AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1997
REGISTRATION NO. ___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
PARADIGM TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 770140882-5
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
694 Tasman Drive
Milpitas, CA 95035
(408) 954-0500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MICHAEL GULETT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PARADIGM TECHNOLOGY, INC.
694 Tasman Drive
Milpitas, CA 95035
(408) 954-0500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
JORGE DEL CALVO
Pillsbury Madison & Sutro LLP
2700 Sand Hill Road
Menlo Park, CA 94025
---------------
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
=======================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED (1) PER SHARE OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.......... 4,000,000 shares $1.75(2) $7,000.00(2) $2,121.21
=======================================================================================================================
(1) Includes up to a maximum of 4,000,000 shares of Common Stock, issuable
upon conversion of or otherwise with respect to the Registrant's 5%
Series B Convertible Redeemable Preferred Stock.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based upon the average of the high and low sales
prices of the Company's Common Stock on the Nasdaq National Market on
August 20, 1997.
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information contained herein is subject to completion or +
+ amendment. A registration statement relating to these securities +
+ has been filed with the Securities and Exchange Commission. These +
+ securities may not be sold nor may offers to buy be accepted +
+ prior to the time the registration statement becomes effective. +
+ This prospectus shall not constitute an offer to sell or the +
+ solicitation of any offer to buy nor shall there be any sale of +
+ these securities in any State in which such offer, solicitation +
+ or sale would be unlawful prior to registration or qualification +
+ under the securities laws of any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 22, 1997
PROSPECTUS
- ----------
PARADIGM TECHNOLOGY, INC.
4,000,000 Shares of Common Stock
--------------
This Prospectus covers 4,000,000 shares (the "Shares") of Common Stock,
par value $.01 per share (the "Common Stock"), of Paradigm Technology, Inc.
("Paradigm" or the "Company") offered for the account of certain stockholders of
the Company (the "Selling Stockholders").
The Shares offered hereby by the Selling Stockholders consist of up to a
maximum of 4,000,000 shares of Common Stock issuable upon conversion of the
Company's 5% Series B Convertible Redeemable Preferred Stock (the "Series B
Preferred Stock"). For purposes of determining the number of Shares to be
offered by such Selling Stockholder for this Prospectus, the number of shares of
Common Stock calculated to be issuable upon conversion of the Series B Preferred
Stock is based on an extremely low conversion price as required by the Stock
Purchase Agreement with Lyford Ltd. Such conversion price is used merely for the
purposes of setting forth a number for this Prospectus and is less than the
average closing bid price over the five consecutive trading days preceding
August 20, 1997 which was $1.65625. The number of shares of Common Stock
issuable upon conversion of the Series B Preferred Stock is subject to
adjustment depending on the date of the conversion thereof and could be
materially less or more than such estimated amount depending on factors which
cannot be predicted by the Company including, among other things, the future
market price of the Common Stock. See "The Company--Recent Developments--Sale of
Preferred Stock" and "Risk Factors--Potential Volatility of Stock Price."
The Shares may be offered by the Selling Stockholders from time to time
in transactions (which may include block transactions) on the Nasdaq SmallCap
Market, in negotiated transactions, through a combination of such methods of
sale, or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker-dealers, who may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agents or to whom they may
sell as principals, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions). The Company will not receive any
of the proceeds from the sale of the Shares by the Selling Stockholders. The
Company has agreed to bear all expenses of registration of the Shares, but all
selling and other expenses incurred by a Selling Stockholder will be borne by
that Selling Stockholder.
The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and any commissions paid or any
discounts or concessions allowed to any such persons, and any profits received
on the resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Selling Stockholders"
and "Plan of Distribution."
The Common Stock, formerly traded on the Nasdaq National Market until
August 22, 1997, is now traded on the Nasdaq SmallCap Market under the symbol
"PRDM." On August 20, 1997, the last reported sale price of the Common Stock
reported on the Nasdaq National Market was $1.625 per share.
---------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY THE
SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
The date of this Prospectus is __________, 1997
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION...................................................... 2
DOCUMENTS INCORPORATED BY REFERENCE........................................ 3
THE COMPANY................................................................ 4
RISK FACTORS............................................................... 7
PRICE RANGE OF COMMON STOCK................................................ 15
USE OF PROCEEDS............................................................ 15
SELLING STOCKHOLDERS....................................................... 16
PLAN OF DISTRIBUTION....................................................... 16
LEGAL MATTERS.............................................................. 17
EXPERTS.................................................................... 17
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements, and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy and information statements, and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C., as
well as the regional offices of the Commission located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois, and 7 World Trade Center,
Suite 1300, New York, New York. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements, and other
information that are filed through the Commission's Electronic Data Gathering,
Analysis and Retrieval System. This Web site can be accessed at
http://www.sec.gov. The Common Stock of the Company is quoted on the Nasdaq
SmallCap Market. Reports, proxy statements and other information concerning the
Company may be inspected at the offices of the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is made to the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and, in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. Copies of the Registration Statement, including all exhibits thereto,
may be obtained from the Commission's principal office in Washington, D.C. upon
payment of the fees prescribed by the Commission, or may be examined without
charge at the offices of the Commission described above.
2
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Prospectus:
(1) the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, as amended by Form 10-K/A
Amendment No. 1 filed on April 23, 1997 and as amended
by Form 10-K/A Amendment No. 2 filed on April 30, 1997*;
(2) the Company's Current Report on Form 8-K, dated February
5, 1997 and filed with the Commission on February 6,
1997;
(3) the Company's Quarterly Report on Form 10-Q for the
quarterly period ending March 31, 1997;
(4) the Company's Current Report on Form 8-K, dated June 11,
1997 and filed with the Commission on June 12, 1997, as
amended by Form 8-K/A Amendment No. 1 filed with the
Commission on June 19, 1997;
(5) the Company's Current Report on Form 8-K, filed with the
Commission on July 30, 1997;
(6) the Company's Quarterly Report on Form 10-Q for the
quarterly period ending June 30, 1997, as amended by
Form 10-Q/A Amendment No. 1 filed with the Commission on
August 14, 1997;
(7) the Company's Current Report on Form 8-K, dated August
21, 1997 and filed with the Commission on August 22,
1997; and
(8) the Company's Registration Statement on Form 8-A
registering the Common Stock under Section 12(g) of the
Exchange Act.
All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
offering to which this Prospectus relates shall be deemed to be incorporated by
reference into this Prospectus and to be part of this Prospectus from the date
of filing thereof.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus and
the Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated herein modifies or replaces such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus or such Registration Statement. The Company
will provide without charge to each person to whom a copy of the Prospectus has
been delivered, and who makes a written or oral request, a copy of any and all
of the foregoing documents incorporated by reference in the Registration
Statement (other than exhibits unless such exhibits are specifically
incorporated by reference into such documents). Requests should be submitted in
writing or by telephone to Paradigm Technology, Inc., 694 Tasman Drive,
Milpitas, California 95035, telephone (408) 954-0500.
- --------
* The financial statements included in the Company's Annual Report on Form
10-K/A Amendment No. 1 has been amended by the Company's Current Report on
Form 8-K, dated August 21, 1997, filed with the Commission on August 22,
1997, which has also been incorporated herein by reference.
3
<PAGE>
THE COMPANY
Paradigm Technology, Inc. ("Paradigm" or the "Company") designs and
markets high speed, high density static random access memory ("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, 10
nanosecond ("ns") and faster SRAMs. For the year ended December 31, 1996, 10ns
and faster SRAMs accounted for approximately 36% of the Company's sales.
Paradigm believes its proprietary Complimentary Metal Oxide Semiconductor
("CMOS") process and design technologies enable it to offer SRAMs with high
speeds and small die sizes. Using a combination of innovative process
architecture and design know-how, the Company was one of the first companies to
introduce high speed CMOS SRAMs for three successive generations of product
densities: 256 kilobit ("K"), one megabit ("M"), and 4M. Paradigm's customers
include Hughes Network Systems, Motorola and US Robotics.
RECENT DEVELOPMENTS
The Company's recent operating results have consumed substantial amounts
of cash and have generated an aggregate net loss for the period from January 1,
1997 through June 30, 1997 of $3,707,000. During this period, the Company has
continued to experience a downward trend in product pricing which has
contributed to the poor operating results. In January 1997, the Company
completed the private placement of Series A Convertible Preferred Stock for net
proceeds of approximately $1,880,000 and in July 1997, the Company completed the
private placement of Series B Convertible Preferred Stock for net proceeds of
approximately $1,870,000. Management believes that these cash infusions will be
sufficient to meet the Company's projected working capital and other operating
cash requirements through at least the end of 1997. Also, during the period from
May 9, 1997 through July 7, 1997, the Company converted into Common Stock the
maximum number of shares of Series A Convertible Preferred Stock allowed without
obtaining stockholder approval for the issuance of additional shares of Common
Stock upon conversion of the Series A Convertible Preferred Stock. The number of
preferred shares converted was significantly less than anticipated (and,
therefore, the number of common shares issued upon conversion was significantly
greater than anticipated) due to the low price of the Company's Common Stock
during the period just prior to conversion. Without obtaining stockholder
approval to allow the Company to issue additional shares of its Common Stock
upon conversion of the remaining outstanding shares of Series A Convertible
Preferred Stock, the Company will be required to redeem such stock for cash in
the amount of approximately $1,200,000, which would cause an adverse affect on
the Company's liquidity. Should continued product pricing pressures or delayed
acceptance of the Company's new products continue to adversely affect the
Company's operating results, or if the Company does not obtain stockholder
approval to issue Common Stock upon conversion of the remaining shares of Series
A Convertible Preferred Stock rather than redeem such stock for cash, the
Company will have to pursue alternative financing opportunities. Management has
taken several steps to help ensure that adequate cash resources will continue to
be available to the Company. Among these steps are further planned reductions in
operating expenses, the proposed sale of additional equity securities and the
proposed conversion of certain trade payables to equity. In addition, a special
stockholders' meeting has been scheduled for September 19, 1997 to approve the
issuance of the additional Common Stock, among other matters.
As a result of these changes in circumstances, the Company's independent
accountants' reissued report on the Company's December 31, 1996 financial
statements includes an explanatory paragraph indicating that these matters raise
a substantial doubt about the Company's ability to continue as a going concern.
LISTING OF THE COMPANY'S COMMON STOCK. Prior to August 22, the Company's
Common Stock was listed on The Nasdaq National Market (the "NNM"). In order for
continued listing on the NNM, however, the Company was required to maintain (1)
$4,000,000 in net tangible assets because it has sustained losses from
continuing operations and/or net losses in three of its four most recent fiscal
years, (2) a $200,000 market value of the public float, (3) $1,000,000 in total
capital and surplus, (4) a minimum bid price of $1.00 per share and (5) two
marketmakers. As of June 30, 1997, the Company was not in compliance with items
(1) and (4) above.
4
<PAGE>
On July 15, 1997, The Nasdaq Stock Market ("Nasdaq") staff notified the
Company of a bid price deficiency and provided a ninety-day grace period within
which to regain compliance with this requirement. On August 8, 1997, Nasdaq,
based on a review of the Company's trading history from July 8 to the present,
indicated that the Company had regained compliance with the minimum closing bid
price requirement of $1.00. On August 20, 1997, Nasdaq informed the Company that
due to its failure to comply with the terms of the qualifications exception
granted to the Company, the Company's Common Stock would be removed from the NNM
and listed on The Nasdaq SmallCap Market (the "NSCM") effective August 22, 1997,
pursuant to a waiver to the initial inclusion bid price requirement. The Company
is in the process of appealing this decision.
On August 22, 1997, the Company announced that effective August 22,
1997, the Company's Common Stock, formerly listed on the NNM, would be listed on
the NSCM, pursuant to a waiver to the initial inclusion bid price requirement.
The Company's continued listing on the NSCM is contingent upon the Company
meeting certain conditions. In order to continue to be listed on the NSCM,
however, the Company must maintain a $200,000 market value of the public float
and $1,000,000 in total equity. In addition, continued inclusion on the NSCM
requires two market-makers and a minimum bid price of $1.00 per share. If the
Company fails to meet these maintenance criteria, it may result in the delisting
of the Company's securities from Nasdaq, and trading, if any, and the Company's
securities would thereafter be conducted in the non-Nasdaq over-the-counter
market. If the Company's securities are delisted, an investor could find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Company's securities. See "Risk Factors--Risks Relating to Low-Priced
Stock" and "Risk Factors--Risks Relating to Low-Priced Stock; Possible Effect of
"Penny Stock" Rules on Liquidity for the Company's Securities."
SALE OF PREFERRED STOCK. On January 23, 1997, Paradigm sold a total of
200 shares of 5% Series A Convertible Redeemable Preferred Stock (the "Series A
Preferred Stock") in a private placement to Vintage Products, Inc. at a price of
$10,000 per share, for total proceeds (net of payments to third parties) of
approximately $1,880,000. The Preferred Stock is convertible at the option of
the holder into the number of fully paid and nonassessable shares of Common
Stock as is determined by dividing (A) the sum of (1) $10,000 plus (2) the
amount of all accrued but unpaid or accumulated dividends on the shares of
Series A Preferred Stock being converted by (B) the Conversion Price in effect
at the time of conversion. The "Conversion Price" is equal to the lower of (i)
$2.25 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 notice of conversion
of the Series A Preferred Stock. The Company is not required to issue shares of
Common Stock equal to or greater than twenty percent (20%) of the Common Stock
outstanding on the date of the initial issuance of the Series A Preferred Stock.
At the time of the initial issuance of the Series A Preferred Stock, the Company
had outstanding 7,243,154 shares of Common Stock, twenty percent of which
equaled approximately 1,448,631 shares.
To date, the holders of the Series A Preferred Stock have converted 103
shares of Series A Preferred Stock into 1,439,620 shares of the Company's Common
Stock. As a result of these conversions, the Company has converted the maximum
number of shares of Series A Preferred Stock allowed without obtaining
stockholder approval for the issuance of additional shares of Common Stock upon
conversion of the Series A Preferred Stock. Without obtaining stockholder
approval to allow the Company to issue the additional shares of Common Stock,
the Company will be required to redeem such shares for cash of approximately
$1.2 million. A special stockholders' meeting has been scheduled for September
19, 1997 to obtain such approval.
On July 22, 1997, Paradigm sold a total of 200 Shares of 5% Series B
Convertible Redeemable Preferred Stock (the "Series B Preferred Stock") in a
private placement to Lyford Ltd. ("Lyford") at a price of $10,000 per share, for
total proceeds (net of payments to third parties) of approximately $1,870,000.
The Series B Preferred Stock is convertible at the option of the holder into the
number of fully paid and non-assessable shares of Common Stock as is determined
by dividing (A) the sum of (1) $10,000 plus (2) the amount of all accrued but
unpaid or accumulated dividends on the shares of Series B Preferred Stock being
converted by (B) the Conversion Price in effect at the time of conversion. The
"Conversion Price" is equal to the lower of (i) $1.375 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 notice of conversion of the Series B Preferred
Stock.
5
<PAGE>
A portion of the Series B Preferred Stock may be mandatorily redeemable
for cash to the extent that the number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock is in excess of 20% of the Common
Stock outstanding on the date of the original issuance of the Series B Preferred
Stock. Those "excess" preferred shares, and only those "excess" preferred
shares, are redeemable for cash for $12,190 per preferred share. The Company is
required to register the maximum number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock. The Company is not required to issue
shares of Common Stock equal to or greater than twenty percent (20%) of the
Common Stock outstanding on the date of the initial issuance of the Series B
Preferred Stock. At the time of the initial issuance of the Series B Preferred
Stock, the Company had outstanding 8,717,885 shares of Common Stock, twenty
percent of which equaled approximately 1,743,577 shares. The Company has the
option of seeking stockholder approval for the issuance of shares in excess of
1,743,577 shares, seeking Nasdaq National Market approval for the issuance of
shares in excess of 1,743,577 shares or redeeming the shares in excess of
1,743,577 shares. A special stockholders' meeting has been scheduled for
September 19, 1997 to obtain approval to eliminate the restriction on the number
of shares of Common Stock issuable upon conversion of the Series B Preferred
Stock.
The shares offered hereby by Lyford consist of a maximum of 4,000,000
shares of Common Stock issuable upon conversion of the Series B Preferred Stock.
For purposes of determining the number of shares to be offered by Lyford for
this Prospectus, the number of shares of Common Stock calculated to be issuable
upon conversion of the Preferred Stock is based on an extremely low conversion
price as required by the Stock Purchase Agreement with Lyford. Such conversion
price is used merely for the purposes of setting forth a number for this
Prospectus and is less than the average closing bid price over the five
consecutive trading days preceding August 20, 1997 which was $1.65625. The
number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock is subject to adjustment depending on the date of the conversion
thereof and could be materially less or more than such estimated amount
depending on factors which cannot be predicted by the Company including, among
other things, the future market price of the Common Stock. See "Risk
Factors--Potential Volatility of Stock Price."
The Company was incorporated in California in 1987 and reincorporated in
Delaware in 1995. The Company's executive offices are located at 694 Tasman
Drive, Milpitas, California 95035 and its telephone number is (408) 954-0500.
6
<PAGE>
WHEN USED IN THIS PROSPECTUS, THE WORDS "EXPECTS," "ANTICIPATES,"
"ESTIMATES" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS, WHICH INCLUDE STATEMENTS CONTAINED IN "RISK
FACTORS" CONCERNING THE TIMING OF AVAILABILITY AND FUNCTIONALITY OF PRODUCTS
UNDER DEVELOPMENT, PRODUCT MIX, TRENDS IN AVERAGE SELLING PRICES, THE PERCENTAGE
OF EXPORT SALES AND SALES TO STRATEGIC CUSTOMERS, THE ADOPTION OR RETENTION OF
INDUSTRY STANDARDS, AND THE AVAILABILITY AND COST OF PRODUCTS FROM THE COMPANY'S
SUPPLIERS, ARE SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING THOSE SET FORTH
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS, THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. THESE FORWARD-LOOKING
STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS. THE COMPANY EXPRESSLY
DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR
REVISIONS TO ANY FORWARD-LOOKING STATEMENT CONTAINED HEREIN TO REFLECT ANY
CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN
EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN
THE SHARES OF COMMON STOCK OFFERED HEREBY.
UNCERTAINTY OF FUTURE PROFITABILITY; NEED FOR ADDITIONAL FUNDS. The
Company's recent operating results have consumed substantial amounts of cash.
The Company believes that cash flow from operations and other existing and
potential sources of liquidity will be sufficient to meet its projected working
capital and other operating cash requirements through at least the remainder of
1997. However, there can be no assurance that the Company will not need
additional capital and if so, that such capital can be successfully obtained on
the terms acceptable to the Company or at all. The sale or issuance of
additional equity or convertible debt securities could result in additional
dilution to the Company's stockholders. There can be no assurance that
additional financing, if required, will be available when needed or, if
available, will be on terms acceptable to the Company.
Also, during the period from May 9, 1997 through July 7, 1997, the
Company converted into Common Stock the maximum number of shares of Series A
Preferred Stock allowed without obtaining stockholder approval for the issuance
of additional shares of Common Stock upon conversion of the Series A Preferred
Stock. The number of preferred shares converted was significantly less than
anticipated (and, therefore, the number of common shares issued upon conversion
was significantly greater than anticipated) due to the low price of the
Company's Common Stock during the period just prior to conversion. Without
obtaining stockholder approval to allow the Company to issue additional shares
of its Common Stock upon conversion of the remaining outstanding shares of
Series A Preferred Stock, the Company will be required to redeem such stock for
cash in the amount of approximately $1,200,000, which would cause an adverse
affect on the Company's liquidity. Should product pricing pressures or delayed
acceptance of the Company's new products continue to adversely affect the
Company's operating results, or if the Company does not obtain stockholder
approval to issue Common Stock upon conversion of the remaining shares of Series
A Preferred Stock rather than redeem such stock for cash, the Company will have
to pursue alternative financing opportunities. Management has taken several
steps to help ensure that adequate cash resources will continue to be available
to the Company. Among these steps are further planned reductions in operating
expenses, the proposed sale of additional equity securities and the proposed
conversion of certain trade payables to equity. In addition, a special
stockholders' meeting has been scheduled for September 19, 1997 to approve the
issuance of the additional Common Stock, among other matters.
CONTINUING LOSSES AND DOUBTFUL ABILITY TO CONTINUE AS A GOING CONCERN.
As a result of the Company's recent operating results consuming substantial
amounts of cash, and the fact that the Company may be required to redeem the
Series A Preferred Stock, the Company's independent accountants' reissued report
on the Company's December 31, 1996 financial statements includes an explanatory
paragraph indicating that these matters raise a substantial doubt about the
Company's ability to continue as a going concern. The Company is seeking
stockholder approval to eliminate the restriction on the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock and is
seeking to raise additional equity. However, there can be no assurance that the
Company's efforts will be successful.
7
<PAGE>
DILUTION OF COMMON STOCK. If stockholders approve the elimination on the
number of shares of Common Stock to be issued upon conversion of the Series A
Preferred Stock and Series B Preferred Stock (collectively, the "Preferred
Stock") and if the Company's Common Stock declines in price, the issuance of
additional shares of Common Stock upon conversion of the Preferred Stock might
have a dilutive effect on the Common Stock outstanding prior to such issuances.
There can be no assurance that the Company's Common Stock will not be diluted as
a result of conversion of the Preferred Stock.
FLUCTUATIONS IN QUARTERLY RESULTS. The Company has experienced
significant quarterly fluctuations in operating results and anticipates that
these fluctuations will continue. These fluctuations have been caused by a
number of factors, including changes in manufacturing yields by contracted
manufacturers, changes in the mix of products sold, the timing of new product
introductions by the Company or its competitors, cancellation or delays of
purchases of the Company's products, the gain or loss of significant customers,
the cyclical nature of the semiconductor industry and the consequent
fluctuations in customer demand for the Company's devices and the products into
which they are incorporated, and competitive pressures on prices. A decline in
demand in the markets served by the Company, lack of success in developing new
markets or new products, or increased research and development expenses relating
to new product introductions could have a material adverse effect on the
Company. Moreover, because the Company sets spending levels in advance of each
quarter based, in part, on expectations of product orders and shipments during
that quarter, a shortfall in revenue in any particular quarter as compared to
the Company's plan could have a material adverse effect on the Company.
Beginning in late 1995 and continuing into 1996 and 1997, the market for certain
SRAM devices experienced a significant excess supply relative to demand, which
resulted in a significant downward trend in prices. The market for the Company's
products could continue to experience a downward trend in pricing which could
adversely affect the Company's operating results. The Company's ability to
maintain or increase revenues in light of the current downward trend in product
prices will be highly dependent upon its ability to increase unit sales volumes
of existing products and to introduce and sell new products in quantities
sufficient to compensate for the anticipated declines in average selling prices
of existing products. Declining average selling prices will also adversely
affect the Company's gross margins unless the Company is able to reduce its
costs per unit to offset such declines. There can be no assurance that the
Company will be able to increase unit sales volumes, introduce and sell new
products, or reduce its costs per unit.
RISKS RELATING TO LOW-PRICED STOCKS. Prior to August 22, 1997, the
Company's Common Stock was listed on The Nasdaq National Market (the "NNM"). For
continued listing on the NNM, however, the Company was required to maintain (1)
$4,000,000 in net tangible assets because it has sustained losses from
continuing operations and/or net losses in three of its four most recent fiscal
years, (2) a $200,000 market value of the public float, (3) $1,000,000 in total
capital and surplus, (4) a minimum bid price of $1.00 per share and (5) two
market-makers. As of June 30, 1997, the Company was not in compliance with items
(1) and (4) above.
On July 15, 1997, The Nasdaq Stock Market ("Nasdaq") staff notified the
Company of a bid price deficiency and provided a ninety-day grace period within
which to regain compliance with this requirement. On August 8, 1997, Nasdaq,
based on a review of the Company's trading history from July 8 to the present,
indicated that the Company had regained compliance with the minimum closing bid
price requirement of $1.00. On August 20, 1997, Nasdaq informed the Company that
due to its failure to comply with the terms of the qualifications exception
granted to the Company, the Company's Common Stock would be removed from the NNM
and listed on The Nasdaq SmallCap Market (the "NSCM") effective August 22, 1997,
pursuant to a waiver to the initial inclusion bid price requirement. The Company
is in the process of appealing this decision.
On August 22, 1997, the Company announced that effective August 22,
1997, the Company's Common Stock, formerly listed on the NNM, would be listed on
the NSCM, pursuant to a waiver to the initial inclusion bid price requirement.
The Company's continued listing on the NSCM is contingent upon the Company
meeting certain conditions. In order to continue to be listed on the NSCM,
however, the Company must maintain a $200,000 market value of the public float
and $1,000,000 in total equity. In addition, continued inclusion on the NSCM
requires two market-makers and a minimum bid price of $1.00 per share. If the
Company fails to meet these maintenance criteria, it may result in the delisting
of the Company's securities from Nasdaq, and trading, if any, and the Company's
securities would thereafter be conducted in the non-Nasdaq over-the-counter
market. If the Company's securities are delisted, an investor could find it more
difficult to dispose of, or to obtain accurate quotations as to the market
8
<PAGE>
value of, the Company's securities. In addition, if the Common Stock were to
become delisted from trading on Nasdaq and the trading price of the Common Stock
were to remain below $5.00 per share, trading in the Common Stock would also be
subject to the requirements of certain rules promulgated under the Securities
Exchange Act of 1934, as amended, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). See "--Risks
Relating to Low-Priced Stock; Possible Effect of "Penny Stock" Rules on
Liquidity for the Company's Securities."
RISKS RELATING TO LOW-PRICED STOCK; POSSIBLE EFFECT OF "PENNY STOCK"
RULES ON LIQUIDITY FOR THE COMPANY'S SECURITIES. If the Company's securities
were not listed on a national securities exchange nor listed on a qualified
automated quotation system, they may become subject to Rule 15g-9 under the
Exchange Act, which imposes additional sales practice requirements on
broker-dealers that sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with a net worth in
excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 together
with their spouses). For transactions covered by Rule 15g-9, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale.
Consequently, such Rule may affect the ability of broker-dealers to sell the
Company's securities and may affect the ability of purchasers to sell any of the
Company's securities in the secondary market.
The Securities and Exchange Commission (the "Commission") has adopted
regulations that define a "penny stock" to be any equity security that has a
market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the Commission relating to the penny stock market. Disclosure is
also required to be made about sales commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock.
The foregoing required penny stock restrictions will not apply to the
Company's securities if the Company meets certain minimum net tangible assets or
average revenue criteria. There can be no assurance that the Company's
securities will qualify for exemption from the penny stock restrictions. In any
event, even if the Company's securities were exempt from such restrictions, the
Company would remain subject to Section 15(b)(6) of the Exchange Act, which
gives the Commission the authority to restrict any person from participating in
a distribution of penny stock, if the Commission finds that such a restriction
would be in the public interest.
If the Company's securities were subject to the rules on penny stocks,
the market liquidity for the Company's securities could be materially adversely
affected.
DEPENDENCE ON NEW PRODUCTS AND TECHNOLOGIES. The market for the
Company's products is characterized by rapidly changing technology, short
product life cycles, cyclical oversupply and rapid price erosion. Average
selling prices for many of the Company's products have generally decreased over
the products' life cycles in the past and are expected to decrease in the
future. Accordingly, the Company's future success will depend, in part, on its
ability to develop and introduce on a timely basis new products and enhanced
versions of its existing products which incorporate advanced features and
command higher prices. The success of new product introductions and enhancements
to existing products depends on several factors, including the Company's ability
to develop and implement new product designs, achievement of acceptable
production yields, and market acceptance of customers' end products. In the
past, the Company has experienced delays in the development of certain new and
enhanced products. Based upon the increasing complexity of both modified
versions of existing products and planned new products, such delays could occur
again in the future. Further, the cost of development can be significant and is
difficult to forecast. In addition, there can be no assurance that any new or
enhanced products will achieve or maintain market acceptance. If the Company is
unable to design, develop and introduce competitive products or to develop new
or modified designs on a timely basis, the Company's operating results will be
materially adversely affected.
9
<PAGE>
DEPENDENCE ON FOUNDRIES AND OTHER THIRD PARTIES. On November 15, 1996,
the Company sold its Fab to Orbit. Following the sale of the Fab, the Company
and Orbit entered into a Wafer Manufacturing Agreement (the "Orbit Agreement").
Per the Orbit Agreement, Orbit contracted to supply a quantity of wafers to the
Company over a specified period of time to offset Orbit's payment obligations
against the two promissory notes delivered in connection with the sale. At June
30, 1997, the Company completed its contractual obligations to purchase wafers
under the first note. In July 1997, the Company negotiated a payment of the
second promissory note. As part of the agreement, the Company allowed Orbit to
retain a portion of the note amount for repairs on equipment purchased as part
of the sale of the Fab and for other matters. As of July 31, 1997, the second
note has been fully paid.
The Company is also in the process of seeking wafer supply from other
offshore foundries, and anticipates that it will conduct business with other
foundries by delivering written purchase orders specifying the particular
product ordered, quantity, price, delivery date and shipping terms and,
therefore, such foundries will not be obligated to supply products to the
Company for any specific period, in any specific quantity or at any specified
price, except as may be provided in a particular purchase order. Reliance on
outside foundries involves several risks, including constraints or delays in
timely delivery of the Company's products, reduced control over delivery
schedules, quality assurance, potential costs and loss of production due to
seismic activity, weather conditions and other factors. To the extent a foundry
terminates its relationship with the Company, or should the Company's supply
from a foundry be interrupted or terminated for any other reason, the Company
may not have a sufficient amount of time to replace the supply of products
manufactured by the foundry. Should the Company be unable to obtain a sufficient
supply of products to enable it to meet demand, it could be required to allocate
available supply of its products among its customers. Until recently, there has
been a worldwide shortage of advanced process technology foundry capacity and
there can be no assurance that the Company will obtain sufficient foundry
capacity to meet customer demand in the future, particularly if that demand
should increase. The Company is continuously evaluating potential new sources of
supply. However, the qualification process and the production ramp-up for
additional foundries could take longer than anticipated, and there can be no
assurance that such sources will be able or willing to satisfy the Company's
requirements on a timely basis or at acceptable quality or per unit prices.
Constraints or delays in the supply of the Company's products, whether
because of capacity constraints, unexpected disruptions at the current or future
foundries or assembly houses, delays in obtaining additional production at the
existing foundry or in obtaining production from new foundries, shortages of raw
materials, or other reasons, could result in the loss of customers and other
material adverse effects on the Company's operating results, including effects
that may result should the Company be forced to purchase products from higher
cost foundries or pay expediting charges to obtain additional supply.
SEMICONDUCTOR INDUSTRY; SRAM MARKET. The semiconductor industry is
highly cyclical and has been subject to significant economic downturns at
various times, characterized by diminished product demand, production
overcapacity and accelerated erosion of average selling prices. During 1996 and
so far in 1997, the market for certain SRAM devices experienced an excess supply
relative to demand which resulted in a significant downward trend in prices. The
Company expects to continue to experience a downward trend in pricing which
could adversely affect the Company's operating margins. The selling prices that
the Company is able to command for its products are highly dependent on
industry-wide production capacity and demand, and as a consequence the Company
could experience rapid erosion in product pricing which is not within the
control of the Company and which could adversely effect the Company's operating
results. The Company expects that additional SRAM production capacity will
become increasingly available in the foreseeable future, and such additional
capacity may adversely affect the Company's margins and competitive position. In
addition, the Company may experience period-to-period fluctuations in operating
results because of general semiconductor industry conditions, overall economic
conditions, or other factors. The Company's business is also subject to the
risks associated with the imposition of legislation and regulations relating to
the import or export of semiconductor products.
LITIGATION. On August 12, 1996, a securities class action lawsuit was
filed in Santa Clara County Superior Court against the Company and certain of
its officers and directors (the "Paradigm Defendants"). The class alleged by
plaintiffs consists of purchasers of the Company's Common Stock from November
20, 1995 to March 22, 1996, inclusive. The complaint alleges negligent
misrepresentation, fraud and deceit, breach of fiduciary duty, and violations of
certain provisions of the California Corporate Securities Law and Civil Code.
The plaintiffs seek an
10
<PAGE>
unspecified amount of compensatory and punitive damages. Plaintiffs allege,
among other things, that the Paradigm Defendants wrongfully represented that the
Company would have protection against adverse market conditions in the
semiconductor market based on the Company's focus on high speed, high
performance semiconductor products. The Paradigm Defendants intend to vigorously
defend the action. On September 30, 1996, the Paradigm Defendants filed a
demurrer seeking to have plaintiffs' entire complaint dismissed with prejudice.
On December 12, 1996, the Court sustained the demurrer as to all of the causes
of action except for violation of certain provisions of the California Corporate
Securities Law and Civil Code. 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. On
January 8, 1997, the Paradigm Defendants filed an answer to the complaint
denying any liability for the acts and damages alleged by the plaintiffs.
Plaintiffs have since served the Paradigm Defendants with discovery requests for
production of documents and interrogatories, to which the Paradigm Defendants
have responded, with other responses not yet due. Plaintiffs have also
subpoenaed documents from various third parties. The Paradigm Defendants have
served the plaintiffs with an initial set of discovery requests, to which
Plaintiffs have responded. The Paradigm Defendants also took the depositions of
the named Plaintiffs on April 9, 1997. Following a hearing on Plaintiffs' motion
for class certification on May 20, 1997, the court reset the motion for hearing
on September 2, 1997. There can be no assurance that the Company will be
successful in such defense. Even if Paradigm is successful in such defense, it
may incur substantial legal fees and other expenses related to this claim. If
unsuccessful in the defense of any such claim, the Company's business, operating
results and cash flows could be materially adversely affected.
On February 21, 1997, an additional purported class action lawsuit was
filed in Santa Clara County Superior Court against the Company and certain of
its officers and directors, with causes of action and factual allegations
essentially identical to those of the August 12, 1996 class action lawsuit. This
second class action is asserted against the same Paradigm Defendants,
PaineWebber, Inc. and Smith Barney. The Paradigm Defendants have authorized
counsel to acknowledge service which occurred on April 9, 1997. Prior to the
hearing on the Paradigm Defendants' demurrer to the initial complaint,
Plaintiffs amended their complaint to incorporate factual allegations derived
from the May 19, 1997 lawsuit described below. The Paradigm Defendants have
filed a demurrer to the amended complaint, which is set for hearing on September
9, 1997. The Paradigm Defendants believe the new class action to be essentially
identical to the causes of action and factual allegations as the August 12, 1996
class action. Therefore, the Company believes that such action probably will be
subject to the demurrer which the Court sustained in the August 12, 1996 class
action as to all causes of action asserted against Michael Gulett and all but
one of the causes of action asserted against the remaining Paradigm Defendants.
There can be no assurances that the Court will determine that the February 21,
1997 class action will be subject to the demurrer or that the Company will be
successful in the defense of the class actions. Even if Paradigm is successful
in such defense, it may incur substantial legal fees and other expenses related
to this claim. If unsuccessful in the defense of any such claim, the Company's
business, operating results and cash flows could be materially adversely
affected.
On May 19, 1997, several former employees of the Company filed an action
in Santa Clara County Superior Court. The complaint names as defendants the
Company, Michael Gulett, Richard Veldhouse, Dennis McDonald and Chiang Lam.
Plaintiffs filed with the complaint a notice that they consider their case
related legally and factually to the August 12, 1996 class action lawsuit. The
Complaint alleges fraud, breach of fiduciary duty and violations of certain
provisions of the California Corporate Securities Law and Civil Code. Plaintiffs
allege that they purchased the Company's stock at the allegedly inflated prices
and were damaged thereby. The Plaintiffs seek an unspecified amount of
compensatory, rescissory and/or punitive damages. Defendants' response to the
complaint is due September 12, 1997. There can be no assurance that the Company
will be successful in such defense. Even if Paradigm is successful in such
defense, it may incur substantial legal fees and other expenses related to this
claim. If unsuccessful in the defense of any such claim, the Company's business,
operating results and cash flows could be materially adversely affected.
The Company is involved in various other litigation and potential
claims. Due to the inherent uncertainty of litigation, management is not able to
reasonably estimate losses that may be incurred in relation to this litigation.
However, based on the facts presently known, management believes that the
resolution of these matters will not have a material adverse impact on the
results of operations or the financial position of the Company.
11
<PAGE>
PRODUCT AND CUSTOMER CONCENTRATION; DEPENDENCE ON TELECOMMUNICATIONS AND
COMPUTER INDUSTRIES. Currently, substantially all of the Company's sales are
derived from the sale of SRAM products. Substantially all of the Company's
products are incorporated into telecommunications and computer-related products.
The telecommunications and computer industries have recently experienced strong
unit sales growth, which has increased demand for integrated circuits, including
the memory products offered by the Company. However, these industries have from
time to time experienced cyclical, depressed business conditions. Such industry
downturns have historically resulted in reduced product demand and declining
average selling prices. The Company's business and operating results could be
materially and adversely affected by a downturn in the telecommunications or
computer industries in the future.
COMPETITION. The semiconductor industry is intensely competitive and is
characterized by rapidly changing technology, short product life cycles,
cyclical oversupply and rapid price erosion. The Company competes with large
domestic and international semiconductor companies, most of which have
substantially greater financial, technical, marketing, distribution, and other
resources than the Company. The Company's principal competitors in the high
performance SRAM market include Motorola and Micron Technology. Other
competitors in the SRAM market include Alliance Semiconductor, Cypress
Semiconductor, Integrated Device Technology, Integrated Silicon Solution,
Samsung and numerous other large and emerging semiconductor companies. In
addition, other manufacturers can be expected to enter the high speed, high
density SRAM market.
The ability of the Company to compete successfully depends on elements
outside its control, including the rate at which customers incorporate the
Company's products into their systems, the success of such customers in selling
those systems, the Company's protection of its intellectual property, the
number, nature, and success of its competitors and their product introductions,
and general market and economic conditions. In addition, the Company's success
will depend in large part on its ability to develop, introduce, and manufacture
in a timely manner products that compete effectively on the basis of product
features (including speed, density, die size, and packaging), availability,
quality, reliability, and price, together with other factors including the
availability of sufficient manufacturing capacity and the adequacy of production
yields. There is no assurance that the Company will be able to compete
successfully in the future.
STRATEGIC RELATIONSHIPS; POTENTIAL COMPETITION. The Company, pursuant to
certain licenses of its technology, has entered into strategic relationships
with NKK Corporation ("NKK") and Atmel Corporation ("Atmel"). The Company has
had a long-standing business relationship with NKK which began in October 1992.
The Company, NKK and affiliates of NKK entered into several equity and debt
transactions which provided start-up and development funding to the Company.
Given the long-standing relationship, the Company and NKK entered into three
technology license and development agreements which provide for NKK to supply
the Company a specified number of 1M SRAMs for three years. These Agreements
provided funding to the Company.
The Company's business relationship with Atmel began in April 1995 when
pursuant to certain agreements, Atmel purchased a substantial number of shares
of the Company's capital stock from the Company, certain stockholders of the
Company who had been unsecured creditors of the Company as of the reorganization
and from the Company's equipment lessors. Atmel also acquired certain warrants
to purchase shares of the Company's Common Stock. In 1995, the Company and Atmel
entered into a five-year License and Manufacturing Agreement pursuant to which
Atmel would provide the capacity to manufacture wafers at its wafer
manufacturing facility. The Company entered into such agreement with Atmel
because Atmel provided the Company with significant wafer manufacturing capacity
when such capacity was in short supply.
The Company previously licensed the design and process technology for
substantially all of its products at such time, including certain of its 256K,
1M and 4M products, to NKK as a source of revenue. The Company has not licensed
any of its current products to NKK. In the future, the Company may compete with
NKK with respect to all of such products in certain Pacific Rim countries, North
America and Europe and, as to certain of its 256K and 1M products, in the rest
of the world. In 1995, NKK commenced production of products using the Company's
design and process technologies, and therefore may become a more significant
competitor of the Company. Paradigm has also licensed to Atmel the right to
produce certain of its SRAM products which provided significant wafer
manufacturing capacity. As a result, the Company is likely to compete with Atmel
with respect to such
12
<PAGE>
products. Because Atmel has greater resources than the Company and has foundry
capacity, any such competition could adversely affect the Company. To the extent
that the Company enters into similar arrangements with other companies, it may
compete with such companies as well.
DEPENDENCE ON PATENTS, LICENSES AND INTELLECTUAL PROPERTY; POTENTIAL
LITIGATION. The Company intends to continue to pursue patent, trade secret, and
mask work protection for its semiconductor process technologies and designs. To
that end, the Company has obtained certain patents and patent licenses and
intends to continue to seek patents on its inventions and manufacturing
processes, as appropriate. The process of seeking patent protection can be long
and expensive, and there is no assurance that patents will be issued from
currently pending or future applications or that, if patents are issued, they
will be of sufficient scope or strength to provide meaningful protection or any
commercial advantage to the Company. In particular, there can be no assurance
that any patents held by the Company will not be challenged, invalidated, or
circumvented, or that the rights granted thereunder will provide competitive
advantage to the Company. The Company also relies on trade secret protection for
its technology, in part through confidentiality agreements with its employees,
consultants and third parties. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known to
or independently developed by others. In addition, the laws of certain
territories in which the Company's products are or may be developed,
manufactured, or sold may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor industry. In the future,
litigation may be necessary to enforce patents issued to the Company, to protect
trade secrets or know-how owned by the Company, or to defend the Company against
claimed infringement of the rights of others and to determine the scope and
validity of the proprietary rights of others. The Company has from time to time
received, and may in the future receive, communications alleging possible
infringement of patents or other intellectual property rights of others. Any
such litigation could result in substantial cost to and diversion of effort by
the Company, which could have a material adverse effect on the Company. Further,
adverse determinations in such litigation could result in the Company's loss of
proprietary rights, subject the Company to significant liabilities to third
parties, require the Company to seek licenses from third parties, or prevent the
Company from manufacturing or selling its products, any of which could have a
material adverse effect on the Company.
INTERNATIONAL OPERATIONS. A significant portion of the Company's sales
are attributable to sales outside the United States, primarily in Asia and
Europe, and the Company expects that international sales will continue to
represent a significant portion of its sales. In addition, the Company expects
that a significant portion of its products will be manufactured by independent
third parties in Asia. Therefore, the Company is subject to the risks of
conducting business internationally, and both manufacturing and sales of the
Company's products may be adversely affected by political and economic
conditions abroad. Protectionist trade legislation in either the United States
or foreign countries, such as a change in the current tariff structures, export
compliance laws, or other trade policies, could adversely affect the Company's
ability to have products manufactured or sell products in foreign markets. The
Company cannot predict whether quotas, duties, taxes, or other charges or
restrictions will be imposed by the United States, Hong Kong, Japan, Taiwan, or
other countries upon the importation or exportation of the Company's products in
the future, or what effect any such actions would have on its relationship with
NKK or other manufacturing sources, or its general business, financial condition
and results of operations. In addition, there can be no assurance that the
Company will not be adversely affected by currency fluctuations in the future.
The prices for the Company's products are denominated in dollars. Accordingly,
any increase in the value of the dollar as compared to currencies in the
Company's principal overseas markets would increase the foreign
currency-denominated sales prices of the Company's products, which may
negatively affect the Company's sales in those markets. The Company has not
entered into any agreements or instruments to hedge the risk of foreign currency
fluctuations. Currency fluctuations in the future may also increase the
manufacturing costs of the Company's products. Although the Company has not to
date experienced any material adverse effect on its operations as a result of
such international risks, there can be no assurance that such factors will not
adversely impact the Company's general business, financial condition and results
of operations.
13
<PAGE>
EMPLOYEES; MANAGEMENT OF GROWTH. The Company's future success will be
heavily dependent upon its ability to attract and retain qualified technical,
managerial, marketing and financial personnel. The Company has experienced a
high degree of turnover in personnel, including at the senior and middle
management levels. The competition for such personnel is intense and includes
companies with substantially greater financial and other resources to offer such
personnel. There can be no assurance that the Company will be able to attract
and retain the necessary personnel, or successfully manage its expansion, and
any failure to do so could have a material adverse effect on the Company.
POTENTIAL VOLATILITY OF STOCK PRICE. The trading price of the Company's
Common Stock is subject to wide fluctuations in response to variations in
operating results of the Company and other semiconductor companies, actual or
anticipated announcements of technical innovations or new products by the
Company or its competitors, general conditions in the semiconductor industry and
the worldwide economy, and other events or factors. The Company's stock traded
from a high of $37.25 in August 1995 to a low of $0.68 in June 1997. In
addition, the stock market has in the past experienced extreme price and volume
fluctuations, particularly affecting the market prices for many high technology
companies, and these fluctuations have often been unrelated to the operating
performance of the specific companies. These market fluctuations may adversely
affect the market price of the Company's Common Stock.
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. Certain provisions of
the Company's Certificate of Incorporation and Bylaws and of Delaware law could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. Such provisions could diminish the opportunities for
a stockholder to participate in tender offers, including tender offers at a
price above the then current market value of the Common Stock. Such provisions
may also inhibit fluctuations in the market price of the Common Stock that could
result from takeover attempts. In addition, the Board of Directors, without
further stockholder approval, may issue Preferred Stock that could have the
effect of delaying or preventing a change in control of the Company. The
issuance of Preferred Stock could also adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded in the over-the-counter market on the Nasdaq
National Market under the symbol "PRDM." The following table sets forth, for the
Company's fiscal years indicated, the high and low last sale prices of the
Common Stock as reported by the Nasdaq National Market.
<TABLE>
High Low
---- ---
<S> <C> <C>
1995
Second Quarter (from June 28, 1995)......... $23.25 $17.25
Third Quarter............................... 37.25 22.25
Fourth Quarter.............................. 30.25 12.00
1996
First Quarter............................... $19.00 $8.25
Second Quarter.............................. 12.00 6.25
Third Quarter............................... 7.38 3.88
Fourth Quarter.............................. 5.50 2.06
1997
First Quarter............................... $3.00 $1.38
Second Quarter.............................. 1.88 .68
Third Quarter (through August 20, 1997)..... 2.22 .72
</TABLE>
On August 20, 1997, there were approximately 265 holders of record of
the Common Stock. See the cover page of this Prospectus for the last sales price
of the Common Stock reported on the Nasdaq National Market as of a recent date.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders.
15
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information as of August 20, 1997
regarding the beneficial ownership of Common Stock by each of the Selling
Stockholders and the Shares offered hereby by such Selling Stockholders.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Number of Beneficially
Owned Prior Shares Owned After
to Offering(1) Being Offered Offering(1)
------------------- ------------- -------------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Lyford Ltd.(2)
28 Hagvura
Karni-Shomron, Israel............ 4,000,000 45.6% 4,000,000 -- --%
- -------------
* Less than 1%.
(1) Information with respect to beneficial ownership is based upon
information obtained from the Selling Stockholders.
(2) Represents up to a maximum of 4,000,000 shares of Common Stock issuable
upon conversion of the Series B Preferred Stock. For purposes of
determining the number of Shares to be offered by Lyford Ltd. for this
Prospectus, the number of shares of Common Stock calculated to be
issuable upon conversion of the Preferred Stock is based on an extremely
low conversion price as required by the Stock Purchase Agreement with
Lyford. Such conversion price is used merely for the purposes of setting
forth a number for this Prospectus and is less than the average closing
bid price over five consecutive trading days preceding August 20, 1997
which was $1.65625. The number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock is subject to adjustment
depending on the date of the conversion thereof and could be materially
less or more than such estimated amount depending on factors which cannot
be predicted by the Company including, among other things, the future
market price of the Common Stock. See "The Company--Recent
Developments--Sale of Preferred Stock" and "Risk Factors--Potential
Volatility of Stock Price."
John Garnsford is a director of Lyford who has voting and investment
power with respect to the shares of Common Stock held by Lyford.
</TABLE>
Because a Selling Stockholder may offer by this Prospectus all or some
part of the Common Stock which he or she holds, no estimate can be given as of
the date hereof as to the amount of Common Stock actually to be offered for sale
by a Selling Stockholder or as to the amount of Common Stock that will be held
by a Selling Stockholder upon the termination of such offering. See "Plan of
Distribution."
PLAN OF DISTRIBUTION
Sales of the Shares may be effected by or for the account of the Selling
Stockholders from time to time in transactions (which may include block
transactions) on The Nasdaq SmallCap Market, in negotiated transactions, through
a combination of such methods of sale, or otherwise, at fixed prices that may be
changed, at market prices prevailing at the time of sale or at negotiated
prices. The Selling Stockholders may effect such transactions by selling the
Shares directly to purchasers, through broker-dealers acting as agents for the
Selling Stockholders, or to broker-dealers who may purchase Shares as principals
and thereafter sell the Shares from time to time in transactions (which may
include block transactions) on The Nasdaq SmallCap Market, in negotiated
transactions, through a
16
<PAGE>
combination of such methods of sale, or otherwise. In effecting sales,
broker-dealers engaged by a Selling Stockholder may arrange for other
broker-dealers to participate. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they may sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of the Securities Act. Any
commissions paid or any discounts or concessions allowed to any such persons,
and any profits received on the resale of the Shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
The Company has agreed to bear all expenses of registration of the
Shares (other than fees and expenses, if any, of counsel or other advisors to
the Selling Stockholders). Any commissions, discounts, concessions or other
fees, if any, payable to broker-dealers in connection with any sale of the
Shares will be borne by the Selling Stockholder selling such Shares.
LEGAL MATTERS
Certain legal matters with respect to the validity of Common Stock
offered hereby are being passed upon for the Company by Pillsbury Madison &
Sutro LLP, Menlo Park, California.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Current Report on Form 8-K of Paradigm Technology, Inc., dated August 21,
1997 and filed on August 22, 1997, have been so incorporated in reliance on the
report (which contains an explanatory paragraph related to the Company's
reorganization on June 21, 1994 and which contains an explanatory paragraph
relating to the Company's ability to continue as a going concern as described in
Note 1 to the financial statements) of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered hereby. Normal commission expenses and brokerage fees are payable
individually by the Selling Stockholders. All amounts are estimated except the
Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
Amount
------
<S> <C>
SEC registration fee......................................... $ 2,121.21
Accounting fees and expenses................................. 10,000.00
Legal fees and expenses...................................... 15,000.00
Miscellaneous fees and expenses.............................. 2,878.79
-----------------
Total................................................ $ 30,000.00
=================
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article VII of the Registrant's
Amended and Restated Certificate of Incorporation (Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)
provides for indemnification of the Registrant's directors, officers, employees
and other agents to the extent and under the circumstances permitted by the
Delaware General Corporation Law. The Registrant has also entered into
agreements with its directors and officers that will require the Registrant,
among other things, to indemnify them against certain liabilities that may arise
by reason of their status or service as directors or officers to the fullest
extent not prohibited by law.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
5.1 Opinion of Pillsbury Madison & Sutro LLP.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Pillsbury Madison & Sutro
LLP (included in its opinion filed
as Exhibit 5.1 to this Registration
Statement).
24.1 Power of Attorney (see page II-3).
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act, may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To file during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this Registration Statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") that are incorporated by reference
in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) That, for purposes of determining any liability under the Act,
each filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Exchange Act that is incorporated by reference in
this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3, and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Milpitas, State of California, on August 21,
1997.
PARADIGM TECHNOLOGY, INC.
By /s/ MICHAEL GULETT
----------------------------------------
Michael Gulett
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael Gulett and David G. Campbell, and each of
them, his true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments, including
post-effective amendments, to this Registration Statement and any registration
statement relating to the offering covered by this Registration Statement and
filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ MICHAEL GULETT President and Chief Executive
- ----------------------- Officer (Principal Executive August 21, 1997
Michael Gulett Officer) and Director
/s/ DAVID G. CAMPBELL Chief Financial Officer (Principal August 21, 1997
- ----------------------- Financial Officer)
David G. Campbell
/s/ GEORGE COLLINS Director August 21, 1997
- -----------------------
George Collins
/s/ JAMES KOCHMAN Director August 21, 1997
- -----------------------
James Kochman
II-3
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
5.1 Opinion of Pillsbury Madison & Sutro LLP.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Pillsbury Madison & Sutro LLP (included in its
opinion filed as Exhibit 5.1 to this Registration
Statement).
EXHIBIT 5.1
LAW OFFICES OF
PILLSBURY MADISON & SUTRO LLP
LOS ANGELES POST OFFICE BOX 7880 MENLO PARK
NEW YORK SAN FRANCISCO, CALIFORNIA 94120 ORANGE COUNTY
SACRAMENTO TELEPHONE (415) 983-1000 SAN DIEGO
SAN FRANCISCO TELECOPIER (415) 983-1200 SAN JOSE
WASHINGTON, D.C. HONG KONG
TOKYO
August 21, 1997
Paradigm Technology, Inc.
694 Tasman Drive
Milpitas, CA 95035
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We are acting as counsel for Paradigm Technology, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, of 4,000,000 shares of Common Stock, $.01
par value (the "Common Stock"), of the Company, to be offered and sold by
certain stockholders of the Company (the "Selling Stockholders"). In this regard
we have participated in the preparation of a Registration Statement on Form S-3
relating to such 4,000,000 shares of Common Stock. (Such Registration Statement,
as amended, is herein referred to as the "Registration Statement.")
We are of the opinion that the shares of Common Stock to be offered and
sold by the Selling Stockholders have been duly authorized and legally issued
and are fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
Very truly yours,
PILLSBURY MADISON & SUTRO LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
January 23, 1997, except as to the second paragraph of Note 14, which is as of
February 21, 1997, and except as to the fifth paragraph of Note 1 and the second
paragraph of Note 15, which are as of July 31, 1997, appearing on page 3 of
Paradigm Technology, Inc.'s Current Report on Form 8-K dated August 21, 1997 and
filed on August 22, 1997. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
San Jose, California
August 21, 1997
