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As filed with the Securities and Exchange Commission on January 20, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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ESCALON MEDICAL CORP.
(Exact name of registrant as specified in its charter)
California 33-0272839
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
351 East Conestoga Road
Wayne, PA 19087
(610) 688-6830
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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RICHARD J. DEPIANO
Chairman and Chief Executive Officer
Escalon Medical Corp.
351 East Conestoga Road
Wayne, PA 19087
(610) 688-6830
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
James W. McKenzie, Jr., Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
(215) 963-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.[ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED AGGREGATE PRICE PER SHARE(1) AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, no par value . . 1,510,193(2) $6.78125 $10,240,996 $3,022
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act based upon the
average of the high and low sales prices reported for such security by
the Nasdaq National Market on January 16, 1998.
(2) Includes (i) the estimated maximum number of shares that may be issued
upon conversion of the Series A 6% Convertible Preferred Stock; (ii)
1,080,193 shares held by EOI Corp., a Pennsylvania corporation; and
(iii) 90,000 shares issuable upon the exercise of certain outstanding
purchase warrants. In the event of a stock split, stock dividend or
similar transaction involving the Common Stock, in order to prevent
dilution, or in the event of an increase in the number of shares
issuable upon conversion of the Series A 6% Convertible Preferred
Stock by reason of the floating rate conversion price, the number of
shares registered shall be automatically increased to cover additional
shares in an indeterminate amount in accordance with Rule 416(a) under
the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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SUBJECT TO COMPLETION, DATED JANUARY 20, 1998
PROSPECTUS
ESCALON MEDICAL CORP.
1,510,193 SHARES OF COMMON STOCK
This Prospectus covers 1,510,193 shares (the "Shares") of Common
Stock, without par value (the "Common Stock"), of Escalon Medical Corp.
("Escalon" or the "Company") offered for the account of certain shareholders of
the Company (the "Selling Shareholders") as described more fully herein.
340,000 of the shares of Common Stock offered hereby have been issued
or are issuable upon the conversion of Series A 6% Convertible Preferred Stock,
no par value, (the "Series A Preferred Stock") issued to Combination, Inc., a
Turks and Caicos Islands corporation ("Combination"), in a December 1997
private placement (the "Private Placement"). An additional 40,000 shares of
Common Stock offered hereby have been issued or are issuable upon conversion of
warrants to purchase Common Stock issued to Combination in the Private
Placement. 1,080,193 shares of Common Stock offered hereby were acquired by
EOI Corp., a Pennsylvania corporation ("EOI Corp."), pursuant to a registered
offering on a Form S-4 Registration Statement filed with the Securities and
Exchange Commission on December 20, 1995 (File No. 33-80037). The remaining
50,000 shares of Common Stock offered hereby are held by, or are issuable upon
conversion of certain warrants to purchase Common Stock held by the placement
agent of the Series A Preferred Stock ("Trautman Kramer" or "Placement Agent")
and two individuals affiliated with the Placement Agent. If all shares of the
Series A Preferred Stock had been converted on January 13, 1998, the Company
would have been obligated to issue 168,769 shares of Common Stock in respect
thereto. The foregoing estimate is for illustrative purposes only. The actual
number of shares of Common Stock issued or issuable upon conversion of the
Series A Preferred Stock is subject to adjustment and could be materially less
or more than such estimated amount, depending upon factors that cannot be
predicted by the Company at this time, including, among others, the future
market price of the Common Stock. See"Risk Factors--Potential Volatility of
Stock Price."
The Shares may be offered by the Selling Shareholders from time to
time in transactions (which may include block transactions) on the Nasdaq
National Market, in negotiated transactions, through a combination of such
methods of sale, or otherwise, at fixed prices that may be changed, at market
prices prevailing at the time of sale, or at negotiated prices. The Selling
Shareholders may effect such transactions by selling the Shares to or through
broker-dealers, who may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agents or to whom they
may sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Company will
not receive any of the proceeds from the sale of the Shares by the Selling
Shareholders. The Company has agreed to bear all expenses of registration of
the Shares, but all selling and other expenses incurred by the Selling
Shareholders will be borne by the Selling Shareholders.
The Selling Shareholders and any broker-dealers, agents or
underwriters that participate with the Selling Shareholders in the distribution
of the Shares may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), and any commissions
paid or any discounts or concessions allowed to any such persons, and any
profits received on the resale of the Shares purchased by them may be deemed to
be underwriting commissions or discounts under the Securities Act. See
"Selling Shareholders" and "Plan of Distribution."
The Common Stock is traded on the Nasdaq National Market under the
symbol "ESMC." On January 16, 1998, the last reported sale price of the Common
Stock reported on the Nasdaq National Market was $6 3/8 per share.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY THE
SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
The date of this Prospectus is ________, 1998
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TABLE OF CONTENTS
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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . 3
DOCUMENTS INCORPORATED BY REFERENCE . . . . . . . . . . . . . . . 3
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 4
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . 10
SELLING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . 10
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . 12
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 12
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements, and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy and information statements, and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C., as
well as the regional offices of the Commission located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois and 7 World Trade Center,
Suite 1300, New York, New York. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements, and
other information that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System. This Web site can be accessed at
http://www.sec.gov. The Common Stock of the Company is quoted on the Nasdaq
National Market. Reports, proxy statements and other information concerning
the Company may be inspected at the offices of the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement, including all exhibits
thereto, may be obtained from the Commission's principal office in Washington,
D.C. upon payment of the fees prescribed by the Commission, or may be examined
without charge at the offices of the Commission described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission are incorporated by reference herein:
(a) Annual Report on Form 10-K, as amended by Form 10-K/A filed on
October 27, 1997, for the year ended June 30, 1997, filed by the Company
pursuant to Section 13(a) of the Exchange Act.
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(b) Quarterly Report on Form 10-Q filed by the Company pursuant to
Section 13(a) of the Exchange Act for the quarter ended September 30, 1997.
(c) Current Reports on Form 8-K filed January 2, 1998 and December 1,
1997, in each case pursuant to Section 13(a) of the Exchange Act.
(d) Registration Statement on Form 8-A filed on September 30, 1993
registering the Common Stock under Section 12(g) of the Exchange Act.
All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not, except as
so modified or superseded, be deemed to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a Prospectus is
delivered, upon the written or oral request of any such person, a copy of any
or all of the foregoing documents incorporated by reference herein, other than
exhibits to such documents unless such exhibits are specifically incorporated
by reference herein. Such requests should be addressed to: Richard J. DePiano,
Chairman, Escalon Medical Corp., 351 East Conestoga Road, Wayne, PA 19087
(telephone: (610) 688-6830).
THE COMPANY
The Company operates in the health care market specializing in the
development, marketing and distribution of ophthalmic medical devices and
pharmaceutical products. In addition, it is currently developing its
proprietary ophthalmic drug delivery system. In February 1996, the Company
acquired substantially all of the assets and certain liabilities of Escalon
Ophthalmics, Inc. ("EOI"), a developer and distributor of ophthalmic surgical
products. Prior to the acquisition, the Company devoted substantially all of
its resources to the research and development of ultrafast laser systems
designed for the treatment of ophthalmic disorders. As a result of the
acquisition of EOI, Escalon changed its market focus to its surgical products
and pharmaceutical business and is no longer manufacturing laser systems. The
Company has licensed its intellectual laser properties to a newly formed
company in return for an equity interest in the new company and future
royalties on product sales. This new company will have the responsibility of
funding and developing the laser technology through to commercialization.
The Company is a California corporation formed in December 1987. Its
principal executive offices are located at 351 East Conestoga Road, Wayne, PA
19087, and its telephone number is (610) 688-6830.
RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business before purchasing the securities offered hereby. An investment in the
securities offered hereby is speculative in nature and involves a high degree
of risk. No investment in the securities offered hereby should be made by any
person who is not in a position to lose the entire amount of such investment.
Product Development and Technological Uncertainty
The Company will be engaged in fields increasingly characterized by
extensive research and development efforts. New developments in drug research
as well as new drug delivery systems are expected to continue at a rapid pace.
Certain of the Company's surgical products, drug delivery systems and novel
pharmaceuticals will each require significant further research, development,
testing and, for certain products, regulatory clearances, and are subject to
the risks of failure inherent in the development of products based on
innovative technologies. These risks include the possibility that all of the
proposed products will be found to be ineffective, unsafe or otherwise fail to
receive necessary regulatory clearances or that all of the completed products
will be uneconomical to market. In addition, third parties may (i) hold
proprietary rights that preclude the Company from marketing its products or
(ii) be able to market products superior or equivalent to the Company's
products. Accordingly, there can be no assurance that the Company's research
and development activities will result in any commercially viable products.
See "No Assurance of Market Acceptance."
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History of Operating Losses; Accumulated Deficit
Prior to the acquisition of EOI, the Company was deemed a development
stage company for financial reporting purposes and has experienced significant
operating losses since its inception in 1987. As of September 30, 1997, the
Company had an accumulated deficit of approximately $39.8 million. With
respect to the Company, such losses have resulted principally from costs
incurred in connection with research and development and clinical trials. The
Company, alone or in collaboration with others, must successfully develop,
manufacture and market its products and obtain required regulatory approvals.
It may seek acquisition of companies or product lines to generate resources to
fund the development of new products. There can be no assurance that the
Company will successfully develop, commercialize, manufacture or market
additional products or ever achieve or sustain product revenues or
profitability. See "Government Regulation; Uncertainty of FDA Approval"; and
"Limited Manufacturing Capacity and Marketing Experience."
Future Capital Needs and Uncertainty of Additional Funding
The development of the Company's products will require substantial
funds in order to conduct research and development and preclinical and clinical
testing of such products and to manufacture and market the products that are
approved for commercial sale. Additionally, the Company will need to support
the ongoing costs of the existing shareholder lawsuits, which are more fully
described under the heading "Pending Shareholder Litigation." In the longer
term, however, the Company anticipates the need to seek additional capital
through public or private sales of its securities, including equity securities.
Adequate funds, whether through financial markets, collaborative or other
arrangements with strategic partners or from other sources, may not be
available when needed or on terms acceptable to the Company. Insufficient
funds may require the Company to delay, scale back or eliminate certain or all
of its research and development programs or to license third parties to
commercialize products or technologies that the Company would otherwise seek to
develop itself, which may adversely affect the Company's financial condition
and results of operations.
Dependence on Principal Products; Distribution and License Rights;
Collaborative Relationships
The Company derives revenue from products which it (i) owns,
manufactures and produces through its manufacturing facility in Wisconsin or
(ii) has rights to under distribution and licensing agreements. Each of the
Company's distribution and licensing agreements has a limited initial term, and
there can be no assurance that any of such agreements would be renewed at the
end of the initial term. If one or more of the Company's distribution and
license agreements, joint marketing programs or research and development
collaborations were to cease to be in effect, the Company could be adversely
affected. Further, there can be no assurance that the Company will be
successful in expanding its product lines. If the Company is unsuccessful in
expanding its product lines, revenues will be highly dependent on sustained
market acceptance of existing products. See "No Assurance of Market
Acceptance."
Dependence on Patents; Uncertain Protection of Important Proprietary Technology
The Company's financial and business success depends on, among other
things, the Company's ability to (i) obtain patents, (ii) execute
confidentiality agreements with its employees and consultants to maintain the
proprietary nature of its technology and (iii) operate without infringing on
the proprietary rights of third parties. United States patents have been issued
to the Company and additional United States patent applications have been filed
by the Company, each covering the method, use and major systems components of
the Company's laser systems. In addition, foreign patents have been issued, and
additional foreign patent applications have been filed. The Company's other key
products and technology are covered by thirteen issued United States patents
and one pending United States patent. In addition, one issued Taiwan patent
covers a key product, and six of the issued United States patents are also the
subject of multiple foreign patent applications that have been filed in Europe
and Southeast Asia.
There can be no assurance, however, that any of the pending
applications will be approved, the Company will develop additional patentable
proprietary products or any patents presently issued will provide the Company
with any significant protection or will not be successfully challenged by third
parties. Furthermore, there can also be no assurance that third parties will
not design around the patented products owned by the Company. There can also
be no assurance that the Company's products will not infringe upon the patents
of others. If the Company's products are found to infringe upon the patents of
third parties or to otherwise impermissibly utilize the intellectual property
of third parties, the development, manufacture and sale of such products could
be severely restricted or prohibited. Further, the Company may be required to
obtain licenses to utilize patents or proprietary rights of third parties. No
assurance can be given that any licenses could be obtained on terms acceptable
to the Company, if at all. If the Company does not obtain such licenses, the
development, manufacture or sale of products requiring such licenses could be
materially adversely affected. In addition, the Company could incur substantial
costs in enforcing its patents.
Government Regulation; Uncertainty of FDA Approval
The Company is subject to substantial regulation by the Food and Drug
Administration (the "FDA") and other federal and state regulatory agencies.
FDA regulations require that the Company obtain either 510(k) clearances or
pre-marketing approvals
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("PMAs") and new drug applications ("NDAs") prior to marketing a product in the
United States for any application. The Company is also subject to foreign
regulation and is dependent on the receipt of various types of approvals from
certain foreign government agencies prior to the sale of products in those
countries. The clearance and approval processes for both the FDA and foreign
regulatory authorities are costly, time consuming and uncertain. In addition,
the Company may be required to obtain FDA approval before exporting a device
that has not received FDA marketing clearance or approval. Escalon is
dependent on its ability to obtain regulatory clearances and there can be no
assurance that the Company will receive such clearances in a timely manner, or
at all, nor can there be any assurance that the Company will have sufficient
resources to complete the regulatory process. See "Future Capital Needs and
Uncertainty of Additional Funding." Any delay in obtaining such clearances or
any change in existing regulatory requirements could materially adversely
affect the financial condition and results of operations of the Company.
Certain of the Company's products are, and certain of the Company's
anticipated new products will be, regulated by the FDA as pharmaceutical
products. The steps required by the FDA before new pharmaceutical products may
be marketed in the United States include preclinical studies, human clinical
trials to establish the safety and efficacy of the pharmaceutical product for
its intended uses, submission to the FDA of an NDA with respect to the product
and review, and approval of the NDA by the FDA before the product may be
shipped or sold commercially.
The process of completing clinical testing and obtaining FDA approval
for a new pharmaceutical product is likely to take a number of years and
require the expenditure of substantial resources. If an NDA is submitted,
there can be no assurance that the FDA will review and approve the NDA in a
timely manner. Even after initial FDA approval has been obtained, further
studies, including post-market studies, may be required to provide additional
data on safety and will be required to gain approval for the use of a product
as a treatment for clinical indications other than those for which the product
was initially tested. Also, the FDA will require post-market reporting and may
require surveillance programs to monitor the side effects of the product.
Results of post-marketing programs may limit or expand the further marketing of
such products. Further, if there are any modifications to a product, including
changes in indication, manufacturing process, labeling, or a change in
manufacturing facility, an NDA supplement may be required to be submitted to
the FDA.
The Company has received the necessary FDA approvals for all of its
products currently being marketed. Subsequent to FDA approval however, if
discovery of previously unknown problems arise with a product, the FDA may
impose restrictions on the product, including withdrawal of the product from
the market. Further, FDA and comparable agencies in state and local
jurisdictions and in foreign countries impose substantial requirements upon the
manufacturing and marketing of pharmaceutical and medical device equipment and
related disposables, including the obligation to adhere to the FDA's Good
Manufacturing Practice ("GMP") regulations. Detailed validation of
manufacturing and quality control processes and other time-consuming procedures
are required. Periodic inspections by the FDA and other comparable agencies
are also made. If deficiencies in the validation processes are found,
restrictions on marketing the affected products may be imposed until such
deficiencies are corrected.
No assurance can be given that the FDA will not uncover deficiencies
under the GMP. The failure to comply with applicable regulations could result
in fines, delays or suspensions of clearances, seizures or recalls of products,
operating restrictions, injunctions or civil or criminal penalties. The
imposition of any such penalty, if substantial, would have a material adverse
effect on the financial condition and results of operations of the Company.
No Assurance of Market Acceptance
The Company's future business and financial success will depend upon
the market acceptance of its products. There can be no assurance that
Escalon's products will achieve market acceptance. Such acceptance will depend
upon a number of factors, including the receipt of regulatory approvals for
multiple indications and the establishment and demonstration in the ophthalmic
community of the clinical safety and efficacy of the Company's products and
their advantages over the products developed or marketed by the Company's
competitors. Accordingly, there can be no assurance that the Company will be
able to successfully manufacture and market its products even if they perform
successfully in clinical applications.
Pending Shareholder Litigation
On or about June 8, 1995, a purported class action complaint captioned
George Kozloski v. Intelligent Surgical Lasers, Inc., et al., 95 Civ. 4299, was
filed in the U.S. District Court for the Southern District of New York as a
"related action" to In Re Blech Securities Litigation (a litigation matter
which the Company is no longer a party to and which was reported in the
Company's Form 10-Q for the quarter ended September 30, 1996). The plaintiff
purports to represent a class of all purchasers of the Company's stock from
November 17, 1993, to and including September 21, 1994. The complaint alleges
that the Company, together with certain of its officers and directors, David
Blech and D. Blech & Co., Inc., was issued a false and misleading prospectus in
November 1993 in violation of Sections 11, 12 and 15 of the Securities Act of
1933. The complaint also asserts claims under Section 10(b) of the Securities
Exchange Act of 1934 and common law. Actual and punitive damages in an
unspecified amount are sought, as well as a constructive trust over the
proceeds from the sale of stock pursuant to the offering. On June 6, 1996, the
court denied a motion by the Company and the named officers and directors to
dismiss the Kozloski complaint and, on July 22, 1996, the Company Defendants
filed an answer to the complaint denying all allegations of wrongdoing and
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asserting various affirmative defenses. On August 15, 1996, the Company,
together with three other companies against whom similar claims have been
asserted in separate actions filed as "related" to In Re Blech Securities
Litigation, filed a motion for permission to take an immediate appeal. On
January 16, 1997, the motion was denied. On March 31, 1997, the Court issued a
Pretrial Order No. 2, which sets January 31, 1998 as the cutoff date for
discovery and directs that the case be ready for trial by March 31, 1998. The
Pretrial Order No. 2 also provides for certain coordination of discovery in the
Kozloski case, related cases making similar allegations arising from other
issuers' offerings and In Re Blech Securities Litigation. Discovery has
commenced in all related actions but is in its preliminary stages.
While continuing to deny any wrongdoing and in an effort to curtail
its legal expenses related to this litigation, the Company has reached an
agreement in principle to settle this action for $500,000 on its behalf and on
behalf of its former and present officers and directors. This settlement is
subject to agreement upon final documentation and court approval. The
Company's directors and officers insurance carrier has agreed to fund a
significant portion of the settlement amount.
In the event that settlement discussions are not successful, the
Company could be required to incur substantial expense in defending this
lawsuit. Moreover, an adverse outcome of this matter could have a material
adverse effect upon the financial condition and results of operations of the
Company.
Dependence on Key Personnel
The Company is dependent upon its technical personnel and its ability
to attract and retain qualified scientific, management, manufacturing and
marketing personnel. The Company has entered into non-competition agreements
only with its executive officers and therefore could suffer a material adverse
effect if key employees without non-competition agreements were to become
employed by competitors. The Company must compete with other companies,
universities, research entities and other organizations to attract and retain
qualified personnel, and competition for such personnel is intense. There can
be no assurance that Escalon will be able to attract and retain the personnel
necessary for the development and success of its business. Because much of the
know-how and many of the processes developed by the Company reside in its key
technical and other personnel, the loss of the services of such personnel could
have a material adverse effect on the financial condition and results of
operations of the Company.
Limitations on Third-Party Reimbursement
The Company's products are purchased generally by ophthalmologists and
hospitals that bill various third-party payors, such as government programs and
private insurance plans, for the health care services provided to their
patients. Third-party payors generally reimburse at a fixed rate based on the
procedure performed. In addition, third-party payors may deny reimbursement if
they determine that the use of the Company's products was elective,
unnecessary, inappropriate, not cost-effective, experimental or used for a
non-approved indication. Even if the Company receives FDA clearances or PMA's
for its products, third-party payors may nevertheless deny reimbursement.
Furthermore, third-party payors are increasingly challenging the prices charged
for medical products and services. There can be no assurance that
reimbursement from third-party payors will be available or, if available, that
reimbursement will not be limited when compared with reimbursement available in
connection with competitive procedures, thereby materially adversely affecting
Escalon's ability to sell its products on a profitable basis. The market for
the Company's products could also be adversely affected by any new federal
legislation that further reduces reimbursements under the capital cost
pass-through system utilized in connection with the Medicare program. Failure
by hospitals and other users of Escalon's products to obtain reimbursement from
third-party payors or changes in government and private third-party payors'
policies toward reimbursement for procedures employing the Company's products
could have a material adverse effect on the Company's financial condition and
results of operations. See "Possible Adverse Impact of Health Care Reform on
Delivery Payment of Health Care Services."
Possible Adverse Impact of Health Care Reform on Delivery Payment of Health
Care Services
The federal government and Congress have previously made proposals to
change aspects of the delivery and financing of health care services. The
Company cannot predict what form future legislation, if any, may take or the
effect of any such legislation on its business. Such legislation may contain
provisions resulting in price limits and utilization controls that may reduce
the rate of increase in the growth of ophthalmic product markets or otherwise
adversely affect the Company's business. It is also possible that future
legislation could result in modifications to the nation's public and private
health care insurance systems that will affect reimbursement policies in a
manner adverse to the Company. The Company cannot predict the effect that any
future legislation, including legislation relating to the health care industry,
could have on the Company's financial condition or results of operations.
-7-
<PAGE> 8
Reliance on Current Suppliers
Pursuant to various distribution and license agreements, the Company
currently markets three key products, Adatosil(R) 5000 Silicone Oil,
Betadine(R) 5% Sterile Ophthalmic Prep Solution ("Betadine 5%") and ISPAN(TM)
intraocular gases, all of which are manufactured for the Company by a licensor
or by contract manufacturers for the licensor under separate contract. Such
licensors and contract manufacturers must adhere to the GMP regulations
prescribed and enforced by the FDA. Should any of the licensors or contract
manufacturers not meet the GMP requirements, supply of related products could
be severely delayed or limited, which would adversely affect the Company's
financial condition or results of operations. See "Government Regulation;
Uncertainty of FDA Approval."
Limited Manufacturing Capacity and Marketing Experience
The Company currently assembles and manufactures most of its surgical
equipment and instruments at its Wisconsin facility. The Company will seek to
expand its product lines, but no assurance can be given that the required
manufacturing expertise or the physical capacity will be available at its
current location to produce new product lines. As such, the Company may have
to rely on contract manufacturers to meet production needs. Contract
manufacturers must adhere to GMP regulations enforced by the FDA. There is no
assurance that the FDA will approve any of the contract manufacturing
facilities in which any of the Company's products may be produced. The
Company's dependence on third parties to manufacture products may adversely
affect its ability to develop and deliver products on a timely and competitive
basis.
The Company currently markets its products directly with a sales force
made up of independent representatives located throughout the United States.
In addition, the Company has entered into co-marketing and co-promotional
arrangements with third parties in marketing and selling most of its current
products. For Betadine 5%, the Company sells both direct and through drug
wholesale distribution channels. The Company's revenues are therefore
dependent on third parties who are marketing and selling its products. No
assurance can be given that these third party arrangements will continue, or,
if they continue, that they will provide successful distribution channels for
the Company's products. If they do not continue, the Company may need to hire
its own sales force to market and sell its products, which would increase the
Company's costs and could adversely affect the Company's financial condition or
results of operations.
Product Liability and Possible Insufficiency of Insurance
The nature of the Company's business exposes it to product liability
claims, and there can be no assurance that the Company can avoid significant
product liability exposure. The Company maintains product liability insurance
in the amount of $1,000,000 per claim with an annual aggregate limit of
$2,000,000 plus general umbrella coverage of $5,000,000. However, product
liability insurance is becoming increasingly expensive, and there can be no
assurance that the Company's insurance will be adequate to cover future product
liability claims, or that the Company will be successful in maintaining
adequate product liability insurance at acceptable rates, or at all. Should
the Company be unable to maintain adequate product liability insurance, the
Company's ability to market its products may be significantly impaired. Any
losses that the Company may suffer from future liability claims, a voluntary or
involuntary recall of Escalon's products, and the damage that any product
liability litigation or voluntary or involuntary recall may do to the
reputation and marketability of the Company's products may have a material
adverse effect on the Company's financial condition or results of operations.
Market Volatility; Absence of Dividends
The market prices for securities of emerging growth companies have
historically been highly volatile. Future announcements concerning Escalon or
its competitors, including quarterly results, the results of product testing
and clinical trials, technological innovations, the introduction of competitive
products, regulatory matters, developments concerning proprietary rights,
litigation or public concern as to the safety of the Company's products may
have a material impact on the market price for the Common Stock. Sales of a
substantial number of shares of Common Stock by existing shareholders or the
exercise of outstanding warrants or options to purchase Common Stock may also
have a material adverse effect on the market price for the Common Stock. See
"Series A Preferred Stock, Warrants and Options; Potential Dilution and Adverse
Impact on Additional Financing." The Company has not paid any cash dividends
on the Common Stock and does not anticipate paying any such dividends in the
foreseeable future.
Series A Preferred Stock, Warrants and Options; Potential Dilution and Adverse
Impact on Additional Financing
As of January 13, 1998, the Company had outstanding options and
warrants to purchase an aggregate of 2,286,875 shares of Common Stock. The
Company is also obligated to issue a currently indeterminate number of shares
of Common Stock upon conversion of the Series A Preferred Stock. The exact
number of shares of Common Stock issuable pursuant to such conversion cannot be
estimated with certainty because, generally, such issuances of Common Stock
will vary inversely with the market price of the Common Stock at the time of
such conversion. The Series A Preferred Stock is also subject to various
adjustments to prevent dilution resulting from stock splits, stock dividends or
similar transactions. Further, the Company may, at its election, choose to
-8-
<PAGE> 9
issue additional shares of Common Stock in lieu of cash dividends due to the
holder of the Series A Preferred Stock. If all of the shares of the Series A
Preferred Stock had been converted on January 13, 1998, the Company would have
been obligated to issue 168,769 shares of Common Stock in respect thereto.
If at any time the aggregate number of shares of Common Stock then
issued upon the conversion of the Series A Preferred Stock plus the aggregate
number of shares of Common Stock then issued upon exercise of the warrants
issued in connection with the Private Placement equals 19.9% of the (x) number
of shares of the Common Stock outstanding on the date of issuance of the Series
A Preferred Stock pursuant to the Securities Purchase Agreement plus (y) any
additional shares of Common Stock issued thereafter in respect of such shares
pursuant to a stock dividend, stock split or similar event, then the Series A
Preferred Stock will, from that time forward, cease to be convertible into
Common Stock, unless the Company (i) has obtained approval of the issuance of
the underlying Common Stock by the affirmative vote of a majority of the total
votes cast on the proposal, in person or by proxy, under Nasdaq Rule 4460(i)(6)
or any successor rule, by the holders of the then-outstanding Common Stock, or
(ii) will have otherwise obtained permission to allow such issuances from The
Nasdaq Stock Market in accordance with Nasdaq Rule 4460(i).
To the extent that such options and warrants are exercised, shares of
Common Stock are issued in lieu of cash dividends or the Series A Preferred
Stock is converted (and the warrants issuable upon such conversion are
exercised), substantial dilution of the interests of the Company's shareholders
is likely to result and the market price of the Common Stock may be materially
adversely affected. Such dilution will be greater if the future market price
of the Common Stock decreases. For the life of the warrants, options and
Series A Preferred Stock the holders will have the opportunity to profit from a
rise in the price of the Common Stock. The existence of the warrants, options
and Series A Preferred Stock is likely to affect materially and adversely the
terms on which the Company can obtain additional financing and the holders of
the warrants, options and Series A Preferred Stock can be expected to exercise
them at a time when the Company would otherwise, in all likelihood, be able to
obtain additional capital by an offering of its unissued capital stock on terms
more favorable to the Company than those provided by the warrants, options and
Series A Preferred Stock.
Market Implication of Sales/Distributions by EOI Corp.
EOI Corp. has informed the Company that it intends, in the near
future, to sell shares of the Common Stock to its creditors and/or in market
transactions to satisfy outstanding liabilities in accordance with its plan of
liquidation. To the extent there are shares remaining after EOI Corp. sells
shares to extinguish its debts, EOI Corp. has informed the Company that EOI
Corp. intends to distribute such excess shares to its shareholders in final
liquidation of the assets of EOI Corp. There can be no assurance that the
recipients of the shares will hold the Common Stock for any period of time and
it is possible that such holders will immediately resell such shares into the
market. Given the significant number of shares offered hereunder by EOI Corp.,
the sale into the market of some or all of such shares by EOI Corp., the
debtholders or shareholders of EOI Corp. is likely to have a material adverse
effect on the market price of the Common Stock.
Fluctuations in Quarterly Results
The Company has experienced significant quarterly fluctuations in
operating results and anticipates that these fluctuations will continue. These
fluctuations have been caused by a number of factors, including changes in the
mix of products sold, the timing of new product introductions by the Company or
its competitors, cancellation or delays of purchases of the Company's products,
the gain or loss of significant customers, fluctuations in customer demand for
the Company's products and competitive pressures on prices. A decline in
demand in the markets served by the Company, lack of success in developing new
markets or new products, or increased research and development expenses
relating to new product introductions could have a material adverse effect on
the Company. Moreover, because the Company sets spending levels in advance of
each quarter based, in part, on expectations of product orders and shipments
during that quarter, a shortfall in revenue in any particular quarter as
compared to the Company's plan could have a material adverse effect on the
Company.
Risks Relating to Failure to Meet Nasdaq Listing Requirements
The Common Stock is currently listed on the Nasdaq National Market.
In order to continue to be listed on the Nasdaq National Market, however, the
Company must maintain $4,000,000 in net tangible assets, a $5,000,000 market
value of the public float, two market-makers and a minimum bid price of $1.00
per share. In the future, if the Company fails to meet these maintenance
criteria, it may result in the delisting of the Company's securities from the
Nasdaq National Market, and trading, if any, in the Company's securities would
thereafter be conducted in the Small Cap Market or in the non-Nasdaq
over-the-counter market. If the Company's securities are delisted, an investor
could find it more difficult to dispose of, or to obtain accurate quotations as
to the market value of the Company's securities. In addition, if the Common
Stock were to fall below $5.00 per share, trading in the Common Stock could
become subject to the requirements of certain rules promulgated under the
Exchange Act, which require additional disclosure by broker-dealers in
connection with the trades involving a stock defined as a penny stock
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the Commission relating to the penny stock market and the risks
associated therewith, and impose various sales practice requirements on
broker-dealers who
-9-
<PAGE> 10
sell penny stock to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and must receive the purchaser's written consent to the transaction prior to
the sale. If the Common Stock were to become subject to the rules on penny
stocks, the market liquidity for the Common Stock could be materially adversely
affected.
Competition
The medical device and pharmaceutical market is intensely competitive
and is characterized by rapidly changing technology, short-product life cycles,
cyclical oversupply and rapid price erosion. The Company competes with large
domestic and international companies, most of which have substantially greater
financial, technical, marketing, distribution, and other resources than the
Company. In addition, other manufacturers can be expected to enter the
Company's markets.
The ability of the Company to compete successfully depends, to a
certain extent, on elements outside its control, including the rate at which
customers utilize the Company's products, the receipt and maintenance of
necessary regulatory approvals from the FDA, the Company's protection of its
intellectual property, the number, nature, and success of its competitors and
their product introductions, and general market and economic conditions. In
addition, the Company's success will depend in large part on its ability to
develop, introduce, and manufacture in a timely manner products that compete
effectively on the basis of efficiency, availability, quality, reliability, and
price, together with other factors including the availability of sufficient
capacity. There is no assurance that the Company will be able to compete
successfully in this competitive environment.
Potential Volatility of Stock Price
The trading price of the Common Stock is subject to wide fluctuations
in response to variations in operating results of the Company and other
companies that operate in Escalon's markets, actual or anticipated
announcements of medical/pharmaceutical innovations or new products by the
Company or its competitors, actual or anticipated announcements of FDA approval
of the Company's products (or those of its competitors), general economic
conditions in the industries in which the Company competes and the strength of
the domestic and international economy, to name a few. The Company's stock
traded from a high of $17.50 in the first quarter of 1996 to a low of $1.00 in
the third quarter of 1997. Some fluctuations, particularly those affecting the
market prices for many small companies, have often been unrelated to the
operating performance of the specific companies.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares offered hereunder by the Selling Shareholders. The offering is made to
fulfill the Company's contractual obligations to the Selling Shareholders to
register certain shares held by the Selling Shareholders. However, certain of
the shares of Common Stock offered hereby are issuable in the future upon the
exercise of outstanding or issuable warrants, and the Company will receive the
exercise prices payable upon any exercise of the warrants. There can be no
assurance that all or any part of the warrants will be exercised.
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of January 13, 1998 by each of the
Selling Shareholders. Unless otherwise indicated below, to the knowledge of
the Company, all persons listed below have sole voting and investment power
with respect to the shares of Common Stock, except to the extent authority is
shared by spouses under applicable law. Except for EOI Corp., as disclosed
below in footnote 3, none of the Selling Shareholders has had a material
relationship with the Company during the last three years, other than as a
result of the ownership of the Common Stock or other securities of the Company.
The information included below is based upon information provided by
the Selling Shareholders. Because the Selling Shareholders may offer all, some
or none of their Common Stock, no definitive estimate as to the number of
shares thereof that will be held by the Selling Shareholders after such
offering can be provided and the following table has been prepared on the
assumption that all shares of Common Stock offered under this Prospectus will
be sold.
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<PAGE> 11
<TABLE>
<CAPTION>
Common Stock Common Stock To Be Beneficially
Beneficially Owned Owned If All Shares Offered
On January 13, 1998(1) Hereunder Are Sold(1)
-------------------------------- -----------------------------------
Shares That May be
Name Shares Percent Offered Hereunder Shares Percent
---- ------ ------- ----------------- ------ -------
<S> <C> <C> <C> <C> <C>
Combination, Inc.(2) 208,769 7.4 380,000 0 0
EOI Corp.(3) 1,109,406 42.2 1,080,193 29,213 *
Richard Rosenblum(4) 12,500 * 12,500 0 0
David Stefansky(4) 12,500 * 12,500 0 0
Trautman Kramer &
Company, Incorporated(4) 25,000 * 25,000 0 0
</TABLE>
------------
*Less than 1%.
(1) As required by regulations of the Securities and Exchange Commission, the
number of shares shown as beneficially owned includes shares which can be
purchased within 60 days after January 13, 1998. The actual number of shares
of Common Stock beneficially owned is subject to adjustment and could be
materially less than the estimated amount indicated depending upon factors
which cannot be predicted by the Company at this time, including, among others,
the market price of the Common Stock prevailing at the actual date of
conversion of Series A Preferred Stock, and whether or to what extent dividends
to the holders of the Series A Preferred Stock are paid in Common Stock.
(2) Beneficial ownership is based upon the conversion of all of the Series A
Preferred Stock at $7.999125 per share of Common Stock (which price is 83% of
the average of the closing bid prices of the Common Stock for each of the five
trading days immediately preceding January 13, 1998). If all shares of the
Series A Preferred Stock held by such Selling Shareholder had been converted on
January 13, 1998 (assuming conversion of all of the Series A Preferred Stock at
$7.999125 per share of Common Stock) the Company would have been obligated to
issue 168,769 shares of Common Stock in respect thereto. The actual number of
shares of Common Stock issued or issuable upon the conversion of the Series A
Preferred Stock is subject to adjustment and could be materially less or more
than such estimated amount depending on factors that cannot be predicted by the
Company at this time, including, among others, the future market price of the
Common Stock. Pursuant to the terms of the Series A Preferred Stock, the
Series A Preferred Stock is convertible by the holders thereof only to the
extent that the number of shares of Common Stock thereby issuable, together
with the number of shares of Common Stock then issued upon exercise of the
warrants issued in connection with the Private Placement would not exceed 19.9%
of the then outstanding Common Stock as determined in accordance with Section
13(d) of the Exchange Act. In addition, the holder of the Series A Preferred
Stock has agreed contractually not to convert the Series A Preferred Stock to
the extent that such a conversion would result in such holder owning more than
4.99% of the then outstanding Common Stock unless at such time the Company
shall be in default under any provision of the Certificate of Designation of
Series A Preferred Stock or under the Securities Purchase Agreement, dated
December 31, 1997, between the Company and Combination, or any of the
agreements contemplated therein. The amount shown includes 40,000 shares of
Common Stock, issuable upon the conversion of warrants issued to Combination in
connection with the Private Placement, at various initial exercise prices
ranging from $8.6125 to $11.626875 per share, subject to further adjustments as
detailed in the warrant attached to the Registration Statement of which this
Prospectus is a part. The warrants may be exercised at any time through
December 31, 2002. The address of this Selling Shareholder is: c/o ISRC, 310
Madison Avenue, Suite 503, New York, NY 10017.
(3) The Company and EOI Corp. entered into an Assets Sale and Purchase
Agreement dated as of October 9, 1995 and amended on December 19, 1995,
pursuant to which EOI Corp. agreed to sell substantially all of its assets
subject to certain of its liabilities to the Company in exchange for shares of
the Common Stock representing 45% of the then issued and outstanding shares of
Common Stock. Richard J. DePiano, the Chairman and Chief Executive Officer of
the Company is a director of EOI Corp. and two other directors of the Company
are also directors of EOI Corp. EOI Corp. has contractual rights, pursuant to
a registration rights agreement entered into between the Company and EOI Corp.
as of February 12, 1996, entitling it to register the shares set forth above
next to its name. The address of this Selling Shareholder is: 351 East
Conestoga Road, Wayne, PA 19087.
(4) Includes 25,000 shares of Common Stock issuable to Trautman Kramer upon
the exercise of immediately exercisable warrants granted to Trautman Kramer for
serving as the Placement Agent in connection with the Private Placement. Also
includes 25,000 shares of Common Stock issuable, in equal amounts, to Richard
Rosenblum and David Stefansky upon the exercise of immediately exercisable
warrants. Messrs. Rosenblum and Stefansky are designees of Trautman Kramer.
The initial exercise price for the warrants is $10.335 per share of Common
Stock, subject to further adjustments as detailed in the warrants attached to
the Registration Statement of which this Prospectus is a part. The warrants
may be exercised at any time through December 31, 2002. A copy of each warrant
is filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The address for each of these Selling Shareholder is as follows:
500 Fifth Avenue, 14th Floor, New York, NY 10110.
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<PAGE> 12
PLAN OF DISTRIBUTION
Sales of the Shares may be effected by or for the account of the
Selling Shareholders from time to time in transactions (which may include block
transactions) on the Nasdaq National Market, in negotiated transactions,
through a combination of such methods of sale, or otherwise, at fixed prices
that may be changed, at market prices prevailing at the time of sale or at
negotiated prices. The Selling Shareholders may effect such transactions by
selling the Shares directly to purchasers, through broker-dealers acting as
agents for the Selling Shareholders, or to broker-dealers acting as agents for
the Selling Shareholders, or to broker-dealers who may purchase Shares as
principals and thereafter sell the Shares from time to time in transactions
(which may include block transactions) on the Nasdaq National Market, in
negotiated transactions, through a combination of such methods of sale, or
otherwise. In effecting sales, broker-dealers engaged by a Selling
Shareholders may arrange for other broker-dealers to participate. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agents or to whom they
may sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Shareholders and any broker-dealers, agents or
underwriters that participate with the Selling Shareholders in the distribution
of the Shares may be deemed to be "underwriters" within the meaning of the
Securities Act. Any commissions paid or any discounts or concessions allowed
to any such persons, and any profits received on the resale of the Shares
purchased by them may be deemed to be underwriting commission or discounts
under the Securities Act.
The Company has agreed to bear all expenses of registration of the
Shares other than legal fees and expenses (except for the payment of up to
$3,500 in legal fees incurred by counsel to Combination), if any, of counsel or
other advisors to the Selling Shareholders. Any commissions, discounts,
concessions or other fees, if any, payable to broker-dealers in connection with
any sale of the Shares will be borne by the Selling Shareholders selling such
Shares.
EOI Corp. has informed the Company that pursuant to a plan of
liquidation, EOI Corp. intends to (i) sell a portion of its ownership of the
Common Stock to existing creditors and/or in market transactions in order to
satisfy its remaining liabilities and (ii) distribute any remaining shares
representing its ownership of the Common Stock to its shareholders in a final
liquidation.
The Company has agreed to indemnify the Selling Shareholders, or their
transferees or assignees, against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments the Selling Shareholders
or their respective pledgees, donees, transferees or other successors in
interest, may be required to make in respect thereof.
LEGAL MATTERS
The valid issuance of the shares of Common Stock offered hereby has
been passed upon for the Company by Morgan, Lewis & Bockius LLP, Philadelphia,
Pennsylvania.
EXPERTS
The financial statements of Escalon Medical Corp. appearing in Escalon
Medical Corp.'s Annual Report (Form 10-K), as amended, for the year ended June
30, 1997, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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<PAGE> 13
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the estimated expenses of the issuance and
distribution of the securities offered hereby (all such expenses will be borne
by the Company):
<TABLE>
<S> <C>
Registration fee . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,022
Printing and engraving expenses . . . . . . . . . . . . . . . . . . . 1,500
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . 5,000
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . 5,000
Miscellaneous, including Nasdaq listing fees . . . . . . . . . . . . . 10,000
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,522
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 204 and 317 of the California General Corporation Law provide
the Company the power to indemnify any officer or director acting in that
persons capacity as a representative of the Company who was, is, or is
threatened to be made a party to any proceeding (other than an action by or in
the right of the Corporation to procure a judgment in its favor) against
expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with the proceeding if that person acted in
good faith and in a manner the person reasonably believed to be in the best
interest of the Company and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the person was unlawful. Generally,
the limitations on the ability of the Company to indemnify its officers and
directors are if the act is a knowing and culpable violation of law, if the act
or failure to act is finally determined by a court to have constituted willful
misconduct or recklessness or if the act involved an absence of good faith.
The Company's Bylaws provide a right to indemnification to the full
extent permitted by law, for expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by any
director or officer whether or not the indemnified liability arises or arose
from any threatened, pending or completed proceeding by or in the right of the
Company (a derivative action) by reason of the fact that such director or
officer is or was serving as a director, officer, employee or agent of the
Company or, at the request of the Company, as a director, officer, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of the
Company or of another enterprise at the request of such predecessor corporation
unless the act or failure to act giving rise to the claim for indemnification
is financially determined by a court to have constituted willful misconduct or
recklessness. The indemnification provisions in the Company's Bylaws do not
apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan. The Bylaws provide for the advancement
of expenses to an indemnified party upon receipt of an undertaking by the party
to repay those amounts if it is finally determined that the indemnified party
is not entitled to indemnification.
The Company's Bylaws authorize the Company to take steps to ensure
that all persons entitled to the indemnification are properly indemnified,
including, if the Board of Directors so determines, purchasing and maintaining
insurance.
II-1
<PAGE> 14
ITEM 16. EXHIBITS
The exhibits filed as part of this Registration Statement are as
follows:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
4.1 Certificate of Determination of Series A 6% Convertible
Preferred Stock.
4.2 Securities Purchase Agreement, dated as of December 31, 1997, by
and among the Company and Combination.
4.3 Registration Rights Agreement, dated as of December 31, 1997, by
and among the Company and Combination.
4.4 Warrant to Purchase Common Stock issued December 31, 1997, to
David Stefansky.
4.5 Warrant to Purchase Common Stock issued December 31, 1997, to
Combination.
4.6 Warrant to Purchase Common Stock issued December 31, 1997, to
Richard Rosenblum.
4.7 Warrant to Purchase Common Stock issued December 31, 1997, to
Trautman Kramer & Company, Incorporated.
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding legality of
securities being registered.
10.34 Registration Rights Agreement between the Company and EOI Corp.
dated as of February 12, 1996.*
23.1 Consent of Morgan, Lewis & Bockius LLP (included in its opinion
filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
</TABLE>
- --------------------
*Incorporated by reference to the Company's Form 10-K for the year ended June
30, 1996.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act, of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to its Certificate of Incorporation, its
Bylaws, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against a public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement to:
(i) Include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b)
II-2
<PAGE> 15
if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) Include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraph (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is incorporated by reference from periodic reports
filed by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
II-3
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Wayne, Commonwealth of Pennsylvania on the 20th
day of January, 1998.
ESCALON MEDICAL CORP.
By: /s/Richard J. DePiano
-----------------------------
Richard J. DePiano
Chairman, Director and
Chief Executive Officer
Each person whose signature appears below constitutes and appoints
John T. Rich and Richard J. DePiano and each of them, with full power of
substitution and resubstitution and each with full power to act without the
other, his true and lawful attorney-in-fact and agent, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) and all other documents in connection
therewith, with the Securities and Exchange Commission or any state, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their, his
substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
------------ ------------- ------------
<S> <C> <C>
/s Richard J. DePiano Chairman, Director and Chief January 20, 1998
------------------------------ Executive Officer
Richard J. DePiano
/s/Jack M. Dodick, M.D. Director January 20, 1998
------------------------------
Jack M. Dodick, M.D.
/s/Jay L. Federman, M.D. Director January 20, 1998
------------------------------
Jay L. Federman, M.D.
/s/Robert J. Kunze Director January 20, 1998
------------------------------
Robert J. Kunze
/s/John T. Rich Vice President, Finance and January 20, 1998
------------------------------ Administration and Secretary
John T. Rich
</TABLE>
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
4.1 Certificate of Determination of Series A 6% Convertible
Preferred Stock.
4.2 Securities Purchase Agreement, dated as of December 31, 1997, by
and among the Company and Combination.
4.3 Registration Rights Agreement, dated as of December 31, 1997, by
and among the Company and Combination.
4.4 Warrant to Purchase Common Stock issued December 31, 1997, to
David Stefansky.
4.5 Warrant to Purchase Common Stock issued December 31, 1997, to
Combination.
4.6 Warrant to Purchase Common Stock issued December 31, 1997, to
Richard Rosenblum.
4.7 Warrant to Purchase Common Stock issued December 31, 1997, to
Trautman Kramer & Company, Incorporated.
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding legality of
securities being registered.
10.34 Registration Rights Agreement between the Company and EOI Corp.
dated as of February 12, 1996.*
23.1 Consent of Morgan, Lewis & Bockius LLP (included in its opinion
filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
</TABLE>
- -------------------------
*Incorporated by reference to the Company's Form 10-K for the year ended June
30, 1996.
<PAGE> 1
EXHIBIT 4.1
CERTIFICATE OF DETERMINATION
OF
SERIES A 6% CONVERTIBLE PREFERRED STOCK
OF
ESCALON MEDICAL CORP.
This Certificate of Determination is being filed by Escalon Medical Corp.,
a California corporation (the "Corporation"), in the office of the Secretary of
State of the State of California pursuant to Section 401(a) of the California
Corporations Code.
The undersigned, Richard J. DePiano and John T. Rich, certify as follows:
FIRST: They are the Chairman and the Secretary, respectively, of the
Corporation.
SECOND: The authorized number of shares of Preferred Stock of the
Corporation is 2,000,000; the number of shares constituting designation of this
Series A 6% Convertible Preferred Stock is 1,350, none of which has been issued.
THIRD: The Board of Directors of the Corporation duly adopted the
following resolution:
WHEREAS, the Articles of Incorporation authorize the Preferred Stock
of the corporation to be issued in series and authorize the Board of Directors
to determine the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and to fix the number
of shares and designation of any such series;
NOW, THEREFORE, IT IS RESOLVED, that the Board of Directors hereby
provides for the issue of an initial series of Preferred Stock of the
Corporation and hereby fixes and determines the rights, preferences,
restrictions, and other matters relating to said series as follows:
Section 1. Designation. A series of the Preferred Stock of the Corporation
is hereby designated as Series A 6% Convertible Preferred Stock (the "Series A
Preferred Stock"), without par value, and the number of shares of such series is
1,350.
Section 2. Dividends.
(a) General Obligation. When and as declared by the Corporation's
Board of Directors and to the extent legally permitted under the General
Corporation Law of the State of California, the Corporation shall pay
preferential dividends to the holders of the Series A Preferred Stock as
provided in this Section 2. Dividend payments shall be made quarterly in
- 1 -
<PAGE> 2
arrears and shall be made, at the sole discretion of the Corporation, either (i)
in cash or (ii) by issuing additional fully paid and nonassessable shares of
Common Stock at the then applicable Conversion Price. Except as otherwise
provided herein, dividends on each share of the Series A Preferred Stock (a
"Share") shall accrue at the rate of 6% per annum of the sum of the Liquidation
Value thereof plus all accumulated and unpaid dividends thereon, from and
including the Date of Issuance to and including the date on which the
Liquidation Value of such Share (plus all accrued and unpaid dividends thereon)
is paid or the date on which such Share is converted into shares of Underlying
Common Stock hereunder. Such dividends shall accrue whether or not they have
been declared and whether or not there are profits, surplus or other funds of
the Corporation legally available for the payment of dividends. The date on
which the Corporation initially issues any Share shall be deemed to be its "Date
of Issuance" regardless of the number of times transfer of such Share is made on
the stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Share.
(b) Dividend Periods. Quarterly dividend periods (each a "Quarterly
Dividend Period") shall commence on January 1, April 1, July 1 and October 1 in
each year, except that the first Quarterly Dividend Period shall commence on the
Date of Issuance and shall end on and include the day immediately preceding the
first day of the next Quarterly Dividend Period. Dividends on the shares of
Series A Preferred Stock shall be payable on March 31, June 30, September 30 and
December 31 of each year (each a "Dividend Payment Date"). Each such dividend
shall be paid to the holders of record of the Series A Preferred Stock as they
shall appear on the Stock register of the Corporation on such record date. To
the extent not paid on each Dividend Payment Date, all dividends which have
accrued on each Share outstanding during the three-month period (or other period
in the case of the initial Dividend Reference Date) ending upon each such
Dividend Reference Date shall be accumulated and shall remain accumulated
dividends with respect to such Share until paid.
(c) Distribution of Partial Dividend Payments. Except as otherwise
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series A Preferred Stock, such
payment shall be distributed ratably among the holders thereof based upon the
aggregate accrued but unpaid dividends on the Shares held by each such holder.
Section 3. Liquidation.
(a) Payment Upon Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, each holder of
Series A Preferred Stock shall be entitled to be paid, before any distribution
or payment is made upon any Junior Securities, an amount in cash equal to the
aggregate Liquidation Value (plus all accrued and unpaid dividends) of all
Shares held by such holder, and the holders of Series A Preferred shall not be
entitled to any further payment. If upon any such liquidation, dissolution or
winding up of the Corporation, the Corporation's assets to be distributed among
the holders of the Series A
- 2 -
<PAGE> 3
Preferred Stock are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid, then the entire assets to
be distributed shall be distributed ratably among such holders based upon the
aggregate Liquidation Value (plus all accrued and unpaid dividends) of the
Series A Preferred Stock held by each such holder. Prior to the liquidation,
dissolution or winding up of the Corporation, the Corporation shall declare for
payment all accrued and unpaid dividends with respect to the Series A Preferred
Stock.
(b) Consolidation or Merger. A consolidation or merger of the
Corporation into any other entity or entities, or a sale or transfer by the
Corporation of all or substantially all of its assets, or the effectuation of a
transaction or series of related transactions in which more than 50% of the
voting power of the Corporation is disposed of, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section 3 if the holders of at least 70% of the outstanding Series A
Preferred Stock elect to have such transaction treated as a liquidation with
respect to such series.
(c) Notice of Liquidation. The Corporation shall mail written notice
of such liquidation, dissolution or winding up, not less than 30 days prior to
the payment date stated therein, to each record holder of Series A Preferred
Stock.
Section 4. Priority.
(a) Priority as to Dividends. Holders of shares of Series A
Preferred Stock shall be entitled to receive the dividends provided for in
Section 2 hereof in preference to and in priority over any dividends upon any
Junior Stock. No dividends shall be declared or paid or set apart for payment on
any Junior Stock, for any period unless at the time of such declaration or
payment or setting apart for payment (A) full cumulative dividends have been or
contemporaneously are declared and paid in accordance with Section 2 hereof (or
declared and a sum sufficient for the payment thereof set apart for such
payment) on the Series A Preferred Stock for all Quarterly Dividend Periods
terminating on or prior to the date of payment of such dividends on Junior
Stock, (B) the Corporation shall not be in default with respect to any
obligation to redeem or retire shares of Series A Preferred Stock, and (C) an
amount equal to the dividends accrued on the Series A Preferred Stock from the
last Dividend Payment Date to the date of payment of such dividends on Junior
Stock has been declared and set apart in cash for payment on the Series A
Preferred Stock.
(b) Priority on Redemption. The Corporation shall not, directly or
indirectly, redeem or purchase or otherwise acquire for value any Junior Stock
unless, at the time of making such redemption, purchase or other acquisition,
the Corporation shall have redeemed, or shall contemporaneously redeem, all of
the then outstanding shares of Series A Preferred Stock in accordance with
Section 5 hereof.
- 3 -
<PAGE> 4
Section 5. Redemption.
(a) Redemption at Option of Corporation. On or after 60 days
following the Date of Issuance, so long as any Series A Preferred Stock is
outstanding and at any time that the Corporation has sufficient funds legally
available, the Series A Preferred Stock may be redeemed, in whole or in part, at
the election of the Corporation by resolution of its Board of Directors by
giving not less than 10 trading days prior written notice of such election to
each holder of record of the Series A Preferred Stock to be redeemed (the
"Redemption Notice") as specifically provided in Section 5(c) hereof. Upon
mailing or otherwise sending the Corporation Redemption Notice, the Corporation
shall become obligated to redeem all outstanding Shares of Series A Preferred
Stock identified in such notice on the date specified therein (the "Redemption
Date"). In the event that at any time less than all of the Series A Preferred
Stock outstanding is to be redeemed, the shares to be redeemed will be selected
pro rata.
(b) Redemption Procedure. The holders of all shares of Series A
Preferred Stock being redeemed shall tender the certificates representing such
shares to the Corporation at its principal office, or, if the Corporation shall
have appointed a transfer agent for the Series A Preferred Stock (the "Transfer
Agent"), at the office of such Transfer Agent, on or after the Redemption Date.
Notwithstanding that a certificate representing an outstanding share of Series A
Preferred Stock to be redeemed shall not have been tendered on the Redemption
Date, the certificate shall no longer be deemed outstanding and the accrual of
dividends and all other rights with respect to such share shall terminate,
except only the right of the holder to receive the Redemption Price, without
interest, upon tendering of the certificate.
(c) Redemption Payment. For each Share which is to be redeemed on
any date, the Corporation shall be obligated on such Redemption Date to pay to
the holder thereof (upon surrender by such holder of the certificate
representing such Share) an amount in immediately available funds equal to the
Redemption Price. For purposes of this paragraph, "Redemption Price" shall be
equal to (x) the number of Underlying Common Shares equal to the fraction, of
which (i) the numerator is the Liquidation Value of each Share plus any accrued
but unpaid interest or dividends thereon and (ii) the denominator is the
Conversion Price in effect, multiplied by (y) the Market Price for the Common
Stock. If the funds of the Corporation legally available for redemption of
Shares on any Redemption Date are insufficient to redeem the total number of
Shares to be redeemed on such date, then those funds which are legally available
shall be used to redeem the maximum possible number of Shares ratably among the
holders of the Shares to be redeemed based upon the aggregate Liquidation Value
of such Shares (plus all accrued and unpaid dividends thereon) held by each such
holder. At any time thereafter when additional funds of the Corporation are
legally available for the redemption of Shares, such funds shall immediately be
used to redeem the balance of the Shares which the Corporation has become
obligated to redeem on the Redemption Date but which it has not redeemed. Prior
to any redemption of Series A Preferred Stock, the Corporation shall declare for
payment all accrued and unpaid dividends with respect to the Shares which are to
be redeemed.
- 4 -
<PAGE> 5
(d) Anything in the preceding provisions of this Section 5 to the
contrary notwithstanding, the Redemption Price shall, unless otherwise agreed to
in writing by the holder after receiving the Notice of Redemption, be paid to
the holder at least five (5) but not more than ten (10) business days from the
date of the Redemption Notice, except that, with respect to any Shares for which
a Notice of Conversion (as defined below) is submitted to the Corporation within
five (5) business days of the holder's receipt of the Corporation's Redemption
Notice, the Notice of Conversion shall take precedence and such Shares shall be
converted in accordance with the terms hereof. Furthermore, in the event such
Redemption Price is not timely made, any rights of the Corporation to redeem
outstanding Shares shall terminate, and the Redemption Notice shall, at the
option of the holder, be null and void.
(e) Other Redemptions or Acquisitions. Neither the Corporation nor
any Subsidiary shall redeem or otherwise acquire any Series A Preferred Stock,
except as expressly authorized herein.
Section 6. Voting Rights. Except as required by law, the holders of the
Series A Preferred Stock shall have no special voting rights and their consent
shall not be required for the taking of any corporate action.
Section 7. Conversion Rights.
(a) Conversion.
(i) General Obligation. At any time during the period
commencing upon that day which is 60 days following the Date of Issuance and
concluding at 5:00 p.m. New York, New York time on the second anniversary of the
Date of Issuance, any holder of Series A Preferred Stock may convert all or any
portion of the Series A Preferred Stock (including any fraction of a Share) held
by such holder into a number of shares of Underlying Common Stock computed by
multiplying the number of Shares to be converted by the Liquidation Value and
dividing the result by the Conversion Price then in effect. At 5:00 p.m. New
York, New York time on the second anniversary of the Date of Issuance, any
shares of Series A Preferred Stock that have not been converted into Underlying
Common Stock shall convert automatically as of that date into a number of shares
of Underlying Common Stock computed by multiplying the number of Shares to be
converted by the Liquidation Value (plus accrued but unpaid interest on
dividends thereon) and dividing the result by the Conversion Price then in
effect.
(ii) Maximum Share Amount Issuable Upon Conversion.
Notwithstanding anything to the contrary herein, if at any time the aggregate
number of shares of Common Stock then issued upon conversion of the Series A
Preferred Stock plus the aggregate number of shares of Common Stock then issued
upon exercise of the Warrants equals 19.9% of the "Outstanding Common Amount"
(as hereinafter defined), then the Series A Preferred Stock shall, from that
time forward, cease to be convertible into Common Stock in accordance with the
terms of this Section 7, unless the Corporation (i) has obtained approval of the
issuance of the
- 5 -
<PAGE> 6
Underlying Common Stock by the affirmative vote of a majority of the total votes
cast on the proposal, in person or by proxy, under Nasdaq Rule 4460(i)(6) or any
successor rule, by the holders of the then-outstanding Common Stock
("Shareholder Approval"), or (ii) shall have otherwise obtained permission to
allow such issuances from The Nasdaq Stock Market in accordance with Nasdaq Rule
4460(i). For purposes of this paragraph, "Outstanding Common Amount" means (x)
the number of shares of the Common Stock outstanding on the date of issuance of
the Series A Preferred Stock pursuant to the Securities Purchase Agreement plus
(y) any additional shares of Common Stock issued thereafter in respect of such
shares pursuant to a stock dividend, stock split or similar event. The maximum
number of shares of Common Stock issuable as a result of the 19.9% limitation
set forth herein is hereinafter referred to as the "Maximum Share Amount." With
respect to each holder of Series A Preferred Stock, the Maximum Share Amount
shall refer to such holder's pro rata share thereof. In the event the
Corporation obtains Shareholder Approval or the approval of The Nasdaq Stock
Market or otherwise concludes that it is able to increase the number of shares
to be issued in excess of the Maximum Share Amount (such increase being the "New
Maximum Share Amount"), then the references to Maximum Share Amount, above,
shall be deemed to be, instead, references to the greater New Maximum Share
Amount.
(iii) If the Corporation is limited in the number of shares of
Common Stock it may issue upon conversion of the Series A Preferred Stock by
Section 7(a)(ii), then (a) the Corporation will take all steps reasonably
necessary to be in a position to issue shares of Common Stock on conversion of
the Series A Preferred Stock without violating any rules or regulations covering
the number of shares of Common Stock that may be issued on conversion of the
Series A Preferred Stock, including obtaining Shareholder Approval (the "Cap
Regulations"), and (ii) if, despite taking such steps, the Corporation still can
not issue such shares of Common Stock without violating the Cap Regulations, the
holder of Series A Preferred Stock which can not be converted as result of the
Cap Regulations (each such share, an "Unconverted Share") shall have the option,
exercisable in such holders' sole and absolute discretion, to elect to require
the Corporation to issue shares of Common Stock in accordance with such holder's
notice of conversion at a conversion price equal to the average of the closing
bid price per share of Common Stock for the five (5) consecutive trading days
ending on the day immediately preceding the date of notice of conversion, so
long as such conversion does not violate the Cap Regulations.
(b) Conversion Mechanics.
(i) Notice of Conversion. A holder of Series A Preferred Stock
may exercise its right to convert the Series A Preferred Stock by telecopying an
executed notice ("Notice of Conversion") specifying the number of shares to be
converted and the date the conversion is to occur to the Corporation at (610)
688-6830, Attn: Chairman (or such other telecopier number or addressee as may be
identified by notice from the Corporation to the holder) and delivering to the
Corporation within five (5) business days thereafter by express
- 6 -
<PAGE> 7
courier, the original Notice of Conversion and the certificates for the Series A
Preferred Stock being converted, with a copy to the Transfer Agent.
(ii) Determination of Conversion Date. Each conversion of
Series A Preferred Stock shall be deemed to have been effected as of the close
of business on the date specified in the Notice of Conversion, provided that the
copy of the Notice of Conversion is telecopied to or otherwise delivered to the
Corporation in accordance with the provisions of Section 7(b)(i) hereof so that
it is received by the Corporation on or before such specified date. If any of
the foregoing conditions is not met, the Conversion Date shall be the first
business day following actual receipt by the Corporation of the Notice of
Conversion and the certificates for the Series A Preferred Stock being
converted.
(iii) Alteration of Rights as Holder. At such time as such
conversion has been effected, the rights of the holder of such Series A
Preferred Stock as such holder shall cease and the Person or Persons in whose
name or names any certificate or certificates for shares of Underlying Common
Stock are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Underlying Common Stock represented
thereby.
(iv) Public Offering. Notwithstanding any other provision
hereof, if a conversion of Series A Preferred Stock is to be made in connection
with a Public Offering, the conversion of any Shares of Series A Preferred Stock
may, at the election of the holder of such Shares, be conditioned upon the
consummation of the Public Offering in which case such conversion shall not be
deemed to be effective until the consummation of the Public Offering.
(v) Deliveries to Converting Holder. As soon as possible after
a conversion has been effected (but in any event within three business days in
the case of subparagraph (a) below), the Corporation shall deliver to the
converting holder by express courier, electronic transfer or otherwise:
a) a certificate or certificates representing the number
of shares of Underlying Common Stock issuable by reason of such
conversion in such name or names and such denomination or
denominations as the converting holder has specified; and
b) a certificate representing any Shares of Series A
Preferred Stock which were represented by the certificates delivered
to the Corporation in connection with such conversion but which were
not converted.
(vi) Electronic Transfer. In lieu of delivering physical
certificates representing the Common Stock issuable upon conversion, provided
the Transfer Agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of the converting holder and
its compliance with the provisions contained
- 7 -
<PAGE> 8
in this paragraph, so long as the certificates therefor do not bear a legend and
the converting holder is not obligated to return such certificate for the
placement of a legend thereon, the Corporation shall use its best efforts to
case the Transfer Agent to electronically transmit the Common Stock issuable
upon conversion to the converting holder by crediting the account of the
converting holder's Prime Broker with DTC through its Deposit Withdrawal Agent
Commission system.
(vii) Costs of Conversion. The issuance of certificates for
shares of Underlying Common Stock upon conversion of Series A Preferred Stock
shall be made without charge to the holders of such Series A Preferred Stock for
any issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such conversion and the related issuance of shares of Underlying
Common Stock. Upon conversion of each Share of Series A Preferred Stock, the
Corporation shall take all such actions as are necessary in order to insure that
the Underlying Common Stock issuable with respect to such conversion shall be
validly issued, fully paid and nonassessable.
(viii)Fractional Shares. If any fractional interest in a share
of Underlying Common Stock would, except for the provisions of this
subparagraph, be deliverable upon any conversion of the Series A Preferred
Stock, the Corporation, in lieu of delivering the fractional share therefor,
shall pay an amount to the holder thereof equal to the Market Price of such
fractional interest as of the date of conversion.
(ix) Reservation of Shares. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of
Underlying Common Stock, solely for the purpose of issuance upon the conversion
of the Series A Preferred Stock, such number of shares of Underlying Common
Stock sufficient to yield 150% of the number of shares of Common Stock issuable
upon the conversion of all outstanding Series A Preferred Stock; provided
however, that the Corporation shall not be obligated to reserve and keep
available any number of shares of Common Stock in excess of the Maximum Share
Amount. All shares of Underlying Common Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. The Corporation shall take all such actions as may
be necessary to assure that all such shares of Underlying Common Stock may be so
issued without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Underlying
Common Stock may be listed (except for official notice of issuance which shall
be immediately delivered by the Corporation upon each such issuance).
8. Conversion Price.
(a) Initial Conversion Price. The initial Conversion Price shall be
the lesser of (i) the price equal (x) to the average closing bid prices of the
Corporation's Common Stock as quoted by the Nasdaq for the 5-day trading period
ending on the day before the Conversion Date, multiplied by the (y) Applicable
Percentage, or (ii) 100% of the average closing bid prices for the
- 8 -
<PAGE> 9
5-day trading period ending on the day before the Date of Issuance. For the
purposes of the this Section 8, the Applicable Percentage shall be defined as
follows:
for the period 60 - 90 days following the Date of Issuance - 83% for
the period commencing 91 days following the Date of Issuance - 82%
(b) In order to prevent dilution of the conversion rights granted
under hereunder, the Conversion Price shall be subject to adjustment by the
Corporation from time to time upon the occurrence of the events enumerated in
this Section 8(b).
(i) Changes in Capital Stock. If the Corporation (A) pays a
dividend or makes a distribution on its Common Stock in shares of its Common
Stock, (B) subdivides its outstanding shares of Common Stock into a greater
number of shares, (C) combines its outstanding shares of Common Stock into a
smaller number of shares, (D) makes a distribution on its Common Stock in shares
of its capital Stock other than Common Stock or (E) issues by reclassification
of its Common Stock any shares of its capital Stock, then the Conversion Price
(and each component thereof) in effect immediately prior to such action shall be
proportionately adjusted so that each holder of shares of Series A Preferred
Stock may receive the aggregate number and kind of shares of capital Stock of
the Corporation which such holder would have owned immediately following such
action if it had converted all of its shares of Series A Preferred Stock into
Common Stock immediately prior to such action. The adjustment shall become
effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision, combination or reclassification. Any adjustments made pursuant to
this Section 8(b)(i) shall be made successively.
(ii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(iii) Record Date. If the Corporation takes a record of the
holders of Common Stock for the purpose of entitling them (a) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (b) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date shall be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or upon the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(iv) Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any Stock split, Stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately
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<PAGE> 10
reduced, and if the Corporation at any time combines (by reverse Stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination shall be proportionately increased.
(v) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets to another
Person or other transaction which is effected in such a manner that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) Stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as an "Organic Change". Prior to the
consummation of any Organic Change, the Corporation shall make appropriate
provisions (in form and substance satisfactory to the holders of a majority of
the Series A Preferred Stock then outstanding) to insure that each of the
holders of Series A Preferred Stock shall thereafter have the right to acquire
and receive, in lieu of or in addition to (as the case may be) the shares of
Underlying Common Stock immediately theretofore acquirable and receivable upon
the conversion of such holder's Series A Preferred Stock, such shares of Stock,
securities or assets as such holder would have received in connection with such
Organic Change if such holder had converted its Series A Preferred Stock
immediately prior to such Organic Change. In each such case, the Corporation
shall also make appropriate provisions (in form and substance satisfactory to
the holders of a majority of the Series A Preferred Stock then outstanding) to
insure that the provisions of this Section 8 hereof shall thereafter be
applicable to the Series A Preferred Stock (including, in the case of any such
consolidation, merger or sale in which the successor entity or purchasing entity
is other than the Corporation, an immediate adjustment of the Conversion Price
to the value for the Common Stock reflected by the terms of such consolidation,
merger or sale, and a corresponding immediate adjustment in the number of shares
of Underlying Common Stock acquirable and receivable upon conversion of Series A
Preferred Stock, if the value so reflected is less than the Conversion Price in
effect immediately prior to such consolidation, merger or sale).
(vi) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 8(b) but not expressly provided
for by such provisions (including, without limitation, the granting of Stock
appreciation rights, phantom Stock rights or other rights with equity features),
then the Corporation's Board of Directors shall make an appropriate adjustment
in the Conversion Price so as to protect the rights of the holders of Series A
Preferred Stock.
(vii) De Minimis Adjustment. Anything herein to the contrary
notwithstanding, no adjustment in the Conversion Price shall be required unless
such adjustment, either by itself or with other adjustments not previously made,
would require a change of at least one percent (1%) in the Conversion Price;
provided, however, that any adjustment which by reason of this Section 8(b)(vii)
is not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 8(b) shall be
made to
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<PAGE> 11
the nearest one-tenth of a cent ($.001) (rounded to the nearest cent ($.01))
with respect to any monetary amount to be actually paid or to the nearest one
hundredth (0.01) of a share, as the case may be.
(viii)Notices.
a) Immediately upon any adjustment of the Conversion
Price, the Corporation shall give written notice thereof to all holders of
Series A Preferred Stock, setting forth in reasonable detail and certifying the
calculation of such adjustment.
b) The Corporation shall give written notice to all
holders of Series A Preferred Stock at least 5 days prior to the date on which
the Corporation closes its books or takes a record (A) with respect to any
dividend or distribution upon Common Stock, (B)with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change, dissolution or liquidation.
c) The Corporation shall also give written notice to the
holders of Series A Preferred Stock at least 20 days prior to the date on which
any Organic Change shall take place.
Section 9. Registration of Transfer. The Corporation shall keep at its
principal office a register for the registration of Series A Preferred Stock.
Upon the surrender of any certificate representing Series A Preferred Stock at
such place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
Shares as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Series A Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such Series A Preferred
Stock represented by the surrendered certificate.
Section 10. Replacement of Lost and Destroyed Certificates. Upon receipt
of evidence reasonably satisfactory to the Corporation (an affidavit of the
registered holder shall be satisfactory) of the ownership and the loss, theft,
destruction or mutilation of any certificate evidencing Shares of any class of
Series A Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Preferred Stock represented by such new certificate
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<PAGE> 12
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
Section 11. Notices. Except as otherwise expressly provided hereunder, all
notices referred to herein shall be in writing and shall be delivered by
registered or certified mail, return receipt requested and postage prepaid, or
by reputable overnight courier service, charges prepaid, and shall be deemed to
have been given when so mailed or sent (i) to the Corporation, at its principal
executive offices and (ii) to any shareholder, at such holder's address as it
appears in the Stock records of the Corporation (unless otherwise indicated by
any such holder).
Section 12. Definitions.
"Common Stock" means, collectively, the Corporation's Common Stock
and any capital Stock of any class of the Corporation hereafter authorized which
is not limited to a fixed sum or percentage of par or stated value in respect to
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon any liquidation, dissolution or winding up of the
Corporation.
"Date of Issuance" means December 31, 1997.
"Junior Securities" means any of the Corporation's equity securities
other than the Series A Preferred Stock.
"Liquidation Value" of any Share as of any particular date shall be
equal to $1,000.
"Market Price" of any security means the average of the closing bid
price for a period of five trading days on the principal securities exchange on
which such security is listed or if not so listed, as quoted in the Nasdaq
System, or, if not quoted in the Nasdaq System, the average of the closing bid
price for a period of five trading days in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization.
"Person" means an individual, a partnership, a corporation, an
association, a joint Stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or potential
subdivision thereof.
"Public Offering" means any offering by the Corporation of its
equity securities to the public pursuant to an effective registration statement
under the Securities Act of 1933, as then in effect, or any comparable statement
under any similar federal statute then in force.
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<PAGE> 13
"Registration Rights Agreement" means the Registration Rights
Agreement as defined in the Securities Purchase Agreement.
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of December 31, 1997, by and among the Corporation and the
Buyer named therein, as such agreement may from time to time be amended in
accordance with its terms.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
general partner of such partnership, association or other business entity.
"Underlying Common Stock" means shares of the Corporation's Common
Stock, no par value.
"Warrants" means the Common Stock Purchase Warrant issued December
31, 1997 to the Buyer under the Securities Purchase Agreement to purchase 40,000
shares of Common Stock, and the Common Stock Purchase Warrants issued December
31, 1997 to Trautman, Kramer & Company, Inc. and its assignees in connection
with the issuance of the Series A Preferred Stock to purchase an aggregate of
50,000 shares of Common Stock.
RESOLVED FURTHER, that the Chairman, President or any Vice President
and the Secretary or any Assistant Secretary of this Corporation be and they
hereby are authorized and directed to prepare and file a Certificate of
Determination in accordance with this resolution and as required by law.
* * *
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<PAGE> 14
Each of us declares under penalty of perjury under the Laws of the
State of California that the foregoing is true and correct of our own knowledge.
Executed at Skillman, New Jersey on this 31st day of December, 1997.
[City/State]
/s/ Richard J. DePiano
------------------------------------------------
Richard J. DePiano, Chairman
/s/ John T. Rich
------------------------------------------------
John T. Rich, Vice President, Finance and Administration, and
Secretary
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<PAGE> 1
EXHIBIT 4.2
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and between ESCALON MEDICAL
CORP., a California corporation, with headquarters currently located at 182
Tamarack Circle, Skillman, NJ 08558 (as of January 1, 1998: 351 East Conestoga
Road, Wayne, PA 19087) (the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, shares of the Series A 6% Convertible
Preferred Stock, no par value (the "Convertible Preferred Stock"), of the
Company which which will be convertible into shares of Common Stock, no par
value per share. of the Company (the "Common Stock"), upon the terms and subject
to the conditions of the such Convertible Preferred Stock, together with the
Warrants (as defined below) exercisable for the purchase of shares of Common
Stock (the "Warrant Shares"), and subject to acceptance of this Agreement by the
Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
A. PURCHASE; CERTAIN DEFINITIONS. (i) The undersigned hereby agrees
to purchase from the Company shares of the Convertible Preferred Stock in the
amount set forth on the signature page of this Agreement (the "Preferred
Stock"), out of a total offering of $1,350,000 of such Convertible Preferred
Stock, and having the terms and conditions set forth in the Certificate of
Determination of Series A 6% Convertible Preferred Stock of the Company attached
hereto as ANNEX I (the "Certificate of Designations"). Without limiting the
terms provided in the Certificate of Designations, the Convertible Preferred
Stock shall provide that any outstanding shares of such Convertible Preferred
Stock shall automatically convert into Common Stock on the second anniversary of
the Closing Date (as defined below) on the terms provided in the Certificate of
Designations for a voluntary conversion (a "Mandatory Conversion"). The purchase
price for the
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<PAGE> 2
Preferred Stock shall be as set forth on the signature page hereto (the
"Purchase Price") and shall be payable in United States Dollars.
(ii) As used herein, the term "Preferred Stock" means the Preferred
Stock, together with all shares, if any, of the securities of the Company issued
as dividends thereon, unless the context otherwise requires.
(iii) As used herein, the term "Securities" means the Preferred
Stock, the Warrants and the Common Stock issuable upon conversion of the
Preferred Stock or the exercise of the Warrants.
b. FORM OF PAYMENT. The Buyer shall pay the Purchase Price by
delivering immediately available good funds in United States Dollars to the
escrow agent (the "Escrow Agent") identified in the Joint Escrow Instructions
attached hereto as ANNEX II (the "Joint Escrow Instructions"). No later than the
Closing Date (as defined below), but in any event promptly following payment by
the Buyer to the Escrow Agent of such amount of the Purchase Price, the Company
shall deliver the Preferred Stock duly executed on behalf of the Company to the
Escrow Agent. By signing this Agreement, each of the Buyer and the Company,
subject to acceptance by the Escrow Agent, agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
c. METHOD OF PAYMENT. Payment into escrow on account of the
Purchase Price shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: -
Not later than 1:00 p.m., New York time, on the date which is two (2) New York
Stock Exchange trading days after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Buyer shall deposit with the Escrow Agent the Purchase Price for
the Preferred Stock, in currently available funds. Time is of the essence with
respect to such payment, and failure by the Buyer to make such payment, shall
allow the Company to cancel this Agreement.
d. ESCROW PROPERTY. Funds deposited on account of the Purchase Price
and certificates representing the Preferred Stock delivered to the Escrow Agent
as contemplated by Sections 1(b) and (c) hereof are referred to as the "Escrow
Property."
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<PAGE> 3
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
a. Without limiting the Buyer's right to sell the Common Stock
pursuant to the Registration Statement (as that term is defined in the
Registration Rights Agreement defined below), the Buyer is purchasing the
Preferred Stock and the Warrants and will be acquiring the shares of Common
Stock issuable upon conversion of the Preferred Stock (the "Converted Shares")
and the Warrant Shares for its own account for investment only and not with a
view towards the public sale or distribution thereof and not with a view to or
for sale in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined
in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Securities.
c. All subsequent offers and sales of the Preferred Stock and the
shares of Common Stock representing the Converted Shares and the Warrant Shares
(such Common Stock sometimes referred to as the "Shares") by the Buyer shall be
made pursuant to registration of the Shares under the 1933 Act or pursuant to an
exemption from registration.
d. The Buyer understands that the Preferred Stock is being offered
and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Preferred Stock.
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Preferred Stock and the offer of
the Shares which have been requested by the Buyer, including ANNEX V hereto. The
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the Buyer
has had the opportunity to obtain and review the Company's (1) Annual Report on
Form 10-K for the fiscal year ended June 30, 1997, (2) Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997, (3) Form 8-K , dated
November 25, 1997, and (4) Form S-3, file August 26, 1996 (the "Company's SEC
Documents").
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<PAGE> 4
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
g. The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
i. Notwithstanding the provisions hereof or of the Preferred Stock,
in no event (except (i) with respect to a Mandatory Conversion or (ii) if the
Company is in default under any provision of the Certificate of Designations or
of any of the Transaction Agreements, as defined below) shall the holder be
entitled to convert any Preferred Stock or exercise any Warrants to the extent
that, after such conversion or exercise, the sum of (1) the number of shares of
Common Stock beneficially owned by the Buyer and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Preferred Stock), and (2) the number
of shares of Common Stock issuable upon the conversion of the Preferred Stock
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by the Buyer and its affiliates of more than
4.99% of the outstanding shares of Common Stock. For purposes of the proviso to
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such proviso.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that, except as
provided in ANNEX V hereto:
a. CONCERNING THE PREFERRED STOCK AND THE SHARES. The Preferred
Stock has been duly authorized, and when issued, will be duly and validly
issued, fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder. There are no preemptive
rights of any stockholder of the Company, as such, to acquire the Preferred
Stock, the Warrants or the Shares.
b. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not
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<PAGE> 5
have a material adverse effect on the business, operations, prospects or
condition (financial or otherwise) of the Company. The Company has registered
its Common Stock pursuant to Section 12 of the 1934 Act, and the Common Stock is
listed and traded on The NASDAQ/National Market. The Company has received no
notice, either oral or written, with respect to the continued eligibility of the
Common Stock for such listing, and the Company has maintained all requirements
for the continuation of such listing.
c. AUTHORIZED SHARES. The Company has sufficient authorized and
unissued Shares as may be reasonably necessary to effect the conversion of the
Preferred Stock and to issue the Warrant Shares. The Converted Shares and the
Warrant Shares have been duly authorized and, when issued upon conversion of, or
as interest on, the Preferred Stock or upon exercise of the Warrants, each in
accordance with its respective terms, will be duly and validly issued, fully
paid and non-assessable and will not subject the holder thereof to personal
liability by reason of being such holder.
d. SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT AND
STOCK. This Agreement and the Registration Rights Agreement, the form of which
is attached hereto as ANNEX IV (the "Registration Rights Agreement"), and the
transactions contemplated thereby, have been duly and validly authorized by the
Company, this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the Warrants and the Registration Rights Agreement, when
executed and delivered by the Company, will be, valid and binding agreements of
the Company enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium, and other similar laws affecting the enforcement of creditors'
rights generally; and the Preferred Stock will be duly and validly authorized
and, when executed and delivered on behalf of the Company in accordance with
this Agreement, will be a valid and binding obligation of the Company in
accordance with its terms, subject to general principles of equity and to
bankruptcy, insolvency, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this Agreement
and the Registration Rights Agreement by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Preferred Stock do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under (i)
the articles of incorporation or by-laws of the Company, each as currently in
effect, (ii) any indenture, mortgage, deed of trust, or other material agreement
or instrument to which the Company is a party or by which it or any of its
properties or assets are bound, including any listing agreement for the Common
Stock except as herein set forth, (iii) to its knowledge, any existing
applicable law, rule, or regulation or any applicable decree, judgment, or order
of any court, United States federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over the Company or any
of its properties or assets, or (iv) the Company's listing agreement for its
Common Stock, except such conflict, breach or default which would not have a
material adverse effect on the Company or on the transactions contemplated
herein.
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<PAGE> 6
f. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the Stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC FILINGS. None of the Company's SEC Documents contained, at
the time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading. The Company has since October 1, 1996 timely filed all
requisite forms, reports and exhibits thereto with the SEC.
h. ABSENCE OF CERTAIN CHANGES. Since July 1, 1997, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except as disclosed in the Company's SEC Documents.
Since July 1, 1997, except as provided in the Company's SEC Documents, the
Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any changes in employee compensation, except in the
ordinary course of business consistent with past practices; or (vii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment.
i. FULL DISCLOSURE. There is no fact known to the Company (other
than general economic conditions known to the public generally or as disclosed
in the Company's SEC Documents), that has not been disclosed in writing to the
Buyer that (i) would reasonably be expected to have a material adverse effect on
the business or financial condition of the Company or (ii) would reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement or any of the agreements
contemplated hereby (collectively, including this Agreement, the "Transaction
Agreements").
j. ABSENCE OF LITIGATION. Except as set forth in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business or financial condition, results of operation or prospects
of the
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<PAGE> 7
Company and its subsidiaries taken as a whole or the transactions contemplated
by any of the Transaction Agreements or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, any of the Transaction Agreements.
k. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a material adverse effect on the Company's
financial condition or results of operations.
l. PRIOR ISSUES. During the twelve (12) months preceding the date
hereof, the Company has not issued any convertible securities.
m. NO UNDISCLOSED LIABILITIES OR EVENTS. Except as set forth in
ANNEX V hereto, the Company has no liabilities or obligations other than those
disclosed in the Company's SEC Documents or those incurred in the ordinary
course of the Company's business since July 1, 1997, and which individually or
in the aggregate, do not or would not have a material adverse effect on the
properties, business, condition (financial or otherwise), results of operations,
or prospects of the Company. No event or circumstances has occurred or exists
with respect to the Company or its properties, business, condition (financial or
otherwise), results of operations, or prospects, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
n. NO DEFAULT. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property is
bound.
o. NO INTEGRATED OFFERING. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since October 1, 1996, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
p. DILUTION. The number of Shares issuable upon conversion of the
Preferred Stock and the exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to the
conversion of the Preferred Stock. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The board
of directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Shares upon
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<PAGE> 8
conversion of the Preferred Stock and upon exercise of the Warrants is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the
Preferred Stock has not been and is not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
Preferred Stock and the Warrants, and, until such time as the Common Stock has
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement,
certificates and other instruments representing any of the Securities shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO
THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
c. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement on or before the Closing Date.
d. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Preferred Stock to the Buyer under
any United States laws and
8
<PAGE> 9
regulations or by any domestic securities exchange or trading market, and to
provide a copy thereof to the Buyer promptly after such filing.
e. REPORTING STATUS. So long as the Buyer beneficially owns any
of the Preferred Stock, the Company shall file all reports required to be filed
with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
permit such termination. The Company will take all action under its control to
continue the listing and trading of its Common Stock on The NASDAQ/National
Market (or, if not so listed, to obtain and to continue the listing and trading
of its Common Stock on The NASDAQ/SmallCap Market) and will comply in all
respects with the Company's reporting, filing and other obligations under the
by-laws or rules of the National Association of Securities Dealers, Inc.
("NASD") or such NASDAQ Market.
f. USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Preferred Stock (excluding amounts paid by the Company for legal
fees, finder's fees and escrow fees in connection with the sale of the Preferred
Stock) for internal working capital purposes, and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person.
g. CERTAIN AGREEMENTS. (i) The Company covenants and agrees that
it will not, without the prior written consent of the Buyer, enter into any
subsequent or further offer or sale of Common Stock or securities convertible
into Common Stock (collectively, "New Common Stock") with any third party
pursuant to a transaction which in any manner permits the sale of the New Common
Stock on any date which is earlier than sixty (60) days after the Effective Date
(as defined below).
(ii) The provisions of subparagraph (g)(i) will not apply to (x)
the issuance of securities (other than for cash) in connection with an
acquisition, merger, consolidation, sale of assets, disposition, or (y) the
exchange of the capital stock for assets, stock or other joint venture
interests; provided, however, that any action contemplated under this
subparagraph (g)(ii) is subject to the condition that registration rights, if
any, in connection with such action shall not require the filing of a
Registration Statement in respect of such stock prior to sixty (60) days after
the Effective Date.
(iii) The provisions of subparagraph g(i) will also not apply to the
inclusion of certain securities of the Company, which are identified in ANNEX V
hereto and as to which the holders thereof have been granted certain
registration rights prior to the date hereof (the "Existing Securities"), in the
Registration Statement covering the Registrable Securities (as defined in the
Registration Rights Agreement) or in a separate registration statement filed by
the Company after February 15, 1998 for such shares. Any other provision in this
Agreement, the Registration Rights Agreement or any of the other Transaction
Agreements to the contrary notwithstanding, the Company hereby agrees that, from
the Closing Date through and including February 15, 1998,
9
<PAGE> 10
without the prior written consent of the Buyer, which consent may withheld in
the Buyer's sole and absolute discretion, the Company (x) will not file any
registration statement, other than the Registration Statement, seeking to
register for sale any shares of the Company's stock and (y) will not include in
the Registration Statement shares of the Company's stock other than the
Registrable Securities and the Existing Securities.
(iv) The term "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities.
h. AVAILABLE SHARES. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares of
Common Stock sufficient to yield one hundred fifty percent (150%) of the number
of shares of Common Stock issuable (i) at conversion as may be required to
satisfy the conversion rights of the Buyer pursuant to the terms and conditions
of the Preferred Stock (assuming for such purposes that all Preferred Stock is
currently eligible to be converted, whether or not such eligibility in fact
exists at any given time) and (ii) upon exercise as may be required to satisfy
the exercise rights of the Buyer pursuant to the terms and conditions of the
Warrants (assuming for such purposes that all Warrants are currently eligible to
be exercised, whether or not such eligibility in fact exists at any given time).
i. WARRANTS. The Company agrees to issue to the Buyer no later
than two days after the Closing Date transferable, divisible warrants with
cashless exercise rights(the "Warrants") for the purchase of 40,000 shares of
Common Stock. The Warrants shall bear an exercise price equal to a percentage of
the closing bid price of the Common Stock on the Closing Date in accordance with
the following schedule:
<TABLE>
<CAPTION>
At Price (as Percentage of
Amount of Warrants Exercisable Closing Date Closing Bid Price)
------------------------------ -------------------------------
<S> <C>
25% of the Warrants 100%
25% of the Warrants 115%
25% of the Warrants 120%
25% of the Warrants 135%
</TABLE>
The Warrants shall be exercisable immediately and for a period of five (5) years
thereafter and shall be in the form annexed hereto as ANNEX VI, together with
registration rights as provided in the Registration Rights Agreement.
j. HEDGING TRANSACTIONS. The Company understands that the Buyer
may be a so-called "hedge" fund, and the Company hereby expressly agrees that
the Buyer shall not in any way be prohibited or restricted from any purchases or
sales of any securities or other instruments of, or related to, the Company or
any of its securities, including, but not necessarily limited to, puts, calls,
futures contracts, short sales and hedging and arbitrage transactions. The Buyer
acknowledges that such purchases, sales and other transactions may be subject to
various federal and state securities laws and agrees to comply with all such
applicable securities laws.
10
<PAGE> 11
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the Closing Date, the Company will irrevocably
instruct its transfer agent to issue Common Stock from time to time upon
conversion of the Preferred Stock in such amounts as specified from time to time
by the Company to the transfer agent, bearing the restrictive legend specified
in Section 4(b) of this Agreement prior to registration of the Shares under the
1933 Act, registered in the name of the Buyer or its nominee and in such
denominations to be specified by the Buyer in connection with each conversion of
the Preferred Stock. The Company warrants that no instruction other than such
instructions referred to in this Section 5 and stop transfer instructions to
give effect to Section 4(a) hereof prior to registration and sale of the Shares
under the 1933 Act will be given by the Company to the transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the Registration
Rights Agreement, and applicable law. Nothing in this Section shall affect in
any way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities. If the Buyer provides the Company
with an opinion of counsel reasonably satisfactory to the Company that
registration of a resale by the Buyer of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not required under the
1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of
this Agreement) permit the transfer of the Securities and, in the case of the
Converted Shares or the Warrant Shares, as the case may be, promptly instruct
the Company's transfer agent to issue one or more certificates for Common Stock
without legend in such name and in such denominations as specified by the Buyer.
b. Subject to the completeness and accuracy of the Buyer's
representations and warranties herein, upon the conversion of any Preferred
Stock by a person who is a non-U.S. Person, and following the expiration of any
applicable Restricted Period (as those terms are defined in Regulation S), the
Company, shall, at its expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue stock certificates without restrictive legend or stop orders in the
name of Buyer (or its nominee (being a non-U.S. Person) or such non-U.S. Persons
as may be designated by Buyer) and in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon such
conversion, as applicable. Nothing in this Section 5, however, shall affect in
any way Buyer's or such nominee's obligations and agreement to comply with all
applicable securities laws upon resale of the Securities.
c. (i) The Company will permit the Buyer to exercise its right to
convert the Preferred Stock by (x) telecopying an executed and completed Notice
of Conversion to the Company at (610) 254-8958, Attn: Chairman (or such other
telecopier number or addressee as may be identified by notice from the Company
to the Buyer in the manner contemplated by Section 11 hereof) and (y)
delivering, within five (5) business days thereafter, the original Notice of
Conversion and the certificates for the Preferred Stock being converted to the
Company by express courier, with a copy to the transfer agent.
11
<PAGE> 12
(ii) The term "Conversion Date" means, with respect to any
conversion elected by the holder of the Preferred Stock, the date specified in
the Notice of Conversion, provided the copy of the Notice of Conversion is
telecopied to or otherwise delivered to the Company in accordance with the
provisions hereof so that is received by the Company on or before such specified
date. If any of the foregoing conditions is not met, the Conversion Date shall
be the first business day following actual receipt by the Company of the Notice
of Conversion.
(iii) The Company will transmit (or cause it transfer agent to
transmit) the certificates representing the Converted Shares issuable upon
conversion of any Preferred Stock (together with certificates representing the
Preferred Stock not being so converted) to the Buyer via express courier, by
electronic transfer or otherwise, within three (3) business days after receipt
by the Company of the original Notice of Conversion and the certificate(s)
representing the Preferred Stock being converted (the "Delivery Date").
d. The Company understands that a delay in the issuance of the
shares of Common Stock beyond the Delivery Date could result in economic loss to
the Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer for late issuance of Shares upon Conversion in
accordance with the following schedule (where "No. of Business Days Late" is
defined as the number of business days beyond five (5) business days from
Delivery Date:
<TABLE>
<CAPTION>
Late Payment For Each $10,000
No. of of Preferred Stock Liquidation
Business Days Late Amount Being Converted
------------------ ------------------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000+$200 for each Business
Day Late beyond 10 days
</TABLE>
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Buyer's right to
pursue actual damages for the Company's failure to issue and deliver the Common
Stock to the Buyer. Furthermore, in addition to any other remedies which may be
available to the Buyer, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within five (5) business days
after the Delivery Date, the Buyer will be entitled to revoke the relevant
Notice of Conversion by delivering
12
<PAGE> 13
a notice to such effect to the Company whereupon the Company and the Buyer shall
each be restored to their respective positions immediately prior to delivery of
such Notice of Conversion.
e. If, by the relevant Delivery Date, the Company fails for any
reason to deliver the Shares to be issued upon conversion of the Preferred Stock
and after such Delivery Date, the holder of the Preferred Stock being converted
(a "Converting Holder") purchases, in an open market transaction or otherwise,
shares of Common Stock (the "Covering Shares") in order to make delivery in
satisfaction of a sale of Common Stock by the Converting Holder (the "Sold
Shares"), which delivery such Converting Holder anticipated to make using the
Shares to be issued upon such conversion (a "Buy-In"), the Company shall pay to
the Converting Holder, in addition to all other amounts contemplated in other
provisions of the Transaction Agreements, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.
f. In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Buyer and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
6. DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the Escrow
Agent pursuant to Section 1(b) hereof, on a delivery against payment basis, no
later than on the Closing Date.
7. CLOSING DATE.
(i) The closing of the issuance and sale of the Preferred Stock
shall occur on the date (the "Closing Date") which is the first NYSE trading day
after the fulfillment or waiver of all closing conditions pursuant to Sections 8
and 9 hereof or such other date and time as is mutually agreed upon by the
Company and the Buyer, but in no event later than December 31, 1997.
13
<PAGE> 14
(ii) The closing of the purchase and issuance of Preferred Stock
shall occur on the Closing Date at the offices of the Escrow Agent and shall
take place no later than 12:00 Noon, New York time, on such day or such other
time as is mutually agreed upon by the Company and the Buyer.
(iii) Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Property only upon
satisfaction of the conditions set forth in Sections 8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
Preferred Stock to the Buyer pursuant to this Agreement on the Closing Date is
conditioned upon:
a. The execution and delivery of this Agreement by the Buyer;
b. Delivery by or the Buyer to the Escrow Agent of good funds as
payment in full of the Purchase Price in accordance with this Agreement;
c. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement, as if made on such date,
and the performance by the Buyer on or before such date of all covenants and
agreements of the Buyer required to be performed on or before such date; and
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Stock on the Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company;
b. Delivery by the Company to the Escrow Agent of the Preferred
Stock in accordance with this Agreement;
c. The accuracy in all material respects on the Closing Date of
the representations and warranties of the Company contained in this Agreement.
as if made on such date, and the performance by the Company on or before such
date of all covenants and agreements of the Company required to be performed on
or before such date;
14
<PAGE> 15
d. The Registration Rights Agreement shall be in full force and
effect on the Closing Date and the Company shall not be in default thereunder;
and
e. On or before the Closing Date, the Buyer or the Escrow Agent
shall have received an opinion of counsel for the Company, dated the Closing
Date, in form, scope and substance reasonably satisfactory to the Buyer,
substantially to the effect set forth in ANNEX III attached hereto.
10. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions.
b. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
c. This Agreement may be signed in one or more counterparts, each
of which shall be deemed an original.
d. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
Terms used in the singular case shall be deemed to refer to the plural case and
terms used in the plural case shall be deemed to refer to the singular case,
unless the context otherwise requires. Terms used in the masculine, feminine or
neuter gender shall be deemed to refer to any other gender, unless the context
otherwise requires.
e. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
f. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
g. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
11. NOTICES. Except as and to the extent otherwise specified herein
(such as with respect to the giving of a Notice of Conversion), any notice which
shall be required or permitted hereunder shall be given in writing and shall be
deemed effectively given on the earliest of
15
<PAGE> 16
(i) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(ii) the seventh business day after deposit, postage prepaid, in
the United States Postal Service by registered or certified mail,
or
(iii) the third business day after mailing by recognized
international express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: ESCALON MEDICAL CORP.
351 East Conestoga Road
Wayne, PA 19087
ATTN: President
Telephone No.: (610) 688-6830
Telecopier No.: (610) 254-8958
with a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
ATTN: James W. McKenzie, Esq.
Telephone No.: (215) 963-4852
Telecopier No.: (215) 963-5299
BUYER: At the address set forth on the signature page of this Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and
the Buyer's representations and warranties herein shall survive the execution
and delivery of this Agreement and the delivery of the Preferred Stock and the
Purchase Price, and shall inure to the benefit of the Buyer and the Company and
their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
16
<PAGE> 17
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Buyer or one of its officers thereunto duly authorized as of the date set forth
below.
NUMBER OF SHARES OF PREFERRED STOCK TO BE PURCHASED: 1,350
AGGREGATE PURCHASE PRICE OF SUCH PREFERRED STOCK: $1,350,000
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this 31st day of December, 1997.
c/o ISRC, 310 Madison Avenue, Suite 503 Combination, Inc.
- --------------------------------------- ---------------------------------
Address Printed Name of Subscriber
New York, New York 10017
- ---------------------------------------
By: /s/ David Freund
Telecopier No. -------------------------------
------------------------- (Signature of Authorized Person)
David Freund, President
----------------------------------
Printed Name and Title
Turks and Caicos
- ---------------------------------------
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
ESCALON MEDICAL CORP.
By: /s/ Richard J. DePiano
------------------------
Title: Chairman & C.E.O.
------------------------
Date: December 31, 1997
------------------------
<PAGE> 1
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 31, 1997
(this "Agreement"), is made by and between ESCALON MEDICAL CORP., a California
corporation (the "Company"), and each entity named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of December 31, 1997, between the
Initial Investor and the Company (the "Securities Purchase Agreement";
capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Securities Purchase Agreement), the Company has agreed to issue
and sell to the Initial Investor 1,350 shares of Series A 6% Convertible
Preferred Stock, no par value, of the Company, in an aggregate purchase price
(the "Purchase Price") of $1,350,000 (the "Preferred Stock," which term, as used
herein shall have the meaning ascribed to it in the Securities Purchase
Agreement); and
WHEREAS, the Company has agreed to issue the Warrants to the Initial
Investor in connection with the issuance of the Preferred Stock; and
WHEREAS, the Preferred Stock is convertible into shares of Common
Stock (the "Conversion Shares") upon the terms and subject to the conditions
contained in the Certificate of Designations and the Warrants may be exercised
for the purchase of shares of Common Stock (the "Warrant Shares") upon the terms
and conditions of the Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and the Warrant Shares;
and
WHEREAS, the Company has agreed to issue to Trautman, Kramer &
Company, Incorporated or its designees (collectively, the "Distributor")
warrants (the "Distributor's Warrants") exercisable for the purchase of shares
of Common Stock (the "Distributor's Shares");
1
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company, the
Initial Investor and the Distributor hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(b) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company that disclosure of such information in
the registration statement would be detrimental to the business and affairs of
the Company; or (ii) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
(c) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(d) "Registrable Securities" means, (i) as to the Investor, the
Conversion Shares and the Warrant Shares and (ii) as to the Distributor, the
Distributor's Shares.
(e) "Registration Statement" means a registration statement of the
Company under the Securities Act.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare and file with
the SEC, as soon as possible after the Closing Date but no later than thirty
(30) days following the Closing Date, either a Registration Statement on Form
S-3 registering for resale by the Investor a sufficient number of shares of
Common Stock for the Initial Investors to sell the Registrable Securities (or
such lesser number as may be required by the SEC, but in no event less than two
hundred percent (200%) of the aggregate number of shares (i) into which the
Preferred Stock would be convertible at the time of filing of the Form S-3
[assuming for such purposes that all Preferred Stock had been eligible to be
converted, and had been converted, into Conversion Shares in accordance with
their
2
<PAGE> 3
terms, whether or not such eligibility or conversion had in fact occurred as of
such date] and (ii) which would be issued upon exercise of all of the Warrants
and Distributor's Warrants at the time of filing of the Form S-3 [assuming for
such purposes that all Warrants and Distributor's Warrants had been eligible to
be exercised and had been exercised in accordance with their terms, whether or
not such eligibility or exercise had in fact occurred as of such date]. Such
Registration Statement or amended Registration Statement shall also state that,
in accordance with Rule 416 and 457 under the Securities Act, it also covers
such indeterminate number of additional shares of Common Stock as may become
issuable upon conversion of the Preferred Stock and the exercise of the Warrants
resulting from adjustment in the Conversion Price or the Warrant exercise price,
as the case may be, or to prevent dilution resulting from stock splits, or stock
dividends. Such Registration Statement shall be declared effective no later than
sixty (60) days after the Closing Date. If at any time the number of shares of
Common Stock into which the Preferred Stock may be converted and which would be
issued upon exercise of the Warrants or Distributor's Warrants exceeds the
aggregate number of shares of Common Stock then registered, the Company shall,
within ten (10) business days after receipt of a written notice from any
Investor or from the Distributor, as the case may be, either (i) amend the
Registration Statement filed by the Company pursuant to the preceding sentence,
if such Registration Statement has not been declared effective by the SEC at
that time, to register all shares of Common Stock into which the Preferred Stock
may currently or in the future be converted and which would be issued currently
or in the future upon exercise of the Warrants or Distributor's Warrants, or
(ii) if such Registration Statement has been declared effective by the SEC at
that time, file with the SEC an additional Registration Statement on Form S-3 to
register the shares of Common Stock into which the Preferred Stock may currently
or in the future be converted and which would be issued currently or in the
future upon exercise of the Warrants or Distributor's Warrants that exceed the
aggregate number of shares of Common Stock already registered.
(b) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the Registrable
Securities is not effective by the date which is ninety (90) days after the
Closing Date (the "Required Effective Date"), then the Company will make
payments to the Initial Investor in such amounts and at such times as shall be
determined pursuant to this Section 2(b).
(ii) The amount (the "Periodic Amount") to be paid by the
Company to the Initial Investor shall be determined as of each Computation Date
(as defined below) and such amount shall be equal to (A) two percent (2%) of the
Purchase Price for the period from the date following the Required Effective
Date to the first relevant Computation Date, and (B) three percent (3%) of the
Purchase Price to each Computation Date thereafter. By way of illustration and
not in limitation of the foregoing, if the Registration Statement is timely
filed but is not declared effective until one hundred sixty-five (165) days
after the Closing Date, the Periodic Amount will aggregate eight percent (8%) of
the Purchase Price of the Preferred Stock (2% for days 91-120, plus 3% for days
121-150, plus 3% for days 151-165)
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(iii) Each Periodic Amount will be payable to the Investor by
the Company upon demand of the Investor and shall be payable in cash or other
immediately available funds.
(iv) The parties acknowledge that the damages which may be
incurred by the Investor if the Registration Statement has not been declared
effective by the Required Registration Date may be difficult to ascertain. The
parties agree that the Periodic Amount represent a reasonable estimate on the
part of the parties, as of the date of this Agreement, of the amount of such
damages.
(v) Notwithstanding the foregoing, the amounts payable by
the Company pursuant to this provision shall not be payable to the extent any
delay in the effectiveness of the Registration Statement occurs because of an
act of, or a failure to act or to act timely by the Initial Investor or its
counsel, or in the event all of the Registrable Securities may be sold pursuant
to Rule 144 or another available exemption under the Act.
(vi) "Computation Date" means (i) the date which is the
earlier of (A) thirty (30) days after the Required Effective Date, or (B) the
date after the Required Effective Date on which the Registration Statement is
declared effective, and (ii) each date which is the earlier of (A) thirty (30)
days after the previous Computation Date or (B) the date after the previous
Computation Date on which the Registration Statement is declared effective.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following.
(a) Prepare promptly, and file with the SEC by thirty (30) days
after the Closing Date, a Registration Statement with respect to not less than
the number of Registrable Securities provided in Section 2(a) above, and
thereafter use its reasonable best efforts to cause each Registration Statement
relating to Registrable Securities to become effective within sixty (60) days of
the Closing Date and keep the Registration Statement effective at all times
until the earliest (the "Registration Period") of (i) the date that is two (2)
years after the Closing Date, (ii) the date when the Investors may sell all
Registrable Securities under Rule 144 or (iii) the date the Investors no longer
own any of the Registrable Securities, which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been
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<PAGE> 5
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel designated by
the Initial Investors to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time (but not less than three (3)
business days) prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects.
(d) Furnish to each Investor and to the Distributor whose
Registrable Securities are included in the Registration Statement and its legal
counsel identified to the Company, (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the Company, one (1)
copy of the Registration Statement, each preliminary prospectus and prospectus,
and each amendment or supplement thereto, and (ii) such number of copies of a
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor and the Distributor of the happening of any event of which
the Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement or other
appropriate filing with the SEC to correct such untrue statement or omission,
and deliver a number of copies of such supplement or amendment to each Investor
as such Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor and the Distributor who holds Registrable Securities being
sold (or, in the event of an underwritten offering, the managing underwriters)
of the issuance by the SEC of a Notice of Effectiveness or any notice of
effectiveness or any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time;
(g) Notwithstanding the foregoing, if at any time or from time to
time after the date of effectiveness of the Registration Statement, the Company
notifies the Investors and the Distributor in writing of the existence of a
Potential Material Event, the Investors and the Distributor shall not offer or
sell any Registrable Securities, or engage in any other transaction involving or
relating to the Registrable Securities, from the time of the giving of notice
with respect to a Potential Material Event until such Investor or Distributor
receives written notice from the Company that such Potential Material Event
either has been disclosed to the public or no longer constitutes a Potential
Material Event; provided, however, that the Company may not so suspend the right
to such holders of Registrable Securities for more than two twenty (20) day
periods in the aggregate during any 12-month period ("Suspension Period") with
at least a ten (10) business day interval between such periods, during the
periods the Registration Statement is required to be in effect;
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<PAGE> 6
(h) Use its reasonable efforts to secure designation of all the
Registrable Securities covered by the Registration Statement on the "Small
Capitalization Market" of the National Association of Securities Dealers
Automated Quotations System ("NASDAQ") within the meaning of Rule 11Aa2-1 of the
SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the quotation of the Registrable Securities on The NASDAQ SmallCap Market;
or if, despite the Company's reasonable efforts to satisfy the preceding clause,
the Company is unsuccessful in doing so, to secure NASDAQ/OTC Bulletin Board
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities;
(i) Provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(j) Cooperate with the Investors and with the Distributor who hold
Registrable Securities or securities convertible into Registrable Securities
being offered to facilitate the timely preparation and delivery of certificates
for the Registrable Securities to be offered pursuant to the Registration
Statement and enable such certificates for the Registrable Securities to be in
such denominations or amounts as the case may be, as the Investors may
reasonably request, and, within three (3) business days after a Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel selected by the Company
to deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities or securities convertible into
Registrable Securities are included in such Registration Statement) an
appropriate instruction and opinion of such counsel; and
(k) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor and the Distributor of the Registrable
Securities pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors and the Distributor
shall independently have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor or the Distributor, as the
case may be, that such Investor or the Distributor shall furnish to the Company
such information regarding itself, the Registrable Securities held by it, and
the intended method of disposition of the Registrable Securities held by it, as
shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. At least five (5) days prior to the first
anticipated filing date of the Registration Statement, the Company shall notify
each Investor and the Distributor of the information the Company requires from
each such Investor and
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<PAGE> 7
the Distributor (the "Requested Information") if such Investor or Distributor
elects to have any of its Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor or
Distributor (each such person or entity, a "Non-Responsive Investor"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor;
(b) Each Investor or Distributor, by its acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor or Distributor has
notified the Company in writing of its election to exclude all of such party's
Registrable Securities from the Registration Statement; and
(c) Each Investor or Distributor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 3(e) or 3(f), above, such party will immediately discontinue disposition
of Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such party's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such party shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such party's possession, of the prospectus covering
such Registrable Securities current at the time of receipt of such notice.
5. EXPENSES OF REGISTRATION. All reasonable expenses (other than
underwriting discounts and commissions of the Investor or Distributor) incurred
in connection with registrations, filings or qualifications pursuant to Section
3, but including, without limitation, all registration, listing, and
qualifications fees, printers and accounting fees, the fees and disbursements of
counsel for the Company and a fee for a single counsel for the Investor not
exceeding $3,500, shall be borne by the Company.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor or Distributor who holds such Registrable
Securities, the directors, if any, of such Investor or Distributor, the
officers, if any, of such Investor or Distributor, each person, if any, who
controls any Investor or the Distributor within the meaning of the Securities
Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(each, an "Indemnified Person" or "Indemnified Party"), against any losses,
claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of
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<PAGE> 8
a material fact contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in the final prospectus (as amended or supplemented,
if the Company files any amendment thereof or supplement thereto with the SEC)
or the omission or alleged omission to state therein any material fact necessary
to make the statements made therein, in light of the circumstances under which
the statements therein were made, not misleading or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state securities law (the matters in the foregoing clauses
(i) through (iii) being, collectively, "Violations"). Subject to clause (b) of
this Section 6, the Company shall reimburse the Investors, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a) shall not
(I) apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(c) hereof; (II) be available to
the extent such Claim is based on a failure of the Investor to deliver or cause
to be delivered the prospectus made available by the Company; or (III) apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Each Investor or the Distributor will indemnify the
Company and its officers, directors and agents against any claims arising out of
or based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of such party,
expressly for use in connection with the preparation of the Registration
Statement, subject to such limitations and conditions as are applicable to the
Indemnification provided by the Company to this Section 6. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action,
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be. In case any such action is brought against any Indemnified Person
or Indemnified Party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the
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indemnifying party to such Indemnified Person or Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such Indemnified Person or Indemnified Party under this Section 6 for
any legal or other reasonable out-of-pocket expenses subsequently incurred by
such Indemnified Person or Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action of its final conclusion. The Indemnified
Person or Indemnified Party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
reasonable out-of-pocket expenses of such counsel shall not be at the expense of
the indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the Indemnified Person or
Indemnified Party. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most
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recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company and (iii) such other information as may be
reasonably requested to permit the Investors to sell such securities pursuant to
Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors or the Distributor to any transferee of
the Registrable Securities (or all or any portion of any Preferred Stock of the
Company which is convertible into such securities) only if: (a) the Investor or
Distributor, as the case may be, agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, and
(d) at or before the time the Company received the written notice contemplated
by clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein. The copies to
be provided to the Company as referred to in the immediately preceding sentence
may be redacted to delete certain financial and other details of the transaction
between the Investor or the Distributor, on the one hand, and the transferee, on
the other hand, if the same is included in the document to be provided to the
Company. In the event of any delay in filing or effectiveness of the
Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay, or the payments set forth in
Section 2(c) hereof.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold an eighty (80%) percent interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor, the Distributor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail,
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return receipt requested, properly addressed and with proper postage pre-paid
(i) if to the Company, ESCALON MEDICAL CORP.,351 East Conestoga Road, Wayne, PA
19087, ATTN: Chairman, Telecopier No.: (610) 254-8958; with a a copy to
Morgan, Lewis & Bockius, LLP, 2000 One Logan Square, Philadelphia, PA 19103,
ATTN: James W. McKenzie, Esq., Telecopier No.: (215) 963-5299; (ii) if to the
Initial Investor, at the address set forth under its name in the Securities
Purchase Agreement, with a copy to Samuel Krieger, Esq., Krieger & Prager, 319
Fifth Avenue, Third Floor, New York, NY 10016, Telecopier No.: (212) 213-2077;
(iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, (iv) if to Trautman Kramer & Company,
Incorporated, to it at 500 Fifth Avenue, New York, NY 10110, ATTN: Richard
Rosenblum, Telecopier No.: (212) 575-6589, with a copy to Samuel Krieger, Esq.,
Krieger & Prager, 319 Fifth Avenue, Third Floor, New York, NY 10016, Telecopier
No.: (212) 213-2077, and (v) if to any other designee of Trautman Kramer &
Company, Incorporated, at such address as such designee shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b), and shall be effective, when
personally delivered, upon receipt and, when so sent by registered or certified
mail, four (4) calendar days after deposit with the United States Postal
Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions.
(e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
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(i) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless the same is the result of force majeure.
Neither party shall be liable for consequential damages.
(k) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
ESCALON MEDICAL CORP..
By: /s/ Richard J. DePiano
------------------------------------
Name: Richard J. DePiano
Title: Chairman and C.E.O.
Combination, Inc.
By: /s/ David Freund
------------------------------------
Name: David Freund
Title: President
TRAUTMAN KRAMER & COMPANY, INCORPORATED
By: /s/ Richard Rosenblum
------------------------------------
Name: Richard Rosenblum
Title: Director
<PAGE> 1
EXHIBIT 4.4
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
ESCALON MEDICAL CORP.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions.
For good and valuable consideration, the receipt of
which is hereby acknowledged by ESCALON MEDICAL CORP., a California corporation
(the "Company"), DAVID STEFANSKY or registered assigns (collectively, the
"Holder") is hereby granted the right to purchase at any time until 5:00 P.M.,
New York City time, on December 31, 2002 (the "Expiration Date"), Twelve
Thousand Five Hundred (12,500) fully paid and nonassessable shares of the
Company's Common Stock, no par value $.001 per share (the "Common Stock") at an
initial exercise price of $10.335 per share (the "Exercise Price"), subject to
further adjustment as set forth in Section 6 hereof.
2. Exercise of Warrants.
2.1 General. This Warrant is exercisable in whole or
in part at the Exercise Price per share of Common Stock payable hereunder,
payable in cash or by certified or official bank check, or by "cashless
exercise," by means of tendering this Warrant Certificate to the Company to
receive a number of shares of Common Stock equal in Market Value to the
difference between the Market Value of the shares of Common Stock issuable upon
exercise of this Warrant and the total cash exercise price thereof. Upon
surrender of this Warrant Certificate with the annexed Notice of Exercise Form
duly executed, together with payment of the Exercise Price for the shares of
Common Stock purchased, the Holder shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. For the purposes of
this Section 2, "Market Value" shall be an amount equal to the average closing
bid price of a share of Common Stock, as reported, at the option of the Holder,
by Bloomberg, LP or the National Association of Securities Dealers, for the ten
(10) days preceding the Company's receipt of the Notice of Exercise Form duly
executed multiplied by the number of shares of Common Stock to be issued upon
surrender of this Warrant Certificate.
2.2 Maximum Share Amount Issuable Upon Exercise.
Notwithstanding anything to the contrary herein, if at any time the aggregate
number of shares of Common Stock then issued upon exercise of this Warrant, plus
the aggregate number of shares of Common Stock then issued upon conversion of
the Series A Preferred Stock plus the aggregate number of shares of Common Stock
then issued upon the exercise of (i) the Common Stock Purchase Warrants issued
<PAGE> 2
December 31, 1997 to the Buyer named in the Securities Purchase Agreement
and its assignees (the "Buyer Warrant") and (ii) the Common Stock Purchase
Warrants issued December 31, 1997 to Trautman Kramer & Company, Incorporated and
its designees (other than the Holder) and their respective assignees (the
"Distributor Warrants") equals 19.9% of the "Outstanding Common Amount" (as
hereinafter defined), then this Warrant shall, from that time forward, cease to
be exercisable into Common Stock in accordance with the terms of this Section 2
(although the cashless exercise right shall remain in effect), unless the
Company (i) has obtained approval of the issuance of the Common Stock issuable
under this Warrant by the requisite vote, in person or by proxy, by the holders
of the then outstanding Common Stock (not including any of the shares of Common
Stock held by present or former holders of this Warrant, the Buyer Warrant, the
Distributor Warrants or Series A Preferred Stock, to the extent that such shares
were issued upon conversion of Series A Preferred Stock or exercise of such
Warrants) ("Shareholder Approval"), or (ii) shall have otherwise obtained
permission to allow such issuances from the NASDAQ Stock Market in accordance
with NASDAQ Rule 4460(i). For purposes of this paragraph, "Outstanding Common
Amount" means (x) the number of shares of the Common Stock outstanding on the
date of issuance of this Warrant pursuant to the Securities Purchase Agreement,
plus (y) any additional shares of Common Stock issued thereafter in respect of
such shares pursuant to a stock dividend, stock split or similar event. The
maximum number of shares of Common Stock issuable as a result of the 19.9%
limitation set forth herein is hereinafter referred to as the "Maximum Share
Amount." In the event the Company obtains Shareholder Approval or the approval
of The NASDAQ Stock Market or otherwise conclude that it is able to increase the
number of shares which can be issued in excess of the Maximum Share Amount (such
increased number being referred to as the "New Maximum Share Amount"), then the
references to the Maximum Share Amount above shall be deemed to refer instead to
the New Maximum Share Amount. If the Company is limited in the number of shares
of Common Stock it may issue upon exercise of this Warrant as contemplated by
the provisions of this Section 2.2, then the Company will take all steps
reasonably necessary to be in a position to issue shares of Common Stock upon
exercise of this Warrant without violating any rules or regulations covering the
number of shares of Common Stock that may be issued by the Company, including,
but not necessarily limited to, obtaining Shareholder Approval.
3. Reservation of Shares. The Company hereby agrees that
at all times during the term of this Warrant there shall be reserved for
issuance upon exercise of this Warrant such number of shares of its Common Stock
as shall be required for issuance upon exercise of this Warrant (the "Warrant
Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or equity, and the rights of the Holder are
2
<PAGE> 3
limited to those expressed in this Warrant and are not enforceable against the
Company except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6, the Holder shall be
entitled to purchase such number of additional shares of Common Stock as will
cause (i) the total number of shares of Common Stock Holder is entitled to
purchase pursuant to this Warrant, multiplied by (ii) the adjusted purchase
price per share, to equal (iii) the dollar amount of the total number of shares
of Common Stock Holder is entitled to purchase before adjustment multiplied by
the total purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
6.3 Adjustment for Spin Off. If, for any reason,
prior to the exercise of this Warrant in full, the Company spins off or
otherwise divests itself of a part of its business or operations or disposes all
or of a part of its assets in a transaction (the "Spin Off") in which the
Company does not receive compensation for such business, operations or assets,
but causes securities of another entity (the "Spin Off Securities") to be issued
to security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to
the Holder had all of the Holder's unexercised Warrants outstanding on
the record date (the "Record Date") for determining the amount and
number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Warrants") been exercised as of the close of
business on the trading day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
exercise of all or any of the Outstanding Warrants, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the amount
of the Outstanding Warrants then being exercised, and (II) the
denominator is the amount of the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be
adjusted immediately after consummation of the Spin Off by multiplying
the Exercise Price by a fraction (if, but only if, such fraction is
less than 1.0), the numerator of which is the average Market Price of
the Common Stock (as defined in that certain Securities Purchase
Agreement, dated as of December 31, 1997 [the "Securities Purchase
Agreement"], between the Company and the
3
<PAGE> 4
Buyer named therein) on the five (5) trading days immediately following
the fifth trading day after the Record Date, and the denominator of
which is the average Market Price of the Common Stock on the five (5)
trading days immediately preceding the Record Date; and such adjusted
Exercise Price shall be deemed to be the Exercise Price with respect to
the Outstanding Warrants after the Record Date.
7. Transfer to Comply with the Securities Act;
Registration Rights.
(a) This Warrant has not been registered under the Securities
Act of 1933, as amended (the "Act") and has been issued to the Holder for
investment and not with a view to the distribution of either the Warrant or the
Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of an effective registration
statement under the Act relating to such security or an opinion of counsel
satisfactory to the Company that registration is not required under the Act.
Each certificate for the Warrant, the Warrant Shares and any other security
issued or issuable upon exercise of this Warrant shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which
shall include the Warrant Shares subject to this Warrant, assuming for such
purposes that the Warrant has been exercised to purchase the maximum number of
shares eligible to be purchased thereunder (but without regard to whether or not
the Warrant is eligible to be exercised or has in fact been exercised), on Form
S-3 or another available form (the "Registration Statement"), pursuant to the
Act, by the 30th calendar day after the Closing Date and to have the
registration of the Warrant Shares completed and effective by the 90th calendar
day after the Closing Date (the "Effective Date").
8. Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if to the Company, to:
ESCALON MEDICAL CORP.
351 East Conestoga Road
Wayne, PA 19087
ATTN: President
Telephone No.: (610) 688-6830
Telecopier No.: (610) 254-8958
(ii) if to the Holder, to:
DAVID STEFANSKY
4
<PAGE> 5
Telephone: ( ) -
Telecopier: ( ) -
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
10. Supplements and Amendments; Whole Agreement. This
Warrant may be amended or supplemented only by an instrument in writing signed
by the parties hereto. This Warrant of even date herewith contain the full
understanding of the parties hereto with respect to the subject matter hereof
and thereof and there are no representations, warranties, agreements or
understandings other than expressly contained herein and therein.
11. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State.
12. Counterparts. This Warrant may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
13. Descriptive Headings. Descriptive headings of the
several Sections of this Warrant are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 31st day of December, 1997.
ESCALON MEDICAL CORP.
By: /s/ Richard J. DePiano
-------------------------------------
Name: Richard J. DePiano
Its: Chairman and C.E.O.
Attest:
/s/ Richard J. DePiano, Jr.
- ---------------------------
Name: Richard J. DePiano, Jr.
Title: Assistant Secretary
5
<PAGE> 6
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate, dated as of December _____, 1997, to
purchase _____ shares of the Common Stock, no par value per share, of ESCALON
MEDICAL CORP. and tenders herewith payment in accordance with Section 1 of said
Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
By:__________________________________
/ / CASH: $ _______________________
/ / CASHLESS EXERCISE
<PAGE> 1
EXHIBIT 4.5
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
ESCALON MEDICAL CORP.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions.
In consideration of good and valuable consideration,
the receipt of which is hereby acknowledged by ESCALON MEDICAL CORP., a
California corporation (the "Company"), COMBINATION, INC. or registered assigns
(the "Holder") is hereby granted the right to purchase at any time until 5:00
P.M., New York City time, on December 31, 2002 (the "Expiration Date"), Forty
Thousand (40,000) fully paid and nonassessable shares of the Company's Common
Stock, no par value per share (the "Common Stock"), at an initial exercise price
per share (the "Exercise Price") specified in the schedule below subject to
further adjustment as set forth in Section 6 hereof:
(a) Warrants for 10,000 shares of Common Stock shares at $8.6125 per
share.
(b) Warrants for 10,000 shares of Common Stock shares at $9.904375 per
share.
(c) Warrants for 10,000 shares of Common Stock shares at $10.335 per
share.
(d) Warrants for 10,000 shares of Common Stock shares at $11.626875 per
share.
2. Exercise of Warrants.
2.1 General. This Warrant is exercisable in whole or
in part at the Exercise Price per share of Common Stock payable hereunder,
payable in cash or by certified or official bank check, or by "cashless
exercise," by means of tendering this Warrant Certificate to the Company to
receive a number of shares of Common Stock equal in Market Value to the
difference between the Market Value of the shares of Common Stock issuable upon
exercise of this Warrant and the total cash exercise price thereof. Upon
surrender of this Warrant Certificate with the annexed Notice of Exercise Form
duly executed, together with payment of the Exercise Price for the shares of
Common Stock purchased, the Holder shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. For the purposes of
this Section 2, "Market Value" shall be an amount equal to the average closing
bid price of a share of Common Stock, as reported, at the option of the Buyer,
by Bloomberg, LP or the National Association of Securities Dealers, for the ten
(10) days preceding the Company's receipt of the Notice of Exercise Form duly
executed multiplied by the number of shares of Common Stock to be issued upon
surrender of this Warrant Certificate.
<PAGE> 2
2.2 Maximum Share Amount Issuable Upon Exercise.
Notwithstanding anything to the contrary herein, if at any time the aggregate
number of shares of Common Stock then issued upon exercise of this Warrant, plus
the aggregate number of shares of Common Stock then issued upon conversion of
the Series A Preferred Stock plus the aggregate number of shares of Common Stock
then issued upon the exercise of the Common Stock Purchase Warrants issued
December 31, 1997 to Trautman Kramer & Company, Incorporated and its designees
and their respective assignees (the "Distributor Warrants") equals 19.9% of the
"Outstanding Common Amount" (as hereinafter defined), then this Warrant shall,
from that time forward, cease to be exercisable into Common Stock in accordance
with the terms of this Section 2 (although the cashless exercise right shall
remain in effect), unless the Company (i) has obtained approval of the issuance
of the Common Stock issuable under this Warrant by the requisite vote, in person
or by proxy, by the holders of the then outstanding Common Stock (not including
any of the shares of Common Stock held by present or former holders of this
Warrant, the Distributor Warrants or Series A Preferred Stock, to the extent
that such shares were issued upon conversion of Series A Preferred Stock or
exercise of such Warrants) ("Shareholder Approval"), or (ii) shall have
otherwise obtained permission to allow such issuances from the NASDAQ Stock
Market in accordance with NASDAQ Rule 4460(i). For purposes of this paragraph,
"Outstanding Common Amount" means (x) the number of shares of the Common Stock
outstanding on the date of issuance of this Warrant pursuant to the Securities
Purchase Agreement, plus (y) any additional shares of Common Stock issued
thereafter in respect of such shares pursuant to a stock dividend, stock split
or similar event. The maximum number of shares of Common Stock issuable as a
result of the 19.9% limitation set forth herein is hereinafter referred to as
the "Maximum Share Amount." In the event the Company obtains Shareholder
Approval or the approval of The NASDAQ Stock Market or otherwise conclude that
it is able to increase the number of shares which can be issued in excess of the
Maximum Share Amount (such increased number being referred to as the "New
Maximum Share Amount"), then the references to the Maximum Share Amount above
shall be deemed to refer instead to the New Maximum Share Amount. If the Company
is limited in the number of shares of Common Stock it may issue upon exercise of
this Warrant as contemplated by the provisions of this Section 2.2, then the
Company will take all steps reasonably necessary to be in a position to issue
shares of Common Stock upon exercise of this Warrant without violating any rules
or regulations covering the number of shares of Common Stock that may be issued
by the Company, including, but not necessarily limited to, obtaining Shareholder
Approval.
3. Reservation of Shares. The Company hereby agrees that
at all times during the term of this Warrant there shall be reserved for
issuance upon exercise of this Warrant such number of shares of its Common Stock
as shall be required for issuance upon exercise of this Warrant (the "Warrant
Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new
2
<PAGE> 3
Warrant of like tenor and date and any such lost, stolen, destroyed or mutilated
Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6, the Holder shall be
entitled to purchase such number of additional shares of Common Stock as will
cause (i) the total number of shares of Common Stock Holder is entitled to
purchase pursuant to this Warrant, multiplied by (ii) the adjusted purchase
price per share, to equal (iii) the dollar amount of the total number of shares
of Common Stock Holder is entitled to purchase before adjustment multiplied by
the total purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
6.3 Adjustment for Spin Off. If, for any reason,
prior to the exercise of this Warrant in full, the Company spins off or
otherwise divests itself of a part of its business or operations or disposes all
or of a part of its assets in a transaction (the "Spin Off") in which the
Company does not receive compensation for such business, operations or assets,
but causes securities of another entity (the "Spin Off Securities") to be issued
to security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to
the Holder had all of the Holder's unexercised Warrants outstanding on
the record date (the "Record Date") for determining the amount and
number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Warrants") been exercised as of the close of
business on the trading day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
exercise of all or any of the Outstanding Warrants, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the amount
of the Outstanding
3
<PAGE> 4
Warrants then being exercised, and (II) the denominator is the amount
of the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be
adjusted immediately after consummation of the Spin Off by multiplying
the Exercise Price by a fraction (if, but only if, such fraction is
less than 1.0), the numerator of which is the average Market Price of
the Common Stock (as defined in the Securities Purchase Agreement,
dated December 31, 1997, between the Company and the Holder or the
Holder's predecessor in interest with respect to this Warrant) on the
five (5) trading days immediately following the fifth trading day after
the Record Date, and the denominator of which is the average Market
Price of the Common Stock on the five (5) trading days immediately
preceding the Record Date; and such adjusted Exercise Price shall be
deemed to be the Exercise Price with respect to the Outstanding
Warrants after the Record Date.
7. Transfer to Comply with the Securities Act;
Registration Rights.
(a) This Warrant has not been registered under the Securities
Act of 1933, as amended (the "Act") and has been issued to the Holder for
investment and not with a view to the distribution of either the Warrant or the
Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of an effective registration
statement under the Act relating to such security or an opinion of counsel
satisfactory to the Company that registration is not required under the Act.
Each certificate for the Warrant, the Warrant Shares and any other security
issued or issuable upon exercise of this Warrant shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which
shall include the Warrant Shares, on Form S-3 or another available form (the
"Registration Statement"), pursuant to the Act, by the 30th calendar day after
the date this Warrant was issued (the "Original Issuance Date") and to have the
registration of the Warrant Shares completed and effective by the 90th calendar
day after the Original Issuance Date (the "Effective Date").
8. Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if to the Company, to:
ESCALON MEDICAL CORP.
351 East Conestoga Road
4
<PAGE> 5
Wayne, PA 19087
ATTN: President
Telephone No.: (610) 688-6830
Telecopier No.: (610) 254-8958
(ii) if to the Holder, to:
COMBINATION, INC.
c/o ISRC
310 Madison Avenue, Suite 503
New York, NY 10017
ATTN:
Telecopier No.: ( ) -
Telephone No.: ( ) -
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This
Warrant may be amended or supplemented only by an instrument in writing signed
by the parties hereto. This Warrant of even date herewith contain the full
understanding of the parties hereto with respect to the subject matter hereof
and thereof and there are no representations, warranties, agreements or
understandings other than expressly contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State.
11. Counterparts. This Warrant may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
[Balance of page intentionally left blank]
5
<PAGE> 6
12. Descriptive Headings. Descriptive headings of the
several Sections of this Warrant are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 31st day of December, 1997.
ESCALON MEDICAL CORP.
By: /s/ Richard J. DePiano
-------------------------------------
Name: Richard J. DePiano
Its: Chairman and C.E.O.
Attest:
/s/ Richard J. DePiano, Jr.
- ---------------------------
Name: Richard J. DePiano, Jr.
Title: Assistant Secretary
6
<PAGE> 7
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of _________________, 1997, to
purchase _____ shares of the Common Stock, no par value per share, of ESCALON
MEDICAL CORP. and tenders herewith payment in accordance with Section 1 of said
Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
By:__________________________________
/ / CASH: $ _______________________
/ / CASHLESS EXERCISE
<PAGE> 1
EXHIBIT 4.6
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
ESCALON MEDICAL CORP.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions.
For good and valuable consideration, the receipt of
which is hereby acknowledged by ESCALON MEDICAL CORP., a California corporation
(the "Company"), RICHARD ROSENBLUM or registered assigns (collectively, the
"Holder") is hereby granted the right to purchase at any time until 5:00 P.M.,
New York City time, on December 31, 2002 (the "Expiration Date"), Twelve
Thousand Five Hundred (12,500) fully paid and nonassessable shares of the
Company's Common Stock, no par value $.001 per share (the "Common Stock") at an
initial exercise price of $10.335 per share (the "Exercise Price"), subject to
further adjustment as set forth in Section 6 hereof.
2. Exercise of Warrants.
2.1 General. This Warrant is exercisable in whole or
in part at the Exercise Price per share of Common Stock payable hereunder,
payable in cash or by certified or official bank check, or by "cashless
exercise," by means of tendering this Warrant Certificate to the Company to
receive a number of shares of Common Stock equal in Market Value to the
difference between the Market Value of the shares of Common Stock issuable upon
exercise of this Warrant and the total cash exercise price thereof. Upon
surrender of this Warrant Certificate with the annexed Notice of Exercise Form
duly executed, together with payment of the Exercise Price for the shares of
Common Stock purchased, the Holder shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. For the purposes of
this Section 2, "Market Value" shall be an amount equal to the average closing
bid price of a share of Common Stock, as reported, at the option of the Holder,
by Bloomberg, LP or the National Association of Securities Dealers, for the ten
(10) days preceding the Company's receipt of the Notice of Exercise Form duly
executed multiplied by the number of shares of Common Stock to be issued upon
surrender of this Warrant Certificate.
2.2 Maximum Share Amount Issuable Upon Exercise.
Notwithstanding anything to the contrary herein, if at any time the aggregate
number of shares of Common Stock then issued upon exercise of this Warrant, plus
the aggregate number of shares of Common Stock then issued upon conversion of
the Series A Preferred Stock plus the aggregate number of shares of Common Stock
then issued upon the exercise of (i) the Common Stock Purchase Warrants issued
<PAGE> 2
December 31, 1997 to the Buyer named in the Securities Purchase Agreement and
its assignees (the "Buyer Warrant") and (ii) the Common Stock Purchase Warrants
issued December 31, 1997 to Trautman Kramer & Company, Incorporated and its
designees (other than the Holder) and their respective assignees (the
"Distributor Warrants") equals 19.9% of the "Outstanding Common Amount" (as
hereinafter defined), then this Warrant shall, from that time forward, cease to
be exercisable into Common Stock in accordance with the terms of this Section 2
(although the cashless exercise right shall remain in effect), unless the
Company (i) has obtained approval of the issuance of the Common Stock issuable
under this Warrant by the requisite vote, in person or by proxy, by the holders
of the then outstanding Common Stock (not including any of the shares of Common
Stock held by present or former holders of this Warrant, the Buyer Warrant, the
Distributor Warrants or Series A Preferred Stock, to the extent that such shares
were issued upon conversion of Series A Preferred Stock or exercise of such
Warrants) ("Shareholder Approval"), or (ii) shall have otherwise obtained
permission to allow such issuances from the NASDAQ Stock Market in accordance
with NASDAQ Rule 4460(i). For purposes of this paragraph, "Outstanding Common
Amount" means (x) the number of shares of the Common Stock outstanding on the
date of issuance of this Warrant pursuant to the Securities Purchase Agreement,
plus (y) any additional shares of Common Stock issued thereafter in respect of
such shares pursuant to a stock dividend, stock split or similar event. The
maximum number of shares of Common Stock issuable as a result of the 19.9%
limitation set forth herein is hereinafter referred to as the "Maximum Share
Amount." In the event the Company obtains Shareholder Approval or the approval
of The NASDAQ Stock Market or otherwise conclude that it is able to increase the
number of shares which can be issued in excess of the Maximum Share Amount (such
increased number being referred to as the "New Maximum Share Amount"), then the
references to the Maximum Share Amount above shall be deemed to refer instead to
the New Maximum Share Amount. If the Company is limited in the number of shares
of Common Stock it may issue upon exercise of this Warrant as contemplated by
the provisions of this Section 2.2, then the Company will take all steps
reasonably necessary to be in a position to issue shares of Common Stock upon
exercise of this Warrant without violating any rules or regulations covering the
number of shares of Common Stock that may be issued by the Company, including,
but not necessarily limited to, obtaining Shareholder Approval.
3. Reservation of Shares. The Company hereby agrees that
at all times during the term of this Warrant there shall be reserved for
issuance upon exercise of this Warrant such number of shares of its Common Stock
as shall be required for issuance upon exercise of this Warrant (the "Warrant
Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or equity, and the rights of the Holder are
2
<PAGE> 3
limited to those expressed in this Warrant and are not enforceable against the
Company except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6, the Holder shall be
entitled to purchase such number of additional shares of Common Stock as will
cause (i) the total number of shares of Common Stock Holder is entitled to
purchase pursuant to this Warrant, multiplied by (ii) the adjusted purchase
price per share, to equal (iii) the dollar amount of the total number of shares
of Common Stock Holder is entitled to purchase before adjustment multiplied by
the total purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
6.3 Adjustment for Spin Off. If, for any reason,
prior to the exercise of this Warrant in full, the Company spins off or
otherwise divests itself of a part of its business or operations or disposes all
or of a part of its assets in a transaction (the "Spin Off") in which the
Company does not receive compensation for such business, operations or assets,
but causes securities of another entity (the "Spin Off Securities") to be issued
to security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to
the Holder had all of the Holder's unexercised Warrants outstanding on
the record date (the "Record Date") for determining the amount and
number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Warrants") been exercised as of the close of
business on the trading day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
exercise of all or any of the Outstanding Warrants, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the amount
of the Outstanding Warrants then being exercised, and (II) the
denominator is the amount of the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be
adjusted immediately after consummation of the Spin Off by multiplying
the Exercise Price by a fraction (if, but only if, such fraction is
less than 1.0), the numerator of which is the average Market Price of
the Common Stock (as defined in that certain Securities Purchase
Agreement, dated as of December 31, 1997 [the "Securities Purchase
Agreement"], between the Company and the
3
<PAGE> 4
Buyer named therein) on the five (5) trading days immediately following
the fifth trading day after the Record Date, and the denominator of
which is the average Market Price of the Common Stock on the five (5)
trading days immediately preceding the Record Date; and such adjusted
Exercise Price shall be deemed to be the Exercise Price with respect to
the Outstanding Warrants after the Record Date.
7. Transfer to Comply with the Securities Act;
Registration Rights.
(a) This Warrant has not been registered under the Securities
Act of 1933, as amended (the "Act") and has been issued to the Holder for
investment and not with a view to the distribution of either the Warrant or the
Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of an effective registration
statement under the Act relating to such security or an opinion of counsel
satisfactory to the Company that registration is not required under the Act.
Each certificate for the Warrant, the Warrant Shares and any other security
issued or issuable upon exercise of this Warrant shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which
shall include the Warrant Shares subject to this Warrant, assuming for such
purposes that the Warrant has been exercised to purchase the maximum number of
shares eligible to be purchased thereunder (but without regard to whether or not
the Warrant is eligible to be exercised or has in fact been exercised), on Form
S-3 or another available form (the "Registration Statement"), pursuant to the
Act, by the 30th calendar day after the Closing Date and to have the
registration of the Warrant Shares completed and effective by the 90th calendar
day after the Closing Date (the "Effective Date").
8. Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if to the Company, to:
ESCALON MEDICAL CORP.
351 East Conestoga Road
Wayne, PA 19087
ATTN: President
Telephone No.: (610) 688-6830
Telecopier No.: (610) 254-8958
(ii) if to the Holder, to:
RICHARD ROSENBLUM
4
<PAGE> 5
Telephone: ( ) -
Telecopier: ( ) -
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
10. Supplements and Amendments; Whole Agreement. This
Warrant may be amended or supplemented only by an instrument in writing signed
by the parties hereto. This Warrant of even date herewith contain the full
understanding of the parties hereto with respect to the subject matter hereof
and thereof and there are no representations, warranties, agreements or
understandings other than expressly contained herein and therein.
11. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State.
12. Counterparts. This Warrant may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
13. Descriptive Headings. Descriptive headings of the
several Sections of this Warrant are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 31st day of December, 1997.
ESCALON MEDICAL CORP.
By: /s/ Richard J. DePiano
-------------------------------------
Name: Richard J. DePiano
Its: Chairman and C.E.O.
Attest:
/s/ Richard J. DePiano, Jr.
- ---------------------------
Name: Richard J. DePiano, Jr.
Title: Assistant Secretary
5
<PAGE> 6
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate, dated as of December _____, 1997, to
purchase _____ shares of the Common Stock, no par value per share, of ESCALON
MEDICAL CORP. and tenders herewith payment in accordance with Section 1 of said
Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
By:__________________________________
/ / CASH: $ _______________________
/ / CASHLESS EXERCISE
<PAGE> 1
EXHIBIT 4.7
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
ESCALON MEDICAL CORP.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions.
For good and valuable consideration, the receipt of
which is hereby acknowledged by ESCALON MEDICAL CORP., a California corporation
(the "Company"), TRAUTMAN KRAMER & COMPANY, INCORPORATED ("TKCI") or registered
assigns (collectively, including TKCI, the "Holder") is hereby granted the right
to purchase at any time until 5:00 P.M., New York City time, on December 31,
2002 (the "Expiration Date"), Twenty-Five Thousand (25,000) fully paid and
nonassessable shares of the Company's Common Stock, no par value $.001 per share
(the "Common Stock") at an initial exercise price of $10.335 per share (the
"Exercise Price"), subject to further adjustment as set forth in Section 6
hereof.
2. Exercise of Warrants.
2.1 General. This Warrant is exercisable in whole or
in part at the Exercise Price per share of Common Stock payable hereunder,
payable in cash or by certified or official bank check, or by "cashless
exercise," by means of tendering this Warrant Certificate to the Company to
receive a number of shares of Common Stock equal in Market Value to the
difference between the Market Value of the shares of Common Stock issuable upon
exercise of this Warrant and the total cash exercise price thereof. Upon
surrender of this Warrant Certificate with the annexed Notice of Exercise Form
duly executed, together with payment of the Exercise Price for the shares of
Common Stock purchased, the Holder shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. For the purposes of
this Section 2, "Market Value" shall be an amount equal to the average closing
bid price of a share of Common Stock, as reported, at the option of the Holder,
by Bloomberg, LP or the National Association of Securities Dealers, for the ten
(10) days preceding the Company's receipt of the Notice of Exercise Form duly
executed multiplied by the number of shares of Common Stock to be issued upon
surrender of this Warrant Certificate.
2.2 Maximum Share Amount Issuable Upon Exercise.
Notwithstanding anything to the contrary herein, if at any time the aggregate
number of shares of Common Stock then issued upon exercise of this Warrant, plus
the aggregate number of shares of Common Stock then issued upon conversion of
the Series A Preferred Stock plus the aggregate number of shares of Common Stock
then issued upon the exercise of the Common Stock Purchase Warrants issued
<PAGE> 2
December 31, 1997 to the Buyer named in the Securities Purchase Agreement and
its assignees (the "Buyer Warrant") equals 19.9% of the "Outstanding Common
Amount" (as hereinafter defined), then this Warrant shall, from that time
forward, cease to be exercisable into Common Stock in accordance with the terms
of this Section 2 (although the cashless exercise right shall remain in effect),
unless the Company (i) has obtained approval of the issuance of the Common Stock
issuable under this Warrant by the requisite vote, in person or by proxy, by the
holders of the then outstanding Common Stock (not including any of the shares of
Common Stock held by present or former holders of this Warrant, the Buyer
Warrant or Series A Preferred Stock, to the extent that such shares were issued
upon conversion of Series A Preferred Stock or exercise of such Warrants)
("Shareholder Approval"), or (ii) shall have otherwise obtained permission to
allow such issuances from the NASDAQ Stock Market in accordance with NASDAQ Rule
4460(i). For purposes of this paragraph, "Outstanding Common Amount" means (x)
the number of shares of the Common Stock outstanding on the date of issuance of
this Warrant pursuant to the Securities Purchase Agreement, plus (y) any
additional shares of Common Stock issued thereafter in respect of such shares
pursuant to a stock dividend, stock split or similar event. The maximum number
of shares of Common Stock issuable as a result of the 19.9% limitation set forth
herein is hereinafter referred to as the "Maximum Share Amount." In the event
the Company obtains Shareholder Approval or the approval of The NASDAQ Stock
Market or otherwise conclude that it is able to increase the number of shares
which can be issued in excess of the Maximum Share Amount (such increased number
being referred to as the "New Maximum Share Amount"), then the references to the
Maximum Share Amount above shall be deemed to refer instead to the New Maximum
Share Amount. If the Company is limited in the number of shares of Common Stock
it may issue upon exercise of this Warrant as contemplated by the provisions of
this Section 2.2, then the Company will take all steps reasonably necessary to
be in a position to issue shares of Common Stock upon exercise of this Warrant
without violating any rules or regulations covering the number of shares of
Common Stock that may be issued by the Company, including, but not necessarily
limited to, obtaining Shareholder Approval.
3. Reservation of Shares. The Company hereby agrees that
at all times during the term of this Warrant there shall be reserved for
issuance upon exercise of this Warrant such number of shares of its Common Stock
as shall be required for issuance upon exercise of this Warrant (the "Warrant
Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction)
receipt of reasonably satisfactory indemnification, and (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
2
<PAGE> 3
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6, the Holder shall be
entitled to purchase such number of additional shares of Common Stock as will
cause (i) the total number of shares of Common Stock Holder is entitled to
purchase pursuant to this Warrant, multiplied by (ii) the adjusted purchase
price per share, to equal (iii) the dollar amount of the total number of shares
of Common Stock Holder is entitled to purchase before adjustment multiplied by
the total purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
6.3 Adjustment for Spin Off. If, for any reason,
prior to the exercise of this Warrant in full, the Company spins off or
otherwise divests itself of a part of its business or operations or disposes all
or of a part of its assets in a transaction (the "Spin Off") in which the
Company does not receive compensation for such business, operations or assets,
but causes securities of another entity (the "Spin Off Securities") to be issued
to security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to
the Holder had all of the Holder's unexercised Warrants outstanding on
the record date (the "Record Date") for determining the amount and
number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Warrants") been exercised as of the close of
business on the trading day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
exercise of all or any of the Outstanding Warrants, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the amount
of the Outstanding Warrants then being exercised, and (II) the
denominator is the amount of the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be
adjusted immediately after consummation of the Spin Off by multiplying
the Exercise Price by a fraction (if, but only if, such fraction is
less than 1.0), the numerator of which is the average Market Price of
the Common Stock (as defined in that certain Securities Purchase
Agreement, dated as of December 31, 1997 [the "Securities Purchase
Agreement"], between the Company and the Buyer named therein) on the
five (5) trading days immediately following the fifth trading day after
the Record Date, and the denominator of which is the average Market
Price of the Common Stock on the five (5) trading days immediately
preceding the Record Date; and
3
<PAGE> 4
such adjusted Exercise Price shall be deemed to be the Exercise Price
with respect to the Outstanding Warrants after the Record Date.
7. Transfer to Comply with the Securities Act;
Registration Rights.
(a) This Warrant has not been registered under the Securities
Act of 1933, as amended (the "Act") and has been issued to the Holder for
investment and not with a view to the distribution of either the Warrant or the
Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of an effective registration
statement under the Act relating to such security or an opinion of counsel
satisfactory to the Company that registration is not required under the Act.
Each certificate for the Warrant, the Warrant Shares and any other security
issued or issuable upon exercise of this Warrant shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which
shall include the Warrant Shares subject to this Warrant, assuming for such
purposes that the Warrant has been exercised to purchase the maximum number of
shares eligible to be purchased thereunder (but without regard to whether or not
the Warrant is eligible to be exercised or has in fact been exercised), on Form
S-3 or another available form (the "Registration Statement"), pursuant to the
Act, by the 30th calendar day after the Closing Date and to have the
registration of the Warrant Shares completed and effective by the 90th calendar
day after the Closing Date (the "Effective Date").
8. Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if to the Company, to:
ESCALON MEDICAL CORP.
351 East Conestoga Road
Wayne, PA 19087
ATTN: President
Telephone No.: (610) 688-6830
Telecopier No.: (610) 254-8958
4
<PAGE> 5
(ii) if to the Holder, to:
TRAUTMAN KRAMER & COMPANY, INCORPORATED
500 Fifth Avenue
14th Floor
New York, NY 10110
Attn: Richard Rosenblum
Telephone: (212) 575-5500
Telecopier: (212) 271-0611
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, NY 10016
Attn: Samuel M. Krieger, Esq.
Telephone: (212) 689-3322
Telecopier: (212) 213-2077
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
10. Supplements and Amendments; Whole Agreement. This
Warrant may be amended or supplemented only by an instrument in writing signed
by the parties hereto. This Warrant of even date herewith contain the full
understanding of the parties hereto with respect to the subject matter hereof
and thereof and there are no representations, warranties, agreements or
understandings other than expressly contained herein and therein.
11. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State.
12. Counterparts. This Warrant may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
[Balance of page intentionally left blank]
5
<PAGE> 6
13. Descriptive Headings. Descriptive headings of the
several Sections of this Warrant are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 31st day of December, 1997.
ESCALON MEDICAL CORP.
By: /s/ Richard J. DePiano
-----------------------------------
Name: Richard J. DePiano
Its: Chairman and C.E.O.
Attest:
/s/ Richard J. DePiano, Jr.
- ---------------------------
Name: Richard J. DePiano, Jr.
Title: Assistant Secretary
6
<PAGE> 7
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate, dated as of December _____, 1997, to
purchase _____ shares of the Common Stock, no par value per share, of ESCALON
MEDICAL CORP. and tenders herewith payment in accordance with Section 1 of said
Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
By:__________________________________
/ / CASH: $ _______________________
/ / CASHLESS EXERCISE
<PAGE> 1
EXHIBIT 5.1
OPINION OF MORGAN, LEWIS & BOCKIUS LLP
January 20, 1998
Escalon Medical Corp.
351 East Conestoga Road
Wayne, PA 19087
RE: Escalon Medical Corp. -- Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for Escalon Medical Corp., a California corporation
(the "Company"), in connection with the preparation of the registration
statement (the "Registration Statement") filed by the Company with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Act"), relating to the public offering of up to 1,510,193 shares
of the Company's common stock, $.01 par value (the "Common Stock"), to be sold
by the entities and individuals listed as the selling shareholders in the
Registration Statement (the "Selling Shareholders") including (i) 340,000
shares of Common Stock issuable upon the conversion of Series A 6% Convertible
Preferred Stock (subject to adjustment based on, among other things, the market
price of the Common Stock at the time of conversion) and (ii) 90,000 shares of
Common Stock issuable upon the exercise of warrants issued to certain of the
Selling Shareholders (the "Warrants"). In this connection, we have reviewed
(a) the Registration Statement; (b) the Company's Amended and Restated Articles
of Incorporation; (c) the Company's By-laws; (d) certain records of the
Company's corporate proceedings as reflected in its minute books; (e) the
Certificate of Determination of Series A 6% Convertible Preferred Stock (the
"Certificate"); (f) the Warrants; and (g) such other documents and records as
we have considered necessary or desirable in connection with this opinion. In
our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the original of all documents submitted to us as copies thereof.
Based upon the foregoing, we are of the opinion that the shares of Common Stock
to be sold by: (i) EOI Corp., as described in the Registration Statement, are
duly authorized, validly issued, fully paid and non-assessable, and (ii) the
other Selling Shareholders as described in the Registration Statement, when and
to the extent issued by the Company upon the conversion of the Series A 6%
Convertible Preferred Stock and upon the exercise of the Warrants in the manner
contemplated in the Certificate and the Warrants, respectively, will be duly
authorized, validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an Exhibit to the Registration
Statement and to all references to our firm in the Registration Statement. In
giving such consent, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act and
the rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ MORGAN, LEWIS & BOCKIUS LLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-00000) and related Prospectus of
Escalon Medical Corp. for the registration of 1,510,193 shares of its common
stock and to the incorporation by reference therein of our report dated August
14, 1997, with respect to the financial statements of Escalon Medical Corp.
included in its Annual Report (Form 10-K) for the year ended June 30, 1997,
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Princeton, New Jersey
January 15, 1998
