2000 ANNUAL MEETING
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 2000 Annual Meeting must be received by the
Company no later than December 15, 1999 in order that such proposals may be
included in the proxy statement and form of proxy relating to that meeting, and
in any event, must be received by the Company no later than March 25, 2000 to be
eligible for stockholder action in next year's annual meeting.
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: April 23, 1999
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1998 is available
without charge upon written request to Investor Relations, KeraVision, Inc.,
48630 Milmont Drive, Fremont, California, 94538.
<PAGE>
DETACH HERE
PROXY
KERAVISION, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
1999 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of KeraVision, Inc., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated April 23, 1999, and hereby appoints Thomas M. Loarie
and Mark D. Fischer-Colbrie, or either of them, as proxies and attorney-in-fact
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1999 Annual Meeting of
Stockholders of KeraVision, Inc. to be held on Wednesday, May 26, 1999 at 9:00
a.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 Capital 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 I 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 250,000 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
Directors |_| |_|
Nominees: Kshitij Mohan, Arthur M. Pappas and Peter L. Wilson
|_|
--------------------------------------
For all nominees except as noted above
2. To approve the amendment to the FOR AGAINST ABSTAIN
Company's 1995 Stock Plan to |_| |_| |_|
increase the number of shares of
Common Stock reserved for issuance
thereunder by 250,000 shares.
3. To ratify the appointment of Ernst FOR AGAINST ABSTAIN
& Young LLP as the Company's |_| |_| |_|
independent auditors for the year
ending December 31, 1999.
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 envelope.
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:
---------------- ------ ---------------- ------
