SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: February 5, 1997
PARADIGM TECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-26124 770140882-5
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification Number)
71 Vista Montana, San Jose, CA 95134
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(Address of principal executive offices) (Zip Code)
(408) 954-0500
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(Registrant's telephone number,
including area code)
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Item 5. Other Events.
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On January 23, 1997, pursuant to a Stock Purchase Agreement by and between
Paradigm Technology, Inc. (the "Registrant") and Vintage Products, Inc. (the
"Purchaser"), the Registrant sold a total of 200 shares of 5% Series A
Convertible Redeemable Preferred Stock (the "Series A Preferred Stock") to the
Purchaser at a price of $10,000 per share, for total proceeds (net of payments
to third parties) of approximately $1,880,000.
The Series A Preferred Stock has a liquidation preference of $10,000 per
share and bears cumulative dividends at a rate of five percent (5%) per share
per annum. Such dividends are payable only in shares of Series A Preferred Stock
and only immediately prior to the conversion of the Series A Preferred Stock
into Common Stock of the Registrant (the "Common Stock"). The Series A Preferred
Stock is convertible at the option of the holder into shares of Common Stock at
any time following the earlier of (i) the effectiveness of a registration
statement for the Common Stock into which the Series A Preferred Stock is
convertible (the "Registration Statement") or (ii) 90 days from the date of
original issuance of the Series A Preferred Stock. At that time, each share of
Series A Preferred Stock shall be convertible into that number of shares of
Common Stock as is determined by dividing (i) the sum of (a) $10,000 plus (b)
the amount of all accrued but unpaid or accumulated dividends on the shares of
Series A Preferred Stock being so converted by (ii) the Conversion Price (as
defined below) in effect at the time of conversion. The "Conversion Price" of
the Series A Preferred Stock will be equal to the lower of (i) the closing sale
price of the Common Stock as quoted on the Nasdaq National Market on the day
prior to the date of initial issuance of the Series A Preferred Stock or (a) 82%
of the average closing bid price of a share of Common Stock as quoted on the
Nasdaq National Market over the five consecutive trading days immediately
preceding the date of the conversion notice delivered to the Registrant. If not
sooner converted, all outstanding shares of Series A Preferred Stock shall be
subject to automatic conversion on the earlier of (i) 24 months after the date
of original issuance thereof, (ii) six months from the effectiveness of the
Registration Statement or (iii) immediately prior to the consummation of the
acquisition of the Registrant pursuant to a merger or consolidation or the sale
of substantially all of the assets of the Registrant. Except in connection with
such automatic conversion, in no event shall a holder of Series A Preferred
Stock be entitled to convert any Series A Preferred Stock in excess of that
number of shares upon conversion of which the sum of (i) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Series A Preferred Stock), and (ii)
the number of shares of Common Stock issuable upon the conversion of the shares
of the Series A Preferred Stock with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder or its
affiliates of more than 4.9% of the outstanding shares of Common Stock.
Except as otherwise required by law or the Certificate of Designation, the
holders of Series A Preferred Stock are not entitled to vote on any matters
submitted to the stockholders of the Registrant.
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Unless the approval of the Registrant's stockholders has previously been
obtained, the Registrant is not required to issue any Common Stock upon
conversion of Series A Preferred Stock to the extent that (i) the issuance of
such Common Stock, when taken together with all prior issuances of Common Stock
upon conversion of Series A Preferred Stock would result in the issuance by the
Registrant of a number of shares of Common Stock equal to or greater than twenty
percent (20%) of the number of shares of Common Stock outstanding on the date of
initial issuance of the Series A Preferred Stock (a "20% Issuance"), and such
20% Issuance requires the prior approval of the stockholders of the Registrant
pursuant to any applicable rule, regulation, stated policy, practice or
interpretation of the Nasdaq National Market or (ii) the Board of Directors of
the Registrant determines in good faith that the issuance of such Common Stock
upon conversion (whether or not constituting a 20% Issuance) otherwise requires
the prior approval of the stockholders of the Registrant pursuant to any
applicable rule, regulation, stated policy, practice or interpretation of any
stock exchange or stock market on which the Common Stock then listed or admitted
to trading (the "Stockholder Approval Requirement").
Following the first conversion of Series A Preferred Stock to which the
provisions of the prior paragraph are applicable, the Registrant (i) shall
promptly give notice to all holders of the Series A Preferred Stock that the
Registrant is unable to issue any further Common Stock upon conversion of Series
A Preferred Stock, and that the Series A Preferred Stock cannot be converted
without compliance with the Stockholder Approval Requirement, and (ii) shall
take one of the following actions, at its election, within twenty (20) days
following the date of such notice:
1. the Registrant shall notify all such holders of the Series A
Preferred Stock that it intends to seek stockholder approval pursuant to
the Stockholder Approval Requirement, in which event the Registrant shall
thereafter take all action necessary to call a meeting of its stockholders
as promptly as reasonably practicable to vote on such matter; or
2. the Registrant shall obtain from the stock exchange or stock market
on which the Common Stock is then listed a waiver of the Stockholder
Approval Requirement and shall commence any mailing to stockholders
notifying them of such waiver that is required by the rules of such stock
exchange or stock market; or
3. the Registrant shall notify all such holders of the Series A
Preferred Stock that it is redeeming Series A Preferred Stock pursuant to
the redemption provisions of the Series A Preferred Stock.
In the event that the Registrant elects to seek stockholder approval, and such
stockholder approval is not obtained within 75 days following the date of the
Registrant's notice to the holders of the Series A Preferred Stock that it
intends to seek such stockholder approval, the Registrant shall promptly
following the end of such 75 day period notify all holders of the Series A
Preferred Stock that it is redeeming Series A Preferred Stock. If the
Stockholder Approval Requirement is complied with or if a waiver of or exception
to the Stockholder
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Approval Requirement is obtained, the conversion rights of the holders of the
Series A Preferred Stock shall be reinstated.
If the Registrant elects or is required to redeem Series A Preferred Stock
pursuant to the provisions thereof, the Registrant shall (i) issue the Maximum
Number of Shares of Common Stock (as defined below) to the holder or holders of
Series A Preferred Stock who have requested conversion, and will (ii) redeem,
out of funds legally available therefor, all of the Series A Preferred Stock
that remain after such conversion at a price per share of Series A Preferred
Stock equal to $12,190 (subject to adjustment) plus an amount equal to all
dividends, if any, accrued but unpaid on such shares as of the earlier of the
date fixed for redemption or the maturity date. For purposes of the Series A
Preferred Stock, the "Maximum Number of Shares of Common Stock" shall mean the
greatest number of shares of Common Stock that may be issued upon conversion of
shares of Series A Preferred Stock without causing a 20% Issuance.
So long as any shares of Series A Preferred Stock remain outstanding, the
Registrant shall not, without the vote or written consent by the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock,
authorize or issue any other equity security senior to the Series A Preferred
Stock as to liquidation preferences or amend, alter or repeal its Certificate of
Incorporation if the powers, preferences, or special rights of the Series A
Preferred Stock would thereby be materially adversely affected.
Pursuant to a Registration Rights Agreement, dated as of January 21, 1997,
by and between the Registrant and the Purchaser, the Purchaser has been granted
certain registration rights with respect to shares of Common Stock issuable upon
conversion of the Series A Preferred Stock, pursuant to which the Registrant is
required to file a Registration Statement on Form S-3 no later than 30 days from
the initial issuance of the Series A Preferred Stock, and to maintain such
registration statement in effect for a period of at least six months, subject to
certain terms and conditions.
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Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
2.1 Stock Purchase Agreement, dated as of January 21, 1997, by
and between Paradigm Technology, Inc. and Vintage
Products, Inc.
4.1 Certificate of Designation of the 5% Series A Convertible
Redeemable Preferred Stock as filed with the Secretary of
State of the State of Delaware.
99.1 Press Releases, dated January 24, 1997 and January 27,
1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 5, 1997
PARADIGM TECHNOLOGY, INC.
By /s/ Douglas Schirle
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Douglas Schirle
Vice President of Finance
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EXHIBIT INDEX
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Exhibit No. Description
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2.1 Stock Purchase Agreement, dated as of January 21, 1997,
by and between Paradigm Technology, Inc. and Vintage
Products, Inc.
4.1 Certificate of Designation of the 5% Series A
Convertible Redeemable Preferred Stock as filed with
the Secretary of State of the State of Delaware.
99.1 Press Release, dated January 24, 1997 and January 27,
1997.
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STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT, dated as of the date of acceptance set forth
below, is entered into by and between Paradigm Technology, Inc., a Delaware
corporation, with headquarters located at 71 Vista Montana, San Jose, California
95134 (the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon exemptions from securities registration afforded
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act") and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, Series A Convertible Preferred Stock, $.01 par
value per share (the "Preferred Stock"), of the Company which will be
convertible into shares of Common Stock, $.01 par value per share (the "Common
Stock"), of the Company upon the terms and subject to the conditions of such
Preferred Stock (the Common Stock and Preferred Stock sometimes referred to
herein as "Securities"), and subject to acceptance of this Agreement by the
Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
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(a) Purchase. The undersigned hereby agrees to purchase from the Company
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Preferred Stock of the Company, in the amount set forth on the signature page of
this Agreement, out of a total offering of $2,000,000.00 of Preferred Stock, and
having the terms and conditions set forth in the Certificate of Designation
attached hereto as Annex I. The purchase price for the Preferred Stock shall be
as set forth on the signature page hereto and shall be payable in United States
Dollars.
(b) Form of Payment. The Buyer shall pay the purchase price for the
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Preferred Stock by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as Annex II (the "Joint Escrow Instructions") as
set forth below. Promptly following payment by the Buyer to the Escrow Agent of
the purchase price of the Preferred Stock, the Company shall deliver a
Certificate for the
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Preferred Stock duly executed on behalf of the Company, to the Escrow
Agent. By signing this Agreement, the Buyer and the Company, and subject to
acceptance by the Escrow Agent, each agrees to all of the terms and conditions
of, and becomes a party to, the Joint Escrow Instructions, all of the provisions
of which are incorporated herein by this reference as if set forth in full.
(c) Method of Payment. Payment into escrow of the purchase price for the
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Preferred Stock shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No. 105-0036843
Not later than 1:00 p.m., New York time, on the date which is three (3)
NASD trading days after the Company shall have accepted this Agreement and
returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Buyer shall deposit with the Escrow Agent the aggregate purchase
price for the Preferred Stock, in currently available funds. Time is of the
essence with respect to such payment, and failure by the Buyer to make such
payment, shall allow the Company to cancel this Agreement.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
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INDEPENDENT INVESTIGATION. The Buyer represents and warrants to, and covenants
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and agrees with, the Company as follows:
(a) The Buyer is purchasing the Preferred Stock and will be acquiring the
shares of Common Stock issuable upon conversion of the Preferred Stock for its
own account for investment only and not with a view towards the resale, public
sale or distribution thereof and not with a view to or for sale in connection
with any distribution thereof;
(b) The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), and (ii) experienced in making investments of the kind described
in this Agreement and the related documents, (iii) able, by reason of the
business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement,
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and the related documents, and (iv) able to afford the entire loss of its
investment in the Preferred Stock;
(c) All subsequent offers and sales of the Preferred Stock and the shares
of Common Stock issuable upon conversion of, or issued as dividends on, the
Preferred Stock (the "Shares" and, together with the Preferred Stock, the
"Securities") by the Buyer shall be made pursuant to registration of the Shares
under the 1933 Act or with respect to the Preferred Stock pursuant to an
exemption from registration;
(d) The Buyer understands that the Preferred Stock is being offered and
sold, and the Shares are being offered, to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgements and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Preferred Stock and to receive an offer of the Shares;
(e) The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Preferred Stock and the offer of
the Shares which have been requested by the Buyer, including Annex V hereto. The
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the Buyer
has also had the opportunity to obtain and to review the Company's (1) Annual
Report on Form 10- K for the fiscal year ended December 31, 1995, (2) Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1996 (the
"Company's SEC Documents").
(f) The Buyer understands that its investment in the Securities involves a
high degree of risk;
(g) The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities;
(h) This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally;
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(i) Neither Buyer, nor any affiliate of Buyer, has any present intention of
entering into, or will enter into any put option, short position, or other
similar position with respect to the Preferred Stock or the Shares;
(j) Notwithstanding the provisions hereof, in no event (except with respect
to an Event of Mandatory Conversion) shall the holder be entitled to convert any
Preferred Stock in excess of that number of shares upon conversion of which the
sum of (1) the number of shares of Common Stock beneficially owned by the Buyer
and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Preferred Stock), and (2) the number of shares of Common Stock issuable upon the
conversion of the Preferred Stock with respect to which the determination of
this proviso is being made, would result in beneficial ownership by the Buyer
and its affiliates of more than 4.9% of the outstanding shares of Common Stock.
For purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder, except as
otherwise provided in clause (1) of such proviso.
3. COMPANY REPRESENTATIONS, ETC. Except as disclosed in Annex V, delivered
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in writing to the Buyer, the Company represents and warrants to the Buyer that:
(a) Concerning the Shares. The Common Shares have been duly authorized and,
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when issued upon conversion of, or as dividends on, the Preferred Stock, will be
duly and validly issued, fully paid and non-assessable and will not subject the
holder thereof to personal liability by reason of being such holder. There are
no preemptive rights of any stockholder of the Company, as such, to acquire the
Common Shares.
(b) Reporting Company Status. The Company is a corporation duly organized,
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validly existing and in good standing under the laws of the State of Delaware
and is duly qualified as a foreign corporation in all jurisdictions in which the
failure to so qualify would have a material adverse effect on the Company and
its subsidiaries taken as a whole. The Company has registered its Common Stock
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Common Stock is listed and traded on the NASDAQ
National Market. The Company has timely filed all material required to be filed
pursuant to all reporting obligations under either Section 13(a) or 15(d) of the
Exchange Act for a period of at least twelve (12) months immediately preceding
the offer or sale of the Preferred Stock, and has received no notice, either
oral or written, with respect to the continued eligibility of the Common Stock
for such listing.
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(c) Authorized Shares. The Company has legally available sufficient
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authorized and unissued Shares as may be reasonably necessary to effect the
conversion of the Preferred Stock, if the Preferred Stock were converted on the
date hereof.
(d) Stock Purchase Agreement; Registration Rights Agreement and Stock. This
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Agreement and the Registration Rights Agreement, the form of which is attached
hereto as Annex IV (the "Registration Rights Agreement"), have been duly and
validly authorized by the Company, this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the Registration Rights
Agreement, when executed and delivered by the Company, will be, valid and
binding agreements of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity,
the indemnification provisions of the Registration Rights Agreement, and to
bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally; and the Securities will be duly and
validly issued, fully paid and non-assessable when delivered on behalf of the
Company upon payment therefor in accordance with this Agreement, subject to
general principles of equity and to bankruptcy, insolvency, moratorium, or other
similar laws affecting the enforcement of creditors' rights generally.
(e) Non-contravention. The execution and delivery of this Agreement and the
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Registration Rights Agreement by the Company, the issuance of the Securities,
and the consummation by the Company of the other transactions contemplated by
this Agreement, the Registration Rights Agreement, and the Preferred Stock do
not and will not conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under, the articles of
incorporation or by-laws of the Company, or any indenture, mortgage, deed of
trust, or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound, or any material
existing applicable law, rule, or regulation or any applicable decree, judgment,
or order of any court, United States federal or state regulatory body,
administrative agency, or other governmental body having jurisdiction over the
Company or any of its properties or assets, except such conflict, breach or
default which would not have a material adverse effect on the transactions
contemplated herein.
(f) Approvals. No authorization, approval or consent of any court,
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governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the Stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
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<PAGE>
(g) SEC Filings. None of the SEC Filings with the Securities and Exchange
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Commission since January 1, 1996 contained, at the time they were filed, any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements made therein in light
of the circumstances under which they were made, not misleading. The Company has
since January 1, 1996 timely filed all requisite forms, reports and exhibits
thereto with the Securities and Exchange Commission.
(h) Absence of Certain Changes. Since September 30, 1996, there has been no
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material adverse change and no material adverse development in the business,
properties, operations, financial condition, outstanding securities, or results
of operations of the Company, except as disclosed in the documents referred to
in Section 2(g) hereof.
(i) Full Disclosure. There is no fact known to the Company (other than
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general economic conditions known to the public generally) that has not been
disclosed in writing to the Buyer (including through the publicly filed
documents of the Company) that (i) could reasonably be expected to have a
material adverse effect on the condition (financial or otherwise) or in the
earnings, business affairs, properties or assets of the Company or (ii) could
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement.
(j) Absence of Litigation. Except as set forth in Annex V hereto, there is
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no action, suit, proceeding, inquiry or investigation before or by any court,
public board or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company or any of its
subsidiaries, wherein an unfavorable decision, ruling or finding would have a
material adverse effect on the properties, business, condition (financial or
other), or results of operations of the Company and its subsidiaries taken as a
whole or the transactions contemplated by this Agreement or any of the documents
contemplated hereby or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents.
(k) Absence of Events of Default. Except as set forth in Annex V hereto, no
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Event of Default, as defined in any agreement to which the Company is a party,
and no event which, with the giving of notice or the passage of time or both,
would become an Event of Default (as so defined), has occurred and is
continuing, which would have a material adverse effect on the Company's
financial condition or results of operations.
(l) No Default. The Company is not in default in the performance or
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observance of any material obligation, agreement,
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covenant or condition contained in any indenture, mortgage, deed of trust
or other material instrument or agreement to which it is a party or by which it
or its property may be bound, and neither the execution, nor the delivery by the
Company, nor the performance by the Company of its obligations under this
Agreement or the Preferred Stock, other than the conversion provision thereof,
will conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under, any
material indenture, mortgage, deed of trust or other material agreement or
instrument to which the Company is a party or by which it is bound or any
statute or the Certificate of Incorporation or By-Laws of the Company, or any
decree, judgment, order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or its properties, or its listing
agreement with respect to any securities exchange or trading market on which the
Common Stock is listed.
(m) Prior Issues. During the twelve (12) months preceding the date hereof,
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the Company has not issued any securities pursuant to Regulation S or Regulation
D under the Act, except as set forth on Exhibit 3(m).
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
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(a) Transfer Restrictions. The Buyer acknowledges that (i) the Preferred
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Stock has not been and is not being registered under the provisions of the 1933
Act and, except as provided in the Registration Rights Agreement, the Shares
have not been and are not being registered under the 1933 Act, and may not be
transferred unless (A) subsequently registered thereunder or (B) the Buyer shall
have delivered to the Company an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company, to the effect that the Securities to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration; (ii) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.
(b) Restrictive Legend. The Buyer acknowledges and agrees that the
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Preferred Stock, and, until such time as the Common
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<PAGE>
Stock have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement and sold in accordance with such Registration
Statement, the shares of Common Stock, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the Preferred Stock and the shares of Common Stock):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND SUCH LAWS. THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR OFFERED
FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR
OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
(c) Registration Rights Agreement. The parties hereto agree to enter into
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the Registration Rights Agreement, in the form attached hereto as Annex IV, on
or before the Closing Date.
(d) Filings. The Company undertakes and agrees to make all necessary
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filings in connection with the sale of the Preferred Stock to the Buyer as
required by United States laws and regulations, or by any domestic securities
exchange or trading market, and to provide a copy thereof to the Buyer promptly
after such filing.
(e) Reporting Status. So long as the Buyer beneficially owns any of the
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Preferred Stock or Common Stock issued on conversion thereof, the Company shall
file all reports required to be filed with the SEC pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
the Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.
(f) Use of Proceeds. The Company will use the proceeds from the sale of the
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Preferred Stock (excluding amounts paid by the Company for legal fees and
finder's fees in connection with the sale of the Preferred Stock) for the
repayment of the Company's debt and internal working capital purposes and shall
not, directly or indirectly (except in any situation where the Company is
acquired by merger or otherwise by a third party) use such proceeds for any loan
to or investment in any other corporation, partnership enterprise or other
person.
(g) Certain Agreements. The Company covenants and agrees that it will not
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(i) enter into any subsequent or further offer
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or sale of common stock or securities convertible into common stock with
any third party until the expiration of the earlier of (A) one hundred eighty
(180) days from the Closing Date, or (B) forty-five (45) days after the
effective date of the Registration Statement required to be filed under the
Registration Rights Agreement, and (ii) enter into any subsequent or further
offer or sale of common stock or securities convertible into common stock with
any third party within a period of thirty (30) days following the period set
forth in clause (i) above, without first offering the Buyer the opportunity
(which shall remain open for a period of five business days from the date the
Buyer receives notice thereof) to purchase all of such additional securities (in
the discretion of the Buyer) on the terms and provisions on which the Company
proposes to offer such additional securities to such third party. In the event
that the Buyer declines to participate in any such investment, the Company shall
provide the Buyer with prompt written notice of the consummation of any such
transaction with a third party, specifying the material terms thereof. However,
clauses 4(g)(i) and 4(g)(ii) will not apply to (x) the issuance of securities
(other than for cash) in connection with a merger, consolidation, sale of
assets, disposition of a business, product or license by the Company, strategic
alliance, bank loan or agreement, public offering, securities issued at the then
current market price (as determined in good faith by the Board of Directors), or
the exercise of options, or (y) the exchange of the capital stock of the Company
for assets, stock or other joint venture interests. This Section 4(g) may be
waived by the holders of two-thirds of the outstanding shares of Preferred Stock
(whether or not the Buyer shall consent thereto).
(h) Voting. Until the fifth anniversary of the Closing Date, with respect
------
to all matters to be voted upon by holders of voting securities of the Company
("Voting Securities"), the Buyer shall vote all Voting Securities directly or
indirectly owned by Buyer in the same proportion as all other voting Securities
voted on such matters.
5. TRANSFER AGENT INSTRUCTIONS.
---------------------------
(a) Promptly following the delivery by the Buyer of the aggregate purchase
price for the Preferred Stock in accordance with Section 1(c) hereof, the
Company will irrevocably instruct its transfer agent to issue Common Stock from
time to time upon conversion of the Preferred Stock in such amounts as specified
from time to time by the Company to the transfer agent, bearing the restrictive
legend specified in Section 4(b) of this Agreement prior to registration of the
Shares under the 1933 Act, registered in the name of the Buyer or its nominee
and in such denominations to be specified by the Buyer in connection with each
conversion of the Preferred Stock. The Company warrants that no instruction
other than such instructions
-9-
<PAGE>
referred to in this Section 5, the Registration Rights Agreement, and stop
transfer instructions to give effect to Section 4(a) hereof prior to
registration and sale of the Shares under the 1933 Act will be given by the
Company to the transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Securities. If the Buyer provides the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of a resale by the
Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a)
of this Agreement is not required under the 1933 Act, the Company shall (except
as provided in clause (2) of Section 4(a) of this Agreement) permit the transfer
of the Securities and, in the case of the Shares, promptly instruct the
Company's transfer agent to issue one or more certificates for Common Stock in
such name and in such denominations as specified by the Buyer.
(b) The Company will permit the Buyer to exercises its right to convert the
Preferred Stock by telecopying an executed and completed Notice of Conversion to
the Company and delivering within three business days thereafter, the original
Notice of Conversion and the certificate for the Preferred Stock representing
the Shares to the Company by express courier. Each date on which a Notice of
Conversion is telecopied to and received by the Company (and confirmed via
telephonic notice) in accordance with the provisions hereof shall be deemed a
Conversion Date. The Company will transmit the certificates representing the
Shares of Common Stock issuable upon conversion of any Preferred Stock (together
with the Preferred Stock representing the Shares not so converted) to the Buyer
via express courier, by electronic transfer or otherwise, within five business
days after receipt by the Company of the original Notice of Conversion and the
certificate for the Preferred Stock representing the Shares to be converted (the
"Delivery Date").
(c) The Company understands that a delay in the issuance of the Shares of
Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments, not exceeding $500,000 in the aggregate, to the Buyer for late
issuance of Shares upon Conversion in accordance with the following schedule
(where "No. Business Days Late" is defined as the number of business days beyond
three (3) business days from Delivery Date:
-10-
<PAGE>
Late Payment For Each
No. Business $10,000 of Preferred Stock
Days Late Principal Amount Being Converted
1 $50
2 $100
3 $150
4 $200
5 $250
6 $300
7 $350
8 $400
9 $450
10 $500
>10 $500 + $100 for each
Business Day Late
beyond 10 days
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit a Buyer's
right to pursue actual damages for the Company's failure to issue and delivery
Common Stock to the Buyer. Furthermore, in addition to any other remedies which
may be available to the Buyer, in the event that the Company fails for any
reason to effect delivery of such shares of Common Stock within five business
days after the Delivery Date, the Buyer will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Buyer shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion (and in
such event, the late payments described above shall not be due and payable).
6. DELIVERY INSTRUCTIONS. The Preferred Stock shall be delivered by the
---------------------
Company to the Escrow Agent pursuant to Section 1(b) hereof on a delivery
against payment basis at the closing.
7. CLOSING DATE. The date and time of the issuance and sale of the
------------
Preferred Stock (the "Closing Date") shall be the later of 12:00 Noon, New York
time on January 22, 1997 or such other mutually agreed to time, but not later
than January 31, 1997 unless waived by the Company. The closing shall occur on
the Closing Date at the offices of the Escrow Agent. Notwithstanding anything to
the contrary contained herein, the Escrow Agent will be authorized to release
the funds representing the Purchase Price for the Preferred Stock, and the
certificates representing the shares of the Preferred Stock only upon
satisfaction of the conditions set forth in Section 8(d) hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The Buyer understands
----------------------------------------------
that the Company's obligation to sell the Preferred Stock to the Buyer pursuant
to this Agreement is conditioned upon:
-11-
<PAGE>
(a) The receipt and acceptance by the Company of such Agreement as
evidenced by execution of such Agreement by the Company for at least $1,000,000
in Preferred Stock (or such lesser amount as the Company, in its sole
discretion, shall determine);
(b) Delivery by the Buyer to the Escrow Agent of good funds as payment in
full of an amount equal to the purchase price for the Preferred Stock in
accordance with Section 1(c) hereof;
(c) The accuracy on the Closing Date of the representations and warranties
of the Buyer contained in this Agreement as if made on the Closing Date and the
performance by the Buyer on or before the Closing Date of all covenants and
agreements of the Buyer required to be performed on or before the Closing Date;
(d) There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The Company
------------------------------------------------
understands that the Buyer's obligation to purchase the Preferred Stock is
conditioned upon:
(a) Acceptance by Buyer of an Agreement for the sale of Preferred Stock, as
indicated by execution of this Agreement;
(b) Delivery by the Company to the Escrow Agent of the Preferred Stock in
accordance with this Agreement;
(c) The accuracy on the Closing Date of the representations and warranties
of the Company contained in this Agreement as if made on the Closing Date and
the performance by the Company on or before the Closing Date of all covenants
and agreements of the Company required to be performed on or before the Closing
Date; and
(d) On the Closing Date, the Buyer having received an opinion of counsel
for the Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in Annex III attached hereto,
and the Registration Rights Agreement annexed hereto as Annex IV.
10. GOVERNING LAW: MISCELLANEOUS. This Agreement shall be governed by and
----------------------------
interpreted in accordance with the laws of the State of Delaware. Each of the
parties consents to the jurisdiction of the federal courts whose districts
encompass any part of the City of New York or the state courts of the State of
New York sitting in the City of New York in connection with any dispute arising
under this Agreement and hereby waives, to the
-12-
<PAGE>
maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
11. NOTICES. Any notice required or permitted hereunder shall be given in
-------
writing (unless otherwise specified herein) and shall be deemed effectively
given upon personal delivery or seven business days after deposit in the United
States Postal Service, by (a) advance copy by fax, and (b) mailing by express
courier or registered or certified mail with postage and fees prepaid, addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by ten days advance written
notice to each of the other parties hereto.
COMPANY: PARADIGM TECHNOLOGY, INC.
71 Vista Montana
San Jose, California
Telecopier No. (408) 954-1046
with a
copy to: Pillsbury Madison & Sutro LLP
2700 Sand Hill Road
Menlo Park, California 94025
Attention: Jorge del Calvo, Esq.
PURCHASER: At the address set forth on the signature
page of this Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Purchaser's representations
------------------------------------------
and warranties shall survive the execution and delivery hereof of this Agreement
and the delivery of the Debenture.
-13-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer or
one of its officers thereunto duly authorized as of the date set forth below.
NUMBER OF SHARES OF PREFERRED STOCK TO BE PURCHASED:
AGGREGATE PURCHASE PRICE OF SUCH PREFERRED STOCK: $2,000,000
SIGNATURE(S) FOR INDIVIDUAL SUBSCRIBER(S)
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that he, she or they have executed this
Stock Purchase Agreement this ______ day of ______________, 1997.
-------------------------------
Signature
-------------------------------
Printed Name
-------------------------------
-------------------------------
Address
Telecopier No. ________________
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Stock Purchase
Agreement to be duly executed on its behalf this ________ day of
___________________, 1997.
VINTAGE PRODUCTS, INC.
By _____________________________
Telecopier No. _________________
(Signature of Authorized Person)
- --------------------------------
- --------------------------------
Printed Name and Title
Jurisdiction of Incorporation
or Organization
-14-
<PAGE>
This Agreement has been accepted as of the date set forth below.
Date: _____________________
PARADIGM TECHNOLOGY, INC.
By ______________________________
Title ___________________________
-15-
<PAGE>
ANNEX I CERTIFICATE OF DESIGNATIONS
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
<PAGE>
ANNEX V
COMPANY DISCLOSURE
<PAGE>
ANNEX I
CERTIFICATE OF DESIGNATION,
PREFERENCES, RIGHTS AND LIMITATIONS
OF
5% SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
PARADIGM TECHNOLOGY, INC.
(Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware)
Paradigm Technology, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY that, pursuant to the provisions of section 151(g) of the General
Corporation Law of the State of Delaware and pursuant to authority conferred
upon the Board of Directors of the Corporation (the "Board") by the provisions
of the Restated Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), the Board has adopted the following resolution
providing for the issuance of a series of its preferred stock and fixing the
powers, designations, preferences and relative, participating, optional and
other rights, and the qualifications, limitations and restrictions thereof:
RESOLVED, that pursuant to authority expressly granted to and vested in the
Board by the provisions in Article IV of the Certificate of Incorporation
regarding the issuance of a series of preferred stock, par value $.01 per share,
there hereby is created a series of Preferred Stock which shall consist of five
hundred (500) shares and which series shall have the powers, designations,
preferences and relative, participating, optional and other rights, and the
qualifications, limitations and restrictions as follows:
1. Designation. The designation of the series of Pre- ferred Stock fixed by
-----------
this resolution shall be "5% Series A Convertible Redeemable Preferred Stock"
(hereinafter referred to as the "Series A Preferred Stock" or the "Series A
Shares").
2. Conversion Rights. The holders of the Series A Preferred Stock shall
-----------------
have the conversion rights as follows:
(a) Right to Convert. At any time following the earlier of (i) the
----------------
effectiveness of a registration statement for the common stock, par value $0.01
per share, of the Corporation (the "Common Stock" or "Common Shares") into which
the Series A Preferred Stock shall convert (the "Registration Statement") or
(ii) ninety (90) days from the date of original issuance of the Series A
Preferred Stock, each share of Series A Preferred Stock shall be convertible, at
the option of the holder thereof, into that number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (A) the sum of
(1) $10,000
-1-
<PAGE>
plus (2) the amount of all accrued but unpaid or accumulated dividends on
the shares of Series A Preferred Stock being so converted by (B) the Conversion
Price (determined as hereinafter provided) in effect at the time of conversion.
The "Conversion Price" shall be equal to the lower of (i) the closing sale price
of the Common Stock as quoted on the Nasdaq National Market on the day prior to
the date of initial issuance of the Series A Preferred Stock or (ii) eighty-two
percent (82%) of the average closing bid price of a share of Common Stock as
quoted on the Nasdaq National Market over the five (5) consecutive trading days
immediately preceding the date of the Conversion Notice (as defined in Section
2(d) hereof) of the Series A Preferred Stock as reported on the Nasdaq National
Market. In the event that such security is not traded on the Nasdaq National
Market, the average closing sale or bid price shall be as reported or quoted on
such other national or regional securities exchange or automated quotations
system upon which the Common Stock is listed and principally traded. In the
event that the Common Stock is not listed on any exchange or quoted on a
quotation system, the average closing sale or bid price shall be as reported or
quoted on any trading market in which quotes can be obtained.
(b) Automatic Conversion. If not sooner converted, all outstanding shares
--------------------
of Series A Preferred Stock shall be subject to automatic conversion on such
date which is the earlier of (i) twenty-four (24) months after the date of
original issuance thereof, (ii) six months from the effectiveness of the
Registration Statement or (iii) immediately prior to the consummation of the
acquisition of the Corporation pursuant to a merger or consolidation or the sale
of substantially all of the assets of the Corporation.
(c) Except in connection with an automatic conversion pursuant to Section
2(b) hereof, in no event shall a holder of Series A Preferred Stock be entitled
to convert any Series A Preferred Stock in excess of that number of shares upon
conversion of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Series A Convertible Preferred Stock), and (ii) the
number of shares of Common Stock issuable upon the conversion of the shares of
the Series A Preferred Stock with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder or its
affiliates of more than 4.9% of the outstanding shares of Common Stock of the
Corporation. For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder,
except as otherwise provided in clause (1) of such proviso.
-2-
<PAGE>
(d) Mechanics of Conversion. Before any holder of Series A Preferred Stock
-----------------------
shall be entitled voluntarily to convert the same into shares of Common Stock,
such holder shall surrender (within three (3) business days after the date of
the facsimile referred to below in this paragraph (d)) the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for such stock, and shall give written notice (the "Conversion
Notice") to the Corporation by facsimile (confirmed via telephonic notice) to
the Chief Executive Officer or Chief Financial Officer of the Corporation that
such holder elects to convert the same and shall state therein the number of
shares to be converted and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled.
Such conversion shall be deemed to have been made on the date of delivery of
such facsimile notice to the Corporation; provided that certificates
representing such Series A Shares are delivered within three (3) business days
to the transfer agent of the Corporation. If such certificates are not delivered
within three (b) business days after such facsimile, then such conversion shall
be deemed to occur on the date of delivery of such Series A Shares to the
transfer agent of the Corporation.
(e) Adjustments to Conversion Prices for Stock Dividends and for
------------------------------------------------------------
Combinations or Subdivisions of Common Stock. In the event that this Corporation
- --------------------------------------------
at any time or from time to time after the date of issuance of the Series A
Preferred Stock shall declare or pay, without consideration, any dividend on the
Common Stock payable in Common Stock or in any right to acquire Common Stock for
no consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Conversion
Price for the Series A Preferred Stock in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be proportionately
decreased or increased, as appropriate. In the event that this Corporation shall
declare or pay, without consideration, any dividend on the Common Stock payable
in any right to acquire Common Stock for no consideration, then the Corporation
shall be deemed to have made a dividend payable in Common Stock in an amount of
shares equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
-3-
<PAGE>
(f) Adjustments for Reclassification and Reorganization. If the Common
---------------------------------------------------
Stock issuable upon conversion of the Series A Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares provided for in Section 2(e)
hereof), the Conversion Price then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted so that the Series A Preferred Stock shall be convertible into, in lieu
of the number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of the Series A Preferred
Stock immediately before that change.
(g) Notices of Record Date. In the event that the Corporation shall propose
----------------------
at any time: (i) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus; (ii) to
offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; or (iv) to merge or
consolidate with or into any other corporation, or sell, lease or convey all or
substantially all of its assets, or to liquidate, dissolve or wind up; then, in
connection with each such event, the Corporation shall send to the holders of
Series A Preferred Stock:
(A) at least twenty (20) days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote, if any,
in respect of the matters referred to in (iii) and (iv) above; and
(B) in the case of the matters referred to in (iii) and (iv) above, at
least twenty (20) days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
Any notice required by the provisions of this Section 2 to be given to the
holders of shares of Series A Preferred Stock shall be deemed given if deposited
in the United States mail, postage prepaid, and addressed to each holder of
record at such holder's address appearing on the books of the Corporation.
-4-
<PAGE>
(h) Reservation of Stock Issuable Upon Conversion. The Corporation 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 conversion of the
shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; provided, however, that the
Corporation shall not issue more than a 20% Issuance pursuant to such
conversions. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, the Corporation may 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, including, without limitation,
engaging in best efforts to obtain the necessary stockholder approval.
(i) Fractional Shares. No fractional share shall be issued upon the
-----------------
conversion of any share or shares of Series A Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board).
3. Dividends. The holders of the Series A Preferred Stock shall be entitled
---------
to receive dividends as follows:
(a) The holders of the Series A Preferred Stock shall be entitled to
receive dividends at the rate of five percent (5%) per share per annum (as
adjusted for any stock dividends, combinations or splits with respect to such
shares). Such dividends shall be payable only in shares of Series A Preferred
Stock, and the Series A Preferred Stock shall not be entitled to any cash
dividends. Such dividends shall begin to accumulate upon the issuance of the
Series A Preferred Stock and shall be due and payable with respect to any share
of Series A Preferred Stock only immediately prior to the conversion of such
share of Series A Preferred Stock into Common Stock pursuant to Section 2
hereof.
(b) In the event the Corporation shall declare a distribution (other than
any distribution described in Section 5 or Section 6 hereof) payable in
securities of other persons, evidences of indebtedness issued by the Corporation
or other persons, assets (excluding cash dividends) or options or rights
-5-
<PAGE>
to purchase any such securities or evidences of indebtedness, then, in each
such case the holders of the Series A Preferred Stock shall be entitled to a
proportionate share of any such distribution as though the holders of the Series
A Preferred Stock were the holders of the number of shares of Common Stock into
which their respective shares of Series A Preferred Stock are convertible as of
the record date fixed for the determination of the holders of Common Stock
entitled to receive such distribution.
4. Voting Rights of Series A Preferred Stock. Except as otherwise required
-----------------------------------------
by law or Section 7 hereof, the holders of outstanding shares of Series A
Preferred Stock shall not be entitled to vote on any matters submitted to the
stockholders of the Corporation.
5. Liquidation Preference. The holders of the Series A Preferred Stock
----------------------
shall be entitled to a liquidation preference as follows:
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership thereof, the amount of
$10,000 per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares), respectively. If upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series A
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(b) After payment to the holders of the Series A Preferred Stock of the
amounts set forth in Section 5(a) hereof, the entire remaining assets and funds
of the Corporation legally available for distribution, if any, shall be
distributed among the holders of the Common Stock in proportion to the shares of
Common Stock then held by them.
(c) Whenever the distribution provided for in this Section 5 shall be
payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or other property
as determined in good faith by the Board.
6. Redemption.
----------
(a) Notwithstanding anything contained in this resolution to the contrary,
unless the approval of the stockholders
-6-
<PAGE>
referred to in clause (i) or (ii) below has previously been obtained, the
Corporation shall not be required to issue any Common Shares pursuant to any
optional or automatic conversion of Series A Shares under Section 2 hereof, and
the Series A Shares shall not be convertible into Common Shares, if, and to the
extent that, (i) the issuance of such Common Shares upon conversion, when taken
together with all prior issuances of Common Shares pursuant to Section 2 hereof,
would result in the issuance by the Corporation of a number of Common Shares
equal to or greater than twenty percent (20%) of the number of Common Shares
outstanding on the date of initial issuance of the Series A Preferred Stock (a
"20% Issuance"), and such 20% Issuance requires the prior approval of the
stockholders of the Corporation pursuant to any rule, regulation, stated policy,
practice or interpretation of the NASDAQ Stock Market applicable to the
Corporation, or (ii) the Board of Directors of the Corporation determines in
good faith that the issuance of such Common Shares upon conversion (whether or
not constituting a 20% Issuance) otherwise requires the prior approval of the
stockholders of the Corporation pursuant to any applicable rule, regulation,
stated policy, practice or interpretation of any stock exchange or stock market
on which the Common Shares are then listed or admitted to trading (such prior
approval of the stockholders referred to in clauses (i) and (ii) above herein
called the "Stockholder Approval Requirement").
(b) Following the first conversion of Series A Shares to which the
provisions of Section 6(a) hereof are applicable, the Corporation (i) shall
promptly give to all holders of the Series A Shares (determined of record not
more than fifteen (15) days before the date such notice is given) a notice
stating that the Corporation is unable to issue any further Common Shares upon
conversion of Series A Shares, and that the Series A Shares cannot be converted,
without compliance with the Stockholder Approval Requirement, and (ii) shall
take one of the following actions, at its election, within twenty (20) days
following the date of such notice:
(i) the Corporation shall notify all such holders of the Series A
Shares that it intends to seek stockholder approval pursuant to the
Stockholder Approval Requirement, in which event the Corporation shall
thereafter take all action necessary to duly call, give notice of, convene
and hold a meeting of its stockholders as promptly as reasonably
practicable to consider and vote on such matter; or
(ii) the Corporation shall obtain from the stock exchange or stock
market on which the Common Shares are then listed or admitted to trading a
waiver of or exception to the Stockholder Approval Requirement and shall
commence any mailing to stockholders notifying them of such waiver or
exception that is required by the rules of such stock exchange or stock
market; or
-7-
<PAGE>
(iii) the Corporation shall notify all such holders of the Series A
Shares that it is redeeming Series A Shares pursuant to the following
provisions of this Section 6:
provided, however, that if the Corporation elects to seek stockholder approval
pursuant to clause (i) above, and such stockholder approval is not obtained
within seventy-five (75) days following the date of the Corporation's notice to
the holders of the Series A Shares that it intends to seek such stockholder
approval, the Corporation shall promptly following the end of such seventy-five
(75) day period notify all holders of the Series A Shares that it is redeeming
Series A Shares pursuant to the following provisions of this Section 6. If the
Stockholder Approval Requirement is complied with or if a waiver of or exception
to the Stockholder Approval Requirement is obtained, the conversion rights of
the holders of the Series A Shares shall be reinstated.
(c) If the Corporation elects or is required to redeem Series A Shares
pursuant to Section (b) hereof, the Corporation shall (i) issue the Maximum
Number of Shares of Common Stock to the holder or holders of Series A Preferred
Stock whose Series A Preferred Stock is proposed to be converted, and will (ii)
redeem, out of funds legally available therefor, all of the Series A Shares that
remain after such conversion (a "Redemption") at a price per Series A Share
equal to $12,190 (as adjusted for any stock split, reverse stock split, stock
dividend, or similar event resulting in a change in the Series A Shares) plus an
amount equal to all dividends, if any, accrued but unpaid on such shares to the
earlier of the date fixed for redemption or the Maturity Date (the "Redemption
Price"). For purposes of this Section 6(c), the "Maximum Number of Shares of
Common Stock" shall mean the greatest number of shares of Common Stock that may
be issued upon conversion of shares of Series A Preferred Stock without causing
a 20% Issuance. The Company shall honor requests for conversion under this
Section 6 in order of receipt, and should the Company simultaneously receive
multiple requests for conversion of Series A Preferred Stock that would
otherwise cause a 20% Issuance, the Company shall honor such conversion requests
pro rata in proportion to the number of shares of Series A Preferred Stock
sought to be converted by each holder.
(d) The Corporation's notice of redemption pursuant to Section 6(b) hereof
shall be given to each holder of record of the Series A Shares to be redeemed
and shall specify the redemption date of such Redemption (which redemption date
shall not be later than twenty (20) days following the date of such notice of
redemption), the place or places at which such Redemption shall be effected and
the Redemption Price and shall call upon such holder to surrender to the
Corporation, in the manner and at a place designated, the certificate or
certificates representing the Series A Shares of such holder to
-8-
<PAGE>
be redeemed. No failure on the part of the Corporation to give any notice
or redemption required to be given by it under this Section 6, and no defect in
such notice or in the giving thereof, shall affect the validity of the
proceedings for such Redemption, except as to a holder of Series A Shares (i) to
whom the Corporation has failed to give such notice or (ii) whose notice was
defective. An affidavit of the Secretary of the Corporation that notice of
redemption has been given shall in the absence of fraud, be prima facie evidence
of the facts stated therein.
(e) Notwithstanding anything contained in this resolution to the contrary,
the obligation of the Corporation to redeem Series A Shares at any given time
shall be subject to such limitations and restrictions as may then be imposed on
the Corporation under applicable law or governmental regulation. If, on the date
on which a Redemption is to be effected, the Corporation shall be unable,
because of any applicable law or governmental regulation, to redeem the total
number of Series A Shares to be redeemed on such date, the Corporation shall
redeem, ratably among the holders of the Series A Shares to be redeemed, the
maximum number of such Series A Shares (if any) which it shall be permitted to
redeem under such law or regulation. At any time thereafter when funds of the
Corporation are legally available for the redemption of Series A Shares, such
funds shall immediately be used to redeem the balance of the Series A Shares
that the Corporation has become obligated to redeem on any such date or dates
but which it has not redeemed. If such funds are insufficient to redeem the
total number of such Series A Shares, such Series A Shares shall be redeemed
ratably among the holders of the Series A Shares.
(f) From and after the date fixed for a Redemption, notwithstanding that
any certificate for Series A Shares to be redeemed in such Redemption shall not
have been surrendered for cancellation, such Series A Shares shall no longer be
deemed to be outstanding, dividends thereon, if any, shall cease to accrue from
and after the earlier of the date so fixed or the Maturity Date, and the rights
of the holders of such Series A Shares shall forthwith after such redemption
date cease and terminate, excepting only the right of the holders thereof to
receive the Redemption Price thereof, but without interest, upon the surrender
of their respective certificates therefor; provided that if, on or after the
date fixed in any notice as the date of redemption, the Corporation shall
default in the payment of the Redemption Price of any Series A Shares entitled
to redemption upon the surrender of the certificate therefor, the dividend and
all other rights of the holders of such share (other than any conversion rights)
shall be reinstated retroactively to such redemption date.
(g) From and after the date fixed for a Redemption, the Corporation shall,
at the place or places specified in the notice of redemption, upon presentation
and surrender to the
-9-
<PAGE>
Corporation by the holder thereof of one or more certificates representing
the Series A Shares to be redeemed, deliver or cause to be delivered to or upon
the written order of such holder, a sum in cash equal to the Redemption Price of
each Series A Shares of such holder to be redeemed, together with, if the
certificate or certificates presented and surrendered by such holder represent a
greater number of Series A Shares than the number of Series A Shares to be
redeemed from such holder, one or more new certificates registered in the name
of such holder and representing the Series A Shares not redeemed.
(h) Except as provided in this Section 6, the Series A Shares are not
subject to any mandatory redemption by the Corporation. Nothing in this
resolution shall be determined to prohibit the Corporation from purchasing or
otherwise acquiring outstanding shares of its capital stock, whether now or
hereafter authorized, at any time and in any manner not prohibited by applicable
law.
(i) The Corporation shall not be required to maintain any sinking fund for
the redemption of Series A Shares pursuant to this Section 6.
7. Restrictions and Limitations.
----------------------------
(a) So long as at least any shares of Series A Preferred Stock remain
outstanding, the Corporation shall not, without the vote or written consent by
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock:
(i) Authorize, create or issue any other equity security senior to the
Series A Preferred Stock as to liquidation preferences; or
(ii) Amend, alter or repeal, by any means, its Certificate of
Incorporation if the powers, preferences, or special rights of the Series A
Preferred Stock would thereby be materially adversely affected.
-10-
<PAGE>
IN WITNESS WHEREOF, this certificate has been signed by Michael Gulett,
President of the Corporation, and attested to by Robert C. McClelland, Secretary
of the Corporation, as of the _____ day of January, 1997.
PARADIGM TECHNOLOGY, INC.
By
--------------------------------------
Michael Gulett
President
Attest:
By
----------------------------------
Robert C. McClelland
Secretary
-11-
<PAGE>
ANNEX II
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the Stock
Purchase Agreement to
Which These Joint Escrow
Instructions Are Attached
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Attention: Samuel M. Krieger, Esq.
Dear Mr. Krieger:
As escrow agent for both Paradigm Technology, Inc., a Delaware corporation
(the "Company"), and the Purchaser (the "Purchaser") of shares (the "Shares") of
Series A Convertible Preferred Stock, $.01 par value per share, of the Company
(the "Preferred Stock"), who is named in the Stock Purchase Agreement between
the Company and the Purchaser to which a copy of these Joint Escrow Instructions
is attached as Annex II (the "Agreement"), you (hereafter, the "Escrow Agent")
are hereby authorized and directed to hold the documents and funds (together
with any interest thereon, the "Escrow Funds") delivered to the Escrow Agent
pursuant to the terms of the Agreement in accordance with the following
instructions:
1. The Escrow Agent shall, as promptly as feasible, notify the Company of
receipt of the purchase price from the Purchaser, and notify the Purchaser (or
such agent as the Purchaser may designate in writing) of receipt of certificates
for the Preferred Shares (each a "Certificate" and collectively the
"Certificates"). Within two (2) days of receipt of written notice from the
Company and the Purchaser that the respective conditions precedent to the
purchase and sale have been satisfied (which notice shall not be unreasonably
withheld), the Escrow Agent shall, after reduction by the amounts referred to in
the next succeeding sentence of this paragraph, release the Escrow Funds to or
upon the order of the Company, and shall release the Certificates to the
Purchaser. After receipt of such notice, $10,000 of the Escrow Funds to the
Escrow Agent, shall be released to or upon the order of Escrow Agent. If such
Certificates are not deposited with the Escrow Agent within ten (10) days after
receipt by the Company of notice of receipt by the Escrow Agent of the funds
from the Purchaser, Escrow Agent shall notify the Purchaser and Purchaser shall
be entitled to cancel the subscription and demand repayment of the funds. If
such funds are not deposited with the Escrow Agent within ten (10) days after
receipt by the Purchaser of notice of receipt by the Escrow Agent of the
Preferred Stock from the Company, Escrow
<PAGE>
Samuel M. Krieger, Esq.
____________, 1997
Page 2
Agent shall notify the Company and the Company shall be entitled to cancel
the subscription and demand return of the certificates for the Preferred Stock.
If the Company or the Purchaser notifies the Escrow Agent that on the Closing
Date (as defined in the Agreement) the conditions precedent to the obligations
of the Company or the Purchaser, as the case may be, under the Agreement were
not satisfied or waived, then the Escrow Agent shall return the Escrow Funds to
the Purchaser and shall return the Certificates to the Company. Prior to return
of the Escrow Funds to the Purchaser, the Purchaser shall furnish such tax
reporting or other information as shall be appropriate for the Escrow Agent to
comply with applicable United States laws. The Escrow Agent shall deposit all
funds received hereunder in the Escrow Agent's attorney escrow account at The
Bank of New York.
2. The Escrow Agent's duties hereunder may be altered, amended, modified or
revoked only by a writing signed by the Company, the Purchaser and the Escrow
Agent.
3. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be personally liable for any
act the Escrow Agent may do or omit to do hereunder as Escrow Agent while acting
in good faith, except for fraud, willful misconduct, or gross negligence, and
any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow
Agent's attorneys-at-law shall be evidence of such good faith.
4. The Escrow Agent is hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
5. The Escrow Agent shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
<PAGE>
Samuel M. Krieger, Esq.
____________, 1997
Page 3
6. The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for Purchaser
in connection with the Agreement and may continue to act as legal counsel for
Purchaser, from time to time, notwithstanding its duties as Escrow Agent
hereunder.
7. The Escrow Agent's responsibilities as Escrow Agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Purchaser. In the event of any such resignation, the Purchaser and the
Company shall appoint a successor Escrow Agent.
8. If the Escrow Agent reasonably requires other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
9. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the documents or
Escrow Funds held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed in the Escrow Agent's sole discretion (1) to retain in the Escrow
Agent's possession without liability to anyone all or any part of said documents
or Escrow Funds until such disputes shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the Escrow Agent shall be under no
duty whatsoever to institute or defend any such proceedings or (2) to deliver
the Escrow Funds and any other property and documents held by the Escrow Agent
hereunder to a state or federal court having competent subject matter
jurisdiction and located in the State and City of New York in accordance with
the applicable procedure therefor.
10. The Company and the Purchaser agree jointly and severally to indemnify
and hold harmless the Escrow Agent from any and all claims, liabilities, costs
or expenses in any way arising from or relating to the duties or performance of
the Escrow Agent hereunder other than any such claim, liability, cost or expense
to the extent the same shall have been determined by final, unappealable
judgment of a court of competent jurisdiction to have resulted from fraud, gross
negligence or willful misconduct of the Escrow Agent.
<PAGE>
Samuel M. Krieger, Esq.
____________, 1997
Page 4
11. Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be deemed effectively given upon
personal delivery or three business days after deposit in the United States
Postal Service, by registered or certified mail with postage and fees prepaid,
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
COMPANY: Paradigm Technology, Inc.
71 Vista Montana
San Jose, California
Telecopier No. (408) 954-1046
with a
copy to: Pillsbury Madison & Sutro LLP
2700 Sand Hill Road
Menlo Park, California 94025
Attention: Jorge del Calvo, Esq.
PURCHASER: At the address set forth in the Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
12. By signing these Joint Escrow Instructions, the Escrow Agent becomes a
party hereto only for the purpose of these Joint Escrow Instructions; the Escrow
Agent does not become a party to the Agreement. The Company and the Purchaser
have become parties hereto by their execution and delivery of the Agreement, as
provided therein.
13. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns and shall
be governed by the laws of the State of New York without giving effect to
principles governing the conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be legal and binding on all
parties hereto.
<PAGE>
Samuel M. Krieger, Esq.
____________, 1997
Page 5
14. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings provided in the Agreement.
ACCEPTED BY ESCROW AGENT:
KRIEGER & PRAGER
By ______________________________
Title ___________________________
<PAGE>
ANNEX III
January 23, 1997
Purchasers of Paradigm Technology,
Inc. 5% Series A Convertible
Redeemable Preferred Stock
c/o Krieger & Prager
319 Fifth Avenue
New York, NY 10016
Re: Paradigm Technology, Inc.
Ladies and Gentlemen:
We have acted as counsel to Paradigm Technology, Inc., a corporation
incorporated under the laws of the State of Delaware (the "Company"), in
connection with the proposed issuance and sale of the Company's 5% Series A
Convertible Redeemable Preferred Stock (the "Securities") pursuant to the Stock
Purchase Agreement (the "Stock Purchase Agreement") (together with all Exhibits,
Annexes and Appendices thereto, collectively the "Agreements") of even date
herewith between the Company and the purchasers of the Securities (the
"Purchasers").
In connection with rendering the opinions set forth herein, we have
examined drafts of the Agreement, the Company's Certificate of Incorporation,
and its Bylaws, as amended to date, the proceedings of the Company's Board of
Directors taken in connection with entering into the Agreements, and such other
documents, agreements and records as we deemed necessary to render the opinions
set forth below.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where
<PAGE>
Purchasers of Paradigm Technology, Inc.
January 23, 1997
Page 2
the Company is required to do so, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect on the Company,
and has all requisite corporate power and authority to own its properties and
conduct its business;
2. The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, $.01 par value per share ("Common Stock") and 5,000,000
shares of Preferred Stock, par value $.01 per share, of which 500 shares have
been designated "5% Series A Convertible Redeemable Preferred Stock";
3. The Common Stock is registered pursuant to section 12(g) of the
Securities and Exchange Act of 1934, as amended, and the Company has timely
filed all materials required to be filed pursuant to section 13(a) or 15(d) of
such Act for a period of at least twelve months preceding the date hereof;
4. When duly countersigned by the Company's transfer agent and registrar,
and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Agreements, the
Securities and any Common Stock to be issued upon the conversion of the
Securities as described in the Agreements represented thereby will be duly
authorized and validly issued, fully paid and nonassessable;
5. The Company has the requisite corporate power and authority to enter
into the Agreements and to sell and deliver the Securities and the Common Stock
to be issued upon the conversion of the Securities as described in the
Agreements; each of the Agreements has been duly and validly authorized by all
necessary corporate action by the Company; to our knowledge, no approval of any
governmental body is required for the execution and deliver of each of the
Agreements by the Company or the consummation of the transactions contemplated
thereby; each of the Agreements has been duly and validly executed and delivered
by and on behalf of the Company, and is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except as enforceability may
be limited by general equitable principles, bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other laws affecting creditors' rights
generally, and except as to compliance with federal, state and foreign
securities laws and the
<PAGE>
Purchasers of Paradigm Technology, Inc.
January 23, 1997
Page 3
indemnification rights under the Registration Rights Agreement among the
Company and the Purchasers (the "Registration Rights Agreement"), as to which no
opinion is expressed.
6. To the best of our knowledge, after due inquiry, the execution, delivery
and performance of the Agreements by the Company and the performance of its
obligations thereunder do not and will not constitute a breach or violation of
any of the terms and provisions of, or constitute a default under or conflict
with or violate any provision of (a) the Company's Certificate of Incorporation
or Bylaws; (b) any indenture, mortgage, deed of trust, or bank loan agreement,
or other material agreement to which the Company is a party or by which it or
any of its property is bound and which is filed as a material contract with the
Securities and Exchange Commission, (c) any applicable statute or regulation,
(d) or any judgment, decree or order of any court or governmental body having
jurisdiction over the Company or any of its property of which we are aware;
provided however that with respect to the execution of the Registration Rights
Agreement and whether it constitutes a breach or violation of any of the terms
and provisions of, or constitutes a default under or conflicts with or violates
any provision of the Amended and Restated Registration Rights Agreement among
the Company, ACMA Limited, Atmel Corporation and National Semiconductor
Corporation (the "Existing Registration Rights Agreement," we advise you only
that (i) the consent of the holders of a majority of the Registrable Securities
under the Existing Registration Rights Agreement is required in connection with
the grant by the Company of any registration rights whatsoever (including
pursuant to the Registration Rights Agreement attached as Annex IV to the Stock
Purchase Agreement (the "New Registration Rights Agreement")) and (ii) ACMA
Limited, as holder of a majority of the Registrable Securities under the
Existing Registration Rights Agreement, has executed a qualified consent to the
grant by the Company of registration rights from time to time, in the form
attached hereto as Exhibit A.
7. To our knowledge, the Company complies with the eligibility requirements
for the use of Form S-3 under the Securities Act of 1933, as amended, for
"Transactions Involving Secondary Offerings" as described in Section I.B.2 of
the General Instructions to Form S-3.
<PAGE>
Purchasers of Paradigm Technology, Inc.
January 23, 1997
Page 4
8. To the best of our knowledge, after due inquiry, there is no pending or
threatened litigation, investigation or other proceeding against the Company
that is reasonably likely to have a material adverse effect on the Company's
financial condition and results of operations, except as described on the
Company Disclosure Schedule delivered in writing to the Purchaser in connection
with the Stock Purchase Agreement.
The foregoing opinion is subject to such matters as are set forth in the
Agreements (including the Company Disclosure Materials delivered to the
Purchasers pursuant to the Stock Purchase Agreement) and the following
qualifications:
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of California, as currently in effect, and the General Corporation Law
of the State of Delaware and does not include an interpretation or statement
concerning the laws of any other state or jurisdiction. Insofar as the
enforceability of the Agreements may be governed by the laws of other states, we
have, with your permission, assumed that such laws are identical in all respects
to the laws of the State of California.
<PAGE>
Purchasers of Paradigm Technology, Inc.
January 23, 1997
Page 5
We have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as photostatic or telecopied originals, the legal
capacity of all natural persons, and as to documents executed by entities other
than the Company, that each such entity had the power to enter into and perform
its obligations under such documents, and that such documents have been duly
authorized, executed and delivered by, and are binding upon and enforceable
against such entities.
We assume that you know of no agreements, understandings or negotiations
between the parties not set forth in the Agreement that would modify the terms
or rights and obligations of the parties thereunder.
Whenever a statement herein is qualified by "to the best of our knowledge,"
"we are not aware" or similar phrase, it indicates that in the course of our
representation of the Company no information that would give us current actual
knowledge of the inaccuracy of such statement has come to the attention of the
attorneys in this firm who have rendered legal services in connection with this
transaction. We have not made any independent investigation to determine the
accuracy of such statement.
In rendering the opinion set forth in paragraph 8 above, we have relied,
with your permission, upon a certificate of the Company.
This opinion is being delivered to you by us as counsel to the Company and
may not be delivered to or relied upon by any other person without our express
written approval.
Very truly yours,
E8212
<PAGE>
Exhibit A
REGISTRATION RIGHTS CONSENT
The undersigned, ACMA LIMITED ("ACMA"), is a party to that certain Amended
and Restated Registration Rights Agreement (the "Agreement") dated April 28,
1995 among ACMA LIMITED, NATIONAL SEMICONDUCTOR CORPORATION and ATMEL
CORPORATION (collectively, the "Holders") and PARADIGM TECHNOLOGY, INC. (the
"Company").
The Agreement provides that the Company shall not grant any registration
rights not set forth in the Agreement without the prior approval of the Holders
of at least fifty percent (50%) of the then outstanding Registrable Securities
(as defined in the Agreement). The Company desires that ACMA grant consent to
the grant by the Company from time to time in the future of certain limited
registration rights, as described more fully below.
Pursuant to the terms of Section 18 of the Agreement, the undersigned
Holders hereby consent to the grant in the future by the Company of additional
registration rights to third parties
<PAGE>
from time to time ("Additional Registration Rights"); provided that:
(i) the Additional Registration Rights do not alter adversely or
otherwise adversely affect the rights of ACMA and the other holders of
Registrable Securities under the Agreement; and
(ii) ACMA shall be entitled to revoke this consent at any time upon 10
days' written notice to the Company (with such revocation to apply
prospectively and not with respect to any registration rights that may
have been granted prior to such revocation by the Company).
In witness whereof, ACMA has caused this Registration Rights Consent to be
executed as of this 17th day of January, 1997.
ACMA LIMITED
By
-------------------------------------
Its
-------------------------------------
<PAGE>
Annex IV
to
Stock Purchase Agreement
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January __, 1997 (this
"Agreement"), is made by and between PARADIGM TECHNOLOGY, INC., a Delaware
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Stock Purchase
Agreement of even date herewith, between the Initial Investor and the Company
(the "Stock Purchase Agreement"), the Company has agreed to issue and sell to
the Initial Investor 5% Series A Convertible Redeemable Preferred Stock of the
Company (the "Preferred Stock") which will be convertible into shares of the
common stock, $.01 par value (the "Common Stock"), of the Company (the
"Conversion Shares") upon the terms and subject to the conditions of such
Preferred Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the Stock
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agrees as follows:
1. Definitions.
-----------
(a) As used in this Agreement, the following terms shall have the following
meanings:
(i) "Investor" means the Initial Investor and any permitted transferee
or assignee who agrees to become bound by the provisions of this Agreement
in accordance with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by
-1-
<PAGE>
preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the
Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of
effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares.
(iv) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Stock Purchase Agreement.
2. Registration.
------------
(a) Mandatory Registration. The Company shall prepare, and within thirty
----------------------
(30) days after the Closing Date (as that term is defined in Section 7 of the
Stock Purchase Agreement) file with the SEC, either a Registration Statement on
Form S-3 covering at least an aggregate of 1,600,000 shares of Common Stock for
the Initial Investors (or such lesser number as may be required by the SEC, but
in no event less than the number of shares into which the Preferred Stock would
be convertible at the time of filing of the Form S-3), or an amendment to any
pending Company Registration Statement on Form S-3, and such Registration
Statement or amended Registration Statement shall state that, in accordance with
Rule 416 and Rule 457 under the Securities Act it also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Preferred Stock resulting from adjustment in the Conversion
Price, or to prevent dilution resulting from stock splits, stock dividends or
similar event). If at any time the number of shares of Common Stock into which
the Preferred Stock may be converted exceeds the number of shares of Common
Stock covered by the Registration Statement on Form S-3, referred to in the
preceding sentence, the Company shall, within ten (10) business days after
receipt of a written notice from any Investor, either (i) amend such
Registration Statement, if such Registration Statement has not been declared
effective by the SEC at that time, to register all shares of Common Stock into
which the Preferred Stock may be converted, or (ii) if such Registration
Statement has been declared effective by the SEC at that time, file with the SEC
an additional Registration Statement on Form S-3 to register the shares of
Common Stock into which the Preferred Stock may be converted that exceed such
number of shares of Common Stock already registered. The
-2-
<PAGE>
Initial Investor acknowledges that such Registration Statement will also
cover additional shares required to be registered pursuant to an Amended and
Restated Registration Rights Agreement among the Company, Atmel Corporation,
ACMA Limited and National Semiconductor Corporation dated as of April 28, 1995.
(b) Underwritten Offering. If (at the Company's discretion) any offering
---------------------
pursuant to a Registration Statement pursuant to Section 2(a) hereof involves an
underwritten offering, the Investors who hold a majority in interest of the
Registrable Securities subject to such underwritten offering shall have the
right to select one legal counsel to represent their interests, and an
investment banker or bankers and manager or managers to administer the offering,
which investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. The Investors who hold the Registrable Securities
to be included in such underwriting shall pay all underwriting discounts and
commissions and other fees and expenses of such investment banker or bankers and
manager or managers so selected in accordance with this Section 2(b) (other than
fees and expenses relating to registration of Registrable Securities under
federal or state securities laws, which are payable by the Company pursuant to
Section 5 hereof) with respect to their Registrable Securities and the fees and
expenses of such legal counsel so selected by the Investors.
(c) Payments by the Company. If the Registration Statement covering the
-----------------------
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not effective within ninety (90) days after the Closing Date (the
"Initial Date"), or if the Investors have not otherwise received cash or
marketable securities in exchange for the Registrable Securities by the Initial
Date, then the Company will make payments to the Initial Investor in such
amounts and at such times as shall be determined pursuant to this Section 2(c).
The amount to be paid by the Company to the Initial Investor shall be determined
as of each Computation Date, and such amount shall be equal 3% of the Purchase
Price paid by the Initial Investor for the Preferred Stock pursuant to the Stock
Purchase Agreement from the Initial Date to the first Computation Date, and
three (3%) percent of the purchase price for each Computation Date thereafter,
pro rata to the date the Registration Statement is declared effective by the SEC
(the "Periodic Amount"). For example, if the Registration Statement is declared
effective on the 100th day, a payment of $1.00 (30/100 x 3% = 1%) is required
for $100 of Preferred Stock. The full Periodic Amount shall be paid by the
Company in immediately available funds within three business days after each
Computation Date.
As used in this Section 2(c), the following terms shall have the following
meanings:
-3-
<PAGE>
"Computation Date" means the date which is one hundred five (105) days
after the Closing Date and, if the Registration Statement required to be filed
by the Company pursuant to Section 2(a) has not theretofore been declared
effective by the SEC, each date which is thirty (30) days after the previous
Computation Date until such Registration Statement is so declared effective.
(d) Eligibility for Form S-3. The Company represents and warrants that it
meets all the requirements for the use of Form S-3 for registration of the
resale by the Initial Investor and any Investor who purchases the Registrable
Securities and the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
3. Obligations of the Company. In connection with the registration of the
--------------------------
Registrable Securities, the Company shall do each of the following.
(a) Prepare promptly, and file with the SEC as soon as possible after the
Closing Date, a Registration Statement with respect to not less than the number
of Registrable Securities provided in Section 2(a), above, and thereafter use
its best efforts to cause each Registration Statement relating to Registrable
Securities to become effective not later than ninety (90) days of the Closing
Date, and keep the Registration Statement effective pursuant to Rule 415 at all
times until the earliest (the "Registration Period") of (i) the date that is six
(6) months after the Closing Date (ii) the date when the Investors may sell all
Registrable Securities under Rule 144 or (iii) the date the Investors no longer
own any of the Registrable Securities, which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading; provided
however, that the Investor shall refrain from selling any securities included in
the Registration Statement at the request of the Company during the period
commencing forty-five (45) days after the effective date of the Registration
Statement, for a period of not more than thirty (30) days in the aggregate, if
the Company shall furnish to the Investor a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
shareholders (for any reason) for the Investor to sell securities during such
period.
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection
-4-
<PAGE>
with the Registration Statement as may be necessary to keep the
Registration effective at all times during the Registration Period, and, during
the Registration Period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company covered
by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statement;
(c) Furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel identified to the Company, (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(d) Use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction,
(C) file a general consent to service of process in any such jurisdiction, (D)
provide any undertakings that cause more than nominal expense or burden to the
Company or (E) make any change in its certificate of incorporation or by-laws,
which in each case the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its stockholders;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event
-5-
<PAGE>
of which the Company has knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement or other appropriate filing with the SEC to correct such untrue
statement or omission, and deliver a number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of any stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(g) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on a national securities exchange and on each additional national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("NASDAQ") "national market system security" within the meaning of Rule
11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the quotation of the Registrable Securities on the NASDAQ
National Market; or if, despite the Company's commercially reasonable efforts to
satisfy the preceding clause (i) or (ii), the Company is unsuccessful in doing
so, to secure NASDAQ authorization and quotation for such Registrable Securities
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities;
(h) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing Registrable Securities to be sold
under the Registration Statement and enable such certificates to be in such
denominations or amounts as the case may be, as the
-6-
<PAGE>
Investors may reasonably request and registered in such names as the
Investors may request.
(j) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of the
----------------------------
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor (the "Requested Information") if such Investor elects to have any
of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e) or 3(f),
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the
-7-
<PAGE>
prospectus covering such Registrable Securities current at the time of
receipt of such notice.
5. Expenses of Registration. Except as provided in Section 2(b), all
------------------------
reasonable expenses, other than underwriting discounts and commissions and other
fees and expenses of investment bankers and other than brokerage commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Section 3, but including, without limitation, all registration, listing, and
qualifications fees, printers and accounting fees, fees and disbursements of one
counsel for the Investors, and the fees and disbursements of counsel for the
Company, shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities are included in
---------------
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement of a material fact
contained in the Registration Statement or any post-effective amendment thereof
or the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) any untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state securities law (the matters in the foregoing clauses
(i) through (iii) being, collectively, "Violations"). Notwithstanding anything
to the contrary contained herein, the indemnification agreement contained in
this Section 6(a) shall not (A) apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon information furnished in
-8-
<PAGE>
writing to the Company by or on behalf of any Indemnified Person expressly
for use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto; (B) with respect to any
preliminary prospectus, inure to the benefit of any such person from whom the
person asserting any such Claim purchased the Registrable Securities that are
the subject thereof (or to the benefit of any person controlling such person) if
the untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (C) be available to the extent such Claim is based on a failure of
the Investor to deliver or cause to be delivered the prospectus made available
by the Company; or (D) apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Each Investor will indemnify the
Company and its officers, directors and agents against any claims arising out of
or based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
(b) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. In such event, the Company shall
-9-
<PAGE>
pay for only one separate legal counsel for the Investors; such legal
counsel shall be selected by the Investors holding a majority in interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates. The failure to deliver written notice to the indemnifying party within
a reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action. The indemnification required by
this Section 6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying party
------------
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
--------------------------
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be
-10-
<PAGE>
reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the Company
-------------------------------------
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of all or any portion
of such securities (or all or any portion of any Preferred Stock of the Company
which is convertible into such securities) of Registrable Securities only if:
(a) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein. In the event of any delay in filing the
Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay.
10. Amendment of Registration Rights. Any provision of this Agreement may
--------------------------------
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold a majority in interest of
the Registrable Securities not resold to the public. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company.
11. Miscellaneous.
-------------
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered (by hand,
by courier, by telephone line facsimile transmission, receipt confirmed, or
other means) or sent by certified mail, return receipt requested, properly
-11-
<PAGE>
addressed and with proper postage pre-paid (i) if to the Company, at
Paradigm Technology, Inc., with a copy to Jorge del Calvo, Esq., Pillsbury
Madison & Sutro LLP, 2700 Sand Hill Road, Menlo Park, California 94025-7020,
(ii) if to the Initial Investor, at the address set forth under its name in the
Stock Purchase Agreement, with a copy to Samuel Krieger, Esq., Krieger & Prager,
319 Fifth Avenue, Third Floor, New York, NY 10016 and (iii) if to any other
Investor, at such address as such Investor shall have provided in writing to the
Company, or at such other address as each such party furnishes by notice given
in accordance with this Section 11(b), and shall be effective, when personally
delivered, upon receipt and, when so sent by certified mail, four (4) calendar
days after deposit with the United states Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State. In the event that any provision
of this Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not effect the validity or enforceability of
any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
-12-
<PAGE>
(i) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3(a), or any delay in such performance could result in
direct damages to the Investors and the Company agrees that, in addition to any
other liability the Company may have by reason of any such failure or delay, the
Company shall be liable for all direct damages caused by any such failure or
delay, unless same is the result of force majeure. Neither party shall be liable
for consequential damages.
(j) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
PARADIGM TECHNOLOGY, INC.
By ______________________________
Title ___________________________
VINTAGE PRODUCTS, INC.
By ______________________________
Title ___________________________
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<PAGE>
ANNEX V
COMPANY DISCLOSURE
3h. Absence of Certain Changes. The Company has experienced losses in its
--------------------------
operations in recent quarters, and no assurance can be given that such losses
will not continue in the future. The Company expects to incur a loss for the
quarter ended December 31, 1996. Markets for the Company's principal products
have been depressed in recent quarters in recent by an excess of supply over
demand, and such oversupply in relation to demand has not been corrected after
September 30, 1996.
3i. Absence of Litigation. On August 12, 1996, the Company and several of its
---------------------
then officers and directors were named, along with PaineWebber, Inc., as
defendants in a purported class action (entitled Bulwa et al., v. Paradigm
-------------------------
Technology, Inc. et al., Santa Clara County Superior Court, Case No., CV759991)
- -----------------------
brought on behalf of shareholders who purchased the Company's stock between
November 20, 1995 and March 22, 1996. The complaint asserted six causes of
action against the Paradigm Defendants: negligent misrepresentation, fraud,
breach of fiduciary duty, violations of California Corporations Code sections
25400 and 25500 ("Sections 25400 and 25500"), violation of Corporations Code
section 1507, and violation of California Civil Code sections 1709 and 1710. The
Paradigm Defendants responded to the complaint by filing a demurrer which
challenged the legal sufficiency of all six causes of action. On December 12,
1996, the Court sustained the demurrer as to all of the causes of action except
for violation of Sections 25400 and 25500 (and as to all causes of action for
Director Michael Gulett). The Court, however, granted plaintiffs leave to amend
the complaint to attempt to cure the defects which caused the Court to sustain
the demurrer. Plaintiffs failed to amend within the allotted time and
independently expressed an intent to prosecute only the fourth cause of action.
On January 8, 1997, the Paradigm Defendants, with the exception of Michael
Gulett (who by virtue of the ruling on the demurrer has no cause of action
pending against him), filed an answer to the complaint denying any liability for
the acts and damages alleged by the plaintiffs.
On October 8, 1996 the Company received a demand letter from a law firm
representing Winbond Electronics Corp. ("Winbond") for an alleged liability owed
to Winbond by NewLogic. Winbond is apparently asserting the claim against the
Company as the successor in interest to NewLogic following the merger between
the two in May 1996. In January 1996, Winbond and NewLogic entered into and
agreement for NewLogic to develop a circuit design pursuant to the terms of an
agreement between the two. Winbond thereafter paid NewLogic a development fee of
$320,000. Winbond asserted that it is entitled to return of the $320,000 because
NewLogic breached the agreement. In lieu of
<PAGE>
the full $320,000, however, Winbond offered to accept $270,000 and a
promise from the Company that it would assist Winbond in recovering $80,000 in
taxes from the Taiwan government. On October 18, 1996, the Company made a
written response rejecting the offer and denying any liability for the return of
the development fee based on the effort expended by NewLogic in development of
the circuit design and Winbond's own acts in violation of the agreement. On
November 7, 1996 Winbond responded and indicated that it would be willing to
forego its monetary claims against the Company to the extent of design work in
progress (WIP) that the Company would deliver to Winbond for the project.
Paradigm responded favorably to this proposal, but has not received any further
formal communication from Winbond. The Company is unaware of any action being
filed by Winbond in connection with its claim.
3j and 3k. Absence of Events of Default; No Default. The Company's Loan and
----------------------------------------
Security Agreement with Greyrock Business Credit, dated October 25, 1996
prohibits the redemption, retirement, purchase or other acquisition of its stock
for value by the Company.
3m. Prior Issues. The Company has committed to issue to Greyrock Business
------------
Credit, a division of NationsCredit Commercial Corporation (the "Bank") a five
year warrant (the "Warrant") to purchase 20,000 shares of the Company's Common
Stock. The terms of this Warrant have not been fully negotiated, but the Bank
has proposed that the exercise price for the Warrant be set at $3.00 per share.
The Warrant has not yet been executed, and accordingly no Form D or other
securities law exemption form has been filed.
The Company has committed to grant a warrant to ACMA Limited to purchase a total
of 150,000 shares of Common Stock, exercisable at any time for three years from
the date of issuance at an exercise price equal to the mean between the last
reported inside bid and asked price quoted on the NASDAQ National Market on
January 22, 1997.
Approved: PARADIGM TECHNOLOGY, INC.
By: _____________________
Title: __________________
Date: January __, 1997
CERTIFICATE OF DESIGNATION,
PREFERENCES, RIGHTS AND LIMITATIONS
OF
5% SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
PARADIGM TECHNOLOGY, INC.
(Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware)
Paradigm Technology, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY that, pursuant to the provisions of section 151(g) of the General
Corporation Law of the State of Delaware and pursuant to authority conferred
upon the Board of Directors of the Corporation (the "Board") by the provisions
of the Restated Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), the Board has adopted the following resolution
providing for the issuance of a series of its preferred stock and fixing the
powers, designations, preferences and relative, participating, optional and
other rights, and the qualifications, limitations and restrictions thereof:
RESOLVED, that pursuant to authority expressly granted to and vested in the
Board by the provisions in Article IV of the Certificate of Incorporation
regarding the issuance of a series of preferred stock, par value $.01 per share,
there hereby is created a series of Preferred Stock which shall consist of five
hundred (500) shares and which series shall have the powers, designations,
preferences and relative, participating, optional and other rights, and the
qualifications, limitations and restrictions as follows:
1. Designation. The designation of the series of Pre- ferred Stock fixed by
-----------
this resolution shall be "5% Series A Convertible Redeemable Preferred Stock"
(hereinafter referred to as the "Series A Preferred Stock" or the "Series A
Shares").
2. Conversion Rights. The holders of the Series A Preferred Stock shall
-----------------
have the conversion rights as follows:
(a) Right to Convert. At any time following the earlier of (i) the
----------------
effectiveness of a registration statement for the common stock, par value $0.01
per share, of the Corporation (the "Common Stock" or "Common Shares") into which
the Series A Preferred Stock shall convert (the "Registration Statement") or
(ii) ninety (90) days from the date of original issuance of the Series A
Preferred Stock, each share of Series A Preferred Stock shall be convertible, at
the option of the holder thereof, into that number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (A) the sum of
(1) $10,000
-1-
<PAGE>
plus (2) the amount of all accrued but unpaid or accumulated dividends on
the shares of Series A Preferred Stock being so converted by (B) the Conversion
Price (determined as hereinafter provided) in effect at the time of conversion.
The "Conversion Price" shall be equal to the lower of (i) the closing sale price
of the Common Stock as quoted on the Nasdaq National Market on the day prior to
the date of initial issuance of the Series A Preferred Stock or (ii) eighty-two
percent (82%) of the average closing bid price of a share of Common Stock as
quoted on the Nasdaq National Market over the five (5) consecutive trading days
immediately preceding the date of the Conversion Notice (as defined in Section
2(d) hereof) of the Series A Preferred Stock as reported on the Nasdaq National
Market. In the event that such security is not traded on the Nasdaq National
Market, the average closing sale or bid price shall be as reported or quoted on
such other national or regional securities exchange or automated quotations
system upon which the Common Stock is listed and principally traded. In the
event that the Common Stock is not listed on any exchange or quoted on a
quotation system, the average closing sale or bid price shall be as reported or
quoted on any trading market in which quotes can be obtained.
(b) Automatic Conversion. If not sooner converted, all outstanding shares
--------------------
of Series A Preferred Stock shall be subject to automatic conversion on such
date which is the earlier of (i) twenty-four (24) months after the date of
original issuance thereof, (ii) six months from the effectiveness of the
Registration Statement or (iii) immediately prior to the consummation of the
acquisition of the Corporation pursuant to a merger or consolidation or the sale
of substantially all of the assets of the Corporation.
(c) Except in connection with an automatic conversion pursuant to Section
2(b) hereof, in no event shall a holder of Series A Preferred Stock be entitled
to convert any Series A Preferred Stock in excess of that number of shares upon
conversion of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Series A Convertible Preferred Stock), and (ii) the
number of shares of Common Stock issuable upon the conversion of the shares of
the Series A Preferred Stock with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder or its
affiliates of more than 4.9% of the outstanding shares of Common Stock of the
Corporation. For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder,
except as otherwise provided in clause (1) of such proviso.
-2-
<PAGE>
(d) Mechanics of Conversion. Before any holder of Series A Preferred Stock
-----------------------
shall be entitled voluntarily to convert the same into shares of Common Stock,
such holder shall surrender (within three (3) business days after the date of
the facsimile referred to below in this paragraph (d)) the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for such stock, and shall give written notice (the "Conversion
Notice") to the Corporation by facsimile (confirmed via telephonic notice) to
the Chief Executive Officer or Chief Financial Officer of the Corporation that
such holder elects to convert the same and shall state therein the number of
shares to be converted and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled.
Such conversion shall be deemed to have been made on the date of delivery of
such facsimile notice to the Corporation; provided that certificates
representing such Series A Shares are delivered within three (3) business days
to the transfer agent of the Corporation. If such certificates are not delivered
within three (b) business days after such facsimile, then such conversion shall
be deemed to occur on the date of delivery of such Series A Shares to the
transfer agent of the Corporation.
(e) Adjustments to Conversion Prices for Stock Dividends and for
------------------------------------------------------------
Combinations or Subdivisions of Common Stock. In the event that this Corporation
- --------------------------------------------
at any time or from time to time after the date of issuance of the Series A
Preferred Stock shall declare or pay, without consideration, any dividend on the
Common Stock payable in Common Stock or in any right to acquire Common Stock for
no consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Conversion
Price for the Series A Preferred Stock in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be proportionately
decreased or increased, as appropriate. In the event that this Corporation shall
declare or pay, without consideration, any dividend on the Common Stock payable
in any right to acquire Common Stock for no consideration, then the Corporation
shall be deemed to have made a dividend payable in Common Stock in an amount of
shares equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
-3-
<PAGE>
(f) Adjustments for Reclassification and Reorganization. If the Common
---------------------------------------------------
Stock issuable upon conversion of the Series A Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares provided for in Section 2(e)
hereof), the Conversion Price then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted so that the Series A Preferred Stock shall be convertible into, in lieu
of the number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of the Series A Preferred
Stock immediately before that change.
(g) Notices of Record Date. In the event that the Corporation shall propose
----------------------
at any time: (i) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus; (ii) to
offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; or (iv) to merge or
consolidate with or into any other corporation, or sell, lease or convey all or
substantially all of its assets, or to liquidate, dissolve or wind up; then, in
connection with each such event, the Corporation shall send to the holders of
Series A Preferred Stock:
(A) at least twenty (20) days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote, if any,
in respect of the matters referred to in (iii) and (iv) above; and
(B) in the case of the matters referred to in (iii) and (iv) above, at
least twenty (20) days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
Any notice required by the provisions of this Section 2 to be given to the
holders of shares of Series A Preferred Stock shall be deemed given if deposited
in the United States mail, postage prepaid, and addressed to each holder of
record at such holder's address appearing on the books of the Corporation.
-4-
<PAGE>
(h) Reservation of Stock Issuable Upon Conversion. The Corporation 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 conversion of the
shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; provided, however, that the
Corporation shall not issue more than a 20% Issuance pursuant to such
conversions. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, the Corporation may 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, including, without limitation,
engaging in best efforts to obtain the necessary stockholder approval.
(i) Fractional Shares. No fractional share shall be issued upon the
-----------------
conversion of any share or shares of Series A Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board).
3. Dividends. The holders of the Series A Preferred Stock shall be entitled
---------
to receive dividends as follows:
(a) The holders of the Series A Preferred Stock shall be entitled to
receive dividends at the rate of five percent (5%) per share per annum (as
adjusted for any stock dividends, combinations or splits with respect to such
shares). Such dividends shall be payable only in shares of Series A Preferred
Stock, and the Series A Preferred Stock shall not be entitled to any cash
dividends. Such dividends shall begin to accumulate upon the issuance of the
Series A Preferred Stock and shall be due and payable with respect to any share
of Series A Preferred Stock only immediately prior to the conversion of such
share of Series A Preferred Stock into Common Stock pursuant to Section 2
hereof.
(b) In the event the Corporation shall declare a distribution (other than
any distribution described in Section 5 or Section 6 hereof) payable in
securities of other persons, evidences of indebtedness issued by the Corporation
or other persons, assets (excluding cash dividends) or options or rights
-5-
<PAGE>
to purchase any such securities or evidences of indebtedness, then, in each
such case the holders of the Series A Preferred Stock shall be entitled to a
proportionate share of any such distribution as though the holders of the Series
A Preferred Stock were the holders of the number of shares of Common Stock into
which their respective shares of Series A Preferred Stock are convertible as of
the record date fixed for the determination of the holders of Common Stock
entitled to receive such distribution.
4. Voting Rights of Series A Preferred Stock. Except as otherwise required
-----------------------------------------
by law or Section 7 hereof, the holders of outstanding shares of Series A
Preferred Stock shall not be entitled to vote on any matters submitted to the
stockholders of the Corporation.
5. Liquidation Preference. The holders of the Series A Preferred Stock
----------------------
shall be entitled to a liquidation preference as follows:
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership thereof, the amount of
$10,000 per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares), respectively. If upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series A
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(b) After payment to the holders of the Series A Preferred Stock of the
amounts set forth in Section 5(a) hereof, the entire remaining assets and funds
of the Corporation legally available for distribution, if any, shall be
distributed among the holders of the Common Stock in proportion to the shares of
Common Stock then held by them.
(c) Whenever the distribution provided for in this Section 5 shall be
payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or other property
as determined in good faith by the Board.
6. Redemption.
----------
(a) Notwithstanding anything contained in this resolution to the contrary,
unless the approval of the stockholders
-6-
<PAGE>
referred to in clause (i) or (ii) below has previously been obtained, the
Corporation shall not be required to issue any Common Shares pursuant to any
optional or automatic conversion of Series A Shares under Section 2 hereof, and
the Series A Shares shall not be convertible into Common Shares, if, and to the
extent that, (i) the issuance of such Common Shares upon conversion, when taken
together with all prior issuances of Common Shares pursuant to Section 2 hereof,
would result in the issuance by the Corporation of a number of Common Shares
equal to or greater than twenty percent (20%) of the number of Common Shares
outstanding on the date of initial issuance of the Series A Preferred Stock (a
"20% Issuance"), and such 20% Issuance requires the prior approval of the
stockholders of the Corporation pursuant to any rule, regulation, stated policy,
practice or interpretation of the NASDAQ Stock Market applicable to the
Corporation, or (ii) the Board of Directors of the Corporation determines in
good faith that the issuance of such Common Shares upon conversion (whether or
not constituting a 20% Issuance) otherwise requires the prior approval of the
stockholders of the Corporation pursuant to any applicable rule, regulation,
stated policy, practice or interpretation of any stock exchange or stock market
on which the Common Shares are then listed or admitted to trading (such prior
approval of the stockholders referred to in clauses (i) and (ii) above herein
called the "Stockholder Approval Requirement").
(b) Following the first conversion of Series A Shares to which the
provisions of Section 6(a) hereof are applicable, the Corporation (i) shall
promptly give to all holders of the Series A Shares (determined of record not
more than fifteen (15) days before the date such notice is given) a notice
stating that the Corporation is unable to issue any further Common Shares upon
conversion of Series A Shares, and that the Series A Shares cannot be converted,
without compliance with the Stockholder Approval Requirement, and (ii) shall
take one of the following actions, at its election, within twenty (20) days
following the date of such notice:
(i) the Corporation shall notify all such holders of the Series A
Shares that it intends to seek stockholder approval pursuant to the
Stockholder Approval Requirement, in which event the Corporation shall
thereafter take all action necessary to duly call, give notice of, convene
and hold a meeting of its stockholders as promptly as reasonably
practicable to consider and vote on such matter; or
(ii) the Corporation shall obtain from the stock exchange or stock
market on which the Common Shares are then listed or admitted to trading a
waiver of or exception to the Stockholder Approval Requirement and shall
commence any mailing to stockholders notifying them of such waiver or
exception that is required by the rules of such stock exchange or stock
market; or
-7-
<PAGE>
(iii) the Corporation shall notify all such holders of the Series A
Shares that it is redeeming Series A Shares pursuant to the following
provisions of this Section 6:
provided, however, that if the Corporation elects to seek stockholder approval
pursuant to clause (i) above, and such stockholder approval is not obtained
within seventy-five (75) days following the date of the Corporation's notice to
the holders of the Series A Shares that it intends to seek such stockholder
approval, the Corporation shall promptly following the end of such seventy-five
(75) day period notify all holders of the Series A Shares that it is redeeming
Series A Shares pursuant to the following provisions of this Section 6. If the
Stockholder Approval Requirement is complied with or if a waiver of or exception
to the Stockholder Approval Requirement is obtained, the conversion rights of
the holders of the Series A Shares shall be reinstated.
(c) If the Corporation elects or is required to redeem Series A Shares
pursuant to Section (b) hereof, the Corporation shall (i) issue the Maximum
Number of Shares of Common Stock to the holder or holders of Series A Preferred
Stock whose Series A Preferred Stock is proposed to be converted, and will (ii)
redeem, out of funds legally available therefor, all of the Series A Shares that
remain after such conversion (a "Redemption") at a price per Series A Share
equal to $12,190 (as adjusted for any stock split, reverse stock split, stock
dividend, or similar event resulting in a change in the Series A Shares) plus an
amount equal to all dividends, if any, accrued but unpaid on such shares to the
earlier of the date fixed for redemption or the Maturity Date (the "Redemption
Price"). For purposes of this Section 6(c), the "Maximum Number of Shares of
Common Stock" shall mean the greatest number of shares of Common Stock that may
be issued upon conversion of shares of Series A Preferred Stock without causing
a 20% Issuance. The Company shall honor requests for conversion under this
Section 6 in order of receipt, and should the Company simultaneously receive
multiple requests for conversion of Series A Preferred Stock that would
otherwise cause a 20% Issuance, the Company shall honor such conversion requests
pro rata in proportion to the number of shares of Series A Preferred Stock
sought to be converted by each holder.
(d) The Corporation's notice of redemption pursuant to Section 6(b) hereof
shall be given to each holder of record of the Series A Shares to be redeemed
and shall specify the redemption date of such Redemption (which redemption date
shall not be later than twenty (20) days following the date of such notice of
redemption), the place or places at which such Redemption shall be effected and
the Redemption Price and shall call upon such holder to surrender to the
Corporation, in the manner and at a place designated, the certificate or
certificates representing the Series A Shares of such holder to
-8-
<PAGE>
be redeemed. No failure on the part of the Corporation to give any notice
or redemption required to be given by it under this Section 6, and no defect in
such notice or in the giving thereof, shall affect the validity of the
proceedings for such Redemption, except as to a holder of Series A Shares (i) to
whom the Corporation has failed to give such notice or (ii) whose notice was
defective. An affidavit of the Secretary of the Corporation that notice of
redemption has been given shall in the absence of fraud, be prima facie evidence
of the facts stated therein.
(e) Notwithstanding anything contained in this resolution to the contrary,
the obligation of the Corporation to redeem Series A Shares at any given time
shall be subject to such limitations and restrictions as may then be imposed on
the Corporation under applicable law or governmental regulation. If, on the date
on which a Redemption is to be effected, the Corporation shall be unable,
because of any applicable law or governmental regulation, to redeem the total
number of Series A Shares to be redeemed on such date, the Corporation shall
redeem, ratably among the holders of the Series A Shares to be redeemed, the
maximum number of such Series A Shares (if any) which it shall be permitted to
redeem under such law or regulation. At any time thereafter when funds of the
Corporation are legally available for the redemption of Series A Shares, such
funds shall immediately be used to redeem the balance of the Series A Shares
that the Corporation has become obligated to redeem on any such date or dates
but which it has not redeemed. If such funds are insufficient to redeem the
total number of such Series A Shares, such Series A Shares shall be redeemed
ratably among the holders of the Series A Shares.
(f) From and after the date fixed for a Redemption, notwithstanding that
any certificate for Series A Shares to be redeemed in such Redemption shall not
have been surrendered for cancellation, such Series A Shares shall no longer be
deemed to be outstanding, dividends thereon, if any, shall cease to accrue from
and after the earlier of the date so fixed or the Maturity Date, and the rights
of the holders of such Series A Shares shall forthwith after such redemption
date cease and terminate, excepting only the right of the holders thereof to
receive the Redemption Price thereof, but without interest, upon the surrender
of their respective certificates therefor; provided that if, on or after the
date fixed in any notice as the date of redemption, the Corporation shall
default in the payment of the Redemption Price of any Series A Shares entitled
to redemption upon the surrender of the certificate therefor, the dividend and
all other rights of the holders of such share (other than any conversion rights)
shall be reinstated retroactively to such redemption date.
(g) From and after the date fixed for a Redemption, the Corporation shall,
at the place or places specified in the notice of redemption, upon presentation
and surrender to the
-9-
<PAGE>
Corporation by the holder thereof of one or more certificates representing
the Series A Shares to be redeemed, deliver or cause to be delivered to or upon
the written order of such holder, a sum in cash equal to the Redemption Price of
each Series A Shares of such holder to be redeemed, together with, if the
certificate or certificates presented and surrendered by such holder represent a
greater number of Series A Shares than the number of Series A Shares to be
redeemed from such holder, one or more new certificates registered in the name
of such holder and representing the Series A Shares not redeemed.
(h) Except as provided in this Section 6, the Series A Shares are not
subject to any mandatory redemption by the Corporation. Nothing in this
resolution shall be determined to prohibit the Corporation from purchasing or
otherwise acquiring outstanding shares of its capital stock, whether now or
hereafter authorized, at any time and in any manner not prohibited by applicable
law.
(i) The Corporation shall not be required to maintain any sinking fund for
the redemption of Series A Shares pursuant to this Section 6.
7. Restrictions and Limitations.
----------------------------
(a) So long as at least any shares of Series A Preferred Stock remain
outstanding, the Corporation shall not, without the vote or written consent by
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock:
(i) Authorize, create or issue any other equity security senior to the
Series A Preferred Stock as to liquidation preferences; or
(ii) Amend, alter or repeal, by any means, its Certificate of
Incorporation if the powers, preferences, or special rights of the Series A
Preferred Stock would thereby be materially adversely affected.
-10-
<PAGE>
IN WITNESS WHEREOF, this certificate has been signed by Michael Gulett,
President of the Corporation, and attested to by Robert C. McClelland, Secretary
of the Corporation, as of the _____ day of January, 1997.
PARADIGM TECHNOLOGY, INC.
By
--------------------------------------
Michael Gulett
President
Attest:
By
----------------------------------
Robert C. McClelland
Secretary
-11-
PARADIGM
APPROVED BY: Michael Gulett
President and Chief Executive Officer
(408) 954-0500
CONTACT: Morgen-Walke Associates, Inc.
Doug Sherk, Lisa Laukkanen
(415) 296-7383
Emily Dupree, Josh Passman
(212) 850-5698
FOR IMMEDIATE RELEASE
- ---------------------
PARADIGM TECHNOLOGY, INC. REPORTS FOURTH QUARTER AND YEAR END RESULTS
San Jose, CA--(January 27, 1997)-- Paradigm Technology Inc. (Nasdaq:
PRDM) today announced financial results for the fourth quarter and year ended
December 31, 1996.
Revenue for the fourth quarter totaled $3.1 million compared to $5.2
million for the prior quarter, and $15.0 million for the fourth quarter of the
prior year. Net loss for the fourth quarter of 1996 was $12.7 million or $1.76
per share, including a loss of $4.6 million on the sale of Paradigm's wafer
fabrication facility, compared to net income of $1.8 million or $0.25 per share
for the fourth quarter of 1995. Weighted average shares outstanding in the
fourth quarter of 1996 were 7,210,000 compared to 7,305,000 in the year ago
period. On January 23, 1997, Paradigm raised net proceeds of approximately
$1,880,000 from the private placement of Series A Convertible Redeemable
Preferred Stock to a private investor.
For the year ended December 31, 1996, revenue was $23.2 million versus
$51.9 million for 1995. Net loss for the fiscal year 1996 was $36.4 million, or
$5.16 per share compared to net income of $5.3 million, or $0.83 per share in
the year ago period. The loss for year ended 1996 included a $4.6 million loss
regarding the sale of the wafer fab facility, as well as previously announced
charges of $3.8 million related to the acquisition of NewLogic Corporation and
inventory adjustments of $5.8 million. Weighted shares outstanding for the year
were 7,060,000 compared to 6,314,000 for 1995.
"While 1996 was a difficult year for both the semiconductor industry and
Paradigm, we initiated several aggressive actions to better position the Company
for a return to profitability," stated Michael Gulett, president and chief
executive officer. "During the year, we made the transition to a fabless
semiconductor company to provide us with greater flexibility and lower fixed
costs. In conjunction with the sale of our wafer fabrication facility we reduced
our workforce by 70 percent."
Gulett continued, "We continue our research and development activities to
expand our product offering. In early 1997, we plan to introduce several new
products which are manufactured on 0.35 micron 8" technology. These products are
targeted for the networking and telecommunications markets."
-continued-
<PAGE>
Except for historical information contained herein, the matters set forth
in this press release are forward looking statements that are subject to risks
and uncertainties, including the impact of competitive products and pricing, the
timely development and market acceptance of new products and upgrades to
existing products, availability and cost of products from Paradigm's suppliers,
industry wide shifts in supply and demand for semiconductor products and other
risks detailed from time to time in Paradigm's SEC reports and filings.
Headquartered in San Jose, California, Paradigm Technology, Inc. designs
and markets high speed, high density SRAM semiconductor devices to meet the
needs of advanced telecommunications devices, networks, workstations, high
performance PCs, advanced modems and complex military/aerospace applications.
The Company focuses on high performance, sub-10ns SRAMs where its technology
leadership in high speed and high density semiconductors can best be utilized.
Paradigm can be reached on the world wide web at www.prdm.com.
-tables to follow-
<PAGE>
<TABLE>
Paradigm Technology Inc.
Statements of Operations
(In thousands, except per share amounts)
(unaudited)
<CAPTION>
Quarter Ended Year Ended
Dec. 31, Dec. 31, Sept. 30, Dec. 31, Dec. 31,
1996 1995 1996 1996 1995
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales, net $ 3,082 $15,006 $ 5,191 $23,202 $51,923
Cost of goods sold 6,594 8,877 8,501 36,364 31,033
-------- ------- ------- -------- --------
Gross profit (loss) (3,512) 6,129 (3,310) (13,162) 20,890
-------- ------- ------- -------- --------
Operating expenses:
Research and development 1,647 1,254 1,657 6,243 4,621
Selling, general and
administrative 2,716 2,173 2,523 9,497 8,107
Loss on sale of wafer
fabrication facility 4,632 -- -- 4,632 --
Write-off of in-process
technology acquired -- -- -- 3,841 --
-------- ------- ------- -------- --------
Total operating expenses 8,995 3,427 4,180 24,213 12,728
-------- ------- ------- -------- --------
Operating income (loss) (12,507) 2,702 (7,490) (37,375) 8,162
Interest expense 211 263 305 1,121 1,369
Other income, net (28) (285) (515) (946) (615)
-------- ------- ------- -------- --------
Income (loss) before taxes (12,690) 2,724 (7,280) (37,550) 7,408
Provision (benefit) for
income taxes -- 926 -- (1,125) 2,145
-------- ------- ------- -------- --------
Net income (loss) $(12,690) $ 1,798 $(7,280) $(36,425) $ 5,263
======== ======= ======= ======== ========
Earnings (loss) per share $ (1.76) $ 0.25 $ (1.01) $ (5.16) $ 0.83
======== ======= ======= ======== ========
Weighted average shares
outstanding 7,210 7,305 7,184 7,060 6,314
======== ======= ======= ======== ========
</TABLE>
<PAGE>
<TABLE>
PARADIGM TECHNOLOGY, INC.
CONDENSED BALANCE SHEET
(In Thousands)
(Unaudited)
<CAPTION>
Pro Forma
At Dec. 31, At Dec. 31, At Dec. 31,
1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Cash and short-term investments $ 2,467 $ 587 $21,213
Accounts Receivable, net 2,937 2,937 10,424
Inventory 2,472 2,472 5,702
Other current Assets 4,918 4,918 1,883
------- -------- -------
Total current assets 12,794 10,914 39,222
------- -------- -------
Property and Equipment, net 6,638 6,638 17,331
Other Assets 190 190 179
------- -------- -------
Total Assets $19,622 $17,742 $56,732
======= ======= =======
Liabilities and
Stockholders' Equity:
Line of Credit $ 2,015 $ 2,015 $ --
Current Portion, Long-Term Debt 282 282 3,287
Accounts Payable and Other
Accrued Liabilities 9,009 9,009 9,311
------- -------- -------
Total Current Liabilities 11,306 11,306 12,598
------- -------- -------
Long-term Debt 92 92 4,349
Deferred Rent -- -- 436
------- -------- -------
Total Liabilities 11,398 11,398 17,383
------- -------- -------
Stockholders' Equity 36,178 36,298 32,878
Retained Earnings (Deficit) (29,954) (29,954) 6,471
------- -------- -------
Total Stockholders' Equity 8,224 6,344 39,349
------- -------- -------
Total Liabilities and
Stockholders' Equity $19,622 $ 17,742 $56,732
======= ======== =======
The December 1996 pro forma balance sheet reflects on a pro forma basis
the net proceeds of approximately $1,880,000 from the private placement of
convertible preferred stock for which funds were received on January 23, 1997.
</TABLE>
<PAGE>
PARADIGM
APPROVED BY: Michael Gulett
President and Chief Executive Officer
(408) 954-0500
CONTACT: Morgen-Walke Associates, Inc.
Doug Sherk, Lisa Laukkanen
(415) 296-7383
Emily Dupree, Josh Passman
(212) 850-5698
FOR IMMEDIATE RELEASE
- ---------------------
PARADIGM TECHNOLOGY, INC. ANNOUNCES PREFERRED STOCK FINANCING
San Jose, CA--(January 24, 1997)--Paradigm Technology Inc. (Nasdaq;
PRDM) today announced that it has raised net proceeds of approximately
$1,880,000 from the private placement of Series A Convertible Redeemable
Preferred Stock to a private investor.
The Preferred Stock is convertible into Common Stock following the earlier
of April 23, 1997 or the effectiveness of an SEC registration for the Common
Stock of the Company. The Preferred Stock is convertible at a conversion price
equal to the lower of (a) the closing sale price of the Common Stock on January
22, 1997, or (b) 82% of the average closing bid price of a share of Common Stock
over the five consecutive trading days prior to conversion. The Preferred Stock
will be automatically converted into Common Stock under certain circumstances.
The Preferred Stock bears cumulation dividends at an annual rate of 5%,
payable in shares of Preferred Stock, and payable only immediately prior to the
conversion of the Preferred Stock into Common Stock. The Preferred Stock has no
voting rights, except as required by law.
The Preferred Stock is subject to partial mandatory redemption by the
Company under certain circumstances if the Company is required to issue Common
Stock representing more than 20% of its currently outstanding shares of Common
Stock upon conversion of the Preferred Stock.
The holders of Preferred Stock have been granted certain registration
rights under which the Company will be required to file a registration statement
on Form S-3 with the SEC no later than February 22, 1997, and to maintain such
registration statement in effect for a period of at least six months, subject to
certain terms and conditions.
-continued-
Headquartered in San Jose, Calif., Paradigm Technology, Inc. designs and
markets high speed, high density SRAM semiconductor devices to meet the needs of
advanced telecommunications devices, networks, workstations, high performance
PCs, advanced modems and complex military/aerospace applications. The Company
focuses on high performance, sub-10ns SRAMs where its technology leadership in
high speed and high density semiconductors can best be utilized. Paradigm can be
reached on the world wide web at www.prdm.com .
###
