================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(3)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
PARADIGM MEDICAL INDUSTRIES, INC.
(Name of Registrant as Specified In Its Charter)
-----------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the Appropriate box):
|X| No fee required.
|_| Fee computed on table below per Securities Exchange Act Rules
15a-6(i)(4) and 0-11.*
|_| Fee paid previously with preliminary materials.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Securities Exchange Act Rule 0-11 (set
forth the amount on which the filing fee is calculated and
state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Check box if any part of the fee is offset as provided by Securities
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PARADIGM MEDICAL INDUSTRIES, INC.
2355 South 1070 West
Salt Lake City, Utah 84119
September 7, 2007
Dear Shareholder:
On behalf of the Board of Directors, it is my pleasure to invite you to
attend the Annual Meeting of Shareholders of Paradigm Medical Industries, Inc.
(the "Company") to be held on Friday, October 12, 2007, at 10:00 a.m., Mountain
Daylight Time, at 2355 South 1070 West, Salt Lake City, Utah 84119.
The formal notice of the Annual Meeting and the Proxy Statement have
been made a part of this invitation. Also enclosed is a copy of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2006.
The matters to be addressed at the meeting will include (i) the
election of four directors; (ii) the approval of the proposed amendment to the
Certificate of Incorporation to increase the number of authorized shares of
common stock from 800,000,000 shares to 2,000,000,000 shares; (iii) the approval
of the amendment to the 1995 Stock Option Plan to authorize an additional
8,000,000 shares of common stock to be made available for issuance under the
plan; and (iv) the ratification of the appointment of Chisholm, Bierwolf &
Nilson as the Company's registered public independent accountants for the fiscal
year ending December 31, 2007. I will also report on the Company's business
activities and answer any shareholder questions. The Board of Directors
recommends that you vote FOR election of the director nominees, FOR the
amendment to the Certificate of Incorporation to increase the number of
authorized shares, FOR the amendment to the 1995 Stock Option Plan to authorize
additional shares for issuance thereunder, and FOR ratification of appointment
of the registered public independent accountants. Please refer to the Proxy
Statement for detailed information on each of the proposals and the Annual
Meeting.
Your vote is very important. We hope you will take a few minutes to
review the Proxy Statement and complete, sign, and return your Proxy Card in the
envelope provided, even if you plan to attend the meeting. Please note that
sending us your Proxy will not prevent you from voting in person at the meeting,
should you wish to do so.
Thank you for your support of Paradigm Medical Industries, Inc. We look
forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ Raymond P.L. Cannefax
Raymond P.L. Cannefax
President and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 12, 2007
-------------------------
To our Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Annual Meeting") of Paradigm Medical Industries, Inc. (the "Company") will held
on Friday, October 12, 2007, beginning at 10:00 a.m. Mountain Daylight Time, at
the Company's corporate headquarters at 2355 South 1070 West, Salt Lake City,
Utah. At the Annual Meeting, shareholders will consider and act upon the
following matters:
1. To elect a Board of Directors consisting of four directors to
serve until the next annual meeting of shareholders and until
their respective successors are elected and qualified;
2. To approve the proposed amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares
of common stock from 800,000,000 to 2,000,000,000 shares;
3. To amend the Company's 1995 Stock Option Plan to authorize an
additional 8,000,000 shares of common stock to be made
available for issuance under the plan;
4. To ratify the appointment of Chisholm, Bierwolf & Nilson as
the Company's registered public independent accountants for
the fiscal year ending December 31, 2007; and
5. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Also included is a single-page Proxy Card
and a postage prepaid return envelope. Only shareholders of record at the close
of business on September 4, 2007 are entitled to notice of, and to vote at, the
Annual Meeting or any adjournment thereof.
If you do not expect to attend the meeting in person, it is important
that your shares be represented. Please use the enclosed Proxy Card to vote on
the matters to be considered at the meeting, sign and date the proxy card and
mail it promptly in the enclosed envelope, which requires no postage if mailed
in the United States. You may revoke your proxy at any time before the meeting
by written notice to such effect, by submitting a subsequently dated proxy or by
attending the meeting and voting in person. If your shares are held in "street
name," you should instruct your broker how to vote in accordance with your Proxy
Card.
By order of the Board of Directors,
/s/ Luis A. Mostacero
Luis A. Mostacero
Vice President of Finance, Treasurer
and Secretary
September 7, 2007
Salt Lake City, Utah
PARADIGM MEDICAL INDUSTRIES, INC.
2355 South 1070 West
Salt Lake City, Utah 84119
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
Paradigm Medical Industries, Inc., a Delaware corporation (the "Company") for
use at the Annual Meeting of Shareholders (the "Annual Meeting") to be held on
Friday, October 12, 2007, beginning at 10:00 a.m., Mountain Daylight Time, or at
any adjournment(s) thereof. The purposes of the meeting are set forth herein and
in the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting
will be held at the Company's corporate headquarters at 2355 South 1070 West,
Salt Lake City, Utah. This Proxy Statement and accompanying materials are being
mailed on or about September 7, 2007. The Company will bear the cost of this
solicitation.
Record Date
Shareholders of record of the Company's Common Stock at the close of
business on September 4, 2007 are entitled to notice of and to vote at the
meeting. At the record date, 248,666,625 shares of the Company's Common Stock,
$.001 par value, 5,627 shares of the Series A Preferred Stock, 8,986 shares of
Series B Preferred Stock, no shares of Series C Convertible Preferred Stock,
5,000 shares of Series D Convertible Preferred Stock, 250 shares of Series E
Convertible Preferred Stock, 4,398.75 shares of Series F Preferred Stock, and
588,235 shares of Series G Preferred Stock were issued and outstanding.
Shareholders of Series A, Series B, Series C, Series D, Series E, Series F and
Series G Preferred Stock are not entitled to vote at the Annual Meeting.
Shareholders holding at least one-third of the outstanding shares of Common
Stock represented in person or by proxy shall constitute a quorum for the
transaction of business at the Annual Meeting.
Revocability of Proxies
Shareholders may revoke any appointment of proxy given pursuant to this
solicitation by delivering the Company a written notice of revocation or a duly
executed proxy bearing a later date or by attending the meeting and voting in
person. An appointment of proxy is revoked upon the death or incapacity of the
shareholder if the Secretary or other officer of the Company authorized to
tabulate votes receives notice of such death or incapacity before the proxy
exercises its authority under the appointment.
Voting and Solicitation
Each shareholder will be entitled to one vote for each share of Common
Stock held at the record date. Assuming a quorum is present, a plurality of
votes cast by the shares entitled to vote in the election of directors will be
required to elect each director. Because the shares of Series A, Series B,
Series C, Series D, Series E, Series F and Series G Preferred Stock are
non-voting securities, the holders thereof will not be entitled to vote at the
Annual Meeting. To approve the granting of the stock options to the outside
directors of the Company, holders of a majority of the shares entitled to vote
at the Annual Meeting must vote in favor of the stock options. The principal
executive offices of the Company are located at 2355 South 1070 West, Salt Lake
City, Utah. In addition to the use of the mails, proxies may be solicited
personally, by telephone, or by facsimile, and the Company may reimburse
brokerage firms and other persons holding shares in the Company in their names
or those of their nominees for their reasonable expenses in forwarding
soliciting materials to the beneficial owners.
ELECTION OF DIRECTORS
Proposal 1
Nominees
The Company's Bylaws do not limit the number of persons serving on the
Company's Board of Directors, and it is contemplated that a board of four
directors will be elected at the Annual Meeting. The Board of Directors
recommends that the shareholders vote "FOR" the election of the four director
nominees listed below. Assuming a quorum is present, a plurality of votes cast
by the shares entitled to vote in the election of directors will be required to
elect each director. Unless otherwise instructed, the proxy holders will vote
the proxies received by them for management's four nominees named below, all of
whom are presently directors of the Company.
In the event that any management nominee is unable or declines to serve
as a director at the time of the Annual Meeting, the proxies will be voted for
any nominee who shall be designated by the present Board of Directors to fill
the vacancy. In the event that additional persons are nominated as directors,
the proxy holders intend to vote all proxies received by them in such a manner
as will ensure the election of as many of the nominees listed below as possible.
It is not expected that any nominee will be unable or will decline to serve as a
director. The term of office of each person elected as a director will continue
until the next annual meeting of shareholders and until such person's successor
has been elected and qualified. Officers are appointed by the Board of Directors
and serve at the discretion of the board.
The name and certain information regarding each nominee is set forth
below. See also "Certain Relationships and Related Transactions."
Name Age Director Since Position with the Company
----------------------- --- -------------- -------------------------
Randall A. Mackey, Esq. 61 January 2000 Chairman of the Board
Dr. David M. Silver 65 January 2000 Director
Keith D. Ignotz 59 November 2000 Director
John C. Pingree 66 April 2004 Director
The following biographical information is furnished with respect to the
four director nominees:
Randall A. Mackey, Esq. has been the Company's Chairman of the Board since
August 20, 2002, and a director since January 2000. He had previously served as
a director of the Company from November 1995 to September 1998. Mr. Mackey has
been President of the Salt Lake City law firm of Mackey Price Thompson & Ostler
since 1992, and a shareholder and director of the firm and its predecessor firms
since 1989. Mr. Mackey received a B.S. degree in Economics from the University
of Utah, an M.B.A. degree from the Harvard Business School, a J.D. degree from
Columbia Law School and a B.C.L. degree from Oxford University. Mr. Mackey has
also served as Chairman of the Board from June 2001 to May 2003, and as a
director from 1998 to May 2003 of Cimetrix, Incorporated, a software development
company. Mr. Mackey has additionally served as Chairman of the Board from July
2000 to July 2003 and as a trustee from 1993 to July 2003 of Salt Lake Community
College, and a member of the Utah State Board of Education since September 2005.
David M. Silver, Ph.D. has been a director since January 2000. He had
previously served as a director of the company from November 1995 to September
1998. Dr. Silver is a Principal Senior Scientist in the Milton S. Eisenhower
Research and Technology Development Center at the Johns Hopkins University
Applied Physics Laboratory, where he has been employed since 1970. He served as
the J. H. Fitzgerald Dunning Professor of Ophthalmology in the Johns Hopkins
Wilmer Eye Institute in Baltimore during 1998-99. He received a B.S. degree from
Illinois Institute of Technology, an M.A. degree from Johns Hopkins University
and a Ph.D. degree from Iowa State University before holding a postdoctoral
fellowship at Harvard University and a visiting scientist position at the
University of Paris.
Keith D. Ignotz has been a director since November 2000. Since March 2005,
Mr. Ignotz has been President and Chief Executive Officer of Diakine
Therapeutics, Inc., a pharmaceutical therapeutics company. From 1992 to 2004,
Mr. Ignotz was with SpectRx, Inc., a medical technology company that he founded,
which develops, manufactures and markets alternatives to traditional blood based
medical tests, serving from 2002 to 2004 as the Chief Executive Officer of
Guided Therapeutics, Inc., a wholly-owned subsidiary of SpectRx, Inc., and from
1992 to 2002 as President and Chief Operating Officer of SpectRx, Inc. From 1986
to 1992, Mr. Ignotz was Senior Vice President of Allergan Humphrey, Inc., a
medical electronics company. From 1985 to 1986, he was President of Humphrey
Instruments Limited-SKB, a medical electronics company, and from 1980 to 1985,
Mr. Ignotz was President of Humphrey Instruments GmbH, also a medical
electronics company. Mr. Ignotz also served on the Board of Directors of Vismed,
2
Inc., d/b/a Dicon from 1992 to June 2000. Mr. Ignotz received a B.A. degree in
Sociology and Political Science from San Jose University and an M.B.A. degree
from Pepperdine University. Mr. Ignotz has served as a trustee of Pennsylvania
College of Optometry and Audiology since 1990, a director of AeroVectrix, Inc.,
a drug delivery company, since August 2005, and as a member of the American
Diabetes Association and the American Marketing Association of the American
Association of Diabetes Education.
John C. Pingree has been a director since April 2004. From August 2001 to
March 2004, Mr. Pingree was the Executive Director of the Semnani Foundation,
which funds projects to assist women and children in developing countries. From
July 1998 to July 2001, Mr. Pingree was a Mission President for the Church of
Jesus Christ of Latter-day Saints, serving in Mexico City, Mexico. From 1977 to
1997, Mr. Pingree was General Manager and Chief Executive Officer of Utah
Transit Authority. From 1970 to 1975, he was Director of Marketing for Memorex
Corporation. From 1967 to 1970, Mr. Pingree was Regional Manager, Sales Planning
at Xerox Corporation. He also currently serves as a member of the Utah State
Board of Education. Mr. Pingree received a B.A. degree in Economics from the
University of Utah and an M.B.A. degree from the Harvard Business School.
Board Meetings and Committees
The size of the Board of Directors of the Company for the coming year is
four members. Three of the directors, or a majority of the Board of Directors,
are independent directors. The independent directors have regularly scheduled
meetings at which only independent directors are present. The term of office of
each director is for a period of one year or until the election and
qualification of his successor. The Board of Directors held a total of four
meetings during the fiscal year ended December 31, 2006. No directors attended
fewer than 75% of all meetings of the Board of Directors during the 2005 fiscal
year.
Unless authority is withheld by your Proxy, it is intended that the common
stock represented by your Proxy will be voted for the respective nominees listed
above. If any nominee should not serve for any reason, the Proxy will be voted
for such person as shall be designated by the Board of Directors to replace such
nominee. The Board of Directors has no reason to expect that any nominee will be
unable to serve. There is no arrangement between any of the nominees and any
other person or persons pursuant to which he was or is to be selected as a
director.
There are three committees of the Board of Directors, which meet
periodically during the year: the Audit Committee, the Compensation Committee,
and the Nominating and Corporate Governance Committee.
The Audit Committee directs the auditing activities of the Company's
internal auditors and registered public independent accounting firm and reviews
the services performed by the registered public independent accounting firm and
evaluates the Company's accounting practices and procedures and its system of
internal accounting controls. The Audit Committee consists of Messrs. Keith D.
Ignotz (Chairman of the Committee), Randall A. Mackey, John C. Pingree and Dr.
David M. Silver. During 2006, the Audit Committee met on one occasion. The
Company's Board of Directors has determined that Keith D. Ignotz and John C.
Pingree, who currently serve as directors of the Company as well as members of
the Company's audit committee, are independent audit committee financial
experts.
The Compensation Committee is responsible for recommending to the Board of
Directors for approval the annual compensation of each executive officer of the
Company, developing policy in the areas of compensation and fringe benefits,
contribution under the 401(k) Retirement Savings Plan, granting of options under
the stock option plans, and creating other employee compensation plans. The
Compensation Committee consists of Messrs. Keith D. Ignotz, Randall A. Mackey,
John C. Pingree and Dr. David M. Silver (Chairman of the Committee). During
2006, the Compensation Committee met on one occasion.
The Nominating and Corporate Governance Committee identifies individuals
qualified to become board members consistent with criteria approved by the
board, recommends to the board the persons to be nominated by the board for
election as directors at a meeting of shareholders, and develops and recommends
to the board a set of corporate governance principles. The Nominating and
Corporate Governance Committee consists of Messrs. Keith D. Ignotz, John C.
Pingree (Chairman of the Committee) and Dr. David M. Silver. The Nominating and
Corporate Governance Committee is composed solely of independent directors.
3
Director Nominating Process
The process for identifying and evaluating nominees for directors include
the following steps: (1) the Nominating and Corporate Governance Committee,
Chairman of the Board or other board members identify a need to fill vacancies
or add newly created directorships; (2) the Chairman of the Nominating and
Corporate Governance Committee initiates a search and seeks input from board
members and senior management and, if necessary, obtains advice from legal or
other advisors (but does not hire an outside search firm); (3) director
candidates, including any candidates properly proposed by shareholders in
accordance with the Company's bylaws, are identified and presented to the
Nominating and Corporate Governance Committee; (4) initial interviews with
candidates are conducted by the Chairman of the Nominating and Corporate
Governance Committee; (5) the Nominating and Corporate Governance Committee
meets to consider and approve final candidate(s) and conduct further interviews
as necessary; and (6) the Nominating and Corporate Governance Committee makes
recommendations to the board for inclusion in the slate of directors at the
annual meeting. The evaluation process will be the same whether the nominee is
recommended by a shareholder or by a member of the Board of Directors.
The Nominating and Corporate Governance Committee will consider nominees
proposed by shareholders. To recommend a prospective nominee for the Nominating
and Corporate Governance Committee's consideration, shareholders may submit the
candidate's name and qualifications to: Luis A. Mostacero, Controller, Treasurer
and Secretary, Paradigm Medical Industries, Inc., 2355 South 1070 East, Salt
Lake City, Utah 84119. Recommendations from shareholders for nominees must be
received by Mr. Mostacero not later than the date set forth under "Deadline for
Receipt of Shareholder's Proposals for Annual Meeting to be Held in August 2008"
below.
The Nominating and Corporate Governance Committee operates pursuant to a
written charter. The full text of the charter is published on the Company's
website at www.paradigm-medical.com. Shareholders may also obtain a copy of the
charter without charge by writing to: Luis A. Mostacero, Controller, Paradigm
Medical Industries, Inc., 2355 South 1070 East, Salt Lake City, Utah 84119.
Meetings of Non-Management Directors
The Company's nonmanagement directors regularly meet without management
participation. In addition, an executive session including only the independent
directors is held at least annually.
Shareholder Communications with the Board of Directors
Shareholders who wish to communicate with the Board of Directors or a
particular director may send a letter to Luis A. Mostacero, Vice President of
Finance, Treasurer and Secretary, Paradigm Medical Industries, Inc., 2355 South
1070 East, Salt Lake City, Utah 84119. The mailing envelope must contain a clear
notation indicating that the enclosed letter is a "Shareholder-Board
Communication" or "Shareholder-Director Communication." All such letters must
identify the author as a shareholder and clearly state whether the intended
recipients are all members of the board or just certain specified individual
directors. The Company's Secretary will make copies of all such letters and
circulate them to the appropriate director or directors.
Appointment of New President and Chief Executive Officer
On January 5, 2006, Raymond P.L. Cannefax was appointed as President and
Chief Executive Officer, replacing John Y. Yoon who had served in those
positions from March 18, 2004 to December 31, 2005. Mr. Yoon resigned as
President and Chief Executive Officer, effective December 31, 2005, to pursue
other opportunities.
Appointment of New Vice President of Finance and New Vice President of Sales and
Marketing, New Vice President of International Sales, and New Vice President of
Operations.
On March 20, 2006, Luis A. Mostacero was appointed as Vice President of
Finance. Mr. Mostacero previously served as Controller from June, 2000 to
September, 2005. On January 4, 2006, Alfred B. Franklin was appointed as Vice
President of Domestic Sales, replacing Michael S. Austin who resigned as Vice
President of Sales and Marketing on November 28, 2006, to pursue other
opportunities. On March 29, 2006, Christina M. Conner was appointed as Vice
President of International Sales; and Julio Maximo was appointed as Vice
President of Operations. On June 25, 2007, Steven Davis was appointed Vice
President of Sales and Marketing, replacing Alfred B. Franklin who resigned on
May 14, 2007, to pursue other opportunities, and Charles Pritchard was appointed
Domestic Sales Manager.
4
Executive Officers
The following sets forth certain information with respect to the executive
officers of the Company:
Name Age Title
--------------------- --- --------------------------------------
Raymond P.L. Cannefax 59 President and Chief Executive Officer
Raymond P.L. Cannefax has served as the Company's President and Chief
Executive Officer since January 5, 2006. Mr. Cannefax previously served as the
Company's Vice President of Sales and Marketing from January 2003 to May 2005.
From May 2005 to January 2006, Mr. Cannefax served as Vice President of the
Asia/Pacific Region for Sonomed, Inc., a manufacturer of ophthalmic products and
a wholly owned subsidiary of Escalon Medical Corp. From January 2002 to January
2003, Mr. Cannefax was Vice President of Business Development and Sales for
Vermax, Inc., a manufacturer of products for hotel properties. From 1996 to
January 2002, he was President, Chief Operating Officer and founder of Aspen
Network, Inc., a software development and e-commerce company. From 1992 to 1996,
Mr. Cannefax was President and Chief Executive Officer of Apollo Telecom, Inc.,
a telecommunications company. From 1986 to 1992, he was a Regional Sales
Director and a Senior District Manager of Sprint Communications Corporation. Mr.
Cannefax received a B.S. degree in Psychology and Zoology from the University of
Utah.
Corporate Governance
Corporate Governance Guidelines. The Board of Directors has adopted the
Paradigm Medical Industries, Inc. Corporate Governance Guidelines. These
guidelines outline the functions of the board, director qualifications and
responsibilities, and various processes and procedures designed to insure
effective and responsive governance. The guidelines are reviewed from time to
time in response to regulatory requirements and best practices and are revised
accordingly. The full text of the guidelines is published on the Company's
website at www.paradigm-medical.com. A copy of the Corporate Governance
Guidelines may also be obtained at no charge by written request to the attention
of Luis A. Mostacero, Vice President of Finance, Treasurer and Secretary,
Paradigm Medical Industries, Inc., 2355 South 1070 East, Salt Lake City, Utah
84119.
Code of Business Conduct. All of the Company's officers, employees and
directors are required to comply with the Company's Code of Business Conduct and
Ethics to help insure that the Company's business is conducted in accordance
with appropriate standards of ethical behavior. The Company's Code of Business
Conduct and Ethics covers all areas of professional conduct, including customer
relationships, conflicts of interest, insider trading, financial disclosures,
intellectual property and confidential information, as well as requires
adherence to all laws and regulations applicable to the Company's business.
Employees are required to report any violations or suspected violations of the
Code. The Code includes an anti- retaliation statement. The full text of the
Code of Business Conduct and Ethics is published on the Company's website at
www.paradigm-medical.com. A copy of the Code of Business Conduct and Ethics may
also be obtained at no charge by written request to the attention of Luis A.
Mostacero, Vice President of Finance, Treasurer and Secretary, Paradigm Medical
Industries, Inc., 2355 South 1070 East, Salt Lake City, Utah 84119.
Executive Compensation
The following table sets forth, for each of the last three fiscal years,
the compensation received by Raymond P.L. Cannefax, President and Chief
Executive Officer, and other executive officers whose salary and bonus for all
services in all capacities exceed $100,000 for the fiscal years ended December
31, 2006, 2005 and 2004.
5
Summary Compensation Table
Change in
Pension
Value and
Non-Equity Non-qualified
Incentive Deferred
Plan Compen- All Other
Name and Stock Option Compen- sation Compen-
Principal Position Year Salary$ Bonus($) Awards Awards($) sation Earnings sation Total
------------------ ---- -------- -------- ------ --------- ---------- ------------- ---------- --------
Raymond P.L. 2006 $127,940 - - - - - - $127,940
Cannefax President 2005 64,285 - - - - - - 64,285
and Chief Executive 2004 0 - - - - - - 0
Officer(1)
----------------------
(1) Mr. Cannefax has served as President and Chief Executive Officer
since January 5, 2006.
Supplemental All Other Compensation Table
Registrant
Contribu- Dividends
Perks tions to or
and Payments/ Defined Earnings
Other Tax Discounted Accruals Contribu- on Stock
Personal Reimburse- Securities on Termin- tion Insurance or Option
Name Benefits ments Purchases ation Plans Plans Premiums Awards Other
------------ -------- ---------- ---------- ----------- ---------- --------- ---------- -----
Raymond P.L. - - - - - - - -
Cannefax
Grants of Plan-Based Awards
Estimated Future Payouts Under Estimated Future Payouts
Non-Equity Incentive Plan Under Equity Incentive Plan
Awards Awards
------------------------------ ---------------------------- All Other
All Other Option
Stock Awards:
Awards: Number of Exercise
Number of Securities or Base
Shares of Under- Price of
Stock or lying Option
Grant Threshold Target Maximum Threshold Target Maximum Units Options Awards
Name Date ($) ($) ($) (#) (#) ($) (#) (#) ($/Sh)
------------ ------ --------- ------ ------- --------- ------ ------- --------- ---------- --------
Raymond P.L. 1/5/06 - - - - - - - 4,500,000 $.01
Cannefax
6
Outstanding Equity Awards At Fiscal Year End
Equity
Equity Incentive
Incentive Plan
Plan Awards:
Awards Market or
Equity Number of Payout
Incentive Market Unearned Value of
Number of Pan Awards Number Value of Shares, Unearned
Number of Securities Number of of Shares or Units or Shares,
Securities Underlying Securities Shares or Units of Other Units or
Underlying Unexercised Underlying Units of Stock Rights Other
Unexercised Options: Unexercised Option Stock That Have That Have Rights That
Options (#) Unearned Exercise Option Held That Not Not Have Not
(#) Unexer- Options Price Expiration Have Not Vested Vested Vested
Name Exercisable cisable (#) ($) Date Vested(#) ($) (#) ($)
------------ ----------- ----------- ----------- -------- ---------- --------- --------- --------- -----------
Raymond P.L. 0 0 - - - - - - -
Cannefax
Option Exercises and Stock Vested for Fiscal 2006
Option Awards Stock Awards
------------------------------- -------------------------------
Number of Number of
Shares Acquired Value Realized Shares Acquired Value Realized
on Exercise on Exercise on Vesting on Vesting
Name (#) ($) (#) ($)
------------ --------------- -------------- --------------- --------------
Raymond P.L. 0 - 0 -
Cannefax
Pension Benefits for Fiscal 2006
Number of
Years Present Value of
Credited Accumulated Payments During
Service Benefit Last Fiscal Year
Name Plan Name (#) ($) ($)
------------ --------- --------- ----------------- ----------------
Raymond P.L.
Cannefax None - - -
Director Compensation
Outside directors are currently not paid a director's fee for their
services but are reimbursed for their expenses in attending board and committee
meetings. Directors are not precluded from serving the Company in any other
capacity and receiving compensation therefore. The directors were not granted
any options to purchase shares of the Company's common stock during 2005 or
2006.
7
Director Compensation for Fiscal 2006
Change in
Pension Value
Fees and
Earned or Non-Equity Nonqualified
Paid In Stock Option Incentive Plan Deferred All Other
Cash Awards Awards Compensation Compensation Compensation Total
Name ($) ($) ($) ($) Earnings ($) ($)
--------------------- --------- ------ ------ -------------- ------------- ------------ -----
Keith D. Ignotz 0 - - - - - 0
Randall A. Mackey 0 - - - - - 0
John C. Pingree 0 - - - - - 0
David M. Silver, PhD. 0 - - - - - 0
Employee 401(k) Plan
In October 1996, the Company's Board of Directors adopted a 401(k)
Retirement Savings Plan. Under the terms of the 401(k) plan, effective as of
November 1, 1996, the Company may make discretionary employer matching
contributions to its employees who choose to participate in the plan. The plan
allows the board to determine the amount of the contribution at the beginning of
each year. The board adopted a contribution formula specifying that such
discretionary employer matching contributions would equal 100% of the
participating employee's contribution to the plan up to a maximum discretionary
employee contribution of 3% of a participating employee's compensation, as
defined by the plan. All persons who have completed at least six months' service
with the Company and satisfy other plan requirements are eligible to participate
in the plan. The plan is currently available to the Company's employees at the
employees' expense with no matching contribution from the Company.
1995 Stock Option Plan
The Company adopted a 1995 Stock Option Plan, for the officers,
employees, directors and consultants of its company on November 7, 1995. The
plan authorized the granting of stock options to purchase an aggregate of not
more than 300,000 shares of its common stock. On February 16, 1996, options for
substantially all 300,000 shares were granted. On June 9, 1997, the Company's
shareholders approved an amendment to the plan to increase the number of shares
of common stock reserved for issuance thereunder from 300,000 shares to 600,000
shares. On September 3, 1998, the Company's shareholders approved an amendment
to the plan to increase the number of shares of common stock reserved for
issuance thereunder from 600,000 shares to 1,200,000 shares. On November 29,
2000, the Company's shareholders approved an amendment to the plan to increase
the number of shares of common stock reserved for issuance thereunder from
1,200,000 shares to 1,700,000 shares. On September 11, 2001, the Company's
shareholders approved an amendment to the plan to increase the number of shares
of common stock reserved for issuance thereunder from 1,700,000 shares to
2,700,000 shares. On June 13, 2003, the Company's shareholders approved an
amendment to the plan to increase the member of shares of common stock reserved
for issuance thereunder from 2,700,000 shares to 3,700,000 shares. On July 11,
2005, the Company's shareholders approved an amendment to the plan to increase
the number of shares of common stock reserved for issuance thereunder from
3,700,000 shares to 5,000,000 shares. On August 31, 2006, the Company's
shareholders approved an amendment to the plan to increase the number of shares
of common stock reserved for issuance thereunder from 5,000,000 shares to
8,000,000 shares.
The compensation committee administers the 1995 Stock Option Plan. In
general, the compensation committee will select the person to whom options will
be granted and will determine, subject to the terms of the plan, the number,
exercise, and other provisions of such options. Options granted under the plan
will become exercisable at such times as may be determined by the compensation
committee. Options granted under the plan may be either incentive stock options,
as such term is defined in the Internal Revenue Code, or non-incentive stock
options. Incentive stock options may only be granted to persons who are
employees. Non-incentive stock options may be granted to any person, including,
but not limited to, its employees, independent agents, consultants as the
compensation committee believes has contributed, or will contribute, to the
Company's success. The compensation committee determines the exercise price of
options granted under the 1995 Stock Option Plan, provided that, in the case of
incentive stock options, such price is not less than 100% (110% in the case of
incentive stock options granted to holders of 10% of voting power of its stock)
of the fair market value (as defined in the plan) of the common stock on the
date of grant. The aggregate fair market value (determined at the time of option
grant) of stock with respect to which incentive stock options become exercisable
for the first time in any year cannot exceed $100,000.
The term of each option shall not be more than ten years (five years in
the case of incentive stock options granted to holders of 10% of the voting
power of its stock) from the date of grant. The Board of Directors has a right
8
to amend, suspend or terminate the 1995 Stock Option Plan at any time; provided,
however, that unless ratified by its shareholders, no amendment or change in the
plan will be effective that would increase the total number of shares that may
be issued under the plan, materially increase the benefits accruing to persons
granted under the plan or materially modify the requirements as to eligibility
and participation in the plan. No amendment, supervision or termination of the
plan shall, without the consent of an employee to whom an option shall
heretofore have been granted, affect the rights of such employee under such
option.
Employment Agreements
The Company entered into an employment agreement with Raymond P.L.
Cannefax, which commenced on January 5, 2006 and expires on January 5, 2007. The
employment agreement requires Mr. Cannefax to devote substantially all of his
working time as the Company's President and Chief Executive Officer, providing
that he may be terminated for "cause" (as provided in the agreement) and
prohibits him from competing with the Company for two years following the
termination of his employment agreement. The employment agreement provides for
the payment of an initial base salary of $125,000. The employment agreement also
provides for salary increases and bonuses as shall be determined at the
discretion of the Board of Directors, with the first review of the annual salary
to be made as of June 30, 2006. The employment agreement further provides for
the issuance of stock options to purchase 4,500,000 shares of the Company's
common stock at $.01 per share. The options vest in twelve equal monthly
installments of 375,000 shares, beginning on February 5, 2006 until such shares
are vested.
The Company entered into an amendment to the employment agreement with
Mr. Cannefax, which extends the term of the employment agreement for a one year
period from January 5, 2007 to January 5, 2008. Under the terms of the
amendment, Mr. Cannefax's annual base salary increased to $150,000, effective
May 27, 2007. The initial base salary in the employment agreement dated January
5, 2006 was $125,000, which the Board of Directors increased to $140,000,
effective as of October 1, 2006. The amendment provides for the granting of
additional stock options to Mr. Cannefax to purchase 4,500,000 shares of the
Company's common stock at $.01 per share. These options vest in 12 equal monthly
installments of 375,000 shares, beginning on September 20, 2007 until such
shares are vested.
In the event of a change of control of the Company, then all outstanding
stock options granted to Mr. Cannefax shall be immediately vested. A change of
control shall be deemed to have occurred if (i) a tender offer shall be made and
consummated for the ownership of more than 25% of the Company's outstanding
shares; (ii) the Company shall be merged or consolidated with another
corporation and, as a result, less than 25% of the outstanding common shares of
the surviving corporation shall be owned in the aggregate by the Company's
former shareholders, as the same shall have listed prior to such merger or
consolidation; (iii) the Company shall sell all or substantially all of its
assets to another corporation that is not a wholly owned subsidiary or
affiliate; (iv) as a result of any contested election for the Board of
Directors, or any tender or exchange offer, merger of business combination or
sale of assets, the persons who were directors of the Company before such a
transaction shall cease to constitute a majority of the Board of Directors; or
(v) a person other than an officer or director of the Company shall acquire more
than 20% of the outstanding shares of common stock of the Company.
The Company entered into an employment agreement with John Y. Yoon,
which commenced on March 18, 2004 and was to expire on March 18, 2007. The
employment agreement required Mr. Yoon to devote substantially all of his
working time as the Company's President and Chief Executive Officer, providing
that he could be terminated for "cause" (as defined in the agreement) and
prohibited him from competing with the Company for two years following the
termination of his employment agreement. The employment agreement provided for
the payment of an initial base salary of $175,000, effective as of April 1,
2004. The employment agreement also provided for salary increases and bonuses as
shall be determined at the discretion of the Board of Directors. The employment
agreement further provided for the issuance of stock options to purchase
1,000,000 shares of the Company's common stock at $.13 per share. The options
were to vest in 36 equal monthly installments of 27,778 shares, beginning on
April 30, 2004 until such shares were vested. Mr. Yoon resigned as President and
Chief Executive Officer of the Company on December 31, 2005 to pursue other
opportunities. At the time of his resignation, stock options to purchase 583,338
shares of the Company's common stock were vested. Under the terms of the 1995
Stock Option Plan, the vested options terminated on March 31, 2006.
The Company entered into an employment agreement with Aziz A. Mohabbat
on October 5, 2004, which was effective as of April 1, 2004, and was to expire
on March 18, 2006. The employment agreement required Mr. Mohabbat to devote
substantially all of his working time as the Company's Vice President of
Operations and Chief Operating Officer, provided that he could be terminated for
"cause" (as defined in the agreement) and prohibited him from competing with the
Company for two years following the termination of the employment agreement. The
employment agreement provided for the payment of an initial base salary of
$144,500, effective as of April 1, 2004. The employment agreement also provided
for salary increases and bonuses as shall be determined at the discretion of the
Company's Board of Directors. The employment agreement further provided for the
issuance of stock options to purchase 200,000 shares of the Company's common
stock at $.12 per share. These options were to vest in 36 equal monthly
9
installments of 5,556 shares, beginning on April 30, 2004, until such shares
were vested. Mr. Mohabbat resigned as Vice President of Operations and Chief
Operating Officer of the Company on November 15, 2005 to pursue other
opportunities. At the time of his resignation, stock options to purchase 105,564
shares of the Company's common stock were vested. Under the terms of the 1995
Stock Option Plan, the vested options terminated on February 13, 2006.
Retirement Agreement
On May 6, 1999, the Company's Board of Directors approved resolutions
relating to the retirement of John M. Hemmer, then Vice President of Finance and
Chief Financial Officer of the Company. The board resolutions provided that Mr.
Hemmer's annual salary of $120,000 per annum was to continue until June 1, 1999,
at which time his employment contract and change of control agreement with the
Company would terminate and he would become an independent consultant to the
Company. As a consultant, Mr. Hemmer was to receive an initial payment of
$12,500 with annual payments thereafter of $25,000 payable on January 1, 2000,
2001 and 2002, and a final payment of $12,500 payable on January 1, 2003, for a
total consulting contract of $100,000.
In addition, the board resolutions provided that the Company was to
issue to Mr. Hemmer warrants to purchase 125,000 shares of common stock at $2.63
per share, exerciseable for a period of five years, and warrants to purchase
75,000 shares of common stock at $7.50 per share, exerciseable for a period of
five years, but such warrants were not to be issued until Mr. Hemmer exercised
all of the warrants to purchase 125,000 common shares at $2.63 per share. The
Company has paid a total of $87,500 to Mr. Hemmer under the consulting
agreement.
On May 30, 2006, the Company entered into an agreement with Mr. Hemmer
in which he acknowledged that the Company owed him a total of $12,500 for past
services he rendered to the Company, including as a consultant, and the Company
agreed to pay him the sum of $12,500 in twelve monthly installments of $1,000
each and a final monthly payment of $500. The Company has paid a total of
$12,500 to Mr. Hemmer under this agreement.
Certain Relationships and Related Transactions
The information set forth herein describes certain transactions between
the Company and certain affiliated parties. Future transactions, if any, will be
approved by a majority of the disinterested members and will be on terms no less
favorable to the Company than those that could be obtained from unaffiliated
parties.
Randall A. Mackey, a director since January 21, 2000, and from September
1995 to September 3, 1998 and Chairman of the Board since August 30, 2002, is
president and a shareholder of the law firm of Mackey Price Thompson & Ostler,
which rendered legal services in connection with various corporate matters.
Legal fees and expenses paid to Mackey Price Thompson & Ostler for the fiscal
years ended December 31, 2006 and 2005, totaled $148,000 and $220,000,
respectively. In addition, on April 7, 2005 the Company issued 250,000 shares of
common stock to Mackey Price Thompson & Ostler in payment for $22,500 in legal
services. As of December 31, 2006, the Company owed this firm $133,850, which is
included in accounts payable.
Report of the Audit Committee
The Company has an Audit Committee consisting of four nonmanagement
directors, Randall A. Mackey, Keith D. Ignotz, John C. Pingree and Dr. David M.
Silver. Three of the members of the audit committee are considered independent
and qualified in accordance with applicable independent director and audit
committee listing standards. The Company's Board of Directors has adopted a
written charter for the Audit Committee.
During the year 2006 the Audit Committee met one time. The Audit
Committee has met with management and discussed the Company's internal controls,
the quality of the Company's financial reporting, the results of internal and
external audit examinations, and the audited financial statements. In addition,
the Audit Committee has met with the Company's independent auditors, Chisholm,
Bierwolf & Nilson, and discussed all matters required to be discussed by the
auditors with the Audit Committee under Statement on Auditing Standards No. 61
(communication with audit committees). The Audit Committee received and
discussed with the auditors their annual written report on their independence
from the Company and its management, which is made under Independence Standards
Board Standard No. 1 (independence discussions with audit committees), and
considered with the auditors whether the provision of financial information
systems design and implementation and other non- audit services provided by them
to the Company during 2006 was compatible with the auditors' independence.
In performing these functions, the Audit Committee acts only in an
oversight capacity. In its oversight role, the Audit Committee relies on the
work and assurances of the Company's management, which is responsible for the
10
integrity of the Company's internal controls and its financial statements and
reports, and the Company's independent auditors, who are responsible for
performing an independent audit of the Company's financial statements in
accordance with generally accepted auditing standards and for issuing a report
on these financial statements.
Pursuant to the reviews and discussions described above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2006 for filing with the Securities and Exchange
Commission.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who own more than 10% of any
class of the Company's Common Stock to file initial reports of ownership and
periodic changes of ownership of the Company's Common Stock with the U.S.
Securities and Exchange Commission. Such persons are also required to furnish
the Company with copies of all Section 16(a) reports they file. Based solely on
its review of the copies of such reports received by it with respect to fiscal
2006, or written representations from certain reporting persons, the Company
believes that its directors, officers and greater than 10% beneficial owners
complied with all Section 16(a) filing requirements applicable to them.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to
beneficial ownership of the Company's common stock as of August 20, 2007 for (i)
each executive officer (ii) each director, (iii) each person known to the
Company to be the beneficial owner of more than 5% of the outstanding shares,
and (iv) all directors and officers as a group.
Percent of
Name and Address(1) Number of Shares Ownership
------------------- ---------------- ----------
Raymond P.L. Cannefax (2) 9,000,000 3.6%
Dr. David M. Silver (2) 761,166 *
Randall A. Mackey (2) 725,000 *
Keith D. Ignotz (2) 525,709 *
John C. Pingree (2) 431,500 *
---------
Executive officers and directors
as a group (five persons) 11,443,375 4.6%
-----------------
*Less than 1%.
(1) Unless otherwise indicated, the address of each listed shareholder is c/o
Paradigm Medical Industries, Inc., 2355 South 1070 West, Salt Lake City,
Utah, 84119.
(2) The amounts shown include shares that may be acquired currently, or within
60 days after July 31, 2007 through the exercise of stock options are
follows: Mr. Cannefax, 4,500,000 shares; Dr. Silver, 725,000 shares; Mr.
Mackey, 725,000 shares; Mr. Ignotz, 525,851 shares; and Mr. Pingree,
275,000 shares.
APPROVAL OF INCREASE IN THE NUMBER OF AUTHORIZED SHARES
Proposal 2
The Certificate of Incorporation currently authorizes the issuance of
800,000,000 shares of common stock. As of the record date, 246,866,625 shares
were issued and outstanding. There have been 6,753 shares of common stock set
aside and reserved in the event that holders of shares of Series A preferred
stock elect to convert those shares into shares of common stock, 10,783 shares
of common stock set aside and reserved in the event that holders of shares of
Series B preferred stock elect to convert those shares into shares of Common
Stock, 8,750 shares of common stock set aside and reserved in the event that
holders of shares of Series D preferred stock elect to convert those shares into
shares of common stock, 13,333 shares of common stock set aside and reserved in
the event that holders of shares of Series E preferred stock elect to convert
those shares into shares of common stock, and 245,217 shares of common stock set
aside and reserved in the event that holders of shares of Series F preferred
stock elect to convert those shares into shares of common stock, and 588,235
shares of common stock set aside and reserved in the event holders of shares of
Series G preferred stock elect to convert those shares into shares of common
stock.
11
Between June 10, 1997 and August 14, 2007, the Company issued (i) stock
options that are currently outstanding to executive officers and employees to
purchase 9,255,000 shares of the Company's common stock at exercise prices
ranging from $.01 per share to $2.75 per share, and (ii) stock options that are
currently outstanding to directors to purchase 2,250,000 shares of the Company's
common stock at exercise prices from $.09 per share to $2.75 per share. In
addition, between June 10, 1997 and August 20, 2007, the Company issued warrants
to individuals and entities to purchase a total of 39,059,392 shares of the
Company's common stock at exercise prices ranging from $.005 per share to $6.75
per share.
Callable Secured Convertible Notes and Warrants
April 27, 2005 Sale of $2,500,000 in Callable Secured Convertible Notes: To
obtain funding for the Company's ongoing operations, the Company entered into a
securities purchase agreement with four accredited investors on April 27, 2005
for the sale of (i) $2,500,000 in convertible notes and (ii) warrants to
purchase 16,534,392 shares of its common stock. The sale of the convertible
notes and warrants occurred in three traunches and the investors provided the
Company with an aggregate of $2,500,000 as follows:
o $850,000 was disbursed on April 27, 2005;
o $800,000 was disbursed on June 23, 2005 after the Company filed a
registration statement on June 22, 2005 to register the shares of common
stock issuable upon conversion of the convertible notes and exercise of the
warrants; and
o $850,000 was disbursed on June 30, 2005, the effective date of the
registration statement.
Under the terms of the securities purchase agreement, the Company agreed
that it would not, without the prior written consent of a majority-in-interest
of the investors, negotiate or contract with any party to obtain additional
equity financing (including debt financing with an equity component) that
involves (i) the issuance of common stock at a discount to the market price of
the common stock on the date of issuance (taking into account the value of any
warrants or options to acquire common stock in connection therewith), (ii) the
issuance of convertible securities that are convertible into an indeterminate
number of shares of common stock, or (iii) the issuance of warrants during the
lock-up period beginning April 27, 2005 and ending on the later of (A) 270 days
from April 27, 2005, and (B) 180 days from the date the registration statement
is declared effective.
In addition, the Company agreed not to conduct any equity financing
(including debt financing with an equity component) during the period beginning
April 27, 2005 and ending two years after the end of the above lock-up period
unless it has first provided each investor an option to purchase its pro-rata
share (based on the ratio of each investor's purchase under the securities
purchase agreement) of the securities being offered in any proposed equity
financing. Each investor must be provided written notice describing any proposed
equity financing at least 20 business days prior to the closing of such proposed
equity financing and the option must be extended to each investor during the
15-day period following delivery of such notice.
The $2,500,000 in convertible notes bear interest at 8% per annum from the
date of issuance. Interest is computed on the basis of a 365-day year and is
payable quarterly in cash, with six months of interest payable up front. The
interest rate resets to zero percent for any month in which the stock price is
greater than 125% of the initial market price, or $.0945, for each trading day
during that month. Any amount of principal or interest on the convertible notes
that is not paid when due will bear interest at the rate of 15% per annum from
the date due thereof until such amount is paid. The callable secured convertible
notes mature in three years from the date of issuance, and are convertible into
the Company's common stock at the noteholders' option, at the lower of (i) $.09
or (ii) 60% of the average of the three lowest intraday trading prices for the
common stock on the OTC Bulletin Board for the 20 trading days before but not
including the conversion date. Accordingly, there is no limit on the number of
shares into which the notes may be converted.
The $2,500,000 in notes are secured by the Company's assets, including the
Company's inventory, accounts receivable and intellectual property. Moreover,
the Company has a call option under the terms of the notes. The call option
provides the Company with the right to prepay all of the outstanding convertible
notes at any time, provided there is no event of default by the Company and its
stock is trading at or below $.09 per share. An event of default includes the
failure by the Company to pay the principal or interest on the convertible notes
when due or to timely file a registration statement as required by the Company
or obtain effectiveness with the Securities and Exchange Commission of the
registration statement. Prepayment of the convertible notes is to be made in
cash equal to either (i) 125% of the outstanding principal and accrued interest
for prepayments occurring within 30 days following the issue date of the notes;
(ii) 130% of the outstanding principal and accrued interest for prepayments
occurring between 31 and 60 days following the issue date of the notes; and
(iii) 145% of the outstanding principal and accrued interest for prepayments
occurring after the 60th day following the issue date of the notes.
The warrants are exercisable until five years from the date of issuance at
a purchase price of $.20 per share. The investors may exercise the warrants on a
cashless basis if the shares of common stock underlying the warrants are not
12
then registered pursuant to an effective registration statement. In the event
the investors exercise the warrants on a cashless basis, the Company will not
receive any proceeds therefrom. In addition, the exercise price of the warrants
will be adjusted in the event the Company issues common stock at a price below
market, with the exception of any securities issued as of the date of the
warrants or issued in connection with the convertible notes issued pursuant to
the securities purchase agreement.
The noteholders have agreed to restrict their ability to convert their
callable secured convertible notes or exercise their warrants and receive shares
of our common stock such that the number of shares of common stock held by them
in the aggregate and their affiliates after such conversion or exercise does not
exceed 4.99% of the then issued and outstanding shares of common stock. However,
the noteholders may repeatedly sell shares of common stock in order to reduce
their ownership percentage, and subsequently convert additional callable secured
convertible notes. As of August 20, 2007, a total of $850,826 in convertible
notes issued on April 27, 2005 have been converted by the noteholders.
February 28, 2006 Sale of $1,500,000 in Callable Secured Convertible Notes:
To obtain additional funding for the Company's ongoing operations, the Company
entered into a second securities purchase agreement on February 28, 2006 with
the same four accredited investors for the sale of (i) $1,500,000 in convertible
notes and (ii) warrants to purchase 12,000,000 shares of its common stock. The
sale of the convertible notes and warrants is to occur in three traunches and
the investors are obligated to provide the Company with an aggregate of
$1,500,000 as follows:
o $500,000 was disbursed on February 28, 2006;
o $500,000 was disbursed on June 28, 2006 after the Company filed a
registration statement on June 15, 2006 to register the shares of common
stock underlying the convertible notes. The registration statement was
subsequently withdrawn on July 25, 2006 and a new registration statement
was filed on September 21, 2006 to register 60,000,000 shares of common
stock issuable upon conversion of the convertible notes;
o $500,000 was disbursed on April 20, 2007, the day prior to the effective
date of the registration statement on May 1, 2007.
Under the terms of the February 28, 2006 securities purchase agreement, the
Company agreed that it would not, without the prior written consent of a
majority-in-interest of the investors, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (i) the issuance of common stock at a discount to the
market price of the common stock on the date of issuance (taking into account
the value of any warrants or options to acquire common stock in connection
therewith), (ii) the issuance of convertible securities that are convertible
into an indeterminate number of shares of common stock, or (iii) the issuance of
warrants during the lock-up period beginning February 28, 2006 and ending on the
later of (a) 270 days from February 28, 2006, or (b) 180 days from the date the
registration statement is declared effective.
In addition, the Company agreed not to conduct any equity financing
(including debt financing with an equity component) during the period beginning
February 28, 2006 and ending two years after the end of the above lock-up period
unless it first provided each investor an option to purchase its pro-rata share
(based on the ratio of each investor's purchase under the securities purchase
agreement) of the securities being offered in any proposed equity financing.
Each investor must be provided written notice describing any proposed equity
financing at least 20 business days prior to the closing of such proposed equity
financing and the option must be extended to each investor during the 15-day
period following delivery of such notice.
The $1,500,000 in convertible notes bear interest at 8% per annum from the
date of issuance. Interest is computed on the basis of a 365-day year and is
payable quarterly in cash, with six months of interest payable up front. The
interest rate resets to zero percent for any month in which the stock price is
greater than 125% of the initial market price, or $.0275, for each trading day
during that month. Any amount of principal or interest on the callable secured
convertible notes that is not paid when due will bear interest at the rate of
15% per annum from the date due thereof until such amount is paid. The
convertible notes mature in three years from the date of issuance, and are
convertible into the Company's common stock at the noteholders' option, at the
lower of (i) $.02 or (ii) 60% of the average of the three lowest intraday
trading prices for the common stock on the OTC Bulletin Board for the 20 trading
days before but not including the conversion date. Accordingly, there is no
limit on the number of shares into which the notes may be converted.
The $1,500,000 in convertible notes are secured by the Company's assets,
including the Company's inventory, accounts receivable and intellectual
property. Moreover, the Company has a call option under the terms of the notes.
The call option provides the Company with the right to prepay all of the
outstanding convertible notes at any time, provided there is no event of default
by the Company and its stock is trading at or below $.02 per share. An event of
default includes the failure by the Company to pay the principal or interest on
the convertible notes when due or to timely file a registration statement as
required by the Company or obtain effectiveness with the Securities and Exchange
Commission of the registration statement. Prepayment of the convertible notes is
13
to be made in cash equal to either (a) 125% of the outstanding principal and
accrued interest for prepayments occurring within 30 days following the issue
date of the notes; (b) 130% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date of the
notes; or (c) 145% of the outstanding principal and accrued interest for
prepayments occurring after the 60th day following the issue date of the notes.
The warrants are exercisable until five years from the date of issuance at
a purchase price of $.10 per share. The investors may exercise the warrants on a
cashless basis if the shares of common stock underlying the warrants are not
then registered pursuant to an effective registration statement. In the event
the investors exercise the warrants on a cashless basis, the Company will not
receive any proceeds therefrom. In addition, the exercise price of the warrants
will be adjusted in the event the Company issues common stock at a price below
market, with the exception of any securities issued as of the date of the
warrants or issued in connection with the convertible notes issued pursuant to
the securities purchase agreement.
The noteholders have agreed to restrict their ability to convert their
convertible notes or exercise their warrants and receive shares of the Company's
common stock such that the number of shares of common stock held by them in the
aggregate and their affiliates after such conversion or exercise does not exceed
4.99% of the then issued and outstanding shares of common stock. However, the
noteholders may repeatedly sell shares of common stock in order to reduce their
ownership percentage, and subsequently convert additional convertible notes. As
of August 20, 2007, a total of $131,791 in convertible notes issued on February
28, 2006 had been converted by the noteholders.
June 11, 2007 Sale of $500,000 in Callable Secured Convertible Notes: To
obtain further funding for the Company's ongoing operations, the Company entered
into a third securities purchase agreement on June 11, 2007 with the same four
accredited investors for the sale of (i) $500,000 in callable secured
convertible notes and (ii) warrants to purchase 10,000,000 shares of its common
stock. The investors disbursed $500,000 to the Company on June 11, 2007.
Under the terms of the June 11, 2007 securities purchase agreement, the
Company agreed that it would not, without the prior written consent of a
majority-in-interest of the investors, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (i) the issuance of common stock at a discount to the
market price of the common stock on the date of issuance (taking into account
the value of any warrants or options to acquire common stock in connection
therewith), (ii) the issuance of convertible securities that are convertible
into an indeterminate number of shares of common stock, or (iii) the issuance of
warrants during the lock-up period beginning June 11, 2007 and ending on the
later of (a) 270 days from June 11, 2007, or (b) 180 days from the date the
registration statement is declared effective.
In addition, the Company agreed not to conduct any equity financing
(including debt financing with an equity component) during the period beginning
June 11, 2007 and ending two years after the end of the above lock-up period
unless it first provided each investor an option to purchase its pro-rata share
(based on the ratio of each investor's purchase under the securities purchase
agreement) of the securities being offered in any proposed equity financing.
Each investor must be provided written notice describing any proposed equity
financing at least 20 business days prior to the closing of such proposed equity
financing and the option must be extended to each investor during the 15-day
period following delivery of such notice.
The $500,000 in convertible notes bear interest at 8% per annum from the
date of issuance. Interest is computed on the basis of a 365-day year and is
payable quarterly in cash, with six months of interest payable up front. The
interest rate resets to zero percent for any month in which the stock price is
greater than 125% of the initial market price, or $.0275, for each trading day
during that month. Any amount of principal or interest on the callable secured
convertible notes that is not paid when due will bear interest at the rate of
15% per annum from the date due thereof until such amount is paid. The
convertible notes mature in three years from the date of issuance, and are
convertible into the Company's common stock at the noteholders' option, at the
lower of (i) $.02 or (ii) 50% of the average of the three lowest intraday
trading prices for the common stock on the OTC Bulletin Board for the 20 trading
days before but not including the conversion date. Accordingly, there is no
limit on the number of shares into which the notes may be converted.
The $500,000 in convertible notes are secured by the Company's assets,
including the Company's inventory, accounts receivable and intellectual
property. Moreover, the Company has a call option under the terms of the notes.
The call option provides the Company with the right to prepay all of the
outstanding convertible notes at any time, provided there is no event of default
by the Company and its stock is trading at or below $.10 per share. An event of
default includes the failure by the Company to pay the principal or interest on
the convertible notes when due or to timely file a registration statement as
required by the Company or obtain effectiveness with the Securities and Exchange
Commission of the registration statement. Prepayment of the convertible notes is
to be made in cash equal to either (a) 125% of the outstanding principal and
accrued interest for prepayments occurring within 30 days following the issue
date of the notes; (b) 130% of the outstanding principal and accrued interest
14
for prepayments occurring between 31 and 60 days following the issue date of the
notes; or (c) 145% of the outstanding principal and accrued interest for
prepayments occurring after the 60th day following the issue date of the notes.
The warrants are exercisable until seven years from the date of issuance at
a purchase price of $.005 per share. The investors may exercise the warrants on
a cashless basis if the shares of common stock underlying the warrants are not
then registered pursuant to an effective registration statement. In the event
the investors exercise the warrants on a cashless basis, the Company will not
receive any proceeds therefrom. In addition, the exercise price of the warrants
will be adjusted in the event the Company issues common stock at a price below
market, with the exception of any securities issued as of the date of the
warrants or issued in connection with the convertible notes issued pursuant to
the securities purchase agreement.
The noteholders have agreed to restrict their ability to convert their
convertible notes or exercise their warrants and receive shares of the Company's
common stock such that the number of shares of common stock held by them in the
aggregate and their affiliates after such conversion or exercise does not exceed
4.99% of the then issued and outstanding shares of common stock. However, the
noteholders may repeatedly sell shares of common stock in order to reduce their
ownership percentage, and subsequently convert additional convertible notes,
provided, however, that such conversions do not exceed $75,000 per calendar
month, or the average daily dollar volume calculated during the ten business
days prior to conversion multiplied by the number of trading days of that
calendar month, per calendar month.
The Company is required to register the shares of its common stock issuable
upon the conversion of the convertible notes and the exercise of the warrants
that were issued to the noteholders pursuant to the securities purchase
agreement the Company entered in to on June 11, 2007. The registration statement
must be filed with the Securities and Exchange Commission within 60 days of June
11, 2007 closing date and the effectiveness of the registration is to be within
135 days of such closing date. Penalties of 2% of the outstanding principal
balance of the convertible notes plus accrued interest are to be applied for
each month the registration is not effective within the required time. The
penalty may be paid in cash or stock at the Company's option. As of August 20,
2007, none of the convertible notes issued on June 11, 2007, had been converted
by the noteholders.
Simple Conversion Calculation
The number of shares of common stock issuable upon conversion of the
convertible notes issued on April 27, 2005, February 28, 2006 and June 11, 2007
is determined by dividing that portion of the principal of the notes to be
converted and interest, if any, by the conversion price. For example, assuming
conversion of $3,517,367 principal amount of the convertible notes on August 20,
2007 (consisting of $4,500,000 in convertible notes that were sold to the four
investors pursuant to the securities purchase agreements dated April 27, 2005,
February 28, 2006 and June 11, 2007, less $982,633 in notes that were converted
during the period from June 12, 2005 to August 14, 2007) and a conversion price
of $.006 per share, the number of shares issuable upon conversion would be:
$3,517,367/$.006 = 586,228,000 shares.
The continuously adjustable conversion price feature of the callable secured
convertible notes could require the Company to issue a substantially greater
number of shares, which will cause dilution to the existing shareholders.
The Company's obligation to issue shares upon conversion of the convertible
notes issued on April 27, 2005, February 28, 2006, and June 11, 2007 is
essentially limitless. The following is an example of the amount of shares of
common stock that are issuable upon conversion of $3,517,367 principal amount of
the convertible notes (excluding accrued interest), based on market prices 25%,
50%, and 75% below the market price, as of July 23, 2007 of $.006:
% Below Price Per With 40% Number of % of Outstanding
Market Share Discount Shares Issuable Shares*
------ -------- -------- --------------- ----------------
25% $.0045 $.0027 1,302,841,000 523.9%
50% $.003 $.0018 1,954,093,000 785.8%
75% $.0015 $.0009 3,908,186,000 1,571.7%
*Based on 248,666,625 shares outstanding.
15
As illustrated, the number of shares of common stock issuable upon
conversion of the Company's callable secured convertible notes will increase if
the market price of the Company's stock declines, which will cause dilution to
the Company's existing shareholders.
The continuously adjustable conversion price feature of the convertible notes
may encourage investors to make short sales in the Company's common stock, which
could have a depressive effect on the price of the Company's common stock.
The convertible notes are convertible into shares of the Company's common
stock at a 40% discount to the trading price of the common stock prior to the
conversion. The significant downward pressure on the price of the common stock
as the noteholders convert and sell material amounts of common stock could
encourage short sales by investors. This could place further downward pressure
on the price of the common stock. The noteholders could sell common stock into
the market in anticipation of covering the short sale by converting their
securities, which could cause the further downward pressure on the stock price.
In addition, not only could the sales of shares issuable upon conversion or
exercise of notes, warrants and options, but also the mere perception that these
sales could occur, may adversely affect the market price of the common stock.
The issuance of shares upon conversion of the convertible notes may cause
immediate and substantial dilution to existing shareholders.
The issuance of shares upon conversion of convertible notes may result in
substantial dilution to the interests of other shareholders since the
noteholders may ultimately convert and sell the full amount issuable on
conversion. Although the noteholders may not convert their convertible notes if
such conversion would cause them to own more than 4.99% of the Company's
outstanding common stock, this restriction does not prevent the noteholders from
converting some of their holdings and then converting the rest of their
holdings. In this way, the noteholders could sell more than this limit while
never holding more than this limit. There is no upper limit on the number of
shares that may be issued, which will have the effect of further diluting the
proportionate equity interest and voting power of holders of the Company's
common stock.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's common stock entitled to vote at the Annual Meeting will be
required to approve the proposed amendment, assuming a quorum is present.
The Board of Directors recommends that shareholders vote "FOR" approval of
the amendment to the Certificate of Incorporation to increase the number of
authorized shares of common stock from 800,000,000 to 2,000,000,000 shares.
APPROVAL OF AMENDMENT TO THE 1995 STOCK OPTION PLAN
Proposal 3
The Board of Directors adopted on August 20, 2007, subject to the approval
by the shareholders, an amendment to the Company's 1995 Stock Option Plan. The
amendment increases from 8,000,000 to 16,000,000 the number of shares of the
Company's common stock available for issuance under the 1995 Stock Option Plan.
The Company has in the past used, and intends in the future to use, stock
options as incentive devices to motivate and compensate its salaried officers
and other key employees, and believes that equity incentives represented by
stock options enhances the Company's ability in attracting and retaining the
best possible persons for positions of significant responsibility by providing
its officers and other key employees with additional incentives to contribute to
the Company's success.
Management further believes that the availability of such equity incentives
has served, and will continue to serve, an important part in the implementation
of the Company's acquisition strategy. As of August 20, 2007, options to
purchase an aggregate of 85,300 shares of common stock have been exercised under
the 1995 plan; as of such date, options to purchase 4,847,500 shares of common
stock were outstanding under the 1995 Stock Option Plan. Accordingly, options to
purchase only 67,200 shares of common stock remain available for future grants
under the 1995 Stock Option Plan as of such date.
The Board of Directors recommends that the shareholders vote "FOR" approval
of the amendment to the 1995 Stock Option Plan.
16
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Proposal 4
The independent public accounting firm of Chisholm, Bierwolf & Nilson
has been the Company's registered public independent accountants since fiscal
year 2006. The Audit Committee has recommended and the Board of Directors has
appointed Chisholm, Bierwolf & Nilson for purposes of auditing the consolidated
financial statements of the Company for the fiscal year ending December 31,
2007. It is anticipated that representatives of Chisholm, Bierwolf & Nilson will
be present at the Annual Meeting and will be provided an opportunity to make a
statement if they desire, and to be available to respond to appropriate
questions.
The Board of Directors recommends that shareholders vote "FOR"
ratification of the appointment of Chisholm, Bierwolf & Nilson as the Company's
registered public independent accountants for fiscal 2007.
AUDIT FEES, FINANCIAL INFORMATION SYSTEMS DESIGN
AND IMPLEMENTATION FEES, AND ALL OTHER FEES
Fees for the 2006 annual audit of the financial statements and related
quarterly review services were $28,600. Fees in 2006 related to the review of
registration statements and assistance in responding to SEC comments were
$3,400. Fees in 2006 for edgarization of filings were $500. Fees in 2006 for tax
return preparation were $3,500. There were no fees in 2006 for meetings and
other consultation.
Fees for the 2005 annual audit of the financial statements and related
quarterly review services prepared were $45,000. Fees in 2005 related to the
review of registration statements and assistance in responding to SEC comments
were $8,000. Fees in 2005 for edgarization of filings were $11,000. Fees in 2005
for tax return preparation were $4,000. Other fees in 2005 for meetings and
other consultation were $10,000.
ADDITIONAL INFORMATION
The Company will provide without charge to any person from whom a Proxy
is solicited by the Board of Directors, upon the written request of such person,
a copy of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2006, excluding certain exhibits thereto, as filed with the
Securities and Exchange Commission. Written requests for such information should
be directed to Luis A. Mostacero, Vice President of Finance, Treasurer and
Secretary, Paradigm Medical Industries, Inc., 2355 South 1070 West, Salt Lake
City, Utah 84119.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no
business that will be presented for consideration at the Annual Meeting other
than the items referred to above. However, if any other matters are properly
brought before the meeting, it is the intention of the persons named as proxies
in the accompanying Proxy to vote the shares they represent on such business in
accordance with their best judgment. In order to assure the presence of the
necessary quorum and to vote on the matters to come before the Annual Meeting,
please indicate your choices on the enclosed Proxy and date, sign and return it
promptly in the postage prepaid envelope provided. The signing and delivery of a
Proxy by no means prevents one from attending the Annual Meeting.
By order of the Board of Directors,
/s/ Luis A. Mostacero
Luis A. Mostacero
Vice President of Finance, Treasurer
and Secretary
September 7, 2007.
18
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PARADIGM MEDICAL INDUSTRIES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
October 12, 2007
THIS PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF
PARADIGM MEDICAL INDUSTRIES, INC.
The undersigned hereby appoints Randall A. Mackey and Raymond P.L. Cannefax or
either of them, each with full power of substitution, as proxies to vote at the
Annual Meeting of Shareholders to be held on Friday, October 12, 2007, beginning
at 10:00 a.m., Mountain Daylight Time, at the corporate headquarters of Paradigm
Medical Industries, Inc. at 2355 South 1070 West, Salt Lake City, Utah, and at
all adjournments thereof, all shares of common stock which the undersigned would
be entitled to vote on matters set forth below, if personally present:
1. ELECTION OF DIRECTORS, NOMINEES: KEITH D. IGNOTZ, RANDALL A. MACKEY, JOHN
C. PINGREE AND DR. DAVID M. SILVER.
|_| FOR all nominees listed (except as indicated in writing to the
contrary below)
|_| WITHHOLD AUTHORITY to vote for all nominees listed below
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name here:
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2. APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 800,000,000 TO
2,000,000,000 SHARES.
|_| FOR |_| AGAINST |_| ABSTAIN
3. APPROVAL OF AMENDMENT TO THE 1995 STOCK OPTION PLAN TO AUTHORIZE AN
ADDITIONAL 8,000,000 SHARES OF COMMON STOCK
|_| FOR |_| AGAINST |_| ABSTAIN
4. RATIFICATION OF APPOINTMENT OF CHISHOLM, BIERWOLF & NILSON AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2007.
|_| FOR |_| AGAINST |_| ABSTAIN
5. IN THEIR DISCRETION, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING.
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY
DIRECTION IS INDICATED, WILL BE VOTED FOR THE NOMINEES IN PROPOSAL 1 AND FOR
PROPOSALS 2, 3 AND 4. In their discretion, the proxies are authorized to vote
upon such other matters as may properly come before the meeting or any
adjournment(s) thereof.
DATED ______________________________, 2007.
SIGNATURE: ________________________________________________________________
(This proxy should be marked, dated and signed by each shareholder exactly as
such shareholder's name appears hereon and returned promptly. Persons signing in
a fiduciary capacity should so indicate. If shares are held by joint tenants or
as community property, both should sign. If a corporation, please sign in full
corporate name by the president or by an authorized corporate officer. If a
partnership, please sign in partnership name by an authorized person).
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