-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NA94BkjbGzSf5gJpD7gaWX6MUlTuryZUP5AxFHEm/lX6vhr/f+dqhayDl0TtXqg5 Ny5d58mFjLR0Z4mf1+nXow== 0000893220-98-001860.txt : 19981216 0000893220-98-001860.hdr.sgml : 19981216 ACCESSION NUMBER: 0000893220-98-001860 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19981215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESCALON MEDICAL CORP CENTRAL INDEX KEY: 0000862668 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 330272839 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-20127 FILM NUMBER: 98769820 BUSINESS ADDRESS: STREET 1: 351 EAST CONESTOGA ROAD STREET 2: PLZ LEVEL CITY: WAYNE STATE: PA ZIP: 19087 BUSINESS PHONE: 6106886830 MAIL ADDRESS: STREET 1: 351 EAST CONESTOGA ROAD CITY: WAYNE STATE: PA ZIP: 19087 FORMER COMPANY: FORMER CONFORMED NAME: INTELLIGENT SURGICAL LASERS INC DATE OF NAME CHANGE: 19930328 10-K/A 1 FORM 10-K AMENDMENT 1 / ESCALON MEDICAL CORP. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A-1 (Mark One) [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended JUNE 30, 1998 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ___________ COMMISSION FILE NUMBER 0-20127 ESCALON MEDICAL CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER.) California 33-0272839 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 351 East Conestoga Road Wayne, Pennsylvania 19087 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 610-688-6830 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class: Name of each exchange on which registered: None None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, without par value Class A Redeemable Common Stock Purchase Warrants, exercisable for the purchase of one share of Common Stock, without par value Class B Redeemable Common Stock Purchase Warrants, exercisable for the purchase of one share of Common Stock, without par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant is approximately $3,464,727.00. Such aggregate market value was computed by reference to the bid and asked price of the Common Stock in the when-issued trading market on December 4, 1998. For purposes of making this calculation only, the registrant has defined affiliates as including all directors and beneficial owners of more than ten percent of the Common Stock of the Company. The number of shares of the registrant's Common Stock outstanding as of December 4, 1998 was 3,017,185. DOCUMENTS INCORPORATED BY REFERENCE None 2 PART III PRELIMINARY NOTE: This Form 10-K/A-1 is being filed to report Part III information in lieu of the incorporation of such information by reference to the Company's definitive proxy material for its 1998 Annual Meeting of Stockholders. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS OF THE COMPANY
YEAR FIRST BECAME DIRECTOR, PRINCIPAL OCCUPATIONS DURING NAME OF DIRECTOR AGE PAST FIVE YEARS AND CERTAIN DIRECTORSHIPS - ---------------- --- ----------------------------------------- Richard J. DePiano 57 Mr. DePiano has been a director of the Company since February 1996. Mr. DePiano has been the Chief Executive Officer of the Sandhurst Company, L.P. and Managing Director of the Sandhurst Venture Fund since 1986. Mr. DePiano is Chairman of the Board of Directors of Surgical Laser Technologies, Inc. Mr. DePiano has served as Chairman and Chief Executive Officer of the Company since March 1997. Jay L. Federman, MD 60 Dr. Federman served as the Chairman of the Board of Directors of the Company from February 1996 to March 1997 and continues to serve on the Board of Directors. Dr. Federman has served as the Chief of the Division of Ophthalmology at the Medical College Pennsylvania and M.C.P. Hahnemann School of Medicine and as Co-Director of the Retina Service at Wills Eye Hospital in Philadelphia, Pennsylvania. Dr. Federman is a director of Surgical Laser Technologies, Inc. Jack M. Dodick, MD 59 Dr. Dodick has been a director of the Company since February 1996. Dr. Dodick has served as the Chairman of the Department of Ophthalmology at Manhattan Eye, Ear and Throat Hospital in New York. Fred G. Choate 52 Mr. Choate has been a director of the Company since November 1998. Mr. Choate has served as Manager of the Greater Philadelphia Venture Capital Corp. since 1992.
EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION ---- --- -------- Richard J. DePiano 57 Chairman and Chief Executive Officer Ronald L. Hueneke 55 President and Chief Operating Officer Doug McGonegal 47 Secretary and Vice President, Finance Shawn Mullen 40 Vice President, Sales & Marketing
Mr. DePiano has been a director of the Company since February 1996. Mr. DePiano has been the Chief Executive Officer of the Sandhurst Company, L.P. and Managing Director of the Sandhurst Venture Fund since 2 3 1986. Mr. DePiano is Chairman of the Board of Directors of Surgical Laser Technologies, Inc. Mr. DePiano has served as Chairman and Chief Executive Officer of the Company since March 1997. Mr. Hueneke was appointed a President of the Company and Chief Operating Officer in July, 1998. From 1991 until 1996, Mr. Hueneke held various senior management positions with EOI. Mr. Hueneke co-founded Trek Medical Products, Inc., a vitreoretinal instrument and equipment business, in 1983 and served as its President until October 1991 when it was acquired by EOI. Mr. McGonegal was appointed Secretary and Vice President, Finance of the Company in July 1998. Mr. Mullen was appointed Vice President, Sales & Marketing of the Company in July 1998. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of the Company's Common Stock, to file with the Commission, by a specified date, reports regarding their ownership of Common Stock. To the Company's knowledge, based solely on its review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that all of its officers and directors and greater than ten percent beneficial owners complied with all Section 16(a) filing requirements applicable to them with respect to those transactions during 1997. 3 4 ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION The following table sets forth certain compensation paid by the Company to its Chief Executive Officer and certain other highly compensated executive officers of the Company for all services rendered in all capacities for the periods shown. This table includes Sterling C. Johnson, who stepped down from his positions with the Company effective April 30, 1997 and John T. Rich, who stepped down from his positions with the Company effective June 30, 1998. SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION ------------------- OTHER AWARDS ANNUAL ------------- ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1) - --------------------------- ---- ------ ----- ------------ ------- --------------- Richard J. DePiano(2) 1998 $240,000 -- -- -- $ 9,600 Chairman and Chief Executive 1997 $ 73,846 -- -- -- $ 3,200 Officer 1996 -- -- -- -- -- John T. Rich 1998 $119,000 $14,500 -- -- -- Former Vice President of Finance 1997 $119,000 $14,500 -- -- -- and Administration, and Secretary 1996 $ 43,858 -- -- -- -- Ronald L. Hueneke 1998 $105,000 $20,000 -- -- -- President and Chief Operating 1997 $105,000 $14,500 -- -- -- Officer 1996 $ 39,159 -- -- -- -- Doug McGonegal 1998 $ 35,446 $ 4,000 -- -- -- Vice President of Finance and 1997 -- -- -- -- -- Secretary 1996 -- -- -- -- -- Shawn Mullen 1998 $ 95,000 $20,000 -- -- -- Vice President Sales & Marketing 1997 -- -- -- -- -- 1996 -- -- -- -- -- Sterling C. Johnson 1998 -- -- -- -- $146,875 Former President, Chief 1997 $118,088 -- -- -- $109,832 Executive Officer and Chief 1996 $ 55,677 -- -- -- $ 2,536 Operating Officer
(1) Includes payment by the Company of (i) in the case of Mr. Johnson (a) an automobiles allowance in the amount of $5,094; (b) $6,158 in insurance premiums paid for life insurance; (c) severance payments in the amount of $129,123 and (d) directors fees in the amount of $5,500; (ii) in the case of Mr. DePiano, an automobile allowance in the amount of $9,600. (2) Mr. DePiano became Chairman and Chief Executive Officer of the Company on March 1, 1997. 4 5 OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value At Assumed % of Annual Rates of Stock Total Options Price Appreciation For Granted to Option Term(2) Options Employees in Exercise Price Expiration ----------------------- Name Granted(1) Fiscal Year ($/share) Date 5% 10% ---- ---------- ----------- -------- ---- -- --- Richard J. DePiano.... 112,500 0% $ 2.252 6/4/07 $159,330 $403,775 Doug McGonegal........ 1,000 2% $ 1.875 2/27/08 $ 1,179 $ 2,988 Ronald L. Hueneke..... 15,000 25% $ 1.875 2/27/08 $ 17,688 $ 44,824 Shawn Mullen.......... 7,500 12% $ 1.875 2/27/08 $ 8,844 $ 22,412 Roger Edens........... 3,000 5% $ 1.875 2/27/08 $ 3,538 $ 8,965 Mark Wallace.......... 3,000 5% $ 1.875 2/27/08 $ 3,538 $ 8,965 Jay Federman.......... 10,000 17% $ 1.875 2/27/08 $ 11,792 $ 29,883 Jack Dodick........... 10,000 17% $ 1.875 2/27/08 $ 11,792 $ 29,883 Robert Kunze.......... 10,000 17% $ 1.875 2/27/08 $ 11,792 $ 29,883
(1) These options were granted under the Company's 1993 Stock Option Plan and have a term of ten years, subject to earlier termination in certain events. See "Employment Agreements." The options are fully vested. (2) The potential realizable values are based on an assumption that the stock price of the Common Stock starts equal to the exercise price shown for the particular option grant and appreciates at the annual rate shown (compounded annually) from the date of grant until the end of the term of the option. These amounts are reported net of the option exercise price, but before any taxes associated with exercise or subsequent sale of the underlying stock. The actual value, if any, an option holder may realize will be a function of the extent to which the stock price exceeds the exercise price on the date the option is exercised and also will depend on the option holder's continued employment through the vesting period. The actual value to be realized by the option holder may be greater or less than the values estimated in this table. 5 6 AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUE
NUMBER OF VALUE OF UNEXERCISED UNEXERCISED IN-THE- OPTIONS AT MONEY OPTIONS AT JUNE 30, 1997 JUNE 30, 1997(1) ------------- ---------------- SHARES ACQUIRED VALUE NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- -------- ----------- ------------- ----------- ------------- Richard J. DePiano -- -- 112,500 -- $ 0.00 -- Doug McGonegal ... -- -- 1,000 -- $ 0.00 -- Ronald L. Hueneke -- -- 15,000 -- $ 0.00 -- Shawn Mullen ..... -- -- 7,500 -- $ 0.00 -- Roger Edens ...... -- -- 3,000 -- $ 0.00 -- Mark Wallace ..... -- -- 3,000 -- $ 0.00 -- Jay Federman ..... -- -- 10,000 -- $ 0.00 -- Jack Dodick ...... -- -- 10,000 -- $ 0.00 -- Robert Kunze ..... -- -- 10,000 -- $ 0.00 --
(1) Potential unrealized value is (i) the fair market value at fiscal 1998 year-end less the option exercise price times (ii) the number of options. Fair market value as of fiscal 1998 year-end was determined based on a closing sale price on June 30, 1998 of $0.766. NO AWARDS WERE MADE TO ANY NAMED EXECUTIVE OFFICER DURING SUCH FISCAL YEAR UNDER ANY LONG-TERM INCENTIVE PLAN. THE COMPANY DOES NOT SPONSOR ANY DEFINED BENEFIT OR ACTUARIAL PLANS AT THIS TIME. EMPLOYMENT AGREEMENTS On May 12, 1998, the Company entered into an employment agreement with Richard J. DePiano as the Chairman and Chief Executive Officer of the Company. The term of the employment agreement commenced on May 12, 1998 and shall continue through June 30, 2001. The employment agreement renews on July 1 of each year for successive terms of three years unless either party notifies the other party at least thirty (30) days prior to such date of the notifying party's determination not to renew the agreement. The agreement provides for a base salary of $240,000 per year plus incentive compensation in the form of a cash bonus to be paid by the Company to Mr. DePiano at the discretion of the Board of Directors. The agreement also provides for health and long term disability insurance and other fringe benefits as well as an automobile allowance of $800 per month. Ronald L. Hueneke entered into an employment agreement with EOI in October of 1991 that provides for annual salary at a rate established by the Company's Board of Directors which is currently set as $105,000 per annum. Mr. Hueneke's employment agreement was assumed by the Company in connection with the Asset Sale and Purchase. The agreement also provides for health, life and long-term disability insurance and other fringe benefits. In addition, the agreement provided for incentive compensation equal to 3 1/3% of the gross sales derived from the sale by Mr. Hueneke of certain products during the initial term of the employment agreement. Under the agreement, Mr. Hueneke was also granted options to purchase up to 75,000 shares of the EOI's Common Stock at an exercise price per share of $1.00. The options are fully vested and currently exercisable. The employment 6 7 agreement, which had an initial term of five years, renews automatically from year to year unless either party notifies the other in writing at least 90 days prior to the expiration of the then current term of its determination not to renew the agreement. COMPENSATION OF DIRECTORS Mr. Kunze was paid $48,000, Dr. Dodick $3,000, Dr. Federman $6,500 and Mr. Johnson $5,500 as directors fees during the fiscal year ended June 30, 1998. Currently directors receive stock options for each board meeting and committee meeting attended. Messrs. Dodick, Federman and Kunze were issued stock options for attendance at board meetings. In addition, directors are reimbursed for expenses incurred in connection with attending meetings. See "Executive Officers--Executive Compensation." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee currently consists of Messrs. DePiano and Federman. Mr. DePiano is a Director and the Chief Executive Officer of the Company. The approval of Mr. DePiano's employment agreement was by the Compensation Committee comprised of Messrs. DePiano, Kunze and Federman. Mr. DePiano abstained from all discussions and approvals of his employment agreement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of December 4, 1998, certain information regarding the beneficial ownership of the Common Stock by (i) each shareholder known by the Company to be a beneficial owner of more than 5% of the Common Stock, (ii) each director and nominee for election as director of the Company, (iii) each of the Named Executive Officers as such term is defined in Item 402(a)(3) of Regulation S-K and (iv) all directors and executive officers of the Company as a group. Pursuant to the rules and regulations promulgated under the Exchange Act the table sets forth the most recent information provided in filings made with the SEC by the reporting persons. The calculation of percentage ownership as shown for each person in the following table assumes the exercise of all options and warrants held by such person but not the exercise of any other person's options or warrants. Additionally, certain of the reporting persons share beneficial ownership of certain securities of the Company. Any securities as to which beneficial ownership is shared are set forth on the table below as beneficially owned by each person to whom beneficial ownership may be attributed. See the footnotes to the table for information as to shared beneficial ownership of the Company's securities. 7 8 BENEFICIAL OWNERSHIP TABLE
AMOUNT OF BENEFICIAL AMOUNT OF OWNERSHIP OF BENEFICIAL SHARES AMOUNT OF OWNERSHIP OF UNDERLYING AGGREGATE AGGREGATE OUTSTANDING PERCENT OF OPTIONS/ BENEFICIAL PERCENT NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1)** CLASS WARRANTS*** OWNERSHIP OF CLASS ------------------------------------ ----------- ----- ----------- --------- -------- EOI Corp. (2)......................................... 95,147 2.6 -- 95,147 2.6 351 E. Conestoga Road Wayne, PA 19087 D. Blech and D. Blech & Company, Incorporated (3)...................................... -- -- 790,000 790,000 20.7 599 Lexington Avenue New York, NY 10022 R.A. Mackie & Co., L.P. (4)........................... -- -- 140,119 140,119 4.4 One Gorham Island Westport, CT 06880 Combination, Inc. (6)................................ 584,703 16.2 40,000 624,703 17.2 c/o ISRC 310 Madison Ave. Suite 503 New York, NY 10017 Sterling C. Johnson................................... -- -- -- -- -- Robert J. Kunze ...................................... 5,759 * -- 5,759 * Fred G. Choate........................................ 816 * -- 816 * Richard J. DePiano (5)................................ 7,692 * 112,500 120,192 3.8 Jack M. Dodick, M.D................................... 39,725 1.1 10,000 49,752 1.6 Ronald L. Hueneke..................................... 16,995 * 15,000 31,995 1.0 Sandhurst Venture Fund (5)........................... 88,250 2.5 -- 88,250 2.5 351 E. Conestoga Road Wayne, PA 19087 Jay L. Federman, M.D.................................. 38,533 1.1 10,000 48,533 1.6 All directors and executive officers as a group (6 persons) ........................................ 197,797 6.6 147,500 345,297 10.9
* Less than 1%. ** Includes outstanding shares owned by the named person but does not include shares as to which such person has the right to acquire. *** Represents shares underlying (a) Class A Redeemable Common Stock Purchase Warrants ("Class A Warrants") and Class B Redeemable Common Stock Purchase Warrants ("Class B Warrants"), each of which (i) entitles the holder thereof to purchase one share of Common Stock at a price of $6.25 and $7.50, respectively, and (ii) was issued in connection with a November 1993 offering; and (b) certain options, which in each case are exercisable within 60 days from the date hereof. (1) Except as indicated in the footnotes to this table and pursuant to applicable community property laws, where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them. (2) The outstanding share ownership set forth for EOI consists of shares owned solely by EOI. Messrs. DePiano, Dodick, and Federman are directors of EOI. Although not currently serving as an officer of EOI, Ronald L. Hueneke, President of the Company and Chief Operating Officer, served as Vice President and General Manager of the Trek Division of EOI prior to the consummation of the Asset Acquisition. 8 9 Each of the above named individuals are also shareholders of EOI. (3) As reported on Amendment No. 3 to the Statement on Schedule 13D dated October 5, 1995. The ownership of shares underlying options and warrants, as set forth for Mr. Blech, consists entirely of shares underlying 1,380,000 Class A Warrants and 880,000 Class B Warrants owned by Blech, and 900,000 shares subject to a Unit Purchase Option owned by Blech (see discussion under "Certain Relationships and Certain Transactions"). (4) For R.A. Mackie & Co., L.P. such figures are as reported on Schedule 13G dated February 8, 1996 and represent ownership of shares underlying 43,575 Class A Warrants and 516,900 Class B Warrants. (5) Includes 112,500 shares which Mr. DePiano has the right to acquire upon the exercise of currently exercisable stock options, excludes 88,250 shares held by Sandhurst Venture Funds. Mr. DePiano has the right to vote the Sandhurst Venture Funds shares. (6) For Combination, Inc. such figures are reported as if the 818 shares of Series A Preferred Stock was converted pursuant to the terms of such stock on December 4, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On February 12, 1996, the Company acquired substantially all of the assets and certain of the liabilities of EOI, pursuant to an Assets Sale and Purchase Agreement, in exchange for 4,770,772 shares of the Company's Common Stock. The total estimated cost of the acquisition was $8,900,000, including liabilities assumed (which includes the assumption of costs associated with certain litigation involving EOI) of $1,016,340 and estimated transaction costs of approximately $928,000. The acquisition was accounted for using the purchase method of accounting and included the acquisition of accounts receivable, inventories, equipment and various other tangible and intangible assets. The total purchase price over the fair value of net assets acquired approximates $4,100,000. Another $1,000,000 of the purchase price was assigned to in-process technology and was charged to operations immediately following the acquisition. As disclosed elsewhere herein, Messrs. DePiano, Dodick and Federman were at the time of the acquisition, and continue to be, members of the Board of Directors of EOI. Mr. Rich, the Company's former Vice President, Finance and Administration/Secretary, served in similar executive level management position with EOI. Ronald L. Hueneke, President of the Company and Chief Operating Officer, served as Vice President and General Manager of the Trek Division of EOI prior to the consummation of the Asset Acquisition. EOI through August 1998 was the beneficial owner of 42.2% of the outstanding Common Stock of the Company and after such date EOI has distributed to its individual shareholders all but 2.6% of the Outstanding Common Stock of the Company in accordance with its winding up process. EOI is continuing to distribute the balance of the shares to the individual EOI shareholders. Jay L. Federman, M.D., a Director, together with two individuals unaffiliated with the Company, entered into a Development, Assignment and License Agreement with the Company dated September 11, 1992. Under this agreement, the Company had agreed to pay royalties to Dr. Federman and the two unaffiliated individuals on sales of the Company's Iris Expander and related products. Generally, the agreement provided for quarterly royalty payments of 10% of net sales, for sales by the Company, and the greater of 5% of net sales or 50% of royalty payments received by the Company, for sales by sublicensees of the Company, in countries where a valid patent has issued. For sales in countries where a valid patent has not issued, royalty payments equal to one-half of the foregoing rates are required. As of the date hereof, the Company has discontinued development and terminated the Development, Assignment and License Agreement of the Iris Expander. Therefore, no royalty payments have been made to Dr. Federman or the other individuals that are parties to the Development, Assignment and License Agreement. Commencing November 17, 1994, upon the exercise of any Class A Redeemable Common Stock Purchase Warrant or Class B Redeemable Common Stock Purchase Warrant (a "Warrant"), to the extent not inconsistent with the guidelines of the NASD and the rules and regulations of the Securities and Exchange Commission (the "Commission"), the Company has agreed to pay D. Blech & Company, Incorporated ("Blech"), except in certain limited circumstances, a fee of 5% of the exercise price of such Warrant if (i) the market price of the Common 9 10 Stock is greater than the exercise price of such Warrant on the date of exercise; (ii) on the date of exercise Blech is a registered broker-dealer and its registration has not been suspended; (iii) such Warrant is not held in a discretionary account; and (iv) the solicitation of such Warrant was not in violation of Rule 10b-6 promulgated under the Securities Exchange Act of 1934, as amended. The Company has agreed not to solicit the exercise of any Warrant other than through Blech unless Blech is legally unable to solicit such exercise or is prohibited from doing so by the rules of the NASD or otherwise, in which event the Company may solicit such exercise, either itself or with the assistance of a third party. In November 1993, the Company sold to Blech a transferable option (the "Unit Purchase Option") to purchase up to 300,000 Units. The Unit Purchase Option is exercisable for a period of four years, commencing November 17, 1994, at an initial exercise price equal to $8.00 per Unit. The Units are identical in all respects to Units issued in an underwritten public offering of Units made in November and December of 1993, except that (i) while the Warrants comprising such Units are held by Blech or certain transferees of Blech, they are not redeemable by the Company and (ii) Warrants comprising such Units are exercisable for the period commencing on November 17, 1993, and terminating at the close of business on November 24, 1994. The Unit Purchase Option cannot be transferred, assigned or hypothecated prior to November 24, 1994, except that it may be assigned, in whole or in part, to any successor, officer or partner of Blech. The Unit Purchase Option contains antidilution provisions providing for appropriate adjustment of the exercise price and the number of Units which may be purchased upon exercise upon the occurrence of certain events. The Company has agreed that it will, at its expense on any one occasion during the four-year period commencing November 17, 1994, and on any one additional occasion at the expense of the holders thereof during such period, register the securities underlying, or issuable upon the exercise of the securities underlying, the Unit Purchase Option at the request of holders of a majority of the Units issued or issuable upon exercise of the Unit Purchase Option (including shares of Common Stock issuable upon exercise of the Warrants included in those Units). The Company has also agreed, during the seven-year period commencing November 17, 1994, to register on a "piggyback" basis, on an unlimited number of occasions, such securities whenever the Company files a registration statement. For the life of Unit Purchase Option, the holders are given, at nominal cost, the opportunity to profit from a rise in the market price for the securities of the Company without assuming the risk of ownership, with a resulting dilution in the interest of other security holders. As long as the Unit Purchase Option remains unexercised, the terms under which the Company could obtain additional capital may be adversely affected. Moreover, the holders of the Unit Purchase Option may be expected to exercise such option at a time when the Company would, in all likelihood, be able to obtain needed capital by an offering of its securities on terms more favorable than those provided by the Unit Purchase Option. 10 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ESCALON MEDICAL CORP. (Registrant) Dated: December 15, 1998 By: /s/DOUG MCGONEGAL ------------------------------------- Doug McGonegal Vice President, Finance -----END PRIVACY-ENHANCED MESSAGE-----