As filed with the Securities and Exchange Commission on December 27, 1999
Commission File No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
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
(State of jurisdiction of (Primary Standard Industrial
or organization) Classification Code Number)
87-0459536
(I.R.S. Employer incorporation
Identification Number)
1127 West 2320 South, Suite A
Salt Lake City, Utah 84119
(801) 977-8970
(Address and telephone number of registrant's principal executive
offices and principal place of business)
Thomas F. Motter, President
1127 West 2320 South, Suite A
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 & Williams
170 South Main Street, Suite 900
Salt Lake City, Utah 84101-1655
Telephone: (801) 575-5000
Approximate date of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
_______________________
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
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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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<S> <C> <C> <C> <C>
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 Underwriter's Warrants 100,000 $ 8,125 $ 812,500 (1)
Resale of Common Stock issuable upon exercise of Underwriter's Warrants 100,000 $ 7.50 $ 750,000 (1)
Resale of Common Stock issuable upon exercise of Note Holders' Warrants 287,500 $ 3.33 $ 975,375 (1)
Resale of Common Stock issuable upon exercise of Attorney's Warrants 25,000 $ 3.33 $ 83,250 (1)
Resale of Common Stock issuable upon conversion of Series C Preferred
Stock..................................................... 383,354 $ 1.75 $ 670,870 (1)
Resale of Common Stock issuable upon conversion of Series D Preferred
Stock..................................................... 763,580 $ 1.75 $ 1,336,265 (1)
Resale of Common Stock issuable upon exercise of Win Capital Warrants 291,000 $ 3.00 $ 873,000 (1)
Resale of Common Stock issuable upon exercise of Win Capital Warrants 35,000 $ 2.30 $ 80,500 (1)
Resale of Common Stock issuable upon exercise of Cyndel Warrants 105,000 $ 2.30 $ 241,500 (1)
Resale of Common Stock issuable upon exercise of Win Capital Warrants 25,000 $ 4.00 $ 100,000 (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 KSH Investment Group
Warrants................................................... 55,539 $ 2.50 $ 138,848 (1)
Resale of Common Stock issuable upon exercise of KSH Investment Group
Warrants.................................................. 10,461 $ 2.69 $ 28,140 (1)
Resale of Common Stock issuable upon exercise of KSH Investment Group
Warrants.................................................. 142,400 $ 2.38 $ 338,912 (1)
Resale of Common Stock issuable upon exercise of former officer's
Warrants................................................. 125,000 $ 2.63 $ 325,750 (1)
Resale of Common Stock issuable to Certain Holders of Common Stock 216,316 $ 2.875 $ 621,909 (1)
Resale of Common Stock issuable upon exercise of Lafferty Warrants 100,000 $ 4.00 $ 400,000 $ 105.60
Resale of Common Stock issuable to Certain Holders of Common Stock 265,287 $ 5.00 $ 1,326,435 $ 350.18
Resale of Common Stock issuable to Certain Holders of Common Stock 1,000,000 $ 5.00 $ 5,000,000 $1,320.00
Resale of Common Stock issuable upon exercise of options........ 889,700 $ 5.00 $ 4,448,500 $1,174.40
Total Registration Fee.................................... $2,950.18
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</TABLE>
(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 and Form SB-2 Registration Statement No.
333-77267, effective as of May 7, 1999. 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 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.
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PARADIGM MEDICAL INDUSTRIES, INC.
Cross Reference Sheet
<TABLE>
<CAPTION>
Form S-3 Item No. and Caption Prospectus Caption
<S> <C> <C>
Item 1. Front of Registration Statement and Outside Front Cover Page
Outside Front Cover Pages of Prospectus
Item 2. Inside Front and Outside Back Cover Inside Front and Outside Back Cover Pages
Pages of Prospectus
Item 3. Summary Information , Risk Factors and Ratio Prospectus Summary; Risk Factors
of Earnings to Fixed Charges
Item 4. Use of Proceeds Use of Proceeds
Item 5. Determination of Offering Price Not Applicable
Item 6. Dilution Not Applicable
Item 7. Selling Security Holders Selling Securityholders, Optionholders and
Shareholders
Item 8. Plan of Distribution Outside Front Cover Page; Plan of Distribution
Item 9. Description of Securities Outside Front Cover Page
Item 10. Interests of Named Experts and Counsel Legal Matters; Experts
Item 11. Material Changes Not Applicable
Item 12. Incorporation of Certain Information Documents Incorporated by Reference
by Reference
Item 13. Disclosure of Commission Position Description of Securities
on Indemnification for Securities Plan of Distribution
Act Liabilities
Item 14. Other Expenses of Issuance and Other Expenses of Issuance and Distribution
Distribution
Item 15. Indemnification of Directors Indemnification of Directors
and Officers and Officers
Item 16.. Exhibits Exhibits
Item 17. Undertakings Undertakings
</TABLE>
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PROSPECTUS
5,995,137 Shares of Common Stock
PARADIGM MEDICAL INDUSTRIES, INC.
Paradigm Medical Industries, Inc. develops, manufactures and sells
diagnostic and surgical equipment for the eyes. We currently market two
ultrasonic surgery systems for removing cataracts and have recently acquired the
exclusive technology and manufacturing rights to four additional FDA approved
surgical eyecare products from Mentor Corp. We are currently developing a laser
surgery system for the next generation of cataract removal. In addition, we
acquired the technology and manufacturing rights to four diagnostic eyecare
instruments formerly manufactured by the Humphrey Systems Division of Carl
Zeiss, Inc. ( Humphrey Systems). Currently, our sales come from our two
ultrasonic surgery systems and related medical supplies and our four ultrasound
diagnostic eyecare instruments acquired from Humphrey Systems. We also have a
Blood Flow Analyzer that detects the eye condition glaucoma by diagnosing blood
flow in the eyes. The laser system is still being tested and needs approval by
the Food and Drug Administration before it can be sold in the United States.
Sales of the Mentor systems and accessories began on October 22, 1999, the
closing date of the acquisition.
Our primary purpose in registering Common Stock for resale is to
raise money to complete development of the laser surgery system and to
manufacture and market the four surgical eyecare instruments acquired from
Mentor Corp. This will include significant manufacturing and marketing expenses,
as well as research and development costs and other expenses. We are registering
for resale a total of 5,995,137 shares of Common Stock.
This Prospectus supercedes all prior registrations. Our shares are
listed for trading on The Nasdaq SmallCap Market under the symbols PMED and
PMEDW. On December 21, 1999, the closing sales price for our Common Stock was
$5.00 per share and the closing sales price for our Class A Warrants was $.875
per warrant.
Investing in the Common Stock involves a high degree of risk. You
should purchase shares only if you can afford a complete loss. See "Risk
Factors" beginning on page 4.
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.
This Prospectus is dated December ___, 1999.
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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 the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices at
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511, and at 7 World Trade Center, New York, New York 10048. 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 our company.
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.
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 and sell surgical and diagnostic equipment
and instrumentation for the eyes known as ophthalmic equipment with related
accessories, including disposable products. Our surgical equipment is designed
for cataract treatment with minimum invasion of the eye. We market an ultrasonic
cataract surgery system with related instruments. This system, the Precisionist
Thirty Thousand(TM), is manufactured as the base surgery system for our
Precisionist Thirty Thousand(TM) Ophthalmic Surgical Workstation(TM) (the
"Workstation(TM)"). We are currently developing a laser cataract surgery system
as an adjunct to its Workstation. This product is currently undergoing
investigational trials in the United States. If successfully developed and
approved for medical uses, we plan to market the laser system as a plug-in
module for its Workstation(TM). We have acquired exclusive technology and
manufacturing rights to four diagnostic eyecare instruments, formerly
manufactured by Humphrey Systems. In October, 1999, we acquired the technology
and rights to manufacture four additional FDA approved surgical products from
Mentor Corp. We also have a Blood Flow Analyzer(TM) product that is a portable
computerized system designed for diagnosis of blood flow volume in the eye for
detection and treatment of glaucoma. With the exception of the Blood Flow
Analyzer(TM), all product manufacturing and service related to these instruments
has been moved to our Salt Lake City facility.
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The Offering
Securities Offered .. The resale of 5,995,137 shares of Common Stock, consisting
of the resale of 2,476,900 shares of Common Stock issuable
upon the exercise of the Class A Warrants, Underwriter's
Warrants, Win Capital Warrants, Note holders' Warrants,
Attorney's Warrants, KSH Investment Group Warrants, Cyndel
Warrants, Lafferty Warrants and Warrants issued to John W.
Hemmer, a former Vice President of Finance, Treasurer,
Chief Financial Officer of the Company in connection with
his retirement; the resale of 383,354 shares of Common
Stock issuable upon the conversion of the Series C
Convertible Preferred Stock (the "Series C Preferred
Stock"); the resale of 763,580 shares of Common Stock
issuable upon the conversion of the Series D Convertible
Preferred Stock (the "Series D Preferred Stock"); the
resale of 216,316 shares of Common Stock consisting of the
resale of 90,000 shares for satisfaction of debt pursuant
to the Stock Exchange for Satisfaction of Debt Agreement
with Zevex International, Inc. ("Zevex") and 126,316
shares for purchase of assets pursuant to the Agreement
for Purchase and Sale of Assets with Humphrey Systems
Division of Carl Zeiss, Inc. ("Humphrey Systems"); the
resale of 265,287 shares of Common Stock pursuant to
registration rights granted to certain individuals and
entities; the resale of 1,000,000 shares of Common Stock
for purchase of assets and for raising additional working
capital; and the resale of 889,700 shares of Common Stock
issuable upon the exercise of options granted to executive
officers, employees and directors. Each Class A Warrant
entitles the holder to purchase one share of common Stock
at an exercise price of $7.50 per share. Each
Underwriter's Warrant entitles the holder to purchase one
share of common Stock at an exercise price of $7.50 to
$8.125 per share. Each Win Capital Warrant entitles the
holder to purchase one share of Common Stock at an
exercise price of $2.30 to $4.00 per share. Each Lafferty
Warrant entitles the holder to purchase one share of
Common stock at an exercise price of $4.00 per share. Each
of the Note Holders' Warrants and Attorney's Warrants
entitles the holder to purchase one share of Common Stock
at an exercise price of $3.33 per share. Each KSH
Investment Group Warrant entitles the holder to purchase
one share of Common Stock at an exercise price of $2.38 to
$2.69 per share. Each Cyndel Warrant entitles the holder
to purchase one share of Common Stock at an exercise price
of $2.30 to $4.00 per share. Each Warrant issued to Mr.
Hemmer entitles him to purchase one share of Common Stock
at an exercise price of $2.63 per share. Each share of
Series C Preferred Stock and Series D Preferred Stock is
convertible at a conversion price of $1.75 per share. The
Class A Warrants, Underwriter's Warrants, Win Capital
Warrants, Note Holders' Warrants and Attorney's Warrants
are subject in certain circumstances to earlier redemption
by us. The Series C Preferred Stock and Series D Preferred
Stock are subject in certain circumstances to automatic
conversion. See "Securityholders Registering Shares" and
"Description of Securities."
Common Stock
outstanding prior
to the offering .... 7,233,275 shares.
Common Stock
outstanding after
the offering (1).... 13,229,419 shares.
Use of Proceeds .... All funds received by us upon the exercise of the Warrants
will be used for general corporate purposes. We will not
receive any proceeds from the conversion of the Series C
Preferred Stock or the Series D Preferred Stock. See "Use
of Proceeds."
Risk Factors
/Dilution .......... The offering involves a high degree of risk. See "Risk
Factors."
Nasdaq Symbols
Common Stock PMED
Class A Warrants PMEDW
3
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by us with the Commission are incorporated
herein by reference:
a. Annual Report on Form 10-K for the fiscal year ended December
31, 1998;
b. Quarterly Report on Form 10-Q for the quarter ended March 31,
1999;
c. Quarterly Report on Form 10-Q for the quarter ended June 30,
1999;
d. Quarterly Report on Form 10-Q for the quarter ended September
30, 1999.
e. Definitive Proxy Statement for the Company's 1999 Annual
Meeting of Shareholders, as filed on June 23, 1999.
All documents subsequently filed by the Company 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: Michael W. Stelzer, Vice President of
Operations, Chief Operating Officer and Chief Financial Officer, Paradigm
Medical Industries, Inc., 1127 West 1320 South, Suite A, Salt Lake City, Utah
84119.
RISK FACTORS
Before you invest in our Common Stock, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
Prospectus before you decide to purchase shares of our Common Stock. No
investment should be made by any person who is not in a position to lose the
entire amount of his investment.
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.
Limited Working Capital; Limited Operating History; Accumulated Deficit;
Anticipated Losses.
As of December 31, 1998, we had limited working capital of $923,000. We
also have not been in business for a long time. Most of our current sales are
related to the Precisionist 3000 Plus, our ultrasonic eye surgery machine. Our
accumulated deficit was $8,258,406 as of December 31, 1997 and $15,887,000 as of
December 31, 1998. 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 its laser surgery products,
including the Photon(TM) LaserPhaco(TM), 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.
Possible Future Delisting of Securities from The Nasdaq SmallCap Market and
Market Illiquidity.
We received a letter from the Nasdaq staff, dated January 7, 1998,
notifying us that our securities would be delisted from The Nasdaq SmallCap
Market at the close of business on January 15, 1998 because we failed to
demonstrate compliance with all the requirements for continued listing. We
requested a review of the staff's findings and conclusions. A hearing to review
the staff's findings and conclusions was held on February 19, 1998. We were
determined to be in compliance with the requirements for continued listing on
The Nasdaq SmallCap Market as a result of the proceeds we had received from sale
of 20,030 shares of Series C Preferred Stock and the exchange of 12%
Convertible, Redeemable Promissory Notes for 9,950 shares of Series C Preferred
Stock.
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In order to remain eligible for quotation on Nasdaq, we must maintain
$2,000,000 in net tangible assets, a $500,000 market value of the public float
(excluding shares held directly or indirectly by officers, directors and
controlling stockholders), 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. If we are unable to comply with these new listing
requirements in the future, our securities would 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.
Disclosures Relating to Low Priced Stocks; Possible Restrictions on Resales of
Low Priced Stocks and on Broker-Dealer Sales; Possible Adverse Effect of "Penny
Stock" Rules on Liquidity for the Company's Securities.
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
the purchaser qualifies as a purchaser and must receive the purchaser's written
consent to the transaction prior to sale. Consequently, Rule 15g-9 may adversely
effect the ability purchasers and others 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.
Future Capital Needs and Uncertainty of Additional Funding.
We may require substantial funds in addition to the net proceeds of this
Offering for various reasons, including continuing research and development,
expanding clinical trials, completing the FDA approval process for its products
(including the Photon(TM) LaserPhaco(TM)), and manufacturing and marketing its
existing products. See "Risk Factors -- Government Regulation; Uncertainty of
FDA Approval" below. In the short term, based on past financial needs and on
currently planned programs, we anticipate that the net proceeds of this Offering
and the interest earned from it, together with 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.
Even if this Offering is successful, 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 its research and development programs or to
license third parties to commercialize products or technologies that we would
otherwise seek to develop itself, which may materially adversely affect our
continued operations.
Technological Uncertainty and Early Stage of Product Development.
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 its 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.
5
<PAGE>
Government Regulation; Uncertainty of FDA Approval.
We are subject to substantial regulation by the FDA and other federal and
state regulatory agencies. FDA regulations require us to obtain either a 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 selling its 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. See "Risk Factors--Future Capital Needs and
Uncertainty of Additional Funding." Delays or failure to obtain such approvals
would materially and adversely effect us, as would changes in existing
requirements. We have received a 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 an ocular blood flow
analyzer manufactured by O.B.F. Labs, Ltd. ("O.B.F. Labs"). In May 1995, we were
granted an investigational device exemption for our Photon(TM) LaserPhaco(TM)
System allowing us to conduct clinical studies in support of our application
with the FDA to obtain approval to market our laser surgery system. We have
completed the authorized clinical studies and has requested authorization for
expanded clinical studies. We have also received FDA approval to manufacture and
export the Photon(TM) LaserPhaco(TM) 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 planned products will be subject to
the lengthy regulatory approval process, including preclinical studies, clinical
trials and extensive regulatory review and could take many years and require the
expenditure of substantial resources.
Lack of 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.
Dependence on Laser Cataract System.
We are also developing a laser cataract system for inclusion in our
Workstation(TM). Phase I clinical trials have concluded for FDA approval for the
Photon(TM) LaserPhaco(TM) system. During the clinical trial, we discovered that
the Photon(TM) LaserPhaco(TM) system may not effectively remove viscerous
cataracts. In May, 1998, we received FDA clearance to conduct clinical tests on
soft cataracts. We are highly dependent on FDA approval of its Photon(TM)
LaserPhaco(TM) system to generate future revenues. With the recently discovered
possible limitation of the Photon(TM) LaserPhaco(TM), the system may not be
approved by the FDA.
Potential Obsolescence from 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.
Product and Market Competition.
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.
Business Development Risks.
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. 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.
6
<PAGE>
Dependence On Key Personnel.
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. We are
especially dependent upon the efforts and abilities of Thomas F. Motter,
Chairman of the Board, President and Chief Executive Officer. Mr. Motter is
employed by us under a five-year employment agreement. The loss of any of our
key executives could have a material adverse effect on us and our operations and
prospects, although the loss of Mr. Motter could have a more significant adverse
effect. We have no key man insurance on Mr. Motter. We believe that our future
success will also depend, in part, upon our ability to attract, retain and
motivate qualified personnel. There is no assurance, however, that we will be
successful in attracting and retaining such personnel.
Production Risks.
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.
Lack of Independent Market Testing.
We believe that there is substantial commercial demand for its laser
surgery system and blood flow analyzer 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.
No Assurance of Market Acceptance.
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 laser surgery system may never gain market acceptance since
the system may not effectively remove viscerous 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.
Dependence on Patents and the Protection of Proprietary Technology.
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 O.B.F. Labs in the United States and the
United Kingdom and is still pending in Japan. 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 infringement claims made by third parties or in enforcing any patents
we may obtain.
Limited Nature of Patent Protection.
Others may sell products similar to our Photon(TM) LaserPhaco(TM) system,
the Mentor systems or the Blood Flow Analyzer(TM) for the eyes before we can
market either device. We rely on the protections 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 for the eyes are reported
by O.B.F. Labs 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
7
<PAGE>
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.
Limitations on Medical Reimbursement.
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.
See "Risk Factors--Proposed Health Care Reform."
Proposed Health Care Reform.
President Clinton's Administration is making proposals to change aspects
of the delivery and financing of health care services. Other legislation to
accomplish the same purpose has or will also be introduced by members of
Congress. Legislation derived from one or more of these proposals may be enacted
in the near future. 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.
New Product Quality.
Our Precisionist ThirtyThousand(TM) Workstation(TM) is a new
computer-based product unproven 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.
Dependence on Outside Suppliers and Manufacturers.
We currently purchase all of its components, supplies and contract
manufacturing from third-party suppliers. Substantially all of our current
products are manufactured or assembled by three companies under long-term
manufacturing agreements. However, if we were required to locate other
manufacturers or suppliers, we could experience increased costs and significant
delays in both locating and switching to new vendors. Further, it would be
difficult for us to develop the capacity to manufacture or assemble its products
in-house since we have no experience in large-scale manufacturing. In addition,
we may be unsuccessful in developing the necessary facilities or recruiting
trained personnel to achieve profitable manufacturing or assembling capacities.
Minimal Marketing Experience.
We have commenced a direct sales program to market its current and
proposed products. 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.
8
<PAGE>
Product Liability and Possible Insufficiency of Insurance.
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.
World Economic, Political and Currency Fluctuations.
We anticipate that a significant portion of its future product sales will
be in foreign countries. Because we quote prices for our products and accepts
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.
Potential Adverse Effects of Future Sales of Stock; Dilution.
As of September 30, 1999, approximately 41% or about 2,963,816 shares of
the total 7,233,275 shares of Common Stock outstanding were "restricted
securities" within the meaning of Rule 144 under the Securities Act of 1933, as
amended. Ordinarily, under Rule 144, a person holding restricted securities for
a period of one year may, every three months, sell in ordinary transactions, or
in transactions directly with a market maker an amount equal to the greater of
one percent of our then outstanding Common Stock or the average weekly trading
volume during the four calendar weeks prior to such sale. An additional 32,776
shares could immediately be sold in reliance on Rule 144 upon the conversion of
our Series A and Series B Preferred Stock issued and outstanding as of December
15, 1999 for shares of Common Stock. An additional 21,525 shares could also be
immediately sold in reliance upon Rule 144 upon the exercise of the FAS Warrants
and an additional 889,700 shares could eventually be sold in reliance upon Rule
144 upon the exercise of stock options granted to our executive officers,
employees and directors. Moreover, 383,354 shares of Common Stock could be sold
upon the conversion of the Series C Preferred Stock and 763,580 shares of Common
Stock could be sold upon the conversion of the Series D Preferred Stock.
Further, 1,000,000 shares could be sold upon the exercise of Class A Warrants
issued in connection with the July 1996 public offering and 512,500 shares could
be sold upon the exercise of warrants held by Bridge Note investors, and our
attorneys and underwriters of the July 1996 public offering. Finally, 839,400
shares could be sold upon the exercise of warrants that we have issued to Win
Capital , Cyndel, KSH Investment Group and Lafferty and 125,000 shares could be
sold upon the exercise of warrants that we have issued to John W. Hemmer. We
have agreed to register the shares of Common Stock issuable upon exercise of
Class A Warrants, Underwriter's Warrants, Win Capital Warrants, Note Holders'
Warrants, Attorney's Warrants, KSH Investment Group Warrants, Cyndel Warrants
and Lafferty Warrants on the same registration statement as the shares of Common
Stock issuable upon conversion of the Series C and Series D Preferred Stock and
keep such registration statement current until such time as all shares of Common
Stock issuable upon exercise of the warrants and conversion of the Series C and
Series D Preferred Stock are freely tradeable pursuant to Rule 144(k)
promulgated under the Securities Act, all at our cost and expense. Sales of such
shares would increase the number of shares in the public float and have an
adverse effect on the market price of the Common Stock.
Possible Volatility of Stock Price.
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 its 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.
Adverse Effects of Board of Director Control of Preferred Stock.
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 series of Preferred Stock. Those shares may be issued
9
<PAGE>
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 September 30, 1999, 8,077 shares of Series A
Preferred Stock, 19,236 shares of Series B Preferred Stock, 500 shares of Series
C Preferred Stock and 318,644 shares of Series D Preferred Stock were issued and
outstanding, which are immediately convertible, in the aggregate, into 379,990
shares of our Common Stock. See "Description of Securities--Preferred Stock."
No Dividends on Common Stock.
We issued a stock dividend on its 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 Stock 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
Preferred Stock and Series D Preferred Stock are entitled to non-cumulative cash
dividends paid out of surplus earnings. See "Description of
Securities--Preferred Stock."
Board Discretion as to Use of Proceeds.
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.
See "Use of Proceeds."
Rescission Offer to Series B Shareholders.
We issued 493,000 shares of Series B Preferred Stock in 1994 and 1995. The
Series B Shares may not have been sold in compliance with certain aspects of
California corporate law and federal and state securities laws. Concurrently
with our July 1996 public offering, we provided the Series B Shareholders with a
rescission offer (the "Rescission Offer") to repurchase all Series B Preferred
shares (the "Rescission Shares") owned by the Series B Shareholders. The Series
B Shareholders were offered the right to rescind their purchases and receive a
refund of the price paid by them of $4.00 per share plus an amount equal to the
interest thereon at rates ranging from 6% to 12% per annum from the date the
Rescission Shares were purchased to July 25, 1996, the date our public offering
closed and each rescinding shareholder was paid by us. The original purchasers
of approximately 93% of the Series B Shares (460,250 shares) rejected the
Rescission Offer by responding as requested in the Rescission Offer or by
failing to return a response within thirty days of receiving the Rescission
Offer. Two shareholders owning a combined total of 32,750 shares accepted the
Rescission Offer. The Rescission Offer was designed to reduce any type of
contingent liability we may be subject to in connection with its private
placement of Series B Preferred Stock. However, the Rescission Offer may not
have fully relieved us from exposure to contingent liability under federal or
state securities laws. Not every state statutorily provides for voluntary
rescission offers. In addition, other states, although authorizing rescission
offers, do not completely limit the liability of the offeror. Thus, we may have
continuing liability in certain states following the Rescission Offer.
Limited Liability for Officers and Directors and Indemnification Matters.
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 (the
"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.
Dilutionary Possibilities.
The Board of Directors has the inherent right under applicable Delaware
law, for whatever value the Board deems adequate, to issue additional shares of
Common Stock 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 it is 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
shares of Preferred Stock in a series, to create a new series of Preferred Stock
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 Stock 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. See "The
Offering."
10
<PAGE>
USE OF PROCEEDS
Holders of Class A Warrants, Underwriter's Warrants, Win Capital Warrants,
Note Holders' Warrants, Attorney's Warrants, Cyndel Warrants, KSH Investment
Group Warrants, Lafferty Warrants and Hemmer Warrants are not obligated to
exercise any of their Warrants and holders of options are not obligated to
exercise any of their options. However, assuming exercise of all of the Warrants
and options and assuming the issuance of the 1,000,000 additional shares of
Common Stock being registered for resale for the purchase of assets and for
raising additional working capital, the net proceeds from this Offering to be
received by the Company from the issuance of 5,995,137 shares of Common Stock
covered by this Prospectus and issuable upon the exercise of the Warrants and
from the issuance of 1,000,000 additional shares of Common Stock are estimated
to be $17,394,513. The closing bid price of the Common Stock on The Nasdaq
SmallCap Market was $5.00 on December 21, 1999. Approximately 46% of the
Warrants are exercisable at prices above $5.00. Accordingly, there is no
assurance that any of the Warrants will be exercised and the Company may not
receive any proceeds from this Offering. The Company will not receive any
proceeds from the issuance of shares of Common Stock upon conversion of the
Series C Preferred Stock or the Series D Preferred Stock.
The Company currently anticipates that it will use the net proceeds of
this Offering, if any, to fund working capital requirements. In the event
sufficient proceeds are not received, the Company's short term plan is to meet
cash needs through external financing sources such as bank financing and private
offerings of debt and/or equity. The Company also expects the cash flow from
operations will provide additional funds to the Company as operating revenues
increase.
The cost, timing and the amount of funds required for such uses by the
Company cannot be precisely determined at this time and will be based upon,
among other things, competitive developments, the rate of the Company's progress
in product development, and the availability of alternative methods of
financing. In addition, the Company's Board of Directors has broad discretion in
determining how the proceeds of this Offering received by the Company will be
applied.
SECURITYHOLDERS REGISTERING SHARES
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of December 15, 1999 by each of the
holders of Series C Preferred Stock (the "Selling Series C Preferred
Stockholder"), assuming each of the Selling Series C Preferred Stockholders
elects to exercise his conversion rights to convert the Series C Preferred
shares (the "Series C Shares") into shares of Common Stock, at a conversion
price equal to $1.75 per share of Common Stock, the number of shares of Common
Stock to be sold by each Selling Series C Preferred Shareholder, and the
percentage of each Selling Series C Preferred Stockholder after the sale of
Common Stock included in this Prospectus.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Number of Owned After
Offering Shares Being Offering
Offered
Stockholders Number Percent Number Percent
<S> <C> <C> <C> <C> <C>
Robert J. Braig 5,714 * 5,714 0 *
Thomas W. Brake 8,571 * 8,571 0 *
Mark and Lori Cozens 4,271 * 4,271 0 *
Paul N. Davis 17,142 * 17,142 0 *
Robert L. Frome(1) 42,855 * 42,855 0 *
William A. Gantz and Carol A. Gantz, 2,000 * 2,000 0 *
JTWROS
John A. Grue 5,714 * 5,714 0 *
Edward G. Hammond 7,285 * 7,285 0 *
Roger C. Husted 14,285 * 14,285 0 *
Jerry R. King 11,428 * 11,428 0 *
Terry F. King 11,428 * 11,428 0 *
Patrick Kolenik - IRA(2) 29,578(3) * 28,571 1,007(3) *
Michael Associates 20,000 * 20,000 0 *
Ted Levine 28,571 * 28,571 0 *
Eileen M. O'Dea 2,670 * 2,670 0 *
Premier Alliance Group, Inc. 19,999 * 19,999 0 *
Mark S. Richardson 14,285 * 14,285 0 *
Samuel Richman 2,285 * 2,285 0 *
Sheila Sandman 7,500 * 7,500 0 *
Richard C. Siskey 28,570 * 28,570 0 *
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Thomas W. Brake 8,571 * 8,571 0 *
Jeffrey A. and Penny Strack 8,285 * 8,285 0 *
Gregg Stokes 5,714 * 5,714 0 *
Charles Thompson 14,285 * 14,285 0 *
United Growth Fund, Inc. Profit Sharing 28,570 * 28,570 0 *
Plan
Patrick and Linda Vetere, JTWROS 14,285 * 14,285 0 *
Wight Investment 500 * 500 0 *
Rose W. Zee 15,000 * 28,571 0 *
--------- ------- -----
TOTAL 384,361 383,354 1,007
________________________________________
</TABLE>
* Less than 1%
(1) Mr. Frome is a director of the Company.
(2) Mr. Kolenik is a director of the Company.
(3) Includes 1,007 shares of Common Stock held by Mr. Kolenik.
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of December 15, 1999, by each of the
holders of Series D Preferred Stock (the "Selling Series D Preferred
Stockholders"), assuming each of the Selling Series D Preferred Stockholders
elects to exercise his conversion rights to convert the Series D Preferred
shares (the "Series D Shares") into shares of Common Stock, at a conversion
price equal to $1.75 per share of Common Stock, the number of shares of Common
Stock to be sold by each Selling Series D Preferred Stockholder, and the
percentage of each Selling Series D Preferred Stockholder after the sale of
Common Stock included in this Prospectus.
<TABLE>
<CAPTION>
Number of
Shares Being
Stockholders Number Percent Offered Number Percent
<S> <C> <C> <C> <C> <C>
Jerry and Linda Bassin 25,000 * 25,000 0 *
Dr. Robert Bedrossian 5,000 * 5,000 0 *
Dr. Valery Berger 15,000 * 15,000 0 *
Bill D. and Claudia J. Berkley 10,000 * 10,000 0 *
Berkley Investments, Inc. 10,000 * 10,000 0 *
Paul and Judith Berkman 15,000 * 15,000 0 *
Edwin Bindseil 15,000 * 15,000 0 *
Dr. Kostaki Bis 5,000 * 5,000 0 *
Benjamin Bollag 15,000 * 15,000 0 *
Dr. Richard Bowe IRA 25,316 * 25,316 0 *
CarCap Co., LLC 10,000 * 10,000 0 *
James & Caren Cobb 40,000 * 40,000 0 *
William & Marion Conley 5,000 * 5,000 0 *
Corman Foundation, Inc. 30,000 * 30,000 0 *
Brian and Irene Cotter 10,000 * 10,000 0 *
Jonathan Cress 5,000 * 5,000 0 *
Scott Crowther 10,000 * 10,000 0 *
George and JoAnn Dick 10,000 * 10,000 0 *
James A. Erb 10,000 * 10,000 0 *
Clifford A. Falkenau Trust 5,000 * 5,000 0 *
Helen Falkenau 5,000 * 5,000 0 *
Aaron I. Feder 7,000 * 7,000 0 *
Dale S. and Jack Feinblatt 9,000 * 9,000 0 *
Dr. Leon Gallin 2,000 * 2,000 0 *
Shadow Capital, LLC, 40,000 * 40,000 0 *
Bonnie and Mort Goldberg 10,000 * 10,000 0 *
R. Steven Graves 10,000 * 10,000 0 *
Sean Greene 10,000 * 10,000 0 *
Halpert Enterprises Inc. 10,000 * 10,000 0 *
John Harte 15,000 * 15,000 0 *
Douglas and Alexis Hogue 10,000 * 10,000 0 *
Dr. Roger Husted 11,500 * 11,500 0 *
Irwin Kabat 6,000 * 6,000 0 *
Elaine Khalaf 10,000 * 10,000 0 *
Aaron Kirzner 5,000 * 5,000 0 *
Steven Kohn, IRA 9,356 * 9,356 0 *
12
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Lyudmila Korets 5,000 * 5,000 0 *
Dr. Michael Limberg, IRA 39,580 * 39,580 0 *
Morris Macy 5,000 * 5,000 0 *
Robert Margolin, IRA 5,000 * 5,000 0 *
Mid-Lakes P/S Trust 50,000 * 50,000 0 *
Jules M. Ness 10,000 * 10,000 0 *
James Pickett 5,000 * 5,000 0 *
Dr. Soleiman Rabanipour 10,000 * 10,000 0 *
Dr. Sheldon Rabin, IRA 20,000 * 20,000 0 *
Reinhard & Reinhard M/P Plan 8,000 * 8,000 0 *
Marsha and Barry Reiss 10,000 * 10,000 0 *
Dr. Steven Rubel 5,000 * 5,000 0 *
Melvyn and Lea Ruskin 10,000 * 10,000 0 *
Scott W. Sakin 10,000 * 10,000 0 *
Judy Shapiro 25,000 * 25,000 0 *
Larry and Katina Snyder 5,000 * 5,000 0 *
Jerold Stern 5,000 * 5,000 0 *
Steve Shook Construction P/S Plan
Dtd. 12/10/82 10,828 * 10,828 0 *
David Tadych 5,000 * 5,000 0 *
Miles and Rochelle Weinberg 10,000 * 10,000 0 *
Xanadu Associates, LLC 10,000 * 10,000 0 *
Dr. Alkis Zingas Trust 15,000 * 15,000 0 *
Dr. Igor Zlotin 5,000 * 5,000 0 *
Simon Zunamon Revocable Trust 20,000 * 20,000 0 *
--------- ------- -------
TOTAL 763,580 763,580 0
________________________________
* Less than 1%.
</TABLE>
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of December 15, 1999 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.
<TABLE>
<CAPTION>
Number of Shares Beneficially
Shares Beneficially Shares Being Owned After
Optionholders Owned Prior to Offering Offered Offering (1)
Number Percent Number Percent
<S> <C> <C> <C> <C> <C>
Del Anderson 300 * 300 0 *
Candy L. Caballero 10,000 * 10,000 0 *
Richard D. Dirkson 5,040 * 5,040 0 *
Dr. William C. Fitzhugh 90,737 1.3% 20,000 70,737 1.0%
Clint Frederickson 400 * 400 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 82,450 1.1% 57,450 25,000 *
Randall A. Mackey 30,512 * 20,000 10,512 *
Thomas F. Motter 638,235 8.8% 143,450 494,785 6.8%
Dale Muir 150 * 150 0 *
Corinne Powell 50,000 * 50,000 0 *
Curtis G. Page 10,080 * 10,080 0 *
Ray Rivera 150 * 150 0 *
Dr. David M. Silver 28,666 * 20,000 8,666 *
Todd A. Smith 20,150 * 20,150 0 *
Michael W. Stelzer 116,521 1.6% 57,450 59,071 *
Jeffrey S. Voyles 10,808 * 10,080 0 *
--------- ------- -------
TOTAL 1,170,921 444,700 736,221
________________________________
</TABLE>
13
<PAGE>
*Less than 1%.
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of December 15, 1999 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 $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.
<TABLE>
<CAPTION>
Number of Shares Beneficially
Shares Beneficially Shares Being Owned After
Optionholders Owned Prior to Offering Offered Offering (1)
Number Percent Number Percent
<S> <C> <C> <C> <C> <C>
Steven J. Bayern 75,000 1.0% 75,000 0 *
Robert L. Frome 164,000 2.3% 150,000 14,000 *
Patrick N. Kolenik 179,577 2.5% 150,000 29,577 *
Thomas F. Motter 544,785 7.5% 50,000 494,785 6.8%
Michael W. Stelzer 79,071 1.1% 20,000 59,071 *
--------- ------- -------
TOTAL 1,042,433 445,000 597,433
</TABLE>
Less than 1%
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of December 15, 1999 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.
<TABLE>
<CAPTION>
Number of Shares Beneficially
Shares Beneficially Shares Being Owned After
Securityholders Owned Prior to Offering Offered Offering (1)
Number Percent Number Percent
<S> <C> <C> <C> <C> <C>
Attorney's Warrants 25,000 * 25,000 0 *
Cyndel & Co. 180,000 2.5% 180,000 0 *
KSH Investment Group, Inc. 208,400 2.9% 208,400 0 *
Kenneth Jerome & Company, Inc. 200,000 2.8% 200,000 0 *
Note Holders' Warrants 285,500 3.4% 287,500 0 *
R.F. Lafferty & Co., Inc. 100,000 1.4% 100,000 0 *
Win Capital Corp. 351,000 4.9% 351,000 0 *
--------- ------- -------
TOTAL 1,359,900 1,351,900 0
</TABLE>
Less than 1%.
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of December 15, 1999 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.
<TABLE>
<CAPTION>
Number of
Shares Shares Beneficially
Shares Beneficially Being Owned After
Shareholders Owned Prior to Offering Offered Offering (1)
Number Percent Number Percent
<S> <C> <C> <C> <C> <C>
John W. Hemmer 25,000 * 25,000 0 *
KSH Investment Group, Inc. 100,043 1.4% 100,043 0 *
Dr. Joseph R. Nemeth 100,044 1.4% 100,044 0 *
Win Capital Corp. 40,200 * 40,200 0 *
--------- ------- -------
TOTAL 265,287 265,287 0
</TABLE>
________________________________
Less than 1%.
14
<PAGE>
DESCRIPTION OF SECURITIES
Paradigm's authorized capital stock consists of 20,000,000 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 four classes of Preferred
Stock, designated as Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, and Series D 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 four 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
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 December 15, 1999, there were a total of 8,077 shares of Series A
Preferred Stock issued and outstanding. A total of 9,692 shares of Common Stock
has been set aside and reserved in the event that the holders of shares of
Series A Preferred Stock elect to convert those shares into shares of Common
Stock. As of December 15, 1999, 114,687 shares of Series A Preferred Stock have
been converted into 137,624 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. 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 December 15, 1999, there were a total of 19,236 shares of Series B
Preferred Stock issued and outstanding. A total of 23,083 shares of Common Stock
have been set aside and reserved in the event that the holders of shares of
Series B Preferred Stock elect to convert those shares into shares of Common
Stock. As of December 15, 1999, 473,764 shares of Series B Preferred Stock have
been converted into 568,517 shares of Common Stock.
15
<PAGE>
Series C Preferred Stock. The Board of Directors has authorized the
issuance of a total of 30,000 shares of Series C Preferred Stock. 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, 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.
As of December 15, 1999, there were a total of 500 shares of Series C
Preferred Stock issued and outstanding. A total of 1,713,143 shares of Common
Stock has been set aside and reserved in the event that the holders of the
Series C Preferred Stock elect to convert those shares into shares of Common
Stock. As of December 15, 1999, 29,480 shares of Series C Preferred Stock have
been converted into 1,684,572 shares of Common Stock.
Series D Convertible Preferred Stock. The Board of Directors authorized
the issuance of a total of 909,000 shares of Series D Convertible Preferred
Stock. 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 December 15, 1999, there were a total of 333,644 shares of Series D
Preferred Stock issued and outstanding. A total of 909,000 shares of Common
Stock has been set aside and reserved in the event that the holders of the
Series D Preferred Stock elect to convert those shares into shares of Common
Stock. As of December 15, 1999, 806,356 shares of Series D Preferred Stock have
been converted into 806,356 shares of Common Stock.
Rescission Offer to Series B Preferred Stockholders. The 493,000 shares of
Series B Preferred Stock issued to the Company's Series B Stockholders (the
"Series B Stockholders") may not have been sold in compliance with certain
aspects of California corporate law and federal and state securities laws.
Concurrently with its public offering, the Company provided the Series B
Stockholders with a rescission offer (the "Rescission Offer") to repurchase all
Series B Preferred shares (the "Rescission Shares") owned by the Series B
Stockholders. The Series B Stockholders were offered the right to rescind their
purchases and receive a refund of the price paid by them of $4.00 per share plus
an amount equal to the interest thereon at rates ranging from 6% to 10% per
annum from the date the Rescission Shares were purchased to July 25, 1996, the
date the Company's public offering closed and each rescinding shareholder was
paid by the Company. The original purchasers of approximately 93% of the Series
B Shares (460,250 shares) rejected the Rescission Offer. Two shareholders owning
a combined total of 32,750 shares have accepted the Rescission Offer.
16
<PAGE>
Although the Company was not instructed by any regulatory body to actually
conduct the Rescission Offer, the Company 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 the Company from exposure to contingent liability under
federal or state securities laws. See "Risk Factors -- Rescission Offer to
Series B Stockholders."
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, 2001 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 the Company
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, the Company'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 the Company)
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 the Company'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 the Company's Preferred Stock to Common Stock.
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 the Company unless or until he or she exercises the
Class A Warrants. As of December 15, 1999, no Class A Warrants have been
exercised.
Underwriter's Warrants. In connection with its public offering, the
Company issued and sold to the underwriters of that offering, warrants 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, 2001, 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 Underwriter's
Warrants are entitled to certain demand and incidental registration rights with
respect to the securities issuable upon exercise of the Underwriter's Warrants.
The number of shares covered by the Underwriter's Warrants are subject to
adjustment in certain events to prevent dissolution. The Company may redeem the
Underwriter's Warrants beginning July 10, 1998 at a price of $.05 per warrant at
such time as the Company'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 Underwriter's Warrants are not
transferrable except to officers and directors of the representative,
co-underwriters, selling group members and their officers or partners. As of
December 15, 1999, no Warrants have been exercised.
Win Capital Warrants. In connection with a letter agreement dated August
20, 1997, wherein Win Capital agreed to perform unspecified investment banking
services, the Company issued Win Capital Warrants to purchase 191,000 shares of
Common Stock at any time not later than August 19, 2000. The Company issued
additional Warrants to Win Capital to purchase 100,000 shares of Common Stock at
anytime no later than February 24, 2001 for services rendered in the private
placement of Series C Preferred Stock. Each of the Win Capital Warrants entitles
the holder to purchase one share of Common Stock at an exercise price of $3.00
per share. The Win Capital Warrants may be exercised upon surrender of the
certificate(s) therefor on or prior to the expiration or the redemption date (as
explained above) at the offices of the Company's 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 the Company) of the full exercise price
for the number of Warrants being exercised. The Company may redeem the Win
Capital Warrants at a price of $.05 per Warrant at such time as the Company's
Common Stock has been trading in the over-the- counter market as reported on The
Nasdaq SmallCap Market at a price equal to or above $5.00 for a period of 20
consecutive trading days ending within 20 days of the date of redemption. The
Win Capital Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price per share and the number of shares
17
<PAGE>
issuable upon exercise thereof upon the occurrence of certain events, including
stock dividends, stock splits, mergers and the sale of substantially all of the
Company'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 Win Capital
Warrants will not possess any rights as a shareholder of the Company unless and
until the holder exercises the Warrants. As of December 15, 1999, no Win Capital
Warrants have been exercised.
Note Holders' and Attorney's Warrants. In connection with certain Bridge
Financing, the Company issued Warrants to purchase 300,000 shares of Common
Stock to investors. Pursuant to a warrant agreement between the Company and
Mackey Price & Williams ("MP&W"), the Company issued Warrants to purchase 25,000
shares of Common Stock to MP&W. Each Warrant entitles the holder to purchase one
share of Common Stock at an exercise price of $3.33 per share. The Note Holders'
and Attorney's Warrants are exercisable through December 1, 2000. The Note
Holders' and Attorney's Warrants may be exercised upon surrender of the
certificate(s) therefor on or prior to the expiration or the redemption date at
the offices of the Company's 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 the Company) of the full exercise price for the number of
Warrants being exercised. The Company may redeem the Note Holders' and
Attorney's Warrants at a price of $.05 per Warrant at such time as the Company's
Common Stock has been trading in the over-the-counter market as reported on The
Nasdaq SmallCap Market at a price equal to or above $10.00 for a period of 30
consecutive trading days ending within 15 days of the date of redemption. The
Note Holders' and Attorney's Warrants contain provisions that protect the
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 the Company'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
Note Holders' and Attorney's Warrants will not possess any rights as a
shareholder of the Company unless and until the holder exercises the Warrants.
As of December 31, 1999, 12,500 Note Holders' Warrants have been exercised to
purchase 12,500 shares of Common Stock. No Attorney's Warrants have been
exercised as of that date.
KSH Investment Group Warrants. In connection with its Series D Preferred
private placement, the Company has issued KSH Investment Group, Inc. 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 the Company'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 the Company unless and until the holder exercises the
Warrants. As of December 15, 1999, no KSH Investment Group Warrants have been
exercised.
Cyndel and Win Capital Warrants. In connection with certain financing that
Cyndel and Win Capital provided to the Company, the Company issued Cyndel
Warrants to purchase 105,000 shares of Common Stock and Win Capital Warrants to
purchase 35,000 shares of Common Stock. These Warrants are exercisable at any
time not later than January 15, 2004 at $2.30 per share. The Warrants contain
provisions that protect the 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 of the Company'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 the Company unless and until the holders exercise the Warrants.
As of December 15, 1999, 105,000 Cyndel Warrants have been exercised to purchase
105,000 shares of Common Stock and 35,0009 Win Capital Warrants have been
exercised to purchase 35,000 shares of Common Stock. On March 7, 1999, the
Company's Board of Directors authorized the issuance of additional Warrants to
Cyndel to purchase 75,000 shares of Common Stock at an exercise price of $4.00
per share, on condition that Cyndel exercises its Warrants to purchase 105,000
shares of Common Stock at $2.30 per share within 72 hours after receiving notice
from the Company that this Registration Statement is effective. Similarly, on
April 7, 1999, the Company's Board of Directors authorized the issuance of
additional Warrants to Win Capital to purchase 25,000 shares of Common Stock at
an exercise price of $4.00 per share, on condition that Win Capital exercises
its Warrants to purchase 35,000 shares of Common Stock at $2.30 per share within
72 hours after receiving notice from the Company that this Registration
Statement is effective.
Hemmer Warrants. In connection with the retirement of John W. Hemmer, Vice
President of Finance, Treasurer, Chief Financial Officer and a director of the
Company, the Company's Board of Directors has authorized the issuance of
Warrants to Mr. Hemmer to purchase 125,000 shares of Common Stock. Each warrant
entitles the holder to purchase one share of Common Stock at an exercise price
of $2.63 per share. The Warrants are exercisable through March 10, 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 the
Company's assets. The Company 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 the Company unless and until the holder
exercises the Warrants. On May 6, 1999, the Board of Directors also authorized
the issuance of additional Warrants to Mr. Hemmer to purchase 75,000 shares of
Common Stock at the same exercise price as the Class A Warrants, or $7.50 per
share. However, these Warrants may not be exercised until the Warrants issued to
18
<PAGE>
Mr. Hemmer to purchase 125,000 shares of Common Stock have been exercised. As of
December 15, 1995, 10,000 Hemmer Warrants have been exercised to purchase 10,000
shares of Common Stock.
Lafferty Warrants. In connection with an investment banking agreement with
R. F. Lafferty & Co., Inc. ("Lafferty"), the Company has issued Lafferty
Warrants to purchase 100,000 shares of the Company'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 the
Company'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 the Company unless and until the
holder exercises the Warrants. As of December 15, 1999, no Lafferty Warrants
have been exercised.
FAS Warrants. In connection with its Series B Preferred private placement,
the Company issued First Associated Securities Group, Inc. ("FAS") Warrants to
purchase 21,525 shares of the Company's Common Stock. Each warrant entitles FAS
to purchase one share of Common Stock at a price of $3.00 per share. These
warrants are currently exercisable and expire on December 31, 1999.
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 and Note Holders' Warrants
through a registered or licensed broker-dealer. Upon exercise of Class A
Warrants or Note Holders' Warrants, the Company will pay such soliciting
broker-dealer a fee of 5% of the aggregate exercise price of Class A Warrants
and Note Holders' Warrants exercised, if: (i) the market price of the Common
Stock on the date the Class A Warrant or the Note Holders' Warrant is exercised
is greater than the then exercise price of the Class A Warrant or the Note
Holders' Warrant, respectively; (ii) the exercise of the Class A Warrant or the
Note Holders' Warrant was solicited by a member of the National Association of
Securities Dealers, Inc.; (iii) the Class A Warrant or the Note Holders' 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 or the
Note Holders' Warrant; and (v) the solicitation of exercise of the Class A
Warrant or the Note Holders' Warrant is not in violation of Regulation M.
In connection with the solicitation of the Class A Warrant or the Note
Holders' Warrant exercises, the soliciting broker-dealer will be prohibited from
engaging in any market-making activities with respect to the Company'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 or Note Holders' Warrants until the later of
(i) the termination of such solicitation activity, or (ii) 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 or Note Holders' Warrants
following such solicitation. As a result, the soliciting broker-dealer may be
unable to provide a market for the Company's securities, should it desire to do
so, during certain periods while the respective Class A Warrants or Note
Holders' Warrants are exercisable.
We do not plan to solicit Series C or Series D Preferred Stockholders
regarding the conversion of their Series C or Series D Preferred Shares into
shares of Common Stock which have been registered for resale upon conversion.
The resale of the Common Stock by the Series C and Series D Preferred
stockholders that elect to convert their shares of Series C and Series D
Preferred Stock to shares of Common Stock and the holders of Class A Warrants,
Underwriter's Warrants, Win Capital Warrants, Note Holder's Warrants, Attorney's
Warrants, KSH Investment Group Warrants, Cyndel Warrants and Lafferty Warrants,
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
19
<PAGE>
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.
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-K) for the year ended December 31, 1998, 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.
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 & Williams, Salt Lake City, Utah. We have granted Mackey Price &
Williams, the Company's counsel, Warrants to purchase 25,000 shares of Common
Stock at $3.33 per share in partial payment for legal services in connection
with our public offering which was completed in July 1996. See "Description of
Securities -- Bridge and Attorneys' Warrants."
20
<PAGE>
No dealer, salesman or any other person 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 the Company or the Underwriter. This
Prospectus does not 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 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 the Company
since the date hereof.
_____________________
TABLE OF CONTENTS
Page
Prospectus Summary.........................................................
Risk Factors .............................................................
Use of Proceeds............................................................
Capitalization.............................................................
Selected Financial Data....................................................
Price of Common Stock and Class A
Warrants and Dividend Policy.............................................
Management's Discussion and Analysis ......................................
Business ..................................................................
Management.................................................................
Principal Shareholders.....................................................
Certain Transactions.......................................................
Securityholders Registering Shares.........................................
Description of Securities .................................................
Plan of Distribution.......................................................
Legal Matters..............................................................
Independent Auditors.......................................................
Definitions................................................................
Index of Financial Statements..............................................
5,995,137 Shares of Common Stock
PARADIGM MEDICAL INDUSTRIES, INC.
_________________
PROSPECTUS
_________________
December __, 1999
II-1
<PAGE>
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.................. $ 2,950.18
NASD fee......................................................... 2,000.00
Printing and engraving expenses.................................. 350.00
Legal fees and disbursements..................................... 5,000.00
Accounting fees and disbursements................................ 0.00
Blue Sky fees and expenses (including legal fees)................ 0.00
Miscellaneous.................................................... 100.00
-------------
Total expenses.....................................................$ 10,400.18
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 Registrant 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.
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
II-2
<PAGE>
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
Exhibit
Number Document Description
- ------ --------------------
(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
----------- --------
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 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 Warrant to Purchase Common Stock with Win Capital Corp.(6)
4.9 Specimen Series C Convertible Preferred Stock Certificate(6)
4.10 Certificate of the Designations, Powers, Preferences and Rights
of the Series C Convertible Preferred Stock(6)
4.11 Specimen Series D Convertible Preferred Stock Certificate (10)
4.12 Certificate of the Designations, Powers, Preferences and Rights
of the Series D Convertible Preferred Stock (10)
4.13 Warrant to Purchase Common Stock with Win Capital Corp. (10)
4.14 Warrant to Purchase Common Stock with Cyndel & Co. (10)
4.15 Warrant Agreement with KSH Investment Group, Inc. (10)
4.16 Warrant to Purchase Common Stock with John R. Hemmer (10)
4.17 Warrant to Purchase Common Stock with R.F. Lafferty & Co., Inc.
5. 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 Confidential Disclosure Agreement with Zevex, Inc.(1)
10.4 Indemnity Agreement with Zevex International, Inc.(1)
10.5 Manufacturing Agreement with Sunrise Technologies, Inc.(1)
10.6 Royalty Agreement dated January 30, 1992, with Dennis L.
Oberkamp Design Services(1)
II-3
<PAGE>
10.7 Indemnity Agreement dated January 30, 1992, with Dennis L.
Oberkamp Design Services(1)
10.8 Royalty Agreement (for Ultrasonic Phaco Handpiece) with Dennis
L. Oberkamp Design Services(1)
10.9 Lease Agreement with Eden Roc (6)
10.10 Settlement and Release Agreement with Douglas A. MacLeod(1)
10.11 Form of Indemnification Agreement(1)
10.12 1995 Stock Option Plan and forms of Stock Option Grant
Agreements(1)
10.13 Form of Promissory Note with Note Holders re bridge
financing(1)
10.14 Employee's Lock-Up Agreement(1)
10.15 Registering Shareholders Lock-Up Agreement(3)
10.16 Amendment of Settlement and Release Agreement with Douglas A.
MacLeod(3)
10.17 Design, Engineering and Manufacturing Agreement with Zevex,
Inc.(5)
10.18 License and Manufacturing Agreement with O.B.F. Labs, Ltd.(6)
10.19 Settlement Agreement with Estate of H.L. Federman(6)
10.20 Agreement with Win Capital Corp.(6)
10.21 12% Convertible, Redeemable Promissory Note(6)
10.22 Securities Exchange Agreement(6)
10.23 Stock Exchange for Satisfaction of Debt Agreement with Zevex
International, Inc. (7)
10.24 Co-Distribution Agreement with Pharmacia & Upjohn Company and
National Healthcare Manufacturing Corporation (7)
10.25 Agreement for Purchase and Sale of Assets with Humphrey Systems
Division of Carl Zeiss, Inc. (7) 10.26 Employment Agreement
with Thomas F. Motter(9)
10.27 Employment Agreement with Michael W. Stelzer (9)
10.28 Change of Control Termination with Thomas F. Motter (9)
10.29 Change of Control Termination with Michael W. Stelzer (9)
10.30 Promissory Note with Win Capital Corp. (10)
10.31 Promissory Note with Cyndel & Co. (10)
10.32 Consulting Agreement with Win Capital Corp. (10)
10.33 Agreement with Win Capital Corp.(11)
10.34 Agreement with Cyndel & Co.(11)
10.35 Investment Banking Agreement with R.F. Lafferty & Co., Inc.
23.1 Consent of Medical Laser Insight(3)
23.2 Consent of Frost & Sullivan(3)
23.3 Consent of Ophthalmologists Times(3)
23.4 Consent of Mackey Price & Williams
23.5 Consent of Tanner & Co.
27. Financial Data Schedule
____________________________
(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 Amendment No. 3 to Registration
Statement on Form SB-2, as filed on June 28, 1996.
(5) Incorporated by reference from Annual Report on Form 10-KSB, as
filed on December 30, 1996
(6) Incorporated by reference from Annual Report on Form 10-KSB, as
filed on April 16, 1998
(7) Incorporated by reference from Quarterly Report on Form 10-QSB,
as filed on August 19, 1998.
(8) Incorporated by reference from Registration Statement on Form
SB-2, as filed on June 15, 1998.
(9) Incorporated by reference from Quarterly Report on Form 10-QSB,
as filed on November 12, 1998.
(10) Incorporated by reference from Registration Statement on Form
SB-2, as filed on April 29, 1999.
(11) Incorporated by reference from Amendment No. 1 to Registration
Statement on Form SB-2, as filed on May 1999.
II-4
<PAGE>
(b) Reports on Form 8-K
None
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, 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 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 further 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.
II-5
<PAGE>
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 December 27, 1999.
PARADIGM MEDICAL INDUSTRIES, INC.
By: /s/ Thomas F. Motter
----------------------------------------
Thomas F. Motter, Chairman of the Board,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas F. Motter 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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Thomas F. Motter Chairman of the Board, December 27, 1999
- ---------------------
Thomas F. Motter President and Chief Executive Officer
(Principal Executive Officer)
/s/ Michael W. Stelzer Vice President of Operations, Chief, December 27, 1999
- ---------------------
Michael W. Stelzer Operating Officer, Chief Financial Officer,
Secretary and Director (Principal Financial
and Accounting Officer)
/s/ Patrick M. Kolenik Director December 27, 1999
- ---------------------
Patrick M. Kolenik
/s/ Robert L. Frome Director December 27, 1999
- ---------------------
Robert L. Frome
/s/ Steven J. Bayern Director December 27, 1999
- ---------------------
Steven J. Bayern
</TABLE>
II-6
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR
SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT.
Void after 5:00 p.m., Mountain Standard Time, October 15, 2004
Warrant to Purchase 100,000
Shares of Common Stock
WARRANT TO PURCHASE COMMON STOCK
PARADIGM MEDICAL INDUSTRIES, INC.
This is to certify that, FOR VALUE RECEIVED,
R.F. LAFFERTY & CO., INC.
or registered assigns (the "Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from Paradigm Medical Industries, Inc., a Delaware
corporation (the "Company"), at any time on or after October 15, 1999, and not
later than 5:00 p.m., Mountain Standard Time, on October 15, 2004, 100,000
shares of common stock, $.001 par value of the Company (the "Common Stock") at a
purchase price of $4.00 per share. The number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for a share
of Common Stock may be adjusted from time to time as hereinafter set forth. The
shares of the Common Stock deliverable upon such exercise, and as adjusted from
time to time, are referred to as "Warrant Stock" and the exercise price of a
share of Common Stock in effect at any time and as adjusted from time to time is
referred to as the "Exercise Price."
1. Exercise of Warrant. Subject to the provisions of hereof, this
Warrant may be exercised in whole or in part at any time or from time to time on
or after October 15, 1999, by tender to the Company the Purchase Form annexed
hereto, duly executed and accompanied by payment of the Exercise Price for the
number of shares specified in such form, together with all federal and state
taxes applicable upon such exercise. If this Warrant should be exercised in part
only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the holder to purchase
the balance of the shares purchasable hereunder. Upon receipt by the Company of
this Warrant at the office or agency of the Company, in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
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representing such shares of Common Stock shall not then be actually delivered to
the Holder.
2. Reservation of Shares. The Company shall reserve for issuance and/or
delivery upon exercise of this Warrant such number of shares of its Common Stock
as shall be required for issuance or delivery upon exercise of this Warrant.
3. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share.
4. Exchange, Assignment or Loss of Warrant. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company for other Warrants of different
denominations entitling the holder thereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. The term "Warrant" as
used herein includes any Warrants issued in substitution for or replacement of
this Warrant, or into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification including a surety bond,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Adjustment of Exercise Price. The Exercise Price of Each Warrant
shall be subject to adjustment from time to time as follows:
(a) If the number of shares of Common Stock outstanding at any
time after the date hereof is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then, on
the date such payment is made or such change is effective, the Exercise Price of
a Warrant shall be appropriately decreased so that the number of shares of
Common Stock issuable on exercise of such Warrant shall be increased in
proportion to such increase of outstanding shares.
(b) If the number of shares of Common Stock outstanding at any
time after the date hereof is decreased by a combination of the outstanding
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shares of Common Stock, then, on the effective date of such combination, the
Exercise Price of a Warrant shall be appropriately increased so that the number
of shares of Common Stock issuable on exercise of a Warrant shall be decreased
in proportion to such decrease in outstanding shares.
(c) In case, at any time after the date hereof, of any capital
reorganization, or any reclassification of the stock of the Company (other than
as a result of a stock dividend or subdivision, split-up or combination of
shares), or the consolidation or merger of the Company with or into another
person (other than a consolidation or merger in which the Company is the
continuing entity and which does not result in any change in the Common Stock),
or of the sale or other disposition of all or substantially all the properties
and assets of the Company, the Warrants shall, after such reorganization,
reclassification, consolidation, merger, sale or other disposition, be
convertible into the kind and number of shares of stock or other securities or
property of the Company or otherwise to which such holder would have been
entitled if immediately prior to such reorganization, reclassification,
consolidation, merger, sale or other disposition he had converted his Warrants
into Common Stock. The provisions of this clause (c) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales or
other dispositions.
(d) All calculations under this paragraph 6 shall be made to
the nearest cent or to the nearest one hundredth (1/100) of a share, as the case
may be.
(e) Minimal Adjustments. No adjustment in the Exercise Price
need be made if such adjustment would result in a change in the Exercise Price
of less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in the Exercise Price.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Exercise Price pursuant to this paragraph (f),
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Warrants a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon written request at any time of any holder of
Warrants, furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Exercise Price of
such series at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the exercise of the Warrants.
(g) Reservation of Stock Issuable Upon Exercise. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the exercise of the
Warrants such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of all outstanding Warrants; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
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sufficient to effect the exercise of all then outstanding Warrants, the Company
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(h) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of an
issuance of Common Stock by way of dividend or other distribution or of a
subdivision or combination), or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
Company shall cause effective provision to be made so that the holder shall have
the right thereafter, by exercising this Warrant to purchase the kind and amount
of shares of stock and other securities and property receivable upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant and shall expressly provide that the issuer of
securities to be thereafter received on exercise of this Warrant assumes
obligations for registration of the Warrant and Warrant Stock issuable on
exercise of the Warrant substantially in accordance with the provisions of
Section 1 of this Warrant. The foregoing provisions of this Section shall
similarly apply to successive reclassifications, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(i) Dissolution. In case of a dissolution, liquidation, or
winding up of the Company, all purchase rights under this Warrant shall
terminate at the close of business on the date as of which holders of record of
the Common Stock shall be entitled to participate in a distribution of the
assets of the Company in connection with such dissolution, liquidation or
winding up. Any Warrant not exercised prior to such time shall be void and no
rights shall exist thereunder. In any such case of termination of purchase
rights, a statement thereof shall be included in the notice required by this
Warrant.
7.01 Definitions. As used in this Paragraph 7:
(a) The terms "register", "registered", and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of the effectiveness of
such registration statement.
(b) The term "Registrable Securities" means (i) the Common Stock issued
or issuable pursuant to the exercise of the Warrants and (ii) any Common Stock
of the Company issued or issuable in respect of such Common Stock or other
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securities issued or issuable pursuant to the exercise of the Warrants upon any
stock split, stock dividend, recapitalization, or similar event, or any Common
Stock otherwise issued or issuable with respect to the Warrants. Notwithstanding
anything set forth above, the above-described securities shall not be treated as
Registrable Securities if and so long as they (A) have been sold to or through a
broker or dealer or underwriter in a public distribution or a public securities
transaction, or (B) have been sold (or are available for sale in the opinion of
counsel to the Company and market conditions would permit the sale of such
shares within a 90 day period) pursuant to Rule 144(k) in a transaction exempt
from the registration and prospectus delivery requirements of the Act so that
all transfer restrictions and restrictive legends with respect thereto are
removed upon the consummation of such sale.
(c) The term "Holder" means any holder holding Registrable Securities
or the Shares (and any person holding Shares or Registrable Securities to whom
the registration rights have been transferred pursuant to paragraph 9 hereof).
(d) The term "SEC" means the Securities and Exchange Commission or any
successor agency thereto.
7.02 Registration Rights. The Company shall file a registration
statement with the SEC to register the shares of Common Stock issuable to the
Holder upon conversion of this Warrant within forty-five (45) days of the
initial closing of the Company's offering (the "Offering") of shares of Series D
Convertible Preferred Stock (the "Series D Preferred Stock"), and will keep such
registration statement current until such time as the shares of Common Stock
issuable upon conversion of the shares of Series D Preferred Stock offered in
the Offering are freely tradeable pursuant to Rule 144(k) promulgated under the
Securities Act of 1933, as amended, all at the Company's cost and expense
(except commissions or discounts and attorney's fees and costs of the Holder).
Additionally, the Holder will have the right to demand the registration of the
shares issuable upon exercise of this Warrant beginning six months after the
closing of a public offering of the Company's securities if such Warrant is not
exercised during the period in which the registration statement for the shares
of Common Stock issuable upon conversion of the notes in the Offering is kept
current and such shares are not otherwise registered.
7.03 Company Registration.
(a) If at any time, or from time to time, the Company shall determine
to register any of its securities, either for its own account or for the account
of a security holder or holders, other than a registration relating solely to
employee benefit plans, or a registration on Form S-4 relating solely to an SEC
Rule 145 transaction, or a registration on any other form (other than Form S-1,
S-3, SB-1 or SB-2) which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities, the Company will:
(i) promptly give to each Holder written notice thereof; and
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(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein (if the Holder so desires), all the Registrable Securities
specified in any written request or requests by any Holder or Holders received
by the Company within twenty (20) days after such written notice is received on
the same terms and conditions as the Common Stock, if any, otherwise being sold
through the underwriter in such registration.
(b) If the registration that the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to paragraph
7.3(a). All Holders desiring to distribute their securities through such
underwriting, if any, (together with the Company and the other holders
distributing their securities through such underwriting) shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company.
(c) Notwithstanding any other provision of this paragraph 7.03, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the underwriter may limit the Registrable
Securities or other securities to be included in the registration; provided,
however, that if such registration is other than the first registered offering
of the Company's securities to the public, the underwriter may not limit the
Registrable Securities to be included in such registration to less than 30% of
the securities included therein (based on aggregate market values). Any
reduction by the underwriter of the number of Registrable Securities or other
securities to be included in such registration shall be made in the following
manner: initially, shares of Common Stock held by the founders or other members
of the Company's management shall be excluded from such underwritten public
offering to the extent required by the underwriter, and if a further reduction
in the number of shares is required, the Company shall so advise all Holders and
other holders distributing their securities through such underwriting and the
number of shares of Registrable Securities and other securities that may be
included in the registration and underwriting shall be allocated among the
holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities and other securities contractually entitled to
registration with the offering held by such Holders and other holders at the
time of filing of the Registration Statement. To facilitate the allocation of
shares in accordance with the above provisions, the Company may round the number
of shares allocated to any Holder or holder to the nearest 100 shares. The
Company shall advise all Holders of Registrable Securities which would otherwise
be registered and underwritten pursuant hereto of any such limitations, and the
number of shares of Registrable Securities that may be included in the
registration. If any Holder or holder disapproves of the terms of any such
underwriting, such Holder or holder may elect to withdraw therefrom by written
notice to the Company and the underwriter. Any securities excluded or withdrawn
from such underwriting shall not be transferred in a public distribution prior
to ninety (90) days after the effective date of the registration statement
relating thereto, or such shorter period of time as the underwriters may
require.
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(d) The Company shall have the right to terminate or withdraw any
registration initiated by it under this paragraph 7.03 prior to the
effectiveness of such registration whether or not any Holder has elected to
register securities in such registration.
7.04 Registration on Form S-3. If any Holder or Holders request that
the Company file a registration statement on Form S-3 (or any successor form to
Form S-3) for a public offering of shares of the Registrable Securities the
reasonably anticipated aggregate price to the public of which, net of
underwriting discounts and commissions, would exceed $500,000, and the Company
is a registrant entitled to use Form S-3 to register the Registrable Securities
for such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as the
Holder or Holders may reasonably request; provided, however, that the Company
shall not be required to effect more than one registration pursuant to this
paragraph 7.04 in any twelve (12) month period. The substantive provisions of
paragraph 7.03 shall be applicable to each registration initiated under this
paragraph 7.04.
7.05 Expenses of Registration. All expenses incurred in connection with
any registration, qualification or compliance pursuant to this Paragraph 7,
including, without limitation, all registration, filing and qualification fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, accounting fees and expenses, and expenses of any special audits
incidental to or required by such registration, shall be borne by the Company;
provided, however, that the Company shall not be required to pay stock transfer
taxes or underwriters' fees, discounts or commissions relating to Registrable
Securities, or fees of counsel for the selling shareholders.
7.06 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, and the distribution proposed by
such Holder or Holders, as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Paragraph 7.
7.07 Sale Without Registration. If at the time of any transfer of any
Registrable Securities, such Registrable Securities shall not be registered
under the Act, the Company may require, as a condition of allowing such
transfer, that the Holder or transferee furnish to the Company (a) such
information as is necessary in order to establish that such transfer may be made
without registration under the Act, and (b) (if the transfer is not made in
compliance with Rule 144 other than a transfer not involving a change in
beneficial ownership or a pro rata distribution by a partnership to its
partners) at the expense of the Holder or transferee, an opinion of counsel
satisfactory to the Company in form and substance to the effect that such
transfer may be made without registration under the Act; provided that nothing
contained in this paragraph 7.09 shall relieve the Company from complying with
any request for registration, qualification, or compliance made pursuant to the
other provisions of this Paragraph 7.
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7.08 Market Stand-off Agreement. The Holders, if requested by the
Company and an underwriter of Common Stock (or other securities) of the Company,
shall agree not to sell or otherwise transfer or dispose of any Securities held
by the Holders during the ninety (90) day period following the effective date of
a registration statement covering an initial public offering of the Company's
securities filed under the Act provided that:
(a) such agreement shall only apply to the first such
registration statement of the Company filed after the date of this Warrant
including shares of Common Stock (or other securities) to be sold on its behalf
to the public in an underwritten offering; and
(b) all Holders holding more than one percent of the
outstanding Common Stock, all officers and directors of the Company and all
other holders of registration rights of the Company (whether or not pursuant to
this agreement) enter into similar agreements. Such agreement shall be in
writing in the form satisfactory to the Company and such underwriter. The
Company may impose stop-transfer instructions with respect to the Securities
subject to the foregoing restriction until the end of the foregoing period.
7.09 Amendment of Registration Rights. With the written consent of the
Holders of a majority of the then outstanding Registrable Securities (including
securities exercisable for or convertible into Registrable Securities), the
Company may amend this Paragraph 7, or enter into an agreement with any holder
or prospective holder of any securities of the Company which would allow such
holder or prospective holder to include such securities as Registrable
Securities under this Paragraph 7.
7.10 Termination of Registration Rights. The demand rights provided for
in this Paragraph 7 shall be exercisable only between October 15, 1999, and
October 15, 2004.
8. Transfer to Comply with the Securities Act 1933.
(a) This Warrant or the Warrant Stock or any other security
issued or issuable upon exercise of this Warrant may not be offered or sold
except in compliance with the Securities Act of 1933, as amended, and then only
against receipt of an agreement of such person to whom such offer of sale is
made to comply with the provisions of this Section 9 with respect to any resale
or other disposition of such securities.
(b) The Company may cause the following legend to be set forth
on each certificate representing Warrant Stock or any other security issued or
issuable upon exercise of this Warrant not theretofore distributed to the public
or sold to underwriters for distribution to the public pursuant to Section 1
hereof, unless counsel for the Company is of the opinion as to any such
certificate that such legend is unnecessary:
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The securities represented by this certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement made under the Securities Act of 1933 (the
"Act"), or pursuant to an exemption from registration under the Act,
the availability of which is to be established to the satisfaction of
the Company.
9. Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
Paradigm Medical Industries, Inc.
By /s/ Thomas F. Motter
Thomas F. Motter, President and Chief
Executive Officer
ATTEST:
By: /s/ Michael W. Stelzer
Michael W. Stelzer, Vice President of
Operations, Chief Operating Officer,
Chief Financial Officer and Secretary
Date: Effective as of October 15, 1999
[SEAL]
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PURCHASE FORM
Date __________________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing __________ shares of Common Stock and hereby
makes payment of $__________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _________________________________________________________________________
(please typewrite or print in block letters)
Address _______________________________________________________________________
Signature______________________________
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ASSIGNMENT FORM
FOR VALUE RECEIVED ___________________________________________________
hereby sells, assigns and transfers unto
Name ___________________________________________________________________________
(please typewrite or print in block letters)
Address _______________________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint _________________________________________ attorney, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Signature _____________________________
Date: _____________________
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December 27, 1999
Paradigm Medical Industries, Inc.
1127 West 2300 South, Suite A
Salt Lake City, Utah 84119
Re: Form SB-2 Registration Statement
Ladies and Gentlemen:
We have acted as your counsel in connection with the registration for
resale on a Form SB-2 Registration Statement (the "Registration Statement") of
(i) an aggregate of 1,000,000 shares of common stock, $.001 par value (the
"Common Stock") issuable upon the exercise of 1,000,000 Class A Warrants (the
"Class A Warrants") which were issued in connection with the Company's public
offering in July 1996; (ii) an aggregate of 200,000 shares of Common Stock
issuable upon the exercise of 200,000 warrants issued to Kenneth Jerome &
Company, Inc. (the "Underwriter's Warrants"); (iii) an aggregate of 291,000
shares of Common Stock issuable upon the exercise of 291,000 warrants issued to
Win Capital Corporation (the "Win Capital Warrants"); (iv) an aggregate of
207,500 shares of Common Stock issuable upon the exercise of 207,500 warrants
issued to certain investors participating in the Company's bridge financing (the
"Note Holders' Warrants"); (v) an aggregate of 25,000 shares of Common Stock
issuable upon the exercise of 25,000 warrants issued to Mackey Price & Williams
(the "Attorney's Warrants"); (vi) an aggregate of 383,354 shares of Common Stock
issuable upon conversion of its Series C Convertible Preferred Stock (the
"Series C Preferred Stock"); (vii) an aggregate of 763,580 shares of Common
Stock issuable upon conversion of its Series D Convertible Preferred Stock (the
"Series D Preferred Stock"); (viii) an aggregate of 216,316 shares of Common
Stock, of which 126,316 shares are issuable to Humphrey Systems of Carl Zeiss,
Inc. ("Humphrey Systems") pursuant to an Agreement for Purchase and Sale of
Assets dated July 23, 1998 with Humphrey Systems (the "Agreement for Purchase
and Sale of Assets") and 90,000 shares are issuable to Zevex International, Inc.
("Zevex") pursuant to a Stock Purchase for the Satisfaction of Debt Agreement
dated June 29, 1998 with Zevex; and (viii) 473,400 shares of Common Stock
issuable upon the exercise of Warrants issued to KSH Investment Group, Inc.,
Cyndel & Co., Win Capital Corp. and John W. Hemmer, a former officer and a
director of the Company. These shares of Common Stock were previously registered
<PAGE>
Paradigm Medical Industries, Inc.
December 27, 1999
Page 2
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by Form SB-2 Registration Statements, No. 333-77267, effective as of May 7,
1999, No. 333-68471, effective as of January 4, 1999, No. 333-57711, effective
as of September 14, 1998, and No. 333-2496, effective as of July 10, 1996.
The Company is further registering for resale 2,254,987 shares of
Common Stock consisting of 889,700 shares of Common Stock issuable upon the
exercise of options granted to executive officers, employees and directors,
100,000 shares of Common Stock issuable upon the exercise of warrants granted to
R.F. Lafferty & Co., Inc., 265,287 shares of Common stock pursuant to
registration rights granted to certain individuals and entities, and 1,000,000
shares of Common Stock for the purchase of assets and for raising additional
working capital.
In such connection, we have examined certain corporate records and
proceedings of the Company, including the proceedings taken in connection with
the authorization and issuance of the securities described above, including the
shares of Common Stock issuable upon the exercise of the Class A Warrants,
Underwriter's Warrants, Note Holders' Warrants, Attorney's Warrants, Win Capital
Warrants, KSH Investment Group Warrants, Cyn Del Warrants, Lafferty Warrants and
Hemmer Warrants; the shares of Common Stock issuable upon the conversion of the
Series C Preferred Stock and Series D Preferred Stock; the shares of Common
Stock issuable for the purchase of assets from Humphrey Systems, pursuant to the
Agreement for Purchase and Sale of Assets and for the satisfaction of debt
pursuant to the Stock Purchase for the Satisfaction of Debt Agreement with
Zevex; the shares of common Stock issuable upon the exercise of options granted
to executive officers, employees and directors; the shares of Common Stock with
registration rights granted to certain individuals and entities; and the shares
of Common Stock issuable for the purchase of assets and for raising additional
working capital (hereinafter collectively referred to as the "Securities") and
such other investigation as we deemed necessary. Based upon the foregoing, we
are of the opinion that when sold or registered as contemplated by the
Registration Statement, the Securities will be validly issued, fully paid and
nonassessable.
We hereby consent to being named in the Registration Statement and in
the Prospectus constituting a part thereof, as amended from time to time, as
issuer's counsel and the attorneys who will pass upon legal matters in
connection with the issuance or registration of the Securities, and to the
filing of this opinion as an Exhibit to the Registration Statement.
Very truly yours,
/s/ Mackey Price & Williams
Mackey Price & Williams
INVESTMENT BANKING AGREEMENT
On this date October 11, 1999 and whereas, Paradigm Medical Industries,
Inc. (Paradigm) wishes to retain R.F. Lafferty & Company, Inc. (Lafferty) to act
as its investment banker and whereas, R.F. Lafferty & Company, Inc. wishes to
represent Paradigm Medical Industries, Inc. as its investment banker;
Now therefore as compensation for services to be performed by R.F.
Lafferty as investment banker for Paradigm Medical Industries, Inc., Paradigm
Medical will:
1) Retain R.F. Lafferty commencing October 15, 1999 for $5,000.00 per
month payable monthly in arrears on the 15th of each month for a
period of two (2) years and renewable by mutual agreement two (2)
months prior to expiration of this term.
2) Sell 420,000 shares of its registered common shares of shelf stock
for sale to Lafferty at $3.00 per share; purchase to be finalized
within ten (10) working days from date of this document.
3) Grant to Lafferty 100,000 Warrants exercisable at $4.00.
4) Grant Lafferty an option to purchase an additional 580,000 shares
of its registered shelf stock within ninety (90) days of this date
at a mutually agreed upon price to be determined one (1) week
prior to execution of said transaction.
5) Pay to Lafferty 9% commission on Gross Proceeds from sale of its
shelf stock.
In turn, Lafferty will:
1) Purchase 420,000 shares of Paradigm's registered shelf stock for
$3.00 per share within ten (10) working days from date of this
document.
2) Represent Paradigm Medical Industries, Inc. as its Investment
Banker.
3) Accept $100,000.00 warrants exercisable at $4.00.
4) Accept the option to purchase an additional 580,000 shares of
Paradigm's registered common shelf stock within ninety (90) days
at a mutually agreed upon price to be determined one (1) week
prior to purchase.
5) Receive a commission of 9% from proceeds of the shelf stock
purchase.
R.F. Lafferty & Company, Inc. Paradigm Medical Industries, Inc.
By: /s/ Henry Hackel By: /s/ Thomas F. Motter
Its: President Its: President
INCLUDED IN EXHIBIT 5.
CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We consent to the incorporation by reference on Form S-3, of our report dated
March 5, 1999 with respect to the consolidated financial statements of Paradigm
Medical Industries, Inc. included in the Annual Report on Form 10-KSB for the
years ended December 31, 1998 and 1997 and to the reference made to us under the
caption "Experts" in the registration statement.
TANNER + CO.
Salt Lake City, Utah
December 28, 1999
