Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
PARADIGM TECHNOLOGY, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
- -------------------------------------------------------------------------------
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<PAGE>
PARADIGM TECHNOLOGY, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Wednesday, June 25, 1997
TO OUR STOCKHOLDERS:
The Annual Meeting of Stockholders of Paradigm Technology, Inc. (the
"Company") will be held at 694 Tasman Drive, Milpitas, California 95035, on
Wednesday, June 25, 1997 at 10:00 a.m. for the purpose of considering and acting
upon the following proposals:
(1) To elect to the Board of Directors three (3) directors to hold
office until the next annual meeting of stockholders or until their
respective successors have been elected and qualified;
(2) To ratify the appointment of Price Waterhouse LLP as
independent accountants of the Company for the period ending December 31,
1997; and
(3) To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
These items are discussed in the following pages which are made part of
this Notice. Only stockholders of record as of the close of business on March
31, 1997 will be entitled to vote at the Annual Meeting and at any postponements
or adjournments thereof. A list of stockholders entitled to vote will be
available at 694 Tasman Drive, Milpitas, California 95035 for ten days prior to
the Annual Meeting.
The Company's December 31, 1996 Annual Report to Stockholders
accompanies this Notice of Annual Meeting and Proxy Statement.
By Order of the Board of Directors
MICHAEL GULETT
President, Chief Executive Officer
and Secretary
Milpitas, California
May 8, 1997
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE ACCOMPANYING
PROXY CARD IN THE ENCLOSED ENVELOPE.
<PAGE>
PARADIGM TECHNOLOGY, INC.
694 Tasman Drive
Milpitas, CA 95035
(408) 954-0500
--------------------
PROXY STATEMENT
--------------------
ANNUAL MEETING OF STOCKHOLDERS
Wednesday, June 25, 1997
The enclosed proxy is solicited by the Board of Directors (the "Board")
of Paradigm Technology, Inc., a Delaware corporation (the "Company") for use at
the Annual Meeting of Stockholders of the Company to be held on Wednesday, June
25, 1997 at 10:00 a.m. at the principal executive offices of the Company located
at 694 Tasman Drive, Milpitas, California 95035, and at any postponement or
adjournment thereof, for the purposes set forth in the attached Notice. This
Proxy Statement and the accompanying form of proxy are being mailed to
stockholders on or about May 8, 1997.
VOTING RIGHTS
Each holder of Common Stock is entitled to one vote for each share held
as of the record date. Each share of Common Stock is entitled to one vote for as
many separate nominees as there are directors to be elected and for or against
all other matters presented. For action to be taken at the Annual Meeting, a
majority of the shares entitled to vote must be represented at the meeting in
person or by proxy. Director nominees receiving the highest number of
affirmative votes up to the number of directors to be elected will be elected.
Cumulative voting is not available in the election of directors at the Annual
Meeting. For the ratification of the Company's independent accountants, the
affirmative vote of the majority of the shares represented and voting is the
minimum approval necessary. Because abstentions with respect to any matter are
treated as shares present or represented and entitled to vote for the purposes
of determining whether that matter has been approved by stockholders,
abstentions have the same effect as negative votes. Broker non-votes and shares
as to which proxy authority has been withheld with respect to any matter are not
deemed to be present or represented for purposes of determining whether
stockholder approval of that matter has been obtained.
PROXIES
Stockholders of record of the Company as of the close of business on
March 31, 1997 have the right to receive notice of and to vote at the Annual
Meeting. As of the close of business on March 31, 1997, the Company had
7,243,698 shares of Common Stock outstanding held by 253 stockholders of record.
When proxies are properly dated, executed and returned, the shares they
represent will be voted at the Annual Meeting in accordance with the
instructions of the stockholder. If no specific instructions are given, the
shares will be voted FOR the election of the nominees for director set forth
herein and FOR ratification of the independent accountants of the Company.
Any person giving a proxy in the form accompanying this Proxy Statement
has the power to revoke it at any time before its exercise by (i) filing with
the Secretary of the Company a signed written statement revoking his or her
proxy or (ii) submitting an executed proxy bearing a date later than that of the
proxy being revoked. A proxy may also be revoked by attendance at the Annual
Meeting and the election to vote in person. Attendance at the Annual Meeting
will not by itself constitute the revocation of a proxy.
-1-
<PAGE>
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
At the Annual Meeting, a Board of three directors will be elected. The
term of office of each person elected as a director will continue until the next
Annual Meeting of Stockholders or until a successor has been elected and
qualified. All of the nominees are presently directors of the Company.
It is the intention of the proxy holders named in the enclosed form of
proxy to vote such proxies (except those containing contrary instructions) for
the nominees named below.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for Management's nominees named below. In the event that any
Management nominee shall become unavailable, or if other persons are nominated,
the proxy holders will vote in their discretion for a substitute nominee. It is
not expected that any nominee will be unavailable.
THE NAME AND PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS OF THE
DIRECTORS NOMINATED BY MANAGEMENT ARE:
Michael Gulett, 44, the Company's President and Chief Executive Officer,
joined Paradigm in March 1992. Mr. Gulett, was elected President in February
1993, was appointed Chief Executive Officer in July 1993 and was appointed to
the board in March 1994. Prior to joining Paradigm, Mr. Gulett was a consultant
from May 1989 until March 1992. From July 1987 until May 1989, Mr. Gulett was
the Director of ASIC Operations at VLSI Technology, Inc., a semiconductor
manufacturer. He has also worked for NCR Microelectronics, California Devices,
Intel Corporation and Burroughs Corporation. Mr. Gulett received his B.S. in
electrical engineering from the University of Dayton.
George J. Collins, 54, has served as a Director of the Company since
October 1995. Mr. Collins has been a professor of electrical engineering at
Colorado State University since 1973. Mr. Collins is a Fellow with the American
Physical Society and the Institute of Electrical Engineers. Mr. Collins is a
Director of Quantum Research Corporation. Mr. Collins received his B.S.E.E. from
Manhattan University and his M.S. and Ph.D. in engineering from Yale University.
James L. Kochman, 47, has served as Director of the Company since June
1994 and has been a partner with the investment banking firm of Bentley, Hall,
Von Gehr International since April 1992. He was formerly President and Chief
Executive Officer of TEKNA/S-TRON, a consumer products company. Prior to joining
TEKNA, he spent six years with FMC Corporation in a variety of corporate staff
and operating assignments, including Director of Manufacturing and Director of
Technology and Business Development with FMC's Ordinance Division in San Jose.
Previously Mr. Kochman worked for International Harvester Company. Mr. Kochman
received his B.S. in mechanical engineering from the University of Illinois and
an M.B.A. from the University of Chicago.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" MANAGEMENT'S NOMINEES.
-2-
<PAGE>
Board of Directors Meetings and Committees
The Board held eleven (11) regular meetings during the last fiscal year.
All directors attended at least seventy-five percent (75%) of the Board meetings
and the meetings of the committees of the Board on which such director served.
The Audit Committee of the Board, which presently consists of Mr.
Kochman, met one (1) time during the last fiscal year. The Audit Committee has
the responsibility to review the scope of the annual audit, to recommend to the
Board the appointment of the independent accountants and to meet with the
independent accountants for review and analysis of the Company's systems which
include the adequacy of controls and the sufficiency of financial reporting and
legal accounting compliance. The members of the Audit Committee during fiscal
year 1996 were Messrs. Lam, Kochman and Raza.
The Compensation Committee of the Board, which presently consists of Mr.
Collins, met one (1) time during the last fiscal year. The Compensation
Committee has the responsibility for determining the compensation to be paid to
each of the Company's executive officers. Messrs. Kochman and Lam served on the
Compensation Committee from January 1996 to June 1996, and Messrs. Collins and
Raza served from June 1996 to December 1996.
The Stock Option Committee of the Board, which presently consists of Mr.
Collins, met one (1) time during the last fiscal year. The Stock Option
Committee administers and manages the Company's Amended and Restated Incentive
and Non-Incentive Stock Option Plan and the 1994 Stock Option Plan. The members
of the Stock Option Committee during fiscal year 1996 were Messrs. Collins and
Raza.
The Company does not have a standing Nominating Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Atmel Relationship
On April 28, 1995, pursuant to certain agreements with certain of the
Company's stockholders, Atmel Corporation ("Atmel") acquired 425,000 shares of
Common Stock from the Company, 300,000 shares of Common Stock from certain
stockholders of the Company, and 128,050 shares of Common Stock from the
Company's equipment lessors, all of which shares were purchased at a price of
$8.00 per share. Atmel also acquired from ACMA Limited ("ACMA") certain warrants
to purchase 175,000 shares of Common Stock of the Company at an exercise price
of $1.00 per share, for a purchase price of $7.00 per share subject to the
warrants. In connection with these transactions, the Company entered into an
agreement with Atmel (the "Stock Purchase Agreement") pursuant to which Atmel
agreed to certain transfer restrictions for a period of three years. Atmel also
agreed to certain standstill provisions, including an agreement not to increase
its beneficial ownership above 19.9% of the voting power of the Company on a
fully diluted basis for a period of five years from the date of the Stock
Purchase Agreement. The foregoing restrictions terminate on the date on which a
person or entity acquires more than 50% of the voting power of the Company. In
addition, Atmel agreed that, for a period of ten years from the date of the
Stock Purchase Agreement, it will vote its shares of Common Stock of the Company
in proportion to the votes cast by the other stockholders of the Company, except
with respect to certain material events. The voting and standstill restrictions
terminate at such time as Atmel beneficially owns less than 5% of the Common
Stock of the Company. In connection with its acquisition of capital stock of the
Company, Atmel became a party to the Registration Rights Agreement which
provides Atmel with certain rights to register its shares of Common Stock of the
Company. On April 28, 1995, Atmel also entered into a Licensing and
Manufacturing Agreement with the Company.
Bentley, Hall, Von Gehr International
James Kochman, a director of the Company, is a partner of Bentley, Hall,
Von Gehr International ("Von Gehr"), an investment banking firm which performed
investment banking services for the Company during the 12 months ended December
31, 1996. Such services related to, among other things, the Company's
acquisition of NewLogic and the sale of the Company's wafer fabrication facility
to Orbit Semiconductor. Compensation to Von Gehr during 1996 exceeded 5% of the
Von Gehr's consolidated gross revenues for its most recent fiscal year. Von Gehr
may also perform investment banking services for the Company from time to time
in the future.
-3-
<PAGE>
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to the Company's Chief Executive Officer, and each of the
other four most highly compensated executive officers, who were serving as
executive officers on December 31, 1996 (the "Named Executive Officers") and
whose aggregate salary and bonus exceeded $100,000, for the fiscal years ended
December 31, 1994, 1995 and 1996.
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term
Compensation
Annual Compensation(1) Payouts
----------------------------------------------- -------------
Securities
Other Annual Underlying
Name and Principal Position Year Salary($) Bonus($)(2) Compensation($) Options(#)
- --------------------------- ---- --------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Michael Gulett 1996 $249,185 $85,000 -- 25,000(3)
President and Chief 1995 219,692 115,000 -- 15,000(4)
Executive Officer 1994 171,923 24,000 -- 180,000
Robert C. McClelland 1996 128,076 17,000 -- 13,000(5)
Former Chief Financial 1995 121,792 18,000 -- 10,000(6)
Officer 1994 112,599 5,000 -- 33,750
Dennis McDonald (7)
Vice President, Human 1996 134,302 19,174 -- 17,000(8)
Resources 1995 70,400 175 -- 25,000(9)
Philip Siu (7)
Vice President, 1996 139,195 25,174 -- 22,000(10)
Engineering 1995 92,308 25,155 -- 62,500(11)
James Boswell (7)
Vice President, Sales 1996 119,638 9,174 $1,385(12) 26,250(13)
and Marketing 1995 6,250 -- -- 15,000(14)
- --------------
(1) The Company changed its fiscal year-end from March 31 to December 31 in
June 1994. For purposes of the Summary Compensation Table, the 1994
fiscal year figures presented reflect annual compensation for the four
quarters ended December 31, 1994.
(2) Represents cash bonuses, profit sharing and commissions paid during the
year.
(3) Includes options granted on February 3, 1997 for 25,000 shares upon
cancellation of a previous option granted on July 24, 1996.
(4) Includes options granted on February 3, 1997 for 15,000 shares upon
cancellation of a previous option granted on June 15, 1995.
(5) Includes options granted on February 3, 1997 for 5,000 shares and 8,000
shares upon cancellation of previous options granted on January 1, 1996
and July 24, 1996, respectively.
(6) Includes options granted on February 3, 1997 for 10,000 shares upon
cancellation of a previous option granted on June 15, 1995.
(7) Mr. Siu, Mr. McDonald and Mr. Boswell were hired by the Company in
April, May and November 1995, respectively.
(8) Includes options granted on February 3, 1997 for 5,000 shares and 12,000
shares upon cancellation of previous options granted on January 1, 1996
and July 24, 1996, respectively.
(9) Includes options granted on February 3, 1997 for 25,000 shares upon
cancellation of a previous option granted on May 24, 1995.
(10) Includes options granted on February 3, 1997 for 10,000 shares and
12,000 shares upon cancellation of previous options granted on January
1, 1996 and July 24, 1996, respectively.
(11) Includes options granted on February 3, 1997 for 62,500 shares upon
cancellation of a previous option granted on April 20, 1995.
(12) Represents automobile expenses.
(13) Includes options granted on February 3, 1997 for 15,000 shares and
11,250 shares upon cancellation of previous options granted on July 24,
1996 and November 21, 1996, respectively.
(14) Includes options granted on February 3, 1997 for 15,000 shares upon
cancellation of previous options granted on December 28, 1995.
</TABLE>
-4-
<PAGE>
<TABLE>
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1996 to the Named Executive
Officers.
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price
Number of Appreciation for Option
Securities Percent of Total Term(2)
Underlying Options Granted Exercise or -------------------------
Options to Employees in Base Price Expiration
Granted(#) Fiscal Year(1) ($/Share) Date 5%($) 10%($)
--------------- ------------------ ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Gulett 25,000(3) 2.12% $ 4.50 07/24/06 $ 70,751 $ 179,296
25,000(4) 2.12 2.0625 07/24/06 32,428 82,175
Robert C. McClelland 5,000(3) 0.43 13.50 01/01/06 42,494 107,715
8,000(3) 0.68 4.50 07/24/06 22,640 57,375
5,000(4) 0.43 2.0625 01/01/06 6,486 16,435
8,000(4) 0.68 2.0625 07/24/06 10,377 26,296
Philip Siu 10,000(3) 0.85 13.50 01/01/06 84,989 215,430
12,000(3) 1.02 4.50 07/24/06 33,960 86,062
10,000(4) 0.85 2.0625 01/01/06 12,971 32,870
12,000(4) 1.02 2.0625 07/24/06 15,565 39,444
Dennis McDonald 5,000(3) 0.43 13.50 01/01/06 42,494 107,715
12,000(3) 1.02 4.50 07/24/06 33,960 86,062
5,000(4) 0.43 2.0625 01/01/06 6,486 16,435
12,000(4) 1.02 2.0625 07/24/06 15,565 39,444
James Boswell 15,000(3) 1.28 4.50 07/24/06 39,450 98,365
11,250(5) 0.96 2.50 11/21/06 17,688 44,824
15,000(4) 1.28 2.0625 07/24/06 19,457 49,305
11,250(4) 0.96 2.0625 11/21/06 14,592 36,979
- ----------
(1) Based on options to purchase an aggregate of 1,174,312 shares of Common
Stock granted during fiscal 1996.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based on assumed rates of stock appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date and are not presented to forecast possible future
appreciation, if any, in the price of the Common Stock. The gains shown
are net of the option exercise price, but do not include deductions for
taxes or other expenses associated with the exercise of the options or
the sale of the underlying shares. The actual gains, if any, on the
stock option exercises will depend on the future performance of the
Common Stock, the optionee's continued employment through applicable
resting periods and the date on which the options are exercised.
(3) Six months after the original grant dated, 1/8th of the shares will be
vested and thereafter the remaining shares will vest over four years at
1/48th per month.
(4) Options granted on February 3, 1997 upon cancellation of previously
granted options for the same number of shares. See the table entitled
"Ten-Year Option Repricings" on page 6 of this Proxy Statement.
(5) Six months after the original grant date, 1/4th of the shares will be
vested; one year after the original grant date, 1/2 of the shares will
be vested; two years after the original grant date 3/4th of the shares
will be vested; and three years after the original grant date, all
shares will be fully vested.
</TABLE>
-5-
<PAGE>
The following table shows stock options exercised by the Named Executive
Officers as of December 31, 1996. In addition, this table includes the number of
shares of Common Stock represented by outstanding stock options held by each of
the Named Executive Officers as of December 31, 1996. The closing price of the
Company's Common Stock at fiscal year-end was $2.38.
<TABLE>
Aggregated Option Exercises in Last Fiscal Year
d Option Values
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at FY-End(#) at FY-End($)(1)
Acquired on Value --------------------------- --------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ---------------- ------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael Gulett 15,000 $ 146,313 166,837 38,163 $ 334,515 $ 7,860
Robert C. McClelland 20,058 230,690 10,366 26,326 17,619 14,863
Philip Siu -- 0 27,292 57,208 0 0
Dennis McDonald -- 0 9,896 32,104 0 0
James Boswell -- 0 3,750 22,500 0 0
- --------------
(1) Value is calculated by (i) subtracting the exercise price per share from
the year-end closing price of $2.38 per share; and (ii) multiplying the
number of shares subject to the option.
</TABLE>
Ten-Year Option Repricings
Repricing of Stock Options
In February 1997 and as indicated in the Executive Committee Report on
Compensation of this Proxy Statement, the Company offered all executive officer
option holders and directors the opportunity to exchange their options for new
options at the February 3, 1997 fair market value of $2.0625 per share. The
options retain their original vesting schedule and expiration date. The
following table sets forth the repricing of options held by the Named Executive
Officers and directors.
<TABLE>
<CAPTION>
Length of
Market Original
Number of Price of Exercise Option Term
Securities Number Stock at Price at Remaining
Underlying of New Time of Time of New at Date of
Options Options Repricing Repricing Exercise Repricing
Name Date Repriced (#) Granted ($) ($) Price ($) (years.months)
- --------------------- ----------- ------------- ---------- --------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Gulett 02/03/97 15,000 15,000 $ 2.0625 $ 9.00 $ 2.0625 8.4
02/03/97 25,000 25,000 2.0625 4.50 2.0625 9.5
Robert C. McClelland 02/03/97 10,000 10,000 2.0625 9.00 2.0625 8.4
02/03/97 5,000 5,000 2.0625 13.50 2.0625 8.10
02/03/97 8,000 8,000 2.0625 4.50 2.0625 9.5
Philip Siu 02/03/97 62,500 62,500 2.0625 8.50 2.0625 8.2
02/03/97 10,000 10,000 2.0625 13.50 2.0625 8.10
02/03/97 12,000 12,000 2.0625 4.50 2.0625 9.5
Dennis McDonald 02/03/97 25,000 25,000 2.0625 9.00 2.0625 8.3
02/03/97 5,000 5,000 2.0625 13.50 2.0625 8.10
02/03/97 12,000 12,000 2.0625 4.50 2.0625 9.5
James Boswell 02/03/97 15,000 15,000 2.0625 4.50 2.0625 9.5
02/03/97 11,250 11,250 2.0625 2.50 2.0625 9.9
02/03/97 15,000 15,000 2.0625 13.50 2.0625 8.9
George Collins 02/03/97 12,500 12,500 2.0625 25.00 2.0625 8.8
James Kochman 02/03/97 12,500 12,500 2.0625 6.00 2.0625 8
Atiq Raza 02/03/97 12,500 12,500 2.0625 13.50 2.0625 8.10
</TABLE>
-6-
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules of the Securities and Exchange Commission (the "Commission")
thereunder require the Company's directors and executive officers to file
reports of their ownership and changes in ownership of Common Stock with the
Commission. Personnel of the Company generally prepare these reports on the
basis of information obtained from each director and officer. Based on such
information, the Company believes that all reports required by Section 16(a) of
the Exchange Act to be filed by its directors and executive officers during the
last fiscal year were filed on time, except that Mr. Veldhouse, a former officer
of the Company, filed a Form 4 in November 1996 relating to transactions
involving the purchase and sale of the Company's Common Stock approximately nine
days late.
Compensation of Directors
The Company's non-employee directors ("Outside Directors") receive a fee
of $3,000 per quarter. All Outside Directors are also reimbursed for expenses
incurred in connection with attending Board and committee meetings. The
Company's 1994 Stock Option Plan (the "Option Plan") provides for the grant of
options to Outside Directors pursuant to a nondiscretionary, automatic grant
mechanism, whereby each Outside Director is granted an option at fair market
value to purchase 3,125 shares of Common Stock on the date of each Annual
Meeting of Stockholders, provided such director is re-elected. These options
vest over four years at the rate of 25% per year so long as the optionee remains
an Outside Director of the Company. Each new Outside Director who joins the
Board is automatically granted an option at fair market value to purchase 12,500
shares of Common Stock upon the date on which such person first becomes an
Outside Director. These options vest over four years at the rate of 25% per
year.
Employment Agreements
The Company entered into an employment agreement with Michael Gulett on
August 26, 1996 (the "Agreement"), which provides for a base salary of $255,000
and the right to participate in the Company's executive compensation program.
The Company may terminate Mr. Gulett's employment at any time with or without
cause upon 90 days' advance written notice; provided, however, that if he is
terminated without cause (other than as a result of disability or change of
control of the Company), he will receive salary continuation for six months. In
the event Mr. Gulett's employment is terminated during the term of the Agreement
and within the first six-month period after the occurrence of a change of
control of the Company, as defined in the Agreement, Mr. Gulett will be entitled
to receive one and a half times his annual rate of base salary as in effect on
the date of the employment termination, plus one and a half times the last
annual bonus awarded by the Company.
EXECUTIVE COMMITTEE REPORT ON COMPENSATION
The compensation of the Company's executive officers is determined by
the Executive Compensation Committee of the Board (the "Compensation Committee")
on an annual basis. The Chief Executive Officer's recommendations of
compensation to be paid to other executive officers of the Company are
considered by the Compensation Committee in its decision-making process. During
fiscal year 1996, the Compensation Committee was comprised entirely of
non-employee directors. The Compensation Committee is currently composed of one
(1) non-employee director.
The Stock Option Committee of the Board administers the Company's
Stock Option Plans and determines grants to executive officers. The Stock Option
Committee is composed of one "disinterested" director, as defined by Rule 16b-3
under the Exchange Act.
The Compensation Committee's policy on executive compensation is
to attract and retain highly qualified personnel while linking compensation to
performance. Consequently, the Compensation Committee seeks to establish
compensation that will reward individuals for Company performance as well as
individual performance and motivate and reward executives for achievement of
strategic business objectives.
-7-
<PAGE>
The primary factors used by the Compensation Committee in determining
the compensation of the Company's executive officers are as follows:
1. The executive officer's individual performance and contributions to
the Company;
2. The financial results of the Company, including pre-tax profit; and
3. The compensation of executive officers employed by companies in
similar industries with similar revenue levels.
Executive Compensation Generally
The Company's executive compensation program is designed to attract and
retain qualified executives and to ensure that their efforts are directed toward
the long-term interests of the Company and its stockholders. To that end, the
Company strives to pay competitive base salaries and to provide incentive to its
executives by linking individual compensation to Company financial performance
and long-term growth of the Company through incentive-based compensation, and to
link executive and stockholder interests through the Company's Stock Option
Plan. During 1996, the compensation of executive officers was generally composed
of (i) base salary, (ii) a management group bonus and (iii) stock options. The
following is a summary of the executive officer compensation programs:
Base Salary. Base salaries are determined primarily upon an evaluation
of the officer's management responsibilities and efforts on behalf of the
Company including (i) individual performance, (ii) level of responsibility,
(iii) expertise, (iv) Company performance and (v) industry compensation. The
Company used the 1996 Radford Associates/Alexander & Alexander Consulting Group
Management Total Compensation Report for the High-Tech Industries (the "Radford
Report"), which is a survey of over 375 high technology companies of which
approximately 14% fall into the semiconductor industry segment, as a basis for
establishing the base salaries for its executives.
Management Group Bonus. The Company established a variable bonus pool
for its management group based on profits before taxes for 1996 with a range of
$0 to $800,000. The bonus was based on achieving a specific pre-tax profit goal
at the end of the fiscal year. No Management Group Bonus was paid in 1996.
Stock Options. In January 1996 and July 1996, certain of the Company's
current executive officers received stock options in amounts which are set forth
in the Summary Compensation Table in this Proxy Statement. Stock options were
granted to the Company's current executive officers on the basis of each such
executive's anticipated future performance and contributions to the Company. The
stock option grants are designed to align more closely the interests of the
executives with the interests of the stockholders by providing the executives
with a financial participation in the success of the Company. The Company used
the Radford Report as a basis for establishing the option grants.
Option Repricing. In February 1997, the Board agreed that additional
incentives were needed since many of the Company's executive officers and
directors held stock options with grants priced significantly higher than the
fair market value of the Company's Common Stock. Therefore, the Company
implemented a program whereby executive officers and directors could exchange
higher priced option shares for the same number of lower priced option shares.
The new shares were issued on February 3, 1997 at the then fair market value of
$2.0625 per share. Executive officers must remain active on the Company's
payroll to exercise their new options. All executive officer option holders and
directors were eligible to participate in this program. Data for executive
officers and directors who were eligible to reprice shares is shown in the table
entitled "Ten-Year Option Repricings" on page 6 of this Proxy Statement.
Chief Executive Officer Compensation
Mr. Gulett's base salary for 1996 was approximately $249,185 which was
negotiated as part of his Employment Agreement dated August 26, 1996. Pursuant
to the Employment Agreement and effective as of March 14, 1996, Mr. Gulett's
base salary was increased to $255,000 per year. In 1996, the Company paid Mr.
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<PAGE>
Gulett a total salary and bonus of $334,185. Also, pursuant to the Employment
Agreement, Mr. Gulett was to be eligible to participate in the management bonus
program. However, no bonus was paid to management in 1996.
Effective July 24, 1996, the Board approved a grant to Mr. Gulett of
stock options to purchase 25,000 shares. Grants to certain other executive
officers of the Company were made at the same time. The Compensation Committee
had no predetermined number of options that it believed Mr. Gulett should hold.
The actual number of options granted to Mr. Gulett was based on subjective as
well as objective factors, such as his individual performance, his position in
the Company relative to other executive officers who received option grants at
the same time, the Company's overall performance, his length of service with the
Company, the industry standards for executive officer option grants as indicated
by the Radford Report, his past contributions to the success of the Company and
his contributions to the Company's success that are expected to be made in the
future.
Other
Since the compensation of the Company's executive officers does not
exceed $1,000,000 for any single officer, the Company does not have a policy
regarding qualifying compensation under Section 162(m) of the Internal Revenue
Code of 1986, as amended.
EXECUTIVE COMPENSATION COMMITTEE
GEORGE J. COLLINS
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Securities and Exchange Commission requires disclosure where an
executive officer of a company served or serves as a director or on the
compensation committee of another entity and an executive officer of such other
entity served or serves as a director or on the compensation committee of the
company. The Company does not have any such interlocks. Decisions as to
executive compensation are made by the Compensation Committee and the Stock
Option Committee. During fiscal year 1996, the Compensation Committee and the
Stock Option Committee were comprised entirely of non-employee directors.
STOCK PERFORMANCE GRAPH
Set forth below is a graph, based on the closing price of the last
business trading day in each calendar month for the period, comparing the
Company's total cumulative stockholder return as compared to the Standard &
Poor's 500 Index and the Standard & Poor's Small Cap Semiconductor Index for the
period from June 28, 1995 (the date of the Company's initial public offering)
through December 31, 1996. Total stockholder return assumes $100 invested at the
beginning of the period in the Company's Common Stock, the stocks represented in
the Standard & Poor's 500 Index and the stocks represented in the Standard &
Poor's Small Cap Semiconductor Index, respectively. Total return also assumes
reinvestment of dividends. The Company has paid no dividends on its Common
Stock.
Historical stock price performance should not be relied upon as
indicative of future stock price performance.
<TABLE>
INDEXED STOCK PRICE COMPARISON
June 28, 1995 through December 31, 1996
[GRAPHIC OMITTED]
<CAPTION>
6/95 7/95 8/95 9/95 10/95 11/95 12/95 1/96 2/96 3/96 4/96 5/96 6/96 7/96 8/96 9/96 10/96 11/96 12/96
---- ---- ---- ---- ----- ----- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
S&P SMALL CAP SEMI $100 $114 $108 $109 $104 $96 $88 $88 $90 $92 $98 $101 $97 $90 $96 $100 $99 $104 $105
S&P 500 100 105 104 107 107 111 113 116 117 118 120 122 123 117 119 126 129 138 135
PARADIGM 100 218 234 220 183 134 97 120 107 70 71 66 52 35 35 37 20 23 17
</TABLE>
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1997 by: (i) each person
known to the Company to beneficially own more than five percent of the Company's
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers, and (iv) all directors and executive officers of the Company
as a group. Except as indicated in the footnotes to this table, the persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by such person subject to
community property laws where applicable.
<TABLE>
<CAPTION>
Shares
Beneficially
Name of Beneficial Owner Owned Percent
- ---------------------------------------------- ------------ ---------
<S> <C> <C>
Vintage Products, Inc.(1)
Arlozorv Street
Telaviv, Israel .............................. 1,600,000 22.1%
ACMA Limited(2)
17 Jurong Port Road
Singapore 2261................................ 1,300,000 17.5
Atmel Corporation(3)
2125 O'Nel Drive
San Jose, CA 95131............................ 1,028,050 13.8
Michael Gulett(4)............................. 190,313 2.6
Philip Siu(5)................................. 40,657 *
James L. Kochman(6)........................... 21,875 *
Robert C. McClelland(7)....................... 20,027 *
Dennis McDonald(8)............................ 17,792 *
Richard Morley................................ 11,000 *
James Boswell(9).............................. 6,563 *
George J. Collins(10)......................... 3,125 *
S. Atiq Raza(11).............................. 3,125 *
All directors and executive officers as a
group (10 persons)(12)...................... 314,477 4.2
- ----------
* Less than one percent (1%).
(1) Represents shares issuable upon conversion of the Company's 5% Series A
Convertible Redeemable Preferred Stock (the "Preferred Stock") pursuant
to the purchase from the Company of 200 shares of Preferred Stock. The
Preferred Stock is redeemable by the Company under certain limited
circumstances. The Company is not required to issue shares of Common
Stock equal to or greater than twenty percent (20%) of the Common Stock
outstanding on the date of the initial issuance of the Preferred Stock.
(2) Includes 200,000 shares issuable upon exercise of outstanding warrants.
(3) Includes 200,000 shares issuable upon exercise of outstanding warrants.
(4) Includes 179,063 shares subject to stock options that are exercisable or
will become exercisable within 60 days of March 31, 1997.
(5) Represents shares subject to stock options that are exercisable or will
become exercisable within 60 days of March 31, 1997.
(6) Represents shares subject to stock options that are exercisable or will
become exercisable within 60 days of March 31, 1997.
(7) Represents shares subject to stock options that are exercisable or will
become exercisable within 60 days of March 31, 1997.
(8) Represents shares subject to stock options that are exercisable or will
become exercisable within 60 days of March 31, 1997.
(9) Represents shares subject to stock options that are exercisable or will
become exercisable within 60 days of March 31, 1997.
(10) Represents shares subject to stock options that are exercisable or will
become exercisable within 60 days of March 31, 1997.
(11) Represents shares subject to stock options that are exercisable or will
become exercisable within 60 days of March 31, 1997.
(12) Includes 292,227 shares subject to stock options that are exercisable or
will become exercisable within 60 days of March 31, 1997.
</TABLE>
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<PAGE>
PROPOSAL NUMBER 2
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board has approved the retention of Price Waterhouse LLP as
independent accountants for the Company until revoked by further action. Price
Waterhouse LLP has been the Company's independent accountants since June 1994.
The stockholders are asked to ratify the designation of Price Waterhouse
LLP as independent accountants for the Company for the fiscal year ending
December 31, 1997. A representative of Price Waterhouse LLP is expected to be
present at the Annual Meeting to make a statement if he or she desires to do so,
and such representative is expected to be available to respond to appropriate
questions.
Should the stockholders fail to ratify the designation of Price
Waterhouse LLP as independent accountants, retention of the firm for the fiscal
year ending December 31, 1997 will be reconsidered by the Board.
Unless marked to the contrary, proxies received will be voted "FOR"
ratification of the designation of Price Waterhouse LLP as independent
accountants for the Company's fiscal year ending December 31, 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
RATIFICATION OF THE COMPANY'S INDEPENDENT ACCOUNTANTS.
OTHER MATTERS
Proposals Intended to be Presented at the Next Annual Meeting. Proposals
of security holders intended to be presented at the Company's 1998 Annual
Meeting of Stockholders must be received by the Company for inclusion in the
Company's proxy statement and form of proxy no later than December 19, 1997.
Other Matters. Management knows of no business that will be presented
for consideration at the Annual Meeting other than as stated in the Notice of
Meeting. If, however, other matters are properly brought before the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
the shares represented thereby on such matters in accordance with their best
judgment.
Proxy Solicitation. The expense of solicitation of proxies will be borne
by the Company. In addition to solicitation of proxies by mail, certain
officers, directors and Company employees who will receive no additional
compensation for their services may solicit proxies by telephone, telegraph or
personal interview. The Company may retain a proxy solicitation firm and, if it
does so, would pay approximately $6,000 in fees plus a reasonable amount to
cover expenses. The Company is required to request brokers and nominees who hold
stock in their name to furnish this proxy material to beneficial owners of the
stock and will reimburse such brokers and nominees for their reasonable
out-of-pocket expenses in so doing.
Annual Report. The Company will provide a copy of its 1996 Annual Report
to Stockholders, without charge, to any stockholder who makes written request to
Michael Gulett, President, Chief Executive Officer and Secretary, Paradigm
Technology, Inc., 694 Tasman Drive, Milpitas, California 95035.
By Order of the Board of Directors
MICHAEL GULETT
President, Chief Executive Officer
and Secretary
Milpitas, California
May 8, 1997
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