SCHEDULE 14C
(RULE 14C-101)
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
Check the appropriate box:
[X] Preliminary Information Statement
[_] Definitive Information Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
STRONGHOLD TECHNOLOGIES, INC.
(Name of Registrant As Specified In Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which the transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials
[_] check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
STRONGHOLD TECHNOLOGIES, INC.
106 ALLEN ROAD, BASKING RIDGE, NEW JERSEY 07920
INFORMATION STATEMENT
PURSUANT TO SECTION 14
OF THE SECURITIES EXCHANGE ACT OF 1934
AND REGULATION 14C AND SCHEDULE 14C THEREUNDER
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE NOT REQUESTED TO SEND US A PROXY
Basking Ridge, New Jersey
*, 2004
This information statement has been mailed on or about *, 2004 to
the stockholders of record on *, 2004 (the "Record Date") of Stronghold
Technologies, Inc., a Nevada corporation (the "Company") in connection with
certain actions to be taken pursuant to the written consent of the stockholders
of the Company holding a majority of the outstanding shares of common stock,
dated as of June 15, 2004. The actions to be taken pursuant to the written
consent shall be taken on or about *, 2004, 20 days after the mailing of this
information statement.
THIS IS NOT A NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS AND NO STOCKHOLDER
MEETING WILL BE HELD TO CONSIDER ANY MATTER WHICH WILL BE DESCRIBED HEREIN.
By Order of the Board of Directors,
/s/ Christopher J. Carey
Chairman of the Board
1
NOTICE OF ACTION TO BE TAKEN PURSUANT TO THE WRITTEN CONSENT OF STOCKHOLDERS
HOLDING A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK OF THE COMPANY IN
LIEU OF A SPECIAL MEETING OF THE STOCKHOLDERS, DATED JUNE 15, 2004
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the following action will be taken pursuant to
the written consent of stockholders holding a majority of the outstanding shares
of common stock dated June 15, 2004, in lieu of a special meeting of the
stockholders. Such action will be taken on or about *, 2004:
1. The Company's Articles of Incorporation, as amended, will be amended to
increase the number of authorized shares of common stock, par value $.0001 per
share (the "Common Stock"), of the Company from 50,000,000 shares to 250,000,000
shares.
OUTSTANDING SHARES AND VOTING RIGHTS
As of the Record Date, the Company's authorized capitalization consisted
of 50,000,000 shares of Common Stock, of which 13,438,277 shares were issued and
outstanding as of the Record Date and preferred stock of 5,000,000 and 4,447,194
shares of preferred stock outstanding. Holders of Common Stock of the Company
have no preemptive rights to acquire or subscribe to any of the additional
shares of Common Stock.
Each share of Common Stock entitles its holder to one vote on each matter
submitted to the stockholders. However, because stockholders holding at least a
majority of the voting rights of all outstanding shares of capital stock as at
the Record Date have voted in favor of the foregoing proposals by resolution
dated June 15, 2004; and having sufficient voting power to approve such
proposals through their ownership of capital stock, no other stockholder
consents will be solicited in connection with this Information Statement.
Pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as
amended, the proposals will not be adopted until a date at least 20 days after
the date on which this Information Statement has been mailed to the
stockholders. The Company anticipates that the actions contemplated herein will
be effected on or about the close of business on *, 2004.
The Company has asked brokers and other custodians, nominees and
fiduciaries to forward this Information Statement to the beneficial owners of
the Common Stock held of record by such persons and will reimburse such persons
for out-of-pocket expenses incurred in forwarding such material.
This Information Statement will serve as written notice to stockholders
pursuant to Section 78.370 of the Nevada General Corporation Law.
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AMENDMENT TO THE ARTICLES OF INCORPORATION
On June 15, 2004, the stockholders of the Company holding a majority of
the outstanding shares of common stock of the Company approved an amendment to
the Company's Articles of Incorporation, as amended, to replace Article III in
its entirety, which will result in an increase to the number of authorized
shares of Common Stock. The Company's Articles of Incorporation, as amended,
currently authorizes for issuance of 55,000,000 shares consisting of 50,000,000
of common stock and 5,000,000 shares of preferred stock. The approval of this
amendment to the Articles of Incorporation will increase the Company's
authorized shares of common stock to 250,000,000. The Company currently has
authorized common stock of 50,000,000 shares and approximately 13,438,277 shares
of Common Stock are outstanding as of the Record Date and authorized preferred
stock of 5,000,000 and 4,447,194 shares of preferred stock outstanding. The
Board believes that the increase in authorized common shares would provide the
Company greater flexibility with respect to the Company's capital structure for
such purposes as additional equity financing and stock based acquisitions.
Article III of the Company's Articles of Incorporation currently is as
follows:
"Shares. The total number of shares of capital stock
which the Corporation shall have authority to issue is
55,000,000 shares, of which 50,000,000 shares shall be
common stock, par value $.0001 per share, and 5,000,000
shares shall be blank check preferred stock, par value
$.0001 per share, none of which has been designated.
The Board of Directors is vested with the
authority to authorize by resolution from time to time
the issuance of the preferred stock in one or more
series, and to prescribe the number of shares of
preferred stock within each such series and the voting
powers, designations, preferences, limitations,
restrictions and relative rights of each such series,
including preferences and relative rights that may be
superior to the shares of common stock."
Upon approval of the amendment to increase the Company's authorized shares
of common stock from 50,000,000 to 250,000,000, the Company Articles of
Incorporation will be as follows:
"Capital Stock. The Corporation is authorized to issue
two classes of stock. One class of stock shall be Common
Stock, par value $0.0001. The second class of stock
shall be Preferred Stock, par value $0.0001. The
Preferred Stock, or any series thereof, shall have such
designations, preferences and relative, participating,
optional or other special rights and qualifications,
limitations or restrictions thereof as shall be
expressed in the resolution or resolutions providing for
the issue of such stock adopted by the board of
directors and may be made dependent upon facts
ascertainable outside such resolution or resolutions of
the board of directors, provided that the matter in
which such facts shall operate upon such designations,
preferences, rights and qualifications; limitations or
restrictions of such class or series of stock is clearly
and expressly set forth in the resolution or resolutions
providing for the issuance of such stock by the board of
directors.
The total number of shares of stock of each class which the
Corporation shall have authority to issue and the par value of each
share of each class of stock are as follows:
Class Par Value Authorized Shares Total
----- --------- ----------------- -----
Common $0.0001 250,000,000 $25,000
Preferred $0.0001 5,000,000 500
--------- ---
Totals: 255,000,000 $25,500"
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INCREASE IN AUTHORIZED COMMON STOCK
The terms of the additional shares of Common Stock will be identical to
those of the currently outstanding shares of Common Stock. However, because
holders of Common Stock have no preemptive rights to purchase or subscribe for
any unissued stock of the Company, the issuance of additional shares of Common
Stock will reduce the current stockholders' percentage ownership interest in the
total outstanding shares of Common Stock. This amendment and the creation of
additional shares of authorized common stock will not alter the current number
of issued shares. The relative rights and limitations of the shares of Common
Stock will remain unchanged under this amendment.
As of the Record Date, a total of 13,438,277 shares of the Company's
currently authorized 250,000,000 shares of Common Stock are issued and
outstanding. The increase in the number of authorized but unissued shares of
Common Stock would enable the Company, without further stockholder approval, to
issue shares from time to time as may be required for proper business purposes,
such as raising additional capital for ongoing operations, business and asset
acquisitions, stock splits and dividends, present and future employee benefit
programs and other corporate purposes.
The proposed increase in the authorized number of shares of Common Stock
could have a number of effects on the Company's stockholders depending upon the
exact nature and circumstances of any actual issuances of authorized but
unissued shares. The increase could have an anti-takeover effect, in that
additional shares could be issued (within the limits imposed by applicable law)
in one or more transactions that could make a change in control or takeover of
the Company more difficult. For example, additional shares could be issued by
the Company so as to dilute the stock ownership or voting rights of persons
seeking to obtain control of the Company. Similarly, the issuance of additional
shares to certain persons allied with the Company's management could have the
effect of making it more difficult to remove the Company's current management by
diluting the stock ownership or voting rights of persons seeking to cause such
removal. The Board of Directors is not aware of any attempt, or contemplated
attempt, to acquire control of the Company, and this proposal is not being
presented with the intent that it be utilized as a type of anti- takeover
device.
Except for the following, there are currently no plans, arrangements,
commitments or understandings for the issuance of the additional shares of
Common Stock which are proposed to be authorized:
To obtain funding for its ongoing operations, the Company entered into a
Securities Purchase Agreement (the "Securities Purchase Agreement") with New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and AJW Partners, LLC (collectively, the "Investors") on June 18, 2004 for
the sale of (i) $3,000,000 in callable convertible secured notes (the "Notes")
and (ii) stock purchase warrants to buy 3,000,0000 shares of the Company's
common stock (the "Warrants").
On June 18, 2004, the Investors purchased $1,500,000 in Notes and received
Warrants to purchase 1,500,000 shares of the Company's common stock. In
addition, provided that all of the conditions in the Securities Purchase
Agreement are satisfied, the Investors are obligated to provide the Company with
additional funds as follows:
o $500,000 will be funded within five business days of filing a
registration statement registering shares of the Company's common
stock underlying the Notes and the Warrants; and
o $1,000,000 will be funded within five business days of the
effectiveness of the registration statement.
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The Notes bear interest at 12%, mature two years from the date of
issuance, and are convertible into our common stock, at the Investors' option,
at the lower of (i) $0.70 or (ii) 50% of the average of the three lowest
intraday trading prices for the Company's common stock during the 20 trading
days before, but not including, the conversion date. The Company may prepay the
Notes in the event that no event of default exists, there are a sufficient
number of shares available for conversion of the Notes and the market price is
at or below $.57 per share. The full principal amount of the Notes is due upon
default under the terms of Notes. In addition, the Company has granted the
investors a security interest in substantially all of its assets and
intellectual property as well as registration rights.
The Warrants are exercisable until five years from the date of issuance at
a purchase price of $0.57 per share. In addition, the exercise price of the
Warrants is adjusted in the event the Company issues common stock at a price
below market.
The Investors have contractually agreed to restrict their ability to
convert the Notes and exercise the Warrants and receive shares of the Company's
common stock such that the number of shares of the Company's common stock held
by them and their affiliates after such conversion or exercise does not exceed
4.99% of the then issued and outstanding shares of the Company's common stock.
In addition to the above financing transaction, we may enter into
additional investments in order to develop our operations. Financing
transactions may include the issuance of equity or debt securities, obtaining
credit facilities, or other financing mechanisms. We will be required to issue
additional shares of Common Stock which are proposed to be authorized if we
elect to issue equity securities. If we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
Stockholders do not have any preemptive or similar rights to subscribe for
or purchase any additional shares of Common Stock that may be issued in the
future, and therefore, future issuances of Common Stock may, depending on the
circumstances, have a dilutive effect on the earnings per share, voting power
and other interests of the existing stockholders.
RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENTS:
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING THE NOTES AND WARRANTS THAT MAY BE
AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS THE MARKET
PRICE OF OUR COMMON STOCK.
As of July 15, 2004, we had 13,438,277 shares of common stock issued and
outstanding and Notes outstanding or an obligation to issue Notes that may be
converted into an estimated 32,608,696 shares of common stock at current market
prices, and outstanding Warrants or an obligation to issue Warrants to purchase
3,000,000 shares of common stock. In addition, the number of shares of common
stock issuable upon conversion of the outstanding Notes may increase if the
market price of our stock declines. All of the shares, including all of the
shares issuable upon conversion of the Notes and upon exercise of the Warrants,
may be sold without restriction. The sale of these shares may adversely affect
the market price of our common stock.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF THE NOTES COULD REQUIRE
US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES, WHICH WILL CAUSE DILUTION
TO OUR EXISTING STOCKHOLDERS.
Our obligation to issue shares upon conversion of the Notes is essentially
limitless. The following is an example of the amount of shares of our common
stock that are issuable, upon conversion of the Notes (excluding accrued
interest), based on market prices 25%, 50% and 75% below the current conversion
price, as of July 16, 2004 of $0.183.
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Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 50% Issuable Stock
------ ----- ------ -------- -----
25% $.1373 $.0686 43,715,847 76.49%
50% $.0915 $.0458 65,573,770 82.99%
75% $.0458 $.0229 131,147,541 90.71%
As illustrated, the number of shares of common stock issuable upon
conversion of our secured convertible notes will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF THE NOTES MAY ENCOURAGE
INVESTORS TO MAKE SHORT SALES IN OUR COMMON STOCK, WHICH COULD HAVE A DEPRESSIVE
EFFECT ON THE PRICE OF OUR COMMON STOCK.
The Notes are convertible into shares of our common stock at a 50%
discount to the trading price of the common stock prior to the conversion. The
significant downward pressure on the price of the common stock as the selling
stockholder converts and sells material amounts of common stock could encourage
short sales by investors. This could place further downward pressure on the
price of the common stock. The selling stockholder could sell common stock into
the market in anticipation of covering the short sale by converting their
securities, which could cause the further downward pressure on the stock price.
In addition, not only the sale of shares issued upon conversion or exercise of
notes, warrants and options, but also the mere perception that these sales could
occur, may adversely affect the market price of the common stock.
THE ISSUANCE OF SHARES UPON CONVERSION OF THE NOTES AND EXERCISE OF OUTSTANDING
WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR EXISTING
STOCKHOLDERS.
The issuance of shares upon conversion of the Notes and exercise of
warrants may result in substantial dilution to the interests of other
stockholders since the holders may ultimately convert and sell the full amount
issuable on conversion. Although the holders may not convert their Notes and/or
exercise their Warrants if such conversion or exercise would cause them to own
more than 4.99% of our outstanding common stock, this restriction does not
prevent the holders from converting and/or exercising some of their holdings and
then converting the rest of their holdings. In this way, the holders could sell
more than this limit while never holding more than this limit. There is no upper
limit on the number of shares that may be issued which will have the effect of
further diluting the proportionate equity interest and voting power of holders
of our common stock, including investors in this offering.
IF WE ARE REQUIRED FOR ANY REASON TO REPAY THE NOTES, WE WOULD BE REQUIRED TO
DEPLETE OUR WORKING CAPITAL, IF AVAILABLE, OR RAISE ADDITIONAL FUNDS. OUR
FAILURE TO REPAY THE NOTES, IF REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST
US, WHICH COULD REQUIRE THE SALE OF SUBSTANTIAL ASSETS.
In June 2004, we entered into a Securities Purchase Agreement for the sale of an
aggregate of $3,000,000 in Notes. The Notes are due and payable, with 12%
interest, two years from the date of issuance, unless sooner converted into
shares of our common stock. Although we currently have $1,500,000 in Notes
outstanding, the Investors are obligated to purchase additional Notes in the
aggregate amount of $1,500,000. In addition, any event of default such as our
failure to repay the principal or interest when due, our failure to issue shares
of common stock upon conversion by the holder, our failure to timely file a
registration statement or have such registration statement declared effective,
breach of any covenant, representation or warranty in the Securities Purchase
Agreement or related convertible note, the assignment or appointment of a
receiver to control a substantial part of our property or business, the filing
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of a money judgment, writ or similar process against our company in excess of
$50,000, the commencement of a bankruptcy, insolvency, reorganization or
liquidation proceeding against our company and the delisting of our common stock
could require the early repayment of the Notes, including a default interest
rate of 15% on the outstanding principal balance of the Notes if the default is
not cured with the specified grace period. We anticipate that the full amount of
the Notes will be converted into shares of our common stock, in accordance with
the terms of the Notes. If we are required to repay the Notes, we would be
required to use our limited working capital and raise additional funds. If we
were unable to repay the notes when required, the note holders could commence
legal action against us and foreclose on all of our assets to recover the
amounts due. Any such action would require us to curtail or cease operations.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of July 14, 2004. The information in this table
provides the ownership information for:
o each person known by us to be the beneficial owner of more than 5%
of our Common Stock;
o each of our directors;
o each of our executive officers; and
o our executive officers and directors as a group.
Beneficial ownership has been determined in accordance with the rules and
regulations of the SEC and includes voting or investment power with respect to
the shares. Unless otherwise indicated, the persons named in the table below
have sole voting and investment power with respect to the number of shares
indicated as beneficially owned by them. Common Stock beneficially owned and
percentage ownership is based on 13,438,277 shares outstanding on July 14, 2004,
and assuming the exercise of any options or warrants or conversion of any
convertible securities held by such person, which are presently exercisable or
will become exercisable within 60 days after July 14, 2004.
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Number of Shares Percentage
Name and Address of Beneficial Owner Beneficially Owned Outstanding
--------------------------------------- ------------------ -----------
5% Stockholders
---------------------------------------
Christopher J. Carey
450 Claremont Road
Bernardsville, NJ 07924 5,131,250(1) 25.80
Stanford Venture Capital Holdings, Inc.
6075 Poplar Avenue
Memphis, TN 38119 7,447.194(2) 37.45
Other Executive Officers and Directors
---------------------------------------
Lenard Berger 437,600 2.2
Robert J. Corliss -- --
Robert Cox 207,059 1.0
William Lenahan -- --
Luis Delahoz -- --
Robert Nawy 200,000(3) 1.0
------------------ -----------
Executive Officers and Directors as a Group
(7 people) 5,975,909 30.05
(1) 3,937,500 of these shares are owned by Christopher J. Carey and his wife,
Mary Carey, as Joint Tenants with Right of Survivorship.
(2) The total beneficial ownership of Stanford Venture Capital Holdings, Inc. is
7,447,194 shares which consists of: (i) 2,002,750 shares of Common Stock
issuable upon the conversion of 2,002,750 shares of our Series A Preferred
Stock; and (ii) 2,444,444 shares of Common Stock issuable upon the conversion of
2,444,444 shares of our Series B Preferred Stock, (iii) 1,000,000 shares of
Common Stock issued upon exercise of warrants, (iv) 875,000 of Common Stock and
(v) 2,000,000 shares of Common Stock issuable upon the exercise of warrants.
(3) Includes an option grant to purchase 200,000 shares of Common Stock which
was immediately exercisable on the date of grant.
ADDITIONAL INFORMATION
The Company's annual report on Form 10-KSB for the fiscal year ended
December 31, 2003 and quarterly report on Form 10-QSB for the quarter ended
March 31, 2004 are being delivered to you with this Information Statement. The
Company will furnish a copy of any exhibit thereto or other information upon
request by a stockholder to Robert Nawy, Chief Financial Officer, Stronghold
Technologies, Inc., 106 Allen Road, Basking Ridge, New Jersey 07920; (908)
903-1195.
By Order of the Board of Directors,
/s/ Christopher J. Carey
Christopher J. Carey
Chairman of the Board of Directors
Basking Ridge, New Jersey
*, 2004
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EXHIBIT A
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
STRONGHOLD TECHNOLOGIES, INC.
Stronghold Technologies, Inc., (the "CORPORATION") a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Nevada, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, in lieu of meeting
by consent, adopted the following resolution:
"RESOLVED that the Board of Directors hereby declares it advisable and in
the best interest of the Corporation that Article THREE of the Articles of
Incorporation be amended to read as follows:
RESOLVED that the Board of Directors hereby declares it advisable and in
the best interest of the Corporation that Article III of the Articles of
Incorporation be superceded and replaced as follows:
"Capital Stock. The Corporation is authorized to issue
two classes of stock. One class of stock shall be Common
Stock, par value $0.0001. The second class of stock
shall be Preferred Stock, par value $0.0001. The
Preferred Stock, or any series thereof, shall have such
designations, preferences and relative, participating,
optional or other special rights and qualifications,
limitations or restrictions thereof as shall be
expressed in the resolution or resolutions providing for
the issue of such stock adopted by the board of
directors and may be made dependent upon facts
ascertainable outside such resolution or resolutions of
the board of directors, provided that the matter in
which such facts shall operate upon such designations,
preferences, rights and qualifications; limitations or
restrictions of such class or series of stock is clearly
and expressly set forth in the resolution or resolutions
providing for the issuance of such stock by the board of
directors.
The total number of shares of stock of each class which the
Corporation shall have authority to issue and the par value of each
share of each class of stock are as follows:
Class Par Value Authorized Shares Total
----- --------- ----------------- -----
Common $0.0001 250,000,000 $25,000
Preferred $0.0001 5,000,000 500
--------- ---
Totals: 255,000,000 $25,500"
RESOLVED, that the appropriate corporate officers be, and each of them
with full authority to act without the others hereby is, authorized and directed
for and on behalf of the Corporation to take or cause to be taken any and all
actions, to execute and deliver any and all certificates, instructions,
requests, or other instruments, and to do any and all things which, in any such
officer's judgment, may be necessary or desirable to effect each of the
foregoing resolutions and to carry out the purposes thereof, the taking of any
such actions, the execution and delivery of any such certificates, instructions,
requests, or instruments, or the doing of any such things to be conclusive
evidence of their necessity or desirability."
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SECOND: That the aforesaid amendment has been consented to and authorized
by the holders of a majority of the issued and outstanding stock entitled to
vote by written consent given in accordance with the provisions of Section
78.320 of the General Corporation Law of the State of Nevada.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed this __ day of ______ 2004.
By:
-----------------------------
Name: Christopher J. Carey
Title: Chief Executive Officer
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