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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 2)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2007
[ ] 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.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
PENNSYLVANIA 33-0272839
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
565 EAST SWEDESFORD ROAD, SUITE 200, WAYNE, PA 19087
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE'S INCLUDING ZIP CODE)
610 688-6830
(ISSUER'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act [ ]
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no discloser will 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. [ ]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X]
The revenues for the fiscal year ended June 30, 2007, the most recent fiscal
year, were $38,838,000.
The aggregate market value of the common voting stock held by non-affiliates of
the Registrant was approximately $25,228,000 as of September 20, 2007, based
upon the closing sale price of the Common Stock as quoted on the NASDAQ Capital
Market.
The number of shares of the Registrant's Common Stock outstanding as of
September 20, 2007 is 6,386,857.
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PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS OF THE COMPANY
Our executive officers are as follows:
NAME AGE POSITION
----------------------- --- -------------------------------------------
Richard J. DePiano 66 Chairman and Chief Executive Officer
Richard J. DePiano, Jr. 41 Chief Operating Officer and General Counsel
Robert M. O'Connor 46 Chief Financial Officer
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 also
serves Chairman of the Board of Directors of PhotoMedex, Inc.
Mr. DePiano, Jr. was appointed Chief Operating Officer and General Counsel
of the Company December 28, 2006. Mr. DePiano, Jr. joined the Company in
November of 2000 as Vice President Corporate and Legal Affairs. Prior to joining
Escalon, Mr. DePiano, Jr. worked with Forceno & Arangio, L.L.P., from September
1998 until November 2000 as a Senior Associate representing individual and
business clients in various areas of the law including mergers and acquisitions,
automotive dealership representation, family, small and emerging businesses,
securities law, venture capital financing, consumer finance and general
corporate and commercial matters. Prior to this Mr. DePiano, Jr. was in private
law practice since 1992. He currently serves as 1st Vice President and as a
member of the Board of Directors of the Delaware Valley Corporate Counsel
Association ("DELVACCA"). Mr. DePiano, Jr. also serves as the Chairman of the
Nominations Committee, Chairman of the Law School Initiative Committee and
member of the Pro-Bono Committee of DELVACCA. He also is Vice Chairman of the
Board of Directors of the Montgomery County Industrial Development Authority and
is also a member of the Pennsylvania Bar Association.
Mr. O'Connor was appointed Chief Financial Officer of the Company on June
30, 2006. Mr. O'Connor joined Escalon Medical Corporation from BDO Seidman, LLP
where he served as a senior manager from 2004. His prior experience includes
both public and private accounting roles as a manager at PricewaterhouseCoopers,
L.L.P. where he served in the middle market advisory services group from 1998
until 2000, and positions of controller and chief financial officer of Science
Dynamics a manufacturer of high tech telecom equipment from 2000 until 2002 and
Ianieri & Giampapa, LLC a certified public accounting firm from 2002 until 2004.
Mr. O'Connor holds an MBA from Rutgers University - Graduate School of
Management and a B.S. from Kean
2
University. He is a certified public accountant and a member of the American
Institute of Certified Public Accountants (AICPA).
DIRECTORS OF THE COMPANY
The election of our directors by our shareholders is governed by the
Pennsylvania Business Corporation Law and our Bylaws. The following discussion
summarizes these provisions and describes the process our Governance and
Nominating Committee will follow in connection with the nomination of candidates
for election as directors by the holders of our common stock.
GOVERNANCE AND NOMINATING PROCEDURES
Our Governance and Nominating Committee is responsible for recommending to
the Board of Directors candidates to stand for election to the Board of
Directors at the annual meeting. Our Governance and Nominating Committee will
also consider director candidates recommended by shareholders in accordance with
the advance notice procedures in Section 2.3 of our Bylaws. These procedures are
described under "Shareholder Proposals" in this proxy statement. The Governance
and Nominating Committee may also consider director candidates proposed by our
management. We have not utilized third-party executive search firms to identify
candidates for director.
With the exception of applicable rules of the SEC and the Nasdaq Stock
MarketSM ("Nasdaq"), our Governance and Nominating Committee does not have any
specific, minimum qualifications for candidates for election to our Board of
Directors, and our Governance and Nominating Committee may take into account
such factors as it deems appropriate. Our Governance and Nominating Committee
examines the specific attributes of candidates for election to our Board of
Directors and also considers the judgment, skill, diversity, business
experience, the interplay of the candidate's experience with the experience of
the other members of our Board of Directors and the extent to which the
candidate would contribute to the overall effectiveness of our Board of
Directors.
Our Governance and Nominating Committee will utilize the following process
in identifying and evaluating candidates for election as members of our Board of
Directors:
- Evaluation of the performance and qualifications of the members of
our Board of Directors whose term of office will expire at the
forthcoming annual meeting of shareholders and determination of
whether they should be nominated for re-election.
- Consideration of the suitability of the candidates for election,
including incumbent directors.
- Review of the qualifications of any candidates proposed by
shareholders in accordance with our Bylaws, candidates proposed by
management and candidates proposed by individual members of our
Board of Directors.
3
- After such review and consideration, propose to the Board of
Directors a slate of candidates for election at the forthcoming
annual meeting of shareholders.
NOMINEES FOR YEAR TERM
CLASS I DIRECTOR WILL PRINCIPAL OCCUPATION DURING PAST FIVE
NAME OF DIRECTOR SINCE EXPIRE AGE YEARS AND CERTAIN DIRECTORSHIPS
----------------------- -------- ---------- --- -------------------------------------------------------------
William L.G. Kwan 1999 2009 66 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
Instruments from November 1989 to October 1999.
Anthony J. Coppola 2000 2009 70 Principal and operator of The Historic Town of Smithville,
Inc., a real estate and commercial property company from 1988
to present; Retired Division President of SKF Industries, a
manufacturing company, from 1963 to 1986.
YEAR TERM
CLASS II DIRECTOR WILL PRINCIPAL OCCUPATION DURING PAST FIVE
NAME OF DIRECTOR SINCE EXPIRE AGE YEARS AND CERTAIN DIRECTORSHIPS
----------------------- -------- ---------- --- -------------------------------------------------------------
Lisa A. Napolitano 2003 2007* 44 Tax Manager, Global Tax Management, Inc., a provider of
compliance support services for both federal and state
taxes, since 1998. Ms. Napolitano is a Certified Public
Accountant in Pennsylvania.
Fred G. Choate 2005 2007* 61 Managing Member of Atlantic Capital Funding LLC from 2003 to
present, Managing Member of Atlantic Capital Management LLC
from 2004 to present; Baltic-American Enterprise Fund, Chief
Investment Officer from 2003 to present; Managing Member of
Greater Philadelphia Venture Capital Corp from 1992 to
present. Mr. Choate has been a director of Parke Bank since
2003. Mr. Choate was formerly a director of Escalon Medical
from 1998 to 2003.
YEAR TERM
CLASS III DIRECTOR WILL PRINCIPAL OCCUPATION DURING PAST FIVE
NAME OF DIRECTOR SINCE EXPIRE AGE YEARS AND CERTAIN DIRECTORSHIPS
----------------------- -------- ---------- --- -------------------------------------------------------------
Richard J. DePiano 1996 2008 66 Chairman and CEO of Escalon Medical Corp. since March 1997.
CEO of the Sandhurst Company, L.P. and Managing Director of
the Sandhurst Venture Fund since 1986; Chairman of the Board
of Directors of PhotoMedex, Inc.
Jay L. Federman, M.D. 1996 2008 69 Dr. Federman is an ophthalmologist
subspecialing in the management of vitro-retinal diseases.
Dr. Federman's Directorships include the Research Department Wills Eye
Hospital from 1987 to 1995. Chief of Department Ophthalmology of the Medical
College of Pennsylvania from 1994 to 2004, Co-Director of Retina Service of
Wills Eye Hospital from 1991 to 1999 and a Director of the Vitro- Retinal
Research Foundation of Philadelphia. Chairman of the Board of Directors, of
the Company from February 1996 to March 1997.
4
CORPORATE GOVERNANCE
The SEC and Nasdaq have adopted regulations and listing requirements that
relate to our corporate governance. Our Board of Directors has adopted standards
and practices in order to comply with those regulations that apply to us. The
Company has adopted a Code of Ethics, which can be accessed on the Company's web
site at www.escalonmed.com. Our independent directors meet at regularly
scheduled meetings at which only independent directors are present.
AUDIT COMMITTEE
Our Audit Committee consists of Anthony J. Coppola, William L.G. Kwan and
Lisa A. Napolitano, the audit committee's financial expert. The Committee met
four times in 2007. Each member of the Audit Committee is independent within the
meaning of the rules of Nasdaq and of the SEC. Consistent with the
Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), the Audit Committee has
responsibility for:
- the selection of our independent public accountants;
- reviewing the scope and results of the audit;
- reviewing related-party transactions; and
- reviewing the adequacy of our accounting, financial, internal and
operating controls.
Our Audit Committee operates pursuant to a written charter, the full text
of which was attached to our proxy statement for our 2004 annual meeting and is
available on our website.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that our officers and directors, as well as persons who own 10% or more
of a class of our equity securities, file reports of their ownership of our
securities, as well as statements of changes in such ownership, with us and the
Securities Exchange Commission (the "SEC"). Based upon written representations
received by us from our officers, directors and 10% or greater shareholders, and
our review of the statements of beneficial ownership changes filed with us by
our officers, directors and 10% or greater shareholders during fiscal 2007, all
filing requirements applicable to our officers and directors were complied with.
5
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
INTRODUCTION
The compensation committee of our board of directors, or our compensation
committee, oversees our compensation and policies, our compensation levels,
including reviewing and approving equity awards to our executive officers, and
reviews and recommends annually for approval by our board of directors all
compensation decisions relating to our executive officers.
Our compensation committee believes that the primary objectives of our
compensation programs for our executive officers are to:
- attract and retain talented and dedicated executive officers who
contribute to our growth, development and profitability and to
encourage them to remain with us for many years;
- motivate our executive officers to achieve our strategic business
objectives and to reward them when they achieve those objectives;
and
- provide long-term compensation to our executive officers that
rewards our executive officers for sustained financial and operating
performance and leadership excellence.
To achieve these objectives, we compensate our executive officers through
a combination of base salary, annual cash bonuses, car allowance and long-term
equity compensation.
Our compensation committee is comprised entirely of independent directors
in accordance with NASDAQ standards and the director independence criteria
established by our corporate governance guidelines.
Our compensation committee's charter reflects these responsibilities, and
the compensation committee and our board of directors reviews the charter
annually.
OUR COMPENSATION PHILOSOPHY AND OBJECTIVES
The most significant component of the compensation policy administered by
our compensation committee is that a substantial portion of the aggregate annual
compensation of our named executive officers should be based on our annual
financial results, our overall sales, growth and our profitability. Our
compensation committee also evaluates the achievement of our other corporate
objectives and the contribution of each named executive officer to those
achievements.
We rely on our judgment in making compensation decisions after reviewing
our performance and the performance of our executives based on financial and
operational objectives. We do not retain the services of any compensation
consultants. Our named
6
executive officers, Richard DePiano, Sr. and Robert O'Connor, do have
employment, severance and change-of-control agreements. (See Employment
Agreement below)
For a number of years, we have maintained a cash incentive compensation
program for our officers, including our named executive officers. The amount of
the bonus is dependent upon several factors listed below including our financial
results, sales growth and our profitability. Our compensation committee does not
assign specific weights to these factors.
THE COMPENSATION OF OUR OFFICERS
Our officers receive the following types of compensation:
- Base Salary. The base salaries of our officers, including our named
executive officers, are established based on the scope of their
responsibilities and the recommendation of our chief executive
officer to our compensation committee for other than his own
compensation. Our compensation committee reviews the base salaries
of our named executive officers annually, including our chief
executive officer, and adjusts those salaries annually after taking
into account individual responsibilities, performance, length of
service with us, current salary, experience and compensation history
as well as our results of operations.
- Annual Cash Bonus. Our officers, including our named executive
officers, receive annual cash bonuses based on our financial
results, overall sales growth and profitability. Our compensation
committee then recommends to our board of directors the percentage
of the maximum amount to be allocated among our officers, including
our named executive officers, on a discretionary basis. Our chief
executive officer submits recommended bonus allocations for our
officers, including our named executive officers other than himself,
to our compensation committee, which reviews his recommendations and
then establishes the annual bonus allocations for our officers and
reports its decisions to our board of directors. The annual cash
bonuses approved by our compensation committee are paid in a single
installment following the completion of a particular fiscal year.
- Long-Term Equity Incentives. We believe that we can maximize our
long-term performance best when the performance of our officers is
motivated by equity-based awards that provide value based on our
long-term performance. We have designed our long-term equity
compensation plans to provide all of the members of our management,
including our named executive officers, with equity incentives to
foster the alignment of the interests of our officers with the
interests of our stockholders. Our equity-based compensation plans
provide the principal method by which our officers can acquire
ownership of our common stock.
7
The primary form of equity compensation that we have historically awarded
to our officers, including our named executive officers, is stock options.
Our compensation committee receives preliminary recommendations for
periodic stock option grants from our chief executive officer for our
officers other than himself. Our compensation committee then recommends
stock option grants for all of our officers, including our chief executive
officer, for approval by our board of directors.
We have stock option plans that authorize us to grant options to purchase
shares of our common stock to our employees, officers and directors. We
have consistently followed the practice of granting stock options at an
exercise price of the closing price of our common stock on NASDAQ on the
date of grant.
THE OPERATION OF OUR COMPENSATION PROCESS
Our compensation committee recommends all compensation and equity awards
to our executive officers for final discretionary action by our board of
directors. Our compensation committee, in recommending the annual compensation
of our officers, including our named executive officers, to be established by
our board of directors, reviews the performance and compensation of our
officers. In assessing the performance of our named executive officers in
relation to the objectives established by our board of directors, our
compensation committee reviews specific achievements associated with attainment
of the objectives, the degree of difficulty of the objectives and the extent to
which significant unforeseen obstacles or favorable circumstances affected their
performance.
Our compensation committee recommends to our board of directors the base
salaries, annual aggregate bonus amount and stock option grants to the members
of our management. As part of its oversight of the compensation of our named
executive officers, our compensation committee recommended the following
compensation adjustments for 2007 for our named executive officers:
- increases in base salaries of our named executive officers in 2007
that averaged 2.7% which our compensation committee considered an
adjustment consistent with published information about CPI increases
in the United States in 2007;
- increases in individual bonus represented an increase which our
compensation committee regarded as appropriate recognition of our
named executives performance across a combination of qualitative and
quantitative objectives during the performance period, and
- continued grants of stock options at exercise prices at
which we would be prepared to sell our common stock in the event we
were to determine to raise additional capital because our
compensation committee believes that our history of stock option
grants has in fact been successful in motivating our named executive
officers to achieve superior performance.
8
INSERT TAX MATTERS
EXECUTIVE COMPENSATION
The following table shows the compensation paid during each of the
three fiscal years ended June 30, 2007 for services rendered in all capacities
to our Chief Executive Officer, our Chief Financial Officer and our other most
highly compensated executive officer whose compensation exceeded $100,000 in the
fiscal year ended June 30, 2007.
SUMMARY COMPENSATION TABLE
CHANGE IN
PENSION VALUE
AND
NAME NONQUALIFIED
AND NON-EQUITY DEFERRED
PRINCIPAL STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER
POSITION YEAR SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
------------------------------------------------------------------------------------------------------------------------------------
RICHARD J. DEPIANO 2007 $317,700 $ 250,000 $ - $ 23,207 $ - $ - $ 9200(1) 590,907
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
RICHARD J. DEPIANO, JR. 2007 $127,200 $ 80,000 $ - $ 7,425 $ - $ - $ - $214,625
CHIEF OPERATING OFFICER
AND GENERAL COUNSEL
ROBERT M. O'CONNOR 2007 $200,000 $ 25,000 $ - $ - $ - $ - $ - $225,000
CHIEF FINANCIAL OFFICER
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.
The following table shows information with respect to options exercised
during the year ended June 30, 2007 and held on June 30, 2007 by the persons
named in the Summary Compensation Table and the status of their options at June
30, 2007.
OPTION EXERCISES AND STOCK VESTED
OPTION AWARDS STOCK AWARDS
NUMBER OF SHARES VALUE REALIZED NUMBER OF SHARES VALUE REALIZED
NAME ACQUIRED ON EXERCISE UPON EXERCISE ACQUIRED ON EXERCISE UPON EXERCISE
---------------------------------------------------------------------------------------------------------------------------------
RICHARD J. DEPIANO
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER - $- - $-
RICHARD J. DEPIANO, JR.
CHIEF OPERATING OFFICER
AND GENERAL COUNSEL - $- - $-
ROBERT M. O'CONNOR
CHIEF FINANCIAL OFFICER - $- - $-
9
No awards were made to any named executive officer during such fiscal year
under any long-term incentive plan. The Company does not currently sponsor any
defined benefit or actuarial plans.
EMPLOYMENT AGREEMENT
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 initial term of the employment agreement commenced on May 12, 1998 and
continued 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 current base salary provided under
the agreement, as adjusted for yearly cost of living adjustments, is $300,000
per year, and the agreement provides for additional 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.
On June 23, 2005, the Company entered into a Supplemental Executive
Retirement Benefit Agreement with Mr. DePiano. The agreement provides for the
payment of supplemental retirement benefits to Mr. DePiano in the event of his
termination of service Mr. DePiano with the Company under the following
circumstances:
- If Mr. DePiano retires at age 65 or older, the Company is obligated to pay
the executive $8,000 per month for life, with payments commencing the
month after retirement. If Mr. DePiano were to die within a period of
three years after such retirement, the Company would be obligated to
continue making such payments until a minimum of 36 monthly payments have
been made to the covered executive and his beneficiaries in the aggregate.
- If Mr. DePiano dies before his retirement, while employed by the Company,
the Company would be obligated to make 36 monthly payments to his
beneficiaries of $8,000 per month commencing in the month after his death.
- If Mr. DePiano were to become permanently disabled while employed by the
Company, the Company would be obligated to pay the executive $8,000 per
month for life, with payments commencing the month after he suffers such
disability. If Mr. DePiano were to die within three years after suffering
such disability, the Company would be obligated to continue making such
payments until a minimum of 36 monthly payments have been made to the
covered executive and his beneficiaries in the aggregate.
- If Mr. DePiano's employment with the Company is terminated by the Company,
prior to him attaining age 65 or if he terminates his employment with the
Company for good reason, as defined in the agreement, the Company would be
obligated to pay him $8,000 per month for life. If Mr. DePiano were to die
within a period of three years after such termination, the Company would
be obligated to
10
continue making such payments until a minimum of 36 monthly payments have
been made to him and his beneficiaries in the aggregate.
During the fourth quarter of fiscal 2005, we recorded as an expense in our
Consolidated Statement of Income, $1,087,000, which represents the present value
of the supplemental retirement benefits awarded.
As Chief Operating Officer and General Counsel, Mr. DePiano, Jr. received
an annual salary of $127,300.
As Chief Financial Officer, Mr. O'Connor's annual base salary is $200,000.
Mr. O'Connor has been granted stock options to purchase 60,000 shares of the
Company's common stock, which are exercisable in full as of the June 30, 2006
grant date. The exercise price of these options is $5.05 per share. Mr. O'Connor
pursuant to his offer letter will be entitled to a severance payment equal to
his annual base salary and an increase of his annual base salary to $250,000 in
connection with a change of control.
Section 162(m) of the Code generally does not allow us a deduction for federal
income tax purposes to the extent that we pay annual compensation to any of our
executive officers named in the Summary Compensation Table in this proxy
statement that is in excess of $1 million. However, compensation paid to such an
executive officer that is paid pursuant to a performance-based plan is generally
not subject to the Section 162(m) limitation. Although our compensation
committee is aware of the Section 162(m) limitation, our compensation committee
believes that it is equally important to maintain flexibility and the
competitive effectiveness of the compensation of our named executive officers.
Our compensation committee may, therefore, from time to time, authorize
compensation that is not deductible for federal income tax purposes if our
compensation committee believes it is in our best interests and the best
interests of our stockholders to do so.
DISCUSSION OF ELEMENTS OF COMPENSATION
Salary. Salaries for named executive officers are determined based on a
variety of factors, including the executive's scope of responsibilities.
Salaries are reviewed for our named executive officers once each year, and may
be adjusted after considering the below factors and the named executive
officer's performance.
Annual Cash Bonus. In fiscal year 2007, named executive officers had the
opportunity to earn a cash bonus. Bonuses are provided to reward achieving
business results against individual annual performance commitments and to
deliver cash as part of an overall compensation package that is competitive in
the marketplace.
The Compensation Committee determines bonuses in its discretion based on
performance across a combination of qualitative and quantitative objectives
during the performance period. Working with our chief executive officer, each
named executive officer establishes these objectives annually. The chief
executive officer establishes his goals in consultation with the Board. The
goals used to determine bonuses vary for each executive based on his
responsibilities and may include financial or strategic measures, including:
11
- revenue,
- profitability,
- innovation,
- product development and implementation,
- quality,
- customer satisfaction,
- customer acceptance,
- organizational and leadership,
- strategic planning and development,
- operations excellence, and
- efficiency and productivity.
For named executive officers other than the chief executive officer,
the chief executive officer recommends individual bonus payments based on the
executive's performance against his goals for the year. The Compensation
Committee considers the recommendations and makes a final decision on the bonus
payments.
For Mr. DePiano, the Compensation Committee recommends a bonus payment
to the independent members of the Board. In making this recommendation, the
Compensation Committee considers the performance evaluation of Mr. DePiano. The
Board considers the Committee's recommendation and Mr. DePiano's performance
evaluation in determining the bonus for Mr. DePiano.
REPORT OF OUR COMPENSATION COMMITTEE
The following report of our compensation committee does not constitute
proxy solicitation material and shall not be deemed filed or incorporated by
reference into any of our filings under the Securities Act or the Exchange Act,
except to the extent that we specifically incorporate this compensation
committee report by reference therein.
Our compensation committee held a joint meeting with the board of
directors of the company. The committee reviewed and discussed the compensation
discussion and analysis that appears under the caption "Executive Compensation"
with management.
Based on the review and discussion by our compensation committee with
management, the members of our compensation committee then held a meeting at
which they recommended to our board of directors that our board of directors
approve the inclusion of the compensation disclosure and analysis set forth in
this 10-K/A under the caption "Executive Compensation" for filing with the SEC
report on Form 10-K/A for the year ended June 30, 2007 for filing with the SEC.
Lisa A. Napolitano
William L.G. Kwan
Anthony J. Coppola
October 29, 2007
12
COMPENSATION OF DIRECTORS
None of the Company's directors were paid any directors fees by the Company
during the fiscal year ended June 30, 2007. Historically each non-employee
director was issued stock options to purchase 10,000 shares of the Company's
common stock. This year the Board discussed various alternatives to the issuance
of stock options and has charged the Compensation Committee to present a report
concerning directors' fees. Directors are reimbursed for expenses incurred in
connection with attending meetings of the Board and Board Committees.
DIRECTOR COMPENSATION
CHANGE IN
PENSION VALUE
AND
FEES NONQUALIFIED
EARNED NON-STOCK DEFERRED
OR PAID STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER
NAME IN CASH AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
--------------------- ------- ------ -------- -------------- -------------- ------------- --------
WILLIAM L.G. KWAN $ - $ - $ 24,754 $ - $ - $ - $ 24,754
ANTHONY J. COPPOLA $ - $ - $ 24,754 $ - $ - $ - $ 24,754
LISA A. NAPOLITANO $ - $ - $ 24,754 $ - $ - $ - $ 24,754
FRED G. CHOATE $ - $ - $ 24,754 $ - $ - $ - $ 24,754
RICHARD J. DEPIANO $ - $ - $- $ - $ - $ - $ -
JAY L. FEDERMAN, M.D. $ - $ - $ 24,754 $ - $ - $ - $ 24,754
The following table details grants of plan based awards for the fiscal
year ended June 30, 2007:
GRANTS OF PLAN-BASED AWARDS
ALL
OTHER GRANT
ESTIMATED FUTURE PAYOUTS ESTIMATED FUTURE PAYOUTS STOCK ALL OTHER DATE
UNDER NON-EQUITY INCENTIVE UNDER NON-EQUITY INCENTIVE AWARDS: OPTIONS FAIR
PLAN AWARDS PLAN AWARDS NUMBER AWARDS: EXERCISE VALUE
OF NUMBER OF OR BASE OF STOCK
SHARES SECURITIES PRICE OF AND
GRANT OF STOCK UNDERLYING OPTION OPTION
NAME DATE THRESOLD TARGET MAXIMUM THRESOLD TARGET MAXIMUM OR UNITS OPTIONS AWARDS AWARDS
-------------------------- ----- -------- ------ ------- -------- ------ ---------- -------- ------------ --------- --------
RICHARD J. DEPIANO 2007 $ - $ - $ - $ - $ - $ - - 25,000 $ 2.65 $61,886
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
RICHARD J. DEPIANO, JR. 2007 $ - $ - $ - $ - $ - $ - - 20,000 $ 2.65 $49,509
CHIEF OPERATING OFFICER
AND GENERAL COUNSEL
ROBERT M. O'CONNOR 2007 $ - $ - $ - $ - $ - $ - - - $ - $ -
CHIEF FINANCIAL OFFICER
The following table the outstanding equity awards as of June 30, 2007:
13
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
OPTION AWARDS STOCK AWARDS
------------------------------------------------------------- -----------------------------------------
EQUITY EQUITY
INCENTIVE INCENTIVE
PLAN PLAN
AWARDS: AWARDS:
PLAN NUMBER MARKET OR
INCENTIVE NUMBER MARKET OF PAYOUT
PLAN OF STOCK VALUE OF UNEARNED VALUE OF
AWARDS: SHARES SHARES SHARES, UNEARNED
NUMBER OF OR UNITS OR UNITS UNITS OR SHARES,
SECURITIES OF STOCK OF STOCK OTHER UNITS OR
NUMBER OF UNDERLYING THAT THAT RIGHTS OTHERc
SECURITIES UNDERLYING UNEXERCISED OPTION OPTION HAVE HAVE THAT RIGHTS
UNEXERCISED OPTIONS UNEARNED EXERCISE EXPIRATION NOT NOT HAVE NOT THAT HAVE
NAME EXERCISABLE UNEXERCISABLE OPTIONS PRICE DATE VESTED VESTED VESTED NOT VESTED
------------------------- ----------- ------------- ----------- -------- ---------- -------- -------- --------- ----------
RICHARD J. DEPIANO 41,480 - - $ 2.13 8/12/2008 - - - -
CHAIRMAN AND CHIEF 45,000 - - $ 2.38 11/1/2010 - - - -
EXECUTIVE OFFICER 50,000 - - $ 2.77 11/1/2011 - - - -
10,417 - - $ 1.45 8/13/2012 - - - -
25,000 - - $ 6.94 11/10/2013 - - - -
25,000 - - $ 6.19 8/17/2014 - - - -
40,000 - - $ 8.06 8/16/2015 - - - -
7,600 12,400 12,400 $ 2.65 11/9/2016 - - - -
------ ------ ------ ------ --------- -- --- --- ---
RICHARD J. DEPIANO, JR. 700 - - $ 2.38 11/2/2010 - - - -
CHIEF OPERATING OFFICER 1,100 - - $ 2.77 11/1/2011 - - - -
AND GENERAL COUNSEL 3,567 - - $ 1.45 8/13/2012 - - - -
10,000 - - $ 6.94 11/10/2013 - - - -
25,000 - - $ 6.19 8/17/2014 - - - -
20,000 - - $ 8.06 8/16/2015 - - - -
3,000 17,000 17,000 $ 2.65 11/9/2016 - - - -
------ ------ ------ ------ --------- -- --- --- ---
ROBERT M. O'CONNOR 60,000 - - $ 5.05 6/29/2016 - - - -
CHIEF FINANCIAL OFFICER
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED SHAREHOLDER MATTERS
Securities authorized for issuance under equity compensation plans
STOCK OWNERSHIP
The following table shows the amount and percentage of our outstanding
common stock beneficially owned by each director, each nominee for director,
each executive officer named in the Summary Compensation Table, persons or
groups who beneficially own more than 5% of our outstanding common stock and all
of our executive officers and directors as a group as of September 30, 2007.
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BENEFICIAL OWNERSHIP TABLE
AMOUNT OF AMOUNT OF
BENEFICIAL BENEFICIAL
OWNERSHIP OWNERSHIP OF AMOUNT
NAME AND ADDRESS OF 5% BENEFICIAL OF SHARES OF AGGREGATE AGGREGATE
OWNERS AND OFFICERS, DIRECTORS AND OUTSTANDING PERCENT UNDERLYING BENEFICIAL PERCENT OF
GROUP SHARES(1) OF CLASS OPTIONS OWNERSHIP CLASS
------------------------------------- ----------- -------- ------------ ------------ ----------
Richard J. DePiano 144,278 2.27% 236,897 381,175 5.87%
Fidelity Management & Research Co. 585,100 9.16% - 585,100 9.16%
Barclays Global Investors, N.A. 383,072 6.0%
Richard J. DePiano, Jr. 206 - 60,367 60,573 .95%
Robert O'Connor - 60,000 60,000 .94%
Jay L. Federman, MD 12,072 0.19% 45,000 57,072 0.89%
William L. Kwan - 0.00% 50,000 50,000 0.78%
Fred G. Choate - 0.00% 10,000 10,000 0.16%
Anthony J. Coppola - 0.00% 25,000 25,000 0.39%
Lisa A. Napolitano - 0.00% 22,000 22,000 0.34%
All Directors and executive officers
As a group (7 persons) 144,484 2.26% 557,264 701,748 10.99%
* Less than 1%
(1) Information furnished by each individual named. This table includes shares
that are owned jointly, in whole or in part with the person's spouse, or
individually by his or her spouse.
No shares held by the board of directors or named executive officers are
pledged.
The following table shows Securities authorized for issuance under equity
compensation plans.
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EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF
SECURITIES
NUMBER OF REMAINING AVAILABLE
SECURITIES TO BE FOR FUTURE ISSUANCE
ISSUED UPON WEIGHTED-AVERAGE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION
OUTSTANDING OUTSTANDING PLANS (EXCLUDING
OPTIONS, WARRANTS OPTIONS, WARRANTS SECURITIES REFLECTED
AND RIGHTS AND RIGHTS N COLUMN (a))
PLAN CATEGORY (a) (b) (c)
---------------------------------- ----------------- ----------------- ---------------------
Equity compensation plans approved
by security holders 920,685 $5.728 360,667
Equity compensation plans not
approved by security holders 120,000 $15.60 -0-
TOTAL 1,040,685 360,667
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
RELATED PERSON TRANSACTIONS
We recognize that related person transactions present a heightened risk of
conflicts of interest and can create the appearance of a conflict of interest.
Therefore, all proposed related person transactions are disclosed to the board
of directors before we enter into the transaction, and, if the transaction
continues for more than one year, the continuation is reviewed annually by the
board of directors.
Escalon and a member of the Company's Board of Directors are founding and
equal members of Ocular Telehealth Management, LLC ("OTM"). OTM is a diagnostic
telemedicine company providing remote examination, diagnosis and management of
disorders affecting the human eye. OTM's initial solution focuses on the
diagnosis of diabetic retinopathy by creating access and providing annual
dilated retinal examinations for the diabetic population. OTM was founded to
harness the latest advances in telecommunications, software and digital imaging
in order to create greater access and a more successful disease management for
populations that are susceptible to ocular disease. Through June 30, 2007,
Escalon had invested $288,000 in OTM and owned 45% of OTM. The members of OTM
have agreed to review the operations of OTM after 24 months of operations which
began in April 2004, at which time the members each have the right to sell their
membership back to OTM at fair market value. Such sale would be subject to OTM's
ability to buy back the membership. The members met in May 2006 and decided to
continue the operations of OTM, emphasizing that all additional funding will be
provided pro-rata consistent with membership percentage ownership. The Company
will provide administrative support functions to OTM. For the years ended 2007,
2006 and 2005 the Company recorded losses of $87,852, $173,844 and $63,613,
respectively.
Two relatives of a senior executive officer have provided legal services
as either an employee or a consultant to the Company. Richard DePiano, Jr. (son
of the Chief Executive Officer ("CEO")) is Chief Operating Officer and General
Counsel to the Company, Mr. DePiano's salary plus bonus for the years 2007, 2006
and 2005 were approximately $185,000, $180,000 and $165,000, respectively. Caryn
Lindsey (daughter-in-law of the CEO) acted as a consultant and employee for the
Company during 2006 and 2005. Ms. Lindsey in 2007, 2006 and 2005 received
consulting fees and salary of $ 0, $110,939 and $118,000, respectively. Also, in
2005 3,000 options to purchase common stock of the Company at an exercise price
of $4.97 per share were granted to Ms. Lindsey.
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit Fees. Mayer Hoffman McCann, our independent public accountants, billed us
$147,500 and $106,300 in total for the fiscal years ended June 30, 2007 and
2006, respectively in connection with the audit of our annual consolidated
financial statements.
Audit Related Fees. We did not pay any audit related fees to Mayer Hoffman
McCann during fiscal years ended June 30, 2007 and 2006.
Tax Fees. We did not pay any fees to Mayer Hoffman McCann for tax services
during the fiscal years ended June 30, 2007 and 2006.
All Other Fees. We did not pay any fees to Mayer Hoffman McCann for all other
services during the fiscal years ended June 30, 2007 and 2006.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to be
signed on its behalf by the undersigned, thereunto duly authorized.
Escalon Medical Corp.
(Registrant)
By: /s/ Richard J. DePiano
------------------------------------
Richard J. DePiano
Chairman and Chief Executive Officer
Dated: October 29, 2007
18