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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(3)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
PARADIGM MEDICAL INDUSTRIES, 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):
|X| No fee required.
|_| Fee computed on table below per Securities Exchange Act Rules 15a-6(i)(4)
and 0-11.*
|_| Fee paid previously with preliminary materials.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Securities Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Check box if any part of the fee is offset as provided by Securities
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of its
filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PARADIGM MEDICAL INDUSTRIES, INC.
2355 South 1070 West
Salt Lake City, Utah 84119
March 11, 2008
Dear Shareholder:
On behalf of the Board of Directors, it is my pleasure to invite you to
attend the Special Meeting of Shareholders (the "Special Meeting") of Paradigm
Medical Industries, Inc. (the "Company") to be held on Monday, April 14, 2008,
at 10:00 a.m., Mountain Standard Time, at 2355 South 1070 West, Salt Lake City,
Utah 84119. The formal notice of the Special Meeting and the Proxy Statement
have been made a part of this invitation.
The matter to be addressed at the Special Meeting is the approval of
the proposed amendment to the Certificate of Incorporation to increase the
number of authorized shares of common stock from 800,000,000 shares to
1,400,000,000 shares. Please refer to the Proxy Statement for detailed
information on the proposal and the Special Meeting of Shareholders.
Your vote is very important. We hope you will take a few minutes to
review the Proxy Statement and complete, sign, and return your Proxy Card in the
envelope provided, even if you plan to attend the meeting. Please note that
sending us your Proxy will not prevent you from voting in person at the meeting,
should you wish to do so.
Thank you for your support of Paradigm Medical Industries, Inc. We look
forward to seeing you at the Special Meeting.
Sincerely yours,
/s/ Raymond P.L. Cannefax
Raymond P.L. Cannefax
President and Chief Executive Officer
PARADIGM MEDICAL INDUSTRIES, INC.
2355 South 1070 West
Salt Lake City, Utah 84119
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 14, 2008
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To our Shareholders:
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders (the
"Special Meeting") of Paradigm Medical Industries, Inc. (the "Company") will
held on Monday, April 14, 2008, beginning at 10:00 a.m. Mountain Standard Time,
at the Company's corporate headquarters at 2355 South 1070 West, Salt Lake City,
Utah. At the Special Meeting, shareholders will consider and act upon the
following matter:
1. To approve the proposed amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares
of common stock from 800,000,000 to 1,400,000,000 shares; and
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Also included is a single-page Proxy Card
and a postage prepaid return envelope. Only shareholders of record at the close
of business on March 4, 2008 are entitled to notice of, and to vote at, the
Special Meeting or any adjournment thereof.
If you do not expect to attend the meeting in person, it is important
that your shares be represented. Please use the enclosed Proxy Card to vote on
the matters to be considered at the meeting, sign and date the proxy card and
mail it promptly in the enclosed envelope, which requires no postage if mailed
in the United States. You may revoke your proxy at any time before the meeting
by written notice to such effect, by submitting a subsequently dated proxy or by
attending the meeting and voting in person. If your shares are held in "street
name," you should instruct your broker how to vote in accordance with your Proxy
Card.
By order of the Board of Directors,
/s/ Luis A. Mostacero
Luis A. Mostacero
Vice President of Finance,
Chief Financial Officer,
Treasurer and Secretary
March 11, 2008
Salt Lake City, Utah
PARADIGM MEDICAL INDUSTRIES, INC.
2355 South 1070 West
Salt Lake City, Utah 84119
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PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
Paradigm Medical Industries, Inc., a Delaware corporation (the "Company") for
use at the Special Meeting of Shareholders (the "Special Meeting") to be held on
Monday, April 14, 2008, beginning at 10:00 a.m., Mountain Daylight Time, or at
any adjournment(s) thereof. The purpose of the meeting is set forth herein and
in the accompanying Notice of Special Meeting of Shareholders. The Special
Meeting will be held at the Company's corporate headquarters at 2355 South 1070
West, Salt Lake City, Utah. This Proxy Statement and accompanying materials are
being mailed on or about March 11, 2008. The Company will bear the cost of this
solicitation.
The matters to be brought before the Special Meeting are (1) to approve
an amendment to the Company's Certificate of Incorporation to increase the
number of authorized common shares of common stock from 800,000,000 shares to
1,400,000,000 shares; and (2) to transact such other business as may properly
come before the Special Meeting.
Record Date
Shareholders of record of the Company's Common Stock at the close of
business on March 4, 2008 are entitled to notice of and to vote at the meeting.
As of January 31, 2008, 680,984,307 shares of the Company's Common Stock, $.001
par value, 5,627 shares of the Series A Preferred Stock, 8,986 shares of Series
B Preferred Stock, no shares of Series C Convertible Preferred Stock, 5,000
shares of Series D Convertible Preferred Stock, 250 shares of Series E
Convertible Preferred Stock, 4,398.75 shares of Series F Preferred Stock, and
588,235 shares of Series G Preferred Stock were issued and outstanding.
Shareholders of Series A, Series B, Series C, Series D, Series E, Series F and
Series G Preferred Stock are not entitled to vote at the Annual Meeting.
Shareholders holding at least one-third of the outstanding shares of Common
Stock represented in person or by proxy shall constitute a quorum for the
transaction of business at the Special Meeting.
Revocability of Proxies
Shareholders may revoke any appointment of proxy given pursuant to this
solicitation by delivering the Company a written notice of revocation or a duly
executed proxy bearing a later date or by attending the meeting and voting in
person. An appointment of proxy is revoked upon the death or incapacity of the
shareholder if the Secretary or other officer of the Company authorized to
tabulate votes receives notice of such death or incapacity before the proxy
exercises its authority under the appointment.
Voting and Solicitation
Each shareholder will be entitled to one vote for each share of Common
Stock held at the record date. Assuming a quorum is present, a plurality of
votes cast by the shares entitled to vote on the amendment to the Company's
Certificate of Incorporation will be required to approve the amendment. Because
the shares of Series A, Series B, Series C, Series D, Series E, Series F and
Series G Preferred Stock are non-voting securities, the holders thereof will not
be entitled to vote at the Special Meeting. The Company's executive offices are
located at 2355 South 1070 West, Salt Lake City, Utah. In addition to the use of
the mails, proxies may be solicited personally, by telephone, or by facsimile,
and the Company may reimburse brokerage firms and other persons holding shares
in the Company in their names or those of their nominees for their reasonable
expenses in forwarding soliciting materials to the beneficial owners.
APPROVAL OF INCREASE IN THE NUMBER OF AUTHORIZED SHARES
Proposal
The Certificate of Incorporation currently authorizes the issuance of
800,000,000 shares of common stock. As of January 31, 2008, 680,984,307 shares
of common stock were issued and outstanding. There have been 6,753 shares of
common stock set aside and reserved in the event that holders of 5,627 shares of
Series A preferred stock elect to convert those shares into shares of common
stock; 10,783 shares of common stock set aside and reserved in the event that
holders of 8,986 shares of Series B preferred stock elect to convert those
shares into shares of Common Stock; 8,750 shares of common stock set aside and
reserved in the event that holders of 5,000 shares of Series D preferred stock
elect to convert those shares into shares of common stock; 13,333 shares of
common stock set aside and reserved in the event that holders of shares of
Series E preferred stock elect to convert those shares into shares of common
stock; 234,550 shares of common stock set aside and reserved in the event that
holders of 4,398.75 shares of Series F preferred stock elect to convert those
shares into shares of common stock; and 588,235 shares of common stock set aside
and reserved in the event holders of 588,235 shares of Series G preferred stock
elect to convert those shares into shares of common stock.
Between June 10, 1997 and January 31, 2008, the Company issued (i)
stock options that are currently outstanding to executive officers and employees
to purchase 9,255,000 shares of the Company's common stock at exercise prices
ranging from $.01 per share to $2.75 per share, and (ii) stock options that are
currently outstanding to directors to purchase 2,250,000 shares of the Company's
common stock at exercise prices from $.09 per share to $2.75 per share. In
addition, between June 10, 1997 and January 31, 2008, the Company issued
warrants to individuals and entities to purchase a total of 54,059,392 shares of
the Company's common stock at exercise prices ranging from $.001 per share to
$6.75 per share.
As a result of the Company's prior financings, acquisitions, note
conversions, and efforts to provide incentives to officers, directors and
employees, the Board of Directors has determined that it is in the best interest
of the Company and its stockholders to amend the first paragraph of Article
thereof numbered "FOURTH" of the Company's Certificate of Incorporation (the
"Amendment") to increase the authorized shares of common stock of the Company
from 800,000,000 shares to 1,400,000,000 shares. The text of the proposed
Amendment is attached hereto as Exhibit I. If the stockholders approve the
Amendment, the Board of Directors intends to file an Amendment to the Company's
Certificate of Incorporation reflecting the Amendment with the Delaware
Secretary of State as soon as practicable following such stockholder approval.
The objective of the increase in the number of authorized shares of
common stock is to insure that the Company will have sufficient shares available
for future issuances. The Board of Directors believes that it is necessary and
prudent to increase the authorized number of shares of common stock to the
proposed level in order to provide a reserve of shares available for issuance to
meet the Company's business needs as they arise. Although the Board of Directors
has no immediate plans to issue a significant number of additional shares of
common stock, except for shares issuable upon conversion of $3,928,262 of
convertible notes and the exercise of warrants and of stock options previously
granted to the Company's officers and employees, such future business needs may
include, without limitation, funding future financings and acquisitions,
providing shares issuable upon conversion of notes and exercise of warrants, and
providing equity incentives to the Company's officers, directors and employees
through stock options.
Outstanding Commitments to Issue Shares
The following table identifies the Company's outstanding commitments to
issue shares, including the shares underlying the convertible notes and warrants
issuable upon conversion of the notes and exercise of the warrants:
Underlying Shares
Security of Common Stock
Notes (1) 3,637,280,000
Warrants (2) 54,059,392
Preferred Stock (3) 862,404
Stock Options (4) 11,500,000
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Total 3,703,701,796
(1) Assumes full conversion of $3,928,262 of notes issued to AJW Partners,
LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC, and New
Millennium Capital Partners II, LLC at a conversion price of $.00108
per share (based upon a market price of $.0018 as of January 14, 2008
with a 40% discount).
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(2) Consisting of warrants exerciseable at prices ranging from $.001 per
share to $6.75 per share, including warrants issued to AJW Partners,
LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC, and New
Millennium Capital Partners II, LLC to purchase 16,534,392 shares of
common stock at an exercise price of $.20 per share, exerciseable
through the period from April 27, 2010 to June 30, 2010, warrants to
purchase 12,000,000 shares of common stock at an exercise price of $.10
per share, exerciseable through the period from February 28, 2011 to
April 20, 2012, warrants to purchase 10,000,000 shares of common stock
at an exercise price of $.005 per share, exerciseable through June 11,
2012, and warrants to purchase 15,000,000 shares of common stock at an
exercise price of $.001 per share, exerciseable through December 24,
2012.
(3) Consisting of 6,753 shares of common stock issuable upon conversion of
5,627 shares of Series A preferred stock, 10,783 shares of common stock
issuable upon conversion of 8,986 shares of Series B preferred stock,
8,750 shares of common stock issuable upon conversion of 5,000 shares
of Series D preferred stock, 13,333 shares of common stock issuable
upon conversion of 250 shares of Series E preferred stock, 234,550
shares of common stock issuable upon conversion of 4,398.75 shares of
Series F preferred stock, and 588,235 shares of common stock issuable
upon conversion of 588,235 shares of Series G preferred stock.
(4) Consisting of stock options granted to executive officers and employees
to purchase 9,250,000 shares of common stock at exercise prices ranging
from $.01 per share to $2.75 per share, and stock options granted to
directors to purchase 2,250,000 shares of common stock at exercise
prices ranging from $.01 per share to $2.75 per share.
There are a total of 3,703,701,796 shares underlying the Company's
convertible notes, warrants, preferred stock and stock options, assuming full
conversion of the outstanding notes and preferred stock and the exercise of all
the outstanding warrants and stock options. The current number of the Company's
authorized shares of common stock is 800,000,000 shares. The large number of
shares of common stock underlying the notes, warrants, preferred stock and stock
options will require the Company to increase the number of authorized shares.
Failure to obtain stockholder approval to increase the number of authorized
shares could result in the noteholders commencing legal action against the
Company and foreclosing on all of its assets to recover damages. Any such action
would require the Company to curtail or cease its operations.
Callable Secured Convertible Notes and Warrants
April 27, 2005 Sale of $2,500,000 in Callable Secured Convertible Notes: To
obtain funding for the Company's ongoing operations, the Company entered into a
securities purchase agreement with four accredited investors on April 27, 2005
for the sale of (i) $2,500,000 in convertible notes and (ii) warrants to
purchase 16,534,392 shares of its common stock. The sale of the convertible
notes and warrants occurred in three traunches and the investors provided the
Company with an aggregate of $2,500,000 as follows:
o $850,000 was disbursed on April 27, 2005;
o $800,000 was disbursed on June 23, 2005 after the Company filed a
registration statement on June 22, 2005 to register the shares of common
stock issuable upon conversion of the convertible notes and exercise of the
warrants; and
o $850,000 was disbursed on June 30, 2005, the effective date of the
registration statement.
Under the terms of the securities purchase agreement, the Company agreed
that it would not, without the prior written consent of a majority-in-interest
of the investors, negotiate or contract with any party to obtain additional
equity financing (including debt financing with an equity component) that
involves (i) the issuance of common stock at a discount to the market price of
the common stock on the date of issuance (taking into account the value of any
warrants or options to acquire common stock in connection therewith), (ii) the
issuance of convertible securities that are convertible into an indeterminate
number of shares of common stock, or (iii) the issuance of warrants during the
lock-up period beginning April 27, 2005 and ending on the later of (A) 270 days
from April 27, 2005, and (B) 180 days from the date the registration statement
is declared effective.
In addition, the Company agreed not to conduct any equity financing
(including debt financing with an equity component) during the period beginning
April 27, 2005 and ending two years after the end of the above lock-up period
unless it has first provided each investor an option to purchase its pro-rata
share (based on the ratio of each investor's purchase under the securities
purchase agreement) of the securities being offered in any proposed equity
financing. Each investor must be provided written notice describing any proposed
equity financing at least 20 business days prior to the closing of such proposed
equity financing and the option must be extended to each investor during the
15-day period following delivery of such notice.
The $2,500,000 in convertible notes bear interest at 8% per annum from the
date of issuance. Interest is computed on the basis of a 365-day year and is
payable quarterly in cash, with six months of interest payable up front. The
3
interest rate resets to zero percent for any month in which the stock price is
greater than 125% of the initial market price, or $.0945, for each trading day
during that month. Any amount of principal or interest on the convertible notes
that is not paid when due will bear interest at the rate of 15% per annum from
the date due thereof until such amount is paid. The callable secured convertible
notes mature in three years from the date of issuance, and are convertible into
the Company's common stock at the noteholders' option, at the lower of (i) $.09
or (ii) 60% of the average of the three lowest intraday trading prices for the
common stock on the OTC Bulletin Board for the 20 trading days before but not
including the conversion date. Accordingly, there is no limit on the number of
shares into which the notes may be converted.
The $2,500,000 in notes are secured by the Company's assets, including the
Company's inventory, accounts receivable and intellectual property. Moreover,
the Company has a call option under the terms of the notes. The call option
provides the Company with the right to prepay all of the outstanding convertible
notes at any time, provided there is no event of default by the Company and its
stock is trading at or below $.09 per share. An event of default includes the
failure by the Company to pay the principal or interest on the convertible notes
when due or to timely file a registration statement as required by the Company
or obtain effectiveness with the Securities and Exchange Commission of the
registration statement. Prepayment of the convertible notes is to be made in
cash equal to either (i) 125% of the outstanding principal and accrued interest
for prepayments occurring within 30 days following the issue date of the notes;
(ii) 130% of the outstanding principal and accrued interest for prepayments
occurring between 31 and 60 days following the issue date of the notes; and
(iii) 145% of the outstanding principal and accrued interest for prepayments
occurring after the 60th day following the issue date of the notes.
The warrants are exercisable until five years from the date of issuance at
a purchase price of $.20 per share. The investors may exercise the warrants on a
cashless basis if the shares of common stock underlying the warrants are not
then registered pursuant to an effective registration statement. In the event
the investors exercise the warrants on a cashless basis, the Company will not
receive any proceeds therefrom. In addition, the exercise price of the warrants
will be adjusted in the event the Company issues common stock at a price below
market, with the exception of any securities issued as of the date of the
warrants or issued in connection with the convertible notes issued pursuant to
the securities purchase agreement.
The noteholders have agreed to restrict their ability to convert their
callable secured convertible notes or exercise their warrants and receive shares
of our common stock such that the number of shares of common stock held by them
in the aggregate and their affiliates after such conversion or exercise does not
exceed 4.99% of the then issued and outstanding shares of common stock. However,
the noteholders may repeatedly sell shares of common stock in order to reduce
their ownership percentage, and subsequently convert additional convertible
notes.
February 28, 2006 Sale of $1,500,000 in Callable Secured Convertible Notes:
To obtain additional funding for the Company's ongoing operations, the Company
entered into a second securities purchase agreement on February 28, 2006 with
the same four accredited investors for the sale of (i) $1,500,000 in convertible
notes and (ii) warrants to purchase 12,000,000 shares of its common stock. The
sale of the convertible notes and warrants is to occur in three traunches and
the investors are obligated to provide the Company with an aggregate of
$1,500,000 as follows:
o $500,000 was disbursed on February 28, 2006;
o $500,000 was disbursed on June 28, 2006 after the Company filed a
registration statement on June 15, 2006 to register the shares of common
stock underlying the convertible notes. The registration statement was
subsequently withdrawn on July 25, 2006 and a new registration statement
was filed on September 21, 2006 to register 60,000,000 shares of common
stock issuable upon conversion of the convertible notes;
o $500,000 was disbursed on April 30, 2007, the day prior to the effective
date of the registration statement on May 1, 2007.
Under the terms of the February 28, 2006 securities purchase agreement, the
Company agreed that it would not, without the prior written consent of a
majority-in-interest of the investors, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (i) the issuance of common stock at a discount to the
market price of the common stock on the date of issuance (taking into account
the value of any warrants or options to acquire common stock in connection
therewith), (ii) the issuance of convertible securities that are convertible
into an indeterminate number of shares of common stock, or (iii) the issuance of
warrants during the lock-up period beginning February 28, 2006 and ending on the
later of (a) 270 days from February 28, 2006, or (b) 180 days from the date the
registration statement is declared effective.
In addition, the Company agreed not to conduct any equity financing
(including debt financing with an equity component) during the period beginning
February 28, 2006 and ending two years after the end of the above lock-up period
unless it first provided each investor an option to purchase its pro-rata share
(based on the ratio of each investor's purchase under the securities purchase
4
agreement) of the securities being offered in any proposed equity financing.
Each investor must be provided written notice describing any proposed equity
financing at least 20 business days prior to the closing of such proposed equity
financing and the option must be extended to each investor during the 15-day
period following delivery of such notice.
The $1,500,000 in convertible notes bear interest at 8% per annum from the
date of issuance. Interest is computed on the basis of a 365-day year and is
payable quarterly in cash, with six months of interest payable up front. The
interest rate resets to zero percent for any month in which the stock price is
greater than 125% of the initial market price, or $.0275, for each trading day
during that month. Any amount of principal or interest on the callable secured
convertible notes that is not paid when due will bear interest at the rate of
15% per annum from the date due thereof until such amount is paid. The
convertible notes mature in three years from the date of issuance, and are
convertible into the Company's common stock at the noteholders' option, at the
lower of (i) $.02 or (ii) 60% of the average of the three lowest intraday
trading prices for the common stock on the OTC Bulletin Board for the 20 trading
days before but not including the conversion date. Accordingly, there is no
limit on the number of shares into which the notes may be converted.
The $1,500,000 in convertible notes are secured by the Company's assets,
including the Company's inventory, accounts receivable and intellectual
property. Moreover, the Company has a call option under the terms of the notes.
The call option provides the Company with the right to prepay all of the
outstanding convertible notes at any time, provided there is no event of default
by the Company and its stock is trading at or below $.02 per share. An event of
default includes the failure by the Company to pay the principal or interest on
the convertible notes when due or to timely file a registration statement as
required by the Company or obtain effectiveness with the Securities and Exchange
Commission of the registration statement. Prepayment of the convertible notes is
to be made in cash equal to either (a) 125% of the outstanding principal and
accrued interest for prepayments occurring within 30 days following the issue
date of the notes; (b) 130% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date of the
notes; or (c) 145% of the outstanding principal and accrued interest for
prepayments occurring after the 60th day following the issue date of the notes.
The warrants are exercisable until five years from the date of issuance at
a purchase price of $.10 per share. The investors may exercise the warrants on a
cashless basis if the shares of common stock underlying the warrants are not
then registered pursuant to an effective registration statement. In the event
the investors exercise the warrants on a cashless basis, the Company will not
receive any proceeds therefrom. In addition, the exercise price of the warrants
will be adjusted in the event the Company issues common stock at a price below
market, with the exception of any securities issued as of the date of the
warrants or issued in connection with the convertible notes issued pursuant to
the securities purchase agreement.
The noteholders have agreed to restrict their ability to convert their
convertible notes or exercise their warrants and receive shares of the Company's
common stock such that the number of shares of common stock held by them in the
aggregate and their affiliates after such conversion or exercise does not exceed
4.99% of the then issued and outstanding shares of common stock. However, the
noteholders may repeatedly sell shares of common stock in order to reduce their
ownership percentage, and subsequently convert additional convertible notes.
June 11, 2007 Sale of $500,000 in Callable Secured Convertible Notes: To
obtain further funding for the Company's ongoing operations, the Company entered
into a third securities purchase agreement on June 11, 2007 with the same four
accredited investors for the sale of (i) $500,000 in callable secured
convertible notes and (ii) warrants to purchase 10,000,000 shares of its common
stock. The investors disbursed $500,000 to the Company on June 11, 2007.
Under the terms of the June 11, 2007 securities purchase agreement, the
Company agreed that it would not, without the prior written consent of a
majority-in-interest of the investors, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (i) the issuance of common stock at a discount to the
market price of the common stock on the date of issuance (taking into account
the value of any warrants or options to acquire common stock in connection
therewith), (ii) the issuance of convertible securities that are convertible
into an indeterminate number of shares of common stock, or (iii) the issuance of
warrants during the lock-up period beginning June 11, 2007 and ending on the
later of (a) 270 days from June 11, 2007, or (b) 180 days from the date the
registration statement is declared effective.
In addition, the Company agreed not to conduct any equity financing
(including debt financing with an equity component) during the period beginning
June 11, 2007 and ending two years after the end of the above lock-up period
unless it first provided each investor an option to purchase its pro-rata share
(based on the ratio of each investor's purchase under the securities purchase
agreement) of the securities being offered in any proposed equity financing.
Each investor must be provided written notice describing any proposed equity
financing at least 20 business days prior to the closing of such proposed equity
financing and the option must be extended to each investor during the 15-day
period following delivery of such notice.
5
The $500,000 in convertible notes bear interest at 8% per annum from the
date of issuance. Interest is computed on the basis of a 365-day year and is
payable quarterly in cash, with six months of interest payable up front. The
interest rate resets to zero percent for any month in which the stock price is
greater than 125% of the initial market price, or $.0275, for each trading day
during that month. Any amount of principal or interest on the callable secured
convertible notes that is not paid when due will bear interest at the rate of
15% per annum from the date due thereof until such amount is paid. The
convertible notes mature in three years from the date of issuance, and are
convertible into the Company's common stock at the noteholders' option, at the
lower of (i) $.02 or (ii) 50% of the average of the three lowest intraday
trading prices for the common stock on the OTC Bulletin Board for the 20 trading
days before but not including the conversion date. Accordingly, there is no
limit on the number of shares into which the notes may be converted.
The $500,000 in convertible notes are secured by the Company's assets,
including the Company's inventory, accounts receivable and intellectual
property. Moreover, the Company has a call option under the terms of the notes.
The call option provides the Company with the right to prepay all of the
outstanding convertible notes at any time, provided there is no event of default
by the Company and its stock is trading at or below $.10 per share. An event of
default includes the failure by the Company to pay the principal or interest on
the convertible notes when due or to timely file a registration statement as
required by the Company or obtain effectiveness with the Securities and Exchange
Commission of the registration statement. Prepayment of the convertible notes is
to be made in cash equal to either (a) 125% of the outstanding principal and
accrued interest for prepayments occurring within 30 days following the issue
date of the notes; (b) 130% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date of the
notes; or (c) 145% of the outstanding principal and accrued interest for
prepayments occurring after the 60th day following the issue date of the notes.
The warrants are exercisable until seven years from the date of issuance at
a purchase price of $.005 per share. The investors may exercise the warrants on
a cashless basis if the shares of common stock underlying the warrants are not
then registered pursuant to an effective registration statement. In the event
the investors exercise the warrants on a cashless basis, the Company will not
receive any proceeds therefrom. In addition, the exercise price of the warrants
will be adjusted in the event the Company issues common stock at a price below
market, with the exception of any securities issued as of the date of the
warrants or issued in connection with the convertible notes issued pursuant to
the securities purchase agreement.
The noteholders have agreed to restrict their ability to convert their
convertible notes or exercise their warrants and receive shares of the Company's
common stock such that the number of shares of common stock held by them in the
aggregate and their affiliates after such conversion or exercise does not exceed
4.99% of the then issued and outstanding shares of common stock. However, the
noteholders may repeatedly sell shares of common stock in order to reduce their
ownership percentage, and subsequently convert additional convertible notes,
provided, however, that such conversions do not exceed $75,000 per calendar
month, or the average daily dollar volume calculated during the ten business
days prior to conversion multiplied by the number of trading days of that
calendar month, per calendar month.
The Company is required to register the shares of its common stock issuable
upon the conversion of the convertible notes and the exercise of the warrants
that were issued to the noteholders pursuant to the securities purchase
agreement the Company entered in to on June 11, 2007. The registration statement
must be filed with the Securities and Exchange Commission within 60 days of the
June 11, 2007 closing date and the effectiveness of the registration is to be
within 135 days of such closing date. Penalties of 2% of the outstanding
principal balance of the convertible notes plus accrued interest are to be
applied for each month the registration is not effective within the required
time. The penalty may be paid in cash or stock at the Company's option.
December 24, 2007 Sale of $250,000 in Callable Secured Convertible Notes:
To obtain further funding for the Company's ongoing operations, the Company
entered into a fourth securities purchase agreement on December 24, 2007 with
the same four accredited investors for the sale of (i) $250,000 in callable
secured convertible notes and (ii) warrants to purchase 15,000,000 shares of its
common stock. The investors disbursed $250,000 to the Company on December 24,
2007.
Under the terms of the December 24, 2007 securities purchase agreement, the
Company agreed that it would not, without the prior written consent of a
majority-in-interest of the investors, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (i) the issuance of common stock at a discount to the
market price of the common stock on the date of issuance (taking into account
the value of any warrants or options to acquire common stock in connection
therewith), (ii) the issuance of convertible securities that are convertible
into an indeterminate number of shares of common stock, or (iii) the issuance of
warrants during the lock-up period beginning December 24, 2007 and ending on the
later of (a) 270 days from December 24, 2007, or (b) 180 days from the date the
registration statement is declared effective.
6
In addition, the Company agreed not to conduct any equity financing
(including debt financing with an equity component) during the period beginning
December 24, 2007 and ending two years after the end of the above lock-up period
unless it first provided each investor an option to purchase its pro-rata share
(based on the ratio of each investor's purchase under the securities purchase
agreement) of the securities being offered in any proposed equity financing.
Each investor must be provided written notice describing any proposed equity
financing at least 20 business days prior to the closing of such proposed equity
financing and the option must be extended to each investor during the 15-day
period following delivery of such notice.
The $250,000 in convertible notes bear interest at 8% per annum from the
date of issuance. Interest is computed on the basis of a 365-day year and is
payable quarterly in cash, with six months of interest payable up front. The
interest rate resets to zero percent for any month in which the stock price is
greater than 125% of the initial market price, or $.0275, for each trading day
during that month. Any amount of principal or interest on the callable secured
convertible notes that is not paid when due will bear interest at the rate of
15% per annum from the date due thereof until such amount is paid. The
convertible notes mature in three years from the date of issuance, and are
convertible into the Company's common stock at the noteholders' option, at the
lower of (i) $.02 or (ii) 50% of the average of the three lowest intraday
trading prices for the common stock on the OTC Bulletin Board for the 20 trading
days before but not including the conversion date. Accordingly, there is no
limit on the number of shares into which the notes may be converted.
The $250,000 in convertible notes are secured by the Company's assets,
including the Company's inventory, accounts receivable and intellectual
property. Moreover, the Company has a call option under the terms of the notes.
The call option provides the Company with the right to prepay all of the
outstanding convertible notes at any time, provided there is no event of default
by the Company and its stock is trading at or below $.10 per share. An event of
default includes the failure by the Company to pay the principal or interest on
the convertible notes when due or to timely file a registration statement as
required by the Company or obtain effectiveness with the Securities and Exchange
Commission of the registration statement. Prepayment of the convertible notes is
to be made in cash equal to either (a) 125% of the outstanding principal and
accrued interest for prepayments occurring within 30 days following the issue
date of the notes; (b) 130% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date of the
notes; or (c) 145% of the outstanding principal and accrued interest for
prepayments occurring after the 60th day following the issue date of the notes.
The warrants are exercisable until seven years from the date of issuance at
a purchase price of $.001 per share. The investors may exercise the warrants on
a cashless basis if the shares of common stock underlying the warrants are not
then registered pursuant to an effective registration statement. In the event
the investors exercise the warrants on a cashless basis, the Company will not
receive any proceeds therefrom. In addition, the exercise price of the warrants
will be adjusted in the event the Company issues common stock at a price below
market, with the exception of any securities issued as of the date of the
warrants or issued in connection with the convertible notes issued pursuant to
the securities purchase agreement.
The noteholders have agreed to restrict their ability to convert their
convertible notes or exercise their warrants and receive shares of the Company's
common stock such that the number of shares of common stock held by them in the
aggregate and their affiliates after such conversion or exercise does not exceed
4.99% of the then issued and outstanding shares of common stock. However, the
noteholders may repeatedly sell shares of common stock in order to reduce their
ownership percentage, and subsequently convert additional convertible notes,
provided, however, that such conversions do not exceed $75,000 per calendar
month, or the average daily dollar volume calculated during the ten business
days prior to conversion multiplied by the number of trading days of that
calendar month, per calendar month.
The Company is required to register the shares of its common stock issuable
upon the conversion of the convertible notes and the exercise of the warrants
that were issued to the noteholders pursuant to the securities purchase
agreement the Company entered in to on December 24, 2007. The registration
statement must be filed with the Securities and Exchange Commission within 60
days of the December 24, 2007 closing date and the effectiveness of the
registration is to be within 135 days of such closing date. Penalties of 2% of
the outstanding principal balance of the convertible notes plus accrued interest
are to be applied for each month the registration is not effective within the
required time. The penalty may be paid in cash or stock at the Company's option.
Simple Conversion Calculation
The number of shares of common stock issuable upon conversion of the
convertible notes issued on April 27, 2005, February 28, 2006, June 11, 2007,
and December 23, 2007 is determined by dividing that portion of the principal of
the notes to be converted and interest, if any, by the conversion price. For
example, assuming conversion of $3,928,262 principal amount of the convertible
notes on December 31, 2007 (consisting of $4,750,000 in convertible notes that
were sold to the four investors pursuant to the securities purchase agreements
dated April 27, 2005, February 28, 2006, June 11, 2007, and December 24, 2007,
7
less $1,210,748 in notes converted during the period from June 12, 2005 to
December 31, 2007, plus $389,010 in interest during the same period) and a
conversion price of $.0018 per share with a 40% discount, the number of shares
issuable upon conversion would be:
$3,928,262/$.0018 x 60% = 3,703,701,796 shares.
The continuously adjustable conversion price feature of the convertible notes
could require the Company to issue a substantially greater number of shares,
which will cause dilution to the existing shareholders.
The Company's obligation to issue shares upon conversion of the convertible
notes issued on April 27, 2005, February 28, 2006, June 11, 2007, and December
24, 2007 is essentially limitless. The following is an example of the amount of
shares of common stock that are issuable upon conversion of $3,928,262 principal
amount of the convertible notes (including accrued interest), based on market
prices 25%, 50%, and 75% below the market price, as of January 14, 2008 of
$.0018 with a 40% discount:
% Below Price Per With 40% Number of % of Outstanding
Market Share Discount Shares Issuable Shares*
------- --------- -------- --------------- ----------------
25% $.00135 $.00081 4,849,706,000 712%
50% $.0009 $.00054 7,274,559,000 10,682%
75% $.00045 $.00027 14,594,118,000 21,365%
*Based on 680,984,307 shares outstanding.
As illustrated, the number of shares of common stock issuable upon
conversion of the Company's convertible notes will increase if the market price
of the Company's stock declines, which will cause dilution to the Company's
existing shareholders.
The continuously adjustable conversion price feature of the convertible notes
may encourage investors to make short sales in the Company's common stock, which
could have a depressive effect on the price of the Company's common stock.
The convertible notes are convertible into shares of the Company's common
stock at a 40% to 50% discount to the trading price of the common stock prior to
the conversion. The significant downward pressure on the price of the common
stock as the noteholders convert and sell material amounts of common stock could
encourage short sales by investors. This could place further downward pressure
on the price of the common stock. The noteholders could sell common stock into
the market in anticipation of covering the short sale by converting their
securities, which could cause the further downward pressure on the stock price.
In addition, not only could the sales of shares issuable upon conversion or
exercise of notes, warrants and options, but also the mere perception that these
sales could occur, may adversely affect the market price of the common stock.
The issuance of shares upon conversion of the convertible notes may cause
immediate and substantial dilution to existing shareholders.
The issuance of shares upon conversion of convertible notes may result in
substantial dilution to the interests of other shareholders since the
noteholders may ultimately convert and sell the full amount issuable on
conversion. Although the noteholders may not convert their convertible notes if
such conversion would cause them to own more than 4.99% of the Company's
outstanding common stock, this restriction does not prevent the noteholders from
converting some of their holdings and then converting the rest of their
holdings. In this way, the noteholders could sell more than this limit while
never holding more than this limit. There is no upper limit on the number of
shares that may be issued, which will have the effect of further diluting the
proportionate equity interest and voting power of holders of the Company's
common stock.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's common stock entitled to vote at the Special Meeting will be
required to approve the proposed amendment, assuming a quorum is present.
The Board of Directors recommends that shareholders vote "FOR" approval of
the amendment to the Certificate of Incorporation to increase the number of
authorized shares of common stock from 800,000,000 to 1,400,000,000 shares.
Because the Company failed to hold an Annual Shareholders Meeting in fiscal
2007, the Delaware Court of Chancery may order an Annual Meeting to be held upon
request by a shareholder.
8
The Company did not hold an Annual Meeting of the Shareholders (the "Annual
Meeting") for fiscal 2007 in order to avoid the costs of such a meeting,
including the cost of preparing and mailing a Proxy Statement and Annual Report
to each of its shareholders. Under Delaware law, the Company is required to hold
an Annual Meeting each year. A failure to hold an Annual Meeting does not affect
otherwise valid corporate acts or work a forfeiture or dissolution of the
Company. Moreover, under Delaware law, directors continue to serve as directors
despite lack of an Annual Meeting until the next Annual Meeting and until their
successors have been elected and qualified. However, if the Company fails to
hold an Annual Meeting for a period of 30 days after the date designated in its
bylaws for the Annual Meeting, the Delaware Court of Chancery may order an
Annual Meeting to be held upon the application of any of the Company's
shareholders, if an Annual Meeting is ordered to be held by the court, the
Company would have to incur the costs of holding the meeting, including the cost
of preparing and mailing the Proxy Statement and Annual Report to each of its
shareholders. The Company anticipates holding an Annual Meeting in 2008.
ANNUAL REPORT AND FINANCIAL STATEMENTS
Shareholders are referred to the Company's Annual Report, including
financial statements, for the year ended December 31, 2006, and the Company's
Quarterly Reports, including unaudited financial statements, for the periods
ended March 31, 2007, June 30, 2007 and September 30, 2007. The Company will
provide without charge to each shareholder, upon written request, a copy of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2006, excluding certain exhibits thereto, and Quarterly Reports on Form 10-QSB
for the periods ended March 31, 2007, June 30, 2007 and September 30, 2007, as
filed with the Securities and Exchange Commission. Written requests for such
information should be directed to Luis A. Mostacero, Vice President of Finance,
Chief Financial Officer, Treasurer and Secretary, Paradigm Medical Industries,
Inc., 2355 South 1070 West, Salt Lake City, Utah 84119.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no business
that will be presented for consideration at the Special Meeting other than the
items referred to above. However, if any other matters are properly brought
before the meeting, it is the intention of the persons named as proxies in the
accompanying Proxy to vote the shares they represent on such business in
accordance with their best judgment. In order to assure the presence of the
necessary quorum and to vote on the matters to come before the Special Meeting,
please indicate your choices on the enclosed Proxy and date, sign and return it
promptly in the postage prepaid envelope provided. The signing and delivery of a
Proxy by no means prevents one from attending the Special Meeting.
By order of the Board of Directors,
/s/ Luis A. Mostacero
Luis A. Mostacero
Vice President of Finance,
Chief Financial Officer,
Treasurer and Secretary
March 11, 2008.
9
EXHIBIT 1
TEXT OF PROPOSED AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
PARADIGM MEDICAL INDUSTRIES, INC.
FOURTH: The Corporation is authorized to issue two (2) classes of shares to be
designated, respectively, "Preferred Stock" and "Common Stock." The total number
of shares of Preferred Stock authorized to be issued is five million (5,000,000)
and the total number of shares of Common Stock authorized to be issued one
billion four hundred million (1,400,000,000). The Preferred Stock and the Common
Stock shall each have a par value of $0.001 per share.
The preferences, limitations and relative rights of each class of
shares (to the extent established hereby), and the express grant of authority to
the Board of Directors to amend this Certificate of Incorporation to divide the
Preferred Stock into series, to establish and modify the preferences,
limitations and relative rights of each share of Preferred Stock, and to
otherwise impact the capitalization of the Corporation, subject to certain
limitations and procedures as permitted by Section 151 of the Delaware General
Corporation Law, are as follows:
a. Common Stock.
-------------
i. Voting Rights. Except as otherwise expressly provided
by law or in this section, each outstanding share of Common Stock shall be
entitled to one (1) vote on each matter to be voted on by the shareholders of
the Corporation.
ii. Liquidation Rights. Subject to any prior or superior
rights of liquidation as may be conferred upon any shares of Preferred Stock,
and after payment or provision for payment of the debts and other liabilities of
the Corporation, upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the holders of Common Stock then
outstanding shall be entitled to receive all of the assets and funds of the
Corporation remaining and available for distribution. Such assets and funds
shall be divided among and paid to the holders of shares of Common Stock, on a
pro-rata basis, according to the number of shares of Common Stock held by them.
iii. Dividends. Dividends may be paid on the outstanding
shares of Common Stock as and when declared by the Board of Directors out of
funds legally available therefore; provided, however, that no dividends shall be
made with respect to the Common Stock until any preferential dividends required
to be paid or set apart for any shares of Preferred Stock have been paid or set
apart.
iv. Residual Rights. All rights accruing to the
outstanding shares of the Corporation not expressly provided for to the contrary
herein or in the Corporation's Bylaws or in any amendment hereto or thereto,
shall be vested in the Common Stock.
b. Preferred Stock.
---------------
The Board of Directors, without shareholder action, may amend
the Corporation's Certificate of Incorporation, pursuant to the authority
granted to the Board of Directors by Subsection 102 and within the limits set
forth in Section 151 of the Delaware General Corporation Law, to do any of the
following:
i. designate and determine, in whole or in part, the
preferences, limitations and relative rights of the Preferred Stock before the
issuance of any shares of Preferred Stock;
ii. create one or more series of Preferred Stock, fix the
number of shares of each such series (within the total number of authorized
shares of Preferred Stock available for designation as a part of such series)
and designate and determine, in whole or part, the preferences, limitations and
relative rights of each series of Preferred Stock all before the issuance of any
shares of such series;
iii. alter or revoke the preferences, limitations and
relative rights granted to or imposed upon the Preferred Stock (before the
issuance of any shares of Preferred Stock, or upon any wholly-unissued series of
Preferred Stock); or
iv. increase or decrease the number of shares
constituting any series of Preferred Stock, the number of shares of which was
originally fixed by the Board of Directors, either before or after the issuance
of shares of the series, provided that the number may not be decreased below the
number of shares of such series then outstanding, or increased above the total
number of authorized shares of Preferred Stock available for designation as a
part of such series.
2
PARADIGM MEDICAL INDUSTRIES, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
April 14, 2008
THIS PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF
PARADIGM MEDICAL INDUSTRIES, INC.
The undersigned hereby appoints Randall A. Mackey and Raymond P.L. Cannefax or
either of them, each with full power of substitution, as proxies to vote at the
Special Meeting of Shareholders to be held on Monday April 14, 2008, beginning
at 10:00 a.m., Mountain Standard Time, at the corporate headquarters of Paradigm
Medical Industries, Inc. at 2355 South 1070 West, Salt Lake City, Utah, and at
all adjournments thereof, all shares of common stock which the undersigned would
be entitled to vote on matters set forth below, if personally present:
1. APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 800,000,000 TO
1,400,000,000 SHARES.
|_| FOR |_| AGAINST |_| ABSTAIN
2. IN THEIR DISCRETION, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING.
--------------------------------------------------------------------------------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY
DIRECTION IS INDICATED, WILL BE VOTED FOR PROPOSALS 1 AND 2. In their
discretion, the proxies are authorized to vote upon such other matters as may
properly come before the meeting or any adjournment(s) thereof.
DATED ______________________________, 2008.
SIGNATURE: ________________________________________________________________
(This proxy should be marked, dated and signed by each shareholder exactly as
such shareholder's name appears hereon and returned promptly. Persons signing in
a fiduciary capacity should so indicate. If shares are held by joint tenants or
as community property, both should sign. If a corporation, please sign in full
corporate name by the president or by an authorized corporate officer. If a
partnership, please sign in partnership name by an authorized person).
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