<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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 Rule 14a-11(c) or Rule 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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - --------------------------------------------------------------------------------
(3) Filing party:
- - --------------------------------------------------------------------------------
(4) Date filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY COPY
Escalon Medical Corp.
[LOGO] 351 E. Conestoga Road
Wayne, PA 19087
Tel. 610-688-6830 Fax. 610-254-8958
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 9, 1999
To the Stockholders of Escalon Medical Corp.:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of the Stockholders
of Escalon Medical Corp. (the "Company") will be held at the offices of Duane,
Morris & Heckscher LLP, One Liberty Place, 1650 Market Street, Philadelphia,
Pennsylvania 19103-7396, on Tuesday, November 9, 1999, at 9:00 a.m., local time,
for the following purposes:
1. To elect five directors;
2. To consider a proposal to approve the Company's 1999 Equity
Incentive Plan;
3. To consider a proposal to change the Company's state of
incorporation from California to Delaware;
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, 2000; 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 September 14,
1999, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Annual Meeting. A list of such stockholders will
be available for examination by any stockholder, 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.
Stockholders 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
<PAGE> 3
outstanding shares of the Company's Common Stock entitled to vote must be
present in person or be represented by proxy.
By Order of the Board of Directors,
Douglas R. McGonegal
Secretary
Wayne, Pennsylvania
October 11, 1999
EACH STOCKHOLDER 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 STOCKHOLDER DECIDES TO ATTEND THE ANNUAL MEETING, HE OR SHE MAY, IF
SO DESIRED, REVOKE THE PROXY AND VOTE THE SHARES IN PERSON.
2
<PAGE> 4
ESCALON MEDICAL CORP.
351 E. Conestoga Road
Wayne, PA 19087
PROXY STATEMENT
1999 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on November 9, 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 1999 Annual Meeting of
Stockholders of the Company to be held on Tuesday, November 9, 1999, at 9:00
a.m., local time, at the offices of Duane, Morris & Heckscher LLP, One Liberty
Place, 1650 Market Street, Philadelphia, Pennsylvania 19103-7396, and at any
adjournment, postponement or continuation thereof.
The 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 stockholders of the Company on or about
October 11, 1999.
RECORD DATE AND VOTING
Only stockholders of record at the close of business on September 14,
1999 are entitled to notice of, and to vote at, the Annual Meeting. As of
September 14, 1999, 3,242,184 shares of the Company's Common Stock were issued
and outstanding, all of which are entitled to be voted at the meeting. Each
stockholder 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
stockholder 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 stockholder 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
1
<PAGE> 5
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 approval of the Company's 1999 Equity Incentive Plan, for
the approval of the reincorporation of the Company from California to Delaware
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, 2000.
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 stockholder gives notice at the meeting, prior to voting,
of an intention to cumulate votes, then each stockholder 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 stockholder
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 stockholder is solicited by the Board of 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 currently consists of five
members. Each director is currently elected for a term of one year and 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, except for William Kwan, is now a director of the Company with a term
expiring at the Annual Meeting. Jack M. Dodick, M.D., is not standing for
reelection, and his term will expire upon the election of his successor at the
Annual Meeting. Each of the nominees has agreed to serve if elected. Unless an
instruction is given by a stockholder 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 five 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.
2
<PAGE> 6
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
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 58 Mr. DePiano has been a director of the Company since February
1996 and has served as Chairman and Chief Executive Officer
of the Company since March 1997. 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.
Jay L. Federman, MD 61 Dr. Federman served as the Chairman of the Board of Directors
of the Company from February 1996 to March 1997 and contin-
ues 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 Medi-
cine and as Co-Director of the Retina Service at Wills Eye Hos-
pital in Philadelphia, Pennsylvania. Dr. Federman is a director
of Surgical Laser Technologies, Inc.
Fred G. Choate 53 Mr. Choate has been a director of the Company since November
1998. Mr. Choate has served as President of Beaumark Capital
LLP, a venture capital firm, since January 1999. Mr. Choate
served as Manager of the Greater Philadelphia Venture Capital
Corp. from 1992 through 1998.
William Kwan 59 Retired; Vice President of Business Development of Alcon Labo-
ratories, Inc., a medical products company, from October 1996
to 1999, and Vice President of International Surgical and Instru-
ments from November 1989 to October 1996.
Jeffrey F. O'Donnell 39 President and CEO of X-SITE Medical L.L.C. since January
1999; President of Radiance Medical Systems Inc., cardiology
products, from May 1997 to January 1999;
Vice President of Sales of Kensey Nash
Corporation, cardiology products, from
January 1995 to May 1997.
</TABLE>
3
<PAGE> 7
If the proposal to reincorporate the Company in Delaware is approved,
the Board of Directors of the Delaware corporation consist of the five nominees
named above; however, the Board of Directors will be classified into three
classes. Mr. DePiano and Dr. Federman will become Class III directors, whose
terms will expire in three years; Mr. O'Donnell and Mr. Choate will become Class
II directors, whose terms will expire in two years; and Mr. Kwan will be a Class
I director, whose term will expire in one year. See "Approval of the
Reincorporation of the Company--Significant Changes Caused by Reincorporation"
and "--Classification of the Board of Directors and Certain Other Related
Matters."
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held six meetings during the fiscal year ended
June 30, 1999. 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 three standing committees: the
Executive Committee, the Audit Committee and the Compensation Committee.
Executive Committee The Executive Committee has the authority to take
action that can be taken by the Board of Directors, consistent with applicable
law, between meetings of the Board of Directors. The Executive Committee
consists of three directors: Mr. DePiano, Mr. Choate and Dr. Federman.
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, 1999. The Audit Committee consists of two directors: Messrs. Choate and
Dodick.
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, 1999. The Compensation Committee consists of
three directors: Mr. DePiano, Mr. Choate and Dr. Federman.
4
<PAGE> 8
COMPENSATION OF DIRECTORS
None of the Company's directors was paid any directors fees by the
Company during the fiscal year ended June 30, 1999. Directors currently receive
stock options for each board meeting and committee meeting attended. During
fiscal 1999, Dr. Dodick and Dr. Federman were each issued stock options to
purchase 5,000 shares of the Company's Common Stock, and Mr. Choate and Mr.
O'Donnell were each issued stock options to purchase 10,000 shares of the
Company's Common Stock. The exercise price for each of these options was $2.13
per share. Each option expires ten years after the date of grant and become
exercisable on the grant date. In addition, directors are reimbursed for
expenses incurred in connection with attending meetings.
Jeffrey F. O'Donnell renders consulting services to the Company
pursuant to a consulting agreement with the Company dated March 15, 1999. Mr.
O'Donnell's consulting agreement provides for an annual consulting fee of
$48,000, payable in monthly installments, and reimbursement of expenses
reasonably incurred in connection with his services performed for the Company.
The consulting agreement expires on March 15, 2002, and Mr. O'Donnell has agreed
not to compete with the Company during the term of the consulting agreement and
for an additional two years after the expiration of such agreement.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard J. DePiano 58 Chairman and Chief Executive Officer
Ronald L. Hueneke 56 President and Chief Operating Officer
Douglas R. McGonegal 48 Secretary and Vice President, Finance
</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. From December 1997 until July 1998, he served as the
Company's Corporate Controller. Prior to that time Mr. McGonegal held various
senior management positions. From 1992 to 1993, he served as Executive Vice
President and Chief Operating Officer of Sexton Environmental Services, Inc. and
assumed the Corporate Controller's position with the parent company, John Sexton
Contractors, until 1997. Mr. McGonegal is a certified public accountant.
5
<PAGE> 9
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- - ------------------ ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard J. DePiano(1) 1999 $240,000 $ 120,000 -- $10,938 --
Chairman and Chief Exec- 1998 $240,000 -- -- -- --
utive Officer 1997 $ 73,846 -- -- -- --
Ronald L. Hueneke(2) 1999 $105,000 $ 40,000 -- $ 3,125 --
President and Chief 1998 $105,000 $ 20,000 -- $ 5,625 --
Operating Officer 1997 $105,000 $ 14,500 -- -- --
Shawn Mullen(3) 1999 $100,000 -- -- -- --
Vice President, Sales & 1998 $ 95,000 $ 20,000 -- $ 750 --
Marketing 1997 -- -- -- -- --
</TABLE>
(1) Mr. DePiano became Chairman and Chief Executive Officer of the Company on
March 1, 1997.
(2) Mr. Hueneke became President and Chief Operating Officer of the Company on
July 1, 1998.
(3) Mr. Mullen resigned effective as of July 1, 1999.
6
<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(1) YEAR (PER SHARE) DATE
---- ---------- ---- ----------- ----
<S> <C> <C> <C> <C>
Richard J. DePiano 87,500 57.4% $2.125 4/19/09
Ronald L. 25,000 16.4% $2.125 4/19/09
Hueneke
Shawn Mullen -- -- -- --
</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.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT JUNE 30, 1999 AT JUNE 30, 1999(1)
ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard J. DePiano -- -- 200,000 -- $10,938 --
Ronald L. Hueneke -- -- 40,000 -- $ 8,750 --
Shawn Mullen -- -- 2,000 -- $ 750 --
</TABLE>
- - -------------------
(1) Potential unrealized value is (i) the fair market value at fiscal 1999
year-end less the option exercise price times (ii) the number of
options. Fair market value as of fiscal 1999 year-end was determined
based on a closing sale price on June 30, 1999 of $2.25.
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.
7
<PAGE> 11
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 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 in a maximum annual amount equal to 50% base salary, or $120,000. The
agreement also provides for health and long term 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 a
predecessor of the Company in October 1991, which has been assumed by the
Company. Mr. Hueneke's employment agreement provides for a base salary at a rate
established by the Company's Board of Directors, which is currently set as
$105,000 per annum. Mr. Hueneke is also entitled to receive incentive
compensation in the form of a cash bonus to be paid to Mr. Hueneke at the
discretion of the Board of Directors in a maximum annual amount of 40% of base
salary, or $40,000. The agreement also provides for health, life and long-term
disability insurance and other fringe benefits. 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 September 24, 1999 certain
information regarding the beneficial ownership of the Common Stock by (i) each
stockholder 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.
8
<PAGE> 12
BENEFICIAL OWNERSHIP TABLE
<TABLE>
<CAPTION>
AMOUNT OF
AMOUNT OF BENEFICIAL
BENEFICIAL OWNERSHIP AGGREG-
OWNERSHIP OF SHARES AMOUNT OF ATE
OF OUT PERCENT UNDERLYING AGGREGATE PERCENT
NAME AND ADDRESS STANDING OF OPTIONS/ BENEFICIAL OF
OF BENEFICIAL OWNER SHARES(1)** CLASS WARRANTS*** OWNERSHIP CLASS
- - ------------------- ----------- ----- ----------- --------- -----
<S> <C> <C> <C> <C> <C>
D. Blech and D. Blech & -- -- 565,000 565,000 14.8
Company, Incorporated (2)
599 Lexington Avenue
New York, NY 10022
Fred G. Choate 816 * 10,000 10,816 *
Richard J. DePiano (4) 95,942 3.0 200,000 295,942 8.6
Jack M. Dodick, M.D. 39,725 1.2 15,000 54,752 1.7
Jay L. Federman, M.D. 38,533 1.2 15,000 53,533 1.6
Jeffrey F. O'Donnell 1,000 * 10,000 11,000 *
William Kwan -- -- -- -- *
Ronald L. Hueneke 16,995 * 40,000 56,995 1.7
All directors and executive 192,195 5.9 295,733 487,928 13.1
officers as a group (7 persons)
</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 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-quarter of a 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.
(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.
9
<PAGE> 13
(2) 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 D. Blech & Company.
(3) Mr. Choate shares voting power of 215 of these shares with his wife.
(4) Includes 88,250 shares held by Sandhurst Venture Funds. Mr. DePiano has
the right to vote the Sandhurst Venture Funds shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 12, 1996, the Company acquired substantially all of the
assets and certain of the liabilities of EOI Corp., a Pennsylvania corporation
("EOI"), pursuant to an Assets Sale and Purchase Agreement, in exchange for
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. Mr. DePiano, Dr. Dodick and
Dr. Federman were members of the Board of Directors of EOI at the time of the
acquisition. Ronald L. Hueneke, President of the Company, served as a Vice
President of EOI prior to the consummation of the acquisition. EOI through
August 1998 was the beneficial owner of 42.2% of the outstanding Common Stock of
the Company, and since such date EOI has distributed to its individual
shareholders substantially all of the outstanding Common Stock of the Company in
accordance with its winding up process.
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.
10
<PAGE> 14
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 reports of
ownership and changes in ownership with the Commission. 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 during the period July 1, 1998 through June 30, 1999, all
filing requirements applicable to its officers and directors were complied with,
except that Richard J. DePiano, Jay L. Federman, Jack M. Dodick and Ronald L.
Hueneke each reported one transaction from the year ended June 30, 1998 late and
Fred G. Choate and Douglas R. McGonegal filed their respective initial reports
on Form 3 late.
(PROPOSAL NO. 2)
APPROVAL OF 1999 EQUITY INCENTIVE PLAN
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE 1999 EQUITY INCENTIVE PLAN.
At the Annual Meeting, the stockholders will be asked to consider and
vote upon the approval of the 1999 Equity Incentive Plan (the "Equity Incentive
Plan"). The Board of Directors adopted the Equity Incentive Plan on July 15,
1999, subject to stockholder approval at the Annual Meeting, in order to make
additional shares available under the Equity Incentive Plan in the future for
officers and key employees.
The purpose of the Equity Incentive Plan is to further the growth,
development and financial success of the Company and the subsidiaries of the
Company by providing additional incentives to those officers, directors,
consultants and key employees who are responsible for the management and affairs
of the Company and the subsidiaries of the Company which will enable them to
participate in any increase in value of the Common Stock of the Company. The
Equity Incentive Plan authorized the grant of options for a maximum of 235,000
shares of the Company's Common Stock.
Options granted under the Equity Incentive Plan may be options, options
intended to qualify as incentive stock options under the Code ("Incentive Stock
Options") and options not intended to so qualify ("Non-Qualified Options") to
those officers, directors, consultants and key employees of the Company and the
subsidiaries of the Company who are in positions in which their decisions,
actions and counsel significantly impact upon the profitability and success of
the Company and the subsidiaries of the Company. Nothing contained in the Equity
Incentive Plan affects the right of the Company or any subsidiary of the Company
to terminate the employment of any employee or the services of any director or
consultant.
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No options have yet been granted under the Equity Incentive Plan. No
determination has been made as to the allocation of grants to specific
optionees. The Company believes that the shares reserved under the Equity
Incentive Plan will be required to satisfy anticipated annual Option grants over
the next several years. The number of persons who are eligible to participate in
the Equity Incentive Plan is approximately 30, including executive officers and
directors of the Company and executive officers of subsidiaries of the Company.
On _______ , 1999, the closing price of the Company's Common Stock as
reported on the Nasdaq National Market was $____ per share.
No Options may be granted under the Equity Incentive Plan after July
15, 2009. If an Option expires or is terminated for any reason without having
been fully exercised, the number of shares subject to such Option which have not
been purchased may again be made subject to an Option under the Equity Incentive
Plan. Appropriate adjustments to outstanding Options and to the number or kind
of shares subject to the Equity Incentive Plan are provided for in the event of
a stock split, reverse stock split, stock dividend, share combination or
reclassification and certain other types of corporate transactions involving the
Company, including a merger or a sale of substantially all of the assets of the
Company. As amended, the maximum number of shares of Common Stock for which
Options may be granted under the Equity Incentive Plan to any officer or
employee in any calendar year is 100,000 shares.
The Equity Incentive Plan may be administered by the Board of Directors
of the Company or a committee of two or more members, each of whom must be a
"non-employee director" within the meaning of Rule 16b-3 under the Exchange Act
(the "Committee"), and is currently administered by the Compensation Committee
of the Board of Directors, consisting of Mr. DePiano, Dr. Federman and Mr.
Choate. See "Election of Directors -- Meetings and Committees of the Board of
Directors." The Committee is authorized to (i) interpret the provisions of the
Equity Incentive Plan and decide all questions of fact arising in its
application; (ii) select the employees to whom Options are granted and determine
the timing, type, amount, size and terms of each such grant and (iii) to make
all other determinations necessary or advisable for the administration of the
Equity Incentive Plan.
INCENTIVE AND NON-QUALIFIED OPTIONS
The exercise price of shares subject to Options granted under the
Equity Incentive Plan will be set by the Committee but may not be less than
100%, with respect to Incentive Options, and 85%, with respect to Non-Qualified
Options, of the fair market value per share of Common Stock on the date the
Option is granted as determined by the Committee.
Options will be evidenced by written agreements in such form not
inconsistent with the Equity Incentive Plan as the Committee shall approve from
time to time. Each agreement will state the period or periods of time within
which the Option may be exercised. The Committee may accelerate the
exercisability of any Option upon such circumstances and subject to such terms
and conditions as the Committee deems appropriate. Unless otherwise determined
by the
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Committee, no Option that is unexercisable at the time of the optionee's
termination of employment may thereafter become exercisable. No Option may be
exercised after ten years from the date of grant.
An outstanding Non-Qualified Option that has become exercisable
generally terminates one year after the termination of employment due to death,
retirement or total disability and three months after employment termination for
any reason other than retirement, total disability or death. Incentive Stock
Options that have become exercisable generally will terminate one year after
termination of employment due to total disability or death and three months
after an employment termination for any other reason. No Option may be assigned
or transferred, except by will or by the applicable laws of descent and
distribution. During the lifetime of the optionee, an Option may be exercised
only by the optionee.
The Committee will determine whether Options granted are to be
Incentive Stock Options meeting the requirements of Section 422 of the Code.
Incentive Stock Options may be granted only to eligible employees. Any such
optionee must own less than 10% of the total combined voting power of the
Company or of any of its subsidiaries unless, at the time such Incentive Stock
Option is granted, the option price is at least 110% of the fair market value of
the Common Stock subject to the Option and, by its terms, the Incentive Stock
Option is not exercisable after the expiration of five years from the date of
grant. An optionee may not receive Incentive Stock Options for shares that first
become exercisable in any calendar year with an aggregate fair market value
determined at the date of grant in excess of $100,000.
The option price must be paid in full at the time of exercise unless
otherwise determined by the Committee. Payment must be made in cash, in shares
of Common Stock valued at their then fair market value, or a combination
thereof, as determined in the discretion of the Committee. It is the policy of
the Committee that any taxes required to be withheld must also be paid at the
time of exercise. The Committee may, in its discretion, allow an optionee to
enter into an agreement with the Company's transfer agent or a brokerage firm of
national standing whereby the optionee will simultaneously exercise the Option
and sell the shares acquired thereby and either the Company's transfer agent or
the brokerage firm executing the sale will remit to the Company from the
proceeds of sale the exercise price of the shares as to which the Option has
been exercised.
AMENDMENT AND TERMINATION
The Committee may terminate or amend the Equity Incentive Plan at any
time with respect to shares as to which Options have not been granted, subject
to any required stockholder approval or any stockholder approval that the Board
may deem to be advisable for any reason, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under tax, securities or other
laws or satisfying any applicable stock exchange listing requirements. No
modification, amendment or termination may be made to the Equity Incentive Plan
without the consent of an optionee if such modification, amendment or
termination will affect the rights of the optionee under an Option previously
granted.
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FEDERAL INCOME TAX CONSEQUENCES
Based on the advice of counsel, the Company believes that the normal
operation of the Equity Incentive Plan should generally have, under the Code and
the regulations thereunder, all as in effect on the date of this Proxy
Statement, the principal federal income tax consequences described below. The
tax treatment described below does not take into account any changes in the Code
or the regulations thereunder that may occur after the date of this Proxy
Statement. The following discussion is only a summary; it is not intended to be
all-inclusive or to constitute tax advice, and, among other things, does not
cover possible state or local tax consequences. This description may differ from
the actual tax consequences of participation in the Equity Incentive Plan.
An employee receiving an Option (an "Optionee") will not recognize
taxable income upon the grant of the Option, nor will the Company be entitled to
any deduction on account of such grant.
In the case of Non-Qualified Stock Options, the Optionee will recognize
ordinary income upon the exercise of the Non-Qualified Stock Option in an amount
equal to the difference between the option price and the fair market value of
the shares on the date of exercise. An Optionee exercising a Non-Qualified Stock
Option is subject to federal income tax withholding on the income recognized as
a result of the exercise of the Non-Qualified Stock Option. Such income will
include any income attributable to any shares issuable upon exercise that are
surrendered, if permitted under the applicable stock option agreement, in order
to satisfy the federal income tax withholding requirements.
Except as provided below, the basis of the shares received by the
Optionee upon the exercise of a Non-Qualified Stock Option will be the fair
market value of the shares on the date of exercise. The Optionee's holding
period will begin on the day after the date on which the Optionee recognizes
income with respect to the transfer of such shares, i.e., generally the day
after the exercise date. When the Optionee disposes of the shares acquired upon
exercise of a Non-Qualified Stock Option, the Optionee will generally recognize
capital gain or loss under the Code rules that govern stock dispositions,
assuming the shares are held as capital assets, equal to the difference between
(i) the selling price of the shares and (ii) the sum of the option price and the
amount included in his or her income when the Non-Qualified Stock Option was
exercised. Any net capital gain (i.e., the excess of the net long-term capital
gains for the taxable year over net short-term capital losses for such taxable
year) will be taxed at a capital gains rate that depends on how long the shares
were held and the Optionee's tax bracket. Any net capital loss may be used only
to offset up to $3,000 per year of ordinary income (reduced to $1,500 in the
case of a married individual filing separately) or carried forward to a
subsequent year. The use of shares to pay the exercise price of a Non-Qualified
Stock Option, if permitted under the applicable stock option agreement, will be
treated as a like-kind exchange under Section 1036 of the Code to the extent
that the number of shares received on the exercise does not exceed the number of
shares surrendered. The Optionee will therefore recognize no gain or loss with
respect to the surrendered shares and will have the same basis and holding
period with respect to the newly acquired shares
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<PAGE> 18
(up to the number of shares surrendered) as with respect to the surrendered
shares. To the extent the number of shares received exceeds the number
surrendered, the fair market value of such excess shares on the date of
exercise, reduced by any cash paid by the Optionee upon such exercise, will be
includible in the gross income of the Optionee. The Optionee's basis in such
excess shares will equal the fair market value of such shares on the date of
exercise, and the Optionee's holding period with respect to such excess shares
will begin on the day following the date of exercise.
Incentive Stock Options granted under the Equity Incentive Plan are
intended to qualify as incentive stock options under Section 422 of the Code. A
purchase of shares upon exercise of an Incentive Stock Option will not result in
recognition of income at that time, provided the Optionee was an employee of the
Company or certain related corporations described in Section 422(a)(2) of the
Code during the entire period from the date of grant of the Incentive Stock
Option until three months before the date of exercise (increased to 12 months if
employment ceased due to total and permanent disability). The employment
requirement is waived in the event of the Optionee's death. (Of course, in all
of these situations, the Incentive Stock Option itself may provide a shorter
exercise period after employment ceases than the allowable period under the
Code.) However, the excess of the fair market value of the shares purchased over
the exercise price will constitute an item of tax preference. This tax
preference will be included in the Optionee's computation of the Optionee's
alternative minimum tax. The basis of the shares received by the Optionee upon
exercise of an Incentive Stock Option is the exercise price. The Optionee's
holding period for such shares begins on the date of exercise.
If the Optionee does not dispose of the shares issued to the optionee
upon the exercise of an Incentive Stock Option within one year after such
issuance or within two years after the date of the grant of such Incentive Stock
Option, whichever is later, then any gain or loss realized by the Optionee on a
later sale or exchange of such shares generally will be a long-term capital gain
or a long-term capital loss equal to the difference between the amount realized
upon the disposition and the exercise price, if such shares are otherwise a
capital asset in the hands of the Optionee. Any net capital gain (i.e., the
excess of the net long-term capital gains for the taxable year over net
short-term capital losses for such taxable year) will be taxed at a capital
gains rate that depends on how long the shares were held and the Optionee's tax
bracket. Any net capital loss may be used only to offset up to $3,000 per year
of ordinary income (reduced to $1,500 in the case of a married individual filing
separately) or carried forward to a subsequent year. If the Optionee sells the
shares during such period (i.e., within two years after the date of grant of the
Incentive Stock Option or within one year after the transfer of the shares to
the Optionee), the sale will be deemed a "disqualifying disposition." In that
event, the Optionee will recognize ordinary income for the year in which the
disqualifying disposition occurs equal to the amount, if any, by which the
lesser of the fair market value of such shares on the date of exercise of such
Incentive Stock Option or the amount realized from the sale exceeded the amount
the Optionee paid for such shares. In the case of disqualifying dispositions
resulting from certain transactions, such as gift or related party transactions,
the Optionee will realize ordinary income equal to the fair market value of the
shares on the date of exercise minus the exercise price. The basis of the shares
with respect to which a disqualifying disposition occurs will be increased by
the amount
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included in the Optionee's ordinary income. Disqualifying dispositions of shares
may also, depending upon the sales price, result in capital gain or loss under
the Code rules that govern other stock dispositions, assuming that the shares
are held as a capital asset. The tax treatment of such capital gain or loss is
summarized above.
Except as provided below, the use of shares already owned by the
Optionee to pay the purchase price of an Incentive Stock Option will be treated
as a like-kind exchange under Section 1036 of the Code to the extent that the
number of shares received on the exercise does not exceed the number of shares
surrendered. The Optionee will therefore recognize no gain or loss with respect
to the surrendered shares and will have the same basis and holding period with
respect to the newly acquired shares (up to the number of shares surrendered) as
with respect to the surrendered shares. To the extent that the number of shares
received exceeds the number surrendered, the Optionee's basis in such excess
shares will equal the amount of cash paid by the Optionee upon the exercise of
the Incentive Stock Option (if any), and the Optionee's holding period with
respect to such excess shares will begin on the date such shares are transferred
to the Optionee. However, if payment of the purchase price upon exercise of an
Incentive Stock Option is made with shares acquired upon exercise of an
Incentive Stock Option before the shares used for payment have been held for the
two-year or one-year period described herein, use of such shares as payment will
be deemed a "disqualifying disposition" of the shares used for payment subject
to the rules described herein.
Under current law, any gain realized by an Optionee, other than
long-term capital gain, is taxable at a maximum federal income tax rate of
39.6%. Under current law, long-term capital gain is taxable at a maximum federal
income tax rate of 20%.
The Company will be entitled to a tax deduction in connection with an
Option under the Equity Incentive Plan in an amount equal to the ordinary income
realized by the Optionee and at the time such Optionee recognizes such income
(including any ordinary income realized by the Optionee upon a "disqualifying
disposition" of an Incentive Stock Option described above).
The foregoing discussion is only a summary of certain of the federal
income tax consequences relating to the Equity Incentive Plan as in effect on
the date of this Proxy Statement. No consideration has been given to the effects
of state, local, and other laws (tax or other) upon the Equity Incentive Plan or
upon the Optionee or Company, which laws will vary depending upon the particular
jurisdiction or jurisdictions involved.
VOTE REQUIRED
Approval of the Equity Incentive Plan will require the affirmative vote
of the holders of a majority of the shares of the Company's Common Stock present
in person or represented by proxy at the Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE EQUITY
INCENTIVE PLAN.
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(PROPOSAL NO. 3)
APPROVAL OF THE REINCORPORATION OF THE COMPANY
FROM CALIFORNIA TO DELAWARE
GENERAL
The Board of Directors has unanimously approved a proposal to change
the Company's state of incorporation from California to Delaware (the "Proposed
Reincorporation"). The Board of Directors believes the change in domicile to be
in the best interests of the Company and its stockholders for the several
reasons discussed below. Furthermore, although the Company was formerly
headquartered in California, it no longer has significant operations in that
state. The Company as currently incorporated in California will sometimes be
referred as "Escalon California," and the Company as reincorporated in Delaware
will be referred to as "Escalon Delaware."
In recent years, a number of major public companies have obtained the
approval of their stockholders to reincorporate in Delaware. For the reasons
explained below, the Company believes it is beneficial and important that the
Company likewise avail itself of Delaware law.
Predictability of Delaware Law.
For many years Delaware has followed a policy of encouraging
incorporation in that state. In furtherance of that policy, Delaware has adopted
comprehensive corporate laws that are revised regularly to meet changing
business circumstances. The Delaware legislature is particularly sensitive to
issues regarding corporate law and is especially responsive to developments in
modern corporate law. The Delaware courts have developed considerable expertise
in dealing with corporate issues as well as a substantial body of case law
construing Delaware's corporate law. As a result of these factors, it is
anticipated that Delaware law will provide greater predictability in the
Company's legal affairs than is presently available under California law.
Well-Established Principles of Corporate Governance.
There is substantial judicial precedent in the Delaware courts as to
the legal principles applicable to measures that may be taken by corporations
and as to the conduct of boards of directors under the business judgment rule
and other standards. The Company believes that its stockholders will benefit
from the well-established principles of corporate governance that Delaware law
affords.
Hostile Takeovers.
The Company intends as part of the reincorporation to adopt certain
measures that may have the effect of deterring hostile takeover attempts. The
Board believes that unsolicited takeover
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attempts may be unfair or disadvantageous to the Company and its stockholders
because, among other reasons: (i) a non-negotiated takeover bid may be timed to
take advantage of temporarily depressed stock prices; (ii) a non-negotiated
takeover bid may be designed to foreclose or minimize the possibility of more
favorable competing bids or alternative transactions; (iii) a non-negotiated
takeover bid may involve the acquisition of only a controlling interest in the
Company's stock, without affording all stockholders the opportunity to receive
the same economic benefits; (iv) a non-negotiated takeover bid may deprive
stockholders of an adequate opportunity to evaluate the merits of the proposed
transaction; and (v) certain of the Company's contractual arrangements provide
that they may not be assigned in connection with a transaction that results in a
"change of control" of the Company without the prior written consent of the
licensor or other contracting party.
By contrast, in a transaction in which a potential acquirer must
negotiate with the Board of Directors, the Board may take account of the
underlying and long-term values of the Company's business, technology and other
assets, the possibilities for alternative transactions on more favorable terms,
the possible advantages from a tax-free reorganization, the anticipated
favorable developments in the Company's business not yet reflected in the stock
price and the equality of treatment of all stockholders.
The Board believes that, for the protection of the Company's
stockholders, any proposed acquisition of control of the Company or proposed
business combination in which the Company might be involved should be thoroughly
studied by the Board to assure that such transaction would be in the best
interests of the Company and its stockholders and that all of the Company's
stockholders would be treated fairly in such transaction. In summary, the Board
believes that the Proposed Reincorporation is prudent and in the best interests
of the Company and its stockholders and should be adopted for their protection.
A hostile takeover attempt may have a positive or a negative effect on the
Company and its stockholders, depending on the circumstances surrounding a
particular takeover attempt. Takeover attempts that have not been negotiated or
approved by the board of directors of a corporation can seriously disrupt the
business and management of a corporation and generally present to the
stockholders the risk of terms that may be less favorable to all of the
stockholders than would be available in a board-approved transaction.
Board-approved transactions may be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the corporation and all of
its stockholders with due consideration to matters such as the recognition or
postponement of gain or loss for tax purposes, the management and business of
the acquiring corporation and maximum strategic deployment of corporate assets.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the stockholders, providing all of the stockholders
with considerable value for their shares. Nevertheless, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts are
sufficiently great that prudent steps to reduce the likelihood of such takeover
attempts are in the best interests of the Company and its stockholders.
Accordingly, the Proposed Reincorporation plan includes certain proposals that
may have the effect of discouraging or
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deterring hostile takeover attempts. The Proposed Reincorporation is not,
however, being proposed in response to any present attempt, known to the Board,
to acquire control of the Company to obtain representation on the Company's
Board, or to take significant corporate action that would materially affect the
governance of the Company.
Notwithstanding the belief of the Board of Directors as to the benefits
to stockholders of the proposed changes, stockholders should recognize that one
of the effects of such changes may be to discourage a future attempt to acquire
control of the Company that is not presented to and approved by the Board of
Directors, but that a substantial number and perhaps even a majority of the
Company's stockholders might believe to be in their best interests, or in which
stockholders might receive a substantial premium for their shares over the
current market prices. As a result, stockholders who might desire to participate
in such a transaction may not have an opportunity to do so. In addition, the
Proposed Reincorporation could make it more difficult to change the existing
Board and management. Furthermore, adoption of the proposal will not necessarily
ensure or guarantee that stockholders will receive a price for their shares in
connection with an acquisition of control of the Company that reflects the value
of such shares or that is fair and equitable, although, in the opinion of the
Board, the likelihood that the price will reflect such value and be fair and
equitable will be increased by the Proposed Reincorporation. See "Significant
Changes Caused by Reincorporation" below.
In the discharge of its fiduciary obligations to the Company's
stockholders, the Board has evaluated the Company's vulnerability to potential
unsolicited bidders. In the course of such evaluation, the Board has considered,
or may consider in the future, certain defensive strategies designed to enhance
the Board's ability to negotiate with such unsolicited bidders. These strategies
include, but are not limited to, the adoption of a stockholder rights plan, the
adoption of a severance plan for the Company's management and key employees that
becomes effective upon the occurrence of a change in control of the Company, the
establishment of a staggered board of directors, the elimination of cumulative
voting, the elimination of the right to remove a director other than for cause
and the authorization of "blank-check" preferred stock (the rights and
preferences of which may be determined by the board of directors). The
authorization of "blank-check" preferred stock has been previously adopted by
Escalon California and will continue with respect to Escalon Delaware following
the Proposed Reincorporation. For a detailed discussion of the changes that will
be implemented as part of the Proposed Reincorporation, see "Significant Changes
Caused by Reincorporation" below.
Increased Ability to Attract and Retain Qualified Directors and
Officers.
Both California and Delaware law permit a corporation to reduce or
limit the monetary liability of directors for breaches of fiduciary duty in
certain circumstances and to indemnify directors and officers against certain
monetary liability, fees and expenses incurred in connection with the
performance of their respective duties relating to the corporation. The
increasing frequency of claims and litigation directed against directors and
officers has greatly expanded the risks facing directors and officers of
corporations in exercising their respective duties. The amount of time and money
required to respond to such claims and to defend such litigation can be
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substantial. The Company desires to reduce these risks to its directors and
officers, to limit to the extent possible the situations in which monetary
damages can be recovered against and to indemnify its directors and officers to
the extent possible so that the Company may continue to attract and retain
qualified directors and officers who otherwise might be unwilling to serve
because of the risks involved. The Company believes that, in general, Delaware
law provides greater protection to directors and officers than California law
and that Delaware case law regarding a corporation's ability to limit director
liability and to indemnify directors and officers is better developed and
provides more guidance than California law. Nevertheless, the stockholders
should be aware that such a provision inures to the benefit of the directors,
and the interest of the Board of Directors in recommending the reincorporation
may therefore be in conflict with the interests of the stockholders. See
"--Limitation of Directors Liability" and "Indemnification of Officers and
Directors" for a more complete discussion of these issues.
Approximately three years ago, Proposition 211 was rejected by the
California electorate. Proposition 211, which was voted upon in November 1996,
would have, if enacted, severely limited the ability of California companies to
indemnify their directors and officers. While Proposition 211 was defeated,
similar initiatives or legislation containing similar provisions may be proposed
in California in the future. As a result, the Company believes that the more
favorable corporate environment afforded by Delaware will enable it to compete
more effectively with other public companies in attracting and retaining
qualified directors and officers.
Rights of Stockholders.
The interests of the Board of Directors of the Company, management and
affiliated stockholders in voting on the Proposed Reincorporation may not be the
same as those of unaffiliated stockholders. Delaware law does not afford
minority stockholders some of the rights and protections available under
California law. Reincorporation of the Company in Delaware may make it more
difficult for minority stockholders to elect directors and influence Company
policies. A discussion of the principal differences between California and
Delaware law as they affect stockholders begins on page ____ of this Proxy
Statement.
Method of Reincorporation.
The Proposed Reincorporation would be accomplished by merging the
Company into Escalon Delaware, a newly formed Delaware corporation which, just
before the merger, will be a wholly owned subsidiary of the Company, pursuant to
an Agreement and Plan of Merger (the "Merger Agreement"), a copy of which is
attached as Exhibit A to this Proxy Statement. Upon the effective date of the
merger, the Escalon Delaware's name will be Escalon Medical Corp. The
reincorporation will not result in any change in the Company's business, assets
or liabilities, will not cause its corporate headquarters to be moved and will
not result in any relocation of management or other employees.
On the effective date of the reincorporation, each outstanding share of
Common Stock of Escalon California will automatically convert into one share of
Common Stock of Escalon
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Delaware, and stockholders of Escalon California will automatically become
stockholders of Escalon Delaware. On the effective date of the reincorporation,
the number of outstanding shares of Common Stock of Escalon Delaware will be
equal to the number of shares of Common Stock of Escalon California outstanding
immediately prior to the effective date of the reincorporation. In addition,
each outstanding option or right to acquire shares of Common Stock of Escalon
California will be converted into an option or right to acquire an equal number
of shares of Common Stock of the Escalon Delaware, under the same terms and
conditions as the original options or rights. All of the Company's employee
benefit plans, including the 1989 Stock Option Plan, the 1990 Stock Option Plan,
the 1991 Stock Option Plan, the 1992 Stock Option Plan, the 1993 Stock Option
Plan and the 1999 Equity Incentive Plan will be adopted and continued by the
Escalon Delaware following the reincorporation. Stockholders should recognize
that approval of the Proposed Reincorporation will constitute approval of the
adoption and assumption of those plans by Escalon Delaware.
No action need be taken by stockholders to exchange their stock
certificates; this will be accomplished at the time of the next transfer by the
stockholder. Certificates for shares in Escalon California will automatically
represent an equal number of shares in Escalon Delaware upon completion of the
merger.
If approved by the stockholders, it is anticipated that the
reincorporation would be completed as soon thereafter as practicable. However,
the reincorporation may be abandoned or the Merger Agreement may be amended
(with certain exceptions), either before or after stockholder approval has been
obtained, if in the opinion of the Board of Directors, circumstances arise that
make such action advisable; provided that any amendment that would effect a
material change from the charter provisions discussed in this Proxy Statement
would require further approval by the holders of a majority of the outstanding
shares of the Common Stock.
SIGNIFICANT CHANGES CAUSED BY REINCORPORATION
In general, Escalon California's corporate affairs are governed at
present by the corporate law of California, the Company's state of
incorporation, and by Escalon California's Articles of Incorporation, as amended
(the "California Articles") and Escalon California's Amended and Restated Bylaws
(the "California Bylaws"), which have been adopted pursuant to California law.
The California Articles and California Bylaws are available for inspection
during business hours at the principal executive offices of the Company. In
addition, copies may be obtained by writing to the Company at 351 East Conestoga
Road, Wayne, PA 19087.
If the reincorporation proposal is adopted, the Company will merge
into, and its business will be continued by, Escalon Delaware. Following the
merger, issues of corporate governance and control would be controlled by
Delaware, rather than California law (however, see "-- Application of California
Law After Reincorporation"). The California Articles and California Bylaws,
will, in effect, be replaced by the Certificate of Incorporation of Escalon
Delaware (the "Delaware Certificate") and the by-laws of Escalon Delaware (the
"Delaware By-laws"), copies of which are attached as Exhibits B and C to this
Proxy Statement. Accordingly, the differences
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among these documents and between Delaware and California law are relevant to
your decision whether to approve the Proposed Reincorporation.
In particular, it should be noted that the Delaware Certificate
provides for a classified Board. If the reincorporation proposal is adopted, the
directors of the Delaware corporation will, in effect, become the directors of
the Company. Because the Board is classified into three classes, the terms of
Mr. DePiano and Dr. Federman as Class III directors will not expire for three
years, and the terms of Mr. O'Donnell and Mr. Choate as Class II directors will
not expire for two years. Mr. Kwan's term as a Class I director will expire in
one year.
A number of significant differences between California and Delaware law
and among the various charter documents are summarized in the chart below. The
provisions of the Escalon Delaware Certificate and By-laws are similar to those
of the Escalon California Articles and Bylaws in many respects. However, as
described below, the Proposed Reincorporation includes the implementation of
certain provisions in the Delaware Certificate and By-laws which alter the
rights of stockholders and the powers of management and which, in some cases,
may reduce stockholder participation in important corporate decisions and may
have "antitakeover" implications. While the Delaware Certificate and Delaware
By-laws and the California Articles and Bylaws and the respective laws of
California and Delaware are discussed below, such discussion contains neither an
exhaustive description of all differences between the Delaware Certificate and
By-laws and the California Articles and By-laws nor an exhaustive description of
the differences between the laws of the two states. The discussion below of the
Delaware Certificate and Delaware By-laws is qualified by reference to
Appendices B and C hereto, respectively. Stockholders are requested to read the
following chart in conjunction with the discussion following the chart and the
Merger Agreement, the Delaware Certificate and the Delaware By-laws attached to
this Proxy Statement. For each item summarized in the chart, there is a
reference to a page of this Proxy Statement on which a more detailed discussion
appears.
<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- - ----- -------- ----------
<S> <C> <C>
Indemnification of Delaware law permits somewhat California law permits
Directors and Officers (see broader indemnification and could indemnification under certain
page ____). result in indemnification of directors limitations.
and officers in circumstances where
California law would not permit
indemnification.
</TABLE>
22
<PAGE> 26
<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- - ----- -------- ----------
<S> <C> <C>
Cumulative Voting for Cumulative voting is not available Cumulative voting is mandatory
Directors (see page ____). under Delaware law unless provided in upon notice given by a stockholder
the certificate of incorporation. The at stockholder's meeting at which
Delaware Certificate does not provide directors are to be elected.
for cumulative voting. California law permits Nasdaq
National Market System ("Nasdaq")
corporations with over 800 equity security
holders to eliminate cumulative voting.
The California Articles do not include
such a provision.
Classified Board of Delaware Certificate divides the Board California Articles do not provide
Directors (see page ____). of Directors into three classes. for classes of directors.
Directors will serve for three years,
with one class being elected each year.
Removal of Directors by Removal only for cause by affirmative Removal with or without cause by
Stockholders (see page vote of a majority of the outstanding affirmative vote of a majority of the
____). shares. outstanding shares, provided that
shares voting against removal could
not elect such director under cumulative
voting.
Filling Board Vacancies Delaware law provides that vacancies California law permits (a) any
(see page ____). and newly created directorships may holder of 5% or more of the
be filled by a majority of the directors corporation's outstanding shares or
then in office, even if less than a (b) the superior court of the
quorum. If there are no directors in appropriate county to call a special
office, the Delaware Court of Chancery meeting of stockholders to elect the
may order an election to fill vacancies entire board if, after filling any
or newly created directorships upon the vacancy, the directors then in office
application of any stockholder. who have been elected by the
stockholders constitute less than a
majority of the directors then in
office.
Who May Call Special The Board of Directors, the Chairman The Board of Directors, the
Stockholder Meeting (see of the Board or the President. Chairman of the Board, the
page ____). President, holders of 10% of the
shares entitled to vote at the
special meeting, or such additional
persons as provided in the articles
or bylaws.
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- - ----- -------- ----------
<S> <C> <C>
Action by Written Consent Action by written consent prohibited Action by written consent
of Stockholders in Lieu of by the Delaware Certificate. All permitted.
a Stockholder Vote at stockholder action must take place by
Stockholder Meeting (see a stockholder vote at a meeting of
page ____). stockholder.
Business Combination Restrict business combinations No comparable statute.
Offer Statute (see page (mergers, sales of assets, and similar
____). transactions) between the Company
and a 15% stockholder whose ownership
was not approved in advance by the board
of directors for three years.
Amendment of Certificate Amendments of all provisions of the Amendment of all provisions of the
(see page ____). Delaware Certificate (except California Articles requires
antitakeover provisions) requires approval by a majority of the
approval by a majority of the voting outstanding shares of the Company.
stock of the Delaware Company, amendment
of antitakeover provisions requires
approval of 66 2/3% of the voting stock
of the Company.
Loans to Officers and Board of Directors may authorize if Loans must be approved or ratified
Directors (see page ____). expected to benefit the Company. by a majority of the outstanding
shares.
Class Vote for Generally not required unless a A reorganization transaction must
Reorganizations (see page reorganization adversely affects a generally be approved by a majority
____). specific class of shares. vote of each class of shares
outstanding.
Right of Stockholders to Permitted for any purpose reasonably Permitted for any purpose
Inspect Stockholder List related to such stockholder's interest as reasonably related to such
(see page ____). a stockholder. stockholder's interest as a
stockholder. Also, an absolute right
for stockholders holding at least
5% in the aggregate of the outstanding
voting shares of the corporation or
who hold at least 1% of such shares
and have filed a Schedule 14A with
the SEC.
Appraisal Rights (see page Available in certain mergers if Available in certain circumstances
____). stockholders receive cash in exchange if the holders of 5% of the class
for the shares and in certain other assert such rights.
circumstances.
</TABLE>
24
<PAGE> 28
<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- - ----- -------- ----------
<S> <C> <C>
Dividends (see page Paid from surplus (including paid-in Generally limited to the greater of
____). and earned surplus) or net profits for (i) retained earnings or (ii) an
present or prior fiscal year. amount which would leave the
Company with assets of 125% of
liabilities and current assets of
100% of current liabilities.
Other Responsive legislature and larger body of
corporate case law in Delaware provides more
predictable corporate legal environment in
Delaware.
</TABLE>
LIMITATION OF DIRECTOR LIABILITY
Both California and Delaware permit a corporation to limit the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of certain duties as a director. The California and Delaware
laws adopt a self-governance approach by enabling a corporation to take
advantage of these provisions only if an amendment to the charter limiting such
liability is approved by a majority of the outstanding shares or such language
is included in the original charter.
The California Articles eliminate the liability of directors to the
corporation to the fullest extent permissible under California law. California
law does not permit the elimination of monetary liability where such liability
is based on: (a) intentional misconduct or knowing and culpable violation of
law; (b) acts or omissions that a director believes to be contrary to the best
interests of the corporation or its stockholders, or that involve the absence of
good faith on the part of the director; (c) receipt of an improper personal
benefit; (d) acts or omissions that show reckless disregard for the director's
duty to the corporation or its stockholders, where the director in the ordinary
course of performing a director's duties should be aware of a risk of serious
injury to the corporation or its stockholders; (e) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation and its stockholders; (f) interested
transactions between the corporation and a director in which a director has a
material financial interest; and (g) liability for improper distributions, loans
or guarantees. The Delaware Certificate also eliminates the liability of
directors to the fullest extent permissible under Delaware law, as such law
exists currently or as it may be amended in the future. Under Delaware law, such
provision may not eliminate or limit director monetary liability for (a)
breaches of the director's duty of loyalty to the corporation or its
stockholders; (b) acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law; (c) the payment of unlawful dividends
or unlawful stock repurchases or redemptions; or (d) transactions in which the
director received an improper personal benefit. Such limitation of liability
provision also may not limit director's liability for violation of, or otherwise
relieve the Delaware Company or its directors from the necessity of complying
with, federal or state securities laws or affect the availability of
non-monetary remedies such as injunctive relief or rescission.
25
<PAGE> 29
Both the California Articles and the Delaware Certificate provide for
the elimination of personal monetary liability of directors to the fullest
extent permissible under the law of the respective states. However, because
Delaware law is more permissive under certain circumstances than California law
with respect to eliminating monetary liability of directors, Delaware
Certificate is potentially broader in application than the California Articles.
In addition, the Delaware Certificate provision incorporates any future
amendments to Delaware law that further eliminate or limit such liability.
Both the California Articles and the Delaware Certificate both provide
for the elimination of personal monetary liability of directors to the fullest
extent permissible under the law of the respective states. However, because
Delaware law is more permissive under certain circumstances then California law
with respect to eliminating monetary liability of directors, the Delaware
Certificate is potentially broader in application than the California Articles.
In addition, the Delaware Certificate provision incorporates any future
amendments to Delaware law that further eliminate or limit such liability.
Stockholders should recognize that the Proposed Reincorporation and
associated measures are designed to shield a director from suits by Escalon
Delaware or its stockholders for monetary damages for negligence or gross
negligence by the director in failing to satisfy the director's duty of care. As
a result, an action for monetary damages against a director predicated on a
breach of the duty of care would be available only if Escalon Delaware or its
stockholders were able to establish that the director was disloyal in his
conduct, failed to act in good faith, engaged in intentional misconduct,
knowingly violated the law, derived an improper personal benefit or approved an
illegal dividend or stock repurchase. Consequently, the effect of such measures
may be to limit or eliminate an effective remedy which might otherwise be
available to a stockholder who is dissatisfied with the Board of Directors'
decisions. Although an aggrieved stockholder could sue to enjoin or rescind an
action taken or proposed by the Board of Directors, such remedies may not be
timely or adequate to prevent or redress injury in all cases.
The Company believes that directors are motivated to exercise due care
in managing the Company's affairs primarily by concern for the best interests of
the Company and its stockholders rather than by the fear of potential monetary
damage awards. As a result, the Company believes that the Proposed
Reincorporation will not affect the Board of Directors' continued high standard
of corporate governance.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The California Bylaws and Delaware By-laws relating to indemnification
similarly require that Escalon California and Escalon Delaware, respectively,
indemnify its directors and officers to the fullest extent permitted by the
respective state law, provided, that Escalon California and Escalon Delaware may
modify the extent of such indemnification by individual contracts with its
directors and executive officers, and, provided, further, that Escalon Delaware
will not be required to indemnify any director or officer in connection with a
proceeding initiated by such person unless the proceeding was authorized by the
Board of Directors. The California Bylaws
26
<PAGE> 30
permit Escalon California to provide indemnification to its other officers,
employees and agents as set forth in California law. The Delaware By-laws only
provide indemnification to directors, officers and anyone serving at the request
of Escalon Delaware as a director, officer, employee or agent of another
corporation. California and Delaware have similar laws respecting
indemnification by a corporation of its officers, directors, employees and other
agents. There are nonetheless certain differences between the laws of the two
states, as well as the California and Delaware By-laws.
California law permits indemnification of expenses incurred in
derivative or third party actions, except that with respect to derivative
actions (a) no indemnification may be made without court approval when a person
is adjudged liable to the corporation in the performance of that person's duty
to the corporation and its stockholders, unless a court determines such person
is entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine and (b) no indemnification
may be made under California law, without court approval in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a threatened or
pending action or amounts incurred in defending a pending action which is
settled or otherwise disposed of without court approval. Delaware allows
indemnification of such expenses without court approval.
Indemnification is permitted by California law providing the requisite
standard of conduct is met, as determined by (1) a majority vote of a
disinterested quorum of the directors, (2) independent legal counsel (if a
quorum of independent directors is not obtainable), (3) a majority vote of a
quorum of the stockholders (excluding shares owned by the indemnified party) or
(4) the court handling the action.
Delaware law generally permits indemnification of expenses incurred in
the defense or settlement of a derivative or third party action, provided there
is a determination (1) by a majority of the disinterested directors, even though
less than a quorum (2) by a committee of such directors designated by a majority
vote of such directors, even though less than a quorum, (3) by independent legal
counsel, regardless of whether a disinterested quorum of directors exists or (4)
by a majority vote of a quorum of the stockholders that the person seeking
indemnification acted in good faith and in a manner reasonably believed to be in
or (in contrast to California law as described above) not opposed to the best
interests of the corporation. Without court approval, however, no
indemnification may be made in respect of any derivative action in which such
person is adjudged liable for negligence or misconduct in the performance of his
or her duty to the corporation.
California law requires indemnification when the individual has
successfully defended the action on the merits as opposed to Delaware law, which
requires indemnification relating to a successful defense on the merits or
otherwise, but only for directors and officers.
Both California law and the California Bylaws permit (as opposed to the
Delaware By-laws, which require) the Company to advance expenses related to any
proceeding contingent on
27
<PAGE> 31
such persons' commitment to repay any advances unless it is determined
ultimately that such persons are entitled to be indemnified.
California corporations may include in their articles of incorporation
a provision which extends the scope of indemnification through agreements,
bylaws or other corporate action beyond that specifically authorized by the
California statute. The California Articles include such a provision. A
provision of Delaware law states that the indemnification provided by statute
shall not be deemed exclusive of any other rights under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise. Under Delaware
law, rights to indemnification and expenses are non-exclusive, in that they need
not be limited to those expressly provided by statute. California law is similar
in that it permits non-exclusive indemnification if authorized in the Company's
charter. The California Articles contain such an enabling provision. Under
Delaware law and the Delaware By-laws, Escalon Delaware is permitted to
indemnify its directors and officers within the limits established by law and
public policy, pursuant to an express contract, bylaw provision, stockholder
vote, vote of disinterested directors or otherwise, any or all of which could
provide indemnification rights broader than those currently available under the
California Bylaws or the California indemnification statutes.
The indemnification and limitation of liability provisions of
California law, and not Delaware law, will apply to actions of the directors and
officers of the Company made prior to the Proposed Reincorporation.
Nevertheless, the Board of Directors has recognized in considering the Proposed
Reincorporation that the individual directors have a personal interest in
obtaining the application of Delaware law to such indemnity and limitation of
liability issues affecting them and the Company in the event they arise from a
potential future case, and that the application of Delaware law, to the extent
that any director or officer is actually indemnified in circumstances where
indemnification would not be available under California law, would result in
expense to the Company that the Company would not incur if the Company were not
reincorporated. The Board of Directors believes, however, that the overall
effect of reincorporation is to provide a corporate legal environment that
enhances the Company's ability to attract and retain high quality outside
directors and thus benefits the interests of the Company and its stockholders.
There is no pending or, to the Company's knowledge, threatened
litigation to which any of its directors is a party in which the rights of the
Company or its stockholders would be affected if the Company currently were
subject to the provisions of Delaware law rather than California law.
INDEMNIFICATION AGREEMENTS
Escalon Delaware intends to enter into indemnification agreements with
certain of its directors and officers. The indemnification agreements, among
other things, require the Escalon Delaware to indemnify such officers and
directors to the fullest extent permitted by Delaware law, and to advance to
such directors all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. Escalon Delaware
is also required to indemnify
28
<PAGE> 32
and to advance all expenses incurred by directors and officers seeking to
enforce their rights under the indemnification agreements.
Although the indemnification agreements offer substantially the same
scope of coverage afforded by provisions in the Delaware Certificate and
Delaware By-laws, they provide greater assurance to officers and directors that
indemnification will be available, because, as a contract, they cannot be
modified unilaterally in the future by the Board of Directors of Escalon
Delaware or by the stockholders to eliminate the rights that they provide, an
action that may be possible with respect to the relevant provisions of the
Delaware By-laws, at least as to prospective elimination of such rights. If the
Proposed Reincorporation is approved, the Company intends to enter into new
indemnification agreements with its officers and directors to replace those
indemnification agreements entered into under the California Articles and
California law.
OTHER MATTERS RELATING TO DIRECTORS; NUMBER OF DIRECTORS
California law allows the number of persons constituting the board of
directors of a corporation to be fixed by the bylaws or the articles of
incorporation, or permits the bylaws to provide that the number of directors may
vary within a specified range, the exact number to be determined by the board of
directors. California law further provides that, in the case of a variable
board, the maximum number of directors may not exceed two times the minimum
number minus one. The California Bylaws provide for a Board of Directors that
may vary between three and five members, inclusive, and the Board of Directors
has fixed the exact number of directors at seven. California law also requires
that any change in the range of a variable Board of Directors specified in the
articles and bylaws must be approved by a majority in interest of the
outstanding shares entitled to vote (or such greater proportion of the
outstanding shares as may be required by the articles of incorporation),
provided that a change reducing the minimum number of directors to less than
five cannot be adopted if votes cast against its adoption are equal to more than
16 2/3% of the outstanding shares entitled to vote. The California Bylaws
require the vote of a majority of the outstanding shares to change the range of
the Company's variable Board of Directors; provided, any amendment reducing the
minimum number of directors to less than five cannot be adopted if votes cast
against are equal to more than 16 2/3% of the outstanding shares entitled to
vote.
Delaware law permits a board of directors to change the authorized
number of directors by amendment to the bylaws unless the number of directors is
fixed in the certificate of incorporation or the manner of fixing the number of
directors is set forth in the certificate of incorporation, in which case the
number of directors may be changed only by amendment of the certificate of
incorporation or consistent with the manner specified in the certificate of
incorporation, as the case may be. The Delaware Certificate provides that first
Board of Directors will consist of five members. Thereafter, the number of
directors will be determined from time to time by resolution of the Board of
Directors.
29
<PAGE> 33
CLASSIFICATION OF THE BOARD OF DIRECTORS AND CERTAIN OTHER RELATED MATTERS
A classified board of directors is one on which a certain number, but
not all, of the directors are elected on a rotating basis each year. California
law permits a "listed corporation" (such as the Company) to divide its board of
directors into two or three classes by providing for such division in the
corporation's charter or bylaws. Delaware law permits, but does not require, a
classified board of directors, whereby the directors can be divided into as many
as three classes with staggered terms of office, with one class of directors
standing for election each year. Both the California Bylaws and the Delaware
Certificate provide for the Board to be classified and to be divided into three
classes.
Under California law, California corporations meeting certain
qualifications may amend their articles of incorporation to provide for a
classified board, but for corporations not so qualified directors must be
elected annually and a classified board is not permitted. The California
Articles and California Bylaws now provide that all directors are to be elected
annually for a term of one year. Delaware law permits, but does not require,
provisions in a certificate of incorporation or bylaws that provide for a
classified board of directors. To enhance continuity and stability of the Board
of Directors and the policies formulated by the Board, the Delaware Certificate
provides for classification of the Board of Directors (the "Classified Board
Provision"). The Classified Board Provision provides that directors will be
classified into three classes, as nearly equal in number as possible. Class I
will hold office initially for a term expiring at the 2000 annual meeting of
stockholders; Class II will hold office initially for a term expiring at the
2001 annual meeting of stockholders; and Class III will hold office initially
for a term expiring at the 2002 annual meeting of stockholders. At each annual
meeting of stockholders following this initial classification and election, the
successors to the class of directors whose terms expire at that meeting would be
elected for a term of office to expire at the third succeeding annual meeting of
stockholders after their election and until their successors have been duly
elected and qualified.
Under Delaware law, directors chosen to fill vacancies on a classified
board shall hold office until the next election of the class for which such
directors shall have been chosen, and until their successors are elected and
shall have qualified. Delaware law also provides that, unless the certificate of
incorporation provides otherwise, directors serving on a classified board of
directors may be removed only for cause. The Delaware Certificate will not
provide otherwise.
The Classified Board Provision will significantly extend the time
required to effect a change in control of the Board of Directors and may
discourage hostile takeover bids for Escalon Delaware. Currently, a change in
control of the Board of Directors of the Company can be made by stockholders
holding a plurality of the votes cast at a single annual meeting of
stockholders. If the stockholders approve the Proposed Reincorporation, it will
take at least two annual meetings of stockholders for even a majority of
stockholders to make a change in control of the Board of Directors, because only
a minority of the directors will be elected at each meeting.
Because of the additional time required to change control of the Board
of Directors, the Classified Board Provision will tend to perpetuate present
management. Without the ability to
30
<PAGE> 34
obtain immediate control of the Board of Directors, a takeover bidder will not
be able to take action to remove other impediments to its acquisition of Escalon
Delaware. Because the Classified Board Provision will increase the amount of
time required for a takeover bidder to obtain control of Escalon Delaware
without the cooperation of the Board of Directors, even if the takeover bidder
were to acquire a majority of Escalon Delaware's outstanding stock, it will tend
to discourage certain tender offers, perhaps including some tender offers that
stockholders may feel would be in their best interests. The Classified Board
Provision will also make it more difficult for the stockholders to change the
composition of the Board of Directors even if the stockholders believe such a
change would be desirable. The Classified Board Provision is designed to assure
continuity and stability in the Board of Directors' leadership and policies.
While management has not experienced any problems with such continuity in the
past, it wishes to ensure that this experience will continue. The Board of
Directors also believes that the Classified Board Provision will assist the
Board of Directors in protecting the interests of Escalon Delaware's
stockholders in the event of an unsolicited offer for Escalon Delaware.
This Classified Board Provision is intended to encourage persons
seeking to acquire control of Escalon Delaware, including through proxy fights
or hostile takeovers, to initiate such efforts through negotiations with the
Board of Directors. The Board of Directors believes that the Classified Board
Provision will help give the Board of Directors the time necessary to evaluate
unsolicited offers, as well as appropriate alternatives, in a manner which
assures fair treatment of Escalon Delaware's stockholders. The Classified Board
Provision is also intended to increase the bargaining leverage of the Board of
Directors, on behalf of Escalon Delaware's stockholders, in any negotiations
concerning a potential change of control of Escalon Delaware. The Classified
Board Provision will, however, make more difficult or discourage a proxy contest
or the assumption of control by a substantial stockholder and thus could
increase the likelihood that incumbent directors will retain their positions.
The Classified Board Provision could also have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of Escalon Delaware even though such attempt might be beneficial to Escalon
Delaware's stockholders.
The Delaware Certificate contains certain provisions that could be
characterized as specific "antitakeover" provisions. The Delaware Certificate
permits Escalon Delaware to issue "blank check" preferred stock, with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors, without stockholder approval. The Delaware Certificate
currently authorizes the issuance of 2,000,000 shares of preferred stock, none,
of which are outstanding. The authorized and available preferred stock could be
issued by Escalon Delaware and used to discourage a change in the control of
Escalon Delaware.
The Classified Board Provision is permitted by Delaware law and is
consistent with the rules of Nasdaq on which Escalon Delaware's Common Stock
will be traded. The Classified Board Provision is not being implemented as the
result of any specific efforts of which Escalon California or Escalon Delaware
is aware to obtain control of Escalon Delaware.
31
<PAGE> 35
The Classified Board Provision described herein is set forth in Exhibit
B to this Proxy Statement. The preceding description of the Classified Board
Provision is qualified in its entirety by reference to Exhibit B.
CUMULATIVE VOTING FOR DIRECTORS
Cumulative voting permits the holder of each share of stock entitled to
vote in the election of directors to cast that number of votes which equals the
number of directors to be elected. The holder may allocate all votes represented
by a share to a single candidate or may allocate those votes among as many
candidates as he chooses. Thus, a stockholder with a significant minority
percentage of the outstanding shares may be able to elect one or more directors
if voting is cumulative. In contrast, under non-cumulative voting, the holder or
holders of a majority of the shares entitled to vote in an election of directors
will be able to elect all the directors of the Company.
Under California law, cumulative voting in the election of directors is
mandatory upon notice given by a stockholder at a stockholders' meeting at which
directors are to be elected. In order to cumulate votes a stockholder must give
notice at the meeting, prior to the voting, of the stockholder's intention to
vote cumulatively. If any one stockholder gives such a notice, all stockholders
may cumulate their votes. However, California law permits a company, by amending
its articles of incorporation or bylaws, to eliminate cumulative voting when the
Company's shares are listed on a national stock exchange or traded on Nasdaq and
are held by at least 800 equity security holders. The California Articles do not
include such a provision.
Cumulative voting is not available under Delaware law unless so
provided in the corporation's certificate of incorporation. The Delaware
Certificate does not provide for cumulative voting.
The elimination of cumulative voting could deter investors from
acquiring a minority block in the Company with a view toward obtaining a board
seat and influencing Company policy. It is also conceivable that the absence of
cumulative voting might deter efforts to seek control of the Company, which some
stockholders might deem favorable.
REMOVAL OF DIRECTORS
Under California law, a director may be removed with or without cause
by the affirmative vote of a majority of the outstanding shares, provided that
the shares voted against removal would not be sufficient to elect the director
by cumulative voting. Under Delaware law, unless the board is classified or
cumulative voting is permitted, a director can be removed from office during his
term by stockholders with or without cause by the holders of a majority of the
shares then entitled to vote at an election of directors. Since the Delaware
Certificate provides for a classified board, the Delaware By-laws provide that
Escalon Delaware's directors may be removed from office only for cause by the
affirmative vote of the holders of a majority of shares then entitled to vote at
the election of directors. The term "cause" with respect to the removal of
directors is not defined
32
<PAGE> 36
in the Delaware General Corporation Law and its meaning has not been precisely
delineated by the Delaware courts.
FILLING BOARD VACANCIES
Under California law, if, after the filling of any vacancy by the
directors of a corporation, the directors then in office who have been elected
by the corporation's stockholders constitute less than a majority of the
directors then in office, then: (i) any holder of more than 5% of the
corporation's outstanding shares may call a special meeting of stockholders, or
(ii) the superior court of the appropriate county may order a special meeting of
the stockholders to elect the entire board of directors of the corporation.
Delaware law provides that vacancies and newly created directorships may be
filled by a majority of directors then in office, even if less than a quorum. If
there are no directors in office the Delaware Court of Chancery may, upon
application of any stockholder or stockholders having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships or to replace the directors chosen by the directors
then in office.
Consistent with the foregoing, the proposed Delaware By-laws provide
that vacancies shall be filled by the affirmative vote of a majority of
directors then in office, even if such directors comprise less than a quorum of
the Board of Directors.
CAPITALIZATION
Currently, the Company's capital stock consists of 35,000,000
authorized shares of Common Stock, of which 3,242,184 shares were issued and
outstanding as of September 14, 1999, and 2,000,000 authorized shares of
Preferred Stock, of which no shares are issued and outstanding.
Upon the effectiveness of the reincorporation, the Delaware Company
will have the same number of outstanding shares of Common Stock that the Company
had outstanding immediately prior to the reincorporation, and no shares of
Preferred Stock will be outstanding.
The capitalization of Escalon Delaware is identical to the
capitalization of the Company with the addition of a per share par value, with
authorized capital stock of 35,000,000 shares of Common Stock, $.001 par value
and 2,000,000 shares of Preferred Stock, $.001 par value, consistent with
maintaining adequate capitalization for the current needs of the Company. The
Delaware Company's authorized but unissued shares of Common and Preferred Stock
will be available for future issuance.
Under the Delaware Certificate, as under the California Articles, the
Board of Directors has the authority to determine or alter the rights,
preferences, privileges and restrictions to be granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares
constituting any such series and to determine the designation thereof.
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The Board of Directors may authorize the issuance of Preferred Stock
for the purpose of adopting stockholder rights plans or in connection with
various corporate transactions, including corporate partnering arrangements. If
the reincorporation is approved, it is not the current intention of the Board of
Directors to seek stockholder approval prior to any issuance of Preferred Stock,
except as required by law or regulation. See "-- Antitakeover Measures."
STOCKHOLDER POWER TO CALL SPECIAL STOCKHOLDERS' MEETING
Under California law, a special meeting of stockholders may be called
by the Board of Directors, the Chairman of the Board of Directors, the President
or the holders of shares entitled to cast not less than 10% of the votes at such
meeting and such persons as are authorized by the articles of incorporation or
bylaws. Under Delaware law, a special meeting of stockholders may be called by
the Board of Directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. The Delaware Certificate and By-laws
provide that such a meeting may be called only by the Board of Directors, the
Chairman of the Board of Directors or the President, and not by any other person
or persons.
The Board believes this change is warranted as a prudent corporate
governance measure to prevent an inappropriately small number of stockholders
from prematurely forcing stockholder consideration of a proposal over the
opposition of the Board by calling a special stockholders' meeting before (i)
the time that the Board believes such consideration to be appropriate or (ii)
the next annual meeting. Such special meetings would involve substantial expense
and diversion of Board and management time, results which the Board believes to
be inappropriate for an enterprise the size of the Company.
The elimination of the procedures for stockholders to call special
meetings could discourage hostile takeover attempts or tender offers for control
of Escalon Delaware that might be approved by many, or indeed by a majority, of
Escalon Delaware's stockholders. In addition, elimination of the ability of
stockholders to call a special meeting means that a stockholder proposal to
replace the Board would be restricted to only annual meetings, thereby making
the removal of directors by stockholders more difficult. See "Possible
Disadvantages of Reincorporation" above.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
Under California and Delaware law, stockholders may execute an action
by written consent in lieu of a stockholder meeting. Both California and
Delaware law permits a corporation to eliminate the ability of stockholders to
act by written consent in its charter. The Delaware Certificate, unlike the
California Articles, prohibits stockholders from acting by written consent in
lieu of a meeting. In addition, the Delaware Certificate requires the
affirmative vote of two-thirds of the voting power of the outstanding voting
stock of the Company to amend, repeal or adopt any provision inconsistent with
this restriction on action by written consent of the stockholders.
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Elimination of stockholder power to act by written consent may lengthen
the amount of time required to take stockholder actions because certain actions
by written consent are not subject to the minimum notice requirement of a
stockholders' meeting. The elimination of stockholder power to act by written
consent may deter hostile takeover attempts because of the lengthened
stockholder approval process. Without the ability to act by written consent, a
holder or group of holders controlling a majority in interest of Escalon
Delaware's capital stock will not be able to amend the Delaware By-laws or
remove directors pursuant to a written consent. Any such holder or group of
holders would have to wait until a stockholders' meeting is held to take any
such action. The Board of Directors believes this provision, like the other
provisions to be included in the Delaware Certificate and Delaware By-laws, will
enhance the Board of Directors' opportunity to fully consider and effectively
negotiate in the context of a takeover attempt.
ADVANCE NOTICE REQUIREMENT FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
There is no specific statutory requirement under either California or
Delaware law with regard to advance notice of director nominations and
stockholder proposals. Absent a bylaw restriction, director nominations and
stockholder proposals may be made without advance notice at the annual meeting.
However, federal securities laws generally provide that stockholder proposals
that the proponent wishes to include in the Company's proxy materials must be
received not less than 120 days in advance of the date stated in the proxy
statement released in connection with the previous year's annual meeting.
By requiring advance notice of nominations by stockholders, the
Nomination procedure affords the Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform the stockholders about such qualifications. By
requiring advance notice of proposed business, the Business Procedure provides
the Board with an opportunity to inform stockholders of the nature of any
business proposed to be conducted at a meeting and the Board's position on any
such proposal, enabling stockholders to better determine how to vote their
shares in regard to such business.
The Nomination Procedure and the Business Procedure may have the effect
of precluding a nomination for the election of directors or of precluding any
other business at a particular meeting if the proper procedures are not
followed. In addition, the procedures may discourage or deter a third party from
conducting a solicitation of proxies to elect its own slate of directors or
otherwise attempting to obtain control of the Company, even if such nominations
for the election of directors or other business might be deemed by the majority
of stockholders to be beneficial to the Company and its stockholders.
The Delaware By-laws provide that, in order for director nominations or
stockholder proposals to be properly brought before the annual meeting, the
stockholder must have delivered timely notice to the Secretary of the
corporation. To be timely under the Delaware By-laws, notice must be delivered
not less than 70 nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting. If the date of the annual meeting has been
advanced by more than 20 days or delayed by more than 70 days from such
anniversary date, the Delaware By-laws
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provide that notice must be given not more than 90 days nor less than 70 days
prior to the annual meeting or within the 10 days following the day on which
public announcement of the meeting is made. These notice requirements help
ensure that stockholders are aware of all proposals to be voted on at the annual
meeting and have the opportunity to consider each proposal in advance of the
annual meeting.
ANTITAKEOVER MEASURES
Delaware law has been widely viewed to permit a corporation greater
flexibility in governing its internal affairs and its relationships with
stockholders and other parties than do the laws of many other states, including
California. In particular, Delaware law permits a corporation to adopt a number
of measures designed to reduce a corporation's vulnerability to hostile takeover
attempts. Such measures are either not currently permitted or are more narrowly
drawn under California law. Among these measures are the elimination of the
right of stockholders to call special stockholders' meetings, which is described
above. In addition, certain types of "poison pill" defenses (such as stockholder
rights plans) discussed below have been upheld by Delaware courts, while
California courts have yet to decide on the validity of such defenses, thus
rendering their effectiveness in California less certain.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
In the last several years, a number of states (but not California) have
adopted special laws designed to make certain kinds of "unfriendly" corporate
takeovers, or other transactions involving a corporation and one or more of its
significant stockholders, more difficult. Under Section 203 of the Delaware
General Corporation Law ("Section 203"), certain "business combinations" by
Delaware corporations with "interested stockholders" are subject to a three-year
moratorium unless specified conditions are met. Under Section 1203 of the
California General Corporation Law, certain business combinations with a
majority stockholder are subject to specified conditions, but there is no
equivalent provision to Section 203, which addresses business combinations with
a significant but not majority stockholder.
Section 203 prohibits a Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for three years
following the date that such person becomes an interested stockholder. With
certain exceptions, an interested stockholder is a person or group who or which
owns 15% or more of the corporation's outstanding voting stock (including any
rights to acquire stock pursuant to an option, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights, and
stock with respect to which the person has voting rights only), or is an
affiliate or associate of the corporation and was the owner of 15% or more of
such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a
subsidiary equal to ten percent or more of the aggregate market value of the
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corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested stockholder (except for transfers in a conversion
or exchange or a pro rata distribution or certain other transactions, none of
which increase the interested stockholder's proportionate ownership of any class
or series of the corporation's or such subsidiary's stock); or receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section
203 does not apply if: (i) prior to the date on which such stockholder becomes
an interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
or her an interested stockholder (excluding from the 85% calculation shares
owned by directors who are also officers of the target corporation and shares
held by employee stock plans which do not permit employees to decide
confidentially whether to accept a tender or exchange offer); or (iii) on or
after the date such person becomes an interested stockholder, the board approves
the business combination and it is also approved at a stockholder meeting by 66
2/3% of the voting stock not owned by the interested stockholder.
Section 203 only applies to Delaware corporations which have a class of
voting stock that is (i) listed on a national securities exchange, (ii)
authorized for quotation on the Nasdaq Stock Market or (iii) held of record by
more than 2,000 stockholders. Since the Delaware Company will have a class of
voting stock authorized for quotation on Nasdaq, Section 203 will be immediately
applicable to Escalon Delaware following the Reincorporation. A Delaware
corporation may elect not to be governed by Section 203 by a provision in its
original certificate of incorporation or an amendment thereto or to the bylaws,
which amendment must be approved by majority stockholder vote and may not be
further amended by the board of directors. The Delaware Company does not intend
to elect not to be governed by Section 203.
Section 203 also has the effect of limiting the ability of a potential
Delaware acquiror to make a two-tiered bid for the Delaware Company in which all
stockholders would not be treated equally. Stockholders should note that the
application of Section 203 to the Delaware Company will confer upon the Board
the power to reject a proposed business combination, even though a potential
acquiror may be offering a substantial premium for the Delaware Company's shares
over the then-current market price (assuming the stock is then publicly traded).
Section 203 should also discourage certain potential acquirors unwilling to
comply with its provisions.
California law requires that holders of common stock receive common
stock in a merger of the corporation with the holder of more than 50% but less
than 90% of the target's common stock or its affiliate unless all of the target
company's stockholders consent to the transaction. This provision of California
law may have the effect of making a "cash-out" merger by a majority stockholder
more difficult to accomplish. Although Delaware law does not parallel California
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law in this respect, under some circumstances Section 203 does provide similar
protection to stockholders against coercive two-tiered bids for a corporation in
which the stockholders are not treated equally.
ADDITIONAL ANTITAKEOVER MEASURES
There can be no assurance that the Board of Directors would not adopt
any further antitakeover measures available under Delaware law (some of which
may not require stockholder approval). Moreover, the availability of such
measures under Delaware law, whether or not implemented, may have the effect of
discouraging a future takeover attempt which a majority of Escalon Delaware's
stockholders may deem to be in their best interests or in which stockholders may
receive a premium for their shares over then current market prices. As a result,
stockholders who might desire to participate in such transactions may not have
the opportunity to do so. Stockholders should recognize that, if adopted, the
effect of such measures, along with the possibility of discouraging takeover
attempts, may be to limit in certain respects the rights of stockholders of
Escalon Delaware compared with the rights of stockholders of Escalon California.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the stockholders, providing all of the stockholders
with considerable value for their shares. However, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts (such
as disruption of the Company's business and the possibility of terms which may
be less than favorable to all of the stockholders than would be available in a
board-approved transaction) are sufficiently great such that prudent steps to
reduce the likelihood of such takeover attempts and to enable the Board of
Directors to fully consider the proposed takeover attempt and actively negotiate
its terms are in the best interests of the Company and its stockholders.
In addition to the various antitakeover measures that would be
available to Escalon Delaware after the Proposed Reincorporation due to the
application of Delaware law, Escalon Delaware would retain the rights currently
available to Escalon California under California law to issue shares of its
authorized but unissued capital stock. Following the effectiveness of the
Proposed Reincorporation, shares of authorized and unissued Common Stock and
Preferred Stock could (within the limits imposed by applicable law) be issued in
one or more transactions, or Preferred Stock could be issued with terms,
provisions and rights that would make more difficult and, therefore, less
likely, a takeover of Escalon Delaware. Any such issuance of additional stock
could have the effect of diluting the earnings per share and book value per
share of existing shares of Common Stock and Preferred Stock, and such
additional shares could be used to dilute the stock ownership of persons seeking
to obtain control of Escalon Delaware.
It should be noted that the voting rights to be accorded to any
unissued series of Preferred Stock of Escalon Delaware remain to be fixed by the
Delaware Board of Directors. Accordingly, if the Delaware Board of Directors so
authorizes, the holders of Preferred Stock may be entitled to vote separately as
a class in connection with approval of certain extraordinary corporate
transactions in circumstances where Delaware law does not ordinarily require
such a class vote,
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or might be given a disproportionately large number of votes. Such Preferred
Stock could also be convertible into a large number of shares of Common Stock of
Escalon Delaware under certain circumstances or have other terms which might
make acquisition of a controlling interest in Escalon Delaware more difficult or
more costly, including the right to elect additional directors to the Delaware
Board of Directors. Potentially, the Preferred Stock could be used to create
voting impediments or to frustrate persons seeking to effect a merger or
otherwise to gain control of Escalon Delaware. Also, the Preferred Stock could
be privately placed with purchasers who might side with the management of
Escalon Delaware in opposing a hostile tender offer or other attempt to obtain
control.
If the Proposed Reincorporation is approved, it is not the current
intention of the Board of Directors to seek stockholder approval prior to any
issuance of the Delaware Preferred Stock or Common Stock of Escalon Delaware,
except as required by law or regulation. Frequently, opportunities arise that
require prompt action, and it is the belief of the Board of Directors that the
delay necessary for stockholder approval of a specific issuance would be a
detriment to Escalon Delaware and its stockholders. The Board of Directors does
not intend to issue any Preferred Stock except on terms which the Board of
Directors deems to be in the best interests of Escalon Delaware and its then
existing stockholders.
AMENDMENT OF CERTIFICATE
The California Articles provide that the provisions thereof may be
amended by the affirmative vote of a simple majority of the holders of the
outstanding voting stock of the Company. The Delaware Certificate provides that
all provisions thereof other than certain antitakeover provisions (i.e., the
classified board, elimination of the ability to act by written consent and
limitation on ability to call special meetings of stockholders) may be amended
by the affirmative vote of a majority of the power of the voting stock of the
Company. The antitakeover provisions may be amended by the affirmative vote of
66 2/3% of the voting power of the voting stock.
AMENDMENT OF BYLAWS
The California Bylaws provide that the provisions can be amended by the
affirmative vote of the holders of a majority of the power of the voting stock
of the Company. The Delaware Certificate provides that the Delaware By-laws may
be amended by the affirmative vote of 66 2/3% of the voting power of the voting
stock of the Company. As a result, the percentage of stockholder approval
required to adopt, amend or repeal a bylaw of Escalon Delaware will be higher
than the corresponding percentage with respect to the Escalon California Bylaws.
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OTHER STATE LAW DIFFERENCES
Loans to Officers, Directors and Employees.
California law provides that any loan or guaranty (other than loans to
permit the purchase of shares under certain stock purchase plans) for the
benefit of any officer or director, or any employee benefit plan authorizing
such loan or guaranty (except certain employee stock purchase plans), must be
approved by the stockholders of a California corporation. Under Delaware law, a
corporation may make loans to, or guarantee the obligations of, officers or
other employees when, in the judgment of the board of directors, the loan or
guaranty may reasonably be expected to benefit the corporation. Both California
law and Delaware law permit such loans or guaranties to be unsecured and without
interest.
Class Vote for Certain Reorganizations.
With certain exceptions, California law requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. Delaware law generally does
not require class voting for such transactions, except in certain situations
involving an amendment to the certificate of incorporation which adversely
affects a specific class of shares.
California law also requires that holders of a California corporation's
Common Stock receive nonredeemable Common Stock in a merger of the corporation
with the holder (or an affiliate of the holder) of more than 50% but less than
90% of its Common Stock, unless all of the holders of its Common Stock consent
to the merger or the merger has been approved by the California Commissioner of
Corporations at a "fairness" hearing. This provision of California law may have
the effect of making a cash "freezeout" merger by a majority stockholder more
difficult to accomplish. A cash freezeout merger is a transaction whereby a
minority stockholder is forced to relinquish his share ownership in a
corporation in exchange for cash, subject in certain instances to dissenters'
rights. Although Delaware law does not parallel California law in this respect,
under some circumstances Section 203 does provide similar protection against
coercive two-tiered bids for a corporation in which the stockholders are not
treated equally. See "Significant Changes Caused by Reincorporation --
Stockholder Approval of Certain Business Combinations."
Stockholders Approval of Mergers.
Both California and Delaware law generally require that the holders of
majority of the shares of both acquiring and target corporations approve
statutory mergers with differing exceptions to this general requirement.
Delaware law does not require a stockholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
charter) if: (i) the merger agreement does not amend the existing charter; (ii)
each share of stock of the surviving corporation outstanding
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immediately before the effective date of the merger is an identical outstanding
share after the merger and (iii) either (a) no shares of common stock of the
surviving corporation and no shares, securities or obligations convertible into
such stock are to be issued or delivered under the plan of merger or (b) the
authorized unissued shares or shares of common stock of the surviving
corporation to be issued or delivered under the plan of merger plus those
initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under such plan do not exceed 20% of the
shares of common stock of such constituent corporation outstanding immediately
prior to the effective date of the merger.
California law contains a similar exception to its voting requirements
for reorganizations where stockholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than 83 1/3% (or five-sixths)
of the voting power of the surviving or acquiring corporation or its parent
entity.
Inspection of Stockholder Lists.
California law provides for an absolute right of inspection of the
stockholder list for stockholders holding 5% or more of a corporation's
outstanding shares or stockholders holding 1% or more of such shares who have
filed a Schedule 14A with the SEC. Delaware law provides no such absolute right
of stockholder inspection. However, both California and Delaware law permit any
stockholder of record to inspect the stockholder list for any purpose reasonably
related to that person's interest as a stockholder.
Appraisal Rights.
Under both California law and Delaware law, a stockholder of a
corporation participating in certain mergers and reorganizations may be entitled
to receive cash in the amount of the "fair value" (Delaware) or "fair market
value" (California) of its shares, as determined by a court, in lieu of the
consideration it would otherwise receive in the transaction. The limitations on
such dissenters' appraisal rights are somewhat different in California and
Delaware.
Stockholders of a California corporation, the shares of which are
listed on a national securities exchange or on the OTC margin stock list,
generally do not have appraisal rights unless the holders of at least 5% of the
class of outstanding shares assert the appraisal right. In any reorganization in
which one corporation or the stockholders of one corporation own more than 5/6
of the voting power of the surviving or acquiring corporation, stockholders are
denied dissenters' rights under California law. For this reason, appraisal
rights will not be available to stockholders in connection with the Proposed
Reincorporation.
Under Delaware law appraisal rights are not available to stockholders
with respect to a merger or consolidation by a corporation, the shares of which
are either listed on a national securities exchange or designated as a national
market system security or an interdealer quotation system security by the
National Association of Securities Dealers, Inc., or are held of record by more
than 2,000 holders if the stockholders receive shares of the surviving
corporation or shares
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of any other corporation which are similarly listed or dispersed, and the
stockholders do not receive any other property in exchange for their shares
except cash for fractional shares. Appraisal rights are also unavailable under
Delaware law to stockholders of a corporation surviving a merger if no vote of
those stockholders is required to approve the merger because, among other
things, the number of shares to be issued in the merger does not exceed 20% of
the shares of the surviving corporation outstanding immediately before the
merger and certain other conditions are met.
Holding Company Reorganization.
Section 251(g) of the General Corporation Law permits a Delaware
corporation to reorganize as a holding company without stockholder approval. The
reorganization contemplated by the statute is accomplished by merging the
subject corporation with or into a direct or indirect wholly owned subsidiary of
the corporation and converting the stock of the corporation into stock of
another direct or indirect wholly owned subsidiary of the corporation, which
would be the new holding company. The statute eliminates the requirement for a
stockholder vote on such a merger but contains several provisions designed to
ensure that the rights of stockholders are not changed by or as a result of the
merger, except and to the extent that such rights could be changed without such
a stockholder approval under existing law.
Thus, the resulting holding company must be a Delaware corporation and
have the same certificate of incorporation (except for provisions that could
have been amended or deleted without stockholder approval), bylaws, and
directors that the corporation had prior to the reorganization. The corporation
or its successor must, as a result of the reorganization, become a direct or
indirect wholly owned subsidiary of the holding company and must retain the same
certificate of incorporation and bylaws that the corporation had prior to the
reorganization (except that the capitalization may be reduced and except for the
addition of the provision described in the next sentence). To ensure that the
voting rights of the stockholders of the corporation are not changed or evaded
as a result of the reorganization, the statute requires that the certificate of
incorporation of the corporation provide that any extraordinary transactions
involving the corporation be approved by the stockholders of the holding company
by the same vote required of the stockholders of the corporation under the
General Corporation Law and/or by the corporation's certificate of
incorporation. To ensure that any restrictions on stockholders of the
corporation imposed by Section 203 or any exemption from such restrictions,
remains unaffected by a holding company reorganization, the statute further
provides that the provisions of Section 203 will apply to persons who are
stockholders of the holding company immediately after the effectiveness of a
holding company reorganization to the same extent that they applied to
stockholders of the corporation immediately prior to the reorganization. In
order for no stockholder vote to be required, a holding company reorganization
must be tax-free for federal income tax purposes to stockholders of the
corporation. Appraisal rights are not available to stockholders in a merger that
qualifies as a holding company reorganization.
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Fairness Opinion Requirement.
California law also provides that, except in certain circumstances,
when a tender offer or a proposal for a reorganization or for a sale of assets
is made by an interested party (generally a controlling or managing party of the
target corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the stockholders must be delivered to the
stockholders. This fairness opinion requirement does not apply to a corporation
which does not have shares held of record by at least 100 persons, or to a
transaction which has been qualified under California state securities laws.
Furthermore, if a tender of shares or vote is sought pursuant to an interested
party's proposal and a later proposal is made by another party at least ten days
prior to the date of acceptance of the interested party proposal, the
stockholders must be informed of the later offer and be afforded a reasonable
opportunity to withdraw any vote, consent or proxy, or to withdraw any tendered
shares. Delaware law has no comparable provision, and the stockholders of
Escalon Delaware might, therefore, be deprived of an opportunity to consider
such other proposal.
Voting and Appraisal Rights in Certain Transactions.
Delaware law does not provide stockholders with voting or appraisal
rights when a corporation acquires another business through the issuance of its
stock, whether in exchange for assets or stock or in a merger with a subsidiary.
California law treats these kinds of acquisitions in the same manner as a merger
of the corporation directly with the business to be acquired and provides
appraisal rights in the circumstances described in the preceding section.
Dividends.
Under California law, any dividends or other distributions to
stockholders, such as redemptions, are limited to (i) an amount that equals or
exceeds the amount of retained earnings or (ii) an amount which would leave the
corporation with assets (excluding certain intangible assets) equal to at least
125% of its liabilities (excluding certain deferred items) and current assets
equal to at least 100% (or, in certain circumstances, 125%) of its current
liabilities. Delaware law allows the payment of dividends and redemption of
stock out of surplus (including paid-in and earned surplus) or out of net
profits for the current and immediately preceding fiscal years. The Company has
never paid cash dividends on its Common Stock and has no present plans to do so.
Dissolution.
Under California law, stockholders holding 50% or more of the total
voting power of the Company may authorize the Company's dissolution, with or
without the approval of the Board, and this right may not be modified by the
California Articles. Under Delaware law, without the Board's approval of a
dissolution of the company, a dissolution must be unanimously approved by all
the stockholders entitled to vote thereon, while a dissolution that is approved
by the Board only requires the approval of a simple majority of such
stockholders. In the event of such Board-
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initiated dissolution, Delaware law allows the Company to include in the
Delaware Certificate a supermajority (greater than a simple majority) voting
requirement in connection with dissolutions. The Delaware Certificate does not
contain a supermajority voting requirement in connection with dissolutions.
Stockholder Derivative Suits.
California law provides that a stockholder bringing a derivative action
on behalf of the Company need not have been a stockholder at the time of the
transaction in question, provided that certain tests are met. Under Delaware
law, a stockholder may bring a derivative action on behalf of the Company only
if the he or she was a stockholder of the Company at the time of the transaction
in question or if his or her stock thereafter devolved upon him or her by
operation of law. California law also provides that the Company or the defendant
in a derivative suit may make a motion to the court for an order requiring the
plaintiff stockholder to furnish a security bond, while Delaware law does not.
APPLICATION OF CALIFORNIA LAW AFTER REINCORPORATION
California law provides that if (i) the average of certain property,
payroll and sales factors results in a finding that more than 50% of Escalon
Delaware's business is conducted in California, and in a particular fiscal year
more than 50% of Escalon Delaware's outstanding voting securities are held of
record by persons having addresses in California, and (ii) the Company's shares
are traded in the Nasdaq and are held by fewer than 800 equity security holders,
as of its most recent annual meeting of stockholders, then Escalon Delaware
would become subject to certain provisions of California law regardless of its
state of incorporation. The Company does not currently meet all of the above
requirements.
Because more than 50% of Escalon Delaware's outstanding voting
securities will not be held of record by persons having addresses in California,
as of its most recent annual meeting of stockholders, California law will not
initially apply to Escalon Delaware if the reincorporation is approved. The
Company would not be subject to California law as long as it continued to not
satisfy at least one of the above stated requirements.
If Escalon Delaware were to become subject to the provisions of
California law referred to above, and such provisions were enforced by
California courts in a particular case, many of the Delaware laws described in
this Proxy Statement would not apply to Escalon Delaware. Instead, Escalon
Delaware could be governed by certain California laws, including those regarding
liability of directors for breaches of the duty of care, indemnification of
directors, dissenters' rights of appraisal, removal of directors as well as
certain other provisions discussed above, to the exclusion of Delaware law. The
effects of applying both Delaware and California laws to a Delaware corporation
whose principal operations are based in California have not yet been determined.
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FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The reincorporation provided for in the Merger Agreement is intended to
be a tax-free reorganization under the Internal Revenue Code of 1986, as
amended. Provided the reincorporation qualifies as a reorganization, no gain or
loss will be recognized to the holders of capital stock of the Company as a
result of consummation of the reincorporation, and no gain or loss will be
recognized by Escalon California or Escalon Delaware. Each former holder of
capital stock of the Company will have the same basis in the capital stock of
Escalon Delaware received by such holder pursuant to the reincorporation as such
holder has in the capital stock of the Company held by such holder at the time
of consummation of the reincorporation. Each stockholder's holding period with
respect to Escalon Delaware's capital stock will include the period during which
such holder held the corresponding Company capital stock, provided the latter
was held by such holder as a capital asset at the time of consummation of the
reincorporation. The Company has not obtained a ruling from the Internal Revenue
Service or an opinion of legal or tax counsel with respect to the consequences
of the reincorporation.
A successful IRS challenge to the reorganization status of the Proposed
Reincorporation would result in a stockholder recognizing gain or loss with
respect to each share of Escalon California Common Stock exchanged in the
Proposed Reincorporation equal to the difference between (i) the stockholder's
basis in such share and (ii) the fair market value, as of the time of the
Proposed Reincorporation, of Escalon Delaware Common Stock received in exchange
therefor. In such event, a stockholder's aggregate basis in the shares of
Escalon Delaware Common Stock received in the exchange would equal their fair
market value on such date, and the stockholder's holding period for such shares
would not include the period during which the stockholder held Escalon
California Common Stock.
State, local and foreign income tax consequences to stockholders may
vary from the federal tax consequences described above.
The Company does not expect to recognize gain or loss for federal
income tax purposes as a result of the Proposed Reincorporation, and Escalon
Delaware should succeed, without adjustment, to the federal income tax
attributes of Escalon California. The foregoing is only a summary of certain
federal income tax consequences, and does not address all of the tax
consequences of the reincorporation which may be relevant to any particular
group of Stockholders. IN VIEW OF THE VARYING NATURE OF SUCH TAX CONSEQUENCES,
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE PROPOSED REINCORPORATION, INCLUDING THE
APPLICABILITY OF THE LAWS OF ANY STATE OR OTHER JURISDICTION.
45
<PAGE> 49
VOTE REQUIRED
The affirmative vote of the holders of a majority of all of the shares
of the Company's Common Stock present in person or represented by proxy and
entitled to vote at the meeting will be required to approve the Proposed
Reincorporation.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE REINCORPORATION OF THE COMPANY FROM CALIFORNIA TO DELAWARE.
(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, 2000.
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 stockholders 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 stockholders. 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 the holders of a majority of the shares of the
Company's Common Stock present in person or represented by proxy of the Annual
Meeting are entitled to vote will be required for the ratification of the
selection of the Company's auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS 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, 2000.
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.
46
<PAGE> 50
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for
stockholder 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 10, 2000. 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, 1999, including
the financial statements, but excluding exhibits. Requests for copies of such
report should be directed to the Company, Attention: Richard J.
DePiano.
EACH STOCKHOLDER 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.
47
<PAGE> 51
PRELIMINARY COPY
PROXY PROXY
ESCALON MEDICAL CORP.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD NOVEMBER 9, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned hereby appoints Richard J. DePiano and Douglas R. 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 Stockholders (the "Annual Meeting") of Escalon Medical Corp.
(the "Company") to be held at the offices of Duane, Morris & Heckscher LLP, One
Liberty Place, 1650 Market Street, Philadelphia, PA 19103-7396, on November 9,
1999 at 9:00 a.m. or any adjournment or continuation 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 [ ] WITHHOLD AUTHORITY
listed below (except to vote for the all
as marked to contrary) 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. Jeffrey M. O'Donnell
Fred G. Choate William Kwan
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR EACH OF THE NOMINEES IN
PROPOSAL 1.
2. PROPOSAL TO APPROVE THE COMPANY'S 1999 EQUITY INCENTIVE PLAN.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR PROPOSAL NO. 2.
3. PROPOSAL TO APPROVE THE REINCORPORATION OF THE COMPANY FROM CALIFORNIA
TO DELAWARE.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR PROPOSAL NO. 3.
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, 2000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR PROPOSAL NO. 4.
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. 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> 52
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
approval of the Company's 1999 Equity Incentive Plan, "FOR" the approval of the
reincorporation of the Company from California to Delaware, 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 stockholder. 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 _________________________________, 1999
____________________________________________
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.
<PAGE> 53
EXHIBIT A
FORM OF
AGREEMENT AND PLAN OF MERGER
OF
ESCALON DELAWARE, INC.
(A DELAWARE CORPORATION)
AND
ESCALON MEDICAL CORP.
(A CALIFORNIA CORPORATION)
THIS AGREEMENT AND PLAN OF MERGER, dated as of _____________, 1999 is
between Escalon Delaware, Inc., a Delaware corporation ("Escalon Delaware"), and
Escalon Medical Corp., a California corporation ("Escalon California"). Escalon
Delaware and Escalon California are sometimes referred to herein as the
"Constituent Corporations."
RECITALS:
Escalon Delaware is a corporation duly organized and existing under the
laws of the State of Delaware and has a total authorized capital stock
consisting of 35,000,000 shares of Common Stock, $.001 par value, and 2,000,000
shares of Preferred Stock, $.001 par value. As of the date hereof, and before
giving effect to the transactions contemplated hereby, 100 shares of Common
Stock were issued and outstanding, all of which were held by Escalon California,
and no shares of Preferred Stock were outstanding.
Escalon California is a corporation duly organized and existing under
the laws of the State of California and has an authorized capital stock
consisting of 35,000,000 shares of Common Stock, without par value, and
2,000,000 shares of Preferred Stock, without par value. As of the date hereof,
and before giving effect to the transactions contemplated hereby, _____ shares
of Common Stock and no shares of Preferred Stock were outstanding.
Escalon Delaware is a wholly owned subsidiary of Escalon California.
The Board of Directors of Escalon California has determined that, for
the purpose of effecting the reincorporation of Escalon California in the State
of Delaware, it is advisable and in the best interests of Escalon California
that Escalon California merge with and into Escalon Delaware upon the terms and
conditions herein provided.
The respective Boards of Directors of Escalon Delaware and Escalon
California have approved this Agreement and have directed that this Agreement be
submitted to a vote of the stockholders of the respective corporations and be
executed by the undersigned officers.
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<PAGE> 54
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Escalon Delaware and Escalon California hereby agree, subject
to the terms and conditions hereinafter set forth, as follows:
I. MERGER
1.1 MERGER. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the Corporations Code of the State of
California, Escalon California shall be merged with and into Escalon Delaware
(the "Merger"), the separate existence of Escalon California shall cease and
Escalon Delaware shall change its name to "Escalon Medical Corp." Escalon
Delaware shall be, and is herein sometimes referred to as, the "Surviving
Corporation."
1.2 FILING AND EFFECTIVENESS. The Merger shall not become effective
until the following actions shall be completed:
(a) This Agreement and the Merger shall have been adopted and
approved by the stockholders of Escalon California and the sole stockholder of
Escalon Delaware in accordance with the requirements of the Corporations Code of
the State of California and the Delaware General Corporation Law;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement shall have been satisfied or duly waived by
the party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed
counterpart of this Agreement meeting the requirements of the Delaware General
Corporation Law shall have been filed with the Secretary of State of the State
of Delaware; and
(d) An executed counterpart of this Agreement, a Certificate
of Merger or any other document filed with the Secretary of State of the State
of Delaware pursuant to Section 1.2(c) above, shall have been filed with the
Secretary of State of the State of California.
The date and time when the Merger shall become effective as aforesaid
is herein called the "Effective Date of the Merger."
1.3 EFFECT OF THE MERGER. Upon the Effective Date of the Merger, the
separate existence of Escalon California shall cease and Escalon Delaware, as
the Surviving Corporation: (i) shall continue to possess all of its assets,
rights, powers and property as constituted immediately prior to the Effective
Date of the Merger, (ii) shall be subject to all actions previously taken by its
and Escalon California's Board of Directors, (iii) shall succeed, without other
transfer, to all of the assets, rights, powers and property of Escalon
California in the manner more fully set forth in Section 259 of the General
Corporation Law of the State of Delaware, (iv) shall continue to be subject to
all of the debts, liabilities and obligations of Escalon Delaware as constituted
immediately prior to the Effective Date of the Merger, and (v) shall succeed,
without other transfer, to all of the debts, liabilities and obligations of
Escalon California in the same manner as if Escalon Delaware
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<PAGE> 55
had itself incurred them, all as more fully provided under the applicable
provisions of the General Corporation Law of the State of Delaware and the
Corporations Code of the State of California.
II. ORGANIZATIONAL DOCUMENTS, DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
Escalon Delaware as in effect immediately prior to the Effective Date of the
Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation, except that the name of the
Surviving Corporation shall be changed to "Escalon Medical Corp."
2.2 BY-LAWS. The By-laws of Escalon Delaware as in effect immediately
prior to the Effective Date of the Merger shall continue in full force and
effect as the By-laws of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
2.3 DIRECTORS AND OFFICERS. The directors and officers of Escalon
Delaware immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their successors shall
have been duly elected and qualified or until as otherwise provided by law, the
Certificate of Incorporation of the Surviving Corporation or the By-laws of the
Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 ESCALON CALIFORNIA COMMON SHARES. Upon the Effective Date of the
Merger, each share of Escalon California Common Stock, without par value, issued
and outstanding immediately prior thereto shall by virtue of the Merger and
without any action by either of the Constituent Corporations, the holder of such
share or any other person, be converted into and exchanged for one fully paid
and nonassessable share of Common Stock, par value $.001 per share, of the
Surviving Corporation.
3.2 ESCALON CALIFORNIA OPTIONS AND WARRANTS.
(a) Upon the Effective Date of the Merger, the Surviving
Corporation shall assume and continue the stock option plans (including the 1989
Stock Option Plan, the 1990 Stock Option Plan, the 1991 Stock Option Plan, the
1992 Stock Option Plan, the 1993 Stock Option Plan and the 1999 Equity Incentive
Plan), and all other employee benefit plans of Escalon California. Each
outstanding and unexercised option and warrant to purchase Escalon California
Common Stock shall become an option or warrant, as the case may be, to purchase
the Surviving Corporation's Common Stock on the basis of one share of the
Surviving Corporation's Common Stock for each share of Escalon California Common
Stock issuable pursuant to any such option and warrant on the same terms and
conditions and at an exercise price per share equal to the respective exercise
price per share applicable to any such Escalon California option or warrant at
the Effective Date of the Merger.
(b) A number of shares of the Surviving Corporation's Common
Stock shall be reserved for issuance upon the exercise of options and warrants
equal to the number of shares
A-3
<PAGE> 56
of Escalon California Common Stock so reserved immediately prior to the
Effective Date of the Merger.
3.3 ESCALON DELAWARE COMMON STOCK. Upon the Effective Date of the
Merger, each share of Common Stock, par value $.001 per share, of Escalon
Delaware issued and outstanding immediately prior thereto shall, by virtue of
the Merger and without any action by Escalon Delaware, the holder of such shares
or any other person, be canceled and returned to the status of authorized but
unissued shares.
3.4 EXCHANGE OF CERTIFICATES.
(a) After the Effective Date of the Merger, each holder of an
outstanding certificate representing shares of Escalon California Common Stock
may surrender the same for cancellation to American Stock Transfer and Trust
Company or such other agent designated by the Surviving Corporation from time to
time (the "Exchange Agent"), and each such holder shall be entitled to receive
in exchange therefor a certificate or certificates representing the number of
shares of the Surviving Corporation's Common Stock into which the surrendered
shares were converted as herein provided. Until so surrendered, each outstanding
certificate theretofore representing shares of Escalon California Common Stock
shall be deemed for all purposes to represent the number of shares of the
Surviving Corporation's Common Stock into which shares of Escalon California
Common Stock and Escalon Preferred Stock were converted in the Merger.
(b) The registered owner on the books and records of the
Surviving Corporation or the Exchange Agent of any such outstanding certificate
shall, until such certificate shall have been surrendered for transfer or
conversion or otherwise accounted for to the Surviving Corporation or the
Exchange Agent, have and be entitled to exercise any voting and other rights
with respect to and to receive dividends and other distributions upon the shares
of Common Stock of the Surviving Corporation represented by such outstanding
certificate as provided above.
(c) Each certificate representing Common Stock of the
Surviving Corporation so issued in the Merger shall bear the same legends, if
any, with respect to the restrictions on transferability as the certificates of
Escalon California so converted and given in exchange therefor, unless otherwise
determined by the Board of Directors of the Surviving Corporation in compliance
with applicable laws, or other such additional legends as agreed upon by the
holder and the Surviving Corporation.
(d) If any certificate for shares of Escalon Delaware Common
Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it shall be a condition of
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer, that such transfer otherwise be
proper and comply with applicable securities laws and that the person requesting
such transfer pay to the Exchange Agent any transfer or other taxes payable by
reason of issuance of such new certificate in a name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of Escalon Delaware that such tax has been paid or is not payable.
A-4
<PAGE> 57
IV. GENERAL
4.1 COVENANTS OF ESCALON DELAWARE. Escalon Delaware covenants and
agrees that it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the
State of California.
(b) File any and all documents with the California Franchise
Tax Board necessary for the assumption by Escalon Delaware of all of the
franchise tax liabilities of Escalon California.
(c) Take such other actions as may be required by the
Corporations Code of the State of California.
4.2 FURTHER ASSURANCES. From time to time, as and when required by
Escalon Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of Escalon California such deeds and other instruments, and
there shall be taken or caused to be taken by it such further and other actions
as shall be appropriate or necessary in order to vest or perfect in or confirm
of record or otherwise by Escalon Delaware the title to and possession of all
the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of Escalon California and otherwise to carry out the
purposes of this Agreement, and the officers and directors of Escalon Delaware
are fully authorized in the name and on behalf of Escalon California or
otherwise to take any and all such action and to execute and deliver any and all
such deeds and other instruments.
4.3 ABANDONMENT. At any time before the Effective Date of the Merger,
this Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either Escalon California or of Escalon
Delaware, or of both, notwithstanding the approval of this Agreement by the
stockholders of Escalon California.
4.4 AMENDMENT. The Boards of Directors of the Constituent Corporations
may amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretary of State of the State of
Delaware, provided that an amendment made subsequent to the adoption of this
Agreement by the stockholders of either Constituent Corporation shall not: (a)
alter or change the amount or kind of shares, securities, cash, property and/or
rights to be received in exchange for or on conversion of all or any of the
shares of any class or series thereof of such Constituent Corporation, (b) alter
or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger or (c) alter or change any of the terms
and conditions of this Agreement if such alteration or change would adversely
affect the holders of any class or series of capital stock or any Constituent
Corporation.
4.5 REGISTERED OFFICE. The registered office of the Surviving
Corporation in the State of Delaware is to be located at 314 State Street,
Dover, Delaware 19903-0741, in the County of Kent. The name of its registered
agent at such address is Capitol Corporate Services, Inc.
4.6 AGREEMENT. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 351 East Conestoga
Road, Wayne, PA 19087,
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<PAGE> 58
and copies thereof will be furnished to any stockholder of either Constituent
Corporation, upon request and without cost.
4.7 GOVERNING LAW. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
Corporations Code of the State of California.
4.8 COUNTERPARTS. In order to facilitate the filing and recording of
this Agreement, the same may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Boards of Directors of Escalon Delaware, Inc., a Delaware
corporation, and Escalon Medical Corp., a California corporation, is hereby
executed on behalf of each of such two corporations and attested by their
respective officers thereunto duly authorized.
Attest: ESCALON DELAWARE, INC.,
a Delaware corporation
By:__________________________ By:______________________________________
Douglas R. McGonegal, Richard J. DePiano,
Secretary President and Chief Executive Officer
Attest: ESCALON MEDICAL CORP.,
a California corporation
By:__________________________ By:______________________________________
Douglas R. McGonegal, Richard J. DePiano,
Secretary President and Chief Executive Officer
A-6
<PAGE> 59
EXHIBIT B
FORM OF
CERTIFICATE OF INCORPORATION
OF
ESCALON DELAWARE, INC.
The undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, hereby
executes this Certificate of Incorporation and hereby certifies as follows:
ARTICLE 1
The name of the corporation is Escalon Delaware, Inc. (the
"Corporation").
ARTICLE 2
The address of the Corporation's registered office in the State of
Delaware is 314 State Street, Dover, County of Kent, Delaware 19903-0741. The
name of its registered agent at such address is Capitol Corporate Services, Inc.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE 4
(a) The total number of shares of stock which the Corporation shall
have authority to issue is 35,000,000 shares of Common Stock with a par value
$.001 per share (the "Common Stock") and 2,000,000 shares of Preferred Stock
with a par value $.001 per share (the "Preferred Stock").
(b) The Preferred Stock may be issued from time to time by the Board of
Directors as herein provided in one or more series. The designations, relative
rights, preferences and limitations of the Preferred Stock, and particularly of
the shares of each series thereof, may, to the extent permitted by law, be
similar to or may differ from those of any other series. The Board of Directors
of the Corporation is hereby expressly granted authority, subject to the
provisions of this Article 4, to issue from time to time Preferred Stock in one
or more series and to fix from time to time before issuance thereof, by filing a
certificate pursuant to the General Corporation Law of the State of Delaware,
the number of shares in each such series and all designations, relative rights
(including the right, to the extent permitted by law, to convert into shares of
any class or into shares of any series of any class), preferences and
limitations of the shares in each such series. Except as provided to the
contrary in the provisions establishing a specific series
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<PAGE> 60
of the Preferred Stock, the number of authorized shares of any class or classes
of stock may be increased or decreased (but not below the number of shares then
outstanding) by the affirmative vote of the holders of a majority of the stock
of the Corporation entitled to vote irrespective of any other voting
requirements set forth in Section 242(b)(2) of the Delaware General Corporation
Law.
(c) All shares of the Preferred Stock of the same series shall be
identical in all respects, except that shares of any one series issued at
different times may differ as to the dates, if any, from which dividends thereon
may accumulate.
ARTICLE 5
The name and mailing address of the incorporator is __________, 4200
One Liberty Place, Philadelphia, Pennsylvania 19103-7396.
ARTICLE 6
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized to
adopt, alter, amend and repeal the By-laws of the Corporation, subject to the
power of the stockholders of the Corporation to alter or repeal any by-law
whether adopted by them or otherwise; provided, however, that the affirmative
vote of 66 2/3% of the voting power of the capital stock of the Corporation
entitled to vote thereon shall be required for stockholders to adopt, amend,
alter or repeal any provision of the By-laws.
ARTICLE 7
(a) From and after the effective time of the merger (the "Merger")
between the Corporation and Escalon Medical Corp., a California corporation,
pursuant to the Agreement and Plan of Merger, dated __________, 1999, between
the Corporation and Escalon Medical Corp., a California corporation, no action
that is required or permitted to be taken by the stockholders of the Corporation
at any annual or special meeting of stockholders may be effected by written
consent of stockholders in lieu of a meeting of stockholders.
(b) Special meetings of stockholders may be called only by the Board of
Directors, the Chairman of the Board of Directors or the President, and may not
be called by any other person or persons.
ARTICLE 8
(a) Unless and except to the extent that the By-laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
(b) Except as otherwise provided for or fixed by or pursuant to the
provisions of Article 4 of this Certificate of Incorporation or any resolution
or resolutions of the Board of Directors
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<PAGE> 61
providing for the issuance of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect additional
directors under specified circumstances, the number of members of the Board of
Directors shall be determined by the Board of Directors in the manner set forth
in the By-laws of the Corporation. The directors, other than those who may be
elected by the holders of Preferred Stock or any other class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation
pursuant to the terms of this Certificate of Incorporation or any resolution or
resolutions providing for the issuance of such class or series of stock adopted
by the Board of Directors, shall be divided into three classes, as nearly equal
in number as possible. The initial Class I Director shall be that person named
as such in Article 9 of this Certificate of Incorporation, who shall serve for a
term expiring at the first annual meeting of stockholders of the Corporation
following the effective time of the Merger; the initial Class II Directors shall
be those persons named as such in Article 9 of this Certificate of
Incorporation, who shall serve for a term expiring at the second annual meeting
of stockholders following the effective time of the Merger; and the initial
Class III Directors shall be those persons named as such in Article 9 of this
Certificate of Incorporation, who shall serve for a term expiring at the third
annual meeting of stockholders following the effective time of the Merger. Each
director in each such class shall hold office until his or her successor is duly
elected and qualified. At each annual meeting of stockholders beginning with the
first annual meeting of stockholders following the filing of this Certificate of
Incorporation, the successors of the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders to be held in the third year following the year of their
election, with each director in each such class to hold office until his or her
successor is duly elected and qualified.
ARTICLE 9
The powers of the Incorporator shall terminate upon the filing of this
Certificate of Incorporation with the Secretary of State of the State of
Delaware. The names and classes of the persons who are to serve as the initial
directors of the Corporation until their successors are duly elected and
qualified, are:
Class I Director: William Kwan
Class II Directors: Fred G. Choate
Jeffrey F. O'Donnell
Class III Directors: Richard J. DePiano
Jay L. Federman
The mailing address of each of the initial directors is c/o the Corporation, 351
East Conestoga Road, Wayne, Pennsylvania 19087.
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ARTICLE 10
A director of the Corporation shall not be personally liable to the
Corporation or to its stockholders for monetary damages for breach of fiduciary
duty as a director except (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders; or (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; or (iii) under Section 174 of the General Corporation Law of the State of
Delaware; or (iv) for any transaction from which the director derived an
improper personal benefit. In discharging the duties of their respective
positions, the Board of Directors, committees of the Board of Directors,
individual directors and individual officers may, in considering the best
interests of the Corporation, consider the effects of any action upon employees,
suppliers and customers of the Corporation, communities in which offices or
other establishments of the Corporation are located, and all other pertinent
factors.
ARTICLE 11
(a) The By-laws shall determine whether and to what extent the accounts
and books of the Corporation, or any of them, shall be open to the inspection of
the stockholders. No stockholder shall have any right of inspecting any account,
book or document of the Corporation, except as conferred by the law or the
By-laws of the Corporation or by resolution of the stockholders.
(b) The stockholders and directors shall have the power to hold
meetings and keep the books, documents and papers of the Corporation outside the
State of Delaware, at such places as may be from time to time designated by the
By-laws of the Corporation or by resolution of the directors, except as
otherwise required by the laws of the State of Delaware.
ARTICLE 12
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
Article; provided, however, that the affirmative vote of 66 2/3% of the voting
power of the capital stock of the Corporation entitled to vote thereon shall be
required to amend, alter or repeal or adopt any provision inconsistent with,
whether by amendment, merger or otherwise, the provisions of Article 6, 7, 8, 10
or 12 of this Certificate of Incorporation.
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The undersigned, for the purpose of forming a corporation under the
laws of the State of Delaware, does hereby make and file this Certificate of
Incorporation.
Dated: _____________, 1999 ________________________________
[Name of Incorporator]
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EXHIBIT C
BY-LAWS
OF
ESCALON MEDICAL CORP.
ARTICLE 1
CORPORATION OFFICE
SECTION 1.1. REGISTERED OFFICE. The registered office of the
Corporation shall be 314 State Street, Dover, County of Kent, Delaware
19903-0741.
SECTION 1.2. OTHER OFFICES. The Corporation may also have such other
offices, either within or without the State of Delaware, as the Board of
Directors may from time to time designate or the business of the Corporation may
from time to time require.
ARTICLE 2
STOCKHOLDERS
SECTION 2.1. PLACE AND TIME OF MEETINGS. All meetings of the
stockholders shall be held at such time and place as may be fixed from time to
time by the Board of Directors and stated in the notice of meeting or in a duly
executed waiver of notice thereof. If no such place is fixed by the Board of
Directors, meetings of the stockholders shall be held at the principal office of
the Corporation.
SECTION 2.2. ANNUAL MEETINGS. The annual meeting of the stockholders
shall be held at such other place, date and time as shall be designated from
time to time by the Board of Directors and stated in the notice of meeting or a
duly executed waiver of notice thereof. At such annual meeting, the stockholders
shall elect successors to the directors whose terms shall expire that year to
serve for the following three years and until their successors shall have been
duly elected and qualified or until their earlier resignation or removal. The
stockholders also shall transact such other business as may properly be brought
before the meeting and as are consistent with the provisions of the Certificate
of Incorporation and these By-laws.
<PAGE> 65
SECTION 2.3. STOCKHOLDER PROPOSALS.
(a) STOCKHOLDER PROPOSALS RELATING TO NOMINATIONS FOR AND ELECTION OF
DIRECTORS.
(i) Nominations by a stockholder of candidates for election by
stockholders at a meeting of stockholders to the Board of Directors may be made
only if the stockholder complies with the procedures set forth in this Section
2.3(a), and any candidate proposed by a stockholder not nominated in accordance
with such provisions shall not be considered or acted upon for execution at such
meeting of stockholders.
(ii) A proposal by a stockholder for the nomination of a
candidate for election by stockholders as a director at any meeting of
stockholders at which directors are to be elected may only be made by notice in
writing, delivered in person or by first class United States mail postage
prepaid or by reputable overnight delivery service, to the Board of Directors of
the Corporation to the attention of the Secretary of the Corporation at the
principal office of the Corporation, within the time limits specified herein.
(iii) In the case of an annual meeting of stockholders, any
such written proposal of nomination must be received by the Board of Directors
not less than 90 calendar days nor more than 120 calendar days before the first
anniversary of the date on which the Corporation first mailed its proxy
statement to stockholders for the annual meeting of stockholders in the immedi-
ately preceding year; provided, however, that in the case of an annual meeting
of stockholders that is called for a date that is not within 30 calendar days
before or after the first anniversary date of the annual meeting of stockholders
in the immediately preceding year, any such written proposal of nomination must
be received by the Board of Directors not less than five business days after the
date the Corporation shall have mailed notice to its stockholders that an annual
meeting of stockholders will be held or shall have issued a press release, filed
a periodic report with the Securities and Exchange Commission or otherwise
publicly disseminated notice that an annual meeting of stockholders will be
held.
(iv) In the case of a special meeting of stockholders, any
such written proposal of nomination must be received by the Board of Directors
not less than five business days after the earlier of the date that the
Corporation shall have mailed notice to its stockholders that a special meeting
of stockholders will be held or shall have issued a press release, filed a
periodic report with the Securities and Exchange Commission or otherwise
publicly disseminated notice that a special meeting of stockholders will be
held.
(v) Such written proposal of nomination shall set forth (A)
the name and address of the stockholder who intends to make the nomination (the
"Nominating Stockholder"), (B) the name, age, business address and, if known,
residence address of each person so proposed, (C) the principal occupation or
employment of each person so proposed for the past five years, (D) the number of
shares of capital stock of the Corporation beneficially owned within the meaning
of Securities and Exchange Commission Rule 13d-1 by each person so proposed and
the earliest date of acquisition of any such capital stock, (E) a description of
any arrangement or understanding between each person so proposed and the
stockholder(s) making such nomination with respect
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to such person's proposal for nomination and election as a director and actions
to be proposed or taken by such person if elected a director, (F) the written
consent of each person so proposed to serve as a director if nominated and
elected as a director and (G) such other information regarding each such person
as would be required under the proxy solicitation rules of the Securities and
Exchange Commission if proxies were to be solicited for the election as a
director of each person so proposed.
(vi) If a written proposal of nomination submitted to the
Board of Directors fails, in the reasonable judgment of the Board of Directors
or a nominating committee established by it, to contain the information
specified in clause (v) hereof or is otherwise deficient, the Board of Directors
shall, as promptly as is practicable under the circumstances, provide written
notice to the stockholder(s) making such nomination of such failure or
deficiency in the written proposal of nomination and such nominating stockholder
shall have five business days from receipt of such notice to submit a revised
written proposal of nomination that corrects such failure or deficiency in all
material respects.
(B) STOCKHOLDER PROPOSALS RELATING TO OTHER THAN NOMINATIONS FOR AND
ELECTIONS OF DIRECTORS.
(i) A stockholder of the Corporation may bring a matter (other
than a nomination of a candidate for election as a director, which is covered
by subsection (a) of this Section 2.3) (a "Stockholder Matter") before a meeting
of stockholders only if (A) such Stockholder Matter is a proper matter for
stockholder action and such stockholder shall have provided notice in writing,
delivered in person or by first class United States mail postage prepaid or by
reputable overnight delivery service, to the Board of Directors of the
Corporation to the attention of the Secretary of the Corporation at the
principal office of the Corporation, within the time limits specified in this
Section 2.3(b) or (B) the stockholder complies with the provisions of Rule 14a-8
under the Securities Exchange Act of 1934 relating to inclusion of stockholder
proposals in the Corporation's proxy statement.
(ii) In the case of an annual meeting of stockholders, any
such written notice of presentation of a Stockholder Matter must be received by
the Board of Directors not less than 90 calendar days nor more than 120 calendar
days before the first anniversary of the date on which the Corporation first
mailed its proxy statement to stockholders for the annual meeting of
stockholders in the immediately preceding year; provided, however, that in the
case of an annual meeting of stockholders that is called for a date which is not
within 30 calendar days before or after the first anniversary date of the annual
meeting of stockholders in the immediately preceding year, any such written
notice of presentation of a Stockholder Matter must be received by the Board of
Directors not less than five business days after the date the Corporation shall
have mailed notice to its stockholders that an annual meeting of stockholders
will be held, issued a press release, filed a periodic report with the
Securities and Exchange Commission or otherwise publicly disseminated notice
that an annual meeting of stockholders will be held.
(iii) In the case of a special meeting of stockholders, any
such written notice of presentation of a Stockholder Matter must be received by
the Board of Directors not less than
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five business days after the earlier of the date the Corporation shall have
mailed notice to its stockholders that a special meeting of stockholders will be
held, issued a press release, filed a periodic report with the Securities and
Exchange Commission or otherwise publicly disseminated notice that a special
meeting of stockholders will be held.
(iv) Such written notice of presentation of a Stockholder
Matter shall set forth information regarding such Stockholder Matter equivalent
to the information regarding such Stockholder Matter that would be required
under the proxy solicitation rules of the Securities and Exchange Commission if
proxies were solicited for stockholder consideration of such Stockholder Matter
at a meeting of stockholders.
(v) If a written notice of presentation of a Stockholder
Matter submitted to the Board of Directors fails, in the reasonable judgment of
the Board of Directors, to contain the information specified in clause (iv)
hereof or is otherwise deficient, the Board of Directors shall, as promptly as
is practicable under the circumstances, provide written notice to the
stockholder who submitted the written notice of presentation of a Stockholder
Matter of such failure or deficiency in the written notice of presentation of a
Stockholder Matter and such stockholder shall have five business days from
receipt of such notice to submit a revised written notice of presentation of a
matter that corrects such failure or deficiency in all material respects.
(vi) Only Stockholder Matters submitted in accordance with the
foregoing provisions of this Section 2.3(b) shall be eligible for presentation
of such meeting of stockholders, and any Stockholder Matter not submitted to the
Board of Directors in accordance with such provisions shall not be considered or
acted upon at such meeting of stockholders.
SECTION 2.4. SPECIAL MEETINGS. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Board of Directors, the
Chairman of the Board of Directors or the President of the Corporation. Any
request for a special meeting of stockholders shall be signed by the person or
persons making the request and shall state the purpose or purposes of the
proposed meeting. Upon receipt of any such request, it shall be the duty of the
Secretary of the Corporation to call a special meeting of stockholders to be
held at such time, not less than ten nor more than sixty days thereafter, as the
Secretary of the Corporation may fix. If the Secretary of the Corporation shall
neglect or refuse to issue such call within five days from the receipt of such
request, the person or persons making the request may do so. Business transacted
at any special meeting of stockholders shall be limited to the purposes stated
in the notice of such meeting or a duly executed waiver of notice thereof.
SECTION 2.5. NOTICE OF MEETINGS. Written notice of all meetings of
stockholders other than adjourned, postponed or continued meetings of
stockholders, stating the place, date and hour, and, in the case of special
meetings of stockholders, the purpose or purposes thereof, shall be given not
fewer than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote thereat at such address as appears on the books of
the Corporation. Such notices may be given at the discretion of, or in the name
of, the Board of Directors, the President, any Vice President, the Secretary or
any Assistant Secretary. When a meeting is adjourned, postponed or continued it
shall not be necessary to give any notice of the adjourned,
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postponed or continued meeting or of the business to be transacted at the
adjourned, postponed or continued meeting, other than by announcement at the
meeting at which such adjournment, postponement or continuation is taken.
SECTION 2.6. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. One or
more stockholders may participate in any meeting of the stockholders by means of
conference telephone or similar communications equipment which enables all
persons participating in the meeting to hear one another, and such person or
persons shall be counted for purposes of a quorum.
SECTION 2.7. QUORUM OF AND ACTION BY STOCKHOLDERS. The presence, in
person, by proxy or by telephonic or similar communications equipment, of
stockholders entitled to cast a majority of the votes which all stockholders are
entitled to cast on the particular matter shall constitute a quorum for purposes
of considering such matter, and, unless otherwise specifically provided by
statute, the acts of such stockholders at a duly organized meeting shall be the
acts of stockholders with respect to such matter. If, however, such quorum
shall not be present at any meeting of the stockholders, the stockholders
entitled to vote thereat present in person, by proxy or by such communications
equipment may, except as otherwise provided by statute, adjourn, postpone or
continue the meeting from time to time to such time and place as they may
determine, without notice other than an announcement at the meeting, until a
quorum shall be present in person, by proxy or by such communications equipment.
At any adjourned, postponed or continued meeting at which a quorum had been
present, stockholders present in person, by proxy or by such communications
equipment at a duly organized and constituted meeting, can continue to do
business with respect to any matter properly submitted to the meeting until
adjournment, postponement or continuation thereof notwithstanding the
withdrawal of enough stockholders to leave less than a quorum for the purposes
of considering any particular such matter.
SECTION 2.8. VOTING. Except as may be otherwise provided by statute or
by the Certificate of Incorporation, at every meeting of the stockholders, every
stockholder entitled to vote thereat shall have the right to one vote for every
share having voting power standing in his name on the stock transfer books of
the Corporation on the record date fixed for the meeting. No share shall be
voted at any meeting if any installment is due and unpaid thereon. When a quorum
exists at any meeting, the oral vote of the holders of a majority of the stock
having voting power present in person, by proxy or by telephonic or similar
communications equipment shall decide any question brought before such meeting,
unless the question is one for which, by express provision of statute or of the
Certificate of Incorporation or of these By-laws, a different vote is required.
Upon demand made by a stockholder at any election of directors before the voting
begins, the election shall be by ballot, in which event the vote shall be taken
by written ballot, and the inspector or inspectors of election or, if none, the
Secretary of the meeting, shall tabulate and certify the results of such vote.
SECTION 2.9. VOTING BY PROXY. Every stockholder entitled to vote at a
meeting of the stockholders or to express consent or dissent to corporate action
in writing without a meeting may authorize another person or persons to act for
him by proxy. Every proxy shall be executed in writing by the stockholder or his
duly authorized attorney in fact and filed with the Secretary of the
Corporation. A proxy, unless coupled with an interest, shall be revocable at
will, notwith-
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standing any other agreement or any provision in the proxy to the contrary, but
the revocation of a proxy shall not be effective until written notice thereof
has been given to the Secretary of the Corporation. No unrevoked proxy shall be
voted or acted upon after three years from the date of its execution, unless a
longer time is expressly provided therein. A proxy shall not be revoked by the
death or incapacity of the maker, unless, before the vote is counted or the
authority is exercised, written notice of such death or incapacity is given to
the Secretary of the Corporation.
SECTION 2.10. RECORD DATE. The Board of Directors may fix a time, not
more than sixty nor less than ten days prior to the date of any meeting of the
stockholders, or the date fixed for the payment of any dividend or distribution,
or the date for the allotment of rights or the date when any change or
conversion or exchange of shares will be made or go into effect, as the record
date for the determination of the stockholders entitled to notice of, or to vote
at, such meeting, or to receive any such allotment of rights or to exercise the
rights in respect to any such change or conversion or exchange of shares. In
such case, only such stockholders as shall be stockholders of record on the date
so fixed shall be entitled to notice of, or to vote at, such meeting or to
receive payment of such dividend, or to receive such allotment of rights or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after any record date fixed as aforesaid.
The Board of Directors may close the books of the Corporation against
transfers of shares during the whole or any part of such period, and in such
case written or printed notice thereof shall be mailed at least ten days before
the closing thereof to each stockholder of record at the address appearing on
the stock transfer books of the Corporation or supplied by him to the
Corporation for the purpose of notice. While the stock transfer books of the
Corporation are closed, no transfer of shares shall be made thereon.
If no record date is fixed by the Board of Directors for the
determination of stockholders who are entitled to receive notice of, or to vote
at, a meeting of the stockholders, or to receive payment of any such dividend or
distribution, or to receive any such allotment of rights or to exercise the
rights in respect to any such change or conversion or exchange of shares,
transferees of shares which are transferred on the stock transfer books of the
Corporation within the ten days immediately preceding the date of such meeting,
dividend, distribution, allotment of rights or exercise of such rights shall not
be entitled to notice of, or to vote at, such meeting, or to receive payment of
any dividend or distribution, or to receive any such allotment of rights or to
exercise the rights in respect to any such change or conversion or exchange of
shares.
SECTION 2.11. STOCKHOLDERS LIST. The officer or agent having charge of
the stock transfer books for shares of the Corporation shall make, at least ten
days before each meeting of the stockholders, a complete alphabetical list of
the stockholders entitled to vote at the meeting, with their addresses and the
number of shares held by each, which list shall be kept on file either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting or if not so specified, at the place
where the meeting is to be held and shall be subject to inspection by any
stockholder for any purpose germane to the meeting at any time during usual
business hours for a period of at least ten days prior to the meeting. Such list
shall be produced at the meeting and shall be kept open for inspection by any
stockholder during the
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entire meeting. The original stock transfer books of the Corporation shall be
prima facie evidence as to who are the stockholders entitled to exercise the
rights of a stockholder.
SECTION 2.12. INSPECTORS OF ELECTION. In advance of any meeting of the
stockholders, the Board of Directors shall appoint inspectors of election, who
need not be stockholders, to act at such meeting or any adjournment,
postponement or continuation thereof. If no inspector of election is able to act
at a meeting of stockholders, the chairman of any such meeting shall make such
appointment at the meeting. The number of inspectors of election shall be one or
three. No person who is a candidate for office shall act as an inspector of
election. The inspectors of election shall do all such acts as may be proper to
conduct the election or vote and such other duties as may be prescribed by
statute with fairness to all stockholders, and shall make a written report of
any matter determined by them and execute a certificate as to any fact found by
them. If there are three inspectors of election, the decision, act or
certificate of a majority shall be the decision, act or certificate of all.
SECTION 2.13. CONDUCT OF MEETINGS. The chairman of any meeting of the
stockholders shall determine the order of business and the procedure to be
followed at such meeting, including such regulation of the manner of voting and
the conduct of discussion as he shall deem to be fair and equitable.
ARTICLE 3
DIRECTORS
SECTION 3.1. POWERS.
(a) GENERAL POWERS. The Board of Directors shall have all the power and
authority granted by law to the Board of Directors, including all powers
necessary or appropriate to the management of the business and affairs of the
Corporation.
(b) SPECIFIC POWERS. Without limiting the general powers conferred by
the last preceding clause and the powers conferred by the Certificate of
Incorporation and these By-laws of the Corporation, it is hereby expressly
declared that the Board of Directors shall have the following powers:
(i) To appoint any person, firm or corporation to
accept and hold in trust for the Corporation any property belonging to the
Corporation or in which it is interested, and to authorize any such person, firm
or corporation to execute any documents and perform any duties that may be
requisite in relation to any such trust;
(ii) To appoint a person or persons to vote shares of
another corporation held and owned by the Corporation;
(iii) To nominate candidates for election by
stockholders to the Board of Directors either directly or through a nominating
committee established by it;
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(iv) By resolution adopted by a majority of the whole
Board of Directors, to designate one or more committees in accordance with
Article 4 of these By-laws;
(v) To fix the place, time and purpose of meetings of
the stockholders; and
(vi) To fix the compensation of directors and
officers for their services.
SECTION 3.2. NUMBER AND TERMS OF DIRECTORS. Directors shall be natural
persons of full age and need not be residents of Delaware or stockholders of the
Corporation. The first Board of Directors shall consist of five directors.
Thereafter, the number of directors shall be determined from time to time by
resolution of the Board of Directors. Except as hereinafter provided in the case
of vacancies, directors shall be elected by the stockholders, and each director
shall be elected for a three-year term and until his successor shall be elected,
subject to removal as provided by statute.
SECTION 3.3. CLASSES. The Board of Directors shall be divided into
three classes: Class I, Class II and Class III. At each annual meeting of the
stockholders, the successors to the directors of the class whose term shall
expire in that year shall be elected for a term of three years so that the term
of office of one class of directors shall expire in each year. The number of
directors in each class shall be as nearly equal as possible so that, except for
temporary vacancies, the number in any class shall not exceed the number in any
other class by more than one.
SECTION 3.4. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD OF
DIRECTORS. The Board of Directors shall appoint one of their number as a
Chairman of the Board who shall preside at all meetings of the Board of
Directors and who shall have such other powers and duties as set forth in these
By-laws or as may be assigned to him from time to time by the Board of
Directors.
SECTION 3.5. POWERS AND DUTIES OF THE VICE CHAIRMAN OF THE BOARD OF
DIRECTORS. The Board of Directors may, in its discretion, appoint one of its
number as a Vice Chairman of the Board of Directors. In the absence of the
Chairman of the Board of Directors, the Vice Chairman of the Board of Directors
shall preside at all meetings of the Board of Directors. In addition, the Vice
Chairman of the Board of Directors shall have such other powers and duties as
may be assigned to him from time to time by the Board of Directors.
SECTION 3.6. VACANCIES. Vacancies on the Board of Directors, including
vacancies resulting from an increase in the number of directors, shall be filled
by a majority of the remaining members of the Board of Directors, though less
than a quorum, or by the sole remaining director, as the case may be,
irrespective of whether holders of any class or series of stock or other voting
securities of the Corporation are entitled to elect one or more directors to
fill such vacancies or newly created directorships at the next annual meeting of
the stockholders. Each person so elected shall be a director until his successor
is elected by the stockholders at the annual meeting of the stockholders at
which the class of directors to which he was elected is up for election or at
any special meeting of the stockholders prior thereto duly called for that
purpose.
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SECTION 3.7. ORGANIZATION MEETINGS. The organization meeting of each
newly elected Board of Directors may be held immediately following the meeting
of the stockholders at which such directors were elected without the necessity
of notice to such directors to constitute a legally convened meeting or at such
time and place as may be fixed by a notice, or a waiver of notice, or a consent
signed by all of such directors.
SECTION 3.8. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held without call or notice at such time and place as shall
from time to time be fixed by the Board of Directors.
SECTION 3.9. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or the
Secretary of the Corporation upon his own initiative or upon request of a
majority of the Board of Directors on one day's notice to each director.
SECTION 3.10. NOTICES OF MEETINGS. All meetings of the Board of
Directors may be held at such times and places as may be specified in the notice
of meeting or in a duly executed waiver of notice thereof.
SECTION 3.11. PARTICIPATION AT MEETINGS. One or more directors may
participate in any meeting of the Board of Directors, or of any committee
thereof, by means of a conference telephone or similar communications equipment
which enables all persons participating in the meeting to hear one another, and
such participation in a meeting shall constitute presence in person at the
meeting.
SECTION 3.12. QUORUM. At all meetings of the Board of Directors, the
presence, in person or by telephonic or similar communications equipment, of a
majority of the members of the Board of Directors shall constitute a quorum for
the transaction of business, and the acts of a majority of the directors present
at a duly convened meeting at which a quorum is present shall be the acts of the
Board of Directors, except as may be otherwise specifically provided by statute,
by the Certificate of Incorporation of the Corporation or by these By-laws. If a
quorum shall not be present, in person or by telephonic or similar
communications equipment, at any meeting of the Board of Directors, the
directors present may adjourn, postpone or continue the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be so present.
SECTION 3.13. ACTION BY UNANIMOUS WRITTEN CONSENT. Any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or a committee thereof, as the case may be, consent thereto in
writing, and such consent is filed with the minutes of proceedings of the Board
of Directors, or committee.
SECTION 3.14. COMPENSATION. Directors, as such, may receive a stated
salary for their services, or a fixed sum and expenses for attendance at regular
or special meetings of the Board of Directors, or any committee thereof, or any
combination of the foregoing as may be determined
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from time to time by resolution of the Board of Directors, and nothing contained
herein shall be construed to preclude any director from serving the Corporation
in any other capacity and receiving compensation therefor.
SECTION 3.15. RELIANCE ON COMPANY BOOKS AND RECORDS. A member of the
Board of Directors or of any committee thereof shall, in the performance of his
duties, be fully protected in relying in good faith upon the books of account or
reports made to the Corporation by any of its officers, or by an independent
certified public accountant, or by an appraiser selected with reasonable care by
the Board of Directors or by any committee thereof, or in relying in good faith
upon other records of the Corporation.
ARTICLE 4
COMMITTEES
SECTION 4.1. BOARD COMMITTEES. The Board of Directors, by a vote of a
majority of the whole Board of Directors, may from time to time designate
committees of the Board of Directors, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board of Directors
and shall, for those committees and any others provided for herein, elect a
director or directors to serve as a member or members and designate, if it
desires, one or more directors as alternate members who may replace any absent
or disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend or to authorize the issuance of stock if the resolution that
designates the committee or a supplemental resolution of the Board of Directors
shall so provide. In the absence or disqualification of any member of any
committee and any alternate member in his place, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. The Board of Directors may, from time to time, suspend,
alter, continue or terminate any committee or the powers and functions thereof.
SECTION 4.2. OTHER COMMITTEES. The Board of Directors may appoint
committees consisting of officers or other persons, with chairmanships, vice
chairmanships and secretaryships and such duties and powers as the Board of
Directors may from time to time designate and prescribe. The Board of Directors
may from time to time suspend, alter, continue or terminate any of such
committees or the powers and functions thereof.
SECTION 4.3. QUORUM. One-third of the members of any committee shall
constitute a quorum unless the committee shall consist of one or two members, in
which case one member shall constitute a quorum. All matters properly brought
before any committee shall be determined by a majority vote of the members
present.
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SECTION 4.4. ACTION BY UNANIMOUS WRITTEN CONSENT. Any action that may
be taken by a committee at a meeting may be taken without a meeting if all
members thereof consent thereto in writing and such writing is filed with the
minutes of the proceedings of such committee.
SECTION 4.5. PROCEDURES. Each committee may determine the procedural
rules for meeting and conducting its business and shall act in accordance
therewith, except as otherwise provided by law, by the Certificate of
Incorporation of the Corporation or by these By-laws. Adequate provision shall
be made for notice to all members of any committee of all meetings of that
committee.
ARTICLE 5
OFFICERS
SECTION 5.1. ELECTION AND OFFICE. The officers of the Corporation shall
be elected annually by the Board of Directors at its organization meeting and
shall consist of a Chairman of the Board, a President, a Secretary and a
Treasurer. The Board of Directors may also elect one or more Vice Presidents and
such other officers and appoint such agents as it shall deem necessary. Each
officer of the Corporation shall hold office for such term, have such authority
and perform such duties as set forth in these By-laws or as may from time to
time be prescribed by the Board of Directors. Any two or more offices may be
held by the same person.
SECTION 5.2. SALARIES. The salaries of all officers of the Corporation
shall be fixed by the Board of Directors.
SECTION 5.3. REMOVAL AND VACANCIES. The Board of Directors may remove
any officer or agent elected or appointed at any time and within the period, if
any, for which such person was elected or employed whenever in the judgment of
the Board of Directors it is in the best interests of the Corporation, and all
persons shall be elected and employed subject to the provisions hereof. If the
office of any officer becomes vacant for any reason, the vacancy shall be filled
by the Board of Directors.
SECTION 5.4. POWERS AND DUTIES OF THE CHAIRMAN. The Chairman of the
Board shall be the chief executive officer and a director of the Corporation.
The Chairman of the Board shall preside at all meetings of the stockholders and
of the Board of Directors and shall have responsibility for the general
management and control of the business and affairs of the Corporation. Unless
otherwise directed by the Board of Directors from time to time, the Chairman
shall have the power to vote and otherwise act on behalf of the Corporation, in
person or by proxy, at any meeting of stockholders of or with respect to any
action of stockholders of any other corporation in which the Corporation may
hold securities and otherwise to exercise any and all rights and powers which
the Corporation may possess by reason of its ownership of securities in such
other corporation.
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SECTION 5.5. POWERS AND DUTIES OF THE PRESIDENT. Unless otherwise
determined by the Board of Directors, the President shall have the usual duties
of a chief operating officer with general supervision over and direction of the
affairs of the Corporation. In the exercise of these duties and subject to the
limitations of the laws of the State of Delaware or any other applicable law,
these By-laws and the actions of the Board of Directors, he may appoint,
suspend, and discharge employees, agents and assistant officers, may fix the
compensation of all officers and assistant officers, shall preside at all
meetings of the stockholders at which he shall be present, and, unless there is
a Chairman of the Board of Directors, shall preside at all meetings of the Board
of Directors and shall be a member of all committees. He shall also do and
perform such other duties as from time to time may be assigned to him by the
Board of Directors.
SECTION 5.6. POWERS AND DUTIES OF VICE PRESIDENTS. Each Vice President
shall have such duties as may be assigned to him from time to time by the Board
of Directors, the Executive Committee or the President. In the event of a
temporary absence of the President on vacation or business, the President may
designate a Vice President or Vice Presidents who will perform the duties of the
President in such absence. In the event of a prolonged absence of the President
due to illness or disability or for any other reason, the Board of Directors
shall designate a Vice President or Vice Presidents who will perform the duties
of the President during such absence.
SECTION 5.7. POWERS AND DUTIES OF THE SECRETARY. The Secretary of the
Corporation shall attend all meetings of the Board of Directors and of the
stockholders and shall keep accurate records thereof in one or more minute books
kept for that purpose, shall give, or cause to be given, the required notice of
all meetings of the stockholders and of the Board of Directors, shall keep in
safe custody the corporate seal of the Corporation and affix the same to any
instrument requiring it, and when so affixed, it shall be attested by his
signature or by the signature of the Treasurer or any Assistant Secretary or
Assistant Treasurer of the Corporation. The Secretary also shall keep, or cause
to be kept, the stock certificate books, stock transfer books and stock ledgers
of the Corporation, in which shall be recorded all stock issues, transfers, the
dates of same, the names and addresses of all stockholders and the number of
shares held by each, shall, when necessary, prepare new certificates upon the
transfer of shares and the surrender of the old certificates, shall cancel such
surrendered certificates and shall perform such other duties as may be assigned
to him by the President.
SECTION 5.8. POWERS AND DUTIES OF THE TREASURER. The Treasurer of the
Corporation shall have the custody of the Corporation's funds and securities,
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation, shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
shall be designated by the President, shall disburse the funds of the
Corporation as may be ordered by the President or the Board of Directors, taking
proper vouchers for such disbursements, shall render to the President and the
Board of Directors, at the regular meetings of the Board of Directors or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation and shall have the right to
affix the seal of the Corporation to any instrument requiring it, and to attest
to the same by his signature and, if so required by the Board of Directors, he
shall give bond in such sum and with such surety as the Board of Directors may
from time to time direct.
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SECTION 5.9. DESIGNATION OF A CHIEF FINANCIAL OFFICER. The Board of
Directors shall have the power to designate from among the President, any Vice
President or the Treasurer of the Corporation a Chief Financial Officer who
shall be deemed the principal financial and accounting officer. In the event
that the Treasurer is not designated by the Board of Directors as the Chief
Financial Officer, the Treasurer shall report to the Chief Financial Officer
from time to time concerning all duties which the Treasurer is obligated to
perform and the Chief Financial Officer shall, subject to the reasonable
direction of the President or the Board of Directors, at his election, assume
such of the duties of the Treasurer as are provided in Section 5.8 hereof as he
shall deem appropriate.
ARTICLE 6
INDEMNIFICATION
SECTION 6.1. INDEMNIFICATION. Subject to Section 6.2 hereof, the
Corporation shall indemnify any director or officer of the Corporation and any
director or officer of its subsidiaries against expenses, including legal fees,
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him to the fullest extent now or hereafter permitted by law in
connection with any threatened, pending or completed action, suit or proceeding,
whether derivative or nonderivative, and whether civil, criminal, administrative
or investigative, brought or threatened to be brought against him by reason of
his performance or status as a director or officer of the Corporation, any of
its subsidiaries or any other entity in which he was serving at the request of
the Corporation or in any other capacity on behalf of the Corporation, its
parent or any of its subsidiaries if such officer or director acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner that he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Notwithstanding the foregoing, in the case of any threatened, pending
or completed action or suit by or in the right of the Corporation, no
indemnification shall be made in respect of any claim, issue or matter as to
which such officer or director shall have been adjudged to be liable to the
Corporation unless and only to the extent the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
The Board of Directors by resolution adopted in each specific instance
may similarly indemnify any person other than a director or officer of the
Corporation for liabilities incurred by him in connection with services rendered
by him for or at the request of the Corporation or any of its subsidiaries.
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The provisions of this Section 6.1 shall be applicable to all actions,
suits or proceedings commenced after its adoption, whether such arise out of
acts or omissions which occurred prior or subsequent to such adoption and shall
continue as to a person who has ceased to be a director or officer or to render
services for or at the request of the Corporation and shall inure to the benefit
of the heirs, executors and administrators of such a person. The rights of
indemnification provided for herein shall not be deemed the exclusive rights to
which any director, officer, employee or agent of the Corporation may be
entitled.
Notwithstanding any provision of this Article 6 to the contrary, the
Corporation shall not be required to indemnify or advance expenses to any person
in connection with any action, suit, proceeding, claim or counterclaim initiated
by or on behalf of such person.
SECTION 6.2. AUTHORIZATION AND DETERMINATION OF INDEMNIFICATION. Any
indemnification under this Article 6, unless ordered by a court, shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer or employee is proper in the
circumstances because he has met the applicable standard of conduct as specified
in Section 6.1 of this Article 6. A person shall be deemed to have met such
applicable standard of conduct if his action is based on the records or books of
account of the Corporation or another enterprise (provided that such records or
books of account have in each case been prepared by persons whom the person
relying thereon reasonably believes to be professionally or expertly competent
to prepare such records or books of account), or on information supplied to him
by the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise.
Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such a quorum is not attainable or, even
if attainable, a majority vote of a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or (iii) by the
stockholders. To the extent, however, that a director, officer or employee of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection therewith, without
the necessity of authorization in the specific case.
The provisions of this Section 6.2 shall not be deemed to be exclusive
or to limit in any way the circumstances in which a person may be deemed to have
met such applicable standard of conduct.
SECTION 6.3. ADVANCES. Expenses incurred in defending or investigating
a threatened or pending action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the director, officer or employee to repay such
amount if
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it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article 6.
SECTION 6.4. SCOPE AND ALTERATION OF INDEMNIFICATION PROVISIONS. The
indemnification and advancement of expenses provided by, or granted pursuant to,
the other sections of this Article 6 shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-law, agreement, contract, vote of the stockholders or
disinterested directors or pursuant to the direction, howsoever embodied, of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of, and advancement of
expenses to, the persons specified in Section 6.1 of this Article 6 shall be
made to the fullest extent permitted by law.
To this end, the provisions of this Article 6 shall be deemed to have
been amended for the benefit of such persons effective immediately upon any
modification of the General Corporation Law of the State of Delaware which
expands or enlarges the power or obligation of corporations organized under
such law to indemnify, or advance expenses to, such persons. The provisions of
this Article 6 shall not be deemed to preclude the indemnification of, or
advancement of expenses to, any person who is not specified in this Section 6.4
or Section 6.1 of this Article 6 but whom the Corporation has the power or
obligation to indemnify, or to advance expenses for, under the provisions of the
General Corporation Law of the State of Delaware or otherwise.
Notwithstanding any contrary determination in the specific case under
Section 6.2 of this Article 6, and notwithstanding the absence of any
determination thereunder, any director, officer or employee may apply to any
court of competent jurisdiction in the State of Delaware for indemnification to
the extent otherwise permissible under Section 6.1 of this Article 6. The basis
of such indemnification by a court shall be a determination by such court that
indemnification of the director, officer or employee is proper in the
circumstances because he has met the applicable standards of conduct set forth
in Section 6.1 of this Article 6. Notice of any application for indemnification
pursuant to this Section 6.4 shall be given to the Corporation promptly upon the
filing of such application.
SECTION 6.5. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer or employee
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article 6.
SECTION 6.6. DEFINITIONS. For purposes of this Article 6, references to
the "Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and
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employees or agents, so that any person who is or was a director, officer or
employee of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article 6 with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. The term
"another enterprise" as used in this Article 6 shall mean any other corporation
or any partnership, joint venture, trust or other entity of which such person is
or was serving at the request of the Corporation as a director, officer or
employee and shall include employee benefit plans.
ARTICLE 7
CAPITAL STOCK
SECTION 7.1. STOCK CERTIFICATES. The certificates for shares of the
Corporation's capital stock shall be numbered and registered in a share register
as they are issued, shall bear the name of the registered holder, the number and
class of shares represented thereby and the par value of each share or a
statement that such shares are without par value, as the case may be, shall be
signed by the Chairman of the Board or the President or any Vice President of
the Corporation and the Secretary, any Assistant Secretary or the Treasurer of
the Corporation or any other person properly authorized by the Board of
Directors and shall bear the seal of the Corporation, which seal may be a
facsimile engraved or printed. Where the certificate is signed by a transfer
agent or a registrar, the signature of any corporate officer on such certificate
may be a facsimile engraved or printed. In case any officer who has signed, or
whose facsimile signature has been placed upon, any share certificate shall have
ceased to be such officer because of death, resignation or otherwise, before
the certificate is issued, it may be issued by the Corporation with the same
effect as if the officer had not ceased to be such at the date of its issue.
SECTION 7.2. TRANSFER OF SHARES. Upon surrender to the Corporation of a
share certificate duly endorsed by the person named in the certificate or by an
attorney duly appointed in writing and accompanied where necessary by proper
evidence of succession, assignment or authority to transfer, a new certificate
shall be issued to the person entitled thereto and the old certificate canceled
and the transfer recorded upon the stock transfer books and share register of
the Corporation.
SECTION 7.3. LOST CERTIFICATES. Should any stockholder of the
Corporation allege the loss, theft or destruction of one or more certificates
for shares of the Corporation and request the issuance by the Corporation of a
substitute certificate therefor, the Board of Directors may direct that a new
certificate of the same tenor and for the same number of shares be issued to
such person upon such person's making of an affidavit in form satisfactory to
the Board of Directors setting forth the facts in connection therewith, provided
that prior to the receipt of such request the Corporation shall not have either
registered a transfer of such certificate or received notice that such
certificate has been acquired by a bona fide purchaser. When authorizing such
issuance of a new certificate, the Board of Directors may, in its discretion and
as a condition precedent
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to the issuance of such certificate, require the owner of such lost, stolen or
destroyed certificate, or his heirs or legal representatives, as the case may
be, to advertise the same in such manner as the Board of Directors shall require
and/or to give the Corporation a bond in such form and for such sum and with
such surety or sureties, with fixed or open penalty, as shall be satisfactory to
the Board of Directors, as indemnity for any liability or expense which it may
incur by reason of the original certificate remaining outstanding.
ARTICLE 8
CHECKS AND NOTES
All checks or demands for money and notes of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
ARTICLE 9
FISCAL YEAR
The fiscal year of the Corporation shall be as determined from time to
time by resolution of the Board of Directors.
ARTICLE 10
SEAL
The seal of the Corporation shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
ARTICLE 11
NOTICES; COMPUTING TIME PERIODS
SECTION 11.1. METHOD AND CONTENTS OF NOTICE. Whenever notice is
required to be given to any director, committee member, officer, stockholder,
employee or agent, whether pursuant to law, the Certificate of Incorporation of
the Corporation or these By-laws, it shall not be construed to mean personal
notice, but such notice may be given, in the case of stockholders, in writing,
by depositing the same in the mail, postage prepaid, or by overnight carrier
addressed to such stockholder at his last known address as the same appears on
the books of the Corporation, and, in the case of directors, committee members,
officers, employees and agents, by telephone, or by mail, postage prepaid, or by
prepaid telegram at his last known address as the same appears on the books of
the Corporation. All notices shall be deemed to be given when mailed, tele-
graphed or telephoned.
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SECTION 11.2. WAIVER OF NOTICE. Any written notice required to be given
to any person may be waived in a writing signed by the person entitled to such
notice whether before or after the time stated therein. Attendance of any person
entitled to notice, whether in person or by proxy, at any meeting shall
constitute a waiver of notice of such meeting, except where any person attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting was not lawfully called or convened. Where written notice is
required for any meeting, the waiver thereof must specify the purpose only if it
is for a special meeting of the stockholders.
ARTICLE 12
BOOKS AND RECORDS
The Board of Directors shall determine from time to time whether, when
and under what conditions and regulations, the books and records of the
Corporation (except such as may by statute be specifically open to inspection)
shall be open to the inspection of the stockholders, and the stockholders'
rights in this respect are and shall be restricted and limited accordingly.
ARTICLE 13
AMENDMENTS
These By-laws may be altered, amended or repealed (i) by the
affirmative vote of the holders of at least 66 2/3% of the voting power of the
capital stock of the Corporation entitled to vote thereon at any annual or
special meeting duly convened after notice to the stockholders of that purpose
or (ii) by a majority vote of the members of the Board of Directors at any
regular or special meeting of the Board of Directors duly convened after notice
to the Board of Directors of that purpose, subject always to the power of the
stockholders to change such action of the Board of Directors by the vote of the
stockholders required in clause (i) of this Article 13.
ARTICLE 14
INTERPRETATION OF BY-LAWS
All words, terms and provisions of these By-laws shall be interpreted
and defined by and in accordance with the General Corporation Law of the State
of Delaware, as amended, and as amended from time to time hereafter.
Adopted October ___, 1999
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PRELIMINARY COPY
APPENDIX
ESCALON MEDICAL CORP.
1999 EQUITY INCENTIVE PLAN
1. PURPOSE. The purpose of the Escalon Medical Corp. 1999 Equity
Incentive Plan is to enhance the ability of Escalon Medical Corp. (the
"Company") and any subsidiaries to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentives to such personnel and to promote the success of the Company. To
accomplish these purposes, this Plan provides a means whereby employees,
directors and consultants may receive stock options ("Options") to purchase the
Company's Common Stock, no par value, (the "Common Stock").
2. ADMINISTRATION.
(a) COMPOSITION OF THE COMMITTEE. This Plan shall be administered by a
committee (the "Committee"), which shall be appointed by and serve at the
pleasure of the Company's Board of Directors (the "Board"). The Committee shall
be comprised of two or more members of the Board. In the event that the Company
registers any class of equity securities pursuant to Section 12 of the
Securities Exchange Act of 1934 (the "Exchange Act"), each member of the
Committee shall be (i) a "non-employee director" within the meaning of Rule
16b-3 under the Exchange Act, and (ii) an "outside director" within the meaning
of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
Subject to the foregoing, from time to time the Board may increase or decrease
the size of the Committee, appoint additional members thereof, remove members
(with or without cause), appoint new members in substitution therefor, fill
vacancies or remove all members of the Committee and thereafter directly
administer this Plan.
(b) AUTHORITY OF THE COMMITTEE. The Committee shall have full and final
authority, in its sole discretion, to interpret the provisions of this Plan and
to decide all questions of fact arising in its application; to determine the
employees, directors and consultants to whom awards shall be made and the type,
amount, size and terms of each such award; to determine the time when awards
shall be granted; and to make all other determinations necessary or advisable
for the administration of this Plan. The Committee shall have the authority to
adopt, amend and rescind such rules, regulations and procedures as, in its
opinion, may be advisable in the administration of this Plan, including, without
limitation, rules, regulations and procedures that: (i) deal with satisfaction
of an optionee's tax withholding obligations pursuant to Section 13 hereof, (ii)
include arrangements to facilitate an optionee's ability to borrow funds for the
payment of the exercise price of an Option, if applicable, from securities'
brokers and dealers, and (iii) include arrangements that provide for the payment
of some or all of an Option's exercise price by delivery of previously owned
shares of
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Common Stock or other property and/or by withholding some of the shares of
Common Stock being acquired upon exercise of an Option. All decisions,
determinations and interpretations of the Committee shall be final and binding
on all optionees and all other holders of Options granted under this Plan.
(c) AUTHORITY OF THE BOARD. Notwithstanding anything to the contrary
set forth in this Plan, all authority granted hereunder to the Committee may be
exercised at any time and from time to time by the Board. All decisions,
determinations and interpretations of the Board shall be final and binding on
all optionees and all other holders of Options granted under this Plan.
3. STOCK SUBJECT TO THIS PLAN. Subject to Section 16 hereof, the shares
that may be issued under this Plan shall not exceed in the aggregate 235,000
shares of Common Stock. Such shares may be authorized and unissued shares or
shares issued and subsequently reacquired by the Company. Except as otherwise
provided herein, any shares subject to an Option that for any reason expires or
is terminated unexercised as to such shares shall again be available under this
Plan.
4. ELIGIBILITY TO RECEIVE OPTIONS. Persons eligible to receive Options
under this Plan shall be limited to those consultants, directors, officers and
other employees of the Company and any subsidiary (as defined in Section 425 of
the Code or any amendment or substitute thereto), who are in positions in which
their decisions, actions and counsel significantly impact upon the profitability
and success of the Company and any subsidiary. Directors of the Company who are
not also officers or employees of the Company or any subsidiary shall not be
eligible to participate in this Plan. Moreover, directors of the Company who are
not also employees of the Company or any subsidiary and consultants shall not be
eligible to be awarded Incentive Stock Options (as defined in Section 5 hereof).
Notwithstanding anything to the contrary set forth in this Plan, the maximum
number of shares of Common Stock for which Options may be granted to any
employee in any calendar year shall be 100,000 shares.
5. TYPES OF OPTIONS. Grants may be made at any time and from time to
time by the Committee in the form of Options to purchase shares of Common Stock.
Options granted hereunder may be Options that are intended to qualify as
incentive stock options within the meaning of Section 422 of the Code or any
amendment or substitute thereto ("Incentive Stock Options") or Options that are
not intended to so qualify ("Nonqualified Stock Options").
6. OPTION AGREEMENTS. Options for the purchase of Common Stock shall be
evidenced by written agreements in such form not inconsistent with this Plan as
the Committee shall approve from time to time. The Options granted hereunder may
be evidenced by a single agreement or by multiple agreements, as determined by
the Committee in its sole discretion. Each Option agreement shall contain in
substance the following terms and conditions:
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(a) TYPE OF OPTION. Each Option agreement shall identify the Options
represented thereby as Incentive Stock Options or Nonqualified Stock Options, as
the case may be.
(b) OPTION PRICE. Each Option agreement shall set forth the purchase
price of the Common Stock purchasable upon the exercise of the Option evidenced
thereby. Subject to the limitation set forth in Section 6(d)(ii) hereof, the
purchase price of the Common Stock subject to an Incentive Stock Option shall be
not less than 100% of the fair market value of such stock on the date the Option
is granted, as determined by the Committee, but in no event less than the par
value of such stock. The purchase price of the Common Stock subject to a
Nonqualified Stock Option shall be not less than 85% of the fair market value of
such stock on the date the Option is granted, as determined by the Committee.
For this purpose, fair market value on any date shall mean the closing price of
the Common Stock, as reported in The Wall Street Journal or if not so reported,
as otherwise reported by the National Association of Securities Dealers
Automated Quotation ("Nasdaq") System, or if the Common Stock is not reported by
Nasdaq, the fair market value shall be as determined by the Com mittee pursuant
to Section 422 of the Code.
(c) EXERCISE TERM. Each Option agreement shall state the period or
periods of time within which the Option may be exercised, in whole or in part,
which shall be such a period or periods of time as may be determined by the
Committee, provided that no Option shall be exercisable after ten years from the
date of grant thereof. The Committee shall have the power to permit an
acceleration of previously established exercise terms, subject to the
requirements set forth herein, upon such circumstances and subject to such terms
and conditions as the Committee deems appropriate.
(d) INCENTIVE STOCK OPTIONS. In the case of an Incentive Stock Option,
each Option agreement shall contain such other terms, conditions and provisions
as the Committee determines necessary or desirable in order to qualify such
Option as a tax-favored Option (within the meaning of Section 422 of the Code or
any amendment or substitute thereto or regulation thereunder) including without
limitation, each of the following, except that any of these provisions may be
omitted or modified if it is no longer required in order to have an Option
qualify as a tax-favored Option within the meaning of Section 422 of the Code or
any substitute therefor:
(i) The aggregate fair market value (determined as of the date
the Option is granted) of the Common Stock with respect to which Incentive Stock
Options are first exercisable by any employee during any calendar year (under
all plans of the Company) shall not exceed $100,000.
(ii) No Incentive Stock Options shall be granted to any
employee if, at the time the Option is granted, the employee owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its parent
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or its subsidiaries unless, at the time such Option is granted, the Option price
is at least 110% of the fair market value of the stock subject to the Option
and, by its terms, the Option is not exercisable after the expiration of five
years from the date of grant.
(iii) No Incentive Stock Options shall be exercisable more
than three months (or one year, in the case of an employee who dies or becomes
disabled within the meaning of Section 72(m)(7) of the Code or any substitute
therefor) after termination of employment.
(e) SUBSTITUTION OF OPTIONS. Options may be granted under this Plan
from time to time in substitution for stock options held by directors,
consultants and employees of other corporations who are about to become, and who
do concurrently with the grant of such options become, directors, consultants or
employees of the Company or a subsidiary as a result of a merger or
consolidation of the employing corporation with the Company or a subsidiary, or
the acquisition by the Company or a subsidiary of the assets or capital stock of
the employing corporation or a subsidiary of the employing corporation. The
terms and conditions of the substitute options so granted may vary from the
terms and conditions set forth in this Section 6 to such extent as the Committee
at the time of grant may deem appropriate to conform, in whole or in part, to
the provisions of the stock options in substitution for which they are granted.
7. DATE OF GRANT. The date on which an Option shall be deemed to have
been granted under this Plan shall be the date of the Committee's authorization
of the Option or such later date as may be determined by the Committee at the
time the Option is authorized. Notice of the determination shall be given to
each individual to whom an Option is so granted within a reasonable time after
the date of such grant.
8. EXERCISE AND PAYMENT FOR SHARES. Options may be exercised in whole
or in part, from time to time, by giving written notice of exercise to the
Secretary of the Company, specifying the number of shares to be purchased,
except that no Option may be exercised in whole or in part during the first six
months after the Option is granted unless expressly permitted by the Committee.
The purchase price of the shares with respect to which an Option is exercised
shall be payable in full at the time notice is given in cash, Common Stock at
fair market value, or a combination thereof, as the Committee may determine from
time to time and subject to such terms and conditions as may be prescribed by
the Committee for such purpose.
9. RIGHTS UPON TERMINATION OF SERVICE. In the event that an optionee
ceases to be a consultant, director, officer or employee of the Company or any
subsidiary, for any reason other than death, retirement, as hereinafter defined,
or disability (within the meaning of Section 72(m)(7) of the Code or any
substitute therefor), the optionee shall have the right to exercise the Option
during its term within a period of three months after such termination to the
extent that the Option was
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exercisable at the time of termination, or within such other period, and subject
to such terms and conditions as may be specified by the Committee. In the event
that an optionee dies, becomes disabled or, in the case of any employee, retires
prior to the expiration of his Option and without having fully exercised his
Option, the optionee or his successor shall have the right to exercise the
Option during its term within a period of one year after termination of service
due to death, disability (within the meaning of Section 72(m)(7) of the Code)
or, in the case of an employee, retirement, in each case only to the extent that
the Option was exercisable at the time of termination, or within such other
period, and subject to such terms and conditions as may be specified by the
Committee. As used in this Section 9, "retirement" means a termination of
employment by reason of an optionee's retirement at or after his earliest
permissible retirement date pursuant to and in accordance with his employer's
regular retirement plan or personnel practices. Notwithstanding the provisions
of Section 6(d)(iii) hereof, an Incentive Stock Option may be exercised more
than three months after termination of employment due to retirement, as provided
in this Section 9, but in that event, the Option shall lose its status as an
Incentive Stock Option and shall be treated as a Nonqualified Stock Option.
10. GENERAL RESTRICTIONS. Each Option granted under this Plan shall be
subject to the requirement that if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or federal law, or (ii) the consent or approval of any government regulatory
body, or (iii) an agreement by the recipient of an Option with respect to the
disposition of shares of Common Stock is necessary or desirable as a condition
of or in connection with the granting of such Option or the issuance or purchase
of shares of Common Stock thereunder, such Option shall not be consummated in
whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
11. RIGHTS OF A SHAREHOLDER. The recipient of any Option under this
Plan, unless otherwise provided by this Plan, shall have no rights as a
shareholder unless and until certificates for shares of Common Stock are issued
and delivered to him.
12. RIGHT TO TERMINATE EMPLOYMENT. Nothing contained in this Plan or in
any agreement entered into pursuant to this Plan shall confer upon any optionee
the right to continue in the employment of the Company or any subsidiary or
affect any right that the Company or any subsidiary may have to terminate the
employment of such optionee or consulting relationship with such optionee.
13. WITHHOLDING. Whenever the Company proposes or is required to issue
or transfer shares of Common Stock under this Plan, the Company shall have the
right to require the recipient to remit to the Company an amount sufficient to
satisfy any federal, state or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. If and to the
extent authorized by the
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Committee, in its sole discretion, an optionee may make an election, by means of
a form of election to be prescribed by the Committee, to have shares of Common
Stock that are acquired upon exercise of an Option withheld by the Company or to
tender other shares of Common Stock or other securities of the Company owned by
the optionee to the Company at the time of exercise of an Option to pay the
amount of tax that would otherwise be required by law to be withheld by the
Company as a result of any exercise of an Option. Any such election shall be
irrevocable and shall be subject to the disapproval of the Committee at any
time. Any securities so withheld or tendered will be valued by the Committee as
of the date of exercise.
14. NON-ASSIGNABILITY. No Option under this Plan shall be assignable or
transferable by the recipient thereof except by will or by the laws of descent
and distribution or by such other means as the Committee may approve. During the
life of the recipient such Option shall be exercisable only by such person or by
such person's guardian or legal representative.
15. NON-UNIFORM DETERMINATIONS. The Committee's determinations under
this Plan (including without limitation determinations of the persons to receive
Options, the form, amount and timing of such grants, the terms and provisions of
Options, and the agreements evidencing same) need not be uniform and may be made
selectively among persons who receive, or are eligible to receive, grants of
Options under this Plan whether or not such persons are similarly situated.
16. ADJUSTMENTS.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the number of shares of Common Stock that have been
authorized for issuance under this Plan but as to which no Options have yet been
granted or which have been returned to this Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Committee, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
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(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, all outstanding Options will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Committee. The Committee may, in the exercise of its
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Committee and give each Option holder the right to exercise
his Option as to all or any part of the shares of Common Stock covered by the
Option, including shares as to which the Option would not otherwise be
exercisable.
(c) SALE OR MERGER. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Committee, in the exercise of its sole
discretion, may take such action as it deems desirable, including, but not
limited to: (i) causing an Option to be assumed or an equivalent option to be
substituted by the successor corporation or a parent or subsidiary of such
successor corporation, (ii) providing that an Option holder shall have the right
to exercise his Option as to all of the shares of Common Stock covered by the
Option, including shares as to which the Option would not otherwise be
exercisable, or (iii) declaring that an Option shall terminate at a date fixed
by the Committee provided that the Option holder is given notice and opportunity
to exercise the then exercisable portion of his Option prior to such date.
17. AMENDMENT. The Board may terminate or amend this Plan at any time
with respect to shares as to which Options have not been granted, subject to any
required shareholder approval or any shareholder approval that the Board may
deem to be advisable for any reason, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under tax, securities or other
laws or satisfying any applicable stock exchange listing requirements. The Board
may not, without the consent of the holder of an Option, alter or impair any
Option previously granted under this Plan, except as specifically authorized
herein.
18. CONDITIONS UPON ISSUANCE OF SHARES.
(a) COMPLIANCE WITH SECURITIES LAWS. Shares of the Company's Common
Stock shall not be issued pursuant to the exercise of an Option unless the
exercise of such Option and the issuance and delivery of such shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Common Stock of the Company may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the shares of Common Stock are
being purchased only for investment and without any present intention to sell or
distribute
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such shares if, in the opinion of counsel for the Company, such representation
is required by any of the aforementioned relevant provisions of law.
19. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of shares as shall be
sufficient to satisfy the requirements of this Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained.
20. EFFECT ON OTHER PLANS. Participation in this Plan shall not affect
an employee's eligibility to participate in any other benefit or incentive plan
of the Company or any subsidiary. Any Options granted pursuant to this Plan
shall not be used in determining the benefits provided under any other plan of
the Company or any subsidiary unless specifically provided.
21. DURATION OF THIS PLAN. This Plan shall remain in effect until all
Options granted under this Plan have been satisfied by the issuance of shares,
but no Option shall be granted more than ten years after the earlier of the date
this Plan is adopted by the Company or is approved by the Company's
shareholders.
22. FORFEITURE FOR DISHONESTY. Notwithstanding anything to the contrary
in this Plan, if the Committee finds, by a majority vote, after full
consideration of the facts presented on behalf of both the Company and any
optionee, that the optionee has been engaged in fraud, embezzlement, theft,
commission of a felony or dishonest conduct in the course of his employment or
retention by the Company or any subsidiary that damaged the Company or any
subsidiary or that the optionee has disclosed trade secrets of the Company or
any subsidiary, the optionee shall forfeit all unexercised Options and all
exercised Options under which the Company has not yet delivered the
certificates. The decision of the Committee in interpreting and applying the
provisions of this Section 22 shall be final. No decision of the Committee,
however, shall affect the finality of the discharge or termination of such
optionee by the Company or any subsidiary in any manner.
23. NO PROHIBITION ON CORPORATE ACTION. No provision of this Plan shall
be construed to prevent the Company or any officer or director thereof from
taking any corporate action deemed by the Company or such officer or director to
be appropriate or in the Company's best interest, whether or not such action
could have an adverse effect on this Plan or any Options granted hereunder, and
no optionee or optionee's estate, personal representative or beneficiary shall
have any claim against the Company or any officer or director thereof as a
result of the taking of such action.
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24. INDEMNIFICATION. With respect to the administration of this Plan,
the Company shall indemnify each present and future member of the Committee and
the Board against, and each member of the Committee and the Board shall be
entitled without further action on his part to indemnity from the Company for
all expenses (including the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of, any action, suit or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and the Board, whether or not he continues to be such member at the time of
incurring such expenses; provided, however, that such indemnity shall not
include any expenses incurred by any such member of the Committee or the Board
(i) in respect of matters as to which he shall be finally adjudged in any such
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as such member of the Committee or the
Board; or (ii) in respect of any matter in which any settlement is effected for
an amount in excess of the amount approved by the Company on the advice of its
legal counsel; and provided further that no right of indemnification under the
provisions set forth herein shall be available to or enforceable by any such
member of the Committee and the Board unless, within 60 days after institution
of any such action, suit or proceeding, he shall have offered the Company in
writing the opportunity to handle and defend same at its own expense. The
foregoing right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each such member of the Committee and the Board
and shall be in addition to all other rights to which such member may be
entitled as a matter of law, contract or otherwise.
25. MISCELLANEOUS PROVISIONS.
(a) COMPLIANCE WITH PLAN PROVISIONS. No optionee or other person shall
have any right with respect to this Plan, the Common Stock reserved for issuance
under this Plan or in any Option until a written option agreement shall have
been executed by the Company and the optionee and all the terms, conditions and
provisions of this Plan and the Option applicable to such optionee (and each
person claiming under or through him) have been met.
(b) APPROVAL OF COUNSEL. In the discretion of the Committee, no shares
of Common Stock, other securities or property of the Company, or other forms of
payment shall be issued hereunder with respect to any Option unless counsel for
the Company shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign legal, securities exchange and
other applicable requirements.
(c) COMPLIANCE WITH RULE 16b-3. To the extent that Rule 16b-3 under the
Exchange Act applies to this Plan or to Options granted under this Plan, it is
the intention of the Company that this Plan comply in all respects with the
requirements of Rule 16b-3, that any ambiguities or inconsistencies in
construction of this Plan be
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interpreted to give effect to such intention and that, if this Plan shall not so
comply, whether on the date of adoption or by reason of any later amendment to
or interpretation of Rule 16b-3, the provisions of this Plan shall be deemed to
be automatically amended so as to bring them into full compliance with such
rule.
(d) UNFUNDED PLAN. This Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets under this Plan.
(e) EFFECTS OF ACCEPTANCE OF OPTION. By accepting any Option or other
benefit under this Plan, each optionee and each person claiming under or through
him shall be conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under this Plan by the
Company, the Board and/or the Committee or its delegates.
(f) CONSTRUCTION. The masculine pronoun shall include the feminine and
neuter, and the singular shall include the plural, where the context so
indicates.
26. SHAREHOLDER APPROVAL. The Company shall submit this Plan to the
shareholders entitled to vote hereon for approval within twelve months after the
date of adoption by the Board in order to meet the requirements of Section 422
of the Code and the regulations thereunder, Section 162(m) of the Code and
regulations thereunder, and the National Association of Securities Dealers,
Inc. for the quotation of the Common Stock on the Nasdaq System. The exercise of
any Option granted under this Plan shall be subject to the approval of this Plan
by the shareholders.
Date of Adoption by the Board: July 15, 1999.
Date of Approval by the Shareholders: November , 1999.
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