FORM 10-K/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2008
Commission File Number 0-20127
Escalon Medical Corp.
(Exact name of registrant as specified in its charter)
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Pennsylvania
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33-0272839 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
435 Devon Park Drive, Building 100, Wayne, PA 19087
(Address of principal executive offices, including zip code)
(610) 688-6830
(Registrants telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
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Common Stock, par value $0.001
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NASDAQ Capital Market |
(Title of class)
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(Name of each exchange |
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on which registered) |
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is a not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants 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. Yes þ No o
Indicate by check
mark whether the
registrant is a
large accelerated filer, an accelerated filer, a non-accelerated
filer, or a
smaller reporting company.
See the definitions of large accelerated
filer, accelerated
filer
and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant on December 31, 2007, was approximately $22,833,590, computed by
reference to the price at which the common equity was last sold on the NASDAQ Capital Market on
such date.
As of September 19, 2008, there were 6,413,930 shares of common stock outstanding.
TABLE OF CONTENTS
Part III.
Item 10. Directors and Executive Officers and Corporate Governance
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to our directors and our executive
officers as of September 29, 2008.
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Name |
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Age |
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Position |
Richard J. DePiano
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67 |
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Chairman and Chief Executive Officer |
Richard J. DePiano, Jr.
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42 |
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President and General Counsel |
Robert M. OConnor
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47 |
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Chief Financial Officer |
Mark G. Wallace
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39 |
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Chief Operating Officer |
Anthony J. Coppola
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71 |
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Director |
Jay L. Federman
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70 |
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Director |
William L.G. Kwan
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67 |
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Director |
Lisa A. Napolitano
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45 |
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Director |
Fred G. Choate
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62 |
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Director |
Set forth below are the names, positions held and business experience, including during the
past five years, of our directors and executive officers as of September 29, 2008. Officers serve
at the discretion of the board of directors. The President and General Counsel, Richard J. DePiano,
Jr. is the son of the Chairman and Chief Executive Officer, Richard J. DePiano. There are no other
family relationships between any of the directors or executive officers and there is no arrangement
or understanding between any director or executive officer and any other person pursuant to which
the director or executive officer was selected.
Mr. DePiano has been a Class III director since February 1996 and has served as our Chairman
and Chief Executive Officer of the Company since March 1997. Mr. DePiano was the former chief
executive officer of the Sandhurst Company, L.P., managing director of the Sandhurst Venture Fund
and former partner of Deloitte & Touch, LLP. Mr. DePiano also serves as chairman of the board of
directors of PhotoMedex, Inc., and as trustee of Drexel University and Salus University.
Mr. DePiano, Jr. joined Escalon in 2003. He most recently served as Chief Operating Officer
and General Counsel, managing the ophthalmic diagnostic, surgical products and vascular access
business and overseeing all legal matters. Prior to serving in this role, Mr. DePiano, Jr. served
as Vice President of Corporate and Legal Affairs. Before joining Escalon, Mr. DePiano, Jr. engaged
in private practice of law for eleven years, where he represented individual and business clients
in mergers and acquisitions, corporate and securities law matters, venture capital financings and
general business and commercial matters. Mr. DePiano Jr. received a Bachelor of Science degree from
Villanova University and a Juris Doctor degree from Widener University School of Law. Mr. DePiano
Jr. currently serves as President and as a member of the Board of Directors of the Delaware Valley
Corporate Counsel Association, and Vice Chairman of the Board of Directors of the Montgomery County
Industrial Development Authority. Mr. DePiano, Jr. resides in Wayne Pennsylvania and is an active
member of both The Union League of Philadelphia and the Overbrook Golf Club.
Mr. OConnor was appointed our Chief Financial Officer of the Company on June 30, 2006. Mr.
OConnor joined us 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. He held 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
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2002 until 2004. Mr. OConnor holds an MBA from Rutgers University Graduate School of
Management and a B.S. from Kean University. He is a certified public accountant and a member of the
American Institute of Certified Public Accountants (AICPA).
Mr. Wallace was appointed our Chief Operating Officer on January 1, 2008. Mr. Wallace has
worked with us since 1997. Previous to being appointed Chief Operating Officer he was Executive
Vice President of our Escalon Digital Solutions and Trek Medical subsidiaries. He has jointly held
the position of Vice President-Quality, with quality and regulatory responsibilities for all of the
our companies, and has also previously served as Operations Manager at Sonomed, Inc. and Quality
Manager of Escalon Medical. He had previously worked with Lunar Corp (now GE Healthcare) and Trek
Medical. He holds a BS Industrial Engineering and a MS Manufacturing Systems Engineering, both from
the University of Wisconsin-Madison, is a senior member of the American Society of Quality, and has
over 18 years experience in the medical device industry.
Mr. Coppola has served on the Board since 2000, he is a Class II director and his term ends in
2010. Mr. Coppola is the principal and operator of The Historic Town of Smithville, Inc., a real
estate and commercial property company from 1988 to present. He is the retired division president
of SKF Industries, a manufacturing company, where he served from 1963 to 1986.
Dr. Federman has served on the Board since 1996, he is a Class III director and his term ends
in 2008. Dr. Federman is an ophthalmologist sub specializing in the management of vitro-retinal
diseases. Dr. Federmans directorships include the research department of Wills Eye Hospital from
1987 to 1995. He was chief of the Department of 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. He previously served
as Chairman of our Board of Directors from February 1996 to March 1997.
Mr. Kwan has served on the Board since 1999, he is a Class I director and his term ends in
2009. Mr. Kwan is retired and was the former vice president of business development of Alcon
Laboratories, Inc. a medical products company, from October 1996 to 1999. He also served as vice
president of International Surgical Instruments from November 1989 to October 1999.
Ms. Napolitano has served on the Board since 2003, she is a Class II director and her term
ends in 2010. Ms. Napolitano has served as a Tax Manager, at 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.
Mr. Choate has served on the Board since 2005, he is a Class II director and his term ends in
2010. Mr. Choate has served as the managing member of Atlantic Capital Funding LLC since 2003 to
the 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 formerly served as one of our directors from 1998 to 2003.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive
officers and 10% shareholders to file initial reports of ownership and reports of changes in
ownership of our common stock and other equity securities with the Securities and Exchange
Commission and the NASDAQ Capital Market. The directors, executive officers and 10% shareholders
are required to furnish us with copies of all Section 16(a) reports they file. Based on a review of
the copies of such reports furnished to us and written representations from our directors and
executive officers that no other reports were required, we believe that our directors, executive
officers and 10% shareholders complied with all Section 16(a) filing requirements applicable to
them for the year ended June 30, 2008.
3
Code of Conduct and Ethics
Our board of directors has adopted a Code of Conduct and Ethics, which applies to all of our
directors, the principal executive officer, principal financial officer, principal accounting
officer or controller and persons performing similar functions, officers and employees. Our Code of
Conduct and Ethics is posted in the Corporate Governance section of our Internet web site at
www.escalonmed.com. Any amendments, or grant of waiver with respect to any provision of our Code of
Conduct and Ethics, will be disclosed noting the nature of such amendment or waiver in the
Corporate Governance section of our Internet web site at www.escalonmed.com or by other
appropriate means as required or permitted under the applicable regulations of the Securities and
Exchange Commission and rules of the NASDAQ Stock Market.
Audit Committee Members and Financial Expert
The members of the audit committee our board of directors are Anthony Coppola, Lisa
Napolitano, and William Kwan. The board of directors has determined that each of Messrs. Coppola
and Kwan and Ms. Napolitano has the attributes, education and experience of, and therefore is, an
audit committee financial expert, as such term is defined in Item 407(d)(5) of Regulation S-K,
and that each member of the audit committee is independent, as such term is defined in the
applicable regulations of the Securities and Exchange Commission and rules of the NASDAQ Capital
Market relating to directors serving on audit committees.
Item 11. Executive Compensation
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
Our compensation committee is responsible for reviewing and approving the annual compensation
of our executive officers and our non-employee directors.
Our compensation committee is composed solely of directors who are not our current or former
employees, and each is independent under the revised listing standards of The NASDAQ Capital
Market. The board of directors has delegated to our compensation committee the responsibility to
review and approve our compensation and benefits plans, programs and policies, including the
compensation of the chief executive officer and our other executive officers as well as
middle-level management and other key employees. The compensation committee administers all of our
executive compensation programs, incentive compensation plans and equity-based plans and provides
oversight for all of our other compensation and benefit programs.
The key components of the compensation program for executive officers are base salary, bonus
and long-term incentives in the form of stock options. These components are administered with the
goal of providing total compensation that is competitive in the marketplace, recognizes meaningful
differences in individual performance and offers the opportunity to earn superior rewards when
merited by individual and corporate performance.
Objectives of Compensation Program
Our compensation committee intends to govern and administer compensation plans to support the
achievement of our long-term strategic objectives, to enhance stockholder value, to attract,
motivate and retain highly qualified employees by paying them competitively and rewarding them for
their own and our success.
We have no retirement plans or deferred compensation programs in effect for our non-employee
directors and our executive officers, except for our 401(k) plan in which the executive officers
are eligible to participate and Mr. DePiano's Supplemental Retirement Benefit Agreement. See Overview of Executive Employment
Agreements. Compensation is generally paid as earned. We do not have an exact
formula for allocating between cash and non-cash compensation, which has been in the form of stock
options. We do not have a non-equity incentive plan, as that term is used in SFAS No. 123R,
Share-Based Payment.
4
To the extent consistent with the foregoing objectives, our compensation committee also
intends to maximize the deductibility of compensation for tax purposes. The committee may, however,
decide to exceed the tax deductible limits established under Section 162(m) of the Internal Revenue
Code, of 1986, as amended, or the Code, when such a decision appears to be warranted based upon
competitive and other factors.
What Our Compensation Program is Designed to Reward
The key components of the compensation program for executive officers are base salary, bonus
and long-term incentives in the form of stock options. These components are administered with the
goal of providing total compensation that is competitive in the marketplace, recognizes meaningful
differences in individual performance and offers the opportunity to earn superior rewards when
merited by individual and corporate performance.
Stock price performance has not been a factor in determining annual compensation insofar as
the price of our common stock is subject to a number of factors outside our control. We have
endeavored through the grants of stock options to the executive officers to incentivize individual
and team performance, providing a meaningful stake in us and linking them to a stake in our overall
success.
Elements of Companys Compensation Plan and How Each Element Relates to Objectives
There are three primary elements in the compensation package of our executive officers: base
salary, bonus and long-term incentives.
Base Salaries
Base salaries for our executive officers are designed to provide a base pay opportunity that
is appropriately competitive within the marketplace. As an officers level of responsibility
increases, a greater proportion of his or her total compensation will be dependent upon our
financial performance and stock price appreciation rather than base salary. Adjustments to each
individuals base salary are made in connection with annual performance reviews in addition to the
assessment of market competitiveness.
Bonus
Our compensation committee establishes a bonus program for executive officers and other
managers and key employees eligible to participate in the program. The program is based on a
financial plan for the fiscal year and other business factors. The amount of bonus, if any, hinges
on corporate profitability and our overall cash position, and on the performance of the participant
in the program. Provision for bonus expense is typically made over the course of a fiscal year. The
provision becomes fixed, based on the final review of the committee, which is usually made after
the financial results of the fiscal year have been reviewed by our independent accountants. For
2008, there were two factors that determined executive bonuses, our profitability and a
discretionary component. Profitability is the dominant factor under the bonus plan. For the year
ended June 30, 2008, Mr. DePiano, Mr. DePiano, Jr. and Mr. OConnor did not receive a bonus due to
net loss incurred during this period. Mr. Wallaces $60,000 bonus was pursuant to his promotion
employment letter dated October 7, 2007.
Long-Term Incentives
Grants of stock options under our stock option plans are designed to provide executive
officers and other managers and key employees with an opportunity to share, along with
shareholders, in our long-term performance. Stock option grants are generally made annually to all
executive officers, with additional grants being made following a significant change in job
responsibility, scope or title or a significant achievement. The size of the option grant to each
executive officer is set by the compensation committee at a level that is intended to create a
meaningful opportunity for stock ownership based upon the individuals current position with us,
the individuals personal performance in recent periods and his or her potential for future
responsibility and promotion over the option term. The Compensation Committee also takes into
account the number of unvested options held by the executive officer in order to maintain an
appropriate level of equity incentive for that individual. The relevant weight given to each of
these factors varies from individual to individual.
Stock options granted under the various stock option plans generally have had a five-year
vesting schedule and generally have been set to expire ten years from the date of grant. The
exercise price of options granted under the stock option plans is at no less than 100% of the fair
market value of the underlying stock on the date of grant. The number of stock options granted to
each executive officer is determined by the compensation committee based upon several factors,
including the executive officers salary, performance and the estimated value of the stock at the
time of grant, but the compensation committee has the flexibility to make adjustments to those
factors at its discretion.
How Amounts Were Selected for Each Element of an Executives Compensation
Each executives current and prior compensation is considered in setting future compensation.
Base salary and the long-term incentives are not set with reference to a formula.
A target bonus, or portion thereof, is earned, based on fulfillment of conditions, paramount
of which is our profitability.
As a general rule option awards are made in the first or second quarter of a year and after
the financial results for the prior year have been audited and reported to the board of directors.
Grants and awards are valued, and exercise prices are set, as of the date the grant or award is
made. Exceptions to the general rule may arise for grants made to recognize a promotion.
Accounting and Tax Considerations
On July 1, 2007, we adopted SFAS No. 123R. Under this accounting standard, we are required to
value stock options granted in fiscal year 2007 and beyond under the fair value method and expense
those amounts in the income statement over the vesting period of the stock option. We were also
required to value unvested stock options granted prior to our adoption of SFAS 123R under the fair
value method and amortize such expense in the income statement over the stock options remaining
vesting period. A material portion of such amortizing expense relates to option grants made to our
executive officers.
Under Section 162(m) of the Code, a limitation was placed on tax deductions of any
publicly-held corporation for individual compensation to certain executives of such corporation
exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. The
Compensation Committee has been advised that based upon prior stockholder approval of the material
terms of our stock option plans, compensation under these plans is excluded from this limitation,
provided that the other requirements of Section 162(m) are met. However, when warranted based upon
competitive and other factors, the Compensation Committee may decide to exceed the tax deductible
limits established under Section 162(m) Code. The base salary provided to each executive in 2007
and 2008 did not exceed the limits under Section 162(m) for tax deductibility; no executive
exercised any options in 2007 or 2008.
Overview of Executive Employment Agreements and 2008 Equity-Based Awards
On May 12, 1998, we entered into an employment agreement with Richard J. DePiano as our
Chairman and Chief Executive Officer. 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 partys determination not to renew the agreement. The
current base salary provided under the agreement, as adjusted for yearly cost of living
adjustments, is $336,343 per year, and the agreement provides for additional incentive compensation
in the form of a cash bonus to be paid to Mr. DePiano at the discretion of our board of directors.
The agreement also provides for health and long-term disability insurance and other fringe benefits
as well as an automobile allowance.
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On June 23, 2005, we 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 us under the following
circumstances:
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If Mr. DePiano retires at age 65 or older, we are 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, we 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. |
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If Mr. DePiano dies before his retirement, while employed by us, we would be obligated
to make 36 monthly payments to his beneficiaries of $8,000 per month commencing in the
month after his death. |
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If Mr. DePiano were to become permanently disabled while employed by us, we 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, we 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. |
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If Mr. DePianos employment with us is terminated by the Company, prior to him
attaining age 65 or if he terminates his employment with us for good reason, as defined in
the agreement, we 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, we would be obligated
to 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 represented the present value of the supplemental retirement
benefits awarded at that time.
As Chief Financial Officer, Mr. OConnors annual base salary is $205,400. Mr. OConnor has
been granted stock options to purchase 60,000 shares of our common stock, which became exercisable
in full as of the June 30, 2006 grant date. The exercise price of these options is $5.05 per
share. During fiscal 2008, Mr. OConnor was granted 20,000 stock options which vest over five years
and have an exercise price of $3.05. Mr. OConnor, 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.
7
Compensation of Named Executive Officers
Summary Compensation Table
The following table sets forth certain summary information concerning compensation which we
paid or accrued to or on behalf of each of our executive officers during the fiscal years ended
June 30, 2008 and 2007 (the Named Executive Officers) for each of such fiscal years.
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Pension Value |
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and Nonqualified |
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Name and |
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Non-Equity |
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Deferred |
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Principal |
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Stock |
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Option |
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Incentive Plan |
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Compensation |
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All Other |
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Position |
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Year |
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Salary |
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Bonus |
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Awards |
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Awards(1) |
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Compensation |
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Earnings |
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Compensation (2) |
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Total |
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Richard J. DePiano |
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Chairman and |
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2008 |
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$ |
336,343 |
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$ |
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$ |
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$ |
57,653 |
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$ |
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$ |
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$ |
19,816 |
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$ |
413,812 |
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Chief Executive Officer |
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2007 |
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$ |
317,700 |
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$ |
250,000 |
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$ |
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$ |
23,207 |
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$ |
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$ |
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$ |
9,600 |
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$ |
600,507 |
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Richard J. DePiano, Jr. |
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President and |
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2008 |
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$ |
180,000 |
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$ |
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$ |
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$ |
18,448 |
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$ |
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$ |
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$ |
9,600 |
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$ |
208,048 |
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General Counsel |
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2007 |
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$ |
127,200 |
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$ |
80,000 |
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$ |
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$ |
7,425 |
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$ |
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$ |
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$ |
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$ |
214,625 |
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Robert M. OConnor |
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2008 |
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$ |
205,400 |
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$ |
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$ |
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$ |
8,547 |
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$ |
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$ |
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$ |
9,600 |
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$ |
223,547 |
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Chief Financial Officer |
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2007 |
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$ |
200,000 |
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$ |
25,000 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
225,000 |
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Mark Wallace |
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2008 |
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$ |
93,246 |
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$ |
60,000 |
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$ |
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$ |
2,849 |
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$ |
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$ |
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$ |
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$ |
156,095 |
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Chief Operating Officer |
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(1) |
|
Represents the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended June 30, 2008, in accordance with FAS 123(R).
Assumptions used in the calculation of these amounts are included in Note 2 to the
Consolidated Financial Statements. There were no forfeitures during 2008. The options
granted to Mr. DePiano, Sr. vest over a two-year period; options granted to Mr. DePiano,
Jr., Mr. OConnor and Mr. Wallace vest over a five-year period years (see Long-Term
Incentives under Compensation Discussion and Analysis). There were no options
exercised by the named executives during the year ended June 30, 2008. |
|
(2) |
|
Includes payment of, (a) an automobile allowance and (b) insurance premiums paid
for life and health insurance. |
8
Plan-Based Awards
The following table sets forth certain information regarding plan-based awards granted during
the fiscal year ended June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants of Plan-Based Awards |
|
|
|
|
|
|
Estimated Future |
|
Estimated Future |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payouts Under |
|
Payouts Under |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive |
|
Equity Incentive |
|
All Other |
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards |
|
Plan Awards |
|
Stock Awards |
|
Option Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Number of |
|
Exercise or |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of |
|
Securities |
|
Base Price |
|
of Stock |
|
|
Grant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock or |
|
Underlying |
|
of Option |
|
and Option |
Name |
|
Date |
|
Threshold |
|
Target |
|
Maximum |
|
Threshold |
|
Target |
|
Maximum |
|
Units |
|
Options |
|
Awards |
|
Award (1) |
|
Richard J. DePiano |
|
|
11/13/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
$ |
3.05 |
|
|
$ |
71,227 |
|
Richard J. DePiano, Jr. |
|
|
11/13/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
$ |
3.05 |
|
|
$ |
56,981 |
|
Robert M. OConnor |
|
|
11/13/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
$ |
3.05 |
|
|
$ |
56,981 |
|
Mark Wallace |
|
|
11/13/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
$ |
3.05 |
|
|
$ |
14,245 |
|
|
|
|
|
(1) |
|
Represents the fair value on date of grant in accordance with FAS 123(R). Assumptions
used in the calculation of these amounts are included in Note 2 to the Consolidated Financial
Statements. There were no forfeitures during 2008. The options granted to Mr. DePiano, Sr.
vest over a two-year period; options granted to Mr. DePiano, Jr., Mr. OConnor and Mr. Wallace
vest over a five-year period years (see Long-Term Incentives under Compensation Discussion
and Analysis). There were no options exercised by the named executives during the year ended
June 30, 2008. |
9
Outstanding Equity Awards at Fiscal Year-End2008
The following table sets forth certain information regarding grants of equity awards held by
the named executive officers as of June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
Number of |
|
Securities |
|
|
|
|
|
|
Securities |
|
Securities |
|
Underlying |
|
|
|
|
|
|
Underlying |
|
Underlying |
|
Unexercised |
|
Option |
|
Option |
|
|
Unexercised |
|
Unexercised |
|
Unearned |
|
Exercise |
|
Expiration |
Name |
|
Options |
|
Options |
|
Options |
|
Price |
|
Date |
|
|
Exercisable |
|
Unexercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard J. DePiano |
|
|
41,480 |
|
|
|
|
|
|
|
|
|
|
$ |
2.13 |
|
|
|
4/19/2009 |
|
|
|
|
45,000 |
|
|
|
|
|
|
|
|
|
|
$ |
2.38 |
|
|
|
11/1/2010 |
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
$ |
2.77 |
|
|
|
11/1/2011 |
|
|
|
|
10,417 |
|
|
|
|
|
|
|
|
|
|
$ |
1.45 |
|
|
|
8/13/2112 |
|
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
$ |
6.94 |
|
|
|
11/10/2013 |
|
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
$ |
6.19 |
|
|
|
8/17/2014 |
|
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
$ |
8.06 |
|
|
|
8/16/2015 |
|
|
|
|
15,200 |
|
|
|
4,800 |
|
|
|
4,800 |
|
|
$ |
2.65 |
|
|
|
11/9/2016 |
|
|
|
|
7,293 |
|
|
|
17,707 |
|
|
|
17,707 |
|
|
$ |
3.05 |
|
|
|
11/13/2017 |
|
|
Richard J. DePiano, Jr. |
|
|
700 |
|
|
|
|
|
|
|
|
|
|
$ |
2.38 |
|
|
|
11/1/2010 |
|
|
|
|
1,100 |
|
|
|
|
|
|
|
|
|
|
$ |
2.77 |
|
|
|
11/1/2011 |
|
|
|
|
3,567 |
|
|
|
|
|
|
|
|
|
|
$ |
1.45 |
|
|
|
8/13/2112 |
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
$ |
6.94 |
|
|
|
11/10/2013 |
|
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
$ |
6.19 |
|
|
|
8/17/2014 |
|
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
$ |
8.06 |
|
|
|
8/16/2015 |
|
|
|
|
6,334 |
|
|
|
13,666 |
|
|
|
13,666 |
|
|
$ |
2.65 |
|
|
|
11/9/2016 |
|
|
|
|
2,334 |
|
|
|
17,666 |
|
|
|
17,666 |
|
|
$ |
3.05 |
|
|
|
11/13/2017 |
|
|
Robert M. OConnor |
|
|
60,000 |
|
|
|
|
|
|
|
|
|
|
$ |
5.05 |
|
|
|
6/29/2016 |
|
|
|
|
6,334 |
|
|
|
13,666 |
|
|
|
13,666 |
|
|
$ |
3.05 |
|
|
|
11/13/2017 |
|
|
Mark Wallace |
|
|
584 |
|
|
|
4,416 |
|
|
|
4,416 |
|
|
$ |
3.05 |
|
|
|
11/13/2017 |
|
|
|
|
|
(1) |
|
These options were granted under our 1999 Equity Incentive Plan and
have a term of ten years, subject to earlier termination in certain
events. The options granted to Mr. DePiano, Sr. vest over a two-year
period. Options granted to Mr. DePiano, Jr., Mr. OConnor and Mr.
Wallace vest over a five-year period. There were no options exercised
by the named executives during the year ended June 30, 2008. |
Potential Payments upon Termination or Change-in-Control
If Mr. DePianos employment with us is terminated by the Company, prior to him attaining age 65
or if he terminates his employment with us for good reason, as defined in the agreement, we
would be obligated to pay him $8,000 per month for life. If Mr. DePiano were to die within a
period of three
10
years after such termination, we would be obligated to continue making such
payments until a minimum of 36 monthly payments have been made to him and his beneficiaries in
the aggregate.
Mr. OConnor, pursuant to his offer letter, will be entitled to a severance payment equal to
100% of his annual base salary and an increase of his annual base salary to $250,000 in connection
with a change of control.
Compensation Committee Report on Executive Compensation
We have reviewed and discussed with management certain Compensation Discussion and Analysis
provisions to be included in the our June 30, 2008 Form 10-K. Based on the reviews and discussions
referred to above, we recommend to the Board of Directors that the Compensation Discussion and
Analysis referred to above be included in our Form 10-K.
Compensation Committee:
Anthony J. Coppola
Fred G. Choate
Lisa A. Napolitano
Compensation of Directors
The Compensation Committee of the Board recommends director compensation to the Board based on
factors it considers appropriate, market conditions and trends and the recommendations of
management. In fiscal 2008, each of our non-employee directors was awarded a grant of options to
purchase 10,000 shares of our common stock under our 1999 Equity Incentive Plan with an exercise
price of $3.05 per share, which was the closing price of our common stock on the NASDAQ Capital
Market on November 29, 2007 which fully vested immediately upon grant.
Compensation Committee Interlocks and Insider Participation
No members of our compensation committee are former or current officers of ours, or have other
interlocking relationships, as defined by the Securities and Exchange Commission.
Director Compensation2008
The following table sets forth certain information regarding the compensation paid to our
directors for their service during the fiscal year ended June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
Unexercised |
|
|
|
|
|
|
Fees Earned or |
|
Stock |
|
Option |
|
Incentive Plan |
|
Unearned |
|
All Other |
|
|
Name |
|
Paid in Cash |
|
Awards |
|
Awards (1) |
|
Compensation |
|
Options |
|
Compensation |
|
Total |
|
Anthony Coppola |
|
$ |
|
|
|
$ |
|
|
|
$ |
24,754 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
24,754 |
|
Jay L. Federman |
|
$ |
|
|
|
$ |
|
|
|
$ |
24,754 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
24,754 |
|
William L.G. Kwan |
|
$ |
|
|
|
$ |
|
|
|
$ |
24,754 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
24,754 |
|
Lisa Napolitano |
|
$ |
|
|
|
$ |
|
|
|
$ |
24,754 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
24,754 |
|
Fred Choate |
|
$ |
|
|
|
$ |
|
|
|
$ |
24,754 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
24,754 |
|
|
|
|
(1) |
|
Represents the dollar amount recognized for financial statement reporting purposes
for the fiscal year ended June 30, 2008, in accordance with FAS 123(R). Assumptions used
in the calculation of these amounts are included in Note 2 to the Consolidated Financial
Statements. There were no forfeitures during 2008. The table below sets forth the
aggregate number of stock options held by each of our non-employee directors who own
options to purchase shares of the Companys common stock as of |
11
|
|
|
|
|
June 30, 2008. Options
granted to non-employee directors vest on the date of grant and expire after ten years. |
|
|
|
|
|
Name |
|
Stock Options |
Anthony Coppola |
|
|
45,000 |
|
Jay L. Federman |
|
|
65,000 |
|
William L.G. Kwan |
|
|
80,000 |
|
Lisa Napolitano |
|
|
42,000 |
|
Fred Choate |
|
|
30,000 |
|
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management
The following table indicates, as of September 29, 2008, information about the beneficial
ownership of our common stock by (1) each director as of September 29, 2008, (2) each Named
Executive Officer, (3) all directors and executive officers as of September 29, 2008 as a group and
(4) each person who we know beneficially owns more than 5% of our common stock. All such shares
were owned directly with sole voting and investment power unless otherwise indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership Table |
|
|
|
|
|
|
|
|
|
|
|
Amount of |
|
|
|
|
|
Amount of |
|
|
|
|
|
|
Beneficial |
|
|
|
|
|
Beneficial |
|
|
|
|
|
|
Ownership |
|
|
|
|
|
Ownership of |
|
Amount of |
|
|
|
|
of |
|
|
|
|
|
Shares |
|
Aggregate |
|
Aggregate |
|
|
Outstanding |
|
Percent |
|
Underlying |
|
Beneficial |
|
Percent of |
Name |
|
Shares (1) |
|
of Class |
|
Options |
|
Ownership |
|
Class |
|
Richard J. DePiano |
|
|
144,278 |
|
|
|
2.2 |
% |
|
|
286,897 |
|
|
|
431,175 |
|
|
|
6.7 |
% |
Richard J. DePiano, Jr. |
|
|
206 |
|
|
|
0.0 |
% |
|
|
100,367 |
|
|
|
100,573 |
|
|
|
1.6 |
% |
Robert OConnor |
|
|
|
|
|
|
0.0 |
% |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
1.6 |
% |
Mark Wallace |
|
|
|
|
|
|
0.0 |
% |
|
|
47,467 |
|
|
|
47,467 |
|
|
|
* |
|
William L.G. Kwan |
|
|
|
|
|
|
0.0 |
% |
|
|
80,000 |
|
|
|
80,000 |
|
|
|
1.2 |
% |
Jay L. Federman |
|
|
12,072 |
|
|
|
0.2 |
% |
|
|
65,000 |
|
|
|
77,072 |
|
|
|
1.2 |
% |
Anthony J. Coppola |
|
|
|
|
|
|
0.0 |
% |
|
|
45,000 |
|
|
|
45,000 |
|
|
|
* |
|
Lisa Napolitano |
|
|
|
|
|
|
0.0 |
% |
|
|
42,000 |
|
|
|
42,000 |
|
|
|
* |
|
Fred Choate |
|
|
|
|
|
|
0.0 |
% |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
* |
|
All Directors and Executive Officers
as a group (9 persons) |
|
|
156,556 |
|
|
|
2.4 |
% |
|
|
796,731 |
|
|
|
953,287 |
|
|
|
14.9 |
% |
|
|
|
(*) |
|
Less than on percent |
|
(1) |
|
Information furnished by each individual named. This table includes shares that are owned
jointly, in whole or in part with the persons spouse, or individually by his or her spouse.
No shares held by board members or named executive officers are pledged as collateral. |
Equity Compensation Plan Information
The following table sets forth information, as of June 30, 2008, with respect to compensation
plans under which shares of our common stock are authorized for issuance.
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities remaining |
|
|
|
|
|
|
|
|
|
|
available for future issuance |
|
|
Number of Shares to be |
|
Weighted-average exercise |
|
under equity compensation plans |
|
|
issued upon exercise of |
|
price of outstanding stock |
|
(excluding securities reflected in |
|
|
outstanding stock options |
|
options |
|
column a)) |
Plan Category |
|
(a) |
|
(b) |
|
(c) |
|
Equity Compensation
plans approved by
stockholders |
|
|
892,010 |
|
|
$ |
3.05 |
|
|
|
284,070 |
|
Equity Compensation
plans not approved by
stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
892,010 |
|
|
$ |
3.05 |
|
|
|
284,070 |
|
|
|
|
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 our 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
our board of directors.
We and a member of the Companys Board of Directors, Jay L. Federman, 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. OTMs
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, 2008, we had invested $357,000 in OTM and owned 45% of OTM. We will provide administrative
support functions to OTM. For the years ended June 30, 2008, OTM recorded losses of $88,206.
Director Independence
Our board of directors has determined that, Anthony Coppola, Jay L. Federman, William L.G.
Kwan, Lisa Napolitano, and Fred Choate are independent, as such term is defined in the applicable
rules of the NASDAQ Stock Market relating to the independence of directors. In determining that Jay
L. Federman is independent, our board of directors considered our joint investment with Dr.
Federman in OTM.
ITEM 14. Principal Accounting Fees and Services
The following table sets forth the aggregate fees billed to us by Mayer Hoffman McCann, LLP,
our principal accountant for the fiscal years ended June 30, 2008 and 2007.
13
|
|
|
|
|
|
|
|
|
|
|
For the years ended |
|
|
June 30, |
|
|
2008 |
|
2007 |
|
|
|
Audit Fees |
|
$ |
175,000 |
|
|
$ |
147,500 |
|
Audit-Related Fees |
|
$ |
|
|
|
$ |
|
|
Tax Fees |
|
$ |
|
|
|
$ |
|
|
All Other Fees |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees |
|
$ |
175,000 |
|
|
$ |
147,500 |
|
|
|
|
In the table above, pursuant to their definitions under the applicable regulations of the
Securities and Exchange Commission, audit fees are fees for professional services rendered for
the audit of our annual financial statements and review of our financial statements included in our
quarterly reports on Form 10-Q and for services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements; audit-related fees are fees for
assurance and related services that are reasonably related to the performance of the audit and
review of our financial statements, and primarily include accounting consultations and audits in
connection with potential acquisitions; tax fees are fees for tax compliance, tax advice and tax
planning; and all other fees are fees for any services not included in the first three
categories.
The audit committee is responsible for pre-approving all audit services and permitted
non-audit services to be performed by our principal accountant, except in those instances which do
not require such pre-approval pursuant to the applicable regulations of the Securities and Exchange
Commission. The audit committee has established policies and procedures for its pre-approval of
audit services and permitted non-audit services and, from time to time, the audit committee reviews
and revises its policies and procedures for pre-approval.
14
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 Form 10-K 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 24, 2008
15