<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:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] 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
[ESCALON LOGO]
ESCALON MEDICAL CORP.
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 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.
<PAGE> 3
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 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
<PAGE> 4
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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR EACH OF THE NOMINEES.
2
<PAGE> 5
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, 61 Dr. Federman served as the Chairman of the Board of
M.D................ Directors of the Company from February 1996 to March 1997
and continues to serve on the Board of Directors. Dr.
Federman has served as the Chief of the Division of
Ophthalmology at the Medical College Pennsylvania and
M.C.P. Hahnemann School of Medicine and as Co-Director of
the Retina Service at Wills Eye Hospital in Philadelphia,
Pennsylvania. Dr. Federman is a director of Surgical Laser
Technologies, Inc.
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
Laboratories, Inc., a medical products company, from
October 1996 to 1999, and Vice President of International
Surgical and Instruments from November 1989 to October
1996.
Jeffrey F. 39 President and CEO of X-SITE Medical L.L.C. since January
O'Donnell.......... 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>
If the proposal to reincorporate the Company in Delaware is approved, the
Board of Directors of the Delaware corporation will 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 from California to Delaware -- 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
3
<PAGE> 6
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.
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 becomes 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 Corp. 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 Corp.
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.
4
<PAGE> 7
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
AWARDS
-------------------------
ANNUAL COMPENSATION 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 Executive 1998 $240,000 -- -- -- --
Officer 1997 $ 73,846 -- -- -- --
Ronald L. Hueneke(2)......... 1999 $105,000 $ 40,000 -- $ 3,125 --
President and Chief Operating 1998 $105,000 $ 20,000 -- $ 5,625 --
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.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(1) FISCAL YEAR (PER SHARE) DATE
- ---- ------------------ -------------- ----------- ----------
<S> <C> <C> <C> <C>
Richard J. DePiano..................... 87,500 57.4% $2.125 4/19/09
Ronald L. Hueneke...................... 25,000 16.4% $2.125 4/19/09
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.
5
<PAGE> 8
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.
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% of 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 Securities Exchange Act of 1934 (the "Exchange Act"), the table sets
forth the most recent information provided in filings made with the Securities
and Exchange Commission (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.
6
<PAGE> 9
BENEFICIAL OWNERSHIP TABLE
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL
AMOUNT OF OWNERSHIP
BENEFICIAL OF SHARES AMOUNT OF
OWNERSHIP OF PERCENT UNDERLYING AGGREGATE AGGREGATE
NAME AND ADDRESS OUTSTANDING OF OPTIONS/ BENEFICIAL PERCENT
OF BENEFICIAL OWNER SHARES(1)** CLASS WARRANTS*** OWNERSHIP OF CLASS
- ------------------- ------------ ------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
D. Blech and D. Blech & Company,
Incorporated(2)
599 Lexington Avenue
New York, NY 10022.................. -- -- 565,000 565,000 14.8
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 officers
as a group (7 persons)............ 192,195 5.9 295,733 487,928 13.1
</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.
(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
7
<PAGE> 10
prior to the consummation of the acquisition. Through August 1998, EOI 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
National Association of Securities Dealers, Inc. ("NASD") and the rules and
regulations of the SEC, 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 Exchange Act. 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act 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
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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.
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 October 7, 1999, the closing price of the Company's Common Stock as
reported on the Nasdaq National Market was $2.25 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 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.
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The Committee will determine whether Options granted are to be Incentive
Stock Options meeting the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended (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.
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
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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 (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 included in the Optionee's ordinary income. Disqualifying
dispositions of shares may also, depending upon the sales price, result in
capital gain or
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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.
(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.
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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 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
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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 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 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 Director
Liability" and "Indemnification of Officers and Directors" for a more complete
discussion of these issues.
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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 16 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, 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 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 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 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
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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 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 California 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 Bylaws 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 Exhibits 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 Directors Delaware law permits somewhat California law permits
and Officers (see page 19) broader indemnification and indemnification under certain
could result in limitations.
indemnification of directors
and officers in circumstances
where California law would not
permit indemnification.
Cumulative Voting for Cumulative voting is not Cumulative voting is mandatory
Directors (see page 23) available under Delaware law upon notice given by a
unless provided in the stockholder at a stockholder's
certificate of incorporation. meeting at which directors are
The Delaware Certificate does to be elected. California law
not provide for cumulative permits Nasdaq National Market
voting. System ("Nasdaq") corporations
with over 800 equity security
holders to eliminate
cumulative voting. The
California Articles do not
include such a provision.
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- ----- -------- ----------
<S> <C> <C>
Classified Board of Directors Delaware Certificate divides California Articles do not
(see page 21) the Board of Directors into provide for classes of
three classes. Directors will directors.
serve for three years, with
one class being elected each
year.
Removal of Directors by Removal only for cause by Removal with or without cause
Stockholders (see page 23) affirmative vote of a majority by affirmative vote of a
of the outstanding shares. majority of the outstanding
shares, provided that shares
voting against removal could
not elect such director under
cumulative voting.
Filling Board Vacancies Delaware law provides that California law permits (a) any
(see page 23) vacancies and newly created holder of 5% or more of the
directorships may be filled by corporation's outstanding
a majority of the directors shares or (b) the superior
then in office, even if less court of the appropriate
than a quorum. If there are no county to call a special
directors in office, the meeting of stockholders to
Delaware Court of Chancery may elect the entire board if,
order an election to fill after filling any vacancy, the
vacancies or newly created directors then in office who
directorships upon the have been elected by the
application of any stockholders constitute less
stockholder. than a majority of the
directors then in office.
Who May Call Special The Board of Directors, the The Board of Directors, the
Stockholder Meeting Chairman of the Board or the Chairman of the Board, the
(see page 24) President. 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.
Action by Written Consent of Action by written consent Action by written consent
Stockholders in Lieu of a prohibited by the Delaware permitted.
Stockholder Vote at Certificate. All stockholder
Stockholder Meeting (see page action must take place by a
25) stockholder vote at a meeting
of stockholders.
Business Combination Offer Restrict business combinations No comparable statute.
Statute (see page 26) (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 Amendment of all provisions of
(see page 28) of the Delaware Certificate the California Articles
(except antitakeover requires approval by a
provisions) requires approval majority of the outstanding
by a majority of the voting shares of the Company.
stock of the 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 Loans must be approved or
Directors (see page 28) authorize if expected to ratified by a majority of the
benefit the Company. outstanding shares.
Class Vote for Reorganizations Generally not required unless A reorganization transaction
(see page 28) a reorganization adversely must generally be approved by
affects a specific class of a majority vote of each class
shares. of shares outstanding.
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
- ----- -------- ----------
<S> <C> <C>
Right of Stockholders to Permitted for any purpose Permitted for any purpose
Inspect Stockholder List (see reasonably related to such reasonably related to such
page 29) stockholder's interest as a stockholder's interest as a
stockholder. 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 29) Available in certain mergers Available in certain
if stockholders receive cash circumstances if the holders
in exchange for the shares and of 5% of the class assert such
in certain other rights.
circumstances.
Dividends (see page 31) Paid from surplus (including Generally limited to the
paid-in and earned surplus) or greater of (i) retained
net profits for present or earnings or (ii) an amount
prior fiscal year. 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 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.
18
<PAGE> 21
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, 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 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 law 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
19
<PAGE> 22
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 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 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 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
20
<PAGE> 23
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 the
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.
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 Delaware By-laws 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
21
<PAGE> 24
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 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
22
<PAGE> 25
implemented as the result of any specific efforts of which Escalon California or
Escalon Delaware is aware to obtain control of Escalon Delaware.
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 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
23
<PAGE> 26
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, Escalon Delaware 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.
Escalon Delaware'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.
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.
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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.
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, this 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, this 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 advance notification procedures 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 90 nor more than 120 days prior to the first anniversary of the
date on which proxy statements were first mailed to stockholders for the
preceding year's annual meeting. If the date of the annual meeting has been
advanced or delayed by more than 30 days from such anniversary date, the
Delaware By-laws provide that notice must be received not less than five
business days after the date 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.
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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
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 Escalon Delaware will have a class of voting
stock authorized for
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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. Escalon Delaware 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 Escalon Delaware in which all
stockholders would not be treated equally. Stockholders should note that the
application of Section 203 to Escalon Delaware 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 Escalon Delaware'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
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
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connection with approval of certain extraordinary corporate transactions in
circumstances where Delaware law does not ordinarily require such a class vote,
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.
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.
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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 a
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 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.
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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 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 Delaware 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
Delaware 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.
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
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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-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 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
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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.
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 (the "IRS") 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.
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.
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<PAGE> 35
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 Bylaws 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 and 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.
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.
33
<PAGE> 36
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 a total 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.
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."
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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 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.
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<PAGE> 38
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 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 California 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-3
<PAGE> 39
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, 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.
A-4
<PAGE> 40
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.
<TABLE>
<S> <C>
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
</TABLE>
A-5
<PAGE> 41
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 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.
B-1
<PAGE> 42
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 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.
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<PAGE> 43
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:
<TABLE>
<S> <C>
Class I Director: William Kwan
Class II Directors: Fred G. Choate
Jeffrey F. O'Donnell
Class III Directors: Richard J. DePiano
Jay L. Federman
</TABLE>
The mailing address of each of the initial directors is c/o the
Corporation, 351 East Conestoga Road, Wayne, Pennsylvania 19087.
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.
B-3
<PAGE> 44
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]
B-4
<PAGE> 45
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.
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 immediately 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
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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 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
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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 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, 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
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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, notwithstanding 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.
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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 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;
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(iii) To nominate candidates for election by stockholders to the Board
of Directors either directly or through a nominating committee established
by it;
(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.
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.
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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 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.
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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.
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.
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
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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.
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
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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.
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 it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article 6.
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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 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
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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 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
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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, telegraphed or
telephoned.
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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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> 59
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.
