<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section 240.14a-11(c) or section 240.14a-12
Escalon Medical Corp.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: *
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
[ESCALON MEDICAL CORP. LOGO]
Escalon Medical Corp.
351 E. Conestoga Road
Wayne, PA 19087
Tel. 610-688-6830 Fax. 610-254-8958
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 21, 1999
To the Shareholders of Escalon Medical Corp.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of the Shareholders
of Escalon Medical Corp. (the "Company") will be held at the offices of Morgan,
Lewis & Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania 19103, on
January 21, 1999, at 10:00 A.M., local time, for the following purposes:
1. To elect four directors;
2. To approve and adopt an amendment to the Company's 1993 Stock
Option Plan to increase the number of authorized shares of
Common Stock subject to the Plan by 200,000 to 375,000;
3. To approve the sale and issuance of the Series A Preferred
stock and the issuance of common stock upon the conversion of
the Series A Preferred Stock pursuant to NASDAQ Stock Market
Rule 4460(i).
4. To ratify the selection of Parente Randolph Orlando Carey &
Associates, LLP as the Company's independent auditors for the
fiscal year ending June 30, 1999; and
5. To transact such other business as may properly come before
the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on December 9,
1998, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the meeting and any adjournment thereof. A list of
such shareholders will be available for examination by any shareholder, for any
purpose germane to the meeting for ten days prior to the meeting during ordinary
business hours at the Company's executive offices at 351 E. Conestoga Road,
Wayne, Pennsylvania 19087.
Shareholders are cordially invited to attend the Annual Meeting. In
order to constitute a quorum for the conduct of business at the Annual Meeting,
the holders of a majority of all outstanding shares of the Company's Common
Stock must be present in person or be represented by proxy.
By Order of the Board of Directors,
/s/ Doug McGonegal
Doug McGonegal
Secretary
Wayne, Pennsylvania
December 17, 1998
EACH SHAREHOLDER IS URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD
IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. IF A SHAREHOLDER DECIDES TO ATTEND THE MEETING, HE OR SHE MAY, IF SO
DESIRED, REVOKE THE PROXY AND VOTE THE SHARES IN PERSON.
<PAGE> 3
ESCALON MEDICAL CORP.
351 E. CONESTOGA ROAD
WAYNE, PA 19087
PROXY STATEMENT
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 21, 1999
GENERAL INFORMATION ON THE MEETING
This proxy statement is furnished in connection with the solicitation
of proxies by and on behalf of the Board of Directors of Escalon Medical Corp.,
a California corporation (the "Company"), for use at the 1998 Annual Meeting of
Shareholders of the Company to be held on Thursday, January 21, 1999, at 10:00
A.M., local time, at the offices of Morgan, Lewis & Bockius LLP, 1701 Market
Street, Philadelphia, Pennsylvania 19103, and at any adjournments thereof.
The entire cost of soliciting proxies will be borne by the Company,
including expenses in connection with preparing and mailing proxy solicitation
materials. In addition to the use of the mails, proxies may be solicited by
certain officers, directors and regular employees of the Company, without extra
compensation, by telephone, facsimile transmission or personal interview.
Although there is no formal agreement to do so, the Company will reimburse
brokerage houses and other custodians, nominees and fiduciaries for their
reasonable expenses in sending proxies and proxy material to the beneficial
owners of the Company's Common Stock. This proxy statement and accompanying
proxy are first being sent to the shareholders of the Company on or about
December 17, 1998.
RECORD DATE AND VOTING
Only shareholders of record at the close of business on December 9,
1998 are entitled to notice of, and to vote at, the Annual Meeting and any
adjournment thereof. As of December 4, 1998, 3,111,846 shares of the Company's
Common Stock were issued and outstanding, all of which are entitled to be voted
at the meeting. Each shareholder is entitled to one vote for each share of
Common Stock held on all matters to come before the meeting.
The presence, either in person or by proxy, of persons entitled to vote
a majority of the outstanding shares of the Company's Common Stock is necessary
to constitute a quorum for the transaction of business at the Annual Meeting. A
shareholder giving a proxy may revoke it at any time before it is voted by
filing with the Secretary of the Company written notice of revocation or by
appearing at the meeting and voting in person. A prior proxy is automatically
revoked by a shareholder delivering a valid proxy to the Secretary of the
Company bearing a later date. Shares represented by all valid proxies will be
voted in accordance with the instructions contained in the proxies. In the
absence of instructions, shares represented by valid proxies will be voted for
all nominees listed herein under "Election of Directors," for the amendment to
the Company's 1993 Stock Option Plan, to approve the sale and issuance of the
Series A Preferred stock and the issuance of common stock upon the conversion of
the Series A Preferred Stock and for ratification of the selection of Parente
Randolph Orlando Carey & Associates, LLP as the Company's independent auditors
for the fiscal year ending June 30, 1999.
The election of directors will be determined by a plurality of the
votes cast, while approval of any other items at the Annual Meeting will require
the affirmative vote of the holders of a majority of the shares present in
person or by proxy and entitled to vote at the meeting. Additionally, in voting
for directors, if any shareholder gives notice at the meeting, prior to voting,
of an intention to cumulate votes, then each shareholder has the right to
cumulate votes and to give any one or more of the nominees whose names have been
placed in nomination prior to voting a number of votes equal to the number of
directors to be elected multiplied by the number of shares which the shareholder
is entitled to vote. Discretionary authority to cumulate votes and distribute
such votes among some or all of the nominees in the event that cumulative voting
is invoked by any shareholder is solicited by the Board of
<PAGE> 4
Directors. In the case of shares that are present at the Annual Meeting for
quorum purposes, not voting those shares for a particular nominee for director
(including by withholding authority on the proxy) will not operate to prevent
the election of that nominee if he or she otherwise receives affirmative votes;
an abstention on any other item will operate to prevent approval of the item to
the same extent as a vote against approval of such item and a broker "non-vote"
on any item (which results when a broker holding shares for a beneficial owner
has not received timely voting instructions on certain matters from such
beneficial owner and those matters are matters with respect to which the broker
has no discretion to vote) will have no effect on the outcome of the vote on
such item.
(PROPOSAL NO. 1)
ELECTION OF DIRECTORS
The Board of Directors of the Company, which currently consists of four
members, shall consist of four members, all of whom are to be elected at the
1998 Annual Meeting. The term of each director will continue until his successor
is elected and has qualified or until his earlier resignation or removal.
The Board of Directors has nominated the following nominees for
election as directors of the Company at the Annual Meeting. Each of the nominees
is now a director of the Company with a term expiring at the Annual Meeting.
Each of the nominees has agreed to serve if elected. Unless an instruction is
given by a shareholder on the proxy card to withhold a vote as to a nominee or
nominees, the proxy holders will vote the proxies received by them for the four
nominees, or, in the unlikely event that any nominee becomes unable to serve as
a director, for other persons designated by the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES.
NOMINEES FOR ELECTION
<TABLE>
<CAPTION>
YEAR FIRST BECAME DIRECTOR, PRINCIPAL OCCUPATIONS DURING
NAME OF DIRECTOR AGE PAST FIVE YEARS AND CERTAIN DIRECTORSHIPS
- ---------------- --- -----------------------------------------
<S> <C> <C>
Richard J. DePiano 57 Mr. DePiano has been a director of the Company since February 1996. Mr.
DePiano has been the Chief Executive Officer of the Sandhurst Company, L.P.
and Managing Director of the Sandhurst Venture Fund since 1986. Mr.
DePiano is Chairman of the Board of Directors of Surgical Laser
Technologies, Inc. Mr. DePiano has served as Chairman and Chief Executive
Officer of the Company since March 1997.
Jay L. Federman, MD 60 Dr. Federman served as the Chairman of the Board of Directors of the
Company from February 1996 to March 1997 and continues to serve on the
Board of Directors. Dr. Federman has served as the Chief of the Division of
Ophthalmology at the Medical College Pennsylvania and M.C.P. Hahnemann
School of Medicine and as Co-Director of the Retina Service at Wills Eye
Hospital in Philadelphia, Pennsylvania. Dr. Federman is a director of Surgical
Laser Technologies, Inc.
Jack M. Dodick, MD 59 Dr. Dodick has been a director of the Company since February 1996. Dr.
Dodick has served as the Chairman of the Department of Ophthalmology at
Manhattan Eye, Ear and Throat Hospital in New York.
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
YEAR FIRST BECAME DIRECTOR, PRINCIPAL OCCUPATIONS DURING
NAME OF DIRECTOR AGE PAST FIVE YEARS AND CERTAIN DIRECTORSHIPS
- ---------------- --- -----------------------------------------
<S> <C> <C>
Fred G. Choate 52 Mr. Choate has been a director of the Company since November 1998. Mr.
Choate has served as Manager of the Greater Philadelphia Venture Capital
Corp. since 1992.
</TABLE>
Messrs. DePiano, Dodick and Federman currently serve as directors of
EOI, formerly known as Escalon Ophthalmics, Inc. EOI, as of December 3, 1998 was
the beneficial owner of 12% of the outstanding Common Stock of the Company, was
formerly engaged in the business of developing, manufacturing and marketing
ophthalmic surgical products and developing novel drug delivery technology. EOI,
is currently engaged in the process of winding up its affairs. See "Securities
Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions."
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held six (6) meetings during the fiscal year
ended June 30, 1998. Each director attended in person or telephonically at least
85% of the total number of meetings of the Board of Directors and the Committees
of which they were members.
The Board of Directors has established two standing committees, the
Audit Committee and the Compensation Committee.
Audit Committee. The Audit Committee has the primary responsibility for
ensuring the integrity of the financial information reported by the Company. The
Committee's functions include: (i) making recommendations concerning the
selection of independent auditors; (ii) reviewing the scope of the annual audit
to be performed by the independent auditors; (iii) reviewing the results of
those audits; and (iv) meeting periodically with management and the Company's
independent auditors to review financial, accounting and internal control
matters. The Audit Committee held one meeting during the fiscal year ended June
30, 1998. The Audit Committee consisted of two directors, Messrs. Dodick and
Kunze. Currently the Audit Committee consists of two directors Messrs. Dodick
and Choate.
Compensation Committee. The Compensation Committee reviews and makes
recommendations to the Board of Directors on the compensation and benefits
payable to the officers and key employees of the Company and reviews general
policy matters relating to compensation and benefits of employees of the
Company. The Compensation Committee is also charged with determining candidates
who are eligible for grants of stock options under the Company's stock option
plans. In addition, the Compensation Committee is responsible for administering
and interpreting such plans. The Compensation Committee held one meeting during
the fiscal year ended June 30, 1998. The Compensation Committee consisted of
three directors, Messrs. DePiano, Kunze and Federman. Currently the Compensation
Committee consists of Messrs. DePiano & Federman
COMPENSATION OF DIRECTORS
Mr. Kunze was paid $48,000, Dr. Dodick $3,000, Dr. Federman $6,500 and Mr.
Johnson $5,500 as directors fees during the fiscal year ended June 30, 1998.
Currently directors receive stock options for each board meeting and committee
meeting attended. Messrs. Dodick, Federman and Kunze were issued stock options
for attendance at board meetings. In addition, directors are reimbursed for
expenses incurred in connection with attending meetings. See "Executive
Officers--Executive Compensation."
4
<PAGE> 6
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard J. DePiano 57 Chairman and Chief Executive Officer
Ronald L. Hueneke 55 President and Chief Operating Officer
Doug McGonegal 47 Secretary and Vice President, Finance
Shawn Mullen 40 Vice President, Sales & Marketing
</TABLE>
Mr. DePiano's employment background is described above under "Nominees
for Election."
Mr. Hueneke was appointed President of the Company and Chief Operating
Officer in July, 1998. From 1991 until 1996, Mr. Hueneke held various senior
management positions with EOI. Mr. Hueneke co-founded Trek Medical Products,
Inc., a vitreoretinal instrument and equipment business, in 1983 and served as
its President until October 1991 when it was acquired by EOI.
Mr. McGonegal was appointed Secretary and Vice President, Finance of
the Company in July 1998.
Mr. Mullen was appointed Vice President, Sales & Marketing of the
Company in July 1998.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation paid by the Company
to its Chief Executive Officer and certain other highly compensated executive
officers of the Company for all services rendered in all capacities for the
periods shown. This table includes Sterling C. Johnson, who stepped down from
his positions with the Company effective April 30, 1997 and John T. Rich, who
stepped down from his positions with the Company effective June 30, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION OTHER AWARDS
------------------- ANNUAL ------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
- --------------------------- ---- ------ ----- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard J. DePiano(2) 1998 $240,000 -- -- -- $ 9,600
Chairman and Chief Executive 1997 $ 73,846 -- -- -- $ 3,200
Officer 1996 -- -- -- -- --
John T. Rich 1998 $119,000 $ 14,500 -- -- --
Former Vice President of Finance and 1997 $119,000 $ 14,500 -- -- --
Administration, and Secretary 1996 $ 43,858 -- -- -- --
Ronald L. Hueneke 1998 $105,000 $ 20,000 -- -- --
Vice President, General Manager, 1997 $105,000 $ 14,500 -- -- --
Trek Division 1996 $ 39,159 -- -- -- --
</TABLE>
5
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Doug McGonegal
Vice President of Finance and Secretary 1998 $ 35,446 $ 4,000 -- -- --
1997 -- -- -- -- --
1996 -- -- -- -- --
Shawn Mullen 1998 $ 95,000 $ 20,000 -- -- --
Vice President, Sales & Marketing 1997 -- -- -- -- --
1996 -- -- -- -- --
Sterling C. Johnson 1998 -- -- -- -- $146,875
Former President, Chief Executive 1997 $118,088 -- -- -- $109,832
Officer and Chief Operating Officer 1996 $ 55,677 -- -- -- $ 2,536
</TABLE>
- ----------
(1) Includes payment by the Company of (i) in the case of Mr. Johnson (a) an
automobiles allowance in the amount of $5,094; (b) $6,158 in insurance premiums
paid for life insurance; (c) severance payments in the amount of $129,123 and
(d) directors fees in the amount of $5,500; (ii), in the case of Mr. DePiano, an
automobile allowance in the amount of $9,600.
(2) Mr. DePiano became Chairman and Chief Executive Officer of the Company on
March 1, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NAME OPTIONS % OF EXERCISE PRICE EXPIRATION POTENTIAL REALIZABLE
---- GRANTED(1) TOTAL OPTIONS $/SHARE) DATE VALUE AT ASSUMED
---------- GRANTED TO -------------- ---------- ANNUAL RATES OF STOCK
EMPLOYEES IN PRICE APPRECIATION FOR
FISCAL YEAR OPTION TERM(2)
------------- ----------------------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C> <C>
Richard J. DePiano 112,500 0% $2.252 6/4/07 $159,330 $403,775
Doug McGonegal 1,000 2% $1.875 2/27/98 $ 1,179 $ 2,988
Ronald G. Hueneke 15,000 25% $1.875 2/27/98 $ 17,688 $ 44,824
Shawn Mullen 7,500 12% $1.875 2/27/98 $ 8,844 $ 22,412
Rosger Edens 3,000 5% $1.875 2/27/98 $ 3,538 $ 8,965
Mark Wallace 3,000 5% $1.875 2/27/98 $ 3,538 $ 8,965
Jay Federman 10,000 17% $1.875 2/27/98 $ 11,792 $ 29,883
Jack Dodick 10,000 17% $1.875 2/27/98 $ 11,792 $ 29,883
Robert Kunze 10,000 17% $1.875 2/27/98 $ 11,792 $ 29,883
</TABLE>
(1) These options were granted under the Company's 1993 Stock Option Plan
and have a term of ten years, subject to earlier termination in certain
events. See "Employment Agreements." The options are fully vested.
(2) The potential realizable values are based on an assumption that the
stock price of the Common Stock starts equal to the exercise price
shown for the particular option grant and appreciates at the annual
rate shown (compounded annually) from the date of grant until the end
of the term of the option. These amounts are reported net of the option
exercise price, but before any taxes associated with exercise or
subsequent sale of the underlying stock. The
6
<PAGE> 8
actual value, if any, an optionholder may realize will be a function of
the extent to which the stock price exceeds the exercise price on the
date the option is exercised and also will depend on the option
holder's continued employment through the vesting period. The actual
value to be realized by the option holder may be greater or less than
the values estimated in this table.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
JUNE 30, 1997 JUNE 30, 1997(1)
------------- -------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard J. DePiano -- -- 112,500 -- $0.00 --
Doug McGonegal -- -- 1,000 -- $0.00 --
Ronald G. Hueneke -- -- 15,000 -- $0.00 --
Shawn Mullen -- -- 7,500 -- $0.00 --
Rosger Edens -- -- 3,000 -- $0.00 --
Mark Wallace -- -- 3,000 -- $0.00 --
Jay Federman -- -- 10,000 -- $0.00 --
Jack Dodick -- -- 10,000 -- $0.00 --
Robert Kunze -- -- 10,000 -- $0.00 --
</TABLE>
- -------------------
(1) Potential unrealized value is (i) the fair market value at fiscal 1998
year-end less the option exercise price times (ii) the number of
options. Fair market value as of fiscal 1998 year-end was determined
based on a closing sale price on June 30, 1998 of $0.766.
NO AWARDS WERE MADE TO ANY NAMED EXECUTIVE OFFICER DURING SUCH FISCAL
YEAR UNDER ANY LONG-TERM INCENTIVE PLAN. THE COMPANY DOES NOT SPONSOR ANY
DEFINED BENEFIT OR ACTUARIAL PLANS AT THIS TIME.
EMPLOYMENT AGREEMENTS
On May 12, 1998, the Company entered into an employment agreement with
Richard J. DePiano as the Chairman and Chief Executive Officer of the Company.
The term of the employment agreement commenced on May 12, 1998 and shall
continue through June 30, 2001, the employment agreement renews on July 1 of
each year for successive terms of three years unless either party notifies the
other party at least thirty (30) days prior to such date of the notifying
party's determination not to renew the agreement. The agreement provides for a
base salary of $240,000 per year plus incentive compensation in the form of a
cash bonus to be paid by the Company to Mr. DePiano at the discretion of the
Board of Directors. The agreement also provides for health and long term
7
<PAGE> 9
disability insurance and other fringe benefits as well as an automobile
allowance of $800 per month.
Ronald L. Hueneke entered into an employment agreement with EOI in
October of 1991 that provides for annual salary at a rate established by the
Company's Board of Directors which is currently set as $105,000 per annum. Mr.
Hueneke's employment agreement was assumed by the Company in connection with the
Asset Sale and Purchase. The agreement also provides for health, life and
long-term disability insurance and other fringe benefits. In addition, the
agreement provided for incentive compensation equal to 3 1/3% of the gross sales
derived from the sale by Mr. Hueneke of certain products during the initial term
of the employment agreement. Under the agreement, Mr. Hueneke was also granted
options to purchase up to 75,000 shares of the EOI's Common Stock at an exercise
price per share of $1.00. The options are fully vested and currently
exercisable. The employment agreement, which had an initial term of five years,
renews automatically from year to year unless either party notifies the other in
writing at least 90 days prior to the expiration of the then current term of its
determination not to renew the agreement.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 3, 1998 certain
information regarding the beneficial ownership of the Common Stock by (i) each
shareholder known by the Company to be a beneficial owner of more than 5% of the
Common Stock, (ii) each director and nominee for election as director of the
Company, (iii) each of the Named Executive Officers as such term is defined in
Item 402(a)(3) of Regulation S-K and (iv) all directors and executive officers
of the Company as a group. Pursuant to the rules and regulations promulgated
under the Exchange Act the table sets forth the most recent information provided
in filings made with the SEC by the reporting persons.
The calculation of percentage ownership as shown for each person in the
following table assumes the exercise of all options and warrants held by such
person but not the exercise of any other person's options or warrants.
Additionally, certain of the reporting persons share beneficial ownership of
certain securities of the Company. Any securities as to which beneficial
ownership is shared are set forth on the table below as beneficially owned by
each person to whom beneficial ownership may be attributed. See the footnotes to
the table for information as to shared beneficial ownership of the Company's
securities.
BENEFICIAL OWNERSHIP TABLE
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL
AMOUNT OF OWNERSHIP OF
BENEFICIAL SHARES UNDERLYING AMOUNT OF
OWNERSHIP OF OPTIONS/ AGGREGATE AGGREGATE
OUTSTANDING PERCENT OF WARRANTS*** BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1)** CLASS ----------------- OWNERSHIP OF CLASS
------------------------------------ ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
EOI Corp. (2) 95,147 2.6 -- 95,147 2.6
D. Blech and D. Blech & Company,
Incorporated (3)
599 Lexington Avenue
New York, NY 10022 -- -- 790,000 790,000 20.7
Allen & Company Incorporated (4)
711 Fifth Avenue -- 158,960 158,960 5.0
New York, NY 10022
</TABLE>
8
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C> <C>
R.A. Mackie & Co., L.P. (4) -- -- 140,119 140,119 4.4
One Gorham Island
Westport, CT 06880
Combination, Inc. (6) 584,703 16.2 40,000 624,703 17.2
c/o ISRC
310 Madison Ave.
Suite 503
NY, NY 10017
Sterling C. Johnson -- -- -- -- --
Robert J. Kunze 5,759 * 5,759 *
Fred G. Choate 816 * 816 *
Richard J. DePiano (5) 7,692 * 112,500 120,192 3.8
Jack M. Dodick, M.D 39,725 1.1 10,000 49,752 1.6
Ronald Hueneke 16,995 * 15,000 31,995 1.0
Sandhurst Venture Fund (5) 88,250 2.5 88,250 2.5
351 E. Conestoga Road
Wayne, PA 19087
Jay L. Federman, M.D .............................. 38,533 1.1 10,000 48,533 1.6
All directors and executive officers as a group
(6 persons) ..................................... 197,797 6.6 147,500 345,297 10.9
</TABLE>
- ----------
* Less than 1%.
** Includes outstanding shares owned by the named person but does not
include shares as to which such person has the right to acquire.
*** Represents shares underlying (a) Class A Redeemable Common Stock
Purchase Warrants ("Class A Warrants") and Class B Redeemable Common
Stock Purchase Warrants ("Class B Warrants"), each of which (i)
entitles the holder thereof to purchase one share of Common Stock at a
price of $6.25 and $7.50, respectively, and (ii) was issued in
connection with a November 1993 offering; and (b) certain options,
which in each case are exercisable within 60 days from the date hereof.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, where applicable, the persons named
in the table above have sole voting and investment power with respect
to all shares shown as beneficially owned by them.
(2) As reported on Schedule 13D dated February 12, 1996 and a Form 4 dated
September 10, 1996. The outstanding share ownership set forth for EOI
consists of shares owned solely by EOI. As set forth in the Schedule
13D, Messrs. DePiano, Dodick, and Federman are directors of EOI.
Although not currently serving as an officer of EOI, Ronald L. Hueneke,
the Company's Vice President/General Manager of Trek Division, served
in the same position for EOI prior to the Asset Acquisition. Each of
the above named individuals are also shareholders of EOI.
9
<PAGE> 11
(3) As reported on Amendment No. 3 to the Statement on Schedule 13D dated
October 5, 1995. The ownership of shares underlying options and
warrants, as set forth for Mr. Blech, consists entirely of shares
underlying 1,380,000 Class A Warrants and 880,000 Class B Warrants
owned by Blech, and 900,000 shares subject to a Unit Purchase Option
owned by Blech (see discussion under "Certain Relationships and Certain
Transactions").
(4) For Allen & Company Incorporated such figures are as reported on
Schedule 13G dated February 14, 1997. Allen & Company Incorporated's
ownership consists of 48,646 shares of Common Stock and shares
underlying 91,805 Class A Warrants and 495,390 Class B Warrants. For
R.A. Mackie & Co., L.P. such figures are as reported on Schedule 13G
dated February 8, 1996 and represent ownership of shares underlying
43,575 Class A Warrants and 516,900 Class B Warrants.
(5) Includes 112,500 shares which Mr. DePiano has the right to acquire upon
the exercise of currently exercisable stock options, excludes 88,250
shares held by Sandhurst Venture Funds. Mr. DePiano has the right to
vote the Sandhurst Venture Funds shares.
(6) For Combination, Inc. such figures are reported as if the 818 shares of
Series A Preferred Stock was converted pursuant to the terms of such
stock on December 3, 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 12, 1996, the Company acquired substantially all of the
assets and certain of the liabilities of EOI, pursuant to an Assets Sale and
Purchase Agreement, in exchange for 4,770,772 shares of the Company's Common
Stock. The total estimated cost of the acquisition was $8,900,000, including
liabilities assumed (which includes the assumption of costs associated with
certain litigation involving EOI) of $1,016,340 and estimated transaction costs
of approximately $928,000. The acquisition was accounted for using the purchase
method of accounting and included the acquisition of accounts receivable,
inventories, equipment and various other tangible and intangible assets. The
total purchase price over the fair value of net assets acquired approximates
$4,100,000. Another $1,000,000 of the purchase price was assigned to in-process
technology and was charged to operations immediately following the acquisition.
As disclosed elsewhere herein, Messrs. DePiano, Dodick and Federman were at the
time of the acquisition, and continue to be, members of the Board of Directors
of EOI. Mr. Rich, the Company's former Vice President, Finance and
Administration/Secretary, served in similar executive level management position
with EOI. Ronald L. Hueneke, a Vice President of the Company and General Manager
of its Trek Division, served in the same position with EOI prior to the
consummation of the Asset Acquisition. EOI through August 1998 was the
beneficial owner of 42.2% of the outstanding Common Stock of the Company and
after such date EOI has distributed to its individual shareholder all but 12% of
the outstanding Common Stock of the Company in accordance with its winding up
process. EOI is continuing to distribute the balance of the shares to the
individual EOI shareholders.
Jay L. Federman, M.D., a Director, together with two individuals
unaffiliated with the Company, entered into a Development, Assignment and
License Agreement with the Company dated September 11, 1992. Under this
agreement, the Company had agreed to pay royalties to Dr. Federman and the two
unaffiliated individuals on sales of the Company's Iris Expander and related
products. Generally, the agreement provided for quarterly royalty payments of
10% of net sales, for sales by the Company, and the greater of 5% of net sales
or 50% of royalty payments received by the Company, for sales by sublicensees of
the Company, in countries where a valid patent for the product has issued. For
sales in countries where a valid patent has not issued, royalty payments equal
to one-half of the foregoing rates are required. As of the date hereof, the
Company has discontinued development and terminated the Development, Assignment
and License Agreement of the Iris Expander. Therefore, no royalty payments have
been made to Dr. Federman or the other individuals that are parties to the
10
<PAGE> 12
Development, Assignment and License Agreement.
Commencing November 17, 1994, upon the exercise of any Class A
Redeemable Common Stock Purchase Warrant or Class B Redeemable Common Stock
Purchase Warrant (a "Warrant"), to the extent not inconsistent with the
guidelines of the NASD and the rules and regulations of the Securities and
Exchange Commission (the "Commission"), the Company has agreed to pay D. Blech &
Company, Incorporated ("Blech"), except in certain limited circumstances, a fee
of 5% of the exercise price of such Warrant if (i) the market price of the
Common Stock is greater than the exercise price of such Warrant on the date of
exercise; (ii) on the date of exercise Blech is a registered broker-dealer and
its registration has not been suspended; (iii) such Warrant is not held in a
discretionary account; and (iv) the solicitation of such Warrant was not in
violation of Rule 10b-6 promulgated under the Securities Exchange Act of 1934,
as amended. The Company has agreed not to solicit the exercise of any Warrant
other than through Blech unless Blech is legally unable to solicit such exercise
or is prohibited from doing so by the rules of the NASD or otherwise, in which
event the Company may solicit such exercise, either itself or with the
assistance of a third party.
In November 1993, the Company sold to Blech a transferable option (the
"Unit Purchase Option") to purchase up to 300,000 Units. The Unit Purchase
Option is exercisable for a period of four years, commencing November 17, 1994,
at an initial exercise price equal to $8.00 per Unit. The Units are identical in
all respects to Units issued in an underwritten public offering of Units made in
November and December of 1993, except that (i) while the Warrants comprising
such Units are held by Blech or certain transferees of Blech, they are not
redeemable by the Company and (ii) Warrants comprising such Units are
exercisable for the period commencing on November 17, 1993, and terminating at
the close of business on November 24, 1994. The Unit Purchase Option cannot be
transferred, assigned or hypothecated prior to November 24, 1994, except that it
may be assigned, in whole or in part, to any successor, officer or partner of
Blech. The Unit Purchase Option contains antidilution provisions providing for
appropriate adjustment of the exercise price and the number of Units which may
be purchased upon exercise upon the occurrence of certain events.
The Company has agreed that it will, at its expense on any one occasion
during the four-year period commencing November 17, 1994, and on any one
additional occasion at the expense of the holders thereof during such period,
register the securities underlying, or issuable upon the exercise of the
securities underlying, the Unit Purchase Option at the request of holders of a
majority of the Units issued or issuable upon exercise of the Unit Purchase
Option (including shares of Common Stock issuable upon exercise of the Warrants
included in those Units). The Company has also agreed, during the seven-year
period commencing November 17, 1994, to register on a "piggyback" basis, on an
unlimited number of occasions, such securities whenever the Company files a
registration statement.
For the life of Unit Purchase Option, the holders are given, at nominal
cost, the opportunity to profit from a rise in the market price for the
securities of the Company without assuming the risk of ownership, with a
resulting dilution in the interest of other securityholders. As long as the Unit
Purchase Option remains unexercised, the terms under which the Company could
obtain additional capital may be adversely affected. Moreover, the holders of
the Unit Purchase Option may be expected to exercise such option at a time when
the Company would, in all likelihood, be able to obtain needed capital by an
offering of its securities on terms more favorable than those provided by the
Unit Purchase Option.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Commission, by a
specified date, reports regarding their ownership of Common Stock. To the
Company's knowledge, based solely on its review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, the Company believes that all of its officers and directors and
greater than ten percent beneficial owners complied with all Section 16(a)
filing requirements applicable to them with respect to those transactions
during 1997.
(PROPOSAL NO. 2)
AMENDMENT OF 1993 STOCK OPTION PLAN
At the Annual Meeting, there will be presented to the shareholders a
proposal to approve and adopt an amendment to the Company's 1993 Stock Option
Plan (the "1993 Plan"). On November 15, 1998, the Board of Directors of the
Company approved the proposed amendment to the 1993 Plan subject to shareholder
approval at the Annual Meeting. The amendment will not be effective unless and
until shareholder approval is obtained.
11
<PAGE> 13
The amendment would increase the number of shares available for
issuance under the Company's 1993 Plan from 175,000 to 375,000 shares of Common
Stock. The Board of Directors believes that the Company's ability to grant
options under the 1993 Plan is a valuable and necessary compensation tool that
aligns the long-term financial interests of employees, consultants and directors
with the financial interests of the Company's shareholders. As of December 9,
1998, options to purchase 162,000 shares of Common Stock were outstanding under
the 1993 Plan; options to purchase 13,000 shares remain available for future
grants. An increase in the number of shares available for issuance is necessary
to meet the above objectives. The Board of Directors believes that it is in the
best interests of the Company and its shareholders to incorporate this change
into the 1993 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE AMENDMENT TO THE 1993 PLAN.
THE PROPOSED AMENDMENT TO THE COMPANY'S 1993 STOCK OPTION PLAN IS SET
FORTH AS EXHIBIT A TO THIS PROXY STATEMENT, AND THE DESCRIPTION OF SUCH
AMENDMENT CONTAINED HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO EXHIBIT
A.
DESCRIPTION OF THE OPTION PLAN
SUMMARY OF MATERIAL TERMS OF THE 1993 PLAN
The 1993 Plan was approved, subject to shareholder approval, by the
Board of Directors on September 23, 1993. Subject to certain increases and
adjustments, the 1993 Plan provides for the issuance of an aggregate of 175,000
shares of Common Stock pursuant to options granted under the 1993 Plan. Unless
sooner terminated by the Board of Directors, the 1993 Plan will expire by its
terms on September 22, 2003 and no option may be granted under the 1993 Plan
after that date. As of December 9, 1998, options to purchase 172,000 shares of
Common Stock have been granted under the 1993 Plan.
The 1993 Plan provides for the grant, for no consideration other than
services, of options to purchase shares of the Common Stock of the Company to
certain employees and directors of the Company or its subsidiaries and to
certain other individuals who provide services to the Company or its
subsidiaries. Options granted pursuant to the 1993 Plan may either be "incentive
stock options" as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), which are intended to qualify for special federal
income tax treatment ("ISOs"), or "non-qualified stock options" ("NQSOs").
Capitalized terms not defined below have the same meanings as set forth in the
1993 Plan attached hereto. The 1993 Plan is not subject to the requirements of
the Employee Retirement Income Security Act of 1974, known as "ERISA."
Administration, Modification and Amendment of the 1993 Plan. The 1993
Plan provides that it shall be administered by a committee of the Board of
Directors consisting of at least two and not more than five persons (the
"Committee"). The members of the Committee shall be appointed from time to time
by the Board of Directors of the Company and may, but need not be, directors.
The Committee has the final authority to interpret the 1993 Plan, to determine
which Eligible Employees, as defined below, shall receive options, the times
when such options shall be granted and when they may be exercised, the fair
market value of Common Stock for the purposes of determining exercise prices and
the number of shares to be subject to any option, to determine the terms and
provisions of option agreements, to prescribe, amend and rescind rules and
regulations relating to the 1993 Plan, to construe options under the 1993 Plan,
and to make all other determinations necessary and advisable for proper
administration of the 1993 Plan. All decisions and determinations of the
Committee are final.
12
<PAGE> 14
The Board of Directors may at any time suspend or terminate the 1993
Plan or may amend it from time to time in such respects as the Board of
Directors may deem advisable either to conform the terms of the 1993 Plan to any
changes in the law or for any other reason that the Board of Directors may deem
to be in the best interests of the Company and its shareholders; provided,
however, that without approval of the shareholders of the Company, no such
amendment may (1) except in certain limited circumstances, materially increase
the number of shares for which options may be granted under the 1993 Plan, (2)
materially modify the requirements as to eligibility for participation in the
1993 Plan, or (3) materially increase the benefits accruing to participants
under the 1993 Plan.
Eligibility and Grants of Options. All full-time, key employees of the
Company are eligible for selection by the Committee to receive ISOs under the
1993 Plan and all full-time, key employees, directors and any other persons who
perform services for the Company ("Consultants") and who, in the opinion of the
Committee, will contribute to the success of the Company, are eligible to
receive NQSOs under the 1993 Plan (together "Eligible Employees"). The 1993 Plan
provides that the phrase "key employees" includes officers, department heads,
division managers, other employees having supervisory responsibilities, and
those other employees as the Committee may specifically designate from time to
time. Members of the Committee are not eligible to receive grants of options
under the 1993 Plan. The Committee determines and designates from time to time
the number and nature of the options to be granted to any Eligible Employee. The
number of options that may be granted to any particular individual or group is
not determinable until the Committee takes action with respect thereto. As of
December 9, 1998, approximately 20 non-director employees, four directors and
one Consultant were eligible to participate in the 1993 Plan.
Term of Options. The term of each option is determined by the
Committee, but no option will be exercisable more than ten years from the date
the option was granted. ISOs granted to a "control person" will not be
exercisable more than five years from the date the option was granted. For
purposes of the 1993 Plan, a "control person" is any person who, as of the date
of an option grant, owned more than 10% of the voting stock of the Company or of
any parent or subsidiary corporation.
Exercise of Options. Options granted under the 1993 Plan are
exercisable by the holder at such rate and times as may be fixed by the
Committee at the time the option is granted. The Committee may, in its
discretion, accelerate or otherwise amend the times any or all outstanding
options are exercisable, including in the event of a Change of Control.
Option Exercise Price. The exercise price of an option is determined by
the Committee at the time the option is granted, although it may not be less
than the Fair Market Value of the shares on the date of grant. With respect to a
"control person" the exercise price of an ISO cannot be less than 110% of the
Fair Market Value on the date of grant. "Fair Market Value" on a specified date
refers to the last sales price or the average of the closing bid and asked
price, as appropriate, per share of the Common Stock on the stock exchange or
market on which the Common Stock is primarily traded or, if there were no trades
or quotations on that date, then on the last previous day on which a trade or
quotation was reported.
Termination of Employment. If an option holder terminates his or her
employment with the Company or a subsidiary for reasons other than retirement,
disability or death, all unexercised options of such holder shall terminate
immediately upon such termination, as determined by the Committee, and such
holder shall have no right thereafter to exercise any unexercised options he or
she might have exercised prior to the date of termination. If an option holder
terminates employment due to retirement on or after attaining the age of 65 (or
such earlier date as shall be permitted), or to a permanent and total
disability, within the meaning of Section 22(e)(3) of the Code, or to death, the
holder or the holder's estate or the holder's heirs may exercise the options
which are unexercised at the time of such retirement, disability or death (but
only to the extent that such options are then exercisable in the case of
disability): (i) within three months after the option holder's retirement, in
the case of an ISO, and within twelve months after the option holder's
retirement, in the case of a NQSOs, or (ii) within twelve months after the
option holder's disability or death. No option may be exercised after its
original expiration date.
13
<PAGE> 15
FEDERAL INCOME TAX CONSEQUENCES
Non-Qualified Options. Except as described in the following paragraph,
upon the exercise of an NQSO, the amount by which the fair market value of the
shares on the date of exercise exceeds the option price is taxed to the optionee
as ordinary compensation income. In general, the Company is entitled to a
deduction equal to the amount of the ordinary compensation income realized by
the optionee. At such time as the optionee sells shares issued to him upon
exercise of his option, if the shares were held as capital assets, he will
realize capital gain or loss (long-term being more than 12 months and short-term
being 12 months or less) in an amount equal to the difference between his tax
basis in the shares and the selling price. The Company is not entitled to any
tax deductions with respect to capital gains realized by the optionee.
Incentive Stock Options. The holder of an ISO will not be subject to
federal income tax upon the grant or exercise of the ISO, and the Company will
not be entitled to a tax deduction by reason of such exercise. A sale of the
shares received upon the exercise of an ISO which does not occur within one year
after the exercise of the ISO or within two years after the grant of the ISO
will result in the realization of long-term capital gain or loss in the amount
of the difference between the amount realized on the sale and the optionee's tax
basis in such shares if such shares were held as capital assets. Generally, upon
a prior disposition of the shares, the optionee will recognize ordinary
compensation income equal to the lesser of (1) the excess of the fair market
value of the shares on the date of transfer to the optionee over the option
price or (2) the excess of the amount realized on the disposition over the
optionee's tax basis in the shares. In certain circumstances, upon a prior
disposition, such as a disposition by gift or a transfer to a related person,
the amount of ordinary compensation income recognized by the optionee will be
the excess of the fair market value of the shares on the date of transfer to the
optionee over the option price. The Company may claim a tax deduction on a prior
disposition of such shares in the amount of the ordinary compensation income
which is realized by the optionee, and at the time so recognized.
The excess of the fair market value of the shares at the time of
exercise of an ISO over the option price constitutes an item of tax preference
subject to the alternative minimum tax, unless a subsequent disqualifying
disposition occurs.
Tax Advice Caveat. The preceding discussion is based upon federal tax
laws and regulations in effect on the date of this Proxy Statement, which are
subject to change, and does not purport to be a complete description of the
federal income tax aspects of the 1993 Plan. Optionees also may be subject to
state and local taxes in connection with the grant or exercise of options and
the sale or other disposition of shares acquired upon the exercise thereof. The
Company suggests that optionees consult with their individual tax advisors to
determine the applicability of the tax aspects of options to their personal tax
circumstances.
(PROPOSAL NO. 3)
APPROVAL AND RATIFICATION OF THE SALE AND ISSUANCE OF THE SERIES A
PREFERRED STOCK AND THE ISSUANCE OF SHARES OF COMMON STOCK UPON THE CONVERSION
OF THE SERIES A PREFERRED STOCK PURSUANT TO NASDAQ STOCK MARKET RULE 4460(i)
The Company is seeking the approval and ratification of the sale and
issuance of the Company's Series A 6% Convertible Preferred Stock (the "Series A
Preferred Stock") and the issuance of shares of Common Stock upon the conversion
of the Series A Preferred Stock. On December 31, 1997, the Company issued 1,350
shares of
14
<PAGE> 16
Series A Preferred Stock in a private offering pursuant to Regulation D of the
Securities Act of 1933, as amended (the "Securities Act"), for cash proceeds of
$1,350,000 in cash which was used for working capital purposes. As of the date
hereof, 818 shares of Series A Preferred Stock are outstanding.
Approval of Proposal No. 3 would permit the holders of the Series
A Preferred Stock (the "Series A Holders") to convert the balance of the Series
A Preferred Stock into shares of Common Stock in accordance with the terms of
the Series A Preferred Stock by removing certain limitations under the rules of
the Nasdaq Stock Market which could limit the Company's ability to issue Common
Stock upon conversion of the Series A Preferred Stock. Such approval would also
allow the Company to exercise an option it has obtained from the holders of the
Series A Preferred Stock pursuant to which the Company would simultaneously
cause such holders to convert a portion of the Series A Preferred Stock into
225,000 shares of Common Stock and redeem the remaining outstanding shares of
Series A Preferred Stock for $818,000 plus accrued and unpaid dividends (the
"Option"). Such approval is a condition to the Company's exercise of the Option.
If the Shareholders do not approve this Proposal No. 3, the Company will not be
able to exercise the Option and the Company cannot issue additional shares of
Common Stock upon the conversion of the Series A Preferred Stock.
On November 16, 1998, the Company obtained the Option from the Series A
Holders. In connection with the Option, the Series A Holders agreed not to
transfer the Series A Preferred Stock to any other third party other than the
Company prior to the expiration of the option on January 30, 1999. The price of
the option was $100,000 which was paid to the Series A Holders upon their
placing all 818 outstanding shares of Series A Preferred Stock in escrow until
the Option is duly exercised or the Option expires, whichever occurs first. If
the Option is duly exercised, the $100,000 will be credited against any amounts
owed by the Company to the Series A Holders for redemption of the outstanding
shares of Series A Preferred Stock. The exercise of the Option is conditioned
upon the Company obtaining shareholder approval for the issuance of the 225,000
shares of Common Stock upon the conversion of the Series A Preferred Stock in
accordance with Nasdaq Marketplace Rule 4460(i), which approval is being
requested in this Proposal No. 3.
SUMMARY OF SERIES A PREFERRED STOCK TERMS
Copies of the relevant documents for the sale of the Series A Preferred
Stock were filed as exhibits to the Company's Registration Statement on Form S-3
dated January 20, 1998 (Registration No. 333-44513). The following summary of
the material terms of the Series A Preferred Stock is not intended to be a
complete description of all of the terms contained in the Company's Certificate
of Determination of Series A 6% Convertible Preferred Stock (the "Certificate of
Determination") and for complete information, reference is made to such filing.
Pursuant to the Company's Articles of Incorporation, the Board of
Directors has designated 1,350 shares of its preferred stock as Series A
Preferred Stock with the rights, preferences, privileges and terms set forth in
the Certificate of Determination.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary (a "Liquidation Event"), 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 of cash
equal to the Liquidation Value ($1,000) plus all accrued and unpaid dividends of
all shares held by such holder, and the holders of Series A Preferred Stock
shall not be entitled to any further payment. If upon any such Liquidation
Event, the Company's assets to be distributed among the holders of the Series A
Preferred Stock are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid, the entire assets are to 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 Event, the Company is
required to declare for payment all accrued and unpaid dividends with respect to
the Series A Preferred Stock. Upon a Liquidation Event, the Series A Preferred
Stock ranks prior to any other class of capital
15
<PAGE> 17
stock of the Company, including, without limitation, all classes of the Common
Stock of the Company, whether now existing or hereafter created (all of such
classes or series of capital stock of the Company to which the Series A
Preferred Stock ranks prior, including without limitation, the Common Stock and
including, without limitation, junior securities convertible into or
exchangeable for other junior securities are collectively referred to as "Junior
Securities"). A consolidation or merger of the Company into any other entity or
entities, or a sale or transfer by the Company 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 Company is
disposed of, shall be deemed to be a Liquidation Event if the holders of at
least 70% of the outstanding Series A Preferred Stock elect to have such
transaction treated as a Liquidation Event with respect to such shares.
Dividends. Holders of the Series A Preferred Stock are entitled to
receive cumulative dividends at a rate of 6% per annum of the sum of the
Liquidation Value of such shares (plus all accrued and unpaid dividends thereon)
payable quarterly, at the sole discretion of the Company, in either (i) cash or
(ii) shares of Common Stock at the then applicable Conversion Price (as defined
below). Dividends accrue whether or not they have been declared and whether or
not there are profits, surplus or other funds legally available for the payment
of dividends. No dividends may be declared or paid or set apart for payment on
any Junior Securities for any period unless at the time of such declaration or
payment or setting apart for payment (i) full cumulative dividends have been or
contemporaneously are declared and paid (or declared and a sum sufficient for
the payment thereof set apart for such payment) on the Series A Preferred Stock
for all quarterly periods terminating on or prior to the date of payment of such
dividends on Junior Securities, (ii) the Company is not in default with respect
to any obligation to redeem or retire shares of Series A Preferred Stock and
(iii) an amount equal to the dividends accrued on the Series A Preferred Stock
from the last date dividends were paid on the Series A Preferred Stock 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.
Redemption. On or after 60 days following the date the Series A
Preferred Stock was issued (December 31, 1997 or the "Issue Date"), so long as
the Company has sufficient funds legally available, the Series A Preferred Stock
may be redeemed, in whole or in part, at the election of the Company upon 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. For each share of
Series A Preferred Stock to be redeemed on any date, the Company shall be
obligated on such redemption date to pay to the holder thereof an amount in
immediately available funds equal to (x) the number of shares of Common Stock
underlying the shares of Series A Preferred Stock to be redeemed as determined
by dividing (i) the Liquidation Value of each share of Series A Preferred Stock
plus any accrued but unpaid interest or dividends thereon by (ii) the Conversion
Price in effect, multiplied by (y) the Market Price for the Common Stock where
the Market Price equals the five trading day average closing bid price of the
Common Stock as reported on Nasdaq (the "Redemption Price"). The Company may
not, directly or indirectly, redeem or purchase or otherwise acquire for value
any Junior Securities unless, at the time of making such redemption, purchase or
other acquisition, the Company shall have redeemed, or shall contemporaneously
redeem, all of the then outstanding shares of Series A Preferred Stock.
Voting Rights. Except as required by law, the holders of the Series A
Preferred Stock have no special voting rights and their consent shall not be
required for the taking of any corporate action.
Conversion. At any time after the date which is 60 days from the Issue
Date and prior to December 31, 1999, each share of Series A Preferred Stock is
convertible into the number of shares of the Company's Common Stock equal to (i)
the Liquidation Value of such shares divided by (ii) the Conversion Price then
in effect. The Conversion Price is equal to the lesser of (i) the price equal
(x) to the average closing bid prices of the Company's Common Stock as quoted by
Nasdaq for the five trading day period ending on the day before the date of
conversion multiplied by the (y) Applicable Percentage or (ii) 100% of the
average closing bid prices for the five trading day period ending on the day
before the Issue Date. The Applicable Percentage is 83% for the period 60-90
days following the Issue Date and 82% thereafter. The Series A Preferred Stock
will automatically convert into Common Stock on December 31, 1999.
16
<PAGE> 18
Registration Rights. Under an agreement with the purchasers of the
Series A Preferred Stock, the Company registered under the Securities Act
the resale of the Common Stock issued and issuable upon conversion of the Series
A Preferred Stock.
Nasdaq Limitations. The issuance of the Series A Preferred Stock is
subject to Nasdaq Stock Market Rule 4460(i) which prevents the Company from
selling or issuing Common Stock (or securities convertible into Common Stock) at
a discount to the market price of the Common Stock, if the number of such
securities sold or issued would equal 20% or more of the outstanding Common
Stock (or 20% or more of the voting power outstanding) immediately before the
issuance of the securities. Because the Company, as of the date of this Proxy
Statement, has issued 522,790 shares of Common Stock or 19.9% of the Common
Stock outstanding on the Issue Date, the Company is unable to issue any more
shares of Common Stock upon conversion of the Series A Preferred Stock without
shareholder approval. The holders of the Series A Preferred Stock have agreed
that the Company will not issue more than 19.9% of the Company's outstanding
Common Stock as of December 31, 1997 without the approval of the Company's
shareholders (the "19.9% Limit"). If the Company has reached the 19.9% Limit and
may no longer issue shares upon conversion of the Series A Preferred Stock, the
Company must take all reasonable steps necessary to be in a position to issue
shares of Common Stock upon conversion of the Series A Preferred Stock without
violating any rules or regulations of Nasdaq, including obtaining shareholder
approval.
PRINCIPAL EFFECTS OF THE APPROVAL AND RATIFICATION OF THE PROPOSAL
If the shareholder approval is obtained the Company would be permitted
to issue shares of Common Stock upon conversion of the Series A Preferred Stock
to the Series A Holders, in excess of the 19.9% Limit. This in turn would allow
the Company, and so long as the Company is able to pay the Redemption Price to
the Series A Holders, to exercise the Option. If the Company exercises the
Option, all outstanding shares of Series A Preferred Stock to be redeemed or
converted and, after the issuance of the 225,000 shares of Common Stock, no
further dilution to the Common Stock will occur as a result of the conversion of
the Series A Preferred Stock into Common Stock. If the Option is not exercised
and the Shareholders Approval is obtained, the Series A Holders will be
permitted to convert the outstanding Series A Preferred Stock into shares of
Common Stock pursuant to the terms of the Series A Preferred Stock. Such
additional conversions could cause further dilution to the Common Stock. In the
event the Company is unable to obtain the shareholder approval, the Company will
be unable to exercise the Option, the Company will not be permitted to issue
additional shares of Common Stock upon conversion of the Series A Preferred
Stock, and the Series A Preferred Stock will remain outstanding. However,
shareholders should note that even if the shareholder approval is obtained, the
Company still may not have the ability to exercise the Option if it does not
obtain additional financing to pay for the Redemption Price to the Series A
Holders.
VOTE AND RECOMMENDATION
The affirmative vote of the holders of a majority of all of the shares
of Common Stock present in person or represented by proxy and entitled to vote
at the meeting will be required in connection with the foregoing transactions.
Pursuant to Nasdaq Stock Market Rules, Series A Holders are required to abstain
from voting on this Proposal No. 3 in view of their interest in the transaction
with respect to which approval is being sought.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL AND RATIFICATION OF THE SALE OF THE SERIES A PREFERRED STOCK AND
ISSUANCE OF SHARES OF COMMON STOCK UPON THE CONVERSION OF THE SERIES A PREFERRED
STOCK IN ACCORDANCE WITH NASDAQ STOCK MARKET RULE 4460(i).
17
<PAGE> 19
(PROPOSAL NO. 4)
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has appointed the firm of Parente Randolph
Orlando Carey & Associates, LLP as independent public accountants for the year
ending June 30, 1999.
The appointment of auditors is approved annually by the Board of Directors,
which is based in part on the recommendations of the Audit Committee. In making
its recommendations, the Audit Committee reviews both the audit scope and
estimated audit fees for the coming year. This appointment will be submitted to
the shareholders for ratification at the Annual Meeting.
Although not required by law or by the By-laws of the Company, the
Board of Directors has determined that it would be desirable to request
ratification of this appointment by the shareholders. If ratification is not
received, the Board will reconsider the appointment. A representative of Parente
Randolph Orlando Carey & Associates, LLP is expected to be available at the
Annual Meeting to respond to appropriate questions and to make a statement if he
or she so desires.
The affirmative vote of a majority of the votes cast at the Annual
Meeting by the holders of the outstanding shares of Common Stock is required for
the ratification of this selection.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
RATIFICATION OF THE SELECTION OF PARENTE RANDOLPH ORLANDO CAREY AND ASSOCIATES,
LLP AS THE COMPANY'S AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30, 1999.
18
<PAGE> 20
OTHER MATTERS
The Board of Directors is not aware of any matters not set forth herein
that may come before the meeting. If, however, further business properly comes
before the meeting, the persons named in the proxies will vote the shares
represented thereby in accordance with their judgment.
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Shareholders may submit proposals on matters appropriate for
shareholder action at annual meetings in accordance with regulations adopted by
the SEC. To be considered for inclusion in the proxy statement and form of proxy
relating to the 1999 annual meeting, such proposals must be received by the
Company no later than June 30, 1999. Proposals should be directed to the
attention of the Secretary of the Company.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
BEING SOLICITED, UPON THE WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1998, INCLUDING
THE FINANCIAL STATEMENTS, BUT EXCLUDING EXHIBITS. REQUESTS FOR COPIES OF SUCH
REPORT SHOULD BE DIRECTED TO THE COMPANY, ATTENTION: RICHARD J. DEPIANO.
EACH SHAREHOLDER WHO DOES NOT EXPECT TO ATTEND THE ANNUAL MEETING IN
PERSON IS URGED TO EXECUTE THE PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
19
<PAGE> 21
EXHIBIT A
ESCALON MEDICAL CORP.
PROPOSED AMENDMENT TO THE 1993 STOCK OPTION PLAN
SECOND AMENDMENT TO THE
INTELLIGENT SURGICAL LASERS, INC.
1993 STOCK OPTION PLAN
The "Intelligent Surgical Lasers, Inc. 1993 Stock Option Plan" (the
"Plan"), which was effective September 23, 1993, is hereby amended, effective
August 8, 1997, as follows (subject to the obtaining of subsequent approval of
the shareholders of the Company):
By deleting Section 3 of the Plan and substituting therefor the
following:
3. Shares of Common Stock Subject to the Plan. The aggregate number of shares of
the Common Stock Which may be issued upon the exercise of Options granted under
the Plan shall not exceed 375,000 (after giving effect to the reverse stock
split effected on November 8, 1993), subject to adjustment under the provisions
of Section 6 hereof. The shares of Common Stock to be issued upon the exercise
of Options may be authorized but unissued shares, shares issued and reacquired
by the Company, or shares purchased by the Company in privately negotiated or
open market transactions for purposes of the Plan. In the event any Option
shall, for any reason, terminate or expire or be surrendered without having been
exercised in full, the shares subject to such Option but not acquired thereunder
shall again be available for Options to be granted under the Plan.
A-1
<PAGE> 22
PROXY PROXY
ESCALON MEDICAL CORP.
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JANUARY 21, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned hereby appoints RICHARD J. DEPIANO and DOUG MCGONEGAL or either of
them acting alone in the absence of the other, the attorneys, agents and
proxies of the undersigned, with full powers of substitution (the "Proxies"),
to attend and act as proxy or proxies of the undersigned at the Annual Meeting
of Shareholders (the "Annual Meeting") of Escalon Medical Corp. (the "Company")
to be held at Morgan, Lewis and Bockius LLP, 1701 Market Street, Philadelphia,
PA 19103, on January 21, 1999 at 10:00 a.m. or any adjournment thereof, and to
vote as specified herein the number of shares which the undersigned, if
personally present, would be entitled to vote.
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked to vote for all
to contrary) the nominees
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name on the following list:
Richard J. DePiano Jay L. Federman, M.D.
Jack M. Dodick, M.D. Fred G. Choate
2. PROPOSAL TO AMEND THE COMPANY'S 1993 STOCK OPTION PLAN TO INCREASE THE
NUMBER OF SHARES AVAILABLE THEREUNDER BY 200,000 TO 375,000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. PROPOSAL TO APPROVE THE SALE AND ISSUANCE OF THE SERIES A PREFERRED
STOCK AND THE ISSUANCE OF COMMON STOCK UPON THE CONVERSION OF THE SERIES
A PREFERRED STOCK PURSUANT TO NASDAQ STOCK MARKET RULE 4460(i).
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. PROPOSAL TO RATIFY THE SELECTION OF PARENTE RANDOLPH ORLANDO CAREY &
ASSOCIATES, LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL
YEAR ENDING JUNE 30, 1999; AND
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. OTHER BUSINESS. In their discretion, the Proxies are authorized to vote
upon such other business as may come before the Annual Meeting and any and all
adjournments thereof. Proxies are authorized to cumulate votes and distribute
such votes among some or all nominees in the event that cumulative voting is
invoked by any shareholder. The Board of Directors at present knows of no other
business to be presented by or on behalf of the Company or the Board of
Directors at the Annual Meeting.
<PAGE> 23
IMPORTANT -- PLEASE SIGN AND DATE ON REVERSE SIDE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
This Proxy when properly executed will be voted as specified. If no
instruction is specified with respect to a matter to be acted upon, the shares
represented by the Proxy will be voted "FOR" each director nominee, "FOR" the
amendment of the Company's 1993 Stock Option Plan, "FOR" the sale and issuance
of the Series A Preferred stock and the issuance of common stock upon the
conversion of the Series A Preferred Stock pursuant to NASDAQ Stock Market Rule
4460(I) and "FOR" the ratification of Parente Randolph Orlando Carey &
Associates, LLP as the independent auditors of the Company. If any other
business is presented at the meeting, this Proxy confers authority to and shall
be voted in accordance with the recommendations of the Board of Directors.
Proxies are authorized to cumulate votes and distribute such votes among some
or all nominees in the event that cumulative voting is invoked by any
shareholder. This Proxy is solicited on behalf of the Board of Directors and
may be revoked prior to its exercise by filing with the Secretary of the
Company a duly executed proxy bearing a later date or an instrument revoking
this Proxy, or by attending the meeting and electing to vote in person.
Please sign exactly as name or names appear on this Proxy. If stock is
held jointly, each holder should sign. If signing as attorney, trustee,
executor, administrator, custodian or corporate officer, please give full title.
DATE , 1998
-------------------
------------------------------
SIGNATURE
------------------------------
SIGNATURE
I Do [ ] I Do Not [ ] expect to attend the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
