As filed with the Securities and Exchange Commission on February 10, 2003
Commission File No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PARADIGM MEDICAL INDUSTRIES, INC.
(Name of small business issuer in its charter)
Delaware 3841 87-0459536
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation
or organization) Classification Code Number) Identification Number)
2355 South 1070 West
Salt Lake City, Utah 84119
(801) 977-8970
(Address and telephone number of registrant's principal executive
offices and principal place of business)
Heber C. Maughan, Interim Chief Executive Officer,
Vice President of Finance, Treasurer and Chief Financial Officer
2355 South 1070 West
Salt Lake City, Utah 84119
(801) 977-8970
(Name, address and telephone number of agent for service)
----------------------
Copies to:
Randall A. Mackey, Esq.
Mackey Price & Thompson
350 American Plaza II
57 West 200 South
Salt Lake City, Utah 84101-3663
Telephone: (801) 575-5000
Approximate date of proposed sale to the public:
As soon as practicable after the Registration
Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are being
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 (the "Securities Act"), other than securities offered
only in connection with dividend or interest reimbursement plans check the
following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
class of Amount maximum maximum Amount of
securities to be to be offering price aggregate registration
registered registered per Share offering price fee
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Resale of Common Stock issuable upon exercise of Class A Warrants 1,000,000 $ 7.50 $7,500,000 (1)
Resale of Common Stock issuable upon exercise of Kenneth Jerome
Warrants................................................. 100,000 8.125 812,500 (1)
Resale of Common Stock issuable upon exercise of Kenneth Jerome
Warrants.................................................. 100,000 7.50 750,000 (1)
Resale of Common Stock issuable upon exercise of Cyndel Warrants 150,000 4.00 600,000 (1)
Resale of Common Stock issuable upon exercise of Cyndel Warrants 75,000 4.00 300,000 (1)
Resale of Common Stock issuable upon exercise of Limberg Warrants 100,000 4.00 400,000 (1)
Resale of Common Stock issuable upon exercise of Limberg Warrants 50,000 4.75 237,500 (1)
Resale of Common Stock issuable upon exercise of Limberg Warrants 50,000 6.75 337,500 (1)
Resale of Common Stock issuable upon exercise of Limberg Warrants 50,000 4.00 200,000 (1)
Resale of Common Stock issuable upon exercise of Consulting for
Strategic Growth Warrants................................ 40,000 3.50 140,000 (1)
Resale of Common Stock issuable upon exercise of Hemmer Warrants 75,000 7.50 562,500 (1)
Resale of Common Stock issuable upon exercise of Kohn and
Sucoff Warrants.......................................... 100,000 4.00 400,000 (1)
Resale of Common Stock issuable upon conversion of Series
E Preferred Stock....................................... 1,706,432 1.875 3,199,560 (1)
Resale of Common Stock issuable upon exercise of Series
E Preferred Warrants.................................... 241,095 4.00 964,380 (1)
Resale of Common Stock issuable upon conversion of Series
F Preferred Stock....................................... 2,181,042 1.875 4,089,454 (1)
Resale of Common Stock issuable upon exercise of Series
F Preferred Warrants.................................... 230,589 4.00 922,356 (1)
Resale of Common Stock issuable upon exercise of Options........ 650,000 4.00 2,600,000 (1)
Resale of Common Stock issuable upon exercise of Options........ 359,632 5.00 1,798,160 (1)
Resale of Common Stock issuable upon exercise of Options........ 300,000 6.00 1,800,000 (1)
Resale of Common Stock issuable upon exercise of Options........ 2,285,500 2.75 6,285,125 (1)
Resale of Common Stock issuable to certain holders of Common Stock 425,000 4.00 1,700,000 (1)
Resale of Common Stock issuable to certain holders of Common Stock 1,307,484 2.125 2,778,404 (1)
Resale of Common Stock issuable to certain holders of Common Stock 425,580 2.14 910,741 (1)
Resale of Common Stock issuable to certain holders of Common Stock 1,968,509 1.16 2,283,470 (1)
Resale of Common Stock issuable upon exercise of Limberg Warrants 50,000 4.00 200,000 (1)
Resale of Common Stock issuable upon exercise of Kaplan Warrants 100,000 3.00 300,000 (1)
Resale of Common Stock issuable upon exercise of Cyndel Warrants 250,000 3.00 750,000 (1)
Resale of Common Stock issuable upon exercise of Rodman &
Renshaw Warrants......................................... 35,000 2.00 70,000 (1)
Resale of Common Stock issuable upon exercise of Warrants....... 788,750 .25 197,188 18.14
Resale of Common Stock issuable to certain holders of common stock 3,654,945 .25 913,736 84.06
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Total Registration Fee.................................... $ 102.20
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===============================================================================================================================
(1) No registration fee is required as securities were previously
registered by Form SB-2 Registration Statement, No. 333- 2496,
effective as of July 10, 1996; Form SB-2 Registration Statement No.
333-57711, effective as of September 14, 1998; Form SB-2 Registration
Statement No. 333-68471, effective as of January 4, 1999; Form SB-2
Registration Statement No. 333-77267, effective as of May 7, 1999; Form
S-3 Registration Statement No. 333-93725, effective as of January 6,
2000; Form S-3 Registration Statement No. 333-44154, effective as of
September 1, 2000; Form S-3 Registration Statement No. 333-50846,
effective as of December 8, 2000; Form S-3 Registration Statement No.
333- 66742, effective as of August 22, 2001; Form S-3 Registration
Statement No. 333-75912, effective as of June 21, 2002; and Form S-3
Registration Statement No. 333-97837, effective as of September 26,
2002. Pursuant to Rule 429, this is a combined registration statement
which relates to the securities previously registered by the earlier
registration statements and the securities being registered by this
registration statement. The number of securities being carried forward,
which were previously registered by the earlier registration
statements, is 14,479,693 shares of common stock, and the total amount
of the previously paid registration fees associated with such
securities that were previously registered is $22,601.54. The number of
shares being registered by this registration statement is 18,849,558
shares.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Commission acting pursuant to said Section 8(a) may determine.
PROSPECTUS
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18,849,558 Shares of Common Stock
PARADIGM MEDICAL INDUSTRIES, INC.
Paradigm Medical Industries, Inc. is registering for resale a total of
18,849,558 shares of common stock. Our securities trade on The Nasdaq SmallCap
Market under the symbols PMED and PMEDW. On February 5, 2003, the last sale
price for our common stock was $.21 per share and the last sale price for our
Class A warrants was $.06 per warrant.
We are registering the resale of common stock for certain shareholders
and will only receive proceeds to the extent that outstanding warrants or
options are exercised. The exercise price for all of the outstanding warrants
and options exceeds the current trading price for our common stock and, as a
result, the outstanding warrants and options are not likely to be exercised
unless the trading price increases substantially. There are only 823,750 shares
of our common stock underlying these warrants and options that are exercisable
for less than $2.75 per share. All other shares of our common stock being
registered are either outstanding or will be issued upon conversion of
outstanding preferred stock, and we will derive no proceeds from the conversions
or subsequent resales of such shares.
Investing in the common stock involves risks that are described in the
"Risk Factors" section beginning on page 6 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is February ___, 2003.
1
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. It may
not contain all of the information that is important to you. To understand this
offering fully, you should read the entire prospectus carefully, including the
risk factors and the financial statements.
The Company
We develop, manufacture, market and sell ophthalmic surgical and
diagnostic instrumentation and related accessories, including disposable
products. We manufacture and market three cataract surgery systems for minimally
invasive cataract treatment with related accessories and disposable products.
Our flagship cataract removal system, the Photon(TM) laser system, is a laser
cataract removal surgery system marketed as the next generation of cataract
removal. The Photon(TM) product is currently undergoing investigational trials
in the United States. The Photon(TM) is available for sale in many markets
outside of the United States. The Photon(TM) is manufactured and marketed with
the Precisionist Thirty Thousand(TM), an ultrasonic cataract removal system.
Both the Photon(TM) and the Precisionist(TM) are manufactured as an Ophthalmic
Surgical Workstation(TM). We plan to market the Ophthalmic Surgical
Workstation(TM) as a plug-in module for the Photon(TM) and other lasers for use
in eyecare and other medical specialties. Our surgical products also include the
Innovatome(TM), a microkeratome used for cutting a corneal flap in refractive
surgery, which we purchased from Innovative Optics, Inc. in January 2002.
Our diagnostic products include a pachymeter, an A-Scan, an A/B Scan,
an UBM biomicroscope, a perimeter, a corneal topographer and the Blood flow
Analyzer (TM). The diagnostic ultrasonic products, including the pachymeter, the
A-Scan, the A/B Scan and the UBM biomicroscope, were acquired in 1998 from
Humphrey Systems, a division of Carl Zeiss, Inc. The perimeter and the corneal
topographer were added when we acquired Vismed, Inc. d/b/a/ Dicon(TM) in June of
2000. We acquired Ocular Blood Flow, Ltd. in June of 2000, whose principal
product is the Blood Flow Analyzer(TM). This product is designed for the
measurement of intraocular pressure and pulsatile ocular blood flow volume for
detection and treatment of glaucoma. We are currently developing additional
applications for all of our diagnostic products.
We rely upon several products for revenues. For the nine months ended
September 30, 2002, 24% of our revenues were derived from the Dicon(TM)
diagnostic products sales (the perimeter and the corneal topographer), 8% of
revenues from Blood Flow Analyzer(TM) sales, 24% of revenues from UBM
biomicroscope sales, 12% of revenues from Humphrey systems diagnostic products
sales (the pachymeter, the A-Scan and the A/B Scan), 7% of revenues from
cataract removal surgery sales, and 25% of revenues from services, disposables
and other sales. For the fiscal year ended December 31, 2001, 26% of our
revenues were derived from the Dicon(TM) diagnostic products sales (the
perimeter and the corneal topographer), 25% of revenues from Blood Flow
Analyzer(TM) sales, 22% of revenues from UBM biomicroscope sales, 8% of revenues
from Humphrey Systems diagnostic products sales (the pachymeter, the A-Scan and
the A/B Scan), 8% of revenues from cataract removal surgery sales and
disposables, and 11% of revenues from service and other sales. Our principal
executive offices are located at 2355 South 1070 West, Salt Lake City, Utah
84119 and our telephone number is (801) 977-8970.
Recent Developments
Unaudited revenues for the nine months ended September 30, 2002 were
$3,894,000 as compared to $5,035,000 for the comparable period for 2001, and
audited revenues were $7,919,000 for fiscal 2001, as compared to $7,989,000 for
fiscal 2000. Financial information as of and for the year ended December 31,
2001 are included in our Annual Report on Form 10-KSB, which was filed on April
11, 2002, and is incorporated by reference into this prospectus. Financial
information as of and for the nine months ended September 30, 2002 are included
in our Quarterly Report on Form 10-QSB, which was filed on November 19, 2002,
and is incorporated by reference into this prospectus.
In October 2001, we made a supplemental submission to the Food and Drug
Administration (FDA) for our 510(k) predicate device application for the
Photon(TM) laser system. In December 2001, we received a preliminary review from
the FDA regarding the supplemental submission. As a result of that preliminary
review, we submitted additional clinical information to the FDA on February 6,
2002. On May 7, 2002, we received a letter from the FDA requesting further
clinical information. We are in the process of generating the additional
clinical information in response to the letter. We expect to make a submission
to the FDA with the additional clinical information within the third quarter of
2003. We believe the costs of generating the additional clinical information
will not be substantial and will not adversely impact the results of our
operations.
In December 2001, we initiated the first phase of a corporate
downsizing program to reduce our operating expenses. We implemented the second
phase of our downsizing program in the second quarter of 2002, by closing and
transferring our manufacturing from our site in San Diego, California to Salt
Lake City, resulting in further reductions in operating expenses. As a result of
the downsizing program and some resignations, the number of our employees has
been reduced by 70% from 112 to 33 employees. The estimated cost savings from
the downsizing program will be in excess of $2,000,000 annually. The costs of
downsizing have included one-time expenses of approximately $43,000 for moving
and travel and annual expenses of $84,000 for new leasehold space in Salt Lake
City. In addition, we expect to incur additional one-time expenses of
2
approximately $15,000 for relocation of key employees to Salt Lake City. We
realized a net cost savings from downsizing of approximately $1,614,000 during
the first nine months of 2002.
On August 30, 2002, Thomas F. Motter resigned as chairman of the board,
chief executive officer and a director of the Company. Also on August 30, 2002,
our board of directors announced that it had removed Mark R. Miehle as president
and chief operating officer, effective as of that date. Mr. Miehle has entered
into a consulting agreement with us. Our board of directors named Heber C.
Maughan as interim chief executive officer and Aziz Mohabbat as interim chief
operating officer. Mr. Maughan will also continue as vice president of finance
and chief financial officer, and Mr. Mohabbat will also continue to serve as
vice president of operations.
On August 30, 2002, our board of directors announced that it had been
in discussions for approximately nine months with Westland Financial Corporation
aimed at supplying our surgical and diagnostic equipment to Mexican ophthalmic
practitioners. Westland is primarily involved in financing and leasing
activities and international sales transactions. In the past, we have had a
business relationship with Westland.
Upon investigation, our board of directors determined that the purchase
order referenced in a press release dated July 11, 2002, was not of such a
nature as to be enforceable for the purpose of sales or revenue recognition.
Moreover, we have not sent any shipment of medical products to Mexican
ophthalmic practitioners nor received payment for these products pursuant to
those discussions.
Although discussions with Westland are continuing regarding sales and
marketing activities for our medical device products in Mexico, our board of
directors announced that it could not predict or provide any assurance that any
transactions would result. As a consequence, our board believes that the
financial guidance in the July 11, 2002 press release concerning fourth quarter
and full year 2002 results is not appropriate.
On September 6, 2002, we completed a private offering to fund our
working capital requirements. We raised a total of $631,000 from three
accredited investors through the sale of 2,524,000 shares of common stock at
$.25 per share and warrants to purchase 631,000 shares of common stock at an
exercise price of $.25 per share. The warrants are exercisable for a period of
three years.
On September 19, 2002, we completed a transaction with International
Bio-Immune Systems, Inc., a Delaware corporation ("IBS"), in which we acquired
19.9% of the outstanding shares of IBS common stock through the exchange and
issuance of 738,719 shares of our common stock for 2,663,254 shares of common
stock of IBS, the receipt of warrants to purchase 1,200,000 shares of common
stock of IBS at $2.50 per share for a period of two years, the lending of
300,000 shares of our common stock to IBS, and the payment of certain expenses
of IBS through the issuance of an aggregate of 94,000 shares of our common stock
to IBS and its counsel.
On October 21, 2002, we received clearance from the U.S. Food and Drug
Administration (FDA) on its 510(k) application for additional indications of use
for the Company's patented Ocular Blood Flow Analyzer(TM) device. The newly
cleared indications include pulsatile ocular blood flow and pulsatile ocular
blood volume. These are diagnostic measurements that assess the hemodynamic and
vascular health of the eye. With these indications of use, the Blood Flow
Analyzer(TM) provides the ophthalmologist and optometrist the ability to detect
and monitor deficiencies in the flow of blood to the living cells in the eye
rapidly at the point of care. Compromised ocular blood flow has been implicated
in a number of ocular diseases, such as glaucoma. We believe the new indications
for use will significantly enhance the marketability of the Blood Flow
Analyzer(TM).
Recent Legal Proceedings and Material Liability
We received a demand letter dated December 30, 2002 from counsel for
Thomas F. Motter, our former chairman and chief executive officer. Mr. Motter
claims in the letter that he was entitled to certain stock options that had not
been issued to him in a timely manner. By the time the options were actually
issued to him, however, they had expired. Mr. Motter contends that if the
options had been issued in a timely manner, he would have exercised them in a
manner that would have given him a substantial benefit. Mr. Motter requests
restitution for the loss of the financial opportunity. Mr. Motter also claims
that he was defrauded by us by not being given an extended employment agreement
when he terminated the change of control agreement that he had entered into with
us.
Mr. Motter is further claiming payment for accrued vacation time during
the 13 years he had been employed by us, asserting that he only had a total of
four weeks of vacation during that period. Finally, Mr. Motter is threatening a
shareholder derivative action against us because of our board of directors'
alleged failure to conduct an investigation into conversations that took place
in a chat room on Yahoo. Mr. Motter asserts that certain individuals
participating in the conversations were our officers or directors whose
interests were in conflict with the interests of the shareholders. We believe
that Mr. Motter's claims and assertions are without merit and intends to
vigorously defend against any legal action that Mr. Motter may bring against us.
We received a demand letter dated January 6, 2003 from counsel for
Westcore STIPG, LLC, the landlord with regard to the lease on our former
3
facilities in San Diego, California. The letter demands payment of $10,567
plus interest, attorney's fees and costs for the repairs and restoration work on
the San Diego facilities, after a deduction of our $6,000 security deposit. We
reject these claims, contending that the security deposit was adequate to pay
for any repairs or restoration expenses on the premises.
We received a demand letter dated December 9, 2002 from counsel for Dan
Blacklock, dba Danlin Corp. The letter demands payment in the amount of
$65,161 for manufacturing and supplying parts for our microkeratome blades.
Our records show that we received approximately $34,824 in parts from the Danlin
Corp., but that the additional amounts that the Danlin Corp claims are owed,
were from parts that were received but rejected by us because they had never
been ordered.
We received demand letters dated September 29, 2002 and December 10,
2002 from counsel for CitiCorp, Vendor Finance, Inc. and its
successor-in-interest, The Copy Man dba TCM Business. The letters demand payment
of $49,627 plus interest for the leasing of two copy machines that were
delivered to our Salt Lake City facilities on or about April of 2000. The
majority of the amounts alleged to be owed by us are from the remaining payments
on the leases. We dispute the amounts allegedly owed, asserting that the copy
machines, which we returned to the leasing company, did not work properly.
We completed a stock purchase transaction on June 20, 2000, to acquire
all of the outstanding shares of common stock of Ocular Blood Flow, Ltd., a
United Kingdom registered limited company ("OBF"), from Malcolm Redman, the sole
shareholder of OBF, including the rights to the Blood Flow Analyzer(TM). In
connection with the transaction, we entered into a three-year Consulting
Agreement with Mr. Redman, requiring the payment of 36 equal monthly
installments of $6,000 through June 20, 2003, for consulting services. As of
December 31, 2002, we owed $12,000 to Mr. Redman for payments due on November
20, 2002 and December 20, 2002. We also entered into a Royalty Agreement with
Mr. Redman on June 20, 2000, requiring a royalty of 10% of the net sales of
Blood Flow Analyzer(TM), including underlying workstation units, sold by us. As
of December 31, 2002, approximately $169,016 in royalties were due and owing to
Mr. Redman under the Royalty Agreement.
Tax Liabilities
We estimate that about $10,000 in sales taxes are currently owing in
states in which we have sold our products and equipment.
4
The Offering
Securities Offered ...... The resale of 18,849,558 shares of common stock,
consisting of the following:
o The resale of 1,000,000 shares issuable upon
exercise of Class A warrants with an exercise
price of $7.50 per share.
o The resale of 200,000 shares issuable upon
exercise of warrants by Kenneth Jerome & Co.
with exercise prices ranging from $7.50 to
$8.l25 per share.
o The resale of 475,000 shares issuable upon
exercise of warrants by Cyndel & Co., Inc.
with exercise prices ranging from $3.00 to
$4.00 per share.
o The resale of 300,000 shares issuable upon
exercise of warrants by Dr. Michael B. Limberg
with exercise prices ranging from $4.00 to
$6.75 per share.
o The resale of 40,000 shares issuable upon
exercise of warrants by Consulting for
Strategic Growth, Ltd. with exercise prices
ranging from $2.78 to $3.89 per share.
o The resale of 75,000 shares issuable upon the
exercise of warrants by John W. Hemmer with
exercise price of $7.50 per share.
o The resale of 50,000 shares issuable upon
exercise of warrants by Helen Cohn with an
exercise price of $4.00 per share.
o The resale of 50,000 shares issuable upon the
exercise of warrants by Ronit Sucoff with an
exercise price of $4.00 per share.
o The resale of 100,000 shares issuable upon the
exercise of warrants by Barry Kaplan
Associates with an exercise price of $3.00 per
share.
o The resale of 35,000 shares issuable upon the
exercise of warrants by Rodman & Renshaw, Inc.
with an exercise price of $2.00 per share.
o The resale of 1,706,432 shares issuable upon
conversion of Series E preferred stock with a
conversion price of $1.875 per share.
o The resale of 241,095 shares issuable upon the
exercise of warrants by Series E preferred
holders with an exercise price of $4.00 per
share.
o The resale of 2,181,042 shares issuable upon
conversion by Series F preferred stock with a
conversion price of $1.875 per share.
o The resale of 230,589 shares issuable upon
exercise of warrants by Series F preferred
holders with an exercise price of $4.00 per
share.
o The resale of 788,750 shares issuable upon
exercise of warrants by Paul L. Archambeau,
M.D., John H. Banzhaf, Daniel S. Lipson,
Douglas A. MacLeod, M.D., Douglas A. MacLeod,
M.D. Profit Sharing Trust, St. Mark's Eye
Institute, Milan Holdings, Ltd., Frank G.
Mauro and Delbert D. Reichardt with an
exercise price of $.25 per share.
o The resale of 300,000 shares issuable upon
exercise of options by executive officers,
employees and directors with an exercise price
of $6.00 per share.
o The resale of 359,632 shares issuable upon
exercise of options by executive officers,
employees and directors with an exercise price
of $5.00 per share.
o The resale of 650,000 shares issuable upon
exercise of options by executive officers,
employees and directors with an exercise price
of $4.00 per share.
o The resale of 2,285,500 shares issuable upon
exercise of options by executive officers,
employees and directors with an exercise price
of $2.75 per share.
o The resale of 7,781,518 shares.
Common stock outstanding
prior to the offering .... 23,377,978 shares.
Common stock outstanding
after the offering ....... 32,077,422 shares.
5
Use of proceeds........... All funds received by us upon the exercise of the
warrants and options will be used for general
corporate purposes. We will not receive any proceeds
from the conversion of the shares of Series E
preferred stock or Series F preferred stock.
Risk Factors/Dilution..... The offering involves a high degree of risk.
Nasdaq symbols
Common stock................ PMED
Class A warrants............ PMEDW
RISK FACTORS
Before you invest in our Common Stock, you should be aware of the risks
described below which constitute all material risks to potential investors. You
should consider carefully these risk factors together with all of the other
information included in this prospectus before you decide to invest in our
common stock. If any of the following risks actually occurs, our business,
financial condition and results of operations could suffer, in which case the
trading price of our common stock could decline. No investment should be made by
any person who is not in a position to lose the entire amount of his investment.
We have limited working capital, a limited operating history, have accumulated
significant losses, and expect our losses to continue.
As of December 31, 2001, we had limited working capital of $7,706,000.
As of September 30, 2002, our working capital was $2,861,000. We also have not
been in business for a long time. Our company and its predecessors have been in
operation since 1989. Our accumulated deficit was $32,358,000 as of December 31,
2000, $42,501,000 as of December 31, 2001 and $49,832,000 as of September 30,
2002. Our net loss was $10,143,000 for the fiscal year ended December 31, 2001
and $7,331,000 for the nine months ended September 30, 2002. Such losses have
resulted principally from costs incurred in connection with research and
development, including clinical trials, of the laser surgery system. Medical
products were not sold by us until late 1992. Our ability to become profitable
largely depends on successfully developing clinical applications and obtain
regulatory approvals for our laser surgery products, including the Photon(TM)
laser system, and to effectively market such products. The problems and expenses
frequently encountered in developing new products and the competitive industry
in which we operate will impact whether we are successful. We may never achieve
profitability. Furthermore, we may encounter substantial delays and unexpected
expenses related to research, development, production, marketing, regulatory
matters or other unforeseen difficulties.
Our securities will be delisted from The Nasdaq SmallCap Market if we fail to
comply with maintenance standards.
In order to remain eligible for quotation on the Nasdaq SmallCap
Market, we must maintain $2,500,000 in equity, a $35,000,000 market value of the
public float (excluding shares held directly or indirectly by officers,
directors and controlling stockholders) or have at least $500,000 in net income
in our latest fiscal year or two of the last three fiscal years and at least 300
round lot holders of our common stock. In addition, continued inclusion requires
two market-makers and a minimum bid price of $1.00 per share. We are currently
not in compliance with one of the three thresholds for the Nasdaq SmallCap
Market, requiring at least $500,000 in net income in our latest fiscal year or
two of the latest three fiscal years. In addition, our Common Stock has recently
traded at less than $1.00 per share. We are in compliance with the other
thresholds and other listing requirements, however. If we are unable to comply
with these maintenance standards in the future, including any new standards that
may be issued, our securities will be delisted from the Nasdaq SmallCap Market.
We may be unable to satisfy all requirements to remain listed on Nasdaq. If
delisted from Nasdaq, our securities may then be traded on the OTC Electronic
Bulletin Board or in the over-the-counter market in the so-called "pink sheets."
As a result, it may be more difficult for an investor to dispose of our
securities, or to obtain accurate quotations on their market value. Furthermore,
the prices for our securities may be lower than might otherwise be obtained.
If our securities were delisted from The Nasdaq SmallCap Market, additional
sales requirements on broker-dealers would adversely effect the ability of
purchasers to sell our securities and the trading price of our securities could
decline.
If our securities were to be delisted from Nasdaq as discussed above,
they may become subject to Rule 15g-9 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which imposes additional sales
practice requirements on broker-dealers that sell securities governed by Rule
15g-9 to persons other than established customers and "accredited investors"
(generally, individuals with a net worth in excess of $1,000,000 or annual
individual income exceeding $200,000 or $300,000 jointly with their spouses).
For transactions covered by Rule 15g-9, the broker-dealer must determine whether
such persons that are not established customers or accredited investors qualify
6
under the rule for purchasing such securities and must receive that person's
written consent to the transaction prior to sale. Consequently, Rule 15g-9 may
adversely effect the ability of purchasers to sell our securities and otherwise
affect the trading market in our securities.
The Commission has adopted regulations which generally define a "penny
stock" to be any non-Nasdaq equity security that has a market price (as therein
defined) less than $5.00 per share or with an exercise price of less than $5.00
per share, subject to certain exceptions. For any transactions by broker-dealers
involving a penny stock (unless exempt), rules promulgated under the Exchange
Act require delivery, prior to a transaction in a penny stock, of a risk
disclosure document relating to the penny stock market. Disclosure is also
required to be made about compensation payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stocks.
The foregoing penny stock restrictions will not apply to our securities
if such securities are listed on Nasdaq and have certain price and volume
information provided on a current and continuing basis or if we meet certain
minimum net tangible asset or average revenue criteria. There can be no
assurance that our securities will qualify for exemption from these
restrictions. In any event, even if our securities were exempt from such
restrictions, they would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the Commission the authority to prohibit any person that is engaged
in unlawful conduct while participating in a distribution of a penny stock from
associating with a broker-dealer or participating in a distribution of a penny
stock, if the Commission finds that such a restriction would be in the public
interest. If our securities were subject to the rules on penny stocks, the
market liquidity for our securities could be materially adversely affected.
If we are unable to obtain additional capital, we would be required to eliminate
certain activities which would adversely effect our operations.
We may require substantial funds for various purposes, including
continuing research and development, expanding clinical trials, completing the
FDA approval process for its products (including the Photon(TM) laser system),
and manufacturing and marketing its existing products. We do not expect to
receive any proceeds from the exercise of warrants in this offering because the
exercise price for the majority of outstanding warrants and options exceeds the
current trading price for our common stock and, as a result, are not likely to
be exercised unless the trading price increases substantially. In the short
term, based on past financial needs and on currently planned programs, we
anticipate funds generated from future product sales should be adequate, even if
at the minimum level, to satisfy our capital requirements for approximately 12
months. This estimate is based on certain assumptions and there can be no
assurance that the net proceeds of this offering will be sufficient to satisfy
our capital requirements for 12 months. However, we will need to seek additional
capital, possibly through public or private sales of our securities, in order to
fund our activities on a long-term basis. Adequate funds may not be available
when needed or on terms acceptable to us. Insufficient funds may require us to
delay, scale back or eliminate certain or all of our research and development
programs or to license third parties to commercialize products or technologies
that we would otherwise seek to develop ourself, which may materially adversely
affect our continued operations.
Our research activities may not result in any commercially profitable products.
The science and technology of medical products, including lasers, is
rapidly evolving. Our medical systems may require significant further research,
development, testing and regulatory clearances. They are also subject to the
risks of failure inherent in the development of products based on innovative
technologies. These risks include the possibility that any or all of the
proposed products will prove to be ineffective or unsafe; that they fail to
receive necessary regulatory clearances; that the proposed products are
uneconomical; that others hold proprietary rights which preclude us from
marketing such products; or that others market better products. Accordingly, we
are unable to predict whether our research and development activities will
result in any commercially profitable products. Further, due to the extended
testing and regulatory review process required, we may be unable to sell our
current and proposed laser cataract system products. There is also no guarantee
that we will be able to develop and sell a glaucoma surgery system.
We are uncertain of obtaining FDA approval for our Photon(TM) laser system.
We are subject to substantial regulation by the FDA and other federal
and state regulatory agencies. FDA regulations require us to obtain either
510(k) clearance or pre-marketing approval prior to marketing a product in the
United States. We are also subject to foreign regulation and must receive
various types of approvals from foreign government agencies prior to selling our
products in some countries. The clearance and approval processes for both the
FDA and foreign regulatory authorities are costly, time consuming and uncertain.
In addition, we are required to obtain FDA approval before exporting a device
which has not received FDA marketing clearance or approval. We may never be able
to obtain these required government approvals. Delays or failure to obtain such
approvals would materially and adversely effect us, as would changes in existing
requirements. We have received 510(k) clearance from the FDA for our ultrasonic
surgery systems allowing us to sell both devices in the United States. We have
also received 510(k) clearance to market our Blood Flow Analyzer(TM). In May
1995, we were granted an investigational device exemption for our Photon(TM)
laser system allowing us to conduct clinical studies in support of our
application with the FDA to obtain approval to market the system. We have
completed the authorized clinical studies and, in October 2001, made a
supplemental submission to the FDA regarding the 510(k) application. On May 7,
2002, we received a letter from the FDA requesting further clinical information.
We have also received FDA approval to manufacture and export the Photon(TM)
laser system internationally. However, we have not yet obtained approval from
some foreign countries to market the laser product where approval is necessary.
We anticipate that many contemplated applications of our currently existing and
7
planned products will be subject to the lengthy regulatory approval process,
including preclinical studies, clinical trials and extensive regulatory review.
This process could take many years and require the expenditure of substantial
resources.
Purchasers of our common shares could experience dilution from our tendering
puts under a private equity line of credit agreement with Triton West.
On June 30, 2000, we entered into a private equity line of credit
agreement with Triton West Group, Inc., in which Triton agreed to provide an
amount up to $20 million to us in order to purchase put common shares pursuant
to the terms and conditions of the agreement. Under the agreement, we may elect
for a period of three years to exercise our right to tender a put notice to
Triton. The put notice requires Triton to purchase shares of our common stock at
88% of the market price on the trading day immediately following the valuation
period, which is a period of five trading days beginning two days before the
trading day on which the put notice is deemed to be delivered and two trading
days after such date. Under certain conditions, the purchase price is reduced to
85% of the market price of our common stock. The agreement provides certain
restrictions on the tendering of puts. The maximum amount of each put (which may
vary from $750,000 to $2,000,000) is to be determined according to a schedule
based on the trading price of our common stock at the time and the average 30
day volume of such shares. There must be a minimum of 15 business days between
puts and the common stock price upon a put must be a minimum of $2.00. Moreover,
a registration statement must be in effect registering the shares of common
stock covered by the put. There may be significant dilution associated with
tendering put notices under the agreement.
Our executives lack operating experience.
Our executives rely on their experience and skill from their
professional occupations. None of our executives has direct experience in
managing a company which utilizes research and product development activities
and technology to such a high degree.
Our Photon laser system may not receive FDA approval.
We are developing a laser cataract surgery system for inclusion in our
Workstation(TM). Phase I clinical trials have concluded for FDA approval for the
Photon(TM) laser system. During the clinical trials, we discovered that the
Photon(TM) laser system may not effectively remove hard (dense or impacted)
cataracts. In May, 1998, we received FDA clearance to conduct clinical tests on
soft cataracts. We believe the FDA will approve our 510(k) predicate device
application for the Photon(TM) laser system since in the United States most
cataracts are removed before tissue hardens. While we rely upon several products
for revenues, we are dependent on FDA approval of our Photon(TM) laser system to
generate future revenues. On October 2001, we made a supplemental submission to
the FDA for the existing 510(k) application. We received a preliminary review
from the FDA of our supplemental submission in December 2002 and submitted
additional clinical information to the FDA on February 6, 2002. On May 7, 2002,
we received a letter from the FDA requesting further clinical information. We
are in the process of generating the additional clinical information in response
to the letter and expect to make a submission to the FDA with the additional
clinical information within the third quarter of 2003. We received an FDA
warning letter in August 2000 concerning Phase I clinical trials, but believe
all items in the warning letter have been satisfied and the clinical trials and
their data are in good standing.
Our products may become obsolete due to rapid technological change.
Our market is subject to rapid technological change. Development by
others of new or improved products, processes or technologies may make our
products obsolete or less competitive. Accordingly, we must continue investing
in research and development on our existing products and to develop new
products. Despite such investment, our current or proposed products may be
unsuccessful.
Our Photon(TM) laser system could receive competition from other laser systems
that are well financed with well recognized trade names.
Our laser system will potentially receive competition from other laser
systems, such as excimer, holmium (Ho:YAG), Erbium (Er:YAG), Nd:YLF
(Neodymium:Yttium-Lithium-Fluoride) or lasers of other wave lengths. Competition
may also come from other medical devices and other surgical techniques. Further,
the cataract surgical device industry is dominated by a small number of large
competitors that are well established in the marketplace, have experienced
management, are well financed and have a well recognized trade name related to
their product lines. We may be unable to penetrate the existing market and
acquire a sufficient market share to be profitable. Significant competitive
factors which will affect future sales include regulatory approvals,
performance, pricing, timely product shipment, safety, customer support,
convenience of use and patient and general market acceptance.
Our new products may incur unexpected production problems, which would impact
our sales and profits.
New ventures, particularly those involved in a highly technical
industry such as the medical industry, have substantial inherent risks. These
risks are in three general areas: technical, mechanical and human.
Notwithstanding any pre-production planning, new products can incur unexpected
problems in full scale production, which cannot always be foreseen or accurately
predicted. Designs can become unworkable, for unpredicted reasons. Quality
control and component sourcing failures can also be expected from time to time.
8
Any business, including ours, is substantially dependent upon the capabilities
and performance of both management and sales personnel. Mistakes in judgment or
performance can be costly and, in certain instances, disabling. Therefore,
management skill, experience, character and reliability are of significant
importance.
The recent loss of members of senior management could adversely affect our
operations.
Our success largely depends on a number of key employees. The loss of
services of one or more of these employees could have a material adverse effect
on us, including the development and sale of eye surgery systems. On August 30,
2002, Thomas F. Motter resigned as chairman of the board and chief executive
officer of the Company, and Mark R. Miehle was terminated as president and chief
operating officer of the Company. The recent loss of these members of senior
management could have a significant adverse effect on us and our operations and
prospects. We had no key man insurance on either Mr. Motter or Mr. Miehle. We
believe that our future success will also depend, in part, upon our ability to
attract and retain a new chief executive officer and a new chief operating
officer. There is no assurance, however, that we will be successful in
attracting and retaining a new chief executive officer or a new chief operating
officer.
Mistakes may occur in the design and manufacture of our products, which could
prevent or limit the sales of our products.
The high-technology product line requires us to deal with suppliers and
subcontractors supplying highly specialized parts, operating highly
sophisticated and narrow tolerance equipment and performing highly technical
calculations. Components must be custom designed and manufactured, which is not
only complicated and expensive, but can also require a number of months to
accomplish. Slight mistakes in either the design or manufacture can result in
unsatisfactory parts that may not be correctable. Because our business requires
the talents of various professions, mistakes from very slight oversights or
miscommunications can occur, resulting not only in costly delays and lost
orders, but also in disagreements regarding liability and, in any event,
extended delays in production. Moreover, we rely on suppliers that are related
to each other for parts and equipment. When dealing with related suppliers the
terms on which parts and equipment are purchased may not be as favorable as
could be obtained from unrelated third-party suppliers.
No independent marketing studies have been made to confirm the commercial demand
for the Photon(TM) laser system and the Blood Flow Analyzer(TM).
We believe that there is substantial commercial demand for our
Photon(TM) laser system and our Blood Flow Analyzer(TM) for the eyes at a
profitable price. However, this belief is solely based on our management's
experience and judgment. At this time, there have been no independent marketing
studies by independent professional marketing firms to reliably confirm the
extent of this demand, the price ranges within which it exists and the amount of
promotion necessary to exploit whatever demand does exist.
Our Photon(TM) laser system may not be accepted in the marketplace because it
does not remove hard cataracts.
Our products may not be accepted in the marketplace. Such acceptance
will depend on a number of factors including receiving regulatory approvals,
demonstrating the safety, and advantages of our products over existing systems
and techniques. Our Photon(TM) laser system may never gain market acceptance
since the system does not effectively remove hard (dense or impacted) cataracts.
Further, we be unable to successfully market our products even if they perform
successfully in clinical applications. Our Precisionist ThirtyThousand(TM)
Workstation(TM) may not gain acceptance unless we can reduce or eliminate the
vacuum surge and develop additional, complementary surgical devices for
installation in that host system. Vacuum surge is a phenomenon that occurs when
the tip of the ultrasonic needle is obstructed by target tissue, allowing
pressure to build up and, if the pressure is not released, a rush of fluid goes
from the chamber of the eye into the needle to equalize the pressure. The result
can be complications to the eye such as posterior capsule rupture, iris capture
and chamber collapse. We believe this phenomenon affects all other ultrasonic
cataract removal systems currently on the market.
Our pending patents may not be perfected and our present or future patents may
infringe upon the patents of others, which could restrict or prevent the
manufacture and sale of our products.
We depend on our ability to license and obtain patents and on the
adherence to confidentiality agreements executed by employees, consultants and
third-parties to maintain the proprietary nature of our technology and to
operate without infringing on the proprietary rights of others. Our laser probe
is protected by a United States patent issued in 1987 to Daniel M. Eichenbaum,
M.D. Patents have been granted to the Blood Flow Analyzer(TM) in the United
States and the United Kingdom, to the Dicon(TM) Topographer in the United
States, and to the Dicon(TM) Perimeter in the United States, the United Kingdom,
Germany and Switzerland. The pending patents may not be perfected. Also, our
present or future products may be found to infringe upon the patents of others.
If our products are found to infringe on the patents, or otherwise impermissibly
utilize the intellectual property of others, our development, manufacture and
sale of such products could be severely restricted or prohibited. We may be
required to obtain licenses to utilize such patents or proprietary rights of
others and acceptable terms may be unavailable. If we do not obtain such
licenses, the development, manufacture or sale of products requiring such
licenses would be materially adversely affected. In addition, we could incur
substantial costs in defending ourself against challenges to our patents or
9
infringement claims made by third parties or in enforcing any patents we may
obtain.
Because patents only provide limited protection, others could produce and
distribute products similar to the Photon(TM) laser system, the Mentor systems
and the Blood Flow Analyzer(TM).
We rely on the protections for our products that we hope to realize
under the United States and foreign patent laws. However, patents provide
limited protections. We have a United States and Japanese patent on the
hand-held probe design and applications for various foreign patents are either
pending or planned, and the patents for the Blood Flow Analyzer(TM) for the eyes
are reported by Occular Blood Flow, Ltd. to have been approved in the United
States and the United Kingdom. Similar devices, however, could be designed that
do not infringe on our patent rights, but that are similar enough to compete
against our patented products. Moreover, it is possible that an unpatented but
prior existing device or design may exist that has never been made public and
therefore is not known to us or the industry in general. Such a device could be
introduced into the market without infringing on our current patent. If any such
competing non-infringing devices are produced and distributed, our profit
potential would be seriously limited, which would seriously impair our
viability.
Some of our products may be denied reimbursement by third-party payors, such as
government programs and private insurance plans.
We anticipate that our medical devices will generally be purchased by
ophthalmologists and hospitals that will then bill various third-party payors,
such as government programs and private insurance plans, for the health care
services provided to their patients. Government agencies generally reimburse at
a fixed rate based on the procedure performed. Some of the potential procedures
for which our medical devices may be used, however, may be denied reimbursement
as elective. In addition, third-party payors may deny reimbursement if they
determine that the use of our products was unnecessary, inappropriate, not
cost-effective, experimental or used for a non-approved indication. Even if we
receive FDA clearances for our products, third-party payors may nevertheless
deny reimbursement. Furthermore, third-party payors increasingly challenge the
prices charged for medical products and services. Reimbursement from third-party
payors may be unavailable or if available, that reimbursement may be limited
when compared with reimbursement for competitive procedures, thereby materially
adversely affecting our ability to profitably sell products. The market for our
products could also be adversely affected by recent federal legislation that
reduces reimbursements under the capital cost pass- through system utilized in
connection with the Medicare program. Failure by hospitals and other users of
our products to obtain reimbursement from third-party payors or changes in
government and private third-party payors' policies toward reimbursement for
procedures employing our products would have a material adverse effect on us.
Congress may introduce legislation that could result in price limits and
utilization controls on our products.
Members of Congress have introduced legislation to change aspects of
the delivery and financing of health care services. Such legislation to control
or reduce public (Medicare and Medicaid) and private spending on health care, to
reform the methods of payment for health care goods and services by both the
public and private sectors, and to provide universal access to health care may
be passed. We cannot predict what form this legislation may take or the effect
of such legislation on its business. It is possible that the legislation
ultimately enacted by Congress will contain provisions resulting in price limits
and utilization controls which may reduce the rate of increase in the growth of
the ophthalmic laser market or otherwise adversely affect our business. It is
also possible that future legislation could result in modifications to the
nation's public and private health care insurance systems which will affect
reimbursement policies in a manner adverse to us. We also cannot predict what
other legislation relating to our business or the health care industry may be
enacted, including legislation relating to third-party reimbursement, or what
effect legislation may have on the results of its operations.
Our Precisionist Thirty Thousand(TM) Workstation(TM) may experience circuiting
problems or component failures which, if not corrected, could impact our sales.
Our Precisionist Thirty Thousand(TM) Workstation(TM) is a new
computer-based product unproven by day-to-day use in the marketplace. While the
Precisionist Thirty Thousand(TM) Workstation(TM) has been marketed since 1997,
its current installment base is not large enough to be considered proven by day
to day use in the marketplace. As is common with other new computer-based
products, we have discovered certain circuitry problems and component failures
with the first Workstation(TM) that we manufactured. We believe that we have
corrected most if not all of these problems. However, there is no assurance that
all of these problems have been detected or corrected. If customers were to
experience significant problems with the Workstation(TM), if we could not fix or
correct the problems, or if our customers were dissatisfied with the
functionality or performance of the Workstation(TM), or product support provided
by us, we would be materially adversely effected.
10
Because we have minimal direct sales experience, our sales program may be
unsuccessful.
We commenced a direct sales program in July 1993 with three sales
representatives to market our products. In July 2000, four additional sales
representative were hired. In August 2001, 15 additional sales representatives
were hired, bringing the total number of sales representatives to 22. The number
of sales representatives has been reduced to five as a result of the Company's
downsizing program and absence of the anticipated FDA approval of the Photon(TM)
laser system. However, we have minimal direct sales experience and may need to
recruit additional qualified personnel for this purpose. Our sales program may
be unsuccessful or we may be unable to attract and retain qualified distributors
on favorable terms.
Our product liability insurance could be inadequate to cover liabilities if we
face significant product liability claims against us.
The nature of our business exposes it to risk from product liability
claims and there can be no assurance that the Company can avoid significant
product liability exposure. We maintain product liability insurance providing
coverage up to $2,000,000 per claim with an aggregate policy limit of
$2,000,000. There is substantial doubt that this amount of insurance would be
adequate to cover liabilities should we face significant claims. A successful
products liability claim brought against us could have a material adverse effect
on our business, operating results and financial condition. Further, product
liability insurance is becoming increasingly expensive, and there can be no
assurance that we will successfully maintain adequate product liability
insurance at acceptable rates, or at all. Should we be unable to maintain
adequate product liability insurance, our ability to market our products would
be significantly impaired. Any losses that we may suffer from future liability
claims or a voluntary or involuntary recall of our products and the damage that
any product liability litigation or voluntary or involuntary recall may do to
the reputation and marketability of our products would have a material adverse
effect on our business, operating results and financial condition.
Our future products sales in foreign countries could be adversely effected by a
significant increase in value of the U.S. dollar against local currencies, and
economic and political instability.
We anticipate that a significant portion of our future product sales
will be in foreign countries. Because we quote prices for our products and
accept payment on sales principally in U.S. dollars, any significant increase in
the value of the U.S. dollar against local currencies may make our products less
competitive with foreign products. The economic and political instability of
some foreign countries also may affect the ability of ophthalmologists and
others to purchase our products, or the ability of potential customers to pay
for the procedures for which our products are used.
The market price of our securities could fluctuate significantly.
Our common stock and Class A warrants are currently traded on The
Nasdaq SmallCap Market. Factors such as announcements by us of the regulatory
status of products, quarterly variations in our financial results, the gain or
loss of material contracts, changes in management, regulatory changes, trends in
the industry or stock market and announcements by competitors, among other
things, could cause the market price of such securities to fluctuate
significantly.
We may issue preferred shares with preferences in an equal or prior rank to
existing preferred shares.
Our certificate of incorporation authorizes the issuance of shares of
"blank check" preferred stock, which will have such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval
(but subject to applicable government regulatory restrictions), to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
our common stock. Those terms and conditions may include preferences on an equal
or prior rank to existing preferred stock. Those shares may be issued on such
terms and for such consideration as the board then deems reasonable and such
stock shall then rank equally in all aspects of the series and on the
preferences and conditions so provided, regardless of when issued. In the event
of such issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. As of January 31, 2003, the following preferred shares
were issued and outstanding: 5,627 shares of Series A preferred stock
convertible into 6,753 common shares; 8,986 shares of Series B preferred stock
convertible into 10,783 common shares; no shares of Series C preferred stock;
5,000 shares of Series D preferred stock convertible into 8,750 common shares;
1,500 shares of Series E preferred stock convertible into 80,000 common shares;
and 5,773.75 shares of Series F preferred stock convertible into 307,933 common
shares.
We do not expect to pay any cash dividends in the foreseeable future.
We issued a stock dividend on our Series A preferred stock and Series B
preferred stock on January 8, 1996, to stockholders of record as of December 31,
1994. We have not paid any cash dividends on our common shares and do not expect
to declare or pay any cash or other dividends in the foreseeable future so that
we may reinvest earnings, if any, into the development of the business. The
holders of our Series A preferred stock, Series B preferred stock, Series C
11
preferred stock, Series D preferred stock, Series E preferred stock and Series F
preferred stock are entitled to non-cumulative cash dividends paid out of
surplus earnings.
We have sole discretion in allocating the proceeds from the offering.
All of the net proceeds of the offering, if any, have been allocated to
working capital (and not otherwise allocated for a specific purpose) and will be
used for such purposes as management may determine in its sole discretion
without the need for stockholder approval with respect to any such allocations.
We have indemnification agreements with certain officers and directors that may
require us to indemnify them in a civil or criminal action.
Our certificate of incorporation eliminates in certain circumstances
the liability of directors for monetary damages for breach of their fiduciary
duty as directors. We have entered into indemnification agreements with certain
directors and officers. Each such indemnification agreement provides that we
will indemnify the indemnitee against expenses, including reasonable attorneys'
fees, judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any civil or criminal action or
administrative proceeding arising out of his performance of his duties as a
director or officer, other than an action instituted by the director or officer.
The indemnification agreements will also require that we indemnify the director
or other party thereto in all cases to the fullest extent permitted by
applicable law. Each indemnification agreement will permit the director or
officer that is party thereto to bring suit to seek recovery of amounts due
under the indemnification agreement and to recover the expenses of such a suit
if he or she is successful.
Our Board of Directors has the right to issue additional shares of common stock
and to create a new series of preferred stock which could dilute holders of
common stock.
The Board of Directors has the inherent right under applicable Delaware
law, for whatever value the board deems adequate, to issue additional common
shares up to the limit of shares authorized by the certificate of incorporation,
and, upon such issuance, all holders of shares of common stock, regardless of
when they are issued, thereafter generally rank equally in all aspects of that
class of stock, regardless of when issued. The Board of Directors likewise has
the inherent right, limited only by applicable Delaware law and provisions of
the Certificate of Incorporation to increase the number of preferred shares in a
series, to create a new series of preferred shares and to establish preferences
and all other terms and conditions in regard to such newly-created series. Any
of those actions will dilute the holders of common shares and also affect the
relative position of the holders of any series of any class. Current
stockholders have no rights to prohibit such issuances nor inherent "preemptive"
rights to purchase any such stock when offered.
We have entered into agreements for services and other benefits with our
affiliates.
We have entered into agreements for services and other benefits with
certain of our affiliates on terms we believed to be no less favorable than
could be obtained from unaffiliated parties. On October 1, 1999, we entered into
a consulting agreement with Cyndel & Co., Inc., in which Cyndel agreed to
perform unspecified investment banking services for us for a one-year period,
for which we agreed to pay Cyndel a monthly retainer of $8,333, plus
expenses. Patrick M. Kolenik, a director of Paradigm from November 1997 to
January 21, 2000, and Steven J. Bayern, a director of Paradigm from July 1999 to
January 21, 2000, are both an officer, a director and a 50% shareholder of
Cyndel. The October 1, 1999 consulting agreement was terminated when we entered
into a new consulting agreement with Cyndel on April 1, 2000. The total amount
paid to Cyndel for services under the October 1, 1999 consulting agreement
during the period from October 1, 1999 to May 30, 2000, was $58,333.
Under the terms of the April 1, 2000 consulting agreement, Cyndel
agreed to perform unspecified banking services for us for a one-year period, for
which we agreed to pay Cyndel a monthly retainer of $16,667, plus expenses.
The April 1, 2000 consulting agreement was renewed for an additional one-year
period through March 31, 2002. On December 26, 2001, we provided written notice
of our intention not to renew the consulting agreement after March 31, 2002. The
total amount paid to Cyndel for services under this agreement from April 1, 2000
to February 28, 2002 was $383,333. The final payment of $16,667 was due on
March 1, 2002.
On January 21, 2000, we issued Michael W. Stelzer, formerly our vice
president of operations and chief operating officer, 20,000 shares of our common
stock as severance under the terms of a settlement of his employment agreement.
The market price of our common shares on the day the shares were issued to Mr.
Stelzer was $12.50 per share. On June 5, 2000, we issued Mark R. Miehle, our
president and chief operating officer, 28,500 of our common shares as a bonus
for entering into an employment agreement with us. The market price of our
common shares on the day the shares were issued to Mr. Miehle was $6.81 per
share.
Thomas F. Motter, former chairman of the board and chief executive
officer, leased his former residence, which he then owned, to us for $2,500 per
month. The primary use of the residential property was for housing
accommodations for employees living outside of Utah while they are working at
our corporate headquarters in Salt Lake City. We obtained an appraisal from an
independent appraiser, which concluded that the monthly rate of $2,500
12
represented a fair rate for leasing the residential property. This lease
agreement was terminated on October 31, 2000, but then renewed on July 1, 2002
and later terminated on January 31, 2003.
Randall A. Mackey, chairman of the board since August 30, 2002, a
director since January 21, 2000, and a former director from September 1995 to
September 1998, is president and a shareholder of the law firm of Mackey Price &
Thompson, which renders legal services to us. Legal fees and expenses paid to
Mackey Price & Thompson for the fiscal years ended December 31, 2001 and 2002
were $158,990 and $204,297, respectively.
Special Note Regarding Forward-Looking Statements
Some of the information in this prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this Prospectus. The risk factors noted in this section and other
factors noted throughout this prospectus, including certain risks and
uncertainties, could cause our actual results to differ materially from those
contained in any forward-looking statement.
USE OF PROCEEDS
Holders of our warrants are not obligated to exercise any of their
warrants and holders of our options are not obligated to exercise any of their
options. The closing bid price of our common shares on The Nasdaq SmallCap
Market was $.21 on February 5, 2003. Only 823,750 of our common shares
underlying the warrants and options are exercisable for less than $4.00 per
share. As a consequence, the outstanding warrants and options are not likely to
be exercised unless the trading price increases substantially. All other shares
of our common stock being registered are either outstanding or will be issued
upon conversion of outstanding preferred stock and we will derive no proceeds
from the conversions or subsequent resales of such shares.
If there are any net proceeds from this offering, we will use these net
proceeds to fund working capital requirements. In the event sufficient proceeds
are not received, our short term plan is to meet cash needs through external
financing sources such as bank financing and private offerings of debt and/or
equity. We expect the cash flow from operations to provide additional funds for
us as operating revenues increase.
The cost, timing and the amount of funds required for such uses by us
cannot be precisely determined at this time and will be based upon, among other
things, competitive developments, the rate of our progress in product
development, and the availability of alternative methods of financing. In
addition, our Board of Directors has broad discretion in determining how the
proceeds of this offering will be allocated.
SELLING SECURITYHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31, 2003 by each of the holders of
Series E preferred stock (the "Selling Series E Preferred Shareholder"),
assuming each of the Selling Series E Preferred Shareholders elects to exercise
his or her conversion rights to convert the Series E Preferred shares (the
"Series E Shares") into shares of common stock, at a conversion price equal to
$1.875 per share of common stock, the number of shares of common stock to be
sold by each Selling Series E Preferred Shareholder, and the percentage of each
Selling Series E Preferred Stockholder after the sale of common stock included
in this prospectus.
Shares Beneficially Number of
Owned Prior to Shares Being Shares Beneficially
Offering Offered Owned After Offering
Shareholders Number Percent Number Percent
------------ ------ ------- ------ -------
John T. Ablamsky 32,000 * 32,000 0 *
Steven J. Ablamsky 32,000 * 32,000 0 *
Morris Ades 26,667 * 26,667 0 *
BNB Associates Investments LP (1) 40,000 * 40,000 0 *
Dr. Ronald A. and Karen A. Balkin 133,333 * 133,333 0 *
Jerry Bassin 26,667 * 26,667 0 *
Dr. Valery Berger 200 * 200 0 *
Dr. Richard G. Bowe, IRA 26,667 * 26,667 0 *
Roland A. Catalano, IRA 80,000 * 80,000 0 *
13
Chicago Investments, Inc. (2) 80,000 * 80,000 0 *
Henry A. Fredericks Sep. Property Trust
dated 10/12/88 (3) 26,667 * 26,667 0 *
Robert L. Frome (4) 66,667 * 66,667 0 *
John Harte 53,333 * 53,333 0 *
Scott A. Jernigan 25,833 * 25,833 0 *
KSH Strategic Investment Fund I, LP (5) 207,333 * 207,333 0 *
Albert F. Kinzinger, Jr. 45,000 * 45,000 0 *
Albert F. Kinzinger, Sr., IRA 26,667 * 26,667 0 *
Arthur Klansky 3,333 * 13,333 0 *
James H. Levi 11,667 * 11,667 0 *
Dr. Michael B. Limberg (6) 179,580 * 92,000 87,580 *
Mid-Lakes Profit Sharing Trust
dated 1/1/66 (7) 26,667 * 26,667 0 *
James A. Milgard 200,000 * 200,000 0 *
Kay Murcer 10,667 * 10,667 0 *
Jules M. Ness, Jr. 26,667 * 26,667 0 *
Perceptive Life Sciences Master Fund (8) 44,132 * 44,132 0 *
David Peterson 2,500 * 2,500 0 *
Dr. Soleiman Rabanipour 13,333 * 13,333 0 *
Marsha and Barry Reiss 5,333 * 5,333 0 *
Edwin W. and Cheryl S. Richardson 26,667 * 26,667 0 *
Joel Schoenfeld, IRA 26,667 * 26,667 0 *
Judy Shapiro Trust dated 5/15/01 (9) 53,333 * 53,333 0 *
Shadow Capital LLC (10) 53,333 * 53,333 0 *
Rick Siskey 37,767 * 37,767 0 *
Ronit Sucoff 53,333 * 53,333 0 *
White Living Trust (11) 13,333 * 13,333 0 *
Jeffrey A. Wietzman 13,333 * 13,333 0 *
James C. Wilson 53,333 * 53,333 0 *
--------- --------- ------
TOTAL 1,794,012 1,706,432 87,580
-----------------
* Less than 1%
(1) The managing partner of BNB Associates Investments LP is Benjamin
Bollag, who exercises sole voting and investment powers.
(2) The president of Chicago Investments, Inc. is Linda Gallenberger, who
exercises sole voting and investment powers.
(3) The trustee of Henry A. Fredericks Sep. Property Trust is James D.
White, who exercises sole voting and investment powers.
(4) Mr. Frome is a former director of Paradigm.
(5) The managing partners of KSH Strategic Investment Fund I, LP are Cary
W. Sucoff and Harvey R. Kohn, who exercise shared voting and investment
powers.
(6) Dr. Limberg is a consultant to Paradigm.
(7) The trustee of the Mid-Lakes Profit Sharing Trust dated 1/1/66 is John
Harte, who exercises sole voting and investment powers.
(8) The director of Perceptive Life Sciences Master Fund is Joseph Adelman,
who exercises sole voting and investment powers.
(9) The trustees of the Judy Shapiro Trust dated 5/15/01 are Alan and Judy
Shapiro, who exercise shared voting and investment powers.
(10) The manager of Shadow Capital LLC is B. Kent Garlinghouse, who
exercises sole voting and investment powers.
(11) The trustees of the White Living Trust are James and Jean Ann White,
who exercise shared voting and investment powers.
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31,2003 by each of the Series E
preferred shareholders holding warrants (the "Selling Series E
Securityholders"), assuming each of the Selling Series E Securityholders elects
to exercise the warrants held by such Selling Securityholder to purchase shares
of common stock at an exercise price of $4.00 per share, the number of shares of
common stock to be sold by each Selling Series E Securityholder, and the
percentage of each Selling Series E Securityholder after the sale of common
stock included in this prospectus.
14
Shares Beneficially Number of
Owned Prior to Shares Being Shares Beneficially
Offering Offered Owned After Offering
Shareholders Number Percent Number Percent
------------ ------ ------- ------ -------
John T. Ablamsky 35,000 * 3,000 32,000 *
Steven J. Ablamsky 35,000 * 3,000 32,000 *
Morris Ades 30,500 * 2,500 26,667 *
BNB Associates Investments LP (1) 43,750 * 3,750 40,000 *
Dr. Ronald A. and Karen Balkin 155,833 * 12,500 133,333 *
Jerry Bassin 29,167 * 2,500 26,667 *
Dr. Valery Berger 2,500 * 2,500 0 *
Michael Bollag 3,750 * 3,750 0 *
Dr. Richard G. Bowe, IRA 29,167 * 2,500 26,667 *
Craig S. Brewer 5,000 * 5,000 0 *
Roland A. Catalano, IRA 87,500 * 7,500 80,000 *
Chicago Investments, Inc. (2) 87,500 * 7,500 80,000 *
Jack Dushey 2,500 * 2,500 0 *
Henry A. Fredericks Sep. Property Trust
dated 10/12/88 (3) 29,167 * 2,500 26,667 *
Robert L. Frome (4) 72,917 * 6,250 66,667 *
Richard E. Gerzof 1,250 * 1,250 0 *
John Harte 58,333 * 5,000 53,333 *
Scott Jernigan 5,000 * 5,000 0 *
KSH Strategic Investment Fund I., LP (5) 237,333 1.0% 20,000 207,333 *
Terry F. King 2,500 * 2,500 0 *
Albert F. Kinzinger, Jr. 49,220 * 4,220 45,000 *
Albert F. Kinzinger, Sr., IRA 29,167 * 2,500 26,667 *
Arthur Klansky 14,583 * 1,250 13,333 *
Helen Kohn 5,000 * 5,000 0 *
James H. Levi 14,499 * 2,500 11,999 *
Dr. Michael B. Limberg (6) 188,955 * 9,375 179,580 *
Mid-Lakes Profit Sharing Trust
dated 1/1/66 (7) 29,167 * 2,500 26,667 *
James A. Milgard 218,750 * 18,750 200,000 *
Kay Murcer 11,667 * 1,000 10,667 *
Jules M. Ness, Jr. 39,167 * 2,500 26,667 *
OTATO Limited Partnership (8) 12,500 * 12,500 0 *
Michael Pancer Profit Sharing Plan 2,500 * 2,500 0 *
Perceptive Life Sciences Master Fund (9) 64,132 * 20,000 44,132 *
David Peterson 3,750 * 1,250 2,500 *
Dr. Soleiman Rabanipour 14,583 * 1,250 13,333 *
Marsha and Barry Reiss 5,833 * 500 5,333 *
Dr. Sheldon Rabin, IRA 5,000 * 5,000 0 *
Edwin W. and Cheryl S. Richardson 29,167 * 2,500 26,667 *
Joel Schoenfeld, IRA 29,167 * 2,500 26,667 *
Judy Shapiro (10) 58,333 * 5,000 53,333 *
Shadow Capital LLC (11) 53,333 * 5,000 53,333 *
Richard C. Siskey 47,766 * 10,000 37,766 *
Ronit Sucoff 108,333 * 5,000 103,333 *
WEC Asset Management LLC (12) 10,000 * 10,000 0 *
White Living Trust (13) 14,583 * 1,250 13,333 *
Jeffrey A. Wietzman 14,583 * 1,250 13,333 *
James C. Wilson 56,333 * 5,000 53,333 *
--------- ------- ---------
TOTAL 2,059,405 241,095 1,818,310
-----------------
* Less than 1%
15
(1) The managing partner of BNB Associates Investments LP is Benjamin
Bollag, who exercises sole voting and investment powers.
(2) The president of Chicago Investments, Inc. is Linda Gallenberger, who
exercises sole voting and investment powers.
(3) The trustee of Henry A. Fredericks Sep. Property Trust is James D.
White, who exercises sole voting and investment powers.
(4) Mr. Frome is a former director of Paradigm.
(5) The managing partners of KSH Strategic Investment Fund I, LP are Cary
W. Sucoff and Harvey R. Kohn, who exercise shared voting and investment
powers.
(6) Dr. Limberg is a consultant to Paradigm.
(7) The trustee of the Mid-Lakes Profit Sharing Trust dated 1/1/66 is John
Harte, who exercises sole voting and investment powers.
(8) The chief financial officer of OTATO Limited Partnership is James W.
Santori, who exercises sole voting and investment powers.
(9) The director of Perceptive Life Sciences Master Fund is Joseph Adelman,
who exercises sole voting and investment powers.
(10) The trustees of the Judy Shapiro Trust dated 5/15/01 are Alan and Judy
Shapiro, who exercise shared voting and investment powers.
(11) The manager of Shadow Capital LLC is B. Kent Garlinghouse, who
exercises sole voting and investment powers.
(12) The managing director of WEC Asset Management LLC is Daniel J. Saks,
who exercises sole voting and investment powers.
(13) The trustees of the White Living Trust are James and Jean Ann White,
who exercise shared voting and investment powers.
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31,2003 by each of the holders of
Series F preferred stock (the "Selling Series F Preferred Shareholder"),
assuming each of the Selling Series F Preferred Shareholders elects to exercise
his or her conversion rights to convert the Series F preferred shares (the
"Series F Shares") into shares of common stock, at a conversion price equal to
$1.875 per share of common stock, the number of shares of common stock to be
sold by each Selling Series F Preferred Shareholder, and the percentage of each
Selling Series F Preferred Stockholder after the sale of common stock included
in this prospectus.
Shares Beneficially Number of
Owned Prior to Shares Being Shares Beneficially
Offering Offered Owned After Offering
Shareholders Number Percent Number Percent
------------ ------ ------- ------ -------
Al Kim Associates Profit Sharing Plan 41,000 * 41,000 0 *
Judge Hugh Arnold 4,000 * 4,000 0 *
Edwin R. Bindseil 11,600 * 11,600 0 *
Timothy S. Borne 44,000 * 44,000 0 *
Bert E. Brodsky 25,000 * 25,000 0 *
Bru Holding Co. LLC (1) 62,000 * 62,000 0 *
Dennis R. and Rosemary Casey 42,667 * 42,667 0 *
Jason Kyu Cho 46,000 * 46,000 0 *
James S. Cobb 50,872 * 50,872 0 *
Neil S. Coleman 74,000 * 74,000 0 *
James F. Corman 26,667 * 26,667 0 *
Deutsche Asset Management
HealthScience Fund I, Ltd. (2) 245,707 1.1% 245,707 0 *
Donald J. Ekman 14,000 * 14,000 0 *
Forrest Living Trust (3) 5,600 * 5,600 0 *
Richard Friedman 44,000 * 44,000 0 *
Robert Girards 11,000 * 11,000 0 *
Ronald G. Goldy 11,000 * 11,000 0 *
R. Steven Graves 13,000 * 13,000 0 *
Lou Hammer 10,667 * 10,667 0 *
Richard Harriton 11,000 * 11,000 0 *
Michael E. Hubner 10,667 * 10,667 0 *
Roger C. Husted, M.D. 11,000 * 11,000 0 *
Russell Ingrum 11,600 * 11,600 0 *
John Harte Money Purchase Plan 22,000 * 22,000 0 *
Lonnie Johnson 26,667 * 26,667 0 *
Joseph Berland Revocable Trust (4) 11,000 * 11,000 0 *
KMF Partners, LP (5) 160,000 * 160,000 0 *
16
KSH Strategic Investment
Fund I, LP (6) 63,600 * 63,600 0 *
Kachel, Spiller & Co. (7) 8,000 * 8,000 0 *
Arthur Klansky 13,333 * 13,333 0 *
Michael B. Koerner 10,667 * 10,667 0 *
Stephen Leiter 10,667 * 10,667 0 *
Stanley Levine 10,667 * 10,667 0 *
Loving Care Agency, Inc. (8) 11,000 * 11,000 0 *
James J. Lucey 22,000 * 22,000 0 *
Michael C. Manis 10,667 * 10,667 0 *
Judy G. Marcucilli and
Theodore J. Marcucilli 23,000 * 23,000 0 *
Jeffrey Markowitz 44,000 * 44,000 0 *
Paul C. Matthews 43,600 * 43,600 0 *
Myron S. Mayer 10,667 * 10,667 0 *
John McClenon 11,000 * 11,000 0 *
Ryan L. Molleur 15,000 * 15,000 0 *
Richard Moskow 10,667 * 10,667 0 *
Kay Murcer 15,000 * 15,000 0 *
Jules M. Ness 16,456 * 16,456 0 *
Harvey A. Newman 10,667 * 10,667 0 *
Jerold Novack 20,000 * 20,000 0 *
Orion Operating Corporation (9) 30,000 * 30,000 0 *
Steven G. Orshan 16,456 * 16,456 0 *
OTATO Limited Partnership (10) 80,000 * 80,000 0 *
Parisol Corporation (11) 43,600 * 43,600 0 *
Donald E. Paxton 11,000 * 11,000 0 *
Richard Pizitz 9,600 * 9,600 0 *
ProMed Partners, L.P. (12) 260,693 1.1% 260,693 0 *
ProMed Partners II, L.P. (13) 26,987 * 26,987 0 *
Dennis Pudvah and Emma Pudvah 8,000 * 8,000 0 *
Robert John Molleur Trust (14) 6,000 * 6,000 0 *
Ronald S. Dungan Trust
dated 9/27/97(15) 11,600 * 11,600 0 *
Susan G. Rosenthal 10,667 * 10,667 0 *
Allan P. Rothstein 44,000 * 44,000 0 *
A. Lee Royal 11,000 * 11,000 0 *
Bruce Rubin 5,000 * 5,000 0 *
Shadow Capital, LLC (16) 22,000 * 22,000 0 *
Ronald Shapiro and Susan Shapiro 8,800 * 8,800 0 *
Michael Shinn 5,000 * 5,000 0 *
Robert Spira 20,000 * 20,000 0 *
Stream Restaurant Associates, Inc.
Money Purchase Pension Plan
dated 1/1/84 (17) 26,240 * 26,240 0 *
Adam D. Stolpen 16,000 * 16,000 0 *
Jeffrey Sucoff 20,000 * 20,000 0 *
Edmund Tennenhaus 50,027 * 50,027 0 *
Douglas L. Weed 11,000 * 11,000 0 *
--------- --------- ----
TOTAL 2,181,042 2,181,042 0
--------------
* Less than 1%
(1) The manager of Bru Holding Co. LLC is Bruce Toll, who exercises sole
voting and investment powers.
(2) The managing directors of Deutsche Asset Management Health Science Fund
I, Ltd. are Barry Kurokawa and David B. Muskett, who exercise shared
voting and investment powers.
(3) The trustees of Forrest Living Trust are James and Lisa Forrest, who
exercise shared voting and investment powers.
17
(4) The trustee of the Joseph Berland Revocable Trust is Joseph Berland,
who exercises sole voting and investment powers.
(5) The general partner of KMF Partners, LP is Karen Fleiss, who exercises
sole voting and investment powers.
(6) The managing directors of KSH Strategic Investment Fund I, LP are Cary
W. Sucoff and Harvey R. Kohn, who exercise shared voting and investment
powers.
(7) The president of Kachel, Spiller & Co. is Allan B. Kachel, who
exercises sole voting and investment powers.
(8) The president of Loving Care Agency, Inc. is Emily Karzhervsky, who
exercises sole voting and investment powers.
(9) The president and sole owner of Orion Operating Corporation is Carlyle
Macharg, who exercises sole voting and investment powers.
(10) The chief financial officer of OTATO Limited Partnership is James W.
Santori, who exercises sole voting and investment powers.
(11) The president of Parisol Corporation is Moshe Levy, who exercises sole
voting and investment powers.
(12) The managing directors of ProMed Partners, L.P. are Barry Kurokawa and
David B. Muskett, who exercise shared voting and investment powers.
(13) The managing directors of ProMed Partners II, L.P. are Barry Kurokawa
and David B. Muskett, who exercise shared voting and investment powers.
(14) The trustee of the Robert John Molleur Trust is Robert J. Molleur, who
exercises sole voting and investment powers.
(15) The trustee of the Ronald S. Dungan Trust dated 9/21/97 is Ronald S.
Dungan, who exercises sole voting and investment powers.
(16) The manager of Shadow Capital, LLC is B. Kent Garlinghouse, who
exercises sole voting and investment powers.
(17) The trustee of Stream Restaurant Associates, Inc. Money Purchase
Pension Plan dated 1/1/84 is Martin J. Schwimmer, who exercises sole
voting and investment powers.
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31,2003 by each of the Series F
Preferred Shareholders holding warrants (the "Selling Series F
Securityholders"), assuming each of the Selling Series F Securityholders elects
to exercise the warrants held by such Selling Securityholder to purchase shares
of common stock at an exercise price of $4.00 per share, the number of shares of
common stock to be sold by each Selling Series E Securityholder, and the
percentage of each Selling Series E Securityholder after the sale of common
stock included in this prospectus.
Shares Beneficially Number of
Owned Prior to Shares Being Shares Beneficially
Offering Offered Owned After Offering
Shareholders Number Percent Number Percent
------------ ------ ------- ------ -------
Francis Anderson 8,346 * 8,346 0 *
Darin Baker 2,604 * 2,604 0 *
Alan Beinhacker 541 * 541 0 *
Christopher Brothers 2,604 * 2,604 0 *
James Corman 2,500 * 2,500 0 *
Cyndel & Co., Inc. (1) 12,500 * 12,500 0 *
Lenore Deluca 1,234 * 1,234 0 *
Paul Dorfman 1,287 * 1,287 0 *
Michael Fenton 467 * 467 0 *
Generation Capital Associates (2) 23,035 * 23,208 0 *
Frances Kehoe 1,234 * 1,234 0 *
Helen Kohn 31,800 * 31,800 0 *
Jason Konior 515 * 515 0 *
Nicole Kregar 1,234 * 1,234 0 *
Joe Levine 450 * 450 0 *
James McKeever 1,000 * 1,000 0 *
Damian Maggio 515 * 515 0 *
Lewis Mason 3,887 * 3,887 0 *
Frank Mauro 11,250 * 11,250 0 *
Robert Moulallem 1,000 * 1,000 0 *
Nancy Murdocco 1,234 * 1,234 0 *
Bernard Musmand 450 * 450 0 *
Dr. Joseph R. Nemeth 9,375 * 9,375 0 *
Karen Ann Orlando 1,234 * 1,234 0 *
Barry Pearl 10,000 * 10,000 0 *
John Petrucco 1,320 * 1,320 0 *
18
Victor Polakof 2,500 * 2,500 0 *
Sal Vatore Ponzo 4,500 * 4,500 0 *
ProMed Partners, L.P.(3) 23,035 * 23,035 0 *
ProMed Partners I (4) 24,440 * 24,440 0 *
ProMed Partners II (5) 2,530 * 2,530 0 *
Mary Ellen Spedale 1,234 * 1,234 0 *
Ronit Sucoff 31,800 * 31,800 0 *
Scott Sucoff 5,928 * 5,928 0 *
Matthew Zagon 2,833 * 2,833 0 *
------- ------- ---
TOTAL 230,589 * 230,589 0
--------------
* Less than 1%
(1) The chairman, director and 50% shareholder of Cyndel & Co., Inc. is
Stephen J. Bayern and the president, director and 50% shareholder of
Cyndel is Patrick N. Kolenik, who together exercise shared voting and
investment powers. Messrs. Bayern and Kolenik are each a former
director of Paradigm. On October 1, 1999 and April 1, 2000, Cyndel
entered into consulting agreements with Paradigm to perform unspecified
investment banking services for Paradigm.
(2) The general partner of Generation Capital Associates is Frank E. Hart,
who exercises sole voting and investment powers.
(3) The managing directors of ProMed Partners, L.P. are Barry Kurokawa and
David B. Muskett, who exercise sole voting and investment powers.
(4) The managing directors of ProMed Partners I are Barry Kurokawa and
David B. Muskett, who exercise shared voting and investment powers.
(5) The managing directors of ProMed Partners II are Barry Kurokawa and
David B. Muskett, who exercise shared voting and investment powers.
The following table sets forth information regarding the beneficial
ownership of the our common stock as of January 31,2003, by each of the holders
of options (the "Selling Optionholders"), assuming each of the Selling
Optionholders elects to exercise his or her options to purchase shares of common
stock at an exercise price equal to $5.00 per share, the number of shares to be
sold by each Selling Optionholder and the percentage of each Selling
Optionholder after the sale of the shares included in this prospectus.
Shares Beneficially Number of
Owned Prior to Shares Being Shares Beneficially
Offering Offered Owned After Offering
Optionholders Number Percent Number Percent
------------- ------ ------- ------ -------
Del Anderson 300 * 300 0 *
Kent Angell 5,000 * 5,000 0 *
Joseph P. Caruso 5,539 * 5,539 0 *
Rafino Dumlao 5,000 * 5,000 0 *
Clint Frederickson 400 * 400 0 *
Lynn M. Frye 4,000 * 4,000 0 *
Robert Gaertner 5,000 * 5,000 0 *
Miguel A. Gonzales 1,000 * 1,000 0 *
James Haydu 2,000 * 2,000 0 *
John P. Haydu 2,000 * 2,000 0 *
Zolton Haydu 15,000 * 15,000 0 *
John W. Hemmer(1) 60,000 * 60,000 0 *
Thomas L. Martin 5,000 * 5,000 0 *
Aziz Mohabbat 10,000 * 10,000 0 *
Thomas F. Motter (2) 289,020 1.2% 143,450 145,570 *
Dale Muir 150 * 150 0 *
Roberto E. Parra 4,000 * 4,000 0 *
Corinne Powell 62,500 * 62,500 0 *
Charles S. Pritchard 4,103 * 4,103 0 *
Ray Rivera 150 * 150 0 *
Zacarri D. Sisneros 15,040 * 15,040 0 *
Anthony Smith 10,000 * 10,000 0 *
------- -------- -----------
TOTAL 505,202 359,632 145,570
--------------
*Less than 1%.
19
(1) Mr. Hemmer is senior vice president of Paradigm.
(2) Mr. Motter is the former chairman and chief executive officer of
Paradigm.
The following table sets forth information regarding the beneficial
ownership of the our common stock as of January 31,2003, by each of the holders
of options (the "Selling Optionholders"), assuming each of the Selling
Optionholders elects to exercise his or her options to purchase shares of common
stock at an exercise price equal to $2.75 per share, the number of shares to be
sold by each Selling Optionholder and the percentage of each Selling
Optionholder after the sale of the shares included in this prospectus.
Shares Beneficially Number of
Owned Prior to Shares Being Shares Beneficially
Offering Offered Owned After Offering
Optionholders Number Percent Number Percent
------------- ------ ------- ------ -------
Kent Angell 2,500 * 2,500 0 *
Joseph P. Caruso 2,500 * 2,500 0 *
Rafino Dumlao 2,500 * 2,500 0 *
Lynn M. Frye 1,250 * 1,250 0 *
Robert Gaertner 2,500 * 2,500 0 *
Kathy M. Hand 15,000 * 15,000 0 *
Keith D. Ignotz(1) 125,000 * 125,000 0 *
Cynthia Kozak 6,000 * 6,000 0 *
Randall A. Mackey(2) 325,000 1.4% 325,000 0 *
Thomas L. Martin 2,500 * 2,500 0 *
Heber C. Maughan 30,000 * 30,000 0 *
Mark R. Miehle (3) 233,966 * 165,000 68,966 *
Aziz Mohabbat 50,000 * 50,000 0 *
Luis Mostacero 2,500 * 2,500 0 *
Thomas F. Motter (4) 1,070,570 4.6% 925,000 145,570 *
Roberto E. Parra 2,500 * 2,500 0 *
Corinne Powell 275,000 1.2% 275,000 0 *
Charles S. Pritchard 6,000 * 6,000 0 *
Dr. David M. Silver(5) 341,666 1.4% 325,000 16,666 *
Zacarri D. Sisneros 6,250 * 6,250 0 *
Anthony Smith 6,250 * 6,250 0 *
John Tricarico 6,000 * 6,000 0 *
Petra Yekulis 1,250 * 1,250 0 *
--------- --------- -------
TOTAL 2,516,702 2,285,500 231,202
-------------
*Less than 1%.
(1) Mr. Ignotz is a director of Paradigm.
(2) Mr. Mackey is chairman of the board and secretary of Paradigm.
(3) Mr. Miehle is the former president and chief operating officer of
Paradigm.
(4) Mr. Motter is the former chairman and chief executive officer of
Paradigm.
(5) Dr. Silver is a director of Paradigm.
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31,2003, by each of the holders of
options (the "Selling Optionholders"), assuming each of the Selling
Optionholders elects to exercise his options to purchase shares of common stock
at an exercise price equal to $6.00 per share, the number of shares to be sold
by each Selling Optionholder and the percentage of each Selling Optionholder
after the sale of the shares included in this prospectus.
20
Shares Beneficially Number of
Owned Prior to Shares Being Shares Beneficially
Offering Offered Owned After Offering
Optionholders Number Percent Number Percent
------------- ------ ------- ------ -------
Randall A. Mackey(1) 75,000 * 75,000 0 *
Mark R. Miehle(2) 218,966 * 150,000 68,966 *
Dr. David M. Silver(3) 91,666 * 75,000 16,666 *
---------- ------- ------
TOTAL 385,632 300,000 85,632
--------------
*Less than 1%.
(1) Mr. Mackey is secretary and a director of Paradigm.
(2) Mr. Miehle is the former president and chief operating officer of
Paradigm.
(3) Dr. Silver is a director of Paradigm.
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31,2003, by each of the holders of
options (the "Selling Optionholders"), assuming each of the Selling
Optionholders elects to exercise his options to purchase shares of common stock
at an exercise price equal to $4.00 per share, the number of shares to be sold
by each Selling Optionholder and the percentage of each Selling Optionholder
after the sale of the shares included in this prospectus.
Shares Beneficially Number of
Owned Prior to Shares Being Shares Beneficially
Offering Offered Owned After Offering
Optionholders Number Percent Number Percent
------------- ------ ------- ------ -------
Steven J. Bayern (1) 112,500 * 112,500 0 *
Robert L. Frome (2) 216,667 * 150,000 66,667 *
Keith D. Ignotz (3) 75,709 * 75,000 709 *
Patrick N. Kolenik (4) 112,500 * 112,500 0 *
Randall A. Mackey (5) 75,000 * 75,000 0 *
Thomas F. Motter (6) 195,570 * 50,000 145,570 *
Dr. David M. Silver (7) 91,666 * 75,000 16,666 *
---------- ------- -------
TOTAL 879,612 650,000 229,612
------------
Less than 1%
(1) Mr. Bayern is a former director of Paradigm.
(2) Mr. Frome is a former director of Paradigm.
(3) Mr. Ignotz is a director of Paradigm.
(4) Mr. Kolenik is a former director of Paradigm.
(5) Mr. Mackey is chairman of the board and secretary of Paradigm.
(6) Mr. Motter is the former chairman and chief executive officer of
Paradigm.
(7) Dr. Silver is a director of Paradigm.
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31,2003, by each of the holders of
warrants (the "Selling Securityholders"), assuming each of the Selling
Securityholders elects to exercise the warrants held by such Selling
Securityholder to purchase shares of common stock at exercise prices ranging
from $2.38 to $8.125 per share, the number of shares to be sold by each Selling
Securityholder and the percentage of each Selling Securityholder after the sale
of the shares included in this prospectus.
Shares Beneficially Number of
Owned Prior to Shares Being Shares Beneficially
Offering Offered Owned After Offering
Securityholders Number Percent Number Percent
--------------- ------ ------- ------ -------
Consulting for Strategic Growth, Ltd. 40,000 * 40,000 0 *
Cyndel & Co., Inc. (1) 475,000 2.0% 475,000 0 *
John W. Hemmer (2) 75,000 * 75,000 0 *
Kenneth Jerome & Company, Inc. 200,000 * 200,000 0 *
21
John W. Hemmer (2) 75,000 * 75,000 0 *
Barry Kaplan Associates 100,000 * 100,000 0 *
Helen Kohn 50,000 * 50,000 0 *
Dr. Michael M. Limberg (3) 479,580 2.1% 300,000 179,580 *
Rodman & Renshaw, Inc. 35,000 * 35,000 0 *
Ronit Sucoff 106,703 * 50,000 53,333 *
--------- --------- -------
TOTAL 1,553,913 1,325,000 228,913
-------------
Less than 1%.
(1) The chairman, director and 50% shareholder of Cyndel & Co., Inc. is
Stephen J. Bayern and the president, director and 50% shareholder of
Cyndel is Patrick N. Kolenik, who together exercise shared voting and
investment powers. Messrs. Bayern and Kolenik are each a former
director of Paradigm. On October 1, 1999 and April 1, 2000, Cyndel
entered into consulting agreements with Paradigm to perform unspecified
investment banking services for Paradigm.
(2) Mr. Hemmer is senior vice president of Paradigm.
(3) Dr. Limberg is a consultant to Paradigm.
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31,2003, by each of the holders of
warrants (the "Selling Securityholders"), assuming each of the Selling
Securityholders elects to exercise the warrants held by such Selling
Securityholder to purchase shares of common stock at an exercise price of $.25
per share, the number of shares of common stock to be sold by each Selling
Securityholder, and the percentage of each Selling Securityholder after the sale
of common stock included in this prospectus.
Shares Beneficially Number of
Owned Prior to Shares Being Shares Beneficially
Offering Offered Owned After Offering(1)
Shareholders Number Percent Number Percent
------------ ------ ------- ------ -------
Paul L. Archambeau, M.D. 255,000 * 51,000 204,000 *
John H. Banzhaf 7,887 * 7,887 0 *
Daniel S. Lipson 250,000 * 50,000 200,000 *
Douglas A. MacLeod, M.D. 2,612,256 11.2% 200,000 2,412,256 7.6%
Douglas A. MacLeod, M.D. Profit
Sharing Trust 500,000 2.1% 100,000 400,000 1.3%
St. Mark's Eye Institute 250,000 1.1% 50,000 200,000 *
Milan Holdings, Ltd. 900,000 3.8% 180,000 720,000 2.3%
Frank G. Mauro 141,975 * 141,975 0 *
Delbert D. Reichardt 7,888 * 7,888 0 *
--------- ------- ---------
TOTAL 4,925,006 788,750 4,136,256
-------------
Less than 1%.
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31,2003, by each of the shareholders
registering shares of common stock for resale (the "Selling Shareholders")
pursuant to registration rights granted to such Selling Shareholders, the number
of shares to be sold by each Selling Shareholder and the percentage of each
Selling Shareholder after the sale of the shares included in this prospectus.
22
Shares Beneficially Number of
Owned Prior to Shares Being Shares Beneficially
Offering Offered Owned After Offering(1)
Shareholders Number Percent Number Percent
------------ ------ ------- ------ -------
Victoria Albright 382 * 382 0 *
Joseph S. Anile II 112,933 * 112,933 0 *
Paul L. Archambeau, M.D. 0 * 204,000 0 *
Dr. Myron Arlen 9,853 * 9,853 0 *
Scott S. Bair 50,000 * 50,000 0 *
Steven J. Bayern(1) 160,093 * 160,093 0 *
Bear Stearns as Custodian FBO
Leonard Russin, IRA 25,000 * 25,000 0 *
Ellen Bracchi 132 * 132 0 *
John Butler 224,499 * 224,499 0 *
John Butler as Custodian for
Shandy Lee Dunn 382 * 382 0 *
John Richard Butler Jr. 552 * 552 0 *
Carcap, Co. LLC 15,500 * 15,500 0 *
Ray P. Carracciolo 3,698 * 3,698 0 *
John Charles Casebeer, M.D. 43,684 * 43,684 0 *
Leith Clotfelter 116 * 116 0 *
Thomas Clotfelter 116 * 116 0 *
Jarrod R. Eberhardt 4,108 * 4,108 0 *
Erin C. Eberhardt 4,108 * 4,108 0 *
Eberhardt Family Trust (UTD)
dated 3/12/92 (2) 13,353 * 13,353 0 *
Charles George 462 * 462 0 *
Stanley Goldberg Revocable Trust (3) 10,000 * 10,000 0 *
Charles L. Greiter, Custodian for
Christopher B. Breiter 764 * 764 0 *
Charles L. Greiter, Custodian for
Elizabeth A. Breiter 764 * 764 0 *
William D. Greiter 1,528 * 1,528 0 *
Scott Gruder 4,927 * 4,927 0 *
Douglas A. Hester 1,284 * 1,284 0 *
I.O. Assets, Inc. 1,222,825 5.2% 1,222,825 0 *
International Bio-Immune Systems, Inc. 344,000 * 344,000 0 *
JAOR Partners 5,000 * 5,000 0 *
Joshua E. Josephson 924 * 924 0 *
David R. Kahn 180 * 180 0 *
Rodger T. Kame 642 * 642 0 *
Helen Kohn 52,500 * 52,500 0 *
Patrick M. Kolenik (4) 160,093 * 160,093 0 *
Peter Kristensen(5) 50,000 * 50,000 0 *
KSH Strategic Investment Fund I, LP
(6) 32,500 * 32,500 0 *
Stuart J. Lemle 16,328 * 16,328 0 *
Ted Levine 4,927 * 4,927 0 *
Daniel Levinson 1,528 * 1,528 0 *
Dr. Michael M. Limberg (7) 179,580 * 87,580 92,000 *
Sheila G. Lipin 6,163 * 6,163 0 *
William R. Lipin 9,244 * 9,244 0 *
Daniel S. Lipson 0 * 200,000 0 *
Roland Lorenzo 9,853 * 9,853 0 *
Douglas A. MacLeod, M.D. 2,412,256 10.3% 800,000 1,612,256 5.1%
23
Douglas A. MacLeod, M.D. Profit
Sharing Trust 0 * 400,000 0 *
George Mansfield 50,466 * 50,466 0 *
F. Brinton McConkie(8) 50,000 * 50,000 0 *
Mentor Corporation (9) 763,651 3.2% 763,651 0 *
Irwin Messer 2,464 * 2,464 0 *
Mark R. Miehle (10) 68,966 * 18,500 50,466 *
Milan Holdings, Ltd. 720,000 3.1% 720,000 0 *
Wilfred H. Newsham and Therese D.
Newshaw Living Trust (UDT)
dated 8/13/92 (11) 924 * 924 0 *
William Norgren 539 * 539 0 *
Phillips, Haskett & Ingwalson, P.C. (12) 6,163 * 6,163 0 *
Frederick C. Phillips 2,311 * 2,311 0 *
Polycore Optical Pte., Ltd. (13) 694,816 3.0% 694,816 0 *
Charles S. Pritchard 51 * 51 0 *
Eric Pfosi 3,641 * 3,641 0 *
Janeen Pfosi 10,052 * 10,052 0 *
Janeen Pfosi, Custodian for
Evan Pfois 3,335 * 3,335 0 *
Janeen Pfosi, Custodian for
Brent Pfosi 3,029 * 3,029 0 *
Richard G. Powell 5,300 * 5,300 0 *
R.F. Lafferty & Co. (14) 100,000 * 100,000 0 *
Dr. Sheldon Rabin 9,853 * 9,853 0 *
D.A. Rorabaugh and Lorraine
Rorabaugh Trust (UTD) dated
5/21/85 (15) 16 * 16 0 *
Dale Rorabaugh 1,541 * 1,541 0 *
David and Dee Russell 1,849 * 1,849 0 *
Thomas O. Sherer 3,819 * 3,819 0 *
St. Mark's Eye Institute 200,000 * 200,000 0 *
Michael W. Stelzer (16) 40,000 * 40,000 0 *
Ronit Sucoff 3,370 * 3,370 0 *
Tov Industrial Products (17) 55,000 * 55,000 0 *
Triton West Group, Inc. (18) 695,991 3.0% 695,991 0 *
Jennifer Wegen, Custodian for
Kaitlin Wegen 10,052 * 10,052 0 *
Jennifer Wegen, Custodian for
Kristine Wegen 7,915 * 7,915 0 *
Jennifer Wegen, Custodian for
Madison Wegen 3,335 * 3,335 0 *
Jennifer Wegen Trust (UAD)
dated 7/24/95 5,778 * 5,778 0 *
Keith Wegen Trust (UAD)
dated 7/24/95 5,778 * 5,778 0 *
Richard O. Williams 3,056 * 3,056 0 *
Gary Wisniewski 1,320 * 1,320 0 *
James D. Wood 1,078 * 1,078 0 *
------------ ---------- ----------
TOTAL 8,736,092 7,781,518 142,466
-------------
Less than 1%.
(1) Mr. Bayern is a former director of Paradigm.
(2) The trustee of the Eberhardt Family Trust (UTD) dated 3/12/92 is
Richard A. Eberhardt, who exercises sole voting and investment powers.
(3) The trustee of the Stanley Goldberg Revocable Trust is Stanley
Goldberg, who exercises sole voting and investment powers.
24
(4) Mr. Kolenick is a former director of Paradigm.
(5) Mr. Kristensen is a consultant to Paradigm.
(6) The managing directors of KSH Strategic Investment Fund I, LP are Cary
W. Sucoff and Harvey R. Kohn, who exercise shares voting and investment
powers.
(7) Dr. Limberg is a consultant to Paradigm.
(8) Mr. McConkie is a consultant to the Company.
(9) The senior vice president and chief financial officer of Mentor
Corporation is Adel Michael, who exercises sole voting and investment
powers. On October 24, 1999, Mentor entered into an asset purchase
agreement with Paradigm to sell Mentor's cataract surgery product line.
(10) Mr. Miehle is the former president and chief operating officer of
Paradigm.
(11) The trustee of the Wilfred H. Newshaw and Therese D. Newshaw Living
Trust (UDT) dated 8/13/92 are Wilfred H. Newshaw and Therese D Newshaw,
who exercise shared voting and investment powers.
(12) The secretary of Phillips, Haskett & Ingwalson, P.C. is Frederick C.
Phillips, who exercises sole voting and investment powers.
(13) The managing director of Polycore Optical Pte., Ltd. is Sammy Summargo,
who exercises sole voting and investment powers.
(14) The president of R.F. Lafferty & Co. is Henry Hackel, who exercises
sole voting and investment powers.
(15) The trustees of the D.A. Rorabaugh and Lorraine Rorabaugh Trust (UTD)
dated 5/21/85 are Dale A. and Lorraine Rorabaugh, who exercise shared
voting and investment powers.
(16) Mr. Stelzer is the former vice president of operations and chief
operating officer of Paradigm.
(17) The president of Tov Industrial Products is Joseph Frimerman, who
exercises sole voting and investment powers.
(18) The president of Triton West Group, Inc. is E. Edward Jung, who
exercises sole voting and investment powers. On June 30, 2000, Triton
West Group, Inc. entered into a private equity line of credit agreement
with Paradigm.
DESCRIPTION OF SECURITIES
Paradigm's authorized capital stock consists of 40,000,000 shares of
common stock, $.001 par value per share, and 5,000,000 shares of preferred
stock, $.001 par value per share. Paradigm has created six classes of preferred
stock, designated as Series A preferred stock, Series B preferred stock, Series
C convertible preferred stock, Series D convertible preferred stock, Series E
convertible preferred stock and Series F convertible preferred stock.
Common Stock. The holders of common stock are entitled to one vote for
each share held of record on all matters to be voted on by stockholders. The
holders of common stock are entitled to receive such dividends, if any, as may
be declared from time to time by the Board of Directors in its discretion from
legally available funds. Upon liquidation or dissolution of Paradigm, the
holders of common stock are entitled to receive, pro rata, assets remaining
available for distribution to stockholders. The common stock has no cumulative
voting, preemptive or subscription rights and is not subject to any future
calls. There are no conversion or redemption rights applicable to the shares of
common stock. All the outstanding shares of common stock are fully paid and
nonassessable.
Preferred Stock. The Board of Directors is authorized, without further
action by the stockholders, to issue, from time to time, up to 5,000,000 shares
of preferred stock in one or more classes or series, and to fix or alter the
designations, power and preferences, and relative participation, option or other
rights, if any, and qualifications, limitations or restrictions thereof,
including, without limitation, dividend rights (and whether dividends are
cumulative), conversion rights, if any, voting rights (including the number of
votes, if any, per share), redemption rights (including sinking fund provisions,
if any), and liquidation preferences of any unissued shares or wholly unissued
series of preferred stock, and the number of shares constituting any such class
or series and its designation and to increase or decrease the number of such
class or series subsequent to the issuance of shares of such class or series,
but not below the number of shares of such class or series then outstanding. The
issuance of any series of preferred stock under certain circumstances could have
the effect of delaying, deferring or preventing a change in control and could
adversely affect the rights of the holders of the common stock. As of the date
of this Memorandum, Paradigm has created and issued shares of five classes of
preferred stock more fully discussed below.
Series A Preferred Stock. The Board of Directors has authorized the
issuance of a total of 500,000 shares of Series A preferred stock. Each share of
Series A preferred stock is convertible into shares of common stock at a rate of
1.2 shares of common stock for each share of Series A preferred stock. Paradigm
may, at its sole option, at any time, redeem all of the then-outstanding shares
of Series A preferred stock at a price of $4.50 per share, plus accrued and
unpaid dividends, if any. The holders of shares of Series A preferred stock are
entitled to non-cumulative preferred dividends at the rate of $0.24 per share of
Series A preferred stock per annum, payable in cash on or before December 31 of
each year, commencing December 31, 1995. Such dividends, however, can only be
paid from surplus earnings of Paradigm and further, because these dividends are
non-cumulative, no deficiencies in dividend payments from any calendar year can
be carried forward to the next calendar year. The Series A preferred stock has
priority rights to dividends over the common stock, but will not participate in
any dividends payable to the holders of shares of common stock. No dividends
will be paid to holders of shares of common stock unless and until all dividends
on shares of preferred stock have been paid in full for the same period. Except
upon the redemption of the Series A preferred stock or before the payment of
dividends on any shares of capital stock that are on par with or junior or
25
subordinate to the Series A preferred stock as to dividends, or upon the
liquidation, dissolution or winding-up of Paradigm, the payment of dividend from
surplus earnings was not mandatory prior to December 31, 1995. In the event of
any liquidation, dissolution or winding-up of Paradigm, the holders of shares of
Series A preferred stock are entitled to receive, prior and in preference to,
any distribution of any of the assets or surplus funds of Paradigm to the
holders of shares of common stock or any other stock of Paradigm ranking on
liquidation junior or subordinate to the Series A preferred stock, an amount
equal to $1.00 per share, plus accrued and unpaid dividends, if any. Holders of
shares of Series A preferred stock have no voting rights, except in those
instances required by Delaware law.
As of January 31,2003, there were a total of 5,627 shares of Series A
preferred stock issued and outstanding. A total of 6,753 shares of common stock
has been set aside and reserved in the event the holders of shares of Series A
preferred stock elect to convert those shares into shares of common stock. As of
January 31,2003, 116,897 shares of Series A preferred stock have been converted
into 140,276 shares of common stock.
Series B Preferred Stock. The Board of Directors has authorized the
issuance of a total of 500,000 shares of Series B preferred stock. Each share of
the Series B preferred stock is convertible into shares of common stock at a
rate of 1.2 shares of common stock for each share of Series B preferred stock.
Paradigm may, at its sole option, at any time, redeem all of the then-
outstanding shares of Series B preferred stock at a price of $4.50 per share,
plus accrued and unpaid dividends, if any. The holders of shares of Series B
preferred stock are entitled to non-cumulative preferred dividends at the rate
of $0.48 per share of Series B preferred stock per annum, payable in cash on or
before December 31 of each year, commencing December 31, 1995. Such dividends,
however, can only be paid from surplus earnings of Paradigm and further, because
these dividends are non-cumulative, no deficiencies in dividend payments from
any calendar year can be carried forward to the next calendar year. The Series B
preferred stock has priority rights to dividends over the common stock, but will
not participate in any dividends payable to the holders of shares of common
stock. No dividends will be paid to holders of shares of common stock unless and
until all dividends on shares of preferred stock have been paid in full for the
same period. Except upon the redemption of the Series B preferred stock or
before the payment of dividends on any shares of capital stock that are on par
with or junior or subordinate to the Series B preferred stock as to dividends,
or upon the liquidation, dissolution or winding-up of Paradigm, the payment of
dividends from surplus earnings was not mandatory prior to December 31, 1995. In
the event of any liquidation, dissolution or winding-up of Paradigm, the holders
of shares of Series B preferred stock are entitled to receive, prior and in
preference to, any distribution of any of the assets or surplus funds of
Paradigm to the holders of shares of common stock or any other stock of Paradigm
ranking on liquidation junior or subordinate to the Series B preferred stock, an
amount equal to $4.00 per share, plus accrued and unpaid dividends, if any.
Holders of shares of Series B preferred stock have no voting rights, except in
those instances required by Delaware law.
As of January 31,2003, there were a total of 8,986 shares of Series B
preferred stock issued and outstanding. A total of 10,783 shares of common stock
have been set aside and reserved in the event the holders of shares of Series B
preferred stock elect to convert those shares into shares of common stock. As of
January 31,2003, 484,014 shares of Series B preferred stock have been converted
into 580,817 shares of common stock.
Series C Preferred Stock. The Board of Directors has authorized the
issuance of a total of 30,000 shares of Series C preferred stock at $100 per
share. Each share of Series C preferred stock is convertible into shares of
common stock at an initial conversion price equal to $1.75 per share of common
stock (or approximately 57.14 common shares for each share of Series C preferred
stock), subject to adjustments for stock splits, stock dividends and certain
combinations or recapitalizations in respect of the common stock. The shares are
also automatically converted into common stock upon 30 days' written notice by
Paradigm to the holders of the shares after (i) the 30-day anniversary of the
effective date of the filing of a registration statement in which shares of
common stock issuable upon conversion of the shares were registered and (ii) the
average closing price of the common stock for the 20-day period immediately
prior to the date in which notice of conversion is given to the holders of the
shares is at least $3.50 per shares. Any shares still outstanding after January
1, 2002 shall be mandatorily converted at such date at the conversion price then
in effect. Holders of the shares have no redemption rights. The holders of
shares of Series C preferred stock are entitled to 12% non-cumulative preferred
dividends. However, the shares shall be entitled to dividends declared on the
common stock on an as-converted basis. Such dividends shall accrue from the date
of issuance or the last preferred dividend record date and be payable in cash or
shares of common stock. Such dividends, however, can only be paid at Paradigm's
sole option from surplus earnings and further, because these dividends are
non-cumulative, no deficiencies in dividend payments from any calendar year can
be carried forward to the next calendar year. In the event of any liquidation,
dissolution, sale of all or substantially all of the assets or merger or
consolidation of Paradigm (and, in case of a merger or consolidation, Paradigm
is not the surviving entity), the holders of Series C preferred stock shall be
entitled to receive, in preference to the holders of all other classes of
capital stock, whether now existing or hereinafter created (other than Series A
preferred stock and Series B preferred stock with which Series C preferred stock
shall, for purposes of a liquidation, rank junior), an amount per share equal to
the greater of (A) the amount such shares would have received had such holders
converted the Series C preferred stock into common stock immediately prior to
such liquidation, plus declared or unpaid dividends or (B) or the stated value,
$100 per share, subject to such liquidation plus declared but unpaid dividends.
Holders of shares of Series C preferred stock shall have no voting rights,
except in those instances required by Delaware law.
26
As of January 31,2003, there were no shares of Series C preferred stock
issued and outstanding. As of January 31,2003, 29,990 shares of Series C
preferred stock have been converted into 1,713,714 shares of common stock.
Series D Convertible Preferred Stock. The Board of Directors authorized
the issuance of a total of 1,140,000 shares of Series D convertible preferred
stock at $1.75 per share. Each share of Series D preferred stock is convertible
into one share of common stock, subject to adjustments for stock splits, stock
dividends and certain combinations or recapitalizations in respect of the common
stock. The shares are also automatically converted into common stock upon 30
days' written notice by Paradigm to the holders of the shares after (i) the
30-day anniversary of the effective date of a registration statement in which
shares of common stock issuable upon conversion of the shares are registered and
(ii) the average closing price of the common stock for the 20-day period
immediately prior to the date in which notice of conversion is given to the
holders of the shares is at least $3.50 per share. Any shares still outstanding
after January 1, 2002 shall be mandatorily converted at such date at the
conversion price then in effect. Holders of the shares have no redemption
rights. The holders of shares of Series D preferred stock are entitled to 10%
non-cumulative preferred dividends. Additionally, holders of the shares will
receive any dividends declared on the common stock on an as-converted basis.
Such dividends accrue from the date of issuance or the last preferred dividend
record date and are payable in cash or shares of common stock. Such dividends,
however, can only be paid at Paradigm's sole option from surplus earnings and
further because these dividends are non-cumulative, no deficiencies in dividend
payments from any calendar year can be carried forward to the next calendar
year. In the event of any liquidation, dissolution, sale of all or substantially
all of the assets or merger or consolidation of Paradigm (and, in case of a
merger or consolidation, Paradigm is not the surviving entity), the holders of
Series D preferred stock are entitled to receive, in preference to the holders
of all other classes of capital stock, whether now existing or hereinafter
created, other than Series A preferred stock, Series B preferred stock and
Series C preferred stock with which Series D preferred stock shall, for purposes
of a liquidation, rank junior, an amount per share equal to the greater of (A)
the amount such shares would have received had such holders converted the Series
D preferred stock into common stock immediately prior to such liquidation, plus
declared or unpaid dividends or (B) or the stated value, $1.75 per share,
subject to such liquidation plus declared but unpaid dividends. Holders of
shares of Series D preferred stock have no voting rights, except in those
instances required by Delaware law.
As of January 31,2003, there were a total of 5,000 shares of Series D
preferred stock issued and outstanding. A total of 8,750 shares of common stock
has been set aside and reserved in the event the holders of the Series D
preferred stock elect to convert those shares into shares of common stock. As of
January 31,2003, 1,630,000 shares of Series D preferred stock have been
converted into 1,985,000 shares of common stock.
Series E Preferred Stock. The Board of Directors has authorized the
issuance of a total of 50,000 shares of Series E preferred stock at a stated
value of $100 per share. Each share of Series E preferred stock is convertible
into shares of common stock at an initial conversion price equal to $1.875 per
share of common stock (or 53.33 common shares for each share of Series E
preferred stock), subject to adjustments for stock splits, stock dividends and
certain combinations or recapitalizations in respect of the common stock. The
shares are also automatically converted into common stock upon 30 days' written
notice by Paradigm to the holders of the shares after (i) the 30-day anniversary
of the effective date of the filing of a registration statement in which shares
of common stock issuable upon conversion of the shares were registered and (ii)
the average closing price of the common stock for the 20-day period immediately
prior to the date in which notice of conversion is given to the holders of the
shares is at least $3.50 per share. Any shares still outstanding after January
1, 2005 shall be mandatorily converted at such date at the conversion price then
in effect. Holders of the shares have no redemption rights. The holders of
shares of Series E preferred stock are entitled to 8% non-cumulative preferred
dividends. However, the shares shall be entitled to dividends declared on the
common stock on an as-converted basis. Such dividends shall accrue from the date
of issuance or the last preferred dividend record date and be payable in cash or
shares of common stock. Such dividends, however, can only be paid at Paradigm's
sole option from surplus earnings and further, because these dividends are
non-cumulative, no deficiencies in dividend payments from any calendar year can
be carried forward to the next calendar year. In the event of any liquidation,
dissolution, sale of all or substantially all of the assets or merger or
consolidation of Paradigm (and, in case of a merger or consolidation, Paradigm
is not the surviving entity), the holders of Series E preferred stock shall be
entitled to receive, in preference to the holders of all other classes of
capital stock, whether now existing or hereinafter created (other than Series A
preferred stock, Series B preferred stock, Series C preferred stock and Series D
convertible preferred stock with which Series E preferred stock shall, for
purposes of a liquidation, rank junior), an amount per share equal to the
greater of (A) the amount such shares would have received had such holders
converted the Series E preferred stock into common stock immediately prior to
such liquidation, plus declared or unpaid dividends or (B) or the stated value,
$100 per share, subject to such liquidation plus declared but unpaid dividends.
Holders of shares of Series E preferred stock shall have no voting rights,
except in those instances required by Delaware law.
As of January 31,2003, there were a total of 1,500 shares of Series E
preferred stock issued and outstanding. A total of 80,000 shares of common stock
has been set aside and reserved in the event the holders of Series D preferred
stock elect to convert those shares into shares of common stock. As of January
31,2003, 44,719 shares of Series E preferred stock have been converted into
2,385,013 shares of common stock.
27
Series F Preferred Stock. The Board of Directors has authorized the
issuance of a total of 50,000 shares of Series F preferred stock at a stated
price of $100 per share. Each share of Series F preferred stock is convertible
into shares of common stock at an initial conversion price equal to $1.875 per
share of common stock (or 53.33 common shares for each share of Series E
preferred stock), subject to adjustments for stock splits, stock dividends and
certain combinations or recapitalizations in respect of the common stock. The
shares are also automatically converted into common stock upon 30 days' written
notice by Paradigm to the holders of the shares after (i) the 30-day anniversary
of the effective date of the filing of a registration statement in which shares
of common stock issuable upon conversion of the shares were registered and (ii)
the average closing price of the common stock for the 20-day period immediately
prior to the date in which notice of conversion is given to the holders of the
shares is at least $3.50 per share. Any shares still outstanding after January
1, 2005 shall be mandatorily converted at such date at the conversion price then
in effect. Holders of the shares have no redemption rights. The holders of
shares of Series F preferred stock are entitled to 8% non-cumulative preferred
dividends. However, the shares shall be entitled to dividends declared on the
common stock on an as-converted basis. Such dividends shall accrue from the date
of issuance or the last preferred dividend record date and be payable in cash or
shares of common stock. Such dividends, however, can only be paid at Paradigm's
sole option from surplus earnings and further, because these dividends are
non-cumulative, no deficiencies in dividend payments from any calendar year can
be carried forward to the next calendar year. In the event of any liquidation,
dissolution, sale of all or substantially all of the assets or merger or
consolidation of Paradigm (and, in case of a merger or consolidation, Paradigm
is not the surviving entity), the holders of Series F preferred stock shall be
entitled to receive, in preference to the holders of all other classes of
capital stock, whether now existing or hereinafter created (other than Series A
preferred stock, Series B preferred stock, Series C preferred stock, Series D
Convertible preferred stock and Series E preferred stock with which Series F
preferred stock shall, for purposes of a liquidation, rank junior), an amount
per share equal to the greater of (A) the amount such shares would have received
had such holders converted the Series F preferred stock into common stock
immediately prior to such liquidation, plus declared or unpaid dividends or (B)
or the stated value, $100 per share, subject to such liquidation plus declared
but unpaid dividends. Holders of shares of Series F preferred stock shall have
no voting rights, except in those instances required by Delaware law.
As of January 31,2003, there were 5,773.75 shares of Series F preferred
stock issued and outstanding. A total of 307,933 shares of common stock has been
set aside and reserved in the event the holders of Series E preferred stock
elect to convert those shares of common stock. As of January 31,2003, 42,273.25
shares of Series F preferred stock have been converted into 2,254,573 shares of
common stock.
Although Paradigm was not instructed by any regulatory body to actually
conduct the Rescission Offer, Paradigm decided to go forward with the Rescission
Offer to reduce any type of potential contingent liability it may be exposed to
in connection with its private placement of Series B preferred stock. The
Rescission Offer is designed to reduce such contingent liability by placing the
Series B Stockholders on notice of possible defects and presenting them with an
opportunity to avoid or mitigate damages. The Rescission Offer, however, may not
fully relieve Paradigm from exposure to contingent liability under federal or
state securities laws.
Class A Warrants. Each Class A warrant entitles the holder to purchase
one share of common stock at an exercise price of $7.50 per share. Class A
warrants are exercisable through July 10, 2003, provided that at the time of
exercise a current prospectus relating to the common stock is then in effect and
the common stock is qualified for sale or exempt from qualification under
applicable state securities laws. The Class A warrants are subject to redemption
by Paradigm commencing July 10, 1997, upon 30 days' written notice, at a price
of $.05 per Class A warrant if the average closing bid price of the common stock
for any 30 consecutive business days ending within 15 days of the date of which
the notice of redemption is given shall have exceeded $8.50 per share. Holders
of Class A warrants automatically forfeit their rights to purchase the shares of
common stock issuable upon exercise of such warrants unless the warrants are
exercised before the close of business on the business day immediately prior to
the date set for redemption. All outstanding Class A warrants must be redeemed
if any Class A warrants are redeemed. A notice of redemption shall be mailed to
each of the registered holders of the Class A warrants by first class mail,
postage prepaid, 30 days before the date fixed for redemption. The notice of
redemption shall specify the redemption price, the date fixed for redemption,
the place where the Class A warrant certificates shall be delivered and the
redemption price to be paid, and that the right to exercise a Class A warrant
shall terminate at 5:00 p.m. (Salt Lake City time) on the business day
immediately preceding the date fixed for redemption.
The Class A warrants may be exercised upon surrender of the
certificate(s) therefore on or prior to the expiration or the redemption date at
the offices of Continental Stock Transfer & Trust Company, Paradigm's warrant
agent (the "Warrant Agent") with the subscription form on the reverse side of
the certificate(s) completed and executed as indicated, accomplished by payment
(in the form of a certified or cashier's check payable to the order of Paradigm)
of the full exercise price for the number of warrants being exercised.
The Class A warrants contain provisions that protect the holders
thereof against dissolution by adjustment of the exercise price per share and
the number of shares issuable upon exercise thereof upon the occurrence of
certain events including issuances of common stock (or securities convertible,
exchangeable or exercisable into common stock) at less than market value, stock
dividends, stock splits, mergers, sale of substantially all of Paradigm's
assets, and for other extraordinary events; provided, however, that no such
adjustment shall be made upon, among other things (i) the issuance or exercise
of options or other securities under employee benefit plans (ii) the sale or
exercise of outstanding options or warrants or the Class A warrants, or (iii)
the conversion of shares of Paradigm's preferred stock to common stock.
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The Company is not required to issue fractional shares of common stock,
and in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of Class A warrants will not possess any
right as a shareholder of Paradigm unless or until he or she exercises the Class
A warrants. As of January 31,2003, the Class A warrants have not been exercised.
Series E Preferred Stockholders Warrants. In connection with the sale
of 48,219 shares of Series E preferred stock through a private offering in
reliance on the exemption contained in Section 4(2) of the Securities Act of
1933, as amended, and pursuant to the provisions of Rule 506 of Regulation D
promulgated thereunder, Paradigm issued warrants to holders of Series E
preferred stock to purchase 241,095 shares of common stock. Each warrant
entitled the holder to purchase one share of common stock at an exercise price
of $4.00 per share. The warrants are exercisable through May 23, 2006. These
warrants contain provisions that protect the holder thereof against dilution by
adjustment of the exercise price per share and the number of shares issuable
upon exercise thereof upon the occurrence of certain events, including stock
dividends, stock splits, mergers and the sale of substantially all of Paradigm's
assets. The Company is not required to issue fractional shares of common stock,
and in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holders of the warrants will not possess any
rights as shareholders unless and until the holders exercise the warrants. As of
January 31,2003, none of the Series E Preferred Shareholders warrants has been
exercised.
Series F Preferred Stockholders Warrants. In connection with the sale
of 48,046 shares of Series F preferred stock through a private offering in
reliance on the exemption contained in Section 4(2) of the Securities Act of
1933, as amended, and pursuant to the provisions of Rule 506 of Regulation D
promulgated thereunder, Paradigm issued warrants to purchase 251,114 shares of
common stock. Each Warrant entitled the holder to purchase one share of common
stock at an exercise price of $4.00 per share. The warrants are exercisable
through August 20, 2006. These warrants contain provisions that protect the
holder thereof against dilution by adjustment of the exercise price per share
and the number of shares issuable upon exercise thereof upon the occurrence of
certain events, including stock dividends, stock splits, mergers and the sale of
substantially all of Paradigm's assets. Paradigm is not required to issue
fractional shares of common stock, and in lieu thereof will make a cash payment
based upon the current market value of such fractional shares. The holders of
the warrants will not possess any rights as shareholders unless and until the
holders exercise the warrants. As of January 31,2003, none of the Series F
Preferred Shareholders warrants has been exercised.
Kenneth Jerome Warrants. In connection with its public offering,
Paradigm issued and sold warrants to Kenneth Jerome & Company, Inc. ("Kenneth
Jerome") the underwriters of that offering, to purchase 100,000 shares of common
stock at $8.125 per share commencing July 10, 1998 and continuing to be
exercisable until July 10, 2003, and an additional 100,000 shares of common
stock at a price of $7.50 per share exercisable for the same period of time.
During the exercise period, holders of the Kenneth Jerome warrants are entitled
to certain demand and incidental registration rights with respect to the
securities issuable upon exercise of the Kenneth Jerome warrants. The number of
shares covered by the Kenneth Jerome warrants are subject to adjustment in
certain events to prevent dissolution. The Company may redeem the Kenneth Jerome
warrants beginning July 10, 1998 at a price of $.05 per warrant at such time as
Paradigm's common stock has been trading on The Nasdaq SmallCap Market or an
established exchange at a price equal to or above $10.00 per share for a period
of 30 consecutive business days ending within 15 days of the date of redemption.
Prior to July 10, 1998, the Kenneth Jerome warrants are not transferable except
to officers and directors of the representative, co- underwriters, selling group
members and their officers or partners. As of January 31,2003, none of the
Kenneth Jerome warrants has been exercised.
KSH Investment Group Warrants. In connection with its Series D
Preferred private placement, Paradigm issued warrants to KSH Investment Group,
Inc. ("KSH Investment Group") warrants to purchase 208,400 shares of common
stock. These warrants consist of Placement Agent Warrants to purchase 68,400
shares of common stock at any time not later than February 12, 2004 at exercise
price of $2.50 per share for warrants to purchase 55,539 shares of common stock,
$2.69 per share for warrants to purchase 10,461 shares, and $2.38 per share for
warrants to purchase 2,400 shares of common stock. The Investment Banking Fee
warrants consist of warrants to purchase 140,000 shares of common stock at any
time no later than March 1, 2004 at an exercise price of $2.38 per share. The
KSH Investment Group warrants contain provisions that protect holders thereof
against dilution by adjustment of the exercise price per share and the number of
shares issuable upon exercise thereof upon the occurrence of certain events,
including stock dividends, stock splits, mergers and the sale of substantially
all of Paradigm's assets. The Company is not required to issue fractional shares
of common stock, and in lieu thereof will make a cash payment based upon the
current market value of such fractional shares. The registered holders of the
KSH Investment Group warrants also may elect to exercise their warrants by way
of cashless exercise of the warrants. The number of shares of common stock
issuable on the cashless exercise of the KSH Investment Group warrants is equal
to the total number of warrants issued to the holder times the difference
between the then current market price and the exercise price of the warrants
divided by the market price of the warrants. The holder of the KSH Investment
Group warrants will not possess any rights as a shareholder of Paradigm unless
and until the holder exercises the warrants. As of January 31,2003, none of the
KSH Investment Group warrants has been exercised.
Cyndel Warrants. In connection with certain financings that Cyndel
provided to Paradigm, Paradigm issued warrants to Cyndel & Co., Inc. ("Cyndel")
to purchase an aggregate of 475,000 shares of common stock. These warrants
consist of warrants to purchase 75,000 shares of common stock at any time not
later than February 7, 2006, at an exercise price of $4.00 per share; warrants
to purchase 150,000 shares of common stock at any time not later than August 10,
2005, at an exercise price of $4.00 per share; and warrants to purchase 250,000
shares of common stock at any time not later than August 31, 2005, at an
exercise price of $3.00 per share. The warrants contain provisions that protect
the holder thereof against dilution by adjustment of the exercise price per
29
share and the number of shares issuable upon exercise thereof upon the
occurrence of certain events, including stock dividends, stock splits, mergers
and the sale of substantially all of Paradigm's assets. Paradigm is not required
to issue fractional shares of common stock, and in lieu thereof will make a cash
payment based upon the current market value of such fractional shares. The
holder of the warrants will not possess any rights as a shareholder of Paradigm
unless and until the holder exercises the warrants. As of January 31,2003, none
of the Cyndel warrants has been exercised.
Lafferty Warrants. In connection with an investment banking agreement
with R. F. Lafferty & Co., Inc. ("Lafferty"), Paradigm issued warrants to
Lafferty to purchase 100,000 shares of Paradigm's common stock. Each warrant
entitles Lafferty to purchase one share of common stock at an exercise price of
$4.00 per share. The warrants are exercisable through October 15, 2004. The
warrants contain provisions that protect the holder thereof against delusion by
adjustment of the exercise price per share and the number of shares issuable
upon the exercise thereof upon the occurrence of certain events, including stock
dividends, stock splits, mergers and the sale of substantially all of Paradigm's
assets. The Company is not required to issue fractional shares of common stock,
and in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of the warrants will not possess any
rights as a shareholder of Paradigm unless and until the holder exercises the
warrants. As of January 31,2003, none of the Lafferty warrants has been
exercised.
Limberg Warrants. In connection with certain consulting services
provided to Paradigm, Paradigm issued warrants to Dr. Michael B. Limberg to
purchase 300,000 shares of common stock. These warrants consist of warrants to
purchase 100,000 shares of common stock at any time not later than December 1,
2008 at an exercise price of $4.00 per share; warrants to purchase 50,000 shares
of common stock at any time not later than December 1, 2009 at an exercise price
of $4.75 per share; warrants to purchase 50,000 shares of common stock at any
time not later than June 1, 2010 at an exercise price of $6.75 per share;
warrants to purchase 50,000 shares of common stock at any time not later than
December 1, 2011 at an exercise price of $4.00 per share; and warrants to
purchase 50,000 shares of common stock at any time not later than June 1, 2011
at an exercise price of $4.00 per share. These warrants contain provisions that
protect the holder thereof against dilution by adjustment of the exercise price
per share and the number of shares issuable upon exercise thereof upon the
occurrence of certain events, including stock dividends, stock splits, mergers
and the sale of substantially all of Paradigm's assets. Paradigm is not required
to issue fractional shares of common stock, and in lieu thereof will make a cash
payment based upon the current market value of such fractional shares. The
holder of the warrants will not possess any rights as a shareholder unless and
until the holder exercises the warrants. As of January 31,2003, none of the
Limberg warrants has been exercised.
Hemmer Warrants. In connection with the prior retirement of John W.
Hemmer, who has recently been appointed as Senior Vice President of Paradigm,
the Board of Directors authorized the issuance of warrants to Mr. Hemmer to
purchase 75,000 shares of common stock. The Board of Directors authorized the
issuance of these warrants to Mr. Hemmer at such time as he exercised warrants
to purchase 125,000 shares of common stock at an exercise price of $2.63 per
share, which were previously issued to him upon his retirement. Each warrant
entitles the holder to purchase one share of common stock at an exercise price
of $7.50 per share. The warrants are exercisable through January 24, 2005. The
warrants contain provisions that protect the holder thereof against dilution by
adjustment of the exercise price per share and the number of shares issuable
upon exercise thereof upon the occurrence of certain events, including stock
dividends, stock splits, mergers and the sale of substantially all of Paradigm's
assets. Paradigm is not required to issue fractional shares of common stock, and
in lieu thereof will make a cash payment based on the current market value of
such fractional shares. The holder of the warrants will not possess any rights
as a shareholder of Paradigm unless and until the holder exercises the warrants.
As of January 31,2003, the Hemmer warrants to purchase 75,000 shares of common
stock have not been exercised.
Kohn and Sucoff Warrants. In connection with certain financial
consulting services provided to Paradigm, Paradigm issued warrants to KSH
Investment Group, Inc. to purchase 100,000 shares of common stock. These
warrants consist of warrants to purchase 100,000 shares of common stock at any
time not later than February 7, 2006 at an exercise price of $4.00 per share.
These warrants were subsequently assigned to Helen Kohn and Ronit Sucoff.
Warrants to purchase 50,000 shares of common stock were assigned to Helen Kohn
(the "Kohn Warrants") and warrants to purchase 50,000 shares of common stock
were assigned to Ronit Sucoff (the "Sucoff Warrants"). These warrants contain
provisions that protect the holder thereof against dilution by adjustment of the
exercise price per share and the number of shares issuable upon exercise thereof
upon the occurrence of certain events, including stock dividends, stock splits,
mergers and the sale of substantially all of Paradigm's assets. Paradigm is not
required to issue fractional shares of common stock, and in lieu thereof will
make a cash payment based upon the current market value of such fractional
shares. The holders of the warrants will not possess any rights as shareholders
unless and until the holders exercise the warrants. As of January 31,2003, none
of the Kohn or Sucoff Warrants has been exercised.
Kaplan Warrants. In connection with certain consulting services
provided to Paradigm, Paradigm issued warrants to Barry Kaplan Associates to
purchase 100,000 shares of common stock. Each warrant entitles Kaplan to
purchase one share of common stock at an exercise price of $3.00 per share. The
warrants are exercisable through May 15, 2004. The warrants contain provisions
that protect the holder thereof against dilution by adjustment of the exercise
price per share and the number of shares issuable upon exercise thereof upon the
occurrence of certain events, including stock dividends, stock splits, mergers
and the sale of substantially all of Paradigm's assets. Paradigm is not required
to issue fractional shares of common stock, and in lieu thereof will make a cash
payment based upon the current market value of such fractional shares. The
holder of the warrants will not possess any rights as a shareholder unless and
until the holder exercises the warrants. As of January 31,2003, none of the
Kaplan warrants has been exercised.
30
Rodman & Renshaw Warrants. In connection with certain consulting
services provided to Paradigm, Paradigm issued warrants to Rodman & Renshaw to
purchase 35,000 shares of common stock. Each warrant entitles Rodman & Renshaw
to purchase one share of common stock at an exercise price of $2.00 per share.
The warrants are exercisable through May 13, 2006. The warrants contain
provisions that protect the holder thereof against dilution by adjustment of the
exercise price per share and the number of shares issuable upon exercise thereof
upon the occurrence of certain events, including stock dividends, stock splits,
mergers and the sale of substantially all of Paradigm's assets. Paradigm is not
required to issue fractional shares of common stock, and in lieu thereof will
make a cash payment based upon the current market value of such fractional
shares. The holder of the warrants will not possess any rights as a shareholder
unless and until the holder exercises the warrants. As of January 31,2003, none
of the Rodman & Renshaw warrants has been exercised.
Warrants Issued to Archambeau, Banzhaf, Lipson, MacLeod, MacLeod Profit
Sharing Trust, St. Mark's Eye Institute, Milan Holdings, Ltd., Mauro and
Reichardt. In connection with its September 6, 2002 private placement, Paradigm
issued warrants to Paul L. Archambeau, M.D., John H. Banzhaf, Daniel S. Lipson,
Douglas A. MacLeod, M.D., Douglas A. MacLeod, M.D. Profit Sharing Trust, St.
Mark's Eye Institute, Milan Holdings, Ltd., Frank G. Mauro and Delbert D.
Reichardt to purchase an aggregate of 788,750 shares of common stock. These
warrants are exerciseable at any time not later than September 6, 2005 at an
exercise price of $.25 per share. These warrants contain provisions that protect
holders thereof against dilution by adjustment of the exercise price per share
and the number of shares issuable upon exercise thereof upon the occurrence of
certain events including stock dividends stock splits, mergers and the sale of
substantially all of Paradigm's assets. The Company is not required to issue
fractional shares of common stock, and in lieu thereof will make a cash payment
based upon the current market value of such fractional shares. The holders of
the warrants will not possess any rights as shareholders of Paradigm unless and
until the holders exercise the warrants. As of January 31, 2003, none of these
warrants has been exercised.
Certain Provisions of Certificate of Incorporation. Paradigm's
Certificate of Incorporation provides that to the fullest extent permitted by
Delaware law, its directors shall not be liable to it and its stockholders. The
Certificate of Incorporation also contains provisions entitling the officers and
directors to indemnification by Paradigm to the fullest extent permitted by the
Delaware General Corporation Law.
Indemnification Agreements. Paradigm has entered into indemnification
agreements with its officers and directors. Such indemnification agreements
provide that Paradigm will indemnify its officers and directors against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
arising out of threatened, pending or completed legal action against any officer
or director to the fullest extent permitted by the Delaware General Corporate
Law.
Transfer and Warrant Agent. Paradigm's transfer agent and registrar for
its common stock and the Warrant Agent for the Class A warrants is Continental
Stock Transfer & Trust Company, New York, New York.
PLAN OF DISTRIBUTION
We may solicit the exercise of Class A warrants through a registered or
licensed broker-dealer. Upon exercise of Class A warrants, Paradigm will pay
such soliciting broker-dealer a fee of 5% of the aggregate exercise price of
Class A warrants exercised, if: (i) the market price of the common stock on the
date the Class A warrant is exercised is greater than the then exercise price of
the Class A warrant; (ii) the exercise of the Class A warrant was solicited by a
member of the National Association of Securities Dealers, Inc.; (iii) the Class
A warrant is not held in a discretionary account; (iv) disclosure of the
compensation arrangements was made by delivery of this prospectus or otherwise)
both at the time of the offering and at the time of exercise of the Class A
warrant; and (v) the solicitation of exercise of the Class A warrant is not in
violation of Regulation M.
In connection with the solicitation of the Class A warrant exercises,
the soliciting broker-dealer will be prohibited from engaging in any
market-making activities with respect to Paradigm's securities for the period
commencing either two or nine business days (depending on the market price of
the common stock) prior to any solicitation activity for the exercise of Class A
warrants until the later of (a) the termination of such solicitation activity,
or (b) the termination (by waiver or otherwise) of any right which the
soliciting broker-dealer may have to receive a fee for the exercise of Class A
warrants following such solicitation. As a result, the soliciting broker-dealer
may be unable to provide a market for Paradigm's securities, should it desire to
do so, during certain periods while the respective Class A warrants are
exercisable.
We do not plan to solicit Series E or Series F preferred stockholders
regarding the conversion of their Series E or Series F preferred shares into
shares of common stock, which have been registered for resale upon conversion.
31
The resale of the common stock by the Series E and Series F preferred
stockholders that elect to convert their respective shares of Series E and
Series F preferred stock to shares of common stock and the holders of Class A
warrants, Kenneth Jerome warrants, Cyndel warrants and warrants issued to Dr.
Michael B. Limberg, Consulting for Strategic Growth, Ltd., John W. Hemmer, Helen
Kohn, Ronit Sucoff, Barry Kaplan Associates, Rodman & Renshaw, Inc., Paul L.
Archambeau, M.D., John H. Banzhaf, Daniel S. Lipson, Douglas A. MacLeod, M.D.,
Douglas A. MacLeod, M.D. Profit Sharing Trust, St. Mark's Eye Institute, Milan
Holdings, Ltd., Frank G. Mauro and Delbert D. Reichardt that elect to exercise
their respective warrants and purchase common stock (collectively, the "Selling
Securityholders"), may be effected from time to time in transactions (which may
include block transactions by or for the account of the Selling Securityholders)
in the Nasdaq SmallCap Market or in negotiated transactions, a combination of
such methods of sale or otherwise. Sales may be made at fixed prices which may
be changed, at market prices prevailing at the time of sale, or at negotiated
prices.
Selling Securityholders may effect such transactions by selling their
shares of common stock directly to purchasers, through broker-dealers acting as
agents for the Selling Securityholders or to broker-dealers who may purchase
securities as principals and thereafter sell the common stock from time to time
in the over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers for whom such broker-dealers act as agents or to whom they may sell
as principals or otherwise (which compensation as to a particular broker-dealer
may exceed customary commissions). The Selling Securityholders will pay all
commissions, transfer taxes, and other expenses associated with the sale of
common stock by them.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the securities by them might be deemed to be
underwriting discounts and commissions under the Securities Act. We have agreed
to indemnify the Selling Securityholders against certain liabilities under the
Securities Act.
The only Selling Securityholders who are affiliates of broker-dealers
are Steven J. Bayern and Patrick N. Kolenik, who are each an officer, a director
and a shareholder of Win Capital Corp. Messrs. Bayern and Kolenik each received
stock options as consideration for services as a director of Paradigm. At no
time has Mr. Bayern or Mr. Kolenik had any agreements or understandings,
directly or indirectly, with any person to distribute the stock options or the
underlying common shares to be issued in connection with the exercise of such
options.
From time to time this prospectus will be supplemented and amended as
required by the Securities Act of 1933, as amended. During any time when a
supplement or amendment is so required, the Selling Securityholders are to cease
sales until the prospectus has been supplemented or amended. Pursuant to the
registration rights granted to certain of the Selling Securityholders, we have
agreed to update and maintain the effectiveness of this prospectus. Certain of
the Selling Securityholders also may be entitled to sell their shares without
the use of this prospectus, provided that they comply with the requirements of
Rule 144 promulgated under the Securities Act.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report (Form 10-KSB) for the year ended December 31, 2001, have
been audited by Tanner & Co., independent auditors, as indicated in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in auditing and
accounting.
The financial statements of Innovative Optics, Inc. appearing in the
Company's Form 8-K/A, as filed on May 17, 2002, have been audited by Johnson &
Moser, independent auditors, as indicated in their report thereon included
therein and incorporated herein by reference in reliance upon such report given
upon the authority of such firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered
hereby and certain other legal matters in connection have been passed upon for
us by Mackey Price & Thompson, Salt Lake City, Utah.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended and, in accordance therewith, files reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements and other information filed by Paradigm can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
32
Street, N.W., Washington, D.C. 20549, and at its regional offices at
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549 at prescribed rates. In addition, the Commission maintains a web site at
http:/www.sec.gov containing reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission,
including Paradigm.
We have filed with the Commission a Registration Statement (together
with all amendments and exhibits, the "Registration Statement") on Form S-3
under the Securities Act of 1933, as amended, with respect to the common stock
offered pursuant to this prospectus. This prospectus does not contain all the
information set forth in the registration statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Statements made in this prospectus as to the contents of any agreement or other
document referred to herein are not necessarily complete and reference is made
to the copy of such agreement or to the registration statement and to the
exhibits and schedules filed therewith. Copies of the material containing this
information may be obtained from the Commission upon payment of the prescribed
fee.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by us with the Commission are
incorporated herein by reference:
(1) Annual Report on Form 10-KSB/A for the fiscal year ended December
31, 2001, as filed on June 4, 2002;
(2) Quarterly Report on Form 10-QSB/A for the quarter ended March 31,
2002, as filed on June 4, 2002;
(3) Quarterly Report on Form 10-QSB for the quarter ended June 30,
2002;
(4) Quarterly Report on Form 10-QSB for the quarter ended September
30, 2002;
(5) Definitive Proxy Statement for Paradigm's 2002 Annual Meeting of
Shareholders held on September 27, 2002;
(6) Definitive Proxy Statement for Paradigm's Special Meeting of
Shareholders to be held on December 28, 2001;
(7) Current Report on Form 8-K, as filed on March 5, 2002; and
(8) Report on Form 8-K/A, as filed on May 17, 2002.
All documents subsequently filed by Paradigm with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended and prior to the termination of this offering, shall be deemed
to be incorporated by reference in this prospectus. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
We will provide, without charge, to each person, including any
beneficial owner, to whom a copy of this prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
that have been incorporated herein by reference, other than Exhibits to such
documents (unless such Exhibits are specifically incorporated by reference
therein). Requests for such copies should be directed to: Heber C. Maughan,
interim chief executive officer, Paradigm Medical Industries, Inc., 2355 South
1070 West, Salt Lake City, Utah 84119.
33
No dealer, salesman or any other person 18,849,558 Shares of Common Stock
has been authorized to give information
or to make any representations other than
those contained in this Prospectus, and,
if given or made, such information or
representations must not be relied upon
as having been authorized by Paradigm or
the Underwriter. This Prospectus does not PARADIGM MEDICAL INDUSTRIES, INC.
constitute an offer to sell or a
solicitation of any offer to buy any of -----------------
the securities offered hereby by anyone
in any jurisdiction in which such offer PROSPECTUS
or solicitation is not authorized or in
which the person making such offer or -----------------
solicitation is not qualified to do so or
to anyone to whom it is unlawful to make
such offer or solicitation. Neither the
delivery of this Prospectus nor any sale
made hereunder shall, under any
circumstances, create any implication
that there has been no change in the
affairs of Paradigm since the date February __, 2003
hereof.
---------------------
TABLE OF CONTENTS
Page
Prospectus Summary.......................
Risk Factors ...........................
Use of Proceeds..........................
Selling Securityholders..................
Description of Securities................
Plan of Distribution.....................
Experts..................................
Legal Matters............................
Available Information....................
Documents Incorporated by Reference......
II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the expenses payable by the Company in
connection with the issuance and distribution of the securities being
registered, other than underwriting discount (all amounts except the Securities
and Exchange Commission filing fee and the NASD fee are estimated):
Filing fee -- Securities and Exchange Commission....... $ 102
NASD fee............................................... 2,000
Printing and engraving expenses........................ 500
Legal fees and disbursements........................... 5,000
Accounting fees and disbursements...................... 1,500
Blue Sky fees and expenses (including legal fees)...... 0
Miscellaneous.......................................... 250
-------
Total expenses................................................. $ 9,352
Item 15. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
(the "Delaware Law") empowers a Delaware corporation to indemnify any person who
is, or is threatened to be made, a party to any threatened, pending or completed
legal action, suit or proceedings, whether civil, criminal, administrative or
investigative (other than action by or in the right of such corporation), by
reason of the fact that such person was an officer or director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporation's best interests, and, for criminal
proceedings, had no reasonable cause to believe his or her conduct was illegal.
A Delaware corporation may indemnify officers and directors in an action by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation in the performance of his
or her duty. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses which such officer or director
actually and reasonably incurred.
In accordance with the Delaware Law, the Certificate of Incorporation
of the Company contains a provision to limit the personal liability of the
directors of the Company for violations of their fiduciary duty. This provision
eliminates each director's liability to the Registrant or its stockholders for
monetary damages except (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware Law providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an improper personal
benefit. The effect of this provision is to eliminate the personal liability of
directors for monetary damages for actions involving a breach of their fiduciary
duty of care, including any such actions involving gross negligence.
The Company may not indemnify an individual unless authorized and a
determination is made in the specific case that indemnification of the
individual is permissible in the circumstances because his or her conduct was in
good faith, he or she reasonably believed that his or her conduct was in, or not
opposed to, the Company's best interests and, in the case of any criminal
proceeding, he or she had no reasonable cause to believe his or her conduct was
unlawful. The Company may not advance expenses to an individual to whom the
Company may ultimately be responsible for indemnification unless authorized in
the specific case after the individual furnishes the following to the Company: a
written affirmation of his or her good faith belief that his or her conduct was
in good faith, that he or she reasonably believed that his or her conduct was
in, or not opposed to, the Company's best interests and, in the case of any
criminal proceeding, he or she had no reasonable cause to believe his or her
conduct was unlawful and (2) the individual furnishes to the Company a written
undertaking, executed personally or on his or her behalf, to repay the advance
if it is ultimately determined that he or she did not meet the standard of
conduct referenced in part (1) of this sentence. In addition to the individual
furnishing the aforementioned written affirmation and undertaking, in order for
the Company to advance expenses, a determination must also be made that the
facts then- known to those making the determination would not preclude
indemnification.
II-2
All determinations relative to indemnification must be made as follows:
(1) by the Board of Directors of the Company by a majority vote of those present
at a meeting at which a quorum is present, and only those directors not parties
to the proceeding shall be counted in satisfying the quorum requirement; or (2)
if a quorum cannot be obtained as contemplated in part (1) of this sentence, by
a majority vote of a committee of the Board of Directors designated by the Board
of Directors of the Company, which committee shall consist of two or more
directors not parties to the proceeding, except that directors who are parties
to the proceeding may participate in the designation of directors for the
committee; or (3) by special legal counsel selected by the Board of Directors or
its committee in the manner prescribed in part (1) or part (2) of this sentence
(however, if a quorum of the Board of Directors cannot be obtained under part
(1) of this sentence and a committee cannot be designated under part (2) of this
sentence, then a special legal counsel shall be selected by a majority vote of
the full board of directors, in which selection directors who are parties to the
proceeding may participate); or (4) by the shareholders, by a majority of the
votes entitled to be cast by holders of qualified shares present in person or by
proxy at a meeting.
The Company has also entered into Indemnification Agreements with its
executive officers and directors. These Indemnification Agreements are
substantially similar in effect to the Bylaws and the provisions of the
Company's Certificate of Incorporation relative to providing indemnification to
the maximum extent and in the manner permitted by the Delaware General
Corporation Law. Additionally, such Indemnification Agreements contractually
bind the Company with respect to indemnification and contain certain exceptions
to indemnification, but do not limit the indemnification available pursuant to
the Company's Bylaws, the Company's Certificate of Incorporation or the Delaware
General Corporation Law.
Item 16. Exhibits
(a) Exhibits
------------
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-B or are incorporated by reference to previous filings.
Exhibit
No. Document Description
------- --------------------
2.1 Amended Agreement and Plan of Merger between Paradigm Medical
Industries, Inc., a California corporation and Paradigm
Medical Industries, Inc., a Delaware corporation(1)
3.1 Certificate of Incorporation(1)
3.2 Amended Certificate of Incorporation(16)
3.3 Bylaws(1)
4.1 Warrant Agency Agreement with Continental Stock Transfer &
Trust Company(3)
4.2 Specimen Common Stock Certificate (2)
4.3 Specimen Class A Warrant Certificate(2)
4.4 Form of Class A Warrant Agreement(2)
4.5 Underwriter's Warrant with Kenneth Jerome & Co., Inc.(3)
4.6 Warrant to Purchase Common Stock with Note Holders re bridge
financing (1)
4.7 Warrant to Purchase Common Stock with Mackey Price & Williams
(1)
4.8 Specimen Series C Convertible Preferred Stock Certificate(4)
4.9 Certificate of the Designations, Powers, Preferences and
Rights of the Series Convertible Preferred Stock(4)
4.10 Specimen Series D Convertible Preferred Stock Certificate (7)
4.11 Certificate of the Designations, Powers, Preferences and
Rights of the Series D Convertible Preferred Stock (7)
4.12 Warrant to Purchase Common Stock with Cyndel & Co. (7)
4.13 Warrant Agreement with KSH Investment Group, Inc. (7)
4.14 Warrant to Purchase Common Stock with R.F. Lafferty & Co.,
Inc. (7)
4.15 Warrant to Purchase Common Stock with Dr. Michael B. Limberg
(10)
4.16 Warrant to Purchase Common Stock with John W. Hemmer (10)
4.17 Stock Purchase Warrant with Triton West Group, Inc.(12)
4.18 Warrant to Purchase Common Stock with KSH Investment Group,
Inc.(12)
4.19 Warrants to Purchase Common Stock with Consulting for
Strategic Growth, Ltd.(12)
5.1 Opinion of Mackey Price & Williams
10.1 Exclusive Patent License Agreement with Photomed(1)
10.2 Consulting Agreement with Dr. Daniel M. Eichenbaum(1)
10.3 Lease with Eden Roc (4)
10.4 1995 Stock Option Plan and forms of Stock Option Grant
Agreement (1)
10.5 Form of Promissory Note with Note Holders re bridge financing
(1)
10.6 Agreement for Purchase and Sale of Assets with Humphrey
Systems Division of Carl Zeiss, Inc. (5)
10.7 Employment Agreement with Thomas F. Motter (6)
10.8 Asset Purchase Agreement with Mentor Corp., Mentor
Opthalmics, Inc. and Mentor Medical, Inc. (8)
II-3
10.9 Transition Services Agreement with Mentor Corp., Mentor
Opthalmics, Inc., and Mentor Medical, Inc. (8)
10.10 Severance Agreement and General Release with Michael W.
Stelzer (8)
10.11 Consulting Agreement with Dr. Michael B. Limberg (8)
10.12 Renewed Consulting Agreement with Dr. Michael B. Limberg (10)
10.13 Mutual Release and Settlement Agreement with Zevex
International, Inc. (8)
10.14 Consulting Agreement with Douglas Adams (8)
10.15 Agreement and Plan of Reorganization with Paradigm
Subsidiary, Inc., and Vismed, Inc. d/b/a Dicon (9)
10.16 Agreement and Plan of Merger with Paradigm Subsidiary, Inc.
and Vismed Inc. d/b/a Dicon (9)
10.17 Registration Rights Agreement with Paradigm Subsidiary, Inc.
and certain shareholders of Vismed, Inc. d/b/a Dicon (9)
10.18 Indemnification Agreement with Paradigm Subsidiary, Inc. and
certain shareholders of Vismed, Inc. d/b/a Dicon (9)
10.19 Consulting Agreement with Cyndel & Co., Inc. (10)
10.20 Stock Purchase Agreement with Occular Blood Flow, Ltd. and
Malcolm Redman (10)
10.21 Consulting Agreement with Malcolm Redman (10)
10.22 Royalty Agreement with Malcolm Redman (10)
10.23 Registration Rights with Malcolm Redman (10)
10.24 General Financial Advisory Services Agreement with McDonald
Investments Inc. (11)
10.25 Agreements with Steven J. Bayern and Patrick M. Kolenik (11)
10.26 Employment Agreement with Mark R. Miehle (12)
10.27 Employment Agreement with John W. Hemmer (12)
10.28 Private Equity Line of Credit Agreement with Triton West
Group, Inc. (12)
10.29 Renewed General Financial Advisory Services Agreement with
McDonald Investments. (12)
10.30 Renewed Consulting Agreement with Dr. Michael B. Limberg (12)
10.31 Agreement with KSH Investment Group, Inc. (12)
10.32 Renewed Consulting Agreement with Dr. Michael B. Limberg (13)
10.33 Settlement Agreement with Mentor Corporation (13)
10.34 Consulting Agreement with Rodman & Renshaw, Inc. (13)
10.35 Consulting Agreement with Barry Kaplan Associates (14)
10.36 Asset Purchase Agreement with Innovative Optics, Inc. and
Barton Dietrich Investments, L.P.(15)
10.37 Escrow Agreement with Innovative Optics, Inc., Barton
Dietrich Investments, L.P. and Mackey Price & Williams(15)
10.38 Assignment and Assumption Agreement with Innovative Optics,
Inc.(15)
10.39 General Assignment and Bill of Sale with Innovative Optics,
Inc.(15)
10.40 Non-Competition and Confidentiality Agreement with Mario F.
Barton(15)
10.41 Termination of Employment Agreement with Mark R. Miehle(17)
10.42 Consulting Agreement with Mark R. Miehle(17)
23.1 Consent of Mackey Price & Williams (Included in exhibit 5.1)
23.2 Consent of Tanner & Co.
23.4 Consent of Johnson & Moser
-----------------
(1) Incorporated by reference from Registration Statement on Form
SB-2, as filed on March 19, 1996.
(2) Incorporated by reference from Amendment No. 1 to Registration
Statement on Form SB-2, as filed on May 14, 1996.
(3) Incorporated by reference from Amendment No. 2 to Registration
Statement on Form SB-2, as filed on June 13, 1996.
(4) Incorporated by reference from Annual Report on Form 10-KSB, as
filed on April 16, 1998.
(5) Incorporated by reference from Quarterly Report on Form 10-QSB, as
filed on August 1, 1998.
(6) Incorporated by reference from Quarter Report on Form 10-QSB, as
filed on November 12, 1998.
(7) Incorporated by reference from Registration Statement on Form
SB-2, as filed on April 29, 1999.
(8) Incorporated by reference from Annual Report on Form 10-KSB, as
filed on March 30, 2000.
(9) Incorporated by reference from Form 8-K, as filed on June 5, 2000.
(10) Incorporated by reference from Report on Form 10-QSB, as filed on
August 16, 2000.
(11) Incorporated by reference from Report on Form 10-QSB, as filed on
November 1, 2000.
(12) Incorporated by reference from Report on Form 10-KSB, as filed on
March 15, 2001.
(13) Incorporated by reference from Report on Form 10-QSB, as filed on
June 30, 2001.
(14) Incorporated by reference from Report on Form 10-QSB, as filed on
September 30, 2001.
(15) Incorporated by reference from Current Report on Form 8-K, as
filed on March 5, 2002.
(16) Incorporated by reference from Amendment No. 1 to Registration
Statement on Form S-3, as filed on March 20, 2002.
(17) Incorporated by reference from Report on Form 10-QSB, as filed on
November 19, 2002.
II-4
(b) Reports on Form 8-K
------------------------
Current Report on Form 8-K, as filed on March 5, 2002.
Report on Form 8-K/A, as filed on May 17, 2002.
Item 17. Undertakings
The undersigned registrant hereby undertakes (a) subject to the terms
and conditions of Section 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), to file with the Securities and Exchange Commission such
supplementary and periodic information, documents and reports as may be
prescribed by any rule or regulation of the Commission heretofore or hereafter
duly adopted pursuant to authority conferred in that section; (b) to provide the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in the names as required by the
underwriters to permit prompt delivery to each purchaser; (c) if any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the prospectus, to file a post-effective amendment
setting forth the terms of such offering; and (d) to deregister, by means of a
post- effective amendment, any securities covered by this registration statement
that remain unsold at the termination of this offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or preceding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
The undersigned registrant also undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering of those securities.
The undersigned registrant also undertakes that it will file, during
any period in which it offers or sells securities, a post- effective amendment
to this registration statement to (i) include any prospectus required by Section
10(a)(3) of the Securities Act, (ii) reflect in the prospectus any facts or
events which, individually or together, represent a fundamental change in the
information in the registration statement, and (iii) include any additional or
changed material information on the plan of distribution.
The undersigned registrant further undertakes that, for purposes of
determining any liability under the Securities Act, each filing of registrant's
annual report pursuant to section 13(a) or section 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, in Salt Lake City,
State of Utah, on the 6th day of February, 2003.
PARADIGM MEDICAL INDUSTRIES, INC.
By: /s/ Heber C. Maughan
------------------------------------
Heber C. Maughan, Interim Chief
Executive Officer, Vice President of
Finance, Treasurer and Chief
Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Heber C. Maughan as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, and to file the same, with
all Exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Heber C. Maughan Interim Chief Executive Officer, Vice
----------------------------
Heber C. Maughan President of Finance, Treasurer and February 6, 2003
Chief Financial Officer (Principal Executive,
Financial and Accounting Officer)
/s/ Randall A. Mackey Chairman of the Board and Secretary February 6, 2003
----------------------------
Randall A. Mackey
/s/ David M. Silver Director February 6, 2003
----------------------------
David M. Silver
/s/ Keith D. Ignotz Director February 6, 2003
----------------------------
Keith D. Ignotz
II-6