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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
Form 10-K/A
(Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Year Ended December 31, 1998, or
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[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____ to _________.
Commission file number: 0-26208
KERAVISION, INC.
(Exact name of Registrant as specified in its charter)
Delaware 77-0328942
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
48630 Milmont Drive
Fremont, CA 94538
(Address of principal executive offices)
Registrant's telephone number, including area code: (510) 353-3000
__________________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
__________________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (__)
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant based upon the closing sale price of the Registrant's Common Stock on
the Nasdaq National Market was approximately $152,467,487 as of March 31, 1999.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
There were 12,820,919 shares of Registrant's Common Stock issued and
outstanding as of March 31, 1999.
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DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for the Registrant's 1999 Annual Meeting of
Stockholders scheduled to be held on May 26, 1999 is incorporated by reference
in Part III of this Form 10-K Report.
EXPLANATORY NOTE
The undersigned Registrant hereby amends its Annual Report on Form 10-K for
the year ended December 31, 1998 as follows:
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PART I
Item 1. Business
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The Company notes that certain of the statements in this report, including
without limitation statements about the timing of FDA approval, are forward
looking. Actual results may differ materially due to a variety of factors
including, but not limited to (i) unavailability of capital, (ii) lack of market
acceptance of KeraVision Intacs, (iii) determinations by the FDA or foreign
regulatory bodies that the clinical data collected are insufficient to support
the safety and efficacy of KeraVision Intacs (iv) changes in regulatory review
guidelines, procedures, regulations or administrative interpretations, (v)
complications relating to KeraVision Intacs or the surgical procedure, (vi)
competitive products and technology, and (vii) other risk factors described
under the heading "Risk Factors Affecting the Company, its Business and its
Stock Price" as set forth below in this Item 1.
General
KeraVision was founded in 1986 to develop and commercialize proprietary
medical products for the treatment of common vision problems, including myopia
(nearsightedness), hyperopia (farsightedness) and astigmatism, which in the
aggregate are believed to affect one-half of the world's population.
KeraVision's initial product, KeraVision Intacs/TM/ are designed to reduce or
eliminate the need for eyeglasses or contact lenses to correct myopia by
reshaping the curvature of the cornea of the eye. KeraVision Intacs is composed
of two thin, half-circles that are inserted into the periphery of the cornea in
a simple outpatient procedure. KeraVision Intacs is made from a polymer that has
been used in intraocular lens replacements for cataract surgery since 1952.
KeraVision Intacs is designed to be permanent; however, it can be removed if
desired and the shape of the eye returns typically to its original curvature.
The currently available refractive surgery procedures typically require
irreversible cutting or tissue removal in the central cornea. Other potential
benefits of KeraVision Intacs are expected to include:
. long-term, convenient correction,
. rapid visual recovery,
. predictable results,
. a simple, minimally-invasive, out-patient procedure.
Recent Developments
FDA approval. On April 9, 1999 KeraVision obtained FDA approval to distribute
and sell KeraVision Intacs in the United States for the treatment of myopia in
the range of -1.0 to -3.0 diopters of correction in patients over 21 years old.
The FDA approval is conditioned upon post-market surveillance consisting of
monitoring a limited number of patients who participated in the Phase III
clinical trial for a period of two years. Results from the Phase III clinical
trial of KeraVision Intacs indicate that 97% of the patients achieved 20/40 or
better vision, 87% were 20/25 or better, 70% were 20/20 or better and 53% were
20/16 or better.
Prior to granting this approval, the FDA had accepted for filing KeraVision's
application to sell KeraVision Intacs in August 1998. On January 12, 1999, the
relevant FDA advisory panel unanimously recommended that the FDA approve
KeraVision's application with conditions. These conditions related to labeling
changes and the post-market surveillance study. In February 1999, the FDA deemed
KeraVision's application "approvable."
We have also applied for FDA clearance of our pending 510(k) pre-market
approval application for some of the surgical instruments which are used in the
KeraVision Intacs procedure. Upon receipt of this approval we plan to commence
commercialization of KeraVision Intacs in the United States. We have taken the
following steps to prepare for this commercialization:
Surgeon training. We have established sites to train surgeons in the
KeraVision Intacs treatment. These sites are located in Atlanta, Houston, Kansas
City, San Diego, Santa Monica, and St. Louis. Each site is headed by an
ophthalmic surgeon who will lead the training. We have established relationships
with eye care services companies to provide surgical support services for
KeraVision's surgical training course in over 20 vision correction surgery
centers in the United States. To promote optimum clinical results, we will
proctor surgeons once they return home and begin performing the Intacs
treatment.
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Sales team. We have hired 11 direct sales representatives and four
manufacturers' representatives. Their initial focus will be on the vision
correction surgery markets where excimer laser procedures have already gained
acceptance.
Market development. We are testing a multi-media advertising campaign in a
Canadian market and, if it is successful, may use this campaign in the United
States. As surgeons are trained in the KeraVision Intacs treatment, we intend to
help create consumer awareness through locally-oriented advertising and
publicity activities.
Distribution and Sales. In April 1999, we entered into additional purchase and
distribution agreements with several eye care services companies that specialize
in vision correction. These companies have agreed to purchase KeraVision Intacs
and related instrumentation for use in vision correction surgery centers in the
United States.
In Canada, KeraVision received approval in May 1998 to sell KeraVision Intacs
for the range of -1.0 to -5.0 diopters of correction, as well as the related
instrument set. KeraVision began commercialization of KeraVision Intacs in the
European Union for both mild and moderate myopia in December 1996, after
receiving the right to affix the CE Mark and the certification of KeraVision's
ISO 9001 quality system in November 1996. To date, KeraVision has primarily
concentrated its selling efforts for KeraVision Intacs and related instruments
in Canada, France and Germany.
In Singapore, KeraVision began a clinical trial in July 1998 with the
objective of obtaining approval to sell product there after sufficient analysis
has been completed. KeraVision is also investigating other regions of Asia for
potential future commercialization opportunities.
In April 1997, KeraVision began a feasibility study outside the United States
using KeraVision Intacs technology for the treatment of hyperopia. With
encouraging initial results obtained from 40 patients, KeraVision is seeking to
expand its feasibility study to up to three European clinical centers. Nine
patients have been enrolled in the expanded study.
Sales and Marketing
Vision impairment is a common worldwide healthcare problem. KeraVision
estimates that over one-half of the world's population suffers from common
vision problems such as myopia, hyperopia or astigmatism. In the United States,
approximately 140 million people currently use some form of eyewear to correct
for common vision problems, and an estimated 70 million people suffer from
myopia. Glasses and contacts are the most prevalent techniques to correct
vision. Surgical techniques to correct common vision problems, known as
refractive surgery, include laser assisted in situ keratomileusis ("LASIK"),
photo-refractive keratectomy ("PRK") and radial keratotomy ("RK"). LASIK and PRK
both require the use of a laser system to remove corneal tissue to achieve
flattening of the cornea. It is estimated more than 350,000 laser-based
treatments were performed in 1998, a substantial growth from the estimated
80,000 procedures performed in 1996, the first year after the approval of PRK in
late 1995. Each of these procedures requires irreversible cutting or tissue
removal in the central cornea.
KeraVision believes that KeraVision Intacs may provide the following potential
benefits for the treatment of myopia:
. Long-term, Convenient Correction. KeraVision designed KeraVision Intacs
to provide permanent correction of myopia in a form more convenient than
eyeglasses or contact lenses;
. Removable, Replaceable Product. KeraVision Intacs can be removed in a
simple, outpatient procedure, if desired. In cases where KeraVision
Intacs has been removed, patients typically have returned to
approximately the same level of vision as measured prior to insertion of
KeraVision Intacs;
. Rapid Visual Recovery. Clinical trials to date have demonstrated that
significant improvements in vision are achieved within one day after
insertion of KeraVision Intacs;
. Predictable Results. KeraVision believes it has developed the ability to
adequately predict the correction that can be achieved using KeraVision
Intacs;
. Simple, Minimally-Invasive, Outpatient Procedure. The KeraVision Intacs
procedure, which requires a single, small incision and separation of
corneal tissue layers, can typically be performed in less than 15
minutes. The outpatient procedure, performed using topical anesthesia,
results in minimal trauma to the eye; and
. Standardized Procedure. KeraVision designed KeraVision Intacs and related
instrumentation to standardize the procedure to promote ease of surgery
and consistent outcomes.
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Strategy
KeraVision's objective is to commercialize KeraVision Intacs technology for
the treatment of common vision problems on a worldwide basis. KeraVision's
business strategy for achieving this objective includes the following key
elements:
. Commercialize KeraVision Intacs for Treatment of Myopia. KeraVision
received approval to commercialize KeraVision Intacs in the European
Union in November 1996 with sales efforts focused in France and Germany.
KeraVision received approval from the FDA in late 1996 to commence a
Phase III clinical trial in the United States and had its premarket
approval application accepted for filing by the FDA in August 1998. On
April 9, 1999, KeraVision received FDA approval to sell and distribute
KeraVision Intacs in the United States for the treatment of myopia. In
Canada, KeraVision received approval to sell KeraVision Intacs and
related instrumentation in May 1998. By focusing on the approval and
commercialization of KeraVision Intacs for myopia, KeraVision seeks to
establish a scientific, technical, regulatory and marketing platform to
facilitate the approval and launch of potential products under
development for the treatment of other vision problems.
. Increase Awareness of KeraVision Intacs. In developing and testing its
technology, KeraVision works with a broad range of independent
researchers to expand awareness of KeraVision Intacs technology.
KeraVision also works with leading surgeons and academic centers in the
ophthalmology field in the design, development and clinical testing of
its technology. KeraVision believes that these researchers, practitioners
and institutions, among others, have significant influence on the
adoption of new technologies and the development of clinical parameters
upon which these technologies are analyzed. In addition, KeraVision
dedicates significant resources to the publication of research papers,
the presentation of clinical and technical data at major ophthalmology
conferences, and the review of KeraVision Intacs clinical data with
leading ophthalmologists. Through these activities, KeraVision seeks to
disseminate accurate clinical information and foster awareness of
KeraVision Intacs technology.
. Focus Initial Marketing on Surgeons. KeraVision is focusing its initial
marketing efforts on opinion leaders and surgeons with active practices
in the ophthalmic community. As part of this strategy, KeraVision has
developed surgeon training programs utilizing its proprietary instruments
to promote standardized procedures for insertion of KeraVision Intacs.
KeraVision believes that an emphasis on surgeon training will aid in
achieving successful procedural outcomes and thereby increase market
acceptance of KeraVision Intacs by both ophthalmic surgeons and patients.
. Expand Applications of Core Technology. KeraVision has products under
development utilizing its core KeraVision Intacs technology for the
treatment of other common vision problems, including hyperopia and
astigmatism. In each target application, KeraVision seeks to preserve the
potential advantages of its technology as a refractive procedure that
does not interfere with the central cornea. KeraVision is currently
working to expand the potential applications of its core KeraVision
Intacs technology, including the development of new designs, the use of
new materials and the development of new surgical techniques and
instruments.
. Utilize Advanced Development Methods. KeraVision seeks to use advanced
scientific and engineering methods in developing KeraVision Intacs
technology or other potential products for different types of vision
impairment. These include the use of sophisticated modeling techniques to
understand the optical, mechanical and biological effects of inserting
KeraVision Intacs or other potential products into the cornea to correct
for myopia, hyperopia, astigmatism or combinations of each. KeraVision
believes that this approach allows it to improve the design of its
potential products and increase its understanding of potential product
performance prior to commencing clinical trials.
. Strengthen Proprietary Position. KeraVision intends to continue to
develop and protect its proprietary KeraVision Intacs technology. To
date, KeraVision has 18 United States and 24 foreign patents issued and
has filed applications for over 180 United States and foreign patents.
Background
Vision and Vision Impairment. The eye functions much like a camera,
incorporating a lens system consisting of a cornea and a lens that focuses
light, the iris which functions as an aperture system that regulates the amount
of light that passes through the central zone of the cornea, and the retina, a
light-sensitive surface that, like film, records the image. The cornea, lens and
iris operate to focus light rays on the retina, which contains the light-
sensitive receptors that transmit the image through the optic nerve to the
brain. Nearly all light that reaches the retina passes through the central
portion of the
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cornea, called the optical zone. Approximately 75% of the refractive, or
focusing, power of the eye is provided by the curvature of the cornea.
Most common refractive problems result from an inability of the optical system
to focus images on the retina properly. This inability to focus is known as a
refractive error. For instance, in the myopic (nearsighted) eye, light rays
focus in front of the retina when the curvature of the cornea is too steep.
People with myopia see nearby objects clearly, but distant objects appear
blurry. Conversely, in the hyperopic (farsighted) eye, light rays focus behind
the retina when the curvature of the cornea is too flat. People with hyperopia
see distant objects clearly, but may need correction so that nearby objects do
not appear blurry. In the astigmatic eye, the curvature of the cornea is not
uniform. This lack of uniform curvature makes it difficult for a person to focus
clearly on an object. Refractive surgery changes the cornea's refractive power
by altering the curvature of the cornea, so that light passing through the eye
can be properly focused on the retina, thereby improving vision.
Vision Correction Market. KeraVision estimates that over one-half of the
world's population suffers from common vision problems such as myopia, hyperopia
or astigmatism. In the United States alone, approximately 140 million people
currently use eyeglasses or contact lenses to correct these common vision
problems, with over $12 billion spent for corrective eyewear products annually.
It is estimated that over 70 million people are affected by myopia. Of the 70
million people with myopia, an estimated 26 million people have low to moderate
myopia without significant astigmatism and are age 21 or older. As many as an
estimated 22 million of these 26 million people have mild myopia and require -
1.0 to -3.5 diopters of correction, the range covered by KeraVision Intacs
application. In addition to age and degree of myopia, KeraVision believes that
the potential market for KeraVision Intacs may be further limited by the
inability of some patients to afford the procedure, the psychological aversion
of some patients to refractive surgery, the acceptance of other refractive
surgery techniques or other factors.
Market research in the United States has shown that people using corrective
eyewear would like to achieve long-term, more convenient vision correction. In
response, ophthalmic surgeons and medical researchers have sought to develop
alternatives to eyeglasses and contact lenses to correct refractive errors.
Their efforts have resulted in the emergence of the field of refractive surgery.
The most prevalent surgical techniques that have emerged are LASIK, PRK and
RK. Generally these procedures have been used to treat myopia; however, laser-
based technologies to treat hyperopia have recently been approved by the FDA,
and other procedures are under development.
Although the target market is potentially large, it is estimated that over 50%
of that group have completed another refractive surgery or are currently outside
the range of correction provided by KeraVision Intacs.
Current Refractive Surgery Techniques. Current refractive surgery procedures
include PRK, LASIK and RK, among others. PRK is a refractive surgery technique
in which a laser is used to irreversibly remove tissue within the optical zone
to reshape the cornea, with the amount of tissue to be removed based upon the
level of intended change sought. Typically, the top layer of the central cornea,
known as the epithelium, is manually removed. The patient is then asked to
fixate on a light to minimize eye movement while the laser removes or ablates
tissue from the central cornea. The procedure, the results of which can be
dependent on the variability of the laser beam and individual patient wound
healing response, is conducted in an outpatient setting using topical
anesthetic, although postoperative pain may require the prescription of
narcotics for the first few days following the procedure. While vision
improvement is achieved, PRK depends in part on a healing response to reach the
desired level of flattening of the cornea, which generally occurs over a three-
month period, although the cornea may continue to reshape itself over a 12- to
15-month period. The equipment required to conduct this procedure is
significantly more expensive than the equipment required for use in RK. Because
PRK, like RK, surgically alters tissue in the optical zone, haze, haloes,
reduced night vision and other vision problems have been observed in patients
who have undergone the PRK procedure.
LASIK, estimated to be the most common refractive surgery technique used in
the United States, involves using an automated cutting device called a
microkeratome to cut a large corneal flap, which is then pulled back to expose
the underlying tissue called the stroma. A laser is used to remove stromal
tissue from the central cornea. The corneal flap is then placed back on the
stromal tissue where it adheres back onto the eye. With the removal of the
corneal tissue, the cornea is flattened, thereby achieving correction for
myopia. Primary complications with this procedure arise from cutting of the
corneal flap, including incorrect flap thickness.
In RK, a diamond knife is used to make from four to eight radial incisions
that penetrate beyond 90% of the depth of the cornea. The procedure is generally
conducted using topical anesthesia in an outpatient setting. As the incisions
heal, the curvature of the cornea is altered and vision may be improved.
Although additional operations may be performed to attempt to improve the vision
for those whose vision is undercorrected, the RK procedure is considered to be
refractively
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irreversible. RK results can vary with the skill and experience of the surgeon
and can be relatively unpredictable for patients requiring greater degrees of
correction. Because RK entails making cuts in or near the optical zone of the
eye, unwanted side effects, such as haloes, reduced night vision and other
visual distortions may occur. In addition, data from the Prospective Evaluation
of Radial Keratotomy ("PERK") 10-year study, funded by the National Eye
Institute and completed in 1994, indicate that a significant percentage of those
undergoing RK did not achieve a stable result as measured over a ten-year
period, with a shift towards hyperopia occurring over time. The PERK data,
however, did indicate that 85% of patients undergoing the procedure achieved
visual acuity of 20/40 or better vision. In addition, it is believed the RK
technique has improved since the PERK study commenced.
Another treatment for myopia currently being investigated in a phase III
clinical trial in the United States is the Intraocular Contact Lens or ICL. The
ICL seeks to correct refractive errors by placing a lens inside the eye between
the natural lens and the iris. The ICL is currently available for sale in
Europe.
Another potential treatment for vision correction is Radio Frequency
Keratoplasmy (RFK), which uses radio-frequency energy to change the shape of the
cornea. Currently, this treatment has been approved for use in Canada but has
not been approved for use in the United States.
Quality of Vision. The most common measurement of vision utilizes an eye
chart. One of the recent developments in ophthalmology involves the concept of
quality of vision. It has been observed that a patient can attain 20/20 vision,
as measured with an eye chart, and still be dissatisfied with the quality of his
vision. This issue may play a role in the future in modifying current refractive
surgery techniques, which are known to affect the smooth shape of the cornea and
to create corneal scarring in ways that may induce unwanted visual aberrations.
Typical vision complaints include haze, haloes, reduced night vision and other
visual distortions. At the current time, most assessments attribute undesirable
visual side-effects of refractive procedures either to a disturbance of corneal
tissue within the optical zone or to the interruption or distortion of the
smooth shape of the cornea. New measurement techniques, including corneal
topography, contrast sensitivity and night-vision testing, are emerging to
analyze more fully the quality of vision beyond the assessment available using
standardized eye charts.
KeraVision Intacs and Instruments
In response to the perceived market need for a predictable, refractively
reversible procedure, KeraVision has developed KeraVision Intacs for the long-
term treatment of myopia. KeraVision Intacs is a proprietary product designed to
reduce or eliminate the need for corrective eyewear by reshaping the curvature
of the patient's cornea. KeraVision Intacs is inserted between the layers of the
corneal stroma through a small incision made in the periphery of the cornea. The
presence of KeraVision Intacs in the periphery of the cornea creates a
flattening of the central cornea, thereby increasing the number of light rays
properly focused on the retina. The KeraVision Intacs procedure does not cut or
remove tissue from the optical zone of the cornea and therefore may reduce the
risk of unwanted visual side-effects such as haze, haloes and reduced night
vision.
The initial design of KeraVision Intacs consisted of an optically clear split
ring made of polymethylmethacrylate ("PMMA"), a clear acrylic that has been
widely used in implantable intraocular lenses since 1952. In order to simplify
the surgical procedure, KeraVision modified the design of KeraVision Intacs in
1995 into two, thin half-circles of PMMA, each with an arc length of 150
degrees. The two half-circles are placed in the periphery of the cornea at a
diameter of approximately eight millimeters. KeraVision has extensively studied
the relationship between physical parameters of KeraVision Intacs and corneal
curvature change. As a result of these studies, KeraVision believes that a small
number of KeraVision Intacs sizes, with minor variations in their dimensions,
can produce a wide range of corneal curvature change and, therefore, could
provide treatment for a substantial segment of those people with myopia.
KeraVision has developed KeraVision Intacs in six different thicknesses ranging
from 0.21 mm to 0.45 mm.
KeraVision has developed proprietary surgical instruments to be used for the
insertion of KeraVision Intacs. These stainless steel and titanium instruments
include a marking instrument, a centering guide and a stromal separator.
KeraVision's instruments have been designed to standardize the KeraVision Intacs
procedure and reduce the variability associated with differing levels of
surgical skill by, among other things, showing the surgeon where to make the
corneal incision and aiding the surgeon in placing KeraVision Intacs at the
right depth. It is believed that the purchase of KeraVision's instruments will
represent a small capital investment for ophthalmic surgeons, similar to that
required for surgeons performing RK procedures and substantially less than that
required for surgeons performing LASIK or PRK procedures.
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The KeraVision Intacs Insertion Procedure
KeraVision believes that insertion of KeraVision Intacs is a relatively
simple, minimally invasive procedure that can be performed on an outpatient
basis in typically 15 minutes or less. The procedure is usually performed using
topical anesthetic eyedrops. In addition to the KeraVision instruments, the
KeraVision Intacs procedure in part employs surgical techniques and ophthalmic
surgical instruments that are widely used by ophthalmic surgeons. The KeraVision
Intacs procedure requires a single incision of less than two millimeters outside
of the optical zone of the cornea. The incision is located at the top of the eye
under the eyelid. The amount of postoperative discomfort experienced by patients
participating in KeraVision Intacs clinical studies has been relatively modest
and is typically treated with nonprescription pain relievers.
The KeraVision Intacs insertion procedure consists of the following steps.
First, the ophthalmic surgeon uses a guide to mark the geometric center of the
cornea. Using the reference mark, a marking instrument is used to mark the line
of incision on the cornea outside the optical zone and the location where the
ring segments are to be placed. A small entry incision is then made to
approximately two-thirds of the depth of the cornea and the layers of the stroma
at the bottom of the incision are separated. The stroma, which comprises 90% of
the cornea, consists of 500 to 700 overlapping layers of tissue that can be
easily separated. Next, the surgeon places the centering guide over the eye,
introduces the stromal separator through the small entry incision and rotates
the stromal separator, spreading the layers of the stroma to create a circular
subsurface channel in the periphery of the cornea. The surgeon removes the
stromal separator and the centering guide. KeraVision Intacs is introduced into
the channel and rotated into place. Finally, the entry incision is typically
closed with one to two sutures which are generally removed within two weeks.
Clinical Trials Results
Since 1991, ophthalmic surgeons have utilized KeraVision Intacs technology for
the treatment of myopia in 1,700 patient eyes in clinical trials conducted in
the United States and throughout the world. KeraVision initiated clinical trials
using the initial design of KeraVision Intacs in 1991 in both the United States
and Brazil. In September 1994, KeraVision completed enrollment of a 90-patient
United States Phase II myopia trial using the initial design of KeraVision
Intacs. In September 1996, KeraVision completed enrollment of the group of 150
United States Phase II patients with a modified KeraVision Intacs. In October
1996, KeraVision received approval to commence a ten-center Phase III clinical
trial in the United States and began that trial in December 1996. KeraVision
completed the enrollment for the trial in May 1997. KeraVision expanded the
Phase III trial to cover a greater range of myopia and has begun limited
enrollment for the expanded ranges. In addition, KeraVision has conducted
clinical trials in Europe for myopia and has begun a trial for myopia in
Singapore.
KeraVision's clinical trials have been designed to demonstrate the safety and
efficacy of KeraVision Intacs and the safety of the surgical procedure used to
insert KeraVision Intacs. Safety of KeraVision Intacs is evaluated using
standard ophthalmic techniques.
Myopia. In May 1995, KeraVision commenced a United States Phase II trial for
the current KeraVision Intacs design. This trial included six clinical sites and
involved 150 patients requiring a myopic correction in the range of -1.0 to -6.0
diopters. KeraVision completed enrollment in September 1996 for this Phase II
trial. KeraVision performed an interim analysis on the initial 75 patients who
had three months of available follow-up. KeraVision submitted this data to the
FDA for review prior to initiating the Phase III trial for KeraVision Intacs.
Based upon the analysis of the Phase II data, KeraVision proceeded to slightly
modify the range of correction achieved with the current KeraVision Intacs
design and to separate the myopia indication into mild myopia (-1.0 to -3.5
diopters) and moderate myopia (-3.5 to -5.0 diopters).
KeraVision implanted a total of 195 patient eyes as part of this Phase II
trial. The data from the first 139 Phase II patients (-1.0 to -6.0 diopters)
with twelve months of follow-up indicated that 91% were 20/40 or better, 76%
were 20/25 or better and 60% were 20/20 or better. Additionally, 79% of the
patients were within 1.0 diopter of their intended correction. Five surgically-
related events resulted in the removal of one or both Intacs segments as of the
twelve month point: two cases of infection and three cases related to surgical
technique. All of these patients are stable with no clinically significant
consequences. In total, 31 of the 195 patient eyes underwent removal of
KeraVision Intacs by the twelve month point due to patient dissatisfaction
related to undercorrection (eleven), visual symptoms including glare, halos, and
other symptoms related to low light conditions (nine), induced astigmatism (ten)
and cosmetic reasons (one).
KeraVision initiated an expanded Phase II trial in November 1996 to evaluate
moderate myopia (-3.5 to -5.0 diopters) using the revised performance criteria
for two thicker Intacs sizes. Enrollment of the 59 patients was completed in
February 1997. The three month follow-up data for 58 Phase II patients with the
two higher ring sizes indicated that 98% were 20/40 or better, 83% were 20/25 or
better and 57% were 20/20 or better. The predictability of the refractive effect
within 1.0 diopter increased from 46% to 70% for this trial as compared to the
results from initial Phase II trial for the same thicknesses. Two surgically
related events resulted in the removal of one or both Intacs segments: one case
of infection and
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one case related to surgical technique. Both patients are stable with no
clinically significant consequences. Seven patient eyes underwent removal of
KeraVision Intacs due to patient dissatisfaction: one removal related to under-
correction, three removals related to visual symptoms, two removals related to
induced astigmatism and one removal related to cosmetic reasons. KeraVision
submitted the three month follow-up data from this trial to the FDA and received
approval in November 1997 to expand the existing Phase III trial to include
these sizes of KeraVision Intacs.
In December 1996, KeraVision initiated a Phase III trial at ten clinical sites
involving 360 patients, for a total of 595 patient eyes, requiring correction
for mild myopia (-1.0 to -3.5 diopters). Enrollment was completed for this trial
in early May 1997. The recently presented data from the first 410 Phase III
patient eyes with twelve months of follow-up indicate that 97% were 20/40 or
better, 87% were 20/25 or better, 74% were 20/20 or better and 53% were 20/16 or
better. The predictability data indicated that 89% of the patients were within
1.0 diopter of their intended correction. There have been 26 removals of
KeraVision Intacs from the 595 patient eyes, included in this Phase III trial.
There was one postoperative adverse event reported in which a subject had a best
spectacle corrected visual acuity loss of ten or more letters at two consecutive
exams. The investigator is currently monitoring this subject. Three removals
were for personal reasons. Twenty-three KeraVision Intacs were removed due to
patient dissatisfaction with the correction achieved although some of these
patients achieved 20/40 vision or better.
In anticipation of the launch of KeraVision Intacs in the European Union,
KeraVision conducted two European clinical trials. The results from these trials
are comparable with KeraVision's clinical studies in the United States.
Complications, Visual Side Effects and Observations. Although KeraVision has
developed seven-year clinical data on the safety and efficacy of KeraVision
Intacs in correcting myopia, it has only limited long-term safety or efficacy
data. KeraVision performed the first procedure for the treatment of myopia using
KeraVision Intacs in 1991, and to date KeraVision has conducted more than 1,700
procedures using KeraVision Intacs technology in clinical trials. We cannot
assure you that long-term safety and efficacy data when collected will be
consistent with these clinical trial results and will demonstrate that
KeraVision Intacs can be used safely and successfully to treat myopia in a broad
segment of the population or on a long-term basis.
All surgical procedures, including the KeraVision Intacs procedure, involve
some inherent risk of complications. KeraVision has observed complications in a
small number of patients who have received KeraVision Intacs, but no patient has
suffered any serious or lasting injury to the eye or any material loss of either
uncorrected or best corrected visual acuity. The complications include, among
other things: induced astigmatism, infection, decentered placement and a
reduction in central corneal sensation. In addition, patients undergoing
KeraVision Intacs procedure have reported visual side effects. These include
glare, haloes and reduced night vision. All of these complications and visual
side effects have also been observed in connection with other refractive
surgeries. Although KeraVision believes these complications and side effects may
be mitigated, KeraVision cannot assure you that these or other complications or
side effects will not be serious or lasting or will not impair or preclude
KeraVision from obtaining regulatory approval for its potential products or the
acceptance of these products by patients or ophthalmologists. In many patients,
KeraVision has observed deposits in the stromal channel next to KeraVision
Intacs. Although KeraVision believes that these deposits are not complications
and do not cause side effects, we cannot assure you that this will be the case.
Hyperopia. Data obtained from laboratory work on eye bank eyes and from finite
element analysis has indicated that a design based on KeraVision Intacs
technology may correct hyperopia. Based on these data and analysis, KeraVision
is testing the feasibility of a potential product for hyperopia in a small
clinical study, with 40 patients to date having undergone a procedure to correct
hyperopia. Made from the same material as KeraVision Intacs for myopia and using
a simple insertion technique, the early results from this study are promising,
but require more long-term follow-up. In addition, because only a limited number
of patients to date have received the treatment for hyperopia. KeraVision will
need to treat additional patients in order to characterize the range and
predictability of correction prior to moving to a large scale study. Work has
begun in one clinical center, with nine patients having been enrolled.
KeraVision intends to do further characterization in up to three European
clinical centers in the near future.
Astigmatism. KeraVision has studied a potential product that uses arc segments
of KeraVision Intacs to treat astigmatism. This device utilizes the core
technology for the treatment of myopia and the segments are manufactured from
the same material as KeraVision Intacs. A similar surgical technique is employed
to implant the segments in the eye. In August 1994 and March 1995, KeraVision
implanted arc segments in eight astigmatic patients. Clinical results showed
that the patients exhibited improvement in their vision after the implantation
of arc segments. KeraVision is pursuing broader experimentation and analysis,
but has not enrolled further patients due to the perceived smaller size of the
potential market.
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Marketing and Sales
Europe. Upon obtaining the right in November 1996 to market KeraVision Intacs
in European Union countries, KeraVision commenced a sales and marketing program
concentrated in parts of France, Germany and Austria. As part of this program,
KeraVision established a European headquarters in Paris, France. A small sales
office in France handles sales of KeraVision Intacs in the French market. A
distributor sells KeraVision's products in Germany and Austria.
From information obtained in the course of conducting the training sessions
and from consumer marketing studies, KeraVision determined that the overall
refractive surgery market in France and Germany was significantly less than that
of the United States on a per capita basis, and that the refractive surgery
markets in those countries do not appear to be growing at a substantial rate, if
at all. This lack of growth may be related in part to the lack of a delivery or
referral channel whereby potential patients can easily reach the ophthalmic
surgeon, rather than the non-surgical ophthalmologists and opticians who may
tend to recommend that a patient not consider refractive surgery. Further,
restrictions on direct broad scale advertising hinders the expansion of consumer
awareness of refractive surgery. It is expected that because of these and other
factors the refractive surgery market and the market for KeraVision Intacs will
be slow to develop in Europe. KeraVision, however, is seeking to expand its
reach to other countries by adding additional distributors.
Canada. KeraVision received approval in Canada to sell KeraVision Intacs for
the treatment of myopia in the range of -1.0 to -5.0 diopters of correction,
along with related instruments, in May 1998. KeraVision focused its initial
marketing efforts on developing seven sites to become proficient in KeraVision
Intacs procedure, to be able to discuss the Canadian experience with KeraVision
Intacs and to potentially serve as training centers. KeraVision then formally
announced the product launch in October 1998. KeraVision's next goal is to
target a specific region of Canada for the purpose of training a high percentage
of the refractive surgeons in the region and then to test the effect of consumer
advertising on patient flow to those centers. KeraVision has hired a direct
sales force to facilitate the Canadian sales process.
United States. The primary market for KeraVision Intacs is the ophthalmic
surgery market. There are approximately 8,000 ophthalmic surgeons in the United
States. Cataract surgery, with an intraocular lens replacement, is the most
prevalent form of ophthalmic surgery, with an estimated more than 1.5 million
procedures being performed annually in the United States. KeraVision believes
that increased consumer interest in corneal refractive surgery, improved visual
results of emerging refractive surgery techniques and reduced reimbursement
rates for cataract surgery are providing incentives for ophthalmic surgeons to
enter the refractive surgery market. It is estimated that there are over 2,000
ophthalmic surgeons performing refractive surgery in the United States.
KeraVision estimates that existing refractive procedure costs in the United
States average $2,100 per eye for a LASIK procedure, $800 per eye for a RK
procedure and $1,800 per eye for a PRK procedure, with a fairly wide range for
each procedure. KeraVision anticipates that the KeraVision Intacs procedure, if
approved for marketing in the United States, will be competitively priced with
existing laser-based procedures. It is estimated that over 350,000 laser-based
procedures were performed in 1998.
KeraVision currently has limited sales or marketing organization or
experience. Because the ophthalmic surgery market is highly concentrated,
KeraVision expects to market its products through a direct sales force, or a
combination of a direct sales force and distributors, in the United States and
Europe. In other selected foreign markets, including parts of the Pacific Rim,
KeraVision may seek a strategic partner to assist in regulatory approval and
marketing activities. Medical investigators have presented KeraVision Intacs
technology as an investigational device at various professional meetings and
symposia in the United States, Europe and Asia. KeraVision expects continued
demonstrations of its technology at scientific and ophthalmic conferences
worldwide.
No Reimbursement
Consumers receiving treatment generally pay directly for currently available
refractive surgery procedures and are generally not reimbursed by third-party
payers. We anticipate that consumers will also pay directly for KeraVision
Intacs procedures. KeraVision believes that the successful development and
commercialization of KeraVision Intacs will not depend upon the availability of
third-party reimbursement.
Patents and Proprietary Rights
One of KeraVision's primary strategies has been to develop a strong
proprietary patent position with respect to KeraVision Intacs technology.
KeraVision has over 180 pending patent applications worldwide and has been
awarded 24 United States patents and 38 foreign patents. These issued and
pending patents cover various aspects of KeraVision Intacs technology, including
KeraVision Intacs, methods of use, instruments and related materials and other
vision correction technology. The expiration dates of the United States issued
patents range from 2002 to 2015. KeraVision's policy is to
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protect its technology by, among other things, filing patent applications
relating to important aspects of its KeraVision Intacs technology and other
vision correction technology.
Manufacturing and Supply
KeraVision manufactures KeraVision Intacs in its facility in Fremont
California using a computer-controlled machining process. This process will
require continued regulatory review and approval from both foreign and United
States government agencies, which could result in significant manufacturing and
shipping delays. Third-party suppliers manufacture critical components of
KeraVision's instruments to KeraVision's specifications. In many cases,
instruments and other purchased materials critical for production are sole-
sourced. KeraVision has entered into confidentiality agreements with its
contract manufacturers in order to protect the proprietary nature of its
technology. We cannot assure you that KeraVision will be able to develop
clinical or commercial-scale manufacturing capabilities at acceptable costs or
enter into agreements with third parties with respect to these activities.
KeraVision Intacs is made from PMMA, a clear acrylic widely used in
implantable intraocular lenses since 1952. PMMA cast sheet is purchased from a
sole supplier and is stored at KeraVision prior to release to production.
KeraVision believes it could develop the capability over a significant time
period to manufacture PMMA cast sheet internally if this sole source were to
become unavailable. As a result of the notification that its supplier has
discontinued its manufacture of the particular material used by KeraVision,
KeraVision has agreed to purchase a significant supply of the PMMA cast sheet
stock which is expected to be delivered over the next 12 months. Any change in
materials used for KeraVision Intacs would require additional testing,
regulatory review and approval, which could result in significant manufacturing
and shipping delays. KeraVision sterilizes KeraVision Intacs at a sole-sourced
independent contract sterilization facility.
KeraVision has several sole-sources for sterilization, tools and equipment,
PMMA and other elements necessary to manufacture KeraVision Intacs and the
related instrumentation. Since KeraVision is dependent upon third parties for
the manufacture of its products, KeraVision's profit margins and its ability to
develop and deliver such products on a timely basis may be adversely affected by
the lack of alternative sources of supply. Moreover, we cannot assure you that
our sole suppliers will adequately perform and any failures by third parties may
delay the submission of products for regulatory approval, impair KeraVision's
ability to deliver products on a timely basis, or otherwise impair KeraVision's
competitive position.
KeraVision has limited volume manufacturing capacity and is building
experience in manufacturing medical devices and other products. To be
successful, KeraVision's proposed products must be manufactured in commercial
quantities in compliance with regulatory requirements at acceptable costs.
Production in clinical or commercial-scale quantities may involve technical
challenges for KeraVision. Establishing its own manufacturing capabilities may
require significant scale-up expenses and additions to facilities and personnel.
KeraVision may consider seeking collaborative arrangements with other companies
to manufacture some of its potential products, including KeraVision Intacs. The
manufacturer of KeraVision's potential products will be subject to periodic
inspection by regulatory authorities. Any such operations must undergo
compliance inspections conducted by the FDA and equivalent inspections conducted
by state and foreign officials. We cannot assure you that KeraVision will be
able to successfully pass these inspections on a timely basis or at all.
Research and Development
KeraVision has been engaged in the research and development of KeraVision
Intacs technology since its inception in 1986. The development effort has
incorporated both extensive clinical testing as well as laboratory testing to
determine the effect of various configurations and insertion techniques for
KeraVision Intacs technology. Some of the analytical techniques employed include
computer modeling using finite element analysis, optical ray tracing and various
corneal topography measurement instruments. These approaches aid in determining
the expected change in the shape of the cornea, the pattern of light
distribution through the cornea and curvature of the cornea achieved with
various designs. The analytical approaches are used in conjunction with
information determined from both feasibility studies and expanded clinical
trials to determine the best design to move forward in the testing cycle.
KeraVision has also used these approaches to begin work on potential products
for astigmatism and hyperopia. KeraVision has begun investigations into
refinements for the existing product for myopia, including myopia concurrent
with high level of astigmatism and potential treatments for slightly higher
levels of myopic correction.
Competition
KeraVision Intacs competes with other treatments for refractive problems,
including eyeglasses, contact lenses, other refractive surgery procedures such
as PRK, LASIK, RK, the ICL, RFK and "refractive" intraocular lenses. Refractive
intraocular lenses involve the placement of an intraocular lens for the
correction of vision problems. Significant competitive factors in the industry
include efficacy of vision correction, safety, reliability, convenience and
price. The healthcare field is
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characterized by extensive research and rapid technological change. At any time,
competitors may develop and bring to market new products or surgical techniques
with vision correction capabilities superior to those of KeraVision Intacs or
which would otherwise render KeraVision Intacs technology obsolete.
Other companies, most of which are larger and better financed than KeraVision,
are engaged in the refractive surgery market. Four companies, Summit Technology,
VISX, Autonomous Technologies and Nidek, Inc. have received approval to market
their products in the United States. Summit Technology recently purchased
Autonomous Technologies. In addition to Summit Technology and VISX, there are a
number of other large entities that currently market and sell laser systems
overseas for use in refractive surgery, including Bausch and Lomb, Aesculap-
Meditec, GmbH and Schwind, several of whom are seeking to obtain approval with
the FDA to sell their products in the United States.
KeraVision's competition will be determined in part by those refractive
surgery products that are ultimately approved for sale by regulatory
authorities. The relative speed at which KeraVision is able to develop its
potential products, complete the necessary governmental and regulatory approval
processes for those products and manufacture and market commercial quantities of
the products will be important competitive factors.
United States Government Regulation and Product Testing
KeraVision's potential products are subject to regulation by numerous
governmental authorities in the United States and other countries. In the United
States, medical devices are subject to rigorous FDA review. Pursuant to the
Federal Food, Drug, and Cosmetic Act and other federal statutes and regulations,
the FDA regulates the
. testing;
. manufacture;
. safety;
. labeling;
. storage;
. record keeping;
. reporting;
. approval;
. sale;
. distribution;
. advertising; and
. promotion of medical devices.
Noncompliance with applicable requirements can result in:
. fines;
. recall;
. injunction or seizure of products;
. total or partial suspension of production;
. withdrawal of approval or refusal to approve product approval
applications or allow KeraVision to enter into supply contracts; and
. criminal prosecution.
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The FDA also has the authority to request repair, replacement or refund of the
cost of any device manufactured and distributed by KeraVision. Changes in
existing requirements or adoption of new requirements could have a material
adverse effect on KeraVision's business, financial condition and results of
operation.
Medical devices are classified into one of three classes, Class I, II or III,
on the basis of the controls necessary to reasonably assure their safety and
effectiveness. Safety and effectiveness can reasonably be assured for Class I
devices through general controls including labeling, premarket notification and
adherence to the Quality System Regulation and for Class II devices through the
use of additional special controls including performance standards, postmarket
surveillance, patient registries, and FDA guidelines. Generally, Class III
devices are those which must receive premarket approval by the FDA to ensure
their safety and effectiveness. Class III devices include life-sustaining, life-
supporting and implantable devices, or new devices which have been found not to
be substantially equivalent to legally marketed devices.
510(k) Pre-Market Notification Process. Before a new device can be introduced
to the market, the manufacturer generally must obtain FDA clearance through
either a 510(k) premarket notification or a premarket approval application.
KeraVision's surgical instruments are the only products for which it will be
seeking 510(k) clearance; however, KeraVision may submit 510(k)s with respect to
future potential products. The FDA will grant a 510(k) clearance to a product if
the submitted information establishes that the proposed device is "substantially
equivalent" (a) to a legally marketed Class I or Class II medical device, or (b)
to a preamendment Class III medical device. A pre-amendment device is one that
has been on the market since a date prior to May 28, 1976 for which the FDA has
not called for premarket approval applications. The FDA has recently been
requiring a more rigorous demonstration of substantial equivalence. It generally
takes four to 12 months from submission to obtain 510(k) premarket clearance,
but may take longer. The FDA may determine that the proposed device is not
substantially equivalent, or that additional data is needed before a substantial
equivalence determination can be made. A "not substantially equivalent"
determination, or a request for additional information, could delay the market
introduction of new products, if any, that fall into this category and could
have a materially adverse effect on KeraVision's business, financial condition
and results of operations. We cannot assure you that KeraVision will obtain
510(k) premarket clearance within the above time frames, if at all, for any of
the devices for which it may file a 510(k). If KeraVision modifies or enhances
any product that has been cleared through the 510(k) process in a manner that
could significantly affect safety or effectiveness it must submit new 510(k)
submissions.
Pre-Market Approval Process. A manufacturer must file a premarket approval
application if the proposed device is not substantially equivalent to a legally
marketed Class I or II device or to a preamendment Class III device for which
the FDA has not called for premarket approval applications. A premarket approval
application must be supported by valid scientific evidence, which typically
includes extensive data, including preclinical and clinical trial data, to
demonstrate the safety and efficacy of the device. KeraVision Intacs is
considered a Class III device and required a premarket approval application, as
will other KeraVision products under development for the treatment of myopia,
hyperopia and astigmatism.
Upon receipt of a premarket approval application, the FDA makes a threshold
determination as to whether the application is sufficiently complete to permit a
substantive review. If the FDA determines that the premarket approval
application is sufficiently complete to permit a substantive review, the FDA
will accept the application for filing. Once the submission is filed, the FDA
begins review of the premarket approval application. An FDA review of a
premarket approval application historically has taken between one to two years
from the date that the premarket approval application is accepted for filing,
but may take significantly longer. The FDA often significantly extends the
review time to ask for more information or clarification of information already
provided in the submission. During the review period, an advisory committee,
typically a panel of clinicians, is convened to review and evaluate the
application and provide recommendations to the FDA as to whether the device
should be approved. In addition, the FDA will inspect the manufacturing facility
to ensure compliance with the FDA's Quality System Regulation requirements prior
to approval of a premarket approval application.
Even after approval of a premarket approval application, the FDA may require a
new premarket approval application or premarket approval application supplement
for modifications to a device, its labeling or its manufacturing process.
Supplements to a premarket approval application often require submission of the
same type of information as a premarket approval application, except that the
supplement is limited to information needed to support any changes from the
product covered by the original premarket approval application, and may not
require the submission of clinical data or the convening of any advisory
committees and corresponding review.
The premarket approval application process can be expensive, uncertain and
lengthy, frequently requiring from one to several years, and some devices for
which premarket approval application approval has been sought by other companies
have never been approved for marketing.
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In addition, the FDA may require extensive post-marketing testing and
surveillance to monitor the effects of approved products or place conditions on
any approvals that could restrict the commercial applications of such products.
The FDA may withdraw product approvals if compliance with regulatory standards
is not maintained or if problems occur following initial marketing. In addition,
delays imposed by the governmental approval process may materially reduce the
period during which KeraVision may have the exclusive right to exploit patented
products or technologies.
Clinical Trials. Before future KeraVision products can be commercialized in
the United States, KeraVision may be required to undergo a series of approval
processes that are sequential in nature. If these approval processes are
applicable, KeraVision generally must:
. generate biocompatibility and long-term preclinical safety data;
. conduct under an investigational device exemption a clinical study
involving nonfunctional human eyes; and
. conduct under an investigational device exemption a phased series of
clinical studies using sighted human eyes.
KeraVision must submit the data from these studies to the FDA in a premarket
approval application for review.
If human clinical trials of a device are required, and the device presents a
"significant risk," the manufacturer or the distributor of the device will have
to obtain FDA approval of an investigational device exemption application with
the FDA prior to commencing human clinical trials. An application must be
supported by data, typically including the results of animal and laboratory
testing. If the FDA approves an investigational device exemption application,
human clinical trials may begin at a specified number of investigational sites
with a maximum number of patients, as approved by the FDA. FDA regulations
govern many important aspects of the clinical investigation of medical products,
and require, among other things, obtaining informed consent from clinical
subjects, and securing the approval for the clinical protocol from an
institutional review board. A review board will consider, among other things,
ethical facts, the safety of patients and the possible liability of the
institution at which the study will be conducted. Sponsors of clinical trials
are permitted to sell investigational devices distributed in the course of the
study provided such compensation does not exceed the recovery of the costs of
manufacture, research, development and handling. KeraVision received FDA
approval of an investigational device exemption application for its phase I, II
and III trials for the treatment of myopia with KeraVision Intacs.
Having received FDA approval for KeraVision Intacs, KeraVision must maintain
compliance with all FDA requirements and conditions in its approved application,
including post-market surveillance requirements, product specification,
manufacturing process, labeling and promotional material and record keeping and
reporting requirements. Failure to comply, or the occurrence of unanticipated
adverse effects during commercial marketing, could lead to the need for product
recall or other FDA initiated action, which could delay further marketing until
the products are brought into compliance.
Other Regulatory Requirements. Any products manufactured or distributed by
KeraVision pursuant to a pre-market clearance notification or an approved
premarket approval application are subject to pervasive and continuing
regulation by the FDA, including recordkeeping requirements and reporting of
adverse experiences associated with the use of the devices. Labeling and
promotional activities are subject to scrutiny by the FDA and by the Federal
Trade Commission. The FDA actively enforces regulations prohibiting marketing of
products for unapproved uses.
The FDC Act requires KeraVision and its contract manufacturers to manufacture
its products in registered establishments and in accordance with the Quality
System Regulation requirements for devices. The Quality System Regulation (21
CFR Part 820, Medical Devices, Current Good Manufacturing Practice) as
promulgated by the FDA establishes the current good manufacturing requirements
necessary in the design, manufacture and distribution of medical devices to
assure product safety and efficacy. As the developer of KeraVision Intacs,
KeraVision must meet the applicable Quality System Regulation requirements.
KeraVision is also required to adhere to additional Quality System Regulation
requirements for the distribution of KeraVision Intacs. KeraVision will be
required to engage in extensive recordkeeping and reporting and to conduct
extensive post-market surveillance or other device follow-up. To supply products
for use in the United States, foreign manufacturing establishments must also
comply with Quality System Regulation and are subject to periodic inspection by
the FDA. KeraVision's manufacturing facilities will be subject to periodic
inspections by the FDA and the Food and Drug Branch of the California Department
of Health Services. KeraVision's products are also subject to regulation by
state and foreign government agencies.
KeraVision is also subject to regulation by the Occupational Safety and Health
Administration and the Environmental Protection Agency and to regulation under
the Toxic Substances Control Act, the Resource Conservation and Recovery Act,
the National Environmental Policy Act and other regulatory statutes, and may in
the future be subject to other federal, state or local regulations. In addition,
new or modified regulations may be promulgated governing KeraVision's Intacs or
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KeraVision's potential products that may be more restrictive or that may
otherwise alter or affect KeraVision's research and development programs. We
cannot assure you that KeraVision will not be required to incur significant
costs to comply with these laws and regulations in the future or that such laws
and regulations will not have a materially adverse effect upon KeraVision's
ability to do business. KeraVision is unable to predict whether any agency will
adopt any regulation that would have a material adverse effect on KeraVision's
operations.
All of the above described government regulation and product approval risks
apply to KeraVision Intacs and will apply to any future potential product of
KeraVision. Government regulation may become more restrictive in the future. We
cannot assure you that KeraVision will not be required to incur significant
costs to comply with such laws and regulations in the future or that such laws
and regulations will not have a material adverse effect upon KeraVision's
ability to conduct business.
European Government Regulation and Product Testing
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. The time
required to obtain approvals required by foreign countries may be longer or
shorter than that required for FDA approval, and requirements for licensing may
differ from FDA requirements. Export sales of investigational devices that have
not received FDA marketing approval may be subject to FDA export permit
requirements. As KeraVision begins to sell products in additional foreign
markets it will be required to obtain an FDA export permit and comply with
foreign regulations for each of these markets. A delay in obtaining the
necessary approvals or failing to comply with regulatory requirements could have
a material adverse effect on KeraVision's business, financial condition and
results of operations.
The regulatory environment in Europe for medical devices differs significantly
from that in the United States. A total of 15 European countries are grouped in
a union with the objective of establishing a single market without internal
borders among the member countries and eliminating divergent national
requirements. The members of the European Union include Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The
Netherlands, Portugal, Spain, Sweden and the United Kingdom.
Products that comply with the requirements of a specified medical directive
will be entitled to bear CE marking. Since July 14, 1998, all commercial medical
device products have been required to bear CE marking. It is illegal to market
these products in the European Union without a CE marking.
To obtain a CE marking, the product must be assessed and found to conform to
the applicable directive. The method of assessing conformity depends on the
class of the product, but normally involves some combination of a manufacturer's
self-assessment and a third party assessment conducted by a "notified body." The
notified body assessment may consist of an audit of the manufacturer's quality
system or specific testing of the product. A manufacturer can sell a product
throughout the European Union once it secures an assessment by a notified body
in one of the European Union countries.
The European Union has adopted two directives dealing with medical devices,
including the "Active Implantable Medical Devices Directive" and the "Medical
Devices Directive," and has proposed a third directive, the "In Vitro Diagnostic
Medical Devices Directive," to harmonize the regulatory requirements for medical
devices.
Medical devices such as KeraVision Intacs are regulated under the Medical
Devices Directive. A manufacturer may affix CE marking after a determination
that the product complies with the essential requirements of this directive and
completion of the appropriate conformity assessment procedure as specified by
the directive. The conformity assessment requirements are based upon a given
product's classification within the directive. Products within the scope of the
directive are grouped within four classes: Class I, IIA, IIB and III. A product
with a higher classification is considered to have higher risk, and will
therefore be subject to more controls in order to obtain CE marking. KeraVision
Intacs has been designated as a Class IIB device. Essential requirements under
the directive include substantiating that the device meets the manufacturer's
performance claims and that any undesirable side effects of the device
constitute an acceptable medical risk when weighed against the intended benefits
of the device.
There are two basic options for assessing conformity of devices designated as
Class IIB. The first option allows a manufacturer to seek a decision from the
notified body that the processes employed in the design and manufacture of a
device qualify as a full quality system. Alternatively, manufacturers can seek
product certification based on various control schemes. KeraVision obtained
qualification of its processes as a full quality system. Approval of
KeraVision's full quality system has been achieved through ISO 9001
certification by an approved notified body. The full quality system encompasses
the organizational structure, responsibilities, procedures, processes and
resources necessary to assure quality assurance in design, development,
production, installation and servicing of its medical devices.
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The Medical Devices Directive also covers the instrumentation supplied by
KeraVision for the purpose of implanting KeraVision Intacs. These instruments
are classified as Class I and therefore are subject to fewer requirements than
KeraVision Intacs.
Once a manufacturer has satisfactorily completed the regulatory compliance
tasks required by the Directive and received a favorable decision from the
notified body, it may affix CE marking to its product. Based on the current
regulatory laws, no additional premarket approvals in the individual European
Union countries, Iceland, Liechtenstein or Norway are required. Custom-made
devices and devices intended for clinical investigation do not bear CE marking
and are subject to particular requirements under the Directive. Manufacturers
are required to report serious adverse incidents concerning CE marked devices to
the authorities of the countries where the incidents take place. If such
incidents occur, the manufacturer may have to take remedial action, perhaps
including withdrawal of the product from the European market.
The directive must be transposed into national law in order to be applied. One
member state of the European Union, Belgium, has not yet completed this
transposition. This fact does not in itself create an obstacle to placing a CE-
marked medical device on the Belgian market, but it may result in practical
complications and delays in this country with respect to product introduction,
marketing and sales. This transposition process has not created significant
differences among the member states of the European Union with respect to
compliance with the essential requirements and the conformity assessment
process. However, meaningful differences have emerged in at least the following
areas: authorities' evaluation of proposed clinical investigation, notification
of products and activities, handling of adverse event reporting and language
requirements for labels and instructions for use. As the directive does not
cover distribution practices, healthcare financing and purchasing, it is
expected that there will be significant regulatory variances from country to
country in these areas. We cannot assure you that the transposition of the
directive into national law will be completed by member countries in a timely
fashion, or at all, or that the failure to complete such transposition or
variations in national law will not materially and adversely affect KeraVision.
KeraVision obtained conformity certification under Annex II of the directive
in October 1996 from a notified body and thus achieved the right to affix the CE
marking to KeraVision Intacs in November 1996. The right to affix the CE mark
can be withdrawn by the notified body and no assurance can be given that it will
be obtained again in a timely fashion or at all. Furthermore, there can be no
assurance that KeraVision's notified body will retain its status as a "notified
body."
Data and Safety Monitoring Board
KeraVision has established an independent Data and Safety Monitoring Board to
serve in a medical monitoring capacity and to review the collective safety and
efficacy data generated from KeraVision's various clinical trials. In addition,
the members of the Monitoring Board examine representative patients from the
United States investigational sites, provide medical advice to the clinical
investigators, review any complications and provide suggested guidelines for
patient management to the investigators. The Monitoring Board currently consists
of three prominent ophthalmologists. Additional individuals will be added to the
Monitoring Board, as required. The members of the Monitoring Board are not
allowed to be clinical investigators for KeraVision Intacs.
Employees
As of April 22, 1999, KeraVision had 135 full-time employees, of whom 42 are
engaged in, or directly support, KeraVision's research and development
activities. KeraVision also has contracts with outside consultants. KeraVision
considers relations with its employees to be good. None of KeraVision's
employees is covered by a collective bargaining agreement.
KeraVision and its business strategy depends in large part on the ability of
KeraVision to attract and retain key management, scientific and operating
personnel. KeraVision will need to develop expertise and add skilled personnel
or retain consultants in such areas as research and development, clinical
testing, government approvals, sales, marketing and manufacturing in the future.
KeraVision currently has a small research and management group with limited
operating experience. The loss of the services of one or more members of the
research or management group or the inability to hire additional personnel and
develop expertise as needed could have a material adverse effect on KeraVision.
KeraVision has an employment agreement with one of its employees.
16
<PAGE>
Executive Officers of the KeraVision
The executive officers of KeraVision and their ages as of December 31,
1998, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- -------------------------------- ------- ---------------------------------------------------------------
<S> <C> <C>
Thomas M. Loarie 52 Chairman of the Board of Directors, Chief Executive Officer
and President,
Darlene E. 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
</TABLE>
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,
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 products 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.
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
17
<PAGE>
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.
Risk Factors Affecting the Company, its Business and its Stock Price
KeraVision may not be able to execute its business plan if a significant amount
of capital is not available to it in the near future.
KeraVision will be required to commit substantial resources to establish
production, marketing and sales capabilities in order to bring KeraVision Intacs
to market. KeraVision will be required to commit additional resources to
conducting the research and development, clinical studies and regulatory
activities necessary to bring any other medical device products to market. We do
not anticipate that KeraVision's current cash, cash equivalents and short-term
investments or financing plans will be sufficient to fund KeraVision's
operations to profitability. KeraVision will need to raise substantial
additional funds for this purpose. KeraVision may seek such additional funding
through collaborative arrangements and through public or private debt or equity
financings. Any additional equity financing will be dilutive to you as a
stockholder to the extent you do not participate in the financing, and any debt
financing, if available, may restrict KeraVision's future ability to pay
dividends on its capital stock or the manner in which KeraVision conducts its
business. KeraVision currently has no commitments for any additional financings,
and we cannot assure you that any such financings will be available. Nor can we
assure you that funds from these financings will be available when needed or
available on terms favorable to KeraVision. If KeraVision fails to obtain
sufficient funds, it may need to delay, scale back or eliminate some or all of
its research and product development programs, clinical studies or regulatory
activities or license third parties to commercialize products or technologies
that it would otherwise seek to develop itself. Such actions would adversely
affect KeraVision's business and financial condition.
KeraVision needs market acceptance of KeraVision Intacs and other products to be
successful.
KeraVision's future performance depends, to a substantial extent, upon the
degree of market acceptance of KeraVision Intacs for correction of myopia, and
on KeraVision's ability to successfully manufacture, market, deliver and support
KeraVision Intacs. We cannot assure you that KeraVision Intacs or any future
product that KeraVision develops will achieve or maintain acceptance in their
target markets. To be successful KeraVision Intacs will have to be accepted by
ophthalmic surgeons as well as by patients. To date, KeraVision has sold its
product primarily in Canada, France and Germany, and has so far received only
limited acceptance and generated only limited revenues. KeraVision has only
recently begun the sale of KeraVision Intacs in the United States. Many surgeons
in these countries and elsewhere have already invested significant time and
resources in developing expertise in other corrective ophthalmic surgical
techniques. KeraVision intends to market its proposed products to people whose
vision can be corrected with eyeglasses or contact lenses. We cannot assure you
that these persons will elect to undergo surgical insertion of KeraVision Intacs
when such nonsurgical vision-correction alternatives are available. The extent
of, and rate at which, KeraVision Intacs and future products achieve market
acceptance and penetration is a function of many variables including price,
safety, efficacy, reliability and marketing and sales efforts. Similar risks may
confront other products KeraVision develops in the future.
18
<PAGE>
The development of KeraVision's products and KeraVision's future revenue are
uncertain and may not be successful.
KeraVision Intacs will require a significant investment of capital before
commercialization in the United States. To obtain revenues KeraVision must,
alone or with others, successfully manufacture and market KeraVision Intacs and
successfully develop, obtain regulatory approval for, manufacture and market
other products. The time frame for any products and potential products,
including KeraVision Intacs, to succeed in the market is long and uncertain.
Although KeraVision has received approval to market KeraVision Intacs in the
United States, the European Union and Canada, we cannot assure you that
KeraVision will successfully complete its research and development efforts for
this or other products to be marketed elsewhere. Nor can we assure you that
KeraVision Intacs will perform in the manner anticipated, or that we will
experience the results observed in animal, eye-bank or human nonfunctional and
sighted-eye testing in long-term use of KeraVision Intacs. We also cannot assure
you that KeraVision Intacs will prove to be safe or effective over the long term
in correcting vision. If KeraVision Intacs fails to perform as anticipated our
business and financial condition will be jeopardized.
Compliance with governmental standards applicable to KeraVision and its products
may prove too burdensome and costly for KeraVision to operate profitably.
Having received approval from the FDA for the correction of myopia, KeraVision
Intacs is subject to additional post-market testing and surveillance programs
required by regulatory agencies. KeraVision is also required to engage in
extensive record keeping and reporting, and to conduct extensive post-market
surveillance or other device follow-up. In addition, KeraVision expects to
manufacture KeraVision Intacs internally and will accordingly be required to
adhere to additional FDA requirements for the manufacture and distribution of
KeraVision Intacs. KeraVision's ongoing compliance with the government's quality
system regulation, labeling and other applicable regulatory requirements is
monitored through periodic inspections by state and federal agencies, including
the FDA, and comparable agencies in other countries. Failure to comply with the
applicable regulatory requirements can, among other things, result in fines,
injunctions, civil penalties, suspensions or withdrawal of regulatory approvals,
product recalls, product seizures, including cessation of manufacturing and
sales, operating restrictions and criminal prosecution, and the occurrence of
any of these events could have a material adverse effect on KeraVision's
business, financial condition and results of operations.
KeraVision may not be able to obtain necessary regulatory approvals in a timely
manner, which would delay the sale and distribution of KeraVision Intacs or
future products and adversely affect our revenues.
As the manufacturer of KeraVision Intacs and potential products, KeraVision's
operations must undergo quality service regulation compliance inspections
conducted by the FDA and equivalent inspections conducted by state and foreign
officials. Third parties manufacturing KeraVision instrumentation may similarly
be affected. We cannot assure you that KeraVision or these third parties will be
able to obtain necessary regulatory approvals of their manufacturing operations
in a timely manner or at all. Delays in receipt of, failure to receive or loss
of previously received approvals would have a material adverse effect on
KeraVision's business, financial condition and results of operations.
KeraVision may not obtain the approvals necessary for the sale of its products
in foreign markets which would prevent the sale of products in these markets.
KeraVision's success depends in part on its ability to develop and market its
products in markets outside the United States. Although we have received
approvals for the sale of our products in some of these markets, we cannot
assure you that we will obtain the requisite approvals of foreign countries for
the sale of our products in new foreign markets. Even if we ultimately obtain
these approvals, doing so may take longer, and the licensing requirements may be
more restrictive, than we anticipate. As a result, the sale of our products in
additional foreign markets may be delayed or prevented and our financial
condition and results of operations may be adversely affected.
The cost of KeraVision Intacs and the availability of other established vision
correction products may limit the potential market for KeraVision Intacs which
may impact KeraVision's ability to realize revenues.
KeraVision's target market for KeraVision Intacs currently is limited to
healthy patients who have mild to moderate myopia without significant
astigmatism and are generally over the age of 21. We cannot assure you that even
this target population will prefer refractive surgery to current and future
alternatives for visual correction. KeraVision believes that the inability of
some patients to afford the procedure and the psychological aversion of some
patients to refractive surgery may further limit the potential market for
KeraVision Intacs. KeraVision also expects that the relative attractiveness and
affordability of other refractive surgical techniques will affect the market.
19
<PAGE>
Long-term follow-up data may not demonstrate that KeraVision Intacs is safe.
The KeraVision Intacs technology is a relatively new technology. KeraVision
has developed only limited clinical data to date on the safety and efficacy of
KeraVision Intacs in correcting myopia, and KeraVision has not yet developed any
long-term safety or efficacy data. KeraVision cannot yet determine if KeraVision
Intacs will prove to be effective for the predictable treatment of myopia. We
cannot assure you that the clinical trial results of KeraVision Intacs are
necessarily indicative of the degree of safety or efficacy that KeraVision
Intacs will achieve in the long term.
Complications and visual side effects associated with KeraVision Intacs may
affect KeraVision's ability to obtain regulatory approval or gain market
acceptance for KeraVision Intacs.
Although no patient has suffered any serious or lasting injury to the eye or
any material loss of vision, some patients who have received KeraVision Intacs
have experienced various complications. These complications include induced
astigmatism, infection, decentered placement and a reduction in central
corneal sensation. In addition, patients undergoing the KeraVision Intacs
procedure have reported various visual side effects. These include glare,
haloes and other visual symptoms associated with low-light conditions. We
cannot assure you that these complications or side effects will not be serious
or lasting or will not impair or preclude acceptance of the product by
patients or ophthalmologists or preclude KeraVision from obtaining regulatory
approval for its potential products.
KeraVision's ability to operate its business may be adversely affected if is
unable to retain its key personnel or to hire additional key personnel.
KeraVision's success depends in large part on its ability to attract and
retain key management, scientific and operating personnel. We cannot assure you
that KeraVision will be able to attract and retain the qualified personnel or
develop the expertise needed for its business. KeraVision currently has a small
research and management group. The loss of the services of one or more members
of the research or management group or the inability to hire additional
personnel and develop expertise as needed could limit KeraVision's ability to
maximize the potential of KeraVision Intacs and develop new products. Such
persons are in high demand and often receive competing employment offers.
KeraVision also will need to develop expertise and add skilled personnel or
retain consultants in such areas as clinical testing, government approvals,
sales, and marketing and manufacturing.
KeraVision has limited manufacturing experience and may be unable to develop
commercial-scale manufacturing capabilities.
KeraVision has limited ability to manufacture a large volume of products and
limited experience in manufacturing medical devices or other products. We cannot
assure you that KeraVision will be able to develop commercial-scale
manufacturing capabilities at acceptable costs or enter into agreements with
third parties with respect to these activities. To be successful, KeraVision
must manufacture its products and potential products in commercial quantities in
compliance with regulatory requirements at acceptable costs. Production of
commercial-scale quantities will involve technical challenges for KeraVision. In
addition, if KeraVision established its own commercial-scale manufacturing
capability, it would incur significant scale-up expenses including the need to
expand its facilities and hire additional personnel. KeraVision may seek
collaborative arrangements with other companies to manufacture products and
potential products, including KeraVision Intacs. If we are dependent upon third
parties for the manufacture of our products and proposed products, then our
profit margins and ability to develop and deliver such products on a timely
basis may be adversely affected. Moreover, we cannot assure you that such
parties will adequately perform, and any failures by third parties may impair
our ability to deliver products on a timely basis or otherwise impair our
competitive position.
KeraVision has limited sales and marketing experience and may not be able to
successfully sell or market its products.
KeraVision has only sold products in the United States since April 1999, in
Canada since mid-1998 and Europe since late-1996. KeraVision has recently
entered into additional distribution agreements and also plans to market and
sell its products through a direct sales force. We cannot assure you that
KeraVision's sales effort will be successful. To successfully market and sell
its products, KeraVision will need to hire a sales force that has established
relationships with physicians. KeraVision also needs to hire personnel with
consumer marketing skills. KeraVision will need significant resources to recruit
and retain skilled sales management, direct sales persons or distributors. To
the extent that KeraVision has established or enters into distribution
arrangements for the sale of its products, KeraVision is and will be dependent
on the efforts of third parties. We cannot assure you that such efforts will be
successful.
20
<PAGE>
KeraVision may not be able to successfully compete in the highly competitive
field of research and development of vision correction alternatives.
KeraVision is engaged in a rapidly evolving field. Many public and private
companies, universities and research laboratories engage in activities relating
to research on vision correction alternatives. We cannot assure you that
KeraVision's competitors will not succeed in developing technologies, procedures
or products that are more effective or economical than those KeraVision is
developing or that would render its technology and proposed products obsolete or
noncompetitive.
Other companies, most of which are larger and better financed than KeraVision,
are engaged in the refractive surgery market. Four companies have received
approval to market their products in the United States. In addition, a number of
other large entities currently market and sell laser systems overseas for use in
refractive surgery, including Bausch and Lomb, Aesculap-Meditec, GmbH and
Schwind, several of whom are seeking to obtain FDA approval to sell their
products in the United States. See "KeraVision, Inc.--Business[_]7Competition."
Moreover, several companies are developing other non-laser approaches to vision
correction, including the use of radio-frequency energy to reshape the cornea.
These companies and institutions represent significant long-term competition
for KeraVision. In comparison to KeraVision, they have:
. substantially greater resources;
. larger research and development staffs;
. better facilities;
. more experience in research and development;
. more experience in preclinical and human clinical studies
. more experience obtaining regulatory approval; and
. more experience manufacturing and marketing medical device products.
KeraVision is subject to the risk that product liability litigation and
insurance may be unavailable.
KeraVision faces a risk of exposure to product liability claims or product
recalls if the use of KeraVision Intacs or other future potential product is
alleged to have resulted in serious adverse effects. We cannot assure you that
the precautions we take with respect to these risks will prevent KeraVision from
incurring significant liability. We cannot assure you that our current product
liability insurance policies will cover all material liabilities or that the
coverage we have obtained will continue to be available at an acceptable cost,
if at all, before or after commercialization of any of KeraVision's products. A
product liability claim, product recall or other claims with respect to
uninsured liabilities or in excess of insured liabilities could have a material
adverse effect on KeraVision's business or financial condition. See "KeraVision,
Inc.--Business--Product Liability."
KeraVision depends on one supplier who will discontinue manufacturing raw
material needed by KeraVision and additional supplies may not be available.
KeraVision currently purchases the raw material used in manufacturing
KeraVision Intacs from a single source. This sole-source supplier has given
KeraVision notice that it will discontinue its manufacture of the particular
material KeraVision uses. KeraVision has agreed to purchase a significant amount
of this material, which we anticipate will provide us with a three year supply
and will be delivered over the next twelve months. We cannot assure you that:
. the supplier will timely deliver the raw material;
. interruptions in supplies will not occur in the future;
. KeraVision will not have to obtain substitute vendors, which would
require additional regulatory submissions; or
. this supply will last as long as we anticipate.
21
<PAGE>
We have been informed that our supplier will be able to make available an
additional five year supply of material beyond the supplies we have agreed to
purchase. As a result, we have not made arrangements to obtain an alternate
supply of material. In the event we are unable to obtain alternative supplies of
materials upon the depletion of our current supply we will experience delays in
the production of KeraVision Intacs and will need to obtain alternate materials.
If we are required to manufacture KeraVision Intacs using alternate materials we
will also be required to obtain FDA approval of this material, a process that
could take several years and cause us to incur substantial costs. Furthermore,
we cannot assure you that we will be able to obtain FDA approval of a new
material at all. Any interruption of supply would have a material adverse effect
on KeraVision's ability to manufacture KeraVision Intacs or future products
which could have a material adverse effect on its business, financial condition
or results of operations.
Year 2000 computer problems may affect KeraVision's computer systems and its
ability to operate.
The Year 2000 computer problem is caused by the inability of some software and
hardware to handle dates after December 31, 1999. KeraVision is actively working
with critical suppliers of products and services to determine that the
suppliers' operations and the products and services they provide are year 2000
compliant and to monitor their progress toward year 2000 compliance. However,
some of KeraVision's or its suppliers' computer systems could fail or
miscalculation could occur, causing disruptions in our operations, including a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
We cannot assure you that any system of other companies on which KeraVision's
systems rely and which are not Year 2000 compliant, will be year 2000 compliant
in a timely fashion and would not have an adverse effect on KeraVision's
systems.
KeraVision may not have the ability to obtain and maintain patents on KeraVision
Intacs and its technology which could permit others to develop similar products
or more easily compete with our business.
KeraVision's commercial success depends in part on acquiring and maintaining
patent and trade secret protection of KeraVision Intacs technology, KeraVision
Intacs and any other potential products it seeks to develop. We cannot assure
you that KeraVision will be successful in obtaining additional necessary patents
or license rights; KeraVision's processes or products will not infringe patents
or proprietary rights of others; or that any issued patents will provide
KeraVision with any competitive advantages or will withstand challenges by third
parties.
KeraVision is aware of ongoing academic research on both solid and injectable
forms of corneal inserts. We cannot assure you that others will not
independently develop similar products or duplicate KeraVision Intacs or design
products that circumvent any patents used by KeraVision.
In addition, KeraVision could incur substantial costs in defending against
patent litigation or in bringing suits to protect its patents against
infringement. If the outcome of any such litigation is adverse to KeraVision,
its business could be adversely affected.
KeraVision also relies on trade secrets and proprietary know-how which it
seeks to protect by confidentiality agreements with its employees, consultants,
investigators and advisors. We cannot assure you that these agreements will not
be breached, that KeraVision will have adequate remedies for any breach, or that
competitors will not otherwise discover KeraVision's trade secrets and
proprietary know-how.
Item 2. Properties
- ------- ----------
KeraVision's primary manufacturing, R&D and administrative facilities
occupy approximately a total of approximately 40,000 square feet of space in two
locations in Fremont, California. The facilities is subject to leases which
expire in 1999. The current monthly rent is approximately $29,000. The
Company's European sales facilities occupy approximately 3,300 square feet of
space in Chatenay-Malabry, France. The facility is subject to a lease which
expires in 1999. The current monthly rent is approximately $4,500. The Company
believes that this space is adequate for its immediate needs, and that it will
be able to renew its lease or obtain additional space as necessary.
22
<PAGE>
Item 3. Legal Proceedings update from last 10-Q
- ------ ----------------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders update
- ------ ----------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter for the fiscal year ended December 31, 1998.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
- ------ ----------------------------------------------------------------
Matters
- -------
The following table sets forth, for the periods indicated, the high and
low trading prices for the Company's common stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
Calendar Year High Low
- ---------------------------------------------- --------------------- ---------------------
1998
<S> <C> <C>
First quarter $ 8.25 $ 5.25
Second quarter 10.625 7.25
Third quarter 8.063 4.25
Fourth quarter 13.50 8.625
1997
First quarter $ 15.00 $10.00
Second quarter 10.50 6.75
Third quarter 10.188 7.00
Fourth quarter 8.50 5.125
</TABLE>
The closing stock price on February 24, 1999 was $12.063. The Company
reported 274 stockholders of record and 8,794 beneficial holders of the
Company's common stock on February 24, 1999.
The Company has not historically paid cash dividends. The Company does not
anticipate paying cash dividends in the foreseeable future.
Item 6. Selected Financial Data
- ------ -----------------------
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands, except per share data) 1998 1997 1996 1995 1994
Statement of Operations Data
<S> <C> <C> <C> <C> <C>
Net sales....................................... $835 $355 $137 $-- $--
Costs and expenses:
Cost of sales and manufacturing expenses....... 4,386 3,701 319 -- --
Research and development....................... 11,356 10,774 10,888 6,527 5,146
Selling, general and administrative............ 9,693 6,405 3,930 1,725 1,262
-------- --------- --------- --------- --------
Total costs and expenses........................ 25,435 20,880 15,137 8,252 6,408
-------- --------- --------- --------- --------
Operating loss.................................. (24,600) (20,525) (15,000) (8,252) (6,408)
Interest income, net............................ 563 1,129 2,121 1,203 425
Other expense................................... -- -- -- (57) (114)
-------- --------- --------- --------- --------
Net loss........................................ $(24,037) $(19,396) $(12,879) $ (7,106) $(6,097)
======== ========= ========= ========= ========
Net loss applicable to common stockholders...... $(27,414) $(19,396) $(12,879) $ (7,106) $(6,097)
======== ========= ========= ========= ========
Basic and diluted net loss per share applicable
to common stockholders...................... $(2.16) $(1.55) $(1.04) $(1.05) $(4.52)
Shares used in calculation of net loss per
share....................................... 12,686 12,528 12,342 6,757 1.348
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
(in thousands) 1998 1997 1996 1995 1994
- ----------------------------------------- -------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash, cash equivalents and
available-for-sale investments.......... $ 7,728 $ 14,113 $ 32,065 $ 44,703 $ 5,909
Working capital.......................... 4,915 11,820 30,435 43,205 4,935
Total assets............................. 11,184 17,345 35,485 45,919 6,934
Capital lease obligations, noncurrent.... 821 850 793 114 210
Redeemable convertible preferred stock... 17,489 -- -- -- 27,844
Accumulated deficit...................... (90,092) (62,678) (43,282) (30,403) (23,440)
Total stockholders' equity (net capital
deficiency)............................. (11,447) 12,937 31,765 44,035 (22,144)
</TABLE>
Item 7. KeraVision Management's Discussion and Analysis
- ------ -------------------------------------
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere in this Annual Report on Form
10-K.
Overview
Since its founding in November 1986, the Company has been engaged in the
research and development of the KeraVision Intacs and related technology.
Although the Company recorded its first revenue in the quarter ended December
31, 1996, the Company expects to continue to incur substantial losses at least
through the year ending December 31, 1999 and until sufficient revenue and
margin can be generated to offset expenses. Given the uncertainties in
developing a new market, revenues may not significantly accelerate in the
foreseeable future. Furthermore, the Company expects its overall expenses to
increase as its sales and marketing activities grow.
On April 9, 1999, KeraVision obtained FDA approval to distribute and sell
KeraVision Intacs in the United States for the treatment of myopia in the range
of 1.0 to 3.0 diopters of correction for patients over 21 years old. Prior to
receiving this approval, KeraVision's Pre-Market Approval application to sell
Intacs, was deemed "approvable" by the FDA on February 16, 1999. On January 12,
1999, the Ophthalmic Devices Panel of the FDA unanimously recommended approval
with conditions for KeraVision to sell its initial product, Intacs, in the range
of -1.0 to -3.5 diopters. The Company has enrolled a limited number of patients
in the range of -0.5 and -1.0 diopters and -3.5 to -5.0 diopters in a Phase III
trial. In May 1998, the Company received regulatory approval in Canada to sell
KeraVision Intacs in the range of -1.0 to -5.0 diopters; the Company has
subsequently begun limited commercial sales in Canada. In late 1996, the
Company was granted the right to affix the CE mark on KeraVision Intacs for
myopia which allows the Company to sell product in the range of -1.0 to -5.0
diopters in European Union countries.
The research, manufacture, sale and distribution of medical devices such as
KeraVision Intacs are subject to numerous regulations, imposed by governmental
authorities, principally the FDA and corresponding state and foreign agencies.
The regulatory process is lengthy, expensive and uncertain. Prior to commercial
sale in the United States, most medical devices, including KeraVision Intacs,
must be cleared or approved by the FDA. Securing FDA approvals and clearances
required the submission to the FDA of extensive clinical data and supporting
information. Current FDA enforcement policy strictly prohibits the marketing of
medical devices for uses other than those for which the product has been
approved or cleared. Product approvals have been given, product approvals and
clearances can be withdrawn for failure to comply with regulatory standards or
for the occurrence of unforeseen problems following initial marketing. Foreign
governments or agencies also have review processes for medical devices which
present many of the same risks. The right to affix the CE mark can be
withdrawn, resulting in an inability to sell products in European countries.
Until the development and testing processes for KeraVision Intacs are fully
complete, we cannot be sure that KeraVision Intacs will perform in the manner we
anticipate. Although the Company does have approval to sell products in the
United States, the European Union and Canada, we cannot be sure that KeraVision
Intacs will prove to be safe or effective over the long term in correcting
vision or that KeravVision Intacs or any other product developed by the Company
will be commercially successful, will be successfully marketed or achieve market
acceptance. There can be no assurance that the Company will ever achieve either
significant revenues from sales of KeraVision Intacs or any other potential
products or ever achieve profitable operations.
24
<PAGE>
Years ended December 31, 1998 and 1997
Net revenues for 1998 increased to $835,000 from $355,000 in 1997, primarily
as a result of increased unit shipments associated with the Company's limited
product launch into the Canadian market. Sales to customers in Canada
represented 51% of net sales in 1998.
Cost of sales exceeded revenues reflecting currently low production volumes
and fixed costs associated with the Company's higher volume manufacturing
capabilities.
Research and development expenses for the year ended December 31, 1998 were
$11.4 million compared to $10.8 million incurred in the prior year. Research
and development expenses in 1998 represented 46% of the $24.6 million loss from
operations, and in 1997 represented 53% of the $20.5 million loss from
operations. The Company expects research and development expenses to remain
relatively stable as studies are completed and replaced with new indications.
Selling, general and administrative expenses in 1998 were $9.7 million, an
increase of $3.3 million from 1997. The increase in spending reflects increased
staffing and associated expenses, in addition to increased marketing efforts
related to our limited launch in Canada and a pending U.S. launch dependent on
FDA regulatory approval.
The Company recorded $563,000 of net interest income for the year ended
December 31, 1998, as compared to $1.1 million for the previous year. Interest
income decreased due to lower average cash and investment balances from period
to period. The net loss in 1998 was $24.0 million, an increase of $4.6 million
from the net loss of $19.4 million in 1997. The net loss per share applicable
to common stockholders was $2.16. This per share calculation includes the
effect of a deemed dividend of $2.5 million, in addition the effect of a
dividend of $846,000 to preferred stockholders as part of the series B
redeemable convertible preferred stock financing. The Company believes that its
net loss could significantly increase in future periods.
Years ended December 31, 1997 and 1996
Net revenues for 1997 increased to $355,000 from $137,000 in 1996 as a
result of increased unit shipments. 1997 results include a full year of
commercial shipments to the European Market.
Cost of sales exceeded revenues reflecting currently low production volumes
and fixed costs associated with the Company's higher volume manufacturing
capabilities.
Research and development expenses for the year ended December 31, 1997 were
$10.8 million compared to $10.9 million incurred in the prior year. Research
and development expenses for the most recent year represented 53% of the $20.5
million loss from operations, and in 1996 represented 73% of the $15.0 million
loss from operations.
Selling, general and administrative expenses in 1997 were $6.4 million, an
increase of $2.5 million from 1996. The increase in spending reflects increased
staffing and associated expenses, in addition to increased marketing efforts
related to European commercialization.
The Company recorded $1.1 million of net interest income for the year ended
December 31, 1997, as compared to $2.1 million for the previous year. Interest
income decreased due to lower average cash and investment balances from period
to period. The net loss in 1997 was $19.4 million, an increase of $6.5 million
from the net loss of $12.9 million in 1996.
Tax Matters
As of December 31, 1998, the Company had federal, state and French net
operating loss carryforwards of approximately $66.3 million, $16.9 million and
$3.7 million, respectively. The Company also had federal and state research and
experimentation credit carryforwards of approximately $1.3 million and $1.0
million, respectively. The net operating loss and credit carryforwards will
expire at various dates beginning in 1999 through 2018, if not utilized.
Utilization of the net operating loss and credit carryforwards may be subject to
a substantial annual limitation due to the "change of ownership" rules provided
by the Internal Revenue Code and similar state tax provisions. KeraVision has
not yet evaluated the potential impact of these provisions on its ability to
currently utilize the net operating loss and credit carryforwards.
Under Statement of Financial Accounting Standards No. 109 ("FAS 109"),
deferred tax assets and liabilities are based on differences between financial
reporting and tax bases of assets and liabilities, and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The Company has provided a full
25
<PAGE>
valuation allowance against its net deferred tax assets due to uncertainties
surrounding their realization, primarily due to the Company's lack of an
earnings history.
Liquidity and Capital Resources
The Company has financed its operations since incorporation primarily
through its initial public offering, private sales of preferred stock, interest
income and equipment financing arrangements. On June 12, 1998, the Company
completed the sale of Series B Convertible Preferred Stock with net proceeds to
the Company of $16.6 million. Cash used in operating activities for 1998 has
increased to $23.0 million from $18.0 million in the prior year, reflecting
increased selling, general and administrative, research and development and
increased negative gross margins. Cash, cash equivalents and available-for-sale
investments were $7.7 million at December 31, 1998. Capital expenditures for
1998 and 1997 were $0.7 million and $0.5 million, respectively.
On December 23, 1998 the Company announced that it had entered into a
definitive merger agreement to acquire Transcend Therapeutics, Inc. (Nasdaq:
TSND) and its anticipated net cash balance of about $8 million. This
transaction will be accounted for as an acquisition of assets. Under the
agreement, Transcend will wind down its operations as a drug development company
and no Transcend employees will be retained after the closing of the
transaction. According to the terms of the agreement, Transcend will become a
wholly owned subsidiary of the Company. Transcend stockholders will receive
shares of KeraVision common stock with a value equal to the amount of net cash
of Transcend as of the closing date plus a premium of 30 percent. Stockholders
holding 51% of Transcend outstanding common stock have agreed to vote in favor
of the merger. In addition, KeraVision will be entitled to a breakup fee of
$500,000 if the agreement is terminated for certain reasons.
In March 1999, the Company entered into a senior term loan agreement
providing for borrowings of $5,000,000. The full amount was advanced on March
25, 1999. The loan bears interest at 11.75% per year until the Company repays
the loan on September 30, 2001. The Company has the right to prepay the loan
subject to a prepayment penalty of 6% of the current outstanding principal.
Repayment of the loan is secured by the Company's assets except for intellectual
property. In connection with the loan, KeraVision granted to the lender
warrants to purchase 55,492 shares of the common stock at an exercise price of
$10.8125, the closing price as of March 5, 1999, the date of the loan
commitment. The respective warrants are exercisable for 7 years from the date
of issuance.
KeraVision expects to continue to incur substantial expenses in support of
additional research and development and sales and marketing activities,
including cost of clinical studies, manufacturing costs, the expansion of its
sales and marketing organization and the support for ongoing administrative
activities. Management's planned expenditures for 1999 exceed current cash, cash
equivalents and available-for-sale investments, and the funds to be received
from the Transcend acquisition and the Senior Term Loan. Management believes
that sufficient funds will be available from additional investors to support
planned operations through December 1999. The Company intends to raise
additional funds through the sale of its equity securities and/or debt
financings. The Company may also enter into collaborative arrangements with
corporate partners that could provide the Company with additional funding in the
form of equity, debt or license fees in exchange for the Company's rights with
respect to markets or technology. There can be no assurance that the Company
will be able to raise any additional funds or enter into any such collaborative
arrangements on terms favorable to the Company, or at all. If the Company is
unable to obtain the necessary additional capital, significant reductions in
spending and the delay or cancellation of planned activities or more substantial
restructuring options may be necessary. In such event, the Company intends to
implement expense reduction plans in a timely manner to enable the Company to
meet its operating cash requirements through December 31, 1999. These actions
would have material adverse effects on the Company's business, results of
operations and prospects.
The Company's cash requirements may vary materially from those now planned
because of results of research, development and clinical testing, establishment
of relationships with strategic partners, changes in focus and direction of the
Company's research and development programs, changes in the scale, timing, or
cost of the Company's commercial manufacturing facility, competitive and
technological advances, the FDA or other regulatory processes, changes in the
Company's marketing and distribution strategy, and other factors.
Year 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
26
<PAGE>
Based on recent assessments, the Company determined that it would be
required to replace a small portion of its software so that those systems will
properly utilize dates beyond December 31, 1999. The Company has determined that
all of its critical business systems are already year 2000 compliant.
Assessment, testing and remediation are proceeding in tandem, and the Company
currently plans to have all modifications to systems completed and tested by
mid-1999. These activities are intended to encompass all major categories of
systems in use by the Company, including manufacturing, sales, finance and human
resources. KeraVision is also actively working with critical suppliers of
products and services to determine that the suppliers' operations and the
products and services they provide are year 2000 compliant or to monitor their
progress toward year 2000 compliance. The Company reviewed its product line and
determined that all of the products it has sold and will continue to sell do not
require remediation to be year 2000 compliant. There can be no guarantee that
any system of other companies, on which the Company's systems rely and which are
not year 2000 compliant, will be year 2000 compliant in a timely fashion and
would not have an adverse effect on the Company's systems.
The costs incurred to date related to these programs are less than $5,000.
The Company currently expects that the total cost of these programs, including
both incremental spending and redeployed resources, will not exceed $60,000.
The total cost estimated does not include potential costs related to any
customer or other claims or the cost of internal software and hardware replaced
in the normal course of business. The total cost estimate is based on the
current assessment of the projects and is subject to change as the projects
progress.
Due to the Company's reliance on widely used software packages that have
been certified as year 2000 compliant, the Company has not developed a formal
contingency plan for software. Should unforeseen problems surface during its
testing of those packages, the Company will evaluate its alternatives, such as
utilizing different software packages. The Company is currently working on
developing contingency plans to increase inventories and raw materials in
preparation for the year 2000. This plan is currently in the development stages
and should be finalized by mid 1999.
Based on currently available information, management does not believe that
the year 2000 matters discussed above related to internal systems, will have a
material adverse impact on the Company's financial condition or overall results
of operations; however, it is uncertain to what extent the Company may be
affected by such matters. In addition, there can be no guarantee that the
failure to ensure year 2000 compliance by a supplier or another third party
would not have a material adverse effect on the Company.
Euro
The Company does not presently expect that the introduction and use of the
Euro will materially affect the Company's foreign exchange or will result in any
material increase in costs to the Company. While KeraVision will continue to
evaluate the impact of the Euro introduction over time, based on currently
available information, management does not believe that the introduction of the
Euro currency will have a material adverse impact on the Company's financial
condition or overall trends in results of operations.
Market Risk Disclosure
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio and long-term debt obligations.
The Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments with high credit quality issuers
and, by policy, limits the amount of credit exposure to any one issuer. As
stated in its policy, the Company is averse to principal loss and seeks to
ensure the safety and preservation of its invested funds by limiting default
risk, market risk, and reinvestment risk.
The Company mitigates default risk by investing in only the safest and
highest credit quality securities. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
The Company has no cash flow exposure due to rate changes for long-term debt
obligations. The Company primarily enters into debt obligations to support
general corporate purposes including capital expenditures and working capital
needs.
The table below presents principal amounts and related weighted average
interest rates by year of maturity for the Company's investment portfolio and
debt obligations. All investments mature, by policy, in one year or less.
27
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Fair Value
(in thousands) 1999 2000 2001 2002 2003 Total 12/31/98
- --------------------------------------------------------------------------------------------------------------------------------
Assets:
Cash equivalents
Fixed rate $1,449 $-- $-- $-- $-- $1,449 $1,449
Average interest rate 2.87%
Available-for-sale investments
Fixed rate 6,279 -- -- -- -- 6,279 6,279
Average interest rate 5.3%
Total investments
Securities 7,728 -- -- -- -- 7,728 7,728
Average interest rate 4.85%
Long-Term Debt:
Fixed rate 646 563 233 150 -- 1,592 1,592
Average interest rate 13.93% 13.94% 16.47% 17.77%
</TABLE>
Foreign Currency Risk
The Company transacts business in French Francs, German Deutsch Marks and
Canadian dollars. Transactions in foreign currency are minimal and do not have a
material impact on the Company's financial statements.
Item 8. Financial Statements and Supplementary Data
- ------ -------------------------------------------
See Item 14(a) for an index to financial statements and supplementary
information.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------ ---------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
PART III
Certain information required by Part III is omitted from this report
because the Registrant will file a definitive proxy statement within 120 days
after the end of its fiscal year pursuant to Regulation 14A (the "Proxy
Statement") for its annual meeting of stockholders scheduled to be held May 26,
1999, and the information included therein is incorporated herein by reference
to the extent detailed below.
Item 10. Directors and Executive Officers of the Registrant
- ------- --------------------------------------------------
Information with respect to the Registrant's directors required by
this Item is incorporated by reference from the information under the caption
"Election of Directors--Board of Directors" in the Registrant's Proxy Statement.
Information as to the Registrant's executive officers is set forth in
"Item 1 -- Business -- Executive Officers of the Company" of this Form 10-K.
Item 11. Executive Compensation
- ------- ----------------------
Information required by this Item is incorporated by reference from
the information under the caption "Executive Compensation" in the Registrant's
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
Information required by this Item is incorporated by reference from
the information under the caption "Common Stock Ownership of Certain Beneficial
Owners and Management" in the Registrant's Proxy Statement.
28
<PAGE>
Item 13. Certain Relationships and Related Transactions
- ------- ----------------------------------------------
Information required by this Item is incorporated by reference from
the information under the caption "Certain Relationships and Related
Transactions" in the Registrant's Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------- ---------------------------------------------------------------
(a)(1)The following financial statements and Report of Ernst & Young LLP,
Independent Auditors, are filed as part of this report:
Page
----
Report of Ernst & Young, Independent Auditors 34
Consolidated Balance Sheets at December 31, 1998 and 1997 35
Consolidated Statements of Operations Years Ended 36
December 31, 1998, 1997 and 1996
Consolidated Statements of Redeemable Convertible
Preferred Stock and Stockholders' Equity (net capital
deficiency) Years Ended December 31, 1998, 1997 and 1996 37
Consolidated Statements of Cash Flows Years Ended 38
December 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements 39
(2) Financial Statement Schedule
Schedules have been omitted because the information required
to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
(3) The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit Description
Number -----------
- ------
<C> <S>
2.1 Agreement and Plan of reorganization by and among KeraVision, Inc. KVTT acquisition
corporation and Transcend Theraputics, Inc. dated as of December 22, 1998.(13)
3.1 Amended and Restated Certificate of Incorporation of Registrant.(1)
3.2 Amended and Restated Bylaws of Registrant, as amended.
4.1 Preferred Shares Rights Agreement, dated as of August 18, 1997, between Registrant and Bank
Boston, N.A. (7)
4.2 KeraVision, Inc. Investors' Rights Agreement.(13)
4.3 Certificate of Designation of Rights, Preferences and Privileges of Series B Convertible
Preferred Stock of KeraVision, Inc.(14)
10.1 Form of Indemnification Agreements for directors and officers. (1)
10.2 1997 Employee Stock Option Plan.(1)(2)
10.3 1987 Stock Option Plan and forms of agreements thereunder.(1)(2)
10.4 Form of Change of Control Agreement entered into between Registrant and Chief Executive Officer
in May 1997.(2)(8)
10.5 Form of Change of Control Agreement entered into between Registrant and Executive Officers in May
1997.(2)(8)
10.6 1995 Stock Plan, as amended.(2)(9)
10.7 1995 Directors' Option Plan and form of subscription agreement.(4)(2)
10.8 401(k) Plan.(1)(2)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.9 Fremont Office Lease dated August 20, 1993 and all amendments thereto.(1)
10.10 Kilmer License Agreement, dated December 31, 1992.(1)
10.11 Manufacturing Agreement dated October 1, 1992.(1)(3)
10.12 Form of Warrant for Series D Preferred Stock between Registrant and certain holders of Common
Stock of Registrant.(1)
10.13 Promissory Notes, dated January 29, 1988, March 8, 1988, March 8, 1989, October 30, 1991, April
12, 1993 and November 7, 1993, executed by Thomas Loarie in favor of Registrant and all
amendments thereto. (9)
10.14 Promissory Notes, dated September 17, 1990, October 30, 1991, October 30, 1991, and November 7,
1993, executed by Thomas Silvestrini in favor of Registrant and all amendments thereto. (9)
10.15 Promissory Note, dated November 7, 1993, executed by Mark Fischer-Colbrie in favor of Registrant
and all amendments thereto.(10)
10.16 Promissory Notes, dated March 8, 1988, March 8, 1988, March 8, 1989, October 30, 1991, and
November 7, 1993, executed by Darlene Crockett-Billig in favor of Registrant and all amendments
thereto.(9)
10.17 Consulting Agreement dated January 19, 1994 between Registrant and John R. Gilbert, and all
amendments thereto.(1)
10.18 Information and Registration Rights Agreement between Registrant and holders of the Preferred
Stock of the Registrant, dated as of November 19, 1992.(1)
10.19 Consulting Agreement dated January 1, 1996 between Registrant and John R. Gilbert.(4)
10.20 Employment Agreement dated January 1997 between Registrant and Thomas M. Loarie.(2)(6)
10.21 Distribution Agreement dated as of October 31, 1996 by and between Registrant and AM Peschke, a
German corporation.(5)(6)
10.22 Promissory notes, dated April 1, 1998, executed by Thomas Loarie in favor of Registrant.(11)
10.23 Promissory note, dated April 1, 1998, executed by Mark Fischer-Colbrie in favor of Registrant.(11)
10.24 Promissory note, dated April 1, 1998, executed by Thomas Silvestrini in favor of Registrant.(11)
10.25 Promissory notes, dated September 1, 1998 executed by Thomas Loarie in favor of Registrant.(12)
10.26 Promissory notes, dated September 1, 1998 executed by Darlene Crockett-Billig in favor of
Registrant.(12)
10.27 Promissory notes, dated September 1, 1998 executed by Thomas Silvestrini in favor of
Registrant.(12)
10.28 Promissory notes, dated September 1, 1998 executed by Mark Fischer-Colbrie in favor of
Registrant.(12)
10.29 Master loan and security agreement dated March 25, 1999 between Registrant in favor of
Transamerica Business Credit Corporation.(13)
10.30 Agreement with A.M. Pappas & Associates dated January 20, 1998.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (See Signature Page).(13)
27 Financial Data Schedule.(13)
</TABLE>
________________
(1) Incorporated by reference to identically numbered exhibits filed in
Registrant's Registration Statement on Form S-1 and Amendment No. 1,
Amendment No. 2 and Amendment No. 3 thereto (File No. 33-92880), which
became effective on July 27, 1995.
(2) Management contract or compensatory plan or arrangement.
(3) Confidential treatment has been granted with respect to certain portions of
this Exhibit by the Securities and Exchange Commission by order dated July
27, 1995.
(4) Incorporated by reference to identically numbered exhibits filed in
Registrant's Form 10-K for the year ended December 31, 1995.
(5) Confidential treatment has been sought with respect to certain portions of
this Exhibit.
(6) Incorporated by reference to identically numbered exhibits filed in
Registrant's Form 10-K for the year ended December 31, 1996.
(7) Incorporated by reference to identically numbered exhibit filed in
Registrant's Registration on Form 8-A which became effective on August 25,
1997.
30
<PAGE>
(8) Incorporated by reference to exhibits 10.23 and 10.24 filed in Registrant's
Form 10-K for the year ended December 31, 1997.
(9) Incorporated by reference to identically numbered exhibits filed in
Registrant's Registration Statement on Form S-1 (File No. 33-92880), which
became effective on July 27, 1995, and Form 10-K for the year ended
December 31, 1996.
(10) Incorporated by reference to identically numbered exhibits filed in
Registrant's Registration Statement on Form S-1 (File No. 33-92880), which
became effective on July 27, 1995, and Form 10-K for the year ended
December 31, 1997.
(11) Incorporated by reference to Exhibits 10.25 through 10.27 filed in
Registrant's Form 10-Q for the quarterly period ended March 31, 1998.
(12) Incorporated by reference to Exhibits 10.28 through 10.31 filed in
Registrant's Form 10-Q for the quarterly period ended September 30, 1998.
(13) Incorporated by reference to identically numbered Exhibits filed in
Registrant's Form 10-K for the year ended December 31, 1998.
(14) Incorporated by reference to Exhibit 3.3 filed in Registrant's Form 10-K
for the year ended December 31, 1998.
(15) (b) The Company filed the following reports on Form 8-K during the year
ended December 31, 1998:
Report Date: August 26, 1998
Item 5. Other Events
Pioneering Ring technology for nearsighted people to receive full PMA
review by FDA.
Report Date: August 3, 1998
Item 5. Other Events
KeraVision Appoints to Board Peter L. Wilson, Former President of
Richardson Vicks USA.
Report Date: July 23, 1998
Item 5. Other Events
KeraVision Appoints 23-Year J&J Veteran as VP-EuropeMenlo Park, California
on this 27th day of March 1999.
Report Date: July 23, 1998
Item 5. Other Events
KeraVision reports second quarter results.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to the
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Menlo Park, California on this 3rd day of May
1999.
KERAVISION, INC.
By: /s/Mark Fischer-Colbrie
---------------------------------------
Mark Fischer-Colbrie
Vice President, Finance and
Administration, Chief Financial Officer and Assistant
Secretary (Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment No. 1 to the Report on Form 10-K has been signed below by the
following persons in the capacities and on May 3, 1999.
Signature Title
--------- -----
* Chairman of the Board of Directors,
- ------------------------------- President and Chief Executive Officer
(Thomas M. Loarie) (Principal Executive Officer)
/s/Mark Fischer-Colbrie Vice President, Finance and Administration,
- ------------------------------- Chief Financial Officer, and Assistant
(Mark Fischer-Colbrie) Secretary (Principal Financial and
Accounting Officer)
* Director
- -------------------------------
(Charles Crocker)
* Director
- -------------------------------
(John R. Gilbert)
* Director
- -------------------------------
(Kathleen D. La Porte)
* Director
- -------------------------------
(Lawrence Lehmkuhl)
* Director
- -------------------------------
(Kshitij Mohan)
* Director
- -------------------------------
(Arthur M. Pappas)
* Director
- -------------------------------
(Peter L. Wilson)
*By: /s/Mark Fischer-Colbrie Vice President, Finance and Administration,
------------------------
(Mark Fischer-Colbrie) Chief
Attorney-in-Fact Financial Officer, and Assistant Secretary
(Principal Financial and Accounting Officer)
32
<PAGE>
KERAVISION, INC.
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
3.2 Amended and Restated Bylaws of Registrant
10.30 Agreement with A.M. Pappas & Associates dated January 20, 1998
23.1 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
33
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
KeraVision, Inc.
We have audited the accompanying consolidated balance sheets of
KeraVision, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, and redeemable convertible preferred stock and
stockholders' equity (net capital deficiency), and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of KeraVision, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
February 3, 1999,
except for Note 9, as to which the date is
March 25, 1999
San Jose, California
34
<PAGE>
KERAVISION, INC.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
-----------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................................................................... $1,449 $2,574
Available-for-sale investments................................................................ 6,279 11,539
Prepaid expenses and other current assets..................................................... 1,508 1,265
-------- --------
Total current assets............................................................................ 9,236 15,378
Property and equipment, at cost:
Manufacturing and laboratory equipment........................................................ 3,709 3,298
Office furniture and fixtures................................................................. 597 586
Leasehold improvements........................................................................ 636 383
-------- --------
4,942 4,267
Accumulated depreciation and amortization....................................................... (3,102) (2,398)
-------- --------
Net property and equipment.................................................................... 1,840 1,869
Other assets.................................................................................... 108 98
-------- --------
Total assets.................................................................................... $11,184 $17,345
======== ========
Liabilities and stockholders' equity (net capital deficiency)
Current liabilities:
Accounts payable.............................................................................. $1,742 $1,089
Accrued payroll and related expenses.......................................................... 581 489
Accrued clinical trial costs.................................................................. 1,282 1,211
Other accrued liabilities..................................................................... 204 414
Current portion of capital lease obligations.................................................. 512 355
-------- --------
Total current liabilities....................................................................... 4,321 3,558
Capital lease obligations....................................................................... 821 850
Redeemable convertible series B preferred stock, no par value:
Authorized shares--662,500;
Issued and outstanding shares--562,500 at December 31, 1998, aggregate liquidation
preference of $20,520,000.................................................................... 17,489 --
Commitments and contingencies
Stockholders' equity (net capital deficiency):
Preferred stock, par value $.001, 2,000,000 shares authorized, none issued and outstanding.... -- --
Common stock, par value $.001, 30,000,000 shares authorized, 12,776,920 and 12,593,646 shares
issued and outstanding in 1998 and 1997, respectively........................................ 13 13
Additional paid-in capital.................................................................... 80,162 76,540
Deferred compensation......................................................................... (30) (179)
Accumulated other comprehensive income........................................................ 109 44
Accumulated deficit........................................................................... (90,092) (62,678)
Notes receivable from stockholders............................................................ (1,609) (803)
-------- --------
Total stockholders' equity (net capital deficiency)............................................. (11,447) 12,937
-------- --------
Total liabilities and stockholders' equity (net capital deficiency)............................. $11,184 $17,345
======== ========
</TABLE>
See accompanying notes.
35
<PAGE>
KERAVISION, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------------------------
1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C>
Net sales......................................................... $835 $355 $137
Costs and expenses:
Cost of sales and manufacturing expenses...................... 4,386 3,701 319
Research and development...................................... 11,356 10,774 10,888
Selling, general and administrative........................... 9,693 6,405 3,930
---------------------------------------------------
Total costs and expenses.......................................... 25,435 20,880 15,137
---------------------------------------------------
Operating loss.................................................... (24,600) (20,525) (15,000)
Interest income, net.............................................. 563 1,129 2,121
---------------------------------------------------
Net loss.......................................................... $(24,037) $(19,396) $(12,879)
---------------------------------------------------
Preferred stock dividend requirements:
Redeemable convertible series B................................. (846) -- --
Deemed dividend (Note 5)........................................ (2,531) -- --
---------------------------------------------------
Net loss applicable to common stockholders........................ $(27,414) $(19,396) $(12,879)
===================================================
Basic and diluted net loss per share applicable to common
stockholders..................................................... $(2.16) $(1.55) $(1.04)
Shares used in calculation of net loss per share.................. 12,686 12,528 12,342
</TABLE>
See accompanying notes.
36
<PAGE>
<TABLE>
<CAPTION>
KeraVision, Inc.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Net Capital Deficiency)
(In thousands, except share and per share amounts)
Redeemable Convertible
Preferred Stock Common Stock Additional
--------------------------------------------- Paid-In Deferred
(in thousands, except share and per share amounts) Shares Amount Shares Amount Capital Compensation
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 -- -- 12,262,845 $ 12 $ 75,710 $ (477)
Issuance of common stock upon exercise of options -- -- 181,957 -- 404 --
Amortization of deferred compensation -- -- -- -- -- 149
Forgiveness of notes receivable from stockholders,
net of accrued interest -- -- -- -- -- --
Comprehensive income:
Net loss -- -- -- -- -- --
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale securities,
net of reclassification adjustments -- -- -- -- -- --
Foreign currency translation adjustments -- -- -- -- -- --
Other comprehensive income -- -- -- -- -- --
Comprehensive income (loss) -- -- -- -- -- --
----------------------------------------------------------------------------
Balance at December 31, 1996 -- -- 12,444,802 12 76,114 (328)
Issuance of common stock upon exercise of options -- -- 148,844 1 426 --
Amortization of deferred compensation -- -- -- -- -- 149
Accrued interest on notes receivable from
stockholder -- -- -- -- -- --
Comprehensive income:
Net loss -- -- -- -- -- --
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale securities,
net of reclassification adjustments -- -- -- -- -- --
Foreign currency translation adjustments -- -- -- -- -- --
Other comprehensive income -- -- -- -- -- --
Comprehensive income (loss) -- -- -- -- -- --
----------------------------------------------------------------------------
Balance at December 31, 1997 -- -- 12,593,646 13 76,540 (179)
Issuance of common stock upon exercise of options -- -- 183,274 -- 598 --
Issuance of redeemable convertible series B
preferred stock, net of issuance costs 562,500 $ 14,112 -- -- 2,531 --
Accretion of dividends on preferred stock -- 150 -- -- -- --
Dividends on preferred stock to be distributed -- 696 -- -- -- --
Dividends on series B preferred stock issuance
related to deemed dividend (Note 5) -- 2,531 -- -- -- --
Amortization of deferred compensation -- -- -- -- -- 149
Issuance of stockholder notes -- -- -- -- -- --
Forgiveness of notes receivable from stockholders,
net of accrued interest -- -- -- -- -- --
Accrued interest on notes receivable from
stockholders -- -- -- -- -- --
Compensation expense related to employee stock
activity -- -- -- -- 493 --
Comprehensive income:
Net loss -- -- -- -- -- --
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale securities,
net of reclassification adjustments -- -- -- -- -- --
Foreign currency translation adjustments -- -- -- -- -- --
Other comprehensive income -- -- -- -- -- --
Comprehensive income (loss) -- -- -- -- -- --
----------------------------------------------------------------------------
Balance at December 31, 1998 562,500 $ 17,489 12,776,920 $ 13 $ 80,162 $ (30)
============================================================================
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
Total
Accumulated Notes Stockholders'
Other Receivable Equity (Net
Comprehensive Comprehensive Accumulated From Capital
(in thousands, except share and per share amounts) Income/(loss) Income Deficit Stockholders Deficiency)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $-- $-- $ (30,403) $ (807) $ 44,035
Issuance of common stock upon exercise of options -- -- -- -- 404
Amortization of deferred compensation -- -- -- -- 149
Forgiveness of notes receivable from stockholders,
net of accrued interest -- -- -- 39 39
Comprehensive income:
Net loss (12,879) -- (12,879) -- (12,879)
--------------
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale securities,
net of reclassification adjustments 18 -- -- -- 18
Foreign currency translation adjustments (1) -- -- -- (1)
--------------
Other comprehensive income 17 17 -- -- --
--------------
Comprehensive income (loss) $ (12,862) -- -- --
===============------------------------------------------------------
Balance at December 31, 1996 17 (43,282) (768) 31,765
Issuance of common stock upon exercise of options -- -- -- -- 427
Amortization of deferred compensation -- -- -- -- 149
Accrued interest on notes receivable from -- -- -- (35) (35)
stockholders
Comprehensive income:
Net loss (19,396) -- (19,396) -- (19,396)
--------------
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale securities,
net of reclassification adjustments 26 -- -- -- 26
Foreign currency translation adjustments 1 -- -- -- 1
--------------
Other comprehensive income 27 27 -- -- --
--------------
Comprehensive income (loss) $ (19,369) -- -- -- --
===============------------------------------------------------------
Balance at December 31, 1997 44 (62,678) (803) 12,937
Issuance of common stock upon exercise of options -- -- -- -- 598
Issuance of redeemable convertible series B
preferred stock, net of issuance costs -- -- -- -- 2,531
Accretion of dividends on preferred stock -- -- (150) -- (150)
Dividends on preferred stock to be distributed -- -- (696) -- (696)
Dividends on series B preferred stock issuance
related to deemed dividend (Note 5) -- -- (2,531) -- (2,531)
Amortization of deferred compensation -- -- -- -- 149
Issuance of stockholder notes -- -- -- (776) (776)
Forgiveness of notes receivable from stockholders,
net of accrued interest -- -- -- 46 46
Accrued interest on notes receivable from
stockholders -- -- -- (76) (76)
Compensation expense related to employee stock
activity -- -- -- -- 493
Comprehensive income: 0
Net loss (24,037) -- (24,037) -- (24,037)
--------------
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale securities,
net of reclassification adjustments (42) -- -- -- (42)
Foreign currency translation adjustments 107 -- -- -- 107
--------------
Other comprehensive income 65 65 -- -- --
--------------
Comprehensive income (loss) $ (23,972) -- -- -- --
===============------------------------------------------------------
Balance at December 31, 1998 $ 109 $ (90,092) $ (1,609) $ (11,447)
======================================================
</TABLE>
See accompanying notes.
37
<PAGE>
KERAVISION, INC.
Consolidated Statements Of Cash Flows
Decrease in cash and cash equivalents
(in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------------
1998 1997 1996
----------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss........................................................... $(24,037) $(19,396) $(12,879)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................... 704 652 448
Issuance of stockholders' notes receivable...................... (776) -- --
Interest receivable on stockholders' notes...................... (76) (35) (41)
Expenses related to employee stock activity, including
amortization of deferred compensation.......................... 688 149 229
Changes in operating assets and liabilities:
Prepaid expenses and other current assets..................... (115) 32 (1,025)
Accounts payable............................................. 653 116 528
Other accrued liabilities.................................... (47) 504 391
-------- -------- --------
Net cash used in operating activities.......................... (23,006) (17,978) (12,349)
-------- -------- --------
Cash flows from investing activities:
Purchases of available-for-sale investments........................ (22,214) (20,620) (40,402)
Sales of available-for-sale investments............................ 25,210 11,408 10,790
Maturities of available-for-sale investments....................... 2,201 21,474 5,855
Capital expenditures............................................... (675) (545) (1,550)
Other assets....................................................... (10) 49 (77)
-------- -------- --------
Net cash provided by (used in) investing activities............ 4,512 11,766 (25,384)
-------- -------- --------
Cash flows from financing activities:
Principal payments under capital lease obligations................. (480) (427) (156)
Proceeds from sales-leaseback of capital equipment................. 608 495 1,073
Proceeds from issuance of equity securities, net of
repurchases...................................................... 598 427 404
Proceeds from issuance of redeemable convertible Series B
preferred stock, net of issuance costs........................... 16,643 -- --
-------- -------- --------
Net cash provided by financing activities...................... 17,369 495 1,321
-------- -------- --------
Net decrease in cash and cash equivalents........................... (1,125) (5,717) (36,412)
Cash and cash equivalents at the beginning of the year.............. 2,574 8,291 44,703
-------- -------- --------
Cash and cash equivalents at the end of the year.................... $ 1,449 $ 2,574 $ 8,291
======== ======== ========
Supplemental disclosure of non-cash financing activities:
Accrued and deemed dividends related to preferred stock............. $ 3,227 $-- $--
Accretion related to preferred stock................................ $ 150 $-- $--
Supplemental disclosures of cash flow information
Cash paid for interest.............................................. $ 123 $ 140 $ 25
======== ======== ========
</TABLE>
See accompanying notes.
38
<PAGE>
KeraVision, Inc.
Notes to Consolidated Financial Statements
1. Organization and Summary of Significant Accounting Policies
Organization and Basis of Presentation
KeraVision, Inc. (''KeraVision'' or the ''Company'') was incorporated on
November 6, 1986 in the State of California and reincorporated in the State of
Delaware on July 25, 1995. On August 2, 1995, the Company completed its initial
public offering ("IPO") by issuing 3,600,000 shares of common stock in exchange
for net proceeds of $44.4 million.
The Company was founded to develop and commercialize proprietary medical
products for the treatment of common vision problems. On December 23, 1986, the
Company acquired certain equipment and patent rights from Kera Associates, a
partnership, in exchange for 425,000 shares of the Company's common stock issued
to the former partners of Kera Associates. The assets were recorded at the
predecessor's cost basis. As part of the transaction with Kera Associates, the
Company acquired the exclusive license, existing between Kera Associates and an
outside third party, to develop and market the licensor's ''proprietary
rights,'' as defined, relating to the development of certain instruments used in
the insertion of the KeraVision Intacs, the Company's initial potential product.
The term of the license agreement will continue until the expiration of the last
expiring patent then existing or developed thereafter by the licensor relating
to the proprietary rights. Royalties are payable based upon sales of KeraVision
Intacs or the instruments.
Management's Plans and Financing
The Company's financial statements are prepared and presented on a basis
assuming it continues as a going concern. At December 31, 1998, the Company had
an accumulated deficit of $90.0 million and incurred a net loss of $24.0 million
as of and for the year ended December 31, 1998, respectively.
On December 23, 1998 the Company announced that it had entered into a
definitive merger agreement to acquire Transcend Therapeutics, Inc. (Nasdaq:
TSND) and its anticipated net cash balance of about $8 million (see Note 8 -
Acquisitions). In March 1999, the Company entered into a senior term loan
agreement providing for borrowings of $5,000,000, which was advanced on March
25, 1999 (see Note 9 - Subsequent Events).
Management's planned expenditures for 1999 exceed current cash, cash
equivalents and available-for-sale investments and the funds to be received from
the Transcend acquisition and the senior term loan. The Company will need to
obtain additional funds to continue its research and development activities,
fund operating expenses and pursue regulatory approvals for its products under
development. Management believes that sufficient funds will be available from
additional investors to support planned operations through December 1999. The
Company intends to raise additional funds through the sale of its equity
securities and/or debt financings. The Company may also enter into collaborative
arrangements with corporate partners that could provide the Company with
additional funding in the form of equity, debt or license fees in exchange for
the Company's rights with respect to certain markets or technology. There can
be no assurance that the Company will be able to raise any additional funds or
enter into any such collaborative arrangements on terms favorable to the
Company, or at all. If the Company is unable to obtain the necessary additional
capital, significant reductions in spending and the delay or cancellation of
planned activities or more substantial restructuring options may be necessary.
In such event, the Company intends to implement expense reduction plans in a
timely manner to enable the Company to meet its operating cash requirements
through December 31, 1999. These actions would have material adverse effects on
the Company's business, results of operations and prospects.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). FAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company adopted FAS 130 in 1998. The impact to the Company as a
result of the adoption of FAS 130 was immaterial as there was no significant
difference between the Company's net loss reported and the comprehensive net
loss under FAS 130 for the periods presented.
39
<PAGE>
Segment Information
The Company operates in one business segment, which is the development,
production and marketing of medical products for the treatment of common vision
problems. The Chief Executive Officer has been identified as the Chief
Operating Decision Maker (CODM) because he has final authority over resource
allocation decisions and performance assessment. The CODM does not receive
discrete financial information about individual components or geographical
information.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. Significant intercompany transactions and
balances have been eliminated in consolidation.
Concentration of Credit Risk and Other Risks
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, short-term
investments and accounts receivables. The Company was founded to develop and
commercialize proprietary medical products for the treatment of common vision
problems. The Company generally does not require collateral. The Company
maintains allowances for credit losses, and such losses have been within
management's expectations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company continually reviews long-lived assets to assess
recoverability based upon undiscounted cash flow analysis. Impairments, if any,
are recognized in operating results in the period in which a permanent
diminuation in value is determined.
Depreciation and Amortization
Depreciation is provided on a straight-line basis over assets' estimated
useful lives of three to five years. Assets acquired under capital leases are
amortized on a straight-line basis over the lesser of the assets' useful life or
the term of the lease.
Cash, Cash Equivalents, and Available-for-Sale Investments
The Company considers all highly liquid investments with a maturity of
three months or less from the date of purchase to be cash equivalents. All other
liquid investments are classified as available-for-sale and consist primarily of
short-term investment grade securities, all of which mature within the next
twelve months. The Company is exposed to credit risk in the event of default by
the financial institutions or issuers of investments only to the extent recorded
on the balance sheet. At December 31, 1998 and 1997, the Company's liquid
assets were composed of deposits with banks and investments in U.S. Government
securities, corporate debt securities, certificates of deposits, auction market
preferred stocks and money market funds. Investments include reverse repurchase
agreements with major financial institutions. Due to the short-term nature of
the reverse repurchase agreements, the Company generally does not take
possession of the underlying securities.
Management determines the appropriate classification of investments at
the time of purchase and reevaluates such designation as of each balance sheet
date. At December 31, 1998 and 1997, all debt and equity securities are
designated as available-for-sale. Available-for-sale securities are carried at
fair value as determined by reference to quoted market prices, with the
unrealized gains and losses reported in stockholders' equity (deficit). The
amortized cost of debt securities in this category is adjusted for the
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses and
declines in value judged to be other-than-temporary, if any, on available-for-
sale securities are included in other expense. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest income.
40
<PAGE>
Revenue Recognition
The Company recognizes revenues from product sales upon shipment. The
Company provides allowances for estimated bad debts and sales returns, which
have not been material to date. Customers do not have significant return
privileges. Product sales in 1997 were composed principally of sales to the
European market through the Company's French sales office and German
Distributor. In 1998, approximately 51% of the Company's sales were generated
from its limited product launch into the Canadian market, and the balance of the
sales were in Europe.
Net Loss Per Share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" (FAS 128). FAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Due to the
Company's net loss in all periods presented, net loss per share includes only
weighted average shares outstanding. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform to the
FAS 128 requirements.
Advertising Expenses
The cost of advertising is recorded as an expense when incurred.
Advertising costs for the years ended December 31, 1998 were $1.7 million.
Advertising expenses for the years ended December 31, 1997, and 1996 were
immaterial.
Accounting for Employee Stock Options
The Company accounts for stock-based compensation issued to employees
and directors, including outside directors, using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB Opinion No. 25). No grants were made to outside
directors subsequent to December 15, 1998. The Company's policy is to grant
options with an exercise price equal to the fair market value of the Company's
common stock on the date of the grant. Accordingly, no compensation cost, other
than the compensation discussed in Note 6, has been recognized in the Company's
statements of operations. The Company provides additional pro forma disclosures
as required under Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" (FAS 123) (see Note 6).
Income Taxes
Income taxes are calculated under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109).
Under FAS 109, the liability method is used in accounting for income taxes,
which includes the effects of temporary differences between financial and
taxable amounts of assets and liabilities.
2. Investments
At December 31, 1998, the Company's investments were composed of the
following (in thousands):
<TABLE>
<CAPTION>
Gross Estimated
Unrealized Fair
Cost Gains Value
------------------ ------------------ ----------------
<S> <C> <C> <C>
Money market instrument.................................. $215 $-- $215
Certificate of deposit................................... 165 -- 165
Auction rate preferred................................... 1,875 -- 1,875
Corporate debt securities................................ 4,859 2 4,861
------------------ ------------------ ----------------
Available-for-sale investment 7,114 2 7,116
Included in cash & cash equivalents...................... 837 -- 837
Included in available for sale investments.............. $6,277 $2 $6,279
================== ================== ================
</TABLE>
The $7,116,000 included in available-for-sale investments matures in less
than one year. During 1998, 1997 and 1996 there were no gross realized gains or
losses.
41
<PAGE>
At December 31, 1997, the Company's investments were composed of the
following (in thousands):
<TABLE>
<CAPTION>
Gross Estimated
Unrealized Fair
Cost Gains Value
------------------ ------------------ ----------------
<S> <C> <C> <C>
Money market instrument...................................... $2,574 $-- $2,574
Certificate of deposit....................................... 659 -- 659
U.S. Treasury Bills & other governmental agency obligations.. 3,003 -- 3,003
Corporate debt securities.................................... 7,835 42 7,877
------------------ ------------------ ----------------
14,071 42 14,113
Included in cash & cash equivalents.......................... (2,574) -- (2,574)
Included in available for sale investments.................. $11,497 $42 $11,539
================== ================== ================
</TABLE>
The $11,539,000 included in available-for-sale investments matures in
less than one year.
3. Capital Lease Obligations
The Company leases certain office and manufacturing equipment under
capitalized leases which expire in 2002. The total future minimum lease payments
under capital leases as of December 31, 1998 are as follows (in thousands):
Years ended December 31:
<TABLE>
<S> <C> <C> <C>
1999............................. $646
2000............................. 563
2001............................. 233
2002............................. 150
-------
Total minimum lease payments............... 1,592
Amounts representing interest.............. (259)
--------
Present value of minimum lease payments.... 1,333
Less current portion....................... (512)
--------
Noncurrent portion......................... $ 821
========
</TABLE>
The cost of assets under capital leases at December 31, 1998 and 1997 were
$2,552,000 and $1,987,000 with related accumulated amortization amounting to
$1,293,000 and $851,000, respectively.
4. Commitments and Contingencies
Leases
The Company rents office facilities under operating lease agreements
which expire at various dates through 1999. The facility lease agreement
provides for an option for the Company to extend the lease for an additional
five years. Aggregate annual rental commitments under noncancelable operating
leases as of December 31, 1998 are as follows (in thousands):
1999........................................................ $261
2000........................................................--------
Total minimum lease payments................................ $261
========
Legal Matters
The Company is involved in a claim arising in the ordinary course of
business. The Company believes this matter will be resolved without material
adverse effect on the Company's financial position, results of operations or
cash flows.
5. Redeemable Convertible Preferred Stock
On June 12, 1998, the Company issued 562,500 shares of the Company's
Series B Redeemable Convertible Preferred Stock (the "Series B Shares") at
$32.00 per share. The Series B Shares are entitled to receive quarterly
dividends at the rate of seven percent (7%) per annum, payable, at the election
of the Company, in either cash or additional Series B Shares, as described in
the Certificate of Designation of Rights, Preferences and Privileges of Series B
Convertible Preferred Stock (the "Certificate of Designation"). Each Series B
Share is immediately convertible, at the option of the holders, into four shares
of common stock at $8.00 per share. The Series B Shares are convertible at the
Company's option, at the applicable conversion rate which is currently $8.00 per
share, after two years if the price of the Company's common
42
<PAGE>
stock exceeds $16.00 per share. The conversion rate is subject to adjustment in
the event of certain circumstances described in the Certificate of Designation,
including if the then-current value of the common stock is below $8.00 per share
on June 12, 2000. The Series B Shares are redeemable, at $32 per share, at the
option of the holders after five (5) years. The cumulative quarterly dividends
as of December 31, 1998 were approximately $696,000. For the year ended December
31, 1998, preferred dividends of $696,000, accretion of $150,000 and the deemed
dividends, representing the difference, at the date of issuance, between the
market value of the Company's common stock of $9.125 at June 12, 1998 and the
conversion price of the Company's series B convertible preferred stock of $2.5
million are added to the net loss to arrive at net loss applicable to common
stockholders. The difference between the carrying value of the preferred stock
and the aggregate redemption value is being accreted as preferred stock
dividends over the five year redemption period.
Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock ranking junior to
the series B convertible preferred stock unless, prior thereto, the holders of
shares of series B convertible preferred stock have received an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, plus an amount equal to $32 per share and in the
event such payment is made on or before June 12, 2000, an amount equal to $4.48
per share, less (i) the accrued dividends and (ii) dividends previously paid.
Preferred stockholders are additionally entitled to any dividends distributed to
common stockholders.
6. Stockholders' Equity
Stock Options
In June 1995, the Company adopted the 1995 Stock Plan (the "1995 Plan")
and the 1995 Directors' Option Plan (the "Directors' Plan"). A total of 800,000
and 150,000 shares were reserved for issuance under the 1995 Plan and the
Directors' Plan, respectively. Options outstanding under the Company's 1987
Stock Plan continue to be governed by such Plan. Common stock options may be
granted to employees, consultants and directors. Options granted under the 1995
Plan may be either incentive stock options or nonstatutory stock options,
determined at the compensation committees' discretion. Options granted under the
Directors' Plan must be nonstatutory options. In August 1997, the Company
adopted the 1997 Stock Plan (the "1997 Plan"). A total of 300,000 shares were
reserved for issuance under the 1997 Plan. Options granted under the 1997 Plan
must be nonstatutory stock options. Options are generally granted at an
exercise price (as determined by the compensation committee) equal to an amount
of not less than the fair value per share on the date of and become exercisable
pursuant to the applicable terms of the grant. The term of any option shall not
be greater than ten years from the date of grant.
In October 1998, the Board of Directors authorized the Company to offer
all employees the opportunity to cancel certain previously granted options in
exchange for new options with four year vesting and fair market value prices of
$5.938. The repriced options may not be exercised prior to October 28, 1999.
In connection with this offer, options to purchase 410,977 shares of common
stock with a weighted-average price of $11.72 were exchanged for 328,781 new
options.
Information relative to stock option activity under all plans is as follows:
<TABLE>
<CAPTION>
Outstanding Options
-----------------------------------------------------------------
Weighted-Average Aggregate
Available Number Exercise exercise
for Grant of Shares Price Price
------------------- ----------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 876,500 806,770 4.76 3,844,095
Granted............................ (463,500) 463,500 13.85 6,421,700
Canceled........................... 38,376 (72,996) 9.93 (724,720)
Exercised.......................... -- (166,045) 1.43 (237,553)
------------------- ----------------- --------------------
Balance at December 31, 1996 451,376 1,031,229 9.02 9,303,522
Authorized......................... 300,000 -- -- --
Granted............................ (515,342) 515,342 7.86 4,049,417
Canceled........................... 56,116 (59,411) 12.45 (739,954)
Exercised.......................... -- (123,555) 2.13 (263,559)
------------------- ----------------- --------------------
Balance at December 31, 1997 292,150 1,363,605 9.06 12,349,426
Authorized......................... 590,000 -- -- --
Granted, including 328,781
repriced options.................. (892,131) 949,731 6.14 5,859,373
Canceled........................... 601,164 (679,204) 11.36 (7,712,820)
Exercised.......................... -- (152,556) 2.72 (415,491)
------------------- ----------------- --------------------
Balance at December 31, 1998 591,183 1,481,576 $ 6.80 $10,080,488
=================== ================= ====================
</TABLE>
43
<PAGE>
Options generally vest over a period of four years, up to a maximum of
5.5 years. Certain options granted in 1995 and 1997 have accelerated vesting
positions. At December 31, 1998 and 1997, approximately 284,926 and 514,656,
respectively, of the outstanding options were exercisable.
The following table summarizes information about options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------- -----------------------------------------
Weighted Average
Remaining Weighted Average Weighted Average
Range of Number Outstanding Contractual Exercise Number Exercisable Exercise Price
Exercise Prices at 12/31/98 Life Price at 12/31/98
- ------------------------------------------------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
$1.875-5.438 492,089 8.19 $ 4.77 107,070 $ 3.82
5.75-6.25 374,981 8.49 5.97 3,411 5.96
7.125-8.75 440,169 7.05 7.74 131,645 8.25
9.125-15.50 174,337 8.78 11.97 42,800 13.01
======================= ======================
$1.875-15.50 1,481,576 8.00 $ 6.80 284,926 $ 7.27
======================= ======================
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). Accordingly, no compensation cost has been recognized
for stock options granted in 1998, 1997 and 1996 with exercise prices equal to
the fair value of the Company's common stock on the date of grant. Had
compensation cost for the Company's stock option plans and employee stock
purchase plan described below been determined based on the fair value at the
grant date for awards in 1998, 1997 and 1996 consistent with the provisions of
FAS No. 123, the Company's net loss and net loss per share would have increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------- -------------------
<S> <C> <C> <C>
Net loss applicable to common stockholders - as reported
(in thousands)........................................... $(27,414) $(19,396) $(12,879)
Net loss applicable to common stockholders - pro forma
(in thousands)........................................... $(28,947) $(21,414) $(14,227)
Basic and diluted net loss per share - as reported........ $ (2.16) $ (1.55) $ (1.04)
Basic and diluted net loss per share - pro forma.......... $ (2.28) $ (1.71) $ (1.15)
</TABLE>
Due to FAS No. 123 being applicable only to options granted subsequent
to December 31, 1994, its pro forma effect was not fully reflected until 1998.
The weighted average fair value of each option granted in 1998, 1997
and 1996 is $2.87, $6.31 and $8.27 respectively, estimated using the Black-
Scholes Multiple option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- --------------- ----------------
<S> <C> <C> <C>
Expected volatility.................. .8669 .8068 .5318
Risk-free interest rate.............. 5.02% 6.06% 6.04%
Weighted-average expected life....... 4.60 4.53 4.46
Dividend yield....................... -- -- --
</TABLE>
Deferred and Other Compensation
For certain options granted prior to December 31, 1995, the Company
recognized as deferred compensation the excess of the deemed value for financial
reporting purposes of the common stock issuable upon the exercise of such
options over the aggregate exercise price of such options. Deferred
compensation of $597,000 recorded in 1995 is being amortized ratably over the
vesting period of such options. In connection with the modification of certain
employee stock arrangements and the forgiveness of employee notes receivable,
the Company recorded compensation expense of $539,000 in 1998.
Stock Purchase Plan
In June 1995, the Company adopted the 1995 Employee Stock Purchase
Plan (the "Purchase Plan") and reserved 200,000 shares for issuance. The
Purchase Plan permits eligible employees to purchase common stock through
payroll deductions at a price equal to the lower of 85% of the fair market value
of the Company's common stock at the beginning or end of the applicable offering
period. Employees purchased 30,718 and 25,289 shares in 1998 and 1997,
respectively.
44
<PAGE>
Under the Company's predecessor plan (the "1987 Purchase Plan"), the
Company sold 217,193, 105,533, and 346,302 shares of common stock at $1.875,
$0.375, and $0.625 per share, respectively, to employees in exchange for notes
that bear interest at 3.7% to 7.4% and are payable at various dates in 1999,
2000 and 2001. The Company has the option to repurchase unvested shares, upon
termination of employment, at the original issuance price per share. Shares vest
over a period of four years. At December 31, 1998, there were no shares of
common stock subject to repurchase.
Common Stock Reserved for Issuance
The Company has reserved shares of common stock for the following at
December 31, 1998:
<TABLE>
<S> <C>
Exercises under the 1987 Stock Option Plan.......................... 242,558
Purchases under the 1995 Employee Stock Purchase Plan............... 128,080
Exercises under the 1995 Stock Option Plan.......................... 1,283,720
Exercises under the 1995 Directors Option Plan...................... 150,000
Exercises under the 1997 Stock Option Plan.......................... 396,461
Conversion of Redeemable Convertible Series B preferred stock....... 2,650,000
Conversion of undesignated preferred stock.......................... 2,000,000
-----------------------
6,850,819
=======================
</TABLE>
Stockholder Rights Plan
On August 18, 1997, the Company's Board of Directors adopted a
Stockholders' Rights Plan (the "Rights Plan"). In conjunction with the Rights
Plan, the Board of Directors declared a dividend of one right ("Right") to
purchase one one-hundredth of a share of preferred stock on each share of common
stock. Under the terms of the Rights Plan, the Rights become exercisable only
if a person or group acquires 20% or more of the Company's common stock or
announces a tender offer that would result in ownership by a person or group of
20% or more of the Company's common stock, subject to certain exceptions. Each
Right has an exercise price of $60.00 and, in certain circumstances, may become
exercisable or exchangeable for consideration. Each Right, following the time
the Rights become exercisable, may be redeemed for $0.01 at the option of the
Board of Directors.
7. Income Taxes
Due to the Company's loss position, there was no provision for income
taxes for the years ended December 31, 1998, 1997 and 1996.
A reconciliation of the income tax provision at the U.S. federal
statutory rate (34%) to the provision for income
tax at the effective tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
(In Thousands)
Income tax benefit computed at the federal
statutory rate.................................... $(8,173) $(6,595) $(4,379)
Operating losses not utilized...................... 8,173 6,595 4,379
---------------------- ---------------------- ----------------------
$ -- $ -- $ --
====================== ====================== ======================
</TABLE>
As of December 31, 1998, the Company has federal, state and French net
operating loss carryforwards of approximately $66.3 million, $16.9 million and
$3.7 million, respectively, that will expire in fiscal years 1999 through 2018,
if not utilized. The Company also has federal and state research and
experimentation credit carryforwards of approximately $1.3 million and $1.0
million, respectively, that will expire in fiscal years 2002 through 2018, if
not utilized.
Utilization of the net operating loss and credit carryforwards may be
subject to an annual limitation due to ownership change limitations provided by
the Internal Revenue Code and similar state tax provisions.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets are as follows:
45
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
------------------------------------
<S> <C> <C>
(In Thousands)
Deferred tax assets:
Net operating loss carryforwards.............................. $ 25,109 $ 15,186
Capitalized research costs.................................... 7,556 8,772
Research credit carryforwards................................. 1,901 1,535
Other......................................................... 368 506
------------------------------------
Total deferred tax assets..................................... 34,934 25,999
Valuation allowance........................................... (34,934) (25,999)
------------------------------------
Net deferred tax assets....................................... $ -- $ --
====================================
</TABLE>
The deferred tax asset valuation allowance increased $8,935,000,
$8,048,000 and $5,108,000 in 1998, 1997 and 1996, respectively.
8. Pending Acquisition
On December 23, 1998 the Company announced that it had entered into a
definitive merger agreement to acquire Transcend Therapeutics, Inc. (Nasdaq:
TSND) and its anticipated net cash balance of about $8 million. This
transaction would be accounted for as a purchase of assets. Under the
agreement, Transcend will wind down its operations as a drug development company
and no Transcend employees will be retained after the closing of the
transaction. According to the terms of the agreement, Transcend will become a
wholly owned subsidiary of the Company. Transcend stockholders will receive
shares of KeraVision common stock with a value equal to the amount of net cash
of Transcend as of the closing date plus a premium expected to be 30 percent.
KeraVision's board members approved the transaction with Transcend because the
merger, including the premium being paid over the net cash book value of the
Trascend shares, provides KeraVision a source of cash on terms that are
favorable to current financing options available to KeraVision. Stockholders,
representing a majority of the voting interests of Transcend have agreed to vote
in favor of the merger. In addition, KeraVision will be entitled to a breakup
fee of $500,000 if the agreement is terminated for certain reasons.
9. Subsequent Events
In March 1999, the Company entered into a senior term loan agreement
providing for borrowings of $5,000,000, which were advanced on March 25, 1999.
Borrowings under the loan are secured by substantially all of the company's
assets except for intellectual property. In conjunction with the loan, the
Company granted to the lender warrants to purchase 55,492 shares of the common
stock at an exercise price of $10.8125, the closing price as of March 5, 1999,
the date of the loan commitment. The respective warrants are exercisable for 7
years from the date of issuance. The Company will record the fair value of the
warrants as additional interest expense to be amortized over the term of the
related debt. The value of the immediately exercisable warrants will be
determined using a Black Scholes valuation model, based on the contractual term
of the warrants.
46
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
KERAVISION, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the chief executive
officer or the president or vice president of the corporation.
<PAGE>
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and
shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting. The notice shall
specify the place, date and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES
--------------------------------------
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of stockholders by or at the direction of the board of
directors or by any stockholder of the corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. Such nominations, other than those made by or at the
direction of the board of directors, shall be made pursuant to timely notice in
writing to the secretary of the corporation.
To be timely, a stockholder's notice shall be delivered to or mailed
and received at the principal executive offices of the corporation (a) in the
case of an annual meeting, not less than sixty (60) days nor more than ninety
(90) days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
changed by more than thirty (30) days from such anniversary date, notice by the
stockholders to be timely must be so received not later then the close of
business on the tenth (10th) day following the earlier of the day on which such
notice of the date of the meeting was mailed or public disclosure was made and
(b) in the case of a special meeting at which directors are to be elected, not
later than the close of business on the tenth (10th) day following the earlier
of the day on which notice of the date of the meeting was mailed or public
disclosure was made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the corporation which are beneficially owned by
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including, without limitation, such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the corporation's books, of
such stockholder and (ii) the class and number of shares of the corporation
which are beneficially owned by such stockholder and also which are owned of
record by such stockholder.
At the request of the board of directors any person nominated by the
board of directors for election as a director shall furnish to the secretary of
the corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with
-2-
<PAGE>
the procedures set forth in this Section 2.5. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
Bylaws, and if he or she should so determine, he or she shall so declare to the
meeting and the defective nomination shall be disregarded. Notwithstanding the
foregoing provisions of this Bylaw, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Bylaw.
2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS
--------------------------------------
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the annual meeting. To be
properly brought before an annual meeting, business must be: (a) pursuant to
the corporation's notice of meeting (or any supplement thereto), (b) by or at
the direction of the Board of Directors, or (c) by any stockholder of the
corporation who is a stockholder of record at the time of giving of the notice
provided for in this Section 2.6, who shall be entitled to vote at such meeting
and who complies with the notice procedures set forth in this Section 2.6.
Business to be brought before an annual meeting by a stockholder shall
not be considered properly brought if the stockholder has not given timely
notice thereof in writing to the secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than sixty (60) nor more
than ninety (90) days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
meeting is changed by more than thirty (30) days from such anniversary date,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth (10th) day following the earlier of the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the meeting: (i) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (ii) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made, (iii) the class and number of shares of the
corporation, which are owned by the stockholder of record and by the beneficial
owner, if any, on whose behalf the proposal is made, (iv) any material interest
of the stockholder of record and the beneficial owner, if any, on whose behalf
the proposal is made in such business, and (v) any other information that is
required by law to be provided by the stockholder in his or her capacity as a
proponent of a stockholder proposal.
Notwithstanding anything in these bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 2.6. The chairman of the meeting shall, if the facts
warrant, determine and declare at the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section,
and, if he or she should so determine, he
-3-
<PAGE>
or she shall so declare at the meeting that any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Bylaw, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Bylaw.
2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his or her address as it appears on the records of the
corporation. An affidavit of the secretary or an assistant secretary or of the
transfer agent of the corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
2.8 QUORUM
------
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the Chairman of the meeting or (ii)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.9 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.10 CONDUCT OF BUSINESS
-------------------
The Chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
-4-
<PAGE>
2.11 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.14 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.12 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.13 NO STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
--------------------------------------------------
MEETING
-------
Any action required to be taken or which may be taken at annual or
special meeting of stockholders of the corporation, must be taken at an annual
or special meeting of stockholders of the corporation, with prior notice and
with a vote, and may not be taken by a consent in writing.
2.14 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
-------------------------------------------
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive any payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
-5-
<PAGE>
(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a record date for the
adjourned meeting.
2.14 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 NUMBER OF DIRECTORS
-------------------
The Board of Directors shall consist of seven (7) persons until
changed by a proper amendment of this Section 3.2.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTOR
------------------------------------------------------
The board of directors shall be divided into three classes, as nearly
equal in number as possible. The term of office of the first class shall expire
at the 1996 annual meeting of
-6-
<PAGE>
stockholders or any special meeting in lieu thereof, the term of office of the
second class shall expire at the 1997 annual meeting of stockholders or any
special meeting in lieu thereof and the term of office of the third class
shall expire at the 1998 annual meeting of stockholders or any special meeting
in lieu thereof. At each annual meeting of stockholders or special meeting in
lieu thereof following such initial classification, directors elected to
succeed those directors whose terms expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders or
special meeting in lieu thereof after their election and until their
successors are duly elected and qualified. The foregoing provisions shall
become effective only when the corporation becomes a listed corporation within
the meaning of Section 301.5 of the California Corporations Code. Directors
need not be stockholders unless so required by the certificate of
incorporation or these Bylaws, wherein other qualifications for directors may
be prescribed.
Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he or she is a member until the expiration of his or her
current term or his or her prior death, retirement, removal or resignation and
(ii) the newly created or eliminated directorships resulting from such increase
or decrease shall if reasonably possible be apportioned by the Board of
Directors among the three classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent reasonably
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation and newly eliminated directorships shall
be subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until the vacancy is filled.
Notwithstanding the foregoing, each director shall serve until his or her
successor is duly elected and qualified or until his or her death, resignation,
or removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Elections of directors need not be by written ballot.
There shall be no right with respect to shares of stock of the
corporation to cumulate votes in the election of directors.
3.4 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The Board of Directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
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Unless otherwise restricted by the certificate of incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.5 REGULAR MEETINGS
----------------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.6 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.7 QUORUM
------
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
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3.8 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee. Written consents representing actions taken by the board
or committee may be executed by telex, telecopy or other facsimile transmission,
and such facsimile shall be valid and binding to the same extent as if it were
an original.
3.10 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
3.11 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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<PAGE>
3.12 REMOVAL OF DIRECTORS
--------------------
The holders of a majority of the shares then entitled to vote at an
election of directors may remove, only with cause, a director or directors of
the corporation.
No reduction in the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.13 CHAIRMAN OF THE BOARD OF DIRECTORS
----------------------------------
The corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the corporation.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The Board of Directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors or in the Bylaws of the corporation, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority to (i) amend the certificate
of incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the Bylaws of the corporation; and, unless the
board resolution establishing the committee, the Bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the
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power or authority to declare a dividend, to authorize the issuance of stock,
or to adopt a certificate of ownership and merger pursuant to Section 253 of
the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.6 (regular
meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting),
with such changes in the context of those Bylaws as are necessary to substitute
the committee and its members for the Board of Directors and its members;
provided, however, that the time of regular meetings of committees may be
- ----------
determined either by resolution of the Board of Directors or by resolution of
the committee, that special meetings of committees may also be called by
resolution of the Board of Directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The Board of Directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these Bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS
-----------------------
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
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5.3 SUBORDINATE OFFICERS
--------------------
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
Any vacancy occurring in any office of the corporation shall be
filled by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, the chief executive officer of
the corporation shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and the officers of
the corporation. The chief executive officer shall preside at all meetings of
the stockholders and, in the absence or nonexistence of a chairman of the board,
at all meetings of the Board of Directors. The chief executive officer shall
have the general powers and duties of management usually vested in the office of
chief executive officer of a corporation and shall have such other powers and
duties as may be prescribed by the Board of Directors or these Bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board or the chief executive officer,
the president shall have general supervision, direction, and control of the
business and other officers of the corporation. The President shall have the
general powers and duties of management usually vested in the office of
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president of a corporation and shall have such other powers and duties as may be
prescribed by the Board of Directors or these Bylaws.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders, meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. The secretary shall keep the seal of the corporation, if one
be adopted, in safe custody and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of
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<PAGE>
Directors. The chief financial officer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
president and directors, whenever they request it, an account of all his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have other powers and perform such other duties as
may be prescribed by the Board of Directors or the Bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this corporation, or any other person authorized by the Board of
Directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
5.12 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
----------------------------------------
EMPLOYEES AND OTHER AGENTS
--------------------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or was
a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
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6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the certificate of
incorporation
6.5 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
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6.6 CONFLICTS.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the certificate
of incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion,
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prescribe any limitations or conditions with reference to the inspection, or
award such other and further relief as the Court may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of a corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the Board of Directors, or the chief executive officer or the president or vice
president, and by the chief financial officer or an assistant treasurer, or the
secretary or an assistant secretary of such corporation representing the number
of shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is
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issued, it may be issued by the corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
-----------------
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
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8.7 DIVIDENDS
---------
The directors of the corporation, subject to any restrictions
contained in (i) the General Corporation Law of Delaware or (ii) the certificate
of incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 SEAL
----
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
-----------------
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
-----------------------
The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or
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<PAGE>
shares on the part of another person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
----------
The Bylaws of the corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the corporation may,
in its certificate of incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal Bylaws.
-20-
<PAGE>
CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS
OF
KERAVISION, INC.
Certificate of Adoption
-----------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of KERAVISION, INC. and that the foregoing Amended and
Restated Bylaws, comprising twenty (20) pages, were adopted as the Bylaws of the
corporation on August 3, 1997, by the Board of Directors of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 3rd day of August, 1997.
/s/ Michael W. Hall
------------------------------------
Michael W. Hall, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE BYLAWS
OF
KERAVISION, INC.
The undersigned, being the duly acting and appointed Secretary of
KeraVision, Inc., a Delaware corporation, hereby certifies that the Board of
Directors of this corporation amended the first sentence of Article III, Section
3.2 of the Bylaws of this corporation to read as follows, effective as of the
date set forth below:
"The Board of Directors shall consist of eight (8) persons until
changed by a proper amendment to this Section 3.2"
Dated: June 9, 1998
/s/ Michael W. Hall
-----------------------------------------
Michael W. Hall, Secretary
<PAGE>
EXHIBIT 10.30
[LETTERHEAD OF A.M. PAPPAS & ASSOCIATES]
January 20, 1998
Mr. Mark Fischer-Colbrie
Vice President, Finance/Administration and Chief Financial Officer
KeraVision, Inc.
Fax: 1-510-353-3030
Dear Mark,
It was good to see you again while I was in California. I appreciated your time
discussing issues relating to the Singapore trial. The project is progressing as
planned and I am confident it will be a significant milestone in KeraVision's
strategic development in Asia.
As we discussed in my email of November 24, 1997 to John Gilbert and copied to
Tom Loarie, I outlined the services and activities I would undertake in order to
plan for the trial:
1. developing the trial program which will support KeraVision's overall
commercial development objectives in Asia;
2. assisting in the designing of a comprehensive protocol to the same rigorous
standards of other KeraVision trials, which also incorporates new objectives
such as gathering nomograms specific for the Asian eyes;
3. developing the budget and funding strategy, and preparing for grant
applications to the National Medical Research Council;
4. planning for the execution of the trial, e.g., personnel, regulatory and
ethics issues, logistics, etc;
5. interfacing and coordinating with KeraVision, National Eye Center and other
relevant organizations and personnel.
John has verbally confirmed the above in our subsequent discussions. In order to
facilitate this engagement, I propose that we enter into an agreement based on
the following terms:
<PAGE>
A.M. PAPPAS & ASSOCIATES
p. 2
1. KeraVision, Inc. (the "Company") engages A.M. Pappas & Associates, LLC
(AMP&A) to provide consulting services as outlined above.
2. All services will be performed by Victor Shi unless otherwise agreed in
advance by the Company. The consulting rate will be based on our standard
consulting rate of $1,500 per eight-hour working day ($2,000 for overseas
activities) plus reasonable and necessary expenses. I estimated an average
of 3 consulting days per month between December, 1997, and February, 1998
(submission date for funding), and 1.5 days per month between March and
June, 1998 (target commencement of the trial). This amounts to
approximately a total of 15 consulting days. The billing will be monthly
based on actual hours spent.
3. AMP&A and Victor Shi will hold in confidence all confidential information
received in connection with the work performed for the Company.
4. The Company will indemnify and hold harmless AMP&A and its officers,
employees, representatives and agents from all liability in connection with
the services to be provided unless such liability arises from a willful or
malicious act by AMP&A or it's officers, employees, representatives, or
agents. In no event shall AMP&A's aggregate liability exceed the total
amount paid to AMP&A by the Company under this agreement.
If this is acceptable to you, please sign below and fax to (65) 773-6695 with
one original copy returned to me at the address on this letterhead.
Thank you and I appreciate the opportunity to work with you.
Sincerely yours,
/s/ Victor Shi
- -----------------
Victor Shi, Ph.D.
A.M. Pappas & Associates, LLC
Accepted by:
/s/ Mark Fischer-Colbrie
--------------------------
Mark Fischer-Colbrie
KeraVision, Inc.
VP Finance/Administration
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 333-59861 and Form S-8 Nos. 333-00436 and 333-50983) pertaining to
certain shares of KeraVision, Inc. common stock issuable to the holders of
Series B convertible preferred stock, the 1997 Employee Stock Option Plan, the
1995 Director's Stock Option Plan, the 1995 Employee Stock Purchase Plan, the
1995 Stock Option Plan and the 1987 Stock Option Plan of KeraVision, Inc. of our
report dated February 3, 1999, except for Note 9 as to which the date is March
25, 1999, with respect to the consolidated financial statements of KeraVision,
Inc. included in its Annual Report (Form 10-K/A) for the year ended December 31,
1998.
/s/ Ernst & Young LLP
San Jose, California
April 30, 1999
