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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ESCALON MEDICAL CORP.
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(Name of Registrant as Specified in Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(2) Form, schedule or registration statement no.:
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(4) Date filed:
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PRELIMINARY COPIES Escalon Medical Corp.
[LOGO] 351 E. Conestoga Road
Wayne, PA 19087
Tel. 610-688-6830 Fax. 610-688-3641
NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 2, 2001
To the Stockholders of Escalon Medical Corp.:
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting of the Stockholders
of Escalon Medical Corp. (the "Company") will be held at the offices of Duane
Morris, One Liberty Place, 1650 Market Street, Philadelphia, Pennsylvania
19103-7396, on Friday, November 2, 2001, at 9:00 a.m., local time, for the
following purposes:
1. To elect two Class II directors;
2. To consider a proposal to approve an amendment to the
Company's 1999 Equity Incentive Plan to increase the number of
shares available for award under the Plan;
3. To consider a proposal to change the Company's state of
incorporation from Delaware to Pennsylvania;
4. To ratify the selection of Parente Randolph, LLC as the
Company's independent auditors for the fiscal year ending June
30, 2002; and
5. To transact such other business as may properly come before
the meeting or any adjournment, postponement or continuation
thereof.
The Board of Directors has fixed the close of business on September 21,
2001, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Annual Meeting.
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,
Secretary
Harry M. Rimmer
Wayne, Pennsylvania
October 2, 2001
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
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THE ANNUAL MEETING, HE OR SHE MAY, IF SO DESIRED, REVOKE THE PROXY AND VOTE THE
SHARES IN PERSON.
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ESCALON MEDICAL CORP.
351 E. CONESTOGA ROAD
WAYNE, PA 19087
PROXY STATEMENT
2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 2, 2001
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 Delaware corporation (the "Company"), for use at the 2001 Annual Meeting of
Stockholders of the Company to be held on Friday, November 2, 2001, at 9:00
a.m., local time, at the offices of Duane Morris, 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. 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 2, 2001.
RECORD DATE AND VOTING
Only stockholders of record at the close of business on September 21,
2001 are entitled to notice of, and to vote at, the Annual Meeting. As of
September 21, 2001, 3,292,184 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
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amendment to the Company's 1999 Equity Incentive Plan, for the approval of the
reincorporation of the Company from Delaware to Pennsylvania and for
ratification of the selection of Parente Randolph, LLC as the Company's
independent auditors for the fiscal year ending June 30, 2002.
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 outstanding and
entitled to vote at the meeting. Abstentions and shares held by brokers or
nominees as to which voting instructions have not been received from the
beneficial owner of or person otherwise entitled to vote such shares and as to
which the broker or nominee does not have discretionary voting power, i.e.,
broker non-votes, are considered shares of stock outstanding and entitled to
vote and are counted in determining the number of votes necessary for a
majority. An abstention or broker non-vote will therefore have the practical
effect of voting against approval of the reincorporation because it represents
one fewer vote for approval of the reincorporation.
(PROPOSAL NO. 1)
ELECTION OF DIRECTORS
The Company's Board of Directors consists of six members. Each director
is elected for a term of three years and until his successor is elected and has
qualified or until his earlier resignation or removal. The current three-year
terms of the Company's directors expire in the years 2001, 2002 and 2003,
respectively.
Two Class II directors are to be elected at the annual meeting. Unless
otherwise instructed, the proxies solicited by the Board of Directors will be
voted for the election of the nominees named below, both of whom are currently
directors of the Company. If a nominee becomes unavailable for any reason, it is
intended that the proxies will be voted for a substitute nominee designated by
the Board of Directors. The Board of Directors has no reason to believe the
nominees named will be unable to serve if elected. Any vacancy occurring on the
Board of Directors for any reason may be filed by a majority of the directors
then in office until the expiration of the term of the class of directors in
which the vacancy exists.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR EACH OF THE NOMINEES NAMED BELOW.
The names of the nominees for Class II directors and the Class I
directors and Class III directors who will continue in office after the annual
meeting until the expiration of their respective terms, together with certain
information regarding them, are as follows:
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CLASS II DIRECTORS NOMINEES FOR ELECTION
------------------ ---------------------
DIRECTOR YEAR TERM PRINCIPAL OCCUPATIONS DURING PAST FIVE
NAME OF DIRECTOR SINCE WILL EXPIRE AGE YEARS AND CERTAIN DIRECTORSHIPS
---------------- ----- ----------- --- -------------------------------
Fred G. Choate 1998 2004* 55 President of Beaumark Capital LLP, a venture cap-
ital firm, since January 1999; Manager of the
Greater Philadelphia Venture Capital Corp. from
1992 to 1998; Director of Berean Federal
Savings Bank.
Jeffrey F. O'Donnell 1999 2004* 41 President and CEO of PhotoMedex, Inc., a medical
products company, since November 1999;
President and CEO of X-Site
Medical LLC, a medical products company,
from January 1999 to November 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; Director Radiance Medical
Systems, Inc.
* If elected at the annual meeting.
CLASS I DIRECTORS DIRECTORS CONTINUING IN OFFICE
----------------- ------------------------------
DIRECTOR YEAR TERM PRINCIPAL OCCUPATIONS DURING PAST FIVE
NAME OF DIRECTOR SINCE WILL EXPIRE AGE YEARS AND CERTAIN DIRECTORSHIPS
---------------- ----- ----------- --- -------------------------------
William Kwan 1999 2003 61 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 Instru-
ments from November 1989 to October 1996.
Anthony Coppola 2000 2003 64 Principal and operator of real estate and comm-
ercial property, from 1988 to present; Retired
Division President of SKF Industries, a manufac-
turing company, from 1963 to 1986.
CLASS III DIRECTORS DIRECTORS CONTINUING IN OFFICE
------------------- ------------------------------
DIRECTOR YEAR TERM PRINCIPAL OCCUPATIONS DURING PAST FIVE
NAME OF DIRECTOR SINCE WILL EXPIRE AGE YEARS AND CERTAIN DIRECTORSHIPS
---------------- ----- ----------- --- -------------------------------
Richard J. DePiano 1996 2002 60 Chairman and CEO of Escalon Medical Corp. since
March 1997. CEO of the Sandhurst Company, LP and
Managing Director of the Sandhurst Venture
Fund since 1986; Chairman of the Board
of Directors of Surgical Laser
Technologies, Inc. and a director of
PhotoMedex, Inc.
Jay L. Federman, MD 1996 2002 63 Chief of the Division of Ophthalmology
at the Medical College of Pennsylvania
and M.C.P. Hahnemann School of Medicine and
as Co-Director of the Retina Service at Wills Eye
Hospital in Philadelphia;
Chairman of the Board of Directors of Escalon
Medical Corp. from February 1996 to March 1997;
Director of Surgical Laser Technologies, Inc.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during the fiscal year ended
June 30, 2001. Five out of the six members of the Board of Directors attended in
person or telephonically all meetings of the Board of Directors and the
Committees of which they were members during the fiscal year ended June 30,
2001. One member of the Board of Directors attended in person or telephonically
at least 88% of the total number of meetings of the Board of Directors and the
Committees of which he was a member during the fiscal year ended June 30, 2001.
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 of
assisting the Board of Directors in fulfilling its responsibility to oversee
management's conduct of the Company's financial reporting process. The
Committee's functions include: (i) selecting, evaluating and, where appropriate,
replacing the independent auditors; (ii) reviewing the scope of the annual audit
to be performed by the independent auditors; (iii) reviewing the results of
those audits; and (iv) meeting periodically with management and the Company's
independent auditors to review financial, accounting and internal control
matters. The Audit Committee held four meetings during the fiscal year ended
June 30, 2001. The Audit Committee consists of three directors: Mr. Choate, Mr.
Kwan and Mr. Coppola.
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 two meetings during
the fiscal year ended June 30, 2001. The Compensation Committee consists of two
directors: Mr. Choate and Mr. Coppola.
COMPENSATION OF DIRECTORS
None of the Company's directors was paid any directors fees by the
Company during the fiscal year ended June 30, 2001. On November 2, 2000, each of
the members of the Board of Directors were issued stock options as follows: Dr.
Federman, Mr. Kwan, Mr. Coppola, 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 $ 2.391 per share. Each option
expires ten years after the date of grant and is exercisable in full on the
grant date.
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In addition, directors are reimbursed for expenses incurred in connection with
attending meetings.
Jeffrey F. O'Donnell rendered 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 expired on June 30, 2001, 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.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is comprised of three directors, none of whom is an
officer of Escalon and all of whom are considered "independent" under the
listing standards of The Nasdaq Stock Market. The Audit Committee has adopted a
charter, a copy of which is included in this proxy statement as Appendix A.
Management has the primary responsibility for Escalon's financial
statements and the financial reporting process, including the system of internal
controls. Escalon's independent accountants are responsible for performing an
independent audit of Escalon's consolidated financial statements in accordance
with generally accepted auditing standards and for issuing a report thereon.
Under the Audit Committee's charter, the Audit Committee is responsible for
monitoring, on behalf of our Board of Directors, Escalon's financial reporting
process and Escalon's internal controls and accounting practices. The Audit
Committee is also responsible for confirming the independence of Escalon's
independent accountants.
The Audit Committee has reviewed Escalon's audited consolidated
financial statements and discussed those statements with management. The Audit
Committee has also discussed with Parente Randolph, LLC, Escalon's independent
public accountants during the fiscal year ended June 30, 2001, the matters
required to be discussed by Statement of Auditing Standards No. 61
(Communication with Audit Committees, as amended).
The Audit Committee received from Parente Randolph, LLC the written
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and discussed with Parente
Randolph, LLC matters relating to its independence.
On the basis of these reviews and discussions, the Audit Committee
recommended to the Board of Directors that Escalon's audited consolidated
financial statements be included in Escalon's Annual Report on Form 10-K for the
fiscal year ended June 30, 2001, and be filed with the Securities and Exchange
Commission.
The Audit Committee also considered the compatibility of the provision
of non-audit services by Parente Randolph, LLC discussed below with the
maintenance of Parente Randolph, LLC's independence.
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Audit Fees. The aggregate fees billed to Escalon by Parente Randolph,
LLC, the Company's independent public accountants, in connection with (i) the
audit of Company's annual consolidated financial statements for the fiscal year
ended June 30, 2001 and (ii) the reviews of the consolidated financial
statements included in the Company's Form 10-Q quarterly reports for the fiscal
year ended June 30, 2001 was $40,000.
Financial Design and Implementation Fees. No fees were billed by
Parente Randolph, LLC for information technology services rendered by Parente
Randolph, LLC during the fiscal year ended June 30, 2001.
All Other Fees. The aggregate fees billed by Parente Randolph, LLC for
non-audit services other than information technology services during the fiscal
year ended June 30, 2001 was $24,000 for tax consulting and planning services.
Fred G. Choate
William Kwan
Anthony Coppola
September 18, 2001
EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION
---- --- --------
Richard J. DePiano 60 Chairman and Chief Executive Officer
Ronald L. Hueneke 58 President and Chief Operating Officer
Harry M. Rimmer 54 Senior Vice President, Finance, Secretary and Treasurer
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. Mr.
DePiano is a member of the Board of Directors of PhotoMedex, Inc.
Mr. Hueneke was appointed President and Chief Operating Officer of the
Company in July 1998. From 1991 until 1997, Mr. Hueneke held various senior
management positions with EOI. Mr. Hueneke co-founded Trek Medical Products,
Inc., a vitreoretinal instrument and equipment business, in 1983 and served as
its President until October 1991 when it was acquired by EOI.
Mr. Rimmer was appointed Vice President, Corporate Development of the
Company in March 2000. In August 2000 his role was expanded to include Vice
President, Finance and Secretary. In August 2001 his role was expanded to
include Senior Vice President, Finance and
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Treasurer. From 1996 until 1999 he served as the Finance Director for Irving
Tissue, Inc., a manufacturing and marketing company based in Philadelphia. In
1995 Mr. Rimmer was the Finance Officer for a division of Scott Paper, and for
the first eight months of 1996 Mr. Rimmer was employed by the Kimberly Clark
organization in connection with the divestment of a business unit.
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.
LONG-TERM
SUMMARY COMPENSATION TABLE COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------
NAME AND YEAR SALARY BONUS OTHER ANNUAL SECURITIES ALL OTHER
PRINCIPAL POSITION COMPENSATION UNDERLYING COMPENSATION(1)
OPTIONS
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Richard J. DePiano 2001 $250,000 $ 60,000 -- 105,000 $ 18,320
Chairman and Chief Executive 2000 $240,000 $ 0 -- 90,000 $ 27,400
Officer 1999 $240,000 $120,00 -- 200,000 --
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Ronald L. Hueneke 2001 $120,000 $ 0 -- 35,000 $ 7,800
President and Chief Operating 2000 $105,000 $ 0 -- 27,500 $ 6,500
Officer 1999 $105,000 $ 40,000 -- 40,000 --
(1) Includes payment by the Company of (i) in the case of Mr. DePiano, (a)
an automobile allowance and (b) insurance premiums paid for life insurance; (ii)
in the case of Mr. Hueneke, an automobile allowance.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED YEAR (PER SHARE) DATE
----------------------------------------------------------------------
Richard J. DePiano 60,000 27.97% $1.5625 8/22/10
45,000 20.98% $2.3750 11/2/10
----------------------------------------------------------------------
Ronald L. Hueneke 20,000 9.32% $1.5625 8/22/10
15,000 6.99% $2.3750 11/2/10
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(1) These options were granted under the Company's 1999 Equity Incentive
Plan and have a term of ten years, subject to earlier termination in
certain events. See "Employment Agreements." The options of Mr. Hueneke
vest over a five-year period. The options of Mr. DePiano vested over a
twenty-four month period.
AGGREGATE OPTIONS EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUE
SHARES VALUE OF UNEXERCISED
ACQUIRED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ON VALUE OPTIONS AT JUNE 30, 2001 AT JUNE 30, 2001
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
Richard J. DePiano -- $ -- 309,375 85,625 $ 1,438 $ 2,013
Ronald L. Hueneke -- $ -- 34,624 67,876 $ 192 $ 958
(1) Potential unrealized value is (i) the fair market value at fiscal 2001
year-end less the option exercise price times (ii) the number of
options. Fair market value as of fiscal 2001 year-end was determined
based on a closing sale price on June 29, 2001 of $1.62.
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 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 currently provides for a base salary of
$250,000 per year plus incentive compensation in the form of a cash bonus to be
paid by the Company to Mr. DePiano at the discretion of the Board of Directors
in a maximum annual amount equal to 50% base salary, or $120,000. The agreement
also provides for health and long-term disability insurance and other fringe
benefits as well as an automobile allowance of $800 per month.
On July 1, 1999 the Company entered into an Employment Agreement with
Ronald L. Hueneke. 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 $120,000 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 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.
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SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of September 21, 2001, 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)(2) of Regulation S-B 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 ("Exchange Act") the table sets forth
the most recent information provided in filings made with the Securities and
Exchange Commission by the reporting persons.
The calculation of percentage ownership as shown for each person in the
following table assumes the exercise of all options held by such person but not
the exercise of any other person's options. Additionally, certain of the
reporting persons share beneficial ownership of certain securities of the
Company. Any securities as to which beneficial ownership is shared are set forth
on the table below as beneficially owned by each person to whom beneficial
ownership may be attributed. See the footnotes to the table for information as
to shared beneficial ownership of the Company's securities.
BENEFICIAL OWNERSHIP TABLE
NAME AND ADDRESS AMOUNT OF PERCENT AMOUNT OF AMOUNT OF AGGREGATE
OF BENEFICIAL OWNER BENEFICIAL OF CLASS BENEFICIAL AGGREGATE PERCENT
OWNERSHIP OF OWNERSHIP BENEFICIAL OF CLASS
OUTSTANDING OF SHARES OWNERSHIP
SHARES(1)** UNDERLYING
OPTIONS
-------------------- ------------ --------- ---------- ---------- ---------
Fred G. Choate (2) 816 * 25,000 25,816 *
Richard J. DePiano 16,528 .5% 350,000 366,528 10.1%
Jay L. Federman, M.D. 42,072 1.3% 45,000 87,072 2.6%
Jeffrey F. O'Donnell 1,000 * 25,000 26,000 *
William Kwan * 40,000 40,000 1.2%
Ronald L. Hueneke 16,995 .5% 43,167 60,162 1.8%
Anthony Coppola * 10,000 10,000 *
All directors and executive officers 77,411 2.4% 538,167 615,578 16.1%
as a group (8 persons)
* 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.
(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.
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(2) Mr. Choate shares voting power of 215 of these shares with his wife.
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. 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,
2000 through June 30, 2001, all filing requirements applicable to its officers
and directors were complied with, except that Richard J. DePiano, Jay L.
Federman, Ronald L. Hueneke, Fred G. Choate, William Kwan, Jeffrey O'Donnell,
Fred G. Choate and William Kwan filed filed their respective Form 5 late.
(PROPOSAL NO. 2)
AMENDMENT OF 1999 EQUITY INCENTIVE PLAN
At the Annual Meeting, there will be presented to the stockholders a
proposal to approve and adopt an amendment to the Company's 1999 Equity
Incentive Plan (the "Equity Incentive Plan"). On August 22, 2001 the Board of
Directors of the Company approved the proposed amendment to the Equity Incentive
Plan subject to stockholder approval at the Annual Meeting. The amendment will
not be effective unless and until stockholder approval is obtained.
The amendment would increase the number of shares available for
issuance under the Equity Incentive Plan from 435,000 to 635,000 shares of
Common Stock. The Board of Directors believes that the Company's ability to
grant options under the Equity Incentive Plan is a valuable and necessary
compensation tool that aligns the long-term financial interests of eligible
director, officers, key employees and consultants with the financial interests
of the Company's stockholders. As of June 30, 2001, options to purchase 351,732
shares of Common Stock were outstanding under the Equity Incentive Plan; options
to purchase 83,268 shares remain available for future grants. An increase in the
number of shares available for issuance is necessary to meet the above
objectives. The Board of Directors believes that it is in the best interests of
the Company and its stockholders to incorporate this change into the Equity
Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE EQUITY INCENTIVE PLAN.
DESCRIPTION OF THE EQUITY INCENTIVE PLAN
The purpose of the Equity Incentive Plan is to enhance the ability of
the Company and its subsidiaries to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to those persons and to promote the success of the Company. The Equity
Incentive Plan currently permits the grant of options for a maximum of 435,000
shares of the Company's Common Stock.
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Options granted under the Equity Incentive Plan may be options intended
to qualify as incentive stock options ("Incentive Stock Options") under section
422 of the Internal Revenue Code of 1986, as amended (the "Code") or options
that are not intended to so qualify ("Non-Qualified Stock Options")
(collectively the "Options") granted to those officers, directors, consultants
and key employees of the Company and the subsidiaries of the Company who are in
positions in which their decisions, actions and counsel significantly impact
upon the profitability and success of the Company and the subsidiaries of the
Company. Nothing contained in the Equity Incentive Plan affects the right of the
Company or any subsidiary of the Company to terminate the employment of any
employee or the services of any director, optionee or consultant.
As of September 21, 2001, options to purchase 351,732 shares of the
Common Stock were granted under the Equity Incentive Plan. The Company believes
that additional shares must be reserved under the Equity Incentive Plan 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 62, including executive officers and directors of the Company and
executive officers of subsidiaries of the Company.
On September 21, 2001, the closing price of the Company's Common Stock
as reported on the Nasdaq SmallCap Market was $ _____ per share.
No Options may be granted under the Equity Incentive Plan after July
15, 2009. If an Option expires or is terminated for any reason without having
been fully exercised, the number of shares subject to such Option which have not
been purchased may again be made subject to an Option under the Equity Incentive
Plan. Appropriate adjustments to outstanding Options and to the number or kind
of shares subject to the Equity Incentive Plan are provided for in the event of
a stock split, reverse stock split, stock dividend, share combination or
reclassification and certain other types of corporate transactions involving the
Company, including a merger or a sale of substantially all of the assets of the
Company. The maximum number of shares of Common Stock for which Options may be
granted under the Equity Incentive Plan to any employee in any calendar year is
100,000 shares.
The Equity Incentive Plan is administered by a committee appointed by
the Board of Directors of the Company, 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. Choate and Mr. Coppola. 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
directors, officers, employees and consultants 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.
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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 Stock Options, and 85%, with respect to
Non-Qualified Stock 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 or service to the Company may thereafter become
exercisable. No Option may be exercised after ten years from the date of grant.
An outstanding Non-Qualified Stock Option that has become exercisable
generally terminates one year after the optionee ceases to be a consultant,
director, officer or employee of the Company or any subsidiary due to death,
retirement or total disability and three months after such 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, death or retirement and three months
after an employment termination for any other reason. Notwithstanding, the
foregoing, an Incentive Stock Option that is exercised more that three months
after termination of employment due to retirement will lose its status as an
Incentive Stock Option and will be treated as a Non-Qualified Stock Option. No
Option may be assigned or transferred, except by will or by the applicable laws
of descent and distribution. During the lifetime of the optionee, an Option may
be exercised only by the optionee.
The Committee will determine whether Options granted are to be
Incentive Stock Options meeting the requirements of Section 422 of the Code.
Incentive Stock Options may be granted only to eligible employees. Any such
optionee must own less than 10% of the total combined voting power of the
Company or of any of its subsidiaries unless, at the time such Incentive Stock
Option is granted, the option price is at least 110% of the fair market value of
the Common Stock subject to the Option and, by its terms, the Incentive Stock
Option is not exercisable after the expiration of five years from the date of
grant. An optionee may not receive Incentive Stock Options for shares that first
become exercisable in any calendar year with an aggregate fair market value
determined at the date of grant in excess of $100,000.
The option price must be paid in full at the time of exercise unless
otherwise determined by the Committee. Payment must be made in cash, in shares
of Common Stock valued at their then fair market value, or a combination
thereof, as determined in the discretion of the Committee. It is the policy of
the Committee that any taxes required to be withheld must also be paid at the
time of exercise. The Committee may, in its discretion, allow an optionee to
enter into an agreement with the Company's transfer agent or a brokerage firm of
national standing whereby the optionee will simultaneously exercise the Option
and sell the shares acquired thereby and
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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 Board of Directors 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.
The following table sets forth the total number of shares of Common
Stock for which stock options have been awarded to the persons and groups listed
below under the Equity Incentive Plan as of September 21, 2001.
AWARDS MADE UNDER THE EQUITY INCENTIVE PLAN
NAME AND POSITION NUMBER OF OPTIONS
Richard J. DePiano 132,750
Ronald L. Hueneke 35,000
Fred G. Choate 10,000
Jeffrey F. O'Donnell 15,000
All current executive officers as a group 217,750
All current directors who are not 102,482
executive officers as a group
All employees other than executive 31,500
officers and directors as a group
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.
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An employee receiving an Option (an "Optionee") will not recognize
taxable income upon the grant of the Option, nor will the Company be entitled to
any deduction on account of such grant.
In the case of Non-Qualified Stock Options, the Optionee will recognize
ordinary income upon the exercise of the Non-Qualified Stock Option in an amount
equal to the difference between the option price and the fair market value of
the shares on the date of exercise. An Optionee exercising a Non-Qualified Stock
Option is subject to federal income tax withholding on the income recognized as
a result of the exercise of the Non-Qualified Stock Option. Such income will
include any income attributable to any shares issuable upon exercise that are
surrendered, if permitted under the applicable stock option agreement, in order
to satisfy the federal income tax withholding requirements.
Except as provided below, the basis of the shares received by the
Optionee upon the exercise of a Non-Qualified Stock Option will be the fair
market value of the shares on the date of exercise. The Optionee's holding
period will begin on the day after the date on which the Optionee recognizes
income with respect to the transfer of such shares, i.e., generally the day
after the exercise date. When the Optionee disposes of the shares acquired upon
exercise of a Non-Qualified Stock Option, the Optionee will generally recognize
capital gain or loss under the Code rules that govern stock dispositions,
assuming the shares are held as capital assets, equal to the difference between
(i) the selling price of the shares and (ii) the sum of the option price and the
amount included in the Optionee's 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
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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 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
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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.
(PROPOSAL NO. 3)
APPROVAL OF THE REINCORPORATION OF THE COMPANY
FROM DELAWARE TO PENNSYLVANIA
At the Annual Meeting, you will vote upon a proposal to change the
Company's state of incorporation from Delaware to Pennsylvania. This is commonly
called a "reincorporation." If approved, this reincorporation will be
accomplished by merging the Company into a wholly owned Pennsylvania subsidiary
that was recently formed by the Company solely for the purpose of effecting the
reincorporation, referred to as the "merger." The Company as currently
incorporated in Delaware will sometimes be referred to as "Escalon Delaware,"
and the Company as reincorporated in Pennsylvania will be referred to as
"Escalon Pennsylvania."
On the effective date of the merger, each outstanding share of common
stock of Escalon Delaware will automatically be converted into one share of
common stock of Escalon Pennsylvania, and stockholders of Escalon Delaware will
become shareholders of Escalon Pennsylvania. On the effective date of the
merger, the number of outstanding shares of common stock of Escalon Pennsylvania
will be equal to the number of shares of common stock of Escalon Delaware
outstanding immediately prior to the effective date of the merger.
No action need be taken by stockholders to exchange their stock
certificates; this will be accomplished at the time of the next transfer of
Company shares by the shareholder. Upon completion of the merger, certificates
for shares in Escalon Delaware will automatically represent an equal number of
shares of Escalon Pennsylvania common stock.
The merger will be effected pursuant to the terms and conditions of an
Agreement and Plan of Merger, which is referred to as the "merger agreement," a
copy of which is included as
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Appendix B to this proxy statement. By virtue of the merger, the Company will
cease to exist as a Delaware corporation and you will become shareholders of
Escalon Pennsylvania. Escalon Pennsylvania will succeed to all of the assets,
liabilities, subsidiaries and other properties of the Company, and its name will
be changed to "Escalon Medical Corp." Your rights as shareholders and the
internal affairs of Escalon Pennsylvania will be governed by the Articles of
Incorporation (the "Pennsylvania Articles") and Bylaws (the "Pennsylvania
Bylaws") of Escalon Pennsylvania and by the Pennsylvania Business Corporation
Law of 1988, as amended, known as the "Pennsylvania BCL." Your rights as
shareholders will no longer be governed by the Certificate of Incorporation (the
"Delaware Certificate") and By-laws (the "Delaware By-laws") of the Company and
the Delaware General Corporation Law, known as the "Delaware GCL." Copies of the
Pennsylvania Articles and the Pennsylvania Bylaws are included as Appendices C
and D to this proxy statement. Copies of the Delaware Certificate and Delaware
By-laws as currently in effect are available for inspection at the headquarters
of the Company and will be sent to stockholders without cost upon request.
There will be no change in the name, business, management, benefit
plans, location, assets, liabilities or net worth of the Company as a result of
the reincorporation following the merger. While the rights of shareholders under
the Pennsylvania BCL and the Delaware GCL differ in a number of respects, the
Pennsylvania Articles and the Pennsylvania Bylaws have been designed to minimize
these differences. The material changes in shareholder rights, corporate
governance and other matters resulting from the reincorporation are discussed
below.
The Delaware GCL refers to "stockholder" whereas the Pennsylvania BCL
uses the term "shareholder." The term shareholder is used throughout the
discussion below because "stockholder" and "shareholder" have the same meaning
under those statutes.
The merger agreement was approved by the Board of Directors of the
Company on August 14, 2001. Under Delaware law, consummation of the merger will
require that the merger agreement be adopted by the affirmative vote of the
holders of record of a majority of the outstanding shares of common stock of the
Company. The merger and reincorporation will be effected as soon as practicable
after the merger agreement has been approved by the shareholders. The merger and
reincorporation may be abandoned or the merger agreement may be amended, either
before or after shareholder approval, if, in the opinion of the Board of
Directors, circumstances arise that make it inadvisable to proceed. However,
after shareholder approval, the principal terms of the merger may not be amended
without further shareholder approval. If the merger agreement is not approved by
the shareholders, the merger and reincorporation will not be consummated and the
Company will remain a Delaware corporation.
REASONS FOR THE REINCORPORATION
The principal reason for reincorporating the Company in Pennsylvania is
to eliminate the Company's annual liability under the Delaware franchise tax. As
a Pennsylvania corporation, the Company would no longer be subject to the
Delaware franchise tax.
The Company maintains its corporate headquarters in Pennsylvania and
has had virtually no business operations in Delaware. At one time, the Delaware
GCL was generally viewed as
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being more modern and less restrictive than the corporation laws of
Pennsylvania. However, the Company believes that many of the differences between
the Delaware and Pennsylvania corporation laws were eliminated several years ago
when Pennsylvania adopted sweeping changes in the Pennsylvania BCL that afforded
Pennsylvania corporations significant operating flexibility.
As a result of the large number of corporations incorporated in
Delaware, the Delaware courts have developed a considerable expertise in dealing
with corporate issues and a substantial body of case law has developed
construing Delaware law and establishing public policies with respect to
Delaware corporations. The Board of Directors believes, however, that the tax
savings and other advantages of reincorporating in Pennsylvania outweigh these
benefits of being incorporated in Delaware.
NO CHANGE IN MANAGEMENT
If the reincorporation proposal is adopted, the directors of Escalon
Pennsylvania will become the directors of the Company. The Pennsylvania Articles
provide for a classified Board. The terms of Mr. Kwan and Mr. Coppola as Class I
directors will expire at the 2001 Annual Meeting of Shareholders, and these
directors are standing for reelection for terms continuing until the 2004 Annual
Meeting of Shareholders. The terms of Mr. O'Donnell and Mr. Choate as Class II
directors will continue until the 2002 Annual Meeting of Shareholders, and the
terms of Mr. DePiano and Dr. Federman as Class III directors will continue until
the 2003 Annual Meeting of Shareholders
The persons who currently serve as executive officers of the Company
will serve as the executive officers of Escalon Pennsylvania after the
reincorporation.
BENEFIT PLANS TO CONTINUE
The Company's employee benefit plans will not be changed in any
material respect by the reincorporation. Each outstanding option to acquire
shares of common stock of Escalon Delaware will be converted into an option to
acquire an equal number of shares of common stock of Escalon Pennsylvania, under
the same terms and conditions as the original options. All of the Company's
employee benefit plans, including the 1991 Stock Option Plan, the 1992 Stock
Option Plan, the 1993 Stock Option Plan, the 1999 Equity Incentive Plan and the
1999 Equity Incentive Plan for the Employees of Sonomed, Inc., will be adopted
and continued by Escalon Pennsylvania following the reincorporation.
Shareholders should recognize that approval of the proposed reincorporation will
constitute approval of the adoption and assumption of those plans by Escalon
Pennsylvania. Any future options granted under any of those plans will be for
shares of common stock of Escalon Pennsylvania.
CAPITALIZATION
Currently, the Company's capital stock consists of 35,000,000
authorized shares of common stock, par value $.001 per share, of which 3,292,184
shares were issued and outstanding as of September 21, 2001, and 2,000,000
authorized shares of preferred stock, par value $.001 per share, of which no
shares are issued and outstanding.
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The capitalization of Escalon Pennsylvania is identical to the
capitalization of the Company, 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. Upon the effectiveness of the reincorporation,
Escalon Pennsylvania 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. Escalon Pennsylvania's
authorized but unissued shares of common and preferred stock will be available
for future issuance.
Under the Pennsylvania Articles, as under the Delaware Certificate, 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
undesignated 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.
COMPARATIVE RIGHTS OF SHAREHOLDERS BEFORE AND AFTER THE REINCORPORATION
General
In general, the rights of shareholders of Pennsylvania and Delaware
business corporations are governed by and subject to the provisions of the
Pennsylvania BCL and the Delaware GCL, respectively. If the reincorporation
proposal is adopted, the shareholders of the Company will become shareholders of
Escalon Pennsylvania, and their rights will be governed by and subject to the
provisions of the Pennsylvania BCL rather than the Delaware GCL. The rights of
the Company's shareholders after the reincorporation will also be governed by
the Pennsylvania Articles and Pennsylvania Bylaws rather than the provisions of
the Delaware Certificate and Delaware By-laws. The after is a summary of the
material differences in the rights of shareholders before and after the
reincorporation and is qualified in its entirety by reference to the relevant
provisions of the Delaware GCL, the Pennsylvania BCL, the Delaware Certificate,
the Delaware By-laws, the Pennsylvania Articles and the Pennsylvania Bylaws.
Although the Pennsylvania Articles and Pennsylvania Bylaws and the
Delaware Certificate and Delaware By-laws and the respective laws of
Pennsylvania and Delaware are discussed below, this discussion contains neither
an exhaustive description of all differences between the Pennsylvania Articles
and Pennsylvania Bylaws and the Delaware Certificate and Delaware By-laws nor an
exhaustive description of the differences between the laws of the two states.
The discussion below of the Pennsylvania Articles and Pennsylvania Bylaws is
qualified by reference to Appendices C and D. In evaluating the proposed
reincorporation, you should read the following chart together with the
discussion following the chart and the merger agreement, the Pennsylvania
Articles and the Pennsylvania Bylaws attached to this proxy statement. For each
item
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summarized in the chart, there is a reference to a page of this proxy statement
on which a more detailed discussion appears.
In addition, there is a substantial body of case law in Delaware
interpreting the corporation laws of that state. Currently, a comparable body of
judicial interpretations does not exist in Pennsylvania. Delaware also has
established a system of Chancery Courts to adjudicate matters arising under its
corporation law. Pennsylvania has considered but has not yet established an
equivalent court system. As a result of these factors, there may be less
certainty as to the outcome of matters governed by Pennsylvania corporation law
than would be the case under Delaware corporate law.
ISSUE PENNSYLVANIA DELAWARE
Amendments to Charter (see Amendments to the Pennsylvania Articles Amendments to the Delaware Certificate
page ____). generally require approval of a majority require approval of the holders of a
of the votes cast, except that majority of the shares entitled to be
amendments of provisions relating to voted, except that amendments of
antitakeover matters and the limitation provisions relating to antitakeover
of liability of directors and matters and the limitation of
indemnification of directors and liability of directors require
officers require the approval of at approval of the holders of at least 66
least 66 2/3% of the votes entitled to 2/3% of the voting power of the stock
be cast on the matter. entitled to be voted.
Amendments to Bylaws (see page Pennsylvania law and the Pennsylvania Delaware law and the Delaware
____). Articles permit the Board of Directors to Certificate permit the Board of
amend the bylaws, subject to the right of Directors to amend the Delaware
the shareholders to change such action. By-Laws. Stockholders may amend the
Shareholders may amend the Pennsylvania Delaware By-laws by the affirmative
Bylaws by the affirmative vote of at vote of the holders of at least 66
least 66 2/3% of the votes entitled to be 2/3% of the voting power of the stock
cast on the matter. entitled to be voted.
Action by Written Consent of Action by written consent of shareholders Action by written consent of
Shareholders in Lieu of a is prohibited by the Pennsylvania stockholders is prohibited by the
Shareholder Vote at Shareholder Articles and the Pennsylvania Bylaws. Delaware Certificate. All stockholder
Meeting (see page ____). All shareholder action must take place by action must take place by a
a shareholder vote at a meeting of the stockholder vote at a meeting of the
shareholders. stockholders.
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ISSUE PENNSYLVANIA DELAWARE
Who May Call Special The Board of Directors or the Chairman of The Board of Directors, the Chairman
Shareholder Meeting (see page the Board may call a special shareholders of the Board or the President may call
____). meeting. a special stockholders meeting.
Fiduciary Duty of Directors Pennsylvania law permits directors to Delaware law does not contain a
(see page ____). consider the interests of constituencies statutory provision permitting
other than the corporation and its directors to consider the interests of
shareholders in discharging their constituencies other than the
fiduciary duties. Actions taken by corporation and its stockholders.
directors are presumed to be in the best
interests of the corporation.
Limitation of Director Pennsylvania law permits limitation of Delaware law permits limitation of
Liability (see page ____). director liability for monetary damages, director liability for monetary
unless the director breaches or fails to damages, except for a breach of duty
perform the director's duties and such of loyalty, acts or omissions not in
breach or failure constitutes good faith or that involve a
self-dealing, willful misconduct or intentional misconduct, unlawful
recklessness. payment of dividends or transactions
in which the director derived an
improper personal benefit.
Indemnification of Directors Pennsylvania law, the Pennsylvania Delaware law and the Delaware By-laws
and Officers (see page ____). Articles and the Pennsylvania Bylaws require indemnification of directors
require the indemnification of directors
and officers if the person acted in and
officers unless the act or failure to good
faith and in a manner the person act giving
rise to the claim for reasonably believed
to be in, or not indemnification is
determined by a court opposed to, the best
interests of the to have constituted
willful misconduct or Company as determined
by the Board of recklessness.
Directors or the stockholders.
Cumulative Voting (see page The Pennsylvania Articles provide that The Delaware Certificate does not
____). shareholders do not have the right to provide for cumulative voting by
cumulate their votes in an election of stockholders in the election of
directors. directors.
Appraisal or Dissenters Dissenters rights may be available Appraisal rights may be avail-
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ISSUE PENNSYLVANIA DELAWARE
Rights (see page ____). in the event of certain fundamental able in certain mergers.
transactions such as mergers, share
exchanges and asset transfers.
Classified Board of Directors Pennsylvania Articles divide the Board of Delaware Certificate divides the Board
(see page ____). Directors into three classes. Directors of Directors into three classes.
will serve for three years, with one Directors serve for three years, with
class being elected each year. one class being elected each year.
Dividends (see page ____). Generally limited to an amount not May be paid from surplus (including
greater than an amount that would prevent paid-in and earned surplus) or net
the Company from being able to pay its profits for present or prior fiscal
debts as they become due or would cause year.
its assets to be less than the sum of its
total liabilities plus the amount needed
to pay any preferential amounts to
shareholders upon a dissolution of the
Company.
Removal of Directors by Removal only for cause by affirmative Removal only for cause by affirmative
Shareholders (see page ____). vote of a majority of the votes cast. vote of the holders a majority of the
outstanding shares.
Amendments to Charter; Fundamental Corporate Transactions
The Delaware GCL requires the approval of the holders of a majority of
the outstanding shares entitled to vote on the matter to amend the Delaware
Certificate and to effect certain fundamental corporate transactions, such as
mergers, sales of substantially all of the assets or dissolution of the Company.
It will generally be less difficult under Pennsylvania law to amend the
provisions of the Pennsylvania Articles and to engage in fundamental corporate
transactions than it is for the Company currently under Delaware law. The
Pennsylvania BCL requires only the affirmative vote of a majority of the votes
actually cast by all shareholders then entitled to vote at a meeting of
shareholders to amend a Pennsylvania corporation's articles of incorporation or
engage in certain fundamental corporate transactions. Also, the Pennsylvania BCL
does not require shareholder approval of certain non-material amendments to the
articles of incorporation, such as changing the corporate name or increasing the
number of authorized shares to effectuate a stock dividend where the corporation
has only one class of shares outstanding.
The Delaware Certificate specifies that certain antitakeover provisions
and the provisions limiting liability of directors of the Delaware Certificate
may be amended only with the approval
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of holders of at least two-thirds of the outstanding shares entitled to vote.
The Pennsylvania Articles contain similar provisions.
Amendments to Bylaws
The Delaware GCL and the Delaware Certificate permit the Board of
Directors to make changes in the by-laws. Under the Pennsylvania BCL, the power
of the Board of Directors to adopt or amend bylaw provisions on certain
specified subjects is limited unless the power to adopt or amend these bylaw
provisions is granted to the Board in the articles of incorporation. The
Pennsylvania Articles grants this power to amend the Pennsylvania Bylaws to the
Board of Directors. Shareholders may amend the Pennsylvania Bylaws by the
affirmative vote of at least 66-2/3% of the votes that all shareholders are
entitled to cast on the matter.
Shareholder Action by Consent
The Pennsylvania BCL does not permit the shareholders of a Pennsylvania
corporation that has a class of voting stock registered under the Exchange Act
(a "registered corporation") to act without a meeting by less than unanimous
written consent unless the articles of incorporation affords them such right. In
contrast, the Delaware GCL permits the shareholders to act without a meeting by
written consent of the holders of the number of shares required to take the
action at a meeting, unless the certificate of incorporation restricts such
action.
Both the Delaware Certificate and the Pennsylvania Articles and the
Pennsylvania Bylaws expressly provide that shareholders may not act by consent
in lieu of a meeting.
Shareholders Meetings
Pennsylvania law provides that in the event that an annual meeting for
election of directors is not called and held within six months after the date
designated in a Pennsylvania corporation's bylaws, any shareholder may call the
meeting at any time thereafter. Also, Pennsylvania law provides that special
meetings of shareholders may be called by the Board of Directors and the
officers or other persons as may be provided in the bylaws. The Pennsylvania BCL
does not permit the shareholders of a registered corporation to call a special
meeting of shareholders.
Under Delaware law, if the annual meeting for the election of directors
is not held within 30 days after the date provided in a Delaware corporation's
bylaws, or if no date has been designated for a period of 13 months after the
organization of the corporation or after its last annual meeting, the Court of
Chancery may summarily order a meeting to be held upon the request of any
shareholder or director. Also, Delaware law provides that special meetings of
shareholders may be called by the Board of Directors or by such persons as may
be authorized by the certificate of incorporation or bylaws.
Both the Delaware By-laws and the Pennsylvania Bylaws provide that
annual meetings of the shareholders to elect the directors shall be held at a
date, time and place fixed by the Board of Directors. The Delaware By-laws
provide that special meetings of the shareholders may be called only by the
Board of Directors, the Chairman of the Board or the President, and
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the Pennsylvania Bylaws provide that special meetings of the shareholders may be
called only by the Board of Directors or the Chairman of the Board. Both
Pennsylvania law and the Delaware Certificate prohibit shareholders from calling
a special meeting.
Classification of the Board of Directors and Certain Other Related
Matters
Both Delaware law and Pennsylvania law permit a corporation to divide
its Board of Directors into separate classes with staggered terms of office,
with one class of directors standing for election each year. The Delaware
Certificate and By-laws and the Pennsylvania Articles and Bylaws provide for the
Board to be classified and to be divided into three classes.
Pennsylvania law permits, but does not require, provisions in the
articles of incorporation or bylaws that provide for a classified board of
directors. The Pennsylvania Articles and Bylaws provides for classification of
the Board of Directors. This classified board provision provides that directors
will be divided into three classes, as nearly equal in number as possible. The
term of office for Class I directors will expire at the 2003 Annual Meeting of
Shareholders; the term of office for Class II directors will expire at the 2004
Annual Meeting of Shareholders; and the term of office for the Class III
directors will expire at the 2002 Annual Meeting of Shareholders. At each Annual
Meeting of Shareholders, the successors to the class of directors whose terms
expire at that meeting will be elected to serve a term of office until the third
succeeding Annual Meeting of Shareholders after their election and until their
successors have been duly elected or until their earlier death, resignation or
removal.
Under Pennsylvania 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. Pennsylvania law also provides that, unless the articles of
incorporation provide otherwise, directors serving on a classified Board of
Directors may be removed only for cause. The Pennsylvania Articles will not
provide otherwise.
The classified board provision in the Pennsylvania Articles 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
Pennsylvania; it will take at least two Annual Meetings of Shareholders for even
a majority of shareholders to make a change in control of the Board of
Directors, because only a minority of the directors will be elected at each
meeting. See "--Antitakeover Provisions."
The classified board provision in the Pennsylvania Articles is set
forth in Exhibit C to this proxy statement. The preceding description of this
provision is qualified in its entirety by reference to Exhibit C.
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 that 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 the holder chooses. Thus, under cumulative voting, a
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shareholder with a significant minority percentage of the outstanding shares
would be able to elect one or more directors. 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 Delaware law, shareholders may not exercise cumulative voting in
the election of directors unless these rights are provided in the certificate of
incorporation. However, cumulative voting is available under Pennsylvania law
unless otherwise provided in the articles of incorporation. Neither the
Pennsylvania Articles nor the Delaware Certificate permits cumulative voting.
The unavailability of cumulative voting could be characterized as an
"antitakeover" provision. See "--Antitakeover Provisions"
Appraisal or Dissenters Rights
The rights of shareholders to demand payment in cash by a corporation
of the fair value of their shares in the event of certain fundamental corporate
transactions are called dissenters rights in Pennsylvania and appraisal rights
in Delaware. Under the Pennsylvania BCL, dissenters rights are generally
afforded to shareholders in the event of corporate actions such as mergers,
share exchanges, transfers of all or substantially all of the assets of the
corporation and certain other fundamental transactions in which the corporation
is not the acquiring corporation. Under the Delaware GCL stockholders generally
have appraisal rights in the event of a merger but not in the event of the sale
of all or substantially all of the assets of the corporation.
Under both Pennsylvania and Delaware law, certain corporations whose
securities are broadly held or market traded are not required to provide
dissenters or appraisal rights, which exception is currently not available to
the Company. The Pennsylvania BCL does not provide dissenters rights to holders
of shares that are listed on a national securities exchange, quoted on the
Nasdaq National Market or held of beneficially or of record by more than 2,000
shareholders when a plan of merger converts the shares into shares of the
acquiring, surviving, new or other corporation (whether or not the shares of the
acquiring, surviving, new or other corporation are listed on an exchange or
privately held). In contrast, the Delaware GCL does not afford appraisal rights
to holders of shares that are listed on a national securities exchange, quoted
on the Nasdaq National Market System or held of record by more than 2,000
shareholders when a plan of merger converts such shares into stock of the
surviving corporation or stock of another corporation that is listed on a
national securities exchange, quoted on the Nasdaq National Market System or
held of record by more than 2,000 shareholders.
Under the Pennsylvania BCL, "fair value" means the value of shares of
stock immediately before the effectuation of the action to which the dissenter
objects, taking into account all relevant factors but excluding any appreciation
or depreciation in anticipation of such corporation action. The meaning of "fair
value" under the Delaware GCL is substantially the same.
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Dividends
Under Pennsylvania law, a corporation has the power, subject to
restrictions in its bylaws, to pay dividends or make other distributions to its
shareholders, unless after giving effect to the dividends (i) the corporation
would not be able to pay its debts as they become due in the usual course of
business or (ii) the corporation's total assets would be less than the sum of
its total liabilities plus (unless otherwise provided in its articles of
incorporation) the amount that would be needed upon the dissolution of the
corporation to satisfy the preferential rights, if any, of shareholders having
superior preferential rights to the shareholders receiving the distribution. The
Pennsylvania Bylaws do not limit the power to make distributions to
shareholders.
Under Delaware law, directors may, subject to any restrictions in the
corporation's certificate of incorporation, declare and pay dividends either (i)
out of its surplus or (ii) in case there is no surplus, out of the net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year. The directors of a Delaware corporation may not declare a dividend
out of net profits, however, if the capital of the corporation is less than the
aggregate amount of capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets. The Delaware
Certificate does not restrict the payment of dividends.
Removal of Directors
Under both Delaware law and Pennsylvania law, unless the Board is
classified or cumulative voting is permitted, a director can be removed from
office during his or her term by shareholders with or without cause. Under
Delaware law, the stockholder vote requirement is a majority of the shares then
entitled to vote in an election of directors. Under Pennsylvania law, the
shareholder vote requirement is a majority of the votes cast. Because the
Pennsylvania Articles provide for a classified Board, the Pennsylvania Bylaws
provide that Escalon Pennsylvania's directors may be removed from office only
for cause by the affirmative vote of a majority of the votes cast by
shareholders then entitled to vote in the election of directors.
Fiduciary Duty of Directors
Both Pennsylvania and Delaware law provide that the Board of Directors
has the ultimate responsibility for managing the business and affairs of a
corporation. In discharging this function, directors of Pennsylvania and
Delaware corporations owe fiduciary duties of care and loyalty to the
corporations for which they serve as directors. Directors of Delaware
corporations also owe fiduciary duties of care and loyalty to the corporation's
shareholders.
Under Pennsylvania law, a director of a Pennsylvania business
corporation stands in a fiduciary relationship to the corporation and must
perform his or her duties as a director in good faith, in a manner he or she
reasonably believes to be in the best interests of the corporation and with such
care, including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. In performing these duties, the
director is entitled to rely, in good faith, on information, opinions, reports
or statements, including financial statements and other financial data, in each
case prepared by any of the following: (i) one or more officers or employees
whom the director reasonably believes to be reliable and competent in the
matters presented; (ii) counsel, public accountants or other persons as to
matters which the
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director reasonably believes to be within the professional competence of these
persons; and (iii) a committee of the Board upon which the director does not
serve, duly designated in accordance with law, as to matters within its
designated authority, which committee the director reasonably believes to merit
confidence. A director will not be considered to be acting in good faith if the
director has knowledge concerning the matter in question that would cause his or
her reliance to be unwarranted.
Under Delaware law, Delaware courts have held that the directors of a
Delaware corporation are required to exercise an informed business judgment in
the performance of their duties. An informed business judgment means that the
directors have informed themselves of all material information reasonably
available to them. Delaware courts have also imposed a heightened standard of
conduct upon directors in matters involving a contest for control of the
corporation. A director of a Delaware corporation, in the performance of his or
her duties, is fully protected in relying, in good faith, upon the records of
the corporation and upon such information, opinions, reports or statements
presented to the corporation by any of the corporation's officers or employees,
or committees of the Board, or by any other person as to matters the director
reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
corporation.
The Pennsylvania BCL provides that, in discharging the duties of their
respective positions, the Board of Directors, committees of the Board and
individual directors may, in considering the best interests of the corporation,
consider the effects of any action upon other constituencies, including
employees, suppliers and customers of the corporation and communities in which
offices or other establishments of the corporation are located and all other
pertinent factors. Absent a breach of a fiduciary duty, lack of good faith or
self-dealing, actions taken as a director are presumed to be in the best
interests of the corporation. In contrast, the Delaware GCL does not contain any
statutory provision permitting the Board of Directors, committees of the Board
and individual directors, when discharging the duties of their respective
positions, to consider the interests of any constituencies other than the
corporation or its shareholders.
It is unclear under the current state of development of Delaware law
whether and the extent to which the Board of Directors, committees of the Board
and individual directors may, in considering what is in the corporation's best
interests or the effects of any action on the corporation, take into account the
interests of any constituency other than the shareholders of the corporation.
Consequently, the fiduciary duty provisions of the Pennsylvania BCL may provide
significantly broader discretion, and increased protection from liability, to
directors in exercising their fiduciary duties, particularly in the context of a
threatened change in control.
Limitation of Director Liability
Both the Delaware Certificate and the Pennsylvania Articles contain
similar provisions that limit the monetary liability of directors. As a result
of the provision contained in the Pennsylvania Articles, as permitted by
Pennsylvania law, a director of Escalon Pennsylvania will not be personally
liable for monetary damages for any action taken, or any failure to take any
action, unless the director has breached or failed to perform the duties of his
or her office and the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness. Such limitation
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does not apply to the responsibility or liability of a director pursuant to any
criminal statute or the liability of a director for the payment of taxes.
Under Delaware law and the provision set forth in the Delaware
Certificate, a director is excused from monetary liability for breach of
fiduciary duty as a director unless the liability is for breach of the duty of
loyalty, for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, for a willful or negligent payment of
an unlawful dividend or unlawful stock purchase or redemption, or for any
transaction from which the director derived an improper personal benefit.
Indemnification of Officers and Directors
Both Pennsylvania and Delaware law permit a corporation to indemnify
its directors and officers against expenses, judgments, fines and amounts paid
in settlement reasonably incurred by them in connection with any pending,
threatened or completed action or proceeding to which they were or are parties
or were threatened to be made parties by reason of the fact that they are or
were directors or officers of the corporation. Both states' laws also permit
indemnification against expenses reasonably incurred in connection with any
pending, threatened or completed derivative action, if the director or officer
has acted in good faith and in a manner the director reasonably believed to be
in or not opposed to the best interests of the corporation and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. Under both states' laws, court approval is required with respect
to any payment made with respect to a derivative action. Furthermore, both the
Pennsylvania BCL and the Delaware GCL provide that expenses incurred in
defending any action or proceeding may be paid by the corporation in advance of
the final disposition upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined that the
director or officer is not entitled to be indemnified by the corporation.
In both Pennsylvania and Delaware, the statutory provisions for
indemnification and advancement of expenses are non-exclusive of any other
rights, such as rights under contract, a bylaw or by vote of shareholders or
disinterested directors, to which a person seeking indemnification or
advancement of expenses may be entitled. Both the Delaware Certificate and the
Pennsylvania Articles require indemnification of directors and officers to the
fullest extent permitted by the laws of the respective state. With respect to
the Pennsylvania Articles, these boundaries would be dictated by the
Pennsylvania BCL, which provides for indemnification of a director or officer
unless the conduct of the director or officer is determined by a court to
constitute willful misconduct or recklessness. The Delaware GCL does not contain
such an express restriction on indemnification, although the Delaware courts
have held that indemnification cannot be given with respect to willful and
intentional misconduct.
Certain of the Company's directors and officers have and will continue
to be parties to indemnification agreements with the Company. The agreements
require the Company to indemnify those directors or officers to the fullest
extent permitted under applicable state law and to advance all expenses incurred
by them in seeking to enforce their rights under the indemnification agreements.
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Although the indemnification agreements offer substantially the same
scope of coverage afforded by provisions in the Pennsylvania Articles and
Pennsylvania Bylaws, the indemnification agreements provide greater assurance to
officers and directors that indemnification will be available, because, as a
contract, they cannot be modified unilaterally in the future by the Board of
Directors of Escalon Pennsylvania or by the shareholders to eliminate the rights
that they provide, an action that may be possible with respect to the relevant
provisions of the Pennsylvania Bylaws, at least as to prospective elimination of
such rights.
The directors and officers of Escalon Pennsylvania would be entitled to
the benefits of the indemnification provisions set forth in the Pennsylvania
Articles. Because these persons have a financial interest in these arrangements,
the adoption of these provisions could be deemed an interested transaction under
the Pennsylvania BCL. The Pennsylvania BCL provides that an interested
transaction will not be void or voidable if the material facts as to the
interest and the transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the transaction is specifically approved in good
faith by vote of the shareholders. The text of the Pennsylvania Articles,
providing for indemnification of its directors and officers, is set forth in
Appendix C. A vote in favor of the merger will also be deemed to be a vote in
favor of the Pennsylvania Articles. Thus, the adoption of the Pennsylvania
Articles will not be subject to challenge as an interested transaction if
shareholder approval of the merger is obtained. In addition, shareholder
approval will deny a shareholder or third party the right to challenge the
validity or enforceability of these provisions on other grounds. The
indemnification provisions of the Pennsylvania Articles have not been adopted in
response to any recent, pending or threatened litigation.
Both Pennsylvania and Delaware law permit a corporation to purchase and
maintain insurance on behalf of any director or officer of the corporation
against any liability asserted against the director or officer and incurred in
such capacity, whether or not the corporation would have the power to indemnify
the director or officer against such liability. The directors and officers of
the Company are currently covered as insureds under directors and officers
liability insurance maintained by the Company, which would not be affected by
the merger.
DERIVATIVE SUITS
Under Pennsylvania law, a shareholder may maintain a derivative suit
even if the shareholder was not a shareholder at the time of the alleged
wrongdoing if a court determines that a preliminary showing has been made that
there is a strong prima facie case in favor of the claim and that serious
injustice would result without such suit. In contrast, Delaware law provides
that a shareholder may bring a derivative suit only if he or she was a
shareholder at the time of the alleged wrongdoing or obtained the stock
thereafter by operation of law.
ANTITAKEOVER PROVISIONS
Certain provisions that may reduce a corporation's vulnerability to
hostile takeover attempts will apply to Escalon Pennsylvania. These provisions,
which are described below, are similar to provisions currently applicable to
Escalon Delaware. None of these provisions results from any specific efforts of
which the Company is aware to obtain control of the Company.
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Statutory Antitakeover Provisions
Pennsylvania law provides a registered corporation the ability to avail
itself of certain statutory antitakeover measures set forth in the Pennsylvania
BCL. The following is a list of the antitakeover provisions that are provided in
the Pennsylvania BCL for Pennsylvania registered corporations:
- Section 1715 of the Pennsylvania BCL, which expressly states that
the fiduciary duty of directors does not require them to redeem
any rights under or render inapplicable any shareholder rights
plan or certain of the antitakeover provisions of the Pennsylvania
BCL;
- Subchapter 25E of the Pennsylvania BCL, which, with certain
exceptions, entitles the shareholders to be paid the fair value of
their shares by anyone who acquires 20% or more of the outstanding
voting power of the corporation;
- Subchapter 25F of the Pennsylvania BCL, which imposes certain
financial requirements and restrictions on business combinations
with interested shareholders;
- Subchapter 25G of the Pennsylvania BCL, which, with certain
exceptions, limits the voting rights of persons who have acquired
20% or more of the outstanding voting power of the corporation;
and
- Subchapter 25H of the Pennsylvania BCL, which requires
disgorgement of certain profits made by controlling shareholders
following their attempts to gain control of the corporation.
The Pennsylvania BCL and the Pennsylvania Articles contain provisions
pursuant to which Escalon Pennsylvania has elected not to be governed by the
provisions of Subchapters 25E, 25G and 25H of the BCL. Escalon Pennsylvania will
be governed by Subchapter 25F of the BCL, which is described in more detail
below under "Shareholder Approval of Certain Business Combinations."
Currently, the Company is governed by the statutory antitakeover
provision set forth in Section 203 of the Delaware GCL. Section 203 of the
Delaware GCL prohibits a public Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years after the
date of the transaction in which such person became an interested stockholder
unless (i) prior to such date, the Board of Directors approved either the
business combination or the transaction that resulted in the stockholder's
becoming an interested stockholder; or (ii) upon becoming an interested
stockholder, the stockholder then owned at least 85% of the voting stock, as
defined in Section 203; or (iii) subsequent to such date, the business
combination is approved by both the Board of Directors and by at least 66-2/3%
of the corporation's outstanding voting stock, excluding shares owned by the
interested stockholder. For these purposes, the term "business combination"
includes mergers, asset sales and other similar transactions with an interested
stockholder. An "interested stockholder" is a person who, to-
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gether with affiliates and associates, owns (or, within the prior three years,
did own) 15% or more of the corporation's voting stock.
Shareholder Approval of Certain Business Combinations
The Pennsylvania BCL contains certain provisions 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 Subchapter F of Chapter 25 of the Pennsylvania BCL ("Subchapter
25F"), certain "business combinations" by Pennsylvania corporations with
"interested shareholders" are subject to a five-year moratorium unless specified
conditions are met. Section 203 of the Delaware GCL provides a similar provision
to Subchapter 25F.
Subchapter 25F prohibits a Pennsylvania corporation from engaging in a
"business combination" with an "interested shareholder" for five years following
the date that such person becomes an interested shareholder. With certain
exceptions, an interested shareholder is a person or group who or which owns 20%
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 20% or more of such voting
stock at any time within the previous five years.
For purposes of Subchapter 25F, the term "business combination" is
defined broadly to include mergers with or caused by the interested shareholder;
sales or other dispositions to the interested shareholder of assets of the
corporation or a subsidiary equal to 10% or more of the aggregate market value
of the corporation's consolidated assets or its outstanding stock or
representing 10% or more of its earning power or net income; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested shareholder equal to 5% or more of the aggregate
market value of the corporation's outstanding stock (except for transfers in a
conversion or exchange or a pro rata distribution or certain other transactions,
none of which increase the interested shareholder's proportionate ownership of
any class or series of the corporation's or such subsidiary's stock); the
adoption of any plan for the liquidation or dissolution of the corporation
proposed by or with the interested shareholder; or receipt by the interested
shareholder (except proportionately as a shareholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation or a subsidiary.
The five-year moratorium imposed on business combinations by Subchapter
25F does not apply if: (i) prior to the date on which a shareholder becomes an
interested shareholder the Board of Directors approves either the business
combination or the transaction that resulted in the person becoming an
interested shareholder; (ii) the business combination is approved by the holders
of a majority of the outstanding voting stock (excluding the voting stock owned
by the interested shareholder) and at the time of such vote the interested
shareholder owns 80% of the corporation's voting stock; or (iii) the business
combination is approved by (A) the holders of all of the outstanding voting
stock or (B) the holders of a majority of the outstanding voting stock
(excluding the voting stock owned by the interested shareholder) no earlier than
five years after the date such person became an interested shareholder.
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Subchapter 25F applies only to Pennsylvania "registered corporations."
Inasmuch as Escalon Pennsylvania will be a Pennsylvania registered corporation
following the merger and reincorporation, Subchapter 25F will be immediately
applicable to Escalon Pennsylvania following the reincorporation. A Pennsylvania
corporation may elect not to be governed by Subchapter 25F by a provision in its
original articles of incorporation or an amendment to the articles or the
bylaws, which amendment must be approved by majority stockholder vote and may
not be further amended by at least 85% of the members of the Board of Directors.
Additional Antitakeover Measures
Both Delaware law and Pennsylvania law permit a corporation certain
flexibility in governing its internal affairs and its relationships with
shareholders and other parties. In particular, these laws permit a corporation
to adopt a number of measures designed to reduce a corporation's vulnerability
to hostile takeover attempts. Like the Delaware Certificate, the Pennsylvania
Articles and Bylaws contain certain provisions that could be characterized as
specific "antitakeover" provisions. Among these measures are the classification
of directors, the inability to remove directors without cause, the
unavailability of cumulative voting, the inability of the shareholders to call
special shareholders' meetings, and the requirement that a supermajority of the
shareholders approve certain actions, which are described above.
Because of the additional time required to change control of the Board
of Directors, the classified board provision in the Pennsylvania Articles 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 Pennsylvania.
Because the classified board provision will increase the amount of time required
for a takeover bidder to obtain control of Escalon Pennsylvania without the
cooperation of the Board of Directors, even if the takeover bidder were to
acquire a majority of Escalon Pennsylvania's outstanding stock, it will tend to
discourage certain tender offers, perhaps including some tender offers that
shareholders may feel would be in their best interests. The classified board
provision will also make it more difficult for the shareholders to change the
composition of the Board of Directors even if the shareholders 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 Pennsylvania's
shareholders in the event of an unsolicited offer for Escalon Pennsylvania.
The classified board provision is intended to encourage persons seeking
to acquire control of Escalon Pennsylvania, 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 Pennsylvania's shareholders. The classified
board provision is also intended to increase the bargaining leverage of the
Board of Directors, on behalf of Escalon Pennsylvania's
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shareholders, in any negotiations concerning a potential change of control of
Escalon Pennsylvania. The classified board provision will, however, make more
difficult or discourage a proxy contest or the assumption of control by a
substantial shareholder 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 Pennsylvania even though such
attempt might be beneficial to Escalon Pennsylvania's shareholders.
Also, the unavailability 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 shareholders might deem favorable.
Under the Pennsylvania Articles, the affirmative vote of at least
66-2/3% of the votes that all shareholders are entitled to cast at a duly
convened regular or special meeting of the shareholders will be required to
approve (a) a merger or consolidation of Escalon Pennsylvania in which the
shareholders of Escalon Pennsylvania receive cash, securities or other
consideration in exchange for shares of Escalon Pennsylvania's capital stock,
other than a merger or consolidation effected for the sole purpose of changing
the state of incorporation of Escalon Pennsylvania, or (b) a disposition of all
or substantially all of the assets of Escalon Pennsylvania.
The Pennsylvania Articles permit Escalon Pennsylvania 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 shareholder
approval. The Pennsylvania Articles currently authorize 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 Pennsylvania
and used to discourage a change in the control of Escalon Pennsylvania.
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 shareholders, providing all of the shareholders
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 that may be
less than favorable to all of the shareholders 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 shareholders.
In addition to the various antitakeover measures that would be
available to Escalon Pennsylvania after the proposed reincorporation due to the
application of Pennsylvania law, Escalon Pennsylvania would retain the rights
currently available to Escalon Delaware under Delaware 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
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difficult and, therefore, less likely, a takeover of Escalon Pennsylvania. 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 Pennsylvania.
It should be noted that the voting rights to be accorded to any
unissued series of preferred stock of Escalon Pennsylvania remain to be fixed by
Escalon Pennsylvania's Board of Directors. Accordingly, if Escalon
Pennsylvania's Board of Directors so authorizes, the holders of preferred stock
may be entitled to vote separately as a class in connection with approval of
certain extraordinary corporate transactions in circumstances where Pennsylvania
law does not ordinarily require such a class vote, or might be given a
disproportionately large number of votes. This preferred stock could also be
convertible into a large number of shares of common stock of Escalon
Pennsylvania under certain circumstances or have other terms that might make
acquisition of a controlling interest in Escalon Pennsylvania more difficult or
more costly, including the right to elect additional directors to the Board of
Directors of Escalon Pennsylvania. 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 Pennsylvania. Also, the preferred
stock could be privately placed with purchasers who might side with the
management of Escalon Pennsylvania 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 shareholder approval prior to any
issuance of the preferred stock or common stock of Escalon Pennsylvania, 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 shareholder approval of a specific issuance would be a detriment
to Escalon Pennsylvania and its shareholders. The Board of Directors does not
intend to issue any preferred stock except on terms that the Board of Directors
deems to be in the best interests of Escalon Pennsylvania and its then existing
shareholders.
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 Delaware or Escalon Pennsylvania. Each former holder of
capital stock of the Company will have the same basis in the capital stock of
Escalon Pennsylvania 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 shareholder's holding period
with respect to Escalon Pennsylvania's capital stock will include the period
during which such holder held the corresponding Company capital stock, provided
the latter was held by such holder as a capital asset at the time of
consummation of the reincorporation. The Company has not obtained a ruling from
the Internal Revenue Service or an opinion of legal or tax counsel with respect
to the consequences of the reincorporation.
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A successful IRS challenge to the reorganization status of the proposed
reincorporation would result in a shareholder recognizing gain or loss with
respect to each share of Escalon Delaware common stock exchanged in the proposed
reincorporation equal to the difference between (i) the shareholder's basis in
such share and (ii) the fair market value, as of the time of the proposed
reincorporation, of Escalon Pennsylvania common stock received in exchange
therefor. In such event, a shareholder's aggregate basis in the shares of
Escalon Pennsylvania common stock received in the exchange would equal their
fair market value on such date, and the shareholder's holding period for such
shares would not include the period during which the shareholder held Escalon
Delaware common stock.
State, local and foreign income tax consequences to shareholders 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
Pennsylvania should succeed, without adjustment, to the federal income tax
attributes of Escalon Delaware. 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 shareholders. IN VIEW OF THE VARYING NATURE OF SUCH TAX CONSEQUENCES,
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE PROPOSED REINCORPORATION, INCLUDING THE
APPLICABILITY OF THE LAWS OF ANY STATE OR OTHER JURISDICTION.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE REINCORPORATION OF THE COMPANY FROM DELAWARE TO PENNSYLVANIA.
(PROPOSAL NO. 4)
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has appointed the firm of Parente Randolph, LLC
as independent public accountants for the year ending June 30, 2002.
The appointment of auditors is approved annually by the Board of
Directors, which is based in part on the recommendations of the Audit Committee.
In making its recommendations, the Audit Committee reviews both the audit scope
and estimated audit fees for the coming year. This appointment will be submitted
to the stockholders for ratification at the Annual Meeting.
Although not required by law or by the By-laws of the Company, the
Board of Directors has determined that it would be desirable to request
ratification of this appointment by the stockholders. If ratification is not
received, the Board will reconsider the appointment. A representative of Parente
Randolph, LLC 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.
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THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
RATIFICATION OF THE SELECTION OF PARENTE RANDOLPH, LLC AS THE COMPANY'S AUDITORS
FOR THE FISCAL YEAR ENDING JUNE 30, 2002.
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 2002 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for
stockholder action at annual meetings in accordance with regulations adopted by
the Securities and Exchange Commission. To be considered for inclusion in the
proxy statement and form of proxy relating to the 2002 annual meeting, such
proposals must be received by the Company no later than June 4, 2002. Proposals
should be directed to the attention of the Secretary of the Company.
Pursuant to Section 2.3 of the Company's By-Laws, if a stockholder
wishes to present at the Company's 2002 annual meeting of stockholders (i) a
proposal relating to nominations for and election of directors or (ii) a
proposal relating to a matter other than nominations for and election of
directors, otherwise than pursuant to Rule 14a-8 of the proxy rules of the
Commission, the stockholder must comply with the provisions relating to
stockholder proposals set forth in the Company's By-Laws, which are summarized
below. Written notice of any such proposal containing the information required
under the Company's By-laws, as described herein, must be delivered in person,
by first class United States mail postage prepaid or by reputable overnight
delivery service to the Company's Secretary at the Company's principal executive
offices at the address set forth in the front of this proxy statement during the
period commencing on June 4, 2002 and ending on July 5, 2002.
A written proposal of nomination for a director must 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 Company beneficially owned within the meaning of
Commission Rule 13d-3 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 Nominating Stockholder
with respect to such person's proposal for nomination and election as a director
and actions to be proposed or taken by such person as 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 Commission
if proxies were to be solicited for the election as a director of each person so
proposed. Only candidates nominated by stockholders for election as a member of
the Company's Board of Directors in accordance with the By-law provisions
summarized herein will be eligible to be considered or acted upon for election
at such
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meeting of stockholders, and any candidate not nominated in accordance with such
provisions will not be considered or acted upon for election as a director at
such meeting of stockholders.
A written proposal relating to a matter other than a nomination for
election as a director must set forth information regarding the matter
equivalent to the information that would be required under the proxy
solicitation rules of the Commission if proxies were solicited for stockholder
consideration of the matter at a meeting of stockholders. Only stockholder
proposals submitted in accordance with the By-law provisions summarized above
will be eligible for presentation at the 2002 annual meeting of stockholders,
and any matter not submitted to the Company's Board of Directors in accordance
with such provisions will not be considered or acted upon at the 2002 annual
meeting of stockholders.
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, 2001, 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.
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APPENDIX A
ESCALON MEDICAL CORP.
AUDIT COMMITTEE CHARTER
PURPOSE
The primary purpose of the Audit Committee (the "Committee") is to
assist the Board of Directors (the "Board") in fulfilling its responsibility to
oversee management's conduct of the Company's financial reporting process,
including by overviewing the financial reports and other financial information
provided by the Company to any governmental or regulatory body, the public or
other users thereof, the Company's systems of internal accounting and financial
controls, and the annual independent audit of the Company's financial
statements.
In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of the Company and to retain outside counsel,
auditors or other experts to advise the Committee. The Board and the Committee
are in place to represent the Company's stockholders; accordingly, the outside
auditors are ultimately accountable to the Board and the Committee.
The Committee shall review the adequacy of this Charter on an annual
basis and recommend any proposed changes to the Board.
MEMBERSHIP
The Committee shall be comprised of not fewer than three members of the
Board, and the Committee's composition shall satisfy the requirements of the
Audit Committee Policy of The Nasdaq Stock Market. Accordingly, all of the
members shall be directors:
- who have no relationship to the Company that may interfere
with the exercise of their independence from management and
the Company; and
- who are financially literate or who become financially
literate within a reasonable period of time after appointment
to the Committee.
In addition, at least one member of the Committee shall have accounting or
related financial management expertise.
KEY RESPONSIBILITIES
The Committee's job is one of oversight, and the Committee recognizes
that the Company's management is responsible for preparing the Company's
financial statements and that the outside auditors are responsible for auditing
those financial statements. Additionally, the Committee recognizes that
financial management, as well as the outside auditors, have more time, more
42
knowledge and more detailed information regarding the Company than do Committee
members; consequently, in carrying out its oversight responsibilities, the
Committee shall not be deemed to provide any expert or special assurance as to
the Company's financial statements or any professional certification as to the
outside auditors' work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set forth
as a guide, with the understanding that the Committee may diverge from this
guide as it deems appropriate given the circumstances.
- The Committee shall review with management and the outside
auditors the audited financial statements to be included in
the Company's Annual Report on Form 10-K (or the Annual Report
to Shareholders if distributed prior to the filing of the Form
10-K) and shall review and consider with the outside auditors
the matters required to be discussed by Statement of Auditing
Standards No. 61 ("SAS No. 61").
- As a whole, or through the Committee chair, the Committee
shall review with the outside auditors the Company's interim
financial results to be included in the Company's Quarterly
Reports on Form 10-Q and the matters required to be discussed
by SAS No. 61.
- The Committee shall discuss with management and the outside
auditors the quality and adequacy of the Company's internal
controls.
- The Committee shall:
- request from the outside auditors annually a formal
written statement delineating all relationships
between the auditors and the Company consistent with
Independence Standards Board Standard No. 1;
- discuss with the outside auditors any such disclosed
relationship and their impact on the outside
auditor's independence; and
- recommend that the Board take appropriate action to
oversee the independence of the outside auditor.
- The Committee, subject to any action that may be taken by the
full Board, shall have the ultimate authority and
responsibility to select (or nominate for stockholder
approval), evaluate and, where appropriate, replace the
outside auditors.
Adopted by the Board of Directors on May 9, 2000.
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APPENDIX B
AGREEMENT AND PLAN OF MERGER
OF
ESCALON PENNSYLVANIA, INC.
(A PENNSYLVANIA CORPORATION)
AND
ESCALON MEDICAL CORP.
(A DELAWARE CORPORATION)
THIS AGREEMENT AND PLAN OF MERGER, dated as of September ___, 2001, is
between Escalon Pennsylvania, Inc. ("Escalon Pennsylvania"), a Pennsylvania
corporation, and Escalon Medical Corp. ("Escalon Delaware"), a Delaware
corporation. Escalon Pennsylvania and Escalon Delaware are sometimes referred to
herein collectively as the "Constituent Corporations."
RECITALS:
Escalon Pennsylvania is a corporation duly organized and existing under
the laws of the Commonwealth of Pennsylvania 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 outstanding, all of which were held by Escalon Delaware, and
no shares of Preferred Stock were outstanding.
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, 3,292,184 shares of
Common Stock and no shares of Preferred Stock were outstanding.
Escalon Pennsylvania is a wholly owned subsidiary of Escalon Delaware.
The Board of Directors of Escalon Delaware has determined that, for the
purpose of effecting the reincorporation of Escalon Delaware in the Commonwealth
of Pennsylvania, it is advisable and in the best interests of Escalon Delaware
that Escalon Delaware merge with and into Escalon Pennsylvania upon the terms
and conditions herein provided.
The respective Boards of Directors of Escalon Pennsylvania and Escalon
Delaware 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 Pennsylvania and Escalon Delaware hereby agree,
subject to the terms and conditions hereinafter set forth, as follows:
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I. MERGER
1.1 MERGER. In accordance with the provisions of this Agreement, the
Pennsylvania Business Corporation Law and the Delaware General Corporation Law,
Escalon Delaware shall be merged with and into Escalon Pennsylvania (the
"Merger"), the separate existence of Escalon Delaware shall cease and Escalon
Pennsylvania shall change its name to "Escalon Medical Corp." Escalon
Pennsylvania shall be, and is herein sometimes referred to as, the "Surviving
Corporation."
1.2 FILING AND EFFECTIVENESS. The Merger shall not become effective
until the following actions shall be completed:
(a) This Agreement and the Merger shall have been adopted and
approved by the stockholders of Escalon Delaware and the sole shareholder of
Escalon Pennsylvania in accordance with the requirements of the Delaware General
Corporation Law and the Pennsylvania Business Corporation Law, respectively;
(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) Executed Articles of Merger meeting the requirements of
the Pennsylvania Business Corporation Law shall have been filed with the
Department of State of the Commonwealth of Pennsylvania; and
(d) An executed Certificate of Merger meeting the requirements
of the Delaware General Corporation Law shall have been filed with the Secretary
of State of the State of Delaware.
The date and time when the Merger shall become effective as aforesaid
is herein called the "Effective Date of the Merger."
1.1 EFFECT OF THE MERGER. Upon the Effective Date of the Merger, the
separate existence of Escalon Delaware shall cease, and Escalon Pennsylvania, 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 Delaware's Board of Directors, (iii) shall succeed, without other
transfer, to all of the assets, rights, powers and property of Escalon Delaware
in the manner more fully set forth in Section 1929 of the Pennsylvania Business
Corporation Law, (iv) shall continue to be subject to all of the debts,
liabilities and obligations of Escalon Pennsylvania 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 Delaware
in the same manner as if Escalon Pennsylvania had itself incurred them, all as
more fully provided under the applicable provisions of the Pennsylvania Business
Corporation Law and the Delaware General Corporation Law.
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II. ORGANIZATIONAL DOCUMENTS, DIRECTORS AND OFFICERS
2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of Escalon
Pennsylvania as in effect immediately prior to the Effective Date of the Merger
shall continue in full force and effect as the Articles of Incorporation of the
Surviving Corporation, except that the name of the Surviving Corporation shall
be changed to "Escalon Medical Corp."
2.2 BYLAWS. The Bylaws of Escalon Pennsylvania as in effect immediately
prior to the Effective Date of the Merger shall continue in full force and
effect as the Bylaws 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
Pennsylvania 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
Articles of Incorporation of the Surviving Corporation or the Bylaws of the
Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 ESCALON DELAWARE COMMON SHARES. Upon the Effective Date of the
Merger, (i) each share of Escalon Delaware Common Stock, $.001 par value,
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, $.001 par value, of the Surviving
Corporation and (ii) each share of Escalon Delaware Common Stock held as
treasury stock, if any, shall be canceled.
3.2 ESCALON DELAWARE OPTIONS.
(a) Upon the Effective Date of the Merger, the Surviving
Corporation shall assume and continue the stock option plans (including the 1990
Stock Option Plan, the 1991 Stock Option Plan, the 1992 Stock Option Plan, the
1993 Stock Option Plan, the 1999 Equity Incentive Plan and the 1999 Equity
Incentive Plan for the Employees of Sonomed, Inc.), and all other employee
benefit plans of Escalon Delaware. Each outstanding and unexercised option to
purchase Escalon Delaware Common Stock shall become an option 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 Delaware Common Stock
issuable pursuant to any such option 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 Delaware option 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 equal to the
number of shares of Escalon Delaware Common Stock so reserved immediately prior
to the Effective Date of the Merger.
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3.3 ESCALON PENNSYLVANIA COMMON STOCK. Upon the Effective Date of the
Merger, each share of Common Stock, $.001 per value, of Escalon Pennsylvania
issued and outstanding immediately prior thereto shall, by virtue of the Merger
and without any action by Escalon Pennsylvania, 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 Delaware 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 Delaware 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 Delaware
Common Stock and Escalon Delaware 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 Delaware 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 Pennsylvania
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 Pennsylvania that such tax has been paid or is not
payable.
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IV. GENERAL
4.1 COVENANTS OF ESCALON PENNSYLVANIA. Escalon Pennsylvania 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 Wisconsin.
(b) File any and all documents with the Secretary of State of
the State of Delaware necessary for the assumption by Escalon Pennsylvania of
all of the franchise tax liabilities of Escalon Delaware.
(c) Take such other actions as may be required by the Delaware
General Corporation Law.
4.2 FURTHER ASSURANCES. From time to time, as and when required by
Escalon Pennsylvania or by its successors or assigns, there shall be executed
and delivered on behalf of Escalon Delaware 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 Pennsylvania the title to and
possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of Escalon Delaware and otherwise
to carry out the purposes of this Agreement, and the officers and directors of
Escalon Pennsylvania are fully authorized in the name and on behalf of Escalon
Delaware 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 Delaware or of Escalon
Pennsylvania, or of both, notwithstanding the approval of this Agreement by the
stockholders of Escalon Delaware.
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 Department of State of the Commonwealth of
Pennsylvania, 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 Articles 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 Commonwealth of Pennsylvania is to be located at 351 East
Conestoga Road, Wayne, Pennsylvania 19087, in the County of Chester.
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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
Commonwealth of Pennsylvania and, so far as applicable, the merger provisions of
the Delaware General Corporation Law.
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.
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IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Boards of Directors of Escalon Pennsylvania, Inc., a
Pennsylvania corporation, and Escalon Medical Corp., a Delaware corporation, is
hereby executed on behalf of each of such two corporations and attested by their
respective officers thereunto duly authorized.
ESCALON PENNSYLVANIA, INC.,
Attest: a Pennsylvania corporation
By:__________________________ By:_____________________________________
Harry M. Rimmer, Richard J. DePiano,
Secretary Chairman and Chief Executive Officer
ESCALON MEDICAL CORP.,
Attest: a Delaware corporation
By:__________________________ By:_____________________________________
Harry M. Rimmer, Richard J. DePiano,
Secretary Chairman and Chief Executive Officer
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APPENDIX C
ARTICLES OF INCORPORATION
OF
ESCALON PENNSYLVANIA, INC.
In compliance with the requirements of the applicable provisions of 15
Pa.C.S. (relating to corporations and unincorporated associations), the
undersigned, desiring to incorporate a corporation for profit, hereby states
that:
ARTICLE 1: The name of the corporation is Escalon Pennsylvania, Inc.
(the "Company").
ARTICLE 2: The address of the registered office of the Company in the
Commonwealth of Pennsylvania is 351 East Conestoga Road, Wayne, PA 19087,
Chester County.
ARTICLE 3: The Company is incorporated under the provisions of the
Pennsylvania Business Corporation Law of 1988, as amended (the "BCL").
ARTICLE 4: The aggregate number of shares which the Company shall have
authority to issue is 37,000,000 shares, divided into 35,000,000 shares of
common stock with a par value of $.001 per share and 2,000,000 shares of
preferred stock with a par value of $.001 per share.
The preferred stock may be issued from time to time in one or more
series. The Board of Directors of the Company is hereby expressly authorized to
provide, by resolution or resolutions duly adopted, for the creation of each
such series and to determine the designation, number of shares, powers, voting
rights, preferences, qualifications, limitations and special rights relating to
the shares of each such series. The powers, voting rights, preferences,
qualifications, limitations and special rights, if any, of each series of
preferred stock may be similar to or may differ from those of any and all other
series at any time outstanding. All shares of any one series of preferred stock
shall be identical in all respects with all other shares of such series, except
that shares of any one series issued at different times may differ as to the
dates from which dividends thereon shall be cumulative.
ARTICLE 5: The following provisions of the BCL shall not apply to the
Company:
(a) Section 2538 (relating to approval of transactions with interested
shareholders);
(b) Subchapter 25E (relating to control transactions);
(c) Subchapter 25G (relating to control share acquisitions); and
(d) Subchapter 25H (relating to disgorgement by certain controlling
shareholders following attempts to acquire control).
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ARTICLE 6: The shareholders of the Company shall not have the right to
cumulate their votes for the election of directors of the Company.
ARTICLE 7: The Board of Directors is expressly authorized to adopt,
amend and repeal the Bylaws of the Company or any provision thereof and to adopt
new Bylaws. The Bylaws may be amended and repealed, and new Bylaws may be
adopted, by the shareholders only if approved by the affirmative vote of at
least 66-2/3% of the votes that all shareholders are entitled to cast on the
matter at any regular or special meeting duly convened after written notice to
the shareholders that the purpose, or one of the purposes, of the meeting is to
consider the amendment or repeal of the Bylaws.
ARTICLE 8:
(a) From and after the effective date of the merger between the Company
and Escalon Medical Corp., a Delaware corporation, pursuant to an Agreement and
Plan of Merger dated as of the date of these Articles of Incorporation between
the Company and Escalon Medical Corp., no action that is required or permitted
to be taken by the shareholders of the Company at an annual or special meeting
of the shareholders may be taken by consent of the shareholders in lieu of a
meeting of shareholders.
(b) Special meetings of shareholders of the Company may be called only
by the Board of Directors or the Chairman of the Board, and may not be called by
any other person or persons.
ARTICLE 9:
(a) Except as otherwise provided for or fixed by or pursuant to the
provisions of Article 4 of these Articles 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 Bylaws of the Company. 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 these Articles 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, the respective terms of office of which shall end in
successive years. Such classes shall be designated as "Class I," "Class II" and
"Class III." The number of directors in each class shall be as nearly equal as
possible, except that no director shall be required to be moved from one class
to another class in order to attain equality or near equality in the size of the
respective classes. The term of office of the initial Class I directors named in
Article 9(b) shall expire at the 2003 annual meeting of shareholders named in
Article 9(b) the term of office of the initial Class II directors shall expire
at the 2004 annual meeting of shareholders, and the term of office of the
initial Class III directors named in Article 9(b) shall expire at the 2002
annual meeting of shareholders. Thereafter, the directors in each class shall
hold office until the third successive annual meeting of shareholders after
their election and until their successors shall have been elected and qualified,
so that at each annual meeting of shareholders only one class of directors
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shall be elected. Any director chosen to fill a vacancy, including a vacancy
resulting from an increase in the number of directors, shall hold office until
the next election of the class for which the director has been chosen and until
his or her successor has been elected and qualified or until his or her earlier
death, resignation or removal.
(b) The names and classes of the persons who are to serve as the
initial directors of the Company until their successors are duly elected and
qualified, are:
Class I Director: William Kwan
Anthony Coppola
Class II Directors: Fred G. Choate
Jeffrey F. O'Donnell
Class III Directors: Richard J. DePiano
Jay L. Federman
ARTICLE 10:
The affirmative vote of at least 66-2/3% of the votes that all
shareholders are entitled to cast at a duly convened regular or special meeting
of the shareholders shall be required to approve (a) a merger or consolidation
of the Company in which the shareholders of the Company receive cash, securities
or other consideration in exchange for shares of the Company's capital stock,
other than a merger or consolidation effected for the sole purpose of changing
the state of incorporation of the Company or (b) a disposition of all or
substantially all of the assets of the Company.
ARTICLE 11:
(a) (1) A director of the Company shall stand in a fiduciary relation
to the Company and shall perform his or her duties as a director, including the
director's duties as a member of any committee of the Board of Directors upon
which the director may serve, in good faith, in a manner the director reasonably
believes to be in the best interests of the Company, and with such care,
including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. In performing his or her duties,
a director shall be entitled to rely in good faith on information, opinions,
reports or statements, including financial statements and other financial data,
in each case prepared or presented by any of the following: (i) one or more
officers or employees of the Company whom the director reasonably believes to be
reliable and competent in the matters presented; (ii) legal counsel, public
accountants or other persons as to matters which the director reasonably
believes to be within the professional or expert competence of such persons; or
(iii) a committee of the Board of Directors upon which the director does not
serve, duly designated in accordance with law, as to matters within its
designated authority, which committee the director reasonably believes to merit
confidence. A director shall not be considered to be acting in good faith if the
director has knowledge concerning the matter in question that would cause the
director's reliance to be unwarranted.
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(2) In discharging the duties of their respective positions,
the Board of Directors, committees of the Board of Directors and individual
directors may, in considering the best interests of the Company, consider the
effects of any action upon employees, suppliers and customers of the Company and
communities in which offices or other establishments of the Company are located,
and all other pertinent factors. The consideration of these factors shall not
constitute a violation of Article 11(a)(1) hereof.
(3) Absent breach of fiduciary duty, lack of good faith or
self-dealing, actions taken as a director or any failure to take any action
shall be presumed to be in the best interests of the Company.
(4) A director of the Company shall not be personally liable,
as such, for monetary damages for any action taken, or any failure to take any
action, unless: (i) the director has breached or failed to perform the duties of
his or her office under Article 11(a)(1) through Article 11(a)(3) hereof; and
(ii) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
(5) The provisions of Article 11(a)(4) hereof shall not apply
to: (i) the responsibility or liability of a director pursuant to any criminal
statute; or (ii) the liability of a director for the payment of taxes pursuant
to local, state or federal law.
(b) Neither any amendment nor repeal of this Article 11, nor the
adoption of any provision of these Articles of Incorporation inconsistent with
this Article 11, shall eliminate or reduce the effect of this Article 11 in
respect of any matter occurring, or any action or proceeding accruing or arising
or that, but for this Article 11, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE 12:
(a) Every person who is or was a director or officer of the Company
shall be indemnified by the Company to the fullest extent allowed by the BCL
against all liabilities and expenses imposed upon or incurred by that person in
connection with any proceeding in which that person may be made, or threatened
to be made, a party, or in which that person may become involved by reason of
that person being or having been a director or officer of or serving or having
served in any capacity with any other enterprise at the request of the Company,
whether or not that person is a director or officer or continues to serve the
other enterprise at the time the liabilities or expenses are imposed or
incurred.
(b) To the fullest extent permitted by applicable law, the Company is
authorized to provide indemnification of (and advancement of expenses to) agents
of the Company (and any other persons to which Pennsylvania law permits the
Company to provide indemnification) through Bylaw provisions, agreements with
such agents or other persons, votes of shareholders or disinterested directors
or otherwise, in excess of the indemnification and advancement otherwise
permitted by the BCL subject only to limits created by applicable Pennsylvania
law (statutory or non-statutory), with respect to actions for breach of duty to
the Company, its shareholders and others.
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(c) Neither any amendment nor repeal of this Article 12, nor the
adoption of any provision of these Articles of Incorporation inconsistent with
this Article 12, shall eliminate or reduce the effect of this Article 12 in
respect of any matter occurring, or any action or proceeding accruing or arising
or that, but for this Article 12, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE 13: These Articles of Incorporation may be amended at any time
as permitted by law, subject to the express terms hereof, and all rights
conferred upon the shareholders or others herein are granted subject to this
reservation. None of the provisions of Article 5, 6, 7, 8, 9(a), 10, 11 or 12 or
this Article 13 of these Articles of Incorporation shall be amended unless first
approved by an affirmative vote of at least 66-2/3% of the votes that all
shareholders are entitled to cast on the matter at a duly convened regular or
special meeting of the shareholders.
ARTICLE 14: The name and address of the incorporator is _____________,
4200 One Liberty Place, Philadelphia, PA 19103-7396.
IN TESTIMONY WHEREOF, the incorporator has signed these Articles of
Incorporation this _____ day of September, 2001.
____________________________________
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APPENDIX D
BYLAWS
OF
ESCALON PENNSYLVANIA, INC.
(AS ADOPTED BY THE BOARD OF DIRECTORS ON SEPTEMBER __, 2001)
56
BYLAWS
OF
ESCALON PENNSYLVANIA, INC.
TABLE OF CONTENTS
PAGE
----
Article 1 CORPORATION OFFICE........................................................................... 1
Article 2 SHAREHOLDER MEETINGS......................................................................... 1
Article 3 QUORUM OF SHAREHOLDERS....................................................................... 5
Article 4 VOTING RIGHTS................................................................................ 6
Article 5 PROXIES...................................................................................... 6
Article 6 RECORD DATE.................................................................................. 7
Article 7 SHAREHOLDER LIST............................................................................. 7
Article 8 JUDGES OF ELECTION........................................................................... 8
Article 9 CONSENT OF SHAREHOLDERS IN LIEU OF MEETING NOT PERMITTED..................................... 9
Article 10 DIRECTORS.................................................................................... 9
Article 11 REMOVAL OF DIRECTORS......................................................................... 9
Article 12 VACANCIES ON BOARD OF DIRECTORS.............................................................. 10
Article 13 POWERS OF BOARD.............................................................................. 10
Article 14 MEETINGS OF THE BOARD OF DIRECTORS........................................................... 11
Article 15 ACTION BY WRITTEN CONSENT OF THE BOARD....................................................... 11
Article 16 COMPENSATION OF DIRECTORS.................................................................... 12
Article 17 LIABILITY OF DIRECTORS....................................................................... 12
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Article 18 OFFICERS..................................................................................... 13
Article 19 THE CHAIRMAN OF THE BOARD.................................................................... 14
Article 20 THE PRESIDENT................................................................................ 14
Article 21 THE VICE PRESIDENT........................................................................... 14
Article 22 THE SECRETARY................................................................................ 15
Article 23 THE TREASURER................................................................................ 15
Article 24 ASSISTANT OFFICERS........................................................................... 15
Article 25 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS................................. 15
Article 26 SHARES; SHARE CERTIFICATES................................................................... 18
Article 27 TRANSFER OF SHARES........................................................................... 18
Article 28 LOST CERTIFICATES............................................................................ 18
Article 29 FISCAL YEAR.................................................................................. 19
Article 30 MANNER OF GIVING NOTICE; WAIVERS OF NOTICE................................................... 19
Article 31 AMENDMENTS................................................................................... 20
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BYLAWS
OF
ESCALON PENNSYLVANIA, INC.
ARTICLE 1
CORPORATION OFFICE
SECTION 1.1 The Corporation shall have and continuously maintain in the
Commonwealth of Pennsylvania a registered office at an address to be designated
from time to time by the Board of Directors, which may, but need not, be the
same as its place of business.
SECTION 1.2 The Corporation may also have offices at such other places
as the Board of Directors may from time to time designate or the business of the
Corporation may require.
ARTICLE 2
SHAREHOLDER MEETINGS
SECTION 2.1 All meetings of the shareholders shall be held at such time
and geographic location, within or without the Commonwealth of Pennsylvania, as
may be determined from time to time by the Board of Directors and need not be
held at the executive offices of the Corporation. If a meeting of the
shareholders is held by means of the Internet or other electronic communications
technology in a fashion pursuant to which the shareholders have the opportunity
to read or hear the proceedings substantially concurrently with their
occurrence, vote on matters submitted to the shareholders and pose questions to
the directors, the meeting need not be held at a particular geographic location.
SECTION 2.2 An annual meeting of the shareholders for the election of
directors and the transaction of such other business as may properly be brought
before the meeting shall be held in each calendar year at such time and place as
may be determined by the Board of Directors.
SECTION 2.3
(a) The provisions of this Section 2.3(a) shall apply to shareholder
proposals relating to nominations for and election of directors:
(1) Nominations by a shareholder of a candidate for election
to the Board of Directors by shareholders at a meeting of shareholders may be
made only if the shareholder complies with the procedures set forth in this
Section 2.3(a), and any candidate proposed by a shareholder not nominated in
accordance with such provisions shall not be considered or acted
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upon at such meeting of shareholders.
(2) A proposal by a shareholder for the nomination of a
candidate for election by shareholders as a director at any meeting of
shareholders at which directors are to be elected may be made only by notice in
writing, delivered in person or by first class United States mail postage
prepaid, or by reputable overnight delivery service, charges prepaid, to the
Board of Directors of the Corporation in care of the Secretary of the
Corporation at the principal office of the Corporation, within the time limits
specified herein.
(3) In the case of an annual meeting of shareholders, 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 shareholders for the annual meeting of shareholders in the
immediately preceding year; provided, however, that in the case of an annual
meeting of shareholders 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
shareholders in the immediately preceding year, any such written proposal of
nomination must be received by the Board of Directors not less than five
business days after the date the Corporation shall have mailed notice to its
shareholders that an annual meeting of shareholders 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
shareholders will be held.
(4) In the case of a special meeting of shareholders, 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 shareholders that a special meeting of
shareholders 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 shareholders will be held.
(5) Such written proposal of nomination shall set forth: (A)
the name and address of the shareholder who intends to make the nomination (the
"Nominating Shareholder"), (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 Rules 13d-3 and 13d-5 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 shareholder(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.
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(6) 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 (5) of this Section 2.3(a) or is otherwise deficient, the Board of
Directors or the nominating committee shall, as promptly as is practicable under
the circumstances, provide written notice to the shareholder(s) making such
nomination of such failure or deficiency in the written proposal of nomination
and such nominating shareholder 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) The provisions of this Section 2.3(b) shall apply to shareholder
proposals relating to matters other than nominations for and elections of
directors:
(1) A shareholder of the Corporation may bring a matter, other
than a nomination of a candidate for election as a director, which is covered by
Section 2.3(a), (a "Shareholder Matter") before a meeting of shareholders only
if the Shareholder Matter is a proper matter for shareholder action and such
shareholder shall have provided notice in writing, delivered in person or by
first class United States mail postage prepaid or by reputable overnight
delivery service, charges prepaid, to the Board of Directors of the Corporation
in care of the Secretary of the Corporation at the principal office of the
Corporation, within the time limits specified in this Section 2.3(b); provided,
however, that a proposal submitted by a shareholder for inclusion in the
Corporation's proxy statement for an annual meeting that is appropriate for
inclusion therein and otherwise complies with the provisions of Rule 14a-8 under
the Securities Exchange Act of 1934 (including timeliness) shall be deemed to
have also been submitted on a timely basis pursuant to this Section 2.3(b).
(2) In the case of an annual meeting of shareholders, any such
written notice of a proposal of a Shareholder 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 shareholders for the annual meeting of
shareholders in the immediately preceding year; provided, however, that in the
case of an annual meeting of shareholders 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 shareholders in the immediately preceding year, any such written
notice of a proposal of a Shareholder 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 shareholders that an annual meeting of shareholders
will be held, issued a press release, filed a periodic report with the
Securities and Exchange Commission or otherwise publicly disseminated notice
that an annual meeting of shareholders will be held.
(3) In the case of a special meeting of shareholders, any such
written notice of a proposal of a Shareholder 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 shareholders that a special
meeting of shareholders 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 shareholders will be held.
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(4) Such written notice of a proposal of a Shareholder Matter
shall set forth information regarding such Shareholder Matter equivalent to the
information regarding such Shareholder Matter that would be required under the
proxy solicitation rules of the Securities and Exchange Commission if proxies
were solicited for shareholder consideration of such Shareholder Matter at a
meeting of shareholders.
(5) If a written notice of a proposal of a Shareholder Matter
submitted to the Board of Directors fails, in the reasonable judgment of the
Board of Directors, to contain the information specified in clause (4) hereof or
is otherwise deficient, the Board of Directors shall, as promptly as is
practicable under the circumstances, provide written notice to the shareholder
who submitted the written notice of presentation of a Shareholder Matter of such
failure or deficiency in the written notice of presentation of a Shareholder
Matter and such shareholder 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.
(6) Only Shareholder Matters submitted in accordance with the
foregoing provisions of this Section 2.3(b) shall be eligible for presentation
at such meeting of shareholders, and any Shareholder Matter not submitted to the
Board of Directors in accordance with such provisions shall not be considered or
acted upon at such meeting of shareholders.
SECTION 2.4 Special meetings of the shareholders may be called at any
time by the Board of Directors or the Chairman of the Board, who may fix the
date, time and place of the meeting. If the Board of Directors or the Chairman
of the Board does not fix the date, time or place of the meeting, it shall be
the duty of the Secretary to do so. A date fixed by the Secretary shall not be
more than 60 days after the date of the adoption of the resolution of the Board
of Directors calling the special meeting.
SECTION 2.5 Written notice of each meeting other than an adjourned
meeting of shareholders, stating the place and time, and, in the case of a
special meeting of shareholders, the general nature of the business to be
transacted, shall be provided to each shareholder of record entitled to vote at
the meeting at such address as appears on the books of the Corporation. Such
notice shall be given, in accordance with the provisions of Article 30 of these
Bylaws, at least (a) ten days prior to the day named for a meeting to consider a
fundamental change under Chapter 19 of the Pennsylvania Business Corporation Law
of 1988 (the "BCL") or (b) five days prior to the day named for the meeting in
any other case.
SECTION 2.6
(a) Whenever the Corporation has been unable to communicate with a
shareholder for more than 24 consecutive months because communications to the
shareholder are returned unclaimed or the shareholder has otherwise failed to
provide the Corporation with a current address, the giving of notice to such
shareholder pursuant to Section 2.5 of these Bylaws shall not be required. Any
action or meeting that is taken or held without notice or communication to that
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shareholder shall have the same validity as if the notice or communication had
been duly given. Whenever a shareholder provides the Corporation with a current
address, this Section 2.6(a) shall cease to be applicable to such shareholder
until such later time, if any, as the terms of this Section 2.6(a) shall again
become applicable.
(b) The Corporation shall not be required to give notice to any
shareholder pursuant to Section 2.5 hereof if and for as long as communication
with such shareholder is unlawful.
SECTION 2.7 The Board of Directors may provide by resolution with
respect to a specific meeting or with respect to a class of meetings that one or
more shareholders may participate in such meeting or meetings of shareholders by
means of conference telephone or other electronic technology by means of which
all persons participating in the meeting can hear one another, including,
without limitation, the Internet. The presence or participation, including
voting and taking other action, at the meeting, or the expression of consent or
dissent to corporate action, by a shareholder by such means, including, without
limitation, the Internet, shall constitute presence of, or vote or action by, or
consent or dissent of the shareholder at the meeting. Any notice otherwise
required to be given in connection with any meeting at which participation by
conference telephone or other communications equipment is permitted shall so
specify.
ARTICLE 3
QUORUM OF SHAREHOLDERS
SECTION 3.1 A meeting of shareholders duly called shall not be
organized for the transaction of business unless a quorum is present.
SECTION 3.2 The presence, in person or by proxy, of shareholders
entitled to cast at least a majority of the votes that all shareholders are
entitled to cast on a particular matter to be acted upon at the meeting shall
constitute a quorum for purposes of consideration and action on such matter.
SECTION 3.3 The shareholders present at a duly organized meeting may
continue to do business until adjournment notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
SECTION 3.4 If a meeting of shareholders cannot be organized because a
quorum is not present, those present in person or by proxy, may, except as
otherwise provided by statute, adjourn the meeting to such time and place as
they may determine, without notice other than an announcement at the meeting,
until the requisite number of shareholders for a quorum shall be present in
person or by proxy.
SECTION 3.5 Notwithstanding the provisions of Sections 3.1, 3.2, 3.3
and 3.4 of these Bylaws:
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(a) Any meeting of shareholders, including one at which directors are
to be elected, may be adjourned for such period as the shareholders present and
entitled to vote shall direct.
(b) Those shareholders entitled to vote who attend a meeting that has
been previously adjourned for one or more periods aggregating at least 15 days
because of an absence of a quorum, although less than a quorum as fixed in these
Bylaws, shall nevertheless constitute a quorum for the purpose of acting upon
any matter set forth in the notice of the meeting if the notice states that
those shareholders who attend the adjourned meeting shall nevertheless
constitute a quorum for the purpose of acting upon the matter.
(c) Notwithstanding the provisions of Section 3.5(b) of these Bylaws,
those shareholders entitled to vote who attend a meeting called for election of
directors that has been previously adjourned for lack of a quorum, although less
than a quorum as fixed in these Bylaws, shall nevertheless constitute a quorum
for the purpose of electing directors.
ARTICLE 4
VOTING RIGHTS
SECTION 4.1 Except as may be otherwise provided by the Articles of
Incorporation, at every meeting of shareholders, every shareholder entitled to
vote thereat shall be entitled to one vote for every share having voting power
standing in his or her name on the books of the Corporation on the record date
fixed for the meeting.
SECTION 4.2 Except as otherwise provided by statute or by the Articles
of Incorporation or by these Bylaws, at any duly organized meeting of
shareholders the vote of the holders of a majority of the votes cast shall
decide any question brought before such meeting.
SECTION 4.3 The election of such directors need not be by ballot unless
required by vote of the shareholders before the voting for election of directors
begins.
ARTICLE 5
PROXIES
SECTION 5.1 Every shareholder entitled to vote at a meeting of
shareholders, or to express consent or dissent to corporate action in writing
without a meeting, may authorize another person or persons to act for such
shareholder by proxy. Every proxy shall be executed or authenticated by the
shareholder or his or her duly authorized attorney-in-fact and filed with or
transmitted to the Secretary of the Corporation or its designated agent. A
shareholder or his or her duly authorized attorney-in-fact may execute or
authenticate a writing or transmit an electronic message authorizing another
person to act for such shareholder by proxy. A proxy, unless coupled with an
interest, shall
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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 notice thereof has been given to the Secretary of the Corporation or its
designated agent in writing or by electronic transmission. An unrevoked proxy
shall not be valid after three years from the date of its execution,
authentication or transmission 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 or its
designated agent.
SECTION 5.2 Where two or more proxies of a shareholder are present, the
Corporation shall, unless otherwise expressly provided in the proxy, accept as
the vote of all shares represented thereby the vote cast by a majority of them,
and, if a majority of the proxies cannot agree whether the shares represented
shall be voted or upon the manner of voting the shares, the voting of the shares
shall be divided equally among those persons.
ARTICLE 6
RECORD DATE
SECTION 6.1 The Board of Directors may fix a time prior to the date of
any meeting of shareholders as a record date for the determination of the
shareholders entitled to notice of, or to vote at, the meeting, which time,
except in the case of an adjourned meeting, shall not be more than 90 days prior
to the date of the meeting of shareholders. Only shareholders of record on the
date so fixed shall be entitled to notice of, or to vote at, such meeting,
notwithstanding any transfer of shares on the books of the Corporation after any
record date fixed as aforesaid. The Board of Directors may similarly fix a
record date for the determination of shareholders of record for any other
purpose, such as the payment of a distribution or a conversion or exchange of
shares.
SECTION 6.2 The Board of Directors may by resolution adopt a procedure
whereby a shareholder of the Corporation may certify in writing to the
Corporation that all or a portion of the shares registered in such shareholder's
name are held for the account of a specified person or persons. Such resolution
may set forth: (a) the classification of shareholder who may certify; (b) the
purpose or purposes for which the certification may be made; (c) the form of
certification and information to be contained therein; (d) if the certification
is with respect to a record date, the time after the record date within which
the certification must be received by the Corporation; and (e) such other
provisions with respect to the procedure as are deemed necessary or desirable.
Upon receipt by the Corporation of a certification complying with the procedure,
the persons specified in the certification shall be deemed, for the purposes set
forth in the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
ARTICLE 7
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SHAREHOLDER LIST
SECTION 7.1 The officer or agent having charge of the share transfer
books of the Corporation shall make a complete alphabetical list of the
shareholders entitled to vote at any meeting, showing their addresses and the
number of shares held by each. The list shall be produced and kept open at the
time and place of the meeting for inspection by any shareholder during the
entire meeting except that, if the Corporation has 5,000 or more shareholders,
in lieu of the making of the list, the Corporation may make the information
available at the meeting by other means.
SECTION 7.2 Failure to comply with the provisions of Section 7.1 of
these Bylaws shall not affect the validity of any action taken at a meeting
prior to a demand at the meeting by any shareholder entitled to vote thereat to
examine the list.
SECTION 7.3 The original transfer books for shares of the Corporation,
or a duplicate thereof kept in the Commonwealth of Pennsylvania, shall be prima
facie evidence as to who are the shareholders entitled to examine the list or
transfer books for shares or to vote at any meeting.
ARTICLE 8
JUDGES OF ELECTION
SECTION 8.1 Prior to any meeting of shareholders, the Board of
Directors may appoint judges of election, who may but need not be shareholders,
to act at such meeting or any adjournment thereof. If judges of election are not
so appointed, the presiding officer of any such meeting may, and on the request
of any shareholder or his or her proxy shall, make such appointment at the
meeting. The number of judges shall be one or three. No person who is a
candidate for an office to be filled at the meeting shall act as a judge of
election.
SECTION 8.2 In case any person appointed as a judge of election fails
to appear or fails or refuses to act, the vacancy so created may be filled by
appointment made by the Board of Directors in advance of the convening of the
meeting or at the meeting by the presiding officer thereof.
SECTION 8.3 The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies.
The judges of election shall also receive votes or ballots, hear and determine
all challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result and do such other acts
as may be proper to conduct the election or vote with fairness to all
shareholders. The judges of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as practicable. If
there are three judges of election, the decision, act or certificate of a
majority shall be the decision, act or certificate of all.
SECTION 8.4 On request of the presiding officer of the meeting or of
any shareholder, the judges of election shall make a report in writing of any
challenge, question or matter determined by
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them and execute a certificate of any fact found by them. Any report or
certificate made by them shall be prima facie evidence of the facts found by
them.
ARTICLE 9
CONSENT OF SHAREHOLDERS IN LIEU OF MEETING NOT PERMITTED
SECTION 9.1 Shareholders shall not have the right to take any action
required or permitted to be taken at a meeting of the shareholders by written
consent in lieu of a meeting of shareholders.
ARTICLE 10
DIRECTORS
SECTION 10.1 The number of directors comprising the first Board of
Directors shall be as provided in the original Articles of Incorporation.
Thereafter, the number of directors shall be determined by the Board of
Directors from time to time. Each director shall be a natural person of full age
and need not be a resident of the Commonwealth of Pennsylvania or a shareholder
of the Corporation.
SECTION 10.2 The Board of Directors shall elect a Chairman of the
Board. The Chairman of the Board shall preside at all meetings of shareholders
and directors.
SECTION 10.3 Except as otherwise provided in Article 12 of these
Bylaws, directors shall be elected by the shareholders. The candidates receiving
the highest number of votes from the shareholders, or each class or group of
classes, if any, entitled to elect directors separately, up to the number of
directors to be elected by the shareholders, or class or group of classes, if
any, shall be elected. The directors shall be divided into three classes,
designated Class I, Class II and Class III, and each class shall be as nearly
equal in number as possible. The initial terms of each class shall be as
provided in the original Articles of Incorporation. At each annual meeting of
shareholders, that number of directors whose terms shall then expire shall be
elected to serve for a term of three years and until their successors have been
elected or until their earlier death, resignation or removal. A decrease in the
number of directors shall not have the effect of shortening the term of any
incumbent director.
ARTICLE 11
REMOVAL OF DIRECTORS
SECTION 11.1 Unless otherwise provided in the Articles of
Incorporation, the entire Board of Directors, or any class of the Board of
Directors, or any individual director may be removed
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from office by the vote of the shareholders entitled to vote thereon only for
cause. If any directors are so removed, new directors may be elected at the same
meeting.
SECTION 11.2 The Board of Directors may declare vacant the office of a
director who has been judicially declared of unsound mind or who has been
convicted of an offense punishable by imprisonment for a term of more than one
year.
SECTION 11.3 The Board of Directors may be removed at any time with or
without cause by the unanimous vote or consent of shareholders entitled to vote
thereon.
ARTICLE 12
VACANCIES ON BOARD OF DIRECTORS
SECTION 12.1 Vacancies on the Board of Directors, including vacancies
resulting from an increase in the number of directors, shall be filled by a
majority vote of the remaining members of the Board of Directors, though less
than a quorum, or by a sole remaining director, and each person so elected shall
be a director to serve for the balance of the unexpired term.
SECTION 12.2 If one or more directors shall resign from the Board of
Directors effective at a future date, the directors then in office, including
those who have so resigned, shall have the power by a majority vote to fill the
vacancies, the vote thereon to take effect when the resignations become
effective.
ARTICLE 13
POWERS OF BOARD
SECTION 13.1 The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors, which may exercise all
such powers of the Corporation and do all such lawful acts and things as are
directed or required to be exercised and done by statute, the Articles of
Incorporation or these Bylaws.
SECTION 13.2 The Board of Directors may, by resolution adopted by a
majority of the directors in office, establish one or more committees consisting
of one or more directors as may be deemed appropriate or desirable by the Board
of Directors to serve at the pleasure of the Board. Any committee, to the extent
provided in the resolution of the Board of Directors pursuant to which it was
created, shall have and may exercise all of the powers and authority of the
Board of Directors, except that no committee shall have any power or authority
as to the following:
(a) The submission to shareholders of any action requiring approval of
shareholders;
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(b) The creation or filling of vacancies in the Board of Directors;
(c) The adoption, amendment or repeal of these Bylaws;
(d) The amendment or repeal of any resolution of the Board of Directors
that by its terms is amendable or repealable only by the Board of Directors; and
(e) Action on matters committed by these Bylaws or resolution of the
Board of Directors to another committee of the Board of Directors.
ARTICLE 14
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 14.1 A meeting of the Board of Directors may be held
immediately following the annual meeting of shareholders at which directors have
been elected without the necessity of notice to the directors.
SECTION 14.2 Meetings of the Board of Directors shall be held at such
times and places within or without the Commonwealth of Pennsylvania as the Board
of Directors may from time to time appoint or as may be designated in the notice
of the meeting. 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 by means of which all persons
participating in the meeting can hear one another. Participation in a meeting by
such means shall constitute presence in person at the meeting.
SECTION 14.3 Special meetings of the Board of Directors may be called
by the Chairman of the Board or the President of the Corporation on one day's
notice to each director, either by telephone, or if in writing, in accordance
with the provisions of Article 30 of these Bylaws. Special meetings shall be
called by the Chairman of the Board, the President or Secretary in like manner
and on like notice upon the written request of a majority of the directors in
office.
SECTION 14.4 At all meetings of the Board of Directors a majority of
the directors in office shall constitute a quorum for the transaction of
business, and the acts of a majority of the directors present and voting at a
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 or by the
Articles of Incorporation or by these Bylaws.
ARTICLE 15
ACTION BY WRITTEN CONSENT OF THE BOARD
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SECTION 15.1 Any action required or permitted to be taken at a meeting
of the Board of Directors may be taken without a meeting if, prior or subsequent
to the action, a consent or consents thereto signed by all of the directors is
filed with the Secretary of the Corporation.
ARTICLE 16
COMPENSATION OF DIRECTORS
SECTION 16.1 Directors, as such, may receive a stated salary for their
services or a fixed sum and expenses for attendance at regular and special
meetings 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 receiving compensation for services
rendered to the Corporation in any other capacity.
ARTICLE 17
LIABILITY OF DIRECTORS
SECTION 17.1 A director of the Corporation shall stand in a fiduciary
relation to the Corporation and shall perform his or her duties as a director,
including the director's duties as a member of any committee of the Board of
Directors upon which the director may serve, in good faith, in a manner the
director reasonably believes to be in the best interests of the Corporation, and
with such care, including reasonable inquiry, skill and diligence, as a person
of ordinary prudence would use under similar circumstances. In performing his or
her duties, a director shall be entitled to rely in good faith on information,
opinions, reports or statements, including financial statements and other
financial data, in each case prepared or presented by any of the following: (a)
one or more officers or employees of the Corporation whom the director
reasonably believes to be reliable and competent in the matters presented; (b)
legal counsel, public accountants or other persons as to matters which the
director reasonably believes to be within the professional or expert competence
of such persons; or (c) a committee of the Board of Directors upon which the
director does not serve, duly designated in accordance with law, as to matters
within its designated authority, which committee the director reasonably
believes to merit confidence. A director shall not be considered to be acting in
good faith if the director has knowledge concerning the matter in question that
would cause the director's reliance to be unwarranted.
SECTION 17.2 In discharging the duties of their respective positions,
the Board of Directors, committees of the Board of Directors and individual
directors may, in considering the best interests of the Corporation, consider
the effects of any action upon employees, suppliers and customers of the
Corporation and communities in which offices or other establishments of the
Corporation are located, and all other pertinent factors. The consideration of
these factors shall not constitute a violation of Section 17.1 hereof.
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SECTION 17.3 Absent breach of fiduciary duty, lack of good faith or
self-dealing, actions taken as a director or any failure to take any action
shall be presumed to be in the best interests of the Corporation.
SECTION 17.4 A director of the Corporation shall not be personally
liable, as such, for monetary damages for any action taken, or any failure to
take any action, unless: (a) the director has breached or failed to perform the
duties of his or her office under Sections 17.1 through 17.3 hereof; and (b) the
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness.
SECTION 17.5 The provisions of Section 17.4 hereof shall not apply to:
(a) the responsibility or liability of a director pursuant to any criminal
statute; or (b) the liability of a director for the payment of taxes pursuant to
local, state or federal law.
ARTICLE 18
OFFICERS
SECTION 18.1 The Corporation shall have a Chairman of the Board, a
President, a Secretary and a Treasurer, or persons who shall act as such,
regardless of the name or title by which they may be designated, elected or
appointed and may have such other officers and assistant officers as the Board
of Directors may authorize from time to time. The Chairman of the Board,
President and Secretary shall be natural persons of full age. The Treasurer may
be a corporation, but if a natural person shall be of full age. It shall not be
necessary for any officer, other than the Chairman of the Board, to be a
director. Any number of offices may be held by the same person. Each officer
shall hold office at the pleasure of the Board of Directors and until his or her
successor has been elected or until his or her earlier death, resignation or
removal. Any officer may resign at any time upon written notice to the
Corporation. The resignation shall be effective upon receipt thereof by the
Corporation or at such subsequent time as may be specified in the notice of
resignation. The Corporation may secure the fidelity of any or all of the
officers by bond or otherwise.
SECTION 18.2 Except as otherwise provided in the Articles of
Incorporation, an officer shall perform his or her duties as an officer in good
faith, in a manner the officer reasonably believes to be in the best interests
of the Corporation and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. A person who so performs his or her duties shall not be liable by
reason of having been an officer of the Corporation.
SECTION 18.3 Any officer or agent of the Corporation may be removed by
the Board of Directors with or without cause. The removal shall be without
prejudice to the contract rights, if any, of any person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
If the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.
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ARTICLE 19
THE CHAIRMAN OF THE BOARD
SECTION 19.1 The Chairman of the Board shall be the chief executive
officer of the Corporation. The Chairman shall preside at all meetings of the
shareholders and 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 shareholders of or with
respect to any action of shareholders 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.
ARTICLE 20
THE PRESIDENT
SECTION 20.1 The President shall be the chief operating officer of the
Corporation and, subject to the provisions of these Bylaws and to the direction
of the Board of Directors, the President shall perform such duties and have such
powers as may from time to time be assigned to him or her by the Chairman of the
Board or the Board of Directors. The President shall perform the duties and
exercise the powers of the Chairman of the Board in the absence or disability of
the Chairman.
ARTICLE 21
THE VICE PRESIDENT
SECTION 21.1 The Vice President or, if more than one, the Vice
Presidents in the order, if any, established by the Board of Directors shall, in
the absence or incapacity of the President, have the authority to exercise all
the powers and perform the duties of the President. The Vice Presidents,
respectively, shall also have such other authority and perform such other duties
as may be provided in these Bylaws or as shall be determined by the Board of
Directors or the President. Any Vice President may, in the discretion of the
Board of Directors, be designated as "executive," "senior" or by departmental or
functional classification.
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ARTICLE 22
THE SECRETARY
SECTION 22.1 The Secretary shall attend all meetings of the Board of
Directors and of the shareholders and keep accurate records thereof in one or
more minute books kept for that purpose and shall perform the duties customarily
performed by the secretary of a corporation and such other duties as may be
assigned to him or her by the Board of Directors or the President.
ARTICLE 23
THE TREASURER
SECTION 23.1 The Treasurer shall be responsible for the custody of the
corporate funds and securities; shall be responsible for full and accurate
accounts of receipts and disbursements in books belonging to the Corporation;
and shall perform such other duties as may be assigned to the Treasurer by the
Board of Directors or the President. The Treasurer shall give bond in such sum
and with such surety as the Board of Directors may from time to time direct.
ARTICLE 24
ASSISTANT OFFICERS
SECTION 24.1 Each assistant officer shall assist in the performance of
the duties of the officer to whom such person is assistant and shall perform
such duties in the absence of the officer. An assistant officer shall perform
such additional duties as the Board of Directors, the President or the officer
to whom such person is assistant may from time to time assign such person. Such
officers may be given such functional titles as the Board of Directors shall
from time to time determine.
ARTICLE 25
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 25.1 The Corporation shall indemnify any director or officer,
and may indemnify any other employee or agent, who was or is a party to, or is
threatened to be made a party to, or who is called as a witness in connection
with, any threatened, pending, or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an action by or in
the right of the Corporation, by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another domestic or foreign corporation, for profit or not-
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for-profit, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him or her in connection with
such action, suit or proceeding unless the act or failure to act giving rise to
the claim for indemnification is determined by a court to have constituted
willful misconduct or recklessness.
SECTION 25.2 The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article 25 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any Bylaw, agreement, contract, vote of shareholders or
directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office. It is the policy of the
Corporation that indemnification of, and advancement of expenses to, directors
and officers of the Corporation shall be made to the fullest extent permitted by
law. To this end, the provisions of this Article 25 shall be deemed to have been
amended for the benefit of directors and officers of the Corporation effective
immediately upon any modification of the BCL or any modification, or adoption of
any other law that expands or enlarges the power or obligation of corporations
organized under the BCL to indemnify, or advance expenses to, directors and
officers of corporations.
SECTION 25.3 The Corporation shall pay expenses incurred by an officer
or director, and may pay expenses incurred by any other employee or agent, in
defending an action, or proceeding referred to in this Article 25 in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation.
SECTION 25.4 The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article 25 shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
SECTION 25.5 The Corporation shall have the authority to create a fund
of any nature, which may, but need not, be under the control of a trustee, or
otherwise secure or insure in any manner, its indemnification obligations,
whether arising under these Bylaws or otherwise. This authority shall include,
without limitation, the authority to: (a) deposit funds in trust or in escrow;
(b) establish any form of self-insurance; (c) secure its indemnity obligation by
grant of a security interest, mortgage or other lien on the assets of the
Corporation; or (d) establish a letter of credit, guaranty or surety arrangement
for the benefit of such persons in connection with the anticipated
indemnification or advancement of expenses contemplated by this Article 25. The
provisions of this Article 25 shall not be deemed to preclude the
indemnification of, or advancement of expenses to, any person who is not
specified in Section 25.1 of this Article 25 but whom the Corporation has the
power or obligation to indemnify, or to advance expenses for, under the
provisions of the BCL or otherwise. The authority granted by this Section 25.5
shall be exercised by the Board of Directors of the Corporation.
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SECTION 25.6 The Corporation shall have the authority to enter into a
separate indemnification agreement with any officer, director, employee or agent
of the Corporation or any subsidiary providing for such indemnification of such
person as the Board of Directors shall determine up to the fullest extent
permitted by law.
SECTION 25.7 As soon as practicable after receipt by any person
specified in Section 25.1 of this Article 25 of notice of the commencement of
any action, suit or proceeding specified in Section 25.1 of this Article 25,
such person shall, if a claim with respect thereto may be made against the
Corporation under Article 25 of these Bylaws, notify the Corporation in writing
of the commencement or threat thereof; however, the omission so to notify the
Corporation shall not relieve the Corporation from any liability under Article
25 of these Bylaws unless the Corporation shall have been prejudiced thereby or
from any other liability which it may have to such person other than under
Article 25 of these Bylaws. With respect to any such action as to which such
person notifies the Corporation of the commencement or threat thereof, the
Corporation may participate therein at its own expense and, except as otherwise
provided herein, to the extent that it desires, the Corporation, jointly with
any other indemnifying party similarly notified, shall be entitled to assume the
defense thereof, with counsel selected by the Corporation to the reasonable
satisfaction of such person. After notice from the Corporation to such person of
its election to assume the defense thereof, the Corporation shall not be liable
to such person under Article 25 of these Bylaws for any legal or other expenses
subsequently incurred by such person in connection with the defense thereof
other than as otherwise provided herein. Such person shall have the right to
employ his or her own counsel in such action, but the fees and expenses of such
counsel incurred after notice from the Corporation of its assumption of the
defense thereof shall be at the expense of such person unless: (a) the
employment of counsel by such person shall have been authorized by the
Corporation; (b) such person shall have reasonably concluded that there may be a
conflict of interest between the Corporation and such person in the conduct of
the defense of such proceeding; or (c) the Corporation shall not in fact have
employed counsel to assume the defense of such action. The Corporation shall not
be entitled to assume the defense of any proceeding brought by or on behalf of
the Corporation or as to which such person shall have reasonably concluded that
there may be a conflict of interest. If indemnification under Article 25 of
these Bylaws or advancement of expenses is not paid or made by the Corporation,
or on its behalf, within 90 days after a written claim for indemnification or a
request for an advancement of expenses has been received by the Corporation,
such person may, at any time thereafter, bring suit against the Corporation to
recover the unpaid amount of the claim or the advancement of expenses. The right
to indemnification and advancements of expenses provided hereunder shall be
enforceable by such person in any court of competent jurisdiction. The burden of
proving that indemnification is not appropriate shall be on the Corporation.
Expenses reasonably incurred by such person in connection with successfully
establishing the right to indemnification or advancement of expenses, in whole
or in part, shall also be indemnified by the Corporation.
SECTION 25.8 The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
trust or other
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enterprise against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article 25.
ARTICLE 26
SHARES; SHARE CERTIFICATES
SECTION 26.1 All shares issued by the Corporation shall be represented
by certificates. The share certificates of the Corporation shall be numbered and
registered in a share register as they are issued; shall state that the
Corporation is incorporated under the laws of the Commonwealth of Pennsylvania;
shall bear the name of the registered holder, the number and class of shares and
the designation of the series, if any, represented thereby, the par value, if
any, of each share or a statement that the shares are without par value, as the
case may be; shall be signed by the Chairman of the Board, the President or a
Vice President, and the Secretary or the Treasurer or any other person properly
authorized by the Board of Directors, and shall bear the corporate seal, 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, such share certificate 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.
ARTICLE 27
TRANSFER OF SHARES
SECTION 27.1 Upon surrender to the Corporation of a share certificate
duly endorsed by the person named in the certificate or by 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 cancelled and the
transfer recorded on the share register of the Corporation. Except as otherwise
provided pursuant to Section 6.2 hereof, a transferee of shares of the
Corporation shall not be a record holder of such shares entitled to the rights
and benefits associated therewith unless and until the share transfer has been
recorded on the share transfer books of the Corporation. No transfer shall be
made if it would be inconsistent with the provisions of Article 8 of the
Pennsylvania Uniform Commercial Code.
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ARTICLE 28
LOST CERTIFICATES
SECTION 28.1 Where a shareholder of the Corporation alleges the loss,
theft or destruction of one or more certificates for shares of the Corporation
and requests the issuance of a substitute certificate therefor, the Board of
Directors may direct a new certificate of the same tenor and for the same number
of shares to 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 issue of a new certificate the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate, or
such person's heirs or legal representatives, as the case may be, to advertise
the same in such manner as it shall require and/or give the Corporation a bond
in such form and sum and with surety or sureties, with fixed or open penalty, as
shall be satisfactory to the Board of Directors, as indemnity for any liability
or expense that it may incur by reason of the original certificate remaining
outstanding.
ARTICLE 29
FISCAL YEAR
SECTION 29.1 The fiscal year of the Corporation shall be as determined
by the Board of Directors.
ARTICLE 30
MANNER OF GIVING NOTICE; WAIVERS OF NOTICE
SECTION 30.1 Except for any notice under Section 2.3 of these Bylaws,
which shall be governed by the provisions of Section 2.3, any notice required to
be given to any person under the provisions of these Bylaws shall be given to
the person either personally or by sending a copy thereof:
(a) By first class or express mail, postage prepaid, or courier
service, charges prepaid, to his or her postal address appearing on the books of
the Corporation or, in the case of written notice to directors, supplied by each
director to the Corporation for the purpose of the notice. A notice pursuant to
this subparagraph shall be deemed to have been given to the person entitled
thereto when deposited in the United States mail or with a courier service for
delivery to that person.
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(b) By facsimile transmission, e-mail or other electronic communication
to his or her facsimile number or address for e-mail or other electronic
communications supplied by him or her to the Corporation for the purpose of
notice. Notice pursuant to this subparagraph shall be deemed to have been given
to the person entitled thereto when sent.
SECTION 30.2 Any notice required to be given to any person under the
provisions of statute, the Corporation's Articles of Incorporation or these
Bylaws may be waived in a writing signed by the person entitled to such notice
whether before or after the time stated therein. Except as otherwise required by
statute, and except in the case of a special meeting, neither the business to be
transacted at, nor the purpose of, a meeting need be specified in the waiver of
notice. In the case of a special meeting of shareholders, the waiver of notice
shall specify the general nature of the business to be transacted. Attendance of
any person, whether in person or by proxy, at any meeting shall constitute a
waiver of notice of such meeting, except where a person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened.
ARTICLE 31
AMENDMENTS
SECTION 31.1 These Bylaws may be amended and repealed, and new Bylaws
may be adopted, by the shareholders only if approved by the affirmative vote of
at least 66-2/3% of the votes that all shareholders are entitled to cast on the
matter at any regular or special meeting duly convened after written notice to
the shareholders that the purpose, or one of the purposes, of the meeting is to
consider the amendment or repeal of these Bylaws. There shall be included in, or
enclosed with, the notice a copy of the proposed amendment or a summary of the
changes to be effected thereby.
SECTION 31.2 These Bylaws may be amended or repealed, and new Bylaws
adopted, by the affirmative vote of a majority of the members of the Board of
Directors at any regular or special meeting duly convened, subject to the power
of the shareholders to change such action of the Board of Directors in
accordance with the provisions of Section 31.1 of these Bylaws.
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PROXY PROXY
ESCALON MEDICAL CORP.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD NOVEMBER 2, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned
hereby appoints Richard J. DePiano and Harry M. Rimmer, 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, One Liberty Place, 1650 Market Street,
Philadelphia, PA 19103-7396, on November 2, 2001 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 CLASS II DIRECTORS
_ FOR all nominees listed _ WITHHOLD AUTHORITY
below (except as marked to vote for the all nominees
to contrary)
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME ON THE FOLLOWING LIST:
Fred G. Choate
Jeffrey M. O'Donnell
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR EACH OF THE NOMINEES FOR
CLASS II DIRECTOR IN PROPOSAL 1.
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S 1999 EQUITY INCENTIVE
PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR AWARD UNDER THE
PLAN.
FOR _ AGAINST _ ABSTAIN _
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR PROPOSAL NO. 2.
3. PROPOSAL TO APPROVE THE REINCORPORATION OF THE COMPANY FROM DELAWARE TO
PENNSYLVANIA.
FOR _ AGAINST _ ABSTAIN _
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR PROPOSAL NO. 3.
4. PROPOSAL TO RATIFY THE SELECTION OF PARENTE RANDOLPH, LLC AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30,
2002.
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.
IMPORTANT - PLEASE SIGN AND DATE ON REVERSE SIDE AND RETURN
THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
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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 nominee for Class II Director,
"FOR" the Proposal to approve an amendment to the Company's 1999 Equity
Incentive Plan to increase the number of shares available for award under the
Plan, "FOR" the approval of the reincorporation of the Company from Delaware to
Pennsylvania, and "FOR" the ratification of Parente Randolph, LLC 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. 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 _________________________________, 2001
____________________________________________
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.
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APPENDIX (FOR EDGAR TRANSMISSION ONLY)
ESCALON MEDICAL CORP.
AMENDED AND RESTATED
1999 EQUITY INCENTIVE PLAN
1. PURPOSE. The purpose of the Escalon Medical Corp. 1999 Equity
Incentive Plan is to enhance the ability of Escalon Medical Corp. (the
"Company") and any subsidiaries to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentives to such personnel and to promote the success of the Company. To
accomplish these purposes, this Plan provides a means whereby employees,
directors and consultants may receive stock options ("Options") to purchase the
Company's Common Stock, no par value, (the "Common Stock").
2. ADMINISTRATION.
(a) COMPOSITION OF THE COMMITTEE. This Plan shall be administered by a
committee (the "Committee"), which shall be appointed by and serve at the
pleasure of the Company's Board of Directors (the "Board"). The Committee shall
be comprised of two or more members of the Board. Each member of the Committee
shall be (i) a "non-employee director" within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934 (the "Exchange Act") and (ii) an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). Subject to the foregoing, from time to time the
Board may increase or decrease the size of the Committee, appoint additional
members thereof, remove members (with or without cause), appoint new members in
substitution therefor, fill vacancies or remove all members of the Committee and
thereafter directly administer this Plan.
(b) AUTHORITY OF THE COMMITTEE. The Committee shall have full and final
authority, in its sole discretion, to interpret the provisions of this Plan and
to decide all questions of fact arising in its application; to determine the
employees, directors and consultants to whom awards shall be made and the type,
amount, size and terms of each such award; to determine the time when awards
shall be granted; and to make all other determinations necessary or advisable
for the administration of this Plan. The Committee shall have the authority to
adopt, amend and rescind such rules, regulations and procedures as, in its
opinion, may be advisable in the administration of this Plan, including, without
limitation, rules, regulations and procedures that: (i) deal with satisfaction
of an optionee's tax withholding obligations pursuant to Section 13 hereof, (ii)
include arrangements to facilitate an optionee's ability to borrow funds for the
payment of the exercise price of an Option, if applicable, from securities'
brokers and dealers, and (iii) include arrangements that provide for the payment
of some or all of an Option's exercise price by delivery of previously owned
shares of Common Stock or other property and/or by withholding some of the
shares of Common Stock being acquired upon exercise of an Option. All decisions,
determinations and interpretations of the Committee shall be final and binding
on all optionees and all other holders of Options granted under this Plan.
(c) AUTHORITY OF THE BOARD. Notwithstanding anything to the contrary
set forth in this Plan, all authority granted hereunder to the Committee may be
exercised at any time and
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from time to time by the Board. All decisions, determinations and
interpretations of the Board shall be final and binding on all optionees and all
other holders of Options granted under this Plan.
3. STOCK SUBJECT TO THIS PLAN. Subject to Section 16 hereof, the shares
that may be issued under this Plan shall not exceed in the aggregate 635,000
shares of Common Stock. Such shares may be authorized and unissued shares or
shares issued and subsequently reacquired by the Company. Except as otherwise
provided herein, any shares subject to an Option that for any reason expires or
is terminated unexercised as to such shares shall again be available under this
Plan.
4. ELIGIBILITY TO RECEIVE OPTIONS. Persons eligible to receive Options
under this Plan shall be limited to those consultants, directors, officers and
other employees of the Company and any subsidiary (as defined in Section 424 of
the Code or any amendment or substitute thereto), who are in positions in which
their decisions, actions and counsel significantly impact upon the profitability
and success of the Company and any subsidiary. Directors of the Company who are
not also employees of the Company or any subsidiary and consultants shall not be
eligible to be awarded Incentive Stock Options (as defined in Section 5 hereof).
Notwithstanding anything to the contrary set forth in this Plan, the maximum
number of shares of Common Stock for which Options may be granted to any
employee in any calendar year shall be 100,000 shares.
5. TYPES OF OPTIONS. Grants may be made at any time and from time to
time by the Committee in the form of Options to purchase shares of Common Stock.
Options granted hereunder may be Options that are intended to qualify as
incentive stock options within the meaning of Section 422 of the Code or any
amendment or substitute thereto ("Incentive Stock Options") or Options that are
not intended to so qualify ("Nonqualified Stock Options").
6. OPTION AGREEMENTS. Options for the purchase of Common Stock shall be
evidenced by written agreements in such form not inconsistent with this Plan as
the Committee shall approve from time to time. The Options granted hereunder may
be evidenced by a single agreement or by multiple agreements, as determined by
the Committee in its sole discretion. Each Option agreement shall contain in
substance the following terms and conditions:
(a) TYPE OF OPTION. Each Option agreement shall identify the Options
represented thereby as Incentive Stock Options or Nonqualified Stock Options, as
the case may be.
(b) OPTION PRICE. Each Option agreement shall set forth the purchase
price of the Common Stock purchasable upon the exercise of the Option evidenced
thereby. Subject to the limitation set forth in Section 6(d)(ii) hereof, the
purchase price of the Common Stock subject to an Incentive Stock Option shall be
not less than 100% of the fair market value of such stock on the date the Option
is granted, as determined by the Committee, but in no event less than the par
value of such stock. The purchase price of the Common Stock subject to a
Nonqualified Stock Option shall be not less than 85% of the fair market value of
such stock on the date the Option is granted, as determined by the Committee.
For this purpose, fair market value on any date shall mean the closing price of
the Common Stock, as reported in The Wall Street Journal or if not so
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reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation ("Nasdaq") System, or if the Common Stock is not
reported by Nasdaq, the fair market value shall be as determined by the
Committee pursuant to Section 422 of the Code.
(c) EXERCISE TERM. Each Option agreement shall state the period or
periods of time within which the Option may be exercised, in whole or in part,
which shall be such a period or periods of time as may be determined by the
Committee, provided that no Option shall be exercisable after ten years from the
date of grant thereof. The Committee shall have the power to permit an
acceleration of previously established exercise terms, subject to the
requirements set forth herein, upon such circumstances and subject to such terms
and conditions as the Committee deems appropriate.
(d) INCENTIVE STOCK OPTIONS. In the case of an Incentive Stock Option,
each Option agreement shall contain such other terms, conditions and provisions
as the Committee determines necessary or desirable in order to qualify such
Option as a tax-favored Option (within the meaning of Section 422 of the Code or
any amendment or substitute thereto or regulation thereunder) including without
limitation, each of the following, except that any of these provisions may be
omitted or modified if it is no longer required in order to have an Option
qualify as a tax-favored Option within the meaning of Section 422 of the Code or
any substitute therefor:
(i) The aggregate fair market value (determined as of the date
the Option is granted) of the Common Stock with respect to which Incentive Stock
Options are first exercisable by any employee during any calendar year (under
all plans of the Company) shall not exceed $100,000.
(ii) No Incentive Stock Options shall be granted to any
employee if, at the time the Option is granted, the employee owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its parent or its subsidiaries unless, at the time such
Option is granted, the Option price is at least 110% of the fair market value of
the stock subject to the Option and, by its terms, the Option is not exercisable
after the expiration of five years from the date of grant.
(iii) No Incentive Stock Options shall be exercisable more
than three months (or one year, in the case of an employee who dies or becomes
disabled within the meaning of Section 72(m)(7) of the Code or any substitute
therefor) after termination of employment.
(e) SUBSTITUTION OF OPTIONS. Options may be granted under this Plan
from time to time in substitution for stock options held by directors,
consultants and employees of other corporations who are about to become, and who
do concurrently with the grant of such options become, directors, consultants or
employees of the Company or a subsidiary as a result of a merger or
consolidation of the employing corporation with the Company or a subsidiary, or
the acquisition by the Company or a subsidiary of the assets or capital stock of
the employing corporation or a subsidiary of the employing corporation. The
terms and conditions of the substitute options so granted may vary from the
terms and conditions set forth in this Section 6 to
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such extent as the Committee at the time of grant may deem appropriate to
conform, in whole or in part, to the provisions of the stock options in
substitution for which they are granted.
7. DATE OF GRANT. The date on which an Option shall be deemed to have
been granted under this Plan shall be the date of the Committee's authorization
of the Option or such later date as may be determined by the Committee at the
time the Option is authorized. Notice of the determination shall be given to
each individual to whom an Option is so granted within a reasonable time after
the date of such grant.
8. EXERCISE AND PAYMENT FOR SHARES. Options may be exercised in whole
or in part, from time to time, by giving written notice of exercise to the
Secretary of the Company, specifying the number of shares to be purchased,
except that no Option may be exercised in whole or in part during the first six
months after the Option is granted unless expressly permitted by the Committee.
The purchase price of the shares with respect to which an Option is exercised
shall be payable in full at the time notice is given in cash, Common Stock at
fair market value, or a combination thereof, as the Committee may determine from
time to time and subject to such terms and conditions as may be prescribed by
the Committee for such purpose. The Committee may also, in its discretion and
subject to prior notification to the Company by an optionee, permit 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 through the Company's transfer agent
or such a brokerage firm and either the Company's transfer agent or the
brokerage firm executing the sale will remit the Company from the proceeds of
sale the exercise price of the shares as to which the Option has been exercised.
9. RIGHTS UPON TERMINATION OF SERVICE. In the event that an optionee
ceases to be a consultant, director, officer or employee of the Company or any
subsidiary, for any reason other than death, retirement, as hereinafter defined,
or disability (within the meaning of Section 72(m)(7) of the Code or any
substitute therefor), the optionee shall have the right to exercise the Option
during its term within a period of three months after such termination to the
extent that the Option was exercisable at the time of termination, or within
such other period, and subject to such terms and conditions as may be specified
by the Committee. In the event that an optionee dies, becomes disabled or, in
the case of any employee, retires prior to the expiration of his Option and
without having fully exercised his Option, the optionee or his successor shall
have the right to exercise the Option during its term within a period of one
year after termination of service due to death, disability (within the meaning
of Section 72(m)(7) of the Code) or, in the case of an employee, retirement, in
each case only to the extent that the Option was exercisable at the time of
termination, or within such other period, and subject to such terms and
conditions as may be specified by the Committee. As used in this Section 9,
"retirement" means a termination of employment by reason of an optionee's
retirement at or after his earliest permissible retirement date pursuant to and
in accordance with his employer's regular retirement plan or personnel
practices. Notwithstanding the provisions of Section 6(d)(iii) hereof, an
Incentive Stock Option may be exercised more than three months after termination
of employment due to retirement, as provided in this Section 9, but in that
event, the Option shall lose its status as an Incentive Stock Option and shall
be treated as a Nonqualified Stock Option.
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10. GENERAL RESTRICTIONS. Each Option granted under this Plan shall be
subject to the requirement that if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or federal law, or (ii) the consent or approval of any government regulatory
body, or (iii) an agreement by the recipient of an Option with respect to the
disposition of shares of Common Stock is necessary or desirable as a condition
of or in connection with the granting of such Option or the issuance or purchase
of shares of Common Stock thereunder, such Option shall not be consummated in
whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
11. RIGHTS OF A SHAREHOLDER. The recipient of any Option under this
Plan, unless otherwise provided by this Plan, shall have no rights as a
shareholder unless and until certificates for shares of Common Stock are issued
and delivered to him.
12. RIGHT TO TERMINATE EMPLOYMENT. Nothing contained in this Plan or in
any agreement entered into pursuant to this Plan shall confer upon any optionee
the right to continue in the employment of the Company or any subsidiary or
affect any right that the Company or any subsidiary may have to terminate the
employment of such optionee or consulting relationship with such optionee.
13. WITHHOLDING. Whenever the Company proposes or is required to issue
or transfer shares of Common Stock under this Plan, the Company shall have the
right to require the recipient to remit to the Company an amount sufficient to
satisfy any federal, state or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. If and to the
extent authorized by the Committee, in its sole discretion, an optionee may make
an election, by means of a form of election to be prescribed by the Committee,
to have shares of Common Stock that are acquired upon exercise of an Option
withheld by the Company or to tender other shares of Common Stock or other
securities of the Company owned by the optionee to the Company at the time of
exercise of an Option to pay the amount of tax that would otherwise be required
by law to be withheld by the Company as a result of any exercise of an Option.
Any such election shall be irrevocable and shall be subject to the disapproval
of the Committee at any time. Any securities so withheld or tendered will be
valued by the Committee as of the date of exercise.
14. NON-ASSIGNABILITY. No Option under this Plan shall be assignable or
transferable by the recipient thereof except by will or by the laws of descent
and distribution or by such other means as the Committee may approve. During the
life of the recipient such Option shall be exercisable only by such person or by
such person's guardian or legal representative.
15. NON-UNIFORM DETERMINATIONS. The Committee's determinations under
this Plan (including without limitation determinations of the persons to receive
Options, the form, amount and timing of such grants, the terms and provisions of
Options, and the agreements evidencing same) need not be uniform and may be made
selectively among persons who receive, or are eligible to receive, grants of
Options under this Plan whether or not such persons are similarly situated.
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16. ADJUSTMENTS.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the number of shares of Common Stock that have been
authorized for issuance under this Plan but as to which no Options have yet been
granted or which have been returned to this Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Committee, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, all outstanding Options will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Committee. The Committee may, in the exercise of its
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Committee and give each Option holder the right to exercise
his Option as to all or any part of the shares of Common Stock covered by the
Option, including shares as to which the Option would not otherwise be
exercisable.
(c) SALE OR MERGER. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Committee, in the exercise of its sole
discretion, may take such action as it deems desirable, including, but not
limited to: (i) causing an Option to be assumed or an equivalent option to be
substituted by the successor corporation or a parent or subsidiary of such
successor corporation, (ii) providing that an Option holder shall have the right
to exercise his Option as to all of the shares of Common Stock covered by the
Option, including shares as to which the Option would not otherwise be
exercisable, or (iii) declaring that an Option shall terminate at a date fixed
by the Committee provided that the Option holder is given notice and opportunity
to exercise the then exercisable portion of his Option prior to such date.
17. AMENDMENT. The Board may terminate or amend this Plan at any time
with respect to shares as to which Options have not been granted, subject to any
required shareholder approval or any shareholder approval that the Board may
deem to be advisable for any reason, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under tax, securities or other
laws or satisfying any applicable stock exchange listing requirements. The Board
may not, without the consent of the holder of an Option, alter or impair any
Option previously granted under this Plan, except as specifically authorized
herein.
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18. CONDITIONS UPON ISSUANCE OF SHARES.
(a) COMPLIANCE WITH SECURITIES LAWS. Shares of the Company's Common
Stock shall not be issued pursuant to the exercise of an Option unless the
exercise of such Option and the issuance and delivery of such shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Common Stock of the Company may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the shares of Common Stock are
being purchased only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company, such
representation is required by any of the aforementioned relevant provisions of
law.
19. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of shares as shall be
sufficient to satisfy the requirements of this Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained.
20. EFFECT ON OTHER PLANS. Participation in this Plan shall not affect
an employee's eligibility to participate in any other benefit or incentive plan
of the Company or any subsidiary. Any Options granted pursuant to this Plan
shall not be used in determining the benefits provided under any other plan of
the Company or any subsidiary unless specifically provided.
21. DURATION OF THIS PLAN. This Plan shall remain in effect until all
Options granted under this Plan have been satisfied by the issuance of shares,
but no Option shall be granted more than ten years after the earlier of the date
this Plan is adopted by the Company or is approved by the Company's
shareholders.
22. FORFEITURE FOR DISHONESTY. Notwithstanding anything to the contrary
in this Plan, if the Committee finds, by a majority vote, after full
consideration of the facts presented on behalf of both the Company and any
optionee, that the optionee has been engaged in fraud, embezzlement, theft,
commission of a felony or dishonest conduct in the course of his employment or
retention by the Company or any subsidiary that damaged the Company or any
subsidiary or that the optionee has disclosed trade secrets of the Company or
any subsidiary, the optionee shall forfeit all unexercised Options and all
exercised Options under which the Company has not yet delivered the
certificates. The decision of the Committee in interpreting and applying the
provisions of this Section 22 shall be final. No decision of the Committee,
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however, shall affect the finality of the discharge or termination of such
optionee by the Company or any subsidiary in any manner.
23. NO PROHIBITION ON CORPORATE ACTION. No provision of this Plan shall
be construed to prevent the Company or any officer or director thereof from
taking any corporate action deemed by the Company or such officer or director to
be appropriate or in the Company's best interest, whether or not such action
could have an adverse effect on this Plan or any Options granted hereunder, and
no optionee or optionee's estate, personal representative or beneficiary shall
have any claim against the Company or any officer or director thereof as a
result of the taking of such action.
24. INDEMNIFICATION. With respect to the administration of this Plan,
the Company shall indemnify each present and future member of the Committee and
the Board against, and each member of the Committee and the Board shall be
entitled without further action on his part to indemnity from the Company for
all expenses (including the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of, any action, suit or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and the Board, whether or not he continues to be such member at the time of
incurring such expenses; provided, however, that such indemnity shall not
include any expenses incurred by any such member of the Committee or the Board
(i) in respect of matters as to which he shall be finally adjudged in any such
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as such member of the Committee or the
Board; or (ii) in respect of any matter in which any settlement is effected for
an amount in excess of the amount approved by the Company on the advice of its
legal counsel; and provided further that no right of indemnification under the
provisions set forth herein shall be available to or enforceable by any such
member of the Committee and the Board unless, within 60 days after institution
of any such action, suit or proceeding, he shall have offered the Company in
writing the opportunity to handle and defend same at its own expense. The
foregoing right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each such member of the Committee and the Board
and shall be in addition to all other rights to which such member may be
entitled as a matter of law, contract or otherwise.
25. MISCELLANEOUS PROVISIONS.
(a) COMPLIANCE WITH PLAN PROVISIONS. No optionee or other person shall
have any right with respect to this Plan, the Common Stock reserved for issuance
under this Plan or in any Option until a written option agreement shall have
been executed by the Company and the optionee and all the terms, conditions and
provisions of this Plan and the Option applicable to such optionee (and each
person claiming under or through him) have been met.
(b) APPROVAL OF COUNSEL. In the discretion of the Committee, no shares
of Common Stock, other securities or property of the Company, or other forms of
payment shall be issued hereunder with respect to any Option unless counsel for
the Company shall be satisfied that such
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issuance will be in compliance with applicable federal, state, local and foreign
legal, securities exchange and other applicable requirements.
(c) COMPLIANCE WITH RULE 16B-3. To the extent that Rule 16b-3 under the
Exchange Act applies to this Plan or to Options granted under this Plan, it is
the intention of the Company that this Plan comply in all respects with the
requirements of Rule 16b-3, that any ambiguities or inconsistencies in
construction of this Plan be interpreted to give effect to such intention and
that, if this Plan shall not so comply, whether on the date of adoption or by
reason of any later amendment to or interpretation of Rule 16b-3, the provisions
of this Plan shall be deemed to be automatically amended so as to bring them
into full compliance with such rule.
(d) UNFUNDED PLAN. This Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets under this Plan.
(e) EFFECTS OF ACCEPTANCE OF OPTION. By accepting any Option or other
benefit under this Plan, each optionee and each person claiming under or through
him shall be conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under this Plan by the
Company, the Board and/or the Committee or its delegates.
(f) CONSTRUCTION. The masculine pronoun shall include the feminine and
neuter, and the singular shall include the plural, where the context so
indicates.
26. SHAREHOLDER APPROVAL. The Company shall submit this Plan to the
shareholders entitled to vote hereon for approval within twelve months after the
date of adoption by the Board in order to meet the requirements of Section 422
of the Code and the regulations thereunder, Section 162(m) of the Code and
regulations thereunder, and the National Association of Securities Dealers, Inc.
for the quotation of the Common Stock on the Nasdaq System. The exercise of any
Option granted under this Plan shall be subject to the approval of this Plan by
the shareholders.
As Amended by the Board of Directors through August 14, 2001.
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