<PAGE> 1
As filed with the Securities and Exchange Commission on April 3, 1998
Registration No. 333-44513
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------------
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)
-----------------------
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)
-----------------------
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. / /
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.
<PAGE> 2
SUBJECT TO COMPLETION, DATED APRIL 3, 1998
PROSPECTUS
ESCALON MEDICAL CORP.
1,998,935 SHARES OF COMMON STOCK
This Prospectus covers 1,998,935 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.
This Prospectus covers all of the shares of Common Stock that have been
issued or are issuable upon the conversion of shares 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"). Based on the trading
prices of the Common Stock prior to March 4, 1998, the Series A Preferred Stock
would convert into 828,793 shares of Common Stock. 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." There are also two limitations on
the number of shares of Common Stock that can be issued upon conversion at any
particular time. First, Combination has contractually agreed not to convert the
Series A Preferred Stock to the extent such a conversion would result in
Combination beneficially owning more than 4.99% of the then outstanding Common
Stock, unless the Company is in default under agreements with Combination.
Second, 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, except that the Company may be
required to issue shares in excess of that amount in certain circumstances. For
a further description of the Series A Preferred Stock, see "Risk Factors--Series
A Preferred Stock, Warrants and Options; Potential Dilution and Adverse Impact
on Additional Financing" and "Selling Shareholders."
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. 1,080,192 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.
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 March 9, 1998, the last reported sale price of the Common
Stock reported on the Nasdaq National Market was $1 3/4 per share.
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
---------------------
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
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TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
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
<TABLE>
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Page
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<S> <C>
AVAILABLE INFORMATION.............................................. 4
DOCUMENTS INCORPORATED BY REFERENCE................................ 5
THE COMPANY........................................................ 5
RISK FACTORS....................................................... 6
USE OF PROCEEDS.................................................... 13
SELLING SHAREHOLDERS............................................... 13
PLAN OF DISTRIBUTION............................................... 15
LEGAL MATTERS...................................................... 16
EXPERTS............................................................ 16
</TABLE>
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.
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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.
(b) Quarterly Report on Form 10-Q filed by the Company pursuant to
Section 13(a) of the Exchange Act for the quarter ended December 31, 1997.
(c) Current Reports on Form 8-K filed January 2, 1998 (as amended by
Form 8-K/A filed on January 22, 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. In October 1997, the
Company licensed its intellectual laser properties to a newly formed company in
return for a 25% 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 and for any
liability for new lasers created. Lasers sold by the Company in the past are no
longer under warranty and remain covered by the Company's products liability
insurance.
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.
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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."
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 December 31, 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 (i) its ophthalmic medical devices and
related disposable products which it owns and produces through its manufacturing
facility in Wisconsin or (ii) products such as AdatoSil(R) 5000 Silicone Oil,
Betadine(R) 5% Sterile Ophthalmic Prep Solution and ISPAN(TM) Intraocular Gases
which the Company has rights
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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 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 ("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.
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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 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
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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. On October 14, 1997, the Court extended these
dates, setting March 29, 1998 as the cutoff for discovery and July 31, 1998 as
the ready trial date. 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."
-9-
<PAGE> 10
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.
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
-10-
<PAGE> 11
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 March 4, 1998, the Company had outstanding options and warrants
to purchase an aggregate of 2,346,375 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 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 March 4, 1998, the Company would have been obligated
to issue 828,793 shares of Common Stock in respect thereto.
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 beneficially 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.
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). If the Company is
limited by the 19.9% limitation in the number of shares it may issue upon
conversion of the Series A Preferred Stock, then the Company has agreed to take
all steps reasonably necessary to be in a position to issue the full amount of
shares, including obtaining shareholder approval. If, despite such steps, the
Company is still limited in the number of shares it can issue, then the holder
of the Series A Preferred Stock has the right to elect to require the Company
to issue shares of Common Stock at a conversion price equal to the average
closing bid price for the 5 trading days ending on the date immediately
preceding the notice of conversion.
-11-
<PAGE> 12
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
-12-
<PAGE> 13
who 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 March 4, 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.
-13-
<PAGE> 14
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.
<TABLE>
<CAPTION>
Common Stock Common Stock To Be
Beneficially Owned Beneficially Owned If All Shares
On March 4, 1998 (1) Offered Hereunder Are Sold (1)
---------------------- --------------------------------
Shares That May be
Name Shares Percent Offered Hereunder Shares Percent
---- ------ ------- ----------------- ------ -------
<S> <C> <C> <C> <C> <C>
Combination, Inc. (2) 138,097 4.9 138,097 0 0
EOI Corp. (3) 1,109,405 42.2 1,080,192 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 March 4, 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 $1.628875 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 March 4, 1998). If all shares of the Series A
Preferred Stock held by such Selling Shareholder had been converted on March 4,
1998 (assuming conversion of all of the Series A Preferred Stock at $1.628875
per share of Common Stock), the Company would have been obligated to issue
828,793 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.
However, 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 beneficially 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. Therefore, the 138,097 shares reported in the table above represents
beneficial ownership of 4.99% of the outstanding shares as determined on March
4, 1998 in accordance with Section 13(d) of the Exchange Act.
In addition, 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 a result, assuming
that all of the warrants issued in connection with the Private Placement were
exercised, the maximum number of shares of Common Stock issuable upon the
exercise of the Series A Preferred Stock would be 433,245 shares, except that
the Company may be required to issue shares in excess of that amount in certain
circumstances. For a further description of the Series A Preferred Stock, see
"Risk Factors--Series A Preferred Stock, Warrants and Options; Potential
Dilution and Adverse Impact on Additional Financing."
-14-
<PAGE> 15
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. Although there are approximately 150 beneficial owners of the EOI Corp.,
the only owner that owns greater than 10% of the outstanding equity of EOI Corp.
is Sandhurst Venture Fund-I, L.P. ("Sandhurst"), a Pennsylvania limited
partnership. Mr. Richard J. DePiano and Dr. Jay L. Federman, directors of the
Company, are also directors, officers and principal shareholders of Sandhurst's
managing general partner. As reported on a Schedule 13D filed by EOI Corp. on
January 21, 1998 with respect to its ownership of the Company (File No.
005-43154), Sandhurst beneficially owns 1,567,872, or 12.7%, of the common stock
of EOI Corp.
(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.
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.
-15-
<PAGE> 16
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.
-16-
<PAGE> 17
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 .................... 15,000
Accounting fees and expenses ............... 10,000
Nasdaq listing fees ........................ 10,000
-------
Total ............................. $39,522
=======
</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> 18
ITEM 16. EXHIBITS
The exhibits filed as part of this Registration Statement are as
follows:
Exhibit
Number Description
------ -----------
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.
- --------------------
+ Previously filed
* 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
II-2
<PAGE> 19
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) 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> 20
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 Amendment
No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wayne, Commonwealth of
Pennsylvania on the 3rd day of April, 1998.
ESCALON MEDICAL CORP.
By: /s/Richard J. DePiano
-------------------------------
Richard J. DePiano
Chairman, Director and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed below 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 April 3, 1998
- ----------------------------- Executive Officer
Richard J. DePiano
/s/ * Director April 3, 1998
- -----------------------------
Jack M. Dodick, M.D.
/s/ * Director April 3, 1998
- -----------------------------
Jay L. Federman, M.D.
/s/ * Director April 3, 1998
- -----------------------------
Robert J. Kunze
/s/John T. Rich Vice President, Finance and April 3, 1998
- ----------------------------- Administration and Secretary
John T. Rich
*By: /s/ Richard J. DePiano
-----------------------------
Richard J. DePiano, Attorney-in-fact
</TABLE>
<PAGE> 21
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
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.
- -------------------------
+ Previously filed
* Incorporated by reference to the Company's Form 10-K for the year ended June
30, 1996.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 2 to the Registration Statement (Form S-3 No. 333-44513) and related
Prospectus of Escalon Medical Corp. for the registration of 1,998,935 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
April 3, 1998
