UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e) (2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

  Electro-Optical Sciences, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ELECTRO-OPTICAL SCIENCES, INC.

3 West Main Street, Suite 201

Irvington, New York 10533

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 16, 2008

 

Dear Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Electro-Optical Sciences, Inc., a Delaware corporation. The meeting will be held at The Doubletree Hotel, 455 S. Broadway, Tarrytown, NY 10591 on Friday, May 16, 2008 at 9:00 a.m. local time, for the following purposes:

 

1. To elect directors to serve for the ensuing year and until their successors are elected.

 

2. To ratify the selection by the audit committee of the Board of Directors of Eisner LLP as Electro-Optical Sciences’ independent registered public accounting firm for the fiscal year ending December 31, 2008.

 

3. To conduct any other business properly brought before the meeting.

 

These items of business are more fully described in the Proxy Statement accompanying this Notice.

 

The record date for the Annual Meeting is April 10, 2008. Only stockholders of record at the close of business on that date may vote at the meeting or any adjournment thereof.

 

By Order of the Board of Directors

 

 

Joseph V. Gulfo, M.D., M.B.A.

President and Chief Executive Officer

 

Irvington, New York

April 15, 2008

 

 

•	COMPLETE AND RETURN A WRITTEN PROXY CARD;
•	BY INTERNET OR TELEPHONE; OR
•	ATTEND THE COMPANY’S 2008 ANNUAL MEETING OF STOCKHOLDERS AND VOTE.

 

 

TABLE OF CONTENTS

 

ELECTRO-OPTICAL SCIENCES, INC.
3 West Main Street, Suite 201
Irvington, New York 10533

 

PROXY STATEMENT

FOR THE 2008 ANNUAL MEETING OF STOCKHOLDERS

MAY 16, 2008

 

QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING

 

Why am I receiving these materials?

 

We sent you this proxy statement and the enclosed proxy card because the Board of Directors of Electro-Optical Sciences, Inc. (which we will refer to as the “Company” throughout this proxy statement) is soliciting your proxy to vote at the Company’s 2008 Annual Meeting of Stockholders. You are invited to attend the Annual Meeting, and we request that you vote on the proposals described in this proxy statement. You do not need to attend the meeting to vote your shares, however. Instead, you may simply complete, sign and return the enclosed proxy card, or you may grant a proxy to vote your shares by means of the telephone or on the Internet.

 

The Company intends to mail this proxy statement and the accompanying proxy card together with the Company’s Annual Report to stockholders on or about April 15, 2008, to all stockholders of record entitled to vote at the Annual Meeting. Each share outstanding on the record date will be entitled to one vote.

 

Who can vote at the Annual Meeting?

 

Only stockholders of record at the close of business on April 10, 2008 will be entitled to vote at the Annual Meeting. On this record date, there were 15,401,882 shares of common stock outstanding and entitled to vote.

 

Stockholder of Record: Shares Registered in Your Name

 

If on April 10, 2008, your shares were registered directly in your name with the Company’s transfer agent, American Stock Transfer and Trust Company, then you are a stockholder of record. As a stockholder of record, you may vote in person at the meeting or vote by proxy.

 

Beneficial Owner: Shares Registered in the Name of a Broker or Bank

 

If on April 10, 2008, your shares were held not in your name, but rather, in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct your broker or other agent on how to vote the shares in your account. You are also invited to attend the Annual Meeting. Since you are not the stockholder of record, however, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.

 

What am I voting on?

 

There are two matters scheduled for a vote:

 

 

How do I vote?

 

You may either vote “For” all the nominees to the Board of Directors or you may “Withhold” your vote for any nominee you specify. For each of the other matters to be voted on, you may vote “For” or “Against” or abstain from voting. The procedures for voting are fairly simple:

 

Stockholder of Record: Shares Registered in Your Name

 

If you are a stockholder of record, you may vote in person at the Annual Meeting, or vote by proxy using the enclosed proxy card or via the Internet or telephone (see “Voting Via Internet or By Telephone” below). If you vote by proxy, your shares will be voted as you specify on the proxy card. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the Annual Meeting and vote in person if you have already voted by proxy.

 

 

Beneficial Owner: Shares Registered in the Name of Broker or Bank

 

If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from the Company. Simply complete and mail the proxy card to ensure that your vote is counted. To vote in person at the Annual Meeting, you must obtain a valid proxy from your broker, bank, or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.

 

Voting Via the Internet or by Telephone

 

Stockholders may grant a proxy to vote their shares by means of the telephone or on the Internet. The laws of the State of Delaware, under which the Company is incorporated, specifically permit electronically transmitted proxies, provided that each such proxy contains or is submitted with information from which the Inspector of Elections can determine that such proxy was authorized by the stockholder.

 

The telephone and Internet voting procedures below are designed to authenticate stockholders’ identities, to allow stockholders to grant a proxy to vote their shares and to confirm that stockholders’ instructions have been recorded properly. Stockholders granting a proxy to vote via the Internet should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, which must be borne by the stockholder.

 

For Shares Registered in Your Name

 

Stockholders of record may go to http://proxy.georgeson.com to grant a proxy to vote their shares by means of the Internet. They will be required to provide the Company’s number and control number contained on their proxy cards. Any stockholder using a touch-tone telephone may also grant a proxy to vote shares by calling 1-866-219-9662 and following the operator’s instructions.

 

For Shares Registered in the Name of a Broker or Bank

 

Most beneficial owners whose stock is held in street name receive instruction for granting proxies from their banks, brokers or other agents, rather than the Company’s proxy card.

General Information for All Shares Voted Via the Internet or By Telephone

 

Votes submitted via the Internet or by telephone must be received by 11:59 p.m., Eastern Time on May 15, 2008. Submitting your proxy via the Internet or by telephone will not affect your right to vote in person should you decide to attend the Annual Meeting.

 

How many votes do I have?

 

On each matter to be voted upon, you have one vote for each share of common stock you own as of April 10, 2008.

 

What if I return a proxy card but do not make specific choices?

 

If you return a signed and dated proxy card without marking any voting selections, your shares will be voted “For” all the nominees to the Board of Directors and “For” proposal 2. If any other matter is properly presented at the meeting, your proxy (i.e., one of the individuals named on your proxy card) will vote your shares using his best judgment.

 

Who is paying for this proxy solicitation?

 

We will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, we will bear the cost of soliciting proxies by the Board. In addition to the solicitation of proxies by mail, solicitation may be made personally or by telephone or electronic communication by our directors, officers and employees, none of whom will receive additional compensation for these services, and by Georgeson Inc., who we have retained to aid in the solicitation of proxies. We will pay Georgeson Inc. a fee of $6,500 plus expenses for these services. We will also reimburse brokers and other nominees for their reasonable out-of-pocket expenses incurred in connection with distributing forms of proxies and proxy materials to the beneficial owners of common stock.

 

What does it mean if I receive more than one proxy card?

 

If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.

 

Can I change my vote after submitting my proxy?

 

Yes. You may revoke your proxy at any time before the final vote at the meeting. If you are the record holder of your shares, you may revoke your proxy in any one of four ways:

 

 

If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank.

 

When are stockholder proposals due for next year’s Annual Meeting?

 

Under Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, stockholders of the Company may present proper proposals for inclusion in the Company’s proxy statement and for consideration at the next Annual Meeting of Stockholders by submitting their proposals to the Company in a timely manner. In order to be considered for inclusion in the proxy statement distributed to stockholders prior

to the Annual Meeting of Stockholders in the year 2009, a stockholder proposal must be received by the Company no later than December 22, 2008 and must otherwise comply with the requirements of Rule 14a-8. In order to be considered for presentation at the Annual Meeting of Stockholders in the year 2009, although not included in the proxy statement, a stockholder proposal or nomination(s) must comply with the requirements of the Company’s Bylaws and be received by the Company no later than the close of business on February 15, 2009 and no earlier than the close on business on January 16, 2009; provided, however, that in the event that the date of the 2009 Annual Meeting is more than thirty (30) days before or more than sixty (60) days after May 16, 2009, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred and twentieth (120^th) day prior to such Annual Meeting and not later than the close of business on the later of the ninetieth (90^th) day prior to such Annual Meeting or the close of business on the tenth (10^th) day following the day on which public announcement of the date of such meeting is first made by the Company. Stockholder proposals should be delivered in writing to Electro-Optical Sciences, Inc., 3 West Main Street, Suite 201, Irvington, New York 10533, Attention: Secretary. A copy of the Company’s Bylaws may be obtained from the Company upon written request to the Secretary.

 

How are votes counted?

 

Votes will be counted by the Inspector of Elections appointed for the meeting, who will separately count “For” and, with respect to proposals other than the election of directors, “Against” votes, abstentions and broker non-votes. In addition, with respect to the election of directors, the Inspector of Elections will count the number of “Withhold” votes received by each nominee. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions with respect to that proposal from the beneficial owner (despite voting on at least one other proposal for which it does have discretionary authority or for which it has received instructions). Abstentions will be counted towards the vote total for each proposal, and will have the same effect as “Against” votes. Broker non-votes have no effect and will not be counted towards the vote total for any proposal.

 

If your shares are held by your broker as your nominee (that is, in “street name”), you will need to obtain a proxy form from the institution that holds your shares and follow the instructions included on that form regarding how to instruct your broker to vote your shares. If you do not give instructions to your broker, your broker can vote your shares with respect to “discretionary” items, but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of the NASDAQ Capital Market (“NASDAQ”) on which your broker may vote shares held in street name in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, the shares will be treated as broker non-votes.

 

How many votes are needed to approve each proposal?

 

 

What is the quorum requirement?

 

A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if at least a majority of the outstanding shares entitled to vote are represented by votes at the meeting or by proxy. On the record date, there were 15,401,882 shares outstanding and entitled to vote.

Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote in person at the meeting or by telephone or the Internet. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the chairman of the meeting or a majority of the votes present at the meeting may adjourn the meeting to another date.

 

How can I find out the results of the voting at the Annual Meeting?

 

Preliminary voting results will be announced at the Annual Meeting. Final voting results will be published in the Company’s quarterly report on Form 10-Q for the second quarter of 2008.

 

How can I obtain additional copies?

 

For additional copies of this proxy statement and the enclosed proxy card and Annual Report to Stockholders, you should contact our corporate office at 3 West Main Street, Suite 201, Irvington, New York 10533, Attention: Secretary, telephone (914) 591-3783.

 

There are seven nominees for the nine director positions presently authorized by the Company’s Board of Directors and the Company’s Bylaws. The two vacant directorships may be filled in the future at the discretion of the Company’s Board of Directors. This discretionary power gives us the flexibility of appointing new directors in periods between our Annual Meetings should suitable candidates come to our attention. The names of the persons who are nominees for director and their positions and offices with the Company are set forth in the table below. Each director to be elected will hold office until the 2009 Annual Meeting of Stockholders and until his successor is elected and has qualified, or until such director’s earlier death, resignation or removal. Each nominee listed below is currently a director of the Company, having been previously elected by the stockholders. Although there is no formal policy, the Company encourages its directors to attend the Company’s annual meetings.

 

Directors are elected by a plurality of the votes present in person or represented by proxy and entitled to vote at the Annual Meeting. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the seven nominees named below. In the event that any nominee should be unavailable for election as a result of an unexpected occurrence, your shares will be voted for the election of such substitute nominee as management may propose. Proxies may not be voted for more than seven directors, however. Each of the current directors has been nominated for and has agreed to stand for election and management has no reason to believe that any nominee will be unable to serve.

 

The following is a brief biography of each nominee for director, including their respective ages as of February 29, 2008:

 

 

Joseph V. Gulfo, M.D., M.B.A. has served as our President and Chief Executive Officer and a member of our Board of Directors since January 2004. From May 1999 to November 2003, he served as Chairman, Chief Executive Officer and President of Antigen Express, Inc., a development-stage company developing

immunodiagnostics and therapeutics for cancer. Dr. Gulfo serves as a director of ProCertus BioPharm, Inc., a privately-held company. Dr. Gulfo received a B.S. in biology from Seton Hall University, an M.D. from the University of Medicine and Dentistry of New Jersey and an M.B.A. in finance from Seton Hall University.

 

Breaux Castleman has served as a member of our Board of Directors and Chairman of our Board of Directors since July 2003. Since August 2001, he has served as President, Chief Executive Officer and Chairman of Syntiro Healthcare Services, Inc. Mr. Castleman also serves as a director of FemPartners, Inc. which is a privately-held company. From December 1999 to July 2001, he served as Chief Executive Officer of Physia Corp. He served as President of Scripps Clinic from July 1996 to November 1998. He holds a B.A. in economics from Yale University and attended New York University Graduate School of Business Administration.

 

Sidney Braginsky has served as a member of our Board of Directors since 2001. He also currently serves as the Chairman and Chief Executive Officer of Digilab, LLC (a spectroscopy instruments manufacturer), Chairman of Atropos Technologies, LLC, a director of Diomed Inc., Double D Venture Fund, LLC, Noven Pharmaceuticals, Inc., Sword Diagnostics, Inc., DJO, Inc. (a Blackstone Group company), ESTECH (a private medical device manufacturing and distribution company), Invendo Medical GmbH (a German endoscopy developer), Geneva Acquisition Corporation and Micronix Pty Ltd. (an Australian medical device company), Chairman of the International Standards Organization U.S. Technical Advisory Group TC 172 on Optics and Photonics, Chairman of the board of the City University of New York Robert Chambers Laboratory and Trustee on the boards of Long Island High Tech Incubator and the Long Island Museum of Science and Technology. He formerly served as President of Olympus America and Mediscience Corp. and Chairman of Double D Venture Fund, LLC. Mr. Braginsky received his B.S. in biology from Queens College.

 

George C. Chryssis has served as a member of our Board of Directors since 2001. Since August 2003, he has served as President, Chief Executive Officer and Chairman of the board of directors of Itergon Corp., a privately-held IT services company which he founded. From June 1999 until their dissolution on December 31, 2005, he served as the Managing Member of Arcadian Capital Management, LLC and General Partner of Arcadian Venture Partners, LP, a venture capital firm with investments in early stage technology companies, including a past investment in the Company. Since 2003, he has also served as Chairman of the board of directors of DelCom Corp., a privately-held telecommunications software company. Mr. Chryssis is also a Trustee of Northeastern University and Wentworth Institute of Technology. Mr. Chryssis received a B.S. and M.S. in electrical engineering from Northeastern University.

 

Martin D. Cleary was appointed as a member of our Board of Directors in October 2005. From February 2003 through March 2008, he served as the President and Chief Executive Officer of Juvaris Biotherapeutics, Inc., a company engaged in the development of therapeutic vaccines for cancer and infectious diseases. He remains the Chairman of the board of directors of Juvaris Biotherapeutics, Inc. and continues to be engaged with that company. From September 1999 to May 2002, he served as the President and Chief Executive Officer of Genteric, Inc., a company engaged in non-viral gene delivery. Mr. Cleary received a B.S. in accounting from Rutgers University in 1971, and a certificate in international studies from Columbia University in 1973.

 

Dan W. Lufkin has served as a member of our Board of Directors since July 2003. He is also a co-founder and former Chairman of the investment banking firm, Donaldson, Lufkin & Jenrette, Inc. Mr. Lufkin currently serves as a consultant to and/or board member of a number of private companies and non-profit endeavors. Mr. Lufkin received a B.A. degree from Yale University and an M.B.A. from Harvard Business School.

 

Gerald Wagner, Ph.D.  was appointed as a member of our Board of Directors in May 2005 and was our acting Chief Operating Officer from January 2006 until January 2007. He currently serves as a consultant to the Company. Since 2002, he has owned and operated Gerald Wagner Consulting LLC, an international consulting company specializing in international project management, technology and application consulting, and company assessments. Dr. Wagner serves as a board member for IntegraGen S.A, Evry, France. From March 1992 to September 2003, he was a Senior Vice President, Lab Testing Systems, at Bayer, Inc. Dr. Wagner received a Masters and Ph.D. in electro-mechanical design from Technical University, Darmstadt, Germany.

Independence of the Board of Directors

 

As required under the Nasdaq listing standards, a majority of the members of a listed company’s Board of Directors must qualify as “independent,” as affirmatively determined by the Board of Directors. The Company’s Board of Directors consults with the Company’s counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of Nasdaq, as are in effect from time to time.

 

Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his or her family members, and the Company, its senior management and its independent registered public accounting firm, the Board of Directors has affirmatively determined that all of the Company’s directors are independent directors within the meaning of the applicable Nasdaq listing standards, except Dr. Gulfo, the President and Chief Executive Officer of the Company and Gerald Wagner, Ph.D., the former acting Chief Operating Officer of the Company.

 

Information Regarding the Board of Directors and its Committees

 

The Company’s Board of Directors has an audit committee, a compensation committee and a nominating and governance committee. The following table provides membership information for 2007 for each of these committees:

 

 

Below is a description of each committee of the Board of Directors. Each of the committees has authority to engage legal counsel or other experts or consultants, as it deems appropriate to carry out its responsibilities. The Board of Directors has determined that each member of each committee meets the applicable rules and regulations regarding “independence” and that each member is free of any relationship that would interfere with his individual exercise of independent judgment with regard to the Company.

 

Audit Committee

 

The current members of our audit committee are Messrs. Braginsky, Lufkin and Cleary, each of whom we believe satisfies the independence requirements of Nasdaq and the Securities and Exchange Commission (the “SEC”). Mr. Cleary chairs this committee. We believe Mr. Cleary is qualified as an audit committee financial expert under the regulations of the SEC and has the accounting and related financial management expertise required by Nasdaq. Our audit committee assists our Board of Directors in its oversight of:

 

 

The audit committee has the sole and direct responsibility for appointing, evaluating and retaining our independent registered public accounting firm and overseeing their work. All audit services to be provided to us and all non-audit services, other than de minimis non-audit services, to be provided to us by our independent auditors must be approved in advance by our audit committee.

 

The charter of our audit committee is attached hereto as Annex A.

Compensation Committee

 

The members of our compensation committee are Messrs. Castleman, Braginsky and Chryssis, each of whom we believe satisfies the independence requirements of Nasdaq and the SEC. Mr. Castleman chairs this committee. The purpose of our compensation committee is to discharge the responsibilities of our Board of Directors relating to compensation of our executive officers. Specific responsibilities of our compensation committee include:

 

 

A narrative description of our compensation committee’s processes and procedures for the consideration and determination of executive and director compensation is included in the Compensation Discussion and Analysis in this proxy statement.

 

The charter of our compensation committee is attached hereto as Annex B.

 

Nominating and Governance Committee

 

The members of our nominating and governance committee are Messrs. Lufkin, Castleman and Cleary, each of whom we believe satisfies the independence requirements of Nasdaq and the SEC. Mr. Lufkin chairs this committee. Our nominating and governance committee:

 

 

The nominating and governance committee has not adopted specific minimum criteria for director nominees. The committee identifies nominees by first evaluating the current members of the Board of Directors willing to continue in service. Current members of the Board of Directors with skills and experience that are relevant to the Company’s business and who are willing to continue in service are considered for re-nomination. If any member of the Board of Directors does not wish to continue in service, or if the nominating and governance committee decides not to nominate a member for re-election, the nominating and governance committee first considers the appropriateness of the size of the Board of Directors. If the nominating and governance committee determines that the Board seat should be retained and a vacancy exists, the committee considers factors that it deems are in the best interests of the Company and its stockholders in identifying and evaluating a new nominee.

 

In identifying suitable candidates for nomination as a director, the nominating and governance committee will consider the needs of the Board of Directors and the range of skills and characteristics required for effective functioning of the Board of Directors. In evaluating such skills and characteristics, the nominating and governance committee may take into consideration such factors as it deems appropriate, such as a nominee’s business and professional expertise and experiences, including particular experience in areas relevant to the Company’s business activities, concern for long-term interests of the stockholders, and personal integrity and judgment.

 

The nominating and governance committee will consider all bona fide candidates for election to the Board of Directors and will consider any stockholder nominations pursuant to the same criteria, provided those nominated are submitted pursuant to the process described in the Company’s Bylaws and applicable law and within the time periods set forth herein for receipt of stockholder proposals for the 2008 Annual Meeting of Stockholders. To date, the Company has not received any recommendations from stockholders for candidates for inclusion on the committee’s slate of nominees.

 

The charter of our nominating and governance committee is attached hereto as Annex C.

Meetings of the Board of Directors and Committees

 

The Board of Directors met six times during the last fiscal year and acted three times by unanimous written consent. All directors attended at least 75% of the meetings of the Board of Directors held during the period for which they were a director.

 

The audit committee met five times and acted once by unanimous written consent during the fiscal year, and the compensation committee met three times and acted twice by unanimous written consent during the fiscal year. The nominating and governance committee acted once by unanimous written consent during the fiscal year. All directors attended at least 75% of the meetings of the Board of Directors committees on which they served held during the period for which they were a committee member.

 

All of our directors attended the May 21, 2007 Annual Meeting of Stockholders. We do not maintain a policy regarding director attendance at the Annual Meeting of Stockholders.

 

Stockholder Communications with the Board of Directors

 

We do not have a formal policy regarding stockholder communication with the Board of Directors. However, stockholders of the Company may communicate directly with the Board of Directors in writing, addressed to:

 

Board of Directors
c/o Secretary
Electro-Optical Sciences, Inc.
3 West Main Street, Suite 201
Irvington, New York 10533

 

The Secretary will review each stockholder communication. The Secretary will forward to the entire Board of Directors (or to members of a Board of Directors’ committee, if the communication relates to a subject matter clearly within that committee’s area of responsibility) each communication that (a) relates to the Company’s business or governance, (b) is not offensive and is legible in form and reasonably understandable in content, and (c) does not relate to a personal grievance against the Company or an employee or to further a personal interest not shared by the other stockholders generally. Stockholders who would like their submissions directed to an individual member of the Board of Directors may so specify, and the communication will be forwarded, as appropriate.

 

Code of Business Conduct and Ethics

 

The Company has adopted Electro-Optical Sciences, Inc. Code of Business Conduct and Ethics that applies to all officers, directors and employees. The Code of Business Conduct and Ethics is available in the Corporate Governance section of the Investor Relations section of the Company’s website at www.eosciences.com. If the Company makes any substantive amendments to the Code of Business Conduct and Ethics or grants any waiver from a provision of the Code to any executive officer or director, the Company will promptly disclose the nature of the amendment or waiver on its website at the location and address specified above.

 

Policy and Procedures Governing Related Person Transactions

 

In accordance with its charter, the audit committee is responsible for reviewing all “related party transactions” (defined as such transactions required to be disclosed pursuant to Item 404 of Regulation S-K) on an on-going basis. All such related party transactions must be approved by the audit committee.

 

The audit committee oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal control over financial reporting and disclosure controls and procedures. In fulfilling its oversight responsibilities, the audit committee reviewed the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

 

The audit committee is responsible for reviewing, approving and managing the engagement of the Company’s independent registered public accounting firm, including the scope, extent and procedures of the annual audit and compensation to be paid therefor, and all other matters the audit committee deems appropriate, including the Company’s independent registered public accounting firm’s accountability to the Board of Directors and the audit committee. The audit committee reviewed with the Company’s independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of audited financial statements with generally accepted accounting principles, its judgment as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the audit committee under auditing standards generally accepted in the United States, including those described in Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees,” and discussed and reviewed the results of the Company’s independent registered public accounting firm’s examination of the financial statements. In addition, the audit committee discussed with the Company’s independent registered public accounting firm the independent registered public accounting firm’s independence from management and the Company, including the matters in the written disclosures and the letter regarding its independence as required by the Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees.” The audit committee also considered whether the provision of non-audit services was compatible with maintaining the independent registered public accounting firm’s independence.

 

The audit committee discussed with the Company’s independent registered public accounting firm the overall scope and plans for its audits, and received from them written disclosures and letter regarding their independence. The audit committee meets with the Company’s independent registered public accounting firm, with and without management present, to discuss the results of its examinations, its evaluations of the Company’s internal control over financial reporting and the overall quality of the Company’s financial reporting. The audit committee held four meetings during the fiscal year ended December 31, 2007.

 

In reliance on the reviews and discussions referred to above, the audit committee recommended to the Board of Directors (and the Board of Directors has approved) that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 for filing with the Securities and Exchange Commission. The audit committee has also retained Eisner LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2008.

 

AUDIT COMMITTEE

 

Sidney Braginsky

Dan W. Lufkin

Martin D. Cleary

 

 

¹ The material in this report is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

 

The audit committee of the Board of Directors has selected Eisner LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2008 and has further directed that management submit the selection of Eisner LLP as the Company’s independent registered public accounting firm for ratification by the stockholders at the Annual Meeting. Eisner LLP audited the Company’s financial statements in 2006 and 2007. Representatives of Eisner LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

 

Stockholder ratification of the selection of Eisner LLP as the Company’s independent registered public accounting firm is not required by the Company’s Bylaws or otherwise. However, the Board of Directors, on behalf of the audit committee, is submitting the selection of Eisner LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the audit committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the audit committee in its discretion may direct the appointment of different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of the Company and its stockholders.

 

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote will be required to ratify the selection of Eisner LLP. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved.

 

THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.

 

Principal Accountant Fees

 

The following is a summary of the aggregate fees billed to the Company by Eisner LLP for professional services rendered during the fiscal years ended December 31, 2006 and December 31, 2007:

 

 

Audit Fees.  Audit-Fees consisted of fees covering the audits of the years ending December 31, 2006 and December 31, 2007, respectively, including work on quarterly reports and work on Sarbanes-Oxley matters.

 

Audit-Related Fees.  Audit Related Fees consisted of fees for audit work done related to the filing of an S-8 in July 2006 and S-3’s in December 2006 and August 2007 with the SEC.

 

Tax Fees.  The 2006 and 2007 Tax Fees related to the preparation of the Company’s 2005 and 2006 Federal and State income tax returns and associated estimated payments and applications for filing extensions and the undertaking of a study to analyze the amount and timing of the tax loss carryforwards.

 

All Other Fees.  There were no Other Fees billed by Eisner, LLP for the years ending December 31, 2006 and December 31, 2007, respectively.

Pre-Approval of Audit and Non-Audit Services

 

The services performed by Eisner LLP in 2007 were pre-approved by the audit committee. The audit committee pre-approves all audit services and permitted non-audit services performed or proposed to be undertaken by the independent registered public accounting firm, except where such services are determined to be de minimis under the Securities Exchange Act of 1934, as amended, giving particular attention to the relationship between the types of services provided and the independent registered public accounting firm’s independence. The audit committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the audit committee at its next scheduled meeting.

 

 

The following table sets forth certain information regarding the ownership of the Company’s common stock as of February 29, 2008 (except as noted) by: (i) each nominee for director; (ii) each of the executive officers named in the Summary Compensation Table presented later in this proxy statement; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more than five percent of its common stock.

 

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

 

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 2007, Directors Breaux Castleman and Dan Lufkin each failed to file an ownership report on a timely basis for the year ended December 31, 2007. A Form 4 for Mr. Castleman was filed on February 6, 2008 for a transaction that occurred on December 5, 2007. A Form 4 for Mr. Lufkin was filed on April 10, 2008 for a transaction that occurred on June 7, 2007. To the Company’s knowledge, all other Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with.

 

The Company’s executive officers, their ages and their positions as of February 29, 2008, are as follows:

 

 

Joseph V. Gulfo, M.D., M.B.A. has served as our President and Chief Executive Officer and a member of our Board of Directors since January 2004. From May 1999 to November 2003, he served as Chairman, Chief Executive Officer and President of Antigen Express, Inc., a development-stage company developing immunodiagnostics and therapeutics for cancer. Dr. Gulfo serves as a director of ProCertus BioPharm, Inc., a privately-held company. Dr. Gulfo received a B.S. in biology from Seton Hall University, an M.D. from the University of Medicine and Dentistry of New Jersey and an M.B.A. in finance from Seton Hall University.

 

Richard I. Steinhart has served as our Vice President, Finance and Chief Financial Officer and Treasurer since April 2006 and as our Secretary since November 2006. From May 1992 until joining the Company Mr. Steinhart was a Managing Director of Forest Street Capital/SAE Ventures, a boutique investment banking, venture capital, and management consulting firm focused on healthcare and technology companies. Prior to Forest Street Capital/SAE Ventures, he was Vice President and Chief Financial Officer of Emisphere Technologies, Inc. Mr. Steinhart’s other experience includes seven years at CW Group, Inc., a venture capital firm focused on medical technology and biopharmaceutical companies, where he was a General Partner and Chief Financial Officer. Mr. Steinhart serves on the Board of Manhattan Pharmaceuticals, Inc., a biopharmaceutical company and is Chairman of its Audit Committee. Mr. Steinhart began his career at Price Waterhouse, now known as PricewaterhouseCoopers. He holds B.B.A. and M.B.A degrees from Pace University and is a Certified Public Accountant.

 

Tina Cheng-Avery joined the Company on February 11, 2008 as Vice President, Commercialization. Previously, from April 2007 until joining the Company, she was Vice President of Marketing for Pierre Fabre Dermo-Cosmétique USA and from January 2005 until March 2007, she served as Global Marketing Director at Elizabeth Arden. From November 2001 until July 2004 she was Vice President of Marketing for Wella Personal Care, N.A. Mrs. Cheng-Avery holds a B.B.A. Finance degree from the University of Michigan and an

M.B.A. in Marketing and International Business from the Kellog School of Management at Northwestern University.

 

Nikolai Kabelev has served as our Vice President, Research and Development since January 2008. Previously, since January 2007 he served as our MelaFind^® Project Team Leader. From June 2005 to present he has also served as a Director, Algorithm and Software Development for our Company. Prior to that, and since June 1999 he worked as a Computer Scientist for EOS. Prior to joining EOS he worked at the Center for Telecommunication Research at Columbia University. Nikolai holds B.Sc. degree in Computer Science from Transport and Telecommunication Institute (Riga Aviation University), Latvia.

 

Christiano Butler began serving as Vice President, Operations in January 2008. Previously he had been Vice President, Technical Support from June 2006. Mr. Butler brings more than 20 years of experience in the medical device industry in areas of product support and operations management engineering. From August 1985 until joining the company, Mr. Butler worked at Bayer HealthCare in a series of positions with increasing responsibility. Most recently he served as Manager for Global Service and Support. Mr. Butler received a B.S. from the S.U.N.Y Regents College Program.

 

Jon I. Klippel has served as our Vice President, Marketing Operations since February 2008. Previously he had been Vice President, Marketing and Sales from December 2004. From April 2004 to November 2004, he was a Marketing Operations consultant. From January 2003 to March 2004, he served as Senior Marketing Manager of PDI, Inc., a publicly-traded company offering outsourced marketing, sales, and sales support services to biopharmaceutical and medical device companies. From February 2002 to December 2002, he was a Marketing Operations consultant. From July 2000 to February 2002, he served as Director of Marketing and Business Development at National Imaging Associates, Inc., a privately-held diagnostic imaging management company. Mr. Klippel received a B.A. in political science from Albright College and an M.B.A. from Rutgers University Graduate School of Business.

 

Our executive officers are elected by, and serve at the discretion of, our Board of Directors. There are no family relationships between our directors and executive officers.

 

The principal goals of our compensation philosophy are: one, to attract, motivate and retain highly talented individuals at all levels of our organization, and, two, to align our employees’ incentives with the long-term interests of our stockholders.

 

At this stage in our growth, our principal business objective is to obtain premarket (PMA) approval of our flagship product, MelaFind^®. Achievement of this objective requires that we closely monitor our expenses, including compensation expenses. Accordingly, we seek to target our cash compensation levels at or below market and pay a significant portion of total compensation in the form of stock options.

 

If our pivotal trials and FDA approval process proceed as expected, we currently anticipate receiving FDA approval of MelaFind^® in the second half of 2008. As we move towards achievement of this critical milestone, we expect to re-evaluate our compensation philosophy and establish additional performance milestones appropriate for our overall business strategy.

 

At the senior levels, and consistent with our 2006 approach, we utilize a compensation package that includes both cash, in the form of base pay with discretionary bonus, and long-term incentive compensation in the form of stock options. Because of our need to conserve cash, we target the cash portion of our compensation package that is either at or slightly below market levels. However, we seek to set our level of stock option awards in line with industry comparables. All of our stock option grants are tied to either length of service or to the achievement of certain performance-based milestones, the most significant goal of which is approval of MelaFind^® by the FDA. At lower levels, our compensation plan design is similar with employees paid a base salary and long-term incentive compensation in the form of stock options. However, lower level employees have a much smaller percentage of their overall compensation tied directly to long-term incentive

compensation. As is the case with our senior executives, all employees are awarded stock options that vest with either length of service or the attainment of specific performance-based milestones.

 

In late 2006, we engaged a consulting firm, A.G. Ferguson & Associates, Inc. (AGF), a firm with more that 25 years of experience in executive compensation consulting, to review our senior level compensation policies and for future compensation planning, In performing their study, AGF analyzed a peer group of twenty-three publicly-held companies, as well as industry specific data from the 2006 Compensation and Entrepreneurship Report in Life Sciences (a survey of 170 private companies in the life sciences, including approximately 80 medical device companies) and general compensation data from the Economic Research Institute.

 

In our view, the overall results of AGF’s review validated our existing policy. The peer group analysis indicated that average total cash compensation paid to our top five named executives was significantly below market cash pay ranges and that the stock option grants used for long term incentive compensation were in line with market ranges for our peer group.

 

During 2007, we hired an experienced human resource manager who re-evaluated the work done by AGF in late 2006 and early 2007 and found that the conclusions reached in their report remained valid for the current year and for future planning purposes. In addition, our human resource manager instituted a pay-for-performance methodology for the entire company.

 

This new incentive-based compensation program links individual merit increases to specific performance targets. All company employees received performance evaluations which culminated in an overall- performance rating that was tied to a specific merit increase. These increases were based on surveyed national average wage increases.

 

Our compensation committee reviews and approves, or recommends for approval by our Board of Directors, the compensation of our Chief Executive Officer and other executive officers, including their salaries, bonuses and incentive compensation levels, deferred compensation, executive perquisites, equity compensation, severance arrangements, change-in-control benefits and other forms of executive officer compensation. The compensation committee may delegate its authority to a subcommittee consisting of outside directors. The compensation committee meets without the presence of executive officers when deliberating and approving the compensation of our Chief Executive Officer, but may, at its discretion, invite our Chief Executive Officer to participate in discussions regarding the compensation of our other executive officers.

 

 

 

Overall Compensation

 

President and Chief Executive Officer, Joseph V. Gulfo, M.D., M.B.A.

 

On January 5, 2004, we entered into an employment agreement with Dr. Joseph V. Gulfo, our President and Chief Executive Officer. The employment agreement provides Dr. Gulfo with an annual base salary of $175,000, subject to periodic review by our Board of Directors, and yearly bonuses at the discretion of our Board of Directors. In 2005, our Board of Directors deferred any decision regarding Dr. Gulfo’s base salary and bonus awards until after completion of our initial public offering. In 2006, based upon the completion of our initial public offering, significant technical progress in the development of MelaFind^® and a number of subjective factors, our Board of Directors decided to increase Dr. Gulfo’s base salary to $235,000 and award him a bonus of $50,000. In May of 2007, based on the Company’s progress, Dr. Gulfo’s received a base salary increase to $260,000 effective April 1, 2007 and was awarded a $60,000 bonus.

 

Dr. Gulfo’s employment agreement also provides for three separate grants of stock options. The first two stock option grants for the purchase of a total of 81,753 shares of our common stock at an exercise price of $0.46 per share have fully vested. The number of shares of our common stock subject to the third stock option can only be calculated at the time of PMA approval of MelaFind^®. The number of shares purchasable under this option at an exercise price of $0.46 per share is equal to that number of shares of common stock equal to four percent of our fully-diluted capital stock at the time of PMA approval of MelaFind^® minus the number of shares of common stock underlying the other stock options granted to Dr. Gulfo under the employment agreement, which is 81,573. Based on 18,340,852 shares outstanding (on a fully-diluted basis) as of December 31, 2007 and assuming such shares remain the total number of shares outstanding on the date we receive PMA approval of MelaFind^®, the number of shares subject to this option is 651,881. This third stock option vests 50% at the time of PMA approval of MelaFind^®, and the remaining 50% vests in four equal installments over the one year period following such PMA approval of MelaFind^®.

 

Based on its own internal analysis, comparison with several peer companies the Compensation Committee of our Board of Directors has concluded that Dr. Gulfo’s total compensation was appropriate for 2007.

 

Vice President, Finance and Chief Financial Officer, Secretary and Treasurer, Richard Steinhart

 

Our Vice President and Chief Financial Officer, Secretary and Treasurer, Richard Steinhart, joined us in April of 2006. Mr. Steinhart’s compensation, including base salary and stock option package, was detailed in a letter agreement with Mr. Steinhart dated April 24, 2006. Pursuant to that letter, Mr. Steinhart received a base salary of $195,000 and a stock option grant for the purchase of 100,000 shares of common stock at an exercise price of $5.82. In accordance with our policy, these options were priced on the date of grant as determined by the Compensation Committee of our Board of Directors. As is consistent throughout our executive ranks, Mr. Steinhart’s options vest both over time and with the attainment of several corporate-wide milestones. In our letter agreement with Mr. Steinhart, we agreed that if we completed a corporate fundraising with gross proceeds of more than $10 million, 40,000 options would vest and Mr. Steinhart would be entitled to a salary review. This milestone was met, and accordingly the 40,000 share option vested, when we completed our November 3, 2006 financing and raised approximately $13.2 million in gross proceeds. In 2007, Mr. Steinhart received a $30,000 cash bonus and his base salary was increased to $205,000 effective April 1, 2007. In addition, Mr. Steinhart’s 40,000 time based option vests 8,000 shares annually, and he has a milestone-based option for 20,000 shares which vests upon PMA approval from the FDA.

A number of subjective factors were also considered in establishing Mr. Steinhart’s overall compensation, including his prior business experience and overall company performance.

 

Based on its own internal analysis, the Compensation Committee of our Board of Directors concluded that Mr. Steinhart’s pay package was appropriate for 2007.

 

Vice President, Marketing Operations, Jon Klippel

 

Our Vice President, Marketing Operations, Jon Klippel, was paid $149,373 in 2006. His base salary at the end of 2006 was $140,000, and during the year he received a $5,000 raise and a $10,000 discretionary bonus. In addition, Mr. Klippel received 5,000 milestone-based options during 2006. AGF reported to us that Mr. Klippel’s salary also followed the Company’s executive compensation pattern of cash remuneration that ranked below our industry peer group but included adequate long-term compensation in the form of stock options. In 2007 Mr. Klippel’s base salary was increased to $145,600.

 

Mr. Klippel has been awarded two separate stock option grants. In December of 2004, he received a 5-year stock option grant totaling 45,000 shares. These options priced at $0.46 per share were all vested at the Company’s initial public offering. In addition Mr. Klippel was awarded an additional 5-year 5,000 share grant in May of 2006, exercisable at $7.08 per share. AGF reported that these two grants put Mr. Klippel’s long-term compensation on par with other marketing executives in our peer group. Mr. Klippel did not exercise any stock options in 2006 or 2007.

 

We considered the quality of Mr. Klippel’s work over the last year in connection with our pre-marketing plans and our reimbursement strategy and his prior business experience to evaluate his 2007 compensation.

 

Based on its own internal analysis, the Compensation Committee of our Board of Directors concluded that Mr. Klippel’s pay package was appropriate for 2007.

 

Vice President, Research and Development, Nikolai Kabelev

 

Our Vice President, Research and Development, Nikolai Kabelev, earned cash compensation totaling $188,000 (including a $23,000 performance bonus) in 2007. Mr. Kabelev’s compensation included base salary and a stock option package. In November 2007, Mr. Kabelev received a stock option grant for the purchase of 19,239 shares of common stock at $4.50 per share. Mr. Kabelev’s options vest both over time and with the attainment of several corporate-wide milestones.

 

A number of subjective factors were also considered in establishing Mr.Kabelev’s overall compensation, including his unique background in algorithm software development.

 

Based on its own internal analysis, the Compensation Committee of our Board of Directors concluded that Mr.Kabelev’s pay package was appropriate for 2007.

 

Vice President, Operations, Christiano Butler

 

Our Vice President, Operations, Christiano Butler’s cash compensation in 2007 was $158,200 (including a $14,000 performance bonus). Mr. Butler’s compensation, including base salary and stock option package, was detailed in a letter agreement with the Company dated May 30, 2006. In that letter Mr. Butler received a base salary of $140,000 and a stock option grant consisting of 40,000 shares of common stock at an exercise price of $7.60 per share. In accordance with our policy, these options were priced on the date of grant as determined by the Compensation Committee. As is consistent throughout our executive ranks, Mr. Butler’s options vest both over time and with the attainment of several corporate-wide milestones. Two-thousand of Mr. Butler’s 10,000 time-based options vest annually. Mr. Butler’s compensation arrangements follow the pattern of our other executives, his cash compensation is below our peer group of companies, but his long-term incentive compensation is consistent with comparable jobs at our peer group of companies.

 

A number of subjective factors were also considered in establishing Mr. Butler’s overall compensation including his considerable relevant prior business experience.

Based on its own internal analysis, the Compensation Committee of the Board of Directors concluded that Mr. Butler’s pay package was appropriate for 2007.

 

Components of Executive Compensation

 

We have historically applied a structure where a significant portion of our executive compensation comes in the form of long-term incentive compensation. While the allocation varies, in general our executive officers have a far greater percentage of their compensation in the form of long-term compensation than our lower level employees. However, we firmly believe that all employees should have an equity ownership position. We believe this is a strong motivator and an important component of our overall compensation strategy. In our view, the approach we have taken was confirmed by the work AGF did for the Compensation Committee of our Board of Directors.

 

Base Salaries

 

The base salary is the guaranteed portion of our employee’s annual cash compensation. The base salary reflects our employees’ experience, skill set, and the market value of that experience and skill set. The individual’s base salary is adjusted as a result of an annual performance review and in recognition of his or her prior year’s accomplishments.

 

Bonuses

 

We do not have a formalized bonus program and as such have only paid limited discretionary bonuses. Our compensation consultant, AGF, has recommended that we initiate a more formal management incentive program, and our Board of Directors and Compensation Committee are currently evaluating the establishment of an appropriate program; however, no decision has been reached.

 

Equity Compensation

 

The only form of equity compensation currently awarded by the Compensation Committee of our Board of Directors consists of stock options, both qualified and non-qualified. All of the options have been granted out of three stock option plans: our 1996 Stock Option Plan (the “1996 Plan”), our 2003 Stock Incentive Plan (the “2003 Plan”) and our 2005 Stock Incentive Plan (the “2005 Plan”). The 1996 Plan, 2003 Plan and 2005 Plan are available as exhibits to our Registration Statement on Form S-1, as amended (File No. 333-125517) at www.sec.gov. Since January 1, 2005, our 2005 Plan is the only plan under which option awards are being granted. These plans allow our Board of Directors to grant incentives to employees, directors, consultants and collaborating scientists in the form of qualified and non-qualified stock options and restricted stock awards. We have used this form of compensation because of the expectations of our employees that in a company such as ours they would be given the opportunity to own equity. In our industry, option grants have been traditionally the most widely-used form to convey equity ownership.

 

Option awards under our 2005 Plan are granted at prices which are no less than the market value of the stock on the date of the grant as determined by the Compensation Committee of the Board of Directors. New employees who get options as part of their employment agreement have those options priced at the closing price of our stock on the date of grant, also as determined by the Compensation Committee of the Board of Directors. Options granted under the 2005 Plan historically have been time-based or performance-based options, and vesting varies accordingly. Options that have been granted under this plan expire five years from the date of grant.

 

Effective January 1, 2006, the Company began recording compensation expense associated with stock options and other forms of equity compensation in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS 123R). Under this method, the Company must recognize a compensation charge related to all stock option awards granted on or subsequent to January 1, 2006. This charge is based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. A compensation charge is recorded when it is probable that performance or service conditions will be satisfied. The probability of vesting is updated at each reporting period and compensation is adjusted via a cumulative catch-up adjustment or prospectively depending upon the nature of the change. Despite the fact that this new accounting provision makes accounting for stock options less attractive to the Company, we have continued to

use this approach because we believe it is the most cash-efficient way for the Company to convey equity ownership to our employees.

 

Our executive compensation consultant, AGF, has recommended that we consider the use of restricted stock awards for our senior executives. While the use of restricted stock would reduce the total number of shares we issue and lower potential dilution to our shareholders, this method may not be attractive because of potential tax consequences to our employees. Our Board of Directors and its Compensation Committee are in the process of evaluating the use of restricted stock awards for future years.

 

GRANTS OF PLAN BASED AWARDS FOR YEAR ENDED DECEMBER 31, 2007

 

 

OUTSTANDING EQUITY AWARDS AT 2007 YEAR-END

 

 

 

OPTION EXERCISE AND VESTED STOCK OPTION AWARDS FOR 2007

 

The Option Exercise and Vested Stock Option Awards table has been omitted as there were no options exercised by, nor vested stock option awards made to, any named executive officer.

 

EQUITY COMPENSATION PLAN INFORMATION

 

Severance Benefits

 

Dr. Gulfo and Mr. Steinhart are the two current senior executives whose employment agreements include provisions for severance benefits payable by the Company. In Dr. Gulfo’s case, if he is terminated without cause he is entitled to his then current monthly salary for a period of 15 months and, if Dr. Gulfo is then covered by health insurance provided by us, the cost to Dr. Gulfo of COBRA coverage for 15 months. If we elect not to renew Dr. Gulfo’s employment agreement, Dr. Gulfo is entitled to an amount equal to his then current base salary for nine months and, if Dr. Gulfo is covered by our health insurance policy at such time, the cost of COBRA for nine months (subject to reduction to the extent Dr. Gulfo received comparable benefits from a subsequent employer during such nine-month period). Dr. Gulfo’s severance period may be extended for an additional 12 months in the event we elect to extend the length of his non-compete covenant to two years, in which case we would have to pay him additional severance equal to twelve months of his base salary at the time of termination and his most recent bonus. In Mr. Steinhart’s case, if he is terminated without cause he is entitled to 6 months of his base salary and acceleration of his milestone-based options if the milestones are achieved within six months of his termination.

 

Assuming a termination date of December 31, 2007:

 

(i) If Dr. Gulfo was terminated by us for cause, upon death or disability, then he would not have received severance under his employment agreement.

 

(ii) If Dr. Gulfo terminated his contract for good reason or was terminated by us without cause, he would have received $361,226, of which $350,000 represents 15 months of his monthly salary and $11,226 represents 15 months of COBRA coverage (estimated based on the Company’s 2008 cost of COBRA premiums).

 

(iii) If Dr. Gulfo was terminated by us without cause within 30 days of our operations being discontinued, then he would not have received severance under his employment agreement.

 

(iv) If Dr. Gulfo’s employment agreement is not renewed by us, then he would have received $216,736, of which $210,000 represents 9 months of his monthly salary and $6,736 represents 9 months of COBRA coverage (estimated based on the Company’s 2008 cost of COBRA premiums).

 

(v) If Dr. Gulfo’s employment agreement is not renewed by us and we extended the length of his non-compete covenant to two years, then he would have received $703,472, of which $630,000 represents 27 months of his monthly salary, $13,472 represents 18 months of COBRA coverage (estimated based on the Company’s 2008 cost of COBRA premiums) and $60,000 represents the amount of his last bonus.

 

(vi) If Mr. Steinhart was terminated by us for cause, then he would not have received severance under his employment agreement.

 

(vii) If Mr. Steinhart was terminated by us without cause, then he would have received $107,500 which represents 6 months of his monthly salary. Mr. Steinhart is also entitled to income from the acceleration of the vesting of his unvested stock options assuming that PMA approval of MelaFind^® was received within 6 months of his termination. There is no value to this vesting acceleration based on the closing price of the Company’s common stock on December 31, 2007 ($4.51) as there would be no in-the-money unvested option shares at his exercise price of $5.82.

 

Retirement Plans

 

We do not maintain a traditional defined benefit plan. We do, however, maintain a Simple IRA plan covering all qualified employees. We match dollar-for-dollar the employee’s contribution up to 3% of each participant’s salary to a maximum of $220,000. We do not consider the Simple IRA matching contribution to be a significant portion of any of our executives’ compensation package.

Change of Control

 

Our 2003 Plan and 2005 Plan contain provisions providing that if there is a change of control involving a merger, consolidation, mandatory share exchange or other similar business combination of the Company with or into any other entity or any transaction in which a successor entity acquires all the issued and outstanding capital stock of the Company, or all or substantially all the assets of the Company, then if and to the extent that outstanding options are not assumed or replaced with substantially equivalent options in connection with the acquisition event, then each optionee shall have the right to exercise in full all of his or her outstanding options, whether or not such options are otherwise vested or exercisable, and any outstanding options which are not exercised prior to the consummation of the change of control event shall thereupon terminate. The 1996 Plan does not contain a similar provision. However, all outstanding options issued under the 1996 Plan are fully vested as of February 29, 2008, and the 1996 Plan expired on November 30, 2006.

 

Perquisites and Other Benefits

 

As a company without any substantial revenue, we are not in a position to provide any significant perquisites or other benefits. Currently, the only perquisites are provided to Dr. Gulfo pursuant to his employment agreement: (i) reimbursement of economical travel expenses incidental to Dr. Gulfo’s commute to our principal office in Irvington, New York from Wilmington, Delaware in an aggregate amount not to exceed $1,100 per month, consisting of an unlimited Amtrak unreserved pass, a MetroNorth RailPass, NYC Subway transportation, and monthly car parking; (ii) economical lodging allowance consisting of $3,000 per month; and (iii) reimbursement of economical communication expenses consisting of expenses for one cellular phone line, one phone line at Dr. Gulfo’s home office and cable broadband internet service at Dr. Gulfo’s home office. We have no plans for any additional perquisites.

 

Compensation of Directors

 

In addition to reimbursement of expenses incurred in attending meetings of our Board of Directors and committees of our Board of Directors, our non-employee directors will receive an annual fee of $10,000 for serving as directors and an additional $500 per meeting for each meeting attended, whether in person or by telephone. In addition, the chairman of our Board of Directors, the chairman of our audit committee and the chairman of our nominating and governance committee will each receive an annual fee of $10,000. Each member of our Board of Directors who is not a company employee will receive an annual stock option grant to purchase up to 5,000 shares of common stock. Such stock options will vest in full upon the first anniversary of issuance and have an exercise price equal to the fair market value of our common stock on the date of the grant.

 

DIRECTOR COMPENSATION TABLE FOR 2007

 

 

 

 

Employment Agreements

 

Employment Agreement with Joseph V. Gulfo, M.D.

 

On January 5, 2004, we entered into an employment agreement with Dr. Joseph V. Gulfo, our President and Chief Executive Officer. Pursuant to the agreement, Dr. Gulfo is required to devote substantially all of his business time, attention and efforts to the performance of his duties under the agreement. The initial term of the employment agreement extended until December 31, 2005 and was again extended until December 31, 2006. The contract automatically renews for successive twelve-month terms unless either party sends a written notice of termination within 90 days of the expiration of the renewal term. The employment agreement automatically extended until December 31, 2008.

 

The employment agreement provides Dr. Gulfo with an annual base salary of $175,000 subject to periodic review by our Board of Directors, stock options, and performance bonuses. The target for such bonuses is 50% of Dr. Gulfo’s then current base salary. In May 2006, Dr. Gulfo received a $50,000 bonus and his base salary was raised to $235,000. In May 2007 but effective April 1, 2007, Dr. Gulfo’s base salary was raised to $260,000 and he received a bonus of $60,000. Effective March 1, 2008, Dr. Gulfo’s base salary was raised to $280,000 and he received a bonus of $65,000.

 

In addition, Dr. Gulfo is entitled to be reimbursed for certain economical travel expenses incidental to Dr. Gulfo’s commute to our principal office in Irvington, New York from Wilmington, Delaware, consisting of an unlimited Amtrak unreserved pass, a MetroNorth RailPass, NYC Subway transporation, and monthly car parking up to $1,100 per month, $3,000 per month for economical lodging expenses, and for certain economical communication expenses including cellular phone service, one phone line at Dr. Gulfo’s home office and cable broadband internet service.

 

If Dr. Gulfo’s employment is terminated by us without cause or Dr. Gulfo resigns for good reason, then Dr. Gulfo would be entitled to receive severance pay equal to 15 months of his then current base salary and, if Dr. Gulfo is then covered by health insurance provided by us, the cost to Dr. Gulfo of COBRA coverage for 15 months. If we elect not to renew Dr. Gulfo’s employment agreement, Dr. Gulfo is entitled to an amount equal to his then current base salary for nine months and, if Dr. Gulfo is covered by our health insurance policy at such time, the cost of COBRA for nine months (subject to reduction to the extent Dr. Gulfo received comparable benefits from a subsequent employer during such nine-month period).

 

Dr. Gulfo is subject to a non-compete covenant upon termination of his employment by us or him. The term of Dr. Gulfo’s non-compete covenant is one year, which can be extended to two years in the event we elect to pay him additional severance equal to twelve months of his base salary at the time of termination and his most recent bonus (if any).

 

The employment agreement provides for three separate grants of stock options. The first two stock option grants for the purchase of a total of 81,753 shares of our common stock at an exercise price of $0.46 per share have fully vested. The number of shares of our common stock subject to the third stock option can only be calculated at the time of PMA approval of MelaFind^®. The number of shares purchasable under this option at an exercise price of $0.46 per share is equal to that number of shares of our common stock equal to four percent of our fully-diluted capital stock at the time of PMA approval of MelaFind^® minus the number of shares of common stock underlying the other options granted to Dr. Gulfo under the employment agreement, which is 81,753. Based on shares 18,340,852 outstanding (on a fully-diluted basis) as of December 31, 2007 and assuming such shares remain the total number of shares outstanding on the date we receive PMA approval of MelaFind^® (assuming in both cases the exercise of all outstanding options and warrants), the number of shares subject to this option is 651,881. This third stock option grant vests 50% at the time of PMA approval of MelaFind^®, and the remaining 50% vests in four equal installments over the one year period following such PMA approval of MelaFind^®.

Consulting Agreements

 

Consulting Agreement with Breaux Castleman

 

In June 2003, we entered into a consulting agreement with Breaux Castleman for consulting services related to FDA approval of MelaFind^®, administrative matters, financial reporting, and our business and financial strategy. Under this agreement, Mr. Castleman receives compensation for each month of services rendered. During 2003, Mr. Castleman was paid at the rate of $8,000 for each month of services rendered and thereafter from 2004 onward he has been paid at the rate of $2,000 for each month of services rendered. We made payments pursuant to this consulting agreement of $26,000 in 2005, $29,000 in 2006, and $24,000 in 2007. These payments did not exceed $100,000 in any twelve-month period since June 2003. In connection with our consulting agreement with Mr. Castleman, we granted Mr. Castleman a restricted stock award of 75,000 shares of our common stock under our 2003 Plan for an aggregate purchase price of $34,500. Mr. Castleman issued an interest-bearing promissory note in the principal amount of $34,500 as payment for these shares. During the second quarter of 2005, this note was repaid in full. Our consulting agreement with Mr. Castleman is terminable by either party on 30 days’ written notice.

 

Consulting Agreement with Marek Elbaum, Ph.D.

 

Pursuant to a consulting agreement effective as of May 31, 2005, we retained Marek Elbaum, Ph.D., our founder and former Chief Science and Technology Officer, as our Chief Scientist to provide services relating to the integration of our product development, mentoring and advising our staff scientists, providing new product vision, supporting our research and development and providing such other services as assigned to him by our Chief Executive Officer. Pursuant to the consulting agreement, Dr. Elbaum will provide us with a majority of his business time in consideration of a monthly fee of approximately $14,500. The term of such agreement extends for a period of two years and is automatically renewable for an additional one year period unless either Dr. Elbaum or we decide to not so renew. In the event of a non-renewal, and in the event that Dr. Elbaum’s services terminate as a result of his death or disability, we will pay to Dr. Elbaum a termination fee of $100,000. Dr. Elbaum and the Company entered into an amended agreement effective June 1, 2007. Under the terms of the amended agreement, Dr. Elbaum will be paid a monthly fee of $8,750 through January 2009. In addition, upon termination of the consulting agreement for any reason other than a termination by us for cause, we will pay to Dr. Elbaum for 18 months an amount equal to what Dr. Elbaum would have had to pay to extend his insurance coverage under COBRA. Dr. Elbaum is subject to a non-compete covenant during the term of the consulting agreement and for a period of two years after the term of the consulting agreement. We have also agreed that all stock options previously granted to Dr. Elbaum will continue to vest in accordance with their original terms.

 

Consulting Agreement with Robert Friedman, M.D.

 

Pursuant to a consulting agreement effective as of June 1, 2005, we have retained the services of Robert Friedman, M.D. for an initial term of one year as a consultant, medical advisor to our Board of Directors, and as a liaison between our Board of Directors and our scientific and medical advisory committee, and in connection with the clinical testing of MelaFind^®. In consideration of rendering of these services, Dr. Friedman will be paid at a rate of $5,000 per day (assuming an eight-hour day) for up to 30 days of service. The consulting agreement is automatically renewed for successive one-year terms unless either party terminates the agreement at least 30 days prior to the expiration of the agreement. We paid Dr. Friedman $30,000 in 2005, $42,000 in 2006 and $58,000 in 2007.

 

Consulting Agreement with Gerald Wagner, Ph.D.

 

Pursuant to a consulting agreement dated as of June 1, 2005 with Gerald Wagner Consulting LLC (GWC), a company owned and operated by Dr. Gerald Wagner, GWC agreed to direct our MelaFind^® product development efforts and oversee the manufacturing process for MelaFind^®. On March 24, 2006, we entered into an amended and restated consulting agreement with GWC, which became effective on April 1, 2006. Under this amended and restated consulting agreement, we agreed to pay GWC the annual amount of $180,000 payable monthly over the term of the agreement. The agreement provided for termination at the option of GWC or us, at any time by providing thirty (30) days prior written notice or immediately upon the mutual agreement of us and GWC. In connection with GWC’s ongoing engagement as a consultant, Dr. Wagner received a stock option grant of

50,000 shares of our common stock which vested in January 2007 upon commencement of the pivotal trial for MelaFind^®. In addition, on March 24, 2006, Dr. Wagner received another stock option grant of 49,500 shares of our common stock which vested immediately upon grant. The exercise price for these two stock option grants is the closing price per share of our common stock on the option grant date. In addition, Dr. Wagner transitioned out of his role as our Acting Chief Operating Officer, and signed an amended consulting contract with us. Under the terms of the amended contract, Dr. Wagner was paid a monthly retainer of $2,500 and will be paid $2,500 for each additional day of consulting. This amended agreement will end at the option of Dr. Wagner or us at any time, by providing fifteen days prior written notice, or immediately upon the mutual agreement of us and Dr. Wagner. In 2006, Dr. Wagner received $180,000 from us for his role as our Acting Chief Operating Officer. In January 2007, Dr Wagner received $15,000 for his work as our Acting Chief Operating Officer and over the balance of 2007 he received $30,000 as a consultant to us under his amended contract.

 

Limitation of Liability and Indemnification of Directors and Officers

 

Our fourth amended and restated certificate of incorporation and third amended and restated bylaws provide that we will indemnify our directors and executive officers and may indemnify our other officers and employees and other agents to the fullest extent permitted by law. Our fourth amended and restated certificate of incorporation and third amended and restated bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the bylaws would permit indemnification. We maintain directors’ and officers’ liability insurance. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.

 

Compensation Committee Interlocks and Insider Participation

 

The compensation committee is composed of three non-employee directors: Messrs. Castleman, Braginsky and Chryssis. No member of the compensation committee is or was formerly a permanent officer or employee of the Company. No interlocking relationship exists between the Company’s Board of Directors or compensation committee and the Board of Directors or compensation committee of any other company, nor has such interlocking relationship existed in the past. Dr. Gulfo, our Chief Executive Officer, previously participated in the deliberations regarding executive compensation. None of our executive officers has served as a member of the compensation committee, or other committee serving an equivalent function, of any other entity, one of whose executive officers served as a member of our compensation committee.

 

The compensation committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis with the Company’s management, and based on such review and discussions, the compensation committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

COMPENSATION COMMITTEE

 

Breaux Castleman

Sidney Braginsky

George C. Chryssis

 

 

² The material in this report is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

 

The Company has entered into employment agreements and other agreements with certain of its executive officers. See “Compensation Discussion and Analysis.”

 

The Board of Directors has authorized the Company to enter into indemnity agreements with certain officers and directors which provide, among other things, that the Company will indemnify such officer or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings to which he or she is or may be made a party by reason of his or her position as a director, officer or other agent of the Company, and otherwise to the fullest extent permitted under Delaware law and the Company’s bylaws.

PERFORMANCE MEASUREMENT COMPARISON³

 

The following graph shows the total stockholder return of an investment of $100 in cash on October 28, 2005 (the date of the Company’s initial public offering) for (i) the Company’s common stock, (ii) the Nasdaq Stock Market (U.S.) Index and (iii) a peer group index comprised of all public companies using SIC Code 3826 (Laboratory Analytical Instruments) (the “Peer Group”). All values assume reinvestment of the full amount of all dividends and are calculated as of December 31 of each year:

 

COMPARISON OF CUMULATIVE TOTAL RETURN

AMONG ELECTRO-OPTICAL SCIENCES, INC.,

THE NASDAQ STOCK MARKET (U.S.) INDEX AND A PEER GROUP

 

 

 

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.

 

 

³ This Section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

This year, a number of brokers with account holders who are Company stockholders will be “householding” our proxy materials. A single proxy statement may be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you notify your broker or the Company that you no longer wish to participate in “householding.” If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report in the future you may (1) notify your broker, (2) direct your written request to: Electro-Optical Sciences, Inc., 3 West Main Street, Suite 201, Irvington, New York 10533, Attention: Secretary, telephone (914) 591-3783 or (3) contact our Investor Relations representatives at Lazar Partners, Ltd., 420 Lexington Avenue, Suite 442, New York, New York 10170. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their broker. In addition, the Company will promptly deliver, upon written or oral request to the address or telephone number above, a separate copy of the annual report and proxy statement to a stockholder at a shared address to which a single copy of the documents was delivered.

 

The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.

 

By Order of the Board of Directors

 

 

Joseph V. Gulfo, M.D., M.B.A.

President and Chief Executive Officer

 

April 15, 2008

 

A copy of the Company’s Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2007 is available without charge upon written request to: Electro-Optical Sciences, Inc., 3 West Main Street, Suite 201, Irvington, New York 10533, Attention: Secretary.

 

ANNEX A

 

ELECTRO-OPTICAL SCIENCES, INC.

 

 

The purpose of the Audit Committee is to assist oversight by the Board of Directors (the “Board”) of Electro-Optical Sciences, Inc. (the “Company”) of the Company’s accounting and financial reporting processes and the audits of the Company’s financial statements.

 

 

1. Number.  Except as otherwise permitted by the applicable NASDAQ rules, the Audit Committee shall consist of at least three members of the Board.

 

2. Independence.  Except as otherwise permitted by the applicable NASDAQ rules, each member of the Audit Committee shall be independent as defined by NASDAQ rules, meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act (subject to the exemptions provided in Rule 10A-3(c)), and not have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years.

 

3. Financial Literacy.  Each member of the Audit Committee must be able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement, and cash flow statement, at the time of his or her appointment to the Audit Committee. In addition, at least one member must have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Unless otherwise determined by the Board (in which case disclosure of such determination shall be made in the Company’s annual report filed with the Securities and Exchange Commission (the “SEC”)), at least one member of the Audit Committee shall be an “audit committee financial expert” (as defined by applicable SEC rules).

 

4. Chair.  Unless the Board elects a Chair of the Audit Committee, the Audit Committee shall elect a Chair by majority vote.

 

5. Compensation.  The compensation of Audit Committee members shall be as determined by the Board. No member of the Audit Committee may receive, directly or indirectly, any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries, other than fees paid in his or her capacity as a member of the Board or a committee of the Board.

 

6. Selection and Removal.  Members of the Audit Committee shall be appointed by the Board, upon the recommendation of the Nominating and Corporate Governance Committee. The Board may remove members of the Audit Committee from such committee, with or without cause.

 

 

General

 

The Audit Committee shall discharge its responsibilities, and shall assess the information provided by the Company’s management and the independent auditor, in accordance with its business judgment. Management is responsible for the preparation, presentation, and integrity of the Company’s financial statements, for the appropriateness of the accounting principles and reporting policies that are used by the Company and for establishing and maintaining adequate internal control over financial reporting. The independent auditors are

responsible for auditing the Company’s financial statements and the Company’s internal control over financial reporting and for reviewing the Company’s unaudited interim financial statements. The authority and responsibilities set forth in this Charter do not reflect or create any duty or obligation of the Audit Committee to plan or conduct any audit, to determine or certify that the Company’s financial statements are complete, accurate, fairly presented, or in accordance with generally accepted accounting principles or applicable law, or to guarantee the independent auditor’s reports.

 

Oversight of Independent Auditors

 

1. Selection.  The Audit Committee shall be solely and directly responsible for appointing, evaluating, retaining and, when necessary, terminating the engagement of the independent auditor. The Audit Committee may, in its discretion, seek stockholder ratification of the independent auditor it appoints.

 

2. Independence.  The Audit Committee shall take, or recommend that the full Board take, appropriate action to oversee the independence of the independent auditor. In connection with this responsibility, the Audit Committee shall obtain and review a formal written statement from the independent auditor describing all relationships between the auditor and the Company, including the disclosures required by Independence Standards Board Standard No. 1. The Audit Committee shall actively engage in dialogue with the auditor concerning any disclosed relationships or services that might impact the objectivity and independence of the auditor.

 

3. Compensation.  The Audit Committee shall have sole and direct responsibility for setting the compensation of the independent auditor. The Audit Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of the independent auditor established by the Audit Committee.

 

4. Preapproval of Services.  The Audit Committee shall preapprove all audit services to be provided to the Company, whether provided by the principal auditor or other firms, and all other services (review, attest and non-audit) to be provided to the Company by the independent auditor; provided, however, that de minimis non-audit services may instead be approved in accordance with applicable SEC rules.

 

5. Oversight.  The independent auditor shall report directly to the Audit Committee, and the Audit Committee shall have sole and direct responsibility for overseeing the work of the independent auditor, including resolution of disagreements between Company management and the independent auditor regarding financial reporting. In connection with its oversight role, the Audit Committee shall, from time to time as appropriate, receive and consider the reports required to be made by the independent auditor regarding:

 

 

Audited Financial Statements

 

6. Review and Discussion.  The Audit Committee shall review and discuss with the Company’s management and independent auditor the Company’s audited financial statements, including the matters about which Statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards, AU § 380) requires discussion.

 

7. Recommendation to Board Regarding Financial Statements.  The Audit Committee shall consider whether it will recommend to the Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K.

8. Audit Committee Report.  The Audit Committee shall prepare an annual committee report for inclusion where necessary in the proxy statement of the Company relating to its annual meeting of security holders.

 

Review of Other Financial Disclosures

 

9. Oversight.  The Audit Committee shall coordinate the Board’s oversight of the Company’s internal control over financial reporting, disclosure controls and procedures and code of conduct. The Audit Committee shall receive and review the reports of the CEO and CFO required by Rule 13a-14 of the Exchange Act.

 

10. Procedures for Complaints.  The Audit Committee shall establish procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

 

11. Related-Party Transactions.  The Audit Committee shall review all “related party transactions” (defined as transactions required to be disclosed pursuant to Item 404 of Regulation S-K) on an ongoing basis, and all such transactions must be approved by the Audit Committee.

 

Controls and Procedures

 

12. Oversight.  The Audit Committee shall coordinate the Board’s oversight of the Company’s internal control over financial reporting, disclosure controls and procedures and code of conduct. The Audit Committee shall receive and review the reports of the CEO and CFO required by Rule 13a-14 of the Exchange Act.

 

13. Procedures for Complaints.  The Audit Committee shall establish procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

 

14. Related-Party Transactions.  The Audit Committee shall review all “related party transactions” (defined as transactions required to be disclosed pursuant to Item 404 of Regulation S-K) on an ongoing basis, and all such transactions must be approved by the Audit Committee.

 

15. Additional Powers.  The Audit Committee shall have such other duties as may be delegated from time to time by the Board.

 

 

1. Meetings.  The Audit Committee shall meet as often as it deems necessary in order to perform its responsibilities. The Audit Committee may also act by unanimous written consent in lieu of a meeting. The Audit Committee shall periodically meet separately with: (i) the independent auditor; (ii) Company management and (iii) the Company’s internal auditors. The Audit Committee shall keep such records of its meetings as it shall deem appropriate.

 

2. Subcommittees.  The Audit Committee may form and delegate authority to one or more subcommittees (including a subcommittee consisting of a single member), as it deems appropriate from time to time under the circumstances. Any decision of a subcommittee to preapprove audit, review, attest or non-audit services shall be presented to the full Audit Committee at its next scheduled meeting.

 

3. Reports to Board.  The Audit Committee shall report regularly to the Board.

 

4. Charter.  At least annually, the Audit Committee shall review and reassess the adequacy of this Charter and recommend any proposed changes to the Board for approval.

5. Independent Advisors.  The Audit Committee is authorized, without further action by the Board, to engage such independent legal, accounting and other advisors as it deems necessary or appropriate to carry out its responsibilities. Such independent advisors may be the regular advisors to the Company. The Audit Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of such advisors as established by the Audit Committee.

 

6. Investigations.  The Audit Committee shall have the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it shall deem appropriate, including the authority to request any officer, employee or advisor of the Company to meet with the Audit Committee or any advisors engaged by the Audit Committee.

 

7. Funding.  The Audit Committee is empowered, without further action by the Board, to cause the Company to pay the ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.

 

8. Annual Self-Evaluation.  At least annually, the Audit Committee shall evaluate its own performance.

 

ANNEX B

 

ELECTRO-OPTICAL SCIENCES, INC.

 

 

The purpose of the Compensation Committee of the Board of Directors (the “Board”) of the Electro-Optical Sciences, Inc. (the “Company”) is to assist the Board in the discharge of its responsibilities relating to compensation of the Company’s executive officers.

 

 

1. Number.  The Compensation Committee shall consist of at least three members of the Board.

 

2. Independence.  Except as otherwise permitted by the applicable NASDAQ rules, each member of the Compensation Committee shall be an “independent director” as defined by the applicable NASDAQ rules.

 

3. Chair.  Unless the Board elects a Chair of the Compensation Committee, the Compensation Committee shall elect a Chair by majority vote.

 

4. Compensation.  The compensation of Compensation Committee members shall be as determined by the Board.

 

5. Selection and Removal.  Members of the Compensation Committee shall be appointed by the Board, upon the recommendation of the Nominating and Corporate Governance Committee. The Board may remove members of the Compensation Committee from such committee, with or without cause.

 

 

General

 

The Compensation Committee shall discharge its responsibilities, and shall assess the information provided by the Company’s management, in accordance with its business judgment.

 

Compensation Matters

 

1. Executive Officer Compensation.  The Compensation Committee, or a majority of the independent directors of the Board, shall review and approve, or recommend for approval by the Board, the compensation of the Company’s Chief Executive Officer (the “CEO”) and the Company’s other executive officers, including salary, bonus and incentive compensation levels; deferred compensation; executive perquisites; equity compensation (including awards to induce employment); severance arrangements; change-in-control benefits and other forms of executive officer compensation. The Compensation Committee or the independent directors of the Board, as the case may be, shall meet without the presence of executive officers when approving or deliberating on CEO compensation but may, in its or their discretion, invite the CEO to be present during the approval of, or deliberations with respect to, other executive officer compensation.

 

2. Evaluation of Senior Executives.  The Compensation Committee shall be responsible for overseeing the evaluation of the Company’s senior executives. In conjunction with the Audit Committee in the case of the evaluation of the senior financial management, the Compensation Committee shall determine the nature and frequency of the evaluation and the persons subject to the evaluation, supervise the conduct of the evaluation and prepare assessments of the performance of the Company’s senior executives, to be discussed periodically with the Board.

 

3. Plan Recommendations and Approvals.  The Compensation Committee shall periodically review and make recommendations to the Board with respect to incentive-compensation plans and equity-based plans. In addition, in the case of any tax-qualified, non-discriminatory employee benefit plans (and any parallel nonqualified plans) for which stockholder approval is not sought and pursuant to which options or stock may

be acquired by officers, directors, employees or consultants of the Company, the Compensation Committee, or a majority of the independent directors of the Board, shall approve such plans.

 

4. Administration of Plans.  The Compensation Committee shall exercise all rights, authority and functions of the Board under all of the Company’s stock option, stock incentive, employee stock purchase and other equity-based plans, including without limitation, the authority to interpret the terms thereof, to grant options thereunder and to make stock awards thereunder; provided, however, that, except as otherwise expressly authorized to do so by this charter or a plan or resolution of the Board, the Compensation Committee shall not be authorized to amend any such plan. To the extent permitted by applicable law and the provisions of a given equity-based plan, and consistent with the requirements of applicable law and such equity-based plan, the Compensation Committee may delegate to one or more executive officers of the Company the power to grant options or other stock awards pursuant to such equity-based plan to employees of the Company or any subsidiary of the Company who are not directors or executive officers of the Company. The Compensation Committee, or a majority of the independent directors of the Board, shall approve any inducement awards granted in reliance on the exemption from shareholder approval contained in NASDAQ Rule 4350(i)(1)(A)(iv).

 

5. Director Compensation.  The Compensation Committee shall periodically review and make recommendations to the Board with respect to director compensation.

 

6. Compensation Committee Report on Executive Compensation.   The Compensation Committee shall prepare for inclusion where necessary in a proxy or information statement of the Company relating to an annual meeting of security holders at which directors are to be elected (or special meeting or written consents in lieu of such meeting), the report described in Item 402(k) of Regulation S-K.

 

7. Compensation Committee Report on Repricing of Options/ SARs.   If during the last fiscal year of the Company (while the Company was a reporting company pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the “Exchange Act”)) any adjustment or amendment was made to the exercise price of any stock option or stock appreciation right previously awarded to a “named executive officer” (as such term is defined from time to time in Item 402(a)(3) of Regulation S-K), the Compensation Committee shall furnish the report required by Item 402(i) of Regulation S-K.

 

8. Additional Powers.  The Compensation Committee shall have such other duties as may be delegated from time to time by the Board.

 

 

1. Meetings.  The Compensation Committee shall meet as often as it deems necessary in order to perform its responsibilities. The Compensation Committee may also act by unanimous written consent in lieu of a meeting. The Compensation Committee shall keep such records of its meetings as it shall deem appropriate.

 

2. Subcommittees.  The Compensation Committee may form and delegate authority to one or more subcommittees as it deems appropriate from time to time under the circumstances (including (a) a subcommittee consisting of a single member and (b) a subcommittee consisting of at least two members, each of whom qualifies as a “non-employee director,” as such term is defined from time to time in Rule 16b-3 promulgated under the Exchange Act, and an “outside director,” as such term is defined from time to time in Section 162(m) of the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder).

 

3. Reports to Board.  The Compensation Committee shall report regularly to the Board.

 

4. Charter.  The Compensation Committee shall periodically review and reassess the adequacy of this Charter and recommend any proposed changes to the Board for approval.

 

5. Consulting Arrangements.  The Compensation Committee shall have the sole authority to retain and terminate any compensation consultant to be used to assist in the evaluation of executive officer compensation and shall have sole authority to approve the consultant’s fees and other retention terms. The Compensation

Committee shall also have authority to commission compensation surveys or studies as the need arises. The Compensation Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of such consultants as established by the Compensation Committee.

 

6. Independent Advisors.  The Compensation Committee shall have the authority, without further action by the Board, to engage such independent legal, accounting and other advisors as it deems necessary or appropriate to carry out its responsibilities. Such independent advisors may be the regular advisors to the Company. The Compensation Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of such advisors as established by the Compensation Committee.

 

7. Investigations.  The Compensation Committee shall have the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it shall deem appropriate, including the authority to request any officer, employee or advisor of the Company to meet with the Compensation Committee or any advisors engaged by the Compensation Committee.

 

8. Annual Self-Evaluation.  At least annually, the Compensation Committee shall evaluate its own performance.

ANNEX C

 

ELECTRO-OPTICAL SCIENCES, INC.

 

 

The purpose of the Nominating and Corporate Governance Committee of the Board of Directors (the “Board”) of Electro-Optical Sciences, Inc. (the “Company”) is to:

 

 

 

1. Number.  The Nominating and Corporate Governance Committee shall consist of such number of directors as the Board shall from time to time determine.

 

2. Independence.  Except as otherwise permitted by the applicable rules of NASDAQ, each member of the Nominating and Corporate Governance Committee shall be “independent” as defined by such rules.

 

3. Chair.  Unless the Board elects a Chair of the Nominating and Corporate Governance Committee, the Committee shall elect a Chair by majority vote.

 

4. Compensation.  The compensation of Nominating and Corporate Governance Committee members shall be as determined by the Board.

 

5. Selection and Removal.  Members of the Nominating and Corporate Governance Committee shall be appointed by the Board, upon the recommendation of the Committee. The Board may remove members of the Nominating and Corporate Governance Committee from such Committee, with or without cause.

 

 

General

 

The Nominating and Corporate Governance Committee shall discharge its responsibilities, and shall assess the information provided by the Company’s management, in accordance with its business judgment.

 

Board and Committee Membership

 

1. Selection of Director Nominees.  Except where the Company is legally required by contract, bylaw or otherwise to provide third parties with the right to nominate directors, the Nominating and Corporate Governance Committee shall be responsible for recommending to the Board the nominees for election as directors at any meeting of stockholders and the persons to be elected by the Board to fill any vacancies on the Board. In making such recommendations, the Committee shall consider candidates proposed by stockholders. The Committee shall review and evaluate information available to it regarding candidates proposed by stockholders and shall apply the same criteria, and shall follow substantially the same process in considering them, as it does in considering other candidates.

 

2. Criteria for Selecting Directors.  The Board’s criteria for selecting directors are as set forth in the Company’s Corporate Governance Guidelines. The Nominating and Corporate Governance Committee shall use such criteria and the principles set forth in such Guidelines to guide its director selection process. The Committee shall be responsible for reviewing with the Board, on an annual basis, the requisite skills and criteria for new Board members as well as the composition of the Board as a whole. The Committee may

adopt, and periodically review and revise as it deems appropriate, procedures regarding director candidates proposed by stockholders.

 

3. Search Firms.  The Nominating and Corporate Governance Committee shall have the authority to retain and terminate any search firm to be used to identify director nominees, including authority to approve the search firm’s fees and other retention terms. The Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of any search firm engaged by the Committee.

 

4. Selection of Committee Members.  The Nominating and Corporate Governance Committee shall be responsible for recommending to the Board the directors to be appointed to each committee of the Board.

 

Corporate Governance

 

5. Corporate Governance Guidelines.  The Nominating and Corporate Governance Committee shall develop and recommend to the Board a set of Corporate Governance Guidelines applicable to the Company. The Committee shall, from time to time as it deems appropriate, review and reassess the adequacy of such Corporate Governance Guidelines and recommend any proposed changes to the Board for approval.

 

Evaluation of the Board; Succession Planning

 

6. Evaluation of the Board.  The Nominating and Corporate Governance Committee shall be responsible for overseeing an annual self-evaluation of the Board to determine whether it and its committees are functioning effectively. The Committee shall determine the nature of the evaluation, supervise the conduct of the evaluation and prepare an assessment of the Board’s performance, to be discussed with the Board.

 

7. Succession of Senior Executives.  The Nominating and Corporate Governance Committee shall oversee an annual review by the Board on succession planning, which shall include transitional leadership in the event of an unplanned vacancy.

 

8. Additional Powers.  The Nominating and Corporate Governance Committee shall have such other duties as may be delegated from time to time by the Board.

 

 

1. Meetings.  The Nominating and Corporate Governance Committee shall meet as often as it deems necessary in order to perform its responsibilities. The Committee may also act by unanimous written consent in lieu of a meeting. The Committee shall keep such records of its meetings as it shall deem appropriate.

 

2. Subcommittees.  The Nominating and Corporate Governance Committee may form and delegate authority to one or more subcommittees (including a subcommittee consisting of a single member), as it deems appropriate from time to time under the circumstances.

 

3. Reports to the Board.  The Nominating and Corporate Governance Committee shall report regularly to the Board.

 

4. Charter.  The Nominating and Corporate Governance Committee shall, from time to time as it deems appropriate, review and reassess the adequacy of this Charter and recommend any proposed changes to the Board for approval.

 

5. Independent Advisors.  The Nominating and Corporate Governance Committee shall have the authority to engage such independent legal and other advisors as it deems necessary or appropriate to carry out its responsibilities. Such independent advisors may be the regular advisors to the Company. The Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of such advisors as established by the Committee.

6. Investigations.  The Nominating and Corporate Governance Committee shall have the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it shall deem appropriate, including the authority to request any officer, employee or advisor of the Company to meet with the Committee or any advisors engaged by the Committee.

 

7. Annual Self-Evaluation.  At least annually, the Nominating and Corporate Governance Committee shall evaluate its own performance.

 

Adopted on May 13, 2005 by the Board of Directors of Electro-Optical Sciences, Inc.

 

 

Name:     Richard I. Steinhart

 

Date: April 15, 2008

 

 

 

 

 

 

 

 

 

TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE

ELECTRO-OPTICAL SCIENCES, INC.

PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON MAY 16, 2008

ELECTRO-OPTICAL SCIENCES, INC. OFFERS STOCKHOLDERS OF RECORD
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