paradigmmedpre14a.htm
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 :
Filed by
a Party other than the Registrant 9
Check the
appropriate box:
: Preliminary
Proxy Statement
9 Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(3)(2))
9 Definitive
Proxy Statement
9 Definitive
Additional Materials
9 Soliciting
Material Pursuant to §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):
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9
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Fee
computed on table below per Securities Exchange Act Rules 15a-6(i)(4) and
0-11.*
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9
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Fee
paid previously with preliminary
materials.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction
applies:
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(3)
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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):
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(4)
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Proposed
maximum aggregate value of
transaction:
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9
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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.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement
No.:
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PARADIGM
MEDICAL INDUSTRIES, INC.
2355
South 1070 West
Salt Lake
City, Utah 84119
July 21,
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 Thursday, August 21, 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 matters
to be addressed at the Special Meeting are (i) the approval of a proposed
1-for-100 reverse stock split of the Company's common stock, and (ii)the
transaction of such other business as may properly come before the meeting or
any adjournments thereof. 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.
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Sincerely
yours,
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/s/
Raymond P.L. Cannefax
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Raymond
P.L. Cannefax
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President
and Chief Executive Officer
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PARADIGM
MEDICAL INDUSTRIES, INC.
2355
South 1070 West
Salt Lake
City, Utah 84119
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE
HELD AUGUST 21, 2008
_________________________
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 Thursday, August
21, 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 a 1-for-100 reverse stock split of the Company's common stock;
and
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2.
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To
transact such other business as may properly come before the meeting or
any adjournment thereof.
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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 July 11, 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.
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By
order of the Board of Directors,
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/s/
Luis A. Mostacero
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Luis
A. Mostacero
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Vice
President of Finance, Chief Financial Officer,
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Treasurer
and Secretary
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July 21,
2008
Salt Lake
City, Utah
PARADIGM
MEDICAL INDUSTRIES, INC.
2355
South 1070 West
Salt Lake
City, Utah 84119
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 Thursday, August
21, 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 July 21,
2008. The Company will bear the cost of this
solicitation.
The matters
to be brought before the Special Meeting are (1) to approve a 1-for-100 reverse
stock split of the Company's common stock; 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 July 11,
2008 (the "Record Date") are entitled to notice of and to vote at the
meeting. As of July 11, 2008, 1,346,390,590 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 REVERSE STOCK SPLIT
Proposal
Subject to
shareholder approval, the Board of Directors has approved a 1-for-100 reverse
stock split of the Company's common stock. The Board of Directors
believes that the reverse stock split is in the Company's best interests in that
it may increase the trading price of the common stock. An increase in
the price of the common stock should, in turn, generate greater investor
interest in the common stock, thereby enhancing the marketability of the common
stock to the financial community. In addition, an increase in the
price of the common stock would enhance the attractiveness of the Company's
common stock for future acquisitions or mergers by the Company or to otherwise
carry out the Company's business objectives.
Although the
reverse stock split may increase the market price of the common stock, the
actual effect of the reverse split on the market price cannot be
predicted. The market price of the common stock may not rise in
proportion to the reduction in the number of shares outstanding as a result of
the reverse stock split. Further, there is no assurance that the
reverse stock split will lead to a sustained increase in the market price of the
common stock. The market price of the common stock may also change as
a result of other unrelated factors, including the Company's operating
performance and other factors related to its business as well as general market
conditions. The reverse stock split will affect all of the holders of
the Company's common stock uniformly and will not affect any shareholder's
percentage ownership interest in the Company or proportionate voting power,
except for insignificant changes that will result from the rounding up of
fractional shares, as discussion below.
The reverse
stock split of the Company's common stock will become effective upon shareholder
approval at the Special Meeting of Shareholders and on the date of filing of a
Certificate of Amendment to the Company's Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware (the
"Effective Date"). The reverse stock split will take place on the
Effective Date. Shareholders will affect the reverse stock split by
physically surrendering their current certificates for certificates representing
the number of shares of common stock each shareholder is entitled to receive as
a result of the reverse stock split. New certificates of common stock
will be issued.
No fractional
shares will be issued in connection with the reverse stock
split. Shareholders who would otherwise be entitled to receive
fractional shares because they hold a number of shares of common stock that is
not evenly divisible by the reverse stock split ratio will receive an additional
share for their fractional shares. For example, a shareholder who
would be entitled to receive one-fourth of a share would receive one share of
the Company's common stock on the date that the reverse stock split
is implemented.
Certain
Risks Associated with the Reverse Stock Split
The
Company's total market capitalization immediately after the proposed reverse
stock split may be lower than immediately before the proposed reverse stock
split.
There are
numerous factors and contingencies that could affect the Company's stock price
following the proposed reverse stock split, including the status of the market
for the Company's stock at the time, the Company's reported results of
operations in future periods, and general economic market and industry
conditions. Accordingly, the market price of the Company's common
stock may not be sustainable at the direct arithmetic result of the reverse
stock split (for example, based on the closing price of the Company's common
stock on the OTC Bulletin Board on July 2, 2008 of $.0004 per share, the direct
arithmetic result of the reverse stock split would be a post-split market price
for the Company's common stock at $.04 per share). If the market
price of the Company's common stock declines after the reverse stock split, the
Company's total market capitalization (the aggregate value of all of the
Company's outstanding common stock at the then existing market price) after the
split will be lower than before the split.
The
reverse stock split may result in some shareholders owning "odd lots" that may
be more difficult to sell or require greater transaction costs per share to
sell.
The reverse
stock split may result in some shareholders owning "odd lots" of less than 100
shares of the Company's common stock on a post-split basis. Odd lots
may be more difficult to sell, or require greater transaction costs per share to
sell, than shares in "board lots" of even multiples of 100 shares.
Effect
on Existing Shares of Common Stock
The proposed
reverse stock split would affect all of the Company's shareholders uniformly and
would not affect any shareholder's percentage ownership interest in the Company,
except to the extent that the reverse stock split results in any of the
Company's shareholders owning a fractional share, as described
below. Proportionate voting rights and other rights and preferences
of the holders of the Company's common stock would not be affected by a reverse
stock split.
Effect
on Authorized but Unissued Shares of Common Stock
Currently,
the Company is authorized to issue up to a total of 1,400,000,000 shares of
common stock, of which 1,346,390,590 shares were outstanding on the Record
Date. The reverse stock split will not impact the total authorized
number of shares of common stock.
Effect
on Authorized but Unissued Shares of Preferred Stock
Currently,
the Company is authorized to issue up to a total of 5,000,000 shares of
preferred stock, 612,497 of which are issued and outstanding or reserved for
future issuance. The reverse stock split will not impact the total
authorized number of shares of preferred stock.
Effect
on Convertible Debt
The number of
shares into which the $3,967,476 in callable secured convertible notes are
convertible and the conversion price for those notes will be automatically
adjusted as a result of the reverse stock split as provided in the terms of
those notes. In addition, the number of shares represented by the
warrants the Company sold concurrently with the convertible notes and the
exercise prices for the warrants will also be automatically adjusted as a result
of the reverse stock split pursuant to their terms.
Effect
on Stock Options
Currently, there are outstanding stock
options granted to the Company's executive officers and employees to purchase
9,225,000 shares of common stock at exercise prices ranging from $.01 per share
to $2.75 per share, and outstanding stock options granted to the Company's
directors to purchase 2,225,000 shares of common stock at exercise prices
ranging from $.01 per share to $2.75 per share. The reverse stock
split would reduce the number of shares authorized and available for issuance
under 1995 Stock Option Plan. In addition, the exercise price per
share for each option would be multiplied by 100.
Effect
on Registration and Stock Trading
The Company's
common stock is currently registered under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and the Company is subject to
the periodic reporting and other requirements of the 1934 Act. The
proposed reverse stock split will not affect the registration of the Company's
common stock under the 1934 Act.
If the
proposed reverse stock split is implemented, the Company's common stock will
continue to be reported on the OTC Bulletin Board under the symbol
"PMED."
Effective
Date
The proposed
reverse stock split would become effective on the date of filing of a
Certificate of Amendment to the Company's Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware, in the form
attached hereto as Appendix A, to amend the Certificate with a provision
effecting the reverse stock split. The reverse stock split will
become effective at such time as the Certificate of Amendment effecting the
reverse split is accepted and approved by the Secretary of State of the State of
Delaware.
Mechanics
of Reverse Stock Split
If this
Proposal is approved by the shareholders at the Special Meeting, shareholders
will be notified that the reverse stock split has been effected. The
mechanics of the reverse stock split will differ depending upon whether shares
held are held beneficially in street name or whether they are registered
directly in a shareholder's name.
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If
a shareholder's shares are held in street name, the number of shares the
shareholders hold will automatically be adjusted to reflect the reverse
stock split on the Effective Date.
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If
a shareholder's shares are registered directly in the shareholder's name,
the shareholder will receive a transmittal letter asking the shareholder
to surrender certificates representing pre-split shares in exchange for
certificates representing post-split shares. No new
certificates will be issued to the shareholder until the outstanding
certificate(s), together with the properly completed and executed letter
of transmittal, are delivered to Continental Stock Transfer & Trust
Co., 17 Battery Place, 8th
Floor, New York, New York 1004-1123, the exchange agent for the common
shareholders. Shareholders should not destroy any stock
certificates and should not submit any certificates until requested to do
so. The exchange agent will send each common shareholder a new
stock certificate promptly after receipt of that shareholder's properly
completed letter of transmittal and old stock
certificate(s).
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No
Fractional Shares
Whether
shares are held in street name or directly, the Company will not issue
fractional shares of common stock to its shareholders. Shareholders
that would otherwise be entitled to receive fractional shares because they hold
a number of shares that is not evenly divisible by the reverse split ratio will
receive one additional share of the Company's common stock in lieu of such
fractional share.
Accounting
Consequences
The reverse
stock split will not effect the par value of the Company's common
stock. As a result, as of the effectiveness of the reverse stock
split, the stated capital attributable to the common stock on the balance sheet
will be reduced proportionately based on the reverse stock split and the
additional paid-in capital account will be credited with the amount by which the
stated capital is reduced. The per-share net income or loss and net
book value of the Company's common stock will be restated because there will be
fewer shares of common stock outstanding.
No
Appraisal Rights
Under the
Delaware General Corporation Law, the Company's shareholders are not entitled to
appraisal rights with respect to the reverse stock split described in this
Proposal, and the Company will not independently provide its shareholders with
any such rights.
U.S.
Federal Income Tax Consequences
The following
is a summary of important tax considerations of the proposed reverse stock
split: It addresses only shareholders who hold the pre-reverse stock split
shares and post-reverse stock split shares as capital assets. It does not
purport to be complete and does not address shareholders subject to special
rules, such as financial institutions, tax-exempt organizations, insurance
companies, dealers in securities, mutual funds, foreign shareholders,
shareholders who hold the pre-reverse stock split shares as part of a straddle,
hedge or conversion transaction, shareholders who hold the pre-reverse stock
split shares as qualified small business stock within the meaning of Section
1202 of the Code, shareholders who are subject to the alternative minimum tax
provisions of the Code, and shareholders who acquired their pre-reverse stock
split shares pursuant to the exercise of employee stock options or otherwise as
compensation.
This summary
is based upon current law, which may change, possibly even retroactively. It
does not address tax considerations under state, local, foreign and other laws.
The Company has not obtained a ruling from the Internal Revenue Service or an
opinion of legal or tax counsel with respect to the consequences of the reverse
stock split. Each shareholder is advised to consult his or her tax advisor as to
his or her own situation. The reverse stock split is intended to constitute a
reorganization within the meaning of Section 368 of the Code. Assuming the
reverse stock split qualifies as a reorganization, a shareholder generally will
not recognize gain or loss on the reverse stock split, except to the extent of
cash, if any, received in lieu of a fractional share interest in the
post-reverse stock split shares. The aggregate tax basis "of the post-split
shares received will be equal to the aggregate tax basis of the pre-split shares
exchanged therefor (excluding any portion of the holder's basis allocated to
fractional shares), and the holding period of the post-split shares received
will include the holding period of the pre-split shares exchanged. A holder of
the pre-split shares who receives cash will generally recognize gain or loss
equal to the difference between the portion of the tax basis of the pre-split
shares allocated to the fractional share interest and the cash received. Such
gain or loss will be a capital gain or loss and will be short term if the
pre-split shares were held for one year or less and long term if held more than
one year. No gain or loss will be recognized by the Company as a
result of the reverse stock split.
Vote
Required and Board Recommendation
The
affirmative vote of the holders of a majority of the outstanding shares of the
Company's common stock will be required to approve the reverse stock split,
assuming a quorum is present.
The Board recommends that the
shareholders vote "FOR" the approval of the reverse stock split.
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:
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Security
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Underlying
Shares
of
Common Stock
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Notes
(1)
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22,041,533,000
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Warrants
(2)
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63,834,392
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Preferred Stock (3)
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862,404
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Stock Options (4)
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11,500,000
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Total
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22,117,759,796
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(1)
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Assumes
full conversion of $3,967,476 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 $.0004 per share (based upon a
market price of $.0004 as of July 2, 2008 with a 55%
discount).
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(2)
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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; warrants to purchase 15,000,000 shares
of common stock at an exercise price of $.001 per share, exerciseable
through December 24, 2014; and warrants to purchase 10,000,000 shares of
common stock at an exercise price of $.001 per share, exerciseable through
June 16, 2015.
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(3)
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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.
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(4)
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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.
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There are a total of 22,117,759,796
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 1,400,000,000 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 shareholder 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:
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$850,000
was disbursed on April 27, 2005;
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$
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$800,000
was disbursed on June 23, 2005 after the Company filed a registration
statement on June 22, 2005 to register the shares of common stock issuable
upon conversion of the convertible notes and exercise of the warrants;
and
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$
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$850,000
was disbursed on June 30, 2005, the effective date of the registration
statement.
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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 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. On June 16, 2008, the
Company agreed to reduce the applicable percentage for calculating the
conversion price from 60% to 45% of the average of the three lowest intraday
trading prices of the Company's common stock. The Company agreed to
this change as a condition to receiving further funding for its ongoing
operations on June 16, 2008.
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:
|
$
|
$500,000
was disbursed on February 28, 2006;
|
|
$
|
$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;
|
|
$
|
$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 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. On June 16, 2008, the
Company agreed to reduce the applicable percentage for calculating the
conversion price from 60% to 45% of the average of the three lowest intraday
trading prices of the Company's common stock. The Company agreed to
this change as a condition to receiving further funding for its ongoing
operations on June 16, 2008.
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.
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. On June 16, 2008, the
Company agreed to reduce the applicable percentage for calculating the
conversion price from 60% to 45% of the average of the three lowest intraday
trading prices of the Company's common stock. The Company agreed to
this change as a condition to receiving further funding for its ongoing
operations on June 16, 2008.
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 three
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.
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. On June 16, 2008, the
Company agreed to reduce the applicable percentage for calculating the
conversion price from 60% to 45% of the average of the three lowest intraday
trading prices of the Company's common stock. The Company agreed to
this change as a condition to receiving further funding for its ongoing
operations on June 16, 2008.
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
$.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 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.
June 16, 2008 Sale of
$310,000 in Callable Secured Convertible Notes: To obtain
additional funding for the Company's ongoing operations, the Company entered
into a fifth securities purchase agreement on June 16, 2008 with three
accredited investors for the sale of (i) $310,000 in convertible notes and (ii)
warrants to purchase 10,000,000 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 $310,000 as
follows:
|
$
|
$110,000
was disbursed on June 16, 2008;
|
|
$
|
$100,000
will be disbursed after the Company files a Schedule 14A preliminary proxy
statement for a reverse stock split with the Securities and Exchange
Commission; and
|
|
$
|
$100,000
will be disbursed upon the effectiveness of the reverse stock
split.
|
Under the
terms of the June 16, 2008 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 16, 2008 and ending on the later of (a) 270 days
from June 16, 2008, 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 16, 2008 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 $310,000
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) 45% 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 $310,000
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 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 June 16, 2008. The registration statement
must be filed with the Securities and Exchange Commission within 60 days of the
June 16, 2008 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, December 23, 2007, and June
16, 2008 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 $3,968,257 principal amount of the convertible
notes on December 31, 2007 (consisting of $4,860,000 in convertible notes that
were sold to accredited investors pursuant to the securities purchase agreements
dated April 27, 2005, February 28, 2006, June 11, 2007, December 24, 2007, and
June 16, 2008, less $1,288,565 in
notes converted during the period from June 12, 2005 to July 11, 2008, plus $389,010 in
interest during the same period) and a conversion price of $.0004 per share with
a 55% discount, the number of shares issuable upon conversion would
be:
$3,967,476/$.0004
x 45% = 22,041,533,000 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, December 24, 2007, and June
16, 2008 is essentially limitless. The following is an example of the
amount of shares of common stock that are issuable upon conversion of $3,967,476
principal amount of the convertible notes (including accrued interest), based on
market prices 25%, 50%, and 75% below the market price, as of July 2, 2008 of
$.0004 with a 55% discount:
|
%
Below
Market
|
|
Price
Per
Share
|
|
With
55%
Discount
|
|
Number
of
Shares
Issuable
|
|
%
of Outstanding
Shares*
|
|
25%
|
|
$.0003
|
|
$.000135
|
|
29,388,711,000
|
|
2,183%
|
|
50%
|
|
$.0002
|
|
$.00009
|
|
44,083,066,000
|
|
3,274%
|
|
75%
|
|
$.0001
|
|
$.000045
|
|
88,166,133,000
|
|
6,548%
|
*Based on
1,346,390,590 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
55% 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.
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.
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 Amended Annual Report, including financial
statements, for the year ended December 31, 2007, and the Company's Quarterly
Reports, including unaudited financial statements, for the period ended March
31, 2008. The Company will provide without charge to each
shareholder, upon written request, a copy of the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2007, excluding certain exhibits
thereto, and the Quarterly Report on Form 10-QSB for the period ended March 31,
2008, 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.
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By
order of the Board of Directors,
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/s/
Luis A. Mostacero
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Luis
A. Mostacero
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Vice
President of Finance, Chief Financial Officer,
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Treasurer
and Secretary
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July 21,
2008.
APPENDIX
A
CERTIFICATE
OF AMENDMENT
STATE OF
DELAWARE
CERTIFICATE
OF AMENDMENT
OF
CERTIFICATE
OF INCORPORATION
Paradigm Medical Industries, Inc. (the
"Corporation"), a corporation organized and existing under and by virtue of
theGeneral Corporation Law of the State of Delaware does hereby
certify:
FIRST: That
at a meeting of the Board of Directors of the Corporation resolutions were duly
adopted setting forth a proposed amendment of the Certificate of Incorporation,
as amended, of the Corporation, declaring said amendment to be advisable and
that the directors took action to authorize this amendment pursuant to authority
granted by a majority of the Shareholders of the Corporation pursuant to the
Bylaws of the Corporation and Section 212 of the General Corporation Law of the
State of Delaware. The resolution setting forth the proposed amendment is as
follows:
RESOLVED,
that the Certificate of Incorporation, as amended, of the Corporation be amended
by inserting thefollowing paragraph as Fourth Article E immediately following
the current text of Fourth Article D:
"E. Reverse Stock
Split. Upon this Certificate of Amendment becoming effective
pursuant to the General Corporation Law of the State of Delaware (the "Effective Time"), each one
hundred (100) shares of the Corporation's common stock, par value $0.001 per
share, including (i) all authorized but unissued shares; (ii) all issued and
outstanding shares; and (iii) all shares held in treasury, in each case
immediately prior to the Effective Time will be and are automatically
reclassified asand converted (without any further act) into one (1) fully-paid
and nonassessable share of common stock, par value $0.001 per share, of the
Corporation; provided, however, that no fractional shares of common stock of the
Corporation shall be issued and in lieu of any fractional shares of common stock
of the Corporation which any shareholder would otherwise be entitled to receive
pursuant hereto, such shareholder shall be entitled to receive from the
Corporation one additional share of common stock of the
Corporation."
SECOND: That
thereafter, in accordance with Section 242 of the General Corporation Law of the
State of Delaware, amajority of the outstanding stock entitled to vote thereon,
and a majority of the outstanding stock of each class entitled to vote thereon
as a class, approved the foregoing amendment.
THIRD: That
said amendment was duly adopted in accordance with the provisions of Section 242
of the GeneralCorporation Law of the State of Delaware.
IN WITNESS
WHEREOF, said corporation has caused this Certificate to be signed this ____ day
of _____, 2008.
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_________________________________________
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Raymond
P.L. Cannefax, President and
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Chief
Executive Officer
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PARADIGM
MEDICAL INDUSTRIES, INC.
PROXY
FOR SPECIAL MEETING OF SHAREHOLDERS
August
21, 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 Thursday August 21, 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:
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1.
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APPROVAL
OF A 1-FOR-100 REVERSE STOCK SPLIT OF THE COMPANY'S COMMON
STOCK.
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“ FOR
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“ AGAINST
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“ ABSTAIN
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2.
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IN
THEIR DISCRETION, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING.
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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).